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                                                                     EXHIBIT 4.2

                             STOCKHOLDERS' AGREEMENT

         STOCKHOLDERS' AGREEMENT dated as of July 31, 1998, by and among MedCath
Holdings, Inc., a Delaware corporation (the "Company"), MedCath 1998 LLC ("KKR
Fund"), Welsh, Carson, Anderson & Stowe VII, L.P. ("WCAS VII") and the several
other stockholders named in Schedule I hereto under the heading "WCAS
Stockholders" (WCAS VII and such other stockholders being hereinafter at times
referred to as the "WCAS Stockholders" and, together with KKR Fund, as the
"Stockholders").

         WHEREAS, the Company and the Stockholders, among other parties, have
entered into a Contribution Agreement dated as of the date hereof (the
"Contribution Agreement");

         WHEREAS, pursuant to the Contribution Agreement and on the terms and
subject to the conditions set forth therein, the Stockholders, certain members
of the management and related individuals and entities (the "Management
Contributors"; provided, that unless the context otherwise requires, Charles D.
Johnson shall also be deemed a Management Contributor) of MedCath Incorporated
("MedCath") and certain physicians who are stockholders of MedCath are
contributing cash and/or shares of common stock, par value $.01 per share
("Common Stock"), of MedCath to the Company in exchange for shares of capital
stock of the Company.

         WHEREAS, the Company and each of the Stockholders desire to make
certain arrangements among themselves with respect to the matters set forth
herein;

         NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the parties hereto hereby agree as
follows:

         Section 1. Voting Agreement. From and after the Closing Date (as
defined in the Contribution Agreement), at each annual or special stockholders'
meeting called for the election of directors, and whenever the stockholders of
the Company act by written consent with respect to the election of directors,
each Stockholder, severally and not jointly, agrees to vote or otherwise give
such Stockholder's consent in respect of all shares of capital stock of the
Company (whether now or hereafter acquired) owned by such Stockholder, and the
Company shall take all necessary and desirable actions within its control, in
order to cause (unless otherwise agreed by the WCAS Stockholders, KKR Fund and
the Management Contributors then employed by the Company, except in the case of
the provisos in clauses (b)(i) and (b)(ii), which can be waived or modified by
agreement of the WCAS Stockholders and KKR Fund):

         (a)      the authorized number of directors on the Board of Directors
                  of the Company (the "Board") to be established at ten;

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         (b)      the election to the Board of:

                  (i)      four directors designated by KKR Fund (each, a "KKR
                           Designee"); provided, however, that the number of KKR
                           Designees shall be reduced (x) by one to the extent
                           that KKR Fund sells or transfers (other than
                           Permitted Transfers pursuant to Section 3) at least
                           one-fourth (but less than one-half) of its original
                           number of shares of Common Stock, (y) by two to the
                           extent that KKR Fund sells or transfers (other than
                           Permitted Transfers pursuant to Section 3) at least
                           one-half (but less than three-quarters) of its
                           original number of shares of Common Stock and (z) by
                           three to the extent that KKR Fund sells or transfers
                           (other than Permitted Transfers pursuant to Section
                           3) at least three-fourths of its original number of
                           shares of Common Stock;

                  (ii)     three directors designated by the WCAS Stockholders
                           (each, a "WCAS Designee"), it being understood that
                           the WCAS Designee shall be selected by the holders of
                           record of a majority of the Common Stock then held by
                           the WCAS Stockholders; provided, however, that the
                           number of WCAS Designees shall be reduced (x) by one
                           to the extent that the WCAS Stockholders sell or
                           transfer (other than Permitted Transfers pursuant to
                           Section 3) in the aggregate at least one-third (but
                           less than two-thirds) of their original number of
                           shares of Common Stock and (y) by two to the extent
                           that the WCAS Stockholders sell or transfer (other
                           than Permitted Transfers pursuant to Section 3) at
                           least two-thirds of their original number of shares
                           of Common Stock;

                  (iii)    two directors designated by the Management
                           Contributors who are, at the time, full-time
                           employees of the Company (each, a "Management
                           Designee"), it being understood that the Management
                           Designee shall be selected by the holders of record
                           of a majority of the Common Stock then held by the
                           Management Contributors who are, at the time,
                           full-time employees of the Company and treating, for
                           this purpose, shares of Common Stock held of record
                           by (A) Page D. Johnson as if they were held of record
                           by Charles W. Johnson and (B) P IV Limited
                           Partnership and P V Limited Partnership as if they
                           were held of record by Stephen R. Puckett; and

                  (iv)     one independent director, who shall be an attorney
                           having expertise in regulatory matters affecting the
                           Company, designated by the other directors;

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all of which designees shall hold office, subject to their earlier removal in
accordance with clause (c) below, the Bylaws of the Company and applicable
corporate law, until their respective successors shall have been elected and
shall have qualified;

         (c)      the removal from the Board (with or without cause) of any
                  director upon the written request of the Stockholder that
                  designated such director (or, in the case of the director
                  designated pursuant to clause (b)(iv) above, by written action
                  of at least a majority of the other directors), but only upon
                  such written request; and

         (d)      upon any vacancy in the Board as a result of any individual
                  designated as provided in clause (b) above ceasing to be a
                  member of the Board, whether by resignation or otherwise, the
                  election to the Board of an individual designated by the
                  Stockholder that designated such individual.

Each Stockholder agrees to cooperate to have its designees to the Board be
reasonably acceptable to each other designating party. The Stockholders
acknowledge and agree that any KKR Fund executive is deemed to be an acceptable
designee. Each Stockholder agrees to use its reasonable best efforts to cause
its designees to the Board to vote or otherwise give such Director's consent to
the creation and maintenance of:

         (a)      an Executive Committee of the Board, consisting of three
                  directors, one of whom is a KKR Designee, one of whom is a
                  WCAS Designee and one of whom is a Management Designee, which
                  Executive Committee shall manage the day-to-day business of
                  the Company;

         (b)      a Compensation Committee of the Board, consisting of three
                  directors, one of whom is a KKR Designee, one of whom is a
                  WCAS Designee and one of whom is chosen by the Management
                  Designees, which Compensation Committee shall approve all
                  grants of stock options to employees of the Company, all
                  increases in compensation of officers of the Company, all
                  annual bonuses granted to officers of the Company and all
                  other employee benefits (including, without limitation,
                  vacation policy, benefit plans, company automobiles and
                  insurance) granted to officers of the Company; and

         (c)      an Audit Committee of the Board of Directors, consisting of
                  three directors, one of whom is a KKR Designee, one of whom is
                  a WCAS Designee and one of whom is chosen by the Management
                  Designees, which Audit Committee shall review and approve the
                  financial statements of the Company as audited by the
                  Company's independent certified public accountants.

         The Company shall promptly reimburse all reasonable out-of-pocket
expenses incurred by any director of the Company in attending each meeting of
the Board or any committee thereof. In addition, the Company shall grant each
director (other than the

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Management Designee) 2,000 incentive stock options per annum to purchase Common
Stock of the Company as compensation for service on the Board. The Company shall
also pay the Stockholders monitoring fees in the aggregate amount of $300,000
per annum, subject to annual adjustment based on the Company's size, to be
allocated pro rata among the Stockholders based on their ownership of the
Company. Upon the closing of the transactions contemplated by the Contribution
Agreement and the consummation of the merger of MCTH Acquisition, Inc. with and
into MedCath, each of KKR Fund and WCA Management Corporation, the investment
adviser to WCAS VII, shall be entitled to a deal consummation fee in the amount
of $2,250,000 from the Company.

