MEDCATH CORP
MANAGEMENT SERVICES AGREEMENT FOR HEART HOSPITAL
<DOCUMENT>
<TYPE>EX-10.10
<SEQUENCE>12
<FILENAME>g76305ex10-10.txt
<DESCRIPTION>MANAGEMENT SERVICES AGREEMENT FOR HEART HOSPITAL
<TEXT>
<PAGE>

                                                                  EXHIBIT 10.10

                         MANAGEMENT SERVICES AGREEMENT

         This Agreement is entered into as of the 5th day of September , 2001,
by and between LAFAYETTE HEART HOSPITAL, LLC, a Delaware limited liability
company (the "Owner") and LAFAYETTE HOSPITAL MANAGEMENT, INC., a North Carolina
corporation ("LHMI"), both parties hereinafter collectively referred to as the
"Parties."

                                   RECITALS:

         WHEREAS, Owner desires to obtain the Contract Management Services
(defined below) of LHMI to manage its hospital specializing in the diagnosis
and treatment of cardiovascular disease and cardiovascular and vascular surgery
in the greater Lafayette, Louisiana area (the "Hospital");

         WHEREAS, affiliates of LHMI, including LHMI's sole shareholder MedCath
Incorporated ("MedCath"), have a substantial amount of experience and expertise
in developing and operating hospitals similar to the Hospital as a result of
their development and operations of heart hospitals throughout the United
States;

         WHEREAS, Owner and LHMI mutually desire that such Contract Management
Services be made available to Owner.

         NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the Parties agree as follows:

                                       I

                                  DEFINITIONS

1.1      ACT.

         The term "Act" shall mean the Delaware Limited Liability Company Act,
as in effect in Delaware and set forth at 6 Del. C.ss.18-101 through 18-1109
(or any corresponding provisions of succeeding law).

1.2      AGREEMENT.

         The term "Agreement" shall mean this Management Services Agreement and
any amendment thereto as may be from time to time adopted in writing as
hereinafter provided.

1.3      AT OWNER'S EXPENSE.

         The term "At Owner's Expense" shall mean an expense incurred by LHMI
on behalf of Owner either pursuant to an approved budget or as otherwise
authorized herein.


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1.4      BOARD OF DIRECTORS.

         The term "Board of Directors" means and shall refer to the Board of
Directors designated pursuant to the Operating Agreement of Owner (the
"Operating Agreement").

1.5      CONTRACT MANAGEMENT SERVICES.

         The term "Contract Management Services" shall mean the services which
are authorized to be furnished by LHMI under this Agreement. The term "Contract
Management Services" shall not mean or be construed to include physician
services. It is hereby acknowledged that Contract Management Services shall be
provided to Owner hereunder by LHMI and its Affiliates (such terms and other
capitalized terms not defined herein shall have the same meaning as set forth
in the Operating Agreement).

1.6      EQUIPMENT.

         The term "Equipment" shall mean the appropriate equipment and supplies
acquired in connection with the development and operation of the Hospital.

1.7      GAAP.

         The term "GAAP" or "Generally Accepted Accounting Principles" shall
mean the accounting and financial reporting principles as promulgated from time
to time by the American Institute of Certified Public Accountants and the
Financial Accounting Standards Board.

1.8      HOSPITAL POLICIES.

         The term "Hospital Policies" shall mean and include the Operating
Agreement, the written policies of Owner and other reasonable policies and
procedures of the Hospital, all as are from time to time adopted, revised,
authorized or approved by the Board of Directors and communicated in writing by
Owner to LHMI.

1.9      MEDCATH.

         The term "MedCath" shall mean MedCath Incorporated, the sole
shareholder of LHMI.

1.10     MEMBER.

         The term "Member" shall mean any member of Lafayette Heart Hospital,
LLC, a Delaware limited liability company.

1.11     OWNER.

         The term "Owner" shall mean Lafayette Heart Hospital, LLC, a Delaware
limited liability company.


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1.12     PERSONNEL.

         The term "Personnel" shall mean all persons (including supervisors,
nurses, technicians, support personnel and other individuals) hired pursuant to
this Agreement by LHMI as employees of Owner to furnish services to Owner, each
of which persons must hold such currently valid licenses, certifications and/or
registrations as may be required by local, State or federal laws or authorities
(including the Medicare and Medicaid programs) for the operation of the
Hospital. Except as provided herein, all Personnel shall be on the payroll of
Hospital and Hospital shall bear all salary and employee benefits expenses for
such personnel. The term "Employee Benefits" shall include (as applicable) the
employer's contribution to F.I.C.A., unemployment compensation and other
employment taxes, all bonuses, pension or profit sharing plan contributions,
worker's compensation, group life, accident and health insurance premiums,
disability and other benefits when applicable.

1.13     STATE.

         The term "State" shall mean the State of Louisiana.

1.14     TERM.

         The term "Term" shall mean the contract period provided for under this
Agreement.

                                       II

                           APPOINTMENT AND AUTHORITY

2.1      APPOINTMENT OF LHMI.

         Owner hereby retains LHMI and LHMI hereby accepts such retention to
provide Contract Management Services.

2.2      AUTHORITY OF LHMI.

         The Board of Directors hereby delegates to LHMI the authority to
manage the Hospital as set forth below, subject, however, in all cases to: (i)
the authority and approval of the Board of Directors as set forth in the
Operating Agreement, which provides that the Board of Directors shall be
responsible for making all Material Decisions and approving all Material
Agreements (as defined in the Operating Agreement); (ii) such policies and
procedures as may be adopted by the Board of Directors from time to time; and
(iii) such power and authority expressly required to be retained by the Board
of Directors or Owner pursuant to applicable law, including, without
limitation, requirements of licenses, conditions of participation in third
party payor programs, and certification and accreditation standards.

         Subject to the terms and conditions of this Agreement, LHMI shall have
the exclusive right and commensurate authority, express or implied, to provide
Contract Management Services to Owner, which shall also include, subject to the
terms and conditions of this Agreement and the


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Operating Agreement, all services and actions which LHMI determines to be
reasonably necessary or appropriate for the development and operation of the
Hospital. The Parties acknowledge and agree that individual physicians who
treat patients at the Hospital (the "Physicians"), shall have complete freedom
and control over the provision of all professional medical services and the
charges for their services, subject only to the Medical Staff Bylaws and Rules
and Regulations of the Hospital. The Parties expressly agree and acknowledge
that: (i) performance of this Agreement shall not require or permit LHMI to
become engaged in the practice of medicine, nursing or other medical services
whatsoever; (ii) this Agreement shall not interfere with or inhibit the private
physician-patient relationship between the Physicians and their patients; and
(iii) this Agreement shall not require nor permit any illegal or unethical
division of Physicians' fees.

