<PAGE>
 
                                                                   EXHIBIT 10.15

                           RESTATED EMPLOYEE AGREEMENT


TO:  Daniel A. Potter                                       As of April 30, 1998
     c/o 3100 World Trade Center
     30 East Seventh Street
     St. Paul, Minnesota  55101

     This agreement is intended to state the terms of your employment with Video
Update, Inc., a Delaware corporation (the "Company"). It is executed in
connection with and in consideration of the restatement of your employment
arrangements with the Company. The Company hereby agrees with you as follows:

     1. POSITION AND RESPONSIBILITIES.

        1.1 You shall serve as Chief Executive Officer and Chairman of the Board
for the Company and shall perform the duties customarily associated with such
capacity from time to time and at such place or places as the Company shall
designate are appropriate and necessary in connection with such employment.

        1.2 You will, to the best of your ability, devote your full time (as
described in Exhibit A) and best efforts to the performance of your duties
hereunder and the business and affairs of the Company. Subject to Section 2.5
hereof, you agree to perform such executive duties as may be assigned to you by
or on authority of the Company's Board of Directors from time to time.

        1.3 You will duly, punctually and faithfully perform and observe any and
all rules and regulations which the Company may now or shall hereafter establish
governing the conduct of its business.

     2. TERM OF EMPLOYMENT.

        2.1 The term of this Agreement shall be for the period of years set
forth on Exhibit A annexed hereto commencing with the date hereof. Thereafter,
this Agreement shall be automatically renewed for successive periods of one
year, unless you or the Company shall give the other party not less than sixty
(60) days written notice of non-renewal and, if the Company provides notice of
non-renewal or if you terminate your employment for Good Reason (as hereinafter
defined), the Company shall pay you severance pay and continue your benefits in
accordance with Section 2.2(b) hereof. Your employment with the Company may be
terminated at any time as provided in Section 2.2, 2.4 or 2.5 of this Agreement.

        2.2 The Company, by vote of the majority of the Board of Directors then
in office (excluding you), shall have the right, on Notice of Termination (as
hereinafter defined) to you, to terminate your employment:
<PAGE>
 
          (a) immediately at any time for Cause, as hereinafter defined; or

          (b) at any time without Cause, or by not renewing this Agreement
     pursuant to Section 2.1 hereof, provided that if your termination is
     without Cause or if you terminate your employment for Good Reason, the
     Company shall be obligated to pay to you as severance pay an amount equal
     to thirty-six (36) month's Base Salary at the then current level (as set
     forth on Exhibit A attached hereto), less applicable taxes and other
     required withholdings and any amounts you may owe to the Company, provided
     that the Company, at its cost and expense, shall continue in full force and
     effect for thirty-six (36) months, all health, insurance, automobile
     allowances and any other fringe benefits (including health and disability
     insurance and such other benefits as are set forth on Exhibit A) that you
     enjoyed at the time of your termination.

        2.3 For purposes of Section 2.2, the term "Cause" shall mean:

          (a) Your intentional failure or refusal to perform the services
     specified herein, or to carry out any reasonable and lawful directions of
     the Company with respect to the services to be rendered or the manner of
     rendering such services by you (unless such failure or refusal is for Good
     Reason, as hereinafter defined, in which event the provisions of Section
     2.5 of this Agreement shall govern); provided, however, that (i) such
     failure or refusal is material and repetitive, and (ii) prior to effecting
     your termination you have been given reasonable notice and explanation of
     each refusal or failure, and reasonable opportunity to cure such refusal or
     failure, and no cure has been effected within a reasonable time after
     notice;

          (b) conviction of a felony;

          (c) fraud or embezzlement involving the assets of the Company, its
     customers, suppliers or affiliates;

          (d) inability for a continuous period of at least one hundred and
     eighty (180) days to perform duties hereunder due to a physical or mental
     disability, whether or not related to habitual use of alcohol or illicit
     substances, that is incapable of reasonable accommodation under applicable
     law, including but not limited to, the Americans with Disabilities Act of
     1990, as amended; or

          (e) breach of any term of this Agreement other than as noted in (a)
     above;

provided, however, that prior to any such termination, you have had a reasonable
opportunity to be heard thereon. Further, any dispute, controversy, or claim
arising out of, in connection with, or in relation to this definition of Cause
shall be settled by arbitration in St. Paul, Minnesota, pursuant to the rules
then obtaining of the American Arbitration Association. Any award or
determination shall be final, binding, and conclusive upon the parties, and a
judgment rendered may be entered in any court having jurisdiction thereof.

