PARTNERSHIP INTEREST PURCHASE AGREEMENT

Exhibit 10.1

PARTNERSHIP INTEREST PURCHASE AGREEMENT

dated as of January 10, 2005

among

FUNimation Productions Management, LLC,

FUNimation General Partnership,

FUNimation Management Company, LLC,

FUNimation Productions, Ltd.,

The FUNimation Store, Ltd.,

The individuals signatory hereto, and

Daniel Cocanougher as the Seller Representative

and

Navarre CP, LLC,

Navarre CS, LLC,

Navarre CLP, LLC, and

Navarre Corporation

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PARTNERSHIP INTEREST PURCHASE AGREEMENT

     PARTNERSHIP INTEREST PURCHASE AGREEMENT (this “Agreement”), dated as of January 10, 2005, among FUNimation Productions Management, LLC, a limited liability company organized and existing under the laws of Texas (“FUN Seller”), FUNimation General Partnership, a Texas general partnership organized and existing under the laws of Texas (“GP Seller”), FUNimation Management Company, LLC, a limited liability company organized and existing under the laws of Texas (“Management Seller”), each individual (“Individual”) signatory hereto, (each of FUN Seller, GP Seller, Management Seller, and each Individual a “Seller” and collectively, the “Sellers”), FUNimation Productions, Ltd., a limited partnership organized and existing under the laws of Texas, The FUNimation Store, Ltd., a limited partnership organized and existing under the laws of Texas (respectively, “Productions Company” and “Store Company” each a “Company” and collectively, the “Companies”), and Daniel Cocanougher as the representative of all Sellers (the “Seller Representative”), and Navarre CP, LLC, a limited liability company organized and existing under the laws of Minnesota (“Navarre CP”), Navarre CS, LLC, a limited liability company organized and existing under the laws of Minnesota (“Navarre CS”), and Navarre CLP, LLC, a limited liability company organized and existing under the laws of Minnesota (“Navarre CLP” and collectively with Navarre CP and Navarre CS, the “Buyers”), and Navarre Corporation, a corporation organized and existing under the laws of Minnesota (“Navarre”), in its own capacity as provided herein and its capacity as guarantor of Buyers’ obligations hereunder pursuant to Section 11.15 herein.

     WHEREAS, FUN Seller owns all of the general partnership interests in Productions Company;

     WHEREAS, GP Seller owns all of the limited partnership interests in Productions Company;

     WHEREAS, Management Seller owns all of the general partnership interests in Store Company;

     WHEREAS, the Individuals collectively own all of the limited partnership interests in Store Company;

     WHEREAS, Buyers desire to purchase all of the outstanding limited partnership interests and general partnership interests of each Company (collectively, the “Partnership Interests”), and Sellers severally desire to cause the sale of the Partnership Interests to Buyers on the terms and conditions hereinafter set forth;

     WHEREAS, Navarre wishes to undertake certain obligations hereunder and to guaranty the obligations, duties and undertakings of Buyers under this Agreement; and

     WHEREAS, the definitions of certain defined terms used herein are set forth in Exhibit A hereto.

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

ARTICLE 1

PURCHASE AND SALE OF PARTNERSHIP INTERESTS

     1.1       Purchase and Sale .

          (a)      Partnership Interests. Upon the terms and subject to the conditions set forth in this Agreement, (i) FUN Seller shall sell to Navarre CP, and Navarre CP shall purchase from FUN Seller, all of the general partnership interests of Productions Company held by FUN Seller (“FUN Seller General Partnership Interests”), free and clear of all Liens, (ii) GP Seller shall sell to Navarre CLP, and Navarre CLP shall purchase from GP Seller, all of the limited partnership interests of Productions Company held by GP Seller (“GP Seller Limited Partnership Interests”), free and clear of all Liens, (iii) Management Seller shall sell to Navarre CS, and Navarre CS shall purchase from Management Seller, all of the general partnership interests of Store Company held by Management Seller (“Management Seller General Partnership Interests”), free and clear of all Liens, and (iv) each Individual shall sell to Navarre CLP, and Navarre CLP shall purchase from such Individual, all of the limited partnership interests of Store Company held by such Individual (collectively, “Individual Limited Partnership Interests”), free and clear of all Liens, for the consideration set forth below.

          (b)      Purchase Price. The purchase price (the “Purchase Price”) payable to Sellers in consideration of the transfer to Buyers of the Partnership Interests shall be:

(i)      $100,400,000, as adjusted pursuant to Section 1.4;

(ii)      the number of unregistered shares (the “Closing Shares”) of Navarre Common Stock as is obtained by dividing $25,000,000 by the Closing Share Price; provided that in no event shall the number of Closing Shares payable to Sellers be less than 1,495,216 or greater than 1,827,486; and

(iii)      contingent payments in an amount up to a maximum of $17,000,000, in the aggregate, subject to the attainment of certain performance criteria set forth in Section 1.5 (each, a “Performance Payment” and collectively, the “Performance Payments”).

          (c)      Payments and Deliveries at Closing. On the Closing Date, Buyers and/or Navarre, as the case may be, shall:

(i)      (x) pay the Closing Cash Amount minus the sum of the A/R Amount, the Indemnification Cash and an amount equal to fifty percent (50%) of any and all filing fees under the HSR Act required to be paid by any of the parties hereto in order to consummate the transactions contemplated by this Agreement to the order of Sellers as provided in Section 1.1(c)(i) of the Disclosure Letter, (y) deliver an amount equal to the A/R Amount to the Escrow Agent, and (z) deliver an amount equal to the Indemnification Cash to the Escrow Agent to be held pursuant to the Escrow Agreement as Indemnification Cash; and

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(ii)      direct its transfer agent to issue to each Seller such number of Closing Shares as is equal to (A) the aggregate number of Closing Shares payable pursuant to Section 1.1(b)(ii) multiplied by (B) such Seller’s Pro Rata Share.

          (d)      Allocation of Purchase Price. The allocation of the Purchase Price among the partnership assets of each of Productions Company and Store Company (the “Allocation of Purchase Price”) shall be negotiated in good faith between Buyers and Sellers prior to the Closing Date and shall be set forth in Schedule 1.1(d) of the Disclosure Letter. The Allocation of Purchase Price shall be used by Buyers and Sellers for all Tax purposes, including the preparation and filing by Buyers and Sellers of all relevant Tax Returns, reports, and filings, including, if applicable, IRS Form 8594. Buyers and Sellers will cooperate with each other regarding the preparation and filing of Tax Returns, reports, and filings, including a party’s filing, or joining in the filing, of a Tax form or filing that is required with respect to the other party’s Tax reporting position, provided that the information that is being reported on the Tax form or filing is consistent with the parties’ general understanding of the transaction for, as applicable, federal income Tax purposes or any other Tax purpose. The parties agree that the cash portion of the Purchase Price shall be allocated first to underlying property of each Company that is described in Section 751(a) of the Code, to the extent of the amount of Purchase Price allocated thereto pursuant to this Section 1.1(d).

     1.2 Closing . Unless the parties hereto shall agree in writing upon a different location, time or date, the closing of the sale and purchase of the Partnership Interests (the “Closing”) shall take place at the offices of Bear Stearns, 383 Madison Avenue, New York, New York 10179 at 10:00 a.m. (New York City time) on the 10th Business Day following the satisfaction or waiver (by the applicable party) of the conditions required to be satisfied or waived pursuant to Articles 6 and 7 hereof (other than those requiring the delivery of a certificate or other document, or the taking of other action, at the Closing), but in no event later than the Outside Date. The term “Closing Date” means the date and time at which the Closing occurs.

     1.3 Deliveries at the Closing . Subject to the conditions set forth in this Agreement, at the Closing:

          (a)      FUN Seller shall deliver or cause to be delivered to Navarre CP (i) an Assignment and Assumption Agreement with respect to all of the FUN Seller General Partnership Interests duly executed by FUN Seller, (ii) the applicable Closing Certificate described in Section 7.1(a)(iii), (iii) the applicable secretary’s certificate described in Section 7.1(d), (iv) a Release Agreement duly executed by FUN Seller, and (v) all certificates and other instruments, agreements and documents which are expressly required or reasonably requested by Navarre CP pursuant to this Agreement to be delivered by FUN Seller to Navarre CP at the Closing.

          (b)      GP Seller shall deliver or cause to be delivered to Navarre CLP (i) an Assignment and Assumption Agreement with respect to all of the GP Seller Limited Partnership Interests duly executed by GP Seller, (ii) the applicable Closing Certificate described in Section 7.1(a)(iii), (iii) the applicable secretary’s certificate described in Section 7.1(d), (iv) a Release Agreement duly executed by GP Seller, and (v) all certificates and other instruments, agreements and documents which are expressly required or reasonably requested by Navarre CLP pursuant to this Agreement to be delivered by GP Seller to Navarre CLP at the Closing.

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          (c)      Management Seller shall deliver or cause to be delivered to Navarre CS (i) an Assignment and Assumption Agreement with respect to all of the Management Seller General Partnership Interests duly executed by Management Seller, (ii) the applicable Closing Certificate described in Section 7.1(a)(iii), (iii) the applicable secretary’s certificate described in Section 7.1(d), (iv) a Release Agreement duly executed by Management Seller, and (v) all certificates and other instruments, agreements and documents which are expressly required or reasonably requested by Buyers pursuant to this Agreement to be delivered by Management Seller to Navarre CS at the Closing.

