Document:

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                                                                  EXHIBIT 10.31

                               FIRST AMENDMENT TO
                             OPERATING AGREEMENT OF
                       HEART HOSPITAL OF SOUTH DAKOTA, LLC

         THIS FIRST AMENDMENT (the "Amendment") to the Operating Agreement (the
"Operating Agreement") of HEART HOSPITAL OF SOUTH DAKOTA, LLC, a North Carolina
limited liability company (the "Company") is made and entered into effective as
of July 31, 1999 by and among the undersigned Members of the Company. All terms
not defined herein shall have the meaning provided therefore in the Operating
Agreement.

                                    RECITALS:

         1.       The Operating Agreement has previously been executed by and
among the Members of the Company;

         2.       The Members desire to amend the Operating Agreement in
accordance with the terms of this Amendment;

         NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:

         1.       The following provision is hereby added to the Operating
Agreement as Section 5.10(b)(viii):

                  No Member or Affiliate of a Member who is a physician shall be
                  prohibited from personally providing professional medical
                  services to patients through his or her medical practice and
                  from billing and receiving professional fees payable as a
                  result of his or her professional medical services provided
                  directly to patients, it being acknowledged that this is not
                  intended to permit any investment, ownership or other
                  beneficial interest in the equipment, facilities or technical
                  components of any CV Services or Facilities.

         2.       Except as provided above, the Operating Agreement remains in
full force and effect.

         IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.<PAGE>   1
                                                                  EXHIBIT 10.32

                          LIMITED PARTNERSHIP AGREEMENT
                                       OF
                          HARLINGEN MEDICAL CENTER, LP
                      A NORTH CAROLINA LIMITED PARTNERSHIP

<PAGE>   2
                                TABLE OF CONTENTS
                                     TO THE
                          LIMITED PARTNERSHIP AGREEMENT
                                       OF
                          HARLINGEN MEDICAL CENTER, LP
                      A North Carolina Limited Partnership

<TABLE>
<S>                                                                                                              <C>
ARTICLE I  DEFINITIONS............................................................................................1

ARTICLE II  FORMATION AND AGREEMENT OF LIMITED PARTNERSHIP........................................................2
         SECTION 2.1 Partnership Formation; Effective Date........................................................2
         SECTION 2.2 Name of Partnership..........................................................................2
         SECTION 2.3 Purposes and Investment Objectives...........................................................2
         SECTION 2.4 Registered Agent and Office; Principal Place of Business.....................................3
         SECTION 2.5 Commencement and Term........................................................................3

ARTICLE III  PARTNERS AND CAPITAL CONTRIBUTIONS...................................................................4
         SECTION 3.1 Initial Capital Contributions of Partners....................................................4
         SECTION 3.2 Liability of Partners - For Capital..........................................................4
         SECTION 3.3 Maintenance of Capital Accounts; Withdrawals of Capital;
         Withdrawals from the Partnership.........................................................................4
         SECTION 3.4 Interest on Capital Contributions or Capital Accounts........................................4
         SECTION 3.5 Additional Funding...........................................................................4
         SECTION 3.6 Enforcement of Commitments...................................................................6

ARTICLE IV  NAMES AND ADDRESSES OF PARTNERS.......................................................................7

ARTICLE V  MANAGEMENT OF THE PARTNERSHIP..........................................................................7
         SECTION 5.1 General Authority and Powers of the General Partner..........................................7
         SECTION 5.2 Restrictions on Authority of the General Partner............................................10
         SECTION 5.3 Duties of the General Partner...............................................................11
         SECTION 5.4 Delegation by the General Partner...........................................................12
         SECTION 5.5 Right to Rely Upon the Authority of the General Partner.....................................12
         SECTION 5.6 Partnership Expenses........................................................................13
         SECTION 5.7 No Management by Limited Partners...........................................................15
         SECTION 5.8 Consent by Limited Partners to Exercise of Certain Rights
         and Powers by the General Partner.......................................................................15
         SECTION 5.9 Other Business of Partners..................................................................15
         SECTION 5.10 General Partner's Standard of Care.........................................................17
         SECTION 5.11 Limitation of Liability....................................................................17
         SECTION 5.12 Indemnification of the General Partner.....................................................18
         SECTION 5.13 Election and Replacement of Investor Representatives.......................................18
         SECTION 5.14 Role of and Decisions by Investor Representatives..........................................18
         SECTION 5.15 Purchase of Goods and Services from the General Partner....................................18
         SECTION 5.16 Decisions by the General Partner...........................................................19
</TABLE>

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<TABLE>
<S>                                                                                                             <C>
ARTICLE VI  DISTRIBUTIONS AND ALLOCATIONS........................................................................20
         SECTION 6.1 Distributions of Cash Flow from Operations and Cash
         from Sales or Refinancing...............................................................................20
         SECTION 6.2 Profits.....................................................................................20
         SECTION 6.3 Losses......................................................................................19
         SECTION 6.4 Code Section 704(c) Tax Allocations.........................................................20
         SECTION 6.5 Miscellaneous...............................................................................21

ARTICLE VII  DISSOLUTION, WINDING UP AND LIQUIDATING
DISTRIBUTIONS....................................................................................................22
         SECTION 7.1 No Termination by Certain Acts of Partner...................................................22
         SECTION 7.2 Dissolution.................................................................................22
         SECTION 7.3 Dissolution and Final Liquidation...........................................................22
         SECTION 7.4 Termination.................................................................................24
         SECTION 7.5 Payment in Cash.............................................................................24
         SECTION 7.6 Goodwill and Trade Name.....................................................................24
         SECTION 7.7 Termination of Noncompetition Covenants.....................................................24

ARTICLE VIII  REMOVAL OR WITHDRAWAL OF GENERAL PARTNER
AND PARTNERS AND TRANSFER OF PARTNERS' PARTNERSHIP
AND/OR ECONOMIC INTERESTS........................................................................................25
         SECTION 8.1 General Partner - Transfers.................................................................25
         SECTION 8.2 Partners' Right to Continue When Partnership has no General Partner.........................25
         SECTION 8.3 Relationship with Substitute General Partner................................................26
         SECTION 8.4 Investor Limited Partners - Restriction on Transfer.........................................26
         SECTION 8.5 Condition Precedent to Transfer of Economic Interest
         and/or Partnership Interest.............................................................................27
         SECTION 8.6 Substitute Partner - Conditions to Fulfill..................................................27
         SECTION 8.7 Allocations Between Transferor and Transferee...............................................28
         SECTION 8.8 Rights, Liabilities of, and Restrictions on Assignee........................................28
         SECTION 8.9 Death of a Partner..........................................................................29
         SECTION 8.10 Repurchase of Interests in Certain Event...................................................29
         SECTION 8.11 Permissible Transfers by Limited Partners..................................................30
         SECTION 8.12 Exchange of Partnership Interest...........................................................30

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

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

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<TABLE>
<S>                                                                                                              <C>
ARTICLE XI  AMENDMENTS...........................................................................................34
         SECTION 11.1 Authority to Amend by General Partner......................................................34
         SECTION 11.2 Restrictions on General Partner's Amendments:
         Amendments by Limited Partners..........................................................................35
         SECTION 11.3 Amendments to Certificate..................................................................35

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

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<PAGE>   5
                       LIMITED PARTNERSHIP AGREEMENT
                                       OF
                          HARLINGEN MEDICAL CENTER, LP
                      A North Carolina Limited Partnership

         THESE SECURITIES ARE BEING ISSUED PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND THE TEXAS 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 PARTNERSHIP IS FIRST OBTAINED THAT SUCH
REGISTRATION IS NOT THEN NECESSARY. ANY TRANSFER CONTRARY HERETO SHALL BE VOID.

         THIS LIMITED PARTNERSHIP AGREEMENT (the "Agreement") of Harlingen
Medical Center, LP (the "Partnership"), a North Carolina Limited Partnership is
made and entered into by and among Persons whose names addresses and taxpayer
identification number are listed on the Information Exhibit.

                                    RECITALS

         A.       The Partnership has been formed to develop, own and operate a
general acute care hospital which hospital shall be located in or near
Harlingen, Texas and shall provide medical care and surgery services which the
General Partner and the Investor Representatives may agree upon;

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

         C.       The Capital Contributions and involvement of the Limited
Partners are necessary to enable the Partnership to achieve its objectives.

                                    ARTICLE I

                                   DEFINITIONS

         Unless otherwise indicated, capitalized words and phrases in this
Limited Partnership Agreement shall have the meanings set forth in the attached
Glossary of Terms.

<PAGE>   6
                                   ARTICLE II

                 FORMATION AND AGREEMENT OF LIMITED PARTNERSHIP

         SECTION 2.1       PARTNERSHIP FORMATION; EFFECTIVE DATE.

