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                                                                    EXHIBIT 10.1


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                               OPERATING AGREEMENT
                                       OF
                         MEDCATH OF LITTLE ROCK, L.L.C.

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                               OPERATING AGREEMENT
                                       OF
                         MEDCATH OF LITTLE ROCK, L.L.C.
                   A North Carolina Limited Liability Company


         THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM SUCH
REGISTRATION SET FORTH IN THE SECURITIES ACT OF 1933 PROVIDED BY SECTION 4(2)
THEREOF, NOR HAVE THEY BEEN REGISTERED WITH THE SECURITIES COMMISSION OF CERTAIN
STATES IN RELIANCE UPON CERTAIN EXEMPTIONS FROM REGISTRATION. THESE SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE OFFERED WITH THE
TERMS AND CONDITIONS OF THIS AGREEMENT AND IN A TRANSACTION WHICH IS EITHER
EXEMPT FROM REGISTRATION UNDER SUCH ACTS OR PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACTS.


         THIS OPERATING AGREEMENT (the "Agreement") of MedCath of Little Rock,
L.L.C. (the "Company"), a North Carolina Limited Liability Company is made and
entered into as of the 11th day of July, 1995, by and among the Company and
MEDCATH OF ARKANSAS, INC., a North Carolina corporation ("MedCath"), as a Member
and EACH OF THE OTHER PARTIES IDENTIFIED ON SCHEDULE A as Members (THE "INVESTOR
MEMBERS").


                                    RECITALS

         The Company has been formed to develop, own and operate an acute care
hospital which hospital shall be located in or near Little Rock, Arkansas and
shall specialize in all aspects of cardiology and cardiovascular care and
surgery which MedCath and the Investor Manager may agree upon.

                                    ARTICLE I

                                   DEFINITIONS

         As used in this Agreement, the following terms shall have the following
definitions (unless otherwise expressly provided herein).

         1.1      "Affiliate" with respect to a Person, (i) any relative of such
Person; (ii) any officer, director, trustee, partner, manager, employee or
holder of any class of the outstanding voting securities or of an equity
interest of such Person; or (iii) any corporation, partnership, limited
liability company, trust, or any officer, director, trustee, partner, manager,
employee or holder of ten


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percent (10%) or more of the outstanding voting securities or of an equity
interest of any corporation, partnership, limited liability company, trust or
other equity, controlling, controlled by, or under common control with such
Person.

         1.2      "Agreement" shall mean this Operating Agreement, as amended
from time to time.

         1.3      "Articles of Organization." The Articles of Organization of
the Company, as filed with the Secretary of State of North Carolina as the same
may be amended from time to time.

         1.4      "Capital Account" shall mean the amount of any actual or
imputed contribution to the capital of the Company of each of the Members,
including any value specifically assigned to any property or right, tangible or
intangible, contributed by such Member to the capital of the Company, as the
same may be (i) increased from time to time by such Member's share of income and
gains for federal income tax purposes, (ii) decreased from time to time by
distributions to such Member from the Company and by such Member's share of
deductions or losses for Federal income tax purposes, (iii) increased and/or
decreased by those other items required by the Code and the Regulations
thereunder (items described in (i) and (ii) are subject to change from time to
time to comply with the Code and the Regulations), and (iv) upon or in
connection with (1) the liquidation of the Company, (2) a contribution of money
or other property (other than a de minimis amount) to the Company by a new or
existing member as consideration for an interest in the Company, or (3) a
distribution of money or other property (other than a de minimis amount) by the
Company to a retiring or continuing member as consideration for an interest in
the Company, the capital accounts of all Members shall be increased or decreased
to reflect a re-evaluation of all assets of the Company on its books and records
in accordance with the requirements of Treasury Regulation ss.
1.704-1(b)(2)(iv)(f) or any successor regulatory or statutory provision, as of
the date that the event occurs causing the capital accounts to be re-evaluated.
For purposes of computing the amount of any item of income, gain, deduction, or
loss to be reflected in the Member's Capital Accounts, the determination,
recognition, and classification of any such items shall be the same as its
determination, recognition, and classification for Federal income tax purposes
(including any method of depreciation, cost recovery, or amortization used for
this purpose); provided that if in any taxable year the Company has in effect an
election under Section 754 of the Code, capital accounts shall be adjusted in
accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(m). Loans by a
Member to the Company shall not be considered Capital Contributions. If any
Member or Assignee shall advance funds to the Company in excess of the amounts
required hereunder to be contributed by it to the capital of the Company, the
making of such advances shall not result in any increase in the amount of the
Capital Account of such Member or Assignee, shall be treated solely as loans,
and shall be payable or collectible only out of the Company assets in accordance
with the terms and conditions upon which such advances are made.

         The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulation Section 1.704-1(b)(2)(iv), and shall be interpreted and applied in a
manner consistent with such Regulation. In the event MedCath shall determine
that it is prudent to modify the manner in which the Capital Accounts, or any
debits or credits thereto, are computed to comply with such Regulation, MedCath
may make such modification, provided that it is not likely to have a material
effect on the amounts distributable to any Member pursuant to Articles VI or VII
hereof upon the dissolution of the Company. In the


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event MedCath shall determine such adjustments are necessary or appropriate to
comply with Regulation Section 1.704-1(b)(2)(iv), MedCath shall adjust the
amounts debited or credited to Capital Accounts with respect to (i) any property
contributed by the Members or distributed to the Members and (ii) any
liabilities secured by such contributed or distributed property or assumed by
the Members. MedCath shall also make any other appropriate modifications in the
event unanticipated events might otherwise cause this Agreement not to comply
with Regulation Section 1.704-1(b). In the event any interest in the Company is
transferred in accordance with the terms of this Agreement, the transferee shall
succeed to the Capital Account of the transferor to the extent it relates to the
transferred interest.

         1.5      "Capital Contribution" shall mean the gross amount of cash
investment in the Company by each and all of the Members.

         1.6      "Cash Distributions" shall mean net cash distributed to
Members resulting from Cash Flow from Operations or Cash from Sales or
Refinancing, but shall not include cash distributed to MedCath as its Management
Fee for services or any amount in repayment of loans made by the Members to the
Company.

         1.7      "Cash Flow from Operations" shall mean net cash funds provided
from operations of the Company or investment of any Company funds, without
deduction for depreciation, but after deducting cash funds used to pay or
establish a reserve for expenses, debt payments, capital improvements, and
replacements and for such other items as MedCath reasonably determines to be
necessary or appropriate.

         1.8      "Cash from Sales or Refinancing" shall mean the net cash
proceeds received by the Company from or as a result of any Sale or Refinancing
of property after deducting (i) all expenses incurred in connection therewith,
(ii) any amounts applied by MedCath in its sole and absolute discretion toward
the payment of any indebtedness and other obligations of the Company, including
payments of principal and interest on mortgages, (iii) the payment of any other
expenses or amounts owed by the Company to other parties, and (iv) the
establishment of any reserves deemed necessary by MedCath in its sole and
absolute discretion. If the proceeds of any Sale or Refinancing are paid in more
than one installment, each such installment shall be treated as a separate Sale
or Refinancing for the purposes of this definition.

         1.9      "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time. "Regulations" shall mean rules, orders, and
regulations issued pursuant to or under the authority of the Code. Any reference
herein to a specific section(s) of the Code or Regulations shall be deemed to
include a reference to any corresponding provision of future law.

         1.10     "Company" shall refer to MedCath of Little Rock, L.L.C. which
shall be created upon the filing of the Articles of Organization with the Office
of the Secretary of State of North Carolina, to be operated under the name
MedCath of Little Rock, L.L.C., a North Carolina limited liability company, and
to continue under this Agreement, as amended from time to time.

         1.11     "Economic Interest" shall refer to that portion of the
Membership Interest of a Member in the economic rights and benefits of the
Company, including but not limited to all


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Income, Loss and Cash Distributions. Such an Economic Interest will be measured
by an amount equal to the percentage of the Member's Membership Interest in the
Company as the same may be adjusted from time to time.

         1.12     "Economic Interest Owner" shall mean a person who has acquired
a Member's Economic Interest but who has not become a Member.

         1.13     "Entity" shall mean any general partnership, limited
partnership, limited liability company, corporation, joint venture, trust,
business trust, cooperative or association or any foreign trust or foreign
business organization.

         1.14     "Hospital" shall have the meaning provided in Section 2.3
hereof.

