def14a

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

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Navarre Corporation

(Name of Registrant as Specified In Its Charter)

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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

September 16, 2009

Please take notice that the Annual Meeting of the Shareholders of Navarre Corporation (the “Company”) will be held at the time and place and for the purposes indicated below.


TIME		3:00 p.m., Central Daylight Time, on Wednesday, September 16, 2009
PLACE		Navarre Corporation Headquarters 7400 49th Avenue North New Hope, Minnesota 55428
ITEMS OF BUSINESS		1. To elect the three nominees named in the attached proxy statement as Class I directors, for a term of three years;
		2. To approve amendment two to the Amended and Restated 2004 Stock Plan to modify the provisions regarding grants of stock options to non-employee directors;
		3. To ratify the appointment of Grant Thornton LLP as the Company’s independent registered public accounting firm for the Company’s 2010 fiscal year; and
		4. To transact such other business as may properly come before the meeting or any adjournments thereof.
ADJOURNMENTS AND POSTPONEMENTS		Any action on the items of business described above may be considered at the Annual Meeting at the time and on the date specified above or at any time and date to which the Annual Meeting may be properly adjourned or postponed.
ANNUAL REPORT		Our 2009 Annual Report, which includes a copy of our Annual Report on Form 10-K, accompanies this Proxy Statement.
RECORD DATE		You can vote if you were a shareholder of record at the close of business on Monday, July 20, 2009.

Important Notice Regarding the Availability of Proxy Materials for the

Annual Meeting of Shareholders to be Held September 16, 2009

The following materials, also included with this Notice, are available for view on the Internet:


	•	Proxy Statement for the Annual Meeting of Shareholders

	•	Annual Report to Shareholders, including Form 10-K, for the year ended March 31, 2009

To view the Proxy Statement or Annual Report to Stockholders, visit: http://www.navarre.com/Investors/default.htm

Thank you for your continued support of Navarre Corporation.

By Order of the Board of Directors,

Ryan F. Urness
Secretary and General Counsel

July 27, 2009

NAVARRE CORPORATION
7400 49th Avenue North
New Hope, Minnesota 55428
(763) 535-8333

PROXY STATEMENT
Annual Meeting of Shareholders
September 16, 2009

INFORMATION ABOUT THIS PROXY SOLICITATION AND VOTING

We were incorporated in Minnesota in 1983. Our corporate headquarters is located at 7400 49th Avenue North, New Hope, Minnesota 55428, and our telephone number is (763) 535-8333. Our website address is www.navarre.com. References to our website are not intended to, and do not, incorporate information found on the website into this Proxy Statement. Our most recent fiscal year ended March 31, 2009 (“FY2009”).

Proxy Statement and Solicitation of Votes

This Proxy Statement is being furnished to our shareholders in connection with the solicitation of proxies by our Board of Directors for use at the annual meeting of shareholders to be held on Wednesday, September 16, 2009 at 3:00 p.m., Central Daylight Time, at our corporate headquarters, 7400 49th Avenue North, New Hope, Minnesota 55428, and at any adjournments or postponements thereof (the “Annual Meeting”). It summarizes the information you need to know in order to vote at the Annual Meeting. This Proxy Statement and accompanying proxy are first being mailed to our shareholders on or about July 27, 2009.

The cost of preparing, assembling and mailing the proxy material and of reimbursing brokers, nominees and fiduciaries for the out-of-pocket and clerical expenses of transmitting copies of the proxy material to the beneficial owners of shares held of record by such persons will be borne by us. We do not currently intend to solicit proxies other than by use of the mail, but certain of our officers and regular employees, without additional compensation, may use their personal efforts, by telephone or otherwise, to obtain proxies.

Voting Shares

Only shareholders of record as of the close of business on Monday, July 20, 2009 will be entitled to vote at the Annual Meeting. On that date, we had outstanding 36,260,116 shares of common stock, no par value (the “Common Stock”), each of which is entitled to one vote per share on each matter to be voted upon at the Annual Meeting.

How to Vote

You may vote in person at the Annual Meeting or you may vote by proxy. You may vote by proxy even if you plan to attend the Annual Meeting. The process of voting by proxy differs slightly based on how your share ownership is recorded. Your share ownership is recorded in one of two ways: direct ownership recorded in your name by the stock transfer agent for the Company, Wells Fargo Shareowner Services; or beneficial ownership held in a brokerage, bank or other account, i.e. shares held in “street name.”

If your ownership is recorded directly, you will receive a proxy card from the Company. If your share ownership is beneficial, your broker, bank, and/or other institution will issue you a voting instruction form either via mail or electronically. You will use the supplied form to instruct your broker or other institutional holder how to vote your shares and they must follow your voting instructions. If you hold your shares in street name and do not provide voting instructions to your broker or other institutional holder, your shares will not be voted on any proposal on which your broker or other institutional holder does not have discretionary authority to vote. If your broker or other institutional holder lacks this discretionary authority to vote on an item and properly indicates this to us, we call this a “broker non-vote” on that item. Broker non-votes effectively reduce the number of shares needed to approve a proposal.

You may vote your shares via the Internet at the web site shown on the proxy card or voting instruction form, telephonically by calling the telephone number shown on the proxy card or voting instruction form, or by mail. The proxy card or voting instruction form will indicate the date and time by which your vote must be received in order to be counted, whether you vote via the Internet, by telephone or by mail.

Once you have voted, you may change or revoke your vote at any time before it is exercised by (i) entering a new vote via the Internet or by telephone prior to the date and time indicated, (ii) returning a written revocation or a later-dated proxy card or (iii) voting in person at the Annual Meeting. However, if your shares are held in street name and you wish to vote those shares in person at the Annual Meeting, you must, in advance of the Annual Meeting, obtain a legal proxy from your broker or other institutional holder. Please contact your broker or other institutional holder directly for further information.

The enclosed proxy card, when properly signed and returned to us, will be voted at the Annual Meeting as directed therein. Proxies in which no direction is given with respect to the various matters of business to be transacted at the meeting will be voted “FOR” the election of the nominees for the Board of Directors named in this Proxy Statement; “FOR” the ratification of the appointment of Grant Thornton LLP as the Company’s independent registered public accounting firm; and “FOR” amendment two to the Amended and Restated 2004 Stock Plan. As to any other matter to be presented at the Annual Meeting or any adjournment thereof, while the Board of Directors currently knows of no such other matters, all proxies returned to us will be voted on any such matter in accordance with the judgment of the named proxies.

How Votes Are Counted

Each share of our Common Stock is entitled to one vote for each matter to be voted on at the Annual Meeting. There is no cumulative voting. A quorum, consisting of a majority of the shares of Common Stock entitled to vote at the Annual Meeting, must be present in person or by proxy before action may be taken at the Annual Meeting. Broker non-votes, as discussed above, will count as shares present for purposes of determining the presence or absence of a quorum. Similarly, abstentions are also counted for determining if a quorum is present. All votes will be tabulated by the inspector of elections appointed for the Annual Meeting, who will tabulate affirmative votes, negative votes, abstentions and broker non-votes.

With respect to the election of directors, you may either vote “FOR” a nominee or withhold your authority to vote for such nominee. Shares voted by proxies will be voted in accordance with the specifications marked thereon, and, if no specification is made, will be voted “FOR” all nominees. If you withhold your authority to vote for a particular nominee on your proxy card, your vote will have no effect on the outcome because only a plurality of votes actually cast is required to elect a director. A broker non-vote will also have no effect on the outcome for the same reason.

With respect to all other matters, you may vote “FOR,” “AGAINST” or “ABSTAIN.” Shares voted by proxies will be voted in accordance with the specifications marked thereon, and, if no specification is made, will be voted “FOR” each matter. Shares represented by proxies that are marked “ABSTAIN” will have the same effect as a vote against the matter. A broker non-vote will not have the effect of a vote against the matter, because broker non-votes are considered shares that are not entitled to vote on the particular matter.

Votes Required

The vote of a plurality of the shares of Common Stock present in person or by proxy and entitled to vote at the Annual Meeting is required for the election of a director. This means that, if shareholders will be electing three directors, then the three nominees receiving the most votes will be elected. For the approval of all other matters, the affirmative vote of the greater of (i) a majority of the shares of Common Stock present at the meeting in person or by proxy and entitled to vote or (ii) a majority of the minimum number of shares entitled to vote that would constitute a quorum for the transaction of business at the Annual Meeting, is required.

PROPOSALS TO BE VOTED ON AT THE ANNUAL MEETING

PROPOSAL NO. 1 — Election of Three Nominees as Class I Directors

Our Board of Directors is divided into three staggered classes for purposes of electing our directors. One class is normally elected at each annual meeting of shareholders to serve for a three-year term. Our Amended and Restated Articles of Incorporation provide that the Board must consist of between seven and eleven directors, as designated by the Board from time to time. Currently, the Board consists of nine directors.

At the Annual Meeting, the terms of three directors assigned to the first class (“Class I”) are expiring. They are Deborah L. Hopp, Michael L. Snow and Richard Gary St. Marie. The Board has nominated Ms. Hopp to be re-elected at the Annual Meeting. The Board has guidelines with respect to the maximum number of terms an independent director should serve and has determined that Mr. Snow, who has been a director for over fourteen years, is ineligible for re-election under the guidelines. As previously announced by the Company, Mr. St. Marie decided for personal reasons not to seek re-election to the Board. Upon the recommendation of the Governance and Nominating Committee, the Board has nominated David F. Dalvey and Frederick C. Green IV for election as a Class I directors at the Annual Meeting. If so elected, these directors will hold office for a three-year term expiring at the annual meeting of shareholders held in 2012, subject to prior retirement, resignation, death or removal from office.

All other directors will continue in office following this Annual Meeting. Directors Benson, Gentz and Weyl are assigned to the second class (“Class II”) with their terms expiring at the annual meeting of shareholders to be held in 2010, and Directors Paulson, Deacon and Iverson are assigned to the third class (“Class III”) with their terms expiring at the annual meeting of shareholders held in 2011.

The nominees have indicated their willingness to serve as directors. If a nominee becomes unable to stand for election through unforeseen circumstances, the persons named in the proxy will vote for any substitute nominee proposed by the Board of Directors. Detailed information on the nominees and directors is provided below.

YOUR BOARD OF DIRECTORS RECOMMENDS THAT
YOU VOTE “FOR” EACH OF THE NOMINEES FOR DIRECTOR

PROPOSAL NO. 2 — Approval of Amendment Two to the Company’s Amended and Restated 2004 Stock Plan

Upon the recommendation of the Compensation Committee, the Board of Directors approved amending the Company’s Amended and Restated 2004 Stock Plan (the “Stock Plan”) on July 8, 2009, subject to shareholder approval. The proposed amendment two is attached to this Proxy Statement as Exhibit A and amends the fixed stock option grants made to directors who are not employees of the Company (“Non-employee Directors”) which are set forth in Section 17 of the Stock Plan.

Currently, each Non-employee Director of the Company receives an annual grant of non-qualified stock options covering 6,000 shares of Common Stock granted at fair market value on the grant date. Newly elected Non-employee Directors receive an initial stock option grant covering 20,000 shares of Common Stock at fair market value on the date of election. All such stock options vest in increments of one-third beginning one year after the grant date and expire on the earlier of (i) ten years from the grant date and (ii) one year after the director ceases to serve. Vesting is accelerated upon the occurrence of a “Change of Control Transaction,” as defined in the Stock Plan. The amendment, if approved, provides that beginning with the Annual Meeting, the initial stock option grant to newly elected Non-employee Directors will increase to 50,000 shares. If elected, nominees Dalvey and Green will be eligible to receive an initial grant covering 50,000 shares of Common Stock. In addition, the amendment, if approved, provides that each then serving Non-employee Director who is not newly elected at the Annual Meeting will receive a one-time stock option grant covering 30,000 shares of Common Stock. Director Hopp, if re-elected, and continuing Directors Benson, Gentz, Iverson, Paulson and Weyl will be eligible to receive the one-time grant covering 30,000 shares of Common Stock. Finally, the amendment, if approved, increases the annual stock option grant to Non-employee Directors to 12,000 shares beginning April 1, 2010. No award under the Stock Plan has been

made prior to the date of the Annual Meeting subject to shareholder approval of the proposed amendment. In addition, we have no current plans, proposals or arrangements to issue any awards under the Stock Plan in connection with this amendment other than the fixed awards to Non-employee Directors described in this paragraph.

Our philosophy of Board compensation is in line with our philosophy of executive compensation, i.e. to provide a competitive compensation package in order to attract and retain qualified Non-employee Directors. In addition, we believe that equity compensation should be a significant portion of the total compensation package in order to align the proprietary interests of the directors with the interests of our shareholders. National compensation consultants, such as William M. Mercer, Watson Wyatt, and Towers Perrin have all reported that compensation for outside directors has increased at a healthy pace over the past several years, reflecting a competitive market for qualified candidates and the current regulatory environment which has significantly increased the responsibility and time commitment involved in board service. The annual stock option grant for our Non-employee Directors has remained the same for ten years and the initial grant has fluctuated over that time between 20,000 and 50,000 shares. The current compensation package for our directors falls below the median level for comparable companies as shown by the most recent report on director compensation issued by the National Association of Corporate Directors.

Except for the foregoing amendments, if approved, the Stock Plan will remain unchanged. Further information is provided under “Equity Compensation Plan Information” beginning on page 16 and a summary of the provisions of the Stock Plan is provided beginning on page 17.

YOUR BOARD OF DIRECTORS RECOMMENDS THAT
YOU VOTE “FOR” THE PROPOSED AMENDMENT TO THE
AMENDED AND RESTATED 2004 STOCK PLAN

PROPOSAL NO. 3 — Ratification of the Appointment of Grant Thornton LLP as the Company’s Independent Registered Public Accounting Firm

The Audit Committee of the Board of Directors has appointed the accounting firm of Grant Thornton LLP to act as the Company’s independent registered public accounting firm and audit the Company’s consolidated financial statements for the fiscal year ending March 31, 2010 (“FY2010”). Although shareholder ratification of this appointment is not required by our Bylaws or otherwise, we are submitting the selection of Grant Thornton LLP for ratification at the Annual Meeting so that our shareholders may participate in this important corporate decision. If not ratified, the Audit Committee will reconsider the appointment, although it will not be required to select a different independent registered public accounting firm for the Company for the current fiscal year.

Grant Thornton LLP was first appointed as the Company’s independent registered public accounting firm for the fiscal year ending March 31, 2005.

Additional information can be found in “Report of the Audit Committee” on page 13 and in “Audit and Non-Audit Fees” on page 14. A representative of Grant Thornton LLP is expected to be present at the Annual Meeting, will have the opportunity to make a statement if he or she desires to do so, and will be available to respond to appropriate questions from shareholders.

YOUR BOARD OF DIRECTORS RECOMMENDS THAT
YOU VOTE “FOR” THE RATIFICATION OF GRANT THORNTON LLP

INFORMATION CONCERNING DIRECTORS AND NOMINEES

Names, Principal Occupations for the Past Five Years and Selected
Other Information Concerning Nominees and Directors

NOMINEES FOR DIRECTOR — Terms to Expire at Annual Meeting in 2012 (Class I)


Deborah L. Hopp Age: 56 Director Since: 2006 Current Board Committees: Compensation Committee Governance and Nominating Committee		Ms. Hopp has been the Vice President for Publishing of MSP Communications, Inc. since 1998 and is Publisher of its monthly periodical, Mpls. St. Paul Magazine. MSP Communications also provides custom publishing services to over 16 local and national companies. Prior to joining MSP Communications, Ms. Hopp held various publishing positions with other publications. She serves as a board member of numerous not-for-profit and for-profit organizations including the United Way, the Minnesota Orchestral Association, the Walker Art Center, the University of Minnesota Foundation, Minneapolis Downtown Council, Bachman’s Inc. and Minnesota Women’s Campaign Fund.

