<PAGE>   1
                                                                   EXHIBIT 10.27


                     REPUBLISHING AND DISTRIBUTION AGREEMENT

      This Agreement is made the 12th day of June, 1997, by and between VIRGIN
SOUND AND VISION, INC., a corporation organized and existing under the laws of
the State of California, located at 127 North Robertson Blvd., Los Angeles,
California 90048 ("VSV"), and SANCTUARY WOODS MULTIMEDIA, INC., a corporation
organized and existing under the law of the State of Nevada, located at 1825
South Grant Street, San Mateo, California 94402 ("SW").

                                    RECITALS

      1. VSV has expended considerable time, effort, and resources to develop
and/or publish certain interactive multimedia products on CD-ROM and the user
documentation related thereto, as more specifically identified in Exhibit A
hereto (collectively "the Products");

      2. SW desires to act as a republisher and distributor of the Products
worldwide, and represents to VSV that SW has sufficient expertise, resources,
and personnel to perform its obligations under this Agreement; and

      3. VSV desires to have SW republish and distribute the Products worldwide
upon the terms and conditions hereinafter set forth.

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

                                    AGREEMENT
A. DEFINITIONS

      1. "Confidential Information" shall mean any information, idea,
technology, know-how, inventions, algorithms, data, process, technique, program,
computer software, computer code and related documentation, work-in-process,
future development, engineering, manufacturing, marketing, business, technical,
financial or personal matter of either party, its research, development, present
or future products, sales, customers, employees, opportunities, markets, or
business, whether in oral, written, graphic or electronic form, that is treated
as confidential by such party and identified as such at the time of disclosure.

      2. "Documentation" shall mean any instructions, specifications, manuals,
hint sheets and other written materials developed by or on behalf of VSV
relating to the use, operation, or support of the Products.


                                                                             H-1
<PAGE>   2
      3. "Products" shall mean (a) copies of the Products purchased from VSV "as
is" for distribution in the Territory in existing packaging; and (b) copies of
the Products manufactured by SW from a gold master copy furnished by VSV, for
distribution in the Territory in a form the same as that published by VSV,
except that the packaging may be modified as further provided below.

      4. "Net Revenues" shall be defined as all money received by SW relating to
the Products, less returns, price mark-downs and sales taxes.

      5. "Cost of Goods" shall mean the actual direct cost of manufacturing the
Products, including the costs of disk replication, assembly and packaging, which
shall not be greater than the costs incurred by VSV or the cost VSV could
reasonably expect to obtain elsewhere.

      6. "Proprietary Rights" shall mean all rights of VSV in the Products
including, without limitation, copyright, patent, design patent, trademark,
trade secret, and publicity rights, arising under applicable law and
international conventions.

      7. All references to the "sale" or "sell" in relation to the Products
shall mean the sale, lease or license of the media on which the Products are
embodied.

      8. "Territory" shall be worldwide.

      9. "OEM Sales" shall mean the distribution of one or more of the Products
bundled with third party hardware and/or software and sold by such third party
as a unit for a single price.

      10. "Name" and "Logo" shall mean the name and logo(s) used by VSV as
provided by VSV to SW as may be changed by VSV from time to time.


B. GRANT OF LICENSE

      1. Distribution License. Subject to the terms of this Agreement, VSV
grants to SW and SW accepts, for the term of this Agreement, the exclusive
rights to market, distribute, import and export, advertise and sell the Products
in the Territory through any and all channels of distribution, including on-line
distribution, except for OEM and international sales and other channels of
distribution, where VSV has a pre-existing contractual relationship.
Territories, OEM and other distribution relationships currently held and
retained by VSV are listed in Exhibit D. Upon expiration of VSV's contractual
commitments in those territories and relationships shown in Exhibit D, SW upon
the approval of VSV, which approval 


                                                                             H-2
<PAGE>   3
will not be unreasonably withheld, shall extend those contracts or establish new
relationships.

