UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

PROXY STATEMENT PURSUANT TO SECTION 14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

Check the appropriate box:

þ  Preliminary Proxy Statement

o  Confidential, for use of the Commission Only (as permitted by Rule 14a-6(e)(2))

o  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Under Rule 14a-12

 

SRA INTERNATIONAL, INC.

(Name of Registrant as Specified in its Charter)

 

Payment of Filing Fee (Check the appropriate box):

 

 

SRA International, Inc. Class A common stock, par value $0.004 per share, and Class B common

stock, par value $0.004 per share (collectively, the “common stock”)

 

 

58,435,163 shares of common stock (including restricted stock awards) and 5,307,045 shares

of common stock underlying outstanding options of the Company with an exercise price of less

than $31.25 per share

 

 

Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it

was determined):

 

The proposed maximum aggregate value of the transaction for purposes of calculating the filing fee is

$1,886,978,494. The maximum aggregate value of the transaction was based upon the sum of

(A) (1) 58,435,163 shares of common stock (including restricted stock awards) that are proposed to

be retired in the merger, multiplied (2) by $31.25 per share and (B) $60,879,650 expected to be paid upon

cancellation of all outstanding stock options. The filing fee equals the product of 0.00011610 multiplied

by the maximum aggregate value of the transaction.

 

 

 

 

 

 

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.

 

 

 

 

 

 

 

 

 

PRELIMINARY PROXY MATERIAL SUBJECT TO COMPLETION

SRA INTERNATIONAL, INC.
4300 Fair Lakes Court
Fairfax, VA 22033

 

PROPOSED MERGER — YOUR VOTE IS VERY IMPORTANT

 

          , 2011

 

To the Stockholders of SRA International, Inc.:

 

You are cordially invited to attend a special meeting of stockholders of SRA International, Inc., a Delaware corporation (the “Company,” “SRA,” “we,” “us” or “our”) to be held at           a.m., local time, on          , 2011, at          .

 

On March 31, 2011, we entered into an Agreement and Plan of Merger (the “merger agreement”) with Sterling Parent Inc., a Delaware corporation (“Parent”), and Sterling Merger Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), providing for the merger of Merger Sub with and into the Company (the “merger”), with the Company surviving the merger as a wholly owned subsidiary of Parent. Parent and Merger Sub are affiliates of Providence Equity Partners L.L.C. The merger agreement was approved by the Company’s Board of Directors (the “Board” or “Board of Directors”), acting upon the unanimous recommendation of the special committee composed of independent directors of the Board. At the special meeting, we will ask you to adopt the merger agreement.

 

If the merger is completed, each share of our Class A common stock and our Class B common stock (collectively, the “SRA common stock”), other than as provided below, will be converted into the right to receive $31.25 in cash (the “per share merger consideration”), without interest and less any applicable withholding taxes. The following shares of SRA common stock will not be converted into the right to receive the per share merger consideration in connection with the merger: (a) treasury shares owned by the Company, (b) shares owned by Parent, Merger Sub or any other direct or indirect wholly owned subsidiary of Parent, including shares contributed to Sterling Holdco Inc., a Delaware corporation and the sole stockholder of Parent (“Holdco”), by the Rollover Investor (as defined below) and (c) shares owned by stockholders who have not voted in favor of the proposal to adopt the merger agreement and have exercised, perfected and not withdrawn a demand for, or lost the right to, appraisal rights under Delaware law.

 

A special committee of our Board, consisting entirely of independent directors, reviewed and considered the terms and conditions of the merger agreement and the transactions contemplated by the merger agreement, including the merger. This special committee unanimously recommended that our Board approve and declare the advisability of the merger agreement and the transactions contemplated by the merger agreement, including the merger, and recommend that our stockholders adopt the merger agreement. Our Board (other than Dr. Ernst Volgenau, our chairman of the Board (“Dr. Volgenau”), who abstained due to his interests in the merger as described below), after careful consideration and acting on the unanimous recommendation of the special committee, deemed it advisable and in the best interests of the Company and our stockholders that the Company enter into the merger agreement and recommended that our stockholders adopt the merger agreement at the special meeting. Our Board recommends that you vote “FOR” the proposal to adopt the merger agreement.

 

The adoption of the merger agreement requires the affirmative vote of (a) the holders of a majority of the outstanding shares of SRA common stock entitled to vote on such matter, and (b) the holders of a majority of the outstanding shares of Class A common stock entitled to vote on such matter (excluding all such shares beneficially owned, whether directly or indirectly, by Dr. Volgenau), in each case outstanding at the close of business on the record date. More information about the merger is contained in the accompanying proxy statement and a copy of the merger agreement is attached as Annex A thereto.

 

In considering the recommendation of the special committee and the Board, you should be aware that some of the Company’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of our stockholders generally. Dr. Volgenau, directly or indirectly through certain related trusts or estate planning vehicles, beneficially owns approximately 20% of the total number of

outstanding shares of SRA common stock, which shares represent approximately 71% of the aggregate voting rights of the SRA common stock, and has agreed with Holdco to contribute to Holdco a portion of the shares of SRA common stock owned by him in exchange for equity interests of Holdco and a promissory note issued by Holdco immediately prior to the completion of the merger.

 

We urge you to read the accompanying proxy statement in its entirety because it explains the proposed merger, the documents related to the merger and other related matters.

 

Regardless of the number of shares of SRA common stock you own, your vote is important. Whether or not you plan to attend the special meeting, please take the time to submit a proxy by following the instructions on your proxy card as soon as possible. If your shares of SRA common stock are held in an account at a broker, bank or other nominee, you should instruct your broker, bank or other nominee how to vote in accordance with the voting instruction form furnished by your broker, bank or other nominee. If you abstain from voting, fail to cast your vote in person or by proxy or fail to give voting instructions to your broker, bank or other nominee, it will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement.

 

We appreciate your continued support of the Company.

 

Sincerely,

 

 

 

 

 

The accompanying proxy statement is dated          , 2011 and is first being mailed to stockholders on or about          , 2011.

SRA INTERNATIONAL, INC.
4300 Fair Lakes Court
Fairfax, VA 22033

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

 

TO BE HELD ON          , 2011

 

To the Stockholders of SRA International, Inc.:

 

NOTICE IS HEREBY GIVEN that the special meeting of stockholders of SRA International, Inc. (the “Company,” “SRA,” “we,” “us” or “our”) will be held at           a.m., local time, on          , 2011, at          , for the following purposes:

 

1. To consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of March 31, 2011 (the “merger agreement”), with Sterling Parent Inc., a Delaware corporation (“Parent”), and Sterling Merger Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), as it may be amended from time to time, providing for, among other things, the merger of Merger Sub with and into the Company (the “merger”), with the Company surviving the merger as a wholly owned subsidiary of Parent. Parent and Merger Sub are affiliates of Providence Equity Partners L.L.C.

 

2. To consider and vote on a proposal to adjourn the special meeting, 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.

 

3. To transact such other business as may properly come before the special meeting or any adjournments or postponements of the special meeting.

 

We have described the merger agreement and the merger in the accompanying proxy statement, which you should read in its entirety before voting. A copy of the merger agreement is attached as Annex A to the proxy statement. The record date to determine stockholders entitled to vote at the special meeting is          , 2011. Only holders of our common stock at the close of business on the record date are entitled to notice of, and to vote at, the special meeting.

 

The adoption of the merger agreement requires the affirmative vote of (a) the holders of a majority of the outstanding shares of SRA common stock entitled to vote on such matter, and (b) the holders of a majority of the outstanding shares of Class A common stock entitled to vote on such matter, (excluding all such shares beneficially owned, whether directly or indirectly, by Dr. Ernst Volgenau, our chairman of the Board), in each case outstanding at the close of business on the record date.

 

Regardless of the number of shares of SRA common stock you own, your vote is important. The failure to vote (or to give voting instructions to your broker, bank or other nominee) will have the same effect as a vote against the proposal to adopt the merger agreement. Whether or not you plan to attend the special meeting, please take the time to submit a proxy by following the instructions on your proxy card as soon as possible. If your shares of SRA common stock are held in an account at a broker, bank or other nominee, you should instruct your broker, bank or other nominee how to vote in accordance with the voting instruction form furnished by your broker, bank or other nominee.

 

Stockholders who do not vote in favor of adoption of the merger agreement will have the right to seek appraisal and receive in cash the fair value of their shares as determined by the Delaware Chancery Court in lieu of receiving the per share merger consideration if the merger closes but only if they perfect their appraisal rights by complying with the required procedures under Delaware law, which are summarized in the accompanying proxy statement.

 

If you plan to attend the special meeting, please note that you may be asked to present valid photo identification, such as a driver’s license or passport. If you wish to attend the special meeting and your shares of SRA common stock are held in an account at a broker, bank or other nominee (i.e., in “street name”), you

will need to bring a copy of your voting instruction card or statement reflecting your share ownership as of the record date.

 

By Order of the Board of Directors,

 

Mark D. Schultz

Corporate Secretary

 

Fairfax, Virginia

 

          , 2011

 

YOUR VOTE IS IMPORTANT

 

WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING SELF-ADDRESSED POSTAGE-PAID ENVELOPE OR BY FOLLOWING THE INTERNET OR TELEPHONE PROXY INSTRUCTIONS AS SOON AS POSSIBLE.

 

Table of Contents

 

 

SUMMARY TERM SHEET

	•	our stockholders (other than the Rollover Investor) will no longer have any interest in, and will no longer be stockholders of, the Company, and will not participate in any of the Company’s future earnings or growth; and
	•	shares of our Class A common stock will no longer be listed on The New York Stock Exchange (“NYSE”), and the registration of shares of our Class A common stock under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), will be terminated.

	•	Accelerated vesting of stock options and cash payments with respect to stock options that have an exercise price of less than $31.25 per share;
	•	Accelerated vesting of restricted stock awards and cash payments equal to the $31.25 per share merger consideration with respect to restricted stock awards;

	•	The expected ownership of equity interests in Holdco by the Rollover Investor;
	•	Severance benefits for our executive officers provided by their existing employment agreements and retention agreements with us following the merger;
	•	The establishment of a new equity-based management incentive plan and anticipated grants of equity awards to senior management, key employees and other employees after completion of the merger (although, to date, the plan terms have not yet been established and no grants have been promised or communicated to any person); and
	•	Continued indemnification and liability insurance for directors and executive officers following completion of the merger.

	•	the adoption of the merger agreement by the affirmative vote of (a) the holders of a majority of the outstanding shares of SRA common stock entitled to vote on such matter, and (b) the holders of a majority of the outstanding shares of Class A common stock entitled to vote on such matter (excluding all such shares beneficially owned, whether directly or indirectly, by Dr. Volgenau), in each case outstanding and entitled to vote at the special meeting;
	•	the termination or expiration of the waiting period applicable to the merger under the HSR Act;
	•	the absence of any order or law that restrains, enjoins or otherwise prohibits the consummation of the merger;
	•	the representations and warranties of the Company, Parent and Merger Sub being true and correct, in each case as of the closing of the merger, subject in many cases to material adverse effect qualifications; and
	•	the Company’s, Parent’s and Merger Sub’s performance in all material respects of its agreements and covenants in the merger agreement.

	•	the merger has not been consummated by October 14, 2011, whether such date is before or after the approval of the Company’s stockholders is obtained;
	•	any injunction, judgment, decree or ruling by any governmental authority permanently enjoining, restraining or prohibiting consummation of the merger has become final and non-appealable; or
	•	the stockholder approval shall not have been obtained at the stockholders meeting duly convened for such purposes or at any adjournment or postponement thereof.

	•	the Board shall have made a change of recommendation (as defined under “THE MERGER AGREEMENT — Solicitation of Acquisition Proposals”), provided that Parent’s right to terminate the merger agreement pursuant to this provision will expire at 5:00 p.m. (New York City time) on the tenth business day following the date on which such right to terminate first arose; or
	•	at any time prior to the effective time, there has been a breach of any representation, warranty, covenant or agreement made by the Company in the merger agreement, which breach (i) would give rise to the failure of a condition to the Parent or Merger Sub’s obligation to effect the merger and (ii) cannot be cured by October 14, 2011 or, if capable of being cured, shall not have been cured within 30 calendar days following receipt by the Company of written notice from Parent of such breach, or such shorter period that remains between the receipt of such written notice and October 14, 2011; and

	•	at any time prior to the receipt of the stockholder approval, (i) the Board has authorized the Company to enter into an alternative acquisition agreement with respect to a superior proposal and the Company will enter into such an alternative acquisition agreement concurrently with such termination, (ii) the Company has complied in all material respects with its obligations relating to solicitations of acquisition proposals and (iii) prior to or concurrently with such termination, the Company pays the applicable termination fee;

	•	at any time prior to the effective time, there has been a breach of any representation, warranty, covenant or agreement made by Parent or Merger Sub in the merger agreement, which breach (i) would give rise to the failure of a condition to the Company’s obligation to effect the merger and (ii) cannot be cured by October 14, 2011 or, if capable of being cured, shall not have been cured within 30 calendar days following receipt by the Parent or Merger Sub of written notice from the Company of such breach, or such shorter period that remains between the receipt of such written notice and October 14, 2011; or
	•	after the marketing period (as described under “THE MERGER AGREEMENT — Marketing Period”) has ended, (i) all of the conditions to each party’s obligation to effect the merger (other than those conditions that by their nature are to be satisfied by actions taken at the closing, each of which is capable of being satisfied at the closing) have been satisfied, (ii) the Company has irrevocably confirmed by written notice to Parent that it is ready, willing and able to consummate the closing, (iii) Parent and Merger Sub fail to consummate the merger on the closing date in accordance with the terms of the merger agreement, and (iv) the Company has delivered to Parent written notice at least one business day prior to such termination stating the Company’s intention to terminate the merger agreement pursuant to this provision and the basis for such termination.

 

 

 

 

This proxy statement contains forward-looking statements with respect to our financial condition, results of operations, plans, objectives, intentions, future performance and business and other statements that are not statements of historical facts, as well as certain information relating to the merger, including, without limitation:

 

 

These forward-looking statements involve certain risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:

 

 

Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in reports we have filed with the Securities and Exchange Commission.

 

Forward-looking statements speak only as of the date of this proxy statement or the date of any document incorporated by reference in this document. All subsequent written and oral forward-looking statements concerning the merger or other matters addressed in this proxy statement and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Moreover, although we believe the expectations reflected in the forward-looking statements

are based upon reasonable assumptions, we give no assurance that we will attain these expectations or that any deviations will not be material. Except to the extent required by applicable law or regulation, we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date of this proxy statement or to reflect the occurrence of unanticipated events. We note that the safe harbor provided in the Private Securities Litigation Reform Act of 1995 does not apply to statements made in connection with a going private transaction, such as the merger.

 

The following is a description of the material aspects of the merger. While we believe that the following description covers the material terms of the merger, the description may not contain all of the information that is important to you. We encourage you to read carefully this entire document, including the merger agreement attached to this proxy statement as Annex A, for a more complete understanding of the merger. The following description is subject to, and is qualified in its entirety by reference to, the merger agreement.

 

SRA International, Inc.

 

SRA is a leading provider of technology and strategic consulting services and solutions primarily to government organizations. Headquartered in Fairfax, Virginia, SRA is dedicated to solving complex problems for our clients by providing services, systems, and solutions that enable mission performance, improve efficiency of operations, and/or reduce operating costs. The Company’s principal executive offices are located at 4300 Fair Lakes Court, Fairfax, VA 22033. Our telephone number is (703) 803-1500.

 

Providence Entities

 

Providence Equity Partners VI L.P. (“PVI”) and Providence Equity Partners VI-A L.P. (“PVI-A,” and together with PVI, the “Providence Funds”) are private equity funds sponsored by Providence Equity Partners L.L.C. (“Providence”), which is a leading global private equity firm specializing in equity investments in media, entertainment, communications and information services companies around the world.

 

PVI and PVI-A are private investment funds. PVI’s and PVI-A’s general partner is Providence Equity GP VI, L.P. (“PEP LP”), which is principally engaged in the business of serving as the general partner of PVI and PVI-A. PEP LP’s general partner is Providence Equity Partners VI L.L.C. (“PEP GP”), which is principally engaged in the business of serving as the general partner of PEP LP. We refer to the Providence Funds, PEP LP and PEP GP, collectively, as the “Providence Entities.”

 

The principal office and business address for each of PVI, PVI-A, PEP LP and PEP GP is c/o Providence Equity Partners L.L.C., 50 Kennedy Plaza, 18th Floor, Providence, RI 02903.

 

Information regarding the natural persons who are the directors and executive officers of PVI, PVI-A, PEP LP and PEP GP is set forth on Annex E to this proxy statement.

 

Volgenau Filing Persons

 

Dr. Volgenau is a director, chairman of the board of directors and founder of the Company. The Ernst Volgenau 2011 Charitable Remainder Unitrust I, The Ernst Volgenau 2011 Charitable Remainder Unitrust II, The Ernst Volgenau Revocable Trust, and the Ernst Volgenau 2010 Grantor Retained Annuity Trust (collectively, the “EV Trusts”) are trusts affiliated with Dr. Volgenau. We refer to the EV Trusts and Dr. Volgenau, collectively, as the “Volgenau Filing Persons” and to Dr. Volgenau, acting through The Ernst Volgenau Revocable Trust, as the “Rollover Investor.” The trustee of each of the EV Trusts (other than the Ernst Volgenau 2010 Grantor Retained Annuity Trust) is Dr. Volgenau and the trustee of the Ernst Volgenau 2010 Grantor Retained Annuity Trust is Sara Volgenau, Dr. Volgenau’s spouse. The business address for Dr. Volgenau and each of the EV Trusts (including Dr. Volgenau and his wife in their capacity as trustee of the respective EV Trusts as described above) is c/o SRA International, Inc., 4300 Fair Lakes Court, Fairfax, VA 22033, and their telephone number is (703) 803-1500.

 

Sterling Holdco Inc.

 

Sterling Holdco Inc., which we refer to as “Holdco,” was formed by the Providence Funds solely for the purpose of owning Parent after the merger and arranging the related financing transactions. Holdco is currently owned by the Providence Funds. Holdco has not engaged in any business except for activities incidental to its formation and in connection with the merger and the other transactions contemplated by the merger agreement.

The principal executive offices of Holdco are located at c/o Providence Equity Partners L.L.C., 50 Kennedy Plaza, 18th Floor, Providence, RI 02903, and its telephone number is (401) 751-1700. Information regarding the natural persons who are directors and executive officers of Holdco is set forth on Annex E to this proxy statement.

 

Sterling Parent Inc.

 

Sterling Parent Inc., which we refer to as “Parent,” was formed by the Providence Funds solely for the purpose of owning the Company after the merger and arranging the related financing transactions. Parent is wholly owned by Holdco and has not engaged in any business except for activities incidental to its formation and in connection with the merger and the other transactions contemplated by the merger agreement. The principal executive offices of Parent are located at c/o Providence Equity Partners L.L.C., 50 Kennedy Plaza, 18th Floor, Providence, RI 02903, and its telephone number is (401) 751-1700. Information regarding the natural persons who are directors and executive officers of Parent is set forth on Annex E to this proxy statement.

 

Sterling Merger Inc.

 

Sterling Merger Inc., which we refer to as “Merger Sub,” was formed by the Providence Funds solely for the purpose of completing the merger. Merger Sub is wholly owned by Parent and has not engaged in any business except for activities incidental to its formation and in connection with the merger and the other transactions contemplated by the merger agreement. Upon the completion of the merger, Merger Sub will cease to exist. The principal executive offices of Merger Sub are located at c/o Providence Equity Partners L.L.C., 50 Kennedy Plaza, 18th Floor, Providence, RI 02903, and its telephone number is (401) 751-1700. Information regarding the natural persons who are directors and executive officers of Merger Sub is set forth on Annex E to this proxy statement.

 

None of Holdco, Parent, Merger Sub or any of the Providence Entities has, during the past five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). None of Holdco, Parent, Merger Sub or any of the Providence Entities has, during the past five years, been a party to any judicial or administrative proceeding (except for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, United States federal or state securities laws, or a finding of any violation of United States federal or state securities laws.

 

The Company, Parent and Merger Sub entered into the merger agreement on March 31, 2011. Under the terms of the merger agreement, Merger Sub will be merged with and into the Company, with the Company surviving the merger as a wholly owned subsidiary of Parent. Parent and Merger Sub are beneficially owned by the Providence Funds. If the merger agreement is adopted by the stockholders and the other conditions to the closing of the merger are either satisfied or waived:

 

 

Following and as a result of the merger:

 

 

The board of directors of the surviving corporation will, from and after the effective time of the merger (which we refer to as the “effective time”), consist of the directors of Merger Sub immediately prior to the effective time until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal. The officers of the surviving corporation will, from and after the effective time, be the officers of the Company immediately prior to the effective time until their successors have been duly appointed and qualified or until their earlier death, resignation or removal.

 

In the ordinary course of business, our board of directors and senior management review and consider various strategic alternatives available to the Company that may enhance stockholder value. In addition, from time to time over the past several years, a number of parties have approached Dr. Ernst Volgenau, our chairman of the board and founder of the Company, who beneficially owns, directly or indirectly, shares of our common stock representing approximately 20% of total shares outstanding and approximately 71% of aggregate voting rights, and inquired about potential interest in a transaction involving the sale of the Company. However, prior to the discussions detailed below, such approaches did not proceed past such preliminary inquiries.

 

During 2009, Dr. Volgenau indicated to several members of our board of directors that he had become more receptive to the possibility of selling all or a substantial portion of the shares of SRA common stock beneficially owned by him in order to fund philanthropic activities to which Dr. Volgenau was increasingly committed to devoting his time and financial resources.

 

On February 16, 2010, Dr. Volgenau met with a senior executive of a strategic competitor, which we refer to as Strategic Bidder B, who expressed interest in exploring a potential strategic transaction involving the Company.

 

On March 2, 2010, representatives of Providence contacted Dr. Volgenau to introduce themselves and their firm to Dr. Volgenau. During April 2010, Dr. Volgenau and Providence had two additional discussions to explore potential interest in beginning a dialogue regarding a potential sale of the Company.

 

On May 3, 2010, the board of directors held a regularly scheduled meeting at which Dr. Volgenau, as was customary at board meetings, provided an update regarding inquiries he had received about potential interest in a transaction involving the sale of the Company, and informed the board that he had become more receptive to exploring a potential sale of all or a portion of the shares of SRA common stock beneficially owned by him as part of a plan to fund his philanthropic objectives. Dr. Volgenau proposed the formation of a study team of the board to explore potential strategic options available to the Company. At the meeting, the board established the strategic alternatives study team consisting of four directors: Dr. Volgenau; Mr. Michael R. Klein; Mr. Miles R. Gilburne; and Mr. W. Robert Grafton. The strategic alternatives study team subsequently engaged an investment banking firm as its financial advisor to assist with the evaluation of potential strategic alternatives available to the Company.

 

On May 6, 2010, Dr. Volgenau met with a senior executive of a strategic competitor, which we refer to as Strategic Bidder A, who expressed interest in exploring a potential strategic transaction involving the Company.

On May 12, 2010 and May 18, 2010, Dr. Volgenau had preliminary conversations with representatives of Providence regarding a potential strategic transaction between the Company and Providence. On May 18, 2010, the Company and Providence entered into a confidentiality agreement, and on May 20, 2010, Dr. Volgenau and members of senior management met with representatives of Providence to continue preliminary conversations regarding a potential strategic transaction between the Company and Providence.

