IVI PUBLISHING INC, 10-K405, 1997-03-28

IVI PUBLISHING INC
10-K405, 1997-03-28
PREPACKAGED SOFTWARE

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
- ---- Act of 1934
For the fiscal year ended December 31, 1996
Commission file number 0-22212
------------------------------------

IVI PUBLISHING, INC.
(Exact name of registrant as specified in its charter)

Minnesota 41-1686038
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7500 FLYING CLOUD DRIVE 55344-3739
EDEN PRAIRIE, MINNESOTA (Zip Code)
(Address of principal executive offices)

Registrant's telephone number, including area code (612) 996-6000
-------------------------------------------------

Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:

Title of each class Name of each exchange on which registered
- ------------------------------ -----------------------------------------
Common Stock, $.01 Par Value N/A

INDICATE BY A CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
----- -----

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. X
---
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 7, 1997 was $21,793,720.

The number of shares outstanding of the issuer's classes of common stock as
of March 7, 1997: Common stock, $.01 Par Value -- 7,662,850.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of registrant's definitive Proxy Statement for its 1997 Annual
Meeting of Shareholders are incorporated by reference into Part III hereof.

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IVI PUBLISHING, INC.

FORM 10-K

TABLE OF CONTENTS

Page
----

PART I

Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . 20

PART II

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . 22
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . 23
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . 27
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure. . . . . . . . . . . . . . . 27

PART III

Item 10. Directors and Executive Officers of the Registrant. . . . . . . . . 28
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . 28
Item 12. Security Ownership of Certain Beneficial Owners and Management. . . 28
Item 13. Certain Relationships and Related Transactions. . . . . . . . . . . 28

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. . 29

Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

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PART I

ITEM 1. BUSINESS

IVI Publishing, Inc., (the "Company") was organized in the state of
Minnesota in August 1990 under the name Interactive Television, Inc., which name
was changed to Interactive Ventures, Inc., in March 1991 and to IVI Publishing,
Inc., in August 1993. The Company is an electronic publisher of health and
medical information in interactive multimedia formats for the consumer and
professional medical markets. The Company has been widely recognized for
producing and distributing high-quality, award-winning CD-ROM titles, including
MAYO CLINIC ULTIMATE MEDICAL GUIDE. In 1996, the Company continued to advance
its strategy to distribute its health and medical information through an
integrated network involving online, CD-ROM and cable television platforms.

To further this integrated publishing strategy, the Company has developed
and launched a site known as MAYO HEALTH O@SIS-SM- on the Internet's World Wide
Web which provides users with online access to useful, trustworthy health and
medical news and reference information. The Company plans to generate revenue
from its Internet site through the sale of site sponsorships, advertising and
premium services. The Company has also formed a strategic relationship with
America's Health Network ("AHN"), which launched its daily cable television
programming on March 25, 1996. The Company provides video, animation and
graphic assets which support AHN's health and medical programming on cable
television. Each of the Company's distribution platforms - online, CD-ROM and
cable television - are designed to be interactive and to encourage the consumer
to use the other platforms. For example, the Company's MAYO CLINIC ULTIMATE
MEDICAL GUIDE includes an Internet browser and online gateway. The browser and
gateway enable the user of the ULTIMATE MEDICAL GUIDE discs to touch a button
and "land" directly in the MAYO HEALTH O@SIS Internet site and access all of its
content. In addition to Mayo Clinic, the Company currently distributes
information from two other distinguished content suppliers: Massachusetts
Medical Society and Time Life, Inc. Management believes that IVI is a leading
electronic publisher of health and medical information in the United States.

As part of developing its integrated publishing strategy in 1996, the
Company had planned to distribute health and medical information to consumers
online through the AT&T Personal Online Service ("POS") pursuant to an Anchor
Brand Content Provider Agreement entered into with AT&T in 1995. Pursuant to
the AT&T Agreement, the Company had granted an exclusive license to AT&T to
publish the Company's health and medical information in an online platform. In
August 1996, AT&T advised the Company that POS would no longer participate as an
online service provider of health and medical information to consumers. This
action by AT&T necessitated the Company's revision of its online distribution
strategy as discussed in "Company Strategy," below.

As the Company works to further incorporate the online and cable television
platforms into its overall strategy, it will continue to be dependent upon sales
of its CD-ROM titles for a significant portion of its revenue at least through
1997. The

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Company continues to operate under a distribution partnership entered into in
September 1995 with Davidson & Associates, Inc., ("Davidson") pursuant to which
Davidson distributes the Company's consumer-oriented family reference CD-ROM
titles developed with Mayo and Time Life. Davidson is a leading publisher and
distributor of multimedia educational and entertainment software for both the
home and school markets. The Company believes that its distribution agreement
with Davidson gives the Company greater access to consumer channels than it
would otherwise gain. The Company has also negotiated several ongoing,
revenue-generating agreements with various original equipment manufacturers
("OEMs") whereby the OEM bundles certain of the Company's CD-ROM titles with new
computers. The Company expects to receive a substantial amount of its CD-ROM
related revenues from these sources at least through 1997.

COMPANY STRATEGY

The Company's goal is to establish itself as the leading electronic
publisher of health and medical information in the United States. To attain
this goal, the Company plans to distribute authoritative, current health and
medical information from highly credible sources through an integrated network
involving online, CD-ROM and cable television platforms. The principle elements
of this strategy are as follows:

SECURE THE EXCLUSIVE DIGITAL RIGHTS TO ACCURATE AND TIMELY HEALTH AND MEDICAL
INFORMATION FROM RECOGNIZED SOURCES

The Company believes that, in the area of health and medical publishing,
having the rights to authoritative, reliable information is of prime importance.
To obtain such rights, the Company has entered into license agreements with the
best-known and most-respected health and medical information content providers.
The Company has license agreements with Mayo Foundation for Medical Education
and Research ("Mayo"), the Massachusetts Medical Society ("MMS"), publisher of
the NEW ENGLAND JOURNAL OF MEDICINE and HEALTHNEWS, and Time Life. Pursuant to
these license agreements, the Company has obtained health and medical
information which it has used in the development of several consumer and
professional CD-ROM titles, its MAYO HEALTH O@SIS Internet site, the development
of assets for AHN, as well as other licensing efforts in both online and cable
television platforms.

The Company may seek license agreements from other providers of high
quality health and medical information. Although the principal focus of the
Company's efforts will be the development of business opportunities, such
relationships may also involve investments in or by the Company.

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DEVELOP DIGITAL, MULTIMEDIA PROGRAMMING THAT CAN BE DELIVERED ON MULTIPLE
PLATFORMS

The Company is taking advantage of the convergence of CD-ROM, online and
cable television platforms by developing programming assets which can be
delivered on each of these three platforms. Because the Company has retained
the digital rights to all content which it creates for AHN programming, the
Company may produce CD-ROM titles or content for online distribution using
popular information from AHN programming. Similarly, the Company retains
digital rights to health and wellness information published on MAYO HEALTH O@SIS
and will be able to use that information for distribution in other electronic
formats. The Company has also licensed to other companies information from the
CD-ROM, TAKING CONTROL OF YOUR HEALTH, for use online. TAKING CONTROL OF YOUR
HEALTH is the Company's digital version of THE MEDICAL ADVISOR - THE COMPLETE
GUIDE TO ALTERNATIVE & CONVENTIONAL TREATMENTS, a definitive medical guidebook
developed in collaboration with Time Life.

EXECUTE THE INTEGRATED PUBLISHING STRATEGY BY ESTABLISHING SIGNIFICANT MARKET
PRESENCE IN THE ONLINE AND CABLE TELEVISION MARKETPLACES

To complement its existing strength in the CD-ROM health and medical
information market, the Company has entered into the agreement with AHN and has
established the MAYO HEALTH O@SIS site on the Internet. O@SIS provides users
with timely, useful health and medical news and information developed under the
Company's existing agreements with Mayo. In a matter of months, O@SIS has
become one of the more recognized health information sites on the Internet. The
Company expects to capitalize on this recognition by selling site sponsorships
and advertising to pharmaceutical and other companies which want to align their
names and/or their products with information contained in O@SIS. The Company
has an agreement with AHN to be a major provider of health and medical content
for the AHN cable television network, which began telecasting March 25, 1996.
The Company believes that by pursuing its integrated publishing strategy, which
utilizes the online, CD-ROM and cable television platforms, it will be able to
establish itself as a leader in the delivery of health and medical information
in a rapidly changing marketplace.

SECURE MARKET SHARE DOMINANCE IN THE CD-ROM HEALTH CATEGORY

The Company will continue to be dependent upon distribution of its CD-ROMs
containing health and medical information at least through 1997. Pursuant to
its license agreements with Mayo, the Company has released six medical reference
CD-ROM titles or packages into the consumer market place. The titles are MAYO

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CLINIC FAMILY HEALTH, MAYO CLINIC - THE TOTAL HEART, MAYO CLINIC FAMILY
PHARMACIST and MAYO CLINIC SPORTS, HEALTH & FITNESS. In addition, the Company
now offers MAYO CLINIC ULTIMATE MEDICAL GUIDE, which combines the latest
versions of MAYO CLINIC FAMILY HEALTH and MAYO CLINIC FAMILY PHARMACIST into one
package and was the best-selling medical reference CD-ROM for the fourth quarter
of 1996. In recent years the Company has offered MAYO CLINIC HEALTH
ENCYCLOPEDIA, which combines all four individual titles into one package. The
Company has also developed, in partnership with Mayo, a series of CD-ROMs for
primary care physicians and health professionals called PRIMEPRACTICE. The
PRIMEPRACTICE series has been approved by the American Medical Association and
the American Academy of Family Physicians to allow physicians to earn continuing
medical education credits in the privacy of their home or office. In addition
to the titles produced with Mayo, the Company released TAKING CONTROL OF YOUR
HEALTH in September 1996.

Before September 1995 the Company distributed its CD-ROM titles primarily
through its own sales and marketing personnel. In September 1995 the Company
entered into a distribution agreement with Davidson which affords the Company
greater access to consumer channels while enabling the Company to reduce its
sales and marketing expenses.

MAYO RELATIONSHIP

The Company's relationship with Mayo has been, to date, the most
significant element in the Company's development. Mayo Foundation, parent
corporation for Mayo Foundation for Medical Education and Research, is the legal
entity under which Mayo Clinic Group Practices, Mayo Medical School and certain
other Mayo institutions operate. Mayo is a degree-granting institution and has
full authority to accredit programs of continuing medical education. A
component of the Mayo strategy is to provide scholarly educational programs to
teach and train medical and scientific professionals for national and Mayo needs
and to be a health information resource for the public. Mayo's desire to
educate individuals to take responsibility for their own health care, coupled
with the Company's efforts to become a significant electronic publisher of
health and medical information, has resulted in the development to date of one
professional multimedia title, four consumer reference multimedia titles, and
the Internet site known as MAYO HEALTH O@SIS all utilizing Mayo materials and
expertise.

MAYO CD-ROM TITLES AND INTERNET SITE

Pursuant to its license agreement with Mayo (see "Mayo License
Agreements"), the Company markets six consumer reference titles or packages and
one professional title, all on CD-ROM. In addition, the Company markets a
consumer online site on the Internet's World Wide Web.

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Consumer Reference CD-ROM Titles:

MAYO CLINIC FAMILY HEALTH. This title is a source of health care
information for family members of all ages, including information on
nutrition, wellness, first aid, the health care system and the symptoms,
prognosis and treatment for more than 1,000 diseases and disorders. In
September 1996, the Company introduced the updated version 3.0 of MAYO CLINIC
FAMILY HEALTH, adding a newly enhanced 3-D anatomy section, a personal health
tracking feature called Online Health Manager, and a new online linking
technology called HealthWatch-TM-. HealthWatch notifies users of update
information available on MAYO HEALTH O@SIS-SM- on the Internet and links them
directly to that information. The product includes AT&T WorldNet Service-SM-
with Netscape Navigator-TM- for access to the Internet. This gateway from
CD-ROM to online information is a key element of the Company's strategy to
create an integrated network providing health information over CD-ROM and
online.

MAYO CLINIC FAMILY PHARMACIST. Released in June 1994 and updated with a
new 1996 drug database, this title is a comprehensive home reference guide to
prescription and over-the-counter medications and therapeutic and diagnostic
procedures. The USP, DI Volume II, "Advice for The Patient" (The United States
Pharmacopeial Convention, Inc.) is the core database for the disc and has been
supplemented with information provided by pharmacists and physicians from Mayo.
The Company also added AT&T WorldNet Service software with Netscape Navigator,
which enables users to go directly from the CD-ROM to MAYO HEALTH O@SIS on the
Internet.

MAYO CLINIC ULTIMATE MEDICAL GUIDE. Released in September 1996, is a
combination of the latest versions of both MAYO CLINIC FAMILY HEALTH and MAYO
CLINIC FAMILY PHARMACIST packaged together. This powerful combination of two
highly-acclaimed titles is packed with information essential to family health.
With MAYO CLINIC FAMILY HEALTH consumers can search for in-depth facts about
diseases, nutrition, anatomy, common symptoms, home safety and more. MAYO
CLINIC FAMILY PHARMACIST offers details on thousands of drugs, early detection
and first aid. Both discs link to MAYO HEALTH O@SIS on the Internet and the
product includes AT&T WorldNet Service software with Netscape Navigator for
users who are not yet online.

MAYO CLINIC - THE TOTAL HEART. This title is a comprehensive source of
information concerning the heart, cardiovascular disease, diet plans and
exercise programs to promote a healthy heart. The print version of the title,
entitled MAYO CLINIC HEART BOOK, was released by Mayo in August 1993, and the
Company released the interactive multimedia version in October 1993.

MAYO CLINIC SPORTS, HEALTH & FITNESS. Released in November 1994, this
title was developed in cooperation with the Mayo sports medicine department and
in collaboration with ESPN. It is an individualized interactive fitness,
nutrition, and sports physiology guide.

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MAYO CLINIC HEALTH ENCYCLOPEDIA. First released in 1994 and updated in
1995, this product combines all four Mayo Clinic CD-ROM titles into a single
package.

Professional CD-ROM Title:

PRIMEPRACTICE. This title is a comprehensive resource developed to meet
the ongoing education needs of primary care physicians. PRIMEPRACTICE is a
CD-ROM series marketed to physicians in North America specializing in internal
medicine, general practice or family practice. The first issue of this series
was completed in July 1994 and the last in December 1996. Subscribers to
PRIMEPRACTICE receive a CD-ROM series covering current topics of interest to
primary care physicians, including the latest developments in cardiovascular
disease, endocrinology, gastroenterology, hematology, pulmonary medicine and
other areas. Each issue of the series provides the physician with ten hours of
continuing medical education credits (CME). By subscribing to the series, a
physician can obtain up to 40 hours of CME on an annual basis. Although
requirements for annual CME vary from state to state, most primary care
physicians are required to obtain 50 hours of CME per year.

In December 1995, the Company entered into a Distribution Agreement with
Churchill Livingstone whereby Churchill Livingstone has agreed to market
PRIMEPRACTICE to physicians and others with influence over physicians'
continuing education. Before entering into this agreement, the Company marketed
PRIMEPRACTICE through its own sales staff, catalogs and health sciences
bookstores.

Internet Site:

MAYO HEALTH O@SIS-SM-. This Internet site is an interactive site featuring
reliable health information from Mayo Clinic for the general public. It is
accessible by anyone with online Internet access at http://www.mayo.ivi.com.
The goal for O@SIS is to help people become more knowledgeable in understanding
health and disease thereby leading to more effective use of health resources.
O@SIS extends Mayo Clinic expertise to people worldwide. The site is divided
into three main sections: Newsstand, Ask Mayo and Resource Centers. O@SIS
covers timely health and wellness matters that can affect people's lives, and
relevant topics that people can use to live healthier, more productive lives.

MAYO LICENSE AGREEMENTS

In April 1991, the Company entered into a License Agreement (the "1991
License Agreement") pursuant to which it obtained an exclusive five-year license
from Mayo and William Morrow Company to develop, manufacture and distribute
interactive multimedia versions of MAYO CLINIC FAMILY HEALTH BOOK. William
Morrow receives a minimum annual royalty, or if greater, a percentage of net
sales of the title. In December 1995, the Company amended the agreement with
Mayo

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and William Morrow to include online distribution rights and to extend the
rights period until September 2000.

In April 1993, the Company and Mayo entered into a License Agreement (the
"1993 License Agreement") which granted the Company an exclusive license to
develop, produce and market ten title areas with specific content to be
determined by Mayo and the Company, in all digital optical electronic publishing
formats, including disc, network, cable, telephone and satellite broadcast. The
licenses with respect to the ten titles are severable, so that if one is
terminated the others are not affected. Mayo retains the right to market the
titles developed under the 1993 License Agreement to end users or persons
employing or educating end users. The term of the license is ten years for each
title from the date of first commercial sale. The term as to any new edition of
a title recommences when the new edition is released. As consideration for the
1993 License Agreement, the Company issued Mayo 240,000 shares of its Series D
Preferred Stock that automatically converted into Common Stock upon the
Company's initial public offering in October 1993. Mayo also receives a royalty
based on a percentage of net sales for each title.

In September 1994, the Company and Mayo entered into another License
Agreement (the "1994 License Agreement") which grants the Company for a period
of five years, a right-of-first-offer for any and all material and/or titles
which Mayo intends to publish in any digital publishing format or method of
delivery including CD-ROM, online, network, cable, telephone, or other
interactive networks. A minimum of five titles are to be produced under the
agreement. The licenses with respect to each other are severable so that if one
is terminated the others are not affected. The term of the license is ten years
from the date of first commercial sale and the term, as to any new edition of a
title, recommences when the new edition is released. Additionally, the 1994
License Agreement contains certain terms pertaining to the joint development of
digital interactive networks. In exchange for these rights, Mayo received
250,000 restricted shares of the Company's Common Stock. The restrictions lapse
as Mayo achieves certain milestones or at the end of ten years, whichever comes
first. Mayo also receives a royalty on revenues earned by the Company from MAYO
HEALTH O@SIS and any other products produced under the agreement.

Mayo has broad approval rights with respect to the substance of each title,
the marketing plan, the business plan and advertising and distribution. If Mayo
withholds its consent of a title subject to the 1993 and 1994 License Agreements
(the "Agreements"), the Company may develop and publish the title for another
author (using such other author's own original materials and not materials
developed by or for Mayo nor any sounds or images, including audio, text, video
and animated graphics, created for use with the materials developed by or for
Mayo), and Mayo may not allow any other person to develop such title for Mayo
for a period of three years from the date of such title's or edition's
submission to Mayo. To date, Mayo has not refused approval for a title
developed by the Company.

Except for the conditions described above with respect to the titles
subject to the Agreements, the Company is prohibited under the Agreements from

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developing, producing, publishing, promoting, marketing, selling or otherwise
distributing the health or medical education materials of any other entity in
digital optical formats without Mayo's prior approval in its sole discretion.
Mayo has consented to the arrangements between the Company, AT&T, America's
Health Network, Massachusetts Medical Society and Time Life.

MASSACHUSETTS MEDICAL SOCIETY LICENSE AGREEMENT

In November 1994, the Company and Massachusetts Medical Society ("MMS")
entered into a license agreement pursuant to which the Company was granted an
exclusive license to develop and distribute to end users the digital format
versions of the monthly newsletter "Health News" currently published by MMS. In
exchange for these rights, the Company is assisting MMS with the funding of the
newsletter at a rate of $250,000 per year for the three years ending November
1997. The Company will also pay MMS a royalty based on a percentage of the net
revenues earned by sale of the digital format versions of the newsletter.

The term of the license agreement is five years after the date on which the
design format is approved by MMS and the content is available to the Company and
will thereafter automatically renew for periods of one year each. MMS has the
sole right to and responsibility for the marketing and distribution of the title
in any non-digital format. MMS has the right to approve the final form of each
digital newsletter, which approval shall not be, and to date has not been,
unreasonably withheld or delayed, prior to distribution.

TIME LIFE RELATIONSHIP

The Company also has established a strategic relationship with Time Life to
broaden its content base. In February 1994, the Company entered into a license
agreement (the "First Time Life Agreement") with Time Life for the exclusive
license to develop, manufacture and distribute to third party resellers
interactive multimedia versions of six Time Life books. In September 1994, the
Company and Time Life entered into a second license agreement (the "Second Time
Life Agreement") which grants the Company an exclusive right-of-first-offer for
the right to publish non-print versions for any and all health and/or medical
material and/or titles which Time Life intends to publish for commercial
purposes in print media.

Pursuant to the First Time Life Agreement, three titles for children were
released during 1994. In order to focus on its integrated publishing strategy
to distribute health and medical information primarily to adult audiences, the
Company has suspended efforts to produce any further children's titles and is
closing out remaining inventory of the titles.

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Pursuant to the Second Time Life Agreement, the first title developed by
the Company was TAKING CONTROL OF YOUR HEALTH. Released in September 1996, this
home medical guide on CD-ROM provides comprehensive information on alternative
and conventional medicine. Based on the book from Time Life entitled THE
MEDICAL ADVISOR - THE COMPLETE GUIDE TO ALTERNATIVE & CONVENTIONAL TREATMENTS,
released in September 1996, the content for this product was developed by a team
of over 60 physicians. TAKING CONTROL OF YOUR HEALTH also includes AT&T WorldNet
Service-SM- with Netscape Navigator-TM- for direct access to updated information
on the Internet.

As compensation for developing the TAKING CONTROL OF YOUR HEALTH concept,
the Company granted Time Life 60,000 restricted shares of its Common Stock.
Under the Second Time Life Agreement, the Company funded Time Life's development
of the print version of the series at an estimated cost of approximately $2.2
million through September 1996. Time Life retains the right for marketing and
distributing the print version of each title while the Company has the sole
right for the marketing and distribution of the non-print versions of the title.
The Company will receive a royalty from Time Life for the sale of the print
version of the title and has a royalty-free license for the distribution of the
electronic version of the title. The term of the license is perpetual from the
date the title was accepted by the Company. Time Life has the right to approve
the final versions of the title, which approval shall not be unreasonably
withheld, prior to distribution. To date, Time Life has not refused approval
for a title developed by the Company.

ANCHOR BRAND CONTENT PROVIDER AGREEMENT WITH AT&T

On August 9, 1996, AT&T informed the Company that AT&T was immediately
discontinuing the HealthSite portion of the AT&T Personal Online Service ("POS")
and, on September 20, 1996, AT&T publicly announced that it was terminating its
entire Personal Online Services initiative. As a result of AT&T's withdrawal
from POS, and in particular HealthSite, the Company is no longer able to make
its content available through an AT&T-sponsored online service as was
contemplated by the Anchor Brand Content Provider Agreement, dated October 30,
1995, (the "AT&T Agreement") between the Company and AT&T. Despite AT&T's
abandonment of POS, to date, neither the Company nor (to IVI's knowledge) AT&T
has taken any formal action to terminate the AT&T Agreement. The Company's
content is currently available via online, CD-ROM and cable television.

AGREEMENT WITH AND INVESTMENT IN AMERICA'S HEALTH NETWORK ("AHN")

As part of its integrated publishing strategy, the Company has developed a
strategic relationship with AHN to provide health and medical programming on
cable television. AHN has developed a consumer health information cable

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television network which features a physician or other health care professional
responding to viewers' call-in questions interspersed with home shopping
segments in which health related products are offered. AHN began broadcasting
on March 25, 1996 and, as of March 1997, was reaching more than 6 million
potential cable television and direct broadcast satellite (DBS) households.

The Company entered into an agreement with AHN dated May 25, 1995 (the "AHN
Agreement") pursuant to which the Company agreed to provide health and medical
information for AHN's cable television programming. The AHN Agreement provides
that the health and medical content produced by the Company for broadcast on AHN
shall remain the property of the Company but shall be licensed exclusively to
AHN for use in a televised program. AHN has agreed to pay the Company a fee
for the production of content used by AHN equal to the Company's cost of
producing or obtaining the requested content plus 15%. In addition, AHN has
agreed to pay the Company $11,000,000 in royalties over the life of the
Agreement. The Company recognized $1.972 million of these royalties in 1996.
The Agreement extends to five years beyond the date AHN began broadcasting. The
amount of such royalties is subject to reduction, however, in the event the
Company fails to deliver health and medical content in accordance with the terms
of the agreement. The royalties will also be reduced to 25% of their original
amount in the event the Company terminates the exclusivity provisions of the AHN
Agreement. In the event AHN achieves its revenue forecasts for its first five
years of operations, the Company may earn additional deferred royalties which
are payable within 45 days after the end of the fifth year of AHN's operations.

The Company holds an equity position in AHN which it acquired in March 1994
in exchange for an investment of $2,000,000. AHN subsequently has acquired
additional financing from other investors. The Company estimates that its
percentage interest in the equity of AHN, after AHN's financing completed in
January 1997, is approximately 6.6%.

AGREEMENT WITH DAVIDSON & ASSOCIATES, INC. FOR CD-ROM DISTRIBUTION

As the Company develops the online and cable television segments of its
integrated publishing strategy, it will continue to be substantially dependent
upon revenues from the sale of CD-ROM titles at least through 1997. To
strengthen the Company's CD-ROM distribution capabilities, the Company entered
into an Agreement with Davidson & Associates, Inc. in late 1995 for sales and
marketing of the Company's consumer-oriented family health reference CD-ROM
titles developed with Mayo and Time Life. Davidson is a leading publisher and
distributor of multimedia educational and entertainment software for both the
home and school markets. The Company believes that its agreement with Davidson
has provided greater access to consumer channels while enabling the Company to
reduce its sales and marketing staff and related support functions.

<PAGE>

In connection with entering into the distribution relationship with the
Company, Davidson purchased 2,000 shares of the Company's 6% Series A
Convertible Redeemable Preferred Stock for $2,000,000. The Preferred Stock is
convertible into Common Stock at the rate of $11.21 per share at any time. The
non-voting Preferred Shares rank senior to the Company's Common Stock and
entitle Davidson to annual dividends. The Preferred Shares are also subject to
a redemption provision which permits Davidson to redeem the stock at face value
in November 1998, the third anniversary of the stock's issuance. Concurrent
with this investment, the Company issued Davidson warrants to purchase 12,500
shares of the Company's Common Stock at $11.21 per share.

CONVERTIBLE SUBORDINATED DEBENTURE OFFERING

On November 22, 1996, 9% Convertible Subordinated Debentures in the
aggregate principal sum of $3,500,000 were issued in a private placement.
Investors included two executive officers and three directors of the Company,
either individually or via organizations with whom they are associated, as well
as 12 other institutions or accredited individuals.

The Debentures are convertible into Common Stock at a rate of $3.25 per
share and are due and payable on November 22, 1999. The Company also has the
right to call and force the conversion of the Debentures if the closing sale
price of its Common Stock is at least $7.50 per share for 20 consecutive trading
days.

