Document:

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                                                                    EXHIBIT 10.3

                         ASSIGNMENT OF RENTS AND LEASES

         THIS ASSIGNMENT, made this ______ day of ______________, 2003, by
NAVARRE CORPORATION, a Minnesota corporation, 7400 49th Avenue North, New Hope,
MN 55428 ("Assignor"), and THE BUSINESS BANK, its successors and assigns, whose
post office address is 11100 Wayzata Boulevard, Suite 150, Minnetonka, MN 55305
("Assignee").

         FOR VALUE RECEIVED, Assignor hereby grants, transfers and assigns to
Assignee, the immediate and continuing right to receive and collect the rents,
income, profits and issues (collectively the "Rents") arising out of or payable
from or collected from the real property ("Premises") described in Exhibit "A"
attached hereto, and all leases and agreements for the leasing, use or occupancy
of the Premises now, heretofore, or hereafter entered into ("Leases"), together
with all guarantees therefor and all renewals and extensions thereof, together
with all payments derived therefrom including but not limited to claims for the
recovery of damages done to the Premises or for the abatement of any nuisance
existing thereon, claims for damages resulting from default under said Leases
whether resulting from acts of insolvency or acts of bankruptcy or otherwise,
and lump sum payments for the cancellation of said Leases or the waiver of any
obligation or term thereof prior to the expiration date and the return of any
insurance premiums or ad valorem tax payments made in advance and subsequently
refunded for the purpose of securing the following (herein collectively referred
to as the Indebtedness Secured Hereby"):

         ONE.     Payment of the indebtedness evidenced by that certain
Promissory Note ("Note") (including any extensions or renewals thereof) in the
principal sum of Four Million Five Hundred and Fifty Thousand and 00/100 Dollars
($4,550,000.00) dated of even date herewith, executed and delivered by the
Assignor and payable to the order of Assignee, secured by a Mortgage and
Security Agreement and Fixture Financing Statement ("Mortgage") of even date
herewith from Assignor to Assignee upon the Premises, filed for record in the
County of Hennepin, State of Minnesota;

         TWO.     Payment of all other sums with interest thereon becoming due
and payable to the Assignee herein and in the Note and Mortgage contained;

         THREE.   Performance and discharge of each and every obligation,
covenant and agreement of Assignor herein and in the Note and Mortgage
contained.

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AND TO PROTECT THE SECURITY OF THIS ASSIGNMENT, ASSIGNOR AGREES:

1.       Performance Of Leases. To faithfully abide by, perform and discharge
         each and every obligation, covenant and agreement of said Leases by
         lessor to be performed; to use its best efforts to enforce or secure
         the performance of each and every obligation, covenant, condition and
         agreement of said Leases by the tenants to be performed; not to borrow
         against, pledge, or assign any rentals due under the Leases, nor
         consent to a subordination or assignment of the interest of the tenants
         thereunder to any party other than Assignee, nor anticipate the rents
         thereunder for more than one (1) month in advance, nor waive, excuse,
         condone or in any manner release or discharge the tenants of or from
         their obligations, covenants, conditions and agreements to be
         performed, nor enter into any additional Leases of all or any part of
         the Premises having a term of more than one (1) year without the prior
         written consent of the Assignee.

2.       Protect Security. At Assignor's sole cost and expense, to appear in and
         defend any action or proceeding arising under, growing out of or in any
         manner connected with the Leases or the obligations, duties or
         liabilities of the landlord thereunder, and to pay all costs and
         expenses of Assignee, including attorney's fees in a reasonable sum, in
         any such action or proceeding in which the Assignee in its sole
         discretion may appear.

3.       Representations. Assignor represents and warrants that it is now the
         absolute owner of said Rents and Leases with full right and title to
         assign the same; that there are no outstanding assignments or pledges
         of the Leases or Rents; that there are no existing defaults under the
         provisions of any of the Leases on the part of any party to the Leases;
         that all obligations on the part of the landlord under any Lease have
         been fully complied with; that no Rents have been waived, anticipated,
         discounted, compromised or released and that the tenants have no
         defenses, setoffs, or counterclaims against Assignor.

4.       Present Assignment. This Assignment shall constitute a perfected,
         absolute and present assignment, provided the Assignor shall at the
         sole discretion of Assignee have the right to collect, but not prior to
         accrual, all of the monthly or other regular rent payments from
         tenants, and to retain, use and enjoy the same unless and until an
         Event of Default, as defined in the Mortgage, shall occur hereunder, or
         under the Note, the Mortgage or under any other instrument now or
         hereafter securing the Note or the Indebtedness Secured Hereby.
         Notwithstanding the foregoing, Assignor shall have no right to collect
         or retain any other Rents, including but not limited to insurance or
         condemnation proceeds hereunder and the disposition of such proceeds,
         if any, shall be in accordance with the terms and conditions of the
         Mortgage.

5.       Remedies. Upon or at any time after a default in the payment of any
         Indebtedness Secured Hereby or in the performance of any obligation,
         covenant or agreement herein or in said Note and Mortgage contained, or
         upon an Event of Default hereunder or under the Mortgage, or if any
         representation or warranty herein proves to be untrue then Assignee,
         without regard to waste, adequacy of the security or solvency of the
         Assignor, may declare all Indebtedness Secured Hereby immediately due
         and payable, may revoke the privilege granted Assignor hereunder to
         collect the Rents, and may, at its option, without notice, either:

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(a)      In person or by agent, with or without taking possession of or entering
         the Premises, with or without bringing any action or proceeding, give,
         or require the Assignor to give, notice to Tenant under the Lease
         authorizing and directing the Tenant to pay all Rents directly to the
         Assignee; collect all of the Rents; enforce the payment thereof and
         exercise all of the rights of the Assignor under the Lease and all of
         the rights of the Assignee hereunder; and may enter upon, take
         possession of, manage and operate the Premises, or any part thereof;
         may cancel, enforce or modify the Lease, and fix or modify rents, and
         do any acts which the Assignee deems proper to protect the security
         hereof; or

(b)      Apply for appointment of a receiver in accordance with the statutes and
         law made and provided for, which receivership Assignor hereby consents
         to, who shall collect the Rents; manage the Premises so as to prevent
         waste; execute leases within or beyond the period of receivership;
         perform the terms of this Assignment and apply the Rents as hereinafter
         provided.

It is understood and agreed that such remedies are not to be deemed to be
mutually exclusive and Assignee may pursue all such remedies simultaneously.

Any Rents shall be applied in the following order: (aa) to payment of all
reasonable fees of any receiver appointed hereunder, (bb) to application of
Tenant's security deposits as required by Minn. Stat. Section 504B.178, (cc) to
payment when due of prior or current real estate taxes or special assessments
with respect to the Premises or, if the Mortgage so requires, to the periodic
escrow for payment of the taxes or special assessments then due, (dd) to payment
when due of premiums for insurance of the type required by the Mortgage or, if
the Mortgage so requires, to the periodic escrow for the payment of premiums
then due, (ee) to payment of all expenses for normal maintenance of the Premises
and (ff) if received prior to any foreclosure sale to the Indebtedness Secured
Hereby. If the Premises shall be foreclosed and sold pursuant to a foreclosure
sale, then during the period of redemption from such foreclosure sale:

(i)      If the Assignee is the purchaser at the foreclosure sale, the Rents
         shall be paid to the Assignee to be applied to the extent of any
         deficiency remaining after the sale, the balance, after payment of any
         deficiency, to be retained by the Assignee, and if the Premises are
         redeemed by the Assignor or any other party entitled to redeem, any
         balance so retained shall be applied as a credit against the redemption
         price, provided, if the Premises are not redeemed, any remaining excess
         Rents shall belong to the Assignee, whether or not a deficiency exists;

(ii)     If the Assignee is not the purchaser at the foreclosure sale, the Rents
         shall be paid to the Assignee to be applied to the extent of any
         deficiency remaining after the sale, and the balance, after payment of
         any deficiency, if any, to be applied as a credit against the
         redemption price, provided, if the Premises are not redeemed any
         remaining excess rents shall be paid to the purchaser.