         The Partnership was formed upon the filing of the Certificate of
Limited Partnership with the Secretary of State of North Carolina in accordance
with the provisions of the Act. Upon the effectiveness of this Agreement, the
Persons listed on the attached Information Exhibit shall be admitted to the
Partnership as Partners and the Persons who executed the Certificate shall be
withdrawn as Partners (unless they are listed on the Information Exhibit), all
without the necessity of any further act or instrument and without causing the
dissolution of the Partnership. The General Partner 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 partnership in the State of North
Carolina, and other documents to reflect the admission of additional Partners to
the Partnership. Any costs incurred by the General Partner in connection with
the foregoing shall be reimbursed promptly upon the completion of such action.
The Agreement shall be effective as of the date the Partnership was formed.

         SECTION 2.2       NAME OF PARTNERSHIP.

         The name of the Partnership is Harlingen Medical Center, LP.

         SECTION 2.3       PURPOSES AND INVESTMENT OBJECTIVES.

         The principal purposes of the Partnership are as follows:

                  (a)      To develop, own and operate the Hospital which would
         include, but not be limited to, the following:

                           (i)      Services and facilities to meet all
                  requirements of the State of Texas, Medicare, JCAHO and other
                  credentialling or licensing bodies or agencies in order to
                  have the Hospital licensed as a general acute care hospital
                  and to perform medical and surgical services and to be
                  eligible to obtain appropriate reimbursements therefore;

                           (ii)     Approximately 175,000 square feet in a
                  building to be constructed in accordance with plans and
                  specifications approved by the Partnership;

                           (iii)    Approximately 110 to 120 medical/surgical
                  beds;

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<PAGE>   7

                           (iv)     Surgical suites, at least one of which is
                  suitable for cardiovascular surgery;

                           (v)      One cardiac catheterization laboratory;

                           (vi)     All appropriate support services and
                  systems; and

                           (vii)    Appropriate Equipment and services with
                  respect to the facilities described above and as otherwise
                  reasonably necessary or appropriate.

                  The above size, number and scope of facilities of the Hospital
         and types of medical services to be provided at the hospital are only
         preliminary in nature. The General Partner in consultation with the
         Investor Representatives is authorized to finally make all
         determinations with respect thereto.

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

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

         SECTION 2.4       REGISTERED AGENT AND OFFICE; PRINCIPAL PLACE OF
                           BUSINESS.

         The registered agent and office of the Partnership shall be as
indicated in the Certificate of Limited Partnership, as amended from time to
time. The principal place of business of the Partnership shall be at such
location in Harlingen, Texas as selected by the General Partner from time to
time. The General Partner shall promptly notify the Partners of any changes in
the Partnership's registered agent, registered office, or principal place of
business.

         SECTION 2.5       COMMENCEMENT AND TERM.

         The Partnership commenced on the filing of the Certificate of Limited
Partnership in the Office of the Secretary of State of North Carolina, as
required by Section 2.1 hereof, and shall continue until December 31, 2060,
unless sooner terminated or dissolved as provided herein; provided, however,
that the termination date may be extended for up to an additional forty (40)
years in five (5) year increments upon the election of the General Partner. In
the event the General Partner does not elect to extend the term hereof, the
Investor Representatives may instead elect to extend the term hereof, subject to
the General Partner's consent which shall not be unreasonably withheld or
delayed.

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<PAGE>   8

                                   ARTICLE III

                       PARTNERS AND CAPITAL CONTRIBUTIONS

         SECTION 3.1       INITIAL CAPITAL CONTRIBUTIONS OF PARTNERS.

                  (a)      The initial Capital Contributions of the Partners
                           shall equal the greater of:

                           (i)      $8,000,000.00; or

                           (ii)     10% of Project Costs.

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

                           (i)      HHM shall own a 1% General Partnership
                                    Interest in the Partnership and shall
                                    contribute to the Partnership for its
                                    General Partnership Interest at least 1% of
                                    the aggregate amount of such initial Capital
                                    Contributions.

                           (ii)     HPHI shall own a 50% Limited Partnership
                                    Interest in the Partnership and shall
                                    contribute to the Partnership for its
                                    Limited Partnership Interest at least 50% of
                                    the aggregate amount of such initial Capital
                                    Contributions.

                           (iii)    The Investor Limited Partners shall own in
                                    the aggregate up to a 49% Limited
                                    Partnership Interest and shall contribute to
                                    the Partnership for their Limited
                                    Partnership Interest an amount equal in the
                                    aggregate to at least 49% of such initial
                                    Capital Contributions. The Limited
                                    Partnership Interests of the Limited
                                    Partners shall be owned as finally shown on
                                    the Information Exhibit attached hereto.

                  (c)      As of the date that each Limited Partner subscribes
                           for a Partnership Interest, such Limited Partner
                           shall make an initial Capital Contribution to the
                           Partnership assuming that total initial Capital
                           Contributions equal $8,000,000.00. Once the General
                           Partner finally determines the amount of Project
                           Costs, if 10% of such Project Costs exceeds
                           $8,000,000.00, then the General Partner shall provide
                           written notice to all Partners thereof and shall
                           inform all Partners of any additional Capital
                           Contribution which they are required to make to the
                           Partnership. Upon such written request, all Limited
                           Partners shall make such additional Capital
                           Contributions to the Partnership no later than 15
                           days after the date of such written notice from the
                           General Partner.

                  (d)      The Partners may be liable to the Partnership for
                           amounts distributed to them as a return of capital as
                           provided by the Act. Partners shall not be

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<PAGE>   9

                           required to contribute any additional capital to the
                           Partnership except as provided in Section 3.5.

         SECTION 3.2       LIABILITY OF PARTNERS - FOR CAPITAL.

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

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

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

         Except as otherwise provided herein, a Partner may not withdraw from
the Partnership without the written consent of the General Partner and the
Majority Vote of the Investor Limited Partners and in no case shall a Partner
have the right to have its Interest redeemed by the Partnership unless approved
by the General Partner and by the Majority Vote of the Investor Limited
Partners.

         SECTION 3.4       INTEREST ON CAPITAL CONTRIBUTIONS OR CAPITAL
                           ACCOUNTS.

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

         SECTION 3.5       ADDITIONAL FUNDING.

         If from time to time, the General Partner 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:

                  (a)      First, on terms and conditions reasonably acceptable
         to the General Partner and the Investor Representatives, the General
         Partner or one of its Affiliates shall loan the Partnership up to Eight
         Million Dollars ($8,000,000) at the Prime Rate plus one

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         percent (1%) per annum which loan shall be secured by the Partnership's
         assets. Interest shall be paid monthly in arrears and principal shall
         be repaid according to a schedule to be agreed upon by the Investor
         Representatives and the General Partner or its Affiliate. The parties
         acknowledge that the Partnership intends to seek construction, mortgage
         and equipment financing from third party lenders and lessors and that
         the loans set forth in this subsection (a) are not intended to be used
         for such purposes, provided that the General Partner, in its
         discretion, may loan such funds for such purposes on an interim basis
         while permanent financing is being completed;

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

                  (c)      Third, if loans as provided in (a) and (b) above are
         not available, the General Partner may through written notice require
         that the Partners contribute additional capital to the Partnership pro
         rata according to their respective Partnership Interests, provided
         however, a Partner's maximum obligation for such additional Capital
         Contributions shall be limited to an additional amount equal to the
         Partner's initial Capital Contribution pursuant to Section 3.1;

                  (d)      Fourth, if additional funds are thereafter needed by
         the Partnership, the General Partner shall request additional Capital
         Contributions from the Partners and each Partner may elect whether or
         not to contribute its pro rata portion of such additional capital
         requirements as optional Capital Contributions. The other Partners may
         elect to contribute optional Capital Contributions not contributed by
         any Partner hereunder. Thereafter, the General Partner shall reasonably
         adjust the percentage Membership Interest of each Partner (based on the
         aggregate of all Capital Contributions made by all of the Members in
         accordance with this Agreement) in the event any Partner elected not to
         make optional Capital Contributions pursuant to this Section 3.5(d);

                  (e)      Fifth, if additional funds are thereafter needed by
         the Partnership, the General Partner or one of its Affiliates may, but
         shall not be required to, loan up to Four Million Dollars ($4,000,000)
         to the Partnership at the Prime Rate plus one percent (1%) per annum
         which loan shall be secured by the Partnership's assets. Interest shall
         be paid monthly in arrears and principal shall be repaid according to a
         schedule to be agreed upon by the Investor Representatives and the
         General Partner or its Affiliate; and

                  (f)      Sixth, if funds are not available in accordance with
         (a) through (e) above, then the General Partner may elect to dissolve
         the Partnership.

         SECTION 3.6       ENFORCEMENT OF COMMITMENTS.