David F. Dalvey Age: 51 New Nominee		Mr. Dalvey has twenty-eight years of experience in the fields of corporate finance and venture capital. He is the Managing Partner of Mount Yale Venture Fund, L.P., a management firm holding investments in top tier venture capital funds and other assets, since September 2008, and also is the General Partner of Brightstone Capital, a venture capital management company, since September 2000. Previously, he held management positions with R.J. Steichen and Company, an investment bank, from 1995 to 2000, The Food Fund LP, a venture capital firm, from 1992 to 1995 and Wessels, Arnold & Henderson, an investment bank from 1987 to 1992. Mr. Dalvey has had significant operational exposure as a board director or advisor to multiple growth businesses including as a Director of Definity Health, Inc., NatureVision, Inc. and Agiliti, Inc. Currently, he serves as a Director of Blue Rock Advisors, LLC, a registered mutual fund.

Frederick C. Green IV Age: 52 New Nominee		Mr. Green is the Managing Director of Denali Partners, LLC, a private equity firm that he founded in 2004. Previously, from 2002 to 2004, he founded and was the Managing Director of Marathon Partners LLC, a management firm for the portfolio companies of private equity firms. From 1999 to 2002, he served as the Chief Operating Officer of Bracknell Corporation, a $1.4 billion facilities infrastructure company with 33 locations in North America, and previously he was the President and CEO of Nationwide Electric, Inc., a national electrical installation and services company that was acquired by Bracknell. From 1996 to 1998, he was the President and CEO of Product Safety Resources, Inc., a company focused on electronic product safety information, and from 1988 to 1996, Mr. Green held various operations and leadership positions with Emerson Electric Co. (NYSE:EMR), a multinational manufacturer of a broad range of electrical, electromechanical and electronic products and systems, including: Vice President, General Manager, Process Flow; Vice President Marketing and Sales; and Vice President of Strategic Planning and Technology.

CONTINUING DIRECTORS — Terms to Expire at the Annual Meeting in 2010 (Class II)


Keith A. Benson Age: 65 Director Since: 2003 Current Board Committees: Audit Committee (Chair) Governance and Nominating Committee		Since August 2008, Mr. Benson has served as Chief Financial Officer of Trustwater, USA, Inc., a manufacturer of water disinfectant systems. Until his retirement in 2002, Mr. Benson was employed in the retailing industry, including over 20 years at The Musicland Group, Inc. During his tenure at Musicland he held several key leadership positions including Executive VP of Finance, VP and Controller, President of Mall Stores Division as well as serving as Vice Chairman and Chief Financial Officer. Previously, Mr. Benson held a variety of financial positions with The May Company and Dayton-Hudson Corporation (now Target Corporation).

Timothy R. Gentz Age: 59 Director Since: 2004 Current Board Committees: Audit Committee Compensation Committee (Chair) Governance and Nominating Committee		Since January 2005, Mr. Gentz has been a self-employed consultant to multiple medical products and services companies and also was engaged in such activity from January to December 2003. During 2004, Mr. Gentz served as the Chief Operating Officer of The Palm Tree Group, a Houston-based international distributor of medical products and supplies. From October 2000 to December 2002, he was the Chief Operating Officer and Chief Financial Officer for Gulf South Medical Supply, Inc., a wholly-owned subsidiary of PSS World Medical, Inc. Previously, Mr. Gentz was a private investor in an Internet entertainment start-up company, a CD package company, a Houston-based investment banking firm and other private companies.

Tom F. Weyl Age: 66 Director Since: 2001 Current Board Committees: Governance and Nominating Committee (Chair)		Mr. Weyl is retired from Martin/Williams Advertising, a national advertising agency. Prior to his retirement, Mr. Weyl served as President and Chief Creative Officer from 1973 to October 2000. He served as a director/organizer of the Royal Palm Bank of Naples, Florida until December 2006. Mr. Weyl also served as a director of Musicland Stores Corporation from 1992 until its acquisition by Best Buy Co., Inc. in February 2001.

CONTINUING DIRECTORS — Terms to Expire at Annual Meeting in 2011 (Class III)


Eric H. Paulson Age: 64 Director Since: 1991 Chairman of the Board		Mr. Paulson is our founder and Chairman. He retired from employment with the Company on March 31, 2007. He was our Chief Executive Officer from inception in 1983 until January 2007. Until August 2005, he was also President. Prior to 1983, Mr. Paulson served as Senior Vice President and General Manager of Pickwick Distribution Companies, a distributor of records and tapes. Mr. Paulson has been a director since 1983 except for the period January 1990 through October 1991 when Navarre was owned by Live Entertainment, Inc.

Cary L. Deacon Age: 57 Director Since: 2007		Mr. Deacon has been our President and Chief Executive Officer since January 2007, and was President and Chief Operating Officer from August 2005 until that time. Previously, he was our Chief Operating Officer, Publishing and Corporate Relations Officer since joining the Company in September 2002. From September 2001 to August 2002, Mr. Deacon served as President and Chief Executive Officer of NetRadio Corporation, a media company. From July 2000 to August 2001, he served as President, Chief Operating Officer and as a member of the Board of Directors of SkyMall, Inc., an integrated specialty retailer. He served as a director, and member of the audit and nominating committees, of Raindance Communications, Inc. from March 2003 until its sale to West Corporation in April 2006.

Kathleen P. Iverson Age: 53 Director Since: 2008 Current Board Committees: Audit Committee Governance and Nominating Committee		Ms. Iverson has been the President and Chief Executive Officer of CyberOptics Corporation (NASDAQ:CYBE), a manufacturer of optical process control sensors and measurement and inspection systems used in the electronics assembly equipment market and in the semiconductor industry, since January 2003. She joined CyberOptics Corporation in January 2002 as its President and Chief Operating Officer. Previously, she was employed by Rosemount, Inc., a multinational manufacturer of high-performance instrumentation for the processing industries and a subsidiary of Emerson Electric Co. (NYSE:EMR), from 1979 through December 2001, and held various finance and leadership positions, including Vice President/General Manager, Complete Point Solutions, and Vice President/General Manager, Worldwide Temperature. Ms. Iverson is also a Director of CyberOptics Corporation and has served in such capacity since May 1998.

BOARD OF DIRECTORS, COMMITTEES AND CORPORATE GOVERNANCE

Independent Directors

Our Board of Directors has determined that each of the following Directors serving in FY2009: Benson, Gentz, Hopp, Iverson, St. Marie, Snow and Weyl, are “independent,” as that term is defined in Rule 5605(a)(2) of the Marketplace Rules of the NASDAQ Global Market. Accordingly, our Board of Directors is composed of a majority of independent directors as required by the NASDAQ Marketplace Rules. The Board has also determined that, if elected, Messrs. Dalvey and Green would meet the qualifications for “independence” under the same rule.

Independent Directors Meetings

Our Board of Directors formally adopted a policy of establishing an independent directors’ meeting, with only independent directors being present, for not less than two regular meetings each fiscal year. The independent directors met three times in FY2009.

Board Committees

Our Board of Directors has established Audit, Compensation, and Governance and Nominating Committees. Additional information about certain committees can be found in “Report of the Audit Committee” on page 13 and “Compensation Discussion and Analysis” on page 20.

Audit Committee

The Audit Committee oversees the accounting and financial reporting processes and audits of our consolidated financial statements. The Audit Committee assists the Board in fulfilling its oversight responsibilities for the quality and integrity of our financial reports, our compliance with legal and regulatory requirements and the independent auditors’ qualifications and independence, as well as accounting and reporting processes. The Audit Committee also reviews the internal and external financial reporting of the Company and reviews the scope of the independent audit. The members of the Audit Committee during FY2009 were Keith A. Benson (Chair), Timothy R. Gentz and Kathleen P. Iverson. Our Board of Directors has determined that all members of the Audit Committee are “independent,” as that term is defined in Rule 5605(a)(2) of NASDAQ’S Marketplace Rules and SEC Rule 10A-3. The Board has determined that Keith A. Benson is qualified as an “audit committee financial expert,” as that term is defined in Item 407(d)(5)(ii) of Regulation S-K.

Compensation Committee

The Compensation Committee reviews and oversees the salaries, compensation and benefits of our CEO, executive officers and employees in general, as well as the compensation of our directors. In addition to the meetings and actions of the Compensation Committee, the entire Board of Directors discussed and reviewed compensation issues throughout the year at its regular meetings. The members of the Compensation Committee during FY2009 were Tom F. Weyl (Chair), Deborah L. Hopp, Richard Gary St. Marie and Michael L. Snow. Timothy R. Gentz replaced Mr. Weyl as Chair of the Compensation Committee effective April 1, 2009. The Board of Directors has determined that all members of the Compensation Committee are “independent,” as that term is defined in Rule 5605(a)(2) of NASDAQ’S Marketplace Rules, and are “non-employee directors,” as that term is defined in SEC Rule 16b-3.

Governance and Nominating Committee

The Governance and Nominating Committee (i) reviews and makes recommendations with respect to changes in our core principals of corporate governance; (ii) reviews and makes recommendations with respect to senior executive succession; (iii) reviews and makes recommendations with respect to the criteria for the selection of new directors; (iv) recommends nominees for vacancies on the Board; and (v) conducts an annual formal evaluation of Board operations and performance. The Governance and Nominating Committee reviews the qualifications and backgrounds of the directors, as well as the overall composition of the Board, and recommends to the full Board the persons to be nominated for election at each annual meeting of shareholders. In the case of incumbent directors, the

Governance and Nominating Committee will review such directors’ overall service to us, including the number of meetings attended, level of participation, and whether the director continues to meet the applicable independence standards. In the case of any new director candidates, the questions of independence and financial expertise are important in determining what roles can be performed by the candidate, and the Governance and Nominating Committee will determine whether the candidate meets the applicable independence standards and the level of the candidate’s financial expertise. Any new candidates will be interviewed by the Governance and Nominating Committee and, if approved by the Committee, then by all members of the Board. The full Board will approve the final nominations. The Chairman of the Board, acting on behalf of the full Board, will extend the formal invitation to become a nominee of the Board of Directors. The members of the Governance and Nominating Committee during FY2009 were Timothy R. Gentz (Chair), Keith A. Benson, Deborah L. Hopp, Kathleen P. Iverson, Michael L. Snow, Richard Gary St. Marie and Tom F. Weyl. Mr. Weyl became Chair of the Governance and Nominating Committee effective April 1, 2009. The Board of Directors has determined that all members of the Governance and Nominating Committee are “independent,” as that term is defined in Rule 5605(a)(2) of NASDAQ’S Marketplace Rules.

Lead Independent Director

The Chair of the Governance and Nominating Committee functions as a “lead independent director” for the Board. During FY2009, Mr. Gentz was the Chair of the Governance and Nominating Committee. Mr. Gentz called meetings of the independent directors as needed; set the agenda for meetings of the independent directors; presided at meetings of the independent directors; was the principal liaison on Board issues between the independent directors and the Chairman and between the independent directors and management; provided feedback to the Chairman and management on the quality, quantity and timeliness of information sent to the Board; consulted with the Compensation Committee on the evaluation of the CEO’s performance; attended Compensation Committee meetings as a representative of all independent directors as needed; and oversaw the directors’ evaluation of the Board’s overall performance.

Meeting Attendance

During FY2009, our Board of Directors held six regular meetings and one telephonic meeting. The Audit Committee held five regular meetings. The Compensation Committee held four regular meetings and one telephonic meeting. The Governance and Nominating Committee held three regular meetings. Most of the directors attended 100% percent of the meetings of the Board and of the Committees on which the director served and no director attended less than 80% of such meetings. Board members also conferred informally during the year to discuss various aspects of our business affairs. The Board of Directors does not have a formal policy on the attendance of directors at the annual meetings of shareholders but all directors are encouraged to attend. Directors Benson, Deacon, Gentz, Hopp, Iverson, Paulson, St. Marie, and Weyl attended the annual meeting of shareholders held in September 2008.

Code of Business Conduct and Ethics

On March 29, 2004, the Board of Directors adopted a Code of Business Conduct and Ethics (the “Code of Conduct”), that applies to all of our directors, officers and employees. The Audit Committee is responsible for overseeing compliance with the Code of Conduct and reviewing and updating the Code of Conduct. The Audit Committee reviewed the Code of Conduct in FY2009 and determined that no amendments were warranted. In accordance with the NASDAQ Marketplace Rules, any waivers of the Code of Conduct for directors and executive officers must be approved by our Board of Directors. No waivers were granted during FY2009.

Corporate Governance Documents

The charters of the Audit, Governance and Nominating, and Compensation Committees, as well as our Code of Conduct, are available for viewing and downloading on the Company’s website at www.navarre.com and may be found by selecting the “Investors” tab and then clicking on the “Corporate Governance” link. If our Board of Directors grants any waivers of, or amendments to, the Code of Conduct applicable to any of our directors or executive officers, we will also disclose these matters on the “Corporate Governance” link of the website.

Related Party Transactions

The Board does not have a separate written policy regarding the review and approval of related party transactions. However our Audit Committee Charter and Code of Business Conduct and Ethics require that the Audit Committee review and approve all transactions with related persons as may be required by the rules of the Securities and Exchange Commission or NASDAQ’s Marketplace Rules. Under such rules a “related person” includes any of the directors or executive officers of the Company, certain large stockholders, and their immediate families. The transactions to be reviewed include those where the Company is a participant, a related person will have a direct or indirect material interest, and the amount involved exceeds $120,000. The Audit Committee would determine if any such transactions (i) are fair and reasonable, (ii) are on terms no less favorable to the Company than could be obtained in a comparable arm’s length transaction with an unrelated third party, and (iii) do not constitute an objectionable “conflict of interest” for a director, officer or employee of the Company. Directors and executive officers are required to disclose any such transactions under our Code of Business Conduct and Ethics and are specifically asked to disclose such transactions in our annual Directors and Officers Questionnaire. During FY2009, no transactions were disclosed to the Audit Committee which required review as related party transactions, and the Audit Committee was not otherwise aware of any such transactions.

Stock Ownership Guidelines

In July 2005, the Board of Directors adopted Company stock ownership guidelines (including owned shares and vested stock awards) for Company officers and directors as follows: Chief Executive Officer, five times base salary; other Executive Officers, three times base salary; other officers, one times base salary; and Non-employee Directors, five times the annual retainer. The officers and directors are encouraged and expected to meet the stock ownership goals within five years of the later of July 2005 or the date of beginning service with the Company. Failure to meet the goals will be a factor to be considered when making compensation and bonus decisions. The Board believes that stock ownership demonstrates commitment by our officers and directors and further aligns their interests with those of our shareholders.

Qualifications of Candidates for Election to the Board

Our Board of Directors takes a critical role in guiding the Company’s strategic direction and oversees the management of the Company. When Board candidates are considered, they are evaluated based upon various criteria, such as their broad-based business and professional skills and experiences, experience serving as management or on boards of directors of companies in industries similar to ours, concern for the long-term interests of the shareholders, financial literacy, good judgment and personal integrity. In addition, director candidates must have time available to devote to Board activities. Accordingly, the Board seeks to attract and retain highly qualified directors who have sufficient time to attend to their duties and responsibilities to the Company.

The Board and the Governance and Nominating Committee have not established specific requirements for director candidates but intend to consider, among other qualifications, the candidate’s knowledge of and experience with accounting, his or her general financial literacy, and his or her understanding of corporate governance practices and responsibilities. The Board and the Governance and Nominating Committee retain the right to modify these qualifications from time to time. Exceptional candidates who do not meet all of these criteria may still be considered.

