<PAGE>   1

                                                                   EXHIBIT 10.33

                               OPERATING AGREEMENT
                                       OF
                          LOUISIANA HEART HOSPITAL, LLC
                   A NORTH CAROLINA LIMITED LIABILITY COMPANY


<PAGE>   2

                                TABLE OF CONTENTS
                                     TO THE
                               OPERATING AGREEMENT
                                       OF
                          LOUISIANA HEART HOSPITAL, LLC
                   A North Carolina Limited Liability Company

<TABLE>
<S>                                                                                                              <C>
ARTICLE I  DEFINITIONS........................................................................................... 2

ARTICLE II  FORMATION AND AGREEMENT OF LIMITED LIABILITY COMPANY................................................. 2
         SECTION 2.1 Company Formation; Effective Date........................................................... 2
         SECTION 2.2 Name of Company............................................................................. 2
         SECTION 2.3 Purposes and Business Objectives............................................................ 2
         [SECTION 2.4 Statement of Philosophy and Values......................................................... 3
         SECTION 2.5 Registered Agent and Office; Principal Place of Business.................................... 4
         SECTION 2.6 Commencement and Term....................................................................... 4

ARTICLE III  MEMBERS AND CAPITAL CONTRIBUTIONS................................................................... 4
         SECTION 3.1 Initial Capital Contributions of Members.................................................... 4
         SECTION 3.2 Liability of Members - For Capital.......................................................... 5
         SECTION 3.3 Maintenance of Capital Accounts; Withdrawals of Capital;
         Withdrawals from the Company............................................................................ 5
         SECTION 3.4 Interest on Capital Contributions or Capital Accounts....................................... 5
         SECTION 3.5 Additional Funding.......................................................................... 5
         SECTION 3.6 Enforcement of Commitments.................................................................. 7
         SECTION 3.7 Member Documentation........................................................................ 8
         SECTION 3.8 Reserved Powers of Members.................................................................. 8
         SECTION 3.9 Appointment of Board of Directors........................................................... 9
         SECTION 3.10 Obligations Relating to Real Property...................................................... 9

ARTICLE IV  NAMES AND ADDRESSES OF MEMBERS.......................................................................10

ARTICLE V  MANAGEMENT OF THE COMPANY.............................................................................10
         SECTION 5.1 General Authority and Powers of LHMI and the Board of Directors.............................10
         SECTION 5.2 Restrictions on Authority of the Board of Directors.........................................11
         SECTION 5.3 Duties of the Board of Directors............................................................11
         SECTION 5.4 Delegation by the Board of Directors........................................................12
         SECTION 5.5 Right to Rely Upon the Authority of the Manager.............................................12
         SECTION 5.6 Company Expenses............................................................................12
         SECTION 5.7 No Management by Members....................................................................14
         SECTION 5.8 Consent by Members to Exercise of Certain Rights and
         Powers by Board of Directors............................................................................15
         SECTION 5.9 Meetings, Quorum and Vote of the Board of Directors.........................................15
         SECTION 5.10 Other Business of Members..................................................................16
         SECTION 5.11 Board of Directors' Standard of Care.......................................................18
</TABLE>


                                       i
<PAGE>   3

<TABLE>
<S>                                                                                                              <C>
         SECTION 5.12 Limitation of Liability....................................................................18
         SECTION 5.13 Indemnification of the Directors...........................................................19
         SECTION 5.14 Purchase of Goods and Services from LHMI...................................................19
         SECTION 5.15 Certain Decisions of the Board of Directors................................................19
         SECTION 5.16 Indemnity by the Company...................................................................20
         SECTION 5.17 Force Majeure..............................................................................21

ARTICLE VI  DISTRIBUTIONS AND ALLOCATIONS........................................................................21
         SECTION 6.1 Distributions of Cash Flow from Operations and Cash from
         Sales or Refinancing....................................................................................21
         SECTION 6.2 Profits.....................................................................................22
         SECTION 6.3 Losses......................................................................................22
         SECTION 6.4 Code Section 704(c) Tax Allocations.........................................................22
         SECTION 6.5 Miscellaneous...............................................................................23

ARTICLE VII  DISSOLUTION, WINDING UP AND LIQUIDATING DISTRIBUTIONS...............................................23
         SECTION 7.1 No Termination by Certain Acts of Member....................................................23
         SECTION 7.2 Dissolution.................................................................................24
         SECTION 7.3 Dissolution and Final Liquidation...........................................................24
         SECTION 7.4 Termination.................................................................................25
         SECTION 7.5 Payment in Cash.............................................................................26
         SECTION 7.6 Termination of Noncompetition Covenants.....................................................26

ARTICLE VIII  REMOVAL OR WITHDRAWAL OF MANAGERS AND MEMBERS AND
TRANSFER OF MEMBERS' MEMBERSHIP AND/OR ECONOMIC INTERESTS........................................................26
         SECTION 8.1 Members - Restriction on Transfer...........................................................26
         SECTION 8.2 Condition Precedent to Transfer of Membership Interest......................................27
         SECTION 8.3 Substitute Member - Conditions to Fulfill...................................................28
         SECTION 8.4 Allocations Between Transferor and Transferee...............................................28
         SECTION 8.5 Rights, Liabilities of, and Restrictions on Assignee........................................29
         SECTION 8.6 Repurchase of Interests in Certain Event....................................................29
         SECTION 8.7 Death of a Member...........................................................................29

ARTICLE IX  RECORDS, ACCOUNTINGS AND REPORTS.....................................................................31
         SECTION 9.1 Books of Account............................................................................31
         SECTION 9.2 Access to Records...........................................................................31
         SECTION 9.3 Bank Accounts and Investment of Funds.......................................................31
         SECTION 9.4 Fiscal Year.................................................................................32
         SECTION 9.5 Accounting Reports..........................................................................32
         SECTION 9.6 Tax Matters Partner.........................................................................32

ARTICLE X  MEETINGS AND VOTING RIGHTS OF MEMBERS.................................................................32
         SECTION 10.1 Meetings...................................................................................33
         SECTION 10.2 Voting Rights of Members...................................................................33
</TABLE>


                                       ii
<PAGE>   4

<TABLE>
<S>                                                                                                              <C>
ARTICLE XI  AMENDMENTS...........................................................................................33
         SECTION 11.1 Authority to Amend by the Board of Directors...............................................34
         SECTION 11.2 Restrictions on the Board of Directors' Amendments:
           Amendments by Members.................................................................................34
         SECTION 11.3 Amendments to Certificates.................................................................35

ARTICLE XII  MISCELLANEOUS.......................................................................................35
         SECTION 12.1 Limited Power of Attorney..................................................................35
         SECTION 12.2 Waiver of Provisions.......................................................................35
         SECTION 12.3 Interpretation and Construction............................................................35
         SECTION 12.4 Governing Law..............................................................................35
         SECTION 12.5 Partial Invalidity.........................................................................36
         SECTION 12.6 Binding on Successors......................................................................36
         SECTION 12.7 Notices and Delivery.......................................................................36
         SECTION 12.8 Counterpart Execution; Facsimile Execution.................................................36
         SECTION 12.9 Statutory Provisions.......................................................................36
         SECTION 12.10 Waiver of Partition.......................................................................37
         SECTION 12.11 Change in Law.............................................................................37
         SECTION 12.12 Investment Representations of the Members.................................................38
         SECTION 12.13 Decisions by Managers.....................................................................39
         SECTION 12.14 Referrals to Hospital and Ownership of Shares of Common Stock
          of MedCath Incorporated................................................................................39
         SECTION 12.15 Acknowledgments Regarding Legal Representation............................................39
         SECTION 12.16 Arbitration...............................................................................40
         SECTION 12.17 Exhibits..................................................................................40
</TABLE>


                                      iii
<PAGE>   5

                               OPERATING AGREEMENT
                                       OF
                          LOUISIANA HEART HOSPITAL, LLC
                   A North Carolina Limited Liability Company

         THESE SECURITIES ARE BEING ISSUED PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND THE LOUISIANA SECURITIES ACT
IN RELIANCE UPON THE REPRESENTATION OF EACH PURCHASER OF THE SECURITIES THAT THE
SAME ARE BEING ACQUIRED FOR INVESTMENT PURPOSES. THESE SECURITIES MAY
ACCORDINGLY NOT BE RESOLD OR OTHERWISE TRANSFERRED OR CONVEYED IN THE ABSENCE OF
REGISTRATION OF THE SAME PURSUANT TO THE APPLICABLE SECURITIES LAWS UNLESS AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS FIRST OBTAINED THAT SUCH
REGISTRATION IS NOT THEN NECESSARY. ANY TRANSFER CONTRARY HERETO SHALL BE VOID.

         THIS OPERATING AGREEMENT (the "Agreement") of Louisiana Heart Hospital,
LLC (the "Company"), a North Carolina Limited Liability Company is made and
entered into by and among Persons whose names, addresses and taxpayer
identification numbers are listed on the Information Exhibit (Exhibit A).

                                    RECITALS

         A.       The Company has been formed to develop, own and operate an
acute care hospital which hospital shall be located in or near St. Tammany
Parish, Louisiana and shall specialize in all aspects of cardiology,
cardiovascular care and surgery, and other services which the Board of Directors
may agree upon, including orthopedics, and orthopedic surgery;

         B.       It is intended that the hospital will be an efficient, quality
provider of medical services within the St. Tammany Parish, Louisiana area;

         C.       The Capital Contributions and active involvement of the
Members are necessary to enable the Company to achieve its objectives;


<PAGE>   6

                                    ARTICLE I

                                   DEFINITIONS

         Unless otherwise indicated, capitalized words and phrases in this
Operating Agreement shall have the meanings set forth in the attached Glossary
of Terms (Exhibit B).

                                   ARTICLE II

              FORMATION AND AGREEMENT OF LIMITED LIABILITY COMPANY

         SECTION 2.1       COMPANY FORMATION; EFFECTIVE DATE.

         The Company was formed upon the filing of the Articles of Organization
with the North Carolina Secretary of State in accordance with the provisions of
the Act. Upon the effectiveness of this Agreement, the Persons listed on the
attached Information Exhibit shall be admitted to the Company as Members and the
Persons who executed the Articles shall be withdrawn as Members (unless they are
listed on the Information Exhibit), all without the necessity of any further act
or instrument and without causing the dissolution of the Company. This Agreement
shall be effective as of the date the Company was formed.

         SECTION 2.2       NAME OF COMPANY.

         The name of the Company is Louisiana Heart Hospital, LLC.

         SECTION 2.3       PURPOSES AND BUSINESS OBJECTIVES.

         The principal purposes and business objectives of the Company are as
follows:

                  (a)      To develop, own and operate a Hospital specializing
         in the diagnosis and treatment of cardiac disease and cardiovascular
         and vascular surgery and other medical services and procedures approved
         by the Board of Directors from time to time in or near St. Tammany
         Parish, Louisiana which would include, but not be limited to, the
         following:

                           (i)      Services and facilities to meet all
                  requirements of the State of Louisiana, Medicare, Medicaid,
                  JCAHO and other credentialing or licensing bodies or agencies
                  in order to have the Hospital licensed as a general acute care
                  hospital and to perform cardiology and cardiovascular surgical
                  services, of every type or nature and other medical services
                  and procedures including orthopedics and orthopedic surgery
                  services which may be approved by the Board of Directors from
                  time to time and to be eligible to obtain appropriate
                  reimbursements therefore;

                           (ii)     Approximately 90,000 square feet in a
                  building to be constructed in accordance with plans and
                  specifications approved by the Company;


                                       2
<PAGE>   7

                           (iii)    Approximately 48 medical/surgical beds;

                           (iv)     Three (3) heart catheterization laboratories
                  with available space for one additional heart catheterization
                  lab;

                           (v)      Three (3) heart surgical suites with space
                  for the development of an additional heart surgical suite;

                           (vi)     All appropriate support services and
                  systems; and

                           (vii)    Appropriate Equipment and services with
                  respect to the facilities described above and as otherwise
                  reasonably necessary or appropriate for the diagnosis and
                  treatment of cardiovascular disease, including but not limited
                  to invasive and non-invasive cardiac testing, interventional
                  treatment including percutaneous transluminal coronary
                  angioplasty and atherectomy, and cardiac surgery which would
                  include, but not be limited to, bypass grafts and valve
                  surgery.

                  The above size, number and scope of facilities of the Hospital
         are only preliminary estimates. The Board of Directors is authorized to
         finally make all determinations with respect thereto.

                  (b)      To lease or acquire the real property, and if
appropriate to construct a suitable building, in which the Hospital shall be
located;

                  (c)      Any other purpose reasonably related to (a) and (b)
above.

         SECTION 2.4       STATEMENT OF PHILOSOPHY AND VALUES.

