OPERATING AGREEMENT
                                       OF
                           ARIZONA HEART HOSPITAL, LLC



















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                               OPERATING AGREEMENT
                                       OF
                           ARIZONA HEART HOSPITAL, LLC
                      An Arizona Limited Liability Company


         THESE  SECURITIES  ARE  BEING  ISSUED  PURSUANT  TO AN  EXEMPTION  FROM
REGISTRATION  UNDER THE SECURITIES ACT OF 1933 AND THE ARIZONA 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 Arizona Heart Hospital,
LLC (the "Company"),  an Arizona Limited  Liability  Company is made and entered
into as of the 6th day of  January,  1997,  by and  among  the  Company  and AHH
Management,  Inc., a North Carolina corporation ("AHH Management"),  as a Member
and each of the other parties identified on Schedule A as Members (the "Investor
Members").


                                    RECITALS

         1. The Company  has been  formed to  develop,  own and operate an acute
care hospital which  hospital  shall be located in or near Phoenix,  Arizona and
shall  specialize  in all  aspects of  cardiology  and  cardiovascular  care and
surgery which AHH Management and the Investor Manager may agree upon;


         2. It is intended  that the hospital  will be a low-cost,  high quality
provider of medical  services within the Phoenix  metropolitan  area in a manner
which is consistent  with the national  health care policy of lowering the costs
of health care;

         3.       The capital  contributions  and active  involvement  of the  
Investor  Members are necessary to enable the Company to achieve its objectives.

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                                    ARTICLE I

                                   DEFINITIONS

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

         I.1 "Act" shall mean the Arizona Limited  Liability  Company Act, as in
effect in Arizona (or any corresponding provisions of succeeding law).

         I.2 "Adjusted  Capital  Account"  means,  with respect to any Member or
Economic  Interest Owner, 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
next to last 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).

         I.3  "Affiliate"  with  respect to a Person,  (i) any  relative of such
Person;  (ii) any officer,  director,  trustee,  partner,  manager,  employee or
holder  of ten  percent  (10%) or more of any  class of the  outstanding  voting
securities or of an equity  interest of such Person;  or (iii) any  corporation,
partnership,  limited  liability  company,  trust,  or  any  officer,  director,
trustee,  partner,  manager,  employee or holder of ten percent (10%) or more of
the outstanding  voting  securities or of an equity interest of any corporation,
partnership,  limited  liability  company,  trust or other equity,  controlling,
controlled by, or under common control with such Person.

         I.4 "Agreed  Value" shall mean 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.

                  (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 by the Members in
         writing, as of the following times:


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                                 (i)  the  acquisition of a Membership  Interes
                  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 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.

         I.5 "Agreement"  shall mean this Operating  Agreement,  as amended from
time to time.

         I.6 "AHI" shall mean the Arizona Heart Institute, Ltd.

         I.7 "Articles of  Organization."  The Articles of  Organization  of the
Company,  as filed  with the  Secretary  of State of  Arizona as the same may be
amended from time to time.

         I.8  "Capital  Account"  shall  mean  with  respect  to each  Member or
assignee an account  maintained  and adjusted in  accordance  with the following
provisions:

                  (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.
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       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 AHH Management  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,  AHH
Management may make such modification,  provided that it is not likely to have a
material effect on the amounts  distributable to any Member pursuant to Articles
VI or VII  hereof  upon  the  dissolution  of the  Company.  In  the  event  AHH
Management  shall  determine  such  adjustments  are necessary or appropriate to
comply with Regulations Section  1.704-1(b)(2)(iv),  AHH Management 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. AHH Management 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.

         I.9 "Capital  Contribution"  shall mean 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.

         I.10 "Cash  Distributions"  shall mean net cash  distributed to Members
resulting from Cash Flow from Operations or Cash from Sales or Refinancing,  but
shall not include cash  distributed  to AHH Management as its Management Fee for
services or any amount in repayment of loans made by the Members to the Company.

         I.11 "Cash  Flow from  Operations"  shall mean net cash funds  provided
from  operations  of the Company or  investment  of any Company  funds,  without
deduction  for  depreciation,  but after  deducting  cash  funds  used to pay or
establish a reserve for  expenses,  debt  payments,  capital  improvements,  and
replacements and for such other items as AHH Management reasonably determines to
be necessary or appropriate.

         I.12 "Cash from Sales or Refinancing"  shall mean the net cash proceeds
received  by the  Company  from or as a  result  of any Sale or  Refinancing  of
property after deducting (i) all expenses incurred in connection therewith, (ii)
any amounts applied by AHH Management in its sole and absolute discretion toward
the payment of any indebtedness and other obligations of the Company,  including
payments of principal and interest on mortgages,  (iii) the payment of any other
expenses  or  amounts  owed by the  Company  to  other  parties,  and  (iv)  the
establishment of any reserves reasonably deemed necessary by AHH Management.  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.
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<PAGE>

         I.13 "Code"  shall mean 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.

         I.14 "Company" shall refer to Arizona Heart Hospital,  LLC, which shall
be created  upon the filing of the Articles of  Organization  with the Office of
the Secretary of State of Arizona,  to be operated  under the name Arizona Heart
Hospital,  an Arizona  limited  liability  company,  and to continue  under this
Agreement, as amended from time to time.

         I.15 "Economic  Interest" shall refer to that portion of the Membership
Interest  of a Member  in the  economic  rights  and  benefits  of the  Company,
including but not limited to all Profits, Losses and Cash Distributions. Such an
Economic  Interest will be measured by an amount equal to the  percentage of the
Member's  percentage  Membership  Interest  in the  Company  as the  same may be
adjusted from time to time.

         I.16  "Economic  Interest  Owner"  shall mean 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 VI and VII 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.

         I.17 "Entity" shall mean any general partnership,  limited partnership,
limited liability company,  corporation,  joint venture,  trust, business trust,
cooperative   or   association   or  any  foreign  trust  or  foreign   business
organization.

         I.18  "Equipment"  shall mean the  appropriate  equipment  and supplies
required from time to time in connection  with the  development and operation of
the Hospital.

         I.19  "Fiscal  Year" shall mean,  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.

         I.20 "Hospital" shall have the meaning provided in Section 2.3 hereof.

         I.21  "Investor  Manager"  shall  refer to the  individual  elected  by
Investor Members in accordance with Section 5.13 who shall serve as a Manager of
the Company.

         I.22  "Investor   Members"  shall  mean  the  Members  other  than  AHH
Management listed on Schedule A attached hereto.

         I.23 "Majority Vote of Investor Members" shall refer to the affirmative
vote,  approval  or  consent  of  Investor  Members  holding a  majority  of the
Membership Interests held by the Investor Members in the aggregate.

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<PAGE>
         I.24     Intentionally omitted.

         I.25  "Manager"  or  "Managers"  shall  refer  to one or more  managers
designated  pursuant  to this  Agreement.  Pursuant  to this  Agreement  and the
Articles of Organization,  no Member shall  automatically be a manager by virtue
of such Person's  status as a Member.  Subject to Section  11.1(g)  hereof,  the
Managers of the Company shall be AHH  Management and the Investor  Manager.  The
powers,  rights and duties of each  Manager to manage the affairs of the Company
are specified or designated in this Agreement.

         I.26  "Management Fee" shall mean the amounts payable to AHH Management
pursuant to Article V for services  rendered in managing the  operations  of the
Company.

         I.27 "Material  Agreement"  shall refer to 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
One  Hundred   Thousand  Dollars   ($100,000.00)   exclusive  of  agreements  or
obligations   contemplated  by  any  budget,   development  plan,  financing  or
construction  contract  approved by the Managers or  agreements  incurred in the
ordinary course of business such as employment agreements, purchases of supplies
and routine services and the like.

         I.28  "Material  Decision"  shall  refer  to  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 the  selection  of  items of
Equipment  the  individual  cost of which exceeds One Hundred  Thousand  Dollars
($100,000.00)  or any other  significant  piece of medical  Equipment  which the
Investor Manager specifically designates in writing as material.

         I.29 "Member"  shall refer to the organizers of the Company and each of
the  members  identified  in the then  applying  Schedule A attached  hereto and
incorporated  herein by this reference.  To the extent a Manager has purchased a
Membership  Interest in the  Company,  such Person will have all the rights of a
Member with respect to such Membership  Interest,  and the term "Member" as used
herein shall  include a Manager to the extent he has purchased  such  Membership
Interest in the Company.  If a Person is already a Member  immediately  prior to
the  purchase or other  acquisition  by such  Person of an Economic  Interest or
Membership  Interest,  such  Person  shall have all the rights of a Member  with
respect to such purchased or otherwise acquired  Membership Interest or Economic
Interest, as the case may be.

         I.30  "Membership  Interest" shall mean 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 then
applying  Schedule A. The percentage  Membership  Interests  generally  shall be
based upon the pro rata Capital Contribution of each Member.
  
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         I.31 "Organization Expenses" shall mean those expenses incurred, either
by the  Company or for which the Company  has agreed to make  reimbursement,  in
connection  with the  formation of the Company  including  such expenses as: (i)
registration  fees,  filing  fees,  and taxes;  and (ii) legal fees  incurred in
connection with any of the foregoing.

         I.32  "Person"  shall mean any  individual  or  Entity,  and the heirs,
executors,  administrators,  legal representatives,  successors,  and assigns of
such individual or Entity where the context so permits.

         I.33 "AHH Management"  shall refer to AHH Management,  Inc., an Arizona
corporation, who shall serve as a Manager of the Company.