         Subject in all cases to the foregoing and to the other terms and
conditions of this Agreement, LHMI shall have the right and the power, if, as,
and when it, from time to time, deems necessary or appropriate on behalf of
Owner and the Hospital:

                  (a)      To negotiate and execute on behalf of Owner all
         documents, instruments and agreements reasonably necessary or
         appropriate to lease or acquire for fair market value, as approved by
         both Members, the real property on which the Hospital will be located,
         and to borrow funds to finance such acquisition and/or construction
         (it being acknowledged that the Hospital will consist of a newly
         constructed building);

                  (b)      To prepare a budget for the development of the
         Hospital and thereafter, annual operating budgets;

                  (c)      To acquire in the name of Owner the Equipment, as
         approved by the Board of Directors or as further described at Section
         3.4 below, and enter into loans or other financing arrangements
         therefor;

                  (d)      To handle the negotiation and execution of all such
         other agreements regarding the purchase of goods or services for the
         Hospital;

                  (e)      To establish procedures for quality assurance, peer
         review and granting privileges to physicians with other specialties at
         the Hospital, subject to the terms of the Hospital and Medical Staff
         Bylaws approved by the Board of Directors and adopted for the
         Hospital;

                  (f)      To expend all or portions of Owner's capital and
         income in furtherance of or relating to Owner's business and purposes
         in accordance with the budget established for the Hospital and other
         reasonable cash management guidelines reasonably established by the
         Board of Directors in accordance with the terms of the Operating
         Agreement, including, but not limited to, payment of all ongoing
         operational expenses, payment of commissions, organization expenses,
         professional fees, rental fees, and operating and licensing fees and
         development fees, and to invest in short-term debt obligations
         (including, but not limited to, obligations of federal and State
         governments and their agencies, commercial paper, and certificates of
         deposit of commercial banks, or savings


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         banks or savings and loan associations) such of Owner's funds as are
         temporarily not required for the development or operation of the
         Hospital and the payment of Owner obligations;

                  (g)      To employ or retain on such terms and for such
         compensation as LHMI may reasonably determine, such persons, firms, or
         corporations as LHMI may deem advisable, including without limitation
         qualified medical and other employees necessary or appropriate to
         operate the Hospital, attorneys, accountants, financial and technical
         consultants, supervisory managing agents, insurance brokers, brokers
         and loan brokers, appraisers, architects and engineers, who may also
         provide such services to LHMI, provided that the selection of the
         President shall be a Material Decision (as defined in the Operating
         Agreement) to be made by the Board of Directors;

                  (h)      To execute leases, deeds, contracts, rental
         agreements, construction contracts, sales agreements, and management
         contracts;

                  (i)      To exercise all rights, powers, and privileges of
         Owner as lessee with respect to the Hospital or rights held by Owner;

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

                  (k)      To execute in furtherance of any or all of the
         purposes of Owner, any deed, lease, deed of trust, security interest,
         mortgage, promissory note, bill of sale, assignment, contract, or
         other instrument or to encumber in whole or in part the Equipment or
         the Hospital or other real or personal property of Owner for the
         purpose and reasons approved by the Board of Directors;

                  (l)      To prepay in whole or in part, refinance, recast,
         increase, modify, or extend any security interest, deed of trust, or
         mortgage affecting the Hospital and in connection therewith to execute
         any extensions or renewals thereof on the Hospital and to grant
         security interests in any of the Equipment or the Hospital;

                  (m)      To adjust, compromise, settle, or refer to
         arbitration any claim against or in favor of Owner, and to institute,
         prosecute, and defend any actions or proceedings relating to Owner,
         its business, and properties provided, however, that LHMI will consult
         with the Board of Directors regarding such claims;

                  (n)      To acquire and enter into any contract of insurance
         which LHMI deems necessary or appropriate for the protection of Owner
         and LHMI, for the conservation of Owner or its assets, or for any
         purpose beneficial to Owner; however, neither LHMI nor its Affiliates
         shall be compensated for providing insurance brokerage services
         relating to obtaining such insurance;


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                  (o)      To prepare or cause to be prepared reports,
         statements, and other relevant information for distribution to the
         Members, including annual reports;

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

                  (q)      To cause Owner to make or revoke any of the
         elections referred to in Section 754 of the Internal Revenue Code of
         1986 as amended or any similar provisions enacted in lieu thereof;

                  (r)      To make all decisions related to generally accepted
         principles of accounting to be applied on a consistent basis and
         federal income tax elections;

                  (s)      To possess and exercise, subject to the restrictions
         contained in this Agreement, any and all of the rights, powers and
         privileges of a manager under the Act;

                  (t)      To modify or otherwise improve the Hospital, subject
         to the restrictions contained in this Agreement or in the Operating
         Agreement;

                  (u)      To manage, direct, and guide the operation of the
         Hospital, including all necessary acts relating thereto, other than
         medical or clinical matters which shall be under the direction of the
         Medical Director (as defined in the Operating Agreement) and other
         agreed upon qualified medical personnel;

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

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

                  (x)      To cause Owner to obtain and keep in force during
         the term of Owner fire and extended coverage and public liability and
         professional liability insurance with such issuers and in such amounts
         as LHMI shall deem advisable, but in amounts not less (and deductible
         amounts not greater) than those customarily maintained with respect to
         the business equipment and property comparable to Owner's;

                  (y)      To deliver to the Secretary of State of Delaware for
         filing an annual statement in accordance with the Act and make any
         similar filings required under Louisiana law;

                  (z)      To cause tax returns (income tax, sales tax, etc.)
         for Owner to be prepared, at Owner 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 (as defined in the Operating Agreement)
         shall


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         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 tax
         purposes;

                  (aa)     To open and maintain, on behalf of Owner, a bank
         account or accounts in a federally insured bank or savings institution
         approved by the Board of Directors, which approval shall not be
         unreasonably withheld or delayed, in which all monies received by or
         on behalf of Owner shall be deposited; provided, however, if Owner's
         or MedCath's lender requires that Owner use a particular bank or
         savings institution as a condition to financing provided by such
         lender, then LHMI shall open and maintain accounts in such bank or
         savings institution and shall not be required to receive the approval
         of the Board of Directors. All withdrawals from such accounts shall be
         made upon the signature of those representatives of LHMI who LHMI may
         from time to time designate (provided that LHMI provides written
         notice of the representatives so designated to the Board of
         Directors), and such other Person or Persons as LHMI may from time to
         time designate subject to the approval of the Board of Directors,
         which approval shall not be unreasonably withheld or delayed. Any
         funds of Owner which LHMI may determine are not currently required for
         the conduct of Owner'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 LHMI, subject to the approval of the Board of
         Directors, which approval shall not be unreasonably withheld or
         delayed; provided, however, if Owner's or MedCath's lender requires
         that Owner deposit funds in a particular bank or savings institution
         or invest in particular short term debt obligations as a condition to
         financing provided by such lender, then LHMI shall deposit such funds
         in such bank or savings institution or invest in such short term debt
         obligations and shall not be required to receive the approval of the
         Board of Directors;

                  (bb)     To execute, acknowledge, and deliver any and all
         documents or instruments in connection with any or all of the
         foregoing.