Process for Identifying and Evaluating Candidates for Election to the Board

The Governance and Nominating Committee will review the qualifications and backgrounds of the directors, as well as the overall composition of the Board, and recommend to the full Board the nominees for election at each annual meeting of shareholders. In the case of incumbent directors, the Governance and Nominating Committee will review each such director’s overall service to the Company, including the number of meetings attended, level of participation, quality of performance, and whether the director continues to meet the applicable independence standards. In the case of any new candidates, the questions of independence and financial expertise are important in determining what roles can be performed by the candidate, and the Governance and Nominating Committee will

determine whether the candidate meets the applicable independence standards and the level of the candidate’s financial expertise. New candidates are interviewed by the Governance and Nominating Committee and, if approved by the Committee, then by all members of the Board. The full Board approves the final nominations. An approved candidate must consent to and pass a background investigation prior to receiving a formal invitation to become a nominee of the Board of Directors. The nominations of Messrs. Dalvey and Green were determined through the foregoing process.

Shareholder Recommendations of Candidates for Election to the Board

Shareholders may recommend director candidates for consideration by the Governance and Nominating Committee by writing to Mr. Ryan F. Urness, the Company’s Secretary, and providing to the Secretary the candidate’s name, biographical data and qualifications, including: a five-year employment history with employer names and a description of the employer’s business; whether such individual can read and understand fundamental financial statements; other board memberships (if any); and such other information as is reasonably available and sufficient to enable the Governance and Nominating Committee to evaluate the candidate’s qualifications including a consent for a background investigation. The submission must be accompanied by a written consent of the individual to stand for election if nominated by the Board of Directors and to serve if elected by the shareholders. Provided the Governance and Nominating Committee has received a written recommendation in time to do an adequate evaluation of the candidate’s qualifications, the Governance and Nominating Committee will consider any qualified candidate and make its recommendation to the Board of Directors.

Shareholder Nominations of Candidates for Election to the Board

Any shareholder entitled to vote in the election of directors generally may nominate candidates for election to the Board only if written notice of such shareholder’s intent to make such nomination or nominations has been given, either by personal delivery or by certified or registered United States mail, postage prepaid and return receipt requested, to the Secretary of the Company not later than (i) with respect to an election to be held at an annual meeting of shareholders, ninety (90) days prior to the anniversary date of the immediately preceding annual meeting, and (ii) with respect to an election to be held at a special meeting of shareholders for the election of directors, the close of business on the tenth (10th) day following the date on which notice of such meeting is first given to shareholders. Each such notice shall set forth: (a) the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the shareholder is a holder of record of shares entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; (d) such other information regarding each nominee proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the SEC proxy rules; and (e) the consent of each nominee to serve as a director of the Corporation if so elected and consent for a background investigation. The presiding officer of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure.

Shareholder Communications with the Board

Shareholders can communicate directly with the Board, or with any Committee of the Board, by writing to Mr. Ryan F. Urness, the Company’s General Counsel and Secretary, at the Company’s address. All communications will be reviewed by management and then forwarded to the appropriate director or directors or to the full Board or Committee, as appropriate.

COMPENSATION OF DIRECTORS

Retainer and Meeting Fees

Directors who are Company employees do not receive compensation for their services as directors. During FY2009, Non-employee Directors each received a base annual retainer of $36,000, paid in monthly installments. No additional compensation was paid for meeting attendance. The chairperson of the Audit Committee received an additional annual fee of $5,000, the chairpersons of the Compensation Committee and the Governance and Nominating Committee each received an additional annual fee of $3,000 and the Chairman of the Board received an additional annual fee of $15,000. In addition, Non-employee Directors are reimbursed for travel and other reasonable out-of-pocket expenses related to attendance at board and committee meetings.

Equity Compensation

Non-employee Directors also receive equity compensation consisting of an initial stock option grant and annual stock option grants under the terms of the Stock Plan, which has been approved by the shareholders. Currently, each new Non-employee Director receives, at the beginning of the first term of service, an initial non-qualified stock option grant covering 20,000 shares of our Common Stock exercisable at fair market value on the day of grant. Thereafter, each Non-employee Director receives an annual grant on April 1 of each year, of a non-qualified stock option to purchase 6,000 shares of our Common Stock exercisable at the fair market value on the day of the grant. The initial and annual director stock option grants vest one-third per year beginning one year from the grant date and expire on the earlier of (i) ten years from the grant date and (ii) one year after the director ceases to serve. Vesting is accelerated upon the occurrence of a “Change of Control Transaction,” as defined in the Stock Plan. Pursuant to the foregoing, in FY2009, Directors Benson, Hopp, Gentz, Paulson, St. Marie, Sippl, Snow, and Weyl each received an annual grant on April 1, 2008 at an exercise price of $1.80 per share and Director Iverson received an initial grant on September 11, 2008 at an exercise price of $1.60 per share. As an exception to the foregoing, the Stock Plan provides that any Non-employee Director, who is ineligible to stand for re-election after reaching the Board’s mandatory retirement age of 70, will receive an award of 3,000 shares of restricted stock per year during each of the last two years of such director’s last term in lieu of annual stock option grants for such years. In FY2009, this provision was not applicable to any director. The Compensation Committee reviewed the total compensation of Non-employee Directors in FY2009 and recommended an increase in stock option grants subject to shareholder approval as described in Proposal No. 2 beginning on page 3.

The following table shows compensation information for our Non-employee Directors for FY2009.

DIRECTOR COMPENSATION TABLE FOR FY2009


Name(1)	Fees Earned or Paid in Cash		Stock Awards(2)		Option Awards(3)		Total

Keith A. Benson	$	41,000		—	$	12,937	$	53,937
Timothy R. Gentz	$	39,000		—	$	11,898	$	50,898
Deborah L. Hopp	$	36,000		—	$	22,955	$	58,955
Kathleen P. Iverson(4)	$	21,000		—	$	3,084	$	24,084
Eric H. Paulson	$	51,000		—	$	6,593	$	57,593
Richard Gary St. Marie	$	36,000		—	$	11,898	$	47,898
James G. Sippl(5)	$	18,000		—	$	5,600	$	23,600
Michael L. Snow	$	36,000		—	$	12,043	$	48,043
Tom F. Weyl	$	39,000		—	$	12,043	$	51,043


(1)		Mr. Deacon is not included in this table because he is an employee of the Company and received no compensation in FY2009 for his services as a director.

(2)		No director was eligible for restricted stock awards in FY2009.

(3)		This column represents the dollar amount recognized for financial statement reporting purposes in accordance with SFAS No. 123R utilizing the assumptions discussed in Note 22 to our consolidated financial statements in


		our Annual Report on Form 10-K for the fiscal year ended March 31, 2009, but disregarding the estimate of forfeitures for service-based vesting conditions.

		As of March 31, 2009, each of the Non-employee Directors had outstanding stock options covering the following total amount of shares of our Common Stock: Mr. Benson, 73,600 shares; Mr. Gentz, 80,000 shares; Ms. Hopp, 32,000 shares; Ms. Iverson, 20,000 shares; Mr. Paulson, 12,000 shares; Mr. St. Marie, 68,000 shares; Mr. Sippl, 36,000 shares; Mr. Snow, 36,000 shares; and Mr. Weyl, 36,000 shares.

(4)		Ms. Iverson was first elected as a director on September 11, 2008.

(5)		Mr. Sippl’s final term as a director ended on September 11, 2008.

REPORT OF THE AUDIT COMMITTEE

The Audit Committee of the Board of Directors is responsible for providing independent, objective oversight of our financial reporting system by overseeing and monitoring management’s and the independent auditors’ participation in the financial reporting process. We (i) select, evaluate, and, if deemed appropriate, replace our independent auditors; (ii) review the quality and integrity of our financial reports and other financial information; and (iii) evaluate compliance with legal and regulatory requirements, the adequacy of internal controls, policies and procedures, and observance of established ethical standards. For FY2009, our members were Directors. Benson (Chair), Gentz and Sippl (through August 2008) and Iverson (beginning September 2008). Each member is financially literate and is an “independent” director as such term is defined by Securities and Exchange Commission rules and the NASDAQ listing standards. A copy of the Audit Committee Charter can be found on the Company’s website at www.navarre.com. No changes to the charter were made in FY2009.

We held five regular meetings during FY2009. The meetings provided us ample opportunity for private communication between the Audit Committee and our independent auditors, Grant Thornton LLP, and we hold an executive session with Grant Thornton LLP at each meeting without management present. During the meetings, we reviewed with Grant Thornton LLP the overall scope and plans for their audit of our consolidated financial statements for FY2009, the results of their examinations, including their reviews of the financials included in each of our quarterly reports, their evaluation of our internal controls, and the overall quality of our financial reporting.

We also reviewed and discussed our consolidated financial statements with management and Grant Thornton LLP. Management represented to us that our consolidated financial statements were prepared in accordance with generally accepted accounting principles. Our discussions with Grant Thornton LLP also included the matters required by Statement on Auditing Standards No. 61, as amended (Communication with Audit Committees). In fulfilling our oversight responsibilities, we reviewed the audited consolidated financial statements in the Form 10-K with management and Grant Thornton LLP, separately, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the consolidated financial statements.

Grant Thornton LLP provided to the Audit Committee the written disclosures and the letter regarding its independence as required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees). We discussed this information with Grant Thornton LLP.

In reliance on the reviews and discussions referred to above, we recommended to the Board of Directors (and the Board approved) that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2009 and filed with the Securities and Exchange Commission. We also have reviewed the performance of Grant Thornton LLP and have re-appointed them as our independent registered public accounting firm for FY2010.

This report is submitted by the Audit Committee of the Company’s Board of Directors:


Keith A. Benson (Chair)			Timothy R. Gentz				Kathleen P. Iverson

AUDIT AND NON-AUDIT FEES

The following table summarizes the fees we were billed for audit and non-audit services rendered for FY2009 and FY2008 by Grant Thornton LLP, our independent registered public accounting firm for both years.


	FY 2009		FY 2008

Audit Fees(1)	$	304,119	$	296,773
Audit-Related Fees(2)		—		—
Tax Fees(3)		—		—
All Other Fees(4)		—		—

Total Fees Billed	$	304,119	$	296,773


(1)		“Audit Fees” consists of fees billed for professional services rendered in connection with the audit of our consolidated financial statements for the fiscal years ended March 31, 2009 and 2008, the reviews of the consolidated financial statements included in each of our quarterly reports on Form 10-Q during those fiscal years, and services provided in connection with various registration statements, comfort letters, and the review and attestation of internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim consolidated financial statements.

(2)		“Audit-Related Fees” consists of fees billed for assurance and related services in the fiscal years ended March 31, 2009 and 2008 that are reasonably related to the performance of the audit or review of the Company’s consolidated financial statements. There were no fees for this category in FY2009 and FY2008.

(3)		“Tax Fees” consists of fees billed for services rendered in connection with tax compliance, tax advice and tax planning. There were no fees for this category in FY2009 and FY2008.

(4)		“All Other Fees” consists of fees billed for products and services that do not meet the above category descriptions. There were no fees for this category in FY2009 and FY2008.

POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND
NON-AUDIT SERVICES OF INDEPENDENT AUDITORS

The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors. Pre-approval is generally provided for up to one year and is detailed as to the particular service or category of services and is subject to a specific budget. Management is required to seek pre-approval of services that will exceed the budget or for services that are not detailed in an existing pre-approval. The Chair of the Audit Committee is delegated the authority to pre-approve certain services between regularly scheduled meetings. Management is required to report quarterly to the Audit Committee regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. During FY2009, all services were pre-approved by the Audit Committee in accordance with this policy. The Audit Committee also determined that all services performed by Grant Thornton LLP over and above the external audit were compatible with Grant Thornton LLP’s ability to maintain its independence.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the beneficial ownership of our Common Stock as of July 20, 2009 (except as otherwise noted), by (i) each of our directors and nominees, (ii) each of the executive officers named in the Summary Compensation Table, (iii) all of the executive officers, directors and nominees as a group, and (iv) each person known to us who beneficially owns more than 5% of the outstanding shares of our Common Stock. The address of each director, nominee and executive officer is 7400 49th Avenue North, New Hope, Minnesota 55428. Percentage computations are based on 36,260,116 shares of our Common Stock outstanding as of July 20, 2009.

Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. We believe that all persons named in the table have sole voting and sole investment power with respect to all shares beneficially owned by them, unless otherwise indicated. All figures include shares of Common Stock issuable upon the exercise of options exercisable within 60 days of July 20, 2009 and, which are deemed to be outstanding and to be beneficially owned by the person holding those options for the purpose of computing the percentage ownership of that person, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person.


	Beneficial Ownership
Directors, Nominees and Executive Officers	Shares			Percent

Keith A. Benson		95,000	(1)			*
David F. Dalvey		—			—
Cary L. Deacon		650,602	(1)		1.77	%
Timothy R. Gentz		103,360	(1)			*
Frederick C. Green IV		—			—
Deborah L. Hopp		31,000	(1)			*
Kathleen P. Iverson		6,667	(1)			*
Eric H. Paulson		1,791,119	(1)(2)		4.94	%
Richard Gary St. Marie		82,000	(1)			*
Michael L. Snow		51,600	(1)(3)			*
Tom F. Weyl		50,000	(1)			*
Brian M. T. Burke		118,577	(4)			*
Gen Fukunaga		1,005,728	(1)(5)		2.75	%
J. Reid Porter		306,122	(1)			*
John Turner		73,985	(1)(6)			*
All directors, nominees and executive officers (15 persons)		4,365,760	(1)(7)		11.61	%

5% Shareholders
DDEC, Ltd. and C. Daniel Cocanougher		2,700,170	(8)		7.45	%
6851 NE Loop 820, Suite 110 North Richland Hills, TX 76180


*		Indicates ownership of less than one percent.

(1)		Includes shares of Common Stock issuable upon exercise of outstanding options exercisable within sixty days of July 20, 2009 in the following amounts: Keith A. Benson — 67,600 shares; Cary L. Deacon — 443,334 shares; Timothy R. Gentz — 74,000 shares; Deborah L. Hopp — 26,000 shares; Kathleen P. Iverson — 6,667 shares; Eric. H. Paulson — 6,000 shares; Richard Gary St. Marie — 62,000; Michael L. Snow — 24,000 shares; Tom F. Weyl — 24,000 shares; Gen Fukunaga — 259,166; J. Reid Porter — 193,333; John Turner — 65,500 shares and all directors, nominees and executive officers as a group — 1,330,434 shares.

(2)		Includes 292,262 shares owned by Mr. Paulson that are held in two margin accounts.

(3)		Includes 16,800 shares owned by Mr. Snow’s spouse of which Mr. Snow may be deemed to have shared voting and dispositive power.


(4)		Information for Mr. Burke is provided as of January 5, 2009, Mr. Burke’s last day of employment with the Company. Includes 78,834 shares of Common Stock issuable upon exercise of outstanding options exercisable within sixty days of January 5, 2009. Also includes 415 shares owned by Mr. Burke’s spouse of which Mr. Burke may be deemed to have shared voting and dispositive power.

(5)		Includes 18,648 shares owned by Mr. Fukunaga’s spouse of which Mr. Fukunaga may be deemed to have shared voting and dispositive power.

(6)		Includes 670 shares owned by Mr. Turner’s spouse of which Mr. Turner may be deemed to have shared voting and dispositive power.

(7)		Includes 36,533 shares owned indirectly by spouses of all directors, nominees and executive officers as a group of which the respective director or executive officer may be deemed to have shared voting and dispositive power.

