Document:

<PAGE>

                                                                     EXHIBIT 4.1

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

                          ESPERION THERAPEUTICS, INC.

                          INVESTORS' RIGHTS AGREEMENT

                                 July 6, 1998

                       --------------------------------
<PAGE>

                               TABLE OF CONTENTS

SECTION 1....................................................................1

RESTRICTIONS ON TRANSFER; REGISTRATON RIGHTS.................................1
    1.1     Restrictions on Transfer.........................................1
    1.2     Certain Definitions..............................................1
    1.3     Restrictive Legend...............................................3
    1.4     Notice of Proposed Transfers.....................................4
    1.5     Holder's Requested Registration..................................5
    1.6     Company Registration.............................................7
    1.7     Form S-3 Registration............................................8
    1.8     Expenses of Registration.........................................9
    1.9     Lock-up..........................................................9
    1.10    Registration Procedures.........................................10
    1.11    Indemnification.................................................11
    1.12    Information by Holder...........................................13
    1.13    Rule 144 Reporting..............................................13
    1.14    Limitation on Subsequent Registrations..........................13
    1.15    Termination of Registration Rights..............................13

SECTION 2...................................................................13

COVENANTS OF THE COMPANY....................................................13
    2.1     Financial Information...........................................14
    2.2     Additional Information and Rights...............................14
    2.3     Termination of Financial Information Rights.....................15
    2.4     Confidentiality and Noncompetition Agreements...................15
    2.5     Employee and Other Stock Arrangements...........................15
    2.6     Corporate Existence.............................................16
    2.7     Books of Account and Reserves...................................16
    2.8     Stock Fully Paid; Reservation of Shares.........................16
    2.9     Replacement of Certificates Representing Preferred Shares.......16
    2.10    Material Changes and Litigation.................................16
    2.11    Restrictive Agreements Prohibited...............................16
    2.12    Expenses of Directors...........................................17
    2.13    By-laws.........................................................17
    2.14    Employee Nondisclosure and Developments Agreements;
            Noncompetition Agreements.......................................17
    2.15    Insurance.......................................................17
    2.16    Termination of Covenants........................................17

SECTION 3...................................................................17

PREEMPTIVE RIGHTS...........................................................17
    3.1     Preemptive Rights...............................................17
    3.2     Calculation of Number of Shares of Common Stock Held or
            Outstanding.....................................................18
    3.3     Notices With Respect to Proposed Issuance of New Securities.....18
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       3.4   Company's Right to Complete Proposed Sale of New Securities
             to the Extent Preemptive Rights are Not Exercised................18
       3.5   Expiration of Preemptive Rights..................................19
       3.6   Waiver of Antidilution Adjustment................................19

SECTION 4.....................................................................19

MISCELLANEOUS.................................................................20
       4.1   Governing Law....................................................20
       4.2   Successors and Assigns; Assignment of Rights.....................20
       4.3   Entire Agreement; Amendment; Waiver..............................20
       4.4   Notices, etc.....................................................20
       4.5   Delays or Omissions..............................................20
       4.6   Rights; Separability.............................................20
       4.7   Titles and Subtitles.............................................21
       4.8   Counterparts.....................................................21
       4.9   Aggregation of Stock.............................................21
       4.10  No Third Party Beneficiaries.....................................21
       4.11  Remedies.........................................................21
       4.12  Fees and Expenses................................................21
       4.13  Dispute Resolution...............................................21
--Schedule of Purchasers

EXHIBIT B - Form of Employee Nondisclosure and Developments Agreement

EXBIBIT C - Form of Noncompetition Agreement

<PAGE>

                          ESPERION THERAPEUTICS, INC.
                          INVESTORS' RIGHTS AGREEMENT

        This Investors' Rights Agreement (this "Agreement") is made and entered
into as of the 6th day of July, 1998, by and among ESPERION THERAPEUTICS, INC.,
a Delaware corporation (the "Company") and the persons identified on Exhibit A
                                                                     ---------
attached hereto (the "Purchasers").

        WHEREAS, the Purchasers are parties to the Securities Purchase Agreement
dated as of the date hereof between the Company and the Purchasers (the "Series
A Agreement"), certain of the Company's and such Purchasers' obligations under
which are conditioned upon the execution and delivery by such Purchasers and the
Company of this Agreement:

        NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties hereto agree as follows:

                                   SECTION 1
                 RESTRICTIONS ON TRANSFER: REGISTRATION RIGHTS
                 ---------------------------------------------

        1.1 Restrictions on Transfer. No Restricted Securities (as defined
            ------------------------
below) shall be sold, pledged, assigned, hypothecated, transferred, or otherwise
disposed of by any Holder except upon the conditions specified in this Section 1
hereof, which conditions are intended to ensure compliance with the provisions
of the Securities Act. Each Holder shall cause any proposed transferee of the
Restricted Securities held by a Holder to agree in writing to take and hold such
securities subject to the provisions and upon the conditions specified in this
Section 1 hereof.

        1.2 Certain Definitions. As used in this Agreement, the following
            -------------------
definitions shall apply:

            "Commission" means the Securities and Exchange Commission or any
             ----------
other federal agency at the time administering the Securities Act.

            "Common Stock" shall mean the Company's common stock par value
             ------------
$0.001 per share.

            "Conversion Stock" shall mean the shares of Common Stock issued or
             ----------------
issuable upon conversion of the Preferred Shares, together with any securities
issued or issuable, directly or indirectly, in respect of such securities upon
any stock split, stock dividend, recapitalization or the like.

            "Exchange Act" means the Securities Exchange Act of 1934, as
             ------------
amended, or any similar successor federal statue and the rules and regulations
promulgated thereunder, all as the same shall be in effect from time to time.

            "Holder" means any Purchaser who holds Registrable Securities and
             ------
any holder of Registrable Securities to whom the registration rights conferred
by this Agreement have been transferred pursuant to Section 4.2 hereof.

<PAGE>

        "IPO" shall mean the initial underwritten public offering pursuant to an
         ---
effective registration statement under the Securities Act covering the offer and
sale of Common Stock for the accounts of the Company.

        "New Securities" shall mean any shares of capital stock or other equity
         --------------
securities (or debt securities convertible into such equity securities) of the
Company, whether now authorized or not, and rights, options or warrants to
purchase said shares of capital stock and securities of any type whatsoever
that are, or may become, convertible into said share of capital stock or other
equity securities: provided however, that the term "New Securities" shall not
                    ----------------
include (i) securities issued upon conversion of the Preferred Shares, (ii)
securities issued pursuant to the acquisition of another corporation by the
Company or issued in connection with any merger, consolidation, combination,
purchase of all or substantially all of the assets or other reorganization which
shall be approved by the Board of Directors of the Company and the holders of at
least 51% of the Preferred Shares, (iii) securities issued pursuant to any
rights or agreement, including without limitation convertible securities,
provided that the preemptive rights established by Section 3 hereof apply with
respect to the initial sale or grant by the Company of such rights or agreements
(other than the rights or agreements described in subsections (v), (vi) and
(vii) of this definition), (iv) securities issued in connection with any stock
split, stock dividend or recapitalization of the Company, (v) up to 940,000
shares of Common Stock issued to certain of the Founders(as set forth in the
Series A Agreement) pursuant to the exercise of options outstanding on the date
hereof or pursuant to the exercise of options issued in accordance with Section
C.4(d)(i)(4)(H) of the Restated Certificate, (vi) up to 380,000 shares of Common
Stock issued to employees, consultants, officers or directors of the Company
pursuant to the exercise of any stock option, stock purchase or stock bonus
plan, agreement or arrangement for the primary purpose of soliciting or
retaining such employees, consultants, officers or directors services and which
are hereafter approved by the Compensation Committee of the Board of Directors
(provided such committee includes at least one Purchaser Director and does not
include any director who is an officer of the Company), (vii) up to 840,000
shares of Common Stock issued in accordance with Section C.4(d)(i)(4)(I) of the
Restated Certificate. (viii) securities issued in an underwritten public
offering pursuant to an effective registration statement under the Securities
Act, covering the offer and sale of securities for the account of the Company
and/or selling shareholders to the public: or (ix) securities issued in a
transaction approved pursuant to Section 2.5(c)

        "Preferred Shares" shall mean the Series A Shares, the Series B Shares
         ----------------
and shares of any additional series of preferred stock of the Company the
issuance of which is approved by the holders of at least 51% of the Preferred
Shares as required by the Restated Certificate.

        "Pro Rata Portion" shall mean, with respect to each Holder, that number
         ----------------
of shares of New Securities as is equal to the product of (i) the total number
of New Securities proposed to be issued multiplied by (ii) a fraction, the
numerator of which is the number of shares of Common Stock held by such Holder
computed as set forth in Section 3.2 hereof, and the denominator of which is the
total number of shares of Common Stock which are held by all Holders as of such
date (computed as set forth in Section 3.2 hereof).

        "Purchaser Directors" shall have the meaning given to such term in the
         -------------------
Stockholders' Agreement dated the date hereof among the Company, the Purchasers
and certain other stockholders of the Company.

        The terms "register", "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act (and any post-effective

                                       2
<PAGE>

amendments filed or required to be filed). and the declaration or ordering of
the effectiveness of such registration statement.

