o	Confidential, for Use of the Commission

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

	(1)	Title of each class of securities to which transaction applies:

	(2)	Aggregate number of securities to which transaction applies:

	(3)	Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

	(4)	Proposed maximum aggregate value of transaction:

	(5)	Total fee paid:

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

	(1)	Amount Previously Paid:

	(2)	Form, Schedule or Registration Statement No.:

	(3)	Filing Party:

	(4)	Date Filed:

SUMMARY TERM SHEET		1
The Merger and the Merger Agreement		1
The Special Meeting		4
Other Important Considerations		4
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING		7
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		11
THE PARTIES TO THE MERGER		12
Intergraph		12
Cobalt Holding		12
Merger Sub		12
THE SPECIAL MEETING		13
Date, Time and Place of the Special Meeting		13
Proposals to be Considered at the Special Meeting		13
Record Date		13
Voting Rights; Quorum; Vote Required for Approval		13
Submission and Revocation of Proxies		14
Rights of Stockholders Who Object to the Merger		14
Solicitation of Proxies		15
Other Business		15
Questions and Additional Information		15
THE MERGER		16
Background of the Merger		16
Reasons for the Merger; Recommendation of Our Board of Directors		23
Opinion of Goldman, Sachs & Co.		25
Consideration		33
Delisting and Deregistration of Intergraph Common Stock		33
Regulatory Approvals		33
Financing of the Merger		34
Guarantees; Remedies		35
Interests of Intergraph’s Directors and Executive Officers in the Merger		36
Material U.S. Federal Income Tax Consequences of the Merger to Our Stockholders		38
Certain Relationships Between Cobalt Holding and Intergraph		40
Litigation Related to the Merger		40
Amendment to Rights Agreement		41
Fees and Expenses of the Merger		41
THE MERGER AGREEMENT (PROPOSAL NO. 1)		42
The Merger		42
Merger Consideration		42
Treatment of Options and Other Awards		42
Payment for the Shares		43
Representations and Warranties		43
Conduct of Business Pending the Merger		46
Efforts to Complete the Merger		48
Marketing Period		49

Conditions to the Merger		50
No Solicitations of Other Offers		51
Recommendation Withdrawal/Termination in Connection with a Superior Proposal and Third Party Tender Offers		53
Termination of the Merger Agreement		53
Termination Fees		54
Employee Benefits		56
Indemnification and Insurance		57
Amendment, Extension and Waiver		57
APPRAISAL RIGHTS		58
MARKET PRICE OF INTERGRAPH’S STOCK		60
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT		61
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		62
ADJOURNMENT OF THE SPECIAL MEETING (PROPOSAL NO. 2)		62
OTHER MATTERS		62
Other Matters for Action at the Special Meeting		62
Future Stockholder Proposals		62
Householding of Special Meeting Materials		63
WHERE YOU CAN FIND MORE INFORMATION		64
ANNEX A — Agreement and Plan of Merger		A-1
ANNEX B — Opinion of Goldman, Sachs & Co.		B-1
ANNEX C — Section 262 of the General Corporation Law of the State of Delaware		C-1

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SUMMARY TERM SHEET

 

The Merger and the Merger Agreement

	•	The Parties to the Merger (see page 12).  Intergraph, a Delaware corporation, is a leading global supplier of spatial information management software. Cobalt Holding Company, a Delaware corporation, which we refer to as Cobalt Holding, was formed solely for the purpose of effecting the merger with Intergraph and the transactions related to the merger. Cobalt Holding has not engaged in any business except in furtherance of this purpose. Cobalt Merger Corp., a Delaware corporation and a wholly-owned subsidiary of Cobalt Holding, which we refer to as Merger Sub, was formed solely for the purpose of effecting the merger. Merger Sub has not engaged in any business except in furtherance of this purpose. At the time of the merger, Cobalt Holding will be owned primarily by private equity funds sponsored by Hellman & Friedman LLC, Texas Pacific Group and JMI Equity, which we sometimes refer to as the sponsor group.
	•	The Merger.  You are being asked to vote to adopt an agreement and plan of merger, which we refer to as the merger agreement, pursuant to which Merger Sub will merge with and into Intergraph, which we refer to as the merger, on the terms and subject to the conditions in the merger agreement. Intergraph will be the surviving corporation in the merger, which we refer to as the surviving corporation, and will continue to do business as “Intergraph” following the merger. As a result of the merger, Intergraph will cease to be a publicly traded company and will become a wholly-owned subsidiary of Cobalt Holding. See “The Merger Agreement” beginning on page 42.
	•	Merger Consideration.  If the merger is completed, you will be entitled to receive $44.00 in cash, without interest, for each share of Intergraph common stock that you own. You will not own shares in the surviving corporation. See “The Merger Agreement — Merger Consideration” beginning on page 42.
	•	Treatment of Outstanding Options, Restricted Shares and Restricted Share Units.  Except as otherwise agreed by a holder and Cobalt Holding:

	•	all outstanding options to acquire Intergraph common stock under Intergraph’s equity incentive plans will become fully vested and immediately exercisable upon consummation of the merger, and each option will be cancelled and converted into the right to receive a cash payment equal to the number of shares of Intergraph common stock underlying the option multiplied by the amount by which $44.00 exceeds the option exercise price, without interest and less any applicable withholding taxes; and
	•	restrictions applicable to all shares of restricted stock and restricted share units will lapse and those shares or units will be cancelled and converted into the right to receive a cash payment equal to the number of outstanding restricted shares or the number of shares of Intergraph common stock previously subject to the restricted share units multiplied by $44.00 (together with the value of any deemed dividend equivalents accrued but unpaid with respect to restricted share units), without interest and less any applicable withholding taxes.

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		See “The Merger Agreement — Treatment of Options and Other Awards” beginning on page 42.

	•	Conditions to the Merger (see page 50).  The consummation of the merger depends on the satisfaction or waiver of a number of conditions, including the following:

	•	the merger agreement must have been adopted by the affirmative vote of the holders of a majority of the outstanding shares of our common stock;
	•	no statute, rule, executive order, regulation, order or injunction which prevents or prohibits the merger shall be in effect;
	•	the waiting period (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which we refer to as the HSR Act, and applicable foreign antitrust laws must have expired or been terminated;
	•	the respective representations and warranties of Intergraph, Cobalt Holding and Merger Sub in the merger agreement must be true and correct as of the closing date in the manner described under the caption “The Merger Agreement — Conditions to the Merger” beginning on page 50; and
	•	Intergraph, Cobalt Holding and Merger Sub must have performed and complied in all material respects with all covenants and agreements that each is required to perform or comply with under the merger agreement.

	•	Restrictions on Solicitations of Other Offers (see page 51).

	•	The merger agreement provides that we are generally not permitted to:

	•	solicit, initiate, propose or knowingly encourage the submission of an acquisition proposal for us or engage in any negotiations or discussions with respect thereto, or otherwise participate, engage or knowingly assist in, or knowingly facilitate an acquisition proposal; or
	•	approve or recommend any acquisition proposal for us or enter into any letter of intent, memorandum of understanding, agreement, option agreement or other similar agreement providing for or relating to any acquisition proposal for us or withdraw or modify, in a manner adverse to Cobalt Holding or Merger Sub, the approval or recommendation of our board of directors of the merger agreement or the merger or announce that it has resolved to take that action or publicly propose to do any of the foregoing.

	•	Notwithstanding these restrictions, under certain circumstances, our board of directors may respond to an unsolicited proposal for an alternative acquisition or terminate the merger agreement and enter into an acquisition agreement with respect to a superior proposal, so long as we comply with certain terms of the merger agreement described under “The Merger Agreement — Recommendation Withdrawal/Termination in Connection with a Superior Proposal and Third Party Tender Offers” beginning on page 53.

	•	Termination of the Merger Agreement (see page 53).

	•	by mutual written consent of Intergraph and Cobalt Holding;
	•	by either Intergraph or Cobalt Holding, if:

	•	the merger is not consummated on or before March 31, 2007, except that this right to terminate will not be available to any party whose action or failure to fulfill any obligation under the merger agreement or failure to act in good faith has been the principal cause of, or resulted in, the failure of the merger to be consummated by that date;
	•	a court of competent jurisdiction or other governmental entity has issued a final, non-appealable order, decree or ruling or taken any other action, or there exists any statute, rule or regulation, in

2

		each case preventing or otherwise prohibiting the consummation of the merger or that otherwise has the effect of making the merger illegal, and the party seeking to terminate the merger agreement has used all reasonable efforts to prevent the entry of and to remove the order, decree, ruling, action, or statute, rule or regulation to the extent of its control or influence; or

	•	our stockholders fail to adopt the merger agreement at a duly held meeting; or

	•	by Cobalt Holding, if:

	•	our board of directors withdraws or modifies, or publicly proposes to withdraw or modify, in a manner adverse to Cobalt Holding, the approval or recommendation of our board of directors of the merger agreement or the merger or announces that it has resolved to take that action;
	•	our board of directors recommends to our stockholders or approves any acquisition proposal or resolves to effect the foregoing;
	•	our board of directors fails to include in this proxy statement its recommendation that our stockholders approve the merger agreement and the merger;
	•	our board of directors fails to recommend against a tender or exchange offer related to an acquisition proposal in any publicly disclosed position taken pursuant to the United States Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act; or
	•	there has been a breach of, or inaccuracy in, any representation, warranty, covenant or agreement of Intergraph under the merger agreement which would result in the failure of certain conditions to closing and where the breach or inaccuracy is reasonably incapable of being cured, or is not cured, within 20 business days after Intergraph receives notice of the breach or inaccuracy and neither Cobalt Holding nor Merger Sub is in material breach of its representations, warranties, covenants and obligations under the merger agreement so as to cause the failure of certain conditions to closing; or

	•	by Intergraph if:

	•	Intergraph concurrently enters into a definitive agreement with respect to a superior proposal; provided that we have paid, or simultaneously with doing so, pay to Cobalt Holding the termination fee as described below;
	•	there has been a breach of, or inaccuracy in, any representation, warranty, covenant or agreement of Cobalt Holding or Merger Sub under the merger agreement which would result in the failure of certain conditions to closing and where the breach or inaccuracy is reasonably incapable of being cured, or is not cured, within 20 business days after Cobalt Holding receives notice of the breach or inaccuracy and we are not in material breach of our representations, warranties, covenants and obligations under the merger agreement so as to cause the failure of certain conditions to closing; or
	•	the conditions to closing have been satisfied (other than those conditions that by their terms are to be satisfied at closing, and no state of facts or circumstances exists that would cause the conditions to not be satisfied, and nothing has occurred and no conditions exist that would cause those conditions not to be satisfied if the closing were to occur on the last day of the “marketing period” as further described below) and Cobalt Holding has failed to consummate the merger by the last day of the marketing period.

	•	Termination Fees (see page 54).  If the merger agreement is terminated under certain circumstances:

	•	Intergraph will be obligated to reimburse Cobalt Holding’s out-of-pocket fees and expenses, up to a limit of $7,000,000;
	•	Intergraph will be obligated to pay a termination fee of $33,140,000 (less, in some circumstances, any out-of-pocket fees and expenses previously reimbursed as described above); or
	•	Cobalt Holding will be obligated to pay us a termination fee of $53,020,000. Investment funds affiliated with each of Hellman & Friedman LLC, Texas Pacific Group and JMI Equity have agreed

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		severally to guarantee the obligation of Cobalt Holding to pay this termination fee, subject to a cap. The cap for each investment fund is equal to the investment fund’s pro rata share of $53,020,000, which share is proportionate to its equity commitment to Cobalt Holding as compared to the equity commitment of the other guarantors. The $53,020,000 termination fee payable to Intergraph is our exclusive remedy unless, in general, Cobalt Holding is otherwise in willful and material breach of the merger agreement, in which case we may pursue a damages claim. The maximum aggregate liability of Cobalt Holding and its affiliates, including the investment funds affiliated with each of Hellman & Friedman LLC, Texas Pacific Group and JMI Equity arising from any breach of the merger agreement is in any event capped at $99,420,000. See “The Merger — Guarantees; Remedies” beginning on page 35.

 

The Special Meeting

 

Other Important Considerations

	•	Board Recommendation.  After careful consideration, the independent members of our board of directors unanimously determined that the merger agreement and the merger are advisable, fair to and in the best interests of Intergraph and our stockholders and unanimously recommend that our stockholders vote “FOR” the adoption of the merger agreement and “FOR” the adjournment of the special meeting, if necessary, to solicit additional proxies. For a discussion of the factors our board of directors considered in deciding to recommend the adoption of the merger agreement, see “The Merger — Reasons for the Merger; Recommendation of Our Board of Directors” beginning on page 23.
	•	Share Ownership of Directors and Executive Officers.  As of          , 2006, the record date for the special meeting, the directors and executive officers of Intergraph held and were entitled to vote, in the aggregate,           shares of Intergraph common stock, representing approximately     % of the outstanding shares of the Intergraph common stock. See “The Special Meeting — Voting Rights; Quorum; Vote Required for Approval” beginning on page 13.
	•	Interests of Intergraph’s Directors and Executive Officers in the Merger.  In reaching its decision concerning the merger agreement, our board of directors extensively consulted with our management team and legal and financial advisors. Members of management generally participated in meetings of our board of directors; however, R. Halsey Wise, our president and chief executive officer, abstained from the vote regarding the merger agreement due to his potential continuing interest in the surviving corporation. In considering the recommendation of our board of directors with respect to the merger, you should be aware that some of Intergraph’s directors and executive officers (including Mr. Wise) who participated in meetings of our board of directors have interests in the merger that may be different from, or in addition to, the interests of our stockholders generally. For example, the merger agreement provides that, at the effective time of the merger, each option to purchase shares of our common stock, including those options held by our directors and executive officers, will accelerate and become fully vested and will generally be cashed out in an amount equal to the excess of $44.00 over the option exercise price, and all shares of restricted stock and restricted share units, including those held by our directors and executive officers, will become free of restrictions and will be cashed out at $44.00 per share (together with the value of any deemed dividend equivalents accrued but unpaid with respect to restricted share units). Certain of our executive officers may be entitled to severance or retention payments under certain circumstances following the merger pursuant to existing employment agreements with us. Certain of our executive officers may also be permitted to invest in Cobalt Holding by the payment of cash and/or contribution of their Intergraph equity securities to the surviving corporation. The surviving corporation may grant new stock options in the surviving corporation to certain of our executive officers, who may also enter into new employment agreements with the surviving corporation and/or become directors of the surviving corporation. These and other interests or potential interests of our directors and executive officers are more fully described under “The Merger — Interests

4

		of Intergraph’s Directors and Executive Officers in the Merger” beginning on page 36. Our board of directors was aware of these interests in making its decisions.

