Document:

<PAGE>
                       AMENDED AND RESTATED LOAN AGREEMENT

                          dated as of November 21, 2001

                                  by and among

                 HARLINGEN MEDICAL CENTER, LIMITED PARTNERSHIP,
                                  as Borrower,

                         the Lenders referred to herein,

                             BANK OF AMERICA, N.A.,
                            as Administrative Agent,

                             BANKERS TRUST COMPANY,
                              as Syndication Agent

                                       and

                           FIRST UNION NATIONAL BANK,
                             as Documentation Agent

                       BANC OF AMERICA SECURITIES, LLC and
                         DEUTSCHE BANC ALEX. BROWN INC.,
                    as Co-Lead Arrangers and Co-Book Managers
<PAGE>
                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                       <C>
ARTICLE I  DEFINITIONS ..............................................................      1
SECTION 1.1     Definitions .........................................................      2
SECTION 1.2     General .............................................................     20
SECTION 1.3     Other Definitions and Provisions ....................................     20

ARTICLE II  CONSTRUCTION LOAN FACILITY ..............................................     20
SECTION 2.1     Commitment ..........................................................     20
SECTION 2.2     Procedure for Disbursement of Construction Loan Advances ............     21
SECTION 2.3     Repayment of Construction Loan Advances .............................     23
SECTION 2.4     Prepayment of Construction Loan Advances ............................     23
SECTION 2.5     Construction Loan Notes .............................................     24
SECTION 2.6     Use of Proceeds .....................................................     24
SECTION 2.7     Budget Reallocation .................................................     24
SECTION 2.8     Equity Account ......................................................     25
SECTION 2.9     Project Deposit .....................................................     25
SECTION 2.10   Direct Construction Loan Advances ....................................     26

ARTICLE III  GENERAL LOAN PROVISIONS ................................................     27
SECTION 3.1     Interest ............................................................     27
SECTION 3.2     Notice and Manner of Conversion or Continuation of
                Construction Loan Advances ..........................................     29
SECTION 3.3     Fees ................................................................     30
SECTION 3.4     Manner of Payment ...................................................     30
SECTION 3.5     Crediting of Payments and Proceeds ..................................     31
SECTION 3.6     Adjustments .........................................................     31
SECTION 3.7     Nature of Obligations of the Lenders Regarding Construction Loan
                Advances; Assumption by the Administrative Agent ....................     31
SECTION 3.8     Changed Circumstances ...............................................     32
SECTION 3.9     Indemnity ...........................................................     34
SECTION 3.10    Capital Requirements ................................................     34
SECTION 3.11    Taxes ...............................................................     35
SECTION 3.12    Security ............................................................     36
SECTION 3.13    Replacement of Lenders ..............................................     37

ARTICLE IV  CLOSING; CONDITIONS OF CLOSING AND BORROWING ............................     38
SECTION 4.1     Closing .............................................................     38
SECTION 4.2     Conditions to Closing and Initial Construction Loan Advance .........     38
SECTION 4.3     Conditions to All Construction Loan Advances ........................     46
SECTION 4.4     Final Construction Loan Advance for Improvements ....................     48

ARTICLE V  REPRESENTATIONS AND WARRANTIES OF THE BORROWER ...........................     49
SECTION 5.1     Representations and Warranties ......................................     49
</TABLE>

                                       i
<PAGE>
<TABLE>
<S>                                                                                       <C>
SECTION 5.2     Survival of Representations and Warranties, Etc .....................     60

FINANCIAL INFORMATION AND REPORTS ...................................................     60
SECTION 6.1     Financial Statements ................................................     60
SECTION 6.2     Officer's Compliance Certificate ....................................     62
SECTION 6.3     Accountant's Certificate ............................................     62
SECTION 6.4     Other Reports .......................................................     63
SECTION 6.5     Notice of Litigation and Other Matters ..............................     64
SECTION 6.6     Accuracy of Information .............................................     65

ARTICLE VII  AFFIRMATIVE COVENANTS ..................................................     65
SECTION 7.1     Preservation of Existence and Related Matters .......................     65
SECTION 7.2     Maintenance of Property .............................................     66
SECTION 7.3     Accounting Methods and Financial Records ............................     66
SECTION 7.4     Payment and Performance of Obligations ..............................     66
SECTION 7.5     Compliance With Laws and Approvals ..................................     66
SECTION 7.6     Environmental Laws ..................................................     66
SECTION 7.7     Compliance with ERISA ...............................................     67
SECTION 7.8     Compliance With Agreements ..........................................     67
SECTION 7.9     Visits and Inspections ..............................................     68
SECTION 7.10   Construction of the Improvements .....................................     68
SECTION 7.11   Storage of Materials .................................................     68
SECTION 7.12   Advertising by the Lenders ...........................................     69
SECTION 7.13   Annual Appraisal .....................................................     69
SECTION 7.14   Construction Consultant ..............................................     69
SECTION 7.15   Reports and Vouchers .................................................     69
SECTION 7.16   Equipment Financing ..................................................     70
SECTION 7.17   Maintenance of Licenses, Etc .........................................     70
SECTION 7.18   Insurance ............................................................     70
SECTION 7.19   Equity Account .......................................................     71
SECTION 7.20   Further Assurances ...................................................     71

ARTICLE VIII  FINANCIAL COVENANTS ...................................................     71
SECTION 8.1     Minimum EBITDA ......................................................     71
SECTION 8.2     Debt Service Coverage Ratio .........................................     71

ARTICLE IX  NEGATIVE COVENANTS ......................................................     72
SECTION 9.1     Limitations on Debt .................................................     72
SECTION 9.2     Limitations on Liens ................................................     73
SECTION 9.3     Limitations on Loans, Advances, Investments and Acquisitions ........     74
SECTION 9.4     Limitations on Mergers and Liquidation ..............................     75
SECTION 9.5     Limitations on Sale of Assets .......................................     75
SECTION 9.6     Limitation on Distributions .........................................     76
SECTION 9.7     Amendments, Payments and Prepayments of Subordinated Debt ...........     77
SECTION 9.8     Transactions With Affiliates ........................................     77
</TABLE>

                                       ii
<PAGE>
<TABLE>
<S>                                                                                       <C>
SECTION 9.9    Restrictive Agreements ...............................................     78
SECTION 9.10   Certain Accounting Changes; Organizational Documents .................     78
SECTION 9.11   Changes to the Plans .................................................     78
SECTION 9.12   Contracts ............................................................     78

ARTICLE X  DEFAULT AND REMEDIES .....................................................     79
SECTION 10.1   Events of Default ....................................................     79
SECTION 10.2   Remedies .............................................................     83
SECTION 10.3   Rights and Remedies Cumulative; Non-Waiver; etc ......................     85

ARTICLE XI  THE ADMINISTRATIVE AGENT ................................................     85
SECTION 11.1   Appointment and Authorization of the Administrative Agent ............     85
SECTION 11.2   Delegation of Duties .................................................     86
SECTION 11.3   Liability of the Administrative Agent ................................     86
SECTION 11.4   Reliance by the Administrative Agent .................................     86
SECTION 11.5   Notice of Default ....................................................     87
SECTION 11.6   Credit Decision; Disclosure of Information by the Administrative Agent     87
SECTION 11.7   Indemnification of the Administrative Agent ..........................     88
SECTION 11.8   The Administrative Agent in Its Individual Capacity ..................     88
SECTION 11.9   Successor Administrative Agent .......................................     89
SECTION 11.10  Syndication Agent; Documentation Agent; Co-Lead Arranger .............     89

ARTICLE XII  MISCELLANEOUS ..........................................................     90
SECTION 12.1   Notices ..............................................................     90
SECTION 12.2   Expenses; Indemnity ..................................................     91
SECTION 12.3   Set-off ..............................................................     92
SECTION 12.4   Governing Law ........................................................     93
SECTION 12.5   Jurisdiction and Venue ...............................................     93
SECTION 12.6   Waiver of Right to Trial by Jury .....................................     94
SECTION 12.7   Reversal of Payments .................................................     94
SECTION 12.8   Injunctive Relief; Punitive Damages ..................................     94
SECTION 12.9   Accounting Matters ...................................................     94
SECTION 12.10  Successors and Assigns; Participations ...............................     95
SECTION 12.11  Amendments, Waivers and Consents .....................................     98
SECTION 12.12  Confidentiality ......................................................     98
SECTION 12.13  Performance of Duties ................................................     99
SECTION 12.14  All Powers Coupled with Interest .....................................     99
SECTION 12.15  Survival of Indemnities ..............................................     99
SECTION 12.16  Titles and Captions ..................................................    100
SECTION 12.17  Severability of Provisions ...........................................    100
SECTION 12.18  Counterparts .........................................................    100
SECTION 12.19  Term of Agreement ....................................................    100
SECTION 12.20  Advice of Counsel ....................................................    100
SECTION 12.21  No Strict Construction ...............................................    100
SECTION 12.22  Inconsistencies with Other Documents; Independent Effect of Covenants     100
</TABLE>

                                      iii
<PAGE>
                             EXHIBITS AND SCHEDULES

<TABLE>
<CAPTION>
EXHIBITS

<S>               <C>   <C>
Exhibit A         -     Land
Exhibit B         -     Form of Construction Loan Note
Exhibit C         -     Form of Draw Request
Exhibit D         -     Form of Notice of Account Designation
Exhibit E         -     Form of Notice of Prepayment
Exhibit F         -     Form of Notice of Conversion/Continuation
Exhibit G         -     Form of Assignment and Acceptance
Exhibit H         -     Form of Guaranty Agreement
Exhibit I         -     Form of Officer's Compliance Certificate
Exhibit J         -     Form of Security Agreement
Exhibit K         -     Form of Pledge Agreement
Exhibit L         -     Plans and Specifications
Exhibit M         -     Budget
Exhibit N         -     Storage of Materials

SCHEDULES

Schedule 1.1(a)   -     Lenders and Commitments
Schedule 1.1(b)   -     Guarantors
Schedule 1.1(c)   -     Related Credit Documents
Schedule 1.1(d)   -     Related Guaranty Agreements
Schedule 5.1(b)   -     Capitalization
Schedule 5.1(l)   -     Material Contracts
Schedule 5.1(s)   -     Debt and Guaranty Obligations
Schedule 5.1(t)   -     Litigation
Schedule 9.8      -     Permitted Transactions With Affiliates
</TABLE>

                                       iv
<PAGE>
                       AMENDED AND RESTATED LOAN AGREEMENT

      THIS AMENDED AND RESTATED LOAN AGREEMENT, dated as of the 21st day of
November, 2001, by and among HARLINGEN MEDICAL CENTER, LIMITED PARTNERSHIP, a
North Carolina limited partnership, as Borrower, the lenders who are or may
become a party to this Agreement, as Lenders, BANK OF AMERICA, N.A., as
Administrative Agent for the Lenders, BANKERS TRUST COMPANY, as Syndication
Agent for the Lenders, and FIRST UNION NATIONAL BANK, as Documentation Agent.

                              STATEMENT OF PURPOSE

         WHEREAS, the Borrower entered into that certain Construction Loan
Agreement, dated as of May 22, 2001 (as amended, restated, supplemented or
otherwise modified as of the date hereof, the "Existing Loan Agreement"),
between the Borrower and MedCath Finance Company ("FinCo"), which was secured by
that certain Deed of Trust, Assignment, Security Agreement and Financing
Statement, dated March 12, 2001 (as amended, restated, supplemented or otherwise
modified as of the date hereof, the "Existing Deed of Trust"), recorded as
Document No. 23981, from Grantor to Rio Grande Valley Abstract Co., Inc., as
Trustee in favor of FinCo;

      WHEREAS, the Borrower has requested that the Lenders provide the
Construction Loan Facility (defined below) for the purpose of refinancing the
Existing Loan Agreement and for the purposes hereinafter set forth;

      WHEREAS, in connection with the refinancing of the Existing Loan
Agreement, FinCo shall assign all of its right, title and interest in and to the
Existing Loan Agreement and the Existing Deed of Trust in favor of the
Administrative Agent, on behalf of the Lenders, and the Administrative Agent and
the Lenders are willing to accept such assignment (the "Assignment");

      WHEREAS, in connection with the Assignment and subject to the terms and
conditions hereof, the Borrower and the Lenders desire to amend, restate and
consolidate the terms of the Existing Loan Agreement, as amended hereby, and
have agreed to amend, restate and consolidate the Existing Deed of Trust in its
entirety.

      WHEREAS, upon the consummation of the Assignment and subject to the terms
and conditions set forth herein, the Lenders have agreed to make the requested
Construction Loan Facility available to the Borrower;

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

                                    ARTICLE I

                                   DEFINITIONS
<PAGE>
      SECTION 1.1. Definitions. The following terms when used in this Agreement
shall have the meanings assigned to them below:

      "Adjusted Debt Service" means, with respect to the Borrower for any
period, the sum of the following determined, without duplication, in accordance
with GAAP: (i) all Interest Expense due and payable in cash or which was paid
during such period (excluding all Interest Expense paid during such period by
the Borrower to FinCo) plus (ii) all scheduled principal payments of Debt
(excluding payments of Debt to FinCo) which were paid during such period.

      "Adjusted EBITDA" means, with respect to the Borrower for any period, (i)
EBITDA for such period less (ii) maintenance Capital Expenditures of $200,000
for each fiscal quarter during such period.

      "Administrative Agent" means Bank of America, N.A. in its capacity as
Administrative Agent hereunder, and any successor thereto appointed pursuant to
Section 11.9.

      "Administrative Agent's Office" means the office of the Administrative
Agent specified in or determined in accordance with the provisions of Section
12.1(c).

      "Affiliate" means, with respect to any Person, any other Person (other
than a Subsidiary) which directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
such first Person or any of its Subsidiaries. The term "control" means (a) the
power to vote five percent (5%) or more of the securities or other equity
interests of a Person having ordinary voting power, or (b) the possession,
directly or indirectly, of any other power to direct or cause the direction of
the management and policies of a Person, whether through ownership of voting
securities, by contract or otherwise; provided, however, that the term
"Affiliate" shall not include any owner of the Borrower (other than the Parent
and its Subsidiaries).

      "Administrative Agent-Related Persons" means the Administrative Agent
(including any successor administrative agent), together with its Affiliates
(including, in the case of Bank of America in its capacity as the Administrative
Agent, Banc of America Securities LLC as a Co-Lead Arranger), and the officers,
directors, employees, agents and attorneys-in-fact of such Persons and
Affiliates.

      "Aggregate Commitment" means the aggregate amount of the Lenders'
Commitments hereunder, as such amount may be reduced or modified at any time or
from time to time pursuant to the terms hereof. On the Closing Date, the
Aggregate Commitment shall be Thirty-Seven Million Five Hundred Thousand Dollars
($37,500,000).

      "Aggregate Project Cost" shall have the meaning assigned thereto in
Section 5.1(v).

      "Agreement" means this Amended and Restated Loan Agreement, as amended,
restated, supplemented or otherwise modified from time to time.

                                       2
<PAGE>
      "Applicable Law" means, collectively, all international, foreign, federal,
state and local statutes, treaties, rules, guidelines, regulations,
requirements, ordinances, codes, constitutions and administrative or judicial
precedents or authorities, including the interpretation or administration
thereof by any Governmental Authority charged with the enforcement,
interpretation or administration thereof, and all applicable administrative
orders, directed duties, requests, licenses, authorizations and permits of, and
agreements with, any Governmental Authority, in each case whether or not having
the force of law.

      "Applicable Margin" shall have the meaning assigned thereto in Section
3.1(c).

      "Appraised Value" means Sixty Million Dollars ($60,000,000).

      "Approved Fund" shall have the meaning assigned thereto in Section
12.10(h).

      "Architect" means Odell Associates Inc.

      "Architect's Contract" means the Agreement for Architectural Services
between the Borrower and the Architect, dated March 9, 2000.

      "Assignment and Acceptance" means an Assignment and Acceptance
substantially in the form of Exhibit G attached hereto.

      "Attorney Costs" means and includes all fees and disbursements of any law
firm or other external counsel.

      "Bank of America" means Bank of America, N.A., a national banking
association, and its successors.

      "Base Rate" means for any day a fluctuating rate per annum equal to the
higher of (a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest
in effect for such day as publicly announced from time to time by Bank of
America as its "prime rate." Such rate is a rate set by Bank of America based
upon various factors including Bank of America's costs and desired return,
general economic conditions and other factors, and is used as a reference point
for pricing some loans, which may be priced at, above, or below such announced
rate. Any change in such rate announced by Bank of America shall take effect at
the opening of business on the day specified in the public announcement of such
change.

      "Base Rate Loan" means any Construction Loan Advance bearing interest at a
rate based upon the Base Rate as provided in Section 3.1(a).

      "Benefited Lender" shall have the meaning assigned thereto in Section 3.6.

      "Borrower" means Harlingen Medical Center, Limited Partnership, a North
Carolina limited partnership, in its capacity as borrower hereunder.

                                       3
<PAGE>
      "Budget" means the budget prepared with respect to the Project by the
Borrower and approved by the Administrative Agent, which is attached hereto as
Exhibit M.

      "Business Day" means (a) for all purposes other than as set forth in
clause (b) below, any day other than a Saturday, Sunday or legal holiday on
which banks in Charlotte, North Carolina and New York, New York, are open for
the conduct of their commercial banking business, and (b) with respect to all
notices and determinations in connection with, and payments of principal and
interest on, any Eurodollar Rate Loan, any day that is a Business Day described
in clause (a) and that is also a day for trading by and between banks in Dollar
deposits in the London interbank market.

      "Calculation Date" shall have the meaning assigned thereto in Section
3.1(c).

      "Capital Asset" means, with respect to the Borrower, any asset that
should, in accordance with GAAP, be classified and accounted for as a capital
asset on a balance sheet of the Borrower.

      "Capital Expenditures" means, with respect to the Borrower for any period,
the aggregate cost of all Capital Assets acquired by the Borrower during such
period, as determined in accordance with GAAP.

      "Capital Lease" means any lease of any property by the Borrower, as
lessee, that should, in accordance with GAAP, be classified and accounted for as
a capital lease on a balance sheet of the Borrower.

      "Cash Flow Available For Distribution" means, with respect to the Borrower
for any period, the sum of the following determined, without duplication, in
accordance with GAAP: (i) EBITDA for such period less (ii) all principal and
interest payments required to be paid with respect to Senior Debt during such
period less (iii) all Unfinanced Capital Expenditures during such period.

      "Change in Control" shall have the meaning assigned thereto in Section
10.1(j).

      "Closing Date" means the date of this Agreement or such later Business Day
upon which each condition described in Section 4.2 shall be satisfied or waived
in all respects in a manner acceptable to the Administrative Agent, in its sole
discretion.

      "Code" means the Internal Revenue Code of 1986, and the rules and
regulations thereunder, each as amended or modified from time to time.

      "Co-Lead Arrangers" means Banc of America Securities LLC and Deutsche Bank
Alex. Brown Inc. in their capacity as lead arrangers and book managers.

      "Collateral" means the collateral security for the Obligations pledged or
granted pursuant to the terms of this Agreement and the Security Documents.

                                       4
<PAGE>
      "Collateral Assignment of Architect's Contract" means the collateral
assignment of even date with respect to the Architect's Contract executed by the
Borrower in favor of the Administrative Agent for the benefit of itself and the
Lenders, as amended, restated, supplemented or otherwise modified from time to
time.

      "Collateral Assignment of Construction Contract" means the collateral
assignment of even date with respect to the Construction Contract executed by
the Borrower in favor of the Administrative Agent for the benefit of itself and
the Lenders, as amended, restated, supplemented or otherwise modified from time
to time.

      "Commitment" means (a) as to any Lender, the obligation of such Lender to
make Construction Loan Advances for the account of the Borrower in an aggregate
principal amount not to exceed the amount set forth opposite such Lender's name
on Schedule 1.1(a) hereto, as such amount may be reduced or modified at any time
or from time to time pursuant to the terms hereof and (b) as to all Lenders, the
aggregate commitment to make Construction Loan Advances.

      "Commitment Agreement" means the Commitment Agreement dated as of July 27,
2001 by and among MedCath Incorporated, the Lenders who are or may become party
thereto and the Administrative Agent, as amended, restated, supplemented or
otherwise modified in accordance with the terms thereof.

      "Commitment Percentage" means, as to any Lender, (a) prior to making all
of the Construction Loan Advances, the ratio of (i) the Commitment of such
Lender to (ii) the Commitments of all Lenders and (b) after all of the
Construction Loan Advances are made, the ratio of (i) the outstanding principal
balance of the Construction Loan Advances of such Lender to (ii) the aggregate
outstanding principal balance of the Construction Loan Advances of all Lenders.

      "Completion Date" means the date upon which the Borrower has received the
final certificate of occupancy for the Improvements, all permits and licenses
required under Applicable Law to operate the Hospital, the Medicare
Certification with respect to the Hospital, and the Medicaid Certification with
respect to the Hospital (as applicable), which date shall not be later than the
Construction Loan Termination Date.

      "Consolidated" means, when used with reference to financial statements or
financial statement items of the Parent and its Subsidiaries, such statements or
items on a consolidated basis in accordance with applicable principles of
consolidation under GAAP.

      "Construction Consultant" means the construction consultant, if any,
engaged by the Administrative Agent with respect to the Project.

      "Construction Contract" means the Standard Form of Agreement between the
Borrower and the General Contractor for the construction of the Improvements
dated March 7, 2001 and converted to a lump sum contract by letter agreement
dated May 21, 2001.

                                       5
<PAGE>
      "Construction Loan Advances" means the construction loan advances made to
the Borrower by the Lenders pursuant to Section 2.1.

      "Construction Loan Facility" means the construction loan facility
established pursuant to Article II.

      "Construction Loan Notes" means the Construction Loan Notes made by the
Borrower payable to the order of each of the Lenders, substantially in the form
of Exhibit B hereto, evidencing the Debt incurred by the Borrower pursuant to
the Construction Loan Facility, and any amendments, modifications and
supplements thereto, any substitute therefor, and any replacement, restatements,
renewals or extensions thereof, in whole or in part; "Construction Loan Note"
means any of such Construction Loan Notes.

      "Construction Loan Termination Date" means the date which is eighteen (18)
months after the Closing Date.

      "Corporate Revolver" means the Credit Agreement dated as of July 31, 1998,
as amended, restated, supplemented or otherwise modified from time to time, by
and among MedCath Intermediate Holdings, Inc., as borrower, the Initial Lenders
named therein, as lenders, the Initial Issuing Bank named therein, as issuing
bank, Bank of America, N.A. as administrative agent and collateral agent, and
Banc of America Securities LLC, as arranger and syndication agent.

      "Cost Savings" means either (i) the completion of any line item in the
Budget without the expenditure of all amounts allocated to such line item in the
Budget or (ii) demonstration by the Borrower to the Administrative Agent's
reasonable satisfaction that a Cost Savings has been realized with respect to
any uncompleted line item in the Budget.

      "Debt" means, with respect to the Borrower at any date and without
duplication, the sum of the following calculated in accordance with GAAP: (a)
all liabilities, obligations and indebtedness for borrowed money including, but
not limited to, obligations evidenced by bonds, debentures, notes or other
similar instruments of the Borrower, (b) all obligations to pay the deferred
purchase price of property or services of the Borrower (including, without
limitation, all obligations under non-competition agreements), except trade
payables arising in the ordinary course of business not more than one hundred
and twenty (120) days past due, (c) all obligations of the Borrower as lessee
under Capital Leases, (d) all Debt of any other Person secured by a Lien on any
asset of the Borrower, (e) all Guaranty Obligations of the Borrower, (f) all
obligations, contingent or otherwise, of the Borrower relative to the face
amount of letters of credit, whether or not drawn, and banker's acceptances
issued for the account of the Borrower, (g) all obligations of the Borrower to
redeem, repurchase, exchange, defease or otherwise make payments in respect of
capital stock or other securities or partnership interests of the Borrower, (h)
all net payment obligations incurred by the Borrower pursuant to Hedging
Agreements and (i) all outstanding payment obligations of the Borrower with
respect to any synthetic lease, tax retention operating lease, off-balance sheet
loan or similar off-balance sheet financing product where such transaction is
considered borrowed money indebtedness for tax purposes but is classified as an
operating lease in accordance with GAAP.

                                       6
<PAGE>
      "Debtor Relief Laws" means the Bankruptcy Code of the United States of
America, and all other liquidation, conservatorship, bankruptcy, assignment for
the benefit of creditors, receivership, insolvency, reorganization, or similar
debtor relief Applicable Laws of the United States of America or other
applicable jurisdictions from time to time in effect and affecting the rights of
creditors generally.

      "Default" means any of the events specified in Section 10.1 which with the
passage of time, the giving of notice or any other condition, would constitute
an Event of Default.

      "Documentation Agent" means First Union National Bank, in its capacity as
Documentation Agent hereunder.

      "Dollars" or "$" means, unless otherwise qualified, dollars in lawful
currency of the United States.

      "Draw Request" means a properly completed and executed written application
by the Borrower to the Administrative Agent in the form of Exhibit C attached
hereto (or any other form approved by the Administrative Agent) setting forth
the amount of Construction Loan Advance proceeds desired, together with such
schedules, affidavits, releases, waivers, statements, invoices, bills and other
documents, certificates and information as may be required by the Administrative
Agent.

      "EBITDA" means, with respect to the Borrower for any period, the sum of
the following determined, without duplication, in accordance with GAAP: (a) Net
Income for such period plus (b) the sum of the following to the extent deducted
in determining Net Income for such period: (i) Interest Expense for such period,
(ii) income and franchise taxes for such period, (iii) amortization and
depreciation for such period, (iv) non-cash charges for such period solely with
respect to the impairment of goodwill in accordance with GAAP, and (v) non-cash
impairment charges for such period solely with respect to loan acquisition costs
minus (c) to the extent added in the determination of Net Income, extraordinary
gains for such period.

      "Eligible Assignee" shall have the meaning assigned thereto in Section
12.10(h).

      "Employee Benefit Plan" means any employee benefit plan within the meaning
of Section 3(3) of ERISA which (a) is maintained for employees of the Borrower
(or, as applicable, any Guarantor) or any ERISA Affiliate or (b) has at any time
within the preceding six (6) years been maintained for the employees of the
Borrower (or, as applicable, any Guarantor) or any current or former ERISA
Affiliate.

      "Environmental Claims" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations (other than internal reports prepared
by any Person in the ordinary course of business and not in response to any
third party action or request of any kind) or proceedings relating in any way to
any actual or alleged violation of or liability under any Environmental Law or
relating to any permit issued, or any approval given, under any such
Environmental Law, including, without limitation, any and all claims by
Governmental Authorities for enforcement, cleanup, removal, response,

                                       7
<PAGE>
remedial or other actions or damages, contribution, indemnification cost
recovery, compensation or injunctive relief resulting from Hazardous Materials
or arising from alleged injury or threat of injury to human health or the
environment.

      "Environmental Laws" means any and all federal, foreign, state, provincial
and local laws, statutes, ordinances, rules, regulations, permits, licenses,
approvals, interpretations and orders of courts or Governmental Authorities,
relating to the protection of human health or the environment, including, but
not limited to, requirements pertaining to the manufacture, processing,
distribution, use, treatment, storage, disposal, transportation, handling,
reporting, licensing, permitting, investigation or remediation of Hazardous
Materials.

      "Equipment Lender" shall have the meaning assigned thereto in Section
7.16.

      "Equipment Loan Financing" shall have the meaning assigned thereto in
Section 7.16.

      "Equity Account" has the meaning given to such term in Section 2.8.

      "ERISA" means the Employee Retirement Income Security Act of 1974, and the
rules and regulations thereunder, each as amended or modified from time to time.

      "ERISA Affiliate" means any Person who together with the Borrower (or, as
applicable, any Guarantor) is treated as a single employer within the meaning of
Section 414(b), (c), (m) or (o) of the Code or Section 4001(b) of ERISA.

      "Eurodollar Rate" means for any Interest Period with respect to any
Eurodollar Rate Loan, a rate per annum determined by the Administrative Agent
pursuant to the following formula:

               Eurodollar Rate  =        Eurodollar Base Rate
                                   ------------------------------------
                                   1.00 - Eurodollar Reserve Percentage

      "Eurodollar Base Rate" means for any Interest Period:

      (a) the rate per annum equal to the rate determined by the Administrative
Agent to be the offered rate that appears on the page of the Telerate screen
that displays an average British Bankers Association Interest Settlement Rate
for deposits in Dollars (for delivery on the first day of such Interest Period)
with a term equivalent to such Interest Period, determined as of approximately
11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period, or

      (b) in the event the rate referenced in the preceding subsection (a) does
not appear on such page or service or such page or service shall cease to be
available, the rate per annum equal to the rate determined by the Administrative
Agent to be the offered rate on such other page or other service that displays
an average British Bankers Association Interest Settlement Rate for deposits in
Dollars (for delivery on the first day of such Interest Period) with a term
equivalent to such Interest Period, determined as of approximately 11:00 a.m.
(London time) two Business Days prior to the first day of such Interest Period,
or

                                       8
<PAGE>
      (c) in the event the rates referenced in the preceding subsections (a) and
(b) are not available, the rate per annum determined by the Administrative Agent
as the rate of interest (rounded upward to the next 1/100th of 1%) at which
deposits in Dollars for delivery on the first day of such Interest Period in
same day funds in the approximate amount of the Eurodollar Rate Loan being made,
continued or converted by the Administrative Agent and with a term equivalent to
such Interest Period would be offered by Bank of America's London Branch to
major banks in the offshore Dollar market at their request at approximately
11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period.

      "Eurodollar Rate Loan" means any Construction Loan Advance bearing
interest at a rate based upon the Eurodollar Rate as provided in Section 3.1(a).

      "Eurodollar Reserve Percentage" means, for any day during any Interest
Period, the reserve percentage (expressed as a decimal, rounded upward to the
next 1/100th of 1%) in effect on such day, whether or not applicable to any
Lender, under regulations issued from time to time by the Board of Governors of
the Federal Reserve System for determining the maximum reserve requirement
(including any emergency, supplemental or other marginal reserve requirement)
with respect to Eurocurrency funding (currently referred to as "Eurocurrency
liabilities"). The Eurodollar Rate for each outstanding Eurodollar Rate Loan
shall be adjusted automatically as of the effective date of any change in the
Eurodollar Reserve Percentage.

      "Event of Default" means any of the events specified in Section 10.1,
provided that any requirement for passage of time, giving of notice, or any
other condition, has been satisfied.

      "Excusable Delays" means unusually adverse weather conditions which have
not been taken into account in the construction schedule, fire, earthquake or
other acts of God, strike, lockout, acts of public enemy, any Governmental
Authority having jurisdiction over the operation of the hospital which is part
of the Project ceases to operate in the ordinary course, riot or insurrection or
any unforeseen circumstances or events (except financial circumstances or events
or matters which may be resolved by the payment of money) beyond the control of
the Borrower, not to exceed a total of thirty (30) days, provided the Borrower
shall notify the Administrative Agent in writing within ten (10) days after such
occurrence, but no Excusable Delay shall extend the Completion Date or suspend
or abate any obligation of the Borrower or any Guarantor or any other Person to
pay any money.

      "Existing Loan Agreement" shall have the meaning assigned thereto in the
Statement of Purpose.

      "FDIC" means the Federal Deposit Insurance Corporation, or any successor
thereto.

      "Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards to the nearest 1/100 of 1%) equal to the weighted average of the rates
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers on such day, as published by the
Federal Reserve Bank on the Business Day next succeeding

                                       9
<PAGE>
such day; provided that (a) if such day is not a Business Day, the Federal Funds
Rate for such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day, and (b) if no
such rate is so published on such next succeeding Business Day, the Federal
Funds Rate for such day shall be the average rate charged to Bank of America on
such day on such transactions as determined by the Administrative Agent.

      "Financing Statements" means the UCC financing statements filed to perfect
the Lien of the Administrative Agent and the Lenders on certain personal
property and fixtures as more particularly described therein.

      "FinCo" shall have the meaning assigned thereto in the Statement of
Purpose.

      "Fiscal Year" means the fiscal year of the Borrower ending on September
30.

      "Five-Year US Treasury Yield" means the Weekly Average Yield on U.S.
Treasury Securities adjusted to a constant maturity of five (5) years as
published in the Federal Reserve Board Statistical Release H.15 (519) on the
applicable date of determination.

      "Foreign Lender" shall have the meaning assigned thereto in Section
3.11(e).

      "Fund" shall have the meaning assigned thereto in Section 12.10(h).

      "GAAP" means generally accepted accounting principles, as recognized by
the American Institute of Certified Public Accountants and the Financial
Accounting Standards Board, consistently applied and maintained on a consistent
basis for the Borrower and the Guarantors throughout the period indicated and
(subject to Section 12.9) consistent with the prior financial practice of the
Borrower and the Guarantors.

      "General Contractor" means Faulkner Construction Company.

      "Governmental Approvals" means all authorizations, consents, approvals,
licenses and exemptions of, registrations and filings with, and reports to, all
Governmental Authorities.

      "Governmental Authority" means any nation, province, state or political
subdivision thereof, and any government or any Person exercising executive,
legislative, regulatory or administrative functions of or pertaining to
government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.

      "Guarantor Leverage Ratio" means the ratio determined pursuant to Section
12(c) of the Guaranty Agreement.

      "Guarantors" means the Persons who have executed the Guaranty Agreement
(a) on the Closing Date or (b) after such date in accordance with Section 11(j)
of the Guaranty Agreement. The Guarantors as of the Closing Date are set forth
on Schedule 1.1(b).

                                       10
<PAGE>
      "Guaranty Agreement" means the unconditional guaranty agreement of even
date executed by the Guarantors in favor of the Administrative Agent for the
ratable benefit of itself and the Lenders, substantially in the form of Exhibit
H attached hereto, as amended, restated, supplemented or otherwise modified from
time to time.

      "Guaranty Obligation" means, with respect to the Borrower, without
duplication, any obligation, contingent or otherwise, of any such Person
pursuant to which such Person has directly or indirectly guaranteed any Debt or
other obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of any
such Person (a) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
condition or otherwise) or (b) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the payment thereof
or to protect such obligee against loss in respect thereof (in whole or in
part); provided, that the term Guaranty Obligation shall not include
endorsements for collection or deposit in the ordinary course of business. The
amount of any Guaranty Obligation hereunder shall (subject to any limitations
set forth therein) be deemed to be the lower of (a) an amount equal to the
stated or determinable amount of the primary obligation in respect of which such
Guaranty Obligation is made and (b) the maximum amount for which such
guaranteeing Person may be liable pursuant to the terms of the instrument
evidencing such Guaranty Obligation.

      "Hazardous Materials" means any substances or materials (a) which are or
become defined as hazardous wastes, hazardous substances, pollutants,
contaminants, chemical substances or mixtures or toxic substances under any
Environmental Law, (b) which are toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise harmful to human
health or the environment and are or become regulated by any Governmental
Authority, (c) the presence of which require investigation or remediation under
any Environmental Law or common law, (d) the discharge or emission or release of
which requires a permit or license under any Environmental Law or other
Governmental Approval, (e) which are deemed to constitute a nuisance or a
trespass which pose a health or safety hazard to Persons or neighboring
properties, (f) which consist of underground or aboveground storage tanks,
whether empty, filled or partially filled with any substance, or (g) which
contain, without limitation, asbestos, polychlorinated biphenyls, urea
formaldehyde foam insulation, petroleum hydrocarbons, petroleum derived
substances or waste, crude oil, nuclear fuel, natural gas or synthetic gas.

      "HCFA" means the Health Care Financing Administration or any successor
agency.

      "Hedging Agreement" means any agreement with respect to any Interest Rate
Contract, forward rate agreement, commodity swap, forward foreign exchange
agreement, currency swap agreement, cross-currency rate swap agreement, currency
option agreement or other agreement or arrangement designed to alter the risks
of any Person arising from fluctuations in interest rates, currency values or
commodity prices, all as amended, restated, supplemented or otherwise modified
from time to time.

                                       11
<PAGE>
      "HHS" means the United States Department of Health and Human Services, and
any successor thereto.

      "Hospital" means a hospital owned and operated by the Borrower which (a)
is certified to participate in Medicare programs and Medicaid programs (as
applicable), (b) is at least 170,000 square feet, (c) contains at least 110
licensed beds and (d) is situated on the Land.

      "Improvements" means the Hospital and other improvements constructed on,
or to be constructed on, the Land, together with all fixtures, improvements, and
appurtenances now or later to be located on the Land and/or in such
improvements.

      "Indemnitees" shall have the meaning assigned thereto in Section 12.2 (b).

      "Indemnified Liabilities" shall have the meaning assigned thereto in
Section 12.2 (b).

      "Information" shall have the meaning assigned thereto in Section 12.12.

      "Initial Pricing Adjustment Date" means the first Calculation Date
occurring after the date which is six (6) full fiscal quarters after the
Completion Date.

      "Intercompany Loan Subordination Agreement" means any intercompany
subordination agreement of even date executed by FinCo in favor of the
Administrative Agent for the benefit of itself and the Lenders, as amended,
restated, supplemented or otherwise modified from time to time.

      "Interest Expense" means, with respect to the Borrower for any period, the
gross interest expense (including, without limitation, interest expense
attributable to Capital Leases and all net payment obligations pursuant to
Hedging Agreements) of the Borrower, all determined for such period, without
duplication, in accordance with GAAP.

      "Interest Period" shall have the meaning assigned thereto in Section
3.1(b).

      "Interest Rate Contract" means any interest rate swap agreement, interest
rate cap agreement, interest rate floor agreement, interest rate collar
agreement, interest rate option or any other agreement regarding the hedging of
interest rate risk exposure executed in connection with hedging the interest
rate exposure of any Person and any confirming letter executed pursuant to such
agreement, all as amended, restated, supplemented or otherwise modified from
time to time.

      "Land" means the real estate described in Exhibit A attached hereto, which
is owned by the Borrower and to be encumbered by the Mortgage.

      "Lender" means each Person executing this Agreement as a Lender set forth
on the signature pages hereto and each Person that hereafter becomes a party to
this Agreement as a Lender pursuant to Section 12.10.

                                       12
<PAGE>
      "Lending Office" means, with respect to any Lender, the office of such
Lender maintaining such Lender's Commitment Percentage of the Construction Loan
Advances.

      "Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest, hypothecation or encumbrance of any kind in respect
of such asset. For the purposes of this Agreement, a Person shall be deemed to
own subject to a Lien any asset which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, Capital
Lease or other title retention agreement relating to such asset.

      "Limited Partner" means Harlingen Partnership Holdings, Inc., an Arizona
corporation.

      "Loan Allocation" means the loan allocation identified as such in the
Budget for the Project attached hereto as Exhibit M.

      "Loan Documents" means, collectively, this Agreement, the Construction
Loan Notes, the Guaranty Agreement, the Security Documents, the Management Fee
and Guaranty Fee Subordination Agreement, each Intercompany Loan Subordination
Agreement and each other document, instrument, certificate and agreement
executed and delivered by the Borrower or any Guarantor in connection with this
Agreement or otherwise referred to herein or contemplated hereby (excluding any
Hedging Agreement), all as may be amended, restated, supplemented or otherwise
modified from time to time.

      "Management Agreement" means the agreement between that Management Company
and the Borrower as set forth in the limited partnership agreement of the
Borrower pursuant to which the Management Company and the Borrower agree that
the Management Company shall manage the Hospital.

      "Management Company" means Harlingen Hospital Management, Inc., a North
Carolina corporation.

      "Management Fee and Guaranty Fee Subordination Agreement" means the
subordination agreement of even date executed by the Management Company in favor
of the Administrative Agent for the benefit of itself and the Lenders, as
amended, restated, supplemented or otherwise modified from time to time.

      "Material Adverse Effect" means, with respect to the Borrower or any of
the Guarantors, a material adverse effect on (i) the properties, business,
operations or condition (financial or otherwise) of (A) the Borrower or (B) the
Guarantors on a consolidated basis, taken as a whole, or (ii) any such Person or
the ability of any such Person to perform its obligations under the Loan
Documents to which it is a party.

      "Material Contract" means (a) as of the Closing Date, the contracts and
agreements set forth on Schedule 5.1(l) and (b) after the Closing Date, (i) the
contracts and agreements set forth on Schedule 5.1(l), (ii) any contract or
other agreement, written or oral, of the Borrower or any of the Guarantors (A)
which involves monetary liability of or to any such Person in an amount in
excess of (1) $1,000,000 per annum with respect to the Borrower or any Guarantor
(other than the

                                       13
<PAGE>
MedCath Parent Entities) and (2) $5,000,000 with respect to any MedCath Parent
Entity and (B) which by its terms may not be canceled within ninety (90) days,
or (iii) any other contract or agreement, written or oral, of the Borrower or
any of the Guarantors the failure to comply with which could reasonably be
expected to have a Material Adverse Effect.

      "Maturity Date" shall have the meaning assigned thereto in Section 2.3.

      "MedCath Parent Entities" means MedCath Corporation, MedCath Holdings,
Inc., MedCath Intermediate Holdings, Inc. and MedCath Incorporated.

      "Medicaid Certification" means certification by HCFA or a Governmental
Authority under contract with HCFA that health care operations are in compliance
with all the conditions of participation set forth in the Medicaid Regulations.

      "Medicaid Provider Agreement" means an agreement entered into between a
Governmental Authority or other such entity administering the Medicaid program
and a health care operation under which the health care operation agrees to
provide services for Medicaid beneficiaries in accordance with the terms of the
agreement and Medicaid Regulations.

      "Medicaid Regulations" means, collectively, (i) all federal statutes
(whether set forth in Title XIX of the Social Security Act or elsewhere)
affecting the medical assistance program established by Title XIX of the Social
Security Act and any statutes succeeding thereto; (ii) all applicable provisions
of all federal rules, regulations, manuals and orders of all Governmental
Authorities promulgated pursuant to or in connection with the statutes described
in clause (i) above and all federal administrative, reimbursement and other
guidelines of all Governmental Authorities (whether or not having the force of
law) promulgated pursuant to or in connection with the statutes described in
clause (i) above; (iii) all state statutes and plans for medical assistance
enacted in connection with the statutes and provisions described in clauses (i)
and (ii) above; and (iv) all applicable provisions of all rules, regulations,
manuals and orders of all Governmental Authorities promulgated pursuant to or in
connection with the statutes described in clause (iii) above and all state
administrative, reimbursement and other guidelines of all Governmental
Authorities (whether or not having the force of law) promulgated pursuant to or
in connection with the statutes described in clause (ii) above, in each case as
may be amended, supplemented or otherwise modified from time to time.

      "Medicare Certification" means certification by HCFA or a Governmental
Authority under contract with HCFA that the health care operation is in
compliance with all the conditions of participation set forth in the Medicare
Regulations.

      "Medicare Provider Agreement" means an agreement entered into between a
Governmental Authority administering the Medicare program and a health care
operation under which the health care operation agrees to provide services for
Medicare beneficiaries in accordance with the terms of the agreement and
Medicare Regulations.

      "Medicare Regulations" means, collectively, (i) all federal statutes
(whether set forth in Title XVIII of the Social Security Act or elsewhere)
affecting the health insurance program for

                                       14
<PAGE>
the aged and disabled established by Title XVIII of the Social Security Act and
any statutes succeeding thereto; and (ii) all applicable provisions of all
rules, regulations, manuals, orders and administrative, reimbursement and other
guidelines (whether or not having the force of law) of all Governmental
Authorities (including without limitation, HHS, HCFA, the Office of the
Inspector General for HHS, or any person succeeding to the functions of any of
the foregoing) promulgated pursuant to or in connection with any of the
foregoing (whether or not having the force of law), as each may be amended,
supplemented or otherwise modified from time to time.

      "Mortgage" means the Amended and Restated Deed of Trust, Assignment,
Security Agreement and Financing Statement of even date executed by the Borrower
in favor of the Administrative Agent for the benefit of the Administrative Agent
and the Lenders securing the Land, the Improvements and the other property and
fixtures described therein, as amended, restated, supplemented or otherwise
modified from time to time.

      "Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to which the Borrower (or, as applicable, any Guarantor) or
any ERISA Affiliate is making, or is accruing an obligation to make, or has
accrued an obligation to make contributions within the preceding six (6) years.

      "Net Income" means, with respect to the Borrower for any period, the net
income (or loss) of the Borrower for such period, determined in accordance with
GAAP; provided that there shall be excluded from Net Income (a) the net income
(or loss) of any Person (other than a Subsidiary which shall be subject to
clause (c) below), in which the Borrower has a joint interest with a third
party, except to the extent such net income is actually paid to the Borrower by
dividend or other distribution during such period, (b) the net income (or loss)
of any Person accrued prior to the date it becomes a Subsidiary of such Person
or is merged into or consolidated with such Person or any of its Subsidiaries or
that Person's assets are acquired by such Person or any of its Subsidiaries
except to the extent included pursuant to the foregoing clause (a), (c) the net
income (if positive) of any Subsidiary to the extent that the declaration or
payment of dividends or similar distributions by such Subsidiary to the Borrower
of such net income (i) is not at the time permitted by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute rule
or governmental regulation applicable to such Subsidiary or (ii) would be
subject to any taxes payable on such dividends or distributions.

      "Notice of Account Designation" shall have the meaning assigned thereto in
Section 2.2(c).

      "Notice of Conversion/Continuation" shall have the meaning assigned
thereto in Section 3.2.

      "Notice of Prepayment" shall have the meaning assigned thereto in Section
2.4.

      "Obligations" means, in each case, whether now in existence or hereafter
arising: (a) the principal of and interest on (including interest accruing after
the filing of any bankruptcy or similar petition) the Construction Loan
Advances, (b) all existing or future payment and other obligations

                                       15
<PAGE>
owing by the Borrower to any Lender or the Administrative Agent under any
Hedging Agreement with any Lender or the Administrative Agent, and (c) all other
fees and commissions (including Attorney Costs), charges, indebtedness, loans,
liabilities, financial accommodations, obligations, covenants and duties owing
by the Borrower or any of the Guarantors to the Lenders or the Administrative
Agent, in each case under or in respect of this Agreement, any Construction Loan
Note or any of the other Loan Documents of every kind, nature and description,
direct or indirect, absolute or contingent, due or to become due, contractual or
tortious, liquidated or unliquidated, and whether or not evidenced by any note.

      "Officer's Compliance Certificate" shall have the meaning assigned thereto
in Section 6.2.

      "Other Taxes" shall have the meaning assigned thereto in Section 3.11(b).

      "Parent" means MedCath Corporation, a Delaware corporation.

      "Participant" shall have the meaning assigned thereto in Section 12.10(d).

      "PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency.

      "Pension Plan" means any Employee Benefit Plan, other than a Multiemployer
Plan, which is subject to the provisions of Title IV of ERISA or Section 412 of
the Code and which (a) is maintained for the employees of the Borrower (or, as
applicable, any Guarantor) or any ERISA Affiliates or (b) has at any time within
the preceding six (6) years been maintained for the employees of the Borrower
(or, as applicable, any Guarantor) or any of its current or former ERISA
Affiliates.

      "Permitted Changes" means changes to the Plans or Improvements and related
changes to the Construction Contract (including those resulting from the final
agreement with the General Contractor on the contract sum); provided that the
cost of any single change shall not exceed $500,000 and the aggregate amount of
all such changes (whether positive or negative) shall not exceed $1,500,000.

      "Permitted Distributions" shall have the meaning assigned thereto in
Section 9.6(c).

      "Permitted Distribution Date" shall have the meaning assigned thereto in
Section 9.6(c).

      "Person" means an individual, corporation, limited liability company,
partnership, association, trust, business trust, joint venture, joint stock
company, pool, syndicate, sole proprietorship, unincorporated organization,
Governmental Authority or any other form of entity or group thereof.

      "Plans" means the detailed plans and specifications for the construction
of the Improvements currently being prepared by the Architect and to be approved
by the Administrative Agent (which approval shall not be unreasonably withheld),
and including such amendments thereto as may from time to time be made by the
Borrower pursuant to the terms of the Agreement, which plans and specifications
are listed on Exhibit L attached hereto, provided that

                                       16
<PAGE>
the Administrative Agent shall approve such plans and specifications as long as
they are consistent with the plans shown to the Administrative Agent prior to
the date hereof.

      "Pledge Agreement" means the pledge and security agreement of even date
executed by the Management Company and the Limited Partner, as pledgors, and the
Borrower, as issuer, in favor of the Administrative Agent for the benefit of
itself and the Lenders, substantially in the form of Exhibit K attached hereto,
as amended, restated, supplemented or otherwise modified from time to time.

      "Pre-Opening Operating Costs" means those items of expense identified as
such in the Budget.

      "Previously Funded FinCo Loans" means all of the loans from FinCo to the
Borrower advanced prior to the Closing Date, the proceeds of which have been
used by the Borrower solely to fund costs of the Project (excluding any
Pre-Opening Operating Costs) incurred prior to the Closing Date in accordance
with the Loan Allocation column in the Budget.

      "Project" means construction, development and operation of Improvements
which shall consist of the Hospital.

      "Project Deposit" shall have the meaning assigned thereto in Section 2.9.

      "Project Equity" means the required $8,000,000 equity investment made or
to be made in or to the Borrower to partially fund the cost of the Project.

      "Property" means the Land, the Improvements, the Tangible Personalty and
all other property constituting the "Mortgaged Property," as described in the
Mortgage, or subject to a right, lien or security interest to secure the
Construction Loan Advances pursuant to any other Loan Document.

      "Register" shall have the meaning assigned thereto in Section 12.10(c).

      "Related Credit Documents" means the collective reference to (i) each of
the loan agreements set forth on Schedule 1.1(c) hereto (including all Loan
Documents executed in connection therewith and as defined in each of the loan
agreements) and (ii) each other loan agreement (including all Loan Documents
executed in connection therewith and as defined in each of the loan agreements)
executed in connection with the Commitment Agreement, in each case as amended,
restated, supplemented or otherwise modified in accordance with the terms
thereof.

      "Related Guaranty Agreements" means the collective reference to (i) each
of the guaranty agreements executed by certain of the Guarantors set forth on
Schedule 1.1(d) hereto and (ii) each other guaranty agreement executed by
certain of the Guarantors in connection with the Commitment Agreement, in each
case as amended, restated, supplemented or otherwise modified in accordance with
the terms thereof.

      "Replaced Lender" shall have the meaning assigned thereto in Section
3.13(c).

                                       17
<PAGE>
      "Replacement Lender" shall have the meaning assigned thereto in Section
3.13(c).

      "Required Lenders" means, at any date, any combination of Lenders holding
of at least sixty-six and two-thirds percent (66-2/3%) of the aggregate unpaid
principal amount of the Construction Loan Notes, or if no amounts are
outstanding under the Construction Loan Notes, any combination of Lenders whose
Commitment Percentages aggregate at least sixty-six and two-thirds percent
(66-2/3%) of the Aggregate Commitment.

      "Responsible Officer" means, with respect to any Person, any of the
following: the chief executive officer or chief financial officer of such Person
or any other officer of such Person reasonably acceptable to the Administrative
Agent

      "Security Agreement" means the security agreement of even date executed by
the Borrower in favor of the Administrative Agent for the benefit of itself and
the Lenders, substantially in the form of Exhibit J, as amended, restated,
supplemented or otherwise modified from time to time.

      "Security Documents" means collectively, the Guaranty Agreement, the
Mortgage, the Security Agreement, the Financing Statements, the Pledge
Agreement, the Collateral Assignment of Architect's Contract, the Collateral
Assignment of Construction Contract and each other agreement or writing pursuant
to which the Borrower or any other Person party thereto pledges or grants a
security interest in any property or assets to secure the Obligations or any
such Person guaranties the payment and/or performance of the Obligations.

      "Senior Debt" means, with respect to the Borrower at any date of
determination, all Debt other than Subordinated Debt.

      "Social Security Act" means Chapter 7 of Title 42 of the United States
Code, as amended from time to time, or any successor statute thereto.

      "Solvent" means, as to the Borrower and each Guarantor on a particular
date, that any such Person (a) has capital sufficient to carry on its business
and transactions and all business and transactions in which it is about to
engage and is able to pay its debts as they mature, (b) owns property having a
value, both at fair valuation and at present fair saleable value, greater than
the amount required to pay its probable liabilities (including contingencies),
and (c) does not believe that it will incur debts or liabilities beyond its
ability to pay such debts or liabilities as they mature.

      "Subordinated Debt" means the collective reference to any Debt of the
Borrower which is subordinated to the Obligations with respect to right and time
of payment, remedies, covenants and such other terms and conditions, in each
case to the reasonable satisfaction of the Required Lenders.

      "Subordinated Working Capital Loan" shall have the meaning assigned
thereto in Section 9.1(f).

                                       18
<PAGE>
      "Subsidiary" means as to any Person, any corporation, partnership, limited
liability company or other entity of which more than fifty percent (50%) of the
outstanding capital stock or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other managers of such
corporation, partnership, limited liability company or other entity is at the
time owned by or the management is otherwise controlled by such Person
(irrespective of whether, at the time, capital stock or other ownership
interests of any other class or classes of such corporation, partnership,
limited liability company or other entity shall have or might have voting power
by reason of the happening of any contingency). Unless otherwise qualified
references to "Subsidiary" or "Subsidiaries" herein shall refer to those of the
Borrower.

      "Survey Affidavit" shall have the meaning assigned thereto in Section
4.2(c)(viii).

      "Syndication Agent" means Bankers Trust Company, in its capacity as
Syndication Agent hereunder.

      "Tangible Personalty" means all fixtures, equipment, furnishings and other
articles of personal property now or hereafter owned by the Borrower and
attached to or contained in and used in connection with the Land and the
Improvements and all renewals or replacements thereof or articles in
substitution thereof, whether or not the same are or shall be attached to the
Land and Improvements in any manner.

      "Taxes" shall have the meaning assigned thereto in Section 3.11(a).

      "Termination Event" means: (a) except for any such event that could not
reasonably be expected to have a Material Adverse Effect, a "Reportable Event"
described in Section 4043 of ERISA for which the notice requirement has not been
waived by the PBGC, or (b) except for any withdrawal that could not reasonably
be expected to have a Material Adverse Effect, the withdrawal of the Borrower
(or, as applicable, any Guarantor) or any ERISA Affiliate from a Pension Plan
during a plan year in which it was a "substantial employer" as defined in
Section 4001(a)(2) of ERISA, or (c) the termination of a Pension Plan, the
filing of a notice of intent to terminate a Pension Plan or the treatment of a
Pension Plan amendment as a termination, each under Section 4041(c) of ERISA, or
(d) the institution of proceedings to terminate, or the appointment of a trustee
with respect to, any Pension Plan by the PBGC, or (e) any other event or
condition which would constitute grounds under Section 4042(a) of ERISA for the
termination of, or the appointment of a trustee to administer, any Pension Plan,
or (f) the imposition of a Lien pursuant to Section 412 of the Code or Section
302 of ERISA, or (g) except for any such event or condition that could not
reasonably be expected to have a Material Adverse Effect, any event or condition
which results in the reorganization or insolvency of a Multiemployer Plan under
Sections 4241 or 4245 of ERISA, or (h) except for any such event or condition
that could not reasonably be expected to have a Material Adverse Effect, any
event or condition which results in the termination of a Multiemployer Plan
under Section 4041A of ERISA or the institution by PBGC of proceedings to
terminate a Multiemployer Plan under Section 4042 of ERISA.

      "Title Insurer" means First American Title Insurance Company.

                                       19
<PAGE>
      "Title Policy" means the mortgagee title policy issued by the Title
Insurer and meeting the requirements of this Agreement and the Mortgage.

      "UCC" means the Uniform Commercial Code as in effect in the State of North
Carolina.

      "Unfinanced Capital Expenditures" means, with respect to the Borrower for
any period, all Capital Expenditures other than (a) Capital Expenditures made to
replace assets to the extent financed by (i) the net cash proceeds of asset
dispositions not prohibited hereunder or (ii) the proceeds of insurance received
with respect to the loss or taking or damage to the asset or assets being
replaced or (b) Capital Expenditures financed by the proceeds of Senior Debt.

      "United States" means the United States of America.

      SECTION 1.2. General. Unless otherwise specified, a reference in this
Agreement to a particular article, section, subsection, Schedule or Exhibit is a
reference to that article, section, subsection, Schedule or Exhibit of this
Agreement. Wherever from the context it appears appropriate, each term stated in
either the singular or plural shall include the singular and plural, and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, the feminine and the neuter. Any reference herein to "Charlotte time"
shall refer to the applicable time of day in Charlotte, North Carolina.

      SECTION 1.3.      Other Definitions and Provisions.

      (a) Use of Capitalized Terms. Unless otherwise defined therein, all
capitalized terms defined in this Agreement shall have the defined meanings when
used in this Agreement, the Construction Loan Notes and the other Loan Documents
or any certificate, report or other document made or delivered pursuant to this
Agreement.

      (b) Miscellaneous. The words "hereof", "herein" and "hereunder" and words
of similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement.

                                   ARTICLE II

                           CONSTRUCTION LOAN FACILITY

      SECTION 2.1. Commitment. Subject to the terms and conditions of this
Agreement, and in reliance upon the representations and warranties set forth
herein, each Lender severally agrees to make Construction Loan Advances to the
Borrower from time to time from the Closing Date through the Construction Loan
Termination Date as requested by the Borrower in accordance with the terms of
Section 2.2. The Construction Loan Facility is not revolving, and any amount
repaid may not be reborrowed. The aggregate principal amount of all outstanding
Construction Loan Advances (after giving effect to any amount requested) shall
not exceed the Aggregate Commitment less the sum of all outstanding Construction
Loan Advances, and the principal amount of outstanding Construction Loan
Advances from any Lender to the Borrower

                                       20
<PAGE>
shall not at any time exceed such Lender's Commitment. Each Construction Loan
Advance by a Lender shall be in a principal amount equal to such Lender's
Commitment Percentage of the principal amount of the Construction Loan Advance
to be made on such occasion.

      SECTION 2.2. Procedure for Disbursement of Construction Loan Advances.

      (a) Requests for Construction Loan Advances.

            (i) The Borrower shall deliver a Draw Request to the Administrative
      Agent not later than 11:00 a.m. (Charlotte time) at least five (5)
      Business Days before each Construction Loan Advance specifying (A) the
      date of such Construction Loan Advance, which shall be a Business Day, (B)
      the amount of such Construction Loan Advance, which shall be (1) with
      respect to Base Rate Loans in an aggregate principal amount of $100,000 or
      a whole multiple of $10,000 in excess thereof and (2) with respect to
      Eurodollar Rate Loans in an aggregate principle amount of $100,000 or a
      whole multiple of $10,000 in excess thereof, (C) whether such Construction
      Loan Advance is to be to be a Eurodollar Rate Loan or a Base Rate Loan,
      and (D) in the case of a Eurodollar Rate Loan, the duration of the
      Interest Period applicable thereto. A Draw Request received after 11:00
      a.m. (Charlotte time) shall be deemed received on the next Business Day.
      The Administrative Agent shall promptly notify the Lenders of each Notice
      of Borrowing.

            (ii) The Borrower shall be entitled to a Construction Loan Advance
      only in an amount reasonably approved by the Administrative Agent in
      accordance with the terms of this Agreement and the other Loan Documents.
      The Lenders shall not be required to make Construction Loan Advances more
      frequently than once each calendar month. The Lenders shall, only upon the
      reasonable satisfaction of all applicable conditions of this Agreement and
      the other Loan Documents, make the requested Construction Loan Advance to
      the Borrower in accordance with Section 2.2(c).

            (iii) Each Draw Request, and the Borrower's acceptance of any
      Construction Loan Advance, shall be deemed to ratify and confirm that all
      representations and warranties in the Loan Documents remain true and
      correct as of the date of the Draw Request and the Construction Loan
      Advance, respectively.

      (b) Basis for Construction Loan Advances. Following receipt and approval
of a Draw Request, all supporting documentation and information, and receipt and
approval of a written report from the Construction Consultant, the
Administrative Agent will determine the amount of the Construction Loan Advance
the Lenders will make in accordance with this Agreement, the other Loan
Documents and the Budget, and the following standards:

            (i) Construction Loan Advances for construction work will be made on
      the basis of ninety percent (90%) of the costs shown on the application
      for payment from the General Contractor reviewed and approved by the
      Administrative Agent for the work or material in place on the Improvements
      that comply with the terms of the Loan Documents, minus all previous
      Construction Loan Advances and all amounts required to be paid by the

                                       21
<PAGE>
      Borrower, as described in Columns (B) and (C) of the Budget. When the Work
      (as defined in the Construction Contract) is fifty percent (50%) complete,
      there shall be no further retainage for the balance of the Work if the
      Borrower is satisfied that the General Contractor maintains the
      construction schedule provided for in the Construction Contract and is
      performing to the Borrower's satisfaction. If the General Contractor
      subsequently fails to maintain the construction schedule or fails to
      perform the Work to the Borrower's satisfaction, the ten percent (10%)
      retainage may be resumed. There shall be no retainage with respect to the
      General Contractor's fee or with respect to the payment of costs and
      expenses included in the Budget as part of the General Conditions.

            (ii) Construction Loan Advances will not be made for building
      materials or furnishings that are not yet incorporated into the
      Improvements ("stored materials") unless the stored materials are in the
      Borrower's possession or control and satisfactorily stored on the Land and
      the aggregate amount of Construction Loan Advances for stored materials
      does not exceed $250,000.

            (iii) Construction Loan Advances will be made available to the
      Borrower solely to the extent that, at the time of each requested advance
      for construction work, the Borrower shall make available to the
      Administrative Agent in immediately available funds such portion of the
      requested advance for construction work as shall be necessary to ensure
      that the aggregate outstanding principal amount of the Construction Loan
      Advances at no time exceeds the lesser of (A) eighty percent (80%) of the
      Aggregate Project Cost or (B) seventy-five percent (75%) of the Appraised
      Value.

      (c) Disbursement Procedures. Subject to the satisfaction of all applicable
conditions set forth in this Agreement and in the other Loan Documents, not
later than 2:00 p.m. (Charlotte time) on the date of the proposed Construction
Loan Advance, each Lender will make available to the Administrative Agent, for
the account of the Borrower, at the office of the Administrative Agent in funds
immediately available to the Administrative Agent, such Lender's Commitment
Percentage of the Construction Loan Advance to be made on such borrowing date.
The Borrower hereby irrevocably authorizes the Administrative Agent to disburse
the proceeds of each Draw Request approved by the Administrative Agent in
immediately available funds to the Borrower, the General Contractor or the
Architect, as designated by the Borrower. Each disbursement to the Borrower
shall be made by crediting or wiring such proceeds to the deposit account of the
Borrower identified in the most recent notice substantially in the form of
Exhibit D attached hereto (a "Notice of Account Designation") delivered by the
Borrower to the Administrative Agent or as may be otherwise agreed upon by the
Borrower and the Administrative Agent from time to time. Each disbursement to
(i) the Architect shall be made by check sent to the address set forth below and
(ii) the General Contractor shall be made by wire transfer to the account set
forth below:

      If to the Architect:          Odell Associates Inc.
                                    P.O. Box 1070
                                    Charlotte, NC  28201-1070

      If to the General Contractor: Faulkner Construction Company
                                    Bank: Bank of America

                                       22
<PAGE>
                                    ABA#:            111000025
                                    Account Name:    Faulkner Construction
                                    Account Number:  001390022182
                                    Reference Info:  Project #692

Subject to Section 3.7 hereof, the Administrative Agent shall not be obligated
to disburse the portion of the proceeds of any Construction Loan Advance
requested pursuant to this Section 2.2 to the extent that any Lender has not
made available to the Administrative Agent its Commitment Percentage of such
Construction Loan Advance.

      SECTION 2.3. Repayment of Construction Loan Advances. The principal amount
of the Construction Loan Advances outstanding twenty-four (24) months after the
Closing Date shall be repaid by the Borrower in consecutive monthly installments
commencing on the last day of the twenty-fifth (25th) month after the Closing
Date and continuing on the same day of each month thereafter. Each monthly
payment shall be in an amount sufficient to fully amortize the principal balance
of the Construction Loan Facility outstanding twenty-four (24) months after the
Closing Date over a 240-month term; provided that, notwithstanding the
foregoing, the outstanding unpaid principal balance of the Construction Loan
Facility and all accrued and unpaid interest shall be due and payable in full on
July 27, 2006 (the "Maturity Date").

      SECTION 2.4.      Prepayment of Construction Loan Advances.

      (a) Optional Prepayment. The Borrower may at any time and from time to
time prepay the Construction Loan Advances, in whole or in part, upon at least
three (3) Business Days' irrevocable notice to the Administrative Agent with
respect to any prepayment, in the form attached hereto as Exhibit E (a "Notice
of Prepayment"), specifying the date and amount of prepayment and whether the
prepayment is of Eurodollar Rate Loans, Base Rate Loans or a combination
thereof, and, if of a combination thereof, the amount allocable to each. Upon
receipt of such notice, the Administrative Agent shall promptly notify each
Lender. If any such notice is given, the amount specified in such notice shall
be due and payable on the date set forth in such notice. Partial prepayments
shall be in an aggregate amount of $1,000,000 or a whole multiple of $1,000,000
in excess thereof. Partial prepayments shall be applied ratably to the remaining
scheduled principal installments of the Construction Loan Advances (including
the final payment thereof) until the Construction Loan Advances are paid in
full. Any such prepayments shall be applied first to Base Rate Loans and then to
Eurodollar Rate Loans in direct order of maturities of Interest Periods;
provided that any payment of any Eurodollar Rate Loan shall be accompanied by
any amount required to be paid pursuant to Section 3.9 hereof (but otherwise
without premium or penalty).

                                       23
<PAGE>
      (b)   Mandatory Prepayment.

            (i) The Borrower shall make mandatory principal prepayments of the
Construction Loan Advances (A) in accordance with Section 1.6 of the Mortgage
following the receipt thereby of the net cash proceeds under any insurance
policy required to be maintained pursuant to this Agreement, the Mortgage and
the other Loan Documents and (B) in accordance with Section 1.15 of the Mortgage
following the receipt thereby of the net cash proceeds in connection with any
condemnation proceeding.

            (ii) Upon the occurrence of any event triggering the prepayment
requirement pursuant to this Section 2.4(b), the Borrower shall promptly deliver
a Notice of Prepayment to the Administrative Agent and, upon receipt of such
notice, the Administrative Agent shall promptly so notify the Lenders. Each
prepayment under this Section 2.4(b) shall be applied ratably to the remaining
scheduled principal installments of the Construction Loan Advances (including
the final payment thereof) until the Construction Loan Advances are paid in
full. Any such prepayments shall be applied first to Base Rate Loans and then to
Eurodollar Rate Loans in direct order of maturities of Interest Periods;
provided that any payment of any Eurodollar Rate Loan shall be accompanied by
any amount required to be paid pursuant to Section 3.9 hereof (but otherwise
without premium or penalty).

      (c) General Conditions. Amounts prepaid under the Construction Loan
Advances pursuant to this Section 2.4 may not be reborrowed and will constitute
a permanent reduction in the Aggregate Commitment. Each prepayment shall be
accompanied by any amount required to be paid pursuant to Section 3.9 hereof.

      SECTION 2.5. Construction Loan Notes. Each Lender's Construction Loan
Advances and the obligation of the Borrower to repay such Construction Loan
Advances shall be evidenced by a separate Construction Loan Note executed by the
Borrower payable to the order of such Lender.

      SECTION 2.6. Use of Proceeds. The Borrower shall use the proceeds of the
Construction Loan Advances to fund the costs of the Project in accordance with
the Loan Allocation column in the Budget (including, without limitation, to
refinance on the Closing Date any Previously Funded FinCo Loans). The portion of
the Budget allocated to Pre-Opening Operating Costs shall be funded by the
Borrower.

      SECTION 2.7. Budget Reallocation. Construction Loan Advances may be
allocated to line items in the Budget for other purposes or in different
proportions as the Administrative Agent in its sole discretion deems reasonably
necessary or advisable. The Borrower may reallocate Cost Savings from one line
item to another line item in the Budget provided the amount of such reallocation
does not exceed the lesser of (i) the amount of the applicable line item then
being reallocated, and (ii) $500,000 per line item increased or $1,500,000 in
the aggregate. The Borrower shall (i) not, except as provided in the immediately
preceding sentence, reallocate the proceeds of the Construction Loan Advances
from one Budget line item to another or otherwise amend the Budget without the
prior written consent of the Administrative Agent, not to be unreasonably
withheld, other than changes resulting from

                                       24
<PAGE>
Permitted Changes; and (ii) notify the Administrative Agent promptly whenever
the Borrower becomes aware that the Budget is, or might be, inaccurate in any
material respect, and submit to the Administrative Agent an amended Budget.

      SECTION 2.8. Equity Account. $6,005,518.54 shall be deposited in an
interest-bearing account to be maintained by the Borrower with the
Administrative Agent (the "Equity Account"). Interest earned on the Equity
Account shall be part of the Equity Account and shall be paid currently from
time to time to the Borrower. The Equity Account is hereby pledged as additional
collateral for the Obligations, and the Borrower hereby grants and conveys to
the Administrative Agent for the benefit of the Lenders a security interest in
all funds in the Equity Account as additional collateral for the Obligations.
One hundred percent (100%) of each advance which is to pay, or to reimburse
FinCo for paying on the Borrower's behalf, for Pre-Opening Operating Costs shall
be funded out of the Equity Account. If an Event of Default shall have occurred
and be continuing, the Administrative Agent may (but shall have no obligation
to) apply all or any part of the Equity Account against the unpaid Obligations
in such order as the Required Lenders shall determine. Upon (i) the issuance of
the certificate of occupancy for the Improvements and (ii) the Administrative
Agent's confirmation that either (A) the Borrower has satisfied of all
obligations required to be paid by the Borrower in connection with the
construction of the Project or (B) the Borrower has reserved such funds
necessary to satisfy the remaining obligations to be paid by the Borrower in
connection with the construction of the Project), all funds remaining in the
Equity Account (other than the reserved funds), shall be used to prepay the
Construction Loan Facility to the extent necessary to ensure that the
outstanding principal amount under the Construction Loan Facility shall at no
time exceed an amount equal to the lesser (x) eighty percent (80%) of the
Aggregate Project Cost or (y) seventy-five percent (75%) of the Appraised Value.
The balance, if any, shall be returned to Borrower.

