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Navarre To Acquire FUNimation

Navarre Corp., a leading publisher and distributor of a broad range of home entertainment and multimedia software products, is in the process of acquiring 100% of the general and limited partnership interests in FUNimation Productions Ltd. and The FUNimation Store Ltd., a transaction anticipated to close before May 15, 2005.

Fort Worth, Texas-based FUNimation is a leading home video distributor and licensor of Japanese animation and childrens entertainment in the U. S., providing titles that include DRAGONBALL Z, DRAGONBALL GT, YU YU HAKUSHO, CASE CLOSED and FULLMETAL ALCHEMIST. FUNimation also engages in third-party marketing, sales and distribution agreements with content providers, including 4Kids Ent. Inc., Nelvana, Alliance Atlantis and WGBH. FUNimation acquires master licenses to properties through long-term arrangements and leverages this proprietary content into various revenue streams including television broadcast, VHS and DVD home videos, toys, videogames and trading cards.

For the years ended December 31, 2001, 2002 and 2003, FUNimation had net sales of $49.8 million, $63.7 million and $81.6 million, respectively, and pre-tax net income of $20.0 million, $24.9 million and $30.5 million, respectively.

Navarre is paying approximately $100,500,000 in cash for the FUNimation partnership interests plus its issuing between 1,495,216 and 1,827,486 shares of unregistered Navarre common stock. The sellers could receive up to $17 million in cash to be paid over five years if FUNimation achieves certain agreed-upon financial targets during that time period.

The deal is subject to customary conditions including a requirement that Navarre shall have obtained financing sufficient to consummate the transaction.

Eric Paulson, chairman/ceo of Navarre said, The completion of the FUNimation acquisition will be a continuation of the transformation of our company as it reflects the ongoing execution of our strategy to utilize the strong underlying asset of our distribution business to support and assist in the growth of our higher margin publishing business. Paulson continued, FUNimation will bring new business skills of international licensing and brand development. With the signing of this agreement, we look forward to welcoming FUNimation to the portfolio of companies in our publishing segment.

We are extremely excited to join the Navarre family of companies, said Gen Fukunaga, president of FUNimation. Utilizing Navarres capital structure and distribution efficiencies will aid FUNimation in its ongoing business.

Cary Deacon, Navarres coo of publishing and licensing said, The FUNimation acquisition is consistent with our overall business strategy and will significantly increase our publishing offerings, establishes long-term relationships with new vendors and customers, and solidify our position as a premier provider of published and licensed home entertainment products. We believe in FUNimations business model and its brand management success in anime and childrens entertainment, licensing, and home video industries. As well, FUNimation brings a strong management team that will bolster our overall group.

Bear Stearns & Co. Inc. was financial advisor to Navarre concerning the transaction, and A.G. Edwards & Sons, Inc. acted as financial advisor to FUNimation.

Minneapolis- based Navarre Corp. (www.navarre.com) provides distribution and related services to leading developers and retailers of home entertainment content. The company operates under two business divisions; distribution services which includes PC software, videogames, CD audio and DVD video; publishing which includes Encore. Based in Los Angeles, Encore is a majority-owned subsidiary of Navarre and a leading interactive publisher in the PC CD-ROM market. The company publishes PC titles or compilations in major software categories from productivity to education. BCI Eclipse, a wholly owned subsidiary of Navarre, provides niche DVD video and audio products. Navarres client-specific delivery systems allow its product lines to be seamlessly distributed to more than18,000 retail locations throughout North America.

Since its founding in 1983, Navarre has built a base of distribution partnerships with a broad base of leading retailers across the mass merchant, music, computer and office specialty, wholesale club and military PX channels, as well as software content developers from all categories of the industry and independent record labels encompassing all musical genres.

Funimation (www.funimation.com) is a leading brand management company for anime content and one of the nation's largest independent home video entertainment companies. The company is best known for creating the blockbuster franchise DRAGONBALL Z in the U.S.

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