UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

o  Preliminary Proxy Statement

Only (as permitted by Rule 14a-6(e)(2))

þ  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to §240.14a-12

 

INTERGRAPH CORPORATION

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

Common stock, par value $0.10 per share, of Intergraph Corporation (the “Intergraph common stock”)

 

 

29,430,789 shares of Intergraph common stock (including restricted shares and restricted share units) and 1,098,311 options to purchase Intergraph common stock.

 

 

The transaction value was determined based upon the sum of (a) $44.00 per share of 29,430,789 shares of Intergraph common stock (including restricted shares and restricted share units); and (b) $44.00 minus weighted average exercise price of $15.8678 per share of outstanding options to purchase 1,098,311 shares of Intergraph common stock.

 

 

$1,325,852,620.71

 

 

$141,866.23

 

 

 

 

 

 

 

 

 

 

 

INTERGRAPH CORPORATION
P.O. Box 240000
Huntsville, Alabama 35824

 

October 19, 2006

Dear Stockholder:

 

On August 31, 2006, the board of directors of Intergraph Corporation (“Intergraph,” “we,” “us” or “our”) approved, and Intergraph entered into, a merger agreement with Cobalt Holding Company and its wholly-owned subsidiary Cobalt Merger Corp. Cobalt Holding Company is currently owned primarily by private equity funds sponsored by Hellman & Friedman LLC and Texas Pacific Group. Under the terms of the merger agreement, Cobalt Merger Corp. will be merged with and into us, with Intergraph continuing as the surviving corporation. 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 be asked, at a special meeting of our stockholders to be held on November 20, 2006, at 11:00 a.m., local time, to vote on a proposal to adopt the merger agreement so that the merger can occur. After careful consideration, our board of directors has approved the merger agreement and determined that the merger and the merger agreement are advisable and in the best interests of Intergraph and our stockholders. Our board of directors recommends that you vote “FOR” the adoption of the merger agreement.

 

The special meeting will be held in the Building 15b Auditorium at Intergraph’s executive offices located at 170 Graphics Drive, Madison, Alabama 35758. Notice of the special meeting and the related proxy statement is enclosed.

 

The accompanying proxy statement gives you detailed information about the special meeting and the merger and includes a copy of the merger agreement attached thereto as Annex A. The receipt of cash in exchange for shares of Intergraph common stock pursuant to the merger will constitute a taxable transaction to U.S. persons for U.S. federal income tax purposes. We encourage you to read the proxy statement and the merger agreement carefully. You may also obtain additional information about Intergraph from documents filed with the Securities and Exchange Commission.

 

Your vote is very important, regardless of the number of shares you own. We cannot complete the merger unless holders of a majority of all outstanding shares of Intergraph common stock entitled to vote on the matter vote to adopt the merger agreement. If you fail to vote on the merger agreement, the effect will be the same as a vote against the adoption of the merger agreement.

 

Whether or not you plan to attend the special meeting, please complete, date, sign and return, as promptly as possible, the enclosed proxy in the accompanying reply envelope, or submit your proxy by telephone or the Internet.

 

Our board of directors and management appreciate your continuing support of Intergraph, and we urge you to support this transaction.

 

Sincerely,

 

Sidney L. McDonald

Chairman of the Board

 

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

 

The proxy statement is dated October 19, 2006 and is first being mailed to stockholders on or about October 19, 2006.

 

INTERGRAPH CORPORATION
P.O. Box 240000
Huntsville, Alabama 35824

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On November 20, 2006

 

Dear Stockholder:

 

NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Intergraph Corporation, a Delaware corporation (which we refer to as “Intergraph,” “we,” “us” or “our”), will be held on Monday, November 20, 2006, at 11:00 a.m., local time, in the Building 15b Auditorium at Intergraph’s executive offices located at 170 Graphics Drive, Madison, Alabama 35758, for the following purposes:

 

1. To consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of August 31, 2006, by and among Intergraph, Cobalt Holding Company, a Delaware corporation, and Cobalt Merger Corp., a Delaware corporation and a wholly-owned subsidiary of Cobalt Holding Company, as the merger agreement may be amended from time to time;

 

2. 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

 

3. To transact such other business as may properly come before the special meeting and any and all adjourned or postponed sessions thereof.

 

The record date for the determination of stockholders entitled to notice of and to vote at the special meeting is October 11, 2006. Accordingly, only stockholders of record as of the close of business on that date will be entitled to notice of and to vote at the special meeting or any adjournment or postponement of the special meeting.

 

We urge you to read the accompanying proxy statement carefully as it sets forth details of the proposed merger and other important information related to the merger.

 

Your vote is important, regardless of the number of shares of Intergraph common stock you own. The adoption of the merger agreement requires the affirmative approval of the holders of a majority of the outstanding shares of our common stock entitled to vote thereon. The adjournment proposal requires the affirmative vote of a majority of the shares of our common stock present at the special meeting and entitled to vote thereon. Even if you plan to attend the special meeting in person, we request that you complete, date, sign and return the enclosed proxy, or submit your proxy by telephone or the Internet, prior to the special meeting and thus ensure that your shares will be represented at the special meeting if you are unable to attend. If you fail to return your proxy card or fail to submit your proxy by telephone or the Internet, your shares will not be counted for purposes of determining whether a quorum is present at the meeting and will have the same effect as a vote against the adoption of the merger agreement, but will not affect the outcome of the vote regarding the adjournment proposal.

 

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 will not be permitted at the special meeting.

 

Stockholders of Intergraph who do not vote in favor of the adoption of the merger agreement will have the right to seek appraisal of the fair value of their shares of Intergraph common stock if they deliver a demand for appraisal before the vote is taken on the merger agreement and comply with all requirements of Delaware law, which are summarized in the accompanying proxy statement.

 

YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN, AS PROMPTLY AS POSSIBLE, THE ENCLOSED PROXY IN THE ACCOMPANYING REPLY ENVELOPE, OR SUBMIT YOUR PROXY BY TELEPHONE OR THE INTERNET.

 

By Order of the Board of Directors,

 

David Vance Lucas

Secretary

 

Huntsville, Alabama

October 19, 2006

 

 

TABLE OF CONTENTS

 

References to “Intergraph,” “we,” “our” or “us” in this proxy statement refer to Intergraph Corporation and its subsidiaries unless otherwise indicated by context.

 

This Summary Term Sheet, together with the “Questions and Answers About the Special Meeting” beginning on page 7, summarizes selected information in the proxy statement and may not contain all the information important to you. You should carefully read this entire proxy statement and the other documents to which this proxy statement refers you for a more complete understanding of the matters being considered at the special meeting. In addition, this proxy statement incorporates by reference important business and financial information about Intergraph. You may obtain the information incorporated by reference into this proxy statement without charge by following the instructions in “Where You Can Find More Information” beginning on page 65.

 

 

 

 

 

 

See “The Merger Agreement — Treatment of Options and Other Awards” beginning on page 43.

 

 

 

 

 

 

 

 

 

 

The merger agreement may be terminated at any time prior to the consummation of the merger, whether before or after stockholder approval has been obtained:

 

 

 

 

 

 

 

 

 

 

See “Questions and Answers About the Special Meeting” beginning on page 7 and “The Special Meeting” beginning on page 13.

 

 

 

 

 

 

 

With our prior consent, Cobalt Holdings may amend the debt commitment letter, which may include changing, among other things, the types and amounts of debt and the terms of the debt used to finance the merger. See “The Merger — Financing of the Merger” beginning on page 34.

 

 

 

 

 

The following questions and answers are intended to address briefly some commonly asked questions regarding the special meeting. These questions and answers do not address all questions that may be important to you as an Intergraph stockholder. You should still carefully read the “Summary Term Sheet” and the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement.

 

 

 

 

 

 

 

 

 

 

 

This proxy statement, and the documents to which we refer you in this proxy statement, contain forward-looking statements based on estimates and assumptions. Forward-looking statements include information concerning possible or assumed future results of operations of Intergraph, the expected completion and timing of the merger and other information relating to the merger. There are forward-looking statements throughout this proxy statement, including, without limitation, under the headings “Summary Term Sheet,” “The Merger,” and in statements containing the words “believes,” “plans,” “expects,” “anticipates,” “intends,” “estimates” or other similar expressions. For each of these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You should be aware that forward-looking statements involve known and unknown risks and uncertainties. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the actual results or developments we anticipate will be realized, or even if realized, that they will have the expected effects on the business or operations of Intergraph. These forward-looking statements speak only as of the date on which the statements were made and we undertake no obligation to publicly update or revise any forward-looking statements made in this proxy statement or elsewhere as a result of new information, future events or otherwise. In addition to other factors and matters contained or incorporated in this document, we believe the following factors could cause actual results to differ materially from those discussed in the forward-looking statements:

 

 

 

 

 

Many of the factors that will determine our future results are beyond our ability to control or predict. In light of the significant uncertainties inherent in the forward-looking statements contained herein, readers should not place undue reliance on forward-looking statements, which reflect our views only as of the date of this proxy statement. We cannot guarantee any future results, levels of activity, performance or achievements. The statements made in this proxy statement represent our views as of the date of this proxy statement, and it should not be assumed that the statements made herein remain accurate as of any future date. Moreover, we assume no obligation to update forward-looking statements or update the reasons that actual results could differ materially from those anticipated in forward-looking statements, except as required by law.

 

Intergraph Corporation is a Delaware corporation and is headquartered in Huntsville, Alabama. Our principal executive offices are located at One Madison Industrial Park, Huntsville, Alabama 35894 and our telephone number is (256) 730-2000. We are a leading global supplier of spatial information management software. Our core mission is to enable businesses and governments to make better and faster operational decisions and, through software and services, help our customers organize vast amounts of complex data into understandable visual representations. Our technology enables customers to create intelligent maps, manage assets and infrastructure, build and better manage plants and ships, and dispatch, command, and control emergency services to those in need. Founded in 1969, Intergraph was a pioneer of computer graphics in the commercial and government sectors and has delivered numerous innovations in interactive graphics solutions. Intergraph’s divisions offer software, professional services, and maintenance solutions to satisfy engineering, design, modeling, analysis, mapping, and information technology needs. Products and services are sold through industry-focused direct and indirect sales channels worldwide. A significant portion of our revenues are generated outside the United States, primarily in Europe and Asia Pacific.

 

For a more detailed description of the business and properties of Intergraph, see our Annual Report on Form 10-K for the fiscal year ended December 31, 2005, which is incorporated by reference herein, or visit our website at 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. Intergraph is publicly traded on the NASDAQ under the symbol “INGR.” See “Where You Can Find More Information.”

