PSPT Peoplesupport (MM)

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.      )

Filed by the Registrant þ

Filed by a Party other than the Registrant o

Check the appropriate box:

o		Preliminary Proxy Statement
o		Confidential, for Use of the Commission Only (as permitted by Rule 14a- 6(e)(2) )
þ		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material Pursuant to §240.14a-12

 

PeopleSupport, Inc.

(Name of Registrant as Specified in Its Charter)

 

N/A

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

	o		No fee required.
	þ		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

	(1)		Title of each class of securities to which transaction applies:
			Common stock, $0.001 par value per share, of PeopleSupport, Inc.
	(2)		Aggregate number of securities to which transaction applies:
			21,255,045 shares of common stock, which consists of: (i) 19,050,286 shares of common stock issued and outstanding as of August 3, 2008; (ii) 1,302,909 shares of common stock underlying outstanding options to purchase shares of common stock with strike prices below $12.25 as of August 3, 2008; and (iii) 901,850 shares of common stock underlying outstanding restricted stock units.
	(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
			In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying $0.0000393 by the underlying value of the transaction of $249,143,226, which has been calculated as the sum of: (a) the product of: (i) 19,050,286 issued and outstanding shares of common stock as of August 3, 2008 plus 901,850 shares of common stock underlying restricted stock units; and (ii) the Merger Consideration of $12.25 per share; plus (b) the product of: (i) 1,302,909 sha res of common stock underlying outstanding options to purchase shares of common stock with strike prices below $12.25 as of August 3, 2008; and (ii) the difference between $12.25 per share and the weighted-average exercise price of such options of $8.62 per share.
	(4)		Proposed maximum aggregate value of transaction:
			$249,143,226
	(5)		Total fee paid:
			$9,792

þ		Fee paid previously with preliminary materials.
o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.

	(1)		Amount previously paid:
	(2)		Form, Schedule or Registration Statement No.:
	(3)		Filing Party:
	(4)		Date Filed:

 

PeopleSupport, Inc.
2049 Century Park East, Suite 300
Los Angeles, CA 90067
(310) 824-6200

 

September 10, 2008

 

Dear Stockholder:

 

You are cordially invited to attend a Special Meeting of Stockholders of PeopleSupport, Inc. to be held at the Century Plaza located at 2025 Avenue of the Stars, Los Angeles, California 90067, on October 8, 2008, at 9:00 A.M., Pacific Time. At the Special Meeting, you will be asked to consider and vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of August 3, 2008 (the Merger Agreement), by and among PeopleSupport, Essar Services, Mauritius (ESM) and Easter Merger Sub, Inc., a wholly-owned subsidiary of ESM (Merger Sub) under which PeopleSupport will be acquired by ESM.

 

The Merger Agreement contemplates the merger of Merger Sub with and into PeopleSupport, with PeopleSupport continuing as the surviving corporation and becoming a wholly-owned subsidiary of ESM (the Merger). Upon completion of the Merger, each share of our common stock, other than shares held by a stockholder who perfects appraisal rights in accordance with Delaware law and shares held by PeopleSupport, ESM and their respective wholly-owned subsidiaries, will be converted into the right to receive $12.25 in cash, without interest and less any applicable withholding taxes.

 

On August 3, 2008, our Board of Directors unanimously (i) determined that the Merger and the Merger Agreement were fair to, advisable and in the best interests of, our stockholders and (ii) approved the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger. Our Board of Directors unanimously recommends that you vote “FOR” the adoption of the Merger Agreement and approval of the Merger .

 

The accompanying proxy statement provides you with detailed information about the Merger, the Merger Agreement and the Special Meeting. We encourage you to read the entire proxy statement and the Merger Agreement carefully and in their entirety.

 

YOUR VOTE IS VERY IMPORTANT. The Merger cannot be completed unless the Merger Agreement is adopted by the affirmative vote of the holders of a majority of the outstanding shares of our common stock entitled to vote at the Special Meeting. Whether or not you plan to attend the Special Meeting in person, please sign and return the enclosed proxy in the envelope provided. If you attend the Special Meeting and desire to vote in person, you may do so even though you have previously sent a proxy. The failure to vote will have the same effect as voting against the adoption of the Merger Agreement and approval of the Merger.

 

If your shares are held in “street name” by your broker, your broker will be unable to vote your shares without instructions from you. You should instruct your broker to vote your shares by following the procedures provided by your broker. Failure to instruct your broker to vote your shares will have the same effect as voting against the adoption of the Merger Agreement and approval of the Merger.

 

Our Board of Directors and management look forward to seeing you at the Special Meeting.

 

Sincerely,

 

Lance Rosenzweig

President, Chairman of the Board,

Chief Executive Officer and Secretary

 

Neither the Securities and Exchange Commission nor any state’s securities regulatory agency has approved or disapproved of the Merger, passed upon the merits or fairness of the Merger or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

 

This proxy statement is dated September 10, 2008, and is first mailed to stockholders on or about September 10, 2008.

 

PeopleSupport, Inc.

 

 

 

 

 

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on Wednesday, October 8, 2008

 

 

 

 

To our Stockholders:

 

Notice is hereby given that a Special Meeting of Stockholders of PeopleSupport, Inc., a Delaware corporation, will be held at the Century Plaza located at 2025 Avenue of the Stars, Los Angeles, California 90067, on October 8, 2008, at 9:00 A.M., Pacific Time.

 

We are holding this Special Meeting:

 

 

On August 3, 2008, our Board of Directors unanimously (i) determined that the Merger and the Merger Agreement were fair to, advisable and in the best interests of, our stockholders and (ii) approved the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger. Our Board of Directors unanimously recommends that you vote “FOR” the adoption of the Merger Agreement and approval of the Merger.

 

Our Board of Directors has fixed the close of business on August 22, 2008, as the record date for the purpose of determining stockholders entitled to receive notice of, and to vote at, the Special Meeting or any adjournment or postponement thereof.

 

The accompanying proxy statement, which is being mailed to stockholders on or about September 10, 2008, provides you with detailed information about the Merger, the Merger Agreement and the Special Meeting.

 

PeopleSupport stockholders who do not vote in favor of the Merger Agreement and the Merger will have the right to seek appraisal of the fair value of their shares if the Merger is completed, but only if they perfect their appraisal rights by complying with all of the required procedures under Delaware law. See “Appraisal Rights” beginning on page 42 of the accompanying proxy statement and Annex C to the proxy statement.

 

It is important that your shares are represented at the Special Meeting. Even if you plan to attend the Special Meeting, we request that you will promptly vote and submit your proxy by completing, dating, signing and returning the enclosed proxy card or as otherwise instructed in your proxy materials. This will not limit your rights to attend or vote at the Special Meeting. If your shares are held of record by a bank, broker or other agent and you wish to vote at the Special Meeting, you must obtain a proxy card issued in your name from the bank, broker or other agent. OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER.

 

By Order of the Board of Directors

 

Lance Rosenzweig

President, Chairman of the Board,

Chief Executive Officer and Secretary

 

Los Angeles, California

September 10, 2008

TABLE OF CONTENTS

 

 

This Summary Term Sheet highlights selected information from this proxy statement and may not contain all of the information that is important to you. Accordingly, we encourage you to read carefully this entire proxy statement, its annexes and the documents referred to in this proxy statement. In this proxy statement, the terms “we,” “us,” “our,” “PeopleSupport” and “our company” refer to PeopleSupport, Inc. We refer to Essar Services, Mauritius as “ESM” and Easter Merger Sub, Inc. as “Merger Sub.”

 

 

 

 

 

The full text of the written opinion of Credit Suisse, dated August 3, 2008, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex B to this proxy statement. Credit Suisse provided its opinion for the information of our Board of Directors in connection with its consideration of the Merger. Credit Suisse’s opinion does not constitute advice or a recommendation to any holder of our common stock as to how such holder should vote or act on any matter relating to the proposed Merger or otherwise. Pursuant to an engagement letter between us and Credit Suisse, we have agreed to pay Credit Suisse a customary fee for its services in connection with the Merger, a significant portion of which is contingent upon consummation of the Merger.

 

You are encouraged to read Credit Suisse’s opinion and the section “The Merger — Opinion of PeopleSupport’s Financial Advisor” beginning on page 22 carefully and in their entirety.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PeopleSupport may also terminate the Merger Agreement if:

 

 

ESM may also terminate the Merger Agreement if:

 

 

 

 

 

 

If, however, we receive from a third party an acquisition proposal that (1) constitutes a superior proposal or (2) our Board of Directors determines in good faith, after consultation with our legal counsel and financial advisors, that the acquisition proposal could reasonably be expected to result in a superior proposal, we are permitted to:

 

 

 

 

 

A: You are being asked to vote on (1) the adoption of the Merger Agreement entered into by and among PeopleSupport, ESM and Merger Sub pursuant to which Merger Sub will be merged with and into PeopleSupport, with PeopleSupport surviving as a wholly-owned subsidiary of ESM and approval of the Merger and (2) the adjournment or postponement of the Special Meeting to a later date, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to adopt the Merger Agreement. See “The Merger Agreement — Effective Time of the Merger” beginning on page 34.

 

 

A: Our Board of Directors unanimously recommends that our stockholders vote “FOR” the proposal to adopt the Merger Agreement and approve of the Merger. See “The Merger — Reasons for the Merger; Recommendation of Our Board of Directors” beginning on page 21. Our Board of Directors also recommends that you vote “FOR” the adoption of the proposal to adjourn or postpone the Special Meeting, if necessary or appropriate, to solicit additional proxies to facilitate the adoption of the Merger Agreement and approval of the Merger.

 

 

A: Upon completion of the Merger, you will receive $12.25 in cash, without interest and less any applicable tax withholding, for each share of our common stock that you own. For example, if you own 100 shares of our common stock, you will receive $1,225.00 in cash in exchange for your shares of common stock, without interest and less any applicable tax withholding. You will not own any shares in the surviving corporation. Stockholders who perfect their appraisal rights will not receive the Merger Consideration. See “The Merger Agreement” beginning on page 32.

 

 

A: The Special Meeting of Stockholders will be held at the Century Plaza located at 2025 Avenue of the Stars, Los Angeles, California 90067, on October 8, 2008, at 9:00 A.M., Pacific Time. See “The Special Meeting” beginning on page 12.

 

 

A: All stockholders as of the close of business on August 22, 2008, the record date for the Special Meeting, may attend the Special Meeting. No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the Special Meeting.

 

 

A: All stockholders of record at the close of business on August 22, 2008, the record date for the Special Meeting, will be entitled to vote at the Special Meeting. If on that date, your shares were registered directly in your name with our transfer agent, ComputerShare, then you are a stockholder of record. As a stockholder of record, you may vote in person at the meeting or vote by proxy. If on that date, your shares were held in an account at a brokerage firm, bank, dealer or similar organization, then you are the beneficial owner of shares held in “street name” and these proxy materials are being forwarded to you by that organization. The organization holding your account is considered the stockholder of record for purposes of voting at the Special Meeting. As a beneficial owner, you have the right to direct your broker or other agent on how to vote the shares in your account. You are also invited to attend the Special Meeting. However, since you are not the stockholder of record, you may not vote your shares in person at the Special Meeting unless you request and obtain a valid proxy from your broker or other agent. See “The Special Meeting” beginning on page 12.

 

A: Votes will be counted by the inspector of election appointed for the Special Meeting, who will separately count “FOR” and “AGAINST” votes, abstentions and broker non-votes. A “broker non-vote” occurs when a nominee holding shares for a beneficial owner does not receive instructions with respect to the Merger proposal from the beneficial owner. Because under Delaware law, the adoption of the Merger Agreement and approval of the Merger requires the affirmative vote of holders of a majority of our outstanding shares of common stock, the failure to vote, broker non-votes and abstentions will have the same effect as a vote “AGAINST” the adoption of the Merger Agreement and approval of the Merger. Broker non-votes and abstentions are counted, however, as present for the purpose of determining whether a quorum is present. Because the proposal to adjourn or postpone the Special Meeting, if necessary or appropriate, to solicit additional proxies, requires the affirmative vote of a majority of the shares of our common stock represented in person or by proxy at the Special Meeting, abstentions will count as “AGAINST” the proposal but the failure to vote your shares will have no effect on the outcome of the proposal unless the shares are counted as present at the Special Meeting.

 

 

A: Under Delaware law, the adoption of the Merger Agreement requires the affirmative vote of holders of a majority of our outstanding shares of common stock as of the close of business on August 22, 2008, the record date for the Special Meeting. As of the close of business on the record date, there were 19,065,995 shares of our common stock outstanding. This means that under Delaware law, 9,532,998 shares or more must vote “FOR” the adoption of the Merger Agreement and approval of the Merger. See “The Special Meeting” beginning on page 12.

 

 

A: You have one vote for each share of our common stock you own as of August 22, 2008, the record date for the Special Meeting.

 

 

A: Your broker will vote your shares only if you provide instructions to your broker on how to vote. You should instruct your broker to vote your shares by following the directions provided to you by your broker. See “The Special Meeting” beginning on page 12.

 

 

A: Without instructions, your broker will not vote any of your shares held in “street name.” Broker non-votes will be counted for the purpose of determining the presence or absence of a quorum, but will not be deemed votes cast and will have exactly the same effect as a vote “AGAINST” the adoption of the Merger Agreement and approval of the Merger.

 

 

A: No. Because any shares you may hold in “street name” will be deemed to be held by a different stockholder than any shares you hold of record, any shares so held will not be combined for voting purposes with shares you hold of record. Similarly, if you own shares in various registered forms, such as jointly with your spouse, as trustee of a trust or as custodian for a minor, you will receive, and will need to sign and return, a separate proxy card for those shares because they are held in a different form of record ownership. Shares held by a corporation or business entity must be voted by an authorized officer of the entity. Shares held in an IRA must be voted under the rules governing the account.

 

 

A: Because the vote required for the proposal to adopt the Merger Agreement is based on the total number of shares of our common stock outstanding on the record date, and not just the shares that are voted, if you do not vote,

it will have the same effect as a vote “AGAINST” the adoption of the Merger Agreement and approval of the Merger. If the Merger is completed, whether or not you vote for the adoption of the Merger Agreement and approval of the Merger, you will be paid the Merger Consideration for your shares of our common stock upon completion of the Merger, unless you properly exercise your appraisal rights. See “The Special Meeting” beginning on page 12 and “Appraisal Rights” beginning on page 43 and Annex C — Section 262 of the Delaware General Corporation Law.

 

 

A: After the Special Meeting, if you are a stockholder of record, you will receive a letter of transmittal and other documents to complete and return to a paying agent designated by ESM. In order to receive the Merger Consideration as soon as reasonably practicable following the completion of the Merger, you must send the paying agent your validly completed letter of transmittal together with your stock certificates as instructed in the separate mailing. You should NOT send your stock certificates now.

 

 

A: Once the Merger is completed, you will be sent in a separate mailing a letter of transmittal and other documents to be delivered to the paying agent in order to receive the Merger Consideration. Once you have submitted your properly completed letter of transmittal, stock certificates and other required documents to the paying agent, the paying agent will send you the Merger Consideration.

 

 

A: The materials the paying agent will send you after completion of the Merger will include the procedures that you must follow if you cannot locate your stock certificate. This will include an affidavit that you will need to sign attesting to the loss of your certificate. ESM may also require that you provide a bond in order to cover any potential loss.

 

 

A: After carefully reading and considering the information contained in this proxy statement, including the Annexes and the other documents referred to in this proxy statement, you should indicate your vote on your proxy card and sign and mail your proxy card in the enclosed return envelope as soon as possible as instructed in these materials or by your bank, broker or other agent so that your shares may be represented at the Special Meeting. See “The Special Meeting” beginning on page 12.

 

 

A: You may vote:

 

 

 

A: Yes. You may change your vote at any time before we vote your proxy at the Special Meeting. You may do so in one of three ways: first, you can send a written notice of revocation prior to the Special Meeting to our Assistant Secretary at PeopleSupport, Inc., 2049 Century Park East, Suite 300, Los Angeles, California 90067; second, you can submit another properly executed proxy at a later date; and third, you can attend the Special Meeting and vote in person. Your attendance at the Special Meeting alone will not revoke your proxy. You should send any written notice or request for a new proxy card to our Assistant Secretary at the same address. Voting by mailing in your proxy card will not prevent you from voting in person at the Special Meeting. You are encouraged to

submit a proxy by mail even if you plan to attend the Special Meeting in person. If your shares are held in the name of a bank, broker or other agent, you must follow instructions received from such bank, broker or other agent with this proxy statement in order to revoke your vote or to vote at the Special Meeting. See “The Special Meeting” beginning on page 12.

 

 

A: The record date for stockholders entitled to vote at the Special Meeting is earlier than the date of the Special Meeting. If you transfer your shares of our common stock after the record date but before the Special Meeting, you will, unless special arrangements are made, retain your right to vote at the Special Meeting but will transfer the right to receive the Merger Consideration to the person to whom you transfer your shares.

