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                                                                  EXHIBIT 10.16

                                    GUARANTY
                                 (SECURED LOAN)

         THIS GUARANTY (Secured Loan) (this "Guaranty") is made as of November
11, 1997, by MEDCATH INCORPORATED, a North Carolina corporation ("Guarantor") in
favor of HCPI MORTGAGE CORP., a Delaware corporation ("Lender").

                                    RECITALS

         A.       Pursuant to the terms of that certain Construction Loan
Agreement of even date herewith, by and between Heart Hospital IV, L.P., a Texas
limited partnership ("Borrower"), as borrower, and Lender, as lender (the "Loan
Agreement"), Borrower and Lender have agreed to the terms and conditions of the
Loan (as defined in the Loan Agreement). Those terms used herein with their
initial letter capitalized shall have the meanings given them in the Loan
Agreement, unless otherwise defined herein.

         B.       The Loan is evidenced by the Note and secured by certain other
Loan Documents. The Loan Documents include this Guaranty.

         THEREFORE, to induce Lender to enter into the Loan Agreement and to
consummate the transactions contemplated thereby, and in consideration thereof,
Guarantor unconditionally guarantees and agrees as follows:

         1.       Guaranty. Guarantor hereby unconditionally and irrevocably
guarantees, subject to the limitations set forth in Paragraph 19 hereof, to
Lender:

                  (a)      Full and timely payment when due (whether at
         maturity, by acceleration, or otherwise) of all of the indebtedness of
         Borrower now or hereafter existing under the Loan Documents (or any of
         them), whether for principal, interest, penalties, expenses, costs, and
         fees, including, without limitation, reasonable attorneys' fees, court
         costs, inspection fees, accounting costs, investigation expenses, and
         other reasonable related costs and expenses incurred by, or on behalf
         of, Lender, together with all renewals, extensions, modifications,
         rearrangements, and restatements of such indebtedness; and

                  (b)      Full and timely performance and satisfaction when due
         of all of the agreements, covenants, terms and conditions to be
         performed by, or on behalf of, Borrower pursuant to the Loan Documents,
         together with all renewals, extensions, modifications, rearrangements,
         and restatements of such agreements, covenants, and conditions,
         irrespective of the validity, regularity, or enforceability of the Loan
         Documents.



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         2.       Construction Obligations. Without limiting the foregoing and
subject to the limitations of Paragraph 19 hereof, Guarantor unconditionally and
irrevocably guarantees to Lender (a) the construction and completion of the
Improvements in accordance in all material respects with the Plans and within
the time periods, in the manner and in accordance with the other requirements
set forth in the Loan Agreement, including, without limitation, satisfaction of
those conditions precedent set forth in Exhibit E to the Loan Agreement for
payment of the final advance; (b) the payment without demand, and without right
to reimbursement therefor, of all development, construction and related costs of
the Project incurred for any reason whatsoever in excess of the Committed Sum;
and (c) the construction and completion of all other improvements required
pursuant to Article 5 of that certain Sublease Agreement dated January 9, 1997
(the "Sublease"), by and between West 38th Street, Ltd., as sublessor, and
Guarantor, as sublessee (Guarantor's interest therein having been thereafter
assigned to Borrower), as amended by First Amendment to Sublease Agreement dated
June 17, 1997, which improvements include, without limitation, the
medical/general office building described therein. If for any reason whatsoever
Borrower: (i) fails or neglects to complete the Improvements as contemplated by,
and in accordance with the requirements set forth in, the Loan Agreement,
including the time and manner therein specified; (ii) fails to prosecute with
diligence and continuity the construction of the Improvements in accordance with
the Loan Agreement; (iii) commits, or permits to exist, a Default; or (iv) is
unable to satisfy, within fifteen (15) days after Lender's written request
therefor, any condition precedent to obtaining an Advance requested by Borrower
pursuant to the Loan Agreement, then Lender, in addition to its other rights,
remedies and recourses, whether existing hereunder, under the Loan Documents or
otherwise, may require Guarantor to complete the Improvements and take such
other action as hereinafter described. Within thirty (30) calendar days from the
date Lender notifies Guarantor of Borrower's failure to satisfy any of the
construction obligations described above, Guarantor agrees, at its sole cost and
expense, to commence completion of construction of the Improvements and to
diligently pursue such construction in order to complete the Improvements within
the time and in the manner specified in the Loan Agreement. Guarantor shall pay
all reasonable costs and expenses in connection with such construction and shall
indemnify and hold Lender harmless from any and all losses, costs, liabilities,
or expenses incurred in connection with such completion.