(8)		Based on information provided in Amendment No. 1 to Schedule 13D, dated June 23, 2009, filed with the Securities and Exchange Commission by DDEC, Ltd. and C. Daniel Cocanougher, individually and as the managing member of DDEC Management, LLC which is the managing partner of DDEC, Ltd. and as the father of minors Danielle and Ellen Cocanougher. They report that as of June 23, 2009, DDEC, Ltd. had sole voting and dispositive power of 1,387,128 shares, Mr. Cocanougher had sole voting and dispositive power of 1,210,945 shares and shared voting and dispositive power of 1,489,225 shares.

EQUITY COMPENSATION PLAN INFORMATION

Our 1992 Stock Option Plan (the “1992 Plan”) was originally approved by the Board of Directors on September 1, 1992. The 1992 Plan and all of its amendments were also approved by the shareholders. The 1992 Plan provided for grants of restricted stock, and both incentive stock options and non-qualified stock options, and a total of 5,224,000 shares of our Common Stock were reserved for issuance. The 1992 Plan expired on July 1, 2006, and no further grants were allowed after that date. At July 10, 2009, 670,700 shares remained subject to outstanding options awards under the 1992 Plan.

In September 2004, our shareholders approved the current Stock Plan to supplement and ultimately replace the 1992 Plan. As amended by our shareholders in September 2007, a total of 4,000,000 shares of our Common Stock are currently reserved for issuance under the Stock Plan. The purposes of the Stock Plan are to: (a) promote the long-term interests of the Company and its shareholders by strengthening the Company’s ability to attract, motivate and retain key personnel; and (b) provide additional incentive for those persons through stock ownership and other incentives to improve operations, increase profits and strengthen the mutuality of interest between those persons and the Company. A summary of the provisions of the Stock Plan is provided below.

At July 10, 2009, the Company had issued 63,000 shares under the Stock Plan, 2,836,650 shares were subject to outstanding awards and 1,444,333 shares were available for future grants.

The following table provides certain aggregated information with respect to our 1992 Plan and Stock Plan as of March 31, 2009.

Equity Compensation Plan Information

(c)

Number of Securities

(a)

(b)

Remaining Available for

Number of Securities

Weighted-Average

Future Issuance Under

to be Issued Upon

Exercise Price of

Equity Compensation

Exercise of

Outstanding

Plans (Excluding

Outstanding Options,

Options, Warrants

Securities Reflected in

Plan Category

Warrants and Rights

and Rights

Column (a))

Equity compensation plans approved by security holders

5,206,684

5.74

1,334,672

Equity compensation plans not approved by security holders

—

Total

5,206,684

5.74

1,334,672

SUMMARY OF AMENDED AND RESTATED 2004 STOCK PLAN

This summary is qualified in its entirety by the terms of the Stock Plan, a copy of which was filed as Exhibit 4 to Registration Statement on Form S-8, Registration Number 333-131986, filed with the SEC on February 22, 2006. All capitalized terms in this section are as defined in the Stock Plan.

General

The Stock Plan, which has 4,000,000 authorized shares, provides for the granting of (i) options to purchase Common Stock that qualify as “incentive stock options” within the meaning of Section 422 of the Code (“Incentive Stock Options”), (ii) options to purchase Common Stock that do not qualify as incentive stock options (“Non-Qualified Options”), (iii) stock appreciation rights (“SARs”), (iv) restricted stock and stock units, (v) performance shares and performance units, and (vi) other incentives payable in cash or shares. The closing price of a share of our Common Stock as reported on the NASDAQ Global Market on July 10, 2009, was $1.53.

Administration and Eligibility

The Stock Plan is administered by the Compensation Committee, which (other than with respect to automatic grants of options to Non-employee Directors) selects the participants to be granted options under the Stock Plan, determines the amount of grants to participants, and prescribes discretionary terms and conditions of each grant not otherwise fixed under the Stock Plan. The Committee administering the Stock Plan must consist of not less than three members of the Board and, except as otherwise determined by the Board, such persons shall be “non-employee directors” under SEC Rule 16b-3 and “outside directors” under Section 162(m) of the Code. All employees, officers and directors of the Company are eligible for participation under the Stock Plan and awards may also be made to any consultant, agent, advisor or independent contractor who renders bona fide services to the Company or any Related Company that (i) are not in connection with the offer and sale of the Company’s securities in a capital-raising transaction and (ii) do not directly or indirectly promote or maintain a market for the Company’s securities. The Committee may delegate its responsibilities under the Stock Plan to members of our management with respect to the selection and grants of awards to employees who are not deemed to be executive officers or directors.

Non-Employee Director Grants

The Stock Plan provides for fixed initial and annual grants of Non-qualified Stock Options to Non-employee Directors. If Proposal No. 2 is approved, each newly elected or appointed Non-employee Director, will receive at the beginning of the initial term of service an Option to purchase 50,000 Shares at an exercise price equal to Fair Market Value on such date, and each Non-employee Director who serves as a director on April 1 of each year, will receive an Option to purchase 12,000 Shares at an exercise price equal to Fair Market Value on such date. In addition, on September 16, 2009, each then serving Non-employee Director who is not newly elected at the Annual Meeting will receive a one-time Option to purchase 30,000 Shares at an exercise price equal to Fair Market Value on such date. Each such Option will vest in three annual increments of 331/3% of the original Option grant beginning one year from the date of grant, will expire on the earlier of (i) ten years from the date of grant, and (ii) one year after the person ceases to serve as a director, and will provide for the acceleration of vesting upon the occurrence of a “Change of Control Transaction,” as defined in the Stock Plan, or if the person ceases to serve as a director as a result of the Company’s mandatory retirement age policy for Non-employee Directors. Any Non-employee Director who is ineligible to stand for re-election because he or she has reached the mandatory retirement age of 70, will receive on April 1 of each of the last two years of such director’s last term, in lieu of the annual stock options provided for above, an award of 3,000 shares of restricted stock. The shares of restricted stock covered by each such award is forfeited if the director does not complete the last term of service for any reason other than retirement and become freely transferable by the director at the end of the last term of service.

Future Awards

Except for the fixed Non-employee Director grants described above, the number and types of awards that will be granted under the Stock Plan in the future are not determinable, as the Compensation Committee will make these

determinations in its sole discretion. We expect that future awards made under the Stock Plan, as amended, will not materially differ in their allocation between executive officers and other employees from awards made in previous years.

Stock Options

Incentive Stock Options must be granted with an exercise price equal to at least the Fair Market Value of the Common Stock on the date of grant. In the Committee’s sole discretion, Non-Qualified Options may be granted with an exercise price less than 100% of the Fair Market Value of the Common Stock on the date of grant. For Incentive Stock Options, the aggregate Fair Market Value (determined as of the time the Incentive Stock Option is granted) of shares of Common Stock with respect to which Incentive Stock Options become exercisable for the first time by a participant under the Stock Plan during any calendar year may not exceed $100,000.

Stock Options have a maximum term fixed by the Compensation Committee, not to exceed 10 years from the date of grant. Stock Options become exercisable in the manner determined by the Compensation Committee. Stock Options may not be transferred other than by will or the laws of descent and distribution, and during the lifetime of a participant they may be exercised only by the participant.

Repricing

The Stock Plan prohibits either reducing the exercise price of an outstanding Option or canceling any outstanding Stock Option for the purpose of reissuing the Stock Option to the participant at a lower exercise price.

Stock Appreciation Rights

SARs may be granted at any time, and may be granted in tandem with an Option or alone (“freestanding”). Any SAR that relates to an Incentive Stock Option must be granted at the same time that the Incentive Stock Option is granted. The grant price of a tandem SAR shall be equal to the exercise price of the related option, and the grant price of a freestanding SAR shall be equal to the Fair Market Value of the Common Stock for the grant date. The term of a freestanding SAR shall be as established for that SAR by the Committee or, if not so established, shall be 10 years from the grant date, and in the case of a tandem SAR, (a) the term shall not exceed the term of the related option and (b) the tandem SAR may be exercised for all or part of the shares subject to the related option upon the surrender of the right to exercise the equivalent portion of the related option, except that the tandem SAR may be exercised only with respect to the shares for which its related option is then exercisable. At the discretion of the Committee, the payment upon exercise of an SAR may be in cash, in shares of Common Stock of equivalent value, in some combination thereof or in any other manner approved by the Committee, in its sole discretion.

Restricted Stock and Stock Units

The Committee may grant restricted stock and stock units on such terms and conditions and subject to such repurchase or forfeiture restrictions, if any, as the Committee shall determine in its sole discretion, which terms, conditions and restrictions shall be set forth in the instrument evidencing the Award. Upon satisfying the relevant conditions, the shares of restricted stock covered by each Award shall become freely transferable by the participant, while stock units shall be paid in cash, shares of Common Stock or a combination of cash and shares of Common Stock as the Committee shall determine in its sole discretion. Any fractional shares subject to such Awards shall be paid to the participant in cash. Participants holding shares of restricted stock or stock units may, if the Committee so determines, be credited with dividends paid with respect to the underlying shares or dividend equivalents while they are so held in a manner and form determined by the Committee in its sole discretion.

The Committee, in its sole discretion, may waive the repurchase or forfeiture period and any other terms, conditions or restrictions on any restricted stock or stock unit under such circumstances and subject to such terms and conditions as the Committee shall deem appropriate; provided, however, that the Committee may not adjust performance goals for any restricted stock or stock unit intended to be exempt under Section 162(m) of the Code for the year in which the restricted stock or stock unit is settled in such a manner as would increase the amount of compensation otherwise payable to a participant.

Performance Shares and Performance Units

Each award of performance shares shall entitle the participant to a payment in the form of shares of Common Stock upon the attainment of performance goals and other terms and conditions specified by the Committee. The number of shares issued under an award of performance shares may be adjusted on the basis of later considerations as the Committee shall determine, in its sole discretion. However, the Committee may not, in any event, increase the number of shares earned upon satisfaction of any performance goal by any employee “covered” under Section 162(m) of the Code (“Covered Employee”). The Committee, in its discretion, may make a cash payment equal to the Fair Market Value of the Common Stock otherwise required to be issued to a participant pursuant to an award of performance shares.

Performance units shall entitle the participant to a payment in cash, or at the discretion of the Committee in shares of Common Stock, upon the attainment of performance goals and other terms and conditions specified by the Committee. Notwithstanding the satisfaction of any performance goals, the amount to be paid under an award of performance units may be adjusted on the basis of such further consideration as the Committee shall determine, in its sole discretion. However, the Committee may not, in any event, increase the amount earned under performance unit awards upon satisfaction of any performance goal by any Covered Employee.

Performance Criteria must consist of preestablished, objective performance goals relating to one or more business criteria within the meaning of Section 162(m) of the Code, including, for example: return on average common shareholders’ equity; return on average equity; total shareholder return; stock price appreciation; efficiency ratio; net operating expense; earnings per diluted share of Common Stock; per share earnings before transaction-related expense; per share earnings after deducting transaction-related expense; return on average assets; ratio of nonperforming to performing assets; return on an investment in an affiliate; net interest income; net interest margin; ratio of common equity to total assets; and customer service metrics. Performance Criteria may be stated in absolute terms or relative to comparison companies or indices to be achieved during a period of time.

Award Limitations

Certain awards under the Stock Plan are subject to limitations in order to qualify such awards as performance-based compensation under Section 162(m) of the Code. No participant shall be granted in any one fiscal year of the Company an Award or Awards of any combination of Options and SARs, the value of which is based solely on an increase in the value of the Shares after the Grant Date within the meaning of Section 162(m) of the Code, covering more than 300,000 Shares in the aggregate. The maximum amount earned by any Covered Employee in any calendar year (without regard to any amounts earned by the Covered Employee with respect to Awards that are subject to Performance Criteria) may not exceed $1,000,000. The maximum amount of compensation that a participant may receive in any calendar year with respect to awards that are subject to Performance Criteria is $2,000,000.

Federal Income Tax Consequences

The following description of federal income tax consequences is based on current statutes, regulations and interpretations. The description does not include state or local income tax consequences. In addition, the description is not intended to address specific tax consequences applicable to an individual participant who receives an Award.

Incentive Stock Options

There will not be any federal income tax consequences to either the participant or the Company as a result of the grant to a participant of an Incentive Stock Option under the Stock Plan. The exercise by a participant of an Incentive Stock Option also will not result in any federal income tax consequences to the Company or the participant, except that (i) an amount equal to the excess of the Fair Market Value of the shares acquired upon exercise of the Incentive Stock Option, determined at the time of exercise, over the consideration paid for the shares by the participant will be a tax preference item for purposes of the alternative minimum tax, and (ii) the participant may be subject to an additional excise tax if any amounts are treated as “excess parachute payments” within the meaning of the Code.

If a participant disposes of the shares of Common Stock acquired upon exercise of an Incentive Stock Option, the federal income tax consequences will depend upon how long the participant has held the shares of Common Stock. If the participant does not dispose of the shares of Common Stock within two years after the Incentive Stock Option was granted, or within one year after the participant exercised the Incentive Stock Option and the shares of Common Stock were transferred to the participant (the “Applicable Holding Periods”), then the participant will recognize a long-term capital gain or loss. If the Applicable Holding Periods are not satisfied, then any gain realized in connection with the disposition of such stock will generally be taxable as ordinary compensation income in the year in which the disposition occurred, to the extent of the difference between the Fair Market Value of such stock on the date of exercise and the option exercise price. The Company is entitled to a tax deduction to the extent, and at the time, the participant realizes compensation income. The balance of any gain will be characterized as a capital gain.

Non-Qualified Options

An optionee will not realize taxable compensation income upon the grant of a Non-Qualified Stock Option. As a general matter, when an optionee exercises a Non-Qualified Stock Option, he or she will realize taxable compensation income at that time equal to the difference between the aggregate option price and the Fair Market Value of the stock on the date of exercise. The Company is entitled to a tax deduction to the extent, and at the time, the participant realizes compensation income.

Stock Appreciation Rights

No income is realized by the participant at the time a stock appreciation right is awarded, and no deduction is available to the Company at such time. When the right is exercised, ordinary income is realized by the participant in the amount of the cash or the Fair Market Value of the Common Stock received by the participant, and the Company shall be entitled to a deduction of equivalent value.

Restricted Stock and Other Awards

The Company receives a deduction, subject to the limitations of Section 162(m) of the Code, and the participant recognizes taxable income equal to the Fair Market Value of the restricted stock at the time the restrictions on the restricted Long-Term Incentive lapse, unless the participant elects to recognize such income immediately by so electing not later than 30 days after the date of the grant by the Company to the participant of a restricted Long-Term Incentive as permitted under Section 83(b) of the Code, in which case both the Company’s deduction and the participant’s inclusion in income occur on the grant date. The value of any part of any other award distributed to participants shall be taxable as ordinary income to such participants in the year in which such stock, cash or other consideration is received, and, subject to the limitations of Section 162(m) of the Code, the Company will be entitled to a corresponding tax deduction.

EXECUTIVE COMPENSATION

The following Compensation Discussion and Analysis describes the compensation philosophy, objectives, policies and practices with respect to: (i) our Chief Executive Officer (“CEO”) (our principal executive officer) during FY2009; (ii) our Chief Financial Officer (“CFO”) (our principal financial officer) during FY2009; (iii) the two remaining executive officers that were serving as such at March 31, 2009; and (iv) one former executive officer, Brian M.T. Burke, who was not serving as an executive officer at March 31, 2009 but whose total compensation in FY2009 would have been among the three other most highly compensated executives (collectively, the “Named Executive Officers”).