         1.15     "Income" or "Loss" shall mean, with respect to any fiscal
year, the taxable income or taxable loss in such year or other period determined
in accordance with Code Section 703(a) by the Company under the Code and
Regulations including, without limitation, each item of income, credit, gain,
loss, or deduction required to be separately stated pursuant to Code Section
703(a)(1), determined by the method of accounting then being utilized by the
Company (provided it is permitted by the Code), applied on a consistent basis
throughout the period for which taxable income or taxable loss is determined,
adjusted to take into account (i) any tax exempt income received or accrued;
(ii) expenditures and losses referred to in Code Section 705(a)(2)(B),
267(a)(1), 707(b), and 709 which are not deductible, depreciable, or amortizable
in computing net income or net loss; (iii) amounts of net income or net loss
that would be recognized if property distributed in kind to a Member was sold to
an unrelated person at fair market value on the date of distribution, and (iv)
expenditures which reduce capital accounts under Regulation Section
1.704-1(b)(2)(iv) including, but not limited to, nonamortizable syndication
expenses. To the extent the Company recognizes a tax deduction attributable to
an amount included in Income or Loss under the preceding sentence, such amount
shall not again be included in taxable income or taxable loss but shall be
allocated among the Members in accordance with the allocation of the amount
under the preceding sentence.

         1.16     "Investor Manager" shall refer to the Investor Member elected
by Investor Members in accordance with Section 5.14 who shall serve as a Manager
of the Company.

         1.17     "Investor Members" shall mean the Members other than MedCath
listed on Schedule A attached hereto.

         1.18     "Majority Vote of Investor Members" shall refer to the
affirmative vote, approval or consent of Investor Members holding a majority of
the Membership Interests held by the Investor Members in the aggregate.

         1.19     "Majority Vote of Members" shall refer to the affirmative
vote, approval or consent of Members holding sixty-seven percent (67%) of the
Membership Interests in the aggregate.

         1.20     "Manager" or "Managers" shall refer to one or more managers
designated pursuant to this Agreement. Pursuant to this Agreement and the
Articles of Organization, no Member shall


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automatically be a manager by virtue of such Person's status as a Member.
Subject to Section 11.1(g) hereof, the Managers of the Company shall be MedCath
and the Investor Manager. The powers, rights and duties of each Manager to
manage the affairs of the Company are specified or designated in this Agreement.

         1.21     "Management Fee" shall mean the amounts payable to MedCath
pursuant to Section 5.6(b)(ii) for services rendered in managing the operations
of the Company.

         1.22     "MedCath" shall refer to MedCath of Arkansas, Inc. who shall
serve as a Manager of the Company.

         1.23     "Member" shall refer to the organizers of the Company and each
of the members identified in the then applying Schedule A attached hereto and
incorporated herein by this reference. To the extent a Manager has purchased a
Membership Interest in the Company, such Person will have all the rights of a
Member with respect to such Membership Interest, and the term "Member" as used
herein shall include a Manager to the extent he has purchased such Membership
Interest in the Company. If a Person is already a Member immediately prior to
the purchase or other acquisition by such Person of an Economic Interest or
Membership Interest, such Person shall have all the rights of a Member with
respect to such purchased or otherwise acquired Membership Interest or Economic
Interest, as the case may be.

         1.24     "Membership Interest" shall mean all of a Member's rights in
the Company, including without limitation the Member's share of the profits,
losses and benefits of the Company, the right to receive distributions of the
Company assets, any right to vote, any right to participate in the management of
the business and affairs of the Company, including the right to vote on, consent
to, or otherwise participate in any decision or action of or by the Members
granted pursuant to this Operating Agreement or the North Carolina Act. The
initial Membership Interest of each Member shall be listed on Schedule A and
shall be based upon the pro rata Capital Contribution of each Member.

         1.25     "Minimum Gain" shall mean the excess, if any, of debt of the
Company as to which no Member is personally liable over the Company's basis in
the assets that secure such debt, and as such term is further defined in
Temporary Regulation Section 1.704-1T(b)(4)(iv)(c).

         1.26     "North Carolina Act." The North Carolina Limited Liability
Company Act, N.C. Gen. Stat.ss.57-1-01, et. seq.

         1.27     "Organization Expenses" shall mean those expenses incurred,
either by the Company or for which the Company has agreed to make reimbursement,
in connection with the formation of the Company including such expenses as: (i)
registration fees, filing fees, and taxes; and (ii) legal fees incurred in
connection with any of the foregoing.

         1.28     "Person" shall mean any individual or Entity, and the heirs,
executors, administrators, legal representatives, successors, and assigns of
such individual or Entity where the context so permits.


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         1.29     "Prime Rate" means the rate of interest as of the relevant day
or time period as announced by the First Union National Bank, N.A. or its
successor in interest from time to time as its prime or reference rate.

         1.30     "Refinancing" means any borrowing incurred or made to
recapitalize the Company or the equity investment in, or to refinance any loan
used to finance the acquisition of property.

         1.31     "Sale" means the sale, exchange, involuntary conversion (other
than a casualty followed by reconstruction), condemnation, or other disposition
of property by the Company, except for dispositions of inventory items and
personal property in the ordinary course of business and in connection with the
replacement of such property.

         1.32     "Substitute Manager" shall mean a Manager who succeeds either
MedCath or any of the Investor Manager with all of the specific rights and
powers of such Manager under this Agreement.

         1.33     "Substitute Member" shall mean an assignee of a Member who has
been admitted to the Company and granted all the rights of a Member in place of
his or her assignor pursuant to the provisions of this Agreement. A Substitute
Member, upon his or her admission as such, shall replace and succeed to the
rights, privileges, and liabilities of the Member from whom he or she acquired
his or her interest in the Company, to the extent of the Economic Interest
assigned.

                                   ARTICLE II

              FORMATION AND AGREEMENT OF LIMITED LIABILITY COMPANY

         2.1      Company Formation. The Company will be formed upon the
execution by MedCath and one other individual or entity on behalf of the Company
of Articles of Organization which are then filed with the Secretary of State of
North Carolina in accordance with the provisions of the North Carolina Act.
MedCath shall execute or cause to be executed all other such certificates or
documents, and shall do or cause to be done all such filing, recording, or other
acts, as may be necessary or appropriate from time to time to comply with the
requirements of law for the continuation and/or operation of a limited liability
company in the State of North Carolina, the operation of a foreign limited
liability company in the State of Arkansas and other documents to reflect the
admission of additional Members to the Company. Any costs incurred by MedCath in
connection with the foregoing shall be reimbursed promptly upon the completion
of such action.

         2.2      Name of Company. The name of the Company is MEDCATH OF LITTLE
ROCK, L.L.C., a North Carolina limited liability company.

         2.3      Purposes and Investment Objectives. The principal purposes of
the Company are as follows:


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                  (a)      To develop, own and operate an acute care hospital
         specializing in all aspects of cardiology and cardiovascular care and
         surgery in Little Rock, Arkansas (the "Hospital") which would include,
         but not be limited to, the following:

                          (i)   Services and facilities to meet all requirements
                  of the State of Arkansas, Medicare, 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 to be eligible to obtain appropriate
                  reimbursements therefore;

                          (ii)  Approximately 101,000 square feet in a building
                  to be constructed in accordance with plans and specifications
                  approved by the Company;

                          (iii) Approximately 80 medical/surgical beds;

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

                          (v)   Two heart surgical suites with space for the
                  development of one additional heart surgical suite;

                          (vi)  All appropriate support services and systems;

                          (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;

                  (b)      To acquire the real property described in Section 3.6
         and Schedule B attached hereto, and to construct a suitable building in
         which the Hospital shall be located;

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

         2.4      Registered Office and Principal Place of Business; Registered
Agent. The registered office and principal place of business of the Company
shall be maintained at the offices of MedCath, whose mailing address is 7621
Little Avenue, Suite 106, Charlotte, Mecklenburg County, North Carolina 28226 or
such other place in the State of North Carolina as MedCath shall designate. The
Registered Agent of the Company shall be David A. Ward whose business office is
identical with the registered office. MedCath shall promptly notify the Members
of any changes in the principal place of business, the registered office, or the
registered agent of the Company.

         2.5      Commencement and Term. The Company shall commence 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, 2035, unless sooner terminated or


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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 MedCath. In the event MedCath does not elect to extend the
term hereof, the Investor Manager may instead elect to extend the term hereof,
subject to MedCath's consent which shall not be unreasonably withheld or
delayed.


