MEDCATH CORP
AMENDED & RESTATED OPERATING AGREEMENT
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>4
<FILENAME>g74258ex10-2.txt
<DESCRIPTION>AMENDED & RESTATED OPERATING AGREEMENT
<TEXT>
<PAGE>








                              AMENDED AND RESTATED
                               OPERATING AGREEMENT
                                       OF
                        HEART HOSPITAL OF NEW MEXICO, LLC
                    A NEW MEXICO LIMITED LIABILITY COMPANY
<PAGE>
                                TABLE OF CONTENTS
                                     TO THE
                              AMENDED AND RESTATED
                               OPERATING AGREEMENT
                                       OF
                        HEART HOSPITAL OF NEW MEXICO, LLC
                    A NEW MEXICO LIMITED LIABILITY COMPANY


<TABLE>
<S>                                                                                <C>
ARTICLE I  DEFINITIONS .......................................................      2

ARTICLE II  FORMATION AND AGREEMENT OF LIMITED LIABILITY COMPANY .............      2
      Section 2.1  Company Formation: Effective Date .........................      2
      Section 2.2  Name of Company ...........................................      2
      Section 2.3  Purposes and Business Objectives ..........................      2
      Section 2.4  Statement of Philosophy and Values ........................      3
      Section 2.5  Registered Agent and Office; Principal Place of Business ..      4
      Section 2.6  Commencement and Term .....................................      4

ARTICLE III  MEMBERS AND CAPITAL CONTRIBUTIONS ...............................      4
      Section 3.1  Names and Addresses of Members ............................      4
      Section 3.2  Initial Capital Contributions of Members ..................      4
      Section 3.3  Membership Interests as of the Effective Date .............      5
      Section 3.4  Liability of Members - For Capital ........................      5
      Section 3.5  Maintenance of Capital Accounts: Withdrawals of Capital ...      5
      Section 3.6  Interest on Capital Contributions or Capital Accounts .....      6
      Section 3.7  Additional Funding ........................................      6
      Section 3.8  Enforcement of Commitments ................................      7
      Section 3.9  Reserved Powers of Members ................................      8
      Section 3.10 Other Business of Members ................................      9
      Section 3.11 Appointment of Board of Directors ........................     13

ARTICLE IV  MANAGEMENT OF THE COMPANY ........................................     13
      Section 4.1  General Authority and Powers of Board of Directors ........     13
      Section 4.2  Restrictions on Authority of the Board of Directors .......     13
      Section 4.3  Duties of the Board of Directors ..........................     14
      Section 4.4  Delegation by the Board of Directors ......................     15
      Section 4.5  Right to Rely Upon the Authority of the Manager ...........     15
      Section 4.6  No Management by Members ..................................     15
      Section 4.7  Consent by Members to Exercise of Certain Rights and Powers
                   by Board of Directors .....................................     16
      Section 4.8  Meetings, Quorum and Vote of the Board of Directors .......     16
      Section 4.9  Board of Directors' Standard of Care ......................     17
      Section 4.10 Limitation of Liability ...................................     18
      Section 4.11 Indemnification of Directors ..............................     18
      Section 4.12 Guarantee Fee .............................................     18
</TABLE>


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<TABLE>
<S>                                                                                <C>
ARTICLE V  DISTRIBUTIONS AND ALLOCATIONS .....................................     20
      Section 5.1  Distributions of Cash Flow from Operations and Cash from
      Sales
                          or Refinancing .....................................     20
      Section 5.2  Profits ...................................................     20
      Section 5.3  Losses ....................................................     20
      Section 5.4  Code Section 704(c) Tax Allocations .......................     21
      Section 5.5  Miscellaneous .............................................     21
      Section 5.6  Special Allocations of Guarantee Fees .....................     22

ARTICLE VI  DISSOLUTION, WINDING UP AND LIQUIDATING DISTRIBUTIONS ............     22
      Section 6.1  No Termination by Certain Acts of Member ..................     22
      Section 6.2  Dissolution ...............................................     22
      Section 6.3  Dissolution and Final Liquidation .........................     22
      Section 6.4  Termination ...............................................     24
      Section 6.5  Payment in Cash ...........................................     24
      Section 6.6  Goodwill and Trade Name ...................................     24
      Section 6.7  Termination of Noncompetition Covenants ...................     24

ARTICLE VII  REMOVAL OR WITHDRAWAL OF MEMBERS AND ............................     24
TRANSFER OF MEMBERS' MEMBERSHIP AND/OR ECONOMIC INTERESTS ....................     24
      Section 7.1  Withdrawal of Member ......................................     24
      Section 7.2  Conditions Precedent to Transfer of Membership Interest ...     26
      Section 7.3  Substitute Member - Conditions to Fulfill .................     26
      Section 7.4  Allocations Between Transferor and Transferee .............     26
      Section 7.5  Rights, Liabilities of, and Restrictions on Assignee ......     27
      Section 7.6  Repurchase of Interests in Certain Event ..................     27

ARTICLE VIII  RECORDS, ACCOUNTINGS AND REPORTS ...............................     28
      Section 8.1  Books of Account ..........................................     28
      Section 8.2  Access to Records .........................................     28
      Section 8.3  Bank Accounts and Investment of Funds .....................     28
      Section 8.4  Fiscal Year ...............................................     28
      Section 8.5  Accounting Reports ........................................     28
      Section 8.6  Tax Returns ...............................................     29

ARTICLE IX  MEETINGS AND VOTING RIGHTS OF MEMBERS ............................     29
      Section 9.1  Meetings ..................................................     29
      Section 9.2  Voting Rights of Members ..................................     30

ARTICLE X  AMENDMENTS ........................................................     30

ARTICLE XI  MISCELLANEOUS ....................................................     31
      Section 11.1  Waiver of Provisions .....................................     31
      Section 11.2  Interpretation and Construction ..........................     31
      Section 11.3  Governing Law ............................................     31
</TABLE>


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<S>                                                                                <C>
      Section 11.4  Partial Invalidity .......................................     31
      Section 11.5  Binding on Successors ....................................     31
      Section 11.6  Notices and Delivery .....................................     31
      Section 11.7  Counterpart Execution: Facsimile Execution ...............     32
      Section 11.8  Statutory Provision ......................................     32
      Section 11.9  Waiver of Partition ......................................     32
      Section 11.10 Change In Law ............................................     32
      Section 11.11 Investment Representations of the Members ................     36
      Section 11.12 Exhibits .................................................     37
</TABLE>


                                      iii
<PAGE>
                              AMENDED AND RESTATED
                               OPERATING AGREEMENT
                                       OF
                        HEART HOSPITAL OF NEW MEXICO, LLC
                    A New Mexico Limited Liability Company


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

      THIS AMENDED AND RESTATED OPERATING AGREEMENT (the "Agreement") of Heart
Hospital of New Mexico, LLC (the "Company"), a New Mexico Limited Liability
Company, is made and entered into by and among Persons whose names, addresses
and taxpayer identification numbers are listed on the Information Exhibit
(Exhibit B).


                                    RECITALS

      A.    On or about February 20, 1998, the Company was formed in
accordance with the original Operating Agreement of the Company (the
"Original Operating Agreement");

      B.    The Company was formed to develop, own and operate an acute care
hospital, located in Albuquerque, New Mexico and specializing in all aspects
of cardiology and cardiovascular care and surgery which the Board of
Directors may agree upon;

      C. It is intended that the hospital will be a cost effective, high quality
provider of medical services within New Mexico in a manner which is consistent
with the national health care goals of lowering the costs of health care;

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

      E. The Original Operating Agreement was amended by the First Amendment to
Private Placement Memorandum of Heart Hospital of New Mexico, LLC and to the
Operating Agreement of the Company and to Management Services Agreement dated
February 20, 1998 and by the Amendment of Heart Hospital of New Mexico, LLC
Agreements dated October 1, 1998;
<PAGE>
      F. Members of the Company have entered into a Membership Purchase
Agreement whereby, among other things, St. Joseph Healthcare System ("SJHS"),
NMHI, LLC and SWCA, LLC have agreed to sell a portion of their Membership
Interests to NMHM; and

      G. The Members of the Company hereby desire to amend and restate the
Original Operating Agreement to incorporate the terms of the previous amendments
to the Original Operating Agreement and to make certain changes related to
SJHS's sale of its Membership Interest.

                                    ARTICLE I

                                   DEFINITIONS

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


                                   ARTICLE II

             FORMATION AND AGREEMENT OF LIMITED LIABILITY COMPANY

      SECTION 2.1 COMPANY FORMATION: EFFECTIVE DATE.

      The Company was formed upon the filing of the Articles of Organization
with the New Mexico State Corporation Commission in accordance with the
provisions of the Act. Upon the effectiveness of the Original Operating
Agreement, the Persons listed on the attached Information Exhibit (Exhibit B)
were admitted to the Company as Members and the Persons who executed the
Articles were withdrawn as Members (unless they are listed on the Information
Exhibit), all without the necessity of any further act or instrument and without
causing the dissolution of the Company. The Company shall cause to be executed
all other such certificates or documents, and shall do or cause to be done all
such filing, recording, or other acts, as may be necessary or appropriate from
time to time to comply with the requirements of law for the continuation and/or
operation of a limited liability company in the State of New Mexico and other
documents to reflect the admission of additional Members to the Company. The
Original Operating Agreement was effective as of the date the Company was
formed, and this Agreement shall be effective as of the Effective Date, as
defined herein.

      SECTION 2.2 NAME OF COMPANY.

      The name of the Company is Heart Hospital of New Mexico, LLC.

      SECTION 2.3 PURPOSES AND BUSINESS OBJECTIVES.

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


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             (a) To develop, own and operate a Hospital specializing in the
      diagnosis and treatment of cardiac and vascular diseases in Albuquerque,
      New Mexico, which includes, but is not limited to, the following:

                  (i) Services and facilities which meet the requirements of the
            State of New Mexico, Medicare, JCAHO and other agencies for
            licensing, credentialing and certification as a general acute care
            hospital specializing in cardiology and cardiovascular and vascular
            surgical services of every type or nature and to be eligible to
            obtain appropriate reimbursements therefor;

                  (ii)  Approximately 90,000 square feet in a building to be
            constructed in accordance with plans and specifications approved
            by the Company;

                  (iii) Approximately 60 medical/surgical beds;

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

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

                  (vi)  All appropriate support services and systems;

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

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

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

      SECTION 2.4 STATEMENT OF PHILOSOPHY AND VALUES.

      The Company and the Hospital shall be operated in accordance with the
following philosophy and values at all times:

            (a) The Board shall adopt and adhere to the policies of SJHS, as
      they may be amended from time to time, for providing care for those
      patients who are unable to pay for Hospital care;

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

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


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

            (e) Within the first two years of its operation, the Company shall
      adopt and thereafter adhere to a Corporate Compliance Program to assure
      compliance with all State and federal laws governing the delivery of
      health care services;

            (f) The Company and the Hospital shall be operated in accordance
      with the Ethical and Religious Directives for Catholic Health Care
      Facilities;

            (g) All medical decisions and all policies and procedures relating
      to the delivery of medical services at the Hospital shall be made by those
      physicians who are members of the medical staff of the Hospital as
      provided in the Bylaws, Rules and Regulations of the medical staff; and

            (h) The Hospital will not be operated in a manner which is
      inconsistent with the mission and charitable purposes of SJHS.

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

      The registered agent and office of the Company shall be and the principal
place of business of the Company shall be at such location in Albuquerque, New
Mexico as selected by the Board of Directors from time to time.

      SECTION 2.6 COMMENCEMENT AND TERM.

      The Company commenced on the filing of the Articles of Organization in the
Office of the New Mexico State Corporation Commission, as required by Section
2.1 hereof, and shall continue until December 31, 2097 or until terminated or
dissolved as provided herein.


                                   ARTICLE III

                        MEMBERS AND CAPITAL CONTRIBUTIONS

      SECTION 3.1 NAMES AND ADDRESSES OF MEMBERS.

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

      SECTION 3.2 INITIAL CAPITAL CONTRIBUTIONS OF MEMBERS.

