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                                                                    EXHIBIT 10.7

                               GUARANTY AGREEMENT

         THIS GUARANTY AGREEMENT (this "Guaranty") made as of the 18th day of
July, 1996, by MEDCATH, INCORPORATED, a North Carolina corporation (the
"Guarantor") in favor of CAPSTONE CAPITAL CORPORATION, a Maryland corporation
(the "Lender").

                                R E C I T A L S:

         Pursuant to that certain Loan Agreement of even date herewith (as the
same may hereafter be amended, the "Loan Agreement;" defined terms used herein
without definition shall have the meanings ascribed to them in the Loan
Agreement) between the Lender and MedCath of Tucson, L.L.C., a North Carolina
limited liability company (the "Borrower"), Lender has agreed to make a
construction/mini-perm loan to the Borrower in the principal mount of up to
Seventeen Million Eight Hundred Thousand and No/100 Dollars ($17,800,000) (the
"Loan"). The Loan will be used to finance the construction of the Tucson Heart
Hospital, a 60-bed acute care hospital specializing in cardiology services and
cardiovascular surgery (the "Improvements") in accordance with the Plans and
Specifications therefor prepared by Henningson, Durham & Richardson, dated March
18, 1996, as approved by the Lender (the "Plans and Specifications"). As a
condition to making the Loan, the Lender has required that the Guarantor
guarantee repayment of a portion of the Loan and further that the Guarantor
guarantee in full the performance obligations of the Borrower hereinafter set
forth.

                                    AGREEMENT

         NOW, THEREFORE, in consideration of the foregoing Recitals, and in
order to induce the Lender to make the Loan, and as security for all agreements
and covenants of the Borrower to Lender pursuant to the Loan Documents,
including, but not limited to the payment of the principal, interest and other
charges pursuant to the Note, and the performance of all covenants, agreements
and other obligations from time to time owing to, or for the benefit of, Lender
pursuant to the Loan Documents (collectively, the "Loan Obligations"), the
Guarantor agrees and covenants with Lender and represents and warrants to Lender
as follows:

         1.       GUARANTEE OF LOAN OBLIGATIONS. The Guarantor hereby
unconditionally guarantees to the Lender the following (collectively, the
"Guaranteed Obligations"):

         (a)      The full and prompt payment of the Loan, together with all
accrued and unpaid interest owed on the Loan; plus

         (b)      The full, prompt, and timely performance of all of the
Borrower's obligations under the Loan Agreement to complete construction of the
Improvements to the reasonable satisfaction of the Lender and the Lender's
Inspecting Consultant on or before the Scheduled Completion Date of November 1,
1997, which such performance


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obligations shall include, without limitation, (i) equipping and fixturing of
the Improvements so as to enable the Improvements to be fully utilized for their
intended purposes as an acute care hospital specializing in cardiology services
and cardiovascular surgery, and (ii) obtaining all necessary licenses,
certifications, accreditations, or other required permits in order to operate
the Improvements as aforesaid as a licensed bed capacity of not less than
66-beds in accordance with applicable state and federal licensure,
certification, and accreditation laws, rules, and regulations, including,
without limitation, accreditation by the Joint Commission on Accreditation of
Hospital Organizations (the "Performance Obligations"). Furthermore, the
Guarantor covenants and agrees with Lender that it will cause the Improvements
to be kept free from all liens and encumbrances in favor of any persons or
entities supplying work or materials for the construction of the Improvements by
(i) paying promptly (or causing Borrower to pay promptly) all such persons or
entities, or (ii) within thirty (30) days of the filing of any such lien
(irrespective of any dispute which the Borrower or the General Contractor may
have with any such entity), discharging or making other arrangements acceptable
to Lender, or causing Borrower to discharge or make other arrangements
acceptable to Lender, with respect to such mechanics' or materialmens' liens
filed against the Improvements. Guarantor hereby further agrees that, in the
event it falls to comply with its Performance Obligations under this subsection
(d), Lender may, at its option (but Lender shall have no obligation to do so),
cause such Performance Obligations to be performed on behalf of the Borrower or
Guarantor and may use, without limitation, such portions of the Loan proceeds
which are budgeted for such uses in payment of such Performance Obligations.
Guarantor hereby ratifies and affirms such use of the Loan proceeds in the
circumstances set forth in this subsection (d) and Guarantor agrees immediately
to reimburse Lender, upon Lender's demand therefore, for all costs and expenses
incurred by the Lender in performing such Performance Obligations, together with
all losses or damages that the Lender may suffer as a result of the Borrower's
or Guarantor's failure to perform its Performance Obligations, even if such
costs, expenses, losses, and damages are in excess of the Loan proceeds budgeted
for such uses; plus

         (c)      the payment of all costs, reasonable attorneys' fees, and
expenses that may be incurred by the Lender as set forth in Section 12 hereof.

