OPERATING AGREEMENT
                                       OF
                        HEART HOSPITAL OF NEW MEXICO, LLC
                     A New Mexico Limited Liability Company



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                                TABLE OF CONTENTS
                                     TO THE
                               OPERATING AGREEMENT
                                       OF
                        HEART HOSPITAL OF NEW MEXICO, LLC
                     A New Mexico Limited Liability Company


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ARTICLE I  DEFINITIONS............................................................................................1

ARTICLE II  FORMATION AND AGREEMENT OF LIMITED LIABILITY COMPANY..................................................2

         Section 2.1 Company Formation: Effective Date............................................................2
         Section 2.2 Name of Company..............................................................................2
         Section 2.3 Purposes and Business Objectives.............................................................2
         Section 2.4 Statement of Philosophy and Values...........................................................3
         Section 2.5 Registered Agent and Office; Principal Place of Business.....................................4
         Section 2.6 Commencement and Term........................................................................4

ARTICLE III  MEMBERS AND CAPITAL CONTRIBUTIONS....................................................................4

         Section 3.1 Names and Addresses of Members...............................................................4
         Section 3.2 Initial Capital Contributions of Members.....................................................4
         Section 3.3 Liability of Members - For Capital...........................................................5
         Section 3.4 Maintenance of Capital Accounts: Withdrawals of Capital......................................5
         Section 3.5 Interest on Capital Contributions or Capital Accounts........................................5
         Section 3.6 Additional Funding...........................................................................5
         Section 3.7 Enforcement of Commitments...................................................................7
         Section 3.8 Reserved Powers of Members...................................................................7
         Section 3.9 Other Business of Members....................................................................8
         Section 3.10 Appointment of Board of Directors..........................................................10

ARTICLE IV  MANAGEMENT OF THE COMPANY............................................................................11

         Section 4.1 General Authority and Powers of Board of Directors..........................................11
         Section 4.2 Restrictions on Authority of the Board of Directors.........................................11
         Section 4.3 Duties of the Board of Directors............................................................12
         Section 4.4 Delegation by the Board of Directors........................................................13
         Section 4.5 Right to Rely Upon the Authority of the Manager.............................................13
         Section 4.6 No Management by Members....................................................................13
         Section 4.7 Consent by Members to Exercise of Certain Rights and
             Powers by Board of Directors........................................................................14
         Section 4.8 Meetings, Quorum and Vote of the Board of Directors.........................................14

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         Section 4.9 Board of Directors' Standard of Care........................................................15
         Section 4.10 Limitation of Liability....................................................................15
         Section 4.11 Indemnification of Directors...............................................................15

ARTICLE V  DISTRIBUTIONS AND ALLOCATIONS.........................................................................16

         Section 5.1 Distributions of Cash Flow from Operations
             and Cash from Sales or Refinancing..................................................................16
         Section 5.2 Profits.....................................................................................16
         Section 5.3 Losses......................................................................................17
         Section 5.4 Code Section 704(c) Tax Allocations.........................................................17
         Section 5.5 Miscellaneous...............................................................................17

ARTICLE VI  DISSOLUTION, WINDING UP AND LIQUIDATING DISTRIBUTIONS................................................18

         Section 6.1 No Termination by Certain Acts of Member....................................................18
         Section 6.2 Dissolution.................................................................................18
         Section 6.3 Dissolution and Final Liquidation...........................................................19
         Section 6.4 Termination.................................................................................20
         Section 6.5 Payment in Cash.............................................................................20
         Section 6.6 Goodwill and Trade Name.....................................................................20
         Section 6.7 Termination of Noncompetition Covenants.....................................................20

ARTICLE VII  REMOVAL OR WITHDRAWAL OF MEMBERS AND................................................................21
TRANSFER OF MEMBERS' MEMBERSHIP AND/OR ECONOMIC INTERESTS........................................................21

         Section 7.1 Withdrawal of Member........................................................................21
         Section 7.2 Conditions Precedent to Transfer of Membership Interest.....................................22
         Section 7.3. Substitute Member - Conditions to Fulfill..................................................22
         Section 7.4 Allocations Between Transferor and Transferee...............................................22
         Section 7.5 Rights, Liabilities of, and Restrictions on Assignee........................................23
         Section 7.6 Repurchase of Interests in Certain Event....................................................23

ARTICLE VIII  RECORDS, ACCOUNTINGS AND REPORTS...................................................................24

         Section 8.1 Books of Account............................................................................24
         Section 8.2 Access to Records...........................................................................24
         Section 8.3 Bank Accounts and Investment of Funds.......................................................24
         Section 8.4 Fiscal Year.................................................................................24
         Section 8.5 Accounting Reports..........................................................................24
         Section 8.6 Tax Returns.................................................................................25


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ARTICLE IX  MEETINGS AND VOTING RIGHTS OF MEMBERS................................................................25

         Section 9.1 Meetings....................................................................................25
         Section 9.2 Voting Rights of Members....................................................................26

ARTICLE X  AMENDMENTS............................................................................................26

ARTICLE XI  MISCELLANEOUS........................................................................................27

         Section 11.1 Waiver of Provisions.......................................................................27
         Section 11.2 Interpretation and Construction............................................................27
         Section 11.3 Governing Law..............................................................................27
         Section 11.4 Partial Invalidity.........................................................................27
         Section 11.5 Binding on Successors......................................................................27
         Section 11.6. Notices and Delivery......................................................................27
         Section 11.7. Counterpart Execution: Facsimile Execution................................................28
         Section 11.8 Statutory Provision........................................................................28
         Section 11.9 Waiver of Partition........................................................................28
         Section 11.10 Change In Law.............................................................................28
         Section 11.11 Investment Representations of the Members.................................................29
         Section 11.12 Exhibits..................................................................................30
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                               OPERATING AGREEMENT
                                       OF
                        HEART HOSPITAL OF NEW MEXICO, LLC
                     A New Mexico Limited Liability Company


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

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


                                    RECITALS

         A. The Company has been formed to develop, own and operate an acute
care hospital, located in Albuquerque, New Mexico and specializing in all
aspects of cardiology and cardiovascular care and surgery which the Board of
Directors may agree upon;

         B. It is intended that the hospital will be a cost effective, high
quality provider of medical services within New Mexico in a manner which is
consistent with the national health care goals of lowering the costs of health
care;

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


                                    ARTICLE I

                                   DEFINITIONS

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

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                                   ARTICLE II

              FORMATION AND AGREEMENT OF LIMITED LIABILITY COMPANY

         Section 2.1       Company Formation: Effective Date.

         The Company was formed upon the filing of the Articles of Organization
with the New Mexico State Corporation Commission in accordance with the
provisions of the Act. Upon the effectiveness of this Agreement, the Persons
listed on the attached Information Exhibit (Exhibit B) shall be admitted to the
Company as Members and the Persons who executed the Articles shall be withdrawn
as Members (unless they are listed on the Information Exhibit), all without the
necessity of any further act or instrument and without causing the dissolution
of the Company. The Company shall 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 New Mexico and other documents to
reflect the admission of additional Members to the Company. The Agreement shall
be effective as of the date the Company was formed.

         Section 2.2       Name of Company.

         The name of the Company is Heart Hospital of New Mexico, LLC.

         Section 2.3       Purposes and Business Objectives.

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

                  (a) To develop, own and operate a Hospital specializing in the
         diagnosis and treatment of cardiac and vascular diseases in
         Albuquerque, New Mexico, which includes, but is not limited to, the
         following:

                           (i) Services and facilities which meet the
         requirements of the State of New Mexico, Medicare, JCAHO and other
         agencies for licensing, credentialing and certification as a general
         acute care hospital specializing in cardiology and cardiovascular and
         vascular surgical services of every type or nature and to be eligible
         to obtain appropriate reimbursements therefor;

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

                           (iii) Approximately 60 medical/surgical beds;

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

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

                           (vi) All appropriate support services and systems;

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

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

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

         Section 2.4       Statement of Philosophy and Values.

         The Company and the Hospital shall be operated in accordance with the
following philosophy and values at all times:

                  (a) As part of the annual operating budget, the Board shall
         include a level of indigent care to be provided to those patients who
         are unable to pay for Hospital care;

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

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

                  (d) The Company shall adopt and adhere to a conflict of
         interest policy with respect to contracts between the Company and
         Members or Directors requiring full disclosure of all conflicts;

                  (e) Within the first two years of its operation, the Company
         shall adopt and thereafter adhere to a Corporate Compliance Program to
         assure compliance with all State and federal laws governing the
         delivery of health care services;

                  (f) The Company and the Hospital shall be operated in
         accordance with the Ethical and Religious Directives for Catholic
         Health Care Facilities; and

                  (g) All medical decisions and all policies and procedures
         relating to the delivery of medical services at the Hospital shall be
         made by those physicians who are members of the medical staff of the
         Hospital as provided in the Bylaws, Rules and Regulations of the
         medical staff.



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         Section 2.5       Registered Agent and Office; Principal Place of
Business.