         In the event any Partners (a "Delinquent Partner") fails to make a
mandatory Capital Contribution as provided in Section 3.1 or Section 3.5 or an
optional Capital Contribution as agreed to by the Partner under Section 3.5 (the
"Commitment"), the General Partner shall give

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the Delinquent Partner a Notice of the failure to meet the Commitment. If the
Delinquent Partner fails to perform the Commitment (including any costs
associated with the failure to meet the Commitment and interest on such
obligation at the Default Interest Rate) within ten (10) business days of the
giving of Notice, the General Partner may take such action, including but not
limited to enforcing the Commitment in the court of appropriate jurisdiction in
the state in which the principal office of the Partnership is located or the
state of the Delinquent Partner's address as then reflected in the Agreement.
Each Partner expressly agrees to the jurisdiction of such courts but only for
the enforcement of Commitments. The other Partner's may elect to contribute
additional amounts equal to any amount of the Commitment not contributed by such
Delinquent Partner. The contributing Partner shall be entitled at its election
to treat the amounts contributed pursuant to this Section either as a Capital
Contribution or as a loan from the contributing Partner bearing interest at the
Default Rate secured by the Delinquent Partner's Interest in the Partnership. If
the contributing Partner elects to contribute such amount as a Capital
Contribution, the percentage Partnership Interests of the Partners shall be
adjusted proportionately. Until the contributing Partner is fully repaid for
such loan made as a result of the default by the Delinquent Partner and only if
the contributing Partner agrees to accept repayment of such amount, the
contributing Partner shall be entitled to all distributions to which the
Delinquent Partner would have been entitled had such Commitment been fulfilled
thereby. Notwithstanding the foregoing, no Commitment or other obligation to
make an additional Capital Contribution may be enforced by a creditor of the
Partnership unless the Partner expressly consents to such enforcement or to the
assignment of the obligation to such creditor.

                                   ARTICLE IV

                         NAMES AND ADDRESSES OF PARTNERS

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

                                    ARTICLE V

                          MANAGEMENT OF THE PARTNERSHIP

         SECTION 5.1       GENERAL AUTHORITY AND POWERS OF THE GENERAL PARTNER.

         Except as set forth in those provisions of this Agreement that
specifically require the vote, consent, approval or ratification of the
Partners, the General Partner shall have complete authority and exclusive
control over the management of the business and affairs of the Partnership.
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 Partnership shall be approved or made by the
General Partner with the consent of the Investor Representatives in accordance
with Section 5.16 hereof which in all cases shall not be unreasonably withheld
or delayed. No Limited Partner has the actual or

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<PAGE>   12
apparent authority to cause the Partnership to become bound in any contract,
agreement or obligation, and no Limited Partner shall take any action purporting
to be on behalf of the Partnership. The General Partner shall not cause the
Partnership to become bound to any contract, agreement or obligation, and the
General Partner shall not take any other action on behalf of the Partnership,
unless such matter has received the vote, consent, approval or ratification if,
and as, required pursuant to this Agreement with respect to such matter or
except as provided below with respect to the authority and actions of the
General Partner.

         The day-to-day management of the business and affairs of the
Partnership shall be the responsibility of the General Partner, provided,
however, decisions relating to medical and clinical practice at the Hospital
shall be made exclusively by the qualified medical personnel of the Hospital.
Subject in all cases to the foregoing, the General Partner shall have the right
and the power, if, as, and when it, from time to time, deems necessary or
appropriate on behalf of the Partnership, subject only to the terms and
conditions of this Agreement:

                  (a)      To negotiate and execute on behalf of the Partnership
         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;

                  (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 adopted for the Hospital;

                  (f)      To expend all or portions of the Partnership's
         capital and income in furtherance of or relating to the Partnership'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
         Partnership's funds as are temporarily not required for the development
         or operation of the Partnership and the payment of Partnership
         obligations; provided, that the General Partner shall establish cash
         management guidelines;

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<PAGE>   13

                  (g)      To employ or retain on such terms and for such
         compensation as the General Partner may reasonably determine, such
         persons, firms, or corporations as the General Partner 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 the
         General Partner, provided that the selection of the senior
         administrator of the Hospital shall be a Material Decision;

                  (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
         Partnership as lessee with respect to the Hospital or rights held by
         the Partnership;

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

                  (k)      To execute in furtherance of any or all of the
         purposes of the Partnership, 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 Partnership;

                  (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 Partnership, and to
         institute, prosecute, and defend any actions or proceedings relating to
         the Partnership, its business, and properties;

                  (n)      To acquire and enter into any contract of insurance
         which the General Partner deems necessary or appropriate for the
         protection of the Partnership and the General Partner, for the
         conservation of the Partnership or its assets, or for any purpose
         beneficial to the Partnership; however, neither the General Partner 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
         Partners, including annual reports;

                                       9
<PAGE>   14
                  (p)      To open accounts and deposit and maintain funds in
         the name of the Partnership in banks or savings and loan associations;
         provided, however, that the Partnership's funds shall not be commingled
         with the funds of any other Person;

                  (q) To cause the Partnership 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;

                  (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 general partner 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 Representatives and other agreed upon qualified medical
         personnel;

                  (w)      To establish minimum insurance requirements for all
         physicians practicing at the Hospital;

                  (x)      To admit as Partners additional investors who have
         been proposed for Partner status by the General Partner and approved by
         the Investor Representatives, which approval shall be given or withheld
         in the sole and absolute discretion of the Investor Representatives;

                  (y)      To sell assets of the Partnership, subject to the
         restrictions contained in this Agreement; and

                  (z)      To prepare Medical Staff Bylaws (the approval of
         which shall constitute a Material Decision) which shall provide that
         the medical staff of the Hospital will be open to qualified physicians
         who meet the Hospital's credentialing criteria, it being acknowledged
         that exclusive contracts may be entered into upon the approval of the
         General Partner and the Investor Representatives.

         SECTION 5.2       RESTRICTIONS ON AUTHORITY OF THE GENERAL PARTNER.

         The General Partner shall not do any of the following:

                                       10
<PAGE>   15
                  (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 Partnership;

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

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

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

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

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

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

                  (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; or

                  (j)      Sell all or substantially all of the assets of the
         Partnership or merge the Partnership with or into any other Entity
         without the approval of a Majority Vote of the Investor Limited
         Partners.

         SECTION 5.3       DUTIES OF THE GENERAL PARTNER.

         The General Partner shall do the following:

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

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

                                       11
<PAGE>   16
                  (c)      File and publish all certificates, statements, or
         other instruments required by law for the formation and operation of
         the Partnership as a limited partnership in all appropriate
         jurisdictions;

                  (d)      Cause the Partnership to obtain and keep in force
         during the term of the Partnership fire and extended coverage and
         public liability and professional liability insurance with such issuers
         and in such amounts as the General Partner 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 Partnership's;

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

                  (f)      Deliver to the Secretary of State of North Carolina
         for filing an annual statement in accordance with the Act and make any
         similar filings required under Texas law.

         SECTION 5.4       DELEGATION BY THE GENERAL PARTNER.

         Subject to restrictions otherwise provided herein, the General Partner
may at any time employ any other Person, including Persons and Entities employed
by, affiliated with, or related to the General Partner to perform services for
the Partnership 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 General Partner of its responsibilities and
obligations under this Agreement or under the laws of the State of North
Carolina nor will it make any such Person a Partner or General Partner of the
Partnership.

         SECTION 5.5       RIGHT TO RELY UPON THE AUTHORITY OF THE GENERAL
                           PARTNER.

         Persons dealing with the Partnership may rely upon the representation
of the General Partner that such General Partner is a general partner of the
Partnership and that such General Partner has the authority to make any
commitment or undertaking on behalf of the Partnership. No Person dealing with
the General Partner shall be required to determine its authority to make any
such commitment or undertaking. In addition, no purchaser from the Partnership
shall be required to determine the sole and exclusive authority of the General
Partner to sign and deliver on behalf of the Partnership 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 Partnership affecting the
same.

                                       12
<PAGE>   17

         SECTION 5.6       PARTNERSHIP EXPENSES.

                  (a)      In general, the Partnership's expenses shall be
         billed directly to and paid by the Partnership. The Partnership shall
         reimburse the General Partner or its Affiliates for: (i) all
         Organization Expenses incurred by the General Partner or its Affiliates
         in connection with the formation of the Partnership; (ii) following
         consultation with the Investor Representatives, the costs to the
         General Partner or its Affiliates of goods, services, and materials
         used for and by the Partnership; and (iii) all reasonable travel and
         other out-of-pocket expenses incurred by the General Partner in the
         development and management of the Partnership and its business provided
         that after the opening of the Hospital (i.e. the date upon which it
         receives preliminary Medicare and Medicaid certification) employees of
         the General Partner and MedCath Incorporated who are not employed
         full-time for the benefit of the Hospital shall not be reimbursed for
         their travel and other similar expenses. The parties specifically
         recognize that the General Partner and its Affiliates have incurred
         legal fees, filing fees, and other out-of-pocket costs for the benefit
         of the Partnership, including costs connected with the preparation of
         securities law and health care law compliance documentation and
         filings, real estate acquisition matters and formation and registration
         of the Partnership, and agree that the General Partner shall be
         reimbursed for these amounts. The reimbursement for expenses provided
         for in this Section 5.6(a) shall be made to the General Partner or
         their Affiliates regardless of whether any distributions are made to
         the Partners under Article VI and Article VII.

