Document:

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                                                                    EXHIBIT 10.1

                                 PROMISSORY NOTE

$4,550,000.00                                             Minneapolis, Minnesota
                                                          ________________, 2003

         FOR VALUE RECEIVED, the undersigned, NAVARRE CORPORATION, a Minnesota
corporation, whose address is 7400 49th Avenue North, New Hope, MN 55428 agrees
and promises to pay to the order of THE BUSINESS BANK, its endorsees, successors
and assigns ("Holder"), at its principal office at 11100 Wayzata Boulevard,
Suite 150, Minnetonka, MN 55305 or such other place as the Holder may from time
to time designate, the principal sum of Four Million Five Hundred Fifty Thousand
and 00/100 Dollars ($4,550,000.00) or so much as may from time to time be
disbursed hereon in accordance with that certain Construction Loan Agreement
("Construction Loan Agreement") of even date herewith, together with interest on
the unpaid principal balance from the date hereof through September 30, 2004 at
a definite and certain but variable per annum interest rate equal to one quarter
of one percent (.25%) in excess of the rate of interest from time to time
published by The Wall Street Journal as the Prime Rate ("Prime Rate"). Changes
in the Prime Rate shall be deemed to occur as of the date of publication
thereof, and the interest rate provided for herein shall be adjusted as of said
date. The Prime Rate as of the date of this Note is ___________________________.
In the event publication of said Prime Rate is discontinued for any reason,
Holder shall designate a reasonably comparable substitute index for the
determination of interest during such period. Commencing on October 1, 2004 and
thereafter until all amounts due hereunder are paid in full, interest on the
unpaid principal balance shall be at a fixed per annum rate equal to the rate
publicly announced by the Federal Home Loan Bank of Des Moines as of October 1,
2004 for Three (3) Year Fixed Rate Advances, plus two hundred seventy-five basis
points. In the event that public announcement of the Three (3) Year Fixed Rate
Advance rate is discontinued for any reason, Holder shall designate a reasonably
comparable substitute index for the determination of said fixed rate. Interest
hereunder shall be computed using the 365/360 method and shall be payable on the
basis of the actual number of days elapsed. Payment hereunder shall be in lawful
money of the United States as follows:

         1.       Interest only on the first day of each month hereafter up to
                  and including October 1, 2004; and

         2.       On the first day of November, 2004 and on the first day of
                  each month thereafter, principal and interest shall be due and
                  payable in equal monthly installments sufficient to amortize
                  the then unpaid principal balance hereof in equal monthly
                  installments over an amortization of One Hundred Eighty (180)
                  months, until October 1, 2007, on which date the entire unpaid
                  principal balance and interest, if not sooner paid, shall
                  become due and payable in full. It is hereby acknowledged and
                  agreed that the One Hundred and Eighty (180) month period
                  referred to above is solely for the purpose of determining the
                  amount of the monthly installment payment hereunder and is not
                  intended to extend the term hereof.

All payments shall be applied first to interest and then to principal, except
that if any advance made by the Holder under the terms of any instrument
securing this Note is not repaid, any

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monies received, at the option of the Holder, may first be applied to repay such
advances, cost of collection, plus interest thereon, and the balance, if any,
shall be applied as above.

         This Note may be prepaid in whole or in part at any time without
premium. Any prepayment shall be made on ten (10) days advance written notice to
the Holder and shall be accompanied by accrued interest, and shall not suspend
required installment payments. At the option of the Holder this Note is subject
to mandatory prepayment without premium, upon certain events of damage,
destruction or condemnation of the real property mortgaged as security for this
Note all as more fully set forth in the Mortgage hereinafter referred to.

         In the event that any payment required hereunder or under any
instruments securing this Note or under the Construction Loan Agreement is not
received prior to the tenth (10th) day after its due date, the undersigned
agrees to pay a late charge of $.05 per $1.00 of unpaid payment as and for
liquidated damages incident to such late payment. This provision shall not be
deemed to excuse a late payment or be deemed a waiver of any other rights the
Holder may have including the right to declare the entire unpaid principal and
interest immediately due and payable.

         This Note is made pursuant to the laws of the State of Minnesota and is
the Note referred to in and secured by a Mortgage and Security Agreement and
Fixture Financing Statement ("Mortgage") and other security instruments of even
date herewith given by the undersigned to the Holder encumbering certain real
property and personal property situated in Hennepin County, Minnesota.

         If default be made in any payment of principal or interest when due in
accordance with the terms and conditions of this Note or if a default or an
Event of Default occurs under the Mortgage, or any other instrument securing
this Note, the entire unpaid principal balance together with accrued interest
thereon shall become immediately due and payable at the option of the Holder
hereof. Whether or not Holder has exercised its right to accelerate, in the
event of such a default in payment or an Event of Default under the Mortgage or
any other instrument securing this Note, the Holder shall have the right to
set-off any amount owed to it by the undersigned under this Note against any
right that the undersigned may have to receive money from the Holder. No prior
notice of such set-off must be given. If there is more than one undersigned, the
right to set-off shall be joint and several. The Holder shall have no liability
for wrongful dishonor in the event that an instrument is dishonored due to the
Holder having exercised its rights of set-off.

         Upon an Event of Default (as defined in the Mortgage), and at the
option of the Holder hereof, interest shall thereafter be payable on the whole
of the unpaid principal sum at the lesser of Two percent (2%) per annum in
excess of the Note Rate or the highest maximum rate permitted by law ("Default
Rate") whether or not the Holder hereof has exercised its option to accelerate
the maturity of this Note and declare the entire unpaid principal indebtedness
due and payable.

         Time is of the essence. No delay or omission on the part of the Holder
in exercising any right hereunder shall operate as a waiver of such right or of
any other remedy under this Note. A waiver on any one occasion shall not be
construed as a bar to or waiver of any such right or remedy on a future
occasion.

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         The undersigned agrees to pay all costs, including reasonable
attorney's fees, at any time paid or incurred by the Holder in connection with
the collection of any amounts due or enforcement of any other rights of Holder
hereunder, or under the Mortgage, Construction Loan Agreement, whether or not
suit is filed with respect thereto, and whether or not Holder prevails therein.

         The undersigned, all sureties, guarantors, and all other persons liable
for all or any part of the principal balance evidenced by this Note severally
waive presentment for payment, protest and notice of non-payment. Such parties
hereby consent without affecting their liability to any extension or alteration
of the time or terms of payment hereof, any renewal, any release of any party or
all of the security given for the payment hereof, any acceptance of additional
security of any kind, and any release of, or resort to any party liable for
payment hereof.

         All agreements between the undersigned and the Holder are hereby
expressly limited so that in no contingency or event whatsoever, whether by
reason of acceleration of maturity of the indebtedness evidenced hereby or
otherwise, shall the amount paid or agreed to be paid to the Holder for the use,
forbearance, loaning or detention of the indebtedness evidenced hereby exceed
the maximum permissible under applicable law. If from any circumstances
whatsoever, fulfillment of any provisions hereof or of the Mortgage or any other
security instrument at any time given for the performance of such provision
shall involve transcending the maximum permissible limits prescribed by law,
then, the amounts to be paid shall automatically be reduced to the limit of such
maximum permissible limits and if from any circumstances the Holder should ever
receive as interest an amount which would exceed the maximum permissible limits,
such amounts in excess of maximum permissible limits shall be applied to the
reduction of the principal balance evidenced hereby and not to the payment of
interest. This provision shall control every other provision of all agreements
between the undersigned and Holder.

         In the event the undersigned shall sell, convey, transfer, lease,
further mortgage or encumber or dispose of the mortgaged property, or any part
thereof, or any interest therein, or if a Change of Control (as defined in that
certain Credit Agreement dated October 3, 2001 between the undersigned as
Borrower and General Electric Capital Corporation as Lender) occurs, each
without the written consent of the Holder being first obtained, then at the sole
option of the Holder, the Holder may declare the entire unpaid principal
balance, together with accrued interest, due and payable in full and call for
payment of the same in full at once.

         This Note shall be construed, enforced and otherwise governed by the
laws of the State of Minnesota.

LENDER AND BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE
RIGHT EITHER MAY HAVE TO TRIAL BY JURY IN RESPECT TO ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE AND ANY
AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONNECTION THEREWITH, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
EITHER PARTY. BORROWER ACKNOWLEDGES THAT THIS WAIVER OF JURY TRIAL IS A MATERIAL
INDUCEMENT TO THE LENDER IN EXTENDING CREDIT TO THE BORROWER,

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THAT THE LENDER WOULD NOT HAVE EXTENDED CREDIT WITHOUT THIS JURY TRIAL WAIVER,
AND THAT BORROWER HAS BEEN REPRESENTED BY AN ATTORNEY OR HAS HAD AN OPPORTUNITY
TO CONSULT WITH AN ATTORNEY IN CONNECTION WITH THIS JURY TRIAL WAIVER TO
UNDERSTAND THE LEGAL EFFECT OF THIS WAIVER.

                                             NAVARRE CORPORATION

                                             By ________________________________

                                             Its _______________________________

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                                                                    EXHIBIT 10.2

                                    MORTGAGE
                                       AND
                               SECURITY AGREEMENT
                                       AND
                           FIXTURE FINANCING STATEMENT

         THIS INDENTURE, (hereinafter referred to as "Mortgage"), made and given
this _____ day of October, 2003, by NAVARRE CORPORATION, a Minnesota
corporation, ("Mortgagor"), whose post office address is 7400 49th Avenue North,
New Hope, MN 55428, to THE BUSINESS BANK, ("Mortgagee"), whose post office
address is 11100 Wayzata Boulevard, Suite 150, Minnetonka, MN 55305. Pursuant to
the provisions of Minnesota Statutes, Chapter 287, the initial principal
indebtedness secured hereby is in the amount of $4,550,000.00.