          (d)      Each Individual shall deliver or cause to be delivered to Navarre CLP (i) an Assignment and Assumption Agreement with respect to all of the Individual Limited Partnership Interests duly executed by such Individual, (ii) the applicable Closing Certificate described in Section 7.1(a)(iii), (iii) a Release Agreement duly executed by such Individual, and (iv) all certificates and other instruments, agreements and documents which are expressly required or reasonably requested by Buyers pursuant to this Agreement to be delivered by such Individual to Navarre CLP at the Closing.

          (e)      Each Company shall deliver or cause to be delivered to Buyers (i) the applicable Closing Certificate described in Section 7.1(a)(iii), (ii) the applicable good standing certificate described in Section 7.1(e), (iii) the releases and satisfactions described in Section 7.1(h), and (iv) all certificates and other instruments, agreements and documents which are expressly required or reasonably requested by Buyers pursuant to this Agreement to be delivered by such Company to Buyers at the Closing.

          (f)      The Seller Representative shall deliver or cause to be delivered to Buyers all Ancillary Agreements to which any Seller or the Seller Representative is contemplated by this Agreement to be a party or signatory, duly executed by such Person, to the extent not otherwise delivered as provided in this Section 1.3.

          (g)      Buyers and/or Navarre, as the case may be, shall (i) accept and purchase the Partnership Interests from the Sellers, (ii) pay and deliver the Closing Cash Amount as provided in Section 1.1(c)(i), (iii) deliver the Closing Shares as provided in Section 1.1(c)(ii), (iv) deliver the Assignment and Assumption Agreements duly executed by Buyers, and (v) deliver to the Seller Representative all certificates and other instruments, agreements and documents which are expressly required or reasonably requested by the Seller Representative pursuant to this Agreement to be delivered by Buyers to such Seller Representative at the Closing.

     1.4 Post-Closing Adjustments .

          (a)      As promptly as practicable, but in no event later than 30 days after the Closing Date, Buyers shall prepare and deliver to the Seller Representative a schedule (“Buyers’ Closing Schedule”) setting forth in reasonable detail Buyers’ calculation of Adjusted Net Worth. Buyers will give the Seller Representative (or its representatives) reasonable access to any computations and workpapers used in connection with the preparation of Buyers’ Closing Schedule. Buyers’ calculation of Adjusted Net Worth shall be prepared in accordance with GAAP, this Section 1.4 and the definition of Adjusted Net Worth. If Buyers employ a firm of independent accountants in connection with the preparation of Buyers’ Closing Schedule, Buyers shall cause such independent

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accountants to give reasonable access to the Seller Representative (or its representatives) to any computations and workpapers used in the preparation of Buyers’ Closing Schedule subject, in the case of accountants’ workpapers, to execution of a customary access agreement by the Seller Representative (or its representatives) if required by such independent accountants. On not less than 5 days prior written notice, Buyer will also give the Seller Representative (and its representatives) access, during the normal business hours of Buyers and the Companies, to all personnel, books and records of the Companies as reasonably requested by the Seller Representative to assist it, if applicable, in the preparation of Sellers’ Dispute Notice (as defined below). The Seller Representative and its representatives shall be permitted to ask questions of and receive answers from Buyers and the Companies and request such other books and records of the Companies as is reasonably requested by them to assist them in the review of Buyers’ Closing Schedule. The Seller Representative will deliver to Buyers a notice (“Sellers’ Dispute Notice”) within 30 days after receiving Buyers’ Closing Schedule if the Seller Representative believes that Buyers’ calculation of Adjusted Net Worth as set forth in Buyers’ Closing Schedule (i) has not been prepared in accordance with GAAP, this Section 1.4 and the definition of Adjusted Net Worth or (ii) is not mathematically correct, which notice shall set forth in reasonable detail all disputed items, the basis for such disagreement, the dollar amounts involved (the “Disputed Items”) and the Seller Representative’s calculation of Adjusted Net Worth. The Seller Representative will give Buyers (or their representatives) reasonable access to any computations and workpapers used by the Seller Representative or its representatives in connection with the review of Buyers’ Closing Schedule or the preparation of Sellers’ Dispute Notice, subject, in the case of accountants’ workpapers, to execution of a customary access agreement by Buyers (or their representatives) if required by such accountants. Buyers and their representatives shall be permitted to ask questions of and receive answers from any Person necessary including, without limitation, the Seller Representative and request such other books as are reasonably requested by Buyers to assist it in the review of Sellers’ Dispute Notice. The Seller Representative shall be deemed to have agreed with all other items other than the Disputed Items contained in Buyers’ Closing Schedule, and if no Sellers’ Dispute Notice is received by Buyers within such 30-day period, Buyers’ calculation of Adjusted Net Worth as set forth in Buyers’ Closing Schedule shall be final and binding upon the parties hereto.

          (b)      Upon receipt by Buyers of Sellers’ Dispute Notice, if any, the Seller Representative and Buyers shall negotiate in good faith to resolve any disagreement with respect to Adjusted Net Worth set forth in Sellers’ Dispute Notice. To the extent Buyers and the Seller Representative are unable to agree with respect to Adjusted Net Worth within 30 days after receipt by Buyers of Sellers’ Dispute Notice, Buyers and the Seller Representative shall jointly engage a mutually acceptable nationally recognized public accounting firm (the “Accounting Firm”) and promptly submit any unresolved Disputed Items (and their respective proposed calculations) to the Accounting Firm for a binding resolution (it being understood the Accounting Firm shall be functioning as an expert and not an arbitrator). The reasonable fees and expenses of the Accounting Firm shall be borne by the party whose calculation of the aggregate dollar amount of all Disputed Items is the furthest from the aggregate dollar amount of such Disputed Items as finally determined by the Accounting Firm.

          (c)      The Seller Representative and Buyers shall instruct the Accounting Firm to render its decision resolving the Disputed Items within 30 days after its engagement. Buyers, Sellers and the Seller Representative agree that the determination of the Accounting Firm shall be final and binding upon the parties absent manifest error and that judgment may be entered upon the

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determination of the Accounting Firm in any court having jurisdiction over the party or parties against which such determination is to be enforced. The Accounting Firm shall determine, based solely on presentations by Buyers and the Seller Representative and their respective representatives, and not by independent review, only those Disputed Items and shall prepare a written report as to the dispute and the resulting calculation of Adjusted Net Worth which shall be conclusive and binding upon the parties absent manifest error. In resolving any Disputed Item, the Accounting Firm: (x) shall be bound by the principles set forth in this Section 1.4 and the definition of Adjusted Net Worth, (y) shall limit its review to matters specifically set forth in Buyers’ Closing Schedule and Sellers’ Dispute Notice, and (z) shall further limit its review solely to whether the Buyers’ Closing Schedule is mathematically accurate and has been prepared in accordance with GAAP and this Section 1.4. The determination of the Accounting Firm for any Disputed Item cannot, however, be in excess of, nor less than, the greatest or lowest value, respectively, claimed for that particular item in the proposed calculations submitted to the Accounting Firm.

          (d)      Within 15 days after the final determination of Adjusted Net Worth Buyers or the Sellers, as the case may be, shall make the following payments:

(i)      In the event that Adjusted Net Worth is equal to or greater than Target Net Worth and the Cash of the Companies on the Closing Date is greater than $2,500,000, Buyers shall make a cash payment to Sellers in an amount equal to $1.00 for every $1.00 that the Cash of the Companies on the Closing Date exceeds $2,500,000, together with simple interest thereon at the Prime Rate as of the opening of business on the Closing Date computed from the Closing Date until the date of payment;

(ii)      In the event that Adjusted Net Worth is equal to or greater than Target Net Worth, Buyers shall make a cash payment to Sellers in an amount equal to $0.50 for every $1.00 that Adjusted Net Worth is greater than Target Net Worth, together with simple interest thereon at the Prime Rate as of the opening of business on the Closing Date computed from the Closing Date until the date of payment; provided, that for purposes of this paragraph, the maximum Adjusted Net Worth to be taken into account shall be $42,000,000; and

(iii)      In the event that Adjusted Net Worth is less than Target Net Worth, Sellers shall make a cash payment to Buyers, within 15 days after the final determination of Adjusted Net Worth, in an amount equal to such deficiency, together with simple interest thereon at the Prime Rate as of the opening of business on the Closing Date computed from the Closing Date until the date of payment.

          (e)      For the purposes of this Section 1.4, “Target Net Worth” shall be defined as an amount equal to $32,000,000 plus $2.00 for every $1.00 that the Cash of the Companies on the Closing Date is less than $2,500,000, but in no event shall “Target Net Worth” be in excess of $37,000,000.

     1.5 Performance Payments .

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          (a)      The Sellers shall be entitled to receive Performance Payments in an amount up to a maximum of $17,000,000, in the aggregate, contingent upon attainment of certain performance targets as follows:

(i)      if EBIT for the fiscal year ending March 31, 2006 (the “First Pay-Out Period”), is equal to or greater than:

(1)      $15,000,000, the Sellers shall be entitled to receive a Performance Payment of $400,000, payable to the order of Sellers as provided in Section 1.1(c)(i) of the Disclosure Letter; and

(2)      $25,000,000, the Sellers shall be entitled to receive an additional Performance Payment of $5,000,000, payable to the order of Sellers as provided in Section 1.1(c)(i) of the Disclosure Letter.