      The Members made the following initial Capital Contributions, paid in two
equal installments, with the first installment due on February 20, 1998 and the
second installment due on or before April 1, 1998:


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<PAGE>
            (a) SWCA, LLC initially owned a fifteen percent (15%) Membership
      Interest in the Company and contributed to the Company for its Membership
      Interest the sum of Six Hundred Thousand and No/100 Dollars ($600,000.00);

            (b) NMHI, LLC initially owned a twenty-six percent (26%) Membership
      Interest in the Company and contributed to the Company for its Membership
      Interest the sum of One Million Forty Thousand and No/100 Dollars
      ($1,040,000.00);

            (c) St. Joseph Healthcare System initially owned a thirty-five
      percent (35%) Membership Interest in the Company and contributed to the
      Company for its Membership Interest the sum of One Million Four Hundred
      Thousand and No/100 Dollars ($1,400,000.00); and

            (d) NM Hospital Management, Inc. ("NMHM") initially owned a
      twenty-four percent (24%) Membership Interest in the Company and
      contributed to the Company for its Membership Interest the sum of Nine
      Hundred Sixty Thousand and No/100 Dollars ($960,000.00).

      SECTION 3.3 MEMBERSHIP INTERESTS AS OF THE EFFECTIVE DATE.

      Upon the Effective Date of this Agreement:

            (a)   SWCA, LLC shall own a ten percent (10%) Membership Interest
      in the Company;

            (b)   NMHI, LLC shall own an eighteen percent (18%) Membership
      Interest in the Company;

            (c)   SJHS shall own a three percent (3%) Membership Interest in
      the Company; and

            (d)   NMHM shall own a sixty-nine percent (69%) Membership
      Interest in the Company.

      SECTION 3.4 LIABILITY OF MEMBERS - FOR CAPITAL.

      The liability of each Member for capital shall be limited to the amount of
its agreed Capital Contribution as a Member as provided in Section 3.2 and
Section 3.7. The Members shall not be required to contribute any additional
capital to the Company except as provided in Section 3.7.

      SECTION 3.5 MAINTENANCE OF CAPITAL ACCOUNTS: WITHDRAWALS OF CAPITAL.

      An individual Capital Account shall be maintained for each Member in
accordance with requirements of the Code and the Regulations promulgated
thereunder. No Member shall be entitled to withdraw or to make demand for
withdrawal of any part of its Capital Account or to


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<PAGE>
receive any distribution except as provided herein. Each Member shall look
solely to the assets of the Company for the return of its Capital Contributions
and shall have no right or power to demand or receive property other than cash
from the Company. No Member shall have priority over any other Member as to the
return of its Capital Contributions, distributions or allocations, except as
provided in this Agreement.

      SECTION 3.6 INTEREST ON CAPITAL CONTRIBUTIONS OR CAPITAL ACCOUNTS.

      No interest shall be paid to any Member based solely on its Capital
Contributions or Capital Account.

      SECTION 3.7 ADDITIONAL FUNDING.

      If from time to time, the Board of Directors determines that funds in
addition to those contemplated by Sections 3.2 are necessary or appropriate for
the development or operation of the Hospital, then:

            (a) First, the Board shall instruct the Manager to use commercially
      reasonable efforts to arrange a loan for the Company of such funds from a
      bank or other lender (which could include a Member) on terms and
      conditions reasonably acceptable to the Board of Directors. All Members
      agree to pledge their Membership Interests, if required by lenders or
      lessors, to secure Company's financing. The Board of Directors shall
      obtain such loans without the requirement of guarantees by the Members if
      it is economically feasible to do so.

                  (i) If loan guarantees are required for financing the
            construction and equipping of the Hospital, each Member agrees to
            provide the required guarantee. The aggregate amount of the loans
            for the construction and equipping of the hospital (and the
            commensurate aggregate amount of the guarantees) shall not exceed
            $45 million. The guarantees shall be several and in proportion to
            the equity interest of the Member. Each Member shall provide its
            guarantee promptly and in the form reasonably approved by the Board
            of Directors and required by the lenders or lessors to the Company.
            Each Member agrees to promptly provide financial statements and
            other information customarily required by the lender or lessor.

                  (ii) Other than as required to finance the construction and
            equipping of the Hospital, no Member is required to guarantee any
            other loan to the Company.

            (b) Second, if loans as provided in (a) above are not available, the
      Board of Directors shall request in writing that the Members contribute
      additional capital to the Company in proportion to their respective
      Membership Interests. Each Member may elect whether or not to contribute
      its proportionate share of the additional Capital Contribution. Membership
      Interests shall be adjusted as necessary as provided in (c)(i) below.


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<PAGE>
            (c) Third, if the Board determines that adequate funds are not
      available under (a) or (b) above, the Board shall so notify all of the
      Members. Any Member shall then have the right to contribute all or some
      portion of the additional funds required. If more than one Member elects
      to advance the funds to the Company, preference will be given to
      maintaining the relative equity interests of the Members making the
      additional contributions in the Company. In the event that either SWCA,
      LLC or NMHI, LLC does not elect to make all of its proportionate share of
      additional Capital Contributions which its is entitled to make under (b)
      above, then the other of them shall have the first opportunity to make the
      pro rata Capital Contribution which such noncontributing Member declined
      to make pursuant to (b) above. Thereafter the other Members may elect to
      contribute such amounts. Each contributing Member shall be entitled at its
      election to treat the amounts contributed pursuant to this Section either
      as a Capital Contribution or as a loan from the contributing Member to the
      Company.

                  (i) If the contributing Member elects to contribute the amount
            as a Capital Contribution, the percentage Membership Interests of
            the Members shall again be adjusted proportionately.

                  (ii) If the contributing Member elects to contribute such
            amount as a loan to the Company, the loan shall bear interest as
            agreed by the Contributing Member and the Company. The loan shall be
            a general obligation of the Company, but repaid before a cash
            distribution, other than a required minimum distribution under
            Section 5.1, is made to any of the Members.

            (d) Fourth, if funds are not available in accordance with (a), (b)
      or (c) above, then the Board of Directors may elect to dissolve the
      Company.

            (e) All adjustments to Membership Interests as provided in this
      Section 3.7 shall be made based solely upon the actual total Capital
      Contributions made by the Members as of the date of each such adjustment.

      SECTION 3.8 ENFORCEMENT OF COMMITMENTS.

      In the event any Member (a "Delinquent Member") fails to make a mandatory
Capital Contribution as provided in Section 3.2 or an optional Capital
Contribution as agreed to by the Member under Section 3.7 (the "Commitment"),
the Board of Directors shall give the Delinquent Member a Notice of the failure
to meet the Commitment. If the Delinquent Member fails to perform the Commitment
(including any costs associated with the failure to meet the Commitment and
interest on such obligation at the Default Interest Rate) within ten (10)
business days of the giving of Notice, the Board of Directors shall give notice
of such failure to the other Members. The other Members may elect to contribute
additional amounts equal to any amount of the Commitment not contributed by such
Delinquent Member. The contributing Member shall be entitled at its election to
treat the amounts contributed pursuant to this Section either (i) as a Capital
Contribution of the contributing Member or (ii) as a loan from the contributing
Member to the Delinquent Member bearing interest at the Default Rate secured by
the Delinquent Member's Interest in the Company and the proceeds of which loan
shall be applied to


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<PAGE>
meet the Delinquent Member's commitment. If the contributing Member elects to
contribute such amount as a Capital Contribution, the percentage Membership
Interests of the Members shall be adjusted proportionately. Until the
contributing Member is fully repaid for such loan made as a result of the
default by the Delinquent Member, the contributing Member shall be entitled to
all distributions to which the Delinquent Member would have been entitled had
such Commitment been fulfilled thereby, and any such distribution shall be
applied first to accrued interest and then to principal in repayment of the
loan. Notwithstanding the foregoing, no Commitment or other obligation to make
an additional Capital Contribution may be enforced by a creditor of the Company
unless the Member expressly consents to such enforcement or to the assignment of
the obligation to such creditor.

      SECTION 3.9 RESERVED POWERS OF MEMBERS.

            (a) Subject to Section 3.9(b), the following actions are the only
      actions which can be taken by the Members and shall require the unanimous
      consent of the Members entitled to designate and appoint voting members of
      the Board of Directors:

                  (i)   Amendments to or waivers of the rights and
            obligations provided by the Articles of Organization or this
            Agreement;

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

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

                  (iv) Creation by the Company of subsidiaries and/or
            establishment of corporate joint ventures or interest in
            partnerships or limited liability companies;

                  (v)   Election of new Members into the Company;

                  (vi) Any alteration or amendment of the Company's Statement of
            Philosophy and Values and any action which is inconsistent with the
            Company's Statement of Philosophy and Values;

                  (vii) Dissolution of the Company for reasons other than
            those expressly delegated to the Board of Directors;

                  (viii) Any action, which in the reasonable opinion of counsel,
            would give rise to regulatory and/or criminal penalties or liability
            or would prevent SJHS from receiving referrals of patients from the
            Hospital or physicians who are direct or indirect investors in the
            Company; and


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

            (b) If first approved by at least three (3) members of the Board of
      Directors designated by NMHI and SWCA, then, upon the written consent of
      owners holding units constituting at least seventy-five percent (75%) of
      the membership interests of each of NMHI, LLC and SWCA, LLC, NMHI, LLC and
      SWCA, LLC may invoke the termination procedures under Section 6.2-2(b) of
      the Management Services Agreement regardless of the vote of the Board
      members designated by NMHM on such issue provided that the Manager shall
      be entitled to exercise all of its rights with regard to such termination
      in accordance with the terms of the Management Services Agreement.

      SECTION 3.10      OTHER BUSINESS OF MEMBERS.

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

            (b) As long as a Member owns a Membership Interest in the Company,
      and for a period of five (5) years after a Member ceases for any reason to
      own a Membership Interest in the Company, neither such Member nor any of
      its Affiliates shall do any of the following:

                  (i) hold, directly or indirectly, any investment ownership or
            other beneficial equity interest in, or be associated in a
            consulting, management or advisory role with, any hospital or other
            facility specializing primarily in the diagnosis or treatment of
            cardiac or vascular disease within the Territory;

                  (ii) hold, directly or indirectly, any investment ownership or
            other beneficial equity interest in, or be associated in a
            consulting, management or advisory role with any Entity, hospital or
            sole proprietorship which provides any of the following services or
            facilities: cardiac catheterization, cardiac or peripheral
            angioplasty, atherectomy, stenting or cardiac or cardiovascular
            surgical procedures ("Cardiac Services") within a fifty (50) mile
            radius of the Hospital, it being acknowledged that both SHJS and the
            Company may provide non-coronary vascular surgery procedures
            (excluding in all events in the case of SJHS, cardiovascular surgery
            procedures, except upon prior written approval pursuant to Section
            11.10(b)(i)(F)(4) of this Agreement);

                  Except that,


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                        (A) nothing herein shall prevent a Member who is a
                  medical group, its Affiliates or employed physicians from
                  having medical staff privileges and participating fully as a
                  member of the medical staff (including service on committees
                  and medical directorships, which do not violate the terms of
                  any other agreement to which a Member or its Affiliates are
                  bound) of any hospital or medical facility in the Territory,
                  or from providing any diagnostic procedures customarily
                  performed on an outpatient basis in medical offices or cardiac
                  rehabilitation services;

                        (B) nothing herein shall prevent any Member who owns or
                  operates a hospital, directly or through an Affiliate, within
                  the Territory at the time of the formation of the Company from
                  (i) continuing to provide diagnostic cardiac catheterization
                  and such other Cardiac Services as are necessary to provide
                  emergency care within the standard of the community or to
                  stabilize the medical condition of its patients in preparation
                  for transfer to another facility for treatment of the cardiac
                  condition, (ii) providing peripheral angioplasty, peripheral
                  stenting and vascular surgery as long as such procedures are
                  not being performed on patients who have been admitted to the
                  Member's hospital primarily for treatment of any cardiac
                  disease or condition, or (iii) continuing to provide all
                  cardiology and cardiovascular services currently offered by
                  such Member until the earlier to occur of the date on which
                  sixty-six percent (66%) of the Hospital's beds are open and
                  ready to receive patients or the date which is forty-five (45)
                  days after Medicare certification of the Hospital, on which
                  date this subsection (B)(iii) shall be deemed to be deleted
                  from this Agreement;

                        (C) a Member who is a nonprofit corporation may acquire
                  or become affiliated with other corporations which operate
                  general hospitals that provide or may provide Cardiac Services
                  in the Territory but outside the fifty (50) mile radius of the
                  Hospital. Within a fifty (50) mile radius of the Hospital, a
                  Member who is a nonprofit corporation may (a) acquire, manage
                  or become affiliated with other entities which operate general
                  hospitals providing Cardiac Services, as of the date hereof,
                  and (b) acquire, affiliate with or manage a program which
                  provides Cardiac Services on behalf of an entity which
                  operates, as of the date hereof, such a program (including any
                  cardiac program related to Section 3.10(b)(ii)(C)(a)), so long
                  as in any event the nonprofit Member uses its reasonable
                  effort to provide either the Hospital or each of SWCA. LLC,
                  NMHI, LLC and NMHM with an opportunity to participate therein.
                  Provided, however, no such nonprofit Member may initiate, or
                  be involved with the initiation of, any new Cardiac Services
                  at its existing hospital or at any such other affiliated or
                  acquired hospital or at any new hospital. The parties
                  acknowledge and agree that a proprietary (for-profit)
                  Successor (as defined at Section 3.10(b)(ii)(H) below) of SJHS
                  shall have


