GUARANTY
                                 (Secured Loan)


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


                                 R E C I T A L S


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

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

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

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

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

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



<PAGE>


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


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


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<PAGE>


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

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


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<PAGE>


surety's or guarantor's obligations in proportion to the principal's obligation;
(i) any use of cash collateral under Section 363 of the Federal Bankruptcy Code;
(j) any defense based upon Lender's election, in any proceeding instituted under
the Federal Bankruptcy Code, of the application of Section 1111(b)(2) of the
Federal Bankruptcy Code or any successor statute; (k) any defense based upon any
borrowing or any grant of a security interest under Section 364 of the Federal
Bankruptcy Code; (l) prior to payment in full of all of the Obligations, any
right of subrogation, any right to enforce any remedy which Lender may have
against Borrower or any other person and any right to participate in, or benefit
from, any security now or hereafter held by Lender for the obligations due under
the Note or any of the other Loan Documents; (m) presentment, demand, protest
and notice of any kind, including, without limitation, notice of acceptance of
this Guaranty and of the existence, creation or incurring of new or additional
guaranteed obligations and notice of intent to accelerate and of acceleration of
the indebtedness under the Note; (n) the benefit of any statute of limitations
affecting the liability of Borrower or any other person, enforcement of the Note
or any other Loan Documents, the liability of Guarantor hereunder or the
enforcement hereof; and (o) any failure of Lender to pursue, or delay in
pursuing, any other remedy in Lender's power. Guarantor agrees that the payment
and performance of all obligations due under the Note or any of the other Loan
Documents or any part thereof or other act which tolls any statute of
limitations applicable to the Note or the other Loan Documents shall similarly
operate to toll the statute of limitations applicable to Guarantor's liability
hereunder. Without limiting the generality of the foregoing or any other
provision hereof, Guarantor hereby expressly waives the provisions of: (a)
Sections 34.02 and 34.03 of the Texas Business and Commerce Code; (b) Section
17.001 of the Texas Civil Practice and Remedies Code; (c) Rule 31 of the Texas
Rules of Civil Procedure, (d) comparable provisions of the laws of any other
jurisdiction, and (e) all other suretyship defenses to the extent such laws are
applicable to this Guaranty or the agreements, covenants, or obligations of
Guarantor hereunder.

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


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<PAGE>

liability hereunder, under any other document to which Guarantor is a party, or
the enforceability hereof or thereof.


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


         7. Subordination. Until all the obligations under this Guaranty are
fully paid and performed, Guarantor hereby subordinates all present and future
indebtedness owing by Borrower to Guarantor to the obligations at any time owing
by Borrower to Lender under the Note and the other Loan Documents; provided,
however, that Borrower shall be entitled to make reasonable payments of
principal and interest on the $19,000,000 line of credit provided by MedCath
Finance Group to Borrower. Guarantor agrees to make no claim for such
indebtedness until all obligations of Borrower and any other person under the
Note and any of the other Loan Documents and all other direct and indirect
obligations of Guarantor to Lender have been fully discharged. Guarantor further
agrees not to assign to any party other than Lender all or any part of such
indebtedness, unless (a) Lender shall give its prior written consent to such
assignment, which consent may be given or withheld in Lender's sole discretion
and (b) such assignment shall be made subject to the terms of this Guaranty.
Within five (5) days after Lender's request (i) all instruments evidencing such
indebtedness shall be 


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<PAGE>


duly endorsed and delivered to Lender, (ii) all security for such indebtedness
shall be duly assigned and delivered to Lender, (iii) if a Default has occurred,
such indebtedness shall be enforced, collected and held by Guarantor as trustee
for Lender and shall be paid over to Lender on account of the obligations
guaranteed hereunder but without reducing or affecting in any manner the
liability of Guarantor under the other provisions of this Guaranty, and (iv)
Guarantor shall execute, file and record such documents and instruments and take
such other action as Lender deems necessary or appropriate to perfect, preserve
and enforce Lender's rights in and to such indebtedness and any security
therefor. If Guarantor fails to take any such action and a Default has occurred
under the Loan Agreement, Lender, as attorney-in-fact for Guarantor, is hereby
authorized to do so in the name of Guarantor. The foregoing power of attorney is
coupled with an interest and cannot be revoked.