                                   ARTICLE III

                        MEMBERS AND CAPITAL CONTRIBUTIONS

         3.1      Contributions of Members. The Members shall contribute capital
as follows:

                  (a)      MedCath shall own at least a fifty-one percent (51%)
         Membership Interest in the Company and shall contribute to the Company
         for its Membership Interest One Million Five Hundred Thirty Thousand
         Dollars ($1,530,000.00) (which amount has heretofore been contributed
         as capital to MedCath by MedCath Incorporated).

                  (b)      The Investor Members shall own in the aggregate up to
         a forty-nine percent (49%) Membership Interest and shall contribute to
         the Company for their Membership Interests an amount, in the aggregate,
         of up to One Million Four Hundred Seventy Thousand Dollars
         ($1,470,000.00). The Membership Interests of the Investor Members shall
         be owned and determined based upon the Capital Contributions as shown
         on Schedule A attached hereto.

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

         3.2      Liability of Members - For Capital. The liability of each
Member, as such, shall be limited to the amount of his agreed Capital
Contribution as a Member.

         3.3      Members' Accounts and Withdrawals. An individual Capital
Account shall be maintained for each Member in accordance with requirements of
the Code and the Regulations promulgated thereunder for limited liability
companies. It shall be credited initially with the amount of each Member's
Capital Contribution and shall be increased by such Member's share of income and
gain and any additional contributions at fair market value, decreased by such
Member's share of distributions and losses, and increased and/or decreased by
those other items required by the Code and the Regulations. No Member shall be
entitled to withdraw or to make demand for withdrawal of any part of his or her
Capital Account or to receive any distribution except as provided herein.

         3.4      Interest on Capital Contributions. No interest shall be paid
on Capital Contributions.

         3.5      Additional Funding. If from time to time, MedCath reasonably
determines 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:


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                  (a)      First, MedCath shall use commercially reasonable
         efforts to borrow such funds from a bank or other lender on terms and
         conditions reasonably acceptable to MedCath, or MedCath 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 as the Company has funds available therefore.
         All loans obtained hereunder shall be subject to the approval of the
         Investor Manager which approval shall not be unreasonably withheld or
         delayed;

                  (b)      Second, if loans as provided in (a) above are not
         available, MedCath may request that the Members contribute additional
         capital to the Company pro rata according to their respective
         Membership Interests, provided however, such Capital Contributions
         shall be made only if MedCath and the Investor Manager approve such
         Capital Contributions. If additional Capital Contributions are so
         approved, each Member may elect whether or not to contribute its pro
         rata portion thereof. The other Investor Members may elect to
         contribute capital not contributed by any Investor Member hereunder.
         MedCath may then elect to contribute amounts which the Investor
         Members, in the aggregate, have not so contributed. Thereafter, MedCath
         shall reasonably adjust the Membership Interest of each Member (taking
         into consideration the Capital Contributions made by the Members in
         accordance with this Section 3.5) in the event any Member elects not to
         contribute capital pursuant to a capital call approved in accordance
         with this Section 3.5;

                  (c)      If funds are not available in accordance with (a) or
         (b) above, then MedCath may elect to dissolve the Company.

         3.6      Funds to be Held in Escrow. The Capital Contributions made by
MedCath and by the Investor Member on or about the date hereof (the "Escrowed
Funds") shall be immediately deposited into and retained in a bank account of
the Company which shall require the joint signature of MedCath and the Investor
Manager in order to make a withdrawal therefrom. If the Company has assigned to
it or enters into a binding agreement entitling the Company to purchase an
approximately 12 acre site fronting on South Shackleford Road in Little Rock,
Arkansas as further described on Schedule B attached hereto within thirty (30)
days from the date hereof, then MedCath and the Investor Manager shall withdraw
the Escrowed Funds and allow them to be placed by MedCath into an operating
account for the benefit of the Company. If such a binding agreement is not
assigned to, nor entered into by, the Company within thirty (30) days from the
date hereof, then the Escrowed Funds shall be returned pro rata to MedCath and
the Investor Member and the Company shall be dissolved and this Agreement
terminated.


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                                   ARTICLE IV

                     NAMES AND ADDRESSES OF INITIAL MEMBERS

         4.1      The names and addresses of the Members are as follows:

<TABLE>
<CAPTION>
                            Name                            Address
                  <S>                             <C>
                  MedCath of Arkansas, Inc.       7621 Little Avenue, Suite 106
                                                  Charlotte, NC  28226
</TABLE>

                  See the Members listed on Schedule A attached hereto.


                                    ARTICLE V

                            MANAGEMENT OF THE COMPANY

         5.1      General Authority and Powers of MedCath. Subject to the terms
and conditions of this Agreement, including but not limited to Section 11.1(g)
hereof, MedCath shall have complete authority over and the exclusive control and
management of the business affairs of the Company, provided, however, that
certain actions and decisions of MedCath as specified herein shall be made with
the approval of the Investor Manager, and decisions relating to medical and
clinical practice at the Hospital shall be made exclusively by the Investor
Manager and/or qualified medical personnel of the Hospital. Without limiting the
generality of the foregoing, MedCath shall have the right and the power, if, as,
and when it, from time to time, deems necessary or appropriate on behalf of the
Company, subject only to the terms and conditions of this Agreement:

                  (a)      To negotiate and execute on behalf of the Company all
         documents, instruments and agreements reasonably necessary or
         appropriate to lease, acquire and/or construct the Hospital and/or the
         real property on which the Hospital is or will be located, and to
         borrow funds to finance such lease, acquisition and/or construction (it
         being acknowledged that the Hospital may be an existing building or may
         be a newly constructed building), the material terms and conditions of
         which shall be subject to the approval of the Investor Manager which
         approval shall not be unreasonably withheld or delayed; provided that
         the selection of the site for the Hospital shall be subject to the
         approval of the Investor Manager;

                  (b)      To prepare a budget for the development of the
         Hospital and thereafter, annual operating budgets;

                  (c)      To acquire all appropriate equipment and supplies
         required from time to time in connection with the development and
         operation of the Hospital (the "Equipment") and loans or other
         financing therefor, provided however, material items of medical
         equipment shall be acquired with the approval of the Investor Manager
         which approval shall not be unreasonably withheld or delayed;


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<PAGE>   12

                  (d)      The negotiation and execution of all such other
         agreements regarding the purchase of goods or services for the
         Hospital, provided however, any agreement involving physician services
         or any agreement for the expenditure of more than One Hundred Thousand
         Dollars ($100,000.00) by the Company which is not cancelable upon no
         more than ninety (90) days notice shall not be entered into without the
         approval of the Investor Manager which approval shall not be
         unreasonably withheld or delayed;

                  (e)      With the approval of the Investor Manager which will
         not be unreasonably withheld or delayed, establish procedures for
         quality assurance, peer review and granting privileges to physicians
         with other specialties at the Hospital;

                  (f)      To expend all or portions of the Company's capital
         and income in furtherance of or relating to the Company's business and
         purposes, including, but not limited to, payment of all ongoing
         operational expenses, payment of commissions, organization expenses,
         professional fees, rental fees, and management fees, and to invest in
         short-term debt obligations (including, but not limited to, obligations
         of Federal and state governments and their agencies, commercial paper,
         and certificates of deposit of commercial banks, or savings banks or
         savings and loan associations) such of the Company's funds as are
         temporarily not required for the development or operation of the
         Company and the payment of Company obligations;

                  (g)      To employ or retain on such terms and for such
         compensation as MedCath may reasonably determine, such persons, firms,
         or corporations as MedCath may deem advisable, including without
         limitation qualified medical and other employees necessary or
         appropriate to operate the Hospital, attorneys, accountants, financial
         and technical consultants, supervisory managing agents, insurance
         brokers, brokers and loan brokers, appraisers, architects (who shall
         prepare for the Company a site plan which contemplates the inclusion of
         a medical office building) and engineers, who may also provide such
         services to MedCath, provided that physicians, senior administrator of
         the Hospital and other senior medical staff shall be hired or retained
         with the approval of the Investor Manager which shall not be
         unreasonably withheld or delayed; provided further, that the Investor
         Manager shall present to MedCath any concerns which they may have about
         the senior administrator of the Hospital from time to time and MedCath
         shall meet with the Investor Manager to discuss such concerns and to
         explore what actions should reasonably be taken by MedCath on behalf of
         the Company with respect thereto;

