Exhibit 10.18


    
      
        
          

        

      

       

      
        	 


      

      


       

      NEW
        RIVER PHARMACEUTICALS INC.

      


      (a
        Virginia corporation)

       

       

      3.50%
        Convertible Subordinated Notes due 2013

      


      


       

       

      PURCHASE
        AGREEMENT

       

      


      Dated:
        July 19, 2006

      


      
        	 


      

      

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

      

       

      NEW
        RIVER PHARMACEUTICALS INC.

      


      (a
        Virginia corporation)

      


      $125,000,000

      3.50%
        Convertible Subordinated Notes due 2013

      


      PURCHASE
        AGREEMENT

      


      July
        19,
        2006

      


      MERRILL
        LYNCH & CO.

      Merrill
        Lynch, Pierce, Fenner & Smith

      Incorporated

      W.R.
        Hambrecht + Co., LLC

      


      
        	
                c/o

              	
                Merrill
                  Lynch, Pierce, Fenner & Smith

              


      

      Incorporated

      
        	 	
                4
                  World Financial Center

              


      

      
        	 	
                New
                  York, New York 10080

              


      

      


      Ladies
        and Gentlemen:

      


      New
        River
        Pharmaceuticals Inc., a Virginia corporation (the “Company”), confirms its
        agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated (“Merrill Lynch”) and W.R. Hambrecht + Co., LLC (together
        with Merrill Lynch, the “Initial Purchasers”), for whom Merrill Lynch is acting
        as representative, with respect to (i) the issue and sale by the Company
        and the
        purchase by the Initial Purchasers, acting severally and not jointly, of
        the
        respective principal amounts set forth in Schedule A hereto of $125,000,000
        aggregate principal amount of the Company’s Convertible Subordinated Notes due
        2013 (the “Initial Securities”) and (ii) the grant by the Company to the Initial
        Purchasers of the option described in Section 2(b) hereof to purchase all
        or any
        part of an additional $18,750,000 aggregate principal amount of the Company’s
        Convertible Subordinated Notes due 2013 (the “Option Securities” and together
        with the Initial Securities, the “Securities”). The Securities are to be issued
        pursuant to an indenture to be dated as of July 25, 2006 (the “Indenture”)
        between the Company and The Wilmington Trust Company, as trustee (the
“Trustee”). The Securities issued in book-entry form will be issued to Cede
& Co. as nominee of The Depository Trust Company (“DTC”).

      


      The
        Securities are convertible, subject to certain conditions as described in
        the
        Final Offering Memorandum (as defined below), prior to maturity (unless
        previously redeemed or otherwise purchased) into shares of common stock,
        par
        value $0.001 per share, of the Company (the “Common Stock”) in accordance with
        the terms of the Securities and the Indenture. 

      


      The
        Company understands that the Initial Purchasers propose to make an offering
        of
        the Securities on the terms and in the manner set forth herein and agrees
        that
        the Initial Purchasers may resell, subject to the conditions set forth herein,
        all or a portion of the Securities to purchasers (“Subsequent Purchasers”) at
        any time after this Agreement has been executed and delivered. The Securities
        are to be offered and sold through the Initial Purchasers without being
        registered under the Securities Act of 1933, as amended (the “1933 Act”), in
        reliance upon exemptions therefrom. Pursuant to the terms of the Securities
        and
        the Indenture, investors that acquire Securities may only resell or otherwise
        transfer such Securities if such Securities are hereafter registered under
        the
        1933 Act or if an exemption from the registration requirements of the 1933
        Act
        is available (including the exemption afforded by Rule 144A (“Rule 144A”) of the
        rules and regulations promulgated under the 1933 Act by the Securities and
        Exchange Commission (the “Commission”)). On or prior to the Initial Closing Time
        (as defined below), the Company will enter into a registration rights agreement
        with Merrill Lynch (the “Registration Rights Agreement”), pursuant to which,
        subject to the conditions set forth therein, the Company will be required
        to
        file and use its commercially reasonable efforts to have declared effective
        a
        registration statement (the “Registration Statement”) under the 1933 Act to
        register resales of the Securities and the shares of Common Stock issuable
        upon
        conversion thereof. 


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      The
        Company has (a) prepared and delivered to each Initial Purchaser copies of
        (i) a
        preliminary offering memorandum dated July 18, 2006 and (ii) a pricing term
        sheet dated July 19, 2006, attached hereto as Schedule B, which includes
        the
        pricing terms and other information with respect to the Securities and other
        matters not included in the Preliminary Offering Memorandum, as defined below
        (the “Pricing Term Sheet”) and (b) has prepared and will deliver to each Initial
        Purchaser, as promptly as possible prior to the Initial Closing Time, copies
        of
        a final offering memorandum dated July 19, 2006 (the “Final Offering
        Memorandum”), each for use by such Initial Purchaser in connection with its
        solicitation of purchases of, or offering of, the Securities. “Offering
        Memorandum” means, with respect to any date or time referred to in this
        Agreement, the most recent offering memorandum (whether the Preliminary Offering
        Memorandum or the Final Offering Memorandum, or any amendment or supplement
        to
        either such document), including exhibits thereto, if any, and any documents
        incorporated therein by reference, which has been prepared and delivered
        by the
        Company to the Initial Purchasers in connection with their solicitation of
        purchases of, or offering of, the Securities. 

      


      All
        references in this Agreement to financial statements and schedules and other
        information which is “contained,” “included” or “stated” in the Offering
        Memorandum (or other references of like import) shall be deemed to mean and
        include all such financial statements and schedules and other information
        which
        are incorporated by reference in the Offering Memorandum; and all references
        in
        this Agreement to amendments or supplements to the Offering Memorandum shall
        be
        deemed to mean and include the filing of any document under the Securities
        Exchange Act of 1934, as amended (the “1934 Act”) which is incorporated by
        reference in the Offering Memorandum.

      


      The
        preliminary offering memorandum dated July 18, 2006, as amended and supplemented
        immediately prior to the Applicable Time (as defined below), including any
        documents filed under the 1934 Act prior to the Applicable Time and incorporated
        by reference therein, is referred to herein as the “Preliminary Offering
        Memorandum,” and the Preliminary Offering Memorandum together with the Pricing
        Term Sheet are collectively referred to herein as the “Disclosure Package.”
“Applicable Time” means 7:00 A.M. (Eastern Time) on July 20, 2006 or such other
        time as agreed by the Company and Merrill Lynch. 

      


      
        
          SECTION
            1.    Representations
            and Warranties by the Company.

        

      

      


      (a)    Representations
        and Warranties.
        The
        Company represents and warrants to each Initial Purchaser as of the Applicable
        Time and as of Closing Time referred to in Section 2(c) hereof, and agrees
        with
        each Initial Purchaser, as follows:

      


      (i)    Disclosure
        Package and Final Offering Memorandum.
        As of
        the Applicable Time, neither (x) the Disclosure Package nor (y) any individual
        Supplemental Offering Materials (as defined below), when considered together
        with the Disclosure Package, and at the Closing Time, neither the Disclosure
        Package, the Final Offering Memorandum, nor any individual Supplemental Offering
        Document (as defined below), when considered together with the Disclosure
        Package, will include any untrue statement of a material fact or omit to
        state
        any material fact necessary in order to make the statements therein, in the
        light of the circumstances under which they were made, not misleading.



      
        
          
          

        

        
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      “Supplemental
        Offering Materials” means any “written communication” (within the meaning of the
        1933 Act Regulations (as defined below)) prepared by or on behalf of the
        Company, or used or referred to by the Company, that constitutes an offer
        to
        sell or a solicitation of an offer to buy the Securities other than the Offering
        Memorandum or amendments or supplements thereto (including the Pricing Term
        Sheet), including, without limitation, any road show relating to the Securities
        that constitutes such a written communication. 

      


      As
        of its
        issue date and as of the Closing Time, the Final Offering Memorandum will
        not
        include an untrue statement of a material fact or omit to state a material
        fact
        necessary in order to make the statements therein, in the light of the
        circumstances under which they were made, not misleading.

      


      The
        representation and warranties in this subsection shall not apply to statements
        in or omissions from the Disclosure Package or the Final Offering Memorandum
        made in reliance upon and in conformity with written information furnished
        to
        the Company by any Initial Purchaser through Merrill Lynch expressly for
        use
        therein. The Company has not distributed, and the Company will not distribute,
        prior to the later of the Closing Time and the completion of the Initial
        Purchasers’ distribution of the Securities, which shall be deemed to be no later
        than the Closing Time unless the Company otherwise receives notice from Merrill
        Lynch, any offering material in connection with the offering and sale of
        the
        Securities other than the Preliminary Offering Memorandum, the Final Offering
        Memorandum and the Disclosure Package.

      


      (ii)    Incorporated
        Documents.
        The
        Offering Memorandum as delivered from time to time shall incorporate by
        reference the most recent Annual Report of the Company on Form 10-K filed
        with
        the Commission and each Quarterly Report of the Company on Form 10-Q and
        each
        Current Report of the Company on Form 8-K filed with the Commission since
        the
        end of the fiscal year to which such Annual Report relates. The documents
        incorporated or deemed to be incorporated by reference in the Offering
        Memorandum at the time they were or hereafter are filed with the Commission
        complied and will comply in all material respects with the requirements of
        the
        1934 Act and the rules and regulations of the Commission thereunder (the
“1934
        Act Regulations”), and, when read together with the other information in the
        Disclosure Package at the Applicable Time, and the Disclosure Package and
        the
        Final Offering Memorandum at the Closing Time, did not and will not include
        an
        untrue 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.

      


      (iii)    Independent
        Accountants.
        The
        accountants who certified the financial statements and supporting schedules
        included in the Disclosure Package and the Final Offering Memorandum are
        independent public accountants with respect to the Company and its subsidiary
        within the meaning of the 1933 Act and the rules and regulations thereunder
        (the
“1933 Act Regulations”).

      


      (iv)    Financial
        Statements.
        The
        financial statements, together with the related schedules and notes, included
        in
        the Disclosure Package and the Final Offering Memorandum, present fairly
        the
        financial position of the Company and its subsidiary at the dates indicated
        and
        the statement of operations, shareholders’ equity and cash flows of the Company
        and its subsidiary for the periods specified, except as noted in the notes
        thereto; said financial statements have been prepared in conformity with
        generally accepted accounting principles (“GAAP”) applied on a consistent basis
        throughout the periods involved. The supporting schedules, if any, included
        in
        the Disclosure Package and the Final Offering Memorandum, present fairly
        in
        accordance with GAAP the information required to be stated therein. The selected
        financial data and the summary financial information included in the Disclosure
        Package and the Final Offering Memorandum present fairly the information
        shown
        therein and have been compiled on a basis consistent with that of the audited
        financial statements included in the Disclosure Package and the Final Offering
        Memorandum.


      
        
          
          

        

        
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      (v)    No
        Material Adverse Change in Business.
        Since
        the respective dates as of which information is given in the Disclosure Package
        and the Final Offering Memorandum, except as otherwise stated therein, (A)
        there
        has been no material adverse change in the condition, financial or otherwise,
        or
        in the earnings, business affairs or business prospects of the Company and
        its
        subsidiary considered as one enterprise, whether or not arising in the ordinary
        course of business (a “Material Adverse Effect”), (B) there have been no
        transactions entered into by the Company or its subsidiary, other than those
        in
        the ordinary course of business, which are material with respect to the Company
        and its subsidiary considered as one enterprise, and (C) there has been no
        dividend or distribution of any kind declared, paid or made by the Company
        on
        any class of its capital stock.

      


      (vi)    Good
        Standing of the Company.
        The
        Company has been duly organized and is validly existing as a corporation
        in good
        standing under the laws of the Commonwealth of Virginia and has corporate
        power
        and authority to own, lease and operate its properties and to conduct its
        business as described in the Disclosure Package and the Final Offering
        Memorandum and to enter into and perform its obligations under this Agreement;
        and the Company is duly qualified as a foreign corporation to transact business
        and is in good standing in each other jurisdiction in which such qualification
        is required, whether by reason of the ownership or leasing of property or
        the
        conduct of business, except where the failure so to qualify or to be in good
        standing would not result in a Material Adverse Effect.

      


      (vii)   Good
        Standing of the Company’s Subsidiary.
        Lotus
        Biochemical (Bermuda) Ltd., a Bermuda corporation and the Company’s only
        subsidiary, has been duly organized and is validly existing as a corporation
        in
        good standing under the laws of Bermuda, has corporate power and authority
        to
        own, lease and operate its properties and to conduct its business as described
        in the Disclosure Package and the Final Offering Memorandum and is duly
        qualified as a foreign corporation to transact business and is in good standing
        in each jurisdiction in which such qualification is required, whether by
        reason
        of the ownership or leasing of property or the conduct of business, except
        where
        the failure so to qualify or to be in good standing would not result in a
        Material Adverse Effect; except as otherwise disclosed in the Disclosure
        Package
        and the Final Offering Memorandum, all of the issued and outstanding capital
        stock of Lotus Biochemical (Bermuda) Ltd. has been duly authorized and validly
        issued, is fully paid and non-assessable and is owned by the Company directly,
        free and clear of any security interest, mortgage, pledge, lien, encumbrance,
        claim or equity; none of the outstanding shares of capital stock of Lotus
        Biochemical (Bermuda) Ltd. was issued in violation of any preemptive or similar
        rights of any securityholder of Lotus Biochemical (Bermuda) Ltd.



      
        
          
          

        

        
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      (viii)   Capitalization
        and Other Capital Stock Matters.
        The
        total shareholders’ equity of the Company is as set forth in the Disclosure
        Package and the Final Offering Memorandum in the column entitled “Actual” under
        the caption “Capitalization” as of the respective dates set forth therein, and
        the actual, authorized, issued and outstanding number of shares of Common
        Stock
        of the Company is as set forth in the section entitled “Description of Capital
        Stock” in the Final Offering Memorandum as of the date set forth therein, and
        there have been no changes to such amounts (except for subsequent issuances,
        if
        any, pursuant to this Agreement, pursuant to reservations, agreements, employee
        benefit plans referred to in the Disclosure Package and the Final Offering
        Memorandum or pursuant to the exercise of convertible securities or options
        referred to in the Disclosure Package and the Final Offering Memorandum).
        The
        Common Stock conforms in all material respects to the description thereof
        set
        forth in the Disclosure Package and the Final Offering Memorandum. All of
        the
        outstanding shares of Common Stock have been duly authorized and validly
        issued,
        are fully paid and nonassessable and have been issued in compliance with
        federal
        and state securities laws. Upon issuance and delivery of the Securities in
        accordance with this Agreement and the Indenture, the Securities will be
        convertible at the option of the holder thereof into shares of Common Stock
        in
        accordance with the terms of the Securities and the Indenture; the shares
        of
        Common Stock issuable upon conversion of the Securities have been duly
        authorized and reserved for issuance upon such conversion by all necessary
        corporate action and such shares, when issued upon such conversion in accordance
        with the terms of the Securities, will be validly issued and will be fully
        paid
        and non-assessable; no holder of such shares will be subject to personal
        liability by reason of being such a holder; and the issuance of such shares
        upon
        such conversion will not be subject to the preemptive or other similar rights
        of
        any securityholder of the Company. None of the outstanding shares of Common
        Stock were issued in violation of any preemptive rights, rights of first
        refusal
        or other similar rights to subscribe for or purchase securities of the Company.
        There are no authorized or outstanding options, warrants, preemptive rights,
        rights of first refusal or other rights to purchase, or equity or debt
        securities convertible into or exchangeable or exercisable for, any capital
        stock of the Company or its subsidiary other than those accurately described
        in
        the Disclosure Package and the Final Offering Memorandum. The description
        of the
        Company’s stock option, stock bonus and other stock plans or arrangements, and
        the options or other rights granted thereunder, set forth or incorporated
        by
        reference in the Disclosure Package and the Final Offering Memorandum,
        accurately and fairly describes such plans, arrangements, options and rights
        in
        all material respects.

