Unassociated Document


    
      

    


    
      	
              

              Confirmation
                of OTC Convertible Note Hedge

            	
               

            


    

    


     

    
      	
              Date:

            	
              July
                19, 2006

            


    

     

    
      	
              To:
                

            	
              New
                River Pharmaceuticals Inc. (“Counterparty”)

            


    

     

    
      	 	
              Attention:
                

            	
              Clifton
                R. Herndon II

            


    

    V.P.,
      Finance and Controller

    
      	 	
              Telephone
                No.:

            	
              540-633-7900

            


    

    
      	 	
              Facsimile
                No.:

            	
              540-633-7939

            


    

     

    
      	
              From:
                

            	
              Merrill
                Lynch International (“MLI”)

            


    

     

    MLI
      Reference: #

     

    ______________________________________________________________________________________

     

    Dear
      Sir
      / Madam:

     

    The
      purpose of this letter agreement (this “Confirmation”)
      is to
      confirm the terms and conditions of the above-referenced transaction
      entered
      into
      among Counterparty, MLI and Merrill Lynch, Pierce, Fenner & Smith
      Incorporated (the “Agent”
or
      “MLPFS”)
      on the
      Trade Date specified below (the “Transaction”).
      This
      Confirmation constitutes a “Confirmation” as referred to in the Agreement
      specified below.

     

    The
      definitions and provisions contained in the 2000 ISDA Definitions (the
“Swap
      Definitions”)
      and
      the 2002 ISDA Equity Derivatives Definitions (the “Equity
      Definitions”
and,
      together with the Swap Definitions, the “Definitions”),
      in
      each case as published by the International Swaps and Derivatives Association,
      Inc., are incorporated into this Confirmation. In the event of any inconsistency
      between the Swap Definitions and the Equity Definitions, the Equity Definitions
      will govern, and in the event of any inconsistency between the Definitions
      and
      this Confirmation, this Confirmation will govern. References herein to a
“Transaction” shall be deemed to be references to a “Share Option Transaction”
for purposes of the Equity Definitions and a “Swap Transaction” for the purposes
      of the Swap Definitions.

     

    This
      Confirmation evidences a complete binding agreement between you and us as to
      the
      terms of the Transaction to which this Confirmation relates. This Confirmation
      (notwithstanding anything to the contrary herein), shall be subject to an
      agreement in the 1992 form of the ISDA Master Agreement (Multicurrency Cross
      Border) (the “Master
      Agreement”
or
      “Agreement”)
      as if
      we had executed an agreement in such form (but without any Schedule and with
      elections specified in the “ISDA Master Agreement” Section of this Confirmation)
      on the Trade Date. In the event of any inconsistency between the provisions
      of
      that agreement and this Confirmation, this Confirmation will prevail for the
      purpose of this Transaction. The parties hereby agree that the Transaction
      evidenced by this Confirmation shall be the only Transaction subject to and
      governed by the Agreement.

     

    The
      terms
      of the particular Transaction to which this Confirmation relates are as
      follows:

     

    General
      Terms:

     

    
      	
              Trade
                Date:

            	
              July
                19, 2006

            


    

     

    
      	
              Effective
                Date:

            	
              The
                date of issuance of the Reference
                Notes.

            


    

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    
      	
              Option
                Style:

            	
              Modified
                American, as described under “Settlement Terms”
                below.

            


    

     

    
      	
              Option
                Type:

            	
              Call
                

            


    

     

    
      	
              Seller:

            	
              MLI

            


    

     

    
      	
              Buyer:

            	
              Counterparty

            


    

     

    
      	
              Shares:
                

            	
              The
                shares of common stock, $0.001 par value, of Counterparty (Security
                Symbol: “NRPH”) or such other securities or property into which the
                Reference Notes are convertible on the date of
                determination.

            


    

     

    
      	
              Premium:

            	
              $39,500,000
                

            


    

     

    
      	
              Premium
                Payment Date:

            	
              The
                4th
                Exchange Business Date following the Trade
                Date.

            


    

    


    
      	
              Exchange:

            	
              The
                NASDAQ Global Market.

            


    

     

    
      	
              Related
                Exchange(s):

            	
              All
                Exchanges

            


    

     

    
      	
              Reference
                Notes:

            	
              3.5%
                Convertible Subordinated Notes due 2013 of Counterparty in the original
                principal amount of $125,000,000.

            


    

     

    
      	
              Applicable
                Portion of the

            	 


    

    
      	
              Reference
                Notes:

            	
              100%.
                For the avoidance of doubt, the Calculation Agent shall, as it deems
                necessary, take into account the Applicable Portion of the Reference
                Notes
                in determining or calculating any delivery or payment obligations
                hereunder, whether upon a Conversion Date (as defined below) or
                otherwise.

            


    

     

    
      	
              Note
                Indenture:

            	
              The
                indenture, dated as of closing of the issuance of the Reference Notes,
                between Counterparty and Wilmington Trust Company, as trustee relating
                to
                the Reference Notes, as the same may be amended, modified or supplemented,
                subject to the “Additional Termination Events” provisions of this
                Confirmation. Certain defined terms used herein have the meanings
                assigned
                to them in the Note Indenture.

            


    

     

    Procedures
      for Exercise:

     

    
      	
              Potential
                Exercise Dates:

            	
              Each
                Conversion Date.

            


    

     

    
      	
              Conversion
                Date:

            	
              Each
                “conversion date” for any Reference Note pursuant to the terms of the Note
                Indenture (the principal amount of Reference Notes so converted,
                the
                “Conversion
                Amount”
                with respect to such Conversion Date) occurring before the Expiration
                Date.

            


    

     

    
      	 	
              If
                the Conversion Amount for any Conversion Date is less than the aggregate
                principal amount of Reference Notes then outstanding, then the terms
                of
                this Transaction shall continue to apply, subject to the terms and
                conditions set forth herein, with respect to the remaining outstanding
                principal amount
                of
                the Reference Notes multiplied by the Applicable Portion
                of
                the Reference Notes.

            


    

     

    
      	
              Expiration
                Period:

            	
              The
                period from and excluding the Trade Date to and including the Expiration
                Date.

            


    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    
      	
              Expiration
                Date:

            	
              The
                earliest of (i) the maturity date of the Reference Notes, (ii) the
                first
                day on which none of such Reference Notes remain outstanding, whether
                by
                virtue of conversion, issuer repurchase or otherwise and (iii) the
                occurrence of an Additional Termination Event hereunder in respect
                of the
                termination of the Transaction in whole but not in
                part.