PRODUCTION

During 1994, the Company constructed a multimedia studio at its corporate
headquarters. The studio has enhanced the Company's ability to develop content
for CD-ROM, online and cable television distribution.

The Company believes that continued investments in CD-ROM and website
development are necessary to remain competitive in the electronic publishing
market. These investments include software development tools, additional
content, and continued support in its multimedia studio. In addition, the
popular computer platforms are constantly undergoing improvements and upgrades
that require the Company to anticipate these changes and adapt its products to
incorporate such changes.

The Company leverages the investment it made in its multimedia studio by
contracting to perform development work for third parties in its studio. The
Company believes that such additional work does not affect its ability to
develop its own multimedia titles and products.

<PAGE>

MARKETING, DISTRIBUTION AND MANUFACTURING

The distribution agreement with Davidson described above allowed the
Company to eliminate its direct sales force which previously marketed the
Company's CD-ROM titles. The Company continues to maintain a marketing staff
which has responsibility for non-retail distribution including licensing
arrangements and sales to original equipment manufacturers ("OEM") for bundling
with the OEM's hardware. Bundling consists of selling software titles to
computer hardware vendors and computer and peripheral manufacturers for
inclusion with their products. During 1996 the Company's revenue from bundled
sales exceeded retail sales. In addition to revenue, bundling creates positive
word-of-mouth endorsements from consumers of the Company's titles which could
ultimately lead to greater sales at the retail level.

As the Company establishes its integrated publishing strategy, the
Company's CD-ROM titles will receive greater exposure to audiences interested in
health and medical information. Consumers accessing either MAYO HEALTH O@SIS
online or the AHN cable television programming are referred, from time to time,
to the Company's CD-ROM titles for more information.

The number of CD-ROM titles competing for retail shelf space has increased
substantially in recent years. In addition, the distribution channels through
which the Company sells its products are known for rapid change. Mergers,
consolidations and financial difficulties of both distributors and retailers are
typical as is the emergence of new retailers. This environment breeds an
intense competition among software products for shelf space and retailer
support. In order to remain competitive, and maintain distributor
relationships, the Company's policy is to accept product returns from its
distributors.

All of the Company's CD-ROM titles are currently replicated by Sony Disc
Manufacturing ("Sony"), a division of Sony Electronic Publishing Company. Sony
also warehouses the Company's finished goods inventory and handles order
fulfillment. Although the Company anticipates that its relationship with Sony
will continue, the Company believes that other manufacturers are available to
replicate its titles and handle its order fulfillment.

The Company is coordinating sales and marketing of site sponsorships and
advertising on its MAYO HEALTH O@SIS online site. While the market for online
sponsorship and advertising has grown rapidly in recent years, the Company is
operating in an intensely competitive environment for its share of the dollars
that companies are devoting to such sponsorships and advertising.

HOLTZBRINCK LICENSE AGREEMENT

In 1994, the Company had entered into a sublicense agreement with Georg von
Holtzbrinck GmbH & Co. ("Holtzbrinck") to manufacture and distribute eleven of
the Company's CD-ROM titles in Europe. Holtzbrinck has not honored the terms

<PAGE>

of the agreement and the Company is considering bringing an action to enforce
the license agreement.

PRODUCT DEVELOPMENT

In 1996, 1995 and 1994, product development expenses were $5,651,000,
$7,494,000 and $19,503,000, respectively.

COMPETITION

Although the electronic multimedia market is highly competitive, the
Company is not aware of any other provider of health and medical information
that is undertaking a strategy similar to the Company's integrated publishing
strategy. The Company also believes that AHN is the only cable television
service devoted to health and medical programming and home health product
shopping. Nevertheless, if the Company is successful with its integrated
publishing strategy, competitors will likely undertake a similar strategy,
including current participants in other areas of the electronics, cable,
telecommunications or publishing markets with substantially greater financial,
production, engineering and marketing resources than the Company. Many of these
companies may have experience in multimedia technology and in producing and
marketing online websites, as well as experience producing and selling consumer
products through various distribution channels.

The online environment is intensely competitive with several new health-
related information sites emerging monthly. The principal competitive factors
in the online arena are quality of content, ease of accessibility to Internet
users, site features, ease of navigation, and name recognition. Additionally,
with the relatively low cost of developing and maintaining a website, there can
be no assurance that other publishers having access to reliable and credible
health information will not emerge to compete with the Company.

Additionally, in the future, the Company may have to compete with other
health information publishers for sponsorship and/or advertising revenues. The
Company's success is dependent on its ability to obtain sponsorship agreements
as well as other advertising arrangements.

With respect to CD-ROM distribution, the principal competitive factors are
price, content, quality, ease of use, product features, access to distribution
channels, name recognition, and quality of support service. Because of the
competition for shelf space, the Company's CD-ROM titles compete with all types
of CD-ROM products regardless of the content and subject matter. There are
numerous other publishers of health and medical information in CD-ROM and other
formats. Also,

<PAGE>

there can be no assurance that the electronic publishing market will not be
entered by additional competitors with resources far greater than those of the
Company.

In addition, intense competition exists for recognition from large volume
wholesalers and for retail shelf space in the consumer software industry. A
number of factors, including discounts to wholesalers, customer service, and
marketing and promotional efforts, affect access to wholesalers and retailers.
The Company's success is also dependent on penetrating distribution channels
outside of traditional software distribution channels, including schools,
libraries, hospitals, pharmacies, bookstores and mass merchants.

SEASONALITY

The Company expects that its CD-ROM sales will be subject to the
seasonality that generally affects the computer software business. Typically
net revenues, gross margins and operating income are fairly constant in the
first, second and third quarters and are highest during the fourth quarter.
This seasonality is due principally to the increased demand for the Company's
CD-ROM products during the Christmas season. Because revenues from the online
and cable television segments of the Company's integrated publishing strategy
are not subject to the same seasonality, the development of these aspects of the
Company's business in 1996 did reduce the impact the seasonality in the CD-ROM
segment of the Company's business has on the Company's operations. The Company
also hopes that growth in contract development revenue from its multimedia
studio will help the Company's revenue cycle to be even less dependent on the
Christmas selling season.

PROTECTION OF PROPRIETARY RIGHTS

The Company regards the software it owns as proprietary and relies upon a
combination of copyrights, trade secret laws, employee and third-party
non-disclosure agreements and other methods to protect its products. The
Company believes that copyright protection for its titles is less significant to
the Company's success than factors such as the knowledge, ability and experience
of the Company's personnel, and the quality of its new product development and
distribution efforts.

EMPLOYEES

As of December 31, 1996, the Company employed 62 people on a full-time
basis. As the situation arises, the Company also uses part-time employees.

<PAGE>

BACKLOG

The Company had no significant backlog at fiscal year end of either 1996,
1995, or 1994.

CUSTOMERS

Net sales to an OEM manufacturer in 1996 totaled $1,394,000. Additionally,
in 1996, $2,347,000 of revenue was recognized from the Company's content
agreement with AHN, a cable television network. Finally, $1,000,000 of revenue
was recognized from the Company's online content agreement with AT&T.

No individual customer accounted for 10% of the Company's net revenues in
1995.

OUTLOOK AND RISKS

While management of IVI Publishing remains optimistic about the Company's
long-term prospects, the Company wishes to caution investors that the following
important factors, among others, in some cases have affected and in the future
could affect the Company's actual results of operations. These factors could
cause such results to differ materially from those anticipated in
forward-looking statements made in this document and its annual report by or on
behalf of the Company primarily related to the Company's expectation of
significantly increasing revenues and not requiring additional financing for the
forseeable future.

DEPENDENCE ON SUCCESS OF ONLINE SERVICE. The Company's strategy for
profitability and growth is highly dependent on the success of the Company's
distribution of health and medical information to consumers, and its ability to
generate sponsorship and advertising revenues, on its MAYO HEALTH O@SIS Internet
site. There is no assurance that the Company will be able to obtain the
necessary volume of consumer usage and/or obtain the number of site sponsorships
required to make the program profitable. From October 1995 through August 1996,
AT&T participated with the Company as an online service provider of health and
medical information to consumers. In August 1996 AT&T discontinued this
arrangement which caused the Company to revise its online distribution strategy.

DEPENDENCE ON CONTENT PROVIDERS. The Company's relationship with its
content providers is fundamental to its objective of becoming a leading
electronic publisher of health and medical information for the consumer and
professional medical markets.

The Company's relationship with Mayo is critical to the Company's business,
and the Company has entered into several key license agreements with Mayo. One
of the Company's licensing agreements with Mayo prohibits the Company from
developing, producing, publishing or marketing health or medical education
content of any other entity in digital optical format without Mayo's consent, in
its sole discretion. Although Mayo has consented to the Company's arrangements
with

<PAGE>

AHN, AT&T, Time Life and MMS, there can be no assurance that Mayo will continue
to approve acquisition, development or marketing by the Company of additional
health and medical titles of any other entity. Inability to develop additional
health and medical title areas with other entities may have a material adverse
effect on the growth of the Company. In addition, Mayo generally retains the
right to publish and market titles licensed to the Company.

The Company also has a license agreement dated September 1994 with Time
Life which granted the Company an exclusive right-of-first-offer for the right
to publish non-print versions for any and all health and/or medical material
and/or titles which Time Life intends to publish for commercial purposes in
print media. The first title under this agreement was released in September
1996. Time Life has the right to approve the final version of each title.
There can be no assurance that Time Life and the Company will meet its
introduction schedules for any future titles. Even if the parties are able to
introduce the titles in a timely fashion, there can be no assurance that such
titles will be accepted by the consumer and medical professional markets.

In November 1994, the Company entered into a license agreement with
Massachusetts Medical Society ("MMS") pursuant to which the Company received an
exclusive license to develop and distribute to end users the digital format
versions of the monthly newsletter, "Health News," published by MMS. The
Company is assisting MMS with the funding of the newsletter at a rate of
$250,000 per year for the three years ending November 1997. The Company is also
obligated to pay certain royalties. Even though the Company will have invested
a substantial amount in MMS' venture, there can be no assurance that
distribution of the digitally formatted newsletter will be profitable.

In addition, the Company is dependent upon the cooperation and expertise of
its content providers in the development of the licensed titles and therefore
may experience delays in the production of titles which are beyond the ability
of the Company to control.

LIQUIDITY; NEED FOR ADDITIONAL FUNDS. Since the Company's organization in
1991, the Company has satisfied its liquidity needs through the sale of capital
stock, the sale of convertible debt, and revenues from operations. In November
1996, the Company raised $3,500,000 in a convertible debt financing. Based on
current expectations, management believes that this financing, along with
forecasted revenues from operations will be sufficient to fund operations
through December 31, 1997. However, this depends on the ability of the Company
to be able to continue to control costs and achieve significantly increasing
revenues. There is no assurance that the Company will be successful in this
regard.

DEPENDENCE ON SALES OF CD-ROM TITLES: RELATIONSHIP WITH DAVIDSON &
ASSOCIATES, INC. As the Company strives to establish its integrated publishing
strategy, it will continue to be dependent upon sales of its CD-ROM titles for a

<PAGE>

significant portion of its revenue, at least through 1997. To assist in its
distribution efforts of such CD-ROM titles, the Company has entered into a
distribution agreement with Davidson & Associates, Inc., a publisher and
distributor of multimedia educational and entertainment software for both the
home and school markets. Failure to sell CD-ROM titles in sufficient quantities
would adversely affect the Company's results of operations during calendar year
1997.

DEPENDENCE ON SUCCESSFUL GROWTH OF AMERICA'S HEALTH NETWORK. The Company
has invested a substantial amount of its available cash to fund America's Health
Network ("AHN") and to develop content with AHN. AHN has agreed to pay the
Company both a fee for the production of the content used by AHN and royalties.
AHN began broadcasting on March 25, 1996. The success of AHN is dependent upon
obtaining sufficient acceptance among viewers, which cannot be assured. While
the Company does not expect to make any additional investments in AHN, the
possibility exists that an additional investment may be deemed advisable by the
Company. Although the Company's investment in AHN includes anti-dilution
provisions, the Company's percentage ownership position in AHN may be
substantially reduced if additional equity financing is obtained by AHN.

COMPETITION. The electronic multimedia market is highly competitive. The
Company competes with other publishers of health and medical information in
CD-ROM, online and other formats. There can be no assurance that the electronic
publishing market will not be entered by additional competitors, including
current participants in other areas of the electronics, cable,
telecommunications or publishing markets with substantially greater financial,
production, engineering and marketing resources than the Company. Many of these
companies also have substantial experience in multimedia technology and in
producing and selling consumer products through retail distribution as well as
direct distribution to individual and institutional end users. The future
success of the Company is dependent in part upon its ability to continue to be
able to exclusively license the electronic publication rights to health and
medical information. There can be no assurance that the Company will be able to
continue to obtain suitable licenses for such information areas, or even if it
obtains such licenses, that any of the Company's titles will compete effectively
against other interactive multimedia titles in general or against the titles of
other publishers relating to the title areas developed or under development by
the Company.

TECHNOLOGICAL AND MARKET UNCERTAINTY. The success of electronic publishing
is dependent upon the development of markets for interactive multimedia
technology. Mass market acceptance of interactive multimedia technology will be
determined by the strategic success of major electronics and telecommunications
companies and will not be within the control of the Company. Lack of acceptance
of interactive multimedia technology and the Internet in the consumer and
professional medical markets will have an adverse effect on the Company's
operating results. In addition, to maximize the potential market for its
titles, the

<PAGE>

Company will need to develop its information for the primary interactive
multimedia platforms available to consumers at any given time.

LEGAL PROCEEDINGS. In February 1996, an action in the District Court of
Hennepin County (Minnesota) was brought by T. Randal Productions et al. against
the Company and one current and two former employees. The plaintiffs make
various allegations, including misappropriation of corporate opportunities and
trade secrets by the Company and its employees. The plaintiffs seek an
unspecified award of monetary damages, exemplary damages and royalties. The
case is being scheduled for trial in the third or fourth quarter of 1997. It is
management's belief that the action is totally without merit, and it is
vigorously defending the action. The Company's attorneys concur in this
assessment.

In 1996, Berkshire Multimedia Group, Inc. ("Berkshire") initiated mediation
regarding a dispute with the Company. Shortly after an unsuccessful mediation
conference was held in September 1996, Berkshire Multimedia Group filed a demand
for arbitration alleging that the Company breached its obligations under a
contract. An arbitration hearing was completed in January 1997, and in February
1997 the arbitration panel awarded Berkshire $300,000. The Company recorded
this as an expense in 1996.

In March of 1996, the Company commenced an action seeking replevin of
certain computer equipment leased to a former contractor, Viridis, Inc. In May
of 1996, Viridis expanded the scope of the action by filing a cross-complaint
against the Company, alleging that the Company breached contractual obligations
and committed various torts by ending its business relationship with Viridis and
seeking $10 million. The Company is vigorously contesting the allegations in
the cross-complaint, and has commenced arbitration proceedings in Minnesota
before the American Arbitration Association to recover advances and other
payments that the Company made to Viridis. Discovery has just commenced in the
above-referenced matters.

PROTECTION OF PROPRIETARY RIGHTS. The Company regards its software as
proprietary and relies primarily on a combination of copy rights, trade secret
laws, employee and third-party nondisclosure agreements and other methods to
protect its proprietary rights. The Company is aware that unauthorized copying
has occurred within the computer software industry and may occur within the
CD-ROM segment of the industry. If unauthorized copying of the Company's
products were to occur, the Company's operating results could be adversely
affected. Also, as the number of multimedia products in the industry increases
and the functionality of these products further overlaps, software developers
may increasingly become subject to infringement claims. Although the Company
makes reasonable efforts to ensure that its products do not violate the
intellectual property rights of others, there can be no assurance that claims of
infringement will not be made. Any such claims, with or without merit, can be
time-consuming and expensive to defend.

<PAGE>

DEPENDENCE ON KEY PERSONNEL. The Company is highly dependent on its
executive officers, the loss of any of whom could have an adverse effect on the
future operations of the Company. The Company's success is also dependent on
its ability to attract, retain and motivate highly trained technical, marketing,
sales and management personnel. The interactive multimedia industry is
characterized by a high level of employee mobility and aggressive recruiting of
skilled personnel. An inability to attract, retain and motivate personnel
required for the development, maintenance and expansion of the Company's
activities could adversely affect its business and prospects. There can be no
assurance that the Company will be able to retain its existing personnel or
attract additional qualified employees. The Company has an employment agreement
with Joy Solomon, President and Chief Executive Officer. The Company owns "key
person" life insurance in the amount of $250,000 on the life of its Chief
Executive Officer.

ITEM 2. PROPERTIES

The Company's principal executive and administrative offices consist of
approximately 20,000 square feet in an office building in Eden Prairie,
Minnesota, a suburb of Minneapolis. The space is leased for a term ending in
May 1999. The lease also covers approximately 2,000 square feet of storage
space.

The Company also leases space in the following locations: (1) 1,000 square
feet in a building in Rochester, Minnesota for a term ending in February 1997
and (2) 790 square feet in an office building in Carlsbad, California for a term
ending in May 1998.

ITEM 3. LEGAL PROCEEDINGS

In February 1996, an action in the District Court of Hennepin County
(Minnesota) was brought by T. Randal Productions et al. against the Company and
one current and two former employees. The plaintiffs make various allegations,
including misappropriation of corporate opportunities and trade secrets by the
Company and its employees. The plaintiffs seek an unspecified award of monetary
damages, exemplary damages and royalties. The case is being scheduled for trial
in the third or fourth quarter of 1997. It is management's belief that the
action is totally without merit, and it is vigorously defending the action. The
Company's attorneys concur in this assessment.

<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There was no matter submitted to the vote of security holders during the
fourth quarter of 1996.

EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth, below, are the names of the executive officers of the Company as
of March 7, 1997, their ages, the year first elected as an executive officer of
the Company and employment for the past five years.

Name Age Title
- --------------------------------------------------------------------------------
Joy A. Solomon 39 President, Chief Executive Officer & Director
Charles A. Nickoloff 36 Vice President, Secretary, Acting Chief
Financial Officer, & Director
Timothy J. Walsh 35 Vice President of Sales & Marketing

Executive officers of the Company are elected at the discretion of the
Board of Directors with no fixed term. There are no family relationships
between or among any of the executive officers or directors of the Company.

Joy A. Solomon has been President and Chief Executive Officer since May and
August 1996, respectively. From May 1995 to May 1996, she was Executive Vice
President and Chief Operating Officer. Prior thereto she was Senior Vice
President and General Manager. From July 1992 to June 1993, she was the Vice
President of Sales and Marketing. Ms. Solomon was Vice President of Sales and
Marketing for Jostens, Inc. from January 1990 to July 1992.

Charles A. Nickoloff is a founder of the Company and has been a Vice
President, Secretary and Director since operations began in February 1991. Mr.
Nickoloff was also appointed as Acting Chief Financial Officer in April 1996 and
has held other management positions in his six years with the Company.

Timothy J. Walsh has been Vice President of Sales and Marketing since
October 1996. Prior thereto, Mr. Walsh was the Vice President of International
Operations at TRO Learning, Inc. from October 1995 to September 1996. Mr. Walsh
also held various other management positions during his 10 years at that
company.

<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock, initially offered to the public on October 6,
1993, is quoted on the NASDAQ National Market system under the symbol "IVIP."

The following table sets forth the high and low bid quotations for the
Company's Common Stock as reported by NASDAQ for the last two fiscal years.

HIGH LOW
1996 -------- -----------
---------------
Fourth Quarter 3 7/8 2 15/16
Third Quarter 7 3/8 1 1/8
Second Quarter 14 3/8 5 7/8
First Quarter 14 1/2 11 1/4

1995
----------------
Fourth Quarter 15 1/4 8 1/4
Third Quarter 11 6
Second Quarter 8 1/4 4 1/2
First Quarter 11 3/4 7 3/4

At March 7, 1997 there were approximately 148 record holders of the
Company's Common Stock, excluding shareholders whose stock is held either in
nominee name and/or street name brokerage accounts. Based on information which
the Company obtained from its transfer agent, there are approximately 2,400
shareholders of the Company's Common Stock, including shareholders whose stock
is held either in nominee name and/or street name brokerage accounts.

The Company has never paid or declared any cash dividends on its Common
Stock and does not intend to pay dividends on its Common Stock in the near
future. To date, the Company has incurred losses and presently expects to
retain its future anticipated earnings to finance development of and expansion
of its business. The payment by the Company of dividends, if any, on its Common
Stock in the future is subject to the discretion of the Board of Directors and
will depend on the Company's earnings, financial condition, capital requirements
and other relevant factors.

RECENT SALES OF UNREGISTERED SECURITIES. On November 22, 1996, 9%
Convertible Subordinated Debentures in the aggregate principal sum of $3,500,000
were issued in a private placement. Investors included two executive officers
and three directors of the Company, either individually or through affiliated
organizations, as well as 12 other institutions or accredited individuals. For
this transaction, the Company relied on Rule 505 of Regulation D as an exemption
from registration because the private placement was to all accredited investors
and involved in the aggregate less than $5,000,000.

The debentures are convertible into Common Stock at a rate of $3.25 per
share, and are due and payable on November 22, 1999. The Company also has the
right to call and force the conversion of the Debentures if the closing sale
price of the Common Stock is at least $7.50 per share for 20 consecutive trading
days.

<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data presented below has been derived from the
financial statements of the Company. For additional information, see the
Financial Statements and Notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF
OPERATIONS DATA: Year Ended December 31
--------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net revenue $ 9,470 $ 11,970 $ 7,013 $ 2,264 $ 196
Cost of revenues 5,076 6,231 2,402 580 56
------ ------ ------ ------ ------
Gross margin 4,394 5,739 4,611 1,684 140

Cost and expenses:
Product development 5,651 7,494 19,503 6,614 1,616
Sales and marketing 2,705 7,473 9,694 2,586 229
General and administrative 6,364 5,647 5,585 1,495 887
Investment in affiliate 2,263
------ ------ ------ ------ ------

Loss from operations (10,326) (14,875) (32,434) (9,011) (2,592)

Interest income (expense), net 169 641 1,177 184 (46)
------ ------ ------ ------ ------

Net loss (10,157) (14,234) (31,257) (8,827) (2,638)

Preferred stock dividends (119) (20)
Preferred stock accretion (60)
------ ------ ------ ------ -----
Net loss applicable to common
stock ($10,336) ($14,254) ($31,257) ($8,827) ($2,638)
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------

Net loss per common share
Primary ($1.36) ($1.90) ($4.75) ($5.11) ($3.41)
------ ------ ------ ------ ------
------ ------ ------ ------ -----
Fully Diluted ($1.36) ($1.90) ($4.75) ($2.72) ($2.43)
------ ------ ------ ------ ------
------ ------ ------ ------ ------

<CAPTION>
December 31
--------------------------------------------------------
BALANCE SHEET DATA: 1996 1995 1994 1993 1992
---- ---- ---- ---- ---
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and
short-term investments $ 3,462 $ 7,759 $20,653 $19,835 $ 125
Working capital (deficiency) 3,230 8,607 20,735 19,622 (1,406)
Total assets 13,411 18,352 32,101 22,561 750
Convertible
subordinated debentures 3,500
Total liabilities 8,606 3,627 5,133 1,556 1,673
Convertible redeemable
preferred stock 1,905 1,845 2,089
Shareholders' equity (deficit) 2,900 12,880 26,968 21,005 (3,012)

</TABLE>

<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

OVERVIEW

In 1996, the Company's strategy was to further incorporate online and cable
television platforms, as well as maintain its staple platform, CD-ROMs, to
further develop an integrated approach to publishing health and medical
information electronically. This strategy enabled the Company to distribute its
health and medical information to end users via all three platforms during 1996.
In the future, the Company expects to place more emphasis on the online market
while maintaining its presence in the CD-ROM and cable television markets.

ONLINE

The online revenues recorded in 1996 related to nonrefundable advances
payable to the Company under the exclusive agreement signed with AT&T in October
1995. With the discontinuance by AT&T of the AT&T Healthsite in August 1996,
the Company redefined its online strategy. The Company's content that appeared
on the AT&T Healthsite, plus additional content, is now available, free of
charge, to anyone with Internet access. The website is currently called MAYO
HEALTH O@SIS. The Company plans to generate revenue from its Internet site
through the sale of site sponsorships, advertising and premium services.
Inherent in this plan is the importance of increased traffic to the Company's
website. To meet this goal, the Company plans to develop strategic
relationships with online service providers as a means to directly link
consumers to the Company's website. Towards that end a non-exclusive agreement
was signed in December 1996 with CompuServe. Under this agreement, CompuServe
will provide its more than 4 million members direct access to the Company's MAYO
HEALTH O@SIS website. The Company also plans to have as many direct links to
its website from other websites as possible. By mid-March 1997, the Company had
established links to its MAYO HEALTH O@SIS website from the affiliated websites
of USA Today, Blue Cross/Blue Shield - Massachusetts, America Online, and AT&T
WorldNet, among others.

The Company also licenses its content to companies that want to enhance
their own website. The first such agreement was signed in September 1996 with
Time Warner Cable. Under this agreement, Time Warner Cable has the
non-exclusive rights to offer its "RoadRunner" online cable service customers
access to the Company's digital version of THE MEDICAL ADVISOR - THE COMPLETE
GUIDE TO ALTERNATIVE & CONVENTIONAL TREATMENTS, a definitive medical guidebook,
developed in collaboration with Time Life, Inc. Another agreement was signed in
January 1997 with Oxford Health Plans whereby Oxford obtained the non-exclusive
rights to the digital version of THE MEDICAL ADVISOR to offer its plan members
via the Internet.

<PAGE>

CABLE TELEVISION

In 1994, the Company made an investment in America's Health Network
("AHN"), a cable television network that began broadcasting on March 25, 1996.
In May 1995, the Company signed an agreement to provide content to AHN. Under
this agreement, the Company receives a fee for the production of content used
by AHN during its daily broadcast schedule. Additionally, subject to the
Company's ability to deliver health and medical content in accordance with the
terms of the agreement, the Company is to be paid a minimum of $11,000,000 in
royalties over the life of the agreement which extends through March 25, 2001.
In 1996, the Company recognized $1,972,000 of cable television royalty revenues
from the agreement with AHN. In addition, there was revenue recognized for the
production of digital assets which was included in the Company's contract
development revenue. If AHN achieves its revenue forecasts for the first five
years of operations, the Company could earn additional royalties based on a
percentage of AHN's revenues.

CD-ROM

In 1996, the Company focused its CD-ROM efforts on its family health
reference CD-ROM titles. In September 1996, TAKING CONTROL OF YOUR HEALTH, the
electronic version of THE MEDICAL ADVISOR , was released. Also in September,
the Company began selling the MAYO CLINIC ULTIMATE MEDICAL GUIDE, which is the
MAYO CLINIC FAMILY HEALTH BOOK and the MAYO CLINIC FAMILY PHARMACIST discs
packaged as a single unit. Although the Company's strategy calls for
additional focus on the online market, the Company will continue to publish its
flagship CD-ROM reference titles.