      


      (ix)   Stock
        Exchange Listing.
        The
        Common Stock is registered pursuant to Section 12(g) of the 1934 Act and
        is
        listed on the Nasdaq National Market (the “NASDAQ”), and the Company has taken
        no action designed to, or likely to have the effect of, terminating the
        registration of the Common Stock under the 1934 Act or delisting the Common
        Stock from the NASDAQ, nor has the Company received any notification that
        the
        Commission or the NASDAQ is contemplating terminating such registration or
        listing.

      


      (x)    Corporate
        Power.
        The
        Company has full right, power and authority to execute and deliver this
        Agreement, the Securities, the Indenture, the Registration Rights Agreement,
        the
        OTC Convertible Note Hedge, the OTC Warrant Transaction and the Forward Stock
        Purchase Transaction (collectively, the “Transaction Documents”) and to perform
        its obligations hereunder and thereunder; and all action required to be taken
        for the due and proper authorization, execution and delivery of each of the
        Transaction Documents and the consummation of the transactions contemplated
        thereby has been duly and validly taken.

      


      (xi)   Authorization
        of Agreement.
        This
        Agreement has been duly authorized, executed and delivered by the
        Company.

      


      (xii)   Authorization
        of the Indenture.
        The
        Indenture has been duly authorized by the Company and, when executed and
        delivered by the Company and the Trustee, will constitute a valid and binding
        agreement of the Company, enforceable against the Company in accordance with
        its
        terms, except as the enforcement thereof may be limited by bankruptcy,
        insolvency (including, without limitation, all laws relating to fraudulent
        transfers), reorganization, moratorium or other similar laws relating to
        or
        affecting enforcement of creditors’ rights generally and by general principles
        of equity (regardless of whether enforcement is considered in a proceeding
        in
        equity or at law).


      
        
          
          

        

        
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      (xiii)   Authorization
        of the Registration Rights Agreement.
        The
        Registration Rights Agreement has been duly authorized by the Company and,
        at
        the Initial Closing Time, will be duly executed and delivered by, and will
        constitute a valid and binding agreement of, the Company, enforceable in
        accordance with its terms, except as the enforcement thereof may be limited
        by
        bankruptcy, insolvency (including, without limitation, all laws relating
        to
        fraudulent transfers), reorganization, moratorium or other similar laws relating
        to or affecting enforcement of creditors’ rights generally, by general
        principles of equity (regardless of whether enforcement is considered in
        a
        proceeding in equity or at law) and, as to rights of indemnification, by
        principles of public policy.

      


      (xiv)   Authorization
        of the Securities.
        The
        Securities have been duly authorized and, at Closing Time, will have been
        duly
        executed by the Company and, when authenticated, issued and delivered in
        the
        manner provided for in the Indenture and delivered against payment of the
        purchase price therefor as provided in this Agreement, will constitute valid
        and
        binding obligations of the Company, enforceable against the Company in
        accordance with their terms, except as the enforcement thereof may be limited
        by
        bankruptcy, insolvency (including, without limitation, all laws relating
        to
        fraudulent transfers) reorganization, moratorium or other similar laws affecting
        enforcement of creditors’ rights generally and by general principles of equity
        (regardless of whether enforcement is considered in a proceeding in equity
        or at
        law), and will be in the form contemplated by, and entitled to the benefits
        of,
        the Indenture.

      


      (xv)   Description
        of Transaction Documents.
        The
        description of the Transaction Documents and the rights, preferences and
        privileges of the capital stock of the Company, including the shares of Common
        Stock issuable upon conversion of the Securities, contained in the Disclosure
        Package and the Final Offering Memorandum, are accurate in all material
        respects.

      


      (xvi)   Absence
        of Defaults and Conflicts.
        Neither
        the Company nor its subsidiary is in violation of its charter or by-laws
        or in
        default in the performance or observance of any obligation, agreement, covenant
        or condition contained in any contract, indenture, mortgage, deed of trust,
        loan
        or credit agreement, note, lease or other agreement or instrument to which
        the
        Company or its subsidiary is a party or by which or any of them may be bound,
        or
        to which any of the property or assets of the Company or its subsidiary is
        subject (collectively, “Agreements and Instruments”) except for such defaults
        that would not result in a Material Adverse Effect; and the execution, delivery
        and performance of the Transaction Documents and any other agreement or
        instrument entered into or issued or to be entered into or issued by the
        Company
        in connection with the transactions contemplated hereby or thereby or in
        the
        Disclosure Package and the Final Offering Memorandum and the consummation
        of the
        transactions contemplated herein and in the Disclosure Package and the Final
        Offering Memorandum (including the issuance and sale of the Securities and
        the
        use of the proceeds from the sale of the Securities as described in the
        Disclosure Package and the Final Offering Memorandum under the caption “Use of
        Proceeds”) and compliance by the Company with its obligations hereunder do not
        and will not, whether with or without the giving of notice or passage of
        time or
        both, conflict with or constitute a breach of, or default or Repayment Event
        (as
        defined below) under, or result in the creation or imposition of any lien,
        charge or encumbrance upon any property or assets of the Company or its
        subsidiary pursuant to, the Agreements and Instruments except for such
        conflicts, breaches or defaults or Repayment Events or liens, charges or
        encumbrances that, singly or in the aggregate, would not result in a Material
        Adverse Effect, nor will such action result in any violation of the provisions
        of the charter or by-laws of the Company or its subsidiary or any applicable
        law, statute, rule, regulation, judgment, order, writ or decree of any
        government, government instrumentality or court, domestic or foreign, having
        jurisdiction over the Company or its subsidiary or any of their assets,
        properties or operations. As used herein, a “Repayment Event” means any event or
        condition which gives the holder of any note, debenture or other evidence
        of
        indebtedness (or any person acting on such holder’s behalf) the right to require
        the repurchase, redemption or repayment of all or a portion of such indebtedness
        by the Company or its subsidiary.


      
        
          
          

        

        
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      (xvii)   Absence
        of Labor Dispute.
        No
        labor dispute with the employees of the Company or its subsidiary exists
        or, to
        the knowledge of the Company, is imminent, and the Company is not aware of
        any
        existing or imminent labor disturbance by the employees of any of its or
        its
        subsidiary’s principal suppliers, manufacturers, customers or contractors,
        which, in either case, would result in a Material Adverse Effect.

      


      (xviii)   Absence
        of Proceedings.
        There
        is no action, suit, proceeding, inquiry or investigation before or brought
        by
        any court or governmental agency or body, domestic or foreign, now pending,
        or,
        to the knowledge of the Company, threatened, against or affecting the Company
        or
        its subsidiary which might result in a Material Adverse Effect, or which
        might
        materially and adversely affect the properties or assets of the Company or
        its
        subsidiary or the consummation of the transactions contemplated by this
        Agreement or the performance by the Company of its obligations hereunder.
        The
        aggregate of all pending legal or governmental proceedings to which the Company
        or its subsidiary is a party or of which any of their respective property
        or
        assets is the subject which are not described in the Disclosure Package and
        the
        Final Offering Memorandum, including ordinary routine litigation incidental
        to
        the business, could not reasonably be expected to result in a Material Adverse
        Effect.

      


      (xix)    Absence
        of Manipulation.
        Neither
        the Company nor any affiliate, as such term is defined in Rule 501(b) under
        the 1933 Act (“Affiliate”), of the Company has taken, nor will the Company or
        any Affiliate of the Company take, directly or indirectly, any action which
        is
        designed to or which has constituted or which would be expected to cause
        or
        result in stabilization or manipulation of the price of any security of the
        Company to facilitate the sale or resale of the Securities.

      


      (xx)    Possession
        of Intellectual Property.
        The
        Company and its subsidiary own or possess adequate patents, patent rights,
        licenses, inventions, copyrights, know-how (including trade secrets and other
        unpatented and/or unpatentable proprietary or confidential information, systems
        or procedures), trademarks, service marks, trade names or other intellectual
        property (collectively, “Intellectual Property”) related to the business now
        operated by them, and neither the Company nor its subsidiary has received
        any
        notice or is otherwise aware of any infringement of or conflict with asserted
        rights of others with respect to any Intellectual Property or of any facts
        or
        circumstances which would render any Intellectual Property invalid or inadequate
        to protect the interest of the Company or its subsidiary therein, and which
        infringement or conflict (if the subject of any unfavorable decision, ruling
        or
        finding) or invalidity or inadequacy, singly or in the aggregate, would result
        in a Material Adverse Effect.

      


      (xxi)    Absence
        of Further Requirements.
        Subject
        to compliance by the Initial Purchasers with the representations and warranties
        of the Initial Purchasers and the procedures set forth in Section 6 hereof,
        no filing with, or authorization, approval, consent, license, order,
        registration, qualification or decree of, any court or governmental authority
        or
        agency is necessary or required for the performance by the Company of its
        obligations hereunder, in connection with the offering, issuance or sale
        of the
        Securities hereunder or the consummation of the transactions contemplated
        by the
        Transaction Documents or for the due execution, delivery or performance of
        the
        Transaction Documents by the Company, except (A) such as have been already
        obtained or will be made on or prior to the Initial Closing Time and (B) as
        may be required under the securities or blue sky laws of the various states
        in
        which the Securities will be offered or sold and the 1933 Act with respect
        to
        the registration of the resale of the Securities under the 1933 Act pursuant
        to
        the Registration Rights Agreement.


      
        
          
          

        

        
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      (xxii)    Possession
        of Licenses and Permits.
        The
        Company and its subsidiary possess such permits, licenses, approvals, consents
        and other authorizations (collectively, “Governmental Licenses”) issued by the
        appropriate federal, state, local or foreign regulatory agencies or bodies
        necessary to conduct the business now operated by them, except where the
        failure
        so to possess would not, singly or in the aggregate, result in a Material
        Adverse Effect; the Company and its subsidiary are in compliance with the
        terms
        and conditions of all such Governmental Licenses, except where the failure
        so to
        comply would not, singly or in the aggregate, result in a Material Adverse
        Effect; all of the Governmental Licenses are valid and in full force and
        effect,
        except where the invalidity of such Governmental Licenses or the failure
        of such
        Governmental Licenses to be in full force and effect would not, singly or
        in the
        aggregate, result in a Material Adverse Effect; and neither the Company nor
        its
        subsidiary has received any notice of proceedings relating to the revocation
        or
        modification of any such Governmental Licenses which, singly or in the
        aggregate, if the subject of an unfavorable decision, ruling or finding,
        would
        result in a Material Adverse Effect.

      


      (xxiii)   Title
        to Property.
        The
        Company and its subsidiary have good and marketable title to all real property
        owned by the Company and its subsidiary and good title to all other properties
        owned by them, in each case, free and clear of all mortgages, pledges, liens,
        security interests, claims, restrictions or encumbrances of any kind except
        such
        as (a) are described in the Disclosure Package and the Final Offering Memorandum
        or (b) do not, singly or in the aggregate, materially affect the value of
        such
        property and do not interfere with the use made and proposed to be made of
        such
        property by the Company or its subsidiary; and all of the leases and subleases
        material to the business of the Company and its subsidiary, considered as
        one
        enterprise, and under which the Company or its subsidiary holds properties
        described in the Disclosure Package and the Final Offering Memorandum, are
        in
        full force and effect, and neither the Company nor its subsidiary has any
        notice
        of any material claim of any sort that has been asserted by anyone adverse
        to
        the rights of the Company or its subsidiary under any of the leases or subleases
        mentioned above, or affecting or questioning the rights of the Company or
        its
        subsidiary thereof to the continued possession of the leased or subleased
        premises under any such lease or sublease.

      


      (xxiv)   Environmental
        Laws.
        Except
        as described in the Disclosure Package and the Final Offering Memorandum
        and
        except such matters as would not, singly or in the aggregate, result in a
        Material Adverse Effect, (A) neither the Company nor its subsidiary is in
        violation of any federal, state, local or foreign statute, law, rule,
        regulation, ordinance, code, policy or rule of common law or any judicial
        or
        administrative interpretation thereof, including any judicial or administrative
        order, consent, decree or judgment, relating to pollution or protection of
        human
        health, the environment (including, without limitation, ambient air, surface
        water, groundwater, land surface or subsurface strata) or wildlife, including,
        without limitation, laws and regulations relating to the release or threatened
        release of chemicals, pollutants, contaminants, wastes, toxic substances,
        hazardous substances, petroleum or petroleum products, asbestos-containing
        materials or mold (collectively, “Hazardous Materials”) or to the manufacture,
        processing, distribution, use, treatment, storage, disposal, transport or
        handling of Hazardous Materials (collectively, “Environmental Laws”), (B) the
        Company and its subsidiary have all permits, authorizations and approvals
        required under any applicable Environmental Laws and are each in compliance
        with
        their requirements, (C) there are no pending or, to the Company’s knowledge,
        threatened administrative, regulatory or judicial actions, suits, demands,
        demand letters, claims, liens, notices of noncompliance or violation,
        investigation or proceedings relating to any Environmental Law against the
        Company or its subsidiary and (D) there are no events or circumstances that
        would reasonably be expected to form the basis of an order for clean-up or
        remediation, or an action, suit or proceeding by any private party or
        governmental body or agency, against or affecting the Company or its subsidiary
        relating to Hazardous Materials or Environmental Laws.


      
        
          
          

        

        
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      (xxv)    Accounting
        Controls and Disclosure Controls.
        The
        Company and its subsidiary considered as one enterprise maintain a system
        of
        internal accounting controls sufficient to provide reasonable assurances
        that
        (A) transactions are executed in accordance with management’s general or
        specific authorization; (B) transactions are recorded as necessary to permit
        preparation of financial statements in conformity with GAAP and to maintain
        accountability for assets; (C) access to assets is permitted only in accordance
        with management’s general or specific authorization; and (D) the recorded
        accountability for assets is compared with the existing assets at reasonable
        intervals and appropriate action is taken with respect to any differences.
        Except as described in the Disclosure Package or Final Offering Memorandum,
        since the end of the Company’s most recent audited fiscal year, there has been
        (1) no material weakness in the Company’s internal control over financial
        reporting (as defined in Rules 13a-15 and 15d-15 under the 1934 Act
        Regulations) (whether or not remediated) and (2) no change in the Company’s
        internal control over financial reporting that has materially affected, or
        is
        reasonably likely to materially affect, the Company’s internal control over
        financial reporting. The Company and its subsidiary employ disclosure controls
        and procedures (as defined in Rules 13a-15 and 15d-15 under the 1934 Act
        Regulations) that are designed to ensure that information required to be
        disclosed by the Company in the reports that it files or submits under the
        1934
        Act is recorded, processed, summarized and reported, within the time periods
        specified in the Commission’s rules and forms, and is accumulated and
        communicated to the Company’s management, including its principal executive
        officer or officers and principal financial officer or officers, as appropriate,
        to allow timely decisions regarding disclosure.

      


      (xxvi)   Compliance
        with the Sarbanes-Oxley Act.
        There
        is and has been no failure on the part of the Company or any of the Company’s
        directors or officers, in their capacities as such, to comply in all material
        respects with any provision of the Sarbanes-Oxley Act of 2002 and the rules
        and
        regulations promulgated in connection therewith (the “Sarbanes-Oxley Act”),
        including Section 402 related to loans and Sections 302 and 906 related to
        certifications. 

      


      (xxvii)   Payment
        of Taxes.
        All
        United States federal income tax returns of the Company and its subsidiary
        required by law to be filed have been filed and all taxes shown by such returns
        or otherwise assessed, which are due and payable, have been paid, except
        assessments against which appeals have been or will be promptly taken and
        as to
        which adequate reserves have been provided. For the United States federal
        income
        tax returns of the Company through the fiscal year ended January 1, 2006,
        no assessment in connection therewith has been made against the Company.
        The
        Company and its subsidiary have filed all other tax returns that are required
        to
        have been filed by them pursuant to applicable foreign, state, local or other
        law except insofar as the failure to file such returns would not result in
        a
        Material Adverse Effect, and has paid all taxes due pursuant to such returns
        or
        pursuant to any assessment received by the Company and its subsidiary, except
        for such taxes, if any, as are being contested in good faith and as to which
        adequate reserves have been provided. The charges, accruals and reserves
        on the
        books of the Company in respect of any income and corporation tax liability
        for
        any years not finally determined are adequate (in accordance with GAAP) to
        meet
        any assessments or re-assessments for additional income tax for any years
        not
        finally determined, except to the extent of any inadequacy that would not
        result
        in a Material Adverse Effect. 