 

 

A: Like all other holders of shares of our common stock, members of our management and Board of Directors will be entitled to receive $12.25 per share in cash, without interest and less any applicable withholding taxes, for each of their shares of our common stock or restricted stock units. All options (whether or not vested) to acquire our common stock held by members of our management and Board of Directors (like all other holders) will be cancelled and converted into the Merger Consideration. Members of our management and Board of Directors may also have interests in the Merger that are different from or in addition to the interests of our stockholders in general. See “The Merger — Interests of Executive Officers and Directors in the Merger” beginning on page 27.

 

 

A: If you receive more than one proxy, it means that you hold shares of our common stock that are registered in more than one account. For example, if you own your shares in various registered forms, such as jointly with your spouse, as trustee of a trust or as custodian for a minor, you will receive, and you will need to sign and return, a separate proxy card for those shares because they are held in a different form of record ownership. Therefore, to ensure that all of your shares are voted, you will need to complete, date, sign and return each proxy card you receive or as otherwise instructed by your broker, bank or other agent.

 

 

A: Stockholders are entitled to appraisal rights under Section 262 of the General Corporation Law of the State of Delaware (DGCL) provided they satisfy the special criteria and conditions set forth in Section 262 of the DGCL. See “Appraisal Rights” beginning on page 43 and Annex C — Section 262 of the Delaware General Corporation Law.

 

 

A: If you would like additional copies of this proxy statement or a new proxy card or if you have questions about the Merger, you should contact Peter Hargittay, our Director of Marketing & Investor Relations at PeopleSupport, Inc., 2049 Century Park East, Suite 300, Los Angeles, California 90067. You may also call our proxy solicitor, Innisfree M&A Incorporated, toll-free at (888) 750-5834 (banks and brokers may call collect at (212) 750-5834).

 

Certain statements in this proxy statement, and the documents to which we refer you in this proxy statement, that are not historical fact constitute “forward-looking statements.” Forward-looking statements typically are identified by the use of terms such as “may,” “should,” “might,” “believe,” “expect,” “anticipate,” “estimate” and similar words, although some may be expressed differently. Any statements in this proxy statement or those documents regarding our results of operations, expectations, plans and prospects, our ability to complete the Merger, the anticipated benefits of the Merger and statements regarding our legal proceedings, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those discussed in these statements.

 

These risks and uncertainties include, but are not limited to, failure to obtain stockholder adoption of the Merger Agreement or approval of the Merger, failure to obtain regulatory approvals, unexpected costs related to the Merger, uncertainty surrounding the Merger, termination of the Merger Agreement, failure to complete the Merger, diversion of management’s attention, retaining key employees, risks associated with international operations, trends in the BPO industry, our dependence on a limited number of clients, foreign currency exchange risk, risks associated with operations in the Philippines and Costa Rica, competitive conditions in the markets we serve, our ability to manage growth, our ability to hire and retain employees, unexpected regulatory actions or delays or government regulation generally, adverse trends in industry growth, failure of new service offerings, failure to achieve increased operational efficiencies and productivity, and other risk detailed in our SEC filings, including our Form 10-Q for the quarter ended June 30, 2008. Copies of reports PeopleSupport filed with the SEC are posted on our website and are available from PeopleSupport without charge. See “Where You Can Find More Information” beginning on page 49.

 

These forward-looking statements speak only as of the date hereof. PeopleSupport disclaims any intent or obligation to update these forward-looking statements.

 

PeopleSupport, headquartered in Los Angeles, California, is a leading offshore business process outsourcing (BPO) provider offering customer management, transcription and captioning and additional BPO services from our centers in the Philippines, Costa Rica and United States. The information contained or incorporated in our website is not a part of this proxy statement. We maintain our principal executive offices at 2049 Century Park East, Suite 300, Los Angeles, California 90067. Our telephone number is (310) 824-6200.

 

ESM, headquartered in Mauritius, is a wholly-owned subsidiary of Aegis BPO (Aegis). Aegis is one of India’s fastest growing BPO companies with annual revenues of over $320 million. Each of ESM and Aegis is a part of the ESSAR Group, which is one of India’s largest conglomerates in terms of enterprise value. ESM is a holding company that holds all of the investments made by Aegis Communications Group USA, Inc. The principal executive offices of Essar are located at 10 Frére Felix de Valois Street, Port Louis, Mauritius and its telephone number is (203) 202-3000.

 

Merger Sub was formed by ESM solely for the purpose of completing the Merger. Merger Sub is wholly-owned by ESM and has not engaged in any business except in anticipation of the Merger. The principal executive offices of Merger Sub are located at 145 East 48 ^th  Street, New York, NY 10017 and its telephone number is (212) 758-5520.

 

This proxy statement is being furnished to you in connection with the solicitation by our Board of Directors of proxies to be used at the Special Meeting to be held at the Century Plaza located at 2025 Avenue of the Stars, Los Angeles, California 90067, on October 8, 2008, at 9:00 A.M., Pacific Time and any adjournments or postponements thereof. This proxy statement and the accompanying form of proxy card are being mailed to stockholders on or about September 10, 2008.

 

The purpose of the Special Meeting is for our stockholders to consider and vote upon a proposal to adopt the Merger Agreement and approve the Merger. Our stockholders must adopt the Merger Agreement in order for the Merger to occur. A copy of the Merger Agreement is attached to this proxy statement as Annex A. In the event that there are not sufficient votes at the time of the Special Meeting to approve the proposal to adopt the Merger Agreement and approve the Merger, stockholders may also be asked to vote upon a proposal to postpone or adjourn the Special Meeting, if necessary, to solicit additional proxies.

 

On August 3, 2008, our Board of Directors unanimously (i) determined that the Merger and the Merger Agreement were fair to, advisable and in the best interests of our stockholders and (ii) approved the Merger Agreement and the transactions contemplated thereby, including the Merger. Our Board of Directors unanimously recommends that you vote “FOR” the adoption of the Merger Agreement and approval of the Merger, and “FOR” the approval of any proposal to postpone or adjourn the Special Meeting, if necessary, for, among other reasons, the solicitation of additional proxies in the event that there are not sufficient votes at the time of the Special Meeting to approve the proposal to adopt the Merger Agreement and approve the Merger.

 

Our Board of Directors knows of no other matter that will be presented for consideration at the Special Meeting. If any other matter properly comes before the Special Meeting, or any postponement or adjournment of the Special Meeting, the persons named in the enclosed form of proxy or their substitutes will vote in accordance with their best judgment on such matters.

 

Our Board of Directors asks you to appoint Lance Rosenzweig and Caroline Rook as your proxy holders to vote your shares at the Special Meeting. You make this appointment by completing the enclosed proxy card using one of the voting methods described below.

 

If appointed by you, the proxy holders will vote your shares as you direct on the matters described in this proxy statement. In the absence of your direction, they will vote your shares as recommended by our Board of Directors.

 

Unless you otherwise indicate on the proxy card, you also authorize your proxy holders to vote your shares on any matters not known by our Board of Directors at the time this proxy statement was printed and which, under our bylaws, may be properly presented for action at the Special Meeting.

 

Only stockholders who owned shares of record of our common stock as of the close of business on August 22, 2008, the record date for the Special Meeting, can vote at the Special Meeting. As of the close of business on August 22, 2008, we had 19,065,995 shares of our common stock outstanding. Each holder of common stock is entitled to one vote for each share held as of August 22, 2008.

 

You may vote your shares at the Special Meeting either by mail or in person as described below. Stockholders holding shares through a bank, broker or other agent should follow the voting instructions on the form of proxy card received.

 

Voting by Mail.   You may vote by proxy by completing, dating, signing and returning your proxy card in the enclosed postage-paid envelope. If you sign your proxy card without indicating your vote, your shares will be voted

“FOR” the adoption of the Merger Agreement and approval of the Merger. Giving a proxy will not affect your right to vote your shares if you attend the Special Meeting and want to vote in person.

 

Voting in Person.   You may vote by attending and voting at the Special Meeting. However, even if you plan to attend the Special Meeting in person, our Board of Directors recommends that you vote by mail. Voting your proxy card by mail will not limit your right to vote at the Special Meeting, if you decide to attend in person. If you hold shares through a bank, broker or other agent, you must obtain a proxy, executed in your favor, from the bank, broker or other agent to be able to vote at the Special Meeting.

 

If you vote your shares of our common stock by submitting a proxy, your shares will be voted at the Special Meeting as you indicated on your proxy card. If no instructions are indicated on your signed proxy card, all of your shares of our common stock will be voted “FOR” the adoption of the Merger Agreement and approval of the Merger and “FOR” the approval of any proposal to postpone or adjourn the Special Meeting, if necessary or appropriate, for, among other reasons, the solicitation of additional proxies in the event that there are not sufficient votes at the time of the Special Meeting to approve the proposal to adopt the Merger Agreement.

 

Street Name Stockholder.   If you hold your shares in street name, you should have received a proxy card and voting instructions with these proxy materials from your bank, broker or other agent rather than from PeopleSupport. Simply complete and return the proxy card to your bank, broker or other agent to ensure that your vote is counted. Alternatively, if offered by your bank, broker or other agent, you may vote by telephone or over the Internet as instructed by your bank, broker or other agent. To vote in person at the Special Meeting, you must obtain a valid proxy from your bank, broker or other agent. Follow the instructions from your bank, broker or other agent included with these proxy materials, or contact your bank, broker or other agent to request a proxy form.

 

You can revoke your proxy at any time before it is voted at the Special Meeting by:

 

 

If your shares are held in street name through a bank, broker or other agent, you must follow instructions received from such bank, broker or other agent which were provided with this proxy statement in order to change, revoke your vote or to vote at the Special Meeting.

 

The holders of a majority of the outstanding shares of our common stock on the record date, represented in person or by proxy, will constitute a quorum for purposes of the Special Meeting. A quorum is necessary to hold the Special Meeting. In the event that a quorum is not present at the Special Meeting, it is expected that the meeting will be adjourned or postponed to solicit additional proxies. Any shares of our common stock held in treasury by PeopleSupport or held by any of our subsidiaries are not considered to be outstanding for purposes of determining a quorum. Abstentions and broker non-votes will be counted as shares present and entitled to vote for the purposes of determining a quorum. “Broker non-votes” result when brokers are precluded from exercising their voting discretion with respect to the approval of non-routine matters such as the adoption of the Merger Agreement and approval of the Merger, and, thus, absent specific instructions from the beneficial owner of those shares, brokers are not empowered to vote the shares with respect to the approval of those matters.

 

The adoption of the Merger Agreement and approval of the Merger requires the affirmative vote of holders representing at least a majority of the outstanding shares of our common stock on August 22, 2008, the record date for the Special Meeting. Shares that are present but not voted, either by abstention or non-vote (including broker non-vote), will be counted for purposes of establishing a quorum. BECAUSE APPROVAL OF THE MERGER REQUIRES THE APPROVAL OF HOLDERS REPRESENTING A MAJORITY OF THE OUTSTANDING SHARES OF OUR COMMON STOCK, FAILURE TO VOTE YOUR SHARES (INCLUDING IF YOU HOLD YOUR SHARES THROUGH A BANK, BROKER OR OTHER AGENT) WILL HAVE THE SAME

EFFECT AS A VOTE “AGAINST” THE ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER.

 

The approval of any proposal to postpone or adjourn the Special Meeting, if necessary, to solicit additional proxies, if there are not sufficient votes to adopt the Merger Agreement requires the affirmative vote of a majority of those shares represented in person or by proxy at the Special Meeting. Abstentions or broker non-votes will have no impact on the vote to postpone or adjourn the Special Meeting. The persons named as proxies may propose and vote for one or more postponements or adjournments of the Special Meeting, including postponements or adjournments to permit further solicitations of proxies. No proxy voted against adoption of the Merger Agreement and approval of the Merger will be voted in favor of any postponement or adjournment of the Special Meeting.

 

Under Delaware law, holders of shares of our common stock are entitled to appraisal rights in connection with the Merger. In order to exercise appraisal rights, you must comply with all applicable requirements of Delaware law. See “Appraisal Rights” beginning on page 43 and Annex C for information on the requirements of Delaware law regarding appraisal rights.

 

As of August 22, 2008, the record date for the Special Meeting, our directors and executive officers and their respective affiliates owned, in the aggregate, 1,012,827 shares of our common stock, or collectively approximately 5.31% of the outstanding shares of our common stock.

 

Certain members of our management and Board of Directors have interests that are different from or in addition to those of stockholders generally. Please read “The Merger — Interests of Executive Officers and Directors in the Merger” beginning on page 27.

 

We will pay the costs of soliciting proxies for the Special Meeting. Our officers, directors and employees may solicit proxies by telephone, mail or the Internet or in person. However, they will not be paid for soliciting proxies. We have engaged Innisfree M&A Incorporated to assist us in soliciting your proxy and the proxies of other stockholders for a fee of $7,000, plus reasonable out-of-pocket expenses. We may also reimburse brokerage firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners.

 

Although it is not expected, the Special Meeting may be postponed or adjourned for, among other reasons, the purpose of soliciting additional proxies, to any other time and place. You should note that the meeting could be successively postponed or adjourned to any date. If the Special Meeting is postponed or adjourned for the purpose of soliciting additional proxies, stockholders who have already sent in their proxies will be able to revoke them at any time prior to their use. The persons named as proxies may propose and vote for one or more postponements or adjournments of the Special Meeting, including postponements or adjournments to permit further solicitations of proxies. No proxy voted against the proposal to adopt the Merger Agreement will be voted in favor of any postponements or adjournment of the Special Meeting.

 

If you have questions about the Merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please call Peter Hargittay, our Director of Marketing & Investor Relations at (310) 824-6200.

 

In addition, our list of stockholders entitled to vote at the Special Meeting will be available for inspection at our principal executive offices at least ten (10) days prior to the date of the Special Meeting and continuing through the Special Meeting for any purpose relevant to the Special Meeting. The list will also be available at the Special Meeting for inspection by any stockholder present at the Special Meeting.

 

The discussion under the sections of this proxy statement entitled “The Merger” and “The Merger Agreement” summarizes the material terms of the Merger. Although we believe that the description covers the material terms of the Merger, this summary may not contain all of the information that is important to you. We urge you to read this proxy statement, the Merger Agreement and the other documents referred to herein carefully for a complete understanding of the Merger.

 

Our Board of Directors and management periodically review and assess the various business trends and competitive factors of our business, including our resources, cost structure, services portfolio and overall market conditions. Additionally, we periodically discuss with our Board of Directors a variety of alternatives, including, among other things, strategies to grow our business organically, redeploy cash on our balance sheet, acquire and develop real estate for our operations in the Philippines, pursue potential strategic acquisitions and dispositions, as well as a possible sale of our company.

 

On August 28, 2007, in response to a market accumulation of approximately 25% of our common stock by The Galleon Group, an affiliated group of companies constituting a hedge fund (Galleon), we adopted the Rights Plan.

 

On November 30, 2007, we received an unsolicited proposal by letter from IPVG Corp. (IPVG) and AO Capital (AO) to acquire all of our outstanding common stock at a price of $15.00 per share. IPVG issued a press release, which included the text of its letter, and we issued our own press release confirming receipt of the proposal and indicating that our Board of Directors would carefully consider and evaluate the proposal. Our Board of Directors met several times in connection with these events and we formally engaged Credit Suisse to assist us in our discussions with Galleon, IPVG and AO and to provide financial advice in connection with our evaluation of strategic alternatives. Additionally, we sought legal advice as well as engaged a public relations firm to assist us with development and implementation of an investor relations program related to our response to the unsolicited offer.

 

On December 5, 2007, Galleon sent a letter to Mr. Lance Rosenzweig, our Chief Executive Officer, stating that it supported any transaction that would maximize shareholder value, including the bid by IPVG and AO. Galleon also insisted that we conduct an auction to elicit competing proposals for our company, indicating that representatives of Galleon had been approached by a number of strategic third parties interested in a potential acquisition of PeopleSupport. According to Galleon, some of these third parties, including IPVG and AO, had indicated an interest in structuring a transaction that would involve Galleon’s participation.

 

On December 12, 2007, we issued a press release advising that our Board of Directors had unanimously determined that the IPVG’s and AO’s unsolicited $15.00 per share cash proposal to acquire us failed to take into account our strategic value and success in implementing our growth strategy and our future prospects at that time. Our Board of Directors also questioned the ability of IPVG and AO to finance the acquisition. Our December 12, 2007 press release also included preliminary guidance for the 2008 fiscal year, including forecasted revenues between $180.0 million and $190.0 million, operating income of $8.1 million to $11.6 million, with an earnings per share of $0.65 to $0.81.

 

On December 17, 2007, Mr. Rosenzweig and Rainerio Borja, our President of PeopleSupport (Philippines), Inc., met with the Chairman of each of IPVG and AO. During this meeting IPVG and AO confirmed a continued interest in acquiring us and indicated a willingness to discuss a company-supported transaction. However, neither IPVG nor AO was willing to provide us with information regarding their sources of financing for their proposed acquisition.