2.3      RESERVED POWERS OF OWNER.

         Subject to the terms of this Agreement, Owner reserves the right to
direct that LHMI operate the Hospital in accordance with: (i) the terms and
conditions of the Operating Agreement; (ii) such policies and procedures as may
be adopted by the Board of Directors from time to time; and (iii) such power
and authority required to be retained by the Board of Directors pursuant to
applicable law, including, without limitation, requirements of licenses,
condition of participation in third party payor programs, and certification and
accreditation standards. At any time during the term of this Agreement, Owner
may change its policies, subject to the terms of its Operating Agreement.


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2.4      RELIANCE ON LHMI'S AUTHORITY.

         Any party dealing with or entering into any agreement with Owner may
rely on LHMI's execution of any such agreement without further inquiry, and
such signature by LHMI shall be binding upon Owner hereunder.

                                      III

                               COVENANTS OF LHMI

         LHMI makes the following covenants with respect to this Agreement, the
performance of which shall be subject to the authority and approval of the
Board of Directors as set forth in the Operating Agreement:

3.1      DEVELOPMENT OF HOSPITAL.

         LHMI shall propose a plan for the development of the Hospital which
sets forth a timeline for the planning, construction, licensing, accreditation
and operation of the Hospital (the "Development Plan") for approval by the
Board of Directors. The Development Plan shall be consistent with the
Development Budget or other budget approved by the members or directors of the
Owner pursuant to the Operating Agreement. Once approved by the Board of
Directors, LHMI shall use commercially reasonable best efforts to cause the
Hospital to be constructed and become operational in accordance with the
Development Plan, subject to the obligation of the Hospital to approve
reasonable amendments to the Development Plan as plans for the Hospital are
finalized and changes to such plans are thereafter made by Owner.

3.2      PERFORMANCE OF CONTRACT MANAGEMENT SERVICES.

         During the term of this Agreement, LHMI shall perform necessary
Contract Management Services for the Hospital at all times and in all places as
required pursuant to this Agreement.

3.3      SELECTION, RETENTION, SUPERVISION, TRAINING AND SCHEDULING OF
PERSONNEL.

         Except as otherwise provided herein and except for certain senior
management personnel of the Hospital who shall be hired by and be employees of
MedCath and be assigned to the Hospital by MedCath, LHMI or MedCath shall hire
for Owner all Personnel who may be required for the proper operation of the
Hospital and shall have responsibility for the selection, retention,
supervision, training and termination of such Personnel. LHMI shall cause
appropriate Personnel to be scheduled and available as required to meet the
reasonable business needs of Owner in carrying out the Hospital's business.

3.4      SELECTION, PROVISION AND MAINTENANCE OF FACILITIES AND EQUIPMENT.

         LHMI shall recommend for lease or purchase by Owner such facilities
and Equipment as may be required to meet the reasonable business needs of Owner
in carrying out the Hospital's business, including appropriate maintenance
contracts. LHMI shall periodically inspect and


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evaluate, or arrange therefor, all such facilities and Equipment so that they
are being maintained in a safe and efficient manner and shall assure that all
facilities and Equipment are in good repair, ordinary wear and tear excepted.
LHMI shall also maintain a current level of knowledge with respect to new and
innovative technology in the field of the diagnosis and treatment of cardiac
disease and vascular and cardiovascular surgery and shall make recommendations
to Owner with respect thereto as appropriate.

3.5      SUPPLIES AND SUPPORT SERVICES.

         LHMI shall assure the availability of all supplies and support
services that may be reasonably required for the proper and efficient operation
of the Hospital. LHMI may purchase goods and services for Owner from Members of
Owner or their Affiliates as long as they are of substantially the same quality
and at a fair market price as could be obtained from an unrelated third party
in an arm's length transaction. It is intended that LHMI and its Affiliates
shall have the first opportunity to provide information and accounting services
to be purchased by the Hospital.

3.6      QUALITY ASSURANCE.

         LHMI shall use its commercially reasonable best efforts to assure that
the Hospital is operated in accordance with the standards established by the
Joint Commission on Accreditation of Healthcare Organizations ("JCAHO") and
shall make regular reports to the Board of Directors relative thereto. In order
to facilitate this covenant, LHMI shall prepare, update and maintain from time
to time a quality assurance plan in writing and shall submit it to Owner for
review and approval.

3.7      BUSINESS MANAGEMENT POLICIES, PROCEDURES, RECORDS AND REPORTS.

         LHMI shall arrange for the maintenance of such records and make or
arrange for the making of such reports as are reasonably necessary and
appropriate for the conduct of the Hospital. Such business records and reports
shall include those applicable to a system of transaction approvals, revenue
and statistical accounting (including revenue analysis by customer and customer
group) and accounts receivable, payrolls, purchasing and accounts payable, bank
accounts, lines of credit, cash receipts and disbursements, general ledger,
property records for plant and equipment, statistical records, budgeted
expenses by department, tax matters and other journals, ledgers and records
generally required to be kept in order to effectuate the financial record
keeping and reporting for a business of the size and complexity of the
Hospital. LHMI shall report to Owner monthly on the financial position and
results of operations of the Hospital, to include the amounts of costs and
expenses paid to LHMI and its Affiliates that are not included in the
Development Fee paid to LHMI pursuant to Section 5.2 or the Management and
Licensing Fee paid to LHMI pursuant to Section 5.3 of this Agreement. Such
interim reports shall be on an accrual basis. LHMI shall prepare or arrange for
the preparation of all tax reports and other filings and shall assure the
timely and accurate filing thereof. LHMI shall arrange for the timely
completion of annual financial audits by an independent certified public
accountant. LHMI shall use the same audit firm as used by MedCath. LHMI shall
prepare and submit to the Board of Directors for consideration and approval
annual budgets and proposed capital


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expenditures including proposed financing arrangements therefor in accordance
with the terms of the Operating Agreement. Subject to Section 3.7-1 below, in
the event exceptions to the approved budget are required, LHMI shall submit
proposals therefor to the Board of Directors.

         3.7-1    EXPENDITURE APPROVAL.

         Once a budget has been approved by the Board of Directors as set forth
in Section 3.7, LHMI shall have the authority to expend up to one hundred and
five percent (105%) of any and all funds which are included in the budget and
sign all agreements related thereto, including reimbursement to LHMI and its
Affiliates for goods and services provided to Owner. LHMI agrees to make
available for review by the Board of Directors on a monthly basis summaries of
Owner's financial information for the applicable month. LHMI shall have the
right to recast the budget by transferring all or part of the funds approved
for specific line items to another category or line item by an aggregate amount
not to exceed ten percent (10%) of the total budgeted funds. LHMI is further
authorized to make additional expenditures reasonably related to additional
revenues or increased patient or procedural volumes provided that in making
such additional expenditures the gross margin between the Company's net patient
revenues and operating expenses remains the same or greater than the gross
margin between net patient revenues and operating expenses in the most recent
budget approved by the Board of Directors. LHMI shall report to the Board of
Directors from time to time on variances between the Hospital's budget and
actual operating results.