         WITNESSETH, that the said Mortgagor in consideration of the debt
hereinafter described and the sum of One and 00/100 Dollar ($1.00) to Mortgagor
in hand paid by the said Mortgagee, the receipt whereof is hereby acknowledged,
does hereby MORTGAGE, GRANT, BARGAIN, SELL AND CONVEY unto the said Mortgagee,
its successors and assigns, forever, AND GRANTS TO THE MORTGAGEE A SECURITY
INTEREST IN all of the following properties hereinafter set forth (all of the
following being hereafter collectively referred to as the "Premises"):

                                A. REAL PROPERTY

         All the tracts or parcels of real property lying and being in the
County of Hennepin, State of Minnesota, all as more fully described in Exhibit
"A" attached hereto and made a part hereof, together with all the estates and
rights in and to the real property and in and to lands lying in streets, alleys
and roads adjoining the real property and all buildings, structures,
improvements, fixtures and annexations, access rights, easements, rights of way
or use, servitudes, licenses, tenements, hereditaments and appurtenances now or
hereafter belonging or pertaining to the real property; and

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                              B. PERSONAL PROPERTY

         All buildings, structures, fixtures, facilities, installations and
other improvements of every kind and description, owned by Mortgagor and now or
hereafter attached to, located at, or placed in the improvements on the Premises
and all plumbing, gas, electrical, ventilating, lighting and other utility
systems, ducts, hot water heaters, oil burners, domestic water systems,
elevators, escalators, canopies, air conditioning systems and all other building
systems and fixtures attached to or comprising a part of the buildings,
including, but not limited to, all other building systems and fixtures necessary
to the operation of the buildings (it being understood that the enumeration of
any specific articles of property shall in no way be held to exclude any items
of property not specifically enumerated), as well as renewals, replacements,
proceeds, additions, accessories, increases, parts, fittings, insurance
payments, awards and substitutes thereof, together with all interest of
Mortgagor in any such items hereafter acquired, as well as the Mortgagor's
interest in any lease, or conditional sales agreement under which the same is
acquired, all of which personal property mentioned herein shall be deemed
fixtures and accessory to the freehold and a part of the realty and not
severable in whole or in part without material injury to the Premises provided
that notwithstanding anything to the contrary in the foregoing, the description
set forth in this paragraph shall not include any personal property which has
not been incorporated in or attached to the Premises except for personal
property which is intended to be attached to or incorporated into the Premises
and which is specifically identifiable in a disbursement request and was paid
for with proceeds of a disbursement of construction loan funds made by Title as
defined in the Loan Agreement (defined below); and

                          C. RENTS, LEASES AND PROFITS

         All rents, income, contract rights, leases and profits now due or which
may hereafter become due under or by virtue of any lease, license or agreement,
whether written or verbal, for the use or occupancy of the Premises or any part
thereof together with all tenant security deposits; and

                             D. JUDGMENTS AND AWARDS

         All awards, compensation and settlements in lieu thereof made as a
result of the taking by power of eminent domain of the whole or any part of the
Premises, including any awards for damages sustained to the Premises, for a
temporary taking, change of grade of streets or taking of access.

                              E. INSURANCE PROCEEDS

                  All awards, payments, proceeds now or hereafter obtainable by
Mortgagor under any policy of insurance insuring the Premises including but not
limited to the proceeds of casualty insurance, title insurance, loss of rents
insurance or other insurance maintained with respect to the Premises whether by
Mortgagor or otherwise.

                                 F. INTANGIBLES

                  All contracts, licenses, permits, construction management
agreements, records, files, governmental approvals and intangibles used, useful
or necessary to the construction of the

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Premises together with all soil reports, building permits, variances, licenses,
utility permits and other permits and agreements relating to the construction or
equipping of the improvements on the Premises, or the operation or maintenance
of the Premises, including, without limitation, all warranties and contract
rights.

                  It is specifically understood that the enumeration of any
specific articles of property shall not in any way exclude or be held to exclude
any items of property not specifically mentioned. All of the Premises
hereinabove described, real, personal and mixed, whether affixed or annexed or
not, and all rights hereby conveyed and mortgaged are intended to be as a unit
and are hereby understood and agreed and declared to be appropriated to the use
of the Premises, and shall for the purposes of this Mortgage be deemed to be
real estate and conveyed and mortgaged hereby.

         TO HAVE AND TO HOLD THE SAME, together with the possession and right of
possession of the Premises, unto the Mortgagee, its successors and assigns,
forever.

         PROVIDED NEVERTHELESS, that if the Mortgagor, its successors or
assigns, shall pay to the Mortgagee, its successors or assigns, the sum of Four
Million Five Hundred and Fifty Thousand and 00/100 Dollars
($4,550,000.00)("Loan"), together with interest thereon at the initial per annum
rate of Four and One Quarter percent (4.25%) and as adjusted thereafter, all
according to the terms of that certain Promissory Note in said principal amount
of even date herewith ("Note") executed by the Mortgagor and payable to the
Mortgagee, the terms and conditions of which are incorporated herein by
reference the balance of said principal sum together with interest thereon being
due and payable in any event on October 1, 2007, and shall repay to the
Mortgagee, its successors or assigns, at the times demanded and with interest
thereon at the interest rate then in effect on the Note, all sums advanced in
protecting the lien of this Mortgage, in payment of taxes on the Premises, in
payment of insurance premiums covering improvements thereon, in payment of
principal and interest on prior liens, in payment of expenses and attorney's
fees herein provided for and all sums advanced for any other purpose authorized
herein, and shall keep and perform all of the covenants herein contained, and
shall keep and perform all of the terms and conditions of any instrument given
as collateral for the Loan, (the Note and all such sums, and all such
obligations, together with interest thereon, being collectively referred to as
the "Indebtedness Secured Hereby"), and shall keep and perform all of the
covenants and agreements herein contained, then this Mortgage shall become null
and void, and shall be released at Mortgagor's expense.

                   1. GENERAL COVENANTS AGREEMENTS WARRANTIES

         1.1      Payment of Indebtedness: Observance of Covenants Mortgagor
shall, and hereby agrees to, duly and punctually pay each and every installment
of principal and interest on the Note and all other Indebtedness Secured Hereby,
as and when the same shall become due, and shall, and hereby agrees to, duly and
punctually perform and observe all of the covenants, agreements and provisions
contained herein, in the Note and any other instrument given as security for the
payment of the Note.

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         1.2      Maintenance Repairs. Mortgagor shall not abandon the Premises,
shall keep and maintain the Premises in good condition, repair and operating
condition free from any waste or misuse, and shall promptly repair or restore
any buildings, improvements or structures now or hereafter on the Premises which
may become damaged or destroyed to their condition prior to any such damage or
destruction. Mortgagor further agrees that except for the improvements described
in the Loan Agreement as defined below, without the prior consent of the
Mortgagee it will not expand any improvements on the Premises, erect any new
improvements or make any material alterations in any improvements which shall
alter the basic structure, affect the market value or change the existing
architectural character of the Premises, nor remove or demolish any
improvements, and shall complete within a reasonable time any buildings now or
at any time in the process of erection on the Premises.

         1.3      Compliance with Laws. Mortgagor shall comply with all
requirements of law, municipal ordinances and regulations affecting the
Premises, shall comply with all private restrictions and covenants affecting the
Premises and shall not acquiesce in or seek any rezoning classification
affecting the Premises.

         1.4      Payment of Operating Costs: Prior Mortgages and Liens.
Mortgagor shall pay all operating costs and expenses of the Premises, shall keep
the Premises free from levy, attachment, mechanics', materialmen's and other
liens ("Liens") and shall pay when due all indebtedness which may be secured by
mortgage, lien or charge on the Premises.

         1.5      Payment of Impositions. Mortgagor shall pay when due and in
any event before any penalty attaches all taxes, assessments, governmental
charges, water charges, sewer charges, and other fees, taxes, charges and
assessments of every kind and nature whatsoever assessed or charged against or
constituting a lien on the Premises or any interest therein ("Impositions") and
will upon demand furnish to the Mortgagee proof of the payment of any such
Impositions. In the event of a court decree or an enactment after the date
hereof by any legislative authority of any law imposing upon a mortgagee the
payment of the whole or any part of the Impositions herein required to be paid
by the Mortgagor, or changing in any way the laws relating to the taxation of
mortgages or debts secured by mortgages or a mortgagee's interest in mortgaged
premises, so as to impose such Imposition on the Mortgagee or on the interest of
the Mortgagee in the Premises, then, in any such event, Mortgagor shall bear and
pay the full amount of such Imposition, provided that if for any reason payment
by Mortgagor of any such Imposition would be unlawful, or if the payment thereof
would constitute usury or render the Indebtedness Secured Hereby wholly or
partially usurious, Mortgagee, at its option, may declare the whole sum secured
by this Mortgage with interest thereon to be immediately due and payable,
without prepayment premium, or Mortgagee, at its option, may pay that amount or
portion of such Imposition as renders the Indebtedness Secured Hereby unlawful
or usurious, in which event Mortgagor shall concurrently therewith pay the
remaining lawful and non-usurious portion or balance of said Imposition.

         1.6      Contest of Impositions, Liens and Levies. Mortgagor shall not
be required to pay, discharge or remove any Imposition or any Lien so long as
the Mortgagor shall in good faith contest the same or the validity thereof by
appropriate legal proceedings which shall operate to prevent the collection of
the Lien or Imposition so contested and the sale of the Premises, or any part
thereof, to satisfy the same, provided that the Mortgagor shall, prior to the
date such Lien or

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Imposition is due and payable, have given such reasonable security as may be
demanded by the Mortgagee to insure such payments plus interest or penalties
thereon, and prevent any sale or forfeiture of the Premises by reason of such
nonpayment. Any such contest shall be prosecuted with due diligence and the
Mortgagor shall promptly after final determination thereof pay the amount of any
such Lien or Imposition so determined, together with all interest and penalties
which may be payable in connection therewith. Notwithstanding these provisions
Mortgagor shall (and if Mortgagor shall fail so to do, Mortgagee, may but shall
not be required to) pay any such Lien or Imposition notwithstanding such contest
if in the reasonable opinion of the Mortgagee, the Premises shall be in jeopardy
or in danger of being forfeited or foreclosed.

         1.7      Protection of Security. Mortgagor shall promptly notify
Mortgagee of and appear in and defend any suit, action or proceeding that
affects the Premises or the rights or interest of Mortgagee hereunder and the
Mortgagee may elect to appear in or defend any such action or proceeding.
Mortgagor agrees to indemnify and reimburse Mortgagee from any and all loss,
damage, expense or cost arising out of or incurred in connection with any such
suit, action or proceeding, including costs of evidence of title and reasonable
attorney's fees and such amounts together with interest thereon at the rate then
in effect in the Note shall become additional "Indebtedness Secured Hereby" and
shall become immediately due and payable.