 

On January 11, 2008, IPVG and AO delivered another letter containing a revised proposal to acquire us for $17.00 per share and also issued a press release that included the terms of the letter. In a press release dated January 11, 2008, we confirmed receipt of the revised proposal. Representatives of our company and Credit Suisse engaged in a telephonic dialogue with representatives of IPVG and AO over a number of days in an effort to determine whether IPVG and AO had credible sources of financing to enable them to complete the transaction they proposed. Despite the efforts to obtain information from IPVG and AO regarding their financing capabilities and

our offer to enter into a non-disclosure agreement (NDA), IPVG and AO declined to provide any information responsive to our request.

 

On January 25, 2008, we sent a letter to IPVG and AO, in which we reiterated our request for information on how IPVG and AO proposed to provide the funds necessary to complete their proposed acquisition of our company and again renewed our offer of a binding NDA to protect all parties’ confidential information, including a form of NDA containing a standstill provision and other customary terms, and setting a deadline of January 29, 2008 for receipt of the requested information from IPVG and AO. During this time we also continued our discussions with Galleon regarding threats it made to conduct a proxy contest at our 2008 annual meeting. In response to public criticism from Galleon and its threat of a proxy contest, we entered into negotiations with representatives of Galleon.

 

In a letter dated January 28, 2008, IPVG and AO responded that they were preparing their own proposed form of NDA that would include a two-way information exchange, period for due diligence, payment of a “stalking horse fee” if we pursued another transaction, and removal of our Shareholder Rights Plan.

 

On January 29, 2008, we sent another letter to IPVG and AO in which we rejected the IPVG and AO proposed NDA because many of its terms, including the “stalking horse fee” and the requirement that we remove our Shareholder Rights Plan, were non-customary. In this letter, we also renewed our request for pertinent financing information and extended the deadline to respond until the close of business on January 30, 2008.

 

On January 29, 2008, we announced that we were rescheduling the date of our annual meeting from May 30, 2008 until June 30, 2008 and, in light of the extended date for the 2008 annual meeting, PeopleSupport also announced that we had amended our by-laws to extend the last date by which stockholder nominations for election to our Board of Directors must be received in order to be timely to March 2, 2008 from January 30, 2008.

 

On January 31, 2008, when IPVG and AO failed to respond to our request for information, we issued a press release stating that our Board of Directors was unable to evaluate the revised unsolicited proposal made by IPVG and AO to acquire us in an all-cash transaction at $17.00 per share because IPVG and AO were either unwilling or unable to provide any evidence that would have enabled us to assess the viability of the proposal or the entities’ ability to fund the purchase price for the transaction they proposed. As a result, our Board of Directors rejected their unsolicited proposal. Since issuing this press release, we have not had any contact with either IPVG or AO.

 

On March 6, 2008, we issued our earnings release for the fourth quarter and year end 2007. In this press release, we revised our guidance for fiscal 2008 with projected revenue of $162.0 to $170.0 million, operating income of $4.7 million to $7.2 million and earnings per share of $0.47 to $0.58 and stated that we expected revenues in the near-term to be lower than previously expected due in large part to a slowdown among our clients and an uncertain macroeconomic environment. We also announced that our Board of Directors had approved a share repurchase program of up to $25.0 million of our common stock.

 

On March 8, 2008, our discussions with Galleon culminated in an agreement between us and Galleon that included a standstill agreement from Galleon in exchange for our commitment to elect a nominee designated by Galleon to our Board of Directors. On March 5, 2008, Mr. Krish Panu was elected to our Board of Directors as Galleon’s designee.

 

On May 7, 2008, we issued our earnings release for the first quarter of 2008. We also further revised our guidance for fiscal year 2008, with projected revenue of $153.0 million to $157.0 million, as a result of further volume decreases from our clients and increased impact from a slowing economy, and projected earnings per share of $(0.74) to $(0.65), primarily due to our deferred tax asset reversal, foreign exchange expenses and our anticipated reduction in revenue.

 

On May 9 — 14, 2008, Mr. Rosenzweig and Mr. Borja traveled to India to meet with a number of BPO and information technology outsourcing (ITO) companies. Mr. Rosenzweig and Mr. Borja sought to build relationships with these companies, and to discuss possible strategic alliances or partnerships with firms providing similar services in different geographies. Mr. Rosenzweig and Mr. Borja also sought to evaluate potential opportunities to expand into back-office BPO services for our clients. One of the companies with which Mr. Rosenzweig met during this trip was ESM.

On May 14, 2008, we received an unsolicited verbal indication of interest in acquiring our company for $11.50 to $11.75 per share from ESM. Our Board of Directors considered the indication of interest and instructed management to have discussions with ESM with a focus on exploring the strategic merits of a combination with ESM or Aegis and to understand the rationale behind their valuation of our company.

 

On May 20, 2008, we provided our form of NDA to ESM and on May 22, 2008 ESM sent Mr. Rosenzweig its comments to the NDA. On May 23, 2008, representatives of our outside legal counsel, Pillsbury Winthrop Shaw Pittman LLP (Pillsbury), discussed the terms of the NDA with representatives from the legal department of ESM. The NDA was signed with an effective date of May 20, 2008. Following execution of the NDA, we began discussions with representatives of ESM regarding the scope and nature of their diligence review of our company and began making due diligence information available to ESM.

 

On May 26, 2008, a representative of ESM visited our operations in Costa Rica.

 

On May 27 and 28, 2008, as part of our normal course senior management meetings, we held an offsite meeting with our management team to discuss, among other topics, our organic and inorganic growth strategy in the Healthcare industry, which would need to include broader service offerings and a larger geographic footprint, if our company was to remain an independent company. On May 28, 2008, we reviewed the outcome of this strategy session with several members of our Board of Directors.

 

On June 3 and 4, 2008, Mr. Rosenzweig met in New York City with two additional Indian BPO companies that were not available to meet during Mr. Rosenzweig’s prior trip to India.

 

On June 4, 2008, representatives of ESM visited our operations in the Philippines and meet with Mr. Borja and Mr. Richard Bledsoe, our Chief Operating Officer.

 

On June 11, 2008, Mr. Rosenzweig, Ms. Caroline Rook, our Chief Financial Officer, and Kirk Wickstrom, our Senior Director of Financial Analysis, met with representatives of ESM in Los Angeles, California to discuss ESM’s views regarding an acquisition of our company. During this meeting ESM indicated it could offer between $11.75 and $12.00 per share for our company.

 

On June 12, 2008, Mr. Rosenzweig and Ms. Rook reported to our Board of Directors on their meeting with ESM, including a potential bid in the range of $11.75 to $12.00. After much discussion, our Board of Directors determined that this amount did not take into account the future prospects of our company. We informed ESM of our Board of Directors’ decision and that no additional due diligence would be provided to ESM. Later than evening, members of ESM’s management team held internal discussions. Following that meeting, a representative of ESM contacted Mr. Rosenzweig and stated that ESM believed it could possibly increase its bid.

 

On June 13, 2008, Mr. Rosenzweig received a telephone call from a representative of ESM suggesting a meeting that evening in Los Angeles, California. At that meeting, the representative again informed Mr. Rosenzweig that ESM believed it could increase its bid for our company and that it intended to provide us with a confidential letter to that effect.

 

On June 13, 2008, we received a letter from ESM that indicated ESM’s interest in pursuing the acquisition of our company. The letter quoted an indicative price range and requested a 60-day exclusivity period in order for ESM to conduct further due diligence and negotiate a definitive agreement.

 

On June 16, 2008, our Board of Directors considered the ESM offer and discussed a range of other strategic alternatives, including pursuing certain acquisitions. One of these potential acquisitions would have provided us entry into a new market and broadened our geographic presence. During our due diligence process we discovered that the target had a high level of client concentration. As a result this potential acquisition was no longer an attractive opportunity. Additionally, our Board of Directors concluded that it would be appropriate for Credit Suisse, on our behalf, to contact a list of parties who might have an interest in acquiring us.

 

Thereafter, at the direction of our Board of Directors, Credit Suisse contacted 18 additional parties, including potential strategic and financial acquirers and companies that, in Credit Suisse’s view, would most likely be interested in acquiring our company. As part of Credit Suisse’s initial inquiry, we offered to enter into NDAs, containing standstill and other customary terms, similar to the NDA signed by Aegis and also offered to provide

business and financial due diligence information. We received interest from four of the 18 parties contacted. One of the four parties (Company B) continued to negotiate the NDA and did not execute an NDA until July 31, 2008. The three remaining parties executed NDAs and completed a review of the public information available as well as certain non-public information. Of those three parties, two declined to submit an offer, and Company C submitted a non-binding preliminary indication of interest of $13.00 per share on June 25, 2008.

 

On June 17, 2008, Mr. Rosenzweig and representatives of Credit Suisse spoke by telephone with a representative of ESM and it was agreed that ESM and Aegis could commence a more detailed due diligence investigation of our company. Mr. Rosenzweig received a proposed schedule for meetings related to the due diligence investigation identifying representatives of ESM and a due diligence request list.

 

On June 20, 2008 and June 23 through June 27, 2008, we held due diligence meetings with ESM in Los Angeles, California and at our operations center in the Philippines during the week of June 23, 2008. On June 20, 2008, we provided to ESM a form of merger agreement.

 

On June 26, 2008, representatives of Credit Suisse spoke by telephone with representatives of Company C to understand the details of their initial indication of interest and to coordinate and facilitate their continuing due diligence requirements.

 

On June 27, 2008, Mr. Rosenzweig spoke with a representative of ESM by telephone. The ESM representative indicated that ESM’s due diligence investigation was progressing. He extended an invitation to Mr. Rosenzweig to travel to Mumbai, India to meet with representatives of ESM.

 

On June 27, 2008, Company C was granted extensive access to additional non-public confidential information to enable it to continue its due diligence. At that time we understood that Company C had engaged a financial advisor to assist them in their due diligence process.

 

On June 30, 2008, we held a meeting of our Board of Directors where Credit Suisse provided an update on the feedback received from the potential bidders that were contacted following the June 16 meeting, including that only one party, Company C, had provided a preliminary indication of interest. At this meeting, our Board of Directors determined that management should continue discussions with ESM, although further price discussions should not be held until ESM completed its business due diligence and contract terms had been discussed. Our Board of Directors also encouraged management to continue to provide due diligence information to Company C, including access to the draft form of merger agreement that had been provided to ESM. Credit Suisse was instructed to continue to interact with the remaining potentially interested parties to determine whether preliminary indications could be obtained that would merit further consideration. Our Board of Directors determined that, while remaining an independent company had potential benefits, there were significant risks in remaining independent, including risks in executing our long-term strategy and in maintaining our customer base and competitive position. In light of these risks, our Board of Directors discussed the sale of our company to determine whether a transaction eliminating these risks would be in the best interests of our stockholders. Our Board of Directors determined further that, if the process did not yield a proposed transaction that was in the best interest of our stockholders, we would terminate the process and continue executing our strategy as an independent company.

 

On July 3, 2008, ESM submitted a bid, based on its preliminary due diligence, of $12.00 per share. Also, on July 3, 2008, outside legal counsel for ESM, Shearman & Sterling LLP (Shearman), delivered a revised draft of the Merger Agreement.

 

On July 7, 2008, based on the advice of our legal counsel and our outside executive compensation advisor, the Compensation Committee of our Board of Directors approved the adoption of severance agreements with our Chief Executive Officer, the executive team members and certain key employees, conditional upon the consummation of the Merger and subject to the formal recommendation of the arrangements by the Compensation Committee to our full Board of Directors and our Board of Directors’ approval and the negotiation and execution of definitive severance agreements.

 

On July 7, 2008, our Board of Directors met to discuss the status of negotiations with ESM, the Compensation Committee’s recommendation to approve severance agreements with our Chief Executive Officer, executive team members and certain employees, and the progress of the due diligence review that Company C was undertaking.

Our Board of Directors determined that it would continue negotiations with ESM as ESM was progressing in its diligence process and had been engaging with us on the terms of a definitive merger agreement and our Board of Directors did not take any action with respect to the severance agreements. Our Board of Directors also determined that it would be in the best interests of our stockholders to further assist Company C in its diligence process as well as continue to explore potential acquisition opportunities.

 

On July 9, 2008, our Board of Directors met to discuss the status of negotiations with ESM and received an update on the progress of Company C’s due diligence review. Our Board of Directors determined that it could not, at that time, fully evaluate ESM’s offer of $12.00 per share because the offer was still subject to due diligence and contract negotiation. Our Board of Directors also directed management and our advisors to continue to work with Company C on its ongoing due diligence review.

 

On July 11, 2008, Pillsbury delivered comments to the Merger Agreement to Shearman.

 

On July 14, 2008, our Board of Directors met to discuss the status of negotiations with ESM and received an update on the progress of Company C’s due diligence review. Credit Suisse reported on the discussions with each of ESM. Our Board of Directors discussed alternative plans to the proposed sale of our company, including potential operational improvements, potential mergers and acquisitions and share buyback options.

 

On July 16, 2008, Shearman delivered to Pillsbury a revised draft of the Merger Agreement.

 

On July 18, 2008, our Board of Directors met to discuss the status of negotiations with ESM and next steps in relation to ESM and received an update on the progress of Company C’s due diligence review. Our Board of Directors again discussed alternative plans to the proposed sale of our company, including potential operational improvements, potential mergers and acquisitions and share buyback options. Also, on July 18, 2008, Pillsbury delivered comments to the Merger Agreement to Shearman

 

On July 21, 2008, our Board of Directors met to discuss open items with respect to negotiations with ESM and received an update on the progress of Company C’s due diligence review. Our Board of Directors was briefed on the material unresolved issues under the Merger Agreement and provided advice to management on these points. Our Board of Directors also discussed the $12.00 per share price that was being offered by ESM at the time.

 

On July 24, 2008, Company C contacted representatives of Credit Suisse and indicated it would no longer pursue an acquisition of our company which was primarily due to concern around the revenue loss risk potential from the contracts coming up for renewal in the next 15 months and various other due diligence items.

 

On July 24, 2008, Mr. Rosenzweig and representatives of Credit Suisse met in India with representatives of ESM, at which time ESM indicated that, based on the due diligence it had conducted, it was prepared to proceed with the transaction at $12.00 per share. Mr. Rosenzweig informed ESM that he would discuss this offer with our Board of Directors, but that our Board of Directors was expecting an offer greater than their current indication. Later that evening, after extensive negotiations, a representative of ESM informed Mr. Rosenzweig and Credit Suisse that it could not offer more than $12.25 per share. Also, on July 24, 2008, Shearman delivered to Pillsbury a revised draft of the Merger Agreement.

 

On July 24 through July 27, 2008, Shearman and Pillsbury negotiated the unresolved issues related to the Merger Agreement.

 

On July 25, 2008, representatives of ESM met with Mr. Rosenzweig, where they indicated their interest to replace the change of control severance agreements that had been approved by our Compensation Committee with retention agreements that encouraged certain key employees to remain with the company through the use of loyalty bonuses.

 

On July 28, 2008, Mr. Rosenzweig reported to our Board of Directors on the meetings that had taken place in India with ESM. Mr. Rosenzweig indicated that there had been price discussions with ESM offering a price of $12.25 per share. Mr. Rosenzweig also reported that ESM would, as part of its due diligence, conduct calls with customers beginning the next day, that the company would contact certain clients to discuss waivers of certain terms and that certain additional diligence information that had been held for final stages of discussion would then be made available to ESM. A representative of Pillsbury advised our Board of Directors on its fiduciary duties, the

structure of the transaction, the Merger Agreement and remaining issues, and the process for signing and closing, and discussed the status of preparation of the proxy statement and HSR filing.

 

Our Board of Directors reviewed and discussed the Merger Agreement and Credit Suisse reviewed the stock price and financial performance of our company and certain of our competitors and reviewed a preliminary financial analysis with respect to our company. Our Board of Directors also discussed the transaction price and its strategy to maximize the price and reviewed our company’s alternatives in the event a transaction with ESM was not pursued.

 

Also, on July 28, 2008, Shearman delivered a revised draft of the Merger Agreement.

 

On July 28 through August 1, 2008, Shearman and Pillsbury continued to negotiate the unresolved issues related to the Merger Agreement.

 

On July 29, 2008, our Board of Directors met again to evaluate the proposed acquisition by ESM. Following a discussion, our Board of Directors instructed Credit Suisse to continue discussions with ESM to see if there was a basis for ESM to increase its offer. Our Board of Directors also instructed management and its advisors to finalize the Merger Agreement.

 

On July 29, 2008, a representative of Pillsbury discussed with the Compensation Committee of our Board of Directors the request by ESM that we not adopt severance agreements with our Chief Executive Officer, the executive team members and certain key employees that had been previously approved by the Compensation Committee of our Board of Directors, but that ESM would enter into retention agreements with our Chief Executive Officer, the executive team members and certain key employees. The Pillsbury representative then advised our Board of Directors on the differences between the prior severance proposal and the new retention proposal.