The entering upon and taking possession of such Premises, the appointment of a
receiver, the collection of such Rents and the application thereof as aforesaid
shall not cure or waive any Event of Default, or

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         waive, modify or affect notice of Event of Default under said Mortgage
         or invalidate any act done pursuant to said notice, nor in any way
         operate to prevent the Assignee from pursuing any remedy which now or
         hereafter it may have under the terms and conditions of said Mortgage
         or the Note secured thereby or any other instruments securing the same.
         The rights and powers of the Assignee hereunder shall remain in full
         force and effect both prior to and after any foreclosure of the
         Mortgage and any sale pursuant thereto and until expiration of the
         period of redemption from said sale, regardless of whether a deficiency
         remains from said sale. The purchaser at any foreclosure sale,
         including the Assignee, shall have the right, at any time and without
         limitation as provided in Minn. Stat. Section 582.03, to advance money
         to any receiver appointed hereunder to pay any part or all of the items
         which the receiver would otherwise be authorized to pay if cash were
         available from the Premises and the sum so advanced, with interest at
         the rate provided for in the Note, shall be a part of the sum required
         to be paid to redeem from any foreclosure sale.

6.       No Liability For Assignee. The Assignee shall not be obligated to
         perform or discharge, nor does it hereby undertake to perform or
         discharge any obligation, duty or liability under the Leases nor shall
         this Assignment operate to place responsibility for the control, care,
         management or repair of the Premises upon the Assignee nor for the
         carrying out of any of the terms and conditions of said Leases; nor
         shall it operate to make the Assignee responsible or liable for any
         waste committed on the Premises, or for any dangerous or defective
         condition of the Premises, or for any negligence in the management,
         upkeep, repair or control of said Premises resulting in loss or injury
         or death to any tenant, licensee, employee or stranger nor liable for
         laches or failure to collect the Rents and Assignee shall be required
         to account only for such moneys as are actually received by it.

7.       Assignor Hold Assignee Harmless. The Assignor shall and does hereby
         agree to indemnify and to hold Assignee harmless of and from any and
         all liability, loss or damage which it may or might incur under the
         Leases or under or by reason of this Assignment and of and from any and
         all claims and demands whatsoever which may be asserted against it by
         reason of any alleged obligations or undertakings on its part to
         perform or discharge any of the terms, covenants or agreements
         contained in said Leases except for the gross negligence of the
         Mortgagee. Should the Assignee incur any such liability, or in the
         defense of any such claims or demands, the amount thereof, including
         costs, expenses, and reasonable attorney's fees, shall be secured
         hereby, shall be added to the Indebtedness Secured Hereby and Assignor
         shall reimburse the Assignee therefor immediately upon demand, and upon
         the failure of Assignor so to do the Assignee may declare all
         Indebtedness Secured Hereby immediately due and payable.

8.       Authorization To Tenants. The tenants under the Leases are hereby
         irrevocably authorized and directed to recognize the claims of Assignee
         or any receiver appointed hereunder without investigating the reason
         for any action taken or the validity or the amount of indebtedness
         owing to the Assignee, or the existence of any Event of Default under
         the Note, Mortgage, or under or by reason of this Assignment, or the
         application to be made by the Assignee or such receiver. Assignor
         hereby irrevocably directs and authorizes the tenants to pay to
         Assignee or such receiver all sums due under the Leases and consents
         and directs that said sums shall be paid to any such receiver in
         accordance

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         with terms of its receivership or to Assignee without the necessity for
         a judicial determination that a default has occurred hereunder or under
         the Mortgage or that Assignee is entitled to exercise its rights
         hereunder, and to the extent such sums are paid to Assignee or such
         receiver, the Assignor agrees that the tenants shall have no further
         liability to Assignor for the same. The sole signature of the Assignee
         or such receiver shall be sufficient for the exercise of any rights
         under this Assignment and the sole receipt of the Assignee or such
         receiver for any sums received shall be a full discharge and release
         therefor to any such tenant or occupant of the Premises. Checks for all
         or any part of the Rents collected under this Assignment shall upon
         notice from the Assignee be drawn to the exclusive order of the
         Assignee or such receiver.

9.       Satisfaction. Upon the payment in full of all Indebtedness Secured
         Hereby as evidenced by a recorded satisfaction of the Mortgage executed
         by Assignee, or its subsequent assign, this Assignment shall without
         the need for any further satisfaction or release become null and void
         and be of no further effect; however, Assignee shall, upon request,
         execute such a satisfaction or release at Assignor's sole cost and
         expense.

10.      Assignee Attorney-In-Fact. Assignor hereby irrevocably appoints
         Assignee and its successors and assigns as its agent and attorney in
         fact, which appointment is coupled with an interest, to exercise any
         rights or remedies hereunder and to execute and deliver during the term
         of this Assignment such instruments as Assignee may deem necessary to
         make this Assignment and any further assignment effective.

11.      Subsequent Leases. Until the Indebtedness Secured Hereby shall have
         been paid in full, Assignor will, upon demand, deliver to the Assignee
         executed copies of any and all other and future Leases upon all or any
         part of the said Premises and agrees to make, execute and deliver unto
         Assignee upon demand and at any time or times, any and all assignments
         and other instruments sufficient to assign the Leases and Rents
         thereunder to Assignee or that the Assignee may deem to be advisable
         for carrying out the true purposes and intent of this Assignment. From
         time to time on request of the Assignee the Assignor agrees to furnish
         Assignee with a rent roll of the Premises disclosing current tenancies,
         rents payable, and such other matters as Assignee may reasonably
         request.

12.      No Mortgagee In Possession. Nothing herein contained and no actions
         taken pursuant to this Assignment shall be construed as constituting
         the Assignee a "Mortgagee in Possession".

13.      Continuing Rights. The rights and powers of Assignee or any receiver
         appointed hereunder shall continue and remain in full force and effect
         until all Indebtedness Secured Hereby, including any deficiency
         remaining from a foreclosure sale, are paid in full, and shall continue
         after commencement of a foreclosure action and after foreclosure sale
         and until expiration of the equity of redemption, if the Assignee be
         the purchaser at a foreclosure sale.

14.      Successors And Assigns. This Assignment and each and every covenant,
         agreement and provision hereof shall be binding upon the Assignor and
         its successors and assigns including without limitation each and every
         from time to time record owner of the

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         Premises or any other person having an interest therein and shall inure
         to the benefit of the Assignee and its successors and assigns. As used
         herein the words "successors and assigns" shall also be deemed to mean
         the heirs, executors, representatives and administrators of any natural
         person who is a party to this Assignment.

15.      Governing Law. This Assignment is intended to be governed by the laws
         of the State of Minnesota.

16.      Validity Clause. It is the intent of this Assignment to confer to
         Assignee the rights and benefits hereunder to the full extent allowable
         by law. The unenforceability or invalidity of any provisions hereof
         shall not render any other provision or provisions herein contained
         unenforceable or invalid. Any provisions found to be unenforceable
         shall be severable from this Assignment.

17.      Notices. Any notice which any party hereto may desire or may be
         required to give to any other party shall be in writing and the mailing
         thereof by certified mail, or equivalent, to the respective party's
         address as set forth hereinabove or to such other place such party may
         by notice in writing designate as its address shall constitute service
         of notice hereunder.

18.      Security Deposits. The Assignor agrees that upon default under the
         terms of this Assignment or the Note or Mortgage, it shall transfer to
         the Assignee any security deposits held by Assignor under the terms of
         the Leases. Assignor agrees that such security deposits may be held by
         the Assignee and shall become the absolute property of the Assignee
         upon an event of default hereunder to be applied in accordance with the
         provisions of the Lease. Until Assignee makes such demand and the
         deposits are paid over to Assignee the Assignee assumes no
         responsibility to the tenants for any such security deposit.

         IN WITNESS WHEREOF, the Assignor has caused this Assignment to be
executed as of the date first above written.

                                                     NAVARRE CORPORATION, a
                                                     Minnesota corporation

                                                     By ________________________

                                                     Its  ______________________

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STATE OF MINNESOTA         )
                           ) ss.
COUNTY OF _______________  )

The foregoing instrument was acknowledged before me this _____ day of
___________________________, 2003, by ____________________________________, the
_____________________________ of Navarre Corporation, a Minnesota corporation,
on behalf of the corporation.

                                             ___________________________________
                                             NOTARY PUBLIC

THIS DOCUMENT WAS DRAFTED BY:

BEST & FLANAGAN LLP
225 South Sixth Street, Suite 4000
Minneapolis, Minnesota 55402-4331
(612) 339-7121

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                                    EXHIBIT A
                                       TO
                         ASSIGNMENT OF RENTS AND LEASES

                                      - 8 -<PAGE>

                                                                    EXHIBIT 10.4

                           CONSTRUCTION LOAN AGREEMENT

         THIS AGREEMENT, made and entered into this _______ day of
______________, 2003, by and between NAVARRE CORPORATION, a Minnesota
corporation ("Borrower"), whose address is 7400 49th Avenue North, New Hope, MN
55428 and THE BUSINESS BANK ("Lender"), whose address is 11100 Wayzata
Boulevard, Suite 150, Minnetonka, MN 55305.