 

On May 27, 2010, Mr. Richard Nadeau, our chief financial officer, provided to Providence a financial model assessing a hypothetical going-private transaction involving the Company.

 

On June 3, 2010, Dr. Stanton Sloane, our chief executive officer, and Mr. Nadeau met with representatives of Providence and provided certain financial forecasts of the Company, as well as certain additional financial models assessing a hypothetical going-private transaction involving the Company.

 

In June and July, 2010, Dr. Volgenau had several additional meetings with representatives of Providence to continue preliminary discussions regarding a potential strategic transaction between the Company and Providence.

 

On July 26, 2010, at a meeting of the strategic alternatives study team, the financial advisor to the strategic alternatives study team discussed with the strategic alternatives study team and certain members of senior management of the Company certain strategic alternatives for the Company. These included maintaining the status quo, a potential significant share repurchase, a potential significant acquisition, a potential sale or leveraged buyout or a potential merger of equals.

 

On July 27, 2010, the board of directors held a regularly scheduled meeting at which Dr. Volgenau reported on recent inquiries he had received regarding the Company’s willingness to explore a potential strategic transaction, and summarized the strategic alternatives for the Company that had been discussed by the strategic alternatives study team and its financial advisor. At that time, the board determined to focus on pursuing a particular strategic acquisition of a business from a competitor for which a competitive sales process was being conducted. That business was sold to a third party other than the Company in a transaction that was publicly announced in mid-October 2010.

 

Between August 18, 2010 and early September 2010, Dr. Volgenau had several meetings or telephone conversations with representatives of Providence to continue to explore a potential strategic transaction.

 

On October 15, 2010, Dr. Sloane and Mr. Nadeau met with a representative of Providence and discussed a valuation analysis, financial projections and a financial model for a hypothetical leveraged buyout of the Company.

 

On October 20, 2010, Dr. Volgenau spoke with a representative of Providence regarding a potential strategic transaction. On October 26, 2010, Dr. Sloane and Mr. Nadeau again met with representatives of Providence to further discuss the valuation analysis and other financial information regarding the Company. On October 27, 2010, Mr. Nadeau provided to a representative of Providence the valuation analysis, financial projections and financial model for a hypothetical leveraged buyout of the Company previously discussed with representatives of Providence at their earlier October meetings.

 

Also on October 27, 2010, at a regularly scheduled meeting of the board of directors, Dr. Volgenau updated the board regarding his discussions with Providence since the July board meeting. Dr. Sloane and Mr. Nadeau similarly updated the board as to their recent discussions with Providence. At the invitation of the board, representatives of Providence met with the board to discuss possible terms of a potential acquisition proposal, including a preliminary indication of a potential purchase price of up to $28 per share, subject to the completion of due diligence. Thereafter, the board met in executive session and, in light of the interest expressed by Providence, discussed the merits of forming a special committee of independent and disinterested directors to further assess the interest of Providence and other potential strategic alternatives.

 

On October 28, 2010, at a regularly scheduled meeting of the board of directors, the board convened in executive session and determined that the strategic alternatives study team would be terminated. The board then established a special committee consisting of five independent and disinterested directors — Mr. Klein; Mr. Gilburne; Mr. Grafton; Mr. John W. Barter; and Mr. Larry R. Ellis — and adopted resolutions that, among

other things, authorized and empowered the special committee, on behalf of the board, to evaluate, review and consider potential strategic transactions that may be available to the Company, to establish and direct the procedures related thereto and, if alternatives emerged, to discuss and negotiate the terms of any such strategic transactions and to consider whether to recommend to the full board of directors the approval and adoption of a specific strategic transaction, or not to proceed with such potential strategic transaction. The special committee also was authorized to engage such legal, financial and other advisors as it deemed necessary or advisable in connection with the performance of its duties. Mr. Klein was elected chairman of the special committee.

 

On November 4, 2010, Dr. Volgenau met with a senior executive of Strategic Bidder A, who again expressed interest in exploring a potential strategic transaction involving the Company.

 

On November 9, 2010, the special committee met and determined to retain Kirkland & Ellis LLP, which we refer to as Kirkland & Ellis, as its legal counsel. Mr. George P. Stamas of Kirkland & Ellis then reviewed with the special committee various legal and fiduciary considerations relevant to the discharge of its duties and responsibilities. The special committee and its legal advisor discussed the importance of establishing clear boundaries between the roles of the special committee, Dr. Volgenau and members of senior management, and directed that the chairman of the special committee meet with senior management and, along with a representative of Kirkland & Ellis, with Dr. Volgenau and his counsel to discuss appropriate process guidelines regarding the interaction with prospective bidders expected to ensue. In addition, the chairman of the special committee summarized certain discussions with two investment banking firms to act as the special committee’s financial advisor, after which representatives of Houlihan Lokey Capital Inc., which we refer to as Houlihan Lokey, were asked to join the meeting to describe its qualifications and independence. Thereafter, the special committee determined to engage Houlihan Lokey as its financial advisor.

 

On or about November 11, 2010, the chairman of the special committee met with certain members of senior management and informed them that, as the process proceeded, they would be updated by the special committee on a “need to know” basis, and also notified them that to minimize the potential negative effects that the special committee’s activities could have in terms of attrition of key management personnel, the board would implement appropriate retention arrangements and stay bonus incentives. The chairman of the special committee also directed members of senior management not to engage, or seek to engage, any prospective party in discussions concerning their employment prospects.

 

On November 11, 2010, the chairman of the special committee and a representative of Kirkland & Ellis met with Dr. Volgenau and his counsel to discuss their respective roles, and how best to implement appropriate process guidelines regarding interaction with prospective bidders. At the meeting, Dr. Volgenau agreed to refrain from negotiating price or other economic terms directly with any prospective bidder until such time as the special committee had authorized him to do so.

 

On November 19, 2010, the special committee held a meeting at which representatives of Kirkland & Ellis and Houlihan Lokey were present. The chairman of the special committee provided an update on his recent meetings with senior management and Dr. Volgenau and his counsel, respectively. The special committee and its advisors also discussed and prepared for an upcoming meeting with representatives of Providence.

 

On November 22, 2010, the chairman of the special committee, together with representatives of Houlihan Lokey, met with representatives of Providence to discuss Providence’s interest in a potential strategic transaction with the Company. At the meeting, the chairman of the special committee informed Providence that the Company had not determined to undertake a formal sale process and that Providence’s preliminary indicative pricing communicated by Providence to the board at its October 27th meeting was determined to be insufficient to warrant the commencement of any formal discussions regarding a potential transaction. However, the chairman indicated that the Company was prepared to facilitate additional due diligence efforts by Providence so that Providence would be better positioned to provide a more fully informed purchase price indication as expeditiously as possible. During the meeting, Providence requested a period of exclusivity during which the parties would seek to negotiate a potential transaction. The special committee denied that request.

On November 29, 2010, in accordance with the special committee’s directives, representatives of Houlihan Lokey and Providence discussed certain high priority due diligence items identified by Providence and a proposed timeline for completion of such due diligence efforts by Providence.

 

On December 1, 2010, the board of directors received an unsolicited confidential written non-binding proposal from Strategic Bidder A to acquire the Company at an indicative purchase price range of $29 to $31 per share. The letter noted that the non-binding proposal was contingent upon, among other things, satisfactory conclusion of due diligence, negotiation and execution of a definitive merger agreement and approvals by the boards of directors of both companies. On December 9, 2010, the chairman of the special committee sent a letter to Strategic Bidder A in which he stated that a special committee had been formed and that the special committee would discuss Strategic Bidder A’s letter with the special committee’s legal and financial advisors and would contact Strategic Bidder A in due course.

 

In early December 2010, representatives of Providence and certain of its advisors continued to meet with members of the Company’s senior management and to conduct additional due diligence through an electronic data room that had been established for such purpose.

 

On December 29, 2010, a representative of Providence contacted the chairman of the special committee and communicated an indication of interest to acquire the Company at a purchase price of $27.25 per share. Later that day, a representative of Providence contacted a representative of Houlihan Lokey and indicated that Providence was unlikely to increase its proposal to as high as $30 per share.

 

On December 30, 2010, the special committee held a meeting, at which representatives of Kirkland & Ellis and Houlihan Lokey were present, to discuss the details of Providence’s indication of interest. At the conclusion of the meeting, the special committee directed Houlihan Lokey to inform Providence that the special committee was dissatisfied with Providence’s indicative purchase price of $27.25 per share, and that the special committee would need to further discuss the indication of interest before responding in a more formal manner. In accordance with the special committee’s directives, Houlihan Lokey subsequently informed Providence of the special committee’s views.

 

On January 6, 2011, the special committee held a meeting at which representatives of Kirkland & Ellis and Houlihan Lokey were present. At the meeting, the chairman of the special committee noted that although the pricing indication received from Providence on December 29th was $27.25 per share, he had subsequently been notified by Dr. Volgenau that a senior representative of Providence had contacted Dr. Volgenau and communicated Providence’s willingness to consider a purchase price of up to $28.50 per share. The special committee determined that those pricing levels were still not sufficient to warrant commencing an exclusive negotiation process with Providence. The special committee then discussed with its advisors the opportunities and challenges facing the Company and its industry and senior management, as those factors might affect the Company’s future as a standalone entity. The special committee determined that it was appropriate to explore the extent to which additional third parties might have an interest in a potential strategic transaction as a potential alternative to the Company continuing as a standalone entity. The special committee then discussed with its advisors the possibility of contacting additional financial sponsors and potential strategic buyers that might be interested in an exploratory dialogue about a potential strategic transaction with the Company on a targeted basis in order to limit the potential for market leaks. Following such discussion, the special committee directed Houlihan Lokey to contact additional financial sponsors to assess such financial sponsors’ interest in engaging in preliminary discussions about a potential transaction with the Company. The special committee also specifically directed Houlihan Lokey to contact Strategic Bidder A in light of its previously submitted written indication of interest. The special committee determined not to have Houlihan Lokey contact any other strategic buyers at that time given concerns regarding sharing competitively sensitive information with peer companies; Dr. Volgenau’s previously expressed view that financial sponsors might be more likely than strategic buyers to recognize the economic value of the Company attributable to preserving the Company’s name, values and culture; and the likelihood that, if the Company were to engage in a strategic transaction with a financial sponsor, such transaction would more likely be expected to provide for a post-signing “go-shop” period during which the Company could affirmatively approach strategic buyers.

On January 10, 2011, Dow Jones published an article noting that, after the Company’s recent cancellation of a public appearance at an industry conference, the Company’s stock price had risen approximately 19%, and was continuing to rise on the day of publication, on speculation that the Company might be acquired by a third party.

 

On January 10, 2011, the chairman of the special committee contacted a representative of Providence to communicate that Providence’s indication of interest of $27.25 per share was not sufficient to warrant commencing an exclusive negotiation process with Providence. Also on January 10, 2011, the chairman of the special committee contacted a representative of Strategic Bidder A to inform Strategic Bidder A that the special committee was open to beginning an exploratory discussion regarding a potential transaction.

 

Beginning on January 10, 2011, in accordance with the special committee’s directives, Houlihan Lokey initiated contact with additional financial sponsors and, beginning on January 11, 2011, a form of confidentiality agreement was distributed to such financial sponsors.

 

On or about January 11, 2011, Dr. Volgenau was contacted by a senior executive of Strategic Bidder B, who again expressed interest in exploring a potential strategic transaction with the Company. Dr. Volgenau promptly informed the chairman of the special committee of this communication.

 

On January 14, 2011, senior executives of a strategic competitor to the Company, which we refer to as Strategic Bidder C, separately contacted each of Dr. Sloane and a representative of Houlihan Lokey to express interest in discussing a potential strategic transaction with the Company.

 

Between January 17, 2011 and February 9, 2011, the Company entered into confidentiality agreements and had management due diligence meetings with each of Strategic Bidder A and five financial sponsors, which we refer to as Financial Bidder A, Financial Bidder B, Financial Bidder C, Financial Bidder D and Financial Bidder E.

 

On January 18, 2011, a senior executive of Strategic Bidder C contacted a representative of Houlihan Lokey to again express interest in discussing a potential strategic transaction with the Company.

 

On January 20 and 21, 2011, representatives from two of the financial sponsors that had been contacted on behalf of the special committee indicated to Houlihan Lokey that such financial sponsors were not interested in exploring a potential transaction with the Company, citing valuation as the reason.

 

Also on January 20, 2011, a senior executive at Strategic Bidder B again contacted Dr. Volgenau to discuss a potential strategic transaction between the two companies, and Dr. Volgenau promptly informed the chairman of the special committee of such communication.

 

On January 21, 2011, a senior executive at Strategic Bidder C sent a letter to and met with Dr. Sloane. During the meeting, the senior executive of Strategic Bidder C expressed Strategic Bidder C’s interest in exploring a potential strategic transaction with the Company. Also on January 21, 2011 and again on January 25, 2011, a senior executive of Strategic Bidder C contacted Houlihan Lokey to express Strategic Bidder C’s interest in exploring a potential strategic transaction with the Company.

 

On January 22, 2011, The Telegraph published an article which stated, incorrectly, that the Company had received and rejected a nearly $2 billion offer from a strategic buyer named therein.

 

On January 23, 2011, the board of directors received a letter from Strategic Bidder A indicating that Strategic Bidder A was formally withdrawing its previously submitted non-binding written proposal.

 

On January 24, 2011, representatives of Providence attended a follow-up due diligence meeting with members of the Company’s senior management and continued to conduct due diligence through conference calls with the Company’s management.

 

Also on January 24, 2011, the special committee held a meeting at which representatives of Kirkland & Ellis and Houlihan Lokey were present. The chairman of the special committee and Houlihan Lokey updated the special committee on the status of discussions with the financial sponsors that had been contacted and informed the special committee of the unsolicited inquiries that had been received from Strategic Bidder B

and Strategic Bidder C. After discussion and deliberation, the special committee authorized Houlihan Lokey to contact Strategic Bidder B to further explore a possible discussion regarding a strategic transaction. The special committee also asked the chairman of the special committee to meet with Dr. Volgenau to obtain additional information regarding his willingness to consider a potential transaction with a strategic buyer.

 

On January 25, 2011, in response to media speculation regarding the Company, the Company publicly issued a press release announcing that Houlihan Lokey had been retained after the Company received a series of inquiries regarding the Company’s willingness to consider offers. The press release also included a statement from Dr. Volgenau that the retention of advisors did not reflect a decision that the Company was or should be for sale.

 

On January 26, 2011, a representative of a strategic competitor to the Company, which we refer to as Strategic Bidder D, contacted Houlihan Lokey to express interest in discussing a potential strategic transaction with the Company.

 

On February 1, 2011, Dr. Volgenau received a letter, in his capacity as chairman of the board, from Strategic Bidder C requesting that it be included in any consideration of a potential strategic transaction with the Company. Dr. Volgenau promptly provided a copy of such letter to the chairman of the special committee.

 

On February 2, 2011, the special committee held a meeting at which representatives of Kirkland & Ellis and Houlihan Lokey were present. Representatives of Houlihan Lokey updated the special committee regarding management’s recent presentations to Financial Bidders A, B and D. In light of the fact that two financial sponsors previously contacted had determined not to consider the opportunity, the special committee discussed with its advisors the possibility of contacting additional financial sponsors to explore interest in discussing a potential strategic transaction, and determined that it was appropriate for Houlihan Lokey to contact additional financial sponsors that would likely have both an interest in, and the financial capability to execute, a transaction of significant size. A representative of Kirkland & Ellis again reviewed with the special committee various legal and fiduciary considerations relevant to the discharge of the special committee’s duties and responsibilities. To facilitate the ongoing process, the special committee authorized Kirkland & Ellis to prepare a form of merger agreement to be provided to potential bidders. A representative of Kirkland & Ellis discussed with the special committee certain material terms to be included in the form of merger agreement to be provided to bidders. The special committee also discussed with its legal advisor certain expected differences between transactions involving strategic and financial buyers. Following this discussion, the special committee asked the chairman of the special committee to reiterate to Dr. Volgenau the special committee’s view that conducting a process that included both strategic buyers and financial sponsors was important to provide the best opportunity to maximize value for the Company’s stockholders through any potential transaction.

 

On or about February 3, 2011, after discussion of these issues by the chairman of the special committee with Dr. Volgenau, Dr. Volgenau agreed that the special committee should contact potential strategic buyers that previously had indicated interest in exploring a potential transaction with the Company. The next day, the chairman of the special committee, in a conference call with representatives of Kirkland & Ellis and Houlihan Lokey, authorized Houlihan Lokey to contact Strategic Bidders B, C and D. Following such call, Houlihan Lokey contacted each of Strategic Bidders B, C and D, and each was provided with a form of confidentiality agreement.

 

On February 7, 2011, the special committee received a letter from Strategic Bidder D requesting that it not be required to submit a written indication of interest prior to attending a due diligence presentation with senior management. The special committee directed Houlihan Lokey to contact Strategic Bidder D to deny its request. Strategic Bidder D subsequently indicated that it would no longer pursue a potential transaction with the Company.

 

On February 7 and 8, 2011, in accordance with the special committee’s directives, Houlihan Lokey informed each of Providence and Financial Bidders A, B, C, D and E that initial indications of interest should be submitted by February 14, 2011.

 

Between February 8, 2011 and February 14, 2011, the Company entered into confidentiality agreements with each of Strategic Bidder B and Strategic Bidder C and provided them with an executive summary

regarding the Company. On February 14, 2011, in accordance with the special committee’s directives, Houlihan Lokey informed each of them that initial indications of interest should be submitted by February 18, 2011.

 

On February 14, 2011, non-binding written indications of interest were received from Financial Bidder A with an indicative purchase price of $32 per share, which proposal also included a request for exclusivity, and from Financial Bidder B with an indicative purchase price range of $29 to $30 per share. In addition, on that same day, non-binding oral indications of interest were received from Financial Bidder D with an indicative purchase price range of $29 to $30 per share, and from Financial Bidder C with an indicative purchase price of $24 per share. Neither Financial Bidder C nor Financial Bidder D submitted a written indication of interest and both subsequently communicated that they were withdrawing from the process. Also on February 14, 2011, a representative of Financial Bidder E contacted Houlihan Lokey and indicated that Financial Bidder E was withdrawing from the process due to its perceived inability to be competitive on price.

 

On February 14, 2011, Houlihan Lokey contacted a representative of Strategic Bidder A to explore whether Strategic Bidder A would consider rejoining the process, but the representative indicated that Strategic Bidder A was not prepared to do so at that time. Also on February 14, 2011, Houlihan Lokey contacted Providence to confirm whether Providence intended to submit an indication of interest, and Providence confirmed that it would do so.

 

On February 18, 2011, non-binding written indications of interest were received from Strategic Bidder B with an indicative purchase price of $33 per share, which proposal also included a request for exclusivity, and from Strategic Bidder C with an indicative purchase price range of $30 to $31 per share. In addition, on that same day, Providence submitted a non-binding written indication of interest with an indicative purchase price of $30 per share that, by its terms, would expire on February 23, 2011 unless Providence was granted exclusivity by such date.

 

On February 21, 2011, the special committee held a meeting at which representatives of Kirkland & Ellis and Houlihan Lokey were present. At the meeting, the special committee discussed the material terms of the five non-binding written indications of interest submitted by bidders, as well as information regarding each of the bidders. The special committee determined that, in light of the multiple bids and narrow range of indicative purchase prices submitted by bidders, granting exclusivity to Providence or any other bidder was inappropriate at such time. The special committee and its advisors then discussed a possible timeline by which bidders would be permitted to complete their due diligence efforts, be provided with an opportunity to meet with Dr. Volgenau to directly negotiate with him with respect to any rollover, voting or other similar arrangements, and be directed to submit firm written proposals, including a full markup of the draft merger agreement, by a specified date.

 

On February 22, 2011, in accordance with the special committee’s directives, a representative of Houlihan Lokey informed a representative of Providence that the special committee would not grant exclusivity to Providence, as had been requested in its indication of interest.

 

Also on February 22, 2011, a representative of a strategic buyer, which we refer to as Strategic Bidder E, contacted Houlihan Lokey to express interest in a potential strategic transaction with the Company, and Dr. Volgenau discussed a potential transaction with Financial Bidder B.

 

On February 23, 2011, a representative of Providence informed a representative of Houlihan Lokey that Providence was withdrawing from the process given the special committee’s decision not to grant exclusivity to Providence.

 

On February 24, 2011, Dr. Volgenau discussed a potential transaction with Financial Bidder A.

 

On February 25, 2011, a bid instruction letter, including a draft merger agreement, was sent to each of the five bidders (including Providence), which letter required final bids and a complete markup of the merger agreement to be submitted by March 18, 2011.

 

On February 28, 2011, Dr. Volgenau discussed a potential transaction with Providence.

On March 1, 2011, Strategic Bidder E and the Company entered into a confidentiality agreement and Strategic Bidder E was provided with due diligence materials regarding the Company. Thereafter, Strategic Bidder E was informed of the timeline of the process and indicated that it could respond quickly if it determined to participate in the process. On March 4, 2011, representatives of Strategic Bidder E informed Houlihan Lokey that it would not be continuing in the process.

 

On March 7, 2011, Dr. Volgenau was informed by a representative of Strategic Bidder B that it was no longer pursuing a potential strategic transaction with the Company, primarily due to the timing of the process and challenges of integrating an acquisition of this size.

 

Also on March 7, 2011, representatives of Kirkland & Ellis had a conference call with outside counsel to Strategic Bidder C to discuss the draft merger agreement previously distributed to bidders.

 

On March 8, 2011, representatives of Kirkland & Ellis had a conference call with representatives of Debevoise & Plimpton LLP, which we refer to as Debevoise, counsel to Providence, to discuss the draft merger agreement previously distributed to bidders.

 

On March 11, 2011, Dr. Volgenau discussed a potential strategic transaction with Strategic Bidder C.

 

On March 14, 2011, a representative of Strategic Bidder C notified a representative of Houlihan Lokey that it would no longer pursue a potential strategic transaction with the Company, citing concerns about perceived risks in the government services industry generally.

 

On March 17, 2011, a representative of Financial Bidder B notified a representative of Houlihan Lokey that it would no longer pursue a potential strategic transaction with the Company, citing concerns about the Company’s ability to meet its future growth projections.

 

On March 17 and March 25, 2011, Dr. Volgenau discussed terms with Providence for his participation in a potential transaction with Providence.

 

On March 18, 2011, a written proposal was received from Providence to acquire 100% of the outstanding common stock of the Company at a purchase price of $30 per share.

 

Also on March 18, 2011, Financial Bidder A indicated that it would be withdrawing from the process. In order to keep Financial Bidder A in the process, the special committee granted Financial Bidder A an extension of the bid submission deadline until March 20, 2011. On March 20, 2011, a written proposal was received from Financial Bidder A to acquire 100% of the outstanding common stock of the Company at a purchase price of $30 per share.

 

On March 21 and March 27, 2011, Dr. Volgenau discussed terms with Financial Bidder A for his participation in a potential transaction with Financial Bidder A.

