Credit & Share Pledge Agree

CREDIT AND SHARE PLEDGE AGREEMENT


DATED AS OF JANUARY 10, 1997


BETWEEN


PHYSICIAN CORPORATION OF AMERICA,
AS BORROWER


AND


SIERRA HEALTH SERVICES, INC.,
AS LENDER


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THE INDEBTEDNESS AND SECURITY INTERESTS PROVIDED FOR OR EVIDENCED BY THIS AGREEMENT IS SUBORDINATED TO THE PRIOR PAYMENT IN FULL OF THE OBLIGATIONS (AS DEFINED IN THE SUBORDINATION AGREEMENT HEREUNDER REFERRED TO) AND TO THE SECURITY INTERESTS SECURING THE OBLIGATIONS, PURSUANT TO, AND TO THE EXTENT PROVIDED IN, THE SUBORDINATION AGREEMENT DATED AS OF JANUARY 10, 1997 AMONG PHYSICIAN CORPORATION OF AMERICA, SIERRA HEALTH SERVICES, INC. AND CITIBANK N.A., AS AGENT IN FAVOR OF THE LENDERS, ISSUING BANK AND AGENT PARTIES TO THE REVOLVING CREDIT AGREEMENT DATED AS OF OCTOBER 27, 1994, AS AMENDED, AMONG PHYSICIAN CORPORATION OF AMERICA, THE LENDERS PARTIES THERETO, CITIBANK, N.A., AS ISSUING BANK, AND CITIBANK, N.A., AS AGENT FOR SUCH LENDERS AND ISSUING BANK.


CREDIT AND SHARE PLEDGE AGREEMENT, dated as of
January 10, 1997 (as amended, supplemented or otherwise
modified, renewed or replaced from time to time, the "Credit
Agreement"), between PHYSICIAN CORPORATION OF AMERICA, a
Delaware corporation ("Borrower"), and SIERRA HEALTH
SERVICES, INC., a Nevada corporation ("Lender").


INTRODUCTORY STATEMENT


All terms not otherwise defined above or in this Introductory Statement are as defined in Article 1 hereof, or as defined elsewhere herein.


The Borrower has requested that the Lender make available a sixteen million seven hundred fifty thousand dollar ($16,750,000) secured loan which will be used to make a mandatory prepayment of principal pursuant to Section 2.10(a)(i) of the Citibank Facility.


To provide assurance for the repayment of the Loan and other Obligations of the Borrower hereunder, the Borrower will provide or will cause to be provided to the Lender (as more fully described herein) a pledge of the Pledged Securities pursuant to the Article 6 hereof.


As a condition precedent to Citibank's consent to the transactions contemplated herein, Citibank is requiring that the Lender enter into a Subordination Agreement in the form of Exhibit C attached hereto and Lender is willing to so enter into such a Subordination Agreement.


Subject to the terms and conditions set forth herein, the Lender is willing to make Loans to the Borrower.


Accordingly, the parties hereto hereby agree as follows:


1. DEFINITIONS


For the purposes hereof unless the context otherwise requires, all Section references herein shall be deemed to correspond with Sections herein, the following terms shall have the meanings indicated and all terms defined in the UCC and not otherwise defined herein shall have the respective meanings accorded to them therein. Unless the context otherwise requires, any of the following terms may be used in the singular or the plural, depending on the reference:


"AFFILIATE" shall mean any Person which, directly or indirectly, is controlled by or is under common control with another Person. For purposes of this definition, a Person shall be deemed to be "controlled by" another Person if such latter Person possesses, directly or indirectly, power either to direct or cause the direction of the management and policies of such controlled Person whether by contract or otherwise.


"APPLICABLE LAW" shall mean all provisions of statutes, rules, regulations and orders of the United States, any state or local governmental authority, or any other governmental bodies or regulatory agencies applicable to the Person in question, and all orders and decrees of all courts and arbitrators in proceedings or actions in which the Person in question is a party.


"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or other day on which banks are required or permitted to close in the State of New York.


"CITIBANK ACKNOWLEDGMENT" shall mean the letter agreement substantially in the form of Exhibit B hereto, to be delivered by the Borrower to the Lender in accordance with Section 4.1(d).


"CITIBANK FACILITY" shall mean that certain Revolving Credit Agreement dated as of October 27, 1994 by and between the Borrower; the Lenders set forth therein; Citibank, N.A., as Agent ("Citibank"); Nationsbank of Tennessee and First Union National Bank of North Carolina, as Co-Agents; Citibank, as Issuing Bank; and Citicorp Securities, Inc., as Arranger, as amended by an


Amendment to Credit Agreement and Consent dated as of September 22, 1995, by a Second Amendment to Credit Agreement dated as of March 29, 1996, by a Third Amendment to Credit Agreement dated as of April 5, 1996, by a Fourth Amendment and Consent Agreement dated as of June 10, 1996, by a Fifth Amendment and Waiver Agreement dated as of November 25, 1996 and by a Sixth Amendment and Waiver Agreement dated as of January 8, 1997.