                                       10
<PAGE>
                  the same benefits and obligations as SJHS under this Section
                  3.10(b)(ii)(C);

                        (D) nothing herein shall prevent any Member from
                  operating directly or through an Affiliate a mobile
                  catheterization laboratory within the Territory so long as
                  such service is provided pursuant to a lease of six (6) months
                  or less (including all renewals and extensions) to a provider
                  which is already providing catheterization laboratory services
                  in the Territory at the time of the inception of the lease;

                        (E) nothing herein shall prohibit a Member from owning
                  up to three percent (3%) of the outstanding stock of a company
                  whose stock is publicly traded and listed on a nationally
                  recognized securities exchange or from investing in a publicly
                  traded mutual fund;

                        (F) nothing herein shall prevent SWCA, LLC, NMHI, LLC,
                  NMHM or their Affiliates from owning, operating, advising or
                  managing, together or with other third parties, any hospital,
                  facility, clinic or service which provides any diagnosis or
                  treatment, of any type or nature, of any cardiac or vascular
                  condition as long as (i) each such party uses its reasonable
                  efforts to provide the others (SWCA. LLC, NMHI, LLC or NMHM)
                  with an opportunity to participate therein and (ii) it is
                  located outside of the 50 mile radius of the Hospital;

                        (G) nothing herein shall prevent any Member from
                  offering a service which the Company does not offer after the
                  first anniversary of the opening of the Hospital; and

                        (H) (1) with respect to SJHS only, the restrictions set
                        forth in Section 3.10(b) shall be applicable until the
                        later of (x) five (5) years from the Effective Date, or
                        (y) two (2) years after SJHS ceases to be a Member of
                        the Company. SJHS and its Affiliates shall cause any
                        successor or assign of SJHS or its Affiliates
                        ("Successors") to agree to be bound by the terms of
                        Section 3.10(b) including, but not limited to, this
                        Section 3.10(b)(ii)(H).

                              (2) Successors shall include (x) any person, firm
                        or corporation which purchases or leases any of the real
                        estate holdings of SJHS or its Affiliates for the
                        purpose of operating, or thereafter during the period of
                        this restrictive covenant operates, a hospital within
                        the geographic area referred to in Section 3.10(b) of
                        this Agreement; (y) any person, firm or corporation who
                        purchases more than fifty percent (50%) of the assets of
                        SJHS or its Affiliates; or (z) any person, firm or
                        corporation who gains control of SJHS or its Affiliates,
                        either by reason of controlling a majority of its
                        directors or trustees or by reason of becoming a


                                       11
<PAGE>
                        member of SJHS or its Affiliates. Any transfer by SJHS
                        or its Affiliates to a Successor shall be referred to
                        herein as an "SJHS Sale".

                              (3) An SJHS Sale may only be made to a Successor
                        that (x) will not be in violation of Section 3.10(b) of
                        the Agreement at the time of the conveyance and (y)
                        first agrees in writing, prior to the transaction with
                        SJHS, that such Successor (its affiliates and their
                        successors and assigns) will be bound by this Section
                        3.10(b) for the remainder of the term that SJHS would
                        have been bound had there been no SJHS Sale. Such
                        agreement will be for the express benefit of the Company
                        and its Affiliates, and SJHS will make information
                        pertinent to this Section 3.10(b)(ii)(H) reasonably
                        available to NMHM or its Affiliates from time to time.

            All parties agree that the Territory is the reasonable and
      anticipated business service area of the Company.

            (c) The Members, including the Directors, have reviewed the term and
      geographical restrictions in Section 3.10(b), and in light of the
      interests of the parties hereto, agree that such restrictions are fair and
      reasonable.

            (d) If there is a breach or threatened breach of the provisions of
      this Section 3.10, in addition to other remedies at law or equity, the
      non-breaching party shall be entitled to injunctive relief. The parties
      desire and intend that the provision of this Section 3.10 shall be
      enforced to the fullest extent permissible under the law and public
      policies applied, but the enforceability or modification of any particular
      paragraph, subparagraph, sentence, clause, phrase, word or figure shall
      not be deemed to render unenforceable the remainder of this Section 3.10.
      Should any paragraph, subparagraph, sentence, clause, phrase, word or
      figure be adjudicated to be wholly invalid or unenforceable, the balance
      of this Section 3.10 shall thereupon be modified in order to render the
      same valid and enforceable and the unenforceable portion of this Section
      3.10 shall be deemed to have been deleted from this Agreement.

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


                                       12
<PAGE>
      SECTION 3.11      APPOINTMENT OF BOARD OF DIRECTORS.

      The Members shall appoint a Board of Directors as follows:

            (a)   SWCA, LLC shall appoint two (2) Directors;

            (b)   NMHI, LLC shall appoint two (2) Directors;

            (c)   NMHM shall appoint four (4) Directors; and

            (d)   SJHS shall appoint one (1) Director who, notwithstanding any
      provision herein to the contrary, shall not be entitled to vote on any
      matter which requires the consent or approval of the Board of Directors or
      otherwise requires the Board of Directors to act hereunder.

      A Member shall have the right, with or without cause, to remove,
substitute or replace any Director which it appointed.


                                   ARTICLE IV

                            MANAGEMENT OF THE COMPANY

      SECTION 4.1 GENERAL AUTHORITY AND POWERS OF BOARD OF DIRECTORS.

      Except as set forth elsewhere in this Agreement, the Board of Directors
shall have complete authority and exclusive control over the management of the
business and affairs of the Company and all Material Agreements and Material
Decisions with respect to the business and affairs of the Company shall be made
by the Board of Directors. No Member has the actual or apparent authority to
cause the Company to become bound in any contract, agreement or obligation, and
no Member shall take any action purporting to be on behalf of the Company. The
Board of Directors shall, in consultation with the medical staff and according
to the terms of the Medical Staff Bylaws, Rules and Regulations of the Hospital,
establish procedures for quality assurance, peer review and grant privileges to
physicians at the Hospital. Decisions relating to medical and clinical practice
at the Hospital, however, shall be made exclusively by the medical staff of the
Hospital, as provided in the Bylaws, Rules and Regulations of the Medical Staff.

      SECTION 4.2 RESTRICTIONS ON AUTHORITY OF THE BOARD OF DIRECTORS.

      The Board of Directors shall not do any of the following:

            (a)   Act in contravention of this Agreement;

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


                                       13
<PAGE>
            (c)   Commingle the Company funds with those of any other Person;

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

            (e)   Alter or act inconsistently with the primary purposes of
      the Company as set forth in Section 2.3;

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

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

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

            (i)   Sell all or substantially all of the assets of the Company
      or merge the Company with or into any other Entity without the approval
      of all of the Members;

            (j)   Delegate authority to make Material Decisions or enter into
      Material Agreements; or

            (k)   Dissolve the Company, except as provided in this Agreement.

      SECTION 4.3 DUTIES OF THE BOARD OF DIRECTORS.

      The Board of Directors shall do the following:

            (a) Diligently and faithfully devote such of its time to the
      business of the Company as may be necessary to properly conduct the
      affairs of the Company, however, the individual Directors shall not be
      required to devote full time to such duties;

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

            (c) File and publish all certificates, statements, or other
      instruments required by law for the formation and operation of the Company
      as a limited liability company in all appropriate jurisdictions;

            (d) Cause the Company to obtain and keep in force during the term of
      the Company fire and extended coverage, public liability and professional
      liability insurance and other insurance policies, with such issuers and in
      such amounts as the Board of Directors shall deem advisable, but in
      amounts not less (and deductible amounts not


                                       14
<PAGE>
      greater) than those customarily maintained with respect to the business
      equipment and property comparable to the Company's;

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

            (f) When this Agreement or circumstances affecting the business of
      the Company require the Directors to take certain action or to make a
      determination, the Board of Directors shall take such action or make such
      determination in a reasonable and timely manner;

            (g)   Deliver to the New Mexico State Corporation Commission for
      filing an annual statement in accordance with the Act;

            (h)   Employ legal counsel, public accountants and such other
      advisors and consultants for the Company as it deems necessary; and

            (i)   Establish and adhere to a conflict of interest policy.

      SECTION 4.4 DELEGATION BY THE BOARD OF DIRECTORS.

      Subject to restrictions otherwise provided herein, the Board of Directors
may at any time employ a Manager, including a Manager affiliated with, or
related to any member of the Board of Directors or any Member to perform
services for the Company and its business, and may delegate all or part of their
duties, authority or control to such Manager, provided that such employment or
delegation shall not relieve the Board of Directors of its respective
responsibilities and obligations under this Agreement or under the laws of the
State of New Mexico nor will it make any such Manager a Member of the Company.

      SECTION 4.5 RIGHT TO RELY UPON THE AUTHORITY OF THE MANAGER.

      Persons dealing with the Company may rely upon the representation of the
Manager that such Manager is manager of the Company and that such Manager has
the authority to make any commitment or undertaking on behalf of the Company. No
Person dealing with the Manager shall be required to determine its authority to
make any such commitment or undertaking.

      SECTION 4.6 NO MANAGEMENT BY MEMBERS.

      Other than as set forth in Article III hereof, the Members shall take no
part in, or at any time interfere in any manner with, the management, conduct,
or control of the Company's business and operations and shall have no right or
authority to act for or bind the Company. The rights and powers of such Members
shall not extend beyond those set forth in this Agreement and those granted
under the Articles of Organization and any attempt to participate in the control


                                       15
<PAGE>
of the Company in a manner contrary to the rights and powers granted herein and
under the Articles of Organization shall be null and void and without force and
effect. The exercise by any other Member of any of the rights granted to the
Member hereunder shall not be deemed to be taking part in the control of the
business of the Company and shall not constitute a violation of this Section.

      SECTION 4.7 CONSENT BY MEMBERS TO EXERCISE OF CERTAIN RIGHTS AND
                  POWERS BY BOARD OF DIRECTORS.

      By its execution hereof, each Member expressly consents to the exercise by
the Board of Directors of the rights, powers, and authority conferred on the
Board of Directors by this Agreement.

      SECTION 4.8 MEETINGS, QUORUM AND VOTE OF THE BOARD OF DIRECTORS.

            (a) The Board of Directors shall meet at least quarterly. A meeting
      may be called by any Director or the Manager. Notice of any meeting,
      regular or special, shall be delivered to each Director personally, by
      telephone, by electronic mail, by facsimile transmission or in writing at
      least five (5) business days before the meeting. If a request for
      additional funding pursuant to Section 3.7(b) is to be considered at the
      meeting, it must be so stated specifically in the Notice of Meeting. The
      Director calling the meeting or the Manager shall be responsible for
      preparing and delivering the Notice of Meeting.

            (b) An emergency meeting of the Board of Directors may be called by
      the Manager upon shorter notice. Action taken at the emergency meeting
      shall be valid so long as the meeting is attended by at least one Board
      member appointed by each of SWCA, LLC, NMHI, LLC and NMHM and the action
      is unanimously approved by the Board members in attendance entitled to
      vote under this Agreement.

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

            (d) A quorum of the Board of Directors shall be necessary to conduct
      business at any meeting, except as provided in Section 4.8(b). A quorum
      shall consist of a majority of the voting Directors. The Directors present
      at a meeting at which a quorum is initially present may continue to
      transact business notwithstanding the withdrawal of Directors, so long as
      any action taken is approved by at least a majority of the required quorum
      for such meeting and one of such remaining Directors must have been
      appointed by each of the Members for there to be business transacted. A
      Director may attend a meeting by telephone or other electronic means and
      be considered present for purposes of a quorum so long as the telephone or
      other connection allows each Director to hear and be heard by all other
      Directors.


                                       16
<PAGE>
            (e) Any action taken by the Board of Directors shall require the
      affirmative vote of at least a majority of the Directors (at least one of
      whom shall have been appointed by NMHM) present at a meeting at which a
      quorum is present, except that the following actions shall require the
      consent of at least one Board member appointed by each of NMHM, NMHI, LLC
      and SWCA, LLC:

                  (i)   the determination of the annual budget of the Company
            and any material amendments or modifications thereof, including
            material expenditures in excess thereof; and

                  (ii) any maintenance and/or capital improvement expenditures
            not included in an annual budget and in excess of Twenty-Five
            Thousand Dollars ($25,000.00) or resulting in an aggregate
            expenditure outside of the budget by more than five percent (5%)
            thereof unless matched or supported by revenue in excess of that
            reflected in such budget.

