Exhibit 10.20


    
      

    

     

    
      	
              

               

            	
               

            
	Confirmation
              of OTC Warrant Transaction	 


    

    


    


    
      	
              Date:

            	
              July
                19, 2006

            


    

    


    
      	
              To: 

            	
              New
                River Pharmaceuticals Inc. (“Counterparty”)

            


    

    


    
      	
              From: 

            	
              Merrill
                Lynch International (“MLI”)
                

            


    

    


    MLI
      Reference: 06816057

     

    
      
        

      

    

     

    Dear
      Sir
      / Madam:

    


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

    


    The
      definitions and provisions contained in the 2000 ISDA Definitions (the
“Swap
      Definitions”)
      and
      the 2002 ISDA Equity Derivatives Definitions (the “Equity
      Definitions”
and,
      together with the Swap Definitions, the “Definitions”),
      in
      each case as published by the International Swaps and Derivatives Association,
      Inc., are incorporated into this Confirmation. In the event of any inconsistency
      between the Swap Definitions and the Equity Definitions, the Equity Definitions
      will govern, and in the event of any inconsistency between the Definitions
      and
      this Confirmation, this Confirmation will govern. References herein to a
“Transaction” shall be deemed to be references to a “Share Option Transaction”
for the purposes of the Equity Definitions and to a “Swap Transaction” for the
      purposes of the Swap Definitions.
      For
      purposes of this Transaction, “Warrant Style”, “Warrant Type”, “Number of
      Warrants” and “Warrant Entitlement” (each as defined below) shall be used herein
      as if such terms were referred to as “Option Style”, “Option Type”, “Number of
      Options” and “Option Entitlement”, respectively, in the
      Definitions.

    


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

    


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

    


    General
      Terms:

    


    
      	
              Trade
                Date:

            	
              July
                19, 2006

            


    

    


    
      	
              Effective
                Date:

            	
              July
                25, 2006 subject to cancellation of the OTC Warrant Transaction prior
                to
                5:00 p.m. (New York City time) on such date by the
                Counterparty.

            


    

    


    
      	
              Warrant
                Style:

            	
              European

            


    

    


    
      	
              Warrant
                Type:

            	
              Call

            


    

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    


    
      	
              Seller:

            	
              Counterparty

            


    

    


    
      	
              Buyer:

            	
              MLI

            


    

    


    
      	
              Shares:

            	
              Shares
                of common stock, $0.001 par value, of Counterparty (Security Symbol:
                “NRPH”).

            


    

    


    
      	
              Number
                of Warrants:

            	
              3,635,042

            


    

    


    
      	
              Daily
                Number of Warrants:

            	
              For
                any day, the Number of Warrants on such day divided
                by
                the remaining number of Expiration Dates (including such day) and
                rounded
                down to the nearest whole number, with the balance of the Number
                of
                Warrants exercised on the final Expiration
                Date.

            


    

    


    
      	
              Warrant
                Entitlement:

            	
              One
                (1) Share per Warrant

            


    

    


    
      	
              Strike
                Price:

            	
              $41.27

            


    

    


    
      	
              Premium:

            	
              $26,750,000

            


    

    


    
      	
              Premium
                Payment Date:

            	
              The
                Effective Date; provided no cancellation of the OTC Warrant Transaction
                has occurred prior to 5:00 p.m. (New York City time) on such date
                by the
                Counterparty.

            


    

    


    
      	
              Exchange:

            	
              The
                NASDAQ Global Market.

            


    

    


    
      	
              Related
                Exchange(s):

            	
              All
                Exchanges

            


    

    


    
      	
              Full
                Exchange Business Day:

            	
              A
                Scheduled Trading Day that has a scheduled closing time for its regular
                trading session at 4:00 p.m. (New York City time) or the then standard
                closing time for regular trading on the Exchange and is not a Disrupted
                Day.

            


    

    


    Procedures
      for Exercise:

    


    
      	
              Expiration
                Time:

            	
              11:59
                p.m. (New York City time).

            


    

    


    
      	
              Expiration
                Dates:

            	
              The
                fifteen (15) consecutive Full Exchange Business Days beginning on
                and
                including October 30, 2013 each shall be an Expiration Date for a
                number
                of Warrants equal to the Daily Number of Warrants on such
                date.

            


    

    


    
      	
              Exercise
                Dates:

            	
              Each
                Expiration Date

            


    

    


    
      	
              Automatic
                Exercise:

            	
              Applicable;
                provided that Section 3.4(a) of the Equity Definitions shall apply
                to Cash
                Settlement and Net Physical Settlement; and provided further that,
                unless
                all Warrants have been previously exercised hereunder, a number of
                Warrants for each Expiration Date equal to the Daily Number of Warrants
                for such Expiration Date shall be deemed to be automatically
                exercised.

            


    

     

    
      	
               Counterparty’s
                Telephone

            	 	 	 	 
	
               Number
                and Telex and/or

            	 	 	 	 
	
              Facsimile
                Number and 

            	 	 	 	 
	
              
                Contact
                  Details for purpose of Giving Notice:

              

            	 	
               

            	 	
               

            
	 	 	
              Address:

            	 	
              
                New
                  River Pharmaceuticals Inc.