         Section 2. Stockholder Voting Rights. (a) Without obtaining the
approval of each of (i) a majority of the shares held of record by KKR Fund and
its Affiliates (as defined below) and (ii) a majority of the shares held of
record by the WCAS Stockholders and their Affiliates (as defined), the Company
shall not and shall not permit any subsidiary of the Company to:

                  (i)      appoint, dismiss or replace the Chief Executive
                           Officer of the Company;
                  (ii)     enter into any agreement for obtaining credit or
                           financing from a third-party lender;
                  (iii)    merge or consolidate with or into another
                           corporation;
                  (iv)     sell, transfer or dispose of all or substantially all
                           of its assets;
                  (v)      issue any securities or within four years after the
                           date hereof register common stock in an initial
                           public offering;
                  (vi)     acquire, purchase or invest in any assets, other than
                           in the ordinary course of business, or dispose of any
                           assets, other than in the ordinary course of
                           business;
                  (vii)    approve its annual operating budget (including its
                           expected capital expenditure budget);
                  (viii)   settle any material claims or litigation;
                  (ix)     enter into any agreements for the development,
                           operation or management of any new hospitals;
                  (x)      engage in any transactions between the Company and
                           any Affiliate of the Company;
                  (xi)     declare, pay or accrue any dividends on any class of
                           capital stock;
                  (xii)    amend its certificate of incorporation or by-laws;
                  (xiii)   enter into any material contracts; and
                  (xiv)    appoint, create or maintain any committees of the
                           Board, other than as contemplated herein.

         (b)      Notwithstanding anything to the contrary herein, the approval
of KKR Fund or the WCAS Stockholders, as the case may be, pursuant to Section
2(a) shall not be required with respect to any actions by the Company (other
than to the extent required under applicable law) at any time after KKR Fund or
the WCAS Stockholders, as the case may be, together with their respective
Affiliates, own less than 15% of the shares of Common Stock held by such
Stockholders, as the case may be, as of the date hereof.

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         Section 3. Transfer Restrictions. Each of the Stockholders agrees and
acknowledges that it will not during a period of four years from the date
hereof, directly or indirectly, offer, transfer, sell, assign, pledge,
hypothecate or otherwise dispose of (any such act being referred to herein as a
"transfer") any shares of the Common Stock unless such transfer complies with
this Agreement. Notwithstanding the foregoing, the Company acknowledges and
agrees that any of the following transfers are deemed to be in compliance with
the Securities Act of 1933, as amended, and the rules and regulations in effect
thereunder (the "Act") and this Agreement: (x) a transfer to an "affiliate" (as
defined under Rule 405 of the rules and regulations promulgated under the Act)
(an "Affiliate"); (y) a transfer made as part of a distribution by a Stockholder
to its respective general or limited partners following an initial public
offering of the Common Stock (together with transfers pursuant to clause (x),
"Permitted Transfers"); or (z) a transfer made in connection with an offering of
securities pursuant to the exercise of a Stockholder's registration rights;
provided, however, that no transfers shall be made under this Agreement when the
Company is "in registration" or for a period of 180 days after the closing of an
initial public offering. Any such transferee shall agree in writing with the
parties hereto to be bound by, and to comply with, all applicable provisions of
this Agreement and to be deemed to be a Stockholder for purposes of this
Agreement. Each Stockholder shall consult with the other Stockholders in good
faith in order to minimize the adverse effect on the market price of the
Company's stock resulting from the timing and size of any distributions or
secondary public offerings.

         Section 4. Notice of Proposed Transfer. Prior to any proposed transfer
of any shares of Common Stock of the Company (other than under the circumstances
described in clause (x), (y) or (z) of Section 3), the holder thereof shall give
written notice to the Company of its intention to effect such transfer. Each
such notice shall describe the manner of the proposed transfer and, if requested
by the Company, shall be accompanied by an opinion of counsel reasonably
satisfactory to the Company (it being agreed that either Reboul, MacMurray,
Hewitt, Maynard & Kristol or Simpson Thacher & Bartlett shall be satisfactory)
to the effect that the proposed transfer of the shares of Common Stock may be
effected without registration under the Securities Act, whereupon, subject to
Section 3, the holder of such shares shall be entitled to transfer such shares
in accordance with the terms of its notice. Each certificate for shares
transferred as above provided shall bear a legend to the effect that such shares
are unregistered under the Securities Act and may not be transferred unless the
shares have been registered under the Securities Act or an exemption from
registration is available, unless (i) such transfer is in accordance with the
provisions of Rule 144 (or any other rule permitting public sale without
registration under the Securities Act) or (ii) the opinion of counsel referred
to above is to the further effect that the transferee and any subsequent
transferee (other than an affiliate of the Company) would be entitled to
transfer such securities in a public sale without registration under the
Securities Act.

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         The foregoing restrictions on transferability of shares of Common Stock
of the Company shall terminate as to any particular shares when (i) such shares
shall have been effectively registered under the Securities Act and sold or
otherwise disposed of in accordance with the intended method of disposition by
the seller or sellers thereof set forth in the registration statement concerning
such shares or (ii) a holder of such shares is able to demonstrate to the
Company (and its counsel) that the provisions of Rule 144(k) (or other
equivalent rule) of the Securities Act are available to such holder without
limitation. In either case, such holder of shares of Common Stock shall be
entitled to receive from the Company, without expense, a new certificate not
bearing a restrictive legend.

         Section 5. Right of First Refusal. Subject to transfers permitted under
Section 3, at any time/after the fourth anniversary of the Closing Date and
prior to a public offering of Common Stock, a Stockholder (a "Selling
Stockholder" for purposes of this Section 5) may sell for cash all or any
portion of the capital stock of the Company held by him or it (whether now or
hereafter acquired) at any time, pursuant to a bona fide offer from a third
party, subject to such Selling Stockholder's compliance with the following
provisions:

         (a)      The Selling Stockholder shall promptly deliver a notice of
                  intention to sell (a "Sale Notice") to (i) if the Selling
                  Stockholder is a WCAS Stockholder or any of its Affiliates,
                  KKR Fund or (ii) if the Selling Stockholder is KKR Fund or any
                  of its Affiliates, the WCAS Stockholders (the "Offeree
                  Stockholder") setting forth in reasonable detail the capital
                  stock of the Company to be sold (the "Subject Securities"),
                  the identity of the proposed purchaser and the proposed
                  purchase price and terms of sale (including a copy of any
                  written offer or indication of interest).

         (b)      Upon receipt of a Sale Notice from the Selling Stockholder,
                  the Offeree Stockholder shall have the first right and option
                  to elect to purchase at the price and on the terms stated in
                  the Sale Notice, all, but not less than all, of the Subject
                  Securities. In the event that such Stockholder shall elect to
                  purchase all or part of the Subject Securities, it shall so
                  notify the Selling Stockholder within 20 days (the "Option
                  Period") after the receipt by such Stockholder of the Sale
                  Notice. Any such election shall be made by written notice (a
                  "Notice of Election") to the Selling Stockholder.

         (c)      If the Notice of Election with respect to the Subject
                  Securities shall have been received as aforesaid by the
                  Selling Stockholder, the Selling Stockholder shall sell such
                  Subject Securities to the Offeree Stockholder at the price and
                  on the terms stated in the Sale Notice. The closing of such
                  sale of Subject Securities shall take place at the offices of
                  the Company, or such other location as the Stockholders may
                  mutually select, no later than 30 days following the
                  expiration of the Option Period (or upon the expiration of
                  such longer period if required by law), or such earlier date
                  as may be agreed by the Stockholders. At such closing the
                  Selling

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                  Stockholder shall deliver a certificate or certificates for
                  the Subject Securities to be sold, accompanied by stock powers
                  with signatures guaranteed and all necessary stock transfer
                  taxes paid and stamps affixed, against receipt of the purchase
                  price therefor by certified or official bank check in New York
                  Clearing House Funds or by wire transfer of immediately
                  available funds.