         The registered agent and office of the Company shall be as indicated in
the Articles of Organization, as amended from time to time. The principal place
of business of the Company shall be at such location in Albuquerque, New Mexico
as selected by the Board of Directors from time to time.

         Section 2.6       Commencement and Term.

         The Company commenced on the filing of the Articles of Organization in
the Office of the New Mexico State Corporation Commission, as required by
Section 2.1 hereof, and shall continue until December 31, 2097 or until
terminated or dissolved as provided herein.


                                   ARTICLE III

                        MEMBERS AND CAPITAL CONTRIBUTIONS

         Section 3.1       Names and Addresses of Members.

         The names and addresses of the Members are as indicated on the
Information Exhibit (Exhibit B), attached hereto and as amended from time to
time.

         Section 3.2       Initial Capital Contributions of Members.

         The Members shall make the following initial Capital Contributions,
which may be paid in two equal installments, with the first installment due on
January 1, 1998 and the second installment due on or before April 1, 1998:

                  (a) SWCA, LLC shall own a fifteen percent (15%) Membership
         Interest in the Company and shall contribute to the Company for its
         Membership Interest the sum of Six Hundred Thousand and No/100 Dollars
         ($600,000.00);

                  (b) NMHI, LLC shall own a twenty-six percent (26%) Membership
         Interest in the Company and shall contribute to the Company for its
         Membership Interest the sum of One Million Forty Thousand and No/100
         Dollars ($1,040,000.00);

                  (c) St. Joseph Healthcare System shall own a thirty-five
         percent (35%) Membership Interest in the Company and shall contribute
         to the Company for its Membership Interest the sum of One Million Four
         Hundred Thousand and No/100 Dollars ($1,400,000.00); and

                  (d) NM Hospital Management, Inc. ("NMHM") shall own a
         twenty-four percent (24%) Membership Interest in the Company and shall
         contribute to the Company


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         for its Membership Interest the sum of Nine Hundred Sixty Thousand and
         No/100 Dollars ($960,000.00).

         Section 3.3       Liability of Members - For Capital.

         The liability of each Member for capital shall be limited to the amount
of its agreed Capital Contribution as a Member as provided in Section 3.2 and
Section 3.6. The Members shall not be required to contribute any additional
capital to the Company except as provided in Section 3.6.

         Section 3.4       Maintenance of Capital Accounts: Withdrawals of
Capital.

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

         Section 3.5       Interest on Capital Contributions or Capital
Accounts.

         No interest shall be paid to any Member based solely on its Capital
Contributions or Capital Account.

         Section 3.6       Additional Funding.

         If from time to time, the Board of Directors determines that funds in
addition to those contemplated by Sections 3.2 are necessary or appropriate for
the development or operation of the Hospital, then:

                  (a) First, the Board shall instruct the Manager to use
         commercially reasonable efforts to arrange a loan for the Company of
         such funds from a bank or other lender (which could include a Member)
         on terms and conditions reasonably acceptable to the Board of
         Directors. All Members agree to pledge their Membership Interests, if
         required by lenders or lessors, to secure Company's financing. The
         Board of Directors shall obtain such loans without the requirement of
         guarantees by the Members if it is economically feasible to do so.

                           (i) If loan guarantees are required for financing the
         construction and equipping of the Hospital, each Member agrees to
         provide the required guarantee. The aggregate amount of the loans for
         the construction and equipping of the hospital (and the commensurate
         aggregate amount of the guarantees) shall not exceed $45 million. The
         guarantees shall be several and in proportion to the equity interest of
         the Member. Each Member shall provide its guarantee promptly and in the
         form reasonably approved by the


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         Board of Directors and required by the lenders or lessors to the
         Company. Each Member agrees to promptly provide financial statements
         and other information customarily required by the lender or lessor.

                           (ii) Other than as required to finance the
         construction and equipping of the Hospital, no Member is required to
         guarantee any other loan to the Company.

                  (b) Second, if loans as provided in (a) above are not
         available, the Board of Directors shall request in writing that the
         Members contribute additional capital to the Company in proportion to
         their respective Membership Interests. Each Member may elect whether or
         not to contribute its proportionate share of the additional Capital
         Contribution. Membership Interests shall be adjusted as necessary as
         provided in (c)(i) below.

                  (c) Third, if the Board determines that adequate funds are not
         available under (a) or (b) above, the Board shall so notify all of the
         Members. Any Member shall then have the right to contribute all or some
         portion of the additional funds required. If more than one Member
         elects to advance the funds to the Company, preference will be given to
         maintaining the relative equity interests of the Members making the
         additional contributions in the Company. In the event that either SWCA,
         LLC or NMHI, LLC does not elect to make all of its proportionate share
         of additional Capital Contributions which its is entitled to make under
         (b) above, then the other of them shall have the first opportunity to
         make the pro rata Capital Contribution which such noncontributing
         Member declined to make pursuant to (b) above. Thereafter the other
         Members may elect to contribute such amounts. Each contributing Member
         shall be entitled at its election to treat the amounts contributed
         pursuant to this Section either as a Capital Contribution or as a loan
         from the contributing Member to the Company.

                           (i) If the contributing Member elects to contribute
         the amount as a Capital Contribution, the percentage Membership
         Interests of the Members shall again be adjusted proportionately. As a
         Member's Membership Interest in the Company increases or decreases by
         ten percentage points (e.g., from 30% to 40% or 25% to 15%) the Member
         shall gain or lose the right to appoint one Board member for each ten
         percent increase or decrease as the case may be.

                           (ii) If the contributing Member elects to contribute
         such amount as a loan to the Company, the loan shall bear interest as
         agreed by the Contributing Member and the Company. The loan shall be a
         general obligation of the Company, but repaid before a cash
         distribution, other than a required minimum distribution under Section
         5.1, is made to any of the Members.

                  (d) Fourth, if funds are not available in accordance with (a),
         (b) or (c) above, then the Board of Directors may elect to dissolve the
         Company.



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                  (e) All adjustments to Membership Interests as provided in
         this Section 3.6 shall be made based solely upon the actual total
         Capital Contributions made by the Members as of the date of each such
         adjustment.

         Section 3.7       Enforcement of Commitments.

         In the event any Member (a "Delinquent Member") fails to make a
mandatory Capital Contribution as provided in Section 3.2 or an optional Capital
Contribution as agreed to by the Member under Section 3.6 (the "Commitment"),
the Board of Directors shall give the Delinquent Member a Notice of the failure
to meet the Commitment. If the Delinquent Member fails to perform the Commitment
(including any costs associated with the failure to meet the Commitment and
interest on such obligation at the Default Interest Rate) within ten (10)
business days of the giving of Notice, the Board of Directors shall give notice
of such failure to the other Members. The other Members may elect to contribute
additional amounts equal to any amount of the Commitment not contributed by such
Delinquent Member. The contributing Member shall be entitled at its election to
treat the amounts contributed pursuant to this Section either (i) as a Capital
Contribution of the contributing Member or (ii) as a loan from the contributing
Member to the Delinquent Member bearing interest at the Default Rate secured by
the Delinquent Member's Interest in the Company and the proceeds of which loan
shall be applied to meet the Delinquent Member's commitment. If the contributing
Member elects to contribute such amount as a Capital Contribution, the
percentage Membership Interests of the Members shall be adjusted
proportionately. Until the contributing Member is fully repaid for such loan
made as a result of the default by the Delinquent Member, the contributing
Member shall be entitled to all distributions to which the Delinquent Member
would have been entitled had such Commitment been fulfilled thereby, and any
such distribution shall be applied first to accrued interest and then to
principal in repayment of the loan. Notwithstanding the foregoing, no Commitment
or other obligation to make an additional Capital Contribution may be enforced
by a creditor of the Company unless the Member expressly consents to such
enforcement or to the assignment of the obligation to such creditor.

         Section 3.8       Reserved Powers of Members.

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

                  (a) Amendments to or waivers of the rights and obligations
         provided by the Articles of Organization or this Operating Agreement;

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

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

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                  (d) Creation by the Company of subsidiaries and/or
         establishment of corporate joint ventures or interest in partnerships
         or limited liability companies;

                  (e) Election of new Members into the Company;

                  (f) Any alteration or amendment of the Company's Statement of
         Philosophy and Values;

                  (g) Dissolution of the Company for reasons other than those
         expressly delegated to the Board of Directors; and

                  (h) Any action, which in the opinion of counsel, would
         substantially jeopardize the status of SJHS as a corporation exempt
         from taxes under Section 501(c)(3) of the Code or would prevent it from
         receiving referrals of patients.

         Section 3.9       Other Business of Members.