            (f) Notwithstanding Section 4.8(e) or any other provision herein to
      the contrary, the Board of Directors may invoke the termination procedures
      under Section 6.2-2(b) of the Management Services Agreement upon the
      written consent of at least three (3) of the Directors appointed by NMHI,
      LLC and SWCA, LLC regardless of the vote of the Board members designated
      by NMHM on such issue provided that after the Board consents to invoke
      such termination procedures NMHI, LLC and SWCA, LLC consent to invoke such
      termination procedures in accordance with Section 3.9(b) and further
      provided that the Manager shall be entitled to exercise its rights with
      regard to such termination in accordance with the terms of the Management
      Services Agreement.

            (g) Any action which is required to be or may be taken at a meeting
      of the Board of Directors may be taken without a meeting if consent in
      writing, either collectively or in counterparts, setting forth the action
      so taken, is signed unanimously by all Directors entitled to vote under
      this Agreement.

            (h) Minutes of the meetings of the Board of Directors shall be
      taken. The original of the minutes shall be signed by the Secretary of the
      Board and kept with the records of the Company. A copy of the minutes
      shall be sent to each of the Directors.

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

      SECTION 4.9 BOARD OF DIRECTORS' STANDARD OF CARE.

      Each Director and the Board of Directors shall act in a manner it believes
in good faith to be in the best interest of the Company and with such care as an
ordinarily prudent Person in a like position would use under similar
circumstances. In discharging its duties, each Director shall be fully protected
in relying in good faith upon the records required to be maintained under this
Agreement and upon such information, opinions, reports and statements by any of
its other Directors, Members, or agents, or by any other Person as to matters
each Director reasonably


                                       17
<PAGE>
believes are within such other Person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Company,
including information, opinions, reports or statements as to the value and
amount of the assets, liabilities, income or losses of the Company or any other
facts pertinent to the existence and amount of assets from which distributions
to members might properly be paid.

      Notwithstanding anything herein to the contrary, a Director or Member
shall have the right to vote or approve Company matters in accordance with the
terms of this Agreement regardless of the personal interest of any Director or
Member in the outcome of any vote, decision or matter, subject to the obligation
to disclose conflicts in advance under Section 2.4(d).

      SECTION 4.10      LIMITATION OF LIABILITY.

      A Director shall not be liable to the Company or its Members for any
action taken in managing the business or affairs of the Company if it performs
the duty of its office in compliance with the standard contained in Sections 4.3
and 4.9. No Director has guaranteed nor shall have any obligation with respect
to the return of a Member's Capital Contribution or share of income from the
operation of the Company. Furthermore, no Director shall be liable to the
Company or to any Member for any loss or damage sustained by the Company or any
Member except loss or damage resulting from gross negligence or intentional
misconduct or knowing violation of law or a transaction for which such Director
or Agent received a personal benefit in violation or breach of the provisions of
this Agreement.

      SECTION 4.11      INDEMNIFICATION OF DIRECTORS.

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

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

      SECTION 4.12      GUARANTEE FEE.

      In the event that a lender of funds to the Company requires that all or a
      portion of such loan be guaranteed (the portion of such loan required to
      be guaranteed is hereafter referred to as


                                       18
<PAGE>
      the "Guarantee Amount"), then to the extent that (a) the lender either is
      unwilling to accept a guarantee from a Member for its pro rata share of
      such Guarantee Amount, (b) such Member is unwilling to provide a guarantee
      for its pro rata share of the Guarantee Amount or (c) such lender requires
      NMHM or its Affiliates to also guarantee all or a portion of the pro rata
      Guarantee Amount of such other Member (in addition to any other portion of
      such loan which NMHM or its Affiliates is obligated to guarantee as a
      result of NMHM's pro rata interest in the Company), then NMHM shall be
      paid an annual guarantee fee by such Members of the Company other than
      NMHM (collectively, the "Non-Guarantor Members") equal to .0075 multiplied
      by the pro rata portion of the Guarantee Amount of such other Member which
      is required by such lender to be guaranteed by NMHM or its Affiliates with
      respect to such loan (the "Guarantee Fee"). The Guarantee Fee shall be
      paid quarterly and the expense thereof shall be allocated to the
      Non-Guarantor Members as follows:

            (a) The Guarantee Fee shall be deducted from the Cash Distributions
      otherwise distributable to the Non-Guarantor Members and shall be paid to
      NMHM;

            (b) To the extent that at the time such Guarantee Fee is due to be
      paid hereunder there are no anticipated Cash Distributions, then the
      Company shall pay such Guarantee Fee to NMHM and the amount of such
      payments shall be charged to the Capital Accounts of the Non-Guarantor
      Members;

            (c) When Cash Distributions become available for distribution to the
      Members in the future, the Cash Distributions otherwise distributable to
      the Non-Guarantor Members shall first be retained by the Company and the
      Capital Accounts of the Non-Guarantor Members shall be restored to the
      extent that amounts were previously charged to the Capital Accounts of the
      Non-Guarantor Members in accordance with (b) above and any remaining Cash
      Distributions shall be distributed to the Members in accordance with
      Section 5.1.

      Notwithstanding anything herein to the contrary, (i) SJHS alone shall be
obligated to pay to NMHM on the date of the closing of the Membership Purchase
Agreement, a guarantee fee equal to One Hundred Eleven Thousand Nine Hundred
Twenty Dollars ($111,920) arising from an additional Six Million Six Hundred
Thousand Dollars ($6,600,000) of debt guarantees being required by Health Care
Property Investors, Inc. ("HCPI") for thirty (30) months in consideration of the
release of SJHS from its guarantee to HCPI as of October 1, 2001; and (ii) in
consideration of such payment, for purposes of computing the amount of the
guarantee fee payable by the other Members to NMHM and/or its Affiliates
pursuant to this Section 4.12, the additional guarantee of debt referred to in
(i) above shall not be included in the total amount of indebtedness guaranteed
by NMHM and/or its Affiliates.


                                       19
<PAGE>
                                    ARTICLE V

                          DISTRIBUTIONS AND ALLOCATIONS

      SECTION 5.1 DISTRIBUTIONS OF CASH FLOW FROM OPERATIONS AND CASH FROM
                  SALES OR REFINANCING.

      Prior to the dissolution of the Company, Cash Flow from Operations and
Cash from Sales or Refinancing, if any, remaining after repayment of any amounts
then due on loans made by the Members to the Company, shall be distributed
quarterly as Cash Distributions according to the relative percentage Membership
Interests of the Members; provided, however, that to the extent possible, any
Guarantee Fee shall be deducted from the Cash Distributions otherwise
distributable to the Non-Guarantor Members and paid to NMHM as set forth in
Section 4.12. The Board shall make a minimum distribution of Cash Flow from
Operations equal to fifty percent (50%) of net profit, after taking into
consideration the requirement for cash reserves or other limitations established
by any lender. Notwithstanding anything herein to the contrary, no distributions
shall be made to Members if prohibited by the Act or other applicable law.

      SECTION 5.2 PROFITS.

      Except as provided in the Regulatory Allocations Exhibit (Exhibit E) and
subject to Section 5.6, Profits shall be allocated as follows:

            (a) First, to the Members who have been allocated Losses pursuant to
      Subsection 5.3(a) below until the cumulative Profits allocated pursuant to
      this Subsection 5.2(a) equal the cumulative prior allocations of Losses
      under that Subsection.

            (b) Next, to the Members who have been allocated Losses pursuant to
      Subsection 5.3(b) below until the cumulative Profits allocated pursuant to
      this Subsection 5.2(b) equal the cumulative prior allocations of Losses
      under that Subsection.

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

      SECTION 5.3 LOSSES.

      Except as provided in the Regulatory Allocations Exhibit (Exhibit E) and
subject to Section 5.6, Losses shall be allocated as follows:

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

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


                                       20
<PAGE>
      SECTION 5.4 CODE SECTION 704(c) TAX ALLOCATIONS.

      Income, gain, loss, and deduction with respect to any property contributed
to the capital of the Company shall, solely for tax purposes, be allocated among
the Members so as to take account of any variation between the adjusted basis of
such property to the Company for federal income tax purposes and its initial
Agreed Value pursuant to any method allowable under Code Section 704(c) and the
Regulations promulgated thereunder.

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

      Any elections or other decisions relating to allocations under this
Section shall be determined by the Board of Directors. Absent a determination by
the Board of Directors, the remedial allocation method under Regulation Section
1.704-3(d) shall be used. Allocations pursuant to this Section are solely for
purposes of federal, state, and local taxes and shall not be taken into account
in computing any Member's Capital Account or share of Profits, Losses, other
items, or distributions pursuant to any provision of this Agreement.

      SECTION 5.5 MISCELLANEOUS.

            (a) Allocations Attributable to Particular Periods. For purposes of
      determining Profits, Losses or any other items allocable to any period,
      such items shall be determined on a daily, monthly, or other basis, as
      determined by the Board of Directors using any permissible method under
      Code Section 706 and the Regulations thereunder.

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

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


                                       21
<PAGE>
      SECTION 5.6 SPECIAL ALLOCATIONS OF GUARANTEE FEES.

      Any and all deductions, losses or reductions to Capital Accounts
attributable to the payment by the Company of Guarantee Fees shall be allocated
to the Non-Guarantor Members in accordance with their relative percentage
Membership Interests.


                                   ARTICLE VI

            DISSOLUTION, WINDING UP AND LIQUIDATING DISTRIBUTIONS

      SECTION 6.1 NO TERMINATION BY CERTAIN ACTS OF MEMBER.

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

      SECTION 6.2 DISSOLUTION.

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

            (a)   The election by the Directors to dissolve the Company in
      accordance with the terms of Section 3.7(c) hereof;

            (b)   The expiration of the term provided in Section 2.6 hereof.

            (c)   The adjudication of bankruptcy of the Company;

            (d)   In accordance with Section 11.10 hereof; and

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

      SECTION 6.3 DISSOLUTION AND FINAL LIQUIDATION.

            (a) Upon any dissolution of the Company, the Company shall not
      terminate, but shall cease to engage in further business except to the
      extent necessary to perform existing contracts and preserve the value of
      its assets. Its assets shall be liquidated and its affairs shall be wound
      up as soon as practical thereafter by the Board of Directors or by another
      Person designated by the Members. In winding up the Company and
      liquidating assets, the Board of Directors, or other Person so designated
      for such purpose, may arrange, either directly or through others, for the
      collection and disbursement to the Members of any future receipts from the
      Hospital or other sums to which the Company may be entitled, and shall
      sell the Company's interest in the Hospital and the Equipment


                                       22
<PAGE>
      to any Person, including a Member or any Affiliate thereof, on such terms
      and for such consideration as shall be consistent with obtaining the fair
      market value thereof, as such fair market value is approved by the
      Members.

            (b) Upon any such dissolution and liquidation of the Company, the
      net assets, if any, of the Company available for distribution, including
      any cash proceeds from the liquidation of Company assets, shall be applied
      and distributed in the following manner or order, to the extent available:

                  (i) To the payment of or creation of reserves for all debts,
            liabilities, and obligations to all creditors of the Company (other
            than the Members or their Affiliates) and the expenses of
            liquidation;

                  (ii) To the payment of all debts and liabilities (including
            interest), and further including without limitation any accrued but
            unpaid Guarantee Fees, owed to the Members or their Affiliates as
            creditors; and

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

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

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

            (e) The Capital Accounts of the Members, as adjusted, shall be
      utilized by the Company for the purpose of making distributions to those
      Members with positive balances in their respective Capital Accounts
      pursuant to Section 6.3(b). In making such distributions, the Board of
      Directors or the Person winding up the affairs of the Company shall
      distribute all funds available for distribution to the Members (after
      establishing any reserves that the Board of Directors deem or the Person
      winding up the affairs of the Company deems reasonably necessary pursuant
      to Section 6.3(b)) prior to the later of (a) the end of the taxable year
      in which the event occurs which caused the termination and dissolution of
      the Company, or (b) ninety (90) days after the occurrence of such event.
      The Board of Directors in their sole discretion, or the Person winding up
      the affairs of the Company, in its discretion, may elect to have the
      Company retain any installment obligations owed to the Company until
      collected in full so long as any portion of the reserves which are later
      determined to be unnecessary, and all collections on such


                                       23
<PAGE>
      installment obligations which are not deemed to be reasonably necessary by
      the Board of Directors or the Person winding up the affairs of the Company
      to add to such reserves are distributed as soon as practicable in
      accordance with the provisions of Section 6.3(b) as modified by this
      Section.