         (d)      Any Subject Securities not sold pursuant to the provisions of
                  this Section 5 may be sold (in compliance with Section 6
                  below) to the person identified in the related Sale Notice for
                  a period of 60 days following the expiration of the Option
                  Period or to any person or persons at a price not lower than
                  the price specified in the Sale Notice and on other terms not
                  materially more favorable to the purchaser than those
                  specified in the Sale Notice. Any Subject Securities not sold
                  by such 60th day shall again be subject to the restrictions
                  contained in this Agreement.

         Section 6. Tag-Along Rights. (a) In the event that any Stockholder (for
purposes of this Section 6, a "Selling Stockholder") proposes to sell, exchange,
transfer or in any other manner dispose of shares of Common Stock held by such
Selling Stockholder, whether in one transaction or in a series of related
transactions (any of the foregoing, a "Sale"), then such Selling Stockholder
shall give written notice (a "Notice of Intention to Sell") to the Company
setting forth in reasonable detail the terms and conditions of such proposed
Sale. In the event that the terms and/or conditions set forth in the Notice of
Intention to Sell are thereafter amended in any respect, the Selling Stockholder
shall give written notice (an "Amended Notice") of the amended terms and
conditions of the proposed Sale to the Company. Within three business days after
its receipt of any Notice of Intention to Sell or any Amended Notice, the
Company shall forward copies thereof to each of the other Stockholders. The
Selling Stockholder shall provide additional information with respect to the
proposed Sale as reasonably requested by the Stockholders.

         (b)      Each Stockholder other than the Selling Stockholder shall have
the right, exercisable upon written notice to the Company within 20 days after
such Stockholder's receipt of any Notice of Intention to Sell, or, if later,
within 7 days of such Stockholder's receipt of the most recent Amended Notice,
to participate in the proposed Sale by the Selling Stockholder to the proposed
purchaser on the terms and conditions set forth in such Notice of Intention to
Sell or the most recent Amended Notice, as the case may be (such participation
rights being hereinafter referred to as "tag-along" rights). Each Stockholder
may participate with respect to the shares of Common Stock owned by such
Stockholder in an amount equal to the product obtained by multiplying (i) the
aggregate number of shares of Common Stock owned by such Stockholder by (ii) a
fraction, the numerator of which is equal to the number of shares of Common
Stock proposed to be sold or transferred by the Selling Stockholder and the
denominator of which is the aggregate number of shares of Common Stock owned by
the Selling Stockholder and any other participating Stockholders or other
holders who have been granted the same rights to participate in such proposed
Sale. Any Stockholders that have not notified the

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Company of their intent to exercise tag-along rights within 7 days of receipt of
an Amended Notice shall be deemed to have elected not to exercise such tag-along
rights with respect to the Sale contemplated by such Amended Notice (regardless
of their election pursuant to the Notice of Intention to Sell relating to such
Sale). If one or more Stockholders or other holders of shares of Common Stock
who have been granted the same rights to participate in such proposed Sale
granted to the Stockholders hereunder elect not to include the maximum number of
shares of Common Stock which such holders would have been permitted to include
in a proposed Sale, the Selling Stockholders, or such remaining holders of
shares of Common Stock, or any of them, may sell in the proposed Sale a number
of additional shares of Common Stock owned by any of them equal to their pro
rata portion of the number of shares of Common Stock eligible to be included in
the proposed Sale and not so elected to be included (the "Eligible Shares"),
based on the relative number of shares of Common Stock then held by each such
holder, and such additional shares of Common Stock which any such holder or
holders propose to sell shall not be included in any calculation made pursuant
to the second sentence of this Section 6(b) for the purpose of determining the
number of shares of Common Stock which the Stockholder will be permitted to
include in a proposed Sale. The Stockholders may sell in the proposed Sale
additional shares of Common Stock owned by them equal to any remaining Eligible
Shares which will not be included in the proposed Sale pursuant to the
foregoing.

         (c)      Each Stockholder participating in the proposed Sale shall
deliver to the Company, as agent for such participating Stockholder, for
transfer to the proposed acquiror one or more certificates, properly endorsed
for transfer or accompanied by stock transfer powers duly endorsed for transfer,
with all stock transfer taxes paid and stamps affixed, that represent the number
of shares of Common Stock that such Stockholder elects to dispose of pursuant to
Section 6(b). The consummation of such proposed Sale shall be subject to the
sole discretion of the Selling Stockholder, who shall have no liability or
obligation whatsoever to any other Stockholder participating therein other than
to obtain for such Stockholder the same terms and conditions as those set forth
in the Notice of Intention to Sell or any Amended Notice.

         (d)      A stock certificate or certificates representing the number of
shares of Common Stock to be disposed of by any Stockholder pursuant to Section
6(b) hereof shall be transferred by the Company to the purchaser upon the
consummation of the Sale pursuant to the terms and conditions specified in the
Notice of Intention to Sell or the Amended Notice and the Company shall promptly
thereafter remit to such Stockholder (i) that portion of the proceeds of the
Sale to which such Stockholder is entitled by reason of such participation and
(ii) a stock certificate representing any balance of shares of Common Stock that
were not so disposed of (or all shares of Common Stock, in the event the
proposed Sale is not consummated).

         (e)      Anything herein to the contrary notwithstanding, no tag-along
rights of any Stockholder shall apply hereunder with respect to (i) a transfer
by any other Stockholder to an Affiliate of such Stockholder; (ii) any
distributions or transfers by a Stockholder which is a partnership to its
partners (including any of its limited partners);

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(iii) in the case of a Stockholder who is an individual, transfer by such
Stockholder to the spouse or lineal descendants of such Stockholder, including,
without limitation, transfer by bequest or devise, or to a trust or trusts for
the benefit of such Stockholder or any of the foregoing; or (iv) transfers made
in connection with a public offering; provided that in cases (i), (ii) or (iii),
such transferee agrees to become a party to this Agreement.

         Section 7. Covenant Not to Compete. In consideration of the Company
entering into this Agreement with the Stockholders, each of KKR Fund, WCAS VII
and their respective affiliated investment vehicles agrees effective as of the
date hereof, for so long as such Stockholder owns any shares of the Company and
for a period of one year thereafter (the "Noncompete Period"), such Stockholder
shall not, directly or indirectly, engage in any business which principally
engages in owning or managing cardiac care hospitals, centers or clinics in the
United States. For purposes of this Agreement, the phrase "directly or
indirectly engage in" shall include any direct or indirect ownership or profit
participation interest in such enterprise, whether as an owner, stockholder,
partner, joint venturer or otherwise (other than an ownership position of less
than 5% in any company whose shares of stock are publicly traded); provided,
however, that nothing in this Agreement shall prevent KKR Fund or WCAS VII or
any of their respective Affiliates from owning or having a financial interest in
any general acute care hospitals, centers or clinics.

         Section 8. Legend on Stock Certificates. Each certificate representing
shares of Common Stock shall, conspicuously bear the following legend until such
time as the shares represented thereby are no longer subject to the provisions
hereof:

         "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
         TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR
         OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT,
         PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE
         PROVISIONS OF THE STOCKHOLDERS' AGREEMENT DATED AS OF JULY
         31, 1998 BETWEEN MEDCATH HOLDINGS, INC. (THE "COMPANY") AND
         THE STOCKHOLDER NAMED ON THE FACE HEREOF, A COPY OF WHICH IS
         ON FILE WITH THE SECRETARY OF THE COMPANY."