                  (h)      Except to the extent the approval of the Investor
         Manager is expressly required elsewhere in this Section 5.1:

                           (A)      To execute leases, deeds, contracts, rental
                  agreements, construction contracts, sales agreements, and
                  management contracts;

                           (B)      To exercise all rights, powers, and
                  privileges of the Company as lessee with respect to the
                  Hospital or rights held by the Company;


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                           (C)      To consent to the modification, renewal, or
                  extension of any obligations to the Company of any person or
                  of any agreement to which the Company is a party or of which
                  it is a beneficiary;

                           (D)      To execute in furtherance of any or all of
                  the purposes of the Company, any deed, lease, deed of trust,
                  security interest, mortgage, promissory note, bill of sale,
                  assignment, contract, or other instrument purporting to
                  purchase or convey or encumber in whole or in part the
                  Equipment or the Hospital or other real or personal property
                  of the Company;

                           (E)      To prepay in whole or in part, refinance,
                  recast, increase, modify, or extend any security interest,
                  deed of trust, or mortgage affecting the Hospital and in
                  connection therewith to execute any extensions or renewals
                  thereof on the Hospital and to grant security interests in any
                  of the Equipment or the Hospital;

                  (i)      To adjust, compromise, settle, or refer to
         arbitration any claim against or in favor of the Company, and to
         institute, prosecute, and defend any actions or proceedings relating to
         the Company, its business, and properties;

                  (j)      To acquire and enter into any contract of insurance
         which MedCath deems necessary or appropriate for the protection of the
         Company and MedCath, for the conservation of the Company or its assets,
         or for any purpose beneficial to the Company; however, neither MedCath
         nor its Affiliates shall be compensated for providing insurance
         brokerage services relating to obtaining such insurance;

                  (k)      To prepare or cause to be prepared reports,
         statements, and other relevant information for distribution to the
         Members including annual reports;

                  (l)      To open accounts and deposit and maintain funds in
         the name of the Company in banks or savings and loan associations;
         provided, however, that the Company's funds shall not be commingled
         with the funds of any other person;

                  (m)      To cause the Company to make or revoke any of the
         elections referred to in Section 754 of the Internal Revenue Code of
         1986 as amended or any similar provisions enacted in lieu thereof;

                  (n)      To make all decisions related to generally accepted
         principles of accounting to be applied on a consistent basis and
         Federal income tax election;

                  (o)      Except to the extent the approval of the Investor
         Manager is expressly required elsewhere in this Section 5.1, generally,
         to possess and exercise any and all of the rights, powers and
         privileges of a Manager under the North Carolina Act;

                  (p)      To execute, acknowledge, and deliver any and all
         documents or instruments in connection with any or all of the
         foregoing;


                                       12

<PAGE>   14


                  (q)      Except to the extent the approval of the Investor
         Manager is expressly required elsewhere in this Section 5.1, to modify
         or otherwise improve the Hospital;

                  (r)      To manage, direct, and guide the operation of the
         Hospital, other than medical or clinical matters which shall be under
         the direction of the Investor Manager and other agreed upon qualified
         medical personnel, including all necessary acts relating thereto;

                  (s)      With the approval of the Investor Manager not to be
         unreasonably withheld or delayed to establish minimum insurance
         requirements for all physicians practicing at the Hospital;

                  (t)      To admit as Members additional investors who have
         been approved by the Investor Manager, which approval shall not be
         unreasonably withheld or delayed;

                  (u)      Subject to Section 5.2(j), to sell assets of the
         Company.

                  (v)      Subject to applicable law, in order to assure the
         availability to the Hospital of qualified physicians and to maintain
         the quality of medical services to be provided by the Hospital, the
         execution of a professional services agreement with Little Rock
         Cardiology Clinic, P.A., an Arkansas professional corporation ("LRCC"),
         under which the physicians of LRCC shall serve as the exclusive
         providers of cardiology and cardiovascular services, including
         cardiovascular surgery, to the Hospital. Such agreement shall provide
         that LRCC may, subject to the consent of MedCath which shall not be
         unreasonably withheld or delayed enter into subcontracts with other
         qualified cardiologists and cardiovascular surgeons who will assist
         LRCC in fulfilling its obligations to the Hospital. Any such
         subcontract shall be subject to and in accordance with the terms and
         conditions of the professional services agreement entered into between
         LRCC and the Hospital. All physicians of LRCC and any other physicians
         who provide such services to the Hospital must obtain medical staff
         membership and privileges in accordance with the bylaws and the
         reasonable rules and regulations adopted by the Hospital;

                  (w)      To conduct a limited offering of the remaining
         Membership Interests in the Company in units of $10,000 each in
         accordance with applicable securities laws and to admit the purchasers
         of such units as Members of the Company in accordance with the terms of
         this Agreement;

                  (x)      To sell to an Investor Member, for its fair market
         value, a portion of the real property described on Schedule B for the
         purpose of constructing a medical office building thereon.

         5.2      Restrictions on Authority of the Managers. The Managers shall
not do any of the following:

                  (a)      Act in contravention of this Agreement;


                                       13


<PAGE>   15

                  (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 or entity;

                  (d)      Admit an additional Manager, except as provided in
         this Agreement;

                  (e)      Admit an additional Member, except as provided in
         this Agreement;

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

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

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

                  (i)      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 payable by
         Medicare or Medicaid;

                  (j)      Sell all or substantially all of the assets of the
         Company or merge the Company without the approval of a Majority Vote of
         the Members.

         5.3      Duties of the Managers.  Each Manager 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 and, in the case of MedCath, to perform the
         duties for which it will receive a Management Fee as provided in
         Section 5.6(b), or otherwise, however, each Manager shall not be
         required to devote its 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)      In the case of MedCath 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;

                  (d)      In the case of MedCath 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 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


                                       14

<PAGE>   16


                  (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 Managers to employ such funds or assets in any
         manner except for the benefit of the Company.

                  (f)      In the case of MedCath deliver to the Secretary of
         State of North Carolina for filing an annual report in accordance with
         the North Carolina Act and deliver to the Arkansas Secretary of State a
         qualification as a foreign limited liability company.

         5.4      Delegation by the Managers. Subject to restrictions otherwise
provided herein, the Managers may at any time employ any other person, including
persons and entities employed by, affiliated with, or related to the Managers 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 Managers of their respective
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 or Manager of
the Company.

         5.5      Right to Rely Upon the Authority of the Managers. Persons
dealing with the Company may rely upon the representation of the Managers that
such Managers are managers of the Company and that such Managers have the
authority to make any commitment or undertaking on behalf of the Company. No
person dealing with the Managers 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 any
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.

         5.6      Company Expenses.

                  (a)      In general, the Company's expenses shall be billed
         directly to and paid by the Company. The Company shall reimburse the
         Managers or their Affiliates for: (i) all Organization Expenses
         incurred by the Managers or their Affiliates in connection with the
         formation of the Company; (ii) the actual costs to the Managers or
         their Affiliates of goods, services, and materials used for and by the
         Company; and (iii) all reasonable travel and other out-of-pocket
         expenses incurred by the Managers in the development and management of
         the Company and its business. The reimbursement for expenses provided
         for in this Section 5.6(a) shall be made to the Managers or their
         Affiliates regardless of whether any distributions are made to the
         Members under Article VI and Article VII.

                  (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


                                       15

<PAGE>   17


                  Hospital, and other taxes applicable to the Company; expenses
                  in connection 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); the maintenance of the Hospital and its
                  Equipment may be performed by MedCath 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)     In addition to reimbursements and other
                  amounts due hereunder, a Management Fee equal to [***]
                  ($[***]) per year due to MedCath which fees shall first accrue
                  commencing on the first to occur of (the "Completion Date")
                  (X) the substantial completion of the construction of the
                  Hospital if the Hospital is to be located in a new building
                  (whether to be leased to or owned by the Company), or (Y) the
                  closing of the purchase of the real property in which the
                  Hospital is to be located if located in an existing building
                  (either by the Company or by a third party who shall in turn
                  lease such building to the Company) which fees shall be
                  increased annually by the Consumer Price Index reasonably
                  applied by MedCath on January 1st of each year;

                           (iii)    A medical director's fee equal to Fifty
                  Thousand Dollars ($50,000.00) per year to be paid to the
                  medical director of the Hospital which fee shall first accrue
                  commencing as of the Completion Date, which fee shall be
                  increased annually by the Consumer Price Index reasonably
                  applied by MedCath on January 1st of each year;

                           (iv)     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 or Economic 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 or Economic Interest
                  Owners 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 MedCath 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; the costs of
                  preparing and disseminating informational material and
                  documentation relating to potential sale, refinancing, or
                  other disposition of the Hospital or the Equipment.