         Notwithstanding anything in this Agreement to the contrary, the Company
and the Hospital shall be operated in accordance with the following philosophy
and values in all material respects:

                  (a)      The Hospital shall seek to participate in all public
         health care financing programs applicable to its business including the
         Medicare and Medicaid programs:

                  (b)      The medical staff of the Hospital shall be open to
         any physician who meets the qualifications stated in the Bylaws, Rules
         and Regulations of the Medical Staff;

                  (c)      The Company shall adopt and adhere to a conflict of
         interest policy with respect to contracts between the Company and
         Members or Directors;

                  (d)      All medical decisions at the Hospital shall be made
         by those physicians who are members of the medical staff of the
         Hospital as provided in the bylaws, rules and regulations of the
         medical staff.


                                       3
<PAGE>   8

         SECTION 2.5       REGISTERED AGENT AND OFFICE; PRINCIPAL PLACE OF
                           BUSINESS.

         The registered agent and office of the Company shall be as indicated in
the Articles of Organization, as amended from time to time. The principal place
of business of the Company shall be at such location in St. Tammany Parish,
Louisiana as selected by the Board of Directors from time to time. The Board of
Directors shall promptly notify the Members of any changes in the Company's
registered agent, registered office, or principal place of business.

         SECTION 2.6       COMMENCEMENT AND TERM.

         The Company commenced on the filing of the Articles of Organization in
the Office of the Secretary of State of North Carolina, as required by Section
2.1 hereof, and shall continue until December 31, 2060, unless sooner terminated
or dissolved as provided herein; provided, however, that the termination date
may be extended for up to an additional forty (40) years in five (5) year
increments upon the election of the Board of Directors. The consent of each
Director to such extension shall not be unreasonably withheld or delayed.

                                   ARTICLE III

                        MEMBERS AND CAPITAL CONTRIBUTIONS

         SECTION 3.1       INITIAL CAPITAL CONTRIBUTIONS OF MEMBERS.

                  (a)      The initial Capital Contributions of the initial
                           Members shall equal the greater of (i) $6,730,000 or
                           (ii) 15% of the Project Costs.

                  (b)      Such initial Capital Contribution shall be made as
                           follows:

                           (i)      LHMI shall own at least a 51% Membership
                                    Interest in the Company and shall contribute
                                    to the Company for its Membership Interest
                                    at least 51% of the aggregate amount of such
                                    initial Capital Contributions.

                           (ii)     The Investor Members shall own in the
                                    aggregate up to a 49% Membership Interest
                                    and shall contribute to the Company for
                                    their Membership Interests an amount up to
                                    49% of such initial Capital Contributions.
                                    The Membership Interests of the Investor
                                    Members shall be owned as set forth in the
                                    Information Exhibit.

                  (c)      The Members may be liable to the Company for amounts
                           distributed to them as a return of capital as
                           provided by the Act. Members shall not be required to
                           contribute any additional capital to the Company
                           except as provided in Section 3.5.


                                       4
<PAGE>   9

                  (d)      Once the Board of Directors finally determines the
                           total Project Costs, it may require all Members, upon
                           written notice, to contribute any remaining portion
                           of their respective initial Capital Contribution.

         SECTION 3.2       LIABILITY OF MEMBERS - FOR CAPITAL.

         The liability of each Member for capital shall be limited to the amount
of its agreed Capital Contribution as a Member as provided in Section 3.1 and
Section 3.5, except that the Members may be liable to the Company for amounts
distributed to them as a return of capital as provided by the Act. The Members
shall not be required to contribute any additional capital to the Company except
as provided in Section 3.5.

         SECTION 3.3       MAINTENANCE OF CAPITAL ACCOUNTS; WITHDRAWALS OF
                           CAPITAL; WITHDRAWALS FROM THE COMPANY.

         An individual Capital Account shall be maintained for each Member in
accordance with requirements of the Code and the Regulations promulgated
thereunder. No Member shall be entitled to withdraw or to make demand for
withdrawal of any part of its Capital Account or to receive any distribution
except as provided herein. Except as otherwise provided in this Agreement, each
Member shall look solely to the assets of the Company for the return of its
Capital Contributions and shall have no right or power to demand or receive
property other than cash from the Company. No Member shall have priority over
any other Member as to the return of its Capital Contributions, distributions or
allocations, except as provided in this Agreement.

         Except as otherwise provided herein, a Member may not withdraw from the
Company without the written consent of the other Member. In no case shall a
Member have the right to have its Interest redeemed by the Company unless
approved by the other Member.

         SECTION 3.4       INTEREST ON CAPITAL CONTRIBUTIONS OR CAPITAL
                           ACCOUNTS.

         No interest shall be paid to any Member based solely on its Capital
Contributions or Capital Account. The preceding sentence shall not prevent the
Company from earning interest on its bank accounts and investments and
distributing such earnings to the Member in accordance with Articles VI and VII.

         SECTION 3.5       ADDITIONAL FUNDING.

         If from time to time, the Board of Directors reasonably determines
(which determination shall not be unreasonably withheld or delayed) that funds
in addition to that contemplated by Sections 3.1 and 3.2 are necessary or
appropriate for the development or operation of the Hospital, then:

                  (a)      First, on terms and conditions reasonably acceptable
         to the Board of Directors, LHMI shall loan the Company up to Eight
         Million Dollars ($8,000,000) at the Prime Rate plus one percent (1%)
         per annum which loan shall be secured by the Company's assets. Interest
         shall be paid monthly in arrears. Funds initially shall be


                                       5
<PAGE>   10

         advanced hereunder through the period ending no later that the first
         (1st) anniversary of the opening of the Hospital. Amounts then
         outstanding shall be repaid with interest on a five (5) year repayment
         schedule so that the principal amount of the loan is reduced by
         one-sixtieth (1/60) per month, with interest payable monthly on the
         balance of the principal (the "Repayment Schedule"); provided LHMI
         shall be required to advance additional amounts necessary to ensure
         that at the beginning of the thirteenth month from the opening of the
         Hospital, Company has cash on hand of not less than Five Hundred
         Thousand Dollars ($500,000), which additional advances, if any, shall
         be added to the principal and repaid according to the Repayment
         Schedule. To the extent the Company repays such loan from time to time
         in amounts which are in excess of scheduled principal amounts, such
         amounts of excess principal payments may be reborrowed by the Company
         on mutually acceptable terms. The parties acknowledge that the Company
         intends to seek construction, mortgage and equipment financing from
         third party lenders and lessors and that the loans set forth in this
         subsection (a) are not intended to be used for such purposes. In the
         event that interim financing is needed for such purposes, LHMI may
         elect in its discretion to provide such financing on an interim basis
         pending the closing of third-party financing therefor;

                  (b)      Second, the Board of Directors thereafter shall use
         commercially reasonable efforts to borrow such funds from a bank or
         other lender on terms and conditions reasonably acceptable to the Board
         of Directors. All loans obtained hereunder shall be subject to the
         approval of the Board of Directors, which approval shall not be
         unreasonably withheld or delayed.

                  (c)      Third, if loans as provided in (a) have been fully
         advanced for their intended purpose and loans as provided in (b) above
         are not reasonably available, the Board of Directors may through
         written notice require that the Members contribute additional capital
         to the Company pro rata according to their respective Membership
         Interests, provided however, a Member's maximum obligation for such
         additional Capital Contributions shall be limited to an additional
         amount equal to two times the Member's initial Capital Contribution
         pursuant to Section 3.1;

                  (d)      Fourth, if additional funds are thereafter needed by
         the Company, LHMI or one of its Affiliates may, but shall not be
         required to, loan such funds to the Company at the Prime Rate plus one
         percent (1%) per annum which loan shall be secured by the Company's
         assets. Interest shall be paid monthly in arrears and principal shall
         be repaid according to a schedule to be agreed upon by the Company and
         LHMI or its Affiliate;

                  (e)      Fifth, if additional funds are thereafter needed by
         the Company, the Board of Directors shall request additional Capital
         Contributions from the Members and each Member may elect whether or not
         to contribute its pro rata portion of such additional capital
         requirements as optional Capital Contributions. The other Members may
         elect to contribute optional Capital Contributions not contributed by
         any Member hereunder. Thereafter, the Board of Directors shall
         reasonably adjust the percentage Membership Interest of each Member
         (based on the aggregate of all Capital Contributions made by all


                                       6
<PAGE>   11

         of the Members in accordance with this Agreement) in the event any
         Member elected not to make optional Capital Contributions pursuant to
         this Section 3.5(e); and

                  (f)      Sixth, if adequate funds have not been obtained or
         raised in accordance with (a) through (e) above (including, without
         limitation, taking into consideration funds made available by Members
         for amounts which are in excess of their obligations hereunder), then
         the Board of Directors may elect to dissolve the Company provided,
         however, if any Members or any of their Affiliates (i) have any
         outstanding loans to the Company or are committed to provide such loans
         or (ii) are providing a guaranty or are committed to provide a guaranty
         for any indebtedness of the Company, then only those Members alone upon
         unanimous approval of such Members, upon at least fifteen (15) days
         prior written notice to the other Members, shall be entitled to so
         dissolve the Company due to the Company not having sufficient funds to
         meet its financial obligations or liabilities as they come due.

         SECTION 3.6       ENFORCEMENT OF COMMITMENTS.

         In the event any Member (a "Delinquent Member") fails to make a
mandatory Capital Contribution as provided in Section 3.1 or Section 3.5 or an
optional Capital Contribution as agreed to by the Member under Section 3.5 (the
"Commitment"), the Board of Directors shall give the Delinquent Member a Notice
of the failure to meet the Commitment. If the Delinquent Member fails to perform
the Commitment (including any costs associated with the failure to meet the
Commitment and interest on such obligation at the Default Interest Rate) within
ten (10) business days of the giving of Notice, the Board of Directors may take
such action, including but not limited to enforcing the Commitment in the court
of appropriate jurisdiction in the state in which the principal office of the
Company is located or the state of the Delinquent Member's address as then
reflected in the Agreement. Each Member expressly agrees to the jurisdiction of
such courts but only for the enforcement of Commitments. The other Members may
elect to contribute additional amounts equal to any amount of the Commitment not
contributed by such Delinquent Member. The contributing Member shall be entitled
at its election to treat the amounts contributed pursuant to this Section either
as a Capital Contribution or as a loan from the contributing Member bearing
interest at the Default Rate secured by the Delinquent Member's Interest in the
Company. If the contributing Member elects to contribute such amount as a
Capital Contribution, the percentage Membership Interests of the Members shall
be adjusted proportionately. Until the contributing Member is fully repaid for
such loan made as a result of the default by the Delinquent Member and only if
the contributing Member agrees to accept repayment of such amount, the
contributing Member shall be entitled to all distributions to which the
Delinquent Member would have been entitled had such Commitment been fulfilled
thereby. Notwithstanding the foregoing, no Commitment or other obligation to
make an additional Capital Contribution may be enforced by a creditor of the
Company unless the Member expressly consents to such enforcement or to the
assignment of the obligation to such creditor. Notwithstanding anything herein
to the contrary, the Directors designated by the non-delinquent Members may take
all actions contemplated by this Section 3.6 without the consent of the
Directors designated by the Delinquent Member.


                                        7
<PAGE>   12

         SECTION 3.7       MEMBER DOCUMENTATION.

         Prior to the execution of this Agreement, the Investor Members that are
Entities (an "Investor Entity") shall have delivered to the Company copies of
all documents, instruments and agreements related to the formation, ownership
and governance of the Investor Entity and its owners ("the Investor Entity
Documents"). None of the Investor Entity Documents will be altered or amended
without the consent of the Board of Directors, which consent shall not be
unreasonably withheld. Contemporaneously with the Investor Entity's admission as
a Member of the Company, the members of the Investor Entity shall each execute
an Addendum to Subscription Agreement under which, among other things, those
individuals agree to be personally bound by the terms and conditions of Section
5.10 hereof. Additionally (unless such requirement is waived by the Board of
Directors), the members of the Investor Entity shall also execute a Hospital
Professional Services Agreement with the Company and a Right of First Refusal
Agreement with an Affiliate of LHMI. No Person shall be admitted hereafter as a
member of the Investor Entity unless such Person also executes such Addendum to
Subscription Agreement, the Hospital Professional Services Agreement and the
Right of First Refusal Agreement so that they are bound thereby to the same
extent as are members of the Investor Entity as of the date hereof.

         SECTION 3.8       RESERVED POWERS OF MEMBERS.

         The following actions are the only actions which can be taken by the
Members and shall require the consent of the Required Members:

                  (a)      Amendments to the Articles of Organization or the
         Operating Agreement of the Company;

                  (b)      A merger, consolidation, liquidation, or similar
         reorganization or transfer of a substantial portion of the Company's
         assets;

                  (c)      A sale, lease encumbrance or other transfer of all or
         substantially all of the Company's assets, except for encumbrances
         incurred in connection with financing provided to the Company;

                  (d)      Admission of new Members to the Company;

                  (e)      Any alteration or amendment of the Company's
         Statement of Philosophy and Values and any action which is inconsistent
         with the Company's Statement of Philosophy and Values; and

                  (f)      Approval and authorization of disproportionate
         distributions or allocations of profits, losses or assets of the
         Company, except as specifically permitted elsewhere in this Operating
         Agreement.