 

On March 21, 2011, the special committee held a meeting at which representatives of Kirkland & Ellis and Houlihan Lokey were present. Representatives of Houlihan Lokey reviewed with the special committee certain terms of the proposals received from each of Providence and Financial Bidder A, including the proposed purchase prices, open due diligence items and their respective financing commitments. A representative of Kirkland & Ellis then reviewed with the special committee the terms of the draft merger agreements submitted by each bidder. Representatives of Kirkland & Ellis also discussed with the special committee members their fiduciary duties and certain other relevant legal considerations related to their consideration of the proposals. In addition, the chairman of the special committee provided an update on the status of conversations between Dr. Volgenau and each of the bidders, noting that Dr. Volgenau had engaged in discussions with both Providence and Financial Bidder A about his potential rollover and voting arrangements, and that both bidders had provided draft agreements related thereto. However, the chairman of the special committee further indicated that the terms of these agreements had not yet been negotiated. Following these discussions, the special committee directed its advisors to continue to negotiate with each of Providence and Financial Bidder A in parallel in an effort to obtain improved price and contract terms, including the elimination of any non-customary closing conditions that could add incremental execution risk, the inclusion of a majority of the minority vote requirement and more favorable termination and reverse termination fees.

Between March 24, 2011 and March 28, 2011, representatives of Kirkland & Ellis had multiple conference calls with representatives of Debevoise to negotiate the terms of the merger agreement and related transaction documents, and Houlihan Lokey had multiple conference calls with Providence regarding due diligence matters.

 

Between March 26, 2011 and March 28, 2011, representatives of Kirkland & Ellis had multiple conference calls with outside counsel to Financial Bidder A to negotiate the terms of the merger agreement and related transaction documents, and Houlihan Lokey had multiple conference calls with Financial Bidder A regarding due diligence matters.

 

In addition, on March 28, 2011, representatives of Kirkland & Ellis, Debevoise and Gibson Dunn & Crutcher LLP, which we refer to as Gibson Dunn, counsel to Dr. Volgenau, had a conference call to discuss the terms of the rollover and voting arrangements with respect to Dr. Volgenau. Later that same day, representatives of Kirkland & Ellis, Gibson Dunn and outside counsel to Financial Bidder A had a conference call to discuss the terms of the rollover and voting arrangements with respect to Dr. Volgenau.

 

On March 28, 2011, the special committee held a meeting at which representatives of Kirkland & Ellis and Houlihan Lokey were present. The chairman of the special committee provided an update on the status of negotiations with each bidder and negotiations between Dr. Volgenau and the bidders. In particular, the chairman of the special committee noted that Dr. Volgenau was willing to agree to a rollover commitment of $150 million with respect to each bidder. Representatives of Kirkland & Ellis then advised the special committee members of their fiduciary duties, and discussed with the special committee members certain key contractual terms still under negotiation, including terms relating to closing certainty, the size of the termination and reverse termination fees and certain operating covenants relating to the Company’s ability to incur debt during the post-signing period in the event of a federal government shutdown. The special committee directed its advisors to continue negotiating with both bidders in an effort to achieve improved economic and contractual terms.

 

On March 29 and 30, 2011, representatives of Kirkland & Ellis continued to negotiate with each of Debevoise and outside counsel to Financial Bidder A in an effort to finalize the merger agreement and related transaction documents.

 

Between March 28 and March 30, 2011, Gibson Dunn engaged in negotiations with each of Debevoise and outside counsel to Financial Bidder A regarding the terms of the respective rollover and voting arrangements with respect to Dr. Volgenau.

 

Between approximately 2:30 p.m. and 5:00 p.m. on March 30, 2011, the chairman of the special committee, together with representatives of Houlihan Lokey, engaged in negotiations with Financial Bidder A regarding its proposed purchase price. During the initial conference call, Financial Bidder A indicated that it would not increase its proposed purchase price above $30 per share. However, in a subsequent call, Financial Bidder A increased its proposed purchase price to $31 per share.

 

Between approximately 2:30 p.m. on March 30, 2011 and the beginning of the special committee meeting that evening, the chairman of the special committee, together with representatives of Houlihan Lokey, engaged in negotiations with Providence regarding its proposed purchase price. Providence indicated that it would increase its proposed purchase price to $30.50 per share.

 

At approximately 6:00 p.m. on March 30, 2011, the special committee held a meeting at which representatives of Kirkland & Ellis and Houlihan Lokey were present. The chairman of the special committee provided a status report on the negotiations with Providence and Financial Bidder A, noting that Providence’s then proposed purchase price was $30.50 per share, and Financial Bidder A’s then proposed purchase price was $31 per share. The chairman also described certain other differences in the transaction terms proposed by such bidders, including the size of the termination and reverse termination fees, the covenants related to the Company’s borrowings in the event of a federal government shutdown and the presence or absence of a “go- shop” provision. A representative of Kirkland & Ellis summarized certain other provisions of the draft merger agreements with each of the bidders.

At approximately 6:30 p.m., the chairman received a call from a representative of Providence, and temporarily recessed the meeting to take the call. At approximately 6:45 p.m., the chairman returned to the meeting and reported on a revised proposal from Providence that changed its proposed purchase price to $30.50 per share plus a contingent amount equal to the proceeds (if any) from certain subsidiary divestitures by the Company that were currently in process which, if consummated, were estimated by Providence to result in proceeds that could potentially increase the proposed purchase price to $31 per share or more. The special committee members then discussed with its advisors the new proposal, and agreed that several points needed clarification, including the mechanics of the distribution of such proceeds to stockholders and the allocation of the tax benefits expected to be realized as a result of such divestitures. At approximately 7:40 p.m., the meeting was again temporarily recessed so that a representative of Houlihan Lokey could contact Providence for clarity on its revised proposal. At approximately 8:00 p.m., the meeting was reconvened and the representative of Houlihan Lokey reported on further details of Providence’s proposal, including the inclusion of a “go-shop” provision, a decrease in the size of the termination fee and an increase in the size of the reverse termination fee. In addition, the representative of Houlihan Lokey reported that, in lieu of the proposed purchase price outlined earlier in the meeting, Providence had indicated that it was willing to increase its proposed purchase price to $31 per share, without any contingent component linked to the proceeds from the subsidiary divestitures, if Dr. Volgenau would agree as part of his rollover commitment to provide a $30 million nonrecourse loan to Providence, which loan would be repaid solely to the extent that the Company realized proceeds from the subsidiary divestitures that were currently in process. The special committee and its advisors then discussed the two bidders’ respective financing commitments. Following such discussions, the special committee directed Houlihan Lokey to contact Financial Bidder A in an effort to secure a higher purchase price and certain improved contractual terms.

 

Thereafter, in accordance with the special committee’s directives, representatives of Kirkland & Ellis and Houlihan Lokey contacted Financial Bidder A to negotiate a higher purchase price and related matters regarding Financial Bidder A’s proposal. Financial Bidder A agreed to increase its proposed purchase price to $31.25 per share. Financial Bidder A also requested a period of exclusivity to negotiate the remaining terms of the transaction documentation.

 

At approximately 9:35 p.m. on March 30, 2011, the board of directors convened a meeting at which representatives of Kirkland & Ellis and Houlihan Lokey were present. A representative of Kirkland & Ellis summarized for the board the efforts undertaken by the special committee since its formation, and the chairman of the special committee and the special committee’s advisors provided an overview of the status of negotiations with Providence and Financial Bidder A and discussed the two proposals. The representatives of Houlihan Lokey were then excused from the meeting, and a representative of Kirkland & Ellis advised the board of its fiduciary duties and discussed with the board members certain other relevant legal considerations. Following such discussion, representatives of Houlihan Lokey rejoined the board meeting and relayed to the board that Financial Bidder A indicated that its previously communicated $31.25 per share proposal was contingent on having exclusivity through the close of market trading on the following day. Thereafter, Houlihan Lokey discussed with the special committee and the board Houlihan Lokey’s preliminary financial analysis, which financial analysis was substantially similar to the financial analysis discussed with the special committee and the board the following day. The special committee then directed its advisors to communicate to Financial Bidder A that it would agree to negotiate exclusively with Financial Bidder A until 3:00 p.m. the next day.

 

At approximately 11:30 p.m., Providence contacted Houlihan Lokey regarding the status of its proposal and, in accordance with the special committee’s directives, Houlihan Lokey informed Providence that the special committee had determined to focus its efforts in another direction. The following morning at approximately 9:00 a.m., Providence again contacted Houlihan Lokey and Houlihan Lokey informed Providence that the special committee was in an exclusive negotiating period with another bidder.

 

At approximately 3:00 a.m. on March 31, 2011, Kirkland & Ellis sent revised drafts of the merger agreement and other related transaction documents to Financial Bidder A’s outside counsel. The parties convened a series of conference calls later that morning and afternoon in an effort to finalize negotiations on all transaction documentation. During the same time period, Gibson Dunn negotiated with outside counsel to

Financial Bidder A to finalize the terms of Dr. Volgenau’s rollover and voting arrangements. By 3:00 p.m. that day, the transaction documentation had not yet been finalized.

 

At approximately 3:40 p.m. on March 31, 2011, a representative of Providence informed the chairman of the special committee that it was increasing its purchase price to $31.25 per share. Following receipt of such call, both Providence and Financial Bidder A were contacted and directed to submit their best and final offers no later than 5:00 p.m. that day. Subsequently, Financial Bidder A indicated that it was withdrawing its proposal and would no longer participate in the process. Providence did not increase its offer from the previously communicated $31.25 per share.

 

At approximately 5:00 p.m. on March 31, 2011, the special committee convened a meeting at which representatives of Kirkland & Ellis and Houlihan Lokey were present. The chairman and a representative of Kirkland & Ellis updated the special committee on recent developments, and reviewed the purchase price and contractual terms of Providence’s offer. At the special committee’s request, Houlihan Lokey confirmed that it would be in a position at the board meeting scheduled for later that evening to render an opinion to the special committee as to the fairness, from a financial point of view, of the $31.25 per share merger consideration to be received by holders of SRA common stock (other than excluded holders) collectively as a group. The special committee members then adopted resolutions, subject to finalization of the merger agreement and related matters, that the merger agreement and the merger and the other transactions contemplated by the merger agreement are advisable, fair to and in the best interests of the Company and its stockholders; recommending that the Board approve the merger agreement and the merger and the other transactions contemplated by the merger agreement; and recommending that the board recommend that the Company’s stockholders adopt the merger agreement.

 

At approximately 7:00 p.m. on March 31, 2011, the board of directors convened a meeting at which representatives of Kirkland & Ellis and Houlihan Lokey were present. The chairman of the special committee summarized recent developments in the negotiations and informed the board of the special committee’s determination to recommend that the board approve the merger agreement with Providence, and the merger and the other transactions contemplated by the merger agreement. At the special committee’s request, Houlihan Lokey summarized its financial analysis of the $31.25 per share merger consideration, which financial analysis Houlihan Lokey indicated had been updated from, and was substantially similar to, the preliminary financial analysis reviewed with the special committee and the board at the March 30th meeting. Houlihan Lokey then rendered to the special committee an oral opinion, which was confirmed by delivery of a written opinion dated March 31, 2011, to the effect that, as of that date and based on and subject to the matters described in the opinion, the $31.25 per share merger consideration to be received by holders of SRA common stock (other than excluded holders) collectively as a group was fair, from a financial point of view, to such holders. Representatives of Houlihan Lokey were then excused from the meeting, and a representative of Kirkland & Ellis advised the board of its fiduciary duties and discussed certain other relevant legal considerations. Following such discussion, the board of directors (other than Dr. Volgenau, who abstained from such determination) unanimously determined that the merger agreement and the merger and the other transactions contemplated by the merger agreement were advisable, fair to and in the best interests of the Company and the Company’s stockholders; authorized and approved the merger agreement and the merger and the other transactions contemplated by the merger agreement; and directed that adoption of the merger agreement be submitted to a vote at a meeting of the Company’s stockholders with the recommendation of the board that the Company’s stockholders adopt the merger agreement.

 

Following the adjournment of the board meeting, representatives of Kirkland & Ellis, Debevoise and Gibson Dunn worked throughout the night of March 31 to finalize the merger agreement and all other related transaction documentation for execution.

 

On the morning of April 1, 2011, the Company and Providence issued a joint press release announcing the execution of the merger agreement.

 

The merger agreement provides that until 12:01 a.m. on April 30, 2011, the Company and its subsidiaries and representatives may initiate, solicit and encourage the making of alternative acquisition proposals from third parties, and provide nonpublic information to and participate in discussions and negotiations with third

parties in respect of alternative acquisition proposals. At the direction of the special committee, Houlihan Lokey is conducting this “go-shop” process on behalf of the Company.

 

The Special Committee

 

Following receipt of an unsolicited indication of interest from Providence regarding a potential acquisition of the Company, the Board unanimously determined at its October 28, 2010 meeting that it was advisable and in the best interests of the Company and its stockholders to form a special committee of independent and disinterested directors for the purposes of evaluating strategic alternatives that may be available to the Company. The Board delegated broad power and authority to the special committee in connection with its evaluation of strategic alternatives, including to (i) evaluate, review and consider and, if determined appropriate, solicit third-party interest in potential strategic transactions that may be available to the Company, (ii) establish and direct the process and procedures related to its evaluation, review and consideration of any potential strategic transactions, (iii) discuss and negotiate the terms of any potential strategic transactions and any documentation related thereto, (iv) recommend to the Board the approval and adoption of a specific strategic transaction if the special committee determined it advisable to do so or recommend that the Board not proceed with any potential strategic transaction, as the case may be, and (v) take such other actions as the special committee deemed necessary, advisable or appropriate to discharge its duties and responsibilities.

 

On March 31, 2011, the special committee convened a meeting at which it unanimously determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement were advisable, fair to and in the best interests of the Company and its stockholders, and recommended that the Board adopt a resolution approving the merger agreement, the merger and the other transactions contemplated by the merger agreement and recommending that the stockholders of the Company adopt the merger agreement. In evaluating the merger agreement and proposed merger, the special committee consulted with its own legal and financial advisors, discussed certain matters relating to the Company with the Company’s senior management team, and considered a number of factors that it believed supported its decision to enter into the merger agreement and consummate the proposed merger, including, but not limited to, the following factors:

 

 

 

The special committee also believed that sufficient procedural safeguards were and are present to ensure the fairness of the proposed merger and to permit the special committee to represent effectively the interests of the Company’s unaffiliated stockholders. These procedural safeguards include:

 

 

In the course of its deliberations, the special committee also considered a variety of risks and other countervailing factors related to entering into the merger agreement and the proposed merger, including:

 

 

The foregoing discussion of certain factors considered by the special committee is not intended to be exhaustive, but rather includes the material factors considered by the special committee. The special committee collectively reached the conclusion to approve the merger agreement, the merger and the other transactions contemplated by the merger agreement in light of the various factors described above and other factors that the members of the special committee believed were appropriate. In view of the wide variety of factors considered by the special committee in connection with its evaluation of the proposed merger and the complexity of these matters, the special committee did not consider it practical, and did not attempt, to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision and did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to the ultimate determination of the special committee. Rather, the special committee made its recommendation based on the totality of information presented to it and the investigation conducted by it. In considering the factors discussed above, individual members of the special committee may have given different weights to different factors.

 

Recommendation of the Board of Directors

 

The Board, acting upon the unanimous recommendation of the special committee, at a meeting on March 31, 2011

 

 

Dr. Volgenau abstained from the foregoing determination by the Board.

 

In reaching these determinations, the Board (other than Dr. Volgenau) considered a number of factors, including the following factors:

 

 

The foregoing discussion of the factors considered by the Board (other than Dr. Volgenau) is not intended to be exhaustive, but rather includes the material factors considered by the Board. The Board collectively reached the conclusion to approve the merger agreement, the merger and the other transactions contemplated

by the merger agreement in light of the various factors described above and other factors that the members of the Board believed were appropriate. In view of the wide variety of factors considered by the Board in connection with its evaluation of the proposed merger and the complexity of these matters, the Board did not consider it practical, and did not attempt, to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision and did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to the ultimate determination of the Board. Rather, the Board made its recommendation based on the totality of information presented to it and the investigation conducted by it. In considering the factors discussed above, individual directors may have given different weights to different factors. In light of the procedural protections described above, the Board did not consider it necessary to retain an unaffiliated representative to act solely on behalf of the Company’s unaffiliated stockholders for purposes of negotiating the terms of the merger agreement or preparing a report concerning the fairness of the merger agreement and the merger.

 

The Board recommends that the stockholders of the Company vote “FOR” adoption of the merger agreement.

 

Houlihan Lokey has been engaged as the special committee’s financial advisor in connection with the merger. In connection with this engagement, the special committee requested that Houlihan Lokey evaluate the fairness, from a financial point of view and as of the date of the opinion, of the $31.25 per share merger consideration to be received by holders of SRA common stock (other than excluded holders) collectively as a group. On March 31, 2011, at a meeting of the special committee and the Board, Houlihan Lokey rendered to the special committee an oral opinion, which was confirmed by delivery of a written opinion dated March 31, 2011, to the effect that, as of that date and based on and subject to the procedures followed, assumptions made, qualifications and limitations in the review undertaken and other matters considered by Houlihan Lokey in the preparation of its opinion, the $31.25 per share merger consideration to be received by holders of SRA common stock (other than excluded holders) collectively as a group was fair, from a financial point of view, to such holders. The full text of Houlihan Lokey’s written opinion, dated March 31, 2011, is attached to this proxy statement as Annex C. Houlihan Lokey’s opinion was furnished for the use and benefit of the special committee and, at the special committee’s request, the board of directors (excluding any director who is a direct party to, or forms a part of the acquiring group in respect of, the merger), in their capacities as directors, in connection with its evaluation of the per share merger consideration. The opinion only addressed the fairness, from a financial point of view, of the per share merger consideration and did not address any other aspect or implication of the merger. The summary of Houlihan Lokey’s opinion in the proxy statement is qualified in its entirety by reference to the full text of its written opinion. Houlihan Lokey’s opinion should not be construed as creating any fiduciary duty on Houlihan Lokey’s part to any party. Houlihan Lokey’s opinion was not intended to be, and does not constitute, a recommendation to the special committee, the board of directors, any securityholder or any other person as to how to act or vote with respect to any matter relating to the merger or otherwise.

 

In connection with its opinion, Houlihan Lokey made such reviews, analyses and inquiries as its deemed necessary and appropriate under the circumstances. Among other things, Houlihan Lokey:

 

 

 

Houlihan Lokey relied upon and assumed, without independent verification, the accuracy and completeness of all data, material and other information furnished, or otherwise made available, to Houlihan Lokey, discussed with or reviewed by Houlihan Lokey, or publicly available, and did not assume any responsibility with respect to such data, material and other information. In addition, SRA’s management advised Houlihan Lokey, and Houlihan Lokey assumed, that the financial projections (and adjustments thereto) and other estimates utilized in its analyses were reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of such management as to the future financial results and condition of SRA and Houlihan Lokey expressed no opinion with respect to such projections or estimates or the assumptions on which they were based. Houlihan Lokey relied upon and assumed, without independent verification, that there had been no change in the business, assets, liabilities, financial condition, results of operations, cash flows or prospects of SRA since the respective dates of the most recent financial statements and other information, financial or otherwise, provided to Houlihan Lokey, in each case that would be material to its analyses or opinion, and that there was no information or any facts that would have made any of the information reviewed by Houlihan Lokey incomplete or misleading in any respect that would be material to its analyses or opinion.

 

Houlihan Lokey relied upon and assumed, without independent verification, that (a) the representations and warranties of all parties to the merger agreement and all other related documents and instruments referred to in the merger agreement would be true and correct, (b) each party to the merger agreement and such other related documents and instruments would fully and timely perform all of the covenants and agreements required to be performed by such party, (c) all conditions to the consummation of the merger would be satisfied without waiver, and (d) the merger would be consummated in a timely manner in accordance with the terms described in the merger agreement and such other related documents and instruments, without any material amendments or modifications. Houlihan Lokey also relied upon and assumed, without independent verification, that (i) the merger would be consummated in a manner that complied in all respects with all applicable federal and state statutes, rules and regulations, and (ii) all governmental, regulatory, and other consents and approvals necessary for the consummation of the merger would be obtained and that no delay, limitations, restrictions or conditions would be imposed or amendments, modifications or waivers made that would have an effect on SRA or the merger that would be material to Houlihan Lokey’s analyses or opinion. In addition, Houlihan Lokey relied upon and assumed, without independent verification, that the final form of

the merger agreement would not differ from the draft of the merger agreement identified above in any respect that would be material to Houlihan Lokey’s analyses or opinion.

 

Furthermore, in connection with its opinion, Houlihan Lokey was not requested to, and did not, make any physical inspection or independent appraisal or evaluation of any of the assets, properties or liabilities (fixed, contingent, derivative, off-balance sheet or otherwise) of SRA or any other party, nor was Houlihan Lokey provided with any such appraisal or evaluation. Houlihan Lokey did not estimate, and expressed no opinion regarding, the liquidation value of SRA or any other entity or business. Houlihan Lokey did not undertake an independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims or other contingent liabilities to which SRA is or may be a party or is or may be subject, or of any governmental investigation of any possible unasserted claims or other contingent liabilities to which SRA is or may be a party or is or may be subject.

 

Houlihan Lokey’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Houlihan Lokey as of, the date of its opinion. Houlihan Lokey did not undertake, and is under no obligation, to update, revise, reaffirm or withdraw its opinion, or otherwise comment on or consider events occurring or coming to Houlihan Lokey’s attention after the date of its opinion. Houlihan Lokey’s opinion did not purport to address potential developments in the credit, financial or stock markets, including, without limitation, the market for shares of SRA Class A common stock. Houlihan Lokey also did not express any opinion as to the price or range of prices at which shares of SRA Class A common stock would trade, or shares of SRA Class B common stock would be transferable, at any time.

 

Houlihan Lokey was not asked to, and it did not, express any opinion with respect to any matter other than the fairness, from a financial point of view, of the per share merger consideration to be received by holders of SRA common stock (other than excluded holders) collectively as a group, without taking into account different classes or attributes of SRA common stock and without regard to individual circumstances of specific holders with respect to control, voting or other rights or aspects which may distinguish such holders. Houlihan Lokey was not requested to opine as to, and its opinion did not express an opinion as to or otherwise address, among other things: (i) the underlying business decision of the special committee, the board of directors, SRA, its securityholders or any other party to proceed with or effect the merger, (ii) the terms of any arrangements, understandings, agreements or documents related to, or the form, structure or any other portion or aspect of, the merger (other than the per share merger consideration to the extent expressly specified in Houlihan Lokey’s opinion) or otherwise, including, without limitation, any terms or aspects of any rollover arrangements or voting and support agreements to be entered into in connection with the merger, any terms or aspects of the financing to be undertaken by Providence in connection with the merger (including any loan or other arrangements by Dr. Volgenau) or any matters relating to the proposed subsidiary divestitures, (iii) the fairness of any portion or aspect of the merger to the holders of any class of securities, creditors or other constituencies of SRA, or to any other party, except if and only to the extent expressly set forth in Houlihan Lokey’s opinion, (iv) the relative merits of the merger as compared to any alternative business strategies that might exist for SRA or any other party or the effect of any other transaction in which SRA or any other party might engage, (v) the fairness of any portion or aspect of the merger to any one class or group of SRA’s or any other party’s securityholders or other constituents vis-à-vis any other class or group of SRA’s or such other party’s securityholders or other constituents (including, without limitation, the allocation of any consideration among or within such classes or groups of securityholders or other constituents), (vi) whether or not SRA, its securityholders or any other party is receiving or paying reasonably equivalent value in the merger, (vii) the solvency, creditworthiness or fair value of SRA or any other participant in the merger, or any of their respective assets, under any applicable laws relating to bankruptcy, insolvency, fraudulent conveyance or similar matters, or (viii) the fairness, financial or otherwise, of the amount, nature or any other aspect of any compensation to or consideration payable to or received by any officers, directors or employees (in their capacities as such) of any party to the merger, any class of such persons or any other party, relative to the per share merger consideration or otherwise. Furthermore, no opinion, counsel or interpretation was intended in matters that require legal, regulatory, accounting, insurance, tax or other similar professional advice. Houlihan Lokey assumed that such opinions, counsel or interpretations were or would be obtained from appropriate professional sources. Furthermore, Houlihan Lokey relied, with the special committee’s consent, on the

assessments by the special committee, SRA and their respective advisors as to all legal, regulatory, accounting, insurance and tax matters with respect to SRA, the merger or otherwise. The issuance of Houlihan Lokey’s opinion was approved by a Houlihan Lokey committee authorized to approve opinions of this nature. Except as described in this summary, the special committee imposed no other instructions or limitations on Houlihan Lokey with respect to the investigations made or the procedures followed by it in rendering its opinion.