                           W I T N E S S E T H, THAT:

         WHEREAS, Borrower is contemplating building on the Premises described
in Schedule "A" attached hereto the following Improvements: An approximately
115,286 square foot office/warehouse facility to be located on approximately
5.69 acres of land;

         WHEREAS, Borrower has made application to Lender for a Construction
Loan to defray the costs of constructing such Improvements;

         WHEREAS, Lender has issued to Borrower its Commitment to make a
construction loan in the amount hereinafter specified, subject to compliance
with the terms and conditions of this Construction Loan Agreement;

         NOW, THEREFORE, in consideration of the making of the Loan and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

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

         1.       "Application" shall mean Borrower's application to the Lender
for the Loan the terms and conditions of which are incorporated herein by
reference.

         2.       "Architect's Contract" shall mean Borrower's contract with the
Project Architect.

         3.       "Bonds" - INTENTIONALLY DELETED.

         4.       "Commitment" shall mean Lender's commitment to Borrower
agreeing to make this Construction Loan.

         5.       "Completion Date" shall mean midnight, June 1, 2004.

         6.       "Contractor(s)" shall mean those firms directly engaged by
Borrower to construct the Improvements, whether one or more.

         7.       "Contract Documents" shall mean the Project Architect's
Contract, Plans and Specifications and the Construction Contracts.

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         8.       "Construction Costs" shall mean land costs, all costs paid to
construct and complete the Improvements including, but not limited to,
demolition costs, site preparation costs, architectural fees, contractor's fees,
engineering fees, survey and environmental costs, all loan fees and carrying
charges, and all costs of labor and material paid or necessarily incurred by
Borrower.

         9.       "Construction Contracts" shall mean the contracts between
Borrower and Contractor(s) for the furnishing of labor, services or materials to
the Premises in connection with the construction of the Improvements.

         10.      "Financing Statements" shall mean one or more financing
statements between Borrower and Lender covering the personal property and
fixtures included in the Premises.

         11.      "Force Majeure" shall mean a delay in the progress of
construction due to any strike, boycott, or similar obstructive action by
employees or labor organizations beyond the control of the Borrower; or by fire,
unusual delay in transportation, acts of God, adverse weather conditions not
reasonably anticipatable, unavoidable casualties or shortages of materials which
are beyond the control of the Borrower.

         12.      "Improvements" shall mean the structures and other
improvements to be constructed on the Premises in accordance with the Plans and
Specifications.

         13.      "Inspecting Architect" shall mean Steiner Consulting LLC, the
architect hired by Lender to perform inspections of the Premises.

         14.      "Loan" shall mean the loan to be made pursuant to the
Commitment and not to exceed the lesser of the total Construction Costs or the
maximum loan amount as specified in the Commitment.

         15.      "Loan and Carrying Charges" shall mean all fees, taxes and
charges incurred under the Loan and in the construction of the Improvements
including, but not limited to non-refundable commitment fees, loan or brokerage
fees paid to the Lender; interest charges, service and inspection fees,
attorney's fees, title insurance fees and charges, recording fees and insurance
premiums.

         16.      "Loan Documents" shall mean the Note, Mortgage, Financing
Statement, Assignment of Rents, Assignment of Leases and such other documents as
Lender may reasonably require to be given to the Lender as security for the
Loan.

         17.      "Mortgage" shall mean a Mortgage and Security Agreement to be
executed and delivered by Borrower to Lender and mortgaging the Premises to the
Lender as security for the Loan.

         18.      "Note" shall mean a Promissory Note to be made by Borrower
payable to the order of Lender to evidence the Loan and being in the principal
amount of the Loan.

         19.      "Owner Equity" shall mean the total Construction Costs less
the amount of the

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Loan.

         20.      "Plans and Specifications" shall mean the plans and
specifications prepared by the Project Architect, copies of which have been
initialed by the parties hereto and are incorporated by reference into this
Agreement.

         21.      "Premises" shall mean the real property legally described as
Lot 1, Block 1, Paulsons Prairie, Hennepin County, Minnesota, together with all
improvements and fixtures thereon.

         22.      "Project" shall mean the construction of the Improvements on
the Premises.

         23.      "Project Architect" shall mean KKE Architects, Inc., the
architect retained by Borrower to design and supervise construction of the
Improvements.

         24.      "Sub-Contracts" shall mean the contracts between the
Contractor(s) and its materialmen and mechanics in the furnishing of labor or
materials for the Project.

         25.      "Sub-Contractors" shall mean those persons furnishing labor or
materials for the Project pursuant to the Sub-Contracts.

         26.      "Title" shall mean Commonwealth Land Title Insurance Company,
the title insurer issuing the mortgagee's title insurance policy.

                                   ARTICLE II
                                    THE LOAN

         Subject to compliance with the provisions of this Agreement Lender
agrees to loan to Borrower. The Loan shall be advanced in stages by Lender to
Title and disbursed by Title pursuant to the provisions of Article VIII hereof.
The Loan, or so much thereof as has been advanced hereunder, shall bear interest
at the rate and shall be repaid in accordance with the terms of the Loan
Documents. The proceeds of the Loan shall be used for the purposes of defraying
total Construction Costs.

                                   ARTICLE III
                           EXECUTION OF LOAN DOCUMENTS

         Prior to any request for funds, Borrower agrees to authorize, execute
and deliver to Lender and record the Loan Documents and other items required by
this Agreement. Borrower agrees the Loan Documents and all other matters
required under this Agreement shall be subject to the approval of Lender's
Counsel.

                                      -3-

<PAGE>

                                   ARTICLE IV
                          CONSTRUCTION OF IMPROVEMENTS

         Borrower has commenced construction of the Improvements, and Borrower
agrees to diligently pursue said construction to completion and to supply such
moneys and to perform such duties as may be necessary to complete the
construction of said Improvements pursuant to the Plans and Specifications and
in full compliance with all terms and conditions of the Commitment, this
Agreement and the Loan Documents, all of which shall be accomplished on or
before the Completion Date, and without liens, claims or assessments (actual or
contingent) asserted against the Premises for any material, labor or other items
furnished in connection therewith, and all in full compliance with all
construction, use, building, zoning and other similar requirements of any
pertinent governmental jurisdiction, evidence of satisfactory compliance with
all of which Borrower will provide to Lender upon request therefor by Lender.

                                    ARTICLE V
                 REPRESENTATIONS AND WARRANTIES OF THE BORROWER

Borrower hereby represents and warrants to the Lender that:

1.       VALIDITY OF LOAN DOCUMENTS - The Loan Documents are in all respects
legal, valid and binding according to their terms and grant to Lender a direct,
valid and enforceable first lien upon and security interest in the Premises and
the personal property and fixtures to be located thereon, as well as the rents
and leases of the Premises, but excluding the removable trade fixtures,
inventory and personal property of any tenant of the Premises.

2.       PRIORITY OF LIEN ON PERSONALTY - No chattel mortgage, bill of sale,
security agreement, financing statement, or other title retention agreement
(except those executed in favor of Lender) has or will be executed with respect
to any personal property, chattel or fixture used in conjunction with the
construction, operation or maintenance of the improvements, except with respect
to the removable trade fixtures, inventory and personal property of the Borrower
and of any tenant of the Premises.

3.       CONFLICTING TRANSACTION OF BORROWER - The consummation of the
transactions hereby contemplated and the performance of the obligations of
Borrower under and by virtue of the Loan Documents will not result in any breach
of, or constitute a default under, any mortgage, lease, bank loan or credit
agreement, corporate charter, by-laws, partnership agreement, or other
instrument to which Borrower is a party or by which it may be bound or affected.

4.       PENDING LITIGATION - There are no actions, suits or proceedings
pending, or to the knowledge of Borrower threatened, against or affecting it or
the Premises, or involving the validity or enforceability of any of the Loan
Documents or the priority of the lien thereof, at law or in equity, or before or
by any governmental authority, except actions, suits and proceedings which are
fully covered by insurance or which, if adversely determined would not
substantially impair the ability of Borrower to perform each and every one of
its obligations under and by virtue of the Loan Documents; and to the Borrower's
knowledge it is not in default with respect to any order, writ, injunction,
decree or demand of any court or any governmental authority.