                                       8
<PAGE>   13

         SECTION 3.9       APPOINTMENT OF BOARD OF DIRECTORS.

         The Members shall appoint a Board of Directors as follows:

                  (a)      LHMI shall appoint three (3) Directors; and

                  (b)      The Investor Members shall appoint three (3)
                                    Directors.

         A Member or group of Members shall have the right, with or without
cause, to remove, substitute or replace any Director which it or they appointed.

         SECTION 3.10      OBLIGATIONS RELATING TO REAL PROPERTY.

         The Company intends to purchase real property located at a site
approved by the Board of Directors (the "Development") subject to the following:

                  (a)      The agreement by the developer thereof to sell
         sufficient land on which to develop the Hospital for a purchase price
         or rent equal to the fair market value thereof as determined by a
         qualified independent real estate appraiser acceptable to LHMI, the
         Investor Members and the developer;

                  (b)      The developer shall record a restriction acceptable
         to the developer, LHMI, and the Investor Members prohibiting any Person
         from using any part of the Development for a purpose which, if
         conducted by a Member would violate Section 5.10 hereof;

                  (c)      The agreement will contain other commercially
         reasonable terms and conditions, including without limitation, terms
         obligating the developer to execute commercially reasonable documents
         required by third parties providing financing to the Company which will
         require among other things, a first priority lien on the Company's
         interest in the Property.

         SECTION 3.11      MEDICAL OFFICE BUILDING.

         (a)      LHMI is hereby authorized, itself or to designate another
party, at its or their expense to develop and own a medical office building on
real property which such party will lease or own adjacent to the Hospital and
which will contain approximately Forty-Five Thousand (45,000) to Sixty Thousand
(60,000) of leasable square footage ("the MOB"). The tenant space in the MOB may
be leased to Members, their Affiliates or to other third parties. The owners of
the MOB and the Company shall enter into cross easement agreements and other
agreements which are customary for commercial real estate developments.

         (b)      Unless otherwise approved in writing by LHMI in its
discretion, the Company shall not make any binding commitments regarding the
financing or construction of the Hospital unless LHMI or its designee has
entered into commercially reasonable, binding agreements with tenants to lease
office space


                                       9
<PAGE>   14

within the MOB, in a form and for an amount of office space acceptable to LHMI
or its designee but in no event less than Forty-Thousand (40,000) leasable
square feet.

                                   ARTICLE IV

                         NAMES AND ADDRESSES OF MEMBERS

         The names and addresses of the Members are as indicated on the
Information Exhibit attached hereto, which may be amended by the Board of
Directors from time to time.

                                    ARTICLE V

                            MANAGEMENT OF THE COMPANY

         SECTION 5.1       GENERAL AUTHORITY AND POWERS OF LHMI AND THE BOARD
                           OF DIRECTORS.

                  (a)      Except as set forth in those provisions of this
         Agreement that specifically require the vote, consent, approval or
         ratification of the Members and subject to (b) below, the Board of
         Directors shall have complete authority and exclusive control over the
         management of the business and affairs of the Company. Subject to the
         terms and conditions of this Agreement and except as otherwise provided
         herein, all Material Agreements and Material Decisions with respect to
         the business and affairs of the Company shall be approved or made by
         the Board of Directors in accordance with Section 5.15 hereof. No
         Member has the actual or apparent authority to cause the Company to
         become bound in any contract, agreement or obligation, and no Member
         shall take any action purporting to be on behalf of the Company. No
         Director shall cause the Company to become bound to any contract,
         agreement or obligation, and no Director shall take any other action on
         behalf of the Company, unless such matter has received the vote,
         consent, approval or ratification as required pursuant to this
         Agreement with respect to such matter or except as provided below with
         respect to the authority and actions of LHMI.

                  (b)      The day-to-day management of the business and affairs
         of the Company shall be the responsibility of LHMI pursuant to the
         terms of the Management Agreement, which management shall be subject to
         decisions, guidelines and policies made or established by the Board of
         Directors hereunder, provided, however, decisions relating to medical
         and clinical practice at the Hospital shall be made exclusively by the
         qualified medical personnel of the Hospital under the direction of a
         member of the Hospital's medical staff.

                  (c)      The parties acknowledge that the Management Agreement
         is an integral part of the plans to develop and operate the Hospital
         and its execution is a condition to LHMI's participation in the
         Company.


                                       10
<PAGE>   15

         SECTION 5.2       RESTRICTIONS ON AUTHORITY OF THE BOARD OF DIRECTORS.

         The Board of Directors shall not do any of the following:

                  (a)      Act in contravention of this Agreement;

                  (b)      Act in any manner which would make it impossible to
         carry on the express business purposes of the Company;

                  (c)      Commingle the Company funds with those of any other
         Person;

                  (d)      Admit an additional Member without the approval of
         all Members or except as otherwise provided in this Agreement.

                  (e)      Alter the primary purposes of the Company as set
         forth in Section 2.3;

                  (f)      Possess any property or assign the rights of the
         Company in specific property for other than a Company purpose;

                  (g)      Employ, or permit the employ of, the funds or assets
         of the Company in any manner except for the exclusive benefit of the
         Company;

                  (h)      Make any payments of any type, directly or
         indirectly, to anyone for the referral of patients to the Hospital in
         order to use the Hospital or to provide other services; or

                  (i)      Sell all or substantially all of the assets of the
         Company or merge the Company with or into any other Entity without the
         approval of all of the Members;

         SECTION 5.3       DUTIES OF THE BOARD OF DIRECTORS.

         The Board of Directors shall do the following:

                  (a)      Diligently and faithfully devote such of its time to
         the business of the Company as may be necessary to properly conduct the
         affairs of the Company, however, the individual Directors shall not be
         required to devote their full time to such duties;

                  (b)      Use its best efforts to cause the Company to comply
         with such conditions as may be required from time to time to permit the
         Company to be classified for federal income tax purposes as a
         partnership and not as an association taxable as a corporation;

                  (c)      File and publish all certificates, statements, or
         other instruments required by law for the formation and operation of
         the Company as a limited liability company in all appropriate
         jurisdictions;


                                       11
<PAGE>   16

                  (d)      Use their commercially reasonable best efforts to
         cause the Company to obtain and keep in force during the term of the
         Company fire and extended coverage and public liability and
         professional liability insurance with such issuers and in such amounts
         as the Board of Directors shall deem advisable, but in amounts not less
         (and deductible amounts not greater) than those customarily maintained
         with respect to the business equipment and property comparable to the
         Company's; and

                  (e)      Have a fiduciary duty to conduct the affairs of the
         Company in the best interests of the Company and of the Members,
         including the safekeeping and use of all funds and assets, whether or
         not in its immediate possession and control, and it shall not employ or
         permit others besides the Board of Directors to employ such funds or
         assets in any manner except for the benefit of the Company.

         SECTION 5.4       DELEGATION BY THE BOARD OF DIRECTORS.

         Subject to restrictions otherwise provided herein, the Board of
Directors may at any time employ any other Person, including Persons and
Entities employed by, affiliated with, or related to any Director or any Member
to perform services for the Company and its business, and may delegate all or
part of their authority or control to any such other Persons, provided that such
employment or delegation shall not relieve the Board of Directors of its
responsibilities and obligations under this Agreement or under the laws of the
State of North Carolina nor will it make any such Person a Member of the
Company.

         SECTION 5.5       RIGHT TO RELY UPON THE AUTHORITY OF THE MANAGER.

         Persons dealing with the Company may rely upon the representation of
the Manager that such Manager is the manager of the Company and that such
Manager has the authority to make any commitment or undertaking on behalf of the
Company. No Person dealing with the Manager shall be required to determine its
authority to make any such commitment or undertaking. In addition, no purchaser
from the Company shall be required to determine the sole and exclusive authority
of the Manager to sign and deliver on behalf of the Company any instruments of
transfer with respect thereto or to see to the application or distribution of
revenues or proceeds paid or credited in connection therewith, unless such
purchaser shall have received written notice from the Company affecting the
same.

         SECTION 5.6       COMPANY EXPENSES.

                  (a)      The Company shall pay the amounts due to LHMI under
         the Management Services Agreement from time to time.

                  (b)      The Company shall also pay the following expenses of
         the Company:

                           (i)      All development and operational expenses of
                  the Company, which may include, but are not limited to: the
                  salary and related expenses of employees and staff of the
                  Hospital, all costs of borrowed money, taxes, and assessments
                  on the Hospital, and other taxes applicable to the Company;
                  expenses in connection


                                       12
<PAGE>   17

                  with the acquisition, maintenance, leasing, refinancing,
                  operation, and disposition of the Equipment, furniture and
                  fixtures of the Hospital (including legal, accounting, audit,
                  commissions, engineering, appraisal, and the other fees); and
                  the maintenance of the Hospital and its Equipment, which may
                  be performed by LHMI or one of its Affiliates as long as the
                  charges to the Company for such service are no greater than
                  the charges for such service from a third party service
                  provider;

                           (ii)  A medical director's fee in an amount approved
                  by the Board of Directors to be paid to the medical director
                  of the Hospital pursuant to the Medical Director Agreement;
                  and

                           (iii) All fees and expenses paid to third parties for
                  accounting, legal, documentation, professional, and reporting
                  services to the Company, which may include, but are not
                  limited to: preparation and documentation of Company
                  bookkeeping, accounting and audits; preparation and
                  documentation of budgets, cash flow projections, and working
                  capital requirements; preparation and documentation of Company
                  state and federal tax returns; and taxes incurred in
                  connection with the issuance, distribution, transfer,
                  registration, and recordation of documents evidencing
                  ownership of a Membership Interest in the Company or in
                  connection with the business of the Company; expenses in
                  connection with preparing and mailing reports required to be
                  furnished to the Members for tax reporting or other purposes,
                  including reports, if any, that may be required to be filed
                  with any federal or state regulatory agencies, or expenses
                  associated with furnishing reports to Members which the Board
                  of Directors deems to be in the best interest of the Company;
                  expenses of revising, amending, converting, modifying, or
                  terminating the Company or this Agreement; costs incurred in
                  connection with any litigation in which the Company is
                  involved as well as any examination, investigation, or other
                  proceedings conducted by any regulatory agency involving the
                  Company; costs of any computer equipment or services used for
                  or by the Company; and the costs of preparing and
                  disseminating informational material and documentation
                  relating to a potential sale, refinancing, or other
                  disposition of the Hospital or the Equipment.

         (c)      Guarantee Fee. In the event that any Member of the Company,
its Affiliates or MedCath Incorporated provide a guarantee of any indebtedness
of the Company which is acceptable to and required by the Company's lenders
("Guarantor Members") and such guarantees are not provided on a pro rata basis
by all other Members of the Company (the "Nonguarantor Members"), then the
Guarantor Members shall be paid an annual guarantee fee equal to (a) the amount
of such indebtedness which is guaranteed by the Guarantor Members, multiplied by
(b) .0075, multiplied by (c) the percentage Membership Interest in the Company
owned by the Nonguarantor Members (the "Guarantee Fee"). The Guarantee Fee shall
be paid quarterly and the expense thereof shall be allocated to the Nonguarantor
Members as follows:


                                       13
<PAGE>   18

                           (i)      The Guarantee Fee shall be deducted from the
                  Cash Distributions otherwise distributable to the Nonguarantor
                  Members and shall be paid to the Guarantor Members;

                           (ii)     To the extent that at the time such
                  Guarantee Fee is due to be paid hereunder there are no
                  anticipated Cash Distributions, then the Company shall pay
                  such Guarantee Fee to the Guarantor Members and the amount of
                  such payments shall be charged to the Capital Accounts of the
                  Nonguarantor Members;

                           (iii)    When Cash Distributions become available for
                  distribution to the Members in the future, the Cash
                  Distributions otherwise distributable to the Nonguarantor
                  Members shall first be retained by the Company to the extent
                  that amounts were previously charged to the Capital Accounts
                  of the Nonguarantor Members in accordance with subsection (ii)
                  above and any remaining Cash Distributions shall be
                  distributed to the Members in accordance with Section 6.1.

                  (d)      Once a budget has been approved by the Board of
         Directors, LHMI shall have the authority to expend up to one hundred
         and five percent (105%) of any and all funds which are included in the
         budget and sign all agreements related thereto, including reimbursement
         to LHMI and its Affiliates for goods and services provided to the
         Company. LHMI shall have the right to recast the budget by transferring
         all or part of the funds approved for specific line items to another
         category or line item by an aggregate amount not to exceed five percent
         (5%) of the total budgeted funds. If revenues exceed those in the
         current budget, LHMI is further authorized to make additional
         expenditures reasonably related to such additional revenues. LHMI shall
         report to the Board of Directors from time to time on variances between
         the Hospital's budget and actual operating results.