         I.34 "Prime  Rate" means the rate of interest as of the relevant day or
time period as announced by the First Union National Bank, N.A. or its successor
in interest from time to time as its prime or reference rate.

         I.35  "Profits  and Losses"  shall mean,  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)(l) 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.

         I.36 "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.

         I.37  "Regulations"  shall mean rules,  orders,  and regulations issued
pursuant to or under the  authority of the Code and shall  include  revisions to
and succeeding provisions as appropriate.

         I.38 "Regulatory  Allocations" shall mean those allocations of items of
Company income,  gain, loss or deduction set forth on Schedule B and designed to
enable  the  Company  to comply  with the  alternate  test for  economic  effect
prescribed in  Regulations  Section  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.

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         I.39 "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.

         I.40 "Substitute  Manager" shall mean a Manager who succeeds either AHH
Management or the Investor Manager with all of the specific rights and powers of
such Manager under this Agreement.

         I.41  "Substitute  Member"  shall mean an  assignee of a Member who has
been  admitted to the Company and granted all the rights of a Member in place of
his or her assignor  pursuant to the provisions of this Agreement.  A Substitute
Member,  upon his or her  admission  as such,  shall  replace and succeed to the
rights,  privileges,  and liabilities of the Member from whom he or she acquired
his or her  interest  in the  Company,  to the extent of the  Economic  Interest
assigned.

         I.42  "Super-Majority  Vote of Members" shall refer to the  affirmative
vote,  approval or consent of Members holding  sixty-seven  percent (67%) of the
Membership Interests in the aggregate.


                                   ARTICLE II

              FORMATION AND AGREEMENT OF LIMITED LIABILITY COMPANY

         II.1 Company  Formation.  The Company will be formed upon the execution
by AHH Management and one other individual or entity on behalf of the Company of
Articles of  Organization  which are then filed with the  Secretary  of State of
Arizona in  accordance  with the  provisions  of the Act. AHH  Management  shall
execute or cause to be executed all other such  certificates  or documents,  and
shall do or cause to be done all such filing,  recording,  or other acts, as may
be necessary or appropriate from time to time to comply with the requirements of
law for the continuation  and/or operation of a limited liability company in the
State of Arizona,  and other  documents to reflect the  admission of  additional
Members to the Company.  Any costs incurred by AHH Management in connection with
the foregoing shall be reimbursed promptly upon the completion of such action.

         II.2  Name  of  Company.  The  name of the  Company  is  Arizona  Heart
Hospital, LLC, an Arizona limited liability company.

         II.3     Purposes and Investment Objectives.  The principal purposes of
 the Company are as follows:

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

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<PAGE>
                               (i)  Services  and   facilities   to  meet  all
                  requirements  of the  State of  Arizona,  Medicare,  JCAHO and
                  other  credentialing  or licensing bodies or agencies in order
                  to have the Hospital licensed as a general acute care hospital
                  and to perform cardiology and cardiovascular surgical services
                  of  every  type  or  nature  and  to  be  eligible  to  obtain
                  appropriate reimbursements therefore;

                              (ii)  Approximately seventy-four thousand (74,000)
                 square  feet  in  a building to be constructed in accordance
                 with plans and specifications approved by the Company;

                             (iii)  Approximately sixty (60) medical/surgical 
                 beds;

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

                               (v)  One (1) electrophysiology laboratory;

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

                             (vii)  All appropriate support services and 
                  systems; and

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

                  The size, number and scope of facilities of the Hospital shall
         finally be determined by the Manager and the Investor Manager.

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

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

         II.4 Registered Office;  Agent. The registered office of the Company is
2632 North 20th Street,  Phoenix,  Arizona  85006.  The  statutory  agent of the
Company shall be MHVRB Service Corp. whose address is 3003 North Central Avenue,
Suite 1200, Phoenix,  Arizona  85012-2915.  AHH Management shall promptly notify
the Members of any changes in the principal  place of business,  the  registered
office, or the registered agent of the Company.

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         II.5 Commencement and Term. The Company shall commence on the filing of
the Articles of Organization in the Office of the Secretary of State of Arizona,
as required by Section 2.1 hereof,  and shall  continue until December 31, 2035,
unless sooner  terminated or dissolved as provided  herein;  provided,  however,
that the  termination  date may be extended for up to an  additional  forty (40)
years in five (5) year increments  upon the election of AHH  Management.  In the
event AHH  Management  does not elect to extend the term  hereof,  the  Investor
Manager may instead elect to extend the term hereof, subject to AHH Management's
consent.


                                   ARTICLE III

                        MEMBERS AND CAPITAL CONTRIBUTIONS

         III.1 Contributions of Members. The Members shall contribute capital as
follows:

                  (a)  AHH  Management  shall  own  a  fifty-one  percent  (51%)
         Membership  Interest in the Company and shall contribute to the Company
         for its Membership  Interest One Million Five Hundred  Thirty  Thousand
         Dollars ($1,530,000.00).

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

         The Members may be liable to the  Company  for amounts  distributed  to
         them as a return of capital as provided by the Act.  The Members  shall
         not be required to  contribute  any  additional  capital to the Company
         except as  provided in Section  3.5.  The final  percentage  Membership
         Interest  of each  Member  shall be based on his/its  pro rata  Capital
         Contribution to the Company.

         III.2 Liability of Members - For Capital. The liability of each Member,
as such, shall be limited to the amount of his agreed Capital  Contribution as a
Member.

         III.3 Members' Accounts and Withdrawals.  An individual Capital Account
shall be maintained for each Member in accordance with  requirements of the Code
and the  Regulations.  No Member shall be entitled to withdraw  from the Company
unless such right is expressly  provided herein.  No Member shall be entitled to
make demand for  withdrawal or redemption of any part of its Capital  Account or
to receive any distribution except as provided herein.

         III.4 Interest on Capital  Contributions.  No interest shall be paid to
any Member based solely on its Capital  Contributions  or Capital  Account.  The
preceding  sentence  shall not prevent the Company from earning  interest on its
bank accounts and  investments and  distributing  such earnings to the Member in
accordance with Articles VI and VII.

         III.5  Additional  Funding.  If  from  time  to  time,  AHH  Management
reasonably  determines  that funds in addition to that  contemplated by Sections
3.1 and 3.2 are necessary or appropriate for the development or operation of the
Hospital, then:
                                       26
<PAGE>
                  (a) First, AHH Management  shall use  commercially  reasonable
         efforts to borrow  such funds from a bank or other  lender on terms and
         conditions reasonably  acceptable to AHH Management,  or AHH Management
         may,  but shall not be  required,  to loan such funds to the Company at
         the Prime  Rate plus one  percent  (1%) per annum  which  loan shall be
         secured by the  Company's  assets.  Interest  shall be paid  monthly in
         arrears  and  principal  shall  be  repaid  as the  Company  has  funds
         available  therefor.  All loans obtained  hereunder shall be subject to
         the  approval  of the  Investor  Manager  which  approval  shall not be
         unreasonably withheld or delayed;

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

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

         III.6  Guarantees.  Except as expressly  provided in Section  5.9(b) of
this Agreement,  the Investor  Members shall not be required to provide personal
guarantees of any  indebtedness  incurred by the Company in connection  with the
construction or operation of the Hospital or otherwise.


                                   ARTICLE IV

                     NAMES AND ADDRESSES OF INITIAL MEMBERS

         IV.1     The names and addresses of the Members are as follows:

                           Name                             Address

         o        AHH Management, Inc.            7621 Little Avenue, Suite 106
                                                  Charlotte, NC  28226

         o        See the Members listed on Schedule A attached hereto.

                                       27
<PAGE>
                                    ARTICLE V

                            MANAGEMENT OF THE COMPANY


         V.1 General  Authority  and Powers of Managers.  Except as set forth in
those provisions of this Agreement that specifically  require the vote, consent,
approval or  ratification  of the  Members,  the  Managers  shall have  complete
authority and exclusive  control over the management of the business and affairs
of the Company. Subject to the terms and conditions of this Agreement and except
as otherwise  provided herein,  all Material  Agreements and Material  Decisions
with  respect to the  business  and affairs of the Company  shall be approved or
made by AHH Management and the Investor  Manager in accordance with Section 5.16
hereof.  No Member has the actual or apparent  authority to cause the Company to
become bound in any contract,  agreement or obligation, and no Member shall take
any action purporting to be on behalf of the Company. No Manager shall cause the
Company to become bound to any contract, agreement or obligation, and no Manager
shall take any other  action on behalf of the  Company,  unless  such matter has
received the vote,  consent,  approval or ratification  as required  pursuant to
this  Agreement  with  respect to such matter or except as  provided  below with
respect to the authority and actions of AHH Management.