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1996, AND DECEMBER 31, 1995

Net revenues were $9,470,000 in 1996 compared to $11,970,000 in 1995. The
decrease of $2,500,000 was principally the result of a decrease in CD-ROM
revenues. This decrease stemmed from increased competition for retail shelf
space, which led to price erosion. Additionally, the Company's distribution
agreement with Davidson resulted in a lower net sales price to the Company on
products sold by Davidson. Per unit OEM revenues also decreased due to market
conditions. Online revenues remained constant, while cable television revenues
increased as a result of the license agreement with AHN.

Gross margin as a percentage of net revenues was 46% in 1996 compared to
48% in 1995. The slight reduction in gross margin percentage was due to lower
gross margins realized on CD-ROM retail sales due to price erosion.

<PAGE>

Operating expenses in 1996 were $14,720,000 compared to $20,614,000 in
1995, a reduction of $5,894,000 or 28.6%. This was a result of the Company's
efforts to streamline operating expenses throughout 1996.

Product development expenses decreased in 1996 to $5,651,000 from
$7,494,000 in 1995, or 24.6%. The decrease was due to fewer CD-ROM titles being
developed combined with management's efforts to reduce costs. In the future,
the Company plans to concentrate development efforts on its online distribution
methods, as well as updating its family reference CD-ROMs.

Sales and marketing expenses were $2,705,000 in 1996 compared to $7,473,000
in 1995. The decrease of 63.8% is primarily a result of the delegation of
retail product distribution to Davidson in September of 1995. Additionally,
there were fewer CD-ROM titles in 1996 than in 1995, which contributed to
reduced marketing expenses. In 1997, the Company expects sales and marketing
expenses to continue to decline due to concentration on fewer titles.

General and administrative expenses were $6,364,000 in 1996 compared to
$5,647,000 in 1995. The overall increase of 12.7% was due to special charges
incurred in the third and fourth quarters. These charges included $978,000
related to the downsizing of facilities and personnel. Additionally, there was
a write-off of a $836,000 receivable to bad debt expense. Finally, in the
fourth quarter, there was a special charge of $300,000 due to an adverse
arbitration award. Excluding these special charges, the resulting decrease in
general and administrative expenses was the result of management's efforts to
streamline operating costs, efforts which are expected to continue in 1997.

Net interest income was $169,000 in 1996 compared to $641,000 in 1995. The
decrease was due to lower cash balances.

YEARS ENDED DECEMBER 31, 1995, AND DECEMBER 31, 1994

Net revenues were $11,970,000 in 1995 compared to $7,013,000 in 1994. The
increase of $4,957,000 over 1994's revenues was principally the result of
$1,637,000 of contract development revenue, $1,000,000 of revenue related to the
cable television license agreement with AHN, and $1,000,000 of revenue from the
online license agreement with AT&T. CD-ROM revenues of $8,333,000 represented
an increase of $1,320,000, or 18.8%, over 1994. This increase was a combination
of an increase in OEM and international revenues offset by a decrease in sales
into retail channels. Retail sales in 1995 were lower than 1994 principally due
to having less products to distribute in 1995 and higher than anticipated
returns and pricing adjustments on children's and affiliated label products.

<PAGE>

Gross margin as a percentage of net revenues was 48% in 1995 compared to
66% in 1994. The reduction in gross margin percentage was due to several
factors including:

1. Contract development revenues of $1,637,000 generated margins of only
5%; and

2. Consumer retail sales generated margins of only 24% in 1995 due
principally to higher-than-anticipated returns, provisions for obsolete
inventory, and price erosions caused by severe competition for shelf space. In
addition, the Company's distribution agreement with Davidson resulted in a lower
net sales price to the Company on products sold by Davidson.

Operating expenses in 1995 were $20,614,000 compared to $37,045,000 in
1994, a reduction of $16,431,000 or 44.3%. The Company made a substantial
investment in 1994 related to the acquisition of content, development of
technology, creation of 23 new CD-ROM titles and the launch of titles into the
retail market place.

Product development expenses decreased in 1995 to $7,494,000 from
$19,503,000 in 1994, or 61.6%. The decrease was due to fewer CD-ROM titles
being developed and substantially lower title acquisition costs in 1995 as
compared to 1994.

Sales and marketing expenses were $7,473,000 in 1995 compared to $9,694,000
in 1994. The decrease of 22.9% was primarily a result of fewer new products
being introduced in 1995 and the delegation of retail product distribution to
Davidson in September 1995.

General and administrative expenses were $5,647,000 in 1995 compared to
$5,585,000 in 1994.

Net interest income was $641,000 in 1995 compared to $1,177,000 in 1994.
The decrease was due to lower cash balances.

LIMITATION ON USE OF NET OPERATING LOSS AND OTHER TAX CREDIT CARRYFORWARDS

At December 31, 1996, the Company had available net operating loss
carryforwards of approximately $57,634,000 and available research and
development credits of approximately $326,000 for federal income tax purposes.
The Company incurred "ownership changes," pursuant to regulations currently in
effect under Internal Revenue Code Section 382, as a result of sales of the
Company's Preferred Stock in 1992 and 1993. Therefore, the Company estimates
that the use of approximately $2,900,000 of losses incurred prior to the changes
in ownership available to offset future taxable income will be limited to
approximately $900,000 per year during the years 1997 through 2000. The balance
of the net operating loss carryforwards of $54,734,000 and the credits expire at
various times through 2011. The

<PAGE>

research and development credits will also be subject to limitations under the
regulations.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash and cash equivalents at December 31, 1996 totaled
$3,462,000. The Company used $8,253,000 of cash in operating activities in
1996, related primarily to losses incurred in 1996. There was $3,737,000 of
cash provided by financing activities. This was primarily due to the issuance of
$3,500,000 of 9% Convertible Subordinated Debentures. The Company received
$3,325,000 in cash subsequent to debt issue costs.

The Company has certain lease, royalty, and other commitments in 1997 in
the amounts of $1,427,000, $707,000 and $250,000, respectively.

The Company believes that its current working capital and anticipated
operating cash flows will be sufficient to fund its operations through
December 31, 1997. These assumptions are based on the Company maintaining
costs and significantly increasing revenues. The increase in revenues is
expected to come from the sale of site sponsorships, advertising, and premium
services on the Company's website. Any material reduction in the projected
revenues would likely require the Company to seek additional equity or debt
financing. There is no assurance that such financing will be available or,
if available, whether the financial terms would be reasonable.

The Company has a significant asset that represents the capitalization of
costs paid, net of royalties received, to Time Life, Inc. for the development of
THE MEDICAL ADVISOR, the print version of TAKING CONTROL OF YOUR HEALTH. The
Company is amortizing this asset as royalties on sales of the print version are
received from Time Life, Inc. There are certain risks and uncertainties in
assuming that the sales volume of the print version will be sufficient to fully
amortize this asset, however, based on management's review of this asset's value
as of December 31, 1996, there was no impairment. Management will review the
asset's valuation for impairment on a quarterly basis.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements of the Company for the year ended
December 31, 1996, begin on page F-1 of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

(a) Directors of the Registrant.

The information under the caption "Election of Directors" in the Company's
Proxy Statement for the 1997 Annual Meeting of Shareholders (the "1997 Proxy
Statement") to be filed with the Securities and Exchange Commission within 120
days of the fiscal year covered by this Report is incorporated herein by
reference.

(b) Executive officers of the Registrant.

Information concerning Executive Officers of the Company is included in
this Report at the end of Part I, "Executive Officers of the Registrant."

The information under the caption "Compliance with Sections 16(a) of the
Exchange Act" in the Company's 1997 Proxy Statement is incorporated herein by
reference.

ITEM 11. EXECUTIVE COMPENSATION

The information under the caption "Executive Compensation" and
"Compensation of Directors" in the Company's 1997 Proxy Statement is
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information under the caption "Security Ownership Of Certain Beneficial
Owners and Management" in the Company's 1997 Proxy Statement is incorporated
herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information under the caption "Certain Relationships and Related
Transactions" in the Company's 1997 Proxy Statement is incorporated herein by
reference.

<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) The following consolidated financial statements of IVI
Publishing, Inc. are included in this Report:
Page
----

Report of the Independent Auditors . . . . . . . . . . . . . . . . . . .F-1
Balance Sheets as of December 31, 1996 and 1995. . . . . . . . . . . . .F-2
Statements of Operations for the years ended December 31, 1996, 1995,
and 1994. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-3
Statements of Cash Flow for the years ended December 31, 1996, 1995,
and 1994. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-4
Statements of Shareholders' Equity for the years ended
December 31, 1996, 1995, and 1994 . . . . . . . . . . . . . . . . .F-5
Notes to the Financial Statements. . . . . . . . . . . . . . . . . . . .F-6

(a)(2) The following consolidated financial statement schedule of IVI
Publishing, Inc. required by Item 14(d) is included in a separate section of
this Report following the financial statements:

II. Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . .S-1

All other schedules to the financial statements required by Article 7 of
Regulation S-X are not required under the related instructions or are
inapplicable and therefore have been omitted.

(a)(3) LISTING OF EXHIBITS

The Exhibits required to be a part of this Report are listed in the Index
to Exhibits which follows the Financial Statement Schedule.

(b) REPORTS ON FORM 8-K

No reports on Form 8-K were filed during the quarter ended December 31,
1996. However, a Form 8-K, dated February 23, 1996, was filed to report a
lawsuit filed against the Company by T. Randal Productions and T. R.
Partnership. A Form 8-K was filed on August 14, 1996, to report that AT&T was
discontinuing the AT&T Healthsite and that the Company had entered into an
agreement with AT&T to provide health and medical related content for that site.

Included in Item 14(a)(3) above.

(d) FINANCIAL STATEMENT SCHEDULES

Included in Item 14(a)(2) above.

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Minneapolis,
Minnesota, on the 28th day of March 1997.

IVI PUBLISHING, INC.

By: /s/Joy A. Solomon
-----------------------------------
Joy A. Solomon
PRESIDENT AND CHIEF EXECUTIVE OFFICER

Pursuant to the requirement of the Securities Exchange Act of 1934, this
Report has been signed by the following persons in the capacities and on the
dates indicated.

Signature Title Date
--------- ---- ----
/s/ Joy A. Solomon President, Chief Executive Officer
- ----------------------- and Director March 28, 1997
Joy A. Solomon (Principal Executive Officer)

/s/Charles A. Nickoloff Vice President
- ----------------------- Acting Chief Financial Officer
Charles A. Nickoloff and Director March 28, 1997
(Principal Financial
and Accounting Officer)

* Chairman of the Board
- -----------------------
Timothy I. Maudlin

* Director
- -----------------------
Alan D. Frazier

* Director
- -----------------------
Ronald E. Eibensteiner

* Director
- -----------------------
Nicholas C. Bluhm

*By: /s/ Charles A. Nickoloff March 28, 1997
-----------------------------------------------
(Charles A. Nickoloff, Attorney-In-Fact)

* Charles A. Nickoloff, pursuant to the Powers of Attorney executed by each
of the directors above whose name is marked by a "*," by signing his name hereto
does hereby sign and execute this Report on behalf of each of the directors in
the capacities in which the names of each appear above.

<PAGE>

REPORT OF THE INDEPENDENT AUDITORS

The Board of Directors and Shareholders
IVI Publishing, Inc.

We have audited the accompanying balance sheets of IVI Publishing, Inc.
as of December 31, 1996 and 1995, and the related statements of operations,
cash flows and shareholders' equity for each of the three years in the period
ended December 31, 1996. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of IVI Publishing,
Inc. at December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996,
in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.

ERNST & YOUNG LLP

Minneapolis, Minnesota
February 11, 1997

F-1

<PAGE>

IVI PUBLISHING, INC.
BALANCE SHEETS
(In Thousands)

December 31
------------------------
1996 1995
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $3,462 $7,759
Accounts receivable, net of allowances
for returns and doubtful accounts of
$277 in 1996 and $753 in 1995 4,134 3,208
Inventories 155 821
Other current assets 585 446
--------- ---------
Total current assets 8,336 12,234

Furniture and equipment:
Computers and software 4,583 4,599
Office equipment 1,546 1,946
Leasehold improvements 683 797
--------- ---------
6,812 7,342
Accumulated depreciation (3,622) (2,524)
--------- ---------
3,190 4,818
Long-term receivables and other assets 1,885 1,300
--------- ---------

TOTAL ASSETS $13,411 $18,352
--------- ---------
--------- ---------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable $3,635 $2,363
Other accrued expenses 1,471 1,264
--------- ---------
Total current liabilities 5,106 3,627

Convertible subordinated debentures 3,500

Convertible redeemable preferred stock 1,905 1,845
(redemption Value of $2,000)

Shareholders' equity:
Common stock, $.01 par value:
Issued and outstanding shares - 7,612
and 7,525 at December 31, 1996
and 1995, respectively 76 75
Paid-in capital 70,453 70,277
Accumulated deficit (67,629) (57,472)
--------- ---------
Total shareholders' equity 2,900 12,880
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $13,411 $18,352
--------- ---------
--------- ---------

See accompanying notes.

F-2

<PAGE>

IVI PUBLISHING, INC.
STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)

Year Ended December 31
---------------------------------------
1996 1995 1994
--------- --------- ---------

Net revenues $9,470 $11,970 $ 7,013
Cost of revenues 5,076 6,231 2,402
--------- --------- ---------
Gross margin 4,394 5,739 4,611

Operating expenses:
Product development 5,651 7,494 19,503
Sales and marketing 2,705 7,473 9,694
General and administrative 6,364 5,647 5,585
Investment in affiliate 2,263
--------- --------- ---------
Loss from operations (10,326) (14,875) (32,434)

Net interest income 169 641 1,177
--------- --------- ---------
Net loss (10,157) (14,234) (31,257)

Preferred stock dividends (119) (20)
Preferred stock accretion (60)
--------- --------- ---------
Net loss applicable to common stock ($10,336) ($14,254) ($31,257)
--------- --------- ---------
--------- --------- ---------

Net loss per common share ($1.36) ($1.90) ($4.75)
--------- --------- ---------
--------- --------- ---------

Weighted average number of
common shares outstanding 7,580 7,484 6,583
--------- --------- ---------
--------- --------- ---------

See accompanying notes.

F-3

<PAGE>

IVI PUBLISHING, INC.
STATEMENTS OF CASH FLOW
(In Thousands)

<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net loss ($10,157) ($14,234) ($31,257)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 1,409 1,403 815
Stock issued for license and publishing agreements 2,783
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (926) 240 (2,483)
Decrease (increase) in inventories 666 363 (249)
(Increase) decrease in other current assets (139) 137 (1,140)
Increase in other long-term assets (585) (365) (935)
Increase (decrease) in accounts payable 1,272 (1,750) 3,005
Increase in other accrued liabilities 207 224 572
--------- --------- ---------
Net cash used in operating activities (8,253) (13,982) (28,889)

Investing activities
Net furniture and equipment disposals (additions) 219 (923) (4,730)
Purchase of short-term investments (4,388) (37,976)
Maturity of short-term investments 22,218 33,000
--------- --------- ---------
Net cash provided by (used in) investing activities 219 16,907 (9,706)

Financing activities:
Net proceeds from issuance of common stock 34,412
Net proceeds from issuance of convertible
redeemable preferred stock 1,845
Preferred stock dividends paid (119)
Proceeds from exercised stock options 356 166 25
Proceeds from issuance of long-term debt 3,500
--------- --------- ---------
Net cash provided by financing activities 3,737 2,011 34,437

Net (decrease) increase in cash and cash equivalents (4,297) 4,936 (4,158)
Cash and cash equivalents at beginning of period 7,759 2,823 6,981
--------- --------- ---------
Cash and cash equivalents at end of period $3,462 $7,759 $2,823
--------- --------- ---------
--------- --------- ---------
</TABLE>

See accompanying notes.

F-4

<PAGE>

IVI PUBLISHING, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Common Additional Total
Shares Common Paid-In Accumulated Shareholders'
Outstanding Stock Capital Deficit Equity
----------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 5,075 $51 $32,935 ($11,981) $21,005

Issuance of common stock
in public offering 2,070 21 34,391 34,412

Issuance of common stock
for publishing agreements 310 3 2,780 2,783

Issuance of common stock
through exercise of options 23 25 25

Net loss (31,257) (31,257)
----------- -------- ---------- ----------- -------------

BALANCE AT DECEMBER 31, 1994 7,478 75 70,131 (43,238) 26,968

Issuance of common stock
through exercise of options 46 166 166

Dividends on convertible
redeemable preferred stock
($.01 per share) (20) (20)

Net loss (14,234) (14,234)
----------- -------- ---------- ----------- -------------

BALANCE AT DECEMBER 31, 1995 7,524 75 70,277 (57,472) 12,880

Issuance of common stock
through exercise of options 88 1 355 356

Dividends on convertible
redeemable preferred stock
($.06 per share) (119) (119)

Preferred stock accretion (60) (60)

Net loss (10,157) (10,157)
----------- -------- ---------- ----------- -------------

BALANCE AT DECEMBER 31, 1996 7,612 $76 $70,453 ($67,629) $2,900
----------- -------- ---------- ----------- -------------
----------- -------- ---------- ----------- -------------

</TABLE>

See accompanying notes.

F-5

<PAGE>

IVI PUBLISHING, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996

NOTE 1. BUSINESS ACTIVITY

FORMATION OF THE BUSINESS

IVI Publishing, Inc. (the Company), which was founded in 1990 and commenced
operations in early 1991, is engaged in a single business consisting of
electronic publishing of health and medical information in interactive
multimedia formats. The Company's revenues are primarily generated in the
United States.

MANAGEMENT'S PLANS CONCERNING CASH FLOW AND ONGOING OPERATIONS

The Company has experienced recurring losses from operations and has
generated an accumulated deficit from inception through December 31, 1996 of
$67,620. These conditions give rise to the question about the Company's
ability to generate positive cash flow and fund operations. The Company
believes that its current working capital and anticipated operating cash
flows will be sufficient to fund its operations through December 31, 1997.
These assumptions are based upon the Company maintaining expenses at current
levels and increasing revenues from the sale of site sponsorships and
advertising and premium services on the Company's website. Any material
reduction in projected revenues will require the Company to seek additional
equity or debt financing or substantially reduce the Company's expense
structure through certain reductions in personnel, marketing and promotion,
and other areas. There is no assurance that equity or debt financing will be
available or, if available, whether the financial terms would be reasonable.
The Company believes that, if necessary , it will be able to continue to meet
its ongoing financial obligations and operate through December 31, 1997
solely by reducing its current expense level through certain reductions in
personnel, marketing and promotion, and other areas.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

STATEMENT OF CASH FLOWS

The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. At December 31, 1996,
cash and cash equivalents consisted principally of a United States Government
security money market fund which is considered available for sale.

F-6

<PAGE>

FURNITURE AND EQUIPMENT

Furniture and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful life of the assets.

PRODUCT DEVELOPMENT COSTS

Product development costs consist principally of compensation to Company
employees, interactive design costs paid to outside consultants, travel and
supplies. Product development also includes costs incurred related to the
acquisition of content under license and publishing agreements. Costs related
to research, design and development of products are charged to product
development expenses as incurred. Under Statement of Financial Accounting
Standards No. 86 (SFAS No. 86), software development costs are capitalized
beginning when a product's technological feasibility has been established and
ending when a product is available for general release to customers. The
Company has not capitalized any software development costs since such costs
meeting the requirements of SFAS No. 86 have not been significant.

REVENUE RECOGNITION

The Company's revenues consist of product sales and licensing revenue, contract
development revenue, fees relating to the licensing of its content for use on
cable television, and fees for online services.

Product sales and licensing revenues are made up of retail distribution sales,
direct mail sales, and product sales and royalties on licenses to original
equipment manufacturers (OEM's). These revenues are recognized upon shipment of
the product or when the Company's obligations under the licensing agreements are
complete. Allowances for returns are recorded at the time revenue is
recognized.

Contract development revenue is generated through the use of the Company's
personnel and facilities for the creation of custom multimedia products. This
revenue is recognized by contract on a percentage-of-completion basis or at a
specific hourly rate, depending on the terms of the contract.

Revenues are generated through the licensing of the Company's health and medical
content for use on cable television channels. The Company recognizes revenue
under its cable television agreement with AHN, ratably over the life of the
contract. (See Note 11).

Revenues were also generated through the Company's online agreement with AT&T.
These revenues were nonrefundable advances payable to the Company under the
exclusive agreement signed with AT&T. They were recognized as they were earned.
(See Note 12).

F-7

<PAGE>

Revenues for each of the three years ended December 31, 1996, 1995 and 1994 are
as follows:

1996 1995 1994
----------- ------------ ------------

Product Sales $5,152,000 $8,333,000 $7,013,000
Contract Development 1,346,000 1,637,000
Cable Television 1,972,000 1,000,000
Online 1,000,000 1,000,000
----------- ------------ ------------

Total Net Revenues $9,470,000 $11,970,000 $7,013,000
----------- ------------ ------------
----------- ------------ ------------

Net sales to one OEM manufacturer in 1996 totaled $1,394,000. Additionally, in
1996, $2,347,000 of revenue was recognized from the Company's content agreement
with AHN, and $1,000,000 of revenue was recognized from the Company's online
content agreement with AT&T.

No individual customer accounted for 10% of total net revenues in 1995.

Net revenues from sales to four major distributors in 1994 totaled $4,791,000
and ranged from $1,013,000 to $1,459,000 per distributor. Also, in 1994,
$924,000 of revenue was recognized from a license agreement with an
international distributor for the distribution of the Company's products into
Europe.

INVENTORIES

All inventories are stated at the lower of cost (first-in, first-out method) or
market and consist of packaging supplies and finished goods.

ADVERTISING COSTS

The Company's policy is to expense advertising costs as they are incurred.
Advertising costs were $556,000, $1,732,000, and $3,260,000 for 1996, 1995, and
1994, respectively.

INCOME TAXES

The Company accounts for income taxes under the liability method in accordance
with FASB Statement No. 109, "Accounting for Income Taxes". Certain income and
expense items are recognized for financial reporting purposes and for income tax
purposes in different periods.

F-8

<PAGE>

NET LOSS PER SHARE

Net loss per share is computed using the weighted average number of shares of
common stock outstanding. Common equivalent shares from stock options and
warrants are excluded from the computation for all periods as their effect is
anti-dilutive.

USE OF ESTIMATES

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

STOCK BASED COMPENSATION

The Company has elected to follow Accounting Principles Board Opinion No. 25
"ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES" (APB 25) and related interpretations
in accounting for its employee stock options. Under APB 25, when the exercise
price of employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recorded. The Company has
adopted the disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION"(Statement 123).
Statement 123 provides for fair value accounting using option valuation models
that were not developed for use in valuing stock options. (See Note 8).

RECLASSIFICATIONS

Certain amounts for 1995 have been reclassified to conform with the 1996
financial statement presentation.

NOTE 3. OTHER ASSETS

In 1994, the Company entered into an agreement with Time Life, Inc. ("Time
Life") pursuant to which the Company agreed to pay Time Life for the development
of a comprehensive home health reference guide. In exchange, the Company
receives royalty payments in the amount of 5% of Time Life's net revenue from
the sale of the print version of the product. At December 31, 1996 and 1995,
the Company recorded an asset of $1,778,000 and $1,300,000, respectively, which
represents the Company's quarterly installments to Time Life. The 1996 balance
is recorded net of royalty payments received from Time Life and includes
$400,000 in payments that were due at December 31, 1996 and recorded in accrued
expenses. The Company's policy is to amortize this asset over the period that
revenues are recognized. There are certain risks and uncertainties in assuming
that the sales volume of the print version will be sufficient to fully amortize
this asset. However, based on

F-9

<PAGE>

management's review of this asset's value as of December 31, 1996, there was no
impairment. Management will review the asset's valuation for impairment on a
quarterly basis.

NOTE 4. OTHER ACCRUED EXPENSES

Other accrued expenses consist of the following:

1996 1995
------------ -------------

Royalties $993,000 $872,000
Arbitration loss 300,000
Compensation 15,000 231,000
Other 163,000 161,000
------------ -------------

Total $1,471,000 $1,264,000
------------ -------------
------------ -------------

NOTE 5. COMMON STOCK

As of December 31, 1996 and 1995 the Company has 30,000,000 shares of $.01 par
value stock authorized, of which 20,000,000 shares have been designated as
Common Stock, 2,000 have been designated as 6% Series A Convertible Redeemable
Preferred Stock, and 9,998,000 shares are undesignated.

NOTE 6. LONG-TERM DEBT

In November 1996, the Company issued $3,500,000 of 9% Convertible Subordinated
Debentures ($3,325,000 net of debt issue costs) to finance future operating
expenses. These debentures, which are convertible into common stock at the
option of the holder, at a rate of $3.25 per share, are due and payable on
November 22, 1999. The Company also has the right to call the debentures and
force a conversion through November 22, 1999 provided that the closing sale
price of the Company's Common Stock is equal to or exceeds $7.50 per share for
twenty consecutive trading days immediately prior to notifying the debenture
holders of the call. The debentures are secured by all of the Company's
tangible and intangible assets, except the Company's equity interest in
America's Health Network. On December 31, 1996, the estimated fair value of the
Convertible Subordinated Debentures approximates the recorded amount.

F-10

<PAGE>

NOTE 7. CONVERTIBLE REDEEMABLE PREFERRED STOCK

In 1995, the Company issued 2,000 shares of 6% Series A Convertible Redeemable
Preferred Stock for $2,000,000 ($1,845,000 net of brokerage expenses) to
Davidson & Associates, Inc., ("Davidson") a distributor of multimedia
educational and entertainment software. The Preferred Stock is convertible into
Common Stock at a rate of $11.21 per share at any time. The non-voting
Preferred Shares rank senior to the Company's Common Stock, and entitle Davidson
to annual dividends. They also contain a redemption provision whereby Davidson
has the right to redeem the stock at face value in November 1998, the third
anniversary of the stock's issuance. The carrying value of the Preferred Stock
approximates its fair value at December 31, 1996, and is being accreted ratably
to its redemption value through November 1998.

NOTE 8. STOCK OPTIONS AND WARRANTS

The Company has adopted the 1991 Stock Option Plan (the "Plan") for its
employees. The Plan, which is administered by the Board of Directors, permits
the Company to grant stock options for the purchase of Common Stock.

The Plan provides for the granting of Incentive Stock Options (ISO's) and
Non-Qualified Options. In the case of ISO's, the exercise price shall not be
less than the fair market value per share of the Common Stock on the date of
grant. In the case of Non-Qualified Options, the exercise price shall not be
less than 85% of the fair market value per share on the date of grant. Options
generally expire nine to ten years from the date of grant.

In 1994, the Company's shareholders adopted a Director Stock Option Plan
pursuant to which current non-employee directors are eligible to receive options
to purchase shares of the Company's common stock at the market price on the date
of grant. There were 200,000 shares reserved in 1996 which are subject to
shareholder approval.