"DOLLARS" and "$" shall mean lawful money of the United States of America.


"EVENT OF DEFAULT" shall have the meaning given such term in Section 6.3 hereof.


"LIEN" shall mean any mortgage, copyright mortgage, pledge, security interest, encumbrance, lien or charge of any kind whatsoever (including any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction or the agreement to grant a security interest at a future date).


"LOAN" shall mean the Loan made hereunder in accordance with the provisions of Section 2.1.


"MATURITY DATE" shall mean the date on which the Loan shall become due and payable in accordance with the provisions of Section 2.5(a).


"MERGER AGREEMENT" shall mean the Agreement and Plan of Merger dated as of November 2, 1996 among Lender, Sierra Acquisition, Inc. and Borrower.


"OBLIGATIONS" shall mean the obligation of the Borrower to make due and punctual payment of principal of and interest on the Loan and all other monetary obligations of the Borrower to the Lender under this Credit Agreement or the Note.


"PERSON" shall mean any natural person, corporation, division of a corporation, partnership, trust, joint venture, association, company, estate, unincorporated organization or government or any agency or political subdivision thereof.


"PLEDGED SECURITIES" shall mean all of the issued and outstanding capital stock directly or indirectly owned or controlled by the Borrower, as listed on Schedule 3.5.


"SUBSIDIARY" shall mean with respect to any Person, any corporation, association, joint venture, partnership or other business entity (whether now existing or hereafter organized) of which at least a majority of the Voting Stock or other ownership interests having ordinary voting power for the election of directors (or the equivalent) is, at the time as of which any determination is being made, owned or controlled by such Person or one or more subsidiaries of such Person or by such Person and one or more subsidiaries of such Person.


"UCC" shall mean the Uniform Commercial Code as in effect in the State of New York on the date of execution of this Credit Agreement.


"VOTING STOCK" shall mean the capital stock of an entity having ordinary voting power under ordinary circumstances to vote in the election of directors of such entity.


2. THE LOAN


SECTION 2.1. LOAN; MAKING OF THE LOAN.


The Lender agrees, upon the terms and subject to the conditions hereof, to make a Loan to the Borrower in the principal amount of sixteen million seven hundred fifty thousand dollars ($16,750,000) on the date on which this Credit Agreement is fully executed. Subject to the satisfaction of the conditions set forth in Section 4.1, the Lender shall disburse the Loan by depositing the Loan proceeds directly into an account designated by Citibank in writing for the purpose of making the mandatory prepayment of principal and the payment of fees as described in the Introductory Statement of this Credit Agreement.


SECTION 2.2. NOTE.


The Loan made by the Lender hereunder shall be evidenced by a single promissory note substantially in the form of Exhibit A hereto (the"NOTE") in the principal amount of the Loan payable to the order of the Lender, duly executed by the Borrower and dated the date on which the Loan is disbursed by Lender.


SECTION 2.3. INTEREST ON NOTE.


Interest on the Loan shall be payable at the rate of ten percent (10%) per annum (computed on the basis of the actual


number of days elapsed over a year of 360 days). Interest shall be payable on the Maturity Date. Anything in this Credit Agreement or the Note to the contrary notwithstanding, the interest rate on the Loan shall in no event be in excess of the maximum permitted by Applicable Law.


SECTION 2.4. DEFAULT INTEREST.


If the Borrower shall default in the timely payment of the principal of, or interest on the Loan due hereunder, or the payment of any other amount becoming due hereunder after written notification from the Lender to the Borrower of such amount, the Borrower shall on demand from time to time pay interest, to the extent permitted by law, on the Loan and overdue amounts outstanding up to the date of actual payment of such defaulted amount (after as well as before judgment) at 5% in excess of the interest rate then in effect.


SECTION 2.5. REPAYMENT OF LOAN.


(a) The Borrower shall repay to Lender the principal of the Loan, together with all accrued and unpaid interest due thereon and all other amounts due under this Credit Agreement and the Note, on or before the fifth Business Day following demand by Lender (the "Maturity Date").


(b) The Borrower shall have the right at its option at any time and from time to time to prepay the Loan, in whole or in part, upon at least two Business Days' prior written notice. All prepayments under this Section 2.5(b) shall be accompanied by accrued but unpaid interest on the principal amount being prepaid to the date of (but not including) prepayment.


