<PAGE>
 
                                                                   EXHIBIT 10.43

                             EMPLOYMENT AGREEMENT

     EMPLOYMENT AGREEMENT dated as of April 20, 1998 (this "Agreement"), by and
between 7TH LEVEL, INC., a Delaware corporation (the "Company"), and RICHARD S.
MERRICK ("Executive").

                                   RECITALS
                                   --------

     WHEREAS, the Company desires to employ Executive as Chief Executive Officer
of the Company on the terms and conditions hereinafter set forth and Executive
desires to accept such employment.

     NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties agree as follows:

     1.   Employment.

          1.1  Subject to the terms and conditions of this Agreement, the
Company agrees to employ Executive during the Term (as herein defined).
Executive shall be employed as Chief Executive Officer of the Company and as
such shall report to the Chairman of the Board of Directors of the Company and
the Board of Directors of the Company. As Chief Executive Officer of the
Company, Executive shall perform such duties and responsibilities as are
customarily performed by the chief executive officer of a company the size and
nature of the Company, and such other managerial duties and responsibilities
with the Company which are appropriate for his position at the Company as, from
time to time, may be assigned to him by the Chairman of the Board of Directors
of the Company or the Board of Directors of the Company.

          1.2  Subject to the terms and conditions of this Agreement, Executive
hereby accepts employment hereunder and agrees to devote his full working time
and efforts to the performance of services, duties and responsibilities in
connection therewith. Nothing in this Agreement shall preclude Executive, so
long as, such activities are not prohibited under Section 9.2 hereof and, in the
reasonable determination of the Board of Directors of the Company (the "Board"),
such activities do not materially interfere with his duties and responsibilities
hereunder, from engaging in charitable and community affairs or from managing
any passive investment made by him in real estate or other property (provided
that no such investment may exceed 2% of the equity securities of any entity,
without the prior approval of the Board).

          1.3  So long as the Executive shall serve as Chief Executive Officer
of the Company, the Company shall cause Executive to be nominated for election
to the Board of Directors of the Company.
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     2.   Term of Employment.  The term of this Agreement shall commence as of
the date of execution hereof and continue for a period of two (2) years (the
"Term"); subject to earlier termination in accordance with the terms and
conditions contained in Section 6 hereof. The Term shall be extended
automatically for successive one year periods unless terminated by written
notice not less than ninety (90) days prior to the end of the Term or any
successive one year extension by either of the parties hereto.

     3.   Place of Employment.  During the Term, Executive shall perform his
services primarily at the principal place of business of the Company which is
presently located in 1110 East Collins Boulevard, Suite 122, Richardson, Texas
75081. Executive acknowledges and agrees that in connection with his employment,
he may be required to travel on behalf of the Company.

     4.   Compensation.

          4.1  Salary.  The Company shall pay Executive a base salary ("Base
Salary") at the rate of One Hundred Sixty Thousand Dollars ($160,000); provided,
however, that the Base Salary shall be increased to Two Hundred Twenty Five
Thousand Dollars ($225,000) commencing on the first anniversary of the beginning
of the Term. The Base Salary shall be payable in accordance with the ordinary
payroll practices of the Company for its executive officers but in no event less
frequently than semi-monthly. The Base Salary shall be reviewed annually by the
Board of Directors and subsequent to the initial Term hereunder may be adjusted
by the Board of Directors in its sole discretion, but may not be less than the
Base Salary in effect at that time. As used in this Agreement, the term "Base
Salary" shall include Executive's base salary as it may be adjusted from time to
time.

          4.2  Bonus.  Executive shall be eligible to participate in any Company
wide bonus plan (or other such cash incentive plan) that may be adopted by the
Company from time to time. It is acknowledged by the parties that no such plan
currently exists at the Company but that Executive shall participate in any
bonus plan that is adopted in the future.

          4.3  Stock Options.  As an inducement to Executive to enter into this
Agreement, the Company has on April 20, 1998 (the "Grant Date") granted to
Executive options (the "Options") to purchase 700,000 shares of common stock,
par value $.01 per share, of the Company ("Common Stock") (or to the extent
there is not enough authorized Common Stock available, shares of Preferred Stock
approved by the Board of Directors of the Company) exercisable at a price equal
to $2.00 per share of Common Stock. Pursuant to the terms of the grant, vesting
of such Options shall occur as follows, provided the Executive is still then
employed by the Company:

               100,000 Options shall vest immediately;
               200,000 Options shall vest on the first anniversary of the 
                       Grant Date;
               200,000 Options shall vest on the second anniversary of the 
                       Grant Date;
               200,000 Options shall vest on the third anniversary of the 
                       Grant Date.

                                       2
<PAGE>
 
               The Company shall deliver a written and duly executed option
agreement consistent with the foregoing terms as promptly as practicable
following the execution of this Agreement.

               The Company shall, as soon as practicable, register the Common
Stock underlying all such Options under the Securities Act of 1933, as amended
on a Registration Statement on Form S-8. Vested Options shall be exercisable by
Executive as long as he is employed by the Company and for ninety (90) days
after termination of employment and shall terminate on the tenth anniversary of
the Grant Date; provided, however, that Executive agrees not to exercise any
Options until the earlier of (a) six months from the date hereof and (b) the
effective filing with the Secretary of State of the State of Delaware of an
amendment to the Company's Certificate of Incorporation which authorizes a
sufficient number of shares of Common Stock.

               In the event the Company completes a secondary stock offering
through a nationally recognized investment bank and thereafter the closing price
of the Common Stock averages fifteen ($15.00) per share for any sixty (60) day
period, Options relating to all 700,000 shares shall immediately vest and, in
addition, Executive shall be granted options to purchase an additional 350,000
shares of Common Stock on the last day of such sixty (60) day period. Such
additional options shall have an exercise price equal to the fair market value
of the Common Stock on the date of grant and shall vest in equal installments
over the three (3) years following the grant.

     5.   Employee Benefits.

          5.1  Employee Benefit Programs, Plans and Practices.  The Company
shall provide Executive, during the Term, with coverage under all employee
benefit programs, plans and practices which the Company makes available from
time to time to its senior executives, with at least the same opportunity to
participate as the other senior executives of the Company.

          5.2  Expenses.  Executive is authorized to incur reasonable expenses
in carrying out his duties and responsibilities under this Agreement, (in
accordance with the policies and procedures established from time to time by the
Company for its senior executive officers) including, without limitation,
reasonable entertainment and travel expenses. The Company will promptly
reimburse Executive in full for all such out-of-pocket expenses upon
presentation by Executive from time to time of a proper account of such
expenditures in accordance with the policies and procedures established by the
Board and applicable to executive officers of the Company.

          5.3  Indemnification.  Executive shall be entitled, at all times, to
the benefit of the maximum indemnification and advancement of expenses available
from time to time under the Company's Articles of Incorporation and By-laws,
and, if not set forth therein, to the maximum extent available under the laws of
the Company's state of incorporation.

                                       3
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     6.   Termination of Employment.

          6.1  Good Reason.  Executive shall be entitled to terminate his
employment for "Good Reason." For purposes of this Agreement, "Good Reason"
shall mean (without Executive's express prior written consent as a shareholder,
director or otherwise) (i) failure by the Company to pay any compensation when
due hereunder or (ii) a material reduction by the Company of Executive's duties
in managing the Company's business or the assignment of duties to Executive by
the Board of Directors of the Company inconsistent with Executive's position
(except in connection with termination of Executive's employment for Cause, as a
result of Disability, as a result of Executive's death or by Executive other
than for Good Reason). If Executive desires to terminate his employment with the
Company, he shall first give written notice of the facts and circumstances
providing Good Reason to the Company, and shall allow the Company no less than
ten (10) days to remedy, cure or rectify the situation giving rise to Good
Reason.

          6.2  Disability.  If Executive shall fail during the Term, because of
illness, physical or mental disability or other incapacity, for a period of 90
days in any 365 consecutive days, to render the services provided for by this
Agreement or be adjudged an incompetent ("Disability") (provided that the date
on which the Disability will be deemed to occur shall be such 90th day or the
date on which Executive is adjudged an incompetent, as the case may be), the
Company may terminate Executive's employment on not less than two (2) weeks
written notice thereof, setting forth the facts and circumstances claimed to
provide a basis for termination of Executive's employment under this Section
6.2.

          6.3  Death.  Executive's employment hereunder will terminate
automatically if he should die.

          6.4  Other Termination.  The Company shall have the right to terminate
the employment of Executive with or without Cause (as hereinafter defined). The
term "Cause," as used herein, shall mean (i) Executive's willful refusal and
failure to perform his duties hereunder or under any lawful directive of the
Board of Directors of the Company, (ii) Executive's willful misconduct or gross
neglect in the performance of his duties hereunder, (iii) the material breach of
this Agreement by Executive, (iv) the indictment, conviction, plea of guilty or
nolo contendere of Executive in respect of any felony or for any misdemeanor
constituting theft or embezzlement from the Company, (v) other fraudulent action
against the Company, (vi) an act of personal dishonesty by Executive, (vii)
breach of fiduciary duty by Executive or (viii) the willful violation of any
law, rule or regulation (other than traffic violations or similar offenses) or
any cease and desist order. Termination by the Company for Cause may be effected
by written notice of the Company to Executive; provided, however, that if the
Company determines to terminate the Executive's employment pursuant to clause
(i), (ii) or (iii) hereof, the Company shall give the Executive written notice
of the facts and circumstances providing Cause and shall allow Executive no less
than ten (10) days in the case of a proposed termination pursuant to clause (i),
(ii) or (iii) above to remedy, cure or rectify the situation giving rise to
Cause; provided, however, that the Company shall not be required to give more
than one such notice pursuant to this Section 6.4.

                                       4
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     7.   Change of Control.

          7.1  Effect of Change of Control.  In the event of a Change of
Control, Executive shall become immediately and fully vested in all Options held
by Executive. For purposes of this Agreement, a "Change of Control" shall mean
that (i) any "person" (as such term is defined within the meaning of Rule
13(d)(3) of the Securities Exchange Act of 1934, as amended (the "1934 Act")),
other than any person who as of the date hereof beneficially owns (as defined in
Rule 13(d)(3) of the 1934 Act) directly or indirectly 5% or more of the
Company's outstanding Common Stock or as of the date hereof is on, or has
designated a member of, the Board of Directors of the Company, or is a purchaser
in the Bridge Financing or the permanent financing contemplated as of the date
hereof, becomes a beneficial owner directly or indirectly of securities of the
Company representing in excess of fifty percent (50%) of the Company's then
outstanding securities having the right to vote for the election of directors or
(ii) the Company shall have consummated the sale of all or substantially all of
the assets of the Company.

     8.   Compensation Upon Termination.

          8.1  Termination for Good Reason; Termination by Company Without
Cause. (i) If Executive terminates his employment pursuant to Section 6.1, or
(ii) if Executive's employment is terminated by the Company without Cause, or
(iii) if the Company, pursuant to Section 2 hereof, delivers written notice of
its determination not to extend the Term of this Agreement for any successive
one year period, Executive shall be entitled to (1) receive, in a lump sum, the
greater of (A) an amount equal to one year's Base Salary or (B) an amount equal
to the Base Salary for the remainder of the Term and (2) Options whose vesting
was to occur in the then current one year vesting period shall be accelerated
pro rata for the period up to the termination of executive's employment (for
example, if Executive's employment should terminate as described in this Section
8.1 eighteen months from the Grant Date, Executive would be vested in an
aggregate of 400,000 Options). Such payment shall be made within five (5) days
of the termination of employment hereunder.

          8.2  Termination by Executive other than for Good Reason; Termination
by Company for Cause. If Executive's employment is terminated by the Company for
Cause or by Executive other than pursuant to Section 7.1, Executive shall be
entitled to receive only Executive's Base Salary and benefits as set forth in
Section 4 to which Executive is entitled up to and including the effective date
of Executive's termination of employment hereunder. After such termination of
employment, the obligations of the Company under this Agreement to make any
further payments or to provide any benefits provided for herein, to Executive
shall cease and terminate.

                                       5
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     9.   Nondisclosure; Non-Competition.

          9.1  Nondisclosure.

               (a)  Executive acknowledges and agrees that, during his
employment by the Company hereunder, he will come to have confidential knowledge
and information with respect to the Company, its affiliates and its or their
Customers (as defined below). Executive agrees that he will not at any time
divulge, furnish or make accessible to anyone (other than in the regular course
of his performance of services for the benefit of the Company, its successors or
assigns) any such confidential knowledge or information of the Company, its
successors or assigns or any of its affiliates or Customers. Notwithstanding the
foregoing, confidential information described in the preceding sentences shall
not include any information which (i) is or becomes known generally to the
public (other than as a result of unauthorized disclosure by Executive), (ii)
was available to Executive on a non-confidential basis prior to its disclosure
to Executive by the Company or its Customers or (iii) is required to be
disclosed pursuant to the valid order of a governmental agency or a judicial
court of competent jurisdiction, in which case Executive shall give prompt
written notice to the Company of such requirement so that the Company may take
such action as it deems appropriate.

               (b)  Executive agrees that any and all information including, but
not limited to, confidential information as described above, which is disclosed
to Executive or known or developed by Executive as a consequence of or through
this Agreement (all of the foregoing being hereinafter called "Proprietary
Property") that is created, developed or discovered by and/or for the Company or
its Customers (including Proprietary Property created, developed or discovered
by Executive in the course of the performance by Executive of his services
hereunder), or is acquired by the Company from others, including, but not
limited to, Customers, and that comes into Executive's knowledge or possession
during and in the course of this Agreement, shall be received by Executive as an
agent of the Company and not in any way for his own benefit, and that Executive
shall have no rights, and shall acquire no rights, therein unless and until the
Company or its Customers shall expressly and in writing waive the rights that
they have therein and thereto. Executive further agrees (a) that any and all
Proprietary Property that is created, written, developed, furnished or produced
by Executive or suggested by Executive to the Company, during the term of this
Agreement in any capacity, shall be the exclusive property of the Company, and
that Executive shall have no right, title or interest, of any kind therein or
thereto or in and to any results or proceeds therefrom, and (b) that at any
time, whether during or after the term of this Agreement, Executive will (1)
upon the request and at the expense of the Company (i) obtain patents or
copyrights on, or (ii) permit the Company or its Customers to patent or
copyright, any such material, whichever of (i) or (ii) is appropriate, and/or
(2) at the request of the Company, execute any and all assignments, instruments
of transfer, or other documents, that the Company deems necessary or appropriate
to transfer to the Company or its Customers all rights in or to such material or
to evidence the Company's or its Customers' ownership of such rights; provided,
however, that Proprietary Property shall not include intellectual property
developed by Executive which is not related to the Business (as defined below);
provided, further, Executive shall not apply for patents or copyrights of any
such 

                                       6
<PAGE>
 
intellectual property during the term hereof. The Company or its Customers, as
applicable, shall compensate Executive for all expenses in connection with
developing Proprietary Property and will compensate Executive for services,
outside of the normal course of the time commitment of Executive hereunder, in
connection with developing Proprietary Property. Executive shall not, without
limitation as to time or place, use any Proprietary Property except with respect
to the Company's businesses, during or after the term of this Agreement, nor
disclose the same to any other person, firm or company, except for disclosure
with respect to the Company's businesses.

          9.2  Non-Compete and Non-Solicitation.

               (a)  Prohibition on Competition. Executive agrees that during the
term of Executive's employment by the Company and for the greater of either (i)
twelve (12) months thereafter or (ii) the period which is equivalent to the time
period for which the amount of the Base Salary provided by the Company to the
Executive hereunder as severance equals (the "Non-Competition Period"),
Executive will not: directly or indirectly, either alone or with others, as
principal, manager, agent, consultant, officer, director, partner, investor,
lender, lessor, sublessor, guarantor or employee, or in any other capacity,
carry on, be engaged in, be employed by, or have any interest or otherwise be
connected or affiliated or associated with any corporation, partnership, limited
liability company or partnership, proprietorship, firm, association or other
entity which is engaged in any manner in, or otherwise competes with, the
Business. For purposes hereof, "Business" shall mean animation preparation and
production software as presently conducted or proposed to be conducted and any
other business actually engaged in during the term hereof, directly or
indirectly, by the Company or its subsidiaries.

               (b)  Non-Solicitation of Employees. During the Non-competition
Period, Executive will not:

               (i)  solicit or request any employee of or consultant to the
          Company or its affiliates to (i) leave the employ or cease consulting
          for the Company or its affiliates or (ii) join the employ of or begin
          consulting for any individual or entity that competes with the
          Business;

               (ii) solicit or request any individual or entity that competes
          with the Business to employ any employee of or consultant to the
          Company or its affiliates; or

              (iii) employ, assist in employing or otherwise associate with any
          employee, officer or agent of or consultant to the Company or its
          affiliates in any business or venture which may compete with the
          Business.

                                       7
<PAGE>
 
               (c)  Non-Solicitation of Customers. During the Non-competition
Period, Executive will not, directly or indirectly, through brokers or
otherwise, solicit or attempt to solicit, or sell services or attempt to sell
services relating to the Business of the Company to, any Customer; for purposes
hereof, "Customer" shall mean (A) all customers of the Company (i) during the
term of this Agreement, (ii) as of the date hereof and (iii) within the two (2)
year period preceding the date hereof and (B) all potential customers of the
Company who are being actively solicited by the Company at the time of the
termination of Executive's employment.

          9.3  Acknowledgment of Reasonableness of Terms; Specific Performance.
Executive and the Company agree that the covenants of non-competition and non-
solicitation are reasonable covenants under the circumstances, and further agree
that if, in the opinion of any court of competent jurisdiction such covenants
are not reasonable in any respect, such court shall have the right, power and
authority to excise or modify such provision or provisions of these covenants as
to the court shall appear not reasonable and to enforce the remainder of these
covenants as so amended. Executive agrees that any breach of the covenants
contained herein would irreparably injure the Company. Accordingly, Executive
hereby agrees that, in such event, the Company shall be entitled, without the
necessity of proving damages or posting bond, and notwithstanding any election
by the Company to claim damages, to obtain a temporary and/or permanent
injunction to restrain any such breach or threatened breach or to obtain
specific performance of any such provisions, all without prejudice to any and
all other remedies which the Company may have at law or in equity.

          10.  Mitigation of Damages. Executive shall not be required to
mitigate the amount of any payment provided for under this Agreement by seeking
other employment or otherwise, and, after his termination of employment
hereunder, any payments made by the Company hereunder shall not be reduced by
any amount Executive receives from any other such employment.

          11.  Notices. Any notice, request, demand or other communication
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given when delivered by hand, electronic transmission (with a copy
following by hand or by overnight courier), by registered or certified mail,
postage prepaid, return receipt requested or by overnight courier addressed to
the other party. All notices shall be addressed as follows, or to such other
address or addresses as may be substituted by notice in writing:

               To the Company:

                    7th Level, Inc.
                    1110 East Collins Boulevard
                    Suite 122
                    Richardson, TX 75081
                    Attention:  Chairman of the Board
                    Fax No.:  (972) 437-2717

                                       8
<PAGE>
 
               with a copy to:

                    Shereff, Friedman, Hoffman & Goodman, LLP
                    919 Third Avenue
                    New York, NY 10022
                    Attention:   Martin Nussbaum, Esq.
                    Fax No.:  (212) 758-9526

               To Executive:

                    Richard S. Merrick
                    370 Oakwood Trail
                    McKinney, TX 75069

               with a copy to:

                    Scott Carpenter
                    777 E. 15th, Suite 203
                    Plano, TX 75074

Communications delivered by hand or by overnight courier shall be deemed
received on the date of delivery; communications sent by electronic means shall
be deemed received one (1) business day after the sending thereof, and
communications sent by registered or certified mail shall be deemed received
three (3) business days after the sending thereof.

     12.  Severability; Legal Fees. If any provision of this Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect. Each party shall bear the costs of any legal
fees and other fees and expenses which may be incurred in respect of enforcing
its respective rights under this Agreement.

     13.  Assignment. This contract shall be binding upon and inure to the
benefit of the heirs and representatives of Executive and the assigns and
successors of the Company. Neither this Agreement nor any rights hereunder shall
be assignable or otherwise subject to hypothecation by Executive (except by will
or by operation of the laws of intestate succession) or by the Company, except
that the Company may assign this Agreement to any successor (whether by merger,
acquisition of stock, purchase or otherwise) to all or substantially all of the
assets or business of the Company, if such successor expressly agrees in writing
to assume the obligations of the Company hereunder.

                                       9
<PAGE>
 
     14.  Amendment; Waiver. This Agreement may only be amended by written
agreement signed by the parties hereto. A waiver by the Company or Executive of
a breach of any provision of this Agreement by the other party shall not operate
or be construed as a waiver of any subsequent breach by the other party.

     15.  Survivorship. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations. The
provisions of this Section 15 are in addition to the survivorship provisions of
any other section of this Agreement.

     16.  Governing Law. This Agreement shall be construed, interpreted and
governed in accordance with the laws of the State of Delaware, without reference
to rules relating to conflicts of law.

     17.  Entire Agreement. This Agreement and the Stock Option Agreement dated
as of April 20, 1998, by and between the Company and the Executive contain the
entire understanding among Executive and the Company and supersede in all
respects any prior or other agreement or understanding between the Company and
Executive as to the matters set forth herein and therein. Except for the
obligations specifically set forth herein and therein, the Company does not owe
any obligations to Executive and Executive does not owe any obligations to the
Company with respect to the matters set forth herein.

     18.  Arbitration. Any dispute arising under, out of, in connection with, or
in relation to this Agreement, or any claimed breach hereof, shall be determined
and settled by arbitration in Dallas County under the auspices of and pursuant
to the rules then obtaining of the American Arbitration Association; provided,
however, that any such dispute shall be determined by a panel of three (3)
arbitrators selected in accordance with this Section 18. Each of the Company and
Executive shall select one member of the panel and such two members shall select
the third member of the panel. Any award rendered upon any such arbitration
shall be final and conclusive and a judgment thereon may be entered in any court
of competent jurisdiction.

     19.  Withholding. The Company shall withhold from any payments due to
Executive hereunder, all taxes, FICA or other amounts required to be withheld
pursuant to any applicable law.

     20.  Headings. The section headings contained in this Agreement are for the
convenience of reference only and shall not affect the construction of any
provision of this Agreement.

     21.  Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original but all of which together
shall constitute one and the same instrument.

                                       10
<PAGE>
 
     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed as of the date and year first above written.


                                   7TH LEVEL, INC.


June 8, 1998                       By:       /s/ Donald Schupak
                                      ------------------------------------------
                                      Name:  Donald Schupak
                                      Title: Chairman of the Board


                                   /s/ Richard S. Merrick
                                   ---------------------------------------------
                                   Richard S. Merrick

                                       11
<PAGE>
 
                         ACKNOWLEDGEMENT OF SURRENDER
                         ----------------------------

        In consideration of the payment by 7th Level, Inc. (the "Company") of 
$1.00 and for other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the undersigned hereby surrenders the right to 
receive options to purchase 42,500 shares of Common Stock (the "Surrendered 
Options") which were granted to the undersigned by the Board of Directors of the
Company on August 8, 1997. The undersigned acknowledges that the Company and the
undersigned did not execute an option agreement regarding the Surrendered 
Options and the Company shall have no obligation, liability or any other duty in
connection with the Surrendered Options.

Dated: As of April 20, 1998


                                                /s/ RICHARD S. MERRICK
                                                --------------------------------
                                                Richard S. Merrick