         3.       Rights of Lender. Guarantor authorizes Lender, without giving
notice to Guarantor or obtaining Guarantor's consent and without affecting the
liability of Guarantor hereunder, from time to time to: (a) renew or extend all
or any portion of Borrower's or any other person's obligations due under the
Note or any of the other Loan Documents; (b) declare all sums owing to Lender
under the Note and any of the other Loan Documents due and payable upon the
occurrence of a default or event of default under the Loan Documents; (c) make
changes in the dates specified for payments of any sums payable in periodic
installments under the Note or any of the other Loan Documents, and accept or
deny, in Lender's sole discretion, partial payments on or performance of the
Note; (d) otherwise modify the terms of any of the Loan Documents, except for
(i) increases in the principal amount of the Note in excess of the Committed Sum
as a result of additional advances made directly to Borrower after the
Conversion Date, (ii) changes


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in the manner by which interest rates, fees or charges are calculated under the
Note or any of the other Loan Documents (Guarantor acknowledges that, if the
Note or any of the other Loan Documents so provides, said interest rates, fees
and charges may vary from time to time), or (iii) accelerate the maturity date
of the Note where no default or event of default has occurred under the Loan
Documents; (e) take and hold additional security for the performance of
Borrower's or any other person's obligations under the Note and the other Loan
Documents and abandon, fail to perfect, exchange, enforce, waive or release any
such additional or existing security; (f) apply such additional or existing
security for the Note and direct the order or manner of sale thereof as Lender
in its sole discretion may determine; (g) release, substitute or add any one or
more endorsers of the Note or guarantors of Borrower's or any other person's
obligations under the Note or any of the other Loan Documents; (h) apply
payments received by Lender from Borrower or any other person to any obligations
of Borrower or such other person under the Note and the other Loan Documents, in
such order as Lender shall determine, in its sole discretion, whether or not any
such obligations are covered by this Guaranty; (i) consent, in the sole
discretion of Lender, to the merger, consolidation, restructuring, dissolution
or other change in the structure of Borrower or any other person; and (j) assign
this Guaranty in whole or in part.

         3.       Guarantor's General Waivers. Guarantor waives: (a) any defense
now existing or hereafter arising based upon any legal disability or other
defense of Borrower, Guarantor or any other guarantor or other person, or by
reason of the cessation or limitation of the liability of Borrower, Guarantor or
any other guarantor or other person from any cause other than full payment and
performance of all obligations due under the Note or any of the other Loan
Documents; (b) any defense based upon any lack of authority of the officers,
directors, partners or agents acting or purporting to act on behalf of Borrower
or any other person, or any defect in the formation of Borrower or any other
person; (c) the unenforceability or invalidity of any security or guaranty or
the lack of perfection or continuing perfection, or failure of priority of any
security for the obligations guarantied hereunder; (d) any defense based upon
Lender's election of any remedy against Guarantor, Borrower or any other person;
(e) any defense based upon Lender's failure to disclose to Guarantor any
information concerning Borrower's or any other person's financial condition or
any other circumstances bearing on Borrower's or any other person's ability to
pay and perform all obligations due under the Note or any of the other Loan
Documents; (f) any failure by Lender to give notice to Borrower, Guarantor or
any other person of the sale or other disposition of security held for the Note,
and any defect in notice given by Lender in connection with any such sale or
disposition of security held for the Note; (g) any failure of Lender to comply
with applicable laws in connection with the sale or disposition of security held
for the Note, including, without limitation, any failure by Lender to conduct a
commercially reasonable sale or other disposition of such security; (h) any
defense based upon any statute or rule of law which provides that the obligation
of a surety must be neither larger in amount nor in any other respects more
burdensome than that of a principal, or that reduces a surety's or guarantor's
obligations in proportion to the principal's obligation; (i) any use of cash
collateral under Section 363 of the Federal Bankruptcy Code; (j) any defense
based upon Lender's election, in any proceeding instituted under the Federal
Bankruptcy Code, of the application of Section 111l(b)(2) of the Federal
Bankruptcy Code or any successor statute; (k)