         1.8      Annual Statements. Mortgagor shall within one hundred twenty
(120) days after the end of each fiscal year furnish to the Mortgagee (i)
financial and operating statements of the Premises for such fiscal year, (ii)
with the financial statement of Mortgagor, each including a balance sheet and a
profit and loss statement, for its fiscal year and all in reasonable detail and
conforming to generally accepted accounting principles. In addition, Mortgagor
shall within ten (10) days after the filing thereof, furnish to Mortgagee a true
and correct copy of Mortgagor's Quarterly 10Q Report, and such other financial
reports or information as Mortgagee may reasonably request from time to time.
Such financial statements shall be prepared in a manner satisfactory to
Mortgagee and shall be certified true and correct by the Mortgagor. In the event
Mortgagor fails to furnish any such statements within thirty (30) days after
written request to Mortgagor, the same shall be an Event of Default and in
addition to any other remedies available to Mortgagee, the Mortgagee may cause
an audit to be made of the Mortgagor's books and records at the sole cost and
expense of the Mortgagor. Mortgagee also shall have the right to examine at
their place of safekeeping at reasonable times all books, accounts and records
relating to the operation of the Premises.

         1.9      Additional Assurances. Mortgagor agrees upon reasonable
request by the Mortgagee to execute and deliver such further instruments, deeds
and assurances including financing statements under the Uniform Commercial Code
and will do such further acts as may be necessary or proper to carry out more
effectively the purposes of this Mortgage and without limiting the foregoing, to
make subject to the lien hereof any property agreed to be subjected hereto or
covered by the granting clause hereof, or intended so to be. Mortgagor agrees to
pay any recording fees, filing fees, note taxes, mortgage registry taxes or
other charges arising out of or incident to the filing or recording of this
Mortgage, such further assurances and instruments and the issuance and delivery
of the Note.

         1.10     Title. Mortgagor is the lawful owner of and has good and
marketable fee simple absolute title to the Premises and will warrant and defend
title to the same free of all liens and

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encumbrances, other than the Encumbrances permitted under the policy of
Mortgagee's title insurance issued to Mortgagee in connection with this Mortgage
and has good right and lawful authority to grant, bargain, sell, convey,
mortgage and grant a security interest in the Premises as provided herein.

         1.11     No Conflict With Other Documents Obligations. The execution
and delivery by the Mortgagor of this Mortgage, the Note, the other collateral
documents to which the Mortgagor is a party and any other instruments
contemplated hereby or securing the Note, the consummation of the transactions
contemplated hereby and thereby, and the fulfillment of the terms and conditions
hereof and thereof do not and will not conflict with or result in a breach of
any court order, judgment or decree or of any mortgage, indenture, loan
agreement or instrument to which the Mortgagor or to which any property of the
Mortgagor is subject, and does not and will not constitute a default under any
of the foregoing, or result in the creation or imposition of any lien charge or
encumbrance of any nature upon any of the property or assets of the Mortgagor
contrary to the terms of any instrument or agreement. This Mortgage has been
lawfully executed by the Mortgagor in full compliance with its Articles of
Incorporation and By-Laws and has met all necessary director and shareholder
approvals.

         1.12     No Suits Pending. There are no actions, suits or proceedings
pending or, to the knowledge of the Mortgagor, threatened against the Mortgagor
or the Premises in any court or before any Federal, State, County, City or other
governmental authority or before any arbitrator which, if decided adversely to
the Mortgagor would have a materially adverse effect upon the Mortgagor or upon
the Premises, or the value thereof, and the Mortgagor is not in default with
respect to any order of any court or governmental agency.

         1.13     Current Compliance With Laws. To the best of Mortgagor's
knowledge, the Premises as improved on the date hereof and as improved pursuant
to the Loan Agreement defined below, comply and will, upon completion of the
improvements continue to comply with all material requirements of laws,
including requirements of any Federal, State, County, City or other governmental
authority having jurisdiction over the Mortgagor or the Premises and including,
but not limited to, any applicable zoning, occupational safety and health,
energy and environmental laws, ordinances and regulations, there is no hazardous
waste contamination in or about the Premises and no pollutants are stored
thereon; and the Mortgagor has obtained all necessary consents, permits and
licenses to construct, occupy and operate the Premises for its intended
purposes.

         1.14     Hazardous Materials. Except as may have been disclosed in
writing to the Mortgagee by the Mortgagor at the time of execution and delivery
of this Mortgage including, without limitation, the Phase I Environmental Site
Assessment update (STS Project 98836-XB) dated July 3, 2003, Mortgagor
covenants, represents and warrants to Mortgagee, its successors and assigns,
that it has not used or permitted and will not use or permit the Premises to be
used, whether directly or through contractors, agents or tenants, and to the
best of Mortgagor's knowledge the Premises have not at any time been used for
the generating, transporting, treating, storage, manufacture, emission of, or
disposal of any petroleum products or of any dangerous, toxic or hazardous
pollutants, chemicals, wastes or substances as defined in the Federal
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601 et seq. ("CERCLA"), or the Federal Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901 et

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seq. ("RCRA") or any other federal, state or local environmental laws, statutes,
regulations, requirements and ordinances as each may have been amended from time
to time ("Hazardous Materials"); that there have been no investigations or
reports involving Mortgagor or the Premises by any governmental authority which
in any way pertain to Hazardous Materials; that the operation of the Premises
has not violated and is not currently violating any federal, state or local law,
regulation, ordinance or requirement governing Hazardous Materials; that the
Premises is not listed in the United States Environmental Protection Agency's
National Priorities List of Hazardous Waste Sites nor any other list, schedule,
log, inventory or record of Hazardous Materials or hazardous waste sites,
whether maintained by the United States Government or any state or local agency;
that the building improvements do not contain any formaldehyde, urea or
asbestos; that there are no electrical transformers or other equipment
containing dielectric fluid containing polychlorinated biphenyls; and that there
are no underground tanks located on the Premises. The Mortgagor agrees to
indemnify and reimburse the Mortgagee, its successors and assigns, for any
breach of these representations and warranties and from any loss, damage,
expense or cost arising out of or incurred by Mortgagee which is the result of a
breach of, misstatement of or misrepresentation of the above covenants,
representations and warranties, together with all attorneys' fees incurred in
connection with the defense of any action against the Mortgagee arising out of
the above. These covenants, representations and warranties shall be deemed
continuing covenants, representations and warranties for the benefit of the
Mortgagee, and any successor and assigns of the Mortgagee, including any
purchaser at a mortgage foreclosure sale, any transferee of the title of the
Mortgagee or any subsequent purchaser at a foreclosure sale, and shall survive
any foreclosure of this Mortgage and any acquisition of title by Mortgagee or
anyone claiming through or under this Mortgage as the transferee of the title of
Mortgagee. The amount of all such indemnified loss, damage, expense or cost,
shall bear interest thereon at the rate of interest in effect on the Note and
shall become so much additional Indebtedness Secured Hereby and shall become
immediately due and payable in full on demand of the Mortgagee, its successors
and assigns. Notwithstanding the foregoing, the Mortgagor or its tenants may use
or store small quantities of Hazardous Materials on the Premises such as paints,
cleaning supplies and similar materials used in the ordinary course provided
that such use or storage complies at all times with all applicable statutes,
regulations, codes and ordinances and is incidental to the Mortgagor's or such
tenants' use of the Premises and further provided that Mortgagor's obligation to
indemnify and reimburse shall extend to any loss, damage, cost or expense
arising out of or incurred by Mortgagee in connection with or as a result of
such use or storage. Further notwithstanding, the foregoing, the indemnity
contained herein, it shall not apply with respect to any loss, damage,
liability, cost or expense which Mortgagor proves by a preponderance of the
evidence was caused solely by or resulted solely from any act or omission of any
person, other than Mortgagor or an agent, employee, invitee or contractor of a
Mortgagor and which occurred after the Mortgagee or anyone claiming by, through
or under the Mortgagee acquired title to the Premises by foreclosure of this
Mortgage or deed in lieu of foreclosure or otherwise and took control of the
Premises.

         1.15     Handicap Access Laws. Mortgagor covenants, represents and
warrants to Mortgagee, its successors and assigns, that at the time of execution
and delivery of this Mortgage, to the best of Mortgagor's knowledge, the
Premises are in compliance with the Fair Housing Amendments Act of 1988, the
Americans with Disabilities Act of 1990 (ADA) and with any other federal, state
or local statute or regulation as each may have been amended from time to time
pertaining to providing access to the Premises to persons with disabilities or
to the

                                      -7-

<PAGE>

removal of existing barriers to access by such individuals to the Premises (the
"Handicap Access Laws"); that any future modifications/additions to the Premises
will comply with the Handicap Access Laws and that all future leases, including
renewals of existing leases of the Premises will allocate responsibility for the
compliance of such leased space with the Handicap Access Laws to the tenant of
such space and will provide for the tenant's agreement to operate in accordance
with such laws. The Mortgagor agrees to indemnify and reimburse the Mortgagee
its successors and assigns, for any breach of these representations and
warranties and for any and all expense, cost, loss or liability, including
attorneys fees, which Mortgagee may incur as the result of a breach,
misstatement of or misrepresentation of such covenants, representations and
warranties or in connection with the application of or enforcement, threatened
or actual, of any Handicap Access Laws. These covenants, representations and
warrants shall be deemed continuing covenants, representations and warranties
for the benefit of the Mortgagee, and any successor and assigns of the
Mortgagee, including any purchaser at a mortgage foreclosure sale, any
transferee of the title of the Mortgagee and shall survive any repayment of the
Indebtedness Secured Hereby, discharge by operation of law or any foreclosure of
this Mortgage and any acquisition of title by Mortgage or any one claiming
through or under this Mortgagee as a transferee of the title of Mortgagee. The
amount of all such indemnified loss, damage, expense or costs shall bear
interest thereon at the rate of interest in effect on the Note, shall become so
much additional Indebtedness Secured Hereby and shall become immediately due and
payable in full on demand of the Mortgagee, its successors and assigns.

         1.16     Other Indebtedness. Mortgagor shall, within five (5) business
days after receipt thereof deliver to Mortgagee a copy of any written notice of
default or of an event of default under any other note, loan agreement or
financing instrument with any other creditor received by Mortgagor.