      SECTION 2.9. Project Deposit. If at any time the Administrative Agent
determines that the sum of (i) the unadvanced portion of the Construction Loan
Facility to which the Borrower is entitled plus (ii) the amount of the Aggregate
Project Cost scheduled to be paid by the Borrower from other funds which are
available, set aside and committed, to the Administrative Agent's reasonable
satisfaction, is or will be insufficient to pay the unpaid actual Aggregate
Project Cost, the Borrower shall cause FinCo, within seven (7) days after
written notice from the Administrative Agent, to deposit with the Administrative
Agent for the benefit of the Lenders the amount of the deficiency (the "Project
Deposit") in an interest-bearing account, with interest earned thereon to be
part of the Project Deposit. The Project Deposit is hereby pledged as additional
collateral for the Obligations, and the Borrower hereby grants and conveys to
the Administrative Agent for the benefit of the Lenders a security interest in
all funds so deposited with the Administrative Agent as additional collateral
for the Obligations. Upon the occurrence of an Event of Default, the
Administrative Agent may (but shall have no obligation to) apply all or any part
of the Project Deposit against the unpaid Obligations in such order as the
Required Lenders determine. Upon (i) the issuance of the certificate of
occupancy for the Improvements and (ii) the Administrative Agent's confirmation
that either (A) the Borrower has satisfied of all obligations required to be
paid by the Borrower in connection with the construction of the Project or (B)
the Borrower has reserved such funds necessary to satisfy the remaining
obligations to be paid by the Borrower in connection with

                                       25
<PAGE>
the construction of the Project), all funds remaining in the Project Deposit,
shall be used to prepay the Construction Loan Facility to the extent necessary
to ensure that the outstanding principal amount under the Construction Loan
Facility does not exceed an amount equal to the lesser of (x) eighty percent
(80%) of the Aggregate Project Cost or (y) seventy-five percent (75%) of the
Appraised Value. The balance, if any, shall be returned to the Borrower.

      SECTION 2.10 Direct Construction Loan Advances. The Borrower hereby
irrevocably authorizes the Administrative Agent, during the continuance of any
Event of Default (but the Administrative Agent shall have no obligation), to
hold, use, disburse and apply the proceeds of any Construction Loan Advance to
the satisfaction of the Obligations. Each such direct Construction Loan Advance
(except for application of the Project Deposit) shall be added to the
outstanding principal balance of the Construction Loan Advances and shall be
secured by the Loan Documents. Unless the Borrower pays such interest from other
resources, the Administrative Agent may make Construction Loan Advances pursuant
to this Section 2.10 for interest payments as and when due. Nothing contained in
this Agreement shall be construed to permit the Borrower to defer payment of
interest beyond the date(s) due. The allocation of the proceeds of the
Construction Loan Advances in the Budget for interest shall not affect the
Borrower's absolute obligation to pay the same in accordance with the Loan
Documents. The Administrative Agent may hold, use, disburse and apply the
Construction Loan Advances, the Equity Account and the Project Deposit for
payment of any obligation of the Borrower under the Loan Documents. The Borrower
hereby assigns and pledges the proceeds of the Construction Loan Facility and
the Project Deposit to the Administrative Agent for such purposes. The
Administrative Agent may advance and incur such expenses as the Administrative
Agent deems necessary for the completion of the Improvements and to preserve the
Property and any Liens thereon, and such expenses, even though in excess of the
amount of the Construction Loan Advances, shall be secured by the Loan Documents
and shall be payable to the Lenders on demand. The Administrative Agent may
disburse any portion of any Construction Loan Advance at any time, and from time
to time, to Persons other than the Borrower for the purposes specified in this
Section 2.10 and the amount of Construction Loan Advances to which the Borrower
shall thereafter be entitled shall be correspondingly reduced. Notice of the
disbursement of any Construction Loan Advance under this Section 2.10 shall be
given by the Administrative Agent to the Borrower.

                                   ARTICLE III

                             GENERAL LOAN PROVISIONS

      SECTION 3.1.      Interest.

      (a) Interest Rate Options. Subject to the provisions of this Section 3.1,
at the election of the Borrower, Construction Loan Advances shall bear interest
at (A) the Base Rate plus the Applicable Margin as set forth in Section 3.1(c)
or (B) the Eurodollar Rate plus the Applicable Margin as set forth in Section
3.1(c). The Borrower shall select the rate of interest and Interest Period, if
any, applicable to any Construction Loan Advance at the time a Draw Request is
delivered to the Administrative Agent pursuant to Section 2.2 or at the time a
Notice of

                                       26
<PAGE>
Conversion/Continuation is given pursuant to Section 3.2. Each Construction Loan
Advance or portion thereof bearing interest based on the Base Rate shall be a
"Base Rate Loan" and each Construction Loan Advance or portion thereof bearing
interest based on the Eurodollar Rate shall be an "Eurodollar Rate Loan". Any
Construction Loan Advance or any portion thereof as to which the Borrower has
not duly specified an interest rate as provided herein shall be deemed a Base
Rate Loan.

      (b) Interest Periods. In connection with each Eurodollar Rate Loan, the
Borrower, by giving notice at the times described in Section 3.1(a), shall elect
an interest period (each, an "Interest Period") to be applicable to such
Construction Loan Advance, which Interest Period shall be a period of one (1),
two (2), three (3), or six (6) months with respect to each Eurodollar Rate Loan;
provided that:

            (i) the Interest Period shall commence on the date of advance of or
      conversion to any Eurodollar Rate Loan and, in the case of immediately
      successive Interest Periods, each successive Interest Period shall
      commence on the date on which the next preceding Interest Period expires;

            (ii) if any Interest Period would otherwise expire on a day that is
      not a Business Day, such Interest Period shall expire on the next
      succeeding Business Day; provided, that if any Interest Period with
      respect to a Eurodollar Rate Loan would otherwise expire on a day that is
      not a Business Day but is a day of the month after which no further
      Business Day occurs in such month, such Interest Period shall expire on
      the next preceding Business Day;

            (iii) any Interest Period with respect to a Eurodollar Rate Loan
      that begins on the last Business Day of a calendar month (or on a day for
      which there is no numerically corresponding day in the calendar month at
      the end of such Interest Period) shall end on the last Business Day of the
      relevant calendar month at the end of such Interest Period;

            (iv) no Interest Period shall extend beyond the Maturity Date, and
      Interest Periods shall be selected by the Borrower so as to permit the
      Borrower to make the monthly principal installment payments pursuant to
      Section 2.3 without payment of any amounts pursuant to Section 3.9; and

            (v) there shall be no more than five (5) Interest Periods in effect
      at any time.

      (c) Applicable Margin. The Applicable Margin provided for in Section
3.1(a) with respect to any Construction Loan Advance (the "Applicable Margin")
shall be based upon the table set forth below and shall be determined and
adjusted quarterly on the date (each a "Calculation Date") ten (10) Business
Days after the date by which the Borrower is required to provide an Officer's
Compliance Certificate for the most recently ended fiscal quarter of the
Borrower; provided, however, that (i) the initial Applicable Margin shall be
3.50% for Eurodollar Rate Loans and 2.25% for Base Rate Loans and shall remain
in effect until the Initial Pricing Adjustment Date and thereafter the
Applicable Margin shall be determined by reference to the Guarantor Leverage
Ratio as of the last day of the most recently ended fiscal quarter of the

                                       27
<PAGE>
Borrower preceding the applicable Calculation Date and (ii) if the Borrower
fails to provide the Officer's Compliance Certificate as required by Section 6.2
for the most recently ended fiscal quarter of the Borrower preceding the
applicable Calculation Date, the Applicable Margin from such Calculation Date
shall be based on Pricing Level IV (as shown below) until such time as an
appropriate Officer's Compliance Certificate is provided, at which time the
Pricing Level shall be determined by reference to the Guarantor Leverage Ratio
as of the last day of the most recently ended fiscal quarter of the Borrower
preceding such Calculation Date. The Applicable Margin shall be effective from
one Calculation Date until the next Calculation Date. Any adjustment in the
Applicable Margin shall be applicable to all Construction Loan Advances then
existing or subsequently made or issued.

<TABLE>
<CAPTION>
                                                          Applicable Margin
                                                          -----------------
  Pricing                                               Eurodollar  Base Rate
   Level              Guarantor Leverage Ratio             Rate
--------------------------------------------------------------------------------

<S>            <C>                                      <C>         <C>
     I           Less than or equal to 2.00 to 1.00        2.50%      1.25%

     II        Less than or equal to 2.50 to 1.00 but      2.75%      1.50%
                     greater than 2.00 to 1.00

    III        Less than or equal to 3.00 to 1.00 but      3.00%      1.75%
                     greater than 2.50 to 1.00

     IV              Greater than 3.00 to 1.00             3.50%      2.25%
</TABLE>

      (d) Default Rate. Subject to Section 10.3, at the discretion of the
Administrative Agent or the Required Lenders, upon the occurrence and during the
continuance of an Event of Default, (i) the Borrower shall no longer have the
option to request Eurodollar Rate Loans, (ii) all outstanding Eurodollar Rate
Loans shall bear interest at a rate per annum of two percent (2%) in excess of
the rate then applicable to Eurodollar Rate Loans until the end of the
applicable Interest Period and thereafter at a rate equal to two percent (2%) in
excess of the rate then applicable to Base Rate Loans, and (iii) all outstanding
Base Rate Loans and other Obligations shall bear interest at a rate per annum
equal to two percent (2%) in excess of the rate then applicable to Base Rate
Loans or such other Obligations. Interest shall continue to accrue on the
Construction Loan Notes after the filing by or against the Borrower of any
petition seeking any relief in bankruptcy or under any act or law pertaining to
insolvency or debtor relief, whether state, federal or foreign.

      (e) Interest Payment and Computation. Interest on each Base Rate Loan
shall be payable in arrears on the last Business Day of each calendar quarter
commencing December 31, 2001; and interest on each Eurodollar Rate Loan shall be
payable on the last day of each Interest Period applicable thereto, and if such
Interest Period extends over three (3) months, at the end of each three (3)
month interval during such Interest Period. Interest on Eurodollar Rate Loans
and all fees payable hereunder shall be computed on the basis of a 360-day year
and assessed for the actual number of days elapsed and interest on Base Rate
Loans shall be computed on the basis of a 365/66-day year and assessed for the
actual number of days elapsed.

      (f) Maximum Rate. In no contingency or event whatsoever shall the
aggregate of all amounts deemed interest hereunder or under any of the
Construction Loan Notes charged or collected pursuant to the terms of this
Agreement or pursuant to any of the Construction Loan Notes exceed the highest
rate permissible under any Applicable Law which a court of competent

                                       28
<PAGE>
jurisdiction shall, in a final determination, deem applicable hereto. In the
event that such a court determines that the Lenders have charged or received
interest hereunder in excess of the highest applicable rate, the rate in effect
hereunder shall automatically be reduced to the maximum rate permitted by
Applicable Law and the Lenders shall at the Administrative Agent's option (i)
promptly refund to the Borrower any interest received by the Lenders in excess
of the maximum lawful rate or (ii) shall apply such excess to the principal
balance of the Obligations. It is the intent hereof that the Borrower not pay or
contract to pay, and that neither the Administrative Agent nor any Lender
receive or contract to receive, directly or indirectly in any manner whatsoever,
interest in excess of that which may be paid by the Borrower under Applicable
Law.

      SECTION 3.2 Notice and Manner of Conversion or Continuation of
Construction Loan Advances. Provided that no Default or Event of Default has
occurred and is then continuing, the Borrower shall have the option to (a)
convert at any time all or any portion of any outstanding Base Rate Loans in a
principal amount equal to $100,000 or any whole multiple of $10,000 in excess
thereof into one or more Eurodollar Rate Loans and (b) upon the expiration of
any Interest Period, (i) convert all or any part of its outstanding Eurodollar
Rate Loans in a principal amount equal to $100,000 or a whole multiple of
$10,000 in excess thereof into Base Rate Loans or (ii) continue such Eurodollar
Rate Loans as Eurodollar Rate Loans. Whenever the Borrower desires to convert or
continue Construction Loan Advances as provided above, the Borrower shall give
the Administrative Agent irrevocable prior written notice in the form attached
hereto as Exhibit F (a "Notice of Conversion/Continuation") not later than 12:00
p.m. (Charlotte time) three (3) Business Days before the day on which a proposed
conversion or continuation of such Construction Loan Advance is to be effective
specifying (A) the Construction Loan Advances to be converted or continued, and,
in the case of any Eurodollar Rate Loan to be converted or continued, the last
day of the Interest Period therefor, (B) the effective date of such conversion
or continuation (which shall be a Business Day), (C) the principal amount of
such Construction Loan Advances to be converted or continued, and (D) the
Interest Period to be applicable to such converted or continued Eurodollar Rate
Loan. The Administrative Agent shall promptly notify the Lenders of such Notice
of Conversion/Continuation.

      SECTION 3.3       Fees.

      (a) Commitment Fee. During the period commencing on the Closing Date
through and including the Construction Loan Termination Date, the Borrower shall
pay to the Administrative Agent, for the account of the Lenders, a
non-refundable commitment fee at a rate per annum equal to .50% on the average
daily unused portion of the Aggregate Commitment. The commitment fee shall be
payable in arrears on the last Business Day of each calendar quarter during the
term of this Agreement commencing on the last Business Day of the first calendar
quarter end following the Closing Date, and on the Construction Loan Termination
Date. Such commitment fee shall be distributed by the Administrative Agent to
the Lenders pro rata in accordance with the Lenders' respective Commitment
Percentages.

      (b) Annual Administrative Fees. In order to compensate the Administrative
Agent for administering the Construction Loans, the Borrower agrees to pay to
the Administrative Agent, for its account, the annual administrative fees set
forth in the separate fee letter agreement executed by the Borrower, Bank of
America and Banc of America Securities dated June 1, 2001.

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<PAGE>
      SECTION 3.4 Manner of Payment. Each payment by the Borrower on account of
the principal of or interest on the Construction Loan Advances or of any fee,
commission or other amounts payable to the Lenders under this Agreement or any
Construction Loan Note shall be made not later than 1:00 p.m. (Charlotte time)
on the date specified for payment under this Agreement to the Administrative
Agent at the Administrative Agent's Office for the account of the Lenders (other
than as set forth below) pro rata in accordance with their respective Commitment
Percentages (except as specified below), in Dollars, in immediately available
funds and shall be made without any condition, set-off, counterclaim, recoupment
or deduction whatsoever. Any payment received after such time but before 2:00
p.m. (Charlotte time) on such day shall be deemed a payment on such date for the
purposes of Section 10.1, but for all other purposes shall be deemed to have
been made on the next succeeding Business Day. Any payment received after 2:00
p.m. (Charlotte time) shall be deemed to have been made on the next succeeding
Business Day for all purposes. Upon receipt by the Administrative Agent of each
such payment, the Administrative Agent shall distribute to each Lender at its
address for notices set forth herein its pro rata share of such payment in
accordance with such Lender's Commitment Percentage (except as specified below)
and shall wire advice of the amount of such credit to each Lender. Each payment
to the Administrative Agent of Administrative Agent's fees or expenses shall be
made for the account of the Administrative Agent and any amount payable to any
Lender under Sections 3.8, 3.9, 3.10, 3.11 or 12.2 shall be paid to the
Administrative Agent for the account of the applicable Lender. Subject to
Section 3.1(b)(ii) if any payment under this Agreement or any Construction Loan
Note shall be specified to be made upon a day which is not a Business Day, it
shall be made on the next succeeding day which is a Business Day and such
extension of time shall in such case be included in computing any interest if
payable along with such payment.

      SECTION 3.5 Crediting of Payments and Proceeds. In the event that the
Borrower shall fail to pay any of the Obligations when due and the Obligations
have been accelerated pursuant to Section 10.2, all payments received by the
Lenders upon the Construction Loan Notes and the other Obligations and all net
proceeds from the enforcement of the Obligations shall be applied first to all
expenses then due and payable by the Borrower hereunder and under the other Loan
Documents, then to all indemnity obligations then due and payable by the
Borrower hereunder, then to all Administrative Agent's fees then due and
payable, then to all commitment and other fees and commissions then due and
payable, then to accrued and unpaid interest on the Construction Loan Notes,
then to any termination payments due in respect of a Hedging Agreement with any
Lender or the Administrative Agent (which such Hedging Agreement is permitted or
required hereunder) (pro rata in accordance with all such amounts due), and then
to the principal amount of the Construction Loan Notes, in that order.

      SECTION 3.6 Adjustments. If any Lender (a "Benefited Lender") shall at any
time receive any payment of all or part of the Obligations owing to it, or
interest thereon, or if any Lender shall at any time receive any collateral in
respect to the Obligations owing to it (whether voluntarily or involuntarily, by
set-off or otherwise) in a greater proportion than any such payment to and
collateral received by any other Lender, if any, in respect of the Obligations
owing to such other Lender, or interest thereon, such Benefited Lender shall
purchase for cash from the other Lenders such portion of each such other
Lender's Construction Loan Advances, or shall provide such other Lenders with
the benefits of any such collateral, or the proceeds thereof, as shall be

                                       30
<PAGE>
necessary to cause such Benefited Lender to share the excess payment or benefits
of such collateral or proceeds ratably with each of the Lenders; provided, that
if all or any portion of such excess payment or benefits is thereafter recovered
from such Benefited Lender, such purchase shall be rescinded, and the purchase
price and benefits returned to the extent of such recovery, but without
interest. The Borrower agrees that each Lender so purchasing a portion of
another Lender's Construction Loan Advances may exercise all rights of payment
(including, without limitation, rights of set-off) with respect to such portion
as fully as if such Lender were the direct holder of such portion.

      SECTION 3.7 Nature of Obligations of the Lenders Regarding Construction
Loan Advances; Assumption by the Administrative Agent. The obligations of the
Lenders under this Agreement to make the Construction Loan Advances are several
and are not joint or joint and several. Unless the Administrative Agent shall
have received notice from a Lender prior to a proposed borrowing date that such
Lender will not make available to the Administrative Agent such Lender's ratable
portion of the amount to be borrowed on such date (which notice shall not
release such Lender of its obligations hereunder), the Administrative Agent may
assume that such Lender has made such portion available to the Administrative
Agent on the proposed borrowing date in accordance with Section 2.2(c), and the
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower on such date a corresponding amount. If such amount is made
available to the Administrative Agent on a date after such borrowing date, such
Lender shall pay to the Administrative Agent on demand an amount, until paid,
equal to the product of (a) the amount not made available by such Lender in
accordance with the terms hereof, times (b) the daily average Federal Funds Rate
during such period as determined by the Administrative Agent, times (c) a
fraction the numerator of which is the number of days that elapse from and
including such borrowing date to the date on which such amount not made
available by such Lender in accordance with the terms hereof shall have become
immediately available to the Administrative Agent and the denominator of which
is 360. A certificate of the Administrative Agent with respect to any amounts
owing under this Section 3.7 shall be conclusive, absent manifest error. If such
Lender's Commitment Percentage of such borrowing is not made available to the
Administrative Agent by such Lender within three (3) Business Days after such
borrowing date, the Administrative Agent shall be entitled to recover such
amount made available by the Administrative Agent with interest thereon at the
rate per annum applicable to such borrowing, on demand, from the Borrower. The
failure of any Lender to make available its Commitment Percentage of any
Construction Loan requested by the Borrower shall not relieve it or any other
Lender of its obligation, if any, hereunder to make its Commitment Percentage of
such Construction Loan Advance available on the borrowing date, but no Lender
shall be responsible for the failure of any other Lender to make its Commitment
Percentage of such Construction Loan Advance available on the borrowing date.
Notwithstanding anything set forth herein to the contrary, any Lender that fails
to make available its Commitment Percentage shall not (a) have any voting or
consent rights under or with respect to any Loan Document or (b) constitute a
"Lender" (or be included in the calculation of Required Lenders hereunder) for
any voting or consent rights under or with respect to any Loan Document.

                                       31
<PAGE>
      SECTION 3.8       Changed Circumstances.

      (a) Circumstances Affecting Eurodollar Rate Availability. If with respect
to any Interest Period the Administrative Agent or any Lender (after
consultation with Administrative Agent) shall determine that, by reason of
circumstances affecting the foreign exchange and interbank markets generally,
deposits in eurodollars, in the applicable amounts are not being quoted via any
applicable page or screen or otherwise offered to the Administrative Agent or
such Lender for such Interest Period, then the Administrative Agent shall
forthwith give notice thereof to the Borrower. Thereafter, until the
Administrative Agent notifies the Borrower that such circumstances no longer
exist, the obligation of the Lenders to make Eurodollar Rate Loans and the right
of the Borrower to convert any Construction Loan Advance to or continue any
Construction Loan Advance as a Eurodollar Rate Loan shall be suspended, and the
Borrower shall repay in full (or cause to be repaid in full) the then
outstanding principal amount of each such Eurodollar Rate Loan together with
accrued interest thereon, on the last day of the then current Interest Period
applicable to such Eurodollar Rate Loan or convert the then outstanding
principal amount of each such Eurodollar Rate Loan to a Base Rate Loan as of the
last day of such Interest Period.

      (b) Laws Affecting Eurodollar Rate Availability. If, after the date
hereof, the introduction of, or any change in, any Applicable Law or any change
in the interpretation or administration thereof by any Governmental Authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender (or any of its Lending
Offices) with any request or directive (whether or not having the force of law)
of any such Governmental Authority, central bank or comparable agency, shall
make it unlawful or impossible for any of the Lenders (or any of their
respective Lending Offices) to honor its obligations hereunder to make or
maintain any Eurodollar Rate Loan, such Lender shall promptly give notice
thereof to the Administrative Agent and the Administrative Agent shall promptly
give notice to the Borrower and the other Lenders. Thereafter, until the
Administrative Agent notifies the Borrower that such circumstances no longer
exist, (i) the obligations of the Lenders to make Eurodollar Rate Loans and the
right of the Borrower to convert any Construction Loan Advance or continue any
Construction Loan Advance as a Eurodollar Rate Loan shall be suspended and
thereafter the Borrower may select only Base Rate Loans hereunder, and (ii) if
any of the Lenders may not lawfully continue to maintain a Eurodollar Rate Loan
to the end of the then current Interest Period applicable thereto as a
Eurodollar Rate Loan, the applicable Eurodollar Rate Loan shall immediately be
converted to a Base Rate Loan for the remainder of such Interest Period.

      (c) Increased Costs. If, after the date hereof, the introduction of, or
any change in, any Applicable Law, or in the interpretation or administration
thereof by any Governmental Authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any of the
Lenders (or any of their respective Lending Offices) with any request or
directive (whether or not having the force of law) of such Governmental
Authority, central bank or comparable agency:

            (i) shall subject any of the Lenders (or any of their respective
      Lending Offices) to any tax, duty or other charge with respect to any
      Construction Loan Note or shall change the basis of taxation of payments
      to any of the Lenders (or any of their

                                       32
<PAGE>
      respective Lending Offices) of the principal of or interest on any
      Construction Loan Note or any other amounts due under this Agreement in
      respect thereof (except for changes in the rate of tax on the overall net
      income of any of the Lenders or any of their respective Lending Offices
      imposed by the jurisdiction in which such Lender is organized or is or
      should be qualified to do business or such Lending Office is located); or

            (ii) shall impose, modify or deem applicable any reserve (including,
      without limitation, any imposed by the Board of Governors of the Federal
      Reserve System), special deposit, insurance or capital or similar
      requirement against assets of, deposits with or for the account of, or
      credit extended by any of the Lenders (or any of their respective Lending
      Offices) or shall impose on any of the Lenders (or any of their respective
      Lending Offices) or the foreign exchange and interbank markets any other
      condition affecting any Construction Loan Note; and the result of any of
      the foregoing is to increase the costs to any of the Lenders of
      maintaining any Eurodollar Rate Loan or to reduce the yield or amount of
      any sum received or receivable by any of the Lenders under this Agreement
      or under the Construction Loan Notes in respect of a Eurodollar Rate Loan,
      then such Lender shall promptly notify the Administrative Agent, and the
      Administrative Agent shall promptly notify the Borrower of such fact and
      demand compensation therefor and, within fifteen (15) days after such
      notice by the Administrative Agent, the Borrower shall pay to such Lender
      such additional amount or amounts as will compensate such Lender or
      Lenders for such increased cost or reduction. The Administrative Agent
      will promptly notify the Borrower of any event of which it has knowledge
      which will entitle such Lender to compensation pursuant to this Section
      3.8(c);

provided, that the Administrative Agent shall incur no liability whatsoever to
the Lenders or the Borrower in the event it fails to do so. The amount of such
compensation shall be determined, in the applicable Lender's sole discretion,
based upon the assumption that such Lender funded its Commitment Percentage of
the Eurodollar Rate Loans in the London interbank market and using any
reasonable attribution or averaging methods which such Lender deems appropriate
and practical. A certificate of such Lender setting forth the basis for
determining such amount or amounts necessary to compensate such Lender shall be
forwarded to the Borrower through the Administrative Agent and shall be
conclusively presumed to be correct save for manifest error.

      SECTION 3.9 Indemnity. The Borrower hereby indemnifies each of the Lenders
against any loss or expense which may arise or be attributable to each Lender's
obtaining, liquidating or employing deposits or other funds acquired to effect,
fund or maintain any Construction Loan Advance (a) as a consequence of any
failure by the Borrower to make any payment when due of any amount due hereunder
in connection with a Eurodollar Rate Loan, (b) due to any failure of the
Borrower to borrow on a date specified therefor in a Draw Request or a Notice of
Continuation/Conversion or (c) due to any payment, prepayment or conversion of
any Eurodollar Rate Loan on a date other than the last day of the Interest
Period therefor. The amount of such loss or expense shall be determined, in the
applicable Lender's sole discretion, based upon the assumption that such Lender
funded its Commitment Percentage of the Eurodollar Rate Loans in the London
interbank market and using any reasonable attribution or averaging methods which
such Lender deems appropriate and practical. A certificate of such Lender
setting forth the basis for determining such amount or amounts necessary to
compensate such Lender shall be forwarded

                                       33
<PAGE>
to the Borrower through the Administrative Agent and shall be conclusively
presumed to be correct save for manifest error.

      SECTION 3.10 Capital Requirements. If either (a) the introduction of, or
any change in, or in the interpretation of, any Applicable Law or (b) compliance
with any guideline or request from any central bank or comparable agency or
other Governmental Authority (whether or not having the force of law), has or
would have the effect of reducing the rate of return on the capital of, or has
affected or would affect the amount of capital required to be maintained by, any
Lender or any corporation controlling such Lender as a consequence of, or with
reference to the Commitments and other commitments of this type, below the rate
which such Lender or such other corporation could have achieved but for such
introduction, change or compliance, then within five (5) Business Days after
written demand by any such Lender, the Borrower shall pay to such Lender from
time to time as specified by such Lender additional amounts sufficient to
compensate such Lender or other corporation for such reduction. A certificate as
to such amounts submitted to the Borrower and the Administrative Agent by such
Lender, shall, in the absence of manifest error, be presumed to be correct and
binding for all purposes.

      SECTION 3.11      Taxes.

      (a) Payments Free and Clear. Any and all payments by the Borrower
hereunder or under the Construction Loan Notes shall be made free and clear of
and without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholding, and all liabilities with respect thereto
excluding, (i) in the case of each Lender and the Administrative Agent, income
and franchise taxes imposed by the jurisdiction under the laws of which such
Lender or the Administrative Agent (as the case may be) is organized or is or
should be qualified to do business or any political subdivision thereof and (ii)
in the case of each Lender, income and franchise taxes imposed by the
jurisdiction of such Lender's Lending Office or any political subdivision
thereof (all such non-excluded taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as "Taxes"). If the
Borrower shall be required by law to deduct or withhold any Taxes from or in
respect of any sum payable hereunder or under any Construction Loan Note to any
Lender or the Administrative Agent, (A) the sum payable shall be increased as
may be necessary so that after making all required deductions or withholdings
(including deductions or withholdings applicable to additional sums payable
under this Section 3.11) such Lender or the Administrative Agent (as the case
may be) receives an amount equal to the amount such party would have received
had no such deductions or withholdings been made, (B) the Borrower shall make
such deductions or withholdings, (C) the Borrower shall pay the full amount
deducted to the relevant taxing authority or other authority in accordance with
Applicable Law, and (D) the Borrower shall deliver to the Administrative Agent
evidence of such payment to the relevant taxing authority or other Governmental
Authority in the manner provided in Section 3.11(d).

      (b) Stamp and Other Taxes. In addition, the Borrower shall pay any present
or future stamp, registration, recordation or documentary taxes or any other
similar fees or charges or excise or property taxes, levies of the United States
or any state or political subdivision thereof or any applicable foreign
jurisdiction which arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement, the

                                       34
<PAGE>
Construction Loan Advances, or the other Loan Documents, or the perfection of
any rights or security interest in respect thereof (hereinafter referred to as
"Other Taxes").

      (c) Indemnity. The Borrower shall indemnify each Lender and the
Administrative Agent for the full amount of Taxes and Other Taxes (including,
without limitation, any Taxes and Other Taxes imposed by any jurisdiction on
amounts payable under this Section 3.11) paid by such Lender or the
Administrative Agent (as the case may be) and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
Such indemnification shall be made within thirty (30) days from the date such
Lender or the Administrative Agent (as the case may be) makes written demand
therefor.

      (d) Evidence of Payment. Within thirty (30) days after the date of any
payment of Taxes or Other Taxes, the Borrower shall furnish to the
Administrative Agent, at its address referred to in Section 12.1, the original
or a certified copy of a receipt evidencing payment thereof or other evidence of
payment satisfactory to the Administrative Agent.

      (e) Delivery of Tax Forms. Each Lender organized under the laws of a
jurisdiction other than the United States or any state thereof (a "Foreign
Lender") shall deliver to the Borrower, with a copy to the Administrative Agent,
on the Closing Date or concurrently with the delivery of the relevant Assignment
and Acceptance, as applicable, (i) two United States Internal Revenue Service
Forms W-8ECI or Forms W-8BEN, as applicable (or successor forms) properly
completed and certifying in each case that such Lender is entitled to a complete
exemption from withholding or deduction for or on account of any United States
federal income taxes, and (ii) an Internal Revenue Service Form W-8BEN or W-8ECI
or successor applicable form, as the case may be, to establish an exemption from
United States backup withholding taxes. Each such Lender further agrees to
deliver to the Borrower, with a copy to the Administrative Agent, a Form W-8BEN
or W-8ECI, or successor applicable forms or manner of certification, as the case
may be, on or before the date that any such form expires or becomes obsolete or
after the occurrence of any event requiring a change in the most recent form
previously delivered by it to the Borrower, certifying in the case of a Form
W-8BEN or W-8ECI that such Lender is entitled to receive payments under this
Agreement without deduction or withholding of any United States federal income
taxes (unless in any such case an event (including, without limitation, any
change in treaty, law or regulation) has occurred prior to the date on which any
such delivery would otherwise be required which renders such forms inapplicable
or the exemption to which such forms relate unavailable and such Lender notifies
the Borrower and the Administrative Agent that it is not entitled to receive
payments without deduction or withholding of United States federal income taxes)
and, in the case of a Form W-8BEN or W-8ECI, establishing an exemption from
United States backup withholding tax.

      (f) Survival. Without prejudice to the survival of any other agreement of
the Borrower hereunder, the agreements and obligations of the Borrower contained
in this Section 3.11 shall survive the payment in full of the Obligations and
the termination of the Commitments.

      SECTION 3.12 Security. The Obligations of the Borrower shall be secured as
provided in the Security Documents.

                                       35
<PAGE>
      SECTION 3.13      Replacement of Lenders.

      (a) If any Lender requests compensation pursuant to Section 3.8 or Section
3.10, or if the Borrower is required to pay any additional amount to any Lender
or any Governmental Authority for the account of any Lender pursuant to Section
3.11, then such Lender shall use reasonable efforts to designate a different
lending office for funding or booking its Construction Loan Advances hereunder
or to assign its rights and obligations hereunder to another of its offices,
branches or affiliates, if, in the judgment of such Lender, such designation or
assignment (A) would eliminate or reduce amounts payable pursuant to Section
3.8, Section 3.10 or Section 3.11, as the case may be, in the future and (B)
would not subject such Lender to any unreimbursed cost or expense and would not
otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay
all reasonable costs and expenses incurred by any Lender in connection with any
such designation or assignment.

      (b) If any Lender requests compensation pursuant to Section 3.8 or Section
3.10, or if the Borrower is required to pay any additional amount to any Lender
or any Governmental Authority for the account of any Lender pursuant to Section
3.11, then the Borrower may, at its sole expense and effort, upon notice to such
Lender and the Administrative Agent, require such Lender to assign and delegate,
without recourse (in accordance with and subject to the restrictions contained
in Section 12.10), all its interests, rights and obligations under this
Agreement to an Eligible Assignee that shall assume such obligations (which
assignee may be another Lender, if a Lender accepts such assignment); provided
that (A) the Borrower shall have received the prior written consent of the
Administrative Agent, which consent shall not unreasonably be withheld, (B) such
Lender shall have received payment of an amount equal to the outstanding
principal of its Construction Loan Advances, accrued interest thereon, accrued
fees, breakage costs and all other amounts payable to it hereunder, from the
assignee (to the extent of such outstanding principal and accrued interest and
fees) or the Borrower (in the case of all other amounts) and (C) in the case of
any such assignment resulting from a claim for compensation pursuant to Section
3.8 or Section 3.10, such assignment will result in a reduction in such
compensation or payments. A Lender shall not be required to make any such
assignment and delegation if, prior thereto, as a result of a waiver by such
Lender or otherwise, the circumstances entitling the Borrower to require such
assignment and delegation cease to apply.

      (c) To the extent that any Lender (a "Replaced Lender") is required to
assign all of its interests, rights and obligations under this Agreement to an
Eligible Assignee (a "Replacement Lender") pursuant to this Section 3.13, upon
the execution of all applicable assignment documents and the satisfaction of all
other conditions set forth herein, the Replacement Lender shall become a Lender
hereunder and the Replaced Lender shall cease to be a Lender hereunder, except
with respect to the indemnification provisions under this Agreement, which
provisions shall survive as to such Replaced Lender.

                                       36
<PAGE>
                                   ARTICLE IV

                CLOSING; CONDITIONS OF CLOSING AND BORROWING

      SECTION 4.1 Closing. The closing shall take place at the offices of
Kennedy Covington Lobdell & Hickman, L.L.P., 100 North Tryon Street, Suite 4200,
Charlotte, North Carolina 28202, at 10:00 a.m. on November 21, 2001, or on such
other date and time as the parties hereto shall mutually agree.

      SECTION 4.2 Conditions to Closing and Initial Construction Loan Advance.
The obligation of the Lenders to close this Agreement and to make the initial
Construction Loan Advance is subject to the satisfaction of each of the
following conditions:

            (a) Executed Loan Documents. This Agreement, the Construction Loan
      Notes, the Guaranty Agreement, the Pledge Agreement, the Security
      Agreement, the Mortgage, the Collateral Assignment of Architect's
      Contract, the Collateral Assignment of Construction Contract, the
      Management Fee and Guaranty Fee Subordination Agreement, each Intercompany
      Loan Subordination Agreement, together with any other applicable Loan
      Documents, shall have been duly authorized, executed and delivered to the
      Administrative Agent by the parties thereto, shall be in full force and
      effect and no default or event of default shall exist thereunder, and the
      Borrower shall have delivered original counterparts thereof to the
      Administrative Agent.

            (b)   Closing Certificates; etc.

                  (i) Officer's Certificate of the Borrower. The Administrative
            Agent shall have received a certificate from a Responsible Officer
            of the Management Company, in its capacity as the duly authorized
            and acting Manager of the Borrower, in form and substance
            satisfactory to the Administrative Agent, to the effect that all
            representations and warranties of the Borrower contained in this
            Agreement and the other Loan Documents are true, correct and
            complete; that the Borrower is not in violation of any of the
            covenants contained in this Agreement and the other Loan Documents;
            that, after giving effect to the transactions contemplated by this
            Agreement, no Default or Event of Default has occurred and is
            continuing; and that the Borrower has satisfied each of the closing
            conditions.

                  (ii) Officer's Certificate of the Guarantors. The
            Administrative Agent shall have received a certificate from a
            Responsible Officer of the Parent, on behalf of itself and the other
            Guarantors, in form and substance satisfactory to the Administrative
            Agent, to the effect that all representations and warranties of the
            Guarantors contained in the Guaranty Agreement and the other Loan
            Documents are true, correct and complete; that the Guarantors are
            not in violation of any of the covenants contained in the Guaranty
            Agreement and the other Loan Documents; that, after giving effect to
            the transactions contemplated by the Guaranty Agreement, no Default
            or Event of Default has occurred and is continuing; and that the
            Guarantors have satisfied each of the closing conditions.

                                       37
<PAGE>
                  (iii) Certificate of Secretary of the Borrower. The
            Administrative Agent shall have received a certificate of the
            secretary or assistant secretary of the Management Company, in its
            capacity as the duly authorized Manager of the Borrower, certifying
            as to the incumbency and genuineness of the signature of each
            officer of the Management Company executing Loan Documents to which
            the Borrower is a party and certifying that attached thereto is a
            true, correct and complete copy of (A) the certificate of limited
            partnership of the Borrower and all amendments thereto, certified as
            of a recent date by the appropriate Governmental Authority in its
            jurisdiction of incorporation, (B) the limited partnership agreement
            of the Borrower as in effect on the date of such certifications, (C)
            resolutions duly adopted by the Board of Directors of the Management
            Company as general partner of the Borrower and resolutions duly
            adopted by the investor representatives of the Borrower authorizing
            the borrowings contemplated hereunder and the execution, delivery
            and performance of this Agreement and the other Loan Documents to
            which the Borrower is a party, (D) each certificate required to be
            delivered pursuant to Section 4.2(b)(v) and (E) the Management
            Agreement (if applicable).

                  (iv) Certificate of Secretary of the Guarantors. The
            Administrative Agent shall have received a certificate of the
            secretary or assistant secretary of each Guarantor certifying as to
            the incumbency and genuineness of the signature of each officer of
            each Guarantor executing Loan Documents to which it is a party,
            certifying that attached thereto is a true, complete and correct
            copy of (A) the articles of organization, the articles of
            incorporation or such other charter documents of such Guarantor and
            all amendments thereto, certified as of a recent date by the
            appropriate Governmental Authority in its jurisdiction of
            organization or incorporation, (B) the operating agreement, the
            bylaws or such other applicable documents governing management of
            such Guarantor as in effect on the date of such certification, (C)
            resolutions duly adopted by the Board of Directors of such Guarantor
            authorizing the execution, delivery and performance of the Loan
            Documents to which it is a party and (D) each certificate required
            to be delivered pursuant to Section 4.2(b)(v).

                       (v) Certificates of Good Standing.

                        (A) The Administrative Agent shall have received
            certificates as of a recent date of the good standing of the
            Borrower and of the Management Company under the laws of their
            respective jurisdictions of organization and certificates as of a
            recent date of the good standing of the Borrower and the Management
            Company under the laws of the State in which the Project is located
            and certificates of the relevant taxing authorities of such
            jurisdictions certifying that such Person has filed required tax
            returns and owes no delinquent taxes.

                        (B) The Administrative Agent shall have received
            certificates as of a recent date of the good standing of each
            Guarantor (other than the Management Company) under the laws of its
            jurisdiction of organization and, to

                                       38
<PAGE>
            the extent requested by the Administrative Agent, each other
            jurisdiction where the each Guarantor is qualified to do business
            and a certificate of the relevant taxing authorities of such
            jurisdictions certifying that each Guarantor has filed required tax
            returns and owes no delinquent taxes.

                  (vi) Opinions of Counsel. The Administrative Agent shall have
            received favorable opinions of counsel to the Borrower and the
            Guarantors addressed to the Administrative Agent and the Lenders
            with respect to the Borrower and the Guarantors, the Loan Documents
            and such other matters as the Lenders shall request.

                  (vii) Tax Forms.  The Administrative Agent shall have
            received copies of the United States Internal Revenue Service
            forms required by Section 3.11(e) hereof.

            (c)   Collateral.

                  (i) Filings and Recordings. All filings and recordations
            necessary to perfect the liens and security interests of the Lenders
            in the collateral described in the Security Documents shall have
            been executed and delivered to the Administrative Agent.

                  (ii) Pledged Collateral. The Administrative Agent shall have
            received original stock certificates or other certificates
            evidencing the capital stock or other ownership interests pledged
            pursuant to the Pledge Agreement, if any, together with an undated
            stock power for each such certificate duly executed in blank by the
            registered owner thereof.

                  (iii) Lien Search. The Administrative Agent shall have
            received (A) the results of a Lien search (including a search as to
            judgments, pending litigation and tax matters) made against the
            Borrower under the Uniform Commercial Code (or applicable judicial
            docket) as in effect in any state in which any of its assets are
            located, indicating among other things that its assets are free and
            clear of any Lien except for Liens permitted hereunder and (B) if
            required by the Administrative Agent, the results of a search of the
            appropriate judgment and tax lien records, showing no outstanding
            judgment or tax lien against the Borrower or any Guarantor.

                  (iv) Hazard (Builder's Risk) and Liability Insurance. The
            Administrative Agent shall have received certificates of insurance,
            evidence of payment of all insurance premiums for the current policy
            year of each insurance policy, and, if requested by the
            Administrative Agent, copies (certified by a Responsible Officer of
            the Management Company) of each insurance policy in the form
            required hereunder and under the Security Documents and otherwise in
            form and substance reasonably satisfactory to the Administrative
            Agent.

                                       39
<PAGE>
                  (v) Title Insurance. The Administrative Agent shall have
            received a marked-up commitment for a policy of title insurance,
            insuring the Lenders' first priority Lien and showing no Liens prior
            to the Lenders' Lien other than for ad valorem taxes not yet due and
            payable and encumbrances on, and exceptions to, title acceptable to
            the Administrative Agent, with title insurance companies and
            coverages acceptable to the Administrative Agent on the property
            subject to the Mortgage, with the final title insurance policy being
            delivered within thirty (30) days after the Closing Date.
            Furthermore, the Borrower agrees to provide or obtain any customary
            affidavits and indemnities as may be required or necessary to obtain
            title insurance satisfactory to the Administrative Agent.

                  (vi)  Title Exceptions.  The Administrative Agent shall
            have received copies of all recorded documents creating
            exceptions to the title policy referred to in Section 4.2(c)(v).

                  (vii) Matters Relating to Flood Hazard Properties. The
            Administrative Agent shall have received a certification from a
            nationally recognized reporting agency, certifying that none of the
            Land is located in a flood hazard area.

                  (viii) Boundary Survey. The Administrative Agent shall have a
            boundary survey of the Land as of a date not more than thirty (30)
            days prior to the Closing Date certified by a registered engineer or
            land surveyor. To the extent necessary to permit the issuance of
            title insurance without exception for matters of survey, such survey
            shall be accompanied by an affidavit (a "Survey Affidavit") of the
            Management Company, on behalf of the Borrower, in form and substance
            satisfactory to the Administrative Agent. Such survey shall show the
            area of the Land, all boundaries of the Land with courses and
            distances indicated, including chord bearings and arc and chord
            distances for all curves, and shall show dimensions and locations of
            all easements, private drives, roadways, and other facts materially
            affecting the Land, and shall show such other details as the
            Administrative Agent may reasonably request, including, without
            limitation, any encroachment (and the extent thereof in feet and
            inches) onto the Land or by any of the improvements on the property
            upon adjoining land or upon any easement burdening the Land; any
            improvements, to the extent constructed, and the relation of the
            improvements by distances to the boundaries of the Land, to any
            easements burdening the Land, and to the established building lines
            and the street lines; and if improvements are existing, (A) a
            statement of the number of each type of parking space required by
            applicable laws, ordinances, orders, rules, regulations, restrictive
            covenants and easements affecting the improvements, and the number
            of each such type of parking space provided, and (B) the location of
            all utilities serving the improvements.

                  (ix) Environmental Assessment. The Administrative Agent shall
            have received a Phase I environmental assessment and such other
            environmental reports reasonably requested by the Administrative
            Agent regarding the Land by an environmental engineering firm
            acceptable to the Administrative Agent showing

                                       40
<PAGE>
            no environmental conditions or liabilities in violation of
            Environmental Laws that could reasonably be expected to have a
            Material Adverse Effect.

                  (x) Plans. The Administrative Agent shall have received and
            approved a true and correct copy of all existing Plans (including
            the site plan), together with satisfactory evidence that all
            applicable Governmental Authorities, the Borrower, Architect,
            General Contractor and Construction Consultant have approved the
            same.

                  (xi) Contracts. The Administrative Agent shall have received
            and approved (a) a list containing the names and addresses of the
            General Contractor and Architect, their respective contract amounts,
            and a copy of their contracts; and (b) duly executed, acknowledged
            and delivered originals from the General Contractor and the
            Architect of (i) consents or other agreements reasonably
            satisfactory to Administrative Agent and (ii) agreements reasonably
            satisfactory to Administrative Agent subordinating all rights,
            liens, claims and charges they may have or acquire against the
            Borrower or the Property to the rights, liens and security interests
            of Administrative Agent on behalf of the Lenders.

                  (xii) Soil Reports. The Administrative Agent shall have
            received and approved a soil composition and test boring report with
            respect to the Land, which shall be satisfactory to the
            Administrative Agent and upon which the Administrative Agent shall
            be entitled to rely, made within thirty (30) days of the Closing
            Date of this Agreement by a licensed professional engineer
            satisfactory to the Administrative Agent.

                  (xiii) Access, Utilities, and Laws. The Administrative Agent
            shall have received and approved (a) satisfactory evidence that the
            Land abuts and has fully adequate direct access to a public street
            (indication of such access on the as-built survey noted in clause
            (viii) above being deemed satisfactory evidence); (b) evidence that
            all utilities necessary for the Improvements are available at the
            Land in sufficient capacity (indication of such availability on the
            as-built survey noted in clause (viii) above being deemed
            satisfactory evidence); (c) satisfactory evidence that all
            applicable zoning ordinances, restrictive covenants and governmental
            requirements affecting the Land permit the use for which the
            Property is intended and have been or will be complied with without
            the necessity of variance and without the Property being a
            nonconforming use; (d) a true and correct copy of a valid building
            permit or grading permit, as applicable, for the Improvements,
            together with all other permits and approvals necessary for
            construction of the Improvements; and (e) evidence satisfactory to
            the Administrative Agent of compliance by the Borrower and the
            Property, and the proposed construction, use and occupancy of the
            Improvements, with such other applicable laws and governmental
            requirements as the Administrative Agent may request, including all
            laws and governmental requirements regarding access and facilities
            for handicapped or disabled persons including, without limitation
            and to the extent applicable, The Federal Architectural Barriers Act
            (42 U.S.C.Section 4151 et seq.), The

                                       41
<PAGE>
            Fair Housing Amendments Act of 1988 (42 U.S.C.Section 3601 et seq.),
            The Americans With Disabilities Act of 1990 (42 U.S.C.Section 12101
            et seq.), The Rehabilitation Act of 1973 (29 U.S.C.Section 794) and
            any applicable state requirements.

                  (xiv) Priority. The Administrative Agent shall have received
            and approved evidence satisfactory to the Administrative Agent that
            (A) no activity or circumstance was visible on or near the Land
            which would constitute inception of a mechanic's or materialman's
            lien against the Land unless (1) such lien has been fully waived or
            subordinated or (2) the underlying obligation with respect to such
            lien has been paid in full, in each case to the Administrative
            Agent's satisfaction, (B) no contract, or memorandum thereof, for
            construction, design, surveying, or any other service relating to
            the Project has been filed for record in the county where the Land
            is located and (C) no mechanic's or materialman's lien claim or
            notice, lis pendens, judgment, or other claim or encumbrance against
            the Land has been filed for record in the county where the Land is
            located or in any other public record which by law provides notice
            of claims or encumbrances regarding the Land.

                  (xv) Bonds. The Administrative Agent shall have received and
            approved (a) a performance bond for the General Contractor, in
            amount, form and content reasonably satisfactory to the
            Administrative Agent and (b) a payment bond for the General
            Contractor, in amount, form and content reasonably satisfactory to
            the Administrative Agent.

                  (xvi) Tax and Standby Fee Certificates. The Administrative
            Agent shall have received and approved satisfactory evidence (a) of
            the identity of all taxing authorities and utility districts (or
            similar authorities) having jurisdiction over the Property or any
            portion thereof; (b) that all taxes, standby fees and any other
            similar charges have been paid, including copies of receipts or
            statements marked "paid" by the appropriate authority; and (c) that
            the Land is a separate tax lot or lots with separate assessment or
            assessments of the Land and Improvements, independent of any other
            land or improvements.

                  (xvii)      Construction Contract.  The Construction
            Contract shall be in full force and effect.

                  (xviii) Appraisal. The Administrative Agent shall have
            received and accepted a market value appraisal of the Property
            (including, without limitation, evidence that the Aggregate
            Commitment does not exceed seventy-five percent (75%) of the
            Appraised Value).

                  (xix) Budget and Draw Schedule. The Administrative Agent shall
            have received and approved (A) the Budget and (B) the Borrower's
            proposed cash flow, draw schedule and construction schedule for the
            Project.

                                       42
<PAGE>
                  (xx) Other Information. The Administrative Agent shall have
            received such other certificates, documents and information as are
            reasonably requested by the Lenders, including, without limitation,
            local opinions of counsel, engineering and structural reports and
            evidence of zoning compliance, each in form and substance
            satisfactory to the Administrative Agent.

            (d)   Consents; Defaults.

                  (i) Governmental and Third Party Approvals. The Borrower shall
            have obtained all necessary approvals, authorizations and consents
            of any Person which are material to the conduct of its business and
            of all Governmental Authorities and courts having jurisdiction with
            respect to the transactions contemplated by this Agreement and the
            other Loan Documents and the conduct of its business.

                  (ii) No Injunction, Etc. No action, proceeding, investigation,
            regulation or legislation shall have been instituted or threatened
            in writing before any Governmental Authority to enjoin, restrain, or
            prohibit, or to obtain substantial damages in respect of, or which
            is related to or arises out of this Agreement or the other Loan
            Documents or the consummation of the transactions contemplated
            hereby or thereby, or which, in the Administrative Agent's sole
            discretion, would make it inadvisable to consummate the transactions
            contemplated by this Agreement and such other Loan Documents.

                  (iii) No Event of Default.  No Default or Event of
            Default shall have occurred and be continuing.

            (e)   Financial Matters.

                  (i) Financial Statements. The Administrative Agent shall have
            received the most recent audited Consolidated financial statements
            of the Parent and its Subsidiaries, all in form and substance
            reasonably satisfactory to the Administrative Agent and prepared in
            accordance with GAAP.

                  (ii)  Financial Condition Certificate.

                        (A) The Borrower shall have delivered to the
            Administrative Agent a certificate, in form and substance reasonably
            satisfactory to the Administrative Agent, and certified as accurate
            by a Responsible Officer of the Borrower, that (1) the Borrower is
            Solvent, (2) the Borrower's payables are current and not past due
            except those contested in good faith and (3) the financial
            projections previously delivered to the Administrative Agent
            represent the good faith estimates (utilizing reasonable
            assumptions) of the financial condition and operations of the
            Borrower .

                                       43
<PAGE>
                        (B) The Parent shall have delivered to the
            Administrative Agent a certificate, in form and substance reasonably
            satisfactory to the Administrative Agent, and certified as accurate
            by a Responsible Officer of the Parent, that (1) the Parent and each
            of its Subsidiaries are each Solvent, (2) the payables of the Parent
            and each of its Subsidiaries are current and not past due except
            those contested in good faith, (3) attached thereto are calculations
            evidencing compliance on a pro forma basis with the covenants
            contained in Section 12 of the Guaranty Agreement and (4) the
            financial projections previously delivered to the Administrative
            Agent represent the good faith estimates (utilizing reasonable
            assumptions) of the financial condition and operations of the Parent
            and its Subsidiaries.

                  (iii) Project Equity. The Administrative Agent shall have
            received evidence satisfactory to the Administrative Agent that (i)
            (A) the net cash proceeds of the Project Equity have been
            contributed to the Borrower or (B) to the extent such net cash
            proceeds of the Project Equity have not been contributed to the
            Borrower, the Borrower shall have received an irrevocable letter of
            credit securing the irrevocable obligation of the equityholders to
            make such contribution, which letter of credit shall be in form and
            substance satisfactory to the Administrative Agent and (ii) and
            $6,005,518.54 has been deposited in the Equity Account.

                  (iv) Payment at Closing; Fee Letters. The Borrower shall have
            paid to the Administrative Agent and the Lenders the fees set forth
            or referenced in Section 3.1 of the Commitment Agreement and Section
            3.3 hereof and any other accrued and unpaid fees or commissions due
            thereunder or hereunder (including, without limitation, Attorney
            Costs of Kennedy Covington Lobdell & Hickman, L.L.P.) and to any
            other Person such amount as may be due thereto in connection with
            the transactions contemplated hereby, including all taxes, fees and
            other charges in connection with the execution, delivery, recording,
            filing and registration of any of the Loan Documents.

                  (v)   Payment of Budget Amounts.  The Borrower shall have
            paid all amounts required to be paid by the Borrower as
            described in Column (B) and (C) of the Budget.

            (f)   Miscellaneous.

                  (i) Draw Request and Notice of Account Designation. The
            Administrative Agent shall have received a Draw Request from the
            Borrower in accordance with Section 2.2(a) and a Notice of Account
            Designation from the Borrower in accordance with Section 2.2(c).

                  (ii) Other Documents. All opinions, certificates and other
            instruments and all proceedings in connection with the transactions
            contemplated by this Agreement shall be satisfactory in form and
            substance to the Administrative Agent. The Administrative Agent
            shall have received copies of all other documents,

                                       44
<PAGE>
            certificates and instruments reasonably requested thereby, with
            respect to the transactions contemplated by this Agreement.

      SECTION 4.3 Conditions to All Construction Loan Advances. The obligations
of the Lenders to make any Construction Loan Advance (including the initial
Construction Loan Advance), or convert or continue any Construction Loan Advance
are subject to the satisfaction of the following conditions precedent on the
relevant borrowing, conversion or continuation date:

            (a) Continuation of Representations and Warranties. The
      representations and warranties contained in Article V hereof and Section 9
      of the Guaranty Agreement shall be true and correct on and as of such
      borrowing, conversion or continuation date with the same effect as if made
      on and as of such date, except for any representation and warranty made as
      of an earlier date, which representation and warranty shall remain true
      and correct as of such earlier date.

            (b) No Existing Default. No Default or Event of Default shall have
      occurred and be continuing on such borrowing, conversion or continuation
      date with respect to such Construction Loan Advance or after giving effect
      to the Construction Loan Advances to be made, converted or continued on
      such date.

            (c)   Additional Documents.  The Administrative Agent shall
      have received each additional document, instrument or other item
      reasonably requested by it.

            (d) Mechanics Liens. No mechanic's or materialman's lien or other
      encumbrance shall have been filed and remain in effect against the
      Property (except Liens permitted under this Agreement), and releases or
      waivers of mechanics' liens and receipted bills showing payment of all
      amounts due to all parties who have furnished materials or services or
      performed labor of any kind in connection with the Property shall have
      been obtained.

            (e) Construction Consultant Certification. The Administrative Agent
      shall have received written certification by the Construction Consultant,
      and if required by the Administrative Agent, the Architect, that to the
      best of each such Person's knowledge, information, and belief,
      construction is in accordance with the Plans, the quality of the work for
      which the Construction Loan Advance is requested is in accordance with the
      applicable contract, the amount of the Construction Loan Advance requested
      represents work in place based on on-site observations and the data
      comprising the Draw Request, the work has progressed as indicated, and the
      applicable contractor is entitled to payment of the amount certified.

            (f) No Damage. The Improvements shall not have been materially
      damaged and not repaired.

            (g) Payment of Budgeted Amounts. The Borrower shall have paid all
      amounts required to be paid by the Borrower under Columns (B) and (C) of
      the Budget.

                                       45
<PAGE>
            (h) Applications for Payment. With respect to any Construction Loan
      Advance to pay a contractor, the Administrative Agent shall have received
      original applications for payment in form approved by the Administrative
      Agent, containing a breakdown by trade and/or other categories acceptable
      to the Administrative Agent, executed and certified by each contractor and
      the Architect, accompanied by invoices, and reasonably approved by
      Construction Consultant.

            (i) Title Updates. The Administrative Agent shall have received, at
      the discretion of the Administrative Agent or if required by the
      applicable title insurance company, updates of the title insurance policy
      referred to in Section 4.2(c)(v) (such updates in form and substance
      reasonably satisfactory to the Administrative Agent).

            (j) Miscellaneous. (A) The cost to be funded with the Construction
      Loan Advance is contained in the Budget, other than costs in connection
      with Permitted Changes, (B) the Construction Loan Advance for any line
      item in the Budget, when added to all prior Construction Loan Advances for
      such line item, does not exceed the lesser of (i) the actual cost incurred
      by the Borrower for such line item or (ii) the sum allocated in the Loan
      Allocation column in the Budget for such item (which shall include any
      Cost Savings that have been allocated to such line pursuant to this
      Section 4.3), (C) with respect to any Construction Loan Advance for a
      contingency line item, the Administrative Agent shall have consented to
      such Construction Loan Advance, which consent shall not be unreasonably
      withheld, (D) the Lenders shall not be required to make any Construction
      Loan Advance to fund interest on the Construction Loan Facility after the
      earlier of (i) the Construction Loan Termination Date or (ii) commencement
      of operations in the Improvements if and to the extent that there is
      sufficient net operating income from the Property to pay such interest and
      (E) the Lenders shall not be required to make any Construction Loan
      Advance to fund any Improvement which requires a valid building permit
      unless the Borrower shall have delivered a true and correct copy of such
      valid building permit to the Administrative Agent.

      SECTION 4.4 Final Construction Loan Advance for Improvements. The final
Construction Loan Advance for the Improvements (including retainage) shall not
be made until thirty (30) days after the date on which a final certificate of
occupancy for the Project has been issued. The Administrative Agent shall have
received the following as additional conditions precedent to the requested
Construction Loan Advance:

            (a)   Construction Matters.

                  (i) Certificates from the Architect, the General Contractor
      and, if required by the Administrative Agent, the Construction Consultant,
      certifying that the Improvements (including any off-site improvements)
      have been completed substantially in accordance with, and as completed
      comply with, the Plans and all Applicable Laws; and

                  (ii) Two (2) sets of detailed "as built" Plans approved in
      writing by the Borrower, the Architect, the General Contractor and, if
      required by the Administrative Agent, the Construction Consultant.

                                       46
<PAGE>
            (b) Lien Affidavits. Final affidavits (in a form approved by the
      Administrative Agent) from the Architect and the General Contractor
      certifying that each of them and their subcontractors, laborers, and
      materialmen has been paid in full for all labor and materials for
      construction of the Improvements; and final lien releases or waivers (in a
      form approved by the Administrative Agent) executed by the Architect and
      the General Contractor, and all subcontractors, materialmen, and other
      parties who have supplied labor, materials, or services for the
      construction of the Improvements, or who otherwise might be entitled to
      claim a contractual, statutory or constitutional lien against the
      Property.

            (c) Title Insurance. The Title Insurer shall commit in writing to
      issue an endorsement to remove any exception for mechanics' or
      materialmen's liens or pending disbursements, with no additional title
      change or exception objectionable to the Administrative Agent, and such
      other endorsements as may be required by the Administrative Agent, such
      obligation to be conditioned only upon the making of the final
      Construction Loan Advance for the Improvements (including retainage).

            (d) Compliance with Laws. Evidence satisfactory to the
      Administrative Agent that all material Applicable Laws have been satisfied
      in connection with the completion, use, occupancy and operation of the
      Improvements, including, without limitation, receipt by the Borrower of
      all material governmental licenses, certificates and permits (including
      certificates of occupancy, the license to operate the Hospital, the
      Medicare Certification and the Medicaid Certification (as applicable))
      with respect to the completion, use, occupancy and operation of the
      Improvements, together with evidence satisfactory to the Administrative
      Agent that all such material governmental licenses, certificates, and
      permits are in full force and effect and have not been revoked, cancelled
      or modified.

            (e)   As-Built Survey.  Two (2) copies of a final as-built
      survey of the Land and Improvements satisfactory to the
      Administrative Agent.

                                    ARTICLE V

               REPRESENTATIONS AND WARRANTIES OF THE BORROWER

      SECTION 5.1 Representations and Warranties. To induce the Administrative
Agent and the Lenders to enter into this Agreement and to induce the Lenders to
make the Construction Loan Advances, the Borrower hereby represents and warrants
to the Administrative Agent and the Lenders both before and after giving effect
to the transactions contemplated hereunder that:

            (a) Organization; Power; Qualification. The Borrower is (i) duly
      organized, validly existing and in good standing under the laws of the
      jurisdiction of its incorporation or formation, (ii) has the power and
      authority to own its properties and to carry on its business as now being
      and hereafter proposed to be conducted and (iii) is duly qualified and
      authorized to do business in each jurisdiction in which the character of
      its properties or

                                       47
<PAGE>
      the nature of its business requires such qualification and authorization
      except where the failure to be so qualified and authorized could not
      reasonably be expected to have a Material Adverse Effect. The
      jurisdictions in which the Borrower is organized and qualified to do
      business as of the Closing Date are only (i) its state of formation and
      (ii) the state in which the Project is located.

            (b) Ownership. The Borrower has no Subsidiaries. As of the Closing
      Date, the capitalization of the Borrower consists of the partnership
      interests, authorized, issued and outstanding, described on Schedule
      5.1(b). All outstanding partnership interests have been duly authorized
      and validly issued and are fully paid and nonassessable, with no personal
      liability attaching to the ownership thereof, and not subject to any
      preemptive or similar rights. As of the Closing Date, there are no
      outstanding purchase warrants, subscriptions, options, securities,
      instruments or other rights of any type or nature whatsoever, which are
      convertible into, exchangeable for or otherwise provide for or permit the
      issuance of partnership interests of the Borrower, except as set forth in
      the limited partnership agreement of the Borrower.

            (c) Authorization of Agreement, Loan Documents and Borrowing. Each
      of the Borrower and the Management Company has the right, power and
      authority and has taken all necessary corporate and other action to
      authorize the execution, delivery and performance of this Agreement and
      each of the other Loan Documents to which it is a party in accordance with
      their respective terms. This Agreement and each of the other Loan
      Documents have been duly executed and delivered by the duly authorized
      officers of the Management Company on behalf of the Borrower, and each
      such document constitutes the legal, valid and binding obligation of the
      Borrower, enforceable in accordance with its terms, except as such
      enforceability may be limited by bankruptcy, insolvency, reorganization,
      moratorium or similar state or federal debtor relief laws from time to
      time in effect which affect the enforcement of creditors' rights in
      general and the availability of equitable remedies.

            (d) Compliance of Agreement, Loan Documents and Borrowing with Laws,
      Etc. The execution, delivery and performance by the Borrower of the Loan
      Documents to which the Borrower is a party, in accordance with their
      respective terms, the borrowings hereunder and the transactions
      contemplated hereby do not and will not, by the passage of time, the
      giving of notice or otherwise, (i) require any Governmental Approval or
      violate any Applicable Law relating to the Borrower, (ii) conflict with,
      result in a breach of or constitute a default under the organizational
      documents of the Borrower or any indenture, agreement or other instrument
      to which the Borrower is a party or by which any of its properties may be
      bound or any Governmental Approval relating to the Borrower, (iii) result
      in or require the creation or imposition of any Lien upon or with respect
      to any property now owned or hereafter acquired by the Borrower other than
      Liens arising under the Loan Documents or (iv) require any consent or
      authorization of, filing with, or other act in respect of, an arbitrator
      or Governmental Authority and no consent of any other Person is required
      in connection with the execution, delivery, performance, validity or
      enforceability of this Agreement.

                                       48
<PAGE>
            (e) Compliance with Law; Governmental Approvals. The Borrower (i)
      has all Governmental Approvals required by any Applicable Law for it to
      conduct its business, each of which is in full force and effect, is final
      and not subject to review or appeal and is not the subject of any pending
      or, to the best of its knowledge, threatened attack by direct or
      collateral proceeding, (ii) is in compliance with each Governmental
      Approval applicable to it and in compliance with all other Applicable Laws
      relating to it or any of its respective properties, except where the
      failure to so comply could not reasonably be expected to have a Material
      Adverse Effect, and (iii) has timely filed all material reports, documents
      and other materials required to be filed by it under all Applicable Laws
      with any Governmental Authority and has retained all material records and
      documents required to be retained by it under Applicable Law.

            (f) Tax Returns and Payments. The Borrower has duly filed or caused
      to be filed all federal, state, local and other tax returns required by
      Applicable Law to be filed, and has paid, or made adequate provision for
      the payment of, all federal, state, local and other material taxes,
      assessments and governmental charges or levies upon it and its property,
      income, profits and assets which are due and payable, except for taxes (i)
      that are not yet delinquent or (ii) that are being contested in good faith
      and against which adequate reserves are being maintained in accordance
      with GAAP. Such returns accurately reflect in all material respects all
      liability for taxes of the Borrower for the periods covered thereby. There
      is no ongoing audit or examination or, to the knowledge of the Borrower,
      other investigation by any Governmental Authority of the tax liability of
      the Borrower. No Governmental Authority has asserted any Lien or other
      claim against the Borrower with respect to unpaid taxes which has not been
      discharged or resolved. The charges, accruals and reserves on the books of
      the Borrower in respect of federal, state, local and other taxes for all
      Fiscal Years and portions thereof since the organization of the Borrower
      are in the judgment of the Borrower adequate, and the Borrower does not
      anticipate any additional material taxes or assessments for any of such
      periods.

            (g) Intellectual Property Matters. The Borrower owns or possesses
      rights to use all franchises, licenses, copyrights, copyright
      applications, patents, patent rights or licenses, patent applications,
      trademarks, trademark rights, service mark, service mark rights, trade
      names, trade name rights, copyrights and rights with respect to the
      foregoing which are required to conduct its business. No event has
      occurred which permits, or after notice or lapse of time or both would
      permit, the revocation or termination of any such rights, and the Borrower
      is not liable to any Person for infringement under Applicable Law with
      respect to any such rights as a result of its business operations, except
      for such infringements that, individually or in the aggregate, could not
      reasonably be expected to have a Material Adverse Effect.

            (h)   Environmental Matters.

                  (i) The properties owned, leased or operated by the Borrower
            now or in the past do not contain, and to its knowledge have not
            previously contained, any Hazardous Materials in amounts or
            concentrations which (A) constitute or

                                       49
<PAGE>
            constituted a material violation of applicable Environmental Laws or
            (B) could give rise to material liability under applicable
            Environmental Laws;

                  (ii) The Borrower and such properties and all operations
            conducted in connection therewith are in compliance, in all material
            respects, with all applicable Environmental Laws, and there is no
            contamination at, under or about such properties or such operations
            which could reasonably interfere with the continued operation of
            such properties or impair the fair saleable value thereof;

                  (iii) The Borrower has not received any notice of violation,
            alleged violation, non-compliance, liability or potential liability
            regarding environmental matters, Hazardous Materials, or compliance
            with Environmental Laws from (A) any Governmental Authority or (B)
            to the extent any such violation, alleged violation, non-compliance,
            liability or potential liability could reasonably be expected to
            have a Material Adverse Effect, any other Person, nor does the
            Borrower have knowledge or reason to believe that any such notice
            will be received or is being threatened;

                  (iv) Hazardous Materials have not been transported or disposed
            of to or from the properties owned, leased or operated by of the
            Borrower in violation of, or in a manner or to a location which
            could give rise to a material liability under, Environmental Laws,
            nor have any Hazardous Materials been generated, treated, stored or
            disposed of at, on or under any of such properties in violation of,
            or in a manner that could give rise to a material liability under,
            any applicable Environmental Laws;

                  (v) No judicial proceedings or governmental or administrative
            action is pending, or, to the knowledge of the Borrower, threatened,
            under any Environmental Law to which the Borrower is or will be
            named as a potentially responsible party with respect to such
            properties or operations conducted in connection therewith, nor are
            there any consent decrees or other decrees, consent orders,
            administrative orders or other orders, or other administrative or
            judicial requirements outstanding under any Environmental Law with
            respect to the Borrower or such properties or such operations; and

                  (vi) There has been no release, or to the best of the
            Borrower's knowledge, threat of release, of Hazardous Materials at
            or from properties owned, leased or operated by the Borrower, now or
            in the past, in violation of or in amounts or in a manner that could
            give rise to a material liability under Environmental Laws.

            (i)   ERISA.