        "Registration Securities" means any Common Stock (i) issued or issuable
         -----------------------
upon conversion of the Preferred Shares, (ii) issued as a dividend or other
distribution with respect to or in exchange for or other distribution with
respect to or in exchange for or in replacement of the shares referenced in (i)
above, or (iii) otherwise owned by a Purchaser, provided, however, that
                                                --------  -------
Registrable Securities shall not included any shares of Common Stock which have
previously been registered or sold to the public.

        "Registration Expenses" means all expenses incurred by the Company in
         ---------------------
complying with Sections 1.5, 1.6 and 1.7 including, without limitation, all
registration, qualification and filing fees, printing expenses, escrow fees,
reasonable fees and disbursements of counsel for the Company  and for the
Holders, blue sky fees and expenses, and the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company). Registration Expenses shall not include Selling Expenses or other
compensation paid to underwriters or other agents or brokers to effect the sale
or the fees of more than one counsel for the Purchasers.

        "Restated Certificate" shall mean the Company's Amended and Restated
         --------------------
Certificate of Incorporation, as amended through the date hereof.

        "Restricted Securities" means the securities of the Company required to
         ---------------------
bear the legend set forth in Section 1.3.

        "Rule 145" means Rule 145 promulgated under the Securities Act, or any
         --------
similar successor rule, as the same shall be in effect from time to time.

        "Rule 415" means Rule 415 promulgated under the Securities Act, or any
         --------
similar successor rule, as the same shall be in effect from time to time.

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

        "Selling Expenses" shall mean all underwriting discounts, selling
         ----------------
commissions, and stock transfer taxes applicable to the sale of Registrable
Securities.

        "Series A Shares" shall mean the Company's Series A Convertible
         ---------------
Preferred Stock, par value $0.01 per share.

        Series B Shares" shall mean the Company's Series B Convertible Preferred
        ---------------
Stock, par value $.01 per share.

        "Transaction Documents" shall mean, collectively, the Series A
         ---------------------
Agreement, the Restated Certificate, this Agreement and the other Ancillary
Agreements (as defined in the Series A Agreement).

   1.3  Restrictive Legend (a) Each certificate representing (i) the Preferred
        ------------------
Shares , (ii) the Conversion Stock, and (iii) any other securities issued or
issuable, directly or indirectly, in respect of any of the foregoing securities
upon any stock split, stock dividend, recapitalization, merger, consolidation or

                                       3
<PAGE>

similar event, shall (unless otherwise permitted by the provisions of Section
1.4 hereof) be stamped or otherwise imprinted with legends in substantially the
following form (in addition to any legend(s) required hereunder or under
applicable state securities laws):

        THE SALE AND ISSUANCE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
        HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
        (THE "ACT"), OR UNDER THE SECURITIES LAW OF ANY STATE OR OTHER
        JURISDICTION. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
        WITH A VIEW TO, OR IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THESE
        SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED, OR TRANSFERRED UNLESS (I)
        A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO THESE
        SECURITIES AND SUCH OFFER, SALE, PLEDGE, OR TRANSFER IS IN COMPLIANCE
        WITH APPLICABLE SECURITIES LAW OF ANY STATE OR OTHER JURISDICTION OR
        (II) THERE IS AN OPINION OF COUNSEL OR OTHER EVIDENCE, SATISFACTORY TO
        THE COMPANY, THAT AN EXEMPTION THEREFROM IS AVAILABLE AND THAT SUCH
        OFFER, SALE, PLEDGE, OR TRANSFER IS IN COMPLIANCE WITH APPLICABLE
        SECURITIES LAW OF ANY STATE OR OTHER JURISDICTION.

        FURTHERMORE, THE SALE, PLEDGE, ASSIGNMENT, HYPOTHECATION, TRANSFER OR
        OTHER DISPOSITION OF THESE SECURITIES ARE RESTRICTED PURSUANT TO THE
        TERMS OF AN INVESTORS' RIGHTS AGREEMENT (THE "RIGHTS AGREEMENT") DATED
        JULY 6, 1998, AMONG THE COMPANY, THE HOLDER OF THIS CERTIFICATE" OTHER
        HOLDERS OF THE COMPANY'S SECURITIES. COPIES OF THE RIGHTS AGREEMENT MAY
        BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD
        OF THE CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL
        EXECUTIVE OFFICES OF THE COMPANY.

        Each Holder and any subsequent holder of any Restricted Securities
consents to the Company making a notation on its records and giving instructions
to any transfer agent of the Restricted Securities in order to implement the
restrictions on transfer described in this Section 1.3.

                (b) The Company shall be obligated to reissue promptly
certificates without the foregoing legend at the request of any holder thereof
if the holder shall have obtained an opinion of counsel (which counsel may be
counsel to the Company) reasonably acceptable to the Company to the effect that
the securities proposed to be disposed of may lawfully be so disposed of without
registration, qualification or legend. Any legend endorsed on an instrument
pursuant to applicable state securities laws and the stop-transfer instructions
with respect to such securities shall be removed upon receipt by the Company of
an order of the appropriate blue sky authority authorizing such removal or an
opinion of counsel reasonably satisfactory to the Company to the effect that any
such applicable state securities legends or stop-transfer instructions are not
required and may be removed.

        1.4 Notice of Proposed Transfers. Prior to any proposed transfer of
            ----------------------------
any Restricted Securities, unless there is in effect a registration statement
under the Securities Act covering the proposed transfer, the holder thereof
shall give written notice (the "Notice") to the Company of such holder's
intention to make such transfer. The Notice shall describe the manner and
circumstances of the proposed transfer in sufficient detail, and shall be
accompanied by a written opinion of legal counsel who shall be reasonably
satisfactory to the Company, addressed to the Company and reasonably
satisfactory in form and substances

                                       4

<PAGE>

to the Company's counsel, to the effect that the proposed transfer of the
Restricted Securities may be effected without registration under the Securities
Act; provided, however, that for transactions made pursuant to Rule 144 under
     --------  -------
the Securities Act, an opinion of counsel shall only be required if reasonably
requested by the Company and which shall be to the effect that the proposed
transfer of the Restricted Securities may be effected without registration under
the Securities Act. Notwithstanding the foregoing provisions of this Section
1.4, no such registration statement or opinion of counsel shall be necessary for
a transfer by a holder which is (A) a corporation to its shareholders in
accordance with their interest in the corporation, (B) a limited liability
company to its members or former members in accordance with their interest in
the limited liability company, (C) a partnership to its partners or retired
partners in accordance with partnership interests or to a liquidating trust for
their benefit, (D) an individual to a family member or trust for the benefit of
such individual or a family member, or (E) a trustee for the benefit of others
to a successor trustee, provided in the case of either (A), (B), (C), (D) or
(E), that the transferee will be subject to the terms of this Section 1 to the
same extent as if he were an original holder hereunder. Each certificate
evidencing the Restricted Securities so transferred shall bear the appropriate
restrictive legends set forth in Section 1.3, except that such certificate shall
not bear such restrictive legends if in the opinion of counsel for the Company
such legends are not required in order to establish compliance with any
provisions of the securities laws.

        1.5 Holder's Requested Registration.
            -------------------------------

                (a) Request for Registration. At any time after the earlier
                    ------------------------
of (A) July 6, 2002 or (B) six months from and after the closing of the
Company's IPO, if the Company receives from a Holder or Holders of Registrable
Securities who own not less than 30% of the then outstanding Registrable
Securities ("Initiating Holders"), a written request that the Company effect any
underwritten registration, qualification, or compliance with respect to
Registrable Securities held by such Initiating Holder or Initiating Holders,
then the Company shall:

                        (i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and

                        (ii) as soon as practicable, use its best efforts to
effect such registration, qualification, or compliance (including, without
limitation, the execution of an undertaking to file post-effective amendments,
appropriate qualification under applicable blue sky or other state securities
laws, and appropriate compliance with applicable regulations issued under the
Securities Act and any other governmental requirements or regulations) as may be
so requested and as would permit or facilitate the sale and distribution of all
or such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holders
joining in such request as are specified in a written request received by the
Company within 20 days after the date the Company mails such written notice.

        Provided, however, that the Company shall not be obligated to take any
action to effect any such registration, qualification, or compliance pursuant to
Section 1.5:

                                (A) In any jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification, or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act:

                                       5
<PAGE>

                        (B) During the period starting with the date sixty (60)
days prior to the Company's estimated date of filing of, and ending on the date
one hundred eighty (180) days immediately following the effective date of any
registration statement pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan); provided that the Company is actively employing in good
faith all reasonable efforts to cause such registration statement to become
effective;

                        (C) After the Company has effected two such
registrations pursuant to this Section 1.5 which have been declared or ordered
effective and pursuant to which securities have been sold; or

                        (D) If the Company shall furnish to such Initiating
Holders a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company it would be
seriously detrimental to the Company or its shareholders for a registration
statement to be filed in the near future, in which case the Company's obligation
to use its reasonable efforts to register, qualify or comply under this Section
1.5 shall be deferred for a period not to exceed 120 days from the date of
receipt of written request from the Initiating Holders, provided that the
Company may not exercise this deferral right more than once within any 12 month
period.