         Lender agrees that if Guarantor performs the Performance Obligations
with respect to the construction of the Improvements, provided that there remain
any undisbursed Loan funds, Lender will make Advances (as defined in the Loan
Agreement) to the Guarantor in order to reimburse Guarantor for its costs of
performance, however such Advances will only be made in strict accordance with
the terms governing Advances as set forth in the Loan Agreement (taking into
account, however, any extensions of deadlines as may be necessitated in order
for the Guarantor to complete such construction).

         This Guaranty is an unconditional guaranty, and the Guarantor agrees
that the Lender, upon the occurrence of any Event of Default pursuant to any of
the Loan Documents, shall not be required to assert any claim or cause of action
against the Borrower or other guarantors before asserting any claim or cause of
action against the


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Guarantor under this Guaranty. The Guarantor further agrees that the Lender
shall not be required to pursue or foreclose on any Collateral that it may
receive from the Borrower, the Guarantor, or others as security for any of the
Loan Obligations before making a claim or asserting a cause of action against
the Guarantor under this Guaranty.

         Notice of acceptance of this Guaranty and of any Default or Event of
Default is hereby waived by the Guarantor. Presentment, protest, demand, and
notice of protest and demand, and notice of receipt of any and all Collateral,
and of the exercise of possessory remedies or foreclosure on any and all
Collateral received by the Lender from the Borrower, the Guarantor, or others
are hereby waived. All settlements, compromises, compositions, accounts stated,
and agreed balances in good faith between any primary or secondary obligors on
any accounts received as Collateral shall be binding upon the Guarantor.

         This Guaranty shall not be affected, modified, or impaired by the
voluntary or involuntary liquidation, dissolution, or sale or other disposition
of all or substantially all of the assets, marshalling of assets and
liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangements, composition with creditors or
readjustment of, or other similar proceedings affecting the Borrower or the
Guarantor, or any of the assets belonging to either of them, nor shall this
Guaranty be affected, modified or impaired by the invalidity of any of the Loan
Documents executed by the Borrower, the Guarantor, or others in connection with
the Loan.

         The failure of the Lender to perfect its security interest in any of
the Collateral as set forth in any of the Loan Documents or any other collateral
now or hereafter securing all or any part of the Loan Obligations shall not
release the Guarantor from its liabilities and obligations hereunder.

         Without notice to the Guarantor, without the consent of the Guarantor,
and without affecting or limiting the Guarantor's liability hereunder, the
Lender may:

         (a)      grant the Borrower extensions of time for payment of the Loan
Obligations or any part hereof;

         (b)      renew any of the Loan Obligations;

         (c)      grant the Borrower extensions of time for performance of
agreements or other indulgences;

         (d)      at any time release any or all of the Collateral, or any
mortgage, deed of trust or security interest in any Collateral, that now or
hereafter secures any of the Loan Obligations;

         (e)      compromise, settle, release, or terminate any or all of the
obligations, covenants, or agreements of the Borrower under the Note or other
Loan Documents;


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         (f)      at any time release any other guarantor from its guaranty of
any of the Loan Obligations; and

         (g)      with the Borrower's written consent, modify or amend any
obligation, covenant, or agreement of Borrower as set forth in the Note or any
of the other Loan Documents (and such amendments shall nevertheless be binding
upon Guarantor).

         2.       REPRESENTATIONS AND WARRANTIES OF THE GUARANTOR. To induce the
Lender to make the Loan to Borrower, the Guarantor represents and warrants to
the Lender as follows:

                  (a)      EXISTENCE, POWER AND QUALIFICATION. Guarantor is a
         corporation duly organized, validly existing and in good standing under
         the laws of the state of its formation as set forth in the heading of
         this Guaranty, has the power to own its properties and to carry on its
         business as is now being conducted, and is duly qualified to do
         business and is in good standing in every jurisdiction in which the
         character of the properties owned by it or in which the transaction of
         its business makes its qualification necessary.