         SECTION 5.7       NO MANAGEMENT BY MEMBERS.

         The Members shall take no part in, or at any time interfere in any
manner with, the management, conduct, or control of the Company's business and
operations and shall have no right or authority to act for or bind the Company
except as set forth in this Agreement. The rights and powers of such Members
shall not extend beyond those set forth in this Agreement and those granted
under the Articles of Organization and any attempt to participate in the control
of the Company in a manner contrary to the rights and powers granted herein and
under the Articles of Organization shall be null and void and without force and
effect. Subject to the decisions and judgment with respect to all professional
medical or clinical matters of qualified medical personnel, the Board of
Directors shall have the right to determine when and how the operations of the
Company shall be conducted. The exercise by any other Member of any of the
rights granted to the Member hereunder shall not be deemed to be taking part in
the control of the business of the Company and shall not constitute a violation
of this Section.


                                       14
<PAGE>   19

         SECTION 5.8       CONSENT BY MEMBERS TO EXERCISE OF CERTAIN RIGHTS AND
                           POWERS BY BOARD OF DIRECTORS.

         By its execution hereof, each Member expressly consents to the exercise
by the Board of Directors of the rights, powers, and authority conferred on the
Board of Directors by this Agreement.

         SECTION 5.9       MEETINGS, QUORUM AND VOTE OF THE BOARD OF DIRECTORS.

                  (a)      The Board of Directors shall meet at least quarterly.
         Notice of any meeting, regular or special, shall be delivered to each
         Director personally, by telephone, by electronic mail, by facsimile
         transmission or in writing at least five (5) business days before the
         meeting.

                  (b)      An emergency meeting of the Board of Directors may be
         called by any Director upon shorter notice. Action taken at the
         emergency meeting shall be valid so long as the meeting is attended by
         at least two members of the Board of Directors who are representatives
         of each of the Investor Members and of LHMI, and the action is
         unanimously approved by the members of the Board of Directors present
         at such meeting.

                  (c)      The Board of Directors shall elect one of its members
         to preside over the meetings as the Chairperson and one of its members,
         as the Secretary, to oversee the preparation and delivery of meeting
         notices and the preparation of minutes of the meetings of the Board of
         Directors and Members.

                  (d)      A quorum of the Board of Directors shall be necessary
         to conduct business at any meeting. A quorum shall consist of four
         Directors and must include two Directors designated by each of LHMI and
         the Investor Members. A Director may attend a meeting by telephone or
         other electronic means and be considered present for purposes of a
         quorum so long as the telephone or other connection allows each
         Director to hear and be heard by all other Directors.

                  (e)      Except as provided in Section 5.15 or as otherwise
         expressly provided in this Agreement, any action taken by the Board of
         Directors shall require the affirmative vote of at least a majority of
         the Directors present at a meeting at which a quorum is present and
         shall require the consent of at least one member of the Board of
         Directors appointed by each of LHMI and the Investor Members.

                  (f)      Any action which is required to be or may be taken at
         a meeting of the Board of Directors may be taken without a meeting if
         consent in writing, either collectively or in counterparts, setting
         forth the action so taken.

                  (g)      Attendance at a meeting of the Board of Directors
         constitutes waiver of any objection to the Notice of the meeting.


                                       15
<PAGE>   20

         SECTION 5.10      OTHER BUSINESS OF MEMBERS.

                  (a)      Subject to (b) below, any Member may engage
         independently or with others in other business ventures of every nature
         and description, including without limitation the purchase of medical
         equipment, the rendering of medical services of any kind, and the
         making or management of other investments and neither the Company nor
         any Member shall have any right by virtue of this Agreement or the
         relationship created hereby in or to such other ventures or activities
         or to the income or proceeds derived therefrom, and the pursuit of such
         ventures.

                  (b)      Notwithstanding the terms of this Section 5.10:

                           (i)      No Member or Affiliate of a Member who is a
                  physician shall be prohibited from maintaining his or her
                  staff privileges and admitting and treating patients at any
                  other hospital;

                           (ii)     Nothing herein shall prohibit a Member or
                  Affiliate of a Member from owning up to three percent (3%) of
                  the outstanding capital stock of a company whose stock is
                  publicly traded and listed on a nationally recognized
                  securities exchange or from investing in a publicly traded
                  mutual fund or making other investments with the prior written
                  approval of the Board of Directors;

                           (iii)    Except as specifically provided in Schedule
                  5.10 or in (i) and (ii) above, as long as any Member owns a
                  Membership Interest in the Company, and for a period of two
                  (2) years after a Member ceases for any reason to own a
                  Membership Interest in the Company, neither a Member nor any
                  of its respective Affiliates, shall hold, directly or
                  indirectly (an Affiliate who no longer owns an interest in an
                  Investor Entity shall not be subject to this restriction
                  following the second (2nd) anniversary of the date such
                  Affiliate no longer owns for any reason an interest in the
                  Investor Entity), an investment, ownership or other beneficial
                  interest in (x) any hospital, or (y) any other Entity
                  (including a sole proprietorship) which provides any of the
                  following services or facilities in St. Tammany Parish,
                  Louisiana (the "Territory"): cardiac catheterization,
                  angioplasty, peripheral angioplasty, atherectomy, stenting and
                  PTCA or other cardiac surgical procedures or services or
                  orthopedic surgery or orthopedic services (collectively, the
                  "Services"), and any other type of medical service or surgical
                  procedure provided at the Hospital from time to time which (a)
                  is not part of Services and (b) which is not generally
                  provided by physicians in their offices within the Territory.
                  Notwithstanding the foregoing, nothing herein shall prohibit a
                  physician owner of the Investor Member from owning an interest
                  in an ambulatory surgical center, provided that (x) such
                  physician has privileges to perform surgery at such center and
                  (y) such center does not offer or include the Services; and
                  provided further, however, that any Affiliate of an Investor
                  Member who owns, or had a legally binding commitment to
                  acquire, an ownership interest in an ambulatory surgery center
                  as of August 15, 2000 and who discloses such


                                       16
<PAGE>   21

                  ownership interest in writing to Company prior to execution of
                  this Agreement shall be permitted to continue to hold or
                  acquire such interest;

                           (iv)     LHMI or its Affiliates may separately
                  operate a mobile diagnostic catheterization laboratory within
                  the Territory, but only if either LHMI or an Affiliate thereof
                  is providing such service pursuant to a lease of twelve (12)
                  months or less to a provider who is already providing cath lab
                  services and if the Board of Directors has elected not to have
                  such service provided by the Company;

                           (v)      The Investor Members may separately operate
                  a single diagnostic cardiac catheterization laboratory in the
                  MOB and may provide only diagnostic catheterization services
                  therein; and

                           (vi)     Nothing herein shall prevent any Member or
                  Affiliate who is a physician from personally performing
                  professional medical services directly for his or her patients
                  at any hospital or facility and from billing and receiving
                  professional fees as a result of his or her professional
                  medical services from any payor.

                  (c)      The Members have reviewed the term and geographical
         restrictions included in Section 5.10(b), and in light of the interests
         of the parties hereto, agree that such restrictions are fair and
         reasonable.

                  (d)      In order to ensure that the Hospital has available to
         it at all times leading and qualified cardiologists and cardiovascular
         surgeons, as of the date hereof the Company is entering into the
         Hospital Professional Services Agreement (the "Professional Service
         Agreement") with the Investor Members and if the Investor Member is an
         entity, its physician owners (the "Physician Owners"), which Agreement
         includes in paragraph 7 thereof certain covenants by the Practice and
         its physicians which are designed to ensure that such physicians will
         be available to the Hospital from time to time in order to enable it to
         meet its objectives of being an efficient quality provider of
         cardiology and cardiovascular services. The parties acknowledge and
         agree that the Investor Member's and its Physician Owners' execution of
         the Professional Service Agreement is further consideration for the
         execution by the Members of this Agreement.

                  (e)      If there is a breach or threatened breach of the
         provisions of this Section 5.10 of this Agreement, in addition to other
         remedies at law or equity, the non-breaching parties shall be entitled
         to injunctive relief. The parties desire and intend that the provisions
         of this Section 5.10 shall be enforced to the fullest extent
         permissible under the law and public policies applied, but the
         unenforceability or modification of any particular paragraph,
         subparagraph, sentence, clause, phrase, word, or figure shall not be
         deemed to render unenforceable the remainder of this Section 5.10.
         Should any such paragraph, subparagraph, sentence, clause, phrase,
         word, or figure be adjudicated to be wholly invalid or unenforceable, a
         court with applicable authority is hereby authorized to "blue pencil"
         or modify this Section, the balance of this Section 5.10 shall
         thereupon be


                                       17
<PAGE>   22

         modified in order to render the same valid and enforceable and the
         unenforceable portion of this Section 5.10 shall be deemed to have been
         deleted from this Agreement.

                  (f)      The Company, the Board of Directors and the Members
         agree that the benefits to any Member hereunder do not require, are not
         payment for, and are not in any way contingent upon the referral,
         admission or any other arrangement for the provision of any item or
         service offered by the Company to patients of such Member or any
         physician owner or Affiliate of such Member or any physician owner or
         Affiliate of such Member in any facility, laboratory, cardiac
         catheterization facility or other health care operation controlled,
         managed or operated by the Company and nothing herein is intended to
         prohibit any party from practicing medicine at any other facility.

                  (g)      If a Member is a legal entity and not an individual,
         such Member shall cause each of its existing and future Affiliates to
         agree in writing to be personally bound by the terms of this Section
         5.10.

         SECTION 5.11      BOARD OF DIRECTORS' STANDARD OF CARE.

         Each Director shall act in a manner he or she believes in good faith to
be in the best interest of the Company and with such care as an ordinarily
prudent Person in a like position would use under similar circumstances. In
discharging his or her duties, each Director shall be fully protected in relying
in good faith upon the records required to be maintained under this Agreement
and upon such information, opinions, reports and statements by any of its other
Directors, Members, or agents, or by any other Person as to matters each
Director reasonably believes are within such other Person's professional or
expert competence and who has been selected with reasonable care by or on behalf
of the Company, including information, opinions, reports or statements as to the
value and amount of the assets, liabilities, income or losses of the Company or
any other facts pertinent to the existence and amount of assets from which
distributions to members might properly be paid.

         Notwithstanding anything herein to the contrary, a Director or Member
shall have the right to vote or approve Company matters in accordance with the
terms of this Agreement regardless of the personal interest of any Member or
Director in the outcome of any vote, decision or matter.

         SECTION 5.12      LIMITATION OF LIABILITY.

         A Director shall not be liable to the Company or its Members for any
action taken in managing the business or affairs of the Company if it performs
the duty of its office in compliance with the standard contained in Section
5.11. No Director has guaranteed nor shall have any obligation with respect to
the return of a Member's Capital Contribution or share of income from the
operation of the Company. Furthermore, no Director, its Affiliates or its
employees (collectively, its "Agents") shall be liable to the Company or to any
Member for any loss or damage sustained by the Company or any Member except loss
or damage resulting from gross negligence or intentional misconduct or knowing
violation of law or a transaction for


                                       18
<PAGE>   23

which such Director or Agent received a personal benefit in violation or breach
of the provisions of this Agreement.

         SECTION 5.13      INDEMNIFICATION OF THE DIRECTORS.

                  (a)      Each Director and its Agents shall be indemnified by
         the Company against any losses, judgments, liabilities, expenses,
         including attorneys' fees and amounts paid in settlement of any claims
         sustained by such Director arising out of any action or inaction of the
         Director and its Agents in its capacity as a Director of the Company to
         the fullest extent allowed by law, provided that the same were not the
         result of gross negligence or willful misconduct on the part of the
         Director or an Agent and provided that the Director or an Agent, in
         good faith, reasonably determined that such course of conduct was in
         the best interest of the Company; provided, however, that such
         indemnification and agreement to hold harmless shall be recoverable
         only out of Company assets. Subject to applicable law, the Company
         shall advance expenses incurred with respect to matters for which a
         Director may be indemnified hereunder.

                  (b)      If at any time, the Company has insufficient funds to
         furnish indemnification as herein provided, it shall provide such
         indemnification if and as it generates sufficient funds and prior to
         any cash distributions, pursuant to Article VI or Article VII hereof,
         to the Members.

         SECTION 5.14      PURCHASE OF GOODS AND SERVICES FROM LHMI.

         Goods and services may be purchased from Members or their Affiliates as
long as they are of substantially the same quality and price as could be
obtained from an unrelated third party.

         SECTION 5.15      CERTAIN DECISIONS OF THE BOARD OF DIRECTORS.