                  (i) The Borrower and each ERISA Affiliate is in material
            compliance with all applicable provisions of ERISA and the
            regulations and published interpretations thereunder with respect to
            all Employee Benefit Plans

                                       50
<PAGE>
            except for any required amendments for which the remedial amendment
            period as defined in Section 401(b) of the Code has not yet expired
            and except where a failure to so comply could not reasonably be
            expected to have a Material Adverse Effect. Each Employee Benefit
            Plan that is intended to be qualified under Section 401(a) of the
            Code has been determined by the Internal Revenue Service to be so
            qualified, and each trust related to such plan has been determined
            to be exempt under Section 501(a) of the Code except for such plans
            that have not yet received determination letters but for which the
            remedial amendment period for submitting a determination letter has
            not yet expired. No liability has been incurred by the Borrower or
            any ERISA Affiliate which remains unsatisfied for any taxes or
            penalties with respect to any Employee Benefit Plan or any
            Multiemployer Plan except for a liability that could not reasonably
            be expected to have a Material Adverse Effect;

                  (ii) As of the Closing Date, no Pension Plan has been
            terminated, nor has any accumulated funding deficiency (as defined
            in Section 412 of the Code) been incurred (without regard to any
            waiver granted under Section 412 of the Code), nor has any funding
            waiver from the Internal Revenue Service been received or requested
            with respect to any Pension Plan, nor has the Borrower or any ERISA
            Affiliate failed to make any contributions or to pay any amounts due
            and owing as required by Section 412 of the Code, Section 302 of
            ERISA or the terms of any Pension Plan prior to the due dates of
            such contributions under Section 412 of the Code or Section 302 of
            ERISA, nor has there been any event requiring any disclosure under
            Section 4041(c)(3)(C) or 4063(a) of ERISA with respect to any
            Pension Plan;

                  (iii) Except where the failure of any of the following
            representations to be correct in all material respects could not
            reasonably be expected to have a Material Adverse Effect, neither
            the Borrower nor any ERISA Affiliate has: (A) engaged in a nonexempt
            prohibited transaction described in Section 406 of the ERISA or
            Section 4975 of the Code, (B) incurred any liability to the PBGC
            which remains outstanding other than the payment of premiums and
            there are no premium payments which are due and unpaid, (C) failed
            to make a required contribution or payment to a Multiemployer Plan,
            or (D) failed to make a required installment or other required
            payment under Section 412 of the Code;

                  (iv)  No Termination Event with respect to the Borrower
            or any ERISA Affiliate has occurred or is reasonably expected
            to occur; and

                  (v) Except where the failure of any of the following
            representations to be correct in all material respects could not
            reasonably be expected to have a Material Adverse Effect, no
            proceeding, claim (other than a benefits claim in the ordinary
            course of business), lawsuit and/or investigation is existing or, to
            the best knowledge of the Borrower after due inquiry, threatened
            concerning or involving any (A) employee welfare benefit plan (as
            defined in Section 3(1) of

                                       51
<PAGE>
      ERISA) currently maintained or contributed to by the Borrower or any ERISA
      Affiliate, (B) Pension Plan or (C) Multiemployer Plan.

            (j) Margin Stock. The Borrower is not engaged principally or as one
      of its activities in the business of extending credit for the purpose of
      "purchasing" or "carrying" any "margin stock" (as each such term is
      defined or used, directly or indirectly, in Regulation U of the Board of
      Governors of the Federal Reserve System). No part of the proceeds of any
      of the Construction Loan Advances will be used for purchasing or carrying
      margin stock or for any purpose which violates, or which would be
      inconsistent with, the provisions of Regulation T, U or X of such Board of
      Governors.

            (k) Government Regulation. The Borrower is not an "investment
      company" or a company "controlled" by an "investment company" (as each
      such term is defined or used in the Investment Company Act of 1940, as
      amended) and the Borrower is not, or after giving effect to any
      Construction Loan Advance will not be, subject to regulation under the
      Public Utility Holding Company Act of 1935 or the Interstate Commerce Act,
      each as amended, or any other Applicable Law which limits its ability to
      incur or consummate the transactions contemplated hereby.

            (l) Material Contracts. From and after the Closing Date, each
      Material Contract is, and after giving effect to the consummation of the
      transactions contemplated by the Loan Documents will be, in full force and
      effect in accordance with the terms thereof. The Borrower has delivered to
      the Administrative Agent a true and complete copy of each Material
      Contract listed on Schedule 5.1(l). Neither the Borrower nor, to the
      knowledge of the Borrower, any other party thereto, is in breach of or in
      default under any Material Contract, except where such breach or default
      could not reasonably be expected to have a Material Adverse Effect.

            (m) Employee Relations. As of the Completion Date, the Borrower has
      a stable work force in place. The Borrower knows of no pending, threatened
      or contemplated strikes, work stoppage or other collective labor disputes
      involving its employees.

            (n) Burdensome Provisions. The Borrower is not a party to any
      indenture, agreement, lease or other instrument, or subject to any
      corporate or partnership restriction, Governmental Approval or Applicable
      Law which is so unusual or burdensome as in the foreseeable future could
      be reasonably expected to have a Material Adverse Effect. The Borrower
      does not presently anticipate that future expenditures needed to meet the
      provisions of any statutes, orders, rules or regulations of a Governmental
      Authority will be so burdensome as to have a Material Adverse Effect.

            (o) No Material Adverse Change. Since the Closing Date, there has
      been no Material Adverse Effect with respect to the Borrower and no event
      has occurred or condition arisen that could reasonably be expected to have
      a Material Adverse Effect.

                                       52
<PAGE>
            (p) Solvency. As of the Closing Date and both before and after
      giving effect to each Construction Loan Advance made hereunder, the
      Borrower and each Guarantor will be Solvent.

            (q) Title to Properties. The Borrower and each Guarantor has such
      title to the real property owned or leased by it, including, but not
      limited to, the Land and the Improvements, which are material to the
      conduct of its business and valid and legal title to all of its personal
      property and assets which are material to the conduct of its business,
      including, but not limited to, the Tangible Personalty, except those which
      have been disposed of by the Borrower or such Guarantor subsequent to such
      date which dispositions have been in the ordinary course of business or as
      otherwise expressly permitted hereunder.

            (r) Liens. None of the properties and assets of the Borrower is
      subject to any Lien, except Liens permitted pursuant to Section 9.2. No
      financing statement under the Uniform Commercial Code of any state which
      names the Borrower as debtor and which has not been terminated, has been
      filed in any state or other jurisdiction and the Borrower has not signed
      any such financing statement or any security agreement authorizing any
      secured party thereunder to file any such financing statement, except to
      perfect those Liens permitted by Section 9.2.

            (s)   Debt and Guaranty Obligations.

                  (i) Schedule 5.1(s) is a complete and correct listing of all
            Debt and Guaranty Obligations of the Borrower as of the Closing
            Date.

                  (ii) As of the Closing Date, the Borrower has performed and is
            in compliance with all of the terms of all Debt and Guaranty
            Obligations set forth on Schedule 5.1(s) which are in excess of
            $1,000,000 and all instruments and agreements relating thereto, and
            no default or event of default, or event or condition which with
            notice or lapse of time or both would constitute such a default or
            event of default on the part of the Borrower exists with respect to
            any such Debt or Guaranty Obligation.

            (t) Litigation. Except for matters existing on the Closing Date and
      set forth on Schedule 5.1(t), there are no actions, suits or proceedings
      pending nor, to the knowledge of the Borrower, threatened in writing
      against or in any other way relating adversely to or affecting the
      Borrower or any of its properties in any court or before any arbitrator of
      any kind or before or by any Governmental Authority which could reasonably
      be expected to have a Material Adverse Effect.

            (u) Absence of Defaults. No event has occurred or is continuing
      which constitutes a Default or an Event of Default, or which constitutes,
      or which with the passage of time or giving of notice or both would
      constitute, a default or event of default by the Borrower under any
      Material Contract or judgment, decree or order to which the Borrower is a
      party or by which the Borrower or any of its properties may be bound or

                                       53
<PAGE>
      which would require the Borrower to make any payment thereunder prior to
      the scheduled maturity date therefor which could reasonably be expected to
      have a Material Adverse Effect.

            (v) Budget. The Budget has been prepared by the Borrower and the
      Borrower represents to the Lenders that it includes all costs and
      expenses, the aggregate amount of which costs and expenses are
      specifically identified thereon (the "Aggregate Project Cost"), incident
      to the Construction Loan Advances and the Project (excluding costs and
      expenses attributable to any equipment which is subject to the Equipment
      Loan Financing), through the Construction Loan Termination Date, after
      taking into account the requirements of this Agreement.

            (w)   Mortgage.

                  (i) As of the Closing Date, the Mortgage, and the rights of
            the Administrative Agent and the Lenders thereunder, will have
            priority over all other Liens on the Land or Improvements,
            including, without limitation, any mechanic's or materialman's lien
            or similar lien.

                  (ii) After the Closing Date, the Mortgage, and the rights of
            the Administrative Agent and the Lenders thereunder, will have
            priority over all other Liens on the Land or Improvements,
            including, without limitation, any mechanic's or materialman's lien
            or similar lien (other than Liens permitted pursuant to Section
            9.2(i)).

            (x) Plans. The Plans when completed will contain all detail
      necessary and will be adequate for the construction of the Improvements,
      and will comply with the Loan Documents, Applicable Laws, restrictive
      covenants, and governmental requirements, rules and regulations.

            (y) Separate Tax Lot. The Land is not part of a larger tract of land
      owned by the Borrower or its affiliates or any Guarantor and is not
      otherwise included under any unity of title or similar covenant with other
      lands not encumbered by the Mortgage, and the Borrower has obtained a
      separate tax lot or lots with a separate tax assessment or assessments for
      the Land and the Improvements, independent of any other lands or
      improvements.

            (z) Compliance with Laws. The Land and Improvements comply with all
      Applicable Laws, including all subdivision and platting requirements,
      without reliance on any adjoining or neighboring property, the violation
      of which could reasonably be expected to have a Material Adverse Effect.

            (aa)  Construction Schedule.  The construction schedule for the
      Project is realistic and the Completion Date is a reasonable estimate
      of the time required to complete the Project.

                                       54
<PAGE>
            (bb)  Healthcare Matters.  From and after the Completion Date,

                  (i)   The Borrower:

                        (A) has not been convicted of an offense or committed an
            act or omission which could reasonably form a basis under 42 U.S.C.
            Section 1320a-7 and any statutes succeeding thereto and any
            regulations promulgated thereunder for the Secretary of HHS to
            exclude the Borrower from participation in a "Federal health care
            program" (as that term is defined by 42 U.S.C. Section 1320a-7b(f),
            or any successor statute thereto); and

                        (B) is not in default in the performance, observance or
            fulfillment of any of the obligations, covenants or conditions
            contained in any Medicaid Provider Agreement, any Medicare Provider
            Agreement or any other agreement or instrument to which the Borrower
            is a party, which default has resulted in, or if not remedied within
            any applicable grace period could result in, the revocation,
            termination, cancellation or suspension of the Medicaid
            Certification of the Borrower or the Medicare Certification of the
            Borrower.

                  (ii)  Reimbursement from Third Party Payors.

                        (A) Accounts Receivable. The accounts receivable of the
            Borrower have been and will continue to be adjusted to reflect
            reimbursement policies of third party payors such as Medicare,
            Medicaid, Blue Cross/Blue Shield, private insurance companies,
            health maintenance organizations, preferred provider organizations,
            alternative delivery systems, managed care systems, government
            contracting agencies and other third party payors. In particular,
            accounts receivable relating to such third party payors do not and
            shall not exceed amounts any obligee is entitled to receive under
            any capitation arrangement, fee schedule, discount formula,
            cost-based reimbursement or other adjustment or limitation to its
            usual charges.

                        (B) Filings and Reports. The Borrower has timely filed
            all material reports, administrative forms and filings required to
            be filed in connection with the Medicare Regulations and the
            Medicaid Regulations (as applicable) due on or before the date
            hereof, and all required reports and administrative forms and
            filings are true and complete in all material respects, in each case
            except to the extent that any such failure could not reasonably be
            expected to have a Material Adverse Effect; there are no claims,
            actions, proceedings or appeals pending (and the Borrower has not
            filed anything that would result in any claims, actions or appeals)
            before any Governmental Authority with respect to any cost reports
            required to be filed by the Medicare Regulations or the Medicaid
            Regulations (as applicable) or claims filed by the Borrower on or
            before the date hereof, or with respect to any adjustments, denials,
            recoupments or disallowances by any intermediary, carrier, other
            insurer, commission, board or agency in connection with any cost
            reports or claims; no validation review, survey, inspection, audit,

                                       55
<PAGE>
            investigation or program integrity review related to the Borrower
            has been conducted with respect to the Borrower by any Governmental
            Authority or government contractor in connection with the Medicare
            program or the Medicaid program (as applicable), and no such reviews
            are scheduled, pending or, to the knowledge of Borrower, threatened
            against or affecting the Borrower; and the Borrower has timely filed
            all material reports, data and other information required by any
            other Governmental Authority with authority to regulate the Borrower
            or its business in any manner.

                  (iii) Licensing and Accreditation. The Borrower has, to the
            extent applicable: (A) obtained (or been duly assigned) and
            maintains in good standing all required (if any) certificates of
            need or determinations of need as required by the relevant state
            Governmental Authority for the acquisition, construction, expansion
            of, investment in or operation of its businesses as currently
            operated; (B) obtained and maintains in good standing all required
            licenses, permits, certificates, approvals and other authorizations
            (or waivers thereof) required by any Governmental Authority which
            are necessary to the conduct of its business; (C) to the extent
            prudent and customary in the industry in which it is engaged,
            obtained and maintains accreditation from all generally recognized
            accrediting agencies; (D) obtained and maintains Medicaid
            Certification and Medicare Certification; and (E) entered into and
            maintains in good standing its Medicare Provider Agreement and its
            Medicaid Provider Agreement.

                  (iv) Fraud and Abuse. Neither the Borrower nor, to the
            knowledge of the Borrower's officers, any of its officers or
            directors, have engaged in any activities which are prohibited under
            the Medicare Regulations and Medicaid Regulations, 42 U.S.C. Section
            1320a-7b, 42 U.S.C. Section 1395nn, or the regulations promulgated
            pursuant to such statutes or related state or local statutes or
            regulations, or which are prohibited by binding rules of
            professional conduct, or which are prohibited under any statute
            which constitutes a "Federal health care offense" (as that term is
            defined by 18 U.S.C. Section 24, or any successor statute thereto),
            or the regulations promulgated pursuant to such statutes, including
            but not limited to the following: (A) knowingly and willfully making
            or causing to be made a false statement or representation of a
            material fact in any applications for any benefit or payment; (B)
            knowingly and willfully making or causing to be made any false
            statement or representation of a material fact for use in
            determining rights to any benefit or payment; (C) failing to
            disclose knowledge by a claimant of the occurrence of any event
            affecting the initial or continued right to any benefit or payment
            on its own behalf or on behalf of another, with intent to secure
            such benefit or payment fraudulently; (D) knowingly and willfully
            soliciting or receiving any remuneration (including any kickback,
            bribe or rebate), directly or indirectly, overtly or covertly, in
            cash or in kind or offering to pay such remuneration (1) in return
            for referring an individual to a person for the furnishing or
            arranging for the furnishing of any item or service for which
            payment may be made in whole or in part by a Federal health care
            program or other applicable third party payors, or (2) in return for
            purchasing, leasing or ordering or arranging for or

                                       56
<PAGE>
            recommending the purchasing, leasing or ordering of any good,
            facility, service, or item for which payment may be made in whole or
            in part by a Federal health care program or other applicable third
            party payors; (E) knowingly or willfully offering or paying any
            remuneration (including any kickback, bribe, or rebate) directly or
            indirectly, overtly or covertly, in cash or in kind to any Person to
            induce such Person (1) to refer an individual to a person for the
            furnishing or arranging for the furnishing of any item or service
            for which payment may be made in whole or in part under a Federal
            health care program, or (2) to purchase, lease, order, or arrange
            for or recommend purchasing, leasing, or ordering any good,
            facility, service, or item for which payment may be made in whole or
            in part under a Federal health care program.

            (cc) Senior Debt Status. The Obligations of the Borrower and each
      Guarantor under this Agreement and each of the other Loan Documents ranks
      and shall continue to rank at least senior in priority of payment to all
      Subordinated Debt.

            (dd) Accuracy and Completeness of Information. All written
      information, reports, statements and other papers and data produced by or
      on behalf of the Borrower and furnished to the Administrative Agent or any
      Lender in connection with this Agreement, or any of the other Loan
      Documents, were, at the time the same were so furnished, complete and
      correct in all material respects to the extent necessary to give the
      Administrative Agent or any Lender complete, true and accurate knowledge
      of the subject matter based on the Borrower's knowledge thereof (other
      than projections, budgets or other estimates which shall be determined in
      good faith utilizing reasonable assumptions). No document furnished or
      written statement made to the Administrative Agent or the Lenders by the
      Borrower in connection with the negotiation, preparation or execution of
      this Agreement or any of the Loan Documents contains or will contain any
      untrue statement of a fact material to the creditworthiness of the
      Borrower or omits or will omit to state a fact necessary in order to make
      the statements contained therein not misleading to the extent material to
      the creditworthiness of the Borrower. The Borrower is not aware of any
      facts which it has not disclosed in writing to the Administrative Agent
      having a Material Adverse Effect, or insofar as the Borrower can now
      foresee, which could reasonably be expected to have a Material Adverse
      Effect.

      SECTION 5.2 Survival of Representations and Warranties, Etc. All
representations and warranties set forth in this Article V and all
representations and warranties contained in any certificate, or any of the Loan
Documents (including, but not limited to, any such representation or warranty
made in or in connection with any amendment thereto) shall constitute
representations and warranties made under this Agreement. All representations
and warranties made under this Agreement shall be made or deemed to be made at
and as of the Closing Date (except those that are expressly made as of a
specific date), shall survive the Closing Date and shall not be waived by the
execution and delivery of this Agreement, any investigation made by or on behalf
of the Lenders or any borrowing hereunder.

                                       57
<PAGE>
                                   ARTICLE VI

                        FINANCIAL INFORMATION AND REPORTS

      Until all the Obligations have been finally and indefeasibly paid and
satisfied in full and the Commitments terminated, unless consent has been
obtained in the manner set forth in Section 12.11, the Borrower will furnish or
cause to be furnished to the Administrative Agent at the Administrative Agent's
Office at the address set forth in Section 12.1 and to the Lenders at their
respective addresses as set forth Schedule 1.1(a), or such other office as may
be designated by the Administrative Agent and the Lenders from time to time:

      SECTION 6.1       Financial Statements.

      (a)   Monthly and Quarterly Financial Statements.

            (i) Monthly Financial Statements. Commencing with the first full
      month after the Completion Date and continuing for the first twelve months
      after the Completion Date, as soon as practicable and in any event within
      thirty (30) days after the end of each fiscal month, an unaudited balance
      sheet of the Borrower as of the close of such fiscal month and unaudited
      statements of income and expenses and cash flow for the fiscal month then
      ended and that portion of the Fiscal Year then ended, all in reasonable
      detail and prepared by the Borrower in accordance with GAAP (without
      footnotes) and certified by a Responsible Officer of the Borrower to
      present fairly in all material respects the financial condition of the
      Management Company on behalf of the Borrower as of their respective dates
      and the results of operations of the Borrower for the respective periods
      then ended, subject to normal year end adjustments; provided that (A) with
      respect to each fiscal month end which is also fiscal quarter end, the
      Borrower shall provide such monthly financial statements as soon as
      practicable and in any event within fifty-five days after the end of each
      such fiscal month and (B) with respect to each fiscal month end which is
      also Fiscal Year end, the Borrower shall provide such monthly financial
      statements as soon as practicable and in any event within one hundred
      (100) days after the end of each such fiscal month.

            (ii) Quarterly Financial Statements. With respect to each fiscal
      quarter ending after the date which is twelve (12) months after the
      Completion Date, as soon as practicable and in any event within fifty-five
      (55) days after the end of each fiscal quarter, an unaudited balance sheet
      of the Borrower as of the close of such fiscal quarter and unaudited
      statements of income and expenses and cash flow for the fiscal quarter
      then ended and that portion of the Fiscal Year then ended, all in
      reasonable detail and prepared by the Borrower in accordance with GAAP
      (without footnotes) and certified by a Responsible Officer of the Borrower
      to present fairly in all material respects the financial condition of the
      Borrower as of their respective dates and the results of operations of the
      Borrower for the respective periods then ended, subject to normal year end
      adjustments.

       (b) Annual Financial Statements. As soon as practicable and in any event
within one hundred (100) days after the end of each Fiscal Year, commencing with
the Fiscal Year ending

                                       58
<PAGE>
September 30, 2003, an audited balance sheet of the Borrower as of the close of
such Fiscal Year and audited statements of income and expenses, retained
earnings and cash flow for the Fiscal Year then ended, including the notes
thereto, all in reasonable detail and prepared in accordance with GAAP and
accompanied by a report thereon prepared by Deloitte & Touche, LLP, or another
independent certified public accounting firm of nationally recognized standing
which is reasonably acceptable to the Administrative Agent, that such financial
statements are not qualified with respect to scope limitations imposed by the
Borrower or with respect to accounting principles followed by the Borrower not
in accordance with GAAP.

      (c) Annual Forecasts. As soon as practicable and in any event no later
than thirty (30) days after the beginning of each Fiscal Year, an annual
forecast prepared by management of the Borrower, in reasonable detail and in the
form customarily prepared by management of the Borrower for its internal use and
setting forth an explanation for the principal assumptions on which such
forecasts were based, of balance sheets, income statements and cash flow
statements on a quarterly basis for each Fiscal Year thereafter until the
Maturity Date.

      (d)   Other Information.  Such other information regarding the
operations, business affairs and financial condition of the Borrower as the
Administrative Agent may reasonably request.

      SECTION 6.2 Officer's Compliance Certificate. At each time financial
statements are delivered pursuant to Sections 6.1(a)(ii) or 6.1(b) and at such
other times as the Administrative Agent shall reasonably request a certificate
of the chief financial officer or the treasurer of Borrower in the form of
Exhibit I attached hereto (an "Officer's Compliance Certificate"):

            (a) stating that such officer has reviewed such financial statements
      and, to the best of his knowledge, such financial statements fairly
      present in all material respects the financial condition of the Borrower
      as of the dates indicated and the results of its operations and cash flows
      for the periods indicated;

            (b) stating that to such officer's knowledge, based on a reasonable
      examination, no Default or Event of Default exists, or, if such is not the
      case, specifying such Default or Event of Default and its nature, when it
      occurred, whether it is continuing and the steps being taken by the
      Borrower with respect to such Default or Event of Default;

            (c) stating that the Borrower is in compliance with the covenants
      and restrictions set forth in Articles VII, VIII and IX of this Agreement
      and, with respect to the covenants set forth in Article VIII, the
      calculations applicable thereto; and

            (d) setting forth any other information reasonably required by the
      Administrative Agent to ensure compliance with this Agreement.

                                       59
<PAGE>
      SECTION 6.3 Accountant's Certificate. At each time financial statements
are delivered pursuant to Section 6.1(b), a certificate of the independent
public accountants certifying such financial statements addressed to the
Administrative Agent for the benefit of the Lenders:

      (a) stating that in making the examination necessary for the certification
of such financial statements, they obtained no knowledge of any Default or Event
of Default or, if such is not the case, specifying such Default or Event of
Default and its nature and period of existence; and

      (b) including the calculations prepared by such accountants required to
establish whether or not the Borrower are in compliance with the financial
covenants set forth in Article VIII hereof as at the end of each respective
period.

      SECTION 6.4       Other Reports.

      (a) Accountants Reports. Promptly upon receipt thereof, copies of all
reports, if any, submitted to the Borrower or its Board of Directors by its
independent public accountants in connection with their auditing function,
including, without limitation, any management report and any management
responses thereto.

      (b) Clinical Procedures Reports. At such times as the Administrative Agent
shall reasonably request, and at least quarterly, a certificate of an executive
officer of the Borrower setting forth the types of clinical procedures performed
during such period, the number of the clinical procedures performed during such
period, the patient days related to the clinical procedures performed during
such period and any other operating statistics reasonably requested by the
Administrative Agent, in a form prepared by the Borrower in the ordinary course
of its business.

      (c) Permitted Payment Certificate. Not less than ten (10) days prior to
the proposed date of any Permitted Distribution pursuant to Section 9.6, a
certificate of the chief financial officer or the treasurer of the Management
Company on behalf of the Borrower:

            (i) stating that such officer has reviewed the most recent financial
      statements of the Borrower and, to the best of his knowledge, such
      financial statements fairly present in all material respects the financial
      condition of the Borrower as of the dates indicated and the results of its
      operations and cash flows for the periods indicated;

            (ii) setting forth the calculations required to establish that the
      Borrower shall be in compliance with the requirements set forth in Section
      9.6(c) both before and after giving effect to such Permitted Distribution;
      and

            (iii) setting forth any other information reasonably required by the
      Administrative Agent to ensure compliance with this Agreement.

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<PAGE>
      (d)   Other Reports.  Such other information regarding the
operations, business affairs and financial condition of the Borrower as the
Administrative Agent or any Lender may reasonably request.

      SECTION 6.5 Notice of Litigation and Other Matters. Prompt (but in no
event later than ten (10) days after an officer of the Borrower obtains
knowledge thereof) telephonic and written notice of:

      (a) the commencement of all proceedings and investigations by or before
any Governmental Authority and all actions and proceedings in any court or
before any arbitrator against or involving the Borrower or any of its
properties, assets or businesses which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect;

      (b) any violation by the Borrower of any Applicable Law or any notice of
any violation received by the Borrower from any Governmental Authority
including, without limitation, any notice of violation of Environmental Laws,
which in any such case could reasonably be expected to have a Material Adverse
Effect;

      (c) any labor controversy that has resulted in, or threatens to result in,
a strike or other work action against the Borrower or any contractor or any
material development in any labor controversy which if adversely determined
could reasonably be expected to have a Material Adverse Effect;

      (d) any actual or threatened condemnation of any portion of the Property,
any negotiations with respect to any such taking, or any loss of or substantial
damage to the Property (excluding any such condemnation which only affects a de
minimus portion of the Property);

      (e) any notice received by the Borrower with respect to the cancellation,
alteration or non-renewal of any insurance coverage maintained by the Borrower
except as in the ordinary course of the business of the Borrower solely in
connection with the replacement of any such insurance coverage;

      (f) any failure by the Borrower or any contractor to perform any material
obligation under any construction contract that is a Material Contract
(including, without limitation, the Construction Contract), any event or
condition which would permit termination of any such construction contract or
suspension of work thereunder, or any notice given by the Borrower or any
contractor with respect to any of the foregoing.

      (g) any attachment, judgment, lien, levy or order exceeding $500,000 that
may be assessed against the Borrower (to the extent such attachment, judgment,
lien, levy or order is not fully covered by insurance and with respect to which
the applicable insurance carrier has not acknowledged that such attachment,
judgment, lien, levy or order is fully covered by insurance);

      (h) (i) any Default or Event of Default or (ii) any event which
constitutes or which with the passage of time or giving of notice or both would
constitute a default or event of default

                                       61
<PAGE>
under any Material Contract to which the Borrower is a party or by which the
Borrower or any of its properties may be bound which could reasonably be
expected to have a Material Adverse Effect;

      (i) (i) any unfavorable determination letter from the Internal Revenue
Service regarding the qualification of an Employee Benefit Plan under Section
401(a) of the Code (along with a copy thereof), (ii) all notices received by the
Borrower or any ERISA Affiliate of the PBGC's intent to terminate any Pension
Plan or to have a trustee appointed to administer any Pension Plan, (iii) all
notices received by the Borrower or any ERISA Affiliate from a Multiemployer
Plan sponsor concerning the imposition or amount of withdrawal liability
pursuant to Section 4202 of ERISA and (iv) the Borrower obtaining knowledge or
reason to know that the Borrower or any ERISA Affiliate has filed or intends to
file a notice of intent to terminate any Pension Plan under a distress
termination within the meaning of Section 4041(c) of ERISA;

      (j) from and after the Completion Date, any expiration, termination or
cancellation of the Borrower's license to operate, Medicare Certification or
Medicaid Certification or the receipt by the Borrower of any notice with respect
thereto; and

      (k)   any event which makes any of the representations set forth in
Section 5.1 inaccurate in any respect.

      SECTION 6.6 Accuracy of Information. All written information, reports,
statements and other papers and data furnished by or on behalf of the Borrower
to the Administrative Agent or any Lender pursuant to this Article VI, or any
other provision of this Agreement or any of the other Loan Documents, shall be,
at the time the same is so furnished, in compliance with the representations and
warranties set forth in Section 5.1(dd).

                                   ARTICLE VII

                              AFFIRMATIVE COVENANTS

      Until all of the Obligations have been paid and satisfied in full and the
Commitments terminated, unless consent has been obtained in the manner provided
for in Section 12.11, the Borrower will:

      SECTION 7.1 Preservation of Existence and Related Matters. Preserve and
maintain its separate existence as a limited partnership and all rights,
franchises, licenses and privileges necessary to the conduct of its business,
and qualify and remain qualified as a foreign company and authorized to do
business in each jurisdiction where the nature and scope of its activities
require it to so qualify under Applicable Law, including in any event, the state
of its formation and the state in which the Project is located.

      SECTION 7.2 Maintenance of Property. In addition to the requirements of
any of the Security Documents, protect and preserve all properties useful in and
material to the conduct of its business, including copyrights, patents, trade
names, service marks and trademarks material

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<PAGE>
to the conduct of its business; maintain in good working order and condition,
reasonable wear and tear and casualty excepted, all buildings, items of
equipment and other items of tangible real and personal property material to the
conduct of its business; and from time to time make or cause to be made all
renewals, replacements and additions to such property necessary for the conduct
of its business, so that the business carried on in connection therewith may be
properly conducted at all times.

      SECTION 7.3 Accounting Methods and Financial Records. Maintain a system of
accounting, and keep such books, records and accounts (which shall be true and
complete in all material respects) as may be required or as may be necessary to
permit the preparation of financial statements in accordance with GAAP and in
compliance with the regulations of any Governmental Authority having
jurisdiction over it or any of its properties.

      SECTION 7.4 Payment and Performance of Obligations. Pay and perform all
Obligations under this Agreement and the other Loan Documents, and pay or
perform (a) all taxes, assessments and other governmental charges that may be
levied or assessed upon it or any of its property, and (b) all other
indebtedness, obligations and liabilities in accordance with customary trade
practices; provided, that the Borrower may contest any item described in clauses
(a) or (b) of this Section 7.4 in good faith so long as adequate reserves are
maintained with respect thereto in accordance with GAAP.

      SECTION 7.5 Compliance With Laws and Approvals. Observe and remain in
compliance in all material respects with all Applicable Laws and maintain in
full force and effect all Governmental Approvals, in each case applicable to the
conduct of its business, except where the failure to observe or comply could not
reasonably be expected to have a Material Adverse Effect.

      SECTION 7.6 Environmental Laws. In addition to and without limiting the
generality of Section 7.5, (a) comply in all material respects with, and use its
best efforts to ensure such compliance in all material respects by all tenants
and subtenants (if any) with, all applicable Environmental Laws and obtain and
comply in all material respects with and maintain, and use its best efforts to
ensure that all tenants and subtenants, if any, obtain and comply in all
material respects with and maintain, any and all licenses, approvals,
notifications, registrations or permits required by applicable Environmental
Laws, (b) conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws, and promptly comply in all material respects with all lawful
orders and directives of any Governmental Authority regarding Environmental
Laws, except to the extent that the same are being contested in good faith by
appropriate proceedings and the pendency of such proceedings could not
reasonably be expected to have a Material Adverse Effect, and (c) defend,
indemnify and hold harmless the Administrative Agent and the Lenders, and their
respective parents, Subsidiaries, Affiliates, employees, agents, officers and
directors, from and against any claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature known or
unknown, contingent or otherwise, arising out of, or in any way relating to the
presence of Hazardous Materials, or the violation of, noncompliance with or
liability under any Environmental Laws applicable to the operations of the
Borrower, or any orders, requirements or demands of Governmental Authorities
related thereto, including, without limitation, reasonable

                                       63
<PAGE>
attorney's and consultant's fees, investigation and laboratory fees, response
costs, court costs and litigation expenses, except to the extent that any of the
foregoing directly result from the gross negligence or willful misconduct of the
party seeking indemnification therefor.

      SECTION 7.7 Compliance with ERISA. In addition to and without limiting the
generality of Section 7.5, (a) except where the failure to so comply could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect, (i) comply with all material applicable provisions of ERISA and
the regulations and published interpretations thereunder with respect to all
Employee Benefit Plans, (ii) not take any action or fail to take action the
result of which could be a liability to the PBGC or to a Multiemployer Plan,
(iii) not participate in any prohibited transaction that could result in any
civil penalty under ERISA or tax under the Code and (iv) operate each Employee
Benefit Plan in such a manner that will not incur any tax liability under
Section 4980B of the Code or any liability to any qualified beneficiary as
defined in Section 4980B of the Code and (b) furnish to the Administrative Agent
upon the Administrative Agent's request such additional information about any
Employee Benefit Plan as may be reasonably requested by the Administrative
Agent.

      SECTION 7.8 Compliance With Agreements. Comply in all respects with each
term, condition and provision of all leases, agreements and other instruments
entered into in the conduct of its business including, without limitation, any
Material Contract, except (i) where the failure to so comply could not
reasonably be expected to have a Material Adverse Effect or (ii) where any such
term, condition or provision is contested in good faith through applicable
proceedings and where adequate reserves are maintained in accordance with GAAP.

      SECTION 7.9       Visits and Inspections.

      (a) Upon reasonable notice to the Borrower (unless there exists any
Default or Event of Default), permit representatives of the Administrative Agent
or any Lender, from time to time, to visit and inspect its properties and any
materials thereon (including, without limitation, the Land and the
Improvements); inspect, audit and make extracts from its books, records and
files, including, but not limited to, management letters prepared by independent
accountants; and discuss with its principal officers, and its independent
accountants, its business, assets, liabilities, financial condition, results of
operations and business prospects; provided that the Administrative Agent and
the Lenders shall use their best efforts not to unreasonably interfere with the
construction of the Improvements;

      (b) Upon reasonable notice to the Borrower (unless there exists any
Default or Event of Default), furnish to the Administrative Agent at any time
for inspection and copying all Plans, shop drawings, specifications, books and
records, and other documents and information required by the Administrative
Agent or the Lenders; and

      (c) Cooperate with the General Contractor in the performance of all
inspections performed thereby in order to use their best efforts to keep
construction on schedule.

      SECTION 7.10 Construction of the Improvements. Prosecute the construction
of the Improvements with diligence and continuity, in a good and workmanlike
manner, and in

                                       64
<PAGE>
accordance with sound building and engineering practices, all applicable laws
and governmental requirements, the Loan Documents, and the Plans. The Borrower
shall not permit cessation of work for a period in excess of twenty (20) days
(whether or not consecutive but excluding weekends and legal holidays), except
for Excusable Delays. The Borrower shall complete construction of the
Improvements, and shall obtain a permanent unconditional certificate of
occupancy and all other permits, licenses, and approvals for the occupancy, use
and operation of the Improvements from all applicable Governmental Authorities
on or before the Completion Date, free and clear of all Liens except as
permitted pursuant to Section 9.2. The Borrower shall correct promptly (a) any
material defect in the Improvements, (b) any material departure from the Plans,
except with respect to Permitted Changes, or governmental requirements, or (c)
any encroachment by any Improvements or structure on any building setback line,
easement, property line or restricted area. All increases in the cost of
constructing the Improvements which result from Permitted Changes shall be
applied against the $1,000,000 building contingency in the Budget and, to the
extent such increases exceed $1,000,000 shall be paid by the Borrower from its
own funds.

      SECTION 7.11 Storage of Materials. Except as provided in Exhibit N, cause
all materials supplied for, or intended to be utilized in the construction of
the Improvements, but not yet affixed to or incorporated into the Improvements
on the Land, to be stored on the Land with adequate safeguards as required by
the Administrative Agent to prevent loss, theft, damage or commingling with
other materials or projects.

      SECTION 7.12 Advertising by the Lenders. At the Lenders' request and
expense, erect and maintain on the Property one or more advertising signs
approved by the Administrative Agent and the Borrower indicating that the
construction financing for the property has been provided by the Lenders.

      SECTION 7.13 Annual Appraisal. Upon the request of the Administrative
Agent, during the continuance of any Event of Default, permit the Administrative
Agent to obtain, at the Borrower's expense, once in each calendar year an
appraisal of any part of the Property prepared in accordance with written
instructions from the Administrative Agent by a third-party appraiser engaged
directly by the Administrative Agent. Each such appraiser and appraisal shall be
satisfactory to the Administrative Agent (including satisfaction of applicable
regulatory requirements). The cost of each such appraisal shall be due and
payable by the Borrower on demand and shall be secured by the Security
Documents.

      SECTION 7.14 Construction Consultant. Cooperate with the Construction
Consultant and furnish Construction Consultant whatever documents or cooperation
the Construction Consultant considers reasonably necessary or useful to perform
its duties. The duties of the Construction Consultant run solely to the
Administrative Agent and the Lenders, and the Construction Consultant shall have
no obligations or responsibilities whatsoever to the Borrower, the Architect,
the General Contractor or to any of their agents or employees. The Construction
Consultant may, among other duties, perform construction cost analyses, review
the Plans and any proposed changes thereto, observe work in place, and review
Draw Requests. Unless prohibited by Applicable Law, the reasonable fees, costs
and expenses of the Construction Consultant shall be paid by the Borrower. The
Administrative Agent shall use its

                                       65
<PAGE>
best efforts to ensure that the Construction Consultant acts promptly in the
discharge of its duties in order to facilitate construction as scheduled.

      SECTION 7.15      Reports and Vouchers.

      (a) Promptly deliver to the Administrative Agent copies of all reports,
studies, inspections and tests made on the Land, the Improvements or the
materials to be incorporated into the Improvements (including, without
limitation, any such report, study, inspection or test which indicates any
material adverse condition in the Land or the Improvements);

      (b)   Make additional tests as the Administrative Agent or any Lender
reasonably requires; and

      (c) Deliver to the Administrative Agent, on demand, any contracts, bills
of sale, statements, receipted vouchers or agreements under which the Borrower
claims title to any materials, fixtures or articles incorporated or to be
incorporated in the Improvements or otherwise subject to a lien or security
interest in favor of the Administrative Agent for the benefit of the Lenders.

      SECTION 7.16      Equipment Financing.

      (a) Within nine (9) months following the Closing Date, secure a binding
commitment from FinCo or one or more third party lenders (each, in such
capacity, an "Equipment Lender" and collectively, the "Equipment Lenders") to
finance the purchase or lease by the Borrower of the equipment to be included
within the Project (the "Equipment Loan Financing"). The terms and conditions of
each such commitment shall be in form and substance satisfactory to the
Administrative Agent. Such terms and conditions shall include, without
limitation, the following: (a) an interest rate not to exceed the Five-Year US
Treasury Yield plus 7%, (b) a term of not less than thirty-six (36) months or
more than one hundred twenty (120) months and (c) an amount equal to not less
than eighty percent (80%) or more than one hundred percent (100%) of the cost of
the equipment.

      (b) Maintain the Equipment Loan Financing (after obtaining it as required
pursuant to Section 7.16(a)); provided that the terms and conditions of the
Equipment Loan Financing shall not be amended, modified or changed in a manner
which is adverse in any respect to the rights or interests of the Administrative
Agent or the Lenders unless approved in writing by the Administrative Agent

      SECTION 7.17 Maintenance of Licenses, Etc. In addition to and without
limiting the generality of Section 7.5, (a) observe and remain in compliance in
all material respects with all Applicable Laws, including, without limitation,
Medicare Regulations and Medicaid Regulations (as applicable), in connection
with the ownership or operation of the Hospital, (b) obtain and preserve, to the
fullest extent permitted by Applicable Law, all certifications and
authorizations necessary to ensure that the Hospital and the Borrower are
eligible for reimbursement under the Medicare Regulations and the Medicaid
Regulations (as applicable),

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<PAGE>
and (c) obtain and preserve all material licenses, permits, authorizations and
qualifications required under Applicable Laws in connection with the ownership
or operation of the Hospital.

      SECTION 7.18      Insurance.

      (a) Maintain insurance with financially sound and reputable insurance
companies against such risks and in such amounts as are customarily maintained
by similar businesses and as may be required by Applicable Law and as are
required by any Security Documents (including, without limitation, Sections 1.4
through 1.8 of the Mortgage), and on the Closing Date and from time to time
thereafter deliver to the Administrative Agent upon its request a detailed list
of the insurance then in effect, stating the names of the insurance companies,
the amounts and rates of the insurance, the dates of the expiration thereof and
the properties and risks covered thereby.

      (b) For the purpose of Section 1.6 of the Mortgage, decisions to be made
by the Administrative Agent regarding the application of net cash proceeds under
any insurance policy shall be made by the Administrative Agent at the direction
of the Required Lenders.

      SECTION 7.19      Equity Account.

      (a)   Maintain the Equity Account with Bank of America.

      (b)   Use the proceeds contained in the Equity Account solely in
connection with the Project.

      SECTION 7.20 Further Assurances. Make, execute and deliver all such
additional and further acts, things, deeds and instruments as the Administrative
Agent or any Lender may reasonably require to document and consummate the
transactions contemplated hereby and to vest completely in and insure the
Administrative Agent and the Lenders their respective rights under this
Agreement, the Construction Loan Notes and the other Loan Documents.

                                  ARTICLE VIII

                               FINANCIAL COVENANTS

      Until all of the Obligations have been paid and satisfied in full and the
Commitments terminated, unless consent has been obtained in the manner set forth
in Section 12.11, the Borrower will not:

      SECTION 8.1 Minimum EBITDA. As of the end of each of the fourth (4th) full
fiscal quarter and the fifth (5th) full fiscal quarter following the Completion
Date, permit EBITDA for such fiscal quarter to be less than $0.

      SECTION 8.2 Debt Service Coverage Ratio. As of the end of any fiscal
quarter, commencing with the end of the sixth (6th) full fiscal quarter
following the Completion Date,

                                       67
<PAGE>
permit the ratio of (a) Adjusted EBITDA for the fiscal quarter then ended to (b)
Adjusted Debt Service for such fiscal quarter to be less than the corresponding
ratio set forth below:

<TABLE>
<CAPTION>
                Period                                Ratio
                ------                                -----

<S>                                                <C>
      Sixth full fiscal quarter following          1.25 to 1.00
      the Completion Date
</TABLE>

                                   ARTICLE IX

                               NEGATIVE COVENANTS

      Until all of the Obligations have been paid and satisfied in full and the
Commitments terminated, unless consent has been obtained in the manner set forth
in Section 12.11, the Borrower will not:

      SECTION 9.1 Limitations on Debt. Create, incur, assume or suffer to exist
any Debt except:

            (a) the Obligations;

            (b) Debt incurred in connection with the Equipment Loan Financing in
      an aggregate principal amount not to exceed $20,000,000 at any time (or
      any refinancing, but not any increase in the principal amount, thereof);

            (c) Debt incurred after the Closing Date consisting of Capital
      Leases or other purchase money Debt incurred to provide all or a portion
      of the purchase price (or to finance such purchase price within ninety
      (90) days of acquisition) or the cost of construction of an asset;
      provided that (i) such Debt when incurred shall not exceed one hundred
      percent (100%) of the purchase price or the cost of construction of such
      asset; (ii) no such Debt shall be refinanced for a principal amount in
      excess of the principal balance outstanding thereon at the time of such
      refinancing; and (iii) the total amount of all such Debt shall not exceed
      $5,000,000 on any date of determination;

            (d) Debt which may be deemed to exist pursuant to any performance,
      surety, statutory, appeal or similar obligations obtained in the ordinary
      course of business;

            (e) Debt incurred in connection with a Hedging Agreement with a
      counterparty and upon terms and conditions (including interest rate)
      reasonably satisfactory to the Administrative Agent; provided, that any
      counterparty that is a Lender shall be deemed satisfactory to the
      Administrative Agent; and

            (f) Subordinated Debt to FinCo evidencing intercompany loans by
      FinCo to the Borrower for short-term working capital and other general
      corporate purposes in an aggregate principal amount not to exceed
      $20,000,000 (the "Subordinated Working

                                       68
<PAGE>
      Capital Loan"); provided, that the Subordinated Working Capital Loan shall
      be subordinated pursuant to an Intercompany Loan Subordination Agreement
      in form and substance satisfactory to the Administrative Agent.

      SECTION 9.2 Limitations on Liens. Create, incur, assume or suffer to
exist, any Lien on or with respect to any of the Borrower's assets or properties
(including, without limitation, shares of capital stock or other ownership
interests), real or personal, whether now owned or hereafter acquired, except:

            (a) Liens for taxes, assessments and other governmental charges or
      levies (excluding any Lien imposed pursuant to any of the provisions of
      Environmental Laws) not yet due or as to which the period of grace (not to
      exceed thirty (30) days), if any, related thereto has not expired;

            (b) Liens consisting of deposits or pledges made in the ordinary
      course of business in connection with, or to secure payment of,
      obligations under workers' compensation, unemployment insurance or similar
      legislation;

            (c)   Liens in favor of the Administrative Agent for the
      benefit of the Administrative Agent and the Lenders;

            (d)   encumbrances on and exceptions to title contained in the
      Title Policy;

            (e) Liens securing Debt permitted under Section 9.1(b); provided
      that such Liens do not at any time encumber any property other than the
      equipment (and the proceeds thereof) of the Borrower to be included in the
      Project which is financed by such Debt;

            (f) purchase money Liens securing purchase money Debt (and
      refinancings thereof) to the extent permitted under Section 9.1(c);
      provided that (i) such purchase money Liens shall be created substantially
      simultaneously with the acquisition of the related asset and (ii) such
      purchase money Liens do not at any time encumber any property other than
      the property (and the proceeds thereof) financed by such Debt;

            (g) Liens arising in connection with Capital Leases to the extent
      permitted under Section 9.1(c); provided that (i) such Liens shall be
      created substantially simultaneously with the lease of the related asset
      and (ii) such Liens do not at any time encumber any property other than
      the property (and the proceeds thereof) financed by such Debt;

            (h)   Liens arising from judgments, decrees or attachments in
      circumstances not constituting an Event of Default under Section
      10.1(o);

            (i) carriers', warehousemen's, mechanics', materialmen's,
      repairmen's or other like Liens arising in the ordinary course of business
      (i) which secure obligations

                                       69
<PAGE>
      which are not overdue for a period of more than sixty (60) days or (ii)
      which are being contested in good faith by appropriate proceedings;

            (j) Liens in an aggregate amount not to exceed $250,000 which are
      being contested by the Borrower in good faith and which are dismissed,
      discharged, stayed, bonded off or quashed within thirty (30) days of
      issuance; and

            (k) Liens on accounts receivable of the Borrower in connection with
      the Subordinated Working Capital Loan; provided that such Liens are
      subordinated to the Liens on such accounts receivable in favor of the
      Administrative Agent (for the benefit of the Administrative Agent and the
      Lenders) on the terms and conditions which are satisfactory to the
      Administrative Agent.

      SECTION 9.3 Limitations on Loans, Advances, Investments and Acquisitions.
Purchase, own, invest in or otherwise acquire, directly or indirectly, any
capital stock, interests in any partnership, limited liability company or joint
venture (including, without limitation, the creation or capitalization or any
Subsidiary), evidence of Debt or other obligation or security, substantially all
or a portion of the business or assets of any other Person or any other
investment or interest whatsoever in any other Person, or make or permit to
exist, directly or indirectly, any loans, advances or extensions of credit to,
or any investment in cash or by delivery of property in, any Person, or enter
into, directly or indirectly, any commitment or option in respect of the
foregoing except investments in:

      (a) cash and marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency thereof maturing within
120 days from the date of acquisition thereof;

      (b) commercial paper maturing no more than 120 days from the date of
creation thereof and currently having the highest rating obtainable from either
Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies,
Inc. or Moody's Investors Service, Inc.;

      (c) certificates of deposit maturing no more than 120 days from the date
of creation thereof issued by commercial banks incorporated under the laws of
the United States of America, each having combined capital, surplus and
undivided profits of not less than $500,000,000 and having a rating of "A" or
better by a nationally recognized rating agency; provided, that the aggregate
amount invested in such certificates of deposit shall not at any time exceed
$5,000,000 for any one such certificate of deposit and $10,000,000 for any one
such bank;

      (d) time deposits maturing no more than thirty (30) days from the date of
creation thereof with commercial banks or savings banks or savings and loan
associations each having membership either in the FDIC or the deposits of which
are insured by the FDIC and in amounts not exceeding the maximum amounts of
insurance thereunder;

                                       70
<PAGE>
      (e) loans and advances to officers, directors, employees and Affiliates
(including advances for travel and miscellaneous expenses) in the ordinary
course of business in an aggregate amount not to exceed $25,000 on any date of
determination (without regard to write-offs or write-downs thereof);

      (f) investments (including debt obligations) received in connection with
the bankruptcy or reorganization of suppliers and customers and in settlement of
delinquent obligations of, and other disputes with, customers and suppliers
arising in the ordinary course of business;

      (g)   investments by the Borrower in Hedging Agreements permitted
under Section 9.1(e); and

      (h) investments by the Borrower in joint ventures; provided that (i) such
investments shall not exceed $150,000 individually or $300,000 in the aggregate
during the term of this Agreement, (ii) each such joint venture shall be in
substantially the same field of business as that to be conducted by the Borrower
on the Completion Date, (iii) the Borrower shall provide written notice of each
such joint venture not less than ten (10) Business Days prior to the proposed
date of consummation of such joint venture, (iv) the Borrower shall comply with
all terms and conditions of the Security Documents in connection with its
interest in each such joint venture within thirty (30) days of the date of
consummation of each such joint venture and (v) the Borrower shall provide to
the Administrative Agent all other agreements, certificates and other documents
reasonably requested thereby in connection with each such joint venture.

      SECTION 9.4 Limitations on Mergers and Liquidation. Merge, consolidate or
enter into any similar combination with any other Person or liquidate, wind-up
or dissolve itself (or suffer any liquidation or dissolution).

      SECTION 9.5 Limitations on Sale of Assets. Convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, the sale of any receivables and leasehold
interests and any sale-leaseback or similar transaction), whether now owned or
hereafter acquired except:

      (a)   the sale of obsolete assets no longer used or usable in the
business of the Borrower; and

      (b) the sale of assets which are replaced in the ordinary course of
business, the fair market value of which shall not exceed $500,000 with respect
to any transaction and $2,000,000 in the aggregate for all such transactions
during the term of this Agreement.

      SECTION 9.6 Limitation on Distributions. Purchase, redeem, retire or
otherwise acquire, directly or indirectly, any of its ownership or equity
interests, or make any distribution of cash, property or assets among the
holders of its ownership or equity interests or make any changes in its capital
structure; provided that:

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            (a) so long as no Default or Event of Default shall have occurred
      and be continuing or will exist immediately after giving effect to the
      distributions described herein, the Borrower may make distributions to its
      equityholders, not otherwise permitted hereunder, in an aggregate amount
      not to exceed $200,000 during the term of this Agreement; provided that
      the Borrower shall (i) notify the Administrative Agent in writing prior to
      making any such distribution and (ii) provide to the Administrative Agent
      all documentation in connection therewith;

            (b) so long as (i) no Default or Event of Default under Sections
      10.1(a) or 10.1(b) shall have occurred and be continuing or will exist
      immediately after giving effect to the distributions described herein and
      (ii) no obligations have been accelerated pursuant to Section 10.2(a), the
      Borrower may make quarterly distributions to its equityholders on their
      pro rata share of the income of the Borrower in an aggregate amount not to
      exceed in any year the amount of the income tax liability incurred by such
      equityholders as a result of the reporting of the Borrower's income,
      deductions, gains or losses on the federal or state income tax returns of
      the equityholders, the aggregate amount of which shall be calculated
      assuming all equityholders will pay taxes at the highest combined federal
      and state tax rate; provided that the Borrower shall provide to the
      Administrative Agent all documentation in connection therewith; and

            (c) the Borrower may declare or make distributions to its
      equityholders to the extent not otherwise permitted hereunder or redeem
      the partnership interests of its equityholders to the extent provided for
      in the limited partnership agreement of the Borrower (as in effect on the
      date of this Agreement or as subsequently amended, modified or changed in
      accordance with Section 9.10) (such distributions and payments, the
      "Permitted Distributions"); provided that:

                  (i) the aggregate amount of all Permitted Distributions made
            during any Fiscal Year of the Borrower shall not exceed Cash Flow
            Available for Distribution for the preceding Fiscal Year of the
            Borrower; and

                  (ii) all Permitted Distributions made during any Fiscal Year
            must be made during the sixty (60) day period (A) commencing on the
            date of delivery by the Borrower to the Agent and the Lenders of the
            annual financial statements for the prior Fiscal Year of the
            Borrower which are required to be delivered pursuant to Section
            6.1(b) and (B) ending on the date which is sixty (60) days after the
            date of such delivery (provided that no Permitted Distributions may
            be made until the first Fiscal Year following the date which is six
            (6) full fiscal quarters after the Completion Date);

                  (iii)       no Default or Event of Default shall have
            occurred and be continuing or will exist immediately after
            giving effect to any Permitted Distribution;

                  (iv) the sum of (A) the cash balance of the Borrower plus (B)
            the aggregate amount of unused availability under Section 11(l)(ii)
            of the Guaranty

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            Agreement shall not be less than $2,000,000 (such amount, the
            "Required Cash Availability") as of the end of the Business Day on
            which any Permitted Distribution is made (such date, the "Permitted
            Distribution Date") (the Required Cash Availability to exist after
            the payment and disbursement of (A) all operating expenses due and
            payable as of the Permitted Distribution Date, (B) all principal and
            interest on any Senior Debt due and payable as of the Permitted
            Distribution Date, (C) all principal and interest on any
            Subordinated Debt due and payable as of the Permitted Distribution
            Date and (D) all other Permitted Distributions due and payable as of
            such date); and

                  (v) the Borrower shall deliver to the Administrative Agent, as
            required by Section 6.4(c), a certificate in form and substance
            satisfactory to the Administrative Agent demonstrating compliance by
            the Borrower with the requirements set forth in this Section 9.6(c).

      SECTION 9.7 Amendments, Payments and Prepayments of Subordinated Debt.
Amend or modify (or permit the modification or amendment of) any of the terms or
provisions of any Subordinated Debt, or cancel or forgive, make any principal
payment on, make any voluntary or optional payment or prepayment on, or redeem
or acquire for value (including, without limitation, by way of depositing with
any trustee with respect thereto money or securities before due for the purpose
of paying when due) any Subordinated Debt; provided that if no Default or Event
of Default shall have occurred and be continuing or would exist immediately
after giving effect to the payments described below, the Borrower may:

      (a)   make all scheduled interest payments on Subordinated Debt;

      (b)   repay the Subordinated Working Capital Loan; and

      (c) increase the amount of the Subordinated Working Capital Loan (to the
extent any such increase is permitted under Section 9.1(f)).

      SECTION 9.8       Transactions With Affiliates.  Except as disclosed
on Schedule 9.8 attached hereto, directly or indirectly:

      (a) make any loan or advance to, or purchase or assume any note or other
obligation to or from, any of its officers, members, managers or other
Affiliates, or to or from any member of the immediate family of any of its
officers, members, managers, shareholders or other Affiliates, or subcontract
any operations to any of its Affiliates (other than loans and advances to
officers, directors, employees and Affiliates permitted pursuant to Section
9.3(e)), or

      (b) enter into, or be a party to, any other transaction not described in
subsection (a) above with any of its Affiliates, except in the ordinary course
of business pursuant to the reasonable requirements of its business and upon
fair and reasonable terms that are no less favorable to the Borrower than the
Borrower would obtain in a comparable arm's length transaction with a Person not
its Affiliate.

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      SECTION 9.9 Restrictive Agreements. Enter into any Debt which contains any
negative pledge on assets (other than, with respect to assets financed thereby,
the Equipment Loan Financing) or any covenants more restrictive than the
provisions hereof, or which restricts, limits or otherwise encumbers its ability
to incur Liens on or with respect to any of its assets or properties other than
the assets or properties securing such Debt.

      SECTION 9.10 Certain Accounting Changes; Organizational Documents. (a)
Change its Fiscal Year end, or make any change in its accounting treatment and
reporting practices except as required by GAAP or (b) amend, modify or change
its certificate of limited partnership (or corporate charter or other similar
organizational documents) or amend, modify or change its limited partnership
agreement (or other similar documents) in any manner adverse in any respect to
the rights or interests of the Lenders.

      SECTION 9.11 Changes to the Plans. Without the Administrative Agent's
prior written consent, which consent shall not to be unreasonably withheld,
change or modify the Plans, undertake any construction on the Land except as
shown in the Plans, agree to any change order, or allow any extras to any
contractor or any subcontractor, except Permitted Changes. The Administrative
Agent shall not be obligated to review a proposed change which requires the
Administrative Agent's consent unless it has received all documents necessary to
review such change, including the change order, cost estimates, plans and
specifications, and evidence that all approvals by all applicable parties have
been obtained. The Administrative Agent shall furnish the Lenders with timely
written notice of any change to the Plans consented to by the Administrative
Agent.

      SECTION 9.12 Contracts. Without the Administrative Agent's prior written
approval as to parties, terms and all other matters, which approval shall not be
unreasonably withheld, (a) enter into any Material Contract for the performance
of any work or the supplying of any labor, materials or services for the design
or construction of the Improvements (other than the Construction Contract or the
Architect's Contract), (b) enter into any management or leasing contract with a
third party pertaining to the Property not described in clause (a) above that is
not unconditionally terminable by the Borrower or any successor owner without
penalty or payment on not more than thirty (30) days notice to the other party
thereunder, or (c) materially modify, amend or terminate any such contracts
except for Permitted Changes. All such contracts shall provide that all Liens of
the applicable contractor, architect, supplier, surveyor or other party and any
right to remove removable Improvements are or will be subordinate to rights of
the Administrative Agent and the Lenders. The Borrower shall not default under
any Material Contract or permit any Material Contract to terminate by reason of
any failure of the Borrower to perform thereunder, and the Borrower shall
promptly notify the Administrative Agent of any material default thereunder. The
Borrower will deliver to the Administrative Agent, upon request of the
Administrative Agent, the names of all persons or entities with whom each
contractor has contracted or intends to contract for the construction of the
Improvements or for the furnishing of labor or materials therefor. The
Administrative Agent shall furnish the Lenders on a monthly basis with a written
report of all approvals granted by the Administrative Agent under this Section
9.12 and of any notice of default received from the Borrower.

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                                    ARTICLE X

                              DEFAULT AND REMEDIES

      SECTION 10.1 Events of Default. Each of the following shall constitute an
Event of Default, whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
Governmental Authority or otherwise:

            (a) Default in Payment of Principal of Construction Loans. The
      Borrower shall default in any payment of principal of any Construction
      Loan Advance or Construction Loan Note when and as due (whether at
      maturity, by reason of acceleration or otherwise), and such default shall
      continue unremedied for two (2) Business Days.

            (b) Other Payment Defaults. The Borrower shall default in the
      payment of any interest on any Construction Loan Advance or Construction
      Loan Note or the payment of any other Obligation when and as due (whether
      at maturity, by reason of acceleration or otherwise), and such default
      shall continue unremedied for five (5) Business Days.

            (c) Misrepresentation. Any representation or warranty made or deemed
      to be made by the Borrower or any Guarantor under this Agreement, any Loan
      Document or any amendment hereto or thereto, shall at any time prove to
      have been incorrect or misleading in any material respect when made or
      deemed made.

            (d) Default in Performance of Certain Covenants. The Borrower shall
      default in the performance or observance of any covenant or agreement
      contained in Sections 6.1, 6.2 or 6.5(h)(i) or Articles VIII or IX of this
      Agreement or any Guarantor shall default in the performance or observance
      of any covenant or agreement contained in Sections 10(a), 10(b),
      10(e)(v)(A), 11(l), 12 and 13 of the Guaranty Agreement.

            (e) Default in Performance of Other Covenants and Conditions. The
      Borrower or any Guarantor shall default in the performance or observance
      of any term, covenant, condition or agreement contained in this Agreement
      (other than as specifically provided for otherwise in this Section 10.1)
      or any other Loan Document and such default shall continue for a period of
      thirty (30) days after written notice thereof has been given to the
      Borrower or such Guarantor by the Administrative Agent.

            (f)   Hedging Agreement.  The Borrower shall default in the
      performance or observance of any terms, covenant, condition or
      agreement under any Hedging Agreement with the Administrative Agent
      or any Lender.

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            (g)   Specific Cross Defaults.

                  (i) The occurrence of an event of default under the Corporate
      Revolver.

                  (ii) Any Guarantor shall default in the performance of any of
      its obligations under any of the Related Guaranty Agreements; provided,
      however, that a default by any Affiliate of any Guarantor which owns or
      operates a hospital or diagnostic center under the terms of any instrument
      or loan to which it is a party and for which such Guarantor provided its
      guaranty shall not be considered a Default or an Event of Default of such
      Guarantor pursuant to this Section 10.1(g)(ii) unless (A) written demand
      for payment of all or a portion of such debt has been made against such
      Guarantor by the lender or lenders thereunder (or an agent or trustee
      acting on behalf of the lender or lenders) and (B) such Guarantor fails to
      immediately (1) pay such debt and (2) perform all other related
      obligations in connection therewith.

            (h) Other Debt Cross-Default. The Borrower or any Guarantor shall
      (i) default in the payment of any Debt (other than (A) Debt evidenced by
      the Construction Loan Notes and (B) any inter-company Debt, including any
      Debt of the Borrower to any Guarantor) beyond the period of grace, if any,
      provided in the instrument or agreement under which such Debt was created
      and provided that with respect to the Parent and MedCath Incorporated,
      such Debt exceeds an aggregate of $1,000,000 and with respect to the
      Borrower and any other Guarantor, such Debt exceeds an aggregate of
      $500,000, or (ii) default in the observance or performance of any other
      agreement or condition relating to any Debt (other than Debt evidenced by
      the Construction Loan Notes) or contained in any instrument or agreement
      evidencing, securing or relating thereto or any other event shall occur or
      condition exist, the effect of which default or other event or condition
      is to cause, or to permit the holder or holders of such Debt (or a trustee
      or agent on behalf of such holder or holders) to cause, with the giving of
      notice if required, any such Debt to become due prior to its stated
      maturity (any applicable grace period having expired); provided, however,
      that a default by any Affiliate of any Guarantor which owns or operates a
      hospital or diagnostic center under the terms of any instrument or loan to
      which it is a party and for which such Guarantor provided its guaranty
      shall not be considered a Default or an Event of Default of such Guarantor
      pursuant to this Section 10.1(h) unless demand for payment of all or a
      portion of such debt has been made against such Guarantor by the lender or
      lenders thereunder (or an agent or trustee acting on behalf of the lender
      or lenders).

            (i) Other Cross-Defaults. The Borrower or any Guarantor shall
      default in the payment when due, or in the performance or observance, of
      any material obligation or condition of any Material Contract and such
      default shall continue beyond the period of grace, if any, provided in
      such Material Contract unless, but only as long as, the existence of any
      such default is being contested by the Borrower or such Guarantor in good
      faith by appropriate proceedings and adequate reserves in respect thereof
      have been established on the books of the Borrower or such Guarantor to
      the extent required by GAAP.

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            (j) Change in Control. (i) Any person or group of persons (within
      the meaning of Section 13(d) of the Securities Exchange Act of 1934, as
      amended), other than any direct or indirect shareholder of the Parent
      existing immediately prior to the Initial Public Offering (as defined in
      the Commitment Agreement), shall obtain ownership or control in one or
      more series of transactions of more than fifty percent (50%) of the common
      stock or fifty percent (50%) of the voting power of the Parent entitled to
      vote in the election of members of the board of directors of the Parent,
      (ii) MedCath Incorporated shall cease to be a wholly-owned Subsidiary of
      the Parent, (iii) the Management Company or the Limited Partner shall
      cease to be a wholly-owned Subsidiary of MedCath Incorporated or (iv) the
      Management Company and the Limited Partner shall be the beneficial owner
      of less than that percentage of the equity interests in the Borrower owned
      by the Management Company and the Limited Partner on the Closing Date or
      the Management Company shall cease to be the sole general partner and
      manager of the Borrower (any such event, a "Change in Control").

            (k) Voluntary Bankruptcy Proceeding. The Borrower or any Guarantor
      shall (i) commence a voluntary case under the federal bankruptcy laws (as
      now or hereafter in effect), (ii) file a petition seeking to take
      advantage of any other laws, domestic or foreign, relating to bankruptcy,
      insolvency, reorganization, winding up or composition for adjustment of
      debts, (iii) consent to or fail to contest in a timely and appropriate
      manner any petition filed against it in an involuntary case under such
      bankruptcy laws or other laws, (iv) apply for or consent to, or fail to
      contest in a timely and appropriate manner, the appointment of, or the
      taking of possession by, a receiver, custodian, trustee, or liquidator of
      itself or of a substantial part of its property, domestic or foreign, (v)
      admit in writing its inability to pay its debts as they become due, (vi)
      make a general assignment for the benefit of creditors, or (vii) take any
      corporate action for the purpose of authorizing any of the foregoing.

            (l) Involuntary Bankruptcy Proceeding. A case or other proceeding
      shall be commenced against the Borrower or any Guarantor in any court of
      competent jurisdiction seeking (i) relief under the federal bankruptcy
      laws (as now or hereafter in effect) or under any other laws, domestic or
      foreign, relating to bankruptcy, insolvency, reorganization, winding up or
      adjustment of debts, or (ii) the appointment of a trustee, receiver,
      custodian, liquidator or the like for the Borrower or any Guarantor or for
      all or any substantial part of their respective assets, domestic or
      foreign, and such case or proceeding shall continue undismissed or
      unstayed for a period of sixty (60) consecutive days, or an order granting
      the relief requested in such case or proceeding (including, but not
      limited to, an order for relief under such federal bankruptcy laws) shall
      be entered.

            (m) Failure of Agreements. Any provision of this Agreement or of any
      other Loan Document shall for any reason cease to be valid and binding on
      the Borrower, any Guarantor or any other Person party thereto or the
      Borrower, any Guarantor or any other Person party thereto shall so state
      in writing, or this Agreement or any other Loan Document shall for any
      reason cease to create a valid and perfected first priority Lien on, or
      security interest in, any of the collateral purported to be covered
      thereby, in each case

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      other than in accordance with the express terms hereof or thereof, the
      priority of which shall be subject only to Liens permitted pursuant to
      Section 9.2.

            (n) ERISA Events. The occurrence of any of the following events: (i)
      the Borrower, any Guarantor or any ERISA Affiliate fails to make full
      payment when due of all amounts which, under the provisions of any Pension
      Plan or Section 412 of the Code, the Borrower, any Guarantor or any ERISA
      Affiliate is required to pay as contributions thereto, (ii) an accumulated
      funding deficiency in excess of $2,000,000 occurs or exists, whether or
      not waived, with respect to any Pension Plan of the Borrower, any
      Guarantor or any ERISA Affiliate, (iii) a Termination Event with respect
      to the Borrower, any Guarantor or any ERISA Affiliate or (iv) the
      Borrower, any Guarantor or any ERISA Affiliate as an employer under one or
      more Multiemployer Plans makes a complete or partial withdrawal from any
      such Multiemployer Plan and the plan sponsor of any such Multiemployer
      Plan notifies such withdrawing employer that such employer has incurred a
      withdrawal liability requiring payment in an amount exceeding $2,000,000.

            (o) Judgment. A judgment or order by any court for the payment of
      money which causes the aggregate amount of all judgments and orders by any
      court in any Fiscal Year (which are not fully covered by insurance or with
      respect to which the applicable insurance carrier has not acknowledged
      that such judgment is fully covered by insurance) to exceed (i) $500,000
      with respect to the Borrower, (ii) $1,000,000 with respect to any
      Guarantor (other than MedCath Parent Entities), (iii) $1,500,000 in the
      aggregate with respect to the Borrower and the Guarantors (other than the
      MedCath Parent Entities) or (iv) $2,000,000 with respect to any of the
      MedCath Parent Entities, and such judgment or order shall continue without
      discharge or stay for a period of thirty (30) days.

            (p) Certificate of Occupancy; Medicare Certification and Medicaid
      Certification. The Borrower shall fail to obtain a final certificate of
      occupancy, a license to operate, Medicare Certification and Medicaid
      Certification (as applicable) within eighteen (18) months after the
      Closing Date or after the receipt thereof, such license to operate,
      Medicare Certification or Medicaid Certification (as applicable) shall
      expire, terminate, be cancelled or otherwise lost.

            (q) Limited Partnership Agreement. The Borrower shall amend the
      Borrower's limited partnership agreement in a manner which would have a
      Material Adverse Effect without the prior written consent of the Required
      Lenders.

            (r) Management Agreement. The Management Agreement shall be amended
      in a manner which would have a Material Adverse Effect, without the prior
      written consent of the Required Lenders, or shall cease to be valid and
      binding in accordance with its terms.

            (s) Environmental. Any one or more Environmental Claims shall have
      been asserted against the Borrower or any Guarantor; the Borrower or any
      Guarantor would be

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      reasonably likely to incur liability as a result thereof; and such
      liability would be reasonably likely, individually or in the aggregate, to
      have a Material Adverse Effect.

      SECTION 10.2      Remedies.

      (a) Upon the occurrence of an Event of Default, with the consent of the
Required Lenders, the Administrative Agent may, and upon the request of the
Required Lenders, the Administrative Agent shall, do any one or more of the
following:

            (i) declare the principal of and interest on the Construction Loan
      Advances and the Construction Loan Notes at the time outstanding, and all
      other amounts owed to the Lenders and the Administrative Agent under this
      Agreement or any other Loan Document and all other Obligations (other than
      obligations owing under any Hedging Agreement), to be forthwith due and
      payable, whereupon the same shall immediately become due and payable
      without presentment, demand, protest or other notice of any kind, all of
      which are expressly waived, anything in this Agreement or any other Loan
      Document to the contrary notwithstanding, and terminate the Construction
      Loan Facility, any right of the Borrower to request borrowings thereunder
      and any obligation to disburse any sum from the Equity Account or the
      Project Deposit; provided, that upon the occurrence of an Event of Default
      specified in Section 10.1(k) or (l), the Construction Loan Facility, any
      right of the Borrower to request borrowings thereunder and any obligation
      to disburse any sum from the Equity Account or the Project Deposit shall
      be automatically terminated and all Obligations (other than obligations
      owing under any Hedging Agreement) shall automatically become due and
      payable without presentment, demand, protest or other notice of any kind,
      all of which are expressly waived, anything in this Agreement or any other
      Loan Document to the contrary notwithstanding;

            (ii)  institute an action to reduce any claim to judgment;

            (iii)       exercise any and all rights and remedies afforded
      by this Agreement, the other Loan Documents, Applicable Law, equity
      or otherwise;

            (iv) set-off and apply, to the extent thereof and to the maximum
      extent permitted by law, any and all deposits, funds or assets at any time
      held and any and all other indebtedness at any time owing by any Lender to
      or for the credit or account of the Borrower against any Obligations
      (other than Obligations owing under any Hedging Agreement); or

            (v) in its own name or in the name of the Borrower, enter into
      possession of the Property, perform all work necessary to complete the
      construction of the Improvements substantially in accordance with the
      Plans, the Loan Documents, laws and governmental requirements, and
      continue to employ the Architect and any engineer or contractor pursuant
      to the applicable contracts or otherwise.

