Document:

<PAGE>
                                                                    EXHIBIT 10.1

                    THIRD LIMITED WAIVER TO CREDIT AGREEMENT

         THIS THIRD LIMITED WAIVER TO CREDIT AGREEMENT (this "Waiver") is
entered into as of September 30, 2002 among LA PETITE ACADEMY, INC., a Delaware
corporation (the "Borrower"), LPA HOLDING CORP., a Delaware corporation
("Holdings"), and the Lenders party hereto. Capitalized terms used herein and
not otherwise defined shall have the meanings ascribed thereto in the Credit
Agreement (as defined below).

                                    RECITALS

         WHEREAS, the Borrower, Holdings and the Lenders entered into that
certain Credit Agreement, dated as of May 11, 1998 (as previously amended and
modified by Amendment No. 1, dated as of December 13, 1999; Amendment No. 2,
dated as of June 29, 2000; Amendment No. 3, dated as of November 14, 2001;
Amendment No. 4, dated as of February 5, 2002; and as otherwise amended or
modified from time to time, the "Credit Agreement");

         WHEREAS, Events of Default exist under the Credit Agreement as a result
of the failure of the Borrower to comply with the terms of (a) Sections 6.13,
and 6.15 of the Credit Agreement for the third fiscal quarter which ended
nearest to March 31, 2002 (the "March 2002 Defaults"); (b) Sections 6.13, 6.14
and 6.15 of the Credit Agreement for the fourth fiscal quarter which ended
nearest to June 30, 2002 (the "June 2002 Defaults"); (c) Sections 5.01(a),
5.01(b), 5.01(c), 5.01(d), 5.01(e) and 5.01(f) of the Credit Agreement, solely
with respect to the financial statements and other related documents that have
not been delivered to the Administrative Agent prior to the date hereof (the
"Information Defaults"); and (d) Section 5.01(g) and 5.10 of the Credit
Agreement, solely with respect to the failure of the Borrower to timely file
2002 fiscal year end financial statements with the Securities and Exchange
Commission (the "SEC Reporting Default"; together with the March 2002 Defaults,
the June 2002 Defaults, and the Information Defaults, collectively, the
"Existing Defaults").

         WHEREAS, the Borrower has requested that the Lenders waive the Existing
Defaults;

         WHEREAS, the Required Lenders are willing to provide a limited waiver
of the Existing Defaults for the period of time from the date hereof through and
including November 1, 2002 (the "Waiver Period"), based upon and subject to the
terms and conditions specified in this Waiver; and

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:

<PAGE>
                                    SECTION 1

                                     WAIVER

         (a) The Borrower acknowledges the existence and continuation of the
Existing Defaults. The Required Lenders hereby waive the Existing Defaults for,
and only for, the Waiver Period. From and after the end of the Waiver Period,
the waiver set forth herein shall be of no further force and effect and the
Administrative Agent and the Lenders shall be entitled to exercise any and all
rights and remedies available under the Loan Documents and applicable law with
respect to the Existing Defaults.

         (b) Except for the specific waiver set forth above, nothing contained
herein shall be deemed to constitute a waiver of (i) any rights or remedies the
Administrative Agent or any Lender may have under the Credit Agreement or any
other Loan Document or under applicable law or (ii) the Loan Parties' obligation
to comply fully with any duty, term, condition, obligation or covenant contained
in the Credit Agreement and the other Loan Documents not specifically waived.

         (c) The specific waiver set forth herein is a one-time waiver and shall
be effective only in this specific instance during the Waiver Period, and shall
not obligate the Lenders to waive any Default or Event of Default (including,
without limitation, any waiver of the Existing Defaults following the end of the
Waiver Period) other than the Existing Defaults, now existing or hereafter
arising.

                                    SECTION 2

                                  MISCELLANEOUS

         2.1 Effectiveness. This Waiver be effective upon receipt by the
Administrative Agent of counterparts of this Waiver executed by each of the Loan
Parties and the Required Lenders. Notwithstanding anything to the contrary
contained herein, this Waiver shall be void ab initio upon the failure of the
Borrower to pay the Expense Reimbursement (as defined below) in accordance with
the terms hereof.

         2.2 Ratification of Credit Agreement and Other Loan Documents. The
Credit Agreement and the other applicable Loan Documents are hereby ratified and
confirmed and are in full force and effect.

         2.3 Authority/Enforceability. Each party hereto represents and warrants
that (a) it has taken all necessary action to authorize the execution, delivery,
and performance of this Waiver; (b) this Waiver has been duly executed and
delivered by such Person and constitutes such

2
<PAGE>

Person's legal, valid, and binding obligations, enforceable in accordance with
its terms, except as such enforceability may be subject to (i) bankruptcy,
insolvency, reorganization, fraudulent conveyance or transfer, moratorium, or
similar laws affecting creditors' rights generally and (ii) general principles
of equity (regardless of whether such enforceability is considered in a
proceeding at law or in equity); and (c) no material consent, approval,
authorization, or order of, or filing, registration, or qualification with, any
court or Governmental Authority or third party is required in connection with
the execution, delivery, or performance by such Person of this Waiver.

         2.4 Representation and Warranties. Borrower and Holdings represent and
warrant to the Lenders that (a) the representations and warranties of Borrower
and Holdings set forth in Article III of the Credit Agreement qualified as to
materiality are true and correct as of the date hereof and those not so
qualified are true and correct in all material respects as of the date hereof,
except, in each case, for those representations and warranties that specifically
relate to an earlier date; (b) except for the Existing Defaults, no event has
occurred and is continuing which constitutes a Default or an Event of Default;
and (c) the Security Documents create a valid security interest in, and Lien
upon, the Collateral.

         2.5 Expenses. The Borrower shall reimburse (the "Expense
Reimbursement") the Administrative Agent for all legal fees incurred by the
Administrative Agent and Highland Capital Management, L.P. in connection with
the Credit Agreement (including this Waiver). The Expense Reimbursement shall be
paid by the Borrower to the Administrative Agent (or directly to the
Administrative Agent's counsel) as soon as practicable but in no event later
than one business day following receipt by the Borrower of an invoice for such
legal fees.

         2.6 Counterparts/Telecopy. This Waiver may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall constitute one and the same instrument. Delivery of
executed counterparts by telecopy shall be effective as an original and shall
constitute a representation that an original will be delivered if requested.

         2.7 GOVERNING LAW. THIS WAIVER AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

                  [remainder of page intentionally left blank]

3
<PAGE>

                                 Signature Page
                    Third Limited Waiver to Credit Agreement
                             La Petite Academy, Inc.

         IN WITNESS WHEREOF, the parties hereto have caused this Third Limited
Waiver to Credit Agreement to be duly executed and delivered by their proper and
duly authorized officers or attorneys-in-fact as of the day and year first above
written.

BORROWER:                                   LA PETITE ACADEMY INC.

                                            By:  /s/ Gary A. Graves
                                                 ------------------------------
                                            Name:    Gary A. Graves
                                            Title:   Chief Operating Officer

HOLDINGS:                                   LPA HOLDING CORP.

                                            By: /s/ Gary A. Graves
                                               --------------------------------
                                            Name:    Gary A. Graves
                                            Title:   Chief Operating Officer

<PAGE>

                                 Signature Page
                    Third Limited Waiver to Credit Agreement
                             La Petite Academy, Inc.

         Each of the undersigned are unconditional guarantors of all obligations
of the Borrower under the Loan Documents and acknowledge and agree that (a) this
Waiver does not modify or waive any of its obligations under the Loan Documents,
including the Guarantee Agreements and (b) all Liens granted by it to support
its obligations remain in full force and effect.

                                            LPA HOLDING CORP.

                                            By: /s/ Gary A. Graves
                                               ---------------------------------
                                            Name:    Gary A. Graves
                                            Title:   Chief Operating Officer

                                            LPA SERVICES, INC.

                                            By: /s/ Stephen A. Murphy
                                               ---------------------------------
                                            Name:    Stephen A. Murphy
                                            Title:  Assistant Secretary

                                            BRIGHT START, INC.

                                            By: /s/ Stephen A. Murphy
                                               ---------------------------------
                                            Name:    Stephen A. Murphy
                                            Title:  Assistant Secretary

<PAGE>

                                 Signature Page
                    Third Limited Waiver to Credit Agreement
                             La Petite Academy, Inc.

LENDERS:                                    U.S. BANK NATIONAL ASSOCIATION
                                            (formerly Mercantile Bank), as
                                            Administrative Agent and a Lender

                                            By:      /s/ Karen D. Myers
                                               ---------------------------------
                                            Name:    Karen D. Myers
                                            Title:   Senior Vice President

<PAGE>
                                 Signature Page
                    Third Limited Waiver to Credit Agreement
                             La Petite Academy, Inc.

                                            JPMORGAN CHASE BANK (formerly The
                                            Chase Manhattan Bank)

                                            By:      /s/ Michael J. Lister
                                               ---------------------------------
                                            Name:    Michael J. Lister
                                            Title:   Vice President

<PAGE>
                                 Signature Page
                    Third Limited Waiver to Credit Agreement
                             La Petite Academy, Inc.

                                            ML CBO IV CAYMAN

                                            By:  Highland Capital Management,
                                                 L.P., as Collateral Manager

                                            By:      /s/ Todd Travers
                                               ---------------------------------
                                            Name:    Todd Travers
                                            Title:   Senior Portfolio Manager

<PAGE>
                                 Signature Page
                    Third Limited Waiver to Credit Agreement
                             La Petite Academy, Inc.

                                            HIGHLAND LEGACY, LTD

                                            By:  Highland Capital Management,
                                                 L.P., as Collateral Manager

                                            By:      /s/ Todd Travers
                                               ---------------------------------
                                            Name:    Todd Travers
                                            Title:   Senior Portfolio Manager

<PAGE>
                                 Signature Page
                    Third Limited Waiver to Credit Agreement
                             La Petite Academy, Inc.

                                            PAMCO CAYMAN LTD

                                            By:  Highland Capital Management,
                                                 L.P., as Collateral Manager

                                            By:      /s/ Todd Travers
                                               ---------------------------------
                                            Name:    Todd Travers
                                            Title:   Senior Portfolio Manager

<PAGE>
                                 Signature Page
                    Third Limited Waiver to Credit Agreement
                             La Petite Academy, Inc.

                                            KZH HIGHLAND-2 LLC

                                            By:      /s/ Susan Lee
                                               ---------------------------------
                                            Name:    Susan Lee
                                            Title:   Authorized Agent

<PAGE>
                                 Signature Page
                    Third Limited Waiver to Credit Agreement
                             La Petite Academy, Inc.

                                            SRV - HIGHLAND, INC.

                                            By:      /s/ Ann E. Morris
                                               ---------------------------------
                                            Name:    Ann E. Morris
                                            Title:   Assistant Vice President

<PAGE>
                                 Signature Page
                    Third Limited Waiver to Credit Agreement
                             La Petite Academy, Inc.

                                            BANK OF AMERICA, N.A.
                                            (formerly NationsBank, N.A.)

                                            By:
                                               --------------------------------
                                            Name:
                                            Title:<PAGE>

                                                                   EXHIBIT 10.2

                               OPERATING AGREEMENT
                                       OF
                      THE HEART HOSPITAL OF MILWAUKEE, LLC
                      A DELAWARE LIMITED LIABILITY COMPANY

<PAGE>

                                TABLE OF CONTENTS
                                     TO THE
                               OPERATING AGREEMENT
                                       OF
                      THE HEART HOSPITAL OF MILWAUKEE, LLC
                      A Delaware Limited Liability Company

<TABLE>
<S>                                                                                                              <C>
ARTICLE I  DEFINITIONS............................................................................................1
ARTICLE II  FORMATION AND AGREEMENT OF LIMITED LIABILITY COMPANY..................................................2
         Section 2.1       Company Formation; Effective Date......................................................2
         Section 2.2       Name of Company........................................................................2
         Section 2.3       Purposes and Business Objectives.......................................................2
         Section 2.4       Statement of Philosophy and Values.....................................................3
         Section 2.5       Registered Agent and Office; Principal Place of Business...............................3
         Section 2.6       Commencement and Term..................................................................4
ARTICLE III  MEMBERS AND CAPITAL CONTRIBUTIONS....................................................................4
         Section 3.1       Initial Capital Contributions of Members...............................................4
         Section 3.2       Liability of Members - For Capital.....................................................5
         Section 3.3       Maintenance of Capital Accounts; Withdrawals of Capital; Withdrawals
                                 from the Company.................................................................5
         Section 3.4       Interest on Capital Contributions or Capital Accounts..................................5
         Section 3.5       Additional Funding.....................................................................5
         Section 3.6       Enforcement of Commitments.............................................................7
         Section 3.7       Member Documentation...................................................................8
         Section 3.8       Reserved Powers of Members.............................................................9
         Section 3.9       Appointment of Board of Directors......................................................9
         Section 3.10      Obligations Relating to Real Property.................................................10
         Section 3.11      Medical Office Building...............................................................10
ARTICLE IV  NAMES AND ADDRESSES OF MEMBERS.......................................................................11
ARTICLE V  MANAGEMENT OF THE COMPANY.............................................................................11
         Section 5.1       General Authority and Powers of MHMI and the Board of Directors.......................11
         Section 5.2       Restrictions on Authority of the Board of Directors...................................11
         Section 5.3       Duties of the Board of Directors......................................................12
         Section 5.4       Delegation by the Board of Directors..................................................13
         Section 5.5       Right to Rely Upon the Authority of the Manager.......................................13
         Section 5.6       Company Expenses......................................................................13
         Section 5.7       No Management by Members..............................................................15
         Section 5.8       Consent by Members to Exercise of Certain Rights and Powers by
                                 Board of Directors..............................................................15
         Section 5.9.      Meetings, Quorum and Vote of the Board of Directors...................................15
         Section 5.10      Other Business of Members.............................................................16
         Section 5.11      Board of Directors' Standard of Care..................................................18
         Section 5.12      Limitation of Liability...............................................................19
         Section 5.13      Indemnification of the Directors......................................................19
         Section 5.14      Purchase of Goods and Services from Members...........................................19
         Section 5.15      Certain Decisions of the Board of Directors...........................................20
</TABLE>