            


    

     

    
      	
              Exercise
                Notice:

            	
              Notwithstanding
                anything to the contrary in the Equity Definitions, in order to exercise
                any Options hereunder, Buyer shall provide Seller with written notice
                prior to 5:00 p.m. New York City time on the Exchange Business Day
                prior
                to the first Trading Day in the Conversion Reference Period (both
                as
                defined in the Note Indenture) relating to the Reference Notes converted
                on the relevant Conversion Date of (i) the number of Reference Notes
                being
                converted on the relevant Conversion Date, (ii) the first Trading
                Day in
                the relevant Conversion Reference Period for the Reference Notes
                and (iii)
                if any, the applicable Cash Percentage (as defined in the Note Indenture);
                provided that with respect to Reference Notes converted during the
                period
                beginning on July 1, 2013 and ending on the business day immediately
                preceding the maturity date of the Reference Notes, the related Exercise
                Notice shall be delivered prior to 5:00 p.m. New York City time on
                such
                Maturity Date (as defined in the Note Indenture); and provided further
                that the delivery by Buyer of an Exercise Notice after the Conversion
                Reference Period has commenced but prior to the close of business
                on the
                fifth Trading Day of such Conversion Reference Period shall be effective,
                in which case the Settlement Method shall be Net Share Settlement
                but
                without regard to subsection (ii) of the definition of Net Share
                Settlement and subject to adjustments to the Net Share Settlement
                Amount
                as specified below.

            


    

     

    

      Seller’s
        Telephone Number

      and
        Telex
        and/or Facsimile

      Number
        and Contact Details

      for
        purpose of Giving
        Notice:            Address: 
        Merrill
        Lynch International 

    

    Merrill
      Lynch Financial Centre

    2
      King
      Edward Street

    London
      EC1A 1HQ

    Attention:
      Manager, Fixed Income Settlements

    Facsimile
      No.: +44 207 995 2004

    Telephone
      No.: +44 207 995 3769

     

    Settlement
      Terms:

     

    
      	
              Settlement
                Method:

            	
              Net
                Share Settlement or Net Cash Settlement consistent with Buyer’s election
                with respect to the Reference Notes converted on the applicable Conversion
                Date, provided that Net Share Settlement shall apply in the event
                that
                Buyer elects to deliver any Shares in connection with the applicable
                Conversion Date.

            


    

     

    
      	
              Settlement
                Date:

            	
              Subject
                to the delivery of an Exercise Notice to the Seller, the third
                (3rd)
                Exchange Business Day following the final Trading Day in the applicable
                Conversion Reference Period in respect of the relevant Conversion
                Date.

            


    

     

    
      	
              Net
                Share Settlement:

            	
              In
                lieu of the obligations set forth in Sections 8.1 and 9.1 of the
                Equity
                Definitions, Seller shall deliver to Buyer on the related Settlement
                Date
                (i) a number of Shares equal to the related Net Share Settlement
                Amount,
                provided that in the event that the number of Shares calculated comprises
                any fractional Share, only whole Shares shall be delivered and an
                amount
                equal to the value of such fractional Share shall be payable by Seller
                to
                Buyer in cash and (ii) (x) an amount in cash equal to the cash amount,
                if
                any, paid by Buyer in excess of the principal amount of the applicable
                Reference Notes for such Conversion Date under the Note Indenture
                multiplied by (y) the Applicable Portion of the Reference Notes.
                The
                provisions of Sections 9.1(c), 9.8, 9.9, 9.10, 9.11 and 9.12 of the
                Equity
                Definitions shall apply to any delivery of Shares hereunder, provided
                that
                the Representation and Agreement in Section 9.11 of the Equity Definitions
                shall be modified by excluding any representations therein relating
                to
                restrictions, obligations, limitations or requirements under applicable
                securities laws as a result of the fact that Buyer is the issuer
                of the
                Shares.

            


    

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    
      	
              Net
                Cash Settlement:

            	
              In
                lieu of the obligations set forth in Section 8.1 of the Equity
                Definitions, on the Settlement Date Seller shall deliver to Buyer
                an
                amount in cash equal to the related Net Cash Settlement
                Amount.

            


    

     

    
      	
              Net
                Share Settlement Amount:

            	
              For
                each Conversion Date, the number of Shares equal to the Shares delivered
                by Buyer for such Conversion Date under the Note Indenture multiplied
                by
                the Applicable Portion of the Reference Notes, provided that if an
                Exercise Notice with respect to such Conversion Date has not been
                delivered to the Seller prior to the first Trading Day of the Conversion
                Reference Period applicable to such Conversion Date, the Net Share
                Settlement Amount for such Conversion Date shall be adjusted by the
                Calculation Agent to account for the reduced number of Trading Days
                from
                the delivery of the Exercise Notice to the end of the applicable
                Conversion Reference Period with respect to such Conversion Date.
                No
                reduction of the Net Share Settlement Amount shall reduce the Net
                Share
                Settlement Amount below zero. 

            


    

     

    
      	
              Net
                Cash Settlement Amount:

            	
              For
                each Conversion Date, an amount equal to the cash delivered by the
                Buyer
                in
                excess of the principal amount of the applicable Reference
                Notes
                for such Conversion Date under the Note Indenture multiplied by the
                Applicable Portion of the Reference Notes.
                

            


    

     

    Adjustments: 

     

    
      	
              Method
                of Adjustment:

            	
              Calculation
                Agent Adjustment

            


    

     

    Extraordinary
      Events:

     

    Consequences
      for Merger Events:

     

    
      	 	
              Share-for-Share:

            	
              The
                Transaction will be adjusted consistent with the Reference Notes
                as
                provided in the Note Indenture.

            


    

     

    
      	 	
              Share-for-Other:

            	
              The
                Transaction will be adjusted consistent with the Reference Notes
                as
                provided in the Note Indenture.

            


    

     

    
      	 	
              Share-for-Combined:

            	
              The
                Transaction will be adjusted consistent with the Reference Notes
                as
                provided in the Note Indenture.

            


    

     

    
      	
              Tender
                Offer:

            	
              Applicable

            


    

     

    
      	
              Consequences
                of Tender Offers:

            	
              The
                Transaction will be adjusted consistent with the Reference Notes
                as
                provided in the Note Indenture.

            


    

     

    Nationalization,
      Insolvency 

    
      	
              and
                Delisting:

            	
              Cancellation
                and Payment (Calculation Agent Determination), provided Buyer shall
                determine whether payment shall be settled in cash or
                Shares.

            


    

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    Additional
      Disruption Events:

     

    
      	 	
              Change
                in Law:

            	
              Applicable

            


    

     

    
      	 	
              Failure
                to Deliver:

            	
              Applicable.
                If there is inability in the market to deliver Shares due to illiquidity
                on a day that would have been a Settlement Date, then the Settlement
                Date
                shall be the first succeeding Exchange Business Day on which there
                is no
                such inability to deliver, but in no such event shall the Settlement
                Date
                be later than the date that is two (2) Exchange Business Days immediately
                following what would have been the Settlement Date but for such inability
                to deliver.