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      (b) The Borrower hereby appoints the Administrative Agent as the
attorney-in-fact of the Borrower, which power of attorney is irrevocable and
coupled with an interest, with full power of substitution and in the name of the
Borrower, if the Administrative Agent elects to do so, upon the occurrence of a
Default or an Event of Default, to:

            (i) use such sums as are necessary, including any proceeds of the
      Construction Loan Advances and the Equity Account and the Project Deposit,
      make such changes or corrections in the Plans and employ such architects,
      engineers and contractors as may be required for the purpose of completing
      the construction of the Improvements substantially in accordance with the
      Plans, the Loan Documents, laws and governmental requirements, or as
      otherwise may be reasonably necessary for purposes of completing such
      construction;

            (ii)  execute all applications and certificates in the name of
      the Borrower which may be required for completion of construction of
      the Improvements;

            (iii) endorse the name of the Borrower on any checks or drafts
      representing proceeds of any insurance policies, or other checks or
      instruments payable to the Borrower with respect to the Property;

            (iv)  do every act with respect to the construction of the
      Improvements which the Borrower may do;

            (v)   prosecute or defend any action or proceeding incident to
      the Property,

            (vi)  pay, settle or compromise all bills and claims so as to
      clear title to the Property; and

            (vii) take over and use all or any part of the labor, materials,
      supplies and equipment contracted for, owned by or under the control of
      the Borrower, whether or not previously incorporated into the
      Improvements.

Any amounts expended by the Administrative Agent or the Lenders shall be a
demand obligation owing by the Borrower to the Lenders. The Lenders shall have
no liability to the Borrower for the sufficiency or adequacy of any such actions
taken by the Administrative Agent or the Lenders unless such actions constitute
gross negligence or willful misconduct on the part of the Administrative Agent
or the Lenders.

      SECTION 10.3 Rights and Remedies Cumulative; Non-Waiver; etc. The
enumeration of the rights and remedies of the Administrative Agent and the
Lenders set forth in this Agreement is not intended to be exhaustive and the
exercise by the Administrative Agent and the Lenders of any right or remedy
shall not preclude the exercise of any other rights or remedies, all of which
shall be cumulative, and shall be in addition to any other right or remedy given
hereunder or under the other Loan Documents or that may now or hereafter exist
at law or in equity or by suit or otherwise. No delay or failure to take action
on the part of the Administrative Agent or any Lender in exercising any right,
power or privilege shall operate as a waiver thereof,

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nor shall any single or partial exercise of any such right, power or privilege
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege or shall be construed to be a waiver of any Event of
Default. No course of dealing between the Borrower, the Administrative Agent and
the Lenders or their respective agents or employees shall be effective to
change, modify or discharge any provision of this Agreement or any of the other
Loan Documents or to constitute a waiver of any Event of Default.

                                   ARTICLE XI

                            THE ADMINISTRATIVE AGENT

      SECTION 11.1 Appointment and Authorization of the Administrative Agent.
Each Lender hereby irrevocably (subject to Section 11.9) appoints, designates
and authorizes the Administrative Agent to take such action on its behalf under
the provisions of this Agreement and each other Loan Document and to exercise
such powers and perform such duties as are expressly delegated to it by the
terms of this Agreement or any other Loan Document, together with such powers as
are reasonably incidental thereto. Notwithstanding any provision to the contrary
contained elsewhere herein or in any other Loan Document, the Administrative
Agent shall not have any duties or responsibilities, except those expressly set
forth herein, nor shall the Administrative Agent have or be deemed to have any
fiduciary relationship with any Lender or participant, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or any other Loan Document or otherwise exist against the
Administrative Agent. Without limiting the generality of the foregoing sentence,
the use of the term "agent" herein and in the other Loan Documents with
reference to the Administrative Agent is not intended to connote any fiduciary
or other implied (or express) obligations arising under agency doctrine of any
Applicable Law. Instead, such term is used merely as a matter of market custom,
and is intended to create or reflect only an administrative relationship between
independent contracting parties.

      SECTION 11.2 Delegation of Duties. The Administrative Agent may execute
any of its duties under this Agreement or any other Loan Document by or through
agents, employees or attorneys-in-fact and shall be entitled to advice of
counsel and other consultants or experts concerning all matters pertaining to
such duties. The Administrative Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects in the
absence of gross negligence or willful misconduct.

      SECTION 11.3 Liability of the Administrative Agent. No Administrative
Agent-Related Person shall (a) be liable for any action taken or omitted to be
taken by any of them under or in connection with this Agreement or any other
Loan Document or the transactions contemplated hereby (except for its own gross
negligence or willful misconduct in connection with its duties expressly set
forth herein), or (b) be responsible in any manner to any Lender or participant
for any recital, statement, representation or warranty made by the Borrower, any
Guarantor or any officer thereof, contained herein or in any other Loan
Document, or in any certificate, report, statement or other document referred to
or provided for in, or received by the Administrative Agent under or in
connection with, this Agreement or any other Loan

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Document, or the validity, effectiveness, genuineness, enforceability or
sufficiency of this Agreement or any other Loan Document, or for any failure of
the Borrower, any Guarantor or any other party to any Loan Document to perform
its obligations hereunder or thereunder. No Administrative Agent-Related Person
shall be under any obligation to any Lender or participant to ascertain or to
inquire as to the observance or performance of any of the agreements contained
in, or conditions of, this Agreement or any other Loan Document, or to inspect
the properties, books or records of the Borrower, any Guarantor or any Affiliate
thereof.

      SECTION 11.4      Reliance by the Administrative Agent.

      (a) The Administrative Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, communication, signature, resolution,
representation, notice, consent, certificate, affidavit, letter, telegram,
facsimile, telex or telephone message, statement or other document or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons, and upon advice and statements of
legal counsel (including counsel to the Borrower and the Guarantors),
independent accountants and other experts selected by the Administrative Agent.
The Administrative Agent shall be fully justified in failing or refusing to take
any action under any Loan Document unless it shall first receive such advice or
concurrence of the Required Lenders as it deems appropriate and, if it so
requests, it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Administrative Agent shall
in all cases be fully protected in acting, or in refraining from acting, under
this Agreement or any other Loan Document in accordance with a request or
consent of the Required Lenders or all the Lenders, if required hereunder, and
such request and any action taken or failure to act pursuant thereto shall be
binding upon all the Lenders and participants. Where this Agreement expressly
permits or prohibits an action unless the Required Lenders otherwise determine,
the Administrative Agent shall, and in all other instances, the Administrative
Agent may, but shall not be required to, initiate any solicitation for the
consent or a vote of the Lenders.

      (b) For purposes of determining compliance with the conditions specified
in Section 4.2, each Lender that has signed this Agreement shall be deemed to
have consented to, approved or accepted or to be satisfied with, each document
or other matter either sent by the Administrative Agent to such Lender for
consent, approval, acceptance or satisfaction, or required thereunder to be
consented to or approved by or acceptable or satisfactory to a Lender.

      SECTION 11.5 Notice of Default. The Administrative Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default, except with respect to defaults in the payment of principal, interest
and fees required to be paid to the Administrative Agent for the account of the
Lenders, unless the Administrative Agent shall have received written notice from
a Lender or the Borrower referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default." The
Administrative Agent will notify the Lenders of its receipt of any such notice.
The Administrative Agent shall take such action with respect to such Default or
Event of Default as may be directed by the Required Lenders in accordance with
Article X; provided, however, that unless and until the Administrative Agent has
received any such direction, the Administrative

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Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable or in the best interest of the Lenders.

      SECTION 11.6 Credit Decision; Disclosure of Information by the
Administrative Agent. Each Lender acknowledges that no Administrative
Agent-Related Person has made any representation or warranty to it, and that no
act by the Administrative Agent hereinafter taken, including any consent to and
acceptance of any assignment or review of the affairs of the Borrower, any
Guarantor or any Affiliate thereof, shall be deemed to constitute any
representation or warranty by any Administrative Agent-Related Person to any
Lender as to any matter, including whether Administrative Agent-Related Persons
have disclosed material information in their possession. Each Lender represents
to the Administrative Agent that it has, independently and without reliance upon
any Administrative Agent-Related Person and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial and
other condition and creditworthiness of the Borrower, the Guarantors and their
respective Subsidiaries, and all applicable bank or other regulatory Applicable
Laws relating to the transactions contemplated hereby, and made its own decision
to enter into this Agreement and to extend credit to the Borrower hereunder.
Each Lender also represents that it will, independently and without reliance
upon any Administrative Agent-Related Person and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Loan Documents, and to make such investigations as
it deems necessary to inform itself as to the business, prospects, operations,
property, financial and other condition and creditworthiness of the Borrower and
the Guarantors. Except for notices, reports and other documents expressly
required to be furnished to the Lenders by the Administrative Agent herein, the
Administrative Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business, prospects,
operations, property, financial and other condition or creditworthiness of the
Borrower or any of the Guarantors or any of their respective Affiliates which
may come into the possession of any Administrative Agent-Related Person.

      SECTION 11.7 Indemnification of the Administrative Agent. Whether or not
the transactions contemplated hereby are consummated, the Lenders shall
indemnify upon demand each Administrative Agent-Related Person (to the extent
not reimbursed by or on behalf of the Borrower or the Guarantors promptly upon
demand therefor and without limiting the obligation of the Borrower and the
Guarantors to do so), pro rata, and hold harmless each Administrative
Agent-Related Person from and against any and all Indemnified Liabilities
incurred by it; provided, however, that no Lender shall be liable for the
payment to any Administrative Agent-Related Person of any portion of such
Indemnified Liabilities resulting from such Person's gross negligence or willful
misconduct; provided, however, that no action taken in accordance with the
directions of the Required Lenders shall be deemed to constitute gross
negligence or willful misconduct for purposes of this Section 11.7. Without
limitation of the foregoing, each Lender shall reimburse the Administrative
Agent upon demand for its ratable share of any costs or out-of-pocket expenses
(including Attorney Costs) incurred by the Administrative Agent in connection
with the preparation, execution, delivery, administration, modification,
amendment

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or enforcement (whether through negotiations, legal proceedings or otherwise)
of, or legal advice in respect of rights or responsibilities under, this
Agreement, any other Loan Document, or any document contemplated by or referred
to herein, to the extent that the Administrative Agent is not reimbursed for
such expenses by or on behalf of the Borrower promptly upon demand therefor. The
undertaking in this Section 11.7 shall survive termination of the Commitments,
the payment of all Obligations hereunder and the resignation or replacement of
the Administrative Agent.

      SECTION 11.8 The Administrative Agent in Its Individual Capacity. Bank of
America and its Affiliates may make loans to, issue letters of credit for the
account of, accept deposits from, acquire equity interests in and generally
engage in any kind of banking, trust, financial advisory, underwriting or other
business with the Borrower and each of the Guarantors and their respective
Affiliates as though Bank of America were not the Administrative Agent hereunder
and without notice to or consent of the Lenders. The Lenders acknowledge that,
pursuant to such activities, Bank of America or its Affiliates may receive
information regarding the Borrower, any Guarantor or any Affiliate thereof
(including information that may be subject to confidentiality obligations in
favor of the Borrower, any Guarantor or any Affiliate thereof) and acknowledge
that the Administrative Agent shall be under no obligation to provide such
information to them. With respect to its Construction Loan Advances, Bank of
America shall have the same rights and powers under this Agreement as any other
Lender and may exercise such rights and powers as though it were not the
Administrative Agent, and the terms "Lender" and "Lenders" include Bank of
America in its individual capacity.

      SECTION 11.9 Successor Administrative Agent. The Administrative Agent may
resign as Administrative Agent upon thirty (30) days' notice to the Lenders. If
the Administrative Agent resigns under this Agreement, the Required Lenders
shall appoint from among the Lenders a successor administrative agent for the
Lenders which successor administrative agent shall be consented to by the
Borrower at all times other than during the existence of an Event of Default
(which consent of the Borrower shall not be unreasonably withheld or delayed).
If no successor administrative agent is appointed prior to the effective date of
the resignation of the Administrative Agent, the Administrative Agent may
appoint, after consulting with the Lenders and the Borrower, a successor
administrative agent from among the Lenders. Upon the acceptance of its
appointment as successor administrative agent hereunder, such successor
administrative agent shall succeed to all the rights, powers and duties of the
retiring Administrative Agent and the term "Administrative Agent" shall mean
such successor administrative agent and the retiring Administrative Agent's
appointment, powers and duties as Administrative Agent shall be terminated.
After any retiring Administrative Agent's resignation hereunder as
Administrative Agent, the provisions of this Article XI and Sections 5.2 and
10.3 shall inure to its benefit as to any actions taken or omitted to be taken
by it while it was Administrative Agent under this Agreement. If no successor
administrative agent has accepted appointment as Administrative Agent by the
date which is thirty (30) days following a retiring Administrative Agent's
notice of resignation, the retiring Administrative Agent's resignation shall
nevertheless thereupon become effective and the Lenders shall perform all of the
duties of the Administrative Agent hereunder until such time, if any, as the
Required Lenders appoint a successor agent as provided for above.

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      SECTION 11.10 Syndication Agent; Documentation Agent; Co-Lead Arranger.
None of the Lenders identified on the facing page or signature pages of this
Agreement as a "syndication agent", "documentation agent" or "co-lead arranger"
shall have any right, power, obligation, liability, responsibility or duty under
this Agreement other than those applicable to all Lenders as such. Without
limiting the foregoing, none of the Lenders so identified shall have or be
deemed to have any fiduciary relationship with any Lender. Each Lender
acknowledges that it has not relied, and will not rely, on any of the Lenders so
identified in deciding to enter into this Agreement or in taking or not taking
action hereunder.

                                   ARTICLE XII

                                  MISCELLANEOUS

      SECTION 12.1      Notices.

      (a) Method of Communication. Except as otherwise provided in this
Agreement, all notices and communications hereunder shall be in writing, or by
telephone subsequently confirmed in writing. Any notice shall be effective if
delivered by hand delivery or sent via telecopy, recognized overnight courier
service or certified mail, return receipt requested, and shall be presumed to be
received by a party hereto (i) on the date of delivery if delivered by hand or
sent by telecopy, (ii) on the next Business Day if sent by recognized overnight
courier service and (iii) on the third Business Day following the date sent by
certified mail, return receipt requested. A telephonic notice to the
Administrative Agent as understood by the Administrative Agent will be deemed to
be the controlling and proper notice in the event of a discrepancy with or
failure to receive a confirming written notice.

      (b) Addresses for Notices. Notices to any party shall be sent to it at the
following addresses, or any other address as to which all the other parties are
notified in writing.

      If to the Parent:       MedCath Corporation
                              10720 Sikes Place
                              Charlotte, North Carolina 28277
                              Attention:        James E. Harris
                              Telephone No.:    (704) 708-6610
                              Telecopy No.:     (704) 708-5035

      If to the Borrower:     Harlingen Medical Center, Limited Partnership
                              c/o  Harlingen Hospital Management, Inc.
                              10720 Sikes Place
                              Charlotte, North Carolina 28277
                              Attention:        James E. Harris
                              Telephone No.:    (704) 708-6610
                              Telecopy No.:     (704) 708-5035

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<PAGE>
      With copies to:           Moore & Van Allen, PLLC
                                Bank of America Corporate Center
                                100 North Tryon Street, Floor 47
                                Charlotte, North Carolina  28202
                                Attention:        Hal A. Levinson, Esq.
                                Telephone No.:    (704) 331-1050
                                Telecopy No.:     (704) 331-1159

      If to Bank of America as  Bank of America, N.A.
       Administrative Agent:    IL1-231-08-03
                                231 South LaSalle Street
                                Chicago, Illinois 60604
                                Attention:        Kristine Hyde
                                Telephone No.:    (312) 828-1657
                                Telecopy No.:     (877) 206-8412

      With copies to:           Bank of America, N.A.
                                Commercial Construction Administration
                                1111 East Main Street
                                Richmond, Virginia 23219
                                Attention:        Kathryn V. Traylor
                                Telephone No.:    (804) 788-3873
                                Telecopy No.:     (804) 788-2248

      With copies to:           Kennedy Covington Lobdell & Hickman, L.L.P.
                                Bank of America Corporate Center
                                100 North Tryon Street
                                Suite 4200
                                Charlotte, North Carolina  28202
                                Attention:        J. Donnell Lassiter, Esq.
                                Telephone No.:    (704) 331-7444
                                Telecopy No.:     (704) 331-7598

      If to any Lender:         To the address set forth on Schedule 1.1(a)
                                hereto

      (c) Administrative Agent's Office. The Administrative Agent hereby
designates its office located at the address set forth above, or any subsequent
office which shall have been specified for such purpose by written notice to the
Borrower and Lenders, as the Administrative Agent's Office referred to herein,
to which payments due are to be made and at which Construction Loan Advances
will be disbursed.

      SECTION 12.2      Expenses; Indemnity.

      (a) The Borrower agrees (i) to pay or reimburse the Administrative Agent
and the Syndication Agent for all costs and expenses incurred in connection with
the development, preparation, negotiation and execution of this Agreement and
the other Loan Documents and

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<PAGE>
any amendment, waiver, consent or other modification of the provisions hereof
and thereof (whether or not the transactions contemplated hereby or thereby are
consummated), and the consummation and administration of the transactions
contemplated hereby and thereby, including, without limitation, all
out-of-pocket syndication and due diligence expenses and all Attorney Costs
(provided that such Attorney Costs shall be limited to the fees and expenses of
a single law firm representing the Administrative Agent and the Syndication
Agent), and (ii) to pay or reimburse the Administrative Agent and each Lender
for all costs and expenses incurred in connection with the enforcement,
attempted enforcement, or preservation of any rights or remedies under this
Agreement or the other Loan Documents (including all such costs and expenses
incurred during any "workout" or restructuring in respect of the Obligations and
during any legal proceeding, including any proceeding under any Debtor Relief
Law), including, without limitation, all Attorney Costs. The foregoing costs and
expenses shall include all search, filing, recording, title insurance and
appraisal charges and fees and taxes related thereto, and other out-of-pocket
expenses incurred by the Administrative Agent and the cost of independent public
accountants and other outside experts retained by the Administrative Agent or
any Lender. The agreements in this Section 12.2(a) shall survive the termination
of the Commitments and repayment of all the other Obligations.

      (b) Whether or not the transactions contemplated hereby are consummated,
the Borrower agrees to indemnify, save and hold harmless each Agent-Related
Person, each Lender and their respective Affiliates, directors, officers,
employees, counsel, agents and attorneys-in-fact (collectively the
"Indemnitees") from and against: (i) any and all claims, demands, actions or
causes of action that are asserted against any Indemnitee by any Person (other
than the Administrative Agent or any Lender) relating directly or indirectly to
a claim, demand, action or cause of action that such Person asserts or may
assert against the Borrower, any Guarantor, any Affiliate thereof or any of
their respective officers or directors; (ii) any and all claims, demands,
actions or causes of action that may at any time (including at any time
following repayment of the Obligations and the resignation or removal of the
Administrative Agent or the replacement of any Lender) be asserted or imposed
against any Indemnitee, arising out of or relating to, the Loan Documents, any
predecessor loan documents, the Commitments, the use or contemplated use of the
proceeds of any Construction Loan Advance, or the relationship of the Borrower,
the Guarantors, the Administrative Agent and the Lenders under this Agreement or
any other Loan Document; (iii) any administrative or investigative proceeding by
any Governmental Authority arising out of or related to a claim, demand, action
or cause of action described in clause (i) or (ii) above; and (iv) any and all
liabilities (including liabilities under indemnities), losses, costs or expenses
(including Attorney Costs) that any Indemnitee suffers or incurs as a result of
the assertion of any foregoing claim, demand, action, cause of action or
proceeding, or as a result of the preparation of any defense in connection with
any foregoing claim, demand, action, cause of action or proceeding, in all
cases, whether or not arising out of the negligence of an Indemnitee, and
whether or not an Indemnitee is a party to such claim, demand, action, cause of
action or proceeding (all the foregoing, collectively, the "Indemnified
Liabilities"); provided that no Indemnitee shall be entitled to indemnification
for any claim caused by its own gross negligence or willful misconduct or for
any loss asserted against it by another Indemnitee. The agreements in this
Section 12.2(b) shall survive the termination of the Commitments and repayment
of all the other Obligations.

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      SECTION 12.3 Set-off. In addition to any rights now or hereafter granted
under Applicable Law and not by way of limitation of any such rights, upon and
after the occurrence of any Event of Default and during the continuance thereof,
the Lenders and any assignee or participant of a Lender in accordance with
Section 12.10 are hereby authorized by the Borrower at any time or from time to
time, without notice to the Borrower or to any other Person, any such notice
being hereby expressly waived, to set off and to appropriate and to apply any
and all deposits (general or special, time or demand, including, but not limited
to, indebtedness evidenced by certificates of deposit, whether matured or
unmatured) and any other indebtedness at any time held or owing by the Lenders,
or any such assignee or participant to or for the credit or the account of the
Borrower against and on account of the Obligations irrespective of whether or
not (a) the Lenders shall have made any demand under this Agreement or any of
the other Loan Documents or (b) the Administrative Agent shall have declared any
or all of the Obligations to be due and payable as permitted by Section 10.2 and
although such Obligations shall be contingent or unmatured. Notwithstanding the
preceding sentence, each Lender agrees to notify the Borrower and the
Administrative Agent after any such set-off and application, provided that the
failure to give such notice shall not affect the validity of such set-off and
application.

      SECTION 12.4 Governing Law. THIS AGREEMENT, THE CONSTRUCTION LOAN NOTES
AND THE OTHER LOAN DOCUMENTS, UNLESS OTHERWISE EXPRESSLY SET FORTH THEREIN,
SHALL BE GOVERNED BY, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NORTH CAROLINA, WITHOUT REFERENCE TO THE CONFLICTS OR CHOICE OF LAW
PRINCIPLES THEREOF; PROVIDED THAT THE ADMINISTRATIVE AGENT AND EACH LENDER SHALL
RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.

      SECTION 12.5      Jurisdiction and Venue.

      (a) Jurisdiction. The Borrower hereby irrevocably consents to the personal
jurisdiction of the state and federal courts located in Mecklenburg County,
North Carolina, in any action, claim or other proceeding arising out of any
dispute in connection with this Agreement, the Construction Loan Notes and the
other Loan Documents, any rights or obligations hereunder or thereunder, or the
performance of such rights and obligations. The Borrower hereby irrevocably
consents to the service of a summons and complaint and other process in any
action, claim or proceeding brought by the Administrative Agent or any Lender in
connection with this Agreement, the Construction Loan Notes or the other Loan
Documents, any rights or obligations hereunder or thereunder, or the performance
of such rights and obligations, on behalf of itself or its property, in the
manner specified in Section 12.1. Nothing in this Section 12.5 shall affect the
right of the Administrative Agent or any Lender to serve legal process in any
other manner permitted by Applicable Law or affect the right of the
Administrative Agent or any Lender to bring any action or proceeding against the
Borrower or its properties in the courts of any other jurisdictions.

      (b) Venue. The Borrower hereby irrevocably waives any objection it may
have now or in the future to the laying of venue in the aforesaid jurisdiction
in any action, claim or other

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<PAGE>
proceeding arising out of or in connection with this Agreement, any other Loan
Document or the rights and obligations of the parties hereunder. The Borrower
irrevocably waives, in connection with such action, claim or proceeding, any
plea or claim that the action, claim or other proceeding has been brought in an
inconvenient forum.

      SECTION 12.6 Waiver of Right to Trial by Jury. EACH PARTY TO THIS
AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR
ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED
THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND
CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED
BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 12.6 WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT
TO TRIAL BY JURY.

      SECTION 12.7 Reversal of Payments. To the extent the Borrower makes a
payment or payments to the Administrative Agent for the ratable benefit of the
Lenders or the Administrative Agent receives any payment or proceeds of the
collateral which payments or proceeds or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then, to
the extent of such payment or proceeds repaid, the Obligations or part thereof
intended to be satisfied shall be revived and continued in full force and effect
as if such payment or proceeds had not been received by the Administrative
Agent.

      SECTION 12.8      Injunctive Relief; Punitive Damages.

      (a) The Borrower recognizes that, in the event the Borrower fails to
perform, observe or discharge any of its obligations or liabilities under this
Agreement, any remedy of law may prove to be inadequate relief to the Lenders.
Therefore, the Borrower agrees that the Lenders, at the Lenders' option, shall
be entitled to temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages.

      (b) The Administrative Agent, the Lenders and the Borrower (on behalf of
itself and the Guarantors) hereby agree that no such Person shall have a remedy
of punitive or exemplary damages against any other party to a Loan Document and
each such Person hereby waives any right or claim to punitive or exemplary
damages that it may now have or which may arise in the future in connection with
any dispute, whether such dispute is resolved through arbitration or judicially.

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      SECTION 12.9 Accounting Matters. All financial and accounting
calculations, measurements and computations made for any purpose relating to
this Agreement, including, without limitation, all computations utilized by the
Borrower or the Guarantors to determine compliance with any covenant contained
herein, shall, except as otherwise expressly contemplated hereby or unless there
is an express written direction by the Administrative Agent to the contrary
agreed to by the Borrower, be performed in accordance with GAAP as in effect on
the Closing Date. In the event that changes in GAAP shall be mandated by the
Financial Accounting Standards Board, or any similar accounting body of
comparable standing, or shall be recommended by the Borrower's certified public
accountants, to the extent that such changes would modify such accounting terms
or the interpretation or computation thereof, such changes shall be followed in
defining such accounting terms only from and after the date the Borrower and the
Required Lenders shall have amended this Agreement to the extent necessary to
reflect any such changes in the financial covenants and other terms and
conditions of this Agreement.

      SECTION 12.10     Successors and Assigns; Participations.

      (a) The provisions of this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns
permitted hereby, except that the Borrower may not assign or otherwise transfer
any of its rights or obligations hereunder without the prior written consent of
each Lender (and any attempted assignment or transfer by the Borrower without
such consent shall be null and void). Nothing in this Agreement, expressed or
implied, shall be construed to confer upon any Person (other than the parties
hereto, their respective successors and assigns permitted hereby and, to the
extent expressly contemplated hereby, the Indemnitees) any legal or equitable
right, remedy or claim under or by reason of this Agreement.

      (b) Any Lender may assign to one or more Eligible Assignees all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and the Construction Loan Advances at the time owing
to it); provided that:

            (i) except in the case of an assignment of the entire remaining
      amount of the assigning Lender's Commitment and the Construction Loan
      Advances at the time owing to it or in the case of an assignment to a
      Lender or an Affiliate of a Lender or an Approved Fund with respect to a
      Lender, the aggregate amount of the Commitment (which for this purpose
      includes Construction Loan Advances outstanding thereunder) of the
      assigning Lender subject to each such assignment, determined as of the
      date the Assignment and Acceptance with respect to such assignment is
      delivered to the Administrative Agent, shall not be less than $5,000,000,
      unless each of the Administrative Agent and, so long as no Event of
      Default has occurred and is continuing, the Borrower otherwise consents
      (each such consent not to be unreasonably withheld or delayed);

            (ii) each partial assignment shall be made as an assignment of a
      proportionate part of all the assigning Lender's rights and obligations
      under this Agreement with respect to the Construction Loan Advances or the
      Commitment assigned; and

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<PAGE>
            (iii) the parties to each assignment shall execute and deliver to
      the Administrative Agent an Assignment and Acceptance, together with a
      processing and recordation fee of $3,500.

Subject to acceptance and recording thereof by the Administrative Agent pursuant
to subsection (c) of this Section 12.10, from and after the effective date
specified in each Assignment and Acceptance, the Eligible Assignee thereunder
shall be a party hereto and, to the extent of the interest assigned by such
Assignment and Acceptance, have the rights and obligations of a Lender under
this Agreement, and the assigning Lender thereunder shall, to the extent of the
interest assigned by such Assignment and Acceptance, be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all of the assigning Lender's rights and obligations under
this Agreement, such Lender shall cease to be a party hereto but shall continue
to be entitled to the benefits of Sections 3.8, 3.9, 3.10, 3.11 and 12.2). Upon
request, the Borrower (at its expense) shall execute and deliver new or
replacement Construction Loan Notes to the assigning Lender and the assignee
Lender. Any assignment or transfer by a Lender of rights or obligations under
this Agreement that does not comply with this subsection (b) shall be treated
for purposes of this Agreement as a sale by such Lender of a participation in
such rights and obligations in accordance with subsection (d) of this Section
12.10.

      (c) The Administrative Agent, acting solely for this purpose as an agent
of the Borrower, shall maintain at the Administrative Agent's Office a copy of
each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitments of,
and principal amount of the Construction Loan Advances owing to, each Lender
pursuant to the terms hereof from time to time (the "Register"). The entries in
the Register shall be conclusive, and the Borrower, the Administrative Agent and
the Lenders may treat each Person whose name is recorded in the Register
pursuant to the terms hereof as a Lender hereunder for all purposes of this
Agreement, notwithstanding notice to the contrary. The Register shall be
available for inspection by the Borrower and any Lender, at any reasonable time
and from time to time upon reasonable prior notice.

      (d) Any Lender may, with notice to, but without the consent of, the
Borrower or the Administrative Agent, sell participations to one or more banks
or other entities (a "Participant") in all or a portion of such Lender's rights
and/or obligations under this Agreement (including all or a portion of its
Commitment and/or the Construction Loan Advances owing to it); provided that (i)
such Lender's obligations under this Agreement shall remain unchanged, (ii) such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations and (iii) the Borrower, the Administrative Agent
and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement. Any agreement or instrument pursuant to which a Lender sells such a
participation shall provide that such Lender shall retain the sole right to
enforce this Agreement and to approve any amendment, modification or waiver of
any provision of this Agreement; provided that such agreement or instrument may
provide that such Lender will not, without the consent of the Participant, agree
to any amendment, waiver or other modification that would (i) postpone any date
upon which any payment of money is

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scheduled to be paid to such Participant, (ii) reduce the principal, interest,
fees or other amounts payable to such Participant, (iii) release any Guarantor
from the Guaranty or (iv) release all or substantially all of the Collateral.
Subject to subsection (e) of this Section 12.10, the Borrower agrees that each
Participant shall be entitled to the benefits of Sections 3.8(c), 3.9, 3.10 and
3.11; provided that, subject to subsection (e) of this Section 12.10, no
Participant shall be entitled to receive any greater amount pursuant to such
Sections 3.8(c), 3.9, 3.10 and 3.11 than the transferor Lender would have been
entitled to receive in respect of the amount of the participation transferred by
such transferor Lender to such Participant had no such transfer occurred. To the
extent permitted by law, each Participant also shall be entitled to the benefits
of Section 12.3 as though it were a Lender; provided such Participant agrees to
be subject to Section 3.6 as though it were a Lender.

      (e) A Participant shall not be entitled to receive any greater payment
under Sections 3.8(c), 3.10 or 3.11 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with the
Borrower's prior written consent. A Participant that would be a Foreign Lender
if it were a Lender shall not be entitled to the benefits of Section 3.11 unless
the Borrower is notified of the participation sold to such Participant and such
Participant agrees, for the benefit of the Borrower, to comply with Section
3.11(e) as though it were a Lender.

      (f) Any Lender may at any time pledge or assign a security interest in all
or any portion of its rights under this Agreement (including under its
Construction Loan Notes, if any) to secure obligations of such Lender, including
any pledge or assignment to secure obligations to a Federal Reserve Bank;
provided that no such pledge or assignment shall release a Lender from any of
its obligations hereunder or substitute any such pledgee or assignee for such
Lender as a party hereto.

      (g) If the consent of the Borrower to an assignment or to an Eligible
Assignee is required hereunder (including a consent to an assignment which does
not meet the minimum assignment threshold specified in clause (i) of the proviso
to the first sentence of Section 12.10(b)), the Borrower shall be deemed to have
given its consent ten (10) Business Days after the date notice thereof has been
delivered by the assigning Lender (through the Administrative Agent) unless such
consent is expressly refused by the Borrower prior to such fifth (5th) Business
Day.

      (h)   As used herein, the following terms have the following meanings:

            "Eligible Assignee" means (a) a Lender; (b) an Affiliate of a
      Lender; (c) an Approved Fund; or (d) any other Person (other than a
      natural Person) approved by the Administrative Agent and, unless (i) such
      Person is taking delivery of an assignment in connection with physical
      settlement of a credit derivatives transaction or (ii) an Event of Default
      has occurred and is continuing, the Borrower (each such approval not to be
      unreasonably withheld or delayed).

                                       92
<PAGE>
            "Fund" means any Person (other than a natural Person) that is (or
      will be) engaged in making, purchasing, holding or otherwise investing in
      commercial loans and similar extensions of credit in the ordinary course
      of its business.

            "Approved Fund" means any Fund that is administered or managed by
      (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an
      Affiliate of an entity that administers or manages a Lender.

      SECTION 12.11     Amendments, Waivers and Consents.

      (a) Except as set forth below or as specifically provided in any Loan
Document, any term, covenant, agreement or condition of this Agreement or any of
the other Loan Documents may be amended or waived by the Lenders, and any
consent given by the Lenders, if, but only if, such amendment, waiver or consent
is in writing signed by the Required Lenders (or by the Administrative Agent
with the consent of the Required Lenders) and delivered to the Administrative
Agent and, in the case of an amendment, signed by the Borrower; provided, that
no amendment, waiver or consent shall (i) increase the Commitment of any Lender,
(ii) reduce the rate of interest or fees payable on any Construction Loan
Advance, (iii) reduce or forgive the principal amount of any Construction Loan
Advance, (iv) extend the originally scheduled time or times of payment of the
principal of any Construction Loan Advance or the time or times of payment of
interest on any Construction Loan Advance or any fee or commission with respect
thereto, (v) permit any subordination of the principal or interest on any
Construction Loan Advance, (vi) release the Borrower from the Obligations
hereunder, (vii) release any Guarantor from its obligations under the Guaranty
Agreement (other than as specifically permitted or contemplated in this
Agreement or the Guaranty Agreement), (viii) permit any assignment (other than
as specifically permitted or contemplated in this Agreement) of any of the
Borrower's rights and obligations hereunder, (ix) release all or any material
portion of the Collateral or release any Security Document (other than asset
sales permitted pursuant to Section 9.5 and as otherwise specifically permitted
or contemplated in this Agreement or the applicable Security Document) or (x)
amend the provisions of this Section 12.11 or the definition of Required
Lenders, in each case, without the prior written consent of each Lender. In
addition, no amendment, waiver or consent to the provisions of Article XI shall
be made without the written consent of the Administrative Agent.

      (b) In the case of any amendment, waiver, consent or other modification in
connection with this Agreement for which a substantially similar corresponding
amendment, waiver, consent or other modification with regard to any the Related
Credit Documents will be made effective thereunder contemporaneously, each
Lender must vote in the same manner with respect to each such amendment, waiver,
consent or other modification in connection with this Agreement and all such
other Related Credit Documents.

      SECTION 12.12 Confidentiality. The Administrative Agent and each of the
Lenders agrees to maintain the confidentiality of the Information (as defined
below), except that Information may be disclosed (a) to its and its Affiliates'
directors, officers, employees and agents, including accountants, legal counsel
and other advisors (it being understood that the Persons to whom such disclosure
is made will be informed of the confidential nature of such

                                       93
<PAGE>
Information and instructed to keep such Information confidential); (b) to the
extent requested by any regulatory authority; (c) to the extent required by
applicable laws or regulations or by any subpoena or similar legal process; (d)
to any other party to this Agreement; (e) in connection with the exercise of any
remedies hereunder or any suit, action or proceeding relating to this Agreement
or the enforcement of rights hereunder; (f) subject to an agreement containing
provisions substantially the same as those of this Section 12.12, to (i) any
Eligible Assignee of or Participant in, or any prospective Eligible Assignee of
or Participant in, any of its rights or obligations under this Agreement or (ii)
any direct or indirect contractual counterparty or prospective counterparty (or
such contractual counterparty's or prospective counterparty's professional
advisor) to any credit derivative transaction relating to obligations of the
Borrower and the Guarantors; (g) with the consent of the Borrower; (h) to the
extent such Information (i) becomes publicly available other than as a result of
a breach of this Section 12.12 or (ii) becomes available to the Administrative
Agent or any Lender on a nonconfidential basis from a source other than the
Borrower and the Guarantors; or (i) to the National Association of Insurance
Commissioners or any other similar organization or any nationally recognized
rating agency that requires access to information about a Lender's or its
Affiliates' investment portfolio in connection with ratings issued with respect
to such Lender or its Affiliates. For the purposes of this Section 12.12,
"Information" means all information received from the Borrower and the
Guarantors relating to the Borrower and the Guarantors or the business, other
than any such information that is available to the Administrative Agent or any
Lender on a nonconfidential basis prior to disclosure by the Borrower or the
Guarantors; provided that, in the case of information received from the Borrower
or any Guarantor after the date hereof, such information is clearly identified
in writing at the time of delivery as confidential. Any Person required to
maintain the confidentiality of Information as provided in this Section 12.12
shall be considered to have complied with its obligation to do so if such Person
has exercised the same degree of care to maintain the confidentiality of such
Information as such Person would accord to its own confidential information.

      SECTION 12.13 Performance of Duties. The Borrower's obligations under this
Agreement and each of the other Loan Documents shall be performed by the
Borrower at its sole cost and expense.

      SECTION 12.14 All Powers Coupled with Interest. All powers of attorney and
other authorizations granted to the Lenders, the Administrative Agent and any
Persons designated by the Administrative Agent or any Lender pursuant to any
provisions of this Agreement or any of the other Loan Documents shall be deemed
coupled with an interest and shall be irrevocable so long as any of the
Obligations remain unpaid or unsatisfied or the Construction Loan Facility has
not been terminated.

      SECTION 12.15 Survival of Indemnities. Notwithstanding any termination of
this Agreement, the indemnities to which the Administrative Agent and the
Lenders are entitled under the provisions of this Article XII and any other
provision of this Agreement and the other Loan Documents shall continue in full
force and effect and shall protect the Administrative Agent and the Lenders
against events arising after such termination as well as before.

                                       94
<PAGE>
      SECTION 12.16 Titles and Captions. Titles and captions of Articles,
Sections and subsections in, and the table of contents of, this Agreement are
for convenience only, and neither limit nor amplify the provisions of this
Agreement.

      SECTION 12.17 Severability of Provisions. Any provision of this Agreement
or any other Loan Document which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective only to the extent
of such prohibition or unenforceability without invalidating the remainder of
such provision or the remaining provisions hereof or thereof or affecting the
validity or enforceability of such provision in any other jurisdiction.

      SECTION 12.18 Counterparts. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and shall be binding
upon all parties, their successors and assigns, and all of which taken together
shall constitute one and the same agreement.

      SECTION 12.19 Term of Agreement. This Agreement shall remain in effect
from the Closing Date through and including the date upon which all Obligations
shall have been indefeasibly and irrevocably paid and satisfied in full. The
Administrative Agent is hereby permitted to release all Liens on the Collateral
in favor of the Administrative Agent, for the ratable benefit of itself and the
Lenders, upon repayment of the outstanding principal of and all accrued interest
on the Construction Loan Advances, payment of all outstanding fees and expenses
hereunder and the termination of the Lender's Commitments. No termination of
this Agreement shall affect the rights and obligations of the parties hereto
arising prior to such termination or in respect of any provision of this
Agreement which survives such termination.

      SECTION 12.20 Advice of Counsel. Each of the parties represents to each
other party hereto that it has discussed this Agreement with its counsel.

      SECTION 12.21 No Strict Construction. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement.

      SECTION 12.22     Inconsistencies with Other Documents; Independent
Effect of Covenants.

      (a) In the event there is a conflict or inconsistency between this
Agreement and any other Loan Document, the terms of this Agreement shall
control; provided, that any provision of the Security Documents which imposes
additional burdens on the Borrower or the Guarantors or further restricts the
rights of the Borrower or the Guarantors or gives the Administrative Agent or
Lenders additional rights shall not be deemed to be in conflict or inconsistent
with this Agreement and shall be given full force and effect.

      (b) The Borrower expressly acknowledges and agrees that each covenant
contained in Articles VII, VIII and IX hereof and Sections 11, 12 and 13 of the
Guaranty Agreement shall

                                       95
<PAGE>
be given independent effect. Accordingly, the Borrower shall not engage in any
transaction or other act otherwise permitted under any covenant contained in
Articles VII, VIII and IX hereof and Sections 11, 12 and 13 of the Guaranty
Agreement if, before or after giving effect to such transaction or act, the
Borrower shall or would be in breach of any other covenant contained in Articles
VII, VIII and IX hereof and Sections 11, 12 and 13 of the Guaranty Agreement.

                         [Signature pages to follow]

                                       96
<PAGE>
      IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal by their duly authorized officers, all as of the day and
year first written above.

[CORPORATE SEAL]                    HARLINGEN MEDICAL CENTER,
                                    LIMITED PARTNERSHIP, as Borrower

                                    By:   HARLINGEN HOSPITAL
                                          MANAGEMENT, INC., its General
                                          Partner

                                          By:    /s/ Michael Servais
                                                 -------------------------------
                                          Name:  Michael Servais
                                                 -------------------------------
                                          Title: Vice President
                                                 -------------------------------

                                    BANK OF AMERICA, N.A., as Administrative
                                      Agent

                                    By: /s/ David A. Johanson
                                        ----------------------------------------
                                        Name:  David A. Johanson
                                               ---------------------------------
                                        Title: Vice President
                                               ---------------------------------

                                    BANK OF AMERICA, N.A., as Lender

                                    By: /s/ Charles R. Dickerson
                                        ----------------------------------------
                                        Name:  Charles R. Dickerson
                                               ---------------------------------
                                        Title: Senior Vice President
                                               ---------------------------------

                                    BANKERS TRUST COMPANY, as Syndication
                                      Agent and as Lender

                                    By: /s/ Mary Jo Jolly
                                        ----------------------------------------
                                        Name:  Mary Jo Jolly
                                               ---------------------------------
                                        Title: Assistant Vice President
                                               ---------------------------------

                                    FIRST UNION NATIONAL BANK, as
                                      Documentation Agent and as Lender

                                    By:
                                        ----------------------------------------
                                        Name:
                                               ---------------------------------
                                        Title:
                                               ---------------------------------
<PAGE>
                                    GE HEALTHCARE FINANCIAL SERVICES, as
                                     Lender

                                    By: /s/ Robert R. Krol
                                        ----------------------------------------
                                        Name:  Robert R. Krol
                                               ---------------------------------
                                        Title: Risk Analyst
                                               ---------------------------------

                                    SIEMENS MEDICAL SYSTEMS, INC., as Lender

                                    By: /s/ James E. Schwartz
                                        ----------------------------------------
                                        Name:  James E. Schwartz
                                               ---------------------------------
                                        Title: Vice President
                                               ---------------------------------

                                    THE CHASE MANHATTAN BANK, as Lender

                                    By: /s/ Dawn Lee Lum
                                        ----------------------------------------
                                        Name:  Dawn Lee Lum
                                               ---------------------------------
                                        Title: Vice President
                                               ---------------------------------

                                    FIFTH THIRD BANK (WESTERN OHIO), as
                                     Lender

                                    By: /s/ Brian B. Bergmann
                                        ----------------------------------------
                                        Name:  Brian B. Bergmann
                                               ---------------------------------
                                        Title: Vice President
                                               ---------------------------------

<PAGE>

                                 Schedule 1.1(a)

                             Lenders and Commitments

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
              LENDER                        COMMITMENT            COMMITMENT
                                            PERCENTAGE
--------------------------------------------------------------------------------
<S>                                         <C>                  <C>
Bank of America, N.A.
IL1-231-08-30
231 South LaSalle Street
Chicago, Illinois 60604
Charlotte, North Carolina 28255
Attention:  Kristine Hyde
Telephone No.:  (312) 828-1657             18.56948301%          $6,963,556.13
Telecopy No.:   (877) 206-8412
--------------------------------------------------------------------------------
The Bankers Trust Company
c/o Deutsch Bank
40 Kingsbridge Road
Piscataway, NJ 08854
Attention: Robert Telesca
Location: Desk 100 O                       18.56948301%          $6,963,556.13
Telephone No.:  (732) 981-6005
Telecopy No.:   (732) 981-5783
--------------------------------------------------------------------------------
First Union National Bank
301 S. College Street, 6th Floor
Charlotte, North Carolina 28288
Attention:  Michael Monte                  14.48586298%          $5,432,198.62
Telephone No.:  (704) 383-1114
Telecopy No.:   (704) 383-0545
--------------------------------------------------------------------------------
GE Healthcare Financial Services
20225 Watertower Boulevard, Suite 200
Brookfield, WI  53045
Attention:  Dev Lobo                       20.79631600%          $7,798,618.50
Telephone No.:  262-798-4620
Telecopy No.:   262-798-4560
--------------------------------------------------------------------------------
Siemens Medical Systems, Inc.
186 Wood Avenue South
Iselin, NJ  08830
Attention:  Hezron Gurley
Telephone No.:  732-321-4631
Telecopy No.:   732-321-2846               11.14297200%          $4,178,614.50
--------------------------------------------------------------------------------
</TABLE>
<PAGE>

<TABLE>
<S>                                        <C>                   <C>
--------------------------------------------------------------------------------
The Chase Manhattan Bank
270 Park Avenue, 48th Floor
New York, NY  10017
Attention:  Dawn Lee Lum
Telephone No.:  212-270-2472
Telecopy No.:   212-270-3279               12.25726900%          $4,596,475.87
--------------------------------------------------------------------------------
Fifth Third Bank (Western Ohio)
110 N. Main Street
Dayton, Ohio  45402
Attention:  Karen Reed
Telephone No.:  937-227-6484               4.17861400%           $1,566,980.25
Telecopy No.:   937-227-3027
--------------------------------------------------------------------------------
                             TOTAL:            100%               $37,500,000
--------------------------------------------------------------------------------
</TABLE>
<PAGE>
                                 Schedule 1.1(b)

                                   Guarantors

MedCath Corporation  (DE)

MedCath Holdings, Inc. (DE)

MedCath Finance Company (AZ)

MedCath Intermediate Holdings, Inc. (DE)

MedCath Incorporated (NC)

      MedCath Diagnostics, LLC (NC)
            CHF Centers of America, LLC (NC)
            Heart Research Centers International, LLC (NC)
            MedCath Nuclear Services, LLC (NC)

      MedCath Cardiology Consulting & Management, Inc. (AZ)
            MedCath Management of Ohio, Inc. (OH)
            WMS Management, Inc. (OH)

      MedCath of Massachusetts, Inc. (NC)

      Austin MOB, Inc. (NC)

      Harlingen Hospital Management, Inc.

      Harlingen Partnership Holdings Inc.
<PAGE>
                                    EXHIBIT A
                                       to
                       Amended and Restated Loan Agreement
                          dated as of November __, 2001
                                  by and among
                 Harlingen Medical Center, Limited Partnership,
                                  as Borrower,
                           the Lenders party thereto,
                                       and
                             Bank of America, N.A.,
                             as Administrative Agent

                            LEGAL DESCRIPTION OF LAND

BEING a 15.00 acre tract of land situated in Conception de Carricitos Land
Grant, Cameron County, Texas, and being a part of Block 183, San Benito Land and
Water Company Subdivision, as recorded in Volume 1, Page 6, Map Records Cameron
County, Texas (M.R.C.C.T.), said tract also being a part of a tract of land
described in deed to Hale Ventures, as recorded in Volume 5566, Page 102, Deed
Records Cameron County, Texas (D.R.C.C.T.), and all of a tract of land described
in deed to Harlingen Medical Center, L.P., as recorded in Volume 6272, Page 294,
D.R.C.C.T., said tract being more particularly described as follows:

BEGINNING at the southwesterly corner of said Hale Ventures tract, said point
also being the southwesterly corner said Harlingen Medical Center tract, said
point also being on the north right-of-way line of U.S. Highway 83/77, said
point also being the southeasterly corner of Security Building and Investment
Corporation Subdivision, as recorded in Cabinet I, Slot 109-B, M.R.C.C.T.;

THENCE North 22 degrees 26 minutes 34 seconds East, departing said north
right-of-way line and along the west line of said Hale Ventures and Harlingen
Medical Center tracts, a distance of 677.74 feet the northwesterly corner of
said Harlingen Medical Center tract;

THENCE South 64 degrees 04 minutes 47 seconds East, a distance of 991.34 feet to
a point for corner on the east line of said Hale Ventures tract;

THENCE South 25 degrees 55 minutes 00 seconds West, passing at a distance of
83.18 feet the northeasterly corner of said Harlingen Medical Center tract,
continuing along the east line of said Harlingen Medical Center tract and said
Hale Venture tract, a total distance of 756.23 feet to the southeasterly corner
of said Hale Ventures and Harlingen Medical Center tracts, said corner being on
the aforementioned north right-of-way line of U.S. Highway 83/77;

THENCE North 59 degrees 17 minutes 00 seconds West, along said north
right-of-way line, a distance of 244.96 feet to a point for corner;

THENCE North 25 degrees 55 minutes 00 seconds East, a distance of 252.62 feet to
a point for corner;

<PAGE>
THENCE North 64 degrees 04 minutes 47 seconds West, a distance of 167.90 feet to
a point for corner;

THENCE South 25 degrees 55 minutes 00 seconds West, a distance of 238.53 feet to
a point for corner on the aforementioned north right-of-way line of U.S. Highway
83/77;

THENCE North 59 degrees 17 minutes 00 seconds West, along said north
right-of-way line, a distance of 540.17 feet to the POINT OF BEGINNING AND
CONTAINING 653,399 square feet or 15.00 acres of land more or less.

                                       2
<PAGE>
                                    EXHIBIT B
                                       to
                       Amended and Restated Loan Agreement
                          dated as of November __, 2001
                                  by and among
                 Harlingen Medical Center, Limited Partnership,
                                  as Borrower,
                           the Lenders party thereto,
                                       and
                             Bank of America, N.A.,
                             as Administrative Agent

                         FORM OF CONSTRUCTION LOAN NOTE

                                       2

<PAGE>
                             CONSTRUCTION LOAN NOTE

$__________                                                   November ___, 2001

      FOR VALUE RECEIVED, the undersigned, Harlingen Medical Center, Limited
Partnership, a North Carolina limited partnership (the "Borrower"), promises to
pay to the order of ______________________________ (the "Lender"), at the place
and times provided in the Loan Agreement referred to below, the principal sum of
____________________ DOLLARS ($__________) or, if less, the principal amount of
all Construction Loan Advances made by the Lender pursuant to that certain
Amended and Restated Loan Agreement, dated as of November __, 2001 (as amended,
restated, supplemented or otherwise modified from time to time, the "Loan
Agreement") by and among the Borrower, the Lenders who are or may become a party
thereto, as Lenders (collectively, the "Lenders"), and Bank of America, N.A., as
Administrative Agent (the "Administrative Agent"). Capitalized terms used herein
and not defined herein shall have the meanings assigned thereto in the Loan
Agreement.

      The unpaid principal amount of this Construction Loan Note from time to
time outstanding is subject to mandatory repayment from time to time as provided
in the Loan Agreement and shall bear interest as provided in Section 3.1 of the
Loan Agreement. All payments of principal and interest on this Construction Loan
Note shall be payable in lawful currency of the United States of America in
immediately available funds to the account designated in the Loan Agreement.

      This Construction Loan Note is entitled to the benefits of, and evidences
Obligations incurred under, the Loan Agreement, to which reference is made for a
description of the security for this Construction Loan Note and for a statement
of the terms and conditions on which the Borrower is permitted and required to
make prepayments and repayments of principal of the Obligations evidenced by
this Construction Loan Note and on which such Obligations may be declared to be
immediately due and payable.

      THIS CONSTRUCTION LOAN NOTE SHALL BE GOVERNED, CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF NORTH CAROLINA, WITHOUT REFERENCE TO THE CONFLICTS
OR CHOICE OF LAW PRINCIPLES THEREOF.

      The Debt evidenced by this Construction Loan Note is senior in right of
payment to all Subordinated Debt referred to in the Loan Agreement.

      The Borrower hereby waives all requirements as to diligence, presentment,
demand of payment, protest and (except as required by the Loan Agreement) notice
of any kind with respect to this Construction Loan Note.
<PAGE>
      IN WITNESS WHEREOF, the undersigned has executed this Construction Loan
Note under seal as of the day and year first above written.

                                    HARLINGEN MEDICAL CENTER,
                                    LIMITED PARTNERSHIP, as Borrower [SEAL]

                                    By:   HARLINGEN HOSPITAL
                                          MANAGEMENT, INC., its General
                                          Partner

                                          By:_______________________________
                                          Name:_____________________________
                                          Title:____________________________

                                       2
<PAGE>
                                    EXHIBIT C
                                       to
                       Amended and Restated Loan Agreement
                          dated as of November __, 2001
                                  by and among
                 Harlingen Medical Center, Limited Partnership,
                                  as Borrower,
                           the Lenders party thereto,
                                       and
                             Bank of America, N.A.,
                             as Administrative Agent

                              FORM OF DRAW REQUEST
<PAGE>
                                  DRAW REQUEST

                              DRAW REQUEST NO. ___

      PURSUANT TO THE AMENDED AND RESTATED LOAN AGREEMENT DATED AS OF NOVEMBER
      __, 2001 (AS AMENDED, RESTATED SUPPLEMENTED OR OTHERWISE MODIFIED FROM
      TIME TO TIME, THE "LOAN AGREEMENT") BY AND AMONG HARLINGEN MEDICAL CENTER,
      LIMITED PARTNERSHIP, AS BORROWER (THE "BORROWER"), THE LENDERS WHO ARE OR
      MAY BECOME PARTY THERETO, AS LENDERS (THE "LENDERS"), AND BANK OF AMERICA,
      N.A., AS ADMINISTRATIVE AGENT (THE "ADMINISTRATIVE AGENT").

TO:               Bank of America, N.A., as Administrative Agent  Date:________

BORROWER:         Harlingen Medical Center, Limited Partnership

PROJECT:          __________________________

DRAW REQUEST
NUMBER:           _____________________               TOTAL AMOUNT:   $_________

DRAW BREAKDOWN:

      (a)   Borrower                      $__________
      (b)   General Contractor            $__________
      (c)   Architect                     $__________
      (d)   Administrative Agent
              [for fees and expenses]     $__________

PERIOD COVERED:    _____________    THROUGH  _____________

      BEFORE ME, the undersigned Notary, on this day personally appeared the
person executing this affidavit, who, being by me first duly sworn, deposed and
said:

      1. He is the duly authorized representative of Harlingen Hospital
Management, Inc., the duly authorized and acting Manager of the Borrower (the
"Management Company"), the office which he holds in the Management Company being
indicated on the execution line of this affidavit; and he is duly authorized to
make this affidavit and to execute and deliver the related request for payment
on behalf of the Borrower.

      2. All reports, statements, and other documentation heretofore or herewith
delivered by or on behalf of the Borrower to the Administrative Agent are
substantially true and correct and in all material respects what they purport
and appear to be.
<PAGE>
      3. Attached is a Draw Request for Work Completed Summary, and if a
Construction Loan Advance for hard costs is requested, also attached are AIA
Document G-702 and G-703 (1983 Edition) forms executed by the General Contractor
and approved by the Borrower's Architect, all completed for the above amount and
period, together with all supporting documentation required by the Loan
Agreement for the Project, all of which are true and correct and in all respects
what they purport and appear to be.

      4. The Borrower has not been served with any written notice that a lien
will be claimed for any amount unpaid for materials delivered, labor performed,
or services provided in connection with the Project, or any part thereof.

      5. This affidavit is made to induce the Administrative Agent and the
Lenders to advance funds to the Borrower, which funds shall be applied by the
Borrower in accordance with the Loan Agreement and the other Loan Documents,
and, in so lending funds, the Administrative Agent and the Lenders are relying
upon the accuracy of matters stated in this affidavit.

      6. All representations and warranties contained in the Loan Agreement and
the other Loan Documents are true and accurate in all material respects as of
the date of this Draw Request and will be true in all material respects as of
the date on which the requested Construction Loan Advance is disbursed, except
as follows (if any):__________________________.

      7. No Default or Event of Default exists (or would result from the
Construction Loan Advance herein requested).

      8. No part of the Property has been taken by eminent domain proceedings,
and the Borrower has not received written notice of any proceedings or
negotiations therefor which are pending.

      9. All previously disbursed funds received in connection with Construction
Loan Advances have been expended, or are being held in trust, for the sole
purpose of paying Project costs included in the Budget and previously incurred
by the Borrower as set forth in previous Draw Requests; and no part of said
funds has been used for any other purpose.

      10. The Borrower has previously or concurrently disclosed to the
Administrative Agent and the Lenders all matters known to the Borrower that are
required to be so disclosed under the Loan Documents.

      11. All conditions precedent to the Borrower's right to receive the
requested Construction Loan Advance have been met in accordance with the terms
of the Loan Agreement and the other Loan Documents.

      12. The amounts and percentages set forth in this Draw Request (including
the Draw Request for Work Completed Summary and any AIA Document G-702 and G-703
submitted in connection herewith) are true and correct.

      13. The aggregate sum of (i) Construction Loan Advance funds previously
disbursed for hard costs, plus (ii) the Construction Loan Advance funds included
in this Draw Request for hard costs,
<PAGE>
plus (iii) the existing retainage required under Section 2.2(b)(i) of the Loan
Agreement, does not exceed the aggregate amount incurred and/or expended to date
for hard costs included in the Work (as defined in the Construction Contract)
incorporated into the Improvements and for stored materials.

      14. No portion of the materials included within this Draw Request are
stored off the Land except as follows (if any):__________________________.

      15. Upon disbursement by the Borrower of the funds advanced by the
Administrative Agent and the Lenders as requested in this Draw Request, all
obligations for Work (as defined in the Construction Contract) and other costs
heretofore incurred by the Borrower in connection with the Project and which are
due and payable will be fully paid and satisfied.

      16. The actual cost required to complete all matters of a type included in
any line item in the Budget does not exceed the amount allocated to that line
item in the Budget, except as follows (if any):__________________________.

      17. All change orders to the Plans have been submitted to the
Administrative Agent and all change orders for which a Construction Loan Advance
is requested hereby have been consented to by the Administrative Agent and
Required Lenders to the extent required under the Loan Agreement and the other
Loan Documents.

      18. All lien waivers or payment receipts required under the terms of the
Loan Agreement and the other Loan Documents for this Draw Request have been
submitted to the Administrative Agent.

      19. The construction of the Improvements is progressing in a satisfactory
manner so as to assure completion thereof on or before the Completion Date in
accordance with the Plans, the Loan Agreement and the Loan Documents.

      20. As of the date hereof, the Borrower has no claims, causes of action,
demands against the Administrative Agent, demands against the Lenders, or
defenses or offsets to payment of the Construction Loan Advances or any other
amounts due under Loan Agreement and the other Loan Documents.

      21.   The Borrower has undertaken all investigation necessary to make
all of the foregoing statements.

      22. The acceptance by the Administrative Agent and the Lenders of this
Draw Request will in no way operate as a waiver by the Administrative Agent or
the Lenders of any term, condition, covenant or agreement contained in the Loan
Agreement and the other Loan Documents, or of any right of the Administrative
Agent or the Lenders to enforce any term, condition, covenant or agreement
therein.

      23.   This Draw Request includes Pre-Opening Operating Costs of
$__________ to be reimbursed to the Borrower.
<PAGE>
      All capitalized, undefined terms used herein shall have the meanings
assigned thereto in the Loan Agreement.

                            [Signature Page Follows]
<PAGE>
      IN WITNESS WHEREOF, the undersigned has executed this Draw Request as of
the date first written above.

                                    AFFIANT:

                                    HARLINGEN HOSPITAL                  [SEAL]
                                    MANAGEMENT, INC.

                                    By:
                                    Name: ____________________________________
                                    Title:____________________________________

STATE OF _____________________      )
                                    )
COUNTY OF ___________________       )

      SUBSCRIBED AND SWORN BEFORE ME, on this ____ day of _______________,
200__.

                                    ___________________________________________
                                    Notary Public:_____________________________
                                    Printed Name:______________________________
                                    My Commission Expires:_____________________
<PAGE>
                                    EXHIBIT D
                                       to
                       Amended and Restated Loan Agreement
                          dated as of November __, 2001
                                  by and among
                 Harlingen Medical Center, Limited Partnership,
                                  as Borrower,
                           the Lenders party thereto,
                                       and
                             Bank of America, N.A.,
                             as Administrative Agent

                      FORM OF NOTICE OF ACCOUNT DESIGNATION
<PAGE>
                          NOTICE OF ACCOUNT DESIGNATION

                         Dated as of: November ___, 2001

Bank of America, N.A.,
  as Administrative Agent
Bank of America Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28244
Attention:  Syndication Agency Services

Ladies and Gentlemen:

      This Notice of Account Designation is delivered to you under Section
2.2(c) of the Amended and Restated Loan Agreement dated as of November __, 2001
(as amended, restated, supplemented or otherwise modified from time to time, the
"Loan Agreement"), by and among Harlingen Medical Center, Limited Partnership, a
North Carolina limited partnership (the "Borrower"), the lenders who are or may
become party thereto (the "Lenders"), and Bank of America, N.A., as
administrative agent (the "Administrative Agent").

      1. The Administrative Agent is hereby authorized to disburse the proceeds
of all Construction Loan Advances requested by the Borrower to be disbursed
thereto into the following account(s):

                  Harlingen Medical Center, Limited Partnership
                          ABA Routing Number: 053000196
                         Account Number: 0006-8358-0659

      2. This authorization shall remain in effect until revoked or until a
subsequent Notice of Account Designation is provided to the Administrative
Agent.

      3. Capitalized terms used herein and not defined herein shall have the
meanings assigned thereto in the Loan Agreement.

                            [Signature Page Follows]
<PAGE>
      IN WITNESS WHEREOF, the undersigned has executed this Notice of Account
Designation as of the ____ day of November, 2001.

                                    HARLINGEN MEDICAL CENTER,     [SEAL]
                                    LIMITED PARTNERSHIP, as Borrower

                                    By:   HARLINGEN HOSPITAL
                                          MANAGEMENT, INC., its General
                                     Partner

                                          By:_______________________________
                                          Name:_____________________________
                                          Title:____________________________
<PAGE>
                                    EXHIBIT E
                                       to
                       Amended and Restated Loan Agreement
                          dated as of November __, 2001
                                  by and among
                 Harlingen Medical Center, Limited Partnership,
                                  as Borrower,
                           the Lenders party thereto,
                                       and
                             Bank of America, N.A.,
                             as Administrative Agent

                          FORM OF NOTICE OF PREPAYMENT
<PAGE>
                              NOTICE OF PREPAYMENT

                           Dated as of: _____________

Bank of America, N.A.,
  as Administrative Agent
Bank of America Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28244
Attention: Syndication Agency Services

Ladies and Gentlemen:

      This irrevocable Notice of Prepayment is delivered to you under Section
2.4(a) of the Amended and Restated Loan Agreement dated as of November __, 2001
(as amended, restated, supplemented or otherwise modified from time to time, the
"Loan Agreement"), by and among Harlingen Medical Center, Limited Partnership, a
North Carolina limited partnership (the "Borrower"), the lenders who are or may
become party thereto (the "Lenders"), and Bank of America, N.A., as
administrative agent (the "Administrative Agent").

      1. The Borrower hereby provides notice to the Administrative Agent that it
shall repay the following [Base Rate Loans] and/or [Eurodollar Rate Loans]:
____________________. (Complete with an amount in accordance with Section 2.4(a)
of the Loan Agreement.)

      2. The Borrower shall repay the above-referenced Construction Loan
Advances on the following Business Day: ____________________. (Complete with a
Business Day at least three (3) Business Days subsequent to date of this Notice
of Prepayment.)

      3. Capitalized terms used herein and not defined herein shall have the
meanings assigned thereto in the Loan Agreement.

                            [Signature Page Follows]
<PAGE>
      IN WITNESS WHEREOF, the undersigned has executed this Notice of
Prepayment as of the ____ day of __________, ____.

                                    HARLINGEN MEDICAL CENTER,     [SEAL]
                                    LIMITED PARTNERSHIP, as Borrower

                                    By:  HARLINGEN HOSPITAL
                                         MANAGEMENT, INC., its General Partner

                                         By:_________________________________
                                         Name:_______________________________
                                         Title:______________________________
<PAGE>
                                    EXHIBIT F
                                       to
                       Amended and Restated Loan Agreement
                          dated as of November __, 2001
                                  by and among
                 Harlingen Medical Center, Limited Partnership,
                                  as Borrower,
                           the Lenders party thereto,
                                       and
                             Bank of America, N.A.,
                             as Administrative Agent

                  FORM OF NOTICE OF CONVERSION/CONTINUATION

                        NOTICE OF CONVERSION/CONTINUATION

                           Dated as of: _____________

Bank of America, N.A.,
  as Administrative Agent
Bank of America Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28244
Attention:  Syndication Agency Services

Ladies and Gentlemen:

      This irrevocable Notice of Conversion/Continuation (the "Notice") is
delivered to you under Section 3.2 of the Amended and Restated Loan Agreement
dated as of November __, 2001 (as amended, restated, supplemented or otherwise
modified from time to time, the "Loan Agreement"), by and among Harlingen
Medical Center, Limited Partnership, a North Carolina limited partnership (the
"Borrower"), the lenders who are or may become party thereto (the "Lenders") and
Bank of America, N.A., as administrative agent (the "Administrative Agent").

      1. This Notice is submitted for the purpose of: (Check one and complete
applicable information in accordance with the Loan Agreement.)

            [ ]  Converting all or a portion of a Base Rate Loan into a
                 Eurodollar Rate Loan
<PAGE>
            (a)   The aggregate outstanding principal balance of such
                  Construction Loan Advance is $_______________.

            (b)   The principal amount of such Construction Loan Advance to
                  be converted is $_______________.

            (c)   The requested effective date of the conversion of such
                  Construction Loan Advance is _______________.

            (d)   The requested Interest Period applicable to the converted
                  Construction Loan Advance is _______________.

            [ ]   Converting a portion of Eurodollar Rate Loan into a Base
                  Rate Loan

            (a)   The aggregate outstanding principal balance of such
                  Construction Loan Advance is $_______________.

            (b)   The last day of the current Interest Period for such
                  Construction Loan Advance is _______________.

            (c)   The principal amount of such Construction Loan Advance to
                  be converted is $_______________.

            (d)   The requested effective date of the conversion of such
                  Construction Loan Advance is _______________.

            [ ]   Continuing all or a portion of a Eurodollar Rate Loan as
                  a Eurodollar Rate Loan

            (a)   The aggregate outstanding principal balance of such
                  Construction Loan Advance is $_______________.

            (b)   The last day of the current Interest Period for such
                  Construction Loan Advance is _______________.

            (c)   The principal amount of such Construction Loan Advance to
                  be continued is $_______________.

            (d)   The requested effective date of the continuation of such
                  Construction Loan Advance is _______________.

            (e)   The requested Interest Period applicable to the continued
                  Construction Loan Advance is _______________.

                                       3
<PAGE>
      2. The principal amount of all Construction Loan Advances outstanding as
of the date hereof does not exceed the maximum amount permitted to be
outstanding pursuant to the terms of the Loan Agreement.

      3. All of the conditions applicable to the conversion or continuation of
the Construction Loan Advance requested herein as set forth in the Loan
Agreement have been satisfied or waived as of the date hereof and will remain
satisfied or waived to the date of such Construction Loan Advance.

      4. Capitalized terms used herein and not defined herein shall have the
meanings assigned thereto in the Loan Agreement.

                            [Signature Page Follows]

                                       4
<PAGE>
      IN WITNESS WHEREOF, the undersigned has executed this Notice of
Conversion/Continuation as of the ____ day of __________, ____.

                                    HARLINGEN MEDICAL CENTER,     [SEAL]
                                    LIMITED PARTNERSHIP, as Borrower

                                    By:   HARLINGEN HOSPITAL
                                          MANAGEMENT, INC., its General Partner

                                          By:_________________________________
                                          Name:_______________________________
                                          Title:______________________________

                                       5
<PAGE>
                                    EXHIBIT G
                                       to
                       Amended and Restated Loan Agreement
                          dated as of November __, 2001
                                  by and among
                 Harlingen Medical Center, Limited Partnership,
                                  as Borrower,
                           the Lenders party thereto,
                                       and
                             Bank of America, N.A.,
                             as Administrative Agent

                        FORM OF ASSIGNMENT AND ACCEPTANCE
<PAGE>
                            ASSIGNMENT AND ACCEPTANCE

      Reference is made to that certain Amended and Restated Loan Agreement
dated as of November __, 2001 (as amended, restated, supplemented or otherwise
modified from time to time, the "Loan Agreement"), by and among Harlingen
Medical Center, Limited Partnership, a North Carolina limited partnership (the
"Borrower"), the lenders who are or may become party thereto (the "Lenders"),
and Bank of America, N.A., as administrative agent (the "Administrative Agent").

      The assignor identified on the signature page hereto (the "Assignor") and
the assignee identified on the signature page hereto (the "Assignee") agree as
follows:

      1.    (a)   Subject to paragraph 11 hereof, effective as of the date
      specified on Schedule 1 hereto (the "Effective Date"), the Assignor hereby
      irrevocably sells and assigns to the Assignee, without recourse to the
      Assignor, and the Assignee hereby irrevocably purchases and assumes from
      the Assignor, without recourse to the Assignor, the interest described on
      Schedule 1 hereto (the "Assigned Interest") in and to the Assignor's
      rights and obligations under the Loan Agreement.

