Document:

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                          INGLES MARKETS, INCORPORATED

                              AMENDED AND RESTATED

                       1997 NONQUALIFIED STOCK OPTION PLAN

                                   WITNESSETH:

         WHEREAS, on January 17, 1997, Ingles Markets, Incorporated adopted the
Ingles Markets, Incorporated 1997 Nonqualified Stock Option Plan;

         WHEREAS, the Board of Directors of the Company deems it to be in the
best interest of the Company to amend and restate the plan to increase the
number of shares authorized hereunder and to make certain other changes deemed
beneficial to the holders of Options hereunder; and

         WHEREAS, the amendment and restatement of the Plan has been approved by
an unanimous written consent of the Board of Directors.

         NOW THEREFORE, the terms of the Plan are as follows:

         1.       Purpose. The purposes of the Ingles Markets, Incorporated
Amended and Restated 1997 Nonqualified Stock Option Plan (the "Plan") are to
attract, retain and motivate officers and key employees of the Company and its
Subsidiaries and directors of the Company and to provide to such persons
incentives and rewards for superior performance.

         2.       Definitions: As used in the Plan, the following terms have the
following meanings:

                  (a)      "AGREEMENT" shall have the meaning set forth in
         Section 6 of the Plan.

                  (b)      "AWARD" means an Option.

                  (c)      "BOARD" means the Board of Directors of the Company.

                  (d)      "CHANGE OF CONTROL" means the occurrence of any of
         the following events:

                           (1)      any person or group (as defined in the
                  Securities Exchange Act of 1934, as amended) other than a
                  Permitted Holder becomes the beneficial owner directly or
                  indirectly of capital stock of the Company entitling the
                  holder to exercise more than 50% of the total voting power of
                  the Company;

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                           (2)      the Company consolidates with or merges with
                  or into any person or sells, assigns, or otherwise disposes of
                  all or substantially all of its assets and in such event the
                  outstanding voting stock of the Company is converted into or
                  exchanged for cash, securities or other property, unless
                  following such consolidation, merger or sale those person
                  constituting stockholders of the Company immediately prior to
                  such transaction continue to hold beneficially more than 50%
                  of the total voting power of the resulting entity of such
                  transaction; or

                           (3)      the Company is liquidated or dissolved or
                  adopts a plan of liquidation or dissolution.

                  (e)      "CODE" means the Internal Revenue Code of 1986, as
         amended.

                  (f)      "COMMITTEE" means a committee of the Board consisting
         of at least two directors selected by the Board to administer the Plan.

                  (g)      "CLASS A COMMON STOCK" means shares of Class A Common
         Stock, $.05 par value per share, of the Company.

                  (h)      "COMPANY" means Ingles Markets, Incorporated, a North
         Carolina corporation.

                  (i)      "DATE OF GRANT" means the date specified by the
         Committee on which an Award shall become effective.

                  (j)      "EXERCISE PRICE" means the purchase price per share
         of Class A Common Stock payable on exercise of an Option, as determined
         by the Committee in its sole discretion (subject to the terms of the
         Plan) and as set forth in the applicable Agreement.

                  (k)      "EXPIRATION DATE" means the date established by the
         Committee and set forth in an Agreement as the date after which the
         Options described in the Agreement that have not previously been
         exercised shall terminate, become null and void and no longer be of any
         force and effect.

                  (l)      "FAIR MARKET VALUE" of a share of Class A Common
         Stock on a given date means the closing price of a share of Class A
         Common Stock on the date immediately preceding such date (or the most
         recent trading date prior thereto if such date is not a trading date)
         on the Nasdaq/National Market of The Nasdaq Stock Market, or such
         national exchange, if any, as may be designated by the Board.

                  (m)      "OPTION" means the right to purchase a share of Class
         A Common Stock upon exercise of a nonqualified stock option granted
         pursuant to the Plan.

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                  (n)      "OPTION SHARES" means the shares of Class A Common
         Stock purchased pursuant to the exercise of Options and "OPTION SHARE"
         means one such share of Class A Common Stock.