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

         9. Disclosure of Information. Lender shall have the right at any time
to sell, assign, transfer, negotiate or, so long as Lender continues to be the
"lead lender", grant participations of at least $5 million each in, all or any
part of the Loan, the Note and/or the other Loan Documents, including, without
limitation, this Guaranty, and Guarantor acknowledges and agrees that, in
connection with any such action by Lender, Lender may forward to each actual or
prospective assignee, transferee or participant all documents and


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<PAGE>

information in Lender's possession, relating to this Guaranty or to Guarantor,
whether such documents and information were furnished by Borrower or Guarantor
to Lender or otherwise, provided that such parties have executed confidentiality
agreements in form reasonably acceptable to Guarantor.


         10. Additional, Independent and Unsecured Obligations. This is a
guaranty of payment and not of collection and the obligations of Guarantor
hereunder shall be in addition to and shall not limit or in any way affect the
obligations of Guarantor under any other existing or future guaranties unless
said other guaranties are expressly modified or revoked in writing. This
Guaranty is independent of the obligations of Borrower and any other person
under the Note and the other Loan Documents. Lender may bring a separate action
to enforce the provisions hereof against Guarantor without taking action against
Borrower or any other person or joining Borrower or any other person as a party
to such action, and without first or concurrently proceeding against any
security held by Lender. This Guaranty is secured and shall be deemed to be
secured by any security instrument which recites that it secures this Guaranty.

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

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


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<PAGE>

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


         14. Governing Law. This Guaranty shall be governed by, and construed in
accordance with, the laws of the State of Texas, except to the extent preempted
by Federal laws. Guarantor and all persons and entities in any manner obligated
to Lender under this Guaranty consent to the jurisdiction of any Federal or
State Court within the State of Texas, and also consent to service of process by
any means authorized by Texas or Federal law.

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

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

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

         18. Waiver of Right to Trial by Jury. GUARANTOR ACKNOWLEDGES THAT IT
HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO ITS RIGHTS TO TRIAL
BY JURY UNDER THE CONSTITUTIONS OF THE UNITED STATES AND THE STATE OF TEXAS.
GUARANTOR HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION (1) ARISING UNDER THIS GUARANTY OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH
OR (2) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF
LENDER AND GUARANTOR WITH RESPECT


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<PAGE>


TO THIS GUARANTY OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO,
IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE; AND GUARANTOR HEREBY AGREES AND CONSENTS THAT ANY
SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY, AND THAT LENDER MAY FILE A COPY OF THIS SECTION WITH ANY COURT
AS WRITTEN EVIDENCE OF THE CONSENT OF GUARANTOR TO THE WAIVER OF ITS RIGHT TO
TRIAL BY JURY.

          Guarantor's Initials:      /s/  RJP
                                   ------------


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

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

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

         (d) In addition to the Guarantor's liability for principal, as set
forth above, Guarantor shall also at all times remain liable for all fees, costs
and other obligations under this Guaranty without limit and for all interest on
the principal amount guaranteed hereunder (exclusive of


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<PAGE>

interest payments satisfied by advances under the Loan and added to the
principal amount of the Loan as described in Section 2.4 of the Loan Agreement,
which amounts will be governed by the limitations set forth in subparagraphs (a)
through (c) above). Any payments received or recovery realized by Lender may,
except to the extent paid by Guarantor on the indebtedness for which Guarantor
is liable under this Guaranty, be applied in Lender's sole discretion to
indebtedness of Borrower to Lender other than the portion of the indebtedness
for which Guarantor is liable under this Guaranty.

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


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<PAGE>



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


                                        GUARANTOR:

                                        MEDCATH INCORPORATED,
                                        a North Carolina corporation


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



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