                                      -4-

<PAGE>

5.       VIOLATIONS OF GOVERNMENTAL LAW, ORDINANCES OR REGULATIONS - Borrower
has no knowledge of any violations or notices of violations of any federal or
state law or municipal ordinance or order or requirement of the State in which
the Premises are located or any municipal department or other governmental
authority having jurisdiction affecting the Premises, which violations in any
way relate to or affect the Premises.

6.       COMPLIANCE WITH ZONING ORDINANCES AND SIMILAR LAWS - The Plans and
Specifications and construction pursuant thereto and the use of the Premises
contemplated thereby comply and will comply with all governmental laws and
regulations and requirements, zoning ordinances, standards, and regulations of
all governmental bodies exercising jurisdiction over the Premises, including
environmental protection and equal employment regulations, and appropriate
supervising boards of fire underwriters and similar agencies. Borrower agrees to
provide the Project Architect's certification to such effect.

7.       BORROWER'S STATUS AND AUTHORITY - If the Borrower be a corporation,
trust or a partnership, Borrower warrants and represents that (i) it is a duly
organized, existing and in good standing under the laws of the state in which it
is incorporated or created; (ii) it is duly qualified to do business and is in
good standing in the state in which the Premises are located; (iii) it has the
corporate or other power, authority and legal right to carry on the business now
being conducted by it and to engage in the transactions contemplated by this
Agreement and the Loan Documents; and (iv) the execution and delivery of this
Agreement and the Loan Documents and the performance and observance of the
provisions hereof and thereof have been duly authorized by all necessary trust,
partnership, or corporate actions of Borrower. Borrower will furnish such
resolutions, affidavits and opinions of counsel to such effect as Lender may
reasonably require.

8.       AVAILABILITY OF UTILITIES - All utility services necessary for the
proper operation of the Improvements for their intended purposes are available
at the Premises or will be available at the Premises prior to commencement of
Construction, at standard utility rates and hook-up charges, including water
supply, storm and sanitary sewer facilities, gas, electricity and telephone
facilities. Borrower shall furnish evidence of such availability of utilities
from time to time at Lender's request.

9.       BUILDING PERMITS - All building permits required for the construction
of the Improvements have been, or will be obtained prior to the commencement of
the construction of the Improvements and copies of same will be delivered to
Lender.

10.      CONDITION OF PREMISES - Except as disclosed to the Lender prior to the
date hereof, the Premises are not now damaged or injured as a result of any
fire, explosion, accident, flood or other casualty, nor subject to any action in
eminent domain.

11.      APPROVAL OF PLANS AND SPECIFICATIONS - The Plans and Specifications
conform to the requirements and conditions set out by applicable law or any
effective restrictive covenant, to all governmental authorities which exercise
jurisdiction over the Premises or the construction thereon, no funds shall be
advanced until said Plans and Specifications shall have been approved by Lender.
Except for tenant finishes that do not exceed the budgeted amount as shown on
the Sworn

                                      -5-

<PAGE>

Construction Statement. No changes are to be made in the Plans and
Specifications as approved without Lender's prior consent.

12.      CONSTRUCTION CONTRACTS - Borrower has entered into contracts with the
Contractor(s) or separate contracts with materialmen and laborers providing for
the construction of the Improvements. Borrower will cause the Contractor(s) to
promptly furnish Lender with the complete list of all Sub-contractors or
entities which Contractor(s) propose to engage to furnish labor and/or materials
in constructing the Improvements and will from time to time furnish Lender with
true copies of all Contracts and Sub-contracts therefor and with the terms of
all verbal agreements therefor.

13.      BROKERAGE COMMISSIONS - No brokerage commissions are due in connection
with the transaction contemplated hereby or if there are commissions due or
payable the same will be paid by Borrower. Borrower agrees to and shall
indemnify Lender from any liability, claims or losses arising by reason of any
such brokerage commissions. This provision shall survive the repayment of the
Loan and shall continue in full force and effect so long as the possibility of
such liability, claims or losses exists.

14.      NO PRIOR WORK - Except as may have been permitted by Lender and Title
pursuant to its early start coverage, no work or construction has been commenced
or will be commenced by or on behalf of Borrower on the Premises, nor has
Borrower entered into any contracts or agreements for such work or construction
which could result in the imposition of a mechanic's or materialmen's lien on
the Premises or the Improvements prior to or on parity with the lien of the
security interest evidenced by the Mortgage.

15.      ENVIRONMENTAL IMPACT STATEMENT - All required environmental impact
statements as required by any governmental authority having jurisdiction over
the Premises or the construction of the Improvements have been duly filed and
approved.

16.      ACCESS - The Premises front on a publicly maintained road or street or
have access to such a road or street under easement which is not subject to a
reversion in favor of any party.

17.      FINANCIAL INFORMATION - Any financial statements heretofore delivered
to Lender are true and correct in all respects, have been prepared in accordance
with generally accepted accounting practice, and fairly present the respective
financial conditions of the subject thereof as of the respective dates thereof
and no materially adverse change has occurred in the financial conditions
reflected therein since the respective dates thereof.

                                   ARTICLE VI
                              COVENANTS OF BORROWER

Borrower hereby covenants and agrees with Lender as follows:

1.       SURVEYS - Prior to execution of any Loan Documents and prior to any
request for a Disbursement, Borrower shall furnish to Lender three copies of a
current perimeter land survey, in form and substance satisfactory to Lender,
certified to Lender, giving a description of the Premises

                                      -6-

<PAGE>

and showing all encroachments onto or from the Premises, currently certified by
a registered surveyor and bearing his registry number and showing access rights,
easements, or utilities, rights of way, all setback requirements upon the
Premises, improvements, matters affecting title and such other items as Lender
may reasonably request. After the foundation walls for the Improvements are
completed, the Borrower shall, upon Lender's request, promptly furnish the
Lender with three copies of the survey revised to show the location of the
Improvements and certifying that the Improvements are within the boundary lines
of the Premises and the building restriction lines, if any, and that the
Improvements do not encroach upon any easement, utility or right of way.

2.       TITLE INSURANCE - Prior to any request for Disbursement, Borrower shall
furnish Lender with an ALTA policy of title insurance in form and substance
satisfactory to Lender issued at the Borrower's expense and written by Title
insuring the Premises to be marketable, free from exceptions for mechanic's and
materialmen's liens and free from other exceptions not previously approved by
the Lender, naming Lender as an insured and insuring that the Mortgage is a
valid first lien to the extent of advances made or to be made hereunder subject
only to such exceptions as may be approved by Lender.

3.       OTHER DOCUMENTS - To furnish the Lender with copies of such other
documents, instruments or materials as may be required by the Commitment.

4.       RESTRICTIONS ON CONVEYANCE OR SECONDARY FINANCING - Borrower will not
transfer, sell, convey or encumber the Premises or subject the Premises to any
secondary financing in any way without the written consent of the Lender save
and except that Borrower may enter into an agreement to sell the Premises
provided that the Loan shall be due and payable in full upon the closing of such
sale.

5.       INSURANCE - To obtain or cause Contractor(s) to obtain and maintain
such insurance or evidence of insurance as Lender may reasonably require,
including but not limited to the following:

         (a)      BUILDER'S RISK INSURANCE - Builder's Risk Insurance written on
the so-called "Builder's Risk-Completed Value Basis" in an amount equal to the
full replacement cost of the Improvements at the date of completion with
coverage available on the so-called multiple peril form of policy, including
coverage against collapse and water damage, with standard non-contributing
mortgagee clauses, such insurance to be in such amounts and form and written by
such companies as shall be approved by Lender, and the originals of such
policies (together with appropriate endorsement thereto, evidence of payment of
premiums thereon and written agreements by the insurer or insurers therein to
give Lender ten (10) days' prior written notice of any intention to cancel)
shall be promptly delivered to Lender, said insurance coverage to be kept in
full force and effect at all times until the completion of construction of the
Improvements.

         (b)      HAZARD INSURANCE - Fire and Extended Coverage Insurance, and
such other hazard insurance as Lender may require in an amount equal to the full
replacement cost of the Improvements with standard non-contributing mortgagee
clauses, such insurance to be in such amounts and form and written by such
companies as shall be approved by Lender, and the originals of such policies
(together with appropriate endorsements thereto, evidence of payment of premiums
thereon and written agreement by the insurer or insurers therein to give Lender
ten (10) days' prior

                                      -7-

<PAGE>

written notice of any intention to cancel) shall be promptly obtained and
delivered to Lender immediately upon completion of the construction of the
Improvements and before any portion is occupied by Borrower or any tenant of
Borrower with such insurance to be kept in full force and effect at all times
thereafter until the payment in full of the Loan evidenced by the Note.