                  (o)      "OUTSIDE DIRECTOR" means a director of the Company
         who is not also an employee of the Company.

                  (p)      "PARTICIPANT" means a person to whom an Award has
         been made by the Committee in its sole discretion and who, at the time
         of such Award, is an officer or key employee of the Company or any of
         its Subsidiaries, or who has agreed to commence serving in any such
         capacity within 90 days prior to the Date of Grant or, at the time of
         such Award, is an Outside Director of the Company.

                  (q)      "PERMITTED HOLDERS" means (i) Robert P. Ingle, (ii)
         the spouse, issue, issue's spouses or grandchildren or other members of
         the immediate family of Robert P. Ingle or such other person; (iii) any
         trust created for the benefit of the persons described in clauses (i),
         (ii) or (iv) or any trust for the benefit of any such trust; (iv) in
         the event of the incompetence or death of any persons described in
         clause (i) and (ii), such person's estate, executor, administrator,
         committee or other personal representative or beneficiary, in each case
         who at any particular date shall beneficially own or have the right to
         acquire, directly or indirectly, capital stock of the Company; or (v)
         the Ingles Markets, Incorporated Investment/Profit Sharing Plan and
         Trust.

                  (r)      "RULE 16b-3" means Rule 16b-3 under the Securities
         Exchange Act of 1934, as amended, and the rules and regulations
         thereunder.

                  (s)      "SUBSIDIARY" means any corporation in which the
         Company owns or controls, directly or indirectly, not less than 50% of
         the total combined voting power represented by all classes of stock
         issued by such corporation.

                  (t)      "VESTED OPTIONS" means, as of any date, Options which
         by their terms are exercisable on such date.

3.       Administration of the Plan.

         (a)      The Plan shall be administered, and Awards shall be granted
hereunder, by the full Board or by the Committee. Any power granted by the Plan
to the Committee shall be equally exercisable by the Board. Each member of the
Committee shall be a member of the Board who satisfies the requirements of Rule
16b-3 and of Section 162(m) of the Code. A majority of the Committee shall
constitute a quorum, and the actions of the members of the Committee present at
any meeting at which a quorum is present, or acts unanimously approved in
writing, shall be the acts of the Committee. In the event that the Committee
consists of two directors, a "majority" shall mean two.

         (b)      The interpretation and construction by the Committee of any
provision of the Plan or of any Agreement, and any determination by the
Committee

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pursuant to any provision of this Plan or of any Agreement shall be final and
conclusive. No member of the Committee shall be liable for any such action or
determination made in good faith.

         4.       Shares Available Under the Plan. The maximum number of shares
of Class A Common Stock which may be issued upon the exercise of Options granted
under the Plan is 8,000,000(1), and 8,000,000(1) shares of Class A Common Stock
shall be reserved for Options granted under the Plan, subject to adjustment as
provided in Section 10. Such shares may be shares of original issuance or
treasury shares or a combination of the foregoing. Any shares of Class A Common
Stock which are subject to Options which expire or which have been surrendered
without being exercised in full shall again be available for issuance under this
Plan. The maximum number of Options which may be granted to any Participant is
1,250,000 per year.

         5.       Options. The Committee may, from time to time and upon such
terms and conditions as it may determine, subject to the terms of the Plan,
authorize the granting to Participants of Options.

         6.       Agreement. The terms and conditions of each Option shall be
embodied in a written agreement (the "AGREEMENT"), in a form approved by the
Committee which shall contain terms and conditions not inconsistent with the
Plan, and which shall incorporate the Plan by reference. Options granted under
the Plan shall comply with the following terms and conditions:

                  (a)      Each Agreement shall specify the number of shares of
         Class A Common Stock for which Options have been granted.

                  (b)      Each Agreement shall specify the Exercise Price.

                  (c)      Each Agreement shall specify that the Exercise Price
         shall be payable in cash or other immediately available funds or by
         check acceptable to the Company. Each Agreement may also provide that
         the Exercise Price shall be payable, at the discretion of the
         Committee, (i) by the transfer to the Company of shares of Class A
         Common Stock already owned by the Participant for a period of at least
         six months prior to the date of exercise that have an aggregate Fair
         Market Value on the date of exercise equal to the aggregate Exercise
         Price, or (ii) by a combination of cash and such shares. The Company
         shall not loan any monies to any Participant for the purchase of any
         Option Shares.