SECTION 2.6. MANNER OF PAYMENTS.


All payments by the Borrower hereunder and under the Note shall be made in Dollars in Federal or other immediately available funds at such place as Lender shall notify Borrower no later than 1:00 p.m., New York City time, on the date on which such payment shall be due.


SECTION 2.7. INTEREST ADJUSTMENTS.


If the provisions of this Credit Agreement or the Note would at any time require payment by the Borrower to the Lender of any amount of interest in excess of the maximum amount then permitted by Applicable Law, the interest payments to the Lender


shall be reduced to the extent necessary so that the Lender shall not receive interest in excess of such maximum amount.


3. REPRESENTATIONS AND WARRANTIES


In order to induce the Lender to enter into this Credit Agreement and to make the Loan provided for herein, the Borrower makes the following representations and warranties to, and agreements with, the Lender, all of which shall survive the execution and delivery of this Credit Agreement, the issuance of the Note and the making of the Loan:


SECTION 3.1. CORPORATE EXISTENCE AND POWER.


The Borrower and each of its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and is in good standing as a foreign corporation in all jurisdictions where the nature of its properties or business so requires and where the failure to be in good standing as a foreign corporation would give rise to a material liability. The Borrower and each of its Subsidiaries has the corporate power and authority to own its respective properties and carry on its respective businesses as now being conducted, and, in the case of the Borrower, to execute, deliver and perform its obligations under this Credit Agreement and the Note and other documents contemplated hereby to which it is or will be a party as provided herein and to grant to the Lender, a security interest in the Pledged Securities as contemplated by Article 6 hereof.


SECTION 3.2. CORPORATE AUTHORITY AND NO VIOLATION.


(a) The execution, delivery and performance of this Credit Agreement, the Loan hereunder, the execution and delivery of the Note and the grant to the Lender of the security interest in the Pledged Securities as contemplated herein (i) have been duly authorized by all necessary corporate action on the part of the Borrower, (ii) will not constitute a violation by the Borrower of any provision of Applicable Law, any order of any court or other agency of the United States or any state thereof applicable to the Borrower or any of its Subsidiaries or any of their respective properties or assets, (iii) will not violate any provision of the Certificate of Incorporation or By-Laws of the Borrower or any of its Subsidiaries, or any material provision of any indenture, agreement, bond, note or other similar instrument to which the Borrower or any of its Subsidiaries is a party or by which the Borrower or any of its Subsidiaries or their respective properties or assets are bound, (iv) will not be in conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under or create any right to terminate any such indenture, agreement, bond, note or other instrument, and (v) will not result in the creation or imposition of any Lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Borrower or any of its Subsidiaries other than pursuant to this Credit Agreement.


(b) Except as provided in the Citibank Facility and as described on Schedule 3.2, there are no restrictions on the transfer of any of the Pledged Securities other than as a result of this Credit Agreement or applicable securities laws and the regulations promulgated thereunder.


SECTION 3.3. GOVERNMENTAL APPROVAL.


All authorizations, approvals, registrations or filings with any governmental or public regulatory body or authority of the United States or any state thereof required for the execution, delivery and performance by the Borrower of this Credit Agreement have been duly obtained or made, or duly applied for and are in full force and effect, and if any such further authorizations, approvals, registrations or filings should hereafter become necessary, the Borrower will use their best efforts to obtain or make all such authorizations, approvals, registrations or filings.


SECTION 3.4. BINDING AGREEMENTS.


This Credit Agreement and the Note when executed will constitute the legal, valid and binding obligations of the Borrower, enforceable in accordance with their respective terms, subject, as to the enforcement of remedies, to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and to general principles of equity.


SECTION 3.5. OWNERSHIP OF PLEDGED SECURITIES, ETC.


Annexed hereto as Schedule 3.5 is a correct and complete list as of the date hereof, of each of Borrower's Subsidiaries showing, as to each, its name, classes of capital stock outstanding, the par value of each such class, the number of shares of each such class owned by Borrower and the percentage of the outstanding shares of each such class owned by Borrower.


SECTION 3.6. SECURITY INTEREST; OTHER SECURITY.


This Credit Agreement when executed and delivered and, upon the making of the Loan hereunder, will create and grant to the Lender (upon delivery of the Pledged Securities to the Lender) a valid and perfected security interest in the Pledged Securities subject only to the security interest created pursuant to the Citibank Facility.


SECTION 3.7. PLEDGED SECURITIES.