        Subject to the foregoing clauses (A) through (D), the Company shall file
a registration statement covering the Registrable Securities so requested to be
registered within: for any registration which is an IPO, 150 days, and, for any
registration which is not an IPO, 60 days, in each case, after receipt of the
request or requests of the Initiating Holders.

                (b) Underwriting. The right of any Holder to registration
                    ------------
pursuant to this Section 1.5 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent requested (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
intending to participate in such registration and such Holder with respect to
such participation and inclusion) to the extent provided herein.

        The Company shall (together with all Holders selling Registrable
Securities) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company (which
underwriter shall be reasonably acceptable to a majority in interest of the
Initiating Holders). Notwithstanding any other provision of this Section 1.5, if
the managing underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Company shall so advise all Holders and the number of
shares of Registrable Securities and other securities that may be included in
the registration and underwriting shall be allocated, first, among all Holders
pro-rata, in proportion to the respective amounts of Registrable Securities held
by all such Holders at the time of filing the registration statement and second,
to all other holders, in proportion, as nearly as practicable, to the respective
amounts of securities of the Company owned by them. No Registrable Securities or
other securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. To facilitate the
allocation of shares in accordance with the above provisions, the Company or the
underwriters may round the number of shares allocated to any Holder or other
holder to the nearest 100 shares.

        If any Holder disapproves of the terms of the underwriting, such person
may elect to withdraw therefrom by written notice to the Company, the managing
underwriter and the Initiating Holders. The Registrable Securities and/or other
securities so withdrawn shall also be withdrawn from registration, and such
Registrable Securities and/or other securities shall not be transferred in a
public distribution prior to 180 days after the effective date of such
registration, or such other shorter period of time as the

                                       6

<PAGE>

underwriters may require. If by the withdrawal of such Registrable Securities or
other securities, a greater number of Registrable Securities held by other
Holders may be included in such registration (up to the maximum of any
limitation imposed by the underwriters), then the Company shall offer to all
Holders who have included Registrable Securities in the registration the right
to include additional Registrable Securities in the same proportion and manner
used in determining the effect of the underwriter limitation in this Section
1.5(b).

        If the managing underwriter has not limited the number of Registrable
Securities to be underwritten, the Company may include securities for its own
account or for the account of others in such registration if the managing
underwriter so agrees and if the number of Registrable Securities which would
otherwise have been included in such registration and underwriting will not
thereby be limited.

        1.6 Company Registration.
            --------------------

                (a) Notice of Registration. If at any time or from time to time,
                    ----------------------
(i) the Company shall determine to register in an underwritten offering any of
its securities, either for its own account or the account of a security holder
or holders, other than (i) a registration relating solely to employee benefit
plans, or (ii) a registration relating solely to Rule 145 transaction, or a
registration on any registration form that does not permit secondary sales, the
Company shall:

                        (i) promptly give to each Holder written notice thereof;
and,

                        (ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
by each Holder received by the Company within 20 days after the Company mails
such written notice, subject to the provisions below.

                (b) Underwriting. The right of any Holder to registration
                    ------------
pursuant to this Section 1.6 shall be conditioned upon the participation by such
Holder in such underwriting and the inclusion of such Holder's Registrable
Securities in the underwriting to the extent provided herein. Those parties
proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the
Company. Notwithstanding any other provisions of this Section 1.6, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit the
Registrable Securities to be included in such registration. The Company shall so
advise all Holders, and the other holders distributing their securities through
such underwriting, and the number of shares of Registrable Securities, and other
securities that may be included in the registration and underwriting shall be
allocated among the Company, the Holders and the other holders as follows: first
to the Company so as to permit the Company to include all shares that the
Company desires to sell; second, to the Holders pro-rata, in proportion to the
respective amount of Registrable Securities held by such Holders at the time of
the filing of the registration statement; and third, to all other holders in
proportion, as nearly as practicable, to the respective amounts of securities
entitled to inclusion (determined with regard to any requirement of a request to
be included in such registration) in such registration held by all such other
holders. To facilitate the allocation of shares in accordance with the above
provisions, the Company or the underwriter may round the number of shares
allocated to any Holder, or other holder to the nearest 100 shares. If any
Holder or other holder disapproves of the terms of any such underwriting, he may
elect to withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities included or withdrawn from such underwriting shall
be withdrawn from such registration, and shall not be transferred in a public
distribution prior to 180 days after the

                                       7

<PAGE>

effective date of the registration statement relating thereto, or such other
shorter period of time as the underwriters may require.

                (c) Right to Terminate Registration.  The Company shall have
                    -------------------------------
the right to terminate or withdraw any registration initiated by it under this
Section 1.6 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration.

        1.7 Form S-3 Registration.  After its IPO, the Company shall use its
            ---------------------
best efforts to qualify for registration on Form S-3.  After the Company has
qualified for the use of Form S-3, in addition to the rights contained in the
foregoing provisions of this Section 1, any Holder or Holders of Registrable
Securities shall have the right to request registration on Form S-3 (all such
requests shall be in writing and shall state the number of shares of Registrable
Securities to be disposed of and the intended methods of disposition of such
shares by such Holder or Holders); provided, that the Company shall not be
obligated to so register if the total registered securities, in the aggregate,
represent less than $1,000,000 in value (based upon the anticipated
consideration received therefor).  In case the Company shall receive from a
Holder or Holders a written request that the Company effect a registration on
Form S-3 and any related state securities qualification or blue sky compliance
with respect to such an amount of the Registrable Securities owned by such
Holder or Holders, the Company shall:

                (a) promptly give written notice of the proposed registration,
and related qualification or compliance, to all other Holders; and

                (b) as soon as practicable, use its best efforts to effect
such registration and all such qualifications and compliances as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Holder's or Holders' Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any other Holder of Holders joining in such request as are
specified in a written request given within 20 days after receipt of such
written notice from the Company; provided, however, that the Company shall not
                                 --------  -------
be obligated to effect any such registration, qualification, or compliance
pursuant to this Section 1.7 if Form S-3 is not available for such offering by
Holder(s).

        Provided however, that the Company shall not be obligated to take any
action to effect any such registration, qualification, or compliance pursuant to
this Section 1.7;

                        (A) In any jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification, or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;

                        (B) During the period starting with the date sixty (60)
days prior to the Company's estimated date of filing of, and ending on the date
one hundred eighty (180) days immediately following the effective date of any
registration statement pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan); provided that the Company is actively employing in good
                        --------
faith all reasonable efforts to cause such registration statement to become
effective; or

                        (C) If the Company shall furnish to such Holder or
Holders requesting registration pursuant to this Section a certificate signed by
the President of the Company stating that in the good faith judgment of the
Board of Directors of the Company it would be seriously detrimental to the
Company or its shareholders for a registration statement to be filed in the near
future, in which case

                                       8
<PAGE>

the Company's obligation to use its reasonable efforts to register, qualify or
comply under this Section 1.7 shall be deferred for a period not to exceed 120
days from the date of receipt of written request from such Holder or Holders,
provided that the Company may not exercise this deferral right more than once
within any 12 month period.

        Subject to the foregoing, the Company shall effect such registration,
qualification, or compliance (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act and any other
governmental requirements or regulations) covering the Registrable Securities
and other securities so requested to be registered as soon as practicable after
receipt of the request or requests of the Holder.

        If the registration to be effected pursuant to the Section 1.7 is to be
an underwritten public offering, it shall be managed by an underwriter or
underwriters selected by the Company and reasonably acceptable to a majority in
interest of the Holders requesting registration.  In such event, the right of
any Holder to registration pursuant to this Section 1.7 shall be conditioned
upon the participation by such Holder in such underwriting and the inclusion of
the Registrable Securities of such Holder in the underwriting to the extent
provided herein. If the managing underwriter so selected determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the Registrable Securities held
by such Holders to be included in such registration. The Company shall so advise
such Holders, and the number of shares of Registrable Securities that may be
included in the registration shall be allocated among the Holders and other
holders as follows: first, among the Holders in proportion to the respective
amounts of Registrable Securities held by each of such Holders at the time of
filing of the registration statement and second, to the other holders in
proportion as nearly as practicable, to the amount of Stock entitled to
inclusion in such registration. Any Registrable Securities or other securities
that are so excluded from the underwriting shall be excluded from the
registration. As used throughout this Section the term "Form S-3" shall be
deemed to include any equivalent successor form for registration pursuant to the
Act.

        1.8 Expenses of Registration. All Registration Expenses incurred in
            ------------------------
connection with the registration, qualification or compliance pursuant to
Sections 1.5, 1.6, and 1.7 shall be borne by the Company unless otherwise set
forth therein; provided, however, that in connection with any registration of
               --------  -------
securities, the Company shall only be responsible for the fees and costs of one
counsel for all of the Holders, any costs of special or accelerated audit
required to effect such a registration on Form S-3 pursuant to Section 1.7 at
the time requested by such Holders in excess of $15,000 shall be paid by the
Holders participating in such registration, and any Registration Expenses
incurred with respect to a registration on Form S-3 in excess of 2 such
registrations in any 12 month period shall be paid by the Holders participating
in such registration.  All Selling Expenses relating to securities so registered
shall be borne by the holders of such securities pro rata on the basis of the
number of shares of securities so registered on their behalf.