                  (d)      Successive grants may be made to the same Participant
         whether or not any Options previously granted to such Participant
         remain unexercised.

                  (e)      Each Agreement shall specify the applicable vesting
         schedule and the effective term of the Option.

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1 Prior to the date of this amended and restated plan, 261,800 shares have been
issued upon the exercise of Options. Thus, out of such 8,000,000 shares,
7,738,200 shares are currently available and reserved for issuance of which
3,620,550 shares are currently covered by outstanding options.

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                  (f)      Options granted under the Plan are not intended to
         qualify as "incentive stock options" within the meaning of Section 422
         of the Code.

                  (g)      Each Agreement shall specify an Expiration Date.

                  (h)      Each Option granted under the Plan shall be subject
         to such additional terms and conditions, not inconsistent with the
         Plan, which are prescribed by the Committee and set forth in the
         applicable Agreement.

                  (i)      As soon as practicable following the exercise of any
         Options, a certificate evidencing the number of shares of Class A
         Common Stock issued in connection with such exercise shall be issued in
         the name of the Participant.

         7.       Termination of Employment Or Board Position Other Than By
Reason Of Death. In the event that a Participant shall cease to be employed by
the Company or one of its Subsidiaries or ceases to serve on the Board for any
reason other than his death, a material disability or retirement with the
consent of the Company, all Options held by him pursuant to the Plan and not
previously exercised at the date of such termination shall terminate immediately
and become null and void and no longer of any force or effect. If the
termination or cessation is due to a material disability or retirement with the
consent of the Company, such disabled or retiring Participant shall have the
right to exercise his Options which have not previously been exercised at the
date of such termination of employment or Board position at any time within
three (3) months after such termination, subject to the conditions that no
Option shall be exercisable after the Expiration Date. Whether termination of
employment or the Optionee's Board position is due to a material disability or
is to be considered a retirement with the consent of the Company shall be
determined by the Committee, which determination, unless overruled by the Board,
shall be final and conclusive. Any disability to be considered "material" must
result in a permanent and total disability of an employee or director as defined
in Code Section 22(e)(3), as amended, or if such Section is no longer of any
force or effect, the Participant shall be deemed to be permanently and totally
disabled if he is unable to engage in any substantial gainful employment by
reason of any medically determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be expected to last for a
continuous period of not less than twelve (12) months.

         8.       Death of Participant. If the Participant shall die while in
the employ of the Company or any of its Subsidiaries or while serving on the
Company's Board or within a period of three (3) months after the termination of
his employment or cessation of his Board membership as a result of a material
disability or retirement with the consent of the Company as determined in
Section 7 above, such Participant's Options may be exercised in whole or in part
at any time within three (3) months after the Participant's death, by the
executor or administrators of the Participant's estate or by any person or
persons who shall have acquired the Options directly from the Participant by
bequest or inheritance, subject to the condition that no Option shall be
exercisable after the Expiration Date.

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         9.       Transferability. No Option shall be transferable by a
Participant other than by will or the laws of descent and distribution. Options
shall be exercisable during the Participant's lifetime only by the Participant
or by the Participant's estate, successor or legal representative.

         10.      Acceleration of Vesting Upon Change Of Control. If a Change of
Control occurs, the Committee may in its sole discretion, take one or more of
the following actions as it deems appropriate in connection with such Change of
Control:

                  (a)      accelerate the exercise date of any outstanding
         Option, by making any or all outstanding Options fully vested and
         exercisable and providing for their expiration and cancellation upon
         completion of such Change of Control;

                  (b)      provide for the payment of cash to any or all owners
         of Options in exchange for the required cancellation of their
         outstanding Options; and

                  (c)      make any other adjustments or amendments to the Plan
         and outstanding Options as they shall deem necessary and appropriate.

