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 (Amendment No. 2)

 

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”)

 

 

58,564,570 shares of common stock (including restricted stock awards) and 4,609,408 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

$1,888,883,404. The maximum aggregate value of the transaction was based upon the sum of

(A) (1) 58,564,570 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) $58,740,592 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 Volgenau Rollover Trust (as defined below), a trust controlled by Dr. Ernst Volgenau, our chairman of the Board, founder and controlling stockholder (“Dr. Volgenau”), 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. 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 Volgenau Rollover Trust) 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 Volgenau Rollover Trust;
	•	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., a Delaware limited partnership (“PVI”), and Providence Equity Partners VI-A L.P., a Delaware limited partnership (“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., a Delaware limited partnership (“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., a Delaware limited liability company (“PEP GP”), which is principally engaged in the business of serving as the general partner of PEP LP. PEP GP’s managing member is Providence Fund Holdco (Domestic ECI) L.P., a Delaware limited partnership (“Providence Fund Holdco”), which is principally engaged in the business of serving as the managing member of PEP GP and as a managing member, sole shareholder or limited partner, as applicable, of other companies and limited partnerships affiliated with Providence Equity Partners L.L.C. Providence Fund Holdco’s general partner is Providence Managing Member L.L.C., a Delaware limited liability company (“PEP Manager”), which is principally engaged in the business of serving as the general partner of Providence Fund Holdco and as a general partner or managing member of other United States domestic limited partnerships and limited liability companies affiliated with Providence Equity Partners L.L.C. We refer to the Providence Funds, PEP LP, PEP GP, Providence Fund Holdco and PEP Manager, collectively, as the “Providence Entities.”

 

The principal office and business address for each of PVI, PVI-A, PEP LP, PEP GP, Providence Fund Holdco and PEP Manager, 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, PEP GP, Providence Fund Holdco and PEP Manager is set forth on Annex E to this proxy statement.

 

Volgenau Filing Persons

 

Dr. Volgenau is a director, chairman of the board of directors, founder and the controlling stockholder of the Company. Sara Volgenau, Dr. Volgenau’s spouse, is currently retired. 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 “Volgenau Trusts”) are trusts, organized under the laws of the Commonwealth of Virginia, affiliated with Dr. Volgenau. We refer to the Volgenau Trusts, Sara Volgenau and Dr. Volgenau, collectively, as the “Volgenau Filing Persons” and to The Ernst Volgenau Revocable Trust, which is a trust that is controlled by Dr. Volgenau, as

the “Volgenau Rollover Trust.” The trustee of each of the Volgenau 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. The business address for Dr. Volgenau, Sara Volgenau and each of the Volgenau Trusts (including Dr. Volgenau and his wife in their capacity as trustee of the respective Volgenau 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.

 

None of Dr. Volgenau, Sara Volgenau or any of the Volgenau Trusts has, during the past five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). None of Dr. Volgenau, Sara Volgenau or any of the Volgenau Trusts 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.

 

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:

 

 

After the merger, SRA will become a privately held company owned by Holdco, an entity owned by affiliates of Providence, a private equity firm, and the Volgenau Rollover Trust, which is a trust that is controlled by Dr. Volgenau, our chairman of the Board, founder and controlling stockholder. Entities affiliated with Providence will control approximately 79% of the equity interests in Holdco, and the Volgenau Rollover Trust will own approximately 21% of the equity interests in Holdco, subject to adjustment as disclosed under “SPECIAL FACTORS — Financing of the Merger — Rollover Financing.”

 

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 conducted the “go-shop” process on behalf of the Company. During the “go-shop” period, in accordance with the special committee’s directives, Houlihan Lokey contacted a total of 50 parties, including 29 strategic parties and 21 financial sponsors, to solicit interest in a possible alternative transaction. The Company did not receive any alternative acquisition proposals during the “go-shop” period.

 

On May 2, 2011, the Company issued a press release announcing the expiration of the “go-shop” period and that it had not received any alternative acquisition proposals from any party. In addition, on May 2, 2011, the Company delivered a notice to Providence stating that there were no “excluded parties” as defined in the merger agreement.

 

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 unaffiliated 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.

 

The primary purpose of the merger for SRA is to enable our unaffiliated stockholders to immediately realize the value of their investment in SRA through their receipt of the per share merger price of $31.25 in cash. Another purpose of the merger for SRA is to allow us greater operational flexibility and to allow us to focus on our business without the constraints and distractions caused by the public equity market’s valuation of its common stock. We believe our long-term objectives can best be pursued as a private company.

