PREM14A 1 d390909dprem14a.htm PRELIMINARY PROXY STATEMENT Preliminary Proxy Statement
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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  x                            Filed by a Party other than the Registrant  ¨

Check the appropriate box

 

x  

Preliminary Proxy Statement

 

¨  

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

 

¨  

Definitive Proxy Statement

 

¨  

Definitive Additional Materials

 

¨  

Soliciting Material Pursuant to § 240.14a-12

AMERIGROUP 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):

 

¨  

No fee required.

 

x  

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

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

Common stock, par value $0.01 per share, of AMERIGROUP Corporation

 

 

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

57,170,417 shares of common stock, which consists of: (i) 48,785,211 shares of common stock issued and outstanding as of August 1, 2012 (including shares of restricted common stock) and restricted stock units outstanding as of August 1, 2012; (ii) 2,272,242 shares of common stock underlying options to purchase shares of common stock outstanding as of August 1, 2012; and (iii) 6,112,964 shares of common stock underlying warrants to purchase shares of common stock outstanding as of August 1, 2012

 

 

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

In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying $0.00011460 by the underlying value of the transaction of $4,857,749,930, which has been calculated as the sum of: (a) the product of 48,785,211 issued and outstanding shares of common stock (including shares of restricted common stock) and restricted stock units outstanding as of August 1, 2012 and the merger consideration of $92.00 per share; plus (b) the product of: (i) 2,272,242 shares of common stock underlying options to purchase shares of common stock outstanding as of August 1, 2012, and (ii) the difference between $92.00 per share and the weighted-average exercise price of such options of $32.23 per share; plus (c) the product of: (i) 6,112,964 shares of common stock underlying warrants to purchase shares of common stock outstanding as of August 1, 2012, and (ii) the difference between $92.00 per share and the strike price of such warrants of $53.77 per share

 

 

  (4) Proposed maximum aggregate value of transaction:

$4,857,749,930

 

 

  (5) Total fee paid:

$556,698.14

 

 

¨  

Fee paid previously with preliminary materials.

 

¨  

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

 

  (1) Amount Previously Paid:

 

      

 

 

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

 

      

 

 

  (3) Filing Party:

 

      

 

 

  (4) Date Filed:

 

  

 

 

 

 


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PRELIMINARY PROXY STATEMENT—SUBJECT TO COMPLETION

DATED AUGUST 6, 2012

 

LOGO

[                    ], 2012

Dear Stockholder:

AMERIGROUP Corporation (“Amerigroup”) and WellPoint, Inc. (“WellPoint”) have entered into an Agreement and Plan of Merger, dated as of July 9, 2012 (as it may be amended from time to time, the “merger agreement”), providing for the acquisition of Amerigroup by WellPoint. Pursuant to the terms of the merger agreement, an indirect wholly-owned subsidiary of WellPoint will be merged with and into Amerigroup, with Amerigroup surviving the merger as an indirect wholly-owned subsidiary of WellPoint (the “merger”).

If the merger is completed, Amerigroup stockholders will have the right to receive $92.00 in cash, without interest and less any applicable withholding taxes, for each share of common stock, par value $0.01 per share, of Amerigroup (“Amerigroup common stock”) that they own immediately prior to the effective time of the merger.

We will hold a special meeting of our stockholders in connection with the proposed merger (the “special meeting”) on [                    ], 2012 at [            ], local time. At the special meeting, stockholders will be asked to vote on the proposal to adopt the merger agreement. The proposal to adopt the merger agreement will be approved if the holders of a majority of the outstanding shares of Amerigroup common stock entitled to vote at the special meeting vote to adopt the merger agreement.

We cannot complete the merger unless Amerigroup stockholders adopt the merger agreement. Your vote is very important, regardless of the number of shares you own. Whether or not you expect to attend the special meeting in person, please vote or otherwise submit a proxy to vote your shares as promptly as possible so that your shares may be represented and voted at the special meeting.

The Amerigroup board of directors has determined that the merger agreement, the merger and the other transactions contemplated thereby are advisable, fair to and in the best interests of Amerigroup and its stockholders and has approved the merger agreement and the merger. After careful consideration, the Amerigroup board of directors recommends that Amerigroup stockholders vote “FOR” the proposal to adopt the merger agreement.

In addition, the Securities and Exchange Commission has adopted rules that require us to seek a non-binding, advisory vote with respect to certain payments that will or may be made to Amerigroup’s named executive officers by Amerigroup based on or otherwise relating to the merger. The Amerigroup board of directors recommends that Amerigroup stockholders vote “FOR” the named executive officer merger-related compensation proposal described in the accompanying proxy statement.

The obligations of Amerigroup and WellPoint to complete the merger are subject to the satisfaction or waiver of certain conditions. The accompanying proxy statement contains detailed information about Amerigroup, the special meeting, the merger agreement and the merger.

On behalf of your board of directors, thank you for your continued support.

Sincerely,

James G. Carlson

Chairman, Chief Executive Officer and President

AMERIGROUP Corporation


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Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the merger, passed upon the merits of the merger agreement or the transactions contemplated thereby, which would include the merger, or determined if this proxy statement is accurate or complete. Any representation to the contrary is a criminal offense.

This proxy statement is dated [                    ], 2012 and is first being mailed to Amerigroup stockholders on or about [                    ], 2012.


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PRELIMINARY PROXY STATEMENT—SUBJECT TO COMPLETION

DATED AUGUST 6, 2012

 

LOGO

AMERIGROUP Corporation

4425 Corporation Lane

Virginia Beach, Virginia 23462

(757) 490-6900

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To Be Held On [                    ], 2012

Dear Stockholder:

On [                    ], [                    ], 2012, AMERIGROUP Corporation (“Amerigroup”) will hold a special meeting of stockholders in the Hargroves Conference Center located at the Amerigroup National Support Center II, 1330 Amerigroup Way, Virginia Beach, Virginia 23464. The meeting will begin at [            ], local time, and is being held for the following purposes:

 

   

to consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of July 9, 2012, by and among WellPoint, Inc. (“WellPoint”), Amerigroup and WellPoint Merger Sub, Inc., an indirect wholly-owned subsidiary of WellPoint (as it may be amended from time to time, the “merger agreement”), a copy of which is included as Annex A to the proxy statement of which this notice forms a part, and pursuant to which an indirect wholly-owned subsidiary of WellPoint will be merged with and into Amerigroup, with Amerigroup surviving the merger as an indirect wholly-owned subsidiary of WellPoint (the “merger”);

 

   

to approve an adjournment of the special meeting of stockholders of Amerigroup (the “special meeting”), if necessary or appropriate in the view of the board of directors of Amerigroup (the “Amerigroup board of directors”), to solicit additional proxies in favor of the proposal to adopt the merger agreement if there are not sufficient votes at the time of such adjournment to adopt the merger agreement; and

 

   

to consider and vote on a proposal to approve, on a non-binding, advisory basis, certain compensation that will or may become payable by Amerigroup to its named executive officers that is based on or otherwise relates to the merger.

Only stockholders that owned our common stock at the close of business on [                    ], 2012 are entitled to notice of and may vote at this meeting. A list of our record stockholders will be available at our corporate headquarters located at 4425 Corporation Lane, Virginia Beach, Virginia 23462, during ordinary business hours for 10 days prior to the special meeting.

Adoption of the merger agreement requires the affirmative vote of holders of a majority of the outstanding shares of Amerigroup’s common stock, par value $0.01 per share (“Amerigroup common stock”), entitled to vote on the proposal. The Amerigroup board of directors recommends that Amerigroup stockholders vote “FOR” the proposal to adopt the merger agreement.


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YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, TO ENSURE THE PRESENCE OF A QUORUM, PLEASE VOTE OVER THE INTERNET OR BY TELEPHONE PURSUANT TO THE INSTRUCTIONS CONTAINED IN THESE MATERIALS OR COMPLETE, DATE, SIGN, AND RETURN A PROXY CARD AS PROMPTLY AS POSSIBLE. IF YOU ATTEND THE MEETING AND WISH TO VOTE YOUR SHARES PERSONALLY, YOU MAY DO SO AT ANY TIME BEFORE THE PROXY IS EXERCISED.

Please note that we intend to limit attendance at the special meeting to stockholders as of the record date (or their authorized representatives). If your shares are held by a broker, bank or other nominee, please bring to the special meeting your account statement evidencing your beneficial ownership of Amerigroup common stock as of the record date. All stockholders should also bring photo identification.

The accompanying proxy statement provides a detailed description of the merger and the merger agreement. We urge you to read this proxy statement, including any documents incorporated by reference, and the Annexes carefully and in their entirety. If you have any questions concerning the merger or the proxy statement of which this notice forms a part, would like additional copies of the proxy statement or need help voting your shares of Amerigroup common stock, please contact Amerigroup’s proxy solicitor:

Morrow & Co., LLC

470 West Avenue

Stanford, CT 06902

Call Toll-Free: (800) 607-0088

Call Collect: (203) 658-9400

 

By Order of the Board of Directors of AMERIGROUP Corporation,
Nicholas J. Pace
Executive Vice President, General Counsel and Secretary

Virginia Beach, Virginia

[                    ], 2012


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SUMMARY

     1   

QUESTIONS AND ANSWERS

     11   

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     18   

THE COMPANIES

     19   

THE SPECIAL MEETING

     21   

THE MERGER

     25   

Effects of the Merger

     25   

Background of the Merger

     26   

Amerigroup’s Reasons for the Merger

     42   

Recommendation of the Amerigroup Board of Directors

     47   

Opinions of Financial Advisors

     47   

Certain Projections Prepared by the Management of Amerigroup

     62   

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

     65   

Quantification of Potential Payments to Named Executive Officers in Connection with the Merger

     71   

Financing Related to the Merger

     73   

Regulatory Clearances and Approvals Required for the Merger

     74   

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

     74   

Delisting and Deregistration of Amerigroup Common Stock

     75   

Appraisal Rights

     75   

THE MERGER AGREEMENT

     76   

Terms of the Merger; Merger Consideration; Certificate of Incorporation; Bylaws; Directors

     76   

Completion of the Merger

     77   

Treatment of Equity Awards

     77   

Exchange of Shares in the Merger

     78   

Lost, Stolen or Destroyed Certificates

     79   

Representations and Warranties

     79   

Covenants Regarding Conduct of Business by Amerigroup Pending the Merger

     84   

No Solicitation of Proposals for an Alternative Transaction; Changes in Board Recommendation

     86   

Required Company Vote

     88   

Consents, Approvals and Filings

     88   

Employee Benefits Matters

     90   

Directors’ and Officers’ Indemnification and Insurance

     90   

Financing of the Merger

     91   

Other Covenants and Agreements

     92   

Conditions to Completion of the Merger

     93   

Termination of the Merger Agreement

     94   

Expenses and Termination Fee; Effect of Termination

     95   

Specific Performance

     96   

Third Party Beneficiaries

     96   

Amendments, Waivers

     96   

VOTE ON ADJOURNMENT

     97   

MARKET PRICE OF AMERIGROUP COMMON STOCK AND DIVIDEND INFORMATION

     98   

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     99   

ADVISORY VOTE ON NAMED EXECUTIVE OFFICER MERGER-RELATED COMPENSATION ARRANGEMENTS

     101   

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO U.S. HOLDERS

     102   

Tax Consequences of the Merger Generally

     103   

Backup Withholding

     103   


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APPRAISAL RIGHTS

     104   

FUTURE AMERIGROUP STOCKHOLDER PROPOSALS

     108   

WHERE YOU CAN FIND MORE INFORMATION

     108   

ANNEX A        Agreement and Plan of Merger

     A-1   

ANNEX B        Opinion of Goldman, Sachs & Co.

     B-1   

ANNEX C        Opinion of Barclays Capital Inc.

     C-1   

ANNEX D         Section 262 of the General Corporation Law of the State of Delaware

     D-1   


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SUMMARY

This summary highlights information contained elsewhere in this proxy statement and may not contain all the information that is important to you with respect to the merger. We urge you to read the remainder of this proxy statement carefully, including the attached Annexes, and the other documents to which we have referred you. See also the section entitled “Where You Can Find More Information” beginning on page 108. We have included page references in this summary to direct you to a more complete description of the topics presented below.

All references to “Amerigroup,” “we,” “us,” or “our” in this proxy statement refer to AMERIGROUP Corporation, a Delaware corporation; all references in this proxy statement to “WellPoint” refer to WellPoint, Inc., an Indiana corporation; all references to “Merger Sub” refer to WellPoint Merger Sub, Inc., a Delaware corporation and an indirect wholly-owned subsidiary of WellPoint formed for the sole purpose of effecting the merger; all references to the “merger” refer to the merger of Merger Sub with and into Amerigroup with Amerigroup surviving as an indirect wholly-owned subsidiary of WellPoint; and, unless otherwise indicated or as the context requires, all references to the “merger agreement” refer to the Agreement and Plan of Merger, dated as of July 9, 2012, as it may be amended from time to time, by and among WellPoint, Amerigroup and Merger Sub, a copy of which is included as Annex A to this proxy statement. Amerigroup, following the completion of the merger, is sometimes referred to in this proxy statement as the “surviving company.”

The Companies

AMERIGROUP Corporation (see page 19)

Amerigroup is a multi-state managed healthcare company operating in the United States focused on persons who receive healthcare benefits through publicly funded healthcare programs, including Medicaid, Children’s Health Insurance Program, Medicaid expansion programs and Medicare Advantage. Amerigroup provides healthcare products through publicly funded programs in the states of Florida, Georgia, Louisiana, Maryland, Nevada, New Jersey, New Mexico, New York, Ohio, Tennessee, Texas, Virginia and Washington. Amerigroup expects to expand operations to Kansas in early 2013 as a result of a previously awarded state contract.

Amerigroup was incorporated in December 1994 in Delaware as AMERICAID Community Care. Amerigroup conducted its initial public offering in November 2001.

Shares of Amerigroup common stock are listed with, and trade on, the New York Stock Exchange, Inc. (the “NYSE”) under the symbol “AGP.”

Amerigroup’s principal executive offices are located at 4425 Corporation Lane, Virginia Beach, Virginia 23462; its telephone number is (757) 490-6900; and its Internet website address is www.amerigroup.com. The information provided on or accessible through Amerigroup’s website is not part of this proxy statement and is not incorporated in this proxy statement by this or any other reference to its website provided in this proxy statement.

WellPoint, Inc. (see page 19)

WellPoint is one of the largest health benefits companies in terms of medical membership in the United States. WellPoint serves as the Blue Cross licensee for California and as the Blue Cross and Blue Shield licensee for: Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri (excluding 30 counties in the Kansas City area), Nevada, New Hampshire, New York, Ohio, Virginia (excluding the Northern Virginia suburbs of Washington, D.C.) and Wisconsin. WellPoint also serves its members throughout the country as UniCare and in certain Arizona, California and Nevada markets through its recently acquired subsidiary, CareMore Health Group, Inc. WellPoint also sells contact lenses, eyeglasses and other ocular products through its recently acquired 1-800 CONTACTS subsidiary.

 


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WellPoint offers network-based managed care plans, including preferred provider organizations, health maintenance organizations, point-of-service plans, traditional indemnity plans, other hybrid plans, and hospital only and limited benefit products to the large and small employer, individual, Medicaid and senior markets. In addition, WellPoint provides a broad array of managed care services to self-funded customers, including claims processing, underwriting, stop loss insurance, actuarial services, provider network access, medical cost management, disease management, wellness programs and other administrative services. WellPoint also provides an array of specialty products and services including life and disability insurance benefits, dental, vision, behavioral health benefit services, radiology benefit management, analytics-driven personal healthcare guidance and long-term care insurance. Finally, WellPoint provides services to the Federal Government in connection with the Federal Employee Program and various Medicare programs. WellPoint is also licensed to conduct insurance operations in all 50 states through its subsidiaries.

Shares of WellPoint’s common stock, par value $0.01 per share (“WellPoint common stock”), are listed with, and trade on, the NYSE under the symbol “WLP.”

The principal executive offices of WellPoint are located at 120 Monument Circle, Indianapolis, Indiana 46204; its telephone number is (317) 488-6000; and its Internet website address is www.wellpoint.com. The information provided on or accessible through WellPoint’s website is not part of this proxy statement and is not incorporated in this proxy statement by this or any other reference to its website provided in this proxy statement.

Merger Sub (see page 20)

Merger Sub, an indirect wholly-owned subsidiary of WellPoint, is a Delaware corporation that was formed on June 15, 2012 for the sole purpose of effecting the merger. Upon the terms and subject to the conditions of the merger agreement, Merger Sub will be merged with and into Amerigroup, with Amerigroup surviving the merger as an indirect wholly-owned subsidiary of WellPoint.

The principal executive offices of Merger Sub are located at 120 Monument Circle, Indianapolis, Indiana 46204, and its telephone number is (317) 488-6000.

The Merger

A copy of the merger agreement is attached as Annex A to this proxy statement. We encourage you to read the entire merger agreement carefully because it is the principal document governing the merger. For more information on the merger agreement, see the section entitled “The Merger Agreement” beginning on page 76.

Form of the Merger (see page 76)

If the merger is completed, at the effective time of the merger, Merger Sub will be merged with and into Amerigroup. Amerigroup will survive the merger as an indirect wholly-owned subsidiary of WellPoint.

Merger Consideration (see page 76)

Upon the terms and subject to the conditions of the merger agreement, at the effective time of the merger, Amerigroup stockholders will have the right to receive $92.00 in cash, without interest and less any applicable withholding taxes, for each share of Amerigroup common stock that they own immediately prior to the effective time of the merger.

 

 

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Treatment of Amerigroup Equity Awards (see page 77)

At the effective time of the merger, each option to purchase shares of Amerigroup common stock granted under Amerigroup’s equity incentive compensation plans that is outstanding and that becomes or already is vested by its terms will be cancelled and converted into the right to receive an amount, payable in cash, equal to the product of (i) the total number of shares of Amerigroup common stock subject to the option multiplied by (ii) the excess of $92.00 over the per share exercise price of the option (with the aggregate amount of such payment rounded down to the nearest cent).

Each option that as of the effective time is outstanding but unvested by its terms will be converted as of the effective time into a stock option to acquire a number of shares of WellPoint common stock (rounded down to the nearest whole share) equal to the product of (i) the total number of shares of Amerigroup common stock subject to the option immediately prior to the effective time multiplied by (ii) the equity exchange ratio (as defined below), at an exercise price per share (rounded up to the nearest whole cent) equal to (x) the exercise price applicable to the option immediately prior to the effective time divided by (y) the equity exchange ratio. The “equity exchange ratio” means $92.00 divided by the volume-weighted average price of WellPoint common stock on the NYSE for the five consecutive trading days ending on the last trading day preceding the closing date. The terms and conditions of any such converted options will otherwise remain the same as the terms and conditions applicable to the options under Amerigroup’s equity incentive compensation plans and the award agreements pursuant to which the options were granted (including vesting schedules, provided that such WellPoint options will immediately vest in full if the holder’s employment is terminated by WellPoint without “cause” or by the holder for “good reason” within two years following the effective time).

At the effective time of the merger, each restricted share of Amerigroup common stock and each restricted stock unit representing shares of Amerigroup common stock (collectively “other stock awards”) that is outstanding and that becomes or already is vested by its terms will be cancelled and converted into the right to receive an amount, payable in cash, equal to the product of the total number of shares of Amerigroup common stock subject to the other stock award multiplied by $92.00. Each restricted stock award subject to performance-based vesting conditions that by its terms otherwise would not have vested by reason of consummation of the merger will be deemed vested as of the effective time of the merger at the target level of performance.

Each other stock award that as of the effective time is outstanding but unvested by its terms will be converted as of the effective time into an award in respect of a number of shares of WellPoint common stock (rounded down to the nearest whole share) equal to the product of (i) the total number of shares of Amerigroup common stock subject to the award multiplied by (ii) the equity exchange ratio. The terms and conditions of any such converted other stock awards will otherwise remain the same as the terms and conditions applicable to the other stock awards under Amerigroup’s equity incentive compensation plans and the award agreements pursuant to which the other stock awards were granted (including vesting schedules, provided that the other stock awards as converted will immediately vest in full if the respective holder’s employment is terminated by WellPoint without “cause” or by the holder for “good reason” within two years following the effective time).

Recommendation of the Amerigroup Board of Directors (see page 47)

After careful consideration, the Amerigroup board of directors determined that the terms of the merger are advisable, fair to and in the best interests of Amerigroup and its stockholders and approved the merger agreement and the merger. Certain factors considered by the Amerigroup board of directors in reaching its decision to approve the merger agreement can be found in the section entitled “The Merger—Amerigroup’s Reasons for the Merger” beginning on page 42. The Amerigroup board of directors recommends that the stockholders vote:

 

   

FOR the proposal to adopt the merger agreement at the special meeting;

 

   

FOR the proposal to adjourn the special meeting, if necessary or appropriate in the view of the Amerigroup board of directors, to solicit additional proxies in favor of the proposal to adopt the merger

 

 

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agreement if there are not sufficient votes at the time of such adjournment to adopt the merger agreement (the “adjournment proposal”); and

 

   

FOR the proposal to approve, on a non-binding, advisory basis, certain compensation that will or may become payable by Amerigroup to its named executive officers that is based on or otherwise relates to the merger (the “named executive officer merger-related compensation proposal”).

Opinions of Financial Advisors (see page 47)

Goldman, Sachs & Co., referred to herein as “Goldman Sachs,” delivered its opinion to the board of directors of Amerigroup that, as of July 9, 2012 and based upon and subject to the factors and assumptions set forth therein, the $92.00 per share of Amerigroup common stock in cash to be paid to the holders (other than WellPoint and its affiliates) of shares of Amerigroup 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 July 9, 2012, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex B to this proxy statement. Goldman Sachs provided its opinion for the information and assistance of the board of directors of Amerigroup in connection with its consideration of the merger. The Goldman Sachs opinion does not constitute a recommendation as to how any holder of shares of Amerigroup’s common stock should vote with respect to the merger or any other matter.

Amerigroup engaged Barclays Capital Inc. (“Barclays”) to act as its financial advisor with respect to pursuing a possible sale of the company. On July 8, 2012, Barclays rendered its oral opinion (which was subsequently confirmed in writing) to Amerigroup’s board of directors that, as of such date and based upon and subject to the qualifications, limitations and assumptions stated in its opinion, the consideration to be offered to Amerigroup’s stockholders is fair, from a financial point of view, to such stockholders.

The full text of Barclays’ written opinion, dated as of July 9, 2012, is attached as Annex C to this proxy statement. Barclays’ written opinion sets forth, among other things, the assumptions made, procedures followed, factors considered and limitations upon the review undertaken by Barclays in rendering its opinion. You are encouraged to read the opinion carefully in its entirety. The summary of Barclays’ opinion provided in this proxy statement is qualified in its entirety by reference to the full text of the opinion.

Interests of Amerigroup’s Directors and Executive Officers in the Merger (see page 65)

In considering the recommendation of the Amerigroup board of directors to adopt the merger agreement, Amerigroup stockholders should be aware that certain of its directors and executive officers have interests in the merger that are different from, or in addition to, those of Amerigroup stockholders generally. These interests are described in the section entitled “The Merger—Interests of Amerigroup’s Directors and Executive Officers in the Merger” beginning on page 65. The Amerigroup board of directors was aware of these interests and considered them, among other matters, in evaluating the merger agreement, in reaching its decision to approve the merger agreement, and in recommending to Amerigroup stockholders that the merger agreement be adopted. These interests include the following, among others:

 

   

each stock option held by executive officers generally will be converted into the right to receive an amount in cash equal to the excess of $92.00 over the stock option’s exercise price, with the exception of certain stock options to be granted later this year to certain executives that will be converted into WellPoint stock options and remain outstanding, subject to accelerated vesting on certain terminations of employment, on otherwise similar terms;

 

 

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awards of restricted stock units and restricted stock held by executive officers generally will be converted into the right to receive $92.00 per underlying share, with the exception of certain restricted shares held by certain of the officers that will be converted into restricted shares of WellPoint stock and remain outstanding, subject to accelerated vesting on certain terminations of employment, on otherwise similar terms;

 

   

a pro rata portion of the restricted stock awards granted to directors at this year’s annual meeting will vest upon the closing of the merger, based on the number of days that have elapsed between the date of grant and the closing date, up to 365, divided by 365;

 

   

certain of the executive officers are covered by Amerigroup’s Change in Control Benefit Policy, which provides for severance payments upon a qualifying termination of employment within two years following, and the accelerated payment of certain annual bonus and long-term cash incentive award payments upon, a change in control of Amerigroup, such as the merger;

 

   

certain executive officers (Messrs. Carlson, Truess and Zoretic) have entered into new employment arrangements with WellPoint that will become effective upon the closing of the merger, and while they generally have waived eligibility for severance payments under the Change in Control Benefit Policy by reason of the merger, they would remain covered by the policy’s excise tax gross-up provision, remain eligible for payment in respect of annual bonus and long-term cash incentive programs, and be eligible for severance under their employment arrangements that is not less than what their entitlement presently would be under the policy;

 

   

WellPoint has agreed to grant the three executive officers who have entered into new employment arrangements a certain number of WellPoint restricted stock units following the closing of the merger; and

 

   

the directors and executive officers will receive an accelerated distribution of their deferred compensation account balances, which amounts are already fully vested.

Material U.S. Federal Income Tax Consequences of the Merger to U.S. Holders (see page 102)

The exchange of shares of Amerigroup common stock for cash in the merger will generally be a taxable transaction to U.S. holders for United States federal income tax purposes. In general, a U.S. holder whose shares of Amerigroup common stock are converted into the right to receive cash in the merger will recognize gain or loss for United States federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received with respect to such shares and the U.S. holder’s adjusted tax basis in such shares.

You should read the section entitled “Material U.S. Federal Income Tax Consequences of the Merger to U.S. Holders” beginning on page 102 for a more detailed discussion of the United States federal income tax consequences of the merger. Tax matters can be complicated and the tax consequences of the merger to you will depend on your particular tax situation. You should consult your tax advisor to determine the tax consequences of the merger to you.

Regulatory Clearances and Approvals Required for the Merger (see page 74)

HSR Act and Antitrust. The merger is subject to the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), which prevents WellPoint and Amerigroup from completing the merger until required information and materials are furnished to the Antitrust Division of the Department of Justice (the “DOJ”) and the Federal Trade Commission (the “FTC”) and the HSR Act waiting period is terminated or expires. On July 23, 2012, WellPoint and Amerigroup filed the requisite notification and report forms under the HSR Act with the DOJ and the FTC. Consequently, the required waiting period will

 

 

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expire on August 22, 2012, unless earlier terminated or the FTC or DOJ extends that period by issuing a request for additional information and documentary material (“second request”) to the parties. A second request extends the waiting period until 30 days after both parties have substantially complied with the second request, unless the waiting period is terminated earlier.

Other Regulatory Matters. Pursuant to the insurance laws and, in some instances, the healthcare laws of Florida, Georgia, Kansas, Louisiana, Maryland, Nevada, New Jersey, New Mexico, New York, Ohio, Tennessee, Texas, Virginia and Washington, applicable state regulatory authorities must approve WellPoint’s acquisition of control of Amerigroup’s health maintenance organization and insurance companies. For more information about regulatory approvals relating to the merger, see the sections entitled “The Merger—Regulatory Clearances and Approvals Required for the Merger” beginning on page 74 and “The Merger Agreement—Conditions to Completion of the Merger” beginning on page 93.

Although we expect that all required antitrust and regulatory clearances and approvals will be obtained, we cannot assure you that these clearances and approvals will be timely obtained or obtained at all or that the granting of these clearances and approvals will not involve the imposition of additional conditions on the completion of the merger, including the requirement to divest assets, or require changes to the terms of the merger agreement. These conditions or changes could result in the conditions to the merger not being satisfied.

Expected Timing of the Merger

We expect to complete the merger during the first quarter of 2013. The merger is subject to various regulatory clearances and approvals and other conditions, however, and it is possible that factors outside the control of both companies could result in the merger being completed at a later time, or not at all. There may be a substantial amount of time between the special meeting and the completion of the merger. We expect to complete the merger promptly following the receipt of all required approvals.

Conditions to Completion of the Merger (see page 93)

As more fully described in this proxy statement and in the merger agreement, each party’s obligation to complete the merger depends on a number of conditions being satisfied or, where legally permissible, waived, including:

 

   

adoption of the merger agreement by the affirmative vote of the holders of a majority of the outstanding shares of Amerigroup common stock;

 

   

absence of (i) any injunction prohibiting, or law or order preventing or prohibiting, consummation of the merger and (ii) any action or proceeding seeking to enjoin, restrain or prohibit consummation of the merger;

 

   

early termination or expiration of the HSR Act waiting period;

 

   

receipt of certain insurance and healthcare related regulatory clearances and approvals;

 

   

accuracy of all representations and warranties made by the other party in the merger agreement (subject generally to a material adverse effect standard); and

 

   

performance in all material respects by the other party of its obligations under the merger agreement.

No Solicitation of Proposals for Alternative Transactions (see page 86)

Subject to certain exceptions, the merger agreement prohibits Amerigroup from, among other things, (i) soliciting, initiating or knowingly encouraging or knowingly facilitating or furnishing nonpublic information in furtherance of any inquiries or the making of any proposal that constitutes or may reasonably be expected to

 

 

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lead to any proposal with respect to an alternative transaction, or (ii) engaging in any negotiations or discussions regarding any alternative transaction. Amerigroup may, however, prior to the adoption of the merger agreement by Amerigroup stockholders and upon the terms and subject to the conditions set forth in the merger agreement, provide information to and engage in negotiations or discussions with a third party who makes an unsolicited written superior proposal (as defined in the merger agreement), or an unsolicited written acquisition proposal which is reasonably likely to lead to a superior proposal, if the Amerigroup board of directors reasonably determines in good faith after consultation with outside counsel that the failure to take such action is reasonably likely to be inconsistent with its fiduciary duties to Amerigroup’s stockholders under applicable law.

Changes in Board Recommendation (see page 86)

Prior to adoption of the merger agreement by Amerigroup stockholders, the Amerigroup board of directors may, upon receipt of a superior proposal and in certain other circumstances, change its recommendation that the Amerigroup stockholders adopt the merger agreement and/or terminate the merger agreement, subject to complying with certain notice and other specified conditions set forth in the merger agreement, including giving WellPoint the opportunity to propose changes to the merger agreement in response to a proposal for an alternative transaction or other events or developments. If the Amerigroup board of directors changes its recommendation with respect to the merger agreement, WellPoint may terminate the merger agreement.

Termination of the Merger Agreement (see page 94)

WellPoint, Merger Sub and Amerigroup may mutually agree to terminate the merger agreement at any time prior to the effective time of the merger. Either party may also terminate the merger agreement if:

 

   

the merger has not been completed on or before June 9, 2013 (the “initial outside date”); provided that if on the initial outside date all closing conditions have been waived or satisfied (or are otherwise capable of being satisfied on the initial outside date), other than (a) the absence of (i) any temporary restraining order or preliminary or permanent injunction, applicable law or other order by any federal or state court or other tribunal or governmental entity of competent jurisdiction preventing consummation of the merger and (ii) any action or proceeding (which remains pending at what would otherwise be the closing date) before any U.S. court or other governmental entity of competent jurisdiction seeking to enjoin, restrain or otherwise prohibit consummation of the merger or (b) expiration or termination of the HSR Act waiting period (and any extensions thereof) and receipt of requisite healthcare regulatory approvals, then either WellPoint or Amerigroup may extend the initial outside date to September 9, 2013 (the “outside date”); provided further that such right to extend the initial outside date or terminate the merger agreement will not be available to any party if such party’s action or failure to act has been the principal cause of or resulted in (i) the failure to satisfy the conditions to the obligations of the terminating party to consummate the merger on or before the initial outside date or the outside date or (ii) the failure of the closing to occur by the initial outside date or the outside date;

 

   

if Amerigroup stockholder approval is not obtained upon a vote taken thereon at the Amerigroup special meeting or any adjournment or postponement thereof;

 

   

a court or other governmental entity of competent jurisdiction has issued a final and nonappealable order or ruling or taken any other final and nonappealable action restraining, enjoining or otherwise prohibiting the merger; provided that the party seeking to avail itself of such right to terminate will have used its reasonable best efforts to vacate, lift, reverse, overturn, settle or resolve such order or action; or

 

   

if the other party has breached any of its representations and warranties or failed to perform any of its covenants or any of its representations and warranties have become untrue after the date of the merger agreement, which breach or untrue representation or warranty (i) would, individually or in the

 

 

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aggregate, give rise to the failure of the closing conditions relating to the accuracy of such party’s representations or compliance by such party with its covenants or obligations under the merger agreement and (ii) such breach is incapable of being cured prior to the closing date or is not cured within 45 days following written notice of such breach.

The merger agreement may also be terminated by WellPoint if prior to obtaining Amerigroup stockholder approval, the Amerigroup board of directors has effected a recommendation withdrawal.

The merger agreement may also be terminated by Amerigroup in order to enter into an agreement for an alternative transaction that constitutes a superior proposal, see “The Merger Agreement—No Solicitation of Proposals for an Alternative Transaction; Changes in Board Recommendation.”

See the section entitled “The Merger Agreement—Termination of the Merger Agreement” on page 94 for a more complete discussion of the rights of each of WellPoint and Amerigroup to terminate the merger agreement.

Expenses and Termination Fee (see page 95)

Generally, all fees and expenses incurred in connection with the merger agreement and the transactions contemplated by the merger agreement will be paid by the party incurring those expenses. The merger agreement provides that, upon termination of the merger agreement under certain circumstances, Amerigroup may be required to pay to WellPoint a termination fee of $146,000,000 (or $73,000,000 in certain circumstances). See the section entitled “The Merger Agreement—Expenses and Termination Fee; Effect of Termination” beginning on page 95 for a discussion of the circumstances under which such a termination fee will be required to be paid.

Specific Performance (see page 96)

The merger agreement provides that, except when the merger agreement is terminated in accordance with its termination provisions, the parties will be entitled to an injunction to prevent breaches or threatened breaches of the merger agreement, to specifically enforce the terms and provisions of the merger agreement and any other agreement or instrument executed in connection with the merger agreement, including the right of Amerigroup to cause WellPoint and Merger Sub to seek to enforce the terms of the financing against the lenders to the fullest extent permitted pursuant to the terms of the financing and applicable law, and to thereafter (subject to the satisfaction or waiver of certain closing conditions) cause the merger to be consummated.

Financing of the Merger (see page 91)

The merger agreement is not subject to a financing condition. Credit Suisse AG and Credit Suisse Securities (USA) LLC (together, “Credit Suisse”) and certain other lenders (together with Credit Suisse, collectively, the “Bridge Lenders”) committed to provide WellPoint a senior unsecured bridge term loan facility in an aggregate amount of up to $3 billion, which may be used to pay a portion of the aggregate consideration to be paid to Amerigroup stockholders pursuant to the merger agreement to the extent that WellPoint does not issue equity or debt, or obtain alternative financing, in lieu of such bridge financing at or prior to the closing of the merger. WellPoint has advised us that it entered into definitive documentation with the Bridge Lenders in respect of its senior unsecured bridge term loan facility on July 30, 2012.

Appraisal Rights (see page 104)

Under the General Corporation Law of the State of Delaware (the “DGCL”), Amerigroup stockholders who do not vote for the adoption of the merger agreement have the right to seek appraisal of the fair value of their shares in cash as determined by the Delaware Court of Chancery, but only if they comply fully with all of the applicable requirements of the DGCL, which are summarized in this proxy statement. This appraisal amount determined by the court could be more than, the same as, or less than the value of the merger consideration. Any

 

 

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Amerigroup stockholder intending to exercise appraisal rights must, among other things, submit a written demand for appraisal to Amerigroup prior to the vote on the adoption of the merger agreement and must not vote or otherwise submit a proxy in favor of adoption of the merger agreement. Failure to follow exactly the procedures specified under the DGCL will result in the loss of appraisal rights. Because of the complexity of the DGCL relating to appraisal rights, if you are considering exercising your appraisal right we encourage you to seek the advice of your own legal counsel.

The Special Meeting (see page 21)

The special meeting of Amerigroup stockholders is scheduled to be held in the Hargroves Conference Center located at the Amerigroup National Support Center II, 1330 Amerigroup Way, Virginia Beach, Virginia 23464 on [                    ], 2012 at [            ], local time. The special meeting is being held in order to consider and vote on the following proposals:

 

   

to adopt the merger agreement, which is further described in the sections entitled “The Merger” and “The Merger Agreement,” beginning on pages 25 and 76, respectively;

 

   

to approve an adjournment of the special meeting, if necessary or appropriate in the view of the Amerigroup board of directors, to solicit additional proxies in favor of the proposal to adopt the merger agreement if there are not sufficient votes at the time of such adjournment to adopt the merger agreement; and

 

   

to approve, on a non-binding, advisory basis, certain compensation that will or may become payable by Amerigroup to its named executive officers that is based on or otherwise relates to the merger, discussed under the section entitled “The Merger—Quantification of Potential Payments to Named Executive Officers in Connection with the Merger” beginning on page 71.

Only holders of record of Amerigroup common stock at the close of business on [                    ], 2012, the record date for the special meeting, are entitled to notice of, and to vote at, the special meeting or any adjournments or postponements thereof. At the close of business on the record date, [            ] shares of Amerigroup common stock were issued and outstanding, approximately [    ]% of which were held by Amerigroup’s directors and executive officers. We currently expect that Amerigroup’s directors and executive officers will vote their shares in favor of the proposal to adopt the merger agreement, although no director or executive officer has entered into any agreement obligating such person to do so.

The presence at the special meeting, in person or by proxy, of the holders of a majority of the aggregate voting power of Amerigroup common stock outstanding on the record date will constitute a quorum. There must be a quorum for business to be conducted at the special meeting. Failure of a quorum to be represented at the special meeting will necessitate an adjournment or postponement and will subject Amerigroup to additional expense. Abstentions and broker non-votes are counted as present or represented for purposes of determining the presence or absence of a quorum.

You may cast one vote for each share of Amerigroup common stock you own at the close of business on the record date. The proposal to adopt the merger agreement requires the affirmative vote of holders of a majority of the outstanding shares of Amerigroup common stock entitled to vote on the proposal. The adjournment proposal and the non-binding, advisory vote on the named executive officer merger-related compensation proposal each requires the affirmative vote of holders of a majority of the shares of Amerigroup common stock entitled to vote on the proposal present or represented by proxy at the special meeting.

Your failure to vote, or failure to instruct your broker, bank or other nominee to vote, will have the same effect as a vote against the proposal to adopt the merger agreement, but will have no effect on the adjournment proposal or the named executive officer merger-related compensation proposal.