All of the Pledged Securities are duly authorized, validly issued and fully paid, and are owned and held by the Borrower, free and clear of any Liens, encumbrances, or security interests whatsoever other than those created pursuant to the Citibank Facility and this Credit Agreement. Except as described on Schedule 3.2, as provided in the Citibank Facility and this Credit Agreement or applicable securities laws there are no restrictions on the transfer of the Pledged Securities. Except as set forth on Schedule 3.7, there are no outstanding rights, warrants, options, or agreements to purchase or otherwise acquire any shares of the stock or securities or obligations of any kind convertible into any shares of capital stock of the issuers of the Pledged Securities.


SECTION 3.8. MERGER AGREEMENT.


The representations and warranties set forth in Section 3.1 of the Merger Agreement are true and complete in all material respects and the Borrower is in full compliance with the covenants set forth in Section 4.1 of the Merger Agreement.


SECTION 3.9. COMPLIANCE WITH LAWS.


Neither the Borrower nor any of its Subsidiaries are in violation of any Applicable Law except for such violations in the aggregate which would not have a material adverse effect on their business condition (financial or otherwise) taken as a whole.


4. CONDITIONS OF LENDING


SECTION 4.1. CONDITIONS PRECEDENT TO LOAN.


The obligation of the Lender to make the Loan is subject to the following conditions precedent:


(a) CORPORATE DOCUMENTS. At the time of the making of the Loan, the Lender shall have received:


(i) a copy of the certificate of incorporation of the Borrower
and each of its Subsidiaries, certified as of a recent date by the
Secretary of State of such Person's jurisdiction of incorporation;


(ii) a certificate of such Secretary of State, dated as of a
recent date as to the good standing of and payment of taxes by the
Borrower and each of its Subsidiaries, which lists the charter
documents on file in the office of such Secretary of State;


(iii) a certificate dated as of a recent date as to the good
standing of the Borrower and each of its Subsidiaries issued by the
Secretary of State of each jurisdiction in which such Person is
qualified as a foreign corporation; and


(iv) a certificate of the Secretary of the Borrower, dated the
date on which the Loan is disbursed and certifying (A) that attached
thereto is a true and complete copy of the by-laws of the Borrower as
in effect on the date of such certification, (B) that attached thereto
is a true and complete copy of resolutions adopted by the Board of
Directors of the Borrower authorizing (to the extent applicable) the
Loan hereunder, the execution, delivery and performance in accordance
with their respective terms of this Credit Agreement, the Note and all
other documents required or contemplated hereunder or thereunder and
that such resolutions have not been amended, rescinded or supplemented
and are currently in effect, (C) that the certificate of incorporation
of the Borrower has not been amended since the date of the last
amendment thereto indicated on the certificate of the Secretary of
State furnished pursuant to clause (i) above except to the extent
specified in such Secretary's certificate and (D) as to the incumbency
and specimen signature of


each officer of the Borrower executing (as applicable) this Credit
Agreement, the Note or any other document delivered by it in
connection herewith or therewith (such certificate to contain a
certification by another officer of the Borrower as to the incumbency
and signature of the officer signing the certificate referred to in
this clause (iv)); and


(v) such additional supporting documents as the Lender or its
counsel may reasonably request.


(b) NOTE. The Lender shall have received the Note duly executed by the Borrower.


(c) OPINIONS OF COUNSEL. The Lender shall have received the written opinions dated the date hereof and addressed to the Lender in form and substance satisfactory to Morgan, Lewis & Bockius LLP, of Greenberg, Trauwick, Hoffman, Lipoff, Rosen & Quentel, P.A. and internal legal counsel to the Borrower.


(d) CITIBANK ACKNOWLEDGMENT. On or prior to the date hereof, the Lender shall have received the fully executed Citibank Acknowledgment.


(e) REQUIRED CONSENTS AND APPROVALS. The Lender shall be satisfied that all required consents and approvals have been obtained with respect to the transactions contemplated hereby from all Governmental Authorities with jurisdiction over the business and activities of the Borrower and its Subsidiaries as of the date hereof, and from any other entity whose consent or approval the Lender in its reasonable discretion deems necessary to consummate the transactions contemplated hereby.


(f) COMPLIANCE WITH LAWS. The Lender shall be satisfied that the transactions contemplated hereby will not violate any provision of Applicable Law, or any order of any court or other agency of the United States or any state thereof, applicable to any of the Borrower or any of its Subsidiaries (as of the date hereof) or any of their respective properties or assets.


5. COVENANTS


From the date hereof and for so long as any amount remains outstanding under the Note or any Obligations remain unpaid or unsatisfied, Borrower agrees that it will comply with


each of the covenants set forth in Article VI of the Citibank Facility as in e ...