                                      -2-
<PAGE>
 
        2.4 Subject to Section 2.5, you shall have the right to terminate this
Agreement upon not less than ninety (90) days prior Notice of Termination to the
Company.

        2.5 (a) You may terminate your employment for "Good Reason" on five (5)
days Notice of Termination to the Company. For purposes of this Agreement, "Good
Reason" shall mean the occurrence after a Change in Control, as hereinafter
defined, of any of the events or conditions described below:

               (i) a change in your status, title, position or responsibilities
          (including reporting responsibilities) which, in your reasonable
          judgment, represents an adverse change from your status, title,
          position or responsibilities as in effect immediately prior to a
          Change in Control; the assignment to you of any duties or
          responsibilities which, in your reasonable judgment, are inconsistent
          with your status, title, position or responsibilities; or any removal
          of you except in connection with the termination of your employment
          for disability, Cause, as a result of your death or by you other than
          for Good Reason;

               (ii) a reduction in your Base Salary or any failure to pay you
          any compensation or benefits to which you are entitled within five
          days of the date due;

               (iii) a failure to increase your Base Salary at least annually at
          a percentage of Base Salary no less than the average percentage
          increases (other than increases resulting from your promotion) granted
          to you during the three full years ended prior to a Change in Control
          (or such lesser number of full years during which you were employed);

               (iv) the Company's requiring you to be based at any place outside
          a 10-mile radius from St. Paul, Minnesota, except for reasonably
          required travel on the Company's business which is not greater than
          such travel requirements prior to a Change in Control;

               (v) the failure by the Company to (A) continue in effect (without
          reduction in benefit level, and/or reward opportunities) any material
          compensation or employee benefit plan in which you were participating
          immediately prior to a Change in Control, including, but not limited
          to, the plans listed on the Exhibit A, unless a substitute or
          replacement plan has been implemented that provides substantially
          identical compensation or benefits to you or (B) provide you with
          compensation and benefits, in the aggregate, at least equal (in terms
          of benefit levels and/or reward opportunities) to those provided for
          under each other compensation or employee benefit plan, program and
          practice as in effect at any time within ninety (90) days preceding a
          Change in Control or at any time thereafter;

               (vi) the insolvency or the filing (by any party, including the
          Company) of a petition for bankruptcy of the Company;

                                      -3-
<PAGE>
 
               (vii) any material breach by the Company of any provision of this
          Agreement;

               (viii) any purported termination of your employment for Cause by
          the Company which does not comply with the terms of this Section 2; or

               (ix) the failure of the Company to obtain an agreement,
          satisfactory to you, from any successor or assign of the Company to
          assume and agree to perform this Agreement, as contemplated hereof.

          (b) Any event or condition described in Section 2.5(a)(i) through (ix)
     which occurs prior to a Change in Control, but which you reasonably
     demonstrate (A) was at the request of a third party who has indicated an
     intention or taken steps reasonably calculated to effect a Change in
     Control (a "Third Party"), or (B) otherwise arose in connection with, or in
     anticipation of a Change in Control, shall constitute Good Reason for
     purposes of this Agreement, notwithstanding that it occurred prior to the
     Change in Control.

          (c) Your right to terminate your employment pursuant to this Section
     2.5 shall not be affected by your incapacity due to physical or mental
     illness.

          (d) The Company shall reimburse you, on a current basis, for all
     reasonable legal fees and related expenses incurred by you in connection
     with the Agreement following a Change in Control of the Company, including
     without limitation, (i) all such fees and expenses, if any, incurred in
     contesting or disputing any termination of your employment or (ii) your
     seeking to obtain or enforce any right or benefit provided by this
     Agreement, in each case, regardless of whether or not your claim is upheld
     by a court of competent jurisdiction; provided, however, you shall be
     required to repay any such amounts to the Company to the extent that a
     court issues a final and non-appealable order setting forth the
     determination that the position taken by you was frivolous or advanced by
     you in bad faith.