      
        
          
          

        

        
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      (xxviii)   Insurance.
        The
        Company and its subsidiary carry or are entitled to the benefits of insurance
        in
        such amounts and covering such risks as is generally maintained by companies
        of
        similar size engaged in the same or similar business, and all such insurance
        is
        in full force and effect. The Company has no reason to believe that it or
        its
        subsidiary will not be able (A) to renew its existing insurance coverage
        as and
        when such policies expire or (B) to obtain comparable coverage from similar
        institutions as may be necessary or appropriate to conduct its business as
        now
        conducted and at a cost that would not result in a Material Adverse Change.
        Neither of the Company nor its subsidiary has been denied any insurance coverage
        which it has sought or for which it has applied. 

      


      (xxix)    Statistical
        and Market-Related Data.
        Any
        statistical and market-related data included in the Disclosure Package and
        the
        Final Offering Memorandum are based on or derived from sources that the Company
        believes to be reliable and accurate, and the Company has obtained the written
        consent to the use of such data from such sources to the extent such written
        consent is required.

      


      (xxx)    Investment
        Company Act.
        The
        Company is not required, and after giving effect to the issuance and sale
        of the
        offered Securities and the application of the net proceeds therefrom as
        described in the Disclosure Package and the Final Offering Memorandum under
“Use
        of Proceeds,” will not be required, to register as an “investment company” under
        the Investment Company Act of 1940, as amended (the “1940 Act”).

      


      (xxxi)    Registration
        Rights.
        There
        are no persons with registration rights or other similar rights to have any
        securities registered by the Company under the 1933 Act, other than with
        respect
        to the registration of the resale of the Securities under the 1933 Act pursuant
        to the Registration Rights Agreement.

      


      (xxxii)   Similar
        Offerings.
        Neither
        the Company nor any of its Affiliates has, directly or indirectly (other
        than
        through the Initial Purchasers, as to whom the Company makes no representation),
        solicited any offer to buy, sold or offered to sell or otherwise negotiated
        in
        respect of, or will solicit any offer to buy, sell or offer to sell or otherwise
        negotiate in respect of, in the United States or to any United States citizen
        or
        resident, any security which is or would be integrated with the sale of the
        Securities in a manner that would require the offered Securities to be
        registered under the 1933 Act.

      


      (xxxiii)   Rule
        144A Eligibility.
        The
        Securities are eligible for resale pursuant to Rule 144A and will not be,
        at
        Closing Time, of the same class as securities listed on a national securities
        exchange registered under Section 6 of the 1934 Act, or quoted in a U.S.
        automated interdealer quotation system.

      


      (xxxiv)   No
        General Solicitation.
        None of
        the Company, its Affiliates or any person acting on its or any of their behalf
        (other than the Initial Purchasers, as to whom the Company makes no
        representation) has engaged or will engage, in connection with the offering
        of
        the offered Securities, in any form of general solicitation or general
        advertising within the meaning of Rule 502(c) under the 1933
        Act.


      
        
          
          

        

        
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      (xxxv)   No
        Registration Required.
        Subject
        to compliance by the Initial Purchasers with the representations and warranties
        of the Initial Purchasers and the procedures set forth in Section 6 hereof,
        it
        is not necessary in connection with the offer, sale and delivery of the offered
        Securities to the Initial Purchasers and to each Subsequent Purchaser in
        the
        manner contemplated by this Agreement, the Offering Memorandum to register
        the
        Securities under the 1933 Act or to qualify the Indenture under the Trust
        Indenture Act of 1939, as amended (the “1939 Act”).

      


      (xxxvi)   Foreign
        Corrupt Practices Act.
        Neither
        the Company nor, to the knowledge of the Company, any director, officer,
        agent,
        employee, Affiliate or other person acting on behalf of the Company or its
        subsidiary is aware of or has taken any action, directly or indirectly, that
        would result in a violation by such persons of the Foreign Corrupt Practices
        Act
        of 1977, as amended, and the rules and regulations thereunder (the “FCPA”),
        including, without limitation, making use of the mails or any means or
        instrumentality of interstate commerce corruptly in furtherance of an offer,
        payment, promise to pay or authorization of the payment of any money, or
        other
        property, gift, promise to give, or authorization of the giving of anything
        of
        value to any “foreign official” (as such term is defined in the FCPA) or any
        foreign political party or official thereof or any candidate for foreign
        political office, in contravention of the FCPA and the Company and, to the
        knowledge of the Company, its Affiliates have conducted their businesses
        in
        compliance with the FCPA and have instituted and maintain policies and
        procedures designed to ensure, and which are reasonably expected to continue
        to
        ensure, continued compliance therewith.

      


      (xxxvii)   Money
        Laundering Laws.
        The
        operations of the Company are and have been conducted at all times in compliance
        with applicable financial recordkeeping and reporting requirements of the
        Currency and Foreign Transactions Reporting Act of 1970, as amended, the
        money
        laundering statutes of all jurisdictions, the rules and regulations thereunder
        and any related or similar rules, regulations or guidelines, issued,
        administered or enforced by any governmental agency (collectively, the “Money
        Laundering Laws”) and no action, suit or proceeding by or before any court or
        governmental agency, authority or body or any arbitrator involving the Company
        with respect to the Money Laundering Laws is pending or, to the knowledge
        of the
        Company, threatened.

      


      (xxxviii)   OFAC.
        Neither
        the Company nor, to the knowledge of the Company, any director, officer,
        agent,
        employee, Affiliate or person acting on behalf of the Company is currently
        subject to any U.S. sanctions administered by the Office of Foreign Assets
        Control of the U.S. Treasury Department (“OFAC”); and the Company will not
        directly or indirectly use the proceeds of the offering, or lend, contribute
        or
        otherwise make available such proceeds to any subsidiary, joint venture partner
        or other person or entity, for the purpose of financing the activities of
        any
        person currently subject to any U.S. sanctions administered by
        OFAC.

      


      (xxxix)   Related
        Party Transactions.
        No
        relationship, direct or indirect, exists between or among any of the Company
        or
        its subsidiary or any Affiliate of the Company or its subsidiary, on the
        one
        hand, and any former or current director, officer, shareholder, customer
        or
        supplier of any of them (including any member of their immediate family),
        on the
        other hand, which is required by the 1933 Act or by the 1933 Regulations
        to be
        described in a registration statement on Form S-1 which is not so described
        as required in all material respects in the Offering Memorandum.

      


      (xl)    Solvency.
        The
        Company is, and immediately after Closing Time and immediately upon consummation
        of the transactions contemplated herein and in the Offering Memorandum will
        be,
        Solvent. As used herein, the term “Solvent” means, with respect to an entity, on
        a particular date, that on such date (a) the fair market value of the assets
        of
        such entity is greater than the total amount of liabilities (including
        contingent liabilities) of such entity, (b) the present fair salable value
        of
        the assets of the entity is greater than the amount that will be required
        to pay
        the probable liabilities of such entity on its debt as they become absolute
        and
        mature, (c) the entity is able to realize upon its assets and pay its debts
        and
        other liabilities (including contingent obligations) as they mature, and
        (d) the
        entity does not have unreasonably small capital.


      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      


      (xli)    Suppliers.
        No
        supplier of merchandise to the Company or its subsidiary has ceased shipments
        to
        the Company or its subsidiary, other than in the normal and ordinary course
        of
        business consistent with past practices, which cessation would not reasonably
        be
        expected to result in a Material Adverse Effect.

      


      (xlii)    Senior
        Indebtedness.
        No
        event of default exists under any contract, indenture, mortgage, loan agreement,
        note, lease or other agreement or instrument constituting Senior Indebtedness
        (as defined in the Indenture).

      


      (xliii)   ERISA
        Compliance.
        The
        Company and its subsidiary and any “employee benefit plan” (as defined under the
        Employee Retirement Income Security Act of 1974, as amended, and the regulations
        and published interpretations thereunder (collectively, “ERISA”)) established or
        maintained by the Company, its subsidiary or their “ERISA Affiliates” (as
        defined below) are in compliance in all material respects with ERISA. “ERISA
        Affiliate” means, with respect to the Company or its subsidiary, any member of
        any group of organizations described in Sections 414, or of the Internal
        Revenue
        Code of 1986, as amended, and the regulations and published interpretations
        thereunder (the “Code”) of which the Company or its subsidiary is a member. No
“reportable event” (as defined under ERISA) has occurred or is reasonably
        expected to occur with respect to any “employee benefit plan” established or
        maintained by the Company, its subsidiary or any of their ERISA Affiliates.
        No
“employee benefit plan” subject to Title IV of ERISA established or
        maintained by the Company, its subsidiary or any of their ERISA Affiliates,
        if
        such “employee benefit plan” were terminated, would have any “amount of unfunded
        benefit liabilities” (as defined under ERISA). Neither the Company, its
        subsidiary nor any of their ERISA Affiliates has incurred or reasonably expects
        to incur any liability under (i) Title IV of ERISA with respect to
        termination of, or withdrawal from, any “employee benefit plan” or (ii) Sections
        412, 4971, 4975 or 4980B of the Code. Each “employee benefit plan” established
        or maintained by the Company, its subsidiary or any of their ERISA Affiliates
        that is intended to be qualified under Section 401 of the Code is so qualified
        and nothing has occurred, whether by action or failure to act, which would
        cause
        the loss of such qualification.

      


      (b)    Officer’s
        Certificates.
        Any
        certificate signed by any officer of the Company or its subsidiary delivered
        to
        Merrill Lynch or to counsel for the Initial Purchasers shall be deemed a
        representation and warranty by the Company to each Initial Purchaser as to
        the
        matters covered thereby.

      


      SECTION
        2.    Sale
        and Delivery to the Initial Purchasers; Closing.
        

      


      (a)    Initial
        Securities.
        On the
        basis of the representations, warranties and agreements herein contained
        and
        subject to the terms and conditions herein set forth, the Company agrees
        to sell
        to each Initial Purchaser, severally and not jointly, and each Initial
        Purchaser, severally and not jointly, agrees to purchase from the Company,
        the
        aggregate principal amount of Initial Securities set forth in Schedule A
        hereto
        opposite the name of such Initial Purchaser, at a price of 97.00% of the
        principal amount thereof.

      


      (b)    Option
        Securities.
        In
        addition, on the basis of the representations, warranties and agreements
        herein
        contained and subject to the terms and conditions herein set forth, the Company
        hereby grants an option to the Initial Purchasers to purchase up to an
        additional $18,750,000 aggregate principal amount of Option Securities at
        the
        same purchase price as the Initial Purchasers paid for the Initial Securities,
        plus accrued and unpaid interest from the Initial Closing Time to, but
        excluding, the Option Closing Time. The option hereby granted will expire
        13
        days after the Initial Closing Time and may be exercised at any time, in
        whole
        or in part, upon notice by Merrill Lynch to the Company setting forth the
        number
        of Option Securities as to which the Initial Purchasers are then exercising
        the
        option and the time and date of payment and delivery for such Option Securities.
        Any such time and date of delivery (the “Option Closing Time”) shall be
        determined by the Company and Merrill Lynch, but shall not be later than
        seven
        full business days after the exercise of said option, nor in any event prior
        to
        the Initial Closing Time, as hereinafter defined. The option hereby granted
        may
        be exercised only for the purpose of covering overallotments, if any, made
        in
        connection with the offering and distribution of the
        Securities.


      
        
          
          

        

        
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      (c)    Payment.
        Payment
        of the purchase price for, and delivery of certificates for, the Initial
        Securities shall be made at the office of Shearman & Sterling LLP, 599
        Lexington Avenue, New York, New York 10022 or at such other place as shall
        be
        agreed upon by Merrill Lynch and the Company, at 9:00 A.M. (Eastern time)
        on the
        fourth business day after the date hereof (unless postponed in accordance
        with
        the provisions of Section 11) or such other time not later than ten business
        days after such date as shall be agreed upon by Merrill Lynch and the Company
        (such time and date of payment and delivery being herein called “Initial Closing
        Time” and the Initial Closing Time and the Option Closing Time, each being the
        applicable “Closing Time”).

      


      In
        addition, in the event that the Initial Purchasers have exercised its option
        to
        purchase all or any of the Option Securities, payment of the purchase price
        for,
        and delivery of certificates for, such Option Securities shall be made at
        the
        above-mentioned offices, or at such other place as shall be agreed upon by
        Merrill Lynch and the Company, on the Option Closing Time as specified in
        the
        notice from Merrill Lynch to the Company.

      


      Payment
        shall be made to the Company by wire transfer of immediately available funds
        to
        a bank account designated by the Company, against delivery to Merrill Lynch
        for
        the respective accounts of the Initial Purchasers of certificates for the
        Securities to be purchased by them. It is understood that each Initial Purchaser
        has authorized Merrill Lynch, for its account, to accept delivery of, receipt
        for, and make payment of the purchase price for, the Securities which it
        has
        agreed to purchase. Merrill Lynch, individually and not as representative
        of the
        Initial Purchasers, may (but shall not be obligated to) make payment of the
        purchase price for the Securities to be purchased by any Initial Purchaser
        whose
        funds have not been received by Closing Time, but such payment shall not
        relieve
        such Initial Purchaser from its obligations hereunder. 

      


      (d)    Denominations;
        Registration.
        Certificates for the Securities shall be registered in the name of
        Cede & Co., as nominee of DTC, and shall be in such denominations
        ($1,000 or integral multiples of $1,000 in excess thereof) as Merrill Lynch
        may
        request in writing at least one full business day before Closing Time. The
        certificates representing the Securities shall be made available for examination
        and packaging by the Initial Purchasers in The City of New York not later
        than
        10:00 A.M. on the last business day prior to Closing Time.

      


      SECTION
        3.    Covenants
        of the Company.
        The
        Company covenants with each Initial Purchaser as follows:

      


      (a)    Offering
        Memorandum.
        The
        Company, as promptly as possible, will furnish to each Initial Purchaser,
        without charge, such number of copies of the Offering Memorandum and any
        amendments and supplements thereto and documents incorporated by reference
        therein as such Initial Purchaser may reasonably request; provided,
        however,
        that
        the Company shall not be required to furnish copies of the exhibits to the
        documents incorporated by reference therein to the extent such exhibits are
        available on EDGAR.


      
        
          
          

        

        
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      (b)    Notice
        and Effect of Material Events.
        The
        Company will immediately notify each Initial Purchaser, and confirm such
        notice
        in writing, of (x) any filing made by the Company of information relating
        to the
        offering of the Securities with any securities exchange or any other regulatory
        body in the United States or any other jurisdiction; provided,
        however,
        that
        the Company shall not be required to notify the Initial Purchasers with respect
        to filings made by the Company pursuant to the 1934 Act and the 1934 Act
        Regulations, and (y) prior to the completion of the placement of the offered
        Securities by the Initial Purchasers as evidenced by a notice in writing
        from
        the Initial Purchasers to the Company, any material changes in or affecting
        the
        condition, financial or otherwise, or the earnings, business affairs or business
        prospects of the Company and its subsidiary considered as one enterprise
        which
        (i) make any statement in the Disclosure Package, any Offering Memorandum
        or any
        Supplemental Offering Material false or misleading or (ii) are not disclosed
        in
        the Disclosure Package or the Offering Memorandum. In such event or if during
        such time any event shall occur as a result of which it is necessary, in
        the
        reasonable opinion of any of the Company, its counsel, the Initial Purchasers
        or
        counsel for the Initial Purchasers, to amend or supplement the Offering
        Memorandum in order that the Offering Memorandum not include any untrue
        statement of a material fact or omit to state a material fact necessary in
        order
        to make the statements therein not misleading in the light of the circumstances
        then existing, the Company will forthwith amend or supplement the Offering
        Memorandum by preparing and furnishing to each Initial Purchaser an amendment
        or
        amendments of, or a supplement or supplements to, the Offering Memorandum
        (in
        form and substance satisfactory in the reasonable opinion of counsel for
        the
        Initial Purchasers) so that, as so amended or supplemented, the Offering
        Memorandum will not include an untrue statement of a material fact or omit
        to
        state a material fact necessary in order to make the statements therein,
        in the
        light of the circumstances existing at the time it is delivered to a Subsequent
        Purchaser, not misleading.