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

                  (b) As long as a Member owns a Membership Interest in the
         Company, and for a period of five (5) years after a Member ceases for
         any reason to own a Membership Interest in the Company, neither such
         Member nor any of its Affiliates shall do any of the following:

                           (i) hold, directly or indirectly, any investment
         ownership or other beneficial equity interest in, or be associated in a
         consulting, management or advisory role with, any hospital or other
         facility specializing primarily in the diagnosis or treatment of
         cardiac or vascular disease within the Territory;

                           (ii) hold, directly or indirectly, any investment
         ownership or other beneficial equity interest in, or be associated in a
         consulting, management or advisory role with any Entity, hospital or
         sole proprietorship which provides any of the following services or
         facilities: cardiac catheterization, cardiac or peripheral angioplasty,
         atherectomy, stenting or cardiac or vascular surgical procedures
         ("Cardiac Services") within a fifty (50) mile radius of the Hospital;



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                  Except that,

                           (A) nothing herein shall prevent a Member who is a
medical group, its Affiliates or employed physicians from having medical staff
privileges and participating fully as a member of the medical staff (including
service on committees and medical directorships, which do not violate the terms
of any other agreement to which a Member or its Affiliates are bound) of any
hospital or medical facility in the Territory, or from providing any diagnostic
procedures customarily performed on an outpatient basis in medical offices or
cardiac rehabilitation services;

                           (B) nothing herein shall prevent any Member who owns
or operates a hospital, directly or through an Affiliate, within the Territory
at the time of the formation of the Company from (i) continuing to provide
diagnostic cardiac catheterization and such other Cardiac Services as are
necessary to provide emergency care within the standard of the community or to
stabilize the medical condition of its patients in preparation for transfer to
another facility for treatment of the cardiac condition, (ii) providing
peripheral angioplasty, peripheral stenting and vascular surgery as long as such
procedures are not being performed on patients who have been admitted to the
Member's hospital primarily for treatment of any cardiac disease or condition,
or (iii) continuing to provide all cardiology and cardiovascular services
currently offered by such Member until the earlier to occur of the date on which
sixty-six percent (66%) of the Hospital's beds are open and ready to receive
patients or the date which is forty-five (45) days after Medicare certification
of the Hospital, on which date this subsection (B)(iii) shall be deemed to be
deleted from this Agreement;

                           (C) a Member who is a nonprofit corporation may
acquire or become affiliated with other corporations which operate general
hospitals that provide or may provide Cardiac Services in the Territory but
outside the 50 mile radius of the Hospital. Within a 50 mile radius of the
Hospital, a Member who is a nonprofit corporation may (a) acquire, manage or
become affiliated with other entities which operate general hospitals providing
Cardiac Services, as of the date hereof, and (b) acquire, affiliate with or
manage a program which provides Cardiac Services on behalf of an entity which
operates, as of the date hereof, such a program (including any cardiac program
related to Section 3.9(b)(ii)(C)(a), so long as in any event the nonprofit
Member uses its reasonable effort to provide either the Hospital or each of
SWCA, LLC, NMHI, LLC and NMHM with an opportunity to participate therein.
Provided, however, no such nonprofit Member may initiate, or be involved with
the initiation of, any new Cardiac Services at its existing hospital or at any
such other affiliated or acquired hospital or at any new hospital;

                           (D) nothing herein shall prevent any Member from
operating directly or through an Affiliate a mobile catheterization laboratory
within the Territory so long as such service is provided pursuant to a lease of
six (6) months or less (including all renewals and extensions) to a provider
which is already providing catheterization laboratory services in the Territory
at the time of the inception of the lease;

                           (E) nothing herein shall prohibit a Member from
owning up to three percent (3%) of the outstanding stock of a company whose
stock is publicly traded and listed on a nationally recognized securities
exchange or from investing in a publicly traded mutual fund;



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                           (F) nothing herein shall prevent SWCA, LLC, NMHI,
LLC, NMHM or their Affiliates from owning, operating, advising or managing,
together or with other third parties, any hospital, facility, clinic or service
which provides any diagnosis or treatment, of any type or nature, of any cardiac
or vascular condition as long as (i) each such party uses its reasonable efforts
to provide the others (SWCA, LLC, NMHI, LLC or NMHM) with an opportunity to
participate therein and (ii) it is located outside of the 50 mile radius of the
Hospital; and

                           (G) Nothing herein shall prevent any Member from
offering a service which the Company does not offer after the first anniversary
of the opening of the Hospital.

                  All parties agree that the Territory is the reasonable and
anticipated business service area of the Company.

                  (c) The Members, including the Directors, have reviewed the
         term and geographical restrictions in Section 3.9(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 3.9, 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 provision of this Section 3.9
         shall be enforced to the fullest extent permissible under the law and
         public policies applied, but the enforceability 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 3.9. Should any paragraph, subparagraph, sentence, clause,
         phrase, word or figure be adjudicated to be wholly invalid or
         unenforceable, the balance of this Section 3.9 shall thereupon be
         modified in order to render the same valid and enforceable and the
         unenforceable portion of this Section 3.9 shall be deemed to have been
         deleted from this Agreement.

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

         Section 3.10      Appointment of Board of Directors.

         The Members shall appoint a Board of Directors as follows:

         (a)      SWCA, LLC shall appoint two (2) Directors;

         (b)      NMHI, LLC shall appoint two (2) Directors;

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         (c)      St. Joseph Healthcare System shall appoint two (2) Directors;
and

         (d)      NM Hospital Management, Inc. shall appoint two (2) Directors.

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


                                   ARTICLE IV

                            MANAGEMENT OF THE COMPANY

         Section 4.1       General Authority and Powers of Board of Directors.

         Except as set forth elsewhere in this Agreement, the Board of Directors
shall have complete authority and exclusive control over the management of the
business and affairs of the Company and all Material Agreements and Material
Decisions with respect to the business and affairs of the Company shall be made
by the Board of Directors. No Member has the actual or apparent authority to
cause the Company to become bound in any contract, agreement or obligation, and
no Member shall take any action purporting to be on behalf of the Company. The
Board of Directors shall, in consultation with the medical staff and according
to the terms of the Medical Staff Bylaws, Rules and Regulations of the Hospital,
establish procedures for quality assurance, peer review and grant privileges to
physicians at the Hospital. Decisions relating to medical and clinical practice
at the Hospital, however, shall be made exclusively by the medical staff of the
Hospital, as provided in the Bylaws, Rules and Regulations of the Medical Staff.

         Section 4.2       Restrictions on Authority of the Board of Directors.

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

                  (a) Act in contravention of this Agreement;

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

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

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

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

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



                                       11
<PAGE>

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

                  (h) Make or cause the making of 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;

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

                  (j) Delegate authority to make Material Decisions or enter
         into Material Agreements; or

                  (k) Dissolve the Company, except as provided in this
         Agreement.

         Section 4.3       Duties of the Board of Directors.

         The Board of Directors shall do the following:

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

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

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

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

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

                                       12
<PAGE>


                  (f) When this Operating Agreement or circumstances affecting
         the business of the Company require the Directors to take certain
         action or to make a determination, the Board of Directors shall take
         such action or make such determination in a reasonable and timely
         manner;

                  (g) Deliver to the New Mexico State Corporation Commission for
         filing an annual statement in accordance with the Act;

                  (h) Employ legal counsel, public accountants and such other
         advisors and consultants for the Company as it deems necessary; and

                  (i) Establish and adhere to a conflict of interest policy.

         Section 4.4       Delegation by the Board of Directors.

         Subject to restrictions otherwise provided herein, the Board of
Directors may at any time employ a Manager, including a Manager affiliated with,
or related to any member of the Board of Directors or any Member to perform
services for the Company and its business, and may delegate all or part of their
duties, authority or control to such Manager, provided that such employment or
delegation shall not relieve the Board of Directors of its respective
responsibilities and obligations under this Agreement or under the laws of the
State of New Mexico nor will it make any such Manager a Member of the Company.

         Section 4.5       Right to Rely Upon the Authority of the Manager.

         Persons dealing with the Company may rely upon the representation of
the Manager that such Manager is manager of the Company and that such Manager
has the authority to make any commitment or undertaking on behalf of the
Company. No Person dealing with the Manager shall be required to determine its
authority to make any such commitment or undertaking.

         Section 4.6       No Management by Members.

         Other than as set forth in Article III hereof, 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. 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. The exercise by any other Member of any of the rights granted
to the Member hereunder shall not be deemed to be taking part in the control of
the business of the Company and shall not constitute a violation of this
Section.



                                       13
<PAGE>

         Section 4.7       Consent by Members to Exercise of Certain Rights and
Powers by Board of Directors.

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

         Section 4.8       Meetings, Quorum and Vote of the Board of Directors.

         (a) The Board of Directors shall meet at least quarterly. A meeting may
be called by any Director or the Manager. Notice of any meeting, regular or
special, shall be delivered to each Director personally, by telephone, by
electronic mail, by facsimile transmission or in writing at least five (5)
business days before the meeting. If a request for additional funding pursuant
to Section 3.6(b) is to be considered at the meeting, it must be so stated
specifically in the Notice of Meeting. The Director calling the meeting or the
Manager shall be responsible for preparing and delivering the Notice of Meeting.

         (b) An emergency meeting of the Board of Directors may be called by the
Manager upon shorter notice. Action taken at the emergency meeting shall be
valid so long as the meeting is attended by at least one Board member appointed
by each of SWCA, LLC, NMHI, LLC, NMHM and St. Joseph Healthcare System and the
action is unanimously approved by the Board members in attendance.