            


    

     

    
      	 	
              Insolvency
                Filing:

            	
              Applicable

            


    

     

    
      	 	
              Hedging
                Disruption Event:

            	
              Applicable

            


    

     

    
      	 	
              Increased
                Cost of Hedging:

            	
              Not
                Applicable

            


    

     

    
      	 	
              Loss
                of Stock Borrow:

            	
              Not
                Applicable

            


    

     

    
      	 	
              Increased
                Cost of Stock Borrow:

            	
              Not
                Applicable

            


    

     

    
      	 	
              Hedging
                Party:

            	
              Seller

            


    

     

    
      	 	
              Determining
                Party:

            	
              Seller

            


    

     

    
      	
              Non-Reliance:

            	
              Applicable

            


    

     

    Agreements
      and Acknowledgments

    
      	
              Regarding
                Hedging Activities:

            	
              Applicable

            


    

     

    
      	
              Additional
                Acknowledgments:

            	
              Applicable

            


    

     

    Additional
      Agreements, Representations and Covenants of Buyer,
      Etc.:

     

    
      	
              1.

            	
              Buyer
                hereby represents and warrants to Seller, on each day from the Trade
                Date
                to and including the earlier of (i) August 19, 2006 and (ii) the
                date by
                which Seller is able to initially complete a hedge of its position
                relating to this Transaction, that:

            


    

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    
      	 	
              a.

            	
              it
                will coordinate (and cause any “affiliated purchaser” (as defined in Rule
                10b-18 promulgated under the Securities Exchange Act of 1934, as
                amended
                (the “Exchange
                Act”))
                to coordinate) any purchases, directly or indirectly (including by
                means
                of any cash-settled or other derivative instrument), of Shares or
                any
                security convertible into or exchangeable or exercisable for Shares
                with
                any purchases by Seller of its hedge in connection with this
                Transaction;

            


    

     

    
      	 	
              b.

            	
              it
                will not engage in, or be engaged in, any “distribution,” as such term is
                defined in Regulation M promulgated under the Exchange Act, other
                than a
                distribution meeting the requirements of the exceptions set forth
                in
                sections 101(b)(10) and 102(b)(7) of Regulation M (it being understood
                that Buyer makes no representation pursuant to this clause in respect
                of
                any action or inaction taken by Seller or any initial purchaser of
                the
                Reference Notes); and

            


    

     

    
      	 	
              c.

            	
              Buyer
                has publicly disclosed all material information necessary for Buyer
                to be
                able to purchase or sell Shares in compliance with applicable federal
                securities laws and that it has publicly disclosed all material
                information with respect to its condition (financial or
                otherwise).

            


    

     

    
      	
              2.

            	
              If
                Buyer would be obligated to receive cash from Seller pursuant to
                the terms
                of this Agreement for any reason without having had the right (other
                than
                pursuant to this paragraph (2)) to elect to receive Shares in satisfaction
                of such payment obligation, then Buyer may elect that Seller deliver
                to
                Buyer a number of Shares having a cash value equal to the amount
                of such
                payment obligation (such number of Shares to be delivered to be determined
                by the Calculation Agent acting in a commercially reasonable manner
                to
                determine the number of Shares that could be purchased over a reasonable
                period of time with the cash equivalent of such payment obligation).
                Settlement relating to any delivery of Shares pursuant to this paragraph
                (2) shall occur within a reasonable period of
                time.

            


    

     

    
      	
              3.

            	
              Counterparty
                is not, and after giving effect to the Transaction contemplated hereby,
                will not be, an “investment company” as such term is defined in the
                Investment Company Act of 1940, as
                amended.

            


    

     

    Over-Allotment
      Option:

     

    If
      the
      Initial Purchaser (as such term is defined in the Purchase Agreement between
      the
      Counterparty and Merrill Lynch, Pierce, Fenner & Smith Incorporated
dated
      as
      of July 19, 2006 (the “Purchase
      Agreement”)
      relating to the purchase of the Reference Notes) exercises its right to receive
      additional Reference Notes pursuant to an over-allotment option, then Seller
      and
      Buyer will, concurrently with the closing of such over-allotment option
      exercise, enter into a confirmation for an OTC Convertible Note Hedge with
      respect to such additional Reference Notes on substantially identical terms,
      including pricing, as this Confirmation or amend this Confirmation to account
      for such over-allotment option exercise. Such additional or amended confirmation
      shall provide for the payment by Counterparty to Seller of the additional
      Premium related thereto.

     

    Additional
      Termination Events:

     

    The
      occurrence of any of the following shall be an Additional Termination Event
      for
      purposes of this Transaction:

     

    
      	
              1.

            	
              Amendment
                Event.
                If an Amendment Event (as defined below) occurs, this Transaction
                shall
                terminate in its entirety and, notwithstanding anything to the contrary
                herein, no payments shall be required hereunder in connection with
                such
                Amendment Event.

            


    

     

    “Amendment
      Event”
means
      that the Counterparty amends, modifies, supplements or obtains a waiver of
      (a)
      any term of the Note Indenture or the Reference Notes relating to the principal
      amount, coupon, maturity, repurchase obligation of the Counterparty or
      redemption right of the Counterparty, (b) any material term relating to
      conversion of the Reference Notes (including changes to the conversion price,
      conversion settlement dates or conversion conditions) or (c) any term that
      would
      require consent of the holders of 100% of the principal amount of the Reference
      Notes to amend;

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    
      	
              2.

            	
              Repayment
                Event.
                If
                a
                Repayment Event (as defined below) occurs, this Transaction shall
                terminate only to the extent of the principal amount of Reference
                Notes
                that cease to be outstanding as a result of such Repayment Event
                and,
                notwithstanding anything to the contrary herein, no payments shall
                be
                required hereunder in connection with such Repayment Event.
                

            


    

     

    “Repayment
      Event”
means
      that (a) any Reference Notes are repurchased (whether in connection with or
      as a
      result of a change of control, howsoever defined, or for any other reason)
      by
      the Counterparty, (b) any Reference Notes are delivered to the Counterparty
      in
      exchange for delivery of any property or assets of the Counterparty or any
      of
      its subsidiaries (howsoever described), other than as a result of and in
      connection with a Conversion Date, (c) any principal of any of the
      Reference Notes is repaid prior to the Final Maturity Date (as defined in the
      Note Indenture) (whether following acceleration of the Reference Notes or
      otherwise), provided that no payments of cash made in respect of the conversion
      of a Reference Note shall be deemed a payment of principal under this clause
      (c), (d) any Reference Notes are exchanged by or for the benefit of the
      holders thereof for any other securities of the Counterparty or any of its
      Affiliates (or any other property, or any combination thereof) pursuant to
      any
      exchange offer or similar transaction or (e) any of the Reference Notes is
      surrendered by Counterparty to the trustee for cancellation, other than
      registration of a transfer of such Reference Notes or as a result of and in
      connection with a Conversion Date; or

     

    
      	
              3.

            	
              Initial
                Purchase Event.
                If
                an Initial Purchase Event (as defined below) occurs, this Transaction
                shall terminate automatically in its entirety and, notwithstanding
                anything to the contrary herein, only the payments specified below
                shall
                be required hereunder in connection with such Initial Purchase
                Event.