 

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, which companies were selected generally because, as is the case with SRA,

they are U.S. companies that in whole or in significant part provide information technology, engineering and other professional services to the U.S. federal 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, which transactions were selected generally because, as is the case with the merger, they involved U.S. companies that in whole or in significant part provide information technology, engineering and other professional services to the U.S. federal 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 based on transaction value as of the closing date of the merger, which fee is currently estimated to be approximately $10 million, of which $100,000 was paid as a retainer fee, $1.5 million was paid upon the rendering of Houlihan Lokey’s opinion, which was not contingent upon the successful completion of the merger or the conclusion contained in its opinion, and approximately $8.4 million 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, for which services SRA has agreed to pay Houlihan Lokey an aggregate fee of approximately $1.0 million contingent upon consummation of such divestiture, 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 Volgenau Rollover Trust 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, our

chairman of the Board, founder and controlling stockholder and of which Dr. Volgenau is the sole agent, proxy, attorney-in-fact and representative. We refer to The Ernst Volgenau Revocable Trust, as the “Volgenau Rollover Trust.”

 

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 Volgenau Rollover Trust, 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 SRA 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 Dr. Volgenau who, through the Volgenau Rollover Trust, 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 SRA 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 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 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 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 SRA 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 $13.76 as of March 31, 2011. The merger consideration represents a premium of approximately 127% to net book value per share as of March 31, 2011. 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 Volgenau Rollover Trust, a trust controlled by Dr. Volgenau, our chairman of the Board, founder and controlling stockholder, 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 Volgenau Rollover Trust) 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 Volgenau Rollover Trust, 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.

 

After the merger, SRA will become a privately held company owned by Holdco, an entity owned by affiliates of Providence, a private equity firm, and the Volgenau Rollover Trust, a trust controlled by Dr. Volgenau, our chairman of the Board, founder and controlling stockholder. Entities affiliated with Providence will control approximately 79% of the equity interests in Holdco, and the Volgenau Rollover Trust

will own approximately 21% of the equity interests in Holdco, subject to adjustment as disclosed under “SPECIAL FACTORS — Financing of the Merger — Rollover Financing.”

 

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 Volgenau Rollover Trust 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 Volgenau Rollover Trust 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. 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. Stockholders should be aware that the projections prepared by the Company’s management in June 2010 (the “June 2010 projections”) and the projections prepared by the Company’s management in October 2010 (the “October 2010 projections”) were prepared using different assumptions, and as a result, are not directly comparable to the projections prepared by the Company’s management in January 2011 and subsequently updated in March 2011 (the “March 2011 projections”). Stockholders should also be aware that the June 2010 projections were subsequently superseded by the October 2010 projections, which in turn were superseded by the March 2011 projections. The March 2011 projections were the projections that were reviewed by the Company’s management with, and considered by, the Company’s board of directors and special committee in connection with their evaluation and approval of the merger. 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 prospective information included in this proxy statement includes adjusted revenue, EBITDA and adjusted EBITDA. These measures are non-GAAP financial measures. EBITDA was presented because management believes that it is a widely accepted and useful indicator of the Company’s performance and assists in analyzing and benchmarking the performance and value of the Company’s business, and adjusted revenue and adjusted EBITDA were presented to assist in analyzing the Company’s performance without the effects of certain unusual or nonrecurring items, or, in the case of the October 2010 projections and the March 2011 projections, the impact of businesses for which the Company contemplated possible divestiture. These non-GAAP measures are not measurements of the Company’s financial performance under GAAP and should not be considered as an alternative to revenue or operating income or any other performance measures derived in accordance with GAAP. In addition, the Company’s measurement of these non-GAAP measures may not be comparable to that of other companies.

 

June 2010 projections

 

Management of the Company prepared certain projections for the Company as of June 2010 in order to facilitate an assessment of a hypothetical going-private transaction involving the Company. The June 2010 projections were prepared by management using an assumed Company-wide growth rate that was applied to estimated revenues for each year of the forecast period after 2011, without any analysis of the specific contracts in those years or potential future contracts. The June 2010 projections assume a transaction closing date of June 30, 2010 and the amortization of intangible assets is based on the new basis of accounting that would result from an acquisition of the Company. The June 2010 projections were provided to the Providence Entities in June 2010.

 

The following is a summary of the June 2010 projections, presenting both a “base case” and “high case”:

 

June 2010 Base Case

 

 

The following table presents a reconciliation of EBITDA to operating income (EBIT) for each of the periods indicated:

 

 

June 2010 High Case

 

 

The following table presents a reconciliation of EBITDA to operating income (EBIT) for each of the periods indicated:

 

 

Each of the June 2010 projections includes the Company’s Era Systems Corporation subsidiary (“Era”) and the Company’s SRA Global Clinical Development, LLC subsidiary (“GCD”) for all periods. In the fiscal quarter ended March 31, 2011, the Company made the determination to divest Era and GCD and recorded additional impairment charges of $28.6 million and $1.6 million related to Era and GCD respectively. The Company’s Form 10-Q for the nine months ended March 31, 2011 reflects these two subsidiaries as discontinued operations. These divestitures were not anticipated when the June 2010 projections were prepared.