         The  day-to-day  management of the business and affairs of the Company,
including those  agreements and decisions  which are not Material  Agreements or
Material  Decisions,  shall be the  responsibility of AHH Management,  provided,
however,  decisions  relating to medical and  clinical  practice at the Hospital
including, without limitation, establishing standardized clinical pathways shall
be made  exclusively  by the  qualified  medical  personnel  of the  Hospital in
accordance  with the Hospital and medical staff bylaws.  Subject in all cases to
the foregoing,  AHH Management  shall have the right and the power,  if, as, and
when it, from time to time,  deems  necessary  or  appropriate  on behalf of the
Company, subject only to the terms and conditions of this Agreement:

                  (a) To  negotiate  and  execute on behalf of the  Company  all
         documents,   instruments   and  agreements   reasonably   necessary  or
         appropriate to lease,  acquire and/or construct the Hospital and/or the
         real  property  on which the  Hospital  is or will be  located,  and to
         borrow funds to finance such lease, acquisition and/or construction (it
         being acknowledged that the Hospital may be an existing building or may
         be a newly constructed building);

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

                  (c) To acquire the Equipment and enter into loans or other 
         financing arrangements therefor;

                  (d) To handle the negotiation and execution of all such other
         agreements regarding the purchase of goods or services for the 
         Hospital;
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<PAGE>

                  (e) To establish procedures for quality assurance, peer review
         and granting  privileges to physicians  with other  specialties  at the
         Hospital, subject to the terms of the Hospital and medical staff bylaws
         to be adopted for the Hospital.  It is acknowledged and agreed that the
         establishment  of  an  internal  review  board  and  of  standards  for
         physician  credentialing shall be accomplished  pursuant to the medical
         staff bylaws and  appointment  procedures  of the Hospital in which the
         Investor  Manager  shall  participate  through  his  membership  on the
         governing  body  of  the  Hospital  and  or the  medical  staff  of the
         Hospital;

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

                  (g)  To  employ   or  retain  on  such   terms  and  for  such
         compensation as AHH Management may reasonably determine,  such persons,
         firms, or corporations as AHH Management may deem advisable,  including
         without limitation  qualified medical and other employees  necessary or
         appropriate to operate the Hospital, attorneys, accountants,  financial
         and  technical  consultants,  supervisory  managing  agents,  insurance
         brokers,   brokers  and  loan  brokers,   appraisers,   architects  and
         engineers,  who may  also  provide  such  services  to AHH  Management,
         provided that the selection of the senior administrator of the Hospital
         shall be a Material  Decision.  It is further  acknowledged  and agreed
         that the Hospital  shall include on the  full-time  staff a director of
         managed  care/business  development,  two admission  coordinators,  two
         clinical  coordinators,  ACT  program,  two  research  nurses,  a  vice
         president-clinical   services,   a  vice   president-finance,   a  vice
         president-managed   care,  a   catheterization   laboratory   director,
         catheterization  laboratory  nurses and technicians,  an operating room
         director,  operating room nurses and technicians,  a half-time director
         of professional  relations and referral  coordinator and a quarter-time
         medical  writer and director of marketing,  the  selection,  retention,
         removal  and   compensation   of  which  personnel  shall  be  Material
         Decisions;

                  Either of the  Managers  may initiate the process to determine
         whether or not the employment of any of the above  individuals shall be
         terminated by providing to the other a written  report which  documents
         the reasons why the  individual's  performance is materially  deficient
         and  includes a  recommended  course of action for the Company to take.
         With the consent of the non-initiating Manager, which consent shall not
         be unreasonably  withheld,  the Manager shall cause the Company to take
         such recommended action; provided, such action shall be consistent with
         the established  disciplinary procedures of the Company with respect to
         employees,  which  include  any  procedures  set forth in any  employee
         handbooks or manuals;  provided, further the actions must be consistent
         with the  obligations  of the Company under any contracts or agreements
         to which it is a party,  including  agreements  with the  individual in
         question and with applicable law.
  
                                     29

<PAGE>

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

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

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

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

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

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

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

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

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

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

                                       30
<PAGE>
 
                  (r) To make all  decisions  related to generally  accepted  
         principles  of  accounting to be applied on a consistent basis and 
         federal income tax elections;

                  (s) To possess and exercise, subject to the restrictions 
         contained in this Agreement,  any and all of the rights, powers and 
         privileges of a manager under the Act;

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

                  (u) To modify or otherwise  improve the Hospital,  subject to 
         the restrictions  contained in this Agreement;

                  (v) To manage, direct, and guide the operation of the Hospital
         including all necessary  acts relating  thereto,  other than medical or
         clinical  matters  which shall be under the  direction  of the Investor
         Manager and other agreed upon qualified medical personnel;
                  (w)      To  establish  minimum  insurance  requirements  for
         all  physicians  practicing  at the Hospital;

                  (x) To admit as  Members  additional  investors  who have been
         proposed  for  Member  status by AHH  Management  and  approved  by the
         Investor Manager, which approval shall be given or withheld in the sole
         and absolute discretion of the Investor Manager; and

                  (y) To sell assets of the Company, subject to the restrictions
         contained in this Agreement.

                  (z) To propose and implement a marketing plan for the Hospital
         which for the first year of  operation  shall have a budget of not less
         than five hundred thousand dollars  ($500,000.00)  (such marketing plan
         and related budget shall be a Material  Decision);  provided,  however,
         that if after the first year of  operations  the Hospital does not have
         net  income  before  taxes  calculated  in  accordance  with  generally
         accepted  accounting  principles  during  any  six-month  period,  such
         marketing  budget may be lowered in future years and in all events will
         be subject to the agreement and approval of the Managers. It is further
         acknowledged  and  agreed  that the  Investor  Manager  may elect to be
         actively  involved in the design and  implementation  of the  marketing
         plan,  and that the  marketing  plan and  marketing  budget  shall be a
         Material Decision in all years.

         In  the  event  that   substantially  all  of  the  assets  of  MedCath
Incorporated  ("MedCath") are sold to, or fifty-one percent (51%) or more of the
capital  stock of MedCath is acquired  by, a third party who is not an Affiliate
of  MedCath  but who is,  directly  or  indirectly,  an owner or  operator  of a
hospital within thirty (30) miles of the Hospital, then following the closing of
such transaction, the Investor Manager shall have the right to manage the day to
day  business and affairs of the Company in lieu of AHH  Management  (subject to
the other terms of this Agreement) unless the senior management of MedCath after
such transaction is and remains for at least one (1) year substantially the same
as the senior management of MedCath prior to such transaction.

                                       31

<PAGE>

         V.2      Restrictions on Authority of the Managers.  The Managers 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 or entity;

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

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

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

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

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

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

                  (j)      Sell all or any  substantial  part of the  assets of
         the  Company  or merge the  Company without the approval of a Super-
         Majority Vote of the Members.

         V.3      Duties of the Managers.  Each Manager shall do the following:

                  (a) Diligently  and faithfully  devote such of its time to the
         business of the  Company as may be  necessary  to properly  conduct the
         affairs of the Company and, in the case of AHH  Management,  to perform
         the duties for which it will  receive a  Management  Fee as provided in
         Section  5.6(b),  or  otherwise,  however,  each  Manager  shall not be
         required to devote its full time to such duties;

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

                  (c) In the  case  of  AHH  Management  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;

                                       32

<PAGE>

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

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

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

         V.4  Delegation  by the  Managers.  Subject to  restrictions  otherwise
provided herein, the Managers may at any time employ any other person, including
persons and entities employed by, affiliated with, or related to the Managers to
perform services for the Company and its business,  and may delegate all or part
of their  authority  or control to any such other  persons,  provided  that such
employment  or  delegation  shall not relieve the  Managers of their  respective
responsibilities  and obligations  under this Agreement or under the laws of the
State of  Arizona  nor will it make any such  person a Member or  Manager of the
Company.

         V.5 Right to Rely Upon the Authority of the Managers.  Persons  dealing
with the  Company may rely upon the  representation  of the  Managers  that such
Managers are managers of the Company and that such  Managers  have the authority
to make any  commitment  or  undertaking  on  behalf of the  Company.  No person
dealing with the Managers  shall be required to determine  its authority to make
any such commitment or undertaking.  In addition,  no purchaser from the Company
shall be required to determine the sole and  exclusive  authority of any Manager
to sign and deliver on behalf of the Company any  instruments  of transfer  with
respect  thereto or to see to the  application  or  distribution  of revenues or
proceeds paid or credited in connection  therewith,  unless such purchaser shall
have received written notice from the Company affecting the same.

         V.6      Company Expenses.

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

                                       33

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

                                 (i) All development and operational expenses of
                  the Company,  which may  include,  but are not limited to: the
                  salary and  related  expenses  of  employees  and staff of the
                  Hospital,  all costs of borrowed money, taxes, and assessments
                  on the  Hospital,  and other taxes  applicable to the Company;
                  expenses  in  connection  with the  acquisition,  maintenance,
                  leasing,  refinancing,   operation,  and  disposition  of  the
                  Equipment,  furniture and fixtures of the Hospital  (including
                  legal, accounting, audit, commissions, engineering, appraisal,
                  and the other fees);  the  maintenance of the Hospital and its
                  Equipment  may be  performed by AHH  Management  or one of its
                  Affiliates  as long as the  charges  to the  Company  for such
                  service are no greater  than the charges for such service from
                  a third party service provider;

                                (ii) In  addition  to  reimbursements  and other
                  amounts due  hereunder,  a Management Fee equal to Two Hundred
                  Thousand Dollars  ($200,000.00) per year due to AHH Management
                  which fees shall first accrue commencing on the first to occur
                  of (the "Completion  Date") (X) the substantial  completion of
                  the  construction  of the  Hospital  if the  Hospital is to be
                  located in a new building (whether to be leased to or owned by
                  the  Company),  or (Y) the closing of the purchase of the real
                  property in which the  Hospital is to be located if located in
                  an  existing  building  (either  by the  Company or by a third
                  party who shall in turn lease such  building  to the  Company)
                  which fees shall be increased annually in proportion to annual
                  increases in the Consumer Price Index for all Urban  Consumers
                  (All Items)  published  by the U.S.  Department  of  Commerce,
                  Bureau of Labor Statistics  ("CPI"),  as reasonably applied by
                  AHH Management on January 1st of each year;