         The Company covenants that it shall keep a copy of this Agreement on
file at the address listed in Section 16 for the purpose of furnishing copies to
the parties hereto.

         Section 9. Duration of Agreement. This Agreement shall terminate upon
the earliest to occur of (i) the sale, lease or transfer, whether direct or
indirect, of all or substantially all of the assets of the Company and its
subsidiaries, taken as a whole, in one transaction or a series of related
transactions, to any person or persons, or (ii) with respect to any Stockholder,
the date on which such Stockholder no longer owns any shares of Common Stock;
provided, however, that the obligations of a Stockholder set forth in Section 7
hereof shall survive any termination of this Agreement pursuant to this Section
9.

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         For purposes of this Section 9: (i) the term "person" shall have the
meaning set forth in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), whether or not applicable, (ii) the term
"beneficial owner" shall have the meaning set forth in Rules 13d-3 and 13d-5
under the Exchange Act, whether or not applicable, except that a person shall be
deemed to have "beneficial ownership" of all shares that any such person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time or upon the occurrence of certain events and (iii) any
person will be deemed to beneficially own any voting stock of the Company so
long as such person beneficially owns, directly or indirectly, in the aggregate
a majority of the voting stock of a registered holder of the voting stock of the
Company.

         Section 10. Management. Notwithstanding anything to the contrary in
Section 1 hereof, on and after the date hereof and for so long as it owns any
equity or debt securities of the Company, each of KKR Fund and WCAS VII shall
have the right to elect at least one member of the Board of Directors of the
Company and shall also have the right to substantially participate in and
substantially influence the conduct of the Company's management and its business
through such Stockholder's representation on the Company's Board of Directors.

         Section 11. Nondisclosure of Confidential Information. (a) At any time
during or after the term of this Agreement, none of the Stockholders shall,
without the prior written consent of the Company, use, divulge, disclose or make
accessible to any other person, firm, partnership, corporation or other entity
any Confidential Information (as hereinafter defined) pertaining to the business
of the Company or any of its subsidiaries, except (i) while such Stockholder
owns shares of Common Stock, in the business of and for the benefit of the
Company, (ii) as determined in such Stockholder's sole discretion, to providers
or prospective providers of financing to the Stockholder, (iii) to any general
or limited partners or members (if applicable) of such Stockholder, or any of
their respective partners or members or (iv) when required to do so by a court
of competent jurisdiction, by ally governmental agency having supervisory
authority over the business of the Company, or by an administrative body or
legislative body (including a committee thereof) with jurisdiction to order such
Stockholder to divulge, disclose or make accessible such information; provided,
that notwithstanding the provisions of clause (iii) above, no Stockholder shall
divulge, disclose or make accessible to any limited partner of such Stockholder
or ally limited partner of any member of such Stockholder Confidential
Information regarding the markets in which the Company is considering or engaged
in market development activities or the identities of prospective joint venture
partners. For purposes of this Section 11(a), "Confidential Information" shall
mean non-public information concerning the financial data, strategic business
plan and other non-public, proprietary and confidential information of the
Company, its subsidiaries or their respective subsidiaries as in existence as of
the date of the termination of this Agreement that, in any case, is not
otherwise available to the public (other than by the Stockholder's breach of the
terms hereof).

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         (b)      Notwithstanding any other provision of this Agreement, the
Company shall be the only party entitled to enforce any rights or obligations
arising pursuant to Section 11(a).

         Section 12. Representations and Warranties. Each Stockholder, severally
and not jointly, represents and warrants to the Company and the other
Stockholders as follows:

         (a)      The execution, delivery and performance of this Agreement by
                  such Stockholder will not violate any provision of applicable
                  law, any order of any court or other agency of government, or
                  any provision of any indenture, agreement or other instrument
                  to which such Stockholder or any of its or his properties or
                  assets is bound, or conflict with, result in a breach of or
                  constitute (with due notice or lapse of time or both) a
                  default under any such indenture, agreement or other
                  instrument.

         (b)      This Agreement has been duly executed and delivered by such
                  Stockholder, and when executed by the other parties hereto
                  will constitute the legal, valid and binding obligation of
                  such Stockholder, enforceable in accordance with its terms.

         Section 13. Headings. Headings of articles, sections and paragraphs of
this Agreement are inserted for convenience of reference only and shall not
affect the interpretation or be deemed to constitute a part hereof.

         Section 14. Severability. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein shall, for any reason, be held to be invalid, illegal or unenforceable,
such illegality, invalidity or unenforceability shall not affect any other
provisions of this Agreement.

         Section 15. Benefits of Agreement. Nothing expressed by or mentioned in
this Agreement is intended or shall be construed to give any person other than
the parties hereto and their respective successors and permitted assigns any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any position herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of the parties hereto and their respective successors and permitted
assigns; provided, however, that the Management Contributors shall be entitled
to rights as third-party beneficiaries with respect to the provisions of Section
1 hereof (other than the provisos in clauses (b)(i) and (b)(ii) of Section 1).
Notwithstanding anything in this Section 15 to the contrary, subject to
compliance with the terms of this Agreement, each Stockholder shall have the
right to assign its interests hereunder to any transferee of the capital stock
of the Company held by such Stockholder in compliance with this Agreement;
provided, however, that the rights of a Stockholder to designate directors
pursuant to Section 1 are limited to the parties hereto and shall not be
assigned or transferred to any transferee; and provided, further, that any
transferee shall agree in writing with the parties hereto to be bound by, and to
comply with, all applicable provisions of this Agreement and to be deemed to be
a Stockholder for purposes of this

                                       11
<PAGE>   12

Agreement. In addition, each Stockholder shall have the right, without the
consent of the other parties hereto, to assign its rights as an Offeree
Stockholder under Section 5 to any Affiliate of such Stockholder.

         Section 16. Notices. Any notice or other communications required or
permitted hereunder shall be deemed to be sufficient and received if contained
in a written instrument delivered in person or by courier or duly sent by first
class certified mail, postage prepaid, or by facsimile addressed to such party
at the address or facsimile number set forth below:

         (1)      if to the Company, to it at:

                           MedCath Holdings, Inc.
                           7621 Little Avenue, Suite 106
                           Charlotte, North Carolina 28226
                           Attention: Richard J. Post
                           Facsimile: 704-541-2615

         (2)      if to KKR Fund, to it at:

                           c/o Kohlberg Kravis Roberts & Co.
                           2800 Sand Hill Road, Suite 200
                           Menlo Park, California 94025
                           Attention: Edward A. Gilhuly
                           Facsimile: 650-233-6544

         (3)      if to a WCAS Stockholder, to it at:

                           Welsh, Carson, Anderson & Stowe
                           320 Park Avenue, Suite 2500
                           New York, New York 10022
                           Attention: Paul B. Queally
                           Facsimile: 212-893-9575

or, in any case, at such other address or facsimile number as shall have been
furnished in writing by such party to the other parties hereto. All such
notices, requests, consents and other communications shall be deemed to have
been received (a) in the case of personal or courier delivery, on the date of
such delivery, (b) in the case of mailing, on the fifth business day following
the date of such mailing and (c) in the case of facsimile, when received.

