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EXHIBIT 10.12
Execution Copy
SEVERANCE AGREEMENT AND GENERAL RELEASE
THIS SEVERANCE AGREEMENT AND GENERAL RELEASE (the "Agreement")
is made and entered into by and among XXXXXXX X. XXXXX ("Xxxxx"), INTERVISUAL
BOOKS, INC., a California corporation ("IBI" or the "Company"), and XXXXX X.
XXXX ("Xxxx").
W I T N E S S E T H:
WHEREAS, Gates entered into an employment agreement with IBI
to serve as its President and Chief Executive Officer on or about October 3,
1991 (the "Original Employment Agreement"). The Original Employment Agreement
was amended by that certain Addendum to Employment Agreement dated October 3,
1991 between IBI and Gates (the "Addendum"), that certain Amendment No. 2 to
Employment Agreement between IBI and Gates made and entered into as of January
1, 1992 (the "Amendment") and that certain letter of clarification from Gates
to the Company dated March 15, 1995 (the "Letter"). The Original Employment
Agreement, the Addendum, the Amendment and the Letter are all referred to
herein collectively as the "Employment Agreement".
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WHEREAS, on or about October 3, 1991, in connection with the
Employment Agreement, Gates and IBI entered into the Nonstatutory Stock Option
Agreement (which agreement was effective on January 1, 1992) whereby Gates was
granted options to purchase 675,000 shares of common stock of IBI (the "Gates
Option").
WHEREAS, on or about October 3, 1991, Gates entered into a
stock option agreement with the trustees of the Xxxx Family Trust established
under that certain Declaration of Trust dated May 30, 1980 (the "Xxxx Trust")
pursuant to which Gates was granted options to purchase 600,000 shares of
common stock of IBI (the "Original Xxxx Option"). Thereafter, the Original
Xxxx Option was amended by Amendment No. 1 to Stock Option Agreement to be
effective as of January 1, 1992 and Amendment No. 2 to Stock Option Agreement,
both between Gates and the Trustees of the Xxxx Trust executed and effective as
of January 1, 1992. The Original Xxxx Option as amended by Amendment No. 1 to
Stock Option Agreement and Amendment No. 2 to Stock Option Agreement is hereby
referred to herein as the "Xxxx Option".
WHEREAS, on or about August 26, 1996, Gates, through his
attorney, Xxxxxx Xxxxxxxxx ("Xxxxxxxxx"), notified the Company that he was
being effectively deprived of his ability to function as President and CEO of
IBI by
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the actions of Xxxx, who is the Chairman of the Board of IBI. Additionally,
Gates has alleged that certain representations made to him by Xxxx to induce
him to leave his former employer have been untrue.
WHEREAS, certain disputes have now arisen between Gates and
IBI as to the propriety of IBI's, Xxxx'x and Xxxxx' actions, and as to their
respective rights and obligations pursuant to the Employment Agreement, the
Gates Option, the Xxxx Option and other agreements.
WHEREAS, Gates has contended that IBI's and Xxxx'x actions
present "Good Reason" for the voluntary termination of his Employment Agreement
within the meaning of the Employment Agreement, and were tortious,
discriminatory, in violation of statute, including the California Fair
Employment & Housing Act, fraudulent and otherwise intended to and did cause
him to suffer personal injuries and severe emotional distress.
WHEREAS, IBI and Xxxx each denies any fraudulent or improper
actions toward Gates, or anyone else.
WHEREAS, Gates has retained the services of Tourtelot to
represent him in connection with all aspects of his potential claims against
IBI and Xxxx, and has made
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potential tort and personal injury claims against IBI and Xxxx.
WHEREAS, Gates, IBI and Xxxx each desires to settle fully and
finally all differences between them, including, but in no way limited to,
those differences that exist concerning their respective rights and obligations
under the Employment Agreement, the Gates Option, Xxxx Option and all other
documents and agreements between the parties hereto.
WHEREAS, Gates no longer desires to be employed by IBI.
NOW, THEREFORE, in consideration of the premises and mutual
promises herein contained, it is agreed as follows:
FIRST: Non-Admission of Liability by IBI and Xxxx.