COMPENSATION DISCUSSION AND ANALYSIS

The following discussion should be read in conjunction with the “Executive Compensation Tables”, beginning on page 28, and accompanying narrative disclosure. The tables and narrative provide more detailed information regarding the total compensation and benefits awarded to, earned by, or paid to the Named Executive Officers during FY2009, FY2008 and FY2007, as well as the plans in which such officers are eligible to participate.

Overview of Executive Compensation Program and Philosophy

We are committed to providing executive compensation that attracts, motivates and retains the best possible executive talent for the benefit of our shareholders, supports our business objectives, and aligns the interests of the executive officers with the long-term interests of our shareholders. We believe these objectives are achieved by:


	•	Emphasizing performance-based pay through annual incentive opportunities that are based on the achievement of specific business objectives;

	•	Ensuring that all of our compensation programs are competitive with the practices of other organizations in our industry; and

	•	Providing long-term incentive plans, primarily in the form of equity grants, to retain and incent those individuals with the leadership abilities necessary for increasing our long-term shareholder value.

These policies guide the Compensation Committee in seeking to design effective pay programs and assessing the proper allocation between base salary, annual incentive compensation, and long-term compensation. The Compensation Committee may also consider our business objectives, fiduciary and corporate responsibilities, competitive practices and trends, and regulatory requirements. Compensation Committee members for FY2009 were: Mr. Weyl (Chair); Ms. Hopp; Mr. St. Marie; and Mr. Snow. On April 1, 2009, Mr. Gentz replaced Mr. Weyl as Chair of the Compensation Committee.

In determining the particular elements of compensation that will be used to implement our overall compensation policies, the Compensation Committee takes into consideration a number of factors related to Company performance, such as the achievement of profitability and revenue targets. The Compensation Committee balances each element of compensation to arrive at a total package that is competitive compared to national market data.

The Compensation Committee has responsibility for our executive compensation philosophy and the design of executive compensation programs. The Compensation Committee also determines the compensation paid to the CEO and reviews and approves the compensation paid to other executive officers.

The Compensation Committee has engaged, and regularly consults with, independent compensation consultants regarding executive compensation levels and practices. Towers Perrin served as the Compensation Committee’s independent consultant during FY2009. Towers Perrin provides information to the Compensation Committee on all of the principal aspects of executive compensation, including base salaries and annual and long-term incentives. For FY2009, Towers Perrin advised the Compensation Committee specifically on: (i) executive short-term and long-term compensation levels respective to market data; (ii) valuation of outstanding performance-based stock units; (iii) equity grant competitive levels; and (iv) current compensation trends.

The independent compensation consultant generally attends at least one meeting of the Compensation Committee each year and also communicates with the Compensation Committee Chair outside of meetings several times a year. The independent compensation consultant reports to the Compensation Committee rather than to management, although the independent compensation consultant may meet with management from time to time for purposes of gathering information on proposals that management may make to the Compensation Committee. The Compensation Committee is free to replace the independent compensation consultant or hire additional consultants at any time. The independent compensation consultant does not provide any other services to the Company and receives compensation only with respect to the services provided to the Compensation Committee.

Depending on the topics to be discussed, Compensation Committee meetings may also be attended by the CEO, CFO, General Counsel, and Vice President of Human Resources. Management makes recommendations to the Compensation Committee on the base salary, annual incentive plan targets and equity compensation for the executive team and other employees. The Compensation Committee considers, but is not bound to and does not always accept, management’s recommendations with respect to executive compensation. For the CEO, the Compensation Committee normally discusses and determines pay with information from the independent compensation consultant and in an executive session without the CEO or other management present.

The Compensation Committee also regularly holds executive sessions that are not attended by any members of management or non-independent directors. The Compensation Committee has the ultimate authority to make

decisions with respect to the compensation of our Named Executive Officers, but may, if it chooses, delegate any of its responsibilities. The Compensation Committee has delegated to any two of the following — CEO, CFO, and General Counsel — the authority to grant long-term incentive awards to non-executive officers under limited circumstances and pursuant to specific guidelines established by the Compensation Committee. The Compensation Committee has not delegated any of its authority with respect to the compensation of executive officers.

The CEO’s role in the Compensation Committee process is oversight of all of management’s recommendations and reports to the Compensation Committee and/or Board of Directors. The CEO provides direct input to the Compensation Committee on such matters as the affordability and efficacy of various plan designs. Beginning in FY2008, the CEO recommended the granting of restricted stock to employees in addition to stock options which had traditionally been granted. The CEO may also make recommendations with respect to scheduling meetings and agenda topics and occasionally meets with Compensation Committee members and/or the independent compensation consultant outside of scheduled meetings. The Compensation Committee considers the CEO’s input, but makes its decisions independently.

Elements of Compensation

Our executive compensation is comprised primarily of the following elements: fixed cash compensation, in the form of base salary; and variable compensation, in the form of short-term incentive pay and long-term incentive compensation. Long-term incentive compensation consists of equity grants, while short-term incentive compensation is paid in cash. Although, the Compensation Committee has not set specific targets for the relative percentages of these elements, it strives for a balance that rewards executives for the achievement of short-term (annual) goals while also focusing on the long-term revenue and profitability of the Company. Because the Compensation Committee believes that the CEO has a greater impact on the achievement of long-term targets, it has determined that variable compensation should constitute a greater percentage of his compensation when compared to the other Named Executive Officers. For FY2009 the relative percentages of these elements were as follows:


				Short-Term			Long-Term
	Base Salary			Incentive			Incentive
Named Executive Officer	Percentage(1)			Percentage(2)			Percentage(3)

Cary L. Deacon		43	%		34	%		23	%
Brian M.T. Burke(4)		53	%		42	%		5	%
J. Reid Porter		60	%		33	%		7	%
Gen Fukunaga		65	%		32	%		3	%
John Turner		63	%		35	%		2	%


(1)		Based on executive’s current base salary as discussed in “Base Salary Compensation” below.

(2)		Based on executive’s target incentive amount as discussed in “Annual Incentive Compensation” below.

(3)		Based on the Grant Date Fair Value as reported in the “Grants of Plan-Based Awards in FY2009” table on page 29.

(4)		Mr. Burke served as the Company’s Chief Operating Officer until January 5, 2009 when that position was eliminated in connection with a Company restructuring and workforce reduction.

Considering the three elements of compensation (base salary, target annual incentive and grant date value of long term incentives), the FY2009 compensation of the Named Executive Officers relative to the market data median (as determined by the national compensation surveys discussed below) was: for Mr. Porter, close to the median; for Mr. Deacon and Mr. Burke, below the median; and for Mr. Fukunaga and Mr. Turner, above the median.

Base Salary Compensation — Base salary is used to provide competitive levels of compensation to executives based upon their experience, duties and areas of responsibility. We pay base salaries because it provides a fixed level of compensation that we feel is necessary to recruit and retain executives. An important aspect of base salary is the Compensation Committee’s ability to use annual base salary adjustments, when the financial performance of the Company permits, to reflect an individual’s performance or changed responsibilities. The Compensation Committee annually reviews the base salaries of Navarre’s executive officers. In FY2009, the Company transitioned from individual anniversary date performance reviews to a fixed date for all salary reviews

(excluding the CEO) to occur within the first quarter of each fiscal year in order to more closely align each employee with the Company’s annual strategy. The CEO makes recommendations for changes to the base salaries of the other executive officers based on each executive’s individual performance and relevant market data.

The Compensation Committee’s goal is to set base salaries for each executive, including the CEO, at a level that reflects each individual’s performance and organizational impact and at a competitive level nationally. Differences in the amount of base salary between the Named Executive Officers reflect the Compensation Committee’s assessment of the differences in the scope of each executive’s responsibilities and contributions in light of competitive pay levels for similar positions in other similarly situated organizations. National surveys from William M. Mercer, Watson Wyatt, and Towers Perrin are used to gauge competitiveness; however, the Compensation Committee has not set a specific target percentile for the base salaries paid to the Named Executive Officers. In addition, to further assess the competitiveness and reasonableness of the compensation for the CEO and CFO, the Compensation Committee reviewed information from the proxy statements of a broad group of public companies engaged in distributing, retailing or publishing entertainment and/or technology products. For FY2007 and FY2008, the group consisted of the following companies, and, for FY2009, GTSI Corp. was added to the group:


4Kids Entertainment Inc.	Hastings Entertainment Inc.	ScanSource Inc.
Digital Angel Corporation	Ingram Micro Inc.	Take-Two Interactive Software Inc.
DreamWorks Animation Inc.	INX Inc.	Tech Data Corp.
Electronic Arts Inc.	MGM Mirage	TransWorld Entertainment Corp.
En Pointe Technologies Inc.	Movie Gallery Inc.	Wayside Technology Group.
Handleman Co.	Pomeroy IT Solutions Inc.
GTSI Corp.
Handleman Co.

In FY2009, the Named Executive Officers did not receive base pay increases, except for Mr. Fukunaga whose base salary was increased 5% from $350,000 to $367,500.

Annual Incentive Compensation — Annual incentive compensation is used to reward executives for their contributions toward the achievement of the Company’s short-term goals. Executive officers and other management employees selected by the Compensation Committee participate in the Company’s Annual Management Incentive Plan. The FY2009 target amounts approved by the Compensation Committee under the Annual Management Incentive Plan (shown in the table below) were intended to provide annual cash compensation (i.e., base salary plus annual incentive) approximating the median of the cash compensation offered to executive officers in similar positions as shown by the William M. Mercer, Watson Wyatt, and Towers Perrin national survey data, provided that the Company’s goals were met.

For FY2009, the Annual Management Incentive Plan performance measures for the Named Executive Officers were based on budgeted consolidated and/or subsidiary operating income, consolidated and/or subsidiary sales, and individual objectives as follows:


CEO/COO/CFO:		60% consolidated operating income, 20% consolidated sales, and 20% individual objectives
Subsidiary President:		20% consolidated operating income, 40% subsidiary operating income, 20% subsidiary sales, and 20% individual objectives
SVP:		60% consolidated operating income, 20% consolidated sales, and 20% individual objectives

The Compensation Committee selected the following financial objectives for FY2009: target consolidated operating income of $20 million and consolidated net sales of $664 million, and for Mr. Fukunaga, who is a subsidiary president, subsidiary operating income of $9 million and subsidiary consolidated net sales of $56 million. The Compensation Committee believed that income and sales performance criteria are critical drivers of our strategy to achieve profitable and sustainable growth, and thereby create long-term value for our shareholders. Under the annual plan design, other than discretionary awards, as discussed below, no bonuses are earned if consolidated operating income, as determined by the Compensation Committee, is below $16 million (80% of

target). If consolidated operating income exceeds the target, a participant’s earned bonus is increased by the same percentage; however, bonus payments under the Plan are capped at 150% of base salary. The Compensation Committee also approved a maximum discretionary pool of $500,000. The Compensation Committee may determine, in its discretion, to reward participants with exemplary performance during the fiscal year out of the discretionary pool whether or not the Company’s financial objectives are achieved. The Compensation Committee also reserved the right to change, suspend, or discontinue the Annual Management Incentive Plan at any time without prior notice to participants.

Each participant has specific individual objectives which account for a maximum of 20% of the total incentive payout. The individual objectives for the Named Executive Officers are generally tied to business strategy. For FY2009, the individual objectives for the CEO encompassed budget leadership, executive succession planning, Company strategic planning and external communications. The individual objectives for the other Named Executive Officers included: implementation of the warehouse management portion of the ERP system (Messrs. Burke, Porter and Turner); operational improvements (Messrs. Burke and Turner); succession planning (Messrs. Burke, Fukunaga and Porter); treasury controls and financial operations improvement (Mr. Porter); and licensing, distribution and digital rights acquisitions for new products (Mr. Fukunaga).

At the time the annual financial objectives were determined, the Compensation Committee believed them to be difficult but obtainable. However, since the consolidated operating income threshold was not met, bonuses were not earned under the annual incentive plan pool regardless of actual results on the net sales and individual objectives. No awards from the discretionary pool described above were made to the executive officers for FY2009.

For the Named Executive Officers, the following target annual incentive plan amounts were possible for FY2009:


	FY09 Base		FY09 Target			FY09 Target		Actual Paid			Actual Paid
Named Executive Officer	Salary $		% of Salary			$		% of Target			$

Cary L. Deacon	$	475,000		80	%	$	380,000		0	%	$	0
Brian M.T. Burke(1)	$	330,000		80	%	$	264,000		0	%	$	0
J. Reid Porter	$	333,000		55	%	$	183,150		0	%	$	0
Gen Fukunaga	$	367,500		50	%	$	183,750		0	%	$	0
John Turner	$	250,000		55	%	$	137,500		0	%	$	0


(1)		Mr. Burke served as the Company’s Chief Operating Officer until January 5, 2009 when that position was eliminated in connection with a Company restructuring and workforce reduction.

For FY2010, the Compensation Committee has determined that the features of the Annual Management Incentive Plan generally will remain the same as described above except that the financial target has been changed from operating income and sales to earnings before interest, depreciation and amortization (“EBITDA”). The Compensation Committee selected EBITDA as its financial target because it is the principal measure by which the Company is evaluated in the investment and finance communities and because it reflects performance factors that the executive officers can directly impact. The Compensation Committee has set the target consolidated EBITDA objective at $20.2 million and, for subsidiary participants, a subsidiary specific EBITDA target. Other than possible discretionary awards under the discretionary pool described above, no bonuses are earned if funding any portion of the incentive pool will cause the Company to fail to achieve the consolidated EBITDA target. Additionally, in order for subsidiary participants to earn a bonus, the applicable subsidiary must attain 80% of the specific subsidiary EBITDA target. If consolidated EBITDA exceeds the target, the incentive pool will be increased by 25% of the excess amount, and participants will share in the enhanced incentive pool on a pro-rata basis. However, bonus payments under the Plan are capped at 150% of the participant’s target bonus. The Compensation Committee believes the EBITDA target is realistic under current economic conditions and is appropriately challenging.

Long-Term Incentive Compensation — Long-term incentive compensation is used to reward executives for their contributions toward the achievement of the Company’s long-term goals. We encourage executive stock ownership through the ownership guidelines described on page 10. Stock ownership is reviewed by the Compensation Committee on an annual basis for progress in meeting these guidelines.

We target the value of our equity awards, based upon the expense recognized by the Company in connection with the grant of such awards, to the median of similar awards offered to executive officers in comparable positions as shown by the William M. Mercer, Watson Wyatt, and Towers Perrin national survey data. We believe this strategy encourages decisions and behaviors that will increase long-term shareholder value and allows us to attract and retain key management talent by providing competitive incentive opportunities. In FY2008 and again in FY2009, the Compensation Committee decided to provide a portion of the annual equity grant, approximating one half of the total grant value, in the form of restricted stock units. Because a majority of the Company’s outstanding stock options are out-of-the-money, the Compensation Committee determined that the restricted stock units will continue to provide an enhanced retention incentive to employees at this time. In addition, the grant of restricted stock units consumes fewer shares under the Company’s shareholder authorized stock plan and has been determined by the Compensation Committee to be consistent with the compensation trends reported by the Compensation Committee’s compensation consultant. The nonqualified stock option awards vest over three years with a ten year termination period. The restricted stock units also vest over three years. Upon vesting, participants, who are still employed by the Company, will receive one unrestricted share of Common Stock for each vested restricted stock unit.

The number of shares of our Common Stock that can be acquired by the Named Executive Officers upon the vesting of grants made in FY2009 is 626,250 shares, apportioned as follows: Cary L. Deacon, 500,000 shares; J. Reid Porter, 79,000 shares; Gen Fukunaga, 33,750 shares; and John Turner, 13,500 shares. Brian M.T. Burke was granted awards covering 56,500 shares; however, his employment terminated on January 5, 2009 prior to vesting of any of the awards. The value of the equity grants made in FY2009 continued to be impacted by the Company’s low stock price during the fiscal year. The Compensation Committee felt it was appropriate to ensure that Mr. Deacon be provided with long term incentive compensation that reflected the median of the market data by significantly increasing the number of shares granted to him in FY2009 over those granted in FY2008. The number of shares of our Common Stock that can be acquired by all other employees upon the vesting of grants made in FY2009 is 358,250 shares (excluding grants covering 63,750 shares made in FY2009 but forfeited due to employee terminations).