                  (b)      POWER TO INCUR OBLIGATIONS. The Guarantor has full
         power and unrestricted right to enter into this Guaranty and to incur
         the obligations provided for herein, all of which have been authorized
         by all requisite corporate action of Guarantor.

                  (c)      CONFLICTS. This Guaranty does not violate, conflict
         with, or constitute any default under any decree, judgment, or any
         other agreement or instrument binding upon the Guarantor and does not
         violate or conflict with the articles of incorporation or by-laws of
         Guarantor.

                  (d)      PENDING MATTERS. Except as otherwise set forth on
         Schedule I attached hereto, no action or investigation is pending or,
         to the best of Guarantor's knowledge, threatened before or by any state
         or federal court or administrative agency which might result in any
         material adverse change in the financial condition, operations or
         prospects of the Guarantor. The Guarantor is not in violation of any
         agreement, the violation of which might reasonably be expected to have
         a materially adverse effect on its business or assets, and the
         Guarantor is not in violation of any order, judgment, or decree of any
         state or federal court.

                  (e)      FINANCIAL STATEMENTS ACCURATE. All financial
         statements heretofore or hereafter provided by the Guarantor are and
         will be true and complete in all material respects as of their
         respective dates and fairly present the financial condition of the
         Guarantor, and there are no material liabilities, direct or indirect,
         fixed or contingent, as of the respective dates of such statements
         which are not reflected therein or in the notes thereto or in a written
         certificate delivered with such statements. The financial statements of
         the Guarantor hereafter will be prepared in accordance with GAAP. There
         has been no material adverse change


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         in the financial condition, operations, or prospects of the Guarantor
         since the dates of such statements except as fully disclosed in writing
         with the delivery of such statements.

                  (f)      NO DEFAULTS OR RESTRICTIONS. There is no declared
         default under any agreement or instrument that causes or would cause a
         material adverse effect on the business, properties, or financial
         operations or condition of the Guarantor.

                  (g)      PAYMENT OF TAXES. Guarantor has filed all federal,
         state, and local tax returns which are required to be filed and has
         paid, or made adequate provision for the payment of, all taxes which
         have or may become due pursuant to said returns or to assessments
         received by the Guarantor.

                  (h)      DISCLOSURE. Neither this Guaranty nor any other
         document, financial statement, credit information, certificate or
         statement required herein to be furnished to Lender by Guarantor in
         connection with this Guaranty contains any untrue, incorrect or
         misleading statement of material fact. All representations and
         warranties made herein or in any certificate or other document
         delivered to Lender by or on behalf of Guarantor pursuant to or in
         connection with this Guaranty shall be deemed to have been relied upon
         by Lender notwithstanding any investigation heretofore or hereafter
         made by Lender or on its behalf, and shall survive the making of the
         Loan.

                  (i)      ERISA. Guarantor is compliance with all applicable
         provisions of the Employee Retirement Income Security Act of 1974, as
         amended ("ERISA").

         3.       AFFIRMATIVE COVENANTS OF THE GUARANTOR. The Guarantor
covenants and agrees that so long as the Loan Obligations are outstanding, it
shall comply with each of the following affirmative covenants:

                  (a)      PAYMENT OF LOAN/PERFORMANCE OF LOAN OBLIGATIONS. Upon
         Lender's demand thereof, duly and punctually pay or cause to be paid
         the principal and interest then due pursuant to the Note and duly and
         punctually perform or cause to be performed all the Performance
         Obligations.

                  (b)      PAYMENT OF TAXES. Pay and discharge all taxes,
         assessments, and governmental charges or levies imposed upon it,
         including, without limitation, all current tax liabilities of all
         kinds, all required withholdings of income taxes of employees, and all
         required old age and unemployment contributions.

                  (c)      REPORTING REQUIREMENTS. Provide to Lender, within one
         hundred twenty (120) days after the end of each fiscal year, copies of
         the 10-K Report of the Guarantor filed with the United States
         Securities and Exchange Commission, and, within fifty (50) days of the
         end of each fiscal quarter, copies of the 10-Q Report of the Guarantor
         filed with the United States Securities and Exchange Commission.