3.8      BOOKS AND RECORDS AVAILABLE.

         LHMI shall perform the obligations as may be from time to time
specified for subcontractors in Social Security Act, Sec. 1861(v)(1)(I) and the
regulations promulgated in implementation thereof (initially codified at 42
C.F.R., Sec. 420.300, et seq.). LHMI further agrees that if this Agreement is
determined to be an agreement with a provider under which a physician or other
entity assumes some or all of the costs of the provider department pursuant to
42 C.F.R., Sec. 405.550(e), LHMI shall make its books and records available to
the Owner and the Hospital's Medicare fiscal intermediary as necessary to
verify the nature and extent of the costs of the services furnished by LHMI or
its Affiliates pursuant to this Agreement.

         In the event any request for LHMI's or a related subcontractor's
books, documents and records is made pursuant to Social Security Act, Sec.
1861(v)(1)(I), 42 C.F.R., Sec. 420.300, et seq., or 42 C.F.R., Sec. 405.550(e),
LHMI or any subcontractor related to LHMI shall promptly give notice of such
request to Owner and provide Owner with a copy of such request and, thereafter,
consult and cooperate with Owner concerning the proper response to such
request. Additionally, LHMI or any subcontractor related to LHMI shall provide
Owner with a copy of each book, document and record made available to one or
more of the persons and agencies above or shall identify each such book,
document and record to Owner and shall grant Owner access thereto for review
and copying.

         In addition, LHMI agrees to make available to Owner such information
and records as Owner may reasonably request to facilitate Owner's compliance
with the requirements of the Medicare Conditions of Participation and the
Medicaid State Plan and to facilitate Owner's


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substantiation of its reasonable costs or other claim for reimbursement or
payment in accordance with the requirements applicable to Owner pursuant to the
Medicare and Medicaid programs including, without limitation, the requirements
contained in 42 C.F.R., Subpart D of Part 405; 42 C.F.R., Subpart C of Part 420
and 42 C.F.R., Subpart B of Part 455.

3.9      MEDICAL RECORDS AND REPORTS.

         LHMI shall arrange for an appropriate system for the maintenance of
medical records, including form and content reasonably acceptable to Owner, and
shall ensure that necessary and appropriate medical reports arising from
Hospital services are promptly and accurately prepared, issued and filed in
accordance with Owner's reasonable requirements. LHMI shall not, however, be
held responsible for any physician's failure to perform his or her record
keeping duties.

3.10     PRESIDENT.

         LHMI (or MedCath) shall hire as its employee and designate a specific
individual to serve as President of the Hospital and shall, in the temporary
absence of such individual, assure the availability of one or more
appropriately skilled individuals to assume the duties of President. The
President shall be the individual to whom Owner will first look to for specific
performance of the Contract Management Services provided pursuant to this
Agreement. The selection, compensation, appointment, retention and replacement
of the President shall be subject to the approval of the Board of Directors,
not to be unreasonably withheld. The base salary and benefits of the President
will be reimbursed to LHMI in addition to the fees to be paid to LHMI under
Article V of this Agreement. LHMI and the Board of Directors shall confer
regarding severance pay and/or benefits to be paid to the President and Owner
shall reimburse LHMI for such severance pay and benefits as are agreed to by
the Board of Directors.

3.11     STATUS AS MEDICARE-CERTIFIED HOSPITAL.

         LHMI shall use its commercially reasonable best efforts to assist the
Hospital in achieving and maintaining the status of a Medicare-certified
hospital that is also qualified to accept patients under state health care
programs including Medicaid.

3.12     OTHER LICENSES AND PERMITS.

         LHMI shall use its commercially reasonable best efforts to obtain and
maintain in force all licenses and permits required for conduct of the
business.

3.13     LHMI ORGANIZATIONAL REQUIREMENTS.

         LHMI shall at all times during the term of this Agreement be and
remain legally organized and operated to provide Contract Management Services
to the Hospital in a manner consistent with all applicable state and federal
laws.


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3.14     INSURANCE.

         3.14-1   FOR OWNER.

         LHMI shall, upon approval of Owner and At Owner's Expense, obtain and
continue worker's compensation coverage for all of Owner's employees;
employment practices liability (if reasonably available), comprehensive general
liability, automobile liability and professional liability insurance with such
coverages sufficient to insure against the risks attendant to the Hospital in
an amount sufficient to meet the reasonable needs of Owner. LHMI shall, At
Owner's Expense, obtain and continue coverage appropriate to insure Owner's
property from fire, flood, theft or other risks; business interruption
insurance coverage; director's and officer's liability; and employee honesty.

         3.14-2   FOR LHMI.

         LHMI shall, at its own expense, obtain worker's compensation coverage
for its other employees and comprehensive general liability coverage equivalent
to that provided herein for Owner.

         3.14-3   INSURANCE COMPANIES AND POLICIES.

         All insurance coverage specified herein shall be placed with companies
acceptable to Owner. If the liability policies are of a claims made form, LHMI
shall either renew the policies with the same company or shall purchase an
equivalent reporting endorsement at each anniversary of the effective date of a
claims made policy relating to the policy year then ended. Such insurance may
be included in master insurance policies obtained by Affiliates of LHMI for its
other hospitals as long as such policies comply with the terms of this
Agreement and are on terms and conditions which are substantially as favorable
as could otherwise be obtained by Owner. In connection with LHMI's position as
Manager of Owner, LHMI and its Affiliates shall be listed as additional
insureds on insurance policies obtained by and for Owner.

         3.14-4   EVIDENCE OF INSURANCE.

         LHMI shall furnish Owner with copies of each insurance policy
specified herein and all amendments, endorsements and renewals to each policy,
so long as this Agreement is in effect. In addition, LHMI shall cause to be
issued annually to Owner a Certificate or Certificates of Insurance reflecting
such coverages with the insurers agreeing to provide ten (10) days, notice to
Owner of the cancellation or modification of the policies.

3.15     BILLING AND COLLECTION OF ACCOUNTS.

         LHMI shall, At Owner's Expense, provide or arrange for the provision
of a billing and collections service for the Hospital and shall diligently
attempt to collect all amounts due including the referral of overdue accounts
to outside collection agencies and/or attorneys as appropriate.


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3.16     EQUAL EMPLOYMENT OPPORTUNITY.

         Without limitation of any provision herein set forth, LHMI expressly
agrees to abide by applicable federal and/or State equal employment opportunity
statutes, rules and regulations.

3.17     PROFESSIONAL SERVICES.

         LHMI shall, At Owner's Expense, retain and make appropriate use of
attorneys, accountants and other advisors and consultants on behalf of Owner.

3.18     ADMINISTRATIVE MANAGEMENT.

         LHMI shall apply its administrative knowledge and experience to
management of the Hospital in order to train nurses, technicians, monitor
operations, evaluate technical competence of staff, educate the public and
assist the marketing efforts of the Hospital by devoting time to outside
contacts with existing and potential clients and to preparation and
presentation of proposals.

3.19     MEDICAL STAFF AFFAIRS.

         LHMI shall provide appropriate support and facilitate the organization
and functioning of a medical staff for the Hospital as contemplated to be
authorized in the Medical Staff Bylaws for the Hospital, including appropriate
administrative and record keeping support.