This Agreement shall not in any way be construed as an
admission by Xxxx or IBI, or any of their affiliated organizations, members,
shareholders, directors, officers, trusts or agents, as applicable, that any of
them has acted wrongfully with respect to Gates, or any other person, or
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that Gates has any rights whatsoever against IBI and/or Xxxx and the Xxxx
Trust, and IBI, Xxxx and their affiliated organizations, members, shareholders,
directors, officers and agents, including the Xxxx Trust, each specifically
disclaims any liability whatsoever to Gates on the part of any of them.
SECOND: Gates' Cessation of Employment with IBI.
By signing this Agreement, and in consideration of the mutual
covenants contained in this Agreement, Gates hereby resigns as a director of
IBI as of the date of this Agreement and resigns his employment as President
and Chief Executive Officer effective November 15, 1996. Gates hereby waives
notice of all Board of Directors' meetings of IBI which have occurred to
discuss the subject matter of this Agreement, and Gates agrees to sign any
waivers of notices pertaining to such meetings as reasonably requested by the
Company. From the date of signing this Agreement through November 15, 1996 and
subject to the limitations in this Agreement, Gates will perform his normal
responsibilities to the best of his ability and under the direction of the
Company's Chairman of the Board. Gates shall cooperate fully and amicably for
a professional transition of Gates' responsibilities. Gates agrees that from
the date of signing, Gates will not bind or obligate the Company and will not
sign any contracts,
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agreements or other documents or make any other commitments on behalf of the
Company without the express authorization of the Company's Chairman of the
Board. Gates agrees to return to IBI all files, records, credit cards, keys,
equipment and any other IBI property or documents maintained by Gates;
provided, however, that Gates will be allowed to keep, and will be sold for the
sum of $1.00, the following items of office equipment presently located in
Gates' personal residence: (a) his computer; (b) his copy machine; (c) his
tape recorder; and (d) his Sharp Personal Assistant. Xx. Xxxxx will be
permitted to continue to have delivered to his house, for the remainder of the
subscription period, those periodicals which have already been paid for by the
Company and which as of the date of this Agreement are already being delivered
to his home. On January 2, 1997, IBI will pay to Gates all accrued and unpaid
vacation pay for the period up to and including November 15, 1996, less legally
required deductions. Should any employer or prospective employer inquire of
Xxxx or his designated representative regarding Gates' reason for leaving the
employment of IBI, "mutual agreement of the parties" will be given as the
reason; Gates' personnel records will be marked accordingly.
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THIRD: Letter of Reference; Press Release.
Upon request by Gates, IBI agrees to provide Gates with a
written letter of reference that provides (a) the dates of Gates' employment
with IBI, (b) the positions that Gates held with IBI, and (c) the fact that
Gates' employment with IBI terminated at the mutual agreement of the parties.
After the time for revocation of this Agreement by Gates in accordance with the
TWENTY-SECOND Paragraph below has expired without the Agreement having been
revoked, IBI and Gates agree to jointly issue a press release attached hereto
as Exhibit "A" announcing Gates' separation from IBI.
FOURTH: Benefits.
IBI agrees that when counsel for IBI (Paul, Hastings, Xxxxxxxx
& Xxxxxx LLP) has received from Gates a fully executed copy of this Agreement
and copies of all of the exhibits to this Agreement required to be signed by
Gates according to this Paragraph FOURTH, and the time for revocation of the
Agreement by Gates in accordance with the TWENTY-SECOND Paragraph below has
expired without the Agreement having been revoked, IBI will provide Gates with
the following benefits:
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(a) IBI will forthwith cause to be sent to Tourtelot on
behalf of Gates a check in the gross amount of Thirty-Five Thousand
Dollars ($35,000).
(b) IBI will enter into with Gates the Consulting
Agreement attached hereto as Exhibit "B" (the "Consulting Agreement").
(c) IBI will enter into with Gates the Letter of
Termination terminating the Gates Option attached hereto as
Exhibit "C".
(d) The Trustees of the Xxxx Family Trust will enter into
with Gates the Letter of Termination terminating the Xxxx Option
attached hereto as Exhibit "D".
(e) IBI will enter into with Gates the Letter
transferring from Gates to the Company that certain split-dollar life
insurance policy on the life of Xxxx attached hereto as Exhibit "E."
(f) IBI will enter into with Gates the Letter regarding
that certain split-dollar life insurance policy on the life of Gates
attached hereto as Xxxxxxx "X."