      2. Republishing License. Upon mutual agreement of the parties, or when VSV
exhausts the materials required to build the Products, SW shall have the
exclusive rights to republish the Products at SW's own cost and in accordance
with this Agreement subject to the exceptions set forth in Section B.1. above.
Subject to VSV's prior written approval as to form and content, which shall not
be unreasonably withheld, any republished versions of the Products may be
modified to identify Sanctuary Woods as the publisher and distributor of the
Products on the CD-ROM and packaging ("Republished Versions"). Republished
versions of the Products may not otherwise be re-compiled or abridged, or sold
as part of a compilation or bundling or OEM arrangement, except as pre-approved
by VSV. Such approval shall not be unreasonably withheld.

      3. Right of First Refusal. SW shall have a last matching right to acquire
all of VSV's Proprietary Rights to any of the Products, if VSV offers to sell
the same to a third party, covered in this Agreement, as shown in Exhibit A, at
any time during the term of this Agreement, provided that if SW and VSV fail to
close the transaction within thirty (30) days of the date that SW is offered the
Proprietary Rights, VSV shall be entitled to sell to a third party.

      4. Trademarks. SW specifically understands and agrees that no rights are
granted herein with respect to the trade mark(s), logo(s) or copyrights owned by
or licensed to VSV other than those specifically set forth above in the
Products, it being understood that all rights in and to said Products are
reserved exclusively to VSV for use and/or licensing as it deems appropriate to
third party(s) of its choice.

      5. Name/Logo. The Products shall also include the Name and/or Logo. SW
shall utilize the Name and/or Logo on such Products as VSV shall direct. VSV
shall have the right to approve all uses of the Name and/or Logo. The parties
agree that, notwithstanding anything to the contrary contained elsewhere in this
Agreement, SW's use of the Name and/or Logo shall be on a non-exclusive basis
and shall to the benefit of VSV and/or third party as licenses the same to VSV.

      6. Further Assurance. SW shall comply with all requirements of licensors
of the products and shall enter into all necessary agreements to ensure that in
granting the license set out in Section B.1. VSV is not in breach of any
contractual obligation and SW hereby indemnifies VSV against all costs, damages
and other costs incurred as a result of SW's failure to comply with given
requirements.


                                                                             H-3
<PAGE>   4
C.  DISTRIBUTION, PROMOTION AND PAYMENTS

      1. Distribution. SW shall be entitled to distribute such Products "as is"
as Products according to the terms and conditions set forth in this Agreement.
Such Products shall be distributed by SW without any changes, except that SW may
add, by sticker or otherwise, an indication that SW is the distributor of the
Product as shown in Exhibit E. VSV must review and approve all pricing on a
deal-by-deal basis, such approval not to be unreasonably withheld.

      2. Product Orders. SW shall order units of the Products through the use of
SW's standard purchase order. VSV shall fulfill such orders within ten (10) days
of the date of the purchase order, and shall ship such orders in accordance with
the provisions of Section C.6. In the event of any discrepancy between the terms
of such purchase order and this agreement, the terms of this Agreement shall
apply.

      3. Promotion
SW shall:

(a) at all times use its best endeavors actively to promote and increase sales
of the Products in the Territory and shall not do anything that may prevent
sales or interfere with the development of sales of the Products in the
Territory. In particular, but without limiting the generality of this
sub-section SW shall:

(i) employ a sufficient number of adequately trained sales staff,
demonstrators and other necessary sales personnel;

(ii) establish and maintain adequate sales systems;

(iii) distribute promotional literature about the Products;

(iv) attend and present the Products at relevant trade exhibitions and other
industry events where the Products are displayed and will report to VSV before
and after such exhibitions and events with regard to planned promotions and the
results of such efforts;

(v) subject to section 3 (b), ensure adequate press and magazine editorial
coverage, and design and produce all sales and marketing materials, including
sales collateral, point of purchase materials, and advertising.

(vi) be responsible for disk and packaging replication, assembly warehousing and
inventory management; as per B.2., when VSV exhausts its supply of inventory.