3.20     COMPLIANCE PROGRAM.

         LHMI shall, At Owner's Expense, prepare a compliance program (the
"Compliance Program") for the Hospital that is consistent with and similar to
compliance programs adopted by hospitals affiliated with MedCath. LHMI shall
submit the Compliance Program to the Board of Directors for approval, which
approval shall not be unreasonably withheld or delayed.

                                       IV

                               COVENANTS OF OWNER

         Owner makes the following covenants with respect to this Agreement:

4.1      PAYMENT OF AUTHORIZED EXPENDITURES.

         Owner shall, At Owner's Expense, provide financial resources for the
payment of expenditures and reimbursements authorized pursuant to this
Agreement. Owner shall reimburse LHMI or its Affiliates for expenses or goods
and services reasonably incurred by LHMI or its Affiliates for the benefit of
Owner where such expenses have been approved in advance by the Board of
Directors either in a budget or otherwise.


                                      13
<PAGE>


4.2      PAYMENT OF FEES TO LHMI.

         Owner shall, At Owner's Expense, pay all fees due to LHMI pursuant to
this Agreement.

4.3      OWNER COOPERATION.

         Owner shall exercise reasonable efforts to insure its cooperation with
LHMI in the performance of LHMI's duties and obligations hereunder. Owner shall
make decisions requested by LHMI in a reasonably timely manner.

                                       V

                             FINANCIAL ARRANGEMENTS

         Owner shall compensate LHMI for Contract Management Services as set
forth herein.

5.1      GENERAL.

         Owner shall compensate LHMI for Contract Management Services through:
(i) the payment of the Development Fee as set forth in Section 5.2 hereinafter;
(ii) the payment of a Management and Licensing Fee as set forth in Section 5.3
hereinafter; and (iii) reimbursement for costs and expenses incurred by LHMI on
behalf of Owner as set forth in Section 5.4 hereinafter.

5.2      DEVELOPMENT FEE.

         Owner shall pay LHMI a fee of [***] ($[***]) annually in equal monthly
installments of [***] ($[***]), with each such installment payable in advance,
with the first such installment payable on the date hereof, for LHMI's services
for development of the Hospital (the "Development Fee"). The obligation to pay
the Development Fee (including any monthly installment thereof not then due)
shall end at such time as Owner becomes obligated to pay the Management and
Licensing Fee set forth below and LHMI shall cease to be entitled to payment of
monthly installments of the Development Fee at such time. If Owner becomes
obligated to pay the Management and Licensing Fee after payment of an
installment on the Development Fee, but prior to the end of the applicable
month for which such installment was paid in advance, Owner shall be entitled
to a credit against the Management and Licensing Fee equal to (a) the number of
days remaining in the applicable month divided by thirty (30), multiplied by
(b) $[***].

5.3      MANAGEMENT AND LICENSING FEE.

         Commencing as of the date that the Hospital first admits patients for
treatment, (the "Commencement Date"), Owner shall pay LHMI an annual management
and licensing fee (the "Management and Licensing Fee"), to be paid monthly,
equal to:

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


                                      14
<PAGE>


                  (a)      [***] percent ([***]%) of annual net patient
         revenues of the Hospital up to [***] ($[***]);

                  (b)      [***] percent ([***]%) of annual net patient
         revenues of the Hospital greater than [***] ($[***]) up to [***]
         ($[***]); and

                  (c)      [***] percent ([***]%) of annual net patient
         revenues of the Hospital greater than [***] ($[***]).

For the period from the Commencement Date to the first anniversary of the
Commencement Date, the maximum annual Management and Licensing Fee payable to
LHMI under this Agreement is [***] ($[***]) (the "Maximum Fee"). For the period
from the first anniversary of the Commencement Date to the second anniversary
of the Commencement Date and annually thereafter, the Maximum Fee shall be
increased by a percentage equal to the percentage increase, if any, in the
Consumer Price Index ("CPI") during the previous twelve (12) month period
beginning and ending on the anniversary of the Commencement Date (or the
closest date for which CPI data is available). The CPI shall refer to the CPI
entitled "All Urban Consumers (CPI-U) - (1982-84=100) - U.S. City Average - All
Items", as promulgated by the Bureau of Labor Statistics of the United States
Department of Labor.

         The Management and Licensing Fee shall be paid within fifteen (15)
days following the end of each month and shall be determined on an accrual
basis in accordance with GAAP.

5.4      EXPENSES.

         5.4-1    ORGANIZATION EXPENSE.

         The parties specifically recognize that LHMI and its Affiliates have
incurred legal fees, filing fees, and other out-of-pocket costs for the benefit
of Owner, including costs connected with the preparation of applicable
agreements, securities law and health care law compliance documentation and
filings, fees and expenses of lobbyists, real estate acquisition matters (if
any) and formation and registration of Owner (collectively, the "Organization
Expenses"), and agree that LHMI shall be reimbursed fully for these amounts.
Because LHMI and its Affiliates are receiving some benefits from the legal
services provided under this Section 5.4-1 in connection with the preparation
of this Agreement, and the Operating Agreement, the Right of First Refusal
Agreement, and the Hospital Professional Services Agreement executed by the
parties substantially contemporaneously with this Agreement (collectively, the
"Definitive Documents"), in addition to those benefits received by Owner, the
parties agree that LHMI shall be entitled to be reimbursed by Owner only for
seventy-five percent (75%) of the legal fees incurred in the preparation of the
Definitive Documents, not to exceed $50,000.

         5.4-2  REIMBURSEMENT OF LHMI AND AFFILIATES.

         In general, Owner's expenses shall be billed directly to and paid by
Owner. Owner shall reimburse LHMI and its Affiliates for (i) the Organization
Expenses subject to the limitation on legal fees set forth above; (ii) the
actual costs to LHMI or its Affiliates of goods, services, and

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


                                      15
<PAGE>


materials used for and by Owner; and (iii) all reasonable travel and other
out-of-pocket expenses incurred by LHMI in the development and management of
Owner and its business. The reimbursement for expenses provided for in this
Section 5.4 shall be made to LHMI and its Affiliates regardless of whether any
distributions are made to the Members under Article VI and Article VII of the
Operating Agreement.

         Goods and services may be purchased from LHMI or its Affiliates as
long as they are of a substantially the same quality and a fair market price as
could be obtained from an unrelated third party in an arm's length transaction.
It is intended that LHMI and its Affiliates shall have the first opportunity to
provide information and accounting and human resource services to be purchased
by Owner. Any such purchase of goods and services by Owner from LHMI is further
subject to the following:

                  (a)      Reimbursement shall include the expenses for each
         full-time equivalent, or a portion thereof, performing work directly
         on behalf of or for the benefit of the Hospital even though such
         person may be employed outside of the greater Lafayette, Louisiana
         area;

                  (b)      The actual costs of the information system (hardware
         and software, including installation and maintenance) incurred by LHMI
         and its Affiliates for the direct benefit of Owner shall be reimbursed
         by Owner.

         5.4-3    ITEMS COVERED BY MANAGEMENT AND LICENSING FEE AND DEVELOPMENT
FEE.

