Re: Convertible Bond Hedge Transaction

Hedge Agreement

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This Hedge Agreement involves

AMERIGROUP CORP

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Title: Re: Convertible Bond Hedge Transaction
Governing Law: New York Date: 4/3/2007
Industry: INSACC

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exv10w1

Exhibit 10.1

Opening Transaction


		AMERIGROUP Corporation
To:		4425 Corporation Lane
		Virginia Beach, VA 23462

A/C:		[Insert Account Number]

From:		Wells Fargo Bank, National Association

Re:		Convertible Bond Hedge Transaction

Ref. No:		[Insert Reference Number]

Date:		March 22, 2007

Dear Sir(s):

The purpose of this communication (this “Confirmation”) is to set forth the terms and conditions of the above-referenced transaction entered into on the Trade Date specified below (the “Transaction”) between Wells Fargo Bank, National Association (“Dealer”) and AMERIGROUP Corporation (“Counterparty”). This communication constitutes a “Confirmation” as referred to in the ISDA Master Agreement specified below.

1. This Confirmation is subject to, and incorporates, the definitions and provisions of the 2000 ISDA Definitions (including the Annex thereto) (the “2000 Definitions”) and the definitions and provisions of the 2002 ISDA Equity Derivatives Definitions (the “Equity Definitions”, and together with the 2000 Definitions, the “Definitions”), in each case as published by the International Swaps and Derivatives Association, Inc. (“ISDA”). In the event of any inconsistency between the 2000 Definitions and the Equity Definitions, the Equity Definitions will govern. Certain defined terms used herein have the meanings assigned to them in the Indenture to be dated as of March 28, 2007 between Counterparty and The Bank of New York, N.A., as trustee (the “Indenture”) relating to the USD240,000,000 principal amount of the 2.00% convertible senior notes due 2012 (the “Convertible Debentures”). In the event of any inconsistency between the terms defined in the Indenture and this Confirmation, this Confirmation shall govern. For the avoidance of doubt, (i) the Transaction shall be the only transaction under the Agreement and (ii) references herein to sections of the Indenture are based on the draft of the Indenture most recently reviewed by the parties at the time of execution of this Confirmation. If any relevant sections of the Indenture are changed, added or renumbered between the execution of this Confirmation and the execution of the Indenture, the parties will amend this Confirmation in good faith to preserve the economic intent of the parties. Furthermore, for the avoidance of doubt, even if all Convertible Debentures cease to be outstanding prior to the Expiration Date (as set forth below), for purposes of the references herein to sections of the Indenture, the Convertible Debentures shall be deemed to remain outstanding. The parties further acknowledge that references to the Indenture herein are references to the Indenture as in effect on the date of its execution and if the Indenture is amended following its execution, any such amendment will be disregarded for purposes of this Confirmation unless the parties agree otherwise in writing. The Transaction is subject to early unwind if the closing of the Convertible Debentures is not consummated for any reason, as set forth below in Section 8(k).

Each party is hereby advised, and each such party acknowledges, that the other party has engaged in, or refrained from engaging in, substantial financial transactions and has taken other material actions in reliance upon the parties’ entry into the Transaction to which this Confirmation relates on the terms and conditions set forth below.

This Confirmation evidences a complete and binding agreement between Dealer and Counterparty as to the terms of the Transaction to which this Confirmation relates. This Confirmation shall be subject to an agreement (the “Agreement”) in the form of the 1992 ISDA Master Agreement as if Dealer and Counterparty had executed an agreement in such form on the date hereof (but without any Schedule except for (i) the election of Loss and Second Method and US Dollars (“USD”) as the Termination Currency, (ii) the replacement of the word “third” in the last line of Section 5(a)(i) with the word “first” and (iii) the election that the “Cross Default” provisions of Section 5(a)(vi) shall apply to Counterparty, with a “Threshold Amount” of USD10 million).

All provisions contained in, or incorporated by reference to, the Agreement will govern this Confirmation except as expressly modified herein. In the event of any inconsistency between this Confirmation and either the Definitions or the Agreement, this Confirmation shall govern.

2. The Transaction constitutes a Share Option Transaction for purposes of the Equity Definitions. The terms of the particular Transaction to which this Confirmation relates are as follows:

General Terms:


		Trade Date:		March 22, 2007

		Effective Date:		March 28, 2007 or such other date as agreed by the parties.