        2.6 For purposes of this Agreement, a "Change in Control" shall mean any
of the following events:

          (a) An acquisition (other than directly from the Company) of any
     voting securities of the Company (the "Voting Securities") by any "Person"
     (as the term person is used for purposes of Section 13(d) or 14(d) of the
     Securities Exchange Act of 1934, as amended (the "Exchange Act")),
     immediately after which such Person has "Beneficial Ownership" (within the
     meaning of Rule 13d-3 promulgated under the Exchange Act) of fifteen
     percent (15%) or more of the combined voting power of the Company's then
     outstanding Voting Securities; PROVIDED, HOWEVER, in determining whether a
     Change in Control has occurred, Voting Securities that are acquired in a
     "Non-Control Acquisition" (as hereinafter defined) shall not constitute an
     acquisition that would cause a Change in Control. A "Non-Control
     Acquisition" shall mean an acquisition by (i) an employee benefit plan (or
     a trust forming a part thereof) maintained by (A) the Company or (B) any
     corporation or other Person of which a majority of its voting power or its
     voting equity securities or equity interest is owned, directly or
     indirectly, by the Company (for 

                                      -4-
<PAGE>
 
     purposes of this definition, a "Subsidiary"), (ii) the Company or its
     Subsidiaries, or (iii) any Person in connection with a "Non-Control
     Transaction," as hereinafter defined;

          (b) The individuals who, as of April 1, 1998 are members of the
     Company's Board of Directors (the "Incumbent Board"), cease for any reason
     to constitute at least two-thirds of the members of the Board; PROVIDED,
     HOWEVER, that if the election, or nomination for election by the Company's
     common stockholders, of any new director was approved by a vote of at least
     two-thirds of the Incumbent Board, such new director shall, for purposes of
     this Plan, be considered as a member of the Incumbent Board; PROVIDED
     FURTHER, HOWEVER, that no individual shall be considered a member of the
     Incumbent Board if such individual initially assumed office as a result of
     either an actual or threatened "Election Contest" (as described in Rule
     14a-11 promulgated under the Exchange Act) or other actual or threatened
     solicitation of proxies or consents by or on behalf of a Person other than
     the Board (a "Proxy Contest") including by reason of any agreement intended
     to avoid or settle any Election Contest or Proxy Contest; or

          (c) Approval by stockholders of the Company of:

               (i) A merger, consolidation or reorganization involving the
          Company, unless such merger, consolidation or reorganization is a
          "Non-Control Transaction." A "Non-Control Transaction" shall mean a
          merger, consolidation or reorganization of the Company where:

                    (A) the stockholders of the Company, immediately before such
               merger, consolidation or reorganization, own directly or
               indirectly immediately following such merger, consolidation or
               reorganization, at least eighty-five percent (85%) of the
               combined voting power of the outstanding voting securities of the
               corporation resulting from such merger or consolidation or
               reorganization (the "Surviving Corporation") in substantially the
               same proportion as their ownership of the Voting Securities
               immediately before such merger, consolidation or reorganization,

                    (B) the individuals who were members of the Incumbent Board
               immediately prior to the execution of the agreement providing for
               such merger, consolidation or reorganization constitute at least
               two-thirds of the members of the board of directors of the
               Surviving Corporation, or a corporation beneficially directly or
               indirectly owning a majority of the Voting Securities of the
               Surviving Corporation, and

                    (C) no Person other than (i) the Company, (ii) any
               Subsidiary, (iii) any employee benefit plan (or any trust forming
               a part thereof) maintained by the Company, the Surviving
               Corporation, or any Subsidiary, or (iv) any Person who,
               immediately prior to such merger, consolidation or reorganization
               had Beneficial Ownership of 

                                      -5-
<PAGE>
 
               fifteen percent (15%) or more of the then outstanding Voting
               Securities), has Beneficial Ownership of fifteen percent (15%) or
               more of the combined voting power of the Surviving Corporation's
               then outstanding voting securities.

               (ii) A complete liquidation or dissolution of the Company; or

               (iii) An agreement for the sale or other disposition of all or
          substantially all of the assets of the Company to any Person (other
          than a transfer to a Subsidiary).

          (d) Notwithstanding the foregoing, a Change in Control shall not be
     deemed to occur solely because any Person (the "Subject Person") acquired
     Beneficial Ownership of more than the permitted amount of the then
     outstanding Voting Securities as a result of the acquisition of Voting
     Securities by the Company which, by reducing the number of Voting
     Securities then outstanding, increases the proportional number of shares
     Beneficially Owned by the Subject Person, provided that if a Change in
     Control would occur (but for the operation of this sentence) as a result of
     the acquisition of Voting Securities by the Company, and after such share
     acquisition by the Company, the Subject Person becomes the Beneficial Owner
     of any additional Voting Securities that increases the percentage of the
     then outstanding Voting Securities Beneficially Owned by the Subject
     Person, then a Change in Control shall occur.