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(x) XXX will cause to be delivered on January 2, 1997 to
Gates a check in the amount of Two Hundred Fifty Thousand Dollars
($250,000), less applicable withholdings as required by law.
The above referenced agreements and payments are made in full
and complete settlement of any and all claims, including claims for attorneys'
fees and costs, arising out of the employment and termination of employment of
Gates and in settlement of any alleged rights of Gates under the Employment
Agreement, the Gates Option, the Xxxx Option and all related documents and
agreements. These agreements shall be in lieu of and discharge any obligations
of IBI and/or Xxxx to Gates for compensation, severance benefits, lost wages,
lost benefits, unused accrued vacation, personal injuries, pain and suffering
or any other expectation of remuneration or benefit on the part of Gates.
Gates expressly acknowledges that he has no rights whatsoever under the
Employment Agreement, the Intervisual Books, Inc., Supplemental Executive
Retirement Plan effective as of January 1, 1993 or under the Declaration of
Trust made and entered into as of March 24, 1992 by and between IBI and Xxxxx
Xxxxx as Trustee. Gates agrees not to apply for re-employment with the
Company. Gates agrees that the agreements set forth in this FOURTH Paragraph
are fully acceptable to him and discharge IBI and Xxxx of all liability to him.
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FIFTH: Payment of Taxes and/or Contributions.
Gates agrees that any federal, state, municipal or other taxes
or contributions that may be owed or payable on the sums paid to him under the
FOURTH Paragraph of this Agreement and the exhibits referred to therein are his
sole and exclusive responsibility, and agrees to indemnify, defend and hold IBI
and/or Xxxx harmless from and against any and all liability or claim for any
tax or contribution or penalty or interest thereon incurred or demanded as a
result of the payment of such sum to Gates.
SIXTH: No Obligation to Make Payments under Contract or
Normal Policies.
Gates agrees that the payments and arrangements described in
the FOURTH Paragraph may be more than IBI is required to pay to him under the
normal policies and procedures of IBI, the Employment Agreement, the Gates
Option the Xxxx Option and any related documents and agreements. Gates,
however, believes that the claims he is releasing by this Agreement would, if
litigated to conclusion, result in a financial benefit to him in excess of the
payments and arrangements described in the FOURTH Paragraph.
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SEVENTH: Release by Gates.
Gates hereby irrevocably and unconditionally releases, acquits
and forever discharges Xxxx, the Xxxx Trust and IBI, and each of their
respective owners, stockholders, predecessors, successors, assigns, agents,
directors, officers, executives, employees, representatives, and attorneys,
parent, related, or subsidiary entities, and affiliates (and agents, directors,
officers, employees, representatives and attorneys of such parent, related, or
subsidiary entities, and affiliates), and all persons acting by, through, under
or in concert with any of them (collectively "Releasees"), or any of them, from
any and all charges, complaints, claims, liabilities, acts, omissions,
obligations, promises, agreements, controversies, damages, actions, causes of
action, suits, rights, demands, costs, compensation, losses, penalties, debts
and expenses (including attorneys' fees and costs actually incurred) of any
nature whatsoever, whether known or unknown or suspected or unsuspected, fixed
or contingent, which Gates now has, owns or holds, or claims to have, own or
hold, or which Gates at any time heretofore had, owned or held, or claimed to
have, own or hold, or which Gates at any time hereinafter may have, own or
hold, or claim to have, own or hold, against any of the Releasees, including,
but in no way limited to, alleged torts, including fraud and misrepresentation;
violations of any
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contracts, express or implied; violations of any policies, practices or
procedures; violations of any covenant of good faith and fair dealing, express
or implied; or violations of any federal, state or other governmental statute,
regulation or ordinance or under the Age Discrimination In Employment Act of
1967, as amended (hereinafter collectively "Claim" or "Claims"). It is
expressly understood and agreed, however, that this Agreement shall not release
any Releasee from any violation of this Agreement.
EIGHTH: Release by IBI and Xxxx.