Equity-based incentives are granted under our shareholder-approved Amended and Restated 2004 Stock Plan. The Compensation Committee has granted equity awards at its scheduled meetings or by written action without a meeting. These actions are taken on the same day as, or prior to, the grant date. Annual grants are normally discussed and granted in scheduled meetings taking place in September and/or October and become effective and are priced as of the beginning of the first day of the open trading window after public disclosure of the Company’s 2nd Quarter financial results.

Under authority delegated by the Compensation Committee, management awarded stock options covering 35,000 shares (included in the 358,250 shares recited above) to employees (other than executive officers) as part of a new hire offer, promotion or reward/incentive for significant achievement. Grants made outside of the annual grant are effective as of the date of approval or at a predetermined future date (for example, new hire grants are effective as of the later of the date of approval or the newly hired employee’s start date). All stock option grants have a per share exercise price no less than the grant date fair market value defined as the opening price for our Common Stock on the NASDAQ Global Market during a regular trading session or, if the grant date is not a trading day, then the last reported sales price listed on the NASDAQ Global Market prior to the grant date. The Compensation Committee has not granted, nor does it intend in the future to grant, equity compensation awards to executives in anticipation of the release of material nonpublic information that is likely to result in changes to the price of our Common Stock, such as a significant positive or negative earnings announcement. Similarly, the Compensation Committee has not timed, nor does it intend in the future to time, the release of material nonpublic information based on equity award grant dates.

Benefits and Executive Perquisites

In FY2009, the Named Executive Officers were eligible to receive the following benefits that are generally available to all our employees: (i) group medical and dental insurance; (ii) group long-term and short-term disability insurance; (iii) group life and accidental death and dismemberment insurance; (iv) medical and dependent care flexible spending accounts; (v) wellness programs; (vi) educational assistance; (vii) employee assistance; and

(viii) paid time-off policies, including vacation, sick time, and holidays. The main objectives of our benefits program is to give our employees access to quality healthcare, insurance protection from unforeseen events, assistance in achieving retirement financial goals, enhanced health and productivity and to provide support for workforce mobility.

In addition, we maintain a tax-qualified 401(k) Plan, which provides for broad-based employee participation. Under the 401(k) Plan, all participating employees are eligible to receive matching contributions that are subject to vesting over three years. The matching contribution for the 401(k) Plan is determined on an annual basis in the discretion of the Company and is currently 50% of the contribution up to 4% of base pay. The matching contribution is generally calculated and paid in April or May for all employee contributions made during the preceding calendar year. The 401(k) match and the incremental value of benefits provided to the Named Executive Officers under the Company’s benefits program are included in the “All Other Compensation” column of the “Summary Compensation Table” on page 28. We do not provide defined benefit pension plans or defined contribution retirement plans to executives or other employees other than the 401(k) Plan.

In general, we do not offer executive perquisites to our officers. However, in some cases, specific perquisites are negotiated at the time of an executive’s initial recruitment or promotion to a new position. Currently, these are a golf club membership for Mr. Deacon and life insurance policy premiums for Mr. Deacon and Mr. Porter. The dollar values of these perquisites are included in the “All Other Compensation” column of the “Summary Compensation Table” on page 28.

Compensation of Chief Executive Officer

Management does not provide a recommendation to the Compensation Committee regarding an annual adjustment in the CEO’s base salary. In December 2008, the Compensation Committee provided an annual performance evaluation for Mr. Deacon after seeking input from the Board members on the CEO’s performance over the past year. The Compensation Committee considered the achievement of Company goals as well as the CEO’s effectiveness, leadership, expertise and decision-making. The Compensation Committee also reviewed the CEO’s compensation in comparison to the survey data provided by the Compensation Committee’s independent compensation consultant. Although Mr. Deacon continues to demonstrate strong leadership in his second year as CEO, the Compensation Committee did not feel it was appropriate to approve a salary increase for Mr. Deacon at a time of reductions in force and other expense reductions for the Company. The Compensation Committee commends Mr. Deacon for implementing difficult decisions in a timely manner to divest the Company of underperforming business segments and restructure the Company’s cost structure in response to a challenging retail environment. The Compensation Committee believes that Mr. Deacon’s compensation appropriately reflects his tenure and performance as CEO at this time.

Executive Employment Agreements

We have entered into agreements regarding employment and/or severance with each of the Named Executive Officers, the terms of which are described beginning on page 32 under “Executive Severance and Change in Control Agreements.” The Compensation Committee believes that such employment agreements promote the stability of the Company by (i) lessening the personal uncertainties and potential distraction of the executives created by Company actions resulting in a termination of their employment for reasons other than cause and (ii) establishing the rights and obligations of both the Company and the executive after the employment relationship ends. In addition, reasonable severance arrangements offer a competitive benefit and aid in retention of the services of valuable executives. Descriptions of how “Cause,” “Without Cause” and for “Good Reason” (i.e. constructive termination) are defined in the employment agreements are set forth on page 32.

The Compensation Committee believes that the amount of severance offered to the Named Executive Officers is not excessive and that the trigger for severance payments, which in all cases is involuntarily termination by the Company Without Cause or constructive termination due to adverse Company actions, is appropriate and in the best interests of the shareholders. Further, the Compensation Committee believes that the differences in the amount of severance offered among the Named Executive Officers are justified by the scope of each executive’s responsibilities and contributions. No changes were made to the employment and severance agreements in FY2009.

Accounting and Tax Considerations

We aim to keep the expense related to our compensation programs as a whole within certain affordability levels. When determining how to apportion between differing elements of compensation, the goal is to meet our compensation objectives while maintaining cost neutrality. For instance, if we increase benefits under one program resulting in higher compensation expense, we may seek to decrease costs under another program in order to avoid a compensation expense that is above our targeted affordability level. As a further example, in determining to grant restricted stock units in addition to stock options, we considered the accounting impact and tried to keep the overall compensation cost generally the same.

In addition, we have not provided any executive officer or director with a gross-up or other reimbursement for tax amounts the executive might pay pursuant to Section 280G or Section 409A of the Code. Section 280G and related Code sections provide that executive officers, directors who hold significant shareholder interests and certain other service providers could be subject to significant additional taxes if they receive payments or benefits in connection with a change in control of the Company that exceeds certain limits, and that the Company or its successor could lose a deduction on the amounts subject to the additional tax. Section 409A of the Code also imposes additional significant individual taxes in the event that an executive officer, director or service provider receives “deferred compensation” that does not meet the requirements of Section 409A. To assist in the avoidance of additional tax under Section 409A, we structure equity awards and executive employment agreements in a manner intended to comply with the applicable Section 409A requirements.

Section 162(m) of the Code prohibits the Company from deducting as compensation expense amounts exceeding $1,000,000 a year for the CEO and the other Named Executive Officers relating to the period during which the compensation is earned, unless the payment of such compensation is based on pre-established, objective performance goals approved by the shareholders. We believe that all compensation expense related to realized stock option gains will qualify for deduction under Section 162(m). A portion of executive compensation, however, will continue to be based on significant subjective measures that may cause certain compensation not to be deductible. We intend to consider the impact of Section 162(m) when making future compensation decisions but believe it is important to continue to evaluate the performance of executive officers, in part, on subjective performance measures.

COMPENSATION COMMITTEE REPORT

The information contained in this report shall not be deemed to be “soliciting material” or “filed” with the SEC or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), except to the extent that Navarre specifically incorporates it by reference into a document filed under the Securities Act of 1933 (the “Securities Act”) or the Exchange Act.

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis for FY2009. Based on the review and discussions, the Compensation Committee recommended to the Board, and the Board has approved, that the Compensation Discussion and Analysis be included in the Proxy Statement for the Company’s 2009 Annual Meeting of Stockholders.

This report is submitted by the Compensation Committee:

Timothy R. Gentz (Chair)
Deborah L. Hopp
Richard Gary St. Marie
Michael L. Snow

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No member of the Compensation Committee is a current or former officer or employee of the Company or any of its subsidiaries. In addition, no member of the Compensation Committee is an executive officer of another entity where any of the Company’s executives serve on the other entity’s compensation committee.

EXECUTIVE COMPENSATION TABLES

SUMMARY COMPENSATION TABLE


												Non-Equity
												Incentive		All
							Stock			Option		Plan		Other
			Salary		Bonus		Awards			Awards		Compensation		Compensation		Total
Name	Year		($)		($)(1)		($)(2)			($)(3)		($)(4)		($)(5)		($)

Cary L. Deacon,		FY2009	$	475,000	$	0	$	174,938		$	363,404	$	0	$	27,048	$	1,040,390
President and CEO		FY2008		453,846		0		134,029			323,534		0		26,778		938,187
and Director(6)		FY2007		377,885		0		56,675			122,456		120,000		10,055		687,071
Brian M.T. Burke,		FY2009	$	267,807	$	0	$	(11,742	)	$	13,401	$	0	$	380,858	$	650,324
former Chief Operating		FY2008		295,385		0		7,914			29,395		0	$	4,400		337,094
Officer(7)		FY2007		280,000		0		6,840			17,999		51,499		4,200		360,538
J. Reid Porter,		FY2009	$	333,000	$	0	$	16,830		$	29,724	$	0	$	7,842	$	387,396
Executive Vice		FY2008		315,692		0		10,699			22,973		0		7,742		357,106
President and CFO		FY2007		304,038		0		8,550			8,164		72,526		6,707		399,985
Gen Fukunaga,		FY2009	$	363,462	$	0	$	9,108		$	14,692	$	0	$	4,500	$	391,762
CEO and President,		FY2008		350,000		0		6,204			11,486		0		4,400		372,090
FUNimation		FY2007		350,000		0		5,130			4,082		52,080		4,200		415,492
John Turner,		FY2009	$	250,000	$	15,000	$	7,949		$	12,347	$	0	$	4,500	$	289,796
Sr. Vice President,		FY2008		241,154		0		5,989			19,353		0		4,400		270,896
Global Logistics		FY2007		235,000		0		5,130			15,511		40,102		4,200		299,943


(1)		Mr. Turner received a one time incentive award of $15,000 in September 2008 to recognize his contribution to the successful implementation of the Company’s new ERP system.

(2)		We determine the fair value of stock awards as of the date of grant and recognize the expense over the applicable vesting period. Amounts in this column represent compensation costs recognized by us during FY2009, FY2008 and FY2007, respectively, for financial statement reporting purposes under Statement of Financial Accounting Standards No. 123, Share-Based Payment — Revised 2004 (“FAS 123R”), based on the valuation of outstanding stock awards utilizing the assumptions discussed in Note 22 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2009, but disregarding any estimate of service-based forfeitures.

(3)		Amounts represent compensation costs recognized by us during FY2009, FY2008 and FY2007, respectively, for financial statement reporting purposes under FAS 123R, based on the valuation of outstanding option awards utilizing assumptions discussed in Note 22 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2009, but disregarding any estimate of service-based forfeitures.

(4)		The amounts in this column represent the annual incentive paid under our Annual Management Incentive Plan as discussed in “Compensation Discussion and Analysis” on page 20. The amounts listed for FY2007 were earned for FY2007 although paid after the end of the 2007 fiscal year. No awards were earned or paid for FY2009 or FY2008 under the Annual Management Incentive Plan.

(5)		The All Other Compensation column for Messrs. Deacon, Porter, Fukunaga and Turner consists of the following:


	401(k) Match						Life Insurance						Golf Club Dues
	FY2009		FY2008		FY2007		FY2009		FY2008		FY2007		FY2009		FY2008		FY2007

Cary L. Deacon	$	4,500	$	4,400	$	4,200	$	12,217	$	12,217		—	$	10,331	$	10,161	$	5,855
J. Reid Porter	$	4,500	$	4,400	$	4,200	$	3,342	$	3,342	$	2,507		—		—		—
Gen Fukunaga	$	4,500	$	4,400	$	4,200		—		—		—		—		—		—
John Turner	$	4,500	$	4,400	$	4,200		—		—		—		—		—		—

The All Other Compensation column for Mr. Burke consists of the following:


401(k) Match						Accrued Unused Vacation						Accrued Severance
FY2009		FY2008		FY2007		FY2009		FY2008		FY2007		FY2009		FY2008		FY2007

$	4,500	$	4,400	$	4,200	$	29,192		—		—	$	347,166		—		—


(6)		Mr. Deacon has served as the Company’s CEO since January 1, 2007. Mr. Deacon receives no additional compensation for his service as a director.

(7)		Mr. Burke served as the Company’s Chief Operating Officer until January 5, 2009 when that position was eliminated in connection with a Company restructuring and workforce reduction. The amounts listed in the All Other Compensation column for Mr. Burke are pursuant to his Executive Severance Agreement which is described in “Executive Severance and Change in Control Agreements” beginning on page 32.

GRANTS OF PLAN-BASED AWARDS IN FY 2009


											All			All
											Other			Other					Grant
											Stock			Option					Date
											Awards:			Awards:			Exercise		Fair
											Number of			Number of			or Base		Value of
					Estimated Future Payouts Under						Shares of			Securities			Price of		Stock
					Non-Equity Incentive Plan Awards(2)						Stock or			Underlying			Option		and
	Grant		Approval		Threshold		Target		Maximum		Units			Options			Awards		Option
Name	Date(1)		Date(1)		($)		($)		($)		(#)			(#)			($/Sh)(3)		Awards

Cary L. Deacon		11/13/2008		11/4/2008		—		—		—		200,000(4	)		—			—	$	138,000
		11/13/2008		11/4/2008		—		—		—		—			300,000(5	)	$	0.69	$	117,000
		—		—		0	$	380,000	$	712,500		—			—			—		—
Brian M.T. Burke(6)		11/13/2008		10/30/2008		—		—		—		19,000(4	)		—			—	$	13,110
		11/13/2008		10/30/2008		—		—		—		—			37,500(5	)	$	0.69	$	14,625
		—		—		0	$	264,000	$	495,000		—			—			—		—
J. Reid Porter		11/13/2008		10/30/2008		—		—		—		26,500(4	)		—			—	$	18,285
		11/13/2008		10/30/2008		—		—		—		—			52,500(5	)	$	0.69	$	20,475
		—		—		0	$	183,150	$	499,500		—			—			—		—
Gen Fukunaga		11/13/2008		10/30/2008		—		—		—		11,250(4	)		—			—	$	7,763
		11/13/2008		10/30/2008		—		—		—		—			22,500(5	)	$	0.69	$	8,775
		—		—		0	$	183,750	$	551,250		—			—			—		—
John Turner		11/13/2008		10/30/2008		—		—		—		4,500(4	)		—			—	$	3,105
		11/13/2008		10/30/2008		—		—		—		—			9,000(5	)	$	0.69	$	3,510
		—		—		0	$	137,500	$	375,000		—			—			—		—


(1)		The date of grant for each award is established by the Compensation Committee during a meeting or by written action without a meeting on or prior to the date of the grant. Pursuant to guidelines adopted by the Compensation Committee, annual grants are normally discussed and approved in scheduled meetings taking place in the fall to become effective as of the first day of the open trading window after public disclosure of second quarter financial information.