                                                                             H-4
<PAGE>   5
(vii) deal with all aspects of relationships with retailers and distributors
from that point forward that SW has placed an order or taken a re-order for a
Product.

(viii) bill, collect payments and manage returns from that point forward that SW
has placed an order or taken a re-order for a Product.

(ix) be responsible for all end user advertising, trade advertising, marketing
and coop advertising and distributor rebates and incentive programs.

(b) consult with and obtain the approval of VSV before advertising or publishing
promotional material for the Products and obverse all reasonable directions and
instructions given to it by VSV in relation to the promotion and advertisement
of the Products. This shall not entitle VSV to exercise any control over the
SW's conditions of sale but SW shall consult with VSV in respect of the same.

      4. Payments. (a) For Products Supplied by VSV. SW shall pay VSV a royalty
on each Product as follows:

[   *   ]

      (b) On any Republished Versions of the Products, the royalty rates set
forth above shall be reduced by the Cost of Goods for each copy of the Product
manufactured by SW. At the time SW makes a payment to VSV in respect of Net
Revenues, SW shall provide VSV with a detailed accounting of the cost of goods.

      5. Third party royalties. All third party royalties payable under any
publishing licenses to which VSV is a party in relation to the manufacturing and
sales of the Products shall be paid by VSV. Notwithstanding the foregoing, by
mutual agreement of the parties and the relevant licensors, SW may assume the
publishing licenses from VSV, and in such case, SW's royalty payments as set
forth in Section C.3 above shall be reduced by the royalty amount previously
paid by VSV.

      6. Shipping. SW shall be responsible for all shipping charges, and all
copies of the Products shall be shipped F.O.B. VSV's facility as notified to SW
from time to time, with risk of loss passing to SW upon shipment in respect of
which SW shall maintain, through the term of this agreement, adequate insurance
coverage. SW 

--------
* Certain information on this page has been omitted and filed separately with
  the Commission. Confidential treatment has been requested with respect to the
  omitted portions.
  
                                                                             H-5
<PAGE>   6
will set-up a direct relationship with VSV's fulfillment agent to place orders
for shipment to designated customer accounts.

      7. Existing Inventory in Channel; Future Returns. VSV will be responsible
for all existing channel inventory and will also be responsible for all future
returns and price markdowns on Products currently in the channel. At the point
that SW is responsible for placing units of the Products or processing
re-orders, those units will become an SW SKU at the distributor and/or the
retailer and SW will henceforth handle the returns or price markdowns of those
units of the Products it has placed.

      8. Royalty Statements, Payment and Audits. Statements setting forth the
number of units of each Product sold and the Net Revenues received, shall be
sent to VSV monthly within thirty (30) days of the end of each calendar month.
Royalty payments for Products sold by SW shall be made within sixty (60) days of
the date of the first royalty statement, and 45 days from the date of each
subsequent royalty statements. VSV shall have the right, upon reasonable
request, and no more often than once in each calendar year, to review those
records of SW necessary to verify the royalties paid. Any such audit will be
conducted at VSV's expense and at such times and in such a manner as to not
unreasonably interfere with SW's normal operations; provided, however, that if
any such audit reveals an error of at least 5% in the payment of royalties, then
SW shall pay the costs of the audit. If a deficiency is shown by such audit, SW
shall immediately pay that deficiency. Non-payment of any deficiency within
thirty (30) business days of the date on which SW receives notice of such
deficiency shall constitute a material breach of this Agreement.

      9. Trademarks. Subject to VSV's prior approval, VSV grants to SW the right
to use all trademarks, trade names and service marks associated with the
Products in its marketing and distribution efforts.