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any defense based upon any borrowing or any grant of a security interest under
Section 364 of the Federal Bankruptcy Code; (1) prior to payment in full of all
of the Obligations, any right of subrogation, any right to enforce any remedy
which Lender may have against Borrower or any other person and any right to
participate in, or benefit from, any security now or hereafter held by Lender
for the obligations due under the Note or any of the other Loan Documents; (m)
presentment, demand, protest and notice of any kind, including, without
limitation, notice of acceptance of this Guaranty and of the existence, creation
or incurring of new or additional guaranteed obligations and notice of intent to
accelerate and of acceleration of the indebtedness under the Note; (n) the
benefit of any statute of limitations affecting the liability of Borrower or any
other person, enforcement of the Note or any other Loan Documents, the liability
of Guarantor hereunder or the enforcement hereof; and (o) any failure of Lender
to pursue, or delay in pursuing, any other remedy in Lender's power. Guarantor
agrees that the payment and performance of all obligations due under the Note or
any of the other Loan Documents or any part thereof or other act which tolls any
statute of limitations applicable to the Note or the other Loan Documents shall
similarly operate to toll the statute of limitations applicable to Guarantor's
liability hereunder. Without limiting the generality of the foregoing or any
other provision hereof, Guarantor hereby expressly waives the provisions of: (a)
Sections 34.02 and 34.03 of the Texas Business and Commerce Code; (b) Section
17.001 of the Texas Civil Practice and Remedies Code; (c) Rule 31 of the Texas
Rules of Civil Procedure, (d) comparable provisions of the laws of any other
jurisdiction, and (e) all other suretyship defenses to the extent such laws are
applicable to this Guaranty or the agreements, covenants, or obligations of
Guarantor hereunder.

         4.       Waiver of Rights of Subrogation. Notwithstanding anything to
the contrary contained herein or in any other document to which Guarantor is a
party, until all obligations under this Guaranty are fully paid and performed,
Guarantor hereby expressly waives with respect to Borrower and any other person
(including any surety) any and all rights at law or in equity to subrogation, to
reimbursement, to exoneration, to contribution, to setoff or to any other rights
that could accrue to a surety against a principal, to a guarantor against a
maker or obligor, to an accommodation party against the party accommodated, or
to a holder or transferee against a maker, and which Guarantor may have or
hereafter acquire against Borrower or any other person in connection with or as
a result of Guarantor's execution, delivery and/or performance of this Guaranty
or any other document to which Guarantor is a party. Guarantor agrees that
Guarantor shall not have or assert any such rights against Borrower or any other
person (including any surety), either directly or as an attempted setoff to any
action commenced against Guarantor by Borrower or any other person (whether as
borrower or in any other capacity) or by Lender. Guarantor hereby acknowledges
and agrees that this waiver is intended to benefit Lender and shall not limit or
otherwise affect Guarantor's liability hereunder, under any other document to
which Guarantor is a party, or the enforceability hereof or thereof.

         5.       Guarantor's Warranties and Covenants. Guarantor warrants and
acknowledges that: (a) Lender would not enter into the Loan Agreement and
consummate the transactions contemplated thereby but for this Guaranty; (b)
Guarantor has read and understands the Loan Agreement, the Note and the other
Loan Documents; (c) there are no conditions precedent to the


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effectiveness of this Guaranty and this Guaranty shall be in full force and
effect and binding on Guarantor as of the date hereof, regardless of whether
Lender obtains other collateral or any guaranties from others or takes any other
action not contemplated by Guarantor; (d) Guarantor has established adequate
means of obtaining from sources other than Lender, on a continuing basis,
financial and other information pertaining to Borrower's financial condition,
and the status of Borrower's payment and performance of all obligations due
under the Note and the other Loan Documents, and Guarantor agrees to keep
adequately informed from such means of any facts, events or circumstances which
might in any way affect Guarantor's risks hereunder, and Lender has made no
representation to Guarantor as to any such matters; (e) the most recent
financial statements of Guarantor delivered to Lender are true and correct in
all material respects, have been prepared in accordance with generally accepted
accounting principles consistently applied (or other principles disclosed in
writing and acceptable to Lender) and fairly present, in all material respects,
the financial condition of Guarantor as of the respective dates thereof, and no
material adverse change has occurred in the financial condition of Guarantor
since the respective dates thereof; and (f) Guarantor has not and shall not,
without the prior written consent of Lender, sell, lease, assign, encumber,
hypothecate, transfer or otherwise dispose of all or substantially all of
Guarantor's assets, or any interest therein, without Lender's prior written
consent, which consent may be given or withheld in Lender's sole discretion,
unless (i) either Guarantor or a successor entity remains liable under the
Guaranty, and (ii) Guarantor or such successor entity, whichever remains liable
under the Guaranty, satisfies the financial covenants of Guarantor set forth in
the Loan Agreement.