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

         (d) A quorum of the Board of Directors shall be necessary to conduct
business at any meeting, except as provided in Section 4.8(b). A quorum shall
consist of a majority of the Directors. The Directors present at a meeting at
which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of Directors, so long as any action taken is
approved by at least a majority of the required quorum for such meeting and one
of such remaining Directors must have been appointed by each of the Members for
there to be business transacted. A Director may attend a meeting by telephone or
other electronic means and be considered present for purposes of a quorum so
long as the telephone or other connection allows each Director to hear and be
heard by all other Directors.

         (e) Subject to (d) above, any action taken by the Board of Directors
shall require the affirmative vote of at least a majority of the Directors (at
least one of which must have been a Board member appointed by either NMHM or St.
Joseph Healthcare System) present.

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



                                       14
<PAGE>

         (g) Minutes of the meetings of the Board of Directors shall be taken.
The original of the minutes shall be signed by the Secretary of the Board and
kept with the records of the Company. A copy of the minutes shall be sent to
each of the Directors.

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

         Section 4.9       Board of Directors' Standard of Care.

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

         Notwithstanding anything herein to the contrary, a Director or Member
shall have the right to vote or approve Company matters in accordance with the
terms of this Agreement regardless of the personal interest of any Director or
Member in the outcome of any vote, decision or matter, subject to the obligation
to disclose conflicts in advance under Section 2.4(d).

         Section 4.10      Limitation of Liability.

         A Director shall not be liable to the Company or its Members for any
action taken in managing the business or affairs of the Company if it performs
the duty of its office in compliance with the standard contained in Sections 4.3
and 4.9. No Director has guaranteed nor shall have any obligation with respect
to the return of a Member's Capital Contribution or share of income from the
operation of the Company. Furthermore, no Director shall be liable to the
Company or to any Member for any loss or damage sustained by the Company or any
Member except loss or damage resulting from gross negligence or intentional
misconduct or knowing violation of law or a transaction for which such Director
or Agent received a personal benefit in violation or breach of the provisions of
this Agreement.

         Section 4.11      Indemnification of Directors.

         (a) Each Director shall be indemnified by the Company against any
losses, judgments, liabilities, expenses, including attorneys' fees and amounts
paid in settlement of any claims sustained by such Director arising out of any
action or inaction of the Director in its capacity as a Director of the Company
to the fullest extent allowed by law, provided that the same were not the


                                       15
<PAGE>


result of willful misconduct or gross negligence on the part of the Director and
provided that the Director, in good faith, reasonably determined that such
course of conduct was in the best interest of the Company; provided, however,
that such indemnification and agreement to hold harmless shall be recoverable
only out of Company assets. Subject to applicable law, the Company shall advance
expenses incurred with respect to matters for which a Director may be
indemnified hereunder.

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


                                    ARTICLE V

                          DISTRIBUTIONS AND ALLOCATIONS

         Section 5.1       Distributions of Cash Flow from Operations and Cash
from Sales or Refinancing.

         Prior to the dissolution of the Company, Cash Flow from Operations and
Cash from Sales or Refinancing, if any, remaining after repayment of any amounts
then due on loans made by the Members to the Company shall be distributed
quarterly as Cash Distributions according to the relative percentage Membership
Interests of the Members. The Board shall make a minimum distribution of Cash
Flow from Operations equal to fifty percent (50%) of net profit, after taking
into consideration the requirement for cash reserves or other limitations
established by any lender. Notwithstanding anything herein to the contrary, no
distributions shall be made to Members if prohibited by the Act or any other
applicable law.

         Section 5.2       Profits.

         Except as provided in the Regulatory Allocations Exhibit (Exhibit E),
Profits shall be allocated as follows:

         (a) First, to the Members who have been allocated Losses pursuant to
Subsection 5.3(a) below until the cumulative Profits allocated pursuant to this
Subsection 5.2(a) equal the cumulative prior allocations of Losses under that
Subsection.

         (b) Next, to the Members who have been allocated Losses pursuant to
Subsection 5.3(b) below until the cumulative Profits allocated pursuant to this
Subsection 5.2(b) equal the cumulative prior allocations of Losses under that
Subsection.

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



                                       16
<PAGE>

         Section 5.3       Losses.

         Except as provided in the Regulatory Allocations Exhibit (Exhibit E),
Losses shall be allocated as follows:

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

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

         Section 5.4       Code Section 704(c) Tax Allocations.

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

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

         Any elections or other decisions relating to allocations under this
Section shall be determined by the Board of Directors. Absent a determination by
the Board of Directors, the remedial allocation method under Regulation Section
1.704-3(d) shall be used. Allocations pursuant to this Section are solely for
purposes of federal, state, and local taxes and shall not be taken into account
in computing any Member's Capital Account or share of Profits, Losses, other
items, or distributions pursuant to any provision of this Agreement.

         Section 5.5       Miscellaneous.

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

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



                                       17
<PAGE>

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


                                   ARTICLE VI

              DISSOLUTION, WINDING UP AND LIQUIDATING DISTRIBUTIONS

         Section 6.1       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.

         Section 6.2       Dissolution.

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

                  (a) The election by the Directors to dissolve the Company in
         accordance with the terms of Section 3.6(c) hereof;

                  (b) The expiration of the term provided in Section 2.6 hereof.

                  (c) The adjudication of bankruptcy of the Company;

                  (d) In accordance with Section 11.10 hereof; and

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



                                       18
<PAGE>

         Section 6.3       Dissolution and Final Liquidation.

                  (a) Upon any dissolution of the Company, the Company shall not
         terminate, but shall cease to engage in further business except to the
         extent necessary to perform existing contracts and preserve the value
         of its assets. Its assets shall be liquidated and its affairs shall be
         wound up as soon as practical thereafter by the Board of Directors or
         by another Person designated by the Members. In winding up the Company
         and liquidating assets, the Board of Directors, or other Person so
         designated for such purpose, may arrange, either directly or through
         others, for the collection and disbursement to the Members of any
         future receipts from the Hospital or other sums to which the Company
         may be entitled, and shall sell the Company's interest in the Hospital
         and the Equipment to any Person, including a Member or any Affiliate
         thereof, on such terms and for such consideration as shall be
         consistent with obtaining the fair market value thereof, as such fair
         market value is approved by the Members.

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

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

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

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

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

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

                  (e) The Capital Accounts of the Members, as adjusted, shall be
         utilized by the Company for the purpose of making distributions to
         those Members with positive balances


                                       19
<PAGE>


         in their respective Capital Accounts pursuant to Section 6.3(b). In
         making such distributions, the Board of Directors or the Person winding
         up the affairs of the Company shall distribute all funds available for
         distribution to the Members (after establishing any reserves that the
         Board of Directors deem or the Person winding up the affairs of the
         Company deems reasonably necessary pursuant to Section 6.3(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. The Board of
         Directors in their sole discretion, or the Person winding up the
         affairs of the Company, in its discretion, may elect to have the
         Company retain any installment obligations owed to the Company until
         collected in full so long as any portion of the reserves which are
         later determined to be unnecessary, and all collections on such
         installment obligations which are not deemed to be reasonably necessary
         by the Board of Directors or the Person winding up the affairs of the
         Company to add to such reserves are distributed as soon as practicable
         in accordance with the provisions of Section 6.3(b) as modified by this
         Section.

         Section 6.4       Termination.

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

         Section 6.5       Payment in Cash.

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

         Section 6.6       Goodwill and Trade Name.

         Upon the dissolution of the Company, the firm or trade name of the
Company and any goodwill associated therewith shall become the sole property of
the Members, provided that distributions and allocations otherwise due to the
Members shall not be reduced as a result of the Members becoming entitled to
such assets.

         Section 6.7       Termination of Noncompetition Covenants.

         Upon the later of the dissolution of the Company and the completion of
the liquidation process, the Members shall have no continuing liability or
obligation under Section 3.9(b), except that Section 3.9(b) shall continue to be
binding upon a Member whose breach of this Agreement caused a dissolution of the
Company and any action for a breach of this Agreement, including a breach of
Section 3.9(b), shall not be impaired by the dissolution or completed
liquidation.


                                       20
<PAGE>

                                   ARTICLE VII

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

         Section 7.1       Withdrawal of Member.

                  (a) Except as provided in this Section 7.1, without the
         unanimous consent of the nonwithdrawing Members, a Member shall not
         voluntarily withdraw from the Company as a Member at any time prior to
         its termination, or transfer or assign any of its rights and duties,
         provided that a Member may assign its Membership Interest in the
         Company and its rights to appoint one or more Directors to wholly-owned
         Affiliates (for NMHM, including MedCath, Incorporated and its
         wholly-owned Affiliates) and lenders. A Member shall give written
         notice to the remaining Members if it desires to otherwise sell its
         Membership Interest. In that event, the other Members shall first have
         an option to purchase such Membership Interest in accordance with
         Section 7.1(b) below. The foreclosure of a Member's Interest by a
         lender shall give the remaining Members a right to purchase the
         Interest being foreclosed for either the amount due and owing to the
         lender or pursuant to Section 7.1(b). A sale or transfer in a single
         transaction or in a series of related transactions of 50% or more of
         the direct or indirect ownership interests in SWCA, LLC or NMHI, LLC
         (other than to another entity owned solely by either or both of such
         Members or their Affiliates) shall constitute an offer by such Member
         to sell its Membership Interest to the Company and the other Members in
         accordance with (b) below.