 

On July 31, 2008, our Board of Directors was scheduled to have another meeting. Shortly before our Board of Directors meeting, representatives of Credit Suisse had a telephone conversation with a representative of ESM in which it was discussed whether ESM would increase its offer from $12.25 per share. After this discussion, ESM’s representative indicated that its best and final proposal was $12.25 per share. On July 31, 2008, Shearman delivered a revised draft of the Merger Agreement.

 

On July 31, 2008, Company B agreed to the terms of our NDA and signed the NDA similar to the NDA signed by Company C and ESM.

 

On August 1, 2008, the Compensation Committee of our Board of Directors discussed ESM’s request to not adopt the severance agreement with our Chief Executive Officer, executive team members and certain key employees. Based on advice of our legal counsel and our outside executive compensation advisor, we considered this request and the proposed retention agreements. Following this discussion, our Compensation Committee resolved to recommend to our Board of Directors for approval (A) the new severance policy as described to the Compensation Committee, (B) the retention agreements previously reviewed by the Compensation Committee which, based on the advice of legal counsel and our outside executive compensation advisor, we, rather than ESM, will enter into with our Chief Executive Officer, the executive team members and certain key employees and (C) the stay bonus agreements to be entered into with certain employees.

 

On August 1, 2008, our Board of Directors met to consider the proposed transaction represented by the Merger Agreement with ESM. Representatives of Pillsbury and Credit Suisse were in attendance at our Board of Directors meeting. A representative from Pillsbury advised our Board of Directors on the material terms of the Merger Agreement and remaining open issues. A representative from Pillsbury also advised our Board of Directors on their fiduciary duties in connection with the consideration of this transaction and discussed the process going forward. Our Board of Directors then received a presentation from Credit Suisse that included an updated financial analysis with respect to our company. Following this discussion, it was determined that the transaction terms were not finalized sufficiently to allow for a vote of the proposed Merger. Representatives of PeopleSupport were instructed to finalize documentation and terms as soon as possible.

 

On August 2, 2008, Shearman delivered a revised draft of the Merger Agreement.

 

On August 2 and 3, 2008, Shearman and Pillsbury continued to negotiate the unresolved issues related to the Merger Agreement and Shearman delivered the substantially final draft of the Merger Agreement to Pillsbury on August 3, 2008.

 

On August 3, 2008, our Board of Directors met to consider the proposed transaction represented by the Merger Agreement with ESM. Prior to our Board of Directors meeting, Pillsbury provided a copy of the Merger Agreement and a summary of the Merger Agreement to the members of our Board of Directors for their review. Representatives of Pillsbury and Credit Suisse were in attendance at our Board of Directors meeting. Representatives of Pillsbury advised our Board of Directors on the terms of the transaction as reflected in the substantially final draft of the Merger Agreement. Based upon advice from Pillsbury, the Board members then again considered their fiduciary duties in connection with consideration of a transaction like the one represented by the Merger Agreement. Our Board of Directors then received a presentation from Credit Suisse on the financial aspects of the transaction. Credit Suisse also delivered its opinion orally that, as of August 3, 2008 and based upon and subject to the assumptions, qualifications, limitations and other matters as set forth in the opinion (a written copy of which was subsequently delivered and is attached to this proxy statement as Annex B), the $12.25 per share in cash Merger Consideration to be received by holders of our common stock in the Merger was fair, from a financial point of view, to such holders.

 

See a discussion of the material factors considered by our Board of Directors under “— Fairness of the Merger; Recommendation of Our Board of Directors” below. The proposals discussed above from IPVG and AO and ESM represent the only proposals received by us. Other than the proposals from IPVG and AO and ESM, we are not aware of any firm offer by any other person during the prior two years for (1) a merger or consolidation of us with another company, (2) the sale or transfer of all or substantially all of our assets or (3) a purchase of our securities that would enable such person to exercise control of us. Our Board of Directors unanimously determined that the Merger Agreement and the Merger were fair to, and in the best interests of, our stockholders. On August 3, 2008, our Board of Directors approved the Merger Agreement and authorized the transactions contemplated by the Merger Agreement, including the Merger, and recommended that our stockholders adopt the Merger Agreement.

 

Board meetings and Board phone conferences in which this transaction was considered occurred on June 12, 16, and 30, July 7, 9, 14, 18, 21, 28 and 29, and August 1 and 3, 2008.

 

On August 3, 2008, the parties executed the Merger Agreement and on August 4, 2008, prior to the opening of the NASDAQ Global Select Market, the parties announced the Merger.

 

 

In reaching its unanimous conclusion that the Merger Agreement and the Merger were fair to, advisable and in the best interests of, our stockholders, and its unanimous determination to adopt and approve the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, our Board of Directors considered the following material factors, among others:

 

 

 

 

Our Board of Directors also believed the process by which we entered into the Merger Agreement with ESM was fair, and in reaching that determination our Board of Directors took into account, in addition to the factors noted above, the following:

 

 

 

 

 

 

 

In view of the large number of factors considered by our Board of Directors in connection with the evaluation of the Merger Agreement and the Merger and the complexity of these matters, our Board of Directors did not consider it practicable to, nor did it attempt to, quantify, rank or otherwise assign relative weights to the specific factors considered in reaching a decision, nor did our Board of Directors evaluate whether these factors were of equal importance. In addition, each director may have given different weight to the various factors.

 

Our Board of Directors conducted discussions of, among other things, the factors described above, including asking questions of our management and our financial and legal advisors, and unanimously determined that the Merger Agreement and the Merger were fair to, advisable and in the best interests of, our stockholders, approved the Merger Agreement and authorized the transactions contemplated by the Merger Agreement, including the Merger.

 

For the reasons set forth above, our Board of Directors unanimously determined that the Merger and the transactions contemplated by the Merger Agreement are fair to, advisable and in the best interests of PeopleSupport and our stockholders, and unanimously adopted and approved, and declared advisable, the

Merger Agreement. Our Board of Directors unanimously recommends that you vote “FOR” adoption of the Merger Agreement and approval of the Merger.

 

PeopleSupport retained Credit Suisse to act as its exclusive financial advisor in connection with the Merger. In connection with its review of the proposed Merger, our Board of Directors requested that Credit Suisse advise it with respect to the fairness to the holders of our common stock, from a financial point of view, of the $12.25 per share in cash to be received by such holders in the Merger. On August 3, 2008, our Board of Directors met to review the proposed Merger and the terms of the proposed Merger Agreement. During this meeting, Credit Suisse reviewed with our Board of Directors certain financial analyses and rendered its oral opinion to our Board of Directors (which was subsequently confirmed in writing) that, as of August 3, 2008 and based upon and subject to the assumptions, qualifications, limitations and other matters as set forth in the opinion, the $12.25 per share in cash to be received by the holders of our common stock in the Merger was fair, from a financial point of view, to such holders.

 

The full text of Credit Suisse’s written opinion, dated August 3, 2008, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex B to this proxy statement and is incorporated into this proxy statement by reference. Holders of our common stock are encouraged to read this opinion carefully in its entirety. Credit Suisse provided its opinion for the information of our Board of Directors in connection with its consideration of the Merger and Credit Suisse’s opinion does not constitute advice or a recommendation to any holder of our common stock as to how such holder should vote or act on any matter relating to the proposed Merger or otherwise. Credit Suisse’s opinion addresses only the fairness, from a financial point of view, to the holders of our common stock of the $12.25 per share in cash to be received by such holders in the Merger and does not address any other aspect or implication of the Merger, or any voting agreement or other agreement, arrangement or understanding entered into in connection with the Merger or otherwise. The following is a summary of Credit Suisse’s opinion and is qualified by reference to the full text of the opinion attached as Annex B to this proxy statement.

 

In arriving at its opinion, Credit Suisse, among other things:

 

 

In connection with its review, Credit Suisse did not independently verify any of the foregoing information and assumed and relied on such information being complete and accurate in all material respects. With respect to the financial forecasts for PeopleSupport and the sensitivities thereto, our management advised Credit Suisse, and Credit Suisse assumed, with the consent of our Board of Directors, that such forecasts and sensitivities were reasonably prepared on bases reflecting the best currently available estimates and judgments of our management as to the future financial performance of PeopleSupport. Credit Suisse also assumed, with the consent of our Board of Directors, that the financial results reflected in the financial forecasts and the sensitivities thereto used for purposes of Credit Suisse’s analysis would be realized in the amounts and times indicated thereby. In addition, at the direction of our Board of Directors, Credit Suisse relied on the estimates of our management as to (1) the tax benefits to PeopleSupport from net

operating loss usage and (2) future foreign exchanges rates. Credit Suisse also assumed, with the consent of our Board of Directors, that, in the course of obtaining any regulatory or third party consents, approvals or agreements in connection with the Merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on PeopleSupport and that the Merger would be consummated in accordance with the terms of the Merger Agreement without waiver, modification or amendment of any material term, condition or agreement thereof. In addition, Credit Suisse was not requested to make, and did not make, an independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of PeopleSupport, nor was Credit Suisse furnished with any such evaluations or appraisals. Credit Suisse’s opinion addressed only the fairness, from a financial point of view, to the holders of our common stock of the $12.25 per share in cash to be received by such holders in the Merger and did not address any other aspect or implication of the Merger or any other agreement, arrangement or understanding entered into in connection with the Merger or otherwise including, without limitation, the fairness of the amount or nature of, or any other aspect relating to, any compensation to any officers, directors or employees of any party to the Merger, or class of such persons, relative to the Merger Consideration or otherwise. The issuance of Credit Suisse’s opinion was approved by its authorized internal committee. Credit Suisse’s opinion was necessarily based upon information made available to it as of the date of the opinion and financial, economic, market and other conditions as they existed and could be evaluated on such date. Credit Suisse’s opinion did not address the merits of the Merger as compared to alternative transactions or strategies that may be available to PeopleSupport nor did it address PeopleSupport’s underlying decision to proceed with the Merger.

 

In preparing its opinion to our Board of Directors, Credit Suisse performed a variety of analyses, including those described below. The summary of the analyses described below is not a complete description of the analyses underlying Credit Suisse’s opinion. The preparation of a fairness opinion is a complex process involving various quantitative and qualitative judgments and determinations with respect to the financial, comparative and other analytic methods employed and the adaptation and application of these methods to the unique facts and circumstances presented. As a consequence, neither a fairness opinion nor its underlying analyses are readily susceptible to partial analysis or summary description. Credit Suisse arrived at its opinion based on the results of all analyses undertaken by it and assessed as a whole and did not draw, in isolation, conclusions from or with regard to any individual analysis, analytic method or factor. Accordingly, Credit Suisse believes that its analyses must be considered as a whole and that selecting portions of its analyses, analytic methods and factors, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying its analyses and opinion.

 

In performing its analyses, Credit Suisse considered business, economic, industry and market conditions, financial and otherwise, and other matters as they existed on, and could be evaluated as of, August 3, 2008. No company, transaction or business used in Credit Suisse’s analyses for comparative purposes is identical to PeopleSupport or the proposed Merger. While the results of each analysis were taken into account in reaching its overall conclusion with respect to fairness, Credit Suisse did not make separate or quantifiable judgments regarding individual analyses. The estimates contained in Credit Suisse’s analyses and the implied reference range values indicated by Credit Suisse’s analyses are illustrative and not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, any analyses relating to the value of assets, businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold, which may depend on a variety of factors, many of which are beyond our control and the control of Credit Suisse. Much of the information used in, and accordingly the results of, Credit Suisse’s analyses are inherently subject to substantial uncertainty.

 

Credit Suisse’s opinion and analyses were provided to our Board of Directors in connection with its consideration of the proposed Merger and were among many factors considered by our Board of Directors in evaluating the proposed Merger. Neither Credit Suisse’s opinion nor its analyses were determinative of the Merger Consideration or of the views of our Board of Directors or our management with respect to the Merger or the Merger Consideration.

 

The following is a summary of the material financial analyses performed in connection with the preparation of Credit Suisse’s opinion and reviewed with our Board of Directors at a meeting held on August 3, 2008. The analyses summarized below include information presented in tabular format. The tables alone do not constitute a complete description of the analyses. Considering the data in the tables below without considering the full narrative

description of the analyses, as well as the methodologies underlying and the assumptions, qualifications and limitations affecting each analysis, could create a misleading or incomplete view of Credit Suisse’s analyses.

 

Selected Company Analysis.

 

Credit Suisse reviewed certain financial data, multiples and ratios for the following publicly traded corporations in the global customer care BPO, specialty customer care BPO and offshore BPO sectors, respectively:

 

Global Customer Care BPO

 

 

Specialty Customer Care BPO

 

• ICT Group Inc.

 

 

Offshore BPO

 

 

Credit Suisse calculated the multiples and ratios of the selected companies using closing stock prices as of July 31, 2008, and information it obtained from public filings, publicly available research analyst estimates and other publicly available information. With respect to the selected companies, Credit Suisse compared enterprise values as multiples of calendar years 2008 and 2009 estimated earnings before interest, taxes, depreciation and amortization, or “EBITDA”. Credit Suisse also compared the ratio of price to forward earnings per share, or “EPS”, based on calendar years 2008 and 2009 estimates, and the ratio of price to earnings growth based on calendar year 2009 estimates. Credit Suisse then applied reference ranges of selected multiples described above for the selected companies to corresponding financial data for PeopleSupport, using EBITDA estimates provided by our management. Based on these analyses, Credit Suisse derived the following implied per share equity value reference range for our common stock, as compared to the Merger Consideration:

 

Selected Transaction Analysis.

 

Credit Suisse reviewed certain transaction multiples in the following selected publicly announced transactions, which involved companies with businesses in the global customer care BPO, specialty customer care BPO and offshore BPO sectors:

 

 

Credit Suisse calculated multiples for the selected transactions based on publicly available financial information with respect to the target companies and the selected transactions. For each of the selected transactions, Credit Suisse compared enterprise value as a multiple of the target company’s last twelve months (LTM) EBITDA, except the Blackstone Group and Intelenet Global Services Pvt Ltd transaction for which Credit Suisse compared enterprise value as a multiple of the target company’s estimated EBITDA for the calendar year in which the transaction was announced derived from publicly available information. Credit Suisse then applied reference ranges of selected multiples described above for the selected transactions to corresponding estimated LTM EBITDA for PeopleSupport as of June 30, 2008, using estimates provided by our management. Based on these analyses, Credit Suisse derived the following implied per share equity value reference range for our common stock, as compared to the Merger Consideration:

 

 

Discounted Cash Flow Analysis.

 

Credit Suisse performed a discounted cash flow analysis to calculate the estimated present value of the unlevered, free cash flow that PeopleSupport could generate during the period from 2008 through 2012, which included the estimated present value of our federal and state net operating losses (NOLs). The financial forecast was based on internal estimates provided by PeopleSupport’s management. In calculating the estimated present value of our unlevered, free cash flow, Credit Suisse calculated ranges of estimated terminal values by multiplying fiscal year 2012 estimated LTM EBITDA by selected multiples ranging from 4.50x to 6.00x. The present value of cash flows and terminal values were estimated using discount rates ranging from 16.0% to 20.0%. In determining the estimated present value of our NOLs, Credit Suisse applied discount rates ranging from 16.0% to 20.0% to PeopleSupport’s management’s estimates of the projected benefits to PeopleSupport from the usage of the NOLs from 2008 through 2018. Based on these analyses, Credit Suisse derived the following implied per share equity value reference range for our common stock, as compared to the Merger Consideration:

 

 

In connection with the above analyses, Credit Suisse also performed a discounted cash flow analysis excluding the estimated present value of our NOLs and derived an implied per share equity value reference range for our common stock of $11.36 — $13.26.

Miscellaneous.

 

PeopleSupport engaged Credit Suisse as its financial advisor in connection with the proposed Merger. PeopleSupport selected Credit Suisse based on Credit Suisse’s qualifications, experience and reputation, and its familiarity with PeopleSupport and its business. Credit Suisse is an internationally recognized investment banking firm and is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, leveraged buyouts, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. Pursuant to our engagement letter with Credit Suisse, we have agreed to pay Credit Suisse a customary fee for its services in connection with the Merger, a significant portion of which is contingent upon consummation of the Merger. Credit Suisse also became entitled to a fee upon the delivery of its opinion. We have also agreed to reimburse Credit Suisse for certain expenses and to indemnify Credit Suisse and certain related parties for certain liabilities and other items arising out of or relating to Credit Suisse’s engagement.

 

Credit Suisse and its affiliates have in the past provided and are currently providing and in the future may provide investment banking and other financial services to PeopleSupport and its affiliates, for which Credit Suisse and its affiliates have received, and would expect to receive, compensation, including having acted as a lead underwriter in connection with PeopleSupport’s public sale of equity in November 2006, financial advisor to PeopleSupport in connection with our response to certain shareholder initiatives in 2007 and 2008 and financial advisor to PeopleSupport in connection with an unsolicited acquisition attempt by IPVG Corp. and AO Capital Partners in January 2008. Credit Suisse and its affiliates may have provided and may be currently providing other financial advice and services, and may in the future provide financial advice and services, to PeopleSupport, ESM and their respective affiliates for which Credit Suisse and its affiliates have received, and would expect to receive, compensation. Credit Suisse is a full service securities firm engaged in securities trading and brokerage activities as well as providing investment banking and other financial services. In the ordinary course of business, Credit Suisse and its affiliates may acquire, hold or sell, for its and its affiliates own accounts and the accounts of customers, equity, debt and other securities and financial instruments (including bank loans and other obligations) of PeopleSupport, ESM and any other company that may be involved in the Merger, as well as provide investment banking and other financial services to such companies.

