DEVELOPMENT
      OF HUPERZINE A TRANSDERMAL

    DELIVERY
      SYSTEM

    


    


    


    Term
      Sheet

    


    


    


    


    


    


    


    March
      8, 2006

     

     

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    Product
      Development Term Sheet ("Agreement")

    


    This
      Amended Term Sheet shall replace the Term Sheet dated August 18, 2005 and shall
      set forth
      the
      terms of the agreement between Xel Herbaceuticals, Inc. (Xel) and Neuro Hitech
      Pharmaceuticals,
      Inc. (NHPI), (collectively the "Parties") for the development of a Huperzine
      A
Transdermal
      Delivery System (hereinafter the "Product").

    


    1.0           Definitions.
      As
      used
      herein, the following terms shall have the following meanings:

    


    1.1           "Product"
      shall
      mean transdermal matrix and liquid reservoir patches containing a
      therapeutically effective amount of Huperzine A as an active agent, and
      optionally a permeation
      enhancer. It is anticipated that such Product would eventually be submitted
      for
      the
      United States FDA and other Foreign Governmental Drug Agency approval for a
      variety
      of memory and cognitive related indications.

     

    1.2           "Intellectual
      Property" shall
      mean any government prescribed mechanism for protecting
      the Product, including but not limited to issued patents, pending patent
      applications including continuation, continuation-in-part, and divisional
      applications, reissue and reexamined applications, as well as related know-how,
      including confidential and
      trade
      secret information.

     

    1.3           "Confidential
      Information" shall
      mean all information, knowledge, know-how, or
      data,
      regardless of form, whether written, oral, photographic, electronic, magnetic,
      computer, or otherwise, that is treated or designated by either of the Parties
      as confidential
      or proprietary. Confidential Information, if supplied in written form, shall
      be
      marked "confidential" (or words of similar import) and, if disclosed other
      than
      in writing, shall
      be
      confirmed to the receiving party in writing as "confidential" within 30 days
      after its disclosure. The Parties agree to utilize all Confidential Information
      solely for the purposes
      of carrying out the terms of the present Agreement.

     

    1.4           "Initial
      Territory" shall
      mean the geographic territory of the United States of America
      and Canada.

     

    1.5           "Supplemental
      Territory" shall
      mean all
      the
      countries of the world with the exception
      of China, Taiwan, Hong Kong, Macau and Singapore.

     

    1.6           "Product
      Development Program" shall
      mean a multi-stage research and development
      program to develop a Product. Stage I of the Product Development Program
      is generally outlined in Exhibit I.

     

    2.0           The
      Option. It
      is
      agreed that Xel shall initiate and conduct Stage I of a Product Development
      Program,
      and that in exchange for the funding thereof, NHPI shall receive the option
      of
      licensing Intellectual
      Property Rights for the Product in the Initial and Supplemental Territories,
      said option
      to
      be exercised by NHPI upon written notice to Xel within 120 days of the
      completion of Stage
      I
      of the Product Development Program in the event that at least one patent is
      issued in the United
      States. In the event that no patent is issued by the completion of Stage I
      of
      the Product Development
      Program, NHPI has up to 360 days to exercise its option upon written notice
      to
Xel.

     

    
      	
              The
                information contain
                in this
                communication is confidential and is intended for
                the use
                of
                individual or
                entity named herein.

            


    

     

    
      
        
        

      

      
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    3.0           The
      License Agreement. It
      is
      agreed that in the event that NHPI exercises its option to enter a
      license
      for the Intellectual Property Rights to the Product owned by Xel, the parties
      shall negotiate a license agreement therefore in good faith; such agreement
      shall include the following terms:

    


    3.1           Exclusivity: The
      license agreement shall grant NHPI the exclusive right to manufacture,
      market, use, and sell the Product in the Initial Territory and the Supplemental
      Territory.

    


    3.2           Right
      to Sublicense: The
      license agreement shall grant the right of NHPI to sublicense
      the Intellectual Property Rights of the Product to third parties upon mutual
      agreement
      with Xel in the selection of third parties and Xel's agreement not to be
unreasonably
      withheld. A percentage of royalties collected by NHPI shall be paid to Xel
      in
      accordance with the terms set forth below.