                            2. INSURANCE AND ESCROWS

         2.1      Insurance. Mortgagor shall obtain, pay for and keep in full
force and effect during the term of this Mortgage at its sole cost and expense
the following policies of insurance:

         (a)      All risk/open perils special form property insurance with
                  extended coverages including any building contents, sprinkler
                  coverage, Ordinance or Law coverage (including demolition
                  cost, loss to undamaged portions of any buildings and
                  increased cost of construction) with limits of 100%
                  replacement cost and with no co-insurance provision or if the
                  insurance carrier requires, co-insurance provisions with an
                  agreed amount endorsement in amount acceptable to Mortgagee;

         (b)      insurance against loss or damage from (i) leakage of sprinkler
                  systems and (ii) explosion of steam boilers, air conditioning
                  equipment, high pressure piping, machinery and equipment,
                  pressure vessels or similar apparatus now or hereafter
                  installed in any improvements on the Premises and including
                  broad form boiler and machinery insurance (without exclusion
                  for explosion) covering all boilers or other pressure vessels,
                  machinery and equipment (including electrical equipment,
                  sprinkler systems, heating and air conditioning equipment,
                  refrigeration equipment and piping) located in, on or about
                  the Premises and any improvements

                                      -8-

<PAGE>

                  thereon in an amount at least equal to the full replacement
                  cost of such equipment and the building or buildings housing
                  the same;

         (c)      Unless evidence is provided that the Premises are not within a
                  flood plain as defined by the Federal Insurance
                  Administration, flood insurance in the maximum obtainable
                  amount but not to exceed the replacement cost of the
                  improvements on the Premises;

         (d)      Rents Loss or Business Interruption Insurance covering risk of
                  loss due to the occurrence of any hazards insured against
                  under the required fire and extended coverage insurance in an
                  amount equal to twelve (12) months' loss of income;

         (e)      Comprehensive general public liability insurance covering the
                  legal (f) liability of the Mortgagor against claims for bodily
                  injury, death or property damage occurring on, in or about the
                  Premises in such minimal amounts and with such minimal limits
                  as the Mortgagee may reasonably require but in any event not
                  less than $1,000,000.00 for a single occurrence and
                  $3,000,000.00 in the aggregate;

         (f)      Such other coverages appropriate to the Premises, its location
                  and use as Mortgagee may from time to time require such as
                  earthquake, mine subsidence, sinkhole, personal property
                  supplemental liability, or coverages of other property -
                  specific risks which can be obtained by Mortgagor at
                  commercially reasonable rates and are required by Mortgagee on
                  its other commercial real estate loans of a similar size and
                  type of collateral.

         (g)      While any improvements are in the process of construction on
                  the Premises:

                  aa)      Builder's Risk Insurance - Builder's Risk Insurance
                           written on a 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 non-reporting "all risk" 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
                           Mortgagee, 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
                           Mortgagee ten (10) days' prior written notice of any
                           intention to cancel).

                  bb)      Contractor's Comprehensive General Liability
                           Insurance [including operations, product liability,
                           contingent liability operations, operations of
                           subcontractors, completed operations, contractual
                           liability insurance and comprehensive automobile
                           liability insurance (including hired and non-owned
                           liability)] and with combined single limit and
                           general aggregate coverage for personal and bodily
                           injury and property damage of at least $2,000,000.00
                           for each occurrence.

                                      -9-

<PAGE>

                  cc)      Workmen's Compensation - Statutory workmen's
                           compensation coverage in the required amounts.

Such insurance policies shall be written on forms and with insurance companies
satisfactory to Mortgagee with a current A.M. Best Company rating of at least
A-VII as of the date of issuance and which are authorized to do business in the
State of Minnesota, shall be in amounts sufficient to prevent the Mortgagor from
becoming a co-insurer of any loss thereunder; shall bear a satisfactory
mortgagee clause in favor of the Mortgagee with loss proceeds under any such
casualty insurance policy to be made payable to the Mortgagee; and shall not
provide for a deductible in excess of $10,000.00. All required policies of
insurance or acceptable certificates thereof together with evidence of the
payment of current premiums therefor shall be delivered to and be held by the
Mortgagee. The Mortgagor shall, within thirty (30) days prior to the expiration
of any such policy, deliver other original policies or certificates of the
insurer evidencing the renewal of such insurance together with evidence of the
payment of current premiums therefor. In the event of a foreclosure of this
Mortgage or any acquisition of the Premises by the Mortgagee all such policies
and any proceeds payable therefrom, whether payable before or after a
foreclosure sale, or during the period of redemption, if any, shall become the
absolute property of the Mortgagee to be utilized at its discretion. In the
event of foreclosure or the failure to obtain and keep any required insurance
the Mortgagor empowers the Mortgagee to effect insurance upon the Premises at
Mortgagor's expense and for the benefit of the Mortgagee in the amounts and
types aforesaid for a period of time covering the time of redemption from
foreclosure sale, and if necessary therefore, to cancel any or all existing
insurance policies. At least once every three years, Mortgagor, if Mortgagee
requests, agrees to cause its insurance coverage to be reappraised and to
furnish Mortgagee copies of the reappraisal reports and insurance
recommendations.

         2.2      Escrows. Mortgagor shall deposit with the Mortgagee, or at
Mortgagee's request, with its servicing agent, on the first day of each and
every month hereafter as a deposit to pay the costs of taxes, assessments and
insurance premiums next due ("Charges"):

         (a)      Initially a sum such that the amounts to be deposited pursuant
                  to (b) next and such initial sum shall equal the estimated
                  Charges; and

         (b)      Thereafter an amount equal to one-twelfth (1/12th) of the
                  estimated annual Charges due on the Premises.

Mortgagee will, upon the presentation to the Mortgagee by the Mortgagor of the
bills therefor, pay the Charges from such deposits or will upon presentation of
receipted bills therefor, reimburse the Mortgagor for such payments made by the
Mortgagor. In the event the deposits on hand shall not be sufficient to pay all
of the estimated Charges when the same shall become due from time to time, or
the prior deposits shall be less than the currently estimated monthly amounts,
then the Mortgagor shall pay to the Mortgagee on demand any amount necessary to
make up the deficiency. The excess of any such deposits shall be credited to
subsequent payments to be made for such items. If a default or an event of
default shall occur under the terms of this Mortgage the Mortgagee may, at its
option, without being required so to do, apply any deposits on hand to the
Indebtedness Secured Hereby, in such order and manner as the Mortgagee may
elect. When the Indebtedness Secured Hereby has been fully paid any

                                      -10-

<PAGE>

remaining deposits shall be returned to the Mortgagor as its interest may
appear. All deposits are hereby pledged as additional security for the
Indebtedness Secured Hereby, shall be held for the purposes for which made as
herein provided, may be held by Mortgagee or its servicing agent and may be
commingled with other funds of the Mortgagee, or its servicing agent, shall be
held without any allowance of interest thereon and shall not be subject to the
decision or control of the Mortgagor. Neither Mortgagee nor its servicing agent
shall be liable for any act or omission made or taken in good faith. In making
any payments, Mortgagee or its servicing agent may rely on any statement, bill
or estimate procured from or issued by the payee without inquiry into the
validity or accuracy of the same. If the taxes shown in the tax statement shall
be levied on property more extensive than the Premises, then the amounts
escrowed shall be based on the entire tax bill and Mortgagor shall have no right
to require an apportionment and Mortgagee or its servicing agent may pay the
entire tax bill notwithstanding that such taxes pertain in part to other
property and the Mortgagee shall be under no duty to seek a tax division or
apportionment of the tax bill.

                  3. UNIFORM COMMERCIAL CODE SECURITY AGREEMENT

         3.1      Security Agreement. This Mortgage shall constitute a security
agreement as defined in the Uniform Commercial Code ("Code"). Any systems or
fixtures installed in or used in the Premises are to be used by the Mortgagor
solely for Mortgagor's business purposes or as the systems and fixtures leased
or furnished by the Mortgagor, as landlord, to tenants of the Premises and such
equipment or fixtures will be kept at the buildings on the Premises and will not
be removed therefrom without the consent of the Mortgagee and may be affixed to
such buildings but will not be affixed to any other real estate. The remedies of
the Mortgagee hereunder are cumulative and separate, and the exercise of any one
or more of the remedies provided for herein or under the Uniform Commercial Code
shall not be construed as a waiver of any of the other rights of the Mortgagee
including having any non-realty items of the Premises deemed part of the realty
upon any foreclosure thereof. If notice to any party of the intended disposition
of the Premises is required by law in a particular instance, such notice shall
be deemed commercially reasonable if given at least ten (10) days prior to such
intended disposition and may be given by advertisement in a newspaper accepted
for legal publications either separately or as part of a notice given to
foreclose the real property or may be given by private notice if such parties
are known to Mortgagee. Neither the grant of a security interest pursuant to
this Mortgage nor the filing of a financing statement pursuant to the Code shall
ever impair the stated intention of this Mortgage that all Personal Property,
Rents, Leases and Profits and Judgments and Awards comprising the Premises and
at all times and for all purposes and in all proceedings both legal or equitable
shall be regarded as part of the real property mortgaged hereunder irrespective
of whether such item is physically attached to the real property or any such
item is referred to or reflected in a financing statement. Mortgagor will on
demand deliver all financing statements that may from time to time be required
by Mortgagee to establish and perfect the priority of Mortgagee's security
interest in the Premises and shall pay all expenses incurred by Mortgagee in
connection with the renewal or extensions of any financing statements executed
in connection with the Premises; and shall give advance written notice of any
proposed change in Mortgagor's name, identity or structure and will execute and
deliver to Mortgagee prior to or concurrently with such change all additional
financing statements that Mortgagee may require to establish and perfect the
priority of Mortgagee's security interest.

                                      -11-

<PAGE>

         3.2      Authorization to File. Mortgagor expressly authorizes the
Mortgagee to file any and all financing statements required to perfect any
security interests hereunder without the debtor's signature. Mortgagor agrees to
provide Mortgagee advance written notice of (i) any change of Mortgagor's name
or (ii) any change of Mortgagor's jurisdiction.