 

Following the Merger, shares of our common stock will no longer be traded on the NASDAQ Global Select Market or any other public market and will be deregistered under the Securities Exchange Act of 1934, as amended (Exchange Act).

 

Upon completion of the Merger, PeopleSupport will cease to be an independent public company and will instead be a wholly-owned subsidiary of ESM. Upon completion of the Merger, the directors of Merger Sub immediately prior to the completion of the Merger will become the directors of PeopleSupport, and the officers of Merger Sub immediately prior to the completion of the Merger will become the officers of PeopleSupport, in each case until the earlier of their resignation or removal or until their respective successors are duly elected or appointed and qualified, as the case may be.

 

In the event that the Merger Agreement is not adopted by our stockholders or if the Merger is not completed for any other reason, our stockholders would not receive any Merger Consideration for their shares of our common stock. Instead, we would remain an independent public company, our common stock would continue to be listed and traded on NASDAQ Global Select Market and our stockholders would continue to be subject to the same risks and opportunities as they currently are with respect to their ownership of our common stock. If the Merger is not completed, there can be no assurance as to the effect of these risks and opportunities on the future value of our shares, including the risk that the market price of our common stock may decline to the extent that the current market price of our stock reflects a market assumption that the Merger will be completed. From time to time, our

Board of Directors would evaluate and review our business operations, properties, dividend policy and capitalization, and, among other things, make such changes as are deemed appropriate. In addition, our Board of Directors might seek to identify strategic alternatives to maximize stockholder value. If the Merger Agreement is not adopted by our stockholders or if the Merger is not consummated for any other reason, there can be no assurance that any other transaction acceptable to us would be offered or that our business, prospects or results of operations would not be adversely impacted.

 

Pursuant to the Merger Agreement, under certain circumstances, we are permitted to terminate the Merger Agreement and recommend an alternative transaction. See “The Merger Agreement — Termination of Merger Agreement” beginning on page 41.

 

Under certain circumstances, if the Merger is not completed, we may be obligated to pay ESM a termination fee. See “The Merger Agreement — Termination Fees” beginning on page 42.

 

 

In considering the recommendation of our Board of Directors in favor of the Merger, our stockholders should be aware that our executive officers, certain key employees and directors may have interests in the Merger that are different from or in addition to the interests of our stockholders in general. The members of our Board of Directors were aware of such interests when deciding to approve and recommend the Merger Agreement and the Merger. See “— Background of the Merger” beginning on page 15, and “— Reasons for the Merger; Recommendation of Our Board of Directors” beginning on page 21. Our stockholders should take these interests into account in deciding whether to vote “FOR” adoption of the Merger Agreement and approval of the Merger.

 

Equity Awards

 

Treatment of Stock Options in Connection with the Merger.   Upon completion of the Merger, each outstanding option to purchase our common stock, whether or not vested, that remains outstanding as of the closing of the Merger, will be cancelled and converted into the right to receive a cash payment equal to the number of shares of our common stock underlying the option multiplied by the amount, if any, by which the Merger Consideration exceeds the applicable exercise price of the option, less any applicable withholding taxes. See “The Merger Agreement — Effect on PeopleSupport Stock Options” beginning on page 33.

 

Treatment of Restricted Stock Units in Connection with the Merger.   Upon completion of the Merger, each restricted stock unit that remains outstanding as of the closing of the Merger will be cancelled and converted into the right to receive a cash payment equal to the number of shares of our common stock subject to the restricted stock unit multiplied by the Merger Consideration, less any applicable withholding taxes. See “The Merger Agreement — Effect on PeopleSupport Restricted Stock Units” beginning on page 33.

 

Acceleration upon Change in Control.   Under the terms of our 1998 Stock Incentive Plan and our Amended and Restated 2004 Stock Incentive Plan, each option and restricted stock unit granted to our non-employee directors pursuant to the terms of such plan will become vested if a change in control occurs during such director’s service. In addition, certain options and restricted stock units granted to our executive officers under these plans provide that such grants will become vested if a change in control occurs during such executive officer’s employment. As of August 22, 2008, our non-employee directors and executive officers collectively hold in the aggregate options to purchase 641,933 shares of PeopleSupport common stock and 1,040,384 shares of PeopleSupport restricted stock units.

 

Retention Agreements.   In connection with the Merger, we will enter into retention agreements that will become effective upon the completion of the Merger with our executive officers, including Mr. Rosenzweig, as well as certain key employees (each a Key Employee). Under the retention agreements, for the twelve (12) months following the closing date of the Merger, the Key Employees’ annual base salary will continue at its present level. In addition, Mr. Rosenzweig, Ms. Rook, Mr. Bledsoe and Mr. Borja will receive a guaranteed cash bonus for 2008 equal to the bonus paid to them for the 2007 calendar year, payable on or before March 31, 2009, provided that he or she continues to be employed by PeopleSupport or ESM through such date. If Mr. Rosenzweig’s or Ms. Rook’s employment is terminated for any reason other than a termination by ESM for cause, or if Mr. Bledsoe’s or Mr. Borja’s employment is terminated due to an involuntary termination, prior to December 31, 2008, the Key Employee will receive a pro rata portion of the 2008 guaranteed bonus. Mr. Duryea will continue to be eligible to

receive override compensation on new revenue accomplished during 2008 under the terms of his existing override plan. Mr. Rosenzweig will receive a loyalty cash bonus equal to $1 million and all other Key Employees will receive a loyalty cash bonus equal to six months of base salary payable in a single lump sum within thirty (30) days following the twelve (12) month anniversary of the closing dated of the Merger, subject to their continued employment through the twelve (12) month anniversary of the closing date of the Merger. However, if the Key Employee’s employment terminates due to an involuntary termination prior to the twelve (12) month anniversary of the closing date of the Merger, the Key Employee will receive the full amount of the loyalty bonus within thirty (30) days following the Key Employee’s date of termination. If Mr. Rosenzweig’s or Ms. Rook’s employment is terminated for any reason other than involuntary termination or a termination by ESM for cause prior to the twelve (12) month anniversary of the closing date of the Merger, Mr. Rosenzweig or Ms. Rook will receive a pro rata portion of the guaranteed cash bonus and loyalty bonus. Mr. Rosenzweig is also entitled to a performance bonus in the amount of $500,000 if certain revenue milestones are met during the twelve (12) months following the effective time of the Merger.

 

If a Key Employee’s employment terminates as a result of involuntary termination or employment is terminated due to death or permanent disability within twelve (12) months following the closing date of the Merger and the Key Employee delivers an irrevocable release of claims, then Essar will also reimburse the Key Employee for the employer portion of his or her health care premiums under the Consolidated Budget Reconciliation Act of 1985 or comparable provision under state law (COBRA) for up to twenty-four (24) months for our Chief Executive Officer, up to twelve (12) months for Ms. Rook, Mr. Bledsoe, Mr. Borja and Mr. Duryea and up to six (6) months for all other Key Employees.

 

The existing letter agreement dated May 20, 2002 by and between PeopleSupport and Ms. Rook continues in effect. Under the letter agreement, Ms. Rook will be entitled to an additional six (6) months of base salary if she is terminated without cause within six (6) months following a change in control.

 

Stay Bonuses.   In connection with the Merger, we will enter into stay bonus agreements with certain employees (each an Employee). Under the stay bonus agreements, if Employee continues employment with PeopleSupport through the earlier of (i) the closing date of the Merger and up to ninety days following the closing date of the Merger as determined by us in our sole discretion, or (ii) May 15, 2009 (the Stay Date), Employee will receive a cash stay bonus payment equal to three months of Employee’s current base salary (the Stay Bonus) payable in a lump sum within thirty days following the Stay Date. Notwithstanding the foregoing, if Employee is involuntarily terminated prior to the Stay Date, Employee will receive the full amount of the Stay Bonus payable in a single lump sum within thirty (30) days following the Employee’s date of termination.

 

Indemnification of Directors and Officers; Insurance.   The Merger Agreement provides that all rights of indemnification that exist in favor of individuals who were our directors or officers on the date of the Merger Agreement for their acts and omissions as our directors and officers occurring prior to the effective time of the Merger, as provided in our certificate of incorporation or bylaws or any of our existing indemnification agreements in effect as of the date of the Merger Agreement, will be observed by the surviving corporation to the fullest extent available under Delaware law. The Merger Agreement further provides that for a period of six years following the effective time of the Merger, the surviving corporation (a) will maintain our current directors’ and officers’ liability insurance subject to limitations set forth in the Merger Agreement and (b) the certificate of incorporation and by-laws of the surviving corporation will include director and officer indemnification no less favorable than as set forth in our certificate of incorporation and by-laws. ESM has agreed to cause the surviving corporation to so observe rights described above in this paragraph.

 

 

General.   The following is a summary of certain anticipated material U.S. federal income tax consequences of the Merger to our U.S. stockholders. This summary is based upon provisions of the Internal Revenue Code of 1986, as amended (Code), applicable U.S. Treasury Regulations, judicial authority and administrative rulings and practice, all as in effect as of the date hereof, and all of which are subject to change, possibly with retroactive effect. It is assumed, for purposes of this summary, that the shares of our common stock are held as capital assets by a U.S. person (e.g., a domestic corporation or an individual who is a citizen or resident of the U.S.). This discussion may not address all aspects of U.S. federal income taxation that may be relevant to a particular stockholder in light

of that stockholder’s particular circumstances, or to those stockholders that may be subject to special treatment under the U.S. federal income tax laws (for example, life insurance companies, tax-exempt organizations, financial institutions, U.S. expatriates, persons that are not U.S. persons, dealers or brokers in securities or currencies, pass-through entities (e.g., partnerships) and investors in such entities, or stockholders who hold shares of our common stock as part of a hedging, “straddle,” conversion, constructive sale or other integrated transaction, who are subject to the alternative minimum tax or who acquired their shares of our common stock through the exercise of director or employee stock options or other compensation arrangements). The discussion does not address the U.S. federal income tax consequences applicable to any stockholders who exercise their appraisal rights under Delaware law. In addition, the discussion does not address any aspect of foreign, state or local taxation or estate and gift taxation that may be applicable to our stockholders.

 

Consequences of the Merger to Our Stockholders.   The receipt of cash in exchange for shares of our common stock pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes. In general, a stockholder who surrenders shares of our common stock in exchange for cash pursuant to the Merger will recognize gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the amount of cash received and such stockholder’s adjusted basis in the shares surrendered. Gain or loss will be calculated separately for each block of shares surrendered in the Merger (i.e., shares acquired at the same cost in a single transaction). Such gain or loss will generally be capital gain or loss, and will generally be long-term gain or loss provided that a stockholder has held such shares for more than one year as of the closing date of the Merger. In the case of stockholders who are individuals, long-term capital gain is currently eligible for reduced rates of federal income tax. There are limitations on the deductibility of capital losses.

 

Backup Withholding Tax.   Generally, under the U.S. federal income tax backup withholding rules, a stockholder or other payee that exchanges shares of our common stock for cash may be subject to backup withholding at a rate of 28%, unless the stockholder or other payee (1) provides a taxpayer identification number (TIN) (i.e., a social security number, in the case of individuals, or an employer identification number, in the case of other stockholders), and (2) certifies under penalties of perjury that (A) such TIN is correct, (B) such stockholder is not subject to backup withholding and (C) such stockholder is a U.S. person. Each of our stockholders and, if applicable, each other payee should complete and sign the substitute Form W-9 included as part of the letter of transmittal and return it to the paying agent in order to provide information and certification necessary to avoid backup withholding, unless an exemption applies and is otherwise established in a manner satisfactory to the paying agent.

 

The foregoing discussion of certain U.S. federal income tax consequences is not tax advice. Stockholders should consult their tax advisors to determine the U.S. federal, state and local and foreign tax consequences of the Merger to them in view of their own particular circumstances.

 

HSR Review

 

Transactions such as the Merger are subject to review by the United States Department of Justice and the United States Federal Trade Commission to determine whether they comply with applicable antitrust laws. Under the provisions of the HSR Act, the Merger may not be completed until the expiration or termination of a waiting period following the filing of notification reports with the Department of Justice and the Federal Trade Commission by ESM and PeopleSupport. ESM and PeopleSupport filed notification reports with the Department of Justice and the Federal Trade Commission under the HSR Act on August 29, 2008.

 

Pre-Merger filings and governmental approvals may also be required in certain foreign jurisdiction. The Merger Agreement provides that PeopleSupport and ESM will make all filings and give all notices required to be made and given in connection with the Merger, including under applicable antitrust laws.

 

The Department of Justice and the Federal Trade Commission frequently scrutinize the legality under the antitrust laws of transactions such as the Merger. At any time before or after the Merger, either the Department of Justice or the Federal Trade Commission could take action under the antitrust laws as it deems necessary or desirable in the public interest, including by seeking to enjoin the Merger or by seeking the divestiture of substantial

assets of ESM and PeopleSupport or their subsidiaries. Private parties and state attorneys general may also bring actions under the antitrust laws under certain circumstances. While the parties believe that the proposed Merger does not violate the antitrust laws, there can be no assurance that a challenge to the Merger on antitrust grounds will not be made or, if a challenge is made, of the result.

 

Exon-Florio Provision Review

 

The Exon-Florio Provision of the U.S. Defense Production Act of 1950, as amended, empowers the President of the United States to prohibit or suspend an acquisition of, or investment in, a U.S. company by a “foreign person” if the President, after investigation, finds credible evidence that the foreign person might take action that threatens to impair the national security of the United States and that other provisions of existing law do not provide adequate and appropriate authority to protect the national security. The Committee on Foreign Investment in the United States (CFIUS) receives notices of proposed transactions, determine when an investigation is warranted, conduct investigations and submit recommendations to the President to suspend or prohibit the completion of transactions or to require divestitures of completed transactions.

 

A party or parties to a transaction may, but are not required to, submit to CFIUS a voluntary notice of the transaction. CFIUS has 30 calendar days from the date of acceptance of the submission to decide whether to initiate a formal investigation. If CFIUS declines to investigate, it sends a “no action” letter, and the review process is complete. If CFIUS decides to investigate, it has 45 calendar days in which to prepare a recommendation to the President of the United States, who must then decide within 15 calendar days whether to block the transaction. If the parties to a transaction do not make a voluntary CFIUS filing, CFIUS may initiate a review of the transaction post-closing, with the risk that a Presidential order may be issued to unwind the transaction.

 

On August 28, 2007, we entered into a Rights Agreement with Computershare Trust Company, N.A., as rights agent, which generally imposes a significant penalty upon any person or group that acquires beneficial ownership of 10% or more of our outstanding shares without the approval of our Board of Directors.

 

In contemplation of the execution of the Merger Agreement, effective as of August 3, 2008, we entered into an amendment to the Rights Agreement for the purpose of rendering it inapplicable to the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement. In particular, the amendment to the Rights Agreement provides that no person will be deemed to be an Acquiring Person (as defined in the Rights Agreement) and no distribution of rights will occur solely by virtue of the approval, execution, delivery, adoption or performance of the Merger Agreement or the consummation of the Merger or any other transactions contemplated the Merger Agreement.

 

The Merger will be accounted for as a “purchase transaction” for financial accounting purposes.

 

On August 13, 2008, a complaint regarding a purported class action lawsuit, Larry Shore v. PeopleSupport, Inc., et al. , was filed in the Superior Court of California, Los Angeles County against PeopleSupport and our Board of Directors in connection with the Merger. The complaint alleges, among other things, that (1) our Board of Directors violated its fiduciary duties to our stockholders by approving the Merger and certain terms of the Merger Agreement related to termination of the Merger Agreement set forth in Section 7.6 of the Merger Agreement and our ability to consider or accept alternative proposals set forth in Section 5.2 of the Merger Agreement, (2) we aided and abetted our Board of Directors’ alleged breach of fiduciary duty and (3) the Merger Consideration is unfair and inadequate for reasons including but not limited to a temporarily low stock price and a prior acquisition offer. See “— Background of the Merger” beginning on page 15. The complaint seeks, among other things, an injunction prohibiting PeopleSupport and ESM from consummating the Merger, rescission of the Merger to the extent already implemented, and attorneys’ fees and expenses. We intend to vigorously defend against the lawsuit. This complaint may be amended in the future and other similar lawsuits may be filed although we are not currently aware of any.