      SECTION 6.4 TERMINATION.

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

      SECTION 6.5 PAYMENT IN CASH.

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

      SECTION 6.6 GOODWILL AND TRADE NAME.

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

      SECTION 6.7 TERMINATION OF NONCOMPETITION COVENANTS.

      Upon the later of the dissolution of the Company and the completion of the
liquidation process, the Members shall have no continuing liability or
obligation under Section 3.10(b), except that Section 3.10(b) shall continue to
be binding upon a Member whose breach of this Agreement caused a dissolution of
the Company and any action for a breach of this Agreement, including a breach of
Section 3.10(b), shall not be impaired by the dissolution or completed
liquidation.


                                   ARTICLE VII

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

      SECTION 7.1 WITHDRAWAL OF MEMBER.

            (a) Except as provided in this Section 7.1, without the unanimous
      consent of the nonwithdrawing Members, a Member shall not voluntarily
      withdraw from the Company as a Member at any time prior to its
      termination, or transfer or assign any of its rights and duties, provided
      that a Member may assign its Membership Interest in the Company and its
      rights to appoint one or more Directors to wholly-owned Affiliates (for
      NMHM, including MedCath Corporation, MedCath Incorporated and their
      wholly-owned Affiliates) and lenders. A Member shall give written notice
      to the remaining Members if


                                       24
<PAGE>
      it desires to otherwise sell its Membership Interest. In that event, the
      other Members shall first have an option to purchase such Membership
      Interest in accordance with Section 7.1(c) below. The foreclosure of a
      Member's Interest by a lender shall give the remaining Members a right to
      purchase the Interest being foreclosed for either the amount due and owing
      to the lender or pursuant to Section 7.1(c). A sale or transfer in a
      single transaction or in a series of related transactions of 50% or more
      of the direct or indirect ownership interests in SWCA, LLC or NMHI, LLC
      (other than to another entity owned solely by either or both of such
      Members or their Affiliates) shall constitute an offer by such Member to
      sell its Membership Interest to the Company and the other Members in
      accordance with (c) below.

            (b) In the event that NMHM or an Affiliate desires to sell its
      Membership Interest, SJHS shall be given the first right to negotiate the
      purchase of such Membership Interest from NMHM or its Affiliate; provided,
      however, that (i) the sale of MedCath Corporation or MedCath Incorporated
      or a substantial portion of their assets shall not be considered a sale of
      the Membership Interest of NMHM or an Affiliate for purposes of this
      Article VII; and (ii) any proposed purchase by SJHS under this Section
      7.1(b) shall, except as otherwise provided in Section 7.1(a) or (b), be
      subject to the Right of First Refusal of the Company and the other Members
      as set forth at Section 7.1(c) below.

            (c) Except as otherwise set forth in this Agreement, no Membership
      Interest or any portion thereof, shall be validly sold or assigned whether
      voluntarily, involuntarily or by operation of law, and no purported
      assignee shall be recognized by the Company for any purpose, unless such
      Membership Interest shall have been transferred in accordance with the
      provisions of this Agreement and in compliance with such additional
      restrictions as may be imposed by any federal or state securities law and
      with the consent of the Board of Directors. In no event, however, shall a
      Member transfer or sell all or any of its Membership Interest to any party
      which, if a Member, would be in violation of Section 3.10(b) hereof.
      Except as otherwise set forth in this Section or in this Agreement, a
      Member may transfer, sell or assign its entire Membership Interest if it
      has received the consent of the Board of Directors, not to be unreasonably
      withheld, provided however: (i) the Company first for a period of fifteen
      (15) days, and thereafter the other Members for a period of fifteen (15)
      days, shall have the right, but not the obligation, to purchase all, but
      not less than all, of the Membership Interest proposed to be transferred,
      which right shall be exercisable on the terms and for the purchase price
      set forth in a bona fide offer made for the Interest by a third-party (the
      "Right of First Refusal"), and (ii) there shall have been filed with the
      Company a duly executed and acknowledged counterpart of the instrument
      making such assignment signed by both the assignor and assignee and such
      instrument evidences the written acceptance by the assignee of all of the
      terms and provisions of the Agreement, represents that such assignment was
      made in accordance with all applicable laws and regulations and the
      assignee shall have represented to the Company in writing that it meets
      the investor suitability standards established by the appropriate state of
      residence, or, in the absence thereof, the investor suitability standards
      established by the Company. The Board of Directors shall use reasonable
      care to determine that transfers are in accordance with applicable laws
      and regulations, which may include obtaining an opinion of counsel to that
      effect.


                                       25
<PAGE>
            (d) Notwithstanding Section 7.1(c) or any other provision of this
      Agreement, (i) SJHS shall not be entitled to exercise any Right of First
      Refusal nor have any purchase rights under Section 7.1(c) and (ii) sales
      of Membership Interests by Members pursuant to the Membership Purchase
      Agreement are hereby approved by the Company and such sales made pursuant
      to the Membership Purchase Agreement are not subject to Section 7.1(c).

      SECTION 7.2 CONDITIONS PRECEDENT TO TRANSFER OF MEMBERSHIP INTEREST.

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

      SECTION 7.3 SUBSTITUTE MEMBER - CONDITIONS TO FULFILL.

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

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

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

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

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

      SECTION 7.4 ALLOCATIONS BETWEEN TRANSFEROR AND TRANSFEREE.

      Upon the transfer of a Member's Interest, all items of income, gain, loss,
deduction and credit attributable to the Membership Interest so transferred
shall be allocated between the transferor and the transferee in such manner as
the transferor and transferee agree at the time of


                                       26
<PAGE>
transfer; provided such allocation does not violate federal or state income tax
law. If the Board of Directors deems such laws violated, then such allocation
shall be made pro rata for the fiscal year based upon the number of days during
the applicable fiscal year of the Company that the Membership Interest so
transferred was held by the transferor and transferee, without regard to the
results of Company activities during the period in which each was the holder, or
in such other manner as the Board of Directors deems necessary to comply with
federal or state income tax laws. Distributions as called for by this Agreement
shall be made to the holder of record of the Membership Interest on the date of
distribution. Notwithstanding anything contained in this Agreement to the
contrary, the Company shall be entitled to treat the assignor of any assigned
Membership Interest as the absolute owner thereof in all respects, and shall
incur no liability for distributions made in good faith to such assignor in
reliance on the Company records as they exist until such time as the written
assignment has been received by, and recorded on the books of the Company. For
purposes of this Article VII, the effective date of an assignment of any
Membership Interest shall be the last day of the month specified in the written
instrument of assignment.

      SECTION 7.5 RIGHTS, LIABILITIES OF, AND RESTRICTIONS ON ASSIGNEE.

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

      SECTION 7.6 REPURCHASE OF INTERESTS IN CERTAIN EVENT.

            (a) In the discretion of the Board of Directors, the Company may,
      but is not obligated to, repurchase a Member's Interest upon such Member's
      breach of the Member's obligations contained in Article III, Sections 7.1
      and 7.2 of this Agreement, unless the breach is cured promptly after
      notice thereof by the Company.

            (b) Any Member who is in breach of this Agreement agrees to sell its
      Membership Interest to the Company in the event the Company elects to
      exercise the right of repurchase granted under Section 7.6(a) and the
      purchase price shall be the lower of (x) the Capital Contributions of the
      Member less all amounts distributed to such Member by the Company or (y)
      the fair market value of such Member's Membership Interest determined by
      an independent appraiser reasonably selected by the Board of Directors.


                                       27
<PAGE>
                                  ARTICLE VIII

                        RECORDS, ACCOUNTINGS AND REPORTS

      SECTION 8.1 BOOKS OF ACCOUNT.

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

      SECTION 8.2 ACCESS TO RECORDS.

      The books of account and all documents and other writings of the Company,
including the Articles of Organization and any amendments thereto, shall at all
times be kept and maintained at the principal office of the Company or elsewhere
as decided by the Board of Directors. Each Member or its designated
representatives shall, upon reasonable notice to the Company, have access to
such financial books, records and documents during reasonable business hours and
may inspect and make copies of any of them.

      SECTION 8.3 BANK ACCOUNTS AND INVESTMENT OF FUNDS.

            (a) The Board of Directors shall open and maintain, on behalf of the
      Company, a bank account or accounts in a federally insured bank or savings
      institution as it shall determine, in which all monies received by or on
      behalf of the Company shall be deposited. All withdrawals from such
      accounts shall be made upon the signature of such Person or Persons as the
      Board of Directors may from time to time designate.

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

      SECTION 8.4 FISCAL YEAR.

      The Fiscal Year and accounting period of the Company shall end on
September 30 of each year, unless otherwise determined by the Board of
Directors.

      SECTION 8.5 ACCOUNTING REPORTS.

      As soon as reasonably practicable after the end of each fiscal year but in
no event later than 120 days after the end thereof, each Member shall be
furnished an annual accounting


                                       28
<PAGE>
showing the financial condition of the Company at the end of such fiscal year
and the result of its operations for the fiscal year then ended, which annual
accounting shall be prepared on an accrual basis in accordance with generally
accepted accounting principles applied on a consistent basis and shall be
delivered to each of the Members promptly after it has been prepared. It shall
include a balance sheet as of the end of such Fiscal Year and statements of
income and expense, each Member's equity, and cash flow for such Fiscal Year.
The Company shall be audited by a firm of independent certified public
accountants regularly engaged by the Board of Directors on behalf of the
Company. (For so long as NMHM is a Member of the Company, the Company shall
endeavor to use the same firm of accountants as used by MedCath.) The report
shall set forth the distributions to the Members for such Fiscal Year and shall
separately identify distributions from (i) operating revenue during such Fiscal
Year, (ii) operating revenue from a prior period which had been held as
reserves, (iii) proceeds from the sale or refinancing of the Equipment, and (iv)
unexpended proceeds received from the sale of Membership Interests. Following
the opening of the Hospital, Board of Directors shall also cause to be prepared
and distributed to the Members quarterly financial statements.

      SECTION 8.6 TAX RETURNS.

      It is the intention of all Members that the Company be treated for tax
purposes as a partnership under Subchapter J of the Code, and that this
Agreement be construed in accordance with such intent. All Members agree to
construe and/or amend the Agreement as may be necessary from time to time to
effect such intent. The Board of Directors shall cause income tax returns for
the Company to be prepared, at Company expense, and timely filed with the
appropriate authorities. As soon as is reasonably practicable, and in any event
on or before the expiration of 75 days following the end of each Fiscal Year,
each Member shall be furnished with a statement to be used in the preparation of
the Member's tax returns, showing the amounts of any Profits or Losses allocated
to the Member, and the amount of any distributions made to the Member, pursuant
to this Agreement, along with a reconciliation of the annual report with
information furnished to Members for income tax purposes.


                                   ARTICLE IX

                      MEETINGS AND VOTING RIGHTS OF MEMBERS

      SECTION 9.1 MEETINGS.

            (a) Meetings of the Members of the Company for any purpose may be
      called by the Board of Directors, or any Member. Such meetings shall be
      held in Albuquerque, New Mexico.

            (b) A notice of any such meeting shall be given in person, by mail,
      by overnight courier or by facsimile transmission not less than seven (7)
      days nor more than sixty (60) days before the date of the meeting, to each
      Member at its address as specified in Section 11.6. Such notice shall be
      in writing, and shall state the place, date and hour of the meeting. The
      notice shall state the purpose or purposes of the meeting. If a meeting is


                                       29
<PAGE>
      adjourned to another time or place, and if any announcement of the
      adjournment of time or place is made at the meeting, it shall not be
      necessary to give notice of the adjourned meeting.

            (c) Each Member may authorize any Person or Persons to act for the
      Member by proxy in all matters in which a Member is entitled to
      participate, whether by waiving notice of any meeting, or voting or
      participating at a meeting. Every proxy must be signed by the Member or
      its attorney-in-fact. No proxy shall be valid after the expiration of
      eleven months from the date thereof unless otherwise provided in the
      proxy. Every proxy shall be revocable at the pleasure of the Member
      executing it, by filing a written notice of such revocation with each
      Director.

      SECTION 9.2 VOTING RIGHTS OF MEMBERS.