                  (b) Except as otherwise set forth in this Agreement, no
         Membership Interest or any portion thereof, shall be validly sold or
         assigned whether voluntarily, involuntarily or by operation of law, and
         no purported assignee shall be recognized by the Company for any
         purpose, unless such Membership Interest shall have been transferred in
         accordance with the provisions of this Agreement and in compliance with
         such additional restrictions as may be imposed by any federal or state
         securities law and with the consent of the Board of Directors. In no
         event, however, shall a Member transfer or sell all or any of its
         Membership Interest to any party which, if a Member, would be in
         violation of Section 3.9(b) hereof. Except as otherwise set forth in
         this Section or in this Agreement, a Member may transfer, sell or
         assign its entire Membership Interest if it has received the consent of
         the Board of Directors, 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 Membership Interest proposed to be transferred, which
         right shall be exercisable on the terms and for the purchase price set
         forth in a bona fide offer made for the Interest 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


                                       21
<PAGE>


         that it meets the investor suitability standards established by the
         appropriate state of residence, or, in the absence thereof, the
         investor suitability standards established by the Company. The Board of
         Directors shall use reasonable care to determine that transfers are in
         accordance with applicable laws and regulations, which may include
         obtaining an opinion of counsel to that effect.

         Section 7.2       Conditions Precedent to Transfer of Membership
Interest.

         Notwithstanding anything herein to the contrary, no transfer of a
Membership Interest may be made if such transfer (a) constitutes a violation of
the registration provisions of the Securities Act of 1933, as amended, or the
registration provisions of any applicable state securities laws; (b) if after
such transfer the Company will not be classified as a partnership for federal
income 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 a Membership
Interest, delivery to the Company, at the proposed transferor's expense, of an
opinion of counsel satisfactory (both as to the counsel and substance of the
opinion) to the Company that the transfer will not violate any of the foregoing
restrictions.

         Section 7.3.      Substitute Member - Conditions to Fulfill.

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

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

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

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

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

         Section 7.4       Allocations Between Transferor and Transferee.

         Upon the transfer of a Member's Interest, all items of income, gain,
loss, deduction and credit attributable to the Membership Interest so
transferred shall be allocated between the transferor and the transferee in such
manner as the transferor and transferee agree at the time of transfer; provided
such allocation does not violate federal or state income tax law. If the Board
of


                                       22
<PAGE>


Directors deems such laws violated, then such allocation shall be made pro rata
for the fiscal year based upon the number of days during the applicable fiscal
year of the Company that the Membership Interest so transferred was held by the
transferor and transferee, without regard to the results of Company activities
during the period in which each was the holder, or in such other manner as the
Board of Directors deems necessary to comply with federal or state income tax
laws. Distributions as called for by this Agreement shall be made to the holder
of record of the Membership Interest on the date of distribution.
Notwithstanding anything contained in this Agreement to the contrary, the
Company shall be entitled to treat the assignor of any assigned Membership
Interest as the absolute owner thereof in all respects, and shall incur no
liability for distributions made in good faith to such assignor in reliance on
the Company records as they exist until such time as the written assignment has
been received by, and recorded on the books of the Company. For purposes of this
Article VII, the effective date of an assignment of any Membership Interest
shall be the last day of the month specified in the written instrument of
assignment.

         Section 7.5       Rights, Liabilities of, and Restrictions on Assignee.

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

         Section 7.6       Repurchase of Interests in Certain Event.

                  (a) In the discretion of the Board of Directors, the Company
         may, but is not obligated to, repurchase a Member's Interest upon such
         Member's breach of the Member's obligations contained in Article III,
         Sections 7.1 and 7.2 of this Agreement, unless the breach is cured
         promptly after notice thereof by the Company.

                  (b) Any Member who is in breach of this Operating Agreement
         agrees to sell its Membership Interest to the Company in the event the
         Company elects to exercise the right of repurchase granted under
         Section 7.6(a) and the purchase price shall be the lower of (x) the
         Capital Contributions of the Member less all amounts distributed to
         such Member by the Company or (y) the fair market value of such
         Member's Membership Interest determined by an independent appraiser
         reasonably selected by the Board of Directors.

                                       23
<PAGE>


                                  ARTICLE VIII

                        RECORDS, ACCOUNTINGS AND REPORTS

         Section 8.1       Books of Account.

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

         Section 8.2       Access to Records.

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

         Section 8.3       Bank Accounts and Investment of Funds.

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

                  (b) Any funds of the Company which the Board of Directors 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 the
         Board of Directors.

         Section 8.4       Fiscal Year.

         The Fiscal Year and accounting period of the Company shall end on
September 30 of each year, unless otherwise determined by the Board of
Directors.

         Section 8.5       Accounting Reports.

         As soon as reasonably practicable after the end of each fiscal year but
in no event later than 120 days after the end thereof, each Member shall be
furnished an annual accounting showing the


                                       24
<PAGE>


financial condition of the Company at the end of such fiscal year and the result
of its operations for the fiscal year then ended, which annual accounting shall
be prepared on an accrual basis in accordance with generally accepted accounting
principles applied on a consistent basis and shall be delivered to each of the
Members promptly after it has been prepared. It shall include a balance sheet as
of the end of such Fiscal Year and statements of income and expense, each
Member's equity, and cash flow for such Fiscal Year. The Company shall be
audited by a firm of independent certified public accountants regularly engaged
by the Board of Directors on behalf of the Company. (For so long as NMHM is a
Member of the Company, the Company shall endeavor to use the same firm of
accountants as used by MedCath.) The report shall set forth the distributions to
the Members for such Fiscal Year and shall separately identify distributions
from (i) operating revenue during such Fiscal Year, (ii) operating revenue from
a prior period which had been held as reserves, (iii) proceeds from the sale or
refinancing of the Equipment, and (iv) unexpended proceeds received from the
sale of Membership Interests. Following the opening of the Hospital, Board of
Directors shall also cause to be prepared and distributed to the Members
quarterly financial statements.

         Section 8.6       Tax Returns.

         It is the intention of all Members that the Company be treated for tax
purposes as a partnership under Subchapter J of the Code, and that this
Agreement be construed in accordance with such intent. All Members agree to
construe and/or amend the Agreement as may be necessary from time to time to
effect such intent. The Board of Directors 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 in the preparation of
the Member's tax returns, showing the amounts of any Profits or Losses allocated
to the Member, and the amount of any distributions made to the Member, pursuant
to this Agreement, along with a reconciliation of the annual report with
information furnished to Members for income tax purposes.


                                   ARTICLE IX

                      MEETINGS AND VOTING RIGHTS OF MEMBERS

         Section 9.1       Meetings.

                  (a) Meetings of the Members of the Company for any purpose may
         be called by the Board of Directors, or any Member. Such meetings shall
         be held in Albuquerque, New Mexico.

                  (b) A notice of any such meeting shall be given in person, by
         mail, by overnight courier or by facsimile transmission not less than
         seven (7) days nor more than sixty (60) days before the date of the
         meeting, to each Member at its address as specified in Section 11.6.
         Such notice shall be in writing, and shall state the place, date and
         hour of the


                                       25
<PAGE>


         meeting. The notice shall state the purpose or purposes of the meeting.
         If a meeting is adjourned to another time or place, and if any
         announcement of the adjournment of time or place is made at the
         meeting, it shall not be necessary to give notice of the adjourned
         meeting.

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

         Section 9.2       Voting Rights of Members.

                  (a) No Member shall take part in or interfere in any manner
         with the control, conduct or operation of the Company, nor have any
         right or authority to act for or bind the Company except as provided
         herein. Votes or decisions, to the extent taken or to be made, of the
         Members may be cast at any duly called meeting of the Company or in
         writing within ten (10) days after written request therefor by filing
         such writing with each Director. Each Member shall be entitled to the
         number of votes equal to the percentage Membership Interest of such
         Member.

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


                                    ARTICLE X

                                   AMENDMENTS

         This Agreement and the Articles of Organization of the Company may be
amended only with the unanimous consent of the Members.


                                       26
<PAGE>

                                   ARTICLE XI

                                  MISCELLANEOUS

         Section 11.1      Waiver of Provisions.

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

         Section 11.2      Interpretation and Construction.

         Any modification or amendment hereto must be accomplished in accordance
with the provisions of Article X. Where the context so requires, the masculine
shall include the feminine and the neuter, and the singular shall include the
plural. The headings and captions in this Agreement are inserted for convenience
and identification only and are in no way intended to define, limit or expand
the scope and intent of this Agreement or any provision thereof. The references
to Section and Article in this Agreement are to the Sections and Articles of
this Agreement.

         Section 11.3      Governing Law.

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

         Section 11.4      Partial Invalidity.