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

                           (i)      All development and operational expenses of
                  the Partnership, 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
                  Partnership; 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); and the maintenance of the
                  Hospital and its Equipment, which may be performed by the
                  General Partner or one of its Affiliates as long as the
                  charges to the Partnership 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 shall be paid to the
                  General Partner, which for periods prior to the opening of the
                  Hospital for business shall equal [***] ($[***]), which amount
                  shall be paid in full on the date the Hospital is opened, and
                  for periods after the opening of the Hospital for business
                  shall equal one and one-half percent (1 1/2%) of the
                  Hospital's Net Revenues (defined below) for a month and shall
                  be payable monthly on or before the tenth (10th) day following
                  the end of each month. For purposes of this Agreement, "Net
                  Revenues" shall mean all revenues of the Hospital net of

                                       13

[***] These portions of this exhibit have been omitted and filed separately
      with the Commission pursuant to a request for confidential treatment.
<PAGE>   18
                  contract allowances and bad debt adjustments, all determined
                  on a monthly basis in accordance with GAAP on an accrual
                  basis;

                           (iii)    A medical director's fee in an amount
                  approved by the General Partner and the Investor
                  Representatives to be paid to the medical director of the
                  Hospital which fee shall first accrue commencing as of the
                  date on which the Hospital is first ready to receive patients
                  and shall be payable monthly on the last day of each month
                  based on actual time worked at an agreed upon rate and for an
                  agreed upon number of hours each month; and

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

                           (v)      A guarantee fee shall be payable to the
                  General Partner in the event that the General Partner consents
                  to, in its sole discretion to (but in no even shall the
                  General Partner be required to) guarantee any financing,
                  lease, or other obligation or liability of the Partnership,
                  equal to two (2%) percent of (i) the amount of debt so
                  guaranteed from time to time by the General Partner multiplied
                  by (ii) the aggregate percentage Partnership Interest held by
                  the Investor Limited Partners. Said fee shall be payable on a
                  monthly basis each year during which there is any such
                  guarantee of the General Partner outstanding and shall be due
                  on the first day of each month only as long as such guarantee
                  by the General Partner remains in effect. As the amount of
                  debt guaranteed by the General Partner declines, the amount of
                  such guarantee fee shall accordingly decline as well.

                                       14
<PAGE>   19
         SECTION 5.7       NO MANAGEMENT BY LIMITED PARTNERS.

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

         SECTION 5.8       CONSENT BY LIMITED PARTNERS TO EXERCISE OF CERTAIN
                           RIGHTS AND POWERS BY THE GENERAL PARTNER.

          By its execution hereof, each Limited Partner expressly consents to
the exercise by the General Partner of the rights, powers, and authority
conferred on the General Partner by this Agreement.

         SECTION 5.9       OTHER BUSINESS OF PARTNERS.

                  (a)      Subject to (b) below, any Partner, including the
         General Partner, 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 Partnership nor any Partner 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 Partner owns a Partnership Interest in
         the Partnership, and for a period of five (5) years after a Partner
         ceases for any reason to own a Partnership Interest in the Partnership,
         other than with respect to investments made, equipment owned or
         services provided on or prior to March 1, 1999, all of which the
         Partners will disclose in writing to the General Partner upon request
         (a Partner may replace any such existing equipment after March 1, 1999
         as long as it does not constitute a new service or facility which is
         otherwise restricted hereunder), neither a Partner nor any of its
         respective Affiliates, shall hold, directly or indirectly, an
         investment, ownership or other beneficial interest in (i) any hospital
         (ii) other Person (including a sole proprietorship) which provides any
         of the services or facilities to be

                                       15
<PAGE>   20

         provided by the Hospital or (iii) any outpatient surgery center, in any
         case within Cameron County, Texas (the "Territory"), provided that (i)
         no Partner who is a physician shall be prohibited from maintaining his
         or her staff privileges at any other hospital and (ii) nothing herein
         shall prohibit a Partner from owning up to three percent (3%) of the
         outstanding capital stock of a company whose stock is publicly traded
         and listed on a nationally recognized securities exchange or from
         investing in a publicly traded mutual fund. In addition, the General
         Partner or its Affiliates may separately operate a mobile
         catheterization laboratory within the Territory, but only if either the
         General Partner 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 Representatives
         have elected not to have such service provided by the Partnership.

                  Notwithstanding anything herein to the contrary, the Investor
         Limited Partners who own the Heart Clinic, P.A. and Affiliates of HHM
         may own and operate a cardiac catheterization lab in Harlingen until
         the date on which the Hospital opens, as of which date the Investor
         Limited Partners, the Heart Clinic and Affiliates of HHM shall have no
         further rights to own and operate such cath lab.

                  (c)      In order to ensure that the Hospital has available to
         it at all times leading and qualified physicians, as of the date hereof
         the Company is entering into the Hospital Professional Services
         Agreements (the "Professional Services Agreements") with the Investor
         Limited Partners or their medical practices (the "Practices"), which
         Agreements includes in paragraph 7 thereof certain covenants by the
         Practices and its physicians which are designed to ensure that such
         physicians will be available to the Hospital from time to time in order
         to enable it to meet its objectives of being a quality provider of
         medical services on a cost efficient basis. The parties acknowledge and
         agree that the Practices' execution of the Professional Services
         Agreements is further consideration for the execution by all of the
         Partners of this Agreement.

                  (d)      The Partners, including the General Partner, have
         reviewed the terms, conditions and geographical restrictions included
         in Sections 5.9(b) and (c) and in light of the interests of the parties
         hereto, agree that such restrictions are fair and reasonable.

                  (e)      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.

                                       16
<PAGE>   21

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

                  (g)      If a Limited Partner is a legal entity and not an
         individual, such Limited Partner shall cause each of its existing and
         future Affiliates to agree in writing to be personally bound by the
         terms of this Section 5.9.

         SECTION 5.10      GENERAL PARTNER'S STANDARD OF CARE.

         The General Partner shall act in a manner it believes in good faith to
be in the best interest of the Partnership and with such care as an ordinarily
prudent Person in a like position would use under similar circumstances. In
discharging its duties, the General Partner 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 Partners, or
agents, or by any other Person as to matters the General Partner 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 Partnership,
including information, opinions, reports or statements as to the value and
amount of the assets, liabilities, income or losses of the Partnership or any
other facts pertinent to the existence and amount of assets from which
distributions to Partners might properly be paid.

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

         SECTION 5.11      LIMITATION OF LIABILITY.

         The General Partner shall not be liable to the Partnership, or its
Partners, for any action taken in managing the business or affairs of the
Partnership if it performs the duty of its office in compliance with the
standard contained in Section 5.10. The General Partner has not guaranteed nor
shall have any obligation with respect to the return of a Partner's Capital
Contribution or share of income from the operation of the Partnership.
Furthermore, the General Partner, its Affiliates or its employees (collectively,
its "Agents") shall not be liable to the Partnership or to any Partner for any
loss or damage sustained by the Partnership or any Partner except loss or damage
resulting from gross negligence or intentional misconduct or knowing violation
of law or a transaction for which such General Partner or Agent received a
personal benefit in violation or breach of the provisions of this Agreement.

                                       17
<PAGE>   22
         SECTION 5.12      INDEMNIFICATION OF THE GENERAL PARTNER.

                  (a)      The General Partner and its Agents (as defined in
         Section 5.11) shall be indemnified by the Partnership 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 Partner or its Agents in its capacity
         as the General Partner of the Partnership (or, in the case of an Agent,
         within the scope of the General Partner'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 General
         Partner or an Agent and provided that the General Partner or an Agent,
         in good faith, reasonably determined that such course of conduct was in
         the best interest of the Partnership; provided, however, that such
         indemnification and agreement to hold harmless shall be recoverable
         only out of Partnership assets. Subject to applicable law, the
         Partnership shall advance expenses incurred with respect to matters for
         which the General Partner may be indemnified hereunder.

                  (b)      If at any time, the Partnership 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 Partners.

         SECTION 5.13      ELECTION AND REPLACEMENT OF INVESTOR REPRESENTATIVES.

         In accordance with the procedures outlined in Section 10.2 herein, the
Investor Limited Partners shall elect five (5) Investor Representatives by
Majority Vote of the Investor Limited Partners to serve for one year terms or
until a successor is duly elected. At any time, in accordance with Section 10.2,
the Investor Limited Partners may replace individual Investor Representatives
and elect a new Investor Representative by Majority Vote of Investor Limited
Partners to replace such Investor Representative.

         SECTION 5.14      ROLE OF AND DECISIONS BY INVESTOR REPRESENTATIVES.