                               (iii)  A  medical  director's  fee  equal  to Two
                  Hundred Thousand Dollars  ($200,000.00) per year to be paid to
                  the medical director of the Hospital  selected by the Investor
                  Manager and approved by AHH  Management  which fee shall first
                  accrue  commencing  as of the  Completion  Date and  which fee
                  shall be increased  annually by the CPI reasonably  applied by
                  AHH Management on January 1st of each year;

                                (iv) All fees and expenses paid to third parties
                  for  accounting,  legal,  documentation,   professional,   and
                  reporting services to the Company,  which may include, but are
                  not  limited  to:  preparation  and  documentation  of Company
                  bookkeeping,    accounting   and   audits;   preparation   and
                  documentation of budgets,  cash flow projections,  and working
                  capital requirements; preparation and documentation of Company
                  state  and  federal  tax  returns;   and  taxes   incurred  in
                  connection   with  the   issuance,   distribution,   transfer,
                  registration,   and   recordation   of  documents   evidencing
        
                                       34

<PAGE>
                  ownership of a Membership Interest or Economic Interest in the
                  Company or in  connection  with the  business of the  Company;
                  expenses in  connection  with  preparing  and mailing  reports
                  required to be furnished  to the Members or Economic  Interest
                  Owners for tax reporting or other purposes, including reports,
                  if any,  that may be  required to be filed with any federal or
                  state  regulatory   agencies,   or  expenses  associated  with
                  furnishing reports to Members which AHH Management deems to be
                  in the best  interest of the  Company;  expenses of  revising,
                  amending, converting, modifying, or terminating the Company or
                  this   Agreement;   costs  incurred  in  connection  with  any
                  litigation  in which the  Company is  involved  as well as any
                  examination,  investigation, or other proceedings conducted by
                  any  regulatory  agency  involving  the Company;  costs of any
                  computer equipment or services used for or by the Company; the
                  costs of preparing and  disseminating  informational  material
                  and documentation relating to potential sale, refinancing,  or
                  other disposition of the Hospital or the Equipment.

         V.7 No  Management  by Members.  Other than the  Managers,  the Members
shall  take no part  in,  or at any  time  interfere  in any  manner  with,  the
management,  conduct,  or control of the Company's  business and  operations and
shall have no right or  authority  to act for or bind the Company  except as set
forth in this Agreement.  The rights and powers of such Members shall not extend
beyond those set forth in this Agreement and those granted under the Articles of
Organization  and any attempt to  participate in the control of the Company in a
manner  contrary to the rights and powers  granted herein and under the Articles
of Organization shall be null and void and without force and effect.  Subject to
the decisions and judgement with respect to all professional medical or clinical
matters of qualified medical personnel, AHH Management,  in conjunction with the
Investor  Manager where  applicable,  shall have the right to determine when and
how the operations of the Company shall be conducted.  The exercise by any other
Member of any of the rights granted him or her hereunder  shall not be deemed to
be taking  part in the  control of the  business  of the  Company  and shall not
constitute a violation of this section.

         V.8  Consent  by Members to  Exercise  of Certain  Rights and Powers by
Managers.  By its  execution  hereof,  each  Member  expressly  consents  to the
exercise by the Managers of the rights,  powers, and authority  conferred on the
Managers by this Agreement.

         V.9      Other Business of Members.

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

                  (b) As long as any Member  owns a  Membership  Interest in the
         Company,  and for a period of three (3) years after a Member ceases for
         any reason (whether due to death, disability,  retirement or otherwise)
         to own a Membership Interest in the Company, such Member and all of its
         respective  Affiliates  shall  not hold,  directly  or  indirectly,  an
         investment,  ownership or other beneficial interest in (i) any hospital
         or (ii) other Entity which  provides any of the  following  services or
         facilities:    cardiac   catheterization,    angioplasty,    peripheral
         angioplasty,  atherectomy,  stenting and PTCA or other cardiac surgical
         or interventional  procedures or services,  in any case within a thirty
         (30) mile radius of the Hospital (the  "Territory"),  provided that (i)

                                       35

<PAGE>

         no Member who is a physician shall be prohibited  from  maintaining his
         or her staff  privileges  at any other  hospital;  (ii) nothing  herein
         shall  prohibit  a Member  from  owning up to two  percent  (2%) of the
         outstanding  capital stock of a company whose stock is publicly  traded
         and  listed on a  nationally  recognized  securities  exchange  or from
         investing in a publicly traded mutual fund, or (iii) owning an interest
         in the two existing cardiac  catheterization  labs owned by AHI as long
         as only  diagnostic  catheterizations  are performed  therein,  or (iv)
         nothing herein shall prohibit AHI or Edward B. Diethrich,  M.D. ("EBD")
         from acquiring an ownership or other equity interest in any health care
         facility located north and east of the intersection of Doubletree Ranch
         Road and Tatum Boulevard,  Scottsdale, Arizona, which acquisition would
         otherwise  violate the provisions of this subsection (b), provided that
         AHI provides to the Company upon the Company's written request therefor
         a guaranty of payment of ten percent  (10%) of the  original  principal
         balance  (determined  assuming such mortgage loan has been fully funded
         by the lender but reduced by the amount of any principal payments which
         have been made as of the date such  guaranty is required  hereunder) of
         the first mortgage loan upon the Hospital. In addition,  AHH Management
         or its  Affiliates  may  separately  operate  a mobile  catheterization
         laboratory  within the Territory,  but only if either AHH Management or
         an Affiliate  thereof is providing such service  pursuant to a lease of
         six (6) months or less to a provider who is already  providing cath lab
         services  or if the  Investor  Manager  has  elected  not to have  such
         service provided by the Company.

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

                  (d)  If  there  is  a  breach  or  threatened  breach  of  the
         provisions of this Section 5.9 of this Agreement,  in addition to other
         remedies at law or equity, the non-breaching party shall be entitled to
         injunctive relief. The parties desire and intend that the provisions of
         this  Section 5.9 shall be enforced to the fullest  extent  permissible
         under the law and public policies applied,  but the unenforceability or
         modification  of  any  particular  paragraph,  subparagraph,  sentence,
         clause,  phrase,  word,  or  figure  shall  not  be  deemed  to  render
         unenforceable  the  remainder  of this  Section  5.9.  Should  any such
         paragraph,  subparagraph,  sentence, clause, phrase, word, or figure be
         adjudicated to be wholly invalid or unenforceable,  the balance of this
         Section  5.9 shall  thereupon  be  modified in order to render the same
         valid and enforceable and the unenforceable portion of this Section 5.9
         shall be deemed to have been deleted from this Agreement.

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

                                       36

<PAGE>

                  (f) If the  Investor  Member  is a  legal  entity  and  not an
         individual,  such Investor  Member shall cause each of its existing and
         future equity owners to agree in writing to be personally  bound by the
         terms of this Section 5.09.

         V.10 Managers' Standard of Care. Each Manager shall act in a manner he,
she or it believes  in good faith to be in the best  interest of the Company and
with such care as an  ordinarily  prudent  person in a like  position  would use
under similar  circumstances.  In discharging its duties,  each Manager shall be
fully  protected  in  relying  in good faith  upon the  records  required  to be
maintained under this Agreement and upon such information, opinions, reports and
statements by any of its other  Managers,  Members,  or agents,  or by any other
person as to matters  each  Manager  reasonably  believes  are within such other
person's  professional  or  expert  competence  and who has been  selected  with
reasonable care by or on behalf of the Company, including information, opinions,
reports or  statements  as to the value and amount of the  assets,  liabilities,
profits or losses of the Company or any other facts  pertinent to the  existence
and amount of assets from which distributions to members might properly be paid.

         V.11  Limitation  of  Liability.  A Manager  shall not be liable to the
Company,  its  Members,  or other  Managers for any action taken in managing the
business or affairs of the  Company if he, she or it  performs  the duty of his,
her or its office in compliance with the standard  contained in Section 5.10. No
Manager has guaranteed nor shall have any obligation  with respect to the return
of a Member's Capital Contribution or profits from the operation of the Company.
Furthermore,  no Manager,  its  Affiliates or its employees  (collectively,  its
"Agents") shall be liable to the Company or to any Member for any loss or damage
sustained  by the  Company or any Member  except loss or damage  resulting  from
gross  negligence or  intentional  misconduct  or knowing  violation of law or a
transaction  for which  such  Manager or Agent  received  a personal  benefit in
violation or breach of the provisions of this Agreement.

         V.12     Indemnification of the Managers.

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

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

                                       37

<PAGE>

         V.13 Election and Replacement of Investor  Manager.  In accordance with
the procedures outlined in Section 10.1 herein, the Investor Members shall elect
an Investor  Manager to serve for one year terms or until his  successor is duly
elected.  At any time, in accordance with Section 10.1, the Investor Members may
replace the Investor Manager and elect a new Investor Manager.

         V.14 Role of Investor Manager.  Notwithstanding  anything herein to the
contrary,  the  Investor  Manager  shall take no action nor make any decision on
behalf of the Company  except to the extent it is expressly  authorized to do so
under this Agreement in its capacity as Investor Manager.

         V.15 Purchase of Goods and Services from AHH ManagementV.15 Purchase of
Goods and Services from AHH  Management.  Goods and services  purchased from AHH
Management  or its  Affiliates  shall be of  substantially  the same quality and
price as could be obtained from an unrelated third party.