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                  (d)      PAYMENT OF INDEBTEDNESS. Pay duly and punctually or
         cause to be paid, all principal and interest of any material
         indebtedness of Guarantor to its creditors in accordance with its
         terms, and comply with and perform all material conditions, terms and
         obligations of the notes or other instruments evidencing such
         indebtedness and any mortgages, deeds of trust, security agreements and
         other instruments evidencing security for such indebtedness.

                  (e)      NOTICE OF LOSS. Notify Lender of any event causing a
         loss which has a material adverse effect on Guarantors net worth (for
         purposes of this Agreement, a material adverse change in the
         Guarantor's net worth shall be deemed a decrease by twenty percent
         (20%) or more during any fiscal quarter).

                  (f)      MAINTENANCE OF EXISTENCE. Maintain its corporate
         existence, and, in each jurisdiction in which the character of the
         property owned by it or in which the transaction of its business makes
         qualification necessary, maintain qualification and good standing.

                  (g)      SHAREHOLDERS' EQUITY. Maintain at all times during
         the term of the Loan, a minimum shareholders' equity of not less than
         One Hundred Million Dollars ($100,000,000).

                  (h)      MEDCATH CREDIT FACILITY. At all times during the term
         of the Loan, maintain for the Borrower's benefit an unsecured line of
         credit in the amount of not less than $6,205,000 nor more than
         $10,000,000 (the "MedCath Credit Facility"), which may be used by the
         Borrower as needed to fund costs necessary to complete construction of
         the Improvements and following completion of construction to fund
         operating deficits of the Improvements, such line of credit being
         evidenced by that certain Promissory Note of even date herewith between
         Borrower and Guarantor and is secured by that certain Security
         Agreement of even date herewith Borrower and Guarantor. Borrower,
         Guarantor, and Lender have entered into a Subordination Agreement of
         even date herewith with respect to the MedCath Credit Facility, and
         Guarantor covenants and agreements to comply with the terms and
         conditions of such Subordination Agreement.

         4.       EVENTS OF DEFAULT. Guarantor's failure to properly and timely
perform or observe any covenant or condition set forth in this Guaranty which is
not cured within any applicable cure period as set forth herein or, if no cure
period is specified therefor, is not cured within thirty (30) days of Lender's
notice to Guarantor of such default, or the falsity of any representation or
warranty herein or in any financial statement, certificate or other information
heretofore or hereafter provided by Guarantor to Lender, shall constitute an
"Event of Default" hereunder and under each of the Loan Documents. The foregoing
provision or any other provision requiring or providing for notice or demand
from Lender is deemed eliminated if Lender is prevented from giving such notice
or demand by bankruptcy or other applicable law, and the Event of Default shall
occur on


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the occurrence of such event or condition if not cured within any applicable
period measured from the occurrence of such event or condition rather than from
notice or demand.

         5.       REDUCTION IN GUARANTEED OBLIGATIONS. Notwithstanding any
provision hereof to the contrary, provided that no Event of Default shall have
occurred at any time prior to any scheduled reduction hereunder, Lender agrees
that the principal amount guaranteed hereunder shall be reduced to the following
principal amounts at such time as the following conditions precedent have been
satisfied:

                  (a)      Once the Improvements have achieved and maintained
         the minimum Cash Flow Coverage requirement specified in the Loan
         Agreement for twenty-four (24) consecutive months as evidenced by the
         certificate hereinafter described, (provided, however, that for
         purposes of this Guaranty, such Cash Flow Coverage shall be tested
         based on the operation of the Improvements on a monthly basis
         commencing with the first month in which the required Cash Flow
         Coverage has been met), the principal amount guaranteed hereunder shall
         be reduced to Twelve Million Eight Hundred Thousand Dollars
         ($12,800,000); and