         Notwithstanding anything herein to the contrary, the Investor
Representatives shall take no action nor make any decision on behalf of the
Partnership except to the extent they are expressly authorized to do so under
this Agreement in their capacity as Investor Representatives. Except as
otherwise expressly provided herein, all references to decisions to be made or
objections given by the Investor Representatives shall be deemed to be made upon
the affirmative vote, consent, or approval or objection of a majority of the
Investor Representatives.

         SECTION 5.15      PURCHASE OF GOODS AND SERVICES FROM THE GENERAL
PARTNER.

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

                                       18
<PAGE>   23
         SECTION 5.16      DECISIONS BY THE GENERAL PARTNER.

         Except as provided in this Agreement, decisions and actions to be taken
by the Partnership shall be deemed to have been made only upon the affirmative
approval or consent of the General Partner and the Investor Representatives. In
the event a decision, approval or consent is requested of the Investor
Representatives by the General Partner, it shall be deemed to have been
affirmatively made if the Investor Representatives fail to respond to any such
written request therefor within five (5) days of notice thereof by the General
Partner. Notwithstanding anything in this Agreement to the contrary, all
decisions and actions to be made by the General Partner with respect to any
loan, lease or other similar financing of the development, construction or
operation of the Hospital or the Partnership's affairs, including without
limitation the decisions with respect to incurring any indebtedness or the
refinancing thereof, shall be made by the General Partner and shall be subject
to the consent of the Investor Representatives, which consent shall not be
unreasonably withheld; provided, the application of the Partnership's funds
toward the repayment of all or a portion of any financing of the Partnership in
excess of amounts then required to be paid (i.e., voluntary prepayments) shall
be made only with the consent of the General Partner and the Investor
Representatives. The Investor Representatives shall be deemed to have
specifically approved all expenditures proposed by the General Partner that are
substantially consistent with the Development Budget Exhibit or an approved
operating budget when funded from additional Capital Contributions made to the
Partnership by the Partners pursuant to Section 3.5 above.

         The development and annual operating budgets to be proposed by the
General Partner shall be approved by the General Partner and the Investor
Representatives as provided above subject to the following:

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

                  (b)      The Investor Representatives 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
         Partnership's lenders and other parties providing financing to the
         Partnership; and

                  (c)      In the event that the General Partner and the
         Investor Representatives are unable to approve an annual budget, the
         General Partner shall be authorized to operate the Partnership 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.

                                       19
<PAGE>   24
                                   ARTICLE VI

                          DISTRIBUTIONS AND ALLOCATIONS

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

         Prior to the dissolution of the Partnership, Cash Flow from Operations
and Cash from Sales or Refinancing, if any, remaining after repayment of any
amounts then due on loans made by the Partners to the Partnership shall be
distributed quarterly by the General Partner as Cash Distributions according to
the relative percentage Partnership Interests of the Partners and Economic
Interest Owners. Notwithstanding anything herein to the contrary, no
distributions shall be made to Partners if prohibited by the Act.

         SECTION 6.2       PROFITS.

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

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

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

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

         SECTION 6.3       LOSSES.

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

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

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

         SECTION 6.4       CODE SECTION 704(C) TAX ALLOCATIONS.

         Income, gain, loss, and deduction with respect to any property
contributed to the capital of the Partnership shall, solely for tax purposes, be
allocated among the Partners so as to take account of any variation between the
adjusted basis of such property to the Partnership for

                                       20
<PAGE>   25
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 Partnership asset is adjusted
after its contribution to the Partnership, subsequent allocations of income,
gain, loss and deduction with respect to such asset shall take into account any
variation between the adjusted basis of such asset for federal income tax
purposes and its Agreed Value pursuant to any method allowable under Code
Section 704(c) and the Regulations promulgated thereunder.

         Any elections or other decisions relating to allocations under this
Section shall be determined by the General Partner. Absent a determination by
the General Partner, 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 Partner's Capital Account or share of Profits, Losses, other
items, or distributions pursuant to any provision of this Agreement.

         SECTION 6.5       MISCELLANEOUS.

         (a)      Allocations Attributable to Particular Periods. For purposes
of determining Profits, Losses or any other items allocable to any period, such
items shall be determined on a daily, monthly, or other basis, as determined by
the General Partner 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 Partnership income, gain, loss, deduction, credit and any other
allocations not otherwise provided for shall be divided among the Partners in
the same proportion as they share Profits or Losses, as the case may be, for the
year.

         (c)      Tax Consequences; Consistent Reporting. The Partners 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 Partnership in reporting their
shares of Partnership income and loss for income tax purposes. Each Partner
agrees to report its distributive share of Partnership 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 Partnership. Any Partner failing to
report consistently, and who notifies the Internal Revenue Service of the
inconsistency as required by law, shall reimburse the Partnership for any legal
and accounting fees incurred by the Partnership in connection with any
examination of the Partnership by federal or state taxing authorities with
respect to the year for which the Partner 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.

                                       21
<PAGE>   26
                                   ARTICLE VII

              DISSOLUTION, WINDING UP AND LIQUIDATING DISTRIBUTIONS

         SECTION 7.1       NO TERMINATION BY CERTAIN ACTS OF PARTNER.

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

         SECTION 7.2       DISSOLUTION.

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

                  (a)      The election by the General Partner to dissolve the
         Partnership in accordance with the terms of Section 3.5(f) hereof;

                  (b)      If there is no longer a General Partner of the
         Partnership, unless the Partnership is continued by the consent of not
         less than a majority in interest of the remaining Partners within
         ninety (90) days after notice of such event, effective as of the date
         of such event. If there is no remaining General Partner, the remaining
         Partners owning at least 51% of the Partnership Interests which are
         owned by the remaining Partners shall, if they desire to continue the
         Partnership, elect a Substitute General Partner who shall assume all of
         the rights and duties of the General Partner under this Agreement
         (which Substitute General Partner accepts such election);

                  (c)      Upon the written agreement of the General Partner and
         the Investor Representatives;

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

                  (e)      The adjudication of bankruptcy of the Partnership;

                  (f)      In accordance with Section 12.11 hereof; and

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

         SECTION 7.3       DISSOLUTION AND FINAL LIQUIDATION.

                  (a)      Upon any dissolution of the Partnership, the
         Partnership 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

                                       22
<PAGE>   27
         liquidated and its affairs shall be wound up as soon as practical
         thereafter by the General Partner, or if for any reason there is no
         General Partner, by another Person designated by HPHI and a Majority
         Vote of the Investor Limited Partners. In winding up the Partnership
         and liquidating assets, the General Partner, or other Person so
         designated for such purpose, may arrange, either directly or through
         others, for the collection and disbursement to the Partners of any
         future receipts from the Hospital or other sums to which the
         Partnership may be entitled, and shall sell the Partnership's interest
         in the Hospital and the Equipment to any Person, including the General
         Partner 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 HPHI and a
         Majority Vote of the Investor Limited Partners.

                  (b)      Upon any such dissolution and liquidation of the
         Partnership, the net assets, if any, of the Partnership available for
         distribution, including any cash proceeds from the liquidation of
         Partnership 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 Partnership (other than the Partners or their
                  Affiliates) and the expenses of liquidation;

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

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

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

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

                  (e)      The Capital Accounts of the Partners, as adjusted,
         shall be utilized by the Partnership for the purpose of making
         distributions to those Partners with positive balances in their
         respective Capital Accounts pursuant to Section 7.3(b). In making such
         distributions, the General Partner or the Person winding up the affairs
         of the

                                       23
<PAGE>   28
         Partnership shall distribute all funds available for distribution to
         the Partners and Economic Interest Owners (after establishing any
         reserves that the General Partner deem or the Person winding up the
         affairs of the Partnership deems reasonably necessary pursuant to
         Section 7.3(b)) prior to the later of (a) the end of the taxable year
         in which the event occurs which caused the termination and dissolution
         of the Partnership, or (b) ninety (90) days after the occurrence of
         such event. The General Partner in its sole discretion, or the Person
         winding up the affairs of the Partnership, in its discretion, may elect
         to have the Partnership retain any installment obligations owed to the
         Partnership 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 General Partner or the Person winding up
         the affairs of the Partnership 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.

         SECTION 7.4       TERMINATION.

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

         SECTION 7.5       PAYMENT IN CASH.

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

         SECTION 7.6       GOODWILL AND TRADE NAME.

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

         SECTION 7.7       TERMINATION OF NONCOMPETITION COVENANTS.

         The Partners shall have no continuing liability, or obligation under
Section 5.9(b) after the second (2nd) anniversary of the dissolution of the
Partnership; provided that if there is a material breach of this Agreement by
the General Partner which is not cured within thirty (30) days thereafter and
which results in a dissolution and termination of the Partnership, then the
Investor Limited Partners shall have no further liability under Section 5.9(b)
after the dissolution and termination of the Partnership.