        2.7 For purposes of this Agreement, a "Notice of Termination" shall mean
a written notice that indicates the specific termination provision in this
Agreement, if any, relied upon and shall set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of your
employment under the provision so indicated. Any purported termination by the
Company or by you shall be communicated by Notice of Termination to the other.
For purposes of this Agreement, no such purported termination of employment
shall be effective without such Notice of Termination.

        2.8 For purposes of this Agreement, "Termination Date" shall mean in the
case of your death, your date of death, or in all other cases, the date
specified in the Notice of Termination subject to the following:

          (a) If your employment is terminated by the Company due to disability,
     the date specified in the Notice of Termination shall be at least one
     hundred and eighty (180) days from the date the Notice of Termination is
     given to you, provided that in the case of disability you shall not have
     returned to the full-time performance of your duties during such period of
     at least one hundred and eighty (180) days; and

          (b) If your employment is terminated for Good Reason, the date
     specified in the Notice of Termination shall not be more than sixty (60)
     days from the date the Notice of Termination is given to the Company.

        2.9 You shall not be required to mitigate the amount of any payment the
Company becomes obligated to make to you in connection with this Agreement, by
seeking other 

                                      -6-
<PAGE>
 
employment or otherwise, nor shall any other employment be considered mitigation
with respect to any amounts owed to you hereunder.

        2.10 Notwithstanding any other provision of this Agreement, in the event
that any payment or benefit received or to be received by you as a result of or
in connection with a Change in Control, whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company (all such
payment and benefits being hereinafter called the "Total Payments") would
subject you to the excise tax (the "Excise Tax") imposed under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), then, at your
written request and to the extent necessary to eliminate any such imposition of
the Excise Tax (after taking into account any reduction in the Total Payments in
accordance with the provisions of any other plan, arrangement or agreement, if
any), (a) any non-cash severance payments otherwise payable to you shall first
be reduced (if necessary, to zero), and (b) any cash severance payment otherwise
payable to you shall next be reduced. For purposes of the immediately preceding
sentence, (i) no portion of the Total Payments the receipt or enjoyment of which
you shall have effectively waived in writing shall be taken into account, (ii)
no portion of the Total Payment shall be taken into account which in the opinion
of nationally-recognized tax counsel or certified public accountants (in each
case as selected by you) does not constitute a "parachute payment" within the
meaning of Section 280G of the Code, including, without limitation, by reason of
Section 280G(b)(2) or (b)(4)(A) of the Code, (iii) any payments to you shall be
reduced only to the extent necessary so that the Total Payments (other than
those referred to in clauses (i) and (ii)) in their entirety constitute
reasonable compensation for services actually rendered within the meaning of
section 280G(4)(B) of the Code or are otherwise not subject to disallowance as
deductions, in the opinion of the tax counsel or the accountants referred to in
clause (ii); and (iv) the value of any non-cash benefit or any deferred payment
or benefit included in the Total Payments shall be determined by such
accountants in accordance with the requirements of section 280G(d)(3) and (4) of
the Code (and such determination shall be reviewed by such tax counsel).

        2.11 Upon your written request, the Company shall promptly establish a
grantor "rabbi" trust to provide a source of payment for any payments which may
become due pursuant to this Section 2. Such trust shall be funded immediately
prior to any Change in Control. Except as specifically provided in this
Agreement, the amount of any payment provided for in this Section 2 shall not be
reduced, offset or subject to recovery by the Company by reason of any
compensation earned by you as the result of employment by another employer after
the date of termination of your employment, or otherwise.

        2.12 If your employment is terminated (by you or the Company) for any
reason, the Company shall forgive all amounts owed by you to the Company in
respect of the exercise of any stock options in accordance with the dollar
amounts reflected in the instruments executed in connection therewith) and shall
provide you with a bonus for all amounts necessary to pay any tax liability
incurred by you in connection with (a) the forgiveness of any of such
indebtedness (including any accrued interest), and (b) such bonus, provided that
this provision shall be void and of no further force or effect after payment to
you of bonuses necessary to satisfy (i) all payments of principal and interest
related to the Promissory Note to the Company from you, dated September 26,
1996, and (ii) any and all tax liabilities relating to such bonuses.

                                      -7-
<PAGE>
 
     3. COMPENSATION. You shall receive the compensation and benefits set forth
        on Exhibit A hereto ("Compensation") for all services to be rendered by
        you hereunder.