F-11

<PAGE>

Activity in the plans is as follows:

Option Weighted-
Shares Shares Average Price
Reserved Outstanding Per Share
----------- ------------- -------------
<S> <C> <C> <C>
TOTAL OUTSTANDING AT DECEMBER 31, 1993 19,000 646,000 $10.90
Options Reserved 800,000
Options Granted (443,000) 443,000 $22.76
Options Exercised (23,000) $ 1.10
Options Canceled 37,000 (37,000) $25.07
----------- -------------
TOTAL OUTSTANDING AT DECEMBER 31, 1994 413,000 1,029,000 $15.72
Options Granted (467,000) 467,000 $11.04
Options Exercised (46,000) $ 3.59
Options Canceled 543,000 (543,000) $19.72
----------- -------------
TOTAL OUTSTANDING AT DECEMBER 31, 1995 489,000 907,000 $11.53
Options Reserved 200,000
Options Granted (582,000) 582,000 $ 4.98
Options Exercised (88,000) $ 4.06
Options Canceled 461,000 (461,000) $13.24
----------- -------------
TOTAL OUTSTANDING AT DECEMBER 31, 1996 568,000 940,000 $ 7.34
----------- -------------
----------- -------------

</TABLE>

At December 31, 1996, 1995 and 1994, options to purchase 602,000, 557,000 and
471,000 shares were exercisable, respectively. Exercise prices for the options
outstanding as of December 31, 1996 range from $1.00 to $17.75.

The following table summarizes information about the stock options outstanding
at December 31, 1996:

Options Outstanding Options Exercisable

---------------------------------------- -----------------------
Weighted-
Average Weighted Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- -------------------------------------------------------------------------------
$1.00 - 3.59 448,000 9 years $2.78 166,000 $2.54
7.00 183,000 8 years $6.57 168,000 $6.53
13.12 133,000 9 years $10.52 97,000 $10.83
17.75 176,000 8 years $16.64 171,000 $16.70
-----------------------------------------------------------------
$1.00 - 17.75 940,000 8.6 years $7.69 602,000 $9.01

At December 31, 1996 the Company had warrants outstanding to purchase 559,760
shares of Common Stock at prices ranging from $3.25 per share to $30.94 per
share,

F-12

<PAGE>

expiring from 1997 through 2000. The warrants were generally issued to
underwriters and investment bankers for services performed in connection with
several of the Company's financing transactions. In addition the Company has
outstanding warrants which were granted to AT&T. (See Note 12).

Pro forma information regarding net income and earnings per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1996
and 1995:

1996 1995
-------- -------
Risk-free interest rate 6.21% 5.37%
Dividend yield 0% 0%
Volatility factor .726 .613
Weighted-average expected life 5 years 5 years

The Black-Scholes option valuation model was developed for use in estimating the
fair value traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:

1996 1995
----------- -----------
Net loss applicable to common stock- pro forma $10,562,000 $14,378,000
Net loss per common share - pro forma $1.39 $1.92
Weighted average fair value of options granted
during the year $2.99 $6.15

Because the Statement provides for pro forma amounts for options granted
beginning in 1995, the pro forma expense will likely increase in future years as
new option grants become subject to the pricing model.

F-13

<PAGE>

NOTE 9. COMMITMENTS

The Company leases office space under agreements accounted for as operating
leases. The agreements expire at various times through 1999. Gross rent
expense, including charges for monthly operating costs, was $1,433,000,
$1,287,000, and $1,147,000 for 1996, 1995 and 1994, respectively. The Company
has subleased certain facilities to various tenants in 1995 and 1996 under
non-cancelable operating leases expiring in 1999. The Company also has several
license agreements which require minimum annual royalty payments. Scheduled
minimum lease commitments, annual royalty payments and other commitments are as
follows:

Royalty Other
Lease Payments Commitments
---------- ---------- -----------
1997 $1,427,000 $ 707,000 $250,000
1998 1,562,000 403,000
1999 751,000 313,000
2000 100,000
2001 100,000
Thereafter 180,000
---------- ---------- -----------
3,740,000 1,803,000 250,000
Less Sublease
Rental Income (2,120,000)
---------- ---------- -----------
Total $1,620,000 $1,803,000 $250,000
---------- ---------- -----------
---------- ---------- -----------

NOTE 10. INCOME TAXES

At December 31, 1996 the Company has net operating loss carryforwards of
$57,634,000 for income tax purposes and unused research and development credits
of $326,000 which expire at various times through 2011. For financial reporting
purposes, a valuation allowance has been recognized to completely reserve for
the deferred tax assets related to those carryforwards. The reserve has been
established because of the uncertainty of future taxable income which is
necessary to realize the benefits of the net operating loss carryforwards.

As a result of the sale of Preferred Stock in January 1992 and June 1993, the
Company experienced an ownership change under the net operating loss limitation
rules of the Internal Revenue Code. The use of losses of approximately
$2,900,000, and research and development credits incurred through the change in
ownership dates to offset future income will be limited to approximately
$900,000 per year during the years 1997 through 2000.

F-14

<PAGE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes. Components of the Company's
deferred tax assets and liabilities are:

December 31
--------------------------
1996 1995
----------- -----------
DEFERRED TAX ASSETS:
Accrued expenses and allowances $ 2,649,000 $ 2,823,000
Stock issued for license agreements 1,351,000 1,462,000
Research and development credits 326,000 326,000
Net operating loss carryforward 23,054,000 18,855,000
----------- -----------
27,380,000 23,466,000
DEFERRED TAX LIABILITIES:
Depreciation 186,000 244,000
----------- -----------
186,000 244,000
----------- -----------
Net deferred tax assets
before valuation allowance 27,194,000 23,222,000
Less valuation allowance (27,194,000) (23,222,000)
----------- -----------
NET DEFERRED TAX ASSETS $ -0- $ -0-
----------- -----------
----------- -----------

NOTE 11. INVESTMENT IN AMERICA'S HEALTH NETWORK

In March 1994, the Company acquired an equity position in America's Health
Network ("AHN"), a health information cable television network that combines
live programming with medical consumer product sales. The network launched on
March 25, 1996.

In the first quarter of 1994, the Company expensed its entire investment of
$2,000,000 along with the related investment banking fees of approximately
$263,000. This approach to the investment was made on the basis that the
invested amounts are not assured of recoverability through future revenue
streams. As of December 31, 1996 and 1995, the Company's underlying equity in
its investment in AHN was $650,000 and $507,000 based on 8% and 17% of AHN's net
assets, respectively. However, because the Company expensed its investment, its
equity in AHN's net assets is not recognized in the balance sheet.

In May, 1995 the Company entered into a content and royalty agreement with AHN.
Under the agreement the Company is licensing its multimedia content to AHN from
the date of the agreement until March 25, 2001, 5 years from the date the cable
television network launched. The Company will receive a minimum of $11,000,000
in licensing royalties over the life of the agreement. This revenue is being
recognized ratably over the term of the agreement. AHN has also agreed to pay
the Company to produce the content at a rate of cost plus 15%. Revenue from the

F-15

<PAGE>

production of content will be recognized as the content is produced.
Additionally, if AHN achieves its revenue forecasts for the first five years of
operations, the Company could earn additional royalties based on a percentage of
AHN's revenues. The Company recorded $1,972,000 and $1,000,000 in license
royalty revenue in 1996 and 1995, respectively. At December 31, 1996 the
Company has a receivable of $1,972,000 with scheduled payments in 1997. The
Company believes this asset is recoverable based on the financial condition and
projected revenues of AHN.

NOTE 12. AGREEMENT WITH AT&T

In October, 1995 the Company entered into a four year agreement with AT&T
whereby the Company agreed to provide content for AT&T's HealthSite, a division
of AT&T's Personal Online Service ("POS"), in exchange for guaranteed revenues.
In August 1996, AT&T discontinued the HealthSite, and subsequently discontinued
POS. The Company received the 1996 guaranteed revenue payment of $1,000,000
from AT&T.

AT&T was granted and still holds warrants to purchase up to 20% of the Company's
Common Stock at a price of $14 per share. These warrants expire on March 31,
1997.

NOTE 13. BENEFIT PLAN

The Company has a defined contribution salary deferral plan covering
substantially all employees under Section 401(k) of the Internal Revenue Code.
The Plan allows eligible employees to make contributions up to the maximum
amount provided under the Code. The Company may also make a discretionary
contribution to the Plan. No such contributions have been made by the Company.

NOTE 14. SIGNIFICANT NONCASH TRANSACTIONS

In 1994, the Company expanded its publishing and licensing agreements with two
of its major content partners. The agreements involved issuing a total of
310,000 restricted shares of the Company's common stock to its partners as
payment for the agreements. The Company expensed the estimated value of these
restricted common shares, $2,783,000 in the third quarter of 1994. The Company
views these costs as similar to product development costs.

NOTE 15. RELATED PARTY TRANSACTIONS

The Company subleased approximately 20,000 square feet of its Eden Prairie
office space to Reality Interactive, Inc. in November of 1996. Reality
Interactive, Inc. and the Company share a common Board member.

During 1996, two officers of the Company participated in the Company's debt
offering. The total amount of debt issued by the Company to these individuals
was $120,000. Additionally, three directors of the Company participated in the
debt

F-16

<PAGE>

offering, either individually or through affiliated organizations. The total
amount of debt issued by the Company to these individuals and organizations was
$550,000.

At December 31, 1996, the Company had a note receivable of $229,000 from an
officer of the Company. During 1996, the officer resigned from the Company and
the note receivable will be used to off-set future contract consulting fees.

During 1994, the Company entered into an agreement with a shareholder whereby
the shareholder acted as the Company's financial advisor and agent in connection
with the investment in America's Health Network. The shareholder received
$250,000 at the consummation of the transaction. In addition the same
shareholder received $200,000 of consulting fees in 1994.

NOTE 16. LEGAL PROCEEDINGS

F-17

<PAGE>

IVI PUBLISHING, INC.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED DECEMBER 31,

(IN THOUSANDS)

<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning Costs and at End
of Period Expenses Deductions of Period
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996
Allowance for doubtful accounts
receivable, promotional allowances
and sales returns $753 $1,675 $(2,151) (1) $277
Allowance for obsolete inventory 682 365 (562) (2) 485
----- ------ ------- ------
$1,435 $2,040 $(2,713) $762
----- ------ ------- ------
----- ------ ------- ------

Year Ended December 31, 1995
Allowance for doubtful accounts
receivable, promotional allowances
and sales returns $730 $1,659 $(1,636) (1) $753
Allowance for obsolete inventory 124 698 (140) (2) 682
----- ------ ------- ------
$854 $2,357 $(1,776) $1,435
----- ------ ------- ------
----- ------ ------- ------

Year Ended December 31, 1994
Allowance for doubtful accounts
receivable, promotional allowances
and sales returns $90 $1,048 $(408) (1) $730
Allowance for obsolete inventory 124 124
----- ------ ------- ------
$90 $1,172 $(408) $854
----- ------ ------- ------
----- ------ ------- ------
</TABLE>

(1) Deductions represent accounts receivable determined to be uncollectable and
therefore charged against the allowance account; accounts receivable
determined to be uncollectable due to return of product(s); and accounts
credited due to promotional and administrative allowance arrangements with
distributors

(2) Write-offs of inventory

S-1
<PAGE>

IVI PUBLISHING, INC.
INDEX TO EXHIBITS TO ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1996

EXHIBIT
NUMBER
- --------
3.1 Amended and restated Articles of Incorporation of the Company,
incorporated herein by reference to Exhibit No. 3.2 to the Company's
Registration Statement on Form S-1, No. 33-76496 (the 1994 S-1)

3.2 Bylaws of the Company, incorporated herein by reference to Exhibit No.
3.2 to the Company's Registration Statement on Form S-1, No. 33-67064
(the 1993 S-1)

4.1 Form of Stock Certificate, incorporated herein by reference to Exhibit
No. 4.1 to the 1993 S-1

4.2 Statement of Registration Rights - Preferred Stock, incorporated
herein by reference to Exhibit No. 4.2 to the 1993 S-1

4.3 Warrant Agreement, dated as of July 17, 1992, between the Company and
Medical Innovation Fund, incorporated herein by reference to Exhibit
No. 4.3 to the 1993 S-1

4.4 Warrant Agreement, dated as of November 30, 1992, between the Company
and Ronald Eibensteiner, incorporated herein by reference to Exhibit
No. 4.4 to the 1993 S-1

4.5 Warrant Agreement, dated as of December 20, 1992, between the Company
and Wayne Mills, incorporated herein by reference to Exhibit No. 4.5
to the 1993 S-1

4.6 Warrant Agreement, dated as of June 4, 1993, between the Company and
Frazier Investment Securities, L.P., incorporated herein by reference
to Exhibit No. 4.6 to the 1993 S-1

4.7 Form of 9% Convertible Subordinated Debentures with list of holders
issued by the Registrant in the aggregate principal amount of
$3,500,250 on November 22, 1996

4.8 Registration Rights Agreement, dated November 22, 1996, between the
Registrant and the holders of the 9% Convertible Subordinated
Debentures

4.9 Security Agreement, dated November 22,1996, between the Registrant and
the holders of the 9% Convertible Subordinated Debentures

4.10 Inter-Creditor Agreement, dated November 22, 1996, by and among the
holders of the 9% Convertible Subordinated Debentures and the
Registrant

10.1 License Agreement, dated April 24, 1991, among the Company, William
Morrow Company and Mayo Foundation for Medical Education and Research,
as amended, incorporated herein by reference to Exhibit No. 10.1 to
the 1993 S-1

10.2 Electronic Publishing License, Development and Marketing Agreement,
dated April 28, 1993, between the Company and Mayo Foundation for
Medical Education and Research, incorporated herein by reference to
Exhibit No. 10.4 to the 1993 S-1

10.3 Lease, dated June 15, 1992, between the Company and BGD5 Limited
Partnership, incorporated herein by reference to Exhibit No. 10.7 to
the 1993 S-1

10.4 401(k) Savings and Investment Plan, incorporated herein by reference
to Exhibit No. 10.9 to Amendment No. 1 to the 1993 S-1

10.5 1991 Stock Option Plan, as amended, incorporated herein by reference
to Exhibit No. 10.11 to the 1994 S-1

10.6 IVI Publishing, Inc. Director Stock Option Plan, as amended,
incorporated herein by reference to Exhibit No. 10.12 to the 1994 S-1

10.7 License Agreement, dated February 9, 1994, between the Company and
Time Life, Inc. and First Amendment to Titles Development Agreement,
dated as of February 9, 1994 between the Company and Time Life, Inc.,
incorporated herein by reference to Exhibit No. 10.19 to the 1994 S-1

10.8 Stock Purchase Agreement, dated March 10, 1994, between the Company
and America's Health Network, Inc., incorporated herein by reference
to Exhibit No. 10.23 to the 1994 S-1

10.9 Lease Agreement, dated March 30, 1994, between the Company and
Ryan/Wilson Limited Partnership, incorporated herein by reference to
Exhibit No. 10.25 to the 1994 S-1

10.10 License, Development and Marketing Agreement, dated September 28,
1994, between the Company and Time Life, Inc., incorporated by
reference to Exhibit No. 10.25 to the Company's Form 10-K for the year
ended December 31, 1994*

10.11 1994 License, Development and Marketing Agreement, dated September 27,
1994, between the Company and Mayo Foundation for Medical Education
and Research, incorporated by reference to Exhibit No. 10.26 to the
Company's Form 10-K for the year ended December 31, 1994*

<PAGE>

10.12 License Agreement, dated November 10, 1994, between the Company and
Massachusetts Medical Society, incorporated by reference to Exhibit
No. 10.27 to the Company's Form 10-K for the year ended December 31,
1994*

10.13 Sublicense Agreement, dated December 31, 1994, between the Company and
Georg von Holtzbrinck GmbH & Co., incorporated by reference to Exhibit
No. 10.28 to the Company's Form 10-K for the year ended December 31,
1994*

10.14 Agreement between America's Health Network, Inc. and the Company,
dated May 25, 1995, incorporated by reference to Exhibit 10.14 to the
Company's Form 10-K for the year ended December 31, 1995*

10.15 Anchor Brand Content Provider Agreement between AT&T Corp. and the
Company, dated October 30, 1995, incorporated by reference to Exhibit
10.15 to the Company's Form 10-K for the year ended December 31,
1995*

10.16 Employment Agreement between the Company and Ronald G. Buck, dated
June 14, 1995, incorporated by reference to Exhibit 10.16 to the
Company's Form 10-K for the year ended December 31, 1995**

10.17 Employment Agreement between the Company and Joy A. Solomon, dated
June 9, 1995, incorporated by reference to Exhibit 10.17 to the
Company's Form 10-K for the year ended December 31, 1995**

10.18 Amendment No. 2 to License Agreement among William Morrow Company,
Mayo Foundation for Medical Education and Research and the Company,
dated December 29, 1995, incorporated by reference to Exhibit 10.18 to
the Company's Form 10-K for the year ended December 31, 1995*

10.19 Financial Advisor and Consulting Agreement with Frazier & Company LP,
dated July 14, 1994, as amended by a letter agreement, dated June 28,
1995, incorporated by reference to Exhibit 10.19 to the Company's Form
10-K for the year ended December 31, 1995**

10.20 First Amendment dated June, 27, 1994 and Second Amendment dated
October 10, 1995 to Lease Agreement between the Company and
Ryan/Wilson Limited Partnership, incorporated by reference to Exhibit
10.20 to the Company's Form 10-K for the year ended December 31, 1995

10.21 Agreement dated April 1995 among Ryan/Wilson Limited Partnership,
Wilson Learning Corporation the Company regarding a certain lease,
incorporated by reference to Exhibit 10.21 to the Company's Form 10-K
for the year ended December 31, 1995

10.22 Distribution on Consignment Agreement, dated February 29, 1996 between
the Company and Davidson & Associates, Inc. , incorporated by
reference to Exhibit 10.22 to the Company's Form 10-K for the year
ended December 31, 1995*

10.23 Sublease Agreement, dated January 31, 1996, between the Company and
The McGraw-Hill Companies, Inc. related to a property leased by
Woodland Hills Property-W, Inc. pursuant to a May 23, 1993 lease with
the Company, incorporated by reference to Exhibit 10.23 to the
Company's Form 10-K for the year ended December 31, 1995

10.24 Employment Agreement between the Company and Joy A. Solomon, dated
August 7, 1996**

10.25 Separation Agreement between the Company and Ronald G. Buck, dated
August 1, 1996**

10.26 Notice of Lease Term to Sublease Agreement, dated April 1, 1996,
between the Company and The McGraw-Hill Companies, Inc. related to a
property leased by Woodland Hills Property-W, Inc. pursuant to a May
23, 1993 lease and January 31, 1996, Sublease with the Company

10.27 Sublease Agreement, dated September 17, 1996, between the Company and
Reality Interactive, Inc. for the fourth floor portion of the Main
Lease between the Company and Ryan/Wilson Limited Partnership, Wilson
Learning Corporation

10.28 Letter of Employment to Tim Walsh, dated September 19, 1996, for the
position of Vice President of Sales and Marketing for the Company **

11 Statement Re: Computation of Per Share Loss

21 Subsidiaries of the Company

23.1 Consent of Ernst & Young LLP

24 Power of Attorney of Joy A. Solomon, Charles A. Nickoloff. Alan D.
Frazier, Ronald E. Eibensteiner, Timothy I. Maudlin and Nicholas C.
Bluhm

27 Financial Data Schedule (filed with electronic version only)

* Portions of the Exhibit have been deleted pursuant to the Company's
request for confidential treatment pursuant to Rule 24b-2 promulgated
under the Securities Act of 1933, as amended

** Management Agreement or Compensatory Plan or Arrangement

<PAGE>

EXHIBIT 4.7

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
EITHER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS AND MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE DISTRIBUTED
FOR VALUE UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
SUCH LAWS COVERING SUCH SECURITIES, OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT, OFFER, PLEDGE OR OTHER DISTRIBUTION FOR VALUE IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND SUCH LAWS.

IVI PUBLISHING, INC.

$___________ November 22, 1996
(Date of Issue)

1. The Convertible Debenture. IVI Publishing, Inc., a Minnesota
corporation (the "Company"), for value received, hereby promises to pay to the
order of __________________________________ or his/her/its successors or assigns
(the "Holder"), the principal amount of _______________ Dollars ($_______),
accruing interest at the rate of 9% per annum on the unpaid principal balance
hereof outstanding from time to time. Interest shall be computed on the basis
of a 360-day year. Interest shall be payable quarterly in cash on the first of
each November, February, May and August of each year until final maturity at
November 22, 1999, or the earlier redemption. Payments of principal shall be
made in lawful money of the United States of America at the principal office of
the Holder of this Convertible Debenture.

2. Subordination; Security. The Company covenants and agrees, and each
Holder of the Convertible Debenture by acceptance thereof covenants and agrees,
that the payment of the principal of and the interest on the Convertible
Debenture is hereby expressly subordinated and made subject to the prior payment
in full of all debt created, incurred, assumed, or guaranteed by the Company in
connection with the borrowing of money from or guaranteed to banks or other
financial institutions and all renewals, extensions and refunding thereof,
provided that any debt shall not be senior to holders of Convertible Debentures,
if the instrument creating or evidencing any such debt or pursuant to which such
debt is outstanding, provides that such debt, or such renewal, extension or
refunding thereof, is junior or not superior in right of payment to the
Convertible Debentures (the "Senior Debt"). The terms of this Convertible
Debenture are subject to the terms of the Security Agreement and Inter-Creditor
Agreement dated as of November 22, 1996 which provides, among other things, that
this Convertible Debenture is secured by all of the tangible and intangible
assets of the Company, except the Company's equity interest in America's Health
Network which is restricted from being mortgaged or pledged. As to its equity
interest in America's Health Network, the Company has agreed not to seek waivers
of such restrictions and not to mortgage or pledge its America's Health Network
interest to any other party. Fredrikson & Byron, P.A. has agreed to serve as
the Agent hereunder at the request of the parties hereto. Investors are aware
that Fredrikson & Byron, P.A. serves as general counsel to the Company and as
counsel to the Company in connection with this

<PAGE>

offering, and notwithstanding such conflict have agreed to appoint Fredrikson &
Byron, P.A. as their Agent. The Company understands that in the event of a
default of the Debentures, Fredrikson & Byron, P.A. would be obligated to
enforce the rights of the Investors which would place Fredrikson & Byron, P.A.
in an adverse position to the Company, and the Company hereby waives its rights
to object to such conflict as a client of Fredrikson & Byron, P.A. By
acceptance of the Convertible Debenture, the Holder expressly agrees that
Fredrikson & Byron, P.A. (the "Agent") appointed in the Inter-Creditor Agreement
has the authority to execute subordination agreements on behalf of the Holder
with holders of the Senior Debt or future bank creditors.

3. Transferability. The Convertible Debenture may be converted into
shares of Company Common Stock, par value $.01 per share (the "Common Stock") of
the Company pursuant to the terms of Section 6 hereof (the "Conversion Shares"),
and the Convertible Debenture and the Conversion Shares may be transferred,
subject to the following conditions. The Holder of the Convertible Debenture,
by acceptance thereof, agrees to give written notice to the Company at least ten
(10) days before transferring or converting the Convertible Debenture, or
transferring any Conversion Shares, of such Holder's intent to do so, describing
briefly the manner of the proposed transfer or conversion. Promptly upon
receiving such written notice, the Company shall present copies thereof to
counsel for the Company. If, in the opinion of counsel reasonably satisfactory
in form and substance to the Company, the proposed transfer or conversion may be
effected without constituting a violation of the applicable federal and state
securities laws, such Holder shall be entitled to transfer or convert the
Convertible Debenture or to dispose of the Conversion Shares received upon
conversion of the Convertible Debenture as contemplated in the above referred to
notice provided by the Holder to the Company, provided that an appropriate
legend may be endorsed on the Convertible Debenture or the certificates for any
of the Conversion Shares with respect to restrictions on transfer thereof
necessary or advisable in the opinion of counsel reasonably satisfactory in form
and substance to the Company to prevent further transfers which would be in
violation of the securities laws or adversely affect the exemptions relied upon
by the Company in connection with the issuance of the Convertible Debenture or
the Conversion Shares. To such effect, the Company may request that the
intended transferee execute an investment and representation letter reasonably
satisfactory in form and substance to the Company. Upon transfer of the
Convertible Debenture or any Conversion Shares, the transferee, by acceptance
of the Convertible Debenture or Conversion Shares, agrees to be bound by the
provisions, terms, conditions and limitations of the Convertible Debenture and
the investment and representation letter, if any, required by the Company. If
(a) no opinion of counsel referred to in this Section has been provided to the
Company, or (b) in the opinion of such counsel the proposed transfer, conversion
or disposition of the Convertible Debenture or the Conversion Shares described
in the Holder's written notice given pursuant to this Section may not be
effected without registration or without adversely affecting the exemptions
relied upon by the Company in connection with the issuance of the Convertible
Debenture or the Conversion Shares, the Holder will limit its activities and
restrict its transfer, conversion or disposition accordingly.

4. Exchange of Convertible Debenture. At any time at the request of any
Holder of the Convertible Debenture and upon compliance with the provisions of
Section 3 above and surrender of such Convertible Debenture for such purpose to
the Company at its principal office or such other office or agency as it may
authorize for such purpose, the Company at its expense (except for any transfer
tax arising out of the exchange) shall execute

<PAGE>

and deliver in exchange therefor a new Convertible Debenture or Convertible
Debentures, in the denomination or denominations ($1,000 and integral multiples
thereof only, plus one Convertible Debenture in a lesser denomination if
required) as such Holder may request, in an aggregate principal amount equal to
the unpaid portion of the principal amount of the Convertible Debenture
surrendered and substantially in the form thereof, dated as of the date of the
Convertible Debenture so surrendered and payable to or upon the order of such
Holder.

5. Replacement of Convertible Debenture. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of the
Convertible Debenture and in the case of any such loss, theft or destruction,
upon delivery of a bond of indemnity reasonably satisfactory to the Company if
requested by the Company, or in the case of any such mutilation, upon surrender
and cancellation of such Convertible Debenture, the Company shall issue a new
Convertible Debenture identical in form to the lost, stolen, destroyed or
mutilated Convertible Debenture.

6. Conversion of Convertible Debenture.

(a) Right of Conversion. Subject to and upon compliance with the
provisions of Section 3 above and this Section, the Holder of this Convertible
Debenture or any Convertible Debentures issued in exchange for it shall have the
right, at the Holder's option, at any time prior to the date of final maturity
of this Convertible Debenture, to convert the principal amount of any such
Convertible Debenture, in whole or in part, into that number of fully paid and
nonassessable shares of Company Common Stock (calculated as to each conversion
to the nearest 1/100 of a share) obtained by dividing the principal amount of
the Convertible Debenture, by the conversion price on $3.25, as adjusted per
share (the "Conversion Price") and by surrender of the Convertible Debenture,
such surrender to be made in the manner provided in Subsection (b) of this
Section.