                                       24
<PAGE>   29

                                  ARTICLE VIII

            REMOVAL OR WITHDRAWAL OF GENERAL PARTNER AND PARTNERS AND
           TRANSFER OF PARTNERS' PARTNERSHIP AND/OR ECONOMIC INTERESTS

         SECTION 8.1       GENERAL PARTNER - TRANSFERS.

                  (a)      The General Partner and HPHI may sell or pledge their
         Partnership Interests or transfer or assign any of HHM's rights and
         duties as a General Partner to any Person who assumes in writing HHM's
         obligations and liabilities arising under this Agreement, except that
         in no event shall they sell their Partnership Interests or assign HHM's
         rights and duties as a General Partner to any Person who owns a
         hospital located within three (3) miles of the Hospital without the
         approval by a Majority Vote of Investor Limited Partners.

                  (b)      No Investor Limited Partner may assign its rights to
         be an Investor Representative herein. Upon the withdrawal or
         resignation of an Investor Representative, a substitute therefore who
         must be an Investor Limited Partner, or an owner of a Limited Partner
         that is an Entity, may be elected by a Majority Vote of the Investor
         Limited Partners.

                  (c)      Any resignation or withdrawal by the General Partner
         as a general partner shall not constitute the General Partner's
         withdrawal as a Partner.

         SECTION 8.2       PARTNERS' RIGHT TO CONTINUE WHEN PARTNERSHIP HAS NO
GENERAL PARTNER.

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

                                       25
<PAGE>   30
         SECTION 8.3       RELATIONSHIP WITH SUBSTITUTE GENERAL PARTNER.

         The relationship of the Partners to any Person that has either acquired
the Partnership Interest of the General Partner or has been elected as a
successor General Partner as provided herein shall be governed by this
Agreement. If such Person was not previously a General Partner, then such
Person, as Substitute General Partner, shall have all the rights and powers of
its predecessor General Partner under this Agreement; provided, such Person
assumes in writing the obligations of such General Partner under this Agreement
and any arising thereafter, and accepts and adopts all the terms and provisions
of this Agreement in writing. The withdrawing General Partner 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 General
Partner.

         SECTION 8.4       INVESTOR LIMITED PARTNERS - RESTRICTION ON TRANSFER.

         Except as otherwise set forth in this Section or in this Agreement, no
Economic Interest and/or Partnership Interest of an Investor Limited Partner 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 Partnership for any purpose, unless such Economic Interest
and/or Partnership 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 the General Partner to comply with requirements imposed by
any federal or state securities regulatory authority and unless the General
Partner's consent is obtained. In no event, however, shall an Investor Limited
Partner transfer or sell all or any of its Economic Interest and/or Partnership
Interest to (x) any Person who, if a Partner, would be in violation of Section
5.9(b) hereof or (y) any Person who owns a hospital located within three (3)
miles of the Hospital without the consent of the General Partner and the
Majority Vote of Investor Limited Partners. Except as otherwise set forth in
this Section or in this Agreement, an Investor Limited Partner may transfer,
sell or assign its entire Economic Interest and/or Partnership Interest if it
has received the approval of the General Partner, not to be unreasonably
withheld, provided however: (a) other Investor Limited Partners first for a
period of fifteen (15) days, thereafter the General Partner for a period of
fifteen (15) days and thereafter the Partnership 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 Partnership 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 Partnership 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 Partnership in writing that it meets the investor
suitability standards established by the appropriate state of residence, or, in
the absence thereof, the investor suitability standards established by the
Partnership. The General Partner shall use reasonable care to determine that
transfers are in accordance with applicable laws and regulations,

                                       26
<PAGE>   31
including obtaining an opinion of counsel to that effect. Any Investor Limited
Partner that assigns all its Partnership Interest shall cease to be a Partner of
the Partnership. Any Partnership Interests acquired by the Partnership pursuant
to Section 8.4 shall, subject to applicable law, be re-offered by the
Partnership to suitable investors.

         Any dissolution, liquidation, merger (unless Investor Limited Partners
or their Affiliates existing prior to such merger own at least fifty-one percent
(51%) of the surviving entity after the merger or unless both parties to such
merger are majority owned by parties who are Investor Limited Partners or their
Affiliates prior to such merger) or sale of an Investor Limited Partner which is
an Entity (a sale shall include a transfer of fifty percent (50%) or more of its
ownership interests or of substantially all of its assets or any other
transaction or series of related transactions intended to accomplish, in
substance, a sale of such Entity) shall constitute an offer by such Investor
Limited Partner to sell such Investor Limited Partner's Interest pursuant to
Section 8.4 for the Formula Purchase Price (as defined in Section 8.9 below).

         SECTION 8.5       CONDITION PRECEDENT TO TRANSFER OF ECONOMIC INTEREST
AND/OR PARTNERSHIP INTEREST.

         Notwithstanding anything herein to the contrary, no transfer of an
Economic Interest and/or Partnership 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 Partnership will not be
classified as a partnership for federal income tax purposes; and (c) if when
taken together with other prior transfers, results in a "termination" of the
Partnership for federal income tax purposes. The Partnership may require, as a
condition precedent to transfer of an Economic Interest and/or Partnership
Interest, delivery to the Partnership, at the proposed transferor's expense, of
an opinion of counsel satisfactory (both as to the counsel and substance of the
opinion) to the General Partner that the transfer will not violate any of the
foregoing restrictions.

         SECTION 8.6       SUBSTITUTE PARTNER - CONDITIONS TO FULFILL.

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

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

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

                  (c)      The assignor and assignee execute and acknowledge
         such other instruments as the General Partner may deem reasonably
         necessary or desirable to

                                       27
<PAGE>   32

         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 the General Partner to such
         substitution is obtained, which consent may be withheld in the General
         Partner's sole and absolute discretion; and

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

         SECTION 8.7       ALLOCATIONS BETWEEN TRANSFEROR AND TRANSFEREE.

         Upon the transfer of a Partner's Economic Interest or Partnership
Interest, all items of income, gain, loss, deduction and credit attributable to
the Economic Interest or Partnership Interest so transferred shall be allocated
between the transferor and the transferee in such manner as the transferor and
transferee agree at the time of transfer; provided such allocation does not
violate federal or state income tax law. If the General Partner, 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 Partnership that the Economic Interest or Partnership
Interest so transferred was held by the transferor and transferee, without
regard to the results of Partnership activities during the period in which each
was the holder, or in such other manner as the General Partner 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
Partnership Interest on the date of distribution. Notwithstanding anything
contained in this Agreement to the contrary, both the Partnership and the
General Partner shall be entitled to treat the assignor of any assigned Economic
Interest or Partnership Interest as the absolute owner thereof in all respects,
and shall incur no liability for distributions made in good faith to such
assignor in reliance on the Partnership records as they exist until such time as
the written assignment has been received by, and recorded on the books of the
Partnership. For purposes of this Article VIII, the effective date of an
assignment of any Economic Interest or Partnership Interest shall be the last
day of the month specified in the written instrument of assignment.

         SECTION 8.8       RIGHTS, LIABILITIES OF, AND RESTRICTIONS ON ASSIGNEE.

         No assignee of a Partner's Economic Interest or Partnership Interest
shall have the right to participate in the Partnership, inspect the books of
account of the Partnership or exercise any other right of a Partner unless and
until admitted as a Substitute Partner. Notwithstanding the General Partner's
failure or refusal to admit an assignee as a Substitute Partner, 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 Partnership shall
have first received notice of such assignment and all required consents thereto
shall have been obtained and other conditions precedent to transfer

                                       28
<PAGE>   33
thereof shall have been satisfied. The Partnership's tax returns shall be
prepared to reflect the interests of assignees as well as Partners.

         SECTION 8.9       DEATH OF A PARTNER.

         Heirs of Partners shall be entitled to inherit the Partnership
Interests of a deceased Investor Limited Partner or of an Investor Limited
Partner owned by an individual who has deceased, provided that upon such death
such interests shall be automatically converted to an Economic Interest only in
the Partnership until such heir agrees in writing to all of the terms and
conditions of this Agreement and such other reasonable terms as may be
established by the General Partner as a condition to such heir becoming an
Investor Limited Partner, in which event such interest shall again become a
Partnership Interest in the Partnership. Notwithstanding the previous sentence
at any time within nine (9) months of the death of an Investor Limited Partner
(or of an individual that owns such Investor Limited Partner) the other Investor
Limited Partners for a period of fifteen (15) days following written notice to
them, thereafter the General Partner for a period of fifteen (15) days and
thereafter the Partnership for a period of fifteen (15) days shall have the
option to purchase the Partnership Interest of the deceased Investor Limited
Partner or of an Investor Limited Partner owned by an individual who has
deceased, and the estate of the deceased individual shall be obligated to sell
such Partnership Interest to the other Partners or the Partnership, in
accordance with the terms of this Section 8.9. The other Partners or the
Partnership must exercise their option by giving written notice thereof to the
estate of the deceased Partner, or the appropriate representative thereof,
within the time periods set forth above and in all events within such nine (9)
month period. The purchase price for such Partnership Interest shall equal the
greater of (i) five (5) multiplied by the net income (as reasonably determined
by the Partnership's accountants) of the Partnership for the twelve (12) month
period ending as of the calendar quarter most recently ended prior to the death
of such Partner multiplied by the percentage Partnership Interest of such
Partner in the Partnership (the "Formula Purchase Price"); (ii) the Capital
Contributions of the applicable Investor Limited Partner less all amounts
distributed to the applicable Investor Limited Partner by the Partnership and
(iii) the fair market value of such applicable Investor Limited Partner's
Partnership Interest determined by an independent appraiser reasonably selected
by the General Partner provided that the expenses thereof shall be deducted from
the proceeds of such sale. 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 Partnership to the estate of the
deceased Partner shall bear interest at Prime Rate as of the date of such
Partner's death. Accrued interest shall be paid as of the dates payments of
principal are due as provided above.