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

         Section 11.5      Binding on Successors.

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

         Section 11.6.     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, certified mail, postage prepaid, addressed to
         the Member at such times as the Member shall by notice to the Company
         have designated as the Member's address for the mailing of all notices
         hereunder


                                       27
<PAGE>


         or, in the absence of such notice, to the address set forth in the
         Information Exhibit (Exhibit B) hereof. Any notice, or any document,
         report or opinion so delivered or mailed shall be deemed to have been
         given or delivered to such Member at the time it is mailed, as the case
         may be.

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

         Section 11.7.     Counterpart Execution: Facsimile Execution.

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

         Section 11.8      Statutory Provision.

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

         Section 11.9      Waiver of Partition.

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

         Section 11.10     Change In Law.

         If due to any new law, rule or regulation, or due to an interpretation
or enforcement of any existing law, rule or regulation, health care counsel
selected by the Board of Directors determines in writing that it is reasonably
likely that the relationships established between any of the parties to this
Agreement including any of their Affiliates and/or successors or assigns will
not comply with any law, rule, regulation or interpretation thereof ("Applicable
Law"), then the parties hereto 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
unanimously by the Members, such restructured agreement shall become binding
upon all Members of the Company. Second, in the



                                       28
<PAGE>


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 the Company shall have the option, within the following
forty-five (45) day period, to purchase the Membership Interests of some or all
of the Members whose ownership is involved with such noncompliance with
Applicable Law for a purchase price equal to the greater of: (a) five times the
net income of the Company for the prior 12 month period times the percentage of
the selling Member's Membership Interest or (b) the amount of the Capital
Contributions made by each such 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 the Company pays all
amounts due under the terms of this Section 11.10. For the purpose of
Subparagraph (b), distributions to the Members by the Company after the
effective date of this Agreement (and whether before or after health care
counsel determined there was a problem under an Applicable Law or before or
after the exercise of the purchase option) shall be treated as payments by the
Company. Such purchase prices shall be paid in accordance with the Payment
Method. Third, in the event that the Company does not exercise its option to
purchase Membership Interests of a Member whose ownership causes the Company not
to be in compliance with Applicable Law, such Members may elect in writing
within the following forty-five (45) day period, to require that the Company be
dissolved, in which event the Company shall be dissolved in accordance with the
terms of this Agreement.

         Section 11.11     Investment Representations of the Members.

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

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


                                       29
<PAGE>


         all or any part of such Member's Membership Interest in the Company to
         any Person unless and until the provisions of this Agreement hereof
         have been fully satisfied.

                  (c) Each Member or individual executing this Agreement on
         behalf of an Entity which is a Member hereby acknowledges that prior to
         his execution of this Agreement, such Member received a copy of this
         Agreement and that such Member has examined this Agreement or caused
         this Agreement to be examined by such Member's representative or
         attorney. Each Member or individual executing this Agreement on behalf
         of an Entity which is a Member hereby further acknowledges that such
         Member or such Member's representative or attorney is familiar with
         this Agreement and with the Company's business plans. Each Member or
         individual executing this Agreement on behalf of an Entity which is a
         Member acknowledges that such Member or such Member's representative or
         attorney has made such inquiries and requested, received, and reviewed
         any additional documents necessary for such Member to make an informed
         investment decision and that such Member does not desire any further
         information or data relating to the Company or to the Members. Each
         Member or individual executing this Agreement on behalf of an Entity
         which is a Member hereby acknowledges that such Member understands that
         the purchase of such Member's Membership Interest in the Company is a
         speculative investment involving a high degree of risk and hereby
         represents that such Member has a net worth sufficient to bear the
         economic risk of such Member's investment in the Company and to justify
         such Member's investing in a highly speculative venture of this type.

         Section 11.12     Exhibits.

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

         EXHIBIT A:        Articles of Organization.
         EXHIBIT B:        Information Exhibit.
         EXHIBIT C:        Glossary of Terms.
         EXHIBIT D:        Development Budget Exhibit.
         EXHIBIT E:        Regulatory Allocations.

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


                                       30
<PAGE>
                                 EXECUTION PAGE
                                     TO THE
                               OPERATING AGREEMENT
                                       OF
                        HEART HOSPITAL OF NEW MEXICO, LLC
                     A New Mexico Limited Liability Company


                                    NMHI, LLC
                                    a New Mexico limited liability company,

                                    By: ____________________________________
                                           William M. Deane, M.D.
                                           Manager


                                    SWCA, LLC
                                    a New Mexico limited liability company

                                    By:____________________________________
                                           Harvey J. White, Jr., M.D.
                                           Manager


                                    ST. JOSEPH HEALTHCARE SYSTEM,
                                    a New Mexico nonprofit corporation

                                    By:____________________________________
                                           Steven Smith
                                           President


                                    NM Hospital Management, Inc.,
                                    a North Carolina corporation

                                    By:____________________________________

                                    Title:_________________________________


<PAGE>


                                    EXHIBIT A
                                     TO THE
                               OPERATING AGREEMENT
                                       OF
                        HEART HOSPITAL OF NEW MEXICO, LLC
                     A New Mexico Limited Liability Company

[REMOVE THIS PAGE AND INSERT AS EXHIBIT A THE FILE-STAMPED COPY OF
THE COMPANY'S ARTICLES OF ORGANIZATION.]


<PAGE>


                                    EXHIBIT B
                                     TO THE
                               OPERATING AGREEMENT
                                       OF
                        HEART HOSPITAL OF NEW MEXICO, LLC
                     A New Mexico Limited Liability Company


                               INFORMATION EXHIBIT





                                            Percentage     Initial
                                            Interest       Capital
Name, Address & TIN                         Membership     Contribution
-------------------                         ----------     ------------

SWCA, LLC                                   15%            $600,000.00
c/o Harvey J. White, Jr., M.D.
1101 Medical Arts Avenue NE, Bldg. 5
Albuquerque, NM  87106


NMHI,  LLC                                  26%            $1,040,000.00
c/o William Deane, M.D.
201 Cedar, SE, Suite 810
Albuquerque, NM 87106


St. Joseph Healthcare System                35%            $1,400,000.00
7850 Jefferson, NE, Suite 100
Albuquerque, NM 87109


NM Hospital Management, Inc.                24%            $ 960,000.00
7621 Little Avenue, Suite 106
Charlotte, NC 28226


<PAGE>

                                    EXHIBIT C
                                     TO THE
                               OPERATING AGREEMENT
                                       OF
                        HEART HOSPITAL OF NEW MEXICO, LLC
                     A New Mexico Limited Liability Company


                                GLOSSARY OF TERMS


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

         "Act" means the New Mexico Limited Liability Company Act, set forth at
"53-19-1, et seq. N.M.S.A. (1993 Rep. Pamp.), as amended or any corresponding
provisions of succeeding law.

         "Adjusted Capital Account" means, with respect to any Member, such
Person's Capital Account (as defined below) as of the end of the relevant Fiscal
Year increased by any amounts which such Person is obligated to restore, or is
deemed to be obligated to restore pursuant to the penultimate sentences of
Regulations Section 1.704-2(g)(1) (share of minimum gain) and Regulations
Section 1.704-2(i)(5) (share of member nonrecourse debt minimum gain) and
decreased by the items described in Regulations Section
1.704-1(b)(2)(ii)(d)(-4), (5) and (,6).

         "Affiliate" means (i) with respect to a person--the spouse and a child
or children of such person; (ii) with respect to a business corporation or
limited liability company--any officer, director, trustee, partner, manager,
employee, holder of ten percent (10%) or more of any class of the outstanding
voting securities or of an equity interest of such corporation or limited
liability corporation, or holder of ten percent (10%) or more of the outstanding
voting securities or of an equity interest of any Entity, controlling,
controlled by, or under common control with such corporation or limited
liability company and (iii) with respect to a nonprofit corporation--any member,
director, officer, employee or wholly-owned subsidiary corporation, but it shall
not include either Catholic Healthcare Initiatives ("CHI"), CHI--Mountain Region
or Centura Health with regard to their operations outside of the State of New
Mexico; and (iv) each of the direct and indirect owners of NMHI, LLC and SWCA,
LLC.

         "Agreed Value" means with respect to any noncash asset of the Company
an amount determined and adjusted in accordance with the following provisions:

         (a) The initial Agreed Value of any noncash asset contributed to the
capital of the Company by any Member shall be its gross fair market value, as
agreed to by the contributing Member and the Company.


<PAGE>

         (b) The initial Agreed Value of any noncash asset acquired by the
Company other than by contribution by a Member shall be its adjusted basis for
federal income tax purposes.

         (c) The initial Agreed Values of all the Company's noncash assets,
regardless of how those assets were acquired, shall be reduced by depreciation
or amortization, as the case may be, determined in accordance with the rules set
forth in Regulations Section 1.704-1(b)(2)(iv)(f) and (g).