            (a) No Member shall take part in or interfere in any manner with the
      control, conduct or operation of the Company, nor have any right or
      authority to act for or bind the Company except as provided herein. Votes
      or decisions, to the extent taken or to be made, of the Members may be
      cast at any duly called meeting of the Company or in writing within ten
      (10) days after written request therefor by filing such writing with each
      Director. Each Member shall be entitled to the number of votes equal to
      the percentage Membership Interest of such Member.

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


                                    ARTICLE X

                                   AMENDMENTS

      This Agreement and the Articles of Organization of the Company may be
amended only with the unanimous consent of NMHI, LLC, SWCA, LLC and NMHM.


                                       30
<PAGE>
                                   ARTICLE XI

                                  MISCELLANEOUS

      SECTION 11.1      WAIVER OF PROVISIONS.

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

      SECTION 11.2      INTERPRETATION AND CONSTRUCTION.

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

      SECTION 11.3      GOVERNING LAW.

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

      SECTION 11.4      PARTIAL INVALIDITY.

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

      SECTION 11.5      BINDING ON SUCCESSORS.

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

      SECTION 11.6      NOTICES AND DELIVERY.

            (a) To Members. Any notice to be given hereunder at any time to any
      Member or any document reports or returns required by this Agreement to be
      delivered to any Member, may be delivered personally or mailed to such
      Member, certified mail, postage prepaid, addressed to the Member at such
      times as the Member shall by notice to the Company have designated as the
      Member's address for the mailing of all notices hereunder or, in the
      absence of such notice, to the address set forth in the Information


                                       31
<PAGE>
      Exhibit (Exhibit B) hereof. Any notice, or any document, report or opinion
      so delivered or mailed shall be deemed to have been given or delivered to
      such Member at the time it is mailed, as the case may be.

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

      SECTION 11.7      COUNTERPART EXECUTION: FACSIMILE EXECUTION.

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

      SECTION 11.8      STATUTORY PROVISION.

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

      SECTION 11.9      WAIVER OF PARTITION.

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

      SECTION 11.10     CHANGE IN LAW.

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


                                       32
<PAGE>
      receipt of legal advice in writing from such health care counsel regarding
      Applicable Law the parties hereto are unable to negotiate an acceptable
      restructuring of their relationship, then the Company shall have the
      option, within the following forty-five (45) day period, to purchase the
      Membership Interests of some or all of the Members whose ownership is
      involved with such noncompliance with Applicable Law for a purchase price
      equal to the greater of: (a) five times the net income of the Company for
      the prior 12 month period times the percentage of the selling Member's
      Membership Interest or (b) the amount of the Capital Contributions made by
      each such Member to the Company together with interest thereon computed at
      the Prime Rate as of the date of this Agreement from the date of such
      contribution through the date upon which the Company pays all amounts due
      under the terms of this Section 11.10. For the purpose of Subparagraph
      (b), distributions to the Members by the Company after the effective date
      of this Agreement (and whether before or after health care counsel
      determined there was a problem under an Applicable Law or before or after
      the exercise of the purchase option) shall be treated as payments by the
      Company. Such purchase prices shall be paid in accordance with the Payment
      Method. Third, in the event that the Company does not exercise its option
      to purchase Membership Interests of a Member whose ownership causes the
      Company not to be in compliance with Applicable Law, such Members may
      elect in writing within the following forty-five (45) day period, to
      require that the Company be dissolved, in which event the Company shall be
      dissolved in accordance with the terms of this Agreement.

                  (b)(i) In the event, that nationally recognized tax counsel of
            SJHS, but who prior to their engagement for purposes of this
            Agreement have not previously represented SJHS or any of its
            Affiliates with respect to this transaction, and which tax counsel
            is selected with the approval of NMHM, which approval shall not be
            unreasonably withheld, reasonably determines in writing after
            regular consultation with NMHM, the other Members and their counsel,
            and offer using their reasonable best efforts to avoid such
            determination, that as a result of any change in any law or
            regulation or change in the interpretation of an existing law or
            regulation after the date hereof, that the existence of (x) SJHS'
            Membership Interest in the Company, both directly and alternatively
            through a for-profit affiliate of SJHS (the "SJHS Sub") of which
            SJHS is the sole shareholder to which it assigns (or to which it is
            entitled to assign under the terms of this Agreement) its Membership
            Interest or (y) SJHS' obligation under Section 3.7(a)(i) to
            guarantee a portion of the Company's indebtedness, will result in
            SJHS losing its tax-exempt status, SJHS may give notice in writing
            to the Company, SWCA, LLC, NMHI, LLC and NMHM of that fact.
            Thereafter, the parties agree to the following:

                        (A) The parties hereto shall in good faith consider and
                  discuss with one another mutually acceptable alternatives to
                  revise this Agreement in a manner which would prevent SJHS
                  from losing its tax-exempt status but which would not
                  materially alter the substance of the transaction among the
                  parties and would not substantially diminish the material
                  benefits of the transaction to any party.


                                       33
<PAGE>
                        (B) If (x) the parties have failed to renegotiate the
                  Agreement in a mutually acceptable manner as provided in (A)
                  above, (y) the assignment by SJHS of its Membership Interest
                  to its for-profit affiliate alone will not enable SJHS to
                  avoid the loss of its tax-exempt status and (z) if SJHS is
                  liable for any guarantees of indebtedness of the Company and
                  SJHS' being released from such guarantees any will avoid SJHS'
                  loss of its tax-exempt status, then conditioned upon (1) the
                  payment of a Guarantee Fee by the SJHS Sub to NMHM pursuant to
                  Section 4.12 of the outstanding balance of the principal
                  amount of debt of the Company then guaranteed by SJHS and its
                  affiliates plus the amount which thereafter would, absent the
                  operation of this subsection 11.10(b)(i)(B) have been
                  guaranteed by SJHS, (2) the execution and delivery by the SJHS
                  Sub of a reimbursement agreement providing for the SJHS Sub's
                  reimbursement of NMHM for all amounts of principal, interest
                  and other costs paid by NMHM or its Affiliates under its
                  guarantees of the Company's indebtedness which absent the
                  application of this subsection would have been paid by SJHS or
                  its Affiliates, and (3) the approval of such arrangement by
                  the Company's lenders, then NMHM and its parent MedCath
                  Incorporated shall assume all liability and obligation of SJHS
                  and its affiliates for their guaranty of the Company's debt.

                        Rather than assigning its guarantee to NMHM and paying
                  the Guarantee Fee as provided above, SJHS and its affiliates
                  shall have the right to use any other commercially reasonable
                  alternative for obtaining a release of SJHS from any
                  obligation or liability to guarantee the debts of the Company
                  as long as such alternative does not impose any cost, expense,
                  liability or obligation upon the Company or any of its other
                  Members.

                        (C) If the parties have failed to renegotiate the
                  Agreement in a mutually acceptable manner as provided in (A)
                  above and the arrangement set forth in (B) above will not
                  avoid SJHS' loss of its tax-exempt status, then SJHS may
                  provide written notice of its election to withdraw from the
                  Company pursuant to Section 7.1. Within one hundred eighty
                  (180) days of the date of the notice, SJHS shall relinquish
                  its Membership Interest in the Company and any of the
                  Company's directors, officers or managers appointed by SJHS
                  shall tender their resignations.

                        (D) Company, SWCA, LLC, NMHI, LLC and NMHM shall use
                  commercially reasonable efforts to obtain a release of SJHS
                  from any guaranty of the debts of Company and, in the event
                  they are unable to do so, Company, SWCA, LLC, NMHI, LLC and
                  NMHM shall, severally based upon their relative ownership of
                  the Company, indemnify and hold SJHS harmless from any such
                  guaranty and shall obtain the release of SJHS at the first
                  available opportunity.


                                       34
<PAGE>
                        (E) Within thirty (30) days, either SJHS or the Company
                  may give the other notice that it intends to terminate any
                  hospital services agreement between them (the "Hospital
                  Services Agreement"). If either party terminates the Hospital
                  Services Agreement, SJHS shall continue to provide the
                  services set forth in the Agreement until such time as the
                  Company can find a replacement for the service, but not to
                  exceed one hundred eighty (180) days. If neither party gives
                  notice of termination within thirty (30) days, the Hospital
                  Services Agreement will continue in force and effect according
                  to its terms.

                        (F) Commencing as of the withdrawal date and continuing
                  for so long as the restrictions of Section 3.10(b) are
                  applicable to SJHS as set forth at Section 3.10(b)(ii)(H),
                  SJHS will not compete directly or indirectly with the Company,
                  in an area within a radius of fifty (50) miles of the
                  Hospital, by providing diagnosis or treatment of
                  cardiovascular disease or cardiothoracic and cardiovascular
                  surgery services or facilities (as an owner, manager or
                  otherwise), it being acknowledged that both SJHS and the
                  Company may provide non-coronary vascular surgery procedures
                  (excluding in all events in the case of SJHS, cardiovascular
                  surgery procedures, except upon prior written approval
                  pursuant to Section 11.10(b)(i)(F)(4) of this Agreement)
                  except

                              (1) SJHS may continue to provide diagnostic
                        cardiac catheterization and such cardiac services as are
                        necessary to stabilize the medical condition of its
                        patients in preparation for transfer to another facility
                        for treatment of the cardiovascular disease or providing
                        cardiothoracic or vascular surgery;

                              (2) To the extent that SJHS seeks to obtain the
                        services of the Hospital to enable SJHS to fulfill
                        obligations under managed care agreements, Company shall
                        sell those services to SJHS at a price and upon terms
                        which are no less favorable than it provides to any
                        other substantially similar managed care provider; and

                              (3) Company shall not provide acute care hospital
                        services except as needed by a cardiology, vascular or
                        cardiovascular patient of the heart hospital or as
                        necessary to stabilize a patient in preparation for
                        transfer to another facility for treatment of that
                        condition.

                              (4) Whenever due to lack of capacity at the
                        Hospital an attending physician desires to admit a
                        patient to SJHS, SJHS may provide diagnosis or treatment
                        of cardiovascular disease or cardiothoracic and
                        cardiovascular surgery services or facilities upon prior
                        written approval of the President of the Company.


                                       35
<PAGE>
                              The parties agree that the terms of this
                        subsection (F) are fair and reasonable in light of the
                        important interests of each party hereto.

                        (G) Except as provided herein or in the Agreement for
                  Land Purchase, SJHS shall be released from any further
                  obligation to the Company, SWCA, LLC, NMHI, LLC or NMHM.

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

      SECTION 11.11     INVESTMENT REPRESENTATIONS OF THE MEMBERS.

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

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


                                       36
<PAGE>
      Company to any Person unless and until the provisions of this Agreement
      hereof have been fully satisfied.

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

      SECTION 11.12     EXHIBITS.

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

      EXHIBIT A:   Articles of Organization.
      EXHIBIT B:   Information Exhibit.
      EXHIBIT C:   Glossary of Terms.
      EXHIBIT D:   Development Budget Exhibit.
      EXHIBIT E:   Regulatory Allocations.

      IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
following execution page(s), to be effective as of the Effective Date.


                                       37
<PAGE>
                                 EXECUTION PAGE
                                     TO THE
                              AMENDED AND RESTATED
                               OPERATING AGREEMENT
                                       OF
                        HEART HOSPITAL OF NEW MEXICO, LLC
                     A NEW MEXICO LIMITED LIABILITY COMPANY


                                   NMHI, LLC
                                   a New Mexico limited liability company


                                   By: /s/ William M. Deane, M.D.
                                       -----------------------------------------
                                       William M. Deane, M.D.
                                       Manager


                                   SWCA, LLC
                                   a New Mexico limited liability company


                                   By: /s/ Harvey J. White, Jr., M.D.
                                       -----------------------------------------
                                       Harvey J. White, Jr., M.D.
                                       President


                                   ST. JOSEPH HEALTHCARE SYSTEM,
                                   a New Mexico nonprofit corporation


                                   By: /s/ Steven Smith
                                       -----------------------------------------
                                         Steven Smith
                                         President


                                   NM Hospital Management, Inc.
                                   a North Carolina corporation


                                   By: /s/ Doug McMinn
                                       -----------------------------------------
                                   Title: Vice President
<PAGE>
                                                                       EXHIBIT A

                              STATE OF NEW MEXICO

              [SEAL OF STATE CORPORATION COMMISSION OF NEW MEXICO]

                                   OFFICE OF

                        THE STATE CORPORATION COMMISSION

                          CERTIFICATE OF ORGANIZATION

                                       OF

                       HEART HOSPITAL OF NEW MEXICO, LLC

                                    1914902

     The State Corporation Commission certifies that the Articles of
Organization, duly signed and verified pursuant to the provisions of the
                         LIMITED LIABILITY COMPANY ACT
                        (53-19-1 TO 53-19-74 NMSA 1978)
have been received by it and are found to conform to law.