         SECTION 8.10      REPURCHASE OF INTERESTS IN CERTAIN EVENT.

                  (a)      In the discretion of the General Partner, the
         Partnership may, but is not obligated to, repurchase a Partner's
         Economic Interest or Partnership Interest upon such Partner's breach of
         the Partner's obligations contained in Article III, Sections 5.9,
         8.1(b), 8.4, 8.9, 12.1 and 12.11 of this Agreement.

                                       29
<PAGE>   34

                  (b)      Each Partner agrees to sell its Partnership Interest
         to the Partnership in the event the General Partner elects to exercise
         the right of repurchase granted under Section 8.10(a) and the purchase
         price shall the lower of (x) the Capital Contributions of the Partner
         less all amounts distributed to such Partner by the Partnership and (y)
         the Formula Purchase Price.

         SECTION 8.11      PERMISSIBLE TRANSFERS BY LIMITED PARTNERS.

         Notwithstanding anything in this Agreement to the contrary, a Limited
Partner may elect within thirty (30) days of acquiring a Partnership Interest in
the Partnership to assign its Partnership Interest to a corporation, limited
liability company or limited partnership formed and maintained for the sole
purpose of holding such Partnership Interest if such assignee is owned by the
Limited Partner or such assignee's owners are substantially identical to the
owners of such Limited Partner as long as such assignee and its Affiliates agree
in writing to be bound by all the terms and conditions of this Agreement and the
General Partner first approves in writing the terms of all documents creating
and constituting such Entity.

         SECTION 8.12      EXCHANGE OF PARTNERSHIP INTEREST.

         In the event that at any time during the term of this Agreement, but
prior to the ten (10th) anniversary of the date hereof, MedCath Holdings, Inc.
("MHI"), an Affiliate of the General Partner, conducts a public offering of its
common stock in a manner which results in such common stock being listed on a
nationally recognized securities exchange or traded on NASDAQ, then subject to
the terms hereof, each Investor Limited Partner shall have the right to require
the General Partner to arrange for the exchange by MHI of up to twenty-five
percent (25%) of such Investor Limited Partner's Partnership Interest for common
stock of MHI based upon the fair market value of the Partnership Interest and of
the common stock of MHI as of such date (the "Exchange Right"). At any time
within one hundred fifty (150) days of the date upon which MHI reasonably
anticipates that a registration statement registering its common stock will
become effective, MHI shall provide written notice to the Investor Limited
Partners of their Exchange Rights hereunder (the "Exchange Notice"). The
Investor Limited Partners may exercise such Exchange Rights, at any time after
receiving the Exchange Notice before or after any such public offering but in
all events prior to the tenth (10th) anniversary of the date hereof.

For purposes of establishing fair market value hereunder, the following shall
apply:

                  (a)      The fair market value of an Investor Limited
         Partner's Partnership Interest being exchanged hereunder shall equal
         five (5), multiplied by the net income of the Partnership for the
         twelve (12) month period ending on the last day of the calendar quarter
         which ended immediately prior to the date of the Exchange Notice,
         multiplied by the percentage Partnership Interest which is being
         exchanged hereunder (not to exceed twenty-five percent (25%) of any
         Investor Limited Partner's Partnership Interest), all as reasonably
         determined by the accountants for the General Partner and its
         Affiliates; and

                                       30
<PAGE>   35
                  (b)      The fair market value of MHI's common stock shall be
         the value of one (1) share of MHI's common stock at such time as
         reasonably determined by the Board of Directors of MHI.

Upon the final determination of fair market value as set forth above, the
General Partner shall arrange for MHI to convey its common stock to each
Investor Limited Partner who has exercised his Exchange Rights hereunder in
exchange for the conveyance to MHI of the applicable Investor Limited Partner's
Partnership Interest. In all cases such rights must be free and clear of
security interests, claims and encumbrances arising under or through the
conveying party. Each Partner acknowledges that there is no guarantee or
obligation by MHI hereunder to conduct a public offering at any time and no such
guarantee or obligation will arise even if Partners exercise their Exchange
Rights following receipt of the Exchange Notice.

Notwithstanding anything above to the contrary, an Investor Limited Partner
shall have no rights hereunder if at the time of MHI's public offering, either
(w) MHI no longer owns, directly or indirectly, at least 51% of the Partnership
Interests, (x) MHI no longer owns, directly or indirectly, MedCath Incorporated,
(y) the Partnership is not operating the Hospital, or (z) the shareholders of
MHI as of the date hereof no longer own fifty-one percent (51%) or more of the
outstanding common stock of MHI.

                                   ARTICLE IX

                        RECORDS, ACCOUNTINGS AND REPORTS

         SECTION 9.1       BOOKS OF ACCOUNT.

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

         SECTION 9.2       ACCESS TO RECORDS.

         The books of account and all documents and other writings of the
Partnership, including the Certificate of Limited Partnership and any amendments
thereto, shall at all times be kept and maintained by the General Partner or, if
required by law, at the registered office of the Partnership. Each Partner or
its designated representatives shall, upon reasonable notice to the General
Partner, have access to such financial books, records and documents during
reasonable business hours and may inspect and make copies of any of them.

         SECTION 9.3       BANK ACCOUNTS AND INVESTMENT OF FUNDS.

                  (a)      the General Partner shall open and maintain, on
         behalf of the Partnership, 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

                                       31
<PAGE>   36
         Partnership shall be deposited. All withdrawals from such accounts
         shall be made upon the signature of such Person or Persons as the
         General Partner may from time to time designate.

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

         SECTION 9.4       FISCAL YEAR.

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

         SECTION 9.5       ACCOUNTING REPORTS.

         As soon as reasonably practicable after the end of each fiscal year but
in no event later than 120 days after the end thereof, each Partner shall be
furnished an annual accounting showing the financial condition of the
Partnership 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 Partners
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 Partner's
equity, and cash flow for such Fiscal Year. At the General Partner's election
the Partnership shall either be audited or such annual accountings shall be
either reviewed or compiled by a firm of independent certified public
accountants engaged by the General Partner on behalf of the Partnership. The
report shall set forth the distributions to the Partners 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 Partnership Interests.
Following the opening of the Hospital, the General Partner shall also cause to
be prepared and distributed to the Partners quarterly financial statements
following the General Partner's public announcement of its results for such
quarter in a form and containing such information as reasonably determined by
the General Partner.

         SECTION 9.6       TAX RETURNS.

         the General Partner shall cause income tax returns for the Partnership
to be prepared, at Partnership 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 Partner
shall be furnished with a statement to be used in the preparation of the
Partner's tax returns, showing the amounts of any Profits or Losses allocated to
the Partner, and the amount of any distributions made

                                       32
<PAGE>   37
         to the Partner, pursuant to this Agreement, along with a reconciliation
         of the annual report with information furnished to Partners for income
         tax purposes.

                                    ARTICLE X

                     MEETINGS AND VOTING RIGHTS OF PARTNERS

         SECTION 10.1      MEETINGS.

                  (a)      Meetings of the Partners of the Partnership for any
         purpose may be called by the General Partner, any Investor
         Representative or by Limited Partners holding in the aggregate ten
         percent (10%) of the Partnership 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 Harlingen, Texas
         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 Partner at its address as specified in
         Section 12.7. Such notice shall be in writing, and shall state the
         place, date and hour of the meeting, and shall indicate that it is
         being issued at or by the direction of the General Partner or by the
         Limited Partners, as the case may be. The notice shall state the
         purpose or purposes of the meeting. If a meeting is adjourned to
         another time or place, and if any announcement of the adjournment of
         time or place is made at the meeting, it shall not be necessary to give
         notice of the adjourned meeting.

                  (c)      Each Partner may authorize any Person or Persons to
         act for the Partner by proxy in all matters in which a Partner 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
         Partner or its attorney-in-fact. No proxy shall be valid after the
         expiration of eleven months from the date thereof unless otherwise
         provided in the proxy. Every proxy shall be revocable at the pleasure
         of the Partner executing it.

         SECTION 10.2      VOTING RIGHTS OF PARTNERS.