         6.       Subordination. Until all the obligations under this Guaranty
are fully paid and performed, Guarantor hereby subordinates all present and
future indebtedness owing by Borrower to Guarantor to the obligations at any
time owing by Borrower to Lender under the Note and the other Loan Documents;
provided, however, that Borrower shall be entitled to make reasonable payments
of principal and interest on the $19,000,000 line of credit provided by MedCath
Finance Group to Borrower. Guarantor agrees to make no claim for such
indebtedness until all obligations of Borrower and any other person under the
Note and any of the other Loan Documents and all other direct and indirect
obligations of Guarantor to Lender have been fully discharged. Guarantor further
agrees not to assign to any party other than Lender all or any part of such
indebtedness, unless (a) Lender shall give its prior written consent to such
assignment, which consent may be given or withheld in Lender's sole discretion
and (b) such assignment shall be made subject to the terms of this Guaranty.
Within five (5) days after Lender's request (i) all instruments evidencing such
indebtedness shall be duly endorsed and delivered to Lender, (ii) all security
for such indebtedness shall be duly assigned and delivered to Lender, (iii) if a
Default has occurred, such indebtedness shall be enforced, collected and held by
Guarantor as trustee for Lender and shall be paid over to Lender on account of
the obligations guaranteed hereunder but without reducing or affecting in any
manner the liability of Guarantor under the other provisions of this Guaranty,
and (iv) Guarantor shall execute, file and record such documents and instruments
and take such other action as Lender deems necessary or appropriate to perfect,
preserve and enforce Lender's rights in and to such indebtedness and any
security therefor. If Guarantor fails to take any such action and a Default has
occurred under the Loan


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Agreement, Lender, as attorney-in-fact for Guarantor, is hereby authorized to do
so in the name of Guarantor. The foregoing power of attorney is coupled with an
interest and cannot be revoked.

         7.       Bankruptcy of Borrower or Any Other Person; Reinstatement and
Revival. In any bankruptcy or other proceeding in which the filing of claims is
required by law, Guarantor shall file, on or before the date which is twenty
(20) days prior to the expiration of the prescribed statutory period for filing
of claims, all claims which Guarantor may have against Borrower or any other
person relating to any indebtedness of Borrower to Guarantor and shall assign to
Lender all rights of Guarantor thereunder. If Guarantor does not timely file any
such claim, Lender, as attorney-in-fact for Guarantor, is hereby authorized to
do so in the name of Guarantor or, in Lender's discretion, to assign the claim
to a nominee and to cause a proof of claim to be filed in the name of Lender's
nominee. The foregoing power of attorney is coupled with an interest and cannot
be revoked. Lender or its nominee shall have the right, in its reasonable
discretion, to accept or reject any plan proposed in such proceeding and to take
any other action which a party filing a claim is entitled to do. In all such
cases, whether in administration, bankruptcy or otherwise, the person or persons
authorized to pay such claim shall pay to Lender the amount payable on such
claim and, to the full extent necessary for that purpose, Guarantor hereby
assigns to Lender all of Guarantor's rights to any such payments or
distributions; provided, however, Guarantor's obligations hereunder shall not be
satisfied except to the extent that Lender receives cash by reason of any such
payment or distribution. If Lender receives anything hereunder other than cash,
the same shall be held as collateral for amounts due under this Guaranty. The
liability of Guarantor hereunder shall be reinstated and revived, and the rights
of Lender shall continue, with respect to any amount at any time paid by
Borrower or any other person on account of the Note or any of the other Loan
Documents, which Lender shall be required to restore or return upon the
bankruptcy, insolvency or reorganization of Borrower or any other person or for
any other reason, all as though such amount had not been paid.

         8.       Disclosure of Information. Lender shall have the right at any
time to sell, assign, transfer, negotiate or, so long as Lender continues to be
the "lead lender", grant participations of at least $5 million each in, all or
any part of the Loan, the Note and/or the other Loan Documents, including,
without limitation, this Guaranty, and Guarantor acknowledges and agrees that,
in connection with any such action by Lender, Lender may forward to each actual
or prospective assignee, transferee or participant all documents and information
in Lender's possession, relating to this Guaranty or to Guarantor, whether such
documents and information were furnished by Borrower or Guarantor to Lender or
otherwise, provided that such parties have executed confidentiality agreements
in form reasonably acceptable to Guarantor.