                  (a)      As long as LHMI and/or its Affiliates are (i)
         providing a guaranty or are committed to provide a guaranty for any
         indebtedness of the Company, and/or (ii) have any outstanding loans to
         the Company or are committed to provide such loans, then
         notwithstanding anything in this Agreement to the contrary, all
         decisions and actions to be made by the Board of Directors with respect
         to any loan, lease or other similar financing of the development,
         construction or operation of the Hospital or the Company's affairs,
         including without limitation the decisions with respect to incurring
         any indebtedness or the refinancing thereof, shall be made by the
         Directors designated by LHMI and shall be subject to the consent of at
         least one of the Directors appointed by the Investor Members, which
         consent shall not be unreasonably withheld.

                  (b)      The Board of Directors shall be deemed to have
         specifically approved all expenditures proposed by LHMI under this
         Article V that are substantially consistent with the Development Budget
         Exhibit (Exhibit C) or an approved operating budget when funded from
         additional Capital Contributions made to the Company by the Members
         pursuant to Section 3.5 above.


                                       19
<PAGE>   24

                  (c)      The development and annual operating budgets to be
         proposed by LHMI hereunder shall be approved by the Board of Directors
         as provided above subject to the following:

                           (i)      The Board of Directors shall be deemed to
                  have approved a development budget which is substantially
                  consistent with the attached Development Budget Exhibit to
                  this Agreement;

                           (ii)     No Director shall unreasonably withhold its
                  approval of budgets which are within the reasonable revenue
                  expectations of the Hospital and which are in compliance (both
                  as to terms and availability of financing) with agreements
                  with the Company's lenders and other parties providing
                  financing to the Company; and

                           (iii)    In the event that the Board of Directors are
                  unable to approve an annual budget, LHMI shall be authorized
                  to operate the Company pursuant to the this Agreement under
                  the previous year's budget increased by the greater of 5% or
                  the increase during the previous year in the Consumer Price
                  Index for Medical Items until a new budget is approved.

                  (d)      Without LHMI's written consent, the Investor Members
         and the Board will not approve any change to the construction, design
         or equipment of the Hospital, if the effect thereof is to materially
         increase the cost thereof as set forth on the Development Budget
         Exhibit approved hereunder.

         SECTION 5.16      INDEMNITY BY THE COMPANY.

         The Company shall use its commercially reasonable best efforts to
purchase "directors and officers" and similar insurance to protect the actions
of Members and the Board of Directors in their management of the Company within
the scope of this Agreement. To the extent not covered by such insurance, the
Company agrees to indemnify, defend and hold all Members, their Affiliates,
directors, officers, employees and agents, harmless from and against any and all
loss, claim, cause of action, demand, penalty, liability, action, damage or
deficiency, lawsuit or other proceeding, resulting or arising from (a) acts or
omissions of the Company, its members, officers, employees (unless due to the
gross negligence or willful misconduct of the applicable Member), (b) any
liability or obligation of the Company, except those which the applicable Member
created in violation of this Article V; (c) any nonfulfillment of the Company of
any of its covenants or agreements under this Article V; (d) any violation of
law by the Company; and (e) any loss or damage, reasonable attorney's fees and
other costs and expenses incident to any of (a) through (d). The indemnity
covenants set forth in this Section 5.16 shall survive the termination of this
Agreement for any reason. Notwithstanding the foregoing, no Member shall be
entitled to the indemnity rights set forth in this Section for any acts or
omissions arising from or related to the provision of medical, health or
therapeutic services; provided, however, that this sentence shall not prohibit
any Member from asserting any separate claim it may have under other contractual
agreements or arising by operation of law against the Company arising from


                                       20
<PAGE>   25

any claim or action made or alleged against such Member by a third party as a
result of the acts or omissions of Company or its employees.

         SECTION 5.17      FORCE MAJEURE.

         No Member shall be liable nor shall it be deemed to be in default for
any delay or failure in performance under this Article V or other interruption
of service or employment deemed resulting directly or indirectly from Acts of
God, civil or military authority, acts of public enemy, war, accidents, fires,
explosions, earthquakes, floods, failure of transportation, strikes or other
work interruptions by a Member's employees or any similar or dissimilar cause
beyond the reasonable control of a Member. Further, no Member shall be in
default under this Article V if the default resulted from actions taken at the
request or direction of the Board of Directors or if the Board of Directors
failed to take reasonable action recommended by a Member to enable it to meet
its obligations hereunder.

                                   ARTICLE VI

                          DISTRIBUTIONS AND ALLOCATIONS

         SECTION 6.1       DISTRIBUTIONS OF CASH FLOW FROM OPERATIONS AND CASH
                           FROM SALES OR REFINANCING.

         Prior to the dissolution of the Company, and subject to the terms and
conditions to which the Company is bound with respect to its lenders ("Loan
Conditions"), Cash Flow from Operations and Cash from Sales or Refinancing, if
any, remaining after repayment of any amounts currently due with respect to
loans made by the Members to the Company shall be distributed as Cash
Distributions according to the relative percentage Membership Interests of the
Members at such times as the Board of Directors deems appropriate; provided,
however, that to the extent possible, any Guarantee Fee shall be deducted from
the Cash Distributions otherwise distributable to the Nonguarantor Members and
paid to the Guarantor Members as set forth in Section 5.6(c). Notwithstanding
anything herein to the contrary, no distributions shall be made to Members if
prohibited by the Act or any other applicable law.

         The Board of Directors shall, to extent permitted by the Loan
Conditions and subject to the availability of Cash Flow from Operations and
using commercially reasonable efforts, distribute cash annually pro rata to
Members in an amount which is sufficient to enable them to pay income taxes
which arise from the taxable income of the Company. In computing taxable income
of each Member, the taxable income of each Member for the current year shall be
reduced by any cumulative tax losses incurred in prior years (after reduction by
taxable income in prior years). Such distributions shall assume for all Members
the highest combined federal and state tax rates applicable to any Member with
respect to his or its Profits from the Company.


                                       21
<PAGE>   26

         SECTION 6.2       PROFITS.

         Except as provided in the Regulatory Allocations Exhibit (Exhibit D)
and subject to Section 6.6, Profits shall be allocated as follows:

                  (a)      First, to the Members who have been allocated Losses
         pursuant to Subsection 6.3(a) below until the cumulative Profits
         allocated pursuant to this Subsection 6.2(a) equal the cumulative prior
         allocations of Losses under that Subsection.

                  (b)      Next, to the Members who have been allocated Losses
         pursuant to Subsection 6.3(b) below until the cumulative Profits
         allocated pursuant to this Subsection 6.2(b) equal the cumulative prior
         allocations of Losses under that Subsection.

                  (c)      All remaining Profits shall be allocated to the
         Members in accordance with their percentage Membership Interests.

         SECTION 6.3       LOSSES.

         Except as provided in the Regulatory Allocations Exhibit and subject to
Section 6.6, Losses shall be allocated as follows:

                  (a)      First, Losses shall be allocated to the Members with
         positive Adjusted Capital Account balances in proportion to those
         balances.

                  (b)      All remaining Losses shall be allocated to the
         Members in accordance with their percentage Membership Interests.

         SECTION 6.4       CODE SECTION 704(C) TAX ALLOCATIONS.

         Income, gain, loss, and deduction with respect to any property
contributed to the capital of the Company shall, solely for tax purposes, be
allocated among the Members so as to take account of any variation between the
adjusted basis of such property to the Company for federal income tax purposes
and its initial Agreed Value pursuant to any method allowable under Code Section
704(c) and the Regulations promulgated thereunder.

         In the event the Agreed Value of any Company asset is adjusted after
its contribution to the Company, subsequent allocations of income, gain, loss
and deduction with respect to such asset shall take into account any variation
between the adjusted basis of such asset for federal income tax purposes and its
Agreed Value pursuant to any method allowable under Code Section 704(c) and the
Regulations promulgated thereunder.

         Any elections or other decisions relating to allocations under this
Section shall be determined by the Board of Directors. Absent a determination by
the Board of Directors, the remedial allocation method under Regulation Section
1.704-3(d) shall be used. Allocations pursuant to this Section are solely for
purposes of federal, state, and local taxes and shall not be


                                       22
<PAGE>   27

taken into account in computing any Member's Capital Account or share of
Profits, Losses, other items, or distributions pursuant to any provision of this
Agreement.

         SECTION 6.5       MISCELLANEOUS.

                  (a)      Allocations Attributable to Particular Periods. For
         purposes of determining Profits, Losses or any other items allocable to
         any period, such items shall be determined on a daily, monthly, or
         other basis, as determined by the Board of Directors using any
         permissible method under Code Section 706 and the Regulations
         thereunder.

                  (b)      Other Items. Except as otherwise provided in this
         Agreement, all items of Company income, gain, loss, deduction, credit
         and any other allocations not otherwise provided for shall be divided
         among the Members in the same proportion as they share Profits or
         Losses, as the case may be, for the year.

                  (c)      Tax Consequences; Consistent Reporting. The Members
         are aware of the income tax consequences of the allocations made by
         this Article and by the Regulatory Allocations and hereby agree to be
         bound by those allocations as reflected on the information returns of
         the Company in reporting their shares of Company income and loss for
         income tax purposes. Each Member agrees to report its distributive
         share of Company items of income, gain, loss, deduction and credit on
         its separate return in a manner consistent with the reporting of such
         items to it by the Company. Any Member failing to report consistently,
         and who notifies the Internal Revenue Service of the inconsistency as
         required by law, shall reimburse the Company for any legal and
         accounting fees incurred by the Company in connection with any
         examination of the Company by federal or state taxing authorities with
         respect to the year for which the Member failed to report consistently.

         SECTION 6.6       SPECIAL ALLOCATIONS OF GUARANTEE FEES.

         Any and all deductions, losses or reductions to Capital Accounts
attributable to the payment by the Company of Guarantee Fees shall be allocated
to the Nonguarantor Members in accordance with their relative percentage
Membership Interests.

                                   ARTICLE VII

              DISSOLUTION, WINDING UP AND LIQUIDATING DISTRIBUTIONS

         SECTION 7.1       NO TERMINATION BY CERTAIN ACTS OF MEMBER.

         Neither the transfer of interest, withdrawal from the Company,
bankruptcy, insolvency, dissolution, liquidation or other disability, nor the
legal incompetency of any Member shall result in the termination or dissolution
of the Company or affect its continuance in any manner whatsoever.


                                       23
<PAGE>   28

         SECTION 7.2       DISSOLUTION.

         The Company shall be dissolved upon the happening of any of the
following events, whichever shall first occur:

                  (a)      The election to dissolve the Company in accordance
         with the terms of Section 3.5(f) hereof;

                  (b)      The expiration of the term of the Company as provided
         in Section 2.5 hereof;

                  (c)      The adjudication of bankruptcy of the Company;

                  (d)      Upon the written consent of the Required Members;

                  (e)      In accordance with Section 12.11 hereof; and

                  (f)      The entry of a decree of judicial dissolution or the
         administrative dissolution of the Company as provided in the Act.

                  (g)      Upon the written election of LHMI prior to the
         execution by LHMI on behalf of the Company of definitive agreements for
         the construction of the Hospital and for a loan to finance the
         construction of the Hospital, in the event that upon thirty (30) days
         prior written notice to the other Members, the conditions set forth at
         Section 3.11 have not been met with regard to the MOB.

         SECTION 7.3       DISSOLUTION AND FINAL LIQUIDATION.

                  (a)      Upon any dissolution of the Company, the Company
         shall not terminate, but shall cease to engage in further business
         except to the extent necessary to perform existing contracts and
         preserve the value of its assets. Its assets shall be liquidated and
         its affairs shall be wound up as soon as practical thereafter by the
         Manager or, if for any reason there is no Manager, by another Person
         designated by the Board of Directors. In winding up the Company and
         liquidating assets, the Manager, or other Person so designated for such
         purpose, may arrange, either directly or through others, for the
         collection and disbursement to the Members of any future receipts from
         the Hospital or other sums to which the Company may be entitled, and
         shall sell the Company's interest in the Hospital and the Equipment to
         any Person, including any Member or any Affiliate thereof, on such
         terms and for such consideration as shall be consistent with obtaining
         the fair market value thereof, as such fair market value is approved by
         the Members.

                  (b)      Upon any such dissolution and liquidation of the
         Company, the net assets, if any, of the Company available for
         distribution, including any cash proceeds from the liquidation of
         Company assets, shall be applied and distributed in the following
         manner or order, to the extent available:


                                       24
<PAGE>   29

                  (i)      To the payment of or creation of reserves for all
         debts, liabilities, and obligations to all creditors of the Company
         (other than the Members or their Affiliates) and the expenses of
         liquidation;

                  (ii)     To the payment of all debts and liabilities
         (including interest), and further including without limitation any
         accrued but unpaid Guarantee Fees, owed to the Members or their
         Affiliates as creditors; and

                  (iii)    The balance to the Members with positive Capital
         Account balances after taking into account all other adjustments during
         the Fiscal Year in which liquidation occurs.