      10. SW obligations:

(a) SW shall not use, or knowingly, permit the use of and will exercise due care
that its customers likewise will refrain from the use of, the Products as a
premium, except with the prior written consent of VSV, which consent VSV may
grant or withhold in its unfettered discretion and shall be entitled to
distribute a commercially reasonable number of units of the Products
royalty-free for the sole purpose of promoting and marketing the Virgin Sound
and Vision brand name and the Products, provided that the packaging for such
Products shall be clearly labeled "NOT FOR RESALE". For the purposes of this
subsection, the term "premium" shall be defined as including, but not
necessarily limited to, combination sales, free or self-liquidating offered to
the public in conjunction with the sale or promotion of a product or service, or
any similar scheme or device, the prime intent of which is to 


                                                                             H-6
<PAGE>   7
use the Products in such a way to promote, publicize and/or sell the products,
services or business image of the user of such item;

(b) comply with all laws, rules and regulations existing in the Territory from
time to time concerning the products and shall keep VSV informed of any relevant
changes therein, and in particular but without limitation, shall at its own
expense obtain all necessary permissions, consent and licenses to enable SW to
reproduce market and sell the Products in the Territory and shall obtain any
other governmental or other permission, consent or license or make any
registration necessary for the full and legal operation of this Agreement;

(c) keep full and proper books of accounts and records showing clearly all
equities, quotations, transactions and proceedings relating to the Products and
permit VSV to have full access to such books and records (which VSV may copy)
and to SW's property, staff, customer and other personnel in relation to the
Products;

(d) observe all reasonable directions and instructions given to it by VSV in
relation to the sale, distribution and marketing of the Products.

      11. Quality of the Products

The quality and style of the cartons and containers containing the Products
shall be subject to VSV's approval. To this end SW shall, before selling or
distributing any of the Products, furnish to VSV free of cost each for its
written approval, (24) production samples of each Product together with their
cartons and containers, including packaging and wrapping material. In addition
VSV shall have the right to purchase any and all Products as packaged by or the
SW in any quantity at Licensee's best standard wholesale price. After samples of
Products have been approved pursuant to this clause, SW shall not depart
therefrom in any material respect without VSV's prior written consent failing
which VSV shall have the right to withdraw its approval of such samples.

      12. Distribution: Sublicense/Manufacture

(a) SW shall sell the Products either to jobbers, wholesalers, distributors, or
retailers for sale or resale and distribution directly to the public. If SW
sells or distributes the Products at a special price, directly or indirectly, to
itself including, without limitation, any subsidiary or parent of SW or to any
other person, firm or corporation affiliated with SW or its officers, directors
or major stockholders, for ultimate sale to unrelated third parties, SW shall
pay royalties with respect to such sales or distribution based on the price of
the ultimate sale to the unaffiliated third party (e.g. distributor or
retailer).


                                                                             H-7
<PAGE>   8
(b) In the event SW is not the manufacturer of the Products, SW shall, subject
to the prior written approval of VSV (which approval shall not be unreasonably
withheld), be entitled to utilize a third party in connection with the
manufacture and production of the Products provided that such party shall
execute an agreement in a form acceptable to VSV. In such event, SW shall remain
primarily obligated under all the provisions of this Agreement. In no event
shall any sublicense agreement include the right to grant any further
sublicenses.

D. TRAINING AND SUPPORT

      1. Training of Support. VSV will provide initial training for SW's
customer support personnel in the proper use and support of the Products. VSV's
obligation to provide support shall terminate within thirty days of the date of
the this agreement.

      2. Customer Support. SW shall use usual and reasonable support services
for the Products, as specified on Exhibit C. If requested by VSV, SW will also
offer customer support for the Additional Products set forth in Exhibit B, for a
fee of $2,500 per month for a period of six months. Upon mutual agreement, SW
will continue to provide customer support to the Additional Products beyond the
six-month period at a reduced rate commensurate with the decline in call volume.
VSV represents that the current volume of telephone calls received for customer
support for its Products and Additional Products is approximately 50 calls per
week.