 

This section of the proxy statement summarizes the material terms and conditions of the Merger Agreement, but is not intended to be an exhaustive discussion of the Merger Agreement. The rights and obligations of the parties are governed by the express terms and conditions of the Merger Agreement and not the summary set forth in this section or any other information contained in this proxy statement. We urge you to read the Merger Agreement carefully and in its entirety. The complete text of the Merger Agreement is attached as Annex A to this proxy statement and is incorporated herein by reference.

 

The Merger Agreement provides that, subject to the terms and conditions of the Merger Agreement, and in accordance with the DGCL at the effective time of the Merger, Merger Sub will be merged with and into PeopleSupport and, as a result of the Merger, the separate corporate existence of Merger Sub will cease and PeopleSupport will continue as the surviving corporation (the Surviving Corporation) and become a wholly-owned subsidiary of ESM. We will continue to be governed by the DGCL and all of our rights, privileges, immunities, powers and franchises will continue unaffected by the Merger.

 

The closing of the Merger will occur on a date specified by the parties no later than the second business day after all of the conditions set forth in the Merger Agreement and described below are satisfied or waived, or at such other time as agreed to by the parties. The Merger will become effective when the certificate of merger has been duly filed with the Delaware Secretary of State or at a later time as agreed to by the parties.

 

At the effective time of the Merger, each outstanding share of PeopleSupport common stock, other than shares held by stockholders who exercise their appraisal rights and other than shares held by PeopleSupport, ESM or any of their respective wholly-owned subsidiaries, will be converted into the right to receive $12.25 in cash, without interest and less any applicable tax withholding. The price of $12.25 per share was determined through arm’s-length negotiations between us and Essar. Upon completion of the Merger, no shares of PeopleSupport common stock will remain outstanding and all shares will automatically be canceled and will cease to exist.

 

At the effective time of the Merger, by virtue of the Merger, each share of PeopleSupport common stock issued and outstanding immediately prior to the effective time will automatically be converted into the right to receive $12.25 in cash, without interest and less any applicable tax withholding, other than the following shares, which will be cancelled and no payment made with respect thereto:

 

 

The Merger Agreement provides that on or prior to the closing date of the Merger, ESM will select a bank or trust company to act as paying agent in connection with the Merger and will deposit with the paying agent cash in an amount equal to the aggregate Merger Consideration payable to PeopleSupport stockholders.

 

The Merger Agreement provides that as soon as practicable following the effective time of the Merger, the paying agent will mail to the record holders of PeopleSupport common stock immediately prior to the effective time of the Merger a letter of transmittal and instructions for use in surrendering stock certificates in exchange for the Merger Consideration. No stockholder should surrender any certificates until the stockholder receives the letter of transmittal and other materials for such surrender. Upon surrender of a stock certificate for exchange to the paying agent, together with a duly executed letter of transmittal and such other documents as may be

reasonably required by the paying agent or ESM, the holder of such stock certificate will be entitled to receive the Merger Consideration, without any interest thereon and less any applicable tax withholding. The certificate so surrendered will be canceled.

 

If any cash is to be paid to a person other than the record holder of shares of our common stock, payment may be made with respect to such shares if the stock certificate representing such shares is presented to the paying agent and is properly endorsed or otherwise in proper form for transfer, and the transferee either pays to the paying agent any applicable transfer or other taxes relating to such transfer, or establishes to the satisfaction of ESM that such tax has been paid or is not required to be paid.

 

If your stock certificate has been lost, stolen or destroyed, the paying agent will pay to you the applicable Merger Consideration if:

 

 

Do not send your certificates now. You should send your certificates only pursuant to instructions set forth in the letters of transmittal to be mailed to stockholders after the completion of the Merger. In all cases, the Merger Consideration will be paid only in accordance with the procedures set forth in the Merger Agreement and such letters of transmittal.

 

The Merger Agreement provides that 180 days after the closing date of the Merger, upon demand by ESM, the paying agent will deliver to ESM any funds made available to the paying agent which have not been disbursed to former PeopleSupport stockholders. Any holders of certificates who have not surrendered their certificates in compliance with the above-described procedures shall thereafter look only to ESM for payment of the Merger Consideration to which they are entitled, without any interest thereon and less any applicable tax withholding.

 

The cash paid to you upon conversion of your PeopleSupport common stock will be paid in full satisfaction of all rights relating to the shares of PeopleSupport common stock.

 

The Merger Agreement provides that upon completion of the Merger each outstanding option to purchase our common stock, whether or not vested, that remains outstanding as of the closing of the Merger, will be cancelled and converted into the right to receive a cash payment equal to the number of shares of our common stock underlying the option multiplied by the amount, if any, by which the Merger Consideration exceeds the applicable exercise price of the option, less any applicable withholding taxes.

 

The Merger Agreement provides that upon completion of the Merger each restricted stock unit that remains outstanding as of the closing of the Merger will be cancelled and converted into the right to receive a cash payment equal to the number of shares of our common stock subject to the restricted stock unit multiplied by the Merger Consideration, less any applicable withholding taxes.

 

The Merger Agreement provides that, in accordance with the terms of our 2004 Employee Stock Purchase Plan (ESPP), each outstanding offering period or accumulation period under our ESPP will terminate as of the day immediately prior to the date on which the Merger becomes effective.

 

Although approved, we have not implemented our ESPP and as of the close of business on the day on which the Merger becomes effective, we will have terminated the ESPP.

 

The Merger will become effective at the time of the filing of a certificate of merger with the Secretary of State of the State of Delaware, or at such later time as may be specified in such certificate of merger with the consent of ESM. Subject to the terms and conditions of the Merger Agreement and in accordance with DGCL, Merger Sub will be merged with and into PeopleSupport, the separate corporate existence of Merger Sub will cease, and PeopleSupport will continue as the surviving corporation and become a wholly-owned subsidiary of ESM. The surviving corporation in the Merger is referred to in this proxy statement as the surviving corporation.

 

The Merger Agreement contains representations and warranties of each party to the agreement. The representations and warranties in the Merger Agreement are complicated and not easily summarized. You are urged to read carefully and in their entirety the sections of the Merger Agreement entitled “Representations and Warranties of the Company” and “Representations and Warranties of Parent and Merger Sub” in Sections 3.1 and 3.2, respectively, of the Merger Agreement attached as Annex A to this proxy statement. The assertions embodied in the representations and warranties made by PeopleSupport are qualified by information and statements made in a confidential disclosure schedule that PeopleSupport provided to ESM in connection with the signing of the Merger Agreement. While PeopleSupport does not believe that such disclosure schedule contains information that applicable securities laws require it to publicly disclose (other than information that has already been so disclosed or is disclosed in this proxy statement), the disclosure schedule does contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the Merger Agreement. Accordingly, you should not rely on the representations and warranties in the Merger Agreement as characterizations of the actual state of facts, since such representations and warranties were made by the parties to the Merger Agreement to and solely for the benefit of each other, and they are modified in important part by the underlying disclosure schedule. The disclosure schedule contains information that has been included in PeopleSupport’s general prior public disclosures, as well as additional nonpublic information. Moreover, information concerning the subject matter of the representations and warranties may have changed since the date of the Merger Agreement, which subsequent information may or may not be fully reflected in PeopleSupport’s public disclosures or in this proxy statement.

 

In the Merger Agreement, we have made representations and warranties to ESM and Merger Sub with respect to, among other things:

 

 

 

Many of the representations and warranties in the Merger Agreement made by us are qualified by a “materiality” or “material adverse effect with respect to PeopleSupport” standard (that is, they will not be deemed to be untrue or incorrect unless their failure to be true or correct, individually or in the aggregate, would, as the case may be, be material or have a material adverse effect on PeopleSupport).

 

Under the Merger Agreement a material adverse effect with respect to PeopleSupport is generally defined as a state of facts, circumstances, events or changes that have had a material adverse effect on the business, operations or financial condition of PeopleSupport and our subsidiaries, taken as a whole, but does not include:

 

 

In the Merger Agreement, ESM and Merger Sub have made representations and warranties to us with respect to, among other things:

 

 

Access and Investigation

 

We have agreed in the Merger Agreement to provide ESM and its representatives with reasonable access to our executive officers, our properties, offices, books, contracts upon reasonable notice and during normal business hours between the date of the Merger Agreement and the earlier of the termination of the Merger Agreement or completion of the Merger (pre-closing period). The Merger Agreement also requires that we promptly provide ESM with operating and financial reports, any communication with our stockholders, certain material communications with respect to significant contracts and certain communications with governmental bodies.

 

Conduct of PeopleSupport’s Business

 

We have agreed in the Merger Agreement that, from August 3, 2008 until the earlier of the consummation of the Merger or the termination of the Merger Agreement, we will, and will cause our subsidiaries to, conduct our respective businesses in the ordinary course, and will use reasonable best efforts to, and cause our subsidiaries to, preserve intact our respective present business organizations, keep available the services of present officers and other employees, and maintain current relationships and goodwill with our customers, suppliers, distributors, creditors, lessors, employees, business associates and others having business relationships with us and all governmental bodies.

 

In addition, we have agreed that, from August 3, 2008 until the earlier of the consummation of the Merger or the termination of the Merger Agreement, subject to the exceptions described in the disclosure schedule we delivered to ESM in connection with the Merger, we will not (and will ensure that our subsidiaries do not) take any of the following specific actions without the prior written consent of ESM (which consent, as to certain of the matters listed below, must not be unreasonably withheld, conditioned or delayed):

 

 

 

No Solicitation of Alternative Transactions by PeopleSupport

 

We have agreed in the Merger Agreement that, from August 3, 2008 until the earlier of the consummation of the Merger or the termination of the Merger Agreement, we will not, directly or indirectly, and will ensure that our subsidiaries and our respective directors, officers, employees, agents and representatives do not, directly or indirectly:

 

 

Notwithstanding the foregoing, prior to the adoption of the Merger Agreement and approval of the Merger by our stockholders, the Merger Agreement does not prevent us from furnishing information regarding us or our subsidiaries to, or entering into discussions, or entering into a confidentiality agreement, with any person who made

an unsolicited, written, bona fide proposal or offer regarding an Acquisition Proposal that our Board of Directors has:

 

 

The Merger Agreement provides that if any Acquisition Proposal is made or submitted from August 3, 2008 until the earlier of the consummation of the Merger or the termination of the Merger Agreement, we must promptly advise ESM orally and in writing of such Acquisition Proposal (including the identity of the person making or submitting such Acquisition Proposal, and the terms of such Acquisition Proposal), and we must keep ESM informed of the status of such Acquisition Proposal and the status and terms of any modification or any proposed modification.

 

Under the Merger Agreement, an “Acquisition Proposal” means any transaction or series of transactions involving:

 

 

A “Superior Proposal” means an unsolicited bona fide offer made by a third person to consummate any Acquisition Proposal, that in the good faith determination of our Board of Directors, after consultation with its financial advisors and after taking into account relevant financial, legal, regulatory, estimated timing of consummation and other aspects of such proposal and the person or group making such proposal, (1) would, if consummated in accordance with its terms, result in a transaction more favorable to our stockholders than the Merger (taking into account any proposal by ESM to amend the terms of the Merger or this Agreement) and (2) reasonably likely to be consummated. Any such offer will not be deemed to be a Superior Proposal if any financing required to consummate the Merger and the other transactions contemplated by such offer is not committed and is not likely in the good faith judgment of our Board of Directors to be obtained by such third person on a timely basis. For purposes of the definition of “Superior Proposal,” each reference to “10%” in the definition of “Acquisition Proposal” is replaced with “50%.”

 

For one year following the closing of the Merger, ESM has agreed to provide our employees with benefits and compensation that are no less favorable in the aggregate than the benefits and compensation such employees were receiving prior to the closing of the Merger.

 

Under the terms of the Merger Agreement, our employees will generally receive credit for service with us prior to the Merger for purposes of employee benefit plans of the Surviving Corporation and its subsidiaries following the Merger.

 

Conditions to Obligations of ESM and Merger Sub to Complete the Merger

 

The Merger Agreement provides that the obligations of ESM and Merger Sub to complete the Merger are subject to the following conditions, unless such condition is waived:

 

 

Conditions to Obligations of PeopleSupport to Complete the Merger

 

The Merger Agreement also provides that our obligation to complete the Merger is subject to the following conditions:

 

 

Reasonable Best Efforts

 

The Merger Agreement provides that PeopleSupport and ESM will:

 

 

Calling of Special Meeting.   The Merger Agreement provides that we shall take all action necessary under applicable law to call, give notice and hold the Special Meeting of our stockholders as promptly as practicable, but in no event later than thirty (30) days following the dissemination of this proxy statement, in order for our stockholders to consider and vote upon the adoption of the Merger Agreement and approval of the Merger and that, except as provided below, our Board of Directors must recommend that our stockholders vote in favor of adoption of the Merger Agreement and approval of the Merger. Our Board of Directors may change its recommendation in certain cases described below under “— Recommendation to Our Stockholders.”

 

Public Statements.   The Merger Agreement provides that, from August 3, 2008 until the earlier of the consummation of the Merger or the termination of the Merger Agreement, PeopleSupport and ESM will consult with each other before issuing any press release or otherwise making any public statements about the Merger, and that except as may be required by applicable law, we will not, and we will not permit the representatives of PeopleSupport and its subsidiaries, to make any disclosure to the general public, including the media, without the consent of ESM.

 

The Merger Agreement provides that, except in the circumstances described below, our Board of Directors will not withdraw or modify its approval of the Merger Agreement, the Merger or the other transactions contemplated by the Merger Agreement and its recommendation that our stockholders adopt the Merger Agreement and approve the Merger.

 

The foregoing restrictions do not restrict our Board of Directors from withdrawing or modifying in a manner adverse to ESM its recommendation that our stockholders adopt the Merger Agreement and approve the Merger if:

 

 

The Merger Agreement provides that the Merger Agreement may be terminated and the Merger may be abandoned at any time prior to the effective time of the Merger (whether before or after the adoption of the Merger Agreement by our stockholders):

 

 

 

 

 

 

 

 

The Merger Agreement provides that we will be obligated to pay ESM the termination fee of $8,700,000 (the Termination Fee) if the Merger Agreement is terminated:

 

 

 

 

 

 

 

In addition, we must reimburse ESM for its out-of-pocket expenses (including travel expenses and attorney and financial advisor fees) of an aggregate of $1 million if the Merger Agreement is terminated by us or ESM if the Special Meeting has been held and our stockholders do not adopt the Merger Agreement and the Merger. If such termination is: (1) by PeopleSupport or ESM; (2) at the time of the termination of the Merger Agreement, an Acquisition Proposal has been disclosed, and not withdrawn; and (3) on or prior to the first anniversary of such termination of the Merger Agreement, an Acquisition Proposal is consummated or a definitive agreement with respect to an Acquisition Proposal is entered into by us or any of our subsidiaries then we must pay ESM the Termination Fee less any expenses paid.

 

 

Amendment.   The Merger Agreement may not be amended unless such amendment is executed in writing by each of PeopleSupport, ESM and Merger Sub.

 

Waiver.   At any time prior to the effective time, each party to the Merger Agreement may (1) extend the time for performance of any obligation or act of any other party hereto, (2) waive any inaccuracy in the representations and warranties of any other party contained herein or in any document delivered pursuant hereto and (3) waive compliance with any agreement of any other party or any condition to its own obligations contained therein, in each case, to the extent permitted by applicable law.

 

 

Whether or not the Merger is completed, in general, all fees and expenses incurred in connection with the Merger Agreement and the Merger will be paid by the party incurring those fees and expenses. Pursuant to the Merger Agreement, we must pay to ESM the Termination Fee and certain expenses if the Merger Agreement is terminated under specified circumstances. See “— Termination Fees” above.

 

Under Section 262 of the DGCL, any holder of our common stock who does not wish to accept the $12.25 per share Merger Consideration may dissent from the Merger and elect to exercise appraisal rights. Even if the Merger is approved by the holders of the requisite number of shares of our common stock, you are entitled to exercise appraisal rights and obtain payment of the “fair value” for your shares, exclusive of any element of value arising from the expectation or accomplishment of the Merger.

 

Under Section 262 of the DGCL, when a Merger is submitted for approval at a meeting of stockholders, as in the case of the Merger Agreement, not less than twenty (20) days prior to the meeting, PeopleSupport must notify each of its stockholders that appraisal rights are available and include in the notice a copy of Section 262 of the DGCL. This proxy statement constitutes the notice, and we attach the applicable DGCL statutory provisions to this proxy statement as Annex C.

 

In order to exercise your appraisal rights effectively, you must satisfy each of the following primary requirements:

 

 

If you fail strictly to comply with any of the above requirements or otherwise fail strictly to comply with the requirements of Section 262 of the DGCL, you will have no appraisal rights with respect to your shares. You will receive no further notices from us regarding your appraisal rights.

 

Neither voting (in person or by proxy) against, abstaining from voting on or failing to vote on the proposal to adopt the Merger Agreement will constitute a written demand for appraisal within the meaning of Section 262 of the DGCL. The written demand for appraisal must be in addition to and separate from any proxy or vote.