         Other than for reimbursement for out-of-pocket travel costs and
expenses (airfare, lodging and other similar expenses), which shall be paid in
accordance with Section 5.4-2 above, LHMI agrees that the following costs and
expenses of LHMI and its Affiliates are compensated by Owner through the
Management and Licensing Fee or the Development Fee, as applicable:

                  (a)      The time of senior management of MedCath, which
         includes the Chief Executive Officer, Chief Operating Officer, Chief
         Financial Officer, Senior Vice President of Development, the Division
         Presidents, and the Vice President of Disease Management of MedCath;

                  (b)      To the extent provided by personnel of MedCath
         corporate headquarters, general oversight of the development of the
         physical plant of the Hospital from conception to acquiring necessary
         licenses, permits and approvals required to initiate operations;

                  (c)      To the extent provided by employed personnel of
         MedCath corporate headquarters as a general support resource service
         made available to hospitals managed by MedCath or its Affiliates, and
         generally consistent with the levels of support provided to other
         hospitals managed by MedCath or its Affiliates, general access to and
         support of: (i) the MedCath Corporate managed care support resources;
         (ii) the MedCath Decision Support Group; (iii) the MedCath Corporate
         Finance Department; (iv) the MedCath Corporate Information Services
         Department (but not including installation of hardware


                                      16
<PAGE>


         and software); (v) the MedCath Corporate Compliance and Risk
         Management programs; (vi) the MedCath Corporate Human Resources
         Department Benefits Administration, and (vii) MedCath equipment and
         medical supply procurement expertise. It is intended that these
         resources will be made available on a sporadic basis. The services of
         any MedCath personnel specifically designated to provide services to
         the Hospital, whether on a full-time or part-time basis, shall be
         reimbursed in accordance with Section 5.4-2 .

5.5      ANNUAL AUDIT OF MANAGEMENT AND LICENSING FEE.

         Owner or any Member, at Owner's or the applicable Member's sole
expense, may obtain a special audit report from an independent certified public
accountant who is reasonably acceptable to LHMI as to final determination of
the Management and Licensing Fee for each fiscal year of Owner's Hospital and
such determination shall be binding on the parties. Upon receipt of such audit
report, the parties shall make a final cash settlement within ten (10) days of
the time that LHMI receives from Owner a copy thereof.

5.6      INDEMNITY BY LHMI.

         To the extent Owner is not otherwise covered by insurance, LHMI agrees
to indemnify, defend and hold Owner, its members, officers, employees and
agents, harmless from and against any and all loss, claim, demand, cause of
action, penalty, liability, damage or deficiency, lawsuits, or other
proceedings resulting or arising (a) from any gross negligence or willful
misconduct or violation of law or of this Agreement by LHMI or its officers,
directors, employees or agents unless LHMI or its employees or agents were
acting upon the express instructions or directions of the Board of Directors,
or (b) from the nonfulfillment of any covenants or agreements on the part of
LHMI contained in this Agreement, and (c) any loss or damage, reasonable
attorney fees or other costs or expenses incident to (a) or (b).

5.7      INDEMNITY BY OWNER.

         To the extent LHMI is not otherwise covered by insurance, Owner agrees
to indemnify, defend and hold LHMI, its directors, officers, employees and
agents, harmless from and against any and all loss, claim, cause of action,
demand, penalty, liability, action, damage or deficiency, lawsuit or other
proceeding, resulting or arising from (a) acts or omission of Owner, its
members, officers, employees (unless due to the gross negligence or willful
misconduct of LHMI); (b) any liability or obligation of Owner, except those
which LHMI created in violation of this Agreement; (c) any nonfulfillment of
Owner of any of its covenants or agreements hereunder; (d) any violation of law
by Owner; and (e) any loss or damage, reasonable attorney's fees and other
costs and expenses incident to any of (a) through (d).

5.8      SURVIVAL OF INDEMNITY COVENANTS.

         The indemnity covenants set forth in Sections 5.6 and 5.7 shall
survive the termination of this Agreement for any reason.


                                      17
<PAGE>


                                      VI

                       TERM AND TERMINATION OF AGREEMENT

6.1      INITIAL.

         The term of this Agreement shall begin upon the filing of the
Certificate of Formation of Owner in the office of the Secretary of State of
Delaware and continue until December 31, 2061, unless sooner terminated as
provided herein; provided, however, that the termination date may be extended
for up to an additional forty (40) years in five (5) year increments upon the
mutual election of LHMI and Owner.

6.2      TERMINATION.

         This Agreement may be sooner terminated only on the first to occur of
the following:

         6.2-1    TERMINATION BY AGREEMENT.

         In the event Owner and LHMI shall mutually agree in writing, this
Agreement may be terminated on the terms and date stipulated therein.

         6.2-2    TERMINATION BY LHMI.

         This Agreement may be terminated by LHMI, in the event that Owner
fails to pay any amount due to LHMI within fifteen (15) days after notice in
writing of the unpaid amount.

         6.2-3    TERMINATION BY OWNER.

         Due to the substantial and long-term commitment of resources and
financial investment by LHMI and its Affiliates in the Hospital, the parties
hereto acknowledge and agree that Owner may not terminate this Agreement as a
result of any failure or default by LHMI under the terms of this Agreement,
except as specifically provided in this Section 6.2-3.

                  (a)      Subject to (c) below, in the event that Owner
         (acting through its Board of Directors without the participation of
         the Directors appointed by LHMI) reasonably determines in good faith
         that Good Cause (as defined below) exists or has arisen for the
         termination of this Agreement, the Board of Directors shall give
         written notice to LHMI setting forth in reasonable detail the basis
         for its determination that Good Cause exists. If LHMI fails to cure
         such breach or failure within sixty (60) days of notice of Good Cause,
         or if said breach or failure cannot reasonably be cured within sixty
         (60) days, fails to commence said cure within sixty (60) days, then
         this Agreement may be terminated by Owner (acting through its Board of
         Directors without the participation of the Directors appointed by
         LHMI); provided, however, that in the event that the parties disagree
         with respect to the right at such time of Owner to terminate this
         Agreement, LHMI may refer the matter to binding arbitration in the
         manner set forth in Section 7.16 for a determination as to whether the
         right to terminate this Agreement then exists and the


                                      18
<PAGE>


         termination of this Agreement shall not occur until a final,
         non-appealable decision of the arbitrators establishing the right of
         Owner to terminate this Agreement based upon then existing facts and
         circumstances has been issued. Any termination of this Agreement will
         be without prejudice to the rights, if any, of LHMI under any other
         agreement including the Operating Agreement and will not affect LHMI's
         rights as a Member and will not constitute a withdrawal of LHMI as a
         Member.