IBI (for itself and its predecessors, successors and assigns)
and Xxxx each hereby releases and forever discharges Gates from any and all
claims, demands and causes of action, at law or in equity, known or unknown,
suspected or unsuspected, including claims for costs or attorneys' fees, which
IBI (for itself and its predecessors, successors and assigns) and Xxxx have
ever had or may now have, including but not limited to claims that have been or
could have been made against Gates under the Employment Agreement, the Gates
Option or the Xxxx Option. To the actual knowledge of IBI and Xxxx, there is
no pending or threatened litigation or action against Gates by any director,
officer, employee or agent of IBI. For purposes of the previous sentence, the
term "knowledge of IBI and Xxxx" shall mean the actual present knowledge of
Xxxx and
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the directors and officers of IBI without inquiry or investigation. It is
expressly understood and agreed, however, that this Agreement shall not release
Gates from any violation of this Agreement.
NINTH: Knowing and Voluntary Waiver.
Gates, IBI, and Xxxx each understands that California law
includes Civil Code Section 1542, which says that releases usually do not apply
to certain unknown claims. Specifically, Section 1542 states as follows:
"A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the
time of executing the release, which if known by him must have
materially affected his settlement with the debtor."
Because the parties want now to settle all matters, known or unknown, between
them, Gates, IBI and Xxxx each hereby agrees that Section 1542 does not apply
to this Agreement, and that this Agreement releases any and all claims that
Gates, IBI and Xxxx, and each of them, do not know about or suspect may exist
in his or its favor at the time of the execution of this Agreement. It is
expressly understood and agreed, however,
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that this Agreement shall not release any party from any violation of this
Agreement.
TENTH: No Present Claims.
Gates represents that he has not filed and does not have on
file any complaints, charges or claims against Xxxx or IBI, or any of its
officers, directors, trusts, executives, employees, agents, parent, related and
subsidiary entities and affiliates, successors and assigns, in any court or
administrative forum, or before any governmental agency or entity.
ELEVENTH: No Future Claims.
Gates represents that he will not hereafter file any
complaints, charges or claims against Xxxx or IBI, or any of its officers,
directors, trusts, executives, employees, agents, parent, related and
subsidiary entities and affiliates, successors and assigns, with any state,
federal or other governmental entity agency, board or court based on any Claim
or Claims released by this Agreement.
TWELFTH: Confidentiality by Gates.
Gates represents and agrees that he has kept and will keep the
fact, amount and terms of this Agreement
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completely confidential, and that he will not hereafter knowingly disclose any
information concerning this Agreement to any person, including but not limited
any past or present employee of IBI or any parent, related or subsidiary
companies; provided, however, that Gates may disclose this Agreement and/or its
terms to members of his immediate family, tax and investment advisors, legal
counsel and employees of financial institutions to the extent necessary to
engage in financial transactions, such as loans, with such institutions
("Confidants"). Before Gates tells any Confidant anything about this
Agreement, he will inform the Confidant of this TWELFTH Paragraph and have the
Confidant agree to follow it.
THIRTEENTH: Non-Disparagement by Gates.
Gates represents and agrees that he will not criticize,
denigrate or otherwise disparage or cause disparagement to Xxxx or IBI, or any
other Releasee. Gates further represents and agrees that he will not engage in
any conduct or take any action to encourage any person or entity to initiate
litigation or assert any other kind of claim against Xxxx or IBI, or any other
Releasee.
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FOURTEENTH: Damages for Breach.
Gates represents and agrees that any disclosure of information
or other action contrary to the terms of the TWELFTH and/or THIRTEENTH
Paragraphs by him would cause Xxxx, IBI and/or other Releasees injury and
damage, the actual amount of which would be impractical or extremely difficult
to determine. Accordingly, Gates agrees that IBI shall be entitled to recover
from him liquidated damages in the amount of Five Thousand Dollars ($5,000) for
each instance in which he discloses any information or takes any other action
in violation of the terms of the TWELFTH and/or THIRTEENTH Paragraphs.
FIFTEENTH: Non Disparagement by IBI and/or Xxxx.
IBI and Xxxx each represents and agrees that he/it will not
criticize, denigrate or otherwise disparage or cause disparagement to Gates.
IBI and Xxxx each further represents and agrees that he/it will not engage in
any conduct or take any action to encourage any person or entity to initiate
litigation or assert any other kind of claim against Gates.
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SIXTEENTH: Trade Secrets; No Solicitation.