         (c)      The Members shall look solely to the assets, if any, of the
Company for any return of their Capital Contributions and, if the assets of the
Company remaining after payment or discharge of the Company's debts and
liabilities, or provision therefor, are insufficient to return all or any part
of the Capital Contributions, no Member shall have any right of recourse against
the Directors or other Members or to charge the Board of Directors or other
Members for any amounts except as provided herein and except to the extent
otherwise provided by the Act and/or North Carolina law.

         (d)      Upon such dissolution, reasonable time shall be allowed for
the orderly liquidation of the assets of the Company and the discharge of
liabilities to creditors so as to minimize the losses normally attendant to a
liquidation.

         (e)      The Capital Accounts of the Members, as adjusted, shall be
utilized by the Company for the purpose of making distributions to those Members
with positive balances in their respective Capital Accounts pursuant to Section
7.3(b). In making such distributions, the Board of Directors or the Person
winding up the affairs of the Company shall distribute all funds available for
distribution to the Members (after establishing any reserves that the Board of
Directors or the Person winding up the affairs of the Company deems reasonably
necessary pursuant to Section `(b)) prior to the later of (a) the end of the
taxable year in which the event which caused the termination and dissolution of
the Company occurs, or (b) ninety (90) days after the occurrence of such event.
The Board of Directors in its sole discretion, or the Person winding up the
affairs of the Company, in its discretion, may elect to have the Company retain
any installment obligations owed to the Company until collected in full so long
as any portion of the reserves which are later determined to be unnecessary, and
all collections on such installment obligations which are not deemed to be
reasonably necessary by the Board of Directors or the Person winding up the
affairs of the Company to add to such reserves are distributed as soon as
practicable in accordance with the provisions of Section 7.3(b) as modified by
this Section.

         SECTION 7.4       TERMINATION.

         Upon completion of the dissolution, winding up, distribution of the
liquidation proceeds and any other Company assets, the Company shall terminate.


                                       25
<PAGE>   30

         SECTION 7.5       PAYMENT IN CASH.

         Any payments made to any Member pursuant to this Article VII shall be
made only in cash.

         SECTION 7.6       TERMINATION OF NONCOMPETITION COVENANTS.

         Members shall have no continuing liability or obligation under Section
5.10(b) after the second (2nd) anniversary of the dissolution of the Company.

                                  ARTICLE VIII

                REMOVAL OR WITHDRAWAL OF MANAGERS AND MEMBERS AND
            TRANSFER OF MEMBERS' MEMBERSHIP AND/OR ECONOMIC INTERESTS

         SECTION 8.1       MEMBERS - RESTRICTION ON TRANSFER.

                  (a)      Except as otherwise set forth in this Section or in
         this Agreement, no Membership Interest or any portion thereof, shall be
         validly sold or assigned whether voluntarily, involuntarily or by
         operation of law, and no purported assignee shall be recognized by the
         Company for any purpose, unless such Membership Interest shall have
         been transferred in accordance with the provisions of this Agreement
         and in compliance with such additional restrictions as may be imposed
         by any federal or state securities regulatory authority or law and with
         the consent of the Board of Directors. In no event, however, shall a
         Member transfer or sell all or any of its Membership Interest to any
         party which, if a Member, would be in violation of Section 5.10(b)
         hereof.

                  (b)      Except as otherwise set forth in this Section or in
         this Agreement, a Member may transfer, sell or assign its entire
         Membership Interest only if it has received the approval of the Board
         of Directors. Subject to the foregoing: (i) the Company first for a
         period of fifteen (15) days, and thereafter the other Members for a
         period of fifteen (15) days shall have the right, but not the
         obligation, to purchase all, but not less than all, of the Membership
         Interest proposed to be transferred, which right shall be exercisable
         on the terms and for the purchase price set forth in writing in a bona
         fide offer made for the Interests by a third-party (the "Right of First
         Refusal"), and (ii) there shall have been filed with the Company a duly
         executed and acknowledged counterpart of the instrument making such
         assignment signed by both the assignor and assignee and such instrument
         evidences the written acceptance by the assignee of all of the terms
         and provisions of the Agreement, represents that such assignment was
         made in accordance with all applicable laws and regulations and the
         assignee shall have represented to the Company in writing that it meets
         the investor suitability standards established by the appropriate state
         of residence, or, in the absence thereof, the investor suitability
         standards established by the Company. The Board of Directors shall use
         reasonable care to determine that transfers are in accordance with
         applicable laws and regulations, including obtaining an opinion of


                                       26
<PAGE>   31

         counsel to that effect. Any Member that assigns all of its Membership
         Interest shall cease to be a Member of the Company. Any Membership
         Interests acquired by the Company pursuant to Section 8.1 shall,
         subject to applicable law, be re-offered by the Company to suitable
         investors.

                  (c)      Subject to (d) below, any dissolution, liquidation,
         merger (unless Members or their Affiliates existing prior to such
         merger own at least fifty-one percent (51%) of the surviving entity
         after the merger or unless both parties to such merger are majority
         owned by parties who are Members or their Affiliates prior to such
         merger) or sale of a Member which is an Entity (a sale shall include a
         transfer of fifty percent (50%) or more of its ownership interests or
         of substantially all of its assets or any other transaction or series
         of related transactions intended to accomplish, in substance, a sale of
         such Entity), which event shall not occur, subject to (d) below,
         without the written consent of the other Members, shall constitute an
         offer by such Member to sell such Member's Interest to the Company and
         the other Members pursuant to Section 8.6 for a purchase price equal to
         five (5) multiplied by the net income (as reasonably determined by the
         Company's accountants) of the Company for the twelve (12) month period
         ending as of the calendar quarter most recently ended prior to such
         event multiplied by the percentage Membership Interest of such Member
         in the Company (the "Formula Purchase Price"). The Formula Purchase
         Price shall be paid in three (3) equal annual installments, the first
         third of which shall be paid upon the determination of the Purchase
         Price and the remaining two (2) installments of which shall be paid on
         the first and second anniversary of such date (the "Payment Method").
         The remaining two (2) installments shall bear interest at the Prime
         Rate as of the date of the date of the determination of the Formula
         Purchase Price. Accrued interest shall be paid as of the dates payments
         of principal are due as provided above according to the Payment Method.
         Any transaction which invokes or gives rise to MedCath Physician
         Management, Inc.'s right of first refusal with respect to each Investor
         Member or Investor Member Entity under the Right of First Refusal
         Agreement between such parties shall also be deemed a sale of such
         Investor Member Entity or the Investor Member for purposes of this
         Section 8.1(c).

                  (d)      Notwithstanding anything herein to the contrary, LHMI
         may assign its Membership Interest in the Company, its rights to
         designate Directors hereunder, and its rights as manager under the
         Management Services Agreement to any party that assumes in writing the
         obligations of LHMI hereunder, as long as such party would not be in
         violation of the term of this Agreement. LHMI may also assign its
         Membership Interest in the Company, its right to designate Directors,
         and its rights under the Management Services Agreement to a financial
         institution as collateral security for repayment of indebtedness for
         borrowed funds by MedCath Incorporated or its Affiliates.

         SECTION 8.2       CONDITION PRECEDENT TO TRANSFER OF MEMBERSHIP
                           INTEREST.

         Notwithstanding anything herein to the contrary, no transfer of
Membership Interest may be made if such transfer (a) constitutes a violation of
the registration provisions of the Securities Act of 1933, as amended, or the
registration provisions of any applicable state securities laws; (b) if after
such transfer the Company will not be classified as a partnership for federal
income


                                       27
<PAGE>   32

         tax purposes; and (c) if when taken together with other prior
         transfers, results in a "termination" of the Company for federal income
         tax purposes. The Company may require, as a condition precedent to
         transfer of Membership Interest, delivery to the Company, at the
         proposed transferor's expense, of an opinion of counsel satisfactory
         (both as to the counsel and substance of the opinion) to the Company
         that the transfer will not violate any of the foregoing restrictions.

         SECTION 8.3       SUBSTITUTE MEMBER - CONDITIONS TO FULFILL.

         No assignee of a Member's Membership Interest in the Company shall have
the right to become a Substitute Member in place of its assignor unless, in
addition to any other requirement herein, all of the following conditions are
satisfied:

                  (a)      The Company has waived its right pursuant to Section
         8.1 to purchase the Membership Interest held by the assignee;

                  (b)      The duly executed and acknowledged written instrument
         of assignment which has been filed with the Company sets forth that the
         assignee becomes a Substitute Member in place of the assignor;

                  (c)      The assignor and assignee execute and acknowledge
         such other instruments as the Board of Directors may deem reasonably
         necessary or desirable to effect such admission, including, but not
         limited to, the written acceptance and adoption by the assignee of the
         provisions of this Agreement;

                  (d)      The payment by the assignee of all costs to the
         Company associated with the transaction, including but not limited to
         legal fees, transfer fees, and filing fees.

         SECTION 8.4       ALLOCATIONS BETWEEN TRANSFEROR AND TRANSFEREE.

         Upon the transfer of a Membership Interest, all items of income, gain,
loss, deduction and credit attributable to the Membership Interest so
transferred shall be allocated between the transferor and the transferee in such
manner as the transferor and transferee agree at the time of transfer; provided
such allocation does not violate federal or state income tax law. If the Board
of Directors, in its sole discretion, deems such laws violated, then such
allocation shall be made pro rata for the fiscal year based upon the number of
days during the applicable fiscal year of the Company that the Membership
Interest so transferred was held by the transferor and transferee, without
regard to the results of Company activities during the period in which each was
the holder, or in such other manner as the Board of Directors deems necessary to
comply with federal or state income tax laws. Distributions as called for by
this Agreement shall be made to the holder of record of the Membership Interest
on the date of distribution. Notwithstanding anything contained in this
Agreement to the contrary, the Company shall be entitled to treat the assignor
of any assigned Membership Interest as the absolute owner thereof in all
respects, and shall incur no liability for distributions made in good faith to
such assignor in reliance on the Company records as they exist until such time
as the written assignment has been received by, and recorded on the books of the
Company. For purposes of this Article VIII, the effective date


                                       28
<PAGE>   33

of an assignment of any Membership Interest shall be the last day of the month
specified in the written instrument of assignment.

         SECTION 8.5       RIGHTS, LIABILITIES OF, AND RESTRICTIONS ON ASSIGNEE.

         No assignee of a Membership Interest shall have the right to
participate in the Company, inspect the books of account of the Company or
exercise any other right of a Member unless and until admitted as a Substitute
Member. Notwithstanding the failure or refusal to admit an assignee as a
Substitute Member, such assignee shall be entitled to receive the share of
income, credit, gain, expense, loss and deduction and cash distributions
provided hereunder that is assigned to it, and, upon demand, may receive copies
of all reports thereafter delivered pursuant to the requirements of this
Agreement; provided, however, that the Company shall have first received notice
of such assignment and all required consents thereto shall have been obtained
and other conditions precedent to transfer thereof shall have been satisfied.
The Company's tax returns shall be prepared to reflect the interests of
assignees as well as Members.

         SECTION 8.6       REPURCHASE OF INTERESTS IN CERTAIN EVENT.

                  (a)      In the discretion of the Board of Directors, the
         Company may, but is not obligated to, repurchase a Member's Membership
         Interest upon such Member's and/or any of its Affiliates' breach of the
         Member's or the Affiliate's obligations contained in Article III,
         Sections 5.10 and 8.1 of this Agreement.

                  (b)      Each Member agrees to sell its Membership Interest to
         the Company in the event the Company elects to exercise the right of
         repurchase granted under Section 8.6(a) and the purchase price shall be
         the lower of (x) the Capital Contributions of the Member less all
         amounts distributed to such Member by the Company, and (y) the Formula
         Purchase Price.

                  (c)      The Directors designated by the Member whose
         activities give rise to the event set forth in Section 8.6(a) shall not
         have a vote hereunder and a majority of the other Directors shall make
         all decisions under this Section 8.6 with respect to such activities.

         SECTION 8.7       DEATH OF A MEMBER/SALE BY MEMBER UPON RETIREMENT OR
                           DISABILITY.

                  (a)      Heirs of Members who are individuals shall be
         entitled to inherit the Membership Interests of a deceased Member,
         provided that upon a Member's death (or the death of an individual that
         owns a Member) such interests shall be automatically converted to an
         economic interest only in the Company until such heir agrees in writing
         to all of the terms and conditions of this Agreement and such other
         reasonable terms as may be established by the Board of Directors, in
         which event such interest shall again become a Membership Interest in
         the Company.