        1.9 Lock-up. Each of the Holders hereby agrees not to offer, sell, make
            -------
any short sale of, loan, grant any option for the purchase of, or otherwise
dispose of any of the Company's Common Stock held of record or beneficially
owned by such person (other than those included in the registration) which at
the time of the effective date of such registration statement may be sold or
otherwise transferred in reliance upon Rule 144 promulgated under the Securities
Act during the period of time (not to exceed 180 days) determined by the Board
of Directors of the Company upon advice of its managing underwriter, from and
after the effective date of the registration statement for the Company's IPO:
provided that the obligations of the Holders under this Section 1.9 shall not
apply unless each executive officer and director of the Company and the holders
of two percent (2%) or more of the Company's voting securities then

                                       9
<PAGE>

outstanding are bound by similar restrictions. Such restriction shall not apply
to shares registered in such offering. In order to enforce this provision, the
Company may impose stop-transfer instructions with respect to such shares until
the end of such period. The obligations described in this Section 1.9 shall not
apply to a registration relating solely to employee benefit plans on Form S-1 or
Form S-8 or similar forms that may be promulgated in the future.

        1.10 Registration Procedures. If and whenever the Company is required by
             -----------------------
the provisions of this Section 1 to use its most diligent efforts to effect
promptly the registration of Registrable Securities the Company shall:

             (a) Prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use its most diligent efforts to
cause such registration statement to become and remain effective as provided
herein.

             (b) Prepare 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 and
current and to comply with the provisions of the Securities Act with respect to
the sale of or other disposition of all Registrable Securities covered by such
registration statement, including such amendments and supplements as may be
necessary to reflect the intended method of disposition of the prospective
seller or sellers of such Registrable Securities but for no longer than one
hundred twenty (120) days subsequent to the effective date of such registration
in the case of a registration statement on Form S-1 (or any similar form of
registration statement required to set forth substantially identical
information); provided, however, that (i) such period shall be extended for a
              --------  -------
period of time equal to the period the underwriter recommends that all the
Holders refrain from selling the securities included in such registration due to
marketing conditions or other conditions which adversely affect the offer and
sale of such securities; and (ii) in the case of any registration of Registrable
Securities on Form S-3 which is intended to be offered on a continuous or
delayed basis, such period shall be extended, if necessary, to keep the
registration statement effective until all Registrable Securities are sold,
provided that Rule 415 permits an offering on a continuous or delayed basis, and
provided further that applicable rules under the Securities Act governing the
obligation to file a post-effective amendment permit, in lieu of filing a
post-effective amendment that (I) includes any prospectus required by Section
10(a)(3) of the Securities Act or (II) reflects facts or events representing a
material or fundamental change in the information set forth in the registration
statement, the incorporation by reference of information required to be included
in (I) and (II) above to be contained in periodic reports filed pursuant to
Section 13 or 15(d) of the Exchange Act in the registration statement.

             (c) Furnish to each prospective seller of Registrable Securities
such number of copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other
documents, as such seller may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Securities of such seller.

             (d) Notify each seller of Registrable Securities covered by such
registration statement 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 included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue

                                      10

<PAGE>

statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
incomplete in the light of the circumstances then existing.

             (e) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange or approved for quotation on
any inter-dealer quotation system on which similar securities issued by the
Company are then listed or quoted.

             (f) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to such registration statement and a CUSIP number
of all such Registrable Securities in each case not later than the effective
date of such registration.

             (g) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first month after the effective date of the
Registrable Securities, which earnings statement shall satisfy the provisions
of Section 11(a) of the Securities Act.

             (h) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 1.5, 1.6 or 1.7 hereof, the
Company will enter into an underwriting agreement reasonably necessary to effect
the offer and sale of Common Stock, provided such underwriting agreement
contains customary underwriting provisions and provided further that if the
underwriter so requests the underwriting agreement will contain customary
contribution provisions.

             (i) Each seller of Registrable Securities shall not (until further
notice) effect sales of shares covered by any registration statement after
receipt of telegraphic or written notice from the Company to suspend sales to
permit the Company to correct or update a registration statement or prospectus.

        1.11 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section I:

             (a) The Company will indemnify each Holder, each of its officers
and directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, and each underwriter, if any, and
each person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages or liabilities (or
actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained, on the effective date thereof, in any registration statement, any
prospectus contained therein, or any amendment or supplement thereto, or based
on any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein (in the case of
a prospectus, in the light of the circumstances under which they were made) not
misleading, or any violation by the Company of any rule or regulation
promulgated under the Securities Act applicable to the Company in connection
with any such registration, qualification or compliance, and the Company will
reimburse each such Holder, each of its officers and directors and partners and
each person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission, or alleged untrue statement or omission, made in reliance upon and in
conformity

                                      11
<PAGE>

with written information furnished to the Company by or on behalf of such Holder
or underwriter and stated to be specifically for use therein.

                (b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers and its legal counsel and independent accountants,
each underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such underwriter
within the meaning of Section 15 of the Securities Act, against all claims,
losses, damages and liabilities (or actions in respect thereof), including any
of the foregoing incurred in settlement of any litigation commenced or
threatened, arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained, on the effective date thereof, in any
such registration statement, any prospectus contained therein, or any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein (in the case of a
prospectus, in the light of the circumstances under which they were made) not
misleading, and will reimburse the Company, and such directors, officers,
persons, underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement or
prospectus in reliance upon and in conformity with written information furnished
to the Company by or behalf of such Holder and stated to be specifically for use
therein; provided, however, that the obligations of each Holder hereunder shall
         --------  -------
be limited to an amount equal to the net proceeds to each such Holder of
Registrable Securities sold as contemplated herein.

                (c) Each party entitled to indemnification under this Section
1.11 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 1 to the extent such
failure is not prejudicial. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation. Notwithstanding anything to the contrary contained in this
Section 1.11(c), the Indemnified Praty shall have the right to employ its own
counsel in any action, claim, litigation, proceeding or investigation, and the
fees and expenses thereof shall be borne by the Indemnified Party, unless the
Indemnified Party shall have reasonably concluded that there may be one or more
legal defenses abailable to it which are different from or additional to those
available to the Indemnifying Party, in which case the Indemnifying Party shall
bear all of such Indemnified Party's legal and other fees and expenses which
arise in defense thereof. In such event, the Indemnifying Party shall not have
the right to direct the defense of such action, claim, litigation, proceeding or
investigation on behalf of the Indemnified Party.

                (d) If the indemnification provided for in this Section 1.11 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense referred to
herein, then the Indemnifying Party, in lieu of indemnifying the Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified party
with respect to such loss, liability, claim, damage or expense in the proportion
that is appropriate to reflect the relative

                                       12
<PAGE>

fault of the Indemnifying Party and the Indemnified Party in connection with the
statements or omissions that resulted in such loss, liability, claim, damage or
expense, as well as any other relevant equitable considerations.  The relative
fault of the Indemnifying Party and Indemnified Party shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of material fact or the omission (or alleged omission) to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.

                1.12 Information by Holder. The holder or holders of
                     ---------------------
Registrable Securities included in any registration shall furnish to the Company
such information regarding such person(s) and the distribution proposed by such
person(s) as the Company may request in writing and as shall be required in
connection with any registration, qualification or compliance referred to in
this Section 1.

                1.13 Rule 144 Reporting. With a view to making available the
                     ------------------
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Registrable Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company shall use its best efforts to:

                     (a) Make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act, beginning
90 days after (i) the effective date of the first registration statement filed
by the Company for an offering of its securities to the general public, (ii) the
Company registers a class of securities under Section 4 of the Exchange Act, or
(iii) the Company issues an offering circular meeting the requirements of
Regulation A under the Securities Act;

                      (b) File with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act (at any time after it has become subject to such reporting
requirements);

                      (c) Furnish to any Holder promptly upon request, a
written statement as to its compliance with the reporting requirements of Rule
144 (at any time after 90 days after the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents of the Company and other information in the possession of or
reasonably obtainable by the Company as a Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing a Holder to
sell any such securities without registration.

                1.14 Limitation on Subsequent Registrations. Except for the
                     --------------------------------------
grant of registration rights to holders of Preferred Shares on the terms stated
herein for Preferred Shares, from and after the date of this Agreement, the
Company shall not, without the prior written consent of the holders of a
majority of the Registrable Securities then outstanding, enter into any
agreement with any holder or prospective holder of any securities of the Company
giving such holder or prospective holder any rights to register any securities
of the Company.

                1.15 Termination of Registration Rights. The rights of each
                     ----------------------------------
Holder under this Section 1 shall terminate at such time as a Holder's
Registrable Securities may be sold without registration in reliance upon Rule
144(k) promulgated under the Securities Act, provided that this Section 1.15
shall not apply to any Holder who owns more than two percent (2%) of the
Company's outstanding stock until such time as the Holder owns less than two
percent (2%) of the outstanding stock of the Company.

