CONVERTIBLE LOAN AGREEMENT

         This  Convertible  Loan  Agreement is entered into as of August 3, 1999
(the  "Effective  Date"),  by and  between  Merz + Co.  GmbH  & Co.,  a  company
organized  under the laws of Germany,  with its  principal  place of business at
Eckenheimer  Landstrasse  100-104,  60318 Frankfurt a.M., Germany ("Merz"),  and
Neurobiological  Technologies Inc., a Delaware  corporation,  with its principal
place of business at 1387 Marina Way South, Richmond,  California, 94804, U.S.A.
("Borrower").


                              W I T N E S S E T H:


         WHEREAS,  Merz and  Borrower  are parties to that  certain  License and
Cooperation Agreement dated April 16, 1998 (the "License Agreement") pursuant to
which, among other things, Borrower has granted an exclusive license relating to
certain  confidential  information  to Merz in  consideration  for,  among other
things, a share of certain future royalties; and


         WHEREAS,  Borrower  wishes to borrow  certain  funds  from Merz for use
solely in  connection  with the  research,  development  and clinical  trials of
Memantine for the indication  neuropathic  pain, in accordance  with the License
Agreement; and


         WHEREAS,  Merz  is  willing  to  loan  certain  funds  to  Borrower  in
accordance with the terms and conditions of this Agreement.


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


Article 1:  Definitions


         For  purposes of this  Agreement,  the  following  terms shall have the
following meanings:


         1.1 All terms specifically  defined in the License Agreement shall have
the same meaning as provided in the License Agreement.


         1.2 The  "Loan"  means all  monies  loaned by Merz to  Borrower,  in an
amount not to exceed One Million,  Five Hundred  Thousand  United States Dollars
(US$1,500,000.00).


         1.3 "Future  Royalties" means and includes any license fees,  royalties
or other consideration which (i) may become payable by Merz to Borrower deriving
from the licensing or  distribution  of Products for the indications of dementia
and/or neuropathic pain pursuant to the License  Agreement;  or (ii) are payable
to  Borrower  by  any  other  person,  firm,  corporation  or  other  entity  in
consideration  for the sale or  licensing  of  rights  in or to any of the other
products or technologies of Borrower.

                                       1
<PAGE>


Article 2:  Grant of Loan


         2.1 Subject to the terms and conditions of this  Agreement,  Merz shall
extend  the  Loan to  Borrower  in  accordance  with the  following  provisions,
conditions, limitations and requirements:


                  a.  Immediately  upon execution of this Agreement,  Merz shall
disburse the sum of Five Hundred Thousand United States Dollars  (US$500,000.00)
in immediately available funds to Borrower.


                  b. No earlier than  September 30, 1999,  Borrower may apply to
Merz for the  disbursement of an additional Five Hundred  Thousand United States
Dollars  (US$500,000.00).  Any  application by Borrower for the  disbursement of
such  additional  Five Hundred  Thousand  United States Dollars  (US$500,000.00)
shall be  accompanied  by (i)  Borrower's  progress  report with  respect to the
research,  development  and clinical  trials for  Memantine  for the  indication
neuropathic  pain;  (ii)  Borrower's  most recent  unaudited  monthly  financial
statements; and (iii) Borrower's certificate,  signed by an officer of Borrower,
confirming  that all funds  disbursed  by Merz to  Borrower  pursuant to Article
2.1(a) hereof have been used by Borrower  solely in accordance  with Article 2.3
hereof,  and Borrower is otherwise in compliance with its obligations under this
Agreement.


                  c. In the event that Merz shall have disbursed the sum of Five
Hundred Thousand United States Dollars  (US$500,000.00)  to Borrower pursuant to
Article 2.1(b) of this  Agreement,  no earlier than December 15, 1999,  Borrower
may apply to Merz for the  disbursement of an additional  Five Hundred  Thousand
United  States  Dollars  (US$500,000.00).  Any  application  by Borrower for the
disbursement  of an  additional  Five Hundred  Thousand  United  States  Dollars
(US$500,000.00)  shall be  accompanied by (i)  Borrower's  progress  report with
respect to the research,  development  and clinical trials for Memantine for the
indication  neuropathic  pain;  (ii) Borrower's  most recent  unaudited  monthly
financial statements; and (iii) Borrower's certificate,  signed by an officer of
Borrower,  confirming that all funds  disbursed by Merz to Borrower  pursuant to
Articles  2.1(a)  and  2.1(b)  hereof  have  been  used by  Borrower  solely  in
accordance with Article 2.3 hereof, and Borrower is otherwise in compliance with
its obligations under this Agreement.