                                       16


[***] These portions of this exhibit have been omitted and filed separately
      with the Commission pursuant to a request for confidential treatment.
<PAGE>   18


         5.7      No Management by Members. Other than the Managers, 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 judgement with respect to all professional medical or clinical
matters of qualified medical personnel, MedCath, in conjunction with the
Investor Manager where applicable, 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 him or her 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.

         5.8      Consent by Members to Exercise of Certain Rights and Powers by
Managers. By its execution hereof, each Member expressly consents to the
exercise by the Managers of the rights, powers, and authority conferred on the
Managers by this Agreement.

         5.9      Other Business of Members.

                  (a)      Subject to (b) below, any Member, including any
         Manager, 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)      As long as any Member owns a Membership Interest
         herein, and for a period of five (5) years after a Member ceases for
         any reason to own a Membership Interest in the Company, and with
         respect to an Affiliate who owns an equity interest in a Member, for a
         period of five (5) years after an Affiliate of a Member ceases to own
         an equity interest in such Member, neither a Member nor any of its
         respective Affiliates, shall hold, directly or indirectly, an
         investment or ownership interest in any entity which provides any of
         the services or facilities then being provided by the Hospital within a
         fifty (50) mile radius of the Hospital (the "Territory"), provided that
         no Member who is a physician shall be prohibited from: (A) engaging in
         his or her regular medical practice which may include nuclear imaging,
         ultrasound, cardiac rehabilitation and office based electro-physiology
         studies, but all only to the extent that these facilities exist and the
         services are provided as of the date hereof; provided that no such
         practice shall hereafter be expanded to include any other modalities or
         equipment which provide any of the services provided or reasonably
         expected to be provided by the Hospital, (B) engaging in, providing, or
         operating clinical laboratories and electrocardiograms, or (C)
         maintaining his or her staff privileges at any other hospital. In
         addition, MedCath may separately operate a mobile catheterization


                                       17

<PAGE>   19


         laboratory within the Territory, but only upon the written consent of a
         Majority Vote of Investor Members;

                  (c)      The Members, including the Managers, have reviewed
         the term and geographical restrictions included in Section 5.9(b), and
         in light of the interests of the parties hereto, agree that such
         restrictions are fair and reasonable.

                  (d)      If there is a breach or threatened breach of the
         provisions of this Section 5.9 of this Agreement, in addition to other
         remedies at law or equity, the non-breaching party shall be entitled to
         injunctive relief. The parties desire and intend that the provisions of
         this Section 5.9 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 5.9. Should any such
         paragraph, subparagraph, sentence, clause, phrase, word, or figure be
         adjudicated to be wholly invalid or unenforceable, the balance of this
         Section 5.9 shall thereupon be modified in order to render the same
         valid and enforceable and the unenforceable portion of this Section 5.9
         shall be deemed to have been deleted from this Agreement.

                  (e)      MedCath, the Company and the Investor Members agree
         that the benefits to any Investor 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 provisions of any item or
         service offered by MedCath or the Company to patients of such Investor
         Member in any facility, laboratory, cardiac catheterization facility or
         other health care operation controlled, managed or operated by MedCath
         or the Company and nothing herein is intended to prohibit any party
         from practicing medicine at any other facility.

         5.10     Managers' Standard of Care. Each Manager shall act in a manner
he, she or it 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 its duties, each Manager 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 Managers, Members, or agents, or by any other
person as to matters each Manager 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,
profits 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.

         5.11     Limitation of Liability. A Manager shall not be liable to the
Company, its Members, or other Managers for any action taken in managing the
business or affairs of the Company if he, she or it performs the duty of his,
her or its office in compliance with the standard contained in Section 5.10. No
Manager has guaranteed nor shall have any obligation with respect to the return
of a Member's Capital Contribution or profits from the operation of the Company.
Furthermore, no Manager, 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

                                       18

<PAGE>   20



damage resulting from (a) gross negligence or intentional misconduct or (b)
knowing violation of law or (c) a transaction for which such Manager or Agent
received a personal benefit in violation of its obligations arising under this
Agreement or (d) breach of the provisions of this Agreement.

         5.12     Indemnification of the Managers.

                  (a)      The Manager 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 them arising out of any action or inaction of the Manager
         or its Agents in its capacity as a Manager of the Company (or, in the
         case of an Agent, within the scope of the Manager's authority) to the
         fullest extent allowed by law, provided that the same were not the
         result of gross negligence, intentional misconduct, a knowing violation
         of law, a transaction for which such Manager or Agent received a
         personal benefit in violation of this Agreement or a breach of the
         provisions of this Agreement on the part of the Manager or an Agent and
         provided that the Manager 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 Manager 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.

         5.13     Election and Replacement of Investor Manager. In accordance
with the procedures outlined in Section 10.1 herein, the Investor Members shall
elect an Investor Manager to serve for one year terms or until its successors is
duly elected. At any time, in accordance with Section 10.1, the Investor Members
may replace the Investor Manager and elect a new Investor Manager.

         5.14     Role of Investor Manager. Notwithstanding anything herein to
the contrary, the Investor Manager shall take no action nor make any decision on
behalf of the Company except to the extent it is expressly authorized to do so
under this Agreement in its capacities as Investor Manager.

         5.15     Purchase of Goods and Services from MedCath. Goods and
services purchased from MedCath or its Affiliates shall be of substantially the
same quality and price as could be obtained from an unrelated third party.


                                       19

<PAGE>   21


                                   ARTICLE VI

                          ALLOCATIONS AND DISTRIBUTIONS

         6.1      Allocations and Distributions of Cash Flow from Operations and
Cash from Sales or Refinancing. After repayment of any loans made by the Members
to the Company, Cash Flow from Operations and Cash from Sales or Refinancing
shall be allocated, or distributed as Cash Distributions according to the
Economic Interests of the Members and Economic Interest Owners which, subject to
the provisions of Section 6.6 and Article VII, initially shall be in accordance
with their respective Membership Interests shown on Schedule A attached hereto.
Notwithstanding anything herein to the contrary no distributions shall be made
to Members if prohibited by N.C.G.S. ss. 57C-4-06.

         6.2      Allocations of Income and Loss.

                  (a)      Taxable gains shall be first allocated to those
         Members and Economic Interest Owners, if any, with negative capital
         accounts, pro rata according to their negative capital accounts, until
         all such accounts have been returned to zero.

                  (b)      After the allocations are made pursuant to Section
         6.2(a), all allocations and distributions of Income and Loss from
         whatever source shall then be made according to the Economic Interest
         of each Member and Economic Interest Owner.

                  (c)      In accordance with Code Section 704(c) and the
         Regulations thereunder, Income and Loss with respect to that portion of
         the 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 fair market
         value used as the book value of the property by the Company.

         6.3      Capital Accounts. Notwithstanding anything in this Agreement
to the contrary, no Member or Economic Interest Owner shall be entitled to any
allocation of Loss if such allocation, would result in such Member or Economic
Interest Owner having a negative Capital Account while any other Member or
Economic Interest Owner has a positive Capital Account. In such event, the
Losses shall be allocated to the Members or Economic Interest Owners with
positive Capital Accounts until their Capital Accounts have been reduced to zero
or until the negative amount in the Capital Accounts are proportionately the
same as the negative accounts of the other Members or Economic Interest Owners
as measured by their respective Economic Interests in the Company.

         6.4      Qualified Income Offset Provision. Any Member or Economic
Interest Owner who unexpectedly receives an adjustment, allocation, or
distribution as described in Regulation Section 1.704-1(b)(2)(ii)(d) at (4) to
(6), will be allocated items of income and gain in an amount and manner
sufficient to eliminate such deficit balance as quickly as possible. This
provision is intended to be a "qualified income offset" as defined in Regulation
Section 1.704-1(b)(2)(ii)(d), such Regulation being specifically incorporated
herein by reference.