            


    

     

    “Initial
      Purchase Event”
means
      that the transactions contemplated by the Purchase Agreement shall fail to
      close
      for any reason.

     

    If
      an
      Initial Purchase Event occurs for any reason other than a breach of the Purchase
      Agreement by the Initial Purchaser, then all payments previously made hereunder
      shall be returned to the person making such payment, including the Premium,
      less
      an amount equal to the product of (a) 3,635,042 Shares and (b) the sum of (i)
      US$0.50 per Share and (ii) an amount equal to the excess, if any, of the closing
      price of the Shares on the Trade Date over the closing price of the Shares
      on
      the date of the Termination Event (the “Break
      Expense”);
      provided that any negative amount shall be replaced by zero and provided further
      that to the extent the Premium has not been paid, Buyer shall promptly pay
      Seller the Break Expense. Seller and Buyer agree that actual damages would
      be
      difficult to ascertain under these circumstances and that the amount of
      liquidated damages resulting from the determination in the preceding sentence
      is
      a good faith estimate of such damages and not a penalty.

     

    If
      an
      Initial Purchase Event occurs due to a breach of the Purchase Agreement by
      the
      Initial Purchaser, then all payments previously made hereunder, including the
      Premium, promptly shall be returned to the person making such payment and no
      payments shall be required hereunder in connection with such Initial Purchase
      Event.

     

    Staggered
      Settlement:

     

    If
      Seller
      determines reasonably and in good faith that the number of Shares required
      to be
      delivered to Buyer hereunder on any Settlement Date would exceed 8.0% of all
      outstanding Shares, then Seller may, by notice to Buyer on or prior to such
      Settlement Date (a “Nominal
      Settlement Date”),
      elect
      to deliver the Shares comprising the related Net Share Settlement Amount on
      two
      or more dates (each, a “Staggered
      Settlement Date”)
      or at
      two or more times on the Nominal Settlement Date as follows:

     

    
      	
              1.

            	
              in
                such notice, Seller will specify to Buyer the related Staggered Settlement
                Dates (the first of which will be such Nominal Settlement Date and
                the
                last of which will be no later than twenty (20) Trading Days (as
                defined
                in the Note Indenture) following such Nominal Settlement Date) or
                delivery
                times and how it will allocate the Shares it is required to deliver
                hereunder among the Staggered Settlement Dates or delivery
                times;

            


    

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    
      	
              2.

            	
              the
                aggregate number of Shares that Seller will deliver to Buyer hereunder
                on
                all such Staggered Settlement Dates or delivery times will equal
                the
                number of Shares that Seller would otherwise be required to deliver
                on
                such Nominal Settlement Date; and

            


    

     

    
      	
              3.

            	
              the
                Net Share Settlement terms will apply on each Staggered Settlement
                Date,
                except that the Shares comprising the Net Share Settlement Amount
                will be
                allocated among such Staggered Settlement Dates or delivery times
                as
                specified by Seller in the notice referred to in clause (1)
                above.

            


    

     

    Notwithstanding
      anything herein to the contrary, solely in connection with a Staggered
      Settlement Date, Seller shall be entitled to deliver Shares to Buyer from time
      to time prior to the date on which Seller would be obligated to deliver them
      to
      Buyer pursuant to Net Share Settlement terms set forth above, and Buyer agrees
      to credit all such early deliveries against Seller’s obligations hereunder in
      the direct order in which such obligations arise. No such early delivery of
      Shares will accelerate or otherwise affect any of Buyer’s obligations to Seller
      hereunder. 

     

    Disposition
      of Hedge Shares:

     

    Seller
      intends to conduct its hedging activities in connection with the Transaction
      in
      a manner that it believes, based on its reasonable judgment, will not require
      Counterparty to register under the Securities Act or any state securities laws
      the Shares (the “Hedge
      Shares”)
      acquired by Seller for the purpose of hedging its obligations pursuant to the
      Transaction. In addition, Counterparty
      hereby agrees that if, in the reasonable judgment of Seller
      based on advice of counsel,
      the
      Hedge Shares cannot
      be
      sold in the U.S. public market by Seller
      without
      registration under the Securities Act, Counterparty shall, at its election:
      (i)
in
      order
      to allow Seller to sell the Hedge Shares in a registered offering, make
      available to Seller an effective registration statement under the Securities
      Act
      to cover the resale of such Hedge Shares and (a) enter into an agreement, in
      form and substance satisfactory to Seller, substantially in the form of an
      underwriting agreement for a registered offering, (b)
      provide accountant’s “comfort” letters in customary form for registered
      offerings of equity securities, (c) provide disclosure opinions of nationally
      recognized outside counsel to Counterparty reasonably acceptable to Seller,
      (d)
      provide other customary opinions, certificates and closing documents customary
      in form for registered offerings of equity securities and (e) afford
Seller
      a
      reasonable opportunity to conduct a “due diligence” investigation with respect
      to Counterparty customary in scope for underwritten offerings of equity
      securities;
      provided,
      however,
      that if
      Seller, in its sole reasonable discretion, is not satisfied with access to
      due
      diligence materials, the results of its due diligence investigation, or the
      procedures and documentation for the registered offering referred to above,
      then
      clause (ii) or clause (iii) of this Section shall apply at the election of
      Counterparty; (ii) in order to allow Seller to sell the Hedge Shares in a
      private placement, enter into a private placement agreement substantially
      similar to private placement purchase agreements customary for private
      placements of equity securities, in form and substance satisfactory to Seller,
      including customary representations, covenants, blue sky and other governmental
      filings and/or registrations, indemnities to Seller, due diligence rights (for
      Seller or any designated buyer of the Hedge Shares from Seller), opinions and
      certificates and such other documentation as is customary for private placements
      agreements, all reasonably acceptable to Seller (in which case, the Calculation
      Agent shall make any adjustments to the terms of the Transaction that are
      necessary, in its reasonable judgment, to compensate Seller for any discount
      from the public market price of the Shares incurred on the sale of Hedge Shares
      in a private placement); or (iii) purchase the Hedge Shares from Seller at
      the
      VWAP Price on such Exchange Business Days, and in the amounts, requested by
      Seller. “VWAP
      Price”
means,
      on any Exchange Business Day, the per Share volume-weighted average price as
      displayed under the heading “Bloomberg VWAP” on Bloomberg page NRPH
<equity> VAP (or any successor thereto) in respect of the period from 9:45
      a.m. to 3:45
      p.m.
      (New York City time) on such Exchange Business Day (or if such volume-weighted
      average price is unavailable, the market value of one Share on such Exchange
      Business Day, as determined by the Calculation Agent using a volume-weighted
      method).