         (c)      PUBLIC LIABILITY - Comprehensive public liability insurance
(including operations, contingent liability operations, operations of
sub-contractors, completed operations and contractual liability insurance) in
acceptable limits of coverage.

         (d)      WORKMEN'S COMPENSATION INSURANCE - Evidence of compliance with
the required coverage under statutory workmen's compensation requirements.

         (e)      BONDS - Unless waived by the Lender to promptly furnish to
Lender originals of the Bonds written in such amounts and form by a surety
acceptable to Lender together with evidence of payment of the premiums therein
and written agreement by the surety to give Lender ten (10) days' prior written
notice of any intention to cancel the same.

6.       COLLECTION OF INSURANCE PROCEEDS - To cooperate with Lender in
obtaining for Lender the benefits of any insurance or other proceeds lawfully or
equitably payable to it in connection with the transaction contemplated hereby
and the collection of any indebtedness or obligation of the Borrower to Lender
incurred hereunder (including the payment by Borrower of the expense of an
independent appraisal on behalf of Lender in case of a fire or other casualty
affecting the Premises).

7.       APPLICATION OF LOAN PROCEEDS - To use the proceeds of the Loan solely
for the purpose of paying for Construction Costs and such incidental costs
relative to the construction as may be approved from time to time in writing by
Lender, and in no event to use any of the Loan proceeds for personal, corporate
or other purposes.

8.       EXPENSES - To pay all costs of closing the Loan and all expenses of
Lender with respect thereto, including, but not limited to, legal fees by
Lender's counsel and all other reasonable attorney's fees, costs of title
insurance, transfer taxes, license and permit fees, recording expenses, surveys,
intangible taxes, appraisal fees, Inspecting Architect fees, expenses of
foreclosure (including maximum lawful attorney's fees) and similar items.

9.       LAWS, ORDINANCES AND ETC. - To comply promptly with any law, ordinance,
order, rule or regulation of all authorities exercising jurisdiction over the
Premises or the construction thereon, including appropriate supervising boards
of fire underwriters and similar agencies and the requirements of any insurer
issuing coverage on the Project.

10.      RIGHT OF LENDER TO INSPECT PREMISES - To permit Lender, Title and their
representatives and agents to enter upon the Premises and to inspect the
Improvements and all materials to be used in construction thereof and to
cooperate and cause Contractor(s) to cooperate with Lender, Title and their
representatives and agents during such inspections; provided, however, that this
provision shall not be deemed to impose upon Lender or Title any duty or
obligation whatsoever to undertake such inspections, to correct any defects in
the Improvements or to notify

                                      -8-

<PAGE>

any person with respect thereto.

11.      BOOKS AND RECORDS - To set up and maintain accurate and complete books,
accounts and records pertaining to the Project including the working drawings in
a manner reasonably acceptable to Lender. The Lender, Title and Inspecting
Architect shall have the right at all reasonable times to inspect, examine and
copy all books and records of Borrower relating to the Project, and to enter and
have free access to the Premises and Improvements and to inspect all work done,
labor performed and material furnished in or about the Project. Notwithstanding
the foregoing, Borrower shall be responsible for making inspections as to the
Improvements during the course of construction and shall determine to its own
satisfaction that the work done or materials supplied by the Contractor(s) and
all Subcontractors has been properly supplied or done in accordance with the
applicable contracts. Borrower will hold Lender and Title harmless from and
Lender and Title shall have and have no liability or obligation of any kind to
Borrower or creditors of Borrower in connection with any defective, improper or
inadequate workmanship or materials brought in or related to the Improvements or
the Premises, or any mechanic's liens arising as a result of such workmanship or
materials. Upon Lender's request, Borrower shall replace or cause to be replaced
any such work or material found to be deficient. Any inspections made by
Inspecting Architect, Title or Lender are for the sole benefit of Lender and
neither Borrower nor any creditor, tenant or vendee of Borrower shall be
entitled to rely on such inspection.

12.      DELIVERY OF LEASES TO LENDER - To deliver to Lender an executed
counterpart of all Leases of the Premises and amendments thereto whether
executed before or after the date of this Agreement, together with a specific
assignment to Lender of said Leases, when so required by Lender. Unless
otherwise agreed to by Lender, all leases are to be subordinate to the Mortgage,
however, the Lender reserves the right to require specific leases to be made
superior to the Mortgage. Borrower agrees that it will obtain execution by
tenants of such instruments including attornment agreements, acceptance letters
and estoppel certificates as shall be required by Lender from time to time.
Borrower further agrees that it will not amend any lease or enter into any
future lease upon the Premises without the prior written consent of Lender and
that Lender, at its option, but at Borrower's expense, may record any such
lease.

13.      CORRECTION OF DEFECTS - To promptly correct any structural defects in
the Improvements or any departure from the Plans and Specifications not
previously approved by Lender. The advance of any Loan proceeds shall not
constitute a waiver of Lender's right to require compliance with this covenant.

14.      SIGN REGARDING CONSTRUCTION FINANCING - To allow Lender to erect and
maintain at a suitable site on the Premises a sign indicating that construction
financing is being provided by Lender.

15.      ADDITIONAL DOCUMENTS - To furnish to Lender all instruments, documents,
initial surveys, footing or foundation surveys, certificates, plans and
specifications, appraisals, financial statements, title and other insurance
reports and agreements and each and every other document and instrument required
to be furnished by the terms of the Commitment, all at Borrower's expense; to
assign and deliver to Lender such documents, instruments, assignments and other
writings, and to do such other acts necessary or desirable to preserve and
protect the collateral at any time securing

                                      -9-

<PAGE>

or intended to secure the Note, as Lender may require; and to do and execute all
and such further lawful and reasonable acts, conveyances and assurances for the
carrying out of the intents and purposes of this Agreement and the Commitment,
as Lender shall reasonably require from time to time.

16.      ARCHITECTS AND CONSTRUCTION CONTRACTS - To permit no default under the
terms of the Architects or Construction Contracts; To waive none of the
obligations of the parties thereunder; To do no act which would relieve such
parties from their obligations thereunder; To make no amendments to such
contracts, without the prior written consent of Lender; To enter into no change
orders that result in an increase or decrease in the Contract Sum by more than
$25,000.00 for any line item, or more than $100,000.00 in the aggregate
(provided that copies of all change orders shall be provided to Lender upon the
execution thereof by Borrower, each change order shall be reflected on the
applicable draw request form and no change order, whether consented to by Lender
or not, shall be deemed to be a waiver or modification of the obligation to keep
the Loan in balance as required under paragraph VII, 3., below) or extras
without Lender's consent; To allow all such contracts to be subject to the
approval of Lender for its loan purposes; To allow Lender to take advantage of
all the rights and benefits of the contracts upon any default by Borrower; and
to submit evidence to Lender that both the Architect and the Contractor(s) will
permit Lender to acquire Borrower's interest under their respective contracts
and the Contract Documents without additional charge or fee should an event of
default occur hereunder.

17.      ENFORCE PERFORMANCE OF SUB-CONTRACTS - To enforce or cause to be
enforced the prompt performance of the Sub-Contracts in accordance with their
terms and not to approve any changes in the same without Lender's prior written
consent.

18.      COMPLIANCE WITH RULES - To comply with and to require the Contractor(s)
to comply with all rules, regulations, ordinances and laws bearing on the
conduct of the work on the Improvements, including the requirements of any
insurer issuing coverage on the Project and the requirements of any supervising
boards of fire underwriters or similar agencies.

19.      OPINIONS OF COUNSEL - To furnish such opinions of counsel as may be
reasonably requested of the Borrower in connection with the matters contemplated
by this Agreement.

20.      SOIL TESTS - To provide the Lender with a soil report prepared by an
acceptable engineer certifying as to the status of the soil conditions on the
Premises, the need or lack of need for special pilings and foundations and that
either any pilings and foundation necessary to support the Improvements have
been placed in a manner and quantity sufficient to provide the required support
or that no such pilings and foundations are necessary for the support and
construction of the Improvements.

21.      MARKETABLE TITLE - To execute and deliver or cause to be executed and
delivered such instruments as may be required by the Lender and Title to provide
Lender with a marketable, valid and First Lien on the Premises subject only to
such exceptions to title as may be approved by Lender.

22.      APPRAISAL - To deliver to Lender an MAI Appraisal of the Premises
satisfactory to Lender and conforming to the requirements of the Commitment.