(ii)      if EBIT for the fiscal year ending March 31, 2007 (the “Second Pay-Out Period”), is equal to or greater than:

(1)      $15,000,000, the Sellers shall be entitled to receive a Performance Payment of $400,000, payable to the order of Sellers as provided in Section 1.1(c)(i) of the Disclosure Letter; and

(2)      $25,000,000, the Sellers shall be entitled to receive an additional Performance Payment of $5,000,000, payable to the order of Sellers as provided in Section 1.1(c)(i) of the Disclosure Letter.

(iii)      if EBIT for the fiscal year ending March 31, 2008 (the “Third Pay-Out Period”) is equal to or greater than:

(1)      $15,000,000, the Sellers shall be entitled to receive a Performance Payment of $400,000, payable to the order of Sellers as provided in Section 1.1(c)(i) of the Disclosure Letter; and

(2)      $25,000,000, the Sellers shall be entitled to receive a Performance Payment of $5,000,000, payable to the order of Sellers as provided in Section 1.1(c)(i) of the Disclosure Letter.

(iv)      if EBIT for the fiscal year ending March 31, 2009 (the “Fourth Pay-Out Period”) is equal to or greater than:

(1)      $15,000,000, the Sellers shall be entitled to receive a Performance Payment of $400,000, payable to the order of Sellers as provided in Section 1.1(c)(i) of the Disclosure Letter.

(v)      if EBIT for the fiscal year ending March 31, 2010 (the “Fifth Pay-Out Period”) is equal to or greater than:

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(1)      $15,000,000, the Sellers shall be entitled to receive a Performance Payment of $400,000, payable to the order of Sellers as provided in Section 1.1(c)(i) of the Disclosure Letter.

          (b)      Notwithstanding the foregoing, in the event that Sellers fail to earn the Performance Payments described in subsections 1.5(a)(i)(2) or 1.5(a)(ii)(2) above, Sellers may carry back any EBIT amounts in excess of the performance targets described in subsections 1.5(a)(ii)2 and 1.5(a)(iii)2 above and allocate such excess amounts to the EBIT at the close of the First Pay-Out Period and/or Second Pay-Out Period in order to earn the Performance Payments described in subsections 1.5(a)(i)2 or 1.5(a)(ii)2 that were not earned by Sellers at the close of the First Pay-Out Period and/or Second Pay-Out Period.

          (c)      Notwithstanding anything to the contrary contained in Section 1.5(a), the Performance Payments described in subsections 1.5(a)(i)(1), 1.5(a)(ii)(1), 1.5(a)(iii)(1), 1.5(a)(iv)(1) and 1.5(a)(v)(1) above shall only be payable for those years in which Gen Fukunaga has acted as President of Productions Company.

          (d)      The following items shall be disregarded in the calculation of EBIT for purposes of determining Performance Payments for any Pay-Out Period: (i) all Transaction Expenses incurred by the Companies; (ii) acquisitions of more than 50% of the equity interests or all or substantially all of the assets of an entity by either Company following the Closing Date and any and all costs and expenses associated therewith; and (iii) borrowings of either Company following the Closing Date outside the ordinary course of business and any and all principal amortization, costs and expenses associated therewith.

          (e)      As promptly as practicable, but in any event within 30 days after receipt by Buyers of audited financial statements for the Pay-Out Period in question (but not later than 120 days after the end of such Pay-Out Period), Buyers shall prepare and deliver to the Seller Representative a statement setting forth in reasonable detail Buyers calculation of EBIT for such Pay-Out Period (a “Calculation Statement”). Buyers will give the Seller Representative (or its representatives) reasonable access to any computations and workpapers used in connection with the preparation of the Calculation Statement. Buyers’ calculation of EBIT shall be prepared in accordance with GAAP, subject to Section 1.5(d). If Buyers employ a firm of independent accountants in connection with the preparation of EBIT, Buyers shall cause such independent accountants to give reasonable access to the Seller Representative (or its representatives) to any computations and workpapers used in the preparation of EBIT subject, in the case of accountants’ workpapers, to execution of a customary access agreement by the Seller Representative (or its representatives) if required by such independent accountants. On not less than 5 days prior written notice, Buyers will also give the Seller Representative (and its representatives) access, during the normal business hours of Buyers and the Companies, to all personnel, books and records of the Companies as reasonably requested by the Seller Representative to assist it, if applicable, in the preparation of a Performance Payment Dispute Notice (as defined below). The Seller Representative and its representatives shall be permitted to ask questions of and receive answers from Buyers and the Companies and request such other books and records of the Companies as is reasonably requested by them to assist them in the review of the Calculation Statement. The Seller Representative will deliver to Buyers a notice (“Performance Payment Dispute Notice”) within 30 days after receiving a Calculation Statement if the Seller Representative believes that Buyers’

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calculation of EBIT as set forth in the Calculation Statement (i) has not been prepared in accordance with GAAP, subject to Section 1.5(d) or (ii) is not mathematically correct, which notice shall set forth in reasonable detail all disputed items, the basis for such disagreement, the dollar amounts involved (the “Performance Payment Disputed Items”) and the Seller Representative’s calculation of EBIT. The Seller Representative will give Buyers (or their representatives) reasonable access to any computations and workpapers used by the Seller Representative or its representative in connection with the review of the Calculation Statement or the preparation of the Performance Payment Dispute Notice, subject, in the case of accountants’ workpapers, to execution of a customary access agreement by Buyers (or their representatives) if required by such accountants. Buyers and their representatives shall be permitted to ask questions of and receive answers from any Person including, without limitation, the Seller Representative and request such other books and records as are reasonably requested by Buyers to assist it in the review of a Performance Payment Dispute Notice. The Seller Representative shall be deemed to have agreed with all other items other than the Performance Payment Disputed Items contained in the Calculation Statement, and if no Performance Payment Dispute Notice is received by Buyers within such 30-day period, Buyers’ calculation of EBIT as set forth in the Calculation Statement shall be final and binding upon the parties hereto.

          (f)      Upon receipt by Buyers of a Performance Payment Dispute Notice, if any, the Seller Representative and Buyers shall negotiate in good faith to resolve any disagreement with respect to the Performance Payment Disputed Items set forth in the Performance Payment Dispute Notice. To the extent Buyers and the Seller Representative are unable to agree within 30 days after receipt by Buyers of a Performance Payment Dispute Notice, Buyers and the Seller Representative shall jointly engage the Accounting Firm and promptly submit any unresolved Performance Payment Disputed Items (and their respective proposed calculations) to the Accounting Firm for a binding resolution (it being understood the Accounting Firm shall be functioning as an expert and not an arbitrator). The reasonable fees and expenses of the Accounting Firm shall be borne by the party whose calculation of the aggregate dollar amount of all Performance Payment Disputed Items is the furthest from the aggregate dollar amount of such Performance Payment Disputed Items as finally determined by the Accounting Firm.

          (g)      The Seller Representative and Buyers shall instruct the Accounting Firm to render its decision resolving the Performance Payment Disputed Items within 30 days after its engagement. Buyers, Sellers and the Seller Representative agree that the determination of the Accounting Firm shall be final and binding upon the parties absent manifest error and that judgment may be entered upon the determination of the Accounting Firm in any court having jurisdiction over the party or parties against which such determination is to be enforced. The Accounting Firm shall determine, based solely on presentations by Buyers and the Seller Representative and their respective representatives, and not by independent review, only those Performance Payment Disputed Items and shall prepare a written report as to the dispute and the resulting calculation of EBIT which shall be conclusive and binding upon the parties absent manifest error. In resolving any Performance Payment Disputed Item, the Accounting Firm: (x) shall be bound by the principles set forth in this Section 1.5 and the definition of EBIT, (y) shall limit its review to matters specifically set forth in the Calculation Statement and the Performance Payment Dispute Notice, and (z) shall further limit its review solely to whether the Calculation Statement is mathematically accurate and has been prepared in accordance with GAAP and Section 1.5(d). The determination of the Accounting Firm for any Performance Payment Disputed Item cannot, however, be in excess of, nor

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less than, the greatest or lowest value, respectively, claimed for that particular item in the proposed calculations submitted to the Accounting Firm.

ARTICLE 2

REPRESENTATIONS AND WARRANTIES REGARDING THE SELLERS

     The Sellers each, jointly and severally, represents and warrants, to Buyers and Navarre as follows:

     2.1 Organization and Good Standing of Certain Sellers . Each Seller (other than any Individual) is a partnership or a limited liability company duly organized, validly existing and in good standing under the laws of the State of Texas. Each Seller has previously made available to Buyers and/or Navarre complete and correct copies of the partnership agreements or limited liability company agreements and certificates of limited partnership or articles of organization, as the case may be, of each Seller, as presently in effect.