      


      (c)    Amendment
        and Supplements to the Offering Memorandum; Preparation of Pricing Term Sheet;
        Supplemental Offering Materials.
        The
        Company will advise each Initial Purchaser promptly of any proposal to amend
        or
        supplement the Offering Memorandum and will not effect such amendment or
        supplement without the consent of the Initial Purchasers. Neither the consent
        of
        the Initial Purchasers, nor the Initial Purchasers’ delivery of any such
        amendment or supplement, shall constitute a waiver of any of the conditions
        set
        forth in Section 5 hereof. The Company will prepare the Pricing Term Sheet,
        in
        form and substance satisfactory to Merrill Lynch, and shall furnish as soon
        as
        practicable but no later than 4 hours prior to the Applicable Time to each
        Initial Purchaser, without charge, as many copies of the Pricing Term Sheet
        as
        such Initial Purchaser may reasonably request. The Company represents and
        agrees
        that, unless it obtains the prior consent of Merrill Lynch, it has not made
        and
        will not make any offer relating to the Securities by means of any Supplemental
        Offering Materials.

      


      (d)    Qualification
        of Securities for Offer and Sale.
        The
        Company will use its reasonable best efforts, in cooperation with the Initial
        Purchasers, to qualify the Securities for offering and sale under the applicable
        securities laws of such states and other jurisdictions as the Initial Purchasers
        may designate and to maintain such qualifications in effect as long as required
        for the sale of the Securities; provided, however, that the Company shall
        not be
        obligated to file any general consent to service of process or to qualify
        as a
        foreign corporation or as a dealer in securities in any jurisdiction in which
        it
        is not so qualified or to subject itself to taxation in respect of doing
        business in any jurisdiction in which it is not otherwise so
        subject.

      


      (e)    [Intentionally
        Omitted]


      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      


      (f)    DTC.
        The
        Company will cooperate with the Initial Purchasers and use its reasonable
        best
        efforts to permit the Securities to be eligible for clearance and settlement
        through the facilities of DTC.

      


      (g)    Use
        of Proceeds.
        The
        Company will use the net proceeds received by it from the sale of the Securities
        in the manner specified in the Offering Memorandum under “Use of
        Proceeds”.

      


      (h)    Restriction
        on Sale of Securities.
        Except
        as otherwise contemplated by the Offering Memorandum and the Transaction
        Documents, during a period of 90 days from the date of the Final Offering
        Memorandum (the “Lock-up Period”), the Company shall not, without the prior
        written consent of Merrill Lynch, directly or indirectly, (i) issue, sell,
        offer
        or agree to sell, grant any option for the sale of, or otherwise transfer
        or
        dispose of, any other debt securities of the Company, or securities of the
        Company that are convertible into, or exchangeable for, the Securities or
        such
        other debt securities, (ii) offer, pledge, announce the intention to sell,
        sell,
        contract to sell, sell any option or contract to purchase, purchase any option
        or contract to sell, grant any option, right or warrant for the sale of,
        lend or
        otherwise transfer or dispose of any shares of Common Stock or securities
        convertible into or exchangeable or exercisable for or repayable with Common
        Stock, or file any registration statement under the 1933 Act with respect
        to any
        of the foregoing or (iii) enter into any swap or other agreement or any
        transaction that transfers, in whole or in part, the economic consequences
        of
        ownership of the Common Stock, or any securities convertible into or
        exchangeable or exercisable for or repayable with Common Stock, whether any
        such
        swap or transaction described in clause (ii) or (iii) above is to be settled
        by
        delivery of Common Stock or such other securities, in cash or otherwise;
        provided,
        however,
        that
        the Company may offer, issue and sell shares of Common Stock or securities
        convertible into or exchangeable or exercisable for shares of Common Stock
        (A) pursuant to any employee benefit plan, (B) upon the conversion or
        exercise of securities outstanding on the date hereof or (C) issued
        or
        to be issued by the Company in connection with an acquisition,
        provided
        that (1) in the case of an acquisition of a private company, the recipient
        of
        such shares or securities shall enter into a lock-up agreement for the balance
        of the Lock-up Period and (2) in the case of an acquisition of a public company,
        such shares or securities shall not be issued until the expiration of the
        Lock-up Period.

      


      (i)    PORTAL
        Designation.
        The
        Company will use its reasonable best efforts to permit the Securities to
        be
        designated PORTAL securities in accordance with the rules and regulations
        adopted by the National Association of Securities Dealers, Inc. (“NASD”)
        relating to trading in the PORTAL Market.

      


      (j)    Listing
        on Securities Exchange.
        The
        Company will use its reasonable best efforts to cause all shares of Common
        Stock
        issuable upon conversion of the Securities to be listed on the NASDAQ or
        listed
        on a “national securities exchange” registered under Section 6 of the 1934 Act
        on which shares of its Common Stock are then listed. 

      


      (k)    Reporting
        Requirements.
        Until
        the offering of the Securities is complete, the Company will file all documents
        required to be filed with the Commission pursuant to the 1934 Act within
        the
        time periods required by the 1934 Act and the 1934 Act Regulations.


      


      (l)    Reservation
        of Shares of Common Stock.
        The
        Company shall reserve and keep available at all times, free of preemptive
        rights, shares of Common Stock for the purpose of enabling the Company to
        satisfy any obligations to issue shares of Common Stock upon conversion of
        the
        Securities.


      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      


      SECTION
        4.    Payment
        of Expenses.
        

      


      (a)    Expenses.
        The
        Company will pay all expenses incident to the performance of its obligations
        under this Agreement, including (i) the preparation, printing, and delivery
        to
        the Initial Purchasers and any filing of the Disclosure Package or any Offering
        Memorandum (including financial statements and any schedules or exhibits
        and any
        document incorporated therein by reference) and of each amendment or supplement
        thereto or of any Supplemental Offering Material, (ii) the preparation, printing
        and delivery to the Initial Purchasers of this Agreement, any agreement among
        the Initial Purchasers, the Indenture and such other documents as may be
        required in connection with the offering, purchase, sale, issuance or delivery
        of the Securities, (iii) the preparation, issuance and delivery of the
        certificates for the Securities to the Initial Purchasers and the certificates
        for the Common Stock issuable upon conversion thereof, including any transfer
        taxes, any stamp or other duties payable upon the sale, issuance and delivery
        of
        the Securities to the Initial Purchasers, the issuance and delivery of the
        Common Stock issuable upon conversion thereof and any charges of DTC in
        connection therewith, (iv) the fees and disbursements of the Company’s counsel,
        accountants and other advisors, (v) the qualification of the Securities and
        the
        shares of Common Stock issuable upon conversion thereof under securities
        laws in
        accordance with the provisions of Section 3(d) hereof, including filing fees
        and
        the reasonable and documented fees and disbursements of counsel for the Initial
        Purchasers in connection therewith and in connection with the preparation
        of the
        Blue Sky Survey, any supplement thereto, (vi) the fees and expenses of the
        Trustee, including the reasonable and documented fees and disbursements of
        counsel for the Trustee in connection with the Indenture and the Securities,
        (vii) the costs and expenses of the Company relating to investor presentations
        on any “road show” undertaken in connection with the marketing of the Securities
        including, without limitation, expenses associated with the production of
        road
        show slides and graphics, fees and expenses of any consultants engaged in
        connection with the road show presentations, travel and lodging expenses
        of the
        representatives and officers of the Company and any such consultants,
        (viii) any fees payable in connection with the rating of the Securities,
        (ix) any fees and expenses payable in connection with the initial and continued
        designation of the Securities as PORTAL securities under the PORTAL Market
        Rules
        pursuant to NASD Rule 5322, (x) any fees of the NASD in connection with the
        Securities and (xi) the fees and expenses of any transfer agent or
        registrar for the Common Stock.

      


      (b)    Termination
        of Agreement.
        If this
        Agreement is terminated by Merrill Lynch in accordance with the provisions
        of
        Section 5 or Section 10(a)(i) hereof, the Company shall reimburse the Initial
        Purchasers for all of their reasonable and documented out-of-pocket expenses,
        including the reasonable and documented fees and disbursements of counsel
        for
        the Initial Purchasers.

      


      SECTION
        5.    Conditions
        of Initial Purchasers’ Obligations.
        The
        obligations of the Initial Purchasers hereunder are subject to the accuracy
        of
        the representations and warranties of the Company contained in Section 1
        hereof
        as of the date hereof and as of the Closing Time or in certificates of any
        officer of the Company or its subsidiary delivered pursuant to the provisions
        hereof, to the performance by the Company of its covenants and other obligations
        hereunder, and to the following further conditions:

      


      (a)    Opinions
        of Counsel for Company.
        At
        Closing Time, the Initial Purchasers shall have received the favorable opinions
        and negative assurance letter, dated as of Closing Time, of (1) Hunton
& Williams LLP, counsel for the Company, in form and substance satisfactory
        to counsel for the Initial Purchasers, to the effect set forth in
        Exhibit A-1 hereto; (2) Hunton & Williams LLP, special counsel for the
        Company with respect to patents and proprietary rights, in form and substance
        satisfactory to counsel for the Initial Purchasers, to the effect set forth
        in
        Exhibit A-2 hereto and (3) Kleinfeld, Kaplan and Decker LLP, regulatory counsel
        for the Company with respect to regulatory matters, in form and substance
        satisfactory to counsel for the Initial Purchasers, to the effect set forth
        in
        Exhibit A-3 hereto. Such counsel may also state that, insofar as such opinion
        involves factual matters, they have relied, to the extent they deem proper,
        upon
        certificates of officers of the Company and its subsidiary and certificates
        of
        public officials.


      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      


      (b)    Opinion
        of Counsel for Initial Purchasers.
        At
        Closing Time, the Initial Purchasers shall have received the favorable opinion,
        dated as of Closing Time, of Shearman & Sterling LLP, counsel for the
        Initial Purchasers, with respect to the matters set forth in (v) through
        (ix),
        inclusive, (xi) and the penultimate paragraph of Exhibit A hereto. In giving
        such opinion such counsel may rely, as to all matters governed by the laws
        of
        jurisdictions other than the law of the State of New York and the federal
        law of
        the United States, upon the opinions of counsel satisfactory to Merrill Lynch.
        Such counsel may also state that, insofar as such opinion involves factual
        matters, they have relied, to the extent they deem proper, upon certificates
        of
        officers of the Company and its subsidiary and certificates of public
        officials.

      


      (c)    Officers’
        Certificate.
        At
        Closing Time, there shall not have been, since the date hereof or since the
        respective dates as of which information is given in the Disclosure Package
        or
        the Final Offering Memorandum (exclusive of any amendments or supplements
        thereto subsequent to the date of this Agreement), any material adverse change
        in the condition, financial or otherwise, or in the earnings, business affairs
        or business prospects of the Company and its subsidiary considered as one
        enterprise, whether or not arising in the ordinary course of business, and
        Merrill Lynch shall have received a certificate of the President or a Vice
        President of the Company and of the chief financial or chief accounting officer
        of the Company, dated as of Closing Time, to the effect that (i) there has
        been
        no such material adverse change, (ii) the representations and warranties
        in
        Section 1 hereof are true and correct with the same force and effect as though
        expressly made at and as of Closing Time, and (iii) the Company has complied
        with all agreements and satisfied all conditions on its part to be performed
        or
        satisfied at or prior to Closing Time.

      


      (d)    Accountants’
        Comfort Letter.
        At the
        time of the execution of this Agreement, the Initial Purchasers shall have
        received from KPMG LLP a letter dated such date, in form and substance
        satisfactory to Merrill Lynch, containing statements and information of the
        type
        ordinarily included in accountants’ “comfort letters” to Initial Purchasers with
        respect to the financial statements and certain financial information contained
        in the Disclosure Package and the Final Offering Memorandum.

      


      (e)    Bring-down
        Comfort Letter.
        At
        Closing Time, the Initial Purchasers shall have received from KPMG LLP a
        letter,
        dated as of Closing Time, to the effect that they reaffirm the statements
        made
        in the letter furnished pursuant to subsection (d) of this Section, except
        that
        the specified date referred to shall be a date not more than three business
        days
        prior to Closing Time.

      


      (f)    [Intentionally
        Omitted]

      


      (g)    PORTAL.
        At the
        Initial Closing Time, the Securities shall have been designated for trading
        on
        PORTAL.

      


      (h)    Lock-up
        Letter.
        On or
        prior to the date of this Agreement, Merrill Lynch shall have received an
        agreement substantially in the form of Exhibit B attached hereto signed by
        the
        persons listed in Schedule C attached hereto.

      


      (i)    Indenture
        and Registration Rights Agreement.
        At or
        prior to the Initial Closing Time, each of the Company and the Trustee shall
        have executed and delivered the Indenture, and the Company and the Initial
        Purchasers shall have executed and delivered the Registration Rights
        Agreement.

      


      (j)    Bond
        Hedge and Warrant Documents.
        At or
        prior to the Initial Closing Time, the OTC Convertible Note Hedge, the OTC
        Warrant Transaction and the Forward Stock Purchase Transaction, in form and
        substance reasonably satisfactory to the Initial Purchasers, shall have been
        duly executed and delivered by the Company and be in full force and
        effect.


      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      


      (k)    Conditions
        to Purchase of Option Securities.
        In the
        event that the Initial Purchasers exercise its option provided in Section
        2(b)
        hereof to purchase all or any portion of the Option Securities, the obligations
        of the Initial Purchasers to purchase such Option Securities is subject to
        the
        representations and warranties of the Company contained herein and the
        statements in any certificates furnished by the Company or its subsidiary
        hereunder being true and correct as of the Option Closing Time and that,
        at the
        Option Closing Time, the Initial Purchasers shall have received:

      


      (i)    Officers’
        Certificate.
        A
        certificate, dated the Option Closing Time, of the President or a Vice President
        of the Company and of the chief financial officer or chief accounting officer
        of
        the Company confirming that the certificate delivered at the Initial Closing
        Time pursuant to Section 5(c) hereof remains true and correct as of the Option
        Closing Time;

      


      (ii)    Opinions
        of Counsel for Company.
        The
        favorable opinions of (1) Hunton & Williams LLP, counsel for the Company,
        relating to the Option Securities to be purchased on the Option Closing Time,
        (2) Hunton & Williams LLP, special counsel for the Company with respect to
        patents and proprietary rights and (3) Kleinfeld, Kaplan and Decker LLP,
        regulatory counsel for the Company with respect to regulatory matters, all
        in
        form and substance satisfactory to counsel for the Initial Purchasers, dated
        the
        Option Closing Time and otherwise to the same effect as the opinions required
        by
        Section 5(a) hereof;

      


      (iii)    Opinion
        of Counsel for Initial Purchasers.
        The
        favorable opinion of Shearman & Sterling LLP, counsel for the Initial
        Purchasers, dated the Option Closing Time, relating to the Option Securities
        to
        be purchased on the Option Closing Time and otherwise to the same effect
        as the
        opinion required by Section 5(b) hereof; and

      


      (iv)    Bring
        down Comfort Letter.
        A
        letter from KPMG LLP, in form and substance satisfactory to the Initial
        Purchasers and dated the Option Closing Time, substantially in the same form
        and
        substance as the letter furnished to the Initial Purchasers pursuant to Section
        5(d) hereof, except that the “specified date” in the letter furnished pursuant
        to this subparagraph shall be a date not more than three days prior to the
        Option Closing Time.