     

    Repurchase
      Notices:

     

    Counterparty
      shall, on any day on which Counterparty effects any repurchase of Shares,
      promptly give Seller a written notice of such repurchase (a “Repurchase
      Notice”)
      on
      such day if following such repurchase, the Notice Percentage as determined
      on
      such day is (i) greater than 6% and (ii) greater by 0.5% than the Notice
      Percentage included in the immediately preceding Repurchase Notice (or, in
      the
      case of the first such Repurchase Notice, greater than the Notice Percentage
      as
      of the date hereof). In the event that Counterparty fails to provide Seller
      with
      a Repurchase Notice on the day and in the manner specified in this section,
      then
      Counterparty agrees to indemnify and hold harmless Seller, its affiliates and
      their respective directors, officers, employees, agents and controlling persons
      (Seller and each such person being an “Indemnified
      Party”)
      from
      and against any and all losses, claims, damages and liabilities (or actions
      in
      respect thereof), joint or several, to which such Indemnified Party may become
      subject under applicable securities laws, including without limitation, Section
      16 of the Exchange Act, relating to or arising out of such failure. If for
      any
      reason the foregoing indemnification is unavailable to any Indemnified Party
      or
      insufficient to hold harmless any Indemnified Party, then Counterparty shall
      contribute, to the maximum extent permitted by law, to the amount paid or
      payable by the Indemnified Party as a result of such loss, claim, damage or
      liability. In
      addition, Counterparty will reimburse any Indemnified Party for all reasonable
      and documented expenses (including reasonable counsel fees and expenses) as
      they
      are incurred (after notice to Counterparty) in connection with the investigation
      of, preparation for or defense or settlement of any pending or threatened claim
      or any action, suit or proceeding arising therefrom, whether or not such
      Indemnified Party is a party thereto and whether or not such claim, action,
      suit
      or proceeding is initiated or brought by or on behalf of Counterparty.
This
      indemnity shall survive the completion of the Transaction contemplated by this
      Confirmation and any assignment and delegation of the Transaction made pursuant
      to this Confirmation or the Agreement shall inure to the benefit of any
      permitted assignee of Seller. Counterparty will not be liable under this
      Indemnity provision to the extent that any loss, claim, damage, liability or
      expense is found in a final judgment by a court to have resulted from MLI’s
      gross negligence or willful misconduct. The “Notice
      Percentage”
as
      of
      any day is the fraction, expressed as a percentage, (i) the numerator of which
      is the product of the number of outstanding Reference Notes and the number
      of
      Shares per Reference Note equal to the Conversion Rate (as defined in the Note
      Indenture) and (ii) the denominator of which is the number of Shares outstanding
      on such day.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    
      	
              Compliance
                with Securities Laws:

            	
              Each
                party represents and agrees that, in connection with this Transaction
                and
                all related or contemporaneous sales and purchases of Shares by either
                party, Buyer, or in the case of Seller, the person(s) that directly
                influences the specific trading decisions of Seller, has complied
                and will
                comply with the applicable provisions of the Securities Act of 1933,
                as
                amended (the “Securities
                Act”),
                and the Exchange Act, and the rules and regulations each thereunder,
                including, without limitation, Rules 10b-5 and 13e and Regulation
                M under
                the Exchange Act; provided that each party shall be entitled to rely
                conclusively on any information communicated by the other party concerning
                such other party’s market activities. 

               

            
	
               

            	
              Each
                party acknowledges that the offer and sale of the Transaction to
                it is
                intended to be exempt from registration under the Securities Act
                by virtue
                of Section 4(2) thereof. Accordingly, Buyer represents and warrants
                to
                Seller that (i) it has the financial ability to bear the economic
                risk of
                its investment in the Transaction and is able to bear a total loss
                of its
                investment, (ii) it is an “accredited
                investor”
                as that term is defined in Regulation D as promulgated under the
                Securities Act and (iii) the disposition of the Transaction is restricted
                under this Confirmation, the Securities Act and state securities
                laws.

               

            
	 	
              Buyer
                further represents:

               

            
	 	
              (a)
                Buyer is not entering into this Transaction to create actual or apparent
                trading activity in the Shares (or any security convertible into
                or
                exchangeable for Shares) or to raise or depress or otherwise manipulate
                the price of the Shares (or any security convertible into or exchangeable
                for Shares);

               

            
	 	
              (b)
                Buyer acknowledges that as of the date hereof and without limiting
                the
                generality of Section 13.1 of the Equity Definitions, Seller is not
                making
                any representations or warranties with respect to the treatment of
                the
                Transaction under FASB Statements 149 or 150, EITF Issue No. 00-19
                (or any
                successor issue statements) or under FASB’s Liabilities & Equity
                Project.

            


    

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    


    
      	
              Account
                Details:

            	
              Account
                for payments and

            


    

    
      	 	
              deliveries
                to Buyer: 

            	
              ABA
                # 021 001 033

            


    

    Bankers
      Trust / Deutsche Bank Trust Co America

    Bankers
      Trust Plaza

    New
      York,
      NY

    Account
      #
      008 10 775

    For
      account of Merrill Lynch

    For
      sub-account # 171-08A45

    Account
      of: New River Pharmaceuticals Inc.

    


    
      	 	
              Account
                for payment to Seller:

            	
              Chase
                Manhattan Bank, New York 

            


    

    ABA#:
      021-000-021

    FAO:
      ML
      Equity Derivatives

    A/C:
      066213118

     

    
      	
              Bankruptcy
                Rights:

            	
              In
                the event of Buyer’s bankruptcy, Seller’s rights in connection with this
                Transaction shall not exceed those rights held by common shareholders.
                For
                the avoidance of doubt, the parties acknowledge and agree that Seller’s
                rights with respect to any other claim arising from this Transaction
                prior
                to Buyer’s bankruptcy shall remain in full force and effect and shall not
                be otherwise abridged or modified in connection
                herewith.

            


    

     

    
      	
              Set-Off:

            	
              Each
                party waives any and all rights it may have to set-off, whether arising
                under any agreement, applicable law or
                otherwise.

            


    

     

    
      	
              Collateral:

            	
              None.

            


    

     

    
      	
              Transfer:

            	
              Buyer
                shall have the right to assign its rights and delegate its obligations
                hereunder with respect to any portion of this Transaction, subject
                to
                Seller’s consent, such consent not to be unreasonably withheld; provided
                that such assignment or transfer shall be subject to receipt by Seller
                of
                opinions and documents reasonably satisfactory to Seller and effected
                on
                terms reasonably satisfactory to the Seller with respect to any legal
                and
                regulatory requirements relevant to the Seller; provided further
                that
                Buyer shall not be released from its obligation to deliver a Exercise
                Notice. Seller may transfer any of its rights or delegate its obligations
                under this Transaction with the prior written consent of Buyer, which
                consent shall not be unreasonably withheld.


            


    

     

    
      	
              Regulation:

            	
              Seller
                is regulated by The Securities and Futures Authority
                Limited.

            


    

     

    Matters
      Relating to Agent:

     

    
      	
              1.