         (d) The Agreed Values, as reduced by depreciation or amortization, of
all noncash assets of the Company, regardless of how those assets were acquired,
shall be adjusted from time to time to equal their gross fair market values, as
agreed to unanimously by the Members in writing, as of the following times:

                  (i) the acquisition of a Membership Interest or an additional
Membership Interest in the Company by any new or existing Member in exchange for
more than a de minimis Capital Contribution;

                  (ii) the distribution by the Company of more than a de minimis
amount of money or other property as consideration for all or part of a
Membership Interest in the Company; and

                  (iii) the termination of the Company for federal income tax
purposes pursuant to Code Section 708(b)(1)(B).

         If, upon the occurrence of one of the events described in (i), (ii) or
(iii) above the Members do not agree unanimously in writing on the gross fair
market values of the Company's assets, it shall be deemed that the fair market
values of all the Company's assets equal their respective Agreed Values
immediately prior to the occurrence of the event and thus no adjustment to those
values shall be made as a result of such event.

         "Agreement" means this Operating Agreement, as amended from time to
time.

         "Articles of Organization" means the Articles of Organization of the
Company, as filed with the New Mexico State Corporation Commission as the same
may be amended from time to time.

         "Board of Directors," "Director" or "Directors" means those persons
appointed by the Members, pursuant to Section 3.10 of the Operating Agreement,
and given the power and authority under Article IV of the Operating Agreement to
manage the Company. The terms "Director" or "Directors" is used for convenience,
but is intended to have the same meaning as the terms "Manager" or "Managers" in
the Act.

         "Capital Account" means with respect to each Member or assignee an
account maintained and adjusted in accordance with the following provisions:



                                       2
<PAGE>

         (a) Each Person's Capital Account shall be increased by Person's
Capital Contributions, such Person's distributive share of Profits, any items in
the nature of income or gain that are allocated pursuant to the Regulatory
Allocations and the amount of any Company liabilities that are assumed by such
Person or that are secured by Company property distributed to such Person.

         (b) Each Person's Capital Account shall be decreased by the amount of
cash and the Agreed Value of any Company property distributed to such Person
pursuant to any provision of this Agreement, such Person's distributive share of
Losses, any items in the nature of loss or deduction that are allocated pursuant
to the Regulatory Allocations, and the amount of any liabilities of such Person
that are assumed by the Company or that are secured by any property contributed
by such Person to the Company.

         In the event any Membership Interest 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 Membership
Interest.

         In the event the Agreed Values of the Company assets are adjusted
pursuant to the definition of Agreed Value contained in this Agreement, the
Capital Accounts of all Members shall be adjusted simultaneously to reflect the
aggregate adjustments as if the Company recognized gain or loss equal to the
amount of such aggregate adjustment.

         The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner
consistent with such regulations. In the event the Board of Directors 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.
the Board of Directors 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 V or VI hereof upon the dissolution of the Company. In the
event the Board of Directors shall determine such adjustments are necessary or
appropriate to comply with Regulations Section 1.704-1(b)(2)(iv), the Board of
Directors 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. The Board of Directors shall also make any
other appropriate modifications in the event unanticipated events might
otherwise cause this Agreement not to comply with Regulations Section
1.704-1(b). In the event any Membership 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 Membership Interest.

         "Capital Contribution" means with respect to any Member, the amount of
money and the initial Agreed Value of any property (other than money)
contributed to the Company with respect to the Membership Interest of such
Member.



                                       3
<PAGE>

         "Cash Distribution" means net cash distributed to Members resulting
from Cash Flow from Operations or Cash from Sales or Refinancing.

         "Cash Flow from Operations" means net cash funds provided from
operations, exclusive of Cash from Sales or Refinancing, 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 the
Board of Directors reasonably determines to be necessary or appropriate.

         "Cash from Sales or Refinancing" means 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 the Board of Directors in their sole and absolute discretion toward
the payment of any indebtedness and other obligations of the Company then due
and payable, including payments of principal and interest on mortgages, (iii)
the payment of any other expenses or amounts owed by the Company to other
parties to the extent then due and payable, and (iv) the establishment of any
reserves deemed necessary by the Board of Directors in their 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.

         "Code" means the Internal Revenue Code of 1986, as amended from time to
time. Any reference herein to a specific section(s) of the Code shall be deemed
to include a reference to any corresponding provision of future law.

         "Company" means and shall refer to Heart Hospital of New Mexico, LLC,
which was created upon the filing of the Articles of Organization with the New
Mexico State Corporation Commission to be operated under the name Heart Hospital
of New Mexico, LLC, a New Mexico limited liability company, and to continue
under this Agreement, as amended from time to time.

         "Default Rate" means a per annum rate of onium on a specified principal
sum, compounded monthly, equal to the greater of (a) the Prime Rate plus 500
basis points, or (b) 18%, but in no event greater than the highest rate allowed
by law.

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

         "Economic Interest Owner" means a Person who has validly acquired a
Member's Economic Interest as permitted under this Agreement but who has not
become a Member. Such Person shall be entitled to the allocations of Profits and
Losses and Cash Distributions under Article V and VI to which the previous owner
of the Economic Interest would have been entitled had such previous owner
retained the Economic Interest. Unless and until such Economic Interest Holder
is admitted as a Substitute Member, it shall be a mere assignee of a Member.



                                       4
<PAGE>

         "Entity" means 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.

         "Equipment" means the appropriate equipment and supplies required from
time to time in connection with the development and operation of the Hospital.

         "Fiscal Year" means, with respect to the first year of the Company, the
Period beginning upon the formation of the Company and ending on the next
September 30, with respect to subsequent years of the Company, the twelve month
period beginning October 1 and ending September 30, and, with respect to the
last year of the Company, the portion of the period beginning October 1 and
ending with the date of the final liquidating distributions.

         "Hospital" means an acute care hospital specializing in all aspects of
cardiology and cardiovascular care and surgery in New Mexico, as further
described in Section 2.3 of the Agreement.

         "Manager" means and shall refer to those persons designated by the
Board of Directors to oversee the operation of the Company in accordance with
the terms of a Management Agreement.

         "Material Agreement" means any binding agreement which may not be
canceled upon less than ninety (90) days notice and which calls for the
expenditure of funds, or involves an obligation for financing, in excess of
$100,000.00 exclusive of agreements or obligations contemplated by any budget,
development plan, financing or construction contract approved by the Board of
Directors or agreements incurred in the ordinary course of business such as
employment agreements, purchases of supplies and routine services and the like.

         "Material Decision" means any decisions regarding approvals of the
development and operating budgets for the Hospital, the selection of the site
for the Hospital, the design of the Hospital, the selection of the Hospital's
senior administrator, strategic planning, the execution of managed care
contracts, the execution of exclusive contracts to provide physician services to
the Hospital and any request for additional funding pursuant to Section 3.6(b)
of this Operating Agreement.

         "Member" means and shall refer to the organizers of the Company (unless
or until any such organizer has withdrawn) and each of the Persons identified as
"Members" in the then applying Information Exhibit attached hereto and
incorporated herein by this reference. 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.



                                       5
<PAGE>

         "Membership Interest" or "Interest" means all of a Member's rights in
the Company, including without limitation the Member's share of Profits, Losses,
Cash Distributions and other benefits of the Company, 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 Act. The percentage Membership Interest of each Member, their
Capital Contributions and other related information shall be listed on the
Information Exhibit. The percentage Membership Interests generally shall be
based upon the pro rata Capital Contribution of each Member.

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

         "Prime Rate" means the rate of interest as of the relevant day or time
period in the Wall Street Journal from time to time as the prime or reference
rate.

         "Profits and Losses" means, for each Fiscal Year or other period, an
amount equal to the Company's taxable income or loss for such year or period,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss, or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:

         (a) Any income of the Company that is exempt from federal income tax
and not otherwise taken into account in computing Profits or Losses shall be
added to such taxable income or loss;

         (b) Any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account
in computing Profits or Losses, shall be subtracted from such taxable income or
loss;

         (c) Gain or loss resulting from dispositions of Company assets shall be
computed by reference to the Agreed Value of the property disposed of,
notwithstanding that the adjusted tax basis of such property differs from its
Agreed Value.

         "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.

         "Regulations" means rules, orders, and regulations issued pursuant to
or under the authority of the Code and shall include revisions to and succeeding
provisions as appropriate.

         "Regulatory Allocations" means those allocations of items of Company
income, gain, loss or deduction set forth on the Regulatory Allocations Exhibit
and designed to enable the Company to comply with the alternate test for
economic effect prescribed in Regulations Section


                                       6
<PAGE>


1.704-1(b)(2)(ii)(d), and the safe-harbor rules for allocations attributable to
nonrecourse liabilities prescribed in Regulations Section 1.704-2.

         "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.

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

         "Territory" means the State of New Mexico and an area extending one
hundred (100) miles beyond the border of the State of New Mexico.