 

 

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Delisting and Deregistration of Shares of Amerigroup Common Stock (see page 75)

Upon completion of the merger, shares of Amerigroup common stock currently listed on the NYSE will cease to be listed on the NYSE and will be deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Market Prices of Amerigroup Common Stock (see page 98)

The merger consideration of $92.00 per share represents a 43% premium over $64.34, the closing price per share of Amerigroup common stock on July 6, 2012, the last trading day before the public announcement of the merger agreement. The closing price of Amerigroup common stock on the NYSE on [                    ], 2012, was $[        ] per share. You are encouraged to obtain current market prices of Amerigroup common stock in connection with voting your shares of Amerigroup common stock.

 

 

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QUESTIONS AND ANSWERS

The following are some questions that you, as a stockholder of Amerigroup, may have regarding the merger and the special meeting and the answers to those questions. Amerigroup urges you to carefully read the remainder of this proxy statement because the information in this section does not provide all the information that might be important to you with respect to the merger and the special meeting. Additional important information is also contained in the Annexes to and the documents incorporated by reference into this proxy statement.

 

Q: WHAT IS THE PURPOSE OF THE SPECIAL MEETING?

 

A: At the special meeting, stockholders will consider and act upon the matters outlined in the notice of meeting on the cover page of this proxy statement, namely:

 

   

the adoption of the merger agreement;

 

   

the approval of an adjournment of the special meeting, if necessary or appropriate in the view of the Amerigroup board of directors, to solicit additional proxies in favor of the proposal to adopt the merger agreement if there are not sufficient votes at the time of such adjournment to adopt the merger agreement; and

 

   

the approval, on a non-binding, advisory basis, of certain compensation that will or may become payable by Amerigroup to its named executive officers that is based on or otherwise relates to the merger.

 

Q: WHAT WILL I RECEIVE IN THE MERGER?

 

A: Upon the terms and subject to the conditions of the merger agreement, if the merger is completed, Amerigroup stockholders will have the right to receive $92.00 in cash, without interest and subject to any applicable withholding taxes, for each share of Amerigroup common stock that they own immediately prior to the effective time of the merger.

 

Q: HOW DOES THE BOARD RECOMMEND I VOTE ON THE PROPOSALS?

 

A: The board recommends that you vote as follows:

 

   

FOR the adoption of the merger agreement;

 

   

FOR the approval of an adjournment of the special meeting, if necessary or appropriate, in the view of the Amerigroup board of directors, to solicit additional proxies in favor of the proposal to adopt the merger agreement if there are not sufficient votes at the time of such adjournment to adopt the merger agreement; and

 

   

FOR the approval, on a non-binding, advisory basis, of certain compensation that will or may become payable by Amerigroup to its named executive officers that is based on or otherwise relates to the merger.

 

Q: WHAT IS THE VOTE REQUIRED TO ADOPT THE MERGER AGREEMENT?

 

A: The proposal to adopt the merger agreement requires the affirmative vote of holders of a majority of the outstanding shares of Amerigroup common stock.

 

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Q: WHAT IS THE VOTE REQUIRED TO APPROVE THE OTHER PROPOSALS?

 

A: The adjournment proposal and the named executive officer merger-related compensation proposal each require the affirmative vote of holders of a majority of the shares of Amerigroup common stock entitled to vote on the proposal that are present or represented by proxy at the special meeting.

 

Q: AM I ENTITLED TO APPRAISAL RIGHTS INSTEAD OF RECEIVING MERGER CONSIDERATION?

 

A: Under the DGCL, Amerigroup stockholders who do not vote for the adoption of the merger agreement have the right to seek appraisal of the fair value of their shares in cash as determined by the Delaware Court of Chancery, but only if they comply fully with all applicable requirements of the DGCL, which are summarized in this proxy statement. This appraisal amount determined by the court could be more than, the same as, or less than the value of the merger consideration. Any Amerigroup stockholder intending to exercise appraisal rights must, among other things, submit a written demand for appraisal to Amerigroup prior to the vote on the adoption of the merger agreement and must not vote or otherwise submit a proxy in favor of adoption of the merger agreement. Failure to follow exactly the procedures specified under the DGCL will result in the loss of appraisal rights. Because of the complexity of the DGCL relating to appraisal rights, if you are considering exercising your appraisal right we encourage you to seek the advice of your own legal counsel.

 

Q: DO YOU EXPECT THE MERGER TO BE TAXABLE TO AMERIGROUP STOCKHOLDERS?

 

A: The exchange of shares of Amerigroup common stock for cash in the merger will generally be a taxable transaction to U.S. holders for United States federal income tax purposes. In general, a U.S. holder whose shares of Amerigroup common stock are converted into the right to receive cash in the merger will recognize gain or loss for United States federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received with respect to such shares and the U.S. holder’s adjusted tax basis in such shares.

You should read the section entitled “Material U.S. Federal Income Tax Consequences of the Merger to U.S. Holders” beginning on page 102 for a more detailed discussion of the United States federal income tax consequences of the merger. Tax matters can be complicated and the tax consequences of the merger to you will depend on your particular tax situation. You should consult your tax advisor to determine the tax consequences of the merger to you.

 

Q: WHO MAY ATTEND THE SPECIAL MEETING?

 

A: Stockholders of record as of the close of business on [                    ], 2012, or their duly appointed proxies, may attend the meeting. “Street name” holders (those whose shares are held through a broker, bank or other nominee) should bring a copy of an account statement reflecting their ownership of Amerigroup common stock as of the record date. If you are a “street name” holder and you wish to vote at the special meeting, you must also bring a proxy from the record holder (your broker, bank or other nominee) of the shares of Amerigroup common stock authorizing you to vote at the special meeting. We intend to limit attendance to stockholders as of the record date. All stockholders should bring photo identification. Cameras, recording devices, and other electronic devices are not permitted at the meeting. Registration will begin at [            ], local time.

 

Q: WHO IS ENTITLED TO VOTE AT THE SPECIAL MEETING?

 

A:

Only holders of record of Amerigroup common stock at the close of business on [                    ], 2012, the record date for the special meeting, are entitled to receive notice of, and to vote at, the special meeting or any adjournments or postponements thereof. At the close of business on the record date, [            ] shares of Amerigroup common stock were issued and outstanding, approximately [    ]% of which were held by

 

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  Amerigroup’s directors and executive officers. We currently expect that Amerigroup’s directors and executive officers will vote their shares in favor of the proposal to adopt the merger agreement, although no director or executive officer has entered into any agreement obligating such person to do so.

You may cast one vote for each share of Amerigroup common stock you own at the close of business on the record date.

 

Q: WHO IS SOLICITING MY VOTE?

 

A: The Amerigroup board of directors is soliciting your proxy, and Amerigroup will bear the cost of soliciting proxies. Morrow & Co., LLC has been retained to assist with the solicitation of proxies. Morrow & Co., LLC will be paid approximately $20,000 and will be reimbursed for its reasonable out-of-pocket expenses for these and other advisory services in connection with the special meeting. Solicitation initially will be made by mail. Forms of proxies and proxy materials may also be distributed through brokers, custodians, and other like parties to the beneficial owners of shares of Amerigroup common stock, in which case these parties will be reimbursed for their reasonable out-of-pocket expenses. Proxies may also be solicited in person or by telephone, facsimile, electronic mail, or other electronic medium by Morrow & Co., LLC or by certain of Amerigroup’s directors, officers, and employees, without additional compensation.

 

Q: WHAT DO I NEED TO DO NOW?

 

A: Carefully read and consider the information contained in and incorporated by reference into this proxy statement, including the Annexes. Whether or not you expect to attend the special meeting in person, please submit a proxy to vote your shares as promptly as possible so that your shares may be represented and voted at the special meeting.

 

Q: HOW DO I VOTE IF MY SHARES ARE REGISTERED DIRECTLY IN MY NAME?

 

A: If you are a record holder of Amerigroup common stock (a “registered stockholder”), you may vote in person at the special meeting or authorize the persons named as proxies on the Proxy Card to vote your shares by returning the Proxy Card by mail, through the Internet, or by telephone. Although Amerigroup offers four different voting methods, Amerigroup encourages you to vote through the Internet as Amerigroup believes it is the most cost-effective method. We also recommend that you vote as soon as possible, even if you are planning to attend the Amerigroup meeting, so that the vote count will not be delayed. Both the Internet and the telephone provide convenient, cost-effective alternatives to returning your Proxy Card by mail. If you vote your shares through the Internet, you may incur costs associated with electronic access, such as usage charges from Internet access providers. If you choose to vote your shares through the Internet or by telephone, there is no need for you to mail back your Proxy Card.

To Vote Over the Internet:

Log on to the Internet and go to the website www.proxyvote.com (24 hours a day, 7 days a week). Have your Proxy Card available when you access the website. You will need the control number from your Proxy Card to vote.

To Vote By Telephone:

On a touch-tone telephone, call 1-800-690-6903 (24 hours a day, 7 days a week). Have your Proxy Card available when you make the call. You will need the control number from your Proxy Card to vote.

 

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To Vote By Proxy Card:

Complete and sign the Proxy Card and mail it to the address indicated on the Proxy Card.

If you return your signed Proxy Card without indicating how you want your shares of Amerigroup common stock to be voted with regard to a particular proposal, your shares of Amerigroup common stock will be voted in favor of each such proposal. Proxy Cards that are returned without a signature will not be counted as present at the special meeting and cannot be voted.

It is important that you vote your shares. Your failure to vote, or failure to instruct your broker, bank or other nominee to vote, will have the same effect as a vote against the proposal to adopt the merger agreement.

 

Q: HOW CAN I REVOKE MY PROXY?

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

 

   

submitting a written notice of revocation to our Secretary at 4425 Corporation Lane, Virginia Beach, Virginia 23462;

 

   

submitting a later-dated Proxy Card;

 

   

attending the special meeting and voting in person, which will automatically cancel any proxy previously given, or revoking your proxy in person, but your attendance alone will not revoke any proxy that you have previously given;

 

   

submitting another vote by telephone or over the Internet; or

 

   

if applicable, submitting new voting instructions to your broker, bank or other nominee.

If you choose either of the first two methods, you must submit your notice of revocation or your later-dated Proxy Card to the Secretary of Amerigroup, no later than the beginning of the special meeting.

If you have questions about how to vote or revoke your proxy, you should contact our Secretary at 4425 Corporation Lane, Virginia Beach, Virginia 23462.

 

Q: HOW DO I VOTE MY SHARES IF THEY ARE HELD IN THE NAME OF MY BROKER (STREET NAME)?

 

A: If you are a beneficial owner of Amerigroup common stock and your shares are held by your broker, bank or other nominee, often referred to as held in street name, you will receive a form from your broker, bank or other nominee seeking instruction as to how your shares should be voted. You should contact your broker, bank or other nominee with questions about how to provide or revoke your instructions.

 

Q: DO I NEED TO DO ANYTHING WITH MY AMERIGROUP COMMON STOCK CERTIFICATES NOW?

 

A: No. After the merger is completed, if you hold certificates representing shares of Amerigroup common stock prior to the merger, the paying agent for the merger will send you a letter of transmittal and instructions for exchanging your shares of Amerigroup common stock for the merger consideration. Upon surrender of the certificates for cancellation along with the executed letter of transmittal and other required documents described in the instructions or otherwise required by the paying agent in accordance with the merger agreement, you will receive the merger consideration.

 

Q: WHEN IS THE PROPOSED MERGER EXPECTED TO BE CONSUMMATED?

 

A: We expect to complete the merger during the first quarter of 2013.

 

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Q: WHAT CONSTITUTES A “QUORUM”?

 

A: The presence at the special meeting, in person or by proxy, of the holders of a majority of the aggregate voting power of Amerigroup common stock outstanding on the record date will constitute a quorum. There must be a quorum for business to be conducted at the special meeting. Failure of a quorum to be represented at the special meeting will necessitate an adjournment or postponement and will subject Amerigroup to additional expense. Abstentions and broker non-votes are counted as present or represented for purposes of determining the presence or absence of a quorum.

 

Q: WHAT IF I ABSTAIN FROM VOTING?

 

A: If you attend the special meeting or send in your signed Proxy Card, but abstain from voting on any proposal, you will still be counted for purposes of determining whether a quorum exists. If you abstain from voting on the proposal to adopt the merger agreement, the adjournment proposal or the named executive officer merger-related compensation proposal, your abstention will have the same effect as a vote against that proposal.

 

Q: WILL MY SHARES BE VOTED IF I DO NOT SIGN AND RETURN MY PROXY CARD OR VOTE BY TELEPHONE OR OVER THE INTERNET OR IN PERSON?

 

A: If you are a registered stockholder and you do not sign and return your Proxy Card or vote by telephone, over the Internet or in person, your shares will not be voted at the special meeting. Questions concerning stock certificates and registered stockholders may be directed to American Stock Transfer & Trust Company, LLC at 6201 15th Avenue, Brooklyn, New York 11219 or by telephone at (800) 937-5449 (domestic) or (718) 921-8200 (international). If you are a beneficial owner and your shares are held in street name and you do not issue instructions to your broker, your broker may vote your shares at its discretion only on routine matters, but may not vote your shares on non-routine matters. Under NYSE rules, all of the proposals in this proxy statement are non-routine matters. If a broker or other nominee who holds shares for another person does not vote on a particular proposal because that holder does not have discretionary voting power for the proposal and has not received voting instructions from the beneficial owner of the shares, then a “broker non-vote” will occur.

It is important that you vote your shares. Your failure to vote, or failure to instruct your broker, bank or other nominee to vote, will have the same effect as a vote against the proposal to adopt the merger agreement.

 

Q: WHAT IS THE EFFECT OF A BROKER NON-VOTE?

 

A: Broker non-votes will be counted for the purpose of determining the presence of a quorum. Because under the DGCL the adoption of the merger agreement requires the affirmative vote of holders of a majority of outstanding shares of common stock, broker non-votes will have the same effect as a vote against the proposal to adopt the merger agreement. Therefore, it is important that you provide your broker or nominee with instructions on how to vote your shares. With respect to the adjournment proposal and the named executive officer merger-related compensation proposal, broker non-votes will have no effect on the outcome.

 

Q: WHO WILL COUNT THE VOTES?

 

A: The votes will be counted by the inspector of election appointed for the special meeting.

 

Q: CAN I PARTICIPATE IF I AM UNABLE TO ATTEND?

 

A: If you are unable to attend the meeting in person, we encourage you to send in your Proxy Card or to vote by telephone or over the Internet. The special meeting will not be broadcasted telephonically or over the Internet.

 

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Q: WHERE CAN I FIND THE VOTING RESULTS OF THE SPECIAL MEETING?

 

A: Amerigroup intends to announce preliminary voting results at the special meeting and publish final results in a Current Report on Form 8-K that will be filed with the Securities and Exchange Commission (the “SEC”) following the special meeting. All reports Amerigroup files with the SEC are publicly available when filed.

 

Q: WHAT HAPPENS IF THE MERGER IS NOT CONSUMMATED?

 

A: If the merger agreement is not adopted by Amerigroup stockholders or if the merger is not consummated for any other reason, Amerigroup stockholders will not receive any payment for their shares of Amerigroup common stock in connection with the merger. Instead, Amerigroup will remain an independent public company, and shares of Amerigroup common stock will continue to be listed and traded on the NYSE. The merger agreement provides that, upon termination of the merger agreement under certain circumstances, Amerigroup may be required to pay to WellPoint a termination fee of $146,000,000 (or $73,000,000 in certain circumstances). See the section entitled “The Merger Agreement—Expenses and Termination Fees; Effect of Termination” beginning on page 95 for a discussion of the circumstances under which such a termination fee will be required to be paid.

 

Q: HOW CAN I OBTAIN ADDITIONAL INFORMATION ABOUT AMERIGROUP?

 

A: Amerigroup will provide copies of this proxy statement and its 2011 Annual Report to Stockholders, including its Annual Report on Form 10-K, as amended, for the year ended December 31, 2011, without charge to any stockholder who makes a written request to our Secretary at AMERIGROUP Corporation, 4425 Corporation Lane, Virginia Beach, Virginia 23462. Amerigroup’s Annual Report on Form 10-K, as amended, and other SEC filings may also be accessed at www.sec.gov or on the Investor Relations section of Amerigroup’s website at www.amerigroup.com. Amerigroup’s website address is provided as an inactive textual reference only. The information provided on or accessible through our website is not part of this proxy statement and is not incorporated in this proxy statement by this or any other reference to our website provided in this proxy statement.

 

Q: HOW MANY COPIES SHOULD I RECEIVE IF I SHARE AN ADDRESS WITH ANOTHER STOCKHOLDER?

 

A: The SEC has adopted rules that permit companies and intermediaries, such as brokers, to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single annual report or proxy statement, as applicable, addressed to those stockholders. This process, commonly referred to as “householding,” potentially provides extra convenience for stockholders and cost savings for companies. Amerigroup and some brokers may be householding Amerigroup’s proxy materials by delivering a single set of proxy materials to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker or Amerigroup that they or it will be householding materials to your address, householding will continue until you are notified otherwise or until you revoke your consent under Section 233 of the DGCL. If at any time you no longer wish to participate in householding, and would prefer to receive a separate proxy statement and annual report, or if you are receiving multiple copies of the proxy statement and annual report and wish to receive only one, please notify your broker if your shares are held in a brokerage account or Amerigroup if you are a stockholder of record. You can notify Amerigroup by sending a written request to our Secretary at AMERIGROUP Corporation, 4425 Corporation Lane, Virginia Beach, Virginia 23462, or by calling our Secretary at (757) 490-6900. In addition, we will promptly deliver, upon written or oral request to the address or telephone number above, a separate copy of the annual report and proxy statement to a stockholder at a shared address to which a single copy of the documents was delivered.

 

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Q: WHO CAN HELP ANSWER MY QUESTIONS?

 

A: If you have questions about the merger or the other matters to be voted on at the special meeting or desire additional copies of this proxy statement or additional proxy cards or otherwise need assistance voting, you should contact:

Morrow & Co., LLC

470 West Avenue

Stanford, CT 06902

Call Toll-Free: (800) 607-0088

Call Collect: (203) 658-9400

or

AMERIGROUP Corporation

4425 Corporation Lane

Virginia Beach, Virginia 23462

(757) 490-6900

Attn: Investor Relations

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement contains certain “forward-looking” statements as that term is defined by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements that are predictive in nature, that depend on or relate to future events or conditions, or that include words such as “believes”, “anticipates”, “expects”, “may”, “will”, “should”, “estimates”, “intends”, “plans” and other similar expressions are forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from those projected or contemplated in the forward-looking statements as a result of, but not limited to, the following factors:

 

   

the failure to receive, on a timely basis or otherwise, the required approvals by Amerigroup’s stockholders and government or regulatory agencies;

 

   

the risk that a condition to closing of the proposed transaction may not be satisfied;

 

   

Amerigroup’s and WellPoint’s ability to consummate the merger;

 

   

the failure by WellPoint to obtain the necessary debt financing arrangements set forth in the commitment letter received in connection with the merger;

 

   

operating costs and business disruption may be greater than expected;

 

   

the ability of Amerigroup to retain and hire key personnel and maintain relationships with providers or other business partners pending the consummation of the transaction; and

 

   

the impact of legislative, regulatory and competitive changes and other risk factors relating to the industries in which Amerigroup and WellPoint operate, as detailed from time to time in each of Amerigroup’s and WellPoint’s reports filed with the SEC.

There can be no assurance that the proposed transaction will in fact be consummated.

Additional information about these factors and about the material factors or assumptions underlying such forward-looking statements may be found under Item 1.A in Amerigroup’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, and Item 1.A in Amerigroup’s most recent Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, as amended. Amerigroup cautions that the foregoing list of important factors that may affect future results is not exhaustive. When relying on forward-looking statements to make decisions with respect to the proposed transaction, stockholders and others should carefully consider the foregoing factors and other uncertainties and potential events. All subsequent written and oral forward-looking statements concerning the proposed transaction or other matters attributable to Amerigroup or any other person acting on their behalf are expressly qualified in their entirety by the cautionary statements referenced above. The forward-looking statements contained herein speak only as of the date of this communication. Amerigroup undertakes no obligation to update or revise any forward-looking statements for any reason, even if new information becomes available or other events occur in the future, except as may be required by law.

 

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THE COMPANIES

AMERIGROUP Corporation

Amerigroup is a multi-state managed healthcare company operating in the United States focused on persons who receive healthcare benefits through publicly funded healthcare programs, including Medicaid, Children’s Health Insurance Program, Medicaid expansion programs and Medicare Advantage. Amerigroup provides healthcare products through publicly funded programs in the states of Florida, Georgia, Louisiana, Maryland, Nevada, New Jersey, New Mexico, New York, Ohio, Tennessee, Texas, Virginia and Washington. Amerigroup expects to expand operations to Kansas in early 2013 as a result of a previously awarded state contract.

Amerigroup was incorporated in December 1994 in Delaware as AMERICAID Community Care. Amerigroup conducted its initial public offering in November 2001.

Shares of Amerigroup common stock are listed with, and trade on, the NYSE under the symbol “AGP.”

Amerigroup’s principal executive offices are located at 4425 Corporation Lane, Virginia Beach, Virginia 23462; its telephone number is (757) 490-6900; and its Internet website address is www.amerigroup.com. The information provided on or accessible through Amerigroup’s website is not part of this proxy statement and is not incorporated in this proxy statement by this or any other reference to its website provided in this proxy statement.

Additional information about Amerigroup is included in documents incorporated by reference into this proxy statement. See “Where You Can Find More Information” on page 108.

WellPoint, Inc.

WellPoint is one of the largest health benefits companies in terms of medical membership in the United States. WellPoint serves as the Blue Cross licensee for California and as the Blue Cross and Blue Shield licensee for: Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri (excluding 30 counties in the Kansas City area), Nevada, New Hampshire, New York, Ohio, Virginia (excluding the Northern Virginia suburbs of Washington, D.C.) and Wisconsin. WellPoint also serves its members throughout the country as UniCare and in certain Arizona, California and Nevada markets through its recently acquired subsidiary, CareMore Health Group, Inc. WellPoint also sells contact lenses, eyeglasses and other ocular products through its recently acquired 1-800 CONTACTS subsidiary.

WellPoint offers network-based managed care plans, including preferred provider organizations, health maintenance organizations, point-of-service plans, traditional indemnity plans, other hybrid plans, and hospital only and limited benefit products to the large and small employer, individual, Medicaid and senior markets. In addition, WellPoint provides a broad array of managed care services to self-funded customers, including claims processing, underwriting, stop loss insurance, actuarial services, provider network access, medical cost management, disease management, wellness programs and other administrative services. WellPoint also provides an array of specialty products and services including life and disability insurance benefits, dental, vision, behavioral health benefit services, radiology benefit management, analytics-driven personal healthcare guidance and long-term care insurance. Finally, WellPoint provides services to the Federal Government in connection with the Federal Employee Program and various Medicare programs. WellPoint is also licensed to conduct insurance operations in all 50 states through its subsidiaries.

Shares of WellPoint’s common stock are listed with, and trade on, the NYSE under the symbol “WLP.”

The principal executive offices of WellPoint are located at 120 Monument Circle, Indianapolis, Indiana 46204; its telephone number is (317) 488-6000; and its Internet website address is www.wellpoint.com. The information provided on or accessible through WellPoint’s website is not part of this proxy statement and is not incorporated in this proxy statement by this or any other reference to its website provided in this proxy statement.

 

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Merger Sub

Merger Sub, an indirect wholly-owned subsidiary of WellPoint, is a Delaware corporation that was formed on June 15, 2012 for the sole purpose of effecting the merger. Upon the terms and subject to the conditions of the merger agreement, Merger Sub will be merged with and into Amerigroup, with Amerigroup surviving the merger as an indirect wholly-owned subsidiary of WellPoint.

The principal executive offices of Merger Sub are located at 120 Monument Circle, Indianapolis, Indiana 46204, and its telephone number is (317) 488-6000.

 

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THE SPECIAL MEETING

This proxy statement is being provided to the stockholders of Amerigroup as part of a solicitation of proxies by the Amerigroup board of directors for use at the special meeting to be held at the time and place specified below, and at any properly convened meeting following an adjournment or postponement thereof. This proxy statement provides stockholders of Amerigroup with the information they need to know to be able to vote or instruct their vote to be cast at the special meeting.

Date, Time and Place

The special meeting is scheduled to be held in the Hargroves Conference Center located at the Amerigroup National Support Center II, 1330 Amerigroup Way, Virginia Beach, Virginia 23464 on [                    ], 2012 at [        ], local time.

Purpose of the Special Meeting

At the special meeting, Amerigroup stockholders will be asked to consider and vote on the following proposals:

 

   

to adopt the merger agreement, which is further described in the sections entitled “The Merger” and “The Merger Agreement,” beginning on pages 25 and 76, respectively;

 

   

to approve an adjournment of the special meeting, if necessary or appropriate in the view of the Amerigroup board of directors, to solicit additional proxies in favor of the proposal to adopt the merger agreement if there are not sufficient votes at the time of such adjournment to adopt the merger agreement; and

 

   

to approve, on a non-binding, advisory basis, certain compensation that will or may become payable by Amerigroup to its named executive officers that is based on or otherwise relates to the merger, discussed under the section entitled “The Merger—Quantification of Potential Payments to Named Executive Officers in Connection with the Merger” beginning on page 71.

Recommendation of the Amerigroup Board of Directors

After careful consideration, the Amerigroup board of directors determined that the terms of the merger are advisable, fair to and in the best interests of Amerigroup and its stockholders and approved the merger agreement and the merger. Certain factors considered by the Amerigroup board of directors in reaching its decision to approve the merger agreement and the merger can be found in the section entitled “The Merger—Amerigroup’s Reasons for the Merger” beginning on page 42.

The Amerigroup board of directors recommends that the Amerigroup stockholders vote “FOR” the proposal to adopt the merger agreement, “FOR” the adjournment proposal and “FOR” the named executive officer merger-related compensation proposal.

Record Date; Stockholders Entitled to Vote

Only holders of record of Amerigroup common stock at the close of business on [                    ], 2012, the record date for the special meeting, will be entitled to notice of, and to vote at, the special meeting or any adjournments or postponements thereof. At the close of business on the record date, [            ] shares of Amerigroup common stock were issued and outstanding and held by [    ] holders of record.

Holders of record of Amerigroup common stock are entitled to one vote for each share of Amerigroup common stock they own at the close of business on the record date.

 

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Quorum

The presence at the special meeting, in person or by proxy, of the holders of a majority of the aggregate voting power of the common stock outstanding on the record date will constitute a quorum. There must be a quorum for business to be conducted at the special meeting. Failure of a quorum to be represented at the special meeting will necessitate an adjournment or postponement and will subject Amerigroup to additional expense. Abstentions and broker non-votes are counted as present or represented for purposes of determining the presence or absence of a quorum.

Required Vote

The proposal to adopt the merger agreement requires the affirmative vote of holders of a majority of the outstanding shares of Amerigroup common stock. The adjournment proposal and the named executive officer merger-related compensation proposal each require the affirmative vote of holders of a majority of the shares of Amerigroup common stock entitled to vote on the proposal present or represented by proxy at the special meeting.

Failure to Vote, Abstentions and Broker Non-Votes

It is important that you vote your shares. Your failure to vote, or failure to instruct your broker, bank or other nominee to vote, will have the same effect as a vote against the proposal to adopt the merger agreement, but will have no effect on the adjournment proposal or the named executive officer merger-related compensation proposal.

If you attend the special meeting or send in your signed Proxy Card, but abstain from voting on any proposal, you will still be counted for purposes of determining whether a quorum exists. If you abstain from voting on the proposal to adopt the merger agreement, the adjournment proposal or the named executive officer merger-related compensation proposal, your abstention will have the same effect as a vote against that proposal.

Broker non-votes will be counted for the purpose of determining the presence of a quorum but will not be counted for purposes of determining the outcome of the vote on any proposal. Because under the DGCL the adoption of the merger agreement requires the affirmative vote of holders of a majority of outstanding shares of common stock, broker non-votes will have the same effect as a vote against the proposal to adopt the merger agreement. Therefore, it is important that you provide your broker or nominee with instructions on how to vote your shares. With respect to the adjournment proposal and the named executive officer merger-related compensation proposal, broker non-votes will have no effect on the outcome.

Voting by Amerigroup’s Directors and Executive Officers

At the close of business on the record date, directors and executive officers of Amerigroup and their affiliates were entitled to vote [            ] shares of Amerigroup common stock, or approximately [    ]% of the shares of Amerigroup common stock outstanding on that date. We currently expect that Amerigroup’s directors and executive officers will vote their shares in favor of the proposal to adopt the merger agreement, although none of them has entered into any agreement obligating them to do so.

Voting at the Special Meeting

If you plan to attend the special meeting and wish to vote in person, you will be given a ballot at the special meeting. Please note that if your shares of Amerigroup common stock are held by a broker, bank or other nominee, and you wish to vote at the special meeting, you must bring to the special meeting a proxy from the record holder (your broker, bank or other nominee) of the shares of Amerigroup common stock authorizing you to vote at the special meeting.

 

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You may also authorize the persons named as proxies on the Proxy Card to vote your shares by returning the Proxy Card by mail, through the Internet, or by telephone. Although Amerigroup offers four different voting methods, Amerigroup encourages you to vote through the Internet as Amerigroup believes it is the most cost-effective method. We also recommend that you vote as soon as possible, even if you are planning to attend the Amerigroup meeting, so that the vote count will not be delayed. Both the Internet and the telephone provide convenient, cost-effective alternatives to returning your Proxy Card by mail. If you vote your shares through the Internet, you may incur costs associated with electronic access, such as usage charges from Internet access providers. If you choose to vote your shares through the Internet or by telephone, there is no need for you to mail back your Proxy Card.

To Vote Over the Internet:

Log on to the Internet and go to the website www.proxyvote.com (24 hours a day, 7 days a week). Have your Proxy Card available when you access the website. You will need the control number from your Proxy Card to vote.

To Vote By Telephone:

On a touch-tone telephone, call 1-800-690-6903 (24 hours a day, 7 days a week). Have your Proxy Card available when you make the call. You will need the control number from your Proxy Card to vote.

To Vote By Proxy Card:

Complete and sign the Proxy Card and mail it to the address indicated on the Proxy Card.

If you return your signed Proxy Card without indicating how you want your shares of Amerigroup common stock to be voted with regard to a particular proposal, your shares of Amerigroup common stock will be voted in favor of each such proposal. Proxy Cards that are returned without a signature will not be counted as present at the special meeting and cannot be voted.

If your shares are held by your broker, bank or other nominee, you will receive a form from your broker, bank or other nominee seeking instruction as to how your shares should be voted. If you do not issue voting instructions to your broker, bank or other nominee, your broker, bank or other nominee may not vote your shares on any of the proposals. You should contact your broker, bank or other nominee with questions about how to provide or revoke your instructions.

Revocation of Proxies

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

 

   

submitting a written notice of revocation to our Secretary at 4425 Corporation Lane, Virginia Beach, Virginia 23462;

 

   

submitting a later-dated Proxy Card;

 

   

attending the special meeting and voting in person, which will automatically cancel any proxy previously given, or revoking your proxy in person, but your attendance alone will not revoke any proxy that you have previously given;

 

   

submitting another vote by telephone or over the Internet; or

 

   

if applicable, submitting new voting instructions to your broker, bank or other nominee.

If you choose either of the first two methods, you must submit your notice of revocation or your later-dated Proxy Card to the Secretary of Amerigroup, no later than the beginning of the special meeting.

 

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If you have questions about how to vote or revoke your proxy, you should contact our Secretary at 4425 Corporation Lane, Virginia Beach, Virginia 23462.

Shares Held in Name of Broker (Street Name)

If your shares are held by your broker, bank or other nominee, often referred to as held in street name, you will receive a form from your broker, bank or other nominee seeking instruction as to how your shares should be voted. You should contact your broker, bank or other nominee with questions about how to provide or revoke your instructions.

Tabulation of Votes

The votes will be counted by the inspector of election appointed for the special meeting.

Solicitation of Proxies

The Amerigroup board of directors is soliciting your proxy, and Amerigroup will bear the cost of soliciting proxies. Morrow & Co., LLC has been retained to assist with the solicitation of proxies. Morrow & Co., LLC will be paid approximately $20,000 and will be reimbursed for its reasonable out-of-pocket expenses for these and other advisory services in connection with the special meeting. Solicitation initially will be made by mail. Forms of proxies and proxy materials may also be distributed through brokers, custodians, and other like parties to the beneficial owners of shares of Amerigroup common stock, in which case these parties will be reimbursed for their reasonable out-of-pocket expenses. Proxies may also be solicited in person or by telephone, facsimile, electronic mail, or other electronic medium by Morrow & Co., LLC or by certain of Amerigroup’s directors, officers, and employees, without additional compensation.

Adjournment

In addition to the proposal to adopt the merger agreement and the named executive officer merger-related compensation proposal, Amerigroup stockholders are also being asked to approve a proposal that will give the Amerigroup board of directors authority to adjourn the special meeting for the purpose of soliciting additional proxies in favor of the proposal to adopt the merger agreement if there are not sufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement. If this proposal is approved, the special meeting could be successively adjourned to any date. In addition, the Amerigroup board of directors could postpone the meeting before it commences, whether for the purpose of soliciting additional proxies or for other reasons. If the special meeting is adjourned for the purpose of soliciting additional proxies, stockholders who have already submitted their proxies will be able to revoke them at any time prior to their use. If you return a proxy and do not indicate how you wish to vote on any proposal, or if you indicate that you wish to vote in favor of the proposal to adopt the merger agreement but do not indicate a choice on the adjournment proposal, your shares will be voted in favor of the adjournment proposal. But if you indicate that you wish to vote against the proposal to adopt the merger agreement, your shares will only be voted in favor of the adjournment proposal if you indicate that you wish to vote in favor of that proposal.

The Amerigroup board of directors recommends a vote “FOR” the adjournment proposal.

Other Information

You should not return your stock certificate or send documents representing Amerigroup common stock with the Proxy Card. If the merger is completed, the paying agent for the merger will send you a letter of transmittal and instructions for exchanging your shares of Amerigroup common stock for the merger consideration.

 

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THE MERGER

The discussion of the merger in this proxy statement is qualified in its entirety by reference to the merger agreement, a copy of which is attached to this proxy statement as Annex A and which is incorporated by reference into this proxy statement.

Effects of the Merger

Pursuant to the terms of the merger agreement, at the effective time of the merger, Merger Sub will be merged with and into Amerigroup, with Amerigroup surviving the merger as an indirect wholly-owned subsidiary of WellPoint.

At the effective time of the merger, each option to purchase shares of Amerigroup common stock granted under Amerigroup’s equity incentive compensation plans that is outstanding and that becomes or already is vested by its terms will be cancelled and converted into the right to receive an amount, payable in cash, equal to the product of (i) the total number of shares of Amerigroup common stock subject to the option multiplied by (ii) the excess of $92.00 over the per share exercise price of the option (with the aggregate amount of such payment rounded down to the nearest cent).

Each option that as of the effective time is outstanding but unvested by its terms will be converted as of the effective time into a stock option to acquire a number of shares of WellPoint common stock (rounded down to the nearest whole share) equal to the product of (i) the total number of shares of Amerigroup common stock subject to the option immediately prior to the effective time multiplied by (ii) the equity exchange ratio, at an exercise price per share (rounded up to the nearest whole cent) equal to (x) the exercise price applicable to the option immediately prior to the effective time divided by (y) the equity exchange ratio. The terms and conditions of any such converted options will otherwise remain the same as the terms and conditions applicable to the options under Amerigroup’s equity incentive compensation plans and the award agreements pursuant to which the options were granted (including vesting schedules, provided that such WellPoint options will immediately vest in full if the holder’s employment is terminated by WellPoint without “cause” or by the holder for “good reason” within two years following the effective time).

At the effective time of the merger, each restricted share of Amerigroup common stock and each restricted stock unit representing shares of Amerigroup common stock (collectively “other stock awards”) that is outstanding and that becomes or already is vested by its terms will be cancelled and converted into the right to receive an amount, payable in cash, equal to the product of the total number of shares of Amerigroup common stock subject to the other stock award multiplied by $92.00. Each restricted stock award subject to performance-based vesting conditions that by its terms otherwise would not have vested by reason of consummation of the merger will be deemed vested as of the effective time of the merger at the target level of performance.

Each other stock award that as of the effective time is outstanding but unvested by its terms will be converted as of the effective time into an award in respect of a number of shares of WellPoint common stock (rounded down to the nearest whole share) equal to the product of (i) the total number of shares of Amerigroup common stock subject to the award multiplied by (ii) the equity exchange ratio. The terms and conditions of any such converted other stock awards will otherwise remain the same as the terms and conditions applicable to the other stock awards under Amerigroup’s equity incentive compensation plans and the award agreements pursuant to which the other stock awards were granted (including vesting schedules, provided that the other stock awards as converted will immediately vest in full if the respective holder’s employment is terminated by WellPoint without “cause” or by the holder for “good reason” within two years following the effective time).

 

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Background of the Merger

As part of the ongoing evaluation of Amerigroup’s business, members of Amerigroup’s senior management and Amerigroup’s board of directors periodically review and assess the company’s operations, financial performance, industry conditions and related regulatory developments as they may each impact the company’s long-term strategic goals and plans, including a review of potential opportunities to maximize stockholder value through business combinations, acquisitions, and other financial and strategic alternatives. Strategic alternatives considered by Amerigroup have included, among other things, potential business combinations, the sale of the company, potential acquisitions, greater expansion into the Medicare managed care sector and potential partnerships with other companies to provide services to dual eligible beneficiaries (persons who are eligible for both Medicare and Medicaid benefits).

During 2010 there was a marked increase in the volume of potential business opportunities in the Medicaid managed care industry as many states indicated their potential desire to expand the volume of Medicaid beneficiaries enrolled with managed care companies. In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act (the “Affordable Care Act”). Concurrent with these developments, in light of the general economic climate, many states continued to face acute fiscal challenges that placed ongoing pressure on their ability to fund premium rates that would be attractive to managed care companies.

Amerigroup’s senior management and its board of directors have considered potential opportunities to maximize stockholder value in light of the risks and strategic opportunities for the company in this environment. Such risks include, among others, potential efforts by Congress to repeal all or a portion of the Affordable Care Act; the effect of the outcome of the 2012 presidential election on the Affordable Care Act; legal challenges to the Affordable Care Act; and the excise tax on premium revenues scheduled to take effect in 2014. Such opportunities include, among others, the dual eligibles demonstration projects and Medicaid expansion created by the Affordable Care Act; the establishment of state health insurance exchanges, which are scheduled to take effect in 2014; and a growth pipeline for the industry that Amerigroup believes could exceed $40 billion in future Medicaid “Requests for Proposal” from various states.