                  (b)      Thereafter, provided that the Improvements continue
         to achieve and maintain the minimum Cash Flow Coverage requirement, the
         principal amount guaranteed hereunder shall be reduced annually in
         increments of Five Million Dollars ($5,000,000) each, provided however,
         that in no event will the principal amount guaranteed hereunder ever be
         less than Four Million Five Hundred Thousand Dollars ($4,500,000) and
         provided further that if, at the time the amount guaranteed hereunder
         is reduced to $4,500,000 the Cash Flow Coverage is less than 2.0,
         Guarantor must post (or cause Borrower to post) with Lender an
         irrevocable letter of credit in form and content and from an issuer
         acceptable to Lender in the face amount of $1,000,000, which such
         letter of credit shall be held by Lender as additional collateral for
         the Loan Obligations until such time as the Improvements have achieved
         and maintained a Cash Flow Coverage of not less than 2.0 for two (2)
         consecutive fiscal years. Each reduction of the amount guaranteed
         hereunder shall be conditioned upon Lender's receipt of a compliance
         certificate from the chief financial officer of the Borrower or
         Guarantor confirming compliance with the required Cash Flow Coverage
         requirement. In the event the audited financial statements of the
         Borrower reveal that the Cash Flow Coverage was not met at the time of
         any guaranty reduction hereunder, such guaranty reduction shall be null
         and void; however, future reductions of the Guaranteed Obligations
         shall not be precluded if the requirements set forth herein are
         thereafter satisfied.

         6.       SUBORDINATION. Guarantor subordinates its right to payments of
any indebtedness owing from Borrower to Guarantor, whether now existing or
arising at any time in the future (including, but not limited to, rights to
payment arising by virtue of any subrogation or indemnification upon payment by
Guarantor of amounts due from Borrower to Lender), to the prior right of Lender
to receive or require payment in full of


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the Loan Obligations, until such time as the Loan Obligations are fully paid
(and including interest accruing on the Note after any petition under the
Bankruptcy Code, which post-petition interest Guarantor agrees shall remain a
claim that is prior and superior to any claim of Guarantor notwithstanding any
contrary practice, custom or ruling in proceedings under the Bankruptcy Code
generally) and such payments are final and not subject to refund or recision
under bankruptcy or other applicable law. Furthermore, upon the occurrence of an
Event of Default under the Loan Documents, Guarantor agrees not to accept any
payment or satisfaction of any kind of indebtedness of Borrower to the Guarantor
or any security for such indebtedness. If Guarantor should receive any such
payment, satisfaction or security for any indebtedness of Borrower to the
Guarantor, the Guarantor agrees to deliver the same promptly to Lender in the
form received, endorsed, or assigned as may be appropriate for application on
account of, or as security for, the Loan Obligations and until so delivered,
agrees to hold the same in trust for Lender. Notwithstanding the foregoing,
Lender agrees that Borrower will be permitted to pay, and Guarantor will be
permitted to receive, payments of interest pursuant to the MedCath Credit
Facility described in Subsection 3(h) as long as there is no outstanding Default
or Event of Default pursuant to the Loan Agreement, but payments of principal
under the MedCath Credit Facility are further restricted as set forth in the
above-described Subordination Agreement.

         7.       TERMINATION. This Guaranty shall continue to be effective, or
be reinstated, as the case may be, if at any time any whole or partial payment
or performance of any Loan Obligations is or is sought to be rescinded or must
otherwise be restored or returned by the Lender upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Borrower or the Guarantor upon
or as a result of the appointment of a receiver, intervenor, or conservator of,
or trustee or similar officer for, the Borrower or such guarantor of or for any
substantial part of its property, or otherwise, all as though such payments and
performance had not been made. This Guaranty shall not be affected in any way by
the transfer or other disposition of any of the Collateral described in and
granted to Lender pursuant to the Loan Documents, whether by deed, operation of
law, or otherwise.

         8.       SUCCESSOR AND ASSIGNS. This Guaranty shall be binding upon,
and inure to the benefit of, the parties hereto and their respective successors
and assigns.

         9.       SEVERABILITY. In the event that any provision hereof is deemed
to be invalid by reason of the operation of any law or by reason of the
interpretation placed thereon by any court, this Guaranty shall be construed as
not containing such provisions, and the invalidity of such provisions shall not
affect other provisions hereof which are otherwise lawful and valid and shall
remain in full force and effect.

         10.      NOTICES. Any notice or other communication required or
permitted to be given pursuant to this Guaranty or by applicable law shall be in
writing and shall be deemed received (a) on the date delivered, if delivered in
person to the person or department specified below, (b) three (3) business days
after depositing the same in the U.S. Mail, certified or registered, with return
receipt requested, or (c) one (1) day


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following the date deposited with Federal Express or other national overnight
carrier, and in each case addressed as follows:

         If to Guarantor to:

         MedCath, Incorporated
         7621 Little Avenue
         Suite 106
         Charlotte, North Carolina 28226
         Attn: Steve Puckett

         with a copy to:

         Hal Levinson, Esq.
         Moore & Van Allen, PLLC
         100 North Tryon Street
         47th Floor
         Charlotte, North Carolina 28202-4003

         If to the Lender to:

         Capstone Capital Corporation
         1000 Urban Center Parkway
         Suite 630
         Birmingham, AL 35243
         Attention: William C. Harlan

Failure to provide courtesy copies shall not render invalid any notice otherwise
properly given. Any party may change its address to another single address by
notice given as herein provided, except any change of address notice must be
actually received in order to be effective.