      


      (l)    Additional
        Documents.
        At
        Closing Time, counsel for the Initial Purchasers shall have been furnished
        with
        such documents and opinions as they may reasonably require for the purpose
        of
        enabling them to pass upon the issuance and sale of the Securities as herein
        contemplated, or in order to evidence the accuracy of any of the representations
        or warranties, or the fulfillment of any of the conditions, herein contained;
        and all proceedings taken by the Company in connection with the issuance
        and
        sale of the Securities as herein contemplated shall be reasonably satisfactory
        in form and substance to Merrill Lynch and counsel for the Initial
        Purchasers.

      


      (m)    Termination
        of Agreement.
        If any
        condition specified in this Section shall not have been fulfilled when and
        as
        required to be fulfilled, this Agreement may be terminated by Merrill Lynch
        by
        notice to the Company at any time at or prior to Closing Time, and such
        termination shall be without liability of any party to any other party except
        as
        provided in Section 4 and except that Sections 1, 7, 8 and 9 shall survive
        any
        such termination and remain in full force and effect.

      


      SECTION
        6.    Subsequent
        Offers and Resales of the Securities.
        

      


      (a)    Offer
        and Sale Procedures.
        Each
        Initial Purchaser and the Company hereby establish and agree to observe the
        following procedures in connection with the offer and sale of the
        Securities:

      


      (i)    Offers
        and Sales.
        Offers
        and sales of the Securities shall be made only to such persons and in such
        manner as is contemplated by the Offering Memorandum.


      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      


      (ii)    No
        General Solicitation.
        No
        general solicitation or general advertising (within the meaning of Rule 502(c)
        under the 1933 Act) will be used in the United States in connection with
        the
        offering or sale of the Securities.

      


      (iii)    Purchases
        by Non-Bank Fiduciaries.
        In the
        case of a non-bank Subsequent Purchaser of a Security acting as a fiduciary
        for
        one or more third parties, each third party shall, in the judgment of the
        Initial Purchasers, be a “qualified institutional buyer” within the meaning of
        Rule 144A under the 1933 Act (a “Qualified Institutional Buyer”).

      


      (iv)    Subsequent
        Purchaser Notification.
        Each
        Initial Purchaser will take reasonable steps to inform, and cause each of
        its
        U.S. Affiliates to take reasonable steps to inform, persons acquiring Securities
        from such Initial Purchaser or its Affiliate, as the case may be, in the
        United
        States that the Securities (A) have not been and will not be registered under
        the 1933 Act, (B) are being sold to them without registration under the 1933
        Act
        in reliance on Rule 144A or in accordance with another exemption from
        registration under the 1933 Act, as the case may be, and (C) may not be offered,
        sold or otherwise transferred except (1) to the Company, (2) outside the
        United
        States in accordance with Regulation S under the 1933 Act, or (3) inside
        the
        United States in accordance with (x) Rule 144A to a person whom the seller
        reasonably believes is a Qualified Institutional Buyer that is purchasing
        such
        Securities for its own account or for the account of a Qualified Institutional
        Buyer to whom notice is given that the offer, sale or transfer is being made
        in
        reliance on Rule 144A or (y) pursuant to another available exemption from
        registration under the 1933 Act.

      


      (v)    Minimum
        Principal Amount.
        No sale
        of the Securities to any one Subsequent Purchaser will be for less than U.S.
        $1,000 principal amount and no Security will be issued in a smaller principal
        amount. If the Subsequent Purchaser is a non-bank fiduciary acting on behalf
        of
        others, each person for whom it is acting must purchase at least U.S. $1,000
        principal amount of the Securities.

      


      (vi)   Transfer
        Restriction.
        The
        transfer restrictions and the other provisions set forth in the Offering
        Memorandum under the caption “Transfer Restrictions,” including the legend
        required thereby, shall apply to the Securities except as otherwise agreed
        by
        the Company and the Initial Purchasers. Following the sale of the Securities
        by
        the Initial Purchasers to each Subsequent Purchaser pursuant to the terms
        hereof, the Initial Purchasers shall not be liable or responsible to the
        Company
        for any losses, damages or liabilities suffered or incurred by the Company,
        including any losses, damages or liabilities under the 1933 Act, arising
        from or
        relating to any subsequent resale or transfer of any Security

      


      (b)    Covenants
        of the Company.
        The
        Company covenants with each Initial Purchaser as follows:

      


      (i)    Integration.
        The
        Company agrees that it will not and will cause its Affiliates not to, directly
        or indirectly, solicit any offer to buy, sell or make any offer or sale of,
        or
        otherwise negotiate in respect of, securities of the Company of any class
        if, as
        a result of the doctrine of “integration” referred to in Rule 502 under the 1933
        Act, such offer or sale would render invalid (for the purpose of (i) the
        sale of
        the offered Securities by the Company to the Initial Purchasers, (ii) the
        resale
        of the offered Securities by the Initial Purchasers to Subsequent Purchasers
        or
        (iii) the resale of the offered Securities by such Subsequent Purchasers
        to
        others) the exemption from the registration requirements of the 1933 Act
        provided by Section 4(2) thereof or by Rule 144A thereunder or
        otherwise.


      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      


      (ii)    Rule
        144A Information.
        The
        Company agrees that, in order to render the offered Securities eligible for
        resale pursuant to Rule 144A under the 1933 Act, while any of the offered
        Securities remain outstanding, it will make available, upon request, to any
        holder of offered Securities or prospective purchasers of Securities the
        information specified in Rule 144A(d)(4), unless the Company furnishes
        information to the Commission pursuant to Section 13 or 15(d) of the 1934
        Act.

      


      (iii)   Restriction
        on Repurchases.
        Until
        the expiration of two years after the original issuance of the offered
        Securities, the Company will not, and will cause its Affiliates not to, resell
        any offered Securities which are “restricted securities” (as such term is
        defined under Rule 144(a)(3) under the 1933 Act), whether as beneficial owner
        or
        otherwise (except as agent acting as a securities broker on behalf of and
        for
        the account of customers in the ordinary course of business in unsolicited
        broker’s transactions) that have been reacquired by any of them and shall
        immediately upon any purchase of any such Securities submit such Securities
        to
        the Trustee for cancellation.

      


      (c)    Qualified
        Institutional Buyer.
        Each
        Initial Purchaser severally and not jointly represents and warrants to, and
        agrees with, the Company that:

      


      (i)    it
        is a
        Qualified Institutional Buyer and an “accredited investor” within the meaning of
        Rule 501(a) under the 1933 Act (an “Accredited Investor”) with such
        knowledge in financial and business matters as are necessary in order to
        evaluate the merits and risks of an investment in the Securities;
        and

      


      (ii)    neither
        it, nor any of its Affiliates, nor any person acting on its behalf, has engaged
        or will engage, in connection with the offering of the Securities, in any
        form
        of general solicitation or general advertising within the meaning of
        Rule 502(c) under the 1933 Act.

      


      The
        Initial Purchasers understand that the Company, and for purposes of the opinions
        to be delivered to it pursuant to Section 5 hereof, counsel to the Company
        and counsel to the Initial Purchasers will rely upon the accuracy and truth
        of
        the foregoing representations, and the Initial Purchasers hereby consent
        to such
        reliance.

      


      SECTION
        7.    Indemnification.
        

      


      (a)    Indemnification
        of Initial Purchasers.
        The
        Company agrees to indemnify and hold harmless each Initial Purchaser, its
        Affiliates, its selling agents and each person, if any, who controls any
        Initial
        Purchaser within the meaning of Section 15 of the 1933 Act or Section 20
        of the
        1934 Act as follows:

      


      (i)    against
        any and all loss, liability, claim, damage and expense whatsoever, as incurred,
        arising out of any untrue statement or alleged untrue statement of a material
        fact contained in the Disclosure Package, the Final Offering Memorandum (or
        any
        amendment or supplement thereto) or any Supplemental Offering Materials,
        or the
        omission or alleged omission therefrom of a material fact necessary in order
        to
        make the statements therein, in the light of the circumstances under which
        they
        were made, not misleading;

      


      (ii)    against
        any and all loss, liability, claim, damage and expense whatsoever, as incurred,
        to the extent of the aggregate amount paid in settlement of any litigation,
        or
        any investigation or proceeding by any governmental agency or body, commenced
        or
        threatened, or of any claim whatsoever based upon any such untrue statement
        or
        omission, or any such alleged untrue statement or omission; provided that
        (subject to Section 7(d) below) any such settlement is effected with the
        written
        consent of the Company; and


      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      


      (iii)    against
        any and all expense whatsoever, as incurred (including the reasonable and
        documented fees and disbursements of counsel chosen by Merrill Lynch),
        reasonably incurred and documented in investigating, preparing or defending
        against any litigation, or any investigation or proceeding by any governmental
        agency or body, commenced or threatened, or any claim whatsoever based upon
        any
        such untrue statement or omission, or any such alleged untrue statement or
        omission, to the extent that any such expense is not paid under (i) or (ii)
        above;

      


      provided,
        however,
        that
        this indemnity agreement shall not apply to any loss, liability, claim, damage
        or expense to the extent arising out of any untrue statement or omission
        or
        alleged untrue statement or omission made in reliance upon and in conformity
        with written information furnished to the Company by any Initial Purchaser
        through Merrill Lynch expressly for use in the Disclosure Package, the Final
        Offering Memorandum (or any amendment or supplement thereto) or in any
        Supplemental Offering Materials.

      


      (b)    Indemnification
        of Company.
        Each
        Initial Purchaser severally agrees to indemnify and hold harmless the Company
        and each person, if any, who controls the Company within the meaning of Section
        15 of the 1933 Act or Section 20 of the 1934 Act against any and all loss,
        liability, claim, damage and expense described in the indemnity contained
        in
        subsection (a) of this Section, as incurred, but only with respect to untrue
        statements or omissions, or alleged untrue statements or omissions, made
        in the
        Disclosure Package, the Final Offering Memorandum or any Supplemental Offering
        Materials in reliance upon and in conformity with written information furnished
        to the Company by any Initial Purchaser through Merrill Lynch expressly for
        use
        therein.

      


      (c)    Actions
        against Parties; Notification.
        Each
        indemnified party shall give notice as promptly as reasonably practicable
        to
        each indemnifying party of any action commenced against it in respect of
        which
        indemnity may be sought hereunder, but failure to so notify an indemnifying
        party shall not relieve such indemnifying party from any liability hereunder
        to
        the extent it is not materially prejudiced as a result thereof and in any
        event
        shall not relieve it from any liability which it may have otherwise than
        on
        account of this indemnity agreement. In the case of parties indemnified pursuant
        to Section 7(a) above, counsel to the indemnified parties shall be selected
        by
        Merrill Lynch, and, in the case of parties indemnified pursuant to Section
        7(b)
        above, counsel to the indemnified parties shall be selected by the Company.
        An
        indemnifying party may participate at its own expense in the defense of any
        such
        action; provided, however, that counsel to the indemnifying party shall not
        (except with the consent of the indemnified party) also be counsel to the
        indemnified party. In no event shall the indemnifying parties be liable for
        the
        reasonable and documented fees and expenses of more than one counsel (in
        addition to any local counsel) separate from their own counsel for all
        indemnified parties in connection with any one action or separate but similar
        or
        related actions in the same jurisdiction arising out of the same general
        allegations or circumstances. No indemnifying party shall (i) without the
        prior written consent of the indemnified parties (which consent shall not
        be
        unreasonably withheld), settle or compromise or consent to the entry of any
        judgment with respect to any litigation, or any investigation or proceeding
        by
        any governmental agency or body, commenced or threatened, or any claim
        whatsoever in respect of which indemnification or contribution could be sought
        under this Section or Section 8 hereof (whether or not the indemnified parties
        are actual or potential parties thereto), unless such settlement, compromise
        or
        consent (A) includes an unconditional release of each indemnified party
        from all liability arising out of such litigation, investigation, proceeding
        or
        claim and (B) does not include a statement as to or an admission of fault,
        culpability or a failure to act by or on behalf of any indemnified party
        or (ii)
        be liable for any settlement of any such action effected without its prior
        written consent (which consent shall not be unreasonably
        withheld).


      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      


      (d)    Settlement
        without Consent if Failure to Reimburse.
        Notwithstanding clause (ii) of Section 7(c), if at any time an indemnified
        party
        shall have requested an indemnifying party to reimburse the indemnified party
        for fees and expenses of counsel, such indemnifying party agrees that it
        shall
        be liable for any settlement of the nature contemplated by Section 7(a)(ii)
        effected without its written consent if (i) such settlement is entered into
        more
        than 45 days after receipt by such indemnifying party of the aforesaid request,
        (ii) such indemnifying party shall have received notice of the terms of such
        settlement at least 30 days prior to such settlement being entered into and
        (iii) such indemnifying party shall not have reimbursed such indemnified
        party
        in accordance with such request prior to the date of such
        settlement.

      


      SECTION
        8.    Contribution.
        If the
        indemnification provided for in Section 7 hereof is for any reason unavailable
        to or insufficient to hold harmless an indemnified party in respect of any
        losses, liabilities, claims, damages or expenses referred to therein, then
        each
        indemnifying party shall contribute to the aggregate amount of such losses,
        liabilities, claims, damages and expenses incurred by such indemnified party,
        as
        incurred, (i) in such proportion as is appropriate to reflect the relative
        benefits received by the Company, on the one hand, and the Initial Purchasers,
        on the other hand, from the offering of the Securities pursuant to this
        Agreement or (ii) if the allocation provided by clause (i) is not permitted
        by applicable law, in such proportion as is appropriate to reflect not only
        the
        relative benefits referred to in clause (i) above but also the relative fault
        of
        the Company, on the one hand, and of the Initial Purchasers, on the other
        hand,
        in connection with the statements or omissions which resulted in such losses,
        liabilities, claims, damages or expenses, as well as any other relevant
        equitable considerations.

      


      The
        relative benefits received by the Company, on the one hand, and the Initial
        Purchasers, on the other hand, in connection with the offering of the Securities
        pursuant to this Agreement shall be deemed to be in the same respective
        proportions as the total net proceeds from the offering of the Securities
        pursuant to this Agreement (before deducting expenses) received by the Company
        and the total underwriting discount received by the Initial Purchasers, bear
        to
        the aggregate initial offering price of the Securities, in such case as set
        forth in the table on the cover page of the Final Offering
        Memorandum.

      


      The
        relative fault of the Company, on the one hand, and the Initial Purchasers,
        on
        the other hand, shall be determined by reference to, among other things,
        whether
        any such untrue or alleged untrue statement of a material fact or omission
        or
        alleged omission to state a material fact relates to information supplied
        by the
        Company or by the Initial Purchasers and the parties’ relative intent,
        knowledge, access to information and opportunity to correct or prevent such
        statement or omission.

      


      The
        Company and the Initial Purchasers agree that it would not be just and equitable
        if contribution pursuant to this Section were determined by pro rata allocation
        (even if the Initial Purchasers were treated as one entity for such purpose)
        or
        by any other method of allocation which does not take account of the equitable
        considerations referred to above in this Section. The aggregate amount of
        losses, liabilities, claims, damages and expenses incurred by an indemnified
        party and referred to above in this Section shall be deemed to include any
        legal
        or other expenses reasonably incurred and documented by such indemnified
        party
        in investigating, preparing or defending against any litigation, or any
        investigation or proceeding by any governmental agency or body, commenced
        or
        threatened, or any claim whatsoever based upon any such untrue or alleged
        untrue
        statement or omission or alleged omission.

      


      Notwithstanding
        the provisions of this Section, no initial Purchaser shall be required to
        contribute any amount in excess of the amount by which the total price at
        which
        the Securities purchased and sold by it hereunder exceeds the amount of any
        damages which such Initial Purchaser has otherwise been required to pay by
        reason of such untrue or alleged untrue statement or omission or alleged
        omission.


      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      


      No
        person
        guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
        of
        the 1933 Act) shall be entitled to contribution from any person who was not
        guilty of such fraudulent misrepresentation.