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

                  (b)      No Partner shall have the right or power to vote to:
         (i) withdraw or reduce the Partner's Capital Contributions except as a
         result of the dissolution and

                                       33
<PAGE>   38
         liquidation of the Partnership or as otherwise provided by law or this
         Agreement; (ii) bring an action for partition against the Partnership;
         (iii) cause the termination and dissolution of the Partnership by court
         decree or otherwise, except as set forth in this Agreement; or (iv)
         demand or receive property other than cash in return for its Capital
         Contributions.

                                   ARTICLE XI

                                   AMENDMENTS

         SECTION 11.1      AUTHORITY TO AMEND BY GENERAL PARTNER.

         Except as otherwise provided by Section 11.2, this Agreement and the
Certificate of Limited Partnership of the Partnership may be amended by the
General Partner with the approval of the Investor Representatives which approval
shall not be unreasonably withheld or delayed:

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

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

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

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

                  (e)      To the extent that it can do so without materially
         reducing the economic return on investment in the Partnership to any
         Partner, 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 Partnership; and

                                       34
<PAGE>   39
                  (g)      Upon written notice to all Partners, the General
         Partner may elect to create a governing body of up to nine (9) members
         to serve as the governing body of the Hospital. In such event, the
         governing body members shall include, in addition to the General
         Partner or its designee, the president or chief executive officer of
         the Hospital who shall be designated by the General Partner and three
         (3) additional General Partners elected from time to time by the
         Investor Limited Partners one of whom must be the medical director of
         the hospital. The remaining members of the governing body shall be
         elected from time to time by the General Partner. The General Partner
         may delegate to such governing body such duties and responsibilities of
         the General Partner as the General Partner deems necessary or
         appropriate. Notwithstanding the foregoing, in the event the governing
         body is so created, the Investor Limited Partners shall continue to
         have the right to elect Investor Representatives who shall be
         designated to make decisions which are specifically authorized to be
         made by the Investor Representatives under this Agreement and the
         General Partner shall continue to have the right to make decisions with
         respect to matters which are reserved for the General Partner at the
         time the number of General Partners is so expanded.

         SECTION 11.2      RESTRICTIONS ON GENERAL PARTNER'S AMENDMENTS:
AMENDMENTS BY LIMITED PARTNERS.

         Except as provided in Section 11.1, amendments to this Agreement shall
be made only upon the consent of the General Partner, HPHI and with a Majority
Vote of Investor Limited Partners. Except as set forth in this Section 11.2, no
amendment shall be made pursuant to Section 11.1 which would materially and
adversely affect the federal income tax treatment to be afforded each Partner,
materially and adversely affect the Partnership Interests and liabilities of
each Partner as provided herein, materially change the purposes of the
Partnership, extend or otherwise modify the term of the Partnership, or
materially change the method of allocations and distributions as provided in
Article VI and Article VII.

         SECTION 11.3      AMENDMENTS TO CERTIFICATE.

         In making any amendments to this Agreement, there shall be prepared,
executed and filed for recording by the General Partner such documents amending
the Certificate of Limited Partnership as required under the Act.

                                   ARTICLE XII

                                  MISCELLANEOUS

         SECTION 12.1      REVOCABLE LIMITED POWER OF ATTORNEY.

         Upon the execution hereof, each Limited Partner hereby revocably
constitutes and appoints the General Partner as its true and lawful attorney in
the Limited Partner's name and on the Limited Partner's behalf to take at any
time all such action which the General Partner is

                                       35
<PAGE>   40
expressly authorized to perform, or which a Limited Partner is expressly
required to perform, under this Agreement.

         SECTION 12.2      WAIVER OF PROVISIONS.

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

         SECTION 12.3      INTERPRETATION AND CONSTRUCTION.

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

         SECTION 12.4      GOVERNING LAW.

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

         SECTION 12.5      PARTIAL INVALIDITY.

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

         SECTION 12.6      BINDING ON SUCCESSORS.

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

         SECTION 12.7      NOTICES AND DELIVERY.

                  (a)      To Partners. Any notice to be given hereunder at any
         time to any Partner or any document reports or returns required by this
         Agreement to be delivered to any Partner, may be delivered personally
         or mailed to such Partner, postage prepaid, addressed to the Partner at
         such times as the Partner shall by notice to the Partnership have
         designated as the Partner's address for the mailing of all notices
         hereunder or, in

                                       36
<PAGE>   41
         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 Partner
         at the time it is mailed, as the case may be.

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

         SECTION 12.8      COUNTERPART EXECUTION; FACSIMILE EXECUTION.

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

         SECTION 12.9      STATUTORY PROVISIONS.

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

         SECTION 12.10     WAIVER OF PARTITION.

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

         SECTION 12.11     CHANGE IN LAW.

         If due to any new law, rule or regulation, or due to an interpretation
or enforcement of any existing law, rule or regulation, health care counsel
reasonably selected by the General Partner 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 the General Partner and a Majority Vote of Investor Limited
Partners, such restructured agreement shall become binding upon all Partners of
the Partnership. Second, in the event that within forty-five (45) days following
the Partnership's receipt of legal advice in

                                       37
<PAGE>   42
writing from such health care counsel regarding Applicable Law the parties
hereto are unable to negotiate an acceptable restructuring of their
relationship, then the General Partner shall have the option, within the
following forty-five (45) day period, to purchase the Partnership Interests of
some or all of the Limited Partners 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 Contributions
made by each such Partner to the Partnership together with interest thereon
computed at the Prime Rate as of the date of this Agreement from the date of
such contribution through the date upon which the General Partner pays all
amounts due under the terms of this Section 12.11. For these purposes,
distributions to the Partners by the Partnership after the effective date of
this Agreement (and whether before or after health care counsel determined there
was a problem under an Applicable Law or before or after the exercise of the
purchase option) shall be treated as payments by the General Partner. Such
purchase price shall be paid in accordance with the Payment Method. Third, in
the event that the General Partner does not exercise its option to purchase
Partnership Interests of a Partner whose ownership causes the Partnership not to
be in compliance with Applicable Law, such Partners may elect in writing within
the following forty-five (45) day period, to require that the Partnership be
dissolved, in which event the Partnership shall be dissolved in accordance with
the terms of this Agreement.

         SECTION 12.12     INVESTMENT REPRESENTATIONS OF THE PARTNERS.

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

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

                                       38
<PAGE>   43

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

         SECTION 12.13     AUTHORIZATION AND RELEASE OF INVESTOR
REPRESENTATIVES.

         Each of the Investor Limited Partners hereby authorizes the Investor
Representatives to make the decisions to be made by the Investor Representatives
hereunder and hereby release and hold harmless the Investor Representatives 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
Representatives hereunder unless due to the gross negligence or willful
misconduct of such Investor Representative.

         SECTION 12.14     REFERRALS TO HOSPITAL AND OWNERSHIP OF SHARES OF
COMMON STOCK OF MEDCATH HOLDINGS, INC. AND/OR MEDCATH INCORPORATED.

         Each Limited Partner agrees that if in the reasonable opinion of health
care counsel to the General Partner or its Affiliates, referrals of patients to
the Hospital by the Limited Partner or ownership of shares of common stock in
MedCath Holdings, Inc. and/or MedCath Incorporated by the Limited Partner would
cause or constitute a violation of any federal or state law, rule or regulation,
then, as applicable,

         (a)      the Limited Partner shall not refer patients to the Hospital;
and

         (b)      the Limited Partner shall not acquire, nor continue to own any
of shares of common stock of MedCath Holdings, Inc. and/or MedCath Incorporated.

                                       39
<PAGE>   44

         SECTION 12.15     ACKNOWLEDGMENTS REGARDING LEGAL REPRESENTATION.

         Each of the Partners hereunder acknowledge and agree that Moore & Van
Allen, PLLC is counsel for the General Partner and its Affiliates, and may also
serve as counsel for the Partnership from time to time. Each of the Partners
hereby acknowledges and consents to such representation. Each Partner other than
the General Partner further acknowledges and agrees that it shall have no
attorney-client relationship with Moore & Van Allen, PLLC as a result of Moore &
Van Allen, PLLC's representation of the Partnership from time to time. Each
Partner further consents to Moore & Van Allen's representation of the
Partnership to the extent such firm is requested to do so by the General
Partner.

         SECTION 12.16     EXHIBITS.

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

         EXHIBIT A:              Certificate of Limited Partnership.
         EXHIBIT B:              Information Exhibit.
         EXHIBIT C:              Glossary of Terms.
         EXHIBIT D:              Development Budget Exhibit.
         EXHIBIT E:              Regulatory Allocations.

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

                   [EXECUTIONS APPEAR ON THE FOLLOWING PAGES]

For the purpose of acknowledging and agreeing to be bound by the terms of
Section 5.9 hereof, the undersigned Affiliates of the Partners other than the
General Partner and HPHI hereby execute this Limited Partnership Agreement.

                                       40

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