 

Cobalt Holding Company, which we refer to as Cobalt Holding, is a Delaware corporation that was formed solely for the purpose of acquiring Intergraph. Cobalt Holding has not engaged in any business except as contemplated by the merger agreement. The principal office addresses of Cobalt Holding are c/o Hellman & Friedman, One Maritime Plaza, 12th Floor, San Francisco, California 94111, telephone: (415) 788-5111, and c/o Texas Pacific Group, 301 Commerce Street, Suite 3300, Fort Worth, Texas 76102, telephone: (415) 743-1500. At the time of the merger, Cobalt Holding will be owned primarily by private equity funds affiliated with Hellman & Friedman LLC, JMI Equity and Texas Pacific Group. Each of Hellman & Friedman LLC, Texas Pacific Group and JMI Equity is engaged in the business of making private equity and related investments.

 

Cobalt Merger Corp., which we refer to as Merger Sub, is a Delaware corporation that was formed solely for the purpose of completing the proposed merger. Upon the consummation of the proposed merger, Cobalt Merger Corp. will cease to exist and Intergraph will continue as the surviving corporation. Cobalt Merger Corp. is wholly-owned by Cobalt Holding and has not engaged in any business except as contemplated by the merger agreement. The principal office addresses of Merger Sub are c/o Hellman & Friedman, One Maritime Plaza, 12th Floor, San Francisco, California 94111, telephone: (415) 788-5111, and c/o Texas Pacific Group, 301 Commerce Street, Suite 3300, Fort Worth, Texas 76102, telephone: (415) 743-1500.

 

This proxy statement is furnished in connection with the solicitation of proxies by our board of directors in connection with the special meeting of our stockholders relating to the merger.

 

The special meeting is scheduled to be held as follows:

 

Date:   Monday, November 20, 2006

 

Time:  11:00 a.m., local time

 

170 Graphics Drive, Madison, Alabama 35758

 

At the special meeting, you will be asked to vote on a proposal to adopt the merger agreement and 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. If our stockholders fail to adopt the merger agreement, the merger will not occur. A copy of the merger agreement is attached as Annex A to this proxy statement, and we encourage you to read it carefully and in its entirety.

 

We have fixed the close of business on October 11, 2006 as the record date for the special meeting, and only holders of record of Intergraph common stock on the record date are entitled to vote at the special meeting. On the record date, there were 29,437,510 shares of Intergraph common stock outstanding and entitled to vote.

 

Each share of Intergraph common stock entitles the holder to one vote on all matters properly coming before the special meeting. The presence, in person or representation by proxy of stockholders entitled to cast a majority of the votes of all issued and outstanding shares entitled to vote, shall constitute a quorum for the purpose of considering the proposals. Shares of Intergraph common stock represented at the special meeting but not voted, including shares of Intergraph common stock for which proxies have been received but for which stockholders have abstained, will be treated as present at the special meeting for purposes of determining the presence or absence of a quorum for the transaction of all business. In the event that a quorum is not present at the special meeting, it is expected that the meeting will be adjourned to solicit additional proxies.

 

Adoption of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Intergraph common stock entitled to vote on the matter. 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. Your broker, bank or nominee will vote your shares only if you provide instructions on how to vote by following the instructions provided to you by your broker, bank or nominee.

 

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 outstanding shares of Intergraph common stock present or represented by proxy at the special meeting and entitled to vote on the matter. 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 special 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.

 

As of October 11, 2006, the record date, the directors and executive officers of Intergraph held and were entitled to vote, in the aggregate, 754,290 shares of Intergraph common stock, representing approximately 2.6% of the outstanding Intergraph common stock. If our directors and executive officers vote their shares in favor of adopting the merger agreement, approximately 2.6% of the outstanding shares of Intergraph common stock will have voted for the proposal to adopt the merger agreement. This means that additional holders of approximately 13,964,466, or approximately 47.4%, of all shares entitled to vote at the special meeting would need to vote for the proposal to adopt the merger agreement in order for it to be adopted.

 

Stockholders of record may submit proxies by mail. Stockholders who wish to submit a proxy by mail should mark, date, sign and return the proxy card in the envelope furnished. 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. Stockholders who hold shares beneficially through a nominee (such as a bank or broker) may be able to submit a proxy by mail, or by telephone or the Internet if those services are offered by the nominee.

 

Proxies received at any time before the special meeting, and not revoked or superseded before being voted, will be voted at the special meeting. Where a specification is indicated by the proxy, it will be voted in accordance with the specification. 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.

 

You have the right to revoke your proxy at any time before the vote taken at the special meeting:

 

 

Please do not send in your stock certificates with your proxy card. When the merger is completed, a separate letter of transmittal will be mailed to you that will enable you to receive the merger consideration in exchange for your stock certificates.

 

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

To exercise your appraisal rights, you must submit a written demand for appraisal to Intergraph before the vote is taken on the merger agreement and you must not vote in favor of the adoption of the merger agreement. Your failure to follow exactly the procedures specified under Delaware law will result in the loss of your appraisal rights. See “Appraisal Rights” beginning on page 59 and the text of the Delaware appraisal rights statute reproduced in its entirety as Annex C.

 

This proxy solicitation is being made and paid for by Intergraph on behalf of our board of directors. 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 their assistance. Our directors, officers and employees may also solicit proxies by personal interview, mail, e-mail, telephone, facsimile or 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 proxy solicitation material 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. In addition, we will indemnify Georgeson Inc. against any losses arising out of that firm’s proxy soliciting services on our behalf.

 

We are not currently aware of any business to be acted upon at the special meeting other than the matters discussed in this proxy statement. Under our by-laws, business transacted at the special meeting is limited to the purposes stated in the notice of the special meeting, which is provided at the beginning of this proxy statement. If other matters do properly come before the special meeting, or at any adjournment or postponement of the special meeting, we intend that shares of Intergraph common stock represented by properly submitted proxies will be voted in accordance with the recommendations of our board of directors.

 

If you have more questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please call our proxy solicitor, Georgeson Inc., toll-free at (866) 628-6079 (banks and brokerage firms call collect at (212) 440-9800), or contact Intergraph in writing at our principal executive offices at One Madison Industrial Park, Huntsville, Alabama 35894, Attention: Investor Relations, or by telephone at (256) 730-2720.

 

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. 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, to 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 group’s 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 of directors 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:

 

 

 

 

 

 

 

The board of directors also considered and balanced against the potentially positive factors the following potentially negative factors concerning the merger:

 

 

 

During its consideration of the transaction with Cobalt Holding and Merger Sub described above, our board of directors was also aware that some of our directors and executive officers may have interests in the merger that may be different than or in addition to those of our stockholders generally, described under “The Merger — Interests of Directors and Executive Officers in the Merger.”

 

After taking into account all of the factors set forth above, as well as others, the board of directors, with Mr. Wise abstaining due to his potential continuing interest in the surviving corporation (since Cobalt Holding has indicated that it anticipates that Mr. Wise will continue as chief executive officer of the surviving corporation after the merger (see “The Merger — Interests of Intergraph’s Directors and Executive Officers in the Merger”)), determined that the potentially positive factors outweighed the potentially negative factors and that the merger agreement and the merger are advisable and fair and in the best interests of Intergraph and our stockholders. The independent members of the board of directors have unanimously approved the merger agreement and the merger and recommend that Intergraph’s stockholders vote “FOR” the adoption of the merger agreement at the special meeting.

 

This discussion of the information and factors considered and given weight by our board of directors is not intended to be exhaustive but is believed to address the material information and factors considered by our board of directors. In view of the number and variety of these factors, our board of directors did not find it practicable to make specific assessments of, or otherwise assign relative weights to, the specific factors and analyses considered in reaching its determination. The determination to approve the merger agreement and the transactions contemplated thereby, including the merger, was made after consideration of all of the factors and analyses as a whole. In addition, individual members of our board of directors may have given different weights to different factors.

 

Goldman Sachs rendered its opinion to Intergraph’s 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. Goldman Sachs provided its opinion for the information and assistance of Intergraph’s 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 common stock should vote with respect to the transaction.

 

In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:

 

 

 

Goldman Sachs also held discussions with members of the senior management of Intergraph regarding their assessment of the past and current business operations, financial condition and future prospects of Intergraph. In addition, Goldman Sachs reviewed the reported price and trading activity for Intergraph common stock, compared certain financial and stock market information for Intergraph with similar information for certain other companies, the securities of which are publicly traded, reviewed the financial terms of certain recent business combinations in the software, defense and government information technology industries specifically and in other industries generally and performed such other studies and analyses, and considered such other factors, as it considered appropriate.

 

Goldman Sachs relied upon the accuracy and completeness of all of the financial, accounting, legal, tax and other information discussed with or reviewed by it and assumed such accuracy and completeness for purposes of rendering the opinion described above. In that regard, the opinion stated that Goldman Sachs assumed with the consent of the board that the internal financial analyses and forecasts for Intergraph prepared by the management of Intergraph were reasonably prepared on a basis reflecting the best currently available estimates and judgments of Intergraph. In addition, Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or off-balance-sheet assets and liabilities) of Intergraph or any of its subsidiaries and, except for the Real Estate Appraisals, Goldman Sachs was not furnished with any evaluation or appraisal of the assets or liabilities of Intergraph or any of its subsidiaries. Goldman Sachs’ opinion does not address the underlying business decision of Intergraph to engage in the transaction or the relative merits of the transaction as compared to any alternative transaction that might be available to Intergraph. Goldman Sachs’ opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Goldman Sachs as of, the date thereof.

 

The following is a summary of the material financial analyses delivered by Goldman Sachs to Intergraph’s board of directors in connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before August 30, 2006 and is not necessarily indicative of current market conditions.

 

Historical Stock Trading Analysis.  Goldman Sachs reviewed the historical trading prices and volumes for Intergraph common stock for the three-year period ended August 30, 2006. In addition, Goldman Sachs analyzed the consideration to be received by holders of Intergraph common stock pursuant to the merger agreement in relation to various market prices of the Intergraph common stock as more fully set forth below.

 

This analysis indicated that the price per share to be paid to Intergraph stockholders pursuant to the merger agreement represented:

 

 

 

Selected Companies Analysis.  Goldman Sachs reviewed and compared certain financial information for Intergraph to corresponding financial information, ratios and public market multiples for the following comparable companies in the security, government & infrastructure and the power, process & marine design software industries:

 

Security, Government & Infrastructure (SG&I)

 

 

Process, Power & Marine (PP&M)

 

 

Although none of the selected companies is directly comparable to Intergraph, the companies included were chosen because they are publicly traded companies with operations that for purposes of analysis may be considered similar to certain operations of Intergraph.