                                       20

<PAGE>   22

         6.5      Minimum Gain Chargeback. If there is a net decrease in Minimum
Gain of the Company during any taxable year or other period, each Member or
Economic Interest Owner shall be allocated, before any other allocation is made
under Code Section 704(b) of Company items for such taxable year, an amount
equal to the greater of (i) such Company's share of the net decrease in Minimum
Gain allocable to the disposition of Company property subject to nonrecourse
liability, or (ii) the deficit balance in such Member's or Economic Interest
Owner's Capital Account. The items to be so allocated shall be determined in
accordance with Temporary Regulation Section 1.704-1T(b)(4)(iv)(e). This
provision is intended to be a "minimum gain chargeback" as described in
Temporary Regulation Section 1.704-1T(b)(4)(iv)(e), such Regulation being
specifically incorporated herein by reference.

         6.6      Time and Manner of Cash Distributions.

                  (a)      Cash Flow from Operations and Cash from Sales or
         Refinancing (collectively, "Cash Distributions") shall be distributed
         to the Members and Economic Interest Owners as Cash Distributions
         according to the allocations set forth in Section 6.1 above, from time
         to time as follows. MedCath shall distribute any cash available for
         distribution quarterly, but shall retain such amounts as it may
         reasonably determine are required for the support of the operations of
         the Company or payment of Company obligations during a sixty (60) day
         period, plus amounts reasonably established as a reserve to replace
         capital assets.

                  (b)      Subject to any limitations on Cash Distributions
         imposed by statute, but notwithstanding any other provision in this
         Agreement to the contrary, the Company and Members agree as follows:

                           (i)      Subject to terms of this Section and to the
                  extent the Company has such cash funds, the Company shall make
                  pro rata Cash Distributions of money, based on ownership of
                  Membership Interests, to pay the federal and state income
                  taxes on the Income that is taxable to the Members under the
                  applicable provisions of the Code;

                           (ii)     The total amount required to be distributed
                  shall be determined by conclusively presuming that all Income
                  allocable to each Member will be taxed at the maximum federal
                  rate (without regard to exemptions or phaseouts of lower tax
                  rates) and the maximum State of Arkansas rate at which income
                  of an individual can be taxed in the calendar year that
                  includes the last day of the Company's taxable year;

                           (iii)    The company shall make the distributions
                  required in subsection (i) in a timely manner to allow the tax
                  (including, without limitation, estimated tax payments)
                  attributable to the Income allocable to any Member to be paid
                  when due.

                           (iv)     No provision in this Section shall cause the
                  total distribution paid with respect to any Membership
                  Interest to differ from the amounts paid with respect to any
                  other Membership Interest.


                                       21
<PAGE>   23


                           (v)      No provision of this Section shall be
                  construed to limit the ability of the Company to make
                  additional Cash Distributions to the Members out of the assets
                  of the Company legally available for such payment.

                                   ARTICLE VII

                   TERMINATION AND DISSOLUTION OF THE COMPANY

         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.

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

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

                  (b)      The death, insanity, bankruptcy, retirement (other
         than due to a failure of an Investor Manager to be re-elected as an
         Investor Manager), resignation (other than due to an Investor Manager's
         resigning from serving as a Manager while still remaining a Member) or
         expulsion of any member - manager, unless the Company is continued by
         the consent of not less than a majority in interest of the remaining
         Members within sixty (60) days after notice of such event, effective as
         of the date of such event. If there is no remaining Manager, the
         remaining Members owning at least 51% of the Membership Interests which
         are owned by the remaining Members shall elect a Substitute Manager who
         shall assume all of the rights and duties of MedCath under this
         Agreement (which Substitute Manager accepts such election);

                  (c)      Upon the written agreement of MedCath and the
         Investor Manager;

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

                  (e)      The adjudication of bankruptcy of the Company;

                  (f)      Upon the written consent of a Majority Vote of the
         Members;

                  (g)      Except as otherwise expressly provided herein, the
         occurrence of any event which, under the North Carolina Act or any
         other law, causes the dissolution or termination of the Company under
         the law of the State of North Carolina;

                  (h)      In accordance with Section 3.6 hereof; and


                                       22


<PAGE>   24



                  (i)      Upon the Majority Vote of Investor Members within
         forty-five (45) days of the occurrence of:

                           (i)      The Company  failing to acquire the real
                  property identified on Schedule B attached hereto within six
                  (6) months from the date hereof;

                           (ii)     The Company failing to commence construction
                  (which shall mean the beginning of site preparation work under
                  the construction contract) of the Hospital within nine (9)
                  months from the date hereof; or

                           (iii)    The Company failing to obtain financing from
                  an unrelated third party for the Hospital on terms at least as
                  favorable in all material respect to those set forth on
                  Schedule C attached hereto within twelve (12) months from the
                  date hereof.

         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
         MedCath and the Investor Manager, or if for any reason there is no
         Manager, by another person (including a corporation, firm, or entity)
         designated by a Majority Vote of the Members. In winding up the Company
         and liquidating assets, MedCath, or other person so designated for such
         purpose, may arrange, either by itself 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, or may
         sell the Company's interest in the Hospital and the Equipment to any
         person, including MedCath or any Affiliate thereof, on such terms and
         for such consideration as shall be consistent with obtaining the fair
         market value thereof.

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

                           (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 its Affiliates) and the
                  expenses of liquidation;

                           (ii)     To the payment of all debts and liabilities
                  (including interest) owed to the Members or their Affiliates
                  as a creditor; and

                           (iii)    The balance according to the Members' and
                  Economic Interest Owners' positive Capital Accounts after
                  taking into account all other adjustments during the fiscal
                  year in which liquidation occurs;


                                       23
<PAGE>   25

                  (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 Managers or other
         Members or to charge the Managers or other Members for any amounts
         except as provided herein and except to the extent otherwise provided
         by the North Carolina 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 and Economic
         Interest Owners, as adjusted pursuant to Section 1.4, shall be utilized
         by the Company for the purpose of making distributions to those Members
         and Economic Interest Owners with positive balances in their respective
         capital accounts pursuant to Section 7.3(b). In making such
         distributions, MedCath or the person winding up the affairs of the
         Company shall distribute all funds available for distribution to the
         Members and Economic Interest Owners (after establishing any reserves
         that MedCath or the person winding up the affairs of the Company deems
         reasonably necessary pursuant to Section 7.3(b)) prior to the later of
         (a) the end of the taxable year in which the event occurs which caused
         the termination and dissolution of the Company, or (b) ninety (90) days
         after the occurrence of such event. MedCath in its sole discretion, or
         the person winding up the affairs of the Company, in his, her or 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 MedCath 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.

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

         7.5      Payment in Cash or in Kind. Any payments made to any Member
pursuant to Section 7.3 hereof shall be made in cash unless the Company has been
unable after good faith efforts to sell its property, in which event payment may
also be made in property or partially in cash and partially in such property;
provided, however, that the Members have no right to receive other than cash in
return for their contributions.

         7.6      Good Will and Trade Name. Upon the dissolution of the Company
the firm or trade name of the Company and any good will associated therewith
shall become the sole property of MedCath, provided that distributions and
allocations otherwise due to MedCath shall not be reduced as a result of MedCath
becoming entitled to such assets.

         7.7      Termination of Noncompetition Covenants. Upon a dissolution of
the Company, the Members shall have no continuing liability, or obligation under
Section 5.9(b) except that Section


                                       24

<PAGE>   26


5.9(b) shall continue to be binding: (a) upon a Member and its Affiliates whose
breach of this Agreement caused or resulted in a dissolution of the Company; and
(b) on all Members and their Affiliates following a dissolution which occurs
under Section 3.5(c) hereof.

                                  ARTICLE VIII

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

         8.1      Manager - Transfers.

                  (a)      Except as provided in this Section 8.1, without the
         consent of a Majority Vote of Investor Members, MedCath shall not
         voluntarily withdraw from the Company as a Manager at any time prior to
         its termination, or transfer or assign any of its rights and duties as
         a Manager, provided that MedCath may assign its Membership Interest in
         the Company and its rights to be a Manager to any party who purchases
         all or substantially all of MedCath's and its subsidiaries' assets or
         capital stock if such purchaser assumes in writing the obligations of
         MedCath hereunder or to a party under control of, common control, or
         which controls, MedCath. MedCath may also assign its Membership
         Interest in the Company and its rights to be a Manager to a financial
         institution as collateral security for repayment of indebtedness for
         borrowed funds by MedCath or its Affiliates. In the event that MedCath
         desires to sell any Membership Interest and such sale is not in
         connection with the sale of all or substantially all of the assets or
         capital stock of MedCath and its subsidiaries, then the other Members
         shall first have an option to purchase such Membership Interest in
         accordance with the Right of First Refusal provided in Section 8.4.