If the Committee chooses to provide for the acceleration and cancellation of
outstanding Options in connection with a Change of Control, notice must be
provided to all Optionees at least 45 days prior to such Change of Control
stating that the Optionees shall have the right for a period of at least 30
days, until five days before the effective date of such Change of Control, to
exercise in whole or in part any unexpired options, the vesting of which has
been accelerated.

         11.      Adjustments. The Committee may make or provide for such
adjustments (a) in the maximum number of shares of Class A Common Stock
specified in Section 4, (b) in the number of shares of Class A Common Stock
covered by outstanding Options granted hereunder, and/or (c) in the Exercise
Price applicable to such Options as the Committee in its sole discretion, may
determine is equitably required to prevent dilution or enlargement of the rights
of Participants that otherwise would result from any stock dividend, stock
split, combination of shares, recapitalization or other change in the capital
structure of the Company, or from any merger, consolidation, spin-off,
reorganization, partial or complete liquidation, issuance of rights or warrants
to purchase securities or any other corporate transaction or other event having
an effect similar to any of the foregoing.

         12.      Fractional Shares. The Company shall not be required to issue
any fractional shares of Class A Common Stock pursuant to the Plan. The
Committee may provide for the elimination of fractional shares or for the
settlement of fractional shares in cash.

         13.      Withholding Taxes. The Company and its Subsidiaries shall have
the right to require any individual entitled to receive Option Shares to remit
to the Company, prior to the delivery of any certificates evidencing such Option
Shares, any amount sufficient to satisfy any federal, state, or local tax
withholding requirements. Each Agreement may provide, at the discretion of the
Committee, that prior to the Company's

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determination of such withholding liability, such individual may make an
irrevocable election to satisfy, in whole or in part, such obligation to remit
taxes by directing the Company to withhold Option Shares that would otherwise be
received by such individual. Such election may be denied by the Committee in its
discretion, or may be made subject to certain conditions specified by the
Committee, including, without limitation, conditions intended to avoid the
imposition of liability against the individual under Section 16(b) of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder.

         14.      Registration Restrictions. An Option shall not be exercisable
unless and until (i) a registration statement under the Securities Act of 1933,
as amended, has been duly filed and declared effective pertaining to such Option
Shares, such Option Shares shall have been qualified under applicable state
"blue sky" laws and all regulations of any securities exchange on which the
Class A Common Stock may be listed (including, without limitation for such
purposes, The Nasdaq Stock Market, Inc.) shall have been fully complied with and
satisfied, or (ii) the Committee in its sole discretion determines that such
registration, qualification and compliance are not required as a result of the
availability of an exemption from such registration, qualification, or
compliance under such laws.

         15.      Stockholder Rights. A Participant shall have no rights as a
stockholder with respect to any shares of Class A Common Stock issuable upon
exercise of an Option until a certificate or certificates evidencing such shares
shall have been issued to such Participant, and no adjustment shall be made for
dividends or distributions or other rights in respect of any share of capital
stock of the Company for which the record date is prior to the date upon which
the Participant shall become the holder of record thereof.

         16.      Deductibility Under Code Section 162(m). Awards granted under
the Plan to Participants which the Committee reasonably believes may be subject
to Section 162(m) of the Code shall not be exercisable, and payment under the
Plan in connection with any such Award shall not be made, unless and until the
Committee has determined in its sole discretion that such exercise or payment
would no longer be subject to Section 162(m) of the Code.

         17.      Amendments; Termination; Limitation on Participant Rights. (a)
The Board may, at any time and from time to time, alter, amend, suspend or
terminate the Plan in whole or in part; provided, however, that no termination
or amendment of the Plan may, without the consent of the Participant to whom any
Award shall previously have been granted, adversely affect the rights of such
Participant in such Award; provided further, however, that amendments shall be
subject to (x) the approval of a majority of the shares of the Company's voting
common stock entitled to vote if the Committee determines that such approval is
necessary in order for the Company to rely on the exemptive relief provided
under Rule 16b-3 or to avoid the loss of deduction under 162(m) and (y) all
other approvals which are required by law, whether regulatory, stockholder or
otherwise.