         V.16  Decisions  by  ManagersV.16  Decisions  by  Managers.  Except  as
provided in this  Agreement,  decisions  and actions to be taken by the Managers
shall be deemed to have been made only upon the affirmative  approval or consent
of AHH Management and the Investor Manager. In the event a decision, approval or
consent is requested of the Investor Manager by AHH Management prior to the date
which is sixty (60) days after the opening of the  Hospital,  it shall be deemed
to have been  affirmatively made if the Investor Manager fails to respond to any
such  written  request  therefor  within five (5) days of notice  thereof by AHH
Management, provided however, if a decision, approval or consent is requested of
the Investor  Manager by AHH Management  after the date which is sixty (60) days
after the opening of the Hospital,  such decision,  approval or consent shall be
deemed to have been  affirmatively made if the Investor Manager fails to respond
to any such written  request  therefor within ten (10) days of notice thereof by
AHH Management.  Notwithstanding anything in this Agreement to the contrary, all
decisions and actions to be made by the Managers with respect to any loan, lease
or other similar financing of the development,  construction or operation of the
Hospital or the Company's  affairs,  including without  limitation the decisions
with respect to incurring any indebtedness or the refinancing thereof,  shall be
made by AHH  Management  and shall be  subject to the  consent  of the  Investor
Manager, which consent shall not be unreasonably withheld;

         The  development  and annual  operating  budgets to be  proposed by AHH
Management  shall be approved by the Managers as provided  above  subject to the
following:

                  (a) The Investor  Manager  shall be deemed to have  approved a
         development budget which is substantially  consistent with the attached
         Development  Budget  Schedule  attached  hereto as  Schedule  C to this
         Agreement;

                  (b) The Investor Manager shall not  unreasonably  withhold its
         approval   of  budgets   which  are  within  the   reasonable   revenue
         expectations  of the Hospital and which are in  compliance  (both as to
         terms and availability of financing) with agreements with the Company's
         lenders and other parties providing financing to the Company; and

                                       38

<PAGE>

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


                              ARTICLE VIARTICLE VI

                          DISTRIBUTIONS AND ALLOCATIONS

         VI.1  Distributions of Cash Flow from Operations and Cash from Sales or
RefinancingVI.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 loans made by the Members to the Company shall be  distributed  quarterly
by the  Managers as Cash  Distributions  according  to the  relative  percentage
Membership   Interests   of  the   Members   and   Economic   Interest   Owners.
Notwithstanding  anything herein to the contrary, no distributions shall be made
to Members if prohibited by the Act.

         VI.2     Profits.  Except as  provided  in Schedule B,  Profits  shall
be  allocated  as follows:

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

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

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

         VI.3     Losses. Except as  provided  in  Schedule  B,  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.

         VI.4 Code Section 704(c) Tax Allocations.  VI.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.

                                       39

<PAGE>

         Any elections or other  decisions  relating to  allocations  under this
Section shall be determined by AHH  Management.  Absent a  determination  by AHH
Management,  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.

         VI.5     Miscellaneous. VI.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 AHH  Management  using any  permissible
         method under Code Section 706 and the Regulations thereunder.

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

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

                  (d) Economic  Interest  Owners.  Each Economic  Interest Owner
         shall be entitled to the  distributions  and  allocations  to which its
         predecessor  in interest would have been entitled under this Article VI
         had it retained the Economic Interest acquired by the Economic Interest
         Owner.

                                       40

<PAGE>

                             ARTICLE VIIARTICLE VII

              DISSOLUTION, WINDING UP AND LIQUIDATING DISTRIBUTIONS

         VII.1 No  Termination  by Certain Acts of MemberVII.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.

         VII.2 DissolutionVII.2 Dissolution. The Company shall be dissolved upon
the happening of any of the following events, whichever shall first occur:

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

                  (b) The death,  insanity,  bankruptcy,  retirement (other than
         due to a failure of an Investor Manager to be re-elected as an Investor
         Manager),   resignation  (other  than  due  to  an  Investor  Manager's
         resigning from serving as a Manager while still  remaining a Member) or
         expulsion  of any Manager  who is also a Member,  unless the Company is
         continued  by the  consent  of not less  than a  majority  in  interest
         (defined  in  accordance  with  Revenue  Procedure  94-46 or  successor
         provisions)  of the  remaining  Members  within  ninety (90) days after
         notice of such event,  effective as of the date of such event. If there
         is no remaining  Manager,  the remaining Members owning at least 51% of
         the  Membership  Interests  which  are owned by the  remaining  Members
         shall,  if they  desire to continue  the  Company,  elect a  Substitute
         Manager who shall assume all of the rights and duties of AHH Management
         under this Agreement (which Substitute Manager accepts such election);

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

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

                  (e) The adjudication of bankruptcy of the Company;

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

                  (g) In accordance with Section 12.11 hereof;

                  (h)      The entry of a decree of judicial  dissolution or the
         administrative  dissolution of the Company as provided in the Act; and

                  (i)  At the  election  of AHH  Management  or of the  Investor
         Manager,  in the  event  that by March 1,  1997  (unless  such  date is
         extended  by the  consent  by the  Manager  and the  Investor  Manager)
         Investor  Members  reasonably  acceptable  to AHH  Management  and  the
         Investor  Manager have not been admitted as Members  subscribing for at
         least ninety-three  percent (93%) of the Membership Interests described
         in Section 3.1(b).

                                       41

<PAGE>

         VII.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 Managers, or if for any
         reason  there  is  no  Manager,  by  another  Person  designated  by  a
         Super-Majority  Vote of the  Members.  In  winding up the  Company  and
         liquidating  assets,  the Managers,  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 AHH Management 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
         a Super-Majority Vote of 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 Managers or other
         Members or to charge the  Managers  or other  Members  for any  amounts
         except as provided herein and except to the extent  otherwise  provided
         by the Act and/or Arizona law.

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

                  (e) The Capital Accounts of the Members, as adjusted, shall be
         utilized  by the Company  for the  purpose of making  distributions  to
         those  Members  with  positive  balances  in their  respective  Capital
         Accounts pursuant to Section 7.3(b). In making such distributions,  the
         Managers  or the Person  winding up the  affairs of the  Company  shall
         distribute  all funds  available  for  distribution  to the Members and
         Economic  Interest  Owners  (after  establishing  any reserves that the
         Managers deem or the Person winding up the affairs of the Company deems
         reasonably  necessary pursuant to Section 7.3(b)) prior to the later of
         
                                       42

<PAGE>

         (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  Managers  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 Managers or the Person winding
         up the affairs of the Company to add to such  reserves are  distributed
         as soon as  practicable  in accordance  with the  provisions of Section
         7.3(b) as modified by this Section.

                  (f) Each  Economic  Interest  Owner  shall be  entitled to the
         distributions  to which its  predecessor  in  interest  would have been
         entitled  pursuant to this  Article VII had it  retained  the  Economic
         Interest acquired by the Economic Interest Owner.

         VII.4 TerminationVII.4 Termination. Upon completion of the dissolution,
winding up,  distribution  of the  liquidation  proceeds  and any other  Company
assets, the Company shall terminate.

         VII.5  Payment in CashVII.5  Payment in Cash.  Any payments made to any
Member pursuant to this Article VII shall be made only in cash.

         VII.6 Goodwill and Trade  NameVII.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 AHH Management,
provided that  distributions  and  allocations  otherwise due to AHH  Management
shall not be reduced as a result of AHH  Management  becoming  entitled  to such
assets.

         VII.7  Termination  of  Noncompetition  CovenantsVII.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 5.9(b) except that Section 5.9(b) shall
continue to be binding  upon a Member whose  breach of this  Agreement  caused a
dissolution  of the  Company  and any  actions  for a breach of this  Agreement,
including a breach of Section  5.9(b),  shall not be impaired by the dissolution
or completed liquidation.


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

         VIII.1 Manager - Transfers.

                  (a)  Except as  provided  in this  Section  8.1,  without  the
         consent of a Majority Vote of Investor  Members,  AHH Management  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
         as a Manager,  provided that AHH  Management  may assign its Membership

                                       43

<PAGE>

         Interest in the  Company  and its rights to be a Manager  either to any
         party who directly or indirectly  purchases all or substantially all of
         MedCath  Incorporated's  assets or more than fifty percent (50%) of its
         capital stock (in either  event,  a "MedCath  Sale") if such  purchaser
         assumes in writing the obligations of AHH Management  hereunder or to a
         party  under  control  of,  common  control,  or  which  controls,  AHH
         Management.  AHH Management may also assign its Membership  Interest in
         the Company  and its rights to be a Manager to a financial  institution
         as collateral security for repayment of indebtedness for borrowed funds
         by AHH Management or its  Affiliates.  In the event that AHH Management
         desires to sell any of its  Membership  Interest,  or in the event of a
         sale of more than fifty  percent  (50%) of the  capital  stock with AHH
         Management,  and in both such cases such sale is not in connection with
         a MedCath  Sale,  then the other  Members shall first have an option to
         purchase such Membership Interest in accordance with the Right of First
         Refusal provided in Section 8.4.