      


      For
        purposes of this Section, each person, if any, who controls any Initial
        Purchaser within the meaning of Section 15 of the 1933 Act or Section 20
        of the
        1934 Act and each Initial Purchaser’s Affiliates and selling agents shall have
        the same rights to contribution as such Initial Purchaser, and each person,
        if
        any, who controls the Company within the meaning of Section 15 of the 1933
        Act
        or Section 20 of the 1934 Act, and the Company’s Affiliates and agents shall
        have the same rights to contribution as the Company. The Initial Purchasers’
respective obligations to contribute pursuant to this Section are several
        in
        proportion to the principal amount of Securities set forth opposite their
        respective names in Schedule A hereto and not joint. The obligations of the
        Company and the Initial Purchasers pursuant to this Section 8 shall be in
        addition to any liability that the Company or the Initial Purchaser may
        otherwise have.

      


      SECTION
        9.    Representations,
        Warranties and Agreements to Survive.
        All
        representations, warranties and agreements contained in this Agreement or
        in
        certificates of officers of the Company or its subsidiary submitted pursuant
        hereto shall remain operative and in full force and effect, regardless of
        (i)
        any investigation made by or on behalf of any Initial Purchaser or its
        Affiliates or selling agents, any person controlling any Initial Purchaser,
        its
        officers or directors or any person controlling the Company and (ii) delivery
        of
        and payment for the Securities.

      


      SECTION
        10.    Termination
        of Agreement.
        

      


      (a)    Termination;
        General.
        Merrill
        Lynch may terminate this Agreement, by notice to the Company, at any time
        at or
        prior to Closing Time (i) if there has been, since the time of execution
        of this
        Agreement or since the date as of which information is given in the Preliminary
        Offering Memorandum, the Disclosure Package or the Final Offering Memorandum
        (exclusive of any amendments or supplements thereto subsequent to the date
        of
        this Agreement), any material adverse change in the condition, financial
        or
        otherwise, or in the earnings, business affairs or business prospects of
        the
        Company and its subsidiary considered as one enterprise, whether or not arising
        in the ordinary course of business, such as to make it, in the judgment of
        Merrill Lynch, impracticable or inadvisable to market the Securities on the
        terms and in the manner contemplated by the Disclosure Package or the Final
        Offering Memorandum, or (ii) if there has occurred any material adverse
        change in the financial markets in the United States or the international
        financial markets, any outbreak of hostilities or escalation thereof or other
        calamity or crisis or any change or development involving a prospective change
        in national or international political, financial or economic conditions,
        in
        each case the effect of which is such as to make it, in the judgment of Merrill
        Lynch, impracticable or inadvisable to market the Securities on the terms
        and in
        the manner contemplated by the Disclosure Package or the Final Offering
        Memorandum or to enforce contracts for the sale of the Securities, or (iii)
        if
        trading in any securities of the Company has been suspended or materially
        limited by the Commission or NASDAQ, or if trading generally on the American
        Stock Exchange or the New York Stock Exchange or in NASDAQ has been suspended
        or
        materially limited, or minimum or maximum prices for trading have been fixed,
        or
        maximum ranges for prices have been required, by any of said exchanges or
        by
        such system or by order of the Commission, NASD or any other governmental
        authority, or (iv) a material disruption has occurred in commercial banking
        or
        securities settlement or clearance services in the United States, or (v)
        if a
        banking moratorium has been declared by either Federal or New York
        authorities.


      
        
          
          

        

        
          23

          
            

          

        

        
          
          

        

      


      (b)    Liabilities.
        If this
        Agreement is terminated pursuant to this Section, such termination shall
        be
        without liability of any party to any other party except as provided in Section
        4 hereof, and provided further that Sections 1, 7, 8 and 9 shall survive
        such
        termination and remain in full force and effect.

       

      SECTION
        11.    Default
        by Initial Purchaser.
        If any
        Initial Purchaser shall fail at Closing Time to purchase the Securities which
        it
        is obligated to purchase under this Agreement (the “Defaulted Securities”),
        Merrill Lynch shall have the right, within 24 hours thereafter, to make
        arrangements for the non-defaulting Initial Purchaser to purchase all, but
        not
        less than all, of the Defaulted Securities in such amounts as may be agreed
        upon
        and upon the terms herein set forth; if, however, Merrill Lynch shall not
        have
        completed such arrangements within such 24-hour period, then:

      


      (a)    if
        the
        number of Defaulted Securities does not exceed 10% of the aggregate principal
        amount of the Securities to be purchased hereunder, the non-defaulting Initial
        Purchaser shall be obligated to purchase the full amount thereof,
        or

      


      (b)    if
        the
        number of Defaulted Securities exceeds 10% of the aggregate principal amount
        of
        the Securities to be purchased hereunder, this Agreement shall terminate
        without
        liability on the part of the non-defaulting Initial Purchaser.

      


      No
        action
        taken pursuant to this Section shall relieve the defaulting Initial Purchaser
        from liability in respect of its default.

      


      In
        the
        event of any such default which does not result in a termination of this
        Agreement, either Merrill Lynch or the Company shall have the right to postpone
        Closing Time for a period not exceeding seven days in order to effect any
        required changes in the Offering Memorandum or in any other documents or
        arrangements. As used herein, the term “Initial Purchaser” includes any person
        substituted for an Initial Purchaser under this Section.

      


      SECTION
        12.    Tax
        Disclosure.
        Notwithstanding any other provision of this Agreement, immediately upon
        commencement of discussions with respect to the transactions contemplated
        hereby, the Company (and each employee, representative or other agent of
        the
        Company) may disclose to any and all persons, without limitation of any kind,
        the tax treatment and tax structure of the transactions contemplated by this
        Agreement and all materials of any kind (including opinions or other tax
        analyses) that are provided to the Company relating to such tax treatment
        and
        tax structure. For purposes of the foregoing, the term “tax treatment” is the
        purported or claimed federal income tax treatment of the transactions
        contemplated hereby, and the term “tax structure” includes any fact that may be
        relevant to understanding the purported or claimed federal income tax treatment
        of the transactions contemplated hereby.

      


      SECTION
        13.    Notices.
        All
        notices and other communications hereunder shall be in writing and shall
        be
        deemed to have been duly given if mailed or transmitted by any standard form
        of
        telecommunication. Notices to the Initial Purchasers shall be directed to
        Merrill Lynch at 4 World Financial Center, New York, New York 10080, attention
        of Sam Thong (Facsimile: (212) 449-7171); and notices to the Company shall
        be
        directed to it at New River Pharmaceuticals Inc., 1881 Grove Avenue, Radford,
        VA
        24141, attention of Randal J. Kirk, Chairman of the Board, President and
        Chief
        Executive Officer (Facsimile: (540) 633-7939), with a copy to Hunton &
Williams LLP, Riverfront Plaza, East Tower, 951 East Byrd Street, Richmond,
        Virginia 23219, attention of David I. Meyers, Esq. (Facsimile: (804)
        788-8218).


      
        
          
          

        

        
          24

          
            

          

        

        
          
          

        

      


      SECTION
        14.    No
        Advisory or Fiduciary Relationship.
        The
        Company acknowledges and agrees that (a) the purchase and sale of the Securities
        pursuant to this Agreement, including the determination of the offering price
        of
        the Securities and any related discounts and commissions, is an arm’s-length
        commercial transaction between the Company, on the one hand, and the Initial
        Purchasers, on the other hand, (b) in connection with the offering contemplated
        hereby and the process leading to such transaction each Initial Purchaser
        is and
        has been acting solely as a principal and is not the agent or fiduciary of
        the
        Company, or its shareholders, creditors, employees or any other party, (c)
        no
        Initial Purchaser has assumed or will assume an advisory or fiduciary
        responsibility in favor of the Company with respect to the offering contemplated
        hereby or the process leading thereto (irrespective of whether such Initial
        Purchaser has advised or is currently advising the Company on other matters)
        and
        no Initial Purchaser has any obligation to the Company with respect to the
        offering contemplated hereby except the obligations expressly set forth in
        this
        Agreement, (d) the Initial Purchasers and their respective Affiliates may
        be
        engaged in a broad range of transactions that involve interests that differ
        from
        those of each of the Company, and (e) the Initial Purchasers have not provided
        any legal, accounting, regulatory or tax advice with respect to the offering
        contemplated hereby and the Company has consulted its own legal, accounting,
        regulatory and tax advisors to the extent it deemed appropriate. 

      


      SECTION
        15.    Integration.
        This
        Agreement supersedes all prior agreements and understandings (whether written
        or
        oral) between the Company and the Initial Purchasers, or any of them, with
        respect to the subject matter hereof. 

      


      SECTION
        16.    Parties.
        This
        Agreement shall inure to the benefit of and be binding upon the Initial
        Purchasers and the Company and their respective successors. Nothing expressed
        or
        mentioned in this Agreement is intended or shall be construed to give any
        person, firm or corporation, other than the Initial Purchasers and the Company
        and their respective successors and the controlling persons and officers
        and
        directors referred to in Sections 7 and 8 and their heirs and legal
        representatives, any legal or equitable right, remedy or claim under or in
        respect of this Agreement or any provision herein contained. This Agreement
        and
        all conditions and provisions hereof are intended to be for the sole and
        exclusive benefit of the Initial Purchasers and the Company and their respective
        successors, and said controlling persons and officers and directors and their
        heirs and legal representatives, and for the benefit of no other person,
        firm or
        corporation. No purchaser of Securities from any Initial Purchaser shall
        be
        deemed to be a successor by reason merely of such purchase.

      


      SECTION
        17.    GOVERNING
        LAW.
        THIS
        AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
        OF THE
        STATE OF NEW YORK (INCLUDING SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK
        GENERAL OBLIGATIONS LAW BUT EXCLUDING ALL OTHER CHOICE OF LAW AND CONFLICT
        OF
        LAW RULES).

      


      SECTION
        18.    TIME.
        TIME
        SHALL BE OF THE ESSENCE OF THIS AGREEMENT. EXCEPT AS OTHERWISE SET FORTH
        HEREIN,
        SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.

      


      SECTION
        19.    Counterparts.
        This
        Agreement may be executed in any number of counterparts, each of which shall
        be
        deemed to be an original, but all such counterparts shall together constitute
        one and the same Agreement.

      


      SECTION
        20.    Effect
        of Headings.
        The
        Section headings herein are for convenience only and shall not affect the
        construction hereof.


      
        
          
          

        

        
          25

          
            

          

        

        
          
          

        

      


      If
        the
        foregoing is in accordance with your understanding of our agreement, please
        sign
        and return to the Company a counterpart hereof, whereupon this instrument,
        along
        with all counterparts, will become a binding agreement between the Initial
        Purchaser and the Company in accordance with its terms.

      


      
        	 	
                Very
                  truly yours,

              
	 	 	 	 
	 	
                NEW
                  RIVER PHARMACEUTICALS INC. 

              
	 	 	 	 
	 	 	 	 
	 	
                By

              	
                /s/
                  Krish S. Krishnan

              
	 	 	
                Name: 
                  

              	
                Krish
                  S. Krishnan

              
	 	 	
                Title:

              	
                Chief
                  Operating Officer, Chief Financial

              
	 	 	 	
                Officer
                  and Secretary

              


      

      


      


      CONFIRMED
        AND ACCEPTED,

      as
        of the
        date first above written:

      


      


      MERRILL
        LYNCH & CO.

      MERRILL
        LYNCH, PIERCE, FENNER & SMITH

      INCORPORATED

      


      


      


      
        	
                By

              	
                /s/
                  Samuel Thong

              	 
	 	
                Name: 
                  

              	
                Samuel
                  Thong

              	 
	 	
                Title:

              	
                Director

              	 


      

      


      For
        itself and as representative of the other Initial Purchaser named in
        Schedule A hereto.

      

        
          
            
            

          

          
            26

            
              

            

          

          
            
            

            
            

          

        

      

       

      SCHEDULE
        A

       

      
        	 	 	
                Principal
                  Amount of Securities

              	 
	
                Name
                  of Initial Purchaser

              	 	 	 
	 	 	 	 
	
                Merrill
                  Lynch Pierce, Fenner & Smith Incorporated

              	 	
                $

              	
                112,500,000

              	 
	
                W.R.
                  Hambrecht + Co., LLC

              	 	
                $

              	
                12,500,000

              	 
	 	 	 	 	 
	
                Total

              	 	
                $

              	
                125,000,000

              	 


      

      


      
        
          
          

        

        
          Sch
            A-1

          
            

          

        

        
          
          

        

      


      SCHEDULE
        B

      


      Pricing
        Term Sheet

      


       

      


      


      **QIBS
        ONLY** 

      


      **APPROVED
        FOR EXTERNAL USE**

      


      ~
        125,000,000 144A Subordinated Convertible Notes Due 2013 Pricing
        ~

      


      


      


      [New
        River Pharmaceuticals Inc. Logo]

      


      New
        River Pharmaceuticals Inc. 

      


      (NRPH/NASDAQ)

      


      Issuer: New
        River
        Pharmaceuticals Inc

      


      Ticker/Exchange: (NRPH/NASDAQ)

      


      Gross
        Proceeds: $125,000,000

      


      Overallotment: $18,750,000

      


      Net
        Proceeds: Approximately
        $120.9 million after deducting initial purchasers’ discounts, commissions and
        offering expenses (or approximately $139.1 million if the initial purchasers
        exercise in full their overallotment option to purchase additional
        notes)

      


      144A
        Subordinated Convertible Notes Due 2013:

      


      Issue
        Price:
        $1,000.00

      


      Principal
        Amount per Note:
        $1,000

      


      Maturity:
        August
        1, 2013

      


      Yield: 
        3.50%
        per annum

      


      Conversion
        Premium: 25.0%


      
        
          
          

        

        
          Sch
            B-1

          
            

          

        

        
          
          

        

      


      Last
        Sale (7/19/2006): $27.51

      


      Conversion
        Price: $34.39

      


      Conversion
        Rate: 29.0803*

      


      Conversion
        Rate Cap: 36.3504

      


      *
        Subject to anti-dilution adjustments

      


      Contingent
        Conversion Trigger: 120%
        of
        the initial conversion price per share of common stock (Initially
        $41.27)

      


      Conversion
        During Month Prior to Maturity:A
        holder
        may convert its notes at any time on or after 7/1/13 through the close of
        business on the business day preceding the maturity date.

      


      Conversion
        Reference Period: For
        notes
        that are converted during the one month period prior to the maturity date
        of the
        notes, the 20 consecutive trading days preceding and ending on the maturity
        date; and in all other instances, the 20 consecutive trading days beginning
        on
        the third trading day following the conversion date.

      


      Interest
        Pay Dates:
        8/1
& 2/1 beginning 2/1/07

      


      Adjustment
        to Conversion Rate Upon a Fundamental Change: In
        the
        event of a fundamental change, a holder may elect to convert its notes and
        New
        River Pharmaceuticals will pay a make-whole premium by increasing the conversion
        rate applicable to such notes, as set forth in the offering
        memorandum.