         Section 17. Modification. Neither this Agreement nor any provision
hereof may be modified, changed, discharged or terminated except by an
instrument in writing signed by the Stockholders; provided, however, that the
provisions of Sections 2 and 7 may be modified, changed, discharged or
terminated only by a written instrument signed by the Stockholders and the
Company, and, in the case of Section 7 only, following a good faith

                                       12
<PAGE>   13

determination by the Board of Directors of the Company that any such
modification, change, discharge or termination of the provisions of Section 7
will not have a material adverse effect on the Company; and provided, further,
that the provisions of Section 1 (other than the provisos in clauses (b)(i) and
(b)(ii)) may not be modified, changed, discharged or terminated without the
written consent of the Management Contributors.

         Section 18. Counterparts. This Agreement may be executed in any number
of counterparts, and each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall constitute but one
agreement.

         SECTION 19. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
ENFORCEABLE UNDER, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK APPLICABLE TO TRANSACTIONS TO BE PERFORMED WITHIN THAT STATE.

                                       13
<PAGE>   14

         IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement is a sealed instrument, all as of the day and year first above
written.

                                       MEDCATH HOLDINGS, INC.

                                       By: /s/  MedCath Holdings, Inc.
                                          --------------------------------------
                                       Name:
                                       Title:

                                       MEDCATH 1998 LLC

                                       By: KKR 1996 FUND, L.P.,
                                                a Member

                                       By: KKR Associates 1996, L.P.,
                                              its General Partner

                                       By: KKR 1996 GP LLC,
                                           its General Partner

                                       By: /s/ Edward A. Gilhuly
                                          --------------------------------------
                                       Name:  Edward A. Gilhuly
                                       Title: Member

<PAGE>   15

                                       WELSH, CARSON, ANDERSON
                                       & STOWE VII, L.P.
                                       By WCAS VII Partners, L.P.
                                       General Partner

                                       By: /s/ illegible signature
                                          --------------------------------------
                                                     General Partner

                                       WCAS HEALTHCARE PARTNERS, L.P.
                                       By: WCAS HP PARTNERS
                                       General Partner

                                       By: /s/ illegible signature
                                          --------------------------------------
                                                     General Partner

                                       Patrick J. Welsh
                                       Russell L. Carson
                                       Bruce K. Anderson
                                       Richard H. Stowe
                                       Andrew M. Paul
                                       Thomas E. McInerney
                                       Robert A. Minicucci
                                       Anthony J. de Nicola
                                       Paul B. Queally

                                       By: /s/ illegible signature
                                           -------------------------------------
                                       Name:
                                       Individually and as Attorney-in-Fact

                                       /s/ Lawrence B. Sorrell
                                       -----------------------------------------
                                       Lawrence B. Sorrell

                                       /s/ Rudolph E. Rupert
                                       -----------------------------------------
                                       Rudolph E. Rupert

                                       /s/ D. Scott Mackesy
                                       -----------------------------------------
                                       D. Scott Mackesy

                                       /s/ James T. Kelly
                                       -----------------------------------------
                                       James T. Kelly<PAGE>   1
                                                                     EXHIBIT 4.4

                          REGISTRATION RIGHTS AGREEMENT

                                                                   July 31, 1998

To the several persons listed
in Schedule I attached hereto:

Ladies and Gentlemen:

                  This will confirm that in consideration of the acquisition on
the date hereof (the "Closing Date") by the several persons listed on Schedule I
hereto of an aggregate 11,860,571 shares of Common Stock, $.01 par value per
share, of MedCath Holdings, Inc., a Delaware corporation (the "Company"), in
exchange for their respective contributions of cash and/or shares of common
stock of MedCath Incorporated ("MedCath"), pursuant to (i) the Contribution
Agreement dated as of the date hereof (the "Contribution Agreement") among the
Company and the several persons named in Schedule I thereto and (ii) a
Subscription Agreement between certain physicians and the Company, and as an
inducement to them to consummate the transactions contemplated by the
Contribution Agreement, the Company hereby covenants and agrees with each of
you, and with each subsequent holder of Restricted Stock (as such term is
defined herein) as follows:

                  1.       Certain Definitions. As used herein, the following
terms shall have the following respective meanings:

                  "Common Stock" shall mean the Common Stock, $.01 par value per
share, of the Company, as constituted as of the date of this Agreement, subject
to adjustment pursuant to the provisions of Section 8 hereof.

                  "Commission" shall mean the Securities and Exchange
Commission, or any other federal agency at the time administering the Securities
Act.

                  "Exchange Act" shall mean the Securities Exchange Act of 1934
or any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
<PAGE>   2

                  "KKR Shares" shall mean the shares of Common Stock received in
exchange on the date hereof pursuant to the Contribution Agreement by MedCath
1998 LLC ("KKR Fund").

                  "Registration Expenses" shall mean the expenses so described
in Section 6 hereof.

                  "Restricted Stock" shall mean any shares of capital stock of
the Company, the certificates for which are required to bear the legend set
forth in Section 2 hereof.

                  "Securities Act" shall mean the Securities Act of 1933 or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.

                  "Selling Expenses" shall mean the expenses so described in
Section 6 hereof.

                  "WCAS Shares" shall mean the shares of Common Stock received
in exchange on the date hereof pursuant to the Contribution Agreement by the
persons listed on Schedule I hereto under the heading "WCAS Stockholders."

                  2. Restrictive Legend. Each certificate representing the KKR
Shares and the WCAS Shares, and each certificate issued upon exchange or
transfer of any of such securities, as the case may be, other than in a public
sale or as otherwise permitted pursuant to any stockholders' agreement affecting
such shares, shall be stamped or otherwise imprinted with a legend substantially
in the following form:

                  "THE SHARES REPRESENTED BY THIS CERTIFICATE
                  HAVE NOT BEEN REGISTERED UNDER THE
                  SECURITIES ACT OF 1933, AS AMENDED, AND MAY
                  NOT BE SOLD, TRANSFERRED OR OTHERWISE
                  DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED
                  UNDER THAT ACT OR AN EXEMPTION FROM
                  REGISTRATION IS AVAILABLE."

                  3.       Required Registration.

                  (a)      At any time, either of WCAS VII (on behalf of the
WCAS Stockholders) or KKR Fund may request the Company to register under the
Securities Act all or any portion of the Restricted Stock held by such
requesting holder or holders for sale in the manner specified in such notice;
provided, however, that the only securities which the Company shall be required
to register pursuant hereto shall be shares of Common Stock.

                  (b)      Subject to Section 2(a)(v) of the Stockholders'
Agreement among the Company, KKR Fund and the WCAS Stockholders (listed on
Schedule I hereto), promptly following receipt of any notice under paragraph
3(a) above, the Company shall immediately notify any holders of Restricted Stock
from whom notice has not been received and shall use its best