    


    3.3           Milestone
      Payments. The
      license agreement shall contain the following milestone terms

    


    3.31  In
      the
      event that NHPI decides to exercise its option to license the rights to
      manufacture, market, sell, and use the Product in the Initial Territory and
      to
      develop the Product on its own without a third party and Xel obtains a United
      States Patent whose claims
      cover the Product:

    


    A.
      $400,000 within ten (1.0) days
      of
      exercising its option to license the rights to manufacture,
      market, sell, and use the Product in the Initial Territory; 

    B.
      $100,000 upon completion of the GMP Prototype Development Stage; 

    C.
      $100,000 upon completion of the submission of US IND; 

    D.
      $200,000 upon completion of Phase II clinical
      study; 

    E.
      $400,000 upon completion of Phase III clinical study; 

    F.
      $600,000 upon completion of the submission of US NDA; 

    G.
      $1,000,000 upon approval of US NDA.

    


    3.32
      In
      the event that NHPI decides to exercise its option to license the rights to
      manufacture,
      market, sell, and use the Product in the Initial Territory and to develop the
      Product
      on its own without a third party and Xel doesn't obtain a United States Patent
      whose
      claims cover Product, the amounts listed in subsection 3.31 shall be reduced by
fifty
      percent [50%] until such time as Xel does obtain a United States Patent whose
      claims
      cover the Product, at which time the unpaid fifty percent [50%] of all milestone
      payments
      previously made shall be due.

    


    3.33
      In
      the event that NHPI decides to exercise its option to license the rights
to
      manufacture,
      market, sell, and use the Product in the Initial Territory and to develop the
      Product in conjunction with a third party, NHPI shall pay to Xel fifty percent
      [50%] of any
      initial signing fees and milestone fees (any fees for R&D purposes shall be
      excluded) paid
      by
      such third party in the event of a US Patent is obtained, and if there is no
      US
Patent
      NHPI
      shall
      pay to Xel twenty five percent (25%) of such fees.

    


    
      	
              The
                information contain
                in this
                communication is confidential and is intended for
                the use
                of
                individual or
                entity named herein.

            


    

     

    
      
        
        

      

      
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    3.34
      In
      the event that NHPI decides to exercise its option to license the rights to
      manufacture,
      market, sell, and use the Product in the Supplemental Territory and to
develop
      the Product on its own without a third party, NHPI shall pay to Xel $400,000
      within
      120 days of the completion of Stage I of the Product Development Program in
      the
      event that at least one international patent is issued (e.g.
      Japan
      or
      the European Community.)
      In addition milestone payments shall be due in the Supplemental Territory
(e.g.
      Japan
      or
      European Community) in accordance with 3.31 B-G with appropriate modifications
      for each particular Regulatory Jurisdiction.

    


    3.35
      In
      the event that NHPI decides to exercise its option to license the rights to
      manufacture,
      market, sell, and use the Product in the Supplemental Territory and to
develop
      the Product on its own without a third party, NHPI shall pay to Xel $400,000
      within
      360 days of the completion of Stage I of the Product Development Program in
      the
event
      that no international patent covering the Product is issued to Xel. In addition
      milestone
      payments shall be due in the Supplemental Territory (e.g.
      Japan
      or
      European Community)
      in accordance with 3.31 B-G and 3.32 above with appropriate modifications
for
      each
      particular Regulatory Jurisdiction.

    


    3.36
      In
      the event that NHPI decides to exercise its option to license the rights to
      manufacture,
      market, sell, and use the Product in the Supplemental Territory and to
develop
      the Product in conjunction with a third party, NHPI shall pay to Xel fifty
      percent [50%]
      of
      any initial signing fees and milestone fees (any fees for R&D purposes shall
      be excluded) paid by such third party in the event of a International Patent
      is
      issued, and if there
      is
      no International Patent NHPI shall pay to Xel twenty five percent
      [25%].