 

Goldman Sachs also calculated and compared various financial multiples and ratios. The multiples and ratios of Intergraph were based on information provided by Intergraph’s management and obtained from Wall Street research and excluded restructuring charges and after-tax intellectual property litigation income. The multiples and ratios for each of the selected companies were based on information obtained from International Brokers’ Estimate System, or IBES, estimates. With respect to the selected companies, Goldman Sachs calculated:

 

 

The results of these analyses are summarized as follows:

 

 

For Intergraph, Goldman Sachs calculated estimated price to earnings multiples and PEG ratios for each of Intergraph’s market price as of August 30, 2006 and the $44.00 merger consideration. The results of these analyses are summarized as follows:

 

 

Goldman Sachs considered for each of the selected companies and Intergraph at the market price as of August 30, 2006 and at the $44.00 merger consideration, estimated multiples for each of sales, earnings before interest, taxes, depreciation and amortization (“EBITDA”) and price to earnings for 2006 and 2007. The results of these analyses are summarized as follows:

 

 

Discounted Cash Flow Analysis.  Goldman Sachs performed an illustrative discounted cash flow analysis on Intergraph using the June 30, 2006 balance sheet and Intergraph’s management forecasts. Goldman Sachs calculated indications of net present value of unlevered free cash flows for Intergraph for the years 2006 through 2010 using discount rates ranging from 12.0% to 14.0%. Goldman Sachs calculated illustrative terminal values in the year 2010 based on perpetuity growth rates ranging from 3.50% to 5.50%. These illustrative terminal values were then added to the present value of future cash flows, net cash and the assumed value of non-core assets to derive illustrative implied enterprise values at the same perpetuity growth rates of 3.50% to 5.50%. The illustrative enterprise values were discounted to calculate implied indications of present values using discount rates ranging from 12.0% to 14.0%. Goldman Sachs calculated implied prices per share of the Intergraph common stock using Intergraph management’s forecasts and illustrative enterprise value indications and assuming 29.4 million basic shares of Intergraph common stock outstanding and dilution from the exercise of 1.1 million in-the-money options with a weighted-average strike price of $15.82. The implied per share value indications for Intergraph ranged from $34.05 to $45.19 per share.

 

Sum of the Parts Analysis.  Goldman Sachs performed an illustrative sum of the parts analysis on Intergraph by analyzing separate parts of its operations and its non-core assets. For each of Intergraph’s PP&M operations, SG&I operations, and non-core assets, Goldman Sachs calculated low, mid and high implied

enterprise values based on management’s 2006 estimated EBITDA before restructuring charges. Implied equity value was calculated by adding the implied enterprise values for PP&M, SG&I and the non-core assets along with excess net cash (assuming $50 million operating cash required for each of PP&M and SG&I). Goldman Sachs then derived low, mid and high implied equity values per share (assuming 29.4 million basic shares of Intergraph common stock outstanding and dilution from the exercise of 1.1 million in-the-money options with a weighted-average strike price of $15.82). Goldman Sachs also calculated the implied equity values assuming the sale of each of these parts in taxable transactions.

 

The following table presents the results of this analysis:

 

 

 

 

Leveraged Buyout Analysis.  Goldman Sachs performed an illustrative leveraged buyout analysis using Intergraph’s management forecasts before restructuring charges and assumed annual cost savings estimated by management associated with the transition to private company status. Goldman Sachs assumed, for purposes of this analysis, a purchase price of $44.00 per share and base leverage of 6.0x management’s estimated 2006 EBITDA. Goldman Sachs also assumed a range of estimated EBITDA exit multiples of 9.0x to 11.0x for the assumed exit year of 2011, which reflect illustrative implied prices at which a hypothetical financial buyer might sell Intergraph. This analysis resulted in illustrative equity returns to a hypothetical financial buyer ranging from 20.6% to 26.3%.

 

Using the same forecasts, Goldman Sachs also performed a sensitivity analysis on the illustrative leveraged buyout analysis. Goldman Sachs performed its sensitivity analysis on the illustrative buyout analysis assuming an exit year of 2011, and leverage multiples of 6.0x to 7.0x based on management’s estimated 2006 EBITDA. Based on the 6.0x to 7.0x range of leverage levels derived from 2006 estimated EBITDA multiples and a range of 2011 EBITDA exit multiples of 9.0x to 11.0x, the sensitivity analysis indicated illustrative equity returns to a hypothetical financial buyer ranging from 20.6% to 29.7% based on the acquisition price of $44.00 per share of Intergraph common stock.

 

Present Value of Future Stock Price.  Goldman Sachs analyzed the present value of hypothetical future stock prices of Intergraph common stock based on management’s internal forecasts. Goldman Sachs derived an implied enterprise value for Intergraph by combining pro forma equity market capitalization with estimated net debt for each of the years 2006 to 2010. Goldman Sachs calculated the present value of the implied share prices using the implied enterprise value and assuming 29.4 million basic shares of Intergraph common stock outstanding and dilution from the exercise of 1.1 million in-the-money options with a weighted-average strike price of $15.82. Goldman Sachs then calculated an implied future share price for years 2006 through 2010 based on price to earnings multiples ranging from 21.0x to 23.0x. Goldman Sachs discounted the implied future share prices to reflect total returns by assumed costs of equity ranging from 13.8% to 15.8%.

 

The following table presents the results of this analysis based on each year’s EBITDA as estimated by management:

 

 

Selected Transactions Analysis.  Goldman Sachs analyzed certain information relating to the following selected transactions, among others, in the software industry over $300 million since January 1, 2004 and the

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.

The merger consideration was determined through arm’s-length negotiations between Intergraph and Cobalt Holding Company and was approved by Intergraph’s board of directors. Goldman Sachs provided advice to Intergraph during these negotiations. Goldman Sachs did not, however, recommend any specific amount of consideration to Intergraph or its board of directors or that any specific amount of consideration constituted the only appropriate consideration for the transaction.

 

As described above, Goldman Sachs’ opinion to Intergraph’s board of directors was one of many factors taken into consideration by Intergraph’s board of directors in making its determination to approve the merger agreement. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with the fairness opinion and is qualified in its entirety by reference to the written opinion of Goldman Sachs attached as Annex B.

 

Goldman Sachs and its affiliates, as part of their investment banking business, are continually engaged in performing financial analyses with respect to businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and other transactions as well as for estate, corporate and other purposes. Goldman Sachs acted as financial advisor to Intergraph in connection with, and participated in certain of the negotiations leading to, the transaction contemplated by the merger agreement. In addition, Goldman Sachs has provided certain investment banking services to Intergraph from time to time, including having acted as dealer manager of Intergraph’s repurchase of 10,000,000 shares of Intergraph common stock in the fourth quarter of 2003 and as counterparty in connection with Intergraph’s accelerated share repurchases of 3,797,949 shares and 5,407,000 shares of Intergraph common stock in July 2004 and March 2005, respectively. Goldman Sachs has provided, and currently provides, certain investment banking services to each of Cobalt Holding’s financial sponsors and their respective affiliates and portfolio companies, including having acted as financial advisor to Hotwire Inc., a former portfolio company of Texas Pacific Group, in connection with its sale to IAC/Interactive Corp. in July 2004, as a lead manager in connection with a bank loan (aggregate principal amount $160,000,000) for Mitchell International, Inc., a portfolio company of Hellman & Friedman LLC and JMI Equity, in August 2004 and October 2005, as lender in connection with a bank loan (aggregate principal amount $2,000,000,000) for Texas Genco Holdings Inc., a former portfolio company of Texas Pacific Group, in December 2004, as underwriter in connection with a public offering of certain debt securities (aggregate principal amount $3,800,000,000) of Spirit Group Ltd., a former portfolio company of Texas Pacific Group, in December 2004 and as financial advisor to Artisan Partners Limited Partnership, a portfolio company of Hellman & Friedman LLC, in connection with its recapitalization in June 2006. Goldman Sachs may provide investment banking services to Intergraph and its affiliates and each of Cobalt Holding’s financial sponsors and their respective affiliates and portfolio companies in the future. In connection with the above-described investment banking services Goldman Sachs received, and may receive in the future, compensation.

 

Goldman Sachs is a full service securities firm engaged, either directly or through its affiliates, in securities trading, investment management, financial planning and benefits counseling, risk management, hedging, financing and brokerage activities for both companies and individuals. In the ordinary course of these activities, Goldman Sachs and its affiliates may provide services to Intergraph and its respective affiliates and each of Cobalt Holding’s financial sponsors and their respective affiliates and portfolio companies, actively trade the debt and equity securities (or related derivative securities) of Intergraph and affiliates and portfolio companies of each of Cobalt Holding’s financial sponsors for their own account and for the accounts of their customers and at any time hold long and short positions of these securities. Affiliates of Goldman Sachs have co-invested with affiliates of Texas Pacific Group from time to time and may co-invest with affiliates of each of Cobalt Holding’s financial sponsors in the future, and these affiliates of Goldman Sachs have invested in limited partnership units of affiliates of each of Texas Pacific Group and Hellman & Friedman LLC and may invest in the future in limited partnership units of affiliates of each of Cobalt Holding’s financial sponsors.

 

The Intergraph board of directors selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the transaction. Pursuant to a letter agreement, dated February 27, 2006, Intergraph engaged Goldman Sachs to act as its financial advisor in connection with the contemplated transaction. Pursuant to the terms of this engagement letter, Intergraph has 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 transaction. In addition, Intergraph has agreed to reimburse Goldman Sachs for its expenses, including attorneys’ fees and disbursements, and to indemnify Goldman Sachs and related persons against various liabilities, including certain liabilities under the federal securities laws.

 

At the effective time of the merger, Merger Sub will be merged with and into Intergraph. In connection with the merger:

 

 

If the merger is completed, the Intergraph common stock will be delisted from the NASDAQ and deregistered under the Exchange Act, and we will no longer file periodic reports with the SEC on account of the Intergraph common stock.