                                      13
<PAGE>

                                   SECTION 2

                           COVENANTS OF THE COMPANY
                           ------------------------

        The Company hereby covenants and agrees, so long as the Holders, in the
aggregate, hold at least twenty percent (20%) of the Preferred Shares issued
pursuant to the Restated Certificate, as follows:

                2.1 Financial Information. The company shall furnish the
                    ---------------------
following reports to the Holders:

                        (i) Within 20 days after the end of each month an
unaudited monthly income statement, statement of cash flows and balance sheet,
in each case prepared, to the extent consolidation is required under generally
accepted accounting principles applied on a consistent basis, on a consolidated
and a consolidating basis for the Company and any subsidiaries hereafter
existing, subject to normal, non-recurring year-end adjustments; provided,
                                                                 --------
however,
-------
that for the six month period beginning on the date hereof, the Company
may provide such unaudited income statement, statement of cash flows and balance
sheet on a quarterly basis; and, 30 days prior to the beginning of each fiscal
year, an annual budget and operating plan (including projected monthly
consolidated and consolidating income statements, balance sheets and statements
of cash flow). The monthly, or quarterly, as applicable, financial statements
shall include comparisons to the then applicable annual budget and summaries of
financial plans of the Company and any subsidiaries.

                       (ii) As soon as practicable after the end of each fiscal
year, and in any event within 90 days thereafter, an income statement and
statement of cash flows for such fiscal year, a balance sheet of the Company as
of the end of such fiscal year, and a statement of changes in financial
condition for such fiscal year, all certified by independent public accountants
of recognized national standing selected by the Company.

                      (iii) Promptly upon the filing or making thereof, copies
of each filing and report made by the Company with or to any securities exchange
or to the Securities and Exchange Commission and of each written communication
from the Company to its shareholders generally.

                All financial statements provided for above shall be prepared in
accordance with United States generally accepted accounting principles, applied
on a consistent basis (GAAP) (except that such unaudited financial statements
may be prepared without footnotes and will be subject to normal, non-recurring
year-end audit adjustments).

                2.2 Additional Information and Rights.
                    ---------------------------------

                    (a) The Company will permit any Holder, so long as such
Holder owns at least twenty percent (20%) of the Preferred Shares issued
pursuant to the Restated Certificate, and/or shares of Conversion Stock or any
combination thereof (in each case as adjusted for any combinations,
consolidations, stock splits or stock dividends or distribution) (a "Substantial
Holder"), to visit and inspect any of the properties of the Company, including
its books of account and other records (and make copies thereof and take
extracts therefrom), and to discuss its affairs, finances and accounts with the
Company's officers and its independent public accountants, all at such
reasonable times and as often as such person may reasonably request, provided
however that the Company shall be under no obligation to disclose trade secrets,
and may condition disclosure of confidential information upon Holder's execution
of the

                                      14
<PAGE>

Company's Standard Form Confidentiality Agreement restricting use and disclosure
of confidential information.

                (b) The provisions of Section 2.1 hereof and this Section 2.2
shall not be in limitation of any rights which any Holder may have with respect
to the books and records of the Company and any subsidiary, or to inspect their
properties or discuss their affairs, finances and accounts, under the laws of
the jurisdictions in which they are incorporated.

                (c) Each Purchaser agrees that the information to be provided by
the Company pursuant to Section 2.1 and 2.2 is confidential.  Accordingly, each
Purchaser agrees not to disclose any of such information to any competitor or
other person other than such Purchaser's partners, associates, employees,
professional advisors and other persons with a similar "need to know", and not
to use such information for any purpose other than evaluating such Purchaser's
investment in the Company.  Notwithstanding the foregoing, a Purchaser that is a
partnership may disclose summary financial and operation information to its
limited partners as provided in its partnership agreement.

        2.3 Termination of Financial Information Rights. The Company's
            -------------------------------------------
obligation to deliver information under Section 2.1(i), (ii) and (iii) hereof
shall terminate and shall be of no further force or effect upon the earlier to
occur of (x) the closing of an underwritten public offering pursuant to an
effective registration statement under the Securities Act, covering the offer
and sale of Common Stock for the account of the Company and/or selling
shareholders to the public at a price per share of not less than three times the
Series B Original Cost (as such term is defined in the Restated Certificate)
(adjusted for any combinations, consolidation, stock splits, or stock
distributions or dividends with respect to such shares) and resulting in
aggregate net proceeds to the Company of not less than $15,000,000, and (y) the
date all Holders of Preferred Shares hold fewer than 20% of the Preferred Shares
issued pursuant to the Restated Certificate and/or Conversion Stock in the
aggregate.  Thereafter, the Company shall deliver to each Holder, and its
assignees or transferees, such financial information as the Company from time to
time provides to holders of its Common Stock.

        2.4 Confidentiality and Noncompetition Agreements. The Company shall
            ---------------------------------------------
cause each person now or hereafter with access to confidential or proprietary
information and, within 30 days of the date hereof, each Founder (as set forth
in the Series A Agreement) to enter into a Proprietary Information and
Confidentiality Agreement, containing provisions satisfactory to the Investors
with respect to confidentiality and corporate ownership of inventions and
innovations during employment.  The Company shall cause each person now or
hereafter serving as a key employee of the Company designated by the Board of
Directors of the Company to enter into a Noncompetition Agreement (separately or
as part of an employment or confidentiality agreement), containing provisions
satisfactory to the Investors with respect to non-solicitation of employees and
customers during and for eighteen months after employment.

        2.5 Employee and Other Stock Arrangements. (a) The Company shall not,
            -------------------------------------
without the recommendation of its management and approval of the Board of
Directors of the Company (or the Compensation Committee thereof including at
least one Purchaser Director and no director who is an officer of the Company),
issue any of its capital stock or grant an option or rights to subscribe for,
purchase or acquire any of its capital stock, to any employee, consultant,
officer or director of the Company or a subsidiary, except for issuances of (i)
up to 940,000 shares of Common Stock issued pursuant to the exercise of options
outstanding on the date hereof or pursuant to the exercise of options issued in
accordance with Section C.4(d)(i)(4)(H) of the Restated Certificate, (ii) up to
380,000 shares of Common Stock issued pursuant to the exercise of options
granted to certain directors, officers, consultants and employees of the Company
pursuant to Company's stock option plan as in effect on the date hereof, the
amount of which shall be subject to the approval of, and shall be administered
by, the Board of

                                      15
<PAGE>

Directors of the Company (or a committee thereof including at least one
Purchaser Director and no director who is an officer of the Company), or (iii)
up to 840,000 shares of Common Stock issued in accordance with Section
C.4(d)(i)(4)(I) of the Restated Certificate.

                (b) Each acquisition of any shares of Common Stock or any
options to acquire Common Stock by an employee, consultant, officer or director
of the Company shall be conditioned upon the execution and delivery by the
Company and such director, employee, officer or consultant of a stock purchase
agreement or option agreement, as the case may be, containing transfer
restrictions and vesting limitations, substantially in a form approved by the
Board of Directors of the Company (or a committee thereof having as members at
least one Purchaser Director), including that the Company shall have the right
to acquire any unvested shares allocated to such departing member of management
at cost.

                (c) Except as contemplated by sections (a) and (b) of this
Section 2.5, the Company shall not, without the approval of the Board of
Directors, including all the Purchaser Directors, issue any shares of Common
Stock.

        2.6 Corporate Existence. The Company will maintain its corporate
            -------------------
existence in good standing and comply with all applicable laws and regulations
of the United States or of any state or states thereof or of any political
subdivision thereof and of any governmental authority where the failure to so
comply could have a material adverse effect on the assets, conditions, affairs,
or business operations of the Company.

        2.7 Books of Account and Reserves. The Company will keep books of
            -----------------------------
record and account in which full, true and correct entries are made of all of
its and their respective dealings, business and affairs, in accordance with
generally accepted accounting principles. The Company will employ certified
public accountants selected by the Board of Directors of the Company and have
annual reviews made by such independent public accountants in the course of
which such accountants shall make such review quality examinations, in
accordance with the standards established by the American Institute of Certified
Public Accountants.

        2.8 Stock Fully Paid; Reservation of Shares. The company covenants and
            ---------------------------------------
agrees that all Conversion Stock that may be issued upon the conversion of the
Preferred Shares will, upon issuance in accordance with the terms of the
Restated Certificate, be fully paid and nonassessable, and that the issuance
thereof shall not give rise to any preemptive rights on the part of any person.
The Company further covenants and agrees that the Company will at all times have
authorized and reserved a sufficient number of shares of its Common Stock for
issuance upon conversion of the Preferred Shares and will increase the
authorized numbers of shares of Common Stock, if at any time the number of
shares of Common Stock authorized and unissued shall be insufficient to permit
the conversion of Preferred Shares.

        2.9 Replacement of Certificated Representing Preferred Shares or Common
            -------------------------------------------------------------------
Stock. Upon receipt of evidence reasonably satisfactory to the Company of the
-----
loss, theft, destruction or mutilation of any certificates representing
Preferred Shares or Common Stock, as the case may be, and, in the case of any
such loss, theft or destruction, upon delivery of a bond of indemnity
satisfactory to the Company if required by the Board of Directors of the
Company, or, in the case of any such mutilation, upon surrender and cancellation
of the certificates representing Preferred Shares or Common Stock, as the case
may be, the Company will issue new certificates representing Preferred Shares or
Common Stock, as the case may be, in lieu of such lost, stolen, destroyed or
mutilated certificates representing Preferred Shares or Common Stock, as the
case may be.