         3.3      Maintenance of Property. Subject to the provisions of this
section, in any instance where Mortgagor in its sound discretion determines that
any item subject to a security interest under this Mortgage has become
inadequate, obsolete, worn out, unsuitable, undesirable or unnecessary for the
operation of the Premises, Mortgagor may, at its expense, remove and dispose of
it and substitute and install other items not necessarily having the same
function, provided, that such removal and substitution shall not impair the
operating utility and unity of the Premises. All substituted items shall become
a part of the Premises and subject to the lien of the Mortgage. Any amounts
received or allowed Mortgagor upon the sale or other disposition of the removed
items of property shall be applied first against the cost of acquisition and
installation of the substituted items. Nothing herein contained shall be
construed to prevent any tenant from removing from the Premises trade fixtures,
furniture and equipment installed by the tenant and removable by the tenant
under its terms of the lease, on the condition, however, that the tenant shall
at its own cost and expense, repair any and all damages to the Premises
resulting from or caused by the removal thereof.

         3.4      Mortgagor To Comply with Prior Security Instruments. Mortgagor
shall at its sole cost and expense perform, comply with and discharge all
obligations of Mortgagor under any prior secured financing arrangements (whether
lease purchase, conditional sales or pure lease arrangements) for any property
subject to this security interest. Mortgagor shall not permit a surrender,
assignment or transfer of its interest in any such property without the prior
written consent of Mortgagee nor permit or suffer a default to exist under such
prior financing arrangements.

         3.5      Fixture Filing. THIS MORTGAGE SHALL BE EFFECTIVE AS A
FINANCING STATEMENT FILED AS A FIXTURE FILING WITH RESPECT TO ALL GOODS
CONSTITUTING A PART OF THE PREMISES WHICH ARE OR ARE TO BECOME FIXTURES RELATED
TO THE PREMISES. FOR PURPOSES OF THE UNIFORM COMMERCIAL CODE THE FOLLOWING
INFORMATION IS FURNISHED:

         (a)      The name and address of the record owner of the real estate
                  described in this instrument is:

                  Navarre Corporation
                  7400 49th Avenue North
                  New Hope, MN 55428
                  Attn: Jim Gilbertson, CFO

         (b)      the name and address of the Debtor is:

                  Navarre Corporation
                  7400 49th Avenue North
                  New Hope, MN 55428
                  Attn: Jim Gilbertson, CFO

                                      -12-

<PAGE>

         (c)      the name and address of the Secured Party is:

                  The Business Bank
                  11100 Wayzata Boulevard
                  Suite 150
                  Minnetonka, MN 55305
                  Attn: Commercial Loan Department

         (d)      Debtor's Organizational No. 4K-337.

         (e)      Information concerning the security interest evidence by this
                  instrument may be obtained from the Secured Party at its
                  address above.

         (f)      This document covers goods which are or are to become
                  fixtures.

                     4. APPLICATION OF INSURANCE AND AWARDS

         4.1      Damage or Destruction of the Premises. Mortgagor shall give
the Mortgagee prompt notice of any damage to or destruction of the Premises and
in case of loss covered by policies of insurance the Mortgagee (whether before
or after foreclosure sale) is hereby authorized at its option to settle and
adjust any claim arising out of such policies and collect and receipt for the
proceeds payable therefrom, provided, that the Mortgagor may itself adjust and
collect for any losses arising out of a single occurrence aggregating not in
excess of $50,000.00. Any expense incurred by the Mortgagee in the adjustment
and collection of insurance proceeds (including the cost of any independent
appraisal of the loss or damage on behalf of Mortgagee) shall be reimbursed to
the Mortgagee first out of any proceeds. Subject to the provisions of Section
4.4 below, the proceeds or any part thereof shall be applied to reduction of the
Indebtedness Secured Hereby then most remotely to be paid, whether due or not,
without the application of any prepayment premium, or to the restoration or
repair of the Premises, the choice of application to be solely at the discretion
of Mortgagee.

         4.2      Condemnation. Mortgagor shall give the Mortgagee prompt notice
of any actual or threatened condemnation or eminent domain proceedings affecting
the Premises and hereby assigns, transfers, and sets over to the Mortgagee the
entire proceeds of any award or claim for damages or settlement in lieu thereof
for all or any part of the Premises taken or damaged under such eminent domain
or condemnation proceedings, the Mortgagee being hereby authorized to intervene
in any such action and to collect and receive from the condemning authorities
and give proper receipts and acquittances for such proceeds. Mortgagor will not
enter into any agreements with the condemning authority permitting or consenting
to the taking of the Premises or agreeing to a settlement unless prior written
consent of Mortgagee is obtained. Any expenses incurred by the Mortgagee in
intervening in such action or collecting such proceeds, including reasonable
attorney's fees, shall be reimbursed to the Mortgagee first out of the proceeds.
The proceeds or any part thereof shall be applied upon or in reduction of the
Indebtedness Secured Hereby then most remotely to be paid, whether due or not,
without the application of any prepayment premium, or to the restoration or
repair of the Premises, the choice of application to be solely at the discretion
of Mortgagee.

                                      -13-

<PAGE>

         4.3      Disbursement of Insurance and Condemnation Proceeds. Any
restoration or repair shall be done under the supervision of an architect
acceptable to Mortgagee and pursuant to plans and specifications approved by the
Mortgagee. In any case where Mortgagee may elect to apply the proceeds to repair
or restoration or permit the Mortgagor to so apply the proceeds they shall be
held by Mortgagee for such purposes and will from time to time be disbursed by
Mortgagee to defray the costs of such restoration or repair under such
safeguards and controls as Mortgagee may establish to assure completion in
accordance with the approved plans and specifications and free of liens or
claims. Mortgagor shall on demand deposit with Mortgagee any sums necessary to
make up any deficits between the actual cost of the work and the proceeds and
provide such lien waivers and completion bonds as Mortgagee may reasonably
require. Any surplus which may remain after payment of all costs of restoration
or repair may at the option of the Mortgagee be applied on account of the
Indebtedness Secured Hereby then most remotely to be paid, whether due or not,
without application of any prepayment premium or shall be returned to Mortgagor
as its interest may appear, the choice of application to be solely at the
discretion of Mortgagee.

         4.4      Mortgagee to Make Proceeds Available. Notwithstanding anything
to the contrary in Sections 4.1 or 4.2 above, in the event of an insured
casualty to the improvements or a condemnation ("Casualty") as the Mortgagee
agrees to make the proceeds payable from such event ("Proceeds") available to
the restoration or repair of the Improvements under the following conditions:

         (a)      The Premises can be restored in its condition and useable
                  square footage as existed prior to such Casualty and a
                  complete architectural unit with the same use pursuant to
                  plans and specifications acceptable to Mortgagee and the same
                  value after restoration as that prior to the Casualty and the
                  ratio of net operating income to debt service payment from the
                  Premises after restoration is at least equal to that which
                  existed on the date of this Mortgage.

         (b)      Mortgagor shall provide a sworn construction statement
                  itemizing the full cost of restoration.

         (c)      The Proceeds are sufficient to complete such repair or
                  restoration or the Mortgagor deposits with Mortgagee prior to
                  commencing repair or restoration such amount as is necessary
                  to assure completion.

         (d)      Disbursement of Proceeds shall be made not more frequently
                  than once a month for restoration work completed and in place
                  pursuant to prudent construction lending procedures as
                  reasonably determined by Mortgagee including (i) a retainage
                  of ten (10%) percent of the disbursement requested, (ii)
                  itemized draw requests approved by an inspector acceptable to
                  Mortgagee, and (iii) lien waivers for the work done. At
                  Mortgagee's election, the Proceeds shall be disbursed through
                  an escrow account established with the title insurer ("Title")
                  having issued the Mortgagee's Title Insurance Policy.

         (e)      The Proceeds shall be held by Mortgagee in an interest bearing
                  account. All interest earned shall be considered as earnings
                  of Mortgagor and shall be reported

                                      -14-

<PAGE>

                  on Mortgagor's tax returns and such interest earning shall be
                  retained in the construction escrow account and disbursed in
                  accordance with the terms of this Mortgage.

         (f)      Mortgagee must receive adequate evidence at the time of
                  disbursement that the cost of restoration has been paid and
                  shall be given such lien protection as Mortgagee and Title, if
                  applicable, shall require including lien waivers and an
                  endorsement to Mortgagee's Title Insurance Policy.

         (g)      No event of default shall exist at the time of such casualty,
                  or at any time a disbursement is required. If such event of
                  default exists, the Proceeds may be applied by Lender in
                  accordance with the loan documents.

         (h)      The Mortgagor shall pay any actual expenses Mortgagee incurs
                  including any escrow expenses, any costs and expenses for
                  title insurance and any disbursement fees charged by Title.

         (i)      All tenants of the Premises certify to the Mortgagee that
                  their leases remain in effect and have not been canceled and
                  agree to continue possession of the Premises under the terms
                  of their lease and reopen after completion of the repair or
                  restoration without any abatement or adjustment in rental
                  payments (other than temporary abatement during the period of
                  restoration or repair which is fully insured by Rent Loss or
                  Business Interruption Insurance).

         (j)      No right to use Proceeds for restoration shall be applicable
                  to the last six (6) months prior to the Maturity Date. Any
                  surplus which may remain after payment of all costs of
                  restoration or repair may at the option of the Mortgagee be
                  applied to the outstanding principal balance of the loan
                  whether due or not, without application of any prepayment
                  premium or shall be returned to Mortgagor as its interest may
                  appear, the choice of application to be solely at the
                  discretion of the Mortgagee.

         (k)      As of the date of commencement of the restoration, the
                  Mortgagor and the Premises must in the judgment of Mortgagee
                  meet Mortgagee's then current underwriting standards for loans
                  of a similar type and size.

                               5. LEASES AND RENTS

         5.1      Mortgagor to Comply with Leases. Mortgagor will, at its own
cost and expense, perform, comply with and discharge all of the obligations of
Mortgagor under any leases or agreements for the use of the Premises and use its
best efforts to enforce or secure the performance of each obligation and
undertaking of the respective tenants under any such leases and will appear in
and defend, at its own cost and expense, any action or proceeding arising out of
or in any manner connected with the Mortgagor's interest in any leases of the
Premises. Mortgagor shall permit no surrender nor assignment of any tenant's
interest under said leases unless the right to assign or surrender is expressly
reserved under the lease nor accept any installment of rent for more than one
month in advance of its due date nor execute any mortgage

                                      -15-

<PAGE>
or create or permit a lien which may be or become superior to any such leases,
nor permit a subordination of any lease to such mortgage or lien. Mortgagor will
not modify or amend the terms of any such leases, nor borrow against or pledge
or assign the rentals from such leases nor excuse or waive any default of the
tenant thereunder without the prior consent of Mortgagee.