 

Under the HSR Act and the rules promulgated thereunder by the FTC, the merger cannot be completed until Intergraph and Cobalt Holding each file a notification and report form under the HSR Act and the applicable waiting period has expired or 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 and were granted early termination of the review period on September 26, 2006. At any time before or after consummation of the merger, notwithstanding the termination of the waiting period under the HSR Act, the Antitrust Division or the FTC could take action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the consummation of the merger or seeking divestiture of substantial assets of Intergraph or Cobalt Holding. At any time before or after the consummation of the merger, and notwithstanding the termination of the waiting period under the HSR Act, any state could take action under the antitrust laws as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the consummation of the merger or seeking divestiture of substantial assets of Intergraph or Cobalt Holding. Private parties may also seek to take legal action under the antitrust laws under certain circumstances.

 

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, Germany and Norway, which were filed with the applicable antitrust authorities on September 8, 2006, September 8, 2006 and September 15, 2006, respectively. Clearance letters were received from Austria and Germany on October 9, 2006 and September 28, 2006, respectively, and the waiting period in Norway expired without inquiry on October 6, 2006.

 

While there can be no assurance that the merger will not be challenged by a governmental authority or private party on antitrust grounds, Intergraph believes that the merger can be effected in compliance with

federal, state and foreign antitrust laws. The term “antitrust laws” means the Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as amended, and all other Federal, state and foreign statutes, rules, regulations, orders, decrees, administrative and judicial doctrines, and other laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade.

 

In connection with the merger, Cobalt Holding will cause $1,325.6 million (assuming the number of shares of common stock (including shares of restricted stock), restricted share units and options to purchase shares of common stock, with an exercise price of less than $44.00 per share, outstanding as of August 23, 2006) 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. These payments are expected to be funded by a combination of the following:

 

 

Equity Financing

 

Cobalt Holding has received an equity commitment letter from private equity funds affiliated with Hellman & Friedman LLC, Texas Pacific Group and JMI Equity, pursuant to which the funds have committed to contribute an aggregate of $441.0 million in cash to Cobalt Holding in connection with the proposed merger. The parties to the commitment letters have the right to assign all of their committed amounts to affiliated funds. However, any assignment of a commitment to any other party requires the prior written consent of the Hellman & Friedman LLC and Texas Pacific Group and, in the event assignment could delay or impede closing or would cause a breach of a representation in the merger agreement regarding foreign ownership interests in Cobalt Holding, also requires the prior written consent of Cobalt Holding. The obligation to fund these equity commitments is subject to the satisfaction or waiver by Cobalt Holding (in the manner agreed by Hellman & Friedman LLC and Texas Pacific Group) of the conditions precedent to Cobalt Holding’s and Merger Sub’s obligation to complete the merger.

 

Debt Financing

 

Debt Commitment Letter

 

Cobalt Holding has received a fully executed debt commitment letter, dated as of August 31, 2006, from Morgan Stanley & Co. Incorporated (“MS&Co”), Morgan Stanley Senior Funding, Inc. (“MSSF”), Wachovia Bank, National Association (“Wachovia Bank”), Wachovia Investment Holdings, LLC (“Wachovia Investments”), and Wachovia Capital Markets, LLC (“Wachovia Securities”). Under the debt commitment letter, subject to the conditions set forth in the debt commitment letter:

 

 

 

The debt commitments expire on March 31, 2007. The documentation governing the senior secured credit facilities, the bridge loan facility and the PIK loan facility has not been finalized and, accordingly, the actual terms of the facilities may differ from those described in this proxy statement.

 

Pursuant to the merger agreement, Cobalt Holding is obligated to use its reasonable best efforts to obtain the debt financing set forth in the debt commitment letter at or prior to the closing of the merger. In the event that any portion of the debt financing becomes unavailable on the terms contemplated in the debt commitment letter, Cobalt Holding must use its reasonable best efforts to arrange alternative financing from alternative sources on terms not materially less favorable to Cobalt Holding in the aggregate and in no event less favorable in terms of pricing and economic terms (as determined in the good faith reasonable judgment of Cobalt Holding), as promptly as practicable but no later than the last day of the “marketing period,” as defined in the merger agreement (see “The Merger Agreement — Marketing Period”).

 

The merger agreement does not contain any condition 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. With our prior consent, Cobalt Holding may amend the debt commitment letter, which may include changing, among other things, the types and amounts of debt and the terms of the debt used to finance the merger.

 

Conditions Precedent to the Debt Commitments

 

The availability of the senior secured credit facilities, the bridge loan facility and the PIK loan facility is subject to, among other things, there not having occurred since December 31, 2005 any change or condition that would constitute a “Company Material Adverse Effect” as defined in the merger agreement (see “The Merger Agreement — Representations and Warranties”); the accuracy in all material respects at the closing date of specified representations of Intergraph in the merger agreement; consummation of the merger in accordance with the merger agreement (and no provision being waived or amended in a manner materially adverse to the lenders without the consent of MS&Co and Wachovia Securities); the negotiation, execution and delivery of definitive documentation; the delivery of audited, unaudited and pro forma financial statements; with respect to the PIK loan facility, the contribution of the assets that will secure the PIK loan facility to a newly formed subsidiary of ours that will be a borrower under the PIK loan facility; and, with respect to the bridge loan facility, a 15 day minimum marketing period after receipt of a customary offering document to market a senior subordinated notes offering.

 

In connection with the merger agreement, affiliated funds of each of Hellman & Friedman LLC, Texas Pacific Group and JMI Equity have agreed to guarantee the due and punctual performance and discharge of certain of the payment obligations of Cobalt Holding and Merger Sub under the merger agreement (including payment of the $53,020,000 Cobalt Holding termination fee), up to a maximum amount equal to their respective pro rata share of $99,420,000 (calculated according to the applicable fund’s equity commitment to Cobalt Holding). If the Cobalt Holding termination fee is paid, and Cobalt Holding and Merger Sub are not otherwise in willful material breach of the merger agreement (other than a breach arising from the failure by Cobalt Holding to obtain the debt financing), then Intergraph’s termination of the merger agreement and receipt of payment of the $53,020,000 Cobalt Holding termination fee shall be the sole and exclusive remedy against Cobalt Holding, Merger Sub, Hellman & Friedman LLC, Texas Pacific Group and JMI Equity and any

of their respective representatives, affiliates, directors, officers, employees, partners, managers, members, or stockholders for any loss or damage suffered as a result of the breach of the merger agreement or any representation, warranty, covenant or agreement contained therein by Cobalt Holding or Merger Sub or the failure of the merger to be consummated. The merger agreement also provides that Intergraph shall not be entitled to an injunction or injunctions to prevent breaches of the merger agreement by Cobalt Holding or Merger Sub or to enforce specifically the terms and provisions of the merger agreement, and that our remedies are limited to the payment obligations of Cobalt Holding described in more detail below under “The Merger Agreement — Termination Fees.” Each guarantee will remain in full force and effect until the earlier of:

 

 

 

 

In considering the recommendations of the board of directors, Intergraph’s stockholders should be aware that certain of Intergraph’s directors and executive officers have interests in the transaction that may be different from, and/or in addition to, the interests of Intergraph’s stockholders generally. Our board of directors was aware of these potential conflicts of interest in reaching their decisions to approve the merger agreement and to recommend that our stockholders vote in favor of adopting the merger agreement. Except as set forth below, our directors and officers have, to our knowledge, no material interest that differs from your interests generally.

 

Treatment of Equity Awards

 

Upon the consummation of the merger, all of our equity compensation awards (including our awards held by directors and executive officers) will be subject, except as otherwise agreed by a holder or participant and Cobalt Holding, to the treatment described under “The Merger Agreement — Treatment of Options and Other Awards.” All of the related cash payments will be subject to applicable withholding taxes.

 

The table below sets forth, as of October 11, 2006, for each of our directors and executive officers (before any deduction for applicable withholding taxes): the aggregate number of stock options held by each director and executive officer, including those that will vest upon the consummation of the merger; the cash payment that will be made in respect of the foregoing stock options upon the consummation of the merger (based on the weighted average exercise price of the options); the aggregate number of restricted shares and restricted share units held by each director and executive officer that have restrictions that will lapse upon consummation of the merger; and the aggregate cash payment that will be made in respect of the foregoing restricted shares and restricted share units upon the consummation of the merger.

 

 

 

 

Change in Control Severance and Retention Arrangements

 

We have entered into employment contracts with Mr. Wise, Mr. French, and Mr. Colaluca with the following change in control provisions, which may or will be triggered following the completion of the merger, as applicable:

 

 

 

The following table shows the amount of potential cash severance payable to each of Messrs. Wise, French and Colaluca based on compensation and benefit levels in effect on October 11, 2006, and assuming the merger is completed on December 31, 2006, and the executive’s employment terminates effective December 31, 2006 under circumstances that entitle him to the maximum potential severance payment immediately thereafter. The table also shows the estimated value of continuing insurance benefits. No excise tax is currently expected to be due under Section 4999 of the Internal Revenue Code in respect of these severance and benefit payments.

 

 

 

 

New Management Arrangements

 

As of the date of this proxy statement, no member of our management has entered into any amendments or modifications to existing employment agreements with us in connection with the merger. Cobalt Holdings has informed us that it currently intends to retain members of our existing management team with the surviving corporation after the merger is completed, and that it anticipates that R. Halsey Wise, our chief executive officer, will continue as chief executive officer of the surviving corporation. Mr. Wise and other members of management currently are engaged in discussions with representatives of Cobalt Holding regarding revised terms of employment that would become effective at or after the closing of the merger. In addition to revised terms of employment, Cobalt Holdings has informed us that they may offer Mr. Wise and other members of management the opportunity to convert a portion of their current equity interests in Intergraph into, or otherwise invest in, equity in the surviving corporation, and that they also intend to set up equity-based incentive compensation plans for management of the surviving corporation. As of the date of this proxy statement, neither Mr. Wise nor any other member of our management has entered into any agreement, arrangement or understanding with Cobalt Holding, Merger Sub or their affiliates (including Hellman & Friedman LLC, Texas Pacific Group and JMI Equity) regarding employment with, or the right to purchase or participate in the equity of, the surviving corporation. Although we believe members of our management team are likely to enter into new arrangements with Cobalt Holding, Merger Sub or their affiliates regarding employment with, and the right to purchase or participate in the equity of, the surviving corporation, these matters are subject to further negotiations and discussion and no terms or conditions have been finalized. The new arrangements are currently expected to be entered into at or prior to the completion of the merger. In addition, it is possible that one or more of our executive officers could be invited to join the board of directors of the surviving corporation and/or Cobalt Holding following the merger. The board of directors (without Mr. Wise’s participation), in recognizing that management would require legal counsel in connection with discussions and negotiations with representatives of Cobalt Holding relating to management’s retention, had

previously authorized reimbursement of management’s reasonable out-of-pocket legal expenses in connection with these negotiations.