(2)		Our Annual Management Incentive Plan is considered a “non-equity incentive plan.” This column represents the range of awards under the plan that were possible for FY2009. The amounts that were actually earned by the Named Executive Officers in FY2009 are set forth in the “Non-Equity Incentive Plan Compensation” column of the “Summary Compensation Table” above, and, in each case, the amounts earned for FY2009 were $0. For FY2009, each Named Executive’s Officer’s target award was established as a percentage of base salary. The target award percentages, objectives and other details are set forth in the discussion of “Annual Incentive Compensation” in our “Compensation Discussion and Analysis” on page 20.

(3)		Under the terms of the 2004 Stock Plan, as amended and approved by shareholders on September 15, 2005, the exercise price is no less than the grant date fair market value defined as the opening price for our Common Stock on the NASDAQ Global Market during a regular trading session or, if the grant date is not a trading day, then the last reported sales price listed on the NASDAQ Global Market prior to the grant date. In FY2009, the exercise price listed in this column was greater than the closing market price for each grant date.

(4)		Restricted stock units were granted in FY2009 under the 2004 Stock Plan as discussed in “Long-Term Incentive Compensation” in our “Compensation Discussion and Analysis” on page 20.


(5)		Annual stock option grants to the Named Executive Officers under the 2004 Stock Plan.

(6)		Mr. Burke’s awards were unvested and were forfeited at the time of his employment termination on January 5, 2009.

OUTSTANDING EQUITY AWARDS AT FY2009 FISCAL YEAR-END


	Option Awards									Stock Awards
													Market
										Number of			Value of
										Shares or			Shares
	Number of		Number of							Units of			or Units
	Securities		Securities							Stock			of Stock
	Underlying		Underlying							That			That
	Unexercised		Unexercised			Option		Option		Have			Have
	Options(#)		Options(#)			Exercise		Expiration		Not			Not
Name	Exercisable(1)		Unexercisable			Price ($)		Date		Vested (#)			Vested ($)

Cary L. Deacon		25,000		0		$	6.09		01/30/2010		—			—
		25,000		0		$	17.39		11/24/2010		—			—
		150,000		0		$	7.26		08/14/2015		—			—
		10,000		0		$	4.59		10/25/2015		—			—
		200,000		100,000(2	)	$	4.95		11/01/2016		—			—
		33,334		66,666(3	)	$	2.41		11/11/2017		—			—
		—		300,000(4	)	$	0.69		11/12/2018		—			—
		—		—			—		—		23,334(5	)	$	10,267
		—		—			—		—		33,333(6	)	$	14,667
		—		—			—		—		200,000(7	)	$	88,000
Brian M.T.Burke(8)		50,000		0		$	7.26		04/06/2009		—			—
		8,000		0		$	4.59		04/06/2009		—			—
		10,000		0		$	4.95		04/06/2009		—			—
		2,500		0		$	2.41		04/06/2009		—			—
		8,334		0		$	2.16		04/06/2009		—			—
J. Reid Porter		175,000		0		$	5.89		12/11/2015		—			—
		13,333		6,667(2	)	$	4.95		11/01/2016		—			—
		5,000		10,000(3	)	$	2.41		11/11/2017		—			—
		—		52,500(4	)	$	0.69		11/12/2018		—			—
		—		—			—		—		5,000(6	)	$	2,200
		—		—			—		—		26,500(7	)	$	11,600
Gen Fukunaga		250,000		0		$	8.38		05/10/2015		—			—
		6,666		3,334(2	)	$	4.95		11/01/2016		—			—
		2,500		5,000(3	)	$	2.41		11/11/2017		—			—
		—		22,500(4	)	$	0.69		11/12/2018		—			—
		—		—			—		—		2,500(6	)	$	1,100
		—		—			—		—		11,250(7	)	$	4,950
John Turner		25,000		0		$	6.09		01/30/2010		—			—
		25,000		0		$	17.39		11/24/2010		—			—
		7,500		0		$	4.59		10/25/2015		—			—
		6,000		3,000(2	)	$	4.95		11/01/2016		—			—
		2,000		4,000(3	)	$	2.41		11/11/2017		—			—
		—		9,000(4	)	$	0.69		11/12/2018		—			—
		—		—			—		—		2,000(6	)	$	880
		—		—			—		—		4,500(7	)	$	1,980


(1)		On March 20, 2006, the vesting of all outstanding stock options with exercise prices equal to or greater than $4.50 per share were accelerated and became exercisable. However, as a condition to the acceleration, the Board required each Named Executive Officer to enter into a lock-up agreement which prohibits the sale, transfer or other disposition of the shares acquired upon any exercise of the accelerated stock options (other than


		sales to fund the exercise price or to satisfy minimum statutory withholding) until the date on which the exercise would have been permitted under the stock option’s pre-acceleration vesting terms or, if earlier, the officer’s last day of employment with the Company.

(2)		Stock options granted November 2, 2006 with vesting in three equal annual installments on November 2, 2007, November 2, 2008 and November 2, 2009, conditioned on continued employment through those dates.

(3)		Stock options granted November 12, 2007 with vesting in three equal annual installments on November 12, 2008, November 12, 2009 and November 12, 2010, conditioned on continued employment through those dates.

(4)		Stock options granted November 13, 2008 with vesting in three equal annual installments on November 13, 2009, November 13, 2010 and November 13, 2011, conditioned on continued employment through those dates.

(5)		Restricted stock award granted November 2, 2006 with restrictions on transfer lapsing in three annual installments of 23,333, 23,333 and 23,334 shares on November 2, 2007, 2008 and 2009, conditioned on continued employment through those dates, at which times said installments will no longer be subject to forfeiture.

(6)		Restricted stock unit awards granted November 12, 2007 with vesting in three equal annual installments on November 12, 2008, November 12, 2009 and November 12, 2010, conditioned on continued employment through those dates. One share of Common Stock will be issued for every restricted stock unit which vests.

(7)		Restricted stock unit awards granted November 13, 2008 with vesting in three equal annual installments on November 13, 2009, November 13, 2010 and November 13, 2011, conditioned on continued employment through those dates. One share of Common Stock will be issued for every restricted stock unit which vests.

(8)		Due to termination of employment on January 5, 2009, Mr. Burke’s vested stock options listed in the table above expired on April 6, 2009. Non-vested equity awards and vested options granted under the Company’s 1992 Stock Option Plan were forfeited upon termination of employment.

OPTION EXERCISES AND STOCK VESTED IN FY2009


	Option Awards				Stock Awards
	Number of		Value Realized		Number of Shares		Value Realized
	Shares Acquired		on Exercise		Acquired		on Vesting
Name	on Exercise (#)		($)		on Vesting (#)		($)(1)

Cary L. Deacon		—		—		40,000	$	32,300
Brian M.T. Burke(2)		—		—		1,250	$	813
J. Reid Porter		—		—		2,500	$	1,625
Gen Fukunaga		—		—		1,250	$	813
John Turner		—		—		1,000	$	650


(1)		Amount determined using the closing price of our Common Stock on the vesting date.

(2)		Mr. Burke served as the Company’s Chief Operating Officer until January 5, 2009 when that position was eliminated in connection with a Company restructuring and workforce reduction.

EXECUTIVE SEVERANCE AND CHANGE IN CONTROL AGREEMENTS

We have entered into employment and other agreements with certain executive officers to attract and retain talented executives. With respect to these agreements, a termination for “Cause” generally means a felony conviction, willful neglect, malfeasance or misconduct, or violation of a Company policy, which could result in material harm to the Company, fraud or dishonesty with respect to the Company’s business, breach of duty of loyalty or a material breach of the executive’s covenants in the agreement. A termination “Without Cause” would be an involuntary termination for which the Company did not have Cause. A termination by an executive for “Good Reason” generally means a reduction in the executive’s compensation, rights or benefits, a material reduction in duties, responsibilities or authority, relocation to other than the Company’s principal headquarters, an adverse material change in working conditions or a material breach of the Company’s covenants in the agreement. A “Change in Control Transaction” generally includes the occurrence of any of the following: (i) the acquisition by any person or entity of 50% or more of the voting power of the Company’s outstanding shares; (ii) a merger or other business combination of the Company, a liquidation or dissolution, unless following such transaction the Company’s shareholders before the transaction have the same proportionate ownership of stock of the surviving entity; (iii) the board of directors prior to any transaction does not constitute a majority of the board thereafter; and (iv) any other transaction required to be reported as a change of control under Regulation 14A of the Securities and Exchange Commission.

Cary L. Deacon Amended and Restated Employment Agreement

We entered into a written employment agreement with Mr. Deacon as our President and Chief Operating Officer on June 21, 2006, amended and restated the agreement on December 28, 2006 in connection with Mr. Deacon’s promotion to President and Chief Executive Officer effective January 1, 2007 and further amended the agreement on March 20, 2008. This agreement expires on December 31, 2009; however, the initial term of the agreement automatically extends for successive one year periods unless notice of termination is provided by one party to the other at least six months prior to the expiration of the then-current term.

Pursuant to the agreement, Mr. Deacon is entitled to receive a minimum annual base salary of $450,000, subject to annual discretionary merit increases at the discretion of the Compensation Committee. His annual bonus target amount is 80% of his current base salary amount. Mr. Deacon is also entitled to reimbursement for reasonable business expenses, a $2.0 million life insurance policy (with annual premiums not to exceed $15,000), paid vacation, and participation in benefit plans on the same basis as other executive officers of the Company. In connection with his promotion, Mr. Deacon was granted: a non-qualified stock option covering 300,000 shares of Common Stock, vesting over three years, and an award of 70,000 restricted shares of Common Stock, with the restrictions lapsing over three years (the “Promotion Awards”). The scheduled vesting of these awards would accelerate upon the occurrence of a Change in Control Transaction, upon a termination of Mr. Deacon’s employment Without Cause, or upon Mr. Deacon’s termination of his employment for Good Reason.

The agreement requires that Mr. Deacon will (i) not compete with any material portion of the Company’s business activities during his employment and for up to 18 months following termination of his employment; (ii) honor confidentiality obligations during and after his employment; and (iii) assign to the Company any intellectual property he creates during his employment.

The agreement provides for certain severance payments if Mr. Deacon’s employment is terminated Without Cause or by Mr. Deacon for Good Reason. Severance payments include: (i) an amount equal to his then-current base salary through the end of the agreement or two years, whichever is greater; (ii) an amount equal to the average of his annual bonus earned and paid during the three prior fiscal years, multiplied by a factor of two; and (iii) any earned but unpaid annual bonus for the most recently completed fiscal year. Severance payments will be paid in a lump sum on the first day of the seventh month following the month in which the termination of employment occurred. If applicable, severance payments will be offset by any income protection benefits payable during the first 24 months of a qualifying disability under the Company’s group short-term and long-term disability insurance plans. Severance payments for a qualifying termination within 12 months following a Change in Control Transaction are increased to three times base salary and three times the average amount of bonus earned and paid with respect to the preceding three years. In addition, Mr. Deacon would be entitled to continue to receive medical, dental and life insurance benefits at Company expense for a period of 18 months following a qualifying termination. Severance payments also require a written release of all claims.


J.	Reid Porter Executive Severance Agreement

On December 23, 2005, we entered into an executive severance agreement with Mr. Porter which was effective as of his date of hire on December 12, 2005. On March 20, 2008, the agreement was amended and restated. The agreement provides for certain severance payments if Mr. Porter’s employment is terminated Without Cause or by Mr. Porter for Good Reason. Severance payments include: (i) an amount equal to his then-current base salary; and (ii) an amount equal to the average of his annual bonus earned and paid during the three prior fiscal years. Severance payments will be paid in a lump sum on the first day of the seventh month following the month in which the termination of employment occurred. If applicable, severance payments will be offset by any income protection benefits payable during the first 12 months of a qualifying disability under the Company’s group short-term and long-term disability insurance plans. Severance payments for a qualifying termination within 12 months following a Change in Control Transaction are increased to two times base salary and two times the average amount of bonus earned and paid with respect to the preceding three years.

The agreement requires that Mr. Porter will (i) not compete with any material portion of the Company’s business activities during his employment and for a period of two years thereafter; (ii) honor confidentiality obligations during and after his employment; and (iii) assign to the Company any intellectual property he creates during his employment. Severance payments also require a written release of all claims.

Gen Fukunaga Employment Agreement

In 2005, we entered into an employment agreement with Mr. Fukunaga providing for his employment as Chief Executive Officer and President of FUNimation. Mr. Fukunaga was a founder of FUNimation, and this agreement was entered into in connection with our acquisition of all of the ownership interests of FUNimation. The agreement terminates on May 10, 2010 and provides for a base salary of at least $350,000 per year, subject to annual discretionary merit increases, and an annual bonus payment consistent with the Annual Management Incentive Plan. Pursuant to the agreement, Mr. Fukunaga received a stock option covering 250,000 shares of our Common Stock upon the closing of the acquisition on May 11, 2005. Mr. Fukunaga is also eligible for customary benefits that are provided to similarly-situated executives including health and disability insurance, future stock option grants, reimbursement of his reasonable business expenses, and paid vacation time.

The agreement provides Mr. Fukunaga with the ability to earn two performance-based bonuses in the event that certain financial targets are met by FUNimation during the fiscal years ending March 31, 2006-2010. Specifically, if the total EBIT (earnings before interest and tax) of FUNimation during the fiscal years ending March 31, 2006 through March 31, 2008 was in excess of $90.0 million in respect of such fiscal year, Mr. Fukunaga was entitled to receive a bonus payment in an amount equal to 5% of the EBIT that exceeded $90.0 million; however, not to exceed a bonus payment of $5.0 million. Further, if the combined EBIT of FUNimation is in excess of $60.0 million during the period consisting of the fiscal years ending March 31, 2009 and 2010, Mr. Fukunaga is entitled to receive a bonus payment in an amount equal to 5% of the EBIT that exceeds $60.0 million; however, not to exceed a bonus payment of $4.0 million. Mr. Fukunaga has not earned a bonus payment under this provision with respect to fiscal years 2006, 2007, 2008 or 2009.

The agreement provides for certain severance payments if Mr. Fukunaga’s employment is terminated Without Cause or by Mr. Fukunaga for Good Reason. Severance payments include: (i) continued payment of his current base salary for the lesser of the remaining term of his employment agreement or two years; (ii) an amount equal to his annual bonus earned during the prior fiscal year for the lesser of the remaining term of his employment agreement or two years; and (iii) any earned but unpaid annual bonus for the most recently completed fiscal year. The Company may elect to make such payment in a lump sum. Severance payments to be made following termination do not include the performance-based bonuses payable in connection with meeting the EBIT targets discussed above. Severance payments require a written release of all claims.

The agreement requires that Mr. Fukunaga will (i) not compete with any material portion of the Company’s business activities during his employment and for a period of 18 months thereafter; (ii) honor confidentiality obligations during and after his employment; and (iii) assign to the Company any intellectual property he creates during his employment.

Executive Severance Agreements for Brian M. T. Burke and John Turner

On March 20, 2008, the Company entered into Executive Severance Agreements with Mr. Burke and Mr. Turner that replaced and superseded prior change in control severance agreements with Mr. Burke and Mr. Turner which were entered into in 2001. The agreements provide for severance payments in the event that the executive’s employment is terminated Without Cause or by the executive for Good Reason, whether or not a Change in Control Transaction has occurred. Severance payments equal one times base salary and one times the average amount of bonus earned and paid with respect to the preceding three years. Severance payments are paid in a lump sum within 30 days after the date of termination. If applicable, severance payments will be offset by any income protection benefits payable during the first 12 months of a qualifying disability under the Company’s group short-term and long-term disability insurance plans. Severance payments require a written release of all claims and agreements by the executive with respect to non-solicitation, confidentiality obligations and assignment of intellectual property rights.