 

In preparing its opinion to the special committee, Houlihan Lokey performed a variety of analyses, including those described below. This summary is not a complete description of Houlihan Lokey’s opinion or the financial analyses performed and factors considered by Houlihan Lokey in connection with its opinion. The preparation of a financial opinion is a complex analytical process involving various quantitative and qualitative judgments and determinations as to the most appropriate and relevant financial, comparative and other analytical methods employed and the adaptation and application of those methods to the particular facts and circumstances presented. Therefore, a financial opinion and its underlying analyses are not readily susceptible to summary description. Houlihan Lokey arrived at its ultimate 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 one factor or method of analysis for purposes of its opinion. Accordingly, Houlihan Lokey believes that its analyses and the following summary must be considered as a whole and that selecting portions of its analyses, methodologies, and factors or focusing on information presented in tabular format, without considering all analyses, methodologies, and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying Houlihan Lokey’s analyses and opinion. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques.

 

In performing its analyses, Houlihan Lokey considered industry performance, general business, economic, market and financial conditions and other matters as they existed on, and could be evaluated as of, the date of Houlihan Lokey’s opinion, many of which are beyond SRA’s control. Accordingly, the information may not reflect current or future market conditions. No company, business or transaction used in the analyses for comparative purposes is identical to SRA or the merger, and an evaluation of the results of those analyses is not entirely mathematical. Rather, the analyses involve complex considerations, judgments, and assumptions concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, business segments or transactions analyzed. Houlihan Lokey believes that mathematical derivations (such as determining an average or median) of financial data are not by themselves meaningful and should be considered together with judgments and informed assumptions. The assumptions and estimates contained in Houlihan Lokey’s analyses and the reference ranges resulting from any particular analysis are 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 its analyses. In addition, analyses relating to the value of assets, businesses or securities do not purport to be appraisals or to reflect the prices at which assets, businesses or securities actually may be sold. Accordingly, the assumptions and estimates used in, and the results derived from, Houlihan Lokey’s analyses are inherently subject to substantial uncertainty.

 

Houlihan Lokey’s opinion and financial analyses provided to the special committee in connection with its evaluation of the per share merger consideration, from a financial point of view, were only one of many factors considered by the special committee in its evaluation of the merger and should not be viewed as determinative of the views of the special committee, the board of directors or management with respect to the merger or the consideration payable in the merger. Houlihan Lokey was not requested to, and it did not, recommend the specific consideration payable in the merger. The type and amount of consideration payable in the merger was determined through negotiation between SRA and Providence, and the decision to enter into the merger was solely that of the special committee and the board of directors.

 

The following is a summary of the material financial analyses reviewed by Houlihan Lokey with the special committee in connection with Houlihan Lokey’s opinion. The order of analyses does not represent relative importance or weight given to those analyses by Houlihan Lokey. The financial analyses summarized below include information presented in tabular format. In order to fully understand Houlihan Lokey’s financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data in the tables below

without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying and the qualifications and evaluations affecting the analyses, could create a misleading or incomplete view of Houlihan Lokey’s financial analyses.

 

Selected Companies Analysis

 

Houlihan Lokey reviewed financial and stock market information for SRA and the following seven selected publicly held companies that generally provide information technology and professional services to the U.S. government:

 

 

Houlihan Lokey reviewed, among other things, enterprise values of the selected companies, calculated as equity market value based on reported fully-diluted common shares outstanding and closing stock prices on March 30, 2011, plus debt outstanding and preferred stock, less cash and cash equivalents, as a multiple of one fiscal year forward and two fiscal years forward estimated earnings before interest, taxes, depreciation and amortization, referred to as EBITDA, as adjusted for non-recurring items, referred to as adjusted EBITDA. Houlihan Lokey then applied a range of selected multiples of one fiscal year forward and two fiscal years forward estimated adjusted EBITDA derived from the selected companies to SRA’s estimated adjusted EBITDA for the fiscal years ending June 30, 2011 and 2012. Financial data of SRA were based on internal estimates of SRA’s management with respect to SRA after giving effect to the subsidiary divestitures. Financial data of the selected companies were based on publicly available research analysts’ estimates, public filings and other publicly available information. This analysis indicated the following implied per share value reference ranges for SRA, as compared to the per share merger consideration:

 

Selected Transactions Analysis

 

Houlihan Lokey reviewed the following 14 selected transactions announced between January 1, 2007 and March 30, 2011 involving companies that generally provide information technology and professional services to the U.S. government:

 

 

Houlihan Lokey reviewed, among other things, transaction values in the selected transactions, calculated as the purchase price paid for the target company’s equity, plus debt outstanding and preferred stock, less cash and cash equivalents, as a multiple, to the extent publicly available, of such target companies’ latest 12 months EBITDA. Houlihan Lokey then applied a range of selected multiples of latest 12 months EBITDA derived from the selected transactions to SRA’s latest 12 months (ended February 28, 2011) adjusted EBITDA. Financial data of SRA were based on SRA’s public filings and internal estimates of SRA’s management with respect to SRA after giving effect to the subsidiary divestitures. Financial data of the selected transactions were based on publicly available information. This analysis indicated the following implied per share value reference range for SRA, as compared to the per share merger consideration:

 

 

Discounted Cash Flow Analysis

 

Houlihan Lokey performed a discounted cash flow analysis of SRA by calculating the estimated net present value of the unlevered, after-tax free cash flows that SRA was forecasted to generate through the fiscal year ending June 30, 2014 based on internal estimates of SRA’s management with respect to SRA after giving effect to the subsidiary divestitures. Houlihan Lokey calculated terminal values for SRA by applying a range of terminal value EBITDA multiples of 7.5x to 9.0x to SRA’s fiscal year 2014 estimated EBITDA. The present values (as of March 31, 2011) of the cash flows and terminal values were then calculated using discount rates ranging from 8.5% to 10.5%. This analysis indicated the following implied per share value reference range for SRA, as compared to the per share merger consideration:

 

Miscellaneous

 

SRA has agreed to pay Houlihan Lokey for its financial advisory services to the special committee in connection with the merger an aggregate fee currently estimated to be approximately $10 million, a portion of which was payable upon rendering its opinion, which was not contingent upon the successful completion of the merger or the conclusion contained in its opinion, and approximately $8.4 million of which is contingent upon the consummation of the merger. Houlihan Lokey also has been requested in accordance with the merger agreement to solicit third-party indications of interest in acquiring SRA for a prescribed period following the execution of the merger agreement, subject to the terms, conditions and procedures set forth in the merger agreement. SRA has agreed to reimburse certain of Houlihan Lokey’s expenses, including the fees and expenses of Houlihan Lokey’s legal counsel, and to indemnify Houlihan Lokey and certain related parties for certain potential liabilities, including liabilities under the federal securities laws, relating to, or arising out of, its engagement.

 

The special committee selected Houlihan Lokey to act as its financial advisor in connection with the merger based on Houlihan Lokey’s reputation and experience. Houlihan Lokey is regularly engaged to provide advisory services in connection with mergers and acquisitions, financings and financial restructuring.

 

In the ordinary course of business, certain of Houlihan Lokey’s affiliates, as well as investment funds in which such affiliates may have financial interests, may acquire, hold or sell, long or short positions, or trade or otherwise effect transactions, in debt, equity, and other securities and financial instruments (including loans and other obligations) of, or investments in, SRA, Providence or any other party that may be involved in the merger and their respective affiliates or any currency or commodity that may be involved in the merger.

 

Houlihan Lokey and certain of its affiliates in the past have provided and currently are providing investment banking, financial advisory and other financial services to SRA, Providence, other participants in the merger and/or their respective affiliates, and/or one or more security holders or portfolio companies of such entities, for which Houlihan Lokey and such affiliates have received or may receive compensation, including, among other things, (a) providing certain financial advisory services to SRA in connection with one of the proposed subsidiary divestitures and (b) having provided or currently providing certain financial or valuation advisory services to Providence and certain of its affiliates and portfolio companies. In addition, Houlihan Lokey and certain of its affiliates in the future may provide investment banking, financial advisory and other financial services to SRA, Providence, other participants in the merger and their respective affiliates, and one or more security holders or portfolio companies of such entities, for which Houlihan Lokey and such affiliates may receive compensation. In addition, certain affiliates of Houlihan Lokey and certain of Houlihan Lokey’s and such affiliates’ respective employees may have committed to invest in private equity or other investment funds managed or advised by Providence or other participants in the merger or certain of their respective affiliates or security holders, and in portfolio companies of such funds, and may have co-invested with such funds, Providence or other participants in the merger or certain of their respective affiliates or security holders, and may do so in the future. Furthermore, in connection with bankruptcies, restructurings, and similar matters, Houlihan Lokey and certain of its affiliates may have in the past acted, may currently be acting and may in the future act as financial advisor to debtors, creditors, equity holders, trustees and other interested parties (including, without limitation, formal and informal committees or groups of creditors) that may have included or represented and may include or represent, directly or indirectly, or may be or have been adverse to, SRA, Providence, other participants in the merger and/or their respective affiliates, and/or one or more security holders or portfolio companies of such entities, for which advice and services Houlihan Lokey and such affiliates received and may receive compensation.

 

Holdco, Parent, Merger Sub and the Providence Entities are making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. We refer to the Providence Entities, Holdco, Parent and Merger Sub as the “Buyer Filing Persons.”

If the merger is completed, the Company will become a subsidiary of Parent. For the Buyer Filing Persons, the purpose of the merger is to enable Parent to acquire control of the Company, in a transaction in which the unaffiliated stockholders will be cashed out for $31.25 per share, so Parent will bear the rewards and risks of the ownership of the Company after shares of SRA common stock cease to be publicly traded.

 

The Buyer Filing Persons believe that it is best for the Company to operate as a privately held entity in order to allow the Company greater operational flexibility and to focus on its business without the constraints and distractions caused by the public equity market’s valuation of its common stock. Moreover, the Buyer Filing Persons believe that the Company’s business prospects can be improved through the active participation of Parent in the strategic direction of the Company. Although the Buyer Filing Persons believe that there will be significant opportunities associated with their investment in the Company, they realize that there are also substantial risks and that such opportunities may not ever be fully realized.

 

The Buyer Filing Persons believe that structuring the transaction as a merger transaction is preferable to other transaction structures because (a) it will enable Parent to acquire all of the outstanding shares of the Company at the same time, (b) it represents an opportunity for the Company’s unaffiliated stockholders to receive fair value for their shares of SRA common stock in the form of merger consideration or, at the election of the unaffiliated stockholder, by pursuing appraisal rights and (c) it allows the Rollover Investor to maintain (indirectly through Holdco) a portion of its investment in the Company.

 

Dr. Volgenau and the other Volgenau Filing Persons are making the statements included in this section solely for purposes of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The Ernst Volgenau Revocable Trust is an estate planning vehicle for the benefit of Dr. Volgenau and of which Dr. Volgenau is the sole agent, proxy, attorney-in-fact and representative. We refer to Dr. Volgenau, acting through The Ernst Volgenau Revocable Trust, as the “Rollover Investor.”

 

The merger will enable the Volgenau Filing Persons to realize at the closing the per share cash merger consideration of $31.25 with respect to a portion of their investments in the Company. At the same time, the merger will enable the Rollover Investor, through its commitment to make a significant equity investment in the surviving corporation, to benefit from any future long-term growth of the Company after its stock ceases to be publicly traded. Both the realization of the cash merger consideration and the rollover investment will in turn enable the Volgenau Filing Persons to achieve long-standing charitable and estate planning objectives. In addition, the Volgenau Filing Persons believe that the Company will benefit from operating as a privately held entity that can achieve greater operational flexibility and focus on long-term growth absent the regulatory burden imposed on public companies and the distractions caused by the public equity market’s valuation of the Company’s common stock, while still maintaining the Company’s name, values and culture as epitomized by its longstanding ethic of “honesty and service.”

 

The Buyer Filing Persons are making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act.

 

The Buyer Filing Persons believe that the merger is fair to the Company’s unaffiliated stockholders on the basis of the factors described under “SPECIAL FACTORS — Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger” and the additional factors described below.

 

In this section and in the section captioned “SPECIAL FACTORS — Positions of the Volgenau Filing Persons Regarding the Fairness of the Merger,” we refer to the Company’s board of directors (other than the Rollover Investor, who has committed to contribute shares of SRA common stock to Holdco in connection with the merger and after the merger will be an equity holder in Holdco) as the “Board.” Dr. Volgenau abstained from the Board’s determination with respect to the merger agreement and the proposed merger.

Parent and Merger Sub attempted to negotiate the terms of a transaction that would be most favorable to them, and not to the stockholders of the Company, and, accordingly, did not negotiate the merger agreement with a goal of obtaining terms that were fair to such stockholders. None of the Buyer Filing Persons believes that it has or had any fiduciary duty to the Company or its stockholders, including with respect to the merger and its terms.

 

None of the Buyer Filing Persons participated in the deliberations of the special committee or the Board regarding, or received advice from the special committee’s legal or financial advisors as to, the fairness of the merger. No Buyer Filing Person has performed, or engaged a financial advisor to perform, any valuation or other analysis for the purposes of assessing the fairness of the merger to the Company’s unaffiliated stockholders. Based on these entities’ knowledge and analysis of available information regarding the Company, as well as discussions with members of the Company’s senior management regarding the Company and its business and the factors considered by, and findings of, the Board and the special committee discussed in this proxy statement in the sections entitled “SPECIAL FACTORS — Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger” (which findings the Buyer Filing Persons adopt), the Buyer Filing Persons believe that the merger is substantively fair to the Company’s unaffiliated stockholders. In particular, the Buyer Filing Persons considered the following:

 

 

 

The Buyer Filing Persons did not establish, and did not consider, a pre-merger going concern value of SRA common stock as a public company for the purposes of determining the per share merger consideration or the fairness of the per share merger consideration to the unaffiliated stockholders because, following the merger, the Company will have a significantly different capital structure, which will result in different opportunities and risks for the business as a more highly leveraged private company. However, to the extent the pre-merger going concern value was reflected in the pre-announcement per share price of the SRA common stock, the per share merger consideration of $31.25 represented a premium to the going concern value of the Company. In addition, the Buyer Filing Persons did not consider the Company’s net book value because they believe that net book value, which is an accounting concept, does not reflect, or have any meaningful impact on, either the market trading prices of common stock or the Company’s value as a going concern, but rather is indicative of historical costs. The Buyer Filing Persons did not consider liquidation value in determining the fairness of the merger to the unaffiliated stockholders because of their belief that liquidation sales generally result in proceeds substantially less than sales of a going concern, because of the impracticability of determining a liquidation value given the significant execution risk involved in any breakup, because they considered the Company to be a viable, going concern and because the Company will continue to operate its business following the merger. The Buyer Filing Persons were not aware of any firm offers during the prior two years by any person for the merger or consolidation of the Company with another company, the sale or transfer of all or substantially all of the Company’s assets or a purchase of the Company’s assets that would enable the holder to exercise control of the Company, although there were proposals as described in “SPECIAL FACTORS — Background of the Merger.”

 

The Buyer Filing Persons believe that the merger is procedurally fair to the Company’s unaffiliated stockholders based upon the following factors:

 

 

 

The foregoing discussion of the factors considered by the Buyer Filing Persons in connection with the fairness of the merger is not intended to be exhaustive but is believed to include all material factors considered by them. The Buyer Filing Persons did not find it practicable to, and did not, quantify or otherwise attach relative weights to the foregoing factors in reaching their position as to the fairness of the merger. Rather, the Buyer Filing Persons made their fairness determinations after considering all of the foregoing factors as a whole. The Buyer Filing Persons believe these factors provide a reasonable basis upon which to form their belief that the merger is fair to the Company’s unaffiliated stockholders. This belief should not, however, be construed as a recommendation to any Company stockholder to adopt the merger agreement. The Buyer Filing Persons do not make any recommendation as to how stockholders of the Company should vote their shares of SRA common stock relating to the merger.

 

The Volgenau Filing Persons are making the statements included in this section solely for purposes of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act.

 

The Volgenau Filing Persons believe that the merger is fair to the Company’s unaffiliated stockholders on the basis of the factors described under “SPECIAL FACTORS — Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger” and the additional factors described below.

 

The Volgenau Filing Persons did not undertake a formal evaluation of the fairness of the proposed merger to the Company’s unaffiliated stockholders, as the unaffiliated stockholders of the Company were represented by the special committee, which negotiated the terms and conditions of the merger agreement on their behalf, with the assistance of the special committee’s own legal and financial advisors. The Volgenau Filing Persons

have interests in the merger different from those of the other stockholders of the Company and the views of the Volgenau Filing Persons should not be construed as a recommendation as to whether any stockholder of the Company should vote to adopt the merger agreement.

 

The Volgenau Filing Persons did not participate in the deliberations of the special committee regarding, or receive advice from the special committee’s legal or financial advisors as to, the fairness of the merger. The Volgenau Filing Persons abstained from voting with respect to the Board’s determination as to the fairness of the merger. Based on the Volgenau Filing Persons’ knowledge and analysis of available information regarding the Company, and the factors considered by, and findings of, the Board and the special committee discussed in this proxy statement in the sections entitled “SPECIAL FACTORS — Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger” (which findings the Volgenau Filing Persons adopt), the Volgenau Filing Persons believe that the terms and conditions of the merger agreement and the merger are substantively and procedurally fair to the Company’s unaffiliated stockholders. In making this determination, the Volgenau Filing Persons considered among others, the following factors:

 

 

 

The Volgenau Filing Persons did not establish, and did not consider, a pre-merger going concern value of the Company’s common stock as a public company for the purposes of determining the per share merger consideration or the fairness of the per share merger consideration to the unaffiliated stockholders because, following the merger, the Company will have a significantly different capital structure, which will result in different opportunities and risks for the business as a more highly leveraged private company. However, to the extent the pre-merger going concern value was reflected in the pre-announcement per share price of the Company’s common stock, the per share merger consideration of $31.25 represented a premium to the going concern value of the Company. In addition, the Volgenau Filing Persons did not consider the Company’s net book value in determining that the terms and conditions of the merger agreement and the merger are substantively fair to the Company’s unaffiliated stockholders because they believe that net book value, an accounting concept, does not reflect, or have any meaningful impact on, either the market trading prices of the Company’s common stock or the Company’s value as a going concern, but rather is indicative of historical costs. Nonetheless, the Volgenau Filing Persons note that the net book value per share was approximately $13.93 as of December 31, 2010. The merger consideration represents a premium of approximately 124% to net book value per share as of December 31, 2010. The Volgenau Filing Persons did not consider liquidation value in determining the fairness of the merger to the unaffiliated stockholders because of their belief that liquidation sales generally result in proceeds substantially less than sales of a going concern, given the significant execution risk involved in any breakup, because they considered the Company to be a viable, going concern and because the Company will continue to operate its business following the merger. The Volgenau Filing Persons were not aware of any firm offers during the prior two years by any person for (i) a merger or consolidation of the Company with another company, (ii) the sale or transfer of all or substantially all of the Company’s assets or (iii) a purchase of the Company’s securities that would enable such person to exercise control of the Company, although there were proposals as described in “SPECIAL FACTORS — Background of the Merger.”

 

The Volgenau Filing Persons believe that the merger is procedurally fair to the Company’s unaffiliated stockholders based upon the following factors:

 

 

 

The foregoing discussion of the information and factors considered and given weight by the Volgenau Filing Persons in connection with their consideration of the fairness of the merger agreement and the merger is not intended to be exhaustive but is believed to include all material factors considered by the Volgenau Filing Persons. The Volgenau Filing Persons did not find it practicable to, and did not, rank, quantify or otherwise attach relative weights to the foregoing factors in reaching their position as to the fairness of the merger agreement and the merger, but rather conducted an overall analysis of the factors described above in making their determination. The Volgenau Filing Persons did not engage a financial advisor for purposes of undertaking a formal evaluation of the fairness of the merger to the Company’s unaffiliated stockholders. The Volgenau Filing Persons believe that these factors provide a reasonable basis for their belief that the merger is substantively and procedurally fair to the unaffiliated stockholders, however, this belief should not be construed as a recommendation as to whether any stockholder of the Company should vote to adopt the merger agreement. The Volgenau Filing Persons make no recommendation as to whether any stockholder of the Company should vote to adopt the merger agreement.

 

If the merger is completed, all of our equity interests will be owned by Parent. Except for the Rollover Investor, through its equity interest in Holdco, none of our current stockholders will have any ownership interest in, or be a stockholder of, the Company after the completion of the merger. As a result, our current stockholders (other than the Rollover Investor) will no longer benefit from any increase in our value, nor will they bear the risk of any decrease in our value. Following the merger, Parent will benefit from any increase in our value and also will bear the risk of any decrease in our value.

 

Upon completion of the merger, each share of SRA common stock issued and outstanding immediately prior the closing (other than treasury shares owned by the Company, shares owned by Holdco, Parent, Merger Sub or any other direct or indirect wholly owned subsidiary of Parent, including shares contributed to Holdco by the Rollover Investor, and shares owned by stockholders who have exercised, perfected and not withdrawn a demand for, or lost the right to, appraisal rights under the DGCL) will convert into the right to receive the per share merger consideration.

 

Upon completion of the merger, as of the effective time, each stock option to purchase shares of the Company’s Class A common stock (each, a “stock option”) that is outstanding and unexercised immediately prior to the effective time (whether vested or unvested) will become fully vested and converted into the right to receive, immediately after the effective time (without interest), a cash payment in an amount equal to the product of (x) the total number of shares of the Company’s Class A common stock then issuable upon exercise of such stock option, and (y) the excess, if any, of (A) the $31.25 per share merger consideration over (B) the exercise price per share subject to the stock option, less any applicable withholding taxes. As of the effective time, each award of restricted stock (each, a “restricted stock award”) that is outstanding and unvested immediately prior to the effective time will become fully vested and converted into the right to receive, immediately after the effective time (without interest), a cash payment in an amount equal to the product of (x) the total number of shares of unvested restricted stock and (y) the $31.25 per share merger consideration, less any applicable withholding taxes. See “SPECIAL FACTORS — Interests of the Company’s Directors and Executive Officers in the Merger — Treatment of Outstanding Stock Options”; “SPECIAL FACTORS — Interests of the Company’s Directors and Executive Officers in the Merger — Treatment of Restricted Stock Awards”; and “THE MERGER AGREEMENT — Treatment of Common Stock, Stock Options, Restricted Stock Awards and Other Equity Awards.”

 

Following the merger, shares of our Class A common stock will no longer be traded on The New York Stock Exchange or any other public market.