E. LIMITED WARRANTY

      1. For units of the Products provided by VSV to SW, VSV warrants that the
media on which the Products are furnished will be free from defects in materials
and workmanship under normal use for a period of three months from the date of
delivery to SW. Except for the foregoing warranty as to the media on which the
Products are furnished, the Products and licensed Products are provided "as is"
without warranty of any kind, either express or implied. VSV does not warrant
that the functions contained in the Products or licensed Products will be
uninterrupted or error free. VSV disclaims all other warranties, either express
or implied, including the warranties of merchantability and fitness for a
particular purpose.

      2. If the media on which the Product or Licensed Product is furnished does
not comply with the warranty, the sole and exclusive remedy will be to return
the media to VSV during the warranty period set forth in Section E.1, and VSV
will provide a replacement in exchange for the defective media.


                                                                             H-8
<PAGE>   9
F. LIMITED LIABILITY

      1. EXCEPT FOR VSV'S OBLIGATIONS UNDER THE INDEMNIFICATION PROVISIONS OF
THIS AGREEMENT, VSV WILL NOT BE LIABLE UNDER THIS AGREEMENT OR UNDER ANY
CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY, FOR
ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING DAMAGES
FOR LOSS OF BUSINESS OR LOSS OF PROFITS) TO SW OR END-USER, EVEN IF SW OR ITS
REPRESENTATIVES HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

      2. NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR OTHERWISE, VSV WILL
NOT BE LIABLE UNDER THIS AGREEMENT OR UNDER ANY CONTRACT, NEGLIGENCE, STRICT
LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR LOSS OF DATA OR THE COST OF
PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES TO SW OR END-USER, EVEN
IF SW OR ITS REPRESENTATIVES HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.

G. PROPRIETARY RIGHTS; CONFIDENTIAL INFORMATION

      1. Except as specifically provided in this Agreement, VSV does not grant
to SW any Proprietary Rights relating to the Products or to any other materials
furnished thereunder except as specified herein. VSV and its Licensors are, and
at all times shall remain, the sole owner of the Products and Licensed Products
provided or created in connection with this Agreement.

      2. In the event that a third party is or potentially may be copying any
Product or documentation, infringing or registering VSV's proprietary rights in
the Products, SW shall promptly inform VSV in writing, stating the full facts of
the third party's actions. SW agrees to cooperate fully with VSV if VSV takes
any action against the third party, including, without limitation, suing to
enjoin the third party's actions.

      3. In the event that one party ("Disclosing Party") discloses any
Confidential Information to other party, its officers, employees, agents,
representatives ("Receiving Party"), the Receiving Party shall hold in
confidence such Confidential Information and shall use such Confidential
Information only during the term of this Agreement and only as directed by the
Disclosing Party. The Receiving Party may disclose such Confidential Information
to its employees with a need to know, provided that such employees are bound in
writing to maintain the confidentiality of such Confidential Information. The
Receiving Party's non-disclosure obligation shall not apply to information the
Receiving Party can document (a) has entered the public domain and is generally
available to the public as a result of no act or 


                                                                             H-9
<PAGE>   10
omission of the Receiving Party or its employees or agents, (b) is lawfully
received by the Receiving Party from third parties without restriction and
without breach of any duty of nondisclosure by any such third party, or (c) is
developed independently by the Receiving Party without reference to the
Confidential Information.

H. TERM AND TERMINATION

      1. This Agreement shall be in effect from the Effective Date and will
continue for a period of twenty-four (24) months, unless terminated earlier
pursuant to this Section. However, this Agreement may be terminated at an
earlier date under the terms of this Section H. Upon expiration of the term, the
parties may, by mutual agreement, renew the Agreement for additional one-year
increments. Further, the term of this Agreement will automatically renew for
each Product for an additional period of twenty-four (24) months should SW sell
a minimum of 12,500 units of said Product during the original or any renewal
term.

      2. This Agreement may be terminated by either Party upon thirty (30) days'
written notice for breach of a material term of this Agreement relating to such
Product or all Products, unless such breach has been cured within said thirty
(30) day period, in which case, the notice of termination shall be a nullity.