                  For purposes of this Section 6.2-3(a), "Good Cause" shall
         mean the existence or occurrence of any of the following:

                           (i)      If LHMI is convicted of a felony as a
                  result of its operation of the Hospital or arising out of its
                  management of the Hospital that results in LHMI's exclusion
                  from participation in a State or federal health care program;
                  or

                           (ii)     If MedCath Holdings Inc. ("MHI"), MedCath
                  or LHMI (x) shall file a voluntary petition or answer in
                  bankruptcy or seeking any reorganization, liquidation or
                  similar relief under any present or future statute or law
                  relating to bankruptcy or insolvency, (y) a court of
                  competent jurisdiction shall enter an order, judgment, or
                  decree approving a petition filed against MHI, MedCath or
                  LHMI seeking any reorganization, arrangement, composition,
                  readjustment, liquidation, dissolution, or similar relief
                  under any present or future statute or law relating to
                  bankruptcy or insolvency, or (z) shall seek, consent to, or
                  acquiesce in the appointment of any trustee, receiver,
                  conservator, or liquidator of MHI, MedCath or LHMI, or of all
                  or any substantial part of its properties (the term
                  "acquiesce" as used herein, being deemed to include but not
                  to be limited to the failure to file a petition or motion to
                  vacate or discharge any order, judgment, or decree providing
                  for such appointment within the time specified by law).

                  (b)      In addition, upon a Change of Control of MedCath or
         a Change of Control of LHMI, each as defined below, and subject to (c)
         below, Owner shall have the right (acting through its Board of
         Directors without the participation of the Directors appointed by
         LHMI) to terminate this Agreement for cause as a result of LHMI's
         material failure to perform its obligations under this Agreement which
         failure is not cured by LHMI within sixty (60) days (or if such
         failure cannot be cured within sixty (60) days, LHMI fails to commence
         a cure within sixty (60) days and work diligently to cure such default
         until the cure is complete) of written notice to LHMI specifying such
         failure in reasonable detail. Notwithstanding the foregoing, the
         termination of this Agreement shall not be effective until the failure
         of LHMI or any successor to so perform or to cure is thereafter
         determined conclusively through arbitration conducted in the manner
         set forth in Section 7.16, and provided further that, following such
         termination, Owner does not enter into any other arrangement, directly
         or indirectly, with another entity or person to provide services to
         Owner or the Hospital (which services include any of the services
         provided by LHMI or its Affiliates previously under the Agreement) and
         Owner and the Hospital is thereafter managed solely by its Board of
         Directors and its direct officers and full-time employees. For
         purposes of this Section, a "Change in Control" of MedCath shall mean
         any merger of MHI or of MedCath (unless the shareholders of MHI or of
         MedCath or


                                      19
<PAGE>


         their Affiliates as of the date hereof continue to control directly or
         indirectly at least fifty percent (50%) of the surviving entity or
         unless such merger is with an Affiliate of MHI or MedCath) or the sale
         of all or substantially all of the assets of MedCath to a purchaser
         who is not a direct or indirect shareholder of MHI as of the date
         hereof. In no event shall (i) the transfer of capital stock in any
         public offering of the capital stock of MHI or its Affiliates, or (ii)
         the distribution of any capital stock of MHI or its Affiliates by any
         shareholder of MHI to its direct or indirect owners constitute a
         "Change of Control" of either MedCath or LHMI. For purposes of this
         Section, a "Change of Control" of LHMI shall mean any merger of LHMI
         (unless MHI, MedCath, or the shareholders of LHMI as of the date
         hereof continue to control directly or indirectly at least fifty
         percent (50%) of the surviving entity, or unless such merger is with
         an Affiliate of MHI or MedCath) or the sale of all or substantially
         all of the assets of LHMI to a purchaser other than MedCath, MHI, an
         Affiliate of MedCath or MHI, any direct or indirect shareholder of
         LHMI, or any entity controlled by or under common ownership with LHMI.

                  (c)      Notwithstanding anything herein to the contrary, the
         termination of this Agreement for any reason including without
         limitation under (a) or (b) above, with or without cause, shall not
         become effective unless and until the liability of LHMI and its
         Affiliates as guarantors for any indebtedness of Owner is reduced by
         each lender or lessor so that LHMI's and its Affiliates' aggregate
         percentage guarantee of all indebtedness of Owner as compared with the
         percentage guaranteed by all of the Members of Owner in the aggregate
         is equal in proportion to the percentage Membership Interest in Owner
         held by LHMI, as compared with the combined percentage Membership
         Interests held by all of the Members of the Owner, and until all
         amounts loaned by LHMI or its Affiliates to Owner are paid in full.

         6.2-4    LEGISLATIVE OR ADMINISTRATIVE CHANGES.

         If, as a result of any new law, rule or regulation, or as a result of
a change in the interpretation or enforcement of any existing law, rule or
regulation (the "Applicable Law"), health care counsel, who has not separately
represented Owner or its Members prior to the date of being retained to provide
such opinion, selected by LHMI, and reasonably agreed to by Owner, determines
in writing that it is reasonably likely that, as a result of this Agreement or
the performance of LHMI's responsibilities hereunder, the reimbursement which
Owner receives for its medical services will be materially and adversely
affected as a result of the Applicable Law, then the parties agree to attempt
to negotiate in good faith to amend the Agreement to avoid the material and
adverse affects of the Applicable Law while, at the same time, preserving as
fully as possible the material benefits of this Agreement to each of the
parties hereto.

6.3      EFFECTS OF TERMINATION.

         Upon termination of this Agreement as hereinabove provided, neither
party shall have any further obligation hereunder except for (a) obligations
accruing prior to the date of termination and (b) obligations, promises or
covenants contained herein which are expressly made to extend beyond the term
of this Agreement.


                                      20
<PAGE>


                                      VII

                                 MISCELLANEOUS

7.1      STATUS OF LHMI.

         It is expressly acknowledged by the parties hereto that with respect
to the subject matter of this Agreement, LHMI is an "independent contractor"
and nothing in this Agreement is intended nor shall be construed to create an
employer/employee relationship, a joint venture relationship or a lease or
landlord/tenant relationship or to allow Owner to exercise control or direction
over the manner or method by which LHMI perform the contract services which are
the subject matter of this Agreement; provided, always, that the services to be
provided hereunder by LHMI shall be provided in a manner consistent with the
standards governing such services and the provisions of this Agreement. LHMI
understands and agrees that (a) employees of LHMI will not be treated as
employees of Owner for federal tax purposes; (b) Owner will not withhold on
behalf of LHMI pursuant to this Agreement any sums for income tax, unemployment
insurance, social security or any other withholding pursuant to any law or
requirement of any governmental body relating to LHMI or LHMI's personnel or
make available to LHMI any of the benefits afforded to employees of Owner; (c)
all of such payments, withholdings and benefits, if any, are the responsibility
of LHMI; and (d) LHMI will indemnify and hold Owner harmless from any and all
loss or liability arising with respect to such payments, withholdings and
benefits, if any. In the event the Internal Revenue Service or any other
governmental agency should question or challenge the independent contractor
status of LHMI, the parties hereto mutually agree that both LHMI and Owner
shall have the right to participate in any discussion or negotiation occurring
with such agency or agencies, irrespective of whom or by whom such discussion
or negotiation is initiated.

7.2      REPRESENTATIVES.

         7.2-1    OWNER REPRESENTATIVE.

         Except as may be herein more specifically provided, Owner shall act
with respect to all matters hereunder through the Board of Directors.

         7.2-2    LHMI REPRESENTATIVE.

         Except as may be herein more specifically provided, LHMI shall act
with respect to all matters hereunder through the president of LHMI or an
authorized designee.