(b) Surrender of Convertible Debenture. In order to exercise the
conversion privilege, the Holder of the Convertible Debenture to be converted
shall surrender such Convertible Debenture to the Company at its principal
office or at such other agency maintained for such purpose by the Company, and
shall give written notice to the Company at such office or agency that the
Holder elects to convert such Convertible Debenture specified in said notice.
Such notice shall also state the name or names, together with address or
addresses, in which the certificate or certificates for shares of Common Stock
which shall be issuable on such conversion shall be issued. The Convertible
Debenture surrendered for conversion shall, unless the shares issuable on
conversion are to be issued in the same name as the name of the original Holder,
be accompanied by instruments of transfer, in form reasonably satisfactory to
the Company, duly executed by each Holder or such Holder's duly authorized
attorney. After the surrender of such Convertible Debenture, as aforesaid, the
Company shall issue and shall deliver at such office or agency to such Holder,
or on such Holder's written order, a certificate or certificates for the number
of full shares of common stock issuable upon the conversion of such Convertible
Debenture or portion thereof in accordance with the provisions of this Section.
Any fractional interest in respect of a share arising upon such conversion shall
be settled as provided in Subsection (c) of this Section.

<PAGE>

(c) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of the Convertible Debenture. Instead of any fractional
interest in a share of capital stock which would otherwise be deliverable upon
the conversion of any Convertible Debenture, the Company shall make an
adjustment therefor to the nearest 1/100 of a share in cash at the current
market price (as defined below) thereof on the day of conversion. If more than
one Convertible Debenture shall be surrendered for conversion at one time by the
same Holder, the number of full shares issuable upon conversion thereof shall be
computed on the basis of the aggregate principal amount of the Convertible
Debentures, or specified portions thereof to be converted, so surrendered.

7. Call for Conversion. The Company has the option to call in whole or
in part, thereby forcing the Holder to convert the Convertible Debenture into
Conversion Shares pursuant to the terms of Section 6, upon written notice by the
Company, provided that the closing sale price of the Company's Common Stock is
equal to or exceeds $7.50 per share for twenty (20) consecutive trading days
immediately prior to delivering the notice to Holders.

(b) Closing Sale Price. For purposes of Section 7, the closing sale price
of the Common Stock shall be determined by the closing sale price as reported by
Nasdaq so long as the Common Stock is quoted on Nasdaq, and if the Common Stock
is listed on a national securities exchange, shall be determined by the last
reported sale price of the primary exchange on which the Common Stock is traded.

(c) Notice of Call. In the case of any call of the Convertible
Debentures, the Company or, at its request, the Agent in the name of and at the
Company's expense shall give notice of such call for conversion to the Holders,
of the Convertible Debentures to be converted as hereinafter provided. Notice
of conversion to the holders of Convertible Debentures shall be given by mailing
by first-class mail a notice of such conversion not less than 30 days prior to
the date fixed for conversion. Any notice which is given in the manner herein
provided shall be conclusively presumed to have been duly given, whether or not
the Holder receives the notice. In any case, failure to give notice, or any
defect in such notice, to the Holder of any Convertible Debenture shall not
affect the validity of the proceedings for the conversion of Convertible
Debentures represented by any other Convertible Debenture. Each such notice
shall specify the date for conversion, the place of conversion and the
conversion price of $3.25 per share at which each Convertible Debenture is to be
converted.

8. Conversion Adjustments. The provisions of this Convertible Debenture
are subject to adjustment as provided in this Section 8.

(a) The Conversion Price shall be adjusted from time to time such that in
case the Company shall hereafter:

(i) pay any dividends on any class of stock of the Company payable in
Common Stock or securities convertible into Common Stock;
(ii) subdivide its then outstanding shares of Common Stock into a greater
number of shares; or
(iii) combine outstanding shares of Common Stock, by reclassification or
otherwise;

<PAGE>

so the Holder of the Convertible Debenture thereafter converted may receive the
number of shares of Capital Stock of the Company which he would have owned
immediately following such action if he had converted the Convertible Debenture
immediately prior to such action. If after an adjustment a Holder of a
Convertible Debenture upon conversion of it may receive shares of two or more
classes of Capital Stock of the Company, the Company shall determine the
allocation of the adjusted conversion price between the classes of capital
stock. After such allocation, the conversion privilege and the conversion price
of each class of capital stock, shall, thereafter be subject to adjustment on
terms comparable to those applicable to Common Stock in this Section.

(b) In case of any consolidation or merger to which the Company is a party
other than a merger or consolidation in which the Company is the continuing
corporation, or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, or in
the case of any statutory exchange of securities with another corporation
(including any exchange effected in connection with a merger of a third
corporation into the Company), there shall be no adjustment under Subsection (a)
of this Section above but the Holder of each Convertible Debenture then
outstanding shall have the right thereafter to convert such Convertible
Debenture into the kind and amount of shares of stock and other securities and
property which he would have owned or have been entitled to receive immediately
after such consolidation, merger, statutory exchange, sale, or conveyance had
such Convertible Debenture been converted immediately prior to the effective
date of such consolidation, merger, statutory exchange, sale, or conveyance and
in any such case, if necessary, appropriate adjustment shall be made in the
application of the provisions set forth in this Section with respect to the
rights and interests thereafter of any Holders of the Convertible Debenture, to
the end that the provisions set forth in this Section shall thereafter
correspondingly be made applicable, as nearly as may reasonably be, in relation
to any shares of stock and other securities and property thereafter deliverable
on the exercise of the Convertible Debenture. The provisions of this Subsection
shall similarly apply to successive consolidations, mergers, statutory
exchanges, sales or conveyances.

(c) Upon any adjustment of the Conversion Price, then and in each such
case, the Company shall give written notice thereof, by first-class mail,
postage prepaid, addressed to the Holder of Convertible Debentures as shown on
the books of the Company, which notice shall state the Conversion Price
resulting from such adjustment and the increase or decrease, if any, in the
number of shares of Common Stock purchasable at such price upon the exercise of
this Convertible Debenture, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.

9. Events of Default. Each of the following events shall be an Event of
Default ("Event of Default") for purposes of the Convertible Debenture:

(a) Convertible Debenture Terms. The Company defaults in the due and
punctual performance or observance of any material terms contained in the
Convertible Debenture, and such default continues for a period of thirty (30)
consecutive days after written notice thereof to the Company by any Holder of
the Convertible Debenture or Common Stock issued upon conversion of the
Convertible Debenture; except that any default occurring due to Section 8(b)
hereof will result in an immediate default by the Company and such default may
be waived only by the Holders of a majority of the total principal amount of the
then outstanding Convertible Debentures which were issued in connection with the
transactions

<PAGE>

contemplated by the subscription agreement pursuant to which the Convertible
Debenture was issued; or

(b) Insolvency Matters. The Company makes an assignment for the benefit
of creditors, or admits in writing its inability to pay its debts as they become
due, or files a voluntary petition in bankruptcy, or is adjudicated a bankrupt
or insolvent, or files any petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any present or future statute, law or regulation, or
files any answer admitting or fails to deny the material allegations of a
petition filed against the Company for any such relief, or seeks or consents to
or acquiesces in the appointment of any trustee, receiver or liquidator of the
Company or all or any substantial part of the properties of the Company, or the
Company or its directors or majority stockholders take any action looking to the
dissolution or liquidation of the Company.

10. Modification and Waiver. No purported amendment, modification or
waiver of any provision hereof shall be binding unless set forth in a written
document signed by the Company and the Holder of the Convertible Debenture (in
the case of amendments or modifications) or by the party to be charged thereby
(in the case of waivers). Any waiver shall be limited to the provision hereof
in the circumstances or events specifically made subject thereto, and shall not
be deemed a waiver of any other term hereof or of the same circumstance or event
upon any reoccurrence thereof.

11. Notices. All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been given, when received, if personally delivered (including, without
limitation, delivery by courier or delivered by telex, telegram or facsimile, or
five (5) days after depositing in the U.S. Mails for delivery by first class
mail, postage prepaid and addressed as provided below, (a) if to any Holder of
the Convertible Debenture, addressed to such Holder at its address as shown on
the books of the Company, or at such other address as such Holder may specify by
written notice to the Company, with a copy to the Agent or (b) if to the Company
at 7500 Flying Cloud Drive, Minneapolis, Minnesota 55344-3839, or at such other
address as the Company may specify by written notice to the Holder of the
Convertible Debenture or Common Stock issued upon conversion of the Convertible
Debenture.

12. Successors and Assigns. All the terms and provisions of the
Convertible Debenture shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the Company and each
Holder of the Convertible Debenture, whether or not so expressed.

13. Applicable Law. The laws of the State of Minnesota, without regard to
its conflicts of law principles, shall govern the validity of the Convertible
Debenture, the construction of its terms and the interpretation of the rights
and duties of the Company and each Holder of the Convertible Debenture.

14. Waiver of Demand, Presentment and Notice of Dishonor. Except as
otherwise set forth herein, the undersigned and each endorser or guarantor
hereof hereby waives demand, presentment, protest, notice of protest and notice
of dishonor.

<PAGE>

15. Corporate Obligation. No recourse under or upon any obligation,
covenant or agreement contained in the Convertible Debenture, or for any claim
based hereon or otherwise in respect hereof, shall be had against any promoter,
subscriber to shares, incorporator, stockholder, officer, or director, as such,
past, present or future, of the Company or of any successor corporation, either
directly or through the Company or any successor or corporation or through any
trustee, receiver, or any other person, whether by virtue of any constitution,
statute, or rule of law, or by the enforcement of any assessment or penalty or
otherwise, except as expressly agreed to by the party charged.

IN WITNESS WHEREOF, the Company has caused the Convertible Debenture to be
signed by its duly authorized officer as of the date first written above.

IVI Publishing, Inc.

By /s/ Joy Solomon
----------------------------
Its President & CEO
----------------------------

<PAGE>

IVI PUBLISHING, INC.

LIST OF CURRENT SUBSCRIBERS

Subscriber Name Amount
Medical Innovation Fund $ 200,000
Timothy J. Walsh 100,000
Joy A. Solomon 20,000
Frazier Healthcare Investments, LP 250,000
Wayne W. Mills 227,500
Ronald Eibensteiner 100,000
Nicholas C. Bluhm 65,000
All Others 2,602,750
-------------
Total $3,500,250

<PAGE>

EXHIBIT 4.8
REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT is made and entered into as of November
22, 1996, between IVI PUBLISHING, INC., a Minnesota corporation ("IVI"), and the
shareholders listed in Schedule A hereto (individually referred to herein as the
"Shareholder" and collectively referred to as "Shareholders").

WITNESSETH

The parties hereto agree as follows:

ARTICLE 1
DEFINITIONS

1.1 Definitions. The following terms used in this Agreement shall be
defined as follows:

"Agreement" means this Registration Rights Agreement.

"Common Stock" means the Common Stock, $.01 par value, of IVI.

"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.

"Registration Statement" means a registration statement filed by IVI with
the SEC for a public offering and sale of securities of IVI (other than a
registration statement on Form S-8, Form S-4, any successor form thereto, or any
other form covering only securities proposed to be issued in exchange for
securities or assets of another corporation).

"Registration Expenses" means the expenses described in Section 1.2.

"Registrable Shares" means the Shareholder's Shares provided, however, that
the Shareholder's Shares shall cease to be Registrable Shares upon any sale
pursuant to a Registration Statement or Rule 144 under the Securities Act or
when any Shareholders Shares may be sold pursuant to Rule 144.

"SEC" means the Securities and Exchange Commission, or any other Federal
agency at the time administering the Securities Act.

"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.

"Selling Shareholder(s)" means any shareholder who offers for sale
Registrable Shares in any Registration Statement

"Shareholders" means all the persons listed as shareholders on Schedule A.

"Shareholder's Shares" means the shares of Common Stock issued to the
Shareholder upon conversion of 9% Convertible Subordinated Debentures issued to

<PAGE>

investors on the same date hereof, or any other shares of Common Stock of IVI
issued in respect of such shares in connection with any stock split, stock
dividend, reclassification, recapitalization, or similar event.

ARTICLE 2
REGISTRATION RIGHTS

2.1 Registration Rights.

(a) If the Company at any time within three (3) years after November 22,
1996, proposes to register under the 1933 Act any of its securities, other than
securities registered under Forms S-8 or S-4, it will give written notice to all
Shareholders of its intention to do so and, on the written request of any such
Shareholder given within twenty (20) days after receipt of any such notice, IVI
will use its best efforts to cause all such Registrable Shares, the Shareholders
of which shall have requested the registration thereof, to be included in such
Registration Statement proposed to be filed by IVI.

(b) Further, on a one-time basis only, at any time after May 31, 1997,
upon request by at least 30% of the shares of Common Stock issued or issuable
upon Conversion of the Debentures, the Company will file a Registration
Statement on Form S-3 within 30 days after receipt from such persons requesting
registration of information the Company needs in order to prepare and file such
registration statement and will use its best efforts to take all necessary steps
to register or qualify, under the Securities Act and the securities laws of such
states (no more than two states) as the Shareholder may reasonably request,
these Registrable Shares requested by such Shareholder in their request to IVI.

(c) Following the exercise of the Company's right to call in whole or in
part, the conversion of the Debentures, into Registrable Shares of Company
Common Stock, the Company will use its best efforts to prepare and file a
Registration Statement on Form S-3 to register the resale of such Registrable
Shares by the Shareholders under the Securities Act and the securities laws of
such states (no more than two) as the Shareholders shall reasonably request.

2.2 Underwriting. In connection with any offering under this Article 2
involving an underwriting, IVI shall not be required to include any Registrable
Shares in such underwriting unless the Shareholders thereof accept the terms of
the underwriting as agreed upon between IVI and the underwriters selected by it.
If, in the written opinion of the managing underwriter, the registration of all,
or part of, the Registrable Shares which the Shareholders have requested to be
included in such registration exceed the number of shares which can be sold
without adversely affecting the marketability of the offering, then IVI shall be
required to include in the underwriting only that number of Registrable Shares
which the managing underwriter believes may, when added to the number of shares
of Common Stock which other Shareholders entitled to include shares of Common
Stock in such registration have requested to be included therein, be sold
without causing such adverse effect. If the number of Registrable Shares to be
included in the underwriting in accordance with the foregoing is less than the
total number of shares which the Shareholders of Registrable Shares have
requested to be included, then the Shareholders of Registrable Shares who have
requested registration and other holders of shares of Common Stock entitled to
include shares of Common Stock in such registration shall participate in

<PAGE>

the underwriting pro rata based upon their total ownership of shares of Common
Stock of IVI. If any Shareholder would thus be entitled to include more shares
than such Shareholder requested to be registered, the excess shall be allocated
among other requesting Shareholders pro rata based upon their total ownership of
Registrable Shares.

2.3. Expenses. With respect to each inclusion of securities in a
Registration Statement pursuant to this Section, IVI shall bear the following
fees, costs, and expenses: all registration, filing and NASD fees, printing
expenses, fees and disbursements of counsel and accountants for IVI, fees and
disbursements of counsel for the underwriter or underwriters of such securities
(if IVI is required to bear such fees and disbursements), all internal expenses,
the premiums and other costs of policies of insurance against liability arising
out of the public offering, and legal fees and disbursements and other expenses
of complying with state securities laws of any jurisdictions in which the
securities to be offered are to be registered or qualified. Fees and
disbursements of special counsel and accountants for the Shareholders,
underwriting discounts and commissions, and transfer taxes for Shareholders and
any other expenses relating to the sale of securities by the Shareholders not
expressly included above shall be borne by the Shareholders.

2.4 Indemnification. The Company hereby indemnifies the Shareholders and
the officers and directors, if any, who control such Shareholders, within the
meaning of Section 15 of the 1933 Act, against all losses, claims, damages, and
liabilities caused by (1) any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement or Prospectus (and as
amended or supplemented if IVI shall have furnished any amendments thereof or
supplements thereto), any Preliminary Prospectus or any state securities law
filings; (2) any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading except insofar as such losses, claims, damages, or liabilities are
caused by any untrue statement or omission contained in information furnished in
writing to IVI by such Shareholder expressly for use therein; and each such
Shareholder by its acceptance hereof severally agrees that it will indemnify and
hold harmless IVI, each of its officers and directors who signs such
Registration Statement, and each person, if any, who controls IVI, within the
meaning of Section 15 of the 1933 Act, with respect to losses, claims, damages,
or liabilities which are caused by any untrue statement or omission contained in
information furnished in writing to the Company by such Shareholder expressly
for use therein.

2.5 Registration Procedures. If and whenever IVI is required by the
provisions of this Agreement to use its best efforts to effect the registration
of any of the Registrable Shares under the Securities Act, IVI shall:
(a) file with the SEC a Registration Statement with respect to such
Registrable Shares and use its best efforts to cause that Registration Statement
to become and remain effective;

(b) as expeditiously as possible prepare and file with the SEC any
amendments and supplements to the Registration Statement and the prospectus
included in the Registration Statement as may be necessary to keep the
Registration Statement effective for a period of not less than six (6) months
from the effective date;

(c) as expeditiously as possible furnish to the Shareholders who are
selling Registrable Shares pursuant to such registration (the "Selling
Shareholders") such

<PAGE>

reasonable numbers of copies of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as the Selling Shareholders may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Shares owned
by the Selling Shareholders;

(d) as expeditiously as possible use its best efforts to register or
qualify the Registrable Shares covered by the Registration Statement under the
securities or Blue Sky laws of such states as the Selling Shareholders shall
reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the Selling Shareholders to consummate the
public sale or other disposition in such states of the Registrable Shares owned
by the Selling Shareholders; provided, however, that IVI shall not be required
in connection with this paragraph (d) to qualify as a foreign corporation or
execute a general consent to service of process in any jurisdiction; and

(e) if IVI has delivered preliminary or final prospectuses to the
Selling Shareholders and after having done so the prospectus is amended to
comply with the requirements of the Securities Act, promptly notify the Selling
Shareholders and, if requested, the Selling Shareholders shall immediately cease
making offers of Registrable Shares and return all prospectuses to IVI. IVI
shall promptly provide the Selling Shareholders with revised prospectuses and,
following receipt of the revised prospectuses, the Selling Shareholders shall be
free to resume making offers of the Registrable Shares.

2.4 Information by Selling Shareholders. Each Selling Shareholder
included in any Registration Statement shall furnish to IVI such information
regarding such Selling Shareholder and the distribution proposed by such Selling
Shareholder as IVI may request in writing and as shall be required in connection
with any registration, qualification or compliance referred to in this
Agreement.

2.5 Rule 144 Requirements. So long as IVI has a class of securities
registered under Section 12 of the Exchange Act, IVI agrees to:

(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the SEC in a timely manner all
reports and other documents required of IVI under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) furnish to any Selling Shareholder upon request a written
statement by IVI as to its compliance with the reporting requirements of said
Rule 144 (at any time after 90 days following the closing of the first sale of
securities by IVI pursuant to a Registration Statement), and of the Securities
Act and the Exchange Act (at any time after it has become subject to such
reporting requirements), a copy of the most recent annual or quarterly report of
IVI, and such other reports and documents of IVI as such shareholder may
reasonably request to avail itself of any similar rule or regulation of the SEC
allowing it to sell any such securities without registration.

2.6 Transfers of Registration Rights. The rights granted to Shareholders
of Registrable Shares pursuant to Article 1 of this Agreement may not be
transferred by such Shareholders to any person or entity, except to related
person or affiliate of such entity.

<PAGE>

2.7 Granting of Registration Rights. IVI may from time to time grant
other holders of IVI Common Stock registration rights similar or different than
the registration rights herein. Nothing in this Agreement shall prohibit or
restrict IVI from granting registration rights to any holders of its Common
Stock.

ARTICLE 3
MISCELLANEOUS

3.1 Specific Performance. The parties hereto acknowledge that in the
event of any breach of the provisions of this Agreement, the nonbreaching party
would be irreparably harmed and could not be made whole by monetary damages. It
is accordingly agreed that, in addition to any other remedy to which a party may
be entitled at law or in equity, the obligations of the parties hereunder shall
be specifically enforceable and no party shall take any action to impede the
others from seeking to enforce such right of specific performance.

3.2 Severability. If the final determination of a court of competent
jurisdiction declares, after the expiration of the time within which judicial
review (if permitted) of such determination may be perfected, that any term of
provision hereof is invalid or unenforceable, (a) the remaining terms and
provisions hereof shall be unimpaired, and (b) the invalid or unenforceable term
or provision shall be deemed replaced by a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision.

3.3 Notices. All notice or other communications to a party required or
permitted hereunder shall be in writing and shall be given by hand delivery,
courier service (with acknowledgement of receipt), telecopy (with confirmation
of transmission), or by certified mail, postage prepaid with return receipt
requested, to the following person at the following address:
(a) If to a Shareholder, to such Shareholder's address as provided after
his signature herein.

(b)If to IVI to:

IVI Publishing, Inc.
7500 Flying Cloud Drive
Minneapolis, Minnesota 55344-3739

with a copy to:

Fredrikson & Byron, P.A.
1100 International Centre
900 Second Avenue South
Minneapolis, MN 55402
Attention: Thomas R. King, Esq.
Telecopy No.: (612) 347-7059

Any party may change the above-specified recipient and/or mailing address by
notice to all other parties given in the manner herein prescribed. All notices
shall be deemed given on

<PAGE>

the day when actually delivered as provided above (if delivered personally or by
telecopy) or on the day shown on the return receipt (if delivered by mail).

3.4 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties to this Agreement and their successors or
assigns; provided that, none of the parties may assign its rights or obligations
hereunder without the prior written consent of the other party.

3.5 Headings. The descriptive headings of the several Articles and
Sections of this Agreement and of the several Schedules to this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
This Agreement shall be construed without regard to any presumption or other
rule requiring construction hereof against the party causing this Agreement to
be drafted.

3.6 Entire Agreement; Modification and Waiver. This Agreement represents
the only agreement among the parties concerning the subject matter hereof and
supersedes all prior agreements whether written or oral, relating thereto. No
purported amendment, modification or waiver of any provision hereof shall be
binding unless set forth in a written document signed by all parties (in the
case of amendments or modifications) or by the party to be charged thereby (in
the case of waivers). Any waiver shall be limited to the provision hereof and
the circumstance or event specifically made subject thereto and shall not be
deemed a waiver of any other term hereof or of the same circumstance or event
upon any recurrence thereof.

3.7 Publicity. Each of the parties represents and warrants to the other
party that it will make no announcement to public officials or the press in any
way relating to the transaction described herein without the prior written
consent of the other party, except as may be required of IVI under the 1933 Act
and 1934 Act and under the rules of the Nasdaq National Market.

3.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the law of the State of Minnesota without regard to the
conflicts of laws rules thereof.

3.9 Benefit. Nothing in this Agreement, expressed or implied, is intended
to confer on any person other than the parties or their respective successors or
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement.

3.10 Survival. All of the representations, warranties, and
indemnifications made in this Agreement, and all terms and provisions hereof
intended to be observed and performed by the parties after the execution of this
Agreement or the termination hereof, shall survive the execution of this
Agreement or such termination and continue thereafter in full force and effect,
subject to applicable statutes of limitations.

3.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.

<PAGE>

IN WITNESS WHEREOF, the parties have duly executed this Registration Rights
Agreement, as of the day and year first written above.

IVI PUBLISHING, INC.

By: /s/ Joy Solomon
---------------------------
Its: President & CEO
--------------------------

SHAREHOLDER

By: Fredrikson & Byron, P.A.

By: /s/ Thomas R. King
--------------------------------
Its: Vice President
as Attorney-in-fact on behalf of the Investors as
defined above pursuant to authority vested in him
under the Subscription Agreement

<PAGE>

EXHIBIT 4.9
SECURITY AGREEMENT

DATE: November 22, 1996

DEBTOR: IVI Publishing, Inc.
7500 Flying Cloud Drive
Minneapolis, Minnesota 55344-3739

SECURED PARTIES: The persons who are parties to the Inter-Creditor
Agreement dated of even date herewith

RECITALS:

A. Fredrikson & Byron, P.A., (the "Agent") has entered into an
Inter-Creditor Agreement, of even date herewith, with persons identified in
Attachment A thereto (the "Secured Parties") who have loaned the Debtor in the
aggregate principal amount of up to $3,000,000 pursuant to 9% Convertible
Subordinated Debentures (the "Convertible Debentures") of even date herewith and
certain related documents, including without limitation Subscription Agreements
and the Offering Materials dated November 11, 1996 (collectively, the "Investor
Documents"). Pursuant to the Inter-Creditor Agreement, the Agent has the
authority to execute this Security Agreement on behalf of the Secured Parties,
among other things.

B. To secure the obligations of Debtor to Secured Parties under the
Convertible Debentures, Debtor has agreed to grant to Secured Parties a security
interest in all of the Company's assets, subject to the rights and preferences
of holders of Senior Debt, except for the Company's membership interest in
America's Health Network, LLC which is restricted under the America's Health
Network Operating Agreement from being mortgaged, pledged, or assigned. Unless
the Company receives at least $5 million from a third party pursuant to a
license agreement, joint venture, sale of securities, or the like, the Company
will not seek a waiver of this restriction and mortgage, pledge or assign the
Company's membership interest in America's Health Network, LLC to any party or
parties other than the Secured Parties. Secured Parties agree that Debtor may
incur, assume or guarantee debt in connection with the borrowing of money from
or granted to banks or other financial institutions and any renewal, extensions
and refunding thereof, and that the Debtor may expressly subordinate the payment
of the principal and interest on the Convertible Debenture to such debt and the
security interest that the Company may grant in such banks or financial
institutions (the "Permitted Interests").

AGREEMENTS:

<PAGE>

NOW, THEREFORE, in consideration of the premises, and of the mutual
covenants contained herein, the parties agree as follows:

Security Interest and Collateral. To secure the debt, liability or
obligation of Debtor to Secured Parties evidenced by the Convertible Debentures
and any extensions, renewals or replacements thereof (herein referred to as the
"Secured Obligations"), Debtor hereby grants Secured Parties a security interest
(herein called the "Security Interest") in the following property (herein called
the "Collateral"):

A. Inventory. All inventory of Debtor, wherever located, whether now
owned or hereafter acquired, together with products and proceeds of
the foregoing, and all warehouse receipts, bills of lading and other
documents of title now or hereafter covering such goods.