     4. OTHER ACTIVITIES DURING EMPLOYMENT.

        4.1 You hereby agree that, except as disclosed on Exhibit B hereto,
during your employment hereunder, you will not, directly or indirectly, engage
(a) individually, (b) as an officer, (c) as a director, (d) as an employee, (e)
as a consultant, (f) as an advisor, (g) as an agent (whether a salesperson or
otherwise), (h) as a broker, or (i) as a partner, coventurer, stockholder or
other proprietor owning directly or indirectly more than one percent (1%)
interest in any firm, corporation, partnership, trust, association, or other
organization that is engaged in the development, marketing or sales of
videocassettes or video games in direct geographical competition with the
Company or any other line of business engaged in by the Company (such firm,
corporation, partnership, trust, association, or other organization being
hereinafter referred to as a "Prohibited Enterprise"). Except as may be shown on
Exhibit B hereto, you hereby represent that you are not engaged in any of the
foregoing capacities (a) through (i) in any Prohibited Enterprise.

     5. FORMER EMPLOYERS. You represent and warrant that your employment by the
Company will not conflict with and will not be constrained by any prior or
current employment, consulting agreement or other relationship whether oral or
written. You represent and warrant that you do not possess confidential
information arising out of any such employment, consulting agreement or
relationship which, in your best judgment, would be utilized in connection with
your employment by the Company.

     6. PROPRIETARY INFORMATION AND INVENTIONS. You agree to execute, deliver
and be bound by the provisions of the Proprietary Information and Inventions
Agreement attached hereto as Exhibit C.

     7. POST-EMPLOYMENT ACTIVITIES.

        7.1 For a period of three (3) years (or for a lesser period should the
Company so determine) after the termination or expiration of your employment
with the Company hereunder (for any reason other than termination by you for
Good Reason) absent the Company's prior written approval, you will not directly
or indirectly engage in activities similar or reasonably related to those in
which you shall have engaged hereunder during the two years immediately
preceding termination or expiration for, nor render services similar or
reasonably related to those which you shall have rendered hereunder during such
two years to, any person or entity whether now existing or hereafter established
which directly geographically competes with the Company ("Direct Competitor") in
any line of business currently engaged in by the Company. Nor shall you entice,
induce or encourage any of the Company's other employees to engage in any
activity which, were it done by you, would violate any provision of the
Proprietary 

                                      -8-
<PAGE>
 
Information and Inventions Agreement or this Section 7. As used in this Section
7.1, the term "any line of business currently engaged in by the Company" shall
be applied as at the date of termination of your employment, or, if later, as at
the date of termination of any post-employment consultation.

     7.2 No provision of this Agreement shall be construed to preclude you from
performing the same services which the Company hereby retains you to perform for
any person or entity which is not a Direct Competitor of the Company upon the
expiration or termination of your employment (or any post-employment
consultation) so long as you do not thereby violate any term of the Proprietary
Information and Inventions Agreement.

     8. REMEDIES. Your obligations under the Proprietary Information and
Inventions Agreement and the provisions of Sections 4, 5, 6 and 7 of this
Agreement shall survive the expiration or termination of your employment
(whether through your resignation or otherwise, except as provided in Section 7)
with the Company. The Company's obligations under Section 2 of this Agreement
shall survive the expiration or termination of your employment. You acknowledge
that a remedy at law for any breach or threatened breach by you of the
provisions of the Proprietary Information and Inventions Agreement or Section 7
would be inadequate and you therefore agree that the Company shall be entitled
to injunctive relief in case of any such breach or threatened breach.

     9. ASSIGNMENT. This Agreement and the rights and obligations of the parties
hereto shall bind and inure to the benefit of any successor or successors of the
Company by reorganization, merger or consolidation and any assignee of all or
substantially all of its business and properties, but, except as to any such
successor or assignee of the Company, neither this Agreement nor any rights or
benefits hereunder may be assigned by the Company or by you, except by operation
of law and subject to Section 2.5(a)(ix).

     10. INTERPRETATION. IT IS THE INTENT OF THE PARTIES THAT in case any one or
more of the provisions contained in this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT in case any one or more of the provisions contained
in this Agreement shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by limiting and reducing it as determined by a court of competent
jurisdiction, so as to be enforceable to the extent compatible with applicable
law.