As part of its ongoing evaluation of Amerigroup’s business and potential strategic alternatives, Amerigroup’s senior management and board of directors have also considered and actively discussed several industry trends and their potential impact on Amerigroup’s business and operations, including, among others: general economic conditions; Amerigroup’s concentration on Medicaid beneficiaries and its capabilities to compete effectively with larger diversified managed care companies with greater financial resources to serve dual eligible beneficiaries, offer products in emerging health exchanges and pursue other opportunities; increasing applicability of medical loss ratio floors which could serve to lower profitability; its ability to successfully identify, execute on and integrate acquisition targets to supplement its membership growth and diversify its business; its concern that its peer competitors could experience poor financial performance thereby impacting Amerigroup’s stock price; and its ability to respond to new regulatory directives. In addition, Amerigroup’s senior management and board of directors discussed from time to time their belief that there would be significant consolidation in the managed care industry and the Affordable Care Act would likely lead managed care companies to have an interest in an acquisition of, or business combination with, Amerigroup and other companies engaged in the Medicaid managed care business, which belief has been reinforced by the recent trend of consolidation in the Medicare managed care sector.

On February 9, 2012, Amerigroup’s chairman of the board, chief executive officer and president, James G. Carlson, met with the chief executive officer of Company D (“Company D”) in Reston, Virginia. The meeting was requested by Company D’s chief executive officer in December 2011 as an opportunity to discuss industry trends and regulatory developments. The parties discussed, among other things, the current managed care industry environment, the effect of the recession on state health care budgets, the implications of health care reform and the then-pending United States Supreme Court case regarding the Affordable Care Act, opportunities to serve dual eligible beneficiaries and industry consolidation. At this meeting, Company D’s chief executive officer stated to Mr. Carlson that if Amerigroup were to consider a sale of the company or other business

 

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combination transaction, Company D would be interested in exploring a transaction with Amerigroup. Company D’s chief executive officer did not, however, make any proposal regarding price, terms or timing of a potential transaction.

On February 10, 2012, Mr. Carlson updated the board on his discussions with the chief executive officer of Company D.

On February 16, 2012, Mr. Carlson informed the board that he would schedule a special meeting of the board so that the board could discuss in greater detail his discussions with the chief executive officer of Company D and discuss with representatives of Goldman Sachs and the company’s counsel, Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden “), the considerations relating to exploring a potential strategic transaction involving the company.

On February 20, 2012, Mr. Carlson received a letter from Company D’s chief executive officer following up on several items discussed by Mr. Carlson and Company D’s chief executive officer at their February 9, 2012 meeting. This letter included a presentation regarding Company D and a brochure describing efforts to optimize the corporate culture at Company D. Mr. Carlson responded by letter on February 22, 2012 and included materials regarding Amerigroup’s corporate culture.

On March 3, 2012, a special meeting of Amerigroup’s board of directors was held in Richmond, Virginia. In addition to the board, members of Amerigroup senior management and representatives of Goldman Sachs and Skadden attended the meeting. Mr. Carlson discussed the February 9, 2012 meeting he had with Company D’s chief executive officer and the related follow-up letter. Mr. Carlson also informed Amerigroup’s board of directors that the chief executive officers of two companies, Company E (“Company E”) and Company F (“Company F”), respectively, had contacted him and requested meetings so that they could become acquainted with Mr. Carlson and discuss industry trends, and that such meetings had been scheduled for the second week of March. Mr. Carlson and Amerigroup’s executive vice president and chief financial officer, James W. Truess, discussed with the members of the board various considerations relating to a potential sale or merger of Amerigroup and the considerations relating to remaining an independent company and executing Amerigroup’s current business plan. The board of directors, members of Amerigroup senior management and representatives of Goldman Sachs also discussed the potential for increased consolidation in the managed care field generally and in the Medicaid sector in particular.

The board of directors then excused representatives of Goldman Sachs from the meeting, after which Mr. Carlson informed the board that, in the event discussions with Company D, Company E, Company F or another party reached a point where Amerigroup would need to engage a financial advisor, management would recommend to the board engaging Goldman Sachs. Mr. Carlson reported that this view was based on Goldman Sachs’ longstanding relationship with Amerigroup and involvement in certain prior transactions with Amerigroup, Goldman Sachs’ knowledge of Amerigroup’s business, and its experience and expertise in managed care mergers and acquisitions. Mr. Truess also reminded the board that Goldman Sachs was a counterparty to certain derivatives transactions with Amerigroup and that the board would need to be fully informed regarding such transactions and any actual or perceived conflict that might arise therefrom if Goldman Sachs were to be engaged as financial advisor. Mr. Truess then reviewed for the members of the board of directors Amerigroup’s issuance of $240,000,000 aggregate principal amount of 2.00% Convertible Senior Notes due 2012 (the “2012 Convertible Notes”), for which Goldman Sachs acted as initial purchaser, and the exercise in April 2007 by the initial purchasers of the related over-allotment option to purchase an additional $20,000,000 aggregate principal amount of notes, and the related convertible note hedge and issuer warrant transactions that Amerigroup entered into with an affiliate of Goldman Sachs (through Wells Fargo Bank, National Association (“Wells Fargo” which acted as an intermediary between Goldman Sachs International and Amerigroup) (collectively, the “Call Spread Transactions”), the details of which are described below under the heading “The Merger—Opinions of Financial Advisors—Goldman, Sachs & Co.” Representatives of Skadden then reviewed the legal issues relating to the Call Spread Transactions in the event Goldman Sachs was engaged to advise Amerigroup in the evaluation of strategic alternatives, including the consideration of a potential acquisition of Amerigroup or other business combination involving Amerigroup.

 

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At the request of the board, representatives of Goldman Sachs rejoined the meeting and presented a detailed review of the Call Spread Transactions, including the potential impact under various scenarios of an acquisition of Amerigroup (and the timing of such acquisition) on the value that could potentially be realized by affiliates of Goldman Sachs under the warrants included in the Call Spread Transactions (as described below under the heading “The Merger—Opinions of Financial Advisors—Goldman, Sachs & Co.”); financial incentives Goldman Sachs may have that could be different from those of Amerigroup and its stockholders; and the likely, but not certain, hedging activities by Goldman Sachs in connection with the Call Spread Transactions. Among other things, Goldman Sachs noted that if a transaction were to be consummated prior to October 22, 2012, any then-outstanding warrants included in the Call Spread Transactions would be cancelled, and an affiliate of Goldman Sachs would be entitled to receive an incremental payment from Amerigroup in connection with such early cancellation.

After further discussion during which the board asked representatives of Goldman Sachs, management and Skadden numerous questions about the Call Spread Transactions and any perceived or actual potential conflict related thereto, the board excused the representatives of Goldman Sachs from the meeting and engaged in a lengthy discussion with members of senior management and representatives of Skadden regarding the possible engagement of Goldman Sachs as financial advisor. Representatives of Skadden then reviewed in detail the current state of Delaware law regarding financial advisor conflicts and the board’s fiduciary duties with respect to the engagement of, and reliance on, financial advisors in an acquisition and change in control context under Delaware law. The board and management of Amerigroup and representatives of Skadden discussed various factors that the board could consider in determining which financial advisor or advisors to engage, including, among others, the nature of any real or perceived conflicts and whether such conflicts could be addressed, the board’s and management’s view as to the importance of having Goldman Sachs serve as a financial advisor in light of its experience with Amerigroup and in the managed care sector, the benefits and issues involved in having multiple financial advisors, including the cost involved, and different ways to compensate such financial advisors. The board discussed possible ways in which to address this issue, including engaging a financial advisor other than Goldman Sachs or engaging another financial advisor to act as co-advisor with Goldman Sachs, and asked management to provide the board with additional information to assist the board in better assessing the issue, including having another financial advisor assess the Call Spread Transactions and the potential payment to an affiliate of Goldman Sachs in connection with the early cancellation of any of the warrants included in the Call Spread Transactions. The board requested that management have such financial advisor make a presentation to the board at its next meeting to be held on March 22, 2012.

Representatives of Goldman Sachs then rejoined the meeting and made a preliminary presentation to the board regarding: the current state and prospects for the managed care sector; the public markets perspectives on Amerigroup, including publicly available information regarding its historical stock price performance and Wall Street research analyst recommendations; recent mergers and acquisition consolidation among managed care companies; a preliminary financial analysis of Amerigroup using various valuation methodologies based on financial projections provided by management; and a review of strategic alternatives that may be available to Amerigroup, including remaining an independent company, diversification and acquisition strategies, and a business combination or sale. The presentation also included descriptions of other publicly-traded managed care organizations, such as Company G (“Company G”), Company D, Company E, Company F, WellPoint and other companies, that could potentially have an interest in engaging in an acquisition of, or business combination with, Amerigroup, including summary financial and strategic information regarding such companies, and their potential level of interest, as a strategic, business and financial matter, in, and ability to pursue, a transaction on the best terms with, Amerigroup. As part of this presentation, representatives of Goldman Sachs and the board also discussed whether private equity firms might be interested in a transaction with Amerigroup, including Goldman Sachs’ belief that such firms would be less likely to be in a position to offer price and terms comparable to those that could be offered by a strategic acquiror. Representatives of Goldman Sachs and the directors also discussed different timelines and processes that could be undertaken in connection with a potential transaction involving Amerigroup, including the relative benefits of and issues in pursuing discussions with one party initially or undertaking a process involving multiple parties from the outset. Following this discussion, after

 

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consultation with representatives of Skadden and Goldman Sachs, the board determined not to initiate a sale process at such time, but directed Mr. Carlson to continue preliminary exploratory discussions with Company D, Company E and Company F.

The independent directors also met in executive session with representatives of Skadden to discuss the board’s fiduciary duties in engaging financial advisors, including discussing the Call Spread Transactions and Goldman Sachs’ actual or perceived conflict, the pros and cons of various alternatives regarding the engagement of financial advisors and whether the engagement of a second financial advisor together with Goldman Sachs would effectively address the conflicts.

On March 7, 2012, Mr. Carlson attended a previously scheduled meeting with the chief executive officer of Company E in Washington, D.C. Mr. Carlson and the chief executive officer of Company E discussed, among other things the changing trends in the managed care industry and the implications of such changes for Amerigroup, including in light of the Affordable Care Act.

Also on this date, Mr. Carlson initiated a discussion with Angela F. Braly, the chair of the board, president and chief executive officer of WellPoint, at a business conference they were both attending in Washington D.C. The discussion included, among other things, emerging opportunities for serving dual eligible beneficiaries, especially in California. Mr. Carlson and Ms. Braly agreed to schedule a follow-up meeting to discuss potential joint business opportunities to serve dual eligible beneficiaries in greater detail.

On March 8, 2012, Mr. Carlson informed the board that Barclays had been invited to make a presentation regarding the Call Spread Transactions at the next meeting of the Amerigroup board of directors. Mr. Carlson also updated the board on his discussions with Ms. Braly and the chief executive officer of Company E, as well as his view of companies in the managed care sector, including Company D, Company E, Company F, Company G and WellPoint, as a potential party to a strategic transaction with the company.

On March 12, 2012, Ms. Braly called Mr. Carlson to schedule a follow-up teleconference to discuss partnership opportunities. During the call, Mr. Carlson suggested that he and Ms. Braly meet alone to learn more about each other’s respective company prior to the proposed follow-up meeting regarding partnership opportunities.

On March 16, 2012, Mr. Carlson met with the chief executive officer and another senior officer of Company F in Virginia Beach, Virginia, at Company F’s request. Mr. Carlson and Company F’s chief executive officer and senior officer discussed among other things, (i) the changing trends in the managed care industry and the implications of such changes for Amerigroup, (ii) the impact of pending legislative and regulatory reforms on the managed care industry, (iii) potential opportunities and business risks in serving dual eligible beneficiaries, and (iv) recent mergers and acquisitions in the managed care industry.

At the annual strategic retreat of the Amerigroup board of directors on March 22, 2012 in Austin, Texas, which was also attended by members of senior management and representatives of Skadden and Barclays, Mr. Carlson reviewed meetings he had with the chief executive officers of Company E and Company F on March 7, 2012 and March 16, 2012, respectively. Mr. Carlson also reviewed his meeting with Company D’s chief executive officer on February 9, 2012, which he had previously described to the board on March 3, 2012 and noted there had been no substantive discussions with representatives of Company D since such time. Mr. Carlson then presented profiles of certain publicly-traded companies in the managed care sector that might have an interest in an acquisition of, or business combination with, Amerigroup, including Company D, Company E, Company F, Company G and WellPoint, and his view of the potential level of interest of each such company, as a strategic, business and financial matter, in, and ability to offer the best terms in a transaction with, Amerigroup. Mr. Carlson then advised the board that he was scheduled to meet with Ms. Braly in the first week of April to discuss possible joint business opportunities.

 

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Representatives of Barclays, with the participation of Amerigroup’s management, made a detailed presentation to the board regarding the managed care industry, certain preliminary financial analyses and data regarding Amerigroup using various valuation methodologies based on financial projections provided by management, Amerigroup’s position in the managed care market relative to its competition, industry consolidation, and a review of strategic options that may be available to Amerigroup, including remaining an independent company, possible acquisition opportunities, and a business combination or sale. The presentation also included descriptions of Company D, Company E, Company F, Company G, WellPoint and other publicly-traded managed care companies that could potentially be interested in a strategic transaction with Amerigroup, including summary financial and strategic information regarding such companies. The board discussed with representatives of Barclays and Amerigroup’s management the likely potential interest level of such companies in, and their ability to pursue, a transaction on the most favorable terms with, Amerigroup. In response to questions from the board, the Barclays representatives discussed why the Barclays representatives believed that it was generally less likely that a private equity buyer would be in a position to offer price and terms comparable to those that could be offered by a strategic buyer. Representatives of Barclays and the board then engaged in a discussion regarding a possible timeline and process for consideration of strategic alternatives, including a potential sale of Amerigroup in the event the board determined to pursue such a transaction. The board also discussed with Barclays and management of the company that of all the companies reviewed with the board that would have an interest in a transaction with Amerigroup, Company D and WellPoint currently would likely have the most interest in a transaction with Amerigroup and the current ability to pay the highest price.

At the request of the board, representatives of Barclays then presented a detailed review of the Call Spread Transactions for the purposes of analyzing any real or perceived conflict that Goldman Sachs may have with respect to acting as a financial advisor to Amerigroup. The presentation included, among other things, a summary of the Call Spread Transactions and Goldman Sachs’ role and financial interest therein, including the potential impact of an acquisition of Amerigroup (and the timing of such acquisition) on the value that could be realized by an affiliate of Goldman Sachs under the warrants issued to an affiliate of Goldman Sachs in connection with the Call Spread Transactions, and the likely, but not certain, hedging activities by Goldman Sachs in connection with the Call Spread Transactions. (See the description of the Call Spread Transactions below under the heading “The Merger—Opinions of Financial Advisors—Goldman, Sachs & Co.”.) Representatives of Barclays noted that if a transaction were to close after October 22, 2012, all of the warrants issued to an affiliate of Goldman Sachs in connection with the Call Spread Transactions will have expired. Representatives of Barclays further noted that if a transaction were to close on or prior to October 22, 2012, some or all of the warrants issued to an affiliate of Goldman Sachs in the Call Spread Transactions would be cancelled, and an affiliate of Goldman Sachs would be entitled to receive a cancellation payment from Amerigroup in connection with the early cancellation of such warrants, but that if a transaction were to close after such date, no payment would be due to such affiliate of Goldman Sachs with respect to such cancelled warrants, in which case, Barclays believed that the potential conflict would fall away. Barclays noted that, as the warrants expire during the period from August 13 through October 22, 2012, Amerigroup would, pursuant to the terms of the warrants, be obligated to deliver shares of Amerigroup common stock worth the excess of the then market price over the warrant strike price for the expiring warrants, and the aggregate cancellation amount payable upon closing of the merger would generally decrease each day since fewer warrants remain outstanding (with no cancellation amount payable if the closing of the merger is consummated after the final expiration date of the warrants). Barclays also noted that the amount of any such cancellation payment will depend on various factors including, among others, the merger consideration, the closing date of the merger (and the resulting remaining terms of the warrants) and applicable interest rates. Representatives of Barclays and Skadden and the board then discussed potential sources of conflicts arising from the position of an affiliate of Goldman Sachs as the counterparty to the Call Spread Transactions and Goldman Sachs’ serving as the financial advisor to Amerigroup in a potential business combination. Representatives of Barclays, Skadden and management of the company also discussed with the board the likely timing of signing and closing a transaction if the board were to pursue the sale of the company or other strategic alternatives. Representatives of Barclays, Skadden and management of the company discussed that given the current state of the board’s deliberations on potential strategic alternatives, uncertainty caused by the United States Supreme Court decision regarding the Affordable Care Act expected in June 2012, and that any

 

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transaction would be subject to the receipt of numerous regulatory approvals, although there was no certainty, it would be unlikely that a transaction involving the sale of the company would close prior to October 22, 2012.

The board then excused representatives of Barclays from the meeting and engaged in a lengthy discussion with representatives of Skadden regarding the current state of Delaware law regarding financial advisor conflicts and the board’s fiduciary duties regarding such conflicts. The board discussed the benefits of, and issues raised by, engaging Goldman Sachs as financial advisor and various alternatives that may be available to the board to address any real or perceived conflicts on the part of Goldman Sachs, including determining not to engage Goldman Sachs or to jointly engage Goldman Sachs and Barclays or another second financial advisor. Following such discussion, the board determined that Goldman Sachs should not act as sole financial advisor to Amerigroup in the event that the board determined to proceed with discussions regarding a potential sale of the company. The board determined to engage Goldman Sachs and Barclays, at a time management deemed appropriate and on an equal basis as to compensation, as co-financial advisors to advise the board with respect to one or more strategic alternatives for Amerigroup.

The board and management then engaged in a discussion regarding potential strategic alternatives, including a possible sale of Amerigroup. Members of the board asked questions of management regarding the timing and process for exploring such a sale, including with respect to past and future interactions with Company D, Company E, Company F, Company G and WellPoint. Directors also asked numerous questions of management regarding management’s view of possible other strategic alternatives if no sale process were pursued or did not result in a sale of Amerigroup. The board and management further discussed Amerigroup’s stand-alone prospects and possible opportunities to acquire other companies and businesses. Representatives of Skadden then reviewed the directors’ fiduciary duties under Delaware law, including in considering and pursuing the sale of a company. At the conclusion of the meeting, the board determined to take no action with respect to pursuing a sale of the company or other strategic alternatives, but directed Mr. Carlson to reach out to the chief executive officer of Company D, at a time Mr. Carlson deemed appropriate, to attempt to determine Company D’s level of interest in a transaction with the company and to engage in preliminary, exploratory discussions with WellPoint.

The independent directors also met in executive session to, among other things, review with representatives of Skadden the actions that the Compensation and Organizational Management Committee of the Amerigroup board would consider at its next meeting, including the approval and grant of regular annual long-term incentive awards for the 2012-2014 performance period and performance year 2011 outperform equity awards to certain officers and employees of the company at target values approved by Amerigroup’s board of directors at its February 2012 meeting. The directors discussed the treatment of such awards in a change of control transaction and the potential alternatives available to the committee regarding the proposed awards in light of the board of directors’ current exploration of possible strategic alternatives.

During the first few months of 2012, senior officers of Amerigroup and Company G engaged in multiple discussions regarding strategic partnership opportunities related to dual eligible beneficiaries.

On March 28, 2012, the chief executive officer of Company G and another senior officer of Company G contacted Mr. Carlson to discuss on-going strategic partnership discussions between Company G and Amerigroup related to dual eligible beneficiaries. During the call, Mr. Carlson suggested that he and the chief executive officer of Company G meet to discuss opportunities for partnerships between the companies. The chief executive officer offered to host a meeting, but such meeting was never scheduled and never occurred.

On April 4, 2012, Mr. Carlson and Ms. Braly met in Richmond, Virginia to discuss recent trends in the managed care industry, potential consolidation in the managed care industry, possible business opportunities in the dual eligible business that could be pursued jointly by Amerigroup and WellPoint and certain aspects of Amerigroup’s strategic plan and the capabilities necessary to capitalize on the opportunities presented by the Affordable Care Act that would begin in 2014.

 

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On April 5, 2012, senior management of Amerigroup and senior management of WellPoint met to discuss a potential partnership between the two companies to jointly pursue serving dual eligible beneficiaries. Several days later, Ms. Braly contacted Mr. Carlson to express her desire to have a broader strategic discussion between the companies beyond opportunities to serve dual eligible beneficiaries, including discussing a potential acquisition of Amerigroup by WellPoint.

On April 9, 2012, Mr. Carlson updated the board on the status of the company’s ongoing discussions with WellPoint and expressed his view that he thought WellPoint would be interested in pursuing an acquisition of the company if the board were to determine to undertake a process to sell the company. Mr. Carlson also informed the board that at the end of March, he had followed up on his earlier discussions with the chief executive officer of Company D, and that the chief executive officer of Company D had suggested a meeting and offered that he would provide possible meeting dates at a later time.

On April 18, 2012, Mr. Carlson updated the board on the status of the discussions between WellPoint and the company and informed the board that WellPoint and Amerigroup were negotiating a non-disclosure agreement, which would include a standstill in favor of Amerigroup and that additional information would not be provided to WellPoint until such non-disclosure agreement was executed by the parties.

Effective as of April 23, 2012, Amerigroup and WellPoint executed a confidentiality and standstill agreement in anticipation of further in-person meetings and potential exchange of information.

On May 3, 2012, senior management of Amerigroup and senior management of WellPoint met in Williamsburg, Virginia to discuss each organization’s current stand-alone business strategies. The series of discussions included an overview of Amerigroup’s history, development, principal businesses, operations, and long-term financial forecast, WellPoint’s principal businesses and operations, the companies’ respective business philosophies, the operation of, and differences between, the companies’ respective provider relationships, potential business strategies and a general discussion of the benefits of combining WellPoint and the company, but did not address potential terms of a possible business combination. Following these meetings, the parties determined to continue discussions regarding a potential strategic transaction.

Also on May 3, 2012, Mr. Carlson’s office followed up with the office of the chief executive of Company D regarding scheduling the next meeting and was offered a three-day window of available dates during the last week of June. This meeting was later scheduled for June 29, 2012.

On May 4, 2012, Mr. Carlson updated the board on the May 3rd meeting between the company and WellPoint.

During the next several weeks, members of senior management of Amerigroup and WellPoint engaged in in-person and telephonic discussions regarding Amerigroup’s business and operations, and senior management of Amerigroup provided additional background information on the company.

On May 10, 2012, senior officers of Amerigroup and Company F met in Virginia Beach, Virginia to discuss strategic partnerships related to serving dual eligible beneficiaries.

At a special telephonic meeting of the Amerigroup board of directors on May 16, 2012, which was also attended by members of senior management, Mr. Truess reviewed the status of discussions with WellPoint since the last meeting of the board of directors on March 22, 2012. Mr. Truess reported that, consistent with the board’s prior instructions, members of management had met in person and had held additional telephone conversations with members of WellPoint’s management to discuss, on a preliminary basis, possible joint business opportunities between the two companies. Mr. Truess then reported to the board that Amerigroup and WellPoint had executed a confidentiality and standstill agreement and that the parties had exchanged information in order to facilitate discussions regarding a potential strategic transaction. Mr. Truess further informed the board

 

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that additional discussions were scheduled with WellPoint, including a meeting between Mr. Carlson and Ms. Braly on May 17, 2012 and a meeting between each company’s senior finance and management teams on May 18, 2012. Mr. Truess noted that it was possible that WellPoint would seek to submit an indication of interest to the company regarding an acquisition, merger or other strategic transaction.

The board and management then engaged in a discussion regarding the interactions and a possible strategic transaction between Amerigroup and WellPoint. After discussion, the board directed management to continue discussions with WellPoint and to obtain from WellPoint an indication as to its proposed terms and structure of a strategic transaction at the time management deemed appropriate and/or advisable. The board also requested that management advise the board of any additional discussions with WellPoint and/or any other potential interested party.

On May 17, 2012, Mr. Carlson and Ms. Braly met in Indianapolis, Indiana to continue the ongoing discussions between the companies. At this meeting, Ms. Braly indicated that WellPoint was considering submitting an indication of interest to acquire Amerigroup, but that in order to be able to do so WellPoint needed additional time to evaluate Amerigroup’s financial information. Mr. Carlson requested that in the event WellPoint decided to provide a non-binding indication of interest to acquire Amerigroup, it should do so by June 1, 2012, so that Amerigroup’s board of directors would have sufficient time to evaluate the indication of interest prior to the board’s regularly scheduled board meeting on June 7, 2012.

On May 18, 2012 senior members of the finance and business teams of Amerigroup and WellPoint met in Atlanta, Georgia to conduct a detailed review of certain financial projections for Amerigroup, which are described under the heading “The Merger—Certain Projections Prepared by the Management of Amerigroup”, that were prepared by Amerigroup’s management and that had been provided to WellPoint’s management in advance of the meeting, and to discuss other matters related to Amerigroup’s business and operations.

On May 21, 2012, Mr. Carlson updated the board on his discussions with Ms. Braly and informed the board that he expected WellPoint would submit a non-binding initial indication of interest regarding a business combination shortly and that this indication of interest would be discussed at the next board meeting, which was scheduled to occur on June 7, 2012.

On May 22, 2012, WellPoint management requested additional information on Amerigroup’s business and operations that WellPoint required prior to providing a preliminary indication of interest. The majority of this information was provided during the subsequent days following an understanding between the parties that an initial indication of interest would be provided by WellPoint by the end of that week.

On May 25, 2012, the chief financial officer of WellPoint, Wayne DeVeydt, and Jennie M. Peterson, WellPoint’s vice president, orally communicated to Mr. Truess a preliminary non-binding indication of interest for an acquisition of Amerigroup and proposed: (i) an all-cash purchase price of $83.00 per share, (ii) that WellPoint would accept closing risk associated with U.S. federal antitrust approvals, (iii) that execution of a definitive merger agreement would be targeted for mid-to-late June and would not be contingent on the outcome of the United States Supreme Court decision regarding the Affordable Care Act and (iv) that the indication of interest was contingent on Amerigroup entering into exclusive negotiations with WellPoint. Mr. DeVeydt and Ms. Peterson also stated that WellPoint’s indication of interest was subject to, among other things, WellPoint’s completion of its due diligence investigation of Amerigroup. Mr. Truess responded that this indication of interest would be relayed to the Amerigroup board, but that he personally believed that the price level in WellPoint’s indication of interest would be unlikely to result in the Amerigroup board being prepared to enter into exclusive negotiations with WellPoint or undertake a broader, competitive process toward further exploration of a strategic combination.

On May 26, 2012, Mr. DeVeydt, Ms. Peterson and Mr. Truess continued their discussion regarding WellPoint’s preliminary indication of interest and desire to enter into exclusive negotiations. Mr. Truess

 

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explained that, to his knowledge, the Amerigroup board had not developed a view regarding exclusive negotiations relating to a sale of the company, but in his view, the board would likely expect a higher price from WellPoint before even considering such an approach.

At a special telephonic meeting of the Amerigroup board of directors on May 29, 2012, which was also attended by members of senior management, Mr. Carlson reviewed the status of ongoing discussions with WellPoint. He reported that additional discussions between senior officers of the company and WellPoint had occurred since the May 16, 2012 board meeting, including a meeting he had with Ms. Braly on May 17, 2012 and a meeting of the senior finance and management teams of each company on May 18, 2012. Mr. Truess reviewed in detail the preliminary non-binding indication of interest provided to Mr. Truess by Mr. DeVeydt and Ms. Peterson. After extensive discussions among the members of the board and senior management regarding the potential price range indications that could be provided by WellPoint in the near term and the likely timeframe of future communications between the parties, and taking into account previous discussions with representatives of Goldman Sachs and Barclays, the board directed Mr. Carlson and Mr. Truess to convey to WellPoint that its proposal of $83.00 per share was not high enough to warrant further consideration by the board of WellPoint’s indication of interest or to initiate a competitive process to pursue a possible business combination. The board also determined not to enter into exclusive negotiations with WellPoint, but directed Mr. Carlson and Mr. Truess to provide additional diligence materials to WellPoint and to continue discussions with WellPoint in the manner they deemed appropriate with the goal of obtaining a higher proposed purchase price from WellPoint.

On May 29, 2012, Ms. Braly contacted Mr. Carlson to further explore the potential for a strategic business combination. Ms. Braly communicated her continued interest in exploring the opportunity and WellPoint’s potential willingness to increase its proposed price contingent on the further exchange of information between the companies. Mr. Carlson agreed to provide additional information in the coming days, and Ms. Braly agreed to provide a revised preliminary indication of interest, provided that the additional information to be provided by Amerigroup supported revising WellPoint’s prior indication of interest.

On May 30, 2012, Ms. Peterson and Mr. Truess had a telephonic conversation to discuss the information Ms. Braly had requested from Mr. Carlson and a potential revised indication of interest from WellPoint. Mr. Truess communicated that if WellPoint continued to be interested in pursuing exclusive negotiation, it would be advisable to raise its proposed price to at least $88.00 per share in cash, but that any decision regarding further negotiations or whether to negotiate exclusively with WellPoint would be determined by Amerigroup’s board of directors.

On June 1, 2012, Ms. Peterson proposed to Mr. Truess that WellPoint would increase its prior non-binding indication of interest to $88.00 per share in cash and accept certain risks associated with obtaining antitrust and state insurance and health care regulatory approvals, but only if Amerigroup would enter into exclusive negotiations with WellPoint and commit to negotiate a definitive agreement on an expedited basis. In this regard, Ms. Peterson stated that WellPoint was willing and able to negotiate a definitive transaction agreement on an expedited basis and enter into a transaction in advance of the United States Supreme Court decision on the Affordable Care Act expected towards the end of June 2012.

Over the next several days, Mr. Carlson discussed WellPoint’s latest indication of interest with each director of Amerigroup individually and agreed that the indication would be discussed by the full board at its regularly scheduled meeting on June 7, 2012.

On June 7, 2012, a regularly scheduled meeting of Amerigroup’s board of directors was held in Virginia Beach, Virginia and during the meeting the board reviewed and discussed the terms of WellPoint’s indication of interest. Also present at the meeting were members of Amerigroup’s senior management and representatives of Goldman Sachs, Barclays and Skadden. At the meeting, Mr. Carlson recounted for the board recent developments regarding discussions with WellPoint, including the terms of WellPoint’s revised indication of interest and WellPoint’s request that the company negotiate exclusively with WellPoint. In response to questions

 

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from the directors, Mr. Carlson noted that he had a meeting planned with the chief executive officer of Company D for the last week of June, with the specific date and details to be determined, but that Company D had not otherwise followed up on its previous communications with the company since Mr. Carlson had contacted the chief executive officer of Company D following the March 22, 2012 meeting of the board. Representatives of Goldman Sachs and Barclays then reviewed the financial terms of WellPoint’s indication of interest and discussed with the board their respective financial analyses of the indication and the company. Representatives of

Goldman Sachs and Barclays also discussed with the board recent trends in the managed care industry, including recent acquisitions of managed care companies. Together with members of Amerigroup’s senior management, representatives of Goldman Sachs and Barclays discussed with the board certain considerations regarding potential strategic alternatives for the company, including executing the company’s existing business plan, undertaking acquisitions both in the Medicare and Medicaid managed care sectors and pursuing a possible sale of the company. The board of directors then excused representatives of Barclays and Goldman Sachs from the meeting. Representatives of Skadden and Amerigroup’s senior management then reviewed with the board the regulatory considerations relating to a possible sale of the company, including discussing the relative regulatory processes required in connection with a transaction with WellPoint and a transaction with Company D, including under both federal antitrust laws and state insurance and health care laws. Representatives of Skadden then provided a presentation on the directors’ fiduciary duties under Delaware law in considering a possible sale of the company and other strategic alternatives, including a discussion of WellPoint’s conditioning its indication of interest on Amerigroup’s entering into exclusive negotiations and how that request should be considered in light of the need for an effective pre- or post-signing “market check” of a transaction with WellPoint.

Following this presentation, the directors engaged in a discussion with members of senior management and representatives of Barclays, Goldman Sachs and Skadden regarding the benefits of, and considerations relating to, engaging in exclusive discussions with WellPoint or pursuing a competitive process, including the high level of interest in a transaction shown by WellPoint and that WellPoint had indicated it might consider proposing a lower price if it participated in a competitive process rather than entering into exclusive negotiations; the board’s belief that Company D was the only other company that would be likely to have the interest and resources to pay an attractive purchase price but that a transaction with Company D would raise greater regulatory issues than a transaction with WellPoint and, accordingly, a transaction with WellPoint would have a higher degree of certainty of closing; the risk that regulatory issues in any transaction with Company D could lead to divestitures and other remedies that could adversely affect the value of a transaction to Company D and the purchase price it would be prepared to pay; the risk that conducting a competitive process might not produce a higher price than WellPoint’s proposal and that WellPoint might not participate in a competitive process and might withdraw its indication of interest; and the board of directors’ belief that, given the uncertainty of being able to obtain a feasible competitive bid from another interested party, advising WellPoint that Amerigroup would pursue a competitive process if WellPoint was unwilling to pay a high enough price would, in the board of directors’ view, be the most effective strategy to obtain the highest price reasonably obtainable from WellPoint, rather than actually pursuing a competitive process. Following this discussion, the board determined, in consultation with management and the board’s financial and legal advisors, that the best course for obtaining the highest purchase price reasonably available for Amerigroup’s stockholders would be to enter into exclusive discussions with WellPoint and that Amerigroup should proceed with exclusive negotiations with WellPoint only if WellPoint raised its price, agreed to bear substantially all antitrust and other regulatory risk related to the transaction, agreed to act quickly to finalize and sign definitive transaction documents prior to the U.S. Supreme Court’s decision on the Affordable Care Act and agreed to a low termination fee and other provisions designed to provide other potential acquirors with the ability to make acquisition proposals following the execution of an agreement with WellPoint. After discussing the potential price range of a counterproposal, the board then directed Mr. Carlson and Mr. Truess to formulate and make a counterproposal within the foregoing parameters to WellPoint.

In executive session, the independent directors discussed the presentations of Skadden, Barclays, Goldman Sachs and company management, with a particular focus on the feasibility of undertaking a transaction with Company D at a favorable price given the potential regulatory issues posed by such a transaction. The independent directors also discussed with representatives of Skadden, among other things, the timing of

 

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discussions, if any, between Amerigroup executives and WellPoint regarding any employment arrangements. The independent directors determined that discussions regarding employment arrangements for senior Amerigroup executives should not begin unless authorized by the independent directors, which would not be until at least the price and other transaction terms had been resolved. Following this executive session, Jeffrey B. Child, the Amerigroup lead independent director, conveyed this decision to Mr. Carlson.

Following the board meeting and later in the day on June 7, 2012, Mr. Carlson contacted Ms. Braly to advise that Amerigroup’s board of directors would consider entering into negotiations with WellPoint on an exclusive basis provided WellPoint increased its proposed purchase price to $93.50 per share in cash. Following this conversation, Mr. Truess contacted Mr. DeVeydt and Ms. Peterson to provide a detailed counterproposal which included: (i) a purchase price of $93.50 per share in cash, (ii) a termination fee of 1.5% of the equity value of the transaction, (iii) the Amerigroup board would not solicit acquisition proposals upon signing a definitive merger agreement but would have the ability to discuss acquisition proposals with a third party if the board determined that the proposal was reasonably likely to lead to a financially superior proposal, (iv) WellPoint would be provided with the ability to match any competing acquisition proposals that Amerigroup might receive, (v) WellPoint would be required to bear the responsibility for all closing risk relating to obtaining antitrust and state insurance and health care laws and other regulatory approvals, (vi) WellPoint would obtain fully committed financing and (vii) any ruling by the Supreme Court of the United States on the Affordable Care Act would not be grounds to terminate the transaction. Mr. Truess indicated that based on the foregoing, Amerigroup’s board of directors would consider entering into exclusive negotiations with WellPoint.

On June 8, 2012, Ms. Peterson sent a request to Mr. Truess for certain additional due diligence information regarding Amerigroup. Ms. Peterson and Mr. Truess engaged in detailed discussion on the information requested, including, among other things, the potential timeframe within which WellPoint would respond to Amerigroup’s counter proposal and the parties’ positions regarding the allocation of closing risk relating to obtaining regulatory approvals. Mr. Truess agreed to provide proposed language regarding the allocation of antitrust and regulatory risk and certainty of closing and to assemble the requested due diligence information.

Following this communication and through June 13, 2012, (i) Amerigroup provided the previously requested due diligence information, (ii) representatives of Amerigroup and WellPoint held an in-person meeting in Virginia Beach, Virginia to discuss certain operational aspects of Amerigroup’s business and (iii) Amerigroup and WellPoint negotiated and exchanged proposed language regarding the allocation of antitrust and regulatory risk and certainty of closing.

On June 14, 2012, Mr. Truess contacted Ms. Peterson to advise that Amerigroup was suspending the exchange of due diligence information in light of the parties’ inability to reach agreement on the allocation of risk associated with obtaining regulatory approvals and certainty of closing as proposed by Amerigroup’s board of directors.

Following this communication and through June 15, 2012, Amerigroup and WellPoint and their respective representatives engaged in negotiations regarding certainty of closing and the allocation of antitrust and state insurance and health care regulatory risk, including the standard of efforts required to be utilized by WellPoint in obtaining antitrust and state insurance and health care regulatory approvals, the definition of material adverse effect that would measure what level of remedies WellPoint would be required to accept to obtain antitrust and state insurance and health care regulatory approvals, closing conditions relating to regulatory matters and other regulatory risk allocation terms.

At a special telephonic meeting of Amerigroup’s board of directors on June 15, 2012, which was also attended by members of Amerigroup’s senior management and representatives of Barclays, Goldman Sachs and Skadden, Mr. Carlson reported to the board on the ongoing negotiations with WellPoint regarding regulatory matters and that the parties had, to this point, been unable to reach agreement regarding such matters, including the standard of efforts required to be utilized by WellPoint in obtaining state insurance and health care regulatory

 

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approvals and level of remedies it would be required to accept in order to obtain such approvals. Mr. Carlson also updated the board regarding a discussion that he had recently had with Ms. Braly, during which Ms. Braly stated that WellPoint had not provided a revised price because WellPoint desired to wait to present its best and final proposal only after entering into exclusive negotiations with Amerigroup. Mr. Carlson noted that WellPoint had not accepted or provided a counterproposal in response to Amerigroup’s most recent proposal of $93.50 per share in cash. Mr. Carlson also informed the board that Ms. Braly had advised Mr. Carlson that any transaction would be contingent on entering into employment agreements with Mr. Carlson, Mr. Truess and Richard C. Zoretic, Amerigroup’s executive vice president and chief operating officer, to ensure their continuing service following the acquisition of Amerigroup. Mr. Carlson informed the board that he did not respond to or discuss with Ms. Braly any employment agreements or arrangements and explained to Ms. Braly that neither Amerigroup nor any of its executive officers would discuss such employment arrangements with WellPoint unless authorized to do so by the board, and that this would not occur until at least after the price and terms of a potential transaction were determined and agreed to by WellPoint and Amerigroup. Following a discussion among the directors, Amerigroup’s senior management and representatives of Barclays, Goldman Sachs and Skadden, of the advantages and issues in pursuing exclusive discussions with WellPoint as compared to pursuing a competitive process, the board directed management to continue to negotiate regulatory risk allocation provisions with WellPoint and that, if these negotiations were successful, management should then emphasize to WellPoint the need to reach agreement on price in a timely manner. In addition, the board determined not to enter into exclusive negotiations with WellPoint at this time.