                  2.2(a) Any application by Borrower under Article 2.1(a) and/or
Article 2.1(b) hereof for the  disbursement  of additional  funds of the Loan by
Merz  shall be  subject  to  acceptance  or  rejection  by Merz,  at Merz'  sole
discretion; provided, however, that Merz shall accept an application by Borrower
under Article 2.1(b) or Article 2.1(c) hereof, as the case may be, provided that
(i) Borrower is in compliance with all of its obligations  under this Agreement;
and (ii) Merz is satisfied with the results of Borrower's research,  development
and clinical trials of Memantine as of the date of such application.


                  2.2(b) Merz shall provide  Borrower with written notice of its
acceptance or rejection of any  application  by Borrower under Article 2.1(b) or
Article 2.1(c) hereof within 10 days after the date of such application.  In the
event that Merz accepts any such  application  by Borrower,  Merz shall disburse
the funds covered by that  application to Borrower  within 5 days



                                       2
<PAGE>

after  the  date of Merz'  written  notice  of  acceptance  of such  application
pursuant to this Article 2.2(b).


                  2.2(c) Borrower's obligations to Merz with respect to the Loan
shall be evidenced by one or more Promissory Notes  substantially in the form of
Exhibit A hereto (the "Promissory Notes").


         2.3  Borrower  shall  use all of the  proceeds  of the Loan  solely  to
finance  Borrower's  research,  development and clinical trials of Memantine for
the indication neuropathic pain, in accordance with Borrower's plan for clinical
trials  attached  hereto as Schedule 2.3, and for no other  purpose  whatsoever,
except as authorized in writing by Merz.


         2.4 Borrower shall repay the outstanding  principal amount of the Loan,
together with all interest  accrued thereon as provided in Article 3 hereof,  on
or before December 31, 2000,  provided,  however,  that partial repayment of the
Loan shall be due beginning on the date on which any Future Royalties become due
up to the  amount  of any such  Future  Royalties  accruing  from  time to time.
Borrower hereby assigns to Merz any Future Royalties in partial repayment of the
Loan, subject to the following terms and conditions:


         (a)      the Future  Royalties  assigned by Borrower to Merz  hereunder
                  will be those  accruing in favor of Borrower under the License
                  for as long as any sums due to Merz  hereunder,  including all
                  accrued interest, are outstanding;


         (b)      the Future Royalties are assigned by Borrower  hereunder up to
                  the aggregate amount  outstanding  under the Loan from time to
                  time, including all accrued interest; and


         (c)      this  assignment of the Future  Royalties shall terminate upon
                  the exercise in full of the conversion  rights provided for in
                  Article 4 hereof or upon repayment by the Borrower of the full
                  amount of the Loan and all interest accrued thereon, whichever
                  comes first.


         2.5  Borrower  may prepay the Loan,  in whole or in part,  at any time,
without penalty or premium, upon fifteen (15) days prior written notice to Merz,
during  which period Merz may elect to convert the Loan into  Borrower's  Common
Stock as provided in Article 4 hereof. In the event that Borrower makes any such
prepayment hereunder,  as well as in the event of the application by Merz of any
Future  Royalties  in payment of the Loan  pursuant to Article  2.4 hereof,  the
amount of such  prepayment or application of Future  Royalties,  as the case may
be, shall be applied:  (i) first, against all interest accrued as of the date of
such prepayment or application of Future Royalties,  as determined in accordance
with Article 3 hereof; and (ii) second, against the principal amount of the Loan
outstanding  as of  the  date  of  such  prepayment  or  application  of  Future
Royalties.


         2.6 All disbursements of the Loan by Merz to Borrower, and all payments
of principal and interest by Borrower to Merz hereunder  shall be made solely in
United States Dollars.

                                       3
<PAGE>


Article 3:  Interest


         3.1 Simple interest shall accrue on the outstanding  principal  balance
of,  and any  accrued  but  unpaid  interest  on,  the Loan at the rate of Eight
Percent (8%) per annum.  Except in the event of a prepayment  by the Borrower in
whole or in part of the outstanding  principal  balance of the Loan, as provided
in Article 2.5 hereof,  all accrued interest shall be paid in full no later than
December 31, 2000.


         3.2  Interest  shall be  computed  hereunder  on the basis of a year of
three  hundred and  sixty-five  (365) days,  and shall be based on the principal
amount of the Loan and any accrued but unpaid  interest  outstanding  as of each
such day.


         3.3 In the  event  that  the  interest  payable  by  Borrower  to  Merz
hereunder, as determined in accordance with Articles 3.1 and 3.2 hereof, exceeds
the maximum interest rate permitted under applicable law,  Borrower shall not be
obligated  to pay,  and Merz shall not be entitled  to collect or  receive,  any
interest  in  excess  of the  amount of  interest  computed  on the basis of the
maximum rate permitted under applicable law.


Article 4: Conversion Rights


         4.1 Merz  Conversion  Right.  At any time while any sums due under this
Agreement are outstanding, Merz may (but is not obligated to) convert the entire
outstanding  principal  balance of the Loan,  together with all accrued interest
thereon,  into  shares of  Borrower's  Common  Stock by  delivering  the Note to
Borrower  together with a written notice of intent (the "Conversion  Notice") to
convert the Loan on the date  specified in such notice,  which date shall be the
fifteenth (15th) day after Merz sends Borrower the Conversion Notice.


         4.2 Amounts to be  converted.  Borrower  shall issue to Merz upon Merz'
exercise of its conversion rights under Article 4.1 the number of fully paid and
nonassessable  shares of Common  Stock of  Borrower,  equal to the amount of the
outstanding  principal  balance of the Loan,  together with all accrued interest
thereon,  divided by the  Conversion  Price,  as defined in Article  4.3 hereof,
rounded down to the nearest whole share,  with the value of any fractional share
to be paid to Merz in cash.

         4.3 Conversion Price.

                  The  "Conversion  Price"  of the  Loan  shall  be equal to One
United States Dollar and Five Cents ($1.05) per share; provided,  however, that,
in the event that, at any time prior to Merz' exercise of its conversion  rights
under this Article 4, Borrower shall issue (i) any  additional  shares of stock,
whether through a secondary offering of such shares, a stock split, stock bonus,
stock  dividend  or  otherwise,  or  (ii)  any  securities  convertible  into or
exchangeable for shares of stock of Borrower  (including  warrants,  options, or
conversion rights), the number of shares of Borrower's Common Stock to be issued
to Merz upon the exercise of Merz' conversion  rights under this Article 4 shall
be  increased  in  accordance  with the  formula  set forth in Exhibit B hereto;
provided that no increase of the shares so issuable to Merz shall occur upon the
grant



                                       4
<PAGE>

to employees,  directors or consultants of options to purchase  Borrower's stock
pursuant  to a stock  option  plan  approved  by the Board of  Directors  of the
Borrower prior to the Effective Date.


         4.4 Disposition of Shares.  Borrower shall take all actions  reasonably
requested  by Merz,  in order to  permit  Merz to sell,  transfer  or  otherwise
dispose of the shares of  Borrower's  Common Stock  acquired by Merz pursuant to
its exercise of its  conversion  rights under this Article 4: (i) in  accordance
with Rule 144 issued  under the  Securities  Act of 1933,  as  amended;  or (ii)
pursuant to a registration statement submitted by Borrower to the Securities and
Exchange Commission under the Securities Act of 1933, as amended,  and the rules
and regulations promulgated thereunder.

         4.5 Legends. The certificate or certificates representing the shares of
Common  Stock  issuable  upon  conversion  of the Loan shall bear the  following
legends, in addition to any legend required by law:


                  "The shares represented by this certificate have been acquired
for investment and not FOR  distribution.  theSE Shares HAVE NOT BEEN REGISTERED
UNDER the securities act of 1933, AS AMENDED,  AND MAY NOT BE SOLD,  OFFERED FOR
SALE,  PLEDGED,  OR  HYPOTHECATED  IN THE ABSENCE OF AN  effective  registration
statement with respect to the shares under such act or unless sold in compliance
with such act."



Article 5:  Representations and Warranties of Borrower


         Borrower  hereby  represents  and  warrants to Merz that the  following
statements  are true,  correct and complete as of the date of this Agreement and
as of each date on which Merz  disburses  any  portion of the Loan  pursuant  to
Article 2.1 hereof.


         5.1 Organization  and Corporate  Power.  Borrower is a corporation duly
organized,  validly existing and in good standing under the laws of the State of
Delaware. Borrower has full corporate power and authority to execute and deliver
this  Agreement,  to perform its  obligations  hereunder,  and to consummate the
transactions  contemplated  hereby.  The Borrower is duly  qualified and in good
standing to do business as a foreign  corporation in each jurisdiction where the
failure to be so  qualified  would have a  materially  adverse  effect  upon the
Borrower. The Certificate of Incorporation, as amended to date, certified by the
Secretary of State of Delaware,  and the Bylaws of the  Borrower,  as amended to
date,  which have  previously  been  provided to Merz by Borrower,  are true and
complete copies thereof as currently in effect.


         5.2 Authorizations.  This Agreement, and each and every Promissory Note
to be executed by Borrower in connection  herewith,  has been duly authorized by
all  necessary  corporate  action  on the part of  Borrower,  has been  duly and
validly  executed and delivered by Borrower and  constitutes a legal,  valid and
binding obligation of Borrower  enforceable  against Borrower in accordance with
its terms, subject, as to enforcement, to bankruptcy, insolvency,


                                       5
<PAGE>

reorganization  and other laws of general  application  relating to or affecting
creditors'  rights  and  to  general  equity  principles.   The  resolutions  of
Borrower's  Board of Directors  authorizing  the  execution and delivery of this
Agreement by Borrower,  which have previously been provided to Merz by Borrower,
are true and complete copies thereof as currently in effect.


         5.3 Capitalization of the Borrower. The authorized capital stock of the
Borrower  consists of 25,000,000  shares of Common Stock and 5,000,000 shares of
Preferred  Stock, of which 3,000,000 shares are designated as Series A Preferred
Stock.  As of March 31, 1999,  there were  9,291,699  shares of Common Stock and
2,232,000 Shares of Series A Preferred Stock issued and  outstanding.  Except as
provided in the Disclosure  Schedule  attached hereto as Exhibit C, Borrower has
no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any of its equity  securities or any interest  therein or to pay any dividend or
make any  other  distribution  in  respect  thereof  or to  register  any of its
currently outstanding or future issuances of securities under the Securities Act
of 1933,  as amended.  To  Borrower's  knowledge,  there are no voting trusts or
agreements,  stockholders' agreements,  pledge agreements,  buy-sell agreements,
rights of first refusal, preemptive rights or proxies relating to any securities
of Borrower (whether or not Borrower is a party thereto). All of the outstanding
securities  of Borrower were issued in compliance  with  applicable  Federal and
state securities laws in all material respects.


         5.4 No Conflicts. Neither the execution and delivery of this Agreement,
nor the consummation by Borrower of the  transactions  contemplated  hereby,  or
compliance with any of the provisions  hereof,  will (i) conflict with or result
in a breach of, violation of, or default under, any of the terms,  conditions or
provisions of any material note,  bond,  mortgage,  indenture,  license,  lease,
credit agreement or other material agreement, document, instrument or obligation
to which  Borrower is a party or by which any of its assets or properties may be
bound, or (ii) violate any judgment, order, injunction, decree, statute, rule or
regulation  applicable to Borrower, or any of its material assets or properties.
No authorization, consent or approval of any governmental authority or any third
party  is  necessary  for  the  consummation  by  Borrower  of the  transactions
contemplated by this Agreement.


         5.5  Litigation;   Compliance  with  Laws.  There  are  no  actions  or
proceedings  pending by or against  Borrower before any court or  administrative
agency in which an adverse  decision  could have a  material  adverse  effect on
Borrower.  Borrower  does not have  knowledge of any such pending or  threatened
actions or  proceedings.  Borrower will  promptly  notify Merz in writing if any
action,  proceeding  or  governmental   investigation,   involving  Borrower  is
commenced that may result in damages or costs to Borrower of $50,000.00 or more.
Borrower has met, and at all times will meet, the minimum  funding  requirements
of ERISA with respect to any employee  benefit plans  subject to ERISA.  None of
Borrower's  properties  or assets has ever been used by Borrower or, to the best
of Borrower's knowledge,  by previous owners or operators in the disposal of, or
to produce, store, handle, treat, release, or transport,  any hazardous waste or
hazardous substance other than in accordance with applicable law. Borrower is in
material  compliance with all Federal,  state and local  environmental  laws and
ordinances with respect to the conduct of its business.


                                       6
<PAGE>

         5.6 Financial  Statements.  No Material  Adverse  Change.  Borrower has
furnished to Merz its audited  financial  statements for the year ended June 30,
1998 and unaudited  financial  statements for the quarters  ended  September 30,
1998, December 31, 1998 and March 31, 1999. All such financial statements fairly
present,  in all material  respects,  the financial position of Borrower for the
periods then ended, and have been prepared in conformity with generally accepted
accounting  principles,  consistently  applied,  except,  as  to  the  unaudited
financial  statements,  for the  omission of notes  thereto and normal  year-end
audit adjustments. There has not been a material adverse change in the financial
condition  of  Borrower  since  the date of the most  recent  of such  financial
statements submitted to Merz.


         5.7 Absence of Undisclosed Liabilities. Except as reflected or reserved
against in the most recent  financial  statements or set forth in the Disclosure
Schedule,  the  Borrower has no liability or  obligation  (whether  accrued,  to
become due,  contingent or  otherwise)  which  individually  or in the aggregate
could  reasonably  be  expected  to  have a  materially  adverse  effect  on the
business, assets, or financial condition of Borrower.


         5.8  Proprietary  Information  of Third  Parties.  No third  party  has
claimed, nor to Borrower's knowledge is there any valid basis to claim, that any
person  employed  by or serving as a director or  consultant  to,  Borrower  has
violated or may be violating any of the terms or  conditions of any  employment,
non-competition or non-disclosure agreement with such third party. To Borrower's
knowledge,  Borrower's  Intellectual  Property  Rights  do not  infringe  on the
intellectual property rights of any third party.


         5.9 Taxes.  Borrower has filed (or has received appropriate  extensions
for) all tax returns,  federal, state, county and local, required to be filed by
it, and Borrower has paid all taxes shown to be due by such returns,  as well as
all other taxes,  assessments and governmental  charges which have become due or
payable,  including  without  limitation,  taxes which  Borrower is obligated to
withhold  from amounts  owing to  employees,  creditors  and third  parties.  To
Borrower's  knowledge,  there  is no  tax  lien  on any  of  Borrower's  assets,
properties or business.


         5.10 Loans and Advances;  Assumptions and Guaranties of Indebtedness of
Other Persons.  Borrower does not have any outstanding  loans or advances to any
person and is not obligated to make any such loans or advances,  except, in each
case,  advances  to  employees  in respect  of  reimbursable  business  expenses
anticipated  to be  incurred by them in  connection  with their  performance  of
services  for  Borrower.  Borrower  has not  assumed,  guaranteed,  endorsed  or
otherwise  become  directly or  contingently  liable on any  indebtedness of any
other person, other than guaranties by endorsement of negotiable  instruments or
items of payment for deposit or collection in the ordinary course of business.


         5.11 Disclosure.  Neither this Agreement, nor any certificate furnished
to Merz by or on behalf of Borrower pursuant to the provisions hereof,  contains
any  untrue  statement  of a  material  fact or omits to state a  material  fact
necessary  to be  stated  in order to make the  statements  contained  herein or
therein not misleading. Borrower has no knowledge of any fact which has not been
disclosed in writing to Merz which may  reasonably be expected to materially and
adversely  affect the  business,  properties,  or  operations of Borrower or the
ability of  Borrower  to



                                       7
<PAGE>

perform all of the  obligations to be performed by Borrower under this Agreement
and/or any other agreement between Merz and Borrower to be entered into pursuant
to any provision of this Agreement.


Article 6:  Conditions Precedent


         In addition to the  provisions  of Articles  2.1 and 2.2 hereof,  Merz'
obligation to make any  disbursement  of the Loan is subject to  satisfaction of
each of the following conditions:


         6.1 Borrower shall have delivered to Merz the following documents,  all
in form and substance satisfactory to Merz:


                  (a)      an  appropriate  Promissory  Note,  duly  executed on
                           behalf of Borrower;


                  (b)      a copy of the  resolutions  of the Board of Directors
                           of Borrower  authorizing the actions and transactions
                           contemplated  by this Agreement and the execution and
                           delivery of the documents to be executed on behalf of
                           Borrower pursuant to the provisions hereof, including
                           a secretary's  certificate as to the authority of the
                           signatories thereof; and


                  (c)      a  certificate  by an officer of Borrower  certifying
                           that   all   of   Borrower's    representations   and
                           warranties,  as set forth in Article 5 hereof,  shall
                           be true and  correct as of the date  hereof and as of
                           the date of disbursement of such funds.


Article 7:  Covenants of Borrower


         A.       During the continuance of this Agreement, Borrower shall:


                  (1) Remain  qualified to do business  and in good  standing in
each state and other  jurisdiction  where the failure to be so  qualified  would
have a material  adverse  effect on  Borrower,  and  maintain  in full force and
effect all governmental  licenses,  permits,  authorizations,  registrations and
approvals necessary or appropriate for the conduct of Borrower's business.


                  (2) Maintain all books and records of account,  in  accordance
with generally accepted  accounting  principles,  consistently  applied,  of all
assets, operations and finances of Borrower.


                  (3) Maintain  insurance  with  reputable  insurers in covering
such risks, and with such coverage limits as are carried by companies engaged in
similar businesses and owning similar assets as the Borrower.


                  (4) Comply in all material  respects with all applicable laws,
regulations and governmental orders,  including,  but not limited to, the filing
of all tax  returns  and the payment of all taxes,  fees,  assessments  or other
governmental charges.


                                       8
<PAGE>

                  (5) Execute and deliver  such other  documents,  and take such
other  actions,  as Merz shall  reasonably  request from time to time to protect
Merz' rights hereunder, or to further the transactions contemplated herein.


         B.  During  the  continuance  of this  Agreement,  Borrower  shall not,
without the prior written authorization of Merz:


                  (1) Sell,  transfer,  assign or convey any material  assets of
Borrower,  other than in the ordinary course of Borrower's business,  or create,
incur,  assume or suffer the  imposition of any lien,  encumbrance,  mortgage or
security interest on any of Borrower's material assets.


                  (2) Create,  incur or assume any indebtedness,  other than (i)
Borrower's   indebtedness  to  Merz  under  this  Agreement,   (ii)  such  other
indebtedness,  in the form of trade accounts  payable,  incurred in the ordinary
course of Borrower's business,  without the prior written authorization of Merz;
provided,  that Borrower may incur indebtedness with third party lenders if such
lenders,  Merz and the  Borrower  execute  a  Subordination  Agreement,  in form
acceptable  to Merz,  pursuant to which  Borrower  shall not make any  payments,
directly or indirectly, by set-off, purchase or otherwise, for such indebtedness
of whatever kind or nature,  whether in cash, property,  securities or otherwise
with priority over, or prior to, the repayment of the Loan.


                  (3) Declare or make, or agree to declare or make, any dividend
or  distributions of any assets of any kind whatsoever to any  shareholders,  or
purchase or redeem,  or agree to  purchase or redeem,  any of its stock or other
securities.


Article 8:  Events of Default


         Each of the  following  events shall  constitute  an "Event of Default"
under this Agreement:


         8.1 Borrower fails to repay the entire outstanding  principal amount of
the Loan  hereunder  and/or any and all  interest  accrued  thereon when due, in
accordance with the provisions of Article 2.4 hereof.


         8.2  Borrower  breaches,  or commits any default  under,  any  material
obligation  (including  without  limitation the covenants set forth in Article 7
hereof) under this Agreement or under the License Agreement.


         8.3 Any representation or warranty by Borrower, as set forth in Article
5 hereof,  shall prove to be  incorrect  so as to have,  or be likely to have, a
material adverse effect on the Borrower, or its business, properties, operations
or financial condition.


         8.4  Borrower  shall  file a  voluntary  petition,  or shall have filed
against it any  involuntary  petition  under any applicable  bankruptcy  law, be
declared  insolvent,  admit in writing  its  inability  to pay its debts as they
become due,  makes an assignment  for the benefit of  creditors,  or suffers the
appointment  of a  receiver  or  trustee  over all or  substantially  all of its
assets.


                                       9
<PAGE>

Article 9:  Consequences of Default


         In the event of the  occurrence of any Event of Default  hereunder,  as
provided  in  Article 8 hereof,  Merz may give  written  notice of such Event of
Default,  and demand  that such Event of  Default be cured  immediately.  In the
event that  Borrower  fails to cure such  Event of Default  within ten (10) days
after the date of Merz' written notice thereof, pursuant to this Article 9, Merz
may exercise all, or any, of the following rights and remedies:


         9.1 The entire outstanding  principal amount of the Loan, together with
all interest accrued thereon,  shall  immediately  become due and payable on the
expiration of such ten (10) day period,  without  further  notice,  presentment,
demand  or  protest  by Merz,  all of which  are  hereby  irrevocably  waived by
Borrower,  and  Borrower  shall pay to Merz the full amount of such  outstanding
principal amount of the Loan, together with all interest accrued thereon, within
ten (10) days after the expiration of such ten (10) day period.


         9.2 In  addition  to,  and not in lieu  of,  the  rights  and  remedies
provided  for in Article  9.1 hereof,  Merz may  exercise  all other  rights and
remedies provided under applicable law.


         9.3  The  occurrence  of an  Event  of  Default  shall  not  impair  or
invalidate  Merz' conversion  rights under Article 4 hereof,  which Merz, in its
sole discretion,  may exercise,  provided,  however,  that Merz' exercise of its
conversion  rights under Article 4 shall not limit or impair Merz' right to seek
any other remedies  available to Merz under applicable law,  including,  but not
limited  to, the right to recover  damages  from  Borrower  for any and all harm
suffered or incurred by Merz as a result of such Event of Default.


Article 10:  Term


         This Agreement shall enter into effect on the date of execution hereof,
and shall remain in full force and effect until the entire  principal  amount of
the Loan,  together with all interest accrued  thereon,  shall have been paid in
full by Borrower to Merz, or until Merz  exercises its  conversion  rights under
Article 4 hereof, as the case may be.


Article 11:  General Provisions


         11.1  Assignment:  Borrower  shall  not have the  right or the power to
assign any of its rights, or delegate the performance of any of its obligations,
under this Agreement,  without the prior written consent of Merz, which Merz may
grant or  withhold in its sole  discretion.  Subject to the  provisions  of this
Article 11.1, this Agreement shall inure to the benefit of, and be binding upon,
the parties' respective successors and assigns.

         11.2 Notices: All notices and other  communications  hereunder shall be
sent: (i) by registered mail, postage prepaid and return receipt requested; (ii)
by international  air courier;  or (iii) by facsimile,  with a confirmation copy
sent by registered mail or international air courier, addressed as follows:

                                       10
<PAGE>

         To:      Merz                  Merz + Co. GmbH & Co.
                                        Eckenheimer Landstrasse 100-104
                                        60318 Frankfurt a.M.
                                        Germany
                                        Attention: Head of Corporate Development
                                        Facsimile: (011-49-69) 150-3400

         To:      Borrower              Neurobiological Technologies Inc.
                                        1387 Marina Way South
                                        Richmond, CA 94804
                                        U.S.A.
                                        Attention: President
                                        Facsimile: (510) 215-8100

All notices and other  communications given in accordance with this Article 11.2
shall be deemed  received:  (i) if sent by registered  mail, five (5) days after
the date of mailing;  (ii) if sent by  international  air courier,  two (2) days
after the time and date of dispatch; and (iii) if sent by facsimile, twenty-four
(24) hours after the time and date of transmission.


         11.3  Governing   Law:  This  Agreement   shall  be  governed  by,  and
interpreted in accordance  with, the laws of the State of California,  excluding
conflicts of laws rules.


         11.4  Dispute  Resolution:   Any  dispute  relating  to  the  validity,
performance,  interpretation  or  construction  of this Agreement that cannot be
amicably  resolved  between  the parties  shall be  submitted  to the  exclusive
jurisdiction  of the courts,  including the United States  District  Courts,  in
Contra Costa County,  California.  Each party hereto irrevocably consents to the
personal  jurisdiction of the courts in Contra Costa County,  California for the
resolution of all disputes hereunder.


         11.5 Attorneys' Fees: In the event that Merz initiates any legal action
to collect  any monies  owed to Merz by  Borrower  hereunder,  or  otherwise  to
enforce any of Merz'  rights  hereunder,  provided  that Merz is the  prevailing
party in such legal  action,  Borrower  shall  reimburse  Merz for all costs and
expenses incurred by Merz in connection with such legal action,  including,  but
not limited to, Merz' reasonable attorneys' fees.


         11.6 Waivers:  Any failure by Merz to enforce,  or any delay by Merz in
enforcing,  any of its  rights  under  this  Agreement  shall  not be  deemed to
constitute  a waiver by Merz of its right  thereafter  to enforce each and every
provision of this Agreement in accordance with its terms.


         11.7 Headings: The headings in this Agreement are for convenience only,
and shall not affect the interpretation or construction of this Agreement.


         11.8  Counterparts:  This  Agreement  may be  executed in more than one
counterpart, each of which when so executed shall be deemed an original, but all
which together shall constitute a single instrument.

                                       11
<PAGE>


         11.9 Entire Agreement and Amendments: This Agreement, together with the
Exhibits attached hereto and other agreements  incorporated herein by reference,
constitutes the entire agreement between the parties with respect to the subject
matter hereof,  and supersedes all prior  agreements,  understandings  and other
communications  between the parties  with  respect to such  subject  matter.  No
modification  or amendment to this  Agreement  shall be binding upon the parties
unless in writing and executed by the duly authorized representatives of each of
the parties.


         [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]





                                       12
<PAGE>


         IN WITNESS  WHEREOF,  the  parties  have caused  this  Agreement  to be
executed this 3th day of August, 1999.





Merz + Co. GmbH & Co.                          Neurobiological Technologies Inc.




/s/ Peter Mauritz                               /s/ Paul E. Freiman
---------------------------------               --------------------------------
Name:    Peter Mauritz                          Name:   Paul E. Freiman
Title:   Vice President Finance                 Title:  President & CEO



/s/ Friedhelm Klingenburg
---------------------------------
Name:    Friedhelm Klingenburg
Title:   Executive Director




               [Signature page of the Convertible Loan Agreement]



                                       13
<PAGE>

                                    EXHIBIT A

                                 PROMISSORY NOTE


$500,000.00


8.0%                                         Richmond, California, July 26, 1999


FOR VALUE RECEIVED,  Neurobiological  Technologies Inc., a Delaware  corporation
("Borrower")  promises  to pay to the order of Merz + Co.  GmbH & Co., a company
organized  under  the laws of  Germany  ("Lender"),  at the  Lender's  office at
Eckenheimer  Landstrasse 100-104, 60318 Frankfurt a.M., Germany, in lawful money
of the United  States of America  and in  immediately  available  funds,  at the
Maturity Date (as defined  below) the  principal sum of Five Hundred  Thousand &
00/100 Dollars  (US$500,000.00)  together with interest on the unpaid  principal
balance from the Issue Date.


         Simple interest shall accrue on the outstanding  principal  balance of,
and any accrued but unpaid  interest on, this Note at the rate of Eight  Percent
(8%) per annum. The entire principal  balance and any and all other sums payable
hereunder, including all accrued interest hereunder, shall be due and payable on
December 31, 2000.


         Borrower  may prepay the Loan,  in whole but not in part,  at any time,
without penalty or premium, upon fifteen (15) days prior written notice to Merz.


         This Promissory Note is one of the Promissory Notes referred to in that
certain  Convertible  Loan  Agreement  between  Borrower and Lender of even date
herewith  (together  with all  related  schedules,  as the same may be  amended,
modified or  supplemented  from time to time,  the  "Agreement")  and is secured
thereby.  Capitalized terms not defined herein shall have the meanings set forth
in the Agreement.


         Upon the  occurrence  of any Event of Default under the  Agreement,  at
Merz'  option,  all of Borrower's  obligations  to Merz  hereunder  shall become
immediately due and payable,  without notice, demand,  presentment,  protest, or
other  formalities  of any kind,  all of which are  hereby  expressly  waived by
Borrower.


         If any action at law or in equity is  necessary to enforce or interpret
the terms of this Note,  the  prevailing  party shall be entitled to  reasonable
attorneys'  fees,  costs and  disbursements  in addition to any other  relief to
which such party may be entitled.


                  ALL RIGHTS AND OBLIGATIONS  HEREUNDER SHALL BE GOVERNED BY THE
LAWS OF THE STATE OF  CALIFORNIA  WITHOUT  REGARD TO  PRINCIPLES OF CONFLICTS OF
LAW. THE PARTIES SUBMIT TO THE EXCLUSIVE  JURISDICTION  OF THE SUPERIOR COURT OF
THE STATE OF CALIFORNIA IN CONTRA COSTA  COUNTY,  OR THE MUNICIPAL  COURT OF THE
STATE OF CALIFORNIA,  CONTRA


<PAGE>

COSTA COUNTY , OR THE UNITED STATES DISTRICT COURT FOR THE NORTHERN  DISTRICT OF
CALIFORNIA, IN ANY LITIGATION ARISING OUT OF THIS NOTE.


BORROWER:

Neurobiological Technologies, Inc.



By: __________________________________
Name: ________________________________
Title: _______________________________


Attest:


________________________
_____________, Secretary



<PAGE>


                                   EXHIBIT B


                               Conversion Formula

<TABLE>
<CAPTION>
<S>                                           <C>
             N Merz Shares
            _______________________________   X N NewStock X (MktPrice - NewStockPrice)
             N Outst Shares + N Merz Shares
      Q=    ____________________________________________________________________
                                     1.05
</TABLE>


Q                 =        Additional number of shares to be issued to Merz upon
                           conversion of the Loan


N. Merz Shares    =        Number of shares  Merz is  entitled  to convert  into
                           prior to adjustment

N. Outst Shares   =        Number of  outstanding  shares at the time new shares
                           are  issued or  warrants  or  conversion  rights  are
                           granted

N NewStock        =        Number of new equity securities issued (i.e.,  stock,
                           warrants,  conversion  rights or  options,  excluding
                           options  granted  pursuant to stock  option  plans as
                           provided in Section 4.3)

MktPrice          =        Current market price of Borrower's  stock  calculated
                           as  arithmetic   average  price  of  the  previous  5
                           business days

NewStockPrice     =        New  stock/new  options/new  conversion  price agreed
                           between NTI and a third party


Adjustment  in case of Stock Split.  Should the  Borrower  effectuate a split or
subdivision of the outstanding  shares of Common Stock or for the  determination
of holders of Common  Stock  entitled to receive a  distribution  of  additional
shares of  Common  Stock or other  securities  or rights  convertible  into,  or
entitling  the holder  thereof to receive,  directly or  indirectly,  additional
shares  of  Common  Stock  for no  consideration,  then,  as of the date of such
distribution,  split or subdivision, the Conversion Price shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion of
the Loan shall be  increased  in  proportion  to such  increase  of  outstanding
shares.



<PAGE>


                                    EXHIBIT C


                               DISCLOSURE SCHEDULE


1.       Section 5.3: Capitalization

Outstanding Options:

o    2,000,000 shares are reserved for issuance under the Company's stock option
     plan;

o    100,000 shares are reserved for issuance under the Company's stock purchase
     plan.

Outstanding Warrants:

o    892,800 warrants at $1.00 per share expiring in April 2004;

o    1,010,410 warrants at $0.75 per share expiring in September 1999;

o    1,010,410 warrants at $1.50 per share expiring in March 2001;

o    100,000  warrants at $1.25 per share and 25,000 at $3.00 per share expiring
     in April 2001;

o    220,000 warrants at $3.90 per share expiring in February 2001; and

o    37,286 warrants at $5.60 per share expiring no later than June 2001.

Total Warrants: 3,295,906



2.       Section 5.3:  Undisclosed Liabilities

None.

<PAGE>



                     [Signature page of the Promissory Note]