                                       7
<PAGE>

                                    EXHIBIT D
                                     TO THE
                               OPERATING AGREEMENT
                                       OF
                        HEART HOSPITAL OF NEW MEXICO, LLC
                     A New Mexico Limited Liability Company

                           DEVELOPMENT BUDGET EXHIBIT


         [TO BE INSERTED]


<PAGE>


                                    EXHIBIT E
                                     TO THE
                               OPERATING AGREEMENT
                                       OF
                        HEART HOSPITAL OF NEW MEXICO, LLC
                     a New Mexico limited liability company


                             REGULATORY ALLOCATIONS


         This Exhibit contains special rules for the allocation of items of
Company income, gain, loss and deduction that override the basic allocations of
Profits and Losses in the Agreement only to the extent necessary to cause the
overall allocations of items of Company income, gain, loss and deduction to have
substantial economic effect pursuant to Regulations Section 1.704-1(b) and shall
be interpreted in light of that purpose. Subsection (a) below contains special
technical definitions. Subsections (b) through (h) contain the Regulatory
Allocations themselves. Subsections (i), (j) and (k) are special rules
applicable in applying the Regulatory Allocations.

                  (a) Definitions Applicable to Regulatory Allocations. For
         purposes of the Agreement, the following terms shall have the meanings
         indicated:

                           (i) "Company Minimum Gain" means the same as the
         meaning of "partnership minimum gain" set forth in Regulations Section
         1.704-2(d), and is generally the aggregate gain the Company would
         realize if it disposed of its property subject to Nonrecourse
         Liabilities in full satisfaction of each such liability, with such
         other modifications as provided in Regulations Section 1.704-2(d). In
         the case of Nonrecourse Liabilities for which the creditor's recourse
         is not limited to particular assets of the Company, until such time as
         there is regulatory guidance on the determination of minimum gain with
         respect to such liabilities, all such liabilities of the Company shall
         be treated as a single liability and allocated to the Company's assets
         using any reasonable basis selected by the Board of Directors.

                           (ii) "Member Nonrecourse Deductions" means losses,
         deductions or Code Section 705(a)(2)(B) expenditures attributable to
         Member Nonrecourse Debt under the general principles applicable to
         "partner nonrecourse deductions" set forth in Regulations Section
         1.704-2(i)(2).

                           (iii) "Member Nonrecourse Debt" means any Company
         liability with respect to which one or more but not all of the Members
         or related Persons to one or more but not all of the Members bears the
         economic risk of loss within the meaning of Regulations Section 1.752-2
         as a guarantor, lender or otherwise.

                           (iv) "Member Nonrecourse Debt Minimum Gain" means the
         minimum gain attributable to Member Nonrecourse Debt as determined
         pursuant to Regulations



<PAGE>


         Section 1.704-2(i)(3). In the case of Member Nonrecourse Debt for which
         the creditor's recourse against the Company is not limited to
         particular assets of the Company, until such time as there is
         regulatory guidance on the determination of minimum gain with respect
         to such liabilities, all such liabilities of the Company shall be
         treated as a single liability and allocated to the Company's assets
         using any reasonable basis selected by the Board of Directors.

                           (v) "Nonrecourse Deductions" means losses,
         deductions, or Code Section 705(a)(2)(B) expenditures attributable to
         Nonrecourse Liabilities (see Regulations Section 1.704-2(b)(1)). The
         amount of Nonrecourse Deductions for a Fiscal Year shall be determined
         pursuant to Regulations Section 1.704-2(c), and shall generally equal
         the net increase, if any, in the amount of Company Minimum Gain for
         that taxable year, determined generally according to the provisions of
         Regulations Section 1.704-2(d), reduced (but not below zero) by the
         aggregate distributions during the year of proceeds of Nonrecourse
         Liabilities that are allocable to an increase in Company Minimum Gain,
         with such other modifications as provided in Regulations Section
         1.704-2(c).

                           (vi) "Nonrecourse Liability" means any Company
         liability (or portion thereof) for which no Member bears the economic
         risk of loss under Regulations Section 1.752-2.

                           (vii) "Regulatory Allocations" means allocations of
         Nonrecourse Deductions provided in Paragraph (b) below, allocations of
         Member Nonrecourse Deductions provided in Paragraph (c) below, the
         minimum gain chargeback provided in Paragraph (d) below, the member
         nonrecourse debt minimum gain chargeback provided in Paragraph (e)
         below, the qualified income offset provided in Paragraph (f) below, the
         gross income allocation provided in Paragraph (g) below, and the
         curative allocations provided in Paragraph (h) below.

                  (b) Nonrecourse Deductions. All Nonrecourse Deductions for any
         Fiscal Year shall be allocated to the Members in accordance with their
         percentage Membership Interests.

                  (c) Member Nonrecourse Deductions. All Member Nonrecourse
         Deductions for any Fiscal Year shall be allocated to the Member who
         bears the economic risk of loss under Regulations Section 1.752-2 with
         respect to the Member Nonrecourse Debt to which such Member Nonrecourse
         Deductions are attributable.

                  (d) Minimum Gain Chargeback. If there is a net decrease in
         Company Minimum Gain for a Fiscal Year, each Member shall be allocated
         items of Company income and gain for such year (and, if necessary,
         subsequent years) in an amount equal to such Member's share of such net
         decrease in Company Minimum Gain, determined in accordance with
         Regulations Section 1.704-2(g)(2) and the definition of Company Minimum
         Gain set forth above. This provision is intended to comply with the
         minimum


                                       2
<PAGE>


         gain chargeback requirement in Regulations Section 1.704-2(f) and shall
         be interpreted consistently therewith.

                  (e) Member Nonrecourse Debt Minimum Gain Chargeback. If there
         is a net decrease in Member Nonrecourse Debt Minimum Gain attributable
         to a Member Nonrecourse Debt for any Fiscal Year, each Member who has a
         share of the Member Nonrecourse Debt Minimum Gain attributable to such
         Member Nonrecourse Debt as of the beginning of the Fiscal Year,
         determined in accordance with Regulations Section 1.704-2(i)(5), shall
         be allocated items of Company income and gain for such year (and, if
         necessary, subsequent years) in an amount equal to such Member's share
         of the net decrease in Member Nonrecourse Debt Minimum Gain
         attributable to such Member Nonrecourse Debt, determined in accordance
         with Regulations Sections 1.704-2(i)(4) and (5) and the definition of
         Member Nonrecourse Debt Minimum Gain set forth above. This Paragraph is
         intended to comply with the member nonrecourse debt minimum gain
         chargeback requirement in Regulations Section 1.7()4-2(i)(4) and shall
         be interpreted consistently therewith.

                  (f) Qualified Income Offset. In the event any Member
         unexpectedly receives any adjustments, allocations, or distributions
         described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4),(5), or (6),
         items of Company income and gain (consisting of a pro rata portion of
         each item of Company income, including gross income, and gain for such
         year) shall be allocated to such Member in an amount and manner
         sufficient to eliminate, to the extent required by the Regulations, any
         deficit in such Member's Adjusted Capital Account created by such
         adjustments, allocations or distributions as quickly as possible.

                  (g) Gross Income Allocation. In the event any Member has a
         deficit in its Adjusted Capital Account at the end of any Fiscal Year,
         each such Member shall be allocated items of Company gross income and
         gain, in the amount of such Adjusted Capital Account deficit, as
         quickly as possible.

                  (h) Curative Allocations. When allocating Profits and Losses
         under Article VI, such allocations shall be made so as to offset any
         prior allocations of gross income under Paragraph (g) above to the
         greatest extent possible so that overall allocations of Profits and
         Losses shall be made as if no such allocations of gross income
         occurred.

                  (i) Ordering. The allocations in this Exhibit to the extent
         they apply shall be made before the allocations of Profits and Losses
         under Article VI and in the order in which they appear above.

                  (j) Waiver of Minimum Gain Chargeback Provisions. If the Board
         of Directors determine that (i) either of the two minimum gain
         chargeback provisions contained in this Exhibit would cause a
         distortion in the economic arrangement among the Members, (ii) it is
         not expected that the Company will have sufficient other items of
         income and gain to correct that distortion, and (iii) the Members have
         made Capital Contributions or received net income allocations that have
         restored any previous



                                       3
<PAGE>


         Nonrecourse Deductions or Member Nonrecourse Deductions, then the Board
         of Directors shall have the authority, but not the obligation, after
         giving notice to the Members, to request on behalf of the Company the
         Internal Revenue Service to waive the minimum gain chargeback or member
         nonrecourse debt minimum gain chargeback requirements pursuant to
         Regulations Sections 1.704-2(f)(4) and 1.704-2(i)(4). The Company shall
         pay the expenses (including attorneys' fees) incurred to apply for the
         waiver. The Board of Directors shall promptly copy all Members on all
         correspondence to and from the Internal Revenue Service concerning the
         requested waiver.

                  (k) Code Section 754 Adjustments. To the extent an adjustment
         to the adjusted tax basis of any Company asset pursuant to Code Section
         734(b) or Code Section 743(b) is required, pursuant to Regulations
         Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining
         Capital Accounts, the amount of such adjustment to the Capital Accounts
         shall be treated as an item of gain (if the adjustment increases the
         basis of the asset) or loss (if the adjustment decreases such basis),
         and such gain or loss shall be specially allocated to the Members in a
         manner consistent with the manner in which their Capital Accounts are
         required to be adjusted pursuant to such Section of the Regulations.

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                                       4