In executive session, the independent directors discussed whether or not to form a transaction committee. After extensive discussions, the directors determined that they would prefer to take action regarding a possible transaction as an entire group and that, instead of forming a formal transaction committee, the board would request that Mr. Carlson provide regular updates to Mr. Child, as the lead independent director of the board, on the discussions with WellPoint and progress on a potential transaction with WellPoint. The directors then discussed the need to focus on obtaining the best price reasonably available for Amerigroup’s stockholders and affirmed that there should be no discussions by management of possible employment arrangements with WellPoint unless authorized by the board.

During discussions on June 15 and June 16, 2012, after continued negotiations regarding regulatory risk allocation, Mr. Carlson and Ms. Braly determined to cease negotiations, because of an inability to agree on these points. Following these discussions, Mr. Carlson informed Amerigroup’s board of directors of the parties’ differences on issues related to regulatory risk and that negotiations between the parties had ceased.

On June 19, 2012, following a call between Mr. Carlson and Ms. Braly, management of Amerigroup and WellPoint determined to resume discussions regarding a potential transaction, with the initial focus being on the resolution of regulatory risk allocation provisions and confirmation of a price from WellPoint.

On June 20, 2012, at a special telephonic meeting of Amerigroup’s board of directors, which was also attended by members of Amerigroup’s senior management and representatives of Barclays, Goldman Sachs and Skadden, Mr. Carlson updated the board on the status of negotiations between the parties on regulatory risk allocation. Nicholas J. Pace, Amerigroup’s executive vice president and general counsel, and representatives of Skadden next discussed with the board the respective positions of WellPoint and Amerigroup regarding regulatory risk allocation and deal certainty, the manner in which these issues had been addressed in similar transactions and the regulatory risks relating to a transaction with WellPoint, including the potential impact on Amerigroup if the transaction failed to close. John E. Littel, executive vice president for external relations, then discussed with the board the state regulatory approval process that would be required in connection with a transaction with WellPoint and compared that process to the approval process that would be required in connection with a transaction with Company D. Mr. Littel also discussed with the board the potential impact on the company of a failure to close such a transaction. Following this presentation, members of the board determined that the parties’ positions were close enough regarding regulatory and certainty of closing matters that a compromise should be pursued, provided that WellPoint agreed to bear a high enough level of the risk of

 

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obtaining regulatory approvals for the transaction. The board then directed Mr. Carlson and Mr. Truess to continue discussions with WellPoint. Later that day, the parties reached agreement on the regulatory risk allocation and certainty of closing provisions that were the subject of previous negotiations between them.

On June 21, 2012, WellPoint delivered to Amerigroup a written proposal on seven transaction terms. WellPoint proposed: (i) a two-tiered termination fee structure under which Amerigroup would pay a termination fee equal to 1.5% of the equity value of the transaction in order to enter into a superior acquisition proposal if such proposal was received with 30 days following execution of a definitive merger agreement with WellPoint, with the termination fee increasing to 4% of the equity value of the transaction for a superior proposal made more than 30 days following execution of the merger agreement, (ii) there would be no “go shop” provision enabling Amerigroup to solicit alternative transactions after a definitive merger agreement was executed, (iii) there would be no financing condition in the definitive merger agreement, (iv) following the execution of a definitive merger agreement, Amerigroup would be allowed to engage in discussions with a potential acquiror that made a proposal that was reasonably likely to lead to an acquisition proposal that was superior to the transaction with WellPoint, (v) WellPoint would have the ability to negotiate for five business days to match any alternative acquisition proposal received by Amerigroup, (vi) the transaction would be conditioned on three key executives being employed by Amerigroup at the time of closing and (vii) Amerigroup would be prevented from terminating the merger agreement prior to a vote of Amerigroup’s stockholders on the transaction with WellPoint (which is referred to in this proxy as a “force the vote” provision).

On June 21, 2012, Mr. Truess contacted Ms. Peterson to discuss WellPoint’s planned timeframe for responding to Amerigroup’s most recent price counter-proposal. Ms. Peterson advised that the WellPoint board would be meeting on June 25, 2012 and that further price discussions between Amerigroup and WellPoint would not occur before this meeting. The parties agreed that further discussion on the seven transaction terms proposed by WellPoint should be deferred until after the WellPoint board meeting.

On June 25, 2012, Ms. Braly contacted Mr. Carlson and advised him that while WellPoint continued to be interested in pursuing a strategic transaction with Amerigroup, she would defer further discussion on price or other transaction terms until after the United States Supreme Court decision regarding the Affordable Care Act, which was expected on June 28, 2012. Ms. Braly informed Mr. Carlson that she expected to be able to provide a revised indication of interest with respect to price on July 2, 2012 following a WellPoint board of directors meeting at which the WellPoint board of directors would further discuss the potential transaction and the United States Supreme Court decision regarding the Affordable Care Act.

On June 28, 2012, at a special telephonic meeting of the board of directors, which was also attended by members of Amerigroup’s senior management and representatives of Barclays, Goldman Sachs and Skadden, Mr. Carlson provided an overview of recent developments impacting the company, including the company’s successful bid to provide services in the state of Kansas and the potential impact to the company of the United States Supreme Court decision in Nat. Fed. of Indep. Bus. v. Sebelius, Sec. of Dept. of Health & Human Servs., No. 11-393 (2012), which had been announced earlier that day. Mr. Carlson also informed the board that the chief executive officer of Company D had agreed to postpone their scheduled meeting on the previous day in light of the pending Supreme Court decision on the Affordable Care Act. Mr. Carlson then reviewed with the board his discussions with Ms. Braly on June 25, 2012, during which she asked questions regarding the potential impact of the Supreme Court decision on the company’s business and informed Mr. Carlson that she expected to provide a revised indication of interest with respect to price on July 2, 2012 following a WellPoint board of directors meeting at which the potential transaction would be discussed. Mr. Pace, together with representatives of Skadden, then updated the board on the indication of interest delivered by WellPoint on June 21, 2012. The members of the board of directors then discussed the various terms proposed by WellPoint and concluded that these matters should not be addressed until WellPoint provided a revised indication of interest as to price.

On June 29, 2012, at the request of WellPoint, Messrs. Truess and Littel discussed the expected impact of the Supreme Court ruling on Amerigroup’s business with Mr. DeVeydt and Ms. Peterson.

 

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On July 2, 2012, Mr. DeVeydt and Ms. Peterson contacted Mr. Truess to provide a revised non-binding indication of interest of $90.00 per share in cash. The revised indication of interest also provided that regulatory risk allocation and certainty of closing provisions would be as previously negotiated between the parties, that the desired announcement date would be July 9, 2012, that the other transaction terms would be as described in WellPoint’s June 21, 2012 communication, that satisfactory employment agreements with three key Amerigroup executives would be signed at the time of execution of a definitive merger agreement and that Amerigroup would negotiate exclusively with WellPoint through July 9, 2012.

Later that day, at a special telephonic meeting of the board of directors, which was also attended by members of Amerigroup’s senior management and representatives of Barclays, Goldman Sachs and Skadden, Mr. Truess updated the board of directors on WellPoint’s revised indication of interest. Mr. Pace and representatives of Skadden then reviewed with the board the proposed transaction terms described in WellPoint’s June 21, 2012 communication. Representatives of each of Barclays and Goldman Sachs then reviewed with the board certain financial analyses relating to the $90.00 per share indicated price. The board then engaged in a discussion with members of senior management and representatives of Barclays, Goldman Sachs and Skadden regarding WellPoint’s indication of interest. Following a discussion between members of the board, Amerigroup management and representatives of Barclays, Goldman Sachs and Skadden regarding the potential price range of a counterproposal, the board determined that Amerigroup management should submit a counterproposal at a higher price with transaction terms that were favorable to Amerigroup, including rejecting the “force the vote” provision and the condition to closing the transaction that the three designated Amerigroup executives be employed at the closing. In an executive session following the meeting, the independent directors confirmed with representatives of Skadden that discussions regarding employment terms for senior Amerigroup executives should not begin unless authorized by the independent directors or by Mr. Child acting on behalf of the other independent directors, which would not be until at least price and the other transaction terms in WellPoint’s proposal had been resolved. Following the executive session, Mr. Child and representatives of Skadden conveyed to Messrs. Carlson, Truess and Pace the board’s position regarding timing of these employment discussions.

Later that day, Mr. Truess, Mr. DeVeydt and Ms. Peterson had a telephonic discussion regarding the potential transaction. Mr. Truess communicated a counterproposal, under which Amerigroup would enter into exclusive negotiations through July 9, 2012, as follows: (i) a purchase price of $92.00 per share in cash, (ii) regulatory risk allocation and certainty of closing provisions as previously negotiated between the parties, (iii) a two-tiered termination fee structure pursuant to which Amerigroup would pay to WellPoint a termination fee equal to 1.5% of the equity value of the transaction in order to enter into an agreement with a third party who makes a superior acquisition proposal within 60 days following execution of a definitive merger agreement, and a termination fee equal to 3% of the equity value of the transaction to enter into an agreement providing for a superior acquisition proposal received after 60 days following the execution of a definitive merger agreement, (iv) a one-time three business day period for WellPoint to match any competing proposal, (v) no “go shop” provision enabling Amerigroup to solicit alternative transactions, (vi) acknowledgement of WellPoint’s position that it would require employment agreements with three key Amerigroup executives to be executed coincident with execution of a definitive merger agreement, although Amerigroup’s board was not prepared to authorize discussion of any such agreements, (vii) WellPoint would provide fully committed financing and (viii) no “force the vote” provision. Mr. DeVeydt and Ms. Peterson indicated that they would respond to this proposal after conferring with Ms. Braly.

Later that evening, Mr. DeVeydt and Ms. Peterson called Mr. Truess and indicated that WellPoint would proceed with negotiations on the basis of the $92.00 per share cash price and all other terms, subject to approval by the WellPoint board of directors, except that: the lower-tier initial termination fee of 1.5% of transaction value paid upon the termination of the merger agreement to enter into a superior proposal from a third party should apply to a proposal made within 30 days following executive of a definitive merger agreement rather than the 60-day period proposed by Amerigroup; and WellPoint would require multiple three business day negotiating periods to match third-party competing acquisition proposals. Mr. Truess responded that, while he believed these changes represented a reasonable compromise, he would review with the Amerigroup board whether such

 

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modifications to the proposed terms would be acceptable. Following the telephone call, Mr. Truess received written confirmation from Ms. Peterson regarding WellPoint’s indication of interest, including the purchase price of $92.00 per share in cash. Mr. Truess and Ms. Peterson agreed that representatives of Skadden and Linklaters LLP, counsel to WellPoint, should begin work on negotiating the terms of a definitive merger agreement and WellPoint would complete its due diligence.

On July 3, 2012, at a special telephonic meeting of Amerigroup’s board of directors, the board, along with members of Amerigroup’s senior management, representatives of Skadden, representatives of Goldman Sachs and of Barclays, discussed the material terms of WellPoint’s revised indication of interest. Mr. Carlson and Mr. Truess reviewed with the board that Amerigroup and WellPoint had negotiated a price of $92.00 per share in cash, subject to resolution of other transaction terms. With regard to the open material deal points, Mr. Truess explained that after extensive negotiations, WellPoint agreed to withdraw its request for the “force the vote” provision as well as reduce the termination fees that it had been requesting from 4% to 3% for proposals received more than 30 days after execution of the merger agreement. In exchange, Amerigroup agreed to provide WellPoint with multiple three business day negotiation periods to seek to match a superior acquisition proposal from a third party. Mr. Truess discussed with the board that WellPoint had provided that upon resolving the purchase price it would require that Amerigroup enter into exclusive negotiations with it. Representatives of Skadden reviewed with the directors their fiduciary duties with respect to the potential sale of the company, including the need for the directors to obtain the best price reasonably available for the company’s stockholders and considerations concerning pursuing exclusive negotiations or a competitive process. Following a lengthy discussion, the board determined that the best course for obtaining the highest purchase price reasonably available would be to enter into exclusive discussions with WellPoint. In making such determination, the board considered, among other things, in consultation with its financial and legal advisors and management, the high level of interest in a transaction shown by WellPoint to date and WellPoint’s position that it would not proceed unless the company entered into exclusive negotiations with WellPoint; the belief that Company D was the only other company that would likely have the interest and resources to pay an attractive purchase price but that a transaction with Company D would raise greater regulatory issues than a transaction with WellPoint and accordingly, a transaction with WellPoint would have a higher degree of certainty of closing; the risk that regulatory issues in any transaction with Company D could lead to divestitures and other remedies that could adversely affect the value of a transaction to Company D and the purchase price it would be prepared to pay; the risk that conducting a competitive process might not produce a higher price than WellPoint’s proposal and that WellPoint might not participate in a competitive process and might withdraw its indication of interest; and the board of directors’ belief that, given the uncertainty of being able to obtain a feasible competitive bid from another interested party, advising WellPoint that Amerigroup could pursue a competitive process if WellPoint was unwilling to pay a high enough price would, in the board of directors’ view, be the most effective strategy to obtain the highest price reasonably obtainable from WellPoint, rather than actually pursuing a competitive process. The board and representatives of Barclays and Goldman Sachs then discussed the proposed purchase price of $92.00 in the context of the valuation analyses previously undertaken by Barclays and Goldman Sachs. After further discussion, the board instructed management and Amerigroup’s advisors that they should continue to move forward with negotiations with WellPoint on the terms of the merger agreement. The board directed management that they should communicate to WellPoint that the company would negotiate with WellPoint on an exclusive basis until July 9, 2012, provided that Amerigroup reserved the right to terminate such exclusive negotiations prior to such time and that Amerigroup would not enter into a formal exclusivity agreement.

In executive session following the meeting, the independent directors discussed the treatment of Amerigroup’s stock options and other stock awards in connection with the transaction. The directors also reaffirmed that members of senior management should not begin negotiations regarding employment terms with WellPoint until the draft merger agreement was substantially agreed upon between the parties as determined by the independent directors or Mr. Child acting on behalf of the other independent directors. Representatives of Skadden, after speaking with Mr. Child, subsequently conveyed this decision to Mr. Pace who then conveyed it to Messrs. Carlson and Truess.

 

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From July 4, 2012 through July 7, 2012, Amerigroup and WellPoint, assisted by representatives of Skadden and Linklaters, negotiated the terms of a definitive merger agreement. During this time, WellPoint also performed additional due diligence and had numerous telephonic conversations with members of Amerigroup’s management regarding Amerigroup’s business and operations. On the afternoon of July 6, 2012, with the material terms in the merger agreement having been resolved, Mr. Child advised Messrs. Carlson, Truess and Zoretic and their separate counsel that they could begin negotiating employment agreements with WellPoint. Mr. Child also advised Messrs. Carlson, Truess and Zoretic that Amerigroup’s board would not agree to WellPoint’s request that consummation of the acquisition be conditioned on the three executives’ continued employment by Amerigroup at the closing. On July 7, 2012, WellPoint withdrew its request that the consummation of the transaction be conditioned on the continued employment of Amerigroup’s senior executives at the closing of the transaction; however, WellPoint still required that Messrs. Carlson, Truess and Zoretic enter into employment agreements with WellPoint upon execution of a definitive merger agreement.

On the afternoon of July 8, 2012, Amerigroup held a special meeting of its board of directors to review the proposed transaction with WellPoint. Prior to the meeting, directors had received copies of the draft merger agreement and a summary of the terms thereof, draft board resolutions and presentation materials prepared by each of Goldman Sachs, Barclays and Skadden. At the meeting, Mr. Carlson and Mr. Truess and representatives of Barclays, Goldman Sachs and Skadden reviewed with the board the proposed terms of the transaction and discussed the resolution of the final issues in the merger agreement. Representatives of Skadden then reviewed with the board its fiduciary duties in considering the transaction, including that the directors obtain the best value reasonably available to the company’s stockholders. Following questions from the directors, representatives of Skadden discussed the two-tiered termination fee that had been negotiated and its impact on a post-signing “market check”.

Representatives of Barclays then reviewed with the board the presentation previously prepared by Barclays, including its financial analysis of the proposed merger consideration and rendered its oral opinion to the board, which was subsequently confirmed by delivery of a written opinion dated July 9, 2012, that, as of such date and based upon and subject to the qualifications, limitations and assumptions stated in its opinion, the consideration to be offered to Amerigroup’s stockholders is fair, from a financial point of view, to such stockholders. Barclays’ financial analysis and written opinion is described below under “—Opinion of Barclays Capital Inc.”

Next, representatives of Goldman Sachs reviewed with the board the presentation previously prepared by Goldman Sachs, including its financial analysis of the proposed merger consideration and delivered its oral opinion to the board, which was subsequently confirmed by delivery of a written opinion dated July 9, 2012, that, as of such date and based upon and subject to the factors and assumptions set forth therein, the merger consideration to be paid to the holders (other than WellPoint and its affiliates) of shares of Amerigroup common stock pursuant to the merger agreement was fair from a financial point of view to such holders. Goldman Sachs’ financial analysis and written opinion is described below under “—Opinion of Goldman, Sachs & Co.”

Following this presentation, representatives of Skadden reviewed with the board of directors the detailed terms of the draft merger agreement, including the history of negotiations on the material transaction terms, and the material terms of WellPoint’s financing commitment.

In executive session, the independent directors engaged in an extensive discussion with representatives of Barclays, Goldman Sachs and Skadden regarding whether the board could reasonably approve the transaction with WellPoint without undertaking a competitive process to sell the company. The factors considered by the independent directors, in consultation with representatives of Barclays, Goldman Sachs and Skadden, included, among others, the high level of interest in a transaction shown by WellPoint to date; the directors’ belief that Company D was the only other company that would likely have the interest and resources to pay an attractive purchase price but that a transaction with Company D would raise greater regulatory issues than a transaction with WellPoint and accordingly, a transaction with WellPoint would have a greater level of certainty of closing; the risk that regulatory issues in any transaction with Company D could lead to divestitures and other remedies

 

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that could adversely affect the value of a transaction to Company D and the purchase price it would be prepared to pay; the risk that conducting a competitive process might not produce a higher price than WellPoint’s proposal and that WellPoint might not participate in a competitive process and might withdraw its indication of interest; and the board of directors’ belief that, given the uncertainty of being able to obtain a feasible competitive bid from another interested party, advising WellPoint that Amerigroup could pursue a competitive process if WellPoint was unwilling to pay a high enough price would, in the board of directors’ view, be the most effective strategy to obtain the highest price reasonably obtainable from WellPoint, rather than actually pursuing a competitive process. Following this discussion, the representatives of Barclays and Goldman Sachs were excused from the meeting and, among other things, representatives of Skadden provided the independent directors with an overview of the terms of employment agreements being negotiated by Mr. Carlson, Mr. Truess, Mr. Zoretic and WellPoint and discussed certain fiduciary duty matters.

Following this executive session, the Amerigroup board of directors reconvened and discussed the terms of the proposed transaction in detail, and the directors determined to unanimously support proceeding to complete discussions with WellPoint. Mr. Carlson updated the board of directors that he, Mr. Truess and Mr. Zoretic were still in the process of finalizing their employment agreements with WellPoint. At this time, the board determined to adjourn the meeting until later in the evening to allow the company and WellPoint to complete their final negotiations and to allow Messrs. Carlson, Truess and Zoretic to complete their negotiations with WellPoint regarding employment terms.

Later in the evening of July 8, 2012, the board of directors reconvened and Mr. Carlson informed the board that the employment agreements between WellPoint and Mr. Carlson, Mr. Truess and Mr. Zoretic were substantially complete and in the process of final documentation. The board then discussed the proposed transaction and approved the form, terms, provisions, and conditions of the merger agreement with WellPoint, substantially in the form presented, and the transactions contemplated by the merger agreement, including the merger. Following the meeting, in the early morning of July 9, 2012, officers of WellPoint and Amerigroup executed the merger agreement. WellPoint and Amerigroup issued a joint press release at approximately 7:30 a.m. publicly announcing the entry into the merger agreement.

Amerigroup’s Reasons for the Merger

In evaluating the merger agreement and the merger, the Amerigroup board of directors consulted with Amerigroup’s management and legal and financial advisors and, in reaching its decision to approve the merger agreement and to recommend that Amerigroup stockholders vote for the adoption of the merger agreement, the Amerigroup board of directors considered a variety of factors, including the following:

 

   

the review of Amerigroup’s business, strategy, current and projected financial condition, current earnings and earnings prospects, and the current and prospective regulatory environment for Amerigroup;

 

   

the risks and uncertainties associated with maintaining Amerigroup’s existence as an independent company and the opportunities presented by the merger;

 

   

the fact that the merger consideration consists solely of cash, providing Amerigroup stockholders with certainty of value and liquidity upon consummation of the merger;

 

   

recent and historical market prices for Amerigroup common stock, as compared to the merger consideration, including the fact that the merger consideration of $92.00 per share represents an approximate premium of:

 

   

43.0% over $64.34, the closing price per share of Amerigroup’s common stock on July 6, 2012, the last trading day prior to the announcement of the merger agreement;

 

   

47.5% over the average closing price per share of Amerigroup’s common stock over the 30 days ended July 6, 2012;

 

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45.9% over the average closing price per share of Amerigroup common stock over the 90 day period prior to July 6, 2012;

 

   

55.9% over the average closing price per share of Amerigroup common stock over the one year period prior to July 6, 2012; and

 

   

22.9% over $74.87, the highest per share closing price of Amerigroup’s common stock during the 52-week period ended July 6, 2012.

 

   

the board of directors’ belief that the price per share of Amerigroup common stock was not likely to trade at or above the $92.00 per share merger consideration in the foreseeable future, which belief was based on a number of factors, including:

 

   

the general risks of market conditions that could affect the price of Amerigroup common stock, as well as the other risks and uncertainties discussed in Amerigroup’s public filings with the SEC (including, without limitation, risks associated with Amerigroup’s focus on recipients of publicly funded healthcare, medical management programs, and community-based education and outreach programs (including Medicaid, Children’s Health Insurance Program, Medicaid expansion programs and Medicare Advantage) and increasing public, political and regulatory scrutiny of Amerigroup’s business lines generally, including Medicaid plans);

 

   

the risks and uncertainty posed by the Patient Protection and Affordable Care Act (the “Affordable Care Act”) and related matters and its and their effect on Amerigroup’s business and operations, including the excise tax on premium revenues scheduled to take effect in 2014; potential efforts by Congress to repeal all or a portion of the Affordable Care Act; the effect of the outcome of the 2012 presidential election on the Affordable Care Act; and the possibility that one or more states may elect not to expand Medicaid coverage in light of the United States Supreme Court’s decision in Nat. Fed. of Indep. Bus. v. Sebelius, Sec. of Dept. of Health & Human Servs., No. 11-393 (2012); Dept. of Health & Human Servs. v. Florida, Nos. 11-398 & 11-400 (2012);

 

   

the need for Amerigroup to make future bids for contracts to serve dual eligible beneficiaries and the advantages of combining with a company with the necessary Medicare capabilities that would be required to compete for such contracts;

 

   

the Amerigroup board of directors’ review of other strategic alternatives for Amerigroup, including the Amerigroup board of directors’ knowledge of Amerigroup’s business, competitive position in the industry, financial condition, results of operations, on both historical and prospective bases, and of the risk-adjusted probabilities associated with achieving Amerigroup’s long-term strategic plan as a stand-alone company as compared to the certainty of value and opportunity afforded to Amerigroup stockholders by way of the merger consideration. This included consideration of Amerigroup’s focus on Medicaid plans and Amerigroup’s capabilities to compete effectively with larger diversified managed care companies with greater financial resources; to successfully identify, obtain, execute and integrate acquisition targets to supplement its membership growth and diversify its business; to expand Amerigroup’s business in light of significant capital requirements; to successfully participate in the integration of the dual eligible population; and to respond to new regulatory directives; and

 

   

the inherent uncertainty of attaining management’s internal financial projections, including those set forth in the section entitled “—Certain Projections Prepared by the Management of Amerigroup” below, including the fact that Amerigroup’s actual financial results in future periods could differ materially from the projected results.

 

   

the opinion of Goldman, Sachs & Co. to the Amerigroup board of directors that, as of July 9, 2012, and based upon and subject to the factors and assumptions set forth in its opinion, the $92.00 per share of Amerigroup common stock in cash to be paid to the holders (other than WellPoint and its affiliates) of shares of Amerigroup common stock pursuant to the merger agreement was fair from a financial point

 

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of view to such holders, and the financial analyses related thereto prepared by Goldman Sachs and described below under “—Opinion of Goldman, Sachs & Co.”;

 

   

the opinion of Barclays Capital Inc. to the Amerigroup board of directors that, as of July 8, 2012, and based upon and subject to the qualifications, limitations and assumptions stated in its opinion, the $92.00 per share in cash to be offered to the holders of shares of Amerigroup’s common stock is fair, from a financial point of view, to such stockholders, and the financial analyses related thereto prepared by Barclays and described below under “—Opinion of Barclays Capital Inc.”;

 

   

the Amerigroup board of directors’ belief that it was preferable to negotiate on a confidential basis with WellPoint rather than to conduct a private or public “auction” or sale process of Amerigroup, particularly in light of (1) the board of directors’ belief, after consultation with Amerigroup’s financial advisors, that undertaking such an auction or sale process was unlikely to lead to a higher purchase price for Amerigroup and could result in WellPoint considering a lower price if WellPoint participated in a sale process or WellPoint withdrawing its offer to purchase the company and a “failed” effort to sell Amerigroup would be highly detrimental to Amerigroup, (2) the boards’ belief that, after considering a range of potential acquirers other than WellPoint and, after consultation with Amerigroup’s management and Amerigroup’s financial advisors, only Company D had the financial resources and current interest in a transaction with Amerigroup and only Company D might have a strategic rationale to compete with a WellPoint offer to acquire Amerigroup, and the board’s belief that, after consultation with counsel and the Company’s management, a potential transaction with Company D would involve more antitrust and other regulatory issues and that the risk that regulatory issues in a potential transaction with Company D could lead to divestitures and other remedies that could adversely effect the value of a transaction to Company D and the purchase price it would be prepared to pay, and that there would be a lower likelihood of obtaining antitrust and other required regulatory approvals without undue delay under applicable laws, as compared with the potential antitrust and other regulatory risks and related potential delay associated with an acquisition by WellPoint, (3) the board of directors’ belief that, given the uncertainty of being able to obtain a feasible competitive bid from another interested party, advising WellPoint that Amerigroup could pursue a competitive process if WellPoint was unwilling to pay a high enough price would, in the board of directors’ view, be the most effective strategy to obtain the highest price reasonably obtainable from WellPoint, rather than actually pursuing a competitive process, (4) the fact that Amerigroup would be permitted, under circumstances described in the merger agreement, to provide information to and engage in discussions or negotiations with a third party who makes an unsolicited bona fide acquisition proposal, (5) the fact that Amerigroup would also be permitted, under circumstances described in the merger agreement, to terminate the merger agreement in order to enter into an agreement with respect to a superior proposal, as defined in the section entitled “The Merger Agreement—No Solicitation of Proposals for an Alternative Transaction; Changes in Board Recommendation”, after giving WellPoint an opportunity to match such offer and upon payment to WellPoint of a termination fee of $73,000,000 if the basis for termination of the merger agreement is to enter into an alternative transaction with a third party that submits a bona fide written alternative acquisition proposal during the 30-day period following the date of the merger agreement, which Amerigroup’s board of directors determines, in good faith prior to the end of such 30 day period, is, or is reasonably likely to lead to, a superior proposal, or a termination fee of $146,000,000 if the superior proposal is made by a party that submits a proposal more than 30 days following the date of the merger agreement, as described in the section entitled “The Merger Agreement—Expenses and Termination Fee; Effect of Termination”, and (6) the risk that disclosure of competitively sensitive confidential information to a potential acquiror could adversely affect Amerigroup’s business in the future;

 

   

the belief of the board of directors of Amerigroup, based on advice of the Company’s management and financial advisers, that there could be consolidation in the Medicaid managed care market and that Amerigroup would be better positioned to maximize shareholder value by being the first such major company to participate in such consolidation;

 

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the fact that Amerigroup’s legal and financial advisors were involved throughout the negotiations and updated the board directly and regularly, which provided the board with additional perspectives on the negotiations in addition to those of management;

 

   

the fact that the Amerigroup board of directors, through extensive, arms-length negotiation, was able to effectively obtain an increase in the merger consideration to $92.00 from WellPoint’s initial proposal of $83.00, as described in the section entitled “The Merger—Background of the Merger”;

 

   

the belief of the Amerigroup board of directors, based upon consultation with counsel and the Company’s management, that an acquisition by WellPoint would likely involve fewer antitrust and other regulatory issues and, accordingly, have a higher degree of certainty of closing, and that there would be a greater likelihood of obtaining antitrust and other required regulatory approvals without undue delay under applicable laws, as compared with the potential antitrust and other regulatory risks and related potential delay associated with an acquisition by Company D;

 

   

the Amerigroup board of directors’ assessment, after consultation with Goldman Sachs and Barclays, that WellPoint will have adequate financial resources to pay the merger consideration, including the limited, and high likelihood of satisfaction of, conditions to the bridge loan commitment obtained by WellPoint as described below under “—Financing Related to the Merger,” WellPoint’s representations and covenants contained in the merger agreement relating to such financing, and the Amerigroup board of directors’ assessment, after consultation with Amerigroup’s financial advisors, of WellPoint’s ability to obtain financing;

 

   

the fact that the merger will be subject to the approval of our stockholders and that, in this regard, our directors and executive officers do not own a significant enough interest, in the aggregate, to influence substantially the outcome of such stockholder vote; and

 

   

the fact that Amerigroup stockholders who do not vote to adopt the merger agreement and who follow certain prescribed procedures are entitled to appraisal rights under Delaware law.

The Amerigroup board of directors also specifically considered the following terms of the merger agreement:

 

   

the limited and otherwise customary conditions to the parties’ obligations to complete the merger, including the commitment by WellPoint to obtain applicable regulatory approvals and assume the risks related to certain conditions and requirements imposed by regulators in connection with securing such approvals, the absence of a financing condition and WellPoint’s representations, warranties, and covenants related to obtaining financing for the transaction, which were substantial assurances that the merger ultimately should be consummated on a timely basis;

 

   

the requirement to pay WellPoint a termination fee of $73,000,000 if the basis for termination of the merger agreement is to enter into an alternative transaction with a third party that submits a bona fide written alternative acquisition proposal during the 30-day period following the date of the merger agreement, which Amerigroup’s board of directors determines, in good faith prior to the end of such 30 day period, is, or is reasonably likely to lead to, a superior proposal, or a termination fee of $146,000,000 if the superior proposal is made by a party that submits a proposal more than 30 days following the date of the merger agreement,

 

   

the delivery by WellPoint of letters setting forth the commitments and other arrangements regarding the bridge financing WellPoint contemplated using to consummate the transaction;

 

   

Amerigroup’s ability to seek to specifically enforce WellPoint’s obligations under the merger agreement, including WellPoint’s obligations to consummate the merger;

 

   

Amerigroup’s ability, under circumstances described in the merger agreement, to provide information to and engage in discussions or negotiations with a third party who makes an unsolicited bona fide acquisition proposal;

 

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the ability of the Amerigroup board of directors, subject to certain conditions, to change its recommendation supporting the merger, regardless of the existence of a competing or superior acquisition proposal, to the extent Amerigroup’s board of directors determines that it is reasonably likely that the failure to take such action would be inconsistent with its fiduciary duties;

 

   

the customary nature of the other representations, warranties and covenants of Amerigroup in the merger agreement;

 

   

the fact that the financial and other terms and conditions of the merger agreement minimize, to the extent reasonably practical, the risk that a condition to closing would not be satisfied and also provide reasonable flexibility to operate Amerigroup’s business during the pendency of the merger.

In the course of its deliberations, the Amerigroup board of directors also considered a variety of risks and other potentially negative factors, including the following:

 

   

the fact that Amerigroup engaged in exclusive negotiations with WellPoint regarding a potential transaction rather than conducting a private or public “auction” or sale process of Amerigroup;

 

   

the fact that the completion of the merger will preclude Amerigroup stockholders from having the opportunity to participate in Amerigroup’s future earnings growth and the future appreciation of the value of its capital stock that could be anticipated if its strategic plan were successfully implemented on a stand-alone basis;

 

   

the deal protection measures in the merger agreement, including the fact that any time prior to the consummation of the merger, the Company may terminate the merger agreement and pay WellPoint a termination fee of $73,000,000 (equal to approximately 1.5% of the equity value of the transaction) if the basis for termination of the merger agreement is to enter into an alternative transaction with a third party that submits a bona fide written alternative acquisition proposal during the 30-day period following the date of the merger agreement, which Amerigroup’s board of directors determines, in good faith prior to the end of such 30-day period, is, or is reasonably likely to lead to, a superior proposal, or a termination fee of $146,000,000 (equal to approximately 3% of the equity value of the transaction) if the superior proposal is made by a party that submits a proposal more than 30 days following the date of the merger agreement. The board of directors of Amerigroup believed that the termination fee was at the lower end of the range for such fees in similar transactions and, based upon the advice of its advisors, that such fee should not be preclusive of competing offers following the announcement of the transaction;

 

   

the fact that certain of Amerigroup’s directors and executive officers may receive certain benefits that are different from, and in addition to, those of Amerigroup’s other stockholders, including certain retention agreements between WellPoint and certain of our executive officers (see “—Interests of Amerigroup’s Directors and Executive Officers in the Merger”). The Amerigroup board of directors also did not believe the terms or existence of the employment arrangements would be preclusive of competing offers following the announcement of the transaction;

 

   

the fact that Amerigroup has incurred and will continue to incur significant transaction costs and expenses in connection with the proposed transaction, regardless of whether the merger is consummated;

 

   

the risk that the merger may not be consummated despite the parties’ efforts or that consummation may be unduly delayed, even if the requisite approval is obtained from Amerigroup stockholders, including the possibility that conditions to the parties’ obligations to complete the merger may not be satisfied, and the potential resulting disruptions to Amerigroup’s business;

 

   

the potential negative effect of the pendency of the merger on Amerigroup’s business and relationships with employees, customers, providers, suppliers, regulators and the communities in which it operates, including the risk that certain key members of senior management might choose not to remain

 

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employed with Amerigroup prior to the completion of the merger, regardless of the completion of the merger;

 

   

the fact that the operations of Amerigroup will be restricted by interim operating covenants under the merger agreement during the period between signing the merger agreement and the closing of the merger, which could effectively prohibit Amerigroup from undertaking material strategic initiatives or other material transactions to the detriment of Amerigroup and its stockholders; and

 

   

the fact that the merger consideration will be taxable to Amerigroup stockholders.

After considering the foregoing potentially negative and potentially positive factors, the Amerigroup board concluded that the potentially positive factors relating to the merger agreement and the merger substantially outweighed the potentially negative factors.

The foregoing discussion of the information and factors considered by the Amerigroup board of directors is not exhaustive but is intended to reflect the material factors considered by the Amerigroup board of directors in its consideration of the merger. In view of the complexity, and the large number, of the factors considered, the Amerigroup board of directors, both individually and collectively, did not quantify or assign any relative or specific weight to the various factors. Rather, the Amerigroup board of directors based its recommendation on the totality of the information presented to and considered by it. In addition, individual members of the Amerigroup board of directors may have given different weights to different factors.

The foregoing discussion of the information and factors considered by the Amerigroup board of directors is forward-looking in nature. This information should be read in light of the factors described under the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 18.

Recommendation of the Amerigroup Board of Directors

After careful consideration, the Amerigroup board of directors has determined that the terms of the merger are advisable, fair to and in the best interest of Amerigroup and its stockholders, and has approved the terms of the merger agreement and the merger.

The Amerigroup board of directors recommends a vote “FOR” the proposal to adopt the merger agreement.

Opinions of Financial Advisors

Goldman, Sachs & Co.

Goldman Sachs rendered its opinion to the board of directors of Amerigroup that, as of July 9, 2012 and based upon and subject to the factors and assumptions set forth therein, the $92.00 per share of Amerigroup common stock in cash to be paid to the holders (other than WellPoint and its affiliates) of shares of Amerigroup 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 July 9, 2012, 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 the board of directors of Amerigroup in connection with its consideration of the merger. The Goldman Sachs opinion does not constitute a recommendation as to how any holder of shares of Amerigroup’s common stock should vote with respect to the merger or any other matter.

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

 

   

the merger agreement;

 

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annual reports to stockholders and annual reports on Form 10-K of Amerigroup for the five fiscal years ended December 31, 2011;

 

   

certain interim reports to stockholders and Quarterly Reports on Form 10-Q of Amerigroup;

 

   

certain other communications from Amerigroup to its stockholders;

 

   

certain publicly available research analyst reports for Amerigroup; and

 

   

certain internal financial analyses and forecasts for Amerigroup prepared by its management, as approved for Goldman Sachs’ use by Amerigroup (referred to as the “Forecasts”).

Goldman Sachs also held discussions with members of the senior management of Amerigroup regarding their assessment of the past and current business operations, financial condition and future prospects of Amerigroup; reviewed the reported price and trading activity for Amerigroup common shares; compared certain financial and stock market information for Amerigroup 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 managed care industry and in other industries; and performed such other studies and analyses, and considered such other factors, as it deemed appropriate.

For purposes of rendering the opinion described above, Goldman Sachs relied upon and assumed, without assuming any responsibility for independent verification, the accuracy and completeness of all of the financial, legal, accounting, tax and other information provided to, discussed with or reviewed by it and has, with the consent of the board of directors of Amerigroup, relied on such information as being complete and accurate in all material respects. In that regard, Goldman Sachs assumed with the consent of the board of directors of Amerigroup that the Forecasts were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of Amerigroup. Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or other off-balance-sheet assets and liabilities) of Amerigroup or any of its subsidiaries, nor was any evaluation or appraisal of the assets or liabilities of Amerigroup or any of its subsidiaries furnished to Goldman Sachs. Goldman Sachs assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any adverse effect on the expected benefits of the merger in any way meaningful to its analysis. Goldman Sachs has also assumed that the merger will be consummated on the terms set forth in the merger agreement, without the waiver or modification of any term or condition the effect of which would be in any way meaningful to its analysis. Goldman Sachs is not an actuary and its services did not include any actuarial determination or evaluation by Goldman Sachs or any attempt to evaluate actuarial assumptions, and Goldman Sachs relied on Amerigroup with respect to the appropriateness and adequacy of reserves of Amerigroup and actuarial assumptions used by Amerigroup in connection with the Forecasts. In that regard, Goldman Sachs made no analysis of, and expressed no opinion as to, the appropriateness or adequacy of reserves or actuarial assumptions.