         11.      WAIVERS. The failure by the Lender at any time or times
hereafter to require strict performance by Guarantor of any of the provisions,
warranties, terms, and conditions contained herein or in any other agreement,
document, or instrument now or hereafter executed by Guarantor and delivered to
the Lender shall not waive, affect, or diminish any right of the Lender
thereafter to demand strict compliance or performance therewith and with respect
to any other provisions, warranties, terms, and conditions contained in such
agreements, documents, and instruments, and any waiver of any Default shall not
waive or affect any other Default, whether prior or subsequent thereto and
whether of the same or a different type. None of the warranties, conditions,
provisions, and terms contained in this Guaranty or in any agreement, document,
or instrument now or hereafter executed by Guarantor and delivered to the Lender
shall be deemed to have been waived by any act or knowledge of the Lender, its
agents, officers, or employees, but only by an instrument in writing, signed by
an officer of the Lender, and directed to the Guarantor specifying such waiver.
Guarantor waives the benefits of


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any possibly applicable statutory provision or rule of court limiting the
liability of a surety or requiring that Lender bring an action against Borrower
or the collateral, including without limitation, Arizona Revised Statutes
Sections 12-1641, et seq., and Arizona Rules of Civil Procedure 17(f) and North
Carolina General Statutes Section 26-7, et seq.

         12.      EXPENSES. If, at any time or times hereafter, the Lender
employs counsel to commence, defend, or intervene, file a petition, complaint,
answer, motion, or any other pleading or to take any other action in or with
respect to any suit or proceeding relating to this Guaranty, or to represent the
Lender in any litigation with respect to the affairs of Guarantor or to enforce
any rights of the Lender or obligations of Guarantor by virtue of this Guaranty,
then in any such events, all of the reasonable attorneys' fees actually incurred
arising from such services, including fees in any appellate or bankruptcy
proceedings, and any other expenses, costs, and charges relating to this
Guaranty, shall constitute additional obligations of the Guarantor payable on
demand. As used herein, the term "reasonable attorney's fees" shall mean
attorney's fees at standard hourly rates and fees actually incurred.

         13.      SINGULAR AND PLURAL. Singular terms shall include the plural
forms, and vice versa.

         14.      ENTIRE AGREEMENT. This Guaranty constitutes the entire
agreement and supersedes all prior agreements and understandings both oral and
written, between the parties with respect to the subject matter hereof.

         15.      THE VALIDITY, INTERPRETATION, ENFORCEMENT, AND EFFECT OF THIS
GUARANTY SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAWS OF THE STATE
OF ALABAMA. THE LENDER'S PRINCIPAL PLACE OF BUSINESS IS LOCATED IN JEFFERSON
COUNTY IN THE STATE OF ALABAMA, AND GUARANTOR AGREES THAT THIS GUARANTY SHALL BE
HELD BY LENDER AT SUCH PRINCIPAL PLACE OF BUSINESS, AND THE HOLDING OF THIS
GUARANTY BY LENDER THEREAT SHALL CONSTITUTE SUFFICIENT MINIMUM CONTACTS OF
GUARANTOR WITH JEFFERSON COUNTY AND THE STATE OF ALABAMA FOR THE PURPOSE OF
CONFERRING JURISDICTION UPON THE FEDERAL AND STATE COURTS PRESIDING IN SUCH
COUNTY AND STATE. THE GUARANTOR CONSENTS THAT ANY LEGAL ACTION OR PROCEEDING
ARISING HEREUNDER MAY BE BROUGHT IN THE CIRCUIT COURT OF THE STATE OF ALABAMA,
IN JEFFERSON COUNTY, ALABAMA, OR IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF ALABAMA AND ASSENTS AND SUBMITS TO THE PERSONAL
JURISDICTION OF ANY SUCH COURTS IN ANY SUCH ACTION OR PROCEEDING. NOTHING HEREIN
SHALL LIMIT THE JURISDICTION OF ANY OTHER COURT.