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

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

         VIII.2 Members' Right to Continue. If at any time there is no remaining
Manager,  a  meeting  of the  Members  shall be held at the  principal  place of
business of the Company within  forty-five (45) days after the happening of such
event to  consider  whether  to  continue  the  Company  on the same  terms  and
conditions as are contained in this  Agreement  (except that the Managers may be
different)  and to select a Manager for the  Company,  or whether to wind up the
affairs  of the  Company,  liquidate  its  assets and  distribute  the  proceeds
therefrom in  accordance  with Article VII hereof.  The Company may be continued
and a new Manager (who accept such  appointment)  selected by the Members within
ninety (90) days of the occurrence of the event described in Section 7.2(a). The
new Manager shall execute, acknowledge, file or record (as appropriate) Articles
of  Organization  and an Operating  Agreement and such other documents as may be
required by the Act.  The  continuance  of the Company  pursuant to the terms of
this  Section  8.2 is  conditioned  upon (i) the  amendment  of the  Articles of
Organization to reflect the foregoing  change and, if applicable,  compliance by
the  Company  with any notice  provisions  of the Act and (ii)  delivery  to the
withdrawing Manager of an indemnification  agreement by the Company, in form and
substance reasonably  satisfactory to the withdrawing Manager,  indemnifying and
holding AHH Management harmless against all future liabilities of the Company.

         VIII.3  Relationship with Substitute  Manager.  The relationship of the
Members to any person or entity that has  acquired  the  Membership  Interest of
either  AHH  Management  or the  Investor  Manager  shall  be  governed  by this
Agreement.  If the  acquiring  party was not  theretofore  a Manager,  then such
Substitute  Manager  shall have all the rights and powers of such Manager  under
this Agreement;  provided, it assumes in writing the obligations of such Manager
under this Agreement and any arising thereafter,  and accepts and adopts all the
terms and provisions of this Agreement in writing. The withdrawing Manager shall
be liable for all of its covenants and obligations  under this Agreement for all
periods prior to its withdrawal  until such liability is assumed by a Substitute
Manager.

                                       44

<PAGE>

         VIII.4 Members Who Are Not Managers - Restriction  on Transfer.  Except
as  otherwise  set  forth in this  Section  or in this  Agreement,  no  Economic
Interest  and/or  Membership  Interest  of an  Investor  Member  or any  portion
thereof, shall be validly sold or assigned whether voluntarily, involuntarily or
by  operation  of law,  and no purported  assignee  shall be  recognized  by the
Company  for any  purpose,  unless  such  Economic  Interest  and/or  Membership
Interest shall have been  transferred in accordance  with the provisions of this
Agreement and in compliance with such additional  restrictions as may be imposed
by AHH  Management to comply with  requirements  imposed by any Federal or state
securities  regulatory authority and unless AHH Management' consent is obtained.
In no event,  however,  shall an Investor  Member transfer or sell all or any of
its  Economic  Interest  and/or  Membership  Interest to any party  which,  if a
Member, would be in violation of Section 5.9(b) hereof.  Except as otherwise set
forth in this Section or in this  Agreement,  an Investor  Member may  transfer,
sell or assign his or her entire Economic Interest and/or Membership Interest if
it has received the approval of AHH Management, not to be unreasonably withheld,
provided  however:  (a) the Company first for a period of fifteen (15) days, and
thereafter  the other  Members for a period of fifteen  (15) days shall have the
right,  but not the  obligation,  to purchase all, but not less than all, of the
Economic Interest and/or Membership  Interest proposed to be transferred,  which
right shall be  exercisable on the terms and for the purchase price set forth in
writing in a bona fide offer made for the Interests by a third-party (the "Right
of First Refusal"),  and (b) there shall have been filed with the Company a duly
executed and acknowledged  counterpart of the instrument  making such assignment
signed by both the  assignor  and assignee  and such  instrument  evidences  the
written  acceptance  by the assignee of all of the terms and  provisions  of the
Agreement,  represents  that such  assignment  was made in  accordance  with all
applicable laws and  regulations and the assignee shall have  represented to the
Company in writing that he, she or it meets the investor  suitability  standards
established by his, her or its state of residence,  or, in the absence  thereof,
the investor  suitability  standards  established by the Company. AHH Management
shall use reasonable  care to determine  that  transfers are in accordance  with
applicable laws and  regulations,  including  obtaining an opinion of counsel to
that effect. Any Member who is not a Manager who shall assign all its Membership
Interest shall cease to be a Member of the Company, except that unless and until
a Substitute Member is admitted in his or her stead, such assigning Member shall
retain the statutory  rights of an assignor of a Membership  Interest  under the
Act. Any Membership  Interests  acquired by the Company  pursuant to Section 8.4
shall,  subject to  applicable  law,  be  re-offered  by the Company to suitable
investors.

         In the event  that an  Investor  Member  who is an Entity  (x) sells or
attempts to sell fifty  percent  (50%) or more of its assets,  determined  using
such assets' then current value, (y) if the owners of such Entity as of the date
hereof cease to own in the  aggregate  fifty-one  percent  (51%) or more of such
Entity, or (z) if the Entity is a medical practice, it enters into a Transaction
(as defined in the Supplemental  Agreement between AHH Management,  EBD, AHI and
ACS), then unless such sale, transfer or Transaction was to other Members of the
Company or to  individuals  who are owners of an Investor  Member as of the date
hereof, such transfer by the Entity shall constitute a transfer of such Entity's
Membership Interest for purposes of this Section 8.4 giving rise to the Right of
First Refusal of the other Members and the Company set forth above,  except that
the  purchase  price  for the  Membership  Interest  acquired  pursuant  to this
sentence shall be determined using the Fair Market Appraisal Procedure described
in  Section  8.11  which  shall be paid  pursuant  to the  payment  method  also
described in Section 8.11.

                                       45

<PAGE>

         VIII.5  Condition  Precedent  to Transfer of Economic  Interest  and/or
Membership  Interest.  Notwithstanding  anything  herein  to  the  contrary,  no
transfer of an Economic Interest and/or Membership  Interest may be made if such
transfer (a)  constitutes  a violation  of the  registration  provisions  of the
Securities  Act of 1933,  as  amended,  or the  registration  provisions  of any
applicable  state  securities  laws; (b) if after such transfer the Company will
not be  classified  as a  limited  liability  company  for  Federal  income  tax
purposes; and (c) if when taken together with other prior transfers,  results in
a "termination" of the Company for Federal income tax purposes.  The Company may
require,  as a condition  precedent to transfer of an Economic  Interest  and/or
Membership  Interest,  delivery to the  Company,  at the  proposed  transferor's
expense,  of an opinion  of counsel  satisfactory  (both as to the  counsel  and
substance of the opinion) to AHH  Management  that the transfer will not violate
any of the foregoing restrictions.

         VIII.6  Substitute  Member -  Conditions  to Fulfill.  No assignee of a
Member's  Membership  Interest in the  Company  shall have the right to become a
Substitute  Member in place of his or her  assignor  unless,  in addition to any
other requirement herein, all of the following conditions are satisfied:

                  (a) The Company has waived its right pursuant to Section  8.4
         to purchase  the  Membership Interest held by the assignee;

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

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

                  (d) The written consent of AHH Management to such substitution
         is obtained,  which consent may be withheld in AHH Management' sole and
         absolute discretion;

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

         VIII.7 Allocations Between Transferor and Transferee. Upon the transfer
of a Member's  Economic  Interest or Membership  Interest,  all items of income,
gain,  loss,  deduction  and credit  attributable  to the  Economic  Interest or

                                       46

<PAGE>

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 AHH Management,  in its sole  discretion,  deems such laws violated,
then such  allocation  shall be made pro rata for the Fiscal Year based upon the
number  of days  during  the  applicable  Fiscal  Year of the  Company  that the
Economic  Interest  or  Membership  Interest  so  transferred  was  held  by the
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 AHH
Management  deems  necessary  to comply with  Federal or state  income tax laws.
Distributions  as called  for by this  Agreement  shall be made to the holder of
record  of  the  Economic  Interest  or  Membership  Interest  on  the  date  of
distribution.  Notwithstanding  anything  contained  in  this  Agreement  to the
contrary,  both the  Company and AHH  Management  shall be entitled to treat the
assignor  of any  assigned  Economic  Interest  or  Membership  Interest  as the
absolute  owner  thereof  in all  respects,  and shall  incur no  liability  for
distributions  of cash or other  property made in good faith to such assignor in
reliance  on the  Company  records as they exist  until such time as the written
assignment  has been received by, and recorded on the books of the Company.  For
purposes of this  Article  VIII,  the  effective  date of an  assignment  of any
Economic  Interest  or  Membership  Interest  shall be the last day of the month
specified in the written instrument of assignment.

         VIII.8  Rights,  Liabilities  of,  and  Restrictions  on  Assignee.  No
assignee of a Member's Economic  Interest or Membership  Interest shall have the
right to participate in the Company, inspect the books of account of the Company
or  exercise  any  other  right of a  Member  unless  and  until  admitted  as a
Substitute Member.  Notwithstanding  AHH Management' failure or refusal to admit
an assignee as a Substitute  Member,  such assignee shall be entitled to receive
the  share  of  income,  credit,  gain,  expense,  loss and  deduction  and cash
distributions  provided  hereunder that is assigned to it, and, upon demand, may
receive copies of all reports thereafter  delivered pursuant to the requirements
of this  Agreement;  provided,  the Company shall have first received  notice of
such assignment and all required  consents  thereto shall have been obtained and
other conditions  precedent to transfer  thereof shall have been satisfied.  The
Company's  tax returns shall be prepared to reflect the interest of assignees as
well as Members.