 

Benefit Arrangements with Surviving Corporation

 

The commitments by Cobalt Holding with respect to benefit arrangements are described below under “The Merger Agreement — Employee Benefits.”

 

Indemnification and Insurance

 

See “The Merger Agreement — Indemnification and Insurance.”

 

The following is a summary of certain material U.S. federal income tax consequences of the merger to holders of Intergraph common stock whose shares of Intergraph common stock are converted into the right to receive cash pursuant to the merger. This summary does not purport to consider all aspects of U.S. federal income taxation that might be relevant to our stockholders. For purposes of this discussion, we use the term “U.S. person” to mean a beneficial owner of shares of Intergraph common stock that is, for U.S. federal income tax purposes:

 

 

A “non-U.S. holder” is a person (other than a partnership) that is not a U.S. person.

 

For U.S. federal income tax purposes, if a partnership holds Intergraph common stock, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. A partner of a partnership holding Intergraph common stock should consult its own tax advisor.

 

This discussion is based on current law, which is subject to change, possibly with retroactive effect. It applies only to holders that are beneficial owners who hold shares of Intergraph common stock as capital assets, and may not apply to shares of Intergraph common stock received in connection with the exercise of employee stock options or otherwise as compensation, holders who hold an equity interest, directly or indirectly, in Cobalt Holding or the surviving corporation after the merger, or to certain types of beneficial owners who may be subject to special rules (such as insurance companies, banks, tax-exempt organizations, financial institutions, broker-dealers, partnerships, S corporations or other pass-through entities, mutual funds, traders in securities who elect the mark-to-market method of accounting, holders subject to the alternative minimum tax, stockholders that have a functional currency other than the U.S. dollar, or holders who hold Intergraph common stock as part of a hedge, straddle or a constructive sale or conversion transaction). This discussion does not address the receipt of cash in connection with the cancellation of shares of restricted stock, restricted share units or options to purchase shares of Intergraph common stock, or any other matters relating to equity compensation or benefit plans.

 

U.S. Holders

 

The exchange of shares of Intergraph common stock for cash pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes. In general, a U.S. holder whose shares of Intergraph common stock are converted into the right to receive cash pursuant to the merger (including pursuant to the exercise of appraisal rights) will recognize capital gain or loss for U.S. federal income tax purposes equal to the

difference, if any, between the amount of cash received in exchange for the shares (determined before the deduction of any applicable withholding taxes) and the U.S. holder’s adjusted tax basis in the shares. Gain or loss will be determined separately for each block of shares (i.e., shares acquired at the same cost in a single transaction). The gain or loss will be long-term capital gain or loss provided that a U.S. holder’s holding period for the shares is more than 12 months at the time of the consummation of the merger. Long-term capital gains of individuals are eligible for reduced rates of taxation. There are limitations on the deductibility of capital losses.

 

Backup withholding of tax may apply to cash payments to which a non-corporate U.S. holder is entitled under the merger agreement, unless the holder or other payee provides a taxpayer identification number (social security number, in the case of individuals, or employer identification number, in the case of other stockholders), certifies that the number is correct, and otherwise complies with the backup withholding rules. Each U.S. holder should complete and sign the Substitute Form W-9 included as part of the letter of transmittal and return it to the paying agent, in order to provide the information and certification necessary to avoid backup withholding, unless an exemption applies and is established in a manner satisfactory to the paying agent.

 

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowable as a refund or a credit against a U.S. holder’s U.S. federal income tax liability provided the required information is timely furnished to the Internal Revenue Service.

 

Cash received pursuant to the merger will also be subject to information reporting under certain circumstances unless an exemption applies.

 

Non-U.S. Holders

 

Any gain realized on the receipt of cash pursuant to the merger (or pursuant to the exercise of appraisal rights) by a non-U.S. holder generally will not be subject to U.S. federal income tax unless:

 

 

An individual non-U.S. holder described in the first bullet point immediately above will be subject to tax on the net gain derived from the merger under regular graduated U.S. federal income tax rates. An individual non-U.S. holder described in the second bullet point immediately above will be subject to a flat 30% tax on the gain derived from the merger, which may be offset by U.S. source capital losses, even though the individual is not considered a resident of the United States. If a non-U.S. holder that is a foreign corporation falls under the first bullet point immediately above, it will be subject to tax on its net gain in the same manner as if it were a U.S. person as defined under the Code and, in addition, may be subject to the branch profits tax equal to 30% of its effectively connected earnings and profits or at such lower rate as may be specified by an applicable income tax treaty.

 

Intergraph believes that it is not and has not been a “United States real property holding corporation” for U.S. federal income tax purposes.

 

Information reporting and, depending on the circumstances, backup withholding will apply to the cash received pursuant to the merger (or pursuant to the exercise of appraisal rights), unless the beneficial owner certifies under penalty of perjury that it is a non-U.S. holder (and the payor does not have actual knowledge or reason to know that the beneficial owner is a U.S. person as defined under the Code) or such owner otherwise establishes an exemption. Backup withholding is not an additional tax and any amounts withheld under the

backup withholding rules may be refunded or credited against a non-U.S. holder’s U.S. federal income tax liability, if any, provided that such non-U.S. holder furnishes the required information to the Internal Revenue Service in a timely manner.

 

The U.S. federal income tax consequences set forth above are not intended to constitute a complete description of all tax consequences relating to the merger. Because individual circumstances may differ, each holder should consult the holder’s tax advisor regarding the applicability of the rules discussed above to the holder and the particular tax effects to the stockholder of the merger in light of the holder’s particular circumstances, including the application of state, local and foreign tax laws, and, if applicable, the tax consequences of the receipt of cash in connection with the cancellation of restricted shares, restricted share units or options to purchase shares of Intergraph common stock, including the transactions described in this proxy statement relating to our other equity compensation and benefit plans.

 

There are no material relationships between Cobalt Holding and Merger Sub or any of their respective affiliates, on the one hand, and Intergraph or any of our affiliates, on the other hand, other than in respect of the merger agreement.

 

We are aware of two asserted class action lawsuits related to the proposed merger filed against us. The case, Emil R. Rossi, Individually and on behalf of all others similarly situated v. Sidney L. McDonald, R. Halsey Wise, Thomas J. Lee, Lawrence R. Greenwood, Linda L. Greene, Richard W. Cardin, Michael D. Bills, Kevin M. Twomey and Intergraph Corporation was filed on September 5, 2006 in the Chancery Court for the State of Delaware in and for New Castle County (C.A. No 2398-N). The complaint alleges, among other things, that the individual defendants (officers and directors of Intergraph) approved an acquisition for a sales price that is unfair to stockholders and below the inherent value of Intergraph. Among other things, the complaint alleges that the defendants have failed to maximize stockholder value by failing to become familiar with other offers or consider other potential purchasers of Intergraph. The complaint further alleges that the defendants aided and abetted each other in a common plan and scheme in disregard of their fiduciary duties. Among other things, the complaint seeks a declaration that the defendants have breached their fiduciary duty, an injunction to prevent the closing of the proposed merger, rescission of the proposed merger if it is consummated, compensatory damages with prejudgment interest, and costs and attorneys’ fees. We believe this lawsuit is without merit and plan to defend it vigorously.

 

Shalom Rechdiener, on behalf of himself and all others similarly situated v. Sidney L. McDonald, R. Halsey Wise, Thomas J. Lee, Lawrence R. Greenwood, Linda L. Greene, Richard W. Cardin, Michael D. Bills, Kevin M. Twomey, Intergraph Corporation, Hellman & Friedman LLC, Texas Pacific Group and JMI Equity was filed on September 18, 2006 in the Chancery Court for the State of Delaware in and for New Castle County (C.A. No. 2426-N). The complaint alleges, among other things, that the individual defendants (officers and directors of Intergraph) breached their fiduciary duties by failing to conduct a bona fide market check or auction of Intergraph. Among other things, the complaint alleges that the amount offered in the merger agreement is grossly inadequate and has been timed to take advantage of Intergraph’s low stock price. The complaint further alleges that the investor group defendants (Hellman & Friedman LLC, Texas Pacific Group, and JMI Equity) have knowingly aided and abetted the individual defendants’ alleged breaches of fiduciary duties. Among other things, the complaint seeks an order requiring the individual defendants to carry out their fiduciary duties and the defendants, jointly and severally, to account for all damages suffered or to be suffered in connection with the proposed merger, a declaration that the individual defendants have violated their fiduciary duties, and costs and attorneys’ fees. We believe this lawsuit is also without merit and plan to defend it vigorously. Additional lawsuits pertaining to the proposed merger could be filed in the future.

 

Immediately prior to the execution of the merger agreement, the Amended and Restated Rights Agreement, dated March 5, 2002, between Intergraph and Computershare Investor Services, LLC, which we refer to as the Rights Agreement, was amended to render the stockholder rights inapplicable to both the merger agreement and the consummation of transactions contemplated under the merger agreement.

 

We estimate that we will incur, and will be responsible for paying, transaction-related fees and expenses, consisting primarily of financial, legal, accounting and tax advisory fees, SEC filing fees and other related charges, totaling approximately $17.0 million. This amount includes the following estimated fees and expenses:

 

 

This section of the proxy statement describes the material provisions of the merger agreement but does not purport to describe all of the terms of the merger agreement. The following summary is qualified in its entirety by reference to the complete text of the merger agreement, which is attached as Annex A to this proxy statement and incorporated into this proxy statement by reference. We urge you to read the full text of the merger agreement because it is the legal document that governs the merger. It is not intended to provide you with any other factual information about us. Such information can be found elsewhere in this proxy statement and in the public filings we make with the SEC, as described in the section entitled “Where You Can Find More Information” below.

 

The merger agreement provides for the merger of Merger Sub with and into Intergraph upon the terms, and subject to the conditions, of the merger agreement. The merger will be effective at the time the certificate of merger is filed with the Secretary of State of the State of Delaware (or at a later time, if agreed upon by the parties and specified in the certificate of merger). We expect to complete the merger as promptly as practicable after meeting the conditions precedent to the merger, including that our stockholders adopt the merger agreement and, if necessary, the expiration of the marketing period, as described below.

 

As the surviving corporation, Intergraph will continue to exist following the merger. Upon consummation of the merger, the directors of Merger Sub will be the initial directors of the surviving corporation and the officers of Intergraph will be the initial officers of the surviving corporation. All officers of the surviving corporation will hold their positions until their successors are duly elected and qualified or until the earlier of their resignation or removal.