         5.2      Mortgagee's Right to Perform Under Leases. Should the
Mortgagor fail to perform, comply with or discharge any obligations of Mortgagor
under any lease or should the Mortgagee become aware of or be notified by any
tenant under any lease of a failure on the part of Mortgagor to so perform,
comply with or discharge its obligations under said lease, Mortgagee may, but
shall not be obligated to, and without further demand upon the Mortgagor, and
without waiving or releasing Mortgagor from any obligation in this Mortgage
contained, remedy such failure, and the Mortgagor agrees to repay upon demand
all sums incurred by the Mortgagee in remedying any such failure together with
interest at the then rate in effect on the Note. All such sums, together with
interest as aforesaid shall become so much additional Indebtedness Secured
Hereby, but no such advance shall be deemed to relieve the Mortgagor from any
default hereunder.

         5.3      Lease Approval. Each lease of the Premises to be entered into
by Mortgagor shall be approved by the Mortgagee and shall be satisfactory to the
Mortgagee in form and content. Each such lease at the election of the Mortgagee
will be either superior or subordinate to the lien of the Mortgage and each
tenant shall execute an appropriate subordination or attornment agreement as
required by the Mortgagee. Also, to the extent required by the Mortgagee, each
tenant shall execute an estoppel certificate and acknowledge receipt of a notice
of the assignment of its lease, all satisfactory in form and content to the
Mortgagee.

         5.4      Assignment of Leases and Rents. The Mortgagor does hereby
sell, assign and transfer unto Mortgagee all of the leases, rents, income and
profits now due and which may hereafter become due under or by virtue of any
lease, whether written or verbal, or any agreement for the use or occupancy of
the Premises, it being the intention of this Mortgage to establish an absolute
transfer and assignment of all such leases and agreements and all of the rents
and profits from the Premises unto the Mortgagee and the Mortgagor does hereby
appoint irrevocably the Mortgagee its true and lawful attorney in its name and
stead, which appointment is coupled with an interest, to collect all of said
rents and profits; provided, Mortgagee grants the Mortgagor the privilege,
revocable, to collect and retain such rents, income, and profits unless and
until an Event of Default exists under this Mortgage.

                             6. RIGHTS OF MORTGAGEE

         6.1      Right to Cure Default. If the Mortgagor shall fail to comply
with any of the covenants or obligations of this Mortgage, the Mortgagee may,
but shall not be obligated to, without further notice to Mortgagor, and without
waiving or releasing Mortgagor from any obligation in this Mortgage contained,
remedy such failure, and the Mortgagor agrees to repay upon demand all sums
incurred by the Mortgagee in remedying any such failure together with interest
at the then rate in effect on the Note. All such sums, together with interest as
aforesaid shall become so much additional Indebtedness Secured Hereby, but no
such advance shall be deemed to relieve the Mortgagor from any failure
hereunder.

                                      -16-

<PAGE>

         6.2      No Claim Against the Mortgagee. Nothing contained in this
Mortgage shall constitute any consent or request by the Mortgagee, express or
implied, for the performance of any labor or services or for the furnishing of
any materials or other property in respect of the Premises or any part thereof,
nor as giving the Mortgagor or any party in interest with Mortgagor any right,
power or authority to contract for or permit the performance of any labor or
services or the furnishing of any materials or other property in such fashion as
would create any personal liability against the Mortgagee in respect thereof or
would permit the making of any claim that any lien based on the performance of
such labor or services or the furnishing of any such materials or other property
is prior to the lien of this Mortgage.

         6.3      Inspection. Mortgagor will permit the Mortgagee's authorized
representatives to enter the Premises at reasonable times for the purpose of
inspecting the same; provided the Mortgagee shall have no duty to make such
inspections and shall not incur any liability or obligation for making or not
making any such inspections.

         6.4      Waivers; Releases; Resort to Other Security, etc. Without
affecting the liability of any party liable for payment of any Indebtedness
Secured Hereby or performance of any obligation contained herein, and without
affecting the rights of the Mortgagee with respect to any security not expressly
released in writing, the Mortgagee may, at any time, and without notice to or
the consent of the Mortgagor or any party in interest with the Premises or the
Note:

         (a)      release any person liable for payment of all or any part of
                  the Indebtedness Secured Hereby or for performance of any
                  obligation herein;

         (b)      make any agreement extending the time or otherwise altering
                  the terms of payment of all or any part of the Indebtedness
                  Secured Hereby or modifying or waiving any obligation, or
                  subordinating, modifying or otherwise dealing with the lien or
                  charge hereof,

         (c)      accept any additional security;

         (d)      release or otherwise deal with any property, real or personal,
                  including any or all of the Premises, including making partial
                  releases of the Premises; or

         (e)      resort to any security agreements, pledges, contracts of
                  guarantee, assignments of rents and leases or other
                  securities, and exhaust any one or more of said securities and
                  the security hereunder, either concurrently or independently
                  and in such order as it may determine.

         6.5      Waiver of Appraisement, Homestead, Marshaling. The Mortgagor
waives to the full extent lawfully allowed the benefit of any homestead,
appraisement, evaluation, stay and extension laws now or hereinafter in force.
Mortgagor waives any rights available with respect to marshaling of assets so as
to require the separate sales of any portion of the Premises, or as to require
the Mortgagee to exhaust its remedies against a specific portion of the Premises
before proceeding against the other and does hereby expressly consent to and
authorize the sale of the Premises or any part thereof as a single unit or
parcel or as separate parcels.

                                      -17-

<PAGE>

         6.6      Evasion of Prepayment. If an Event of Default or a Transfer
not permitted by this Mortgage shall occur and the Indebtedness Secured Hereby
is accelerated a tender of such amount necessary to satisfy the accelerated
amount or a mortgage foreclosure sale under this Mortgage shall be considered an
evasion of the prepayment restrictions of the Note and the Mortgagee may demand
in addition to all other sums due it by reason of an Event of Default the
premium then due under the Note as if Mortgagor had voluntarily prepaid the
same. The Mortgagor expressly waives the provisions of any present or future
statute, law or judicial interpretation or principle which prohibits or may
prohibit the collection of the foregoing Premium in connection with any such
acceleration.

                        7. EVENTS OF DEFAULT AND REMEDIES

         7.1      Events of Default. It shall be an Event of Default under this
Mortgage upon the happening of any of the following:

         (a)      any payment of principal or interest on the Note is not made
                  when and as the same becomes due (whether at the stated
                  maturity or at a date fixed for any installment payment or any
                  accelerated payment date or otherwise); or

         (b)      failure to comply with or perform any of the other terms,
                  conditions or covenants of the Note or of this Mortgage for a
                  period of 30 days after written notice, specifying such
                  failure, given to Mortgagor by Mortgagee, provided, however,
                  that if such default cannot be cured in 30 days that Mortgagor
                  shall have such additional time up to but not more than 60
                  additional days as is needed to cure such default so long as
                  Mortgagor is diligently proceeding to cure such default and
                  Mortgagee, in its sole opinion determines that such additional
                  time will not impair or jeopardize the Premises or Mortgagor's
                  interest therein; or

         (c)      failure to pay when due any other Indebtedness Secured Hereby;
                  or

         (d)      the Mortgagor 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
                  voluntary bankruptcy or for an arrangement or reorganization
                  pursuant to the Federal Bankruptcy Code ("Code") or any
                  similar law, state or federal, now or hereafter existing
                  ("Bankruptcy Proceeding"), or shall file an answer admitting
                  insolvency or inability to pay or shall become insolvent as
                  that term is defined in the Code or shall fail to pay its
                  debts as they become due, or shall fail to obtain a vacation
                  or stay of any involuntary Bankruptcy Proceeding within
                  forty-five (45) days after the institution of the same, or
                  shall be adjudicated a bankrupt or declared insolvent in any
                  Bankruptcy Proceeding, or shall have a custodian, trustee or
                  receiver appointed for or have any court take jurisdiction of
                  its property, or any part thereof, in any involuntary
                  proceeding for the purpose of reorganization, arrangement,
                  dissolution or liquidation and such custodian, trustee or
                  receiver shall not be discharged or such jurisdiction not be
                  relinquished, vacated or stayed within forty-five (45) days;
                  or

                                      -18-

<PAGE>

         (e)      default in the performance of any terms, conditions or
                  covenants of any other instrument securing the Note for a
                  period of 30 days after written notice, specifying such
                  failure, given to Mortgagor by Mortgagee, provided, however,
                  that if such default cannot be cured in 30 days that Mortgagor
                  shall have such additional time up to but not more than 60
                  additional days as is needed to cure such default so long as
                  Mortgagor is diligently proceeding to cure such default and
                  Mortgagee, in its sole opinion determines that such additional
                  time will not impair or jeopardize the Premises or Mortgagor's
                  interest therein; or

         (f)      a judgment, writ or warrant of attachment or execution, or
                  similar process shall be entered and become a lien or, be
                  issued or levied against the Premises and shall not be
                  released or fully bonded within forty-five (45) days after its
                  entry, issue or levy; or

         (g)      any representation or warranty made by Mortgagor herein, in
                  the Note or in any other instrument given as security for the
                  Note shall be false, breached or dishonored; or

         (h)      the Mortgagor shall be adjudged incompetent or die and
                  satisfactory provisions are not made for the substitution of
                  the liability of said party's estate for the repayment of the
                  Indebtedness Secured Hereby or the Mortgagor shall be
                  dissolved, liquidated or wound up or shall fail to maintain
                  its existence as a going concern in good standing; or

         (i)      the Mortgagor shall default under or shall fail to comply with
                  any of the terms, conditions or provisions of the Loan
                  Agreement referred to in this Mortgage.