		Option Style:		American

		Option Type:		Call

		Seller:		Dealer

		Buyer:		Counterparty

		Shares:		The Common Stock of Counterparty, par value USD0.01 per share (Ticker Symbol: “AGP”).

		Number of Options:		The number of Convertible Debentures in denominations of USD1,000 principal amount issued by Counterparty on the closing date for the initial issuance of the Convertible Debentures; provided that the Number of Options shall be automatically increased as of the date of exercise by Goldman, Sachs & Co. (“GS & Co.”), as representative of the several Purchasers (as defined in the Purchase Agreement), of its option pursuant to Section 2 of the Purchase Agreement dated as of March 22, 2007 between Counterparty and GS & Co. as representative of the several Purchasers party thereto (the “Purchase Agreement”) by the number of Convertible Debentures in denominations of USD1,000 principal amount issued pursuant to such exercise (such Convertible Debentures, the “Additional Convertible Debentures”). For the avoidance of doubt, the Number of Options outstanding shall be reduced by each exercise of Options hereunder.

		Option Entitlement:		As of any date, a number of Shares per Option equal to the Conversion Rate (as defined in the Indenture, but without regard to any adjustments to the Conversion Rate pursuant to Section 12.01(e) or 12.05(f) of the Indenture) as of such date.


	Strike Price:	As of any date, an amount in USD, rounded to the nearest cent (with 0.5 cents being rounded upwards), equal to USD1,000 divided by the Option Entitlement as of such date.

	Number of Shares:	The product of the Number of Options and the Option Entitlement.

	Premium:	USD48,648,000.00 (Premium per Option USD202.70); provided that if the Number of Options is increased pursuant to the proviso to the definition of “Number of Options” above, an additional Premium equal to the product of the number of Options by which the Number of Options is so increased and the Premium per Option shall be paid on the Additional Premium Payment Date.

	Premium Payment Date:	The Effective Date

	Additional Premium Payment Date:	The closing date for the purchase and sale of the Additional Convertible Debentures.

	Exchange:	New York Stock Exchange

	Related Exchange:	All Exchanges

Procedures for Exercise:

	Independent Threshold Date:	The earlier to occur of (x) any Conversion Date (as defined below) that is not also an Exercise Date and (y) the first Exercise Date on which Counterparty exercises a number of Options not equal to the number of Relevant Convertible Debentures (as defined below) on such date, if any.

	Conversion Date:	Each “Conversion Date”, as defined in the Indenture, occurring during the Exercise Period for Convertible Debentures other than Convertible Debentures with respect to which Counterparty makes the direction described in Section 12.02(a)(3) of the Indenture and the financial institution designated by Counterparty accepts such Convertible Debentures in accordance with Section 12.02(a)(3) of the Indenture (such Convertible Debentures, other than those excluded above (each in denominations of USD1,000 principal amount), the “Relevant Convertible Debentures” for such Conversion Date). For the avoidance of doubt, Convertible Debentures are “accepted” for purposes of the foregoing upon the earlier of the declaration of the designated financial institution’s agreement to exchange such Convertible Debentures or delivery of such Convertible Debentures to such financial institution for purposes of such exchange.

	Exercise Period:	The period from and excluding the Trade Date to and including the Expiration Date.

	Expiration Date:	The third Scheduled Trading Day immediately preceding the “Maturity Date”, as defined in the Indenture.

	Multiple Exercise:	Applicable


		Minimum Number of Options:		Zero

		Maximum Number of Options:		Number of Options

		Integral Multiple:		One

		Automatic Exercise:		Applicable; subject to the provisions of “Notice of Exercise” below.