B. Equipment. All equipment of Debtor, whether now owned or hereafter
acquired, including but not limited to all present and future
machinery, vehicles, furniture, fixtures, manufacturing equipment,
farm machinery and equipment, shop equipment, office and recordkeeping
equipment, parts and tools, and the goods described in any equipment
schedule or list herewith or hereafter furnished to the Secured
Parties by Debtor (but no such schedule or list need be furnished in
order for the Security Interest to be valid as to all of Debtor's
equipment), together with all substitutions and replacements for and
products of any of the foregoing property and together with proceeds
of any and all of the foregoing property and together with all
accessions and (a) all accessories, attachments, parts, equipment and
repairs now or hereafter attached or affixed to or used in connection
with any such goods, and (b) all warehouse receipts, bills of lading
and other documents of title now or hereafter covering such goods.

C. Software. All rights of Debtor to its software, consisting of all
computer program code and any revisions or additions thereto, and all
user manuals, tutorials, and other materials relating thereto.

D. Accounts and Other Rights To Payment. Each and every right of Debtor
to the payment of money, whether such right to payment now exists or
hereafter arises, whether such right to payment arises out of a sale,
lease or other disposition of goods or other property by Debtor, out
of a rendering of services by Debtor, out of a loan by Debtor, out of
the overpayment of taxes or other liabilities of Debtor, or otherwise
arises under any contract or agreement, whether such right to payment
is or is not already earned by performance, and howsoever such right
to payment may be evidenced, together with all other rights and
interests (including all liens and security interests) that Debtor may
at any time have by law or agreement against any account debtor or
other obligor obligated to make any such payment or against any of the
property of

<PAGE>

such account debtor or other obligor; all including but not limited to
all present and future debt instruments, chattel papers, accounts,
loans and obligations receivable and tax refunds.

E. General Intangibles. All general intangibles of Debtor, whether now
owned or hereafter acquired, including but not limited to applications
for patents, patents, copyrights, trademarks, trade secrets, good
will, trade names, customers lists, permits and franchises, and the
right to use Debtor's name together with all substitutions and
replacements for and products of any of the foregoing property not
constituting consumer goods and together with proceeds of any and all
of the foregoing property and, in the case of all tangible Collateral,
together with (i) all accessions, (ii) all accessories, attachments,
parts, equipment and repairs now or hereafter attached or affixed to
or used in connection with any such goods, and (iii) all warehouse
receipts, bills of lading and other documents of title now or
hereafter covering such goods.

2. Representations, Warranties and Agreements. Debtor represents,
warrants and agrees that:

2.1 Debtor is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Minnesota.

2.2 The Collateral will be used primarily for business purposes relating
to the business of Debtor.

2.3 Debtor's principal executive office is located at 7500 Flying Cloud
Drive, Minneapolis, Minnesota 55344-3739.

2.4 Debtor has (or will have at the time Debtor acquires rights in
Collateral hereafter arising) absolute title to each item of Collateral free and
clear of all security interests, liens and encumbrances, except the Security
Interest and the Permitted Interests, and will defend the Collateral against all
claims or demands (other than the Permitted Interests) of all persons other than
the Secured Parties. Debtor will not sell or otherwise dispose of the
Collateral or any interest therein without the prior written consent of the
Secured Parties, except that, until the occurrence of an Event of Default and
the revocation by the Secured Parties of Debtor's right to do so, Debtor may
sell any inventory constituting Collateral to buyers in the ordinary course of
business.

2.5 This Agreement and the Convertible Debentures have been duly and
validly authorized by all necessary corporate action of Debtor and are the
legal, valid, and binding instruments of Debtor, enforceable in accordance with
their respective terms.

<PAGE>

2.6 Debtor will not permit any tangible Collateral to be located in any
state of the United States in which a financing statement covering such
Collateral is required to be, but has not in fact been, filed in order to
perfect the Security Interest. No such filing shall be required in foreign
countries.

2.7 Each right to payment and each instrument, document, chattel paper and
other agreement constituting or evidencing Collateral is (or will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, set-off or counterclaim (other than those arising in the
ordinary course of business) of the account debtor or other obligor named
therein or in Debtor's records pertaining thereto as being obligated to pay such
obligation. Debtor will neither agree to any material modification or amendment
nor agree to any cancellation of any such obligation without the Secured
Parties' prior written consent, and will not subordinate any such right to
payment to claims of other creditors of such account debtor or other obligor.

2.8 As long as any portion of the principal of or interest on the
Convertible Debentures remains outstanding, Debtor will:

(i) keep all tangible Collateral in good repair, working order and
condition, normal depreciation excepted, and will, from time to time, replace
any worn, broken or defective parts thereof;

(ii) promptly pay all taxes and other governmental charges levied or
assessed upon or against any Collateral or upon or against the creation,
perfection or continuance of the Security Interest;

(iii) keep all Collateral free and clear of all security interests, liens
and encumbrances except the Security Interest and the Permitted Interests;

(iv) at all reasonable times, permit the Secured Parties or their
representatives to examine or inspect any Collateral, wherever located, and to
examine, inspect and copy Debtor's books and records pertaining to the
Collateral and its business and financial condition and to send and discuss with
account debtors and other obligors requests for verifications of amounts owed to
Debtor;

(v) keep accurate and complete records pertaining to the Collateral and
pertaining to Debtor's business and financial condition and submit to the
Secured Parties such periodic reports concerning the Collateral and Debtor's
business and financial condition as the Secured Parties may from time to time
reasonably request;

(vi) promptly notify the Secured Parties of any loss of or material
damage to any Collateral or of any adverse change, known to Debtor, in the
prospect of payment of any sums due on or under any instrument, chattel paper,
or account constituting Collateral;

<PAGE>

(vii) if the Secured Parties at any time so request (after the occurrence
of an Event of Default), promptly deliver to the Secured Parties any instrument,
document or chattel paper constituting Collateral, duly endorsed or assigned by
Debtor;

(viii) at all times keep all tangible Collateral insured against risks of
fire (including so-called extended coverage), theft, and such other risks and in
such amounts as the Secured Parties may reasonably request;

(ix) from time to time execute such financing statements as the Secured
Parties may reasonably require in order to perfect the Security Interest;

(x) pay when due or reimburse the Secured Parties on demand for all
costs of collection of any of the Secured Obligations and all other
out-of-pocket expenses (including in each case all reasonable attorneys' fees)
incurred by the Secured Parties in connection with the creation, perfection,
satisfaction, protection, defense or enforcement of the Security Interest or the
creation, continuance, protection, defense or enforcement of this Agreement or
any or all of the Secured Obligations, including expenses incurred in any
litigation or bankruptcy or insolvency proceedings;

(xi) execute, deliver or endorse any and all instruments, documents,
assignments, security agreements and other agreements and writings that the
Secured Parties may at any time reasonably request in order to secure, protect,
perfect or enforce the Security Interest and the Secured Parties' rights under
this Agreement;

(xii) not use or keep any Collateral, or permit it to be used or kept, for
any unlawful purpose or in violation of any federal, state or local law, statute
or ordinance; and

(xiii) not permit any tangible Collateral to become part of or to be
affixed to any real property without first assuring to the reasonable
satisfaction of the Secured Parties that the Security Interest will be prior and
senior to any interest or lien then held or thereafter acquired by any mortgagee
of such real property or the owner or purchaser of any interest therein.

If Debtor at any time fails to perform or observe any agreement contained in
this section 2.8, and if such failure shall continue for a period of 10 calendar
days after the Secured Parties give Debtor written notice thereof (or, in the
case of agreements contained in clauses (viii) and (ix) of this section 2.8,
immediately upon the occurrence of such failure, without notice or lapse of
time), the Secured Parties may (but need not) perform or observe such agreement
on behalf and in the name, place and stead of Debtor (or, at the Secured
Parties' option, in the Secured Parties' own names) and may (but need not) take
any and all other actions that the Secured Parties may reasonably deem necessary
to cure or correct such failure (including,

<PAGE>

without limitation, the payment of taxes, the satisfaction of security
interests, liens, or encumbrances, the performance of obligations under
contracts or agreements with account debtors or other obligors, the procurement
and maintenance of insurance, the execution of financing statements, the
endorsement of instruments, and the procurement of repairs, transportation or
insurance), except to the extent that the effect of such payment would be to
render any loan or forbearance of money usurious or otherwise illegal under any
applicable law. Debtor shall thereupon pay the Secured Parties on demand the
amount of all moneys expended and all costs and expenses (including reasonable
attorneys' fees) incurred by the Secured Parties in connection with or as a
result of the Secured Parties' performing or observing such agreements or taking
such actions, together with interest thereon from the date expended or incurred
by the Secured Parties at the highest rate then applicable to any of the Secured
Obligations. To facilitate the performance or observance by the Secured Parties
of such agreements of Debtor, Debtor hereby irrevocably appoints (which
appointment is coupled with an interest) the Secured Parties, or their delegate,
as the attorney-in-fact of Debtor with the right (but not the duty) from time to
time to create, prepare, complete, execute, deliver, endorse or file, in the
name and on behalf of Debtor, any and all instruments, documents, financing
statements, applications for insurance and other agreements and writings
required to be obtained, executed, delivered or endorsed by Debtor under this
section 2.

3. Account Verification and Collection Rights of the Secured Parties.
The Secured Parties shall have the right to verify any accounts in the name of
Debtor or in their own name; and Debtor, whenever requested, shall furnish the
Secured Parties with duplicate statements of the accounts, which statements may
be mailed or delivered by the Secured Parties for that purpose. Notwithstanding
the Secured Parties' rights under Section 2 with respect to any and all debt
instruments, chattel papers, accounts, and other rights to payment constituting
Collateral (including proceeds), the Secured Parties may at any time after the
occurrence of an Event of Default notify any account debtor, or any other person
obligated to pay any amount due, that such chattel paper, account, or other
right to payment has been assigned or transferred to the Secured Parties for
security and shall be paid directly to the Secured Parties. If the Secured
Parties so request at any time after the occurrence of an Event of Default,
Debtor will so notify such account debtors and other obligors in writing and
will indicate on all invoices to such account debtors or other obligors that the
amount due is payable directly to the Secured Parties. At any time after the
Secured Parties or Debtor gives such notice to an account debtor or other
obligor, the Secured Parties may (but need not), in their own name or in
Debtor's name, demand, sue for, collect or receive any money or property at any
time payable or receivable on account of, or securing, any such chattel paper,
account, or other right to payment, or grant any extension to, make any
compromise or settlement with or otherwise agree to waive, modify, amend or
change the obligations (including collateral obligations) of any such account
debtor or other obligor.

4. Assignment of Insurance. Debtor hereby grants to the Secured Parties,
as additional security for the payment of the Secured Obligations, a security
interest

<PAGE>

in any and all moneys (including but not limited to proceeds of insurance and
refunds of unearned premiums) due or to become due under, and all other rights
of Debtor under or with respect to, any and all policies of insurance covering
the Collateral, and Debtor hereby directs the issuer of any such policy to pay
any such moneys disbursed following an Event of Default directly to the Secured
Parties. After the occurrence of an Event of Default, the Secured Parties may
(but need not), in their own name or in Debtor's name, execute and deliver
proofs of claim, receive all such moneys, indorse checks and other instruments
representing payment of such moneys, and adjust, litigate, compromise or release
any claim against the issuer of any such policy.

5. Events of Default. Each of the following occurrences shall constitute
an event of default under this Agreement (herein called "Event of Default"):

5.1 There shall occur an Event of Default under the Convertible
Debentures; or

5.2 Any representation or warranty of Debtor set forth in this Agreement
or made to the Secured Parties in the Investor Documents shall prove to have
been materially false or misleading when made.

6. Remedies upon Event of Default. Upon the occurrence of an Event of
Default under section 5 and at any time thereafter, the Secured Parties may
exercise any one or more of the following rights and remedies:

6.1 Declare all unmatured Secured Obligations to be immediately due and
payable, and the same shall thereupon be immediately due and payable, without
presentment or other notice or demand;

6.2 Exercise and enforce any or all rights and remedies available upon
default to a secured party under the Uniform Commercial Code, including but not
limited to the right to take possession of any Collateral, proceeding without
judicial process or by judicial process (without a prior hearing or notice
thereof, which Debtor hereby expressly waives), and the right to sell, lease or
otherwise dispose of any or all of the Collateral, and in connection therewith,
the Secured Parties may require Debtor to make the Collateral available to the
Secured Parties at a place to be designed by the Secured Parties which is
reasonably convenient to both parties, and if notice to Debtor of any intended
disposition of Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in section 8) at least 10 calendar days prior to
the date of intended disposition or other action; and

6.3 Exercise or enforce any or all other rights or remedies available to
the Secured Parties by law or agreement against the Collateral, against Debtor
or against any other person or property. The Secured Parties are hereby granted
a nonexclusive, worldwide and royalty-free license to use or otherwise exploit
all

<PAGE>

trademarks, trade secrets, franchises, copyrights and patents of Debtor that the
Secured Parties deem necessary or appropriate to the disposition of any
Collateral.

7. Other Personal Property. Unless at the time the Secured Parties take
possession of any tangible Collateral, or within seven days thereafter, Debtor
gives written notice to the Secured Parties of the existence of any goods,
papers or other property of Debtor, not affixed to or constituting a part of
such Collateral, but which are located or found upon or within such Collateral,
describing such property, the Secured Parties shall not be responsible or liable
to Debtor for any action taken or omitted by or on behalf of the Secured Parties
with respect to such property without actual knowledge of the existence of any
such property or without actual knowledge that it was located or to be found
upon or within such Collateral.

8. Miscellaneous. This Agreement does not contemplate a sale of accounts
or chattel paper. This Agreement can be waived, modified, amended, terminated
or discharged, and the Security Interest can be released, only explicitly in a
writing signed by the Secured Parties. A waiver signed by the Secured Parties
shall be effective only in the specific instance and for the specific purpose
given. Mere delay or failure to act shall not preclude the exercise or
enforcement of any of the Secured Parties' rights or remedies. All rights and
remedies of the Secured Parties shall be cumulative and may be exercised
singularly or concurrently, at the Secured Parties' option, and the exercise or
enforcement of any one such right or remedy shall neither be a condition to nor
bar the exercise or enforcement of any other. All notices to be given shall be
deemed sufficiently given if delivered or mailed by registered or certified
mail, postage prepaid, to Debtor, the Agent or the Secured Parties at the
addresses set forth above or in the Inter-Creditor Agreement or at such other
address as such party may subsequently provide to the other parties. The
Secured Parties' duty of care with respect to Collateral in their possession (as
imposed by law) shall be deemed fulfilled if the Secured Parties exercise
reasonable care in physically safekeeping such Collateral or, in the case of
Collateral in the custody or possession of a bailee or other third person,
exercise reasonable care in the selection of the bailee or other third person,
and the Secured Parties need not otherwise preserve, protect, insure or care for
any Collateral. The Secured Parties shall not be obligated to preserve any
rights Debtor may have against prior parties, to realize on the Collateral at
all or in any particular manner or order, or to apply any cash proceeds of
Collateral in any particular order of application. This Agreement shall be
binding upon and inure to the benefit of Debtor and the Secured Parties and
their respective heirs, representatives, successors and assigns and shall take
effect when signed by Debtor and delivered to the Secured Parties, and Debtor
waives notice of the Secured Parties' acceptance hereof. The Secured Parties
may execute this Agreement if appropriate for the purpose of filing, but the
failure of the Secured Parties to execute this Agreement shall not affect or
impair the validity or effectiveness of this Agreement. A carbon, photographic
or other reproduction of this Agreement or of any financing statement signed by
Debtor shall have the same force and effects as the original for all purposes of
a financing statement. This Agreement shall be governed by the internal laws of
the State of Minnesota.

<PAGE>

If any provision or application of this Agreement is held unlawful or
unenforceable in any respect, such illegality or unenforceability shall not
affect other provisions or applications which can be given effect and this
Agreement shall be construed as if the unlawful or unenforceable provision or
application had never been contained herein or prescribed hereby. All
representations and warranties contained in this Agreement shall survive the
execution, delivery and performance of this Agreement and the creation of the
Secured Obligations.

"DEBTOR"

IVI PUBLISHING, INC.

By /s/ Joy Solomon
-----------------
Title: President & CEO
-------------------

Fredrikson & Byron, P.A.
as Attorney-in-fact for the SecuredParties

By: /s/ Thomas R. King
---------------------
Title: Vice President

<PAGE>

EXHIBIT 4.10
INTER-CREDITOR AGREEMENT

THIS INTER-CREDITOR AGREEMENT (this "Agreement") is made effective this
22nd day of November, 1996 by and among Fredrikson & Byron, P.A., (the "Agent"),
and the creditors identified in Attachment A hereto (collectively the "Lenders"
and each individually a "Lender") and IVI Publishing, Inc., a Minnesota
corporation ("IVI").

RECITALS

A. WHEREAS, on the effective date of this Agreement, the Lenders are loaning
to IVI up to the maximum aggregate principal sum of $3,000,000 pursuant to
the terms of individual 9% Convertible Subordinated Debentures (the
"Convertible Debentures") issued to each of the Lenders in the
denominations set forth opposite each Lender's name in Attachment A (the
"Loans").

B. WHEREAS, the Convertible Debentures are convertible into shares of IVI
Common Stock (the "Common Stock").

C. WHEREAS, IVI will apply the net proceeds from the Loans for product
development, marketing and to fund working capital for general corporate
purposes.

D. WHEREAS, the Lenders desire to appoint the Agent as the agents of the
Lenders to enter into a Security Agreement, dated of even date herewith,
regarding the Lenders' security interest in the assets of IVI (the
"Security Agreement") (attached hereto as Attachment B) and to authorize
the Agent to take actions as set forth herein, on behalf of the Lenders.

A G R E E M E N T

NOW, THEREFORE, in consideration of the foregoing and the covenants set
forth herein, each of the Agent and each Lender hereby agree as follows:

1. Appointment of Agent. Each Lender hereby irrevocably appoints and
authorizes the Agent to act as his, her or its agent under any subordination
agreements with existing creditors or future bank creditors, and the Security
Agreement and to exercise such powers hereunder, as are specifically designated
hereby, and to take such other actions as may be reasonably incidental thereto.

In furtherance of the foregoing, and not in limitation thereof, the Agent
is authorized to (a) execute the Security Agreement, and any amendments, waivers
or other modifications thereof following execution, (b) be named the nominal
secured party on UCC-1 financing statements, and (c) hold and dispose of the
Collateral under the Security Agreement. Such appointment shall be irrevocable
without the consent of the holders of not less than 80% of the outstanding
principal amounts of the Loans. The Agent hereby accepts such appointment.

<PAGE>

2. Transfer of Notes. Each Lender hereby agrees not to transfer the
notes evidencing the Loans during the continuance of this Agreement, unless such
transfer is made expressly subject to the provisions of this Agreement.

3. Pro-Rata Payments and Forbearance. Each Lender agrees not to accept
payments with respect to the Loans other than on a pro-rata basis as set forth
in Attachment A. In the event that one or more of the Lenders shall receive
preferential payments of principal or interest of the Loans, the recipient
Lender shall undertake to redistribute to the other Lenders any amounts of such
payments as shall be necessary to maintain pro-rata payments to all Lenders,
with respect to the Loans. Each Lender agrees not to initiate any action
against IVI to collect upon the Loans, it being agreed that all such collection
actions shall be taken by the Agent.

4. Collection Actions. The Agent may communicate to IVI demands for
payment of the Loans and provide to IVI notice of default on such Loans. The
Agent, however, may not take action to collect the Loans or foreclose upon the
collateral without first having received the authorization to initiate
collection activities by the holders of not less than 51% of the outstanding
principal amounts of the Loans, in which event the Agent may act to collect the
loan or foreclose on the collateral. Such authorization may be obtained in one
or more written documents specifying such authorizations signed by the Lenders
or at a meeting of the Lenders. Following an event of default under the
Security Agreement, the Agent may call for a meeting of the Lenders or seek the
written consent of the Lenders to such collection activities. Upon the receipt
by the Agent of a written request of one or more of the Lenders holding in the
aggregate not less than 20% of the outstanding principal amounts of the Loans
for a meeting of the Lenders, the Agent will call for a meeting of the Lenders.

5. Scope of Authority. The Agent shall be permitted to take or refrain
from taking such collection actions as the Agent deems appropriate. In
furtherance of the foregoing, and not in limitation thereof, the Agent is
authorized to enter into settlements and arrangements with IVI and other
creditors of IVI, foreclose upon the Collateral and dispose of the Collateral in
public or private sales. The Agent may employ legal counsel, business advisors,
appraisers, auctioneers and other professionals in connection with the
performance of the Agent's responsibilities hereunder. Notwithstanding anything
in this Agreement or the Security Agreement to the contrary, the Agent shall
not, without the prior written consent of the holders of not less than 51% of
the outstanding principal amounts of the Loans: (a) release any Collateral or
agree to the release or modification of any of its rights or powers with respect
to the Collateral or agree to or accept any other collateral in substitution for
the Collateral; (b) release, modify or waive the liability of any person now or
hereafter primarily or secondarily liable for the payment of any of the secured
obligations under the Security Agreement (the "Secured Obligations"); (c) agree
to any amendment, modification, renewal or extension of any of the Secured
Obligations or the Security Agreement; (d) waive or release any claim against
any existing or future obligor, guarantor or endorser of any of the Secured
Obligations. Likewise, no Lender shall commit any of the foregoing acts during
the term hereof with respect to any Secured Obligation owing to such Lender.

6. Indemnification and Expenses. Each Lender shall indemnify and hold
the Agent harmless with respect to liabilities and expenses the Agent may incur
in acting as the

<PAGE>

agent for the Lenders. Such indemnification and reimbursement shall be made
ratably according to each Lender's respective outstanding principal balance of
the Loans. The Agent may apply payments received from IVI or from the
disposition of the Collateral to satisfy the costs and expenses incurred by the
Agent; provided, however, no such indemnification or reimbursement may be taken
for any portion of liabilities or expenses resulting from the gross negligence
or willful misconduct of the Agent.

7. Character of Actions. In acting hereunder, the Agent shall be deemed
to be acting as agent for all of the Lenders, including, without limitation, the
Agent as Lenders. The Agent shall not be deemed a trustee, receiver or assignee
of the assets of IVI. The relationship of the Lenders shall not be deemed a
joint venture, partnership, association or other entity.

8. Exculpation. Neither the Agent nor any of their officers, directors,
employees, designees, agents or attorneys shall be liable for any action taken
or omitted to be taken hereunder in connection with this Agreement or the
Security Agreement, unless caused by its or their gross negligence or willful
misconduct. The Agent shall be entitled to rely upon advice of counsel
concerning legal matters, the advice of independent public accountants with
respect to accounting matters and advice of other experts as to schedule,
certificate, statement, report, notice or other writings which the Agent
reasonably believe to be genuine or to have been properly presented. Neither
the Agent nor any of their designees shall (a) be responsible for any recitals,
representations or warranties contained in, or for the execution, validity,
genuineness, effectiveness or enforceability, of this Agreement, the Security
Agreement, or any other instrument or document delivered or in connection with
the Loans, (b) be responsible for the validity, genuineness, effectiveness,
existence or value of any Collateral, (c) be under any duty to inquire into or
pass upon any of the foregoing matters, or to make any inquiry concerning the
performance by IVI of its obligations, or (d) in any event, be liable as such
for any action taken or omitted by it or them. The agency hereby created shall
in no way impair or alter any of the rights and powers of, or impose any duties
or obligations upon, the Agent in its individual capacity. The Agent shall have
the same rights and powers hereunder in its individual capacity as any other
Lender, and may exercise or refrain from exercising the same as though it were
not an Agent.

9. Credit Investigation. Each Lender acknowledges that it has made such
inquiries and taken such care on its own behalf in making its Loan to IVI as
would have been the case had the Loan been made directly to IVI by such Lender
without the intervention of the Agent or any other Lender. Each Lender agrees
and acknowledges that the Agent make no representations or warranties about the
creditworthiness of IVI, or with respect to the legality, validity, sufficiency
or enforceability of this Agreement, the Security Agreement, of any other
instrument or document delivered in connection with the Loans.

10. Non-Payments. The Agent shall not be deemed to have knowledge of the
occurrence of payments or non-payments by IVI to the Lenders unless the Agent
have received notice of such from Lender or IVI. In the event that the Agent
receives a notice of non-payment, the Agent shall give prompt notice thereof to
all of the Lenders.

11. Obligations Several. The obligations of each Lender hereunder are the
several obligations of such and neither any Lender nor the Agent shall be
responsible for the obligations of any other Lender hereunder, nor will the
failure by the Agent or any Lender

<PAGE>

to perform any of its obligations hereunder relieve the Agent or any other
Lender from the performance of its respective obligations hereunder.

12. Lender's Reservation of Rights. Each Lender hereby reserves any
rights and/or claims it may now or hereafter claim to have against any other
Lender with respect to the Loans or the Secured Obligations; provided, however,
no such reservation shall modify, alter or abrogate each Lender's obligation to
comply with the terms of this Agreement.

13. Resignation and Appointment of Successor Agent. The Agent may resign
as such at any time upon giving at least 30 calendar days' prior notice to IVI
and the Lenders. In the event of any resignation of the Agent, the Lenders
holding not less than 80% of the outstanding principal balance of the Loans
shall as promptly as practicable appoint a successor agent. If no such
successor agent shall have been appointed by Lenders and/or shall have accepted
such appointment within 20 calendar days after the resignation notice from the
resigning agent, then the resigning agent may, on behalf of the Lenders, appoint
a successor agent, which shall be a commercial bank organized under the laws of
the United States of America having a combined capital and surplus of at least
$50,000,000. The resignation of either Agent shall become effective when a
successor agent shall have been appointed and shall have accepted such
appointment. Upon the acceptance of any appointment as agent hereunder by a
successor agent, such successor agent shall thereupon be entitled to receive
from the prior agent such documents of transfer and assignment as such successor
agent may reasonably request and the resigning agent shall be discharged from
its duties and obligations in its capacity as Agent under this Agreement. Such
successor agent shall provide prompt written notice to IVI of such appointment.

14. Notices. Any notice or other communication under this Agreement shall
be in writing and mailed or delivered (i) to the Agent at Fredrikson & Byron,
P.A., 1100 International Centre, 900 Second Avenue South, Minneapolis, MN 55402;
(ii) to any Lender at the address indicated in Attachment A or the Agent at the
addresses listed above or (iii) to IVI at 7500 Flying Cloud Drive, Minneapolis,
MN 55344-3839. Such addresses may be changed upon written notice to the Agent,
all Lenders and IVI in compliance with this section.

All such notices, requests, demands and other communications shall, when
mailed, be effective two days after deposited in the mails, postage prepaid and
addressed as provided herein.

15. Expenses. IVI shall reimburse the Agent for their reasonable
out-of-pocket expenses (including, without limitation, reasonable attorneys'
fees) incurred in connection with the performance of their obligations under
this Agreement.

16. Effective Execution Date and Counterparts. This Agreement will be
executed in counterparts prior to initial disbursement of the proceeds from the
Loans to IVI and shall become effective on the disbursement of such proceeds.
Additional persons may be added to this Agreement by execution of this Agreement
in counterpart up to the maximum Loan amount of $3,000,000. The Agent will mail
to each Lender a copy of this Agreement, including Attachment A hereto which
will be prepared as of the time of such disbursement.