                  (b)      The Investor Manager may not assign its rights to be
         a Manager herein. Upon the withdrawal or resignation of an Investor
         Manager, a substitute therefore who must be an Investor Member may be
         elected by a Majority Vote of Investor Members.

                  (c)      Any resignation or withdrawal by a Manager as a
         manager shall not constitute such Manager's withdrawal as a Member.

         8.2      Members' Right to Continue. If at any time there is no
remaining Manager, a meeting of the Members shall be held at the principal place
of business of the Company within forty-five (45) days after the happening of
such event to consider whether to continue the Company on the same terms and
conditions as are contained in this Agreement (except that the Managers may be
different) and to select a Manager for the Company, or whether to wind up the
affairs of the Company, liquidate its assets and distribute the proceeds
therefrom in accordance with Article VII hereof. The Company may be continued
and a new Manager (who accept such appointment) selected by the Members within
ninety (90) days of the occurrence of the event described in Section 7.2(a). The
new Manager shall execute, acknowledge, file or record (as appropriate) Articles
of Organization and an Operating Agreement and such other documents as may be
required by the North Carolina Act. The continuance of the Company pursuant to
the terms of this Section 8.2 is conditioned upon (i) the amendment of the
Articles of Organization to reflect the


                                       25

<PAGE>   27


foregoing change and, if applicable, compliance by the Company with any notice
provisions of the North Carolina Act and (ii) delivery to the withdrawing
Manager of an indemnification agreement by the Company, in form and substance
reasonably satisfactory to the withdrawing Manager, indemnifying and holding
MedCath harmless against all future liabilities of the Company.

         8.3      Relationship with Substitute Manager. The relationship of the
Members to any person or entity that has acquired the Membership Interest of
either MedCath or the Investor Manager shall be governed by this Agreement. If
the acquiring party was not theretofore a Manager, then such Substitute Manager
shall have all the rights and powers of such Manager under this Agreement;
provided, it assumes in writing the obligations of such Manager under this
Agreement and any arising thereafter, and accepts and adopts all the terms and
provisions of this Agreement in writing. The withdrawing Manager shall be liable
for all of its covenants and obligations under this Agreement for all periods
prior to its withdrawal until such liability is assumed by a Substitute Manager.

         8.4      Restrictions on Transfer by Investor Members. Except as
otherwise set forth in this Section or in this Agreement, no Economic Interest
and/or Membership Interest of an Investor Member 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 Economic Interest and/or 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 MedCath to
comply with requirements imposed by any Federal or state securities regulatory
authority and unless MedCath's consent is obtained. In no event, however, shall
an Investor Member transfer or sell all or any of its Economic Interest and/or
Membership Interest to any party which, if a Member, would be in violation of
Section 5.9(b) hereof. Except as otherwise set forth in this Section or in this
Agreement, an Investor Member may transfer, sell or assign his or her entire
Economic Interest and/or Membership Interest if it has received the approval of
MedCath, not to be unreasonably withheld, provided however: (a) 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 Economic Interest and/or 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 (b) 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 he, she
or it meets the investor suitability standards established by his, her or its
state of residence, or, in the absence thereof, the investor suitability
standards established by the Company. MedCath shall use reasonable care to
determine that transfers are in accordance with applicable laws and regulations,
including obtaining an opinion of counsel to that effect. Any Member who is not
a Manager who shall assign all its Membership Interest shall cease to be a
Member of the Company, except that unless and until a Substitute Member is
admitted in his or her stead, such assigning Member shall retain the statutory
rights of an assignor of a Membership Interest under the North Carolina Act. Any
Membership Interests


                                       26

<PAGE>   28


acquired by the Company pursuant to Section 8.4 shall, subject to applicable
law, be re-offered by the Company to suitable investors.

         8.5      Condition Precedent to Transfer of Economic Interest and/or
Membership Interest. Notwithstanding anything herein to the contrary, no
transfer of an Economic Interest and/or 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 limited liability company for Federal income 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 an Economic Interest and/or
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 MedCath that the transfer will not violate any of
the foregoing restrictions.

         8.6      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 his or her 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
         8.4 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 MedCath 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 written consent of MedCath to such substitution
         is obtained, which consent may be withheld in MedCath's sole and
         absolute discretion;

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

         8.7      Allocations Between Transferor and Transferee. Upon the
transfer of a Member's Economic Interest or Membership Interest, all items of
income, gain, loss, deduction and credit attributable to the Economic Interest
or 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 MedCath, 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
Economic Interest or Membership Interest so transferred was held by the


                                       27

<PAGE>   29

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
MedCath 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 Economic Interest or Membership Interest on the date of
distribution. Notwithstanding anything contained in this Agreement to the
contrary, both the Company and MedCath shall be entitled to treat the assignor
of any assigned Economic Interest or Membership Interest as the absolute owner
thereof in all respects, and shall incur no liability for distributions of cash
or other property 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 of an assignment of any Economic Interest or
Membership Interest shall be the last day of the month specified in the written
instrument of assignment.

         8.8      Rights, Liabilities of, and Restrictions on Assignee. No
assignee of a Member's Economic Interest or 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 MedCath's 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, 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 interest of assignees as
well as Members.

         8.9      Death of a Member. Heirs of Members shall be entitled to
inherit the Membership Interests of a deceased Member, provided that upon a
Member's death 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 MedCath as a condition to such heir becoming a Member, in which
event such interest shall again become a Membership Interest in the Company.
Notwithstanding the previous sentence, within one hundred twenty (120) days of
the Company first learning of the death of a Member, the Company shall have the
option to purchase the Membership Interest of the deceased Member, and the
estate of the deceased Member shall be obligated to sell such Membership
Interest to the Company, in accordance with the terms of this Section 8.9. The
Company may exercise its option by giving written notice thereof to the estate
of the deceased Member, or the appropriate representative thereof, within such
one hundred twenty (120) day period. The purchase price for such Membership
Interest shall be equal to the greater of such Member's Capital Contributions or
five (5) multiplied by the pretax 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 the death of such Member
multiplied by the percentage interest of such Member in the Company (the
"Formula Purchase Price"). The purchase price shall be paid (the "Payment
Method") 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 outstanding amounts due from the Company to the estate of the deceased
Member shall bear interest at Prime Rate as of the date of


                                       28

<PAGE>   30


such Member's death. Accrued interest shall be paid as of the dates payments of
principal are due as provided above.

         8.10     Repurchase of Interests in Certain Event.

                  (a)      In the discretion of MedCath, the Company may, but is
         not obligated to, repurchase a Member's Economic Interest or Membership
         Interest upon such Member's breach of the Member's obligations
         contained in Article III, Sections 5.9, 8.1(b), 8.4, 8.9, 12.11 and
         12.14 of this Agreement.

                  (b)      Each Member agrees to sell its Membership Interest to
         the Company in the event MedCath elects to exercise the right of
         repurchase granted under Section 8.10(a) and the purchase price shall
         the lower of (x) the Capital Contribution of the Member less all
         amounts distributed to such Member by the Company, and (y) the fair
         market value of such Member's Membership Interest determined by an
         appraiser selected by MedCath and consented to by such Member, which
         consent shall not be unreasonably withheld or delayed.


                                   ARTICLE IX

                        RECORDS, ACCOUNTINGS AND REPORTS

         9.1      Books of Account. At all times during the continuance of the
Company, MedCath shall maintain or cause to be maintained true and full
financial records and books of account showing all receipts and expenditures,
assets and liabilities, profits 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.

         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 registered
office of the Company. Each Member or his or her designated representatives
shall, upon reasonable notice to MedCath, have access to such financial books,
records and documents and all documents and records located at the Hospital,
subject however to patient privacy considerations during reasonable business
hours and may inspect and make copies of any of them. Each Member may receive by
mail, upon written request to the Company and at his or her cost, a list of the
names and addresses of the Members and the percentage of Economic Interest held
by each of them or such other information which may be obtained pursuant to
requirements of the North Carolina Act.

         9.3      Bank Accounts and Investment of Funds.

                  (a)      Except as provided in Section 3.6, MedCath 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


                                       29

<PAGE>   31


         Company shall be deposited. All withdrawals from such accounts shall be
         made upon the signature of such person or persons as MedCath may from
         time to time designate.

                  (b)      Except as provided in Section 3.6, any funds of the
         Company which MedCath 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 MedCath in its sole discretion.