      3. Either party may terminate this Agreement immediately on written notice
if (a) the other party files for or is adjudged insolvent or bankrupt or
circumstances arise that would entitle a court to make such a finding, or all or
a substantial portion of the assets are transferred to an assignee for the
benefit of creditors, receiver or trustee in bankruptcy or (b) the other party
ceases to conduct its business or otherwise terminates its business operations
or if the controlling ownership of the other party has changed by merger,
acquisition or sale of all or substantially all of that party's assets, business
or stock. In the case of VSV, should (a) or (b) occur, this Agreement shall be
immediately transferred to and honored by VSV's parent, Virgin Communications,
Ltd., and therefore this item shall apply only if Virgin Communications, Ltd. is
subject to (a) or (b).

      4. Upon termination or expiration of this Agreement, SW shall have a
period of ninety (90) days from the date of termination to sell off any copies
of any Products in its inventory or in transit from VSV to SW on the date of
termination.

      5. Termination or expiration of this Agreement shall not affect those
provisions which, by their nature, extend beyond the date of termination or
expiration of this Agreement.

K. INFRINGEMENT INDEMNIFICATION


                                                                            H-10
<PAGE>   11
      1. VSV shall defend, indemnify and hold harmless SW from any costs or
damages arising from any claim that the Products infringing the copyright,
patent, design patent, trademark, trade secret, or publicity rights, of any
third party. VSV shall have sole control of the defense of such action and all
negotiations for its compromise or settlement. In the event that the Products
become, or in the opinion of the VSV is likely to become, subject to a claim of
infringement of any copyright, patent, design patent, trademark, trade secret,
and publicity rights VSV shall, at VSV's option and expense, either:

      (a) Procure, for SW and its customers, the right to continue marketing,
promoting, distributing and replicating the Products; or,

      (b) Replace the Products with similar non-infringing Products or modify
the Products so that they becomes non-infringing, provided that the Products, as
modified, are functionally equivalent to the Products purchased pursuant to this
Agreement.

      2. The foregoing states the entire liability and obligation of VSV to SW
or its customers with respect to infringement of any copyright, patent, design
patent, trademark, trade secret, and publicity rights by the Products, or any
component thereof, and SW's and its customers' exclusive remedy as to VSV.

      3. VSV will not be liable for any claim of infringement based on (a) the
use of a Product in combination with any other products if such infringement
would have been avoided by the use of the Product without such other products.

      4. VSV shall not be obligated to indemnify SW under this section unless
(a) SW promptly notifies VSV in writing of any claim to which the indemnity
obligations might apply, (b) VSV has the sole control of the defense and/or
settlement of such claim, and (c) SW cooperates fully with VSV in defending or
settling any such claim.

L. GENERAL PROVISIONS

      1. Notices. Any notice under this Agreement must be written, in English,
and sent to the address of such party specified at the beginning of this
Agreement (or to such other address as either party may specify by notice given
to the other party). Any notice will be deemed to have been effective (a) seven
(7) days following mailing by registered or certified airmail; (b) two (2) days
after dispatch by courier; or (c) upon receipt by personal delivery, which may
be by cable, telegram, facsimile or telex.

      2. Governing Law and Legal Actions. This Agreement shall be governed
exclusively by the laws of the State of California and the United States of
America, 


                                                                            H-11
<PAGE>   12
without regard to conflicts of laws provisions thereof and shall not be subject
to the U.N. Convention on Contracts for the International Sale of Goods. The
exclusive jurisdiction and venue for actions related to the subject matter
hereof shall be the California state and U.S. federal courts having within their
jurisdiction, the State of California.

      3. Attorneys' Fees. In any action or proceeding to enforce rights under
this Agreement, the prevailing party shall be entitled to recover costs and
attorneys' fees.