                                       2
<PAGE>   3

efforts to register under the Securities Act, for public sale in accordance with
the method of disposition specified in such notice from requesting holders, the
number of shares of Restricted Stock specified in such notice (and in any
notices received from other holders of Restricted Stock within 20 days after
their receipt of such notice from the Company); provided, however, that if a
proposed registration involves an underwritten offering and the managing
underwriter advises the Company in writing that, in its opinion, the number of
shares of Common Stock requested to be included in the proposed registration
exceeds that number which can be sold in such offering, so as to be likely to
have an adverse effect on the price, timing or distribution of the shares of
Common Stock offered in such offering as contemplated by the Company, then the
Company will include in the proposed registration (i) first, 100% of the shares
of Common Stock the Company proposes to sell and (ii) second, to the extent of
the number of shares of Common Stock requested to be included in such
registration which, in the opinion of such managing underwriter, can be sold
without having the adverse effect referred to above, the number of shares of
Common Stock that holders of Restricted Stock have requested to be included in
the proposed registration, such amount to be allocated pro rata among all
requesting holders on the basis of the relative number of shares of Common Stock
then held by each such holder (provided that any shares thereby allocated to any
such holder that exceed such holder's request will be reallocated among the
remaining requesting holders in like manner). If such method of disposition
shall be an underwritten public offering, the selling holders of at least
two-thirds of the Restricted Stock included in the offering may designate the
managing underwriter of such offering, subject to the approval of the Company,
which approval shall not be unreasonably withheld. The Company shall be
obligated to register Restricted Stock pursuant to this paragraph 3(b) on six
occasions (with respect to requests by KKR Fund) and five occasions (with
respect to requests by WCAS VII) only and each demand shall request registration
of at least 15% of the amount of Restricted Stock held by the requesting party
and its affiliates as of the date hereof. Notwithstanding anything to the
contrary contained herein, the obligation of the Company under this paragraph
3(b) shall be deemed satisfied only when a registration statement covering all
shares of Restricted Stock specified in notices received as aforesaid, for sale
in accordance with the method of disposition specified by the requesting holder,
shall have become effective and, if such method of disposition is a firm
commitment underwritten public offering, all such shares shall have been sold
pursuant thereto.

                  (c)      The Company shall be entitled to include in any
registration statement referred to in this Section 3, for sale in accordance
with the method of disposition specified by the requesting holders, shares of
Common Stock to be sold by the Company for its own account, except as and to the
extent that, in the opinion of the managing underwriter (if such method of
disposition shall be an underwritten public offering), such inclusion would
adversely affect the marketing of the Restricted Stock to be sold. Except as
provided in this paragraph (c), the Company will not effect any other
registration of its Common Stock, whether for its own account or that of other
holders, from the date of receipt of a notice from requesting holders pursuant
to this Section 3 until the completion of the period of distribution of the
registration contemplated thereby.

                                       3
<PAGE>   4

                  4.       Incidental Registration. If the Company at any time
(other than pursuant to Section 3 hereof) proposes to register any of its Common
Stock under the Securities Act for sale to the public, whether for its own
account or for the account of other securityholders or both (except with respect
to registration statements on Form S-4 or S-8 or another form not available for
registering the Restricted Stock for sale to the public), it will give written
notice at such time to all holders of outstanding Restricted Stock of its
intention to do so. Upon the written request of any such holder, given within
twenty (20) days after receipt of any such notice by the Company, to register
any of its Restricted Stock (which request shall state the intended method of
disposition thereof), the Company will use its best efforts to cause the
Restricted Stock, as to which registration shall have been so requested, to be
included in the securities to be covered by the registration statement proposed
to be filed by the Company, all to the extent requisite to permit the sale or
other disposition by the holder (in accordance with its written request) of such
Restricted Stock so registered; provided, however, that nothing herein shall
prevent the Company from abandoning or delaying such registration at any time;
provided, further, however, that the only securities which the Company shall be
required to register pursuant hereto shall be shares of Common Stock. In the
event that any registration pursuant to this Section 4 shall be, in whole or in
part, an underwritten public offering of Common Stock, any request by a holder
pursuant to this Section 4 to register Restricted Stock shall specify that such
Restricted Stock is to be included in the underwriting on the same terms and
conditions as the shares of Common Stock otherwise being sold through
underwriters under such registration. If a proposed registration involves an
underwritten offering and the managing underwriter advises the Company in
writing that, in its opinion the number of shares of Common Stock requested to
be included in the proposed registration exceeds that number which can be sold
in such offering, so as to be likely to have an adverse effect on the price,
timing or distribution of the shares of Common Stock offered in such offering as
contemplated by the Company, then the Company will include in the proposed
registration (i) first, 100% of the shares of Common Stock the Company proposes
to sell and (ii) second, to the extent of the number of shares of Common Stock
requested to be included in such registration which, in the opinion of such
managing underwriter, can be sold without having the adverse effect referred to
above, the number of shares of Common Stock that holders of Restricted Stock
have requested to be included in the proposed registration, such amount to be
allocated pro rata among all requesting holders on the basis of the relative
number of shares of Common Stock then held by each such holder (provided that
any shares thereby allocated to any such holder that exceed such holder's
request will be reallocated among the remaining requesting holders in like
manner).

                  Notwithstanding anything to the contrary contained in this
Agreement, in the event that there is a firm commitment underwritten public
offering of securities of the Company pursuant to a registration covering
Restricted Stock and a holder of Restricted Stock does not elect to sell his
Restricted Stock to the underwriters of the Company's securities in connection
with such offering, such holder shall refrain from selling such Restricted Stock
during the period of distribution of the Company's securities by such
underwriters and the period in which the underwriting syndicate participates in
the after market; provided, however, that such holder shall, in any event, be
entitled to sell its Restricted Stock commencing on the 180th day after the
effective date of such registration statement.

                                       4
<PAGE>   5

                  The rights of any holder of Restricted Stock to include its
Restricted Stock in any registration statement filed pursuant to this Section 4
shall terminate as to any shares of Restricted Stock to the extent such shares
become available for resale without restrictions pursuant to Rule 144 under the
Securities Act.

                  5.       Registration Procedures. If and whenever the Company
is required by the provisions of Section 3 or 4 hereof to use its best efforts
to effect the registration of any of the Restricted Stock under the Securities
Act, the Company will, as expeditiously as possible:

                  (a)      prepare (and afford one counsel for the selling
holders reasonable opportunity to review and comment thereon) and file with the
Commission a registration statement (which, in the case of an underwritten
public offering pursuant to Section 3 hereof, shall be on Form S-1 or another
form of general applicability satisfactory to the managing underwriter selected
as therein provided) with respect to such securities and use its best efforts to
cause such registration statement to become and remain effective for the period
of the distribution contemplated thereby (determined as hereinafter provided);

                  (b)      prepare (and afford one counsel for the selling
holders reasonable opportunity to review and comment thereon) and file with the
Commission such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective for the period specified in paragraph (a) above
and as comply with the provisions of the Securities Act with respect to the
disposition of all Restricted Stock covered by such registration statement in
accordance with the sellers' intended method of disposition set forth in such
registration statement for such period;

                  (c)      furnish to each seller and to each underwriter such
number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons may reasonably
request in order to facilitate the public sale or other disposition of the
Restricted Stock covered by such registration statement;

                  (d)      use its best efforts to register or qualify the
Restricted Stock covered by such registration statement under the securities or
blue sky laws of such jurisdictions as the sellers of Restricted Stock or, in
the case of an underwritten public offering, the managing underwriter, shall
reasonably request;

                  (e)      immediately notify each seller under such
registration statement and each underwriter, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus contained in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing;

                  (f)      use its best efforts (if the offering is
underwritten) to furnish, at the request of any seller, on the date that
Restricted Stock is delivered to the underwriters for sale pursuant

                                       5
<PAGE>   6

to such registration: (i) an opinion dated such date of counsel representing the
Company for the purposes of such registration, addressed to the underwriters and
to such seller, stating that such registration statement has become effective
under the Securities Act and that (A) to the best knowledge of such counsel, no
stop order suspending the effectiveness thereof has been issued and no
proceedings for that purpose have been instituted or are pending or contemplated
under the Securities Act, (B) the registration statement, the related
prospectus, and each amendment or supplement thereof, comply as to form in all
material respects with the requirements of the Securities Act and the applicable
rules and regulations of the Commission thereunder (except that such counsel
need express no opinion as to financial statements, the notes thereto, and the
financial schedules and other financial and statistical data contained therein)
and (C) to such other effects as may reasonably be requested by counsel for the
underwriters or by such seller or its counsel, and (ii) a letter dated such date
from the independent public accountants retained by the Company, addressed to
the underwriters, stating that they are independent public accountants within
the meaning of the Securities Act and that, in the opinion of such accountants,
the financial statements of the Company included in the registration statement
or the prospectus, or any amendment or supplement thereof, comply as to form in
all material respects with the applicable accounting requirements of the
Securities Act, and such letter shall additionally cover such other financial
matters (including information as to the period ending no more than five
business days prior to the date of such letter) with respect to the registration
in respect of which such letter is being given as such underwriters or seller
may reasonably request; and

                  (g)      make available for inspection by each seller, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by such seller
or underwriter, all financial and other records, pertinent corporate documents
and properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such registration
statement and permit such seller, attorney, accountant or agent to participate
in the preparation of such registration statement.

