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Filed Pursuant to Rule 424(b)(3)
SEC File No. 333-64365
PROSPECTUS
9,175,000 Shares
7th Level, Inc.
Common Stock
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This Prospectus relates to the offer and sale by the holders thereof (the
"Selling Stockholders") of an aggregate of 9,175,000 shares of common stock, par
value $.01 per share (the "Common Stock"), of 7th Level, Inc. (the "Company")
which are outstanding or which will be issued upon the exercise of certain
outstanding warrants to purchase shares of Common Stock or the conversion of
certain securities convertible into shares of Common Stock. See "Selling
Stockholders" and "Plan of Distribution." The shares of Common Stock offered
hereby are sometimes referred to herein as the "Shares."
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The Common Stock is quoted on the NASDAQ National Market System ("NASDAQ") under
the symbol SEVL. On October 14, 1998, the closing price of the Common Stock
was $2.125 per share.
The Company will not receive any of the proceeds from the sale of the Shares
offered hereby (this "Offering"). Expenses of this Offering, estimated at
$23,245, are payable by the Company. The aggregate proceeds to the Selling
Stockholders from the sale of the Shares will be the purchase price of the
Shares sold, less the aggregate underwriting or brokerage fees, discounts and
commissions and similar selling expenses, if any. See "Plan of Distribution."
The Selling Stockholders and intermediaries through whom the Shares are sold may
be deemed "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Act"), with respect to the Shares, and any profits realized or
commissions received may be deemed underwriting compensation. The Company has
agreed to indemnify the Selling Stockholders against certain liabilities,
including liabilities under the Act.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is October 19, 1998.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements, information statements
and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements, information statements and other
information concerning the Company may be inspected without charge at the public
reference facilities maintained by the Commission at 450 Fifth Street, NW, Room
1024, Washington, D.C. 20549; and at the Commission's regional offices located
at Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661-2511, and at Suite 1300, Seven World Trade Center, New York, New
York 10048. Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, NW, Washington, D.C. 20549 at
prescribed rates. The Commission maintains a web site that contains reports,
proxy statements, information statements and other information regarding issuers
that file electronically with the Commission. The address of such site is
(http://www.sec.gov). The Common Stock is traded on NASDAQ.
The Company has filed with the Commission a registration statement on
Form S-3 (herein together with all amendments thereto, if any, called the
"Registration Statement") under the Act, with respect to the securities offered
by this Prospectus. This Prospectus does not contain all the information set
forth or incorporated by reference in the Registration Statement and the
exhibits and schedules relating thereto, certain portions of which have been
omitted as permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the securities offered by this
Prospectus, reference is made to the Registration Statement and the exhibits and
schedules thereto which are on file at the offices of the Commission and may be
obtained upon payment of the fee prescribed by the Commission, or may be
examined without charge at the offices of the Commission. Statements contained
in this Prospectus or incorporated herein by reference as to the contents of any
contract or other documents referred to are not necessarily complete, and are
qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission are hereby
incorporated by reference into this Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998.
3. The Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998.
4. The Company's Current Reports on Form 8-K dated April 23, 1998 and
July 9, 1998.
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5. The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A filed with the Commission under the
Exchange Act, including any amendment or report filed for the purpose
of updating such description.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of this Offering
shall be deemed to be incorporated by reference in this Prospectus and to be a
part of this Prospectus from the date of filing thereof. Any statement contained
in a document incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is
incorporated or deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, upon the written or oral request of any such person, a copy of any
and all of the documents referred to above which have been or may be
incorporated in this Prospectus by reference (other than exhibits to the
documents referred to above unless such exhibits are specifically incorporated
by reference into such documents). Requests for such copies should be directed
to: 7th Level, Inc., 1201 Richardson Drive, Suite 277, Richardson, Texas 75080,
Attention: Chief Executive Officer, or by telephone (972) 498-8100.
Cautionary Statement pursuant to Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995:
This Prospectus, including any documents that are incorporated by reference
as set forth in "Incorporation of Certain Documents by Reference," contains
"forward-looking statements" within the meaning of Section 27A of the Act and
Section 21E of the Exchange Act. Forward-looking statements include, without
limitation, any statement that may predict, forecast, indicate, or imply future
results, performance, or achievements, and may contain the words "believe,"
"anticipate," "expect," "estimate," "project," "will be," "will continue", "will
likely result," or words or phrases of similar meaning. Forward-looking
statements involve risks and uncertainties that may cause actual result to
differ materially from the forward-looking statements. The risks and
uncertainties include, among others, the Company's ability to complete new
products at planned costs and on planned schedules, the Company's ability to
attract and retain strategic partners, the Company's ability to leverage
intangible assets in its technology, the success of the Company's cost reduction
strategy and the Company's ability to maintain a sufficient level of financing
for its new business strategy. Additional factors which are beyond the Company's
control and could influence results include market acceptance of the Company's
products and adoption of the Internet as a medium of commerce and
communications. See the discussion of the Company's business and description of
the various factors that could materially affect the ability of the Company to
achieve the anticipated
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results which are included in the Company's periodic reports which are
incorporated herein by reference.