      
        
          
          

        

        
          Sch
            B-2

          
            

          

        

        
          
          

        

      


      Make-whole
        premium upon Fundamental Change (Increase in Applicable Conversion
        Rate)

       

      
        
          	 	 	 	
                  7/25/2006 

                	 	
                  8/1/2007 

                	 	
                  8/1/2008 

                	 	
                  8/1/2009 

                	 	
                  8/1/2010 

                	 	
                  8/1/2011 

                	 	
                  8/1/2012 

                	 	
                  8/1/2013 

                
	 	
                  $27.51 

                	 	
                  7.2701

                	 	
                  7.2701

                	 	
                  7.2701

                	 	
                  7.2701

                	 	
                  7.2701

                	 	
                  7.2701

                	 	
                  7.2701

                	 	
                  0.0000

                
	 	
                  $30.00 

                	 	
                  6.4242

                	 	
                  6.0129

                	 	
                  5.5821

                	 	
                  5.1448

                	 	
                  4.6931

                	 	
                  4.2653

                	 	
                  3.8851

                	 	
                  0.0000

                
	
                  Stock

                	
                  $35.00 

                	 	
                  5.2363

                	 	
                  4.8089

                	 	
                  4.3385

                	 	
                  3.8259

                	 	
                  3.2444

                	 	
                  2.5896

                	 	
                  1.7646

                	 	
                  0.0000

                
	
                  Price

                	
                  $40.00 

                	 	
                  4.4492

                	 	
                  4.0412

                	 	
                  3.586

                	 	
                  3.0813

                	 	
                  2.5007

                	 	
                  1.8358

                	 	
                  1.0159

                	 	
                  0.0000

                
	
                  on

                	
                  $45.00 

                	 	
                  3.8929

                	 	
                  3.5093

                	 	
                  3.0857

                	 	
                  2.6158

                	 	
                  2.0771

                	 	
                  1.4687

                	 	
                  0.7611

                	 	
                  0.0000

                
	
                  Effective

                	
                  $50.00 

                	 	
                  3.4815

                	 	
                  3.1278

                	 	
                  2.7365

                	 	
                  2.3041

                	 	
                  1.8141

                	 	
                  1.2658

                	 	
                  0.6559

                	 	
                  0.0000

                
	
                  Date

                	
                  $75.00 

                	 	
                  2.3061

                	 	
                  2.0644

                	 	
                  1.7957

                	 	
                  1.5020

                	 	
                  1.1816

                	 	
                  0.8242

                	 	
                  0.4320

                	 	
                  0.0000

                
	 	
                  $100.00 

                	 	
                  1.7244

                	 	
                  1.5502

                	 	
                  1.3454

                	 	
                  1.1249

                	 	
                  0.8858

                	 	
                  0.6177

                	 	
                  0.3238

                	 	
                  0.0000

                
	 	
                  $150.00 

                	 	
                  1.1521

                	 	
                  1.0352

                	 	
                  0.8959

                	 	
                  0.7487

                	 	
                  0.5898

                	 	
                  0.4110

                	 	
                  0.2152

                	 	
                  0.0000

                
	 	
                  $200.00 

                	 	
                  0.8663

                	 	
                  0.7783

                	 	
                  0.6716

                	 	
                  0.5597

                	 	
                  0.4414

                	 	
                  0.3073

                	 	
                  0.1605

                	 	
                  0.0000

                
	 	
                  $250.00 

                	 	
                  0.6933

                	 	
                  0.6236

                	 	
                  0.5362

                	 	
                  0.4464

                	 	
                  0.3519

                	 	
                  0.2440

                	 	
                  0.1269

                	 	
                  0.0000

                
	 	
                  $300.00 

                	 	
                  0.5795

                	 	
                  0.5205

                	 	
                  0.4464

                	 	
                  0.3711

                	 	
                  0.2921

                	 	
                  0.2017

                	 	
                  0.1036

                	 	
                  0.0000

                


        

      

       

      Put
        Dates:
        None

      


      Registration: 144A
        with
        Registration Rights

      


      Dividend
        Protection:
        Anti-dilution protection via a conversion rate adjustment. 

      


      Fundamental
        Change Permits Purchase of Notes by New River Pharmaceuticals at the Option
        of
        the Holder:
        In the
        event of a fundamental change, each holder has the right to require New River
        Pharmaceuticals to purchase for cash all or any portion of the holder’s notes at
        a price equal to 100% of the principal amount of notes to be purchased, plus
        accrued and unpaid interest.

      


      Consideration
        Received Upon Merger: In
        the
        event New River Pharmaceuticals is a party to a consolidation, merger, binding
        share exchange, transfer or lease of all or substantially all of its assets,
        settlement of the conversion value will be based on the kind and amount of
        cash,
        securities or other assets that a New River Pharmaceuticals common shareholder
        received in the transaction. In the event that New River Pharmaceuticals
        common
        shareholders have the opportunity to elect the form of consideration to be
        received in such transaction, then from and after the effective date of such
        transaction, the notes will be convertible into the consideration that a
        majority of the New River Pharmaceuticals common shareholders who made such
        an
        election received in such transaction.


      
        
          
          

        

        
          Sch
            B-3

          
            

          

        

        
          
          

        

      


      Trade
        Date: 7/19/2006

      


      Settlement
        Date: 7/25/2006

      


      144A
        CUSIP: 648468AA4

      


      Sole-Bookrunner: Merrill
        Lynch 

      


      Co-Manager:
        WR
        Hambrecht

      


      You
        should rely only on the information contained or incorporated by reference
        in
        the preliminary offering memorandum dated July 18, 2006, as supplemented
        by this
        final pricing term sheet in making an investment decision with respect to
        these
        securities. 

      


      New
        River Pharmaceuticals Inc is a specialty pharmaceutical company that develops
        generational improvements
        of prescribed drugs 

      


      **QIBS
        ONLY**

      


      **APPROVED
        FOR EXTERNAL USE**

      


      The
        information in this Pricing Supplement supplements the Preliminary Offering
        Memorandum and supersedes the information in the Preliminary Offering Memorandum
        to the extent inconsistent with the information in the Preliminary Offering
        Memorandum. This Pricing Supplement is qualified in its entirety by reference
        to
        the Preliminary Offering Memorandum. Capitalized terms not defined herein
        shall
        have the respective meanings as set forth in the Preliminary Offering
        Memorandum.

      


      These
        securities have not been registered under the Securities Act of 1933, as
        amended, and may not be offered or sold in the United States or under any
        state
        securities laws absent registration or an applicable exemption from registration
        requirements. For details about eligible offers, deemed representations and
        agreements by investors and transfer restrictions, see “Transfer Restrictions”
in the Preliminary Offering Memorandum.

      


      This
        Pricing Supplement and any offer if made subsequently is directed only at
        persons in member states of the European Economic Area who are “qualified
        investors” within the meaning of Article 2(1)(e) of the Prospectus Directive
        (Directive 2003/71/EC) (“Qualified Investors”). Any person in the EEA who
        acquires the securities in any offer (an “investor”) or to whom any offer of the
        securities is made will be deemed to have represented and agreed that it
        is a
        Qualified Investor. Any investor will also be deemed to have represented
        and
        agreed that any securities acquired by it in the offer have not been acquired
        on
        behalf of persons in the EEA other than Qualified Investors or persons in
        the UK
        and other member states (where equivalent legislation exists) for whom the
        investor has authority to make decisions on a wholly discretionary basis,
        nor
        have the securities been acquired with a view to their offer or resale in
        the
        EEA to persons where this would result in a requirement for publication by
        the
        company, Merrill Lynch International (“MLI”) or any other manager of a
        prospectus pursuant to Article 3 of the Prospectus Directive. The company,
        MLI
        and their affiliates, and others will rely upon the truth and accuracy of
        the
        foregoing representations and agreements.

      


      


      ANY
        DISCLAIMERS OR OTHER NOTICES THAT MAY APPEAR BELOW ARE NOT APPLICABLE TO
        THIS
        COMMUNICATION AND SHOULD BE DISREGARDED. SUCH DISCLAIMERS OR OTHER NOTICES
        WERE
        AUTOMATICALLY GENERATED AS A RESULT OF THIS COMMUNICATION BEING SENT VIA
        BLOOMBERG OR ANOTHER EMAIL SYSTEM

      


      
        
          
          

        

        
          Sch
            B-4

          
            

          

        

        
          
          

        

      


      SCHEDULE
        C

      


      List
        of
        Directors and Executive Officers 

      of
        the
        Company Subject to Lock-Up

      


       

      


      Randal
        Kirk

      Krish
        Krishman

      Suma
        Krishman

      Burton
        Sobel

      David
        Barlow

      John
        Thottathil

      Larry
        Horner

      Cesar
        Alvarez

       

      
        
          
          

        

        
          Sch
            C-1

          
            

          

        

        
          
          

        

      

       

      Exhibit
        A-1

      


      FORM
        OF
        OPINION OF COMPANY’S COUNSEL

      TO
        BE
        DELIVERED PURSUANT TO

      SECTION
        5(a)(1)

      


      (i)    The
        Company has been duly incorporated and is validly existing as a corporation
        in
        good standing under the laws of the Commonwealth of Virginia, with corporate
        power and authority to own, lease and operate its properties and to conduct
        its
        business as described in the Offering Memorandum and to enter into and perform
        its obligations under the Purchase Agreement.

      


      (ii)    The
        Company is duly qualified as a foreign corporation to transact business and
        is
        in good standing in the States of New Jersey and Tennessee and the Commonwealth
        of Virginia.

      


      (iii)   The
        authorized, issued and outstanding capital stock of the Company is as set
        forth
        in the Offering Memorandum in the column entitled “Actual” under the caption
“Capitalization” (except for subsequent issuances, if any, pursuant to the
        Purchase Agreement or pursuant to reservations, agreements, employee benefit
        plans or the exercise of convertible securities or options referred to in
        the
        Offering Memorandum); the shares of issued and outstanding capital stock
        of the
        Company have been duly authorized and validly issued and are fully paid and
        non-assessable; and none of the outstanding shares of capital stock of the
        Company was issued in violation of the preemptive or other similar rights
        of any
        securityholder of the Company under the Virginia Stock Corporation Act (the
        “VSCA”), the Company’s Amended and Restated Articles of Incorporation (the
“Articles of Incorporation”) or Amended and Restated Bylaws (the “Bylaws”) or,
        to such counsel’s knowledge, contractual preemptive or similar
        rights.

      


      (iv)   The
        Purchase Agreement has been duly authorized, executed and delivered by the
        Company.

      


      (v)    The
        Indenture has been duly authorized, executed and delivered by the Company
        and
        (assuming the due authorization, execution and delivery thereof by the Trustee)
        constitutes a valid and binding agreement of the Company, enforceable against
        the Company in accordance with its terms, except as the enforcement thereof
        may
        be limited by bankruptcy, insolvency (including, without limitation, all
        laws
        relating to fraudulent transfers), reorganization, moratorium or other similar
        laws relating to or affecting enforcement of creditors’ rights generally, or by
        general principles of equity (regardless of whether enforcement is considered
        in
        a proceeding in equity or at law).

      


      (vi)   The
        Registration Rights Agreement has been duly authorized, executed and delivered
        by the Company and constitutes a valid and binding agreement of the Company,
        enforceable against the Company in accordance with its terms, except as the
        enforcement thereof may be limited by bankruptcy, insolvency (including,
        without
        limitation, all laws relating to fraudulent transfers), reorganization,
        moratorium or other similar laws relating to or affecting enforcement of
        creditors’ rights generally, or by general principles of equity (regardless of
        whether enforcement is considered in a proceeding in equity or at
        law).

      


      (vii)   The
        Securities are in the form contemplated by the Indenture, have been duly
        authorized by the Company and, when executed by the Company and authenticated
        by
        the Trustee in the manner provided in the Indenture (assuming the due
        authorization, execution and delivery of the Indenture by the Trustee) and
        issued and delivered against payment of the purchase price therefor, will
        constitute valid and binding obligations of the Company, enforceable against
        the
        Company in accordance with their terms, except as the enforcement thereof
        may be
        limited by bankruptcy, insolvency, reorganization, moratorium (including,
        without limitation, all laws relating to fraudulent transfers), or other
        similar
        laws relating to or affecting enforcement of creditor’s rights generally, or by
        general principles of equity (regardless of whether enforcement is considered
        in
        a proceeding in equity or at law), and will be entitled to the benefits of
        the
        Indenture.


      
        
          
          

        

        
          A-1-1

          
            

          

        

        
          
          

        

      


      (viii)  
          Upon
        issuance and delivery of the Securities in accordance with the Purchase
        Agreement and the Indenture, the Securities shall be convertible at the option
        of the holder thereof for shares of Common Stock in accordance with the terms
        of
        the Securities and the Indenture; the shares of Common Stock issuable upon
        conversion of the Securities have been duly authorized and, as of the Closing
        Time, reserved for issuance upon such conversion by all necessary corporate
        action; such shares, when issued upon such conversion and assuming that at
        the
        time of such issuance the Company has a sufficient number of authorized and
        unissued shares of Common Stock available therefor, will be validly issued
        and
        will be fully paid and non-assessable and no holder of such Common Stock
        is or
        will be subject to personal liability by reason of being such a
        holder.

      


      (ix)   The
        issuance of the shares of Common Stock upon conversion of the Securities
        is not
        subject to the preemptive or other similar rights of any securityholder of
        the
        Company under the VSCA, the Articles of Incorporation or the Bylaws or, to
        such
        counsel’s knowledge, contractual preemptive or similar rights.

      


      (x)    The
        information included in the Preliminary Offering Memorandum and Final Offering
        Memorandum under the caption “Description of Notes,” to the extent that it
        constitutes matters of law, summaries of legal matters, documents referred
        to
        therein or legal conclusions, has been reviewed by us and fairly summarizes
        the
        matters set forth therein in all material respects.

      


      (xi)    The
        information included in the Preliminary Offering Memorandum and Final Offering
        Memorandum under the caption “Description Of Capital Stock,” to the extent that
        it constitutes matters of law, summaries of legal matters, documents referred
        to
        therein or legal conclusions, has been reviewed by us and fairly summarizes
        the
        matters set forth therein in all material respects.

      


      (xii)   The
        Securities and the Indenture conform in all material respects to the
        descriptions thereof contained in the Offering Memorandum.

      


      (xiii)   The
        documents incorporated by reference in the Offering Memorandum (other than
        the
        financial statements and supporting schedules and other financial data therein,
        as to which no opinion need be rendered), when they were filed with the
        Commission complied as to form in all material respects with the requirements
        of
        the 1934 Act and the rules and regulations of the Commission
        thereunder.

      


      (xiv)   To
        our
        knowledge, there is not pending or threatened any action, suit, proceeding,
        inquiry or investigation, to which the Company or its subsidiary is a party,
        or
        to which the property of the Company or its subsidiary is subject, before
        or
        brought by any federal, Virginia or New York court or governmental agency
        or
        body, which would reasonably be expected to result in a Material Adverse
        Effect,
        or which would reasonably be expected to materially and adversely affect
        the
        properties or assets thereof or the consummation of the transactions
        contemplated in the Purchase Agreement or the performance by the Company
        of its
        obligations thereunder or the transactions contemplated by the Offering
        Memorandum.

      


      (xv)    The
        statements set forth in the Preliminary Offering Memorandum and the Final
        Offering Memorandum under the caption “Certain U.S. Federal Income Tax
        Considerations,” insofar as such statements purport to summarize matters of U.S.
        federal income and estate tax laws or legal conclusions with respect thereto,
        and subject to the limitations, qualifications and assumptions set forth
        therein, fairly summarize the matters set forth therein.


      
        
          
          

        

        
          A-1-2

          
            

          

        

        
          
          

        

      


      (xvi)   All
        descriptions in the Offering Memorandum of contracts and other documents
        to
        which the Company or its subsidiary are a party are accurate in all material
        respects; to our knowledge, there are no franchises, contracts, indentures,
        mortgages, loan agreements, notes, leases or other instruments that would
        be
        required to be described or referred to in the Offering Memorandum that are
        not
        described or referred to in the Offering Memorandum other than those described
        or referred to therein or incorporated by reference thereto, and the
        descriptions thereof or references thereto are correct in all material
        respects.

      


      (xvii)   In
        reliance upon the representations and warranties of the Company and the Initial
        Purchasers in the Purchase Agreement, no filing with, or authorization,
        approval, consent, license, order, registration, qualification or decree
        of, any
        federal, Virginia or New York court or governmental authority or agency
        (“Governmental Approvals”) is necessary or required in connection with the due
        authorization, execution and delivery of the Purchase Agreement or the due
        execution, delivery or performance of the Indenture and the Registration
        Rights
        Agreement by the Company or for the offering, issuance, sale or delivery
        of the
        Securities to the Initial Purchasers or the initial resale of the Securities
        by
        the Initial Purchasers, in each case, in accordance with the terms of the
        Purchase Agreement, except for such Governmental Approvals that shall have
        been
        obtained or made prior to the Closing Time or as may be required by the
        securities or blue sky laws of the various states in which the Securities
        will
        be offered or sold, the 1933 Act with respect to the registration of the
        resale
        of the Securities under the 1933 Act pursuant to the Registration Rights
        Agreement and the Trust Indenture Act of 1939, it being understood that no
        opinion is expressed as to any resale of Securities subsequent to the resales
        thereof by the Initial Purchasers.

      


      (xviii)   In
        reliance upon the representations and warranties of the Company and the Initial
        Purchasers in the Purchase Agreement, it is not necessary in connection with
        the
        offer, sale and delivery of the Securities to the Initial Purchasers or in
        connection with the initial resale of the Securities by the Initial Purchasers,
        in each case, in the manner contemplated by the Purchase Agreement and the
        Offering Memorandum to register the Securities under the 1933 Act or to qualify
        the Indenture under the Trust Indenture Act of 1939, it being understood
        that no
        opinion is expressed as to any resale of Securities subsequent to the resales
        thereof by the Initial Purchasers.

      


      (xix)    The
        execution, delivery and performance of the Purchase Agreement, the Indenture,
        the Registration Rights Agreement and the Securities and the consummation
        of the
        transactions contemplated in the Purchase Agreement and in the Offering
        Memorandum (including the use of the proceeds from the sale of the Securities
        as
        described in the Offering Memorandum under the caption “Use Of Proceeds”) and
        compliance by the Company with its obligations under the Purchase Agreement,
        the
        Indenture, the Registration Rights Agreement and the Securities do not and
        will
        not, whether with or without the giving of notice or lapse of time or both,
        violate or constitute a breach of, or default or Repayment Event under or
        result
        in the creation or imposition of any lien, charge or encumbrance upon any
        property or assets of the Company or its subsidiary thereof pursuant to any
        contract, indenture, mortgage, deed of trust, loan or credit agreement, note,
        lease or any other agreement or instrument, known to us, to which the Company
        or
        its subsidiary is a party or by which it or any of them may be bound, or
        to
        which any of the property or assets of the Company or its subsidiary is subject
        (except for such violation, breaches, defaults or Repayment Events or liens,
        charges or encumbrances that would not have a Material Adverse Effect), nor
        will
        such action result in any violation of the provisions of the charter or by-laws
        of the Company or its subsidiary, or any applicable law, statute, rule,
        regulation, judgment, order, writ or decree, known to us, of any federal,
        Virginia or New York government, government instrumentality or court having
        jurisdiction over the Company or its subsidiary or any of their respective
        properties, assets or operations.


      
        
          
          

        

        
          A-1-3

          
            

          

        

        
          
          

        

      


      (xx)    The
        Company is not required, and after giving effect to the issuance and sale
        of the
        Securities and the application of the net proceeds therefrom as described
        in the
        Offering Memorandum will not be required to, register as “investment company”
under the 1940 Act.

      


      Nothing
        has come to our attention that would lead us to believe that (1) the Disclosure
        Package (except for the financial statements and schedules and other financial
        data included or incorporated by reference therein or omitted therefrom,
        as to
        which we need make no statement), as of the Applicable Time, included any
        untrue
        statement of a material fact or omitted to state any material fact necessary
        in
        order to make the statements therein, in the light of circumstances under
        which
        they were made, not misleading or (2) that the Offering Memorandum (except
        for
        financial statements and schedules and other financial data included or
        incorporated by reference therein or omitted therefrom as to which we need
        make
        no statement), as of the date of the Offering Memorandum or at Closing Time,
        included or includes an untrue statement of a material fact or omitted or
        omits
        to state a material fact necessary in order to make the statements therein,
        in
        the light of the circumstances under which they were made, not
        misleading.

      


      
        
          
          

        

        
          A-1-4

          
            

          

        

        
          
          

        

      


      Exhibit A-2

      


      FORM
        OF
        OPINION OF COMPANY’S PATENT COUNSEL

      TO
        BE
        DELIVERED PURSUANT TO

      SECTION 5(a)(2)

      


      1.    The
        information contained in the Offering Memorandum and the Form 10-K relating
        to
        patents or proprietary rights (the “Patents and Proprietary Rights”) under the
        heading “RISK FACTORS — Risks Related to the Business — We may be involved in
        lawsuits to protect or enforce our patents, which could be expensive and
        time-consuming”;“ — If we fail to protect our intellectual property rights, our
        ability to pursue the development of our technologies and products would
        be
        negatively affected”; “ — We have not commissioned an extensive investigation
        concerning our freedom to practice or the validity or enforceability of our
        Carrierwave technology and have only recently commissioned an investigation
        concerning our freedom to practice or the validity or the enforceability
        for our
        product candidates, and we may be held to infringe the intellectual property
        rights of others”; “BUSINESS — Patents and Proprietary Rights” and “BUSINESS -
        Strategy - Seeking Intellectual Property Protection for Our Platform and
        Drug
        Candidates”, in each case to the extent that such information constitutes
        matters of the federal laws of the United States (collectively, “the
“Intellectual Property Information”), as of the date of the Form 10-K, the
        Offering Memorandum and as of the date hereof, are complete statements or
        summaries of the matters therein set forth in all material respects and present
        fairly the information therein set forth in all material respects.

      


      2.    To
        our
        knowledge, attached hereto at Exhibit A is a true and correct copy of all
        patents and patent applications held in the name of the Company and/or being
        prosecuted by or on behalf of the Company (the "Company Patents"). To our
        knowledge, the Company is the exclusive owner of all right, title, and interest
        in the Company Patents; all such Company Patents have been properly prepared
        as
        to form and to our knowledge have been assigned solely to the Company, which
        assignments are either recorded in the U.S. Patent and Trademark Office or
        other
        foreign patent office specified in Exhibit A, as applicable, and to the extent
        identified in Exhibit A have been submitted for recording in the U.S. Patent
        and
        Trademark Office or such other foreign patent office, as applicable; and
        each of
        such pending Company Patents is being prosecuted by or on behalf of the
        Company.

      


      3.    To
        our
        knowledge, there are no legal or governmental proceedings (excepting official
        actions issued by the U.S. Patent and Trademark Office during ex
        parte
        prosecution of patent and trademark applications by the Company) adverse
        to the
        Company pending or threatened relating to the Patents and Proprietary
        Rights.

      


      4.    To
        our
        knowledge, no contracts or other documents, relating to the Patents and
        Proprietary Rights of the Company that are of a character required to be
        described in the Offering Memorandum, or to be filed as an exhibit to the
        Form
        10-K, have not been so described or filed as required.

      


      5.    To
        our
        knowledge, the Company is not infringing or otherwise violating, and the
        manufacture and sale of any product of the Company arising out of the Patents
        and Proprietary Rights in the manner described in the Offering Memorandum
        and
        Form 10-K, would not infringe or otherwise violate, any patents, trade secrets,
        trademarks, service marks or other proprietary information or materials of
        third
        parties.

      


      6.    We
        have
        no knowledge of any facts that would preclude the Company from having valid
        ownership or license rights, as applicable, to the Patents and Proprietary
        Rights; to our knowledge, there appear to be no patents held by third parties
        that would prevent the Company from manufacturing and selling products arising
        out of the Patents and Proprietary Rights in the manner described in the
        Offering Memorandum and Form 10-K, except as described in the Offering
        Memorandum and Form 10-K; and we have no knowledge of any facts which form
        a
        basis for a finding of unenforceability or invalidity of any of the Patents
        and
        Proprietary Rights.


      
        
          
          

        

        
          A-2-1

          
            

          

        

        
          
          

        

      


      7.    We
        have
        no knowledge of any fact with respect to the patent applications of the Company
        related to the Patents and Proprietary Rights presently on file that (i)
        would
        preclude the issuance of patents with respect to such applications, or (ii)
        would lead us to conclude that such patents, when issued, would not be valid
        and
        enforceable in accordance with applicable regulations.

      


      Nothing
        has come to our attention in the course of such discussions and reviews that
        leads us to believe that, (A) as of the Applicable Time, the
        Intellectual Property Information contained in
        the
        Disclosure Package included any untrue statement of a material fact or omitted
        to state any material fact necessary in order to make the statements therein,
        in
        the light of circumstances under which they were made, not misleading or
        (B)
        that the Intellectual Property Information contained in the Offering Memorandum
        or any amendment or supplement thereto, as of the date of the Offering
        Memorandum, as of the date of any such amended or supplemented Offering
        Memorandum or as of the date hereof, included or includes an untrue statement
        of
        a material fact or omitted or omits to state a material fact necessary in
        order
        to make the statements therein, in light of the circumstances under which
        they
        were made, not misleading.

      


      
        
          
          

        

        
          A-2-2

          
            

          

        

        
          
          

        

      


      Exhibit A-3

      


      FORM
        OF
        OPINION OF COMPANY’S REGULATORY COUNSEL

      TO
        BE
        DELIVERED PURSUANT TO

      SECTION
        5(a)(3)

      


      W
        are of
        the opinion that the statements (1) under the captions “Summary - Our Most
        Advanced Product Candidates”, “Risk Factor”-“If the FDA does not accept our
        filing for NRP290 under Section 505(b)(1) and we are unable to file for approval
        under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act or if
        we are
        required to generate additional data related to safety and efficacy in order
        to
        obtain approval under Section 505(b)(1) or 505(b)(2), we may be unable to
        meet
        our anticipated development and commercialization timelines”, “If the FDA
        requires that NRP104 be scheduled by the DEA before the product is commercially
        sold, we will be unable to begin commercial sale of that product until the
        DEA
        completes scheduling proceedings, and if NRP104 is scheduled by the DEA in
        Schedule II under the Controlled Substances Act (CSA), the potential market
        for
        the drug may be significantly reduced” and “Failure by our third-party
        manufacturers to comply with the regulatory guidelines set forth by the FDA
        and
        DEA with respect to our product candidates could delay or prevent the completion
        of clinical trials, the approval of any product candidates or the
        commercialization of our products” in the Offering Memorandum; and (2) under the
        captions “Business - Overview”, “Business - Our Solution”, “Business -
        Government Regulation,” “Risk Factor” - “We have received an observation from
        the FDA noting that we did not submit an IND before conducting certain clinical
        studies in 2001”, “If the FDA does not accept our filing under Section 505(b)(1)
        and we are unable to file for approval under Section 505(b)(2) of the Federal
        Food, Drug and Cosmetic Act or if we are required to generate additional
        data
        related to safety and efficacy in order to obtain approval under Section
        505(b)(1) or 505(b)(2), we may be unable to meet our anticipated development
        and
        commercialization timelines”, “If the FDA requires that NRP104 be scheduled by
        the DEA before the product is commercially sold, we will be unable to begin
        commercial sale of that product until the DEA completes scheduling proceedings,
        and if NRP104 is scheduled by the DEA in Schedule II under the Controlled
        Substances Act (CSA), the potential market for the drug may be significantly
        reduced” and “Failure by our third-party manufacturers to comply with the
        regulatory guidelines set forth by the FDA and DEA with respect to our product
        candidates could delay or prevent the completion of clinical trials, the
        approval of any product candidates or the commercialization of our products” in
        the Form 10-K (such sections in (1) and (2) above hereinafter referred to
        collectively as “The Regulatory Sections”), insofar as such statements purport
        to summarize applicable provisions of the FFDCA and the CSA and the regulations
        promulgated thereunder, are accurate summaries in all material respects of
        the
        requirements purported to be summarized under such captions in the Offering
        Memorandum or Form 10-K; as the case may be, and insofar as such statements
        state that the Company has filed an IND application for NRP 104, that the
        DEA
        has indicated that NRP 104 is not a scheduled substance at the present time
        and
        that the FDA issued an observation on Form FDA 483 relating to the Company’s
        conduct of pharmacokinetic studies on thyroid compounds in humans in 2001,
        are
        accurate summaries, in all material respects, of certain of the documents
        and
        correspondence that we reviewed relating to the status of the products and
        operations of the Company and present fairly the information therein set
        forth.


      
        
          
          

        

        
          A-3-1

          
            

          

        

        
          
          

        

      


      During
        the course of preparation of the Offering Memorandum and Form 10-K, we reviewed
        certain documents and correspondence provided to us by the Company, publicly
        available documents related to the Company, and participated in discussions
        with
        certain officers and employees of the Company, all with respect to the FDA
        and
        DEA regulatory matters dealt with in The Regulatory Sections. While we have
        not
        undertaken to determine independently, and we do not assume any responsibility
        for, the accuracy, completeness, or fairness of the statements under the
        above-referenced captions in the Offering Memorandum or Form 10-K, we may
        state
        on the basis of these discussions and review of documents and correspondence
        provided to us by the Company in connection with our review of the statements
        contained in such captioned sections that no facts have come to our attention
        that cause us to believe that the statements in The Regulatory Sections,
        insofar
        as such statements relate to FDA and DEA regulatory matters, as of the date
        hereof, contain an untrue statement of a material fact or omit to state a
        material fact necessary in order to make the statements therein, in the light
        of
        the circumstances under which they were made, not misleading.

      


      
        
          
          

        

        
          A-3-2

          
            

          

        

        
          
          

        

      


      Exhibit
        B

      


      FORM
        OF
        LOCK-UP

      


      The
        undersigned, a stockholder, and an officer and/or director of New River
        Pharmaceuticals Inc., a Virginia corporation (the “Company”),
        understands that Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated (“Merrill
        Lynch”),
        proposes to enter into a Purchase Agreement (the “Purchase
        Agreement”)
        with
        the Company, providing for the offering (the “Offering”),
        pursuant to Rule 144A under the Securities Act of 1933, as amended (the
“Securities
        Act”),
        of
        3.50% Convertible Subordinated Notes due 2013 of the Company. Capitalized
        terms
        used herein and not otherwise defined shall have the meanings set forth in
        the
        Purchase Agreement.

       

      In
        recognition of the benefit that the Offering will confer upon the undersigned
        as
        a stockholder, and an officer and/or director of the Company, and for other
        good
        and valuable consideration, the receipt and sufficiency of which are hereby
        acknowledged, the undersigned hereby agrees that, during a period of 90 days
        from the date of the Purchase Agreement, the undersigned will not, without
        the
        prior written consent of Merrill Lynch, directly or indirectly, (i) offer,
        pledge, sell, contract to sell, sell any option or contract to purchase,
        purchase any option or contract to sell, grant any option, right or warrant
        for
        the sale of, or otherwise dispose of or transfer any shares of the Company’s
        Common Stock or any securities convertible into or exchangeable or exercisable
        for Common Stock, whether now owned or hereafter acquired by the undersigned
        or
        with respect to which the undersigned has or hereafter acquires the power
        of
        disposition, or file, or cause to be filed, any registration statement under
        the
        Securities Act of 1933, as amended, with respect to any of the foregoing
        (collectively, the “Lock-Up
        Securities”)
        or
        (ii) enter into any swap or any other agreement or any transaction that
        transfers, in whole or in part, directly or indirectly, the economic consequence
        of ownership of the Lock-Up Securities, whether any such swap or transaction
        is
        to be settled by delivery of Common Stock or other securities, in cash or
        otherwise.

      


      Notwithstanding
        the foregoing, and subject to the conditions below, the undersigned may transfer
        the Lock-Up Securities without the prior written consent of Merrill Lynch,
        provided that (1) Merrill Lynch receives a signed lock-up agreement for the
        balance of the lock-up period from each donee, trustee, distributee, or
        transferee, as the case may be, (2) any such transfer shall not involve a
        disposition for value, (3) such transfers are not required to be reported
        in any
        public report or filing with the Securities and Exchange Commission, or
        otherwise and (4) the undersigned does not otherwise voluntarily effect any
        public filing or report regarding such transfers:

      


      (i)    as
        a
bona
        fide
        gift or
        gifts; or

      


      (ii)    to
        any
        trust the beneficiaries of which are exclusively the undersigned or a member
        of
        the immediate family of the undersigned, including grandchildren (to the
        extent
        consistent with the Securities Act and state securities laws); or

      


      (iii)   the
        transfer of Lock-Up Securities in satisfaction of the exercise of stock options
        outstanding on the date hereof.

       

      The
        undersigned also agrees and consents to the entry of stop transfer instructions
        with the Company’s transfer agent and registrar against the transfer of the
        Lock-Up Securities except in compliance with the foregoing
        restrictions.

       

       

      B-1