         7.2      Mortgagee's Right to Accelerate. If an Event of Default shall
occur the Mortgagee may declare the entire unpaid principal balance of the Note
together with all other Indebtedness Secured Hereby to be immediately due and
payable and thereupon all such unpaid principal balance of the Note together
with all accrued interest thereon and all other Indebtedness Secured Hereby
shall be and become immediately due and payable.

         7.3      Right to Foreclose. If an Event of Default shall occur the
Mortgagee may, either with or without entry or taking possession, proceed by
suit or suits at law or in equity or by any other appropriate proceedings or
remedy to enforce payment of the Indebtedness Secured Hereby or the performance
of any other term hereof or any other right and the Mortgagor hereby authorizes
and fully empowers the Mortgagee to foreclose this Mortgage by judicial
proceedings or by advertisement with power of sale and grants to the Mortgagee
full authority to sell the Premises at public auction and convey title to the
Premises to the purchaser, either in one parcel or separate lots and parcels,
all in accordance with and in the manner prescribed by law, and out of the
proceeds arising from sale and foreclosure to retain the principal and interest
due on the Note and the Indebtedness Secured Hereby together with all such sums
of money as Mortgagee shall have expended or advanced pursuant to this Mortgage
or pursuant to statute together with interest thereon as herein provided and all
costs and expenses of such foreclosure, including but not limited to lawful
maximum attorney's fees, the cost of environmental inspection and appraisal
costs and expenses, with the balance, if any, to be paid to the persons entitled
thereto

                                      -19-

<PAGE>

by law. In any such proceeding the Mortgagee may apply all or any portion of the
Indebtedness Secured Hereby to the amount of the purchase price.

         7.4      Receiver. The Mortgagee shall be entitled as a matter of right
without notice and without giving bond and without regard to the solvency or
insolvency of the Mortgagor, or waste of the premises or adequacy of the
security of the Premises, to apply for the appointment of a Receiver under Minn.
Stats. Section 576.01 or any successor or supplementary statute thereto who
shall have all the rights, powers and remedies as provided by such statute and
who shall apply the rents, issues and profits as provided by statute and
thereafter to all expenses for maintenance of the Premises and to the costs and
expenses of the receivership, including reasonable attorneys fees and to the
repayment of the Indebtedness Secured Hereby and as further provided in any
Assignment of Rents executed by the Mortgagor to the Mortgagee, whether
contained in this Mortgage or in a separate instrument.

         7.5      Rights Under Uniform Commercial Code. In addition to the
rights available to a mortgagee of real property, Mortgagee shall also have all
the rights, remedies and recourse available to a secured party under the Uniform
Commercial Code including the right to proceed under the provisions of the
Uniform Commercial Code governing default as to any property which is subject to
the security interest created by the Mortgage or to proceed as to such personal
property in accordance with the procedures and remedies available pursuant to a
foreclosure of real estate.

         7.6      Due on Sale or Mortgaging, etc. In the event the Premises, or
any part thereof, or any interest therein, are sold, conveyed, transferred,
leased, further mortgaged or encumbered or disposed of or if a Change of Control
(as defined in that certain Credit Agreement dated October 3, 2001 between
Mortgagor as Borrower and General Electric Capital Corporation as Lender)
occurs, each without the written consent of the Mortgagee being first obtained,
then at the sole option of Mortgagee, the Mortgagee may declare the entire
Indebtedness Secured Hereby due and payable in full and call for payment of the
same in full at once. Consent as to any one transaction shall not be deemed to
be a waiver of the right to require consent to future or successive
transactions. Any change in the legal or equitable title of the Premises or in
the beneficial ownership of the Premises whether or not of record and whether or
not for consideration of sale shall be deemed a transfer of an interest in the
Premises. As a condition to any consent, the Mortgagee may among other things
require an assumption of the Indebtedness Secured Hereby by the transferee, an
increase in the rate of interest on the Indebtedness Secured Hereby, a change in
the terms of payment, the payment of Mortgagee's out-of-pocket costs incurred
with respect to any consent and/or a "transfer fee."

         7.7      Rights Cumulative. Each right, power or remedy herein
conferred upon the Mortgagee is cumulative and in addition to every other right,
power or remedy, express or implied, now or hereafter arising, available to
Mortgagee, at law or in equity, or under any other agreement, and each and every
right, power and remedy herein set forth or otherwise so existing may be
exercised from time to time as often and in such order as may be deemed
expedient by the Mortgagee and shall not be a waiver of the right to exercise at
any time thereafter any other right, power or remedy. No delay or omission by
the Mortgagee in the exercise of any right, power or remedy arising hereunder or
arising otherwise shall impair any such right, power or

                                      -20-

<PAGE>

remedy or the right of the Mortgagee to resort thereto at a later date or be
construed to be a waiver of any default or Event of Default under this Mortgage
or the Note.

         7.8      Right to Discontinue Proceedings. In the event Mortgagee shall
have proceeded to invoke any right, remedy or recourse permitted under this
Mortgage and shall thereafter elect to discontinue or abandon the same for any
reason, Mortgagee shall have the unqualified right to do so and in such event
Mortgagor and Mortgagee shall be restored to their former positions with respect
to the Indebtedness Secured Hereby. This Mortgage, the Premises and all rights,
remedies and recourse of the Mortgagee shall continue as if the same had not
been invoked.

         7.9      Right to Collect Rents. Upon an Event of Default and whether
before or after the institution of legal proceedings to foreclose the lien
hereof or before or after sale of the Premises or during any period of
redemption the Mortgagee, and without regard to waste, adequacy of the security
or solvency of the Mortgagor, may revoke the privilege granted Mortgagor
hereunder to collect the rents issues and profits of the Premises, and may, at
its option, without notice:

         (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 Mortgagor to give, notice to any
                  or all tenants under any lease authorizing and directing the
                  tenant to pay such rents and profits to Mortgagee; collect all
                  of the rents, issues and profits; enforce the payment thereof
                  and exercise all of the rights of the landlord under any lease
                  and all of the rights of Mortgagee hereunder; may enter upon,
                  take possession of, manage and operate said Premises, or any
                  part thereof; may cancel, enforce or modify any leases, and
                  fix or modify rents, and do any acts which the Mortgagee deems
                  proper to protect the security hereof with or without taking
                  possession of said Premises; or

         (b)      apply for the appointment of a receiver in accordance with the
                  statutes and law made and provided for, which receivership
                  Mortgagor hereby consents to, who shall collect the rents and
                  profits, and all other income of any kind; manage the Premises
                  so as to prevent waste; execute leases within or beyond the
                  period of receivership, and perform the terms of this Mortgage
                  and apply the rents and profits as hereinafter provided.

Any rents, issues and profits whether collected by the Mortgagee or by a
receiver shall be applied in the following order:

                  (i)      to payment of all reasonable fees of any receiver
                           appointed hereunder,

                  (ii)     to application of tenant's security deposits as
                           required by Minn. Stat. Section 504B.178,

                  (iii)    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,

                                      -21-

<PAGE>

                  (iv)     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,

                  (v)      to payment of all expenses for normal maintenance of
                           the Premises,

                  (vi)     if received prior to a foreclosure sale, to the
                           Indebtedness Secured Hereby,

                  (vii)    if received after a foreclosure sale and during the
                           period of redemption from such foreclosure sale and
                           if the Mortgagee is the purchaser at the foreclosure
                           sale, the rents shall be paid to the Mortgagee to be
                           applied to the extent of any deficiency remaining
                           after the sale, the balance to be retained by the
                           Mortgagee, and if the Premises be redeemed by the
                           Mortgagor or any other party entitled to redeem, to
                           be applied as a credit against the redemption price
                           provided, if the Premises not be redeemed, any
                           remaining excess rents to belong to the Mortgagee,
                           whether or not a deficiency exists,

                  (viii)   if received after a foreclosure sale and during the
                           redemption period and if the Mortgagee is not the
                           purchaser at the foreclosure sale, the rents shall be
                           paid to the Mortgagee to be applied, to the extent of
                           any deficiency remaining after the sale, and the
                           balance, if any, to the Purchaser to be applied as a
                           credit against the redemption price provided, if the
                           Premises not be redeemed any remaining excess rents
                           shall be paid to the purchaser.

The entering upon and taking possession of the Premises, the collection of such
rents and profits and the application thereof as aforesaid shall not cure or
waive any defaults under this Mortgage nor in any way operate to prevent the
Mortgagee from pursuing any other remedy which it may now or hereafter have
under the terms of this Mortgage nor shall it in any way be deemed to constitute
the Mortgagee a mortgagee-in-possession. The rights and powers of the Mortgagee
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
Mortgagee, 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 then in effect in the Note, or if the Note
has been extinguished, at the highest rate set forth in the Note, shall be a
part of the sum required to be paid to redeem from any foreclosure sale. The
rights hereunder shall in no way be dependent upon and shall apply without
regard to whether the Premises are in danger of being lost, materially injured
or damaged or whether the Premises are adequate to discharge the Indebtedness
Secured Hereby. The rights contained herein are in addition to and shall be
cumulative with the rights given in any separate instrument, assigning any
leases, rents and profits of the Premises and shall not amend or modify the
rights in any such separate agreement.

                                      -22-

<PAGE>

         7.10     Acknowledgment of Waiver of Hearing Before Sale. Mortgagor
understands and agrees that if any default is made under the terms of this
Mortgage, Mortgagee has the right, inter alia, to foreclose this Mortgage by
advertisement pursuant to Minnesota Statutes, Chapter 580, as hereafter amended,
or pursuant to any similar or replacement statute hereafter enacted; that if the
Mortgagee elects to foreclose by advertisement, it may cause the Premises, or
any part thereof, to be sold at public auction; that notice of such sale must be
published for six (6) successive weeks at least once a week in a newspaper of
general circulation and that no personal notice is required to be served upon
Mortgagor. Mortgagor further understands that in the event of such default the
Mortgagee may also elect its rights under the Uniform Commercial Code and take
possession of the Personal Property (as defined in the Mortgage) and dispose of
the same by sale or otherwise in one or more parcels provided that at least ten
(10) days' prior notice of such disposition must be given, all as provided for
by the Uniform Commercial Code, as hereafter amended or by any similar or
replacement statute hereafter enacted. Mortgagor further understands that under
the Constitution of the United States and the Constitution of the State of
Minnesota it may have the right to notice and hearing before the Premises may be
sold and that the procedure for foreclosure by advertisement described above
does not insure that notice will be given to the Mortgagor and neither said
procedure for foreclosure by advertisement nor the Uniform Commercial Code
requires any hearing or other judicial proceeding. MORTGAGOR HEREBY EXPRESSLY
CONSENTS AND AGREES THAT THE PREMISES MAY BE FORECLOSED BY ADVERTISEMENT AND
THAT THE PERSONAL PROPERTY MAY BE DISPOSED OF PURSUANT TO THE UNIFORM COMMERCIAL
CODE, ALL AS DESCRIBED ABOVE. MORTGAGOR ACKNOWLEDGES THAT IT IS REPRESENTED BY
LEGAL COUNSEL; THAT BEFORE SIGNING THIS DOCUMENT THIS PARAGRAPH AND MORTGAGOR'S
CONSTITUTIONAL RIGHTS WERE FULLY EXPLAINED BY SUCH COUNSEL AND THAT MORTGAGOR
UNDERSTANDS THE NATURE AND EXTENT OF THE RIGHTS WAIVED HEREBY AND THE EFFECT OF
SUCH WAIVER.