            	
              MLPFS
                will be responsible for the operational aspects of the Transactions
                effected through it, such as record keeping, reporting, and confirming
                Transactions to Buyer and Seller;

            


    

    


    
      	
              2.

            	
              Unless
                Seller is a “major U.S. institutional investor,” as defined in Rule 15a-6
                of the Exchange Act, neither Buyer nor Seller will contact the other
                without the direct involvement of
                MLPFS;

            


    

    


    
      	
              3.

            	
              MLPFS’s
                sole role under this Agreement and with respect to any Transaction
                is as
                an agent of Buyer and Seller on a disclosed basis and MLPFS shall
                have no
                responsibility or liability to Buyer or Seller hereunder except for
                gross
                negligence or willful misconduct in the performance of its duties
                as
                agent. MLPFS is authorized to act as agent for Buyer, but only to
                the
                extent expressly required to satisfy the requirements of Rule 15a-6
                under
                the Exchange Act in respect of the Options described hereunder. MLPFS
                shall have no authority to act as agent for Buyer generally or with
                respect to transactions or other matters governed by this Agreement,
                except to the extent expressly required to satisfy the requirements
                of
                Rule 15a-6 or in accordance with express instructions from
                Buyer.

            


    

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    ISDA
      Master Agreement:

     

    With
      respect to the Agreement, Seller and Counterparty each agree as
      follows:

     

    “Specified
      Entity”
means
      in relation to Seller and in relation to Counterparty for purposes of this
      Transaction: Not applicable.

     

    “Specified
      Transaction”
will
      have the meaning specified in Section
      14
      of the
      Agreement.

     

    The
      “Cross
      Default”
      provisions of Section
      5(a)(vi)
      of the
      Agreement will not apply to Seller and will not apply to
      Counterparty.

     

    The
      “Credit
      Event Upon Merger”
      provisions of Section
      5(b)(iv)
      of the
      Agreement will not apply to Seller and Counterparty.

     

    The
      “Automatic
      Early Termination”
      provision of Section
      6(a)
      of the
      Agreement will not apply to Seller or to Counterparty.

     

    Payments
      on Early Termination. For
      the
      purpose of Section
      6(e)
      of the
      Agreement: (i) Loss shall apply; and (ii) the Second Method shall
      apply.

     

    “Termination
      Currency”
means
      USD.

     

    Tax
      Representations.

     

    
      	
              (a)

            	
              Payer
                Representations. For
                the purpose of Section 3(e) of the Agreement, each party represents
                to the
                other party that it is not required by any applicable law, as modified
                by
                the practice of any relevant governmental revenue authority, of any
                Relevant Jurisdiction to make any deduction or withholding for or
                on
                account of any Tax from any payment (other than interest under Section
                2(e), 6(d)(ii), or 6(e) of the Agreement) to be made by it to the
                other
                party under the Agreement. In making this representation, each party
                may
                rely on (i) the accuracy of any representations made by the other
                party
                pursuant to Section 3(f) of the Agreement, (ii) the satisfaction
                of the
                agreement contained in Section 4(a)(i) or 4(a)(iii) of the Agreement,
                and
                the accuracy and effectiveness of any document provided by the other
                party
                pursuant to Section 4(a)(i) or 4(a)(iii) of the Agreement, and (iii)
                the
                satisfaction of the agreement of the other party contained in Section
                4(d)
                of the Agreement; provided that it will not be a breach of this
                representation where reliance is placed on clause (ii) above and
                the other
                party does not deliver a form or document under Section 4(a)(iii)
                of the
                Agreement by reason of material prejudice to its legal or commercial
                position.

            


    

     

    
      	
              (b)

            	
              Payee
                Representations. For
                the purpose of Section 3(f) of the Agreement, each party makes the
                following representations to the other
                party:

            


    

     

    
      	 	
              (i)

            	
              Seller
                represents that it is a corporation organized under the laws of England
                and Wales.

            


    

     

    
      	 	
              (ii)

            	
              Counterparty
                represents that it is a corporation incorporated
                in the Commonwealth of Virginia.

            


    

     

    Delivery
      Requirements.
      For the
      purpose of Sections
      4(a)(i)
      and
(ii)
      of the
      Agreement, each party agrees to deliver the following documents:

     

    
      	
              (a)

            	
              Tax
                forms, documents or certificates to be delivered
                are:

            


    

     

    Each
      party agrees to complete (accurately and in a manner reasonably satisfactory
      to
      the other party), execute, and deliver to the other party, United States
      Internal Revenue Service Form W-9 or W-8 BEN, or any successor of such form(s):
      (i) before the first payment date under this agreement; (ii) promptly upon
      reasonable demand by the other party; and (iii) promptly upon learning that
      any such form(s) previously provided by the other party has become obsolete
      or
      incorrect.

     

    
      	
              (b)

            	
              Other
                documents to be delivered:

            


    

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    
      	
              Party
                Required to Deliver Document

            	
              Document
                Required to be Delivered

            	
              When
                Required

            	
              Covered
                by Section 3(d) Representation

            
	
              Counterparty

            	
              Evidence
                of the authority and true signatures of each official or representative
                signing this Confirmation

               

            	
              Upon
                or before execution and delivery of this Confirmation

            	
              Yes

            
	
              Counterparty

            	
              Certified
                copy of the resolution of the Board of Directors or equivalent document
                authorizing the execution and delivery of this Confirmation and such
                other
                certificates as Seller shall reasonably request

               

            	
              Upon
                or before execution and delivery of this Confirmation

            	
              Yes

            
	
              Seller

            	
              Guarantee
                of its Credit Support Provider, substantially in the form of Exhibit
                A
                attached hereto, together with evidence of the authority and true
                signatures of the signatories, if applicable

            	
              Upon
                or before execution and delivery of this Confirmation

            	
              Yes

            


    

     

    Additional
      Notice Requirements.
      Counterparty hereby agrees to promptly deliver to Seller a copy of all notices
      and other communications required or permitted to be given to the holders of
      any
      Reference Notes pursuant to the terms of the Note Indenture on the dates so
      required or permitted in the Note Indenture and all other notices given and
      other communications made by Counterparty in respect of the Reference Notes
      to
      holders of any Reference Notes. Counterparty further covenants to Seller that
      it
      shall promptly notify Seller of each Conversion Date, Amendment Event (including
      in such notice a detailed description of any such amendment) and Repayment
      Event
      (identifying in such notice the nature of such Repayment Event and the principal
      amount at maturity of Reference Notes being paid). 