	•	Opinion of Goldman, Sachs & Co.  In connection with the proposed merger, Goldman, Sachs & Co., which we refer to as Goldman Sachs, delivered its opinion to our board of directors that, as of August 31, 2006, and based upon and subject to the factors and assumptions set forth therein, the $44.00 per share in cash to be received by the holders of shares of Intergraph common stock pursuant to the merger agreement was fair from a financial point of view to such holders. The full text of the written opinion of Goldman Sachs, dated August 31, 2006, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex B to this proxy statement. Goldman Sachs provided its opinion for the information and assistance of our board of directors in connection with its consideration of the transaction. The Goldman Sachs opinion is not a recommendation as to how any holder of Intergraph’s common stock should vote with respect to the transaction. Pursuant to an engagement letter between Intergraph and Goldman Sachs, we have agreed to pay Goldman Sachs a transaction fee of 0.85% of the aggregate consideration paid in the transaction, all of which is payable upon consummation of the merger. See “The Merger — Opinion of Goldman, Sachs & Co.” beginning on page 25.
	•	Sources of Financing.  The merger agreement does not contain any condition relating to the receipt of financing by Cobalt Holding; provided, however, that Cobalt Holding is not required to consummate the merger until the completion of the “marketing period” described under “The Merger Agreement — Marketing Period.” In connection with the merger, Cobalt Holding will cause $1,325.6 million to be paid out to our stockholders and holders of other equity interests in Intergraph, with the remaining funds to be used to pay customary fees and expenses in connection with the proposed merger, the financing arrangements and the related transactions. Funding of the equity and debt financing is subject to the satisfaction of the conditions set forth in the commitment letters pursuant to which the financing will be provided. Cobalt Holding has agreed to use its reasonable best efforts to arrange the debt financing on the terms and conditions set forth in the debt commitment letter. The payments to our stockholders and of customary fees and expenses are expected to be funded by a combination of the following:

	•	an aggregate of $441.1 million in equity contributions by affiliates of Hellman & Friedman LLC, Texas Pacific Group and JMI Equity;
	•	new senior secured credit facilities in the amount of $464.5 million, consisting of a $389.5 million senior secured term loan and a $75.0 million senior secured revolving credit facility (not all of which is expected to be drawn at the closing);
	•	$276.5 million aggregate principal amount of senior subordinated notes or, alternatively, a senior subordinated bridge loan facility in the amount of $276.5 million;
	•	a new $60.0 million senior secured payment-in-kind loan facility; and
	•	cash and cash equivalents held by Intergraph and our subsidiaries at closing.

	•	Regulatory Approvals (see page 33).  Under the HSR Act, and the rules promulgated thereunder by the Federal Trade Commission, which we refer to as the FTC, the merger may not be completed until notification and report forms have been filed with the FTC and the Antitrust Division of the Department of Justice, which we refer to as the DOJ, and the applicable waiting period has expired or has been terminated. Intergraph and Cobalt Holding each filed notification and report forms under the HSR Act with the FTC and the Antitrust Division of the DOJ on September 15, 2006. If Intergraph and Cobalt Holding do not receive a request for additional information, the waiting period will expire at 11:59 p.m. on October 16, 2006, if not terminated earlier. The merger is also subject to the expiration of waiting periods or receipt of clearance opinions in connection with foreign merger control filings in Austria,

5

		Germany and Norway, which were filed with the applicable antitrust authorities on September 8, 2006, September 8, 2006 and September 15, 2006, respectively.

	•	Tax Consequences.  The merger will be a taxable transaction for U.S. federal income tax purposes. Your receipt of cash in exchange for your shares of Intergraph common stock pursuant to the merger generally will cause you to recognize gain or loss measured by the difference, if any, between the cash you receive pursuant to the merger (determined before the deduction of any applicable withholding taxes) and your adjusted tax basis in your shares of Intergraph common stock. If you are a non-U.S. holder (as defined below) of Intergraph common stock, the merger generally will not be a taxable transaction to you under U.S. federal income tax law unless you have certain connections to the United States. Under U.S. federal income tax law, you will be subject to information reporting on cash received pursuant to the merger unless an exemption applies. Backup withholding may also apply with respect to cash you receive pursuant to the merger, unless you provide proof of an applicable exemption or a correct taxpayer identification number and otherwise comply with the applicable requirements of the backup withholding rules. You should consult your own tax advisor for a full understanding of how the merger will affect your particular tax consequences, including federal, state, local and/or foreign taxes and, if applicable, the tax consequences of the receipt of cash in connection with the cancellation of your options to purchase shares of Intergraph common stock, your shares of restricted stock and/or your restricted share units. See “The Merger — Material U.S. Federal Income Tax Consequences of the Merger to Our Stockholders” beginning on page 38.
	•	Appraisal Rights.  Under Delaware law, holders of Intergraph common stock who do not vote in favor of adopting the merger agreement will have the right to seek appraisal of the fair value of their shares, as determined by the Delaware Court of Chancery, if the merger is completed, but only if they comply with all requirements of Delaware law, which are summarized in this proxy statement. This appraisal amount you would receive could be more than, the same as or less than the amount a stockholder would be entitled to receive under the terms of the merger agreement. Any holder of Intergraph common stock intending to exercise the holder’s appraisal rights, among other things, must submit a written demand for an appraisal to us prior to the vote on the adoption of the merger agreement and must not vote or otherwise submit a proxy in favor of adoption of the merger agreement. Your failure to follow exactly the procedures specified under Delaware law will result in the loss of your appraisal rights. See “The Special Meeting — Rights of Stockholders Who Object to the Merger” and “Appraisal Rights” beginning on pages 14 and 58, respectively, and the text of the Delaware appraisal rights statute reproduced in its entirety as Annex C.
	•	Market Price of Intergraph Common Stock (see page 60).  The closing sale price of Intergraph common stock on the Nasdaq Global Select Market, which we refer to as the NASDAQ, on August 30, 2006, the last trading date before the date of the merger agreement, was $37.30 per share. The $44.00 per share to be paid for each share of Intergraph common stock pursuant to the merger represents a premium of approximately 22% over Intergraph’s average closing share price for the 20 trading days prior to the date of the merger agreement.

6

 

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING

Q.		When and where is the special meeting?
A.		The special meeting of stockholders of Intergraph will be held on ,          , 2006, at          .m., local time, [in the Building 15b Auditorium at Intergraph’s executive offices located at 170 Graphics Drive, Madison, Alabama 35758].
Q.		What matters will be voted on at the special meeting?
A.		You will be asked to consider and vote on the following proposals:
		• to adopt the merger agreement;
		• to approve the adjournment of the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the meeting to adopt the merger agreement; and
		• to transact such other business that may properly come before the special meeting or any adjournment or postponement of the special meeting.
Q.		How does Intergraph’s board of directors recommend that I vote on the proposals?
A.		The independent members of the board of directors unanimously recommend that you vote:
		• “FOR” the proposal to adopt the merger agreement; and
		• “FOR” the adjournment proposal.
Q.		Who is entitled to vote at the special meeting?
A.		All holders of Intergraph common stock as of the close of business on          , 2006, the record date for the special meeting, are entitled to vote at the special meeting. As of the record date, there were approximately           shares of Intergraph common stock outstanding. Approximately           holders of record held these shares. Every holder of Intergraph common stock is entitled to one vote for each share the stockholder held as of the record date.
		Please note that space limitations may make it necessary to limit attendance at the special meeting to stockholders. If you attend, please note that you may be asked to present valid picture identification. “Street name” holders will need to bring a copy of a brokerage statement reflecting stock ownership as of the record date. Cameras, recording devices and other electronic devices are not permitted at the special meeting.
Q.		What vote is required for Intergraph’s stockholders to adopt the merger agreement?
A.		An affirmative vote of the holders of a majority of all outstanding shares of Intergraph common stock entitled to vote on the matter is required to adopt the merger agreement.
Q.		What vote is required for Intergraph’s stockholders to approve the proposal to adjourn the special meeting, if necessary, to solicit additional proxies?
A.		The proposal to adjourn the special meeting, if necessary, to solicit additional proxies requires the affirmative vote of the holders of a majority of the shares of Intergraph common stock present or represented by proxy at the meeting and entitled to vote on the matter.
Q.		Who is soliciting my vote?
A.		This proxy solicitation is being made and paid for by Intergraph. In addition, we have retained Georgeson Inc. to assist in the solicitation. We will pay Georgeson Inc. approximately $15,000 plus out-of-pocket expenses for its assistance. Our directors, officers and employees may also solicit proxies by personal interview, mail, e-mail, telephone, facsimile or by other means of communication. These individuals will not be paid additional remuneration for their efforts. We will also request brokers and other fiduciaries to forward

7

		proxy solicitation materials to the beneficial owners of shares of Intergraph common stock that the brokers and fiduciaries hold of record. We will reimburse them for their reasonable out-of-pocket expenses.
Q.		What do I need to do now?
A.		Even if you plan to attend the special meeting, after carefully reading and considering the information contained in this proxy statement, if you hold your shares in your own name as the stockholder of record, please complete, sign, date and return the enclosed proxy card; submit a proxy using the telephone number printed on your proxy card; or submit a proxy using the Internet proxy submission instructions printed on your proxy card. You can also attend the special meeting and vote, or change your prior vote, in person. Do NOT enclose or return your stock certificate(s) with your proxy. If you hold your shares in “street name” through a broker, bank or other nominee, then you received this proxy statement from the nominee, along with the nominee’s proxy card which includes voting instructions and instructions on how to change your vote.
Q.		How do I vote? How can I revoke my vote?
A.		You may cause your shares to be voted by signing and dating each proxy card you receive and returning it in the enclosed prepaid envelope, or as described below if you hold your shares in “street name.” If you return your signed proxy card, but do not mark the boxes showing how you wish your shares to be voted, your shares will be voted “FOR” the proposal to adopt the merger agreement and “FOR” the adjournment proposal. You have the right to revoke your proxy at any time before the vote taken at the special meeting:
		• if you hold your shares in your name as a stockholder of record, by notifying us in writing at One Madison Industrial Park, Huntsville, Alabama 35894, Attention: Investor Relations;
		• if you hold your shares in your name as a stockholder of record, by attending the special meeting and voting in person (your attendance at the meeting will not, by itself, revoke your proxy; you must vote in person at the meeting);
		• if you hold your shares in your name as a stockholder of record, by submitting a later-dated proxy card; or
		• if you have instructed a broker, bank or other nominee to vote your shares, by following the directions received from your broker, bank or other nominee to change those instructions.
Q.		Can I submit a proxy by telephone or electronically?
A.		If you hold your shares in your name as a stockholder of record, you may submit a proxy by telephone or electronically through the Internet by following the instructions included with your proxy card.
		If your shares are held by your broker, bank or other nominee, often referred to as held in “street name,” please check your proxy card or contact your broker, bank or other nominee to determine whether you will be able to provide voting instructions by telephone or electronically.
Q.		If my shares are held in “street name” by my broker, bank or other nominee, will my broker, bank or other nominee vote my shares for me?
A.		Your broker, bank or other nominee will only be permitted to vote your shares if you instruct your broker, bank or other nominee how to vote. You should follow the procedures provided by your broker, bank or other nominee regarding the voting of your shares. If you do not instruct your broker, bank or other nominee to vote your shares, your shares will not be voted and the effect will be the same as a vote against the adoption of the merger agreement and will not have an effect on the proposal to adjourn the special meeting.
Q.		What do I do if I receive more than one proxy or set of voting instructions?
A.		If you hold shares both as a record holder and in “street name,” or if your shares are otherwise registered differently, you may receive more than one proxy and/or set of voting instructions relating to the special meeting. These should each be returned separately in order to ensure that all of your shares are voted.

8

Q.		How are votes counted?
A.		For the proposal to adopt the merger agreement, you may vote FOR, AGAINST or ABSTAIN. Abstentions will not be counted as votes cast or shares voting on the proposal to adopt the merger agreement, but will count for the purpose of determining whether a quorum is present. If you abstain, it will have the same effect as if you vote against the adoption of the merger agreement. In addition, if your shares are held in the name of a broker, bank or other nominee, your broker, bank or other nominee will not be entitled to vote your shares in the absence of specific instructions. These non-voted shares, or “broker non-votes,” will be counted for purposes of determining a quorum, but will have the same effect as a vote against the adoption of the merger agreement.
		For the proposal to adjourn the special meeting, if necessary, to solicit additional proxies, you may vote FOR, AGAINST or ABSTAIN. Abstentions and broker non-votes will count for the purpose of determining whether a quorum is present, but broker non-votes will not count as shares present and entitled to vote on the proposal to adjourn the meeting. As a result, abstentions will have the same effect as a vote against the proposal to adjourn the meeting and broker non-votes will have no effect on the vote to adjourn the meeting, which requires the vote of the holders of a majority of the shares of Intergraph common stock present or represented by proxy at the meeting and entitled to vote on the matter.
		If you sign your proxy card without indicating your vote, your shares will be voted “FOR” the adoption of the merger agreement and “FOR” the adjournment of the special meeting, if necessary, to solicit additional proxies, and in accordance with the recommendations of our board of directors on any other matters properly brought before the special meeting for a vote.
Q:		Who will count the votes?
A:		A representative of our transfer agent, Computershare Investor Services, LLC, will count the votes and act as an inspector of election. Questions concerning stock certificates or other matters pertaining to your shares may be directed to Computershare Investor Services, LLC at (312) 360-5116.
Q.		When is the merger expected to be completed? What is the “marketing period”?
A.		We are working toward completing the merger as soon as possible, and we anticipate that it will be completed in the fourth quarter of 2006. However, in order to complete the merger, we must obtain stockholder approval and the other closing conditions under the merger agreement must be satisfied or waived. In addition, Cobalt Holding is not obligated to complete the merger until the expiration of a 20-consecutive calendar day “marketing period” that it may use to complete the debt financing for the merger. The marketing period begins to run after we have provided Cobalt Holding with certain financial information required to be provided by us under the merger agreement, obtained the stockholder approval and satisfied other specified conditions under the merger agreement, but will begin no earlier than November 11, 2006. If the marketing period would not end on or before December 19, 2006, the marketing period will commence no earlier than January 2, 2007. See “The Merger Agreement — Marketing Period” and “The Merger Agreement — Conditions to the Merger” beginning on pages 49 and 50, respectively.
Q.		Should I send in my stock certificates now?
A.		No. After the merger is completed, you will be sent a letter of transmittal with detailed written instructions for exchanging your Intergraph common stock certificates for the merger consideration.
		If your shares are held in “street name” by your broker, bank or other nominee, you will receive instructions from your broker, bank or other nominee as to how to effect the surrender of your “street name” shares in exchange for the merger consideration. Please do not send your certificates in now.
Q.		How can I obtain additional information about Intergraph?
A.		We will provide a copy of our Annual Report to stockholders and/or our Annual Report on Form 10-K for the year ended December 31, 2005, excluding certain of its exhibits, and other filings, including our reports on Form 10-Q, which have been filed with the Securities and Exchange Commission, which we refer to as the SEC, without charge to any stockholder who makes an oral or written request to the Office of Investor Relations, Intergraph Corporation, One Madison Industrial Park, Huntsville, Alabama, 35894,