              

            
	 	 	 	 	
              
                1881
                  Grove Avenue

              

            
	 	 	 	 	
              Radford,
                Virginia 24141 

            
	 	 	
              Attention:

            	 	
              Clifton
                R. Herndon II

            
	 	 	 	 	
              V.P.,
                Finance and Controller

            
	 	 	
              Telephone
                No.:

            	 	
              540-633-7900

            
	 	 	
              Facsimile
                No.:

            	 	
              540-633-7939

            


    


    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    Valuation:

    


    
      	
              Valuation
                Dates:

            	
              Each
                Exercise Date 

            


    

    


    Settlement
      Terms:

    


    
      	
              Cash
                Settlement:

            	
              Applicable.
                If Counterparty elects to settle the Transaction by Cash Settlement,
                Counterparty represents and agrees:

            


    

    


    
      	 	
              (i)
                that on the date of the Cash Settlement election, neither the Counterparty
                nor any of its affiliates is in possession of any material non-public
                information with respect to the Counterparty or the
                Shares;

            


    

    


    
      	 	
              (ii)
                that the Counterparty is not, on the date of the Cash Settlement
                election,
                and will not be, on any day during the period from and including
                the first
                Expiration Date to and including the final Expiration Date, engaged
                in a
                distribution, as such term is used in Regulation M under the Securities
                Exchange Act of 1934, as amended (the “Exchange
                Act”);
                and

            


    

    


    
      	 	
              (iii)
                that, during the period from and including the first Expiration Date
                to
                and including the final Expiration Date, without the prior written
                consent
                of MLI, the Counterparty shall not, and shall cause its affiliates
                and
                affiliated purchasers (each as defined in Rule 10b-18 under the Exchange
                Act) not to, directly or indirectly (including, without limitation,
                by
                means of a derivative instrument) purchase, offer to purchase, place
                any
                bid or limit order that would effect a purchase of, or commence any
                tender
                offer relating to, any Shares (or equivalent interest, including
                a unit of
                beneficial interest in a trust or limited partnership or a depository
                share) or any security convertible into or exchangeable for the
                Shares.

            


    

    


    
      	
              Settlement
                Currency:

            	
              USD

            


    

    


    
      	
              Settlement
                Price:

            	
              For
                each Valuation Date, the Volume Weighted Average Price of the Shares
                (“VWAP”) calculated from 9:45 a.m. to 3:45 p.m., as observed on the
                Bloomberg “VAP” Page.

            


    

    


    
      	
              Cash
                Settlement Payment Date:

            	
              With
                respect to each Valuation Date, three (3) Currency
                Business Days after the final Valuation
                Date.

            


    

    


    
      	
              Settlement
                Method Election:

            	
              Applicable
                with respect to Cash Settlement or Net Physical Settlement
                only.

            


    

    


    
      	
              Electing
                Party:

            	
              Counterparty

            


    

    


    
      	
              Settlement
                Method Election Date:

            	
              Ten
                (10) Business Days prior to the first Expiration
                Date.

            


    

    


    
      	
              Default
                Settlement Method:

            	
              Net
                Physical Settlement.

            


    

    


    
      	
              Net
                Physical Settlement:

            	
              In
                the event that the Counterparty elects to settle this Transaction
                by Net
                Physical Settlement, subject to “Conditions of Net Physical Settlement”
                below, Counterparty shall deliver to MLI on the Settlement Date a
                number
                of Shares (the “Delivered
                Shares”)
                equal to the Share Delivery Quantity, provided
                that in the event that the number of Shares calculated comprises
                any
                fractional Share, only whole Shares shall be delivered and an amount
                in
                cash equal to the value of such fractional share shall be payable
                by the
                Counterparty to MLI in lieu of such fractional
                Share.

            


    

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    


    
      	
              Share
                Delivery Quantity:

            	
              For
                each Exercise Date, a number of Shares, as calculated by the Calculation
                Agent, equal to the Net Physical Settlement Amount for such Exercise
                Date
                divided by the Settlement Price on the Valuation Date in respect
                of such
                Settlement Date plus an amount in cash in lieu of any fractional
                shares
                (based on the Settlement Price).

            


    

    


    
      	
              Net
                Physical Settlement Amount:

            	
              For
                any Exercise Date, an amount equal to the product of (i) the Number
                of
                Warrants being exercised on the relevant Exercise Date, (ii) the
                Strike
                Price Differential for such Exercise Date and (iii) the Warrant
                Entitlement.

            


    

    


    
      	
              Strike
                Price Differential:

            	
              For
                any Valuation Date, (i) if the Settlement Price is greater than the
                Strike
                Price, an amount equal to the excess of such Settlement Price over
                the
                Strike Price for such Valuation Date or (ii) if such Settlement Price
                is
                less than or equal to the Strike Price,
                zero.

            


    

    


    
      	
              Settlement
                Date:

            	
              Settlement
                with respect to each Exercise Date shall occur on the third (3rd)
                Full Exchange Business Day following the final Valuation Date, provided
                that MLI shall have to right to request by prior written notice to
                Counterparty a Settlement Date with respect to any Exercise Date
                and the
                related Share Delivery Quantity that is three (3) Full Exchange Business
                Days following such Exercise Date. Such request shall not unreasonably
                be
                denied.

            


    

    


    Conditions
      to Net 

    
      	
              Physical
                Settlement:

            	
              If,
                in connection with or six months following delivery of Shares hereunder,
                MLI notifies the Counterparty that MLI has reasonably determined
                after
                advice from counsel that there is a material risk that such Shares
                are
                subject to restrictions on transfer in the hands of MLI pursuant
                to the
                rules and regulations promulgated under the Securities Act of 1933,
                as
                amended (the “Securities
                Act”),
                then Counterparty shall either (i) deliver Shares that are covered
                by an
                effective registration statement of Counterparty for immediate resale
                by
                MLI or (ii) agree to deliver additional Shares so that the value
                of such
                Shares as determined by the Calculation Agent to reflect an appropriate
                liquidity discount, equals the value of the number of Shares that
                would
                otherwise be deliverable if such Shares were freely tradable upon
                receipt
                by MLI.