     Accordingly, by virtue of the authority vested in it by law, the State
Corporation Commission issued this Certificate of Organization and attaches
hereto a duplicate of the Articles of Organization.

Dated: FEBRUARY 18, 1998

                                  In Testimony Whereof, the State Corporation
[SEAL]                            Commission of the State of New Mexico has
                                  caused this certificate to be signed by its
                                  Chairman and the Seal of said Commission to be
                                  affixed at the City of Santa Fe

                                  /s/ [???]
                                  ----------------------------------------------
                                                                        Chairman


                                  /s/ [???]
                                  ----------------------------------------------
                                                                        Director
<PAGE>
                            ARTICLES OF ORGANIZATION
                                       OF
                        HEART HOSPITAL OF NEW MEXICO, LLC

                                        I
                                 NAME OF COMPANY

The name of the limited liability company is HEART HOSPITAL OF NEW MEXICO, LLC,
(the "Company").

                                       II
                           REGISTERED AGENT AND OFFICE

The name of the registered agent and the street address of the registered office
of the company are:

                                D. James Sorenson
                                500 Marquette, NW
                                   Suite 1200
                              Albuquerque, NM 87102

The street address of the Company's current principal place of business is the
same as the street address of its registered office.

                                       III
                               PERIOD OF DURATION

The latest date upon which the Company is to dissolve is December 31, 2097.

                                       IV
                                   MANAGEMENT

The property, business and affairs of the Company shall be managed by a class of
managers (which are referred to as "Directors" for convenience, but Directors as
used herein and in the Operating Agreement shall have the same meaning as the
term "managers" used in the Limited Liability Company Act, Sections 53-19-1, et
seq., N.M.S.A. 1978, as amended). Individual members of the Company, other than
the Directors, shall have no management control of the Company.

                                        V
                   INDEMNIFICATION OF MEMBERS AND DIRECTORS

The Company shall indemnify a Member or Director for judgments, settlements,
penalties, fines or expenses incurred in a proceeding to which a person is a
party because he or she is or was a Member or Director and for advancement of
expenses, including costs of defense, prior to final disposition of such
proceeding. However, nothing herein shall require the Company to indemnify a
Member or Director if a judgment or other final adjudication adverse to the
Member or Director establishes that such Member's or Director's acts or
omissions were in bad faith or involved intentional misconduct or a knowing
violation of law or that such Member or
<PAGE>
Director personally gained, in fact, a financial profit or advantage to which
such Member or Director was not legally entitled.

      IN WITNESS WHEREOF, I have executed these Articles this 18th day of
February, 1998.


                                          /s/ D. James Sorenson
                                          --------------------------------------
                                          Organizer
<PAGE>
                          AFFIDAVIT OF REGISTERED AGENT

COUNTY OF BERNALILLO
                                       ss.
STATE OF NEW MEXICO

      I, D. James Sorenson, having being duly sworn, under oath, state that I am
a resident of the State of New Mexico and, having been appointed as initial
registered agent of HEART HOSPITAL OF NEW MEXICO, LLC hereby accept the
appointment as such registered agent.



                                          /s/ D. James Sorenson
                                          --------------------------------------
                                          D. James Sorenson



      Signed and sworn to before me on February 17, 1998 by D. James Sorenson.


                                          /s/ Carol Ann Muggaberg
                                          --------------------------------------
                                          Notary Public


                                          My Commission expires:
                                          November 27, 2000
                                          --------------------------------------
<PAGE>
                                    EXHIBIT B
                                     TO THE
                              AMENDED AND RESTATED
                               OPERATING AGREEMENT
                                       OF
                        HEART HOSPITAL OF NEW MEXICO, LLC
                    A NEW MEXICO LIMITED LIABILITY COMPANY


                               INFORMATION EXHIBIT




<TABLE>
<CAPTION>
                                    INITIAL                        PERCENTAGE
                                    PERCENTAGE     INITIAL         MEMBERSHIP
                                    MEMBERSHIP     CAPITAL         INTEREST AS OF
    NAME & ADDRESS                  INTEREST       CONTRIBUTION    EFFECTIVE DATE
    --------------                  --------       ------------    --------------


<S>                                 <C>            <C>             <C>
    SWCA, LLC                       15%            $600,000.00     10%
    c/o President
    1101 Medical Arts Avenue NW,
    Bldg. 5
    Albuquerque, NM 87106

    NMHI, LLC                       26%            $1,040,000.00   18%
    c/o President
    201 Cedar SE, Suite 707
    Albuquerque, NM 87106

    St. Joseph Healthcare System    35%            $1,400,000.00   3%
    601 Dr. Martin Luther King
    Jr., NE
    Albuquerque, NM 87102

    NM Hospital Management, Inc.    24%            $ 960,000.00    69%
    10720 Sikes Place, Suite 300
    Charlotte, NC 28277
</TABLE>
<PAGE>
                                    EXHIBIT C
                                     TO THE
                              AMENDED AND RESTATED
                               OPERATING AGREEMENT
                                       OF
                        HEART HOSPITAL OF NEW MEXICO, LLC
                    A NEW MEXICO LIMITED LIABILITY COMPANY


                                GLOSSARY OF TERMS


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

      "Act" means the New Mexico Limited Liability Company Act, set forth at
"53-19-1, et seq. N.M.S.A. (1993 Rep. Pamp.), as amended or any corresponding
provisions of succeeding law.

      "Adjusted Capital Account" means, with respect to any Member, such
Person's Capital Account (as defined below) as of the end of the relevant Fiscal
Year increased by any amounts which such Person is obligated to restore, or is
deemed to be obligated to restore pursuant to the penultimate sentences of
Regulations Section 1.704-2(g)(1) (share of minimum gain) and Regulations
Section 1.704-2(i)(5) (share of member nonrecourse debt minimum gain) and
decreased by the items described in Regulations Section
1.704-1(b)(2)(ii)(d)(-4), (5) and (,6).

      "Affiliate" means (i) with respect to a person--the spouse and a child or
children of such person; (ii) with respect to a business corporation or limited
liability company--any officer, director, trustee, partner, manager, employee,
holder of ten percent (10%) or more of any class of the outstanding voting
securities or of an equity interest of such corporation or limited liability
corporation, or holder of ten percent (10%) or more of the outstanding voting
securities or of an equity interest of any Entity, controlling, controlled by,
or under common control with such corporation or limited liability company and
(iii) with respect to a nonprofit corporation--any member, director, officer,
employee or wholly-owned subsidiary corporation, but it shall not include either
Catholic Healthcare Initiatives ("CHI"), CHI--Mountain Region or Centura Health
with regard to their operations outside of the State of New Mexico; and (iv)
each of the direct and indirect owners of NMHI, LLC and SWCA, LLC.

      "Agreed Value" means with respect to any noncash asset of the Company an
amount determined and adjusted in accordance with the following provisions:

            (a) The initial Agreed Value of any noncash asset contributed to the
      capital of the Company by any Member shall be its gross fair market value,
      as agreed to by the contributing Member and the Company.
<PAGE>
            (b) The initial Agreed Value of any noncash asset acquired by the
      Company other than by contribution by a Member shall be its adjusted basis
      for federal income tax purposes.

            (c) The initial Agreed Values of all the Company's noncash assets,
      regardless of how those assets were acquired, shall be reduced by
      depreciation or amortization, as the case may be, determined in accordance
      with the rules set forth in Regulations Section 1.704-1(b)(2)(iv)(f) and
      (g).

            (d) The Agreed Values, as reduced by depreciation or amortization,
      of all noncash assets of the Company, regardless of how those assets were
      acquired, shall be adjusted from time to time to equal their gross fair
      market values, as agreed to unanimously by the Members in writing, as of
      the following times:

                  (i) the acquisition of a Membership Interest or an additional
            Membership Interest in the Company by any new or existing Member in
            exchange for more than a de minimis Capital Contribution;

                  (ii) the distribution by the Company of more than a de minimis
            amount of money or other property as consideration for all or part
            of a Membership Interest in the Company; and

                  (iii) the termination of the Company for federal income tax
            purposes pursuant to Code Section 708(b)(1)(B).

            If, upon the occurrence of one of the events described in (i), (ii)
      or (iii) above the Members do not agree unanimously in writing on the
      gross fair market values of the Company's assets, it shall be deemed that
      the fair market values of all the Company's assets equal their respective
      Agreed Values immediately prior to the occurrence of the event and thus no
      adjustment to those values shall be made as a result of such event.

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

      "Articles of Organization" means the Articles of Organization of the
Company, as filed with the New Mexico State Corporation Commission as the same
may be amended from time to time.

      "Board of Directors," "Director" or "Directors" means those persons
appointed by the Members, pursuant to Section 3.11 of the Agreement, and given
the power and authority under Article IV of the Agreement to manage the Company.
The terms "Director" or "Directors" is used for convenience, but is intended to
have the same meaning as the terms "Manager" or "Managers" in the Act.

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


                                       2
<PAGE>
            (a) Each Person's Capital Account shall be increased by Person's
      Capital Contributions, such Person's distributive share of Profits, any
      items in the nature of income or gain that are allocated pursuant to the
      Regulatory Allocations and the amount of any Company liabilities that are
      assumed by such Person or that are secured by Company property distributed
      to such Person.

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

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

            In the event the Agreed Values of the Company assets are adjusted
      pursuant to the definition of Agreed Value contained in this Agreement,
      the Capital Accounts of all Members shall be adjusted simultaneously to
      reflect the aggregate adjustments as if the Company recognized gain or
      loss equal to the amount of such aggregate adjustment.

            The foregoing provisions and the other provisions of this Agreement
      relating to the maintenance of Capital Accounts are intended to comply
      with Regulations Section 1.704-1(b), and shall be interpreted and applied
      in a manner consistent with such regulations. In the event the Board of
      Directors shall determine that it is prudent to modify the manner in which
      the Capital Accounts, or any debits or credits thereto, are computed to
      comply with such Regulation. the Board of Directors may make such
      modification, provided that it is not likely to have a material effect on
      the amounts distributable to any Member pursuant to Articles V or VI
      hereof upon the dissolution of the Company. In the event the Board of
      Directors shall determine such adjustments are necessary or appropriate to
      comply with Regulations Section 1.704-1(b)(2)(iv), the Board of Directors
      shall adjust the amounts debited or credited to Capital Accounts with
      respect to (i) any property contributed by the Members or distributed to
      the Members and (ii) any liabilities secured by such contributed or
      distributed property or assumed by the Members. The Board of Directors
      shall also make any other appropriate modifications in the event
      unanticipated events might otherwise cause this Agreement not to comply
      with Regulations Section 1.704-1(b). In the event any Membership Interest
      in the Company is transferred in accordance with the terms of this
      Agreement, the transferee shall succeed to the Capital Account of the
      transferor to the extent it relates to the transferred Membership
      Interest.

      "Capital Contribution" means with respect to any Member, the amount of
money and the initial Agreed Value of any property (other than money)
contributed to the Company with respect to the Membership Interest of such
Member.


                                       3
<PAGE>
      "Cash Distribution" means net cash distributed to Members resulting from
Cash Flow from Operations or Cash from Sales or Refinancing.

      "Cash Flow from Operations" means net cash funds provided from operations,
exclusive of Cash from Sales or Refinancing, of the Company or investment of any
Company funds, without deduction for depreciation, but after deducting cash
funds used to pay or establish a reserve for expenses, debt payments, capital
improvements, and replacements and for such other items as the Board of
Directors reasonably determines to be necessary or appropriate.

      "Cash from Sales or Refinancing" means the net cash proceeds received by
the Company from or as a result of any Sale or Refinancing of property after
deducting (i) all expenses incurred in connection therewith, (ii) any amounts
applied by the Board of Directors in their sole and absolute discretion toward
the payment of any indebtedness and other obligations of the Company then due
and payable, including payments of principal and interest on mortgages, (iii)
the payment of any other expenses or amounts owed by the Company to other
parties to the extent then due and payable, and (iv) the establishment of any
reserves deemed necessary by the Board of Directors in their sole and absolute
discretion. If the proceeds of any sale or refinancing are paid in more than one
installment, each such installment shall be treated as a separate Sale or
Refinancing for the purposes of this definition.

      "Code" means the Internal Revenue Code of 1986, as amended from time to
time. Any reference herein to a specific section(s) of the Code shall be deemed
to include a reference to any corresponding provision of future law.