    


    3.37
      Other countries licensing opportunities outside of Japan and the European
Community
      shall be negotiated by the parties in good faith.

    


    4.0           Royalties: The
      license agreement shall contain a schedule of royalty payments to be made
by
      NHPI
      to Xel as follows:

    


    4.1           Product
      sold by NHPI in a country of the Initial Territory in which the Product is
      covered
      that by at least one Patent issued in that country of the Initial
      Territory:

    


    Net
      Sales
      of < $20,000,000/year –
      7%

    Net
      Sales
      of $20,000,001 - $40,000,000/year –
      8%
      

    Net
      Sales
      of $40,000,001 -
      $75,000,000/year –
      9%
      

    Net
      Sales
      of > $75,000,000/year –
      10%

    


    Upon
      expiration of the last to expire Patent, the foregoing royalty shall be
reduced
      to 2% of Net Sales.

     

    
      	
              The
                information contain
                in this
                communication is confidential and is intended for
                the use
                of
                individual or
                entity named herein.

            


    

     

    
      
        
        

      

      
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    In
      the
      event that a generic Product is launched in the Initial Territory before the
      Patent expiration, the foregoing royalty shall be reduced to 2% of Net
Sales.

    


    In
      the
      event that NHPI shall exercise its option to license Product in the Supplemental
      Territory, the parties shall negotiate in good faith, royalties to be
      paid
      in each country of the Supplemental Territory.

    


    4.2           Product
      sold by NHPI in a country of the Initial Territory in which the Product is
      not
covered
      that by at least one Patent issued in that country of the Initial
      Territory:

    


    Net
      Sales
      of < $20,000,000/year –
      3%

    Net
      Sales
      of $20,000,001 - $40,000,000/year –
      3.5%
      

    Net
      Sales
      of $40,000,001 - $75,000,000/year –
      4%
      

    Net
      Sales
      of > $75,000,000/year –
      5%

    


    Such
      royalties shall be payable for a period of 10 years from the date of
NHPI's
      first receipt of Net Sales.

    


    In
      the
      event that NHPI shall exercise its option to license Product in the Supplemental
      Territory, the parties shall negotiate in good faith, royalties to be
      paid
      in each country of the Supplemental Territory.

    


    4.3           Product
      sold by third party sublicensees of NHPI:

    


    NHPI
      shall pay Xel 20% of any royalty received by NHPI from NHPI's sublicensees,
      however, in the event that the Product is not protected by at least one Patent
      issued in the country of the Initial or Supplemental Territories, NHPI
      shall pay 10% of any royalty received by NHPI from NHPI's sub licensees.

    


    


    5.0.           Ownership
      of Rights.

     

    5.1           All
      Intellectual Property and Confidential Information concerning or related to
      the
      Product developed by either party prior to the effective date of this term
      sheet, as well as all Intellectual Property and Confidential Information not
      concerning, or unrelated to the Product, shall remain the exclusive property
      of
      the party who owns or controls that Intellectual Property and Confidential
      Information as of the date of entering into this agreement.

     

    5.2           All
      Intellectual Property and Confidential Information produced during Stage I
      of
      the Product
      Development Program shall be jointly owned by Xel and NHPI.

     

    5.3           In
      the event that NHPI elects not to exercise its Option to enter a license
      agreement upon
      the
      completion of Stage I and Xel elects to further develop the Product without
      NHPI, Xel shall pay to NHPI thirty percent [30%] of net profits realized from
      such further
      development up to an amount equivalent to double the total amount received
      from
NHPI
      in
      Stage I, excluding the signing fee of $250,000, in exchange for full ownership
      of the
      jointly owned Intellectual Property and Confidential Information developed
      in
      Stage I.

     

    
      	
              The
                information contain
                in this
                communication is confidential and is intended for
                the use
                of
                individual or
                entity named herein.