         9.       Additional, Independent and Unsecured Obligations. This is a
guaranty of payment and not of collection and the obligations of Guarantor
hereunder shall be in addition to and shall not limit or in any way affect the
obligations of Guarantor under any other existing or future guaranties unless
said other guaranties are expressly modified or revoked in writing. This
Guaranty is independent of the obligations of Borrower and any other person
under the Note and the other Loan Documents. Lender may bring a separate action
to enforce the provisions hereof


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against Guarantor without taking action against Borrower or any other person or
joining Borrower or any other person as a party to such action, and without
first or concurrently proceeding against any security held by Lender. This
Guaranty is secured and shall be deemed to be secured by any security instrument
which recites that it secures this Guaranty.

         10.      Attorneys' Fees; Enforcement. Notwithstanding anything
contained herein to the contrary, if any attorney is engaged by Lender to
enforce or defend any provision of this Guaranty or any of the other Loan
Documents, or as a consequence of any default or event of default under this
Guaranty or any of the other Loan Documents, with or without the filing of any
legal action or proceeding, then Guarantor shall immediately pay on demand all
Attorneys' Fees and Costs, as defined below, incurred by Lender in connection
therewith, together with interest thereon from the date of such demand until
paid, at the rate of interest then applicable to the principal owing under the
Note. As used in this Guaranty, "Attorneys' Fees and Costs" shall mean all the
reasonable fees and expenses of counsel to Lender incurred after a Default,
which may include, without limitation, costs incurred for printing,
photostating, duplicating, facsimile transmissions, record searches, appraisals,
air freight charges, discovery, investigation and other expenses, and fees
billed for law clerks, paralegals, experts and witnesses, accountants, and
others not admitted to the bar but performing services under the supervision of
or on behalf of an attorney. The term "Attorneys' Fees and Costs" shall also
include, without limitation, all such reasonable fees and expenses incurred with
respect to legal actions, appeals, arbitrations, and bankruptcy proceedings,
whether or not any action or proceeding is brought with respect to the matter
for which said fees and expenses were incurred.

         11.      Effect of Waivers. Guarantor warrants and agrees that each of
the waivers set forth in this Guaranty are made with Guarantor's full knowledge
of their significance and consequences, and that under the circumstances the
waivers are reasonable. If any of said waivers shall hereafter be determined by
a court of competent jurisdiction to be contrary to any applicable law or
against public policy, such waivers shall be effective only to the maximum
extent permitted by law.

         12.      Rules of Construction. The word "Borrower" as used herein
shall include the named Borrower and any other person at any time assuming or
otherwise becoming primarily liable for all or any part of the obligations of
the named Borrower under the Note or any of the other Loan Documents. The term
"person" as used herein shall include any individual, company, trust or other
legal entity of any kind whatsoever. If this Guaranty is executed by more than
one person, the term "Guarantor" shall include all such persons. When the
context and construction so require, all words used in the singular herein shall
be deemed to have been used in the plural and vice versa. All headings appearing
in this Guaranty are for convenience only and shall be disregarded in construing
this Guaranty. Any capitalized term not defined in this Guaranty shall have the
meaning given to such term in the Loan Agreement or the other Loan Documents.

         13.      Governing Law. This Guaranty shall be governed by, and
construed in accordance with, the laws of the State of Texas, except to the
extent preempted by Federal laws.


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Guarantor and all persons and entities in any manner obligated to Lender under
this Guaranty consent to the jurisdiction of any Federal or State Court within
the State of Texas, and also consent to service of process by any means
authorized by Texas or Federal law.

         14.      No Third Party Beneficiaries. This Guaranty is solely for the
benefit of Lender and its successors and assigns, and is not intended to nor
shall it be deemed to be for the benefit of any third party, including, without
limitation, Borrower.

         15.      Amendments. Neither this Guaranty nor any provision hereof may
be amended, modified, waived, discharged or terminated except by an instrument
in writing duly signed by or on behalf of Lender and Guarantor.