Goldman Sachs’ opinion does not address the underlying business decision of Amerigroup to engage in the transaction, or the relative merits of the merger as compared to any strategic alternatives that may be available to Amerigroup; nor does it address any legal, regulatory, tax or accounting matters. Goldman Sachs’ opinion addresses only the fairness from a financial point of view to the holders (other than WellPoint and its affiliates) of the shares of Amerigroup common stock, as of the date of the opinion, of the $92.00 per share of Amerigroup common stock in cash to be paid to such holders pursuant to the merger agreement. Goldman Sachs’ opinion does not express any view on, and does not address, any other term or aspect of the merger agreement or the merger or any term or aspect of any other agreement or instrument contemplated by the merger agreement or entered into or amended in connection with the merger, including the fairness of the merger to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors, or other constituencies of Amerigroup; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of Amerigroup or class of such persons, in connection with

 

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the merger, whether relative to the $92.00 per share of Amerigroup common stock in cash to be paid to the holders (other than WellPoint and its affiliates) of shares of Amerigroup common stock pursuant to the merger agreement or otherwise. Goldman Sachs did not express any opinion as to the impact of the merger on the solvency or viability of Amerigroup or WellPoint or the ability of Amerigroup or WellPoint to pay their respective obligations when they come due. Goldman Sachs’ opinion was necessarily based on economic, monetary market and other conditions, as in effect on, and the information made available to it as of, the date of its opinion and Goldman Sachs assumed no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of its opinion. Goldman Sachs’ advisory services and the opinion expressed in its opinion were provided for the information and assistance of the board of directors of Amerigroup in connection with its consideration of the merger and such opinion does not constitute a recommendation as to how any holder of shares of Amerigroup common stock should vote with respect to the merger or any other matter. Goldman Sachs’ opinion was approved by a fairness committee of Goldman Sachs.

The following is a summary of the material financial analyses delivered by Goldman Sachs to the board of directors of Amerigroup 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 July 6, 2012, which was the last trading day before the public announcement of the merger, and is not necessarily indicative of current market conditions.

Implied Premia Analysis

Goldman Sachs calculated that the $92.00 per share of Amerigroup common stock in cash to be paid to the holders of shares of Amerigroup common stock pursuant to the merger agreement represented premia to the historical closing prices for the shares of Amerigroup common stock:

 

   

43.0% to the closing price of $64.34 on July 6, 2012;

 

   

47.5% to $62.38, the average of the closing prices over the one-month period ended July 6, 2012;

 

   

45.9% to $63.06, the average of the closing prices over the three-month period ended July 6, 2012;

 

   

55.9% to $59.00, the average of the closing prices over the one-year period ended July 6, 2012; and

 

   

22.9% to $74.87, the highest closing price during the 52-week period ended July 6, 2012.

Based on the $92.00 per share of Amerigroup common stock in cash to be paid to the holders of shares of Amerigroup common stock pursuant to the merger agreement and the total number of fully diluted outstanding shares of Amerigroup common stock as provided by Amerigroup management, Goldman Sachs derived a fully diluted equity value of Amerigroup of approximately $4.856 billion. By adding Amerigroup’s net debt (defined as total debt less unrestricted cash) of approximately $146 million to this fully diluted equity value, Goldman Sachs derived a fully diluted enterprise value of Amerigroup of approximately $5.003 billion. Using these equity and enterprise values and estimates of Amerigroup’s financial results included in the Forecasts, Goldman Sachs calculated multiples of:

 

   

enterprise value to earnings before interest, taxes, depreciation and amortization (referred to as “EBITDA”), for the 12-month period ended June 30, 2012 of 15.9x;

 

   

enterprise value to estimated 2012 EBITDA of 12.9x;

 

   

equity value to estimated 2012 net income of 24.9x; and

 

   

equity value to estimated 2013 net income of 17.9x.

 

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Selected Companies Analysis

Goldman Sachs reviewed and compared certain financial information for Amerigroup to corresponding financial information, ratios and public market multiples for the following selected companies in each of the commercial, Medicaid and Medicare managed care sectors:

Commercial Managed Care Companies

 

   

Aetna, Inc. (“AET”)

 

   

Cigna Corporation (“CI”)

 

   

Coventry Health Care, Inc. (“CVH”)

 

   

Health Net, Inc. (“HNT”)

 

   

UnitedHealth Group Incorporated (“UNH”)

 

   

WellPoint, Inc. (“WLP”)

Medicaid Companies

 

   

Centene Corporation (“CNC”)

 

   

Molina Healthcare, Inc. (“MOH”)

 

   

Wellcare Health Plans, Inc. (“WCG”)

Medicare Companies

 

   

Humana Inc. (“HUM”)

 

   

Universal American Corp. (“UAM”)

Although none of the selected companies is directly comparable to Amerigroup, the companies included were chosen because they are publicly traded companies in the managed care industry with operations that, for purposes of analysis, may be considered similar to certain operations of Amerigroup. With respect to each of the selected companies, Goldman Sachs calculated the following multiples and compared them to the results for Amerigroup:

 

   

pursuant to the Forecasts, an enterprise value (referred to as “EV”) as a multiple of estimated 2012 fiscal year EBITDA;

 

   

pursuant to the Forecasts, a closing share price on July 6, 2012 as a multiple of estimated 2013 earnings per share (“EPS”, and collectively referred to as the “P/E multiple”); and

 

   

based on published Wall Street research as of July 6, 2012, a ratio of estimated 2013 P/E multiple to estimated five-year cumulative average EPS growth rate (referred to as the “P/E/G ratio”).

For purposes of these calculations, Goldman Sachs utilized an equity value for each company derived by multiplying the number of fully diluted outstanding shares of that company as reported in its most recent SEC filings by the company’s closing share price on July 6, 2012. By adding the net debt amount (defined as total debt less unrestricted cash) of each company as most recently publicly reported by the company to the equity value of such company derived from the foregoing calculations, Goldman Sachs determined an enterprise value for each company. The multiples for the selected companies were calculated using median estimates for each company published by Wall Street research analysts as of July 6, 2012. The following table presents the results of these calculations for the selected companies:

 

    Selected Companies  
    Commercial     Medicaid     Medicare  
    AET     CI     CVH     HNT     UNH     WLP     CNC     MOH     WCG     HUM     UAM  

EV/ 2012E EBITDA

    5.5x        5.9x        6.3x        8.3x        7.5x        6.2x        9.1x        9.0x        5.7x        6.6x        9.8x   

2013E P/E multiple

    6.7x        7.0x        9.4x        8.3x        10.0x        7.0x        11.1x        14.3x        10.2x        8.8x        13.9x   

2013E P/E/G ratio

    0.6x        0.6x        1.2x        0.8x        1.0x        0.7x        0.7x        1.0x        0.7x        0.9x        0.9x   

 

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The multiples for Amerigroup were calculated using the Forecasts, and the following table summarizes the results of these calculations for Amerigroup as compared to the selected companies:

 

          Selected Companies  
    Amerigroup     Commercial     Medicaid     Medicare  
          Range     Median     Range     Median     Range     Median  

EV/ 2012E EBITDA

    8.8x        5.5x-8.3x        6.3x        5.7x-9.1x        9.0x        6.6x-9.8x        8.2x   

2013E P/E multiple

    12.5x        6.7x-10.0x        7.7x        10.2x-14.3x        11.1x        8.8x-13.9x        11.4x   

2013E P/E/G ratio

    0.5x        0.6x-1.2x        0.8x        0.7x-1.0x        0.7x        0.9x-0.9x        0.9x   

Based on its professional judgment, Goldman Sachs applied illustrative multiples of enterprise value to EBITDA ranging from 8.0x to 10.0x to Amerigroup estimated 2012 EBITDA included in the Forecasts to derive a range of illustrative enterprise values for Amerigroup. By subtracting Amerigroup’s net debt of approximately $146 million from these enterprise values and dividing the results by the total number of fully diluted outstanding shares of Amerigroup common stock, Goldman Sachs derived a range of implied values per share of Amerigroup common stock from $58.90 to $72.51. In addition, based on its professional judgment, Goldman Sachs applied illustrative P/E/G ratios ranging from 0.7x to 1.0x to Amerigroup’s estimated 2013 EPS (per the Forecasts) and 5-year cumulative average net income growth rate (per the published Wall Street research as of July 6, 2012) to derive a range of implied values per share of Amerigroup common stock of $53.86 to $76.95.

Illustrative Discounted Cash Flow Analysis

Goldman Sachs performed an illustrative discounted cash flow analysis based on Amerigroup’s estimated unlevered free cash flows from the Forecasts. Goldman Sachs calculated net present values of unlevered free cash flows for Amerigroup for the second half of 2012 and the years 2013 through 2017 using discount rates ranging from 9.5% to 11.5%, reflecting an estimate of Amerigroup’s weighted average cost of capital. Goldman Sachs then calculated illustrative terminal values in the year 2017 based on perpetuity growth rates ranging from 1.5% to 3.5% and discount rates ranging from 9.5% to 11.5% (which implied terminal value EBITDA multiples ranging from 5.5x to 8.4x). Goldman Sachs then added the net present values of the unlevered free cash flows for the second half of 2012 and the years 2013 through 2017 to the present value of the illustrative terminal value, in each case discounted to June 30, 2012, to derive a range of illustrative implied enterprise values. Goldman Sachs then calculated an illustrative range of present values per share of Amerigroup common stock by subtracting Amerigroup’s net debt amount as of June 30, 2012, per the Forecasts, from the illustrative range of implied enterprise values that it derived for Amerigroup, and divided the results by the number of fully diluted shares of Amerigroup common stock as of June 30, 2012 per information provided by management of Amerigroup. This analysis resulted in a range of illustrative values per share of Amerigroup common stock from $70.21 to $112.59.

Illustrative Present Value of Future Share Price Analysis

Goldman Sachs performed illustrative analyses of the present value of the future price per share of common stock of Amerigroup, using the Forecasts. Goldman Sachs calculated an illustrative range of implied present values per share of Amerigroup common stock based on hypothetical future share prices for Amerigroup common stock for each of calendar year 2013 through 2017. For purposes of this analysis, Goldman Sachs derived hypothetical future share prices for Amerigroup common stock by applying next twelve month P/E multiples ranging from 12.5x to 15.5x to Amerigroup’s estimated EPS (per the Forecasts) for each of 2013 through 2017. Goldman Sachs then discounted these future share prices to June 30, 2012 using a discount rate of 10.8%, reflecting an estimate of Amerigroup’s cost of equity. This analysis resulted in a range of illustrative present values per share of Amerigroup common stock of $60.92 to $122.70.

 

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Selected Precedent Transactions Analysis

Goldman Sachs analyzed certain publicly available information relating to the following change of control transactions in the managed care industry that were announced since 2002:

 

Acquiror

  

Target

   Date Announced  

Cigna Corporation

   HealthSpring, Inc.      10/24/2011   

Coventry Health Care, Inc.

   First Health Group Corporation      10/14/2004   

United Health Group Incorporated

   Sierra Health Services, Inc.      3/12/2007   
   Mid Atlantic Medical Services, Inc.      10/27/2003   
   Oxford Health Plans, Inc.      4/26/2004   
   PacifiCare Health Systems, Inc.      7/06/2005   

WellPoint, Inc. (f/k/a Anthem, Inc.)

   Trigon Healthcare, Inc.      4/29/2002   
   WellPoint Health Networks, Inc.      10/27/2003   
   WellChoice, Inc.      9/27/2005   

While none of the businesses or companies that participated in these selected transactions is directly comparable to the proposed merger, the target companies in the selected transactions are such that, for the purposes of analysis, the selected transactions may be considered similar to the proposed merger.

For each of the selected transactions for which relevant information was publicly available, Goldman Sachs calculated and reviewed the following:

 

   

the premium represented by the announced per share transaction price to the closing price of the target company’s common stock on the trading day before the public announcement of the transaction; and

 

   

the enterprise value of the target company based on the announced transaction price, as a multiple of the target company’s EBITDA for the last twelve month period, or “LTM”, prior to the announcement of the transaction.

For purposes of this analysis, the target companies’ enterprise values were generally calculated by adding to the total equity consideration paid in the transaction the target company’s net debt amount based on publicly available information. The following table presents the results of this analysis:

 

Selected Transactions

             

Acquiror

  

Target

   1 Day Premium      EV/LTM
EBITDA
 

Cigna Corporation1

   HealthSpring, Inc.      37.0%         7.6x   

Coventry Health Care, Inc.

   First Health Group Corporation      24.3%         6.7x   

United Health Group Incorporated

   Sierra Health Services, Inc.      21.2%         11.3x   
   Mid Atlantic Medical Services, Inc.      16.0%         12.9x   
   Oxford Health Plans, Inc.      14.2%         7.7x   
   PacifiCare Health Systems, Inc.      10.1%         13.2x   

WellPoint, Inc. (f/k/a Anthem, Inc.)

   Trigon Healthcare, Inc.      24.7%         15.6x   
   WellPoint Health Networks, Inc.      20.4%         9.6x   
   WellChoice, Inc.      9.4%         12.7x   

The following table summarizes the results of this analysis for Amerigroup as compared to the target companies:

 

     Amerigroup  after
WellPoint offer
  Selected Transactions
       High   Low   Median

1 Day Premium

       43. 0%   37.0%   9.4%   20.4%

EV/LTM EBITDA

       15. 9x   15.6x   6.7x   11.3x

 

1  EBITDA multiple for CIGNA/HealthSpring is based on 2011E EBITDA.

 

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Based on Goldman Sachs’ professional judgment, Goldman Sachs applied illustrative premia ranging from 10.0% to 40.0% to the closing price for the shares of Amerigroup common stock on July 6, 2012 to derive an illustrative range of implied values per share of Amerigroup common stock of $70.77 to $90.08.

In addition, based on Goldman Sachs’ professional judgment, Goldman Sachs applied illustrative multiples of enterprise value to LTM EBITDA ranging from 8.0x to 13.0x to Amerigroup’s EBITDA for the 12-month period ended June 30, 2012 to derive an illustrative range of enterprise values of Amerigroup. By subtracting Amerigroup’s net debt of $146 million from these enterprise values and dividing the results by the total number of fully diluted outstanding shares of Amerigroup common stock, Goldman Sachs derived an illustrative range of implied values per share of Amerigroup common stock of $47.89 to $76.10.

General

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 Amerigroup or the merger.

Goldman Sachs prepared these analyses for purposes of providing its opinion to the board of directors of Amerigroup that, as of July 9, 2012 and based upon and subject to the factors and assumptions set forth therein, the $92.00 per share of Amerigroup common stock in cash to be paid to the holders (other than WellPoint and its affiliates) of shares of Amerigroup common stock pursuant to the merger agreement was fair from a financial point of view to such holders. 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 Amerigroup, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast.

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

As described above, Goldman Sachs’ opinion to the board of directors of Amerigroup was one of many factors taken into consideration by the board of directors of Amerigroup 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 to this proxy statement.

Goldman Sachs and its affiliates are engaged in commercial and investment banking and financial advisory services, market making and trading, research and investment management (both public and private investing), principal investment, financial planning, benefits counseling, risk management, hedging, financing, brokerage activities and other financial and non-financial activities and services for various persons and entities. Goldman Sachs and its affiliates, and funds or other entities in which they invest or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments of Amerigroup, WellPoint and any

 

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of their respective affiliates and third parties, or any currency or commodity that may be involved in the merger for the accounts of Goldman Sachs and its affiliates and their customers. Goldman Sachs has acted as financial advisor to Amerigroup in connection with, and has participated in certain of the negotiations leading to, the merger. In addition, Goldman Sachs has provided certain investment banking services to Amerigroup and its affiliates from time to time for which Goldman Sachs’ Investment Banking Division has received, and may receive, compensation, including having acted as sole bookrunner for an offering by Amerigroup of Senior Unsecured Notes due 2019 (aggregate principal amount $400,000,000) in November 2011 and an offering by Amerigroup of Senior Unsecured Notes due 2019 (aggregate principal amount $75,000,000) in January 2012. Goldman Sachs also has provided certain investment banking services to WellPoint and its affiliates from time to time for which its Investment Banking Division has received, and may receive, compensation, including having acted as joint bookrunner for an offering by WellPoint of Senior Unsecured Notes due 2020 and 2040 (aggregate principal amount $1,000,000,000) in August 2010, co-manager for an offering of Senior Unsecured Notes due 2017 (aggregate principal amount $400,000,000) and Senior Unsecured Notes due 2021 (aggregate principal amount $700,000,000) in August 2011, and joint bookrunner for an offering by WellPoint of Senior Unsecured Notes due 2022 (aggregate principal amount $850,000,000) in May 2012. Goldman Sachs may also in the future provide investment banking services to Amerigroup, WellPoint and their respective affiliates for which its Investment Banking Division may receive compensation.

2012 Convertible Notes and Warrants

Concurrently with Amerigroup’s issuance of the 2012 Convertible Notes, for which Goldman Sachs acted as an initial purchaser, Amerigroup entered into the Call Spread Transactions with Goldman Sachs International, an affiliate of Goldman Sachs (through Wells Fargo, which acted as intermediary between Goldman Sachs International and Amerigroup). The Call Spread Transactions consisted of the purchase by Amerigroup of call options relating to $260,000,000 aggregate principal amount of 2012 Convertible Notes (which were convertible into up to approximately 6.1 million shares of Amerigroup common stock as of the date of issuance of the 2012 Convertible Notes), and the sale by Amerigroup of warrants in respect of approximately 6.1 million shares of Amerigroup common stock. The convertible note hedge transactions matured in May 2012 and are no longer outstanding. In connection with the settlement of the convertible note hedge transactions, Goldman Sachs International delivered approximately 2.1 million shares of Amerigroup common stock (equivalent to the number of shares of Amerigroup common stock that Amerigroup delivered to holders of the 2012 Convertible Notes upon conversion thereof) to Amerigroup (through Wells Fargo). The issuer warrant transactions, which have a longer maturity than the convertible note hedge transactions, remain in place. In accordance with the terms of the issuer warrant transactions, if the merger is consummated on or prior to the final expiration date of the warrants, scheduled to be October 22, 2012, Goldman Sachs International would be entitled to receive a payment from Amerigroup (through Wells Fargo) for the early cancellation of the issuer warrant transactions outstanding at such time. The warrants provide, among other things, that within five business days following the cancellation of the warrants, the parties will seek agreement on the amount of the cancellation payment, and if they are unable to agree on such amount Goldman Sachs International, as calculation agent, is required to determine the amount of such cancellation payment in a commercially reasonable manner. It is expected that the amount of such payment would be in excess of approximately $233.7 million (the product of the number of outstanding warrants multiplied by the amount by which $92.00 exceeds the strike price of the warrants) if the merger were to close before August 13, 2012. As the warrants expire during the period from August 13 through October 22, 2012, Amerigroup would, pursuant to the terms of the warrants, be obligated to deliver shares of Amerigroup common stock worth the excess of the then market price over the warrant strike price for the expiring warrants, and the aggregate cancellation amount payable upon closing of the merger would generally decrease each day since fewer warrants remain outstanding (with no cancellation amount payable if the closing of the merger is consummated after the final expiration date of the warrants). The amount of any such cancellation payment will depend on various factors including, among others, the merger consideration, the closing date of the merger (and the resulting remaining terms of the warrants) and applicable interest rates.

*        *        *

 

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The board of directors of Amerigroup 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 June 22, 2012, Amerigroup engaged Goldman Sachs to act as its financial advisor in connection with the possible sale of all or a portion of Amerigroup. Pursuant to the terms of this engagement letter, Amerigroup has agreed to pay Goldman Sachs a transaction fee of approximately $18,700,000, $3,000,000 of which became payable upon announcement of the merger and the remainder of which is contingent upon consummation of the merger, and Amerigroup has agreed to reimburse Goldman Sachs for its expenses arising, and indemnify Goldman Sachs against certain liabilities that may arise, out of its engagement.

Barclays Capital Inc.

Amerigroup engaged Barclays to act as its financial advisor with respect to pursuing a possible sale of the company. On July 8, 2012, Barclays rendered its oral opinion (which was subsequently confirmed in writing) to Amerigroup’s board of directors that, as of such date and based upon and subject to the qualifications, limitations and assumptions stated in its opinion, the consideration to be offered to Amerigroup’s stockholders is fair, from a financial point of view, to such stockholders.

The full text of Barclays’ written opinion, dated as of July 9, 2012, is attached as Annex C to this proxy statement. Barclays’ written opinion sets forth, among other things, the assumptions made, procedures followed, factors considered and limitations upon the review undertaken by Barclays in rendering its opinion. You are encouraged to read the opinion carefully in its entirety. The following is a summary of Barclays opinion and the methodology that Barclays used to render its opinion. This summary is qualified in its entirety by reference to the full text of the opinion.

Barclays’ opinion, the issuance of which was approved by Barclays’ Fairness Opinion Committee, is addressed to the board of directors of Amerigroup, addresses only the fairness, from a financial point of view, to Amerigroup’s stockholders of the consideration to be offered to the stockholders of Amerigroup and does not constitute a recommendation to any stockholder of Amerigroup as to whether to accept the consideration offered to such stockholders in connection with the proposed transaction. The terms of the proposed transaction were determined through arm’s-length negotiations between Amerigroup and WellPoint and were approved by Amerigroup’s board of directors. Barclays did not recommend any specific form of consideration to Amerigroup or that any specific form of consideration constituted the only appropriate consideration for the proposed transaction. Barclays was not requested to address, and its opinion does not in any manner address, Amerigroup’s underlying business decision to proceed with or effect the proposed transaction. In addition, Barclays expressed no opinion on, and it does not in any manner address, the fairness of the amount or the nature of any compensation to any officers, directors or employees of any parties to the proposed transaction, or any class of such persons, relative to the consideration to be offered to the stockholders of Amerigroup in the proposed transaction. No limitations were imposed by Amerigroup’s board of directors upon Barclays with respect to the investigations made or procedures followed by it in rendering its opinion.

In arriving at its opinion, Barclays reviewed and analyzed:

 

   

the Agreement and Plan of Merger dated July 9, 2012 and the specific terms of the proposed transaction;

 

   

publicly available information concerning Amerigroup that Barclays believes to be relevant to its analysis, including the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2012;

 

   

financial and operating information with respect to the business, operations and prospects of Amerigroup furnished to Barclays by the company, including financial projections of the company prepared by management of the company;

 

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a trading history of Amerigroup’s common stock from July 6, 2011 to July 6, 2012;

 

   

published estimates of independent research analysts with respect to price targets of Amerigroup;

 

   

a comparison of the financial terms of the proposed transaction with the financial terms of certain other transactions that Barclays deemed relevant; and

 

   

a comparison of the historical financial results and present financial condition of Amerigroup with those of other companies that Barclays deemed relevant.

In addition, Barclays had discussions with the management of Amerigroup concerning its business, operations, assets, liabilities, financial condition and prospects and has undertaken such other studies, analyses and investigations as its deemed appropriate.

In arriving at its opinion, Barclays assumed and relied upon the accuracy and completeness of the financial and other information used by it without any independent verification of such information (and has not assumed responsibility or liability for any independent verification of such information) and has further relied upon the assurances of the management of Amerigroup that they are not aware of any facts or circumstances that would make such information inaccurate or misleading. With respect to the financial projections of Amerigroup, upon the advice of the company, Barclays assumed that such projections were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of Amerigroup as to the future financial performance of the company, and Barclays relied on such projections in performing its analysis and arriving at its opinion. Barclays assumed no responsibility for and it expressed no view as to any such projections or estimates or the assumptions on which they are based. In arriving at its opinion, Barclays did not conduct a physical inspection of the properties and facilities of Amerigroup and did not make or obtain any evaluations or appraisals of the assets or liabilities of Amerigroup. In addition, Amerigroup did not ask Barclays to solicit, and Barclays did not solicit, any indications of interest from any third party with respect to the purchase of all or a part of Amerigroup’s business. Barclays’ opinion necessarily is based upon market, economic and other conditions as they existed on, and can be evaluated as of, July 9, 2012. Barclays assumed no responsibility for updating or revising its opinion based on events or circumstances that may occur after July 9, 2012.

Barclays assumed the accuracy of the representations and warranties contained in the merger agreement and all agreements related thereto. Barclays also assumed, upon the advice of Amerigroup, that all material governmental, regulatory and third party approvals, consents and releases for the proposed transaction will be obtained within the constraints contemplated by the merger agreement and that the proposed transaction will be consummated in accordance with the terms of the merger agreement without waiver, modification or amendment of any material term, condition or agreement thereof. Barclays does not express any opinion as to any tax or other consequences that might result from the proposed transaction, nor does its opinion address any legal, tax, regulatory or accounting matters, as to which Barclays understands that Amerigroup has obtained such advice as it deemed necessary from qualified professionals.

In connection with rendering its opinion, Barclays performed certain financial, comparative and other analyses as summarized below. In arriving at its opinion, Barclays did not ascribe a specific range of values to shares of Amerigroup common stock but rather made its determination as to fairness, from a financial point of view, to Amerigroup’s stockholders of the consideration to be offered to such stockholders in the proposed transaction on the basis of various financial and comparative analyses. The preparation of a fairness opinion is a complex process and involves various determinations as to the most appropriate and relevant methods of financial and comparative analyses and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to summary description.

In arriving at its opinion, Barclays did not attribute any particular weight to any single analysis or factor considered by it but rather made qualitative judgments as to the significance and relevance of each analysis and factor relative to all other analyses and factors performed and considered by it and in the context of the circumstances of the particular transaction. Accordingly, Barclays believes that its analyses must be considered

 

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as a whole, as considering any portion of such analyses and factors, without considering all analyses and factors as a whole, could create a misleading or incomplete view of the process underlying its opinion.

The following is a summary of the material financial analyses used by Barclays in preparing its opinion to Amerigroup’s board of directors. Certain financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses used by Barclays, the tables must be read together with the text of each summary, as the tables alone do not constitute a complete description of the financial analyses. In performing its analyses, Barclays made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Amerigroup or any other parties to the proposed transaction. None of Amerigroup, WellPoint, Merger Sub, Barclays or any other person assumes responsibility if future results are materially different from those discussed. Any estimates contained in these analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than as set forth below. In addition, analyses relating to the value of the businesses do not purport to be appraisals or reflect the prices at which the businesses may actually be sold.

Historical Share Price Analysis

To illustrate the trend in the historical trading prices of shares of Amerigroup common stock, Barclays considered historical data with regard to the trading prices of shares of Amerigroup common stock for the period from July 6, 2011 to July 6, 2012, the last trading date prior to the delivery of Barclays’ opinion.

Barclays noted that within the period from July 6, 2011 to July 6, 2012, the intraday share price of shares of Amerigroup common stock ranged from a low of $37.57 per share to a high of $75.74 per share. The volume-weighted average price (“VWAP”) of shares of Amerigroup common stock for the 20-days prior to July 6, 2012 was $62.22, and the 200-day VWAP of shares of Amerigroup common stock was $59.80.

Research Price Targets Analysis

Barclays considered publicly available research per share price targets for shares of Amerigroup common stock provided by independent research analysts as of July 6, 2012, the last trading date prior to the delivery of Barclays’ opinion, and calculated the average per share price target and the median per share price target. The following table reflects the results of the calculation:

 

     Low      Mean      Median      High  

Research Price Targets

   $ 68.00       $ 77.25       $ 79.00       $ 95.00   

The public market share price targets prepared and published by equity research analysts do not necessarily reflect current market trading prices for shares of Amerigroup common stock and these estimates are based on assumptions as to Amerigroup’s future performance and as to conditions in the equity markets that are inherently uncertain.

 

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Selected Comparable Company Analysis

In order to assess how the public market values shares of similar publicly traded companies, Barclays reviewed and compared specific financial and operating data relating to Amerigroup with selected companies that Barclays, based on its experience in the managed care industry, deemed comparable to Amerigroup. The selected comparable companies were grouped into two categories (identified by Barclays as Medicaid Companies and Diversified Companies), each of which Barclays deemed relevant in certain respects, as follows:

 

Medicaid Companies

  

Diversified Companies

Molina Healthcare, Inc.

   Aetna Inc.

Centene Corporation

   Cigna Corporation

WellCare Health Plans, Inc.

   Coventry Health Care, Inc.
   HealthNet, Inc.
   UnitedHealth Group Incorporated
   WellPoint, Inc.

Barclays calculated and compared various financial multiples and ratios of Amerigroup and the selected comparable companies. As part of its selected comparable company analysis, Barclays calculated and analyzed each company’s ratio of its current stock price to its projected earnings per share (commonly referred to as a price earnings ratio), and each company’s enterprise value to projected earnings before interest, taxes, depreciation and amortization (“EBITDA”). The enterprise value of each company was obtained by adding its short and long-term debt to the sum of the market value of its common equity and the book value of any minority interest, and subtracting its unrestricted cash and cash equivalents. All of these calculations were performed, and based on publicly available financial data (including third party consensus research estimates) and closing prices, as of July 6, 2012, the last trading date prior to the delivery of Barclays’ opinion. The ratios for Amerigroup were calculated using the closing price of the common stock on July 6, 2012. The results of this selected comparable company analysis are summarized below:

The following table presents the results of this analysis for the selected companies:

 

     Medicaid Companies      Diversified
Companies
Mean
 
     Molina      Centene      WellCare      Low(1)      Mean      High(1)     

Price / Estimated 2012 EPS

     25.6x         19.2x         9.8x         9.8x         18.2x         25.6x         9.4x   

Price / Estimated 2013 EPS

     14.3x         11.1x         10.2x         10.2x         11.9x         14.3x         8.1x   

Enterprise Value / Estimated 2012 EBITDA

     9.0x         9.1x         5.7x         5.7x         8.0x         9.1x         6.3x   

Enterprise Value / Estimated 2013 EBITDA

     6.9x         5.9x         5.9x         5.9x         6.2x         6.9x         5.8x   

 

(1) Includes Medicaid Companies
(2) Includes Diversified Companies

Barclays selected the comparable companies listed above because of one or more businesses or operating profiles are reasonably similar to that of Amerigroup. However, because of the inherent differences between the business, operations and prospects of Amerigroup and those of the selected comparable companies, Barclays believed that it was inappropriate to, and therefore did not, rely solely on the quantitative results of the selected comparable company analysis. Accordingly, Barclays also made qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of Amerigroup and the selected comparable companies that could affect the public trading values of each in order to provide a context in which to consider the results of the quantitative analysis. These qualitative judgments related primarily to the differing sizes, growth prospects, profitability levels and degree of operational risk between Amerigroup and the companies included in the selected company analysis. Based upon these judgments, Barclays selected a range of 10.0x to 14.5x multiples of 2013 estimated earnings per share (“EPS”) for Amerigroup and applied such range to

 

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the management projections to calculate a range of implied prices per share of Amerigroup common stock. The following table sets forth the results of the comparable companies analysis:

 

     Implied Equity Value Per Share of
Amerigroup Common Stock
 

Price / 2013 Estimated EPS

   $ 51.30 -74.38   

Selected Precedent Transaction Analysis

Barclays reviewed and compared the purchase prices and financial multiples paid in selected other transactions that Barclays, based on its experience with merger and acquisition transactions, deemed relevant. Barclays chose such transactions based on, among other things, the similarity of the applicable target companies in the transactions to Amerigroup with respect to the size, mix, growth, margins and other characteristics of their businesses. Barclays reviewed the following transactions:

 

Announcement Date

    

Acquiror

  

Target

11/22/2011      UnitedHealth Group Incorporated    XLHealth Corporation
10/24/2011      Cigna Corporation    HealthSpring, Inc.
6/8/2011      WellPoint, Inc.    CareMore Health Group
8/26/2010      HealthSpring, Inc.    Bravo Health Inc.
5/24/2007      Aetna Inc.    Schaller Anderson, Incorporated
3/12/2007      UnitedHealth Group Incorporated    Sierra Health Services, Inc.
9/27/2005      WellPoint, Inc.    WellChoice, Inc.
7/6/2005      UnitedHealth Group Incorporated    PacifiCare Health Systems Inc.
4/26/2004      UnitedHealth Group Incorporated    Oxford Health Plans, Inc.
10/27/2003      UnitedHealth Group Incorporated    Mid-Atlantic Medical Services Inc. (MAMSI)
10/27/2003      Anthem Inc.    WellPoint Heath Networks Inc.
6/3/2003      WellPoint Health Networks    Cobalt Corporation

Using publicly available information for each of the selected precedent transactions, Barclays calculated equity value as a multiple of the 1-year forward estimated earnings and calculated enterprise value as a multiple of last 12 months’ (“LTM”) EBITDA. The enterprise value of each company was obtained by adding its short-term and long-term debt to the sum of the market value of its common equity and the book value of any minority interest, and subtracting its unrestricted cash and cash equivalents. The following table presents the results of this analysis:

 

Acquiror

  

                    Target                     

   Equity Value  /
Earnings

(1-Year Forward)
     Enterprise Value
(LTM EBITDA)
 

UnitedHealth Group Incorporated

  

XLHealth Corporation

     N/A         9.3x   

Cigna Corporation

  

HealthSpring, Inc.

     12.7x         7.8x   

WellPoint, Inc.

  

CareMore Health Group

     N/A         10.1x   

HealthSpring, Inc.

  

Bravo Health Inc.

     N/A         6.5x   

Aetna Inc.

  

Schaller Anderson, Incorporated

     N/A         9.7x   

UnitedHealth Group Incorporated

  

Sierra Health Services, Inc.

     16.3x         11.3x   

WellPoint, Inc.

  

WellChoice, Inc.

     20.1x         12.7x   

UnitedHealth Group Incorporated

  

PacifiCare Health Systems Inc.

     17.6x         13.2x   

UnitedHealth Group Incorporated

  

Oxford Health Plans, Inc.

     11.9x         7.7x   

UnitedHealth Group Incorporated

  

Mid-Atlantic Medical Services Inc. (MAMSI)

     15.1x         12.9x   

Anthem Inc.

  

WellPoint Heath Networks Inc.

     15.5x         9.6x   

WellPoint Health Networks

  

Cobalt Corporation

     16.4x         12.2x   

The following table summarizes the results of this analysis for Amerigroup as compared to the selected precedent transactions:

 

Multiple

   Low      Recent
Transactions
Mean(1)
     10-Year
Mean
     High  

Equity Value / Earnings (1-Year Forward)

     11.9x         12.7x         15.7x         20.1x   

Enterprise Value / LTM EBITDA

     6.5x         8.4x         10.3x         13.2x   

 

1) Reflects the four selected precedent transactions identified above that occurred during or after 2010.

 

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The reasons for and the circumstances surrounding each of the selected precedent transactions analyzed were diverse and there are inherent differences in the business, operations, financial conditions and prospects of Amerigroup and the companies included in the selected precedent transaction analysis. Accordingly, Barclays believed that a purely quantitative selected precedent transaction analysis would not be particularly meaningful in the context of considering the proposed transaction. Barclays, therefore, made qualitative judgments concerning differences between the characteristics of the selected precedent transactions and the proposed transaction which would affect the acquisition values of the selected target companies and Amerigroup. Based upon these judgments, Barclays selected a range of 8.0x to 10.0x multiples of 2012 estimated EBITDA, 8.0x to 10.0x multiples of second-half 2012 (“2H 2012”) estimated run-rate EBITDA and 12.0x to 18.0x multiples of 2013 estimated EPS and applied such ranges to the management projections to calculate a range of implied prices per share of Amerigroup common stock. The following table sets forth the transactions analyzed based on such characteristics and the results of such analysis:

 

Multiple

   Implied Equity Value Per Share of
Amerigroup Common Stock
 

Equity Value / 2013 Estimated EPS

   $  61.56 – 92.34   

Enterprise Value / 2012 Estimated EBITDA (8.0x-10.0x)

   $ 58.91 – 72.51   

Enterprise Value / 2H 2012 Estimated Run-Rate EBITDA (8.0x-10.0x)

   $ 69.63 - 85.91   

Transaction Premium Analysis

In order to assess the premium offered to the stockholders of Amerigroup in the proposed transaction relative to the premiums offered to stockholders in other transactions, Barclays reviewed the one-day premium paid in 80 selected transactions of U.S. companies valued between $2 billion and $8 billion from January 1, 2010 to present. For each transaction, Barclays calculated the premium per share paid by the acquirer by comparing the announced transaction value per share to the target company’s historical average share price during the one trading day prior to announcement. The results of this transaction premium analysis are summarized below:

 

      Low     Mean     High  

First Quartile

     47.0 %     64.0 %     97.0 %

Second Quartile

     30.0 %     39.0 %     47.0 %

Third Quartile

     19.0 %     23.0 %     30.0 %

Fourth Quartile

     (4.0 )%     9.0 %     19.0 %

The reasons for and the circumstances surrounding each of the transactions analyzed in the transaction premium analysis were diverse and there are inherent differences in the business, operations, financial conditions and prospects of Amerigroup and the companies included in the transaction premium analysis. Accordingly, Barclays believed that a purely quantitative transaction premium analysis would not be particularly meaningful in the context of considering the proposed transaction. Barclays therefore made qualitative judgments concerning the differences between the characteristics of the selected transactions and the proposed transaction which would affect the acquisition values of the target companies and Amerigroup. Based upon these judgments, Barclays selected a range equal to premiums of 20.0% to 40.0% to the closing price of shares of Amerigroup common stock on July 6, 2012, the last trading date prior to the delivery of Barclays’ opinion, to calculate a range of implied prices per share of Amerigroup Common Stock. The following summarizes the result of these calculations:

 

     Implied Equity Value Per Share of
Amerigroup Common Stock
 

20.0% - 40.0% on July 6, 2012 closing price of $64.34 per share of Amerigroup common stock

   $ 77.21 - 90.08   

Discounted Cash Flow Analysis

In order to estimate the present value of shares of Amerigroup common stock, Barclays performed a discounted cash flow analysis of Amerigroup. A discounted cash flow analysis is a traditional valuation

 

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methodology used to derive a valuation of an asset by calculating the “present value” of estimated future cash flows of the asset. “Present value” refers to the current value of future cash flows or amounts and is obtained by discounting those future cash flows or amounts by a discount rate that takes into account macroeconomic assumptions and estimates of risk, the opportunity cost of capital, expected returns and other appropriate factors.