                                       29
<PAGE>   34

                  (b)      A Member who is an individual, or an individual that
         holds an ownership in Member that is an Investor Entity (an "Individual
         Owner") or the estate of a Member or Individual Owner, shall have the
         right, but shall in no event be required, to offer his Membership
         Interest (or in the case of an Individual Owner, his proportionate
         share of the Investor Entity's Membership Interest) to the Company,
         upon the Individual Owner's or Member's death or permanent retirement
         from the practice of medicine after the age of sixty-two (62), or upon
         his becoming permanently disabled from the practice of his medical
         specialty which disability is determined by an independent medical
         evaluation reasonably satisfactory to LHMI. Within thirty (30) days of
         a written offer by the Member, Individual Owner, or the estate of a
         deceased Member to sell his Membership Interest to the Company pursuant
         to this Section 8.7, the Company shall have the right, but not the
         obligation, to purchase the Membership Interest owned by such Member
         directly or through an Entity, and the estate, Individual Owner or
         Investor Entity shall thereupon be obligated to sell such Membership
         Interest or proportionate share thereof, to the Company, in accordance
         with the terms of this Section 8.7. The Company may exercise its option
         by giving written notice thereof to the Member, the Individual Owner or
         the estate within such thirty (30) day period. If the Company declines
         to exercise its option, thereafter the Investor Members other than LHMI
         for a period of thirty (30) days shall have the right, but not the
         obligation, to purchase a pro rata portion, based on the percentage
         Membership Interest of the purchasing Member, of the Membership
         Interest proposed to be transferred by the retiring or disabled Member,
         the estate of the deceased Member or the Investor Entity of the
         deceased, retired or disabled Individual Owner, which option shall be
         exercised within thirty (30) days of the date the Company declines in
         writing to exercise its option, and if exercised, the applicable
         Member, the Investor Entity or estate shall thereupon be obligated to
         sell the applicable Membership Interest to such other Members.
         Thereafter, for a period of thirty (30) days, LHMI shall have such
         right, but not the obligation, to purchase any remaining Membership
         Interest(s) not purchased by Company or the Investor Members on the
         same terms. The purchase price for such Membership Interest, whether
         purchased by Company, LHMI or any other Member shall equal the Formula
         Purchase Price calculated as of the quarter ending prior to the date of
         retirement, death, or the date that the Member or Individual Owner is
         determined by an independent medical evaluation to be permanently
         disabled. The Formula Purchase Price shall be paid in accordance with
         the Payment Method. The outstanding amounts due to Member, the
         Individual Owner or the estate shall bear interest at Prime Rate as of
         the date of death, retirement or disability. Accrued interest shall be
         paid as of the dates that payments of principal are due as provided
         above.

                  (c)      In the event that neither Company, the Investor
         Members, nor LHMI elect to purchase the Membership Interest of the
         deceased, retiring or disabled Member or the proportionate share of the
         Membership Interest held through an Investor Entity by an Individual
         Owner, the estate, Individual Owner or Member may offer to sell the
         Membership Interest to Company, and the Company shall be required to
         purchase such Membership Interest, at the Formula Purchase Price
         calculated as set forth above; provided, however, that the Formula
         Purchase Price shall be payable in five (5) equal


                                       30
<PAGE>   35

         annual installments on each anniversary of the Member's or Individual
         Owner's date of death, retirement or disability determination, with
         interest accrued and payable on the outstanding balance at the Prime
         Rate as of the date of death, retirement or disability. In the event
         that the retiring Member or Individual Owner has held his Membership
         Interest (or interest in the Investor Entity) for less than five (5)
         years from the date that the Hospital first opens for business (the
         "Hospital Opening"), the Member, or Individual Owner shall only be
         entitled to sell twenty (20%) percent of his Membership Interest (or
         interest in the Investor Entity) for each year of ownership which has
         elapsed from the date of Hospital Opening through the date of
         retirement for a purchase price equal to twenty percent (20%) of the
         Formula Purchase Price. In no event shall Company be required to
         purchase the Membership Interest of the deceased, retiring or disabled
         Member or Individual Owner or make a current payment of the Formula
         Purchase Price in the event that such purchase is prohibited by Loan
         Conditions applicable to the Company or is otherwise prohibited by law
         from making such purchase.

                  (d)      In the event of any purchase by the Company or LHMI
         hereunder of an Individual Owner's interest in an Investor Entity, all
         parties agree that such interest may be exchanged by the Company or
         LHMI for the underlying direct ownership in the Company.

                                   ARTICLE IX

                        RECORDS, ACCOUNTINGS AND REPORTS

         SECTION 9.1       BOOKS OF ACCOUNT.

         At all times during the continuance of the Company, the Board of
Directors shall maintain or cause to be maintained true and full financial
records and books of account showing all receipts and expenditures, assets and
liabilities, income and losses, and all other records necessary for recording
the Company's business and affairs including those sufficient to record the
allocations and distributions required by the provisions of this Agreement.

         SECTION 9.2       ACCESS TO RECORDS.

         The books of account and all documents and other writings of the
Company, including the Articles of Organization and any amendments thereto,
shall at all times be kept and maintained at the principal office of the Company
or elsewhere as decided by the Board of Directors. Each Member or its designated
representatives shall, upon reasonable notice to the Company, have access to
such financial books, records and documents during reasonable business hours and
may inspect and make copies of any of them.


                                       31
<PAGE>   36

         SECTION 9.3       BANK ACCOUNTS AND INVESTMENT OF FUNDS.

                  (a)      LHMI shall open and maintain, on behalf of the
         Company, a bank account or accounts in a federally insured bank or
         savings institution as it shall determine, in which all monies received
         by or on behalf of the Company shall be deposited. All withdrawals from
         such accounts shall be made upon the signature of such person or
         persons as LHMI may from time to time designate.

                  (b)      Any funds of the Company which LHMI may determine are
         not currently required for the conduct of the Company's business may be
         deposited with a federally insured bank or savings institution or
         invested in short term debt obligations (including obligations of
         federal or state governments and their agencies, commercial paper,
         certificates of deposit of commercial banks, savings banks or savings
         and loan associations) as shall be determined by LHMI in its sole
         discretion.

         SECTION 9.4       FISCAL YEAR.

         The Fiscal Year and accounting period of the Company shall end on
September 30 of each year.

         SECTION 9.5       ACCOUNTING REPORTS.

         As soon as reasonably practicable after the end of each fiscal year but
in no event later than 120 days after the end thereof, each Member shall be
furnished a copy of the Company's tax return, Member's form 1065, Schedule K-1,
and an annual accounting showing the financial condition of the Company at the
end of such fiscal year and the result of its operations for the fiscal year
then ended, which annual accounting shall be prepared on an accrual basis in
accordance with generally accepted accounting principles applied on a consistent
basis and shall be delivered to each of the Members promptly after it has been
prepared. It shall include a balance sheet as of the end of such Fiscal Year and
statements of income and expense, each Member's equity, and cash flow for such
Fiscal Year. At the Manager's election the Company shall either be audited or
such annual accountings shall be either reviewed or compiled by a firm of
independent certified public accountants engaged by the Manager on behalf of the
Company which shall also be the accounting firm of the Manager. The report shall
set forth the distributions to the Members for such Fiscal Year and shall
separately identify distributions from (i) operating revenue during such Fiscal
Year, (ii) operating revenue from a prior period which had been held as
reserves, (iii) proceeds from the sale or refinancing of the Equipment, and (iv)
unexpended proceeds received from the sale of Membership Interests. Following
the opening of the Hospital, the Manager shall also cause to be prepared and
distributed to the Members quarterly financial statements.

         SECTION 9.6       TAX MATTERS PARTNER.

         LHMI shall act as the "Tax Matters Partner" of the Company as that term
is defined Section 6231 of the Code.


                                       32
<PAGE>   37

                                    ARTICLE X

                      MEETINGS AND VOTING RIGHTS OF MEMBERS

         SECTION 10.1      MEETINGS.

                  (a)      Meetings of the Members of the Company for any
         purpose may be called by the Board of Directors or any Member holding
         in the aggregate ten percent (10%) of the Membership Interests. Such
         meetings shall be held in the St. Tammany Parish, Louisiana area. A
         member may attend a meeting by telephone or other electronic means and
         be considered present for purposes of a quorum so long as the telephone
         or other connection allows each Member to hear and be heard by all
         other Members.

                  (b)      A notice of any such meeting shall be given by mail,
         not less than ten (10) days nor more than sixty (60) days before the
         date of the meeting, to each Member at its address as specified in
         Section 12.7. Such notice shall be in writing, and shall state the
         place, date and hour of the meeting, and shall indicate by whom it is
         being issued. The notice shall state the purpose or purposes of the
         meeting. If a meeting is adjourned to another time or place, and if any
         announcement of the adjournment of time or place is made at the
         meeting, it shall not be necessary to give notice of the adjourned
         meeting.

                  (c)      Each Member may authorize any Person or Persons to
         act for the Member by proxy in all matters in which a Member is
         entitled to participate, whether by waiving notice of any meeting, or
         voting or participating at a meeting. Every proxy must be signed by the
         Member or its attorney-in-fact. No proxy shall be valid after the
         expiration of eleven months from the date thereof unless otherwise
         provided in the proxy. Every proxy shall be revocable at the pleasure
         of the Member executing it.

         SECTION 10.2      VOTING RIGHTS OF MEMBERS.

                  (a)      Each Member shall take no part in or interfere in any
         manner with the control, conduct or operation of the Company, and shall
         have no right or authority to act for or bind the Company except as
         provided herein. Votes or decisions, to the extent taken or to be made,
         of the Members may be cast at any duly called meeting of the Company or
         in writing within ten (10) days after written request therefor. Each
         Member shall be entitled to the number of votes equal to the percentage
         Membership Interest of such Member.

                  (b)      No Member shall have the right or power to vote to:
         (i) withdraw or reduce the Member's Capital Contributions except as a
         result of the dissolution and liquidation of the Company or as
         otherwise provided by law or this Agreement; (ii) bring an action for
         partition against the Company; (iii) cause the termination and
         dissolution of the Company by court decree or otherwise, except as set
         forth in this Agreement; or (iv) demand or receive property other than
         cash in return for its Capital Contributions.


                                       33
<PAGE>   38

                                   ARTICLE XI

                                   AMENDMENTS

         SECTION 11.1      AUTHORITY TO AMEND BY THE BOARD OF DIRECTORS.

         Except as otherwise provided by Section 11.2, this Agreement and the
Articles of Organization of the Company may be amended by the Board of
Directors, and any proposed amendment by members of the Board of Directors
designated by LHMI shall not be unreasonably delayed or rejected by any other
member of the Board of Directors:

                  (a)      To admit additional Members or Substitute Members but
         only in accordance with and if permitted by the other terms of this
         Agreement;

                  (b)      To preserve the legal status of the Company as a
         limited liability company under the Act or other applicable state or
         federal laws if such does not change the substance hereof, and the
         Company has obtained the written opinion of its counsel to that effect;

                  (c)      To cure any ambiguity, to correct or supplement any
         provision herein which may be inconsistent with any other provision
         herein, to clarify any provision of this Agreement, or to make any
         other provisions with respect to matters or questions arising under
         this Agreement which will not be inconsistent with the provisions of
         this Agreement;

                  (d)      To satisfy the requirements of the Code and
         Regulations with respect to limited liability companies or of any
         federal or state securities laws or regulations, provided such
         amendment does not adversely affect the Membership Interests of Members
         and is necessary or appropriate in the written opinion of counsel and
         any amendment under this subsection (d) shall be effective as of the
         date of this Agreement;

                  (e)      To the extent that it can do so without materially
         reducing the economic return on investment in the Company to any
         Member, to satisfy any requirements of federal or state legislation or
         regulations, court order, or action of any governmental administrative
         agency with respect the operation or ownership of the Hospital; and

                  (f)      Subject to the terms of Section 2.6, to extend the
         term of the Company.

         SECTION 11.2      RESTRICTIONS ON THE BOARD OF DIRECTORS' AMENDMENTS:
                           AMENDMENTS BY MEMBERS.

         Except as provided in Section 11.1, amendments to this Agreement shall
be made only upon the consent of the Required Members. Except as set forth in
this Section 11.2, no amendment shall be made pursuant to Section 11.1 which
would materially and adversely affect the federal income tax treatment to be
afforded each Member, materially and adversely affect the


                                       34
<PAGE>   39

Membership Interests and liabilities of each Member as provided herein,
materially change the purposes of the Company, extend or otherwise modify the
term of the Company, or materially change the method of allocations and
distributions as provided in Article VI and Article VII.

         SECTION 11.3      AMENDMENTS TO CERTIFICATES.

         In making any amendments to this Agreement, there shall be prepared,
executed and filed for recording by the Board of Directors such documents
amending the Articles of Organization as required under the Act.

                                   ARTICLE XII

                                  MISCELLANEOUS

         SECTION 12.1      LIMITED POWER OF ATTORNEY.

         Upon the execution hereof, each Member hereby irrevocably constitutes
and appoints the Directors it has appointed as its true and lawful attorney in
the Member's name and on the Member's behalf to take at any time all such action
which such Directors is expressly authorized to perform, or which a Member is
expressly required to perform, under this Agreement.

         SECTION 12.2      WAIVER OF PROVISIONS.