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                  (b)      The Plan shall not confer upon any Participant any
         right with respect to continuance of employment or other service with
         the Company or any Subsidiary, nor will it interfere in any way with
         any right the Company or any Subsidiary would otherwise have to
         terminate such Participant's employment or other service at any time.

         18.      Term Of Plan. Options may be granted pursuant to the Plan,
from time to time, before the 1st day of January, 2007.

         19.      Effective Date. The Plan as originally adopted was in effect
as of January 17, 1997 and as amended and restated is effective as of January 9,
2002, subject to the receipt of approval of the Plan by the stockholders of the
Company entitled to vote thereon.

         20.      Governing Law. The Plan and all rights hereunder shall be
construed in accordance with and governed by the laws of the State of North
Carolina.

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                                                                   EXHIBIT 10.1

                              AMENDED AND RESTATED

                             MEDCATH HOLDINGS, INC.

                               OUTSIDE DIRECTORS'

                               STOCK OPTION PLAN
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                              AMENDED AND RESTATED
                             MEDCATH HOLDINGS, INC.
                               OUTSIDE DIRECTORS'
                               STOCK OPTION PLAN

         MedCath Holdings, Inc. does hereby establish the MedCath Holdings,
Inc. Outside Directors' Stock Option Plan for the benefit of certain members of
the Board of the Company subject to the following provisions:

         SECTION 1.        PURPOSE. The purpose of the Plan is to secure for the
Company and its shareholders the benefits of the incentive inherent in
increased common stock ownership by the outside members of the Board who are
not officers or employees of the Company or any of its Subsidiaries.

         SECTION  2.       DEFINITIONS. For the purpose of this Plan as well as
for any Option Agreement, unless the context clearly requires otherwise, the
following words shall have the meanings indicated:

                  (a)      "BOARD" means the Board of Directors of the Company.

                  (b)      "CODE" means the Internal Revenue Code of 1986, as
         amended from time to time, or any successor statute, and applicable
         regulations.

                  (c)      "COMMENCEMENT DATE" means the date, on or after the
         Effective Date, on which a resolution of the Board to authorize the
         commencement of the operation of the Plan becomes effective.

                  (d)      "COMMITTEE" means the Compensation Committee of the
         Board.

                  (e)      "COMMON STOCK" or "SHARE" means the common stock of
         the Company which may be authorized but unissued, or issued and
         reacquired.

                  (f)      "COMPANY" means MedCath Holdings, Inc., a Delaware
         corporation.

                  (g)      "DIRECTOR" means a member of the Board.

                  (h)      "DIRECTOR STOCKHOLDER'S AGREEMENT" means an
         agreement between the Company and an Optionee that sets forth the
         terms and conditions and limitations applicable to any Shares
         purchased pursuant to Options granted under this Plan.

                  (i)      "EFFECTIVE DATE" means the date, following adoption
         of the Plan by the Company, on which the shareholders of the Company
         approve and ratify the Plan pursuant to Section 12 hereunder.

                  (j)      "EXCHANGE ACT" means the Securities Exchange Act of
         1934, as amended.

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                  (k)      "FAIR MARKET VALUE" of a Share means:

                           (i)      As of any date the Shares are not listed on
                  a national securities exchange or traded on the Nasdaq
                  National Market, such value of a Share as determined at the
                  relevant time in good faith by the Board on the basis of the
                  value of the Company as a whole divided by the fully diluted
                  equity of the Company; or

                           (ii)     As of any other date, the closing sale
                  price at which the Shares are sold regular way on a national
                  securities exchange or the Nasdaq National Market on said
                  date, or, if no sales occur on such date, then on the next
                  preceding date on which there were such sales of the Shares.

                  (l)      "OPTION" means a non-qualified stock option
         described in Treasury Regulation section 1.83-7 to which section 422
         of the Code does not apply, which shall be granted by the Company to
         Optionees pursuant to the terms of this Plan.

                  (m)      "OPTION AGREEMENT" means the written instrument
         executed by the Company and the Optionee that sets forth the terms,
         conditions and limitations applicable to a grant of Options pursuant
         to the Plan.

                  (n)      "OPTIONEE" means an Outside Director of the Company
         who has been granted an option pursuant to the terms of this Plan.

                  (o)      "OPTION STOCK" means shares of Common Stock issued
         to an Optionee upon the exercise of an Option granted under the Plan.

                  (p)      "OUTSIDE DIRECTOR" means any Director who is not an
         employee of the Company or any corporation which is a Subsidiary.

                  (q)      "PLAN" means the MedCath Holdings, Inc. Outside
         Directors' Stock Option Plan, as amended from time to time in
         accordance herewith.

                  (r)      "SUBSIDIARY" means any corporation, partnership,
         limited liability company, association, joint venture or other entity
         whose accounts are consolidated with the accounts of the Company in
         the Company's consolidated financial statements.

         SECTION 3.        ADMINISTRATION OF PLAN.

                  (a)      The Plan shall be administered by the Committee;
         provided, however, that the members of the Committee shall qualify to
         administer the Plan for purposes of Rule 16b-3 (and any other
         applicable rule) promulgated under Section 16(b) of the Exchange Act
         to the extent that the Company is subject to such rule. The Committee
         may adopt its own rules of procedure, and action of a majority of the
         members of the Committee taken at a meeting, or action taken without a
         meeting by unanimous written consent, shall constitute action by the
         Committee. The Committee shall have the power and authority to
         administer, construe and interpret the Plan, to make rules for
         carrying it

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         out and to make changes in such rules. Any such interpretations, rules
         and administration shall be consistent with the basic purposes of the
         Plan.

                  (b)      The Committee may delegate to the Chief Executive
         Officer and to other senior officers of the Company its duties under
         the Plan subject to such conditions and limitations as the Committee
         shall prescribe except that only the Committee may designate and make
         Option grants to Optionees who are subject to Section 16 of the
         Exchange Act.

                  (c)      The Committee may employ attorneys, consultants,
         accountants, appraisers, brokers or other persons. The Committee, the
         Company, and the officers and directors of the Company shall be
         entitled to rely upon the advice, opinions or valuations of any such
         persons. All actions taken and all interpretations and determinations
         made by the Committee in good faith shall be final and binding upon
         all Optionees, the Company and all other interested persons. No member
         of the Committee shall be personally liable for any action,
         determination or interpretation made in good faith with respect to the
         Plan or Option grants, and all members of the Committee shall be fully
         protected by the Company with respect to any such action,
         determination or interpretation.

         SECTION  4.       AMOUNT OF STOCK. The stock which may be issued and
sold under the Plan will be the Common Stock of the Company, of a total number
not exceeding two hundred fifty thousand (250,000) shares, subject to
adjustment as provided in Section 7. The stock to be issued may be either
authorized and unissued shares or issued shares acquired by the Company or its
subsidiaries. In the event that Options granted under the Plan shall terminate
or expire without being exercised in whole or in part, new Options may be
granted covering the shares not purchased under such lapsed Options.

         SECTION 5.        ELIGIBILITY.  Each Outside  Director  shall  receive
an Option or Options in accordance with Section 6.

         SECTION 6.        TERMS AND CONDITIONS OF OPTIONS. On or after the
Commencement Date of the Plan, the Committee shall commence to grant Options
hereunder. Each Option granted under the Plan shall be evidenced by an Option
Agreement in such form as the Committee shall prescribe from time to time in
accordance with the Plan and shall comply with and be subject to the following
terms and conditions:

                  (a)      Each Outside Director who is a Director on the
         Commencement Date shall, as of the Commencement Date of the Plan,
         automatically receive an initial Option for two thousand (2,000)
         shares of Common Stock. Each Outside Director who is first elected or
         appointed a Director after the Commencement Date shall, as of the date
         of his first election or appointment as a Director after the
         Commencement Date, automatically receive an initial Option for three
         thousand five hundred (3,500) shares of Common Stock.

                  (b)      Each year, as of the last day of the fiscal year of
         the Company, each Outside Director described in (a) who has been
         re-elected as a Director or who is continuing as a Director as of the
         adjournment of the immediately preceding Annual Meeting of
         shareholders of the Company (other than an Annual Meeting at which the

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         Director is first elected or appointed as a Director), shall
         automatically receive an additional Option for three thousand five
         hundred (3,500) shares of Common Stock.

                  (c)      The Option exercise price shall be the Fair Market
         Value of the Common Stock shares subject to such Option on the date
         the Option is granted.

                  (d)      Each Option shall not be transferable by the
         Optionee otherwise than by will or the laws of descent and
         distribution, and shall be exercisable during his lifetime only by
         him.

                  (e)      Each Option shall expire ten years from the date of
         the grant of the Option.

                  (f)      To exercise an Option the Optionee must deliver
         written notice of the exercise to the Company specifying the number of
         whole Shares to be purchased accompanied by payment in full for the
         Shares being acquired thereunder. Such payment shall be made

                           (i)      in United States dollars by registered
                  check or bank draft, or

                           (ii)     by tendering to the Company Common Stock
                  shares owned for at least six months by the person exercising
                  the Option and having a Fair Market Value as of the date of
                  exercise equal to the cash exercise price applicable to such
                  Option, or

                           (iii)    by a combination of United States dollars
                  and Common Stock shares as aforesaid.

                  (g)      Except as provided in the Director Stockholder's
         Agreement, during the Optionee's lifetime, only the Optionee may
         exercise an Option or any portion thereof. After the death of the
         Optionee, any exercisable portion of an Option may, prior to the time
         when an Option becomes unexercisable pursuant to the terms of the
         Option Agreement, be exercised by the Optionee's executors,
         administrators, heirs, or distributees, as the case may be.

                  (h)      If any Option is exercised by the executor,
         administrator, heirs, or distributees of the estate of a deceased
         Optionee, the Company shall be under no obligation to issue stock
         thereunder unless and until the Company is satisfied that the person
         or persons exercising the Option are the duly appointed legal
         representatives of the deceased Optionee's estate or the proper heirs
         or distributees thereof.

         SECTION 7.        EFFECT OF CERTAIN TRANSACTIONS. The number of Shares
reserved for the Plan, the maximum number of Shares an Optionee may purchase
pursuant to an outstanding Option, and the determination of the exercise price
of an outstanding Option shall be appropriately adjusted by the Committee,
whose determination shall be conclusive, to reflect any increase or decrease in
the number of issued Shares resulting from a stock split, a consolidation of
Shares, the payment of a stock dividend, or any other capital adjustment
affecting the number of issued Shares. In the event that the outstanding Shares
shall be changed into or exchanged for

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a different number or kind of shares of stock or other securities of the
Company or another corporation, whether through reorganization,
recapitalization, merger, consolidation, or otherwise, there shall be
substituted for each share of Common Stock reserved for issuance under the
Plan, but not yet purchased by Optionees, the number and kind of shares of
stock or other securities into which each outstanding Share shall be so changed
or for which each such share shall be exchanged.

         SECTION 8.        MERGER, CONSOLIDATION, EXCHANGE, ACQUISITION,
LIQUIDATION OR DISSOLUTION. In its absolute discretion, and on such terms and
conditions as it deems appropriate, coincident with or after the grant of any
Option, the Committee may provide that such Option cannot be exercised after
(i) the merger or consolidation of either the Company, MedCath Intermediate
Holdings, Inc., or MedCath Incorporated into another corporation, (ii) the
exchange of all or substantially all of the assets of either the Company,
MedCath Intermediate Holdings, Inc., or MedCath Incorporated for the securities
of another corporation, (iii) the acquisition by another corporation of 80% or
more of the Company's, MedCath Intermediate Holdings, Inc.'s, or MedCath
Incorporated's then outstanding shares of voting stock, or (iv) the
recapitalization, reclassification, liquidation or dissolution of the Company,
MedCath Intermediate Holdings, Inc., or MedCath Incorporated, (a
"Transaction"), and if the Committee so provides that such Option cannot be
exercised, it shall, on such terms and conditions as it deems appropriate, also
provide, either by the terms of such Option or by a resolution adopted prior to
the occurrence of such Transaction, that, for some reasonable period of time
prior to such Transaction, such Option shall be exercisable as to all shares
subject thereto, notwithstanding anything to the contrary herein (but subject
to the provisions of Paragraph 6(e)) and that, upon the occurrence of such
Transaction, such Option shall terminate and be of no further force or effect;
provided, however, in lieu of so providing that an Option cannot be exercised
after a Transaction, the Committee may provide, in its absolute discretion,
that the Option shall remain exercisable after a Transaction in accordance with
its original terms, except upon exercise of such Option, the holder thereof
shall receive the kind and amount of securities and/or other property, or the
cash equivalent thereof, receivable as a result of such Transaction by the
holder of a number of shares of stock for which such Option could have been
exercised immediately prior to such Transaction.

         SECTION 9.        AMENDMENT OR DISCONTINUANCE. The Plan may be amended
at any time and from time to time by the Board as the Board shall deem
advisable including, but not limited to, amendments necessary to qualify for
any exemption or to comply with applicable law or regulations; provided,
however, that except as provided in Section 7, the Board may not, without
further approval by the shareholders of the Company, increase the maximum
number of Shares as to which Options may be granted under the Plan, increase
the number of Shares subject to an Option, reduce the Option exercise price
described in Section 6(c), extend the period during which Options may be
granted or exercised under the Plan, or change the class of persons eligible to
receive Options under the Plan. No amendment of the Plan shall materially and
adversely affect any right of any Optionee with respect to any Option
theretofore granted without such Optionee's written consent. Any such action to
amend or discontinue the Plan shall be adopted by formal action of the Board
and executed by an officer or person authorized to act on behalf of the
Company.

         SECTION 10.       TERMINATION. Unless otherwise terminated by the Board
in accordance with Section 9, this Plan shall terminate upon the tenth
anniversary of the date the Plan is initially approved and adopted by the Board
of the Company.

                                       5
<PAGE>

         SECTION 11.       MISCELLANEOUS PROVISIONS.

                  (a)      Except as expressly provided for in the Plan, no
         Outside Director or other person shall have any claim or right to be
         granted an Option under the Plan. Neither the Plan nor any action
         taken hereunder shall be construed as giving any Outside Director any
         right to be retained in the service of the Company.

                  (b)      Except as otherwise permitted under the Director
         Stockholder's Agreement, an Optionee's right and interest under the
         Plan may not be assigned or transferred in whole or in part either
         directly or by operation of law or otherwise (except in the event of
         an Optionee's death, by will or the laws of descent and distribution),
         including, but not by way of limitation, execution, levy, garnishment,
         attachment, pledge, bankruptcy, or in any other manner, and no such
         right or interest of any participant in the Plan shall be subject to
         any obligation or liability of such participant.

                  (c)      No Common Stock shares shall be issued hereunder
         unless counsel for the Company shall be satisfied that such issuance
         will be in compliance with applicable federal, state, and other
         securities laws and regulations.

                  (d)      The expenses of the Plan shall be borne by the
         Company.

                  (e)      By accepting any Option or other benefit under the
         Plan, each Optionee and each person claiming under or through such
         person shall be conclusively deemed to have indicated his acceptance
         and ratification of, and consent to, any action taken under the Plan
         by the Company or the Board.

                  (f)      All section references herein refer to sections of
         this Plan unless specifically noted otherwise.

                  (g)      Any notice or other communication provided for
         herein shall be given in writing by registered or certified mail,
         return receipt requested, or by facsimile, telecopy, or other means of
         electronic communication, reasonably calculated in any instance to be
         received by the receiving party or his or its authorized agent at the
         receiving party's last-known address. The notice or communication
         shall be deemed as delivered when it arrives at such address.

         SECTION 12.       APPROVAL  OF PLAN.  The  effectiveness  of this Plan
is subject to its approval and ratification by the shareholders of the Company
within one year from the date of adoption hereof by the Board.

                                       6

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