 

October 2010 projections

 

The Company’s management prepared revised projections as of October 2010, which were an update of the June 2010 projections. The October 2010 projections assume a transaction closing date of January 1, 2011 and the amortization of intangible assets is based on the new basis of accounting that would result from an acquisition of the Company. The October 2010 projections superseded the June 2010 projections and were provided to the Providence Entities in October 2010.

 

The following is a summary of the October 2010 projections, presenting both a “base case” and “high case”:

 

October 2010 Base Case

 

 

The following table presents a reconciliation of adjusted revenue to revenue and adjusted EBITDA to operating income (EBIT) for each of the periods indicated:

 

 

October 2010 High Case

 

 

The following table presents a reconciliation of adjusted revenue to revenue and adjusted EBITDA to operating income (EBIT) for each of the periods indicated:

 

 

Each of the October 2010 projections does not include any potential revenue and EBITDA for Era and GCD and includes projected revenue and EBITDA for Platinum Solutions, Inc. (“Platinum”), which was acquired by the Company during the fiscal year 2011. In the fiscal quarter ended March 31, 2011, the Company made the determination to divest Era and GCD and recorded additional impairment charges of $28.6 million and $1.6 million related to Era and GCD respectively. The Company’s Form 10-Q for the nine months ended March 31, 2011 reflects these two subsidiaries as discontinued operations.

 

March 2011 projections

 

The Company’s management prepared financial forecasts as of January 14, 2011, with the forecast for fiscal year 2011 subsequently updated as of March 16, 2011, which superseded the October 2010 projections. The March 2011 projections were based on management’s review of contracts representing approximately 80% of the Company’s revenue and 85% of the Company’s backlog as of September 30, 2010, and the anticipated future revenues from such contracts, as well as its analysis of the Company’s new business pipeline and the anticipated future revenues from an estimated number of future contracts. The 2011 fiscal year column of this forecast was updated in March 2011 as part of the Company’s ordinary course practice of regularly updating its current year estimates for budgeting and planning purposes to reflect management’s most up-to-date expectations for the Company.

 

The following is a summary of the March 2011 projections:

 

 

These financial metrics have been adjusted by the Company’s management to include the pre-acquisition results of Sentech, Inc. and Platinum, 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 and acquisition-related third

party costs. The adjusted revenue and adjusted EBITDA projections in the March 2011 projections did not include any potential revenue or EBITDA of the Company’s Airport Operations Solutions business, which was divested during fiscal year 2011, Era, which management has decided to divest, and GCD, 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.

 

The Company provided the March 2011 projections to prospective bidders (including the Providence Entities) because the Company believed they could be useful in evaluating, on a prospective basis, the Company’s potential operating performance and cash flow. Accordingly, the March 2011 projections 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 March 2011 projections 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 financial forecasts SRA provided to prospective bidders reflected adjustments to adjusted EBITDA of $2.0 million, $2.1 million, $2.4 million and $2.7 million for fiscal years 2011, 2012, 2013 and 2014, respectively, for these public company costs. The financial forecasts used by the special committee’s financial advisor also included $0.8 million of assumed additional revenue for fiscal year 2011 to reflect the expected impact of public company costs on the Company’s cost reimbursement contracts.

 

The following table presents a reconciliation of adjusted revenue to revenue and adjusted EBITDA to operating income (EBIT) for each of the periods indicated. Amortization of intangible assets reflected below represents the amortization for the Company’s existing intangible assets that was disclosed to the prospective bidders.

 

 

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 Volgenau Rollover Trust, a trust controlled by Dr. Volgenau, our chairman of the Board, founder and controlling stockholder, entered into a letter agreement with Holdco (the “equity rollover letter”) pursuant to which the Volgenau Rollover Trust 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 form of promissory note agreed upon between Holdco and Dr. Volgenau and attached as an exhibit to the equity rollover letter, Dr. Volgenau would have the right, following any repayment of the promissory note, to purchase equity interests in Holdco from the Providence Funds in an aggregate amount of up to $30.0 million at a price per share equal to the per share merger consideration. In the event that the subsidiary divestitures are consummated prior to the consummation of the merger and result in aggregate cash proceeds of $30.0 million or greater, Dr. Volgenau may, at his option, elect to receive equity interests in Holdco having an aggregate value of $30.0 million in lieu of the note. In the event that one but not both of the subsidiary divestitures is consummated prior to the completion of the merger, for proceeds of less than $30 million, then Dr. Volgenau and Holdco shall work together in good faith to make adjustments to the agreement in order to reflect such transaction. 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 Volgenau Rollover Trust 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, as amended and restated on April 13, 2011 and April 29, 2011 (the “debt commitment letter”), from affiliates of Citigroup Global Markets, Inc., Bank of America Merrill Lynch, Credit Suisse AG 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 senior secured term loan facility will mature seven years from the effective date of the merger, and the senior secured revolving facility will mature five years from the effective date of the merger.

 

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 effective date 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 effective date of 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 effective date of 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.