 

The address for purposes of making an appraisal demand is:

 

Assistant Secretary
PeopleSupport, Inc.
2049 Century Park East, Suite 300
Los Angeles, CA 90067

 

Only a holder of record of shares of our common stock, or a person duly authorized and explicitly purporting to act on his or her behalf, is entitled to assert an appraisal right for the shares of our common stock registered in his or her name. Beneficial owners who are not record holders and who wish to exercise appraisal rights are advised to consult with the appropriate record holders promptly as to the timely exercise of appraisal rights. A record holder, such as a broker, who holds shares of our common stock as a nominee for others, may exercise appraisal rights with respect to the shares of our common stock held for one or more beneficial owners, while not exercising such rights for other beneficial owners. In such a case, the written demand should set forth the number of shares as to which the demand is made. Where no shares of our common stock are expressly mentioned, the demand will be presumed to cover all shares of our common stock held in the name of such record holder.

 

A demand for the appraisal of shares of our common stock owned of record by two or more joint holders must identify and be signed by all of the holders. A demand for appraisal signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity must so identify the persons signing the demand.

 

An appraisal demand may be withdrawn by a former stockholder within sixty (60) days after the effective time of the Merger, or thereafter only with our approval. Upon withdrawal of an appraisal demand, the former

stockholder will be entitled to receive the $12.25 cash payment per share referred to above, without interest and less any applicable withholding taxes.

 

If we complete the Merger, we will give written notice of the effective time of the Merger within ten (10) days after the effective time of the Merger to each of our former stockholders who did not vote in favor of the Merger Agreement and who made a written demand for appraisal in accordance with Section 262 of the DGCL. Within one hundred twenty (120) days after the effective time of the Merger, but not later, either the surviving corporation or any dissenting stockholder who has complied with the requirements of Section 262 of the DGCL may file a petition in the Delaware Court demanding a determination of the value of the shares of our common stock. Stockholders who desire to have their shares appraised should initiate any petitions necessary for the perfection of their appraisal rights within the time periods and in the manner prescribed in Section 262 of the DGCL.

 

Within one hundred twenty (120) days after the effective time of the Merger, any stockholder who has complied with the provisions of Section 262 of the DGCL up to that point may receive from the surviving corporation, upon written request, a statement setting forth the aggregate number of shares not voted in favor of the Merger Agreement and with respect to which we have received demands for appraisal, and the aggregate number of holders of those shares. The surviving corporation must mail this statement to the stockholder within ten (10) days of receipt of the request or within ten (10) days after expiration of the period for delivery of demands for appraisals under Section 262 of the DGCL, whichever is later.

 

If a hearing on the petition is held, the Delaware Court is empowered to determine which dissenting stockholders are entitled to an appraisal of their shares. The Delaware Court may require dissenting stockholders who hold stock represented by certificates to submit their certificates representing shares for notation thereon of the pendency of the appraisal proceedings, and the Delaware Court is empowered to dismiss the proceedings as to any dissenting stockholder who does not comply with this request. Accordingly, dissenting stockholders are cautioned to retain their share certificates, pending resolution of the appraisal proceedings.

 

After determination of the dissenting stockholders entitled to an appraisal, the Delaware Court will appraise the shares held by such dissenting stockholders at their fair value as of the effective time of the Merger. When the value is so determined, the Delaware Court will direct the payment by the surviving corporation of such value, with interest thereon if the Delaware Court so determines, to the dissenting stockholders entitled to receive the same, upon surrender to the surviving corporation by such dissenting stockholders of the certificates representing such shares.

 

In determining fair value, the Delaware Court will take into account all relevant factors. The Delaware Supreme Court has stated that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered.

 

Stockholders should be aware that the fair value of their shares as determined under Section 262 of the DGCL could be greater than, the same as, or less than the $12.25 Merger Consideration.

 

The Delaware Court may also, on application, (1) assess costs among the parties as the Delaware Court deems equitable and (2) order all or a portion of the expenses incurred by any dissenting stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorney’s fees and fees and expenses of experts, to be charged pro rata against the value of all shares entitled to appraisal. Determinations by the Delaware Court are subject to appellate review by the Delaware Supreme Court.

 

No appraisal proceedings in the Delaware Court shall be dismissed as to any dissenting stockholder without the approval of the Delaware Court, and this approval may be conditioned upon terms which the Delaware Court deems just.

 

From and after the effective time of the Merger, former holders of our common stock are not entitled to vote their shares for any purpose and are not entitled to receive payment of dividends or other distributions on the shares (except dividends or other distributions payable to stockholders of record at a date which is prior to the effective date of the Merger).

 

A stockholder who wishes to exercise appraisal rights should carefully review the foregoing description and the applicable provisions of Section 262 of the DGCL which is set forth in its entirety in Annex C to this proxy statement and is incorporated herein by reference. Any stockholder considering demanding appraisal is advised to consult legal counsel because the failure strictly to comply with the procedures required by Section 262 of the DGCL could result in the loss of appraisal rights.

 

The following table sets forth certain information as of August 22, 2008, as to shares of our common stock beneficially owned by: (1) each person who is known by us to own beneficially more than 5% of our common stock, (2) our Chief Executive Officer and our four other most highly compensated executive officers, (3) each of our directors and (4) all our directors and executive officers as a group. Unless otherwise stated below, the address of each beneficial owner listed on the table is c/o PeopleSupport, Inc., 2049 Century Park East, Suite 300, Los Angeles, California 90067.

 

We have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws.

 

The percentage of common stock beneficially owned is based on 19,065,995 shares outstanding as of August 22, 2008. In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed outstanding shares of common stock subject to options held by that person that are currently exercisable or exercisable within sixty (60) days after August 22, 2008. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT MARKET PRICE AND DIVIDEND INFORMATION OF
PEOPLESUPPORT COMMON STOCK

 

Our common stock is quoted on The NASDAQ Global Select Market under the symbol “PSPT.” The following table sets forth the high and low sales prices for our common stock for the quarters indicated below as reported on The NASDAQ Global Select Market.

 

 

On August 1, 2008, the last full trading day prior to the public announcement of the Merger Agreement, the closing sale price of our common stock as reported on The NASDAQ Global Select Market was $9.53. On September 5, 2008, the closing price of our common stock as reported on The NASDAQ Global Select Market was $12.10.

 

Stockholders are encouraged to obtain current market quotations for our common stock.

 

Following the Merger, there will be no further market for shares of our common stock and our shares of common stock will be de-listed from The NASDAQ Global Select Market and deregistered under the Exchange Act.

 

We have not declared or paid any cash dividends on our common stock and we do not anticipate paying any cash dividends in the foreseeable future. We expect to retain future earnings, if any, to fund the growth and expansion of our business. Our Board of Directors will determine future dividends, if any. The Merger Agreement provides that we may not pay any cash dividends from August 3, 2008 until the earlier of the consummation of the Merger or the termination of the Merger Agreement without prior written consent of ESM.

 

We will hold an annual meeting of stockholders in 2009 (2009 Annual Meeting) if the Merger is not completed. In accordance with the SEC proxy proposal submission rules, any stockholder proposal to be included in the proxy statement for our 2009 Annual Meeting must be received by our Assistant Secretary at our office at 2049 Century Park East, Suite 300, Los Angeles, California 90067 by December 30, 2008, in a form that complies with our bylaws. Proposals we receive after that date will not be included in the proxy statement. We urge stockholders to submit proposals by Certified Mail — Return Receipt Requested.

 

A stockholder proposal not included in our proxy statement for the 2009 annual meeting will be ineligible for presentation at the meeting unless the stockholder gives timely notice of the proposal in writing to our Assistant Secretary at our office at 2049 Century Park East, Suite 300, Los Angeles, California 90067 and otherwise complies with the provisions of our bylaws. To be timely, the bylaws provide that we must have received the stockholder’s notice not less than one hundred twenty (120) days nor more than 150 days prior to the scheduled date of the meeting. Currently, the 2009 Annual Meeting is expected to be held on or about July 29, 2009. However, in the event that the Annual Meeting has been changed to be more than 30 calendar days before or 60 calendar days after the anniversary date of the preceding year’s Annual Meeting, notice by the stockholder to be timely must be received no later than the earlier of the close of business on the 10th day following the day on which notice of the date of the scheduled Annual Meeting was mailed or public disclosure of the meeting date was made.

 

SEC rules also grant us discretionary proxy authority regarding stockholder proposals that were not submitted by the stockholders in time to be included in the proxy statement. In the event a stockholder proposal is not submitted to us by March 31, 2009, the proxies solicited by our Board of Directors for the 2009 Annual Meeting will confer authority on the Proxyholders to vote the shares in accordance with the recommendations of our Board of Directors if such proposal is presented at the 2009 Annual Meeting without any discussion of the proposal in the proxy statement for such meeting.

 

Stockholders may nominate an individual to stand for election to our Board of Directors at our Annual Meeting by following the procedures set forth in this paragraph. Stockholders who wish to nominate a candidate for the 2009 Annual Meeting must meet the notice requirements found in the “Directors Nomination” section of our proxy statement for our 2008 Annual Meeting of Stockholders. The requesting stockholder must also provide sufficient biographical information about the proposed candidate to satisfy the requirements of the SEC for inclusion in the proxy statement and to permit the Nominating and Corporate Governance Committee to evaluate the proposed candidate in light of the criteria described under the caption “Director Nominations” of the proxy statement for our 2008 Annual Meeting of Stockholders. The request should also provide the full name, address and telephone number of the requesting stockholder and sufficient information to verify that the requesting shareholder is eligible to vote at the 2009 Annual Meeting. Additional information and certifications by the requesting stockholder and the proposed candidate may be required.

 

The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy statements with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies. Each stockholder who participates in householding will continue to receive a separate proxy card.

 

A number of brokers with account holders who are our stockholders will be “householding” our proxy materials. A single proxy statement report will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that they will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate proxy statement, please notify your broker, and direct a written request to Peter Hargittay, Director of Marketing & Investor Relations, PeopleSupport, Inc., 2049 Century Park East, Suite 300, Los Angeles, California 90067, or contact Mr. Hargittay, at (310) 824-6200. If any stockholders in your household wish to receive a separate copy of this proxy statement, they may call or write to Investor Relations and we will provide such additional copies. Stockholders who currently receive multiple copies of the proxy statement at their address and would like to request “householding” of their communications should contact their broker.

 

We are subject to the informational requirements of the Exchange Act. We file reports, proxy statements and other information with the SEC. You may read and copy these reports, proxy statements and other information at the SEC’s Public Reference Section at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website, located at www.sec.gov, that contains reports, proxy statements and other information regarding companies and individuals that file electronically with the SEC.

 

The information contained in this proxy statement speaks only as of the date indicated on the cover of this proxy statement unless the information specifically indicates that another date applies.

 

The proxy statement does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is not lawful to make any offer or solicitation in that jurisdiction. The delivery of this proxy statement should not create an implication that there has been no change in our affairs since the date of this proxy statement or that the information herein is correct as of any later date.

 

Stockholders should not rely on information other than that contained in this proxy statement. We have not authorized anyone to provide information that is different from that contained in this proxy statement. This proxy statement is dated September 10, 2008. No assumption should be made that the information contained in this proxy statement is accurate as of any date other than that date, and the mailing of this proxy statement will not create any implication to the contrary.

 

If you have questions about the Special Meeting or the Merger after reading this proxy, or if you would like additional copies of this proxy statement or the proxy card, you should contact PeopleSupport, Inc., 2049 Century Park East, Suite 300, Los Angeles, California 90067, Attention: Peter Hargittay, Director of Marketing & Investor Relations. You may also call our proxy solicitor, Innisfree M&A Incorporated, toll-free at (888) 750-5834 (banks and brokers may call collect at (212) 750-5834).

OTHER MATTERS

 

Your Board of Directors does not know of any other business that will be presented at the Special Meeting. If any other business is properly brought before the Special Meeting, your proxy holders will vote on it as they think best unless you direct them otherwise in your proxy instructions.

 

Whether or not you intend to be present at the Special Meeting, we urge you to submit your signed proxy promptly.

 

By Order of the Board of Directors

 

Lance Rosenzweig

President, Chairman of the Board,

Chief Executive Officer and Secretary

 

Los Angeles, California

September 10, 2008

Annex A

 

 

AGREEMENT AND PLAN OF MERGER
by and among
PEOPLESUPPORT, INC.,
ESSAR SERVICES, MAURITIUS
and
EASTER MERGER SUB, INC.
Dated as of August 3, 2008

 

Table of Contents

 

INDEX OF DEFINED TERMS

 

AGREEMENT AND PLAN OF MERGER

 

AGREEMENT AND PLAN OF MERGER (hereinafter called this “ Agreement ”), dated as of August 3, 2008, by and among PeopleSupport, Inc., a Delaware corporation (“ Company ”), Essar Services, Mauritius, a company organized under the laws of Mauritius (“ Parent ”), and Easter Merger Sub Inc., Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (“ Merger Sub ”).

 

W I T N E S S E T H:

 

WHEREAS, the respective Boards of Directors of Company, Parent and Merger Sub have unanimously approved the merger of Merger Sub with and into Company upon the terms and subject to the conditions set forth in this Agreement;

 

WHEREAS, the respective Boards of Directors of Parent, Merger Sub and Company have each approved and declared advisable this Agreement and the merger of Merger Sub with and into Company, as set forth below (the “ Merger ”), in accordance with the General Corporation Law of the State of Delaware (the “ DGCL ”) upon the terms and subject to the conditions set forth in this Agreement;

 

WHEREAS, Parent and Merger Sub have approved this Agreement and the consummation of the Merger and all of the covenants and agreements contained in this Agreement; and

 

NOW, THEREFORE, in consideration of the premises, the representations, warranties, covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereto agree as follows:

 

ARTICLE I

 

THE MERGER

 

1.1   The Merger .   Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the applicable provisions of the DGCL, at the Effective Time (as defined in Section 1.3), Merger Sub shall be merged with and into Company, whereupon the separate corporate existence of Merger Sub shall cease, and Company shall continue as the surviving company in the Merger (the “ Surviving Corporation ”) and a wholly owned subsidiary of Parent.

1.2   Closing .   The closing of the Merger (the “ Closing ”) shall take place at the offices of Shearman & Sterling LLP, 599 Lexington Avenue, New York, New York 10022 at 10:00 a.m., local time, on a date to be specified by the parties (the “ Closing Date ”), which shall be no later than the second Business Day after satisfaction or waiver (to the extent permitted by applicable Law (as defined in section 3.1(k)) of the conditions set forth in Article VI (other than those conditions that by their terms are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions), or at such other place, date and time as Company and Parent may agree in writing. For purpose of this Agreement “ Business Day ” means any day other than (a) a Saturday or Sunday, (b) a federal holiday in the United States, (c) a national holiday in India or a state or regional holiday in Mumbai, India or (c) a day on which commercial banks in the state of New York or the city of Mumbai, India are authorized or required to be closed.

 

1.3   Effective Time .   On the Closing Date, immediately after the Closing, the parties hereto shall cause the Merger to be consummated by filing a certificate of merger (the “ Certificate of Merger ”) with the Secretary of State of the State of Delaware and make all other filings or recordings required under the DGCL in connection with the Merger. The Merger shall become effective at such time as the Certificate of Merger is duly filed with the Secretary of State of the State of Delaware, or at such later time as Parent and Company shall agree and shall specify in the Certificate of Merger (the time the Merger becomes effective being the “ Effective Time ”).

 

1.4   Effects of the Merger .   The effects of the Merger shall be as provided in this Agreement and in the applicable provisions of the DGCL. Without limiting the generality of the foregoing, at the Effective Time, all the property, rights, privileges, powers and franchises of Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation, all as provided under the applicable laws of the State of Delaware.

 

1.5   Certificate of Incorporation of the Surviving Corporation .   Subject to Section 5.9 of this Agreement, at the Effective Time, the amended and restated certificate of incorporation of Company, as in effect immediately prior to the Effective Time, shall be amended and restated to read in its entirety as set forth in Exhibit A attached hereto and incorporated by reference herein, and, as so amended and restated, shall be the certificate of incorporation of the Surviving Corporation until thereafter amended as provided therein or by applicable Law.

 

1.6   By-Laws of the Surviving Corporation .   Subject to Section 5.9 of this Agreement, at the Effective Time, the amended and restated by-laws of Company, as in effect immediately prior to the Effective Time, shall be amended and restated to read in their entirety as set forth in Exhibit B attached hereto and incorporated by reference herein, and, as so amended and restated, shall be the by-laws of the Surviving Corporation, until thereafter amended as provided therein, in the certificate of incorporation or in accordance with applicable Law.

 

1.7   Directors .   The Directors of Merger Sub immediately prior to the Effective Time shall, from and after the Effective Time, be the directors of the Surviving Corporation until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the certificate of incorporation and the by-laws.

1.8   Officers .   The officers of Merger Sub immediately prior to the Effective Time shall, from and after the Effective Time, be the officers of the Surviving Corporation until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the certificate of incorporation and the by-laws.