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

         9.5      Accounting Reports. Monthly financial reports produced by or
for the Company shall be delivered monthly to the Investor Manager. 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 an annual
accounting showing the financial condition of the Company at the end of such
fiscal year and the results 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 MedCath'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 MedCath on behalf of the Company. 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. MedCath
shall also cause to be prepared and distributed to the Members monthly financial
statements in a form and containing such information as reasonably determined by
MedCath.

         9.6      Tax Returns. MedCath shall cause income tax returns for the
Company to be prepared, at Company expense, and timely filed with the
appropriate authorities. As soon as is reasonably practicable, and in any event
on or before the expiration of 75 days following the end of each fiscal year,
each Member shall be furnished with a statement to be used by him or her in the
preparation of his or her individual income tax returns, showing the amounts of
any Income or Losses allocated to him or her, and the amount of any
distributions made to him or her, pursuant to this Agreement, along with a
reconciliation of the annual report with information furnished to investors for
income tax purposes.


                                       30


<PAGE>   32

                                   ARTICLE X

                      MEETINGS AND VOTING RIGHTS OF MEMBERS

         10.1     Meetings.

                  (a)      Meetings of the Members of the Company for any
         purpose may be called by MedCath, the Investor Manager or by Investor
         Members holding in the aggregate ten percent (10%) of the Membership
         Interests. Such request shall state the purpose of the proposed meeting
         and the matters proposed to be acted upon thereat. Such meetings shall
         be held in the Little Rock, Arkansas area.

                  (b)      A notice of any such meeting shall be given by mail,
         not less than fifteen (15) days nor more than sixty (60) days before
         the date of the meeting, to each Member at his 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 that it is
         being issued at or by the direction of MedCath or by the Investor
         Members, as the case may be. 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 him or her 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 his or her 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.

         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, to the extent taken, of the Members may be cast
         at any duly called meeting of the Company. Each Member shall be
         entitled to the number of votes determined by multiplying one thousand
         (1,000) by the percentage Membership Interest of such Member.

                  (b)      No Member shall have the right or power to vote to:
         (i) withdraw or reduce his or her contributions to the capital of the
         Company except as a result of the dissolution 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 his or her contribution.


                                       31

<PAGE>   33


                                   ARTICLE XI

                                   AMENDMENTS

         11.1     Authority to Amend by Managers. Except as otherwise provided
by Section 11.2, this Agreement and the Articles of Organization of the Company
may be amended by the consent of MedCath and the Investor Manager:

                  (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 North Carolina 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. Any
         amendment under this subsection (e) 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 to any Member on his or her investment in
         the Company, 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;

                  (f)      Intentionally omitted; and

                  (g)      Upon written notice to all Members, MedCath may elect
         to expand the number of Managers up to nine (9) so that the Managers
         can serve as the governing body of the Hospital. In such event, the
         Managers shall include, in addition to MedCath or its designee, the
         president or chief executive officer of the Hospital who shall be
         designated by MedCath and three (3) additional Managers elected from
         time to time by the Investor Members one of whom must be the medical
         director of the hospital. The remaining Managers shall be elected from
         time to time by MedCath. MedCath may delegate to such governing body
         such duties and responsibilities of MedCath as MedCath deems necessary
         or appropriate. Notwithstanding the foregoing, in the event the number
         of Managers is expanded, the Investor Members shall continue to have
         the right to elect an Investor Manager who shall be designated to make
         decisions which are specifically authorized to be made by the Investor
         Manager under this Agreement and MedCath shall continue to have


                                       32

<PAGE>   34


         the right to make decisions with respect to matters which are reserved
         for MedCath at the time the number of Managers is so expanded.

         11.2     Restrictions on Managers' Amendments; Amendments by Investor
Members. Except as provided in Section 11.1, amendments to this Agreement shall
be made only upon the consent of a Majority Vote of Members. Except as set forth
in this Section 11.2, no amendment shall be made pursuant to Section 11.1 which
would materially adversely affect the federal income tax treatment to be
afforded each Member, materially adversely affect the 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.

         11.3     Amendments to Certificates. In making any amendments to this
Agreement, there shall be prepared, executed and filed for recording by MedCath
such documents amending the Articles of Organization as required under the North
Carolina Act.

                                   ARTICLE XII

                                  MISCELLANEOUS

         12.1     Limited Power of Attorney. Upon the execution hereof, each
Member hereby irrevocably constitutes and appoints MedCath and the Investor
Manager jointly, and they must act jointly hereunder, his or her true and lawful
attorney in his or her name and on his or her behalf to take at any time all
such action which MedCath and the Investor Manager is expressly authorized to
perform, or which a Member is expressly required to perform, under this
Agreement.

         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.

         12.3     Interpretation and Construction. This Agreement contains 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.

         12.4     Governing Law; Jurisdiction and Venue. 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. Because this Agreement is
performable wholly or partly within the State of Arkansas, the parties to this
Agreement agree that any legal or equitable action or proceeding with respect to
the Agreement, or arising in any manner from the relationships initiated by this
Agreement, including, but without limiting the generality of this provision, all
tort claims, all contract claims, derivative


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<PAGE>   35


actions and actions for judicial dissolution pursuant to N.C.G.S. ss.57C-6--02
and all other claims and causes of action of every nature, shall be brought in
the courts of the State of Arkansas, Pulaski County or the United States of
America for the Eastern District of Arkansas. By execution of this Agreement,
the parties hereby submit to such jurisdiction and venue, hereby expressly
waiving whatever rights which may have otherwise existed by reason of their
present or future domicile. If any such action or proceeding is brought in any
court designated herein, the parties further agree that process may be served on
the senior administrator of the Hospital, whom the Company and MedCath hereby
expressly and irrevocably designate, appoint and empower to receive such service
of process for and on their behalf.

         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 shall continue in full force and effect.

         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.

         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 him
         or her at such address as (s)he shall by notice to the Company have
         designated as his or her address for the mailing of all notices
         hereunder or, in the absence of such notice, to the address set forth
         in Article IV 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.

         12.8     Counterparts. This Agreement may be executed in any number of
separate counterparts, each of which shall be deemed an original, and the
several counterparts taken together shall constitute the Agreement of the
Members.

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

         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


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<PAGE>   36


severing its relationship with the Company or such party's interest in the
Equipment 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.

         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,
counsel with recognized expertise in heath care law reasonably selected by
MedCath and by the Investor Manager 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 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 MedCath
and a Majority Vote of Investor Members, such restructured agreement shall
become binding upon all Members of the Company. 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
MedCath shall, within the following forty-five (45) day period, purchase the
Membership Interests of some or all of the Investor Members whose ownership is
involved with such noncompliance with Applicable Law for a purchase price equal
to the greater of: (a) the Formula Purchase Price or (b) the amount of the
Capital Contribution made by each Member to 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 MedCath pays all amounts
due under the terms of this Section 12.11. Such purchase price shall be paid in
accordance with the Payment Method.

         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, including an and Economic 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 the securities laws of the
         State of Arkansas, 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


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<PAGE>   37

         registration requirements of the Uniform Securities Act 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, including an Economic 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 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.

         12.13    Decisions by Investment Manager. Each of the Investor Members
hereby authorize the Investor Manager to make the decisions to be made by the
Investor Manager hereunder and hereby release and hold harmless the Investor
Manager 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
Investor Manager hereunder unless due to the gross negligence or willful
misconduct of the Investor Manager.

         12.14    Ownership of Shares of MedCath. Each Investor Member agrees
that either that he shall not refer patients to the Hospital or he shall not
acquire, nor continue to own any of the common shares of MedCath Incorporated to
the extent that in the reasonable opinion of health care counsel of MedCath
Incorporated, that such ownership, together with referrals of patients to the
Hospital, by such Investor Member, would cause or constitute a violation of any
federal or state law, rule or regulation.


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<PAGE>   38


         IN WITNESS WHEREOF, the parties hereto have hereunto set their
respective hands and seals as of the day and year first above written.

For the purpose of acknowledging and agreeing to be bound by the terms of
Section 5.9 hereof, the undersigned Affiliates of the Investor Member hereby
execute this Operating Agreement.

MedCath Incorporated hereby irrevocably and unconditionally guarantees the
obligations and liabilities of the Company and/or MedCath of Arkansas, Inc.
arising upon their purchase of Membership Interests pursuant to Sections 8.9,
8.10 and 12.11 of this Agreement.


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