<PAGE>

17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota, exclusive of its conflict of
law principles. Each Lender submits to the jurisdiction of the courts of the
State of Minnesota in connection with matters arising under this Agreement.

18. Conflicts. Fredrikson & Byron, P.A., has agreed to serve as the Agent
hereunder at the request of the parties hereto. Lenders are aware that
Fredrikson & Byron, P.A. serves as general counsel to IVI and as counsel to IVI
in connection with this offering, and notwithstanding such conflict have agreed
to appoint Fredrikson & Byron, P.A. as their Agent. IVI understands that in the
event of a default on the Debentures, Fredrikson & Byron, P.A. would be
obligated to enforce the rights of the Lenders which would place Fredrikson &
Byron, P.A. in an adverse position to IVI, and IVI hereby waives it rights to
object to such conflict as a client of Fredrikson & Byron, P.A.

IN WITNESS WHEREOF, the Lenders and the Agent have executed this Agreement
in counterparts on November 22, 1996.

"Agent"

Fredrikson & Byron, P.A.

By /s/ Thomas R. King
------------------------
Its: Vice-President

"Lender"

By: Fredrikson & Byron, P.A.

/s/ Thomas R. King

---------------------
Its: Vice-President
as Attorney-in-fact on behalf of the Investors
as defined above pursuant to authority vested
in him under the Subscription Agreement

IVI Publishing, Inc.

By /s/ Joy Solomon
-----------------------
Its President & CEO
----------------------

<PAGE>

EXHIBIT 10.24

EMPLOYMENT AGREEMENT

THIS AGREEMENT, dated August 7, 1996, by and between IVI PUBLISHING, INC.,
a Minnesota corporation (the "Company") and JOY A. SOLOMON, an individual
resident of Hennepin County, Minnesota ("Executive").

WHEREAS, The Company and Executive have previously entered into an
employment agreement dated June 9, 1995 (the "Prior Agreement"),

WHEREAS, The Company has promoted Executive to the positions of President
and Chief Executive Officer, and Executive has been elected a member of the
Board of Directors of the Company, and

WHEREAS, The Company and Executive desire to cancel the Prior Agreement and
enter into a new employment agreement (the "Agreement") on the terms and
conditions set forth herein.

NOW, THEREFORE, in consideration of the premises, Executive's promotion to
President and Chief Executive Officer and the respective undertakings of the
Company and the Executive set forth below, the Company and Executive agree as
follows:

1. EMPLOYMENT. The Prior Agreement is terminated as of the date hereof,
and the Company agrees to continue to employ Executive in the capacity set forth
below and Executive accepts such employment and agrees to perform services for
the Company for the period and upon the other terms and conditions set forth in
this Agreement.

2. TERM. Unless terminated at an earlier date in accordance with Section
7 of this Agreement, the term of Executive's employment hereunder shall be for a
period of two (2) years, commencing on the date of this Agreement. Thereafter,
the term of this Agreement shall be automatically extended for successive one
(1) year periods unless either party objects to such extension by written notice
to the other party at least three (3) months prior to the end of the initial
term or any extension term.

3. POSITION AND DUTIES.

3.01 SERVICE WITH COMPANY. During the term of this Agreement,
Executive agrees to serve as President and Chief Executive Officer of the
Company and to perform such other reasonable employment duties, consistent with
Executive's position and as the Board of Directors shall assign to her from time
to time. In addition, Executive shall serve as a member of the Board of
Directors of the Company until the next annual meeting of the shareholders of
the Company or until her successor has been duly elected and qualified.

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<PAGE>

3.02 PERFORMANCE OF DUTIES. Executive agrees to serve the Company
faithfully and to the best of her ability and to devote her full time, attention
and efforts to the business and affairs of the Company during the term of this
Agreement. Executive shall not, directly or indirectly, render services to any
other person or organization including being a member of the board of directors
of any other entity (excluding volunteer services) without the consent of the
Board of Directors or otherwise engage in activities which would interfere
significantly with the performance of her duties hereunder.

4. COMPENSATION.

4.01 BASE SALARY. As compensation in full for all services to be
rendered by the Executive during the term of this Agreement, the Company shall
pay to Executive a base salary of $170,200.00 per year (or such higher amount as
may be determined at the discretion of the Board of Directors) (the "Base
Salary") which salary shall be paid in accordance with the Company's normal
payroll procedures and policies. The Board of Directors shall review
Executive's Base Salary each January.

4.02 INCENTIVE COMPENSATION. In addition to the Base Salary,
Executive shall be eligible to participate in any incentive compensation plan
established from time to time by the Board of Directors of the Company.

4.03 PARTICIPATION IN BENEFIT PLANS. Executive shall also be
entitled to participate in all employee benefit plans or programs (including
vacation time) of the Company to the extent that her position, title, tenure,
salary, age, health and other qualifications make her eligible to participate.
The Company does not guarantee the adoption or continuance of any particular
employee benefit plan or program during the term of this Agreement, and
Executive's participation in any such plan or program shall be subject to the
provisions, rules and regulations applicable thereto.

4.04 EXPENSES. The Company will pay or reimburse Executive for all
reasonable and necessary out-of-pocket expenses incurred by her in the
performance of her duties under this Agreement, subject to the presentment of
appropriate vouchers in accordance with the Company's normal policies for
expense verification.

4.05 OPTIONS. Executive and the Company hereby consent to the
cancellation of those certain option agreements by and between Executive and the
Company dated July 16, 1993, November 23, 1993 and January 22, 1996, which
granted in the aggregate the right to Executive to acquire up to 100,000 shares
of the Company's common stock on the terms and conditions set forth therein. In
addition, Executive and the Company have as of the date hereof entered into an
amendment to that certain option agreement by and between Executive and the
Company dated June 9, 1995 to reduce the number of shares of the Company's
common stock which Executive can acquire thereunder to 30,000 shares. As of the
date hereof, the Company and Executive have entered into three separate option
agreements which in the aggregate grant the right to Executive to acquire up to
180,000 shares of the Company's common stock on the terms and conditions set
forth therein.

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<PAGE>

5. CONFIDENTIAL INFORMATION. Except as permitted or directed by the
Board of Directors, during the term of this Agreement or at any time thereafter
Executive shall not divulge, furnish or make accessible to anyone or use in any
way (other than in the ordinary course of the business of the Company) any
confidential or secret knowledge or information of the Company which Executive
has acquired or become acquainted with prior to the termination of the period of
her employment by the Company (including employment by the Company or any
affiliated companies prior to the date of this Agreement), whether developed by
herself or by others, concerning any trade secrets, confidential or secret
designs, processes, formulae, plans, devices or material (whether or not
patented or patentable) directly or indirectly useful in any aspect of the
business of the Company, any customer or supplier lists of the Company, any
confidential or secret development or research work of the Company, or any other
confidential information or secret aspect of the business of the Company.
Executive acknowledges that the above-described knowledge or information
constitutes a unique and valuable asset of the Company and represents a
substantial investment of time and expense by the Company and its predecessors,
and that any disclosure or other use of such knowledge or information other than
for the sole benefit of the Company would be wrongful and would cause
irreparable harm to the Company. Both during and after the term of the
Agreement, Executive will refrain from any acts or omissions that would reduce
the value of such confidentiality, however, the foregoing shall not apply to any
knowledge or information which is now published or which subsequently becomes
generally publicly known in the form in which it was obtained from the Company,
other than as a direct or indirect result of the breach of this Agreement by
Executive.

6. NONCOMPETITION COVENANTS.

6.01 AGREEMENT NOT TO COMPETE. Executive agrees that, during the term
of her employment by the Company and for a period of one (1) year after the
termination of such employment (whether such termination is with or without
cause, or whether such termination is occasioned by Executive or the Company),
she shall not, directly or indirectly, engage in competition with the Company
within the Territory in any manner or capacity (e.g., as an advisor, principal,
agent, partner, officer, director, stockholder, employee, member of any
association, or otherwise) in any phase of the business which the Company is
conducting during the term of this Agreement, including the design, development,
manufacture, distribution, marketing, or selling of products or services being
developed or sold by the Company.

For the purposes of this Section 6, the "Territory" shall mean the
geographic area in which the Company (a) has engaged in business during the term
of this Agreement through production, promotional, sales or marketing activity,
or otherwise; or (b) has otherwise established its goodwill, business reputation
or any customer or supplier relations.

6.02 SOLICITATION OF EMPLOYEES. Executive agrees that during the
term of her agreement not to compete set forth in Section 6.01 above she will
not, directly or indirectly, hire or attempt to hire any person who is employed
by the Company or any person who was employed by the Company at the time of the
termination of Executive's employment with the Company.

6.03 INDIRECT COMPETITION. Executive further agrees that, during the
term of this Agreement and for the period of her agreement not to compete set
forth in Section 6.01 above,

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<PAGE>

she will not, directly or indirectly, assist or encourage any other person in
carrying out, direct or indirectly, any activity that would be prohibited by the
above provisions of this Section 6 if such activity were carried out by
Executive, either directly or indirectly; and in particular Executive agrees
that she will not, directly or indirectly, induce any employee of the Company to
carry out, directly or indirectly, any such activity.

7. TERMINATION.

7.01 TERMINATION OF EMPLOYMENT BY THE COMPANY. Executive's
employment with the Company and this Agreement may be terminated by the Company
prior to the expiration of the initial term set forth in Section 2 above or any
extension thereof as follows:

(a) Upon the death of Executive, or

(b) Upon the Disability (as defined below) of Executive, or

(c) Upon breach of this Agreement by Executive in any material
respect, which breach is not cured by Executive within thirty (30) days after
written notice of such breach is delivered to Executive, or

(d) If Executive has engaged in willful and material misconduct
which shall mean the willful engaging by Executive in illegal conduct that is
materially and demonstrably injurious to the Company, or

(e) At any time within twelve months after a Merger (as defined
below), or

(f) For any reason other than those referred to in the preceding
Sections 7.01(a), (b), (c), (d) and (e).

For the purposes of this Agreement, the Disability of the Executive shall occur
in the event that Executive shall fail, because of illness or incapacity, to
render services of the character contemplated by this Agreement over a period of
ninety (90) days during any one hundred eighty (180) day period.

7.02 TERMINATION OF EMPLOYMENT BY EXECUTIVE. Executive's employment
with the Company and this Agreement may be terminated by Executive prior to the
expiration of the initial term set forth in Section 2 above or any extension
thereof as follows:

(a) Within ninety (90) days after an Adverse Event (as defined
below), or

(b) Within nine months after a Merger, or

(d) At any time other than those listed in Sections 7.02(a), (b) or
(c) above. For the purposes of this Agreement, an "Adverse Event" shall mean
(i) an adverse change in position or duties of Executive or (ii) a change in the
place of employment of Executive requiring

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<PAGE>

relocation of Executive to a state other than Minnesota or (iii) a reduction in
Base Salary without Executive's consent or (iv) any other material breach of
this Agreement by the Company; provided, that in the event of a Merger a change
in position or the duties of Executive shall not be considered an Adverse Event.
For the purposes of this Agreement, a "Merger" shall mean any transaction in
which the Company is merged with or into another entity, all or substantially
all of the assets of the Company are sold or one or more parties acting in
concert acquire shares of common stock of the Company representing more than
fifty percent of the shares of common stock of the Company then outstanding.

7.03 EFFECT OF TERMINATION. Notwithstanding any termination of
employment of Executive with the Company or termination of this Agreement
pursuant to Sections 7.01 or 7.02 above, the parties hereto shall remain bound
by the provisions of this Agreement which specifically relate to periods,
activities and obligations upon or subsequent to such termination including
without limitation the provisions of Sections 5, 6 and 7 hereof.

7.04 SURRENDER OF RECORDS AND PROPERTY. Upon termination of her
employment with the Company, Executive shall deliver promptly to the Company all
records, manuals, books, blank forms, documents, letters, memoranda, notes,
notebooks, reports, data, tables, calculations or copies thereof, which are the
property of the Company or which relate in any way to the business, products,
practices or techniques of the Company, and all other property, trade secrets
and confidential information of the Company, including, but not limited to, all
documents which in whole or in part contain any trade secrets or confidential
information of the Company, which in any of these cases are in her possession or
under her control.

7.05 PAYMENTS TO EXECUTIVE AFTER TERMINATION OF EMPLOYMENT. Subject
to the provisions of Section 7.06 below, the Company shall continue to pay
Executive her Base Salary as in effect at the time of her termination of
employment with the Company in the following events for the following periods of
time:

(a) In the event of a termination of Executive's employment with the
Company pursuant to Section 7.01(a) above, the Company shall continue to make
regular payments of Executive's Base Salary to her estate for a period of three
months following her death.

(b) In the event of a termination of Executive's employment with the
Company pursuant to Section 7.01(b) above, the Company shall continue to make
regular payments of Executive's Base Salary to her for a period of six months
following such termination of employment.

(c) In the event of a termination of Executive's employment with the
Company pursuant to Section 7.01(c) or (d) or in the event of a termination of
Executive's employment with the Company because either Executive (other than
after the nine month period immediately following a Merger) or the Company
(other than during the twelve month period immediately following a Merger)
objects to an extension of the term of this Agreement pursuant to Section 2
above, the Company shall continue to make regular payments of Executive's Base
Salary to her for a period of one year following such termination of employment.

(d) In the event of a termination of Executive's employment with the
Company

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<PAGE>

pursuant to Section 7.01(e) above, the Company shall continue to make regular
payments of Executive's Base Salary to her for the longer of (i) the period
commencing on the date of such termination of employment and ending on the date
eighteen months following such termination of employment or (ii) the period
commencing on the date of such termination of employment and ending on August 7,
1998.

(e) In the event of a termination of Executive's employment with the
Company pursuant to Section 7.01(f), 7.02(a), 7.02(b) or 7.02(d) above, the
Company shall continue to make regular payments of Executive's Base Salary to
her for the longer of (i) the period commencing on the date of such termination
of employment and ending on the date twelve months following such termination of
employment or (ii) the period commencing on the date of such termination of
employment and ending on August 7, 1998.

(f) In the event of a termination of Executive's employment with the
Company pursuant to Section 7.02(c) above or in the event of a termination of
Executive's employment with the Company because either Executive more than nine
months after a Merger or the Company during the twelve month period immediately
following a Merger objects to an extension of the term of this Agreement
pursuant to Section 2 above, the Company shall continue to make regular payments
of Executive's Base Salary to her for a period of eighteen months following such
termination of employment.

7.06 CESSATION AND REDUCTION OF PAYMENTS TO EXECUTIVE AFTER
TERMINATION OF EMPLOYMENT.

(a) The payments required to be made to Executive by the Company
pursuant to Section 7.05 above shall be reduced by any compensation received by
Executive from any party other than the Company for services rendered by
Executive either as an employee or consultant. On or before the fifth day of
each calendar month during which Executive is to receive payments pursuant to
Section 7.05 above, Executive shall provide to the Company a written report
indicating any compensation received or earned by her during the preceding
calendar month.

(b) In the event of the termination of Executive's employment with
the Company pursuant to Section 7.01(c), 7.01(d), 7.02(b) or 7.02(d) or as a
result of Executive's election not to extend the term of this Agreement pursuant
to Section 2 above (except if such extension would be effective more than nine
months after a Merger) or as a result of the Company's election not to extend
the term of this Agreement pursuant to Section 2 above (except at any time after
a Merger), the Company may elect by written notice to Executive within thirty
days after such termination of employment not to make the payments required by
Section 7.05 above. Provided, however, immediately upon such election the
provisions of Section 6 above shall immediately become null and void.

8. MISCELLANEOUS.

8.01 GOVERNING LAW. This Agreement is made under and shall be
governed by and construed in accordance with the laws of the State of Minnesota.

8.02 PRIOR AGREEMENTS. This Agreement contains the entire agreement
of the

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<PAGE>

parties relating to the subject matter hereof and supersedes all prior
agreements and understandings with respect to such subject matter, including
without limitation the Prior Agreement, and the parties hereto have made no
agreement, representations or warranties relating to the subject matter of this
Agreement which are not set forth herein.

8.03 WITHHOLDING TAXES. The Company may withhold from any benefits
payable under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or governmental regulation or ruling.

8.04 AMENDMENTS. No amendments or modifications of this Agreement
shall be deemed effective unless made in writing and signed by the parties
hereto.

8.05 NO WAIVER. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there by an estoppel to enforce any
provisions of this Agreement, except by a statement in writing signed by the
party against whom enforcement of the waiver or estoppel is sought. Any written
waiver shall not be deemed a continuing waiver unless specifically stated, shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.

8.06 SEVERABILITY. To the extent any provision of this Agreement
shall be invalid or unenforceable, it shall be considered deleted herefrom and
the remainder of such provision and of this Agreement shall be unaffected and
shall continue in full force and effect. In furtherance and not in limitation
of the foregoing, should the duration or geographical extent of, or business
activities covered by, any provision of this Agreement be in excess of that
which is valid and enforceable under applicable law, then such provision shall
be construed to cover only that duration, extent or activities which may validly
and enforceably be covered. Executive acknowledges the uncertainty of the law
in this respect and expressly stipulates that this Agreement be given the
construction which renders its provisions valid and enforceable to the maximum
extent (not exceeding its express terms) possible under applicable law.

8.07 ASSIGNMENT. This Agreement shall not be assignable, in whole or
in part, by either party without the written consent of the other party, except
that the Company may, without the consent of Executive, assign its rights and
obligations under this Agreement to any corporation, firm or other business
entity with or into which the Company may merge or consolidate, or to which the
Company may sell or transfer all or substantially all of its assets, or of which
50% or more of the equity investment and the voting control is owned, directly
or indirectly, by, or is under common ownership with, the Company. After any
such assignment by the Company, the Company shall be discharged from all further
liability hereunder and such assignee shall thereafter be deemed to be the
Company for the purposes of all provisions of this Agreement including this
Section 10.

8.08 INJUNCTIVE RELIEF. Executive agrees that it would be difficult
to compensate the Company fully for damages for any violation of the provisions
of this Agreement, including without limitation the provisions of Sections 5 and
6. Accordingly, Executive specifically agrees that the Company shall be
entitled to temporary and permanent injunctive relief to enforce the provisions
of this Agreement and that such relief may be granted without the necessity of

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<PAGE>

proving actual damages. This provision with respect to injunctive relief shall
not, however, diminish the right of the Company to claim and recover damages in
addition to injunctive relief.

IN WITNESS WHEREOF, Executive and Company have executed this Agreement as
of the date set forth in the first paragraph.

IVI PUBLISHING, INC.

By: /s/ Timothy I. Maudlin
-------------------------------------
Its: Chairman of the Board
----------------------------------

/s/ Joy A. Solomon
----------------------------------------
Joy A. Solomon

<PAGE>

EXHIBIT 10.25
SEPARATION AGREEMENT AND RELEASE

This Separation Agreement and Release (the "Agreement") is entered into
by and between IVI Publishing, Inc. (the "Company") and Ronald G. Buck
("Employee") effective as of August 1, 1996.

RECITALS

Ronald G. Buck has been an officer, director and employee of the Company
since soon after its inception. Effective as of August 1, 1996, Employee
resigned as the Chief Executive Officer and as a director of the Company. In
consideration of his covenants hereunder and his release of claims set forth
hereunder, the Company has made provisions for certain payments and other
benefits to be paid to Employee.

AGREEMENT

NOW THEREFORE, the parties agree as follows:

1. COMPANY. Company, as used herein, means IVI Publishing, Inc., its
successors and assigns, its subsidiaries, and its present and former directors,
officers, shareholders, employees, and agents, whether in their individual or
official capacities.

2. EMPLOYEE. Employee, as used herein, means Ronald G. Buck and
anyone who has or obtains legal rights or claims through him.

3. RESIGNATION. Effective as of August 1, 1996, Employee resigned as
the Chief Executive Officer and as a director of the Company. He will continue
as a non-officer employee of the Company until December 31, 1996, performing
such duties as are set by and shall be subject to the control of the Chairman of
the Board. Thereafter Employee will continue as a consultant to the Company
until June 14, 1998.

4. DUTIES AS A CONSULTANT. Employee agrees that as a Consultant to
the Company he will, upon reasonable notice and at his convenience, consult with
the Company's Board of Directors, its Chairman of the Board and management on
matters involving the Company. It is understood that Employee shall be under no
specific hours obligation to the Company nor shall he have any specific
assignment of duties.

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<PAGE>

AGREEMENT NOT TO COMPETE.

(a) Employee agrees that until December 31, 1997, he shall not,
directly or indirectly, engage in competition with the Company in any
manner or capacity (e.g., as an advisor, principal, agent, partner,
officer, director, stockholder, employee, member of any association, or
otherwise) in any phase of the business which the Company is conducting
during the term of this Agreement. For purposes of this Agreement, the
Company business shall be defined as the electronic publishing of health
and medical information in any format for the consumer and professional
medical markets.

(b) The Company shall make monthly payments to Employee through
December of 1997 in consideration for Employee's agreement not to
compete, equal to his monthly base salary at the time of termination
(excluding any bonus or other compensation or employee benefits less any
compensation received by Employee for employment or consulting work
during such period) provided, however, that such payments shall terminate
if Employee obtains employment of a nature substantially equivalent to
his employment hereunder which does not violate the foregoing agreement
not to compete (and Employee agrees that he shall give prompt written
notice of such employment to the Company). If Employee violates his
agreement not to compete, the Company shall have the right to terminate
his monthly payment and seek injunctive relief prohibiting Employee from
competing against the Company.

(c) GEOGRAPHIC EXTENT OF COVENANT. The obligations of Employee
not to compete shall apply to any geographic area in which the Company:

(i) has engaged in business during the term of this
Agreement through production, promotional, sales or marketing
activity or otherwise; or

(ii) has otherwise established its goodwill, business
reputation , or any customer or supplier relations.

(d) INDIRECT COMPETITION. Employee further agrees that through
December, 1997, he will not, directly or indirectly, assist or encourage
any other person in carrying out, directly or indirectly, any activity
that would be prohibited by the above provisions of Section 5(a) if such
activity were carried out by Employee, either directly or indirectly; and
in particular Employee agrees that he will not, directly or indirectly,
induce any employee of the Company to carry out, directly or indirectly,
any such activity.

(e) NON-SOLICITATION. Employee further agrees that through
December of 1997 he will not solicit or encourage employees of the
Company to terminate their employment with the Company.

6. PROMISSORY NOTE. Employee and the Company agree that the interest
on his

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<PAGE>

$200,000 Promissory Note in favor of the Company shall be frozen as of August 1,
1996, and no further interest shall be accrued. Imputed interest, if any, will
be the responsibility of Employee. The amount owing to the Company under this
Promissory Note on August 1, 1996 was $229,475 which will be paid in accordance
with the provisions of the following Section 7.

7. PAYMENTS. Employee shall continue to receive his base salary in
effect on July 31, 1996, through June 13, 1998, less the following:

(a) Payments made to Employee in consideration of his agreement
not to compete as set forth in Section 5 above;

(b) Any compensation received by Employee for employment
or consulting work from employers other than the Company. Employee
agrees to provide the Company with a monthly report which sets forth any
employment or consulting arrangements entered into in the previous month
and the amount of any compensation paid to Employee as a result of such
arrangements;

(c) Promissory Note principal and interest owed by Employee to
the Company as set forth in Section 6 above. The principal and interest
balance will be paid by Employee over the period beginning in April 1997
through June 1998 as a set-off against the compensation payments to be
made by the Company to Employee pursuant to this Section 7. If, as
provided in this Section 7, Employee does not make the monthly reports
regarding outside employment or consulting, or misstates such reports or
fails to make the required excess payments when due, the Company shall
have the right to declare the principal balance of the Promissory Note
immediately due and payable.

All payments to Employee through December 31, 1996, in his capacity as an
employee shall be subject to normal withholdings, taxes and other consideration.
For all payments to Employee after December 31, 1996, in his capacity as a
consultant, the Company will issue to Employee a Form 1099. In the event that
the outside employment or consulting gross payments plus the amortized note
payments exceed Employee's compensation payments in any given month, the excess
shall be paid to the Company by the tenth day of the following month.

8. BENEFITS. Through December 31, 1996, Employee will have the
following benefits:

(a) Employee will continue to be a participant in the Company's
health, dental, life, short-term and long-term disability insurance
programs.

(b) Employee will continue to participate in the Company's
401(k) Plan and Trust.

-3-

<PAGE>

insurance policy. As of December 31, 1996, the Company will assign all
of its right, title and interest in such policy to Employee.

Employee will not be a participant in any bonus or incentive compensation
plan in 1996 or thereafter.

Beginning on January 1, 1997, Employee will have access to the following
benefits:

(a) INSURANCE BENEFITS. Provided that Employee timely executes
the necessary documents to continue such insurance as required by state
and federal law (and the Company agrees to provide such documents to
Employee in a timely manner), Employee and his dependents can elect to be
covered under COBRA and all premiums for this coverage will be the
responsibility of Employee.

(b) PENSION AND PROFIT SHARING. Effective as of January 1,
1997, Employee's vested account balance under the Company's 401(k) Plan
and Trust shall be distributed to Employee or, at his direction,
pursuant to the terms of the 401(k) Plan and Employee's election
thereunder.

9. STOCK OPTIONS. Employee has been granted the following stock
options: (i) 40,000 shares at an exercise price of $1.00 per share; (ii)
30,000 shares at an exercise price of $5.75 per share; (iii) 30,000 shares at an
exercise price of $13.125 per share; (iv) 40,000 shares at an exercise price of
$14.50 per share; (v) 106,000 shares at an exercise price of $17.75 per share;
and (vi) 90,000 shares at an exercise price of $7.00 per share. After the
termination of Employee's employment on December 31, 1996, Employee will have
until March 31, 1997, to exercise all of these options which are 100% vested as
of the date hereof.

10. RELEASE OF EMPLOYMENT CLAIMS. Employee hereby releases and
forever discharges the Company of and from any and all actions or causes of
action, suits, debts, claims, complaints, contracts (expressed or implied),
controversies, agreements, promises, damages, claims for attorneys' fees,
judgments, costs, disbursements, severance, compensation, vacation pay and other
benefits (except as specifically provided for in this Agreement), known or
unknown, in law or equity, Employee ever had, now has, or shall have as of the
date of this Agreement relating in any manner to Employee's employment with
and/or resignation as an officer, director or employee of the Company,
including, but not limited to, any alleged violation of any federal, state, or
local law, regulation or ordinance prohibiting discrimination or other unlawful
activity on the basis of race, color, creed, marital status, sex, age, religion,
national origin, sexual orientation, sexual harassment, disability, or any other
basis (whether arising under Title VII of the Civil Rights Act, 42 U.S.C.
Section 2000e ET SEQ., the Age Discrimination in Employment Act, 29 U.S.C.
Section 621 ET SEQ., the Americans With Disabilities Act, 42 U.S.C. Section
12101 ET SEQ., the Minnesota Human Rights act, Minn. Stat. Section 363.01 ET
SEQ., or elsewhere), or any alleged obligation created by statute or by common
law contract or tort theory. Employee releases and discharges Company not only
from any and all claims that he could make on his own behalf, but also those

-4-

<PAGE>

that may or could be brought by any other person or organization on his behalf.
Employee affirms that as a current or former employee he has not caused or
permitted to be filed any charge, complaint, or action against Company and
agrees that he will not cause or permit to be filed any charge, complaint, or
action and that he will not participate with any other party in the filing of
any charge, complaint or action on the basis of his employee status.