                                      -10-

<PAGE>

                                   ARTICLE VII
                     CONDITIONS PRECEDENT TO A DISBURSEMENT

It shall be a condition precedent to each Disbursement under this Loan Agreement
that:

1.       LOAN DOCUMENTS - The Loan Documents shall have been duly executed and
delivered to Lender and shall be in full force and effect.

2.       OWNER EQUITY - Borrower shall have paid all of the Owner Equity funds
into the Project before the first Disbursement and Borrower shall deliver
evidence of such payment reasonably satisfactory to Lender.

3.       LOAN BALANCE - As of the date immediately prior to any Disbursement,
the total amount of unadvanced proceeds of the Loan shall be sufficient, in the
opinion of Lender and Title to complete the Improvements free of liens. To the
extent the total of the unadvanced proceeds of the Loan shall be insufficient,
at any time, in Lender's or Title's opinion, to complete the Improvements, or be
less than the Total Construction Costs not yet paid for or not yet incurred, the
Borrower shall immediately deposit with the Lender or with Title, as additional
Owner Equity funds, an amount equal to such deficiency and such additional Owner
Equity funds shall be disbursed by Title prior to the Disbursement of any
further advance or advances under this Agreement.

4.       NO DEFAULT - No event of default shall exist under this Agreement or
the Loan Documents.

5.       REPRESENTATIONS AND WARRANTIES - The representations and warranties in
Article V hereof shall be true and correct on and as of the date of each
Disbursement.

6.       COVENANTS - Borrower shall have complied with all of the covenants made
by it in Article VI hereof.

7.       SWORN CONSTRUCTION STATEMENT - Prior to the initial disbursement
hereunder, the Borrower shall have submitted to Lender and Title a Construction
Cost Statement sworn to by Borrower and Contractor(s) and all major
Sub-Contractors or materialmen who shall then be engaged in furnishing labor,
materials or supplies for the Improvements. The list should show the name of
each and every Contractor, Sub-Contractor and materialman, his address and an
estimate of the dollar value of the work, labor and materials to be done or
supplied and a general statement of the nature of the work to be done or
materials to be supplied by each. The Borrower shall furnish to the Lender any
amendments or additions to the original statement as so submitted. The Borrower
shall also submit a sworn statement of all Loan and carrying charges certified
to Lender.

8.       APPLICATION FOR PAYMENT - Lender shall have received an Application for
Payment pursuant to Article VIII hereof.

                                      -11-

<PAGE>

9.       TITLE - Title shall, if required, issue its endorsement to the title
policy insuring the Mortgage to be a first lien under the policy in the
aggregate amounts of all prior Disbursements and the requested Disbursement.

10.      WORK IN PLACE - All work or materials for which a Disbursement is
requested shall be in place and incorporated into the Improvements.

                                  ARTICLE VIII
                    METHODS OF DISBURSEMENT OF LOAN PROCEEDS

The Loan shall be disbursed as follows:

1.       PROCEDURE - Not more often than monthly, Borrower may submit an
Application for Payment requesting the Disbursement of proceeds under the Loan,
which request shall be submitted to Lender and to Title at least five (5)
business days prior to the date on which a Disbursement is requested. Provided
the conditions of this Loan Agreement are met on the date requested for such
advance, Lender shall advance to Title amounts certified to be currently payable
by Borrower (excluding the retainage hereinafter specified) for the then
incurred portion of Total Construction Costs pursuant to the Application for
Payment. All costs shall have been approved in writing by the Project Architect,
Borrower, Contractor, and if required by Lender, by the Inspecting Architect.
All interest payable on the Note and all Loan and Carrying Charges shall be
approved by the Lender and to the extent payable to Lender need not be disbursed
to Title but may be immediately and automatically credited by Lender to the Loan
account. Title shall disburse all funds advanced to it by Lender in accordance
with the terms and provisions of this Agreement and any special escrow
requirements imposed by Title as a condition to its acting as the disbursing
agent hereunder. The Proceeds of the Loan shall bear interest from and after the
date of disbursement to Title or the date of credit by Lender provided that in
the event Title shall fail to disburse any advances within five (5) business
days after the date set for an advance, the Borrower may request Title to return
said advance to Lender and interest on such advance shall abate from and after
the date of such return. Any amounts disbursed to Title and returned by Title to
the Lender shall not be deemed to be advanced under the Loan Documents. Each
Application for Payment shall clearly set forth the amounts due to Borrower and
to each Contractor out of the requested Loan and shall upon the request of Title
or the Lender be accompanied by the following:

         (a)      A certificate signed by the Borrower, Project Architect and
Contractor certifying as to the Improvements completed at the time; that each
contractor or materialman specified in the relevant draw request has
satisfactorily completed the work or furnished the materials for which payment
is requested in accordance with the applicable contract; that all work for which
a draw request is made conforms to the Contract Documents and any approved
changes, and is in place; and in the case of the Contractor and Borrower that
sufficient funds remain of the undisbursed loan amounts to complete the Project
and that all funds previously disbursed have been applied as per the previous
Requests for Disbursement.

         (b)      A certificate by the Inspecting Architect stating that all
work done as specified in the draw request conforms to the Contract Documents;
that the amount requested for work done or material furnished reasonably
approximates the value of such work or materials and is in place and that
undisbursed funds hereunder are then, in its opinion, sufficient to complete the
Project.

                                      -12-

<PAGE>

         (c)      Conditional Waivers of Mechanic's Liens and Materialman's
Liens executed by all Contractor(s), Sub-Contractors and workmen and materialmen
for all work done and all materials furnished to the Premises and included in
such current draw request along with Unconditional Waivers for payments made on
the prior payments disbursed.

         (d)      Such other supporting evidence, including invoices and
receipts as may be requested by Lender or Title to substantiate all payments
which are to be made out of the Disbursement or to substantiate all payments
then made in respect to the Project.

2.       INTEREST ADVANCE - If interest has accrued on the Loan and is unpaid or
fees are payable to the Lender hereunder, Lender shall be, and hereby is,
authorized at any time to advance to itself from the proceeds of the Loan the
total amount of such accrued interest and fees, whether or not a draw request
has been submitted by the Borrower and the same shall be deemed to be an advance
of the proceeds of the Loan under this Agreement in the same manner and with the
same effect as if advanced under the provisions above. It is understood Lender
may establish an automatic interest reserve whereby Lender may withdraw from the
Loan account on a regular basis the accrued interest on the Loan and credit the
Loan balance with the same.

3.       ASSESSMENT AND TAX ADVANCE - Unless Borrower has paid the taxes and
assessments on or before the date on which they are due, as taxes and
assessments become due on the Premises, Lender shall be, and hereby is,
authorized to advance to itself automatically from the proceeds of the Loan, the
total amount of such taxes and assessments and the same shall be deemed to be an
advance of the proceeds of the Loan under this Agreement in the same manner and
with the same effect as if advanced under the provisions above. It is understood
Lender will establish an automatic tax reserve whereby Lender will withdraw from
the Loan on a regular basis the taxes and assessments on the Premises and credit
the Loan balance with the same.

4.       DISBURSE UNDER LOAN DOCUMENT - All sums advanced and disbursed
hereunder shall be disbursed under and shall be secured by the Loan Documents.

5.       PAYMENTS TO SUBCONTRACTORS - In its discretion Title may make payments
directly to any Subcontractor.

6.       RETAINAGE - Each Disbursement shall be limited to an amount equal to
ninety-five percent (95%) of the value, exclusive of Borrower and/or
Contractor's profit and overhead, of the materials and labor furnished to the
Premises and the balance (herein called the Retainage) shall be retained by
Lender, provided that thirty (30) days after completion by each of his
Subcontract, Lender will disburse to such party, or to the Contractor on behalf
of such party the Retainage withheld from said party, provided that as a
condition to such disbursement the Borrower, the Project Architect and the
Inspecting Architect shall certify to Lender the date that such Subcontractor's
Subcontract has been fully and satisfactorily completed and the Subcontractor
shall have supplied Title with satisfactory final lien waivers, including final
lien waivers for any of its submaterialmen or sub-contractors and the
requirements of any bonding company issuing the Bonds shall have been fulfilled.
Any Retainage due the Contractor(s) for work performed or

                                      -13-

<PAGE>

materials furnished by the Contractor(s) shall be disbursed on the Final
Disbursement pursuant to Article IX hereof.