9

		telephone: (256) 730-2720. Our Annual Report on Form 10-K and other SEC filings also may be accessed on the Internet at http://www.sec.gov or on the Investor Relations page of Intergraph’s website at http://www.intergraph.com. Our website address is provided as an inactive textual reference only. The information provided on our website is not part of this proxy statement and is not incorporated by reference. For a more detailed description of how to obtain additional information about Intergraph, please refer to “Where You Can Find More Information” beginning on page 64.
Q.		Who can help answer my questions?
A.		If you need assistance in completing your proxy card or have questions regarding the special meeting, please contact: Georgeson Inc., 17 State Street, 10th Floor, New York, New York 10004. Banks and brokers call (212) 440-9800. All others call toll-free (866) 628-6079. If your broker, bank or other nominee holds your shares, you can also call your nominee for additional information.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

	•	the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement, including a termination that under circumstances could require us to pay a $33.14 million termination fee to Cobalt Holding;
	•	the outcome of any legal proceedings that have been or may be instituted against us and others relating to the merger agreement;
	•	the failure of the merger to close for any reason, including the inability to complete the merger due to the failure to obtain stockholder approval or the failure to satisfy other conditions to consummation of the merger, including the expiration of the waiting period under the HSR Act, or the failure to obtain the necessary debt financing arrangements set forth in commitment letters received in connection with the merger, and the risk that any failure of the merger to close may adversely affect our business and the price of our common stock;
	•	the potential adverse effect on our business, properties and operations of any covenants we agreed to in the merger agreement;
	•	risks that the proposed transaction diverts management’s attention and disrupts current plans and operations, and potential difficulties in employee retention as a result of the merger;
	•	the effect of the announcement of the merger and actions taken in anticipation of the merger on our business relationships, operating results and business generally;
	•	the amount of the costs, fees, expenses and charges related to the merger; and
	•	other risks detailed in our current filings with the SEC, including our most recent filings on Forms 8-K, 10-Q and 10-K. See “Where You Can Find More Information” beginning on page 64.

11

 

THE PARTIES TO THE MERGER

 

Intergraph

 

Cobalt Holding

 

Merger Sub

12

 

THE SPECIAL MEETING

 

Date, Time and Place of the Special Meeting

	Place:	[Building 15b Auditorium

 

Proposals to be Considered at the Special Meeting

 

Record Date

 

Voting Rights; Quorum; Vote Required for Approval

13

 

Submission and Revocation of Proxies

	•	if you hold your shares in your name as a stockholder of record, by notifying us in writing at One Madison Industrial Park, Huntsville, Alabama 35894, Attention: Investor Relations;
	•	if you hold your shares in your name as a stockholder of record, by attending the special meeting and voting in person (your attendance at the meeting will not, by itself, revoke your proxy; you must vote in person at the meeting);
	•	if you hold your shares in your name as a stockholder of record, by submitting a later-dated proxy card; or
	•	if you have instructed a broker, bank or other nominee to vote your shares, by following the directions received from your broker, bank or other nominee to change those instructions.

 

Rights of Stockholders Who Object to the Merger

14

 

Solicitation of Proxies

 

Other Business

 

Questions and Additional Information

15

 

This discussion of the merger is qualified by reference to the merger agreement, which is attached to this proxy statement as Annex A. You should read the entire merger agreement carefully as it is the legal document that governs the merger.

 

Our board of directors periodically reviews and assesses strategic alternatives available to us to enhance stockholder value. In the spring of 2005, Intergraph reorganized its operations from four business units to two, which we refer to as Security, Government & Infrastructure, or SG&I, and Process, Power & Marine, or PP&M, and began to restructure and streamline its global operations. The restructuring actions were expected to be completed by the second quarter of 2006. During the summer and fall of 2005, certain parties expressed potential interest in discussing a potential transaction with Intergraph. None of these progressed beyond the preliminary stage or resulted in any specific proposals. In the fall of 2005, our board of directors considered whether a more formal review of our potential strategic alternatives to enhance stockholder value was appropriate. Following discussion, the board of directors requested our management to invite Goldman Sachs to make a presentation to the board of directors at its next regularly scheduled meeting regarding potential strategic alternatives available to us.

 

On January 25, 2006, at a regularly scheduled meeting of the board of directors, our management reviewed with the board of directors Intergraph’s results of operations, including an update regarding Intergraph’s organizational realignment and restructuring efforts, Intergraph’s 2006 budget, and our management’s perspective regarding potential strategic alternatives to enhance stockholder value. Representatives of Goldman Sachs were then invited to join the meeting to discuss their preliminary analyses of our potential strategic alternatives. Goldman Sachs reviewed the possibility of pursuing potential strategic alternatives relating to the continuation of Intergraph’s strategic plan and business transformation efforts, a recapitalization (including a potential share repurchase), growth through one or more strategic acquisitions to complement our SG&I and/or PP&M business units, and the potential sale of all or part of Intergraph, and discussed the supporting rationales, merits and challenges associated with each potential alternative. With respect to the sale of Intergraph alternative, Goldman Sachs discussed, and our board of directors considered, several potential processes and their respective benefits and risks, including a targeted competitive process. Goldman Sachs also reviewed the number and identity of parties whom Intergraph might consider including in a targeted competitive process and the expected levels of interest.

 

A representative of Bass, Berry & Sims PLC, our outside corporate counsel, which we refer to as Bass, Berry & Sims, was also present at this meeting and reviewed the fiduciary duties of directors in the context of considering strategic alternatives relating to Intergraph. After further discussions between members of the board of directors and our management, the board of directors determined that it would explore potential strategic alternatives as discussed at the meeting, including the potential sale of Intergraph through a targeted competitive process, and authorized management to negotiate the retention of Goldman Sachs to assist the board of directors in exploring potential strategic alternatives.

 

On February 27, 2006, the board of directors met and received an update from our management regarding Intergraph’s exploration of our strategic alternatives. Following this meeting, we executed an engagement letter retaining Goldman Sachs as our financial advisor.

 

Thereafter, and continuing into April 2006, acting on behalf of Intergraph, Goldman Sachs contacted 11 potential strategic parties to assess their interest in a potential business combination transaction with Intergraph. These potentially interested parties were selected primarily on the basis of their expected financial resources and level of interest in a transaction with Intergraph, including any previous expressions of interest to Intergraph. Given the belief that a strategic transaction was more likely in view of potential synergies, cost savings and other factors, based in part on the advice of Goldman Sachs and concerns regarding confidentiality of the process, the board of directors determined not to contact financial sponsors at this stage of the process. Acting on behalf of Intergraph, Goldman Sachs distributed introductory information materials and a form of confidentiality agreement to prospective strategic parties who expressed interest in Intergraph. We subsequently

executed confidentiality agreements with six prospective strategic parties through April 2006. Also, our management, with the assistance of Goldman Sachs, continued to refine their analyses of other potential strategic alternatives.

 

Between March 15, 2006 and April 12, 2006, nine of the 11 strategic parties contacted by Goldman Sachs declined to proceed further with the process. Several of these parties noted the complexity of Intergraph’s business, tax costs associated with any subsequent disposition of businesses or non-core assets and the relative size of Intergraph’s SG&I and PP&M business units.

 

At an April 19, 2006 meeting of our board of directors, our board of directors reviewed with our management Intergraph’s recent financial and operational performance, Intergraph’s progress in its organizational realignment and restructuring efforts, and other matters. Thereafter, Goldman Sachs joined the meeting and reviewed for the board of directors the work that our management, with the assistance of its legal and financial advisors, had undertaken in connection with the exploration of our potential strategic alternatives. With respect to the potential sale of Intergraph alternative, representatives of Goldman Sachs updated the board of directors on the contacts made by Goldman Sachs to potential strategic parties, noting that nine of the potential strategic parties stated that they were not interested in exploring further a transaction with Intergraph and that none of the potential strategic parties expressed any meaningful degree of interest in a transaction with Intergraph. Goldman Sachs also discussed a list of financial sponsors that could be asked to bid for Intergraph and assessed their desire and ability to acquire Intergraph, as well as other potential strategic alternatives available to Intergraph. Following a discussion regarding next steps, the independent directors went into executive session, at which time members of our management left the meeting. During the executive session, the independent directors discussed the potential inclusion of financial sponsors in the process, the potential interests of our management in a transaction involving a financial sponsor and the maintenance of the confidentiality of the process. Following discussion, the board of directors approved the inclusion of potentially interested financial sponsors in the process and directed our management and legal and financial advisors to continue to explore potential strategic alternatives available to us. The independent directors also instructed our management not to discuss their personal financial interests in a potential transaction with a financial sponsor without prior board of directors’ approval.

 

Over the course of the following week, acting on behalf of Intergraph, Goldman Sachs contacted potential financial sponsor acquirors to assess their interest in acquiring Intergraph. Acting on behalf of Intergraph, Goldman Sachs distributed a form of confidentiality agreement to prospective financial sponsors who expressed interest in Intergraph. We subsequently executed confidentiality agreements with nine prospective financial sponsor acquirors, as well as two additional prospective strategic parties who expressed interest in teaming with a financial sponsor, and distributed introductory materials to each such party. On April 24, 2006, the remaining two potential strategic parties contacted earlier in the process informed Goldman Sachs that they would not participate further in the process.

 

On May 4, 2006, Intergraph received three preliminary indications of interest from financial sponsors or teams, including an indication of interest from Hellman & Friedman LLC and Texas Pacific Group. The Hellman & Friedman LLC/Texas Pacific Group indication of interest included a range of merger consideration of $47 to $52 per share. The other two indications of interest included merger consideration of $50 per share from a financial sponsor we will refer to as Party X, and a range of $49 to $51 per share from a financial sponsor we will refer to as Party Y, respectively. Additionally, two financial sponsors indicated interest in certain of Intergraph’s assets but did not submit an indication of interest regarding Intergraph as a whole.

 

On May 8, 2006, our board of directors met to receive an update regarding the ongoing exploration of our strategic alternatives. Our management updated the board of directors regarding the process of evaluating our potential strategic alternatives process. Representatives of Goldman Sachs updated the board of directors with respect to the process, including the potential sale of Intergraph process. Goldman Sachs described the three written preliminary non-binding indications of interest in an acquisition of Intergraph from financial sponsors, and stated that one potential strategic party was reconsidering participation in the process. The board of directors discussed next steps in the process, and the independent directors then met in executive session. Following discussion during the executive session, the independent directors resolved to authorize the

continuing participants in the sale of Intergraph process to conduct additional due diligence and authorized the continued exploration of our other potential strategic alternatives.

 

Over the course of May and June 2006, the continuing potential acquirors conducted their due diligence of Intergraph with the assistance of management and our legal and financial advisors. In late May 2006, our management made presentations to each of the continuing potential acquirors.

 

Our board of directors met on June 13, 2006 to receive an update regarding the ongoing exploration of our strategic alternatives. Representatives of our management reviewed Intergraph’s financial performance and other business matters and provided an update regarding the process of evaluating our potential strategic alternatives. Goldman Sachs reviewed and discussed with the board of directors its ongoing financial analyses of our strategic alternatives. Representatives of Goldman Sachs also reported to the board of directors on the progress of the potential sale of Intergraph process, including the identity of the continuing potential acquirors (none of which were stand-alone strategic parties) and their due diligence efforts. Goldman Sachs also discussed interest expressed in certain of Intergraph’s assets. Party X had expressed an interest in partnering with a strategic party to explore its interest in the potential acquisition of one of Intergraph’s business units, and this strategic party was permitted to enter the process. Following discussion, the independent directors met in executive session. Bass, Berry & Sims reviewed the board of directors’ fiduciary duties, discussed the terms of a draft merger agreement, and responded to questions.

 

On June 23, 2006, Hellman & Friedman LLC/Texas Pacific Group informed Goldman Sachs that they would not participate further in the process due to valuation concerns as their analysis of their diligence review did not support their initial indicated range of $47 to $52 per share.

 

On June 26, 2006, Bass, Berry & Sims distributed a draft merger agreement, a draft of which was previously reviewed by the board of directors, to Party X and Party Y. Thereafter, a bid procedures letter was distributed that requested proposals for an acquisition of Intergraph, accompanied by equity and debt financing commitments, sponsor guarantees and comments on the draft merger agreement, be submitted by July 6, 2006. On June 28, 2006, a previously contacted financial sponsor, whom we will refer to as Party Z, submitted a joint indication of interest with a strategic party desiring to enter the process for the entire company at a range of $40 to $43 per share.

 

On June 30, 2006, the board of directors met to discuss Intergraph’s forecasted results of operations for the second quarter and the status of the process for exploring Intergraph’s potential strategic alternatives. Our management updated the board of directors regarding Intergraph’s results of operations and discussed a potential pre-announcement of better than expected second quarter results. Goldman Sachs updated the board of directors regarding Intergraph’s potential strategic alternatives, including the potential sale process. Goldman Sachs described the three interested participants or groups, which consisted of Party X (interested in the entire company or in partnership with a strategic party with a potential interest in one of Intergraph’s business units), Party Y (interested in purchasing the entire company), and Party Z (teamed with a strategic party desiring to enter the process interested in the entire company). The board of directors discussed these matters and Hellman & Friedman LLC/Texas Pacific Group’s withdrawal from the process. The board of directors and its legal and financial advisors also discussed the timeline for the process.