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         16.      GUARANTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY ON ANY
CLAIM, COUNTERCLAIM, SETOFF, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING OUT
OF OR IN ANY WAY RELATED TO THIS GUARANTY OR THE LOAN, OR (B) IN ANY WAY
CONNECTED WITH OR PERTAINING OR RELATED TO OR INCIDENTAL TO ANY DEALINGS OF
LENDER AND/OR BORROWER AND GUARANTOR WITH RESPECT TO THE LOAN DOCUMENTS OR IN
CONNECTION WITH THIS GUARANTY OR THE EXERCISE OF ANY PARTY'S RIGHTS AND REMEDIES
UNDER THIS GUARANTY OR OTHERWISE, OR THE CONDUCT OR THE RELATIONSHIP OF THE
PARTIES HERETO, IN ALL OF THE FOREGOING CASES WHETHER NOW EXISTING OR HEREAFTER
ARISING AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. GUARANTOR AGREES
THAT LENDER MAY FILE A COPY OF THIS GUARANTY WITH ANY COURT AS WRITTEN EVIDENCE
OF THE KNOWING, VOLUNTARY, AND BARGAINED AGREEMENT OF GUARANTOR IRREVOCABLY TO
WAIVE ITS RIGHT TO TRIAL BY JURY AS AN INDUCEMENT OF LENDER TO MAKE THE LOAN,
AND THAT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY DISPUTE OR CONTROVERSY
WHATSOEVER (WHETHER OR NOT MODIFIED HEREIN) BETWEEN GUARANTOR AND LENDER SHALL
INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT
A JURY.


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<PAGE>   12

         IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be
executed by its duly authorized officer as of the day and year first above
written.

WITNESS:                               MEDCATH, INCORPORATED
                                       a North Carolina corporation



                                       BY: /s/ David Crane
------------------------------------      -------------------------------------
                                       Its: Vice President
                                           ------------------------------------

STATE OF  North Carolina
         ---------------------------
COUNTY OF  Mecklenburg
          --------------------------

         I, the undersigned, a Notary Public, in and for said County in said
State, hereby certify that David Crane whose name as Vice President of MedCath
Incorporated, a North Carolina corporation, is signed to the foregoing Agreement
and who is known to me, acknowledged before me on this day that, being informed
of the contents of the Agreement, he, as such officer and with full authority,
executed the same voluntarily for and as the act of said corporation.

         Given under my hand this the 18th day of July, 1996.



                                       /s/ signature illegible
                                       ----------------------------------------
                                       Notary Public
                                       My Commission Expires: December 18, 2000
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<PAGE>   13

                                   SCHEDULE 1

                               PENDING LITIGATION

         In February 1996, the corporate owner of El Dorado Hospital, filed
civil action against MedCath and several of its affiliates alleging that they
unlawfully interfered with the hospital's contractual rights by inducing five
physicians who own the Heart Institute of Tucson, a cardiac catheterization
laboratory company which is managed by a subsidiary of MedCath Incorporated, to
breach their contract with El Dorado Hospital. The alleged breach is based upon
such physicians' investment in MedCath of Tucson, L.L.C., which El Dorado
Hospital alleges is a violation of the physicians' noncompetition covenants
with El Dorado Hospital. El Dorado has also notified the Heart Institute of
Tucson that (i) the hospital contests the hospital's obligation to pay
approximately $120,000 for certain services rendered, (ii) the hospital
believes that the execution of the management agreement between the Heart
Hospital of Tucson and a MedCath subsidiary violated the prohibition on
assignments set forth in the agreement between the hospital and the Heart
Institute of Tucson, and (iii) the investment by the physician owners of the
Heart Institute of Tucson and the Tucson Company violates their noncompetition
covenants. The Heart Institute of Tucson and MedCath believe that the Heart
Institute of Tucson is owed the funds at issue and that there is no merit to
the additional allegations made by the hospital. An arbitration proceeding has
been commenced by El Dorado Hospital against the Heart Institute of Tucson and
its owners regarding the hospital's obligation for payment of the funds at
issue. It is likely that El Dorado Hospital's claims regarding the Heart
Institute of Tucson's alleged violations of the applicable agreements will be
included in the arbitration proceeding. MedCath and its affiliates are not
parties to the arbitration proceeding.