                                       16
<PAGE>

                2.10 Material Changes and Litigation. The Company shall promptly
                     -------------------------------
notify the Purchasers of any material adverse change in the business, prospects,
assets or condition, financial or otherwise, of the Company and of any
litigation or governmental proceeding or investigation brought or, to the best
of the Company's knowledge, threatened against the Company, or against any
officer, director, key employee or principal stockholder of the Company
materially adversely affecting or which, if adversely determined, would
materially adversely affect its business, prospects, assets or condition,
financial or otherwise.

                2.11 Restrictive Agreements Prohibited. Neither the Company nor
                     ---------------------------------
any of its subsidiaries shall become a party to any agreement which by its terms
restricts the Company's performance of any of the Transaction Documents or the
Restated Certificate.

                2.12 Expenses of Directors. The Company shall promptly reimburse
                     ---------------------
in full, each director of the Company who is not an employee of the Company and
who was elected as a director solely or in part by the holders of Preferred
Shares, for all of his reasonable out-of-pocket expenses incurred as a result of
travel to and from each meeting of the Board of Directors of the Company or any
committee thereof.

                2.13 By-laws. The Company shall at all times cause its By-laws
                     -------
to provide that, (a) unless otherwise required by the laws of the State of
Delaware, (i) any director shall have the right to call a meeting of the Board
of Directors of the Company and (ii) any holder or holders of at least 10% of
the outstanding shares of voting capital stock of the Company shall have the
right to call a meeting of the stockholders and (b) the number of directors
fixed in accordance therewith shall in no event conflict with any of the terms
or provisions of the Preferred Shares as set forth in the Restated Certificate.
The Company shall at all times maintain provisions in its By-laws and/or
Restated Certificate indemnifying all directors against liability, absolving all
directors from liability to the Company and its stockholders to the maximum
extent permitted under the laws of the State of Delaware and providing for
advances of all costs, charges and expenses related thereto.

                2.14 Employee Nondisclosure and Developments Agreements;
                     --------------------------------------------------
Noncompetition Agreements.
-----------------------

The Company shall use its reasonable good faith efforts to obtain, and shall
cause its subsidiaries (if any) to use their reasonable good faith efforts to
obtain, an (i) Employee Nondisclosure and Developments Agreement in
substantially the form of Exhibit B from all future officers, key employees and
                          ---------
other employees who will have access to confidential information of the Company
or any of its subsidiaries, and (ii) a Noncompetition Agreement in substantially
the form of Exhibit C from all officers and such other employees as may be
            ---------
specified from time to time by the Board of Directors of the Company in each
case upon their employment by the Company or any of its subsidiaries (if any).

                2.15 Insurance. The Company will maintain in full force and
                     ---------
effect fire and casualty insurance policies, with extended coverage, in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed, and such other policies of insurance, and in
such amounts as in the Company's best judgement, after advice from its insurance
broker, is acceptable for the nature and extent of the business of the Company.

                2.16 Termination of Covenants. The covenants set forth in this
                     ------------------------
Section 2 shall terminate and be of no further force or effect as to each of the
Purchasers when such Purchaser owns less than twenty percent (20%) of the
Preferred Shares issued pursuant to the Restated Certificate (appropriately
adjusted to reflect stock splits, stock dividends, combinations of shares and
the like with respect to the Preferred Shares).

                                      17
<PAGE>

                                   SECTION 3

                               PREEMPTIVE RIGHTS
                               -----------------

        3.1 Preemptive Rights. The company hereby grants to each Purchaser the
            -----------------
irrevocable and exclusive first option (the "First Option") to purchase all or
part of its Pro Rata Portion of any New Securities which the Company may, from
time to time after the date of this Agreement, propose to issue and sell.
Furthermore, if any Purchaser does not, pursuant to Section 3.3, give notice of
its intention to exercise in full its option to purchase its Pro Rata Portion of
the New Securities, then each Purchaser who did give notice of such intent
(collectively, the "Fully Participating Holder") shall have the irrevocable and
exclusive second option (the "Second Option") to purchase all or a part of the
New Securities as to which a notice pursuant to the exercise of the First Option
could have been, but was not, delivered (for purposes of this Section 3, the
"Additional New Securities"). If more than one Fully Participating Holder gives
a notice (a "Second Notice") pursuant to Section 3.3 of its intention to
purchase Additional New Securities pursuant to the exercise of the Second Option
and the total number of New Securities covered by such notices exceeds the total
number of Additional New Securities, then the Additional New Securities shall be
allocated among such Fully Participating Holders according to the following
procedure, or in such different proportions as such Fully Participating Holders
shall agree among themselves:

                (a) Each Oversubscribing Holder (as defined below) shall be
apportioned the lesser of (A) that number of Additional New Securities that it
elected to purchase in its Second Notice and which it has not yet been
apportioned pursuant to this Section 3.1(a) or (B) its "Pro Rata Portion of the
Additional New Securities" (as defined below);

                (b) If the apportionment in Section 3.1(a) is followed and there
remain (A) at least one Oversubscribing Holder who has not yet been apportioned
the number of Additional New Securities it elected to purchase in its Second
Notice and (B) any Additional New Securities, then the procedure described in
Section 3.1(a) shall be repeated; and

                (c) For purposes of this Section 3.1, (i) an "Oversubscribing
Holder" means a Fully Participating Holder who has given a Second Notice and who
has not yet been apportioned pursuant to Section 3.1(a) that number of
Additional New Securities that it elected to purchase in its Second Notice, and
(ii) an Oversubscribing Holder's "Pro Rata Portion of Additional New Securities"
shall be equal to the number of Additional New Securities multiplied by a
fraction, the numerator of which is the number of shares of Common Stock held
by such Oversubscribing Holder as of the date of the Company Notice, and the
denominator of which is the total number of shares of Common Stock held by all
Oversubscribing Holder as of such date.

        3.2 Calculation of Number of Shares of Common Stock Held or Outstanding.
            -------------------------------------------------------------------
For purposes of any calculation of the number of shares of Common Stock held or
outstanding under this Section 3, and with respect to any numerator or
denominator provided herein, the conversion of all securities convertible into
or exchangeable for Common Stock and the exercise of all outstanding rights,
options and warrants to acquire Common Stock of the Company shall be assumed.

        3.3 Notices With Respect to Proposed Issuance Of New Securities. In the
            -----------------------------------------------------------
event the Company proposes to undertake an issuance of New Securities, it shall
give each Purchaser entitled to a preemptive right pursuant to this Section 3
written notice (the"Company Notice") of its intention, describing in detail the
type of New Securities, the price and terms upon which the Company proposes to
issue such New Securities. Each such Purchaser shall have fifteen (15) days from
the date of receipt of any such Company Notice to agree to purchase, pursuant to
the exercise of the First Option, up to such Purchaser's

                                      18
<PAGE>

Pro Rata Portion of such New Securities for the price and upon the terms and
conditions specified in the Company Notice by giving written notice to the
Company and stating therein the quantity of New Securities to be purchased.  If,
following the expiration of such fifteen (15) day period, there exist
Additional New Securities subject to the Second Option, the  Company shall
give each Fully Participating Holder a second written notice (the "Second
Company Notice") to such effect, and each such Fully Participating Holder shall
then have ten (10) days from the date of receipt of such Second Company Notice
to agree to purchase (on such terms and conditions) the quantity of Additional
New Securities stated therein, subject to the application of the procedures set
forth in Section 3.1.

        3.4 Company's Right to Complete Proposed Sale of New Securities to the
            ------------------------------------------------------------------
Extent Preemptive Rights are Not Exercised. In the event the Purchasers fail to
------------------------------------------
exercise a preemptive right with respect to any New Securities within the
periods specified in Section 3.3, the Company shall have ninety (90) days
thereafter to sell or enter into an agreement (pursuant to which the sale of
such New Securities shall be closed, if at all, within forty-five (45) days from
the date of said agreement) to sell the New Securities not elected to be
purchased by Purchasers at the price and upon terms no more favorable to the
prospective purchasers of such securities than those specified in the Company
Notice.  In the event the Company has not sold the New Securities or entered
into an agreement to  sell the New Securities within said 90-day period (or
sold and issued New Securities in accordance with the foregoing within 45 days
from the date of said agreement), the Company shall not thereafter issue or sell
such New Securities without first offering such securities to the Purchasers in
the manner provided in this Section 3.

        3.5 Expiration of Preemptive Rights. The preemptive rights granted under
            -------------------------------
this Section 3 shall expire upon the closing of the IPO, or upon Purchasers
holding, in the aggregate, less than twenty percent (20%) of the Preferred
Shares issued pursuant to the Restated Certificate and/or Conversion Stock, in
the aggregate.

        3.6 Waiver of Antidilution Adjustment. (a) Each Purchaser hereby agrees
            ---------------------------------
that in the event that: (Defined terms in this Section 3.6 not otherwise defined
in this Agreement shall have the meanings given such terms in the Restated
Certificate.)

                        (1) the Company shall give such Purchaser fifteen (15)
days' notice of the Company's intent to offer a Dilutive Issuance (as defined
below) together with the terms and conditions of such Dilutive Issuance, and

                        (2) the Company shall offer such Purchaser its Pro Rata
Portion of such Dilutive Issuance, and

                        (3) such holder fails to tender the Company the purchase
price of such Purchaser's Pro Rata Portion (or such lesser portion as the
Company may specify in writing) of such Dilutive Issuance on the scheduled
closing of such Dilutive Issuance (which shall not be less than fifteen (15)
days after the written notice provided in (1) above), then (i) no adjustment of
the Conversion Price for such Purchaser's Series B Shares shall be made (other
than adjustments made prior to the time of such dilutive Issuance), and any
future adjustment shall be deemed waived, with respect to the Series B Shares
then held of record by such Purchaser and (ii) such Purchaser shall thereafter
no longer by entitled to the benefits of this Section 3.