 

Intergraph or Cobalt Holding may terminate the merger agreement prior to the consummation of the merger in some circumstances, whether before or after the approval of the merger agreement by stockholders. Additional details on termination of the merger agreement are described in “— Termination of the Merger Agreement.”

 

Each share of Intergraph common stock issued and outstanding immediately before the merger will automatically be cancelled and will cease to exist and will be converted into the right to receive $44.00 in cash, without interest and less any applicable withholding taxes, other than:

 

 

After the merger is effective, each holder of a certificate representing shares of Intergraph common stock (other than shares for which appraisal rights have been properly demanded and perfected) will no longer have any rights with respect to the shares, except for the right to receive the merger consideration. — See “Appraisal Rights.”

 

Upon the consummation of the merger, except as otherwise agreed by the holder and Cobalt Holding, all outstanding options to acquire Intergraph common stock under our equity incentive plans will become fully vested and immediately exercisable, and each option not exercised prior to the merger 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 exercise price for each share of Intergraph common stock underlying the option, without interest and less any applicable withholding taxes. Additionally, except as otherwise agreed by the holder and Cobalt Holding, restrictions applicable to all shares of restricted stock and restricted share units will, in connection with the merger, 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, respectively, multiplied by $44.00 (together, with respect to restricted share units, the value of any deemed dividend equivalents accrued but unpaid with respect to the restricted share units), without interest and less any applicable withholding taxes.

 

The effect of the merger upon our employee stock purchase plan and certain other employee benefit plans is described below under “— Employee Benefits.”

 

Before the merger, Cobalt Holding will designate a paying agent reasonably acceptable to us to make payment of the merger consideration as described above. At or prior to the effective time of the merger, Cobalt Holding will deposit, or cause to be deposited, in trust with the paying agent the funds appropriate to pay the merger consideration to the applicable stockholders.

 

Upon the consummation of the merger and the settlement of any transfers that occurred prior to the effective time, we will close our stock ledger. After that time, there will be no further transfer of shares of Intergraph common stock.

 

As soon as reasonably practicable after the consummation of the merger, the surviving corporation will send, or cause the paying agent to send, you a form of letter of transmittal and instructions advising you how to surrender your stock certificates in exchange for the merger consideration. The paying agent will pay you your merger consideration after you have (1) surrendered your stock certificates to the paying agent and (2) provided to the paying agent your signed letter of transmittal and any other items specified by the letter of transmittal. Interest will not be paid or accrue in respect of the merger consideration. The surviving corporation will reduce the amount of any merger consideration paid to you by any applicable withholding taxes. YOU SHOULD NOT FORWARD YOUR STOCK CERTIFICATES TO THE PAYING AGENT WITHOUT A LETTER OF TRANSMITTAL, AND YOU SHOULD NOT RETURN YOUR STOCK CERTIFICATES WITH THE ENCLOSED PROXY.

 

If any cash deposited with the paying agent is not claimed within one year following the effective time of the merger, the cash will be returned to the surviving corporation upon demand subject to any applicable unclaimed property laws. Any unclaimed amounts remaining immediately prior to when the amounts would escheat to or become property of any governmental authority will be returned to the surviving corporation free and clear of any prior claims or interest thereto.

 

If the paying agent is to pay some or all of your merger consideration to a person other than you, as the registered owner of a stock certificate, you must have your certificates properly endorsed or otherwise in proper form for transfer, and you must pay any transfer or other taxes payable by reason of the transfer or establish to Cobalt Holding’s satisfaction that the taxes have been paid or are not required to be paid.

 

The transmittal instructions will tell you what to do if you have lost your certificate, or if it has been stolen or destroyed. You will have to provide an affidavit to that fact and, if required by the surviving corporation, post a bond in an amount that the surviving corporation reasonably directs as indemnity against any claim that may be made against it in respect of the certificate.

 

The merger agreement contains representations and warranties made by us to Cobalt Holding and Merger Sub and representations and warranties made by Cobalt Holding and Merger Sub to us. The assertions embodied in those representations and warranties were made solely for purposes of the merger agreement and may be subject to important qualifications and limitations agreed by the parties in connection with negotiating

its terms (including exceptions described in the confidential disclosure schedules to the merger agreement). Moreover, some of those representations and warranties may not be accurate or complete as of any particular date because they are subject to a contractual standard of materiality or material adverse effect different from that generally applicable to public disclosures to stockholders or used for the purpose of allocating risk between the parties to the merger agreement rather than establishing matters of fact. For the foregoing reasons, you should not rely on the representations and warranties contained in the merger agreement as statements of factual information.

 

In the merger agreement, Intergraph, Cobalt Holding and Merger Sub each made representations and warranties relating to, among other things:

 

 

In the merger agreement, Cobalt Holding and Merger Sub also each made representations and warranties relating to the availability of the funds necessary to perform its obligations under the merger agreement, guarantees, and the operations of Cobalt Holding and Merger Sub.

 

Intergraph also made representations and warranties relating to, among other things:

 

 

 

Many of Intergraph’s representations and warranties are qualified by a material adverse effect standard. For purposes of the merger agreement, “material adverse effect” on Intergraph, which we refer to in the merger agreement as a Company Material Adverse Effect, is defined to mean:

 

 

 

 

 

We have agreed in the merger agreement that, until the consummation of the merger (or the termination of the merger agreement), except as expressly contemplated by the merger agreement or consented to in writing by Cobalt Holding (which consent shall not be unreasonably withheld or delayed) or required by applicable law, we and each of our subsidiaries will:

 

 

 

 

We have also agreed that, until the consummation of the merger, except as expressly contemplated or permitted by the merger agreement or consented to in writing by Cobalt Holding (which consent shall not be unreasonably withheld or delayed), we will not, and will not permit any of our subsidiaries to:

 

 

 

 

 

 

Notwithstanding the foregoing, nothing contained in the merger agreement shall give Cobalt Holding, directly or indirectly, the right to control or direct the Intergraph’s or Intergraph’s subsidiaries’ operations prior to the effective time of the merger; prior to the effective time of the merger, each of Intergraph and Cobalt Holding shall exercise, consistent with the terms and conditions of the merger agreement, complete control and supervision over its and its subsidiaries’ respective operations; and no consent of Cobalt Holding shall be required with respect to any matter set forth above or elsewhere in the merger agreement to the extent the requirement of such consent would, upon advice of counsel, violate applicable antitrust law.

 

Upon the terms and subject to the conditions set forth in the merger agreement, each of the parties to the merger agreement has agreed to use its reasonable efforts to take, or cause to be taken, all actions, to file, or cause to be filed, all documents, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, the merger, including the taking of all acts necessary to satisfy the conditions necessary for the completion of the merger; the obtaining of all necessary actions or non-actions, expirations of all necessary waiting periods, waivers,

consents, clearances, approvals, orders and authorizations from governmental entities and any other third parties; the defending of any suits, claims, actions, investigations or proceedings, whether judicial or administrative, challenging the merger agreement or the consummation of the merger; and the execution or delivery of any additional instruments necessary to consummate the merger.

 

Cobalt Holding has agreed to use its reasonable best efforts to arrange the debt financing to fund the proposed merger and related transactions contemplated by the debt financing commitments executed in connection with the merger agreement and to cause its financing sources to fund the financing required to consummate the proposed merger. Intergraph has agreed to cooperate in connection with the financing. See “The Merger — Financing of the Merger” for a description of the financing arranged by Cobalt Holding to fund the proposed merger and related transactions.

 

In the event any portion of the debt financing becomes unavailable, Cobalt Holding has also agreed to use its reasonable best efforts to arrange to obtain alternative financing on terms and conditions not materially less favorable to Cobalt Holding in the aggregate and in no event less favorable as to pricing and economic terms (as determined in Cobalt Holding’s good faith reasonable judgment) than those contemplated by the debt financing commitments as promptly as practicable following the occurrence of the event, but no later than the last day of the marketing period described below.

 

Unless otherwise agreed to by the parties to the merger agreement, the parties are required to close the merger no later than the second business day after the satisfaction or waiver of the conditions described under “ — Conditions to the Merger” below, provided that if the marketing period has not ended at that time, the parties are obligated to close the merger on the date following the satisfaction or waiver of the conditions that is the earliest of a date during the marketing period specified by Merger Sub on no less than three business days’ notice and the final day of the marketing period.

 

For purposes of the merger agreement, “marketing period” means the first period of twenty (20) consecutive calendar days following November 11, 2006 throughout which:

 

 

If the marketing period would not end on or prior to December 19, 2006, the marketing period will be deemed to commence no earlier than January 2, 2007. In addition, the marketing period will not be deemed to have commenced if, prior to the completion of the marketing period, Ernst & Young LLP shall have withdrawn its audit opinion with respect to any financial statements contained in our reports filed with the SEC since January 1, 2003.

 

The purpose of the marketing period is to provide Cobalt Holding a reasonable and appropriate period of time during which it can market and place the debt financing contemplated by the debt financing commitments for the purposes of financing the merger. Cobalt Holding has agreed:

 

 

In addition, in the event that any portion of the debt financing structured as high yield financing has not been consummated, then, subject to certain exceptions, Cobalt Holding must use the proceeds of the bridge financing to replace the high yield financing no later than the last day of the marketing period.

 

With our prior consent, Cobalt Holding may amend the debt commitment letter, which may include changing, among other things, the types and amounts of debt and the terms of the debt used to finance the merger.

 

Conditions to Each Party’s Obligations.  Each party’s obligation to complete the merger is subject to the satisfaction or waiver of the following conditions:

 

 

Conditions to Cobalt Holding’s and Merger Sub’s Obligations.  The obligations of Cobalt Holding and Merger Sub to complete the merger are subject to the satisfaction or waiver of the following additional conditions:

 

 

Conditions to Intergraph’s Obligations.  Our obligation to complete the merger is subject to the satisfaction or waiver of the following further conditions:

 

 

 

If a failure to satisfy one of these conditions to the merger is not considered by our board of directors to be material to our stockholders, our board of directors could waive compliance with that condition. Our board of directors is not aware of any condition to the merger that cannot be satisfied. Under Delaware law, after the merger agreement has been adopted by our stockholders, among other limitations, the merger consideration cannot be changed and the merger agreement cannot be altered in a manner adverse to our stockholders without re-submitting the revisions to our stockholders for their approval.