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THE COMPANY
The Company is a developer of leading-edge Internet software. In April
1998, the Company entered into a comprehensive distribution agreement with
RealNetworks whereby RealNetworks will distribute the Company's Agent 7
technology. Also in April 1998, the Company entered into a strategic
distribution agreement with WaveTop, a division of WavePhore, Inc. Agent 7 is
the first software tool of its kind for preparing and streaming intelligent,
interactive animated characters over the Internet. In addition to Agent 7, the
Company is developing a complete line of software products which provide the end
user with intelligent templates, reusable content libraries and specialized
analysis techniques to greatly reduce the effort and skills required to prepare
rich media for delivery over the Internet. The Company continues to explore
potential strategic alliances or other arrangements to maximize stockholder
value. Additional information on 7th Level is available via the Company web site
at www.7thlevel.com. The Company's principal executive offices are located at
1201 Richardson Drive, Suite 277, Richardson, Texas 75080, telephone (972)
498-8100.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Shares hereunder. All proceeds will be received by the Selling Stockholders.
DIVIDEND POLICY
No cash dividends have ever been declared by the Company on the Common
Stock. The Company intends to retain earnings to finance the development and
growth of its business. Accordingly, the Company does not anticipate that any
cash dividends will be declared on the Common Stock for the foreseeable future.
Future payment of cash dividends, if any, will depend upon the Company's
financial condition, results of operations, business conditions, capital
requirements, restrictions contained in agreements, future prospects and other
factors deemed relevant by the Company's Board of Directors.
SELLING STOCKHOLDERS
The following securities are covered by this Prospectus:
1. The resale by the respective holders thereof of up to 4,175,000 Shares
that have been acquired upon the exercise of warrants granted by the
Company in connection with certain private placements by the Company
(the "Private Placements").
2. The resale by the respective holders thereof of up to 5,000,000 Shares
that have been, or may be, acquired upon the conversion of the
Company's Series B Convertible Preferred Stock.
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3. The resale by East-West Capital Associates, Inc. ("Capital") of up to
200,000 Shares that may be acquired upon the exercise of a warrant
granted by the Company in connection with a consulting agreement (the
"Capital Warrant").
4. The resale by Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") of up to 800,000 Shares that may be acquired upon the exercise
of a warrant granted by the Company in connection with an engagement
letter executed in November 1997, with respect to the Company's
private placement of debt or equity securities (the "Engagement
Letter").
The Shares offered hereby are being sold by the Selling Stockholders.
The table below sets forth, as of July 28, 1998 and as adjusted to reflect the
sale of the Shares, certain information regarding the ownership of the Common
Stock by the Selling Stockholders. Except as otherwise indicated, the number of
shares of Common Stock reflected in the table below has been determined in
accordance with Rule 13d-3 promulgated under the Exchange Act. Under such Rule,
each Selling Stockholder is deemed to beneficially own the number of shares of
Common Stock issuable upon, among other things, the exercise of options, if such
options are exercisable within sixty days. Where less than all shares of Common
Stock beneficially owned by a Selling Stockholder are being registered for sale,
the remaining shares of Common Stock, or a portion of them, may already be
registered for sale or otherwise freely tradeable.