                (b) A "Dilutive Issuance" shall mean an issuance and sale of
Additional Common Shares with respect to the Series B Shares.

                                      19
<PAGE>

                (c) In the event the provisions of this Section 3.6 result in
more than one Conversion Price with respect to the Series B Shares, the
Secretary of the Company shall keep a written ledger identifying the Conversion
Price in effect for each Series B Share outstanding, which information shall be
made available to any person upon request.

                (b) The waiver of adjustment of the Conversion Price with
respect to any Series B Shares provided for in this Section 3.6 shall bind any
transferee of Series B Shares. Each Purchaser agrees that, prior to transferring
any Series B Shares to any person or entity, such Purchaser will ensure that
such transferee shall have delivered to the Company a written agreement to be
bound by the provisions of this Section 3.6.

                                   SECTION 4

                                 MISCELLANEOUS
                                 -------------

        4.1 Governing Law. This Agreement shall be governed in all respects by
            -------------
the laws of the State of Delaware, as applied to agreements among Delaware
residents entered into and to be performed entirely within Delaware.

        4.2 Successors and Assigns; Assignment of Rights. The rights and
            --------------------------------------------
benefits of a Purchaser hereunder may be assigned to a transferee or assignee
in connection with transfer or assignment of any Preferred Shares or Registrable
Securities owned by such Purchaser (A) to any person or entity which is a
majority-owned subsidiary of a Holder or controls, is controlled by or under
common control with the Holder, (B) to any other person or entity provided that
(a) such transfer may otherwise be effected in accordance with applicable
securities laws, (b) such transferee or assignee acquires at least five percent
(5%) of the Preferred Shares or shares of Registrable Securities, and (c) such
assignee or transferee executes a written instrument agreeing to be bound by the
terms and provisions of this Agreement, (C) to a constituent partner of a
Purchaser or the estate of such a constituent partner or a liquidating trust
for the benefit thereof, and (D) to a successor trustee of a Purchaser in its
capacity as trustee. Any such transfer or assignment permitted hereby shall
inure to the benefit of, and be binding upon, the successors, assigns, heirs,
executors and administrators of the parties hereto.

        4.3 Entire Agreement; Amendment; Waiver. This Agreement, the Series A
            -----------------------------------
Agreement and the other agreements contemplated thereby constitute the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof. Neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated, except by a written instruments
signed by the Company and the holders of at least fifty-one percent (51%) of the
Preferred Shares (and the Conversion Stock into which such shares have been
converted) and the Company and any such amendment, waiver, discharge or
termination shall be binding upon all the parties hereto.

        4.4 Notice, etc. All notices and other communications required or
            -----------
permitted hereunder shall be in writing and shall be mailed by United States
first-class mail, postage prepaid, sent by facsimile or delivered personally by
hand or nationally recognized courier addressed (a) if to a Purchaser, as
indicated on the list of Purchasers attached hereto as Exhibit A, or at such
                                                       ---------
other address as such Purchaser or permitted assignee shall have furnished to
the Company in writing, or (b) if to the Company, at such address or facsimile
number as the Company shall have furnished to each Purchaser in writing. All
such notices and other written communications shall be effective on the date of
delivery.

        4.5 Delays or Omissions. No delay or omission to exercise any right,
            -------------------
power or remedy accruing to any Purchaser (in any capacity hereunder), upon any
breach or default of the Company under

                                      20
<PAGE>

this Agreement shall impair any such right, power or remedy of such Purchaser
nor shall it be construed to be a waiver of any such breach of default or an
acquiescence therein, or of or in any similar breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
Purchaser (in any capacity hereunder) of any breach or default under this
Agreement or any waiver on the part of any Purchaser of any provisions or
conditions of this Agreement must be made in writing and shall be effective only
to the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any Purchaser, shall be
cumulative and not alternative.

        4.6  Rights; Separability. Unless otherwise expressly provided herein, a
             --------------------
Purchaser's rights hereunder are several rights, not rights jointly held with
any of the other Purchaser. In case any provision of the Agreement shall be
invalid, illegal or unenforceable the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.

        4.7  Titles and Subtitles. The titles of the paragraphs and
             --------------------
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing or interpreting this Agreement.

        4.8  Counterparts. This Agreement may be executed in any number of
             ------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.

        4.9  Aggregation of Stock. All shares of the Registrable Securities held
             --------------------
or acquired by affiliated entities or persons shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement.

        4.10 No Third Party Beneficiaries. The covenants and agreements set
             ----------------------------
forth herein are for the sole and exclusive benefit of the parties hereto and
their respective successors and assigns and such covenants and agreements shall
not be construed as conferring, and are not intended to confer, any rights or
benefits upon any other persons.

        4.11 Remedies. The parties to this Agreement acknowledge and agree that
             --------
a breach of any of the covenants of the Company or the Purchasers set forth in
this Agreement may not be compensable by payment of money damages and,
therefore, that the covenants of the foregoing parties set forth in this
Agreement may be enforced in equity by a decree requiring specific performance.
Without limiting the foregoing, if any disputes arise concerning the sale or
other disposition of any of the Restricted Securities contained in Section 1
hereof, the parties to this Agreement agree that an injunction may be issued
restraining the sale or other disposition of such Restricted Securities or
interest or rescinding any such sale or other disposition, pending resolution of
such controversy. Such remedies shall be cumulative and non-exclusive and shall
be in addition to any other rights and remedies the parties may have under this
Agreement. Any transfer or acquisition of Restricted Securities in violation of
this Agreement shall be null and void ab initio.

        4.12 Fees and Expenses. The Company shall pay the reasonable fees and
             -----------------
expenses incurred in connection with the enforcement by the Purchasers of any of
their respective rights and benefits arising hereunder or under any related
agreement against the Company in the event of any breach thereof by the Company,
or the waiver, modification or amendment of any provision hereof or of any
related agreement, including, without limitation, reasonable fees and
disbursements of one counsel for the Purchasers.

        4.13 Dispute Resolution. Any claim or controversy arising out of or
             ------------------
relating to this Agreement shall be settled by non-binding arbitration in
accordance with the CPR Institute for Dispute Resolution's

                                      21
<PAGE>

Rules for Non-Administered Arbitration of Business Disputes by three
arbitrators, of whom each party shall appoint one. Any Arbitrator not appointed
by a party shall be selected from the CPR Institute for Dispute Resolution
Panels of Distinguished Neutrals. The arbitration shall be governed by the
United States Arbitration Act, 9 U.S.C. 1-16. The place of arbitration shall be
in the New York metropolitan area (including northern New Jersey and
southwestern Connecticut), or such other places as the parties shall mutually
agree. The Arbitrators are not empowered to award damages in excess of actual
damages or to award punitive damages. All applicable statutes of limitation
shall be tolled while the procedures specified in this Section 4.13 are pending.
The parties will take such action, if any, required to effectuate such tolling.

                                     * * *

                                      22
<PAGE>

        IN WITNESS WHEREOF, the parties hereto have executed this Investors'
Rights Agreement effective as of the day and year first above written.

THE COMPANY:                    ESPERION THERAPEUTICS, INC.

                                By:  /s/ Roger S. Newton
                                     --------------------------------
                                   Name: Roger S. Newton
                                   Title: CEO

THE PURCHASERS:                 OAK INVESTMENT PARTNERS VII. LIMITED
                                PARTNERSHIP

                                By:  OAK ASSOCIATES VII. LLC

                                By:  /s/ [ILLEGIBLE]
                                     --------------------------------
                                     A Member

                                OAK VII AFFILIATES FUND. LIMITED PARTNERSHIP

                                By:  OAK VII AFFILIATES, LLC
                                     Its General Partner

                                By:  /s/ [ILLEGIBLE]
                                     --------------------------------
                                     A Member
<PAGE>

                                TL VENTURES III L.P.

                                By:    TL Ventures III Management L.P.,
                                       its general partner

                                By:    TL Ventures III LLC,
                                       its general partner

                                By:    /s/ Christopher Moller
                                       -------------------------------
                                Name:  Christopher Moller Ph.D.
                                Title: Managing Director

                                TL VENTURES III OFFSHORE L.P.

                                By:    TL Ventures III Offshore Partners L.P.,
                                       its general partner

                                By:    TL Ventures III Offshore Ltd.,
                                       its general partner

                                By:    /s/ Christopher Moller
                                       -------------------------------
                                Name:  Christopher Moller Ph.D.
                                Title: Vice President

                                TL VENTURES III INTERFUND L.P.

                                By:    TL Ventures III LLC,
                                       its general partner

                                By:    /s/ Christopher Moller
                                       -------------------------------
                                Name:  Christopher Moller Ph.D.
                                Title: Managing Director

                                SCHEER INVESTMENT HOLDINGS II, L.L.C.