            (b)   From and after the Effective Date, (i) the Assignee shall be a
      party under the Loan Agreement and will have all the rights and
      obligations of a Lender for all purposes under the Loan Agreement and the
      other Loan Documents to the extent of the Assigned Interest and be bound
      by the provisions thereof, and (ii) the Assignor shall relinquish its
      rights and be released from its obligations under the Loan Agreement to
      the extent of the Assigned Interest. The Assignor and/or the Assignee, as
      agreed by the Assignor and the Assignee, shall deliver, in immediately
      available funds, any applicable assignment fee required under Section
      12.10(b) of the Agreement.

      2.    On the Effective Date, the Assignee shall pay to the Assignor, in
immediately available funds, an amount equal to the purchase price of the
Assigned Interest as agreed upon by the Assignor and the Assignee.

      3.    From and after the Effective Date, the Administrative Agent shall
make all payments under the Loan Agreement and the Notes, if any, in respect of
the Assigned Interest (including all payments of principal, interest and fees
with respect thereto) to the Assignee. The Assignor and the Assignee shall make
all appropriate adjustments in payments under the Agreement and the Notes, if
any, for periods prior to the Effective Date directly between themselves.

      4.    The Assignor represents and warrants to the Assignee that:

            (a)   the Assignor is the legal and beneficial owner of the Assigned
      Interest, and the Assigned Interest is free and clear of any adverse
      claim;

            (b)   the Assigned Interest listed on Schedule 1 accurately and
      completely sets forth the outstanding amount of all Construction Loan
      Advances relating to the Assigned Interest as of the Effective Date;
<PAGE>
            (c)   the Assignor has the power and authority and the legal right
      to make, deliver and perform, and has taken all necessary action, to
      authorize the execution, delivery and performance of this Assignment and
      Acceptance, and any and all other documents delivered by it in connection
      herewith and to fulfill its obligations under, and to consummate the
      transactions contemplated by, this Assignment and Acceptance, the Loan
      Agreement and the other Loan Documents, and no consent or authorization
      of, filing with, or other act by or in respect of any Governmental
      Authority, is required in connection herewith or therewith; and

            (d)   this Assignment and Acceptance constitutes the legal, valid
      and binding obligation of the Assignor.

      The Assignor makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower, the
Guarantors or any of their Affiliates or the performance by the Borrower, the
Guarantors or any of their Affiliates of their respective obligations under the
Loan Agreement and the other Loan Documents, and assumes no responsibility with
respect to any statements, warranties or representations made under or in
connection with the Loan Agreement or any other Loan Document or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of the
Loan Agreement or any other Loan Document other than as expressly set forth
above.

      5.    The Assignee represents and warrants to the Assignor and the
Administrative Agent that:

            (a)   the Assignee is an Eligible Assignee;

            (b)   the Assignee has the full power and authority and the legal
      right to make, deliver and perform, and has taken all necessary action, to
      authorize the execution, delivery and performance of this Assignment and
      Acceptance, and any and all other documents delivered by it in connection
      herewith and to fulfill its obligations under, and to consummate the
      transactions contemplated by, this Assignment and Acceptance, the Loan
      Agreement and the other Loan Documents, and no consent or authorization
      of, filing with, or other act by or in respect of any Governmental
      Authority, is required in connection herewith or therewith;

            (c)   this Assignment and Acceptance constitutes the legal, valid
      and binding obligation of the Assignee;

            (d)   under all Applicable Laws no tax will be required to be
      withheld by the Administrative Agent or the Borrower with respect to any
      payments to be made to the Assignee hereunder or under the Loan Agreement
      or any other Loan Document, and unless otherwise indicated in the space
      opposite the Assignee's signature below, no tax forms described in Section
      3.11(e) of the Loan Agreement are required to be delivered by the
      Assignee; and
<PAGE>
            (e)   the Assignee has received a copy of the Loan Agreement and the
      other Loan Documents, together with copies of the most recent financial
      statements of the Borrower and the Guarantors delivered pursuant thereto,
      and such other documents and information as it has deemed appropriate to
      make its own credit analysis and decision to enter into this Assignment
      and Acceptance. The Assignee has independently and without reliance upon
      the Assignor or the Administrative Agent and based on such information as
      the Assignee has deemed appropriate, made its own credit analysis and
      decision to enter into this Assignment and Acceptance. The Assignee will,
      independently and without reliance upon the Administrative Agent or any
      Lender, and based upon such documents and information as it shall deem
      appropriate at the time, continue to make its own credit decisions in
      taking or not taking action under the Loan Agreement and the other Loan
      Documents.

      6.    The Assignee appoints and authorizes the Administrative Agent to
take such action as agent on its behalf and to exercise such powers and
discretion under the Loan Agreement, the other Loan Documents or any other
instrument or document furnished pursuant hereto or thereto as are delegated to
the Administrative Agent by the terms thereof, together with such powers as are
incidental thereto.

      7.    The Assignor attaches the Construction Loan Note delivered to it
under the Loan Agreement and the Assignor and the Assignee request that the
Borrower exchange such Construction Loan Note for new Construction Loan Notes
payable to each of the Assignor and the Assignee as follows:

       Construction Loan Note                            Principal Amount of
      Payable to the Order of:                         Construction Loan Note:

      ____________________________                          $___________

      ____________________________                          $___________

      8.    The Assignor and the Assignee agree to execute and deliver such
other instruments, and take such other action, as either party may reasonably
request in connection with the transactions contemplated by this Assignment and
Acceptance.

      9.    This Assignment and Acceptance shall be binding upon and inure to
the benefit of the parties and their respective successors and assigns;
provided, however, that the Assignee shall not assign its rights or obligations
hereunder without the prior written consent of the Assignor and any purported
assignment, absent such consent, shall be void.

      10.   This Assignment and Acceptance may be executed by facsimile
signatures with the same force and effect as if manually signed and may be
executed in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument. This
Assignment and Acceptance shall be governed by and construed in accordance with
the laws of the North Carolina, without reference to the conflicts or choice of
law principles thereof.
<PAGE>
      11.   The effectiveness of the assignment described herein is subject to:

      (a)   if such consent is required by the Loan Agreement, receipt by the
Assignor and the Assignee of the consent of the Administrative Agent and/or the
Borrower to the assignment described herein. By delivering a duly executed and
delivered copy of this Assignment and Acceptance to the Administrative Agent,
the Assignor and the Assignee hereby request any such required consent and
request that the Administrative Agent register the Assignee as a Lender under
the Loan Agreement effective as of the Effective Date; and

      (b)   receipt by the Administrative Agent of (or other arrangements
acceptable to the Administrative Agent with respect to) any applicable
assignment fee referred to in Section 12.10(b) of the Loan Agreement and any tax
forms required by Section 3.11(e) of the Loan Agreement.

      By signing below, the Administrative Agent agrees to register the Assignee
as a Lender under the Loan Agreement, effective as of the Effective Date with
respect to the Assigned Interest, and will adjust the registered Commitment
Percentage of the Assignor under the Loan Agreement to reflect the assignment of
the Assigned Interest.

      12.   Attached hereto as Schedule 2 is all contact, address, account and
other administrative information relating to the Assignee.

      13.   Capitalized terms used herein and not defined herein shall have the
meanings assigned thereto in the Loan Agreement.

                            [Signature Pages Follow]
<PAGE>
      IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed as of the date first above written by their respective
duly authorized officers.

                                               ASSIGNOR:

                                               _________________________________

                                               By: _____________________________
                                               Name: ___________________________
                                               Title: __________________________

                                               ASSIGNEE:

[ ]   Tax forms required by
      Section 3.11(e) of the Loan              _________________________________
      Agreement included
                                               By: _____________________________
                                               Name: ___________________________
                                               Title: __________________________

                           [Signature Pages Continue]
<PAGE>
In accordance with and subject to Section 12.10 of
the Loan Agreement, the undersigned consent to the
foregoing assignment as of the Effective Date:

HARLINGEN MEDICAL CENTER,  [SEAL]
LIMITED PARTNERSHIP, as Borrower

By:   HARLINGEN HOSPITAL
      MANAGEMENT, INC., its General Partner

      By: _____________________________
      Name: ___________________________
      Title: __________________________

BANK OF AMERICA, N.A.,
  as Administrative Agent

By: _____________________________
Name: ___________________________
Title: __________________________
<PAGE>
                                   Schedule 1
                                       to
                            Assignment and Acceptance

                              THE ASSIGNED INTEREST

EFFECTIVE DATE: ______________________

<TABLE>
<CAPTION>
                         TYPE AND AMOUNT OF OUTSTANDING
ASSIGNED COMMITMENT           OBLIGATIONS ASSIGNED           ASSIGNED PRO RATA SHARE
<S>                      <C>                                 <C>
  $______________         [type] $_________________            __________________%
</TABLE>
<PAGE>
                                   Schedule 2
                                       to
                            Assignment and Acceptance

                             ADMINISTRATIVE DETAILS

      [Assignee to list names of credit contacts, addresses, phone and facsimile
      numbers, electronic mail addresses and account and payment information]
<PAGE>
                                    EXHIBIT H
                                       to
                       Amended and Restated Loan Agreement
                          dated as of November __, 2001
                                  by and among
                 Harlingen Medical Center, Limited Partnership,
                                  as Borrower,
                           the Lenders party thereto,
                                       and
                             Bank of America, N.A.,
                             as Administrative Agent

                           FORM OF GUARANTY AGREEMENT
<PAGE>
                               GUARANTY AGREEMENT

      THIS GUARANTY AGREEMENT, dated as of November __, 2001 is made by MEDCATH
CORPORATION, a Delaware corporation (the "Parent"), and certain Subsidiaries of
the Parent as identified on the signature pages attached hereto or otherwise
joined as a party hereto (such subsidiaries collectively, the "Subsidiary
Guarantors", and each, a "Subsidiary Guarantor", and together with the Parent,
the "Guarantors"), in favor of BANK OF AMERICA, N.A., a national banking
association, as Administrative Agent (the "Administrative Agent") for the
ratable benefit of itself and the financial institutions (the "Lenders") from
time to time party to the Loan Agreement (as defined below).

                              STATEMENT OF PURPOSE

      Pursuant to the terms of the Amended and Restated Loan Agreement of even
date herewith (as amended, restated, supplemented or otherwise modified, the
"Loan Agreement"), by and among Harlingen Medical Center, Limited Partnership,
as Borrower (the "Borrower"), the Lenders party thereto (the "Lenders") and the
Administrative Agent, the Lenders have agreed to extend certain credit
facilities to the Borrower as more specifically described in the Loan Agreement.

      The Borrower and the Guarantors, though separate legal entities, comprise
one integrated financial enterprise, and all Construction Loan Advances under
the Loan Agreement to the Borrower will inure, directly or indirectly, to the
benefit of each of the Guarantors.

      In connection with the transactions contemplated by the Loan Agreement and
as a condition precedent thereto, the Lenders have requested that each Guarantor
execute and deliver this Guaranty, and each of the Guarantors has agreed to do
so pursuant to the terms hereof.

      NOW, THEREFORE, in consideration of the premises and the mutual agreements
set forth herein, and to induce the Administrative Agent and the Lenders to
enter into and to make available Construction Loan Advances pursuant to the Loan
Agreement, each Guarantor hereby agrees with the Administrative Agent for the
ratable benefit of the Administrative Agent and the Lenders as follows:

      SECTION 1.        Definitions and Rules of Construction.

      (a)   Definitions. Capitalized terms used and not otherwise defined in
this Guaranty including the preambles and recitals hereof, shall have the
meanings ascribed to them in the Loan Agreement. In the event of a conflict
between capitalized terms defined herein and in the Loan Agreement, this
Guaranty shall control. In addition, the following terms when used in this
Guaranty shall have the meaning assigned to them below:

      "Administrative Agent" shall have the meaning assigned thereto in the
Preamble.
<PAGE>
      "Adjusted EBITDA" means, for any period, the sum of the following
determined, without duplication, in accordance with GAAP: (a) Consolidated
EBITDA of the Parent and its Subsidiaries for such period plus (or minus) (b) to
the extent deducted in determining Net Income (or to the extent added in
determining Net Income), the "minority interest share of earnings of the
consolidated subsidiaries" of the Parent for such period as reflected on the
consolidated statement of operations of the Parent and its Subsidiaries plus (c)
to the extent deducted in determining Net Income, the "equity in the net losses
of unconsolidated affiliates" attributable to Unconsolidated Entities for such
period as reflected on the consolidated statement of operations of the Parent
and its Subsidiaries minus (d) to the extent added in determining Net Income,
the "equity in the net profits of unconsolidated affiliates" attributable to
Unconsolidated Entities for such period as reflected on the consolidated
statement of operations of the Parent and its Subsidiaries plus (e)
Unconsolidated EBITDA of each Unconsolidated Entity for such period plus (f)
certain adjustments approved by the Administrative Agent and the Lenders and set
forth on Schedule 1(a)(i) minus (g) to the extent in included in any of the
foregoing clauses (a) through (e), the aggregate amount of EBITDA of the
Developmental Pool for such period. For the purpose hereof, each item referred
to herein which is determined by reference to the consolidated statement of
operations of the Parent and its Subsidiaries shall be calculated in the manner
required pursuant to Section 28.

      "Affiliate" shall have the meaning assigned thereto in the Loan Agreement.

      "Aggregate Commitment" shall have the meaning assigned thereto in the Loan
Agreement.

      "Applicable Insolvency Laws" means all Applicable Laws governing
bankruptcy, reorganization, arrangement, adjustment of debts, relief of debtors,
dissolution, insolvency, fraudulent transfers or conveyances or other similar
laws (including, without limitation, 11 U.S.C. Section 547, Section 548,
Section 550 and other "avoidance" provisions of Title 11 of the United States
Code) applicable in any proceeding involving the bankruptcy, reorganization,
arrangement, adjustment of debts, relief of debtors, dissolution or insolvency
or any similar proceeding with respect to any Guarantor or its assets or this
Guaranty.

      "Applicable Law" means, collectively, all international, foreign, federal,
state and local statutes, treaties, rules, guidelines, regulations, ordinances,
codes, constitutions and administrative or judicial precedents or authorities,
including the interpretation or administration thereof by any Governmental
Authority charged with the enforcement, interpretation or administration
thereof, and all applicable administrative orders, directed duties, requests,
licenses, authorizations and permits of, and agreements with, any Governmental
Authority, in each case whether or not having the force of law.

      "Available Cash" means, as of any date of determination, the sum of the
following, without duplication, calculated in accordance with GAAP: (a) the
aggregate amount of all cash and cash equivalents of the Parent and its
Subsidiaries, which such cash or cash equivalents are readily marketable and
available without restriction or limitation for the immediate payment or
repayment of Debt thereof as of such date of determination plus (b) the
aggregate amount of all Unconsolidated Cash of the Unconsolidated Entities as of
such date of determination.

                                       2
<PAGE>
      "Borrower" shall have the meaning assigned thereto in the Statement of
Purpose.

      "Capital Lease" means any lease of any property by the Parent or any of
its Subsidiaries, as Lessee, that should, in accordance with GAAP, be classified
and accounted for as a capital lease on a Consolidated balance sheet of Parent
and its Subsidiaries.

      "Cash Interest Expense" means, with respect to any Person for any period,
all Interest Expense paid in cash during such period.

      "Closing Date" shall have the meaning assigned thereto in the Loan
Agreement.

      "Collateral" shall have the meaning assigned thereto in the Loan
Agreement.

      "Commitments" shall have the meaning assigned thereto in the Loan
Agreement.

      "Completion Date" means, with respect to any Hospital Facility owned by
any Hospital Joint Venture, the date upon which such Hospital Joint Venture has
received (i) the final certificate of occupancy for such Hospital Facility and
(ii) all permits and licenses required under Applicable Law (including the
Medicare Certification and the Medicaid Certification) to operate such Hospital
Facility.

      "Consolidated" means, when used with reference to financial statements or
financial statement items of the Parent and its Subsidiaries, such statements or
items on a consolidated basis in accordance with applicable principles of
consolidation under GAAP.

      "Consolidated Net Worth" means, with respect to the Parent and its
Subsidiaries at any date of determination, the sum of the following determined
on a Consolidated basis, without duplication, in accordance with GAAP: (a) the
amount of assets shown on the Consolidated balance sheet of the Parent and its
Subsidiaries less (b) all liabilities of the Parent and its Subsidiaries. For
purposes of this definition, assets shall include sums due from (i) physicians
or medical practices managed by the Parent or any of its Subsidiaries, (ii)
health care facilities owned or managed by the Parent or any of its
Subsidiaries, and (iii) physicians with whom Borrower is affiliated, to the
extent that (x) the repayment of such sums constitutes valid and enforceable
obligations of such Persons and (y) such Persons have not defaulted in the
repayment of such sums.

      "Construction Loan Advances" shall have the meaning assigned thereto in
the Loan Agreement.

      "Corporate Revolver" means the Loan Agreement dated as of July 31, 1998,
as amended, restated, supplemented or otherwise modified from time to time, by
and among MedCath Intermediate Holdings, Inc., as borrower, the lenders referred
to therein, as lenders, and Bank of America, N. A., as agent.

      "Debt" means, with respect to any Person at any date and without
duplication, the sum of the following calculated in accordance with GAAP: (a)
all liabilities, obligations and indebtedness

                                       3
<PAGE>
for borrowed money including, but not limited to, obligations evidenced by
bonds, debentures, notes or other similar instruments of any such Person, (b)
all obligations to pay the deferred purchase price of property or services of
any such Person (including, without limitation, all obligations under
non-competition agreements), except trade payables arising in the ordinary
course of business not more than one hundred and twenty (120) days past due, (c)
all obligations of any such Person as lessee under Capital Leases, (d) all Debt
of any other Person secured by a Lien on any asset of any such Person, (e) all
Guaranty Obligations of any such Person, (f) all obligations, contingent or
otherwise, of any such Person relative to the face amount of letters of credit,
whether or not drawn, and banker's acceptances issued for the account of any
such Person, (g) all obligations of any such Person to redeem, repurchase,
exchange, defease or otherwise make payments in respect of capital stock or
other securities or partnership interests of such Person, (h) all net payment
obligations incurred by any such Person pursuant to Hedging Agreements and (i)
all outstanding payment obligations of any such Person with respect to any
synthetic lease, tax retention operating lease, off-balance sheet loan or
similar off-balance sheet financing product where such transaction is considered
borrowed money indebtedness for tax purposes but is classified as an operating
lease in accordance with GAAP.

      "Default" shall have the meaning assigned thereto in the Loan Agreement.

      "Developmental Pool" shall mean the collective reference to all Hospital
Joint Ventures which own a Hospital Facility with respect to which (i) the
Completion Date has not yet occurred or (ii) six (6) full fiscal quarters or
less have elapsed since the Completion Date of such Hospital Facility.

      "EBITDA" means, with respect to any Person for any period, the sum of the
following determined, without duplication, in accordance with GAAP: (a) Net
Income for such period plus (b) the sum of the following to the extent deducted
in determining Net Income for such period: (i) Interest Expense for such period,
(ii) income and franchise taxes for such period, (iii) amortization and
depreciation for such period, (iv) non-cash charges for such period solely with
respect to the impairment of goodwill in accordance with GAAP, (v) non-cash
impairment charges for such period solely with respect to management contracts
of MedCath Diagnostics LLC and its Subsidiaries and MedCath Cardiology
Consulting & Management, Inc. and its Subsidiaries, and (vi) non-cash impairment
charges for such period solely with respect to loan acquisition costs minus (c)
to the extent added in the determination of Net Income, extraordinary gains for
such period.

      "Employee Benefit Plan" means any employee benefit plan within the meaning
of Section 3(3) of ERISA which (a) is maintained for employees of the Parent or
any ERISA Affiliate or (b) has at any time within the preceding six (6) years
been maintained for the employees of the Parent or any current or former ERISA
Affiliate.

      "Environmental Laws" means any and all federal, foreign, state, provincial
and local laws, statutes, ordinances, rules, regulations, permits, licenses,
approvals, interpretations and orders of courts or Governmental Authorities,
relating to the protection of human health or the environment, including, but
not limited to, requirements pertaining to the manufacture, processing,
distribution, use, treatment, storage, disposal, transportation, handling,
reporting, licensing, permitting, investigation or remediation of Hazardous
Materials.

                                       4
<PAGE>
      "ERISA" means the Employee Retirement Income Security Act of 1974, and the
rules and regulations thereunder, each as amended or modified from time to time.

      "ERISA Affiliate" means any Person who together with the Parent is treated
as a single employer within the meaning of Section 414(b), (c), (m) or (o) of
the Code or Section 4001(b) of ERISA.

      "Event of Default" shall have the meaning assigned thereto in the Loan
Agreement.

      "Fiscal Year" means the fiscal year of the Parent ending on September 30.

      "GAAP" means generally accepted accounting principles, as recognized by
the American Institute of Certified Public Accountants and the Financial
Accounting Standards Board, consistently applied and maintained on a consistent
basis for the Parent and its Subsidiaries or any other applicable Person
throughout the period indicated and (subject to Section 28) consistent with the
prior financial practice of the Parent and its Subsidiaries or any such other
Person.

      "Governmental Approval" means all authorizations, consents, approvals,
licenses and exemptions of, registrations and filings with, and reports to, all
Governmental Authorities.

      "Governmental Authority" means any nation, province, state or political
subdivision thereof, and any government or any Person exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.

      "Guaranteed Obligations" shall have the meaning assigned thereto in
Section 2(b) of this Guaranty.

      "Guarantors" shall have the meaning assigned thereto in the Preamble.

      "Guaranty" means this Guaranty Agreement, as amended, restated,
supplemented otherwise modified from time to time.

      "Guaranty Obligation" means, with respect to any Person at any date and
without duplication, any obligation, contingent or otherwise, of any such Person
pursuant to which such Person has directly or indirectly guaranteed any Debt or
other obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of any
such Person (a) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
condition or otherwise) or (b) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the payment thereof
or to protect such obligee against loss in respect thereof (in whole or in
part); provided, that the term Guaranty Obligation shall not include
endorsements for collection or deposit in the ordinary course of business. The
amount of any Guaranty Obligation hereunder shall (subject to any limitations
set

                                       5
<PAGE>
forth therein) be deemed to be the lower of (a) an amount equal to the stated or
determinable amount of the primary obligation in respect of which such Guaranty
Obligation is made and (b) the maximum amount for which such guaranteeing Person
may be liable pursuant to the terms of the instrument evidencing such Guaranty
Obligation.

      "Hazardous Materials" means any substances or materials (a) which are or
become defined as hazardous wastes, hazardous substances, pollutants,
contaminants, chemical substances or mixtures or toxic substances under any
Environmental Law, (b) which are toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise harmful to human
health or the environment and are or become regulated by any Governmental
Authority, (c) the presence of which require investigation or remediation under
any Environmental Law or common law, (d) the discharge or emission or release of
which requires a permit or license under any Environmental Law or other
Governmental Approval, (e) which are deemed to constitute a nuisance or a
trespass which pose a health or safety hazard to Persons or neighboring
properties, (f) which consist of underground or aboveground storage tanks,
whether empty, filled or partially filled with any substance, or (g) which
contain, without limitation, asbestos, polychlorinated biphenyls, urea
formaldehyde foam insulation, petroleum hydrocarbons, petroleum derived
substances or waste, crude oil, nuclear fuel, natural gas or synthetic gas.

      "Hedging Agreements" means any agreement with respect to any Interest Rate
Contract, forward rate agreement, commodity swap, forward foreign exchange
agreement, currency swap agreement, cross-currency rate swap agreement, currency
option agreement or other agreement or arrangement designed to alter the risks
of any Person arising from fluctuations in interest rates, currency values or
commodity prices, all as amended, restated, supplemented or otherwise modified
from time to time.

      "HFCA" means the Health Care Finance Administration or any successor
agency.

      "HHS" means the United States Department of Health and Human Services, and
any successor thereto.

      "Hospital Facility" shall mean any heart hospital and related facilities
or diagnostic facilities owned by a Hospital Joint Venture.

      "Hospital Joint Venture" means any business entity (a) formed for the
purpose of owning, operating or managing a heart hospital and related facilities
or diagnostic facilities, and (b) a portion of the capital stock, limited
liability company interests, partnership interests or other ownership interest
of which is owned or beneficially controlled, either directly or indirectly, by
the Parent or one or more of its Wholly-Owned Subsidiaries.

      "Improvements" shall have the meaning assigned thereto in the Loan
Agreement.

      "Interest Expense" means, with respect to any Person for any period, the
gross interest expense (including without limitation, interest expense
attributable to Capital Leases and all net payment obligations pursuant to
Hedging Agreements) of such Person, all determined for such period, without
duplication, in accordance with GAAP.

                                       6
<PAGE>
      "Interest Rate Contract" means any interest rate swap agreement, interest
rate cap agreement, interest rate floor agreement, interest rate collar
agreement, interest rate option or any other agreement regarding the hedging of
interest rate risk exposure executed in connection with hedging the interest
rate exposure of any Person and any confirming letter executed pursuant to such
agreement, all as amended, restated, supplemented or otherwise modified from
time to time.

      "Joinder Agreement" means, collectively, each joinder agreement executed
in favor of the Administrative Agent for the ratable benefit of itself and the
Lenders, substantially in the form of Exhibit A.

      "Land" shall have the meaning assigned thereto in the Loan Agreement.

      "Lease Expense" means, with respect to any Person for any period, all
obligations of such Person for payments under leases of real or personal
property, whether such leases presently exist or are hereafter entered into by
such Person.

      "Lenders" shall have the meaning assigned thereto in the Preamble.

      "Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest, hypothecation or encumbrance of any kind in respect
of such asset. For the purposes of this Agreement, a Person shall be deemed to
own subject to a Lien any asset which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, Capital
Lease or other title retention agreement relating to such asset.

      "Loan Agreement" shall have the meaning assigned thereto in the Statement
of Purpose.

      "Loan Documents" shall have the meaning assigned thereto in the Loan
Agreement.

      "Material Adverse Effect" shall have the meaning assigned thereto in the
Loan Agreement.

      "Material Contract" shall have the meaning assigned thereto in the Loan
Agreement.

      "Maturity Date" shall have the meaning assigned thereto in the Loan
Agreement.

      "Maximum Available Corporate Revolver Commitment" means the amount of the
unused portion of the aggregate commitment of the lenders under the Corporate
Revolver which is available for borrowing from time to time under the Corporate
Revolver to the extent that (a) no default or event of default shall have
occurred and be continuing under the Corporate Revolver on the date of any such
borrowing and after giving effect thereto and (b) the Parent and its
Subsidiaries shall be in compliance with Section 12(c) on the date of any such
borrowing and after giving effect thereto.

      "Medicaid Certification" means certification by HCFA or a Governmental
Authority under contract with HCFA that health care operations are in compliance
with all the conditions of participation set forth in the Medicaid Regulations.

                                       7
<PAGE>
      "Medicaid Regulations" means, collectively, (a) all federal statutes
(whether set forth in Title XIX of the Social Security Act or elsewhere)
affecting the medical assistance program established by Title XIX of the Social
Security Act and any statutes succeeding thereto; (b) all applicable provisions
of all federal rules, regulations, manuals and orders of all Governmental
Authorities promulgated pursuant to or in connection with the statutes described
in clause (a) above and all federal administrative, reimbursement and other
guidelines of all Governmental Authorities having the force of law promulgated
pursuant to or in connection with the statutes described in clause (a) above;
(c) all state statutes and plans for medical assistance enacted in connection
with the statutes and provisions described in clauses (a) and (b) above; and (c)
all applicable provisions of all rules, regulations, manuals and orders of all
Governmental Authorities promulgated pursuant to or in connection with the
statutes described in clause (c) above and all state administrative,
reimbursement and other guidelines of all Governmental Authorities having the
force of law promulgated pursuant to or in connection with the statutes
described in clause (b) above, in each case as may be amended, supplemented or
otherwise modified from time to time.

      "Medicare Certification" means certification by HCFA or a Governmental
Authority under contract with HCFA that the health care operation is in
compliance with all the conditions of participation set forth in the Medicare
Regulations.

      "Medicare Regulations" means, collectively, (i) all federal statutes
(whether set forth in Title XVIII of the Social Security Act or elsewhere)
affecting the health insurance program for the aged and disabled established by
Title XVIII of the Social Security Act and any statutes succeeding thereto; and
(ii) all applicable provisions of all rules, regulations, manuals, orders and
administrative, reimbursement and other guidelines having the force of law of
all Governmental Authorities (including without limitation, HHS, HCFA, the
Office of the Inspector General for HHS, or any person succeeding to the
functions of any of the foregoing) promulgated pursuant to or in connection with
any of the foregoing having the force of law, as each may be amended,
supplemented or otherwise modified from time to time.

      "Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to which the Parent or any ERISA Affiliate is making, or is
accruing an obligation to make, or has accrued an obligation to make
contributions within the preceding six (6) years.

      "Net Income" means, with respect to any Person, for any period of
determination, the net income (or loss) of the such Person for such period,
determined in accordance with GAAP.

      "Obligations" shall have the meaning assigned thereto in the Loan
Agreement.

      "Officer's Compliance Certificate" shall have the meaning assigned thereto
in Section 10(b) of this Guaranty.

      "Parent" shall have the meaning assigned thereto in the Preamble.

      "PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency.

                                       8
<PAGE>
      "Pension Plan" means any Employee Benefit Plan, other than a Multiemployer
Plan, which is subject to the provisions of Title IV of ERISA or Section 412 of
the Code and which (a) is maintained for the employees of the Parent or any
ERISA Affiliates or (b) has at any time within the preceding six (6) years been
maintained for the employees of the Parent or any of its current or former ERISA
Affiliates.

      "Permanent Principal Payment" means, with respect to the Debt of any
Person, an actual payment or repayment of the outstanding principal amount of
(a) term Debt (excluding voluntary prepayments thereof), which by its terms does
not permit any payments or repayments of principal to be re-borrowed, or (b)
Debt under a revolving credit facility (or other facility which permits the
re-borrowing of principal payments or repayments) so long as the aggregate
commitment of the lender thereunder to allow any such re-borrowing has been
permanently reduced by an amount equal to such payment or repayment.

      "Person" means an individual, corporation, limited liability company,
partnership, association, trust, business trust, joint venture, joint stock
company, pool, syndicate, sole proprietorship, unincorporated organization,
Governmental Authority or any other form of entity or group thereof.

      "Required Lenders" shall have the meaning assigned thereto in the Loan
Agreement.

      "Subsidiary" means as to any Person, any corporation, partnership, limited
liability company or other entity of which more than fifty percent (50%) of the
outstanding capital stock or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other managers of such
corporation, partnership, limited liability company or other entity is at the
time owned by or the management is otherwise controlled by such Person
(irrespective of whether, at the time, capital stock or other ownership
interests of any other class or classes of such corporation, partnership,
limited liability company or other entity shall have or might have voting power
by reason of the happening of any contingency). Unless otherwise qualified
references to "Subsidiary" or "Subsidiaries" herein shall refer to those of the
Parent.

      "Subsidiary Guarantors" shall have the meaning assigned thereto in the
Preamble.

      "Termination Event" means: (a) except for any such event that could not
reasonably be expected to have a Material Adverse Effect, a "Reportable Event"
described in Section 4043 of ERISA for which the notice requirement has not been
waived by the PBGC, or (b) except for any withdrawal that could not reasonably
be expected to have a Material Adverse Effect, the withdrawal of the Parent or
any ERISA Affiliate from a Pension Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA, or (c) the
termination of a Pension Plan, the filing of a notice of intent to terminate a
Pension Plan or the treatment of a Pension Plan amendment as a termination, each
under Section 4041(c) of ERISA, or (d) the institution of proceedings to
terminate, or the appointment of a trustee with respect to, any Pension Plan by
the PBGC, or (e) any other event or condition which would constitute grounds
under Section 4042(a) of ERISA for the termination of, or the appointment of a
trustee to administer, any Pension Plan, or (f) the imposition of a Lien
pursuant to Section 412 of the Code or Section 302 of ERISA, or (g) except for
any such event or condition that could not reasonably

                                       9
<PAGE>
be expected to have a Material Adverse Effect, any event or condition which
results in the reorganization or insolvency of a Multiemployer Plan under
Sections 4241 or 4245 of ERISA, or (h) except for any such event or condition
that could not reasonably be expected to have a Material Adverse Effect, any
event or condition which results in the termination of a Multiemployer Plan
under Section 4041A of ERISA or the institution by PBGC of proceedings to
terminate a Multiemployer Plan under Section 4042 of ERISA.

      "Total Capitalization" means, at any date of determination, the sum of (a)
Total Debt plus (b) Total Equity, each as of such date and calculated in
accordance with GAAP.

      "Total Debt" means, as of any date of determination, the sum of the
following, without duplication, calculated in accordance with GAAP: (a) all Debt
of the Parent and its Subsidiaries less (b) all Available Cash.

      "Total Equity" means, with respect to the Parent, its Subsidiaries and
each Hospital Joint Venture owned thereby, at any date of determination, the
stockholders' equity calculated in accordance with GAAP without duplication.

      "Unconsolidated Cash" means, with respect to each Unconsolidated Entity,
for any period, the greater of the following clause (a) or clause (b), as
applicable, in each case determined, without duplication, in accordance with
GAAP:

            (a)   an amount equal to (i) the proportion of (A) the Debt of such
      Unconsolidated Entity guaranteed by the Parent or any Wholly-Owned
      Subsidiary thereof as of the last day of such period to (B) all Debt of
      such Unconsolidated Entity as of the last day of such period times (ii)
      the aggregate amount of all cash and cash equivalents of such
      Unconsolidated Entity, which such cash or cash equivalents are readily
      marketable and available without restriction or limitation for the
      immediate payment or repayment of Debt thereof as of the last day of such
      period, and

            (b)   an amount equal to (i) the percentage of the total amount of
      issued and outstanding capital stock, limited liability company interests,
      partnership interests, or other ownership interests of such Unconsolidated
      Entity owned by the Parent or any Wholly-Owned Subsidiary thereof as of
      the last day of such period times (ii) the aggregate amount of all cash
      and cash equivalents of such Unconsolidated Entity, which such cash or
      cash equivalents are readily marketable and available without restriction
      or limitation for the immediate payment or repayment of Debt thereof as of
      the last day of such period.

      "Unconsolidated Cash Interest Expense" means, with respect to each
Unconsolidated Entity, for any period, the greater of the following clause (a)
or clause (b), as applicable, in each case determined, without duplication, in
accordance with GAAP:

            (a)   an amount equal to (i) the proportion of (A) the Debt of such
      Unconsolidated Entity guaranteed by the Parent or any Wholly-Owned
      Subsidiary thereof as of the last day of such period to (B) all Debt of
      such Unconsolidated Entity as of the

                                       10
<PAGE>
      last day of such period times (ii) the amount of Cash Interest Expense of
      such Unconsolidated Entity for such period, and

            (b)   an amount equal to (i) the percentage of the total amount of
      issued and outstanding capital stock, limited liability company interests,
      partnership interests, or other ownership interests of such Unconsolidated
      Entity owned by the Parent or any Wholly-Owned Subsidiary thereof as of
      the last day of such period times (ii) the amount of Cash Interest Expense
      of such Unconsolidated Entity for such period.

      "Unconsolidated EBITDA" means, with respect to each Unconsolidated Entity,
for any period, the greater of the following clause (a) or clause (b), as
applicable, in each case determined, without duplication, in accordance with
GAAP:

            (a)   an amount equal to (i) the proportion of (A) the Debt of such
      Unconsolidated Entity guaranteed by the Parent or any Wholly-Owned
      Subsidiary thereof as of the last day of such period to (B) all Debt of
      such Unconsolidated Entity as of the last day of such period times (ii)
      the amount of EBITDA of such Unconsolidated Entity for such period, and

            (b)   an amount equal to (i) the percentage of the total amount of
      issued and outstanding capital stock, limited liability company interests,
      partnership interests, or other ownership interests of such Unconsolidated
      Entity owned by the Parent or any Wholly-Owned Subsidiary thereof as of
      the last day of such period times (ii) the amount of EBITDA of such
      Unconsolidated Entity for such period.

      "Unconsolidated Entity" means any Hospital Joint Venture the financial
information with respect to which is not included in the Consolidated financial
statements of the Parent and its Subsidiaries required to be delivered pursuant
to Section 10(a)(i) hereof.

      "Unconsolidated Lease Expense" means, with respect to each Unconsolidated
Entity, for any period, the greater of the following clause (a) or clause (b),
as applicable, in each case determined, without duplication, in accordance with
GAAP:

            (a)   an amount equal to (i) the proportion of (A) the Debt of such
      Unconsolidated Entity guaranteed by the Parent or any Wholly-Owned
      Subsidiary thereof as of the last day of such period to (B) all Debt of
      such Unconsolidated Entity as of the last day of such period times (ii)
      the amount of Lease Expense of such Unconsolidated Entity for such period,
      and

            (b)   an amount equal to (i) the percentage of the total amount of
      issued and outstanding capital stock, limited liability company interests,
      partnership interests, or other ownership interests of such Unconsolidated
      Entity owned by the Parent or any Wholly-Owned Subsidiary thereof as of
      the last day of such period times (ii) the amount of Lease Expense of such
      Unconsolidated Entity for such period.

                                       11
<PAGE>
      "Unconsolidated Permanent Principal Payments" means, with respect to each
Unconsolidated Entity, for any period, the greater of the following clause (a)
or clause (b), as applicable, in each case determined, without duplication, in
accordance with GAAP:

            (a)   an amount equal to (i) the proportion of (A) the Debt of such
      Unconsolidated Entity guaranteed by the Parent or any Wholly-Owned
      Subsidiary thereof as of the last day of such period to (B) all Debt of
      such Unconsolidated Entity as of the last day of such period times (ii)
      the amount of Permanent Principal Payments of such Unconsolidated Entity
      for such period, and

            (b)   an amount equal to (i) the percentage of the total amount of
      issued and outstanding capital stock, limited liability company interests,
      partnership interests, or other ownership interests of such Unconsolidated
      Entity owned by the Parent or any Wholly-Owned Subsidiary thereof as of
      the last day of such period times (ii) the amount of Permanent Principal
      Payments of such Unconsolidated Entity for such period.

      "Wholly-Owned" means, with respect to a Subsidiary, that all of the shares
of capital stock or other ownership interests of such Subsidiary are, directly
or indirectly, owned or controlled by the Parent and/or one or more of its
Wholly-Owned Subsidiaries (except for directors' qualifying shares or other
shares required by Applicable Law to be owned by a Person other than the
Parent).

      (b)   General. Unless otherwise specified, a reference in this Guaranty to
a particular article, section, subsection, schedule or exhibit is a reference to
that article, section, subsection, schedule or exhibit of this Guaranty.
Wherever from the context it appears appropriate, each term stated in either the
singular or plural shall include the singular and plural, and pronouns stated in
the masculine, feminine or neuter gender shall include the masculine, the
feminine and the neuter. Any reference herein to "Charlotte time" shall refer to
the applicable time of day in Charlotte, North Carolina.

      (c)   Reference to Agreement. The words "hereof", "herein" and "hereunder"
and words of similar import when used in this Guaranty shall refer to this
Guaranty as a whole and not to any particular provision of this Guaranty.

      SECTION 2. Terms of the Guaranty.

            (a)   Guaranty of Obligations. Each Guarantor hereby, jointly and
      severally with the other Guarantors, unconditionally guarantees to the
      Administrative Agent for the ratable benefit of itself and the Lenders,
      and their respective permitted successors, endorsees, transferees and
      assigns, the prompt payment (whether at stated maturity, by acceleration
      or otherwise) and performance of all Obligations of the Borrower, whether
      primary or secondary (whether by way of endorsement or otherwise), whether
      now existing or hereafter arising, whether or not from time to time
      reduced or extinguished (except by payment thereof) or hereafter increased
      or incurred, whether or not recovery may be or hereafter become barred by
      the statute of limitations, whether enforceable or unenforceable as
      against the Borrower, whether or not discharged, stayed or

                                       12
<PAGE>
      otherwise affected by any bankruptcy, insolvency or other similar law or
      proceeding, whether created directly with the Administrative Agent or any
      Lender or acquired by the Administrative Agent or any Lender through
      assignment, endorsement or otherwise, whether matured or unmatured,
      whether joint or several, as and when the same become due and payable
      (whether at maturity or earlier, by reason of acceleration, mandatory
      repayment or otherwise), in accordance with the terms of any such
      instruments evidencing any such Obligations, including all renewals,
      extensions or modifications thereof.

            (b)   Additional Guaranty of Performance. Additionally, each
      Guarantor hereby, jointly and severally with the other Guarantors,
      unconditionally guarantees to the Administrative Agent for the ratable
      benefit of itself and the Lenders, and their respective permitted
      successors, endorsees, transferees and assigns, the timely performance of
      all other obligations of Borrower under the Loan Agreement and the other
      Loan Documents, including, without limiting the generality of the
      foregoing, that:

                  (i)   the Improvements will be constructed upon the Land in
            accordance with this Agreement and the Plans; and

                  (ii)  the Improvements will be completed and ready for
            occupancy, including delivery of any certificates required by
            Applicable Law, the Loan Agreement and the other Loan Documents, on
            or before the date required in the Loan Agreement and the other Loan
            Documents.

      In the event the foregoing conditions are not complied with in any respect
      whatsoever, the Guarantors hereby agree to (i) assume all responsibility
      for the completion of the Improvements and, at the Guarantors' own cost
      and expense, to cause the Improvements to be fully completed in accordance
      with the Plans and in accordance with the Loan Agreement and the other
      Loan Documents; (ii) pay all bills in connection with the construction of
      the Improvements; and (iii) indemnify and hold the Administrative Agent
      and the Lenders harmless from any and all loss, cost, liability or expense
      that the Administrative Agent or the Lenders may suffer by reason of any
      such event (except with respect to the willful misconduct or the gross
      negligence of the Administrative Agent or the Lenders). The Administrative
      Agent shall accept performance by the Guarantors of the Borrower's
      obligations under the Loan Agreement and the other Loan Documents, and so
      long as all of said obligations are being performed by the Borrower or the
      Guarantors, the Administrative Agent will make the proceeds of the
      Construction Loan Advances available under the terms of the Loan
      Agreement. If, after the occurrence of a Default or Event of Default, the
      Required Lenders are not satisfied with the progress of construction by
      the Borrower and/or the Guarantors, the Administrative Agent shall, if
      required by the Required Lenders, and on behalf of Lenders, after first
      having given notice to the Guarantors at the address and in the manner set
      forth in Section 12.1 of the Loan Agreement, complete the Improvements
      either before or after commencement of foreclosure proceedings or before
      or after any other remedy

                                       13
<PAGE>
      of the Administrative Agent or the Lenders against the Borrower or the
      Guarantors, with such changes or modifications in the Plans which the
      Administrative Agent reasonably deems necessary and expend such sums as
      the Administrative Agent, in its discretion, reasonably deems necessary
      and proper in order to so complete the Improvements, and the Guarantors
      hereby waive any right to contest any such reasonably necessary
      expenditures. The amount of any and all expenditures made by the
      Administrative Agent for the foregoing purposes shall be due and payable
      to the Lenders upon demand and accrue interest at a rate two percent (2%)
      per annum above the rate then applicable under the Construction Loan Notes
      (or that would be applicable under the Construction Loan Notes if they
      were still outstanding). Neither the Borrower nor any Guarantor shall be
      liable to the Lenders for the cost of completing the Improvements to the
      extent that the aggregate cost of completing the Improvements exceeds the
      Aggregate Commitment, provided the entire principal of and interest on the
      Construction Loan Advances shall have been paid in full. The obligations
      and liability of the Guarantors under this Section 2(b) shall not be
      limited or restricted by the existence of (or any limitation on) the
      guaranty of payment under Section 2(a). For the purposes hereof, all of
      the Obligations of the Borrower to the Administrative Agent or any Lender
      under the Loan Agreement and the other Loan Documents, including all of
      the Obligations specified in Section 2(a) and this Section 2(b), shall be
      hereinafter collectively referred to as the "Guaranteed Obligations".

            (c)   Bankruptcy Limitations on Guarantors. Notwithstanding anything
      to the contrary contained in paragraph (a) above, it is the intention of
      each Guarantor and the Lenders that, in any proceeding involving the
      bankruptcy, reorganization, arrangement, adjustment of debts, relief of
      debtors, dissolution or insolvency or any similar proceeding with respect
      to any Guarantor or its assets, the amount of such Guarantor's obligations
      with respect to the Guaranteed Obligations shall be in, but not in excess
      of, the maximum amount thereof not subject to avoidance or recovery by
      operation of any Applicable Insolvency Laws. To that end, but only in the
      event and to the extent that such Guarantor's obligations with respect to
      the Guaranteed Obligations or any payment made pursuant to the Guaranteed
      Obligations would, but for the operation of the first sentence of this
      Section 2(c), be subject to avoidance or recovery in any such proceeding
      under Applicable Insolvency Laws, the amount of such Guarantor's
      obligations with respect to the Guaranteed Obligations shall be limited to
      the largest amount which, after giving effect thereto, would not, under
      Applicable Insolvency Laws, render such Guarantor's obligations with
      respect to such Guaranteed Obligations unenforceable or avoidable or
      otherwise subject to recovery under Applicable Insolvency Laws. To the
      extent any payment actually made pursuant to the Guaranteed Obligations
      exceeds the limitation of the first sentence of this Section 2(c) and is
      otherwise subject to avoidance and recovery in any such proceeding under
      Applicable Insolvency Laws, the amount subject to avoidance shall in all
      events be limited to the amount by which such actual payment exceeds such
      limitation and the Guaranteed Obligations as limited by the first sentence
      of this Section 2(c) shall in all events remain in full force and effect

                                       14
<PAGE>
      and be fully enforceable against such Guarantor. The first sentence of
      this Section 2(c) is intended solely to preserve the rights of the
      Administrative Agent hereunder against such Guarantor in such proceeding
      to the maximum extent permitted by Applicable Insolvency Laws and neither
      such Guarantor, the Borrower, any other guarantor nor any other Person
      shall have any right or claim under such sentence that would not otherwise
      be available under Applicable Insolvency Laws in such proceeding.

            (d)   Mutual Grant of Present Right of Contribution and Indemnity.
      To the extent that the value as of the time of execution of this Guaranty
      of the benefits received by any Guarantor by reason of matters stated in
      the preamble (whether determined under a standard of "fair value,"
      "reasonably equivalent value" or any other valuation standard under
      Applicable Law) is less than the sum of the Guaranteed Obligations
      incurred by such Guarantor to the Administrative Agent and the Lenders
      plus such Guarantor's liability under this Section 2(d), then subject only
      to Section 15 hereof and in addition to all other rights and remedies such
      Guarantor has or may have under Applicable Law, each remaining Guarantor
      respectively agrees that such Guarantor has the present right to recover
      the amount of such excess from the remaining Guarantors, which right shall
      be enforceable jointly and severally against the remaining Guarantors to
      the full extent that the Guaranteed Obligations are enforceable against
      such Guarantor. Without limiting the foregoing, in the event any Guarantor
      is required, by reason of this Guaranty, to pay an amount in excess of the
      value of the benefit such Guarantor is deemed to have received by reason
      of matters described in the preamble of this Guaranty, the remaining
      Guarantors jointly and severally agree to pay such Guarantor, upon demand,
      the amount of such excess. Subject only to the provisions of Section 15
      hereof, such Guarantor shall be subrogated to any and all rights of the
      Administrative Agent and the Lenders against the remaining Guarantors to
      the extent of such excess payment.

      SECTION 3.        Nature of Guaranty. Each Guarantor agrees that this
Guaranty is a continuing, unconditional guaranty of payment and performance and
not of collection, and that its obligations under this Guaranty shall be
primary, absolute and unconditional, irrespective of, and unaffected by:

            (a)   the genuineness, validity, regularity, enforceability or any
      future amendment of, or change in, this Guaranty, the Loan Agreement or
      any other Loan Document or any other agreement, document or instrument to
      which the Borrower, any Subsidiary thereof or any Affiliate thereof is or
      may become a party;

            (b)   the absence of any action to enforce this Guaranty, the Loan
      Agreement or any other Loan Document or the waiver or consent by the
      Administrative Agent or any Lender with respect to any of the provisions
      of this Guaranty, the Loan Agreement or any other Loan Document;

                                       15
<PAGE>
            (c)   the existence, value or condition of, or failure to perfect
      its Lien against, any security (including, without limitation, the
      Collateral) for or other guaranty of the Guaranteed Obligations or any
      action, or the absence of any action, by the Administrative Agent or any
      Lender in respect of such security or guaranty (including, without
      limitation, the release of any such security or guaranty);

            (d)   any structural change in, restructuring of or other similar
      change of the Borrower or any of its Subsidiaries; or

            (e)   any other action or circumstances which might otherwise
      constitute a legal or equitable discharge or defense of a surety or
      guarantor;

it being agreed by each Guarantor that, subject to the first sentence in Section
2(c) hereof, its obligations under this Guaranty shall not be discharged until
the final indefeasible payment and performance, in full, of the Guaranteed
Obligations and the termination of the Aggregate Commitment. To the extent
permitted by Applicable Law, each Guarantor expressly waives all rights it may
now or in the future have under any statute (including, without limitation,
North Carolina General Statutes Section 26-7, et seq. or similar law), or at law
or in equity, or otherwise, to compel the Administrative Agent or any Lender to
proceed in respect of the Guaranteed Obligations against the Borrower or any
other party or against any security (including, without limitation, the
Collateral) for or other guaranty of the payment and performance of the
Guaranteed Obligations before proceeding against, or as a condition to
proceeding against, such Guarantor. To the extent permitted by Applicable Law,
each Guarantor further expressly waives and agrees not to assert or take
advantage of any defense based upon the failure of the Administrative Agent or
any Lender to commence an action in respect of the Guaranteed Obligations
against the Borrower, such Guarantor, any other guarantor or any other Person or
any security (including, without limitation, the Collateral) for the payment and
performance of the Guaranteed Obligations. Each Guarantor agrees that any notice
or directive given at any time to the Administrative Agent or any Lender which
is inconsistent with the waivers in the preceding two sentences shall be null
and void and may be ignored by the Administrative Agent or such Lender, and, in
addition, may not be pleaded or introduced as evidence in any litigation
relating to this Guaranty for the reason that such pleading or introduction
would be at variance with the written terms of this Guaranty, unless the
Administrative Agent and the Required Lenders have specifically agreed otherwise
in writing. The foregoing waivers are of the essence of the transaction
contemplated by the Loan Agreement and the other Loan Documents and, but for
this Guaranty and such waivers, the Administrative Agent and the Lenders would
decline to enter into the Loan Agreement and the other Loan Documents.

      SECTION 4.        Demand by the Administrative Agent. In addition to the
terms set forth in Section 3 hereof, and in no manner imposing any limitation on
such terms, if all or any portion of the then outstanding Guaranteed Obligations
under the Loan Agreement are declared to be immediately due and payable, then
the Guarantors shall, upon demand in writing therefor by the Administrative
Agent to the Guarantors, pay all or such portion of the outstanding Guaranteed
Obligations then declared due and payable. Payment by the Guarantors shall be

                                       16
<PAGE>
made to the Administrative Agent, to be credited and applied upon the Guaranteed
Obligations, in immediately available Dollars to an account designated by the
Administrative Agent or at the address referenced herein for the giving of
notice to the Administrative Agent or at any other address that may be specified
in writing from time to time by the Administrative Agent.

      SECTION 5.        Waivers. In addition to the waivers contained in Section
3 hereof, each Guarantor, to the extent permitted by Applicable Law, waives and
agrees that it shall not at any time insist upon, plead or in any manner
whatever claim or take the benefit or advantage of, any appraisal, valuation,
stay, extension, marshalling of assets or redemption laws, or exemption, whether
now or at any time hereafter in force, which may delay, prevent or otherwise
affect the performance by such Guarantor of its obligations under, or the
enforcement by the Administrative Agent or the Lenders of, this Guaranty. Each
Guarantor further hereby waives, to the extent permitted by Applicable Law,
diligence, presentment, demand, protest and notice (except as specifically
required herein) of whatever kind or nature with respect to any of the
Guaranteed Obligations and waives, to the extent permitted by Applicable Law,
the benefit of all provisions of law which are or might be in conflict with the
terms of this Guaranty. Each Guarantor represents, warrants and agrees that its
obligations under this Guaranty are not and shall not be subject to any
counterclaims, offsets or defenses of any kind against the Administrative Agent,
the Lenders or the Borrower whether now existing or which may arise in the
future.

      SECTION 6.        Benefits of Guaranty. The provisions of this Guaranty
are for the benefit of the Administrative Agent and the Lenders and their
respective permitted successors, transferees, endorsees and assigns, and nothing
herein contained shall impair, as between the Borrower, the Administrative Agent
and the Lenders, the obligations of the Borrower under the Loan Documents. In
the event all or any part of the Guaranteed Obligations are transferred,
endorsed or assigned by the Administrative Agent or any Lender to any Person or
Persons as permitted under the Loan Agreement, any reference to the
"Administrative Agent", or the "Lenders" herein shall be deemed to refer equally
to such Person or Persons.

      SECTION 7.        Modification of Loan Documents etc. If the
Administrative Agent or the Lenders shall at any time or from time to time, with
or without the consent of, or notice to, the Guarantors:

            (f)   change or extend the manner, place or terms of payment of, or
      renew or alter all or any portion of, the Guaranteed Obligations;

            (g)   take any action under or in respect of the Loan Agreement or
      the other Loan Documents in the exercise of any remedy, power or privilege
      contained therein or available to it at law, in equity or otherwise, or
      waive or refrain from exercising any such remedies, powers or privileges;

            (h)   amend or modify, in any manner whatsoever, the Loan Agreement
      or the other Loan Documents;

                                       17
<PAGE>
            (i)   extend or waive the time for performance by any Guarantor, any
      other guarantor, the Borrower or any other Person of, or compliance with,
      any term, covenant or agreement on its part to be performed or observed
      under the Loan Agreement or any other Loan Document, or waive such
      performance or compliance or consent to a failure of, or departure from,
      such performance or compliance;

            (j)   take and hold security or collateral (including, without
      limitation, the Collateral) for the payment of the Guaranteed Obligations
      or sell, exchange, release, dispose of, or otherwise deal with, any
      property (including, without limitation, the Collateral) pledged,
      mortgaged or conveyed, or in which the Administrative Agent or the Lenders
      have been granted a Lien, to secure any Debt of any Guarantor, any other
      guarantor or the Borrower to the Administrative Agent or the Lenders;

            (k)   release anyone who may be liable in any manner for the payment
      of any amounts owed by any Guarantor, any other guarantor or the Borrower
      to the Administrative Agent or any Lender;

            (l)   modify or terminate the terms of any intercreditor or
      subordination agreement pursuant to which claims of other creditors of any
      Guarantor, any other guarantor or the Borrower are subordinated to the
      claims of the Administrative Agent or any Lender; or

            (m)   apply any sums by whomever paid or however realized to any
      Guaranteed Obligations owing by any Guarantor, any other guarantor or the
      Borrower to the Administrative Agent or any Lender in such manner as the
      Administrative Agent or any Lender shall determine in its reasonable
      discretion;

then neither the Administrative Agent nor any Lender shall incur any liability
to any Guarantor as a result thereof, and no such action shall impair or release
the obligations of any Guarantor under this Guaranty.

      SECTION 8.        Reinstatement. Each Guarantor agrees that, if any
payment made by the Borrower or any other Person applied to the Obligations is
at any time annulled, set aside, rescinded, invalidated, declared to be
fraudulent or preferential or otherwise required to be refunded or repaid or the
proceeds of any collateral are required to be refunded by the Administrative
Agent or any Lender to the Borrower, its estate, trustee, receiver or any other
party, including, without limitation, any Guarantor, under any Applicable Law or
equitable cause, then, to the extent of such payment or repayment, each
Guarantor's liability hereunder (and any Lien securing such liability) shall be
and remain in full force and effect, as fully as if such payment had never been
made, and, if prior thereto, this Guaranty shall have been canceled or
surrendered (and if any Lien or collateral securing such Guarantor's liability
hereunder shall have been released or terminated by virtue of such cancellation
or surrender), this Guaranty (and such Lien) shall be reinstated in full force
and effect, and such prior cancellation or surrender

                                       18
<PAGE>
shall not diminish, release, discharge, impair or otherwise affect the
obligations of such Guarantor in respect of the amount of such payment (or any
Lien securing such obligation).

      SECTION 9.        Representations and Warranties.

      (a)   Representations and Warranties. To induce the Lenders to make the
Construction Loan Advances, each Guarantor hereby represents and warrants to the
Administrative Agent and the Lenders both before and after giving effect to the
transactions contemplated under the Loan Agreement:

            (i)   Ownership. Each Subsidiary and each Hospital Joint Venture
      owned by the Parent, either directly or indirectly, is listed on Schedule
      9(a)(i) (as updated from time to time pursuant to Section 11(j)). As of
      the Closing Date, the capitalization of the Parent, its Subsidiaries and
      each Hospital Joint Venture consists of the number of shares or other
      ownership interests, authorized, issued and outstanding, of such classes
      and series, with or without par value, described on Schedule 9(a)(i). All
      outstanding shares or other ownership interests have been duly authorized
      and validly issued and are fully paid and nonassessable, with no personal
      liability attaching to the ownership thereof, and not subject to any
      preemptive or similar rights. The shareholders of the Subsidiaries and the
      Hospital Joint Ventures owned by the Parent, either directly or
      indirectly, and the number of shares or other ownership interests owned by
      each as of the Closing Date are described on Schedule 9(a)(i). As of the
      Closing Date, there are no outstanding stock purchase warrants,
      subscriptions, options, securities, instruments or other rights of any
      type or nature whatsoever, which are convertible into, exchangeable for or
      otherwise provide for or permit the issuance of capital stock or other
      ownership interests of the Parent, any Subsidiary, or any Hospital Joint
      Venture except as described on Schedule 9(a)(i).

            (ii)  Organization; Power; Qualification. Each Guarantor is duly
      organized, validly existing and in good standing under the laws of the
      jurisdiction of its incorporation or formation, has the power and
      authority to own its properties and to carry on its business as now being
      and hereafter proposed to be conducted and is duly qualified and
      authorized to do business in each jurisdiction in which the character of
      its properties or the nature of its business requires such qualification
      and authorization, except where the failure to so qualify could not
      reasonably be expected to have a Material Adverse Effect. The
      jurisdictions in which each Guarantor is organized and qualified to do
      business as of the Closing Date are described on Schedule 9(a)(ii) (as
      updated from time to time pursuant to Section 11(j)).

            (iii) Authorization of Guaranty and Loan Documents. Each Guarantor
      has the corporate or limited liability company right, power and authority
      to execute, deliver and perform this Guaranty and each of the other Loan
      Documents to which such Guarantor is a party and has taken all necessary
      corporate or limited liability company action to authorize its execution,
      delivery and

                                       19
<PAGE>
      performance of, this Guaranty and each of the other Loan Documents to
      which such Guarantor is a party.

            (iv)  Enforceability of Guaranty and Loan Documents. This Guaranty
      and each of the other Loan Documents to which each Guarantor is a party
      constitutes the legal, valid and binding obligation of such Guarantor
      enforceable in accordance with its terms, except as enforceability may be
      limited by bankruptcy, insolvency, reorganization, moratorium or similar
      laws affecting the enforcement of creditors' rights generally and by the
      availability of equitable remedies.

            (v)   Compliance with Laws, Etc. The execution, delivery and
      performance of this Guaranty and each of the other Loan Documents to which
      each Guarantor is a party will not violate any Applicable Law or
      contractual obligation of such Guarantor and will not result in the
      creation or imposition of any Lien upon or with respect to any property or
      revenues of such Guarantor.

            (vi)  Consents and Authorizations. No consent or authorization of,
      filing with, or other act by or in respect of, any arbitrator or
      Governmental Authority and no consent of any other Person (including,
      without limitation, any stockholder or creditor of each Guarantor), is
      required in connection with the execution, delivery, performance, validity
      or enforceability of this Guaranty or any of the other Loan Documents to
      which such Guarantor is a party, other than the approval of the board of
      directors of each Guarantor (which approval has been obtained prior to the
      date hereof).

            (vii) Litigation. Except for matters set forth on Schedule
      9(a)(vii), no actions, suits or proceedings before any arbitrator or
      Governmental Authority are pending or, to the knowledge of each Guarantor,
      threatened by or against such Guarantor or against any of its properties
      with respect to this Guaranty, any other Loan Document or any of the
      transactions contemplated hereby or thereby which could reasonably be
      expected to have a Material Adverse Effect.

            (viii) Title to Properties. Each Guarantor has such title to the
      real property owned by it and a valid leasehold interest in the real
      property leased by it, and has good and marketable title to all of its
      personal property sufficient to carry on its business free of any and all
      Liens of any type whatsoever.

            (ix)  Solvency. As of the Closing Date (or such later date upon
      which such Guarantor became a party hereto), each Guarantor (A) has
      capital sufficient to carry on its business and transactions and all
      business and transactions in which it engages and is able to pay its debts
      as they mature, (B) owns property having a value, both at fair valuation
      and at present fair saleable value on a going concern basis, greater than
      the amount required to pay its probable liabilities (including
      contingencies) and (C) does not believe that it will incur debts or
      liabilities

                                       20
<PAGE>
      beyond its ability to pay such debts or liabilities as they mature,
      subject in each case to the first sentence in Section 2(c) hereof.

            (x)   Financial Statements. The (A) audited Consolidated balance
      sheet of the Parent and its Subsidiaries as of September 30, 2000 and the
      related audited statements of income and retained earnings and cash flows
      for the Fiscal Year of the Parent and its Subsidiaries then ended and (B)
      unaudited Consolidated balance sheet of the Parent and its Subsidiaries as
      of June 30, 2001 and the related unaudited statements of income and
      retained earnings and cash flows for the fiscal quarter of the Parent and
      its Subsidiaries then ended, copies of which has been furnished to
      Administrative Agent and the Lenders, are complete and correct in all
      material respects and fairly present on a Consolidated basis the assets,
      liabilities and financial position of the Parent and its Subsidiaries as
      of such dates and the results of its operations and cash flows for the
      periods then ended.

            (xi)  No Material Adverse Change. Since September 30, 2000, there
      has been no Material Adverse Effect with respect to any Guarantor or the
      Guarantors taken as a whole, as applicable, and no event has occurred or
      condition arisen that could reasonably be expected to have a Material
      Adverse Effect.

            (xii) Tax Returns and Payments. Each Guarantor has duly filed or
      caused to be filed all federal, state, local and other tax returns
      required by Applicable Law to be filed, and has paid, or made adequate
      provision for the payment of, all federal, state, local and other material
      taxes, assessments and governmental charges or levies upon it and its
      property, income, profits and assets which are due and payable, except for
      taxes (i) that are not yet delinquent or (ii) that are being contested in
      good faith and against which adequate reserves are being maintained in
      accordance with GAAP; such returns accurately reflect in all material
      respects all liability for taxes of such Guarantor for the periods covered
      thereby; there is no ongoing audit or examination or, to the knowledge of
      the such Guarantor, other investigation by any Governmental Authority of
      the tax liability of such Guarantor; no Governmental Authority has
      asserted any Lien or other claim against such Guarantor with respect to
      unpaid taxes which has not been discharged or resolved; and the charges,
      accruals and reserves on the books of such Guarantor in respect of
      federal, state, local and other taxes for all Fiscal Years and portions
      thereof since the organization of such Guarantor are in the judgment of
      such Guarantor adequate, and such Guarantor does not anticipate any
      additional material taxes or assessments for any of such periods.

            (xiii) Environmental Matters.

                  (A)   The properties owned, leased or operated by each
            Guarantor now or in the past do not contain, and to its knowledge
            have not previously contained, any Hazardous Materials in amounts or
            concentrations which (1) constitute or constituted a material
            violation of applicable Environmental

                                       21
<PAGE>
            Laws or (2) could give rise to a material liability under applicable
            Environmental Laws;

                  (B)   Each Guarantor and such properties and all operations
            conducted in connection therewith are in compliance in all material
            respects with all applicable Environmental Laws, and there is no
            contamination at, under or about such properties or such operations
            which could reasonably interfere with the continued operation of
            such properties or impair the fair saleable value thereof;

                  (C)   No Guarantor has received any notice of violation,
            alleged violation, non-compliance, liability or potential liability
            regarding environmental matters, Hazardous Materials, or compliance
            with Environmental Laws from (A) any Governmental Authority or (B)
            to the extent any such violation, alleged violation, non-compliance,
            liability or potential liability could reasonably be expected to
            have a Material Adverse Effect, any other Person, nor does any
            Guarantor have knowledge or reason to believe that any such notice
            will be received or is being threatened;

                  (D)   Hazardous Materials have not been transported or
            disposed of to or from the properties owned, leased or operated by
            of any Guarantor in violation of, or in a manner or to a location
            which could give rise to a material liability under, Environmental
            Laws, nor have any Hazardous Materials been generated, treated,
            stored or disposed of at, on or under any of such properties in
            violation of, or in a manner that could give rise to a material
            liability under, any applicable Environmental Laws;

                  (E)   No judicial proceedings or governmental or
            administrative action is pending, or, to the knowledge of any
            Guarantor, threatened, under any Environmental Law to which such
            Guarantor is or will be named as a potentially responsible party
            with respect to such properties or operations conducted in
            connection therewith, nor are there any consent decrees or other
            decrees, consent orders, administrative orders or other orders, or
            other administrative or judicial requirements outstanding under any
            Environmental Law with respect to such Guarantor or such properties
            or such operations; and

                  (F)   There has been no release, or to the best of any
            Guarantor's knowledge, threat of release, of Hazardous Materials at
            or from properties owned, leased or operated by such Guarantor, now
            or in the past, in violation of or in amounts or in a manner that
            could give rise to a material liability under Environmental Laws.

                                       22
<PAGE>
            (xiv) ERISA.

                  (A)   The Parent and each ERISA Affiliate is in material
            compliance with all applicable provisions of ERISA and the
            regulations and published interpretations thereunder with respect to
            all Employee Benefit Plans except for any required amendments for
            which the remedial amendment period as defined in Section 401(b) of
            the Code has not yet expired and except where a failure to so comply
            could not reasonably be expected to have a Material Adverse Effect.
            Each Employee Benefit Plan that is intended to be qualified under
            Section 401(a) of the Code has been determined by the Internal
            Revenue Service to be so qualified, and each trust related to such
            plan has been determined to be exempt under Section 501(a) of the
            Code except for such plans that have not yet received determination
            letters but for which the remedial amendment period for submitting a
            determination letter has not yet expired. No liability has been
            incurred by the Parent or any ERISA Affiliate which remains
            unsatisfied for any taxes or penalties with respect to any Employee
            Benefit Plan or any Multiemployer Plan except for a liability that
            could not reasonably be expected to have a Material Adverse Effect;

                  (B)   As of the Closing Date, no Pension Plan has been
            terminated, nor has any accumulated funding deficiency (as defined
            in Section 412 of the Code) been incurred (without regard to any
            waiver granted under Section 412 of the Code), nor has any funding
            waiver from the Internal Revenue Service been received or requested
            with respect to any Pension Plan, nor has the Parent or any ERISA
            Affiliate failed to make any contributions or to pay any amounts due
            and owing as required by Section 412 of the Code, Section 302 of
            ERISA or the terms of any Pension Plan prior to the due dates of
            such contributions under Section 412 of the Code or Section 302 of
            ERISA, nor has there been any event requiring any disclosure under
            Section 4041(c)(3)(C) or 4063(a) of ERISA with respect to any
            Pension Plan;

                  (C)   Except where the failure of any of the following
            representations to be correct in all material respects could not
            reasonably be expected to have a Material Adverse Effect, neither
            the Parent nor any ERISA Affiliate has: (1) engaged in a nonexempt
            prohibited transaction described in Section 406 of the ERISA or
            Section 4975 of the Code, (2) incurred any liability to the PBGC
            which remains outstanding other than the payment of premiums and
            there are no premium payments which are due and unpaid, (3) failed
            to make a required contribution or payment to a Multiemployer Plan,
            or (4) failed to make a required installment or other required
            payment under Section 412 of the Code;

                  (D)   No Termination Event has occurred or is reasonably
            expected to occur; and

                                       23
<PAGE>
                  (E)   Except where the failure of any of the following
            representations to be correct in all material respects could not
            reasonably be expected to have a Material Adverse Effect, no
            proceeding, claim (other than a benefits claim in the ordinary
            course of business), lawsuit and/or investigation is existing or, to
            the best knowledge of the Parent after due inquiry, threatened
            concerning or involving any (1) employee welfare benefit plan (as
            defined in Section 3(1) of ERISA) currently maintained or
            contributed to by the Parent or any ERISA Affiliate, (2) Pension
            Plan or (3) Multiemployer Plan.

            (xv)  Accuracy and Completeness of Information. All written
      information, reports, statements and other papers and data produced by or
      on behalf of the Parent or any Subsidiary thereof and furnished to the
      Administrative Agent or any Lender in connection with this Guaranty, or
      any of the other Loan Documents, were, at the time the same were so
      furnished, complete and correct in all material respects to the extent
      necessary to give the Administrative Agent or any Lender complete, true
      and accurate knowledge of the subject matter based on Parent's knowledge
      thereof (other than projections, budgets or other estimates which shall be
      determined in good faith utilizing reasonable assumptions). No document
      furnished or written statement made to the Administrative Agent or the
      Lenders by the Parent or any Subsidiary thereof in connection with the
      negotiation, preparation or execution of this Guaranty or any of the Loan
      Documents contains or will contain any untrue statement of a fact material
      to the creditworthiness of the Parent or its Subsidiaries or omits or will
      omit to state a fact necessary in order to make the statements contained
      therein not misleading to the extent material to the creditworthiness of
      the Parent or its Subsidiaries. The Parent is not aware of any facts which
      it has not disclosed in writing to the Administrative Agent having a
      Material Adverse Effect, or insofar as the Parent can now foresee, which
      could reasonably be expected to have a Material Adverse Effect.

      (b)   Survival of Representations and Warranties, Etc. All representations
and warranties set forth in this Section 9 and all representations and
warranties of the Guarantors contained in any certificate, or any of the Loan
Documents (including, but not limited to, any such representation or warranty
made in or in connection with any amendment thereto) shall constitute
representations and warranties made under this Guaranty. All representations and
warranties made under this Guaranty shall be made or deemed to be made at and as
of the Closing Date (except those that are expressly made as of a specific
date), shall survive the Closing Date and shall not be waived by the execution
and delivery of this Guaranty, any investigation made by or on behalf of the
Lenders or any borrowing hereunder.

      SECTION 10.       Financial Information and Reports. Until all Obligations
have been finally and indefeasibly paid and satisfied in full and the
Commitments of the Lenders under the Loan Agreement have been terminated, unless
consent has been obtained in the manner provided for in Section 19, the Parent
will furnish, or cause to be furnished to the Administrative Agent and the
Lenders at their respective addresses as set forth on Schedule 1, or

                                       24
<PAGE>
such other office as may be designated by the Administrative Agent and the
Lenders from time to time:

      (a)   Financial Statements.

            (i)   Quarterly and Annual Financial Statements.

                  (A)   As soon as practicable and in any event within
            fifty-five (55) days after the end of each fiscal quarter, an
            unaudited Consolidated and consolidating balance sheet of the Parent
            and its Subsidiaries as of the close of such fiscal quarter and
            unaudited Consolidated and consolidating statements of income and
            expenses and cash flow for the fiscal quarter then ended and that
            portion of the Fiscal Year then ended, all in reasonable detail and
            prepared by the Parent and its Subsidiaries in accordance with GAAP
            and certified by a Responsible Officer of Parent to present fairly
            in all material respects the financial condition of the Parent and
            its Subsidiaries as of their respective dates and the results of
            operations of the Parent and its Subsidiaries for the respective
            periods then ended, subject to normal year end adjustments.

                  (B)   As soon as practicable and in any event within one
            hundred (100) days after the end of each Fiscal Year of Parent and
            its Subsidiaries, commencing with Fiscal Year ending September 30,
            2001, an audited Consolidated and unaudited consolidating balance
            sheet of Parent and its Subsidiaries as of the close of such Fiscal
            Year and audited Consolidated and unaudited consolidating statements
            of income and expenses, retained earnings and cash flows for the
            Fiscal Year then ended, including the notes thereto, all in
            reasonable detail and prepared in accordance with GAAP and
            accompanied by a report thereon prepared by Deloitte & Touche, LLP,
            or another independent certified public accounting firm of
            nationally recognized standing which is reasonably acceptable to the
            Administrative Agent, that such financial statements are not
            qualified with respect to scope limitations imposed by Parent and
            its Subsidiaries or with respect to accounting principles followed
            by Parent and its Subsidiaries not in accordance with GAAP.

            (ii)  Annual Forecasts. As soon as practicable and in any event no
      later than thirty (30) days after the beginning of each Fiscal Year, an
      annual forecast prepared by management of the Parent, in reasonable detail
      and in the form customarily prepared by management of the Parent for its
      internal use and setting forth an explanation for the principal
      assumptions on which such forecasts were based, of balance sheets, income
      statements and cash flow statements with respect to the Parent and its
      Subsidiaries on a quarterly basis for each Fiscal Year thereafter until
      the Maturity Date.

            (iii) SEC Reports. Promptly after the same become publicly
      available, copies of all periodic and other reports, proxy statements and
      other materials filed with the Securities and Exchange Commission, or any
      Governmental Authority succeeding to any or all of the functions of said
      Commission, or with any national securities exchange.

                                       25
<PAGE>
            (iv)  Other Information. Such other information regarding the
      operations, business affairs and financial condition of the Parent and its
      Subsidiaries as the Administrative Agent may reasonably request, in each
      case in the form regularly prepared by the Parent and its Subsidiaries (if
      applicable).

      (b)   Officer's Compliance Certificate. At each time financial statements
are delivered pursuant to Sections 10(a)(i)(A) or 10(a)(i)(B) and at such other
times as the Administrative Agent shall reasonably request a certificate of the
chief financial officer or the treasurer of Parent in the form of Exhibit B
attached hereto (an "Officer's Compliance Certificate"):

            (i)   stating that such officer has reviewed such financial
      statements and, to the best of his knowledge, such financial statements
      fairly present in all material respects the financial condition of the
      Parent and its Subsidiaries as of the dates indicated and the results of
      their operations and cash flows for the periods indicated;

            (ii)  stating that to such officer's knowledge, based on a
      reasonable examination, no Default or Event of Default exists, or, if such
      is not the case, specifying such Default or Event of Default and its
      nature, when it occurred, whether it is continuing and the steps being
      taken by the Parent and its Subsidiaries with respect to such Default;

            (iii) stating that Parent and its Subsidiaries are in compliance
      with the covenants and restrictions set forth in Section 11, Section 12
      and Section 13 of this Guaranty applicable to Parent and its Subsidiaries
      and, with respect to the covenants set forth in Section 12, the
      calculations applicable thereto; and

            (iv)  setting forth any other information reasonably required by the
      Administrative Agent to ensure compliance with this Guaranty.

      (c)   Accountant's Certificate. At each time financial statements are
delivered pursuant to Section 10(a)(i)(B), a certificate of the independent
public accountants certifying such financial statements addressed to the
Administrative Agent for the benefit of the Lenders:

            (i)   stating that in making the examination necessary for the
      certification of such financial statements, they obtained no knowledge of
      any Default or Event of Default or, if such is not the case, specifying
      such Default or Event of Default and its nature and period of existence;
      and

            (ii)  including the calculations prepared by such accountants
      required to establish whether or not the Parent and its Subsidiaries are
      in compliance with the financial covenants set forth in Section 12 hereof
      as at the end of each respective period.

                                       26
<PAGE>
      (d)   Other Reports.

            (i)   Accountants Reports. Promptly upon receipt thereof, copies of
      all reports, if any, submitted to the Parent or its Board of Directors by
      its independent public accountants in connection with their auditing
      function, including, without limitation, any management report and any
      management responses thereto.

            (ii)  Other Reports. Such other information regarding the
      operations, business affairs and financial condition of the Parent and its
      Subsidiaries as the Administrative Agent or any Lender may reasonably
      request.

      (e)   Notice of Litigation and Other Matters. Prompt (but in no event
later than ten (10) days after an officer of the Parent obtains knowledge
thereof) telephonic and written notice of:

            (i)   the commencement of all proceedings and investigations by or
      before any Governmental Authority and all actions and proceedings in any
      court or before any arbitrator against or involving the Parent or any
      Subsidiary thereof or any of its properties, assets or businesses which,
      individually or in the aggregate, could reasonably be expected to have a
      Material Adverse Effect;

            (ii)  any violation by the Parent or any Subsidiary thereof of any
      Applicable Law or any notice of any violation received by the Parent or
      any Subsidiary thereof from any Governmental Authority including, without
      limitation, any notice of violation of Environmental Laws, which in any
      such case could reasonably be expected to have a Material Adverse Effect;

            (iii) any labor controversy that has resulted in, or threatens to
      result in, a strike or other work action against the Parent or any
      Subsidiary thereof or any contractor or any material development in any
      labor controversy which if adversely determined could reasonably be
      expected to have a Material Adverse Effect;

            (iv)  any attachment, judgment, lien, levy or order exceeding
      $1,000,000 that may be assessed against the Parent or any Subsidiary
      thereof (to the extent such attachment, judgment, lien, levy or order is
      not fully covered by insurance and with respect to which the applicable
      insurance carrier has not acknowledged that such attachment, judgment,
      lien, levy or order is fully covered by insurance);

            (v)   (A) any Default or Event of Default or (B) any event which
      constitutes or which with the passage of time or giving of notice or both
      would constitute a default or event of default under any Material Contract
      to which the Parent or any Subsidiary thereof is a party or by which the
      Parent or any Subsidiary thereof or any of their respective properties may
      be bound which could reasonably be expected to have a Material Adverse
      Effect;

            (vi)  (A) any unfavorable determination letter from the Internal
      Revenue Service regarding the qualification of an Employee Benefit Plan
      under Section 401(a) of the Code (along with a copy thereof), (B) all
      notices received by the Parent or any ERISA Affiliate of

                                       27
<PAGE>
      the PBGC's intent to terminate any Pension Plan or to have a trustee
      appointed to administer any Pension Plan, (C) all notices received by the
      Parent or any ERISA Affiliate from a Multiemployer Plan sponsor concerning
      the imposition or amount of withdrawal liability pursuant to Section 4202
      of ERISA and (D) the Parent obtaining knowledge or reason to know that the
      Parent or any ERISA Affiliate has filed or intends to file a notice of
      intent to terminate any Pension Plan under a distress termination within
      the meaning of Section 4041(c) of ERISA; and

            (vii) any event which makes any of the representations set forth in
      Section 9 inaccurate in any respect.

      (f)   Accuracy of Information. All written information, reports,
statements and other papers and data furnished by or on behalf of the Parent or
its Subsidiaries to the Administrative Agent or any Lender pursuant to this
Section 10, or any other provision of this Guaranty or any of the other Loan
Documents, shall be, at the time the same is so furnished, in compliance with
the representations and warranties set forth in Section 9(a)(xv).

      SECTION 11.       Affirmative Covenants. Until all of the Obligations have
been paid and satisfied in full and the Commitments of the Lenders under the
Loan Agreement have been terminated, unless consent has been obtained in the
manner provided for in Section 19, each Guarantor will, and will cause each of
its Subsidiaries to:

      (a)   Preservation of Existence and Related Matters. Preserve and
maintain:

            (i)   its separate corporate existence, and will not sell, lease or
      otherwise dispose of all or substantially all of its business or assets;
      provided that any Subsidiary Guarantor may be merged or consolidated with
      or into, or be liquidated, wound up or dissolved, or all or substantially
      all of its business or assets may be conveyed, sold, assigned, leased,
      transferred or otherwise disposed of, in one transaction or a series of
      transactions, to the Parent, any other Subsidiary Guarantor or the
      Borrower; and

            (ii)  all rights, franchises, licenses and privileges necessary to
      the conduct of its business, and qualify and remain qualified to do
      business in each jurisdiction in which the failure to so qualify would
      have a Material Adverse Effect.

      (b)   Compliance with Laws and Approvals. Observe and remain in compliance
with all Applicable Laws and maintain in full force and effect all Governmental
Approvals, in each case applicable to the conduct of its business, except were
the failure to observe or comply could not reasonably be expected to have a
Material Adverse Effect.

      (c)   Compliance with Agreements. Comply in all respects with each term,
condition and provision of each Material Contract to which it is a party or by
which it is bound and with all other material leases, agreements and other
instruments entered into in the conduct of its business, except (i) where the
failure to so comply could not reasonably be expected to have a Material Adverse
Effect or (ii) where any such term, condition or provision is contested in good

                                       28
<PAGE>
faith through applicable proceedings and where adequate reserves are maintained
in accordance with GAAP.

      (d)   Maintenance of Properties. Protect and preserve all properties
useful in and material to its business, including copyrights, patents, trade
names, service marks and trademarks material to the conduct of its business;
maintain in good working order and condition, reasonable wear and tear and
casualty excepted, all buildings, items of equipment and other items of tangible
real and personal property material to the conduct of its business; and from
time to time make or cause to be made all renewals, replacements and additions
to such property necessary for the conduct of its business, so that the business
carried on in connection therewith may be properly conducted at all times.

      (e)   Accounting Methods and Financial Records. Maintain a system of
accounting, and keep such books, records and accounts (which shall be true and
complete in all material respects) as may be required or as may be necessary to
permit the preparation of financial statements in accordance with GAAP and in
compliance with the regulations of any Governmental Authority having
jurisdiction over it or any of its properties.

      (f)   Payment and Performance of Obligations. Pay and perform all
obligations under this Guaranty and the other Loan Documents, and pay or perform
(i) all taxes, assessments and other governmental charges that may be levied or
assessed upon it or any of its property, and (ii) all other indebtedness,
obligations and liabilities in accordance with customary trade practices;
provided, that each Guarantor and each of its Subsidiaries may contest any item
described in clauses (i) or (ii) of this Section 11(f) in good faith so long as
adequate reserves are maintained with respect thereto in accordance with GAAP.

      (g)   Visits and Inspections. Upon reasonable notice to the Parent (unless
there exists any Default or Event of Default), permit representatives of the
Administrative Agent or any Lender, from time to time, to visit and inspect its
properties and any materials thereon; inspect, audit and make extracts from its
books, records and files, including, but not limited to, management letters
prepared by independent accountants; and discuss with its principal officers,
and its independent accountants, its business, assets, liabilities, financial
condition, results of operations and business prospects.

      (h)   Insurance. Maintain insurance with financially sound and reputable
insurance companies against such risks and in such amounts as are customarily
maintained by similar businesses and as may be required by Applicable Law, and
on the Closing Date and from time to time thereafter deliver to the
Administrative Agent upon its request a detailed list of the insurance then in
effect, stating the names of the insurance companies, the amounts and rates of
the insurance, the dates of the expiration thereof and the properties and risks
covered thereby.

      (i)   Conduct of Business. Engage only in businesses in substantially the
same fields as the businesses conducted or proposed to be conducted in
accordance with business plans delivered to the Administrative Agent and the
Lenders on or prior to the Closing Date or in lines of business reasonably
related thereto.

                                       29
<PAGE>
      (j)   New Subsidiaries. Concurrently with the creation or acquisition of
any Subsidiary by the Parent (other than any Hospital Joint Venture) which is
not a "controlled foreign corporation" under Section 957 of the Code, cause such
Subsidiary to:

            (i)   execute a Joinder Agreement in substantially the same form as
      Exhibit A attached hereto; and

            (ii)  deliver to the Administrative Agent, with the Joinder
      Agreement, such other documentation as the Administrative Agent may
      reasonably request, including, certified resolutions and other
      organizational and authorizing documents of such Subsidiary, favorable
      opinions of counsel to such Subsidiary (which shall cover, among other
      things, the legality, validity, binding effect and enforceability of the
      Joinder Agreement), all in form and substance satisfactory to the
      Administrative Agent.

For the purposes of this Section 11(j), a Subsidiary shall not be deemed to have
been created or acquired until the earlier of (i) the date upon which such
Subsidiary begins to conduct business operations, (ii) the date upon which such
Subsidiary obtains assets with a fair market value in excess of $10,000.00 or
(iii) the date upon which such Subsidiary is initially capitalized.

      (k)   Transactions with Affiliates. Conduct all transactions otherwise
permitted under this Guaranty, the Loan Agreement and the other Loan Documents
with any of their Affiliates on terms that are fair and reasonable and no less
favorable to such Guarantor or such Subsidiary than it would obtain in a
comparable arm's length transaction with a Person not an Affiliate.

      (l)   Subordinated Working Capital Loan.

            (i)   Cause FinCo to make working capital advances to the Borrower
      in an amount necessary to ensure that the Borrower can meet all of its
      working capital and other general corporate needs (the "Working Capital
      Advances");

            (ii)  Immediately upon the request of the Administrative Agent or
      the Required Lenders, cause FinCo to make additional Working Capital
      Advances to the Borrower (in addition to any Working Capital Advances made
      to the Borrower pursuant to clause (i) above); provided that FinCo shall
      not be required to make such Working Capital Advances to the extent that
      the sum of (A) the aggregate amount of such Working Capital Advances plus
      (B) the aggregate amount of Subordinated Working Capital Loans outstanding
      as of any applicable date of determination would exceed $8,000,000; and

            (iii) Cause all Working Capital Advances to be subordinated pursuant
      to an Intercompany Loan Subordination Agreement in form and substance
      satisfactory to the Administrative Agent.

      SECTION 12.       Financial Covenants. Until all of the Obligations have
been paid and satisfied in full and the Commitments of the Lenders under the
Loan Agreement have been terminated, unless consent has been obtained in the
manner provided for in Section 19, the Parent and its Subsidiaries on a
Consolidated basis will not:

                                       30
<PAGE>
      (a)   Minimum Fixed Charge Ratio. As of the end of any fiscal quarter
during any period set forth in the table below, permit the ratio of:

            (i)   the sum of (A) Adjusted EBITDA for the period of four (4)
      consecutive fiscal quarters ending on or immediately prior to such date
      plus (B) the aggregate amount of Lease Expense of the Parent and its
      Subsidiaries for such period of four (4) consecutive fiscal quarters plus
      (C) Unconsolidated Lease Expense of the Unconsolidated Entities for such
      period of four (4) consecutive fiscal quarters minus (D) Lease Expense of
      the Developmental Pool (to the extent added above) for such period of four
      (4) consecutive fiscal quarters, to

            (ii)  the sum of:

                  (A)   the aggregate amount of Cash Interest Expense of the
            Parent and its Subsidiaries for such period of four (4) consecutive
            fiscal quarters plus the aggregate amount of Unconsolidated Cash
            Interest Expense of the Unconsolidated Entities for such period of
            four (4) consecutive fiscal quarters minus the aggregate amount of
            Cash Interest Expense of the Developmental Pool (to the extent added
            above) for such period of four (4) consecutive fiscal quarters minus
            the aggregate amount of Cash Interest Expense paid by the Parent,
            its Subsidiaries and each Unconsolidated Entity to FinCo for such
            period of four (4) consecutive fiscal quarters plus or minus the
            aggregate amount of certain adjustments related to Cash Interest
            Expense approved by the Administrative Agent and the Lenders as set
            forth on Schedule 12(a)(ii)(B); plus

                  (B)   the aggregate amount of Permanent Principal Payments of
            the Parent and its Subsidiaries for such period of four (4)
            consecutive fiscal quarters plus the aggregate amount of
            Unconsolidated Permanent Principal Payments of the Unconsolidated
            Entities for such period of four (4) consecutive fiscal quarters
            minus the aggregate amount of Permanent Principal Payments of the
            Developmental Pool (to the extent added above) for such period of
            four (4) consecutive fiscal quarters plus or minus the aggregate
            amount of certain adjustments related to Permanent Principal
            Payments approved by the Administrative Agent and the Lenders as set
            forth on Schedule 12(a)(ii)(B); plus

                  (C)   the aggregate amount of Lease Expense of the Parent and
            its Subsidiaries for such period of four (4) consecutive fiscal
            quarters plus the aggregate amount of Unconsolidated Lease Expense
            of the Unconsolidated Entities for such period of four (4)
            consecutive fiscal quarters minus the aggregate amount of Lease
            Expense of the Developmental Pool (to the extent added above) for
            such period of four (4) consecutive fiscal quarters plus or minus
            the aggregate amount of certain adjustments related to Lease Expense
            approved by the

                                       31
<PAGE>
            Administrative Agent and the Lenders as set forth on Schedule
            12(a)(ii)(B),

      to be less than the corresponding ratio set forth below:

<TABLE>
<CAPTION>
                              Period                              Ratio
<S>                                                            <C>
                        Closing Date through
                         March 30, 2002                        1.20 to 1.00

                        March 31, 2002 and
                         thereafter                            1.25 to 1.00
</TABLE>

      (b)   Maximum Debt to Capitalization Ratio. As of the end of any fiscal
quarter, permit the ratio of (i) Total Debt on such date to (ii) Total
Capitalization on such date to exceed 0.60 to 1.00.

      (c)   Maximum Leverage Ratio. As of the end of any fiscal quarter during
any period set forth in the table below, permit the ratio of (i) the sum of (A)
Total Debt on such date less (B) Debt of or attributable to the Developmental
Pool (to the extent included in the calculation of Total Debt) on such date to
(ii) Adjusted EBITDA for the period of four (4) consecutive fiscal quarters
ending on or immediately prior to such date, to exceed the corresponding ratio
set forth below:

<TABLE>
<CAPTION>
                              Period                              Ratio
<S>                                                            <C>
                        Closing Date through
                         September 29, 2002                    3.50 to 1.00

                        September 30, 2002 and
                         thereafter                            3.00 to 1.00
</TABLE>

      (d)   Consolidated Net Worth. As of the Closing Date and as of the end of
any fiscal quarter thereafter, permit Consolidated Net Worth on such date to be
less than the sum of (i) $130,000,000 plus (ii) fifty percent (50%) of
cumulative Net Income of the Parent and its Subsidiaries (if positive) after
July 27, 2001 plus (iii) an amount equal to one hundred percent (100%) of the
net cash proceeds received by the Parent or any Subsidiary thereof from any
issuance of equity after July 27, 2001.

      (e)   Minimum Liquid Assets. As of the end of any fiscal quarter, permit
the sum of (i) Available Cash as of such date of determination plus (ii) the
Maximum Available Corporate Revolver Commitment as of such date of determination
(in each case to be calculated on a Consolidated basis, without duplication, in
accordance with GAAP) to be less than $30,000,000.

                                       32
<PAGE>
      SECTION 13.       Negative Covenants.

      (a)   Negative Covenants. Until all of the Obligations have been paid and
satisfied in full and the Commitments of the Lenders under the Loan Agreement
have been terminated, unless consent has been obtained in the manner provided
for in Section 19, the Guarantors will:

            (i)   Comply with each and every covenant and agreement set forth in
      Section 5.02 of the Corporate Revolver (as such agreement may be amended
      from time to time) as if such Section 5.02 of the Corporate Revolver
      (including, without limitation, each defined term, article, section,
      exhibit or schedule referenced in or relating to such Section 5.02 of the
      Corporate Revolver) was written herein; provided that the aggregate amount
      of Debt permitted under Section 5.02(b)(iii) of the Corporate Revolver
      (including any amendment, restatement, refinancing or replacement thereof,
      the "Corporate Revolver Debt") shall not exceed $125,000,000 unless (A)
      the Obligations, the Guaranteed Obligations and all other obligations
      under the Related Credit Documents (as defined in the Loan Agreement)
      shall be secured on a pari passu basis with the Corporate Revolver Debt or
      (B) the Corporate Revolver Debt shall be unsecured; and

            (ii)  Notify the Administrative Agent and the Lenders promptly upon
      the execution of any amendment, restatement, supplement or other
      modification to the Corporate Revolver.

      (b)   Rules of Construction.

            (i)   The terms and conditions of the Corporate Revolver which are
      incorporated in this Guaranty by reference shall continue as such terms
      and conditions are set forth in the Corporate Revolver irrespective of any
      termination of the Corporate Revolver. Such terms and conditions shall
      include any amendments, restatements, supplements or other modifications
      which are approved by the Required Lender pursuant to Section 5(a)(ii).

            (ii)  All definitions and other provisions of the Corporate Revolver
      which are incorporated herein by reference shall be construed in such a
      manner so as to give such incorporated terms legal effect and meaning
      hereunder. More specifically, any references to the terms defined in both
      the Corporate Revolver and this Guaranty shall be deemed references to
      such terms as defined herein; provided that any references to the
      "Borrower" and the "Parent" in the Corporate Revolver shall be deemed to
      be references to MedCath Intermediate Holdings, Inc. and MedCath Holdings,
      Inc. hereunder. For example, references in the Corporate Revolver to the
      "Loan Documents", the "Commitments", the "Obligations", the
      "Administrative Agent" and the "Lenders" shall be deemed to be references
      to the Loan Documents, the Commitments, the Obligations, the
      Administrative Agent and the Lenders as defined in this Guaranty, in each
      case to the extent necessary to give any such incorporated provisions
      legal effect and meaning hereunder. In addition, any references to defined
      terms in the Corporate Revolver which are similarly defined in this
      Guaranty shall be deemed references to such similar terms as defined
      herein. For example, references in the Corporate Revolver to an "Advance"
      shall be deemed to be references to a "Construction Loan Advance"
      hereunder, in each case to the

                                       33
<PAGE>
      extent necessary to give any such incorporated provisions legal effect and
      meaning hereunder.

      SECTION 14.       Remedies. Upon the occurrence and during the continuance
of any Default or Event of Default, with the consent of the Required Lenders,
the Administrative Agent may, or upon the request of the Required Lenders, the
Administrative Agent shall, enforce against the Guarantors their respective
obligations and liabilities hereunder and exercise such other rights and
remedies as may be available to the Administrative Agent hereunder, under the
Loan Agreement or the other Loan Documents or otherwise.

      SECTION 15.       No Subrogation. Notwithstanding any payment or payments
by any of the Guarantors hereunder, or any set-off or application of funds of
any of the Guarantors by the Administrative Agent or any Lender, or the receipt
of any amounts by the Administrative Agent or any Lender with respect to any of
the Guaranteed Obligations, none of the Guarantors shall be entitled to be
subrogated to any of the rights of the Administrative Agent or any Lender
against the Borrower or the other Guarantors or any other guarantor or against
any collateral security (including, without limitation, the Collateral) held by
the Administrative Agent or any Lender for the payment of the Guaranteed
Obligations nor shall any of the Guarantors seek any reimbursement from the
Borrower or any of the other Guarantors in respect of payments made by such
Guarantor in connection with the Guaranteed Obligations, until all amounts owing
to the Administrative Agent and the Lenders on account of the Guaranteed
Obligations are paid in full and the Aggregate Commitment is terminated. If any
amount shall be paid to any Guarantor on account of such subrogation rights at
any time when all of the Guaranteed Obligations shall not have been paid in
full, such amount shall be held by such Guarantor in trust for the
Administrative Agent and the Lenders, segregated from other funds of such
Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over
to the Administrative Agent in the exact form received by such Guarantor (duly
endorsed by such Guarantor to the Administrative Agent, if required) to be
applied against the Guaranteed Obligations, whether matured or unmatured, in
such order as set forth in the Loan Agreement.

      SECTION 16.       Expenses. All costs and expenses (including reasonable
attorneys' fees, legal expenses and court costs) incurred by the Administrative
Agent or any Lender in enforcing or protecting their rights or remedies
hereunder shall be payable by the Guarantors on demand and shall bear interest
(after as well as before judgment) until paid at the interest rate then
applicable to Base Rate Loans under the Loan Agreement and shall be additional
Guaranteed Obligations hereunder.

      SECTION 17.       Notices. All notices and communications hereunder shall
be made in accordance with Section 12.1 of the Loan Agreement; provided that
notices and communications to the Guarantors shall be directed to the Guarantors
at the address of the Parent set forth in Section 12.1 of the Loan Agreement.

                                       34
<PAGE>
      SECTION 18.       Successors and Assigns. This Guaranty is for the benefit
of the Administrative Agent and the Lenders and their permitted successors and
assigns. This Guaranty shall be binding on each Guarantor and its successors and
assigns; provided that no Guarantor may assign any of its rights or obligations
hereunder without the prior written consent of the Administrative Agent and the
Lenders.

      SECTION 19.       Amendments, Waivers and Consents. No term, covenant,
agreement or condition of this Guaranty may be amended or waived, nor may any
consent be given, except in the manner set forth in Section 12.11 of the Loan
Agreement.

      SECTION 20.       Powers Coupled with an Interest. All authorizations and
agencies herein contained with respect to the Collateral are irrevocable and
powers coupled with an interest.

      SECTION 21.       Governing Law. THIS GUARANTY SHALL BE GOVERNED BY,
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH
CAROLINA, WITHOUT REFERENCE TO THE CONFLICTS OR CHOICE OF LAW PRINCIPLES
THEREOF; PROVIDED, THAT THE ADMINISTRATIVE AGENT AND EACH LENDER SHALL RETAIN
ALL RIGHTS ARISING UNDER FEDERAL LAW.

      SECTION 22.       Jurisdiction and Venue.

      (a)   Jurisdiction. The Guarantors hereby irrevocably consent to the
personal jurisdiction of the state and federal courts located in Mecklenburg
County, North Carolina, in any action, claim or other proceeding arising out of
any dispute in connection with this Guaranty and the other Loan Documents, any
rights or obligations hereunder, or the performance of such rights and
obligations. The Guarantors hereby irrevocably consent to the service of a
summons and complaint and other process in any action, claim or proceeding
brought by the Administrative Agent or any Lender in connection with this
Guaranty any the other Loan Documents, any rights or obligations hereunder, or
the performance of such rights and obligations, on behalf of itself or its
property, in the manner specified in Section 12.1 of the Loan Agreement. Nothing
in this Section 22 shall affect the right of the Administrative Agent or any
Lender to serve legal process in any other manner permitted by Applicable Law or
affect the right of the Administrative Agent or any Lender to bring any action
or proceeding against any Guarantor or its properties in the courts of any other
jurisdictions.

      (b)   Venue. Each Guarantor hereby irrevocably waives any objection it may
have now or in the future to the laying of venue in the aforesaid jurisdiction
in any action, claim or other proceeding arising out of or in connection with
this Guaranty, any other Loan Document or the rights and obligations of the
parties hereunder. Each Guarantor irrevocably waives, in connection with such
action, claim or proceeding, any plea or claim that the action, claim or other
proceeding has been brought in an inconvenient forum.

      SECTION 23.       Waiver of Right to Trial by Jury. EACH PARTY TO THIS
GUARANTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS

                                       35
<PAGE>
GUARANTY OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS
OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS GUARANTY, OR THE
TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY
HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO
THIS GUARANTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 23 WITH
ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

      SECTION 24.       Injunctive Relief; Punitive Damages.

      (a)   Injunctive Relief. Each Guarantor recognizes that, in the event such
Guarantor fails to perform, observe or discharge any of its obligations or
liabilities under this Guaranty, any remedy of law may prove to be inadequate
relief to the Lenders. Therefore, each Guarantor agrees that the Lenders, at the
Lenders' option, shall be entitled to temporary and permanent injunctive relief
in any such case without the necessity of proving actual damages.

      (b)   Punitive Damages. Each Guarantor agrees that it shall not have a
remedy of punitive or exemplary damages against any other party to a Loan
Document and each such Guarantor hereby waives any right or claim to punitive or
exemplary damages that it may now have or which may arise in the future in
connection with any dispute, whether the dispute is resolved by arbitration or
judicially.

      SECTION 25.       Severability. If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(a) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of the Administrative
Agent and the Lenders in order to carry out the intentions of the parties hereto
as nearly as may be possible; and (b) the invalidity or unenforceability of any
provisions hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.

      SECTION 26.       Headings. The various headings of this Guaranty are
inserted for convenience only and shall not affect the meaning or interpretation
of this Guaranty or any provisions hereof.

      SECTION 27.       Counterparts. This Guaranty may be executed by the
parties hereto in several counterparts, each of which shall be deemed to be an
original and all of which shall constitute together but one and the same
agreement.

      SECTION 28.       Accounting Matters. All financial and accounting
calculations, measurements and computations made for any purpose relating to
this Guaranty, including, without limitation, all computations utilized by the
Guarantors to determine compliance with any covenant contained herein, shall,
except as otherwise expressly contemplated hereby or unless there is an express
written direction by the Administrative Agent to the contrary agreed to by the
Parent, be

                                       36
<PAGE>
performed in accordance with GAAP as in effect on the Closing Date. In the event
that changes in GAAP shall be mandated by the Financial Accounting Standards
Board, or any similar accounting body of comparable standing, or shall be
recommended by the Parent's certified public accountants, to the extent that
such changes would modify such accounting terms or the interpretation or
computation thereof, such changes shall be followed in defining such accounting
terms only from and after the date the Parent and the Required Lenders shall
have amended this Guaranty to the extent necessary to reflect any such changes
in the financial covenants and other terms and conditions of this Guaranty.

                            [Signature Pages Follow]

                                       37
<PAGE>
      IN WITNESS WHEREOF, each of the Guarantors has executed and delivered this
Guaranty under seal as of the date first above written.

                                        PARENT:

[CORPORATE SEAL]                        MEDCATH CORPORATION

                                        By: ____________________________________
                                        Name: __________________________________
                                        Title: _________________________________

                                        SUBSIDIARY GUARANTORS:

[CORPORATE SEAL]                        MEDCATH HOLDINGS, INC.

                                        By: ____________________________________
                                        Name: __________________________________
                                        Title: _________________________________

[CORPORATE SEAL]                        MEDCATH INTERMEDIATE HOLDINGS, INC.

                                        By: ____________________________________
                                        Name: __________________________________
                                        Title: _________________________________

[CORPORATE SEAL]                        MEDCATH INCORPORATED

                                        By: ____________________________________
                                        Name: __________________________________
                                        Title: _________________________________

[CORPORATE SEAL]                        MEDCATH FINANCE COMPANY

                                        By: ____________________________________
                                        Name: __________________________________
                                        Title: _________________________________

                           [Signature Pages Continue]
<PAGE>
                                        MEDCATH DIAGNOSTICS, LLC

                                        By: ____________________________________
                                        Name: __________________________________
                                        Title: _________________________________

[CORPORATE SEAL]                        MEDCATH OF MASSACHUSETTS, INC.

                                        By: ____________________________________
                                        Name: __________________________________
                                        Title: _________________________________

                                        HEART RESEARCH CENTERS INTERNATIONAL,
                                         LLC

                                        By: ____________________________________
                                        Name: __________________________________
                                        Title: _________________________________

                                        CHF CENTERS OF AMERICA, LLC

                                        By: ____________________________________
                                        Name: __________________________________
                                        Title: _________________________________

[CORPORATE SEAL]                        MEDCATH CARDIOLOGY CONSULTING &
                                         MANAGEMENT, INC.

                                        By: ____________________________________
                                        Name: __________________________________
                                        Title: _________________________________

[CORPORATE SEAL]                        MEDCATH MANAGEMENT OF OHIO, INC.

                                        By: ____________________________________
                                        Name: __________________________________
                                        Title: _________________________________

                           [Signature Pages Continue]
<PAGE>
[CORPORATE SEAL]                        WMS MANAGEMENT, INC.

                                        By: ____________________________________
                                        Name: __________________________________
                                        Title: _________________________________

[CORPORATE SEAL]                        AUSTIN MOB, INC.

                                        By: ____________________________________
                                        Name: __________________________________
                                        Title: _________________________________

[CORPORATE SEAL]                        MEDCATH NUCLEAR SERVICES, LLC

                                        By: ____________________________________
                                        Name: __________________________________
                                        Title: _________________________________

[CORPORATE SEAL]                        HARLINGEN HOSPITAL MANAGEMENT, INC.

                                        By: ____________________________________
                                        Name: __________________________________
                                        Title: _________________________________

[CORPORATE SEAL]                        HARLINGEN PARTNERSHIP HOLDINGS, INC.

                                        By: ____________________________________
                                        Name: __________________________________
                                        Title: _________________________________
<PAGE>
                                   Schedule 1

                  Addresses of Administrative Agent and Lenders

Bank of America, N.A.
ILI-231-08-03
231 South LaSalle Street
Chicago, Illinois  60604

The Bankers Trust Company
c/o Deutsch Bank
40 Kingsbridge Road
Piscataway, NJ 08854
Location: Desk 100 O

First Union National Bank
301 South College Street, 6th Floor
Charlotte, North Carolina 28288

GE Healthcare Financial Services
20225 Watertower Boulevard, Suite 200
Brookfield, Wisconsin 53045

Siemens Medical Systems, Inc.
186 Wood Avenue South
Iselin, New Jersey 08830

The Chase Manhattan Bank
270 Park Avenue, 48th Floor
New York, New York 10017

Fifth Third Bank (Western Ohio)
110 North Main Street
Dayton, Ohio 45402

Bank One, NA (Main Office Columbus, Ohio)
Kettering Tower
P.O. Box 1103
OH3 4215
Dayton, Ohio 45401-1103(1)

First National Bank of Southwestern Ohio
815 S. Breiel Boulevard
Middletown, Ohio 45042

--------
(1) Applicable only to the Dayton, Ohio Loan.
<PAGE>
                                Schedule 1(a)(i)

                         Adjustments to Adjusted EBITDA
<PAGE>
                                Schedule 9(a)(i)

                 Jurisdictions of Organization and Qualification
<PAGE>
                                Schedule 9(a)(ii)

                                 Capitalization
<PAGE>
                               Schedule 9(a)(vii)

                                   Litigation
<PAGE>
                              Schedule 12(a)(ii)(B)

                     Permanent Principal Payment Adjustments
<PAGE>

                                    Exhibit A
                                       to
                               Guaranty Agreement

                            FORM OF JOINDER AGREEMENT

<PAGE>

                                Joinder Agreement

      THIS JOINDER AGREEMENT, dated as of the ____ day of __________, ____ (the
"Agreement"), to the Guaranty Agreement referred to below is entered into by and
among MedCath Corporation, a corporation organized under the laws of Delaware
(the "Parent"), ____________, a corporation organized under the laws of
__________ (the "New Subsidiary Guarantor"), and Bank of America, N.A., as
administrative agent (the "Administrative Agent") for the ratable benefit of
itself and the financial institutions (the "Lenders") from time to time party to
the Loan Agreement referred to below.

                              Statement of Purpose

      ____________________, a __________ organized under the laws of __________
(the "Borrower"), the Lenders and the Administrative Agent are parties to that
certain Amended and Restated Loan Agreement dated as of _________, ____ (as
amended, restated, supplemented or otherwise modified, the "Loan Agreement). In
connection with the Loan Agreement, the Parent and certain Subsidiaries of the
Parent who are or may become party thereto (collectively, the "Guarantors")
entered into that certain Guaranty Agreement dated as of November ___, 2001 in
favor of the Administrative Agent for the ratable benefit of itself and the
Lenders (as supplemented hereby and as further amended, restated, supplemented
or otherwise modified, the "Guaranty Agreement").

      The New Subsidiary Guarantor has become a direct or indirect Subsidiary of
the Parent pursuant to [insert description of agreement or transaction relating
to creation of the New Subsidiary Guarantor]. Pursuant to Section 11(j) of the
Guaranty Agreement, the New Subsidiary Guarantor is required to execute and
deliver this joinder agreement.

      NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the parties hereto hereby agree as follows:

      1.01 Guaranty Agreement Supplement. Pursuant to Section 11(j) of the
Guaranty Agreement, the New Subsidiary Guarantor hereby agrees that it is a
Guarantor and a Subsidiary Guarantor under the Guaranty Agreement as if a
signatory thereof on the Closing Date, and the New Subsidiary Guarantor shall
comply with and be subject to and have the benefit of all of the terms,
conditions, covenants, agreements and obligations set forth therein. The New
Subsidiary Guarantor hereby agrees that each reference to a "Guarantor", the
"Guarantors", a "Subsidiary Guarantor" or the "Subsidiary Guarantors" in the
Loan Agreement, the Guaranty Agreement and other Loan Documents shall include
the New Subsidiary Guarantor, and each reference to the "Guaranty Agreement" or
"Guaranty" as used therein shall mean the Guaranty Agreement as supplemented
hereby.
<PAGE>

      2.01 Effectiveness. This Agreement shall become effective upon receipt by
the Administrative Agent of (a) an originally executed counterpart hereof, (b)
an update of Schedule (a)(i) and Schedule 9(a)(ii) and (c) any other agreement
or document required to be delivered in accordance with Section 11(j) of the
Guaranty Agreement (including, without limitation, any other agreement or
document required to be delivered in connection with any Loan Document) and (c)
all fees and expenses required to be paid by the Borrower pursuant to Section
12.2 of the Loan Agreement.

      3.01  General Provisions.

      (a)   Representations and Warranties of the New Subsidiary Guarantor.

            (i) The New Subsidiary Guarantor hereby confirms that each
representation and warranty made under the Guaranty Agreement is true and
correct with respect to such New Subsidiary Guarantor as of the date hereof
(except to the extent such representations and warranties expressly refer to an
earlier date, in which case they shall be true and correct as of the earlier
date).

            (ii) The New Subsidiary Guarantor hereby acknowledges it has
received a copy of the Loan Agreement, the Guaranty Agreement and the other Loan
Documents and that it has read and understands the terms thereof.

      (b)   Representations and Warranties of the Parent.

            (i) The Parent hereby confirms that that no Default or Event of
Default has occurred or is continuing under the Loan Agreement, the Guaranty
Agreement and the other Loan Documents.

            (ii) The Parent hereby represents and warrants that as of the date
hereof there are no claims or offsets against or defenses or counterclaims to
the obligations of the Borrower and the Guarantors under the Loan Agreement, the
Guaranty Agreement and the other Loan Documents and the other Loan Documents.

      (b) Limited Effect. Except as supplemented hereby, the Loan Agreement, the
Guaranty Agreement and each other Loan Document shall continue to be, and shall
remain, in full force and effect. This Agreement shall not be deemed (i) to be a
waiver of, or consent to, or a modification or amendment of, any other term or
condition of the Loan Agreement, the Guaranty Agreement or any other Loan
Document or (ii) to prejudice any right or rights which the Administrative Agent
or any Lender may now have or may have in the future under or in connection with
the Loan Agreement, the Guaranty Agreement or any other Loan Document or any of
the instruments or agreements referred to therein, as the same may be amended or
modified from time to time.

      (c) Counterparts. This Agreement may be executed by one or more of the
parties hereto in any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
<PAGE>

      (d) Definitions. All capitalized terms used and not defined herein shall
have the meanings given thereto in the Guaranty Agreement.

      (e) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA, WITHOUT
REFERENCE TO THE CONFLICTS OR CHOICE OF LAW PRINCIPLES THEREOF; PROVIDED, THAT
THE ADMINISTRATIVE AGENT AND EACH LENDER SHALL RETAIN ALL RIGHTS ARISING UNDER
FEDERAL LAW.

<PAGE>
      IN WITNESS WHEREOF the undersigned hereby causes this Agreement to be
executed and delivered as of the date first above written.

                                    PARENT:

[CORPORATE SEAL]                    MEDCATH CORPORATION

                                    By:
                                        ----------------------------------------
                                    Name:

                                        ----------------------------------------
                                    Title:

                                        ----------------------------------------

                                    NEW SUBSIDIARY GUARANTOR:

[CORPORATE SEAL]

                                    By:
                                        ----------------------------------------
                                    Name:

                                        ----------------------------------------
                                    Title:

                                        ----------------------------------------

<PAGE>

                                    ADMINISTRATIVE AGENT:

                                    BANK OF AMERICA, N.A., as Administrative
                                    Agent
                                    By:
                                        ----------------------------------------
                                    Name:

                                        ----------------------------------------
                                    Title:

                                        ----------------------------------------

<PAGE>

                                    Exhibit B
                                       to
                               Guaranty Agreement

                    FORM OF OFFICER'S COMPLIANCE CERTIFICATE

<PAGE>

                        Officer's Compliance Certificate

      The undersigned, on behalf of MedCath Corporation, a corporation organized
under the laws of Delaware (the "Parent"), hereby certifies to the
Administrative Agent and the Lenders, each as defined below, as follows:

      1. This Certificate is delivered to you pursuant to Section 10(b) of the
Guaranty Agreement dated as of November ___, 2001 (as amended, restated,
supplemented or otherwise modified from time to time, the "Guaranty Agreement"),
made by the Parent and certain Subsidiaries of the Parent who are or may become
party thereto (collectively, the "Guarantors"), in favor of Bank of America,
N.A., as administrative agent (the "Administrative Agent") for the ratable
benefit of itself and the financial institutions (collectively, the "Lenders")
from time to time party to the Loan Agreement referred to therein. Capitalized
terms used herein and not defined herein shall have the meanings assigned
thereto in the Guaranty Agreement.

      2. I have reviewed the financial statements of the Parent and its
Subsidiaries dated as of _______________ and for the _______________ period[s]
then ended and, to the best of my knowledge, such statements fairly present in
all material respects the financial condition of the Parent and its Subsidiaries
as of the dates indicated and the results of their operations and cash flows for
the period[s] indicated.

      3. I have reviewed the terms of the Guaranty Agreement, the Loan
Agreement, and the other related Loan Documents and have made, or caused to be
made under my supervision, a review in reasonable detail of the transactions and
the condition of the Parent and its Subsidiaries during the accounting period
covered by the financial statements referred to in Paragraph 2 above. Such
review has not disclosed, to my knowledge, the existence during or at the end of
such accounting period of any condition or event that constitutes a Default or
an Event of Default, nor do I have any knowledge of the existence of any such
condition or event as at the date of this Certificate [except, if such condition
or event existed or exists, describe the nature and period of existence thereof
and what action the Parent and its Subsidiaries have taken, are taking and
propose to take with respect thereto].

      4. The Parent and its Subsidiaries are in compliance with the financial
covenants contained in Section 12 of the Guaranty Agreement as shown on such
Schedule 1 and the Parent and its Subsidiaries are in compliance with the other
covenants and restrictions contained in the Guaranty Agreement.

                            [Signature Page Follows]

<PAGE>

      WITNESS the following signature as of the _____ day of _________, ____.

[CORPORATE SEAL]                    MEDCATH CORPORATION

                                    By:
                                        ----------------------------------------
                                    Name:

                                        ----------------------------------------
                                    Title:

                                        ----------------------------------------
<PAGE>

                                   Schedule 1
                                       to
                        Officer's Compliance Certificate

      [To be provided by Parent in form acceptable to Administrative Agent]

<PAGE>

                                    EXHIBIT I
                                       to
                                 Loan Agreement
                          dated as of November __, 2001
                                  by and among
                 Harlingen Medical Center, Limited Partnership,
                                  as Borrower,
                           the Lenders party thereto,
                                       and
                             Bank of America, N.A.,
                             as Administrative Agent

                    FORM OF OFFICER'S COMPLIANCE CERTIFICATE

<PAGE>

                        OFFICER'S COMPLIANCE CERTIFICATE

      The undersigned, on behalf of Harlingen Medical Center, Limited
Partnership, a North Carolina limited partnership (the "Borrower"), hereby
certifies to the Administrative Agent and the Lenders, each as defined below, as
follows:

      1. This Certificate is delivered to you pursuant to Section 6.2 of the
Amended and Restated Loan Agreement dated as of November __, 2001 (as amended,
restated, supplemented or otherwise modified from time to time, the "Loan
Agreement"), by and among the Borrower, the lenders who are or may become party
thereto (the "Lenders"), and Bank of America, N.A., as administrative agent (the
"Administrative Agent"). Capitalized terms used herein and not defined herein
shall have the meanings assigned thereto in the Loan Agreement.

      2. I have reviewed the financial statements of the Borrower dated as of
_______________ and for the _______________ period[s] then ended and such
statements fairly present in all material respects the financial condition of
the Borrower as of the dates indicated and the results of its operations and
cash flows for the period[s] indicated.

      3. I have reviewed the terms of the Loan Agreement, and the related Loan
Documents and have made, or caused to be made under my supervision, a review in
reasonable detail of the transactions and the condition of the Borrower during
the accounting period covered by the financial statements referred to in
Paragraph 2 above. Such review has not disclosed the existence during or at the
end of such accounting period of any condition or event that constitutes a
Default or an Event of Default, nor do I have any knowledge of the existence of
any such condition or event as at the date of this Certificate [except, if such
condition or event existed or exists, describe the nature and period of
existence thereof and what action the Borrower has taken, is taking and proposes
to take with respect thereto].

      4. The Borrower is in compliance with the financial covenants contained in
Article VIII of the Loan Agreement as shown on such Schedule 1 and the Borrower
is in compliance with the other covenants and restrictions contained in the Loan
Agreement.

      5. The Applicable Margin and calculations determining such figure are set
forth on the attached Schedule 2.

                            [Signature Page Follows]
<PAGE>

      WITNESS the following signature as of the _____ day of _________, 200__.

                              HARLINGEN MEDICAL CENTER,     [SEAL]
                              LIMITED PARTNERSHIP, as Borrower

                              By:   HARLINGEN HOSPITAL
                                    MANAGEMENT, INC., its General Partner

                                    By:
                                        ----------------------------------------
                                    Name:

                                        ----------------------------------------
                                    Title:

                                        ----------------------------------------

                                       2
<PAGE>

                                   Schedule 1
                                       to
                        Officer's Compliance Certificate

     [To be provided by Borrower in form acceptable to Administrative Agent]

<PAGE>

                                   Schedule 2
                                       to
                        Officer's Compliance Certificate

     [To be provided by Borrower in form acceptable to Administrative Agent]

                                       2
<PAGE>

                                    EXHIBIT J
                                       to
                       Amended and Restated Loan Agreement
                          dated as of November __, 2001
                                  by and among
                 Harlingen Medical Center, Limited Partnership,
                                  as Borrower,
                           the Lenders party thereto,
                                       and
                             Bank of America, N.A.,
                             as Administrative Agent

                           FORM OF SECURITY AGREEMENT

<PAGE>

                               SECURITY AGREEMENT

      THIS SECURITY AGREEMENT (as amended, restated, supplemented or otherwise
modified from time to time, this "Agreement"), dated as of November __, 2001, by
and between HARLINGEN MEDICAL CENTER, LIMITED PARTNERSHIP, a North Carolina
limited partnership (the "Grantor"), and BANK OF AMERICA, N.A., a national
banking association, as administrative agent (the "Administrative Agent") for
the ratable benefit of itself and the financial institutions (the "Lenders") as
are, or may from time to time become, parties to the Loan Agreement (as defined
below).

                              STATEMENT OF PURPOSE

      Pursuant to the terms of the Amended and Restated Loan Agreement dated as
of even date herewith (as amended, restated, supplemented or otherwise modified,
the "Loan Agreement"), by and among the Grantor, as Borrower, the Lenders and
the Administrative Agent, the Lenders have agreed to extend a certain credit
facility to the Grantor as more particularly described therein.

      To induce the Lenders and the Administrative Agent to enter into the Loan
Agreement, and as a condition to the extension of the credit facility
thereunder, the Lenders require that the Grantor grant a continuing security
interest in and to the "Collateral" (as hereinafter defined) to secure the
payment and performance of the "Obligations" (as hereinafter defined).

      NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

      SECTION 1.  Grant of Security.

      (a) The Grantor hereby assigns and pledges to the Administrative Agent,
for the ratable benefit of the Administrative Agent and the Lenders, and hereby
grants to the Administrative Agent, for the ratable benefit of the
Administrative Agent and the Lenders, a security interest (the "Security
Interests") in all of the Grantor's right, title and interest in and to the
following, whether now owned or hereafter acquired (the "Collateral"):

            (i) all inventory in all of its forms, wherever located, now or
      hereafter existing, including, but not limited to, all raw materials,
      other materials, supplies, work-in-process and finished goods (including
      all drugs, medical supplies, hospital supplies, books and uniforms), all
      accessions thereto, documents therefor and any products made or processed
      therefrom and all substances, if any, commingled therewith or added
      thereto (any and all such inventory, accessions, documents, products and
      substances, the "Inventory");

            (ii) (A) all accounts, contract rights, chattel paper, electronic
      chattel paper, instruments, deposit accounts, letter of credit rights,
      general intangibles and other obligations of any kind, now or hereafter
      existing, whether or not arising out of or in connection with the sale or
      lease of goods or the rendering of services, including, without

<PAGE>
      limitation, all present or future accounts receivable, all rights to
      payment of a monetary obligation, whether or not earned by performance,
      for property sold, leased, licensed, assigned or otherwise disposed of or
      to be sold, leased, licensed, assigned or otherwise disposed of, for
      services rendered or to be rendered, for a policy of insurance issued or
      to be issued, for a secondary obligation incurred or to be incurred, or
      arising out of the use of a credit card or charge card or information
      contained on or for use with the card, all rights in any merchandise or
      goods which any of the same may represent, all notes receivable, health
      care insurance receivables, book debts, notes, bills, drafts, acceptances,
      choses in action, and all sums of money due or to become due thereon and
      all proceeds thereof and all rights, title, security interests and
      guarantees with respect to each of the foregoing, and (B) all rights now
      or hereafter existing in and to all security agreements, leases, and other
      contracts securing or otherwise relating to any such accounts, contract
      rights, chattel paper, electronic chattel paper, instruments, deposit
      accounts, letter of credit rights, general intangibles or obligations (any
      and all such accounts, contract rights, chattel paper, electronic chattel
      paper, instruments, deposit accounts, letter of credit rights, general
      intangibles and obligations being the "Receivables," and any and all such
      security agreements, leases and other contracts being the "Related
      Contracts"); provided, however, that the security interest granted herein
      in any accounts or contract rights referred to above is subject to any
      applicable legal restriction on such security interest, including under
      any Medicare Regulations or any Medicaid Regulations;

            (iii) all equipment of the Grantor, wherever located, now or
      hereafter existing, including, without limitation, all other machinery,
      furniture, equipment and goods (other than Inventory) and all other
      tangible assets of the Grantor used or bought for use primarily in the
      business of the Grantor, including all accessions, additions, attachments,
      improvements, alterations, modifications, substitutions, repairs and
      replacements thereto and therefor (any and all such equipment, machinery,
      accessions, and additions, the "Equipment"); provided, however, that
      Equipment does not include any and all equipment financed solely by an
      Equipment Lender that does not permit the Administrative Agent, on behalf
      of itself and the other Lenders, to encumber or obtain a security interest
      in such financed equipment (the "Excluded Equipment"), but does include
      (A) all equipment financed by an Equipment Lender that does not prohibit
      the grant of a security interest in such financed equipment and (B) all
      equipment financed with the proceeds obtained under the Loan Agreement.

            (iv) all right, title and interest in all now owned or hereafter
      acquired (A) patents, copyrights, trademarks, service marks, trade names
      and similar intangible property and all registrations and applications, in
      respect thereof, (B) licenses and rights in, and the right to sue for all
      past, present and future infringements of, any and all such now owned or
      hereafter acquired patents, copyrights, trademarks, service marks, trade
      names and similar intangible property and registrations and applications
      in respect thereof, (C) all inventions and tangible property embodying or
      incorporating such now owned or hereafter acquired patents, copyrights,
      trademarks, service marks, trade names and similar intangible property and
      registrations and applications in respect thereof and (D) all goodwill
      relating to such now owned or hereafter acquired patents, copyrights,
      trademarks, service marks, trade names and similar intangible property and
      registrations and applications in respect thereof (collectively, the
      "Intellectual Property");

                                       2
<PAGE>

            (v) all general intangibles and all investment property, whether now
      existing or hereafter arising and wherever arising, including, but not
      limited to, (A) all partnership, corporate, and other interests of the
      Grantor in and to any Person, (B) all permits, licenses, contracts
      (including all Material Contracts), payment intangibles, agreements,
      software, franchises, instruments, indentures, certificates, records,
      customer lists, customer and supplier contracts, firm sales orders, bills
      of lading (negotiable and non-negotiable) and other rights, privileges and
      goodwill obtained or used in connection therewith or any of the
      Collateral, (C) all rights, title and interest of the Grantor (1) in or
      under the Equity Account and the Project Deposit and to any and all funds
      therein, (2) in and to the Plans, and (3) in and to all construction
      contracts, architectural contracts, engineering contracts, drawings,
      plans, renderings, profiles, studies, shop drawings, plats, reports and
      specifications, building permits, sanitary sewer permits, environmental
      permits and similar items and all other documents of any kind relating to
      the design, construction and operation of the Hospital and (D) all tax
      refunds and other refunds or rights to receive payment from U.S. federal,
      state or local governments or foreign governments;

            (vi) all construction materials and supplies now or hereafter
      acquired by the Grantor, which are now or hereafter attached to or
      situated in, on or about the Property; and

            (vii) all proceeds and products of any and all of the foregoing
      Collateral (including, without limitation, proceeds that constitute
      property of the types described in clauses (i) - (vi) of this Section
      1(a)) and, to the extent not otherwise included, all (i) all collateral
      security and supporting obligations given by any Person with respect to
      any of the foregoing Collateral, (ii) all payments under insurance
      (whether or not the Administrative Agent is the loss payee thereof), or
      any indemnity, warranty or guaranty, payable by reason of loss or damage
      to or otherwise with respect to any of the foregoing Collateral and (iii)
      all cash.

      (b) Unless otherwise defined herein or in the Loan Agreement, terms in
Articles 8 and 9 of the Uniform Commercial Code of the State of North Carolina
(as in effect from time to time, the "Code") are used in this Agreement as
therein defined. In addition, to the extent any amendment, revision or other
modification of the Code after the date hereof results in the renumbering of
specific sections, revision of the order of specific sections or other changes
in the organization of the Code in effect as of the date hereof, all references
herein to specific sections of the Code in effect as of the date hereof shall be
deemed to refer to such new section or sections which correspond to such
original sections.

      SECTION 2.  Security for Obligations.

      (a) This Agreement secures the payment and performance of all of the
Obligations, including, without limitation, all amounts that constitute part of
the Obligations and would be owed by the Grantor to the Administrative Agent or
the Lenders under the Loan Agreement or any other Loan Document but for the fact
that due to the existence of a bankruptcy, reorganization or similar proceeding
involving the Grantor such Obligations are unenforceable or not allowable.

                                       3
<PAGE>

      (b) For the purpose of this Agreement, "Obligations" means the Obligations
as defined in the Loan Agreement and any renewals or extensions of any of the
Obligations.

      SECTION 3. Grantor Remains Liable. Anything herein to the contrary
notwithstanding, (a) the Grantor shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by the Administrative Agent of
any of the rights hereunder shall not release Grantor from any of its duties or
obligations under the contracts and agreements included in the Collateral and
(c) neither the Lenders nor the Administrative Agent shall have any obligation
or liability under the contracts and agreements included in the Collateral by
reason of this Agreement, nor shall the Administrative Agent or the Lenders be
obligated to perform any of the obligations or duties of Grantor thereunder or
to take any action to collect or enforce any claim for payment assigned
hereunder.

      SECTION 4. Representations and Warranties. The Grantor represents and
warrants as follows:

            (a) All of the Inventory and the Equipment is located at the places
      specified on Schedule I hereto. The chief place of business and chief
      executive office of the Grantor and the office where the Grantor keeps its
      records concerning the Receivables, and the originals of all chattel paper
      that evidence Receivables, are located at the places specified on Schedule
      I hereto.

            (b) None of the Receivables is evidenced by a promissory note or
      other instrument.

            (c) The Grantor is the legal and beneficial owner of the Collateral
      free and clear of any lien, security interest, option or other charge or
      encumbrance except for the security interest created by this Agreement and
      except as permitted under the Loan Agreement. No effective financing
      statement or other similar document used to perfect and preserve a
      security interest under the laws of any jurisdiction (a "Financing
      Statement") covering all or any part of the Collateral is on file in any
      recording office, except such as may have been filed in favor of the
      Administrative Agent relating to this Agreement or as permitted by the
      Loan Agreement. As of the date hereof, the Grantor has the trade names set
      forth on Schedule II hereto.

            (d) The Grantor has exclusive possession and control of the
      Inventory and the Equipment.

            (e) This Agreement creates a valid, first priority lien on and
      Security Interest in the Collateral, enforceable against all third parties
      and securing the payment of the Obligations. The financing statements
      naming the Grantor as debtor are in appropriate form and when filed in the
      offices specified on the Schedules attached hereto, the Security Interests
      will constitute valid and perfected Security Interests in the Collateral,
      prior to all other Liens and rights of others therein except for Permitted
      Liens (to the extent that a security interest therein may be perfected by
      filing pursuant to the Code) and all filings and

                                       4
<PAGE>

      other actions necessary or desirable to perfect and protect such Security
      Interests have been duly taken.

            (f) No consent of any other Person or entity and no authorization,
      approval, or other action by, and no notice to or filing with, any
      governmental, administrative or judicial authority or regulatory body and
      no payment of any stamp or similar tax on, or in respect of, this
      Agreement is necessary or legally advisable (i) for the grant by the
      Grantor of the liens and security interests granted hereby or for the
      execution, delivery or performance of this Agreement by the Grantor, (ii)
      for the perfection or maintenance of the Security Interest created hereby
      (including the first priority nature of such Security Interest) other than
      the filing of financing statements (and continuation, when applicable)
      referred to in clause (e) above and the Loan Agreement, (iii) for the
      assignment of any Material Contract or (iv) for the exercise by the Lender
      of its rights and remedies hereunder.

            (g) The execution, delivery and performance by the Grantor of this
      Agreement will not, by the passage of time, the giving of notice or
      otherwise, violate any material provision of any Applicable Law or any
      Material Contract and will not result in the creation or imposition of any
      Lien, other than the Security Interests granted to the Administrative
      Agent hereunder, upon or with respect to any property or revenues of the
      Grantor.

            (h)   Material Contracts.

                  (i) The Grantor has performed all of its material obligations
      under each Material Contract to which it is a party and, to the best
      knowledge of the Grantor, each party to any Material Contract is in
      compliance in all material respects with each such Material Contract and
      there are no material defaults by the Grantor or, to the knowledge of the
      Grantor, by any other party under any such Material Contract.

                  (ii) Each Material Contract is in full force and effect and
      constitutes a legally enforceable obligation of the Grantor party thereto,
      and to the knowledge of the Grantor, each other party thereto, subject to
      the effects of bankruptcy, insolvency, fraudulent conveyance,
      reorganization, moratorium or similar state or federal debtor relief laws
      from time to time in effect which affect the enforcement of creditors'
      rights in general and the availability of equitable remedies and other
      similar laws relating to or affecting creditors' rights generally, general
      equitable principles (whether considered in a proceeding in equity or at
      law) and an implied covenant of good faith and fair dealing.

                  (iii) No consent or authorization of, filing with or other act
      by or in respect of any Governmental Authority is required in connection
      with the execution, delivery, performance, validity or enforceability of
      any of the Material Contracts by any party thereto other than those which
      have been duly obtained, made or performed, are in full force and effect
      and do not subject the scope of any such Material Contract to any material
      adverse limitation, either specific or general in nature.

                                       5
<PAGE>

            (iv) The right, title and interest of the Grantor in, to and under
the Material Contracts are not subject to any defenses, offsets, counterclaims
or claims, which such defenses, offsets, counterclaims or claims could
reasonably be expected to have a Material Adverse Effect.

      (i)   Intellectual Property.

                  (i) All Intellectual Property owned by the Grantor in its own
name on the date hereof is listed on Schedule III attached hereto.

                  (ii) On the date hereof, all material Intellectual Property is
valid, subsisting, unexpired and enforceable, has not been abandoned and does
not infringe the intellectual property rights of any other Person.

                  (iii) Except as set forth in Schedule III on the date hereof,
none of the Intellectual Property is the subject of any licensing or franchise
agreement pursuant to which the Grantor is the licensor or franchisor.

                  (iv) No holding, decision or judgment has been rendered by any
Governmental Authority which would limit, cancel or question the validity of, or
the Grantor's rights in, any Intellectual Property in any respect that could
reasonably be expected to have a Material Adverse Effect.

                  (v) No action or proceeding is pending, or, to the knowledge
of the Grantor, threatened, on the date hereof (i) seeking to limit, cancel or
question the validity of any Intellectual Property or the Grantor's ownership
interest therein, or (ii) which, if adversely determined, would have a material
adverse effect on the value of any Intellectual Property.

            SECTION 5. Further Assurances.

            (a) The Grantor agrees that from time to time, at the expense of the
Grantor, the Grantor will promptly execute and deliver all further instruments
and documents, and take all further action, that may be necessary or desirable
or reasonably requested by the Lender, in order to perfect and protect any
security interest granted or purported to be granted hereby or to enable the
Administrative Agent to exercise and enforce its rights and remedies hereunder
with respect to any Collateral. Without limiting the generality of the foregoing
the Grantor will: (i) mark conspicuously each document included in the Inventory
and each chattel paper included in the Receivables and each Related Contract and
each of its records pertaining to the Collateral with a legend, in form and
substance satisfactory to the Administrative Agent, indicating that such
document, chattel paper, Related Contract or record is subject to the security
interest granted hereby; (ii) if any Receivable shall be evidenced by a
promissory note or other instrument, deliver and pledge to the Administrative
Agent such note or instrument duly endorsed and accompanied by duly executed
instruments of transfer or assignment, all in form and substance satisfactory to
the Administrative Agent; (iii) if any Inventory or Equipment shall be put into
the possession and control of any Person other than the Grantor, shall cause
such Person to

                                       6
<PAGE>
execute and deliver to the Grantor a lien waiver letter in respect of such
Inventory and Equipment; and (iv) execute and file such financing statements or
continuation statements, or amendments thereto, and such other instruments or
notices, as may be necessary or reasonably requested by the Administrative
Agent, in order to perfect and preserve the security interest granted or
purported to be granted hereby.

            (b) In the event that any Collateral is in the possession of a third
party, the Grantor will join with Administrative Agent in the notification to
such third party of Administrative Agent's interest in the Collateral and the
Grantor will assist Administrative Agent in obtaining the written acknowledgment
of such third party that such third party is holding the Collateral for the
benefit of Administrative Agent. Furthermore, the Grantor shall cooperate with
Administrative Agent as necessary to permit Administrative Agent to obtain
control (as such term is now or hereafter defined in the Code) over all
Collateral consisting of deposit accounts, investment property, letter of credit
rights or electronic chattel paper.

            (c) No Grantor will, except upon thirty (30) days' prior written
notice to the Administrative Agent and delivery to the Administrative Agent of
all additional executed financing statements and other documents reasonably
requested by the Administrative Agent to maintain the validity, perfection and
priority of the security interests provided for herein:

                (i) change its jurisdiction of organization or the location of
         its chief executive office; or

                (ii) change its name, identity or corporate structure to such an
         extent that any financing statement filed by the Administrative Agent
         in connection with this Agreement would become misleading.

            (d) The Grantor hereby authorizes the Administrative Agent to file
      one or more financing statements or continuation statements, and
      amendments thereto, relating to all or any part of the Collateral without
      the signature of Grantor where permitted by law.

            (e) The Grantor will furnish to the Administrative Agent from time
      to time statements and schedules further identifying and describing the
      Collateral and such other reports in connection with the Collateral as the
      Lender may reasonably request, all in reasonable detail.

      SECTION 6. Inventory. The Grantor shall keep the Inventory (other than
Inventory sold in the ordinary course of business) at the places therefor
specified on Schedule I or, upon 30 days' prior written notice to the
Administrative Agent, at such other places in a jurisdiction where all action
required by Section 5 shall have been taken with respect to the Inventory.

      SECTION 7.  Equipment.

            (a) The Grantor shall keep the Equipment at the places specified on
      Schedule I, or, upon 30 days' prior written notice to the Administrative
      Agent, at such

                                       7
<PAGE>
      other places in a jurisdiction where all action required by Section 5
      shall have been taken with respect to the Equipment.

            (b) The Grantor shall maintain each item of Equipment in good
      working order and condition (reasonable wear and tear and obsolescence
      excepted), and in accordance with any manufacturer's manual, and will as
      quickly as practicable provide all maintenance, service and repairs
      necessary for such purpose and will promptly furnish to the Administrative
      Agent a statement respecting any loss or damage to any of the Equipment
      which may have a Material Adverse Effect.

      SECTION 8.  Receivables.

            (a) The Grantor shall keep its chief place of business and chief
      executive office and the office where it keeps its records concerning the
      Receivables, and the originals of all chattel paper that evidence
      Receivables, at Grantor's address specified in Schedule I hereto or, upon
      30 days' prior written notice to the Administrative Agent, at any other
      locations in a jurisdiction where all actions required by Section 5 shall
      have been taken with respect to the Receivables. The Grantor will hold and
      preserve such records and chattel paper and will permit representatives of
      the Administrative Agent at any time during normal business hours upon
      reasonable notice to inspect and make abstracts from such records and
      chattel paper.

            (b) Except as otherwise provided in this subsection (b), the Grantor
      shall continue to collect, at its own expense, all amounts due or to
      become due to the Grantor under the Receivables. In connection with such
      collections, the Grantor may take (and, at the Administrative Agent's
      direction following the occurrence of a Default or an Event of Default,
      shall take) such action as the Grantor or the Administrative Agent may
      deem necessary or advisable to enforce collection of the Receivables;
      provided, however, that the Administrative Agent shall have the right at
      any time after the occurrence and continuance of a Default or an Event of
      Default, upon written notice to Grantor of its intention to do so, to
      notify the account debtors or obligors under any Receivables of the
      assignment of such Receivables to the Administrative Agent and to direct
      such account debtors or obligors to make payment of all amounts due or to
      become due to Grantor thereunder directly to the Administrative Agent and,
      upon such notification and at the expense of Grantor, to enforce
      collection of any such Receivables, and to adjust, settle or compromise
      the amount or payment thereof, in the same manner and to the same extent
      as the Grantor might have done. After receipt by the Grantor of the notice
      from the Administrative Agent referred to in the proviso to the preceding
      sentence, (i) all amounts and proceeds (including instruments) received by
      the Grantor in respect of the Receivables shall be received in trust for
      the benefit of the Lenders, shall be segregated from other funds of the
      Grantor and shall be forthwith paid over to the Administrative Agent for
      the benefit of the Lenders in the same form as so received (with any
      necessary endorsement) to be held as cash collateral and applied as
      provided by Section 13(b), and (ii) the Grantor shall not adjust, settle
      or compromise the amount or payment of any Receivable, release wholly or
      partly any account debtor or obligor thereof, or allow any credit or
      discount thereon other than in the ordinary course of business. Promptly
      after request of the Administrative Agent following the occurrence of a
      Default or an Event of Default, the Grantor shall cause all collections

                                       8
<PAGE>

      of Receivables to be forwarded to such lockboxes as the Lender may direct,
      which lockboxes shall be under the exclusive control and dominion of the
      Administrative Agent.

      SECTION 9.  Material Contracts.

            (a) The Grantor will perform and comply in all material respects
      with all of its obligations under the Material Contracts.

            (b) The Grantor will not amend, modify, terminate or waive any
      provision of any Material Contract in any manner which could reasonably be
      expected to materially adversely affect the value of such Material
      Contract as Collateral.

            (c) The Grantor will exercise promptly and diligently each and every
      material right which it may have under each Material Contract (other than
      any right of termination), unless the failure to exercise any such
      material right could not reasonably be expected to have a Material Adverse
      Effect.

            (d) The Grantor will deliver to the Administrative Agent a copy of
      each material demand, notice or document received by it relating in any
      way to any Material Contract that questions the validity or enforceability
      of such Material Contract.

      SECTION 10. Intellectual Property.

            (a) The Grantor (either itself or through licensees) will (i)
      continue to use each material trademark applicable to its current business
      in order to maintain such trademark in full force free from any claim of
      abandonment for non-use, (ii) maintain as in the past the quality of
      products and services offered under such trademark, (iii) use such
      trademark with the appropriate notice of registration and all other
      notices and legends required by Applicable Laws, (iv) not adopt or use any
      trademark which is confusingly similar or a colorable imitation of such
      trademark unless the Administrative Agent, for the ratable benefit of
      itself and the Lenders, shall obtain a perfected security interest in such
      mark pursuant to this Agreement; and (v) not (and not permit any licensee
      or sublicensee thereof to) do any act or knowingly omit to do any act
      whereby such trademark may become invalidated or impaired in any way.

            (b) The Grantor (either itself or through licensees) will not do any
      act, or omit to do any act, whereby any material patent may become
      forfeited, abandoned or dedicated to the public.

            (c) The Grantor (either itself or through licensees) (i) will employ
      each material copyright and (ii) will not (and will not permit any
      licensee or sublicensee thereof to) do any act or knowingly omit to do any
      act whereby any material portion of the copyrights may become invalidated
      or otherwise impaired. The Grantor will not (either itself or through
      licensees) do any act whereby any material portion of the copyrights may
      fall into the public domain.

                                       9
<PAGE>

            (d) The Grantor (either itself or through licensees) will not do any
      act that knowingly uses any material Intellectual Property to infringe the
      intellectual property rights of any other Person.

            (e) The Grantor will notify the Administrative Agent and the Lenders
      promptly after if it knows, or has reason to know, that any application or
      registration relating to any material Intellectual Property may become
      forfeited, abandoned or dedicated to the public, or of any adverse
      determination or development (including, without limitation, the
      institution of, or any such determination or development in, any
      proceeding in the United States Patent and Trademark Office, the United
      States Copyright Office or any court or tribunal in any country) regarding
      the Grantor's ownership of, or the validity of, any material Intellectual
      Property or the Grantor's right to register the same or to own and
      maintain the same.

            (f) Whenever the Grantor, either by itself or through any agent,
      employee, licensee or designee, shall file an application for the
      registration of any Intellectual Property with the United States Patent
      and Trademark Office, the United States Copyright Office or any similar
      office or agency in any other country or any political subdivision
      thereof, the Grantor shall report such filing to the Administrative Agent
      within five (5) Business Days after the last day of the fiscal quarter in
      which such filing occurs. Upon request of the Administrative Agent, the
      Grantor shall execute and deliver, and have recorded, any and all
      agreements, instruments, documents, and papers as the Administrative Agent
      may reasonably request to evidence the Administrative Agent's and the
      Lenders' security interest in any Copyright, Patent or Trademark and the
      goodwill and General Intangibles of such Grantor relating thereto or
      represented thereby.

            (g) The Grantor will take all reasonable and necessary steps,
      including, without limitation, in any proceeding before the United States
      Patent and Trademark Office, the United States Copyright Office or any
      similar office or agency in any other country or any political subdivision
      thereof, to maintain and pursue each application (and to obtain the
      relevant registration) and to maintain each registration of the material
      Intellectual Property, including, without limitation, filing of
      applications for renewal, affidavits of use and affidavits of
      incontestability.

            (h) In the event that any material Intellectual Property is
      infringed, misappropriated or diluted by a third party, the Grantor shall
      (i) take such actions as the Grantor shall reasonably deem appropriate
      under the circumstances to protect such Intellectual Property and (ii) if
      such Intellectual Property is of material economic value, promptly notify
      the Administrative Agent after it learns thereof and sue for infringement
      misappropriation or dilution, to seek injunctive relief where appropriate
      and to recover any and all damages for such infringement, misappropriation
      or dilution.

      SECTION 11. Insurance. The Grantor shall, at its own expense, maintain
insurance with respect to the Inventory in such amounts, against such risks, in
such form and with such insurers, as is specified in the Loan Agreement. The
Grantor shall, if so requested by the Administrative Agent, deliver to the
Administrative Agent original or duplicate policies of such insurance and, as

                                       10
<PAGE>

often as the Administrative Agent may reasonably request, a report of a
reputable insurance broker with respect to such insurance. Further, the Grantor
shall, at the request of the Administrative Agent, duly execute and deliver
instruments of assignment of such insurance policies to comply with the
requirements of the Loan Agreement and use its best efforts to cause the
insurers to acknowledge notice of such assignment.

      SECTION 12. Transfers and Other Liens. The Grantor shall not (i) except as
permitted by the Loan Agreement, sell, assign (by operation of law or otherwise)
or otherwise dispose of, or grant any option with respect to, any of the
Collateral or (ii) create or permit to exist any lien, security interest, option
or other charge or encumbrance upon or with respect to any of the Collateral,
except for the security interest under this Agreement and except as permitted in
the Loan Agreement.

      SECTION 13. Administrative Agent Appointed Attorney-in-Fact. The Grantor
hereby irrevocably appoints the Administrative Agent the Grantor's
attorney-in-fact, with full authority in the place and stead of the Grantor and
in the name of the Grantor or otherwise, from time to time in the Administrative
Agent's discretion after and during the occurrence of a Default or an Event of
Default, to take any action and to execute any instrument that the
Administrative Agent may deem necessary or advisable to accomplish the purposes
of this Agreement (subject to the rights of the Grantor under Section 9),
including, without limitation:

            (a) to ask for, demand, collect, sue for, recover, compromise,
      receive and give acquittance and receipts for moneys due and to become due
      under or in connection with the Collateral,

            (b) to receive, endorse, and collect any drafts or other
      instruments, documents and chattel paper, in connection with subclause (a)
      above, and

            (c) to file any claims or take any action or institute any
      proceedings that the Administrative Agent may deem necessary or desirable
      for the collection of any of the Collateral or otherwise to enforce the
      rights of the Administrative Agent with respect to any of the Collateral.

      SECTION 14. Administrative Agent May Perform. If the Grantor fails to
perform any agreement contained herein, the Administrative Agent may itself
perform, or cause the performance of, such agreement, and the expenses of the
Administrative Agent incurred in connection therewith shall be payable by
Grantor under Section 17(b).

      SECTION 15. The Administrative Agent's Duties. The powers conferred on the
Administrative Agent hereunder are solely to protect its interest in the
Collateral and shall not impose any duty upon it to exercise any such powers.
Except for the safe custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, the Administrative
Agent shall have no duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral. The Administrative Agent shall be deemed to have
exercised reasonable care in the custody and preservation of any Collateral in
its possession if such Collateral is accorded treatment substantially equal to
that which the Administrative Agent accords its own property.

                                       11
<PAGE>

      SECTION 16. Remedies. If any Default or Event of Default shall have
occurred and be continuing:

            (a) The Administrative Agent may exercise in respect of the
      Collateral, in addition to other rights and remedies provided for herein
      or otherwise available to it, all the rights and remedies of a secured
      party on default under the Code in effect at that time, and also may (i)
      require the Grantor to, and the Grantor hereby agrees that it will at its
      expense and upon request of the Administrative Agent forthwith, assemble
      all or part of the Collateral as directed by the Administrative Agent and
      make it available to the Administrative Agent at a place to be designated
      by the Administrative Agent that is reasonably convenient to both parties;
      (ii) without notice except as specified below, sell the Collateral or any
      part thereof in one or more parcels at public or private sale, at any of
      the Administrative Agent's offices or elsewhere, for cash, on credit or
      for future delivery, and upon such other terms as the Administrative Agent
      may deem commercially reasonable; (iii) occupy any premises owned or
      leased by the Grantor where the Collateral or any part thereof is
      assembled for a reasonable period in order to effectuate its rights and
      remedies hereunder or under law, without obligation to the Grantor in
      respect of such occupation; and (iv) exercise any and all rights and
      remedies of the Grantor under or in connection with the Related Contracts
      or otherwise in respect of the Collateral, including, without limitation,
      any and all rights of the Grantor to demand or otherwise require payment
      of any amount under, or performance of any provision of, the Related
      Contracts. The Grantor agrees that, to the extent notice of sale shall be
      required by law, at least ten days' notice to the Grantor of the time and
      place of any public sale or the time after which any private sale is to be
      made shall constitute reasonable notification. The Administrative Agent
      shall not be obligated to make any sale of Collateral regardless of notice
      of sale having been given. The Administrative Agent may adjourn any public
      or private sale from time to time by announcement at the time and place
      fixed therefor, and such sale may, without further notice, be made at the
      time and place to which it was so adjourned.

            (b) Any cash held by the Administrative Agent as Collateral and all
      cash proceeds received by the Administrative Agent in respect of any sale
      of, collection from, or other realization upon, all or any part of the
      Collateral may, in the discretion of the Administrative Agent, be held by
      the Administrative Agent as collateral for, and/or then or at any time
      thereafter be applied (after payment of any amounts payable to the
      Administrative Agent pursuant to Section 17) in whole or in part by the
      Administrative Agent against, all or any part of the Obligations, in such
      order and manner as the Administrative Agent may elect. Any surplus of
      such cash or cash proceeds held by the Administrative Agent and remaining
      after payment in full of all the Obligations shall be paid over to the
      Grantor or to whomsoever may be lawfully entitled to receive such surplus.

      SECTION 17. Indemnity and Expenses.

            (a) The Grantor agrees to indemnify the Administrative Agent from
      and against any and all claims, losses and liabilities (including
      reasonable attorneys' fees) arising out of or resulting from this
      Agreement (including, without limitation, enforcement

                                       12
<PAGE>
      of this Agreement), except claims, losses or liabilities resulting from
      the Administrative Agent's gross negligence or willful misconduct as
      determined by a non-appealable final judgment of a court of competent
      jurisdiction.

            (b) The Grantor will upon demand pay to the Administrative Agent the
      amount of any and all reasonable out-of-pocket expenses, including the
      reasonable fees and expenses of its counsel and of any experts and agents,
      that the Administrative Agent may incur in connection with (i) the
      administration of this Agreement, (ii) the custody, preservation, use or
      operation of, or the sale of, collection from, or other realization upon,
      any of the Collateral in accordance with this Agreement, (iii) the
      exercise or enforcement of any of the rights of the Administrative Agent
      hereunder or (iv) the failure by the Grantor to perform or observe any of
      the provisions hereof.

      SECTION 18. Amendments, Etc. No amendment or waiver of any provision of
this Agreement, and no consent to any departure by the Grantor herefrom, shall
in any event be effective unless the same shall be in writing and signed by the
Administrative Agent, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given. No failure
on the part of the Administrative Agent to exercise, and no delay in exercising
any right hereunder, shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right preclude any other or further exercise
thereof or the exercise of any other right.

      SECTION 19. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing (including teletransmission
communication) and mailed, transmitted or delivered, if to Grantor, to it at its
address specified in Section 12.1 of the Loan Agreement, if to the
Administrative Agent, to it at the address of the Administrative Agent specified
in Section 12.1 of the Loan Agreement, or, as to any party, to it at such other
address as shall be designated by such party in a written notice to each other
party complying as to delivery with the terms of this Section. All such notices
and other communications shall, when teletransmitted, telegraphed, telexed,
faxed or cabled, be effective when teletransmitted with receipt confirmed,
delivered to the telegraph company, confirmed by telex answerback, confirmed
received or delivered to the cable company, respectively, when delivered, be
effective upon delivery, and when mailed, be effective upon being deposited in
the mails, in each case addressed as aforesaid.

      SECTION 20. Continuing Security Interest; Assignments under Loan
Agreement. This Agreement shall create a continuing security interest in the
Collateral and shall (i) remain in full force and effect until the indefeasible
payment in full of the Obligations (on or after their maturity) and all other
amounts payable under this Agreement, (ii) be binding upon the Grantor, its
successors and assigns and (iii) inure to the benefit of, and be enforceable by,
the Administrative Agent and its successors, transferees and assigns. Upon the
indefeasible payment in full of the Obligations (on or after their maturity) and
all other amounts payable under this Agreement, the security interest granted
hereby shall terminate and all rights to the Collateral shall revert to the
Grantor. Upon any such termination the Administrative Agent will, at the
Grantor's expense, execute and deliver to the Grantor such documents as the
Grantor shall reasonably request to evidence such termination.

                                       13
<PAGE>

      SECTION 21. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective only to the extent of such prohibition or unenforceability
without invalidating the remainder of such provision or the remaining provisions
hereof or thereof or affecting the validity or enforceability of such provision
in any other jurisdiction.

      SECTION 22. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and shall be binding
upon all parties, their successors and assigns, and all of which taken together
shall constitute one and the same agreement.

      SECTION 23. Governing Law; Jurisdiction; Venue; Waiver of Jury Trial.

            (a) THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND ENFORCED IN
      ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA, WITHOUT REFERENCE
      TO THE CONFLICTS OR CHOICE OF LAW PRINCIPLES THEREOF; PROVIDED THAT THE
      ADMINISTRATIVE AGENT SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.

            (b) The Grantor hereby irrevocably consents to the personal
      jurisdiction of the state and federal courts located in Mecklenburg
      County, North Carolina, in any action, claim or other proceeding arising
      out of any dispute in connection with this Agreement, any rights or
      obligations hereunder, or the performance of such rights and obligations.
      The Grantor hereby irrevocably consents to the service of a summons and
      complaint and other process in any action, claim or proceeding brought by
      the Administrative Agent in connection with this Agreement, any rights or
      obligations hereunder, or the performance of such rights and obligations,
      on behalf of itself or its property, in the manner specified in Section
      19. Nothing in this Section 23(b) shall affect the right of the
      Administrative Agent to serve legal process in any other manner permitted
      by Applicable Law or affect the right of the Administrative Agent to bring
      any action or proceeding against the Grantor or its properties in the
      courts of any other jurisdictions.

            (c) The Grantor hereby irrevocably waives any objection it may have
      now or in the future to the laying of venue in the aforesaid jurisdiction
      in any action, claim or other proceeding arising out of or in connection
      with this Agreement or the rights and obligations of the parties
      hereunder. The Grantor irrevocably waives, in connection with such action,
      claim or proceeding, any plea or claim that the action, claim or other
      proceeding has been brought in an inconvenient forum.

            (d) EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT
      TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING
      UNDER ANY THIS AGREEMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR
      INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH
      RESPECT TO THIS AGREEMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH
      CASE WHETHER NOW EXISTING OR

                                       14
<PAGE>
      HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE;
      AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND,
      ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY,
      AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A
      COPY OF THIS SECTION 23 WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT
      OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

      SECTION 24. Waivers, Non-Exclusive Remedies. No failure on the part of the
Administrative Agent or any Lender to exercise, and no delay in exercising and
no course of dealing with respect to, any right under the Loan Agreement, this
Agreement or any other Loan Document shall operate as a waiver thereof or
hereof; nor shall any single or partial exercise by the Administrative Agent or
any Lender of any right under the Loan Agreement, this Agreement or any other
Loan Document preclude any other or further exercise thereof, and the exercise
of any rights in this Agreement, the Loan Agreement and the other Loan Documents
are cumulative and are not exclusive of any other remedies provided by law. This
Agreement is a Loan Document executed pursuant to the Loan Agreement.

      SECTION 25. Headings. The various headings of this Agreement are inserted
for convenience only and neither limit nor amplify the provisions of this
Agreement.

      SECTION 26. Inconsistencies with Other Documents. In the event there is a
conflict or inconsistency between this Agreement and the Loan Agreement, the
terms of the Loan Agreement shall control; provided, that any provision herein
which imposes additional burdens on the Grantor or further restricts the rights
of the Grantor or gives the Administrative Agent or Lenders additional rights
shall not be deemed to be in conflict or inconsistent with the Loan Agreement
and shall be given full force and effect.

      SECTION 27. Limitation of Liability. No party to this Agreement, nor any
Affiliate thereof shall have any liability with respect to, any other party
hereto or Affiliate thereof and each party hereby waives, releases and agrees
not to sue upon, any claim for any special, indirect, punitive, exemplary or
consequential damages suffered by such party in connection with, arising out of,
or in any way related to this Agreement and the other Loan Documents, the
transactions contemplated herein or therein, or any act, omission or event
occurring in connection herewith or therewith.

      SECTION 28. Terms. All terms used, but not defined, herein shall have the
respective meanings set forth in the Loan Agreement.

                             [Signature Page Follow]

                                       15
<PAGE>

      IN WITNESS WHEREOF, the Grantor has caused this Agreement to be duly
executed and delivered as of the date first above written.

                              GRANTOR:

                              HARLINGEN MEDICAL CENTER,
                              LIMITED PARTNERSHIP

                              By:   HARLINGEN HOSPITAL
                                    MANAGEMENT, INC., its General Partner

                                    By:
                                        ----------------------------------------
                                    Name:

                                        ----------------------------------------
                                    Title:

                                        ----------------------------------------

                                 ADMINISTRATIVE AGENT:

                                 BANK OF AMERICA, N.A., as Administrative
                                 Agent

                                 By:
                                        ----------------------------------------
                                    Name:

                                        ----------------------------------------
                                    Title:
                                        ----------------------------------------
<PAGE>

                                   SCHEDULE I

                              Location of Inventory
                and Chief Place of Business and Executive Office
                                   of Grantor

<PAGE>
                                   SCHEDULE II

                                   Trade Names

<PAGE>
                                  SCHEDULE III

                              Intellectual Property

<PAGE>
                                    EXHIBIT K
                                       to
                       Amended and Restated Loan Agreement
                          dated as of November __, 2001
                                  by and among
                 Harlingen Medical Center, Limited Partnership,
                                  as Borrower,
                           the Lenders party thereto,
                                       and
                             Bank of America, N.A.,
                             as Administrative Agent

                            FORM OF PLEDGE AGREEMENT
<PAGE>
                          PLEDGE AND SECURITY AGREEMENT

         THIS PLEDGE AND SECURITY AGREEMENT (as amended, restated, supplemented
or otherwise modified from time to time, this "Agreement"), dated as of November
__, 2001, by and among HARLINGEN PARTNERSHIP HOLDINGS, INC., an Arizona
corporation ("HPH"), HARLINGEN HOSPITAL MANAGEMENT, INC., a North Carolina
corporation ("HMI", individually, a "Pledgor" and collectively with HPH, the
"Pledgors"), HARLINGEN MEDICAL CENTER, LIMITED PARTNERSHIP, a North Carolina
limited partnership (the "Borrower") and BANK OF AMERICA, N.A., a national
banking association, as administrative agent (the "Administrative Agent") for
the ratable benefit of itself and the financial institutions (the "Lenders") as
are, or may from time to time become, parties to the Loan Agreement (as defined
below).

                              STATEMENT OF PURPOSE

         WHEREAS, pursuant to the terms of the Amended and Restated Loan
Agreement dated as of even date herewith (as amended, restated, supplemented or
otherwise modified from time to time, the "Loan Agreement"), by and among the
Borrower, the Lenders and the Administrative Agent, the Lenders have agreed to
extend a certain credit facility to the Borrower as more particularly described
therein.

         WHEREAS, pursuant to the terms and conditions of the Loan Agreement,
the Pledgors guaranteed the Obligations of the Borrower under the Loan
Agreement.

         WHEREAS, HMI is the sole general partner of the Borrower and owns a
one-percent (1%) interest in the Borrower and HPH is a limited partner of the
Borrower and owns a fifty-percent (50%) interest in the Borrower. Therefore, the
Pledgors and the Borrower are related financial enterprises and all loans to the
Borrower will inure directly or indirectly to benefit the Pledgors.

         WHEREAS, in connection with the transactions contemplated by the Loan
Agreement and as a condition precedent to the extensions of credit thereunder,
the Lenders have requested, and the Pledgors have agreed to execute and deliver,
this Agreement.

         NOW, THEREFORE, in consideration of the premises and to induce the
Administrative Agent and the Lenders to execute the Loan Agreement and accept
the security contemplated hereby and the Lenders to make extensions of credit
under the Loan Agreement, each Pledgor hereby agrees with the Administrative
Agent for the ratable benefit of itself and the Lenders as follows:

         SECTION 1. Defined Terms.

         (a) Unless otherwise defined herein, terms which are defined in the
Loan Agreement and used herein (including the preamble and statement of purpose)
are so used as so defined, and the following terms shall have the following
meanings:
<PAGE>
                  "Agreement" means this Pledge and Security Agreement, as
         amended, restated, supplemented or otherwise modified.

                  "Certificate of Partnership" means the certificate of domestic
         limited partnership of the Borrower, as amended, restated, supplemented
         or otherwise modified from time to time.

                  "Code" means the Uniform Commercial Code as in effect in the
         State of North Carolina from time to time; provided that if by reason
         of mandatory provisions of law, the perfection or the effect of
         perfection or non-perfection of the security interests in any
         Collateral is governed by the Uniform Commercial Code as in effect in a
         jurisdiction other than North Carolina, "Code" means the Uniform
         Commercial Code as in effect in such other jurisdiction for purposes of
         the provisions hereof relating to such perfection or effect of
         perfection or non-perfection.

                  "Collateral" means all of the Partnership Interests,
         including, without limitation, all books and records relating thereto,
         and all Proceeds therefrom.

                  "Guaranty Agreement" means the Guaranty Agreement dated as of
         the date hereof executed by MedCath Corporation and certain
         Subsidiaries thereof in favor of Bank of America, N.A., as
         Administrative Agent for the ratable benefit of itself and the Lenders.

                  "Partnership Interests" means the collective reference to the
         following (a) all partnership interests (including, without limitation,
         all general partnership interests) owned by each Pledgor in the
         Borrower and all rights relating thereto, including, without
         limitation, each Pledgor's capital account, each Pledgor's interest as
         a partner in the net cash flow, net profit and net loss, and items of
         income, gain, loss, deduction and credit of the Borrower, each
         Pledgor's interest in all distributions made or to be made by the
         Borrower to the such Pledgor and all of the other economic rights,
         titles and interests of each Pledgor as a partner of the Borrower (the
         foregoing, collectively, the "Partner Interests"), (b) all management
         rights and interest of each Pledgor in the Borrower and all rights
         relating thereto, including, without limitation, any and all rights to
         request additional capital contributions from any partner of the
         Borrower and any and all rights to restrict or limit distributions to
         partners or set reserves with respect assets of the Borrower available
         for distribution to partners of the Borrower and all of the other
         economic rights, titles and interests of each Pledgor as a partner of
         the Borrower (the foregoing, the "Management Interests"), and (c) any
         and all indemnification rights and voting rights arising on account of
         or relating to the Partner Interests or Management Interests, in the
         case of each of clause (a), (b) and (c), whether set forth in the
         Partnership Agreement, by separate agreement or otherwise.

                  "Obligations" means each Pledgor's Guaranteed Obligations as
         defined in the Guaranty Agreement.

2
<PAGE>
                  "Partnership Agreement" means the limited partnership
         agreement of the Borrower, as amended, restated, supplemented or
         otherwise modified from time to time.

                  "Perfection Certificate" means a certificate dated as of even
         date herewith, setting forth the corporate or other name, chief
         executive office or principal place of business in each state and other
         current locations of each Pledgor and the Borrower and such other
         information as the Administrative Agent deems pertinent to the
         perfection of security interests, completed and supplemented with the
         schedules and attachments contemplated thereby to the satisfaction of
         the Administrative Agent, and duly certified by the chief executive or
         chief financial officer of each Pledgor and the Borrower so authorized
         to act.

                  "Permitted Liens" means Liens permitted pursuant to Section
         9.2 of the Loan Agreement.

                  "Proceeds" means all "proceeds" as such term is defined in
         Section 9-102 of the Code.

         (b) To the extent any amendment, revision or other modification of the
Code after the date hereof results in the renumbering of specific sections,
revision of the order of specific sections or other changes in the organization
of the Code in effect as of the date hereof, all references herein to specific
sections of the Code in effect as of the date hereof shall be deemed to refer to
such new section or sections which correspond to such original sections.

         SECTION 2. Pledge and Grant of Security Interest. Each Pledgor hereby
grants, pledges and collaterally assigns to the Administrative Agent, for the
ratable benefit of the Administrative Agent and the Lenders, a first priority
security interest in all of such Pledgor's right, title and interest in the
Collateral, as collateral security for the prompt and complete payment and
performance when due (whether at the stated maturity, by acceleration or
otherwise) of the Obligations; provided that such pledge shall be effective only
to the extent that such pledge is not inconsistent with the Corporate Revolver
(as defined in the Loan Agreement).

         SECTION 3. Pledgor Remains Liable. Anything herein to the contrary
notwithstanding, (a) each Pledgor shall remain liable to perform all of its
duties and obligations as a partner of the Borrower to the same extent as if
this Agreement had not been executed, (b) the exercise by the Administrative
Agent or any Lender of any of its rights hereunder shall not release any Pledgor
from any of its duties or obligations as a partner of the Borrower, and (c)
neither the Administrative Agent nor any Lender shall have any obligation or
liability as a partner of the Borrower by reason of this Agreement.

         SECTION 4. Representations and Warranties. To induce the Administrative
Agent and Lenders to execute the Loan Agreement and to accept the security
contemplated hereby and the Lenders to make extensions of credit under the Loan
Agreement, each Pledgor hereby represents and warrants that:

3
<PAGE>
                  (a) Such Pledgor is the record and beneficial owner of, and
         has good and marketable title to, the Collateral, free of any and all
         Liens or options in favor of, or claims of, any other Person, except
         the Lien created by this Agreement.

                  (b) Schedule I accurately reflects such Pledgor's Partnership
         Interest in the Borrower and the Partnership Interest pledged by such
         Pledgor constitutes all of the outstanding ownership interests of such
         Pledgor in the Borrower.

                  (c) Upon the filing of properly completed financing or other
         statements in (i) with respect to HPH, the offices of the Secretary of
         State of Arizona, and (ii) with respect to HMI, the offices of the
         Secretary of State of North Carolina, the Lien on the Collateral
         granted pursuant to this Agreement will constitute a valid, perfected
         first priority Lien on the Collateral, enforceable as such against all
         creditors of such Pledgor.

                  (d) None of the Partnership Interests are represented by
         certificates.

                  (e) None of the Partnership Interests are a medium for
         investment which by their terms expressly provide that they are a
         security governed by Article 8 of the Code.

                  (f) The "jurisdiction" of the Borrower for purposes of Section
         8-110(d) of the Code is the jurisdiction of formation of the Borrower,
         as set forth in the Perfection Certificate.

         SECTION 5. Certain Covenants. Each Pledgor covenants and agrees with
the Administrative Agent, for the ratable benefit of the Administrative Agent
and Lenders, that from and after the date of this Agreement until the
Obligations are paid in full and the Commitments are terminated:

                  (a) Such Pledgor shall maintain the security interest created
         by this Agreement as a perfected security interest having at least the
         priority described in Section 4(c) and shall defend such security
         interest against the claims and demands of all Persons whomsoever.

                  (b) Such Pledgor will not without thirty (30) days prior
         written notice to the Administrative Agent (i) change its name,
         identity, jurisdiction of incorporation, or corporate structure, or
         (ii) permit the Borrower to change its name, identity, jurisdiction of
         incorporation, corporate structure, or its "jurisdiction" for purposes
         of Section 8-110(d) of the Code, in any such case so as to make any
         financing or other statement filed as provided herein become seriously
         misleading.

                  (c) Such Pledgor will not (i) sell, assign (by operation of
         law or otherwise) or otherwise dispose of any of the Collateral, except
         as permitted by the Loan Agreement, or (ii) create or suffer to exist
         any Lien or other charge or encumbrance upon or with respect to any of
         the Collateral to secure indebtedness of any Person or entity.

4
<PAGE>
                  (d) Upon reasonable request of the Administrative Agent, such
         Pledgor will, and will cause the Borrower to, execute such financing
         statements, notices of lien, notices of assignment and continuations or
         amendments to any of the foregoing, and other documents (and pay the
         costs of filing or recording the same in all public offices deemed
         necessary by the Administrative Agent) and do such other acts and
         things, including, without limitation, taking any actions necessary to
         enable the Administrative Agent to obtain "control" (within the meaning
         of the applicable Code) with respect to the Partnership Interests, all
         as the Administrative Agent may from time to time reasonably request to
         establish and maintain a valid perfected pledge and security interest
         in the Collateral. Each of the Pledgors and the Borrower hereby
         constitutes and appoints the Administrative Agent (and any of its
         officers) as its attorney-in-fact with full power and authority,
         exercisable after and during the occurrence of an Event of Default, to
         execute and deliver all documents necessary to perfect and keep
         perfected the security interests created hereby. This power of attorney
         hereby granted is a special power of attorney coupled with an interest
         and shall be irrevocable by each of the Pledgors and the Borrower.

                  (e) HMI agrees that as general partner of the Borrower it will
         abide by, perform and discharge each and every material obligation,
         covenant and agreement to be abided by, performed or discharged by the
         general partner under the terms of the Certificate of Partnership and
         the Partnership Agreement, at no cost or expense to the Administrative
         Agent and the Lenders. HPH agrees that as a limited partner of the
         Borrower it will abide by, perform and discharge each and every
         material obligation, covenant and agreement to be abided by, performed
         or discharged by a limited partner under the terms of the Certificate
         of Partnership and the Partnership Agreement, at no cost or expense to
         the Administrative Agent and the Lenders.

                  (f) If such Pledgor shall, as a result of its ownership of the
         Collateral, become entitled to receive or shall receive any
         certificate, option or rights, whether in addition to, in substitution
         of, as a conversion of, or in exchange for any of the Collateral, or
         otherwise in respect thereof, such Pledgor shall accept the same as the
         agent of the Administrative Agent, hold the same in trust for the
         Administrative Agent and deliver the same forthwith to the
         Administrative Agent in the exact form received, duly endorsed by such
         Pledgor to the Administrative Agent, if required, to be held by the
         Administrative Agent, subject to the terms hereof, as additional
         collateral security for the Obligations. In addition, any sums paid
         upon or in respect of any Collateral upon the liquidation or
         dissolution of the Borrower shall be paid over to the Administrative
         Agent to be held by it hereunder as additional collateral security for
         the Obligations, and upon the recapitalization or reclassification of
         the Borrower, any new securities issued in connection with or in
         exchange for any Collateral shall be delivered to the Administrative
         Agent to be held by it hereunder as additional collateral security for
         the Obligations. If any sums of money or property so paid or
         distributed in respect of any Collateral shall be received by any
         Pledgor, such Pledgor shall, until such money or property is paid or
         delivered to the Administrative Agent, hold such money or property in
         trust for the Administrative Agent, segregated from other funds of such
         Pledgor, as additional collateral security for the Obligations.

5
<PAGE>
                  (g) At any time and from time to time, upon the reasonable
         written request of the Administrative Agent, and at the sole expense of
         such Pledgor, such Pledgor and the Borrower will promptly and duly
         execute and deliver such further instruments and documents and take
         such further actions as the Administrative Agent may reasonably request
         for the purposes of obtaining or preserving the full benefits of this
         Agreement and of the rights and powers herein granted. If any amount
         payable under or in connection with any of the Collateral shall be or
         become evidenced by any promissory note, other instrument or chattel
         paper, such note, instrument or chattel paper shall be immediately
         delivered to the Administrative Agent, duly endorsed in a manner
         satisfactory to the Administrative Agent, to be held as Collateral
         pursuant to this Agreement.

                  (h) Such Pledgor agrees to pay, and to save the Administrative
         Agent and the Lenders harmless from, any and all liabilities with
         respect to, or resulting from any delay in paying, any and all stamp,
         excise, sales or other taxes which may be payable or determined to be
         payable with respect to any of the Collateral or in connection with any
         of the transactions contemplated by this Agreement.

         SECTION 6. Distributions; Voting Rights.

         (a) Unless an Event of Default shall have occurred and be continuing
and the Administrative Agent shall have given notice to such Pledgor of the
Administrative Agent's intent to exercise its rights pursuant to Section 7
below, such Pledgor shall be permitted to receive all cash distributions paid in
accordance with the terms of the Loan Agreement in respect of the Collateral and
to exercise all voting and other rights with respect to the Collateral;
provided, that no vote shall be cast or right exercised or other action taken
which would (i) constitute a Default or an Event of Default or (ii) in the
Administrative Agent's reasonable judgment, impair the value of the Collateral.

         (b) Without the prior written consent of the Administrative Agent, no
Pledgor will (i) vote to enable, or take any other action to permit, the
Borrower to issue any stock, other equity securities of any nature or to issue
any other securities convertible into or granting the right to purchase or
exchange for any stock, or other equity securities of any nature of the
Borrower, except for additional equity interests that (A) will be subject to the
security interest granted herein in favor of the Administrative Agent, the
certificates of which, if any, will be promptly delivered to the Administrative
Agent, (B) are contemplated to be issued by the Partnership Agreement (as in
effect on the date hereof) or (C) do not exceed ten percent (10%) of the
aggregate amount of equity securities of the Borrower as of the date hereof
(provided that, notwithstanding the foregoing exceptions, the Pledgors,
collectively, must own greater than fifty percent (50%) of the equity securities
of the Borrower at all times) or (ii) enter into any agreement or undertaking
restricting the right or ability of such Pledgor or the Administrative Agent to
sell, assign or transfer any of the Partnership Interests or Proceeds thereof.
Each Pledgor will defend the right, title and interest of the Administrative
Agent in and to any Collateral against the claims and demands of all Persons
whomsoever.

         SECTION 7. Rights of the Administrative Agent.

6
<PAGE>
         (a) With respect to each Pledgor, if an Event of Default shall occur
and be continuing and the Administrative Agent shall give ten (10) Business Days
prior written notice of its intent to exercise such rights to such Pledgor, the
Administrative Agent shall have the right to receive any and all cash
distributions paid in respect of the Collateral and make application thereof to
the Obligations in the order set forth in the Loan Agreement, and the
Administrative Agent or its nominee may thereafter exercise all voting,
management and other rights pertaining to such collateral (to the extent
permitted under Applicable Law), all without liability except to account for
property actually received by it, but the Administrative Agent shall have no
duty to such Pledgor to exercise any such right, privilege or option and shall
not be responsible for any failure to do so or delay in so doing.

         (b) The rights of the Administrative Agent and the Lenders hereunder
shall not be conditioned or contingent upon the pursuit by the Administrative
Agent or any Lender of any right or remedy against the Borrower, the Guarantors
or against any other Person which may be or become liable in respect of all or
any part of the Obligations or against any collateral security therefor,
guarantee therefor or right of offset with respect thereto. Neither the
Administrative Agent nor any Lender shall be liable for any failure to demand,
collect or realize upon all or any part of the Collateral or for any delay in
doing so, nor shall the Administrative Agent be under any obligation to sell or
otherwise dispose of any Collateral upon the request of any Pledgor or any other
Person or to take any other action whatsoever with regard to the Collateral or
any part thereof.

         (c) Pursuant to any applicable provisions of the Code and any other
applicable law, each of the Pledgors and the Borrower authorizes the
Administrative Agent to file or record financing statements and other filing or
recording documents or instruments with respect to the Collateral without the
signature of such Pledgor or the Borrower in such form and in such offices as
the Administrative Agent determines appropriate to perfect the security
interests of the Administrative Agent under this Agreement. A photographic or
other reproduction of this Agreement shall be sufficient as a financing
statement or other filing or recording document or instrument for filing or
recording in any jurisdiction.

         SECTION 8. Remedies. If an Event of Default shall occur and be
continuing, with the consent of the Required Lenders, the Administrative Agent
may, and upon the request of the Required Lenders, the Administrative Agent
shall, exercise on behalf of itself and the Lenders, all rights and remedies
granted in this Agreement and in any other instrument or agreement securing,
evidencing or relating to the Obligations, and in addition thereto, all rights
and remedies of a secured party under the Code. Without limiting the generality
of the foregoing with regard to the scope of the Administrative Agent's
remedies, the Administrative Agent, without demand of performance or other
demand, presentment, protest, advertisement or notice of any kind (except any
notice required by Section 7 hereof or any Applicable Law) to or upon any
Pledgor, the Borrower or any other Person (all and each of which demands,
defenses, advertisements and notices (except any notice required by Section 7
hereof or any Applicable Law) are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, assign, give option or options to
purchase or otherwise dispose of and deliver the Collateral or any part thereof
(or contract to do any of the foregoing), in one or more parcels at public or
private sale or sales, in the over-the-counter market, at any exchange, broker's
board or office of the Administrative Agent or any Lender or elsewhere

7
<PAGE>
in a commercially reasonable manner. The Administrative Agent or any Lender
shall have the right upon any such public sale or sales, and, to the extent
permitted by law, upon any such private sale or sales, to purchase the whole or
any part of the Collateral so sold, free of any right or equity of redemption of
any Pledgor, which right or equity is hereby waived or released. The
Administrative Agent shall apply any Proceeds from time to time held by it in a
collateral account to be held by the Administrative Agent for the benefit of
itself and the other Lenders; and the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale, after deducting all
reasonable costs and expenses of every kind incurred in respect thereof or
incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the rights of the Administrative Agent and the
Lenders hereunder, including, without limitation, reasonable attorneys' fees and
disbursements of counsel thereto, to the payment in whole or in part of the
Obligations, in the order set forth in the Loan Agreement, and only after such
application and after the payment by the Administrative Agent of any other
amount required by any provision of law, including, without limitation, Section
9-610 and Section 9-615 of the Code, need the Administrative Agent account for
the surplus, if any, to any Pledgor. To the extent permitted by applicable law,
each Pledgor waives all claims, damages and demands it may acquire against the
Administrative Agent or any Lender arising out of the exercise by them in good
faith of any rights hereunder. Notice of a proposed sale or other disposition of
Collateral shall be given in writing to each Pledgor and deemed reasonable and
proper if given at least ten (10) Business Days before such sale or other
disposition. Each Pledgor shall remain liable for any deficiency if the proceeds
of any sale or other disposition of Collateral are insufficient to pay the
Obligations and the fees and disbursements of any attorneys employed by the
Administrative Agent or any Lender to collect such deficiency.

         SECTION 9. Private Sales.

         (a) Each Pledgor recognizes that the Administrative Agent may be unable
to effect a public sale of any or all the Collateral, by reason of certain
prohibitions contained in the Securities Act and applicable state securities
laws or otherwise, and may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers which will be obliged to agree,
among other things, to acquire such securities for their own account for
investment and not with a view to the distribution or resale thereof. Each
Pledgor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The Administrative
Agent shall be under no obligation to delay a sale of any of the Collateral for
the period of time necessary to permit the Borrower thereof to register such
securities for public sale under the Securities Act, or under applicable state
securities laws, even if the Borrower would agree to do so.

         (b) Each Pledgor further agrees to use commercially reasonable to do or
cause to be done all such other acts as may be reasonably necessary to make such
sale or sales of all or any portion of the Collateral pursuant to this Section 9
valid and binding and in compliance with any and all other Applicable Laws.

         SECTION 10. No Subrogation. Notwithstanding any payment or payments
made by any Pledgor hereunder, or any setoff or application of funds of any
Pledgor by the Administrative Agent or any Lender, or the receipt of any amounts
by the Administrative Agent or any Lender

8
<PAGE>
with respect to any of the Collateral, no Pledgor shall be entitled to be
subrogated to any of the rights of the Administrative Agent or any Lender
against the Borrower or the other Guarantors or against any other collateral
security held by the Administrative Agent or any Lender for the payment of the
Obligations, nor shall any Pledgor seek any reimbursement from the Borrower or
the other Guarantors in respect of payments made by any Pledgor in connection
with the Collateral, or amounts realized by the Administrative Agent or any
Lender in connection with the Collateral, until all amounts owing to the
Administrative Agent and Lenders on account of the Obligations are paid in full
and the Commitments are terminated. If any amount shall be paid to any Pledgor
on account of such subrogation rights at any time when all of the Obligations
shall not have been paid in full, such amount shall be held by such Pledgor in
trust for the Administrative Agent, segregated from other funds of such Pledgor,
and shall, forthwith upon receipt by such Pledgor, be turned over to the
Administrative Agent in the exact form received by such Pledgor (duly indorsed
by such Pledgor to the Administrative Agent, if required) to be applied against
the Obligations, whether matured or unmatured, in such order as set forth in the
Loan Agreement.

         SECTION 11. Amendments, etc. With Respect to the Obligations.

         (a) Each Pledgor shall remain obligated hereunder, and the Collateral
shall remain subject to the Lien granted hereby, notwithstanding that, without
any reservation of rights against any Pledgor, and without notice to or further
assent by any Pledgor, any demand for payment of any of the Obligations made by
the Administrative Agent or any Lender may be rescinded by the Administrative
Agent or such Lender, and any of the Obligations continued, and the Obligations,
or the liability of the Borrower or any other Person upon or for any part
thereof, or any collateral security or guarantee therefor or right of offset
with respect thereto, may, from time to time, in whole or in part, be renewed,
extended, amended, modified, accelerated, compromised, waived, surrendered, or
released by the Administrative Agent or any Lender, and the Loan Agreement, the
Notes, any other Loan Documents and any other documents executed and delivered
in connection therewith may be amended, modified, supplemented or terminated, in
whole or part, as the Lenders (or the Required Lenders, as the case may be) may
deem advisable from time to time, and any guarantee, right of offset or other
collateral security at any time held by the Administrative Agent or any Lender
for the payment of the Obligations may be sold, exchanged, waived, surrendered
or released. Neither the Administrative Agent nor any Lender shall have any
obligation to protect, secure, perfect or insure any other Lien at any time held
by it as security for the Obligations or any property subject thereto. Each
Pledgor waives any and all notice of the creation, renewal, extension or accrual
of any of the Obligations and notice of or proof of reliance by the
Administrative Agent or any Lender upon this Agreement; the Obligations, and any
of them, shall conclusively be deemed to have been created, contracted or
incurred in reliance upon this Agreement; and all dealings between any Pledgor,
on the one hand, and the Administrative Agent and the Lenders, on the other,
shall likewise be conclusively presumed to have been had or consummated in
reliance upon this Agreement. Each Pledgor waives diligence, presentment,
protest, demand for payment and notice (except as required by the Loan
Agreement) of default or nonpayment to or upon such Pledgor with respect to the
Obligations.

         (b) Each Pledgor waives and agrees not to assert any rights or
privileges which it may acquire under Sections 9-210, 9-607, 9-608, 9-610,
9-615, 9-620, 9-621, 9-623, 9-624, 9-625 or 9-627 of the Code. Each Pledgor
shall remain liable for any deficiency if the proceeds of any sale or other
disposition of the Collateral are insufficient to pay its Obligations and the

9
<PAGE>
fees and disbursements of any attorneys employed by the Administrative Agent or
any Lender to collect such deficiency.

         SECTION 12. Limitation on Duties Regarding Collateral. The
Administrative Agent's sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under Section 9-207
of the Code or otherwise, shall be to deal with it in the same manner as the
Administrative Agent deals with similar securities and property for its own
account. Neither the Administrative Agent, any Lender nor any of their
respective directors, officers, employees or agents shall be liable for failure
to demand, collect or realize upon any of the Collateral or for any delay in
doing so or shall be under any obligation to sell or otherwise dispose of any
Collateral upon the request of any Pledgor or otherwise.

         SECTION 13. Coupled with an Interest. All powers of attorney and other
authorizations granted to the Administrative Agent and any Persons designated by
the Administrative Agent pursuant to any provisions of this Agreement with
respect to the Collateral shall be deemed coupled with an interest and shall be
irrevocable so long as any of the Obligations remain unpaid or unsatisfied or
the Loan Agreement has not been terminated.

         SECTION 14. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective only to the extent of such prohibition or unenforceability
without invalidating the remainder of such provision or the remaining provisions
hereof or affecting the validity or enforceability of such provision in any
other jurisdiction.

         SECTION 15. Section Headings. Titles and captions of Sections and
subsections in this Agreement are for convenience only, and neither limit nor
amplify the provisions of this Agreement.

         SECTION 16. No Waiver; Cumulative Remedies. Neither the Administrative
Agent nor any Lender shall by any act (except by a written instrument pursuant
to Section 17 hereof) be deemed to have waived any right or remedy hereunder or
to have acquiesced in any Default or in any breach of any of the terms and
conditions hereof. No failure to exercise, nor any delay in exercising, on the
part of the Administrative Agent or any Lender, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by the Administrative Agent or any Lender of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy which the Administrative Agent or such Lender would otherwise have on any
future occasion. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.

         SECTION 17. Waivers and Amendments; Successors and Assigns. None of the
terms or provisions of this Agreement may be amended, supplemented or otherwise
modified except by a written instrument executed by each of the Pledgors and
Administrative Agent; provided that (a) any provision of this Agreement may be
waived by the Administrative Agent in a letter or agreement executed by the
Administrative Agent or by telex or facsimile transmission from the
Administrative Agent and (b) any consent or waiver by the Administrative Agent
to any

10
<PAGE>
amendment, supplement or modification hereto shall be subject to approval
thereof by each of the Lenders or Required Lenders, as applicable, in accordance
with Section 12.11 of the Loan Agreement. This Agreement shall be binding upon
the successors and assigns of the Pledgors and shall inure to the benefit of the
Administrative Agent and the Lenders and their respective successors and
assigns.

         SECTION 18. Governing Law, Jurisdiction, Venue and Waiver of Jury
Trial.

         (a) THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA, WITHOUT REFERENCE TO
THE CONFLICTS OR CHOICE OF LAW PRINCIPLES THEREOF; PROVIDED THAT THE
ADMINISTRATIVE AGENT SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.

         (b) Each Pledgor hereby irrevocably consents to the personal
jurisdiction of the state and federal courts located in Mecklenburg County,
North Carolina, in any action, claim or other proceeding arising out of any
dispute in connection with this Agreement, any rights or obligations hereunder,
or the performance of such rights and obligations. Each Pledgor hereby
irrevocably consents to the service of a summons and complaint and other process
in any action, claim or proceeding brought by the Administrative Agent in
connection with this Agreement, any rights or obligations hereunder, or the
performance of such rights and obligations, on behalf of itself or its property,
in the manner specified in Section 19. Nothing in this Section 18(b) shall
affect the right of the Administrative Agent to serve legal process in any other
manner permitted by Applicable Law or affect the right of the Administrative
Agent to bring any action or proceeding against any Pledgor or its properties in
the courts of any other jurisdictions.

         (c) Each Pledgor hereby irrevocably waives any objection it may have
now or in the future to the laying of venue in the aforesaid jurisdiction in any
action, claim or other proceeding arising out of or in connection with this
Agreement or the rights and obligations of the parties hereunder. Each Pledgor
irrevocably waives, in connection with such action, claim or proceeding, any
plea or claim that the action, claim or other proceeding has been brought in an
inconvenient forum.

         (d) EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY
THIS AGREEMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT, OR
THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY
HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO
THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 18
WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO
THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

11
<PAGE>
         SECTION 19. Notices. All notices and communications hereunder shall be
given to the addresses and otherwise in accordance with Section 17 of the
Guaranty Agreement.

         SECTION 20. Set-Off. Each Pledgor hereby irrevocably authorizes the
Administrative Agent and each Lender at any time and from time to time pursuant
to Section 12.3 of the Loan Agreement, without notice to such Pledgor, any such
notice being expressly waived by such Pledgor, to set-off and appropriate and
apply any and all deposits (general or special, time or demand, provisional or
final), in any currency, and any other credits, indebtedness or claims, in any
currency, in each case whether direct or indirect, absolute or contingent,
matured or unmatured, at any time held or owing by the Administrative Agent or
such Lender to or for the credit or the account of such Pledgor, or any part
thereof in such amounts as the Administrative Agent or such Lender may elect,
against and on account of the obligations and liabilities of the such Pledgor to
the Administrative Agent or such Lender hereunder and claims of every nature and
description of the Administrative Agent or such Lender against such Pledgor, in
any currency, whether arising hereunder, under the Loan Agreement, any other
Loan Document or otherwise, as the Administrative Agent or such Lender may
elect, whether or not the Administrative Agent or any Lender has made any demand
for payment and although such obligations, liabilities and claims may be
contingent or unmatured. The Administrative Agent and each Lender shall notify
the such Pledgor promptly of any such set-off and the application made by the
Administrative Agent or such Lender of the proceeds thereof; provided that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of the Administrative Agent and each Lender under this
Section 20 are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which the Administrative Agent or such
Lender may have.

         SECTION 21. Authority of Administrative Agent. Each Pledgor
acknowledges that the rights and responsibilities of the Administrative Agent
under this Agreement with respect to any action taken by the Administrative
Agent or the exercise or non-exercise by the Administrative Agent of any option,
voting right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Agreement shall, as between the Administrative
Agent and the Lenders, be governed by the Loan Agreement and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Administrative Agent and any Pledgor, the Administrative Agent
shall be conclusively presumed to be acting as Administrative Agent for itself
and the Lenders with full and valid authority so to act or refrain from acting,
and neither any Pledgor nor the Borrower shall be under any obligation, or
entitlement, to make any inquiry respecting such authority.

         SECTION 22. Control Agreement; Acknowledgment by Borrower.

         (a) Each Pledgor hereby authorizes and instructs the Borrower to
comply, and the Borrower hereby agrees to so comply, with any instruction
received from the Administrative Agent in accordance with the terms of this
Agreement with respect to the Collateral, without any consent or further
instructions from any Pledgor or any other Person, and each Pledgor agrees that
the Borrower shall be fully protected in so complying. The Borrower agrees that
its agreement set forth in the preceding sentence shall be sufficient to create
in favor of the Administrative Agent, for the benefit of the Lenders, "control"
of the Partnership Interests within the meaning of such

12
<PAGE>
term under Section 8-106(c) of the Code. (Notwithstanding the foregoing, nothing
in this Agreement is intended or shall be construed to mean or imply that the
Partnership Interests constitute "securities" within the meaning of such term
under Section 8-102(a)(15) of the Code or otherwise to limit or modify the
application of Section 8-103(c) of the Code. Rather, the Administrative Agent
has requested that this provision be included in this Agreement solely out of an
abundance of caution in the event the Partnership Interests are, nevertheless,
deemed to constitute "securities" under the Code.)

         (b) The Borrower acknowledges receipt of a copy of this Agreement and
agrees to be bound thereby and to comply with the terms hereof insofar as such
terms are applicable to it. The Borrower agrees to notify the Administrative
Agent promptly in writing of the occurrence of the events described in Section
5(c) of this Agreement. The Borrower further agrees that the terms of Section 9
of this Agreement shall apply to it with respect to all actions that may be
required of it under or pursuant to or arising out of Section 9 of this
Agreement.

                            [Signature Page Follows]

13
<PAGE>
         IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed under seal and delivered as of the date first above written.

                                      PLEDGORS:

[CORPORATE SEAL]                      HARLINGEN HOSPITAL
                                      MANAGEMENT, INC., as Pledgor

                                      By:  _____________________________________
                                           Name:  ______________________________
                                           Title: ______________________________

                                      HARLINGEN PARTNERSHIP
                                      HOLDINGS,  INC., as Pledgor

                                      By:  _____________________________________
                                           Name:  ______________________________
                                           Title: ______________________________

                                      BORROWER:

[CORPORATE SEAL]                      HARLINGEN MEDICAL CENTER,
                                      LIMITED PARTNERSHIP, as Borrower

                                      By:  HARLINGEN HOSPITAL
                                           MANAGEMENT, INC., its General Partner

                                           By: _________________________________
                                           Name:  ______________________________
                                           Title: ______________________________

                                      ADMINISTRATIVE AGENT:

                                      BANK OF AMERICA, N.A., as Administrative
                                        Agent

                                      By:  _____________________________________
                                           Name:  ______________________________
                                           Title: ______________________________

[Pledge and Security Agreement]
<PAGE>
                                   SCHEDULE I
                                    To Pledge
                                    Agreement

                      DESCRIPTION OF PARTNERSHIP INTERESTS

ISSUER:

<TABLE>
<CAPTION>
                                    State of                Percentage
Pledgor:                            Organization            Ownership
--------                            ------------            ---------
<S>                                 <C>                     <C>

</TABLE>
<PAGE>
                                    EXHIBIT L
                                       to
                       Amended and Restated Loan Agreement
                          dated as of November __, 2001
                                  by and among
                 Harlingen Medical Center, Limited Partnership,
                                  as Borrower,
                           the Lenders party thereto,
                                       and
                             Bank of America, N.A.,
                             as Administrative Agent

                            PLANS AND SPECIFICATIONS

On file with Lender
<PAGE>
                                    EXHIBIT M
                                       to
                       Amended and Restated Loan Agreement
                          dated as of November __, 2001
                                  by and among
                 Harlingen Medical Center, Limited Partnership,
                                  as Borrower,
                           the Lenders party thereto,
                                       and
                             Bank of America, N.A.,
                             as Administrative Agent

                                     BUDGET
<PAGE>
HARLINGEN MEDICAL CENTER

<TABLE>
<CAPTION>
Const. Cost Analysis          schematic des                      design dev                      estimate 1 DD
<S>                           <C>                 <C>          <C>                 <C>           <C>                 <C>
      square footage                 161,848                       168,892                          162,210
   construction cost          $28,100,203.00       173.62      $30,100,735.00      178.22       $27,689,520.00      170.70
</TABLE>

<TABLE>
<CAPTION>
Const. Cost Analysis          estimate 2 CD                        BID
<S>                           <C>                 <C>          <C>                 <C>
      square footage              174,410                          172,101
   construction cost          $32,404,760.00      $185.80      $29,951,464.00      $174.03
</TABLE>

<TABLE>
<CAPTION>
ITEM                                SD             $/SF             DD            $/SF            CE 1
----                                --             ----             --            ----            ----
<S>                            <C>               <C>           <C>               <C>           <C>              <C>
1.   General Req.                 $ 2,359,968      14.58        $ 1,732,713       10.26        $ 2,818,750        17.38
2.   Sitework                     $ 1,973,941      12.20        $ 2,020,130       11.96        $ 1,925,250        11.87
3.   Concrete                     $ 1,182,113       7.30        $ 1,160,753        6.87        $   664,130         4.09
4.   Masonry                      $    63,360       0.39        $   146,988        0.87        $ 1,192,540         7.35
5.   Metals                       $ 2,281,554      14.10        $ 2,302,304       13.63        $ 2,827,130        17.43
6.   Woods & Plast.               $    85,764       0.53        $   101,036        0.60        $    53,500         0.33
7.   Thermal & Moist.             $ 1,610,952       9.95        $ 1,781,875       10.55        $   684,200         4.22
8.   Doors & Wind.                $ 1,600,750       9.89        $ 1,300,818        7.70        $   875,740         5.40
9.   Finishes                     $ 3,736,845      23.09        $ 3,968,578       23.50        $ 2,618,170        16.14
10.  Specialties                  $   307,265       1.90        $   553,401        3.28        $   496,320         3.06
11.  Equipment                    $   540,000       3.34        $   520,855        3.08        $   684,060         4.22
12.  Furnishings                  $   730,000       4.51        $ 1,004,635        5.95        $   845,640         5.21
13.  Special Const.               $    60,000       0.37        $    77,063        0.45        $   189,840         1.17
14.  Conveying Sys.               $   780,000       4.82        $   744,580        4.41        $   644,500         3.97
15.  Fire Sprinkler               $   299,419       1.85        $   290,750        1.72        $        --         0.00
15.  Plumbing & HVAC              $ 7,445,008      46.00        $ 8,056,274       47.70        $ 6,520,700        40.20
16.  Electrical                   $ 3,043,264      18.80        $ 4,337,972       25.68        $ 3,267,860        20.15
17.  Escalation                                                                                $ 1,381,190         8.51

18.  SUB TOTAL                    $28,100,203     173.62        $30,100,735      178.22        $27,699,520       170.70

19.  OR Suite Add                not included                      included                    $ 1,228,630

20.  TOTAL                        $28,100,203     173.62        $30,100,735      178.22        $28,918,150       172.95

21.  Const. Cont                  $ 1,405,010       8.68        $ 1,200,000        7.11        $ 1,315,420         8.11

22.  TOTAL W/CONT.                $29,505,213     182.30        $31,300,735      185.33        $30,233,570       181.05
</TABLE>

<TABLE>
<CAPTION>
ITEM                                CE 2         $/SF             BID            $/SF
----                                ----         ----             ---            ----
<S>                            <C>               <C>           <C>               <C>
1.   General Req.               $  3,386,020     19.41         $  2,883,739       16.76
2.   Sitework                   $  2,101,120     12.05         $  1,732,743       10.07
3.   Concrete                   $  1,292,770      7.41         $  1,103,125        6.41
4.   Masonry                    $  1,512,810      8.67         $    169,560        0.99
5.   Metals                     $  2,986,010     17.12         $  2,072,402       12.04
6.   Woods & Plast.             $     55,000      0.32         $    118,950        0.69
7.   Thermal & Moist.           $    443,360      2.54         $  2,047,236       11.90
8.   Doors & Wind.              $    901,880      5.17         $  1,072,869        6.23
9.   Finishes                   $  3,093,640     17.74         $  2,892,732       16.51
10.  Specialties                $    659,750      3.78         $    484,930        2.82
11.  Equipment                  $    860,330      4.93         $    550,992        3.20
12.  Furnishings                $  1,047,240      6.00         $    832,455        4.84
13.  Special Const.             $    190,280      1.09         $    107,232        0.62
14.  Conveying Sys.             $    628,500      3.60         $    698,197        4.06
15.  Fire Sprinkler             $         --      0.00         $        --         0.00
15.  Plumbing & HVAC            $  8,226,020     47.16         $  8,609,703       50.03
16.  Electrical                 $  4,218,110     24.19         $  4,574,599       26.58
17.  Escalation                 $    801,920

18.  SUB TOTAL                  $32,404,769     181.20         $29,951,464       174.03

19.  OR Suite Add                  included                       included

20.  TOTAL                      $32,404,760     185.80         $29,951,464       174.03

21.  Const. Cont                $   474,040                    $        --

22.  TOTAL W/CONT.              $32,878,800     163.51         $29,951,464       174.03
</TABLE>

<PAGE>
                                    EXHIBIT N
                                       to
                       Amended and Restated Loan Agreement
                          dated as of November __, 2001
                                  by and among
                 Harlingen Medical Center, Limited Partnership,
                                  as Borrower,
                           the Lenders party thereto,
                                       and
                             Bank of America, N.A.,
                             as Administrative Agent

                              STORAGE OF MATERIALS

None.
<PAGE>
                                 Schedule 1.1(a)

                             Lenders and Commitments

<TABLE>
<CAPTION>
               LENDER                                COMMITMENT                  COMMITMENT
                                                     PERCENTAGE
-----------------------------------------------------------------------------------------------
<S>                                                  <C>                         <C>
Bank of America, N.A.
IL1-231-08-30
231 South LaSalle Street
Chicago, Illinois 60604
Charlotte, North Carolina 28255                      18.56948301%                $6,963,556.13
Attention:  Kristine Hyde
Telephone No.: (312) 828-1657
Telecopy No.:  (877) 206-8412

-----------------------------------------------------------------------------------------------
The Bankers Trust Company
1 BT Plaza
130 Liberty Street
New York, New York 10006
Attention: Robert Telesca
Phone: 212-250-7342                                  18.56948301%                $6,963,556.13
Fax: 212-250-7351

-----------------------------------------------------------------------------------------------
First Union National Bank
301 S. College Street, 6th Floor
Charlotte, North Carolina 28288
Attention:  Michael Monte                            14.48586298%                $5,432,198.62
Telephone No.: (704) 383-1114
Telecopy No.:  (704) 383-0545

-----------------------------------------------------------------------------------------------
GE Healthcare Financial Services
20225 Watertower Boulevard, Suite 200
Brookfield, WI  53045
Attention:  Dev Lobo                                 20.79631600%                $7,798,618.50
Telephone No.: 262-798-4620
Telecopy No.:  262-798-4560

-----------------------------------------------------------------------------------------------
Siemens Medical Systems, Inc.
186 Wood Avenue South
Iselin, NJ  08830
Attention:  Hezron Gurley
Telephone No.: 732-321-4631                          11.14297200%                $4,178,614.50
Telecopy No.:  732-321-2846
-----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
               LENDER                                COMMITMENT                  COMMITMENT
                                                     PERCENTAGE
-----------------------------------------------------------------------------------------------
<S>                                                  <C>                         <C>
The Chase Manhattan Bank
270 Park Avenue, 48th Floor
New York, NY  10017
Attention:  Dawn Lee Lum                             12.25726900%                $4,596,475.87
Telephone No.: 212-270-2472
Telecopy No.:  212-270-3279

-----------------------------------------------------------------------------------------------
Fifth Third Bank (Western Ohio)
110 N. Main Street
Dayton, Ohio  45402
Attention:  Karen Reed                               4.17861400%                $1,566,980.25
Telephone No.: 937-227-6484
Telecopy No.:  937-227-3027
-----------------------------------------------------------------------------------------------
                              TOTAL:                        100%                  $37,500,000
-----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
                                 SCHEDULE 1.1(b)
                                   GUARANTORS

MedCath Corporation (DE)

MedCath Holdings, Inc. (DE)

MedCath Finance Company (AZ)

MedCath Intermediate Holdings, Inc. (DE)

MedCath Incorporated (NC)

         Harlingen Hospital Management, Inc.

         MedCath of Massachusetts, Inc. (NC)

         Austin MOB, Inc. (NC)

         Harlingen Partnership Holdings Inc.

         MedCath  Diagnostics, LLC (NC)
                  CHF Centers of America, LLC (NC)
                  Heart Research Centers International, LLC (NC)
                  MedCath Nuclear Services, LLC (NC)

         MedCath Cardiology Consulting & Management, Inc. (AZ)
                  MedCath Management of Ohio, Inc. (OH)
                  WMS Management, Inc. (OH)

<PAGE>
                                 SCHEDULE 1.1(c)

                            RELATED CREDIT DOCUMENTS

1.   Amended and Restated Loan Agreement dated as of July 27, 2001 (as amended,
     restated, supplemented or otherwise modified, the "DTO Loan Agreement") by
     and among Heart Hospital of DTO, LLC, as Borrower, the Lenders who are or
     may become party thereto, as Lenders, and Bank of America, N.A., as
     Administrative Agent.

2.   Amended and Restated Loan Agreement dated as of July 27, 2001 (as amended,
     restated, supplemented or otherwise modified, the "Little Rock Loan
     Agreement") by and among MedCath of Little Rock, L.L.C., as Borrower, the
     Lenders who are or may become party thereto, as Lenders, and Bank of
     America, N.A., as Administrative Agent.

3.   Amended and Restated Loan Agreement dated as of July 27, 2001 (as amended,
     restated, supplemented or otherwise modified, the "BK Loan Agreement") by
     and among Heart Hospital of BK, L.L.C., as Borrower, the Lenders who are or
     may become party thereto, as Lenders, and Bank of America, N.A., as
     Administrative Agent.
<PAGE>
                                 SCHEDULE 1.1(d)

                           RELATED GUARANTY AGREEMENTS

1.   Guaranty Agreement dated as of July 27, 2001 (as amended, restated,
     supplemented or otherwise modified, the "DTO Guaranty Agreement") made by
     MedCath Corporation and certain Subsidiaries thereof who are or may become
     party thereto in favor of Bank of America, N.A., as Administrative Agent
     for the retable benefit of itself and the Lenders from time to time party
     to the DTO Loan Agreement.

2.   Guaranty Agreement dated as of July 27, 2001 (as amended, restated,
     supplemented or otherwise modified, the "Little Rock Guaranty Agreement")
     made by MedCath Corporation and certain Subsidiaries thereof who are or may
     become party thereto in favor of Bank of America, N.A., as Administrative
     Agent for the retable benefit of itself and the Lenders from time to time
     party to the Little Rock Agreement.

3.   Guaranty Agreement dated as of July 27, 2001 (as amended, restated,
     supplemented or otherwise modified, the "BK Guaranty Agreement") made by
     MedCath Corporation and certain Subsidiaries thereof who are or may become
     party thereto in favor of Bank of America, N.A., as Administrative Agent
     for the retable benefit of itself and the Lenders from time to time party
     to the BK Loan Agreement.
<PAGE>
                                 SCHEDULE 5.1(b)

                                 CAPITALIZATION

<TABLE>
<CAPTION>
                           OWNER                            PERCENTAGE INTEREST
                           -----                            -------------------
<S>                                                         <C>
Management Company                                              General - 1%
Harlingen Partnership Holdings, Inc.                           Limited - 50%
Investor Limited Partners                                      Limited - 49%
</TABLE>
<PAGE>
                                 SCHEDULE 5.1(l)

                               MATERIAL CONTRACTS

Borrower:

-    Limited Partnership Agreement of the Borrower, as amended from time to
     time.

-    Agreement for Architectural Services dated March 9, 2000, between Odell
     Associates Inc., as may be amended from time to time.

-    Standard Form Agreement dated March 7, 2001, between Borrower and Faulkner
     Construction Company, and converted by letter agreement dated May 21, 2001,
     as may be amended from time to time.

-    Loans noted with an asterisk (*) on Schedule 5.1(s).

Guarantors:

     Debt Obligations:

-    Commitment Agreement.

-    Credit Agreement dated as of July 31, 1998, among MedCath Intermediate
     Holdings, Inc., Bank of America, N.A. (formerly NationsBank, N.A.), as
     Administrative Agent and Collateral Agent, NationsBanc Montgomery
     Securities, LLC, as Arranger and Syndication Agent, and the Lenders named
     from time to time in the principal amount of $100,000,000.

-    Loan dated December 10, 1997 from MetLife Capital to MedCath Incorporated
     in the principal amount of $7,000,000.

     General Guaranty Obligations:

-    Subsidiary Guaranty Agreement dated as of July 31, 1998, among the
     Guarantors named therein, Bank of America, N.A. (formerly NationsBank,
     N.A.), as Administrative Agent and Collateral Agent, NationsBanc Montgomery
     in the principal amount of $100,000,000.

-    Guaranty provisions in the Loan Agreement dated as of June 29, 2000, among
     Bank of America, N.A., as Administrative Agent, Heart Hospital of South
     Dakota, LLC, the Lenders named therein, and the Guarantors named therein in
     the principal amount of $32,618,000.

-    Related Guaranty Agreements set forth on Schedule 1.1(d).

     MedCath Incorporated Guaranty Obligations
<PAGE>
-    Guaranty dated October 10, 1998, by MedCath, Inc. in favor of Health Care
     Property Investors in the principal amount of $35,100,000.

-    Guaranty dated March 2, 2000, by the Guarantors named therein to Heller
     Financial Leasing, Inc. in the principal amount of $24,660,333

-    Guaranty dated October 1, 1999, by the Guarantors named therein in favor of
     HealthCare Property Investors, Inc. in the principal amount of $25,500,000

-    Guaranty Agreement dated as of July 18, 1996 by MedCath Incorporated in
     favor of Capstone Capital Corporation in the principal amount of
     $17,800,000.

-    Loan dated June 1, 1996, from Prime Leasing to MedCath of Little Rock,
     L.L.C. in the principal amount of $16,000,000.

-    Loan dated March 1, 1998, from US Bancorp to MedCath of Tucson, L.L.C. in
     the principal amount of $11,961,000

-    Loan dated March 31, 1998 from DVI Financial Services to Arizona Heart
     Hospital, LLC in the principal amount of $12,292,386.

-    Loan dated December 1, 1998 from DVI Financial Services to Heart Hospital
     of Austin, LLC in the principal amount of $18,000,000.

-    Loan dated October 1, 1998 from GE Medical Systems to Heart Hospital of BK,
     L.L.C. in the principal amount of $5,000,000.

-    Loan dated October 1, 1998 from GE Medical Systems to Heart Hospital of BK,
     L.L.C. in the principal amount of $10,000,000.

-    Loan dated August 1, 1999 from DVI Financial Services to Heart Hospital of
     New Mexico, L.L.C. in the principal amount of $17,500,000.

-    Loan dated October 1, 1998 from Siemans Credit Corp. to Heart Hospital of
     DTO, LLC in the principal amount of $17,000,000.

-    Loan dated March 21, 2001, from Siemans to Heart Hospital of South Dakota,
     LLC in the principal amount of $16,000,000.

-    Loan from GE Leases to MedCath Diagnostics, LLC
<PAGE>
                                 SCHEDULE 5.1(s)

                          DEBT AND GUARANTY OBLIGATIONS

<TABLE>
<CAPTION>
           BORROWER                       LENDER               DATE              AMOUNT
           --------                       ------               ----              ------
<S>                             <C>                            <C>         <C>
Harlingen Medical Center        MedCath Finance Company                    Face amount of $8,000,000
Limited Partnership*                                                       may advance up to
                                                                           $12,000,000
</TABLE>
<PAGE>
                                 SCHEDULE 5.1(t)

                                   LITIGATION

                                      NONE
<PAGE>
                                  SCHEDULE 9.8

                      PERMITTED TRANSACTIONS WITH AFFILATES

Loan shown on Schedule 5.1(s).<PAGE>

                              AMENDED AND RESTATED
                               OPERATING AGREEMENT
                                       OF
                        HEART HOSPITAL OF NEW MEXICO, LLC
                    A NEW MEXICO LIMITED LIABILITY COMPANY
<PAGE>
                                TABLE OF CONTENTS
                                     TO THE
                              AMENDED AND RESTATED
                               OPERATING AGREEMENT
                                       OF
                        HEART HOSPITAL OF NEW MEXICO, LLC
                    A NEW MEXICO LIMITED LIABILITY COMPANY

<TABLE>
<S>                                                                                <C>
ARTICLE I  DEFINITIONS .......................................................      2

ARTICLE II  FORMATION AND AGREEMENT OF LIMITED LIABILITY COMPANY .............      2
      Section 2.1  Company Formation: Effective Date .........................      2
      Section 2.2  Name of Company ...........................................      2
      Section 2.3  Purposes and Business Objectives ..........................      2
      Section 2.4  Statement of Philosophy and Values ........................      3
      Section 2.5  Registered Agent and Office; Principal Place of Business ..      4
      Section 2.6  Commencement and Term .....................................      4

ARTICLE III  MEMBERS AND CAPITAL CONTRIBUTIONS ...............................      4
      Section 3.1  Names and Addresses of Members ............................      4
      Section 3.2  Initial Capital Contributions of Members ..................      4
      Section 3.3  Membership Interests as of the Effective Date .............      5
      Section 3.4  Liability of Members - For Capital ........................      5
      Section 3.5  Maintenance of Capital Accounts: Withdrawals of Capital ...      5
      Section 3.6  Interest on Capital Contributions or Capital Accounts .....      6
      Section 3.7  Additional Funding ........................................      6
      Section 3.8  Enforcement of Commitments ................................      7
      Section 3.9  Reserved Powers of Members ................................      8
      Section 3.10 Other Business of Members ................................      9
      Section 3.11 Appointment of Board of Directors ........................     13

ARTICLE IV  MANAGEMENT OF THE COMPANY ........................................     13
      Section 4.1  General Authority and Powers of Board of Directors ........     13
      Section 4.2  Restrictions on Authority of the Board of Directors .......     13
      Section 4.3  Duties of the Board of Directors ..........................     14
      Section 4.4  Delegation by the Board of Directors ......................     15
      Section 4.5  Right to Rely Upon the Authority of the Manager ...........     15
      Section 4.6  No Management by Members ..................................     15
      Section 4.7  Consent by Members to Exercise of Certain Rights and Powers
                   by Board of Directors .....................................     16
      Section 4.8  Meetings, Quorum and Vote of the Board of Directors .......     16
      Section 4.9  Board of Directors' Standard of Care ......................     17
      Section 4.10 Limitation of Liability ...................................     18
      Section 4.11 Indemnification of Directors ..............................     18
      Section 4.12 Guarantee Fee .............................................     18
</TABLE>

                                       i
<PAGE>
<TABLE>
<S>                                                                                <C>
ARTICLE V  DISTRIBUTIONS AND ALLOCATIONS .....................................     20
      Section 5.1  Distributions of Cash Flow from Operations and Cash from
      Sales
                          or Refinancing .....................................     20
      Section 5.2  Profits ...................................................     20
      Section 5.3  Losses ....................................................     20
      Section 5.4  Code Section 704(c) Tax Allocations .......................     21
      Section 5.5  Miscellaneous .............................................     21
      Section 5.6  Special Allocations of Guarantee Fees .....................     22

ARTICLE VI  DISSOLUTION, WINDING UP AND LIQUIDATING DISTRIBUTIONS ............     22
      Section 6.1  No Termination by Certain Acts of Member ..................     22
      Section 6.2  Dissolution ...............................................     22
      Section 6.3  Dissolution and Final Liquidation .........................     22
      Section 6.4  Termination ...............................................     24
      Section 6.5  Payment in Cash ...........................................     24
      Section 6.6  Goodwill and Trade Name ...................................     24
      Section 6.7  Termination of Noncompetition Covenants ...................     24

ARTICLE VII  REMOVAL OR WITHDRAWAL OF MEMBERS AND ............................     24
TRANSFER OF MEMBERS' MEMBERSHIP AND/OR ECONOMIC INTERESTS ....................     24
      Section 7.1  Withdrawal of Member ......................................     24
      Section 7.2  Conditions Precedent to Transfer of Membership Interest ...     26
      Section 7.3  Substitute Member - Conditions to Fulfill .................     26
      Section 7.4  Allocations Between Transferor and Transferee .............     26
      Section 7.5  Rights, Liabilities of, and Restrictions on Assignee ......     27
      Section 7.6  Repurchase of Interests in Certain Event ..................     27

ARTICLE VIII  RECORDS, ACCOUNTINGS AND REPORTS ...............................     28
      Section 8.1  Books of Account ..........................................     28
      Section 8.2  Access to Records .........................................     28
      Section 8.3  Bank Accounts and Investment of Funds .....................     28
      Section 8.4  Fiscal Year ...............................................     28
      Section 8.5  Accounting Reports ........................................     28
      Section 8.6  Tax Returns ...............................................     29

ARTICLE IX  MEETINGS AND VOTING RIGHTS OF MEMBERS ............................     29
      Section 9.1  Meetings ..................................................     29
      Section 9.2  Voting Rights of Members ..................................     30

ARTICLE X  AMENDMENTS ........................................................     30

ARTICLE XI  MISCELLANEOUS ....................................................     31
      Section 11.1  Waiver of Provisions .....................................     31
      Section 11.2  Interpretation and Construction ..........................     31
      Section 11.3  Governing Law ............................................     31
</TABLE>

                                       ii
<PAGE>
<TABLE>
<S>                                                                                <C>
      Section 11.4  Partial Invalidity .......................................     31
      Section 11.5  Binding on Successors ....................................     31
      Section 11.6  Notices and Delivery .....................................     31
      Section 11.7  Counterpart Execution: Facsimile Execution ...............     32
      Section 11.8  Statutory Provision ......................................     32
      Section 11.9  Waiver of Partition ......................................     32
      Section 11.10 Change In Law ............................................     32
      Section 11.11 Investment Representations of the Members ................     36
      Section 11.12 Exhibits .................................................     37
</TABLE>

                                      iii
<PAGE>
                              AMENDED AND RESTATED
                               OPERATING AGREEMENT
                                       OF
                        HEART HOSPITAL OF NEW MEXICO, LLC
                    A New Mexico Limited Liability Company

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

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

                                    RECITALS

      A.    On or about February 20, 1998, the Company was formed in
accordance with the original Operating Agreement of the Company (the
"Original Operating Agreement");

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

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

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

      E. The Original Operating Agreement was amended by the First Amendment to
Private Placement Memorandum of Heart Hospital of New Mexico, LLC and to the
Operating Agreement of the Company and to Management Services Agreement dated
February 20, 1998 and by the Amendment of Heart Hospital of New Mexico, LLC
Agreements dated October 1, 1998;
<PAGE>
      F. Members of the Company have entered into a Membership Purchase
Agreement whereby, among other things, St. Joseph Healthcare System ("SJHS"),
NMHI, LLC and SWCA, LLC have agreed to sell a portion of their Membership
Interests to NMHM; and

      G. The Members of the Company hereby desire to amend and restate the
Original Operating Agreement to incorporate the terms of the previous amendments
to the Original Operating Agreement and to make certain changes related to
SJHS's sale of its Membership Interest.

                                    ARTICLE I

                                   DEFINITIONS

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

                                   ARTICLE II

             FORMATION AND AGREEMENT OF LIMITED LIABILITY COMPANY

      SECTION 2.1 COMPANY FORMATION: EFFECTIVE DATE.

      The Company was formed upon the filing of the Articles of Organization
with the New Mexico State Corporation Commission in accordance with the
provisions of the Act. Upon the effectiveness of the Original Operating
Agreement, the Persons listed on the attached Information Exhibit (Exhibit B)
were admitted to the Company as Members and the Persons who executed the
Articles were withdrawn as Members (unless they are listed on the Information
Exhibit), all without the necessity of any further act or instrument and without
causing the dissolution of the Company. The Company shall cause to be executed
all other such certificates or documents, and shall do or cause to be done all
such filing, recording, or other acts, as may be necessary or appropriate from
time to time to comply with the requirements of law for the continuation and/or
operation of a limited liability company in the State of New Mexico and other
documents to reflect the admission of additional Members to the Company. The
Original Operating Agreement was effective as of the date the Company was
formed, and this Agreement shall be effective as of the Effective Date, as
defined herein.

      SECTION 2.2 NAME OF COMPANY.

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

      SECTION 2.3 PURPOSES AND BUSINESS OBJECTIVES.

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

                                       2
<PAGE>
             (a) To develop, own and operate a Hospital specializing in the
      diagnosis and treatment of cardiac and vascular diseases in Albuquerque,
      New Mexico, which includes, but is not limited to, the following:

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

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

                  (iii) Approximately 60 medical/surgical beds;

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

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

                  (vi)  All appropriate support services and systems;

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

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

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

      SECTION 2.4 STATEMENT OF PHILOSOPHY AND VALUES.

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

            (a) The Board shall adopt and adhere to the policies of SJHS, as
      they may be amended from time to time, for providing care for those
      patients who are unable to pay for Hospital care;

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

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

                                       3
<PAGE>
            (d) The Company shall adopt and adhere to a conflict of interest
      policy with respect to contracts between the Company and Members or
      Directors requiring full disclosure of all conflicts;

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

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

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

            (h) The Hospital will not be operated in a manner which is
      inconsistent with the mission and charitable purposes of SJHS.

      SECTION 2.5 REGISTERED AGENT AND OFFICE; PRINCIPAL PLACE OF BUSINESS.

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

      SECTION 2.6 COMMENCEMENT AND TERM.

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

                                   ARTICLE III

                        MEMBERS AND CAPITAL CONTRIBUTIONS

      SECTION 3.1 NAMES AND ADDRESSES OF MEMBERS.

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

      SECTION 3.2 INITIAL CAPITAL CONTRIBUTIONS OF MEMBERS.

      The Members made the following initial Capital Contributions, paid in two
equal installments, with the first installment due on February 20, 1998 and the
second installment due on or before April 1, 1998:

                                       4
<PAGE>
            (a) SWCA, LLC initially owned a fifteen percent (15%) Membership
      Interest in the Company and contributed to the Company for its Membership
      Interest the sum of Six Hundred Thousand and No/100 Dollars ($600,000.00);

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

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

            (d) NM Hospital Management, Inc. ("NMHM") initially owned a
      twenty-four percent (24%) Membership Interest in the Company and
      contributed to the Company for its Membership Interest the sum of Nine
      Hundred Sixty Thousand and No/100 Dollars ($960,000.00).

      SECTION 3.3 MEMBERSHIP INTERESTS AS OF THE EFFECTIVE DATE.

      Upon the Effective Date of this Agreement:

            (a)   SWCA, LLC shall own a ten percent (10%) Membership Interest
      in the Company;

            (b)   NMHI, LLC shall own an eighteen percent (18%) Membership
      Interest in the Company;

            (c)   SJHS shall own a three percent (3%) Membership Interest in
      the Company; and

            (d)   NMHM shall own a sixty-nine percent (69%) Membership
      Interest in the Company.

      SECTION 3.4 LIABILITY OF MEMBERS - FOR CAPITAL.

      The liability of each Member for capital shall be limited to the amount of
its agreed Capital Contribution as a Member as provided in Section 3.2 and
Section 3.7. The Members shall not be required to contribute any additional
capital to the Company except as provided in Section 3.7.

      SECTION 3.5 MAINTENANCE OF CAPITAL ACCOUNTS: WITHDRAWALS OF CAPITAL.

      An individual Capital Account shall be maintained for each Member in
accordance with requirements of the Code and the Regulations promulgated
thereunder. No Member shall be entitled to withdraw or to make demand for
withdrawal of any part of its Capital Account or to

                                       5
<PAGE>
receive any distribution except as provided herein. Each Member shall look
solely to the assets of the Company for the return of its Capital Contributions
and shall have no right or power to demand or receive property other than cash
from the Company. No Member shall have priority over any other Member as to the
return of its Capital Contributions, distributions or allocations, except as
provided in this Agreement.

      SECTION 3.6 INTEREST ON CAPITAL CONTRIBUTIONS OR CAPITAL ACCOUNTS.

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

      SECTION 3.7 ADDITIONAL FUNDING.

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

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

                  (i) If loan guarantees are required for financing the
            construction and equipping of the Hospital, each Member agrees to
            provide the required guarantee. The aggregate amount of the loans
            for the construction and equipping of the hospital (and the
            commensurate aggregate amount of the guarantees) shall not exceed
            $45 million. The guarantees shall be several and in proportion to
            the equity interest of the Member. Each Member shall provide its
            guarantee promptly and in the form reasonably approved by the Board
            of Directors and required by the lenders or lessors to the Company.
            Each Member agrees to promptly provide financial statements and
            other information customarily required by the lender or lessor.

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

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

                                       6
<PAGE>
            (c) Third, if the Board determines that adequate funds are not
      available under (a) or (b) above, the Board shall so notify all of the
      Members. Any Member shall then have the right to contribute all or some
      portion of the additional funds required. If more than one Member elects
      to advance the funds to the Company, preference will be given to
      maintaining the relative equity interests of the Members making the
      additional contributions in the Company. In the event that either SWCA,
      LLC or NMHI, LLC does not elect to make all of its proportionate share of
      additional Capital Contributions which its is entitled to make under (b)
      above, then the other of them shall have the first opportunity to make the
      pro rata Capital Contribution which such noncontributing Member declined
      to make pursuant to (b) above. Thereafter the other Members may elect to
      contribute such amounts. Each contributing Member shall be entitled at its
      election to treat the amounts contributed pursuant to this Section either
      as a Capital Contribution or as a loan from the contributing Member to the
      Company.

                  (i) If the contributing Member elects to contribute the amount
            as a Capital Contribution, the percentage Membership Interests of
            the Members shall again be adjusted proportionately.

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

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

            (e) All adjustments to Membership Interests as provided in this
      Section 3.7 shall be made based solely upon the actual total Capital
      Contributions made by the Members as of the date of each such adjustment.

      SECTION 3.8 ENFORCEMENT OF COMMITMENTS.

      In the event any Member (a "Delinquent Member") fails to make a mandatory
Capital Contribution as provided in Section 3.2 or an optional Capital
Contribution as agreed to by the Member under Section 3.7 (the "Commitment"),
the Board of Directors shall give the Delinquent Member a Notice of the failure
to meet the Commitment. If the Delinquent Member fails to perform the Commitment
(including any costs associated with the failure to meet the Commitment and
interest on such obligation at the Default Interest Rate) within ten (10)
business days of the giving of Notice, the Board of Directors shall give notice
of such failure to the other Members. The other Members may elect to contribute
additional amounts equal to any amount of the Commitment not contributed by such
Delinquent Member. The contributing Member shall be entitled at its election to
treat the amounts contributed pursuant to this Section either (i) as a Capital
Contribution of the contributing Member or (ii) as a loan from the contributing
Member to the Delinquent Member bearing interest at the Default Rate secured by
the Delinquent Member's Interest in the Company and the proceeds of which loan
shall be applied to

                                       7
<PAGE>
meet the Delinquent Member's commitment. If the contributing Member elects to
contribute such amount as a Capital Contribution, the percentage Membership
Interests of the Members shall be adjusted proportionately. Until the
contributing Member is fully repaid for such loan made as a result of the
default by the Delinquent Member, the contributing Member shall be entitled to
all distributions to which the Delinquent Member would have been entitled had
such Commitment been fulfilled thereby, and any such distribution shall be
applied first to accrued interest and then to principal in repayment of the
loan. Notwithstanding the foregoing, no Commitment or other obligation to make
an additional Capital Contribution may be enforced by a creditor of the Company
unless the Member expressly consents to such enforcement or to the assignment of
the obligation to such creditor.

      SECTION 3.9 RESERVED POWERS OF MEMBERS.

            (a) Subject to Section 3.9(b), the following actions are the only
      actions which can be taken by the Members and shall require the unanimous
      consent of the Members entitled to designate and appoint voting members of
      the Board of Directors:

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

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

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

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

                  (v)   Election of new Members into the Company;

                  (vi) Any alteration or amendment of the Company's Statement of
            Philosophy and Values and any action which is inconsistent with the
            Company's Statement of Philosophy and Values;

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

                  (viii) Any action, which in the reasonable opinion of counsel,
            would give rise to regulatory and/or criminal penalties or liability
            or would prevent SJHS from receiving referrals of patients from the
            Hospital or physicians who are direct or indirect investors in the
            Company; and

                                       8
<PAGE>
                  (ix) Approval and authorization of disproportionate
            distributions or allocations of profits, losses or assets of the
            Company, except as specifically permitted elsewhere in this
            Agreement.

            (b) If first approved by at least three (3) members of the Board of
      Directors designated by NMHI and SWCA, then, upon the written consent of
      owners holding units constituting at least seventy-five percent (75%) of
      the membership interests of each of NMHI, LLC and SWCA, LLC, NMHI, LLC and
      SWCA, LLC may invoke the termination procedures under Section 6.2-2(b) of
      the Management Services Agreement regardless of the vote of the Board
      members designated by NMHM on such issue provided that the Manager shall
      be entitled to exercise all of its rights with regard to such termination
      in accordance with the terms of the Management Services Agreement.

      SECTION 3.10      OTHER BUSINESS OF MEMBERS.

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

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

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

                  (ii) hold, directly or indirectly, any investment ownership or
            other beneficial equity interest in, or be associated in a
            consulting, management or advisory role with any Entity, hospital or
            sole proprietorship which provides any of the following services or
            facilities: cardiac catheterization, cardiac or peripheral
            angioplasty, atherectomy, stenting or cardiac or cardiovascular
            surgical procedures ("Cardiac Services") within a fifty (50) mile
            radius of the Hospital, it being acknowledged that both SHJS and the
            Company may provide non-coronary vascular surgery procedures
            (excluding in all events in the case of SJHS, cardiovascular surgery
            procedures, except upon prior written approval pursuant to Section
            11.10(b)(i)(F)(4) of this Agreement);

                  Except that,

                                       9
<PAGE>
                        (A) nothing herein shall prevent a Member who is a
                  medical group, its Affiliates or employed physicians from
                  having medical staff privileges and participating fully as a
                  member of the medical staff (including service on committees
                  and medical directorships, which do not violate the terms of
                  any other agreement to which a Member or its Affiliates are
                  bound) of any hospital or medical facility in the Territory,
                  or from providing any diagnostic procedures customarily
                  performed on an outpatient basis in medical offices or cardiac
                  rehabilitation services;

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

                        (C) a Member who is a nonprofit corporation may acquire
                  or become affiliated with other corporations which operate
                  general hospitals that provide or may provide Cardiac Services
                  in the Territory but outside the fifty (50) mile radius of the
                  Hospital. Within a fifty (50) mile radius of the Hospital, a
                  Member who is a nonprofit corporation may (a) acquire, manage
                  or become affiliated with other entities which operate general
                  hospitals providing Cardiac Services, as of the date hereof,
                  and (b) acquire, affiliate with or manage a program which
                  provides Cardiac Services on behalf of an entity which
                  operates, as of the date hereof, such a program (including any
                  cardiac program related to Section 3.10(b)(ii)(C)(a)), so long
                  as in any event the nonprofit Member uses its reasonable
                  effort to provide either the Hospital or each of SWCA. LLC,
                  NMHI, LLC and NMHM with an opportunity to participate therein.
                  Provided, however, no such nonprofit Member may initiate, or
                  be involved with the initiation of, any new Cardiac Services
                  at its existing hospital or at any such other affiliated or
                  acquired hospital or at any new hospital. The parties
                  acknowledge and agree that a proprietary (for-profit)
                  Successor (as defined at Section 3.10(b)(ii)(H) below) of SJHS
                  shall have

                                       10
<PAGE>
                  the same benefits and obligations as SJHS under this Section
                  3.10(b)(ii)(C);

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

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

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

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

                        (H) (1) with respect to SJHS only, the restrictions set
                        forth in Section 3.10(b) shall be applicable until the
                        later of (x) five (5) years from the Effective Date, or
                        (y) two (2) years after SJHS ceases to be a Member of
                        the Company. SJHS and its Affiliates shall cause any
                        successor or assign of SJHS or its Affiliates
                        ("Successors") to agree to be bound by the terms of
                        Section 3.10(b) including, but not limited to, this
                        Section 3.10(b)(ii)(H).

                              (2) Successors shall include (x) any person, firm
                        or corporation which purchases or leases any of the real
                        estate holdings of SJHS or its Affiliates for the
                        purpose of operating, or thereafter during the period of
                        this restrictive covenant operates, a hospital within
                        the geographic area referred to in Section 3.10(b) of
                        this Agreement; (y) any person, firm or corporation who
                        purchases more than fifty percent (50%) of the assets of
                        SJHS or its Affiliates; or (z) any person, firm or
                        corporation who gains control of SJHS or its Affiliates,
                        either by reason of controlling a majority of its
                        directors or trustees or by reason of becoming a

                                       11
<PAGE>
                        member of SJHS or its Affiliates. Any transfer by SJHS
                        or its Affiliates to a Successor shall be referred to
                        herein as an "SJHS Sale".

                              (3) An SJHS Sale may only be made to a Successor
                        that (x) will not be in violation of Section 3.10(b) of
                        the Agreement at the time of the conveyance and (y)
                        first agrees in writing, prior to the transaction with
                        SJHS, that such Successor (its affiliates and their
                        successors and assigns) will be bound by this Section
                        3.10(b) for the remainder of the term that SJHS would
                        have been bound had there been no SJHS Sale. Such
                        agreement will be for the express benefit of the Company
                        and its Affiliates, and SJHS will make information
                        pertinent to this Section 3.10(b)(ii)(H) reasonably
                        available to NMHM or its Affiliates from time to time.

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

            (c) The Members, including the Directors, have reviewed the term and
      geographical restrictions in Section 3.10(b), and in light of the
      interests of the parties hereto, agree that such restrictions are fair and
      reasonable.

            (d) If there is a breach or threatened breach of the provisions of
      this Section 3.10, in addition to other remedies at law or equity, the
      non-breaching party shall be entitled to injunctive relief. The parties
      desire and intend that the provision of this Section 3.10 shall be
      enforced to the fullest extent permissible under the law and public
      policies applied, but the enforceability or modification of any particular
      paragraph, subparagraph, sentence, clause, phrase, word or figure shall
      not be deemed to render unenforceable the remainder of this Section 3.10.
      Should any paragraph, subparagraph, sentence, clause, phrase, word or
      figure be adjudicated to be wholly invalid or unenforceable, the balance
      of this Section 3.10 shall thereupon be modified in order to render the
      same valid and enforceable and the unenforceable portion of this Section
      3.10 shall be deemed to have been deleted from this Agreement.

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

                                       12
<PAGE>
      SECTION 3.11      APPOINTMENT OF BOARD OF DIRECTORS.

      The Members shall appoint a Board of Directors as follows:

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

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

            (c)   NMHM shall appoint four (4) Directors; and

            (d)   SJHS shall appoint one (1) Director who, notwithstanding any
      provision herein to the contrary, shall not be entitled to vote on any
      matter which requires the consent or approval of the Board of Directors or
      otherwise requires the Board of Directors to act hereunder.

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

                                   ARTICLE IV

                            MANAGEMENT OF THE COMPANY

      SECTION 4.1 GENERAL AUTHORITY AND POWERS OF BOARD OF DIRECTORS.

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

      SECTION 4.2 RESTRICTIONS ON AUTHORITY OF THE BOARD OF DIRECTORS.

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

            (a)   Act in contravention of this Agreement;

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

                                       13
<PAGE>
            (c)   Commingle the Company funds with those of any other Person;

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

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

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

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

            (h) Make or cause the making of any payments of any type, directly
      or indirectly, to anyone for the referral of patients to the Hospital in
      order to use the Hospital or to provide other services;

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

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

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

      SECTION 4.3 DUTIES OF THE BOARD OF DIRECTORS.

      The Board of Directors shall do the following:

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

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

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

            (d) Cause the Company to obtain and keep in force during the term of
      the Company fire and extended coverage, public liability and professional
      liability insurance and other insurance policies, with such issuers and in
      such amounts as the Board of Directors shall deem advisable, but in
      amounts not less (and deductible amounts not

                                       14
<PAGE>
      greater) than those customarily maintained with respect to the business
      equipment and property comparable to the Company's;

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

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

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

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

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

      SECTION 4.4 DELEGATION BY THE BOARD OF DIRECTORS.

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

      SECTION 4.5 RIGHT TO RELY UPON THE AUTHORITY OF THE MANAGER.

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

      SECTION 4.6 NO MANAGEMENT BY MEMBERS.

      Other than as set forth in Article III hereof, the Members shall take no
part in, or at any time interfere in any manner with, the management, conduct,
or control of the Company's business and operations and shall have no right or
authority to act for or bind the Company. The rights and powers of such Members
shall not extend beyond those set forth in this Agreement and those granted
under the Articles of Organization and any attempt to participate in the control

                                       15
<PAGE>
of the Company in a manner contrary to the rights and powers granted herein and
under the Articles of Organization shall be null and void and without force and
effect. The exercise by any other Member of any of the rights granted to the
Member hereunder shall not be deemed to be taking part in the control of the
business of the Company and shall not constitute a violation of this Section.

      SECTION 4.7 CONSENT BY MEMBERS TO EXERCISE OF CERTAIN RIGHTS AND
                  POWERS BY BOARD OF DIRECTORS.

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

      SECTION 4.8 MEETINGS, QUORUM AND VOTE OF THE BOARD OF DIRECTORS.

            (a) The Board of Directors shall meet at least quarterly. A meeting
      may be called by any Director or the Manager. Notice of any meeting,
      regular or special, shall be delivered to each Director personally, by
      telephone, by electronic mail, by facsimile transmission or in writing at
      least five (5) business days before the meeting. If a request for
      additional funding pursuant to Section 3.7(b) is to be considered at the
      meeting, it must be so stated specifically in the Notice of Meeting. The
      Director calling the meeting or the Manager shall be responsible for
      preparing and delivering the Notice of Meeting.

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

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

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

                                       16
<PAGE>
            (e) Any action taken by the Board of Directors shall require the
      affirmative vote of at least a majority of the Directors (at least one of
      whom shall have been appointed by NMHM) present at a meeting at which a
      quorum is present, except that the following actions shall require the
      consent of at least one Board member appointed by each of NMHM, NMHI, LLC
      and SWCA, LLC:

                  (i)   the determination of the annual budget of the Company
            and any material amendments or modifications thereof, including
            material expenditures in excess thereof; and

                  (ii) any maintenance and/or capital improvement expenditures
            not included in an annual budget and in excess of Twenty-Five
            Thousand Dollars ($25,000.00) or resulting in an aggregate
            expenditure outside of the budget by more than five percent (5%)
            thereof unless matched or supported by revenue in excess of that
            reflected in such budget.

            (f) Notwithstanding Section 4.8(e) or any other provision herein to
      the contrary, the Board of Directors may invoke the termination procedures
      under Section 6.2-2(b) of the Management Services Agreement upon the
      written consent of at least three (3) of the Directors appointed by NMHI,
      LLC and SWCA, LLC regardless of the vote of the Board members designated
      by NMHM on such issue provided that after the Board consents to invoke
      such termination procedures NMHI, LLC and SWCA, LLC consent to invoke such
      termination procedures in accordance with Section 3.9(b) and further
      provided that the Manager shall be entitled to exercise its rights with
      regard to such termination in accordance with the terms of the Management
      Services Agreement.

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

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

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

      SECTION 4.9 BOARD OF DIRECTORS' STANDARD OF CARE.

      Each Director and the Board of Directors shall act in a manner it believes
in good faith to be in the best interest of the Company and with such care as an
ordinarily prudent Person in a like position would use under similar
circumstances. In discharging its duties, each Director shall be fully protected
in relying in good faith upon the records required to be maintained under this
Agreement and upon such information, opinions, reports and statements by any of
its other Directors, Members, or agents, or by any other Person as to matters
each Director reasonably

                                       17
<PAGE>
believes are within such other Person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Company,
including information, opinions, reports or statements as to the value and
amount of the assets, liabilities, income or losses of the Company or any other
facts pertinent to the existence and amount of assets from which distributions
to members might properly be paid.

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

      SECTION 4.10      LIMITATION OF LIABILITY.

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

      SECTION 4.11      INDEMNIFICATION OF DIRECTORS.

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

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

      SECTION 4.12      GUARANTEE FEE.

      In the event that a lender of funds to the Company requires that all or a
      portion of such loan be guaranteed (the portion of such loan required to
      be guaranteed is hereafter referred to as

                                       18
<PAGE>
      the "Guarantee Amount"), then to the extent that (a) the lender either is
      unwilling to accept a guarantee from a Member for its pro rata share of
      such Guarantee Amount, (b) such Member is unwilling to provide a guarantee
      for its pro rata share of the Guarantee Amount or (c) such lender requires
      NMHM or its Affiliates to also guarantee all or a portion of the pro rata
      Guarantee Amount of such other Member (in addition to any other portion of
      such loan which NMHM or its Affiliates is obligated to guarantee as a
      result of NMHM's pro rata interest in the Company), then NMHM shall be
      paid an annual guarantee fee by such Members of the Company other than
      NMHM (collectively, the "Non-Guarantor Members") equal to .0075 multiplied
      by the pro rata portion of the Guarantee Amount of such other Member which
      is required by such lender to be guaranteed by NMHM or its Affiliates with
      respect to such loan (the "Guarantee Fee"). The Guarantee Fee shall be
      paid quarterly and the expense thereof shall be allocated to the
      Non-Guarantor Members as follows:

            (a) The Guarantee Fee shall be deducted from the Cash Distributions
      otherwise distributable to the Non-Guarantor Members and shall be paid to
      NMHM;

            (b) To the extent that at the time such Guarantee Fee is due to be
      paid hereunder there are no anticipated Cash Distributions, then the
      Company shall pay such Guarantee Fee to NMHM and the amount of such
      payments shall be charged to the Capital Accounts of the Non-Guarantor
      Members;

            (c) When Cash Distributions become available for distribution to the
      Members in the future, the Cash Distributions otherwise distributable to
      the Non-Guarantor Members shall first be retained by the Company and the
      Capital Accounts of the Non-Guarantor Members shall be restored to the
      extent that amounts were previously charged to the Capital Accounts of the
      Non-Guarantor Members in accordance with (b) above and any remaining Cash
      Distributions shall be distributed to the Members in accordance with
      Section 5.1.

      Notwithstanding anything herein to the contrary, (i) SJHS alone shall be
obligated to pay to NMHM on the date of the closing of the Membership Purchase
Agreement, a guarantee fee equal to One Hundred Eleven Thousand Nine Hundred
Twenty Dollars ($111,920) arising from an additional Six Million Six Hundred
Thousand Dollars ($6,600,000) of debt guarantees being required by Health Care
Property Investors, Inc. ("HCPI") for thirty (30) months in consideration of the
release of SJHS from its guarantee to HCPI as of October 1, 2001; and (ii) in
consideration of such payment, for purposes of computing the amount of the
guarantee fee payable by the other Members to NMHM and/or its Affiliates
pursuant to this Section 4.12, the additional guarantee of debt referred to in
(i) above shall not be included in the total amount of indebtedness guaranteed
by NMHM and/or its Affiliates.

                                       19
<PAGE>
                                    ARTICLE V

                          DISTRIBUTIONS AND ALLOCATIONS

      SECTION 5.1 DISTRIBUTIONS OF CASH FLOW FROM OPERATIONS AND CASH FROM
                  SALES OR REFINANCING.

      Prior to the dissolution of the Company, Cash Flow from Operations and
Cash from Sales or Refinancing, if any, remaining after repayment of any amounts
then due on loans made by the Members to the Company, shall be distributed
quarterly as Cash Distributions according to the relative percentage Membership
Interests of the Members; provided, however, that to the extent possible, any
Guarantee Fee shall be deducted from the Cash Distributions otherwise
distributable to the Non-Guarantor Members and paid to NMHM as set forth in
Section 4.12. The Board shall make a minimum distribution of Cash Flow from
Operations equal to fifty percent (50%) of net profit, after taking into
consideration the requirement for cash reserves or other limitations established
by any lender. Notwithstanding anything herein to the contrary, no distributions
shall be made to Members if prohibited by the Act or other applicable law.

      SECTION 5.2 PROFITS.

      Except as provided in the Regulatory Allocations Exhibit (Exhibit E) and
subject to Section 5.6, Profits shall be allocated as follows:

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

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

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

      SECTION 5.3 LOSSES.

      Except as provided in the Regulatory Allocations Exhibit (Exhibit E) and
subject to Section 5.6, Losses shall be allocated as follows:

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

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

                                       20
<PAGE>
      SECTION 5.4 CODE SECTION 704(c) TAX ALLOCATIONS.

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

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

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

      SECTION 5.5 MISCELLANEOUS.

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

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

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

                                       21
<PAGE>
      SECTION 5.6 SPECIAL ALLOCATIONS OF GUARANTEE FEES.

      Any and all deductions, losses or reductions to Capital Accounts
attributable to the payment by the Company of Guarantee Fees shall be allocated
to the Non-Guarantor Members in accordance with their relative percentage
Membership Interests.

                                   ARTICLE VI

            DISSOLUTION, WINDING UP AND LIQUIDATING DISTRIBUTIONS

      SECTION 6.1 NO TERMINATION BY CERTAIN ACTS OF MEMBER.

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

      SECTION 6.2 DISSOLUTION.

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

            (a)   The election by the Directors to dissolve the Company in
      accordance with the terms of Section 3.7(c) hereof;

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

            (c)   The adjudication of bankruptcy of the Company;

            (d)   In accordance with Section 11.10 hereof; and

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

      SECTION 6.3 DISSOLUTION AND FINAL LIQUIDATION.

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

                                       22
<PAGE>
      to any Person, including a Member or any Affiliate thereof, on such terms
      and for such consideration as shall be consistent with obtaining the fair
      market value thereof, as such fair market value is approved by the
      Members.

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

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

                  (ii) To the payment of all debts and liabilities (including
            interest), and further including without limitation any accrued but
            unpaid Guarantee Fees, owed to the Members or their Affiliates as
            creditors; and

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

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

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

            (e) The Capital Accounts of the Members, as adjusted, shall be
      utilized by the Company for the purpose of making distributions to those
      Members with positive balances in their respective Capital Accounts
      pursuant to Section 6.3(b). In making such distributions, the Board of
      Directors or the Person winding up the affairs of the Company shall
      distribute all funds available for distribution to the Members (after
      establishing any reserves that the Board of Directors deem or the Person
      winding up the affairs of the Company deems reasonably necessary pursuant
      to Section 6.3(b)) prior to the later of (a) the end of the taxable year
      in which the event occurs which caused the termination and dissolution of
      the Company, or (b) ninety (90) days after the occurrence of such event.
      The Board of Directors in their sole discretion, or the Person winding up
      the affairs of the Company, in its discretion, may elect to have the
      Company retain any installment obligations owed to the Company until
      collected in full so long as any portion of the reserves which are later
      determined to be unnecessary, and all collections on such

                                       23
<PAGE>
      installment obligations which are not deemed to be reasonably necessary by
      the Board of Directors or the Person winding up the affairs of the Company
      to add to such reserves are distributed as soon as practicable in
      accordance with the provisions of Section 6.3(b) as modified by this
      Section.

      SECTION 6.4 TERMINATION.

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

      SECTION 6.5 PAYMENT IN CASH.

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

      SECTION 6.6 GOODWILL AND TRADE NAME.

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

      SECTION 6.7 TERMINATION OF NONCOMPETITION COVENANTS.

      Upon the later of the dissolution of the Company and the completion of the
liquidation process, the Members shall have no continuing liability or
obligation under Section 3.10(b), except that Section 3.10(b) shall continue to
be binding upon a Member whose breach of this Agreement caused a dissolution of
the Company and any action for a breach of this Agreement, including a breach of
Section 3.10(b), shall not be impaired by the dissolution or completed
liquidation.

                                   ARTICLE VII

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

      SECTION 7.1 WITHDRAWAL OF MEMBER.

            (a) Except as provided in this Section 7.1, without the unanimous
      consent of the nonwithdrawing Members, a Member shall not voluntarily
      withdraw from the Company as a Member at any time prior to its
      termination, or transfer or assign any of its rights and duties, provided
      that a Member may assign its Membership Interest in the Company and its
      rights to appoint one or more Directors to wholly-owned Affiliates (for
      NMHM, including MedCath Corporation, MedCath Incorporated and their
      wholly-owned Affiliates) and lenders. A Member shall give written notice
      to the remaining Members if

                                       24
<PAGE>
      it desires to otherwise sell its Membership Interest. In that event, the
      other Members shall first have an option to purchase such Membership
      Interest in accordance with Section 7.1(c) below. The foreclosure of a
      Member's Interest by a lender shall give the remaining Members a right to
      purchase the Interest being foreclosed for either the amount due and owing
      to the lender or pursuant to Section 7.1(c). A sale or transfer in a
      single transaction or in a series of related transactions of 50% or more
      of the direct or indirect ownership interests in SWCA, LLC or NMHI, LLC
      (other than to another entity owned solely by either or both of such
      Members or their Affiliates) shall constitute an offer by such Member to
      sell its Membership Interest to the Company and the other Members in
      accordance with (c) below.

            (b) In the event that NMHM or an Affiliate desires to sell its
      Membership Interest, SJHS shall be given the first right to negotiate the
      purchase of such Membership Interest from NMHM or its Affiliate; provided,
      however, that (i) the sale of MedCath Corporation or MedCath Incorporated
      or a substantial portion of their assets shall not be considered a sale of
      the Membership Interest of NMHM or an Affiliate for purposes of this
      Article VII; and (ii) any proposed purchase by SJHS under this Section
      7.1(b) shall, except as otherwise provided in Section 7.1(a) or (b), be
      subject to the Right of First Refusal of the Company and the other Members
      as set forth at Section 7.1(c) below.

            (c) Except as otherwise set forth in this Agreement, no Membership
      Interest or any portion thereof, shall be validly sold or assigned whether
      voluntarily, involuntarily or by operation of law, and no purported
      assignee shall be recognized by the Company for any purpose, unless such
      Membership Interest shall have been transferred in accordance with the
      provisions of this Agreement and in compliance with such additional
      restrictions as may be imposed by any federal or state securities law and
      with the consent of the Board of Directors. In no event, however, shall a
      Member transfer or sell all or any of its Membership Interest to any party
      which, if a Member, would be in violation of Section 3.10(b) hereof.
      Except as otherwise set forth in this Section or in this Agreement, a
      Member may transfer, sell or assign its entire Membership Interest if it
      has received the consent of the Board of Directors, not to be unreasonably
      withheld, provided however: (i) the Company first for a period of fifteen
      (15) days, and thereafter the other Members for a period of fifteen (15)
      days, shall have the right, but not the obligation, to purchase all, but
      not less than all, of the Membership Interest proposed to be transferred,
      which right shall be exercisable on the terms and for the purchase price
      set forth in a bona fide offer made for the Interest by a third-party (the
      "Right of First Refusal"), and (ii) there shall have been filed with the
      Company a duly executed and acknowledged counterpart of the instrument
      making such assignment signed by both the assignor and assignee and such
      instrument evidences the written acceptance by the assignee of all of the
      terms and provisions of the Agreement, represents that such assignment was
      made in accordance with all applicable laws and regulations and the
      assignee shall have represented to the Company in writing that it meets
      the investor suitability standards established by the appropriate state of
      residence, or, in the absence thereof, the investor suitability standards
      established by the Company. The Board of Directors shall use reasonable
      care to determine that transfers are in accordance with applicable laws
      and regulations, which may include obtaining an opinion of counsel to that
      effect.

                                       25
<PAGE>
            (d) Notwithstanding Section 7.1(c) or any other provision of this
      Agreement, (i) SJHS shall not be entitled to exercise any Right of First
      Refusal nor have any purchase rights under Section 7.1(c) and (ii) sales
      of Membership Interests by Members pursuant to the Membership Purchase
      Agreement are hereby approved by the Company and such sales made pursuant
      to the Membership Purchase Agreement are not subject to Section 7.1(c).

      SECTION 7.2 CONDITIONS PRECEDENT TO TRANSFER OF MEMBERSHIP INTEREST.

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

      SECTION 7.3 SUBSTITUTE MEMBER - CONDITIONS TO FULFILL.

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

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

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

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

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

      SECTION 7.4 ALLOCATIONS BETWEEN TRANSFEROR AND TRANSFEREE.

      Upon the transfer of a Member's Interest, all items of income, gain, loss,
deduction and credit attributable to the Membership Interest so transferred
shall be allocated between the transferor and the transferee in such manner as
the transferor and transferee agree at the time of

                                       26
<PAGE>
transfer; provided such allocation does not violate federal or state income tax
law. If the Board of Directors deems such laws violated, then such allocation
shall be made pro rata for the fiscal year based upon the number of days during
the applicable fiscal year of the Company that the Membership Interest so
transferred was held by the transferor and transferee, without regard to the
results of Company activities during the period in which each was the holder, or
in such other manner as the Board of Directors deems necessary to comply with
federal or state income tax laws. Distributions as called for by this Agreement
shall be made to the holder of record of the Membership Interest on the date of
distribution. Notwithstanding anything contained in this Agreement to the
contrary, the Company shall be entitled to treat the assignor of any assigned
Membership Interest as the absolute owner thereof in all respects, and shall
incur no liability for distributions made in good faith to such assignor in
reliance on the Company records as they exist until such time as the written
assignment has been received by, and recorded on the books of the Company. For
purposes of this Article VII, the effective date of an assignment of any
Membership Interest shall be the last day of the month specified in the written
instrument of assignment.

      SECTION 7.5 RIGHTS, LIABILITIES OF, AND RESTRICTIONS ON ASSIGNEE.

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

      SECTION 7.6 REPURCHASE OF INTERESTS IN CERTAIN EVENT.

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

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

                                       27
<PAGE>
                                  ARTICLE VIII

                        RECORDS, ACCOUNTINGS AND REPORTS

      SECTION 8.1 BOOKS OF ACCOUNT.

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

      SECTION 8.2 ACCESS TO RECORDS.

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

      SECTION 8.3 BANK ACCOUNTS AND INVESTMENT OF FUNDS.

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

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

      SECTION 8.4 FISCAL YEAR.

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

      SECTION 8.5 ACCOUNTING REPORTS.

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

                                       28
<PAGE>
showing the financial condition of the Company at the end of such fiscal year
and the result of its operations for the fiscal year then ended, which annual
accounting shall be prepared on an accrual basis in accordance with generally
accepted accounting principles applied on a consistent basis and shall be
delivered to each of the Members promptly after it has been prepared. It shall
include a balance sheet as of the end of such Fiscal Year and statements of
income and expense, each Member's equity, and cash flow for such Fiscal Year.
The Company shall be audited by a firm of independent certified public
accountants regularly engaged by the Board of Directors on behalf of the
Company. (For so long as NMHM is a Member of the Company, the Company shall
endeavor to use the same firm of accountants as used by MedCath.) The report
shall set forth the distributions to the Members for such Fiscal Year and shall
separately identify distributions from (i) operating revenue during such Fiscal
Year, (ii) operating revenue from a prior period which had been held as
reserves, (iii) proceeds from the sale or refinancing of the Equipment, and (iv)
unexpended proceeds received from the sale of Membership Interests. Following
the opening of the Hospital, Board of Directors shall also cause to be prepared
and distributed to the Members quarterly financial statements.

      SECTION 8.6 TAX RETURNS.

      It is the intention of all Members that the Company be treated for tax
purposes as a partnership under Subchapter J of the Code, and that this
Agreement be construed in accordance with such intent. All Members agree to
construe and/or amend the Agreement as may be necessary from time to time to
effect such intent. The Board of Directors shall cause income tax returns for
the Company to be prepared, at Company expense, and timely filed with the
appropriate authorities. As soon as is reasonably practicable, and in any event
on or before the expiration of 75 days following the end of each Fiscal Year,
each Member shall be furnished with a statement to be used in the preparation of
the Member's tax returns, showing the amounts of any Profits or Losses allocated
to the Member, and the amount of any distributions made to the Member, pursuant
to this Agreement, along with a reconciliation of the annual report with
information furnished to Members for income tax purposes.

                                   ARTICLE IX

                      MEETINGS AND VOTING RIGHTS OF MEMBERS

      SECTION 9.1 MEETINGS.

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

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

                                       29
<PAGE>
      adjourned to another time or place, and if any announcement of the
      adjournment of time or place is made at the meeting, it shall not be
      necessary to give notice of the adjourned meeting.

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

      SECTION 9.2 VOTING RIGHTS OF MEMBERS.

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

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

                                    ARTICLE X

                                   AMENDMENTS

      This Agreement and the Articles of Organization of the Company may be
amended only with the unanimous consent of NMHI, LLC, SWCA, LLC and NMHM.

                                       30
<PAGE>
                                   ARTICLE XI

                                  MISCELLANEOUS

      SECTION 11.1      WAIVER OF PROVISIONS.

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

      SECTION 11.2      INTERPRETATION AND CONSTRUCTION.

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

      SECTION 11.3      GOVERNING LAW.

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

      SECTION 11.4      PARTIAL INVALIDITY.

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

      SECTION 11.5      BINDING ON SUCCESSORS.

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

      SECTION 11.6      NOTICES AND DELIVERY.

            (a) To Members. Any notice to be given hereunder at any time to any
      Member or any document reports or returns required by this Agreement to be
      delivered to any Member, may be delivered personally or mailed to such
      Member, certified mail, postage prepaid, addressed to the Member at such
      times as the Member shall by notice to the Company have designated as the
      Member's address for the mailing of all notices hereunder or, in the
      absence of such notice, to the address set forth in the Information

                                       31
<PAGE>
      Exhibit (Exhibit B) hereof. Any notice, or any document, report or opinion
      so delivered or mailed shall be deemed to have been given or delivered to
      such Member at the time it is mailed, as the case may be.

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

      SECTION 11.7      COUNTERPART EXECUTION: FACSIMILE EXECUTION.

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

      SECTION 11.8      STATUTORY PROVISION.

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

      SECTION 11.9      WAIVER OF PARTITION.

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

      SECTION 11.10     CHANGE IN LAW.

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

                                       32
<PAGE>
      receipt of legal advice in writing from such health care counsel regarding
      Applicable Law the parties hereto are unable to negotiate an acceptable
      restructuring of their relationship, then the Company shall have the
      option, within the following forty-five (45) day period, to purchase the
      Membership Interests of some or all of the Members whose ownership is
      involved with such noncompliance with Applicable Law for a purchase price
      equal to the greater of: (a) five times the net income of the Company for
      the prior 12 month period times the percentage of the selling Member's
      Membership Interest or (b) the amount of the Capital Contributions made by
      each such Member to the Company together with interest thereon computed at
      the Prime Rate as of the date of this Agreement from the date of such
      contribution through the date upon which the Company pays all amounts due
      under the terms of this Section 11.10. For the purpose of Subparagraph
      (b), distributions to the Members by the Company after the effective date
      of this Agreement (and whether before or after health care counsel
      determined there was a problem under an Applicable Law or before or after
      the exercise of the purchase option) shall be treated as payments by the
      Company. Such purchase prices shall be paid in accordance with the Payment
      Method. Third, in the event that the Company does not exercise its option
      to purchase Membership Interests of a Member whose ownership causes the
      Company not to be in compliance with Applicable Law, such Members may
      elect in writing within the following forty-five (45) day period, to
      require that the Company be dissolved, in which event the Company shall be
      dissolved in accordance with the terms of this Agreement.

                  (b)(i) In the event, that nationally recognized tax counsel of
            SJHS, but who prior to their engagement for purposes of this
            Agreement have not previously represented SJHS or any of its
            Affiliates with respect to this transaction, and which tax counsel
            is selected with the approval of NMHM, which approval shall not be
            unreasonably withheld, reasonably determines in writing after
            regular consultation with NMHM, the other Members and their counsel,
            and offer using their reasonable best efforts to avoid such
            determination, that as a result of any change in any law or
            regulation or change in the interpretation of an existing law or
            regulation after the date hereof, that the existence of (x) SJHS'
            Membership Interest in the Company, both directly and alternatively
            through a for-profit affiliate of SJHS (the "SJHS Sub") of which
            SJHS is the sole shareholder to which it assigns (or to which it is
            entitled to assign under the terms of this Agreement) its Membership
            Interest or (y) SJHS' obligation under Section 3.7(a)(i) to
            guarantee a portion of the Company's indebtedness, will result in
            SJHS losing its tax-exempt status, SJHS may give notice in writing
            to the Company, SWCA, LLC, NMHI, LLC and NMHM of that fact.
            Thereafter, the parties agree to the following:

                        (A) The parties hereto shall in good faith consider and
                  discuss with one another mutually acceptable alternatives to
                  revise this Agreement in a manner which would prevent SJHS
                  from losing its tax-exempt status but which would not
                  materially alter the substance of the transaction among the
                  parties and would not substantially diminish the material
                  benefits of the transaction to any party.

                                       33
<PAGE>
                        (B) If (x) the parties have failed to renegotiate the
                  Agreement in a mutually acceptable manner as provided in (A)
                  above, (y) the assignment by SJHS of its Membership Interest
                  to its for-profit affiliate alone will not enable SJHS to
                  avoid the loss of its tax-exempt status and (z) if SJHS is
                  liable for any guarantees of indebtedness of the Company and
                  SJHS' being released from such guarantees any will avoid SJHS'
                  loss of its tax-exempt status, then conditioned upon (1) the
                  payment of a Guarantee Fee by the SJHS Sub to NMHM pursuant to
                  Section 4.12 of the outstanding balance of the principal
                  amount of debt of the Company then guaranteed by SJHS and its
                  affiliates plus the amount which thereafter would, absent the
                  operation of this subsection 11.10(b)(i)(B) have been
                  guaranteed by SJHS, (2) the execution and delivery by the SJHS
                  Sub of a reimbursement agreement providing for the SJHS Sub's
                  reimbursement of NMHM for all amounts of principal, interest
                  and other costs paid by NMHM or its Affiliates under its
                  guarantees of the Company's indebtedness which absent the
                  application of this subsection would have been paid by SJHS or
                  its Affiliates, and (3) the approval of such arrangement by
                  the Company's lenders, then NMHM and its parent MedCath
                  Incorporated shall assume all liability and obligation of SJHS
                  and its affiliates for their guaranty of the Company's debt.

                        Rather than assigning its guarantee to NMHM and paying
                  the Guarantee Fee as provided above, SJHS and its affiliates
                  shall have the right to use any other commercially reasonable
                  alternative for obtaining a release of SJHS from any
                  obligation or liability to guarantee the debts of the Company
                  as long as such alternative does not impose any cost, expense,
                  liability or obligation upon the Company or any of its other
                  Members.

                        (C) If the parties have failed to renegotiate the
                  Agreement in a mutually acceptable manner as provided in (A)
                  above and the arrangement set forth in (B) above will not
                  avoid SJHS' loss of its tax-exempt status, then SJHS may
                  provide written notice of its election to withdraw from the
                  Company pursuant to Section 7.1. Within one hundred eighty
                  (180) days of the date of the notice, SJHS shall relinquish
                  its Membership Interest in the Company and any of the
                  Company's directors, officers or managers appointed by SJHS
                  shall tender their resignations.

                        (D) Company, SWCA, LLC, NMHI, LLC and NMHM shall use
                  commercially reasonable efforts to obtain a release of SJHS
                  from any guaranty of the debts of Company and, in the event
                  they are unable to do so, Company, SWCA, LLC, NMHI, LLC and
                  NMHM shall, severally based upon their relative ownership of
                  the Company, indemnify and hold SJHS harmless from any such
                  guaranty and shall obtain the release of SJHS at the first
                  available opportunity.

                                       34
<PAGE>
                        (E) Within thirty (30) days, either SJHS or the Company
                  may give the other notice that it intends to terminate any
                  hospital services agreement between them (the "Hospital
                  Services Agreement"). If either party terminates the Hospital
                  Services Agreement, SJHS shall continue to provide the
                  services set forth in the Agreement until such time as the
                  Company can find a replacement for the service, but not to
                  exceed one hundred eighty (180) days. If neither party gives
                  notice of termination within thirty (30) days, the Hospital
                  Services Agreement will continue in force and effect according
                  to its terms.

                        (F) Commencing as of the withdrawal date and continuing
                  for so long as the restrictions of Section 3.10(b) are
                  applicable to SJHS as set forth at Section 3.10(b)(ii)(H),
                  SJHS will not compete directly or indirectly with the Company,
                  in an area within a radius of fifty (50) miles of the
                  Hospital, by providing diagnosis or treatment of
                  cardiovascular disease or cardiothoracic and cardiovascular
                  surgery services or facilities (as an owner, manager or
                  otherwise), it being acknowledged that both SJHS and the
                  Company may provide non-coronary vascular surgery procedures
                  (excluding in all events in the case of SJHS, cardiovascular
                  surgery procedures, except upon prior written approval
                  pursuant to Section 11.10(b)(i)(F)(4) of this Agreement)
                  except

                              (1) SJHS may continue to provide diagnostic
                        cardiac catheterization and such cardiac services as are
                        necessary to stabilize the medical condition of its
                        patients in preparation for transfer to another facility
                        for treatment of the cardiovascular disease or providing
                        cardiothoracic or vascular surgery;

                              (2) To the extent that SJHS seeks to obtain the
                        services of the Hospital to enable SJHS to fulfill
                        obligations under managed care agreements, Company shall
                        sell those services to SJHS at a price and upon terms
                        which are no less favorable than it provides to any
                        other substantially similar managed care provider; and

                              (3) Company shall not provide acute care hospital
                        services except as needed by a cardiology, vascular or
                        cardiovascular patient of the heart hospital or as
                        necessary to stabilize a patient in preparation for
                        transfer to another facility for treatment of that
                        condition.

                              (4) Whenever due to lack of capacity at the
                        Hospital an attending physician desires to admit a
                        patient to SJHS, SJHS may provide diagnosis or treatment
                        of cardiovascular disease or cardiothoracic and
                        cardiovascular surgery services or facilities upon prior
                        written approval of the President of the Company.

                                       35
<PAGE>
                              The parties agree that the terms of this
                        subsection (F) are fair and reasonable in light of the
                        important interests of each party hereto.

                        (G) Except as provided herein or in the Agreement for
                  Land Purchase, SJHS shall be released from any further
                  obligation to the Company, SWCA, LLC, NMHI, LLC or NMHM.

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

      SECTION 11.11     INVESTMENT REPRESENTATIONS OF THE MEMBERS.

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

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

                                       36
<PAGE>
      Company to any Person unless and until the provisions of this Agreement
      hereof have been fully satisfied.

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

      SECTION 11.12     EXHIBITS.

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

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

      IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
following execution page(s), to be effective as of the Effective Date.

                                       37
<PAGE>
                                 EXECUTION PAGE
                                     TO THE
                              AMENDED AND RESTATED
                               OPERATING AGREEMENT
                                       OF
                        HEART HOSPITAL OF NEW MEXICO, LLC
                     A NEW MEXICO LIMITED LIABILITY COMPANY

                                   NMHI, LLC
                                   a New Mexico limited liability company

                                   By: /s/ William M. Deane, M.D.
                                       -----------------------------------------
                                       William M. Deane, M.D.
                                       Manager

                                   SWCA, LLC
                                   a New Mexico limited liability company

                                   By: /s/ Harvey J. White, Jr., M.D.
                                       -----------------------------------------
                                       Harvey J. White, Jr., M.D.
                                       President

                                   ST. JOSEPH HEALTHCARE SYSTEM,
                                   a New Mexico nonprofit corporation

                                   By: /s/ Steven Smith
                                       -----------------------------------------
                                         Steven Smith
                                         President

                                   NM Hospital Management, Inc.
                                   a North Carolina corporation

                                   By: /s/ Doug McMinn
                                       -----------------------------------------
                                   Title: Vice President
<PAGE>
                                                                       EXHIBIT A

                              STATE OF NEW MEXICO

              [SEAL OF STATE CORPORATION COMMISSION OF NEW MEXICO]

                                   OFFICE OF

                        THE STATE CORPORATION COMMISSION

                          CERTIFICATE OF ORGANIZATION

                                       OF

                       HEART HOSPITAL OF NEW MEXICO, LLC

                                    1914902

     The State Corporation Commission certifies that the Articles of
Organization, duly signed and verified pursuant to the provisions of the
                         LIMITED LIABILITY COMPANY ACT
                        (53-19-1 TO 53-19-74 NMSA 1978)
have been received by it and are found to conform to law.

     Accordingly, by virtue of the authority vested in it by law, the State
Corporation Commission issued this Certificate of Organization and attaches
hereto a duplicate of the Articles of Organization.

Dated: FEBRUARY 18, 1998

                                  In Testimony Whereof, the State Corporation
[SEAL]                            Commission of the State of New Mexico has
                                  caused this certificate to be signed by its
                                  Chairman and the Seal of said Commission to be
                                  affixed at the City of Santa Fe

                                  /s/ [???]
                                  ----------------------------------------------
                                                                        Chairman

                                  /s/ [???]
                                  ----------------------------------------------
                                                                        Director
<PAGE>
                            ARTICLES OF ORGANIZATION
                                       OF
                        HEART HOSPITAL OF NEW MEXICO, LLC

                                        I
                                 NAME OF COMPANY

The name of the limited liability company is HEART HOSPITAL OF NEW MEXICO, LLC,
(the "Company").

                                       II
                           REGISTERED AGENT AND OFFICE

The name of the registered agent and the street address of the registered office
of the company are:

                                D. James Sorenson
                                500 Marquette, NW
                                   Suite 1200
                              Albuquerque, NM 87102

The street address of the Company's current principal place of business is the
same as the street address of its registered office.

                                       III
                               PERIOD OF DURATION

The latest date upon which the Company is to dissolve is December 31, 2097.

                                       IV
                                   MANAGEMENT

The property, business and affairs of the Company shall be managed by a class of
managers (which are referred to as "Directors" for convenience, but Directors as
used herein and in the Operating Agreement shall have the same meaning as the
term "managers" used in the Limited Liability Company Act, Sections 53-19-1, et
seq., N.M.S.A. 1978, as amended). Individual members of the Company, other than
the Directors, shall have no management control of the Company.

                                        V
                   INDEMNIFICATION OF MEMBERS AND DIRECTORS

The Company shall indemnify a Member or Director for judgments, settlements,
penalties, fines or expenses incurred in a proceeding to which a person is a
party because he or she is or was a Member or Director and for advancement of
expenses, including costs of defense, prior to final disposition of such
proceeding. However, nothing herein shall require the Company to indemnify a
Member or Director if a judgment or other final adjudication adverse to the
Member or Director establishes that such Member's or Director's acts or
omissions were in bad faith or involved intentional misconduct or a knowing
violation of law or that such Member or
<PAGE>
Director personally gained, in fact, a financial profit or advantage to which
such Member or Director was not legally entitled.

      IN WITNESS WHEREOF, I have executed these Articles this 18th day of
February, 1998.

                                          /s/ D. James Sorenson
                                          --------------------------------------
                                          Organizer
<PAGE>
                          AFFIDAVIT OF REGISTERED AGENT

COUNTY OF BERNALILLO
                                       ss.
STATE OF NEW MEXICO

      I, D. James Sorenson, having being duly sworn, under oath, state that I am
a resident of the State of New Mexico and, having been appointed as initial
registered agent of HEART HOSPITAL OF NEW MEXICO, LLC hereby accept the
appointment as such registered agent.

                                          /s/ D. James Sorenson
                                          --------------------------------------
                                          D. James Sorenson

      Signed and sworn to before me on February 17, 1998 by D. James Sorenson.

                                          /s/ Carol Ann Muggaberg
                                          --------------------------------------
                                          Notary Public

                                          My Commission expires:
                                          November 27, 2000
                                          --------------------------------------
<PAGE>
                                    EXHIBIT B
                                     TO THE
                              AMENDED AND RESTATED
                               OPERATING AGREEMENT
                                       OF
                        HEART HOSPITAL OF NEW MEXICO, LLC
                    A NEW MEXICO LIMITED LIABILITY COMPANY

                               INFORMATION EXHIBIT

<TABLE>
<CAPTION>
                                    INITIAL                        PERCENTAGE
                                    PERCENTAGE     INITIAL         MEMBERSHIP
                                    MEMBERSHIP     CAPITAL         INTEREST AS OF
    NAME & ADDRESS                  INTEREST       CONTRIBUTION    EFFECTIVE DATE
    --------------                  --------       ------------    --------------

<S>                                 <C>            <C>             <C>
    SWCA, LLC                       15%            $600,000.00     10%
    c/o President
    1101 Medical Arts Avenue NW,
    Bldg. 5
    Albuquerque, NM 87106

    NMHI, LLC                       26%            $1,040,000.00   18%
    c/o President
    201 Cedar SE, Suite 707
    Albuquerque, NM 87106

    St. Joseph Healthcare System    35%            $1,400,000.00   3%
    601 Dr. Martin Luther King
    Jr., NE
    Albuquerque, NM 87102

    NM Hospital Management, Inc.    24%            $ 960,000.00    69%
    10720 Sikes Place, Suite 300
    Charlotte, NC 28277
</TABLE>
<PAGE>
                                    EXHIBIT C
                                     TO THE
                              AMENDED AND RESTATED
                               OPERATING AGREEMENT
                                       OF
                        HEART HOSPITAL OF NEW MEXICO, LLC
                    A NEW MEXICO LIMITED LIABILITY COMPANY

                                GLOSSARY OF TERMS

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

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

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

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

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

            (a) The initial Agreed Value of any noncash asset contributed to the
      capital of the Company by any Member shall be its gross fair market value,
      as agreed to by the contributing Member and the Company.
<PAGE>
            (b) The initial Agreed Value of any noncash asset acquired by the
      Company other than by contribution by a Member shall be its adjusted basis
      for federal income tax purposes.

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

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

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

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

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

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

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

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

      "Board of Directors," "Director" or "Directors" means those persons
appointed by the Members, pursuant to Section 3.11 of the Agreement, and given
the power and authority under Article IV of the Agreement to manage the Company.
The terms "Director" or "Directors" is used for convenience, but is intended to
have the same meaning as the terms "Manager" or "Managers" in the Act.

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

                                       2
<PAGE>
            (a) Each Person's Capital Account shall be increased by Person's
      Capital Contributions, such Person's distributive share of Profits, any
      items in the nature of income or gain that are allocated pursuant to the
      Regulatory Allocations and the amount of any Company liabilities that are
      assumed by such Person or that are secured by Company property distributed
      to such Person.

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

            In the event any Membership Interest is transferred in accordance
      with the terms of this Agreement, the transferee shall succeed to the
      Capital Account of the transferor to the extent it relates to the
      transferred Membership Interest.

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

            The foregoing provisions and the other provisions of this Agreement
      relating to the maintenance of Capital Accounts are intended to comply
      with Regulations Section 1.704-1(b), and shall be interpreted and applied
      in a manner consistent with such regulations. In the event the Board of
      Directors shall determine that it is prudent to modify the manner in which
      the Capital Accounts, or any debits or credits thereto, are computed to
      comply with such Regulation. the Board of Directors may make such
      modification, provided that it is not likely to have a material effect on
      the amounts distributable to any Member pursuant to Articles V or VI
      hereof upon the dissolution of the Company. In the event the Board of
      Directors shall determine such adjustments are necessary or appropriate to
      comply with Regulations Section 1.704-1(b)(2)(iv), the Board of Directors
      shall adjust the amounts debited or credited to Capital Accounts with
      respect to (i) any property contributed by the Members or distributed to
      the Members and (ii) any liabilities secured by such contributed or
      distributed property or assumed by the Members. The Board of Directors
      shall also make any other appropriate modifications in the event
      unanticipated events might otherwise cause this Agreement not to comply
      with Regulations Section 1.704-1(b). In the event any Membership Interest
      in the Company is transferred in accordance with the terms of this
      Agreement, the transferee shall succeed to the Capital Account of the
      transferor to the extent it relates to the transferred Membership
      Interest.

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

                                       3
<PAGE>
      "Cash Distribution" means net cash distributed to Members resulting from
Cash Flow from Operations or Cash from Sales or Refinancing.

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

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

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

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

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

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

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

                                       4
<PAGE>
      "Effective Date" means the date this Amended and Restated Operating
Agreement becomes effective which shall be October 1, 2001.

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

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

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

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

      "Management Services Agreement" means that certain agreement for
management services between the Company and NMHM, as may be amended from time to
time.

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

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

      "Material Decision" means any decisions regarding approvals of the
development and operating budgets for the Hospital, the selection of the site
for the Hospital, the design of the Hospital, the selection of the Hospital's
senior administrator, strategic planning, the execution of managed care
contracts, the execution of exclusive contracts to provide physician services to
the Hospital and any request for additional funding pursuant to Section 3.7(b)
of this Agreement.

      "Member" means and shall refer to the organizers of the Company (unless or
until any such organizer has withdrawn) and each of the Persons identified as
"Members" in the then applying Information Exhibit attached hereto and
incorporated herein by this reference. If a Person is already a Member
immediately prior to the purchase or other acquisition by such Person of an
Economic Interest or Membership Interest, such Person shall have all the rights
of a

                                       5
<PAGE>
Member with respect to such purchased or otherwise acquired Membership Interest
or Economic Interest, as the case may be.

      "Membership Interest" or "Interest" means all of a Member's rights in the
Company, including without limitation the Member's share of Profits, Losses,
Cash Distributions and other benefits of the Company, any right to vote, any
right to participate in the management of the business and affairs of the
Company, including the right to vote on, consent to, or otherwise participate in
any decision or action of or by the Members granted pursuant to this Agreement
or the Act. The percentage Membership Interest of each Member, their Capital
Contributions and other related information shall be listed on the Information
Exhibit. The percentage Membership Interests generally shall be based upon the
pro rata Capital Contribution of each Member.

      "Membership Purchase Agreement" shall mean that certain Membership
Purchase Agreement among Members of the Company pursuant to which SJHS, NMHI,
LLC and SWCA, LLC agree to sell a portion of their Membership Interests in the
Company to NMHM.

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

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

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

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

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

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

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

                                       6
<PAGE>
      "Regulations" means rules, orders, and regulations issued pursuant to or
under the authority of the Code and shall include revisions to and succeeding
provisions as appropriate.

      "Regulatory Allocations" means those allocations of items of Company
income, gain, loss or deduction set forth on the Regulatory Allocations Exhibit
and designed to enable the Company to comply with the alternate test for
economic effect prescribed in Regulations Section 1.704-1(b)(2)(ii)(d), and the
safe-harbor rules for allocations attributable to nonrecourse liabilities
prescribed in Regulations Section 1.704-2.

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

      "SJHS" means St. Joseph Healthcare System.

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

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

                                       7
<PAGE>
                                    EXHIBIT D
                                     TO THE
                              AMENDED AND RESTATED
                               OPERATING AGREEMENT
                                       OF
                        HEART HOSPITAL OF NEW MEXICO, LLC
                    A NEW MEXICO LIMITED LIABILITY COMPANY

                           DEVELOPMENT BUDGET EXHIBIT

                               [SEE ATTACHMENT]
<PAGE>
                            SUMMARY OF CAPITAL COSTS
                            NEW MEXICO HEART HOSPITAL
                             Albuquerque, New Mexico

<TABLE>
<CAPTION>
FACILITY SIZE
  Total Beds                                                              60 beds
  Total Square Feet                                                       90,000

                                                            Total             Depreciation &             Interest
CAPITAL EXPENSES                                            Amount             Amortization              Expense
                           $19,276,350                                    ----------------------------------------------
                                                                            Term        Amount       Rate      Amount
<S>                       <C>           <C>                <C>            <C>         <C>            <C>      <C>
Property:
  Building Construction                    $190/sqft       $17,100,000    40 years    $  427,500
  Land                     10.00 acres                     $ 2,500,000     0 years    $        0
  Architectural Fees      6% of constr.                    $ 1,000,350    40 years    $   25,009
  Interest During Constr.   8 months       @ 9.0%          $ 1,176,000    40 years    $   29,400
                                                           -----------
    Total Property                                         $21,776,350                               11.0%    $2,395,399

Equipment:                  Capacity:
                          -------------
  Cath Labs                1000/lab/yr     4 lab(s)        $ 4,798,400
  Operating Rooms           400/OR/yr      3 OF(s)         $ 1,038,000
  Angiography Suite                                        $   605,000
  CVRU/Recovery                                            $   258,000
  Radiology & Laboratory                                   $ 1,480,000
  Patient Care                                             $ 1,273,573
  Other Departments                                        $ 2,569,518
  Add'l Equipment                                          $ 2,175,000
  Add'l MIS Equipment                                      $   750,000
                                                           -----------
    Total Equipment                                        $14,947,491     7 years    $2,135,356     10.0%    $1,494,749

Startup Costs:
  Loan Acquisition Costs:
    Loan Commitment Fees                2% of loan amt.    $   435,527     7 years    $   62,218     11.0%    $   47,908
    Legal Fees                                             $    40,000     5 years    $    8,000     11.0%    $    4,400
                                                           -----------
                                                           $   475,527

Pre-Opening Costs:                                         $2,500,000      2 years    $1,250,000     10.0%    $  250,000

                                                           ----------                 ----------              ----------
TOTALS                                                     $39,699,368                $3,937,483              $4,192,456
</TABLE>
<PAGE>
                                    EXHIBIT E
                                     TO THE
                              AMENDED AND RESTATED
                               OPERATING AGREEMENT
                                       OF
                        HEART HOSPITAL OF NEW MEXICO, LLC
                    A NEW MEXICO LIMITED LIABILITY COMPANY

                             REGULATORY ALLOCATIONS

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

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

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

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

                  (iii) "Member Nonrecourse Debt" means any Company liability
            with respect to which one or more but not all of the Members or
            related Persons to one or more but not all of the Members bears the
            economic risk of loss within the meaning of Regulations Section
            1.752-2 as a guarantor, lender or otherwise.
<PAGE>
                  (iv) "Member Nonrecourse Debt Minimum Gain" means the minimum
            gain attributable to Member Nonrecourse Debt as determined pursuant
            to Regulations Section 1.704-2(i)(3). In the case of Member
            Nonrecourse Debt for which the creditor's recourse against the
            Company is not limited to particular assets of the Company, until
            such time as there is regulatory guidance on the determination of
            minimum gain with respect to such liabilities, all such liabilities
            of the Company shall be treated as a single liability and allocated
            to the Company's assets using any reasonable basis selected by the
            Board of Directors.

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

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

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

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

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

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

                                       2
<PAGE>
      Minimum Gain set forth above. This provision is intended to comply with
      the minimum gain chargeback requirement in Regulations Section 1.704-2(f)
      and shall be interpreted consistently therewith.

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

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

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

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

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

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

                                       3
<PAGE>
      Nonrecourse Deductions or Member Nonrecourse Deductions, then the Board of
      Directors shall have the authority, but not the obligation, after giving
      notice to the Members, to request on behalf of the Company the Internal
      Revenue Service to waive the minimum gain chargeback or member nonrecourse
      debt minimum gain chargeback requirements pursuant to Regulations Sections
      1.704-2(f)(4) and 1.704-2(i)(4). The Company shall pay the expenses
      (including attorneys' fees) incurred to apply for the waiver. The Board of
      Directors shall promptly copy all Members on all correspondence to and
      from the Internal Revenue Service concerning the requested waiver.

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

      [THE REMAINDER OF THIS PAGE INTENTIONALLY HAS BEEN LEFT BLANK.]

                                       4

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