<TABLE>
<CAPTION>
Number of
Beneficial Ownership Shares to Beneficial Ownership
of Common Stock be Sold in of Common Stock
Prior to Offering Offering After Offering
----------------- -------- --------------
Stockholders Number Percent Number Percent
- ------------ ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Hare & Co. 1,875,000 9.64% 1,875,000 0 *
Stanley I. Aber 30,000 * 30,000 0 *
Nevada Anderson, Inc. 120,000 * 120,000 0 *
Daniel Silna 138,750 * 138,750 0 *
Ozzie Silna 221,250 1.24% 221,250 0 *
Entec Associates(1) 989,158 5.43% 622,500 366,658 2.09%
Mayfirst Associates Ltd. 150,000 * 150,000 0 *
DNK Investments LLP 112,500 * 112,500 0 *
Andrew Schupak(2) 37,500 * 37,500 0 *
</TABLE>
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<TABLE>
<CAPTION>
Number of
Beneficial Ownership Shares to Beneficial Ownership
of Common Stock be Sold in of Common Stock
Prior to Offering Offering After Offering
----------------- -------- --------------
Stockholders Number Percent Number Percent
- ------------ ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Stephen Leroy Kling &
Rosalyn H. Kling, Trustees
of the S. Lee Kling
Revocable Trust U/T/A
1/20/82 120,000 * 120,000 0 *
David Chu 135,000 * 135,000 0 *
Lance and Ericka Maiss 18,750 * 18,750 0 *
Eric J. Maiss 18,750 * 18,750 0 *
CastleRock Partners 150,000 * 150,000 0 *
Anthony DeLuise** 52,500 * 52,500 0 *
Marc Cummins** 52,500 * 52,500 0 *
Safra Catz** 15,000 * 15,000 0 *
Jack Maier** 18,750 * 18,750 0 *
David Hurwitz** 15,000 * 15,000 0 *
Pat McCloskey** 7,500 * 7,500 0 *
IRA F/B/O Robert E.
Diemar, Jr. DLJSC as
Custodian** 7,500 * 7,500 0 *
Joe Reece** 15,000 * 15,000 0 *
Louis Klevan** 11,250 * 11,250 0 *
Tom Sullivan** 3,750 * 3,750 0 *
Mark Manson** 18,750 * 18,750 0 *
Saber Development
Corporation 15,000 * 15,000 0 *
Talisman Capital, Inc. 30,000 * 30,000 0 *
</TABLE>
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<TABLE>
<CAPTION>
Number of
Beneficial Ownership Shares to Beneficial Ownership
of Common Stock be Sold in of Common Stock
Prior to Offering Offering After Offering
----------------- -------- --------------
Stockholders Number Percent Number Percent
- ------------ ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Mystique Investments Limited 30,000 4.79% 30,000 0 *
Donaldson, Lufkin &
Jenrette Securities
Corporation/(3)//(4)/ 882,500 4.79% 882,500 0 *
Alpine Associates, A New
Jersey Limited Partnership 2,700,000 13.31% 2,700,000 0 *
East-West Capital
Associates, Inc./(5)//(6)/ 1,550,000 8.10% 1,550,000 0 *
</TABLE>
- -------------------------------
* Less than 1%
** Employed by DLJ
(1) Entec Associates - Certain Shares beneficially owned by Entec Associates
are subject to a stockholders' voting agreement and irrevocable proxy
pursuant to which Robert Alan Ezrin, the Company's Vice Chairman of the
Board of Directors, has sole voting power with respect to such Shares.
(2) Andrew Schupak is the son of Donald Schupak, the Company's Chairman of the
Board of Directors.
(3) Certain Shares attributed to DLJ are registered in the name of DLJ's
affiliates including DLJ Capital Corp. and DLJ Fund Investment Partners II,
LP.
(4) DLJ currently acts as the Company's financial advisor and was retained by
the Company to act as its placement agent pursuant to the Engagement
Letter.
(5) 166,667 Shares reflected in the number of Shares beneficially owned by
Capital will not vest within the next 60 days, but will vest ratably (1/36
of 200,000 each month) until April 30, 2001.
(6) Capital - All of the shares of Capital are owned by The Mervyn Adelson
Trust U/T/A dated September 29, 1992, of which Merv Adelson, a director of
the Company, is the trustee.
PLAN OF DISTRIBUTION
The Company is registering the Shares on behalf of the Selling
Stockholders. The Selling Stockholders who hold their Shares may sell their
Shares from time to time.
As used herein, "Selling Stockholders" includes donees and pledgees
selling Shares received from a named Selling Stockholder after the date of this
Prospectus. All costs, expenses and fees in connection with the registration of
the Shares offered hereby will be borne by the Company.
Underwriting or brokerage commissions and similar selling expenses, if any,
attributable to the sale of Shares will be borne by the Selling Stockholders.
Sales of Shares may be effected by Selling Stockholders from time to time in one
or more types of transactions (which may include block transactions) on NASDAQ,
in the over-the-counter market, in negotiated transactions, through put or call
options transactions relating to the Shares, through short sales of Shares, or a
combination of such methods of sale, at market prices prevailing at the time of
sale, or at negotiated prices. Usual and customary or specifically negotiated
underwriting or brokerage fees, discounts and commissions
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may be paid by the Selling Stockholders in connection with such sales of Shares.
Such transactions may or may not involve brokers or dealers. The Company is not
aware of any Selling Stockholders which have entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding
the sale of their Shares, nor is the Company aware of any underwriter or
coordinating broker acting in connection with the proposed sale of Shares by the
Selling Stockholders.
The Selling Stockholders may effect such transactions by selling Shares
directly to purchasers or to or through broker-dealers, which may act as agents
or principals. Such broker-dealers may receive compensation in the form of
discounts, concessions, or commissions from the Selling Stockholders and/or the
purchasers of Shares for whom such broker-dealers may act as agents or to whom
they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
The Selling Stockholders and any broker-dealers that act in connection
with the sale of Shares might be deemed to be "underwriters" within the meaning
of Section 2(11) of the Act, and any commissions received by such broker-dealers
and any profit on the resale of the Shares sold by them while acting as
principals might be deemed to be underwriting discounts or commissions under the
Act. The Company has agreed to indemnify each Selling Stockholder against
certain liabilities, including liabilities arising under the Act. The Selling
Stockholders may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of the Shares against certain
liabilities, including liabilities arising under the Act.
Because Selling Stockholders may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Act, the Selling Stockholders will be
subject to the prospectus delivery requirements of the Act. The
anti-manipulative provisions of Regulation M promulgated under the Exchange Act
may apply to the sale of Shares by the Selling Stockholders in the market.
At the time a particular offer of the Shares offered hereby is made, to
the extent required, a supplement to this Prospectus will be distributed (or, if
required, a post-effective amendment to the Registration Statement of which this
Prospectus is a part will be filed) which will identify the specific Shares
being offered and set forth the aggregate amount of Shares being offered, the
purchase price and the terms of the offering, including the name or names of the
Selling Stockholders and of any underwriters, dealers or agents, the purchase
price paid by any underwriter for Shares purchased from the Selling
Stockholders, any discounts, commissions and other items constituting
compensation from the Selling Stockholders and any discounts, commissions or
concessions allowed or reallowed or paid to dealers, including the proposed
selling price to the public.
Pursuant to that certain Registration Rights Agreement granting
registration rights to certain Selling Stockholders, which was executed in
connection with the Private Placements, the Company will use its best efforts to
keep the Registration Statement, of which this Prospectus forms a part,
continuously effective under the Act.
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The certificates representing the Shares offered hereby contain legends
as to their restricted transferability. Upon the effectiveness of the
Registration Statement, of which this Prospectus forms a part, and the transfer
of the Shares pursuant thereto, such legends will no longer be necessary, and
accordingly, new certificates representing such Shares will be issued to the
transferee without any such legends unless otherwise required by law.
Selling Stockholders also may resell all or a portion of the Shares in
open market transactions in reliance upon Rule 144 under the Act, provided they
meet the criteria and conform to the requirements of such Rule.
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LEGAL MATTERS
The legality of the Shares offered hereby will be passed upon for the
Company by Swidler Berlin Shereff Friedman, LLP, New York, New York.
EXPERTS
The consolidated financial statements and financial statement schedule
of the Company, as of December 31, 1997 and 1996, and for each of the years in
the three-year period ended December 31, 1997, have been incorporated by
reference herein and in the Registration Statement in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, incorporated
by reference herein, and upon the authority of said firm as experts in
accounting and auditing.
The report of KPMG Peat Marwick LLP contains an explanatory paragraph
that states that the Company has suffered recurring losses since inception and
does not currently have sufficient resources to meet its anticipated operating
requirements during 1998, which conditions raise substantial doubt about the
Company's ability to continue as a going concern. The consolidated financial
statements and financial statement schedule do not include any adjustments that
might result from the outcome of this uncertainty.
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No person is authorized in connection with any offering made hereby to give
any information or to make any representation not contained in this Prospectus,
and, if given or made, such information or representation must not be relied
upon as having been authorized by the Company or any underwriter. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any time subsequent to its date. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
securities other than the registered securities to which it relates. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy such securities in any circumstances in which such offer or solicitation is
unlawful.
TABLE OF CONTENTS
Page
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Available Information.........................................................2
Incorporation of Certain Documents
by Reference.........................................................2
The Company...................................................................4
Use of Proceeds ..............................................................4
Dividend Policy ..............................................................4
Selling Stockholders .........................................................4
Plan of Distribution .........................................................7
Legal Matters ................................................................9
Experts ......................................................................9
7th Level, Inc.
9,175,000 Shares
Common Stock
PROSPECTUS
October 19, 1998