                                By:    /s/ David J. Scheer     7/6/98
                                       -------------------------------
                                Name:  David J. Scheer
                                Title: Managing Member

<PAGE>

                                                                       EXHIBIT A
                                                                       ---------

                            SCHEDULE OF PURCHASERS
                            ----------------------

                                                No. of                Cash
Purchaser' Name and Address                 Series A Shares       Consideration
---------------------------                 ---------------       -------------

Oak Investment Partners VII, Limited            268,263              $268,263
Partnership
c/o Oak Investment Partners
One Gorham Island
Westport CT 06880
Attention: General Partner

Oak VII Affiliates Fund, Limited                  6,737                $6,737
Partnership
c/o Oak Investment Partners
One Gorham Island
Westport CT 06880
Attention: General Partner

TL Ventures III L.P.                            140,905              $140,905
c/o TL Ventures LLC
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1945
Attention: Chief Financial Officer

TL Ventures III Offshore L.P.                    29,494               $29,494
c/o Trident Trust Company (Cayman)
Limited
P.O. Box 847
One Capital Place, Fourth Floor
Grand Cayman, Cayman Islands

with a copy to:

TL Ventures LLC
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1945
Attention: Chief Financial Officer

TL Ventures III Interfund L.P.                    4,601                $4,601
c/o TL Ventures LLC
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Attention: Chief Financial Officer

Scheer Investment Holdings II, L.L.C.            50,000               $50,000
c/o Scheer & Company, Inc.
250 West Main Street                             ------                ------
Branford, CT 06450

        TOTAL                                   500,000              $500,000
        =====                                   =======              ========
<PAGE>

                                                                       EXHIBIT B
                                                                       ---------

          (Form of Employee Nondisclosure and Developments Agreement)
<PAGE>

                                                                       EXHIBIT C
                                                                       ---------

                      (Form of Noncompetition Agreement)<PAGE>

                                                                     Exhibit 4.2

                          ESPERION THERAPEUTICS, INC.
               AMENDMENT NO. 1 TO THE INVESTOR'S RIGHTS AGREEMENT

     This AMENDMENT NO. 1 TO THE INVESTORS' RIGHTS AGREEMENT (this "Agreement")
is made and entered into as of August 11, 1998, by and among ESPERION
THERAPEUTICS, INC., a Delaware corporation (the "Company"), the Purchasers (as
                                                 -------
such term is defined in the Original Agreement defined below), and the
Additional Purchasers set forth on Exhibit 1 attached hereto under the heading
                                   ---------
"Additional Purchasers".
----------------------

     WHEREAS, the Company and the Purchasers are parties to an Investors' Rights
Agreement made and entered into as of July 6, 1998 (the "Original Agreement");
                                                         ------------------
and

     WHEREAS, the parties to the Original Agreement desire to amend such
agreement to provide for the addition of the Additional Purchasers as Purchasers
thereunder, among other things, on the terms and conditions stated herein and in
the Original Agreement;

     NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto agree as follows:

                1. Defined Terms. Capitalized terms used and not otherwise
                   -------------
defined in this Agreement shall have the meanings given to such terms in the
Original Agreement.

                2. Exhibit A. Exhibit A to the Original Agreement is amended and
                   ---------  ---------
restated in the form of Exhibit A hereto.
                        ---------

                3. Joinder. The Additional Purchasers hereby agree to be bound
                   -------
by and subject to the terms and conditions of the Original Agreement and the
parties hereto agree that the Additional Purchasers shall be entitled to all, of
the rights and benefits of the Purchasers under the Original Agreement.

                4. Amendment to Section 4.3. Section 4.3 of the Original
                   ------------------------
Agreement is hereby amended by adding the following clause immediately prior to
the period at the end of the second sentence of such Section:

     "; provided, however, that without the consent of a Holder, no such
        --------  -------
     amendment shall alter the provisions of Sections 2.1 or 2.2 with respect to
     the Preferred Shares held by such Holder"

                5. Governing Law. This Agreement shall be governed in all
                   -------------
respects by the laws of the State of Delaware, as applied to agreements among
Delaware residents entered into and to be performed entirely within Delaware.

                6. Effective Date. In accordance with the terms of the Original
                   --------------
Agreement, this Agreement will become effective upon execution by the Company
and the holders of at least fifty one percent (51%) of the Preferred Shares.
<PAGE>

                7. Counterparts. This Agreement may be executed in any number of
                   ------------
counterparts. each of which shall be an original, but all of which, together
shall constitute one instrument.

                 *          *          *          *          *
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have executed this Investors' Rights
Agreement effective as of the day and year first above written.

THE COMPANY:                            ESPERION THERAPEUTICS, INC.

                                        By: /s/ Roger S. Newton
                                           --------------------------
                                           Name:  Roger S. Newton
                                           Title: President/CEO

THE PURCHASERS:                         OAK INVESTMENT PARTNERS VII,
                                        LIMITED PARTNERSHIP

                                        By:  OAK ASSOCIATES VII, LLC
                                             Its General Partner

                                        By:  _____________________________
                                             A Member

                                        OAK VII AFFILIATES FUND, LIMITED
                                        PARTNERSHIP

                                        By:  OAK VII AFFILIATES, LLC
                                             Its General Partner

                                        By:  ______________________________
                                             A Member

     [Signature page to Amendment No. 1 to the Investors' Rights Agreement]
<PAGE>

                              TL VENTURES III L.P.

                              By:  TL Ventures III Management L.P.,
                                   its general partner

                              By:  TL Ventures III L.L.C.
                                   its general partner

                              By: /s/ Christopher Moller
                                 ------------------------------------
                                  Name:  Christopher Moller Ph.D.
                                  Title: Managing Director

                              TL VENTURES III OFFSHORE L.P.

                              By:  TL Ventures III Offshore Partners, L.P.,
                                   its general partner

                              By:  TL Ventures III Offshore Ltd,
                                   its general partner

                              By: /s/ Christopher Moller
                                 ------------------------------------
                                  Name:  Christopher Moller Ph.D.
                                  Title: Vice President

                              TL VENTURES III INTERFUND L.P.

                              By:  TL Ventures III L.L.C.,
                                   its general partner

                              By: /s/ Christopher Moller Ph.D.
                                 ------------------------------------
                                  Name:  Christopher Moller Ph.D.
                                  Title: Managing Director

                              SCHEER INVESTMENT HOLDINGS II, L.L.C.

                              By: /s/ David I. Scheer
                                 ------------------------------------
                                  David I. Scheer
                                  Managing Member

                              /s/ Cesare Sirtori
                              ---------------------------------------
                              Cesare Sirtori, M.D.

     [Signature page to Amendment No. 1 to the Investors' Rights Agreement]
<PAGE>

                                                                       EXHIBIT A
                                                                       ---------
                             SCHEDULE OF PURCHASERS

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
                                                 No. of                     Cash
Purchaser's Name and Address                 Series B Shares           Consideration
----------------------------                 ---------------           -------------
------------------------------------------------------------------------------------------
<S>                                      <C>                      <C>
Oak Investment Partners VII, Limited                   3,685,125            $5,487,187.503
Partnership
c/o Oak Investment Partners
One Gorham Island
Westport, CT  06880
Attention:  General Partner
------------------------------------------------------------------------------------------
Oak VII Affiliates Fund, Limited                          91,875            $   137,812.50
Partnership
c/o Oak Investment Partners
One Gorham Island
Westport, CT  06880
Attention:  General Partner
------------------------------------------------------------------------------------------
TL Ventures III L.P.                                   3,019,385            $ 4,529,077.50
c/o TL Ventures LLC
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA  19087-1945
Attention:  Chief Financial Officer
------------------------------------------------------------------------------------------
TL Ventures III Offshore L.P.                            632,026            $   948,039.00
c/o Trident Trust Company (Cayman)
Limited
P.O. Box 847
One Capital Place, Fourth Floor
Grand Cayman, Cayman Islands
------------------------------------------------------------------------------------------
With a copy to:

TL Ventures LLC
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA  19087-1945
Attention:  Chief Financial Officer
------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
                                                 No. of                     Cash
Purchaser's Name and Address                 Series B Shares           Consideration
----------------------------                 ---------------           -------------
------------------------------------------------------------------------------------------
<S>                                      <C>                      <C>
TL Ventures III Interfund L.P.                            98,589            $   147,883.50
c/o TL Ventures LLC
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA  19087
Attention:  Chief Financial Officer
------------------------------------------------------------------------------------------
HealthCap KB                                             896,000            $ 1,344,000.00
Sturegatan 34
S-114 Stockholm
Sweden
------------------------------------------------------------------------------------------
HealthCap CoInvest KB                                  1,237,333            $ 1,855,999.50
Sturegatan 34
S-114 Stockholm
Sweden
------------------------------------------------------------------------------------------
Cesare Sirtori, M.D.                                     333,333            $   499,999.50
[Address]
------------------------------------------------------------------------------------------
Scheer Investment Holdings II, L.L.C.                     33,334            $    50,001.00
Cc/o Scheer & Company, Inc.
250 West Main Street
Branford, CT  06405
------------------------------------------------------------------------------------------
TOTAL                                                 ----------            --------------
-----                                                 10,000,000            $15,000,000.00
                                                      ==========            ==============
------------------------------------------------------------------------------------------
</TABLE>

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