		Notice of Exercise:		Notwithstanding anything to the contrary in the Equity Definitions, (x) in order for Counterparty to exercise any Options on any Exercise Date that precedes the Independent Threshold Date, Counterparty or the “Trustee”, as defined in the Indenture, must have notified Dealer and the Calculation Agent in writing prior to 5:00 PM, New York City time, on the Scheduled Trading Day prior to the first Scheduled Trading Day of the “Observation Period”, as defined in the Indenture, relating to the Convertible Debentures converted on the Conversion Date on which such Exercise Date occurs (the “Notice Deadline”) of (i) the relevant Exercise Date, (ii) the number of Options being exercised on such Exercise Date and, for each holder of Convertible Debentures being converted on such Exercise Date, the aggregate principal amount of the Relevant Convertible Debentures held by such holder that will be so converted, (iii) the scheduled settlement date under the Indenture for the Convertible Debentures converted on the Conversion Date on which such Exercise Date occurs, (iv) the first day of the relevant Observation Period and (v) the applicable Cash Percentage as defined in the Indenture; provided that, notwithstanding the foregoing, such notice shall be effective so long as it relates to an Exercise Date that precedes the Independent Threshold Date and the notice is given after the Notice Deadline but prior to 5:00 PM (New York City time) on the fifth Exchange Business Day of such Observation Period and prior to the Independent Threshold Date (it being understood that such delayed notice does not itself cause the Independent Threshold Date to occur), in which event the Calculation Agent shall have the right to adjust the Delivery Obligation as appropriate to reflect the additional costs (including, but not limited to, hedging mismatches and market losses) and expenses incurred by Dealer or Hedging Party or any of their respective affiliates in connection with their hedging activities (including the unwinding of any hedge position) as a result of their not having received such notice prior to the Notice Deadline; and (y) in order to exercise any Options on any Exercise Date that is or is following the Independent Threshold Date, Counterparty must notify Dealer and the Calculation Agent in writing prior to 5:00 PM, New York City time, on the Exchange Business Day prior to the first Scheduled Trading Day of the


	“Observation Period”, as defined in the Indenture, determined as if the Exercise Date were a Conversion Date, of (i) the relevant Exercise Date, (ii) the number of Options being exercised on such Exercise Date, (iii) the first day of the Observation Period (determined in accordance with Section 1.01 of the Indenture for the Convertible Debentures converted on the corresponding Conversion Date, if any, or, if such Exercise Date did not occur on a Conversion Date, determined in accordance with Section 1.01 of the Indenture as if such Exercise Date were a Conversion Date) and (v) the applicable Cash Percentage and, with respect to this clause (y) except in relation to any Exercise Date occurring during the period from and including the 25^th Scheduled Trading Day prior to the “Maturity Date” to and including the Expiration Date (the “Final Conversion Period”), Counterparty shall also make in such notice written representations, warranties and agreements set forth in Section 7(a)(i) hereof. Notwithstanding the foregoing, in respect of Options with an Exercise Date occurring during the Final Conversion Period, (a) the Notice Deadline shall be 12:00 p.m. (New York City time) on the Scheduled Trading Day immediately following the relevant Exercise Date and the content of such notice shall be as set forth in clauses (x)(i) and (x)(ii) or (y)(i) and (y)(ii) above, as applicable, and (b) Counterparty shall notify Dealer and the Calculation Agent of the applicable Cash Percentage on the date it notifies the Trustee (as defined in the Indenture) thereof, but in no event later than the Scheduled Trading Day immediately preceding the first day of the Final Conversion Period. For the avoidance of doubt, if an exercise of Options is in connection with a conversion of Convertible Debentures, Counterparty shall designate the Exercise Date in its Notice of Exercise as the corresponding Conversion Date.

Dealer’s Telephone Number and Telex and/or Facsimile Number and Contact Details for purpose of Giving Notice:	To:	Wells Fargo Bank, N.A.
		550 California Street
		14th Floor
		San Francisco, CA 94104

	Attn:	Financial Products Documentation Group Equities Trading Manager

	Telephone:	(415) 396-3962
	Facsimile:	(415) 646-9208

	With a copy to:

	Attn:	Michele Beasley


		Facsimile:	(415) 646-9208

	Calculation Agent’s Telephone Number and Telex and/or Facsimile Number and Contact Details for purpose of
	Giving Notice:	All communications relating to the Transaction or the Agreement shall be transmitted exclusively:

		Through:	Goldman, Sachs & Co.
			One New York Plaza
			New York, NY 10004

		Attn:	Equity Operations:
			Options and Derivatives
		Telephone:	(212) 902-1981
		Facsimile:	(212) 428-1980/1983

		With a copy to:

		Attn:	Tracey McCabe
			Equity Capital Markets
		Telephone:	(212) 357-0428
		Facsimile:	(212) 902-3000

Settlement Terms:

	Settlement Date:	In respect of an Exercise Date occurring on a Conversion Date, the settlement date for the Shares to be delivered in respect of the Convertible Debentures being converted on such Conversion Date under the terms of the Indenture. In respect of any other Exercise Date, the date one Settlement Cycle immediately following the last day of the relevant Observation Period, determined as if such Exercise Date were a Conversion Date.

	Delivery Obligation: