Document:

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                                                                   Exhibit 10.23

                   MORTGAGE - COLLATERAL REAL ESTATE MORTGAGE;
                       SECURITY AGREEMENT, FIXTURE FILING
                             AND ASSIGNMENT OF RENTS

         This Mortgage, Security Agreement, Fixture Filing and Assignment of
Rents (the "Mortgage") is made as of the 31st day of December, 2002, by NORTHERN
LIGHTS ETHANOL, LLC, a South Dakota limited company (the "Mortgagor"), and U.S.
BANK NATIONAL Association (the "Lender").

         WHEREAS, Mortgagor earlier granted Lender a Mortgage, Security
Agreement, Assignment of Leases and Rents and Fixture Financing Statement
evidencing a loan in the principal amount of Thirty One Million One Hundred
Thousand Dollars ($31,100,000.00), from Lender to Mortgagor, filed for record
with the Register of Deeds of Grant County, South Dakota, on September 14, 2001,
at 1:25 P.M. and recorded in Book 260 at Page 178 (the "Prior Mortgage"); and

         WHEREAS, Lender has consented to make Five Million Dollars
($5,000,000.00) of such debt into a revolving loan, and to further secure such
Five Million Dollar ($5,000,000.00) revolving obligation with this Mortgage,
which will supplement the Prior Mortgage and cross-collateralize such Five
Million Dollar ($5,000,000.00) obligation;

MORTGAGOR AGREES AS FOLLOWS:

SECTION 1.  CERTAIN TERMS; GRANTS MADE AND OBLIGATIONS SECURED.

         1.1 CERTAIN TERMS. The "Loan Agreement" shall mean that Loan Agreement
dated July 11, 2001, executed by Mortgagor and Lender. The "Note" means that
Promissory Note dated January 1, 2003, in the original principal amount of Five
Million Dollars ($5,000,000.00), which matures December 31, 2007. The Note
evidences a revolving loan from Lender to Mortgagor. The "Real Estate" shall
mean the real estate in Grant County, South Dakota, and legally described as
follows: See attached Exhibit A.

         The Real Estate and all property described in Section 1.2 are together
called the "Collateral." That Collateral which constitutes personal property is
sometimes called the "Personal Collateral." The Real Estate and tangible
Collateral are sometimes called the "Property." The term "Loan Documents" means
the Loan Agreement, the Note, and any other documents evidencing and/or securing
the loan evidenced thereby, as well as all documents defined as "Loan Documents"
in the Loan Agreement. Capitalized terms defined or referenced in the Loan
Agreement shall have those meanings when used herein. The term "Lender" shall
extend to and include the owner and holder, including any pledgee, of the
Secured Obligations (defined in Section 1.4), now or hereafter and whether or
not named as Lender. The term "Accessibility Regulation" means a law relating to
accessibility of facilities or properties for disabled, handicapped and/or
physically challenged persons, including, without limitation, the Americans With
Disabilities Act of 1991, as amended. The term "Prior Mortgage" shall have the
meaning set forth in the "WHEREAS" paragraph above. Whenever the context so
requires, the masculine gender includes the feminine and/or neuter, and the
singular number includes the plural.

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         1.2 GRANTS. Mortgagor hereby grants to Lender a mortgage on all right,
title and interest of Mortgagor, now owned or hereafter acquired, in and to the
Real Estate, together with a mortgage on, Uniform Commercial Code ("UCC")
security interest in, and an assignment of all existing and future tangible and
intangible property owned, used or held in connection with the Real Estate,
including without limitation the following:

                  (a) Buildings and other structures, improvements, vaults,
sidewalks, approaches, driveways, and parking lots, sewer and water lines,
connections, pumps and lift stations, fixtures, fences, trees and other
landscaping (together the "Improvements");

                  (b) Equipment (as defined by the UCC), including without
limitation: all structural and building materials; windows, screens, doors,
floor and wall coverings, furniture and furnishings; machinery, material and
apparatus for heating, cooling, ventilating, air conditioning, gas and
electrical service, plumbing, lighting, lifting, conveyance, communications,
fire protection, storage, disposal, cleaning, repair and maintenance (together
the "Equipment");

                  (c) Rights of way (including streets and alleys), air space,
railroad spurs and tracks, easements, means of access, reversionary rights,
privileges, tenements, hereditaments, appurtenances;

                  (d) Water, riparian, oil, gas and mineral rights and all
damages, royalties and revenues related thereto:

                  (e) Leases, rents and other income, royalties, issues and
profits;

                  (f) All permits, approvals, consents, clearances, licenses and
rights obtained from, or by filing with, any government agency; and all leasing,
service, engineering, consulting, design, construction, purchase and other
contracts of any nature;

                  (g) Payment and performance bonds, warranties, guaranties and
choses in action for the same;

                  (h) Reserves, escrows, deposits, rebates, refunds and advance
payments;

                  (i) Claims and causes of action for damage to, loss or
diminution of value or taking of the Real Estate, Improvements, Equipment or any
part thereof;

                  (j) Abstracts of title, unearned insurance premiums, policies
of and proceeds from insurance;

                  (k) Accounts, Documents, Instruments, Chattel Paper, General
Intangibles, Money, Deposit Accounts (all as defined by the UCC), and all books
and records of, acquired by or maintained for Mortgagor in connection with the
ownership, lease, use, maintenance, design, construction, management,
improvement or repair of any of the foregoing; and

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                  (1) Attachments, accessions, substitutions, replacements and
all proceeds from the sale, lease, rental, exchange, collection, casualty,
obstruction, impairment, conversion, condemnation or other disposition of the
Real Estate, Improvements, Equipment or any of the other Collateral described
above or acquired with cash proceeds.

         1.3 ASSIGNMENT OF RENTS. Mortgagor hereby absolutely and
unconditionally assigns and transfers to Lender all the leases, income, rents,
issues and profits of all or any part of the Property, both before and after
foreclosure and during the period of redemption. Mortgagor irrevocably grants
Lender a power of attorney, deemed coupled with an interest, but without
fiduciary duty, and grants Lender the authority, to demand, receive and enforce
payment, to give receipts, releases, and satisfactions, and to sue, in the name
of either Mortgagor or Lender, for all such income, rents, issues and profits
and to apply the same to the Secured Obligations, after reimbursement of
expenses incurred by Lender. So long, however, as Mortgagor is not in Default,
Mortgagor shall have the right to collect and retain all income, rents, issues,
profits and proceeds subject to the Loan Agreement. Neither this assignment nor
the exercise of any rights or remedies hereunder shall be deemed to make Lender
a "mortgagee-in-possession" or otherwise responsible or liable in any manner
with respect to the Real Estate or Improvements or their use, occupancy,
enjoyment or operation. Neither foreclosure nor any sale thereunder shall cause
a satisfaction or release of the assignment to Lender under this paragraph.

         1.4 OBLIGATIONS SECURED; CROSS COLLATERALIZATION WITH PRIOR MORTGAGE.
This Mortgage is given for the purpose of securing in such order or priority as
Lender may determine the following obligations (the "Secured Obligations"): (a)
Mortgagor's obligation under the Note, and all extensions, renewals and
replacements thereof, and all interest, fees, charges and advances thereon; (b)
Performance of all Mortgagor's covenants, obligations and liabilities described
in this Mortgage or the Loan Agreement or other Loan Documents (the terms of
which are hereby incorporated into this Mortgage), except as to such documents
which expressly state not to be secured hereby; (c) Damages, fees and expenses
(including attorneys' fees) incurred by Lender with respect to the Collateral or
its protection, enforcement of Mortgagor's obligations or exercise of Lender's
rights and remedies under this Mortgage, the Loan Agreement or under applicable
law. Mortgagor acknowledges that the Prior Mortgage also secures the
above-described Secured Obligations.

         1.5 RECORDATION. Lender may file this Mortgage or a copy with any
filing officer as a financing statement or fixture filing under the UCC. A copy
of the signed original of this Mortgage shall be deemed signed by Mortgagor for
those purposes. Mortgagor shall pay all expenses of filing and of any record
search for financing statements.

         1.6 COLLATERAL REAL ESTATE MORTGAGE. THE PARTIES AGREE THAT THIS
MORTGAGE CONSTITUTES A COLLATERAL REAL ESTATE MORTGAGE PURSUANT TO SDCL 44-8-26.
THE PARTIES FURTHER AGREE THAT THE "FACE AMOUNT" OF THIS MORTGAGE FOR PURPOSES
OF SDCL 44-8-26 IS FIVE MILLION DOLLARS ($5,000,000.00). The parties further
agree that Lender may from time-to-time unilaterally prepare and execute
addendums hereto to extend the effectiveness of the lien of this Mortgage or
increase the face amount stated above. The effective period of this Mortgage is
five (5) years from and after the date it is filed for record, subject to
renewals hereof as provided above and under law.

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SECTION 2. WARRANTIES AND COVENANTS OF MORTGAGOR.

         Mortgagor warrants, covenants and agrees for the benefit of Lender and
its successors and assigns as follows:

         2. USE AND COMPLIANCE WITH LAWS.

                  (a) The Real Estate will be used in conducting Mortgagor's
ethanol and ethanol bi-products producing business; will not be used for the
sale, consumption, production, storage or disposal of hazardous or toxic waste,
materials or substances (except as provided for by the Loan Documents); and
cannot, is not and will not be claimed as a homestead by any person, such right
being expressly waived.

                  (b) Mortgagor shall keep and maintain the Real Estate and the
waters free of any waste on, under or discharged from the Property in compliance
with, and shall not cause or permit the Real Estate to be in violation of, any
federal, state or local laws, ordinances, regulations or orders now or hereafter
in effect, including those relating to environmental conditions, air, water and
land pollution, storage or disposition of hazardous materials or toxic
substances, zoning, and land use planning. Mortgagor shall adopt, implement,
keep in force and follow all appropriate monitoring, testing and management
plans and procedures for handling, using, storing, transporting and disposing of
all hazardous or toxic substances, including asbestos-containing materials.

                  (c) Mortgagor shall: obtain, maintain and not surrender, to
the extent available under or required by applicable law, all permits, opinions,
approvals, licenses, certificates and statements relating to the use, status or
condition of the Collateral; and not suffer, approve or consent to any rezoning
classification, modification or restriction applicable to the Real Estate,
without the prior written consent of Mortgage.

                  (d) Mortgagor shall comply with all Accessibility Regulations
which are applicable to the Property. In the event that (i) Lender reasonably
believes that a material violation of an Accessibility Regulation may have
occurred in connection with the Property; or (ii) Lender receives notice from
Mortgagor or otherwise has knowledge that an event described in this Section
2.1(d) and pertaining to Accessibility Regulations has occurred; then, in any
such event, Mortgagor shall at its cost obtain and deliver to Lender an
Accessibility Regulation compliance report relating to the Property or shall
have any previously delivered materials updated and/or amplified, by a qualified
consultant selected by Mortgagor and acceptable to Lender; if Mortgagor fails to
do so within forty-five (45) days after such request is made, Lender shall have
the right to do so, in which event Mortgagor shall reimburse Lender for the cost
incurred by Lender in doing so within ten (10) days following demand therefor by
Lender.

         2.2 CONDITION AND OPERATIONS OF COLLATERAL. Mortgagor agrees (a) to
keep the Property in good condition and repair, (b) not to commit or permit any
waste or deterioration of the Property, (c) not to commit or permit any removal,
demolition or substantial alteration of the Property except for alterations
required by any governmental authority having jurisdiction over the Collateral
and except for replacement of Equipment under Section 2.3 of this Mortgage, (d)
to complete in good and workmanlike manner any construction or restoration which
may be

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performed on the Property, (e) to promptly restore any portion of the Property
which may be damaged or destroyed, (f) not to permit any mechanic's or
materialman's or artisan's liens against the Property, (g) to cause the
Collateral to be developed and continuously operated in good workmanlike manner
and in accordance with generally accepted trade practices or applicable
operating agreements, (h) to provide, improve, grade, surface and thereafter
maintain, clean, repair and adequately light all parking areas within the Real
Estate, together with any sidewalks, aisles, streets, driveways and curb cuts
and sufficient paved areas for ingress, egress and right-of-way to and from the
adjacent public thoroughfares necessary or desirable for the use thereof and to
maintain all landscaping thereon, and (i) not to abandon or vacate the Real
Estate.

         2.3 TITLE; TRANSFERS AND REPLACEMENTS.

                  (a) Mortgagor represents and warrants to Lender that (i)
Mortgagor is the record owner of the Collateral free of all liens and
encumbrances, except as provided otherwise in the Loan Agreement, and except
liens for taxes not delinquent or which are being contested in good faith and
the interest of tenants under the leases; and (ii) Mortgagor will defend such
title to the Collateral against the claims of all persons.

                  (b) Except as permitted in (c) below, should Mortgagor sell,
convey, transfer or dispose of the Collateral or any part thereof, in any way,
or agree to do so, without the prior written consent of Lender, or if any of the
foregoing is accomplished by operation of law, then Lender shall have the right,
at its option, upon 30 days notice to Mortgagor, to declare the Secured
Obligations immediately due and payable. This subparagraph shall have the effect
of a "due-on-sale clause" as provided in SDCL 44-8-27, but shall not restrict
the rights of Lender upon occurrence of a similar default with respect to
Collateral governed by the UCC.

                  (c) Mortgagor shall have the right to replace, in the ordinary
course of business, any worn, damaged or obsolete Equipment without the prior
consent of the Lender, provided that the value of the Collateral as security is
not reduced or impaired by such substitution or replacement and Lender shall, as
of the time such replacement is effected, have a valid first security interest
or lien in the replacement. Otherwise any transfers of Equipment shall be
subject to the lien of this Mortgage.

         2.4 INSURANCE. Mortgagor shall keep in place all insurance or otherwise
honor all terms concerning the form, risks covered, acquisition and maintenance
of insurance as required under the Prior Mortgage.

         2.5 PAYMENTS, PERFORMANCE AND INDEMNITY.

                  (a) Mortgagor shall pay or cause to be paid: (i) all Secured
Obligations according to their terms; (ii) all taxes, assessments and other
governmental or public charges affecting the Collateral and any accrued
interest, cost and/or penalty thereon; (iii) all charges for utilities or
services relating to the Property including, but not limited to, electricity,
gas, water and sewer; (iv) any taxes levied upon this Mortgage or any Secured
Obligations; and (v) all obligations secured by the lien(s) referenced in
Section 2.3(a)(i), strictly according to the terms thereof.

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                  (b) Mortgagor shall faithfully make all payments and perform
every obligation under any existing or future agreement or encumbrance or matter
of record affecting the Collateral, including, without limitation, leases,
declaration of covenants, easements, agreements relating to railroad trackage,
conditions and/or restrictions and other agreements which affect the Collateral
or may be beneficial to the Collateral.

                  (c) Mortgagor shall indemnify and defend Lender, regardless of
alleged fault, against all claims, causes of action, actions and proceedings by
third parties or government authorities against any of the Collateral or Lender,
arising directly or indirectly from Mortgagor's or any third party's use of the
Collateral or from Mortgagor's breach of any covenant in this Section 2, and all
resulting damages, fees, fines, penalties, costs and expenses (including
attorney fees). This indemnity is cumulative with any other indemnity given in
the Loan Agreement or other Loan Documents.

                  (d) In the event all or any portion of any Collateral is
taken, actually, constructively or inversely, by the power of condemnation or
eminent domain, all proceeds of any agreement, settlement or award shall be
first used to pay all Secured Obligations.

         2.6 NOTICES. Mortgagor shall give to Lender prompt written notice of,
and all available information concerning: (a) any intent or proceeding under
power of eminent domain as to any portion of the Property; (b) any damage to or
destruction of any Property exceeding $5,000 in loss; (c) commencement of any
governmental investigation or other action, suit or proceeding arising from any
condition, use or status of the Property or otherwise concerning the Property;
(d) any claim to any Collateral adverse to Mortgagor's title or Lender's lien;
(e) breach of any of Mortgagor's covenants in this Section 2.

         2.7 PROTECTIVE MEASURES. Should Mortgagor breach any covenant or fail
to make any payment or do any act required by this Mortgage or if the Collateral
or Mortgagor or Lender's interest therein be jeopardized in any way, then Lender
may (without obligation, without notice or demand and without releasing
Mortgagor); (a) cure, make or do the same in such manner and to such extent as
Lender may deem necessary; (b) appear in and defend any action or proceedings
purporting to affect the Collateral or the rights or powers of Lender; (c) pay,
purchase, contest or compromise any encumbrance, charge or lien which, in the
judgment of Lender, appears to be prior or superior hereto; or (d) in exercising
any such powers, pay necessary expenses, employ counsel and pay their reasonable
attorneys' fees. Mortgagor shall pay as Secured Obligations immediately and
without demand all sums so expected by Lender with interest from the date of
expenditure.

         2.8 CONTINUATION OF WARRANTIES. At all times before full, final and
irrevocable payment and performance of all Secured Obligations, Mortgagor shall
take, omit or refrain from all actions, give or withhold all consents and
approvals, and execute and file all instruments and documents as necessary or
advisable to assure the continuing accuracy of all warranties of Mortgagor made
in this Mortgage or any Loan Document as though each such warranty were made as
of each date after the date of this Mortgage.

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SECTION 3. DEFAULTS.

         3.1 EVENTS OF DEFAULT; CROSS DEFAULT. Mortgagor shall be in default
hereunder (an "Event of Default"), and Lender may exercise the rights and
remedies described in Section 4 below, if: (a) Mortgagor shall fail to make when
due any payment on any Secured Obligation; (b) Mortgagor shall fail to perform
and observe any of Mortgagor's covenants and obligations under this Mortgage, or
any warranty herein in any material respect is or becomes untrue in any material
respect; (c) there occurs any event of default under any other Loan Document.

         3.2 MARSHALLING. Mortgagor, for themselves and on behalf of all
persons, parties and entities which may claim under Mortgagor, hereby waives all
requirements of law relating to the marshalling of assets, if any, which would
be applicable in connection with the enforcement by Lender of its remedies for
an Event of Default hereunder, absent this waiver. Lender shall not be required
to sell or realize upon any portion of the Real Estate before selling or
realizing upon any other portion thereof.

SECTION 4. REMEDIES UPON DEFAULT.

         4.1 ACCELERATION. Upon any Event of Default, Lender may at its option
and without further notice, declare the entire unpaid principal of the Secured
Obligations and any amounts due under this Mortgage and all accrued interest
thereon immediately due and payable and the Lender may at its option institute
proceedings for the collection at law or in equity of all amounts due under the
Secured Obligations and this Mortgage.

         4.2 FORECLOSURE. Upon such notice, if any, or after such time period,
if any, required by the Act, Lender may immediately cause this Mortgage to be
foreclosed by action, or by advertisement, as provided by statute or rules of
practice relating thereto. This section 4.2 shall be deemed as authorizing and
constituting a power of sale as mentioned in such statutes or rules, or in any
amendments. Any notice of Event of Default, acceleration or the exercise of any
remedy shall be sufficient, without excluding other forms of notice, if stated
in any pleading or affidavit served on Mortgagor in any legal proceeding
commenced by or against Lender hereunder. Lender shall have the right to bid at
any foreclosure sale and to obtain a judgment for any deficiency.

         4.3 ABANDONMENT. In the event Mortgagor abandons the Property, the
period of Mortgagor's permitted redemption shall be reduced to the shortest
period allowed by law. For purposes of this subparagraph and any other portion
of this Mortgage, the Property shall be deemed abandoned by Mortgagor if
Mortgagor ceases to own or manage the Property (directly or through a manager)
for the permitted use AND, in addition one or more of the following conditions,
circumstances or events exists or occurs as of or after such cessation: (a)
Mortgagor fails to insure adequately the Property; (b) Mortgagor fails to pay
taxes and assessments; (c) Mortgagor fails to maintain the Property, to repair
material damage to the Property or to prevent waste or deterioration of the
Property; (d) Mortgagor fails to secure adequately any of the Property; or (e)
Mortgagor fails to assert rights to any portion of the Property or protect its
interest from asserted third party claims (including those of any governments or
government agencies); (f) Mortgagor leases or surrenders the entire Property to
one or more affiliated or unaffiliated third parties, except as permitted under

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the Loan Agreement, or (g) Mortgagor shall cease continuous operation of a
business upon the Real Estate.

         4.4 RECEIVER. Lender shall be entitled to have a receiver appointed
without proof of any grounds for appointment other than an Event of Default.
Such receiver is authorized to take possession and charge of the Collateral
during the pendency of foreclosure proceedings and during any period permitted
for redemption or stay of proceedings and to rent the same and to receive and
collect the rents, issues and profits thereof, under direction of the court. Any
amount so collected by the receiver shall be applied under direction of the
court to the costs and expenses of receivership, expenses of insurance on the
Collateral, expenses of management, repairs and maintenance, taxes, assessments
and to all Secured Obligations, judgments, deficiency amounts and/or
post-judgment or post-sale accrued interest.

         4.5 PROTECTION OF SECURITY. Lender, by receiver or otherwise, shall be
authorized to: (a) Make or take action in such manner and to such extent as
Lender may deem necessary to protect the Collateral or Lender's interest and to
enter upon and take possession of any Collateral for such purposes; (b)
Commence, appear in and/or defend any action or proceeding purporting to affect
the Collateral and/or any additional or other security, or the interests,
rights, powers and/or duties of Lender hereunder whether brought by or against
Mortgagor or Lender; (c) Pay, purchase, contest or compromise any claim, debt,
lien, charge or encumbrance which in the judgment of Lender may affect or appear
to affect the Collateral or Lender's interest or rights, powers and duties
hereunder.

         4.6 REAL AND PERSONAL PROPERTY. To the extent that the Collateral
includes both real and personal property, Lender may at its option proceed: (a)
as to all Collateral according to Lender's rights hereunder and applicable real
estate laws; or (b) as to any fixtures or any Personal Collateral, according to
the UCC and/or any separate security agreement describing property of the same
type or category as the Personal Collateral, provided, however, that the rights
of Lender to exercise remedies according to the UCC shall not be dependent upon
the existence of any such separate security agreement.

         4.7 FEES AND EXPENSES. Mortgagor shall pay all fees, costs and expenses
incurred by Lender (including attorneys' fees) (a) in connection with any action
or actions (including the cost of search or evidence of title), which may be
brought for the foreclosure of this Mortgage, and/or for possession of the
Collateral, and/or for the appointment of a receiver; or (b) directly or
indirectly as a result of any breach of Mortgagor's covenants, obligations,
warranties, or agreements hereunder, regardless of whether litigation is
commenced. Mortgagor's obligation for payment thereof shall be one of the
Secured Obligations and bear interest accordingly.

SECTION 5. PRESERVATION OF LENDER'S RIGHTS; SUBORDINATION.

         5.1 NONWAIVER; CUMULATIVE RIGHTS AND REMEDIES. By accepting any late,
partial or otherwise inadequate payment or performance, Lender does not waive
its rights either to require prompt and full payment or performance when due of
all unpaid sums or unperformed covenants or obligations or to declare, to
enforce or to continue enforcement of, an Event of Default as provided in this
Mortgage. No right or remedy of Lender is intended to be exclusive of any other
remedy herein provided by law, but each shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing at
law or in equity. If Lender at any time holds

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additional security or guaranty for any Secured Obligations, it may enforce and
realize upon the same, at its option, either before or during or after
proceedings for the enforcement of this Mortgage, and may apply proceeds,
however realized, to the Secured Obligations (in such order as Lender shall
determine) without affecting the status of or waiving any security, including
the Collateral, and without waiving any breach, default, right or power
hereunder or under any such other security or guaranty.

         5.2 MORTGAGOR'S DISCRETION. Without affecting the liability or
obligations of any person, including Mortgagor, for the performance of any
Secured Obligation, Lender may from time to time and without notice release any
person liable for payment of any obligations, extend the time of payment or
otherwise alter the terms of any obligations, accept additional security of any
kind, including security agreements, trust deeds or mortgages, or alter,
substitute or release any property securing any obligations.

         5.3 SUBROGATION. Lender shall be subrogated to the lien, although
released of record, of any and all encumbrances at any time paid by Lender.

SECTION 6. GENERAL PROVISIONS.

         6.1 ENTRY. Lender's agents, employees or workmen are authorized to
enter at any reasonable time upon any part of the Property for the purpose of
inspecting the same, and for the purpose of performing any of the acts permitted
by this Mortgage.

         6.2 BENEFIT AND BINDING EFFECT. Subject to restrictions on Mortgagor's
assignment or transfer elsewhere described in this Mortgage or the Loan
Agreement, this Mortgage applies to, inures to the benefit of, and binds
Mortgagor and Lender, their successors and assigns.

         6.3 NOTICES. All notices to be given with respect to this Agreement
shall be in writing. Each notice shall be sent by first class, certified or
registered mail, postage prepaid or return receipt requested, to the party to be
notified as follows:

                           U.S. Bank National Association
                           141 North Main Avenue
                           P.O. Box 5308
                           Sioux Falls, South Dakota 57117
                           Attention:  Carl Wynja

                           with a copy to:

                           Scott Perrenoud
                           CADWELL, SANFORD, DEIBERT & GARRY, LLP
                           P.O. Box 1157
                           Sioux Falls, South Dakota 57101

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                           If to Mortgagor:

                           Northern Lights Ethanol, LLC
                           P.O. Box 356
                           48416 144th Street
                           Big Stone City, SD 57216
                           Attention:  Chairman of the Board

         6.4 APPLICABLE LAW. This Mortgage shall be construed and enforced in
accordance with the laws of the State of South Dakota. Lender consents to the
jurisdiction and venue of the state and federal courts located for Grant County,
South Dakota. If any provision hereof should be held unenforceable or void, then
such provision shall be deemed separable from the remaining provisions and shall
in no way affect the validity of this Mortgage. The right to plead any and all
statutes of limitation as a defense to any Secured Obligation is hereby waived
to the full extent permitted by law.

         6.5 CONTROLLING DOCUMENT. This Mortgage shall be construed consistently
with the other Loan Documents; however, in the event of any conflict or
inconsistency between the terms and provisions contained in this Mortgage and
those contained in any other Loan Document, the terms and provisions of this
Mortgage shall control to the extent the terms hereof apply.

         IN WITNESS WHEREOF, Mortgagor has executed this Collateral Real Estate
Mortgage Security Agreement, Fixture Filing and Assignment of Rents as of the
day first written above.

                                      NORTHERN LIGHTS ETHANOL, LLC

                                      By: /s/ Delton Strasser
                                          ----------------------------
                                          Delton Strasser
                                          Its: Chairman of the Board

STATE OF SOUTH DAKOTA      )
                           : SS
COUNTY OF GRANT            )

         On this the 31st day of December, 2002, before me, the undersigned
officer, personally appeared Delton Strasser, who acknowledged himself to be the
Chairman of the Board of Northern Lights Ethanol, LLC, a South Dakota
corporation, and that he, as such officer being authorized so to do, executed
the foregoing instrument for the purposes therein contained by signing by
himself as such officer.

         IN WITNESS WHEREOF, I hereunto set my hand and official seal.

         (SEAL)                           /s/ Christine K. Thomson
                                      -----------------------------------
                                      Notary Public - South Dakota
                                      My commission expires: July 6, 2008

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                                    EXHIBIT A

                                LEGAL DESCRIPTION

         The Borrower holds a leasehold interest in the following described Land
under the terms and conditions of the Big Stone Power Plant Lease dated April
18, 2001:

         Parcel A in the Southwest Quarter (SW 1/4) of Section Twelve (12),
Township One Hundred Twenty-One (121) North, Range Forty-Seven (47) West of the
Fifth Principal Meridian, Grant County, South Dakota, according to the recorded
plat thereof.

         Parcel B in the Southeast Quarter (SE 1/4) of Section Eleven (11),
Township One Hundred Twenty-One (121) North, Range Forty-Seven (47) West of the
Fifth Principal Meridian, Grant County, South Dakota, according to the recorded
plat thereof.

         The Borrower holds an ingress and egress easement rights on certain
land and railroad spur lines identified in the Access and Rail Agreement dated
April 18, 2001, granted by Otter Tail Corporation, f/k/a Otter Tail Power
Company; Montana-Dakota Utilities Co., a division of MDU Resources Group, Inc.,
f/k/a Montana-Dakota Utilities Co.; Northwestern Public Service, a division of
NorthWestern Corporation, f/k/a Northwestern Public Service Company and Northern
Lights Ethanol, LLC:

         The Southeast Quarter (SE 1/4) of Section Eleven (11), Township One
Hundred Twenty-One North (121), Range Forth-Seven (47), West of the Fifth
Principal Meridian, Grant County, South Dakota;

         The Southwest Quarter (SW 1/4) of Section Twelve (12), Township One
Hundred Twenty-One North (121), Range Forty-Seven (47) West of the Fifth
Principal Meridian, Grant County, South Dakota;

         The Northeast Quarter (NE 1/4) and the Northwest Quarter (NW 1/4) of
Section Thirteen (13), Township One Hundred Twenty-One (121) North, Range
Forty-Seven (47) West of the Fifth Principal Meridian, Grant County, South
Dakota; and

         The Northwest Quarter (NW 1/4), the Northeast Quarter (NE 1/4) and that
portion of the Southeast Quarter (SE 1/4) lying North of the Burlington Northern
Sante Fe Main line Railroad Right of Way in Section Eighteen (18), Township One
Hundred Twenty-One (121) North, Range Forty-Six (46) West of the Fifth Principal
Meridian, Grant County, South Dakota.QuickLinks
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Exhibit 10.1    
  

 
 

COMMON STOCK AND WARRANT PURCHASE AGREEMENT    
  

        This Common Stock and Warrant Purchase Agreement (this "Agreement") is made as of December 31, 2002 between Axonyx Inc., a Nevada corporation (the
"Company"), and the investors listed on Exhibit A hereto, each of which is herein referred to as an "Investor" and collectively, the "Investors". 

RECITALS:  

        WHEREAS, the Investors desire to purchase from the Company, and the Company desires to sell to the Investors, shares of the Company's common stock, par value
$0.001 per share (the "Common Stock"), and warrants to purchase shares of Common Stock, upon the terms and subject to the conditions set forth herein; 

        NOW,
THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto agree as follows: 

1.    PURCHASE AND SALE OF SHARES AND WARRANT.    

        1.1    Purchase and Sale of Shares and Warrants.    Upon the terms and subject to the conditions of this Agreement, at
the Closing (as defined below), the Company agrees to sell to the Investors, and each Investor agrees to purchase from the Company (a) the number of shares of the Company's Common Stock set
forth opposite such Investor's name on Exhibit A hereto (the "Shares") at the per share purchase price of $0.688 ("Per Share Purchase Price"),
and (b) a warrant in substantially the form attached hereto as Exhibit B to purchase a number of shares of the Company's Common Stock
("Warrant Shares") equal to fifty percent (50%) of the total Shares purchased by such Investor pursuant to this Agreement (each a "Warrant" and collectively for all Investors, the "Warrants") for a
purchase price per Warrant Share of $0.125 (the "Per Warrant Share Purchase Price"). All dollar amounts set forth in this Agreement shall be in United States Dollars. 

        1.2    Closing.    The closing of the purchase and sale of the Shares and the Warrants (the "Closing") shall take
place at the offices of Torys, LLP at 10:00 a.m., Eastern time on December 31, 2002, or such other location, time or date as the parties shall mutually agree, but only after the
satisfaction or waiver of each of the conditions set forth in Sections 7 and 8 (the "Closing Date"). 

        1.3    Deliveries.    At the Closing and in accordance with the Escrow Agreement, dated the date hereof, among the
Company, the Investors and Torys LLP, as escrow agent (the "Escrow Agent"), the Company shall deliver to the Escrow Agent (at the address set forth in Section 8.6 hereof) a Warrant and a
certificate or certificates, registered in the name of the applicable Investor, representing the Warrant and the Shares purchased by such Investor, and each Investor shall deliver to the Escrow Agent
an amount equal to the product of Shares to be purchased by such Investor and the Per Share Purchase Price and the Per Warrant Share Purchase Price (collectively the "Purchase Price"), by wire
transfer of immediately available funds to the following account of the Escrow Agent: 

Citibank,
N.A.

111 Wall Street

New York, NY

ABA# 021000089

Account of: Torys

Account # 37399318 

2.    REPRESENTATIONS AND WARRANTIES OF THE COMPANY.    

        For
purposes of this Section, all references to "Company" in Sections 2.1, 2.4 (with the exception of subsection (a) thereof), 2.7, 2.9 through 2.12, and 2.14 through 2.20 shall
be deemed to be a reference to the Company and all of its direct and indirect subsidiaries. The Company hereby 

 

represents and warrants to each Investor that, except as set forth on a Schedule of Exceptions (the "Company Schedule of Exceptions") attached hereto as  Schedule A, which exceptions shall be deemed
to be representations and warranties as if made hereunder: 

        2.1    Corporate Organization.    The Company is a corporation duly organized, validly existing and in good standing
under the laws of its state of incorporation, and has the requisite corporate power and
authority to own or lease its properties and to carry on its business as now being conducted. The Company is duly qualified as a foreign corporation to do business and is in good standing in every
jurisdiction in which the property owned or leased by it or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or
in good standing would not have, individually or in the aggregate, a Material Adverse Effect. For purposes of this Agreement, "Material Adverse Effect" shall mean, as to any entity, any material
adverse effect on the business, operations, conditions (financial or otherwise), assets, results of operations or prospects of that entity individually or of the Company and its subsidiaries as a
whole. 

        2.2    Capitalization; Organizational Documents.    

        (a)  The
authorized capital stock of the Company will consist immediately prior to the Closing of 75,000,000 shares of Common Stock, of which as of the date hereof,
17,247,371 shares are issued and outstanding, and 15,000,000 shares of preferred stock of the Company, of which, as of the date hereof, no shares are issued or outstanding. All of the outstanding
shares have been duly and validly issued and are fully paid and nonassessable and have been issued in accordance with all applicable federal and state securities laws. No shares of Common Stock are
subject to preemptive rights or any other similar rights or any liens suffered or permitted by the Company. There are no preemptive rights or rights of first refusal or similar rights which are
binding on the Company permitting any person to subscribe for or purchase from the Company shares of its capital stock pursuant to any provision of law, the Certificate of Incorporation (as defined
below) or the Company's By-laws or by agreement or otherwise. There are no securities or instruments containing anti-dilution or similar provisions that will be triggered by
the issuance of any of the Securities as described in this Agreement. The Company has made available to each Investor true and correct copies of the Company's Certificate of Incorporation, as amended
and as in effect on the date hereof (the "Certificate of Incorporation"), and the Company's By-laws, as in effect on the date hereof (the "By-laws"). The designations, powers,
preferences, rights, qualifications, limitations and restrictions in respect of each class and series of authorized capital stock of the Company are as set forth in the Certificate of Incorporation,
and all such designations, powers, preferences, rights, qualifications, limitations and restrictions are valid, binding and enforceable against the Company and in accordance with all applicable laws,
rules and regulations. 

        (b)  Upon
issuance of the Shares and the Warrants and payment of the Purchase Price therefor in accordance with the terms of this Agreement, the Shares and the Warrants will
be duly authorized, validly issued, fully paid and nonassessable, and free and clear of any restrictions on transfer and any taxes, claims, liens, pledges, options, security interests, purchase
rights, preemptive rights, trusts, encumbrances or other rights or interests of any other person (other than any restrictions under the Securities Act of 1933, as amended (the "Securities Act"). The
Warrant Shares, when issued in accordance with the terms of the Warrants, will be duly authorized, validly issued, fully paid and non-assessable, and free and clear of any restrictions on
transfer and any taxes, claims, liens, pledges, options, security interests, purchase rights, preemptive rights, trusts, encumbrances or other rights or interests of any other person (other than any
restrictions under the Securities Act). 

        2.3    Authorization; Enforcement.    (a) The Company has the requisite corporate power and authority to enter
into and perform its obligations under this Agreement and to issue, sell and perform its obligations with respect to the Securities in accordance with the terms hereof, (b) the execution and 

2

 

delivery of this Agreement by the Company and the consummation by it of the transactions contemplated hereby have been duly authorized by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors or its stockholders, and (c) this Agreement has been duly executed and delivered by the Company. No other corporate proceedings
on the part of the Company are necessary to approve and authorize the execution and delivery of this Agreement and the issuance of the Securities. This Agreement, when executed and delivered by the
Company, constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies. 

        2.4    No Conflicts.    The execution, delivery and performance of this Agreement by the Company, and the consummation
by the Company of the transactions contemplated hereby, will not (a) result in a violation of the Certificate of Incorporation or By-laws of the Company, or (b) violate or
conflict with, or result in a breach of, any provision of, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights
of termination, amendment, acceleration or cancellation of, or result in the creation of any lien on or against any of the properties of the Company, any note, bond, mortgage, agreement, license
indenture or instrument to which the Company is a party, or result in a violation of any statute, law, rule, regulation, writ, injunction, order, judgment or decree applicable to the Company or by
which any property or asset of the Company is bound or affected, except where such violation, conflict, breach or other consequence would not have a Material Adverse Effect. Except as disclosed in the
SEC Documents, the Company is not in violation of any term of or in default under its Certificate of Incorporation or By-laws or in violation of any material term of, or in default under,
any material contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company. Except as specifically
contemplated by this Agreement, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental or regulatory or
self-regulatory agency in order for it to execute, deliver or perform any of its obligations under or contemplated by this Agreement in accordance with the terms hereof. All consents,
authorizations, orders, filings and registrations that the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. 

        2.5    SEC Documents; Financial Statements.    The Common Stock is registered pursuant to Section 12(g) of the
Exchange Act and the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the Securities and Exchange Commission (the "SEC") pursuant to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (all of the foregoing, and all other documents and registration statements heretofore filed by the
Company with the SEC being hereinafter referred to as the "SEC Documents"). The Common Stock is currently listed or quoted on The Nasdaq National Market. The Company has delivered or made available to
each Investor true and complete copies of the SEC Documents. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Securities Act, and the
Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC (except those SEC
Documents that were subsequently amended), contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company and
its subsidiaries included (or incorporated by reference) in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and
regulations of the SEC or other applicable rules and regulations with respect thereto. Such financial statements have 

3

 

been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except (a) as may be otherwise indicated in such financial
statements or the notes thereto, or (b) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present the
financial position of the Company and its subsidiaries as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). As of the date hereof, the Company has, on a timely basis, made all filings required to be made by the Company with the SEC and the
Company is eligible to file a registration statement on Form S-3 with respect to outstanding shares of its Common Stock to be offered for sale for the account of any person
other than the Company. 

        2.6    Securities Law Exemption.    Assuming the truth and accuracy of each Investor's representations set forth in
this Agreement, the offer, sale and issuance of the Shares and Warrants as contemplated by this Agreement are exempt from the registration requirements of the Securities Act and applicable state
securities laws, and neither the Company nor any authorized agent acting on its behalf has taken or will take any action hereafter that would cause the loss of such exemption. 

        2.7    Litigation.    All actions, suits, arbitrations or other proceedings or, to the Company's knowledge,
investigations pending or threatened against the Company that would have a Material Adverse Effect on the Company, are disclosed in the SEC Documents. There is no action, suit, proceeding or, to the
Company's knowledge, investigation that questions this Agreement or the right of the Company to execute, deliver and perform under same. 

        2.8    Use of Proceeds.    The net proceeds from the sale of the Shares and Warrants shall be used solely for general
corporate purposes. 

        2.9    Intellectual Property.    The Company owns, or has the contractual right to use, sell or license all
intellectual property necessary or required for the conduct of its business as presently conducted and as proposed to be conducted, including, without limitation, all trade secrets, processes, source
code, licenses, trademarks, service marks, trade names, logos, brands, copyrights, patents, franchises, domain names and permits. The Company has not received any communications alleging that the
Company has violated or, by conducting its business presently conducted or as proposed to be conducted, violates or will violate any intellectual property rights of any other person or entity. 

        2.10    Title to Property and Assets.    The Company has good and marketable title to or, in the case of leases and
licenses, has valid and subsisting leasehold interests or licenses in, all of its properties and assets
(whether real or personal, tangible or intangible) free and clear of any liens or other encumbrances, except for liens or other encumbrances that do not, individually or in the aggregate, have a
Material Adverse Effect. With respect to property leased by the Company, the Company has a valid leasehold interest in such property pursuant to leases which are in full force and effect, and the
Company is in compliance in all material respects with the provisions of such leases. 

        2.11    Compliance with Laws.    The Company is and has been in compliance with all laws, rules, regulations, orders,
judgments or decrees that are applicable to the Company, the conduct of its business as presently conducted and as proposed to be conducted, and the ownership of its property and assets (including,
without limitation, all Environmental Laws (as defined below) and laws related to occupational safety, health, wage and hour, and employment discrimination), and the Company is not aware of any state
of facts, events, conditions or occurrences which may now or hereafter constitute or result in a violation of any of such laws, rules, regulations, orders, judgments or decrees or which may give rise
to the assertion of any such violation, except where such violation or violations do not have a Material Adverse Effect. All required reports and filings with governmental authorities have been
properly made as and when required, except where the failure to report or file would not, individually or in the aggregate, have a Material Adverse Effect. "Environmental Laws" means all federal,
state, local and foreign laws, ordinances, treaties, rules, regulations, guidelines and permit conditions relating 

4

 

to contamination or pollution of the environment (including ambient air, surface water, ground water, land surface or subsurface strata) or the protection of human health and worker safety,
including, without limitation, laws and regulations relating to transportation, storage, use, manufacture, disposal or release of, or exposure of employees or others to, Hazardous Materials (as
defined below) or emissions, discharges, releases or threatened releases of Hazardous Materials. "Hazardous Materials" means any substance that has been designated by any governmental entity or by
applicable Environmental Laws to be radioactive, toxic, hazardous or otherwise a danger to health or the environment, including, without limitation, PCBs, asbestos, petroleum, urea formaldehyde and
all substances listed as hazardous substances pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, or defined as a hazardous waste pursuant to the
Resource Conservation and Recovery Act of 1976, as amended, and the regulations promulgated pursuant to Environmental Laws, but excluding office and janitorial supplies maintained in accordance with
Environmental Laws. 

        2.12    Licenses and Permits.    The Company has obtained and maintains all material federal, state, local and foreign
licenses, permits, consents, approvals, registrations, memberships, authorizations and qualifications required to be maintained in connection with the operations of the Company as presently conducted
and as proposed to be conducted, the lack of which could have a Material Adverse Effect. The Company is not in default in any material respect under any of such licenses, permits, consents, approvals,
registrations, memberships, authorizations and qualifications. 

        2.13    Related Entities.    Except for the Subsidiaries set forth on Schedule 2.13, the Company does not
presently own or control, directly or indirectly, any interest in any other subsidiary, corporation, association or other business entity. The Company is not a party to any joint venture, partnership
or similar arrangement. 

        2.14    Changes.    Since September 30, 2002, the Company has operated its business diligently and in the
ordinary course of business and, to the knowledge of the Company, there has not been, or the Company has not (as the case may be): 

        (a)  any
Material Adverse Effect; 

        (b)  any
damage, destruction or loss, whether or not covered by insurance, which would have a Material Adverse Effect; 

        (c)  any
waiver or compromise by the Company of a valuable right or of a material debt owed it; 

        (d)  sold,
encumbered, assigned or transferred any material assets or properties of the Company, other than in the ordinary course of business; 

        (e)  incurred
any liability, whether accrued, absolute, contingent or otherwise, and whether due or to become due, other than (i) in the ordinary course of business or
(ii) liabilities that are not, individually or in the aggregate, material to the business, operations, condition (financial or otherwise), assets, results of operations or prospects of the
Company; 

        (f)    created,
incurred, assumed or guaranteed any indebtedness or subjected any of its assets to any lien or encumbrance, except for indebtedness, liens or encumbrances that
are not, individually or in the aggregate, material to the business, operations, condition (financial or otherwise), assets, results of operations or prospects of the Company; 

        (g)  declared,
set aside or paid any dividends or made any other distributions in cash or property on the Company's capital stock; 

        (h)  directly
or indirectly redeemed, purchased or otherwise acquired any shares of capital stock of the Company; 

5

 

        (i)    except
in the ordinary course of business of the Company, materially increased the compensation payable or to become payable by the Company to any of its officers,
employees or directors or materially increased any bonus, insurance, pension or other employee benefit plan, payment or arrangement made by the Company for or with any such officers, employees or
directors; 

        (j)    made
any direct or indirect loan to any stockholder, employee, officer or director of the Company, other than advances made in the ordinary course of business; 

        (k)  changed
any agreement to which the Company is a party which would have a Material Adverse Effect; or 

        (l)    entered
into any agreement or commitment to do any of the things described in this Section 2.14. 

        2.15    Employee Benefit Plans.    All "employee benefit plans," as such term is defined in the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), to which the Company has any liability or obligation, contingent or otherwise, comply in all material respects and have been maintained and
administered in material compliance with ERISA, the Internal Revenue Code of 1986, as amended (the "Code"), and all other statutes, orders and governmental rules and regulations applicable to such
employee benefit plans. To the Company's knowledge, the Company has not incurred any liability pursuant to ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans
(as defined in ERISA), and no event, transaction or condition has occurred or exists that could reasonably be expected to result in the incurrence of any such liability by the Company, or in the
imposition of any lien on any of the rights, properties or assets of the Company pursuant to ERISA or to such penalty or excise tax provisions of the Code. The Company does not maintain or contribute
to, and has not maintained or contributed to, any "multiemployer plan," as such term is defined in ERISA. 

        2.16    Taxes.    The Company has timely filed all tax returns and reports (federal, state and local) required to be
filed and these returns and reports are true and correct in all material respects. The Company has paid all taxes and other assessments shown to be due on such returns or reports. Neither the Internal
Revenue Service nor any state or local taxing authority has, during the past three (3) years, examined or informed the Company it is in the process of examining any such tax returns and
reports. The provision for taxes of the Company, as shown on the financial statements included in the most recent SEC Filing, is adequate for taxes due or accrued as of the date thereof and since that
date the Company has provided adequate accruals in accordance with generally accepted accounting principals in its financial statements for any taxes incurred that have not been paid, whether or not
shown as being due on any tax returns. The Company has not elected, pursuant to the Code, to be treated as a collapsible corporation pursuant to Section 341(f) of the Code, nor has it made any
other elections pursuant to the Code (other than elections that relate solely to methods of accounting, depreciation or amortization) that would have a Material Adverse Effect. 

        2.17    Insurance.    The Company has in full force and effect fire, casualty and liability insurance policies
sufficient in amount (subject to reasonable deductibles) to allow the Company to replace any of its properties that might be damaged or destroyed to the extent and in the manner customary for
companies in similar business similarly situated. 

        2.18    Employees.    The Company does not have any collective bargaining agreements with any of its employees. There
is no labor union organizing activity pending or, to the Company's knowledge, threatened with respect to the Company. 

        2.19    Material Contracts.    All contracts, agreements, instruments, leases, licenses, arrangements, understandings
or other documents filed with or required to be filed as exhibits to the SEC Documents to which the Company therein is a party or by which it may be bound have been so filed (the "Material 

6

 

Contracts"). The Material Contracts that have been filed as exhibits are complete and correct copies of the contracts, agreements, instruments, leases, licenses, arrangement, understanding or other
documents of which they purport to be copies. The Material Contracts are valid and in full force and effect as to the Company, and, to the Company's knowledge, to the other parties thereto. Except as
otherwise disclosed herein, the Company is not in violation of, or default under (and there does not exist any event or condition which, after notice or lapse of time or both, would constitute such a
default under), the Material Contracts, except to the extent that such violations or defaults, individually or in the aggregate, could not reasonably be expected to (a) affect the validity of
this Agreement, (b) have a Material Adverse Effect, or (c) impair the ability of the Company to perform fully on a timely basis any material obligation which the Company has or will have
under this Agreement. To the Company's knowledge, none of the other parties to any Material Contract are in violation of or default under any Material Contract in any material respect. The Company has
not received any notice of cancellation or any written communication threatening cancellation of any Material Contract by any other party thereto. The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under the Certificate of Incorporation, its bylaws or other governing documents that would have a Material Adverse Effect. 

        2.20    Customers and Suppliers.    No customer or supplier that was material to the Company during the previous
twenty-four (24) months, has terminated, materially reduced or threatened to terminate or material reduce its purchases from or provision of products or services to the Company. 

        2.21    Brokers and Finders.    The Company has not employed any broker, finder, consultant or intermediary in
connection with the transactions contemplated by this Agreement that would be entitled to a broker's, finder's or similar fee or commission in connection herewith and therewith, with the exception of
AFO Capital and Punk Ziegel & Company. 

        2.22    Nasdaq National Market.    The Company's common stock is listed on the Nasdaq National Market System. 

        2.23    Disclosure.    This Agreement, Schedules and Exhibits hereto and all other documents delivered to the
Investors in connection herewith or therewith at the Closing, do not contain any untrue statement of a material fact, or omit to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. There are no facts that, individually or in the aggregate, would have a Material Adverse Effect that have not been disclosed to
each Investor in this Agreement (including the Schedules and Exhibits hereto), the SEC Documents or any other documents delivered to each Investor in connection herewith or therewith at the Closing. 

        2.24    No Integrated Offering.    Neither the Company, nor any of its affiliates, nor any person acting on its or
their behalf, has directly or indirectly made any offers or sales in any security or solicited any offers to buy any security under circumstances that would require registration under the Securities
Act of the issuance of the Securities to the Investors. The issuance of the Securities to the Investors will not be integrated with any past issuance of the Company's securities for purposes of the
Securities Act or any applicable rules of Nasdaq. 

3.    REPRESENTATIONS AND WARRANTIES OF INVESTOR.    

        Each
of the Investors, severally and not jointly, hereby represents and warrants to the Company as to itself and not as to any other Investor, that: 

        3.1    Organization.    The Investor is a corporation, limited liability company or limited partnership, as the case
may be, duly organized, validly existing and in good standing in the jurisdiction of its formation. The Investor has all requisite power and authority to execute, deliver and perform all of its
obligations of this Agreement. 

7

 

        3.2    Authorization; Enforcement.    (a) The Investor has the requisite power and authority to enter into and
perform its obligations under this Agreement, (b) the execution and delivery of this Agreement by the Investor and the consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Investor, and (c) this Agreement has been duly executed and delivered by the Investor. To the knowledge of the Investor, no other
proceedings on the part of the Investor are necessary to approve and authorize the execution and delivery of this Agreement. This Agreement, when executed and delivered, constitutes a valid and
binding obligation of the Investor, enforceable against the Investor in accordance with its terms, except as such enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies. 

        3.3    No Conflicts.    The execution, delivery and performance of this Agreement by the Investor, and the
consummation by the Investor of the transactions contemplated hereby will not (a) result in a violation of the organizational documents of the Investor, or (b) result in a violation of
any statute, law, rule, regulation, writ, injunction, order, judgment or decree applicable to the Investor, except where such violation, conflict, breach or other consequence would not have a Material
Adverse Effect. The Investor is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental or regulatory or
self-regulatory agency in order for it to execute, deliver or perform any of its obligations under or contemplated by this Agreement in accordance with the terms hereof. 

        3.4    Investment Representations.    

        (a)  The
Investor is an "accredited investor", as defined in Regulation D promulgated under the Securities Act, and has such knowledge, sophistication and experience
in financial and business matters that the Investor is capable of evaluating the merits and risks of the investment in the Securities. 

        (b)  The
Investor (i) has adequate means of providing for its current financial needs and possible contingencies, and has no need for liquidity of investment in the
Company, (ii) can afford to hold unregistered securities for an indefinite period of time and sustain a complete loss of the entire amount of the subscription, and (iii) has not made an
overall commitment to investments which are not readily marketable that is so disproportionate as to cause such overall commitment to become excessive. 

        (c)  The
Investor agrees and understands that the Securities are being offered and sold to the Investor in reliance upon specific exemptions from the registration
requirements of the Securities Act and the rules and regulations promulgated thereunder and that, in order to determine the availability of such exemptions and the eligibility of the Investor to
acquire the Securities, the Company is relying upon the truth and accuracy of the Investor's representations and warranties, and compliance with the Investor's covenants and agreements, set forth in
this Agreement. The Investor further agrees with the Company that (i) no Securities were offered or sold to the Investor by means of any form of general solicitation or general advertising, and
in connection therewith, the Investor did not (1) receive or review any advertisement, article, notice or other communication published in a newspaper or magazine or similar media or broadcast
over television or radio, whether closed circuit or generally available; or (2) attend any seminar meeting or industry investor conference whose attendees were invited by any general
solicitation or general advertising. The Investor hereby acknowledges that the offering of the Securities has not been reviewed by the SEC or any state regulatory authority since the offering of the
Securities is intended to be exempt from the registration requirements of Section 5 of the Securities Act pursuant to Regulation D promulgated thereunder. The Investor understands that
the Securities have not been registered under the Securities Act and agrees not to sell or otherwise transfer the 

8

 

Securities unless they are registered under the Securities Act or unless an exemption from such registration is available. 

        (d)  The
Securities are being purchased by the Investor for its own account, for investment purposes only, not for the account of any other person, or corporation and not
with a view to distribution, assignment or resale to others in whole or in part. The Investor has no present intention of selling, granting any participation in, or otherwise distributing the
Securities. The Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer, pledge, hypothecate, grant any option to purchase or otherwise dispose of
any of the Securities. Nothing herein shall prevent the distribution of any Securities to any subsidiary, member, partner, stockholder, affiliate or former member, partner, stockholder or affiliate of
the Investor in compliance with the Securities Act and applicable state "blue sky" laws. 

        (e)  The
Investor has been furnished with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001, as amended, and has
had access to the Company's SEC Documents and other public filings. 

        (f)    With
respect to corporate tax and other economic considerations involved in an investment in the Securities, the Investor is not relying on the Company. The Investor has
carefully considered and has, to the extent the Investor believes such discussion necessary, discussed with its professional legal, tax, accounting and financial advisors the suitability of an
investment in the Securities for its particular tax and financial situation and has determined that the Securities are a suitable investment for the Investor. 

        (g)  The
Company has made available to the Investor all documents and information that the Investor has requested relating to an investment in the Securities. 

        (h)  Subject
to the Company's disclosures in this Agreement and the SEC Documents, the Investor recognizes that the Company has generated only limited revenues to date, is
not expected to have any products commercially available for a number of years, if at all, and that investment in the Company involves substantial risks, including loss of the entire amount of such
investment and has taken full cognizance of and understands all of the risk factors relating to the purchase of the Securities. 

        (i)    The
Investor has not been formed for the specific purpose of acquiring the Securities. 

4.    COVENANTS.    

        4.1    Confidentiality.    Each Investor hereby acknowledges that unauthorized disclosure of information regarding the
offering of the Securities pursuant to this Agreement may cause the Company to violate Regulation FD and each Investor agrees to keep such information confidential. 

        4.2    Restrictions on Transfer.    

        (a)  Each
Investor hereby agrees, severally and not jointly, that, except in accordance with a registration statement filed pursuant to Section 5.2 of this Agreement,
it will not dispose of any of such Investor's Shares or the Warrant Shares (other than pursuant to Rule 144 promulgated under the Securities Act ("Rule 144") or pursuant to a
registration statement filed with the SEC pursuant to the Securities Act) unless and until such Investor shall have (A) notified the Company of the proposed disposition and shall have furnished
the Company with a statement of the circumstances surrounding the proposed disposition and (B) if requested by the Company, furnished the Company with an opinion of counsel, reasonably
satisfactory in form and substance to the Company and the Company's counsel, to the effect that such disposition will not require registration under the Securities Act. The restrictions on transfer
imposed by this Section 4.2 shall cease and terminate as to the Shares and Warrant Shares held by an Investor when: (x) such Securities shall have been effectively registered under the
Securities Act and sold by the holder 

9

 

thereof in accordance with such registration, or (y) on delivery of an opinion of the kind described in the preceding sentence with respect to such Securities. Each Warrant and each
certificate evidencing the Securities shall bear an appropriate restrictive legend as set forth in Section 4.2(c), except that such legend shall not be required after a transfer is made in
compliance with Rule 144 or pursuant to a registration statement or if the opinion of counsel referred to above is issued and provides that such legend is not required in order to establish
compliance with any provisions of the Securities Act. 

        (b)  Notwithstanding
the provisions of Section 4.2(a), no registration statement or opinion of counsel shall be necessary for a transfer by an Investor of the
Securities to a subsidiary, member, partner, stockholder or affiliate of that Investor, if the transferee agrees in writing to be subject to the terms hereof to the same extent as if such transferee
were an Investor hereunder. 

        (c)  It
is understood that, subject to Sections 4.2(a) and 4.2(b), the Warrants and the certificates evidencing the Securities will bear the following legends: 

	(i)
	THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR UNDER APPLICABLE STATE SECURITIES LAWS AND MAY NOT
BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AVAILABLE EXEMPTIONS FROM SUCH REGISTRATION, PROVIDED
THAT THE SELLER DELIVERS TO THE COMPANY AN OPINION OF COUNSEL (WHICH OPINION IS REASONABLY SATISFACTORY TO THE COMPANY) CONFIRMING THE AVAILABILITY OF SUCH EXEMPTION.

	(ii)
	Any
legend required by the laws of any other applicable jurisdiction. 

        4.3    Securities Compliance.    The Company shall take all action necessary to comply with any federal or state
securities laws applicable to the transactions contemplated hereunder. 

5.    REGISTRATION RIGHTS.    

        5.1    Registrable Securities.    As used herein the term "Registrable Security" means (a) each of the Shares,
and the Warrant Shares, and (b) any Common Stock of the Company issued as (or issuable on the conversion or exercise of any warrant, right or other security that is issued as) a dividend or
other distribution with respect to, or in exchange for, or in replacement of, the shares referenced in clause (a) above; provided, however, that
with respect to any particular Registrable Security held by an Investor, such security shall cease to be a Registrable Security when, as of the date of determination, (a) it has been
effectively registered under the Securities Act and disposed of pursuant thereto, or (b) registration under the Securities Act is no longer required for the immediate public distribution of any
particular Registrable Securities held by that Investor and its affiliates. In the event of any merger, reorganization, consolidation, recapitalization or other change in corporate structure affecting
the Common Stock, such adjustment shall be made in the definition of "Registrable Security" as is appropriate in order to prevent any dilution or enlargement of the rights granted pursuant to this
Section 5. 

        5.2    Mandatory Registration.    

        (a)  Subject
to Section 5.4(g), the Company shall use commercially reasonable efforts to file, within forty five (45) days after the Closing Date, for the
benefit of the holders of the Registrable Securities (the "Holders") a registration statement on Form S-3 (or if Form S-3 is not then available, on such form of
registration statement that is then available to effect a registration of all Registrable Securities, subject to consent of the Holders) for purposes of registering under the Securities Act all the
Registrable Securities for resale by, and for the account of, the Holders as 

10

 

selling stockholders thereunder (the "Registration Statement"). The Company shall use its commercially reasonable efforts to cause the Registration Statement to become effective as promptly as
possible and, if any stop order shall be issued by the SEC in connection therewith, to obtain the removal of such order. The Company shall use its commercially reasonable efforts to keep such
Registration Statement effective until the earlier of (i) the date when all of the Registrable Securities registered thereunder shall have been sold, (ii) such time as all the
Registrable Securities held by the Holders (and any affiliate of the Holder with whom such Holder must aggregate its sales under Rule 144) can be sold pursuant to Rule 144(k), and
(iii) the second anniversary of the date on which the Registration Statement is declared effective. 

        5.3    Covenants of the Company With Respect to Registration.    

        The
Company covenants and agrees as follows: 

        (a)  Following
the effective date of the Registration Statement under Section 5.2, the Company shall, upon the request of the Holders, forthwith supply such reasonable
number of copies of the Registration Statement, preliminary prospectus and prospectus meeting the requirements of the Securities Act, and other documents necessary or incidental to the public offering
of the Registrable Securities, as shall be reasonably requested by the Holders to permit the Holders to make a public distribution of the Registrable Securities registered in connection with the
Registration Statement. 

        (b)  The
Company shall prepare and file with the SEC such amendments and supplements to such Registration Statement and the prospectus used in connection with such
Registration Statement as may be necessary to comply with the Securities Act with respect to the disposition of all securities covered by such Registration Statement during the period of time such
Registration Statement remains effective; 

        (c)  The
Company shall use its commercially reasonable efforts to register and qualify the securities covered by such Registration Statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such states or jurisdictions; 

        (d)  During
the period of time such Registration Statement remains effective, the Company shall notify each Holder of Registrable Securities covered by such registration
statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act or the happening of any event as a result of which the prospectus included in such
Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing; 

        (e)  The
Company shall use its commercially reasonable efforts to cause all such Registrable Securities registered hereunder to be listed on each securities exchange on which
securities of the same class issued by the Company are then listed; 

        (f)    The
Company shall provide a transfer agent and registrar for all Registrable Securities registered hereunder and a CUSIP number for all such Registrable Securities, in
each case not later than the effective date of such registration; and 

        (g)  The
obligations of the Company hereunder with respect to the Registrable Securities are subject to the Holders' furnishing to the Company such appropriate information
concerning the Holders, the
Registrable Securities and the terms of the Holders' offering of such Registrable Securities as the Company may reasonably request in writing. 

11

 

        5.4    Expenses.    All expenses incurred in effecting a registration pursuant to this Agreement (including, without
limitation, all registration, qualification and filing fees, printing expenses, fees and disbursements of counsel for the Company, blue sky fees and expenses shall be borne by the Company. All
transfer taxes, underwriting discounts and selling commissions applicable to the sale of the Registrable Securities shall be borne by the Holders thereof. 

        5.5    Indemnification.    In the event any Registrable Securities are included in a Registration Statement under this
Section 5: 

        (a)  To
the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, officers, directors, stockholders, members and managers of such
Holder, each person, if any, who controls such Holder within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they
may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations (each, a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such Registration
Statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material
fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange
Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law; and the Company will pay to each such Holder, underwriter or
controlling person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action;  provided, however, that the indemnity agreement contained in this Section 5.5(a) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed), nor shall the Company be liable to
any Holder, underwriter or controlling person for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and
in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person. 

        (b)  To
the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the
Registration Statement, each person, if any, who controls the Company within the meaning of the Securities Act, against any losses, claims, damages, or liabilities (joint or several) to which any of
the foregoing persons may become subject, under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with
such registration; and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any person indemnified pursuant to this Section 5.5(b), in connection with
investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this
Section 5.5(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder (which consent
shall not be unreasonably withheld or delayed); provided further that in no event shall any indemnity under this Section 5.5(b) exceed the net
proceeds from the offering received by such Holder. 

        (c)  Promptly
after receipt by an indemnified party under this Section 5.5 of notice of the commencement of any action (including any governmental action), such
indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 5.5, 

12

 

deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one
separate counsel, with the reasonable fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to
the indemnifying party within a reasonable time after receipt of notice of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying
party of any liability to the indemnified party under this Section 5.5, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may
have to any indemnified party otherwise than under this Section 5.5. 

        (d)  If
the indemnification provided for in this Section 5.5 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any
loss, liability, claim, damage or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and
of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable
considerations; provided that in no event shall any contribution by a Holder under this Section 5.5(d) exceed the net proceeds from the offering
received by such Holder. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge,
access to information, and opportunity to correct or prevent such statement or omission. 

        (e)  Notwithstanding
the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection
with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. 

        (f)    The
obligations of the Company and Holders under this Section 5.5 shall survive the completion of any offering of Registrable Securities in a registration
statement and the termination of this Agreement. 

        5.6    Suspension of Sales.    

        (a)  With
respect to the Registration Statement filed pursuant to Section 5.2, the Company may suspend sales of Registrable Securities under such Registration
Statement for a period of not more than forty five (45) days with respect to such Registration Statement if, at any time the Company is engaged in confidential negotiations or other
confidential business activities, the disclosure of which would be required if such sales were not suspended and the Board of Directors of the Company determines in good faith that such suspension
would be in the Company's best interest at such time, provided that the Company shall not be permitted to suspend such sales for more than sixty
(60) days in any twelve (12) month period. In order to suspend sales pursuant to this Section 5.6(a), the Company shall promptly (but in any event within five (5) business
days), upon determining to seek such suspension, deliver to each holder of Registrable Securities a 

13

 

certificate signed by an executive officer of the Company stating that the Company is suspending such filing pursuant to this Section 5.6(a) and a general statement of the reason for such
suspension and an approximation of the anticipated delay. Each holder of Registrable Securities hereby agrees to keep confidential any information disclosed to it in any such certificate (including
the fact that a certificate was delivered. 

        (b)  If
the Company suspends such Registration Statement pursuant to section 5.6(a) above, the Company shall, as promptly as practicable following the termination of
the circumstances which entitled the Company to do so but in no event more than fifteen (15) days thereafter, take such actions as may be necessary to file or reinstate the effectiveness of
such Registration Statement and/or give written notice to the selling Holders authorizing them to resume sales pursuant to such Registration Statement. If, as a result thereof, the prospectus included
in such Registration Statement has been amended to comply with the requirements of the Securities Act, the Company shall enclose such revised prospectus with the notice to the selling Holders given
pursuant to this Section 5.6(b), and the selling Holders shall make no offers or sales of securities pursuant to such Registration Statement other than by means of such revised prospectus. 

        5.7    Transfer or Assignment of Registration Rights.    The rights to cause the Company to register Registrable
Securities granted to a Holder by the Company under this Section 5 may be transferred or assigned by a Holder to a transferee or assignee of such Registrable Securities that (i) is a
subsidiary, parent, current or former partner, current or former limited partner, current or former member, current or former
manager or stockholder of a Holder, (ii) is an entity controlling, controlled by or under common control, or under common investment management, with a Holder, including without limitation a
corporation, partnership or limited liability company that is a direct or indirect parent or subsidiary of the Holder, or (iii) is a transferee or assignee of not less than 50,000 shares of
Registrable Securities (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse stock splits and the like),  provided that the Company is given written
notice at the time of or within a reasonable time after said transfer or assignment, stating the name and
address of said transferee or assignee and identifying the securities with respect to which such registration rights are being transferred or assigned, and provided
further that the transferee or assignee of such rights assumes the obligations of such Holder under this Section 5. 

        5.8    Reports under Exchange Act.    With a view to making available to the Holders the benefits of Rule 144
promulgated under the Securities Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration, the Company
agrees to: 

        (a)  Make
and keep public information available, as those terms are used in SEC Rule 144, at all times; 

        (b)  File
with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; 

        (c)  Furnish
to any Holder, so long as the Holder owns any Registrable Securities, forthwith on request, (i) a written statement by the Company that it has complied
with the reporting requirements of SEC Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC that permits the selling of
any such securities without registration; and 

        (d)  Undertake
any additional actions reasonably necessary to maintain the availability of the use of Rule 144. 

14

 

        5.9    Reserve for Exercise Shares.    The Company shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock such number of shares of Common Stock (the "Exercise Shares") as shall be sufficient to enable it to comply with its exercise obligations with respect to the Shares
and under the Warrants and Coverage Warrants. If at any time the number of Exercise Shares shall not be sufficient to effect the exercise of the Warrants, the Company will forthwith take such
corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number as will be sufficient for such purposes. The Company will obtain authorization,
consent, approval or other action by, or make any filing with, any administrative body that may be required under applicable state securities laws in connection with the issuance of Exercise Shares. 

        5.10    Delay of Registration.    No Holder shall have any right to obtain or seek an injunction restraining or
otherwise delaying any registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 5. 

6.    CONDITIONS TO INVESTOR OBLIGATIONS AT CLOSING.    

        The
obligations of the Investors to purchase the Shares and the Warrants at the Closing are subject to the fulfillment on or prior to the Closing of each of the following conditions: 

        6.1    Representations and Warranties.    The representations and warranties of the Company contained in
Section 2 shall be true in all material respects on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date,
except that any representations and warranties stated as being true and correct as of a date other than the date hereof shall be true and correct as of such other date. 

        6.2    Performance.    The Company shall have performed and complied with all agreements, obligations and conditions
contained in this Agreement that are required to be performed or complied with by it on or before the Closing. 

        6.3    Qualifications.    All authorizations, approvals, or permits, if any, of any governmental authority or
regulatory body of the United States or of any state of the United States that are required in connection with the lawful issuance and sale of the Securities to the Investors pursuant to this
Agreement shall have been duly obtained and shall be effective on and as of the Closing. 

        6.4    Proceedings and Documents.    All corporate and other proceedings undertaken in connection with the
transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to each Investor, and they shall have received all such counterpart
original and certified or other copies of such documents as they may reasonably request. 

        6.5    Absence of Litigation.    No proceeding challenging this Agreement or the transactions contemplated hereby or
thereby, or seeking to prohibit, alter, prevent or delay the Closing, shall have been instituted against the Company before any court, arbitrator or governmental body, agency or official and shall be
pending. 

        6.6    Compliance Certificate.    The Company shall deliver to the Investors at the Closing, relating to the
Investors' purchase of Shares and Warrants, a certificate signed by the President of the Company stating that the Company has complied with or satisfied each of the conditions to the Investors'
obligation to consummate the Closing set forth in Sections 6.1 through 6.5, unless waived in writing by the Investors. 

15

   
        6.7    Legal Prohibition.    The purchase of the Shares and Warrants by the Investors shall not be prohibited by
any
law or governmental order or regulation. 

7.    CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING.    

        The
obligations of the Company under Section 1 of this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions: 

        7.1    Representations and Warranties.    The representations and warranties of each Investor contained in
Section 3 shall be true in all respects on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date, except that
any representations and warranties stated as being true and correct as of a date other than the date hereof shall be true and correct as of such other date. 

        7.2    Performance.    Each Investor shall have performed and complied with all agreements, obligations and conditions
contained in this Agreement that are required to be performed or complied with by it on or before the Closing. 

        7.3    Qualifications.    All authorizations, approvals, or permits, if any, of any governmental authority or
regulatory body of the United States or of any state of the United States that are required in connection with the lawful issuance and sale of the Securities to the Investors pursuant to this
Agreement shall have been duly obtained and shall be effective on and as of the Closing. 

        7.4    Proceedings and Documents.    All corporate and other proceedings undertaken in connection with the
transactions contemplated by this Agreement and all documents incident thereto shall be reasonably satisfactory in form and substance to the Company and its counsel, and they shall have received all
such counterpart original and certified or other copies of such documents as they may reasonably request. 

8.    MISCELLANEOUS.    

        8.1    Survival of Warranties.    The warranties, representations, agreements, covenants and undertakings of the
Company or the Investors contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing and shall in no way be affected by any investigation
of the subject matter thereof made by or on behalf of the Investors or the Company. 

        8.2    Incorporation by Reference.    All Exhibits and Schedules appended to this Agreement are herein incorporated by
reference and made a part hereof. 

        8.3    Successor and Assignees.    All terms, covenants, agreements, representations, warranties and undertakings in
this Agreement made by and on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including transferees of any
Shares) whether so expressed or not, subject to Section 5.8. 

        8.4    Amendments and Waivers.    Neither this Agreement nor any provision hereof shall be waived, modified, changed,
discharged, terminated, revoked or canceled except by an instrument in writing signed by the party against whom any change, discharge or termination is sought. Failure of either party to exercise any
right or remedy under this Agreement or any other agreement between the Company and the Investors, or otherwise, or delay by the Company or the Investors in exercising such right or remedy, will not
operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. 

        8.5    Governing Law.    This Agreement shall be deemed a contract made under the laws of the State of New York,
without giving effect to the conflicts of law principles thereof. 

16

 

        8.6    Notices.    All notices, requests, consents, demands, notice or other communication required or permitted under
this Agreement shall be in writing and shall be deemed duly given and received when delivered personally or transmitted by facsimile, or one business day after being deposited for next-day
delivery with a nationally recognized overnight delivery service, or three days after being deposited as first class mail with the United States Postal Services, all charges or postage prepaid, and
properly addressed: 

to
the Company at: 

Axonyx Inc.

825 Third Avenue, 40th Floor

New York, New York 10022

Fax: (212) 688-4843

Attention: President and Chief Executive Officer 

with
a copy (which shall not constitute notice) to: 

Torys
LLP

237 Park Avenue

New York, New York 10017

Fax: (212) 682-0200

Attention: Luci Staller Altman 

or
the Investors at the address set forth opposite each Investors name on Exhibit A hereto 

        or
such other address as may be furnished in writing by a party hereto. 

        8.7    Counterparts.    This Agreement may be executed in counterparts, all of which together shall constitute one and
the same instrument. 

        8.8    Effect of Headings.    The section and paragraph headings herein are included for convenience only and shall
not affect the construction hereof. 

        8.9    Entire Agreement.    This Agreement and the Exhibits and Schedules hereto and thereto constitute the entire
agreement among the Company and the Investors with respect to the subject matter hereof. There are no representations, warranties, covenants or undertakings with respect to the subject matter hereof
other than those expressly set forth herein. This Agreement supersedes all prior agreements between the parties with respect to the Shares purchased hereunder and the subject matter hereof. 

        8.10    Publicity.    Neither party shall originate any publicity, news release or other public announcement, written
or oral, whether relating to the performance under this Agreement or the existence of any
arrangement between the parties, without the prior written consent of the other party (which consent shall not be unreasonably withheld or delayed), except where such publicity, news release or other
public announcement is required by law; provided that, in such event, each such party shall (a) promptly consult the other party in connection
with any such publicity, news release or other public announcement prior to its release; (b) promptly provide the other party a copy thereof; and (c) use commercially reasonable efforts
to ensure that such portions of such information as may reasonably be designated by the other party are accorded confidential treatment by the applicable governmental entity. 

        8.11    Severability.    If any provision of this Agreement is held by a court of competent jurisdiction to be
unenforceable under applicable law, such provision shall be replaced with a provision that accomplishes, to the extent possible, the original business purpose of such provision in a valid and
enforceable manner, and the balance of the Agreement shall be interpreted as if such provision were so modified and shall be enforceable in accordance with its terms. 

17

 

        8.12    Interpretation.    This Agreement shall be construed according to its fair language. The rule of construction
to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement. 

        IN
WITNESS WHEREOF, this Agreement has been executed as of the date first above written, by the duly authorized representatives of the parties hereto. 

	 	 	AXONYX INC.
	

 	
 	

 	
 	

 
	 	 	By:	 	    

	

 	
 	

Name:	
 	

    

	

 	
 	

Title:	
 	

    

	

 	
 	

 	
 	

 
	 	 	INVESTOR
	

 	
 	

By:	
 	

    

18

QuickLinks

Exhibit 10.1

COMMON STOCK AND WARRANT PURCHASE AGREEMENT

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