         VIII.9 Death of a Member. Heirs of Members shall be entitled to inherit
the  Membership  interests of a deceased  Member,  provided that upon a Member's
death such interests shall be  automatically  converted to an Economic  Interest
only in the  Company  until such heir  agrees in writing to all of the terms and
conditions  of  this  Agreement  and  such  other  reasonable  terms  as  may be
established by AHH Management as a condition to such heir becoming a Member,  in
which  event such  interest  shall  again  become a  Membership  Interest in the
Company.  Notwithstanding the previous sentence, within one hundred twenty (120)
days of the Company first  learning of the death of a Member,  the Company shall
have the option to purchase the Membership  Interest of the deceased Member, and
the estate of the deceased  Member  shall be  obligated to sell such  Membership
Interest to the Company,  in accordance  with the terms of this Section 8.9. The
Company may exercise its option by giving  written  notice thereof to the estate
of the deceased Member, or the appropriate  representative  thereof, within such
one hundred  twenty  (120) day period.  The purchase  price for such  Membership
Interest shall equal five (5) multiplied by the pretax net income (as reasonably
determined  by the  Company's  accountants)  of the  Company for the twelve (12)
month period ending as of the calendar  quarter most recently ended prior to the
death of such Member multiplied by the percentage interest of such Member in the
Company (the "Formula  Purchase  Price").  The purchase price shall be paid (the
"Payment  Method") in three (3) equal  annual  installments,  the first third of
which  shall be paid  upon  the  determination  of the  purchase  price  and the
remaining  two (2)  installments  of which shall be paid on the first and second
anniversary  of such date. The  outstanding  amounts due from the Company to the
estate of the deceased  Member shall bear  interest at Prime Rate as of the date
of such Member's death.  Accrued interest shall be paid as of the dates payments
of principal are due as provided above.

                                       47

<PAGE>

         VIII.10  Repurchase of Interests in Certain Event.

                  (a) In the discretion of AHH Management,  the Company may, but
         is not  obligated  to,  repurchase  a  Member's  Economic  Interest  or
         Membership   Interest  upon  such  Member's   breach  of  the  Member's
         obligations  contained in Article III, Sections 5.09, 8.1(b), 8.4, 8.9,
         8.11, 12.1 and 12.11 of this Agreement.

                  (b) Each Member agrees to sell its Membership  Interest to the
         Company in the event AHH  Management  elects to  exercise  the right of
         repurchase  granted under Section  8.10(a) and the purchase price shall
         the  lower  of (x) the  Capital  Contribution  of the  Member  less all
         amounts  distributed  to such Member by the  Company,  and (y) the fair
         market value of such  Member's  Membership  Interest  determined  by an
         appraiser reasonably selected by AHH Management.

         VIII.11 Option to Sell Membership Interest. Notwithstanding anything in
this  Agreement to the contrary,  at any time after the fifth (5th)  anniversary
and before the twentieth  (20th)  anniversary of the Completion  Date, AHI shall
have the option to cause AHH  Management to purchase up to an aggregate of fifty
percent (50%) of AHI's Membership Interest; provided that:

                  (a) Prior the tenth (10th) anniversary of the Completion Date,
         AHH Management shall not be required to purchase more than five percent
         (5%) of AHI's Membership  Interest during each twelve (12) month period
         which  follows the fifth (fifth)  anniversary  of the  Completion  Date
         (determined on a cumulative basis);

                  (b) Prior to the death or  retirement of EBD from the practice
         of medicine in the Phoenix, Arizona area, EBD directly, or through AHI,
         shall  continue  to own at  least  twenty-five  percent  (25%) of AHI's
         Membership Interest which AHI acquired as of the date hereof;

                  (c) AHH  Management's  obligation to purchase AHI's Membership
         Interest  from time to time  hereunder  shall be  conditioned  upon the
         simultaneous purchase (at the same purchase price, on a pro rata basis,
         as  will  be  paid  by AHH  Management  and on  such  other  terms  and
         conditions to be negotiated by AHI at the time),  on each occasion,  of
         an equal  percentage of AHI's  Membership  Interest by  physicians  who
         constitute   a  majority   of  the   physicians   of  AHI  and  of  AHI
         Cardiovascular  Surgeons,  Ltd. ("ACS") then practicing  full-time with
         AHI and ACS at their main or primary  offices  and who must agree to be
         bound by the terms and conditions of this Agreement; and

                  (d) The purchase price of such Membership  Interest then being
         sold  by AHI to AHH  Management  and  the  physicians  of AHI  and  ACS
         hereunder shall be its fair market value determined using the appraisal
         procedure ("Fair Market Appraisal  Procedure") set forth in paragraph 3
         of the  Supplemental  Agreement  entered  into  as of the  date  hereof
         between AHI, ACS and AHH  Management  (the costs of which shall be paid
         in accordance with the terms of the Supplemental Agreement procedures).
         The  purchase  price may at the election of AHH  Management  be paid in
         cash or by a twenty  percent  (20%) cash down  payment  with a deferred
         balance of such a purchase price bearing interest at eight percent (8%)
         per annum and amortized in equal monthly  installments over a five year
         period. The note evidencing any deferred balance shall be guaranteed by
         AHH  Management  and shall be  secured  by a pledge  of the  Membership
         Interest which has been sold by AHI to AHH Management  pursuant to this
         Section 8.11. The closing of any purchase by AHH  Management  hereunder
         shall occur within ninety (90) days of the date of AHI's request to AHH
         Management to purchase its Membership Interest pursuant to this Section
         8.11 or if later,  within thirty (30) days of the  determination of the
         fair market value hereunder.

                                       48

<PAGE>

                                   ARTICLE IX

                        RECORDS, ACCOUNTINGS AND REPORTS

         IX.1  Books of  Account.  At all times  during the  continuance  of the
Company,  AHH Management  shall maintain or cause to be maintained true and full
financial  records and books of account  showing all receipts and  expenditures,
assets and liabilities,  profits and losses, and all other records necessary for
recording  the  Company's  business and affairs  including  those  sufficient to
record the  allocations  and  distributions  required by the  provisions of this
Agreement.

         IX.2 Access to  Records.  The books of account  and all  documents  and
other writings of the Company,  including the Articles of  Organization  and any
amendments thereto,  shall at all times be kept and maintained at the registered
office of the  Company.  Each  Member or his or her  designated  representatives
shall, upon reasonable  notice to AHH Management,  have access to such financial
books,  records and documents during  reasonable  business hours and may inspect
and make copies of any of them.  Each Member may receive by mail,  upon  written
request to the Company and at his or her cost, a list of the names and addresses
of the Members and the  percentage of Economic  Interest held by each of them or
such other  information  which may be obtained  pursuant to  requirements of the
Act.

         IX.3     Bank Accounts and Investment of Funds.

                  (a) AHH Management  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 AHH Management may from time to time designate.

                  (b)  Any  funds  of  the  Company  which  AHH  Management  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 AHH
         Management in its sole discretion.

         IX.4    Fiscal Year.  The Fiscal Year and  accounting  period of the 
Company shall end on September 30 of each year.

                                       49

<PAGE>

         IX.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
financial condition of the Company at the end of such Fiscal Year and the result
of its operations for the Fiscal Year then ended,  which annual accounting shall
be prepared on an accrual basis in accordance with generally accepted accounting
principles  applied on a consistent  basis and shall be delivered to each of the
Members promptly after it has been prepared. It shall include a balance sheet as
of the end of such  Fiscal  Year and  statements  of income  and  expense,  each
Member's equity, and cash flow for such Fiscal Year. At AHH Management' election
the Company shall either be audited or such annual  accountings  shall be either
reviewed or  compiled  by a firm of  independent  certified  public  accountants
engaged by AHH  Management on behalf of the Company.  The report shall set forth
the  distributions  to the Members  for such  Fiscal  Year and shall  separately
identify  distributions from (i) operating revenue during such Fiscal Year, (ii)
operating  revenue from a prior  period  which had been held as reserves,  (iii)
proceeds from the sale or  refinancing  of the  Equipment,  and (iv)  unexpended
proceeds  received from the sale of Membership  Interests.  AHH Management shall
also cause to be  prepared  and  distributed  to the Members  monthly  financial
statements in a form and containing such information as reasonably determined by
AHH Management.

         IX.6 Tax Returns. AHH Management 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 investors for income tax purposes.


                                    ARTICLE X

                      MEETINGS AND VOTING RIGHTS OF MEMBERS

         X.1      Meetings.

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

                  (b) A notice of any such meeting  shall be given by mail,  not
         less than  fifteen  (15) days nor more than sixty (60) days  before the
         date of the  meeting,  to each  Member at his address as  specified  in
         Section  12.8.  Such notice  shall be in  writing,  and shall state the
         place,  date and hour of the  meeting,  and shall  indicate  that it is
         being  issued  at or by  the  direction  of  AHH  Management  or by the
         Investor  Members,  as the case may be.  The  notice  shall  state  the
         purpose  or  purposes  of the  meeting.  If a meeting is  adjourned  to
         another time or place,  and if any  announcement  of the adjournment of
         time or place is made at the meeting, it shall not be necessary to give
         notice of the adjourned meeting.

                                       50

<PAGE>

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

         X.2      Voting Rights of Members.

                  (a) Each  Member  shall  take no part in or  interfere  in any
         manner with the control, conduct or operation of the Company, and shall
         have no right or  authority  to act for or bind the  Company  except as
         provided herein. Votes, to the extent taken, of the Members may be cast
         at any  duly  called  meeting  of the  Company.  Each  Member  shall be
         entitled to the number of votes  determined by multiplying one thousand
         (1,000) by the percentage Membership Interest of such Member.