                                       i

<PAGE>

<TABLE>
<S>                                                                                                              <C>
         Section 5.16      Indemnity by the Company..............................................................21
         Section 5.17      Force Majeure.........................................................................21
ARTICLE VI  DISTRIBUTIONS AND ALLOCATIONS........................................................................21
         Section 6.1       Distributions of Cash Flow from Operations and Cash from Sales or
                                 Refinancing.....................................................................21
         Section 6.2       Profits...............................................................................22
         Section 6.3       Losses................................................................................22
         Section 6.4       Code Section 704(c) Tax Allocations...................................................22
         Section 6.5       Miscellaneous.........................................................................23
         Section 6.6       Special Allocations of Guarantee Fees.................................................23
ARTICLE VII  DISSOLUTION, WINDING UP AND LIQUIDATING DISTRIBUTIONS...............................................23
         Section 7.1       No Termination by Certain Acts of Member..............................................23
         Section 7.2       Dissolution...........................................................................24
         Section 7.3       Dissolution and Final Liquidation.....................................................24
         Section 7.4       Termination...........................................................................26
         Section 7.5       Payment in Cash.......................................................................26
         Section 7.6       Termination of Noncompetition Covenants...............................................26
ARTICLE VIII  REMOVAL OR WITHDRAWAL OF MEMBERS AND TRANSFER OF
                           MEMBERS' MEMBERSHIP AND/OR ECONOMIC INTERESTS.........................................27
         Section 8.1       Members - Restriction on Transfer.....................................................27
         Section 8.2       Condition Precedent to Transfer of Membership Interest................................29
         Section 8.3       Substitute Member - Conditions to Fulfill.............................................29
         Section 8.4       Allocations Between Transferor and Transferee.........................................29
         Section 8.5       Rights, Liabilities of, and Restrictions on Assignee..................................30
         Section 8.6       Repurchase of Interests in Certain Event..............................................30
         Section 8.7       Death of a Member.....................................................................30
         Section 8.8       Marital or Community Property and Divorce.............................................31
ARTICLE IX  RECORDS, ACCOUNTINGS AND REPORTS.....................................................................32
         Section 9.1       Books of Account......................................................................32
         Section 9.2       Access to Records.....................................................................32
         Section 9.3       Bank Accounts and Investment of Funds.................................................33
         Section 9.4       Fiscal Year...........................................................................33
         Section 9.5       Accounting Reports....................................................................33
         Section 9.6       Tax Matters Partner...................................................................33
ARTICLE X  MEETINGS AND VOTING RIGHTS OF MEMBERS.................................................................34
         Section 10.1      Meetings..............................................................................34
         Section 10.2      Voting Rights of Members..............................................................34
ARTICLE XI  AMENDMENTS...........................................................................................35
         Section 11.1      Authority to Amend by the Board of Directors..........................................35
         Section 11.2      Restrictions on the Board of Directors' Amendments: Amendments by Members.............36
         Section 11.3      Amendments to Certificate of Formation................................................36
ARTICLE XII  MISCELLANEOUS.......................................................................................36
         Section 12.1      Limited Power of Attorney.............................................................36
         Section 12.2      Waiver of Provisions..................................................................36
         Section 12.3      Interpretation and Construction.......................................................36
         Section 12.4      Governing Law.........................................................................37
</TABLE>

                                       ii

<PAGE>

<TABLE>
<S>                                                                                                              <C>
         Section 12.5      Partial Invalidity....................................................................37
         Section 12.6      Binding on Successors.................................................................37
         Section 12.7      Notices and Delivery..................................................................37
         Section 12.8      Counterpart Execution; Facsimile Execution............................................37
         Section 12.9      Statutory Provisions..................................................................37
         Section 12.10     Waiver of Partition...................................................................38
         Section 12.11     Change in Law.........................................................................38
         Section 12.12     Investment Representations of the Members.............................................38
         Section 12.13     Decisions by Directors................................................................40
         Section 12.14     Referrals to Hospital and Ownership of Shares of Common Stock
                                    of MedCath Incorporated......................................................40
         Section 12.15     Acknowledgments Regarding Legal Representation........................................40
         Section 12.16     Arbitration...........................................................................40
         Section 12.17     Exhibits..............................................................................41
</TABLE>

                                      iii

<PAGE>

                               OPERATING AGREEMENT
                                       OF
                      THE HEART HOSPITAL OF MILWAUKEE, LLC
                      A Delaware Limited Liability Company

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

         THIS OPERATING AGREEMENT (the "Agreement") of The Heart Hospital of
Milwaukee, LLC (the "Company"), a Delaware 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 A).

                                    RECITALS

         A.       The Company has been formed to develop, own and operate an
acute care hospital which hospital shall be located in or near Milwaukee,
Wisconsin and shall specialize in all aspects of cardiology and cardiovascular
care and surgery and other services which the Board of Directors may approve
from time to time;

         B.       It is intended that the Hospital will be an efficient, quality
provider of medical services within the Milwaukee, Wisconsin area;

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

                                    ARTICLE I

                                   DEFINITIONS

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

<PAGE>

                                   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 Certificate of Formation
with the Delaware Secretary of State in accordance with the provisions of the
Act which shall be the "Effective Date" of this Agreement. Upon the Effective
Date, the Persons listed on the attached Information Exhibit shall be admitted
to the Company as Members and the Persons who executed the Certificate of
Formation shall be withdrawn as Members (unless they are listed on the
Information Exhibit), all without the necessity of any further act or instrument
and without causing the dissolution of the Company. This Agreement shall be
effective as of the date the Company was formed.

         SECTION 2.2       NAME OF COMPANY.

         The name of the Company is The Heart Hospital of Milwaukee, LLC.

         SECTION 2.3       PURPOSES AND BUSINESS OBJECTIVES.

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

                  (a)      To develop, own and operate a general acute care
         hospital specializing in the diagnosis and treatment of cardiac disease
         and cardiovascular and vascular surgery and other medical services and
         procedures approved by the Board of Directors from time to time in the
         greater Milwaukee, Wisconsin area which would include, but not be
         limited to, the following:

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

                           (ii)     Approximately Sixty Thousand (60,000) square
                  feet in a building to be constructed in accordance with plans
                  and specifications approved by the Company;

                           (iii)    Approximately thirty-two (32) medical/
                  surgical beds;

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

                           (v)      Two (2) heart surgical suites with space for
                  the development of one additional heart surgical suite;

                           (vi)     All appropriate support services and
                  systems; and

                                       2

<PAGE>

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

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

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

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

         SECTION 2.4       STATEMENT OF PHILOSOPHY AND VALUES.

         Notwithstanding anything in this Agreement to the contrary, the Company
and the Hospital shall be operated in accordance with the following philosophy
and values in all material respects:

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

                  (b)      The Board of Directors shall adopt and oversee the
         adherence to the policies of the Hospital, as they may be reasonably
         amended from time to time, for providing care for those patients who
         are unable to pay for Hospital care;

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

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

                  (e)      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.

         SECTION 2.5       REGISTERED AGENT AND OFFICE; PRINCIPAL PLACE OF
                           BUSINESS.

         The registered agent and office of the Company shall be as indicated in
the Certificate of Formation, as amended from time to time. The principal place
of business of the Company shall be at such location in the greater Milwaukee,
Wisconsin area as selected by the Board of Directors from time to time. The
Board of Directors shall promptly notify the Members of any changes in the
Company's registered agent, registered office, or principal place of business.

                                       3

<PAGE>

         SECTION 2.6       COMMENCEMENT AND TERM.

         The Company commenced on the filing of the Certificate of Formation in
the Office of the Secretary of State of Delaware, as required by Section 2.1
hereof, and shall continue until December 31, 2061, unless sooner terminated or
dissolved as provided herein; provided, however, that the termination date may
be extended for up to an additional forty (40) years in five (5) year increments
upon the election of the Board of Directors. The consent of a Director to such
extension shall not be unreasonably withheld or delayed.

                                   ARTICLE III

                        MEMBERS AND CAPITAL CONTRIBUTIONS

         SECTION 3.1       INITIAL CAPITAL CONTRIBUTIONS OF MEMBERS.

                  (a)      The initial Capital Contributions of the initial
         Members shall equal the greater of (i) $[***] or (ii) 20% of the
         Project Costs.

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

                           (i)      MHMI shall initially own a [***]% Membership
                  Interest in the Company and shall contribute to the Company
                  for its Membership Interest [***]% of the aggregate amount of
                  such initial Capital Contributions.

                           (ii)     The Investor Members shall initially own in
                  the aggregate a [***]% Membership Interest and shall
                  contribute to the Company for their Membership Interests
                  [***]% of such initial Capital Contributions. The Membership
                  Interests of the Investor Members shall be owned as set forth
                  in the Information Exhibit.

                           (iii)    Each Member shall (x) contribute its initial
                  Capital Contribution in cash in full or (y) contribute twenty
                  percent (20%) of its initial Capital Contribution in cash for
                  its Membership Interest, and shall simultaneously provide to
                  MHMI for the benefit of the Company an irrevocable letter of
                  credit for the balance of the Member's initial Capital
                  Contribution (for which, with respect to letters of credit of
                  the Investor Members, neither the Company nor MHMI shall have
                  any liability, and with respect to a letter of credit of MHMI,
                  neither the Company nor the Investor Members shall have any
                  liability) that will continue to be available for at least
                  twenty-four (24) months from subscription by the Member for
                  its Membership Interest in the Company. In the event of (y),
                  the applicable Member shall arrange that following the
                  contribution of twenty percent (20%) of the required initial
                  Capital Contribution of such Member in cash, MHMI shall be
                  permitted, upon five (5) days written notice from MHMI at any
                  time after execution of this Agreement, to draw on such letter
                  of credit for the remaining balance of the initial Capital
                  Contribution of the applicable Member as the needs of the
                  Company for funds may require, in MHMI's sole discretion and
                  without the Member's consent; provided that, upon each such
                  draw, MHMI shall draw on all outstanding letters of credit in
                  proportion to the applicable Member's Membership Interest in
                  the Company. Each Member acknowledges that in all events MHMI
                  intends to fully draw any letter of credit provided by a
                  Member pursuant to this

[***] These portions of this exhibit have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment.

                                       4

<PAGE>

                  Section within not more than twenty-four (24) months of the
                  Member's subscription for a Membership Interest in the
                  Company.

                  (c)      The Members may be liable to the Company for amounts
         distributed to them as a return of capital as provided by the Act.
         Members shall not be required to contribute any additional capital to
         the Company except as provided in Section 3.5.

                  (d)      Once the Board of Directors finally determines the
         total Project Costs, it may require all Members, upon written notice,
         to contribute any remaining portion of their respective initial Capital
         Contribution.

         SECTION 3.2       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 3.1 and
Section 3.5, except that the Members may be liable to the Company for amounts
distributed to them as a return of capital as provided by the Act. The Members
shall not be required to contribute any additional capital to the Company except
as provided in Section 3.5.

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

         An individual Capital Account shall be maintained for each Member in
accordance with requirements of the Code and the Regulations promulgated
thereunder. No Member shall be entitled to withdraw or to make demand for
withdrawal of any part of its Capital Account or to receive any distribution
except as provided herein. Except as otherwise provided in this Agreement, 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.

         Except as otherwise provided herein, a Member may not withdraw from the
Company without the written consent of the other Members. In no case shall a
Member have the right to have its Membership Interest redeemed by the Company
unless approved by the other Members.

         SECTION 3.4       INTEREST ON CAPITAL CONTRIBUTIONS OR CAPITAL
                           ACCOUNTS.

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

         SECTION 3.5       ADDITIONAL FUNDING.

         If from time to time, the Board of Directors reasonably determines
(which determination shall not be unreasonably withheld or delayed) that funds
in addition to that contemplated by Sections 3.1 and 3.2 are necessary or
appropriate for the development or operation of the Hospital, then:

                                       5

<PAGE>

                  (a)      First, on terms and conditions reasonably acceptable
         to the Board of Directors and subject to the terms below, MHMI or one
         of its Affiliates shall loan the Company an amount to be agreed upon by
         the Company and MHMI not to exceed Eight Million Dollars ($8,000,000),
         at the Prime Rate plus one percent (1%) per annum which loan shall be
         secured by the Company's assets. Once MHMI or one of its Affiliates
         advances the maximum aggregate principal amount of Eight Million
         Dollars ($8,000,000) hereunder, neither MHMI nor any of its Affiliates
         shall be obligated to make any additional loans to the Company.
         Interest shall be paid monthly in arrears. Funds initially shall be
         advanced hereunder only through the period ending no later that the
         first (1st) anniversary of the date that the Hospital is first
         authorized under applicable law to treat patients (the "Opening Date")
         and thereafter MHMI shall have no obligation to advance any amounts
         under this Section. Amounts then outstanding shall be repaid with
         interest on a five (5) year repayment schedule so that the principal
         amount of the loan is reduced by one-sixtieth (1/60) per month, with
         interest payable monthly on the balance of the principal (the
         "Repayment Schedule"); provided, however, that in no event shall the
         Repayment Schedule begin later than the thirteenth (13th) month
         following the Opening Date. To the extent the Company repays such loan
         from time to time in amounts which are in excess of scheduled principal
         amounts, such amounts of excess principal payments may be reborrowed by
         the Company on mutually acceptable terms. The Members acknowledge that
         the Company intends to seek construction, mortgage and equipment
         financing from third party lenders and lessors and that the loans set
         forth in this subsection (a) are not intended to be used for such
         purposes. In the event that interim financing is needed for such
         purposes, MHMI may elect in its discretion to provide such financing on
         an interim basis pending the closing of third-party financing therefor;

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

                  (c)      Third, if loans as provided in (a) have been fully
         advanced for their intended purpose up to the maximum aggregate
         principal amount of Eight Million Dollars ($8,000,000) or, in
         accordance with the terms of (a), are no longer applicable, and loans
         as provided in (b) above are not reasonably available, the Board of
         Directors may through written notice require that the Members
         contribute additional capital to the Company pro rata according to
         their respective Membership Interests. Notwithstanding the foregoing, a
         Member's maximum obligation for such additional Capital Contributions
         shall be limited to an additional amount equal to one (1) times the
         Member's initial Capital Contribution pursuant to Section 3.1;
         provided, however, that in no event shall the amount of Capital
         Contributions that each Member of the Company shall be required to make
         to the Company under Section 3.1 and under this Section 3.5(c) exceed
         the Member's pro rata portion, according to his, her or its respective
         Membership Interest, of Sixteen Million Dollars ($16,000,000) in the
         aggregate. Notwithstanding the foregoing, upon the date (the "Reduction
         Date") that is one hundred twenty (120) days subsequent to the receipt
         by the Board of Directors of the final report of the Company's
         independent accountants for the fifth full year of the Company's
         operations following the Opening Date, no Member shall thereafter be
         required to make any additional Capital Contributions; provided however
         that if, prior to the Reduction Date, the Board of Directors reasonably
         determines, based upon its review of the final accountant's report

                                       6

<PAGE>

         for the fifth full year of the Company's operations following the
         Opening Date and of the Company's projected financial needs for
         subsequent periods, that the Company is reasonably likely to have a
         need for additional Capital Contributions of the Members, then the
         Board may delay, upon notice to all Members, the elimination of the
         Members' obligation to make additional Capital Contributions for up to
         two (2) years, such approval not to be unreasonably withheld or delayed
         by any member of the Board. In no event shall any Member be required
         under this subsection (c) to make any additional Capital Contributions,
         nor shall MHMI or any of its Affiliates have any obligations to make
         any loans to the Company or provide any guarantees of any indebtedness
         of the Company, if, after the Opening Date (i) any loans made by MHMI
         and its Affiliates to the Company have been repaid in full, including
         without limitation the loan made pursuant to Section 3.5(a) and (ii)
         there are no outstanding guarantees of MHMI and its Affiliates of any
         indebtedness of the Company;

                  (d)      Fourth, if additional funds are thereafter needed by
         the Company, MHMI or one of its Affiliates may, but shall not be
         required to, loan such funds to the Company at the Prime Rate plus one
         percent (1%) per annum which loan shall be secured by the Company's
         assets. Interest shall be paid monthly in arrears and principal shall
         be repaid according to a schedule to be reasonably agreed upon by the
         Company and MHMI or its Affiliate;

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

                  (f)      Sixth, if adequate funds have not been obtained or
         raised in accordance with (a) through (e) above (including, without
         limitation, taking into consideration funds made available by Members
         for amounts which are in excess of their obligations hereunder), then
         the Board of Directors may elect to dissolve the Company provided,
         however, if any Members or any of their Affiliates (i) have any
         outstanding loans to the Company or are committed to provide such loans
         or (ii) are providing a guaranty or are committed to provide a guaranty
         for any indebtedness of the Company, then only those Members alone upon
         unanimous approval of such Members, upon at least fifteen (15) days
         prior written notice to the other Members, shall be entitled to so
         dissolve the Company due to the Company not having sufficient funds to
         meet its financial obligations or liabilities as they come due.

         SECTION 3.6       ENFORCEMENT OF COMMITMENTS.

         In the event any Member (a "Delinquent Member") fails to make a
mandatory Capital Contribution as provided in Section 3.1 or Section 3.5 or an
optional Capital Contribution as agreed to by the Delinquent Member under
Section 3.5 (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 Rate)
within

                                       7

<PAGE>

ten (10) business days of the giving of notice, the Board of Directors may take
such action, including but not limited to enforcing the Commitment in a court of
appropriate jurisdiction in the state in which the principal office of the
Company is located or the state of the Delinquent Member's address as then
reflected in the Agreement. Each Member expressly agrees to the jurisdiction of
such courts but only for the enforcement of Commitments. 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
as a Capital Contribution or as a loan from the contributing Member bearing
interest at the Default Rate secured by the Delinquent Member's Membership
Interest in the Company. 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 and only if the contributing Member agrees to accept repayment of such
amount, the contributing Member shall be entitled to all distributions to which
the Delinquent Member would have been entitled had such Commitment been
fulfilled thereby. Notwithstanding the foregoing, no Commitment or other
obligation to make an additional Capital Contribution may be enforced by a
creditor of the Company unless the Delinquent Member expressly consents to such
enforcement or to the assignment of the obligation to such creditor.
Notwithstanding anything herein to the contrary, (i) if the Delinquent Member is
a Director, if a Director is a direct or indirect owner of a Delinquent Member
or if a Director is appointed by a Delinquent Member (each, a "Conflicted
Director"), then the Directors who are not Conflicted Directors may take all
actions contemplated by this Section 3.6 without the consent or participation of
the Conflicted Directors; and (ii) no Delinquent Member may participate in any
vote or other action in which Members are entitled to participate hereunder.

         SECTION 3.7       MEMBER DOCUMENTATION.

         Prior to the execution of this Agreement, the Investor Members and
Investor Entities, if any, shall have delivered to MHMI copies of all documents,
instruments and agreements related to the formation, ownership and governance of
the Investor Members and the Investor Entities (the "Investor Documents"). None
of the Investor Documents will be altered or amended without the consent of
MHMI, which consent shall not be unreasonably withheld following review of the
Investor Documents by MHMI for the purpose of ensuring (a) that the Company's
ownership is in compliance with applicable law and (b) that the Investor
Documents include terms that will enable the Company to enforce the obligations
of this Agreement against the applicable Investor Member and/or Investor Entity.
If MHMI has not provided the Investor Member or Investor Entity, as the case may
be, with its written objections to a proposed alteration or amendment to
Investor Documents within thirty (30) days of the receipt by MHMI of such
proposed alteration or amendment, then such alteration or amendment shall be
deemed to have been consented to by MHMI. Contemporaneously with the Investor
Members' admission as Members of the Company: (i) the Investor Entities shall
each execute an Addendum to Subscription Agreement under which, among other
things, they agree to be bound by the terms and conditions of Section 5.10
hereof, and no additional Investor Entities shall be admitted as owners of a
Member unless such Investor Entities executes an Addendum to Subscription
Agreement; and (ii) the Owners shall each execute an Addendum to Subscription
Agreement under which, among other things, those individuals agree to be
personally bound by the terms and conditions of Section 5.10 hereof.
Additionally (unless such requirement is waived by the Board of Directors),
Owners who are physicians (or their Practices) shall also execute a Hospital
Professional Services Agreement with the Company and a Right of First Refusal
Agreement with an Affiliate of MHMI. No Person shall be admitted hereafter as an
owner of the

                                       8

<PAGE>

Investor Members or Investor Entities unless such Person also executes such
Addendum to Subscription Agreement, the Hospital Professional Services Agreement
(Owners who are physicians or their Practices only) and the Right of First
Refusal Agreement (Owners who are physicians or their Practices only) so that
they are bound thereby to the same extent as are Owners as of the date hereof.

         SECTION 3.8       RESERVED POWERS OF MEMBERS.

         The following actions are the only actions which can be taken by the
Members and shall require the consent of the Required Members, either by vote
thereof at a meeting of the Members or by written consent of the Required
Members.:

                  (a)      Amendments to the Certificate of Formation of the
         Company or this Agreement;

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

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

                  (d)      Admission of new Members to the Company;

                  (e)      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; and

                  (f)      Approval and authorization of disproportionate
         distributions or allocations of profits, losses or assets of the
         Company, except as specifically permitted elsewhere in this Agreement.

         SECTION 3.9       APPOINTMENT OF BOARD OF DIRECTORS.

         The Members shall appoint a Board of Directors as follows:

                  (a)      MHMI shall appoint three (3) Directors; and

                  (b)      The Investor Members shall appoint three (3)
         Directors, which Directors shall be appointed or removed either (i) by
         a vote of a majority of the percentage Membership Interests of the
         Investor Members at a meeting held pursuant to Section 10.1(b); or (ii)
         by written consent of a majority of the percentage Membership Interests
         of the Investor Members.

         A Director shall serve on the Board of Directors until removed by the
Member or group of Members appointing such Director. A Member or group of
Members shall have the right, with or without cause, to remove, substitute or
replace any Director which it or they appointed.

                                       9

<PAGE>

         SECTION 3.10      OBLIGATIONS RELATING TO REAL PROPERTY.

         The Company intends to purchase real property at a location to be
determined by the Board of Directors (the "Development") subject to the
following, if applicable:

                  (a)      The agreement by the developer thereof to sell
         sufficient land on which to develop the Hospital for a purchase price
         or rent equal to the fair market value thereof as determined by a
         qualified independent real estate appraiser acceptable to MHMI, the
         Investor Members and the developer;

                  (b)      The developer shall record a restriction acceptable
         to the developer, MHMI, and the Investor Members prohibiting any Person
         from using any part of the Development for a purpose which, if
         conducted by a Member would violate Section 5.10 hereof;

                  (c)      The agreement will contain other commercially
         reasonable terms and conditions, including without limitation, terms
         obligating the developer to execute commercially reasonable documents
         required by third parties providing financing to the Company which will
         require among other things, a first priority lien on the Company's
         interest in the Development.

         SECTION 3.11      MEDICAL OFFICE BUILDING.

                   (a)     MHMI, either itself (or its designee) or with other
         Members of the Company, intends, at its discretion, to develop and own
         a medical office building on real property which such party will lease
         or own adjacent to the Hospital and which will contain approximately
         Forty-Five Thousand (45,000) to Sixty Thousand (60,000) of leasable
         square footage ("the MOB"). MHMI shall provide written notice to the
         Investor Members of MHMI's intent to enter into definitive agreements
         to develop and own the MOB, and the Investor Members may, within thirty
         (30) days from the delivery of such notice, elect to participate in the
         development and ownership of the MOB by notifying MHMI in writing of
         the Investor Members' commitment to participate in the development and
         ownership of the MOB and to provide to MHMI, or to commit in a manner
         approved by MHMI, such funds as are required to develop and own the MOB
         in proportion to the Investor Members ownership interest in the MOB. In
         the event Investor Members do not commit or less than all of the
         Investor Members commit, MHMI shall be entitled to proceed with the
         development of the MOB without the participation of the Investor
         Members who elect not to participate. The tenant space in the MOB may
         be leased to Members, Owners, Practices or their Affiliates or to other
         third parties. The owners of the MOB and the Company shall enter into
         cross easement agreements and other agreements which are customary for
         commercial real estate developments. The definitive agreements with any
         third party developer of the MOB under this Section 3.11(a) shall, if
         applicable, contain similar restrictions on the third party developer
         as those set forth at Section 3.10(a) - (c) above.

                   (b)     Unless otherwise approved in writing by MHMI in its
         discretion, the Company shall not make any binding commitments
         regarding the financing or construction of the Hospital unless MHMI or
         its designee has entered into commercially reasonable, binding
         agreements with tenants to lease office space within the MOB, in a form
         and for an amount of office space acceptable to MHMI or its designee
         but in no event less than Thirty Thousand (30,000) leasable square
         feet.

                                       10

<PAGE>

                                   ARTICLE IV

                         NAMES AND ADDRESSES OF MEMBERS

         The names and addresses of the Members are as indicated on the
Information Exhibit attached hereto as Exhibit A, which may be amended by the
Board of Directors from time to time in accordance with the provisions of this
Agreement.

                                    ARTICLE V

                            MANAGEMENT OF THE COMPANY

         SECTION 5.1       GENERAL AUTHORITY AND POWERS OF MHMI AND THE BOARD
                           OF DIRECTORS.

                  (a)      Except as set forth in those provisions of this
         Agreement that specifically require the vote, consent, approval or
         ratification of the Members and subject to (b) below, the Board of
         Directors shall have complete authority and exclusive control over the
         management of the business and affairs of the Company. Subject to the
         terms and conditions of this Agreement and except as otherwise provided
         herein, all Material Agreements and Material Decisions with respect to
         the business and affairs of the Company shall be approved or made by
         the Board of Directors in accordance with Section 5.15 hereof. No
         Member has the actual or apparent authority to cause the Company to
         become bound in any contract, agreement or obligation, and no Member
         shall take any action purporting to be on behalf of the Company. No
         Director shall cause the Company to become bound to any contract,
         agreement or obligation, and no Director shall take any other action on
         behalf of the Company, unless such matter has received the vote,
         consent, approval or ratification as required pursuant to this
         Agreement with respect to such matter or except as provided below with
         respect to the authority and actions of MHMI.

                  (b)      The day-to-day management of the business and affairs
         of the Company shall be the responsibility of MHMI pursuant to the
         terms of the Management Services Agreement, which management shall be
         subject to decisions, guidelines and policies made or established by
         the Board of Directors hereunder, provided, however, decisions relating
         to medical and clinical practice at the Hospital shall be made
         exclusively by the qualified medical personnel of the Hospital under
         the direction of a member of the Hospital's medical staff.

                  (c)      The Members acknowledge that the Management Services
         Agreement is an integral part of the plans to develop and operate the
         Hospital and its execution is a condition to MHMI's participation in
         the Company.

         SECTION 5.2       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;

                                       11

<PAGE>

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

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

                  (d)      Admit an additional Member without the approval of
         the Required Members or except as otherwise provided in this Agreement.

                  (e)      Alter 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 any payments of any type, directly or
         indirectly, to anyone for the referral of patients to the Hospital in
         order to use the Hospital or to provide other services; or

                  (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 the Required Members.

         SECTION 5.3       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 their 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)      Use their commercially reasonable best efforts to
         cause the Company to obtain and keep in force during the term of the
         Company fire and extended coverage and public liability and
         professional liability insurance with such issuers and in such amounts
         as the Board of Directors shall deem advisable, but in amounts not less
         (and deductible amounts not greater) than those customarily maintained
         with respect to the business equipment and property comparable to the
         Company's; and

                  (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

                                       12

<PAGE>

         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.

         SECTION 5.4       DELEGATION BY THE BOARD OF DIRECTORS.

         Subject to restrictions otherwise provided herein, the Board of
Directors may at any time employ any other Person, including Persons and
Entities employed by, affiliated with, or related to any Director or any Member
to perform services for the Company and its business, and may delegate all or
part of their authority or control to any such other Persons, provided that such
employment or delegation shall not relieve the Board of Directors of its
responsibilities and obligations under this Agreement or under the laws of the
State of Delaware nor will it make any such Person a Member of the Company.

         SECTION 5.5       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 the 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. In addition, no purchaser
from the Company shall be required to determine the sole and exclusive authority
of the Manager to sign and deliver on behalf of the Company any instruments of
transfer with respect thereto or to see to the application or distribution of
revenues or proceeds paid or credited in connection therewith, unless such
purchaser shall have received written notice from the Company affecting the
same.

         SECTION 5.6       COMPANY EXPENSES.

                  (a)      The Company shall pay the amounts due to MHMI under
         the Management Services Agreement from time to time.

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

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

                           (ii)     A medical director's fee in an amount
                  approved by the Board of Directors which shall be at fair
                  market value to be paid to the Medical Director of the
                  Hospital for services actually rendered pursuant to the
                  Medical Director Agreement; and

                           (iii)    All fees and expenses paid to third parties
                  for accounting, legal, documentation, professional, and
                  reporting services to the Company, which may

                                       13

<PAGE>

                  include, but are not limited to: preparation and documentation
                  of Company bookkeeping, accounting and audits; preparation and
                  documentation of budgets, cash flow projections, and working
                  capital requirements; preparation and documentation of Company
                  state and federal tax returns; and taxes incurred in
                  connection with the issuance, distribution, transfer,
                  registration, and recordation of documents evidencing
                  ownership of a Membership Interest in the Company or in
                  connection with the business of the Company; expenses in
                  connection with preparing and mailing reports required to be
                  furnished to the Members for tax reporting or other purposes,
                  including reports, if any, that may be required to be filed
                  with any federal or state regulatory agencies, or expenses
                  associated with furnishing reports to Members which the Board
                  of Directors deems to be in the best interest of the Company;
                  expenses of revising, amending, converting, modifying, or
                  terminating the Company or this Agreement; costs incurred in
                  connection with any litigation in which the Company is
                  involved as well as any examination, investigation, or other
                  proceedings conducted by any regulatory agency involving the
                  Company; costs of any computer equipment or services used for
                  or by the Company; and the costs of preparing and
                  disseminating informational material and documentation
                  relating to a potential sale, refinancing, or other
                  disposition of the Hospital or the Equipment.

                  (c)      Guarantee Fee. In the event that any Member or its
         Affiliates, including, without limitation, MedCath Incorporated,
         provide a guarantee of any indebtedness of the Company which is
         acceptable to and required by the Company's lenders ("Guarantor
         Members") and such guarantees are not provided on a pro rata basis by
         all other Members of the Company (the "Nonguarantor Members"), then the
         Guarantor Members shall be paid an annual guarantee fee equal to (a)
         the amount of such indebtedness which is guaranteed by the Guarantor
         Members, multiplied by (b) .0075, multiplied by (c) the percentage
         Membership Interest in the Company owned by the Nonguarantor Members
         (the "Guarantee Fee"). The annual Guarantee Fee shall be paid in
         quarterly installments and the expense thereof shall be allocated to
         the Nonguarantor Members as follows:

                           (i)      The Guarantee Fee shall be deducted from the
                  Cash Distributions otherwise distributable to the Nonguarantor
                  Members and shall be paid to the Guarantor Members;

                           (ii)     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 the Guarantor Members and the amount of
                  such payments shall be charged to the Capital Accounts of the
                  Nonguarantor Members;

                           (iii)    When Cash Distributions become available for
                  distribution to the Members in the future, the Cash
                  Distributions otherwise distributable to the Nonguarantor
                  Members shall first be retained by the Company to the extent
                  that amounts were previously charged to the Capital Accounts
                  of the Nonguarantor Members in accordance with subsection (ii)
                  above and any remaining Cash Distributions shall be
                  distributed to the Members in accordance with Section 6.1.

                  (d)      Once a budget has been approved by the Board of
         Directors, MHMI shall have the authority to expend up to one hundred
         and ten percent (110%) of any and all

                                       14

<PAGE>

         funds which are included in the budget and sign all agreements related
         thereto, including reimbursement to MHMI and its Affiliates for goods
         and services provided to the Company. MHMI shall have the right to
         recast the budget by transferring all or part of the funds approved for
         specific line items to another category or line item by an aggregate
         amount not to exceed ten percent (10%) of the total budgeted funds.
         MHMI is further authorized to make additional expenditures reasonably
         related to additional revenues or increased patient or procedural
         volumes provided that in making such additional expenditures the gross
         margin between the Company's net patient revenue and operating expenses
         remains the same or greater than the gross margin between net patient
         revenues and operating expenses in the most recent budget approved by
         the Board of Directors. MHMI shall report to the Board of Directors
         from time to time on variances between the Hospital's budget and actual
         operating results.

         SECTION 5.7       NO MANAGEMENT BY MEMBERS.

         Except for those management obligations of MHMI set forth herein and in
the Management Services Agreement, the Members shall take no part in, or at any
time interfere in any manner with, the management, conduct, or control of the
Company's business and operations and shall have no right or authority to act
for or bind the Company except as set forth in this Agreement. The rights and
powers of such Members shall not extend beyond those set forth in this
Agreement, the Act, or those granted under the Certificate of Formation and any
attempt to participate in the control of the Company in a manner contrary to the
rights and powers granted herein, under the Act or Certificate of Formation
shall be null and void and without force and effect. Subject to the decisions
and judgment with respect to all professional medical or clinical matters of
qualified medical personnel, the Board of Directors shall have the right to
determine when and how the operations of the Company shall be conducted. The
exercise by a Member of any of the rights granted to such Member, including the
exercise of any rights granted to MHMI in its capacity as Manager hereunder,
shall not be deemed to be a Member taking part in the control of the business of
the Company and shall not constitute a violation of this Section.

         SECTION 5.8       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 5.9.      MEETINGS, QUORUM AND VOTE OF THE BOARD OF DIRECTORS.

                  (a)      The Board of Directors shall meet at least quarterly.
         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.

                  (b)      An emergency meeting of the Board of Directors may be
         called by any Director upon shorter notice. Action taken at the
         emergency meeting shall be valid so long as the meeting is attended by
         at least two (2) members of the Board of Directors appointed by the
         Investor Members and at least two (2) members of the Board of Directors
         appointed by MHMI, and the action is approved in the manner set forth
         in (e) below.

                                       15

<PAGE>

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

                  (d)      A quorum of the Board of Directors shall be necessary
         to conduct business at any meeting. A quorum shall consist of four (4)
         Directors and must include two (2) Directors designated by MHMI and two
         (2) Directors designated by the Investor Members. A Director may attend
         a meeting by telephone or other electronic means and be considered
         present for purposes of a quorum so long as the telephone or other
         connection allows each Director to hear and be heard by all other
         Directors.

                   (e)     Except as provided in Section 5.15 or as otherwise
         expressly provided in this Agreement, any action taken by the Board of
         Directors shall require the affirmative vote of at least a majority of
         the Directors present at a meeting at which a quorum is present and
         shall require the consent of at least one Director designated by MHMI
         and one Director designated by the Investor Members.

                  (f)      Any action which is required to be or may be taken at
         a meeting of the Board of Directors may be taken without a meeting if
         consent in writing including the required votes, either collectively or
         in counterparts, setting forth the action so taken, is signed by the
         required number of Directors as set forth in (e) above.

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

         SECTION 5.10      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)      Except as specifically provided in this Section 5.10,
         as long as any Member owns a Membership Interest in the Company, and
         for a period of three (3) years after a Member ceases for any reason to
         own a Membership Interest in the Company, neither a Member, Investor
         Entity, Owner, Practice nor any of their respective Affiliates, shall
         hold, directly or indirectly, an investment, ownership or other
         beneficial interest in (x) any hospital, or (y) any other Entity
         (including a sole proprietorship), in either case, which provides any
         of the following services or facilities: cardiac catheterization,
         angioplasty, peripheral angioplasty, atherectomy, stenting and PTCA,
         any cardiac surgical procedures or services, or any cardiovascular
         services, in any case within Dodge, Fond du Lac, Jefferson, Kenosha,
         Milwaukee, Ozaukee, Racine, Rock, Sheboygan, Walworth, Washington and
         Waukesha Counties, Wisconsin (collectively, the "Territory").
         Notwithstanding the terms of this Section 5.10 (b):

                                       16

<PAGE>

                           (i)      No Member or Owner who is a physician shall
                  be prohibited from maintaining his or her staff privileges and
                  admitting and treating patients at any other hospital;

                           (ii)     Nothing herein shall prohibit a Member,
                  Owner, Practice or their Affiliates from owning up to three
                  percent (3%) of the outstanding capital stock of a company
                  which provides healthcare services or supplies and whose stock
                  is publicly traded and listed on a nationally recognized
                  securities exchange or from investing in a publicly traded
                  mutual fund or making other investments with the prior written
                  approval of the Board of Directors;

                           (iii)    Nothing herein shall prevent an Investor
                  Member who is a physician, an Owner who is a physician or a
                  Practice that is an Owner or an Investor Member, from
                  providing, and billing and receiving fees from any payor for
                  the services required for therapeutic and diagnostic
                  cardiovascular services including, but not limited to, nuclear
                  imaging, echocardiography, stress testing and other similar
                  ancillary services directly for the patients of such Investor
                  Member, Owner, or Practice at the regular office established
                  by such Investor Member, Owner or Practice for the practice of
                  medicine or any other office or location except a hospital so
                  long as they do not provide diagnostic or interventional
                  cardiac catheterization services in such office or location;

                           (iv)     Nothing herein shall prevent an Investor
                  Member, an Owner or a Practice from operating a cardiac
                  catheterization laboratory in the MOB located on the
                  Hospital's campus in the event that the Board of Directors
                  first determines in writing that the Hospital's cardiac
                  catheterization laboratories have reached maximum capacity and
                  the Board of Directors elects for the Company not to add
                  additional cardiac catheterization laboratories in the
                  Hospital or to operate a cardiac catheterization laboratory in
                  the MOB; provided, however, that, subject to the restrictions
                  set forth above in this subsection (iv), among the Investor
                  Members, the Owners and the Practices, there may only be a
                  total of two (2) cardiac catheterization laboratories in the
                  MOB and further provided that (x) only diagnostic (but not
                  interventional) cardiac catheterization services may be
                  provided in such laboratories and (y) MHMI or an Affiliate is
                  engaged to manage the laboratories;

                           (v)      In addition, MHMI or its Affiliates may
                  separately operate a mobile catheterization laboratory within
                  the Territory, but only if either MHMI or an Affiliate thereof
                  is providing such service pursuant to a lease of six (6)
                  months or less to a provider who is already providing cath lab
                  services and if the Board of Directors has elected not to have
                  such service provided by the Company;

                           (vi)     Nothing herein shall prevent any Member or
                  Owner who is a physician from personally performing
                  professional medical services directly for his or her patients
                  at any hospital or facility and from billing and receiving
                  professional fees as a result of his or her professional
                  medical services from any payor.

                  (c)      The Members and Owners have reviewed the term and
         geographical restrictions included in Section 5.10(b), and in light of
         the interests of the Members and Owners, agree that such restrictions
         are fair and reasonable.

                                       17

<PAGE>

                  (d)      In order to ensure that the Hospital has available to
         it at all times leading and qualified cardiologists and cardiovascular
         surgeons, as of the date hereof the Company is entering into the
         Hospital Professional Services Agreement with each of the Investor
         Members and Owners who are physicians or their Practices, which
         Hospital Professional Services Agreement includes in Section 7 thereof
         certain covenants by the Owners who are physicians or Practices which
         are designed to ensure that the Owners who are physicians will be
         available to the Hospital from time to time in order to enable it to
         meet its objectives of being an efficient quality provider of
         cardiology and cardiovascular services. The Members, Practices, and
         Owners acknowledge and agree that the execution of the Hospital
         Professional Services Agreement by the Investor Members and Owners who
         are physicians or Practices is further consideration for the execution
         by the Members of this Agreement.

                  (e)      If there is a breach or threatened breach of the
         provisions of this Section 5.10 of this Agreement, in addition to other
         remedies at law or equity, the non-breaching parties shall be entitled
         to injunctive relief. The Members and Owners desire and intend that the
         provisions of this Section 5.10 shall be enforced to the fullest extent
         permissible under the law and public policies applied, but the
         unenforceability or modification of any particular paragraph,
         subparagraph, sentence, clause, phrase, word, or figure shall not be
         deemed to render unenforceable the remainder of this Section 5.10.
         Should any such paragraph, subparagraph, sentence, clause, phrase,
         word, or figure be adjudicated to be wholly invalid or unenforceable, a
         court with applicable authority is hereby authorized to "blue pencil"
         or modify this Section, the balance of this Section 5.10 shall
         thereupon be modified in order to render the same valid and enforceable
         and the unenforceable portion of this Section 5.10 shall be deemed to
         have been deleted from this Agreement.

                  (f)      The Company, the Board of Directors and the Members
         agree that the benefits to any Member, Owner, Practice or their
         Affiliates 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, any Owner, Practice or their
         Affiliates or 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 Investor
         Member or Owner who is a physician from practicing medicine at any
         other facility.

                  (g)      The Investor Members and Investor Entities shall
         cause each of their existing and future Owners to agree in writing to
         be personally bound by the terms of this Section 5.10.

         SECTION 5.11      BOARD OF DIRECTORS' STANDARD OF CARE.

         Each Director shall act in a manner he or she 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 his or her duties, each Director shall be fully protected in relying
in good faith upon the records required to be maintained under this Agreement
and upon such information, opinions, reports and statements by any of its other
Directors, Members, or agents, or by any other Person as to matters each
Director reasonably believes are within such other Person's professional or
expert competence and who has been

                                       18

<PAGE>

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 Member or
Director in the outcome of any vote, decision or matter. In any case, a Director
who has a personal interest in the outcome of any vote, decision, or matter
shall endeavor to notify the other Directors of such personal interest prior to
the applicable vote or decision of the Board of Directors, provided that such
additional notification shall not be required if such conflict is reasonably
obvious based upon the circumstances then existing.

         SECTION 5.12      LIMITATION OF LIABILITY.

         A Director shall not be liable to the Company or the Members for any
action taken in managing the business or affairs of the Company if he or she
performs the duty of his or her office in compliance with the standard contained
in Section 5.11. 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
received a personal benefit in violation or breach of the provisions of this
Agreement.

         SECTION 5.13      INDEMNIFICATION OF THE 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 his or her capacity as a Director of the Company to the fullest
         extent allowed by law, provided that the same were not the result of
         gross negligence or willful misconduct on the part of the 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 VI or Article VII hereof,
         to the Members.

         SECTION 5.14      PURCHASE OF GOODS AND SERVICES FROM MEMBERS.

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

                                       19

<PAGE>

         SECTION 5.15      CERTAIN DECISIONS OF THE BOARD OF DIRECTORS.

                  (a)      As long as MHMI and/or its Affiliates are (i)
         providing a guaranty or are committed to provide a guaranty for any
         indebtedness of the Company, and/or (ii) have any outstanding loans to
         the Company or are committed to provide such loans, then
         notwithstanding anything in this Agreement to the contrary, all
         decisions and actions to be made by the Board of Directors with respect
         to any loan, lease or other similar financing of the development,
         construction or operation of the Hospital or the Company's affairs,
         including without limitation the decisions with respect to incurring
         any indebtedness or the refinancing thereof, shall be made by the
         Directors designated by MHMI and shall be subject to the consent of at
         least one of the Directors appointed by the Investor Members, which
         consent shall not be unreasonably withheld.

                  (b)      The Board of Directors shall be deemed to have
         specifically approved all expenditures proposed by MHMI under this
         Article V that are substantially consistent with the Development Budget
         Exhibit (Exhibit C) or an approved operating budget when funded from
         additional Capital Contributions made to the Company by the Members
         pursuant to Section 3.5 above.

                  (c)      The development and annual operating budgets to be
         proposed by MHMI hereunder shall be approved by the Board of Directors
         as provided above subject to the following:

                           (i)      The Board of Directors shall be deemed to
                  have approved a development budget that is substantially
                  consistent with the Development Budget Exhibit attached to
                  this Agreement and the Company's Private Placement Memorandum;

                           (ii)     No Director shall unreasonably withhold its
                  approval of budgets which are within the reasonable revenue
                  expectations of the Hospital and which are in compliance (both
                  as to terms and availability of financing) with agreements
                  with the Company's lenders and other parties providing
                  financing to the Company; and

                           (iii)    In the event that the Board of Directors is
                  unable to approve an annual budget, MHMI shall be authorized
                  to operate the Company pursuant to the this Agreement under
                  the previous year's budget increased by the greater of 10% or
                  the percentage increase during the previous year in the
                  Consumer Price Index for Medical Items as published by the
                  United States Department of Labor, Bureau of Labor Statistics,
                  until a new budget is approved. MHMI may also increase a
                  budget under this Section 5.15(c)(iii) in reasonable relation
                  to increases in revenues that exceed those in the current
                  budget or increases in procedural or patient volumes at the
                  Hospital provided that in making such additional expenditures
                  the gross margin between the Company's net patient revenue and
                  operating expenses remains the same or greater than the gross
                  margin between net patient revenues and operating expenses in
                  the most recent budget approved by the Board of Directors.

                  (d)      Without MHMI's written consent, the Investor Members
         and the Board of Directors will not approve any change to the
         construction, design or equipment of the

                                       20

<PAGE>

         Hospital, if the effect thereof is to materially increase the cost
         thereof as set forth on the Development Budget Exhibit (Exhibit C)
         approved hereunder.

         SECTION 5.16      INDEMNITY BY THE COMPANY.

         The Company agrees to indemnify, defend and hold MHMI, its directors,
officers, employees and agents, harmless from and against any and all loss,
claim, cause of action, demand, penalty, liability, action, damage or
deficiency, lawsuit or other proceeding against MHMI in its capacity as Manager
of the Company, resulting or arising from (a) acts or omissions of the Company,
its Members, officers, employees (unless due to the gross negligence or willful
misconduct of MHMI), (b) any liability or obligation of the Company, except
those which MHMI created in violation of this Article V; (c) any nonfulfillment
of the Company of any of its covenants or agreements under this Article V; (d)
any violation of law by the Company; and (e) any loss or damage, reasonable
attorney's fees and other costs and expenses incident to any of (a) through (d).
The indemnity covenants set forth in this Section 5.16 shall survive the
termination of this Agreement for any reason.

         SECTION 5.17      FORCE MAJEURE.

         MHMI shall not be liable nor shall it be deemed to be in default for
any delay or failure in performance under this Article V or other interruption
of service or employment deemed resulting directly or indirectly from Acts of
God, civil or military authority, acts of public enemy, war, accidents, fires,
explosions, earthquakes, floods, failure of transportation, strikes or other
work interruptions by MHMI's employees or any similar or dissimilar cause beyond
the reasonable control of MHMI. Further, MHMI shall not be in default under this
Article V if the default resulted from actions taken at the request or direction
of the Board of Directors or if the Board of Directors failed to take reasonable
action recommended by MHMI to enable it to meet its obligations hereunder.

                                   ARTICLE VI

                          DISTRIBUTIONS AND ALLOCATIONS

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

         Prior to the dissolution of the Company, and subject to the terms and
conditions to which the Company is bound with respect to its lenders ("Loan
Conditions"), Cash Flow from Operations and Cash from Sales or Refinancing, if
any, remaining after repayment of any amounts currently due with respect to
loans made by the Members to the Company, shall be distributed quarterly by the
Manager as Cash Distributions according to the relative percentage Membership
Interests of the Members at such times as the Board of Directors deems
appropriate; provided, however, that to the extent possible, any Guarantee Fee
shall be deducted from the Cash Distributions otherwise distributable to the
Nonguarantor Members and paid to the Guarantor Members as set forth in Section
5.6(c). Notwithstanding anything herein to the contrary, no distributions shall
be made to Members if prohibited by the Act or any other applicable law and
unless the aggregate principal balance of any loans made to the Company by MHMI
or an Affiliate pursuant to Section 3.5 does not exceed Six Million Dollars
($6,000,000) at the time of any Cash Distributions.

                                       21

<PAGE>

         The Board of Directors shall, to extent permitted by the Loan
Conditions and subject to the availability of Cash Flow from Operations and
using commercially reasonable efforts, distribute cash annually pro rata to
Members in an amount which is sufficient to enable them to pay income taxes, if
any, which arise from the taxable income of the Company. In computing taxable
income of each Member, the taxable income of each Member for the current year
shall be reduced by any cumulative tax losses incurred in prior years (after
reduction by taxable income in prior years). Such distributions shall assume for
all Members the highest combined federal and state tax rates applicable to any
Member with respect to his or its Profits from the Company.

         SECTION 6.2       PROFITS.

         Except as provided in the Regulatory Allocations Exhibit (Exhibit D)
and subject to Section 6.6, Profits shall be allocated as follows:

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

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

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

         SECTION 6.3       LOSSES.

         Except as provided in the Regulatory Allocations Exhibit (Exhibit D)
and subject to Section 6.6, 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.

         SECTION 6.4       CODE SECTION 704(C) TAX ALLOCATIONS.

         Income, gain, loss, and deduction with respect to any property
contributed to the capital of the 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

                                       22

<PAGE>

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 6.5       MISCELLANEOUS.

                  (a)      Allocations Attributable to Particular Periods. For
         purposes of determining Profits, Losses or any other items allocable to
         any period, such items shall be determined on a daily, monthly, or
         other basis, as determined by the 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.

         SECTION 6.6       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 Nonguarantor Members in accordance with their relative percentage
Membership Interests.

                                   ARTICLE VII

              DISSOLUTION, WINDING UP AND LIQUIDATING DISTRIBUTIONS

         SECTION 7.1       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

                                       23

<PAGE>

in the termination or dissolution of the Company or affect its continuance in
any manner whatsoever.

         SECTION 7.2       DISSOLUTION.

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

                  (a)      The election to dissolve the Company in accordance
         with the terms of Section 3.5(f) hereof;

                  (b)      The expiration of the term of the Company as provided
         in Section 2.6 hereof;

                  (c)      The adjudication of bankruptcy of the Company;

                  (d)      Upon the written consent of the Required Members;

                  (e)      In accordance with Section 12.11 hereof;

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

                  (g)      Upon the written election of MHMI prior to the
         execution by MHMI on behalf of the Company of definitive agreements for
         the construction of the Hospital and for a loan to finance the
         construction of the Hospital, in the event that upon thirty (30) days
         prior written notice to the Members, the conditions set forth at
         Section 3.11 have not been met with regard to the MOB; or

                  (h)      Upon the written election of either MHMI or the
         Investor Members, in the event that within eighteen (18) months
         following the earlier of the execution of this Agreement by all Initial
         Members or the date that all of the Initial Members otherwise become
         bound under this Agreement, the Company has not commenced construction
         of the Hospital, unless such period is extended by the mutual written
         agreement of MHMI and the Investor Members.

         Upon the occurrence of the events of dissolution set forth at this
Section 7.2, the Manager shall promptly take such steps as are required to
dissolve the Company, including, but not limited to, the winding up of the
affairs of the Company and, upon the completion of the winding up, the filing of
a certificate of cancellation as required under the Act.

         SECTION 7.3       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
         Manager or, if for any reason there is no Manager, by another Person
         designated by the Board of Directors. In winding up the Company and
         liquidating assets, the Manager, 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

                                       24

<PAGE>

         other sums to which the Company may be entitled, and shall sell the
         Company's interest in the Hospital and the Equipment to any Person,
         including any 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 pursuant to Section 3.8.

                  (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 Delaware law.

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

                  (e)      The Capital Accounts of the Members, as adjusted,
         shall be utilized by the Company for the purpose of making
         distributions to those Members with positive balances in their
         respective Capital Accounts pursuant to Section 7.3(b). In making such
         distributions, the 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 or the Person winding up the affairs of the Company
         deems reasonably necessary pursuant to Section 7.3(b)) prior to the
         later of (i) the end of the taxable year in which the event which
         caused the termination and dissolution of the Company occurs, or (ii)
         ninety (90) days after the occurrence of such event. The Board of
         Directors in its sole discretion, or the Person winding up the affairs
         of the Company, in its discretion, may elect to have the Company retain
         any installment obligations owed to the Company until collected in full
         so long as any portion of the reserves which are later determined to be
         unnecessary, and all collections on such installment obligations which
         are not deemed to be reasonably necessary by the Board of Directors or
         the Person winding up the affairs of the Company to add to such
         reserves

                                       25

<PAGE>

         are distributed as soon as practicable in accordance with the
         provisions of Section 7.3(b) as modified by this Section.

         SECTION 7.4       TERMINATION.

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

         SECTION 7.5       PAYMENT IN CASH.

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

         SECTION 7.6       TERMINATION OF NONCOMPETITION COVENANTS.

                  (a)      Members shall have no continuing liability or
         obligation under Section 5.10 after the second (2nd) anniversary of the
         earlier of: (i) the dissolution of the Company; or (ii) the date upon
         which the Company ceases to be licensed to operate an acute care
         hospital.

                  (b)      Notwithstanding the terms of Section 7.6(a) or any
         other provision hereof, in the event the Company is dissolved pursuant
         to Section 12.11 hereof, Members shall have no continuing liability or
         obligation under Section 5.10(b) after the dissolution of the Company;
         provided, however, that in the event that at any time prior to the
         second (2nd) anniversary of the dissolution of the Company pursuant to
         Section 12.11 an Investor Member, Investor Entity, Practice or Owner
         wishes to engage in, either directly or indirectly, a transaction
         otherwise prohibited by Section 5.10(b), prior to agreeing to any such
         transaction or agreeing to vote his, her, or its interest to approve
         such transaction, the Investor Member, Investor Entity, Practice or
         Owner shall give MHMI written notice of such proposed transaction
         including all terms and conditions (the "MHMI Notice"). MHMI shall then
         have forty-five (45) days following receipt of the MHMI Notice to agree
         to participate in the transaction on substantially the same terms and
         conditions as the Investor Member, Investor Entity, Practice or Owner
         (the "Option"). In the event MHMI does not elect to exercise any such
         Option within such forty-five (45) day period, the applicable Investor
         Member, Investor Entity, Practice or Owner may enter into the
         transaction without the participation of MHMI provided that if the
         Investor Member, Investor Entity, Practice or Owner fails to enter into
         the proposed transaction within ninety (90) days following the
         expiration of the forty-five (45) day period following MHMI's receipt
         of the MHMI Notice, then the terms and conditions of this Section
         7.6(b) shall again apply, until the second (2nd) anniversary of the
         dissolution of the Company pursuant to Section 12.11.

                                       26

<PAGE>

                                  ARTICLE VIII

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

         SECTION 8.1       MEMBERS - RESTRICTION ON TRANSFER.

                  (a)      Except as otherwise set forth in this Section or 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 regulatory authority or 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 5.10(b)
         hereof.

                  (b)      Except as otherwise set forth in this Section or in
         this Agreement, a Member may transfer, sell or assign its entire
         Membership Interest only if it has received the approval of the Board
         of Directors. Subject to the foregoing: (i) the Company first for a
         period of fifteen (15) days, and thereafter the other Members in
         proportion to their Membership Interest in the Company 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 writing in a bona fide
         offer made for the Membership Interests 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, including obtaining an
         opinion of counsel to that effect. Any Member that assigns all of its
         Membership Interest shall cease to be a Member of the Company. Any
         Membership Interests acquired by the Company pursuant to Section 8.1
         may, subject to applicable law, be re-offered by the Company to
         suitable investors.

                  (c)      Subject to (d) below, any dissolution, liquidation,
         merger (unless Members or their Affiliates existing prior to such
         merger own at least fifty-one percent (51%) of the surviving entity
         after the merger or unless both parties to such merger are majority
         owned by parties who are Members or their Affiliates prior to such
         merger) or sale of a Member which is an Entity (a sale shall include a
         transfer of fifty percent (50%) or more of its ownership interests or
         of substantially all of its assets or any other transaction or series
         of related transactions intended to accomplish, in substance, a sale of
         such Entity), which event shall not occur, subject to (d) below,
         without the written consent of the other Members, shall constitute an
         offer by such Member to sell such Member's Membership Interest to the
         Company and the other Members pursuant to Section 8.6 for a purchase
         price equal to five (5) multiplied by the net income (as

                                       27

<PAGE>

         reasonably determined by the Company's accountants) of the Company for
         the twelve (12) month period ending as of the calendar quarter most
         recently ended prior to such event multiplied by the percentage
         Membership Interest of such Member in the Company (the "Formula
         Purchase Price"). The Formula Purchase Price shall be paid in three (3)
         equal annual installments, the first third of which shall be paid upon
         the determination of the Formula Purchase Price and the remaining two
         (2) installments of which shall be paid on the first and second
         anniversary of such date (the "Payment Method"). The remaining two (2)
         installments shall bear interest at the Prime Rate as of the date of
         the date of the determination of the Formula Purchase Price. Accrued
         interest shall be paid as of the dates payments of principal are due as
         provided above according to the Payment Method.

                  (d)      Notwithstanding anything herein to the contrary, MHMI
         may assign its Membership Interest in the Company, its rights to
         designate Directors hereunder, and its rights as manager under the
         Management Services Agreement (i) to any party who purchases fifty-one
         percent (51%) or more of MedCath Corporation, MedCath Holdings, Inc.,
         MedCath Incorporated's and their subsidiaries' assets or capital stock
         if such purchaser (in case of an asset sale) assumes in writing the
         obligations of MHMI (and as to MedCath Corporation and MedCath
         Incorporated, their respective successor(s), as applicable, assume in
         writing their respective guarantee obligations assumed specifically
         under this Agreement) hereunder or (ii) to a party under control of,
         common control, or which controls MHMI. MHMI may also assign its
         Membership Interest in the Company, its right to designate Directors,
         and its rights under the Management Services Agreement to a financial
         institution (a "Lender") as collateral security for repayment of
         indebtedness for borrowed funds by MedCath Incorporated or its
         Affiliates; provided, however, that a Lender will not have the right to
         vote on behalf of MHMI as a Member of the Company unless and until the
         Lender forecloses on MHMI's Membership Interest in the Company. The
         Members acknowledge and agree, however, that a Lender may require that
         the Company not amend agreements entered into by the Company without
         Lender's consent and that a Lender may require that the Company or MHMI
         or its Affiliates agree to certain restrictions and covenants that will
         bind the Company and/or otherwise restrict certain rights of the
         Members under this Agreement.

                  (e)      Notwithstanding anything in this Agreement to the
         contrary, an Investor Member may, upon the consent of the Board of
         Directors, assign his, her or its Membership Interest to a trust or
         family limited partnership that is formed and maintained for the sole
         benefit of the Investor Member or the individual who owns the Investor
         Member, as the case may be, and/or his or her immediate family so long
         as: (i) the Investor Member or individual who owns the Investor Member
         agrees in writing that he or she continues to be bound by the terms of
         Section 5.10 of the Agreement and all confidentiality obligations under
         this Agreement; (ii) the Investor Member or individual who owns the
         Investor Member agrees in writing that he or she shall remain a
         trustee, general partner or otherwise exercises control over the trust
         or family limited partnership as determined by the Board of Directors
         in its sole discretion; (iii) the Manager first approves in writing the
         terms of all documents creating and constituting the trust or family
         limited partnership; and (iv) the assignment meets such other
         requirements as reasonably established by the Board of Directors from
         time to time. Other than (i) through (iv) above, an assignment made
         under this Section 8.1(e) shall not be subject to any of the
         restrictions on the transfer of Membership Interests set forth in this
         Agreement including, but not limited to, the Right of First Refusal set
         forth at Section 8.1(b).

                                       28

<PAGE>

         SECTION 8.2       CONDITION PRECEDENT TO TRANSFER OF MEMBERSHIP
                           INTEREST.

         Notwithstanding anything herein to the contrary, no transfer of
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 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 8.3       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, and if applicable the other Members,
         have waived their respective rights, pursuant to Section 8.1 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 8.4       ALLOCATIONS BETWEEN TRANSFEROR AND TRANSFEREE.

         Upon the transfer of a Membership Interest, all items of income, gain,
loss, deduction and credit attributable to the Membership Interest so
transferred shall be allocated between the transferor and the transferee in such
manner as the transferor and transferee agree at the time of transfer; provided
such allocation does not violate federal or state income tax law. If the Board
of Directors, in its sole discretion, deems such laws violated, then such
allocation shall be made pro rata for the fiscal year based upon the number of
days during the applicable fiscal year of the Company that the 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

                                       29

<PAGE>

reliance on the Company records as they exist until such time as the written
assignment has been received by, and recorded on the books of the Company. For
purposes of this Article VIII, the effective date of an assignment of any
Membership Interest shall be the last day of the month specified in the written
instrument of assignment.

         SECTION 8.5       RIGHTS, LIABILITIES OF, AND RESTRICTIONS ON ASSIGNEE.

         No assignee of a Membership Interest shall have the right to
participate in the Company, inspect the books of account of the Company or
exercise any other right of a Member unless and until admitted as a Substitute
Member. Notwithstanding 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, however, that 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 8.6       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 Membership
         Interest upon a breach by the Member or any of its Affiliates of the
         Member's obligations contained in Article III, Sections 5.10, and 8.1
         of this Agreement.

                  (b)      Each Member agrees to sell its Membership Interest to
         the Company in the event the Company elects to exercise the rights of
         repurchase granted under Section 8.6(a) and the purchase price shall be
         paid according to the Payment Method and shall be the lower of (i) the
         Capital Contributions of the Member less all amounts distributed to
         such Member by the Company, and (ii) the Formula Purchase Price.

                  (c)      The Directors designated solely by any Member or any
         Director who is a Member, or who is an Owner of a Member, if such
         Member's activities give rise to the event set forth in Section 8.6(a)
         shall not have a vote hereunder and a majority of the other Directors
         shall make all decisions under this Section 8.6 with respect to such
         activities.

                  (d)      Notwithstanding anything herein to the contrary, the
         repurchase of the Economic Interest or Membership Interest of MHMI
         under Section 8.6(a) shall not become effective unless and until MHMI
         and its Affiliates are fully released from their liability as
         guarantors for any indebtedness of the Company and unless and until all
         amounts loaned by MHMI or its Affiliates to the Company are paid in
         full.

         SECTION 8.7       DEATH OF A MEMBER.

         Heirs of Members who are individuals shall be entitled to inherit the
Membership Interests of a deceased Member, provided that upon a Member's death
(or the death of an individual that owns a Member) such interests shall be
automatically converted to an Economic Interest only in the Company until such
heir agrees in writing to all of the terms and conditions of this Agreement and
such other reasonable terms as may be established by the Board of

                                       30

<PAGE>

Directors, in which event such interest shall again become a Membership Interest
in the Company. Notwithstanding the previous sentence, within one hundred twenty
(120) days of the Company first learning of the death of an individual or of an
individual that owns a Member, the Company shall have the option to purchase the
Membership Interest owned by such deceased Member directly or through an Entity,
and the estate of the deceased individual shall be obligated to sell such
Membership Interest to the Company, in accordance with the terms of this Section
8.7. The Company may exercise its option by giving written notice thereof to the
estate of the deceased individual, or the appropriate representative thereof,
within such one hundred twenty (120) day period. The purchase price for such
Membership Interest shall equal the Formula Purchase Price. The purchase price
shall be paid according to the Payment Method. The outstanding amounts due from
the Company to the estate of the deceased individual shall bear interest at
Prime Rate as of the date of such individual's death. Accrued interest shall be
paid as of the dates payments of principal are due as provided above. The
agreements for the formation and governance of Investor Members that are
Entities shall provide for the disposition of the ownership interest of a
deceased owner of such Investor Members, which disposition shall be subject to
the approval the Manager. Notwithstanding any provision of this Section 8.7, if
a Member or an individual who has an ownership interest in a Member dies prior
to the third (3rd) anniversary of the Opening Date, then, at the option of the
heir(s) of the deceased Member or individual who owns a Member, the Company may
not exercise its option hereunder to purchase the Membership Interest owned by
the deceased Member directly or through an Entity until after the third (3rd)
anniversary of the Opening Date.

         SECTION 8.8       MARITAL OR COMMUNITY PROPERTY AND DIVORCE.

                   (a)     For purposes of this Agreement, any reference to a
         Membership Interest shall include all interests now or hereafter
         acquired by the spouse of a Member as a result of (i) community or
         marital property laws including community or marital property, deferred
         marital property or augmented marital property, or (ii) a property
         division or other award or transfer upon dissolution of marriage. The
         creation of an interest in a Membership Interest by operation of any
         applicable community or marital property law shall not be deemed to be
         a transfer so long as the Membership Interest in which an interest is
         created continues to satisfy the following two conditions: (x) the
         Membership Interest is registered in the name of the Member, and (y)
         the Membership Interest is controlled by the Member.

                   (b)     If the conditions set forth in either of Section
         8.8(a)(x) or 8.8(a)(y) cease to be satisfied for any reason (including,
         without limitation, the death of the spouse of the Member or the
         dissolution of marriage) (referred to hereafter as a "Transfer Event"),
         the Member shall have the right and option to purchase all, but not
         less than all, of the interest of the Member's spouse in such
         Membership Interest for a period of thirty (30) days after the entry of
         a judgment of divorce or legal separation, or for a period of eight (8)
         months after the date of the spouse's death, whichever is applicable.
         Such option shall be exercisable by written notice from the Member to
         the Company and the Member's spouse or the personal representative of
         the spouse's estate, whichever is applicable.

                   (c)     In the event the Member does not elect to purchase
         all of the spouse's marital property interest, the Company shall have
         an option to purchase all, but not less than all, of the spouse's
         interest in such Membership Interest. This option shall be exercisable
         within thirty (30) days after the expiration of the applicable election
         period set forth in Section 8.8(b). If the Company elects to exercise
         the option to purchase, it shall

                                       31

<PAGE>

         give written notice of the election to the spouse or the personal
         representative of the spouse's estate, whichever is applicable.

                  (d)      The closing of the purchase and sale of a spouse's
         marital property interest shall occur at the principal office of the
         Company on such date as may be selected by the purchaser but in any
         event not less than five (5) days nor more than forty-five (45) days
         after the date the purchaser elects to exercise the option to purchase
         described herein. The purchase price for a spouse's marital property
         interest pursuant to Section 8.8(b) or 8.8(c) shall equal the Formula
         Purchase Price and shall be paid according to the Payment Method. The
         principal outstanding from time to time shall bear interest at the
         Prime Rate as of the date of the Transfer Event. Accrued interest shall
         be paid as of the dates payments of principal are due as provided
         above.

                   (e)     If the Company and the Member do not elect to
         purchase the spouse's marital property interest as described in Section
         8.8(b) or 8.8(c), the resulting transferee shall be considered a
         Substitute Member and must fulfill the conditions of Section 8.3.

                   (f)     By signing a spousal consent and acknowledgment, if a
         spouse is married to a Member at the time he or she becomes a Member,
         or by becoming the spouse of a Member, the spouse, without further act
         or deed, grants to the Member an irrevocable and absolute proxy and
         power of attorney (the proxy and power being coupled with an interest)
         to (i) take such actions on the spouse's behalf without any further
         deed than the taking of the action by the Member with respect to the
         Membership Interests otherwise held by the Member, and (ii) sign any
         document or instrument evidencing the action for or on behalf of the
         spouse relating to the Membership Interests.

                                   ARTICLE IX

                        RECORDS, ACCOUNTINGS AND REPORTS

         SECTION 9.1       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 9.2       ACCESS TO RECORDS.

         The books of account and all documents and other writings of the
Company, including the Certificate of Formation 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.

                                       32
<PAGE>

         SECTION 9.3       BANK ACCOUNTS AND INVESTMENT OF FUNDS.

                  (a)      MHMI 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 MHMI may from time to time designate.

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

         SECTION 9.4       FISCAL YEAR.

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

         SECTION 9.5       ACCOUNTING REPORTS.

         As soon as reasonably practicable after the end of each fiscal year but
in no event later than 120 days after the end thereof, each Member shall be
furnished an annual accounting showing the financial condition of the Company at
the end of such fiscal year and the result of its operations for the fiscal year
then ended, which annual accounting shall be prepared on an accrual basis in
accordance with generally accepted accounting principles applied on a consistent
basis and shall be delivered to each of the Members promptly after it has been
prepared. It shall include a balance sheet as of the end of such Fiscal Year and
statements of income and expense, each Member's equity, and cash flow for such
Fiscal Year. At the Manager's election the Company shall either be audited or
such annual accountings shall be either reviewed or compiled by a firm of
independent certified public accountants engaged by the Manager on behalf of the
Company which shall also be the accounting firm of the Manager. The audit may be
a simple audit provided that the audit 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. Any Member, at such Member's sole cost and
expense, may obtain an audit of the Company by an independent certified public
accountant at any time upon notice to MHMI. Following the Opening Date, the
Manager shall also cause to be prepared and distributed to the Members quarterly
financial statements.

         SECTION 9.6       TAX MATTERS PARTNER.

         MHMI shall act as the "Tax Matters Partner" of the Company as that term
is defined Section 6231 of the Code.

                                       33

<PAGE>

                                    ARTICLE X

                      MEETINGS AND VOTING RIGHTS OF MEMBERS

         SECTION 10.1      MEETINGS.

                   (a)     Meetings of the Members of the Company for any
         purpose may be called by the Board of Directors, or by any Member that
         owns, or any group of Members that own in the aggregate, at least a
         fifteen percent (15%) Membership Interest in the Company. Such meetings
         shall be held in the Milwaukee, Wisconsin area. A Member 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 Member to hear and be heard by all other
         Members. A quorum of the Members shall be necessary to conduct business
         at any Members' meeting. A quorum shall consist of MHMI and Investor
         Members holding a majority of the percentage Membership Interests of
         the Investor Members.

                  (b)      Meetings of the Investor Members of the Company for
         any purpose may be called by Investor Members who, in the aggregate,
         own at least fifteen percent (15%) of the Membership Interests in the
         Company. Such meetings shall be held in the Milwaukee, Wisconsin area.
         A quorum of Investor Members shall be necessary to conduct business at
         any Investor Members meeting. Investor Members holding a majority of
         the percentage Membership Interests of the Investor Members shall
         constitute a quorum at any meeting of the Investor Members of the
         Company. An Investor Member 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 Investor Member
         to hear and be heard by all other Investor Members.

                  (c)      A notice of any such meeting shall be given by mail,
         not less than ten (10) days nor more than sixty (60) days before the
         date of the meeting, to each Member at its address as specified in
         Section 12.7. Such notice shall be in writing, and shall state the
         place, date and hour of the meeting, and shall indicate by whom it is
         being issued. The notice shall state the purpose or purposes of the
         meeting. If a meeting is adjourned to another time or place, and if any
         announcement of the adjournment of time or place is made at the
         meeting, it shall not be necessary to give notice of the adjourned
         meeting.

                  (d)      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.

         SECTION 10.2      VOTING RIGHTS OF MEMBERS.

                  (a)      Each Member shall take no part in or interfere in any
         manner with the control, conduct or operation of the Company, and shall
         have no right or authority to act for or bind the Company except as
         provided herein. Votes or decisions, to the extent taken or to be made,
         of the Members may be cast by a duly authorized representative of the
         Member designated by written notice to the Company and each Member.
         Such

                                       34

<PAGE>

         votes may be cast at any duly called meeting of the Company or in
         writing within ten (10) days after written request therefor. Except as
         otherwise provided herein, any matters requiring the consent or
         approval of the Members shall require the affirmative vote of the
         Required Members. 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 XI

                                   AMENDMENTS

         SECTION 11.1      AUTHORITY TO AMEND BY THE BOARD OF DIRECTORS.

         Notwithstanding Section 3.8 of this Agreement, the Board of Directors
may amend this Agreement or the Article of Organization of the Company without
the consent of the Required Members for the following purposes only:

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

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

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

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

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

                  (f)      Subject to the terms of Section 2.6, to extend the
         term of the Company.

                                       35

<PAGE>

         Any proposed amendment by a member of the Board of Directors shall not
be unreasonably delayed or rejected by any other member of the Board of
Directors.

         SECTION 11.2      RESTRICTIONS ON THE BOARD OF DIRECTORS' AMENDMENTS:
                           AMENDMENTS BY MEMBERS.

         Except as provided in Section 11.1, amendments to this Agreement shall
be made only upon the consent of the Required Members. No amendment shall be
made pursuant to Section 11.1 above which would materially and adversely affect
the federal income tax treatment to be afforded each Member, materially and
adversely affect the Membership Interests and liabilities of each Member as
provided herein, materially change the purposes of the Company, extend or
otherwise modify the term of the Company, or materially change the method of
allocations and distributions as provided in Article VI and Article VII.

         SECTION 11.3      AMENDMENTS TO CERTIFICATE OF FORMATION.

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

                                   ARTICLE XII

                                  MISCELLANEOUS

         SECTION 12.1      LIMITED POWER OF ATTORNEY.

         Upon the execution hereof, each Member hereby irrevocably constitutes
and appoints the Directors it has appointed as its true and lawful attorney in
the Member's name and on the Member's behalf to take at any time all such action
which such Directors are expressly authorized to perform, or which a Member is
expressly required to perform, under this Agreement.

         SECTION 12.2      WAIVER OF PROVISIONS.

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

         SECTION 12.3      INTERPRETATION AND CONSTRUCTION.

         This Agreement, together with the Management Services Agreement, the
Hospital Professional Services Agreement and the Right of First Refusal
Agreement with an Affiliate of MHMI, constitutes the entire agreement among the
Members. Any modification or amendment to this Agreement must be accomplished in
accordance with the provisions of Article III and Article XI. 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.

                                       36

<PAGE>

         SECTION 12.4      GOVERNING LAW.

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

         SECTION 12.5      PARTIAL INVALIDITY.

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

         SECTION 12.6      BINDING ON SUCCESSORS.

         The terms, conditions and provisions of this Agreement shall inure to
the benefit of, and be binding upon the Members 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 12.7      NOTICES AND DELIVERY.

                  (a)      To Members. Any notice to be given hereunder at any
         time to any Member or any document reports or returns required by this
         Agreement to be delivered to any Member, may be delivered personally or
         mailed to such Member, postage prepaid, addressed to 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
         Exhibit (Exhibit A) hereof. Any notice, or any document, report or
         return so delivered or mailed shall be deemed to have been given or
         delivered to such Member at the time it is mailed, as the case may be.

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

         SECTION 12.8      COUNTERPART EXECUTION; FACSIMILE EXECUTION.

         This Agreement may be executed in any number of counterparts with the
same effect as if all of the 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 12.9      STATUTORY PROVISIONS.

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

                                       37

<PAGE>

         SECTION 12.10     WAIVER OF PARTITION.

         Each Member 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 Member'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 12.11     CHANGE IN LAW.

         If due to any new law, rule or regulation, or due to an interpretation
or enforcement of any existing law, rule or regulation, health care counsel
reasonably selected by MHMI and reasonably approved by the Board of Directors
which approval shall not be unreasonably withheld, determines in writing that it
is reasonably likely that the relationships established between any of the
parties to this Agreement including any Member, Owner, Practice or their
Affiliates and/or successors or assigns will not comply with any law, rule,
regulation or interpretation thereof ("Applicable Law"), then the Members shall
be given notice thereof (a "Change of Law Event"). If the Required Members
disagree with whether a Change of Law Event exists and that disagreement is not
resolved among such parties within the following thirty (30) days, then that
disagreement shall be resolved by arbitration under Section 12.16 hereof. If a
Change of Law Event is determined to exist, then the Members 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 Members.
In the event that a specific proposal for the restructuring of this Agreement is
approved by the Board of Directors and the Required Members, such restructured
agreement shall become binding upon all Members of the Company. The approval of
any such proposal for the restructuring of this Agreement shall not be
unreasonably withheld or delayed by any Investor Member. Second, in the event
that within ninety (90) days following the Company's receipt of legal advice in
writing from such health care counsel regarding Applicable Law the parties
hereto are unable to negotiate an acceptable restructuring of their
relationship, then, if MHMI's ownership is not involved in such non-compliance,
then MHMI, or at MHMI's option, its Affiliate shall, within the following ninety
(90) day period, purchase the Membership Interests of each Member whose
ownership is involved with such noncompliance with Applicable Law for a purchase
price equal to the greater of: (a) the Formula Purchase Price or (b) the amount
of the Capital Contributions made by 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 purchasing
Members pays all amounts due under the terms of this Section 12.11. For these
purposes, 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 MHMI or it Affiliate. Such
purchase price shall be paid in accordance with the Payment Method, plus
interest at the Prime Rate as of the date of that the first installment of
principal is due. Accrued interest shall be paid as of the dates payments of
principal are due as provided above.

         SECTION 12.12     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

                                       38

<PAGE>

         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 Wisconsin 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 Wisconsin 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 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.

                  (d)      Each Member or Owner who is a physician hereby
         represents and warrants that he or she shall apply for and qualify to
         obtain medical staff privileges at the Hospital in order to be
         authorized to perform services at the Hospital as required in order to
         qualify for the Hospital Ownership Exception to the Federal Limitation
         on Certain Physician Referrals (commonly referred to as the Stark Law)
         set forth at 42 U.S.C. 1395nn(d)(3) and regulations promulgated
         thereunder, as amended from time to time.

                                       39

<PAGE>

         SECTION 12.13     DECISIONS BY DIRECTORS.

         Each of the Members hereby authorize their respective appointed
Directors to make the decisions to be made by the directors hereunder and hereby
release and hold harmless the directors from any and all claims, liabilities,
losses or damages which any of them may have now or in the future resulting from
any decision made by the Directors hereunder unless due to the gross negligence
or willful misconduct of such Directors.

         SECTION 12.14     REFERRALS TO HOSPITAL AND OWNERSHIP OF SHARES OF
                           COMMON STOCK OF MEDCATH INCORPORATED.

         Each Member agrees that if in the reasonable opinion of health care
counsel of MedCath Incorporated, referrals of patients to the Hospital by a
Member, an Owner, Practice or their Affiliate or ownership of shares of common
stock in MedCath Incorporated or MedCath Corporation by a Member, Owner,
Practice or their Affiliate would cause or constitute a violation of any federal
or state law, rule or regulation, then, while the Members are addressing the
situation pursuant to those procedures set forth at Section 12.11 hereof, as
applicable,

                  (a)      the Member, Owner, Practice or their Affiliate shall
         not refer patients to the Hospital; and

                  (b)      the Member, Owner, Practice or their Affiliate shall
         not acquire, nor continue to own any of shares of common stock of
         MedCath Incorporated or MedCath Corporation.

         SECTION 12.15     ACKNOWLEDGMENTS REGARDING LEGAL REPRESENTATION.

         Each of the Members hereunder acknowledge and agree that Moore & Van
Allen, PLLC is counsel for MHMI, MedCath Incorporated and their Affiliates, and
may, upon approval of the Board of Directors, also serve as counsel for the
Company from time to time. Each of the Members hereby acknowledges and consents
to such representation. Each Member other than MHMI further acknowledges and
agrees that they shall have no attorney-client relationship with Moore & Van
Allen, PLLC as a result of Moore & Van Allen, PLLC's representation of the
Company from time to time.

         SECTION 12.16     ARBITRATION.

         Subject to the right of any Member to seek an injunction or other
equitable relief from a court with applicable authority, any controversy,
dispute or disagreement arising out of or relating to this Agreement shall be
resolved by binding arbitration, which shall be conducted in Milwaukee,
Wisconsin in accordance with the American Health Lawyers Association Alternative
Dispute Resolution Service Rules of Procedure for Arbitration (the "Rules").
Such arbitration shall be conducted in accordance with the Rules by a panel of
three (3) arbitrators none of whom shall reside in or practice primarily in
Wisconsin nor have previously represented the Members, Owners or any Affiliates
in any capacity. Any decision rendered by the arbitrators shall be final and
binding on the Members and shall be enforceable in any court having jurisdiction
thereof. The arbitrators shall have the authority to require the losing party to
pay all costs associated with such arbitration, including expenses and fees of
arbitrators.

                                       40

<PAGE>

         SECTION 12.17     EXHIBITS.

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

         EXHIBIT A:        Information Exhibit.

         EXHIBIT B:        Glossary of Terms.

         EXHIBIT C:        Development Budget Exhibit.

         EXHIBIT D:        Regulatory Allocations.

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

                   [EXECUTIONS APPEAR ON THE FOLLOWING PAGES]

                                       41

<PAGE>

                                 EXECUTION PAGE
                                     TO THE
                               OPERATING AGREEMENT
                                       OF
                      THE HEART HOSPITAL OF MILWAUKEE, LLC
                      A Delaware Limited Liability Company

                                           MEMBERS:

                                           Milwaukee Hospital Management, Inc.

                                           By: /s/ Dennis I. Kelly
                                               -------------------------------
                                           Title: VP

                                           By: /s/ Michael Servais
                                               -------------------------------
                                           Title: V.P.

                                           -----------------------------------
                                           Name: _____________________________

                                           -----------------------------------
                                           Name: _____________________________

                                           -----------------------------------
                                           Name: _____________________________

                                       42

<PAGE>

For the purpose of acknowledging and agreeing to be bound by the terms of
Sections 3.1, 3.5, 3.7, 5.10, 12.11, 12.12(d) and 12.14 hereof, the undersigned
Affiliates of the Members other than MHMI, the undersigned Investor Entities and
the Owners hereby execute this Operating Agreement.

                                           -----------------------------------
                                                       [Signature]

                                           ___________________________________
                                                       [Print Name]

                                           ___________________________________
                                                  [Print Name of Entity]

                                           By:
                                               -------------------------------
                                           Title: ____________________________

                                       43

<PAGE>

I acknowledge that I have read the foregoing Operating Agreement and that I
understand its contents. I am aware that by its provisions my spouse agrees to
limit the transferability of and the voting rights attendant to, his or her
Membership Interest in The Heart Hospital of Milwaukee, LLC held by him or her
on this date, or hereafter acquired, upon the occurrence of certain events. I am
further aware that included in such limitations shall be any interest I have in
the Membership Interest (including without limitation any right or interest by
operation of the Wisconsin Marital Property Law, Chapter 766 of the Wisconsin
Statutes, or by operation of any other law) and the interest of any of my heirs,
legatees or other transferees. I hereby consent to and approve the provisions of
the Operating Agreement, agree that the Membership Interests and my interest in
them are subject to the provisions of the Operating Agreement, and direct the
personal representative of my estate to promptly comply with all of the
provisions of the Operating Agreement, including without limitation, Section
8.8. I further agree that I will take no action at any time to hinder the
operation of the Operating Agreement as to the Membership Interest of my spouse
or any interest that I or my transferees have in it.

Date: ________________________
                                               --------------------------------
                                                       [Spouse Signature]

                                               ________________________________
                                                          [Print Name]

                                       44

<PAGE>

For the sole and exclusive purposes of (i) guaranteeing the full performance of
MHMI's obligations under Article III to make initial capital contributions
pursuant to Section 3.1 and to make additional capital contributions up to the
maximum obligation of MHMI for such additional capital contributions pursuant to
Section 3.5(c); (ii) guaranteeing the obligations of MHMI with respect to the
loan to the Company under Section 3.5(a); (iii) guaranteeing the obligations of
MHMI with respect to the non-compete provisions of Section 5.10; (iv)
guaranteeing the obligations of MHMI under Section 12.11; and (v) otherwise
acknowledging the rights and responsibilities of MHMI under this Agreement,
MedCath Incorporated and MedCath Corporation hereby each execute this Agreement.

                                             MEDCATH INCORPORATED

                                             By: /s/ Michael Servais
                                                 -------------------------------
                                             Title: EVP/COO

                                             MEDCATH INCORPORATED

                                             By: /s/ James E. Harris
                                                 -------------------------------
                                             Title: ____________________________

                                       45

<PAGE>

                                    EXHIBIT A
                                     TO THE
                               OPERATING AGREEMENT
                                       OF
                      THE HEART HOSPITAL OF MILWAUKEE, LLC
                      A Delaware Limited Liability Company

                               INFORMATION EXHIBIT

                                         Maximum
                                        Mandatory
                                        Additional
                    Initial Capital       Capital              Percentage
Name and Address     Contributions*    Contributions**    Membership Interest***

MHMI                    [***]             [***]                    51%
Investor Members        [***]             [***]                  [***]
                        -----             -----                  -----
Total:                  [***]             [***]                  [***]

Greater of $[***] or 20% of Project Costs.

**May increase if Initial Contributions are adjusted to reflect the final
project costs as determined by the Board of Directors. Additional Mandatory
Capital Contributions shall not exceed one times Initial Capital Contributions
(as adjusted to reflect final project costs as determined by the Board of
Directors) provided that the total of the Additional Mandatory Capital
Contributions and the Initial Capital Contributions of all of the Members shall
not exceed $16,000,000 in the aggregate. See Section 3.5(c) of the Operating
Agreement.

*** These interests will be adjusted accordingly depending on the number of
units purchased by other qualified investors.

[***] These portions of this exhibit have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment.

                                      A-1

<PAGE>

                                    EXHIBIT B
                                     TO THE
                               OPERATING AGREEMENT
                                       OF
                      THE HEART HOSPITAL OF MILWAUKEE, LLC
                      A Delaware 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 Delaware Limited Liability Company Act, as in effect in
Delaware and set forth at 6 Del. C.ss.18-101 through 18-1109 (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 next to last sentences of
Regulations Section 1.704-2(g)(1) (share of minimum gain) and Regulations
Section 1.704-2(i)(5) (share of member nonrecourse debt minimum gain) and
decreased by the items described in Regulations Section 1.704-1(b)(2)(ii)(d)(4),
(5) and (6).

         "Affiliate" means with respect to a Person, (i) any relative of such
Person; (ii) any officer, director, trustee, partner, manager, employee or
holder of ten percent (10%) or more of any class of the outstanding voting
securities or of an equity interest of such Person; or (iii) Entity 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 Person. Affiliates shall also include each individual holding or owning an
ownership interest in the Investor Members or Investor Entities.

         "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.

                  (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

                                      B-1

<PAGE>

         adjusted from time to time to equal their gross fair market values, as
         agreed to by the Members in writing, as of the following times:

                           (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 in writing on the gross fair market values
of the Company's assets, it shall be deemed that the fair market values of all
the Company's assets equal their respective Agreed Values immediately prior to
the occurrence of the event and thus no adjustment to those values shall be made
as a result of such event.

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

         "Board of Directors," "Director" or "Directors" means those persons
appointed by the Members, pursuant to Section 3.9 of the Operating Agreement,
and given the power and authority under Article V of the Operating Agreement to
manage the Company. The terms "Director" or "Directors" is used for convenience,
but is intended to have the same meaning as the terms "Manager" or "Managers" in
the Act.

         "Bylaws, Rules and Regulations of the Medical Staff" means those
bylaws, rules and regulations adopted for the Hospital's Medical Staff.

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

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

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

         In the event any Membership Interest is transferred in accordance with
the terms of this Agreement, the transferee shall succeed to the Capital Account
of the transferor to the extent it relates to the transferred Membership
Interest.

                                      B-2

<PAGE>

         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 VI or VII 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.

         "Cash Distributions" means net cash distributed to Members resulting
from Cash Flow from Operations or Cash from Sales or Refinancing, but shall not
include cash payments made to MHMI as its Management Fee for services rendered
pursuant to Article V hereof or any amount in repayment of loans made by the
Members to the Company.

         "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 and
subject to Loan Conditions.

         "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.

                                      B-3

<PAGE>

         "Certificate of Formation" means the Certificate of Formation of the
Company, as filed with the Secretary of State of Delaware as the same may be
amended from time to time.

         "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 The Heart Hospital of Milwaukee,
LLC, which was created upon the filing of the Certificate of Formation with the
Office of the Secretary of State of Delaware, to be operated under the name The
Heart Hospital of Milwaukee, LLC, a Delaware limited liability company, and to
continue under this Agreement, as amended from time to time.

         "Default Rate" means a per annum rate of return 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.

         "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.

         "Formula Purchase Price" has the meaning set forth at Section 8.1(c) of
the Agreement.

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

         "MHMI" means Milwaukee Hospital Management, Inc.

         "Initial Members" shall mean MHMI and those Investor Members who make
initial Capital Contributions to the Company under Section 3.1.

         "Investor Entity" means an Entity that has a direct or indirect
ownership interest in an Investor Member.

         "Investor Members" shall mean the parties admitted as investors in the
Company in accordance with the terms of this Agreement other than MHMI.

                                      B-4

<PAGE>

         "Management Services Agreement" means the agreement by and between the
Company and MHMI pursuant to which MHMI will manage the day-to-day business and
affairs of the Company.

         "Manager" shall mean MHMI.

         "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: (1) agreements or obligations contemplated by any
budget, development plan, financing or construction contract approved by the
Board of Directors as adjusted in Section 5.6(d) and Section 5.15(d); or (2)
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 and the execution of exclusive contracts to provide physician services
to the Hospital.

         "Medical Director" means the individual designated as the medical
director of the Hospital pursuant to a Medical Director Agreement.

         "Medical Director Agreement" means the Medical Director Agreement by
and between the Company and a medical director approved by the Board of
Directors.

         "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 or admitted as a Member in accordance with
the terms of this Agreement.

         "Membership Interest" means all of a Member's rights in the Company,
including without limitation the Member's share of Profits, Losses, Cash
Distributions and other benefits of the Company, any right to vote, any right to
participate in the management of the business and affairs of the Company,
including the right to vote on, consent to, or otherwise participate in any
decision or action of or by the Members granted pursuant to this Operating
Agreement or the Act. The percentage Membership Interest of each Member, their
Capital Contributions and other related information shall be listed on the
Information Exhibit. The percentage Membership Interests generally shall be
based upon the pro rata Capital Contribution of each Member.

         "Organization Expenses" means those expenses incurred, either by the
Company, on behalf of the Company or for which the Company has agreed to make
reimbursement, in connection with the formation of the Company including such
expenses as: (i) registration fees, filing fees, and taxes; and (ii) legal fees
incurred in connection with any of the foregoing.

         "Owner" means an individual who, through an Investor Entity or
otherwise, has a direct or indirect ownership interest in an Investor Member.

         "Payment Method" has the meaning set forth at Section 8.1(c) of the
Agreement.

                                      B-5

<PAGE>

         "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.

         "Practice" means the Entity or sole proprietorship through which an
Owner primarily conducts his medical office practice.

         "Prime Rate" means the rate of interest as of the relevant day or time
period as announced by the Bank of America, N.A. or its successor in interest
from time to time as its 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)(l) shall be included in taxable income or loss), with the
following adjustments:

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

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

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

         "Project Costs" shall include, without limitation, all costs incurred
by the Company in connection with the development and construction of the
Hospital, including without limitation, land acquisition costs, equipment costs,
architectural, design and engineering costs, legal and accounting costs,
construction costs, construction period interest, pre-opening expenses, fees
payable to MHMI or its Affiliates, and other construction and development costs
incurred in connection with the construction and development of the Hospital,
which total amount shall finally be determined by MHMI following the Opening
Date.

         "Refinancing" means any borrowing incurred or made to recapitalize the
Company or the equity investment in, or to refinance any loan used to finance
the acquisition of property.

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

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

                                      B-6

<PAGE>

         "Required Members" shall mean MHMI and a majority of the percentage
Membership Interests held by the Investor Members.

         "Sale" means the sale, exchange, involuntary conversion (other than a
casualty followed by reconstruction), condemnation, or other disposition of
property by the Company, except for dispositions of inventory items and personal
property in the ordinary course of business and in connection with the
replacement of such property.

         "Substitute Member" means an assignee of a Member who has been admitted
to the Company and granted all 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.

                                      B-7

<PAGE>

                                    EXHIBIT C
                                     TO THE
                               OPERATING AGREEMENT
                                       OF
                      THE HEART HOSPITAL OF MILWAUKEE, LLC
                      A Delaware Limited Liability Company

                           DEVELOPMENT BUDGET EXHIBIT

                                [TO BE INSERTED]

                                      C-1

<PAGE>

                            THE HEART HOSPITAL OF MILWAUKEE, LLC
                                      CAPITAL EXPENSES

FACILITY SIZE
      Total Beds                            [***]
      Total Square Feet                     [***]

                                                                          TOTAL
CAPITAL EXPENSES                                                          AMOUNT
Property:
      Land Cost                                                           [***]
      Building Construction                                               [***]
      Architectural Fees                                                  [***]
      Design Contingency                                                  [***]
      Interest During Construction                                        [***]
                                                                     -----------
          Total Property                                                  [***]

Equipment:                            Capacity
                                    --------------
      Cath Labs                      [***]/lab/yr          [***]          [***]
      Operating Rooms                [***]/OR/yr           [***]          [***]
      CVRU/Recovery                                                       [***]
      Radiology, Laboratory & Respiratory                                 [***]
      Patient Care                                                        [***]
      Management Information Systems                                      [***]
      Other Departments                                                   [***]
      Interest                                                            [***]
                                                                     -----------
          Total Equipment                                                 [***]

Loan Acquisition Costs:                                                   [***]

TOTALS                                                               $30,917,779

[***] These portions of this exhibit have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment.

                                      C-1

<PAGE>

                                    EXHIBIT D
                                     TO THE
                               OPERATING AGREEMENT
                                       OF
                      THE HEART HOSPITAL OF MILWAUKEE, LLC
                      A Delaware 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 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
                  MHMI.

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

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

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

                                      D-1

<PAGE>

                  the Company shall be treated as a single liability and
                  allocated to the Company's assets using any reasonable basis
                  selected by MHMI.

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

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

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

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

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

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

                                      D-2

<PAGE>

         decrease in Member Nonrecourse Debt Minimum Gain attributable to such
         Member Nonrecourse Debt, determined in accordance with Regulations
         Sections 1.704-2(i)(4) and (5) and the definition of Member Nonrecourse
         Debt Minimum Gain set forth above. This Paragraph is intended to comply
         with the member nonrecourse debt minimum gain chargeback requirement in
         Regulations Section 1.704-2(i)(4) and shall be interpreted consistently
         therewith.

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

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

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

                   (i)     Ordering. The allocations in this 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 MHMI
         determines 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 Nonrecourse Deductions or Member Nonrecourse Deductions, then
         MHMI 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. MHMI 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

                                      D-3

<PAGE>

         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.]

                                      D-4

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