                                8. MISCELLANEOUS

         8.1      Release of Mortgage. When all Indebtedness Secured Hereby has
been paid, this Mortgage and all assignments herein contained shall be void and
this Mortgage shall be released by the Mortgagee at the cost and expense of the
Mortgagor, otherwise to remain in full force and effect.

         8.2      Choice of Law. This Mortgage is made and executed under the
laws of the State of Minnesota and is intended to be governed by the laws of
said State.

         8.3      Successors and Assigns. This Mortgage and each and every
covenant, agreement and other provision hereof shall be binding upon the
Mortgagor and its successors and assigns including without limitation each and
every record owner of the Premises or any other person having an interest
therein from time to time, shall run with the land and shall inure to the
benefit of the Mortgagee and its successors and assigns. As used herein the
words "successors and assigns" shall also be deemed to include the heirs,
representatives, administrators and executors of any natural person who is or
becomes a party to this Mortgage. In the event that the ownership of the
Premises becomes vested in a person or persons other than the Mortgagor, the
Mortgagee shall not have any obligation to deal with such successor or
successors in interest

                                      -23-

<PAGE>

unless such transfer is permitted by this Mortgage and then only upon being
notified in writing of such change of ownership. Upon such notification, the
Mortgagee may thereafter deal with such successor in place of Mortgagor without
any obligation to thereafter deal with Mortgagor and without waiving any
liability of Mortgagor hereunder or under the Note. No change of ownership shall
in any way operate to release or discharge the liability of the Mortgagor
hereunder unless such release or discharge is expressly agreed to in writing by
the Mortgagee.

         8.4      Unenforceability of Certain Clauses. The unenforceability or
invalidity of any provisions hereof shall not render any other provision or
provisions herein contained unenforceable or invalid.

         8.5      Captions and Headings. The captions and headings of the
various sections of this Mortgage are for convenience only and are not to be
construed as confining or limiting in any way the scope or intent of the
provisions hereof. Whenever the context requires or permits the singular shall
include the plural, the plural shall include the singular and the masculine,
feminine and neuter shall be freely interchangeable.

         8.6      Notices. Any notices and other communications permitted or
required by the provisions of this Mortgage (except for telephonic notices
expressly permitted) shall be in writing and shall be deemed to have been
properly given or served by depositing the same with the United States Postal
Service, or any official successor thereto, designated as Certified Mail, Return
Receipt Requested, bearing adequate postage, or deposited with reputable private
courier or overnight delivery service, and addressed as hereinafter provided.
Each such notice shall be effective upon being deposited or delivered as
aforesaid. The time period within which a response to any such notice must be
given, however, shall commence to run from the date of receipt of the notice by
the addressee thereof. Rejection or other refusal to accept or the inability to
deliver because of changed address of which no notice was given shall be deemed
to be receipt of the notice sent. By giving to the other party hereto at least
ten (10) days' notice thereof, either party hereto shall have the right from
time to time to change its address and shall have the right to specify as its
address any other address within the United States of America.

                  Each notice to Mortgagee shall be addressed as follows:

                           Navarre Corporation
                           7400 49th Avenue North
                           New Hope, MN 55428
                           Attn: Jim Gilbertson, CFO

                  Each notice to Mortgagor shall be addressed as follows:

                           The Business Bank
                           11100 Wayzata Boulevard
                           Suite 150
                           Minnetonka, MN 55305
                           Attn: Commercial Loan Department

         8.7      Construction Loan Agreement. This Mortgage secures an
obligation incurred for the construction of an improvement on land and is a
"Construction Mortgage" as that term is

                                      -24-

<PAGE>

used in the Uniform Commercial Code. This Mortgage is the Mortgage referred to
in and is also given as security for the due and punctual performance,
observance and payment by the Mortgagor of the terms and conditions set forth in
that certain Construction Loan Agreement ("Loan Agreement") of even date
herewith between the Mortgagor and the Mortgagee the terms and conditions of
which are incorporated herein by reference. In addition to its remedies
hereunder, the Mortgagee may, but shall not be required to, avail itself of any
or all of the rights and remedies available to it under the Loan Agreement, and
any sums expended by the Mortgagee in availing itself of such rights and
remedies shall bear interest thereon at the rate specified in the Loan Agreement
and shall be so much additional Indebtedness Secured Hereby, and shall be
payable to the Mortgagee immediately upon demand; provided that, no such payment
by the Mortgagee shall be considered as waiving the event of default.

         8.8      Costs and Expenses. The Mortgagor agrees to pay on demand all
costs and expenses of the Mortgagee, including but not limited to attorneys fees
and costs, environmental audit and appraisal fees and costs, incurred by the
Mortgagee in connection with the enforcement of this Mortgage and the collection
of the Indebtedness Secured Hereby.

         8.9      Legal Limits of the Indebtedness Secured Hereby. All
agreements between Mortgagor and Mortgagee are hereby expressly limited so that
in no contingency or event whatsoever, whether by reason of acceleration of
maturity of the Indebtedness Secured Hereby or otherwise, shall the amount paid
or agreed to be paid to Mortgagee for the use, forbearance, loaning or detention
of the Indebtedness Secured Hereby exceed the maximum permissible under
applicable law. If from any circumstances whatsoever, fulfillment of any
provisions hereof or of the Note or any other security instrument shall involve
transcending the limit of validity prescribed by law, then, the obligation to be
fulfilled shall automatically be reduced to the limit of such validity and if
from any circumstances Mortgagee should ever receive as interest an amount which
would exceed the highest lawful rate, such amount which would be in excess of
interest shall be applied to the reduction of the principal balance evidenced
hereby and not to the payment of interest. This provision shall control every
other provision of all agreement between Mortgagee and Mortgagor and shall also
be binding upon and available to any subsequent assignee of this Mortgage.

         8.10     Business Loan Representation. Mortgagor represents and
warrants to Mortgagee that the Loan is a business loan transaction solely for
the purpose of carrying on the business of the Mortgagors and the Premises does
not constitute the homestead of the Mortgagor or any other party.

         8.11     Consent to Jurisdiction. The Mortgagor submit(s) and
consent(s) to personal jurisdiction of the Courts of the State of Minnesota and
Courts of the United States of America sitting in such State for the enforcement
of this instrument and waive(s) any and all personal rights under the laws of
any state or the United States of America to object to jurisdiction in the State
of Minnesota. Litigation may be commenced in any state court of general
jurisdiction for the State of Minnesota or the United States District Court
located in that state, at the election of the Mortgagee. Nothing contained
herein shall prevent Mortgagee from bringing any action against any other party
or exercising any rights against any security given to Mortgagee or against the
Mortgagor personally, or against any property of the Mortgagor, within any other
state. Commencement of any such action or proceeding in any other state shall
not constitute a

                                      -25-

<PAGE>

waiver of consent to jurisdiction or of the submission made by the Mortgagor to
personal jurisdiction within the State of Minnesota.

         8.12     Waiver of Jury Trial. THE PARTIES TO THIS INSTRUMENT WAIVE(S)
TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO WHICH ANY PARTIES TO THIS INSTRUMENT
ARE INVOLVED DIRECTLY OR INDIRECTLY AND ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH
THIS INSTRUMENT OR THE RELATIONSHIP ESTABLISHED HEREUNDER, AND WHETHER ARISING
OR ASSERTED BEFORE OR AFTER THE DATE OF THIS INSTRUMENT.

         8.13     Personal Property. Notwithstanding anything to the contrary
contained herein, or anything to the contrary contained in any of the documents,
instruments and agreements executed in connection herewith including, without
limitation, the Loan Agreement and the Assignment of Contract Document and
Intangibles, Mortgagee shall have no interest in any personal property of
Mortgagor except to the extent such personal property was (i) specifically
purchased for the purpose of becoming attached as a fixture to the Premises,
(ii) purchased with the proceeds of the Loan and (iii) was specifically
referenced on an Application for payment (as defined in the Loan Agreement).

         8.14     Wells. Mortgagor hereby represents and warrants that there are
no, and, for so long as Mortgagor's liabilities remain outstanding, there will
be no uncapped wells located on any part of the Premises.

         IN WITNESS WHEREOF, the Mortgagor has caused these presents to be
executed as of the date first above written.

                                                NAVARRE CORPORATION, a Minnesota
                                                corporation

                                                By _____________________________

                                                Its  ___________________________

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

                                      -26-

<PAGE>

Mortgagee's copy of
Tax statements for the real
property described in this
instrument should be sent to:

The Business Bank
11100 Wayzata Boulevard
Suite 150
Minnetonka, MN 55305

THIS DOCUMENT WAS DRAFTED BY:

BEST & FLANAGAN LLP
225 South Sixth Street, Suite 4000
Minneapolis, MN 55402-4331
Telephone: 612.339.7121

                                      -27-

<PAGE>

                                    EXHIBIT A

                                    MORTGAGE
                                       AND
                               SECURITY AGREEMENT
                                       AND
                           FIXTURE FINANCING STATEMENT

LOT 1, BLOCK 1, PAULSONS PRAIRIE, ACCORDING TO THE PLAT THEREOF FILED OF RECORD
WITH THE OFFICE OF THE HENNEPIN COUNTY RECORDER, MINNESOTA.

                                      -28-

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