 

The merger agreement provides that neither we nor our representatives (as defined in the merger agreement) will directly or indirectly:

 

 

 

However, we may (and may authorize and permit our representatives to) at any time prior to the adoption of the merger agreement by our stockholders, in response to an unsolicited takeover proposal (defined below) that is made after the date of the merger agreement and that is a superior proposal (defined below) or is reasonably expected to constitute a superior proposal, if our board of directors determines in good faith (after receiving advice of outside counsel) that doing so would be in the best interests of Intergraph and our stockholders and that the failure to take that action could violate our board of directors’ fiduciary duties to our stockholders under applicable law and after giving Cobalt Holding oral and written notice (including the identity of the other party and the material terms of the inquiry, offer, proposal or request, and, in the case of written materials provided to Intergraph, copies or written summaries of the written materials) within one business day after receiving the proposal:

 

 

In addition, we have agreed that neither our board of directors nor any of its committees will:

 

 

For purposes of these restrictions, an “acquisition proposal” means any transaction or proposed transaction or series of related transactions involving:

 

 

For purposes of these restrictions, a “takeover proposal” means any acquisition proposal or inquiry (other than the transactions contemplated by the merger agreement) that is reasonably likely to lead to an acquisition proposal that:

 

 

For purposes of these restrictions, a “superior proposal” means any takeover proposal:

 

 

Our board of directors may also, at any time prior to the adoption of the merger agreement by our stockholders, withdraw or modify, or publicly propose 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 announce that it has resolved to take that action or terminate the merger agreement and enter into a definitive agreement with respect to a superior proposal if our board of directors concludes in good faith (after consultation with our financial advisor and outside legal counsel) that failure to do so could violate its obligations to comply with its fiduciary duties under applicable law and, and only after (i) we give written notice to Cobalt Holding and Merger Sub at least three business days in advance of the superior proposal and the material terms and conditions of the superior proposal, and (ii) we pay to Cobalt Holding the termination fees described in “— Termination Fees.”

 

Nothing described above limits our ability to take and disclose a position recommending rejection with respect to any tender or exchange offer by a third party pursuant to Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act, or from making any similar disclosure to our stockholders with respect to any takeover proposal; provided, however, that our board of directors shall not:

 

 

The merger agreement may be terminated at any time prior to the consummation of the merger, whether before or after our stockholders have adopted the merger agreement:

 

 

 

 

 

 

 

 

Payable by Intergraph

 

Intergraph has agreed to reimburse Cobalt Holding’s out-of-pocket fees and expenses, up to a limit of $7,000,000, if:

 

 

In addition, Intergraph has agreed to pay Cobalt Holding a termination fee of $33,140,000 if:

 

 

 

 

 

 

 

 

If Intergraph becomes obligated to pay a termination fee pursuant to the last three scenarios listed above, any amounts previously paid to Cobalt Holding as expense reimbursement will be credited toward the termination fee amount payable by Intergraph, and solely for purposes of determining whether a termination fee is payable by us, an “acquisition proposal” is:

 

 

Payable by Cobalt Holding

 

Cobalt Holding has agreed to pay Intergraph a termination fee of $53,020,000 if:

 

 

This 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 Intergraph may pursue a damages claim. The maximum aggregate liability of Cobalt Holding and its affiliates (including 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.

 

The surviving corporation has agreed to pay to each employee who continues as an employee of Intergraph during the benefits continuation period (one year from the date the certificate of merger is filed with the Secretary of State of the State of Delaware) salary, wages, cash incentive opportunities, severance, medical benefits and other welfare benefit plans programs and arrangements (with the exception of any equity compensation programs or defined benefit plans) which are at least comparable in the aggregate to those provided by us prior to the closing of the merger; provided, that with respect to continuing employees who are subject to employment agreements that have not been superseded by agreements with Cobalt Holding, the surviving corporation shall expressly assume the employment agreements, and fulfill all obligations under the employment agreements. During the benefits continuation period, the surviving corporation has agreed to pay, subject to the terms and conditions as it shall establish and the terms of applicable employment agreements, any continuing employee whose employment is involuntarily terminated by Cobalt Holding, the surviving corporation or any of their subsidiaries without cause an amount of severance pay in cash equal to the amount of cash severance pay that would have been payable to the continuing employee under the terms of the severance policy applicable to the continuing employee immediately prior to the date of the merger agreement or, if applicable, the continuing employee’s employment agreement.

 

The merger agreement also provides that the surviving corporation shall:

 

 

Under to the merger agreement, we are also required to suspend our 2005 Employee Stock Purchase Plan, which we refer to as the ESPP, as of the date of the merger agreement and ensure that there are no outstanding rights of participants under the ESPP following its termination as of the effective time of the merger. With respect to persons participating in the ESPP on the date of the merger agreement (and who have not withdrawn from or otherwise ceased participation in the ESPP prior to that date), we must apply accumulated contributions on that date to the purchase of Intergraph common stock in accordance with the ESPP’s terms, and return any remaining balances in the withholding accounts of the participants in the ESPP in accordance with the terms of the ESPP.

 

The merger agreement provides that the certificate of incorporation and/or by-laws of the surviving corporation shall contain provisions with respect to indemnification not less favorable than those set forth in our certificate of incorporation and by-laws as of the date the merger agreement was signed, and the provisions may not be amended, repealed or otherwise modified for a period of six years from the effective time of the merger in any manner that would adversely affect the rights under those provisions of individuals who at, or prior to, the effective time of the merger were directors or officers of Intergraph.

 

In addition, the merger agreement provides that Intergraph shall, to the fullest extent permitted under applicable law or under our certificate of incorporation, by-laws or any applicable indemnification agreements, and regardless of whether the merger becomes effective, indemnify, defend and hold harmless, and, after the effective time of the merger, the surviving corporation shall, and Cobalt Holding shall cause the surviving corporation to, to the fullest extent permitted under applicable law, indemnify, defend and hold harmless each present and former director or officer of Intergraph or any of our subsidiaries against any costs or expenses (including attorneys’ fees), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to (x) the fact that the person is or was an officer, director, employee, agent or other fiduciary of Intergraph or our subsidiary or (y) the merger agreement or the transactions contemplated by the merger agreement, whether in any case asserted or arising before or after the effective time of the merger. The surviving corporation has agreed to, and Cobalt Holding has agreed to cause the surviving corporation to, promptly advance to the party his or her legal expenses (including the cost of any investigation and preparation incurred in connection therewith); provided that any person to whom expenses are advanced provides an undertaking, to the extent then required by the DGCL, to repay the advances if it is finally judicially determined that the person is not entitled to indemnification.

 

The merger agreement also provides that Cobalt Holding shall cause the surviving corporation to honor and fulfill in all respects the obligations of Intergraph pursuant to indemnification agreements with our directors, officers, employees or agents existing at or prior to the effective time of the merger to the fullest extent permitted by applicable law or under the relevant certificate of incorporation or by-laws.

 

The merger agreement further provides that the surviving corporation shall obtain a “tail” insurance policy from an insurance carrier with the same or better credit rating as our current insurance carrier with respect to directors’ and officers’ liability insurance that provides coverage for the six years following the effective time of the merger at least comparable in amount and scope to the coverage provided under our directors and officers insurance policy in effect as of the effective time of the merger for the individuals who are or were directors and officers of Intergraph for claims arising from facts or events occurring prior to the effective time of the merger. If Intergraph is unable to obtain the “tail” insurance policies, for an amount equal to or less than a specified amount, Intergraph shall be entitled to obtain as much comparable “tail” insurance as possible for an amount equal to that specified amount.

 

The parties may amend the merger agreement at any time; provided, however, that after our stockholders adopt the merger agreement, there shall be no amendment that by law requires further approval by our stockholders without the approval having been obtained. All amendments to the merger agreement must be in writing signed by us, Cobalt Holding and Merger Sub.

 

At any time before the consummation of the merger, each of the parties to the merger agreement may, by written instrument:

 

 

Our board of directors recommends that you vote “FOR” the adoption of the merger agreement.

 

Under the DGCL, you have the right to receive payment in cash for the fair value of your Intergraph common stock as determined by the Delaware Court of Chancery, together with a fair rate of interest, if any, as determined by the Chancery Court, in lieu of the consideration you would otherwise be entitled to pursuant to the merger agreement. These rights are known as appraisal rights. Intergraph’s stockholders electing to exercise appraisal rights must comply with the provisions of Section 262 of the DGCL in order to perfect their rights. Intergraph will require strict compliance with the statutory procedures.

 

The following is intended as a brief summary of the material provisions of the Delaware statutory procedures required to be followed by a stockholder in order to perfect appraisal rights. This summary, however, is not a complete statement of all applicable requirements and is qualified in its entirety by reference to Section 262 of the DGCL, the full text of which appears in Annex C to this proxy statement. Failure to precisely follow any of the statutory procedures set forth in Section 262 of the DGCL may result in a termination or waiver of your appraisal rights.

 

Section 262 requires that stockholders be notified that appraisal rights will be available not less than 20 days before the stockholders’ meeting to vote on the merger. A copy of Section 262 must be included with the notice. This proxy statement constitutes Intergraph’s notice to our stockholders of the availability of appraisal rights in connection with the merger in compliance with the requirements of Section 262. If you wish to consider exercising your appraisal rights, you should carefully review the text of Section 262 contained in Annex C since failure to timely and properly comply with the requirements of Section 262 will result in the loss of your appraisal rights under the DGCL.

 

If you elect to demand appraisal of your shares, you must satisfy each of the following conditions:

 

 

All demands for appraisal should be addressed to Intergraph Corporation, One Madison Industrial Park, Huntsville, Alabama, Attention: Corporate Secretary, and must be delivered before the vote on the merger agreement is taken at the special meeting, and should be executed by, or on behalf of, the record holder of the shares of Intergraph common stock. The demand must reasonably inform Intergraph of the identity of the stockholder and the intention of the stockholder to demand appraisal of his, her or its shares.

 

To be effective, a demand for appraisal by a holder of Intergraph common stock must be made by, or in the name of, the registered stockholder, fully and correctly, as the stockholder’s name appears on his or her stock certificate(s). Beneficial owners who do not also hold the shares of record may not directly make appraisal demands to Intergraph. The beneficial holder must, in such cases, have the registered owner, such as a broker or other nominee, submit the required demand in respect of those shares. If shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of a demand for appraisal should be made by or for the fiduciary; and if the shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or for all joint owners. An authorized agent, including an authorized agent for two or more joint owners, may execute the demand for appraisal for a stockholder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, he or she is acting as agent for the record owner. A

record owner, such as a broker, who holds shares as a nominee for others, may exercise his or her right of appraisal with respect to the shares held for one or more beneficial owners, while not exercising this right for other beneficial owners. In that case, the written demand should state the number of shares as to which appraisal is sought. Where no number of shares is expressly mentioned, the demand will be presumed to cover all shares held in the name of the record owner.

 

If you hold your shares of Intergraph common stock in a brokerage account or in other nominee form and you wish to exercise appraisal rights, you should consult with your broker or the other nominee to determine the appropriate procedures for the making of a demand for appraisal by the nominee.

 

Within 10 days after the effective time of the merger, the surviving corporation must give written notice that the merger has become effective to each Intergraph stockholder who has properly filed a written demand for appraisal and who did not vote in favor of the merger agreement. At any time within 60 days after the effective time, any stockholder who has demanded an appraisal has the right to withdraw the demand and to accept the cash payment specified by the merger agreement for his or her shares of Intergraph common stock. Within 120 days after the effective date of the merger, any stockholder who has complied with Section 262 shall, upon written request to the surviving corporation, be entitled to receive a written statement setting forth the aggregate number of shares not voted in favor of the merger agreement and with respect to which demands for appraisal rights have been received and the aggregate number of holders of the shares. The written statement will be mailed to the requesting stockholder within 10 days after the written request is received by the surviving corporation or within 10 days after expiration of the period for delivery of demands for appraisal, whichever is later. Within 120 days after the effective time, either the surviving corporation or any stockholder who has complied with the requirements of Section 262 may file a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares held by all stockholders entitled to appraisal. Upon the filing of the petition by a stockholder, service of a copy of the petition shall be made upon the surviving corporation. The surviving corporation has no obligation to file a petition in the event there are dissenting stockholders. Accordingly, the failure of a stockholder to file a petition within the period specified could nullify the stockholder’s previously written demand for appraisal.

 

If a petition for appraisal is duly filed by a stockholder and a copy of the petition is delivered to the surviving corporation, the surviving corporation will then be obligated, within 20 days after receiving service of a copy of the petition, to provide the Chancery Court with a duly verified list containing the names and addresses of all stockholders who have demanded an appraisal of their shares and with whom agreements as to the value of their shares have not been reached by the surviving corporation. After notice to dissenting stockholders who demanded appraisal of their shares, the Chancery Court is empowered to conduct a hearing upon the petition, and to determine those stockholders who have complied with Section 262 and who have become entitled to the appraisal rights provided thereby. The Chancery Court may require the stockholders who have demanded payment for their shares to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with that direction, the Chancery Court may dismiss the proceedings as to that stockholder.

 

After determination of the stockholders entitled to appraisal of their shares of the Intergraph common stock, the Chancery Court will appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger, together with a fair rate of interest, if any. When the value is determined, the Chancery Court will direct the payment of that value, with interest thereon accrued during the pendency of the proceeding, if the Chancery Court so determines, to the stockholders entitled to receive the same, upon surrender by the holders of the certificates representing those shares.

 

In determining fair value, the Chancery Court is required to take into account all relevant factors. You should be aware that the fair value of your shares as determined under Section 262 could be more than, the same as, or less than the value that you are entitled to receive under the terms of the merger agreement.

Costs of the appraisal proceeding (which do not include attorneys’ fees or the fees and expenses of experts) may be imposed upon the surviving corporation and the stockholders participating in the appraisal proceeding by the Chancery Court as the Chancery Court deems equitable in the circumstances. Upon the application of a stockholder, the Chancery Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts, to be charged pro rata against the value of all shares entitled to appraisal. Any stockholder who had demanded appraisal rights will not, after the effective time of the merger, be entitled to vote shares subject to that demand for any purpose or to receive payments of dividends or any other distribution with respect to those shares, other than with respect to payment as of a record date prior to the effective time; however, if the stockholder delivers a written withdrawal of his or her demand for appraisal and an acceptance of the terms of the merger within 60 days after the effective time of the merger, then the right of that stockholder to appraisal will cease and that stockholder will be entitled to receive the cash payment for shares of his, her or its Intergraph common stock pursuant to the merger agreement. Any withdrawal of a demand for appraisal made more than 60 days after the effective time of the merger may only be made with the written approval of the surviving corporation. In addition, no appraisal proceeding may be dismissed as to any stockholder without the approval of the Chancery Court and such approval may be conditioned upon such terms as the Chancery Court deems just.

 

In view of the complexity of Section 262, Intergraph’s stockholders who may wish to pursue appraisal rights should consult their legal advisors.

 

Intergraph common stock is listed for trading on the NASDAQ under the symbol “INGR.” The following table sets forth, for the fiscal quarters indicated, the high and low sales prices per share as reported on the NASDAQ composite tape for Intergraph common stock.

 

 

The closing sale price of Intergraph common stock on the NASDAQ on August 30, 2006, the last trading day prior to the announcement of the merger, 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 22% to the average closing price for the 20 trading days ended August 30, 2006. On October 13, 2006, the most recent practicable date before this proxy statement was printed, the closing price for the Intergraph common stock on the NASDAQ was $43.13 per share. You are encouraged to obtain current market quotations for Intergraph common stock in connection with voting your shares.

Intergraph has never declared or paid a cash dividend on the Intergraph common stock. It is the present policy of our board of directors not to declare or pay cash dividends on the Intergraph common stock, and we are currently restricted by the merger agreement from paying cash dividends.

 

 

The following table sets forth information as of October 11, 2006, concerning the common stock of Intergraph beneficially owned by (1) each person who is known to us to own beneficially more than 5% of our outstanding common stock, (2) each of our directors, (3) our chief executive officer and our four most highly compensated executive officers other than the chief executive officer who were serving as executive officers at the end of the last completed fiscal year, and (4) all officers and directors as a group.

 

Number Of Shares And Nature Of Beneficial Ownership

 

 

 

 

 

 

 

 

 

The consolidated financial statements of Intergraph and our management’s assessment of the effectiveness of internal control over financial reporting included in the Annual Report on Form 10-K for the year ended December 31, 2005, incorporated by reference in this proxy statement, have been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their reports appearing in the Annual Report on Form 10-K.

 

Intergraph may ask our stockholders to vote on a proposal to adjourn 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. We currently do not intend to propose adjournment at our special meeting if there are sufficient votes to adopt the merger agreement. If the proposal to adjourn our special meeting for the purpose of soliciting additional proxies is submitted to our stockholders for approval, the approval requires the affirmative vote of the holders of a majority of the shares of Intergraph common stock present or represented by proxy and entitled to vote on the matter.

 

Our board of directors recommends that you vote “FOR” the adjournment of the special meeting, if necessary, to solicit additional proxies.

 

As of the date of this proxy statement, our board of directors knows of no matters that will be presented for consideration at the special meeting other than as described in this proxy statement.

 

If the merger is consummated, we will not have public stockholders and there will be no public participation in any future meeting of stockholders. However, if the merger is not completed, we expect to hold a 2007 annual meeting of stockholders. Stockholders’ proposals will be eligible for consideration for inclusion in the proxy statement for the 2007 annual meeting pursuant to Rule 14a-8 under the Exchange Act if the proposals are received by Intergraph before the close of business on December 28, 2006. Notices of stockholders’ proposals submitted outside the processes of Rule 14a-8 will generally be considered timely (but not considered for inclusion in our proxy statement), pursuant to the advance notice requirement set forth in our by-laws, if the notices are filed with our Secretary not less than 60 days nor more than 90 days prior to the first anniversary of the 2006 Annual Meeting of stockholders in the manner specified in the by-laws. For proposals that are not timely filed, the named proxies will retain discretion to vote proxies that Intergraph receives and will exercise authority in accordance with the recommendation of the board of directors. For proposals that are timely filed, the named proxies will retain discretion to vote proxies that Intergraph receives provided (1) Intergraph includes in its proxy statement advice on the nature of the proposal and how the

named proxies intend to exercise their voting discretion and (2) the proponent does not issue a proxy statement.

 

Some banks, brokers, and other nominee record holders may be participating in the practice of “householding” proxy statements and annual reports. This means that only one copy of this notice and proxy statement may have been sent to multiple stockholders in your household. If you would prefer to receive separate copies of a proxy statement or annual report either now or in the future, please contact your bank, broker or other nominee. Upon written or oral request to the Office of Investor Relations at Intergraph Corporation, One Madison Industrial Park, Huntsville, Alabama 35894, (256) 730-2000, we will provide a separate copy of the annual reports and proxy statements. In addition, security holders sharing an address can request delivery of a single copy of annual reports or proxy statements if you are receiving multiple copies upon written or oral request to the Office of Investor Relations at the address and telephone number stated above.

 

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any document we file at the SEC’s public reference room located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our SEC filings are also available to the public at the SEC’s website at http://www.sec.gov. You also may obtain free copies of the documents Intergraph files with the SEC by going to the “Investors Relations” section of our website at 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 therefore is not incorporated by reference.

 

Statements contained in this proxy statement, or in any document incorporated in this proxy statement by reference regarding the contents of any contract or other document, are not necessarily complete and each statement is qualified in its entirety by reference to that contract or other document filed as an exhibit with the SEC. The SEC allows us to “incorporate by reference” into this proxy statement documents we file with the SEC. This means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be a part of this proxy statement, and later information that we file with the SEC will update and supersede that information. We incorporate by reference the documents listed below and any documents filed by us pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this proxy statement and before the date of the special meeting:

 

 

Notwithstanding the foregoing, information furnished under Items 2.02 and 7.01 of any Current Report on Form 8-K, including the related exhibits, is not incorporated by reference in this proxy statement.

 

You may request a copy of the documents incorporated by reference into this proxy statement, excluding certain exhibits, by writing to or telephoning us. Requests for documents should be directed to the Office of Investor Relations, Intergraph Corporation, One Madison Industrial Park, Huntsville, Alabama 35894, telephone: (256) 730-2720. If you would like to request documents from us, please do so at least five business days before the date of the special meeting in order to receive timely delivery of those documents prior to the special meeting.

 

THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE A PROXY SOLICITATION IN THAT JURISDICTION. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT TO VOTE YOUR SHARES AT THE SPECIAL MEETING. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT IS DATED OCTOBER 19, 2006. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND THE MAILING OF THIS PROXY STATEMENT TO STOCKHOLDERS DOES NOT CREATE ANY IMPLICATION TO THE CONTRARY.

ANNEX A

 

 

AGREEMENT AND PLAN OF MERGER
by and among
COBALT HOLDING COMPANY,
COBALT MERGER CORP.,
and
INTERGRAPH CORPORATION
Dated as of August 31, 2006

 

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