     2.2 Authority . Each Seller (other than any Individual) has the requisite partnership or limited liability company power and authority to execute and deliver this Agreement and the Ancillary Agreements to which it is or at the Closing will be a party, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by each Seller (other than any Individual) of this Agreement and the Ancillary Agreements to which it is or at the Closing will be a party, the performance by each Seller of its obligations hereunder and thereunder and the consummation by each Seller of the transactions contemplated hereby and thereby have been duly and validly authorized by all requisite partnership or limited liability company action (including, if necessary, partner or member approval) on the part of each Seller. This Agreement has been duly executed and delivered by each Seller (including any Individual) and, at the Closing, the Ancillary Agreements to which each Seller is a party will be duly executed and delivered by each Seller. This Agreement constitutes and, when executed and delivered at the Closing, the Ancillary Agreements to which each Seller (including any Individual) is a party will constitute, the valid and binding obligations of each Seller, enforceable against each Seller in accordance with their respective terms except that such enforcement may be limited by any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other Laws (whether statutory, regulatory or decisional), now or hereafter in effect, relating to or affecting the rights of creditors generally or by equitable principles (regardless of whether considered in a proceeding at law or in equity).

     2.3 Ownership of Partnership Interests .

          (a)      FUN Seller is the sole record and beneficial owner of the FUN Seller General Partnership Interests, free and clear of all Liens.

          (b)      GP Seller is the sole record and beneficial owner of the GP Seller Limited Partnership Interests, free and clear of all Liens.

          (c)      Management Seller is the sole record and beneficial owner of the Management Seller General Partnership Interests, free and clear of all Liens.

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          (d)      Each Individual is the sole record and beneficial owner of that number of Individual Limited Partnership Interests as is set forth opposite such Individual’s name in Section 2.3(d) of the Disclosure Letter, free and clear of all Liens.

     2.4 No Conflict . Except as set forth in Section 2.4 of the Disclosure Letter, the execution and delivery by each Seller of this Agreement and the Ancillary Agreements to which it is or at the Closing will be a party do not, and the performance by each Seller of this Agreement and the Ancillary Agreements to which it is or at the Closing will be a party and the transactions contemplated hereby and thereby will not, (i) violate any provision of the certificate of incorporation or by-laws or certificate of formation or limited liability company agreement (or any similar organizational instrument) of each Seller (other than any Seller who is an Individual), (ii) violate any Law, Permit or Order applicable to each Seller, or any of its assets, properties or businesses (including the Partnership Interests owned by each Seller), except for such violations, if any, that when taken together with all other such violations would not be reasonably likely to have, in the aggregate, a Material Adverse Effect on the ability of each Seller to perform its obligations under, and to consummate the transactions contemplated by, this Agreement and the Ancillary Agreements to which it will be a party at the Closing, (iii) result in a breach of, constitute a default (or an event which, with or without the giving of notice or lapse of time or both, would become a default) under, require any consent or notice under, or give to others any right of termination, amendment, acceleration, suspension, revocation or cancellation of, any oral or written contract, agreement, commitment or understanding, to which each Seller is a party or is bound, except for such breaches, defaults or failures to obtain consent or give notice, if any, that when taken together with all other such breaches, defaults or failures would not be reasonably likely to have, in the aggregate, a Material Adverse Effect on the ability of each Seller to perform its obligations under, and to consummate the transactions contemplated by, this Agreement and the Ancillary Agreements to which it will be a party at the Closing, or (iv) result in the creation of any Lien on the Partnership Interests.

     2.5 Consents and Approvals . The execution and delivery by each Seller of this Agreement and the Ancillary Agreements to which it is or at the Closing will be a party, do not, and the performance by each Seller of this Agreement and the Ancillary Agreements to which it is or at the Closing will be a party and the consummation by each Seller of the transactions contemplated hereby and thereby, do not and will not, require any Governmental Authorization or order of, action by, filing with or notification of, any Governmental Authority, except (x) for the requirements of the Antitrust Laws or (y) for the Governmental Authorizations set forth in Section 2.5 of the Disclosure Letter.

     2.6 Brokers . Except for A.G. Edward & Sons, Inc., whose fees will be paid for by the Sellers prior to or at the Closing, neither Seller nor any of its directors, officers, employees or Affiliates has employed any broker, investment bank or finder or has incurred or will incur any broker’s, investment banking, finder’s or similar fees, commissions or expenses, in each case in connection with the transactions contemplated by this Agreement.

     2.7 Experience; Acquisition of Closing Shares for Investment .

          (a)      Each Seller is an “accredited investor” within the meaning of Regulation D promulgated under the Securities Act and has been afforded the opportunity to ask questions and

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receive answers regarding Buyers and/or Navarre and has reviewed the data and information it requested from the Buyers and/or Navarre in connection with this Agreement.

          (b)      Each Seller is acquiring its Closing Shares for investment and not with a view toward, or for sale in connection with, any distribution thereof. Each Seller agrees that its Closing Shares may not be sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of without registration under the Securities Act except (i) pursuant to an exemption from such registration available under the Securities Act and (ii) in accordance with any applicable provisions of state securities laws.

     2.8 Litigation . Except as set forth in Section 2.8 of the Disclosure Letter, there is no suit, action, arbitration, demand, claim, dispute, investigation or proceeding pending or, to the Knowledge of the Sellers, threatened, against the Sellers; nor is there any judgment, decree, injunction, rule or order of any Governmental Authority or arbitrator outstanding against the Sellers. No injunction, writ, temporary restraining order, decree or order of any nature has been issued by any court or other Governmental Authority against the Sellers purporting to enjoin or restrain the execution, delivery or performance of this Agreement or any of the Ancillary Agreements or any documents contemplated thereby.

     2.9 Disclosure . To the Knowledge of Sellers, no representation or warranty by a Seller in this Agreement and no statement contained in this Agreement or in any document delivered or to be delivered pursuant hereto contains or will contain an untrue statement of material fact or omits or will omit to state any material fact necessary to make the statements herein or therein contained, in light of the circumstances under which made, not misleading.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANIES

     The Sellers each, joint and severally, represents and warrants to Buyers and Navarre as follows:

     3.1 Organization and Good Standing of the Companies; Authority of the Companies .

          (a)      Each Company is duly registered and validly existing as a limited partnership in good standing under the laws of the State of Texas. Each Company has the requisite partnership power and authority to own, operate and lease the properties and assets now owned, operated or leased by it and to carry on its business as now being conducted and as contemplated to be conducted. Each Company is duly qualified to do business and is in good standing under the Laws of each jurisdiction where such qualification is required, except for such failures to be qualified and in good standing, if any, that when taken together with all other such failures would not be reasonably likely to have, in the aggregate, a Material Adverse Effect. Sellers have previously made available to Buyers and/or Navarre complete and correct copies of the partnership agreements and certificates of limited partnership of each Company, as presently in effect.

          (b)      Each Company has the requisite partnership power and authority to execute and deliver this Agreement and the Ancillary Agreements to which it is or at the Closing will be a party, to perform its obligations hereunder and thereunder and to consummate the transactions

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contemplated hereby and thereby. The execution and delivery by each Company of this Agreement and the Ancillary Agreements to which it is or at the Closing will be a party, the performance by each Company of its obligations hereunder and thereunder and the consummation by each Company of the transactions contemplated hereby and thereby have been duly and validly authorized by all requisite partnership action (including, if necessary, partner approval) on the part of each Company. This Agreement has been duly executed and delivered by each Company and, at the Closing, the Ancillary Agreements to which each Company is a party will be duly executed and delivered by such Company. This Agreement constitutes and, when executed and delivered at the Closing, the Ancillary Agreements to which each Company is a party will constitute, the valid and binding obligations of each such Company, respectively, enforceable against such Company, respectively, in accordance with their respective terms except that such enforcement may be limited by any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other Laws (whether statutory, regulatory or decisional), now or hereafter in effect, relating to or affecting the rights of creditors generally or by equitable principles (regardless of whether considered in a proceeding at law or in equity).

     3.2 Subsidiaries . Set forth in Section 3.2 of the Disclosure Letter is a true and complete list of all of the Subsidiaries of each Company stating, with respect to each such Subsidiary, its jurisdiction of incorporation or organization, type of entity and ownership percentage. Except for the Subsidiaries listed in Section 3.2 of the Disclosure Letter, neither Company owns, directly or indirectly, beneficially or of record, or has any operational control over, any capital stock or other equity securities of, or any investment or other interest in any corporation, partnership, limited liability company, joint venture or other entity. Neither Company has any obligation to acquire any capital stock or other equity securities of, or any obligation to invest in or loan funds to, any corporation, partnership, limited liability company or other Person.

     3.3 Capitalization of the Companies . The Partnership Interests constitute all of the issued and outstanding equity interests in the Companies. Other than as contemplated hereby, there is no security, option, warrant, right, call, subscription, agreement, commitment or understanding of any nature whatsoever, fixed or contingent, that directly or indirectly (i) calls for the issuance, sale, pledge, transfer or other disposition of any partnership interest or other equity interest of either Company or any securities convertible into, or other rights to acquire, any partnership interest or other equity interest of either Company, (ii) relates to the dividend or voting rights with respect to or control of such partnership interest or other equity interest, (iii) obligates any Seller or either Company to grant, offer or enter into any of the foregoing or (iv) except as disclosed in Section 3.3 of the Disclosure Letter, provides for “phantom” equity, profit participation or similar rights with respect to either Company. All Partnership Interests are validly issued and freely transferable.