                                   ARTICLE IX
                               FINAL LOAN BALANCE

At no time and in no event shall Lender be obligated to disburse the balance of
the proceeds of the Loan, including any Retainage until:

         1.       Lender shall have received satisfactory evidence of the final
completion of the Improvements in accordance with the Contract Documents and the
Certificate of Final Completion from the Project Architect accepted by the
Contractor and Borrower.

         2.       Lender shall have received a satisfactory as-built survey
reflecting the final location of the Improvements as fully completed on the
Premises in accordance with the Contract Documents, said survey to be prepared
by a registered or licensed surveyor bearing his registry number, certifying to
Lender as to the legal description of the Premises and showing all Improvements
located on the Premises and indicating the street address of the Improvements,
absence of any encroachments on the Premises or from the Premises onto adjacent
land, showing all access points, and showing conformance to all set back
requirements and delineating all utility easements, rights of way and other
matters affecting the Premises, and certifying as to the total acreage of the
land, the exterior dimensions of the Improvements, and the number of parking
spaces, if any, and such other matters as Lender may reasonably request.

         3.       Lender shall have received a requisite affidavit of the
Borrower, Contractor and Project Architect, and approved by the Inspecting
Architect certifying as to the final cost of the Improvements.

         4.       Title shall have been furnished with such final lien waivers
sufficient in the opinion of Title to dissolve any possible Mechanic's and
Materialman's Liens affecting title to the Premises.

         5.       Lender shall have received evidence that all of the terms,
provisions and conditions on the part of the Borrower to be performed or caused
to be performed have been fulfilled to the satisfaction of Lender.

         6.       Lender shall have received a copy of the Final Certificate of
Occupancy issued by the appropriate governmental authority covering the
Improvements indicating that the Improvements as built comply with all building
codes and zoning ordinances.

         7.       All remaining uncompleted "punch list" items shall have been
satisfactorily completed.

         8.       The requirements of all bonding companies with respect to
release of Retainage shall have been met.

                                      -14-

<PAGE>

                                    ARTICLE X
                                EVENTS OF DEFAULT

An "event of default" shall be deemed to have occurred hereunder if:

1.       DEFAULT UNDER LOAN DOCUMENTS - Any default or Event of Default occurs
under any of the Loan Documents and continues after the expiration of all grace
periods provided for therein as defined therein; or

2.       FAILURE TO COMPLETE CONSTRUCTION - Borrower shall fail for any reason
to complete the construction of the Improvements by the Completion Date, except
that in the event of a Force Majeure, in which event the Completion Date shall
be extended as is reasonably necessary; or

3.       BREACH OF AGREEMENT - Borrower breaches or fails to perform, observe or
meet any covenant or condition of this Agreement and such failure continues
after the expiration of all grace periods; or

4.       BREACH OF WARRANTY - Any warranties made or agreed to be made in any of
the Loan Documents or this Agreement shall be breached by Borrower or shall
prove to be false or misleading; or

5.       FILING OF LIENS AGAINST THE PREMISES - Any lien for labor, material,
taxes or otherwise shall be filed against the Premises and such lien shall not
be immediately bonded over to Lender's satisfaction; or

6.       LITIGATION AGAINST BORROWER - Any suit shall be filed against Borrower,
which if adversely determined, could substantially impair the ability of
Borrower to perform each and every one of its obligations under and by virtue of
the Loan Documents; or

7.       LEVY UPON THE PREMISES - A levy be made under any process on the
Premises and such levy shall not be immediately Bonded over and shall continue
unstayed for sixty (60) days or more; or

8.       ACCELERATION OF OTHER DEBTS - Borrower does, or omits to do, any act,
or any event occurs, as a result of which any material obligation of Borrower,
not arising hereunder, may be declared immediately due and payable by the Holder
thereof and which affects Borrower's ability to perform its obligations
hereunder; or

9.       TRANSFER OF PREMISES - Borrower shall without the prior written consent
of Lender, voluntarily or by operation of law, sell, transfer, convey or
encumber all or any part of its interest in the Premises or in any of the
personalty located thereon, or used or intended to be used in connection
therewith; or

10.      FAILURE TO DISPROVE DEFAULT - Lender shall reasonably suspect the
occurrence of one or more events of default and Borrower upon written request of
the Lender, shall fail to provide

                                      -15-

<PAGE>

evidence reasonably satisfactory to Lender that such event or events of default
have not in fact occurred; or

11.      ABANDONMENT - Except in the event of a Force Majeure, Borrower abandons
the project or delays or ceases work thereon for a period of fifteen (l5) days,
or delays construction or suffers construction to be delayed for any period of
time for any reason whatsoever so that completion of Improvements cannot be
accomplished in the judgment of Lender on or before the Completion Date; or

12.      BANKRUPTCY - Borrower shall make an assignment for the benefit of its
creditors or shall admit in writing its inability to pay its debts as they
become due or shall file a petition in bankruptcy or shall be adjudicated a
bankrupt or insolvent or shall file a petition seeking any reorganization,
dissolution, liquidation, arrangement, composition, readjustment, or similar
relief under any present or future bankruptcy or insolvency statute, law or
regulation, or shall file an answer admitting to or not contesting the material
allegations of a petition filed against it in any such proceedings, or shall not
have the same dismissed or vacated, or shall seek or consent or acquiesce in the
appointment of any trustee, receiver or liquidator of a material part of its
properties, or shall not after the appointment without the consent or
acquiescence of it of a trustee, receiver, or liquidator of any material part of
its properties have such receiver, liquidator or appointment vacated; or

13.      EXECUTION LEVY - Execution shall have been levied against the Premises
or other properties subject to the Mortgage or any lien creditors commence suit
to enforce a judgment lien against the Premises or such action or suit shall
have been brought and shall not be immediately bonded over and shall continue
unstayed and in effect for a period of more than 60 consecutive days; or

14.      ATTACHMENT - Any part of the Lender's commitment to make the advances
hereunder shall at any time be subject or liable to attachment or levy at the
suit of any creditor of the Borrower or at the suit of any subcontractor or
creditor of the Contractor which shall not be removed by either payment or
bonding over such claim to the reasonable satisfaction of the Lender; or

15.      DESTRUCTION - Any part of the Improvements are materially damaged or
destroyed by fire or other casualty and the loss shall prove not to be
adequately covered by insurance actually collected or in the process of
collection; or

16.      EMINENT DOMAIN - The Premises shall be the subject of an eminent domain
proceeding or a temporary taking.

                                   ARTICLE XI
                               REMEDIES OF LENDER

Borrower hereby agrees that the occurrence of any one or more of the events of
default set out in Article X hereof shall also constitute an event of default
under each of the Loan Documents, thereby entitling Lender, at its option, to
proceed to exercise any or all of the following remedies:

                                      -16-

<PAGE>

1.       EXERCISE OF REMEDIES - To exercise any of the various remedies provided
in any of the Loan Documents, including the acceleration of the indebtedness
evidenced by the Note and the foreclosure of the Mortgage, and such other
rights, options and privileges provided by law.

2.       CUMULATIVE RIGHTS - Cumulatively to exercise all other rights, options
and privileges provided by law.

3.       CEASE MAKING ADVANCES - To refrain from making any advances under this
Agreement but Lender may make advances after the happening of any such event
without thereby waiving the right to refrain from making other further advances
or to exercise any of the other rights Lender may have.

4.       RIGHTS TO ENTER - To require Borrower to vacate the Premises and permit
Lender (whether prior to a foreclosure sale or during any period of redemption
after a foreclosure sale):

         (a)      To enter into possession;

         (b)      To perform or cause to be performed any and all work and labor
necessary to complete the Improvements in accordance with the Plans and
Specifications;

         (c)      To employ security watchmen to protect the Premises; and

         (d)      To disburse that portion of the Loan Proceeds not previously
disbursed (including any Retainage) to the extent necessary to complete the
construction of the Improvements in accordance with the Contract Documents and
if the completion requires a larger sum than the remaining undisbursed portion
of the Loan, to disburse such additional funds, all of which funds so disbursed
by Lender shall be deemed to have been disbursed to Borrower and shall be
secured by the Mortgage. For this purpose, Borrower hereby constitutes and
appoints Lender its true and lawful attorney-in-fact with full power of
substitution to complete the construction of the Improvements in the name of the
Borrower, and hereby empowers Lender as said attorney to take all actions
necessary in connection therewith including but not limited to using any funds
of Borrower including any balance which may be held in escrow and any funds
which may remain unadvanced hereunder for the purpose of completing the said
portion of the Improvements in the manner called for by the Contract Documents;
to make such additions and changes and corrections in the Contract Documents
which shall be necessary or desirable to complete the said portion of the
Improvements in substantially the manner contemplated by the Contract Documents;
to employ such contractors, subcontractors, agents, architects, and inspectors
as shall be required for said purposes; to pay, settle or compromise all
existing or future bills and claims which are or may be liens against said
Premises, or may be necessary or desirable for the completion of the said
portion of the Improvements or the clearance of title to the Premises; to
execute all applications and certificates in the name of Borrower which may be
required by any construction contract and to do any and every act with respect
to the construction of the said portion of the Improvements which Borrower may
do in its own behalf. It is understood and agreed that this power of attorney
shall be deemed to be a power coupled with an interest which cannot be revoked
by death or otherwise. Said attorney-in-fact shall also have power to prosecute
and defend all actions and proceedings in connection with the construction of
the said portion of the Improvements and to take such action

                                      -17-

<PAGE>

and require such performance as it deems necessary. In accordance therewith,
Borrower hereby assigns and quitclaims unto Lender all sums to be advanced
hereunder including Retainage. Any funds so disbursed or fees or charges so
incurred shall be included in any amount necessary for the Borrower to pay to
redeem the premises after any foreclosure sale over and above and
notwithstanding the bid price at any foreclosure sale.