To calculate the estimated enterprise value of Amerigroup using the discounted cash flow method, Barclays added (i) Amerigroup’s projected after-tax unlevered free cash flows from June 30, 2012 through fiscal year 2017 based on management projections to (ii) the “terminal value” of Amerigroup as of December 31, 2017, and discounted such amount to its present value using a range of selected discount rates. The after-tax unlevered free cash flows were calculated by taking the consolidated net income and subtracting subsidiary net income, parent net dividends (contributions) and capital expenditures of Amerigroup (excluding capital expenditures by Amerigroup’s regulated subsidiaries) and adding after-tax interest expense and depreciation and amortization of Amerigroup (excluding depreciation and amortization by Amerigroup’s regulated subsidiaries). The residual value of Amerigroup at the end of the forecast period, or “terminal value,” was estimated by selecting a range of 5.5x to 7.5x multiples of LTM EBITDA for the period ending December 31, 2017, and applying such multiples to the management projections. The range of after-tax discount rates of 9.0% to 11.0% was selected based on an analysis of the weighted average cost of capital of Amerigroup and the comparable companies. Barclays then calculated a range of implied prices per share of Amerigroup common stock by subtracting estimated short and long-term debt and adding estimated unrestricted cash and cash equivalents as of June 30, 3012, from the estimated enterprise value using the discounted cash flow method and dividing such amount by the fully diluted number of shares of Amerigroup common stock. The following summarizes the result of these calculations:

 

     Implied Equity Value Per Share of
Amerigroup Common Stock
 

Discounted Cash Flow

   $ 75.05 – 108.11   

General

Barclays is an internationally recognized investment banking firm and, as part of its investment banking activities, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. Amerigroup’s board of directors selected Barclays because of its familiarity with Amerigroup and its qualifications, reputation and experience in the valuation of businesses and securities in connection with mergers and acquisitions generally, as well as substantial experience in transactions comparable to the proposed transaction.

Barclays is acting as financial advisor to Amerigroup in connection with the proposed transaction and will receive fees for its services of approximately $18,700,000, of which $3,000,000 became due and payable upon delivery of its opinion, and the remainder of which is contingent upon the consummation of the proposed transaction. In addition, Amerigroup has agreed to reimburse Barclays’ expenses and indemnify Barclays for certain liabilities that may arise out of its engagement. Barclays has performed various investment banking and financial services for WellPoint in the past, and expects to perform such services in the future, and has received, and expects to receive, customary fees for such services. Specifically, in the past two years, Barclays has performed the following investment banking and financial services: (i) served as senior co-manager on WellPoint’s $1.75 billion senior notes offering in May 2012, (ii) served as a bookrunner on WellPoint’s $1.1 billion notes offering in August 2011; and (iii) served as a lender in WellPoint’s senior credit facility.

Barclays and its affiliates engage in a wide range of businesses from investment and commercial banking, lending, asset management and other financial and non-financial services. In the ordinary course of its business, Barclays and its affiliates may actively trade and effect transactions in the equity, debt and/or other securities (and any derivatives thereof) and financial instruments (including loans and other obligations) of Amerigroup and WellPoint for its own account and for the accounts of its customers and, accordingly, may at any time hold long or short positions and investments in such securities and financial instruments.

 

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Certain Projections Prepared by the Management of Amerigroup

Amerigroup does not generally publish its business plans and strategies or make external disclosures of its anticipated financial position or results of operations other than for providing, from time to time, estimated ranges of certain expected financial results and operational metrics for the current year in its regular earnings press releases and other investor materials. In connection with the evaluation of a possible transaction, Amerigroup’s management prepared certain non-public financial projections covering multiple years that were not intended for public disclosure. During the course of its discussions with WellPoint, Amerigroup management provided to WellPoint the projections summarized below under the heading “preliminary projections”. Following the delivery to WellPoint of the preliminary projections, Amerigroup, as part of its ordinary practice with respect to internal projections, updated the preliminary projections for new information it had obtained, including, among other things, new information regarding dual eligible opportunities. These updated projections, which are summarized below under the heading “revised projections” were provided to Goldman Sachs and Barclays for their use in connection with their financial analyses summarized above under “The Merger—Opinions of Financial Advisors” beginning on page 47, and were reviewed by the Amerigroup board of directors in considering the merger at the special meetings of the board of directors of Amerigroup on June 7, 2012 and July 8, 2012, as further described above under “The Merger—Background of the Merger” on page 26.

Both the preliminary and revised projections provided below reflect various assumptions and estimates of Amerigroup’s management made in good faith including without limitation, estimates of membership growth, per member per month premium, per member per month health benefit costs and selling, general and administrative costs for each of the following: (i) Amerigroup’s existing core business; (ii) service area expansion opportunities in existing markets; (iii) growth in existing markets resulting from Medicaid expansion beginning in 2014 through the Patient Protection and Affordable Care Act of 2010; (iv) dual eligible demonstration project opportunities; (v) recent expansion in Louisiana, Kansas, Texas, and Washington; (vi) the impact of the termination of Amerigroup’s Ohio Medicaid contract in 2013; (vi) the impact of Amerigroup’s recent acquisition of the operating assets of Health Plus in New York; and (vii) other new market opportunities in 2016 and 2017.

Preliminary Projections (dollars in millions except per share amounts)

 

     Year Ended December 31,  
     2012E      2013E      2014E      2015E      2016E      2017E  

Total Revenue

   $ 8,969       $ 10,812       $ 15,403       $ 18,469       $ 20,100       $ 21,719   

Total Health Benefits

   $ 7,712       $ 9,274       $ 13,288       $ 15,901       $ 17,228       $ 18,641   

Gross Margin

   $ 1,257       $ 1,537       $ 2,115       $ 2,568       $ 2,872       $ 3,079   

SG&A

   $ 655       $ 746       $ 1,047       $ 1,237       $ 1,327       $ 1,412   

Premium Tax

   $ 213       $ 266       $ 379       $ 454       $ 493       $ 533   

EBITDA

   $ 389       $ 525       $ 689       $ 876       $ 1,052       $ 1,134   

Net Income

   $ 187       $ 260       $ 340       $ 441       $ 541       $ 583   

EPS

   $ 3.69       $ 5.15       $ 6.80       $ 8.87       $ 11.10       $ 12.52   

Revised Projections (dollars in millions except per share amounts)

 

     Year Ended December 31,  
     2012E      2013E      2014E      2015E      2016E      2017E  

Total Revenue

   $ 8,969       $ 10,826       $ 15,770       $ 18,757       $ 20,402       $ 22,028   

Total Health Benefits

   $ 7,712       $ 9,287       $ 13,616       $ 16,153       $ 17,489       $ 18,904   

Gross Margin

   $ 1,257       $ 1,540       $ 2,154       $ 2,604       $ 2,913       $ 3,124   

SG&A

   $ 655       $ 747       $ 1,072       $ 1,257       $ 1,347       $ 1,432   

Premium Tax

   $ 213       $ 266       $ 388       $ 461       $ 501       $ 541   

EBITDA

   $ 389       $ 526       $ 694       $ 886       $ 1,066       $ 1,151   

Net Income

   $ 187       $ 260       $ 341       $ 445       $ 547       $ 592   

EPS

   $ 3.69       $ 5.13       $ 6.75       $ 8.84       $ 11.10       $ 12.56   

 

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EBITDA, as presented above, may be considered a non-GAAP financial measure. Amerigroup provided this information to WellPoint, Barclays and Goldman Sachs because it believed it could be useful in evaluating, on a prospective basis, Amerigroup’s potential operating performance and cash flow. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as used by Amerigroup may not be comparable to similarly titled amounts used by other companies.

The following tables present reconciliations of EBITDA (non-GAAP) to net income (GAAP) for each of the periods indicated:

Preliminary Projections (in millions)

 

     Year Ended December 31,  
     2012E     2013E     2014E     2015E     2016E     2017E  

EBITDA

   $ 389      $ 525      $ 689      $ 876      $ 1,052      $ 1,134   

Depreciation and Amortization

   $ (50   $ (65   $ (91   $ (108   $ (117   $ (126

Income Tax Expense

   $ (111   $ (160   $ (208   $ (270   $ (331   $ (357

Interest Expense

   $ (41   $ (40   $ (49   $ (58   $ (63   $ (68

Net Income

   $ 187      $ 260      $ 340      $ 441      $ 541      $ 583   

Revised Projections (in millions)

 

     Year Ended December 31,  
     2012E     2013E     2014E     2015E     2016E     2017E  

EBITDA

   $ 389      $ 526      $ 694      $ 886      $ 1,066      $ 1,151   

Depreciation and Amortization

   $ (50   $ (65   $ (93   $ (110   $ (119   $ (128

Income Tax Expense

   $ (111   $ (159   $ (209   $ (273   $ (335   $ (363

Interest Expense

   $ (41   $ (42   $ (51   $ (59   $ (64   $ (69

Net Income

   $ 187      $ 260      $ 341      $ 445      $ 547      $ 592   

The following table shows the calculation of unlevered free cash flow from consolidated net income. The following unlevered free cash flow estimates were calculated for use by Goldman Sachs in performing its illustrative discounted cash flow analysis described above under “—Opinions of Financial Advisors—Goldman, Sachs & Co.” but such line item was not included in the projections provided to WellPoint.

Unlevered Free Cash Flow (in millions)

 

     Year Ended December 31,  
     2H 2012E     2013E     2014E     2015E     2016E     2017E  

Consolidated Net Income

   $ 118.1      $ 260.2      $ 341.2      $ 444.7      $ 547.4      $ 591.8   

Portion of Consolidated Net Income retained at Health plans to maintain RBC at 405%

     (166.6     (240.9     (629.9     (379.1     (206.4     (207.0

Remaining Net Income attributable to the Parent Company (after dividend contribution to Health plans)

   $ (48.4   $ 19.2      $ (288.7   $ 65.6      $ 341.0      $ 384.9   

Tax-effected Interest Expense

     11.4        25.7        31.5        36.5        39.5        42.6   

Depreciation and Amortization (attributable to the Parent Company)

     18.8        58.6        85.3        101.5        110.4        119.2   

Capital Expenditures

     (46.3     (82.6     (99.7     (118.5     (128.9     (139.2

Unlevered Free Cash Flow

   $ (64.6   $ 21.0      $ (271.5   $ 85.1      $ 362.0      $ 407.5   

 

 

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The following table shows the calculation of unlevered free cash flow from consolidated net income. The following unlevered free cash flow estimates were calculated for use by Barclays in performing its illustrative discounted cash flow analysis described above under “—Opinions of Financial Advisors—Barclays Capital Inc.” but such line item was not included in the projections provided to WellPoint.

Unlevered Free Cash Flow (in millions)

 

     Year Ended December 31,  
     2H 2012E     2013E     2014E     2015E     2016E     2017E  

Consolidated Net Income

   $ 118      $ 260      $ 341      $ 445      $ 547      $ 592   

Subsidiary Net Income

     (87     (217     (278     (370     (466     (504

Net Dividends/(Contributions) (attributable to the Parent Company)

     (80     (24     (352     (9     260        297   

After-Tax Interest Expense

     11        26        32        37        40        43   

Depreciation and Amortization (attributable to the Parent Company)

     19        59        85        102        110        119   

Capital Expenditures

     (46     (83     (100     (119     (129     (139

Free Cash Flow

   $ (65   $ 21      $ (271   $ 85      $ 362      $ 407   

The internal financial projections were not prepared with a view toward public disclosure, nor were they prepared with a view toward compliance with published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial projections, or GAAP. In addition, the projections were not prepared with the assistance of, or reviewed, compiled or examined by, independent accountants. Amerigroup cautions you that the internal financial projections are speculative in nature and based upon subjective decisions and assumptions. The summary of these internal financial projections is not being included in this proxy statement to influence your decision whether to vote for the merger, but because (except as noted above) these internal financial projections were, in the case of the preliminary projections, provided by Amerigroup management to WellPoint and in the case of the revised projections, provided by Amerigroup management to the Amerigroup board of directors and Goldman Sachs and Barclays in contemplation of a potential transaction.

These internal financial projections were based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of Amerigroup’s management. Important factors that may affect actual results and cause the internal financial projections not to be achieved include, but are not limited to, risks and uncertainties relating to Amerigroup’ business (including its ability to achieve potential acquisitions, strategic goals, objectives and targets over applicable periods, the managed care industry, the regulatory environment, general business and economic conditions and other factors described under the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 18). Because the internal financial projections cover multiple future years, such information by its nature is less reliable in predicting each successive year. The internal financial projections also do not take into account any circumstances or events occurring after the date on which they were prepared and do not give effect to the transactions contemplated by the merger agreement, including the merger. The internal financial projections also reflect assumptions as to certain business decisions that are subject to change. As a result, actual results may differ materially from those contained in these internal financial projections. Accordingly, there can be no assurance that the internal financial projections will be realized or that actual results will not be significantly higher or lower than projected.

The inclusion of these internal financial projections in this proxy statement should not be regarded as an indication that any of Amerigroup, WellPoint or their respective affiliates, advisors or representatives considered the internal financial projections to be predictive of actual future events, and the internal financial projections should not be relied upon as such. None of Amerigroup, WellPoint or their respective affiliates, advisors, officers, employees, directors or representatives can give you any assurance that actual results will not differ from these internal financial projections, and none of them undertakes any obligation to update or otherwise revise or reconcile

 

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these internal financial projections to reflect circumstances existing after the date the internal financial projections were generated or to reflect the occurrence of future events even in the event that any or all of the assumptions underlying the projections are shown to be in error. Amerigroup does not intend to make publicly available any update or other revision to these internal financial projections. None of Amerigroup or its affiliates, advisors, officers, employees, directors or representatives has made or makes any representation to any stockholder or other person regarding Amerigroup’s ultimate performance compared to the information contained in these internal financial projections or that projected results will be achieved. Amerigroup has made no representation to WellPoint, in the merger agreement or otherwise, concerning these internal financial projections.

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

In considering the recommendation of the Amerigroup board of directors to adopt the merger agreement, you should be aware that Amerigroup’s directors and executive officers have interests in the merger that may be different from, or in addition to, those of Amerigroup stockholders generally. The Amerigroup board of directors was aware of these interests and considered them, among other matters, in evaluating the merger agreement, in reaching its decision to approve the merger agreement, and in recommending to Amerigroup stockholders that the merger agreement be adopted. These interests include, but are not limited to, those described below.

The completion of the transactions contemplated by the merger agreement will constitute a change in control of Amerigroup under all of the Amerigroup agreements and arrangements described below.

Equity Interests of Amerigroup’s Executive Officers

At the effective time of the merger (i) each stock option held by the executive officers that is unvested will become vested (except as noted below) and, together with any already vested options, will be converted into the right to receive a cash payment equal to (a) the excess of $92.00 over the per-share exercise price under the option multiplied by (b) the number of shares of Amerigroup common stock subject to the option, (ii) each restricted stock unit will be deemed vested (except as noted below) and converted into the right to receive $92.00 multiplied by the number of shares of Amerigroup common stock represented by the stock units (in the case of units whose vesting is based on Amerigroup performance metrics, at the target level of performance), (iii) each restricted share held by the executive officers (other than those granted on March 9, 2010 (the “March 2010 Shares”)) will become vested and converted into the right to receive $92.00 multiplied by the number of restricted Amerigroup shares, (iv) any March 2010 shares that remain restricted (other than those granted to Messrs. Carlson, Truess and Zoretic) will be converted into a number of similarly restricted shares of WellPoint equal to the number of restricted Amerigroup shares multiplied by the equity exchange ratio (provided that such restricted WellPoint shares will immediately vest in full if the respective executive’s employment is terminated by WellPoint without “cause” or by the executive for “good reason” within two years following the effective time). Immediately following the effective time, pursuant to the terms of new employment arrangements to become effective as of the closing between WellPoint and Messrs. Carlson, Truess and Zoretic (as further described in the section entitled “The Merger—Interests of Amerigroup’s Directors and Executive Officers in the Merger—Executive Officer Severance and Employment Arrangements”), any March 2010 Shares held by Messrs. Carlson, Truess and Zoretic that at the effective time remained restricted will be cancelled in exchange for a payment by WellPoint to the executives equal to $92.00 multiplied by the number of restricted shares. All payments described in this paragraph will be made without interest and less any applicable withholding taxes.

On March 28, 2012, the Compensation and Organizational Management Committee of the Amerigroup board of directors (the “committee”), after consultation with independent counsel and an independent compensation consultant, approved the issuance of stock options to certain executive officers covering 61,606 shares of Amerigroup common stock in the aggregate. The options covering one-half (30,803) of those shares were issued on March 28, 2012; their vesting will accelerate and they will be cancelled as described in the preceding paragraph. The options covering the remaining one-half (30,803) of the shares will be issued to such

 

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executive officers on September 28, 2012 (the “September 2012 Options”) with a per-share exercise price equal to the per-share closing price of Amerigroup common stock on such date. The September 2012 Options will not vest by reason of consummation of the merger and will be converted as of the effective time of the merger into a stock option to acquire a number of shares of WellPoint common stock (rounded down to the nearest whole share) equal to the product of (i) the total number of shares of Amerigroup common stock subject to the option immediately prior to the effective time multiplied by (ii) the equity exchange ratio, at an exercise price per share (rounded up to the nearest whole cent) equal to (x) the exercise price applicable to the option immediately prior to the effective time divided by (y) the equity exchange ratio. The terms and conditions of any such converted options will otherwise remain the same as the terms and conditions applicable to the options under Amerigroup’s equity incentive compensation plans and the award agreements pursuant to which the options were granted (including vesting schedules, provided that such WellPoint options will immediately vest in full if the executive’s employment is terminated by WellPoint without “cause” or by the executive for “good reason” within two years following the effective time). The “equity exchange ratio” means $92.00 divided by the volume-weighted average price of WellPoint common stock on the NYSE for the five consecutive trading days ending on the last trading day preceding the closing date.

The following table sets forth for the Amerigroup executive officers the number of (i) shares of Amerigroup common stock underlying vested Amerigroup stock options, (ii) shares of Amerigroup common stock underlying unvested Amerigroup stock options that will vest by reason of consummation of the merger, (iii) shares of Amerigroup common stock underlying unvested Amerigroup stock options that will not vest by reason of consummation of the merger (the September 2012 Options), (iv) shares of Amerigroup common stock represented by restricted stock units (both time-based and performance-based units), (v) restricted shares of Amerigroup common stock exclusive of the March 2010 Shares and (vi) restricted March 2010 Shares, in each case as will be held by the executives on December 31, 2012 based as applicable on holdings as of the date hereof and assuming continued employment through that date:

 

Name

  Shares
Underlying

Vested
Stock

Options(1)
    Shares
Underlying

Unvested
Stock

Options
That Will
Vest(2)
    Shares
Underlying

Unvested
Stock

Options
That Will
Not Vest(3)
    Shares
Underlying
Restricted
Stock
Units(4)
    Restricted
Shares
Exclusive  of
March 2010
Shares
    Restricted
March 2010
Shares
 

Named executive officers:

           

James G. Carlson

    702,977        31,781        13,384        23,212        61,604        83,274   

James W. Truess

    280,106        12,834        5,421        9,353        24,224        46,976   

Richard C. Zoretic

    235,575        12,834        5,421        9,353        24,224        46,976   

John E. Littel

    63,754        3,649        1,697        2,936        8,170        17,082   

Mary T. McCluskey, M.D.

    19,475        3,606        1,674        2,895        8,489        17,082   

Executive officers who are not named executive officers as a group (3 persons)

    54,180        12,352        3,206        8,491        24,262        44,842   

 

(1) Weighted average exercise price per share of vested stock options is: for Mr. Carlson, $32.78; for Mr. Truess, $27.10; for Mr. Zoretic, $26.00; for Mr. Littel, $28.35; for Dr. McCluskey, $35.07; and for executive officers who are not named executive officers as a group, $28.74.
(2) Weighted average exercise price per share of unvested stock options is: for Mr. Carlson, $53.61 for Mr. Truess, $53.60; for Mr. Zoretic, $53.60; for Mr. Littel, $55.36; for Dr. McCluskey, $55.32; and for executive officers who are not named executive officers as a group, $43.30.
(3) Because these options have not yet been granted, it is not possible to determine their exercise price at this time.
(4) For restricted stock units subject to performance-based vesting requirements, determined at the target level of performance.

Amerigroup maintains an “outperform” equity award program that provides additional equity incentive compensation to employees (over and above the employee’s long-term incentive compensation target) in the form of restricted shares vesting ratably over four years if Amerigroup outperforms its peers with respect to certain one- and three-year financial metrics. In 2013 (provided the merger has not yet been consummated),

 

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Amerigroup will evaluate its performance against these metrics for the one- and three-year periods ending December 31, 2012 and determine if an outperform award is appropriate. In the event that the closing occurs before the date on which Amerigroup has all of the information required to make such a performance determination, Amerigroup will make a good faith estimate, based on the information available, of its performance against the applicable metrics for the purposes of determining whether outperform awards will be made. Any such awards will have terms consistent with prior awards, but will include “double-trigger” rather than “single-trigger” accelerated vesting (such that the awards will convert into similarly restricted shares of WellPoint common stock that will vest in full if the executive’s employment is terminated by WellPoint without “cause” or by the executive for “good reason” within two years following the effective time). It is not possible to determine at this time whether any such outperform awards will be granted. However, in any event, the value of the stock subject to any such awards will not exceed at grant $10,000,000 in the aggregate for all employees or 100% of an employee’s otherwise applicable 2012 equity incentive award target for any one employee. The 2012 equity incentive award targets for the executive officers were: for Mr. Carlson, $2,129,250; for Mr. Truess, $862,500; for Mr. Zoretic, $862,500; for Mr. Littel, $270,000; for Dr. McCluskey, $266,250; and for executive officers who are not named executive officers as a group, $710,000 in the aggregate.

Equity Interests of Amerigroup’s Directors

The only unvested equity incentive awards presently held by Amerigroup directors are restricted stock awards granted at Amerigroup’s 2012 annual meeting with a face value of $170,000 to each director (2,777 restricted shares of Amerigroup common stock, as determined based on the value of Amerigroup common stock on the grant date) vesting generally, subject to continued service, on the first anniversary of the date of grant. However, subject to accelerated vesting upon death or disability, none of the restricted stock will vest before closing of the merger (or termination of the merger agreement if the merger is not consummated). At the effective time of the merger, a number of the restricted shares will become vested equal to (i) the product of the per-share value of Amerigroup common stock on the grant date (which is $61.21) times the total number of restricted shares (which is 2,777) divided by $92.00, multiplied by (ii) a fraction, the numerator of which is the number of days from the date of grant through the closing date (but not more than 365) and the denominator of which is 365. All of the shares that do not vest will be forfeited. As a result, if the merger is consummated, the value of the grant at vesting will equal its grant date value ($170,000), and such vested amount will be pro-rated if the merger is consummated before the first anniversary of the grant date.

Executive Officer Severance and Employment Arrangements

Change in Control Benefit Policy

Amerigroup adopted a Change in Control Benefit Policy in 2007 (as amended, the “CIC Policy”) that is applicable to certain employees, including its executive officers. The CIC Policy generally provides for a lump-sum severance payment (“CIC Severance Payment”) if there is a change in control of Amerigroup (which would include consummation of the merger) and, within two years following such change in control, involuntary termination of the executive’s employment or voluntary termination of the executive’s employment occurs following certain material or adverse changes in the executive’s employment, in any event subject to the executive’s execution of a release of claims.

The CIC Severance Payment is equal to the product of the sum of the executive’s annual base salary and the executive’s target annual bonus for the year in which the change in control occurs, multiplied by a multiple, three in the case of Mr. Carlson and two in the case of the other executives. The CIC Policy also provides that, upon a change of control and without regard to whether there has been a termination of employment, the executives will receive a lump sum payment equal to their cash target for any long-term incentive compensation award that has been established for them as of the date of the change in control, any already earned but still unpaid annual bonus and a pro-rated annual bonus at target for the year in which the change in control occurs. As further described below (in “—Employment Arrangements for Messrs. Carlson, Truess and Zoretic”), Messrs. Carlson, Truess and Zoretic generally will have waived their rights under the CIC Policy in connection with the merger, though they

 

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will remain eligible to receive at the effective time of the merger their cash target for any long-term incentive compensation award that has been established for them as of the closing date and payment of a pro-rata annual bonus at target.

Under the CIC Policy, if an executive’s payment upon a change in control is an excess parachute payment within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), and the payment exceeds the threshold that would make such payment an excess parachute payment by at least 20%, then Amerigroup will pay the executive an additional cash payment (the “gross-up payment”) in an amount such that after payment by the executive of all taxes, the executive will retain an amount equal to the taxes imposed upon both the change in control payment and the gross-up payment. In the event that the change in control payment exceeds the threshold by less than 20%, then the change in control payment will be reduced so that such payment will not be considered an excess parachute payment. It is not expected that any gross-up payment will be payable to the executives by reason of the merger.

From time to time since execution of the merger agreement, WellPoint may engage in discussions with members of Amerigroup’s senior management, including certain of the executive officers other than Messrs. Carlson, Truess and Zoretic, about their potential roles with the combined company after the consummation of the merger, and those discussions may continue. There is at this time no assurance that those discussions will result in any agreement with WellPoint or, if so, what the terms and conditions of any such agreement will be.

Employment Arrangements for Messrs. Carlson, Truess and Zoretic

Each of Messrs. Carlson, Truess and Zoretic have entered into employment arrangements with WellPoint that will become effective as of the effective time of the merger, in the case of Mr. Carlson by way of an agreement with WellPoint to amend his existing employment agreement with Amerigroup effective as of the effective time and, in the case of Messrs. Truess and Zoretic, by way of new employment agreements with WellPoint that will become effective as of the effective time. The term of each arrangement is for two years commencing on the closing date.

Mr. Carlson

Mr. Carlson has agreed to serve as the most senior executive of the Amerigroup business unit at WellPoint and to report to the president and chief executive officer of WellPoint. His annual base salary will initially be the same as his existing base salary with Amerigroup, $835,000, and his target annual bonus will remain at 175% of base salary. WellPoint has agreed to grant to Mr. Carlson, as of the first day of the calendar month coincident with or following the closing date, restricted stock units (together with associated dividend equivalent rights) with a value equal to $7,000,000 (determined based on the value of WellPoint common stock on the grant date) vesting generally subject to continued employment on the second anniversary of the closing date, subject to accelerated vesting upon termination of employment for death or disability or by WellPoint without “cause” or by Mr. Carlson upon “changed circumstances.” As noted above in the section entitled “The Merger—Interests of Amerigroup’s Directors and Executive Officers in the Merger—Equity Interests of Amerigroup’s Executive Officers”, WellPoint also has agreed to make a payment to Mr. Carlson in respect of his March 2010 Shares.

Mr. Carlson has agreed that his participation in the CIC Policy will cease upon consummation of the merger (except that the golden parachute tax gross-up provisions under that policy will continue to apply and he remains eligible for payment of outstanding long-term cash incentive awards at target and a pro-rata annual bonus at target for the year in which the closing of the merger occurs). However, subject to execution of a release of claims, WellPoint has agreed to pay Mr. Carlson cash severance upon a qualifying termination of employment (a termination of employment by WellPoint without “cause” or by Mr. Carlson upon “changed circumstances”) in an amount essentially equal to the amount applicable to him under the CIC Policy (i.e., three times his annual base salary and target annual bonus at the time of termination, but not less than $6,888,750, the amount that would be payable to Mr. Carlson if he were currently to experience a qualifying termination of employment under the CIC Policy). Mr. Carlson agrees not to assert that his initial duties with WellPoint constitute changed circumstances for this purpose.

 

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Not less than three months before the expiration of the two-year term of his arrangement, Mr. Carlson will be made eligible, on a basis commensurate with other similarly situated WellPoint executives, for participation in WellPoint’s executive agreement plan, which is intended to protect key WellPoint executives against an involuntary loss of employment so as to attract and retain such employees and to motivate them to enhance WellPoint’s value. However, Mr. Carlson will be eligible as of the effective time of the merger for certain of the benefits that would be provided to him if he were already a participant in the executive agreement plan, including certain accelerated equity vesting rights and certain accelerated annual bonus payments in connection with a change in control of WellPoint.

Messrs. Truess and Zoretic

Messrs. Truess and Zoretic have agreed to serve, respectively, as the chief financial officer and the chief operating officer of the Amerigroup business unit at WellPoint, each with an initial base salary and target bonus equal to their current salary and bonus (in each case, an annual base salary of $575,000 and a target annual bonus of 100% of base salary). WellPoint has agreed to grant to each of the executives, as of the first day of the calendar month coincident with or following the closing date of the merger, restricted stock units (together with associated dividend equivalent rights) with a value equal to $2,500,000 (determined based on the value of WellPoint common stock on the grant date) vesting generally subject to continued employment, in the case of Mr. Truess, in two equal tranches on the six and twelve month anniversaries of the closing date and, in the case of Mr. Zoretic, on the first anniversary of the closing date, in each case, subject to accelerated vesting upon termination of employment for death or disability or by WellPoint without “cause” or by the executive for “good reason” within two years following the effective date. The executives generally will be eligible for WellPoint cash and equity incentive programs and employee benefit programs on a basis commensurate with other similarly situated WellPoint executives. Also, as noted above in the section entitled “The Merger—Interests of Amerigroup’s Directors and Executive Officers in the Merger—Equity Interests of Amerigroup’s Executive Officers”, WellPoint also has agreed to make a payment to each of the executives in respect of their March 2010 Shares.

The executives have agreed that their participation in the CIC Policy will cease upon consummation of the merger (except that the golden parachute tax gross-up provisions under that policy will continue to apply and they remain eligible for payment of outstanding long-term cash incentive awards at target and a pro-rata annual bonus at target for the year in which the closing of the merger occurs). However, subject to execution of a release of claims, WellPoint has agreed to pay the executives cash severance upon a qualifying termination of employment (a termination of employment by WellPoint without “cause” or by the executives for “good reason” within two years following the effective date) in an amount essentially equal to the amount applicable to them under the CIC Policy (i.e., two times their annual base salary and target annual bonus at the time of termination, but not less than $2,300,000, the amount that would be payable to each of them if they were currently to experience a qualifying termination of employment under the CIC Policy). The executives agree not to assert that their initial duties with WellPoint constitute good reason for termination for this purpose.

Upon the expiration of the two-year term of their agreements, the executives will be made eligible, on a basis commensurate with other similarly situated WellPoint executives, for participation in WellPoint’s executive agreement plan. However, the executives will be eligible as of the effective time of the merger for certain of the benefits that would be provided to them if they were already a participant in the executive agreement plan, including certain accelerated equity vesting rights and certain accelerated annual bonus payments in connection with a change in control of WellPoint.

Finally, the executives agree to new restrictive covenants with WellPoint, namely a confidentiality requirement, a disclosure and assignment of inventions provision, a noncompete obligation, in the case of Mr. Truess, for the greater of twelve months from the closing date or six months following termination of employment and, in the case of Mr. Zoretic, twelve months following termination of employment, an employee and customer nonsolicit provision extending for twelve months following termination of employment and a nondisparagement obligation. Each executive is also subjected to a clawback of certain compensation if before the sixth anniversary of their employment termination they violate any of those restrictive covenants or an additional cooperation obligation.

 

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Quantification of Certain Benefits

The following table sets forth for the Amerigroup executive officers, based on existing compensation levels, the amount of cash severance payable, the present amount of their cash long-term incentive compensation award at target, and their annual bonus (determined in the case of cash severance and the bonus, as if the merger were consummated and the executives’ employment were terminated each effective December 31, 2012 and determined without regard to any reduction that might be needed to avoid application of Section 280G of the Code). The amount that actually may become payable to any executive will depend on the circumstances prevailing at the effective time of the merger and, as applicable, any subsequent termination of employment.

 

Name

   Cash
Severance(1)
     Cash Long-
Term
Incentive
Compensation
at Target
     Annual
Bonus at
Target(2)
 

Named executive officers:

        

James G. Carlson

   $ 6,888,750       $ 2,309,000       $ 1,461,000   

James W. Truess

     2,300,000         940,500         575,000   

Richard C. Zoretic

     2,300,000         940,500         575,000   

John E. Littel

     1,260,000         302,500         270,000   

Mary T. McCluskey, M.D.

     1,242,000         300,000         266,000   

Executive officers who are not named executive officers as a group (3 persons)

     3,554,000         790,000         762,000   

 

(1) Represents, for executives other than Messrs. Carlson, Truess and Zoretic, the CIC Severance Payment and, for Messrs. Carlson, Truess and Zoretic, the amounts provided under their employment arrangements with WellPoint.
(2) Represents the full 2012 target bonus amount in light of the assumed December 31, 2012 measurement date. Amount will be pro rated for measurement on any other date.

Executive Officer and Non-Employee Director Deferred Compensation

Amerigroup maintains nonqualified deferred compensation arrangements for its executive officers and non-employee directors. Executives may elect to defer up to 75% of their salary and up to 100% of their annual bonus; directors may elect to defer some portion or all of the annual retainer otherwise payable to them. All amounts deferred by executives and directors are fully vested at all times.

The arrangement for executives provides that in the event of a change in control (including consummation of the merger), Amerigroup will pay out each participant’s deferral account in a lump sum payment within 60 days after the last day of the calendar month that is coincident with or next following the 12-month anniversary of the change in control. The arrangement for directors provides that in the event of a change in control (including consummation of the merger), Amerigroup will pay out each participant’s deferral account in a lump sum payment within 60 days after the last day of the calendar month that is coincident with or next following the date on which the change in control occurs.

 

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The following table sets forth the amount of deferred compensation credited to the Amerigroup executive officers (to the extent attributable to deferrals after 2004) and directors as of June 30, 2012, the most recent date for which information is practicably available:

 

Name

   Deferred
Compensation
Account
Balance
 

Named executive officers:

  

James G. Carlson

   $ 1,719,431   

James W. Truess

     —     

Richard C. Zoretic

     —     

John E. Littel

     —     

Mary T. McCluskey, M.D.

     —     

Executive officers who are not named executive officers as a group (3 persons)

     260,069   

Non-Employee Directors:

     —     

Thomas E. Capps

     —     

Jeffrey B. Child

     77,675   

Emerson U. Fullwood

     —     

Kay Coles James

     —     

William J. McBride

     242,714   

Hala Moddelmog

     —     

Joseph W. Prueher

     —     

Uwe E. Reinhardt, Ph.D.

     —     

Richard D. Shirk

     —     

John W. Snow

     —     

Director and Officer Indemnification

Directors and executive officers of Amerigroup have rights to indemnification and directors’ and officers’ liability insurance that will survive completion of the merger. Please see the section entitled “—The Merger Agreement—Directors’ and Officers’ Indemnification and Insurance” beginning on page 90.

Cash Success Bonuses

Amerigroup may issue cash stay-for-pay and/or success bonus awards to employees (including executive officers, but exclusive of Messrs. Carlson, Truess and Zoretic) in an amount not to exceed (except as otherwise agreed by WellPoint), per employee, the lesser of $75,000 or 50% of the employee’s base salary and $2,500,000 in the aggregate, in each case, for the purposes of recognizing, incentivizing and retaining key employees through consummation of the merger. No determination has been made at this time regarding who, if anyone, will receive such an award or what the amount of any such award would be.

Quantification of Potential Payments to Named Executive Officers in Connection with the Merger

Amerigroup’s “named executive officers” for purposes of the disclosure in this proxy statement are James G. Carlson, chairman of the board of directors, chief executive officer and president; James W. Truess, executive vice president and chief financial officer; Richard C. Zoretic, executive vice president and chief operating officer; John E. Littel, executive vice president, external relations; and Mary T. McCluskey, M.D., executive vice president and chief medical officer. In accordance with Item 402(t) of Regulation S-K, the table below sets forth the compensation that is based on or otherwise relates to the merger that may become payable to each of the named executive officers. Please see the section entitled “The Merger—Interests of Amerigroup’s Directors and Executive Officers in the Merger” beginning on page 65 for further information about this compensation.

 

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The amounts indicated below are estimates of amounts that would be payable assuming that the merger is consummated on December 31, 2012 and that the employment of the executives is terminated immediately thereafter on a basis entitling them to severance payments. These estimates are based on multiple assumptions that may or may not actually occur, including assumptions described in this proxy statement. Some of these assumptions are based on information not currently available and, as a result, the actual amounts, if any, to be received by a named executive officer may differ in material respects from the amounts set forth below.

Golden Parachute Compensation

 

Name

  Cash(1)     Equity(2)(3)     Pension/Non-
Qualified
Deferred
Compensation
    Perquisites/
Benefits
    Tax
Reimbursement
    Other     Total  

James G. Carlson

  $ 10,658,750      $ 4,493,344        —          —          —          —        $ 15,152,094   

Chairman, Chief

Executive Officer and

President

             

James W. Truess

    3,815,500        2,042,502        —          —          —          —          5,858,002   

Executive Vice

President and Chief

Financial Officer

             

Richard C. Zoretic

    3,815,500        2,042,502        —          —          —          —          5,858,002   

Executive Vice

President and Chief

Operating Officer

             

John E. Littel

    1,832,500        693,776        —          —          —          —          2,526,276   

Executive Vice

President, External

Relations

             

Mary T. McCluskey, M.D.

    1,808,000        690,325        —          —          —          —          2,498,325   

Executive Vice

President and Chief

Medical Officer

             

 

(1) Includes cash severance, the target amount for each outstanding long-term cash incentive compensation award, and the amount of the 2012 annual bonus at target (without pro-ration given the assumption of a December 31, 2012 closing date), as follows:

 

Name

   Severance      Long-Term  Incentive
Compensation
     2012 Annual Bonus  

James G. Carlson

   $ 6,888,750       $ 2,309,000       $ 1,461,000   

James W. Truess

     2,300,000         940,500         575,000   

Richard C. Zoretic

     2,300,000         940,500         575,000   

John E. Littel

     1,260,000         302,500         270,000   

Mary T. McCluskey, M.D.

     1,242,000         300,000         266,000   

The severance will be payable only upon a qualifying termination of employment within two years following consummation of the merger. The remaining amounts will become payable by reason of consummation of the merger without regard to any subsequent events. The severance payable to Messrs. Carlson, Truess and Zoretic would be payable pursuant to their employment arrangements with WellPoint, not pursuant to the CIC Policy.

 

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(2) Excludes the $7,000,000 restricted stock unit award to be granted to Mr. Carlson by WellPoint following consummation of the merger and the $2,500,000 restricted stock unit awards to be granted to each of Messrs. Truess and Zoretic by WellPoint following consummation of the merger, as these awards are each intended to compensate them for services following consummation of the merger.
(3) Includes the value as calculated using prescribed formulas under Section 280G of the Code, based on the $92.00 per share transaction price, of stock options, restricted stock and restricted stock unit awards whose vesting might accelerate in connection with the merger (either solely by reason of consummation of the merger (“single trigger” awards) or upon a qualifying termination of employment within two years following consummation of the merger (“double trigger” awards)), and also restricted stock awards held by Messrs. Carlson, Truess and Zoretic that will be cancelled immediately following the merger in exchange for a cash payment by WellPoint (less any applicable withholding taxes), all as follows:

 

Name

   Single
Trigger
Options(a)
     Single Trigger
Restricted
Stock/Restricted
Stock Units(a)
     Double Trigger
Restricted
Stock/Restricted
Stock Units
     Cancellation of
Restricted Stock by
WellPoint
 

James G. Carlson

   $ 1,219,917       $ 7,803,072         —         $ 7,661,208   

James W. Truess

     492,876         3,089,084         —           4,321,792   

Richard C. Zoretic

     492,876         3,089,084         —           4,321,792   

John E. Littel

     133,701         1,021,752       $ 1,571,544         —     

Mary T. McCluskey, M.D.