         The waiver of compliance at any time with respect to any of the
provisions, terms or conditions of this Agreement shall not be considered a
waiver of such provision, term or condition itself or of any of the other
provisions, terms or conditions hereof.

         SECTION 12.3      INTERPRETATION AND CONSTRUCTION.

         This Agreement, together with the Management Services Agreement, the
Hospital Professional Services Agreement and the Right of First Refusal
Agreement between MedCath Physician Management, Inc. and the Investor Members,
constitutes the entire agreement among the Members and any modification or
amendment hereto must be accomplished in accordance with the provisions of
Article XI and Article XII. Where the context so requires, the masculine shall
include the feminine and the neuter, and the singular shall include the plural.
The headings and captions in this Agreement are inserted for convenience and
identification only and are in no way intended to define, limit or expand the
scope and intent of this Agreement or any provision thereof. The references to
Section and Article in this Agreement are to the Sections and Articles of this
Agreement.

         SECTION 12.4      GOVERNING LAW.

         This Agreement shall be governed by and construed in accordance with
the laws of the State of North Carolina, exclusive of its conflict of law rules.


                                       35
<PAGE>   40

         SECTION 12.5      PARTIAL INVALIDITY.

         In the event that any part or provision of this Agreement shall be
determined to be invalid or unenforceable, the remaining parts and provisions of
said Agreement which can be separated from the invalid or unenforceable
provision and shall continue in full force and effect.

         SECTION 12.6      BINDING ON SUCCESSORS.

         The terms, conditions and provisions of this Agreement shall inure to
the benefit of, and be binding upon the parties hereto and their respective
heirs, successors, distributees, legal representatives, and assigns. However,
none of the provisions of this Agreement shall be for the benefit of or
enforceable by any creditors of the Company.

         SECTION 12.7      NOTICES AND DELIVERY.

                  (a)      To Members. Any notice to be given hereunder at any
         time to any Member or any document reports or returns required by this
         Agreement to be delivered to any Member, may be delivered personally or
         mailed to such Member, postage prepaid, addressed to the Member at such
         times as the Member shall by notice to the Company have designated as
         the Member's address for the mailing of all notices hereunder or, in
         the absence of such notice, to the address set forth in the Information
         Exhibit hereof. Any notice, or any document, report or return so
         delivered or mailed shall be deemed to have been given or delivered to
         such Member at the time it is mailed, as the case may be.

                  (b)      To the Company. Any notice to be given to the Company
         hereunder shall be delivered personally or mailed to the Company, by
         certified mail, postage prepaid, addressed to the Company at its
         registered office. Any notice so delivered or mailed shall be deemed to
         have been given to the Company at the time it is delivered or mailed,
         as the case may be.

         SECTION 12.8      COUNTERPART EXECUTION; FACSIMILE EXECUTION.

         This Agreement may be executed in any number of counterparts with the
same effect as if all of the Members had signed the same document. Such
executions may be transmitted to the Company and/or the other Members by
facsimile and such facsimile execution shall have the full force and effect of
an original signature. All fully executed counterparts, whether original
executions or facsimile executions or a combination, shall be construed together
and constitute one and the same agreement.

         SECTION 12.9      STATUTORY PROVISIONS.

         Any statutory reference in this Agreement shall include a reference to
any successor to such statute and/or revision thereof.


                                       36
<PAGE>   41

         SECTION 12.10     WAIVER OF PARTITION.

         Each party does hereby waive any right to partition or the right to
take any other action which might otherwise be available to such party for the
purpose of severing its relationship with the Company or such party's interest
in the assets held by the Company from the interests of other Members until the
end of the term of both this Company and any successor company formed pursuant
to the terms hereof.

         SECTION 12.11     CHANGE IN LAW.

         If due to any new law, rule or regulation, or due to an interpretation
or enforcement of any existing law, rule or regulation, health care counsel
reasonably selected by LHMI and reasonably approved by the Board of Directors,
determines in writing that it is reasonably likely that the relationships
established between any of the parties to this Agreement including any of their
Affiliates and/or successors or assigns will not comply with any law, rule,
regulation or interpretation thereof ("Applicable Law"), then the parties hereto
shall be given notice thereof (a "Change of Law Event"). If the Required Members
disagree with whether a Change of Law Event exists and that disagreement is not
resolved among such parties within the following thirty (30) days, then that
disagreement shall be resolved by arbitration under Section 12.16 hereof. If a
Change of Law Event is determined to exist, then the parties hereto hereby agree
first, to negotiate in good faith to restructure the relationships established
under this Agreement so as to bring them into compliance with such applicable
laws while at the same time preserving the material benefits of each of the
parties hereto. In the event that a specific proposal for the restructuring of
this Agreement is approved by the Board of Directors and the Required Members,
such restructured agreement shall become binding upon all Members of the
Company. The approval of any such proposal for the restructuring of this
Agreement shall not be unreasonably withheld or delayed by any Investor Member.
Second, in the event that within forty-five (45) days following the Company's
receipt of legal advice in writing from such health care counsel regarding
Applicable Law the parties hereto are unable to negotiate an acceptable
restructuring of their relationship, then, if one or more Member's ownership is
not involved in such non-compliance, such Members shall have the option, within
the following forty-five (45) day period, to purchase the Membership Interests
of each Member whose ownership is involved with such noncompliance with
Applicable Law for a purchase price equal to the greater of: (a) the Formula
Purchase Price, (b) the amount of the Capital Contributions made by such Member
to the Company, or (c) two and one-half (2 1/2) multiplied by the net income (as
reasonably determined by the Company's accountants) of the Company for the
twelve (12) month period ending as of the calendar quarter most recently ended
prior to such event multiplied by the percentage membership interest of such
Member in the Company, together with interest thereon computed at the Prime Rate
as of the date of this Agreement from the date of such contribution through the
date upon which the purchasing Members pays all amounts due under the terms of
this Section 12.11. For purposes of (a) or (b), distributions to the Members by
the Company after the effective date of this Agreement (and whether before or
after health care counsel determined there was a problem under an Applicable Law
or before or after the exercise of the purchase option) shall be treated as
payments for the Membership Interest by the purchasing Members. Such purchase
price shall be paid in accordance with the Payment Method, plus interest at the
Prime Rate as of the date of that the first installment of principal is due.


                                       37
<PAGE>   42

Accrued interest on any outstanding balance shall be paid as of the dates
payments of principal are due as provided above. Third, in the event that the
compliant Members do not exercise their option to purchase Membership Interests
of a Member whose ownership causes the Company not to be in compliance with
Applicable Law, any Member may elect in writing within the following forty-five
(45) day period, to require that the Company be dissolved, in which event the
Company shall be dissolved in accordance with the terms of this Agreement.

         SECTION 12.12     INVESTMENT REPRESENTATIONS OF THE MEMBERS.

                  (a)      Each Member or individual executing this Agreement on
         behalf of an Entity which is a Member hereby represents and warrants to
         the Company and to the Members that such Member has acquired such
         Member's Membership Interest in the Company for investment solely for
         such Member's own account with the intention of holding such Membership
         Interest for investment, without any intention of participating
         directly or indirectly in any distribution of any portion of such
         Membership Interest and without the financial participation of any
         other Person in acquiring such Membership Interest in the Company.

                  (b)      Each Member or individual executing this Agreement on
         behalf of an entity which is a Member hereby acknowledges that such
         Member is aware that such Member's Membership Interest in the Company
         has not been registered (i) under the Securities Act of 1933, as
         amended (the "Federal Act"), (ii) under applicable Louisiana securities
         laws, or (iii) under any other state securities laws. Each Member or
         individual executing this Agreement on behalf of an Entity which is a
         Member further understands and acknowledges that his representations
         and warranties contained in this Section are being relied upon by the
         Company and by the Members as the basis for the exemption of the
         Members' Membership Interest in the Company from the registration
         requirements of the Federal Act and from the registration requirements
         of applicable Louisiana securities laws and all other state securities
         laws. Each Member or individual executing this Agreement on behalf of
         an Entity which is a Member further acknowledges that the Company will
         not and has no obligation to recognize any sale, transfer, or
         assignment of all or any part of such Member's Membership Interest in
         the Company to any Person unless and until the provisions of this
         Agreement hereof have been fully satisfied.

                  (c)      Each Member or individual executing this Agreement on
         behalf of an Entity which is a Member hereby acknowledges that prior to
         his execution of this Agreement, such Member received a copy of this
         Agreement and that such Member has examined this Agreement or caused
         this Agreement to be examined by such Member's representative or
         attorney. Each Member or individual executing this Agreement on behalf
         of an Entity which is a Member hereby further acknowledges that such
         Member or such Member's representative or attorney is familiar with
         this Agreement and with the Company's business plans. Each Member or
         individual executing this Agreement on behalf of an Entity which is a
         Member acknowledges that such Member or such Member's representative or
         attorney has made such inquiries and requested, received, and reviewed
         any additional documents necessary for such Member to make an informed
         investment decision and that such Member does not desire any further
         information or


                                       38
<PAGE>   43

         data relating to the Company or to the Members. Each Member or
         individual executing this Agreement on behalf of an Entity which is a
         Member hereby acknowledges that such Member understands that the
         purchase of such Member's Membership Interest in the Company is a
         speculative investment involving a high degree of risk and hereby
         represents that such Member has a net worth sufficient to bear the
         economic risk of such Member's investment in the Company and to justify
         such Member's investing in a highly speculative venture of this type.

         SECTION 12.13     DECISIONS BY MANAGERS.

         EACH OF THE MEMBERS HEREBY AUTHORIZE THEIR RESPECTIVE APPOINTED MANAGER
TO MAKE THE DECISIONS TO BE MADE BY THE MANAGERS HEREUNDER AND HEREBY RELEASE
AND HOLD HARMLESS THE MANAGERS FROM ANY AND ALL CLAIMS, LIABILITIES, LOSSES OR
DAMAGES WHICH ANY OF THEM MAY HAVE NOW OR IN THE FUTURE RESULTING FROM ANY
DECISION MADE BY THE MANAGERS HEREUNDER UNLESS DUE TO THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF SUCH MANAGER.

         SECTION 12.14     REFERRALS TO HOSPITAL AND OWNERSHIP OF SHARES OF
                           COMMON STOCK OF MEDCATH INCORPORATED.

         Each Member agrees that if in the reasonable opinion of health care
counsel of MedCath Incorporated, referrals of patients to the Hospital by a
Member or a physician owner or Affiliate of a Member or ownership of shares of
common stock in MedCath Incorporated by a Member or a physician owner or
Affiliate of an Owner would cause or constitute a violation of any federal or
state law, rule or regulation, then, as applicable,

                  (a)      the Member or a physician owner or Affiliate of an
         Owner shall not refer patients to the Hospital; and

                  (b)      the Member or a physician owner for Affiliate of an
         Owner shall not acquire, nor continue to own any of shares of common
         stock of MedCath Incorporated.

         SECTION 12.15     ACKNOWLEDGMENTS REGARDING LEGAL REPRESENTATION.

         Each of the Members hereunder acknowledge and agree that Moore & Van
Allen, PLLC is counsel for LHMI, MedCath Incorporated and their Affiliates, and
may, upon approval of the Board of Directors, also serve as counsel for the
Company from time to time. Each of the Members hereby acknowledges and consents
to such representation. Each Member other than LHMI further acknowledges and
agrees that they shall have no attorney-client relationship with Moore & Van
Allen, PLLC as a result of Moore & Van Allen, PLLC's representation of the
Company from time to time.


                                       39
<PAGE>   44

         SECTION 12.16     ARBITRATION.

         Subject to the right of any party to seek an injunction or other
equitable relief from a court with applicable authority, any controversy,
dispute or disagreement arising out of or relating to this Agreement shall be
resolved by binding arbitration, which shall be conducted in the New Orleans,
Louisiana area in accordance with the American Health Lawyers Association
Alternative Dispute Resolution Service Rules of Procedure for Arbitration. Such
arbitration shall be conducted by a panel of three (3) arbitrators none of which
shall reside in or practice primarily in Louisiana or North Carolina. Any
decision rendered by the arbitrators shall be final and binding on the parties
and shall be enforceable in any court having jurisdiction thereof. The
arbitrators shall have the authority to require the losing party to pay all
costs associated with such arbitration, including expenses and fees of
arbitrators.

         SECTION 12.17     EXHIBITS.

         The Exhibits to this Agreement, each of which is incorporated by
reference, are:

         EXHIBIT A:        Information Exhibit.

         EXHIBIT B:        Glossary of Terms.

         EXHIBIT C:        Development Budget Exhibit.

         EXHIBIT D:        Regulatory Allocations.

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the following execution page(s), to be effective as of the date described in
Article II.

                  [EXECUTIONS APPEAR ON THE FOLLOWING PAGE(S)]

For the purpose of acknowledging and agreeing to be bound by the terms of
Section 5.10 hereof, the undersigned Affiliates of the Members other than LHMI
hereby execute this Operating Agreement.


                                      D-43