     

    Addresses
      for Notices.
      For the
      purpose of Section
      12(a)
      of the
      Agreement:

     

    Address
      for notices or communications to Seller for all purposes:

     

    
      	 	
              Address:

            	
              Merrill
                Lynch International 

            


    

    Merrill
      Lynch Financial Centre

    2
      King
      Edward Street

    London
      EC1A 1HQ

    
      	 	
              Attention:
                

            	
              Manager,
                Fixed Income Settlements

            


    

    
      	 	
              Facsimile
                No.:

            	
              44
                207 995 2004

            


    

    
      	 	
              Telephone
                No.:

            	
              44
                207 995 3769

            


    

     

    Additionally,
      a copy of all notices pursuant to Sections
      5,
      6,
      and
7
      as well
      as any changes to Counterparty’s address, telephone number or facsimile number
      should be sent to:

     

    
      	 	
              Address:

            	
              GMI
                Counsel 

            


    

    Merrill
      Lynch World Headquarters

    4
      World
      Financial Center

    New
      York,
      New York 10080

    
      	 	
              Attention:

            	
              Global
                Equity Derivatives

            


    

    
      	 	
              Facsimile
                No.:

            	
              (212)
                449-6576

            


    

    
      	 	
              Telephone
                No.:

            	
              (212)
                449-6309

            


    

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    Address
      for notices or communications to Counterparty for all
      purposes:

     

    
      	 	
              Address:

            	
              New
                River Pharmaceuticals Inc.

            


    

    1881
      Grove Avenue

    Radford,
      Virginia 24141 

    
      	 	
              Attention:
                

            	
              Clifton
                R. Herndon II

            


    

    V.P.,
      Finance and Controller

    
      	 	
              Telephone
                No.:

            	
              540-633-7900

            


    

    
      	 	
              Facsimile
                No.:

            	
              540-633-7939

            


    

    


    Process
      Agent.
      For the
      purpose of Section 13(c) of the Agreement, Seller appoints as its Process
      Agent:

     

    
      	 	
              Address:

            	
              Merrill
                Lynch, Pierce, Fenner & Smith
                Incorporated

            


    

    222
      Broadway, 16th
      Floor


    New
      York,
      New York 10038

    
      	 	
              Attention:

            	
              Litigation
                Department

            


    

     

    Counterparty
      does not appoint a Process Agent.

     

    Multibranch
      Party.
      For the
      purpose of Section
      10(c)
      of the
      Agreement: Neither Seller nor Counterparty is a Multibranch Party.

     

    Calculation
      Agent.  The
      Calculation Agent is Seller, whose judgments, determinations and calculations
      in
      this Transaction and any related hedging transaction between the parties shall
      be made in good faith and in a commercially reasonable manner.

     

    Credit
      Support Document.

     

    Seller:
      Guarantee of ML & Co. in the form attached hereto as Exhibit A.

     

    Counterparty:
      Not Applicable

     

    Credit
      Support Provider.

     

    With
      respect to Seller: ML & Co. 

     

    With
      respect to Counterparty: Not Applicable.

     

    Governing
      Law. This
      Confirmation will be governed by, and construed in accordance with, the laws
      of
      the State of New York.

     

    Waiver
      of Jury Trial.
      Each
      party waives, to the fullest extent permitted by applicable law, any right
      it
      may have to a trial by jury in respect of any suit, action or proceeding
      relating to this Transaction. Each party (i) certifies that no representative,
      agent or attorney of the other party has represented, expressly or otherwise,
      that such other party would not, in the event of such a suit, action or
      proceeding, seek to enforce the foregoing waiver and (ii) acknowledges that
      it
      and the other party have been induced to enter into this Transaction, as
      applicable, by, among other things, the mutual waivers and certifications
      provided herein.

     

    Netting
      of Payments.
      The
      provisions of Section
      2(c)
      of the
      Agreement shall not be applicable to this Transaction.

     

    Basic
      Representations.  Section
      3(a)
      of the
      Agreement is hereby amended by the deletion of “and” at the end of Section
      3(a)(iv);
      the
      substitution of a semicolon for the period at the end of Section
      3(a)(v)
      and the
      addition of Sections
      3(a)(vi),
      as
      follows:

     

    Eligible
      Contract Participant; Line of Business.  Each
      party agrees and represents that it is an “eligible contract participant” as
      defined in Section 1a(12) of the U.S. Commodity Exchange Act, as amended
      (“CEA”),
      this
      Agreement and the Transaction thereunder are subject to individual negotiation
      by the parties and have not been executed or traded on a “trading facility” as
      defined in Section 1a(33) of the CEA, and it has entered into this Confirmation
      and this Transaction in connection with its business or a line of business
      (including financial intermediation), or the financing of its
      business.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    Amendment
      of Section 3(a)(iii). Section
      3(a)(iii)
      of the
      Agreement is modified to read as follows:

     

    No
      Violation or Conflict.
      Such
      execution, delivery and performance do not materially violate or conflict with
      any law known by it to be applicable to it, any provision of its constitutional
      documents, any order or judgment of any court or agency of government applicable
      to it or any of its assets or any material contractual restriction relating
      to
      Specified Indebtedness binding on or affecting it or any of its
      assets.

     

    Amendment
      of Section
      3(a)(iv).  Section
      3(a)(iv)
      of the
      Agreement is modified by inserting the following at the beginning
      thereof:

     

    “To
      such
      party’s best knowledge,”

     

    Acknowledgements:

     

    
      	
              (a)
                

            	
              The
                parties acknowledge and agree that there are no other representations,
                agreements or other undertakings of the parties in relation to this
                Transaction, except as set forth in this
                Confirmation.

            


    

     

    
      	
              (b) 

            	
              The
                parties hereto intend for:

            


    

     

    
      	 	
              (i)

            	
              this
                Transaction to be a “securities contract” as defined in Section 741(7) of
                Title 11 of the United States Code (the “Bankruptcy
                Code”),
                qualifying for the protections under Section 555 of the Bankruptcy
                Code;

            


    

     

    
      	 	
              (ii)

            	
              a
                party’s right to liquidate this Transaction and to exercise any other
                remedies upon the occurrence of any Event of Default under the Agreement
                with respect to the other party to constitute a “contractual right” as
                defined in the Bankruptcy Code;

            


    

     

    
      	 	
              (iii)

            	
              all
                payments for, under or in connection with this Transaction, all payments
                for the Shares and the transfer of such Shares to constitute “settlement
                payments” as defined in the Bankruptcy
                Code.

            


    

     

    Amendment
      of Section
      6(d)(ii).
      Section
      6(d)(ii) of
      the
      Agreement is modified by deleting the words “on the day” in the second line
      thereof and substituting therefore “on the day that is three Local Business Days
      after the day.” Section
      6(d)(ii)
      is
      further modified by deleting the words “two Local Business Days” in the fourth
      line thereof and substituting therefore “three Local Business
      Days.”

     

    Amendment
      of Definition of Reference Market-Makers.
      The
      definition of “Reference Market-Makers” in Section
      14
      is
      hereby amended by adding in clause (a) after the word “credit” and before the
      word “and” the words “or to enter into transactions similar in nature to
      Transactions.”