7.3      NOTICES.

         Any notice, demand or communication required, permitted or desired to
be given hereunder shall be deemed effectively given when personally delivered,
sent by overnight courier or mailed by prepaid certified mail, return receipt
requested, addressed as follows:


                                      21
<PAGE>


                  LHMI:                     Lafayette Hospital Management, Inc.
                                            10720 Sikes Place, Suite 300
                                            Charlotte, NC  28277
                                            Attn:  President

                  With a copy to:           Hal A. Levinson, Esq.
                                            Moore & Van Allen, PLLC
                                            100 N. Tryon Street, Floor 47
                                            Charlotte, NC  28202-4003

                  Owner:                    Lafayette Heart Hospital, LLC

                                            -----------------------------------

                                            -----------------------------------
                                            Attn:  President


                  With a copy to:
                                            -----------------------------------

                                            -----------------------------------

                                            -----------------------------------

                                            -----------------------------------

or to such other address and to the attention of such other person or officer
as either party may designate by written notice.

7.4      GOVERNING LAW.

         This Agreement has been executed and delivered in and shall be
interpreted, construed and enforced pursuant to and in accordance with the laws
of the State of Delaware without regard to the conflict of laws provisions.

7.5      ASSIGNMENT.

         No assignment of this Agreement or the rights and obligations
hereunder shall be valid without the specific written consent of both parties
hereto, except that LHMI shall be allowed to assign this Agreement to MedCath
or its wholly-owned subsidiaries or it may assign the revenue from this
Agreement to their lenders.

7.6      WAIVER OF BREACH.

         The waiver by either party of a breach or violation of any provision
of this Agreement shall not operate as or be construed to be a waiver of any
subsequent breach of the same or other provision hereof.


                                      22
<PAGE>


7.7      ENFORCEMENT.

         In the event that either party resorts to legal action to enforce the
terms and provisions of this Agreement, the successful party shall be entitled
to recover the costs of such action so incurred including, without limitation,
reasonable attorney's, fees.

7.8      GENDER AND NUMBER.

         Whenever the context hereof requires, the gender of all words shall
include the masculine, feminine and neuter and the number of all words shall
include the singular and plural.

7.9      ADDITIONAL ASSURANCES.

         The provisions of this Agreement shall be self-operative and shall not
require further agreement by the parties except as may be herein specifically
provided to the contrary; provided, however, at the request of Owner, LHMI
shall execute such additional instruments and take such additional acts as
Owner may deem necessary to effectuate this Agreement.

7.10     FORCE MAJEURE.

         Neither party shall be liable nor deemed to be in default for any
delay or failure in performance under this Agreement or other interruption of
service or employment deemed resulting directly or indirectly from Acts of God,
civil or military authority, acts of public enemy, war, accidents, fires,
explosions, earthquakes, floods, failure of transportation, strikes or other
work interruptions by either party's employees or any similar or dissimilar
cause beyond the reasonable control of either party. Further, LHMI shall not be
in default hereunder if the default resulted from actions taken at the request
or direction of the Board of Directors or if the Board of Directors failed to
take reasonable action recommended by LHMI to enable it to meet its obligations
hereunder.

7.11     SEVERABILITY.

         In the event any provision of this Agreement is held to be
unenforceable for any reason, the unenforceability thereof shall not affect the
remainder of this Agreement, which shall remain in full force and effect and
enforceable in accordance with its terms, unless such would frustrate the
original purposes hereof.

7.12     ARTICLES AND OTHER HEADINGS.

         The articles and other headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

7.13     AMENDMENTS AND AGREEMENT EXECUTION.

         This Agreement and amendments thereto shall be in writing and executed
in multiple copies on behalf of Owner by any official of Owner specifically
authorized by the Board of


                                      23
<PAGE>


Directors with respect to such execution and on behalf of LHMI by any official
authorized to act on behalf of LHMI. Each multiple copy shall be deemed an
original, but all multiple copies together shall constitute one and the same
instrument.

7.14     CONFIDENTIALITY.

         The Parties recognize that it is to their mutual interest that the
terms of this Agreement be maintained as confidential. Therefore, LHMI and
Owner agree that without their mutual consent, not to be unreasonably withheld,
they will direct their respective directors, officers, employees or agents not
to disclose the terms of this Agreement to third parties, except to their
respective advisors and consultants and other parties who have a need to know
the terms of this Agreement in order to complete the transaction contemplated
herein, and as required by disclosure requirements applicable to any affiliate
of LHMI as a publicly traded company and as otherwise required by law.

7.15     ENTIRE AGREEMENT.

         With respect to the subject matter hereof, this Agreement, together
with the Operating Agreement of Owner to the extent referenced herein,
constitutes the entire agreement between the parties. LHMI shall be entitled to
no benefits other than those specified herein. No oral statements or prior
written material not specifically incorporated herein shall be of any force and
effect and no change in or additions to this Agreement shall be recognized
unless incorporated herein by amendment as provided herein, such amendment to
become effective on the date stipulated in such amendment. The parties
specifically acknowledge that in entering into and executing this Agreement,
they rely solely upon the representations and agreements contained in this
Agreement and no others.

7.16     ARBITRATION.

         Subject to the right of any party to seek an injunction or other
equitable relief from a court with applicable authority, in the event of a
dispute between the parties arising out of any provision of this Agreement,
then such dispute shall be resolved by binding arbitration to be held in New
Orleans, Louisiana in accordance with the Arbitration Rules of the American
Health Lawyers Association Alternative Dispute Resolution Service (the
"Rules"). Such arbitration shall be conducted in accordance with the Rules by a
panel of three (3) arbitrators none of which shall reside in or practice
primarily in Louisiana. The decision of the arbitrators shall be final and
binding on the parties and shall be enforceable in any court of applicable
jurisdiction. The arbitrators shall have the authority to award to the losing
party all costs associated with such arbitration, including expenses and fees
of the arbitrators.


                                      24
<PAGE>


         IN WITNESS WHEREOF, the parties have executed this Agreement in
multiple originals as of the date above first written.


                           LAFAYETTE HEART HOSPITAL, LLC

                           By:      /s/ signature illegible
                              -------------------------------------------------

                           Title:   VP
                                 ----------------------------------------------

                           By:
                              -------------------------------------------------

                           Title:
                                 ----------------------------------------------


                           LAFAYETTE HOSPITAL MANAGEMENT, INC.

                           By:      /s/ signature illegible
                              -------------------------------------------------

                           Title:
                                 ----------------------------------------------


         For the sole and exclusive purposes of (i) guaranteeing the full
performance of LHMI's obligations under Article III and Section 5.6 hereof;
(ii) guaranteeing the provision of services obtained by LHMI on behalf of the
Hospital as described in Section 5.4-3 hereof; and (iii) otherwise
acknowledging the rights and responsibilities of LHMI under this Agreement,
MedCath Incorporated hereby executes this Agreement.


                           MEDCATH INCORPORATED


                           By:      /s/ signature illegible
                              -------------------------------------------------

                           Title:
                                 ----------------------------------------------


                                      25

</TEXT>
</DOCUMENT>