      4. Force Majeure. If the performance of this Agreement or any obligation
under it (except payment of monies due) is prevented, restricted or interfered
with by reason of acts of God, acts of government, or any other cause not within
the control of either party, the party so affected shall be excused from such
performance, but only for so long as and to the extent that such a force
prevents, restricts or interferes with that party's performance. Notwithstanding
the foregoing, either party may terminate this Agreement immediately upon
written notice if the Force Majeure circumstances continue for more than sixty
(60) days.

      5. Assignment. Neither party may assign, in whole or in part, this
Agreement or its rights and obligations under it except that VSV may assign this
agreement to a parent or subsidiary or to a parent or subsidiary of such parent
or subsidiary or to any other affiliated company. Any attempted assignment to
any other party shall be void and of no effect.

      6. Non-waiver. Failure to enforce any rights under this Agreement,
irrespective of the duration of such failure, shall not constitute a waiver of
those or any other rights.

      7. Integration; Modifications. This Agreement, including the attached
Exhibits, constitutes the final, complete and exclusive Agreement between SW and
VSV with regard to his subject matter hereof and supersedes all prior
agreements, proposals and understandings, oral or written, and all negotiations,
conversations, and discussions, relating to the subject matter of this
Agreement.

      8. Severance. If any provision(s) of this Agreement are held to be void or
unenforceable, such provision(s) shall be excluded from this Agreement and the
balance of the Agreement shall be enforceable in accordance with its terms. Any
invalid provision shall be replaced by the lawful provision most nearly
embodying the original intention of the parties by way of amendment.

      9. Arbitration. Any dispute or controversy arising out of or in connection
with this Agreement shall be finally settled by binding arbitration. The
arbitration shall be held in San Francisco, California and conducted in
accordance with the 


                                                                            H-12
<PAGE>   13
Commercial Arbitration Rules of the American Arbitration Association, before a
single arbitrator selected in accordance therewith. Judgment upon the award
rendered may be entered in any court having jurisdiction, or application may be
made to such court for a judicial acceptance of the award and an order of
enforcement.

      IN WITNESS WHEREOF, the parties hereto, by their authorized
representatives, have affixed their signatures as of the date first set forth
above.

VIRGIN SOUND AND VISION, INC.

by John Owen, President

Signature: ------------------------------

Title: ----------------------------------

Date: -----------------------------------

SANCTUARY WOODS MULTIMEDIA, INC.

by Charlotte Walker, President & CEO

Signature: ------------------------------

Title: ----------------------------------

Date: -----------------------------------


                                                                            H-13
<PAGE>   14
                                    EXHIBIT A
                                   (PRODUCTS)

Future Releases

TerraTopia
One Small Square: Seashore (School Edition, Lab Pack, School Pack)

Current Titles

Get Ready for School Charlie Brown (School Edition, Lab Pack, School Pack)
Snoopy's Campfire Stories (School Edition, Lab Pack, School Pack)
Peanuts bundle (Get Ready for School Charlie Brown & Snoopy's Campfire
Stories)
One Small Square: Backyard (School Edition, Lab Pack, School Pack)


                                                                            H-14
<PAGE>   15
                                    EXHIBIT B
                              (ADDITIONAL PRODUCTS)

Jonny Quest: Cover-up at Roswell
Wiggins in Storyland
One Tribe: The Ultimate Multimedia Atlas
Paperopolis
Dinonauts
Frantic Factory
One World


                                                                            H-15
<PAGE>   16
                                    EXHIBIT C
                               (SUPPORT SERVICES)

SW will provide a "hot-line" service during normal business hours for answering
end-user questions by telephone and will employ persons trained and able to
answer such questions. Such "hot-line" service shall be provided to all
end-users in the Territory, whether or not the Products were originally
distributed by SW. All "hot-line" services shall be provided by SW without
charge (other than telephone charges) to the caller.


                                                                            H-16
<PAGE>   17
                                    EXHIBIT D
             (TERRITORIES AND OEM RELATIONSHIPS RETAINED BY VSV)

                            (to be completed by VSV)


                                                                            H-17
<PAGE>   18
                                    EXHIBIT E
                                (FORM OF STICKER)


                                                                            H-18