     11. NOTICES. Any notice which the Company is required to or may desire to
give you shall be given by personal delivery or registered or certified mail,
return receipt requested, addressed to you at your address of record with the
Company, or at such other place as you may from time to time designate in
writing. Any notice which you are required or may desire to give to the Company
hereunder shall be given by personal delivery or by registered or certified
mail, return receipt requested, addressed to the Company at its principal
office, or at such other office as the Company may from time to time designate
in writing. The date of personal delivery or the 

                                      -9-
<PAGE>
 
date of making any notice under this Section 11 shall be deemed to be the date
of delivery thereof.

     12. WAIVERS. If either party should waive any breach of any provision of
this Agreement, such party shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.

     13. COMPLETE AGREEMENT; AMENDMENTS. The foregoing, including Exhibits A, B
and C attached hereto, is the entire agreement of the parties with respect to
the subject matter hereof, superseding any previous oral or written
communications, representations, understandings, or employment agreements with
the Company or any officer or representative thereof. Any amendment to this
Agreement or waiver by the Company of any right hereunder shall be effective
only if evidenced by a written instrument executed by the parties hereto, upon
authorization of the Company's Board of Directors.

     14. HEADINGS. The headings of the Sections hereof are inserted for
convenience and shall not be deemed to constitute a part hereof nor to affect
the meaning of this Agreement in any way.

     15. COUNTERPARTS. This Agreement may be signed in two counterparts, each of
which shall be deemed an original and both of which together shall constitute
one agreement.

     16. GOVERNING LAW. This Agreement shall be governed by and construed under
the internal laws of the State of Minnesota, excluding its conflict of law
principles.

     17. INDEPENDENT ADVICE. You hereby acknowledge that you have been advised
of the opportunity available to you to seek and obtain the advice of legal
counsel and financial advisors of your own choosing prior to and in connection
with your execution of this Agreement. In addition, you hereby affirm that you
have either obtained such advice or knowingly and willingly decided to forego
the opportunity to avail yourself of such advice.

     If you are in agreement with the foregoing, please sign your name below and
also at the bottom of the Proprietary Information and Inventions Agreement,
whereupon this Agreement shall become binding in accordance with their terms.
Please then return this Agreement to the Company. (You may retain for your
records the accompanying counterpart of this Agreement enclosed herewith). 

                                             Very truly yours,

                                             VIDEO UPDATE, INC.


                                             By:
                                                ------------------------------

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

                                      -10-
<PAGE>
 
Accepted and Agreed:


-----------------------------------
Daniel A. Potter

                                      -11-
<PAGE>
 
                                                                       EXHIBIT A



                   EMPLOYMENT TERM, COMPENSATION AND BENEFITS
                                       OF
                                DANIEL A. POTTER


1.   TERM. The term of the Agreement to which this Exhibit A is annexed and
     incorporated shall be for three (3) years.

2.   COMPENSATION.

     (A)  BASE SALARY. Your Base Salary shall be $360,000 per annum, payable in
          accordance with the Company's payroll policies.

     (B)  BONUSES. You shall be entitled to such bonuses and salary increases as
          the Board of Directors may determine.

3.   VACATIONS. You shall be entitled to all legal and religious holidays, and
     paid vacation in accordance with the Company's employee manual, as amended
     from time to time. 

4.   INSURANCE AND BENEFITS. You shall be eligible for participation in all
     health and insurance benefit plans that may be established by the Company
     or which the Company is required to maintain by law. You shall also be
     entitled to participate in any employee benefit programs which the Company
     may establish for its key employees or for its employees generally,
     including, but not limited to other insurance policies, bonuses and stock
     purchase or option plans.

5.   EXPENSES. The Company shall reimburse you for all reasonable and ordinary
     business expenses incurred by you in the scope of your employment
     hereunder, including without limitation, travel expenses for yourself, and
     so long as (and only to the extent that) related to a legitimate business
     purpose, your spouse/companion and your children.

6.   FULL TIME. To be entitled to the benefits described in the Agreement to
     which this Exhibit is annexed and incorporated, you shall devote 100% of
     your working time to the Company.