Gates understands and agrees that in the course of his
employment with IBI, he has acquired privileged and/or confidential,
proprietary information and trade secrets concerning IBI's operations, its
future plans and its methods of doing business ("Trade Secrets"), which
information Gates understands and agrees would be extremely damaging to IBI if
disclosed to a competitor or made available to any other person or corporation.
Gates understands and agrees that such Trade Secrets have been divulged to him
in confidence and that he will keep such Trade Secrets secret and confidential,
and will not, directly or indirectly, use or disclose, for his own benefit or
the benefit of another, any of the Trade Secrets of IBI. Gates further agrees
that he will not for a period of one (1) year from the date he signs this
Agreement solicit or participate in or assist in any way in the solicitation of
any employees of IBI, or of any of its parent, subsidiary or affiliated
companies, for the purpose of inducing them to sever their employment
relationship with IBI, or any of its parent, subsidiary or affiliated
companies. In view of the nature of Gates' employment and the information and
Trade Secrets which each has received during the course of his employment,
Gates likewise agrees that IBI would be irreparably harmed by any violation or
threatened violation of this FIFTEENTH Paragraph and that, therefore, IBI shall
be entitled
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to damages and an injunction prohibiting Gates from any violation or threatened
violation of this Paragraph. The undertakings set forth in this Paragraph
shall survive the termination of other arrangements contained in this
Agreement.
SEVENTEENTH: Indemnification by Gates.
Gates hereby agrees to indemnify and hold the Releasees
harmless from and against any and all loss, costs, damages or expenses,
including, without limitation, attorneys' fees, incurred by the Releasees, or
any of them, as a result of any breach of this Agreement by Gates or the fact
that any representation made herein by Gates was false when made.
EIGHTEENTH: Indemnification by IBI.
IBI agrees to the extent permitted and required by California
law to defend and indemnify Gates against any and all costs, attorneys' fees
and judgments incurred in connection with any legal actions or other legal
claims brought by shareholder(s) or other third parties, including employees or
former employees of IBI, for any matters alleged to have occurred during Gates'
employment with IBI and until the expiration of the Consulting Agreement.
Gates agrees to (i) cooperate and use his best efforts to assist the Company in
any lawsuit, arbitration, administrative hearing, regulatory
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proceeding or other similar legal action which the Company's Board of Directors
determines that Gates' cooperation and/or assistance is needed for preparation
of an effective defense of such action(s), (ii) not to take any position
related to or in connection with any actions that is reasonably determined by
the Company's Board of Directors to be adverse and/or harmful to the Company's
defense of any such actions, and (iii) direct his legal counsel to coordinate
all defenses of such actions with the Company and with the Company's legal
counsel.
NINETEENTH: No Representations.
Gates represents and acknowledges that, in executing this
Agreement, he does not rely and has not relied upon any representation or
statement not set forth in this Agreement made by any of the Releasees or by
any of the Releasees' agents, representatives or attorneys with regard to the
subject matter, basis or effect of this Agreement, or otherwise, nor does he
rely upon nor has he relied upon any failure to disclose facts on the part of
any of the Releasees or any of the Releasees' agents, representatives or
attorneys.
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TWENTIETH: Non-Release of Future Claims.
This Agreement does not waive or release any rights or claims
that Gates may have under the Age Discrimination in Employment Act which may
arise after the date that he signs this Agreement.
TWENTY-FIRST: Period for Review and Consideration of
Agreement.
Gates understands that he has been given a period of
twenty-one (21) days from receipt of this Agreement to review and consider this
Agreement before signing it. Gates further understands that he may use as much
of this twenty-one day (21) period as he wishes prior to signing.
TWENTY-SECOND: Right to Revoke Agreement.
Gates may revoke this Agreement within seven (7) days of his
signing it. Revocation can be made by delivering a written notice of
revocation to Xxxxx X. Xxxx, Acting Chief Executive Officer of IBI. For
revocation to be effective, such written notice of revocation must be received
by Xxxxx X. Xxxx at 0000 Xxxxx Xxxx Xxxxxxxxx, Xxxxx 000, Xxxxx Xxxxxx, XX
00000, no later than the close of business on the seventh (7th) day after he
signs this Agreement. If Gates revokes
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this Agreement, it shall not be effective or enforceable, he will not receive
the compensation and benefits described in the FOURTH Paragraph above.