11. NOTIFICATION OF RIGHTS PURSUANT TO THE FEDERAL AGE DISCRIMINATION
IN EMPLOYMENT ACT (29 U.S.C. Sections 621-634) AND MINNESOTA HUMAN RIGHTS ACT
(MINN. STAT. CH. 363). Employee agrees that he is hereby notified that the
Federal Age Discrimination in Employment Act provides that he is entitled to
wait 21 days to sign this Agreement. The 21-day period shall begin the day
following the day on which Employee receives the Agreement. Employee
acknowledges that the purpose of the 21-day period is to provide Employee
adequate time to consider whether the terms of this Agreement are acceptable to
him. Employee is also hereby notified of his right to rescind his release of
claims arising under the Federal Age Discrimination in Employment Act within 7
calendar days of his signing of this Agreement. Employee is further notified of
his right to rescind his release of claims arising under the Minnesota Human
Rights Act within 15 calendar days of his signing of this Agreement. In order
to be effective, Employee's rescission must be in writing and delivered by hand
or mail to Joy Solomon, IVI Publishing, Inc., 7500 Flying Cloud Drive,
Minneapolis, MN 55344-3839. If delivered by mail, the rescission must be
postmarked within the required period, properly addressed to Joy Solomon as set
forth above, and sent by certified mail, return receipt requested. Employee
understands that if he rescinds his release of claims as provided for in this
paragraph, Employee will not receive, and will have to return to Company, all
benefits and payments provided for in this Agreement.

12. CONFIDENTIALITY. The parties agree specifically that the contents
and terms of this Agreement shall remain confidential except as required by
applicable law or regulation (including of the Securities and Exchange
Commission or of the Nasdaq National Market). However, Employee shall be
entitled to discuss the matters contained herein with his legal and financial
advisors and his immediate family, provided they also agree to keep this
Agreement confidential. Provided further that Company shall be entitled to
discuss the matters contained herein with its legal and financial advisers and
its management employees on a need to know basis.

13. NON-DISPARAGEMENT. Each party agrees not to disparage in any
manner the other party. Any such disparagement will be grounds for recision of
this Agreement.

14. CORPORATE INFORMATION. Employee agrees that he will not remove
any proprietary corporate information from the Company's offices, including the
office he occupied. The determination of what information is proprietary will
be in the discretion of the Company. Subject to the foregoing, corporate
information shall include, but not be limited to, sales plans, customer
information, lease forms, lease contracts, employee information, business
correspondence and any other information which is related to IVI Publishing,
Inc. or its subsidiaries or their businesses. In addition, Employee has agreed
to return or purchase six

-5-

<PAGE>

pieces of equipment identified in the attached Schedule A at a fair price to be
negotiated by the parties at a later date. All personal property of the
Employee, property which is not owned by or is not proprietary or confidential
to the Company, will be returned to Employee.

15. ASSIGNMENT. The obligations of Employee under this Agreement may
not be assigned by Employee. However, in the event of Employee's mental or
physical disability, incapacitation or death, all remaining payments shall
continue to be made to Employee's spouse, or in the event of the death of the
Employee's spouse, the payments will be made to Employee's estate. The
Company's rights and obligations under this Agreement will inure to the benefit
and be binding upon the Company's successors and assignees.

16. SEVERABILITY. If a court rules that any part of this Agreement is
not enforceable, that part may be modified by the court to make it enforceable.
The parties expressly agree that the restrictions contained in paragraph 5 are
reasonable and should be enforced to the maximum extent and scope possible.

17. GOVERNING LAW. Any disputes arising under this Agreement shall be
governed by the laws of the State of Minnesota.

18. ACKNOWLEDGMENT OF READING AND UNDERSTANDING; CONSULTATION WITH
COUNSEL; PERIOD TO CONSIDER AGREEMENT. Employee, by signing this Agreement,
acknowledges and agrees that he has carefully read and understood all provisions
of this Agreement and that he has entered into this Agreement knowingly and
voluntarily. Employee further acknowledges that he has consulted with counsel
before signing this Agreement. Employee also acknowledges that Company informed
him that he has 21 days from the receipt of this Agreement to consider whether
its terms are acceptable to him and that he has had the benefit of the 21-day
period. Employee acknowledges and agrees that he has not relied on any
representations or statements by Company, whether oral or written, other than
the express statements of this Agreement, in executing this Agreement.

19. AGREEMENT EXTENSION. Effective as of December 31, 1996, when
Employee's employment terminates, Employee agrees to provide the Company with
releases similar in nature to those set forth in Sections 10 and 11 of this
Agreement.

20. FULL AGREEMENT. This Agreement contains the full agreement of the
parties and may not be modified, altered, or changed in any way except by
written agreement signed by both parties. Except as expressly stated in this
Agreement, the parties agree that this Agreement supersedes and terminates any
and all oral and written prior agreements and understandings between the
parties.

IVI PUBLISHING, INC.

Dated: 1/10/97 By /s/ Joy A. Solomon
------------------- -----------------------

-6-

<PAGE>

Joy A. Solomon
President and Chief Executive Officer

Dated: January 6, 1997 /s/ Ronald G. Buck
------------------------ ------------------
Ronald G. Buck

SCHEDULE A

IVI EQUIPMENT HELD BY RON BUCK

NEC 5FGe Monitor (17"), #455

Quatra 605 Macintosh, #1571
Keyboard
Kensington
28.8 USRobotics External Modem
Apple CD-ROM External

Toshiba 400 CDT Laptop, #1809
External Floppy Disk Drive
Carrying Case

Panasonic Laptop CF-41 with CD, #1811
Floppy
Modem
AC Adaptor

VCR

-7-

<PAGE>

EXHIBIT 10.26
April 1, 1996

Robert Hess
IVI Publishing, Inc.
2382 Faraday Avenue, Suite 350
Carlsbad, CA 92008

RE: OFFICIAL NOTIFICATION
LEASE COMMENCEMENT DATE
IVI PUBLISHING
2382 FARADAY AVE., SUITE 130
CARLSBAD, CA 92008

Dear Bob:

This letter, along with the attached Exhibit C, serve to officially establish
the commencement date of the lease for the space at 2382 Faraday Ave., Suite
130, Carlsbad, CA 92008.

The commencement date is hereby established at April 1, 1996.

Please sign and return to me two (2) copies of the attached Exhibit C. Please
keep this letter and one (1) copy of the fully executed Exhibit C and attach
both to your lease.

Should you have any questions please do not hesitate to give me a call.

Sincerely

TriMark Realty Advisors

/s/ Ramont T. Turnbull

Ramont T. Turnbull

RTT/jm

<PAGE>

EXHIBIT 10.27

SUBLEASE AGREEMENT

THIS SUBLEASE AGREEMENT is entered into effective as of the 17th day of
September, 1996, by and between IVI PUBLISHING, INC., a Minnesota corporation
("SUBLESSOR") and REALITY INTERACTIVE, a Minnesota corporation ("SUBLESSEE").

RECITALS

Sublessor is the tenant under a lease with Ryan/Wilson Limited Partnership,
a Minnesota limited partnership (the "OWNER") dated March 30, 1994 (the "MAIN
LEASE") for the Leased Premises as defined in the Main Lease and as shown on
attached EXHIBIT A, (the "MAIN LEASE PREMISES") located in the building at 7500
Flying Cloud Drive, Eden Prairie, Minnesota 55344 (the "BUILDING").

The Main Lease is incorporated herein by reference as fully as if the terms
and provisions were set forth in full in this Sublease Agreement, except those
terms specifically excluded in or modified by this Sublease Agreement.

Sublessee desires to sublease from Sublessor that portion of the Main Lease
Premises located on the fourth (4th) floor of the Building, and shown by
cross-hatching on attached EXHIBIT A (the "PREMISES") and Sublessor desires to
sublease the Premises to Sublessee.

THEREFORE, in consideration of the mutual promises of the parties set forth
in this Sublease Agreement and other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Sublessor and Sublessee agree as
follows:

1. PREMISES

Sublessor hereby leases to Sublessee, and Sublessee hereby takes from
Sublessor, the Premises, subject to and together with the benefit of the terms,
covenants, conditions and provisions of this Sublease Agreement applicable
thereto. The Premises shall be deemed to be comprised of 21,184 rentable square
feet.

2. TERM

The term of this Sublease Agreement (the "TERM") shall be two (2) years and
six (6) months commencing on December 1, 1996 (the "COMMENCEMENT DATE") and
terminating on the day of May 31, 1999, unless sooner terminated as provided
herein.

<PAGE>

3. USE

Sublessee shall use the Premises for any purpose permitted in the Main
Lease.

4. BASE RENT AND ADDITIONAL RENT

A. Sublessee agrees to pay Sublessor during the Term, Base Rent at
the rate or rates set forth on the Addendum attached hereto as EXHIBIT B,
payable in equal monthly installments, in advance, on the first day of each and
every month during the Term. In the event the Term commences on a day other
than the first day of a calendar month, Sublessee shall pay Base Rent for said
fractional month prorated on the basis of a thirty (30) day period.

B. Sublessee agrees to pay Sublessor during the Term, Additional
Rent, as defined in the Main Lease, at the same rates and on the same basis as
Sublessor has agreed to pay to Owner under the Main Lease. If the Premises are
comprised of less than the entire Main Lease Premises, then the Additional Rent
payable by Sublessee hereunder shall be calculated by multiplying the Additional
Rent payable by Sublessor under the Main Lease by a fraction, the numerator of
which is the rentable area of the Premises, and the denominator of which is the
rentable area of the Main Lease Premises.

C. Sublessee shall also be responsible for paying a pro-rata share of
the utility charges for which Sublessor is responsible under the Main Lease.
This share shall be a fraction, the numerator of which is the rentable area of
the Premises, and the denominator of which is the rentable area of the Main
Lease Premises.

D. The parties acknowledge and agree that Sublessee shall timely pay
all Base Rent, Additional Rent, and any other charges which are Sublessee's
obligation hereunder.

E. All Base Rent and Additional Rent payable by Sublessee under this
Sublease shall be paid, without notice or prior demand therefor and without any
deduction or set-off whatsoever, to Sublessor, at the address set out in Article
14 hereof or at such place as Sublessor may designate from time to time by
written notice to Sublessee given in the manner set out in Article 14 hereof.

F. The parties acknowledge that the Additional Rent currently payable
by Sublessor under the Main Lease equals $9.56 per square foot annually. The
parties also acknowledge that the Additional Rent is subject to the adjustments
and increases set forth in the Main Lease.

5. MAIN LEASE

A. Except as may be inconsistent with the provisions of this
Sublease Agreement, the terms, provisions, covenants and conditions of the Main
Lease are incorporated

<PAGE>

herein by reference in like manner as though the same were specifically set
forth herein. Except as may be otherwise specifically provided herein,
Sublessee shall have all rights and privileges and assumes and agrees to keep
and perform, as to the Premises, all of the obligations, conditions and
covenants of the Tenant set forth under the Main Lease as though Sublessee were
substituted as Tenant thereunder. It is agreed and understood between the
parties hereto that the Sublessee obtains and is granted no more rights and
privileges, as to the Premises, under this Sublease Agreement than Sublessor was
granted as Tenant under the Main Lease.

B. The obligations, conditions and covenants of the Owner as the
Landlord under the Main Lease shall remain the Owner's, and Sublessor shall not
be required to perform the same in the event of a default by the Owner.
Notwithstanding the foregoing, Sublessor shall have, with respect to the
Premises, all of the rights and privileges of the Owner as Landlord under the
Main Lease, except as herein otherwise specifically provided.

C. Sublessor and Sublessee each agree not to do, suffer, or permit
anything to be done which would result in a default under the Main Lease, or
cause the Main Lease to be terminated or forfeited.

6. PAYMENT OF COSTS AND FEES

Sublessee will pay and discharge all costs, attorneys fees and expenses
that may be incurred by Sublessor in enforcing the covenants and agreements of
this Sublease Agreement, or which may be incurred by Owner in enforcing the
covenants and agreements of the Main Lease as a result of a default by Sublessee
hereunder.

7. INSURANCE

Sublessee shall maintain, as to the Premises, all insurance required to be
maintained, by Sublessor as Tenant, under the Main Lease, and have Sublessor and
Owner named as additional insureds thereon. The insurance policies maintained
by Sublessee shall provide that the same may not be cancelled, terminated or
altered without thirty (30) days' prior written notice sent by certified mail,
return receipt requested, to Sublessor and Owner. The insurance maintained by
Sublessee shall contain an express waiver of claims and subrogation in favor of
Sublessor and Owner.

8. INDEMNIFICATION

Sublessee agrees that it will indemnify and hold Sublessor and Owner
forever harmless as provided in Article 12 of the Main Lease, which
indemnification shall also include any and all responsibility or liability which
Sublessor may incur by virtue of this Sublease Agreement arising out of any
failure of Sublessee in any respect to comply with and perform the requirements
and provisions of the Main Lease (attributable to the Premises), or this
Sublease Agreement.

<PAGE>

9. ASSIGNMENT/TRANSFER

Sublessee shall not transfer, sell, assign or pledge this Sublease or
further sublease the Premises, or any part thereof, without (i) compliance with
the requirements of the Main Lease relating thereto and (ii) obtaining the prior
written consent of the Sublessor and Owner. Owner and Sublessor have legitimate
concerns regarding the compatibility of new or different occupants of the
Premises, including concerns based upon the use to which such occupants may make
of the Premises, and may therefore withhold their consent to any such transfer
based upon any concern they or either of them may have regarding the use to
which the proposed transferee may put the Premises or based upon other
justifiable concerns related to possible lack of harmony between the use of the
proposed transferee and other uses or occupants in the Building or concerns
related to the financial strength, character or reputation of the proposed
transferee. No transfer of any nature shall relieve Sublessee of primary
liability to Sublessor hereunder unless Sublessor agrees in writing.

10. ALTERATIONS AND IMPROVEMENTS

Sublessee shall not make any alterations or improvements to the Premises
without (i) complying with the terms of the Main Lease relating thereto and (ii)
obtaining the prior written consent of Sublessor and Owner. Sublessor's consent
may be conditioned upon Sublessor being provided with plans and specifications
for the proposed alteration or improvement, information regarding the identity
of the persons who will perform the work or provide the materials, security
against mechanic's liens (all of which must be reasonably acceptable to
Sublessor) and receipt of Owner's consent. All such work must be done in a
workmanlike fashion using new, first-grade materials. Sublessee shall be
responsible for the reasonable costs incurred by Sublessor and Owner in
reviewing any plans and specifications to be submitted pursuant to this Article.

11. SURRENDER OF THE PREMISES

Upon the expiration of the Term of this Sublease Agreement, Sublessee shall
remove its equipment and trade fixtures promptly (immediately repairing any
damage caused thereby) and quit and surrender the Premises in the condition
existing as of the date hereof.

12. DEFAULT/REMEDIES

A. If any one or more of the following events occurs, then Sublessee
shall be deemed to be in default under this Sublease Agreement:

1. Sublessee fails to pay, when due, the Base Rent, Additional
Rent or other charges provided for under this Sublease Agreement;

<PAGE>

2. Sublessee fails to keep, observe or perform any of the other
terms, covenants and conditions herein to be kept, observed and
performed by Sublessee under this Sublease Agreement for more
than (i) five (5) days after payment is due (in the case of a
monetary default) or (ii) twenty (20) days after written notice
is given to Sublessee specifying the nature of such default (in
the case of a non-monetary default). Notwithstanding the
foregoing, if the applicable grace period set forth in the Main
Lease shall be shorter than that provided herein, the grace
period set forth in the Main Lease shall supersede the grace
period set forth in this subparagraph.

B. If a default occurs, then Sublessor shall be entitled to exercise
any and all of the rights and remedies available at law or in equity, including
those provided to the Owner as Landlord under the Main Lease. Any remedies
under this Sublease Agreement shall not be deemed exclusive, but shall be
cumulative and shall be in addition to all other remedies available to Sublessor
existing at law or in equity. Owner shall be entitled to enforce the provisions
of the Main Lease against Sublessee to the extent the same are violated by
Sublessee.

13. CONSENTS

A. Wherever the Owner's consent as Landlord is required by the
provisions of the Main Lease, the Sublessee must, in addition to securing such
consent, also obtain the prior written consent of the Sublessor.

B. In no event shall Sublessee be entitled to any damages for any
withholding or delay in either Sublessor or Owner giving its consent and
Sublessee understands and agrees that its remedies shall be limited to an action
for summary judgment, an injunction or declaratory judgment.

14. NOTICES

A. Sublessor shall immediately forward to Sublessee all notices of
default received by Sublessor from Owner as Landlord under the Main Lease.
Sublessee shall forward to Sublessor all reports and written statements
concerning the Premises required of the Tenant under the Main Lease at least ten
(10) days prior to the date such reports or written statements are due under the
Main Lease.

B. Any notice, demand, request or other communication which may be
or is required to be given to the Owner as Landlord under the Main Lease shall
be effective only if a copy of the notice to the Owner is either delivered
personally or sent to Sublessor as provided under subparagraph C below.

C. Any notice which one party wishes or is required to give to the
other party

<PAGE>

will be regarded as given and received if in writing and either delivered
personally to such party or sent certified or registered mail, return receipt
requested, postage pre-paid, to the addresses below, or such other addresses as
either party may, from time to time, designate by written notice to the other
party:

Sublessor: IVI Publishing, Inc.
7500 Flying Cloud Drive
Eden Prairie, MN 55344
Attention: CFO

Sublessee: Reality Interactive
7500 Flying Cloud Drive
Eden Prairie, MN 55344
Attention: Wes Winnekins, CFO

Owner: Ryan Properties, Inc.
700 International Centre
900 Second Avenue South
Minneapolis, Minnesota 55402

15. RELATIONSHIP OF THE PARTIES

Nothing contained in this Sublease Agreement shall be deemed or construed
by the parties hereto, or by a third party, to create the relationship of
principal and agent or of partnership or joint venture or of any association
whatsoever between Owner, Sublessor, or Sublessee. It is hereby expressly
understood and agreed that no provision contained in this Sublease Agreement,
nor any act or acts of the parties hereto shall be deemed to create any
relationship between Sublessor and Sublessee other than the relationship of
Sublessor and Sublessee.

16. INVALIDITY

If any part of this Sublease Agreement or any part of any provision hereof
shall be adjudicated to be void or invalid, then the remaining provisions
hereof, not specifically so adjudicated to be invalid, shall be executed without
reference to the part or portion so adjudicated as invalid, insofar as such
remaining provisions are capable of execution.

17. IMPORTANCE OF EACH COVENANT

Each covenant and agreement on the part of one party is understood and
agreed to constitute an essential part of the consideration for each covenant
and agreement on the part of

<PAGE>

the other party.

18. CONDITIONS

This Sublease Agreement is dependent and conditioned upon the Owner
executing its consent to this Sublease Agreement in the form attached hereto as
EXHIBIT C.

19. SUCCESSORS AND ASSIGNS

This Sublease Agreement and all covenants and agreements contained herein
shall be binding upon, apply and inure to the benefit of the respective
successors and assigns of the parties to this Agreement, subject to the
restrictions imposed under this Sublease Agreement and the Main Lease relating
to assignment or further sublease by the Sublessee.

20. NON-WAIVER

Sublessor's failure to insist upon strict performance of any covenant in
this Sublease Agreement or to exercise any option or right herein contained
shall not be a waiver or relinquishment of such covenant, right or option, but
the same shall remain in full force and effect. Sublessor is specifically
authorized to accept a partial payment (no matter how such payment may be
labelled or conditionally delivered) without such acceptance being deemed a
waiver of the balance of the amount owed.

21. APPLICABLE LAW

This Sublease Agreement shall be construed under the laws of the State of
Minnesota.

22. ENTIRE AGREEMENT/AMENDMENTS

This Sublease Agreement and the Exhibits attached hereto set forth all of
the covenants, promises, agreements, conditions and understanding between
Sublessor and Sublessee concerning the Premises and there are no other
covenants, promises, agreements, conditions or understandings, either oral or
written, between them other than those which are set forth in this Sublease
Agreement. Except as otherwise provided herein, no subsequent alteration,
amendment, change or addition to this Sublease Agreement shall be binding upon
Sublessor or Sublessee unless reduced to writing and signed by both parties.

23. ADDENDUM

<PAGE>

Attached to this Sublease is an Addendum, the terms and provisions of which
are hereby incorporated into this Sublease by reference.

24. COUNTERPARTS

This Sublease Agreement and the Consent attached hereto may be separately
executed as counterparts which shall be then read together and enforced.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above-written.

SUBLESSOR: IVI PUBLISHING, INC.

By /s/ Joy Solomon
-----------------------
Its CEO
----------

SUBLESSEE: REALITY INTERACTIVE

By /s/ Wes Winnekins
-----------------------
Its CFO
----------

EXHIBIT A

Site Plan of the Main Lease Premises and the Premises

EXHIBIT B

Addendum to Sublease

Sublessee shall pay Base Rent in the amount of $3.94 per square foot annually.

EXHIBIT C

ACKNOWLEDGEMENT AND CONSENT

<PAGE>

This Agreement is entered into effective as of Sept. 19, 1996 by and
between Ryan/Wilson Limited Partnership, a Minnesota limited partnership,
("OWNER") and IVI Publishing, Inc., a Minnesota corporation ("TENANT").

RECITALS

Owner and Tenant are parties in the respective capacities of landlord and
tenant in the Lease dated March 30, 1994 (the "LEASE") for the premises
described in the Lease (the "PREMISES") located at 7500 Flying Cloud Drive, Eden
Prairie, Minnesota.

Tenant has requested that Owner grant Tenant permission to sublease a
portion of the Subleased Premises to Reality Interactive, a Minnesota
corporation ("SUBLESSEE") pursuant to the terms of the attached Sublease
Agreement.

Owner is willing to grant that consent subject to certain terms and
conditions.

PROVISIONS

In consideration of the mutual covenants of the parties and other valuable
consideration, the receipt and sufficiency is hereby acknowledged, the parties
agree as follows:

1. Owner grants permission to Tenant to sublease the Subleased Premises
to Sublessee for a term commencing on December 1, 1996 and terminating May 31,
1999 (the "TERM") and pursuant to the terms and conditions of the attached
Sublease Agreement.

2. This consent shall not be construed as a consent to any other
transfer, or any further subleasing of all or any portion of the Premises.

3. Owner agrees that Sublessee's possession of the Premises pursuant to
the terms of the Sublease Agreement shall not be disturbed so long as Sublessee
is not in default under the terms of such Sublease Agreement and Tenant is not
in default under the terms of the Main Lease.

RYAN/WILSON LIMITED PARTNERSHIP
By Ryan Properties, Inc, its General Partner
By: /s/ John P. Kelly
---------------------------
Its: Pres.
--------------------------

IVI PUBLISHING, INC.

By: /s/ Joy Solomon
------------------------
Its: CEO
-----------

<PAGE>

EXHIBIT 10.28

September 19, 1996

Tim Walsh
7212 Fleetwood Drive
Edina, Minnesota 55439

Dear Tim:

I am pleased to offer you a position as Vice President of Sales and Marketing
with IVI Publishing, Inc., located at 7500 Flying Cloud Drive, Minneapolis, MN
55344, beginning on October 1, 1996.

Our compensation offer to start is $110,000/year plus you would be eligible for
commissions and bonuses based on an annual plan. Our offer also includes a
$10,000 signing bonus and 30,000 stock options which are subject to Board
approval. In addition, IVI offers a benefit package involving health, dental,
disability, life insurance, Employee Stock Purchase Plan, and 401(K)
participation. Our Personal Time Off policy involves up to five weeks of paid
time off. IVI observes 8 standard corporate holidays.

Tim, I am excited to have you join the team at IVI Publishing, Inc. and I look
forward to working with you.

Best Regards,

/s/ Joy Solomon
- -----------------------

Joy Solomon
President and CEO
IVI Publishing, Inc.

cc: Personnel

<PAGE>

EXHIBIT 11

IVI PUBLISHING, INC.

EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE LOSS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

Year Ended December 31
-------------------------------------
1996 1995 1994
----------- ----------- -----------
PRIMARY AND FULLY DILUTED

Average common shares outstanding 7,580 7,484 6,583

----------- ----------- -----------
Total 7,580 7,484 6,583
----------- ----------- -----------
----------- ----------- -----------

Net loss per common share $(10,336) $(14,254) $(31,257)
----------- ----------- -----------
----------- ----------- -----------

Net loss per common share $(1.36) $(1.90) $(4.75)
----------- ----------- -----------
----------- ----------- -----------

<PAGE>

Exhibit 21

Subsidiaries: IVI Direct, Inc.

<PAGE>

EXHIBIT 23.1

Consent of Independent Auditors

We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-76498) pertaining to the 1991 Stock Option Plan and Director Stock
Option Plan of IVI Publishing, Inc., of our report dated February 11, 1997, with
respect to the financial statements and schedule of IVI Publishing, Inc.
included in the Annual Report (Form 10-K) for the year ended December 31, 1996.

ERNST & YOUNG LLP

Minneapolis, Minnesota
March 28, 1997

<PAGE>

Exhibit 24

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints
CHARLES A. NICKOLOFF and JOY A. SOLOMON as his true and lawful
attorney-in-fact and agent, each acting alone, with the full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign the Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 for IVI Publishing, Inc. and any and all
amendments to such Form 10-K and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting
alone, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection with the Form 10-K, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all said attorneys-in-fact and agents, each acting
alone, or his substitute, may lawfully do or cause to be done by virtue
thereof.

/s/ Joy A. Solomon 2/19/97
- --------------------------------- ------------------------
Joy A. Solomon Date Signed

/s/ Alan D. Frazier 3/12/97
- --------------------------------- ------------------------
Alan D. Frazier Date Signed

/s/ Ronald E. Eibensteiner 3/7/97
- --------------------------------- ------------------------
Ronald E. Eibensteiner Date Signed

/s/ Timothy I. Maudlin 3/11/97
- --------------------------------- ------------------------
Timothy I. Maudlin Date Signed

/s/ Charles A. Nickoloff 2/19/97
- --------------------------------- ------------------------
Charles A. Nickoloff Date Signed

/s/ Nicholas C. Bluhm 3/13/97
- --------------------------------- ------------------------
Nicholas C. Bluhm Date Signed

<PAGE>
<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
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