     132,263         1,047,328         1,571,544         —     

(a) Single trigger awards will be cancelled upon consummation of the merger in exchange for a cash payment equal to their value (less any applicable withholding taxes). The executives will be eligible for the grant of double trigger options on September 28, 2012 (covering the following number of shares for each of the executives—Mr. Carlson 13,384; Mr. Truess 5,421; Mr. Zoretic 5,421; Mr. Littel 1,697; and Dr. McCluskey 1,674) at a per-share exercise price equal to the closing trading price on the date of grant. Because these options have not yet been granted, it is not possible to estimate their value at this time.

Financing Related to the Merger

In connection with entering into the merger agreement, WellPoint received a bridge commitment letter, dated July 9, 2012 (the “commitment letter”), from Credit Suisse, a copy of which WellPoint provided to Amerigroup at the time of the parties’ execution of the merger agreement. Pursuant to the commitment letter, Credit Suisse has committed to provide a 364-day senior unsecured bridge term loan credit facility (the “bridge facility”) in an aggregate principal amount of up to $3.0 billion. WellPoint has advised us that it entered into definitive documentation with respect to the bridge facility (the “bridge facility agreement”) on July 30, 2012, in connection with which a portion of Credit Suisse’s commitment was subsequently syndicated to the other Bridge Lenders (and the commitment letter terminated automatically upon execution and delivery of the bridge facility agreement).

The commitment of Credit Suisse and the other Bridge Lenders under the bridge facility agreement is subject to the satisfaction (or waiver by Credit Suisse and the other Bridge Lenders) of certain conditions precedent, including, without limitation:

 

   

there not having been since December 31, 2011, with certain exceptions, any change, circumstance or event that has had, or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on the business, results of operations or financial condition of Amerigroup and its subsidiaries, taken as a whole; and

 

   

other customary conditions precedent set forth in the bridge facility agreement.

The commitments under the bridge facility agreements terminate automatically on the earlier of (i) June 9, 2013 (or, if the initial outside date is extended pursuant to the terms of the merger agreement, September 9, 2013), if the closing date on the bridge facility has not occurred on or before 5:00 p.m., New York City time on

 

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such date, (ii) the termination of the merger agreement in accordance with its terms, (iii) WellPoint or its affiliates publicly announces its intention not to proceed with the merger or (iv) the funding of the bridge facility on the closing date of the merger.

Regulatory Clearances and Approvals Required for the Merger

HSR Act and Antitrust. The merger is subject to the requirements of the HSR Act, which prevents WellPoint and Amerigroup from completing the merger until required information and materials are furnished to the Antitrust Division of the DOJ and the FTC and the HSR Act waiting period is terminated or expires. On July 23, 2012, WellPoint and Amerigroup filed the requisite notification and report forms under the HSR Act with the DOJ and the FTC. Consequently, the required waiting period will expire on August 22, 2012, unless earlier terminated or the FTC or DOJ extends that period by issuing a second request to the parties. A second request extends the waiting period until 30 days after both parties have substantially complied with the second request, unless the waiting period is terminated earlier. The DOJ, the FTC, state attorneys general and others may challenge the merger on antitrust grounds either before or after expiration or termination of the HSR Act waiting period. Accordingly, at any time before or after the completion of the merger, any of the DOJ, the FTC, state attorneys general or others could take action under the antitrust laws, including, without limitation, seeking to enjoin the completion of the merger. Although we expect that all required antitrust clearances and approvals will be obtained, we cannot assure you that these clearances and approvals will be timely obtained, obtained at all or that the granting of these antitrust clearances and approvals will not involve the imposition of additional conditions on the completion of the merger, including the requirement to divest assets, or require changes to the terms of the merger agreement. These conditions or changes could result in the conditions to the merger not being satisfied.

Other Regulatory Matters. Pursuant to the insurance laws and, in some instances, the healthcare laws of Florida, Georgia, Kansas, Louisiana, Maryland, Nevada, New Jersey, New Mexico, New York, Ohio, Tennessee, Texas, Virginia and Washington, applicable state regulatory authorities must approve WellPoint’s acquisition of control of Amerigroup’s health maintenance organization and insurance companies. To obtain these approvals, WellPoint, or the applicable Amerigroup subsidiary, as the case may be, has filed or will file acquisition of control and material modification or similar statements, notices or applications, as required by the insurance and health laws and regulations of each applicable state. Although we expect that all required regulatory clearances and approvals will be obtained, we cannot assure you that these clearances and approvals will be timely obtained, obtained at all or that the granting of these regulatory clearances and approvals will not involve the imposition of additional conditions on the completion of the merger, including the requirement to divest assets or membership, or require changes to the terms of the merger agreement. These conditions or changes could result in the conditions to the merger not being satisfied.

One or more governmental agencies may impose a condition, restriction, qualification, requirement or limitation when it grants the necessary approvals and consents. Third parties may also seek to intervene in the regulatory process or litigate to enjoin or overturn regulatory approvals, any of which actions could significantly impede or even preclude obtaining required regulatory approvals. There is currently no way to predict how long it will take to obtain all of the required regulatory approvals or whether such approvals will ultimately be obtained and there may be a substantial period of time between the approval by Amerigroup stockholders and the completion of the merger.

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

The exchange of shares of Amerigroup common stock for cash in the merger will generally be a taxable transaction to U.S. holders for United States federal income tax purposes. In general, a U.S. holder whose shares of Amerigroup common stock are converted into the right to receive cash in the merger will recognize gain or loss for United States federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received with respect to such shares and the U.S. holder’s adjusted tax basis in such shares.

 

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You should read the section entitled “Material U.S. Federal Income Tax Consequences of the Merger to U.S. Holders” beginning on page 102 for a more detailed discussion of the United States federal income tax consequences of the merger. Tax matters can be complicated and the tax consequences of the merger to you will depend on your particular tax situation. You should consult your tax advisor to determine the tax consequences of the merger to you.

Delisting and Deregistration of Amerigroup Common Stock

Upon completion of the merger, the Amerigroup common stock currently listed on the NYSE will cease to be listed on the NYSE and will subsequently be deregistered under the Exchange Act.

Appraisal Rights

Under the DGCL, Amerigroup stockholders who do not vote for the adoption of the merger agreement have the right to seek appraisal of the fair value of their shares in cash as determined by the Delaware Court of Chancery, but only if they comply with all of the applicable requirements of the DGCL, which are summarized in this proxy statement. This appraisal amount could be more than, the same as, or less than the value of the merger consideration. Any Amerigroup stockholder intending to exercise appraisal rights must, among other things, submit a written demand for appraisal to Amerigroup prior to the vote on the adoption of the merger agreement and must not vote or otherwise submit a proxy in favor of adoption of the merger agreement. Failure to follow exactly the procedures specified under the DGCL will result in the loss of appraisal rights. Because of the complexity of the DGCL relating to appraisal rights, if you are considering exercising your appraisal right we encourage you to seek the advice of your own legal counsel.

Shares of Amerigroup common stock held by any stockholder who properly demands appraisal with respect to such shares in compliance with the DGCL will not be converted into the right to receive the merger consideration, and holders of such shares will be entitled to receive payment of the value of such shares determined in accordance with the applicable provisions of the DGCL and as further described in the section entitled “Appraisal Rights” on page 104. However, if, after the completion of the merger, any holder of dissenting shares fails to perfect or otherwise waives, withdraws or loses his, her or its right to appraisal under the DGCL, the shares of Amerigroup common stock held by that stockholder that were dissenting shares will be treated as if they had been converted into the right to receive the merger consideration pursuant to the terms of the merger agreement.

 

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THE MERGER AGREEMENT

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

The merger agreement is included in this proxy statement to provide you with information regarding its terms and is not intended to provide any factual information about Amerigroup, WellPoint or any of their respective subsidiaries or affiliates. Such information can be found elsewhere in this proxy statement or in the public filings we make with the SEC, as described in the section entitled “Where You Can Find More Information” beginning on page 108. The representations, warranties and covenants contained in the merger agreement have been made solely for the purposes of the merger agreement and as of specific dates and solely for the benefit of parties to the merger agreement and:

 

   

are not intended as statements of fact, but rather as a way of allocating the risk between the parties in the event the statements therein prove to be inaccurate;

 

   

have been modified or qualified by certain confidential disclosures that were made between the parties in connection with the negotiation of the merger agreement, which disclosures are not reflected in the merger agreement itself;

 

   

may no longer be true as of a given date; and

 

   

may apply standards of materiality in a way that is different from what may be viewed as material by you or other stockholders.

Accordingly, you should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of Amerigroup, WellPoint or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the merger agreement, which subsequent information may or may not be fully reflected in Amerigroup’s public disclosures. Accordingly, the representations and warranties and other provisions of the merger agreement should not be read alone, but instead should be read together with the information provided elsewhere in this proxy statement and in the documents incorporated by reference into this proxy statement. See the section entitled “Where You Can Find More Information” beginning on page 108.

Terms of the Merger; Merger Consideration; Certificate of Incorporation; Bylaws; Directors

The merger agreement provides that, upon the terms and subject to the conditions set forth in the merger agreement and in accordance with the DGCL, at the effective time of the merger, Merger Sub will be merged with and into Amerigroup, whereupon the separate existence of Merger Sub will cease, and Amerigroup shall continue as the surviving company and an indirect wholly-owned subsidiary of WellPoint.

At the effective time of the merger, each outstanding share of Amerigroup common stock (other than treasury shares and any shares owned by Amerigroup, WellPoint, Merger Sub, any of their respective wholly-owned subsidiaries, or any person who properly demands appraisal of their shares pursuant to the DGCL), will be converted into the right to receive $92.00 in cash, without interest and subject to any applicable withholding taxes (the “merger consideration”).

In the event that, from the date of the merger agreement until the effective time of the merger, the outstanding shares of Amerigroup common stock are changed into a different number of shares or a different class by reason of any reclassification, stock split, recapitalization, split-up, combination, exchange of shares or

 

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other similar transaction, or a stock dividend or stock distribution thereon is declared with a record date within such time period, the merger consideration, the equity exchange ratio and any other similarly dependent terms will be equitably adjusted to provide the holders of Amerigroup common stock the same economic effect as contemplated by the merger agreement prior to such event.

At the effective time of the merger, the certificate of incorporation of Amerigroup will be amended and restated in its entirety as set forth in Exhibit A to the merger agreement, the bylaws of Merger Sub, as in effect immediately prior to the effective time, will become the bylaws of the surviving company, and the directors of Merger Sub immediately prior to the effective time will become the directors of the surviving company. At the effective time of the merger, each outstanding share of Merger Sub common stock will be converted into and become one share of common stock of the surviving company.

Completion of the Merger

Unless the parties agree otherwise, the closing of the merger will take place on the business day after all conditions to the completion of the merger have been satisfied or waived (other than those conditions that can only be satisfied at such closing, but subject to the satisfaction or waiver of such conditions). The effective time of the merger will be at the time when the certificate of merger is filed with the Secretary of State of the State of Delaware, or at such later time as the parties agree and specify in the certificate of merger.

We expect to complete the merger during the first quarter of 2013. The merger is subject to various regulatory clearances and approvals and other conditions, however, and it is possible that factors outside the control of both companies could result in the merger being completed at a later time, or not at all. There may be a substantial amount of time between the special meeting and the completion of the merger. We expect to complete the merger promptly following the receipt of all required approvals.

Treatment of Equity Awards

The treatment of all Amerigroup equity awards, including those held by Amerigroup’s directors and executive officers is summarized below.

Treatment of Stock Options

At the effective time of the merger, each option to purchase shares of Amerigroup common stock granted under Amerigroup’s equity incentive compensation plans that is outstanding and that becomes or already is vested by its terms will be cancelled and converted into the right to receive an amount, payable in cash, equal to the product of (i) the total number of shares of Amerigroup common stock subject to the option multiplied by (ii) the excess of $92.00 over the per share exercise price of the option (with the aggregate amount of such payment rounded down to the nearest cent).

Each option that as of the effective time is outstanding but unvested by its terms will be converted as of the effective time into a stock option to acquire a number of shares of WellPoint common stock (rounded down to the nearest whole share) equal to the product of (i) the total number of shares of Amerigroup common stock subject to the option immediately prior to the effective time multiplied by (ii) the equity exchange ratio, at an exercise price per share (rounded up to the nearest whole cent) equal to (x) the exercise price applicable to the option immediately prior to the effective time divided by (y) the equity exchange ratio. The terms and conditions of any such converted options will otherwise remain the same as the terms and conditions applicable to the options under Amerigroup’s equity incentive compensation plans and the award agreements pursuant to which the options were granted (including vesting schedules, provided that such WellPoint options will immediately vest in full if the holder’s employment is terminated by WellPoint without “cause” or by the holder for “good reason” within two years following the effective time).

 

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Treatment of Other Stock Awards

At the effective time of the merger, each restricted share of Amerigroup common stock and each restricted stock unit representing shares of Amerigroup common stock (collectively “other stock awards”) that is outstanding and that becomes or already is vested by its terms will be cancelled and converted into the right to receive an amount, payable in cash, equal to the product of the total number of shares of Amerigroup common stock subject to the other stock award multiplied by $92.00. Each restricted stock award subject to performance-based vesting conditions that by its terms otherwise would not have vested by reason of consummation of the merger will be deemed vested as of the effective time of the merger at the target level of performance.

Each other stock award that as of the effective time is outstanding but unvested by its terms will be converted as of the effective time into an award in respect of a number of shares of WellPoint common stock (rounded down to the nearest whole share) equal to the product of (i) the total number of shares of Amerigroup common stock subject to the award multiplied by (ii) the equity exchange ratio. The terms and conditions of any such converted other stock awards will otherwise remain the same as the terms and conditions applicable to the other stock awards under Amerigroup’s equity incentive compensation plans and the award agreements pursuant to which the other stock awards were granted (including vesting schedules, provided that the other stock awards as converted will immediately vest in full if the respective holder’s employment is terminated by WellPoint without “cause” or by the holder for “good reason” within two years following the effective time).

Notwithstanding the foregoing, pursuant to the terms of new employment arrangements to become effective as of the closing between WellPoint and Messers. Carlson, Truess and Zoretic (as further described in the section entitled “Interests of Amerigroup’s Directors and Officers in the Merger—Executive Officer Severance and Employment Arrangements”), the restricted stock awards granted to them by Amerigroup on March 9, 2010 that remain restricted as of the effective time of the merger will be cancelled immediately following the effective time in exchange for a payment by WellPoint to those executives equal to $92.00 multiplied by such number of restricted shares. Please see the section entitled “The Merger—Interests of Amerigroup’s Directors and Executive Officers in the Merger—Equity Interests of Amerigroup’s Executive Officers” beginning on page 65 for further information about those restricted stock awards.

Employee Stock Purchase Plan

Effective as of immediately prior to the effective time of the merger but subject to the occurrence of the closing of the merger, in accordance with the existing terms of the Amerigroup Employee Stock Purchase Plan (“ESPP”) the “offering period” within the meaning of the ESPP will terminate, shares of Amerigroup common stock will be purchased under the ESPP on behalf of the respective ESPP participants (which will include no executive officers) on the same basis as if the offering period had expired on its originally scheduled date (the next following December 31 or June 30 as the case may be) but treating the closing date as the “exercise date” within the meaning of the ESPP, and the shares of Amerigroup common stock so purchased will be cancelled effective as of the effective time and converted into a right of each respective ESPP participant to receive from Amerigroup an amount in cash equal to the total number of shares of Amerigroup common stock purchased on his or her behalf multiplied by $92.00.

Exchange of Shares in the Merger

Prior to the effective time of the merger, WellPoint will appoint American Stock Transfer & Trust Company, LLC or, with the prior approval of Amerigroup, select another paying agent to handle the exchange of shares of Amerigroup common stock for the merger consideration. At or prior to the effective time of the merger, WellPoint will deposit with the paying agent all of the cash sufficient to pay the aggregate merger consideration. At any time after the effective time of the merger, shares of Amerigroup common stock will represent only the right to receive the merger consideration (except to the extent appraisal rights have been properly exercised in respect of such shares).

 

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As soon as reasonably practicable after the effective time of the merger, WellPoint will cause the paying agent to mail (or in the case of The Depository Trust Company on behalf of “street” holders, deliver), to each record holder of a Amerigroup common stock certificate a letter of transmittal specifying that delivery will be effected, and risk of loss and title to any such certificates will pass, only upon delivery of such certificates to the paying agent and providing instructions for effecting the surrender of the Amerigroup common stock certificates in exchange for the merger consideration.

Upon surrender of a Amerigroup common stock certificate for cancellation to the paying agent, together with a duly executed letter of transmittal and such other documents as may reasonably be required by the paying agent, the holder of a Amerigroup common stock certificate will be entitled to receive the merger consideration pursuant to the merger agreement. The surrendered certificates of Amerigroup common stock will then be cancelled.

If a transfer of ownership of Amerigroup common stock is not registered in the transfer records of Amerigroup, payment may be made to such a transferee if the Amerigroup common stock certificate representing such shares of Amerigroup common stock is presented to the paying agent accompanied by all documents required to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid.

Holders of Amerigroup common stock that are held in book-entry form will not be required to deliver a stock certificate or an executed letter of transmittal to the paying agent in order to receive the merger consideration. Upon completion of the merger and the receipt by the paying agent of an “agent’s message” (or such other evidence, if any, of surrender as the paying agent may reasonably request), the holder of book-entry shares of Amerigroup common stock will be entitled to receive the merger consideration.

No interest will be paid or will accrue on any cash payable upon surrender of any Amerigroup common stock certificate or any book-entry shares of Amerigroup common stock.

Lost, Stolen or Destroyed Certificates

In the event any Amerigroup common stock certificate has been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such certificate to be lost, stolen or destroyed and, to the extent required by WellPoint, the posting by such person of a bond in such reasonable amount as WellPoint may direct as indemnity against any claim that may be made against it with respect to such certificate, the paying agent will pay in exchange for such lost, stolen or destroyed certificate the merger consideration that would be payable in respect thereof pursuant to the merger agreement had such lost, stolen or destroyed certificate been surrendered as provided in the merger agreement.

Representations and Warranties

The merger agreement contains customary representations and warranties made by Amerigroup to WellPoint and Merger Sub and representations and warranties made by WellPoint and Merger Sub to Amerigroup. These representations and warranties are subject to important limitations and qualifications agreed to by the parties in connection with negotiating the terms of the merger agreement. In particular, certain of the representations and warranties that Amerigroup made in the merger agreement are qualified by disclosures contained in filings Amerigroup made with the SEC on or after January 1, 2010 and prior to the date of the merger agreement (but excluding risk factors or forward-looking or cautionary disclosures set forth in such filings), as well as by certain confidential disclosures that Amerigroup delivered to WellPoint and Merger Sub concurrently with the execution of the merger agreement. In addition, certain representations and warranties were made as of a specified date, may be subject to contractual standards of materiality different from those generally applicable to public disclosures to stockholders, or may have been used for the purpose of allocating risk among

 

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the parties rather than establishing matters of fact. For the foregoing reasons, you should not read the representations and warranties given by the parties in the merger agreement or any description thereof as characterizations of the actual state of facts or conditions of Amerigroup, WellPoint or Merger Sub. Amerigroup’s representations and warranties under the merger agreement relate to, among other things:

 

   

Amerigroup’s and its subsidiaries’ organization, good standing and corporate power;

 

   

the absence of restrictions or encumbrances with respect to the capital stock of Amerigroup and its subsidiaries;

 

   

Amerigroup’s capital structure and absence of agreements relating to the capital stock of Amerigroup;

 

   

the authority of Amerigroup to enter into the merger agreement and consummate the merger and the other transactions contemplated by the merger agreement and the enforceability of the merger agreement against Amerigroup;

 

   

the absence of (i) any conflict with or violation of any contract of Amerigroup or its subsidiaries, (ii) any conflict with or violation of the organizational documents of Amerigroup and its subsidiaries, or (iii) any conflict with or violation of applicable laws as a result of the execution and delivery by Amerigroup of the merger agreement and the consummation by Amerigroup of the merger;

 

   

required regulatory filings and governmental approvals;

 

   

compliance with SEC filing requirements for Amerigroup’s SEC filings since January 1, 2010, including compliance with generally accepted accounting principles (“GAAP”) and SEC requirements of financial statements;

 

   

absence of undisclosed liabilities;

 

   

accuracy of information contained in this proxy statement, as it may be amended or supplemented from time to time;

 

   

approval by Amerigroup’s board of directors of the merger agreement;

 

   

the required vote of Amerigroup stockholders to adopt the merger agreement;

 

   

absence of undisclosed brokers and finder’s fees;

 

   

the absence of litigation;

 

   

compliance with applicable laws since December 31, 2010;

 

   

absence of certain changes and events since December 31, 2011;

 

   

receipt by the Amerigroup board of directors of opinions of Amerigroup’s financial advisors;

 

   

tax matters;

 

   

compliance with accounting and financial matters since December 31, 2011;

 

   

compliance with securities law matters since January 1, 2010 and adequacy of internal controls and disclosure controls and procedures and compliance with NYSE requirements;

 

   

compliance with applicable statutory accounting principles (“SAP”) for audited statutory financial statements for the year ended December 31, 2011 and unaudited statutory financial statements for the quarter ended March 31, 2012;

 

   

loss reserves and other actuarial amounts of regulated subsidiaries as of December 31, 2011;

 

   

absence of affiliate transactions since January 1, 2010;

 

   

regulatory compliance under applicable healthcare laws;

 

   

environmental matters;

 

   

intellectual property and software;

 

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material contracts, the performance of obligations and the absence of breaches thereunder;

 

   

employee benefit plans, labor and employment matters;

 

   

insurance;

 

   

required capital or surplus amounts among Amerigroup’s subsidiaries;

 

   

title to or valid leasehold interests in real property; and

 

   

the absence of any additional representations and warranties.

The merger agreement also contains customary representations and warranties made by WellPoint and Merger Sub that are subject, in some cases, to specified exceptions and qualifications contained in the merger agreement, disclosures contained in the filings WellPoint made with the SEC on or before January 1, 2010 and prior to the date of the merger agreement (but excluding risk factors or forward-looking disclosures set forth in such filings), as well as certain confidential disclosures that WellPoint delivered to Amerigroup concurrently with the signing of the merger agreement.

WellPoint’s and Merger Sub’s representations and warranties to Amerigroup under the merger agreement, relate to, among other things:

 

   

WellPoint’s and its subsidiaries’ organization, good standing and corporate power;

 

   

their authority to enter into the merger agreement and consummate the merger and the other transactions contemplated by the merger agreement and the enforceability of the merger agreement against WellPoint and Merger Sub;

 

   

the absence of (i) any conflict with or violation of any contract of WellPoint or (ii) any conflict with or violation of the organizational documents of WellPoint or Merger Sub or (iii) any conflict with or violation of applicable laws as a result of the execution and delivery by WellPoint or Merger Sub of the merger agreement and consummation by WellPoint or Merger Sub of the merger;

 

   

required regulatory filings and governmental approvals;

 

   

accuracy of information supplied to Amerigroup by WellPoint or Merger Sub for use in this proxy statement, as it may be amended or supplemented from time to time;

 

   

approval by WellPoint’s board of directors of the merger agreement and financing commitments;

 

   

absence of a requirement that WellPoint stockholders vote or otherwise act in order for WellPoint and Merger Sub to consummate the merger and the transactions contemplated by the merger agreement;

 

   

availability of funds to consummate the merger and financing commitment;

 

   

absence of litigation;

 

   

compliance with applicable laws;

 

   

no ownership by WellPoint in excess of 4% of shares of Amerigroup common stock;

 

   

absence of business activities unrelated to the merger or merger agreement on the part of Merger Sub; and

 

   

the absence of any additional representations and warranties and disclaimers.

None of the representations and warranties in the merger agreement survive the completion of the merger.

Many of the representations and warranties in the merger agreement are qualified by a “materiality” or “material adverse effect” standard (that is, they will not be deemed to be untrue or incorrect unless a materiality threshold is satisfied or their failure to be true or correct would, or would reasonably be expected to, result in a material adverse effect).

 

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For purposes of the merger agreement, a “material adverse effect” means, with respect to Amerigroup and WellPoint, any event, change, effect, development or occurrence that has a material adverse effect on the business, results of operations or financial condition of Amerigroup and its subsidiaries, taken as a whole, or WellPoint and its subsidiaries, taken as a whole, except that no event, change, effect, development or occurrence will be deemed to constitute a material adverse effect to the extent that such event, change, effect, development or occurrence results from, arises out of, or relates to:

 

   

any changes in general to the United States or global economic conditions;

 

   

any changes in conditions generally affecting the healthcare, insurance, health insurance or managed care industry, Medicaid managed care industry, Medicare managed care industry or any other industry in which Amerigroup, WellPoint, or any of their respective subsidiaries operate;

 

   

any decline in the market price or trading volume of Amerigroup common stock or WellPoint common stock (it being understood that the foregoing will not preclude WellPoint or Amerigroup from asserting that the facts or occurrences giving rise to or contributing to such decline that are not otherwise excluded from the definition of material adverse effect should be deemed to constitute, or be taken into account in determining whether there has been, or would reasonably be expected to be, a material adverse effect);

 

   

any changes resulting from, arising under or relating to the Supreme Court’s decision regarding Nat. Fed. of Indep. Bus. v. Sebelius, Sec. of Dept. of Health & Human Servs., No. 11-393 (2012); Dept. of Health & Human Servs. v. Florida, Nos. 11-398 & 11-400 (2012) (any such decision, a “Sebelius decision”), including any state determining not to expand its Medicaid Programs pursuant to the Patient Protection and Affordable Care Act of 2010;

 

   

any changes in national, state or local regulatory, legislative or political conditions or securities, credit, financial, debt or other capital markets conditions, or the economy in each case in the United States or any foreign jurisdiction, except to the extent that such changes have a materially disproportionate adverse effect on Amerigroup and its subsidiaries, taken as a whole, or WellPoint and its subsidiaries, taken as a whole, as applicable, relative to the adverse effect such changes have on other persons operating in the Medicaid or Medicare Advantage managed care industry in which Amerigroup and any of its subsidiaries operate (in the case of Amerigroup and its subsidiaries) or in the health benefits businesses in which WellPoint and any of its subsidiaries operate (in the case of WellPoint and its subsidiaries);

 

   

any failure, in and of itself, by Amerigroup or WellPoint to meet any internal or published projections, forecasts, estimates or predictions in respect of revenues, earnings or other financial or operating metrics for any period (it being understood that the foregoing shall not preclude WellPoint or Amerigroup from asserting that the facts or occurrences giving rise to or contributing to such failure that are not otherwise excluded from the definition of material adverse effect should be deemed to constitute, or be taken into account in determining whether there has been, or would reasonably be expected to be, a material adverse effect);

 

   

the execution and delivery of the merger agreement or the public announcement or pendency of the merger agreement or the merger or the taking of any action required or contemplated or permitted by the merger agreement or the identity of, or any facts or circumstances relating to, Amerigroup, WellPoint, Merger Sub or their respective subsidiaries, including (a) the impact of any of the foregoing on the relationships, contractual or otherwise, of Amerigroup, WellPoint or any of their subsidiaries with any governmental entities, customers, providers, suppliers, partners, officers or employees or (b) any suspension, amendment, modification or termination of any contract between Amerigroup or any of its subsidiaries, on the one hand, and Center for Medicare and Medicaid Services (“CMS”), any state agency or any other governmental entity, on the other hand (or any request or assertion by CMS, any state agency or any other governmental entity that any such contract be suspended, amended, modified or terminated) or any additional obligations or requirements relating to any such contract imposed by CMS, any state agency or any other governmental entity on Amerigroup or WellPoint or any of their respective subsidiaries, in each case, resulting from, arising out of or relating to any of the foregoing;

 

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any change in the generally accepted accounting principles in the United States or applicable SAP (or authoritative interpretations thereof);

 

   

any adoption, implementation, promulgation, repeal, modification, amendment, change in interpretation, reinterpretation, change or proposal of any order, protocol or any other law of or by any governmental entity, including any such adoption, implementation, promulgation, repeal, modification, amendment, reinterpretation, change or proposal resulting from, arising under or related to any Sebelius decision, except to the extent that such changes have a materially disproportionate adverse effect on Amerigroup and its subsidiaries, taken as a whole, or WellPoint and its subsidiaries, taken as a whole, as applicable, relative to the adverse effect such changes have on other persons operating in the Medicaid or Medicare Advantage managed care industry in which Amerigroup and any of its subsidiaries operate (in the case of Amerigroup and its subsidiaries) or in the health benefits businesses in which WellPoint and any of its subsidiaries operate (in the case of WellPoint and its subsidiaries), provided that this exception shall not apply to any Sebelius decision;

 

   

any geopolitical conditions, the outbreak or escalation of hostilities, any acts of war, sabotage or terrorism, or any escalation or worsening of any such acts of war, sabotage or terrorism threatened or underway as of the date of the merger agreement;

 

   

any taking of any action (or the failure to take any action) at the request of another party to the merger agreement or with the consent of another party to the merger agreement;

 

   

any change or announcement of a potential change in the credit rating or A.M. Best rating of Amerigroup or any of its subsidiaries or WellPoint or any of its subsidiaries, as applicable (it being understood and agreed that the foregoing shall not preclude Amerigroup, WellPoint and Merger Sub from asserting that the facts or occurrences giving rise to or contributing to such change or announcement of a potential change that are not otherwise excluded from the definition of material adverse effect should be deemed to constitute, or be taken into account in determining whether there has been, or would reasonably be expected to be, a material adverse effect);

 

   

any hurricane, earthquake, flood or other natural disasters, acts of God or any change resulting from weather conditions;

 

   

any litigation arising from allegations of a breach of fiduciary duty or violation of applicable law relating to the merger agreement or the merger or the other transactions contemplated by the merger agreement or any solicitation of written consents of the stockholders of Amerigroup opposing the required Amerigroup vote;

 

   

any changes to reimbursement rates or in methods or procedures for determining such rates, any changes to eligibility requirements or any other programmatic changes by any governmental entity that, in each case, have general application to persons providing managed care services similar to the services that are provided by Amerigroup, WellPoint or their subsidiaries or to persons operating in the industries in which Amerigroup, WellPoint or any of their subsidiaries operate, as applicable, except to the extent that such changes have a materially disproportionate adverse effect on Amerigroup and its subsidiaries, taken as a whole, or WellPoint and its subsidiaries, taken as a whole, as applicable, relative to the adverse effect such changes have on other persons operating in the Medicaid or Medicare Advantage managed care industry in which Amerigroup and any of its subsidiaries operate (in the case of Amerigroup and its subsidiaries) or in the health benefits businesses in which WellPoint and any of its subsidiaries operate (in the case of WellPoint and its subsidiaries); or

 

   

the failure of Amerigroup, WellPoint or any of their subsidiaries to obtain the right to provide services in any jurisdiction under a contract with CMS, any state agency or any other governmental entity pursuant to any “request for proposal”, procurement, re-procurement or similar process or the failure of any such contract to be renewed upon its expiration;

and any effect that would prohibit, prevent, materially impair or materially delay the ability of WellPoint or Amerigroup, as the case may be, to consummate the transaction contemplated by the merger agreement, including the merger.

 

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Covenants Regarding Conduct of Business by Amerigroup Pending the Merger

Amerigroup has agreed to certain covenants in the merger agreement restricting the conduct of its business between the date of the merger agreement and the effective time of the merger. In general, Amerigroup and its subsidiaries have agreed to (i) conduct its business in the ordinary course consistent with past practice, and (ii) use its commercially reasonable efforts to (a) preserve substantially intact its business organization, (b) keep available the services of its key present officers, and (c) preserve the present relationships with customers, suppliers, distributors, licensors or licensees with which it has material business relations. Except as (i) required by applicable law or a governmental entity, (ii) set forth in Amerigroup’s confidential disclosure schedule delivered to WellPoint and Merger Sub concurrently with the execution of the merger agreement, or (iii) required by the merger agreement, unless WellPoint otherwise consents in writing (which consent may not be unreasonably withheld or delayed), from the date of the merger agreement until the earlier of the effective time of the merger or the termination of the merger agreement, Amerigroup may not, and may not permit any of its subsidiaries to:

 

   

amend Amerigroup’s certificate or incorporation or bylaws or amend in any material respect the certificate of incorporation or bylaws or equivalent organizational documents of Amerigroup’s subsidiaries;

 

   

issue, deliver, sell, pledge, dispose of or encumber, or authorize or commit to the issuance, sale, pledge, disposition or encumbrance of, any shares of capital stock, or any rights of any kind to acquire any shares of capital stock or any other ownership interest of Amerigroup or any of its subsidiaries, subject to certain exceptions relating to (i) issuing shares pursuant to stock options or other stock awards under any Amerigroup equity plan, (ii) issuing shares pursuant to disclosed contracts in effect prior to the execution of the merger agreement, (iii) granting stock options or other stock awards to employees or issuing securities under Amerigroup’s employee stock purchase plan, in each case in the ordinary course of business consistent with past practice and (iv) issuing shares of a wholly owned subsidiary to its parent, Amerigroup or another Amerigroup wholly-owned subsidiary;

 

   

declare any dividends or other distributions, other than dividends or distributions by a direct or indirect wholly-owned subsidiary of Amerigroup to Amerigroup or to another direct or indirect wholly-owned subsidiary of Amerigroup;

 

   

acquire (by merger, consolidation or acquisition of stock or assets) any material assets, except for (a) acquisitions of assets in the ordinary course of business or (b) acquisitions of stock or assets of any person for consideration not in excess of $10,000,000;

 

   

modify its current investment policies or investment practices in any material respect except to accommodate changes in GAAP, applicable SAP or applicable law;

 

   

transfer, sell, lease, mortgage, or otherwise dispose of or subject to any lien any of its assets (except (a) by incurring permitted liens, (b) equipment and property no longer used in the operation of Amerigroup’s or any of its subsidiaries’ business, (c) pursuant to disclosed contracts in effect prior to the execution of the merger agreement and ordinary course renewals thereof, (d) any such transaction involving assets of Amerigroup or any of its subsidiaries not in excess of $5,000,000 or (e) sales, leases or licenses of inventory, equipment and other assets in the ordinary course of business consistent with past practice);

 

   

except as may be required by GAAP, applicable SAP, applicable law or actuarial principles, make any material change to existing accounting practices or principles or reserving or underwriting practices or principles used by it;

 

   

other than settlements and waivers of rights in the ordinary course of business consistent with past practice in connection with the processing and paying of claims to providers, settle, offer or propose to settle, or compromise any material claim or proceeding;

 

   

adopt a plan of complete or partial liquidation, dissolution, restructuring, recapitalization or other reorganization of Amerigroup or any of its subsidiaries;

 

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fail to use reasonable best efforts to maintain in full force and effect the existing material insurance policies covering Amerigroup or its subsidiaries or their respective properties, assets and businesses or comparable replacement policies;

 

   

authorize or make capital expenditures other than aggregate capital expenditures during the fiscal years 2012 and 2013 not to exceed, in each such fiscal year, the amounts listed on the capital expenditure budget for fiscal year 2012 previously made available to WellPoint for such fiscal year by any amount in excess of $10,000,000;

 

   

make any material tax election or settle or compromise any material tax claim, audit or assessment, change any material annual tax accounting period, change any material method of tax accounting, enter into any closing agreement relating to any material tax, surrender any right to claim a material tax refund, or consent to any extension or waiver of the limitations period applicable to any material tax claim or assessment;

 

   

reclassify, combine, split, subdivide or redeem, repurchase or otherwise acquire, directly or indirectly, any of its capital stock, stock options or debt securities, subject to certain exceptions relating to (i) repurchases for shares in an aggregate amount not to exceed the amount set forth in the disclosure schedule, (ii) repurchases of shares pursuant to stock options or other stock awards under any Amerigroup equity plan or (iii) transactions among Amerigroup and one or more of its wholly-owned subsidiaries or among Amerigroup’s wholly-owned subsidiaries;

 

   

(a) repay or retire any indebtedness issued pursuant to that certain Senior Indenture, dated as of November 16, 2011, between Amerigroup and The Bank of New York Mellon, Trust Company, N.A., as trustee, or repurchase or redeem any debt securities issued pursuant to such indenture, (b) incur any indebtedness for borrowed money or issue any debt securities in excess of $20,000,000 or (c) assume, guarantee or endorse, or otherwise as an accommodation become responsible for, the obligations of any person, or make any loans, advances or capital contributions to, or investments in, any other person in excess of $10,000,000, except in the case of clauses (b) and (c), transactions among Amerigroup and its wholly-owned subsidiaries, indebtedness for borrowed money incurred to replace, renew, extend, refinance or refund any existing indebtedness, indebtedness for borrowed money incurred pursuant to agreements in effect prior to the execution of the merger agreement or letters of credit and surety bonds that Amerigroup and its subsidiaries are required to obtain or provide by governmental entities;

 

   

enter into or amend, renew, extend, terminate or otherwise modify any Amerigroup material contract, in each case in a manner that would (a) impair in any material respect the ability of Amerigroup to perform its obligations under the merger agreement, (b) prevent or materially delay the consummation of any of the transactions contemplated by the merger agreement, (c) expressly restrict the ability of Amerigroup or any of its subsidiaries (or which, following the merger, would restrict the ability of WellPoint or any of its subsidiaries) to compete in any business or with any person or in any geographic area (other than any contract with a governmental entity that limits the geographical areas in which Amerigroup may offer its services) or (d) be material and adverse to Amerigroup and its subsidiaries, taken as a whole;

 

   

except to the extent required under the merger agreement or pursuant to applicable law or any disclosed Amerigroup equity plan, increase the compensation or fringe benefits of directors, officers, employees or independent contractors (except for increases in salary, wages, benefits or incentive compensation of officers and employees in the ordinary course of business consistent with past practice) or grant any severance or termination pay not currently required under existing severance plans or enter into or amend any employment, consulting or severance agreement with any present or former director, officer, employee or independent contractor, or establish, adopt, enter into or amend or terminate any collective bargaining, compensation, equity, pension, retirement, deferred compensation, employment, consulting, termination, welfare, severance, change in control, retention or other plan, agreement or arrangement for the benefit of any directors, officers, employees or independent contractors (exclusive of agreements with any newly hired employees or replacements as a result of promotions, in each case in the ordinary course of business consistent with past practice);

 

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grant any license with respect to intellectual property other than any license granted pursuant to a contract with any governmental entity and non-exclusive licenses granted in the ordinary course of business;

 

   

take any action or omit to take any action that would cause any registration or application for material intellectual property used or held for use in its business to become invalidated, abandoned or dedicated to the public domain;

 

   

effectuate a “plant closing” or “mass layoff” as those terms are defined in the Worker Adjustment and Retraining Notification Act of 1988, affecting in whole or in part any site of employment, facility, operating unit or employee of Amerigroup or any of its subsidiaries; or

 

   

take, or offer or agree to take, any of the actions described in the foregoing.