      "Company" means and shall refer to Heart Hospital of New Mexico, LLC,
which was created upon the filing of the Articles of Organization with the New
Mexico State Corporation Commission to be operated under the name Heart Hospital
of New Mexico, LLC, a New Mexico limited liability company, and to continue
under this Agreement, as amended from time to time.

      "Default Rate" means a per annum rate of onium on a specified principal
sum, compounded monthly, equal to the greater of (a) the Prime Rate plus 500
basis points, or (b) 18%, but in no event greater than the highest rate allowed
by law.

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

      "Economic Interest Owner" means a Person who has validly acquired a
Member's Economic Interest as permitted under this Agreement but who has not
become a Member. Such Person shall be entitled to the allocations of Profits and
Losses and Cash Distributions under Article V and VI to which the previous owner
of the Economic Interest would have been entitled had such previous owner
retained the Economic Interest. Unless and until such Economic Interest Holder
is admitted as a Substitute Member, it shall be a mere assignee of a Member.


                                       4
<PAGE>
      "Effective Date" means the date this Amended and Restated Operating
Agreement becomes effective which shall be October 1, 2001.

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

      "Equipment" means the appropriate equipment and supplies required from
time to time in connection with the development and operation of the Hospital.

      "Fiscal Year" means, with respect to the first year of the Company, the
Period beginning upon the formation of the Company and ending on the next
September 30, with respect to subsequent years of the Company, the twelve month
period beginning October 1 and ending September 30, and, with respect to the
last year of the Company, the portion of the period beginning October 1 and
ending with the date of the final liquidating distributions.

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

      "Management Services Agreement" means that certain agreement for
management services between the Company and NMHM, as may be amended from time to
time.

      "Manager" means and shall refer to those persons designated by the Board
of Directors to oversee the operation of the Company in accordance with the
terms of the Management Services Agreement.

      "Material Agreement" means any binding agreement which may not be canceled
upon less than ninety (90) days notice and which calls for the expenditure of
funds, or involves an obligation for financing, in excess of $100,000.00
exclusive of agreements or obligations contemplated by any budget, development
plan, financing or construction contract approved by the Board of Directors or
agreements incurred in the ordinary course of business such as employment
agreements, purchases of supplies and routine services and the like.

      "Material Decision" means any decisions regarding approvals of the
development and operating budgets for the Hospital, the selection of the site
for the Hospital, the design of the Hospital, the selection of the Hospital's
senior administrator, strategic planning, the execution of managed care
contracts, the execution of exclusive contracts to provide physician services to
the Hospital and any request for additional funding pursuant to Section 3.7(b)
of this Agreement.

      "Member" means and shall refer to the organizers of the Company (unless or
until any such organizer has withdrawn) and each of the Persons identified as
"Members" in the then applying Information Exhibit attached hereto and
incorporated herein by this reference. If a Person is already a Member
immediately prior to the purchase or other acquisition by such Person of an
Economic Interest or Membership Interest, such Person shall have all the rights
of a


                                       5
<PAGE>
Member with respect to such purchased or otherwise acquired Membership Interest
or Economic Interest, as the case may be.

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

      "Membership Purchase Agreement" shall mean that certain Membership
Purchase Agreement among Members of the Company pursuant to which SJHS, NMHI,
LLC and SWCA, LLC agree to sell a portion of their Membership Interests in the
Company to NMHM.

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

      "Prime Rate" means the rate of interest as of the relevant day or time
period in the Wall Street Journal from time to time as the prime or reference
rate.

      "Profits and Losses" means, for each Fiscal Year or other period, an
amount equal to the Company's taxable income or loss for such year or period,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss, or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:

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

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

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

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


                                       6
<PAGE>
      "Regulations" means rules, orders, and regulations issued pursuant to or
under the authority of the Code and shall include revisions to and succeeding
provisions as appropriate.

      "Regulatory Allocations" means those allocations of items of Company
income, gain, loss or deduction set forth on the Regulatory Allocations Exhibit
and designed to enable the Company to comply with the alternate test for
economic effect prescribed in Regulations Section 1.704-1(b)(2)(ii)(d), and the
safe-harbor rules for allocations attributable to nonrecourse liabilities
prescribed in Regulations Section 1.704-2.

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

      "SJHS" means St. Joseph Healthcare System.

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

      "Territory" means the State of New Mexico and an area extending one
hundred (100) miles beyond the border of the State of New Mexico.


                                       7
<PAGE>
                                    EXHIBIT D
                                     TO THE
                              AMENDED AND RESTATED
                               OPERATING AGREEMENT
                                       OF
                        HEART HOSPITAL OF NEW MEXICO, LLC
                    A NEW MEXICO LIMITED LIABILITY COMPANY

                           DEVELOPMENT BUDGET EXHIBIT


                               [SEE ATTACHMENT]
<PAGE>
                            SUMMARY OF CAPITAL COSTS
                            NEW MEXICO HEART HOSPITAL
                             Albuquerque, New Mexico


<TABLE>
<CAPTION>
FACILITY SIZE
  Total Beds                                                              60 beds
  Total Square Feet                                                       90,000

                                                            Total             Depreciation &             Interest
CAPITAL EXPENSES                                            Amount             Amortization              Expense
                           $19,276,350                                    ----------------------------------------------
                                                                            Term        Amount       Rate      Amount
<S>                       <C>           <C>                <C>            <C>         <C>            <C>      <C>
Property:
  Building Construction                    $190/sqft       $17,100,000    40 years    $  427,500
  Land                     10.00 acres                     $ 2,500,000     0 years    $        0
  Architectural Fees      6% of constr.                    $ 1,000,350    40 years    $   25,009
  Interest During Constr.   8 months       @ 9.0%          $ 1,176,000    40 years    $   29,400
                                                           -----------
    Total Property                                         $21,776,350                               11.0%    $2,395,399

Equipment:                  Capacity:
                          -------------
  Cath Labs                1000/lab/yr     4 lab(s)        $ 4,798,400
  Operating Rooms           400/OR/yr      3 OF(s)         $ 1,038,000
  Angiography Suite                                        $   605,000
  CVRU/Recovery                                            $   258,000
  Radiology & Laboratory                                   $ 1,480,000
  Patient Care                                             $ 1,273,573
  Other Departments                                        $ 2,569,518
  Add'l Equipment                                          $ 2,175,000
  Add'l MIS Equipment                                      $   750,000
                                                           -----------
    Total Equipment                                        $14,947,491     7 years    $2,135,356     10.0%    $1,494,749

Startup Costs:
  Loan Acquisition Costs:
    Loan Commitment Fees                2% of loan amt.    $   435,527     7 years    $   62,218     11.0%    $   47,908
    Legal Fees                                             $    40,000     5 years    $    8,000     11.0%    $    4,400
                                                           -----------
                                                           $   475,527

Pre-Opening Costs:                                         $2,500,000      2 years    $1,250,000     10.0%    $  250,000

                                                           ----------                 ----------              ----------
TOTALS                                                     $39,699,368                $3,937,483              $4,192,456
</TABLE>
<PAGE>
                                    EXHIBIT E
                                     TO THE
                              AMENDED AND RESTATED
                               OPERATING AGREEMENT
                                       OF
                        HEART HOSPITAL OF NEW MEXICO, LLC
                    A NEW MEXICO LIMITED LIABILITY COMPANY


                             REGULATORY ALLOCATIONS


      This Exhibit contains special rules for the allocation of items of Company
income, gain, loss and deduction that override the basic allocations of Profits
and Losses in the Agreement only to the extent necessary to cause the overall
allocations of items of Company income, gain, loss and deduction to have
substantial economic effect pursuant to Regulations Section 1.704-1(b) and shall
be interpreted in light of that purpose. Subsection (a) below contains special
technical definitions. Subsections (b) through (h) contain the Regulatory
Allocations themselves. Subsections (i), (j) and (k) are special rules
applicable in applying the Regulatory Allocations.

            (a)   Definitions Applicable to Regulatory Allocations.  For
      purposes of the Agreement, the following terms shall have the meanings
      indicated:

                  (i) "Company Minimum Gain" means the same as the meaning of
            "partnership minimum gain" set forth in Regulations Section
            1.704-2(d), and is generally the aggregate gain the Company would
            realize if it disposed of its property subject to Nonrecourse
            Liabilities in full satisfaction of each such liability, with such
            other modifications as provided in Regulations Section 1.704-2(d).
            In the case of Nonrecourse Liabilities for which the creditor's
            recourse is not limited to particular assets of the Company, until
            such time as there is regulatory guidance on the determination of
            minimum gain with respect to such liabilities, all such liabilities
            of the Company shall be treated as a single liability and allocated
            to the Company's assets using any reasonable basis selected by the
            Board of Directors.

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

                  (iii) "Member Nonrecourse Debt" means any Company liability
            with respect to which one or more but not all of the Members or
            related Persons to one or more but not all of the Members bears the
            economic risk of loss within the meaning of Regulations Section
            1.752-2 as a guarantor, lender or otherwise.
<PAGE>
                  (iv) "Member Nonrecourse Debt Minimum Gain" means the minimum
            gain attributable to Member Nonrecourse Debt as determined pursuant
            to Regulations Section 1.704-2(i)(3). In the case of Member
            Nonrecourse Debt for which the creditor's recourse against the
            Company is not limited to particular assets of the Company, until
            such time as there is regulatory guidance on the determination of
            minimum gain with respect to such liabilities, all such liabilities
            of the Company shall be treated as a single liability and allocated
            to the Company's assets using any reasonable basis selected by the
            Board of Directors.

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

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

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

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

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

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


                                       2
<PAGE>
      Minimum Gain set forth above. This provision is intended to comply with
      the minimum gain chargeback requirement in Regulations Section 1.704-2(f)
      and shall be interpreted consistently therewith.

            (e) Member Nonrecourse Debt Minimum Gain Chargeback. If there is a
      net decrease in Member Nonrecourse Debt Minimum Gain attributable to a
      Member Nonrecourse Debt for any Fiscal Year, each Member who has a share
      of the Member Nonrecourse Debt Minimum Gain attributable to such Member
      Nonrecourse Debt as of the beginning of the Fiscal Year, determined in
      accordance with Regulations Section 1.704-2(i)(5), shall be allocated
      items of Company income and gain for such year (and, if necessary,
      subsequent years) in an amount equal to such Member's share of the net
      decrease in Member Nonrecourse Debt Minimum Gain attributable to such
      Member Nonrecourse Debt, determined in accordance with Regulations
      Sections 1.704-2(i)(4) and (5) and the definition of Member Nonrecourse
      Debt Minimum Gain set forth above. This Paragraph is intended to comply
      with the member nonrecourse debt minimum gain chargeback requirement in
      Regulations Section 1.7()4-2(i)(4) and shall be interpreted consistently
      therewith.

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

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

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

            (i) Ordering. The allocations in this Exhibit to the extent they
      apply shall be made before the allocations of Profits and Losses under
      Article VI and in the order in which they appear above.

            (j) Waiver of Minimum Gain Chargeback Provisions. If the Board of
      Directors determine that (i) either of the two minimum gain chargeback
      provisions contained in this Exhibit would cause a distortion in the
      economic arrangement among the Members, (ii) it is not expected that the
      Company will have sufficient other items of income and gain to correct
      that distortion, and (iii) the Members have made Capital Contributions or
      received net income allocations that have restored any previous


                                       3
<PAGE>
      Nonrecourse Deductions or Member Nonrecourse Deductions, then the Board of
      Directors shall have the authority, but not the obligation, after giving
      notice to the Members, to request on behalf of the Company the Internal
      Revenue Service to waive the minimum gain chargeback or member nonrecourse
      debt minimum gain chargeback requirements pursuant to Regulations Sections
      1.704-2(f)(4) and 1.704-2(i)(4). The Company shall pay the expenses
      (including attorneys' fees) incurred to apply for the waiver. The Board of
      Directors shall promptly copy all Members on all correspondence to and
      from the Internal Revenue Service concerning the requested waiver.

            (k) Code Section 754 Adjustments. To the extent an adjustment to the
      adjusted tax basis of any Company asset pursuant to Code Section 734(b) or
      Code Section 743(b) is required, pursuant to Regulations Section
      1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital
      Accounts, the amount of such adjustment to the Capital Accounts shall be
      treated as an item of gain (if the adjustment increases the basis of the
      asset) or loss (if the adjustment decreases such basis), and such gain or
      loss shall be specially allocated to the Members in a manner consistent
      with the manner in which their Capital Accounts are required to be
      adjusted pursuant to such Section of the Regulations.

      [THE REMAINDER OF THIS PAGE INTENTIONALLY HAS BEEN LEFT BLANK.]


                                       4



</TEXT>
</DOCUMENT>