 

Our Class A common stock is registered as a class of equity security under the Exchange Act. Registration of our Class A common stock under the Exchange Act may be terminated upon the Company’s application to the SEC if such class of common stock is not listed on a national securities exchange and there are fewer than 300 record holders of the outstanding shares of such class. Termination of registration of our Class A common stock under the Exchange Act will substantially reduce the information required to be furnished by the Company to our stockholders and the SEC, and would make certain provisions of the Exchange Act, such as the short-swing trading provisions of Section 16(b) of the Exchange Act and the requirement of furnishing a proxy statement in connection with stockholders’ meetings pursuant to Section 14(a) of the Exchange Act, no longer applicable to the Company. If the Company (as the entity surviving the merger) completed a registered exchange or public offering of debt securities, however, we would be required to file periodic reports with the SEC under the Exchange Act for a period of time following that transaction.

 

Parent and Merger Sub expect that following completion of the merger, our operations will be conducted substantially as they are currently being conducted. However, following completion of the merger, the Company will have significantly more debt than it currently has. Parent and Merger Sub have informed us that they have no current plans or proposals or negotiations which relate to or would result in an extraordinary corporate transaction involving our corporate structure, business or management, such as a merger, reorganization, liquidation, relocation of any operations, or sale or transfer of a material amount of assets except as described in this proxy statement, other than the currently contemplated divestitures of certain subsidiaries of

the Company. Parent may initiate from time to time reviews of the Company and our assets, corporate structure, capitalization, operations, properties, management and personnel to determine what changes, if any, would be desirable following the merger. Parent expressly reserves the right to make any changes that it deems necessary or appropriate in the light of its review or in the light of future developments.

 

Parent does not currently own any interest in the Company. Following consummation of the merger, Parent will own 100% of our outstanding common stock and will have a corresponding interest in our net book value and net earnings. Our net income for the fiscal year ended June 30, 2010 was approximately $18.4 million and our net book value as of June 30, 2010 was approximately $771.6 million.

 

The Providence Funds have agreed to contribute an aggregate equity contribution in an amount up to $525.2 million to capitalize Parent (indirectly through Holdco), subject to the terms and conditions set forth in the equity commitment letter (as described below). In addition, the Rollover Investor has agreed to contribute 4.8 million shares of our Class B common stock (the equivalent of an approximately $150 million investment based upon the per share merger consideration of $31.25) to Holdco, immediately prior to the merger in exchange for equity interests in Holdco valued at approximately $120 million and a promissory note issued by Holdco to Dr. Volgenau in the original principal amount of $30 million, subject to the terms and conditions of the equity rollover letter (as described below).

 

Following the consummation of the merger, the Providence Funds and the Rollover Investor will be the sole stockholders of Holdco. Each stockholder of Holdco will have an interest in our net book value and net earnings in proportion to such stockholder’s ownership interest in Holdco.

 

If the merger is completed, our unaffiliated stockholders will have no interest in our net book value or earnings, if any. The table below sets forth the interests in our voting shares and the interest in our net book value and net earnings for the Providence Funds and the Volgenau Filing Persons before and after the merger, based on our historical net book value as of June 30, 2010 of $771.6 million and our historical net earnings for the year ended June 30, 2010 of $18.4 million. All dollar figures are in the thousands and rounded to the nearest dollar amount.

 

 

 

 

If our stockholders do not adopt the merger agreement or if the merger is not completed for any other reason, our stockholders will not receive any payment for their shares of SRA common stock unless the Company is sold to a third party. Instead, unless the Company is sold to a third party, we will remain an independent public company, our Class A common stock will continue to be listed and traded on the NYSE, and our stockholders will continue to be subject to similar risks and opportunities as they currently are with respect to their ownership of SRA common stock. If the merger is not completed, there is no assurance as to the effect of these risks and opportunities on the future value of your shares of SRA common stock, including the risk that the market price of SRA 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, the Board will evaluate and review the business operations, properties, dividend policy and capitalization of the Company and, among other things, make such changes as are deemed appropriate and continue to seek to maximize stockholder value. If our stockholders do not adopt the merger agreement or if the merger is not completed for any other reason, there is no assurance that any other transaction acceptable to the Company will be offered or that the business, prospects or results of operations of the Company will not be adversely impacted. Pursuant to the merger agreement, under certain circumstances the Company is permitted to terminate the merger agreement and recommend an alternative transaction. See “THE MERGER AGREEMENT — Termination.”

 

Under certain circumstances, if the merger is not completed, the Company may be obligated to pay to Parent a termination fee or Parent may be obligated to pay to the Company a termination fee and/or reimburse the Company for certain out-of-pocket costs and expenses. See “THE MERGER AGREEMENT — Termination Fees and Reimbursement of Expenses.”

 

Upon consummation of the merger, it is expected that the operations of the surviving corporation will be conducted substantially as they currently are being conducted, except that the surviving corporation will cease to be an independent public company and will instead be a wholly owned subsidiary of Parent. After the consummation of the merger, the directors of Merger Sub immediately prior to the consummation of the merger will become the directors of the surviving corporation, and the officers of the Company immediately prior to the consummation of the merger will remain the officers of the surviving corporation, 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. Parent has advised the Company that it does not have any current intentions, plans or proposals to cause us to engage in any of the following:

 

 

We expect that management and the board of directors of the surviving corporation will continue to assess the Company’s assets, corporate and capital structure, capitalization, operations, business, properties and personnel to determine what changes, if any, would be desirable following the merger to enhance the business

and operations of the surviving corporation and may cause the surviving corporation to engage in the types of transactions sets forth above if management or the board of directors of the surviving corporation decides that such transactions are in the best interests of the surviving corporation. The surviving corporation expressly reserves the right to make any changes it deems appropriate in light of such evaluation and review or in light of future developments.

 

In connection with the Providence Entities’ review of the Company and in the course of the negotiations between the special committee and the Providence Entities as described in “SPECIAL FACTORS — Background to the Merger,” the Company provided the Providence Entities with certain prospective financial information concerning the Company, including projected adjusted revenues, adjusted earnings before interest, taxes, depreciation and amortization, referred to as “adjusted EBITDA,” and adjusted EBITDA margin. Such prospective financial information also was provided to Houlihan Lokey as financial advisor to the special committee. See “SPECIAL FACTORS — Opinion of the Financial Advisor to the Special Committee.”

 

The summary of such information below is included solely to give stockholders access to the information that was made available to the Providence Entities and is not included in this proxy statement in order to influence any stockholder to make any investment decision with respect to the merger, including whether or not to seek appraisal rights with respect to the shares of SRA common stock.

 

The prospective financial information was not prepared with a view toward public disclosure, or with a view toward compliance with published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial forecasts, or GAAP. Neither the Company’s independent registered public accounting firm, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the prospective financial information included below, or expressed any opinion or any other form of assurance on such information or its achievability.

 

The prospective financial information reflects numerous estimates and assumptions made by the Company with respect to industry performance, general business, economic, regulatory, market and financial conditions and other future events, as well as matters specific to the Company’s business, all of which are difficult to predict and many of which are beyond the Company’s control. The prospective financial information reflects subjective judgment in many respects and thus is susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. As such, the prospective financial information constitutes forward-looking information and is subject to risks and uncertainties that could cause actual results to differ materially from the results forecasted in such prospective information, including, but not limited to, the Company’s performance, industry performance, general business and economic conditions, customer requirements, competition, adverse changes in applicable laws, regulations or rules, and the various risks set forth in the Company’s reports filed with the SEC. There can be no assurance that the prospective results will be realized or that actual results will not be significantly higher or lower than forecast. The prospective financial information covers multiple years and such information by its nature becomes less predictive with each successive year. In addition, the prospective information will be affected by the Company’s ability to achieve strategic goals, objectives and targets over the applicable periods. The assumptions upon which the prospective information was based necessarily involve judgments with respect to, among other things, future economic, competitive and regulatory conditions and financial market conditions, all of which are difficult or impossible to predict accurately and many of which are beyond the Company’s control. The prospective information also reflects assumptions as to certain business decisions that are subject to change. Such prospective information cannot, therefore, be considered a guaranty of future operating results, and this information should not be relied on as such. The inclusion of this information should not be regarded as an indication that the Company, the Providence Entities, the special committee, any of their respective affiliates or representatives or anyone who received this information then considered, or now considers, it to be necessarily predictive of actual future events, and this information should not be relied upon as such. None of the Providence Entities, the special committee, or any of their respective affiliates or representatives assumes any responsibility for the validity or completeness of the prospective information described below. The

Company does not intend, and disclaims any obligation, to update, revise or correct such prospective information if they are or become inaccurate (even in the short term).

 

The prospective financial information does not take into account any circumstances or events occurring after the date it was prepared, including the merger contemplated by the merger agreement. Further, the prospective financial information does not take into account the effect of any failure of the merger to occur and should not be viewed as accurate or continuing in that context.

 

The inclusion of the prospective financial information herein should not be deemed an admission or representation by the Company, the Providence Entities or the special committee that they are viewed by the Company or the Providence Entities or the special committee as material information of the Company, and in fact the Company, the Providence Entities and the special committee view the prospective financial information as non-material because of the inherent risks and uncertainties associated with such long-range forecasts. The prospective information should be evaluated, if at all, in conjunction with the historical financial statements and other information regarding the Company contained in the Company’s public filings with the SEC. In light of the foregoing factors and the uncertainties inherent in the Company’s prospective information, stockholders are cautioned not to place undue, if any, reliance on the prospective information included in this proxy statement.

 

The following is a summary of the financial forecasts prepared by the Company’s management as of January 14, 2011, with the forecast for fiscal year 2011 subsequently updated as of March 16, 2011, and given to Providence (as well as other bidders):

 

 

The summary of the financial forecasts prepared by the Company’s management set forth above includes adjusted revenue, adjusted EBITDA and adjusted EBITDA margin. These financial metrics have been adjusted by the Company’s management to include the pre-acquisition results of Sentech, Inc. and Platinum Solutions, Inc., both of which were acquired during fiscal year 2011, and the full year impact of recent cost reductions, and to exclude estimated public company costs, acquisition-related third party costs, the revenue and EBITDA of the Airport Operations Solutions business, which was divested during fiscal year 2011, the Company’s Era Systems Corporation subsidiary, which management has decided to either divest or significantly restructure, and the Company’s SRA Global Clinical Development, LLC subsidiary, which management has decided to divest. The financial metrics include forecasted stock compensation expense of approximately $10.3 million, $11.2 million, $12.6 million and $14.0 million in fiscal years 2011, 2012, 2013 and 2014, respectively. Certain of the prospective financial information set forth above may be considered non-GAAP financial measures. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as used by the Company may not be comparable to similarly titled amounts used by other companies.

 

The Company provided the financial forecasts to prospective bidders because the Company believed it could be useful in evaluating, on a prospective basis, the Company’s potential operating performance and cash flow. Accordingly, the financial forecasts were prepared by the Company’s management as if SRA were a privately held company and do not include SRA’s public company costs. In order to evaluate SRA as a standalone public company, SRA’s public company costs were included in the financial forecasts of SRA provided to, and approved for the use of, the special committee’s financial advisor in connection with its financial analysis of the per share merger consideration.

 

The Company and Parent estimate that the total amount of funds required to complete the merger and related transactions and pay related fees and expenses will be approximately $1.998 billion. Parent expects this amount to be provided through a combination of the proceeds of:

 

 

Equity Financing

 

On March 31, 2011, the Providence Funds entered into an equity commitment letter (the “equity commitment letter”) with Parent pursuant to which the Providence Funds committed to contribute to Parent (indirectly through Holdco), at or prior to the consummation of the merger, $390.7 million and $134.4 million, respectively, in cash, in exchange for which the Providence Funds will receive certain securities of Holdco. The equity commitment of the Providence Funds is subject to the following conditions:

 

 

The obligation of the Providence Funds to fund the equity commitment shall automatically and immediately terminate upon the earliest to occur of (a) the effective time, at which time the obligation to fund the equity commitment shall be discharged, (b) the valid termination of the merger agreement in accordance with its terms, (c) the Company or any of its affiliates, security holders or agents asserting or filing, directly or indirectly, (i) any claim under or action with respect to the Limited Guarantee (defined below) against any Guarantor or any Guarantor Affiliate (as defined below) or (ii) any other claim under or action against any Guarantor or Guarantor Affiliate in connection with the equity commitment letter, the Limited Guarantee, the merger agreement, the debt commitment letter or any transaction contemplated by such agreements or otherwise relating to such agreements, other than certain specified claims or (d) the occurrence of any event which, by the terms of the Limited Guarantee, is an event which terminates any Guarantor’s obligations or liabilities under the Limited Guarantee.

 

The Company is an express third-party beneficiary of the equity commitment letter and has the right to seek specific performance under the circumstances in which the Company would be permitted by the merger agreement to obtain specific performance requiring Parent to enforce the equity commitment.

Rollover Financing

 

On March 31, 2011, the Rollover Investor entered into a letter agreement with Holdco (the “equity rollover letter”) pursuant to which the Rollover Investor committed to contribute, immediately prior to the consummation of the merger, an aggregate amount of 4,800,000 shares of our Class B common stock to Holdco (the equivalent of a $150 million investment based upon the per share merger consideration of $31.25) in exchange for (i) certain equity securities of Holdco with an aggregate value of $120 million and (ii) a promissory note issued by Holdco in favor of Dr. Volgenau in an original principal amount of $30 million, repayable solely from the proceeds (if any) of certain contemplated subsidiary divestitures by the Company. Pursuant to the terms of the equity rollover letter, depending on the dollar value of the aggregate cash proceeds received in connection with such subsidiary dispositions, Dr. Volgenau may, at his option, elect to receive additional equity interests in Holdco, up to an aggregate value of $30 million, in lieu of cash paid upon maturity of the promissory note. The shares contributed to Holdco will be cancelled in connection with the merger and will not be entitled to receive any merger consideration upon completion of the merger. The obligations to contribute the shares pursuant to the equity rollover letter are subject to the following conditions:

 

 

The Company is an express third-party beneficiary of the equity rollover letter and has the right to seek specific performance of the commitment of the Rollover Investor under the equity rollover letter under the circumstances in which the Company would be permitted by the merger agreement to obtain specific performance requiring Parent to enforce such commitment.

 

Debt Financing

 

In connection with the entry into the merger agreement, Merger Sub received a debt commitment letter, dated March 31, 2011 and amended and restated on April 13, 2011 (the “debt commitment letter”) from affiliates of Citigroup Global Markets, Inc. and Bank of America Merrill Lynch, and Goldman Sachs Lending Partners LLC (collectively, the “Debt Commitment Parties”). The debt commitment letter provides an aggregate of $1,390 million in debt financing to Merger Sub, consisting of a $875 million senior secured term loan facility, a $415 million senior unsecured bridge facility and a $100 million senior secured revolving credit facility. The revolving credit facility may be drawn at the closing only (x) to the extent necessary, to fund original issue discount or upfront fees in connection with the debt financing and (y) for any other purpose, in an aggregate amount not to exceed the lesser of (A) $25 million and (B) an amount such that the total leverage ratio of the borrower and its restricted subsidiaries after giving effect to the merger does not exceed 7.0:1.0.

 

The Debt Commitment Parties may invite other banks, financial institutions and institutional lenders to participate in the debt financing described in the debt commitment letter and to undertake a portion of the commitments to provide such debt financing.

 

Senior Secured Facilities.  Interest under the senior secured term loan facility will be payable, at the option of Merger Sub, either at a base rate (based on the higher of the prime rate, 0.50% in excess of the overnight federal funds rate and the one-month adjusted LIBOR rate plus 1.00% per annum) plus 2.25% or a LIBOR-based rate (subject to a floor of 1.25%) plus 3.25% and will be payable at the end of each interest period set forth in the credit agreement (but at least every three months). Interest under the senior secured

revolving facility will be payable, at the option of Merger Sub, either at a base rate (based on the higher of the prime rate, 0.50% in excess of the overnight federal funds rate and the one-month adjusted LIBOR rate plus 1.00% per annum) plus 2.25% or a LIBOR-based rate plus 3.25% (subject to a step down to be agreed based on meeting a net senior secured leverage ratio to be provided for in the credit agreement) and will be payable at the end of each interest period set forth in the credit agreement (but at least every three months).

 

The borrower under the senior secured facilities will be Merger Sub, and upon consummation of the merger, the rights and obligations under the senior secured facilities will be assumed by the Company. The senior secured facilities will be guaranteed, subject to certain agreed upon exceptions, on a joint and several basis by the direct parent of the Company and each direct and indirect U.S. subsidiary of the Company. The senior secured facilities will be secured, subject to certain agreed upon exceptions, by substantially all the assets of the direct parent of the Company, Merger Sub (and, after the merger, the Company) and each subsidiary guarantor.

 

Senior Unsecured Bridge Facility.  The debt commitment letter contemplates that either (i) Merger Sub will issue senior unsecured fixed rate high yield notes in a Rule 144A or other private placement on or prior to the closing date yielding at least $415 million in gross proceeds, or (ii) to the extent Merger Sub does not so issue senior unsecured notes on or prior to the closing date, Merger Sub will borrow up to $415 million (less the gross proceeds of any offering of senior unsecured notes) under the senior unsecured bridge facility.

 

The borrower under the senior unsecured bridge facility will be Merger Sub, and upon consummation of the merger, the rights and obligations under the senior unsecured bridge facility will be assumed by the Company. Interest under the senior unsecured bridge facility will initially equal the three-month LIBOR-based rate (subject to a 1.25% floor) plus 7.25% increasing to a specified cap. The senior unsecured bridge facility will be guaranteed on a joint and several basis by the direct parent of the Company and each direct and indirect U.S. restricted subsidiary of the Company to the extent that such subsidiary guarantees all or a portion of the indebtedness of the Company under the senior secured facilities or other capital markets indebtedness.

 

If the senior unsecured bridge facility is not paid in full on or before the first anniversary of the merger, then loans made under the senior unsecured bridge facility will be converted into senior unsecured term loans maturing eight years after the merger. After such a conversion, the holders of outstanding senior unsecured term loans may choose to exchange their loans for senior exchange notes that mature eight years after the merger.

 

Conditions

 

The facilities contemplated by the debt commitment letter are subject to closing conditions, including, without limitation:

 

 

 

The final termination date for the debt commitment letter is the earliest of (a) October 14, 2011, (b) the termination of the merger agreement and (c) the consummation of the merger with or without the funding of the debt financing.

 

Although the debt financing described in this proxy statement is not subject to due diligence or a “market out” provision, which would have allowed lenders not to fund their commitments if certain conditions in the financial markets prevail, there is still a risk that the debt financing may not be funded when required. As of the date of this proxy statement, no alternative financing arrangements or alternative financing plans have been made in the event the debt financing described in this proxy statement is not available as anticipated. Except as described herein, there is no plan or arrangement regarding the refinancing or repayment of the debt financing.

 

Pursuant to the Limited Guarantee delivered by the Providence Funds (the “Guarantors”) in favor of the Company, dated March 31, 2011 (the “Limited Guarantee”), the Guarantors have agreed to guarantee, up to a maximum aggregate amount of $113,185,609, their respective percentages (determined based upon the relative size of their equity commitments to Parent) of the obligations of Parent under the merger agreement to pay, under certain circumstances, a $112.9 million termination fee and to reimburse certain expenses. The Limited Guarantee will terminate on the earliest of (i) the effective time of the merger, (ii) the termination of the merger agreement under circumstances in which Parent would not be obligated to pay the termination fee and (iii) the 120th day after a termination of the merger agreement in accordance with its terms, unless, prior to the 120th day after such a termination, the Company shall have commenced a suit, action or other proceeding against Parent, Merger Sub or the Guarantors alleging that fees or reimbursements are owed, in which case the Limited Guarantee will terminate when Parent, Merger Sub or the Guarantors have satisfied any obligations finally determined or agreed to be owed by them under the Limited Guarantee. However, if the Company or any of its affiliates asserts a claim other than as permitted under the Limited Guarantee, including certain specified claims and claims in jurisdictions other than Delaware, the Limited Guarantee will immediately terminate and become null and void by its terms, and the Guarantors will no longer have any liability under the Limited Guarantee, the merger agreement or any related documents.

 

In considering the recommendation of the Board with respect to the merger agreement, you should be aware that certain of the Company’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of our stockholders generally, as more fully described below. The

Board and the special committee were aware of these interests and considered them, among other matters, in reaching the decision to approve the merger agreement and recommend that the Company’s stockholders vote in favor of adopting the merger agreement. See “SPECIAL FACTORS — Background of the Merger” and “SPECIAL FACTORS — Recommendation of our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger” for a further discussion of these matters.

 

Special Committee Compensation

 

In consideration of the time and effort required of the members of the special committee in performing its duties, including negotiating the terms and conditions of the merger agreement, the Board determined that each member of the special committee shall receive a one-time fee of $75,000. Such fees are payable whether or not the merger is completed. No other meeting fees or other compensation (other than reimbursement for out-of-pocket expenses in connection with attending special committee meetings) will be paid to the members of the special committee in connection with their service on the special committee. In addition, in recognition of the considerable additional time commitment and efforts of the chairman of the special committee, the Board determined that on behalf of the Company it would make charitable contributions in the aggregate amount of $150,000 to two charitable organizations known to be supported by the chairman of the special committee.

 

Treatment of Outstanding Stock Options

 

As described in “THE MERGER AGREEMENT — Treatment of Common Stock, Stock Options, Restricted Stock Awards and Other Equity Awards”, the merger agreement provides that, as of the effective time, each stock option to purchase shares of our Class A common stock that is outstanding and unexercised immediately prior to the effective time (whether vested or unvested) will become fully vested and converted into the right to receive, immediately after the effective time (without interest), a cash payment in an amount equal to the product of (x) the total number of the shares of our Class A common stock then issuable upon exercise of such stock option, and (y) the excess, if any, of (A) the $31.25 per share merger consideration over (B) the exercise price per share subject to the stock option, less any applicable withholding taxes.

 

The following table sets forth, for each of our directors and executive officers holding stock options as of March 31, 2011: (a) the aggregate number of shares of SRA common stock subject to vested stock options; (b) the value of such vested stock options on a pre-tax basis, calculated by multiplying (i) the excess, if any, of the $31.25 per share merger consideration over the respective per share exercise prices of those stock options by (ii) the number of shares of SRA common stock subject to those stock options; (c) the aggregate number of unvested stock options that will vest as of the effective time of the merger, assuming the director or executive officer remains employed by the Company at that date; (d) the value of those unvested stock options on a pre-tax basis, calculated by multiplying (i) the excess, if any, of the $31.25 per share merger consideration over the respective per share exercise prices of those stock options by (ii) the number of shares of SRA common stock subject to those stock options; (e) the aggregate number of shares of SRA common stock subject to vested stock options and unvested stock options for such individual as of the effective time of the merger, assuming the director or executive officer remains employed by the Company at that date; and (f) the aggregate amount of consideration that is expected to be payable in respect of all such stock options in connection with the merger.

 

The table below does not include shares of SRA common stock subject to outstanding vested and unvested stock options that do not have a corresponding “value” for purposes of the disclosure in this proxy statement due to the per share exercise price of such stock options exceeding the $31.25 per share merger consideration.

 

 

Treatment of Restricted Stock

 

As described in “THE MERGER AGREEMENT — Treatment of Common Stock, Stock Options, Restricted Stock Awards and Other Equity Awards”, as of the effective time, each award of restricted stock that is outstanding and unvested immediately prior to the effective time will become fully vested and converted into the right to receive, immediately after the effective time (without interest), a cash payment in an amount equal to the product of (x) the total number of shares of unvested restricted stock and (y) the $31.25 per share merger consideration, less any applicable withholding taxes.

 

The following table identifies, for each of our directors and executive officers holding restricted stock, the aggregate number of shares of restricted stock as of March 31, 2011, and the pre-tax value of such shares of

restricted stock that will become fully vested in connection with the merger as calculated by multiplying the $31.25 per share merger consideration by the number of shares of restricted stock.

 

 

 

 

For information on the shares of our common stock beneficially owned by our executive officers and directors, see “COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.”

 

Severance Arrangements

 

Pursuant to the employment agreement we have entered into with Dr. Sloane and the amended employment agreement we have entered into with Mr. Nadeau, they are entitled to specified benefits in the event of termination of or change in employment under specified circumstances, including termination following a change in control of our company. Pursuant to the senior executive retention agreements we have entered into with Messrs. Atkin, Rydant and Burke, these executive officers are entitled to specified benefits in the event of termination of employment under specified circumstances, including termination following a change of control of our company. The change in control benefits have been structured as “double trigger” benefits.

 

It is expected that, immediately following the merger, the executive officers of the Company immediately prior to the merger will continue to serve in their respective positions and pursuant to their respective employment agreements as the executive officers of the surviving corporation. The executives will receive the following severance benefits only if their employment with us is terminated. Certain of the agreements do provide for special accelerated vesting of certain outstanding equity awards which would not be applicable in connection with a termination of employment in connection with the merger since all outstanding equity awards will become vested and cancelled in exchange for payment of the per share merger consideration in connection with the closing of the merger as described above.

Dr. Stanton D. Sloane.  Pursuant to the employment agreement between us and Dr. Stanton D. Sloane, dated as of May 28, 2010, either we or Dr. Sloane may terminate Dr. Sloane’s employment for any reason at any time, by providing the other party with the requisite notice.

 

In the event of Dr. Sloane’s termination of employment by us “without cause” (as defined in the employment agreement) or by Dr. Sloane for “good reason” (as defined in the employment agreement) Dr. Sloane is entitled to: (i) all wages earned prior to the termination of employment; (ii) all accrued but unused personal leave; (iii) up to 18 months of company paid health, dental, and vision coverage under COBRA, on an after tax basis; (iv) a distribution of all deferred compensation in accordance with the terms of the relevant deferred compensation plan; (v) lump-sum cash severance payment equal to Dr. Sloane’s annual base salary and target annual bonus; (vi) a prorated annual bonus for the year of termination at our sole discretion, based on the Board’s determination of projected performance; and (vii) immediate vesting of all unvested nonqualified stock options and restricted stock shares. The monthly company-paid COBRA benefits will be discontinued in the event Dr. Sloane becomes covered under the benefit plans and programs of any subsequent employer. Post-termination payment of cash severance amounts, cash bonus amounts, continuation of Dr. Sloane’s employee benefits, and immediate vesting of all unvested nonqualified stock options and restricted stock shares are contingent upon his execution of an agreement releasing SRA from any and all liability relating to his employment, and his compliance with the confidentiality, non-competition and non-solicitation covenants set forth or incorporated in his employment agreement.

 

In the event that Dr. Sloane’s employment is terminated by us for cause or by Dr. Sloane without “good reason,” by death, or disability, Dr. Sloane is entitled to: (i) all wages earned prior to the termination of employment; (ii) all accrued but unused personal leave; and (iii) a distribution of all deferred compensation in accordance with the terms of the relevant deferred compensation plan. In addition to the above benefits, in the event of termination due to death or disability, all of Dr. Sloane’s nonqualified stock options and restricted stock shares will vest as of the date of termination. In addition, Dr. Sloane may elect to continue his health coverage under COBRA at his cost.

 

Pursuant to the terms of his employment agreement, “cause” generally means: (i) a breach of the terms of the employment agreement; (ii) any allegation reasonably determined by the company to be credible of any act of fraud, embezzlement, misappropriation of assets, or dishonesty; (iii) disloyalty to the Company by knowingly and intentionally aiding a competitor resulting in material harm to the Company; (iv) knowingly violation of state or federal law that directly relates to the business affairs of the Company; (v) gross negligence in performing duties, conviction or a crime or misdemeanor, any action that harms our reputation or relationship with customers, stockholders or employees; or (vi) the failure to maintain the necessary governmental clearances. “Good reason” generally means: (i) a material diminution in the executive’s duties or responsibilities or (ii) a material change in his principal place of employment such that his commuting distance has increased by more than fifty miles.

 

The employment agreement provides that upon a change in control, if Dr. Sloane is not offered the position of President and CEO of the resulting or purchasing entity, or the resulting or purchasing entity’s ultimate parent company, then all of Dr. Sloane’s nonqualified stock options and shares of restricted stock will vest as of the effective date of the change in control.

 

Dr. Sloane’s employment agreement contains customary restrictive covenants, including perpetual confidentiality obligations, a one year non-competition obligation and a two year non-solicitation obligation

 

Richard J. Nadeau.  Pursuant to the employment agreement between us and Richard J. Nadeau, dated as of May 13, 2009, as amended, Mr. Nadeau’s employment is at will.

 

In the event of Mr. Nadeau’s termination of employment by us “without cause” (as defined in the employment agreement) or by Mr. Nadeau for “good reason” (as defined in the employment agreement), Mr. Nadeau is entitled to: (i) all wages earned prior to the termination of employment; (ii) all accrued but unused personal leave; (iii) up to 12 months of company paid health, dental, and vision coverage under COBRA; (iv) a distribution of all deferred compensation in accordance with the terms of the relevant deferred compensation plan; (v) lump-sum cash severance payment equal to Mr. Nadeau’s annual base salary; and

(vi) any unpaid annual cash bonuses for the company’s previous two completed fiscal years. As a condition to entitlement to all of the severance payments, Mr. Nadeau is required to execute and deliver a release to us.

 

In the event that Mr. Nadeau’s employment is terminated by us for cause or by Mr. Nadeau without “good reason,” by death, or by disability, Mr. Nadeau is entitled to: (i) all wages earned prior to the termination of employment; (ii) all accrued but unused personal leave; and (iii) a distribution of all deferred compensation in accordance with the terms of the relevant deferred compensation plan.

 

Under the terms of his agreement, “cause” generally means: (i) a breach of the terms of the employment agreement; (ii) any allegation reasonably determined by the company to be credible of any act of fraud, disloyalty, negligence in performing duties, a crime or misdemeanor, any action that harms our reputation or relationship with customers, stockholders or employees; or (iii) the failure to maintain the necessary governmental clearances. “Good reason” generally means: (i) a material diminution in the executive’s duties or responsibilities or (ii) a material change in Mr. Nadeau’s principal place of employment such that his commuting distance has increased by more than fifty miles.

 

The employment agreement provides that upon a change in control, if Mr. Nadeau is offered the position having substantially all of the material responsibilities of either the CFO of an entity, or division, of annual revenue size equal or greater than that of the company immediately prior to the change in control; or, as a managerial lead for an operating sector, of annual revenue size roughly comparable to or greater than that of the company immediately prior to the change in control, then eighty percent (80%) of Mr. Nadeau’s unvested nonqualified stock options and shares of restricted stock shall vest as of the date of the change in control. The remaining twenty percent (20%) of such unvested nonqualified stock options and shares of restricted stock shall vest in full on the one year anniversary of the change in control, provided that Mr. Nadeau remains employed by us or our successor. If such conditions are not satisfied, then all of Mr. Nadeau’s nonqualified stock options and shares of restricted stock will vest in full as of the date of the change in control.

 

On March 23, 2011, the Company entered into Amendment No. 1 to the employment agreement (the “amendment”) with Mr. Nadeau. Pursuant to the terms of the amendment, if Mr. Nadeau’s employment with us is terminated by us without “cause” or by Mr. Nadeau for “CIC good reason” at any time within two years after a change of control, then Mr. Nadeau is entitled to: (i) all wages earned prior to the termination of employment; (ii) all accrued but unused personal leave; (iii) up to 12 months of the Company paid health, dental, and vision coverage under COBRA, on an after tax basis; (iv) a distribution of all deferred compensation in accordance with the terms of the relevant deferred compensation plan; (v) lump-sum cash severance payment equal to Mr. Nadeau’s annual base salary and target annual bonus; (vi) a prorated annual target bonus for the fiscal year of termination; provided, however, if the termination occurs prior to January 1, 2012, the Mr. Nadeau will receive an amount equal to the greater of: (y) Mr. Nadeau’s prorated bonus for the 2012 fiscal year or (z) the amount Mr. Nadeau’s target bonus for the 2011 fiscal year exceeds the annual bonus actually paid for the fiscal year ending June 30, 2011; (vii) up to $25,000 annually of outplacement services for two year period; and (viii) immediate vesting of all unvested nonqualified stock options and shares of restricted stock and the exercise period for such options will be until the earlier of the expiration of such option or six months after the Mr. Nadeau’s termination. To the extent required by Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), a portion of the severance benefits otherwise payable to Mr. Nadeau will be made in installments in accordance with Mr. Nadeau’s employment agreement rather than in a lump sum.

 

Pursuant to the terms of the amendment, “CIC Good Reason” generally means: (i) a material adverse change in Mr. Nadeau’s title, duties, position, responsibilities or compensation; (ii) the assignment of duties materially inconsistent with Mr. Nadeau’s duties as of immediately prior to a change in control; (iii) a material change in Mr. Nadeau’s principal place of employment such that his commuting distance increases by more than twenty-five (25) miles; (iv) a material breach of the employment agreement by us; or (v) failure by us to obtain written assumption of the employment agreement by a purchaser or successor following a change in control.

 

Post-termination payment of annual salary, bonus amounts, health benefits and the immediate vesting of all unvested nonqualified stock options and shares of restricted stock are contingent upon Mr. Nadeau’s

execution of an agreement releasing us from certain claims related to Mr. Nadeau’s employment. If Mr. Nadeau is terminated under the terms of the amendment, we will continue to pay Mr. Nadeau’s annual base salary during the pendency of a dispute over his termination. Payments to be received by Mr. Nadeau pursuant to the Amendment are subject to reduction to the extent any such payments or benefits constitute “parachute payments” within the meaning of Section 280G of the Code and would be subject to the excise tax imposed by Section 4999 of the Code.

 

Mr. Nadeau’s employment agreement contains customary restrictive covenants, including perpetual confidentiality obligations and employee non-solicitation and business non-compete provisions. On March 23, 2011, the Company entered into Amendment No. 2 to Mr. Nadeau’s employment agreement, which eliminated Mr. Nadeau’s non-competition covenant upon any termination within two years immediately following a change in control.

 

Timothy J. Atkin, Jeffrey R. Rydant and Joseph P. Burke.  On March 23, 2011, we entered into a Senior Executive Retention Agreement (a “retention agreement”) with Timothy J. Atkin. On March 24, 2011, we entered into a retention agreement with Jeffrey R. Rydant. On March 28, 2011, we entered into a retention agreement with Joseph P. Burke.

 

Each retention agreement has an initial effective period of two years and will automatically renew for a two year period on the respective anniversary of the effective date thereafter, unless notice of termination is given by us at least six months prior to such renewal date. Notwithstanding the foregoing, the term of the retention agreement is automatically extended to expire two years after certain triggering events specified in the retention agreement or a change of control.

 

Pursuant to the terms of the retention agreement, if the executive officer’s employment with us is terminated by us without “cause” or by the executive officer for “good reason” at any time within two years after a change of control, then the executive officer will be entitled to: (i) all wages earned prior to the termination of employment; (ii) all accrued but unused personal leave; (iii) any other amounts required to be paid or provided of which the executive officer is eligible to receive under any plan, program, policy or practice; (iv) lump-sum cash severance payment equal to the executive officer’s annual base salary and target annual bonus; (v) a prorated annual target bonus for the fiscal year of termination; provided, however, if the termination occurs prior to January 1, 2012, the executive officer will receive an amount equal to the greater of (y) the executive officer’s prorated bonus for the 2012 fiscal year or (z) the amount executive officer’s target bonus for the 2011 fiscal year exceeds the annual bonus actually paid for the fiscal year ending June 30, 2011; (vi) up to $25,000 annually of outplacement services for two year period; (vii) up to 12 months of Company paid health, dental, and vision coverage under COBRA, on an after tax basis; and (viii) immediate vesting of all unvested nonqualified stock options and shares of restricted stock, and the exercise period for such options will be until the earlier of the expiration of such option or six months after the executive officer’s termination.

 

Post-termination payment of base salary, bonus amounts, health benefits and the immediate vesting of all unvested nonqualified stock options and shares of restricted stock are contingent upon the executive officer’s execution of an agreement releasing us from certain claims related to the executive officer’s employment. We will continue to pay the executive officer’s annual base salary during the pendency of a dispute over the executive officer’s termination. Payments to be received by the executive officer pursuant to the retention agreement are subject to reduction to the extent any such payments or benefits constitute “parachute payments” within the meaning of Section 280G of the Code and would be subject to the excise tax imposed by Section 4999 of the Code.

 

Under the terms of the retention agreement, “cause” generally means: (i) the willful and continued failure by the executive officer to perform substantially all of his duties with us (other than any such failure resulting from the executive officer’s incapacity due to physical or mental illness), or (ii) the willful engaging by the executive officer in criminal conduct that is materially and demonstrably injurious to us. Under the terms of the retention agreement, “good reason” generally means the following has occurred: (i) a material adverse change in executive officer’s title, duties, position, responsibilities or compensation; (ii) the assignment of duties materially inconsistent with the executive officer’s duties as of the effective date of the retention

agreement; (iii) a material change in the executive officer’s principal place of employment such that his or her commuting distance increases by more than twenty-five (25) miles; (iv) a material breach of the retention agreement by us; or (v) failure by us to obtain written assumption of the retention agreement by a purchaser or successor following a change in control.

 

The retention agreement also contains customary restrictive covenants, including perpetual confidentiality obligations and employee non-solicitation and non-disparagement provisions.

 

The following table sets forth an estimate of the potential cash severance payments that would be payable as described above in the event that the employment of an executive officer was terminated without cause or the executive officer resigned for good reason following the merger (assuming, for illustrative purposes, that (1) the executive officer’s employment is terminated on June 30, 2011 and (2) base salaries and target bonuses remain at current levels). The value of any accelerated vesting of equity awards to which any executive officer would otherwise be entitled is not included since all outstanding equity awards will become fully vested and be cashed out in connection with the closing of the merger as described above.

 

 

 

 

No executive officer has the right to be indemnified in the event that payments to him made in connection with the merger result in an excise tax under Section 4999 of the Code. However, to the extent payments are made to an executive officer that would result in an excise tax being payable, the Company would lose a related Federal tax deduction. The Company does not expect that the value of any such lost Federal tax deduction would be material.

 

Rollover Agreement

 

Pursuant to the terms of the equity rollover letter, the Rollover Investor has committed to contribute, immediately prior to the consummation of the merger, an aggregate amount of 4,800,000 shares of our Class B common stock to Holdco (the equivalent of a $150 million investment based upon the per share merger consideration of $31.25) in exchange for (i) certain equity securities of Holdco with an aggregate value of $120 million and (ii) a promissory note issued by Holdco in favor of Dr. Volgenau in an original principal amount of $30 million, repayable solely from the proceeds (if any) of certain contemplated subsidiary divestitures by the Company. The principal amount of the promissory note plus accrued and unpaid interest

will be due and payable on the later of (i) 10:00 p.m., New York City time, on the date of issuance or (ii) the fifth business day following the Company’s receipt of cash proceeds from the dispositions of all or substantially all of the businesses of two of the Company’s subsidiaries (the “excluded subsidiaries”); provided, that, within one business day of the disposition of either excluded subsidiary, Holdco will prepay the promissory note in part or in full in an amount equal to proceeds received by Holdco, up to a maximum aggregate amount of $30 million plus accrued and unpaid interest. If by its terms the note would be payable in full prior to the effective time of the merger, the Rollover Investor may elect to receive, in lieu of the promissory note, additional equity of Holdco valued at the amount that would have been payable pursuant to the promissory note. Holdco will receive a percentage of equity of Holdco reflecting the ratio of (i) $120 million plus, if the election to receive additional equity is made, the amount that would have been payable pursuant to the promissory note to (ii) the cash contributed to Holdco by the Providence Funds immediately prior to the effective time plus the amount referred to in clause (i).

 

The shares contributed to Holdco will be cancelled in connection with the merger and will not be entitled to receive any merger consideration upon completion of the merger. The obligations to contribute the shares pursuant to the equity rollover letter are subject to the conditions described under “ — Financing of the Merger — Rollover Financing.” The Company is an express third-party beneficiary of the equity rollover letter and has the right to seek specific performance of the commitment of the Rollover Investor under the equity rollover letter under the circumstances in which the Company would be permitted by the merger agreement to obtain specific performance requiring Parent to enforce such commitment. The Rollover Investor and Holdco agree that, if the transactions contemplated by the merger agreement are consummated, the Rollover Investor and Holdco will enter into a stockholders agreement in the form previously negotiated.

 

At the closing, the Rollover Investor will enter into a stockholders agreement with Holdco and the Providence Funds that will govern the rights and obligations of the parties as holders of equity in Holdco following completion of the merger. Pursuant to the stockholders agreement, immediately following the closing, the board of directors of Holdco will initially consist of three members: Dr. Volgenau, who will be chairman of the board of directors, and two directors designated by the Providence Funds. The stockholders agreement also sets forth certain requirements regarding the voting of the equity of Holdco and certain restrictions on transfers of the equity of Holdco, and provides the Rollover Investor with certain information rights, preemptive rights and registration rights with respect to the equity of Holdco. Dr. Volgenau will be compensated as chairman of the board of directors of Holdco at the same level as he is currently compensated for services performed as chairman of the board of directors of SRA.

 

New Management Incentive Plan and Management Co-Investment Opportunities

 

Parent has indicated that following the effective time, it is expected that the board of directors of Parent will put in place a new equity incentive plan pursuant to which equity compensation awards will be granted to executive officers and other key employees of the Company and it subsidiaries. As of the date of this proxy statement, the terms and conditions of the equity incentive plan and related grants have not been determined, and no promises or other commitments relating to future equity compensation have been made to any person.

 

Employee Benefits

 

The merger agreement requires Parent or the surviving corporation to continue to provide certain compensation and benefits for a period of one year from the consummation of the merger, as well as take certain actions in respect of employee benefits provided to the Company’s employees, including its executive officers. For a more detailed description of these requirements, please see “THE MERGER AGREEMENT — Employee Benefit Matters.”

 

New Management Arrangements with Executive Officers or Directors

 

Other than as described above and in the following paragraph, as of the date of this proxy statement, none of the Company’s executive officers or directors has entered into any amendments or modifications to his

or her existing employment arrangements with the Company in connection with the merger, nor has any entered into any employment or other agreement with Parent or its affiliates.

 

As described above, pursuant to a stockholders agreement to be executed by the stockholders of Holdco at the closing, upon consummation of the merger Dr. Volgenau will be the chairman of the board of directors of Holdco following the closing.

 

Parent has indicated that it or its affiliates may pursue agreements, arrangements or understandings with the Company’s executive officers, which may include cash, stock and co-investment opportunities. Prior to the effective time of the merger and with the prior consent of the special committee, Parent may initiate negotiations of these agreements, arrangements and understandings, and may enter into definitive agreements regarding employment with, or the right to participate in the equity of, the surviving corporation or Parent on a going-forward basis following the completion of the merger. To date, no negotiations or discussions have occurred, and no promises have been made to any person.

 

Indemnification of Directors and Officers

 

The Company is organized under the laws of the State of Delaware. Consistent with the DGCL, the Company’s Amended and Restated Certificate of Incorporation provides that, except to the extent prohibited by the DGCL, the Company’s directors shall not be personally liable to the Company or its stockholders for monetary damages for any breach of fiduciary duty as directors of the Company. Consequently, no director will be personally liable to the Company or its stockholders for monetary damages for any breach of fiduciary duties as a director, except liability for:

 

 

Section 145 of the DGCL permits a corporation to include in its charter and bylaw documents, and in agreements between the corporation and its directors and officers, provisions expanding the scope of indemnification beyond that specifically provided by current law. The Company’s Amended and Restated Certificate of Incorporation provides that the Company will indemnify (a) each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of the Company), by reason of the fact that such person is or was, or has agreed to become, a director or officer of the Company, or is or was serving, or has agreed to serve, at the request of the Company, as a director, officer, partner, employee or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise (all such persons being referred to in this section as an “indemnitee”), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person or on such person’s behalf in connection with such action, suit or proceeding and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful and (b) any indemnitee who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that he is or was, or has agreed to become, a director or officer of the Company, or is or was serving, or has agreed to serve, at the request of the Company, as a director, officer, partner, employee or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys’ fees) and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom,

if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company, except that no indemnification shall be made with respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the Company, unless a court determines that, despite such adjudication but in view of all of the circumstances, he is entitled to indemnification of such expenses (including attorneys’ fees) which the court deems proper.

 

To the extent that an indemnitee has been successful, on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, he will be indemnified by the Company against all expenses (including attorneys’ fees) actually and reasonably incurred in connection therewith. Expenses shall be advanced to an indemnitee at his request, provided that he undertakes to repay the amount advanced if it is ultimately determined that he is not entitled to indemnification for such expenses.

 

The merger agreement provides that the surviving corporation will indemnify and hold harmless (and advance costs and expenses as incurred to), to the fullest extent permitted under applicable law, to each current and former director and officer of the Company against any costs or expenses, judgments, fines, losses, claims, damages or liabilities incurred in connection with any claims, actions, suits or proceedings arising out of or relating to such indemnified parties’ service as an officer or director of the Company or any of its subsidiaries prior to the effective time. In addition, prior to the effective time, the Company will (or if unable to, Parent will cause the surviving corporation to, as of the effective time) obtain and fully pay the premium for the extension of the Company’s current directors’ and officers’ insurance policies and fiduciary liability insurance policies, for a period of not less than six years from and after the effective time and on terms and conditions at least as favorable to those under the existing policies. If the Company and the surviving corporation fail to obtain such “tail” insurance policies as of the effective time, the surviving corporation will maintain in effect the Company’s current directors’ and officers’ liability insurance (or use reasonable best efforts to purchase substitute policies including comparable coverage) covering acts or omissions occurring at or prior to the effective time with respect to those individuals who are currently covered by the Company’s directors’ and officers’ liability insurance policy (and any additional individuals who prior to the effective time become covered) on terms and scope with respect to such coverage, and in amount, at least as favorable to such individuals than those of the policies in effect on March 31, 2011. In no event will the Company or the surviving corporation be required to pay an annual premium for such policies that exceeds 300% of the annual premium paid by the Company as of March 31, 2011 for such insurance policies.

 

Intent to Vote in Favor of the Merger.

 

As of          , 2011, the record date for the special meeting, our directors (including Dr. Volgenau) and current executive officers owned, in the aggregate,           shares of SRA common stock, or collectively approximately          % of the outstanding shares of SRA common stock and approximately          % of the voting power of the SRA common stock. Our directors and current executive officers have informed us that, as of the date hereof, they intend to vote all of their shares of SRA common stock in favor of the adoption of the merger agreement because they believe that the merger is in the best interests of the Company and its unaffiliated stockholders. See “THE SPECIAL MEETING — Vote Required — Voting and Support Agreement” for a discussion of the Voting and Support Agreement between the Volgenau Filing Persons and Parent.

 

Pursuant to the merger agreement, we are prohibited from declaring any dividends following execution of the merger agreement on March 31, 2011.

 

The per share merger consideration was determined through arm’s-length negotiations between Parent, Merger Sub and the Company (acting through the special committee).

 

In connection with the merger, we are required to make certain filings with, and comply with certain laws of, various federal and state governmental agencies, including:

 

 

In addition, under the HSR Act, and the related rules and regulations that have been issued by the Federal Trade Commission (“FTC”), certain transactions having a value above specified thresholds may not be consummated until specified information and documentary material have been furnished to the FTC and the Antitrust Division of the Department of Justice and certain waiting period requirements have been satisfied. The requirements of the HSR Act apply to the acquisition of shares of SRA common stock in the merger.

 

At any time before or after consummation of the merger, notwithstanding the early termination of the waiting period under the HSR Act, the Antitrust Division of the DOJ, the FTC or state or foreign antitrust and competition authorities could take such action under applicable antitrust laws as each deems necessary or desirable in the public interest, including seeking to enjoin the consummation of the merger or seeking divestiture of substantial assets of the Company or Parent. Private parties may also seek to take legal action under the antitrust laws under certain circumstances.

 

None of the parties is aware of any other required regulatory approvals.

 

Estimated fees and expenses to be incurred by us in connection with the merger are as follows:

 

 

No provision has been made to grant unaffiliated stockholders of the Company access to our corporate files or any other party to the merger or to obtain counsel or appraisal services at our expense or at the expense of any other such party.

 

The following is a general discussion of certain material United States federal income tax consequences of the merger discussed earlier in this proxy statement to holders of our common stock (other than the Rollover Investor). This discussion is a summary for general information purposes only and does not consider all aspects of federal taxation that may be relevant to particular holders in light of their individual investment circumstances or to certain types of holders subject to special tax rules, including partnerships, S corporations or other pass-through entities, mutual funds, banks, financial institutions or other financial services entities, broker-dealers, insurance companies, tax-exempt organizations, regulated investment companies, real estate investment trusts, retirement plans, individual retirement accounts or other tax-deferred accounts, persons who

use or are required to use mark-to-market accounting, persons that hold our common stock as part of a “straddle,” a “hedge,” a “constructive sale” or a “conversion transaction,” persons who receive merger consideration as compensation for services, persons that have a functional currency other than the U.S. dollar, investors in pass-through entities, certain former citizens or residents of the United States and persons subject to the alternative minimum tax, nor does it address any federal non-income, state, local or foreign tax consequences. This summary assumes that holders have held their shares as “capital assets” within the meaning of Section 1221 of the Code. This summary is based on the Code and applicable Treasury Regulations, rulings, administrative pronouncements and decisions, all as in effect as of the date of this proxy statement and all of which are subject to change or differing interpretations at any time with possible retroactive effect. This discussion does not address the tax consequences to the Rollover Investor in connection with the merger.

 

The discussion set forth below applies to holders of our common stock who exchange all of their SRA common stock for cash as a result of the merger and who, after the merger, have no direct or indirect interest in us (whether directly or indirectly from any person pursuant to certain tax attribution rules). The tax consequences of the merger may differ for holders who have any direct or indirect interest in us after the merger.

 

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our common stock that is:

 

 

For purposes of this discussion, a “Non-U.S. Holder” is a beneficial owner of our common stock, other than a partnership, that does not qualify as a U.S. Holder under the definition above.

 

If a partnership (or entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds our common stock, the tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. In this event, you should consult your tax advisor concerning the tax treatment of the merger.

 

EACH HOLDER OF OUR COMMON STOCK IS URGED TO CONSULT ITS OWN TAX ADVISOR REGARDING THE SPECIFIC U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER.

 

Consequences to U.S. Holders of SRA common stock

 

A U.S. Holder of SRA common stock that receives cash as a result of the merger will recognize capital gain or loss equal to the amount of cash received (determined before the deduction of any applicable withholding taxes) minus the U.S. Holder’s adjusted tax basis in SRA common stock. Any capital gain or loss recognized by the U.S. Holder will be long-term capital gain or loss if the U.S. Holder held our common stock for more than one year and short-term capital gain or loss otherwise. Gain or loss must be calculated separately for each block of shares (i.e., shares acquired at the same cost in a single transaction). A U.S. Holder’s ability to use any capital loss to offset other income or gain is subject to certain limitations.

Consequences to Non-U.S. Holders of SRA common stock

 

A Non-U.S. Holder that receives cash as a result of the merger generally will not be subject to U.S. federal income taxation unless:

 

 

If a Non-U.S. Holder described in the first bullet above is subject to U.S. federal income taxation on the receipt of cash in the merger, the Non-U.S. Holder generally will recognize capital gain or loss equal to the amount of cash received (determined before the deduction of any applicable withholding taxes) minus the Non-U.S. Holder’s adjusted tax basis in SRA common stock. The capital gain or loss will generally constitute long-term capital gain or loss if the Non-U.S. Holder held SRA common stock for more than one year and short-term capital gain or loss otherwise. Gain or loss must be calculated separately for each block of shares (i.e., shares acquired at the same cost in a single transaction). Any gain recognized by a Non-U.S. Holder generally will be subject to tax in the same manner as if such holder were a U.S. person as defined under the Code. A Non-U.S. Holder that is a corporation may also be subject to an additional 30 percent branch profits tax on after-tax profits effectively connected with a U.S. trade or business to the extent that such after-tax profits are not reinvested and maintained in the U.S. business. A Non-U.S. Holder’s ability to use any capital loss to offset other income or gain subject to U.S. federal income taxation is subject to certain limitations.

 

Unless gain from the sale or disposition of our common stock of an individual who is present in the United States for 183 days or more in the individual’s taxable year of the merger is already subject to tax as effectively connected with the conduct of a U.S. trade or business, the gain of such Non-U.S. Holder who satisfies certain other conditions will be subject to a 30 percent tax on the gross amount of the gain and such Non-U.S. Holder’s ability to use other losses to offset the gain on SRA common stock will be limited.

 

In general, a corporation is a USRPHC if the fair market value of its “U.S. real property interests” equals or exceeds 50 percent of the sum of the fair market value of its worldwide (domestic and foreign) real property interests and its other assets used or held for use in a trade or business. We believe that as of the effective date of the merger, we will not have been a USRPHC at any time within the five-year period ending on the date hereof.

 

If a Non-U.S. Holder is eligible for treaty benefits under an income tax treaty entered into by the United States, the Non-U.S. Holder may be able to reduce or eliminate certain of the U.S. federal income taxes discussed above, such as the branch profits tax, and the Non-U.S. Holder may be able to treat gain, even if effectively connected with a U.S. trade or business, as not subject to U.S. federal income taxation provided that the trade or business is not conducted through a permanent establishment located in the United States. Non-U.S. Holders should consult their tax advisors regarding possible relief under an applicable income tax treaty.

 

Backup Withholding and Information Reporting

 

A holder of our common stock may be subject to backup withholding with respect to the receipt of cash as a result of the merger unless such holder is exempt from backup withholding and, when required, demonstrates that status, or provides a correct taxpayer identification number on a form acceptable under U.S. Treasury Regulations (generally an IRS Form W-9, W-8BEN or W-8ECI) and otherwise complies with the applicable requirements of the backup withholding rules. We may also be required to comply with information reporting requirements under the Code with respect to the merger. Holders of our common stock should consult their tax advisors as to their qualification for exemption from backup withholding and the

procedure for obtaining such an exemption. Any amount withheld under the backup withholding rules of the Code is not an additional tax, but rather may be refunded or credited against the U.S. Holder’s or the Non-U.S. Holder’s U.S. federal income tax liability, if any, provided the required information is furnished to the Internal Revenue Service in a timely manner. Non-U.S. Holders are advised to consult their tax advisors to ensure compliance with the procedural requirements to avoid backup withholding and, if applicable, to file a claim for a refund of any withheld amounts in excess of the Non-U.S. Holder’s U.S. federal income tax liability.

 

THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION PURPOSES ONLY. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER.

 

The merger is expected to be accounted for under the purchase method of accounting. Under purchase accounting principles, we will record an intangible asset equal to the excess, if any, of the purchase price paid by Acquisition in the merger over the net fair market value allocated to our identifiable assets and liabilities. Such excess is referred to as goodwill. This will result in substantial amortization charges to our consolidated income over the useful lives of those assets.

 

If the merger is completed, the shares of our Class A common stock will be delisted from the NYSE and deregistered under the Exchange Act, and such shares of our Class A common stock will no longer be publicly traded.

 

On April 7, 2011, the Southeastern Pennsylvania Transportation Authority filed a lawsuit in the Court of Chancery of Delaware (captioned S.E. Pa. Trans. Auth. v. Volgenau, et. al, Case No. 6354 (Del. Ch.)) purportedly on behalf of itself and other stockholders of the Company against the Company, the Board of Directors, Providence, Holdco, Parent and Merger Sub. The complaint alleges, among other things, (1) that the Board breached its fiduciary duties by, among other things, failing to take steps to maximize the value of the merger consideration to its public stockholders and conveying substantial payments to existing officers of the Company, Providence, Holdco, Parent and Merger Sub at the unfair expense of the public stockholders, (2) that Dr. Volgenau breached his duty of loyalty and entire fairness in planning, structuring, and timing the merger to benefit himself as well as Providence, Holdco, Parent and Merger Sub, and (3) that the Company and Providence, Holdco, Parent and Merger Sub aided and abetted these purported breaches of fiduciary duties. The complaint seeks to enjoin consummation of the merger or, in the event the merger is completed, seeks to rescind the merger or recover money damages on behalf of the Company’s stockholders caused by the alleged breaches of fiduciary duties.

 

The Company and the Board believe that the claims in this action are without merit and intend to defend against them vigorously.

 

We are furnishing this proxy statement to the Company’s stockholders as part of the solicitation of proxies by the Board for use at the special meeting.

 

We will hold the special meeting at           a.m., local time, on          , 2011, at          . Seating will be limited to stockholders. Admission to the special meeting will be on a first-come, first-served basis. If you plan to attend the special meeting, please note that you may be asked to present valid photo identification, such as a driver’s license or passport. Stockholders owning stock in brokerage accounts must bring a copy of a brokerage statement reflecting stock ownership as of the record date. Cameras, recording devices and other electronic devices will not be permitted at the meeting.

 

Stockholders will be asked to consider and vote upon the following proposals at the special meeting:

 

 

A copy of the merger agreement is attached as Annex A to this proxy statement.

 

The Board, after careful consideration and acting on the unanimous recommendation of the special committee composed entirely of independent directors, deemed it advisable and in the best interests of the Company and our stockholders (other than the Volgenau Filing Persons) that the Company enter into the merger agreement and recommended that the Company’s stockholders adopt the merger agreement at the special meeting. The Board recommends that our stockholders vote “FOR” the proposal to adopt the merger agreement and “FOR” any proposal to adjourn the special meeting.

 

Only holders of record of SRA common stock at the close of business on          , 2011, the record date, are entitled to notice of and to vote at the special meeting. On the record date, there were           shares of Class A common stock outstanding and entitled to vote at the special meeting and held of record by           holders of record, and           shares of Class B common stock outstanding and entitled to vote at the special meeting and held of record by           holders of record. Holders of Class A common stock are entitled to one vote per share and holders of Class B common stock are entitled to ten votes per share. Holders of Class A common stock and holders of Class B common stock vote together as a single class on all matters presented to the stockholders for their vote or approval, except as may otherwise be required by Delaware law. For ten days prior to the meeting, a complete list of stockholders entitled to vote at the meeting will be available for examination by any stockholder, for any purpose relating to the meeting, during ordinary business hours at our offices located at 4300 Fair Lakes Court, Fairfax, Virginia 22033.

 

Shares of SRA common stock represented by proxies reflecting abstentions and properly executed broker non-votes will be counted as present and entitled to vote for purposes of determining a quorum. A broker non-vote occurs when a broker, bank or other nominee does not vote on a particular matter because such broker, bank or other nominee does not have the discretionary voting power with respect to that proposal and has not received voting instructions from the beneficial owner. Brokers, banks and other nominees will not have discretionary voting power with respect to the proposal to adopt the merger agreement. A quorum will be

present at the special meeting if the holders of a majority of the shares of SRA common stock outstanding and entitled to vote on the record date are present, in person or by proxy. In the event that a quorum is not present, or if there are insufficient votes to adopt the merger agreement at the time of the special meeting, it is expected that the meeting will be adjourned to solicit additional proxies.

 

Adoption of the Merger Agreement

 

The adoption of the merger agreement by our stockholders requires the affirmative vote of (a) the holders of a majority of the outstanding shares of SRA common stock entitled to vote on such matter and (b) the holders of a majority of the outstanding shares of Class A common stock (excluding all such shares beneficially owned, directly or indirectly, by Dr. Volgenau) entitled to vote on such matter.

 

Failure to vote your shares of SRA common stock and broker non-votes will each have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement.

 

Approval of the Adjournment of the Special Meeting

 

The approval of the adjournment of the special meeting, 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 requires the affirmative vote of the holders of at least of a majority of the shares of SRA common stock present and entitled to vote at the special meeting as of the record date, whether or not a quorum is present.

 

Failure to vote your shares of SRA common stock and broker non-votes will each have the same effect as a vote “AGAINST” the proposal to adjourn the special meeting.

 

Voting and Support Agreement

 

Dr. Ernst Volgenau, has, together with each of the other Volgenau Filing Persons, executed a voting and support agreement with Parent, pursuant to which the Volgenau Filing Persons have agreed to vote 113,514 shares of our Class A common stock and 11,702,469 shares of our Class B common stock owned by them in the aggregate (constituting approximately 20% of the aggregate number of outstanding shares of SRA common stock, representing approximately 71% of the aggregate voting power of the outstanding shares of SRA common stock, on the date we signed the merger agreement) in favor of the adoption of the merger agreement at the special meeting. See “SPECIAL FACTORS — Interests of the Company’s Directors and Executive Officers in the Merger.”

 

As of          , 2011, the record date for the special meeting, our directors (including Dr. Volgenau) and current executive officers beneficially owned, in the aggregate,           shares of SRA common stock, or collectively approximately          % of the outstanding shares of SRA common stock and approximately          % of the aggregate voting power of the outstanding shares of SRA common stock. Our directors and current executive officers have informed us that they intend, as of the date hereof, to vote all of their shares of SRA common stock in favor of the adoption of the merger agreement.

 

Certain members of our management and the Board have interests that may be different from, or in addition to, those of our stockholders generally. For more information, please read “SPECIAL FACTORS — Interests of the Company’s Directors and Executive Officers in the Merger.”

 

Ensure that your shares of SRA common stock can be voted at the special meeting by submitting your proxy or contacting your broker, dealer, commercial bank, trust company or other nominee.

 

If your shares of SRA common stock are registered in the name of a broker, bank or other nominee: check the voting instruction card forwarded by your broker, bank or other nominee to see which voting options

are available or contact your broker, bank or other nominee in order to obtain directions as to how to ensure that your shares of SRA common stock are voted at the special meeting.

 

If your shares of SRA common stock are registered in your name: submit your proxy as soon as possible by telephone, via the Internet or by signing, dating and returning the enclosed proxy card in the enclosed postage-paid envelope, so that your shares of SRA common stock can be voted at the special meeting.

 

Instructions regarding telephone and Internet proxies are included on the proxy card.

 

The failure to vote will have the same effect as a vote against the proposal to adopt the merger agreement. If you sign, date and mail your proxy card without indicating how you wish to vote, your proxy will be voted in favor of the proposal to adopt the merger agreement and the proposal to adjourn the special meeting, if necessary and appropriate, to solicit additional proxies.

 

For additional questions about the merger, assistance in submitting proxies or voting shares of SRA common stock, or to request additional copies of the proxy statement or the enclosed proxy card, please contact:

SRA INTERNATIONAL, INC.

4300 Fair Lakes Court

Fairfax, Virginia 22033

Attention: Corporate Secretary

Telephone: (703) 803-1500

 

Voting by Proxy or in Person at the Special Meeting

 

Holders of record can ensure that their shares of SRA common stock are voted at the special meeting by completing, signing, dating and delivering the enclosed proxy card in the enclosed postage-paid envelope. Submitting by this method or by telephone or the Internet as described below will not affect your right to attend the special meeting and to vote in person. If you plan to attend the special meeting and wish to vote in person, you will be given a ballot at the special meeting. Please note, however, that if your shares of SRA common stock are held in “street name” by a broker, bank or other nominee and you wish to vote at the special meeting, you must bring to the special meeting a proxy from the record holder of those shares of SRA common stock authorizing you to vote at the special meeting.

 

If you submit a proxy for your shares of SRA common stock, your shares will be voted at the special meeting as you indicated on your proxy card or Internet or telephone proxy. If no instructions are indicated on your signed proxy card, all of your shares of SRA common stock will be voted “FOR” the adoption of the merger agreement and “FOR” the approval of the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement.

 

IT IS IMPORTANT THAT YOU VOTE YOUR SHARES OF SRA COMMON STOCK PROMPTLY, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. PLEASE COMPLETE, DATE, SIGN AND RETURN, AS PROMPTLY AS POSSIBLE, THE ENCLOSED PROXY CARD IN THE ACCOMPANYING PRE-PAID REPLY ENVELOPE, OR SUBMIT YOUR PROXY BY TELEPHONE OR THE INTERNET. STOCKHOLDERS WHO ATTEND THE SPECIAL MEETING MAY REVOKE THEIR PROXIES BY VOTING IN PERSON.

 

Electronic Voting

 

Our holders of record and many stockholders who hold their shares of SRA common stock through a broker, bank or other nominee will have the option to submit their proxy cards or voting instruction cards electronically by telephone or the Internet. Please note that there are separate arrangements for submitting a proxy by telephone and Internet depending on whether your shares of SRA common stock are registered in our records in your name or in the name of a broker, bank or other nominee. If you hold your shares of SRA

common stock through a broker, bank or other nominee, you should check your voting instruction card forwarded by your broker, bank or other nominee to see which options are available.

 

Please read and follow the instructions on your proxy card or voting instruction card carefully.

 

We do not expect that any matter other than (a) the proposal to adopt the merger agreement and (b) the proposal to approve of the adjournment of the special meeting, 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, will be brought before the special meeting. If, however, other matters are properly presented at the special meeting, the persons named as proxies will vote in accordance with their best judgment with respect to those matters.

 

Submitting a proxy on the enclosed form does not preclude a stockholder from voting in person at the special meeting. A stockholder of record may revoke a proxy at any time before it is voted by filing with our corporate secretary a duly executed revocation of proxy, by properly submitting a proxy by mail, the Internet or telephone with a later date or by appearing at the special meeting and voting in person. A stockholder of record may revoke a proxy by any of these methods, regardless of the method used to deliver the stockholder’s previous proxy. Attendance at the special meeting without voting will not itself revoke a proxy. If your shares of SRA common stock are held in street name, you must contact your broker, bank or other nominee to revoke your proxy.

 

Stockholders are entitled to statutory appraisal rights under Delaware law in connection with the merger. This means that you are entitled to have the value of your shares of SRA common stock determined by the Court of Chancery of the State of Delaware, and to receive payment based on that valuation instead of receiving the merger consideration. The ultimate amount you would receive in an appraisal proceeding may be more than, the same as or less than the amount you would have received under the merger agreement.

 

To exercise your appraisal rights, you must submit a written demand for appraisal to us before the vote is taken on the merger agreement and you must NOT vote in favor of the adoption of the merger agreement. Your failure to follow exactly the procedures specified under Delaware law will result in the loss of your appraisal rights. See “APPRAISAL RIGHTS” and the text of the Delaware appraisal rights statute, Section 262 of the DGCL, which is reproduced in its entirety as Annex D to this proxy statement.

 

This proxy solicitation is being made by the Company on behalf of the Board and will be paid for by the Company. In addition, we have retained           to assist in the solicitation. We will pay           approximately $           plus out-of-pocket expenses for its assistance. The Company’s directors, officers and employees may also solicit proxies by personal interview, mail, e-mail, telephone, facsimile or other means of communication. These persons will not be paid additional remuneration for their efforts. The Company will also request brokers, banks and other nominees to forward proxy solicitation material to the beneficial owners of shares of SRA common stock that the brokers, banks and other nominees hold of record. Upon request, the Company will reimburse them for their reasonable out-of-pocket expenses.

 

If you need assistance in completing your proxy card or have questions regarding the special meeting, please contact          .

 

The following is a summary of the material terms and conditions of the merger agreement. The description in this section and elsewhere in this proxy statement is qualified in its entirety by reference to the complete text of the merger agreement, a copy of which is attached as Annex A and is incorporated by reference into this proxy statement. This summary does not purport to be complete and may not contain all of the information about the merger agreement that is important to you. We encourage you to read the merger agreement carefully and in its entirety because it is the legal document that governs this merger.

 

The merger agreement and this summary of its terms have been included to provide you with information regarding the terms of the merger agreement. Factual disclosures about the Company contained in this proxy statement or in the Company’s public reports filed with the SEC may supplement, update or modify the factual disclosures about the Company contained in the merger agreement and described in this summary. The representations, warranties and covenants made in the merger agreement by the Company, Parent and Merger Sub were qualified and subject to important limitations agreed to by the Company, Parent and Merger Sub in connection with negotiating the terms of the merger agreement. In particular, in your review of the representations and warranties contained in the merger agreement and described in this summary, it is important to bear in mind that the representations and warranties were negotiated with the principal purposes of establishing the circumstances in which a party to the merger agreement may have the right not to close the merger if the representations and warranties of the other party prove to be untrue due to a change in circumstance or otherwise, and allocating risk between the parties to the merger agreement, rather than establishing matters as facts. The representations and warranties may also be subject to a contractual standard of materiality different from those generally applicable to stockholders and reports and documents filed with the SEC and in some cases were qualified by disclosures that were made by each party to the other, which disclosures are not reflected in the merger agreement. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this proxy statement, may have changed since the date of the merger agreement and subsequent developments or new information qualifying a representation or warranty may have been included in this proxy statement.

 

The merger agreement provides for the merger of Merger Sub with and into the Company upon the terms, and subject to the conditions, set forth in the merger agreement. As the surviving corporation, the Company will continue to exist following the merger.

 

The board of directors of the surviving corporation will, from and after the effective time, consist of the directors of Merger Sub immediately prior to the effective time until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal. The officers of the surviving corporation will, from and after the effective time, be the officers of the Company immediately prior to the effective time until their successors have been duly appointed and qualified or until their earlier death, resignation or removal.

 

At the effective time, the certificate of incorporation and bylaws of the surviving corporation will be amended in their entirety to be in the form of the certificate of incorporation and bylaws attached as Exhibits A and B, respectively, to the merger agreement, until amended in accordance with their terms or by applicable law.

 

The closing of the merger (which we refer to as the “closing”) will take place at (a) the second business day following the date on which the last of the conditions to closing (described under “THE MERGER AGREEMENT — Conditions to the Merger”) have been satisfied or waived (to the extent permitted by applicable law) (other than the conditions that by their terms are to be satisfied at the closing, but subject to the satisfaction or waiver of those conditions at the closing); provided, that if the marketing period (as

summarized below) has not ended at such time, the closing will instead take place on the earlier to occur of (i) a business day during the marketing period specified by Parent on no less than two business days’ prior written notice to the Company and (ii) the second business day immediately following the final day of the marketing period (subject, in each case, to the satisfaction or waiver (to the extent permitted by applicable law) of the conditions to closing (other than the conditions that by their terms are to be satisfied at the closing, but subject to the satisfaction or waiver of those conditions at the closing) on such date), or (b) at such other date as agreed to in writing by Parent, Merger Sub and the Company.

 

The effective time will occur as soon as practicable on the date of the closing upon the filing of a certificate of merger with the Secretary of State of the State of Delaware (or at such later date and time as the Company, Parent and Merger Sub may agree and specify in the certificate of merger).

 

The marketing period is the first period of 20 consecutive business days commencing after the date of the merger agreement and throughout which (A) Parent shall have received certain financial statements, pro forma financial statements, and other financial data, audit reports and financial information relating to the Company and its subsidiaries of the type that would be required by the applicable SEC requirements for registered public offerings of non-convertible debt securities and such other pertinent and customary information regarding the Company and its subsidiaries as may be reasonably requested by Parent, to the extent the same is of the type and form customarily included in a Rule 144A offering memorandum for private placements of non-convertible high yield debt securities, and meets certain other requirements (which information we refer to as the “required information”), (B) the mutual closing conditions to the obligations of each of the parties (described under “THE MERGER AGREEMENT — Conditions to the Merger”) have been satisfied (other than conditions that by their terms are to be satisfied at the closing, but subject to the satisfaction or waiver of those conditions at the closing) and (C) nothing has occurred and no condition exists that would cause any of the closing conditions to the obligations of Parent and Merger Sub (described under “THE MERGER AGREEMENT — Conditions to the Merger”) not to be satisfied if the closing were to occur at any time during such 20 consecutive business day period.

 

The marketing period is subject to early termination on the date upon which the debt financing is obtained. If the marketing period has not ended on or prior to August 14, 2011, then the marketing period will not commence prior to September 7, 2011. The marketing period will not commence, and will not be deemed to have commenced, if, before the completion of the marketing period, (i) the Company’s auditors have withdrawn any audit opinion with respect to certain financial statements of the Company, and in which case the marketing period will not be deemed to commence unless and until, at the earliest, a new unqualified audit opinion is issued with respect to the Company’s consolidated financial statements for the applicable period(s) by the Company’s auditors or another independent public accounting firm reasonably acceptable to Parent, (ii) the required information would not comply with the relevant requirements at any time during the marketing period, in which case the marketing period will be deemed not to commence until the required information is compliant with such requirements, and the conditions described in (A) and (B) above are fulfilled, (iii) the Company publicly announces any intention to restate any financial information included in the required information or that any such restatement is under consideration, in which case the marketing period will be deemed not to commence until the first day on which such restatement has been completed and the relevant reports have been amended or the Company has determined that no restatement is required, and the conditions described in (A) and (B) above are fulfilled, (iv) the Company has been delinquent in filing any Annual Report on Form 10-K or Quarterly Report on Form 10-Q or any other material filing required by the SEC, in which case the marketing period will not be deemed to commence unless and until, at the earliest, all such delinquencies have been cured, or (v) if the Company has received any material accounting comments from the staff of the SEC on its Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q, as such may be amended, the marketing period will be deemed not to commence, at the earliest, unless and until all such material accounting comments have been satisfactorily resolved with the SEC staff.

 

If the Company in good faith reasonably believes that the marketing period has begun (i.e., that it has delivered the required information and that such required information complies with the relevant requirements),

it may deliver to Parent a written notice to that effect (stating when it believes it completed such delivery), in which case the Company will be deemed to have complied with clause (A) above and the marketing period will be deemed to have begun on the date of such notice, unless Parent in good faith reasonably believes that the marketing period has not begun and that the Company has not satisfied such requirements and, within three business days after the delivery of such notice by the Company, delivers a written notice to the Company to that effect (stating with specificity what required information the Company has not delivered or does not otherwise meet the requirements).

 

Common Stock

 

At the effective time, each share of SRA’s common stock issued and outstanding immediately prior thereto (other than excluded shares described in this subsection) will convert into the right to receive the per share merger consideration. SRA common stock owned by the Company as treasury stock or owned by Parent, Merger Sub or any other direct or indirect wholly owned subsidiary of Parent (including any shares contributed to Holdco by the Rollover Investor) will be canceled without payment of consideration. SRA common stock owned by any of the Company’s wholly owned subsidiaries will, at the election of Parent, either convert into stock of the surviving corporation or be canceled without payment of consideration. SRA common stock owned by stockholders who have exercised, perfected and not withdrawn a demand for, or lost the right to, appraisal rights under the DGCL will be canceled without payment of consideration and such stockholders will instead be entitled to the appraisal rights provided under the DGCL as described under “APPRAISAL RIGHTS.” For a discussion of the treatment of shares of SRA common stock held, directly or indirectly, by Dr. Volgenau, see “SPECIAL FACTORS — Interests of the Company’s Directors and Executive Officers.”

 

Stock Options

 

As of the effective time, each stock option to purchase shares of Class A common stock (each such option, a “stock option”) that is outstanding and unexercised immediately prior to the effective time (whether vested or unvested) will become fully vested and converted into the right to receive, immediately after the effective time (without interest), a cash payment in an amount equal to the product of (x) the total number of the shares of Class A common stock then issuable upon exercise of such stock option, and (y) the excess, if any, of (A) the $31.25 per share merger consideration over (B) the exercise price per share subject to the stock option, less any applicable withholding taxes. All such stock options shall automatically cease to exist, and each holder of a stock option shall cease to have any rights with respect thereto, except the right to receive the payments described in this subsection.

 

Restricted Stock Awards

 

As of the effective time, each award of restricted stock (each such award, a “restricted stock award”) that is outstanding and unvested immediately prior to the effective time will become fully vested and converted into the right to receive, immediately after the effective time (without interest), a cash payment in an amount equal to the product of (x) the total number of shares of the Company’s Class A common stock subject to such restricted stock award and (y) the $31.25 per share merger consideration, less any applicable withholding taxes. All such restricted stock awards shall automatically cease to exist, and each holder of a restricted stock award shall cease to have any rights with respect thereto, except the right to receive the payments described in this subsection.

 

Employee Stock Purchase Plan

 

The Company is required to take actions to ensure that (i) no new offering period with respect to the Company’s 2004 Employee Stock Purchase Plan, referred to herein as the “ESPP”, is commenced on or after July 1, 2011, (ii) no new participants may join the offering period in existence under the ESPP on or after the date of the merger agreement, and (iii) no participant may increase the amount of his or her salary deferrals with respect to any such offering period(s). All outstanding purchase rights under the ESPP will be

automatically exercised, in accordance with the terms of the ESPP, at the end of the offering period that begins on or about April 1, 2011, and the Company will terminate the ESPP with such purchase. To the extent that the closing occurs prior to the end of the offering period beginning on or about April 1, 2011, the Company will establish a new exercise date with respect to the ESPP for the current offering period thereunder, which will be the business day immediately prior to the anticipated closing date.

 

Exchange and Payment Procedures

 

Prior to the effective time, Parent will designate a bank or trust company reasonably acceptable to the Company to act as the paying agent for the per share merger consideration (which we refer to as the “paying agent”). At or prior to the effective time, Parent will deposit, or will cause to be deposited, with the paying agent an amount in cash sufficient for the paying agent to make payment of the aggregate per share merger consideration to the holders of shares of SRA common stock. If at any time the cash amount deposited with the paying agent is insufficient to make the aggregate payments of the per share merger consideration, Parent will, or will cause the surviving corporation to, promptly deposit such additional cash amounts in immediately available funds as is necessary to ensure that the aggregate cash amount deposited with the paying agent is maintained at a level sufficient for the paying agent to make such aggregate payments.

 

Promptly (but in any event within two business days) after the effective time, each record holder of shares of common stock will be sent a letter of transmittal describing how it may exchange its shares of common stock for the per share merger consideration.

 

You should not return your stock certificates with the enclosed proxy card, and you should not forward your stock certificates to the paying agent without a letter of transmittal.

 

You will not be entitled to receive the per share merger consideration until you surrender your stock certificate or certificates along with a duly completed and executed letter of transmittal to the paying agent. If ownership of your shares is not registered in the transfer records of the Company, a check for any cash to be delivered will only be issued if the certificate is properly endorsed and the applicable letter of transmittal is accompanied by all documents reasonably required to evidence and effect transfer and to evidence that any applicable stock transfer taxes have been paid or are not applicable.

 

No interest will be paid or accrued on the cash payable as the per share merger consideration as provided above. Parent, the surviving corporation and the paying agent will be entitled to deduct and withhold any applicable taxes from the per share merger consideration. Any sum that is withheld will be deemed to have been paid to the person with regard to whom it is withheld.

 

From and after the effective time, there will be no transfers on the stock transfer books of the surviving corporation of shares of SRA common stock that were outstanding immediately prior to the effective time. If, after the effective time, any person presents to the surviving corporation, Parent or the paying agent any certificates or any transfer instructions relating to shares canceled in the merger, such person will be given a copy of the letter of transmittal and told to comply with the instructions in that letter of transmittal in order to receive the cash to which such person may be entitled.

 

Any portion of the cash deposited with the paying agent to make the payment of the aggregate per share merger consideration that remains unclaimed by former record holders of common stock for one year after the effective time will be delivered to the surviving corporation. Record holders of common stock who have not complied with the above-described exchange and payment procedures will thereafter only look to the surviving corporation for payment of the per share merger consideration. None of the surviving corporation, Parent, the paying agent or any other person will be liable to any former record holders of common stock for any cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar laws.

 

If you have lost a stock certificate, or if it has been stolen or destroyed, then before you will be entitled to receive the per share merger consideration, you will have to make an affidavit of the loss, theft or destruction, and if required by the surviving corporation, post a bond in a customary amount as indemnity against any claim that may be made against it with respect to such stock certificate. These

procedures will be described in the letter of transmittal that you will receive, which you should read carefully in its entirety.

 

Parent and Merger Sub will use their reasonable best efforts to obtain the equity and debt financing for the merger on the terms and conditions described in the equity commitment letter and the debt commitment letter (together, the “Financing Letters”) and to obtain the equity rollover contribution by the Rollover Investor on the terms of the equity rollover letter and will not permit any amendment or modification to be made to the Financing Letters or the equity rollover letter, or any waiver of any provision or remedy thereunder, if such amendment, modification or waiver would, or would reasonably be expected to, (A) reduce the aggregate amount of the financing contemplated by the Financing Letters (unless the equity rollover contribution by the Rollover Investor is increased by the corresponding amount) or, with respect to the equity rollover letter, reduce the amount of SRA common stock to be contributed (unless the amount of financing contemplated by the Financing Letters is increased by the corresponding amount) or (B) impose new or additional conditions or otherwise expand, amend or modify any of the conditions to the financing or the equity rollover contribution, or otherwise expand, amend or modify any other provision of the Financing Letters or the equity rollover letter, in a manner that would reasonably be expected to (x) materially delay or prevent the closing date or (y) make the timely funding of the financing contemplated by the Financing Letters or the equity rollover contribution contemplated by the equity rollover letter (or, in each case, the satisfaction of the conditions thereto) materially less likely to occur.

 

Parent and Merger Sub will use their reasonable best efforts to:

 

 

Parent and Merger Sub have agreed to keep the Company informed on a reasonably current basis and in reasonable detail with respect to the status of the debt financing and to give the Company prompt notice (i) of any breach or default (or any circumstance that, with or without notice, lapse of time or both, could reasonably be expected to give rise to any breach or default) by any party to the Financing Letters, the equity rollover letter or any definitive agreements related thereto, (ii) of the receipt of any written notice or other written communication from a financing source with respect to any breach, default, termination or repudiation by, or material dispute or disagreement between or among, any party to the Financing Letters, the equity rollover letter or any definitive agreements related thereto or (iii) if at any time for any reason, Parent and Merger Sub believe in good faith that it will not be able to obtain all or any portion of the financing or the equity rollover contribution on the terms and conditions, in the manner or from the sources contemplated by the Financing Letters, or the definitive agreements related thereto, or the equity rollover letter. Subject to limited exceptions, if any portion of the debt financing becomes unavailable on the terms and conditions contemplated in the debt commitment letter, Parent will use its reasonable best efforts to arrange and obtain alternative financing on terms and conditions not less favorable in the aggregate to Parent and Merger Sub than those contained in the debt commitment letter and in an amount at least equal to the debt financing or such unavailable portion thereof.

The obtaining of the financing contemplated by the Financing Letters and the equity rollover contribution contemplated by the equity rollover letter, or any alternative financing, is not a condition to the consummation of the merger. Neither Parent nor Merger Sub will be required to (i) bring any enforcement action against any source of the equity financing to enforce its respective rights under the equity commitment letter or against the Rollover Investor to enforce its rights under the equity rollover letter except that Parent shall seek to enforce, including by bringing suit for specific performance, the equity commitment letter and the equity rollover letter if and only if the Company seeks and is granted a decree of specific performance of the obligation to consummate the merger after all conditions to the granting thereof as set forth in the merger agreement have been satisfied, (ii) seek the equity financing or the equity rollover contribution from any source other than those counterparty to, or in any amount in excess of that contemplated by, the equity commitment letter and the equity rollover letter, as applicable, or (iii) pay any fees in excess of those contemplated by the Financing Letters (whether to secure waiver of any conditions contained therein or otherwise).

 

The Company, subject to certain limitations, will use its reasonable best efforts to, and will cause its subsidiaries to use their reasonable best efforts to, provide to Parent and Merger Sub, and to cause its representatives to provide, all cooperation reasonably requested by Parent to assist Parent in causing the conditions in the debt commitment letter to be satisfied or as is necessary or reasonably requested by Parent in connection with the arrangement of the debt financing or any permitted alternative financing, including:

 

 

 

Parent shall promptly, upon request by the Company, reimburse the Company for all documented reasonable out-of-pocket costs and expenses (including reasonable attorneys’ fees) incurred by the Company or any of its affiliates in connection with such cooperation and shall indemnify and hold harmless the Company, its affiliates and their respective representatives from and against any and all losses, damages, claims, costs or expenses suffered or incurred by any of them in connection with their cooperation with the arrangement of the debt financing or the provision of any information used in connection therewith, except with respect to any information provided in writing specifically for such use by the Company or any of its affiliates.

 

The merger agreement contains representations and warranties made by the Company, Parent and Merger Sub to each other as of specific dates. The statements embodied in those representations and warranties were made for purposes of the merger agreement and are subject to qualifications and limitations agreed by the parties in connection with negotiating the terms of the merger agreement (including the disclosure schedules delivered by the parties in connection therewith). In addition, some of those representations and warranties were made as of a specific date, may be subject to a contractual standard of materiality different from that generally applicable to stockholders or may have been used for the purpose of allocating risk between the parties to the merger agreement rather than establishing matters as facts. The representations and warranties made by the Company to Parent and Merger Sub include representations and warranties relating to, among other things:

 

 

 

Many of the Company’s representations and warranties are qualified as to, among other things, “materiality” or “Company Material Adverse Effect.” For purposes of the merger agreement, a “Company Material Adverse Effect” means any fact, circumstance, change, event, development, occurrence or effect that (i) has, or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on the financial condition, business, properties, assets or results of operations of the Company and its subsidiaries taken as a whole or (ii) would reasonably be expected to prevent or materially impair or delay the consummation of the transactions contemplated by the merger agreement; provided that none of the following, and no effect arising out of or resulting from the following, shall constitute or be taken into account in determining whether a Company Material Adverse Effect has occurred or may, would or could occur:

 

 

 

 

provided that, in certain of the foregoing cases, the underlying cause of any decline, change or failure referred to above may be taken into account in determining whether a “Company Material Adverse Effect” has occurred.

 

The representations and warranties made by Parent and Merger Sub to the Company include representations and warranties relating to, among other things:

 

 

 

Many of the Parent’s and Merger Sub’s representations and warranties are qualified as to, among other things “materiality” or “Parent Material Adverse Effect.” For purposes of the merger agreement, “Parent Material Adverse Effect” means any fact, circumstance, change, event or occurrence that would prevent or materially delay the performance by Parent or Merger Sub of its obligations under the merger agreement or the consummation by Parent and Merger Sub of the transactions contemplated thereby on a timely basis.

 

The representations and warranties in the merger agreement of each of the Company, Parent and Merger Sub will terminate upon the consummation of the merger or the termination of the merger agreement pursuant to its terms.

 

Under the merger agreement, the Company has agreed that, subject to certain exceptions in the merger agreement and disclosure schedules delivered by the Company in connection with the merger agreement, between the date of the merger agreement and the effective time, unless Parent gives its prior written consent (which cannot be unreasonably withheld, delayed or conditioned) or as otherwise required by applicable law, the Company and its subsidiaries will cause their businesses to be conducted in the ordinary course and, to the extent consistent therewith, the Company and its subsidiaries will use their reasonable best efforts to preserve their business organizations intact and maintain existing relations and goodwill with governmental entities, customers, suppliers, and other entities with whom they have material business relationships.

 

Subject to certain exceptions set forth in the merger agreement and disclosure schedules the Company delivered in connection with the merger agreement, unless Parent consents in writing (which consent cannot be unreasonably withheld, delayed or conditioned) or as otherwise required by applicable law, the Company and its subsidiaries are not permitted to, among other things:

 

 

 

 

Until 12:01 a.m., New York City time, on April 30, 2011, the Company is permitted to:

 

 

From and after 12:01 a.m., New York City time, on April 30, 2011, the Company is required to immediately cease and terminate all discussions or negotiations with any persons that may be ongoing with respect to any acquisition proposals, except as may relate to certain excluded parties (as defined below). Except as expressly permitted under the merger agreement or as may relate to an excluded party, from and after 12:01 a.m., New York City time, on April 30, 2011 and until the effective time or, if earlier, the termination of the merger agreement, the Company and its subsidiaries may not, and the Company shall instruct and use reasonable best efforts to cause its representatives not to:

 

 

 

At any time from and after 12:01 a.m., New York City time, on April 30, 2011 and prior to the time the Company’s stockholders approve the adoption of the merger agreement, if the Company receives an unsolicited, bona fide written acquisition proposal from any person, the Company and its representatives may provide information (including non-public information and data) regarding, and afford access to, the business, properties, assets, books, records and personnel of, the Company and its subsidiaries in response to a request therefor by such person pursuant to an acceptable confidentiality agreement and engage in, enter into, continue or otherwise participate in any discussions or negotiations with such person with respect to such acquisition proposal, if:

 

 

Except as permitted by the terms of the merger agreement described below, the Company has agreed in the merger agreement that the Board will not (i) change, withhold, withdraw, qualify or modify (or publicly propose or resolve to withhold, withdraw, qualify or modify), in a manner adverse to Parent, the Board’s recommendation that our stockholders adopt the merger agreement at the special meeting (the “Board Recommendation”) or fail to include the Board Recommendation in the proxy statement (any of the foregoing, a “Change in Recommendation”), (ii) authorize, adopt, approve, recommend or declare advisable, or propose to authorize, adopt, approve, recommend or declare advisable (publicly or otherwise), an acquisition proposal, or (iii) cause or permit the Company to enter into any alternative acquisition agreement or other such definitive documentation.

 

Prior to the time the Company’s stockholders adopt the merger agreement, the Board may (x) if an event, fact, development or occurrence that affects the business, assets or operations of the Company that was unknown to the Board as of the date of the merger agreement becomes known to the Board (an “Intervening Event”), effect a Change of Recommendation, or (y) if the Company receives a written acquisition proposal that the Board determines in good faith (after consultation with its financial advisor and outside legal counsel) constitutes a superior proposal, approve, recommend or declare advisable, and authorize the Company to enter into an alternative acquisition agreement with respect to, such superior proposal and terminate the merger agreement pursuant to the applicable provisions thereof. However, prior to taking such action, the Company must comply with the following in the case of either of clause (x) or (y) above:

 

 

 

Nothing in the provisions of the merger agreement relating to acquisition proposals prevents the Company from (i) complying with its disclosure obligations under applicable law with respect to an acquisition proposal, including taking and disclosing to its stockholders a position contemplated by Rule 14d-9 or Rule 14e-2(a) under the Exchange Act or any similar communication or (ii) making any “stop-look-and-listen” communication to the stockholders of the Company pursuant to Rule 14d-9(f) under the Exchange Act or any similar communication; provided that any such disclosure (other than a “stop-look-and-listen” communication or similar communication of the type contemplated by Rule 14d-9(f) under the Exchange Act) shall be deemed a Change of Recommendation unless the Board expressly reaffirms the Board Recommendation within four business days following Parent’s request to do so.

 

In this proxy statement, we refer to (i) any proposal or offer with respect to a merger, joint venture, partnership, consolidation, dissolution, liquidation, tender offer, recapitalization, reorganization, share exchange, business combination or similar transaction involving more than 20% of the total voting power of the capital stock, or more than 20% of the consolidated assets, of the Company or (ii) any other proposal or offer which, if consummated, would result in a direct or indirect acquisition of more than 20% of the total voting power of the capital stock, or more than 20% of the consolidated assets, of the Company, in each case other than the transactions contemplated by the merger agreement, as an “acquisition proposal.”

 

In this proxy statement, we refer to any bona fide written acquisition proposal (with the percentages set forth in the definition of such term changed from 20% to 50%) that is not solicited or received in violation of the Company’s contractual obligations under the merger agreement and that the Board has determined in its good faith judgment, after consultation with outside legal counsel and its financial advisor, is (i) reasonably likely to be consummated in accordance with its terms, and (ii) if consummated, would be more favorable to the Company’s stockholders (excluding the Volgenau Filing Persons) than the merger and the other transactions contemplated by the merger agreement, taking into account at the Board’s discretion and without limitation, (a) all financial considerations, (b) the identity of the person making such acquisition proposal, (c) the anticipated timing, conditions and prospects for completion of such acquisition proposal, (d) the other terms and conditions of such acquisition proposal and the implications thereof on the Company, including all relevant legal, regulatory and financial aspects of such acquisition proposal and the Person making the proposal, and (e) any other aspects of such acquisition proposal deemed relevant by the Board, as a “superior proposal.”

 

Unless the merger agreement is terminated, the Company is required to take all reasonable action necessary to convene a meeting of its stockholders within 35 days after the mailing of this proxy statement for the purpose of obtaining the stockholder approval required by the merger agreement. The Company may adjourn or postpone the stockholders meeting (i) with the consent of Parent; (ii) to allow reasonable additional time for the filing and mailing of any supplemental or amended disclosure that the Company has determined in good faith is necessary under applicable law and for such disclosure to be disseminated and reviewed by the stockholders prior to the stockholders meeting or (iii) if as of the time for which the stockholders meeting is originally scheduled there are insufficient shares of common stock represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of the stockholders meeting. Subject to the provisions of the merger agreement discussed above under “THE MERGER AGREEMENT — Solicitation of Acquisition Proposals”, the Board will recommend adoption of the merger agreement by the stockholders and will take all reasonable lawful action to obtain the stockholder approval required by the merger agreement.

 

The Company, Parent and Merger Sub will use their respective reasonable best efforts to take all actions and do all things necessary, proper or advisable to consummate and make effective the merger and the other transactions contemplated by the merger agreement (together, such transactions are referred to herein as the “transactions”), including preparing and filing promptly and fully all documentation to effect all necessary filings, notices and other documents.

 

The Company and/or Parent have agreed, subject to certain exceptions, to:

 

 

 

In order to ensure that no governmental authority enters any order, decision, judgment, decree, ruling, injunction (preliminary or permanent), or establishes any law, rule, regulation or other action preliminarily or permanently restraining, enjoining or prohibiting the consummation of the merger, or to ensure that no governmental authority with the authority to clear, authorize or otherwise approve the consummation of the merger, fails to do so by October 14, 2011, Parent and Merger Sub have agreed to take any and all action necessary, including: