<PAGE>

                                                                   Exhibit 10.44

                             EMPLOYMENT AGREEMENT


TO:  Michael G. Schifsky                                     As of April 8, 1999
     c/o Video Update, Inc.
     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").  The Company hereby agrees
with you as follows:

     1.   POSITION AND RESPONSIBILITIES.
          -----------------------------

          1.1    You shall serve as Senior Vice President 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.  You agree to perform
such duties as may be assigned to you by or on authority of the Company's Chief
Executive Officer and Board of Directors from time to time.

          1.3    You Employee hereby represents and warrants to Employer that he
has the legal right to enter into this Agreement and perform the duties,
hereunder,

     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 (1)
year, unless (a) you give notice of non-renewal or (b) the Company shall give
you not less than thirty (30) days written notice of non-renewal.  In the event
of non-renewal by you or the Company, you shall not be entitled to any severance
pay.  Your employment with the Company may be terminated at any time as provided
in Section 2.2 or 2.4 of this Agreement.

          2.2    The Company shall have the right, on written notice to you, to
terminate your employment:

                 (a) immediately at any time for Cause (as hereinafter defined);
     or

                 (b) at any time without Cause provided that if (i) your
     termination is without Cause, or (ii) you terminate your employment because
     the Company has required
<PAGE>

     your place of work to be relocated more than 25 miles from its current
     location at 30 East 7th Street, St. Paul, Minnesota, the Company shall be
     obligated to pay you as severance pay an amount equal to the lesser of
     twenty-four (24) months' Base Salary (as defined in Exhibit A hereto) at
                                                         ---------
     the then current level (as set forth on Exhibit A attached hereto) or your
                                             ---------
     monthly Base Salary for the remaining term of this Agreement, less
     applicable taxes and other required withholdings and any amounts you may
     owe to the Company ("Severance Pay"), provided that your Severance Pay
                                           -------------
     shall not be less than twelve (12) months' Base Salary and shall be reduced
     (dollar for dollar) by any compensation and benefits you receive or earn
     after such initial twelve month period following termination (the
     "Severance Period") from any source other than the Company, including
     without limitation, salary, employee benefits, consulting fees and income
     from self-employment or otherwise, and provided further that the Company
                                            ---------------------
     shall continue in full force and effect all health and insurance benefits
     that you enjoyed at the time of your termination for the twenty-four month
     period following termination, with a reduction of such benefits following
     the Severance Period (dollar for dollar) by any health and insurance
     benefits you receive from any source. You shall be entitled to continuation
     of your car allowance for 90 days following termination.

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

                 (a) Your failure or refusal to perform the services specified
herein, or to carry out any reasonable and lawful directions of the Chief
Executive Officer or President of the Company with respect to the services to be
rendered or the manner of rendering such services by you;

                 (b) conviction of a felony;

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

                 (d) gross negligence or willful misconduct;

                 (e) inability for a continuous period of at least one hundred
eighty (180) days in the aggregate during any 360 day period to perform duties
hereunder due to a physical or mental disability that is incapable of reasonable
accommodation under applicable law, including but not limited to the Americans
with Disabilities Act of 1990, as amended; or

                 (f) breach of any term of this Agreement other than as noted
in (a) above.

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 Commercial Rules then in effect of the
American Arbitration Association and in no other place.  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.  You
and the

                                      -2-
<PAGE>

Company knowingly waive any and all rights to a jury trial in any form.
Each party shall bear its own expenses relating to the arbitration, unless
otherwise determined in arbitration.

          2.4    You shall have the right to terminate this Agreement upon not
less than ninety (90) days prior written notice to the Company.

          2.5    In the event of a Change in Control (as hereinafter defined) of
the Company where you (i) resign within six (6) months after such event, or (ii)
are terminated without Cause by the Company within six (6) months after such
event, you shall be entitled to receive an amount, payable in a lump sum within
thirty (30) days after the effective date of such resignation or termination,
equal to the product of your average total annual compensation (as defined in
Section 3 herein), during the two (2) years immediately preceding the
termination of your employment (the "Change in Control Payment").  In the event
that any payment to be received by you pursuant to this Section 2.5 or the value
of any acceleration right in any Company stock options you may hold in
connection with the Change in Control of the Company would be subject to an
excise tax pursuant to Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), whether in whole or in part as a result of being an
"excess parachute payment" within the meaning of such term in Section 280G(b) of
the Code, the amount payable under this Section 2.5 shall be reduced so that no
portion of such payment or the value of such acceleration rights is subject to
excise tax pursuant to Section 4999 of the Code.  If the amount necessary to
eliminate such excise tax exceeds the amount otherwise payable under this
Section 2.5, no payment shall be made under this paragraph and no further
adjustment shall be made.  Notwithstanding the preceding sentence, (a) no
portion of such Change in Control Payment or any acceleration right which tax
counsel, selected by the Company's independent auditors and acceptable to you,
determines not to constitute a "parachute payment" within the meaning of Section
280G(b)(2) of the Code will be taken into account and (b) no portion of the
Change in Control Payment which tax counsel, selected by the Company's
independent auditors and acceptable to you, determines to be reasonable
compensation for services rendered within the meaning of Section 280G(b)(4) of
the Code will be taken into account.

          2.6    For purposes of Section 2.5 the term "Change in Control" shall
mean the occurrence of any of the following:

                 (a) any person or entity, including a "group" as defined in
     Section 13(d) of the Securities Exchange Act of 1934, as amended, other
     than the Company, a wholly owned subsidiary of the Company, or any employee
     benefit plan of the Company or its subsidiaries, becomes the beneficial
     owner of the Company's securities having fifty-one percent (51%) or more of
     the combined voting power of the then outstanding securities of the Company
     that may be cast for the election for directors of the Company; or

                 (b) as the result of, or in connection with, any cash tender or
     exchange offer, merger or other business combination, sale of assets or
     contested election or any combination of the foregoing transactions, less
     than a majority of the combined voting power of the then outstanding
     securities of the Company or any successor corporation or

                                      -3-
<PAGE>

     entity entitled to vote generally in the election of directors of the
     Company or such other corporation or entity after such transaction, are
     held in the aggregate by holders of the Company's securities entitled to
     vote generally in the election of directors of the company immediately
     prior to such transaction; or

                 (c) the approval of the stockholders of the Company of a plan
of liquidation.


     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 rental or sale of videocassettes, video
games or audio books in direct competition with the Company or any other line of
business engaged in or under demonstrable development 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.
          ----------------

          5.1    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 two (2) years (or for a lesser period should
the Company so determine) after the termination or expiration, for any reason,
of your employment with the Company hereunder (the "Non-Compete Period"), absent
the Company's prior written approval,

                                      -4-
<PAGE>

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 competes with (or proposes or plans to directly
geographically compete with) the Company ("Direct Competitor") in any line of
business engaged in or under development 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 Information and Inventions Agreement or this Section 7. As used in
this Section 7.1, the term "any line of business engaged in or under development
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    During the Non-Compete Period, you agree that you will not,
directly or indirectly:  (i) attempt to contact, recruit or solicit any
customers of the Company; (ii) enter into any agreement with any party to
recruit or solicit such customers; (iii) request any customers of the Company to
curtail or cancel their business with the Company; (iv) to induce any employee
of the Company to leave the Company's employment; (v) assist any other person or
entity in requesting or inducing any such employee of the Company to leave such
employment; (vi) induce or attempt to induce any employee of the Company to join
with you in any capacity, direct or indirect; or (vii) disclose to anyone or
publish or use any names of any customers of the Company or any proprietary,
secret or confidential information of the Company (which, for the purposes
hereof, shall be as defined in the Proprietary Information and Inventions
Agreement).

          7.3    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 (as modified by Section 10, if applicable) shall survive the
expiration or termination of your employment (whether through your resignation
or otherwise) with the Company.  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.

                                      -5-
<PAGE>

     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 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 shall together constitute
one agreement.


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

                                      -6-
<PAGE>

     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.
                                    (As authorized by the Board of Directors)


                                    By: /s/ Daniel A. Potter
                                        --------------------------------
                                    Title:  Daniel A. Potter, Chairman
                                            and Chief Executive Officer
Accepted and Agreed:


/s/ Michael G. Schifsky
-----------------------
Michael G. Schifsky

                                      -7-
<PAGE>

                                                                       EXHIBIT A

                  EMPLOYMENT TERM, COMPENSATION AND BENEFITS
                                      OF
                              MICHAEL G. SCHIFSKY


1.   TERM.  The term of the Agreement to which this Exhibit A is annexed and
     ----
     incorporated shall be for two (2) years.


2.   COMPENSATION.
     ------------

     (a)  BASE SALARY.   Your Base Salary shall be $119,700 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.

     (c)  STOCK OPTIONS.  You will be granted incentive stock options under the
          -------------
     Company's stock option plans as determined by the Company's Board of
     Directors.  [STOCK OPTIONS TO BE GRANTED TO YOU WILL VEST AND BE
     EXERCISABLE ON TERMINATION FOR ANY REASON FOR A PERIOD OF 90 DAYS FOLLOWING
     SUCH TERMINATION.]


3.   VACATIONS.  You shall be entitled to all legal and religious holidays, and
     ---------
     4 weeks paid vacation.


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.


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.
<PAGE>

                                                                       EXHIBIT B

                    OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS
                                      OF
                              MICHAEL G. SCHIFSKY


None.
<PAGE>

                                                                       EXHIBIT C

               PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT

                                                           As of April 8, 1999

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 Employment Agreement between myself and the Company,
dated April 8, 1999):

     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, 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, 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 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.
<PAGE>

          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 my immediate superior at
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 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
<PAGE>

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.


     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.
<PAGE>

     14.  COMPLETE AGREEMENT, AMENDMENTS.  I acknowledge receipt of this
          ------------------------------
Agreement, and agree that with respect to the subject matter thereof it is my
entire agreement with the Company, superseding any previous oral or written
communications, representations, understandings, or agreements 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 laws of the State of Minnesota, excluding its conflict of law
principles.





                     [THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE>

     If you are in agreement with the foregoing, please sign both of the
enclosed copies of this Agreement below, whereupon this Agreement shall become
binding in accordance with its terms.  Please then return one signed copy of
this Agreement to the Company.


                                    EMPLOYEE


                                    /s/ Michael G. Schifsky
                                    -----------------------
                                    Michael G. Schifsky
Accepted and Agreed:

VIDEO UPDATE, INC.

By: /s/ Daniel A. Potter
    --------------------------
  Daniel A. Potter, Chairman
  and Chief Executive Officer
<PAGE>

                                 SCHEDULE A
                                 ----------

None.