For purposes of paragraphs (a) and (b) above and of Section 3(c) hereof, the
period of distribution of Restricted Stock in a firm commitment underwritten
public offering shall be deemed to extend until each underwriter has completed
the distribution of all securities purchased by it, and the period of
distribution of Restricted Stock in any other registration shall be deemed to
extend until the earlier of the sale of all Restricted Stock covered thereby or
six months after the effective date thereof.

                  In connection with each registration hereunder, the selling
holders of Restricted Stock will furnish to the Company in writing such
information with respect to themselves and the proposed distribution by them as
shall be reasonably necessary in order to assure compliance with federal and
applicable state securities laws.

                  In connection with each registration pursuant to Sections 3
and 4 hereof covering an underwritten public offering, the Company agrees to
enter into a written agreement with the

                                       6
<PAGE>   7

managing underwriter selected in the manner herein provided in such form and
containing such provisions as are customary in the securities business for such
an arrangement between major underwriters and companies of the Company's size
and investment stature, provided, however, that such agreement shall not contain
any such provision applicable to the Company which is inconsistent with the
provisions hereof and provided, further, however, that the time and place of he
closing under said agreement shall be as mutually agreed upon among the Company,
such managing underwriter and the selling holders of Restricted Stock.

                  6.       Expenses. All expenses incurred by the Company in
complying with Sections 3 and 4 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel and independent public accountants for the Company, fees of the National
Association of Securities Dealers, Inc. or any successor thereto, transfer
taxes, fees of transfer agents and registrars, costs of insurance and reasonable
fees and expenses of one counsel for all sellers of Restricted Stock, but
excluding any Selling Expenses, are herein called "Registration Expenses." All
underwriting discounts and selling commissions applicable to the sale of
Restricted Stock are herein called "Selling Expenses."

                  The Company will pay all Registration Expenses in connection
with each registration statement filed pursuant to Section 3 or 4 hereof. All
Selling Expenses in connection with any registration statement filed pursuant to
Section 3 or 4 hereof shall be borne by the participating sellers in proportion
to the number of shares sold by each, or by such persons other than the Company
(except to the extent the Company shall be a seller) as they may agree.

                  7.       Indemnification. In the event of a registration of
any of the Restricted Stock under the Securities Act pursuant to Section 3 or 4
hereof, the Company will indemnify and hold harmless each seller of such
Restricted Stock thereunder and each underwriter of Restricted Stock thereunder
and each other person, if any, who controls such seller or underwriter within
the meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which such seller or underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such Restricted Stock was registered under the Securities Act pursuant to
Section 3 or 4, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each such Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case if and to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished by such seller, such underwriter or such controlling person in writing
specifically for use in such registration statement or prospectus.

                                       7
<PAGE>   8

                  In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to Section 3 or 4 hereof, each seller of such
Restricted Stock thereunder, severally and not jointly, will indemnify and hold
harmless the Company and each person, if any, who controls the Company within
the meaning of the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the Securities Act,
against all losses, claims, damages or liabilities, joint or several, to which
the Company or such officer or director or underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the registration statement under which such Restricted Stock
was registered under the Securities Act pursuant to Section 3 or 4, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company and each such officer, director, underwriter and controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that such seller will be liable hereunder in any such case if
and only to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with information
pertaining to such seller, as such, furnished in writing to the Company by such
seller specifically for use in such registration statement or prospectus;
provided, further, however, that the liability of each seller hereunder shall be
limited to the proportion of any such loss, claim, damage, liability or expense
which is equal to the proportion that the public offering price of shares sold
by such seller under such registration statement bears to the total public
offering price of all securities sold thereunder, but not to exceed the proceeds
(net of underwriting discounts and commissions) received by such seller from the
sale of Restricted Stock covered by such registration statement.

                  Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to any indemnified party other than under this Section 7. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel satisfactory to such indemnified
party, and, after notice from the indemnifying party to such indemnified party
of its election so to assume and undertake the defense thereof, the indemnifying
party shall not be liable to such indemnified party under this Section 7 for any
legal expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation and of
liaison with counsel so selected; provided, however, that, if the defendants in
any such action include both the indemnified party and the indemnifying party
and the interests of the indemnified party reasonably may be deemed to conflict
with the interests of the indemnifying

                                       8
<PAGE>   9

party, the indemnified party shall have the right to select a separate counsel
and to assume such legal defenses and otherwise to participate in the defense of
such action, with the expenses and fees of such separate counsel and other
expenses related to such participation to be reimbursed by the indemnifying
party as incurred.

                  Notwithstanding the foregoing, any indemnified party shall
have the right to retain its own counsel in any such action, but the fees and
disbursements of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party shall have failed to retain counsel for such
indemnified party as aforesaid, (ii) the interests of such indemnified party may
be reasonably deemed to conflict with the interests of the indemnifying party as
aforesaid or (iii) the indemnifying party and such indemnified party shall have
mutually agreed to the retention of such counsel. It is understood that the
indemnifying party shall not, in connection with any action or related actions
in the same jurisdiction, be liable for the fees and disbursements of more than
one separate firm qualified in such jurisdiction to act as counsel for the
indemnified party (except to the extent set forth in clause (ii) and (iii) in
the prior sentence of this paragraph). The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.

                  If the indemnification provided for in the first two
paragraphs of this Section 7 is unavailable or insufficient to hold harmless an
indemnified party under such paragraphs in respect of any losses, claims,
damages or liabilities or actions in respect thereof referred to therein, then
each indemnifying party shall in lieu of indemnifying such indemnified party
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or actions in such proportion as
appropriate to reflect the relative fault of the Company, on the one hand, and
the underwriters and the sellers of such Restricted Stock, on the other, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or actions as well as any other relevant equitable
considerations, including the failure to give any notice under the third
paragraph of this Section 7. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact relates to information supplied by the Company, on the one hand,
or the underwriters and the sellers of such Restricted Stock, on the other, and
to the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
each of you agree that it would not be just and equitable if contributions
pursuant to this paragraph were determined by pro rata allocation (even if all
of the sellers of such Restricted Stock were treated as one entity for such
purpose) or by any other method of allocation which did not take account of the
equitable considerations referred to above in this paragraph. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages,
liabilities or action in respect thereof, referred to above in this paragraph,
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this paragraph, the sellers
of such Restricted Stock shall not be required to contribute any amount in
excess of the amount, if any, by which the total price at which the Common Stock
sold by each of them was

                                       9
<PAGE>   10

offered to the public exceeds the amount of any damages which they would have
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission. No person guilty of fraudulent misrepresentations (within
the meaning of Section 11(f) of the Securities Act), shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation.