         (e)      To discontinue making advances hereunder to the Borrower and
to terminate Lender's obligations under this Agreement.

5.       RIGHTS NON-EXCLUSIVE - No right or remedy by this Agreement or by any
Loan Document or instrument delivered by the Borrower pursuant hereto, conferred
upon or reserved to the Lender shall be or is intended to be exclusive of any
other right or remedy and each and every right and remedy shall be cumulative
and in addition to any other right or remedy or now or hereafter arising at law
or in equity or by statute. Except as Lender may hereafter otherwise agree in
writing, no waiver by Lender or any breach by or default of Borrower of any of
its obligations, agreements, or covenants under this Agreement shall be deemed
to be a waiver of any subsequent breach of the same or any other obligation,
agreement or covenant, nor shall any forbearance by Lender to seek a remedy for
such breach be deemed a waiver of its rights and remedies with respect to such a
breach, nor shall Lender be deemed to have waived any of its rights and remedies
unless it be in writing and executed with the same formality as this Agreement.

6.       EXPENSES - The Loan and this Agreement and the performance by the
Lender of its obligations hereunder shall be without cost and expense to the
Lender, all of which costs and expenses the Borrower agrees to pay and hold
Lender harmless of and payment of which shall be secured by the Loan Documents.
Specifically, Borrower agrees to pay all title charges, surveyor's fees,
appraisals, loan fees and the like incurred in connection with this Agreement.

                                   ARTICLE XII
                      GENERAL CONDITIONS AND MISCELLANEOUS

The following conditions shall be applicable throughout the term of this
Agreement:

1.       RIGHTS OF THIRD PARTIES - All conditions of the obligations of Lender
hereunder, including the obligation to make disbursements are imposed solely and
exclusively for the benefit of Borrower, and no other person shall have standing
to require satisfaction of such conditions in accordance with their terms or be
entitled to assume that Lender will refuse to make advances in the absence of
strict compliance with any or all thereof, and no other person shall, under any
circumstances, be deemed to be a beneficiary of such conditions, any and all of
which may be freely waived in whole or in part by Lender at any time if in its
sole discretion it deems it desirable to do so. In particular, Lender makes no
representations and assumes no duties or obligations as to third parties
concerning the quality of the construction of the Improvements or the absence
therefrom of defects. In this connection, Borrower agrees to and shall indemnify
Lender from any liability, claims or losses resulting from the disbursement of
the Loan proceeds or from the condition of the Premises whether related to the
quality of construction or otherwise and whether arising during or after the
term of the Loan made by Lender to Borrower in connection therewith unless such
claim relates to the intentional misconduct, fraud or gross negligence of the
Lender. This provision shall

                                      -18-

<PAGE>

survive the repayment of said Loan and shall continue in full force and effect
so long as the possibility of any such liability, claims or losses exists.

2.       EVIDENCE OF SATISFACTION OF CONDITIONS - Any condition of this
Agreement which requires the submission of evidence of the existence or
non-existence of a specified fact or facts, implies as a condition the existence
or non-existence, as the case may be, of such fact or facts, and Lender shall,
at all times, be free independently to establish to its satisfaction and in its
absolute discretion such existence or non-existence.

3.       ASSIGNMENT - Borrower may not assign this Loan Agreement or any of its
rights or obligations hereunder without the prior written consent of Lender.

4.       SUCCESSORS AND ASSIGNS INCLUDING IN PARTIES - Whenever in this
Agreement one of the parties hereto is named or referred to, the heirs, legal
representatives, successors and assigns of such parties shall be included and
all covenants and agreements contained in this Agreement by or on behalf of the
Borrower or by or on behalf of the Lender shall bind and inure to the benefit of
their respective heirs, legal representatives, successors and assigns, whether
so expressed or not.

5.       HEADINGS - The headings of the sections, paragraphs and subdivisions of
this Agreement are for the convenience of reference only, and are not to be
considered a part hereof and shall not limit or otherwise affect any of the
terms hereof.

6.       INVALID PROVISIONS TO AFFECT NO OTHERS - If fulfillment of any
provision hereof, or any transaction related thereto at the time performance of
any such provision shall be due, shall involve transcending the limit of
validity prescribed by law, then, ipso facto, the obligation to be fulfilled
shall be reduced to the limit of such validity; and such clause or provision
shall be deemed invalid as though not herein contained, and the remainder of
this Agreement shall remain operative in full force and effect.

7.       NUMBER AND GENDER - Whenever the singular or plural number, masculine
or feminine or neuter gender is used herein, it shall equally include the other.

8.       AMENDMENTS - Neither this Agreement nor any provision hereof may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought.

9.       NOTICES - Any notice which any party hereto may desire or may be
required to give to any of the parties shall be in writing and the mailing
thereof by certified mail, or equivalent, to the respective parties' addresses
set forth hereinabove or to such other place such party may by notice in writing
designate as its address shall constitute service of notice hereunder.

                                      -19-

<PAGE>

10.      GOVERNING LAW - This Construction Loan Agreement is made and executed
pursuant to and is intended to be governed by the laws of the State where the
Premises are located.

         IN WITNESS WHEREOF, Borrower and Lender have hereunto caused these
presents to be executed on the date first above written.

                                                NAVARRE CORPORATION, a Minnesota
                                                corporation

                                                By _____________________________

                                                Its ____________________________

STATE OF MINNESOTA                  )
                                    ) ss.
COUNTY OF HENNEPIN                  )

The foregoing instrument was acknowledged before me this _____ day of
___________________________, 2003, by ____________________________________, the
_____________________________ of Navarre Corporation, a Minnesota corporation,
on behalf of the corporation.

                                            ____________________________________
                                            NOTARY PUBLIC

                                      -20-

<PAGE>

                                                THE BUSINESS BANK

                                                By _____________________________

                                                Its ____________________________

STATE OF MINNESOTA                  )
                                    ) ss.
COUNTY OF HENNEPIN                  )

The foregoing instrument was acknowledged before me this _____ day of
___________________________, 2003, by ____________________________________, the
_____________________________ of The Business Bank, a
_________________________________, on behalf of the _____________________.

                                            ____________________________________
                                            NOTARY PUBLIC

                                      -21-

<PAGE>

              JOINDER BY COMMONWEALTH LAND TITLE INSURANCE COMPANY

         Commonwealth Land Title Insurance Company ("Title") hereby agrees with
the Borrower and Lender named in the foregoing Construction Loan Agreement (the
"Agreement"):

         1.       To act in the disbursement of funds and in the insuring of the
Mortgage defined in the Agreement, all pursuant to and under the terms and
conditions set forth in the Agreement.

         2.       To be bound and comply with all of the terms and conditions of
the Agreement applicable to it, notwithstanding the waiver by Lender of any
requirement, duty or covenant therein to be performed by any person or entity
other than the Lender.

         3.       To record, at the request of Lender, the Loan Documents
requested by Lender, at Borrower's expense.

                                                COMMONWEALTH LAND TITLE
                                                INSURANCE COMPANY

                                                By:_____________________________

                                                Its:____________________________

STATE OF MINNESOTA                  )
                                    ) ss.
COUNTY OF HENNEPIN

         The foregoing instrument was acknowledged before me this ____ day of
___________, 2003, by ____________________________, the ____________________ of
Commonwealth Land Title Insurance Company, on behalf of the company.

                                      -22-

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