            


    

     

    
      
        
        

      

      
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    5.4           In
      the event that NHPI exercises its option to enter into a license agreement,
      in
      the Initial Territory but not the Supplemental Territory, Xel or its duly
      authorized licensees, shall
      have the right to present any data generated during Stage I of the Product
      Development Program in support of a regulatory filing in any country outside
      the
      Initial Territory
      upon payment of a reasonable amount to NHPI. Such amount shall be negotiated
      in good faith between the parties on an as needed basis.

    


    6.0           Full
      Disclosure: Xel
      agrees that during the life of this Agreement, that it shall upon reasonable
      notice, make available for NHPI's inspection, its facilities as well as all
      documents and
      information, including Confidential Information, related to the Intellectual
      Property of the Product
      including without limitation, copies of all pending patent applications and
      issued patents in the Supplemental Territory, and patents or patent applications
      licensed from third parties in the
      Supplemental Territory (if applicable).

    


    7.0           Product
      Development Program –
      Stage
      I. Upon
      execution of this Agreement, Xel will promptly
      commence the Product Development Program -
      Stage
      I
      that will conclude with a prototype
      Product that is suitable for clinical studies. The development cost and
      timelines for this
      program are specified in the Agreement (Exhibit I) with the following financial
      terms:

    


    7.1           Signing
      fee of $250,000 by NHPI to Xel upon execution of this agreement;

    


    7.2           Monthly
      fees of $92,500 will be paid to Xel for each month from the commencement
the
      Product Development Program – Stage I. Estimated duration of the development
program
      is sixteen [
      16]
      months (Exhibit 1).

    


    7.3           Reports
      & Audit. To allow for flexibility in Xel's workflow and accounting
      practices, Xel
      shall
      provide reconciliation reports of its monthly expenses including a calculated
      profit
      of
      twenty percent [20%] to NHPI at the end of quarterly period. At the end of
      each
quarterly
      reporting period and based on that quarterly reconciliation report, NHPI will
      make
      a
      once per quarter adjustment of the monthly fee paid to Xel to either increase
      or
decrease
      the first immediately following monthly payment as needed. NHPI shall have
      rights
      to
      audit such expenses once each three months with 15 days written notice and
      reasonable
      accommodation to Xel.

    


    7.4           Overruns.
      The parties recognize that the cost of completing the program may exceed
the
      budgeted amount. To fairly apportion the amount of any overruns, NHPI shall
      be
responsible
      for and shall reimburse Xel for all of reasonable overruns (both internal and
      external
      expenses) for performing the Product Development Program –
      Stage
      I
      up to an amount
      of
      two hundred fifty thousand dollars [$250,000] and Xel shall be responsible
      for
funding
      all overruns over two hundred fifty thousand dollars [$250,000].

    


    8.0           Dr.
      Dinesh C Patel shall serve as a scientific advisor to NHPI in relation to this
      Project, the
      term
      of which regarding compensation and other expense will be negotiated at a later
      date.

    


    
      	
              The
                information contain
                in this
                communication is confidential and is intended for
                the use
                of
                individual or
                entity named herein.

            


    


    
      
        
        

      

      
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    9.0           Xel
      Represents and Warrants that it has legal right and title to all Intellectual
      Property relating
      to the Product, that it is currently unaware of any third party patent or
      intellectual property
      right which the manufacture, use or sale of the Product would infringe, that
      it
      has the right
      to
      enter into this agreement and that such action does not create any conflict
      with
      any other agreement
      to which it is a party.

    


    10.0         This
      Agreement shall be governed by New York law.

    


    
      	
              /s/
                Wade W. Xiong

            	 	
              /s/
                Reuben Seltzer

            
	
              Wade
                W. Xiong

            	 	
              Reuben
                Seltzer

            
	
              CEO

            	 	
              President

            
	
              Xel
                Herbaceuticals, Inc.

            	 	
              Neuro
                Hitech Pharmaceuticals, Inc.

            
	 	 	 
	 	 	 
	
              Date:
                03/08/2006

            	 	
              Date:
                03/15/2006

            


    

    


    


    


    


    


    


    


    


    
      	
              The
                information contain
                in this
                communication is confidential and is intended for
                the use
                of
                individual or
                entity named herein.

            


    

     

    
      
        
        

      

      
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