                  The indemnification of underwriters provided for in this
Section 7 shall be on such other terms and conditions as are at the time
customary and reasonably required by such underwriters. In that event the
indemnification of the sellers of Restricted Stock in such underwriting shall at
the sellers' request be modified to conform to such terms and conditions.

                  8.       Changes in Common Stock. If, and as often as, there
are any changes in the Common Stock by way of stock split, stock dividend,
combination or reclassification, or through merger, consolidation,
reorganization or recapitalization, or by any other means, appropriate
adjustment shall be made in the provisions hereof, as may be required, so that
the rights and privileges granted hereby shall continue with respect to the
Common Stock as so changed.

                  9.       Representations and Warranties of the Company. The
Company represents and warrants to you as follows:

                  (a)      The execution, delivery and performance of this
Agreement by the Company have been duly authorized by all requisite corporate
action and will not violate any provision of law, any order of any court or
other agency of government, the Certificate of Incorporation or By-laws of the
Company, or any provision of any indenture, agreement or other instrument to
which it or any of its properties or assets is bound, or conflict with, result
in a breach of or constitute (with due notice or lapse of time or both) a
default under any such indenture, agreement or other instrument, or result in
the creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the properties or assets of the Company.

                  (b)      This Agreement has been duly executed and delivered
by the Company and constitutes the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms, subject to considerations of
public policy in the case of the indemnification provisions hereof.

                  10.      Rule 144 Reporting. The Company agrees with you as
follows:

                  (a)      The Company shall make and keep public information
available, as those terms are understood and defined in Rule 144 under the
Securities Act, at all times from and after the date it is first required to do
so.

                  (b)      The Company shall file with the Commission in a
timely manner all reports and other documents as the Commission may prescribe
under Section 13(a) or 15(d) of the

                                       10
<PAGE>   11

Exchange Act at any time after the Company has become subject to such reporting
requirements of the Exchange Act.

                  (c)      The Company shall furnish to such holder of
Restricted Stock forthwith upon request (i) a written statement by the Company
as to its compliance with the reporting requirements of Rule 144 (at any time
from and after the date it first becomes subject to such reporting requirements)
and of the Securities Act and the Exchange Act (at any time after it has become
subject to such reporting requirements), (ii) a copy of the most recent annual
or quarterly report of the Company, and (iii) such other reports and documents
so filed as a holder may reasonably request to avail itself of any rule or
regulation of the Commission allowing a holder of Restricted Stock to sell any
such securities without registration.

                  11.      Miscellaneous.

                  (a)      All covenants and agreements contained in this
Agreement by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. Without limiting the generality of the foregoing,
the registration rights conferred herein on the holders of Restricted Stock
shall inure to the benefit of any and all subsequent holders from time to time
of the Restricted Stock for so long as the certificates representing the
Restricted Stock shall be required to bear the legend specified in Section 2
hereof.

                  (b)      In the event of a breach by the Company of any of its
obligations under this Agreement, each holder of Restricted Stock, in addition
to being entitled to exercise all rights provided herein or granted by law,
including recovery of damages, will be entitled to specific performance of its
rights under this Agreement. The Company and the other parties hereto agree that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach of the Company of any of the provisions of this Agreement and
hereby further agree that, in the event of any action for specific performance
in respect of such breach, the Company shall waive the defense that a remedy at
law would be adequate.

                  (c)      All notices, requests, consents and other
communications hereunder shall be in writing, and shall be personally delivered,
or shall be sent by national overnight courier service or by certified or
registered mail, postage prepaid and addressed as follows:

                  if to the Company, to it at:

                  MedCath Holdings, Inc.
                  7621 Little Avenue, Suite 106
                  Charlotte, North Carolina 28226
                  Attention:  Richard J.  Post
                  Facsimile:  704-541-2615

                  with copies to:

                                       11
<PAGE>   12

                  Simpson Thacher & Bartlett
                  425 Lexington Avenue
                  New York, New York 10017-3954
                  Attention:  Gary I. Horowitz
                  Facsimile:  212-455-2502

                  and

                  Reboul, MacMurray, Hewitt, Maynard & Kristol
                  45 Rockefeller Plaza
                  New York, New York 10111
                  Attention:  Karen C. Wiedemann
                  Facsimile:  212-841-5725

                  if to any holder of Restricted Stock, to it at the address set
         forth in Schedule I hereto;

                  if to any subsequent holder of Restricted Stock, to it at such
         address as may have been furnished to the Company in writing by such
         holder;

                  or, in any case, at such other address or addresses as shall
         have been furnished in writing to the Company (in the case of a holder
         of Restricted Stock) or to the holders of Restricted Stock (in the case
         of the Company).

                  (d)      This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to transactions to
be performed in that state.

                  (e)      This Agreement constitutes the entire agreement of
the parties with respect to the subject matter hereof and may not be modified or
amended except in writing signed by the Company and the holders of not less than
two-thirds of the Restricted Stock then outstanding; provided that no such
modification or amendment shall deprive any holder of Restricted Stock of any
material right under this Agreement without such holder's consent. The Company
will not grant any registration rights to any other person without the written
consent of the holders of at least two-thirds of the Restricted Stock then
outstanding if such rights could reasonably be expected to conflict with, or be
on a parity with, the rights of holders of Restricted Stock granted under this
Agreement.

                  (f)      This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

                                       12
<PAGE>   13

                  Please indicate your acceptance of the foregoing by signing
and returning the enclosed counterpart of this letter, whereupon this letter
(herein sometimes called "this Agreement") shall be a binding agreement between
the Company and you.

                                             Very truly yours,

                                             MEDCATH HOLDINGS, INC.

                                             By:
                                                ---------------------------
                                             Name:
                                             Title:

AGREED TO AND ACCEPTED
as of the date first
above written:

                                             MEDCATH 1998 LLC

                                             By: KKR 1996 FUND, L.P.,
                                                 a Member

                                             By: KKR Associates 1996, L.P.
                                                 its General Partner

                                             By: KKR 1996 GP LLC
                                                 its General Partner

                                             By:/s/ Edward A. Gilhuly
                                                ---------------------------
                                                Name: Edward A. Gilhuly
                                                Title:  Member
<PAGE>   14

                                             WCAS STOCKHOLDERS:

                                             WELSH, CARSON, ANDERSON
                                              & STOWE VII, L.P.

                                             By: WCAS VII Partners, L.P.
                                             General Partner

                                             By:/s/ Laura VanBuren
                                                ---------------------------
                                             Name:
                                             Title:

                                             WCAS HEALTHCARE PARTNERS, L.P.

                                             By:  WCAS HP Partners
                                             General Partner

                                             By:/s/ Laura VanBuren
                                                ---------------------------
                                             Name:
                                             Title: Attorney in Fact

                                             Patrick J. Welsh
                                             Russell L. Carson
                                             Bruce K. Anderson
                                             Richard H. Stowe
                                             Andrew M. Paul
                                             Thomas E. McInerney
                                             Robert A. Minicucci
                                             Anthony J. deNicola
                                             Paul B. Queally

                                             /s/ Laura VanBuren
                                             -----------------------
                                             By: Laura VanBuren
                                             Attorney-in-Fact
<PAGE>   15

                                             /s/ Lawrence B. Sorrell
                                             -----------------------
                                             Lawrence B. Sorrell

                                             /s/ Rudolph E. Rupert
                                             -----------------------
                                             Rudolph E. Rupert

                                             /s/ D. Scott Mackesy
                                             -----------------------
                                             D. Scott Mackesy

                                             /s/ James T. Kelly
                                             -----------------------
                                             James T. Kelly

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