     

    Consent
      to Recording.
      Each
      party consents to the recording of the telephone conversations of trading and
      marketing personnel of the parties and their Affiliates in connection with
      this
      Confirmation. To the extent that one party records telephone conversations
      (the
“Recording
      Party”)
      and
      the other party does not (the “Non-Recording
      Party”),
      the
      Recording Party shall in the event of any dispute, make a complete and unedited
      copy of such party’s tape of the entire day’s conversations with the
      Non-Recording Party’s personnel available to the Non-Recording Party. The
      Recording Party’s tapes may be used by either party in any forum in which a
      dispute is sought to be resolved and the Recording Party will retain tapes
      for a
      consistent period of time in accordance with the Recording Party’s policy unless
      one party notifies the other that a particular transaction is under review
      and
      warrants further retention.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    Disclosure.
      Each
      party hereby
      acknowledges and agrees that Seller has authorized Counterparty to disclose
      this
      Transaction and any related hedging transaction between the parties if and
      to
      the extent that Counterparty reasonably determines (after consultation with
      Seller) that such disclosure is required by law or by the rules of The NASDAQ
      Global Market or any securities exchange.

     

    Severability.
      If any
      term, provision, covenant or condition of this Confirmation, or the application
      thereof to any party or circumstance, shall be held to be invalid or
      unenforceable in whole or in part for any reason, the remaining terms,
      provisions, covenants, and conditions hereof shall continue in full force and
      effect as if this Confirmation had been executed with the invalid or
      unenforceable provision eliminated, so long as this Confirmation as so modified
      continues to express, without material change, the original intentions of the
      parties as to the subject matter of this Confirmation and the deletion of such
      portion of this Confirmation will not substantially impair the respective
      benefits or expectations of parties to this Agreement; provided,
      however,
      that
      this severability provision shall not be applicable if any provision of
Section
      2,
      5,
      6
      or
13
      of the
      Agreement (or any definition or provision in Section
      14
      to the
      extent that it relates to, or is used in or in connection with any such Section)
      shall be so held to be invalid or unenforceable.

     

    Affected
      Parties.
      For
      purposes of Section
      6(e)
      of the
      Agreement, each party shall be deemed to be an Affected Party in connection
      with
      Illegality and any Tax Event.

     

    [Signatures
      follow on separate page]

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    


    Please
      confirm that the foregoing correctly sets forth the terms of our agreement
      by
      executing the copy of this Confirmation enclosed for that purpose and returning
      it to us.

     

    
      	 	
              Very
                truly yours,

               

            
	 	
              MERRILL
                LYNCH INTERNATIONAL

               

               

            
	 	
              By:  
                

            	/s/
              Fran Jacobson
	 	
              Name:  
                

            	
              Fran
                Jacobson

            


    

     

    Confirmed
      as of the date first above written:

     

    NEW
      RIVER PHARMACEUTICALS INC.

     

     

    
      	
              By:  
                

            	/s/
              Krish S. Krishnan
	
              Name:  
                

            	
              Krish
                S. Krishnan

            
	
              Title:

            	
              Chief
                Operating Officer, Chief Financial Officer and Secretary
                

            


    

     

    Acknowledged
      and agreed as to matters to the Agent:

     

    MERRILL
      LYNCH, PIERCE, FENNER & SMITH INCORPORATED,

    Solely
      in
      its capacity as Agent hereunder

    


     

    
      	
              By:  
                

            	/s/
              Rhonda Garguito 
	
              Name:  
                

            	
              Rhonda
                Garguito

            


    

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    


    EXHIBIT
      A

     

    GUARANTEE
      OF MERRILL LYNCH & CO., INC.

     

    FOR
      VALUE
      RECEIVED, receipt of which is hereby acknowledged, MERRILL LYNCH & CO.,
      INC., a corporation duly organized and existing under the laws of the State
      of
      Delaware (“ML & Co.”), hereby unconditionally guarantees to New River
      Pharmaceuticals Inc. (the “Company”), the due and punctual payment of any and
      all amounts payable by Merrill Lynch International, a company organized under
      the laws of England and Wales (“ML”), under the terms of the Confirmation of OTC
      Convertible Note Hedge between the Company and ML (ML as Seller), dated as
      of
      July 19, 2006 (the “Confirmation”), including, in case of default, interest on
      any amount due, when and as the same shall become due and payable, whether
      on
      the scheduled payment dates, at maturity, upon declaration of termination or
      otherwise, according to the terms thereof. In case of the failure of ML
      punctually to make any such payment, ML & Co. hereby agrees to make such
      payment, or cause such payment to be made, promptly upon demand made by the
      Company to ML & Co.; provided, however that delay by the Company in giving
      such demand shall in no event affect ML & Co.’s obligations under this
      Guarantee. This Guarantee shall remain in full force and effect or shall be
      reinstated (as the case may be) if at any time any payment guaranteed hereunder,
      in whole or in part, is rescinded or must otherwise be returned by the Company
      upon the insolvency, bankruptcy or reorganization of ML or otherwise, all as
      though such payment had not been made.

     

    ML
&
      Co. hereby agrees that its obligations hereunder shall be unconditional,
      irrespective of the validity, regularity or enforceability of the Confirmation;
      the absence of any action to enforce the same; any waiver or consent by the
      Company concerning any provisions thereof; the rendering of any judgment against
      ML or any action to enforce the same; or any other circumstances that might
      otherwise constitute a legal or equitable discharge of a guarantor or a defense
      of a guarantor. ML covenants that this guarantee will not be discharged except
      by complete payment of the amounts payable under the Confirmation. This
      Guarantee shall continue to be effective if ML merges or consolidates with
      or
      into another entity, loses its separate legal identity or ceases to
      exist.

     

    ML
&
      Co. hereby waives diligence; presentment; protest; notice of protest,
      acceleration, and dishonor; filing of claims with a court in the event of
      insolvency or bankruptcy of ML; all demands whatsoever, except as noted in
      the
      first paragraph hereof; and any right to require a proceeding first against
      ML.

     

    ML
&
      Co. hereby certifies and warrants that this Guarantee constitutes the valid
      obligation of ML & Co. and complies with all applicable laws.

     

    This
      Guarantee shall be governed by, and construed in accordance with, the laws
      of
      the State of New York.

     

    This
      Guarantee may be terminated at any time by notice by ML & Co. to the Company
      given in accordance with the notice provisions of the Confirmation, effective
      upon receipt of such notice by the Company or such later date as may be
      specified in such notice; provided, however, that this Guarantee shall continue
      in full force and effect with respect to any obligation of ML under the
      Confirmation.

     

    This
      Guarantee becomes effective concurrent with the effectiveness of the
      Confirmation, according to its terms.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    


    IN
      WITNESS WHEREOF, ML & Co. has caused this Guarantee to be executed in its
      corporate name by its duly authorized representative.

     

    
      	 	
              MERRILL
                LYNCH & CO., INC.

            
	 	
              By:

            	
              /s/
                Patricia Kropiewnicki

            
	 	 	
              Name:
                Patricia Kropiewnicki

            
	 	 	
              Title:
                Designated Secretary

            
	 	 	
              Date:
                July 19, 2006

            


    

    
 

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