Notwithstanding the foregoing, nothing in the merger agreement gives WellPoint or Merger Sub the right to control or direct the operations of Amerigroup and its subsidiaries prior to the effective time, and no consent of WellPoint or Merger Sub is required with respect to the foregoing matters to the extent inconsistent with applicable law.

No Solicitation of Proposals for an Alternative Transaction; Changes in Board Recommendation

As of the date of the merger agreement, Amerigroup agreed to immediately cease all activities, discussions or negotiations with any parties that may have been ongoing prior to the date of the merger agreement with respect to an “alternative transaction” (as defined below).

Under the merger agreement, Amerigroup may not, may not permit its subsidiaries to, and may not authorize or permit any of its officers, directors, employees or any representatives acting on its behalf or on behalf of any of its subsidiaries to, directly or indirectly: (i) solicit, initiate or knowingly encourage or knowingly facilitate, or furnish or disclose non-public information in furtherance of, any inquiries or the making of any proposal which constitutes, or may reasonably be expected to lead to, any proposal with respect to an alternative transaction or (ii) engage in any negotiations or discussions with any other person regarding any alternative transaction.

Notwithstanding the foregoing, prior to obtaining stockholder approval of the proposal to adopt the merger agreement, Amerigroup is permitted to, in response to bona fide written proposal or offer for an alternative transaction that is, or is reasonably likely to lead to, a “superior proposal” (as defined below), furnish information to a person making such proposal pursuant to a confidentiality agreement that is at least as restrictive to Amerigroup than those contained in Amerigroup’s confidentiality agreement with WellPoint, and engage in discussions or negotiations with such person regarding such proposal, if (in each case) the Amerigroup board of directors reasonably determines in good faith after consultation with its outside counsel that the failure to provide such information or engage in such negotiations or discussions is reasonably likely to be inconsistent with its fiduciary duties to the stockholders of Amerigroup under applicable law.

The merger agreement provides that, prior to obtaining stockholder approval of the proposal to adopt the merger agreement, the Amerigroup board of directors may, in response to a bona fide, unsolicited acquisition proposal effect a recommendation withdrawal and/or terminate the merger agreement if:

 

   

the Amerigroup board of directors reasonably determines in good faith, after consultation with its outside financial advisors and outside legal counsel, that such proposal or offer for an alternative transaction constitutes a superior proposal;

 

   

the Amerigroup board of directors reasonably determines in good faith, after consultation with its outside legal counsel, that the failure to take such action is reasonably likely to be inconsistent with its fiduciary duties to the Amerigroup stockholders under applicable law;

 

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the Amerigroup board of directors provides WellPoint three business days prior written notice of its intention to make a recommendation withdrawal or terminate the merger agreement;

 

   

during the three business days following such written notice, or such shorter period as specified below, if requested by WellPoint, Amerigroup will have negotiated in good faith with WellPoint regarding any revisions to the terms of the merger agreement proposed in writing by WellPoint in response to the superior proposal; and

 

   

after the three business day period described above (as extended, if applicable, as described below) the Amerigroup board of directors concludes in good faith after consultation with its outside legal counsel and financial advisors (and taking into account any adjustment or modification of the terms of the merger agreement to which WellPoint has agreed in writing), that the proposal continues to be a superior proposal and that failure to make a recommendation withdrawal or terminate the merger agreement would be reasonably likely to be inconsistent with its fiduciary duties to Amerigroup stockholders under applicable law.

Under the merger agreement, any material amendment to the terms of any superior proposal will be deemed to be a new proposal for purposes of the foregoing, except that if Amerigroup seeks to make a recommendation withdrawal as provided above, the notice period and the period during which Amerigroup and its representatives are required, if requested by WellPoint, to negotiate with WellPoint regarding any revisions to the terms of the merger agreement proposed in writing by WellPoint in response to such new proposal will expire on the later of (x) two business days after Amerigroup provides written notice of such new proposal to WellPoint and (y) the end of the original three business day period described above.

In addition to the foregoing, the Amerigroup board of directors is not prohibited or restricted from effecting a recommendation withdrawal based on events, developments or occurrences that arise after July 9, 2012 not known to the board prior to such date (or if known, the consequences of which were not known or reasonably forseeable), in each case other than involving or relating to a proposal for an alternative transaction, if the Amerigroup board of directors concludes in good faith, after consultation with its outside legal counsel, that the failure to take such action is reasonably likely to be inconsistent with its fiduciary duties to the Amerigroup stockholders under applicable law, provided that:

 

   

Amerigroup promptly notifies WellPoint in writing of its intention to take such action, which notice must include a description in reasonable detail of the nature of such event, development or occurrence prompting the recommendation withdrawal; and

 

   

during the three business days following such notice, Amerigroup negotiates in good faith with WellPoint regarding any revisions to the terms of the merger agreement proposed in writing by WellPoint in response to such event, development or occurrence; and

 

   

after the three business day period described above, the Amerigroup board of directors concludes in good faith, after consultation with its outside legal counsel, that the failure to take such action is reasonably likely to be inconsistent with its fiduciary duties to the Amerigroup stockholders under applicable law.

If the Amerigroup board of directors effects a recommendation withdrawal under the merger agreement, WellPoint may either terminate the merger agreement and receive the termination fee as more fully described below.

For the purposes of the merger agreement, the term “alternative transaction” is defined as (i) any tender or exchange offer, direct or indirect merger, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation, dissolution or other similar transaction involving Amerigroup or any of its subsidiaries in one transaction or a series of related transactions (a “business combination transaction”) with any person other than WellPoint, Merger Sub or any of their affiliates (a “third party”) or (ii) the acquisition by a third party of 15% or more of the outstanding shares of Amerigroup common stock, or of 15% of more of the assets or operations of Amerigroup and its subsidiaries, taken as a whole, in a single transaction or series of related transactions.

 

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For the purposes of the merger agreement, the term “superior proposal” is defined as a bona fide unsolicited written proposal made by a third party (i) which is for a business combination transaction involving, or any purchase or acquisition of, (A) more than 50% of the voting power of Amerigroup’s capital stock or (B) all or substantially all of the consolidated assets or operations of Amerigroup and its Subsidiaries and (ii) which is otherwise on terms which the Amerigroup board of directors reasonably determines in good faith (after consultation with its outside legal counsel and financial advisors) and, considering all relevant factors as the Amerigroup board of directors considers to be appropriate (including, but not limited to, the timing, ability to finance, financial and regulatory aspects and likelihood of consummation of such proposal and any amendments to the merger agreement proposed in writing by, and binding upon, WellPoint which is received prior to the board’s determination that a superior proposal exists), is more favorable from a financial point of view (taking into account the foregoing factors) to the Amerigroup stockholders than the merger and the other transactions contemplated hereby, and which the board determines is reasonably likely to be consummated and for which financing, if a cash transaction (whether in whole or in part), is then fully committed or reasonably determined to be available by the board.

For the purposes of the merger agreement, the term “recommendation withdrawal” is defined as (i) withholding, withdrawing, amending or modifying (or publicly proposing to or publicly stating intent to withhold, withdraw, amend or modify) in any manner adverse to WellPoint the recommendation of the Amerigroup board of directors that Amerigroup stockholders adopt the merger agreement (with a neutral position or taking no position being considered a modification in an manner adverse to WellPoint), (ii) failing to include in this proxy statement the recommendation of the Amerigroup board of directors that Amerigroup stockholders adopt the merger agreement or (iii) approving, adopting, recommending or publicly proposing to approve, adopt or recommend, any proposal or offer for an alternative transaction.

Required Company Vote

As soon as reasonably practicable (but no more than 40 days) following the date on which Amerigroup mailed this proxy statement, Amerigroup is obligated to duly call, give notice of, convene and hold a stockholders meeting for the purpose of obtaining stockholder approval of the proposal to adopt the merger agreement. Subject to Amerigroup’s right to effect a recommendation withdrawal and/or terminate the merger agreement (described above), Amerigroup is obligated to include in this proxy statement the recommendation of the Amerigroup board of directors that Amerigroup stockholders vote in favor of the proposal to adopt the merger agreement.

The Amerigroup board of directors determined that the merger agreement, the merger and the other transactions contemplated thereby are advisable, fair to and in the best interests of Amerigroup and its stockholders and approved the merger agreement. The Amerigroup board of directors recommends that Amerigroup stockholders vote “FOR” the proposal to adopt the merger agreement.

Consents, Approvals and Filings

WellPoint, Merger Sub and Amerigroup have each agreed to use their reasonable best efforts to:

 

   

cause the conditions to closing to be satisfied as promptly as practicable;

 

   

as promptly as practicable, obtain all necessary consents from, and provide all necessary notices to governmental entities and third parties; and

 

   

take all actions necessary, proper or advisable to comply promptly and fully with all legal requirements which may be imposed on such party with respect to the merger and to consummate the merger and the other transactions contemplated by the merger agreement, as promptly as practicable.

Without limiting the foregoing, WellPoint and Amerigroup agreed to take any and all actions necessary to:

 

   

avoid any impediments under any applicable healthcare law, antitrust law, insurance law or other applicable law that may be asserted by or on behalf of any governmental entity with respect to the

 

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merger agreement or the merger or that arise under or relate to any contracts between Amerigroup and any governmental entity so as to enable the closing to occur as promptly as practicable, including the following:

 

   

comply with all restrictions and conditions, if any, imposed, compelled, required or requested by any governmental entity including: (x) divesting any subsidiaries, operations, divisions, businesses, product lines, contracts, customers or assets of WellPoint or its affiliates (including Amerigroup and its subsidiaries), (y) taking any such actions that may limit or impact WellPoint’s or any of its subsidiaries’ or affiliates’ (including Amerigroup’s or any of its subsidiaries’) freedom of action with respect to any of its operations, divisions, businesses, product lines, contracts, customers or assets and (z) entering into any orders, settlements, undertakings, contracts, consent decrees, stipulations or other agreements to effectuate any of the foregoing or in order to vacate, lift, reverse, overturn, settle or otherwise resolve any order that prevents, prohibits, restricts or delays the closing of the merger;

 

   

agree to (x) enter into, suspend, amend or terminate any contract or other business relationship of WellPoint or any of its subsidiaries or affiliates or Amerigroup or any of its subsidiaries or affiliates (including any contract with any governmental entity) and (y) any additional obligations relating to any contract imposed by any governmental entity, in each case as may be required to obtain any necessary consent of any governmental entity or to obtain termination of any applicable waiting period under any antitrust laws or clearance under any healthcare laws, insurance laws or other applicable laws; and

 

   

oppose fully and vigorously (x) any administrative or judicial action or proceeding that is initiated (or threatened to be initiated) challenging the merger agreement or the merger and (y) any request for, the entry of, and seek to have vacated or terminated, any order that could restrain, prevent or delay the consummation of the merger.

Notwithstanding the foregoing, WellPoint shall not be required to agree to any terms or conditions that, if imposed, compelled, required or requested by a governmental entity, (i) would, or would be reasonably likely to have a material adverse effect on Amerigroup and its subsidiaries, taken as a whole, or a material adverse effect on WellPoint and its subsidiaries, taken as a whole (a “WellPoint regulatory material adverse effect”) or (ii) would, or would be reasonably likely to materially impair the benefits reasonably expected to be derived by WellPoint from the merger (to the extent not mitigated through a resolution process, each of (i) and (ii), a “burdensome term or condition”). A burdensome term or condition will not include any action required by a governmental entity relating to consents required to be obtained under federal antitrust laws or in connection with the expiration or termination of any applicable waiting period under the HSR Act or any other federal antitrust law and in determining whether a burdensome term or condition will have been imposed, compelled, required or requested, and neither Amerigroup nor WellPoint will take into account effects resulting from or arising out of changes in the business plans or operations of (1) WellPoint or its subsidiaries that have a material effect on WellPoint’s or its subsidiaries’ ability to satisfy or comply with any action of any governmental entity required or requested in connection with the merger or (2) Amerigroup or its subsidiaries, which in any case under clause (1) or (2), are proposed or agreed to by WellPoint or its subsidiaries to be effective on and after the merger, but not changes in the business plans or operations imposed, compelled, required or requested by a governmental entity whose approval is required in connection with the merger. In measuring a WellPoint regulatory material adverse effect, (a) “subsidiaries” will not include Amerigroup or its subsidiaries, (b) WellPoint regulatory material adverse effect will be the level or measure of what would be reasonably likely to have a material adverse effect on Amerigroup and its subsidiaries, taken as a whole, and not the level or measure of what would be reasonably likely to have a material adverse effect on WellPoint and its subsidiaries, taken as a whole and (c) the effect will be with respect to WellPoint and its subsidiaries.

Under the merger agreement, neither Amerigroup nor WellPoint will enter into, amend or terminate any contract or acquire, purchase, lease or license any substantial portion of or equity in any business or any corporation or other business organization, or any securities or collection of assets, if doing so would reasonably

 

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be expected to: (i) impose any material delay in the obtaining of any consent of any governmental entity or the expiration or termination of any applicable waiting period under antitrust laws; (ii) materially increase the risk of any governmental entity entering an order prohibiting the consummation of the merger; (iii) materially increase the risk of not being able to remove any such order on appeal or otherwise; or (iv) prohibit, prevent or materially delay the consummation of the merger.

Employee Benefits Matters

Under the merger agreement, Amerigroup, WellPoint and Merger Sub agreed that until the one-year anniversary of the effective time of the merger, the surviving company will provide to the employees of Amerigroup who are employed by the surviving company following the merger (each, a “continuing employee”) compensation and employee benefits, excluding equity-based compensation, that are, in the aggregate, substantially similar to or no less favorable than those provided to such employees immediately prior to the date of the merger agreement or those generally provided to similarly situated employees of WellPoint.

Under the merger agreement, the surviving company is obligated, with respect to continuing employees, to: (i) waive pre-existing conditions, exclusions and waiting period with respect to participation and coverage requirements applicable to employees of Amerigroup or its subsidiaries under any replacement or successor benefit plan to the extent these conditions, exclusions or waiting periods were inapplicable to or had been satisfied under the analogous Amerigroup benefit plan, (ii) provide credit for any co-payments and deductibles paid prior to the effective time of the merger in satisfying any applicable deductible or out-of-pocket requirements in a successor benefit plan and (iii) recognize service with Amerigroup prior to the merger for purposes of determining eligibility to participate and vesting credit (and, for purposes of severance and paid time off only, level of benefits), except to the extent that such recognition would result in duplication of benefits.

The merger agreement does not amend or modify any benefit plan or limit the rights of WellPoint or the surviving company to amend, terminate or otherwise modify any benefit plan.

Directors’ and Officers’ Indemnification and Insurance

Under the merger agreement, from and after the effective time of the merger, WellPoint agreed to (and agreed to cause the surviving company to), to the fullest extent Amerigroup would be permitted to do so by law, indemnify, defend and hold harmless, and advance expenses to the present and former directors, officers and employees of Amerigroup or any of its subsidiaries (each an “indemnified party”) from and against any and all costs or expenses (including attorneys’ fees, expenses and disbursements), judgments, fines, losses, claims, damages, penalties, liabilities and amounts paid in settlement in connection with any actual or threatened claim, action, suit, proceeding or investigation, whether civil, criminal, administrative, regulatory or investigative, arising out of, relating to or in connection with any circumstances, developments or matters in existence, or acts or omissions occurring or alleged to occur at or prior to the effective time of the merger, including the approval of the merger agreement and the merger and the other transactions contemplated by the merger agreement or arising out of or pertaining to the merger and the other transactions contemplated by the merger agreement, whether asserted or claimed prior to, at or after the effective time of the merger.

The merger agreement provides that as of the effective time of the merger, the surviving company shall (and WellPoint shall cause the surviving company to) purchase a six-year tail policy with respect to Amerigroup’s current directors’ and officers’ insurance, provided that the aggregate cost for such endorsement does not exceed 300% of the current annual premium paid by Amerigroup in the aggregate, provided further that if the premium of such insurance exceeds such amount, the surviving company, after consultation with Amerigroup, shall obtain insurance with the greatest coverage available for a cost not exceeding such amount. The merger agreement further provides that, subject to certain restrictions, Amerigroup may purchase a six-year tail policy, after reasonable consultation with WellPoint, prior to the effective time of the merger.

Under the merger agreement, following the effective time of the merger, the surviving company is obligated to (and WellPoint shall cause the surviving company to), maintain in effect the provisions in its certificate of incorporation and bylaws to the extent they provide for indemnification, advancement and reimbursement of

 

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expenses and exculpation of indemnified parties, as applicable, with respect to facts or circumstances occurring at or prior to the effective time of the merger, on the same basis as set forth in the Amerigroup’s certificate incorporation or bylaws as in effect on the date of the merger agreement, to the fullest extent permitted from time to time under applicable law, which provisions shall not be amended except as required by applicable law or except to make changes permitted by applicable law that would enlarge the scope of the indemnified parties’ indemnification rights thereunder.

Under the merger agreement, following the effective time, WellPoint and surviving company will not amend, modify, limit or terminate the advancement and reimbursement of expenses, exculpation, indemnification provisions contained in any agreements set forth in Amerigroup’s confidential disclosure schedule or contained in the organizational documents of the surviving company to the extent such provisions apply to indemnified parties.

The merger agreement provides that to assert indemnification rights, indemnified parties must notify WellPoint and the surviving company of the claim, action, suit, proceeding or investigation giving rise to such rights and (i) WellPoint or the surviving company shall have the right to assume the defense thereof, (ii) the indemnified parties will cooperate in such defense and (iii) neither WellPoint nor the surviving company shall be liable for any settlement effected without its prior written consent. Moreover, if any indemnified parties makes any claim for indemnification or advancement of expenses hereunder that is denied by WellPoint and/or the surviving company, and a court of competent jurisdiction determines that the indemnified party is entitled to such indemnification, then WellPoint or the surviving company shall pay such indemnified party’s reasonable costs and expenses, including reasonable legal fees and expenses, incurred in connection with pursuing such claim against WellPoint and/or the surviving company. Notwithstanding anything in the merger agreement to the contrary, if any claim, action, suit, proceeding or investigation (whether arising before, at or after the effective time) is made against any indemnified parties on or prior to the 6th anniversary of the effective time, the foregoing shall continue in effect until the final disposition of such claim, action, suit, proceeding or investigation.

The merger agreement provides that if WellPoint, the surviving company or any of their respective successors or assigns (i) consolidates with or merges into any other person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers or conveys all or substantially all of its properties and assets to any person, then, and in each such case, WellPoint shall ensure that its or the surviving company’s successors or assigns shall succeed to the obligations set forth herein.

Financing of the Merger

Under the merger agreement, from and after the date of the merger agreement, as promptly as possible, WellPoint is obligated to take, or cause to be taken, all actions, and to do, or cause to be done all things necessary, proper or advisable to consummate the financing contemplated by the commitment letter (or any substitute financing or other debt or equity financing), including, without limitation, (i) complying with and maintaining in effect the commitment letter, (ii) negotiating and entering into definitive agreements with respect to the debt financing contemplated by the commitment letter, (iii) satisfying on a timely basis all the conditions to the financing contemplated by the commitment letter and the definitive agreements, (iv) accepting to the fullest extent all “market flex” contemplated by the commitment letter and (v) enforcing its rights under the commitment letter in the event of a breach by Credit Suisse AG and Credit Suisse Securities (USA) LLC (together, “Credit Suisse”) and certain other lenders (together with Credit Suisse, collectively, the “Bridge Lenders”) that could reasonably be expected to delay closing. WellPoint has advised us that on July 30, 2012, WellPoint, Credit Suisse and the other Bridge Lenders entered into the bridge facility agreement.

WellPoint is permitted, under the terms of the merger agreement, to reduce the amount of financing under the bridge facility agreement by an amount equal to the net cash proceeds received by WellPoint from any offering of (i) debt or equity securities issued by WellPoint or (ii) syndicated term loans of or guaranteed by WellPoint or any of its subsidiaries, in each case, after the date of the merger agreement and prior to the funding

 

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date of the bridge facility (provided that the funding of the merger consideration is described as a use of proceeds in any prospectus or term loan agreement, as applicable, related to such offering), provided that WellPoint may not reduce the financing to an amount committed below the amount that is required, together with the financial resources of WellPoint and Merger Sub, including cash on hand and marketable securities of WellPoint, Amerigroup and their respective subsidiaries that are committed to fund the merger consideration, to consummate the merger and the transactions contemplated by the merger agreement, and provided, further, that such reduction may not (A) expand upon or amend in any way that is adverse to Amerigroup the conditions precedent to the financing as set forth in the commitment letter or (B) prevent or materially impede or materially delay the availability of the financing and/or the consummation of the merger and the transactions contemplated by the merger agreement.

If funds in the amounts set forth in the bridge facility agreement, or any portion thereof, become unavailable, or it becomes reasonably likely that such funds may become unavailable to WellPoint on the terms and conditions set forth therein, in each case, other than as a result of receipt of the proceeds of an offering described in the previous paragraph, WellPoint shall, and shall cause its affiliates, as promptly as practicable following the occurrence of such event to (x) notify Amerigroup in writing thereof, (y) obtain substitute financing (on terms and conditions that are not materially less favorable to WellPoint and Merger Sub, taken as a whole, than the terms and conditions as set forth in the commitment letter, taking into account any “market flex” provisions thereof) sufficient to enable WellPoint to consummate the merger and the other transactions contemplated hereby in accordance with its terms (the “substitute financing”) and (z) obtain a new financing commitment letter that provides for such substitute financing and, promptly after execution thereof, deliver to Amerigroup true, complete and correct copies of the new commitment letter and the related fee letters and related definitive financing documents with respect to such substitute financing. However, neither WellPoint nor any of its affiliates may enter into, or agree to enter into, any new commitments for any financing that would result in a reduction of the commitments set forth in the commitment letter unless the conditions precedent of such new commitments are not materially less favorable to purchaser and its affiliates than the conditions precedent set forth in the commitment letter.

At WellPoint’s expense, Amerigroup will use commercially reasonable efforts to provide cooperation as may be reasonably requested by WellPoint in connection with the financing.

Other Covenants and Agreements

The merger agreement contains certain other covenants and agreements, including covenants relating to:

 

   

cooperation between WellPoint and Amerigroup in the preparation and filing of this proxy statement;

 

   

reasonable access to information about Amerigroup will be made available upon WellPoint’s request;

 

   

confidentiality obligations of and access by WellPoint to certain information about Amerigroup during the period prior to the effective time of the merger;

 

   

notice to the other parties with respect to (i) any notice or other communication received by a party from governmental entities in connection with the merger and the other transactions contemplated by the merger agreement or from any person alleging that the consent of that person is or may be required in connection with the merger and the other transactions contemplated by the merger agreement, if the subject matter of such communication or the failure of such party to obtain such consent would reasonably be expected to have a material adverse effect with respect to Amerigroup or a material adverse effect with respect to WellPoint, (ii) any matter that would reasonably be expected to lead to the failure to satisfy any of the conditions to closing of the merger, and (iii) any action, suits, claims, investigations or proceedings commenced or threatened against, relating to or involving or otherwise affecting such party or any of its subsidiaries, in each case which relates to the merger, the financing or the other transactions contemplated by the merger agreement;

 

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consultation between WellPoint and Amerigroup in connection with public announcements (except with respect to any recommendation withdrawal or in connection with any dispute between the parties regarding the merger agreement, the merger or the transactions contemplated by the merger agreement);

 

   

creation of a transition team;

 

   

the use by the parties of reasonable best efforts to ensure that no takeover statute is or becomes applicable to the merger agreement, the merger or the other transactions contemplated by the merger agreement;

 

   

cooperation between the parties with respect to delisting Amerigroup common stock from the NYSE and terminating its registration under the Exchange Act; and

 

   

stockholder litigation.

Conditions to Completion of the Merger

Under the merger agreement, the obligation of Amerigroup, WellPoint and Merger Sub to complete the merger is subject to the satisfaction or, to the extent permitted by applicable law, waiver on or prior to the closing date of the merger, of the following conditions:

 

   

the absence of (i) any law or order by any governmental entity or federal or state court of competent jurisdiction preventing or prohibiting consummation of the merger or any of the other transactions contemplated by the merger agreement and (ii) any action or proceeding instituted by any governmental entity before any U.S. court or other governmental entity of competent jurisdiction seeking to enjoin, restrain or prohibit consummation of the transactions contemplated by the merger agreement;

 

   

both (i) the expiration or termination of the HSR Act waiting period (and any extension thereof) and (ii) obtaining in full force and effect each of the healthcare regulatory approvals shall have been obtained and shall be in full force and effect, with such approvals not, individually or in the aggregate, imposing any burdensome term or condition; and

 

   

adoption of the merger agreement by the affirmative vote of the holders of a majority of the outstanding shares of Amerigroup common stock.

In addition, WellPoint’s and Merger Sub’s obligations to effect the merger are subject to the satisfaction or, to the extent permitted by applicable law, waiver on or prior to the closing date of the merger, of the following conditions:

 

   

the representations and warranties of Amerigroup being true and correct in all material respects (without giving effect to materiality qualifiers therein) as of the date of the merger agreement and as of the closing date of the merger (or, in the case of representations and warranties that address matters only as a particular date, as of such date), regarding (i) the authorized capital stock of Amerigroup and the valid issuance of any common stock of Amerigroup; (ii) that there are no securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which Amerigroup or any of its subsidiaries is a party or by which any of them is bound obligating either to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of Amerigroup or any of its subsidiaries or obligating Amerigroup or any of its subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking; (iii) that Amerigroup has all requisite corporate power and authority to enter into the merger agreement and to consummate the transactions contemplated by the merger agreement, subject to stockholder approval; (iv) that no brokers or finders fees are to be paid by Amerigroup, except to the financial advisors; and (v) that Amerigroup’s board of directors has received the opinions of the financial advisors, other than such failures to be true and correct that would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on Amerigroup;

 

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the representations and warranties of Amerigroup being true and correct in all respects as of the date of the merger agreement and as of the closing date of the merger regarding that there has not been any change, circumstance or event which has had, or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on Amerigroup;

 

   

the representations and warranties of Amerigroup (other than those set forth in the foregoing conditions), shall be true and correct in all respects (without giving effect to materiality qualifiers therein) as of the date of the merger agreement and as of the closing date of the merger (or, in the case of representations and warranties that address matters only as a particular date, as of such date), other than such failures to be true and correct that would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on Amerigroup;

 

   

performance by Amerigroup in all material respects of its obligations required to be performed by it under the merger agreement at or prior to the closing of the merger; and

 

   

receipt of an officer’s certificate from Amerigroup confirming the satisfaction of the foregoing conditions.

Amerigroup’s obligation to effect the merger is subject to the satisfaction or, to the extent permitted by applicable law, waiver on or prior to the closing date of the merger, of the following additional conditions:

 

   

the representations and warranties of WellPoint and Merger Sub being true and correct (without giving effect to materiality qualifiers therein) as of the date of the merger agreement and as of the closing date of the merger (except to the extent that such representations and warranties speak as of another date), other than such failures to be true and correct that would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on WellPoint;

 

   

performance by WellPoint and Merger Sub in all material respects of their obligations required to be performed by them under the merger agreement at or prior to the closing date of the merger;

 

   

receipt of an officer’s certificate from WellPoint confirming the satisfaction of the foregoing conditions.

Termination of the Merger Agreement

The merger agreement may be terminated and the merger may be abandoned at any time prior to the completion of the merger by mutual written consent, or by either WellPoint or Amerigroup under any of the following circumstances, at any time before the completion of the merger:

 

   

the merger has not been completed on or before June 9, 2013 (the “initial outside date”); provided that if on the initial outside date all closing conditions have been waived or satisfied (or are otherwise capable of being satisfied on the initial outside date), other than (a)(i) any temporary restraining order or preliminary or permanent injunction, applicable law or other order by any federal or state court or other tribunal or governmental entity of competent jurisdiction preventing consummation of the merger and (ii) any action or proceeding (which remains pending at what would otherwise be the closing date) before any U.S. court or other governmental entity of competent jurisdiction seeking to enjoin, restrain or otherwise prohibit consummation of the merger or (b) expiration or termination of the HSR Act waiting period (and any extensions thereof) and receipt of requisite healthcare regulatory approvals, then either WellPoint or Amerigroup may extend the initial outside date to September 9, 2013 (the “outside date”); provided further that such right to extend the initial outside date or terminate the merger agreement will not be available to any party if such party’s action or failure to act has been the principal cause of or resulted in (i) the failure to satisfy the conditions to the obligations of the terminating party to consummate the merger on or before the initial outside date or the outside date or (ii) the failure of the closing to occur by the initial outside date or the outside date;

 

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if Amerigroup stockholder approval is not obtained upon a vote taken thereon at the Amerigroup stockholder meeting or any adjournment or postponement thereof;

 

   

a court or other governmental entity of competent jurisdiction has issued a final and nonappealable order or ruling or taken any other final and nonappealable action restraining, enjoining or otherwise prohibiting the merger; provided that the party seeking to avail itself of such right to terminate will have used its reasonable best efforts to vacate, lift, reverse, overturn, settle or resolve such order or action; or

 

   

if the other party has breached any of its representations and warranties or failed to perform any of its covenants or any of its representations and warranties have become untrue after the date of the merger agreement, which breach or untrue representation or warranty (i) would, individually or in the aggregate, give rise to the failure of the closing conditions relating to the accuracy of such party’s representations or compliance by such party with its covenants or obligations under the merger agreement and (ii) such breach is incapable of being cured prior to the closing date or is not cured within 45 days following written notice of such breach.

The merger agreement may also be terminated by WellPoint if prior to obtaining Amerigroup stockholder approval, the Amerigroup board of directors has effected a recommendation withdrawal.

The merger agreement may also be terminated by Amerigroup in order to enter into an agreement for an alternative transaction that constitutes a superior proposal, see “—No Solicitation of Proposals for an Alternative Transaction; Changes in Board Recommendation” beginning on page 86.

Expenses and Termination Fee; Effect of Termination

Under the merger agreement, Amerigroup will be required to pay WellPoint a termination fee equal to $146,000,000 (the “termination fee”) if the merger agreement is terminated:

 

   

by WellPoint due to the Amerigroup board of directors effecting a recommendation withdrawal prior to obtaining Amerigroup stockholder approval or concurrently entering into an agreement for a superior proposal; provided, however, that if the termination is in connection with the execution by Amerigroup of a binding agreement with a party from whom Amerigroup received, during the 30-day period following the date of the merger agreement, a bona fide written proposal for an alternative transaction, which the Amerigroup board of directors determined in good faith, prior to the end of the 30-day period, was or was reasonably likely to lead to, a superior proposal, the termination fee be $73,000,000; or

 

   

by WellPoint due to failure to complete the merger by the outside date or obtain the Amerigroup stockholder approval, and in each case, a proposal or offer for an alternative transaction (with each reference to 15% in the definition of “alternative transaction” deemed to be a reference to 50%) being publicly proposed, announced or disclosed or submitted to the Amerigroup board after the date of the merger agreement and not irrevocably withdrawn and Amerigroup entering into a definitive agreement with respect to, or consummates, any proposal or offer for an alternative transaction within 12 months after such termination of the merger agreement.

If the merger agreement is validly terminated, the obligations of the parties will terminate and there will be no liability on the part of any party with respect thereto, except for the confidentiality provisions, provisions relating to absence of any additional representations and warranties, provisions relating to expenses and termination and termination fee and general provisions, each of which will survive the termination of merger agreement; provided, however, that neither WellPoint nor Amerigroup will be released from any liabilities or damages arising out of any (i) fraud, (ii) willful and intentional breach of any representation or warranty or (iii) willful and intentional breach of any covenant or agreement contained in merger agreement (including as provided in the financing covenant).

 

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Whether or not the merger is consummated, all expenses incurred in connection with the merger agreement and the transactions contemplated thereby will be paid by the party incurring such expenses, except that WellPoint will reimburse Amerigroup for any expenses related to Amerigroup’s cooperation in connection with the financing of the merger. Under the merger agreement, the term “expenses” is defined as all out-of-pocket expenses (including all fees and expenses of counsel, accountants, investment bankers, experts and consultants to a party and its affiliates) incurred by a party or on its behalf in connection with or related to the authorization, preparation, negotiation, execution and performance of merger agreement and the transactions contemplated thereby.

Specific Performance

The merger agreement provides that, except when the merger agreement is terminated in accordance with its termination provisions, the parties will be entitled to an injunction to prevent breaches or threatened breaches of the merger agreement, to specifically enforce the terms and provisions of the merger agreement and any other agreement or instrument executed in connection with the merger agreement, including the right of Amerigroup to cause WellPoint and Merger Sub to seek to enforce the terms of the financing against the lenders to the fullest extent permitted pursuant to the terms of the financing and applicable law, and to thereafter (subject to the satisfaction of certain closing conditions) cause the merger to be consummated.

Third Party Beneficiaries

The merger agreement provides that it will be binding upon and inure solely to the benefit of Amerigroup, WellPoint and Merger Sub, except for: (i) only following the effective time of the merger, the right of Amerigroup stockholders to receive the (x) merger consideration, (y) the aggregate consideration payable in respect of Amerigroup options and (z) the aggregate consideration payable in respect of Amerigroup awards; (ii) the right of Amerigroup on behalf of its stockholders to pursue damages (including claims for damages in respect of the aggregate merger consideration that otherwise would have been payable under the merger agreement or based on loss of the economic benefits of the transaction to Amerigroup stockholders); (iii) the right of any present and former directors and officers of Amerigroup or any of its subsidiaries, any person acting as director, officer, trustee, fiduciary, employee or agent of another entity or enterprise at the request of Amerigroup to enforce the provisions set forth in the indemnification covenant contained in the merger agreement and (iv) the right of the financing parties to enforce the provisions relating to governing law and waiver of jury trial and claims against any of the financing parties. The right referenced in clause (ii) above may only be exercised through actions expressly approved by Amerigroup’s board of directors and no Amerigroup stockholders will have the ability to exercise such right.

Amendments, Waivers

Subject to compliance with applicable law, the merger agreement may be amended by Amerigroup, WellPoint and Merger Sub prior to the effective time of the merger by a written agreement that is executed and delivered by duly authorized officers of the parties. The conditions to each of the parties’ obligations to consummate the merger are for the sole benefit of such party and may be waived by such party in whole or in part to the extent permitted by applicable law. At any time prior to the effective time of the merger, the parties may (i) extend the time for performance of any of the obligations or other acts of the other parties, (ii) waive any inaccuracies in the representations and warranties made pursuant to the merger agreement and (iii) waive compliance with any of the agreements or conditions contained in the merger agreement. The agreement by a party to an extension or waiver must be set forth in a signed writing. The failure of any party to assert its rights under the merger agreement shall not constitute a waiver of such rights.

 

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VOTE ON ADJOURNMENT

Amerigroup stockholders are being asked to approve a proposal that will give us authority to adjourn the special meeting for the purpose of soliciting additional proxies in favor of the proposal to adopt the merger agreement if there are not sufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement. If this proposal is approved, the special meeting could be successively adjourned to any date. In addition, the Amerigroup board of directors could postpone the meeting before it commences, whether for the purpose of soliciting additional proxies or for other reasons. If the special meeting is adjourned for the purpose of soliciting additional proxies, stockholders who have already submitted their proxies will be able to revoke them at any time prior to their use. If you return a proxy and do not indicate how you wish to vote on any proposal, or if you indicate that you wish to vote in favor of the proposal to adopt the merger agreement but do not indicate a choice on the adjournment proposal, your shares will be voted in favor of the adjournment proposal. But if you indicate that you wish to vote against the proposal to adopt the merger agreement, your shares will only be voted in favor of the adjournment proposal if you indicate that you wish to vote in favor of that proposal.

The Amerigroup board of directors recommends a vote “FOR” the adjournment proposal.

 

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MARKET PRICE OF AMERIGROUP COMMON STOCK AND DIVIDEND INFORMATION

Amerigroup common stock is listed on the NYSE under the symbol “AGP.” The following table sets forth on a per share basis the low and high closing sale prices of our common stock as reported by the NYSE since January 1, 2010.

 

     Low     High  

Fiscal 2012:

    

Third Fiscal Quarter (through [                    ], 2012)

   $ [               $ [            

Second Fiscal Quarter

     56.41        70.40   

First Fiscal Quarter

     59.69        75.18   

Fiscal 2011:

    

Fourth Fiscal Quarter

   $ 57.57      $ 61.27   

Third Fiscal Quarter

     39.01        75.74   

Second Fiscal Quarter

     60.40        71.71   

First Fiscal Quarter

     44.03        64.35   

Fiscal 2010:

    

Fourth Fiscal Quarter

   $ 40.28      $ 46.67   

Third Fiscal Quarter

     30.48        42.67   

Second Fiscal Quarter

     32.38        37.73   

First Fiscal Quarter

     24.13        34.52   

The closing price of Amerigroup common stock on the NYSE on [                    ] was $[            ] per share. As of [                    ], 2012, Amerigroup had [            ] shares of Amerigroup common stock issued and outstanding and Amerigroup had approximately [            ] holders of record.

Amerigroup has not declared or paid any cash dividends on its common stock. Amerigroup currently anticipates that it will retain any future earnings for the development and operation of our business and does not anticipate declaring or paying any cash dividends in the foreseeable future. Amerigroup’s ability to pay dividends is dependent on receiving cash dividends from its subsidiaries and is limited by the terms of the indenture governing its 7.5% Senior Notes due November 15, 2019. State insurance regulations also limit the ability of Amerigroup’s subsidiaries to pay dividends to Amerigroup. In addition, under the merger agreement, Amerigroup is prohibited from repurchasing common stock generally and from paying dividends.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the beneficial ownership of our common stock as of July 19, 2012, by (i) each of our named executive officers, (ii) each of our current directors, (iii) all of our directors and executive officers as a group and (iv) each other person who is known by us to own beneficially more than five percent of the outstanding shares of our common stock based on information previously provided to us by such beneficial owners as of the dates indicated in the footnotes that follow the table.

Beneficial ownership is determined in accordance with the rules of the SEC, which generally attribute beneficial ownership of securities to persons who possess sole or shared voting or investment power with respect to those securities, including shares of common stock issuable upon the exercise of vested stock options or warrants that are immediately exercisable or exercisable within 60 days. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to applicable community property laws. Percentage ownership calculations are based on 48,627,807 shares outstanding as of July 19, 2012.

 

Name

   Number of
Shares
     Percent  

Named Executive Officers:

     

James G. Carlson(1)

     919,363         1.9

James W. Truess(2)

     191,077          

Richard C. Zoretic(3)

     149,860          

John E. Littel(4)

     88,687          

Mary T. McCluskey, M.D.(5)

     55,319          

Directors:

     

Uwe E. Reinhardt(6)

     75,317          

Jeffrey B. Child(7)

     70,240          

William J. McBride(8)

     63,254          

Richard D. Shirk(9)

     58,317          

Emerson U. Fullwood(10)

     27,294          

Thomas E. Capps(11)

     20,898          

Hala Moddelmog(12)

     17,977          

John W. Snow(13)

     17,678