 

On July 5, 2006, Party Z increased its indication of interest from a range of $40 to $43 to a range of $43 to $50 per share. Intergraph received no other revised indications of interest or comments regarding the draft merger agreement prior to the July 6, 2006 deadline included in the bid procedures letter, although Party Y submitted a markup of the draft merger agreement the following day and the others indicated their intent not to submit a markup at that time.

 

At a meeting of our board of directors on July 11, 2006, our management reviewed the draft press release announcing upwardly revised guidance for the second quarter and 2006 with the board of directors and discussed the factors driving Intergraph’s results. Thereafter, our management and Goldman Sachs updated the board of directors regarding the process of evaluating our potential strategic alternatives, including a discussion regarding each of the three continuing participants in the potential sale of Intergraph process. The board of directors also discussed the potential impact of various factors on the process, including fluctuations in

Intergraph’s share price and various market indices, and considered how such matters could affect potential bid levels. The board of directors also reviewed with management their projections for future company performance and the assumptions and factors underlying the projections. Goldman Sachs reviewed potential strategic alternatives and potential valuations relating to each alternative. The alternatives considered included continuing Intergraph’s strategic plan and business transformation efforts as a stand alone public company, returning capital to stockholders, including through a more leveraged capital structure, potential strategic acquisitions to complement Intergraph’s SG&I and/or PP&M business units, and the potential sale of all or part of Intergraph. The independent directors met in executive session with Goldman Sachs and Bass, Berry & Sims and discussed the relative merits and potential risks associated with the various potential alternatives. During the executive session, the board of directors asked questions of Goldman Sachs regarding the process, and Bass, Berry & Sims reviewed the fiduciary duties of directors in the context of considering potential strategic alternatives.

 

Following the meeting, Intergraph issued a press release announcing upwardly revised expectations for the second quarter and 2006 results of operations. On behalf of Intergraph, Bass, Berry & Sims circulated a revised draft merger agreement responding to comments received during the process. Intergraph received draft equity and debt commitment letters from Party Y. Goldman Sachs informed participants that second round indications of interest were due July 17, 2006. As of that date, of the three remaining participants, Party Z indicated that it valued Intergraph in the mid-$30s per share (down from a previously indicated range of $43 to $50 per share) and declined to submit a revised indication of interest. The two remaining participants did not submit an indication of interest by July 17, 2006.

 

The board of directors met on the evening of July 17, 2006 to receive an update regarding Intergraph’s potential strategic alternatives, including the potential sale process. Goldman Sachs updated the board of directors regarding each of the three participants in the potential sale process and informed the board of directors that no written indications of interest had been received. Goldman Sachs also discussed that Party Z had orally indicated its valuation in the mid-$30s per share and stated its intention not to submit a bid.

 

On July 18, 2006, the board of directors met to receive an update regarding the process of evaluating our potential strategic alternatives. Goldman Sachs informed the board of directors that no written indications of interest had been received. Party X had indicated that it continued to evaluate the business, but that it was unlikely to submit an indication of interest at its previously communicated level of $50 per share. Goldman Sachs also informed the board of directors that the other remaining participant, Party Y, orally indicated that it intended to submit an indication of interest, but that it would be conditioned upon Intergraph’s acquisition of an unaffiliated strategic company due to Party Y’s concerns regarding the size of Intergraph’s business units. The board of directors discussed the potential sale process, as well as potential business combination discussions with the referenced strategic party. The independent directors met in executive session with Goldman Sachs and Bass, Berry & Sims to discuss the proposed next steps. Following discussion during the executive session, the independent directors approved preliminary acquisition discussions with the referenced strategic party which, ultimately, did not progress due to valuation concerns.

 

On July 19, 2006, the board of directors met to review the status of the potential sale of Intergraph process and other potential strategic alternatives. Our management and Goldman Sachs reviewed the feedback received from the participants in the potential sale process, other potential strategic alternatives and a planned meeting of the board of directors on July 26, 2006 to review further Intergraph’s potential strategic alternatives. The independent directors met in executive session with Goldman Sachs and Bass, Berry & Sims to discuss the status of the strategic alternatives process and next steps, including parties that should be contacted. Bass, Berry & Sims again reviewed the board of directors’ fiduciary duties in the context of considering potential strategic alternatives. Later that day, one of the two remaining participants, Party Y, submitted a written indication of interest reflecting a range from $41 to $44 per share (down from $49 to $51 per share), but it was conditioned upon the participant’s concurrent acquisition of the referenced strategic party. On July 19, 2006, Goldman Sachs, on behalf of Intergraph, subsequently contacted Hellman & Friedman LLC/Texas Pacific Group and a strategic party to inquire about their respective interest in re-entering the process. Hellman & Friedman LLC subsequently orally indicated to Goldman Sachs that their preliminary

valuation of Intergraph reflected a range of $41 to $43 per share and that they were willing to re-enter the process if their expenses of doing so were reimbursed by us in certain circumstances.

 

On July 25, 2006, Party X submitted a revised indication of interest reflecting a range of $40 to $42.50 per share (down from previously indicated merger consideration of $50 per share).

 

On July 26, 2006, our management reviewed with the board of directors Intergraph’s results of operations for the second quarter, expectations for the third quarter and 2006, and other matters affecting Intergraph. Our management also updated the board of directors regarding its analyses of the potential sale process and other potential strategic alternatives. Thereafter, Goldman Sachs joined the meeting to review potential strategic alternatives and to update the board of directors on the potential sale process, including the indication of interest received the day before from Party X, and its contacts with Hellman & Friedman LLC/Texas Pacific Group and a strategic party regarding their willingness to re-enter the potential sale process. Goldman Sachs also reviewed its analyses of Intergraph’s potential strategic alternatives, including continuing Intergraph’s strategic plan and business transformation efforts, revising Intergraph’s capital structure through a recapitalization (including a potential share repurchase), pursuing a strategic acquisition to complement Intergraph’s SG&I or PP&M business units, respectively, divesting one or more of Intergraph’s businesses and/or non-core assets, and the potential sale of Intergraph. Following the Goldman Sachs presentation and discussion, the independent directors met in executive session with Goldman Sachs and Bass, Berry & Sims to discuss further potential strategic alternatives and the values potentially attributable to each of the alternatives discussed. The independent directors reached a consensus that, at that time, the potential sale process, if available on terms and conditions acceptable to the board of directors, was the best alternative reasonably available to Intergraph and its stockholders. Thereafter, Goldman Sachs was excused from the meeting and Bass, Berry & Sims reviewed the board of directors’ fiduciary duties. The independent directors also agreed to the request of Hellman & Friedman LLC/Texas Pacific Group for reimbursement of their due diligence expenses under certain circumstances should Hellman & Friedman LLC/Texas Pacific Group re-enter the process. On July 26, 2006, Hellman & Friedman LLC/Texas Pacific Group submitted a written indication of interest reflecting a range of $41 to $43 per share and agreeing to re-enter the process, subject to our agreement to reimburse up to $3 million of their due diligence expenses if we entered into an agreement on or prior to August 31, 2006 providing for a sale or other business combination with another party and certain other conditions were satisfied. We agreed in writing to the expense reimbursement provision the following day. A draft merger agreement was provided to Hellman & Friedman LLC/Texas Pacific Group on August 1, 2006.

 

From July 27, 2006 through August 28, 2006, the remaining participants continued to conduct their due diligence and to meet with our management. On August 7, 2006, the strategic party contacted by Goldman Sachs on July 19, 2006 regarding its interest in re-entering Intergraph’s sale process advised that it would not be participating in the process due to the complexity of Intergraph’s business. Also, on that date, JMI Equity was permitted to enter the process with Hellman & Friedman LLC/Texas Pacific Group. In mid-August, Party Y indicated that it was no longer interested in pursuing a transaction with Intergraph. Party X and Hellman & Friedman LLC/Texas Pacific Group submitted their comments to the draft merger agreement on August 18 and August 21, 2006, respectively. During the week of August 21, 2006, Party X and Hellman & Friedman LLC/Texas Pacific Group described to Mr. Wise, Mr. French and a representative from Goldman Sachs its plans for Intergraph and typical compensation philosophy.

 

On August 25, 2006, the board of directors met to receive an update regarding the process for exploring strategic alternatives. Following an update from our management, Goldman Sachs reviewed the potential sale process, including the background, level of activity, proposed structure and valuation indicated by Hellman & Friedman LLC/Texas Pacific Group and the other continuing financial sponsor participant, Party X. Representatives of Bass, Berry & Sims reviewed with the board of directors the legal terms of the two proposals, including terms relating to the conditionality of each of the acquiror groups’ obligation to consummate the merger. The proposal by Party X required Intergraph to engage in pre-closing restructuring activities to facilitate the operation and separate financing of two separate businesses by Party X immediately following the consummation of the transaction and provided that Intergraph could not require the transaction to close for a period of five months following the execution of the merger agreement, primarily in order to coordinate the restructuring with the closing. The board considered the potential operational and financing risk

associated with the pre-closing restructuring activities necessary to facilitate Party X’s proposal, terms relating to the conditionality and timing of Party X’s obligation to consummate the merger, and other factors. Goldman Sachs also updated the board of directors regarding the interest expressed orally by a strategic party that had previously participated in the process with a financial sponsor, Party Z, to consider the acquisition of certain of Intergraph’s assets. The strategic party orally advised Goldman Sachs earlier in the day that it intended to submit a proposal no later than August 29, 2006, setting forth a proposal to acquire Intergraph, a timeline for completion and related financing. The board of directors discussed the strategic party’s relationship with and likely interest in Intergraph, the potential benefits and risks associated with pursuing the proposal, the likely delay to the process associated with pursuing the proposal and its potential impact on Intergraph’s ability to pursue successfully a transaction with either of the two remaining financial sponsor participants. The board of directors also discussed the interest of both financial sponsor participants in retaining management. Mr. Wise confirmed that there had been no discussions between management and either financial sponsor participant regarding individual compensation or retention terms and discussed management’s willingness generally to work with either participant following the consummation of a transaction. Thereafter, the board of directors reviewed the timeline for next steps in the sale process and the independent directors met in executive session with Goldman Sachs and Bass, Berry & Sims. In executive session, the independent directors discussed the terms of the draft contracts and matters relating to management’s potential interests in a transaction with an acquiring financial sponsor.

 

From August 26, 2006 through August 29, 2006, on behalf of Intergraph, Bass, Berry & Sims negotiated with respective counsels to the two potential financial sponsor acquirors to narrow the outstanding legal issues. On the evening of August 29, 2006, Hellman & Friedman LLC/Texas Pacific Group and Party X submitted their respective proposals for the acquisition of Intergraph, together with debt and equity financing commitments, sponsor guarantees and comments on the draft merger agreement. Intergraph also received a written indication of interest subject to various conditions from the strategic party referenced in the immediately preceding paragraph.

 

Our board of directors met on August 30, 2006 to consider the proposals submitted by the two continuing financial sponsor participants and the indication of interest from the referenced strategic party. Representatives of Goldman Sachs reviewed and discussed with the board of directors the terms of the strategic party’s proposal. The strategic party indicated merger consideration of $41 per share, subject to various conditions including due diligence. The board of directors also considered that this indication of interest was not supported by committed financing and the timeline for its execution was delayed compared to the other two proposals. Goldman Sachs also discussed the financial terms of the acquisition proposals made by Hellman & Friedman LLC/Texas Pacific Group and Party X, including the amount of the proposed equity and debt financing and the resulting transaction leverage. The board of directors also considered the pre-closing restructuring activities that were required to facilitate Party X’s proposal, but were not required by the Hellman & Friedman LLC/Texas Pacific Group proposal. Hellman & Friedman LLC/Texas Pacific Group offered merger consideration of $43.50 per share, while Party X offered merger consideration of $41 per share. Representatives of Bass, Berry & Sims reviewed with the board of directors the legal terms of each of these proposals, including terms relating to the conditionality of the potential acquiror’s obligation to consummate the merger, the expected timing of their closing and the remedies available to each party for a breach of the merger agreement. Following discussion, the independent directors met in executive session with Bass, Berry & Sims and Goldman Sachs. During the executive session, the independent directors discussed the bids and related contract provisions. The independent directors unanimously agreed that Intergraph, with the assistance of its legal and financial advisors, should continue the sale of Intergraph process and seek the best available terms and conditions for the board of directors to consider. The directors agreed that Intergraph should focus its efforts on Hellman & Friedman LLC/Texas Pacific Group. The independent directors also discussed our management’s potential interest in a transaction with a financial sponsor and discussed the benefits and risks with various approaches. Following discussion, the independent directors approved Mr. Wise’s request that Intergraph pay the expense of a single law firm to represent our senior management regarding potential employment by a financial sponsor following a transaction.

After the August 30, 2006 board of directors meeting, Goldman Sachs, on behalf of Intergraph, communicated to each of the potential financial sponsor acquiror groups that our board of directors was seeking improved terms and requested that each participant deliver its final and best proposal prior to a board of directors meeting scheduled for the morning of August 31, 2006. Bass, Berry & Sims held discussions and negotiated terms of the merger agreement and other acquisition documents with counsel for each of the potential financial sponsor acquirors. Following discussions with Goldman Sachs, Party X increased its offered merger consideration to $42.50 per share and then to $43.50 per share. Hellman & Friedman LLC/Texas Pacific Group increased its offered merger consideration to $43.80 per share. Thereafter, Party X made its final bid and increased the merger consideration offered to $44 per share, which bid, pursuant to its terms, expired at 10:00 p.m., New York City time, on August 31, 2006. On the morning of August 31, 2006, before the meeting of our board of directors discussed below, Hellman & Friedman LLC/Texas Pacific Group orally informed Goldman Sachs that they were increasing their proposal to $44 per share, which was confirmed in writing that morning as their final proposal. This proposal indicated by its terms that it would expire at 4:30 p.m., New York City time, on August 31, 2006.

 

On the morning of August 31, 2006, our board of directors met to discuss our strategic alternatives and the proposals submitted by the potential financial sponsor acquirors. Representatives of Bass, Berry & Sims again discussed with the board of directors the fiduciary duties of directors in connection with evaluating strategic alternatives, including extraordinary transactions such as the proposed merger. Mr. Wise provided a summary of the process and bids received from the participants since the August 30, 2006 board of directors meeting. Mr. Wise reviewed the board of directors’ prior consideration of other strategic alternatives, updated the board of directors regarding Intergraph’s expected results of operations and confirmed that executive management was not aware of any material subsequent changes relevant to the board of directors’ consideration of Intergraph’s other strategic alternatives. Representatives of Goldman Sachs reported to the board of directors regarding the negotiations that took place with Hellman & Friedman LLC/Texas Pacific Group since the board of directors’ meeting on August 30, 2006. Goldman Sachs reviewed the financial and other terms of the Hellman & Friedman LLC/Texas Pacific Group proposal and responded to questions. Representatives of Bass, Berry & Sims then reviewed with the board of directors the legal terms of the Hellman & Friedman LLC/Texas Pacific Group proposal and responded to questions from the board of directors regarding the legal terms of the offer. Thereafter, representatives of Goldman Sachs reported to the board of directors regarding the negotiations that took place with Party X since the board of directors’ meeting on August 30, 2006. Goldman Sachs reviewed the financial and other terms of its proposal and responded to questions. Representatives of Bass, Berry & Sims then reviewed with the board of directors the legal terms of its proposal and responded to questions from the board of directors regarding the legal terms of the offer. Following discussion, the board of directors requested that Goldman Sachs render an opinion as to whether the financial consideration to be received by our stockholders in the proposed merger with entities sponsored by Hellman & Friedman LLC/Texas Pacific Group was fair from a financial point of view to our stockholders. Goldman Sachs delivered to the board of directors an oral opinion, which was subsequently confirmed by delivery of a written opinion dated August 31, 2006, that, as of such date and based upon and subject to the factors and assumptions set forth in its written opinion, the $44 per share in cash to be received by the holders of our common stock pursuant to the merger agreement was fair from a financial point of view to such holders. The full text of the written opinion of Goldman Sachs, which set forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with such opinions, is attached as Annex B to this proxy statement.

 

Following this discussion, notwithstanding that Mr. Wise had confirmed that neither he nor other members of management had any agreement or understanding with either potential acquiror group, the independent directors met separately in executive session with Bass, Berry & Sims and Goldman Sachs to discuss the strategic alternatives available to Intergraph wherein the directors reached a consensus that the sale of Intergraph was the best alternative reasonably available to Intergraph and its stockholders and that the Hellman & Friedman LLC/Texas Pacific Group proposal was advisable and in the best interests of Intergraph and its stockholders. Following the executive session of the independent directors, the full board of directors reconvened, and Mr. Wise expressed management’s view regarding the Hellman & Friedman LLC/Texas Pacific Group proposal.

Bass, Berry & Sims reviewed the terms of the proposed resolutions relating to the proposed merger and responded to questions. Thereafter, the independent members of our board of directors unanimously approved the merger agreement with entities sponsored by Hellman & Friedman LLC/Texas Pacific Group, the merger and the other transactions contemplated by the merger agreement, authorized Intergraph to enter into the merger agreement and resolved to recommend that our stockholders vote to adopt the merger agreement. Mr. Wise abstained from the vote due to his potential continuing interest in the surviving corporation.

 

The merger agreement was executed by Intergraph, Cobalt Holding, and Cobalt Merger Corp. on August 31, 2006 after the close of trading on the NASDAQ. Intergraph, Hellman & Friedman LLC and Texas Pacific Group then issued a joint press release announcing the merger.

 

In reaching its decision to approve the merger agreement and to recommend that our stockholders adopt the merger agreement, our board of directors consulted with management, Goldman Sachs and Intergraph’s outside legal counsel. Our board of directors considered a number of factors, including, without limitation, the following potentially positive factors in support of the merger:

 

 

		for purposes of the merger agreement a “material adverse effect” on Intergraph does not include events, circumstances, developments or changes resulting from the numerous circumstances or events described under “The Merger Agreement — Representations and Warranties;”

	•	the ability of our board of directors, under certain circumstances, to change its recommendation that our stockholders vote in favor of the adoption of the merger agreement;
	•	the provisions of the merger agreement that allow us, under certain circumstances, to furnish information to and conduct negotiations with respect to proposals by third parties;
	•	the ability of our board of directors, under certain circumstances and upon the payment to Cobalt Holdings of a termination fee of $33.14 million, to terminate the merger agreement to accept a financially superior proposal;
	•	the conclusion of the board of directors that both the $33.14 million termination fee (and the circumstances when the fee is payable) and the requirement to reimburse Cobalt Holding for certain expenses, up to a limit of $7 million and without duplication of the termination fee, in the event that the merger agreement is terminated because our stockholders fail to adopt the merger agreement or as a result of a breach of the merger agreement by us, were reasonable in light of the benefits of the merger, the sale process conducted by Intergraph, with the assistance of Goldman Sachs, and in the context of termination fees that were payable in other comparable transactions;
	•	the absence of a financing condition to the consummation of the merger and the obligation of Cobalt Holding to pay Intergraph a $53.02 million termination fee, without the need to prove damages, if Cobalt Holding and Merger Sub fail to effect the closing because of a failure to receive the proceeds of one or more of the debt financings contemplated by the debt financing commitments and all other conditions to closing are met; and
	•	our ability to seek up to an aggregate of $99.42 million in damages from Cobalt Holding and Merger Sub in certain circumstances in which Cobalt Holding or Merger Sub willfully and materially breach the merger agreement;

	•	the favorable debt commitment letter obtained by Cobalt Holding, including the absence of “market outs” and Cobalt Holding’s obligation to use reasonable best efforts to arrange and consummate the debt financing; and
	•	the availability of appraisal rights to holders of our common stock who comply with all of the required procedures under Delaware law, which allows the holders to seek appraisal of the fair value of their shares (see “Appraisal Rights” and Annex C).

	•	the risk that the merger might not be completed, including the risk that the merger will not occur if the financing contemplated by the debt commitment letter is not obtained;
	•	the fact that our stockholders will not participate in any future earnings or growth of Intergraph and will not benefit from any future appreciation in value of Intergraph;
	•	the actual and potential interests of Intergraph’s executive officers and directors in the merger (see “The Merger — Interests of Intergraph’s Directors and Executive Officers in the Merger”);
	•	the restrictions on our ability to solicit or engage in discussions or negotiations with a third party regarding other proposals and the requirement that Intergraph pay Cobalt Holding a $33.14 million termination fee in order for the board of directors to accept a superior proposal;
	•	the requirement that we reimburse Cobalt Holding for up to $7 million of its expenses incurred in connection with the proposed merger if the merger agreement is terminated under certain circumstances;

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	•	the merger consideration consists of cash, and gains will therefore be taxable to our stockholders for U.S. federal income tax purposes;
	•	the risk of diverting management focus and resources from other strategic opportunities and from operational matters while working to implement the merger; and
	•	the possibility of employee disruption associated with the merger.

 

Opinion of Goldman, Sachs & Co.

	•	the merger agreement;
	•	annual reports to stockholders and Annual Reports on Form 10-K of Intergraph for the five fiscal years ended December 31, 2005;
	•	certain interim reports to stockholders and Quarterly Reports on Form 10-Q of Intergraph;
	•	certain other communications from Intergraph to Intergraph’s stockholders;

25

	•	the summary appraisal reports with respect to certain properties owned by Intergraph (collectively, the “Real Estate Appraisals”); and
	•	certain internal financial analyses and forecasts for Intergraph prepared by its management.

	•	a premium of 18.0% based on the August 30, 2006 market price of $37.30 per share;
	•	a premium of 43.7% based on the July 11, 2006 market price of $30.62 per share prior to disclosure by Intergraph upwardly revising second quarter guidance later that day;
	•	a premium of 20.8% based on the one-week average market price as of August 30, 2006 of $36.42 per share;
	•	a premium of 22.7% based on the four-week average market price as of August 30, 2006 of $35.86 per share;

26

	•	a premium of 29.3% based on the three-month average market price as of August 30, 2006 of $34.03 per share;
	•	a premium of 16.7% based on the six-month average market price as of August 30, 2006 of $37.71 per share;
	•	a premium of 6.0% based on the one-year average market price as of August 30, 2006 of $41.52 per share;
	•	a discount of 14.5% based on the 52-week high market price as of August 30, 2006 of $51.47 per share; and
	•	a premium of 45.5% based on the 52-week low market price as of August 30, 2006 of $30.25 per share.

	•	Verint Systems Inc.
	•	CACI International, Inc.
	•	ManTech International Corporation
	•	SRA International, Inc.
	•	NICE-Systems Ltd.

	•	Autodesk, Inc.
	•	Aspen Technology, Inc.
	•	Dassault Systemes
	•	Mentor Graphics Corp.

	•	estimated price to earnings multiples for 2006 and 2007; and
	•	estimated price to earnings growth (“PEG”) ratios for 2006 and 2007.

27

2006E P/E

2007E P/E

2006E PEG

2007E PEG

Multiple

Multiple

Ratio

Ratio

SG&I Comparables

SG&I Company Comparable Range

18.5x - 25.8

x

16.6x - 21.4

x

1.1x -1.9

x

0.9x - 1.7x

SG&I Median

23.6

x

19.4

x

1.3

x

1.2x

PP&M Comparables

PP&M Comparable Company Range

21.0x - 30.8

x

17.3x - 24.0

x

1.0x -3.6

x

0.8x - 2.8x

PP&M Median

24.0

x

20.2

x

1.3

x

1.2x

2006E P/E

2007E P/E

2006E PEG

2007E PEG

Multiple

Multiple

Ratio

Ratio

Intergraph at:

$44.00 Bid Price

29.3

x

24.1

x

2.0

x

1.6x

$37.30 Market Price

24.8

x

20.4

x

1.7

x

1.4x

2006E Sales

2007E Sales

2006E EBITDA

2007E EBITDA

2006E P/E

2007E P/E

Multiple

Multiple

Multiple

Multiple

Multiple

Multiple

SG&I Comparables

SG&I Comparable Company Range

0.9x - 2.4

x

08.x - 2.0

x

9.9x -14.7

x

8.8x - 12.1

x

18.5x - 25.8

x

16.6x - 21.4x

SG&I Comparable Company Median

1.2

x

1.1

x

11.5

x

9.8

x

23.6

x

19.4x

PP&M Comparables

PP&M Comparable Company Range

2.1x - 4.5

x

2.0x - 3.9

x

14.1x -17.8

x

12.1x - 14.5

x

21.0x - 30.8

x

17.3x - 24.0x

PP&M Comparable Company Median

3.9

x

3.5

x

15.8

x

13.3

x

24.0

x

20.2x

Intergraph at $44.00 Merger Consideration

1.8

x

1.6

x

12.2

x

11.0

x

29.3

x

24.1x

Intergraph at $37.30 Market Price as of August 30, 2006

1.4

x

1.3

x

9.9

x

8.9

x

24.8

x

20.4x

28

		Implied Valuation at												Implied Valuation at June 30, 2006 Assuming Parts Sold in
		June 30, 2006*												Taxable Transactions
		Low				Mid				High				Low				Mid				High
Implied Equity Per Share		$	36.66			$	42.40			$	47.74			$	27.75			$	31.56			$	35.37
Premium to $37.30 Share Price as of August 30, 2006			(1.7	)%			13.4	%			28.5	%			(26.0	)%			(15.6	)%			(5.2	)%

*		Implied valuation calculation discounted non-core assets, except Bentley Systems, Inc., back to June 30, 2006 at 14.8% cost of equity.

		2006E				2007E				2008E				2009E				2010E
Present Value Range of Future Share Prices		$	35.44 - $38.82			$	38.97 - $43.43			$	38.41 -$43.56			$	37.78 - $43.60			$	36.89 - $43.32

29

defense and government information technology industry since January 1, 2000 (in each case the acquirer is listed first and the target is listed second):

 

Software Industry

 

 

Defense and Government Information Technology Industry

 

 

For each of the selected transactions, Goldman Sachs analyzed the premia of the transaction price to the target’s average trading price over the average one-week and four-week periods prior to announcement of the transaction.

 

The following table presents the results of this analysis:

 

 

Goldman Sachs also analyzed the multiples of enterprise value to EBITDA for the latest 12 months of financial information available for the following transactions:

 

Software Industry

 

 

 

Defense and Government Information Technology Industry

 

 

Goldman Sachs noted an enterprise value/last 12-month EBITDA multiple range of 8.2x to 19.7x for the software industry transactions and a multiple range of 10.1x to 18.8x for the defense and government information technology industry transactions.

 

Goldman Sachs analyzed certain information relating to the following selected financial sponsor transactions in the technology industry since January 1, 2005 with deal values above $500 million:

 

 

For each of the selected transactions, Goldman Sachs analyzed the premia of the transaction price to the target’s average trading price over the four-week period prior to announcement of the transaction and multiples of enterprise value to EBITDA for the latest 12 months of financial information available. Goldman Sachs noted a range in premia from 10.3% to 37.3% and a range in multiples from 9.5x to 14.7x.

 

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs’ opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to Intergraph or the contemplated transaction.

 

Goldman Sachs prepared these analyses for purposes of Goldman Sachs’ providing its opinion to Intergraph’s board of directors as to the fairness from a financial point of view of the $44.00 per share in cash to be received by the holders of shares of Intergraph common stock pursuant to the merger agreement. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of Intergraph, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecasted.

32

 

Consideration

	•	each share of Intergraph common stock issued and outstanding immediately prior to the effective time of the merger (other than shares held in our treasury or owned by Cobalt Holding or Merger Sub or shares as to which a stockholder validly exercises and perfects appraisal rights in compliance with Delaware law) will automatically be cancelled and converted into the right to receive $44.00 in cash, without interest;
	•	all unvested stock options will vest and all unexercised options will be cancelled and converted into the right to receive a cash payment equal to the number of outstanding options multiplied by the amount (if any) by which $44.00 exceeds the option exercise price (except with regards to any option as may be otherwise agreed by the holder of the option and Cobalt Holding); and
	•	restrictions applicable to all shares of restricted stock and restricted share units will lapse and those shares or units will be cancelled and converted into the right to receive a cash payment equal to the number of outstanding restricted shares multiplied by $44.00 (and, with respect to restricted share units, the value of any deemed dividend equivalents accrued but unpaid with respect to the restricted share units) (except with regards to any restricted stock or restricted stock units as may be otherwise agreed by the holder of the restricted stock or restricted stock unit and Cobalt Holding).

 

Delisting and Deregistration of Intergraph Common Stock

 

Regulatory Approvals

33

 

Financing of the Merger

	•	an aggregate of $441.1 million in equity contributions by affiliates of Hellman & Friedman LLC, Texas Pacific Group and JMI Equity;
	•	new senior secured credit facilities in the amount of $464.5 million, comprised of a $389.5 million senior secured term loan facility and a $75.0 million senior secured revolving credit facility (not all of which is expected to be drawn at the closing);
	•	$276.5 million aggregate principal amount of senior subordinated notes or, alternatively, a senior subordinated bridge loan facility in the amount of $276.5 million;
	•	a new $60.0 million senior secured payment-in-kind (PIK) loan facility; and
	•	cash and cash equivalents held by Intergraph and our subsidiaries at closing.

	•	MSSF and Wachovia Bank have each severally, but not jointly, committed to provide (each individually committing to provide 50% of the entire aggregate principal amount) to Cobalt Holding or one of its subsidiaries up to $464.5 million of senior secured credit facilities, comprised of a $389.5 million senior secured term loan facility and a $75.0 million senior secured revolving credit facility (not all of which is expected to be drawn at the closing) for the purpose of financing the merger, repaying or refinancing certain existing indebtedness of Intergraph and our subsidiaries, paying fees and expenses incurred in connection with the merger and the other transactions contemplated thereby, including the financing, providing ongoing working capital and for other general corporate purposes of the surviving corporation and its subsidiaries.

34

	•	MSSF and Wachovia Investments have each severally, but not jointly, committed to provide (each individually committing up to provide 50% of the entire aggregate principal amount) to Cobalt Holding or one or more of its subsidiaries a senior subordinated unsecured bridge facility of up to $276.5 million and a senior secured PIK loan facility of up to $60 million, for the purpose of financing the merger, repaying or refinancing certain existing indebtedness of Intergraph and our subsidiaries and paying fees and expenses incurred in connection with the merger and the other transactions contemplated thereby.

 

Guarantees; Remedies

	•	the effective time of the merger,

35

	•	the termination of the merger agreement under certain circumstances in which Cobalt Holding and Merger Sub would not be obligated to pay the termination fee and
	•	the first anniversary of the date of the termination of the guarantee if the merger agreement is terminated under circumstances giving rise to a payment obligation of Cobalt Holdings or Merger Sub, if Intergraph has not made a claim under the guarantee related to that obligation prior to the one year anniversary date.

 

Interests of Intergraph’s Directors and Executive Officers in the Merger

										Restricted Shares and
		Stock Options								Restricted Share Units
						Cash								Cash
Name		Number				Payment				Number				Payment
Directors
Sidney L. McDonald			10,500			$	336,240				2,300			$	101,200
R. Halsey Wise(1)			150,000			$	3,315,000				135,000			$	5,940,000
Michael D. Bills			3,000			$	60,390				4,918			$	216,392
Richard W. Cardin			4,500			$	108,540				2,300			$	101,200
Linda L. Green			6,000			$	164,940				2,300			$	101,200
Lawrence R. Greenwood			7,500			$	231,333				2,300			$	101,200
Thomas J. Lee			10,500			$	336,240				2,300			$	101,200
Kevin M. Twomey			—				—				2,300			$	101,200
Executive Officers
R. Reid French, Jr.			75,000			$	1,471,500				52,750			$	2,321,000
Larry J. Laster			74,000			$	2,517,500				27,250			$	1,199,000
David Vance Lucas			45,000			$	1,299,600				20,250			$	891,000
Gerhard Sallinger			20,500			$	624,675				30,750			$	1,353,000
Benedict A. Eazzetta			22,500			$	645,150				27,750			$	1,221,000
Anthony Colaluca, Jr.			—				—				30,000			$	1,320,000
Larry T. Miles			—				—				13,000			$	572,000

(1)		Mr. Wise also serves as the President and Chief Executive Officer of Intergraph.

36

	•	All stock options will immediately vest and all restrictions relating to restricted stock awards will automatically lapse.
	•	If Mr. Wise is terminated “without cause” or resigns for “good reason” (which includes, among other things, a material reduction in his position, authority, duties or responsibilities and a reduction in his base salary or target bonus) following the merger, he is entitled to payments of 250% of his then-current base salary, 250% of his then-current target bonus and standard health insurance benefits for two years. In addition, Mr. Wise will be indemnified by Intergraph for any excise tax due under Section 4999 of the Internal Revenue Code, which we refer to as the Code, of an amount sufficient to place Mr. Wise in the same after-tax position as he would have been had no excise tax been imposed upon or paid by him.
	•	Mr. French will be entitled to a “stay bonus” whereby he will receive an amount equal to one (1) times his then-current annual base salary for the year in which the merger occurs, as well as an amount equal to one half of his then-current target bonus for that year, provided that he remains employed by Intergraph for six months following the completion of the merger. If his employment is terminated following the completion of the merger, but prior to the date that is six months following the completion of the merger, Mr. French will receive a pro rata potion of the stay bonus; provided, however, so long as his date of termination occurs more than five business days after the completion of the merger the pro rata portion will not be less than 1/3 of the stay bonus.
	•	If Mr. French or Mr. Colaluca resigns for “good reason” (which includes, among other things, a resignation of Mr. Wise for “good reason” or a termination of Mr. Wise “without cause”) following the merger, each will be paid accrued base salary through the date of termination plus a separation payment of one (1) times his then-current annual base salary and any other unpaid benefits to which he is otherwise entitled. In addition, each will receive fully paid-up medical, dental and prescription drug health insurance benefits for one year.

		Amount of				Estimated Value of
Name		Potential Severance				Insurance Benefits
R. Halsey Wise		$	3,000,000			$	24,000
R. Reid French, Jr.(1)		$	700,000			$	12,000
Anthony Colaluca, Jr.		$	568,750			$	12,000

(1)		In addition, to the extent Mr. French’s employment continues for six months following the merger, he will be entitled to an additional bonus of $550,000, for a total maximum stay bonus of $1,250,000, subject to proration as described above.

37

 

Material U.S. Federal Income Tax Consequences of the Merger to Our Stockholders

	•	a citizen or resident of the United States for U.S. federal income tax purposes;
	•	a corporation, or other entity taxable as a corporation, created or organized under the laws of the United States or any of its political subdivisions;
	•	a trust that (i) is subject to the supervision of a court within the United States and the control of one or more U.S. persons or (ii) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person; or
	•	an estate that is subject to U.S. federal income tax on its income regardless of its source.

38

	•	the gain is effectively connected with a trade or business of the non-U.S. holder in the United States (and, if required by an applicable income tax treaty, is attributable to a U.S. permanent establishment of the non-U.S. holder);
	•	the non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of that disposition, and certain other conditions are met; or

39

	•	Intergraph is or has been a “United States real property holding corporation” for U.S. federal income tax purposes and the non-U.S. holder owned more than 5% of Intergraph’s common stock at any time during the five years preceding the merger.

 

Certain Relationships Between Cobalt Holding and Intergraph

 

Litigation Related to the Merger

40

 

Amendment to Rights Agreement

 

Fees and Expenses of the Merger

		Amount to
Description		be Paid
SEC filing fee		$	141,866
Printing, proxy solicitation and mailing expenses
Financial, legal, accounting and tax advisory fees and expenses
Miscellaneous expenses
Total		$

41

 

THE MERGER AGREEMENT

 

(PROPOSAL NO. 1)

 

The Merger

 

Merger Consideration

	•	Shares held in treasury or owned by Cobalt Holding or Merger Sub immediately prior to the merger that will be cancelled;
	•	Shares held by subsidiaries of Cobalt Holding or Intergraph, which will remain outstanding after consummation of the merger; and
	•	Shares held by holders who have properly demanded and perfected their appraisal rights.

 

Treatment of Options and Other Awards

42

 

Payment for the Shares

 

Representations and Warranties

43

	•	corporate organization and existence;
	•	corporate power and authority to enter into and perform its obligations under, and enforceability of, the merger agreement;
	•	required regulatory filings and consents and approvals of governmental entities;
	•	the absence of conflicts with or defaults under organizational documents, other contracts and applicable laws and judgments;
	•	litigation;
	•	broker’s fees; and
	•	information supplied for inclusion in this proxy statement.

	•	capital structure;
	•	subsidiaries;
	•	documents filed with the SEC;
	•	undisclosed liabilities;
	•	absence of certain changes or events since December 31, 2005;
	•	compliance with applicable laws;
	•	contracts and other agreements;
	•	intellectual property and software matters;
	•	real property matters;
	•	insurance matters;
	•	tax matters;
	•	compliance with the Employee Retirement Income Securities Act of 1974, as amended, and other employee benefit matters;
	•	labor and employee matters;
	•	environmental matters;
	•	the absence of any breach of organizational documents, contracts and applicable laws as a result of the execution, delivery and performance of the merger agreement;

44

	•	board of directors approval of the merger agreement and the transactions contemplated thereby, including the merger, and board of directors recommendation to our stockholders to approve and adopt the merger agreement and the transactions contemplated thereby, including the merger;
	•	state takeover statutes and our rights plan;
	•	the required vote of our stockholders in connection with the merger agreement;
	•	the receipt of a fairness opinion from our financial advisor; and
	•	affiliate transactions.

	•	any event, circumstance, development, change or effect that is, individually or in the aggregate, materially adverse to the business, assets, condition (financial or otherwise) or results of operations of Intergraph and our subsidiaries, taken as a whole; provided, however, that none of the following shall constitute, or shall be considered in determining whether there has occurred, and no event, circumstance, development, change or effect resulting from or arising out of any of the following shall constitute, a “material adverse effect” on Intergraph:

	•	the announcement of the execution of the merger agreement or the pendency of consummation of the merger;
	•	changes in the national or world economy or financial markets as a whole or changes in general economic conditions that affect the industries in which Intergraph and our subsidiaries conduct their business (including, without limitation, the applicable software, design and spatial industries), so long as the conditions do not adversely affect Intergraph or our subsidiaries in a materially disproportionate manner relative to other similarly situated participants in the industries or markets in which they operate;
	•	any change in general budget or appropriations policies of any governmental entities (as opposed to individual procurement decisions) or any applicable law, rule or regulation or generally accepted accounting principles or interpretation thereof after the date of the merger agreement, so long as the changes do not adversely affect Intergraph or our subsidiaries in a materially disproportionate manner relative to other similarly situated participants in the industries or markets in which they operate;
	•	any failure by Intergraph to meet any published estimates of revenues, earnings or other financial projections (it being understood, however, that any events, changes or developments causing or contributing to the failures may, except as provided in any of the other provisions of this definition of material adverse effect, be deemed to constitute or be taken into account in determining whether a material adverse effect has occurred);
	•	any outbreak or escalation of war of hostilities, any occurrence or threats of terrorist acts or any armed hostilities associated therewith and any national or international calamity, disaster or emergency or any escalation thereof, so long as the conditions do not adversely affect Intergraph or our subsidiaries in a materially disproportionate manner relative to other similarly situated participants in the industries or markets in which they operate;
	•	a decline in the price, or a change in the trading volume, of the Intergraph common stock on the NASDAQ) (it being understood, however, that any events, changes or developments causing or contributing to the decline or change may, except as provided in any of the other provisions of this definition of material adverse effect, be taken into account in determining whether a material adverse effect has occurred); and

45

	•	taking any action outside of the ordinary course of business required by the merger agreement, or taking or not taking any actions outside ordinary course of business at the written request of, or with the written consent of, Cobalt Holding; and

	•	an effect that prevents our ability to consummate the transactions contemplated by the merger agreement in accordance with the dates specified in the merger agreement.

 

Conduct of Business Pending the Merger

	•	conduct our business in the ordinary course;
	•	use reasonable best efforts to, on a basis consistent with past practices:

	•	preserve intact our business organizations, keeping available the services of our current officers, employees and consultants, and preserve our relationships with customers, suppliers, and others having significant business relations with us;
	•	advertise, promote, and market Intergraph’s products;
	•	keep our material properties substantially intact, preserve our goodwill and business, and maintain all physical properties in good repair and condition;
	•	perform and comply in all material respects with the terms of our contracts; and
	•	maintain, and comply in all material respects with, all governmental approvals or requirements necessary for the operation of Intergraph’s business;

	•	use reasonable best efforts to keep in effect material insurance policies in coverage amounts substantially similar to those in effect as of the date of the merger agreement; and
	•	use reasonable best efforts to take, and to cause our subsidiaries to use reasonable best efforts to take, all action reasonably requested by Cobalt Holding in order to cause all, or the portion as Cobalt Holding shall request, of Intergraph’s and our subsidiaries’ unrestricted cash equivalents (excluding, for avoidance of doubt, any cash equivalents which cannot be distributed, contributed or otherwise delivered to Intergraph in accordance with applicable laws, including those relating to solvency, adequate surplus and similar capital adequacy tests) to be liquidated and converted into cash of Intergraph that is available to Intergraph at the effective time of the merger to pay as part of the merger consideration.

	•	incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee, endorse or otherwise become payable for any indebtedness, in an aggregate amount in excess of $3,000,000, other than intercompany transactions and certain performance bonds and letters of credit;
	•	change the compensation payable to any executive officer, officer, employee, agent or consultant or enter into or amend any employment, change in control, bonus, severance, termination, retention or other agreement or arrangement with any officer, employee, agent or consultant of Intergraph or our subsidiaries, or adopt, establish, enter into, amend or terminate, or increase the benefits (including fringe benefits), severance or termination pay under, any employee benefit plan or agreement or otherwise, or otherwise grant any severance or termination pay to any of the foregoing, except as required by law or in accordance with existing agreements and in the case of annual increases in salary and wages for employees (other than executive officers), in the ordinary course of business consistent

46

		with past practice; make any loans or advances to any of our directors, officers or employees, agents or consultants, other than advancements of business expenses in the ordinary course in accordance with Intergraph’s existing policies, or make any material change in our existing borrowing or lending arrangements for or on behalf of any persons pursuant to a plan or otherwise; subject to certain exceptions for newly hired employees (other than executive officers) and for employees (other than executive officers) in the context of promotions based on job performance or workplace requirements;

	•	split, combine or reclassify any of our capital stock or make any change in the number of shares of our capital stock authorized, issued or outstanding (other than through the exercise of Intergraph options outstanding as of the date of the merger agreement or repurchases or cancellation of restricted shares in accordance with the terms of the applicable award agreements or similar arrangements to satisfy withholding obligations upon the vesting of restricted shares or the exercise of Intergraph options) or grant, sell or otherwise issue or authorize the issuance of any share of capital stock, any other voting security or any security convertible into, or any option, warrant or other right to purchase (including any equity-based award), or convert any obligation (other than restricted share units outstanding as of the date of the merger agreement) into, shares of our capital stock or any other voting security, declare, set aside, make or pay any dividend or other distribution with respect to any shares of our capital stock, sell, encumber or transfer any shares of our capital stock, or acquire, redeem or otherwise repurchase any shares of our capital stock or any rights, warrants or options to purchase any of our capital stock, or any securities convertible into or exchangeable for any shares, or amend or alter in any respect, or grant any waiver or exception under, the Rights Agreement;
	•	amend, or otherwise alter or modify in any respect, the certificate of incorporation or by-laws of Intergraph or any material Intergraph subsidiary in a manner adverse to Cobalt Holding;
	•	acquire or license (including by merger, consolidation or acquisition of stock or assets or any other business combination), or enter into any binding memorandum of understanding, letter of intent or other agreement, arrangement or understanding to acquire or license all or substantially all the assets equity interests of any corporation, partnership, other business or any division, except that Intergraph can engage in one (and only one) such acquisition having a transaction price less than $3,000,000 or, in the case of licenses, in the ordinary course of business consistent with past practice;
	•	sell or transfer or mortgage, pledge, lease, license, terminate any lease or license, or otherwise dispose of or encumber any tangible or intangible asset or related assets (including capital stock or other equity interests) with a value in excess of $1,000,000 individually or $3,000,000 in the aggregate, other than sales and non-exclusive licenses of products and services of Intergraph and our subsidiaries in the ordinary course of business consistent with past practice;
	•	enter into any material contract that terminates, provides a right to terminate, is modified or results in any payment or penalty as a result of the completion of the merger;
	•	enter into any contract that is material to Intergraph and our subsidiaries, taken as a whole, other than in the ordinary course of business on terms consistent with past practice; or voluntarily terminate or modify in any material respect any contract of the type specified other than modifications in the ordinary course of business consistent with past practice;
	•	authorize any single capital expenditure or purchase of assets, or a series of related expenditures or purchases, in excess of $2,000,000;
	•	except as may be required as a result of a change in law or GAAP (or any interpretation thereof), change any of the accounting practices or principles used by us or our material subsidiaries;
	•	write up, write down or write off the book value of any assets of Intergraph and material Intergraph subsidiaries, other than in the ordinary course of business and consistent with past practice or as may be required by GAAP or the Financial Accounting Standards Board;
	•	other than in connection with the settlement of certain intellectual property disputes, settle or compromise any pending or threatened suit, action or claim which:

	•	is material to Intergraph and our subsidiaries taken as a whole;

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	•	requires payment to or by Intergraph or any of our subsidiaries (exclusive of attorneys’ fees, including success fees) in excess of $1,000,000;
	•	relates to the transactions contemplated by the merger agreement;
	•	involves material restrictions on the business activities of Intergraph or any of our subsidiaries or other equitable remedies that materially adversely affect the business activities of Intergraph or any of our subsidiaries; or
	•	would involve the issuance of Intergraph securities;

	•	adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, or recapitalization of Intergraph or any of our subsidiaries (other than the merger agreement);
	•	except as required by law, establish, adopt, enter into or amend any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any current or former directors, officers or employees of Intergraph or any of our subsidiaries, pay any discretionary bonuses to any employee of Intergraph or any of our subsidiaries, except for the exercise of discretionary elements under compensation, employment or other benefit plans or arrangements existing as of the date of the merger agreement, or change in any material respect the manner in which contributions to any plan or arrangement are made or the basis on which contributions are determined;
	•	except in each case as required by applicable law or treasury regulation, make, revoke or change any material tax election, file any amended tax return with respect to any material tax, settle or compromise any material federal, state, local or foreign tax liability, surrender any right to claim a material tax refund, waive any statute of limitations in respect of a material amount of taxes, agree to an extension of time with respect to an assessment or deficiency for a material amount of taxes or change any annual tax accounting period;
	•	except as requested by Cobalt Holding, fail to manage and retain cash and cash equivalents and investments in marketable securities in a manner substantially consistent with past practice and in their current jurisdiction and substantially in conformity with the reasonable instructions of Cobalt Holding or intentionally fail to manage accounts payable or accounts receivable in a manner substantially consistent with past practice;
	•	take any action that is intended to materially impair, materially delay or prevent Cobalt Holding’s obtaining of financing contemplated by the debt financing commitments; or
	•	authorize, commit or obligate itself to do any of the above actions.

 

Efforts to Complete the Merger

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Marketing Period

	•	Cobalt Holding has certain financial information required to be provided by Intergraph under the merger agreement in connection with Cobalt Holding’s financing of the merger; and
	•	the stockholder approval and certain other conditions to the obligations of each of the parties to complete the merger are satisfied, including the continuing accuracy of certain of Intergraph’s representations and warranties.

	•	to use reasonable best efforts to take, or cause to be taken, all actions and do, or cause to be done, all things necessary, proper or advisable to arrange the debt financing on the terms and conditions described in the debt financing commitments, including using reasonable best efforts to satisfy, in all material respects, on a timely basis all conditions applicable to Cobalt Holding and Merger Sub to obtaining the debt financing as set forth the commitment letters; and
	•	in the event that any portion of the debt financing becomes unavailable on the terms and conditions contemplated in the debt financing commitments, to use its reasonable best efforts to arrange alternative financing sufficient to consummate the merger on terms not materially less favorable to Cobalt Holding in the aggregate and in no event less favorable as to economic terms (as determined in the good faith

49

		reasonable judgment of Cobalt Holding) as promptly as practicable but in no event later than the last day of the marketing period.

 

Conditions to the Merger

	•	the merger agreement must have been adopted by the affirmative vote of the holders of a majority of all outstanding shares of Intergraph common stock;
	•	no statute, rule, executive order or regulation shall have been enacted, issued, entered or promulgated by any governmental entity which prohibits the consummation of the merger, and there shall be no order or preliminary or permanent injunction of a court of competent jurisdiction, including any temporary restraining order, in effect preventing or prohibiting the merger; and
	•	any applicable waiting period (and any extension thereof) under the HSR Act or any other applicable foreign competition or merger control laws shall have been terminated or shall have expired, and approvals under all foreign competition or merger control laws, and approvals or waiting periods of governmental entities that are applicable to the merger shall have been obtained or expired, as the case may be.

	•	all representations and warranties made by us in the merger agreement (with certain exceptions) must be true and correct as of the closing date as if made at and as of that time (without regard to materiality qualifiers), except to the extent that the representations and warranties expressly relate to an earlier date, and except where the failure of the representations and warranties to be true and correct, individually or in the aggregate, has not had and would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on Intergraph;
	•	we must have performed and complied in all material respects with all covenants and agreements we are required by the merger agreement to perform or comply with on or prior to the closing date; and
	•	we must deliver to Cobalt Holding at closing a certificate with respect to the satisfaction of the foregoing conditions relating to representations, warranties, obligations, covenants and agreements.

	•	the representations and warranties of Cobalt Holding and Merger Sub must be true and correct, as of the date of the closing date (without regard to materiality qualifiers), except to the extent that the representations and warranties expressly relate to an earlier date, and except where the failure of the representations and warranties to be true and correct would not reasonably be expected to prevent or materially impede the timely consummation of the merger;
	•	Cobalt Holding and Merger Sub must have performed and complied in all material respects with all covenants and agreements they are required by the merger agreement to perform or comply with on or prior to the closing date; and
	•	Cobalt Holding and Merger Sub must each deliver to Intergraph at closing a certificate with respect to the satisfaction of the foregoing conditions relating to representations, warranties, obligations, covenants and agreements.

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No Solicitations of Other Offers

	•	solicit, initiate, propose or knowingly encourage or take any other action to knowingly facilitate the submission of an acquisition proposal (defined below);
	•	enter into any letter of intent, memorandum of understanding, agreement, option agreement or other agreement or arrangement with respect to any acquisition proposal;
	•	enter into, continue, participate, engage or knowingly assist in any manner in negotiations or discussions with, or provide any non-public information or data to, any person (other than Cobalt Holding or any of its affiliates or representatives) relating to any acquisition proposal, or grant any waiver or release under any standstill; or
	•	take any action to

	•	other than as contemplated by the merger agreement in connection with the merger, render the rights issued pursuant to the terms of the Rights Agreement inapplicable to an acquisition proposal or the transactions contemplated thereby, exempt or exclude any person from the definition of an acquiring person (as defined in the Rights Agreement) under the terms of the Rights Agreement or allow Intergraph rights to expire prior to their expiration date; or
	•	exempt any person from the restrictions on “business combinations” contained in Section 203 of the General Corporation Law of the State of Delaware, which we refer to as the DGCL, (or any similar provision) or otherwise cause those restrictions not to apply.

	•	furnish information concerning, and provide access to, our business, properties, employees and assets pursuant to a confidentiality agreement with terms and conditions no less favorable in any material respect to us than the terms of our confidentiality agreement with Cobalt Holding, provided that the information must be provided to Cobalt Holding prior to or substantially concurrent with the time of its provision to the third party to the extent not previously made available to Cobalt Holding; and
	•	participate, engage or assist in any manner in negotiations and discussions with the party making a takeover proposal regarding the takeover proposal.

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	•	withdraw or modify, or publicly propose to withdraw or modify, in a manner adverse to Cobalt Holding or Merger Sub, the approval or recommendation of our board of directors of the merger agreement or the merger or announce that it has resolved to take the action;
	•	approve, recommend or adopt or publicly propose to approve, recommend or adopt any acquisition proposal; or
	•	approve, recommend, adopt or allow Intergraph to enter into any letter of intent, memorandum of understanding, option agreement or similar arrangement with respect to any acquisition proposal.

	•	any direct or indirect acquisition or purchase by any person or “group” (as defined in Section 13(d) of the Exchange Act) of a 20% interest or more in the total outstanding shares of equity or voting securities of Intergraph, a material subsidiary or any other Intergraph subsidiary that is a “significant subsidiary” within the meaning of Rule 1-02 of Regulation S-X promulgated by the SEC;
	•	any tender offer or exchange offer that if consummated would result in any person or group beneficially owning 20% or more of the total outstanding shares of equity or voting securities of Intergraph;
	•	any sale or disposition of consolidated assets or rights of Intergraph or any Intergraph subsidiary to any person or group for consideration equal to 20% or more of the aggregate fair market value of all of the outstanding shares of Intergraph common stock; or
	•	any consolidation, merger, business combination, recapitalization, liquidation, dissolution or similar transaction with respect to Intergraph or any Intergraph subsidiary that is a “significant subsidiary” within the meaning of Rule 1-02 of Regulation S-X promulgated by the SEC.

	•	provides for any person or group to acquire, directly or indirectly, a majority of the issued and outstanding shares of Intergraph common stock (or a majority of the voting securities of any surviving corporation in a merger or consolidation with Intergraph); or
	•	provides for the acquisition of all or substantially all of the consolidated assets of Intergraph.

	•	that is unsolicited, and which our board of directors determines in good faith, after consultation with our financial advisor and outside counsel, which is, or is reasonably likely to result in, a takeover proposal that is more favorable, from a financial point of view to our stockholders taking into account all of the terms and conditions of the proposal, than the merger agreement (including any binding written and complete proposal to amend the terms of the merger agreement);
	•	for which financing, to the extent required, is then committed and on terms and conditions that our board of directors determines, after consultation with our financial advisor, are reasonably likely to result in disbursement sufficient for the consummation of the transactions contemplated by the takeover proposal; and
	•	for which, in the good faith opinion of our board of directors (or any committee thereof), after consultation with outside legal counsel, providing information or access or participating, engaging or assisting in the negotiations or discussions is or would be in the best interests of Intergraph and our stockholders and that the failure to take the action could violate our board of directors’ fiduciary duties to our stockholders under applicable law.

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Recommendation Withdrawal/Termination in Connection with a Superior Proposal and Third Party Tender Offers

	•	recommend that our stockholders tender their shares of Intergraph common stock in connection with the tender or exchange offer (or otherwise approve or recommend any acquisition proposal or take any action under the Rights Agreement to facilitate the tender or exchange offer); or
	•	withdraw or modify its approval or recommendation of the merger agreement and the merger, unless in each case the applicable requirements described above have been satisfied.

 

Termination of the Merger Agreement

	•	by mutual written consent of Intergraph and Cobalt Holding;
	•	by either Intergraph or Cobalt Holding, if:

	•	the merger has not been consummated by March 31, 2007, except that this right to terminate will not be available to any party whose action or failure to fulfill any obligation under the merger agreement or failure to act in good faith has been the principal cause of, or resulted in, the failure of the merger to be consummated by that date;
	•	a court of competent jurisdiction or other governmental entity has issued a final, non-appealable order, decree or ruling or taken any other action, or there exists any statute, rule or regulation, in each case preventing or otherwise prohibiting the consummation of the merger or that otherwise has the effect of making the merger illegal and the party seeking to terminate the merger agreement has used all reasonable efforts to prevent the entry of and to remove the order, decree, ruling, action, or statute, rule or regulation to the extent of its control or influence; or
	•	Intergraph’s stockholders fail to adopt the merger agreement at a duly held meeting; or

	•	by Cobalt Holding if:

	•	Intergraph’s board of directors withdraws or modifies, or publicly proposes to withdraw or modify, in a manner adverse to Cobalt Holding, the approval or recommendation of Intergraph’s board of directors of the merger agreement or the merger or announces that it has resolved to take that action;
	•	Intergraph’s board of directors recommends to our stockholders or approves any acquisition proposal or resolves to effect the foregoing;
	•	Intergraph’s board of directors fails to include in this proxy statement its recommendation that Intergraph’s stockholders adopt the merger agreement;

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	•	Intergraph’s board of directors fails to recommend against a tender or exchange offer related to an acquisition proposal in any publicly disclosed position taken pursuant to the Exchange Act; or
	•	there has been a breach of, or inaccuracy in, any representation, warranty, covenant or agreement of Intergraph under the merger agreement which would result in the failure of certain conditions to closing and where the breach or inaccuracy is reasonably incapable of being cured, or is not cured, within 20 business days after Intergraph receives notice of the breach or inaccuracy and neither Cobalt Holding nor Merger Sub is in material breach of its representations, warranties, covenants and obligations under the merger agreement so as to cause the failure of certain conditions to closing; or

	•	by Intergraph if:

	•	Intergraph concurrently enters into a definitive agreement with respect to a superior proposal; provided that Intergraph has paid, or simultaneously with doing so, pays to Cobalt Holding the termination fee as described below;
	•	there has been a breach of, or inaccuracy in, any representation, warranty, covenant or agreement of Cobalt Holding or Merger Sub under the merger agreement which would result in the failure of certain conditions to closing and where the breach or inaccuracy is reasonably incapable of being cured, or is not cured, within 20 business days after Cobalt Holding receives notice of the breach or inaccuracy and Intergraph is not in material breach of our representations, warranties, covenants and obligations under the merger agreement so as to cause the failure of certain conditions to closing; or
	•	the conditions to closing have been satisfied (other than those conditions that by their terms are to be satisfied at closing, and no state of facts or circumstances exists that would cause the conditions to not be satisfied, provided that nothing has occurred and no conditions exist that would cause those conditions not to be satisfied if the closing were to occur on the last day of the marketing period) and Cobalt Holding has failed to consummate the merger by the last day of the marketing period.