7.   AUTOMOBILE ALLOWANCE. The Company shall provide you an annual automobile
     allowance (which amount shall be used only to cover lease payments,
     maintenance, insurance and fuel) equal to ten percent (10%) of your cash
     compensation, as such amount may be adjusted from time to time in the
     discretion of the Company's Board of Directors.
<PAGE>
 
                                                                       EXHIBIT B



                      OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS
                                       OF
                                DANIEL A. POTTER



     Director - Interactive Learning Group, Inc., a privately held company
<PAGE>
 
                                                                       EXHIBIT C





                PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT


                                                           As of April 1, 1998

To:  Video Update, Inc.
     3100 World Trade Center
     30 East Seventh Street
     St. Paul, Minnesota  55101

     The undersigned, in consideration of and as a condition of my services to
you and/or to companies which you own, control, or are affiliated with or their
successors in business (collectively, the "Company"), hereby agrees as follows
(capitalized terms used herein but not otherwise defined shall have the meanings
ascribed to them in the Restated Employment Agreement between myself and the
Company, dated April 1, 1998):

     1. CONFIDENTIALITY. I agree to keep confidential, except as the Company may
otherwise consent in writing, and, except for the Company's benefit, not to
disclose or make any use of at any time either during or subsequent to my
employment (unless I terminate my employment for Good Reason), any Inventions
(as hereinafter defined), trade secrets, confidential information, knowledge,
data or other information of the Company relating to products, processes,
know-how, designs, formulas, test data, customer lists, business plans,
marketing plans and strategies, pricing strategies, or other subject matter
pertaining to any business of the Company or any of its affiliates, which I may
produce, obtain, or otherwise acquire during the course of my employment, except
as herein provided. I further agree not to deliver, reproduce or in any way
allow any such trade secrets, confidential information, knowledge, data or other
information, or any documentation relating thereto, to be delivered to or used
by any third parties without specific direction or consent of a duly authorized
representative of the Company.

     2. CONFLICTING EMPLOYMENT; RETURN OF CONFIDENTIAL MATERIAL. I agree that
during my employment with the Company I will not engage in any other employment,
occupation, consulting or other activity relating to the business in which the
Company is now or may hereafter become engaged, or which would otherwise
conflict with my obligations to the Company. In the event my employment with the
Company terminates for any reason whatsoever (unless I terminate my employment
for Good Reason), I agree to promptly surrender and deliver to the Company all
records, materials, equipment, drawings, documents and data of which I may
obtain or produce during the course of my employment, and I will not take with
me any 
<PAGE>
 
description containing or pertaining to any confidential information, knowledge
or data of the Company which I may produce or obtain during the course of my
employment.

     3. ASSIGNMENT OF INVENTIONS.

        3.1 I hereby acknowledge and agree that the Company is the owner of all
Inventions. In order to protect the Company's rights to such Inventions, by
executing this Agreement I hereby irrevocably assign to the Company all my
right, title and interest in and to all Inventions to the Company.

        3.2 For purposes of this Agreement, "Inventions" shall mean all
discoveries, processes, designs, technologies, devices, or improvements in any
of the foregoing or other ideas, whether or not patentable and whether or not
reduced to practice, made or conceived by me (whether solely or jointly with
others) during the period of my employment with the Company which relate in any
manner to the actual or demonstrably anticipated business, work, or research and
development of the Company, or result from or are suggested by any task assigned
to me or any work performed by me for or on behalf of the Company.

        3.3 Any discovery, process, design, technology, device, or improvement
in any of the foregoing or other ideas, whether or not patentable and whether or
not reduced to practice, made or conceived by me (whether solely or jointly with
others) which I develop entirely on my own time not using any of the Company's
equipment, supplies, facilities, or trade secret information ("Personal
Invention") is excluded from this Agreement provided such Personal Invention (a)
does not relate to the actual or demonstrably anticipated business, research and
development of the Company, and (b) does not result, directly or indirectly,
from any work performed by me for the Company.

     4. DISCLOSURE OF INVENTIONS. I agree that in connection with any Invention,
I will promptly disclose such Invention to the Board of Directors of the Company
in order to permit the Company to enforce its property rights to such Invention
in accordance with this Agreement. My disclosure shall be received in confidence
by the Company.

     5. PATENTS AND COPYRIGHTS; EXECUTION OF DOCUMENTS.

        5.1 Upon request, I agree to assist the Company or its nominee (at its
expense) during and at any time subsequent to my employment in every reasonable
way to obtain for its own benefit patents and copyrights for Inventions in any
and all countries. Such patents and copyrights shall be and remain the sole and
exclusive property of the Company or its nominee. I agree to perform such lawful
acts as the Company deems to be necessary to allow it to exercise all right,
title and interest in and to such patents and copyrights.

        5.2 In connection with this Agreement, I agree to execute, acknowledge
and deliver to the Company or its nominee upon request and at its expense all
documents, including 

                                      C-2
<PAGE>
 
assignments of title, patent or copyright applications, assignments of such
applications, assignments of patents or copyrights upon issuance, as the Company
may determine necessary or desirable to protect the Company's or its nominee's
interest in Inventions, and/or to use in obtaining patents or copyrights in any
and all countries and to vest title thereto in the Company or its nominee to any
of the foregoing.

     6. MAINTENANCE OF RECORDS. I agree to keep and maintain adequate and
current written records of all Inventions made by me (in the form of notes,
sketches, drawings, flowcharts and other records as may be specified by the
Company), which records shall be available to and remain the sole property of
the Company at all times.

     7. PRIOR INVENTIONS. It is understood that all Personal Inventions, if any,
whether patented or unpatented, which I made prior to my association with the
Company, are excluded from this Agreement. To preclude any possible uncertainty,
I have set forth on Schedule A attached hereto a complete list of all of my
prior Personal Inventions, including numbers of all patents and patent
applications and a brief description of all unpatented Personal Inventions which
are not the property of a previous employer. I represent and covenant that the
list is complete and that, if no items are on the list, I have no such prior
Personal Inventions. I agree to notify the Company in writing before I make any
disclosure or perform any work on behalf of the Company which appears to
threaten or conflict with proprietary rights I claim in any Personal Invention.
In the event of my failure to give such notice, I agree that I will make no
claim against the Company with respect to any such Personal Invention.

     8. OTHER OBLIGATIONS. I acknowledge that the Company from time to time may
have agreements with other persons or with the U.S. Government or agencies
thereof, which impose obligations or restrictions on the Company regarding
Inventions made during the course of work thereunder or regarding the
confidential nature of such work. I agree to be bound by all such obligations
and restrictions and to take all action necessary to discharge the Company's
obligations.

     9. TRADE SECRETS OF OTHERS. I represent that my performance of all the
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement to keep confidential proprietary information, knowledge or
data acquired by me in confidence or in trust prior to my services to the
Company, and I will not disclose to the Company, or induce the Company to use,
any confidential or proprietary information or material belonging to any
previous client, employer or others. I agree not to enter into any agreement
either written or oral in conflict herewith.

     10. MODIFICATION. I agree that any subsequent change or changes in my
duties, salary or compensation or, if applicable, in any employment agreement
between the Company and me, shall not affect the validity or scope of this
Agreement.

                                      C-3
<PAGE>
 
     11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon my heirs,
executors, administrators or other legal representatives and is for the benefit
of the Company, its successors and assigns.

     12. INTERPRETATION. IT IS THE INTENT OF THE PARTIES THAT in case any one or
more of the provisions contained in this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT in case any one or more of the provisions contained
in this Agreement shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by limiting and reducing it in accordance with a judgment of a court
of competent jurisdiction, so as to be enforceable to the extent compatible with
applicable law.

     13. WAIVERS. If either party should waive any breach of any provision of
this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.

     14. COMPLETE AGREEMENT, AMENDMENTS. I acknowledge receipt of this
Agreement, and agree that, with respect to its subject matter, it is my entire
agreement with the Company, superseding any previous oral or written
communications, representations, understandings, or agreements relating to such
subject matter with the Company or any officer or representative thereof. Any
amendment to this Agreement or waiver by either party of any right hereunder
shall be effective only if evidenced by a written instrument executed by the
parties hereto, and, in the case of the Company, upon written authorization of
the Company's Board of Directors.

     15. HEADINGS. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning hereof.

     16. COUNTERPARTS. This Agreement may be signed in two counterparts, each of
which shall be deemed an original and both of which shall together constitute
one agreement.

     17. GOVERNING LAW. This Agreement shall be governed by and construed under
the internal laws of the State of Minnesota, excluding its conflict of law
principles.



                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      C-4
<PAGE>
 
     If you are in agreement with the foregoing, please sign both of the
enclosed copies of this Agreement on behalf of the Company below, whereupon this
Agreement shall become binding in accordance with its terms. Please then return
one signed copy of this Agreement to me.


                                                   EMPLOYEE


                                                   ------------------------
                                                   Daniel A. Potter





Accepted and Agreed:

VIDEO UPDATE, INC.



By:
   ---------------------------

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


                                      C-5
<PAGE>
 
                                   SCHEDULE A



     None.