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


                                   ARTICLE XI

                                   AMENDMENTS

         XI.1  Authority to Amend by Managers.  Except as otherwise  provided by
Section 11.2, this Agreement and the Articles of Organization of the Company may
be amended by AHH Management with the approval of the Investor Manager:

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

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

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

                                       51

<PAGE>

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

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

                  (f) Subject to the terms of Section 2.5, to extend the term of
         the Company; and

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

         XI.2  Restrictions  on  Managers'  Amendments:  Amendments  by Investor
Members.  Except as provided in Section 11.1, amendments to this Agreement shall
be made only upon the consent of AHH  Management and a Majority Vote of Investor
Members.  Except as set forth in this Section 11.2,  no amendment  shall be made
pursuant to Section  11.1 which would  materially  adversely  affect the federal
income tax treatment to be afforded each Member, materially adversely affect the
interests and liabilities of each Member as provided herein,  materially  change
the purposes of the Company, extend or otherwise modify the term of the Company,
or materially  change the method of allocations and distributions as provided in
Article VI.

         XI.3  Amendments  to  Certificates.  In making any  amendments  to this
Agreement,  there shall be  prepared,  executed  and filed for  recording by AHH
Management  such  documents  amending the Articles of  Organization  as required
under the Act.

                                       52

<PAGE>

                                   ARTICLE XII

                                  MISCELLANEOUS

         XII.1 Limited Power of Attorney. Upon the execution hereof, each Member
hereby  irrevocably  constitutes and appoints AHH Management his or her true and
lawful  attorney in his or her name and on his or her behalf to take at any time
all such action which AHH  Management  is expressly  authorized  to perform,  or
which a Member is expressly required to perform, under this Agreement.

         XII.2 Waiver of  Provisions.  The waiver of compliance at any time with
respect to any of the  provisions,  terms or conditions of this Agreement  shall
not be considered a waiver of such provision, term or condition itself or of any
of the other provisions, terms or conditions hereof.

         XII.3  Interpretation  and  Construction.  This Agreement  contains the
entire agreement among the Members and any modification or amendment hereto must
be accomplished in accordance with the provisions of Article XI and Article XII.
Where the context so requires,  the masculine shall include the feminine and the
neuter,  and the singular shall include the plural. The headings and captions in
this Agreement are inserted for convenience and  identification  only and are in
no way  intended  to  define,  limit or  expand  the  scope  and  intent of this
Agreement or any  provision  thereof.  The  references to Section and Article in
this Agreement are to the Sections and Articles of this Agreement.

         XII.4  Arbitration.  The parties hereto agree that any dispute  between
them  other  than an action or  proceeding  for  injunctive  or other  equitable
relief,  shall be resolved by binding  arbitration.  Such  arbitration  shall be
conducted by the American  Arbitration  Association in accordance  with its then
existing commercial rules applicable to such disputes. Such arbitration shall be
conducted in Phoenix,  Arizona.  The decision of such arbitrators shall be final
and  binding  upon  the  parties  hereto  and may be  enforced  by a court  with
applicable authority.

         XII.5  Governing Law. This Agreement shall be governed by and construed
in accordance  with the laws of the State of Arizona,  exclusive of its conflict
of law rules.

         XII.6  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.

         XII.7 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.

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<PAGE>

         XII.8    Notices and Delivery.

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

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

         XII.9 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.

         XII.10 Statutory Provisions.  Any statutory reference in this Agreement
shall  include a reference  to any  successor to such  statute  and/or  revision
thereof.

         XII.11 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 Equipment  held by the Company from the
interests  of other  Members  until the end of the term of both this Company and
any successor company formed pursuant to the terms hereof.

         XII.12 Change In Law. If due to any new law, rule or regulation, or due
to an  interpretation  or  enforcement  of any existing law, rule or regulation,
health care counsel reasonably selected by AHH Management  determines in writing
that it is reasonably likely that the relationships  established  between any of
the  parties  to  this  Agreement  including  any  of  their  Affiliates  and/or
successors  or  assigns  will  not  comply  with any law,  rule,  regulation  or
interpretation  thereof ("Applicable Law"), then the parties hereto hereby agree
first, to negotiate in good faith to restructure the  relationships  established
under this Agreement so as to bring them into  compliance  with such  applicable
laws while at the same time  preserving  the  material  benefits  of each of the
parties hereto.  In the event that a specific  proposal for the restructuring of
this  Agreement is approved by AHH  Management  and a Majority  Vote of Investor
Members,  such  restructured  agreement shall become binding upon all Members of
the Company. Second, in the event that within forty-five (45) days following the
Company's  receipt of legal  advice in writing  from such  health  care  counsel
regarding  Applicable  Law  the  parties  hereto  are  unable  to  negotiate  an
acceptable  restructuring of their relationship,  then AHH Management shall have

                                       54

<PAGE>

the option,  within the following  forty-five  (45) day period,  to purchase the
Membership  Interests of some or all of the Investor  Members whose ownership is
involved with such  noncompliance with Applicable Law for a purchase price equal
to the  greater  of:  (a) the  Formula  Purchase  Price or (b) the amount of the
Capital  Contribution  made by each Member to the Company together with interest
thereon  computed  at the Prime Rate as of the date of this  Agreement  from the
date of such  contribution  through the date upon which AHH Management  pays all
amounts due under the terms of this Section 12.11.  Such purchase price shall be
paid in  accordance  with the  Payment  Method.  Third,  in the  event  that AHH
Management  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.

         XII.13 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   Company's  own  account  with  the  intention  of  holding  such
         Membership   Interest  for   investment,   without  any   intention  of
         participating directly or indirectly in any distribution of any portion
         of such  Membership  Interest,  including  an  Economic  Interest,  and
         without the  financial  participation  of any other Person in acquiring
         such Membership Interest in the Company.

                  (b) Each Member or  individual  executing  this  Agreement  on
         behalf of an entity  which is a Member  hereby  acknowledges  that such
         Member is aware that such Member's  Membership  Interest in the Company
         has not been  registered  (i)  under  the  Securities  Act of 1933,  as
         amended (the "Federal Act"),  (ii) under the Uniform  Securities Act of
         the State of Arizona,  as amended  (the  "Uniform  Securities  Act") in
         reliance upon an exemption  contained in the Uniform Securities Act, 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 the Uniform Securities Act and all other State securities laws. Each
         Member or individual  executing  this  Agreement on behalf of an entity
         which is a Member  further  acknowledges  that the Company will not and
         has no obligation to recognize any sale, transfer, or assignment of all
         or any part of such Member's Membership Interest, including an Economic
         Interest in the Company to any Person  unless and until the  provisions
         of this Agreement hereof have been fully satisfied.

                  (c) Each Member or  individual  executing  this  Agreement  on
         behalf of an entity which is a Member hereby acknowledges that prior to
         his execution of this  Agreement,  such Member  received a copy of this
         Agreement  and that such Member has examined  this  Agreement or caused

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<PAGE>

         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.

         XII.14  Decisions by Investor  Manager.  Each of the  Investor  Members
hereby  authorize  the Investor  Manager to make the decisions to be made by the
Investor  Manager  hereunder  and hereby  release and hold harmless the Investor
Manager  from any and all claims,  liabilities,  losses or damages  which any of
them may have  now or in the  future  resulting  from any  decision  made by the
Investor  Manager  hereunder  unless  due to the  gross  negligence  or  willful
misconduct of the Investor Manager.

         XII.15 Ownership of Shares of MedCath. Each Investor Member agrees that
either he shall not refer patients to the Hospital or that he shall not acquire,
nor  continue  to own any of the common  shares of MedCath to the extent that in
the reasonable  opinion of health care counsel of MedCath,  that such ownership,
together with  referrals of patients to the Hospital,  by such Investor  Member,
would  cause or  constitute  a violation  of any  federal or state law,  rule or
regulation.

         XII.16 Consents or Approvals. Whenever this Agreement requires that the
consent or approval of any Manager or Member be given or  obtained,  then unless
specifically  provided  otherwise herein,  the decision to give or withhold such
approval or consent shall be made reasonably and without unreasonable delay.

         XII.17 Subscriptions by Entities. In the event an Investor Member is an
Entity which was formed by  individuals  for the purpose of becoming an Investor
Member of the Company,  the agreements  relating to the ownership of such Entity
and  amendments  thereto  shall be subject  to the  reasonable  approval  of AHH
Management.

                                       56
<PAGE>


                                 EXECUTION PAGE
                                       OF
                               OPERATING AGREEMENT


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


                                                     AHH MANAGEMENT, INC.:


                                                 By:  /s/ Stephen R. Puckett
                                                     --------------------------
                                                          Stephen R. Puckett,
                                                          Vice President
























                                       57
<PAGE>


                                   SCHEDULE B
                                     TO THE
                               OPERATING AGREEMENT
                                       OF
                           ARIZONA HEART HOSPITAL, LLC
                      an Arizona limited liability company


                             REGULATORY ALLOCATIONS


         This Schedule  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 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" has 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 AHH Management.

                  (ii)     "Member  Nonrecourse  Deductions"  shall mean 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" shall mean
                           the minimum gain  attributable  to Member Nonrecourse
                           Debt as determined  pursuant to Regulations  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
                           AHH Management.

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<PAGE>

                  (v)      "Nonrecourse  Deductions" shall mean 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"  shall mean  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 gain  chargeback  requirement in Regulations  Section
1.704-2(f) and shall be interpreted consistently therewith.


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<PAGE>

         (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   1.704-2(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 Schedule 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 AHH  Management
determines  that  (i)  either  of the two  minimum  gain  chargeback  provisions
contained in this Schedule 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 Nonrecourse  Deductions or Member Nonrecourse  Deductions,
then AHH Management  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. AHH Management shall promptly
copy all Members on all  correspondence to and from the Internal Revenue Service
concerning the requested waiver.

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<PAGE>

         (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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