            


    

    


    
      	 	
              (A)
                If Counterparty elects to deliver Shares as described in above clause
                (i),
                then Counterparty shall 

            


    

    


    
      	 	
              (a)
                afford MLI a reasonable opportunity to conduct a due diligence
                investigation with respect to Counterparty that is customary in scope
                for
                underwritten offerings of equity securities that yields a result
                reasonably satisfactory to MLI; 

            


    

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    


    
      	 	
              (b)
                promptly make available to MLI an effective registration statement
                for
                immediate resale (the “Registration
                Statement”)
                in form and content reasonably satisfactory to MLI and filed pursuant
                to
                Rule 415 under the Securities Act, and such prospectuses as MLI may
                reasonably request to comply with the applicable prospectus delivery
                requirements (the “Prospectus”)
                for the resale by MLI of such number of Shares as MLI shall reasonably
                specify in accordance with this paragraph, such Registration Statement
                to
                be effective and Prospectus to be current until the earliest of the
                date
                on which (1) all Delivered Shares have been sold by MLI, (2) MLI
                has
                advised Counterparty that it no longer requires that such Registration
                Statement be effective, (3) all remaining Delivered Shares could
                be sold
                by MLI without registration pursuant to Rule 144 promulgated under
                the
                Securities Act (the “Registration
                Period”)
                or (4) Counterparty has provided a legal opinion in form and substance
                satisfactory to MLI (with customary assumptions and exceptions) that
                the
                Shares issuable upon exercise of these Warrants will be freely tradable
                under the Securities Act upon delivery to MLI and not subject to
                any
                legend restricting transferability. It is understood that the Registration
                Statement and Prospectus may cover a number of Shares equal to the
                aggregate number of Shares (if any) reasonably estimated by MLI to
                be
                potentially deliverable by Counterparty in connection with Net Physical
                Settlement hereunder (not to exceed the Maximum Deliverable Share
                Amount)
                and shall be subject to the same suspension of sales during “blackout
                dates” as provided in the following paragraph;
                and

            


    

    


    
      	 	
              (c)
                Counterparty will enter into a registration rights agreement with
                MLI in
                form and substance reasonably acceptable to MLI, which agreement
                will
                contain among other things, customary representations and warranties
                and
                indemnification, restrictions on sales during “blackout dates” as provided
                for in the registration rights agreement (the “Registration
                Rights Agreement”)
                entered into between Counterparty and the Initial Purchaser in connection
                with Counterparty’s 3.5% Convertible Subordinated Notes due 2013 (the
                “Convertible
                Notes”),
                provide for delivery of comfort letters and opinions of counsel and
                other
                rights relating to the registration of a number of Shares equal to
                the
                number of Delivered Shares and other Shares deliverable hereunder
                up to
                the Maximum Deliverable Share
                Amount.

            


    

    


    
      	 	
              (d)
                Counterparty shall promptly pay to MLI a $0.03 per Share fee with
                all
                Shares delivered in connection with Net Physical Settlement pursuant
                to a
                Registration Statement.

            


    

    


    (B)
      If
      Counterparty elects to deliver Shares as described in above clause (ii),
      then 

    


    
      	 	
              (a)
                Counterparty shall afford MLI and any potential institutional purchaser
                of
                any Shares identified by MLI a reasonable opportunity to conduct
                a due
                diligence investigation with respect to Counterparty that is customary
                in
                scope for private placements of equity securities subject to execution
                of
                any customary confidentiality
                agreements;

            


    

    


    
      	 	
              (b)
                Counterparty shall enter into an agreement (a “Private
                Placement Agreement”)
                with MLI on commercially reasonable terms in connection with the
                private
                placement of such Shares by Counterparty to MLI or an affiliate and
                the
                private resale of such shares by MLI or such affiliate, substantially
                similar to private placement purchase agreements customary for private
                placements of equity securities, in form and substance commercially
                reasonably satisfactory to MLI and Counterparty, which Private Placement
                Agreement shall include provisions relating to the indemnification
                of, and
                contribution in connection with the liability of, MLI and its affiliates,
                shall provide for the payment by Counterparty of all expenses in
                connection with such resale, including all reasonable and documented
                fees
                and expenses of counsel for MLI, shall contain representations, warranties
                and agreements of Counterparty reasonably necessary or advisable
                to
                establish and maintain the availability of an exemption from the
                registration requirements of the Securities Act for such resales,
                and
                shall use reasonable best efforts to provide for the delivery of
                accountants’ “comfort letters” to MLI or such affiliate with respect to
                the financial statements and certain financial information contained
                in or
                incorporated by reference into the offering memorandum prepared for
                the
                resale of such Shares;

            


    

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    


    
      	 	
              (c)
                MLI shall sell the Delivered Shares in a commercially reasonable
                manner
                until the amount received by MLI for the sale of the Shares (the
                “Proceeds Amount”)
                is equal to the Net Physical Settlement Amount. Any remaining Delivered
                Shares shall be returned to Counterparty. If the Proceeds Amount
                is less
                than the Net Physical Settlement Amount, Counterparty shall promptly
                deliver upon notice from MLI additional Shares to MLI until the dollar
                amount from the sale of such Shares by MLI equals the difference
                between
                the Net Physical Settlement Amount and the Proceeds Amount. In no
                event
                shall Counterparty be required to deliver to MLI a number of Shares
                greater than the Maximum Deliverable Share
                Amount.