 

Termination Fees

	•	Cobalt Holding terminates the merger agreement because Intergraph has breached a representation, warranty, covenant or agreement such that the closing conditions would not be satisfied and the breach has not been cured within the specified time; or
	•	Intergraph or Cobalt Holding terminates the merger agreement because Intergraph’s stockholders fail to adopt the merger agreement at a duly held meeting.

	•	Cobalt Holding terminates the merger agreement because Intergraph’s board of directors withdraws or modifies, or publicly proposes to withdraw or modify, in a manner adverse to Cobalt Holding, the approval or recommendation of Intergraph’s board of directors of the merger agreement or the merger or announces that it has resolved to take that action;
	•	Cobalt Holding terminates the merger agreement because Intergraph’s board of directors recommends to Intergraph’s stockholders or approves any acquisition proposal or resolves to effect the foregoing;
	•	Cobalt Holding terminates the merger agreement because Intergraph’s board of directors fails to include in this proxy statement its recommendation that Intergraph’s stockholders adopt the merger agreement;
	•	Cobalt Holding terminates the merger agreement because Intergraph’s board of directors fails to recommend against a tender or exchange offer related to an acquisition proposal in any publicly disclosed position taken pursuant to the Exchange Act;

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	•	Intergraph terminates the merger agreement because Intergraph has entered into a definitive agreement with respect to a superior proposal;
	•	Cobalt Holding terminates the merger agreement because Intergraph has breached a representation, warranty, covenant or agreement such that the closing conditions would not be satisfied and the breach has not been cured within the specified time and

	•	prior to termination, an acquisition proposal is publicly announced or is otherwise communicated to Intergraph’s board of directors; and
	•	within 12 months after the termination, Intergraph enters into a definitive agreement with respect to an acquisition proposal or a transaction pursuant to an acquisition proposal is otherwise consummated;

	•	Intergraph or Cobalt Holding terminates the merger agreement because the merger is not consummated by March 31, 2007 and

	•	prior to termination, an acquisition proposal is publicly announced or is otherwise communicated to Intergraph’s board of directors; and
	•	within 12 months after the termination, Intergraph enters into a definitive agreement with respect to an acquisition proposal or a transaction pursuant to an acquisition proposal is completed; or

	•	Intergraph or Cobalt Holding terminates the merger agreement because Intergraph’s stockholders fail to adopt the merger agreement at a duly held meeting and

	•	prior to termination, an acquisition proposal is publicly announced or is otherwise communicated to Intergraph’s board of directors; and
	•	within 12 months after the termination, Intergraph enters into a definitive agreement with respect to an acquisition proposal or a transaction pursuant to an acquisition proposal is completed.

	•	any direct or indirect acquisition or purchase by any person or “group” (as defined in Section 13(d) of the Exchange Act) of a 50% interest or more in the total outstanding shares of equity or voting securities of Intergraph, a material subsidiary or any other Intergraph subsidiary that is a “significant subsidiary” within the meaning of Rule 1-02 of Regulation S-X promulgated by the SEC;
	•	any tender offer or exchange offer that if consummated would result in any person or group beneficially owning 50% or more of the total outstanding shares of equity or voting securities of Intergraph;
	•	any sale or disposition of consolidated assets or rights of Intergraph or any Intergraph subsidiary to any person or group for consideration equal to 50% or more of the aggregate fair market value of all of the outstanding shares of Intergraph common stock; or
	•	any consolidation, merger, business combination, recapitalization, liquidation, dissolution or similar transaction with respect to the Intergraph or any Intergraph subsidiary that is a “significant subsidiary” within the meaning of Rule 1-02 of Regulation S-X promulgated by the SEC.

	•	Intergraph terminates the merger agreement because the conditions to closing have been satisfied (other than those conditions that by their terms are to be satisfied at closing, and no state of facts or circumstances exists that would cause the conditions to not be satisfied, provided that nothing has occurred and no conditions exist that would cause those conditions not to be satisfied if the closing

55

		were to occur on the last day of the marketing period) and Cobalt Holding has failed to consummate the merger by the last day of the marketing period by reason of a failure of Cobalt Holding or Merger Sub to receive the proceeds of the debt financing contemplated by the debt commitment letter.

 

Employee Benefits

	•	waive any applicable pre-existing condition exclusions and waiting periods with respect to participation and coverage requirements in any replacement or successor welfare benefit plan of the surviving corporation that a continuing employee is eligible to participate in following the effective time of the merger to the extent the exclusions or waiting periods were inapplicable to, or had been satisfied by, the continuing employee immediately prior to the effective time of the merger under the relevant plan in which the continuing employee participated;
	•	provide each continuing employee with credit for any co-payments and deductible paid prior to the effective time in satisfying any applicable deductible or out-of-pocket requirements; and
	•	to the extent that any continuing employee is allowed to participate in any employee benefit plan of Cobalt Holding, the surviving corporation or any of their subsidiaries following the effective time of the merger, cause the plan to recognize the service of the continuing employee with Intergraph and our subsidiaries prior to the effective time of the merger for purposes of eligibility to participate, vesting and benefit accrual (but not for benefit accrual under any defined benefit, retiree welfare or similar plan) to the extent of the service; provided, however, that the crediting of service shall not operate to duplicate any benefit or the funding of any the benefit.

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Indemnification and Insurance

 

Amendment, Extension and Waiver

	•	extend the time for the performance of any of the obligations or other acts of the other parties thereto; or
	•	waive compliance with any of the agreements or conditions contained in the merger agreement.

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APPRAISAL RIGHTS

	•	You must deliver to Intergraph a written demand for appraisal of your shares before the vote with respect to the merger is taken. This written demand for appraisal must be in addition to and separate from any proxy or vote abstaining from or voting against the adoption of the merger agreement. Voting against or failing to vote for the adoption of the merger agreement by itself does not constitute a demand for appraisal within the meaning of Section 262; and
	•	You must not vote in favor of the adoption of the merger agreement. A vote in person, or a proxy submitted by mail, over the Internet or by telephone, in favor of the adoption of the merger agreement will constitute a waiver of your appraisal rights in respect of the shares so voted and will nullify any previously filed written demands for appraisal. If you fail to comply with either of these conditions and the merger is completed, you will be entitled to receive the cash payment for your shares of Intergraph common stock as provided for in the merger agreement, but you will have no appraisal rights with respect to your shares of Intergraph common stock.

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MARKET PRICE OF INTERGRAPH’S STOCK

		High				Low
FISCAL YEAR ENDED DECEMBER 31, 2004
First Quarter			25.66				19.41
Second Quarter			25.98				23.55
Third Quarter			27.40				25.22
Fourth Quarter			28.12				24.50
FISCAL YEAR ENDED DECEMBER 31, 2005
First Quarter			30.70				26.81
Second Quarter			34.80				28.42
Third Quarter			45.76				34.20
Fourth Quarter			51.77				42.54
FISCAL YEAR ENDED DECEMBER 31, 2006
First Quarter			51.20				35.70
Second Quarter			45.77				30.19
Third Quarter (through September 12, 2006)			44.17				30.04

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Name & Address		Common Shares				Percent of
of Beneficial Owner**		Owned(1)				Class(2)
Directors
Sidney L. McDonald			106,100				*
R. Halsey Wise			312,802				*
Michael D. Bills			10,438				*
Richard W. Cardin			10,100				*
Linda L. Green			17,751	(3)			*
Lawrence R. Greenwood			15,849				*
Thomas J. Lee			20,938				*
Kevin M. Twomey			10,600	(4)			*
Other Named Executive Officers
William E. Salter(5)			135,217				*
R. Reid French, Jr.			132,100				*
Larry J. Laster			121,224	(6)			*
Gerhard Sallinger			57,566				*
5% Stockholders
Goldman Sachs Asset Management, L.P.			2,933,587	(7)			10.0	%
All directors and executive officers as a group
(16 persons), including the foregoing directors and Named Executive Officers			1,131,149	(8)			3.8	%

*		Indicates beneficial ownership of less than 1%
**		Except as otherwise indicated below, the address of our directors, nominees and executive officers is c/o Intergraph Corporation, P.O. Box 240000, Huntsville, AL 35824.
(1)		Unless otherwise noted, the indicated owner has sole voting power and sole investment power. Includes shares which may be acquired pursuant to stock options exercisable within 60 days of September 12, 2006 as follows: Mr. McDonald, 10,500; Mr. Wise, 112,500; Mr. Lee, 10,500; Mr. Greenwood, 7,500; Mrs. Green, 6,000; Mr. Cardin, 4,500; Mr. Bills, 3,000; Mr. Salter, 13,500; Mr. Laster, 70,000; Mr. Sallinger, 16,500; and Mr. French, 56,250.
(2)		Percentages reflected in the table are based on 29,430,789 shares of Intergraph common stock outstanding on September 12, 2006. Shares issuable upon exercise of stock options that are exercisable within 60 days of September 12, 2006, are considered outstanding for the purposes of calculating the percentage of total outstanding common stock owned by directors and executive officers, and by directors and executive officers together as a group, but the shares are not considered outstanding for the purposes of calculating the percentage of total outstanding Intergraph common stock owned by any other person or group.

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(3)		This figure excludes 2,051 shares owned by Mrs. Green’s husband as to which Mrs. Green expressly disclaims beneficial ownership.
(4)		These shares are held by the Kevin Twomey Revocable Trust of which Mr. Twomey and his wife serve as trustees.
(5)		Mr. Salter retired as an executive officer effective January, 2006 and currently serves as a consultant to Intergraph.
(6)		This figure contains 14,706 shares owned jointly by Mr. Laster and his wife as to which voting and investment powers are shared.
(7)		This information is as of December 31, 2005 and is based solely on a Schedule 13G filed by Goldman Sachs Asset Management, L.P. (“GSAM”), on March 9, 2006. GSAM reports sole voting and dispositive power as to the shares listed by GSAM. GSAM disclaims beneficial ownership of any securities managed on GSAM’s behalf by third parties. The address of the principal business office of GSAM is 32 Old Slip, New York, New York, 10005.
(8)		Includes 374,500 shares which may be acquired pursuant to stock options exercisable within 60 days of September 12, 2006.

 

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

ADJOURNMENT OF THE SPECIAL MEETING

 

(PROPOSAL NO. 2)

 

OTHER MATTERS

 

Other Matters for Action at the Special Meeting

 

Future Stockholder Proposals

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Householding of Special Meeting Materials

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WHERE YOU CAN FIND MORE INFORMATION

Intergraph Filings:		Periods
Annual Report on Form 10-K		Year ended December 31, 2005
Proxy Statement on Form 14A		April 25, 2006
Quarterly Reports on Form 10-Q		Quarters ended March 31, 2006 and June 30, 2006
Current Reports on Form 8-K		Filed January 26, 2006, January 31, 2006, February 3, 2006, February 15, 2006, March 22, 2006, April 6, 2006, April 27, 2006, May 22, 2006, July 12, 2006, July 27, 2006, and August 31, 2006

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Section 1.		The Merger			A-1
Section 1.1		The Merger; Effects of the Merger			A-1
Section 1.2		Closing			A-2
Section 1.3		Effective Time			A-2
Section 1.4		Directors and Officers of the Surviving Corporation			A-2
Section 2.		Conversion of Securities			A-2
Section 2.1		Conversion of Capital Stock			A-2
Section 2.2		Dissenting Shares			A-3
Section 2.3		Company Options, Restricted Shares, Restricted Share Units and ESPP			A-3
Section 2.4		Exchange of Certificates			A-4
Section 2.5		Withholding			A-5
Section 2.6		Transfer Taxes			A-5
Section 3.		Representations and Warranties of Company			A-6
Section 3.1		Organization and Qualification			A-6
Section 3.2		Authority			A-7
Section 3.3		Capitalization			A-7
Section 3.4		Company Subsidiaries			A-8
Section 3.5		SEC Filings; Financial Statements; Undisclosed Liabilities			A-9
Section 3.6		Absence of Certain Changes or Events			A-10
Section 3.7		Compliance with Laws			A-10
Section 3.8		Claims, Actions and Proceedings			A-11
Section 3.9		Contracts and Other Agreements			A-11
Section 3.10		Intellectual Property			A-13
Section 3.11		Real Property; Title to Assets			A-15
Section 3.12		Insurance			A-16
Section 3.13		Tax Matters			A-16
Section 3.14		Employee Benefit Plans			A-18
Section 3.15		Labor and Employee Matters			A-19
Section 3.16		Environmental Matters			A-20
Section 3.17		No Breach			A-21
Section 3.18		Board Approvals; Anti-Takeover; Vote Required			A-21
Section 3.19		Financial Advisor			A-22
Section 3.20		Information in the Proxy Statement			A-22
Section 3.21		Affiliate Transactions			A-22
Section 3.22		No Other Representations or Warranties; Investigation by Parent			A-22
Section 4.		Representations and Warranties of Parent			A-23
Section 4.1		Organization			A-23
Section 4.2		Authority to Execute and Perform Agreement			A-23
Section 4.3		No Conflict; Required Filings and Consents			A-23
Section 4.4		Information in the Proxy Statement			A-24
Section 4.5		Litigation			A-24
Section 4.6		Financing			A-24
Section 4.7		Guarantee			A-24
Section 4.8		Parent and Merger Sub			A-25
Section 4.9		Brokers			A-25
Section 4.10		No Other Representations or Warranties			A-25

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