TWENTY-THIRD: Stand Still; No Acting in Concert.
Except for the shares of the Company's common stock owned by
Gates as of the date of this Agreement or with the prior written approval of
the Company's Board of Directors, Gates agrees, from the date of this Agreement
through December 31, 2001, that he will not (a) acquire, agree to acquire or
make any proposal to acquire, directly or indirectly, any securities of the
Company, (b) propose to enter into, directly or indirectly, any merger or
business combination involving the Company or an agreement concerning the
possible sale or purchase of a material portion of the assets of the Company,
(c) participate, directly or indirectly, in any "solicitation" of "proxies" (as
such terms are used in the proxy rules of the Securities and Exchange
Commission) to vote, or seek to advise or influence any person with respect to
the voting of any voting securities of the Company, or (d) join or act in
concert with others to seek to control or influence the management, Board of
Directors or the policies of the Company, or for the purpose of acquiring,
holding, voting or disposing of the Company's securities, assets or properties.
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TWENTY-FOURTH: Arbitration.
This Agreement is made and entered into in the State of
California, and shall in all respects be interpreted, enforced and governed by
and under the laws of the State of California. Any dispute regarding any
aspect of this Agreement or any act which allegedly has or would violate any
provision of this Agreement ("Arbitrable Dispute") will be submitted to
arbitration in Los Angeles County, California, before a retired judge chosen
through JAMS/Endispute, as the exclusive remedy for such claim or dispute.
Should any party to this Agreement hereafter institute any legal action or
administrative proceeding against the other with respect to any claim waived by
this Agreement, or pursue any Arbitrable Dispute by any method other than such
arbitration, the responding party shall be entitled to recover from the
initiating party all damages, costs, expenses, and attorneys' fees incurred as
a result of such action. This Paragraph is not applicable to claims of
violation of the SIXTEENTH Paragraph.
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TWENTY-FIFTH: Tender of Proceeds as Condition to Challenging
Enforceability of Agreement.
Gates understands that this Agreement is final and binding
when executed and not revoked by him, and executed by IBI, and agrees not to
thereafter challenge its enforceability. Should Gates nevertheless attempt to
challenge the enforceability of this Agreement, as a further limitation on any
right to make such a challenge, he shall initially tender to IBI, by certified
check delivered to IBI, all monies received by Gates pursuant to this
Agreement, including the Consulting Agreement, plus interest at the rate of Ten
Percent (10%) per annum from the date of his receipt of such monies, and invite
IBI to retain such monies and agree with Gates to cancel this Agreement. In
the event IBI accepts this offer, IBI shall retain such monies and this
Agreement shall be canceled. In the event IBI does not accept such offer, IBI
shall so notify Gates, and shall place such monies in an interest-bearing
escrow account pending resolution of the dispute as to whether or not this
Agreement shall be set aside and/or otherwise rendered unenforceable.
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TWENTY-SIXTH: Consultation with Counsel.
Gates represents that he has thoroughly discussed all aspects
of this Agreement with Tourtelot, that he has carefully read and fully
understands all of the provisions of this Agreement, and that he is voluntarily
entering into this Agreement.
TWENTY-SEVENTH: Counterparts; Headings.
This Agreement may be executed in one or more counterparts and
each such counterpart shall be deemed an original, but all of which taken
together shall constitute one and the same agreement. The headings contained
in this Agreement are for reference only and shall not be considered in the
interpretation or construction of this Agreement.
TWENTY-EIGHTH: Sole and Entire Agreement.
This Agreement and the exhibits hereto set forth the entire
agreement between the parties hereto, and fully replace and supersede any and
all prior agreements, including but not limited to the Employment Agreement,
the Gates Option and the Xxxx Option, or understandings between the parties
hereto pertaining to the subject matter hereof.
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PLEASE READ CAREFULLY. THIS SEVERANCE AGREEMENT AND GENERAL
RELEASE INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.
Executed at Kona, Hawaii, this 4th day of November, 1996.
/s/ XXXXXXX X. XXXXX
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XXXXXXX X. XXXXX
Executed at __________________________, California, this _____ day of
______________, 1996.
INTERVISUAL BOOKS, INC.
By: /s/ XXXXX X. XXXX
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Title: Chairman
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