            


    

    


    
      	 	
              (iv)
                In the event Counterparty fails to comply with any of the conditions
                set
                forth in “Conditions
                to Net Physical Settlement”
                herein, Counterparty shall settle the Transaction through Cash Settlement;
                provided,
                however,
                that notwithstanding the foregoing, if either (a) Counterparty does
                not
                provide for the sale of the Shares under the Registration Statement
                as
                provided in the Registration Rights Agreement, (b) some Shares cannot
                be
                registered under the Registration Statement due to Rule 415(a)(4)
                under
                the Securities Act, or (c) some or all of the Delivered Shares cannot
                be
                used to close out stock loans in the shares of Counterparty entered
                into
                to establish or maintain short positions by MLI in connection with
                this
                Transaction without a prospectus being required by applicable law
                to be
                delivered to such lender, then Counterparty may deliver unregistered
                or
                registered Shares. In the case of clauses (a) or (b) above, the value
                of
                any unregistered Shares so delivered shall be discounted to reflect
                their
                market value (calculated in a commercially reasonable manner). In
                the case
                of clause (c) above, the value of any such Delivered Shares shall
                reflect
                the cost (calculated in a commercially reasonable manner) to MLI
                of
                trading Shares in order to close out its hedge position if any, in
                all
                cases for purposes of calculating the Delivered Shares. In no event
                shall
                Counterparty be required to top-up the delivery in
                cash.

            


    

    


    Limitations
      on Net Physical

    
      	
              Settlement
                by Counterparty:

            	
              Notwithstanding
                anything herein or in the Agreement to the contrary, the number of
                Shares
                that may be delivered at settlement by Counterparty shall not exceed
                4,543,803 at any time (“Maximum
                Deliverable Share Amount”),
                as adjusted by MLI to account for any subdivision, stock-split,
                reclassification or similar dilutive event with respect to the
                Shares.

            


    

    


    
      	 	
              Counterparty
                represents and warrants that the number of Available Shares as of
                the
                Trade Date is greater than the Maximum Deliverable Share Amount.
                Counterparty covenants and agrees that Counterparty shall not take
                any
                action of corporate governance or otherwise to reduce the number
                of
                Available Shares below the Maximum Deliverable
                Share.

            


    

    


    
      	 	
              For
                this purpose, “Available
                Shares”
                means the number of Shares Counterparty currently has authorized
                (but not
                issued and outstanding) less the maximum number of Shares that may
                be
                required to be issued by Counterparty in connection with stock options,
                convertibles, and other commitments of Counterparty that may require
                the
                issuance or delivery of Shares in connection
                therewith.

            


    

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    Dividends:

    


    
      	
              Extraordinary
                Dividends:

            	
              Any
                and all dividends paid by the
                Issuer.

            


    

     

    Adjustments:

    


    
      	
              Method
                of Adjustment:

            	
              Calculation
                Agent Adjustment 

            


    

    


    Extraordinary
      Events: 

     

    
      	
              Consequences
                of Merger Events:

            	
              (a)
                Share-for-Share: Cancellation and Payment (Calculation Agent
                Determination)

            


    

    


    (b)
      Share-for-Other: Cancellation and Payment (Calculation Agent
      Determination)

    


    (c)
      Share-for-Combined: Cancellation and Payment (Calculation Agent
      Determination)

    


    
      	
              Tender
                Offer:

            	
              Applicable

            


    

    


    
      	
              Consequences
                of Tender Offers:

            	
              (a)
                Share-for-Share: Modified Calculation Agent
                Adjustment

            


    

    


    (b)
      Share-for-Other: Cancellation and Payment (Calculation Agent
      Determination)

    


    (c)
      Share-for-Combined: Component Adjustment (Calculation Agent
      Determination)

    


    With
      respect to any Extraordinary Events hereunder, upon the occurrence of
      Cancellation and Payment in whole or in part, the parties agree that the amount
      to be paid, in accordance with the Equity Definitions, shall constitute a
      Transaction Early Termination Amount, subject to satisfaction by the payment
      or
      delivery of Shares or cash as set forth in the Early Termination section below.
      

    


    Nationalization,
      Insolvency

    
      	
              or
                Delisting:

            	
              Cancellation
                and Payment (Calculation Agent Determination) (subject to satisfaction
                by
                payment or delivery of Shares or cash as set forth in “Early Termination”
                below)

            


    

    


    
      	
              Determining
                Party:

            	
              MLI

            


    

    


    Additional
      Disruption Events:

    


    
      	
              Change
                in Law:

            	
              Applicable

            


    

    


    
      	
              Failure
                to Deliver:

            	
              Not
                Applicable

            


    

    


    
      	
              Insolvency
                Filing:

            	
              Applicable

            


    

    


    
      	
              Hedging
                Disruption Event:

            	
              Applicable

            


    

    


    
      	
              Increased
                Cost of Hedging:

            	
              Not
                Applicable

            


    

    


    
      	
              Loss
                of Stock Borrow:

            	
              Applicable

            


    

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    
      	
              Maximum
                Stock Loan Rate:

            	
              3.00%

            


    

    


    
      	
              Increased
                Cost of Stock Borrow:

            	
              Applicable

            


    

    


    
      	
              Initial
                Stock Loan Rate:

            	
              0.40%

            


    

    


    
      	
              Hedging
                Party:

            	
              MLI

            


    

    


    
      	
              Determining
                Party:

            	
              MLI

            


    

    


    
      	
              Non-Reliance:

            	
              Applicable

            


    

    


    Agreements
      and

    Acknowledgments
      Regarding

    
      	
              Hedging
                Activities:

