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                                                                  EXHIBIT NO. 10
                               EMPLOYEE AGREEMENT


TO:      Michael Gebauer                                         October 1, 1999
         New York



         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 Financial Officer and 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 the CEO 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, shall have the right, on Notice of Termination (as
hereinafter defined) to you, to terminate your employment:


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                           (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 twelve (12) 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 twelve (12)
         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.

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                  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) the Company's requiring you to be based at any
place outside a 15-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;

                            (IV)  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;

                            (V)   any material breach by the Company of any
provision of this Agreement;

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

                            (VII) 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 (vii) which occurs prior to a Change in Control, but which you
reasonably demonstrate (A) was at the


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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 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, 1-October-1999 are
members of the Company's Board of Directors (the "Incumbent Board"), cease for
any reason to constitute at least one-half 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")

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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 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


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<PAGE>   6

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 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


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"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.

         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.


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<PAGE>   8

         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 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).


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<PAGE>   9

         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
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.


                                      -9-
<PAGE>   10

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: /s/ Daniel A. Potter
                                          -------------------------------------

                                       Title: Chief Executive Officer
                                             ----------------------------------

Accepted and Agreed:

/s/ Michael P. Gebauer
-----------------------------
Michael P. Gebauer


                                      -10-
<PAGE>   11



                                                                       EXHIBIT A



                   EMPLOYMENT TERM, COMPENSATION AND BENEFITS
                                       OF
                               MICHAEL P. GEBAUER


1.    TERM. The term of the Agreement to which this Exhibit A is annexed and
      incorporated shall be from October 1, 1999 through June 1, 2002.

2.    COMPENSATION.

      (A)     BASE SALARY.  Your Base Salary shall be $248,000 per annum,
              payable in accordance with the Company's payroll policies
              (monthly).

      (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>   12


                                                                       EXHIBIT B



                      OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS
                                       OF
                               MICHAEL P. GEBAUER



         ----------------------


<PAGE>   13


                                                                       EXHIBIT C





                PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT

                                                           As of October 1, 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 October 1, 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 (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 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.

<PAGE>   14

         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 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


                                      C-2
<PAGE>   15

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.

         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.


                                      C-3
<PAGE>   16

         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.


                                      C-4
<PAGE>   17



         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


                                            /s/ Michael P. Gebauer
                                            -----------------------------------
                                            Michael P. Gebauer





Accepted and Agreed:

VIDEO UPDATE, INC.



By:  /s/ Daniel A. Potter
   ------------------------------------

Title:  Chief Executive Officer
      ---------------------------------




                                      C-5
<PAGE>   18



                                   SCHEDULE A



None.