 

ARTICLE II

 

EFFECT OF THE MERGER ON CAPITAL STOCK; EXCHANGE OF CERTIFICATES

 

2.1   Effect on Capital Stock .   At the Effective Time, as a result of the Merger and without any further action on the part of Company, Parent, Merger Sub or any holder of any shares of capital stock of Company, Parent or Merger Sub:

 

(a)  Merger Sub .   Each share of common stock, par value $0.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and become one (1) validly issued, fully paid and nonassessable share of common stock, par value $0.01 per share, of the Surviving Corporation with the same rights, powers and privileges as the shares so converted and constitute the only outstanding shares of capital stock of the Surviving Corporation. From and after the Effective Time, all certificates representing the common stock of Merger Sub shall be deemed for all purposes to represent the number of shares of common stock of the Surviving Corporation into which they were converted in accordance with the immediately preceding sentence.

 

(b)  Cancellation of Treasury Stock and Parent-Owned Stock .   Each Share that is owned directly or indirectly by Company as treasury stock or by Parent, Merger Sub or any other Subsidiary (as defined in Section 3.1(a)) of Parent or Company immediately prior to the Effective Time (the “ Cancelled Shares ”) shall, by virtue of the Merger and without any action on the part of the holder thereof, automatically be cancelled and retired and shall cease to exist, and no cash or other consideration shall be delivered in exchange therefore.

 

(c)  Conversion of Company Common Shares .   Subject to Section 2.1(b) and Section 2.3(a), each issued and outstanding share of common stock, par value $0.001 per share, of the Company, together with each associated Right (as hereinafter defined) under the Rights Agreement (as hereinafter defined) issued and outstanding immediately prior to the Effective Time (such shares collectively, “ Common Shares ” or “ Shares ” and each, a “ Share ”), other than any Cancelled Shares (as defined, and to the extent provided in Section 2.1(b)) and any Dissenting Shares (as defined, and to the extent provided in Section 2.3(a)), shall be cancelled and shall be converted automatically into the right to receive from the Surviving Corporation $[12.25] per share in cash, without interest (the “ Merger Consideration ”) payable to the holder thereof upon surrender in the manner provided in Section 2.2(b) of the certificate or certificates (a “ Certificate ”) which immediately prior to the Effective Time evidenced such Shares.

(d)  Stock Options; Restricted Stock Units .   Company shall cause each option to purchase Common Shares (a “ Company Option ”), outstanding immediately prior to the Effective Time, whether vested or unvested, to be canceled at the Effective Time and shall thereafter represent the right to receive, at the Effective Time or as soon as practicable thereafter, in full satisfaction of the rights of the holder with respect thereto, an amount in cash equal to the product of (A) the number of Common Shares subject to such Company Option immediately prior to the Effective Time, multiplied by (B) the amount by which the Merger Consideration exceeds the exercise price per share of Company Shares previously subject to such Company Option. Company shall cause each restricted stock unit with respect to Common Shares (“ Company RSUs ”) outstanding immediately prior to the Effective Time, whether vested or unvested, to be canceled at the Effective Time, and shall thereafter represent the right to receive, at the Effective Time or as soon as practicable thereafter, in full satisfaction of the rights of the holder with respect thereto, an amount in cash equal to the product of (A) the number of Company Shares subject to such Company RSU immediately prior to the Effective Time, multiplied by (B) the Merger Consideration. In accordance with the terms of the 2004 Employee Stock Purchase Plan, immediately prior to the Effective Time, any “Accumulation Period” and/or “Offering Period” (as such terms are defined in the 2004 Employee Stock Purchase Plan) shall terminate and each participant thereunder shall receive Common Shares in accordance with the terms of the 2004 Employee Stock Purchase Plan.

 

2.2   Exchange of Share Certificates .   (a)   Paying Agent .   Prior to the Effective Time, Parent shall designate a bank or trust company to act as paying agent (the “ Paying Agent ”) for the payment of the Merger Consideration. At the Effective Time, Parent shall deposit, or cause Merger Sub to deposit, with the Paying Agent, for the benefit of the holders of Certificates, an amount equal to the aggregate Merger Consideration. The deposit made by Parent or Merger Sub, as the case may be, pursuant to this Section 2.2(a) is hereinafter referred to as the “ Exchange Fund. ” Such funds shall be invested in Permitted Investments by the Paying Agent as directed by the Surviving Corporation. Any interest or other income resulting from such investment shall be paid to and be income of Parent. The Exchange Fund shall not be used for any purpose that is not expressly provided for in this Agreement. “ Permitted Investments ” shall mean (i) direct obligations of the United States, (ii) obligations for which the full faith and credit of the United States is pledged to provide for the payment of principal and interest, (iii) commercial paper rated the highest quality by Moody’s Investors Services, Inc. or Standard & Poor’s Ratings Group, (iv) certificates of deposit, money market funds, bank repurchase agreements or bankers’ acceptances of a commercial bank having at least $1 billion in assets and rated in one of two highest rating categories (without regard to refinements within such rating categories) by Moody’s Investors Services, Inc. or Standard & Poor’s Ratings Group, or (v) pooled or commingled investment vehicles administered by a bank meeting the requirements of (iv) above that is limited to investments as described in (i) through (iv) above.

(b)  Exchange Procedures .   Promptly after the Effective Time, the Surviving Corporation shall cause the Paying Agent to mail to each holder of record of a Certificate (i) a letter of transmittal specifying that delivery of the Certificates shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates (or affidavits of loss reasonably satisfactory to the Surviving Corporation in lieu thereof) to the Paying Agent, such letter of transmittal to be in customary form and have such other provisions as Parent may reasonably specify and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration (such instructions shall include instructions for the payment of the Merger Consideration to a Person other than the Person in whose name the surrendered Certificate is registered on the transfer books of Company, subject to the receipt of appropriate documentation for such transfer). Upon surrender to the Paying Agent of a Certificate (or evidence reasonably satisfactory to the Surviving Corporation of loss in lieu thereof) for cancellation together with such letter of transmittal, duly completed and validly executed, and such other documents as may reasonably be requested by the Paying Agent, the holder of such Certificate shall be entitled to receive in exchange therefore the Merger Consideration that such holder is entitled to receive pursuant to this Article II, and the Certificate so surrendered shall forthwith be cancelled; provided that in no event will a holder of a Certificate be entitled to receive the Merger Consideration if Merger Consideration was already paid with respect to the Shares underlying such Certificate in connection with an affidavit of loss. No interest will be paid or accrued on any amount payable upon due surrender of the Certificates. In the event of a transfer of ownership of Common Shares that is not registered in the transfer records of Company, payment may be issued to such a transferee if the Certificate formerly representing such Common Shares is presented to the Paying Agent, accompanied by all documents reasonably satisfactory to the Surviving Corporation required to evidence and effect such transfer, and the Person requesting such issuance pays any transfer or other taxes required by reason of such payment to a Person other than the registered holder of such Certificate or establishes to the satisfaction of Parent and Company that such tax has been paid or is not applicable. All cash paid upon the surrender of a Certificate in accordance with the terms of this Section 2.2 shall be deemed to have been paid in full satisfaction of all rights pertaining to the Common Shares formerly represented by such Certificate.

 

For the purposes of this Agreement, the term “ Person ” shall mean any individual, corporation (including not-for-profit corporations), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, Governmental Entity (as defined in Section 3.1(d)) or other entity of any kind or nature.

 

(c)  Transfers .   At the close of business on the day of the Effective Time, the stock transfer books of Company shall be closed and thereafter there shall be no further registration of transfers on the stock transfer books of Company of Common Shares that were outstanding immediately prior to the Effective Time. From and after the Effective Time, the holders of Shares outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such Shares except as otherwise provided herein or by applicable Law.

(d)  Termination of Exchange Fund .   Any portion of the Exchange Fund relating to the Merger Consideration that remains unclaimed by the stockholders of Company one hundred and eighty (180) days after the Effective Time shall be returned to Parent or the Surviving Corporation. Any stockholders of Company who have not theretofore complied with this Article II shall thereafter look only to Parent for payment of the Merger Consideration upon due surrender of their Certificates (or affidavits of loss reasonably satisfactory to the Surviving Corporation in lieu thereof), without any interest thereon. Notwithstanding the foregoing, none of Parent, Merger Sub, the Surviving Corporation, the Paying Agent or any other Person shall be liable to any former holder of Common Shares or for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar Laws. If any Certificate has not been surrendered prior to five years after the Effective Time (or immediately prior to such earlier date on which Merger Consideration in respect of such Certificate would otherwise escheat to or become the property of any Governmental Entity) any such Shares, cash, dividends or distributions in respect of such Certificate shall, to the extent permitted by applicable Law, become the property of the Surviving Corporation, free and clear of all claims or interest of any Person previously entitled hereto.

 

(e)  Lost, Stolen or Destroyed Certificates .   In the event that any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by Parent, the posting by such Person of a bond reasonably satisfactory to the Surviving Corporation as indemnity against any claim that may be made against it with respect to such Certificate, the Paying Agent will issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration upon due surrender of the Common Shares represented by such Certificate pursuant to this Agreement.

 

(f)  Withholding Rights .   Not withstanding anything to the contrary herein, each of Parent, Merger Sub, the Paying Agent and the Surviving Corporation shall be entitled to deduct and withhold from the consideration otherwise payable to any Person pursuant to this Article II such amounts as it is required to deduct and withhold with respect to the making of such payment under provision of any federal, state, local or foreign tax law or under the Internal Revenue Code of 1986, as amended (the “ Code ”), and the rules and regulations promulgated thereunder. If Parent, Merger Sub, the Paying Agent or the Surviving Corporation, as the case may be, so withholds amounts, such amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Common Shares in respect of which Parent, Merger Sub, the Paying Agent or the Surviving Corporation, as the case may be, made such deduction and withholding.

2.3   Dissenters’ Rights .   (a) Notwithstanding anything in any other Section of this Agreement to the contrary, Common Shares, including any Rights attached thereto, outstanding immediately prior to the Effective Time and held by a holder who has not voted in favor of the Merger or consented thereto in writing and who has demanded properly in writing appraisal for such Common Shares including any Rights attached thereto in accordance with Section 262 of the DGCL (collectively, the “ Dissenting Shares ”) shall not be converted into, or represent the right to receive, the Merger Consideration, unless such holder fails to perfect or withdraws or otherwise loses his right to appraisal. At the Effective Time, all Dissenting Shares shall no longer be outstanding and shall automatically be cancelled and shall cease to exist, and each holder of Dissenting Shares shall cease to have any rights with respect thereto, except the right to receive, subject to and net of any applicable withholding of Taxes (as defined in Section 3.1(n)(ii)), payment of the appraised value of such Dissenting Shares held by them in accordance with the provisions of Section 262 of the DGCL. Notwithstanding the foregoing, if any such holder shall fail to perfect or otherwise shall waive, withdraw or lose the right to appraisal under Section 262 of the DGCL or a court of competent jurisdiction shall determine that such holder is not entitled to the relief provided by Section 262 of the DGCL, then the right of such holder to receive, subject to and net of any applicable withholding of Taxes, payment of the appraised value of such Dissenting Shares held by them in accordance with the provisions of Section 262 of the DGCL shall cease and such Dissenting Shares shall thereupon be deemed to have been converted into, and to have become exchangeable for, as of the Effective Time, the right to receive the Merger Consideration, without any interest thereon, upon surrender, in the manner provided in Section 2.2, of the Certificate or Certificates that formerly evidenced such Dissenting Shares.

 

(b) Company shall give Parent prompt notice of any demands for appraisal received by Company, withdrawals of such demands and any other instruments served on or otherwise received by Company pursuant to the DGCL, and Parent shall have the right to direct all negotiations and proceedings with respect to demands for appraisal under DGCL. Company shall not, except with the prior written consent of Parent, make any payment with respect to any demands for appraisal or offer to settle or settle any such demands.

 

2.4   Adjustments to Prevent Dilution .   In the event that Company changes the number of Common Shares or securities convertible or exchangeable into or exercisable for Common Shares issued and outstanding prior to the Effective Time as a result of a reclassification, stock split (including a reverse stock split), stock dividend or distribution, recapitalization, merger, subdivision, issuer tender or exchange offer, or other similar transaction, the Merger Consideration shall be equitably adjusted to reflect such change.

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES

 

3.1   Representations and Warranties of Company .   Except as set forth in the disclosure schedules delivered to Parent by Company prior to the date of this Agreement (the “ Company Disclosure Schedules ”) or in Company Reports (as defined in Section 3.1(e)(i)) filed prior to the date hereof (and then (i) only to the extent reasonably apparent in the Company Reports that such disclosed item is an event, item or occurrence that constitutes a breach of a representation or warranty set forth in this Article III and (ii) excluding any risk factor disclosures contained in such documents under the heading “Risk Factors” and any disclosure of risks included in any “forward-looking statements” in such filings), Company hereby represents and warrants to Parent and Merger Sub that:

 

(a)  Organization, Good Standing and Qualification .   Each of Company and its Subsidiaries is a corporation duly organized, validly existing and in good standing under the Laws of its respective jurisdiction of organization and has all requisite corporate or similar power and authority to own and operate its properties and assets and to carry on its business as currently conducted and is qualified to do business and is in good standing as a foreign corporation in each jurisdiction where the ownership or operation of its properties and assets or conduct of its business requires such qualification, except where the failure to be so qualified as a foreign corporation or be in good standing would not be reasonably likely to, either individually or in the aggregate, have a Company Material Adverse Effect (as defined herein). Company has heretofore made available to Parent complete and correct copies of Company’s and each of its Subsidiaries’ certificate of incorporation and by-laws (or comparable governing instruments), as amended. The certificate of incorporation and by-laws (or comparable governing instruments) of each of Company and its Subsidiaries so made available are in full force and effect. Section 3.1(a) of the Company Disclosure Schedules sets forth a list of all of the Subsidiaries of Company, the jurisdictions under which such Subsidiaries are incorporated, and the percent of the equity interest therein owned by Company and each other Subsidiary of Company, as applicable. Except as disclosed in Section 3.1(a) of the Company Disclosure Schedules, Company does not directly or indirectly own any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for any equity or similar interest in, any corporation, partnership, joint venture or other business association or entity.

 

As used in this Agreement, the term “ Subsidiary ” means, with respect to Company, Parent or Merger Sub, as the case may be, any entity, whether incorporated or unincorporated, of which at least a majority of the securities or ownership interests having by their terms ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions is directly or indirectly owned or controlled by such party or by one or more of its respective Subsidiaries or by such party and any one or more of its respective Subsidiaries.

As used in this Agreement, the term “ Affiliate ” shall mean, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, such Person; provided that, for the purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

 

As used in this Agreement, the term “ Company Material Adverse Effect ” means, any event, circumstance, change or effect that, individually or in the aggregate with any other events, circumstances, changes and effects, is or is reasonably likely to be materially adverse to (a) the business, condition (financial or otherwise), assets, liabilities or results of operations of the Company and its Subsidiaries taken as a whole or (b) the ability of the company to consummate the Merger and the other transactions contemplated hereby; provided, however , that any such effect resulting from or arising out of (i) any change in Law or United States generally accepted accounting principles (“ U.S. GAAP ”) or interpretations thereof, (ii) changes in general economic or business conditions, (iii) conditions generally affecting the business process outsourcing industry, (iv) acts of war (whether declared or undeclared), sabotage, terrorism, military action or any escalation or worsening thereof, (v) the Company or any of its Subsidiaries taking any action permitted hereby, (vi) the public announcement or the pendency of this Agreement ( provided , however , that this clause (vi) shall not diminish the effect of, and shall be disregarded for purposes of the representations and warranties relating to required consent, approvals, change in control provisions or similar rights of acceleration, termination, modification or waiver based upon the entering into of this Agreement or consummation of the Merger and the other transactions contemplated hereby), (vii) a decline in the trading price of Common Shares and any failure in and of itself by Company to meet analysts’ published revenue or earnings predictions or any internal or disseminated projections, forecasts or revenue or earnings predictions for any period ending (or for which revenues or earnings are released) on or after the date of this Agreement ( provided that, the underlying causes of such decline and failure may be considered in determining whether there has been a Company Material Adverse Effect), (viii) any costs or expenses associated with the Merger, and (ix) currency exchange rates or any fluctuations thereof shall not be considered when determining if a Company Material Adverse Effect has occurred; except with respect to subsections (i)-(iv) and (ix), in the event, that such occurrence, change, event or effect has had a materially disproportionate effect on Company and its Subsidiaries, taken as a whole, compared to other Persons engaged in the business process outsourcing industry in which case such effects shall be considered in determining whether a Company Material Adverse Effect has occurred.

 

As used in this Agreement, the term “ knowledge ” or any similar formulation of knowledge shall mean the actual knowledge after reasonable investigation of, with respect to Company, those persons set forth in Section 3.1(a) of the Company Disclosure Schedules and, with respect to Parent, those persons set forth in Section 3.2(a) of the Parent Disclosure Schedules (as defined in Section 3.2).