            	
              Applicable

            


    

    


    
      	
              Additional
                Acknowledgments:

            	
              Applicable

            


    

    


    Other
      Provisions:

    


    
      	
              Additional
                Agreements:

            	
              If
                due to the occurrence of an Extraordinary Event or otherwise Counterparty
                would be obligated to pay cash to MLI pursuant to the terms of this
                Agreement for any reason without having had the right (other than
                pursuant
                to this paragraph) to elect to deliver Shares in satisfaction of
                such
                payment obligation, then Counterparty may elect to deliver to MLI
                a number
                of Shares (whether registered or unregistered) having a cash value
                equal
                to the amount of such payment obligation (such number of Shares to
                be
                delivered to be determined by the Calculation Agent acting in a
                commercially reasonable manner to determine the number of Shares
                that
                could be sold by MLI over a reasonable period of time to realize
                the cash
                equivalent of such payment obligation taking into account any applicable
                discount (determined in a commercially reasonable manner) to reflect
                any
                restrictions on transfer as well as the market value of the Shares).
                Further, if Counterparty is delivering Shares as a result of a Merger
                Event, the Settlement Date will be immediately prior to the effective
                time
                of the Merger Event and the Shares will be deemed delivered at such
                time
                such that MLI will be a holder of the Shares prior to such effective
                time.
                Settlement relating to any delivery of Shares pursuant to this paragraph
                shall occur within a reasonable period of time. The number of Shares
                delivered pursuant to this paragraph shall not exceed the Maximum
                Deliverable Share Amount and shall be subject to the provisions under
                “Early Termination” hereof regarding Proceeds
                Amount.

            


    

    


    
      	
              Early
                Termination:

            	
              Notwithstanding
                any provision to the contrary, upon the designation of an Early
                Termination Date hereunder, Counterparty’s payment obligation in respect
                of this Transaction as determined in accordance with Second Method
                and
                Loss (the “Transaction
                Early Termination Amount”)
                may, at the option of Counterparty, be satisfied by the delivery
                of a
                number of Shares equal to the Transaction Early Termination Amount
                divided by
                the Termination Price (“Early
                Termination Stock Settlement”);
                provided,
                however,
                that Counterparty must notify MLI of its election of Early Termination
                Stock Settlement by the close of business on the day that is two
                Exchange
                Business Days following the day that the notice designating the Early
                Termination Date is effective. “Termination
                Price”
                means the closing price per Share on the Exchange on the Early Termination
                Date.

            


    

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    
      	 	
              A
                number of Shares calculated as being due in respect of any Early
                Termination Stock Settlement will be deliverable on the third Exchange
                Business Day following the date that notice pursuant to Section 6(d)(i)
                of
                the Agreement specifying the number of Shares deliverable is effective.
                Section 6(d)(i) of the Agreement is hereby amended by adding the
                following
                words after the word “paid” in the fifth line thereof: “or any delivery is
                to be made, as applicable.”

            


    

    


    
      	 	
              On
                or prior to the Early Termination Date (if Early Termination Stock
                Settlement is elected), if so requested by MLI upon advice of counsel,
                Counterparty shall enter into a registration rights agreement with
                MLI in
                form and substance reasonably acceptable to MLI which agreement will
                contain among other things, customary representations and warranties
                and
                indemnification, restrictions on sales during “blackout dates” as provided
                for in the Registration Rights Agreement and shall satisfy the conditions
                contained therein and Counterparty shall file and diligently pursue
                to
                effectiveness a Registration Statement pursuant to Rule 415 under
                the
                Securities Act. If and when such Registration Statement shall have
                been
                declared effective by the Securities and Exchange Commission, Counterparty
                shall have made available to MLI such Prospectuses as MLI may reasonably
                request to comply with the applicable prospectus delivery requirements
                for
                the resale by MLI of such number of Shares as MLI shall specify (or,
                if
                greater, the number of Shares that Counterparty shall specify). Such
                Registration Statement shall be effective and Prospectus shall be
                current
                until the earliest of the date on which (i) all Shares delivered
                by
                Counterparty in connection with an Early Termination Date, (ii) MLI
                has
                advised Counterparty that it no longer requires that such Registration
                Statement be effective or (iii) all remaining Shares could be sold
                by MLI
                without registration pursuant to Rule 144 promulgated under the Securities
                Act (the “Termination
                Registration Period”).
                It is understood that the Registration Statement and Prospectus will
                cover
                a number of Shares equal to the number of Shares plus the aggregate
                number
                of Shares (if any) reasonably estimated by MLI to be potentially
                deliverable by Counterparty in connection with Early Termination
                Stock
                Settlement hereunder, but in no event exceeding the Maximum Deliverable
                Share Amount. On each day during the Registration Period Counterparty
                shall represent that each of its filings under the Securities Act,
                the
                Exchange Act or other applicable securities laws that are required
                to be
                filed have been filed and that, as of the respective dates thereof
                and as
                of the date of this representation, they do not contain any untrue
                statement of a material fact or omission of a material fact required
                to be
                stated therein or necessary to make the statements made, in the light
                of
                the circumstances under which they were made, not misleading.
                

            


    

    


    
      	 	
              If
                Counterparty does not deliver Shares subject to an effective Registration
                Statement as set forth above, Counterparty may deliver unregistered
                Shares
                in an amount determined by MLI based upon MLI’s commercially reasonable
                judgment of the market value of such Shares. In no event shall
                Counterparty be required to deliver to MLI a number of Shares greater
                than
                the Maximum Deliverable Share
                Amount.

            


    

    


    If
      MLI
      receives Shares in connection with an Early Termination Stock Settlement that
      cannot be freely sold under the Securities Act or that are subject to any legend
      restricting transferability, MLI shall sell such Shares in a commercially
      reasonable manner until the amount received by MLI for the sale of such Shares
      (net of transaction costs, calculated in a commercially reasonable manner)
      (the
“Proceeds
      Amount”)
      is
      equal to the Transaction Early Termination Amount. Any remaining Shares shall
      be
      returned to Counterparty. If the Proceeds Amount is less than the Transaction
      Early Termination Amount, Counterparty shall promptly deliver additional Shares
      to MLI upon request until the dollar amount from the sale of such additional
      Shares by MLI (net of transaction costs, calculated in a commercially reasonable
      manner) equals the difference between the Transaction Early Termination Amount
      and the Proceeds Amount. In no event shall Counterparty be required to deliver
      to MLI a number of Shares greater than the Maximum Deliverable Share
      Amount.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    
      	
              Compliance
                With Securities Laws:

            	
              Counterparty
                represents and agrees that it has complied, and will comply, in connection
                with this Transaction and all related or contemporaneous sales and
                purchases of Shares, with the applicable provisions of the Securities
                Act,
                the Exchange Act and the rules and regulations promulgated thereunder,
                including, without limitation, Rule 10b-5 and 13e and Regulation
                M under
                the Exchange Act.

            


    

    


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

            


    

    


    
      	 	
              Counterparty
                further represents and warrants
                that:

            


    

    


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

            


    

    


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

            


    

    


    Account
      Details: Account
      for payments to Counterparty: 

     

    ABA
      # 021
      001 033

    Bankers
      Trust / Deutsche Bank Trust Co America

    Bankers
      Trust Plaza

    New
      York,
      NY

    Account
      #
      008 10 775

    For
      account of Merrill Lynch

    For
      sub-account # 171-08A45

    Account
      of: New River Pharmaceuticals Inc.

    


    


    Account
      for payments to MLI:  

    


    Chase
      Manhattan Bank, New York 

    ABA#:
      021-000-021 

    FAO:
      ML
      Equity Derivatives

    A/C:
      066213118


    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    


    
      	
              Agreement
                Regarding Shares:

            	
              Counterparty
                agrees that, in respect of any Shares delivered to MLI, such Shares
                shall
                be, upon such delivery, duly and validly authorized, issued and
                outstanding, fully paid and non-assessable and subject to no adverse
                claims of any other party. The issuance of such Shares does not and
                will
                not require the consent, approval, authorization, registration or
                qualification of any government authority, except such as shall have
                been
                obtained on or before the delivery date of any Shares or in connection
                with any Registration Statement filed with respect to any
                Shares.

            


    

     

    
      	
              Bankruptcy
                Rights:

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

            


    

     

    
      
        	
                Set-Off:

              	
                Upon
                  the occurrence of an Event of Default or Termination Event with
                  respect to
                  Counterparty as the Defaulting Party or the Affected Party (“X”), MLI
                  (“Y”) will have the right (but not be obliged) without prior notice
                  to X
                  or any other person to set-off or apply any obligation of X under
                  an
                  Equity Contract owed to Y (or any Affiliate of Y) (whether or not
                  matured
                  or contingent and whether or not arising under this Agreement,
                  and
                  regardless of the currency, place of payment or booking office
                  of the
                  obligation) against any obligation of Y (or any Affiliate of Y)
                  under an
                  Equity Contract owed to X (whether or not matured or contingent
                  and
                  whether or not arising under this Agreement, and regardless of
                  the
                  currency, place of payment or booking office of the obligation).
                  Y will
                  give notice to the other party of any set-off effected under this
                  section.

              


      

      


      
        	 	
                “Equity
                  Contract”
                  shall mean for purposes of this section any Transaction relating
                  to Shares
                  between X and Y that qualifies as ‘equity’ under applicable accounting
                  rules other than the Confirmation of OTC Convertible Note Hedge,
                  dated
                  July 19, 2006, by and between Counterparty and MLI and any other
                  substantially similar transaction entered into between Counterparty
                  and
                  MLI relating to an exercise of an over-allotment option. Amounts
                  (or the
                  relevant portion of such amounts) subject to set-off may be converted
                  by Y
                  into the Termination Currency at the rate of exchange at which
                  such party
                  would be able, acting in a reasonable manner and in good faith,
                  to
                  purchase the relevant amount of such
                  currency.

              


      

      


      
        	 	
                If
                  any obligation is unascertained, Y may in good faith estimate that
                  obligation and set-off in respect of the estimate, subject to the
                  relevant
                  party accounting to the other when the obligation is ascertained.
                  Nothing
                  in this section shall be effective to create a charge or other
                  security
                  interest. This section shall be without prejudice and in addition
                  to any
                  right of set-off, combination of accounts, lien or other right
                  to which
                  any party is at any time otherwise entitled (whether by operation
                  of law,
                  contract or otherwise).

              


      

      


      
        	 	
                Notwithstanding
                  any provision of the Agreement as incorporated in any Confirmation
                  or any
                  other existing or future agreement, Counterparty hereby waives
                  any and all
                  rights to set-off, whether arising under any agreement, applicable
                  law, or
                  otherwise, except as provided
                  herein.

              


      

      


      
        	 	
                In
                  the event of Counterparty’s bankruptcy, MLI waives any and all rights to
                  set-off it has, whether arising under any agreement, applicable
                  law or
                  otherwise.

              


      

    


    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    
      	
              Transfer:

            	
              Counterparty
                may transfer its rights and delegate its obligations under this
                Transaction in accordance with Section 7 of the Master Agreement.
                MLI may
                assign its rights and delegate its obligations hereunder, in whole
                or in
                part, to any other person (an “Assignee”)
                without the prior consent of the Counterparty, effective (the
                “Transfer
                Effective Date”)
                upon delivery to Counterparty of an executed acceptance and assumption
                by
                the Assignee (an “Assumption”)
                of the transferred obligations of MLI under this Transaction (the
                “Transferred
                Obligations”).
                Notwithstanding any other provision in this Confirmation to the contrary
                requiring or allowing MLI to purchase, sell, receive or deliver any
                Shares
                or other securities to or from Counterparty, MLI may designate any
                of its
                affiliates to purchase, sell, receive or deliver such Shares or other
                securities and otherwise to perform MLI’s obligations in respect of this
                Transaction and any such designee may assume such obligations. MLI
                shall
                be discharged of its obligations to Counterparty to the extent of
                any such
                performance.

            


    

    


    
      	
              Regulation:

            	
              MLI
                is regulated by The Securities and Futures Authority
                Limited.

            


    

    


    
      	
              Indemnity:

            	
              Seller
                agrees to indemnify MLI, its Affiliates and their respective directors,
                officers, agents and controlling parties (each such person being
                an
                “Indemnified
                Party”)
                from and against any and all losses, claims, damages and liabilities,
                joint and several, to which such Indemnified Party may become subject
                because of a breach of any representation or covenant hereunder,
                in the
                Agreement or any other Agreement relating to the Agreement or Transaction
                and will reimburse Indemnified Party for all reasonable expenses
                (including reasonable legal fees and expenses) as they are incurred
                in
                connection with the investigation of, preparation for, or defense
                of, any
                pending or threatened claim or any action or proceeding arising therefrom,
                whether or not such Indemnified Party is a party thereto. Seller
                will not
                be liable under the foregoing Indemnity provision to the extent that
                any
                loss, claim, damage, liability or expense is found in a final judgment
                by
                a court to have resulted from MLI’s gross negligence or willful
                misconduct.

            


    

    


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

    


    
      	
              (a)

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

            


    

    


    
      	 	
              (1)

            	
              it
                will not, and will not permit any person or entity subject to its
                control
                to, bid for or purchase Shares during such period except as disclosed
                in
                the Offering Memorandum relating to the Convertible Notes;
                and

            


    

    


    
      	 	
              (2)

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

            


    

    


    
      	
              (b)

            	
              No
                collateral shall be required by either party for any reason in connection
                with this Transaction.

            


    

    


    
      	
              (c)

            	
              MLI
                shall not be entitled to exercise any Warrant hereunder and Automatic
                Exercise shall not apply with respect to any Warrant to the extent
                (but
                only to the extent) that the receipt of any Shares upon the exercise
                of
                such Warrant would result in MLI, or its ultimate parent entity becoming,
                directly or indirectly, the beneficial owner (as such term is defined
                for
                purposes of Section 13(d) of the Exchange Act) at any time of more
                than
                8.0 percent of the class of the Counterparty’s
                outstanding equity securities that is comprised of the Shares (an
                “Excess
                Share Owner”).

            


    


    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    


    MLI
      shall
      provide prior notice to Counterparty
      if the
      exercise of any Warrant hereunder would cause MLI to become directly or
      indirectly, an Excess Share Owner;
      provided
      that the
      failure of MLI to provide such notice shall not alter the effectiveness of
      the
      provisions set forth in the preceding sentence and any purported exercise or
      delivery in violation of such provisions shall be void and have no
      effect.

    


    If
      MLI is
      not entitled to exercise any Warrant because such exercise would cause MLI
      to
      become, directly or indirectly, an Excess Share Owner and MLI thereafter
      disposes of Shares owned by it or any action is taken that would then permit
      MLI
      to exercise such Warrant without such exercise causing it to become, directly
      or
      indirectly, an Excess Share Owner, then MLI shall provide notice of the taking
      of such action to Counterparty
      and such
      Warrant shall then become exercisable by MLI to the extent such Warrant is
      otherwise or had otherwise become exercisable hereunder. In such event, the
      Expiration Date with respect to such Warrant shall be the date on which
Counterparty
      receives
      such notice from MLI, and the related Settlement Date shall be as soon as
      reasonably practicable after receipt of such notice but no more than three
      (3)
      Exchange Business Days thereafter (but in no event shall the Settlement Date
      occur prior to the date on which it would have otherwise occurred but for the
      provisions of this subsection); provided
      that the
      related Net Physical Settlement Amount shall be the same as the Net Physical
      Settlement Amount but for the provisions of this subsection. In addition, within
      30 calendar days of the Settlement Date, Counterparty shall use its reasonable
      efforts to refrain from activities that could reasonably be expected to result
      in MLI’s ownership of Shares exceeding 10% of all issued and outstanding
      Shares.

     

    Matters
      Relating to Agent:

     

    
      	
              1.

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

            


    

    


    
      	
              2.

            	
              Unless
                MLI is a “major U.S. institutional investor,” as defined in Rule 15a-6 of
                the Exchange Act, neither Counterparty not MLI will contact the other
                without the direct involvement of
                MLPFS;

            


    

    


    
      	
              3.

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

            


    

    


    ISDA
      Master Agreement:

    


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

    


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

     

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

    


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

    


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


    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    


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

    


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

    


    “Termination
      Currency”
means
      USD.

    


    Tax
      Representations.

    


    
      	
              (I)

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


            


    

    


    
      	
              (II)

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

            


    

    


    
      	 	
              (i)

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

            


    

    


    
      	 	
              (ii)

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

            


    

    


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

    


    
      	
              (a)

            	
              Tax
                forms, documents or certificates to be delivered
                are:

            


    

    


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

    


    
      	
              (b)

            	
              Other
                documents to be delivered:

            


    

     

    
      
        
          	
                  Party
                    Required to Deliver Document

                	
                  Document
                    Required to be Delivered

                	
                  When
                    Required

                	
                  Covered
                    by Section 3(d) Representation

                
	
                  Counterparty

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

                	
                  Upon
                    or before execution and delivery of this Confirmation

                	
                  Yes

                
	
                  Counterparty

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

                	
                  Upon
                    or before execution and delivery of this Confirmation

                	
                  Yes

                
	
                  MLI

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

                	
                  Upon
                    or before execution and delivery of this Confirmation

                	
                  Yes

                


        

      

    

    


    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    


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

    


    Address
      for notices or communications to MLI for all purposes:

    


    
      	 	
              Address:

            	 	
              Merrill
                Lynch International 

            
	 	 	 	
              Merrill
                Lynch Financial Centre

            
	 	 	 	
              2
                King Edward Street

            
	 	 	 	
              London
                EC1A 1HQ

            
	 	
              Attention:
                

            	 	
              Manager,
                Fixed Income Settlements

            
	 	
              Facsimile
                No.:

            	 	
              44
                207 995 2004

            
	 	
              Telephone
                No.:

            	 	
              44
                207 995 3769

            


    

    


    Address
      for notices or communications to Counterparty for all purposes:


    


    
      	 	
              Address:

            	 	
              New
                River Pharmaceuticals Inc.

            
	 	 	 	
              1881
                Grove Avenue

            
	 	 	 	
              Radford,
                Virginia 24141 

            
	 	
              Attention:
                

            	 	
              Clifton
                R. Herndon II

            
	 	 	 	
              V.P.,
                Finance and Controller

            
	 	
              Telephone
                No.:

            	 	
              540-633-7900

            
	 	
              Facsimile
                No.:

            	 	
              540-633-7939

            


    

    


    Process
      Agent:
      For the
      purpose of Section 13(c) of the Agreement, MLI appoints as its process agent:
      

    


    
      	 	
              Address:

            	 	
              Merrill
                Lynch, Pierce, Fenner & Smith Incorporated

            
	 	 	 	
              222
                Broadway, 16th
                Floor 

            
	 	 	 	
              New
                York, New York 10038

            
	 	
              Attention:

            	 	
              Litigation
                Department

            
	 	 	 	 
	 	 Counterparty
              does not appoint a Process
              Agent.


    

     

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

    


    Calculation
      Agent.  The
      Calculation Agent is MLI.

    


    Credit
      Support Document. 

    


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


    


    Counterparty:
      Not Applicable

    


    Credit
      Support Provider.


    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    


    With
      respect to MLI: ML & Co. 

    


    With
      respect to Counterparty: Not Applicable.

    


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

    


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

    


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

    


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

    


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

    


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

    


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


    


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

    


    “To
      such
      party’s best knowledge,”

    


    Acknowledgements:

    


    
      	
              (a)

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

            


    

     

    
      
        	
                (b)

              	
                The
                  parties hereto intend for:

              


      

    

    


    
      	 	
              (i)

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

            


    

    


    
      	 	
              (ii)

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

            


    


    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    


    
      	 	
              (iii)

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

            


    

    


    
      	
              (c)

            	
              The
                parties acknowledge and agree that in the event of an Early Termination
                Date as a result of an Event of Default, the amount payable under
                the
                Agreement will be a cash amount calculated as described therein and
                that
                any delivery specified in this Transaction will no longer be
                required.

            


    

    


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

    


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

    


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

    


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

    


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

    


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

    


    [Signatures
      follow on separate page]

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    


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

    


    
      	 	
              Very
                truly yours,

            
	 	 	 	
            
	 	
              MERRILL
                LYNCH INTERNATIONAL

            
	 	 	 	
            
	 	 	 	
            
	 	
              By:
                

            	
               /s/

            	
               Fran
                Jacobson

            
	 	
              Name:
                

            	 Fran
              Jacobson


    

     

    Confirmed
      as of the date first above written:

    


    NEW
      RIVER PHARMACEUTICALS INC.

    


    


    
      	
              By:
                

            	
               /s/ 

            	Krish
              S. Krishnan
	Name:	Krish S. Krishnan
	
              Title:

            	Chief Operating Officer,
              Chief
	 	 	Financial Officer and
              Secretary


    

     

     

    Acknowledged
      and agreed as to matters to the Agent:

    MERRILL
      LYNCH, PIERCE, FENNER & SMITH INCORPORATED,

    Solely
      in
      its capacity as Agent hereunder

     

    


    
      	
              By:

            	
               /s/
                

            	
               Rhonda
                Garguito 

            
	
              Name:
                

            	
               Rhonda
                Garguito

            


    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    EXHIBIT
      A

    


    GUARANTEE
      OF MERRILL LYNCH & CO., INC.

    


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

    


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

    


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

    


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

    


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

    


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

    


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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

    


    
      	 	
              MERRILL
                LYNCH & CO., INC.

            
	 	
            	
            	
            
	 	
              By:
                

            	 /s/
	
               Patricia
                Kropiewnicki

            
	 	
            	
            	
               Name:
                Patricia Kropiewnicki

            
	 	
            	
            	
               Title:
                Designated Secretary

            
	 	
            	
            	
               Date:
                July 19, 2006