         16.      Miscellaneous. The provisions of this Guaranty shall bind and
benefit the heirs, executors, administrators, legal representatives, successors
and assigns of Guarantor and Lender. The liability of all persons and entities
who are in any manner obligated hereunder shall be joint and several. If any
provision of this Guaranty shall be determined by a court of competent
jurisdiction to be invalid, illegal or unenforceable, that portion shall be
deemed severed from this Guaranty and the remaining parts shall remain in full
force as though the invalid, illegal or unenforceable portion had never been
part of this Guaranty.

         17.      Waiver of Right to Trial by Jury. GUARANTOR ACKNOWLEDGES THAT
IT HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO ITS RIGHTS TO
TRIAL BY JURY UNDER THE CONSTITUTIONS OF THE UNITED STATES AND THE STATE OF
TEXAS. GUARANTOR HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (1) ARISING UNDER THIS GUARANTY OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH OR (2) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF LENDER AND GUARANTOR WITH RESPECT TO THIS GUARANTY OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH,
OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING
OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND
GUARANTOR HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT LENDER
MAY FILE A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF GUARANTOR TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.


                          Guarantor's Initial: /s/ RJP

         18.      Limitation of Liability. (a) Notwithstanding anything
contained in this Guaranty to the contrary, Guarantor's liability to Lender
under this Guaranty for principal under the Note will be reduced on the Initial
Guaranty Reduction Date (as defined below) to the greater of (i)


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$13,500,000.00, or (ii) that amount which is equal to the outstanding principal
amount of the Loan on the Conversion Date less Nine Million Dollars
($9,000,000.00). As used herein, the term "Initial Guaranty Reduction Date"
shall mean the later to occur of (A) the completion of construction of all
improvements required pursuant to Article 5 of the Sublease, including, without
limitation, the medical/general office building described therein (such date
being hereinafter referred to as the "Construction Completion Date"); or (B)
that date upon which Borrower has maintained, for a minimum of each of eight (8)
consecutive calendar quarters, a ratio ("Fixed Charge Ratio") of (1) the sum of
Net Income, depreciation, amortization, income taxes, and interest expense, to
(2) interest expense, of not less than 1.5 to 1.0.

                  (b)      If Borrower has maintained a Fixed Charge Ratio of
not less than 1.5 to 1.0 for each of the previous eight (8) consecutive calendar
quarters as of the first anniversary of the Initial Guaranty Reduction Date (or
any subsequent anniversary thereof) (such subsequent reduction date being
referred to herein as the "Second Guaranty Reduction Date"), Guarantor's
liability to Lender under this Guaranty for principal under the Note will be
reduced to the greater of (i) $13,500,000.00, or (ii) that amount which is equal
to the outstanding principal amount on the Loan on the Conversion Date less
Eighteen Million Dollars ($18,000,000.00).

                  (c)      If Borrower has maintained a Fixed Charge Ratio of
not less than 1.5 to 1.0 for each of the previous eight (8) consecutive calendar
quarters as of any anniversary of the Second Guaranty Reduction Date,
Guarantor's liability to Lender under this Guaranty for principal under the Note
will be reduced to the greater of (i) $13,500,000.00, or (ii) that amount which
is equal to the outstanding principal amount on the Loan on the Conversion Date
less Twenty-Seven Million Dollars ($27,000,000.00).

                  (d)      In addition to the Guarantor's liability for
principal, as set forth above, Guarantor shall also at all times remain liable
for all fees, costs and other obligations under this Guaranty without limit and
for all interest on the principal amount guaranteed hereunder (exclusive of
interest payments satisfied by advances under the Loan and added to the
principal amount of the Loan as described in Section 2.4 of the Loan Agreement,
which amounts will be governed by the limitations set forth in subparagraphs (a)
through (c) above). Any payments received or recovery realized by Lender may,
except to the extent paid by Guarantor on the indebtedness for which Guarantor
is liable under this Guaranty, be applied in Lender's sole discretion to
indebtedness of Borrower to Lender other than the portion of the indebtedness
for which Guarantor is liable under this Guaranty.

         19.      Additional Provisions. Such additional terms, covenants and
conditions as may be set forth on any exhibit executed by Guarantor and attached
hereto which recites that it is an exhibit to this Guaranty are incorporated
herein by this reference.


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        IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the date
first written above.

                                     GUARANTOR:

                                     MEDCATH INCORPORATED,
                                     a North Carolina corporation

                                     By:      /s/ Richard J. Post
                                        ----------------------------------------
                                     Name:    Richard J. Post
                                          --------------------------------------
                                     Title:   Treasurer
                                           -------------------------------------



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