     3.4 No Conflict; Consents and Approvals .

          (a)      The execution, delivery and performance by each Company of this Agreement and the consummation by such Company of the transactions contemplated hereby do not (i) violate any provision of such Company’s partnership agreement or certificate of formation, (ii) violate any Law, Permit or Order applicable to either Company, or any of their respective assets, properties or businesses which violation would reasonably be expected to have a Material Adverse Effect, on the Partnership Interests, (iii) result in a breach of, constitute a default (or an event which, with or without the giving of notice or lapse of time or both, would become a default) under, require any

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consent or notice under (except as disclosed in Section 3.4(a) of the Disclosure Letter), or give to others any right of termination, amendment, acceleration, suspension, revocation or cancellation of, any Material Contract or any material Permit held or used by either Company or (iv) result in the creation of any Lien on any of the assets of either Company or the Partnership Interests.

          (b)      The execution and delivery by each Company of this Agreement and the Ancillary Agreements to which it is or at the Closing will be a party do not, and the performance by each Company of this Agreement and the Ancillary Agreements to which it is or at the Closing will be a party and the consummation by each Company of the transactions contemplated hereby and thereby will not, require any Governmental Authorization or order of, action by, filing with or notification of, any Governmental Authority, except (x) for the requirements of the Antitrust Laws and (y) for the Governmental Authorizations set forth in Section 3.4(b) of the Disclosure Letter.

     3.5 Financial Statements; Undisclosed Liabilities; Information Provided .

          (a)      Each Company has delivered or made available to Buyers and/or Navarre true and complete copies of the audited financial statements of such Company as of December 31, 2001, December 31, 2002 and December 31, 2003 (collectively, the “Audited Financial Statements”), the unaudited statement of operations for each of the Companies for the 12 month period ending September 30, 2004 and the 6 month period ending June 30, 2004 (collectively, the “2004 Statements of Operations”). The Audited Financial Statements, the 2004 Statements of Operations and any audited or unaudited quarterly or annual financial statements to be made available to Buyers and/or Navarre by the Companies following the date of this Agreement shall collectively be referred to herein as the “Financial Statements”). The Financial Statements are or will be, as the case may be, true and correct and fairly and accurately represent the financial matters stated therein. All financial statements included as part of the Financial Statements fairly present or will fairly present, as the case may be, in all material respects, the financial condition of each Company, as the case may be, as of the dates specified therein and the results of each Company’s operations for the periods specified therein.

          (b)      Neither Company has any Liabilities required to be disclosed under GAAP except (i) as set forth on Section 3.5(b) of the Disclosure Letter, (ii) Liabilities expressly disclosed or reserved against in the Financial Statements and (ii) Liabilities which arose after September 30, 2004, in the ordinary course of business consistent with past practice. Neither Company has any Liabilities under any sale-leaseback arrangement, synthetic lease or other off-balance sheet financing devices. None of the employees of the Companies are now or will by the passage of time hereinafter become entitled to receive any vacation time, vacation pay or severance pay attributable to services rendered prior to such date except as disclosed on the Financial Statements.

          (c)      Except as set forth in Section 3.5(c) of the Disclosure Letter or included in the Financial Statements, none of the Company Subsidiaries have any Liabilities.

          (d)      The information supplied, or to be supplied, by or on behalf of the Companies for inclusion in the Prospectus, such as the information incorporated in the Description of FUNimation business in the summary section, Management’s Discussion and Analysis of Financial Condition and Results of Operations of FUNimation, FUNimation information included within the Business Section, FUNimation Production, Ltd. and The FUNimation Store, Ltd. Financial

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Statements, shall not on the date that the Prospectus is first mailed to potential investors contain any statement which, at such time and in light of the circumstances under which it shall be made, is false or misleading with respect to any material fact, or omit to state any material fact, necessary in order to make the statements made in the Prospectus not false or misleading.

     3.6 Business Since September 30, 2004 . Since September 30, 2004, (i) each Company has operated its business in the ordinary course consistent with past practice, and (ii) except in the ordinary course of business there has not been any:

          (a)      change in the condition (financial or otherwise), properties, assets, liabilities, business operations or results of operations that could reasonably be expected to constitute a Material Adverse Effect;

          (b)      redemption, repurchase or other acquisition of the Partnership Interests other than for cash or any declaration, setting aside or payment of any non-cash dividend or other non-cash distribution with respect to the Partnership Interests;

          (c)      increase in or modification of the compensation or benefits payable or to become payable by either Company to any of its directors, officers, employees or consultants other than as would be permitted under Section 5.7(g);

          (d)      modification of any term of benefits payable under, any Employee Benefit Plan;

          (e)      acquisition or sale of a material amount of property or assets of either Company, or by either Company of any property or assets of the Sellers;

          (f)      (i) incurrence, assumption or guarantee by either Company of any debt for borrowed money; or (ii) issuance by either Company of any securities;

          (g)      creation or assumption by either Company of any mortgage, pledge, material security interest or lien or other encumbrance on any asset;

          (h)      making of any loan, advance or capital contribution to or investment in any Person;

          (i)      entering into, amendment of, relinquishment, termination or non-renewal by either Company of any contract, lease transaction, commitment or other right or obligation;

          (j)      transfer or grant of a right under either Company’s Intellectual Property or any disclosure of any material proprietary information with respect to either Company’s business to any Person which has had or may have a Material Adverse Effect on such Company;

          (k)      labor dispute or charge of unfair or discriminatory employment or labor practice, any activity or proceeding by a labor union or representative thereof to organize any employees of either Company or any campaign being conducted to solicit authorization from employees to be represented by such labor union;

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          (l)      agreement or arrangement made by either Company to take any action which, if taken prior to the date hereof, would have made any representation or warranty set forth in this Agreement untrue or incorrect as of the date when made unless otherwise disclosed;

          (m)      change in accounting methods or practices, except as disclosed in the Financial Statements;

          (n)      waiver or release of any right or claim;

          (o)      prepayment by either Company of any material liabilities or obligations;

          (p)      acceleration, termination, suspension, abrogation, renewal, modification or cancellation of any Permit;

          (q)      termination, renewal, modification or cancellation of any Material Contract other than in the ordinary course of business consistent with past practice, or any acceleration, suspension, or abrogation of any Material Contract;

          (r)      acquisition of all or substantially all of the assets or properties or of the securities or business of any other Person by either Company or any merger, consolidation or amalgamation involving either Company;

          (s)      making, changing or revoking of any election concerning Taxes or Tax Returns, change any annual accounting period, change any accounting method, file any amended Tax Returns, enter into any closing agreement with respect to Taxes, settle any Tax claim or assessment or surrender any right to claim a refund of Taxes or obtain or apply for any Tax ruling; or

          (t)      agreement by either Company to do any of the foregoing.

     3.7 Compliance with Law . The Companies and the Company Subsidiaries are in compliance in all material respects with all applicable Laws, Permits or Orders. To the Sellers’ Knowledge, there is currently no investigation or review by a Governmental Authority with respect to the Companies or any of the Company Subsidiaries pending or threatened, nor has any Governmental Authority notified the Companies, the Company Subsidiaries or any Seller of its intention to conduct the same.

     3.8 Litigation . Except as disclosed in Section 3.8 of the Disclosure Letter, there is no suit, action, arbitration, demand, claim, dispute, investigation or proceeding pending or, to the Knowledge of the Sellers, threatened, against either of the Companies or any of the Company Subsidiaries; nor is there any judgment, decree, injunction, rule or order of any Governmental Authority or arbitrator outstanding against either of the Companies or any of the Company Subsidiaries. No injunction, writ, temporary restraining order, decree or order of any nature has been issued by any court or other Governmental Authority against either of the Companies or any of the Company Subsidiaries purporting to enjoin or restrain the execution, delivery or performance of this Agreement or any of the Ancillary Agreements or any documents contemplated thereby.

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     3.9 Contracts and Agreements; Defaults .

          (a)      Section 3.9(a) of the Disclosure Letter sets forth a list of any of the following written or (except as otherwise specified below) oral contracts, agreements and other instruments (the “Material Contracts”) entered into by either Company or any of the Company Subsidiaries or by which either Company or any of the Company Subsidiaries are bound, true and correct copies of each of which (or written summaries, in the case of oral contracts) have been delivered to Buyers, Navarre, and/or their counsel:

(i)      collective bargaining or similar labor agreements;

(ii)      joint venture contract or agreement which has involved or is reasonably expected to involve a sharing of profits or losses in excess of $25,000 per annum with any other party;

(iii)      (x) written contract relating to the employment or engagement of any Person (whether as an employee, consultant or independent contractor) or any bonus, deferred compensation, pension, profit sharing, stock option, employee stock purchase, retirement or other similar Employee Benefit Plan, other than written contracts relating to the engagement of any person as an actor, writer or translator copies of which have been previously provided to Navarre and/or Buyers, and (y) oral contract relating to the employment or engagement of any Person (whether as an employee, consultant or independent contractor) or any bonus, deferred compensation, pension, profit sharing, stock option, employee stock purchase, retirement or other similar Employee Benefit Plan which is not cancelable without penalty within 30 days;

(iv)      indenture, mortgage, promissory note, loan agreement, guarantee or other agreement or commitment for the borrowing of money, for a line of credit or for a leasing transaction or imposing a Lien on any asset;

(v)      lease, conditional sales or other agreement pursuant to which either Company or any of the Company Subsidiaries leases, has purchased or sold or holds possession of, but not title to, any real or personal property, whether as lessor, lessee, purchaser, seller, bailee, pledgee or the like;

(vi)      management, service, consulting or any other similar arrangement, or any non-competition agreement;

(vii)      power of attorney granted by or to either Company or any Company Subsidiary;

(viii)      contract not entered into in the ordinary course of business consistent with past practice which is not cancelable without penalty within 30 days;

(ix)      sales representative agreements to which either Company or any Company Subsidiary is a party, regardless of amounts involved;

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(x)      any Contract relating to an acquisition (closed or otherwise) by either Company or any Company Subsidiary of a business or the capital stock of any Person;

(xi)      Contracts containing covenants of either Company or any Company Subsidiary not to compete in any line of business or with any Person in any geographical area or covenants of any other Person not to compete with either Company or any Company Subsidiary in any line of business or in any geographical area;

(xii)      any Contract that provides for any party to have first refusal, first offer, “tag-along” or “drag-along” rights or obligations with respect to any partnership interest, capital stock or other security of either Company or any Company Subsidiary;

(xiii)      any Contract to which either Company or any Company Subsidiary, on the one hand, and any Related Party of either Company or any Company Subsidiary, on the other hand, are parties;

(xiv)      any Contract relating to rights, licenses, permissions or privileges with respect to the use, distribution, performance or other exploitation of Intellectual Property to which either Company or any Company Subsidiary is a party (a “License Agreement”). Section 3.9(a) of the Disclosure Letter sets forth a true and correct list of all License Agreements; or

(xv)      any agreement which by its terms involves the payment after the Closing Date by or to either Company or any Company Subsidiary of an amount of $100,000 or more which has not been included within clauses (i) through (xiv) above and any agreement which otherwise involves a commitment by either Company or any Company Subsidiary which is material to the business of either Company or any Company Subsidiary.

          (b)      Except as disclosed separately to Buyers and Navarre in correspondence dated January 7, 2005, or as set forth in Section 3.9(b) of the Disclosure Letter or for such breaches, defaults, events or failures to be in full force and effect or validly binding and enforceable as have not had and are not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect, (i) neither Company nor, to Sellers’ Knowledge, any other party to any Material Contract is in breach of or default under any such Material Contract, (ii) no event has occurred which (after notice or lapse of time or both) would become a breach or default by either Company under any Material Contract, (iii) to Sellers’ Knowledge, each Material Contract is in full force and effect and is valid, binding and enforceable against a Company and each other party thereto, in accordance with its terms, except that such enforcement may be limited by any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other Laws (whether statutory, regulatory or decisional), now or hereafter in effect, relating to or affecting the rights of creditors generally or by equitable principles (regardless of whether considered in a proceeding at law or in equity), and (iv) neither Company has received or given any written notification asserting a breach or default under any Contract. Sellers have heretofore furnished Buyers with the consent of Toei Animation Co., Ltd. to the transactions contemplated hereby.

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     3.10 Employee Benefit Plans .

          (a)      Section 3.10(a) of the Disclosure Letter contains a complete list of all Employee Benefit Plans. The Sellers have delivered to Buyers, Navarre and/or their counsel prior to the date hereof true and complete copies of (i) any employment agreements and any procedures and policies relating to the employment of employees of either Company or any of the Company Subsidiaries and the use of temporary employees and independent contractors by either Company or any Company Subsidiary (including summaries of any procedures and policies that are unwritten), (ii) all Employee Benefit Plans and related trust agreements, insurance and other contracts, summary plan descriptions and summaries of material modifications and communications distributed to the participants of each Employee Benefit Plan, (iii) the reports which have been filed (or are in fully completed form for filing) for the last 3 years with the IRS and the Department of Labor with respect to each Employee Benefit Plan which is required to make such filing, (iv) the latest determination letter issued for each Employee Benefit Plan and related trust that are intended to satisfy the qualification requirements of Sections 401(a) and 501(a) of the Code, and (v) the latest IRS Form 5300 or 5307 (whichever is applicable) filed with the IRS for each Employee Benefit Plan and related trust that are intended to satisfy the qualification requirements of Sections 401(a) and 501(a) of the Code.

          (b)      Neither Company nor any Company Subsidiary maintains nor has ever maintained an Employee Benefit Plan subject to Title IV of ERISA. With respect to each Employee Benefit Plan, no party in interest or disqualified person (as defined in Section 3(14) of ERISA and Section 4975 of the Code, respectively) has at any time engaged in a transaction which could subject either Company, any Company Subsidiary, any Buyer or Navarre, directly or indirectly, to a material tax, penalty or liability for prohibited transactions imposed by ERISA or the Code. No fiduciary (as defined in Section 3(21) of ERISA) with respect to any Employee Benefit Plan has breached any of the responsibilities or obligations imposed upon fiduciaries under Title I of ERISA.

          (c)      Each Employee Benefit Plan is and has been operated in material compliance with its terms and all applicable laws including, without limitation, the Code and ERISA, and by its terms can be amended and/or terminated at any time. As of the Closing Date, each Company and all Company Subsidiaries shall have made all required contributions under each Employee Benefit Plan for all periods through and including the Closing Date or adequate accruals therefor shall have been provided for and reflected on the Financial Statements. Except as disclosed on Section 3.10(c) of the Disclosure Letter, neither Company nor any Company Subsidiary has made a commitment to allocate or make a profit sharing contribution under any Employee Benefit Plan with respect to any plan year commencing or ending in 2004 or 2005.

          (d)      Neither the Sellers nor either Company or any Company Subsidiary has received or is aware of any actions, claims (other than routine claims for benefits), lawsuits or arbitrations pending or, to the Knowledge of the Sellers, threatened with respect to any Employee Benefit Plan or against any fiduciary of any Employee Benefit Plan, and the Sellers do not have Knowledge of any facts that could give rise to any such actions, claims, lawsuits or arbitrations. There has not occurred any circumstances by reason of which either Company or any Company Subsidiary may be liable for an act, or a failure to act, by a fiduciary with respect to any Employee Benefit Plan.

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          (e)      No Employee Benefit Plan provides or provided for continuing benefits or coverage for any participant or any dependent or beneficiary of any participant after such participant’s retirement or other termination of employment (except as may be required by Part 6 of Subtitle B of Title I of ERISA and Section 4980B of the Code (collectively, “COBRA”)).

          (f)      Neither Company nor any Company Subsidiary has ever contributed to, or withdrawn in a partial or complete withdrawal from, any multiemployer plan (as defined in Section 3(37) of ERISA) or incurred contingent liability under Section 4204 of ERISA.

          (g)      Neither Company nor any Company Subsidiary or any Seller proposed nor agreed to any increase in benefits under any Employee Benefit Plan (or the creation of new benefits) or change in employee coverage which would increase the expense of maintaining any such Employee Benefit Plan.

          (h)      The consummation of the transactions contemplated by this Agreement will not result in (i) any payment (including, without limitation, severance, unemployment compensation, golden parachute or bonus payments) becoming due to any director, officer, employee or consultant of either Company or any Company Subsidiary, (ii) any increase in the amount of compensation or benefits payable in respect of any director, officer, employee or consultant of any Company or any Company Subsidiary, or (iii) accelerate the vesting or timing of payment of any benefits or compensation payable in respect of any director, officer, employee or consultant of either Company or any Company Subsidiary. No Employee Benefit Plan provides benefits or payments contingent upon, triggered by or increased as a result of, a change in the ownership or effective control of either Company or any Company Subsidiary.

     3.11 Employment-Related Matters .

          (a)      No employees of either Company are covered by a collective bargaining agreement or similar labor agreement and neither Company is currently negotiating such an agreement. There is no labor strike, organized work stoppage, lockout or other labor controversy presently pending or, to the Knowledge of the Sellers, threatened against either Company and neither Company has experienced any labor strike, lockout or organized work stoppage during the last three years. To the Knowledge of the Sellers, there is no union organization campaign relating to any employees of either Company. There is no unfair labor practice charge or complaint or any other similar action, suit, arbitration, proceeding or investigation pending against either Company or, to the Knowledge of the Sellers, threatened before the National Labor Relations Board or any other Governmental Authority. No charges with respect to or relating to the employees of either Company are pending or, to the Knowledge of the Sellers, threatened before the Equal Employment Opportunity Commission or any other Governmental Authority responsible for the prevention of unlawful employment practices.

          (b)      Section 3.11(b) of the Disclosure Letter lists all employees of the Companies and the Company Subsidiaries as of the date of this Agreement. Except as provided in Section 3.11(b) of the Disclosure Letter, (i) no person or entity has a written employment, severance or independent contractor agreement with either Company or any of the Company Subsidiaries, (ii) no person or entity has an oral employment, severance or independent contractor agreement with either Company or any of the Company Subsidiaries which is not cancelable without penalty within 30

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days, and (iii) no “leased employee” (within the meaning of Section 414(n) or (o) of the Code) performs any material services for either Company or any of the Company Subsidiaries. Sellers have heretofore furnished Buyers with a true, correct and complete list of the salaries of all employees of the Companies as of the date of this Agreement.

          (c)      The Companies and Company Subsidiaries are in compliance with all applicable laws, agreements and contracts relating to employment, employment practices, wages, hours, and terms and conditions of employment, including, but not limited to, employee compensation matters.

          (d)      The Companies and Company Subsidiaries have good relations with its employees and, to the Knowledge of the Sellers, there are no facts indicating that the consummation of the transactions contemplated hereby will have an adverse effect on such relations, and the Sellers have no Knowledge that any of key employees of the Companies or any Company Subsidiaries intends to leave their employ.

          (e)      Neither Company nor any Company Subsidiary is engaged in any unfair labor practice. There is (i) no grievance or arbitration proceeding arising out of or under collective bargaining agreements pending or threatened against either Company or any Company Subsidiary; (ii) no strike, labor dispute, slowdown or stoppage pending or threatened against either Company or any Company Subsidiary; (iii) neither Company nor any Company Subsidiary is a party to any collective bargaining agreement or contract; (iv) no union representation question existing with respect to the employees of either Company or any Company Subsidiary; and (v) no union organizing activities are taking place.

     3.12 Taxes .

          (a)      Each Company and Company Subsidiary has timely filed all Tax Returns which are required to be filed by them, which returns and reports are, to the Knowledge of the Sellers, true, correct and complete in all material respects, and has paid timely all Taxes whether or not shown as due on such Tax Returns that they are required to have paid.

          (b)      There are no actions, suits, proceedings, audits, investigations or claims now pending, nor, to the Knowledge of Sellers, proposed against either Company or any Company Subsidiary (including without limitation, any partnership level administrative or judicial proceedings under Section 6231 et seq. of the Code or any similar provision of state or local law) relating to any Taxes.

          (c)      Sellers have delivered, or made available, to Buyers and/or Navarre complete and correct copies of all Tax Returns, examination reports, and statements of deficiency that have been filed by, assessed against, or agreed to by any of Sellers, the Companies, or Company Subsidiaries with respect to the activities of any of the Companies or Company Subsidiaries. To the Knowledge of the Sellers, no claim has ever been made or proposed by an authority in a jurisdiction where either Company or any of Company Subsidiaries does not file Tax Returns that it is or may be required to file Tax Returns in that jurisdiction.

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          (d)      There are no Liens on any of the assets of either Company or any Company Subsidiary, except for any Liens for current Taxes that are not yet due and payable and Permitted Liens.

          (e)      Neither Company nor any Company Subsidiary (i) has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency which Taxes have not since been paid, (ii) except as set forth in Section 3.12(e) of the Disclosure Letter, has requested or been granted an extension of the time for filing any Tax Return to a date later than the Closing Date, which Tax Return has since not been filed and any Taxes relating to such Tax Return (whether or not shown on as due on such Tax Return) has not been paid, (iii) has granted to any Person any power of attorney that is currently in force with respect to any Tax matter relating to any of the Companies or the Company Subsidiaries, or (iv) has been a member of an affiliated group (as defined in Section 1504 of the Code) or filed or been included in a combined, consolidated or unitary income or similar Tax Return.

          (f)      Section 3.12(f) of the Disclosure Letter sets forth (i) all types of Taxes paid, and all types of Tax Returns filed, by or on behalf of each of the Companies and the Company Subsidiaries and (ii) all of the jurisdictions that impose such Taxes or the duty to file such Tax Returns.

          (g)      Neither Company nor any Company Subsidiary has any liability for Taxes of any other Person by reason of contract, agreement (including as a party to a Tax allocation, sharing, or similar agreement), assumption, transferee liability, operation of law, or otherwise.

          (h)      Neither Company nor any Company Subsidiary or any other person on behalf of any of them: (i) has executed or entered into a closing agreement pursuant to Section 7121 of the Code or any predecessor provision thereof or any similar provision of state, local, foreign, or other law; or (ii) has agreed to, or is required to make, any adjustments pursuant to Section 481 or Section 263A of the Code or any similar provision of state, local, foreign, or other law, nor has any Governmental Authority proposed any such adjustments or change in accounting method.

          (i)      Neither Company nor any Company Subsidiary has made any payment or payments, is obligated to make any payment or payments, or is a party to (or a participating employer in) any agreement or Employee Benefit Plan that could obligate one of the Companies or Company Subsidiaries to make any payment or payments that would constitute an “excess parachute payment,” as defined in Section 280G of the Code (or any similar provision of state, local, foreign, or other law) or that would otherwise not be fully deductible under Section 162 or Section 404 of the Code (or any similar provision of state, local, foreign, or other law).

          (j)      Neither Company nor any Company Subsidiary has been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.

          (k)      Neither Company nor any Company Subsidiary has distributed stock of another Person, or had its stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Section 355 or Section 361 of the Code.

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          (l)      All Taxes attributable to periods ending on or prior to the Closing Date, to the extent not required to have been paid previously, will be fully and adequately reserved for or accrued as of the Closing Date as a current liability on the respective balance sheets of the Companies, the Company Subsidiaries, or both.

          (m)      Since December 31, 2003, neither Company nor any Subsidiary has incurred any liability for any Tax other than in the ordinary course of its business. Neither Company nor any Company Subsidiary has entered into a transaction that currently is being accounted for under the installment method of Section 453 of the Code or a similar provision of state, local, foreign, or other law, and neither Company nor any Company Subsidiary has any taxable income that will be reportable in a taxable period beginning after the Closing Date that is attributable to a transaction or event that occurred prior to the Closing.

     3.13 Permits . Section 3.13 of the Disclosure Letter lists all material Permits that are presently required for the operation of each Company, as currently conducted and as proposed to be conducted, which Permits have been duly obtained by each Company and are in full force and effect, except where the failure to acquire such Permits or to keep such Permits in full force and effect, if any, that when taken together with all other such failures would not be reasonably likely to have Material Adverse Effect. Each Company is in compliance with all Permits that are presently required for the operation of each Company, except where failing to comply would not reasonably be expected to have a Material Adverse Effect. There is no action pending or, to the Knowledge of the Sellers, threatened against either Company to modify, suspend, terminate, limit, condition or declare invalid the rights of either Company under any of such Permits, and to the Knowledge of the Sellers, there are no facts or circumstances which could form the basis for any such action. No written notice has been received by either Company or by any Seller or Individual with respect to any failure by either Company to have any Permit.

     3.14 Real Property .

          (a)      Section 3.14(a) of the Disclosure Letter contains a complete and correct list of all Owned Real Property setting forth the address and owner of each parcel of Owned Real Property. Each Company has, or on the Closing Date will have, good, valid and marketable fee simple title to the Owned Real Property indicated on Section 3.14(a) of the Disclosure Letter as being owned by it, free and clear of all Liens other than Permitted Liens. There are no outstanding options or rights of first refusal to purchase the Owned Real Property, or any portion thereof or interest therein.

          (b)      Section 3.14(b) of the Disclosure Letter contains a complete and correct list of all Real Property Leases. The Companies have delivered to Buyers and/or Navarre correct and complete copies of the Real Property Leases. Each Real Property Lease is legal, valid, binding, enforceable, and in full force and effect, except as may be limited by bankruptcy, insolvency, reorganization or other applicable laws affecting creditors generally and by the availability of equitable remedies. Neither Company nor any other party is in default, violation or breach in any respect under any Real Property Lease, and no event has occurred and is continuing that constitutes or, with notice or the passage of time or both, would constitute a default, violation or breach in any respect under any Real Property Lease. Each Real Property Lease grants the tenant under the Real Property Lease the exclusive right to use and occupy the demised premises thereunder. Each Company has good and valid title to the leasehold estate under each Real Property Lease free and

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clear of all Liens other than Permitted Liens. Each Company enjoys peaceful and undisturbed possession under its respective Real Property Leases for the Leased Real Property.

          (c)      The Real Property constitutes all the fee and leasehold interests in real property held for use in connection with, necessary for the conduct of, or otherwise material to, the Business.

          (d)      There are no eminent domain or other similar proceedings pending or threatened affecting any portion of the Real Property. There is no writ, injunction, decree, order or judgment outstanding, nor any action, claim, suit or proceeding, pending or threatened, relating to the ownership, lease, use, occupancy or operation by any Person of any Real Property.

          (e)      The use and operation of the Real Property in the conduct of the Business does not violate in any material respect any instrument of record or agreement affecting the Real Property. There is no violation in any material respect of any covenant, condition, restriction, easement or order of any Governmental Authority having jurisdiction over such property of any other Person entitled to enforce the same affecting the Real Property or the use or occupancy thereof.

          (f)      The Real Property is in compliance in all material respects with all applicable building, zoning, subdivision and other land use and similar Laws affecting the Real Property (collectively, the “Real Property Laws”), and no Company or any Seller has received any notice of violation or claimed violation of any Real Property Law. To the Knowledge of Sellers, there is no pending or anticipated change in any Real Property Law that will have a material adverse effect upon the ownership, alternation, use, occupancy, or operation of the Real Property or any portion thereof.

          (g)      Each parcel included in the Real Property is assessed for real property tax purposes as a wholly independent tax lot, separate from adjoining land or improvements not constituting a part of that parcel.

     3.15 Title; Condition of Assets . Each Company has title to or valid leasehold interests in all of the assets that it purports to own or lease (or are reflected as owned on the Financial Statements) free and clear of any and all Liens other than Permitted Liens, and such assets and properties constitute all of the assets and properties which are owned, used or held, and necessary, for use in the conduct by such Company of its business as it is currently conducted.

     3.16 Intellectual Property .

          (a)      Each Company possesses by ownership or by license all Intellectual Property sufficient for it to conduct its business as currently conducted and as currently contemplated to be conducted in the future. Such ownership or license rights will not be lost, terminated, limited, restricted, modified or impaired in any respect by reason of the consummation of any transaction contemplated by this Agreement.

          (b)      Section 3.16(b) of the Disclosure Letter sets forth a true and complete list of (i) all Patent Rights owned by each Company, (ii) all Trademarks owned by each Company which have been registered in the United States Patent and Trademark Office (“PTO”), the states of the United States or the corresponding offices of other jurisdictions, (iii) all Copyrights owned by either

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Company which have been registered in the United States Copyright Office (“Copyright Office”) or the corresponding offices of other jurisdictions, (iv) all applications for the registrations of Copyrights that have been filed by either Company on its own behalf and are pending in the Copyright Office or the corresponding offices of other jurisdictions, and (v) all domain name registrations owned by either Company.

          (c)      Each Company is the sole owner, beneficially and of record, of each of the Copyright registrations and applications set forth in Section 3.16(b) of the Disclosure Letter and each of the Copyrights covered thereby. All renewals, payments of fees and other acts required to keep such registrations and Copyright applications set forth in Section 3.16(b) of the Disclosure Letter in force through the Closing Date, have been, or will be, taken by that date.

          (d)      Each Company is the sole owner, beneficially and of record, of each of the Trademark registrations and applications set forth in Section 3.16(b) of the Disclosure Letter and each of the Trademarks covered thereby. All renewals, payments of maintenance fees and other acts required to keep such registrations and Trademark applications set forth in Section 3.16(b) of the Disclosure Letter in force through the Closing Date, have been, or will be, taken by that date.

          (e)      Each Company is the sole owner, beneficially and of record, of each of the Patent Rights set forth in Section 3.16(b) of the Disclosure Letter. All renewals, payments of maintenance fees and other acts required to keep any registrations and applications relating to the Patent Rights set forth in Section 3.16(b) of the Disclosure Letter in force through the Closing Date, have been, or will be, taken by that date.

          (f)      Except with respect to licenses for commercially available off-the-shelf Software and pursuant to the License Agreements listed in Section 3.9(a) of the Disclosure Letter, neither Company is required, obligated, or under any liability whatsoever, to make any payments by way of royalties, fees or otherwise to any owner, licensor of, or other claimant to any Intellectual Property, or other third party, with respect to the use thereof or in connection with the conduct of the businesses of the Companies as currently conducted or as currently contemplated to be conducted in the future.

          (g)      All of the Intellectual Property owned, used, sold, licensed or exploited by each Company is free and clear of all Liens other than Permitted Liens, and is not the subject of any cancellation or reexamination proceeding, declaratory judgment action, or any other proceeding, pending or threatened, challenging their extent, validity or enforceability.

          (h)      Section 3.16(h) of the Disclosure Letter sets forth a complete and accurate list of (i) all Software that is owned exclusively by a Company and is material to the operation of its respective business, and (ii) all Software that is used by each Company in its respective business that is not exclusively owned by a Company, excluding Software available on reasonable terms through commercial distributors or in consumer retail stores for a license fee of no more than $1,000 per workstation.

          (i)      To the Knowledge of the Sellers, none of the employees of either Company is obligated under any Contract, license or commitment of any nature, or subject to any Order of any Governmental Authority, that would prevent such employee from promoting the interests of such

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Company, or that would materially conflict with the conduct of its respective business as currently conducted. To the Knowledge of the Sellers, none of the consultants who perform services for or on behalf of either Company is obligated under any contract, license or commitment of any nature, or subject to any Order that would prevent such consultant from performing its contractual obligations to such Company. To the Knowledge of the Sellers, it is not and will not be necessary for the continued conduct of the business of either Company as currently conducted to use any inventions conceived or reduced to practice by any of such Company’s respective employees or consultants prior to such employee’s employment or consultant’s engagement by such Company.

          (j)      All domain names used by each Company are currently registered and in good standing, and one of the Companies is shown on the records of the registrar thereof as the sole owner of such domain names and has physical or contractual control over the servers that respond thereto (and any contract with respect thereto has been disclosed on Section 3.9(a) of the Disclosure Letter). Neither Company has received any notice or communication stating that any Person is challenging its right to use any such domain name.

          (k)      Except as set forth on Section 3.16(k) of the Disclosure Letter, to the Knowledge of the Sellers, the business of the each of Companies does not infringe any Intellectual Property of any other party, and there is no pending or, to the Knowledge of the Sellers, threatened claim or litigation contesting the validity, ownership or right to use, sell, license or dispose of any Intellectual Property owned, used, sold, licensed or exploited by either Company nor, to the Knowledge of the Sellers, is there any basis for any such claim, nor has either Company or any Seller received any notice asserting that any such Intellectual Property or the proposed use, sale, license or disposition thereof conflicts or will conflict with the rights of any other party, nor, to the Knowledge of the Sellers, is there any basis for any such assertion.

     3.17 Insurance . Set forth on Section 3.17 of the Disclosure Letter is a list of all policies of liability, casualty, indemnity and other forms of insurance relating to the Companies and their assets (the “Insurance Policies”), whether currently in force or otherwise applicable to any current or future liabilities, setting forth the type and amount of coverage, policy number, policy periods and the status of premiums paid thereon. There exists no dispute between either Company and any underwriters of the Insurance Policies, and all premiums due and payable with respect thereto have been paid. To Knowledge of the Sellers, there are no pending or threatened terminations or premium increases for the current policy period of any of the Insurance Policies that are materially in excess of those implemented in the past. To the Knowledge of the Sellers, no condition or circumstances exist which could result in such termination or increase. The Companies, the activities of the Companies as currently conducted, and the tangible and personal property owned or leased by the Companies are in compliance in all material respects with all conditions of the Insurance Policies.

     3.18 Environmental Laws . To the Knowledge of the Sellers, except as set forth on Section 3.18 of the Disclosure Letter:

          (a)      The operations of each Company and Company Subsidiary are and have been in compliance with all applicable Environmental Laws, which compliance includes obtaining, maintaining in good standing and complying with all Environmental Permits, and no action or proceeding is pending or, threatened to revoke, modify or terminate any such Environmental Permit, and, no facts, circumstances or conditions currently exist that could adversely affect such continued

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compliance with Environmental Laws and Environmental Permits or require currently unbudgeted capital expenditures to achieve or maintain such continued compliance with Environmental Laws and Environmental Permits.

          (b)      Neither Company nor any Company Subsidiary is the subject of any outstanding written Order or Contract with any Governmental Authority or Person respecting (i) Environmental Laws, (ii) Remedial Action or (iii) any Release or threatened Release of a Hazardous Material.

          (c)      No claim has been made or is pending, threatened against either Company or any Company Subsidiary alleging either or both that either Company or any Company Subsidiary may be in violation of any Environmental Law or Environmental Permit, or may have any Liability under any Environmental Law.

          (d)      The transactions contemplated hereunder do not require the consent of or filings with any Governmental Authority with jurisdiction over either Company or any Company Subsidiary and environmental matters, and none of the Real Property is located in New Jersey, Indiana or Connecticut.

     3.19 Brokers . Except for A.G. Edwards, Inc., whose fees will be paid for by Sellers prior to or at the Closing, neither Company nor any of their directors, officers, employees or Affiliates or any Company Subsidiary has employed any broker, investment bank, finder or other Person or has incurred or will incur any broker’s, investment banking, finder’s or similar fees, commissions or expenses, in each case in connection with the transactions contemplated by this Agreement.

     3.20 Bank Accounts . Section 3.20 of the Disclosure Letter sets forth the name of each bank in which either Company or any Company Subsidiary has an account or safe deposit box or standby letter of credit, the identifying numbers or symbols thereof and the names of all persons authorized to draw thereon or to have access thereto.

     3.21 Affiliate Transactions . Section 3.21 of the Disclosure Letter sets forth a complete and accurate (i) list of all Contracts to which any Seller or any of its Affiliates (other than either Company), on the one hand, and either Company, on the other hand, is a party (each transaction relating thereto, an “Affiliate Transaction”).

     3.22 Outstanding Borrowings . Section 3.22 of the Disclosure Letter sets forth (a) the amount of all outstanding borrowings of each of the Companies and the Company Subsidiaries as of the date hereof, (b) any Liens that relate to such outstanding borrowings and that encumber the assets of either Company and any Company Subsidiaries and (c) the name of each lender thereof.

     3.23 Operation of the Business . Except as set forth on Section 3.23 of the Disclosure Letter, (a) each Company has conducted the Business only through such Company and the Company Subsidiaries and not through any other divisions or any direct or indirect Subsidiary or Affiliate and (b) no part of the Business is operated by a Company through any entity other than such Company and the Company Subsidiaries.

     3.24 Absence of Certain Business Practices . Except as set forth on Section 3.24 of the Disclosure Letter, none of the Companies, any officer, employee or agent of any Company, or any

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other Person acting on their behalf, has, directly, or indirectly, within the past 5 y