Severance payments under Mr. Burke’s agreement were triggered by the termination of his employment due to the elimination of his position on January 5, 2009 and are reported in the “All Other Compensation” column of the “Summary Compensation Table” on page 28. Mr. Turner’s agreement expires on December 31, 2010; however, the initial term of the agreement automatically extends for successive one year periods unless notice of termination is provided by one party to the other at least six months prior to the expiration of the then-current term.

POTENTIAL PAYMENTS UPON TERMINATION

The following table assumes that a Change in Control Transaction has not occurred and the Named Executive Officer was terminated on March 31, 2009 Without Cause or terminated for Good Reason and illustrates the payments that the Named Executive Officers would be entitled to under the employment and severance agreements described above.


					Substitute
	Salary		Benefit		Incentive Plan
	Continuation		Premiums		Payments			Other			Total
Name	($)		($)		($)			($)			($)

Cary L. Deacon	$	950,000	$	20,005	$	80,000	(1)	$	262,204	(2)	$	1,312,209
Brian M.T. Burke(3)	$	—		—		—			—		$	—
J. Reid Porter	$	333,000		—	$	24,175	(4)		—		$	357,175
Gen Fukunaga	$	726,923		—	$	0	(5)		—		$	726,923
John Turner	$	250,000		—	$	13,367	(6)		—		$	263,367


(1)		Represents Mr. Deacon’s substitute incentive plan payment calculated as the average of the amounts earned by Mr. Deacon for the last three years under the Annual Management Incentive Plan ($0, $0 and $120,000) multiplied by two.

(2)		Represents the value of the acceleration of vesting of the unvested portion of Mr. Deacon’s Promotion Awards, based on the FAS 123R grant date fair value, less the compensation expense recognized through FY2009 and listed in the “Summary Compensation Table” on page 28.

(3)		Payments under Mr. Burke’s Executive Severance Agreement, which he became entitled to following his employment termination on January 5, 2009, became certain on that date and are included in the “Summary Compensation Table” on page 28 as “All Other Compensation” for FY2009.

(4)		Represents Mr. Porter’s substitute incentive plan payment calculated as the average of the amounts earned by Mr. Porter for the last three years under the Annual Management Incentive Plan ($0, $0 and $72,526).

(5)		Represents Mr. Fukunaga’s substitute incentive plan payment calculated as the Annual Management Incentive Plan payment earned by Mr. Fukunaga for FY2009 ($0) multiplied by two.

(6)		Represents Mr. Turner’s substitute incentive plan payment calculated as the average of the amounts earned by Mr. Turner for the last three years under the Annual Management Incentive Plan ($0, $0 and $40,102).

The following table assumes that a Change in Control Transaction occurred within the 12 month period prior to March 31, 2009 and the Named Executive Officer was terminated on March 31, 2009 Without Cause or terminated for Good Reason and illustrates the payments that the Named Executive Officers would be entitled to under the employment and severance agreements described above.


					Substitute
	Salary		Benefit		Incentive Plan
	Continuation		Premiums		Payments			Other			Total
Name	($)		($)		($)			($)			($)

Cary L. Deacon	$	1,425,000	$	20,005	$	120,000	(1)	$	262,204	(2)	$	1,827,209
Brian M.T. Burke(3)	$	—		—		—			—		$	—
J. Reid Porter	$	666,000		—	$	48,350	(4)		—		$	714,350
Gen Fukunaga	$	726,923		—	$	0	(5)		—		$	726,923
John Turner	$	250,000		—	$	13,367	(6)		—		$	263,367


(1)		Represents Mr. Deacon’s substitute incentive plan payment calculated as the average of the amounts earned by Mr. Deacon for the last three years under the Annual Management Incentive Plan ($0, $0 and $120,000) multiplied by three.

(2)		Represents the value of the acceleration of vesting of the unvested portion of Mr. Deacon’s Promotion Awards, based on the FAS 123R grant date fair value, less the compensation expense recognized through FY2009 and listed in the “Summary Compensation Table” on page 28. This value would be realized following a Change in Control even if Mr. Deacon’s employment is not terminated.

(3)		Payments under Mr. Burke’s Executive Severance Agreement, which he became entitled to following his employment termination on January 5, 2009, became certain on that date and are included in the “Summary Compensation Table” on page 28 as “All Other Compensation” for FY2009.

(4)		Represents Mr. Porter’s substitute incentive plan payment calculated as the average of the amounts earned by Mr. Porter for the last three years under the Annual Management Incentive Plan ($0, $0 and $72,526) multiplied by two.

(5)		Represents Mr. Fukunaga’s substitute incentive plan payment calculated as the Annual Management Incentive Plan payment earned by Mr. Fukunaga for FY2009 ($0) multiplied by two.

(6)		Represents Mr. Turner’s substitute incentive plan payment calculated as the average of the amounts earned by Mr. Turner for the last three years under the Annual Management Incentive Plan ($0, $0 and $40,102).

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and executive officers, and persons who own more than 10 percent of a registered class of the Company’s equity securities, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of our Common Stock. These insiders are required by Securities and Exchange Commission rules to furnish the Company with copies of all Section 16(a) forms they file, including Forms 3, 4 and 5. Based upon its review of Forms 3, 4 and 5 filed by the Company’s insiders, the Company believes all such forms with respect to transactions occurring in FY2009 were filed on a timely basis except for the following inadvertent late filings: (i) the Form 4 report for an open market stock purchase by Cary L. Deacon which occurred on February 10, 2009 was filed a day late on February 13, 2009; and (iii) the exercise and hold of an expiring stock option by Mr. Turner on September 17, 2007, not previously reported on a Form 4, was reported on a Form 5 filed on May 5, 2008.

SHAREHOLDER PROPOSALS FOR THE 2010 ANNUAL MEETING

Any shareholder desiring to submit a proposal for action at the 2010 annual meeting of shareholders and presentation in the Company’s proxy statement with respect to such meeting should arrange for such proposal to be delivered to the Company’s offices, 7400 49th Avenue North, New Hope, Minnesota 55428 addressed to the Secretary, no later than March 29, 2010 in order to be considered for inclusion in the Company’s proxy statement relating to the meeting. Matters pertaining to such proposals, including the number and length thereof, eligibility of

persons entitled to have such proposals included and other aspects are regulated by the Securities Exchange Act of 1934, Rules and Regulations of the Securities and Exchange Commission and other laws and regulations to which interested persons should refer.

In addition, SEC Rule 14a-4 governs the Company’s use of its discretionary proxy voting authority with respect to a shareholder proposal that is not submitted and included in the Company’s proxy statement pursuant to the above procedure. The Rule provides that if a proponent of a proposal fails to notify the Company at least 45 days prior to the month and day of mailing of the prior year’s proxy statement, then the Company will be allowed to use its discretionary voting authority when the proposal is raised at the meeting, without any discussion of the matter in the proxy statement. With respect to the Company’s 2010 annual meeting of shareholders, if the Company is not provided notice of a shareholder proposal by June 12, 2010, the Company will be allowed to use its discretionary voting authority.

OTHER BUSINESS

All items of business intended by management to be brought before the meeting are set forth in the Proxy Statement, and management knows of no other business to be presented. If other matters of business not presently known to the Board of Directors shall be properly raised at the Annual Meeting, it is the intention of the persons named in the proxy to vote on such matters in accordance with their best judgment.

The Company’s Annual Report on Form 10-K for FY2009 is enclosed herewith. Shareholders may also view and download this Proxy Statement and Form 10-K on Navarre’s website, www.navarre.com/Investors/default.htm, or the Securities and Exchange Commission’s website, www.sec.gov/idea/searchidea/webusers.htm.

By Order of the Board of Directors,

Ryan F. Urness
Secretary and General Counsel

Dated: July 27, 2009

EXHIBIT A

Proposed
Amendment Two to
NAVARRE CORPORATION
AMENDED and RESTATED 2004 STOCK PLAN

The Navarre Corporation 2004 Stock Plan, effective September 13, 2004, as amended and restated effective September 15, 2005 and further amended on September 17, 2007, (the “Plan”) is hereby amended as follows:

1. SECTION 17 is hereby amended in its entirety to read as follows:

“SECTION 17. GRANTING OF AWARDS TO DIRECTORS WHO ARE NOT EMPLOYEES

17.1 INITIAL AWARDS. Each newly elected or appointed director, who is not an employee of the Company, shall receive at the beginning of the initial term of service an Option to purchase, for directors newly elected prior to September 16, 2009, 20,000 Shares and, for directors newly elected on or after September 16, 2009, 50,000 Shares, at an exercise price equal to Fair Market Value on the date of grant. Such Options shall be Nonqualified Stock Options.

17.2 ANNUAL AWARDS. Each director who is not an employee of the Company and serves as a director on April 1 of each year, beginning on April 1, 2005, shall receive an Option to purchase 6,000 Shares and, beginning on April 1, 2010, shall receive an Option to purchase 12,000 Shares, each such grant at an exercise price equal to Fair Market Value on the date of grant. Such Options shall be Nonqualified Stock Options.

17.3 THE 2009 AWARD. Any director serving as a director of the Company after the Annual Meeting of Shareholders held on September 16, 2009, excluding directors newly elected by the shareholders that are eligible to receive an initial award as set forth in Section 17.1 above, shall receive, on the date of approval of this provision by the Company’s shareholders, an Option to purchase 30,000 Shares at an exercise price equal to Fair Market Value on such date. Such Options shall be Nonqualified Stock Options.

17.3 STOCK OPTION TERMS. Each Option, granted prior to September 15, 2005, shall vest in increments of 20% of the original Option grant beginning one year from the date of grant and shall expire on the earlier of (i) six years from the date of grant, and (ii) one year after the person ceases to serve as a director. Each Option, granted on or after September 15, 2005, shall vest in increments of 331/3% of the original Option grant beginning one year from the date of grant and shall expire on the earlier of (i) ten years from the date of grant, and (ii) one year after the person ceases to serve as a director. The vesting of Director Options will accelerate if the grantee ceases to serve as a director as a result of the Company’s mandatory director retirement age policy. Subject to the foregoing, all provisions of this Plan not inconsistent with the forgoing shall apply to the Options granted to the directors who are not employees.

17.4 AWARDS PRECEDING MANDATORY RETIREMENT. Any director who is not an employee of the Company and who is ineligible to stand for re-election because of the Company’s mandatory retirement age policy, shall receive on April 1 of each of the last two years of such director’s last term, in lieu of the annual stock options provided for in Section 17.2 above, an Award of 3,000 Shares of Restricted Stock. The Shares of Restricted Stock covered by each such Award shall be forfeited if the director does not complete the last term of service for any reason other than retirement and shall become freely transferable by the director at the end of the last term of service.”

2. Except as expressly amended hereby, the Plan remains in full force and effect. Capitalized terms not otherwise defined in this Amendment shall have the meanings set forth in the Plan.

3. This Amendment, recommended by the Compensation Committee and duly adopted by the Board of Directors on July 8, 2009, is effective as of the date of approval by the Company’s shareholders.

A-1

PROXY SOLICITED BY BOARD OF DIRECTORS

For Annual Meeting of Shareholders to be held

Wednesday, September 16, 2009
3:00 p.m. CDT

7400 49^th Avenue North
New Hope, Minnesota 55428


Navarre Corporation
7400 49th Avenue North
New Hope, Minnesota 55428		proxy

The undersigned, revoking all prior proxies, hereby appoints Cary L. Deacon and Ryan F. Urness, and either of them, as proxy or proxies, with full power of substitution and revocation, to vote all shares of Common Stock of Navarre Corporation (the “Company”) of record in the name of the undersigned at the close of business on July 20, 2009, at the Annual Meeting of Shareholders (the “Annual Meeting”) to be held on Wednesday, September 16, 2009, or at any adjournment thereof, upon the matters stated on the reverse of this proxy card.

Important notice regarding the Internet availability of proxy materials for the Annual Meeting of Shareholders:

The Proxy Statement and the Annual Report to Shareholders, including Form 10-K, for the year ended March 31, 2009, are available for view at http://www.navarre.com/Investors/default.htm.

See reverse for voting instructions.



		COMPANY #

There are three ways to vote your Proxy

Your telephone or Internet vote authorizes the Named Proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card.

VOTE BY PHONE — TOLL FREE — 1-800-560-1965 — QUICK ««« EASY ««« IMMEDIATE

	•		Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a week, until 12:00 p.m. (CDT) on September 15, 2009.
	•		Please have your proxy card and the last four digits of your Social Security Number or Tax Identification Number available. Follow the simple instructions the voice provides you.

VOTE BY INTERNET — http://www.eproxy.com/navr/ — QUICK ««« EASY ««« IMMEDIATE

	•		Use the Internet to vote your proxy 24 hours a day, 7 days a week until 12:00 p.m. (CDT) on September 15, 2009.
	•		Please have your proxy card and the last four digits of your Social Security Number or Tax Identification Number available. Follow the simple instructions to obtain your records and create an electronic ballot.

VOTE BY MAIL

Mark, sign and date your proxy card and return it in the postage-paid envelope we’ve provided or return it to NAVARRE CORPORATION, c/o Shareowner Services^SM, P.O. Box 64873, St. Paul, MN 55164-0873.

If you vote by Phone or Internet, please do not mail your Proxy Card
ò Please detach here ò

Electing the following directors for the terms described in the accompanying Proxy Statement:

01 Deborah L. Hopp

03 Frederick C. Green IV

Vote FOR all

Vote WITHHELD

02 David F. Dalvey

nominees except

from all nominees

as indicated below


	(Instructions: To withhold authority to vote for any indicated nominee, write the number(s) of the nominee(s) in the box provided to the right.)

Approving amendment two to the Amended and Restated 2004 Stock Plan as described in the accompanying Proxy Statement.

FOR

AGAINST

ABSTAIN

Ratifying the appointment of Grant Thornton LLP.

FOR

AGAINST

ABSTAIN

In their discretion, the Proxies are authorized to vote upon any other matters as may properly come before the Annual Meeting or any adjournments thereof. This proxy, when properly executed, will be voted in the manner directed herein by the undersigned shareholder. If no direction is made, this proxy will be voted FOR all nominees and FOR Proposals 2 and 3. The Board of Directors recommends a vote FOR all nominees and FOR Proposals 2 and 3.


	Address Change? Mark Box o Indicate changes below:
			Dated:

Signature(s)
Please sign your name exactly as it appears at left. In the case of shares owned in joint tenancy or as tenants in common, all should sign. Fiduciaries should indicate their title and authority.


Information about this Proxy Solicitation and Voting			1
Proposals to be Voted on at the Annual Meeting			3
Proposal No. 1 — To Elect The Three Named Nominees as Class I Directors			3
Proposal No. 2 — To Approve Amendment Two to the Amended and Restated 2004 Stock Plan			3
Proposal No. 3 — To Ratify the Appointment of Grant Thornton LLP			4
Information Concerning Directors and Nominees			5
Board of Directors, Committees and Corporate Governance			8
Compensation of Directors			12
Report of the Audit Committee			13
Audit and Non-Audit Fees			14
Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services of Independent Auditors			14
Security Ownership of Certain Beneficial Owners and Management			15
Equity Compensation Plan Information			16
Summary of Amended and Restated 2004 Stock Plan			17
Executive Compensation			20
Compensation Discussion and Analysis			20
Compensation Committee Report			27
Compensation Committee Interlocks and Insider Participation			27
Executive Compensation Tables			28
Executive Severance and Change In Control Agreements			32
Potential Payments Upon Termination			34
Section 16(a) Beneficial Ownership Reporting Compliance			35
Shareholder Proposals for the 2010 Annual Meeting			35
Other Business			36
Exhibit A — Proposed Amendment Two to the 2004 Amended and Restated Stock Plan			A-1