<PAGE>
As filed with the Securities and Exchange Commission on September 25, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
7TH LEVEL, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2480669
(State or other jurisdiction of (I.R.S. Employer
incorporation organization) Identification No.)
1201 Richardson Drive, Suite 277
Richardson, Texas 75080
(972) 498-8100
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
RICHARD S. MERRICK
Chief Executive Officer
7th Level, Inc.
1201 Richardson Drive, Suite 277
Richardson, Texas 75080
(972) 498-8100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
GERALD ADLER, ESQ.
Swidler Berlin Shereff Friedman, LLP
919 Third Avenue
New York, New York 10022
(212) 758-9500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this registration statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------
Title of Proposed Proposed Maximum
Shares to Amount to Maximum Offering Aggregate Amount of
be Registered be Registered Price Per Share Offering Price Registration Fee/(2)/
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par 9,175,000 shares(1) $1.938 $17,781,150 $ 5,245.44
value $0.01 per
share
=======================================================================================================
</TABLE>
(1) Pursuant to Rule 416, this Registration Statement also covers such
additional securities as may become issuable to prevent dilution resulting
from stock splits, stock dividends or similar transactions.
(2) The Registration Fee has been calculated pursuant to Rule 457 as follows:
9,175,000 multiplied by .000295 multiplied by $1.938, the average of the
high and low sales prices of the Registrant's Common Stock as included on
the NASDAQ National Market System on September 21, 1998.
_________________________________________
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
The information in this prospectus is not complete and may be changed. The
Selling Stockholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION, DATED SEPTEMBER 25, 1998
PROSPECTUS
9,175,000 SHARES
7TH LEVEL, INC.
COMMON STOCK
-------------
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."
-------------
The Common Stock is quoted on the NASDAQ National Market System ("NASDAQ") under
the symbol SEVL. On September 24, 1998, the closing price of the Common Stock
was $3.5313 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.
-------------
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 September __, 1998.
-------------
3
<PAGE>
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.
4
<PAGE>
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 results which are included in the Company's periodic
reports which are incorporated herein by reference.
5
<PAGE>
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.
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").
6
<PAGE>
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 tradable.
<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 *
Stephen Leroy Kling &
Rosalyn H. Kling, Trustees
of the S. Lee Kling 120,000 * 120,000 0 *
Revocable Trust U/T/A
1/20/82
David Chu 135,000 * 135,000 0 *
</TABLE>
7
<PAGE>
<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>
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** 35,000 * 35,000 0 *
Marc Cummins** 35,000 * 35,000 0 *
Safra Catz** 10,000 * 10,000 0 *
Jack Maier** 12,500 * 12,500 0 *
David Hurwitz** 10,000 * 10,000 0 *
Pat McCloskey** 5,000 * 5,000 0 *
IRA F/B/O Robert E. Diemar,
Jr. DLJSC as Custodian** 5,000 * 5,000 0 *
Joe Reece** 10,000 * 10,000 0 *
Louis Klevan** 7,500 * 7,500 0 *
Tom Sullivan** 2,500 * 2,500 0 *
Mark Manson** 12,500 * 12,500 0 *
Michael McManus** 3,500 * 3,500 0 *
Sean Feeley** 1,500 * 1,500 0 *
Saber Development
Corporation 15,000 * 15,000 0 *
Talisman Capital, Inc. 30,000 * 30,000 0 *
Mystic Investment Limited 30,000 * 30,000 0 *
Donaldson, Lufkin &
Jenrette Securities
Corporation/(3)//(4)/ 950,000 5.13% 950,000 0 *
Alpine Associates, A New
Jersey Limited Partnership 2,700,000 13.31% 2,700,000 0 *
</TABLE>
8
<PAGE>
<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>
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 may be paid by the
Selling Stockholders in connection with such sales of Shares. Such transactions
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<PAGE>
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.
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
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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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<PAGE>
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.
12
<PAGE>
UNTIL [ ], 1998, ALL DEALERS 7TH LEVEL, INC.
THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE DEALERS' OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR 9,175,000 SHARES
SUBSCRIPTIONS. COMMON STOCK
TABLE OF CONTENTS
PAGE
----
Available Information.................... 4
Incorporation of Certain Documents
by Reference............................ 4
The Company.............................. 6 PROSPECTUS
Use of Proceeds.......................... 6
Dividend Policy.......................... 6
Selling Stockholders..................... 6
Plan of Distribution..................... 9
Legal Matters............................ 12
Experts.................................. 12 SEPTEMBER __, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Securities and Exchange Commission Registration Fee ............. $ 5,245
NASD Fee ........................................................ N/A
Printing and Engraving .......................................... 4,000
Legal Fees and Expenses (other than Blue Sky) ................... 10,000
Blue Sky Fees and Expenses ...................................... N/A
Accounting Fees and Expenses .................................... 3,000
Transfer Agent Fees ............................................. N/A
Miscellaneous ................................................... 1,000
Total ......................................................... 23,245
All of the above items, except the registration fee, are estimated. All
expenses incurred in connection with this offering will be borne by the Company,
including without limitation, the reasonable fees and disbursements of counsel
retained by the Selling Stockholders, but excluding underwriting discounts and
commissions, if any.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The indemnification of officers and directors of the Registrant is governed
by Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") and the Restated Certificate of Incorporation and By-Laws of the
Registrant. Subsection (a) of DGCL Section 145 empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by the person in connection with
such action, suit or proceeding if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to
14
<PAGE>
any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful.
Subsection (b) of DGCL Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that the
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or settlement
of such action or suit if the person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
DGCL Section 145 further provides that to the extent that a present or
former director or officer is successful, on the merits or otherwise, in the
defense of any action, suit or proceeding referred to in subsections (a) and (b)
of Section 145, or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith. In all cases in
which indemnification is permitted under subsections (a) and (b) of Section 145
(unless ordered by a court), it shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
present or former director, officer, employee or agent is proper in the
circumstances because the applicable standard of conduct has been met by the
party to be indemnified. Such determination must be made, with respect to a
person who is a director or officer at the time of such determination, (1) by a
majority vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (2) by a committee of such
directors designated by majority vote of such directors, even though less than a
quorum, or (3) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (4) by the stockholders.
The statute authorizes the corporation to pay expenses incurred by an officer or
director in advance of the final disposition of a proceeding upon receipt of an
undertaking by or on behalf of the person to whom the advance will be made, to
repay the advances if it shall ultimately be determined that he was not entitled
to indemnification. DGCL Section 145 also provides that indemnification and
advancement of expenses permitted thereunder are not to be exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any By-law, agreement, vote of stockholders or
disinterested directors, or otherwise. DGCL Section 145 also authorizes the
corporation to purchase and maintain liability insurance on behalf of its
directors, officers, employees
15
<PAGE>
and agents regardless of whether the corporation would have the statutory power
to indemnify such persons against the liabilities insured.
Article Eighth of the Restated Certificate of Incorporation of the
Registrant, as amended (the "Certificate"), provides that no director of the
Registrant shall be personally liable to the Registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director except for liability
(i) for any breach of the director's duty of loyalty to the Registrant or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL (involving certain unlawful dividends or stock purchases or
redemptions), or (iv) for any transaction from which the director derived an
improper personal benefit.
Article Tenth of the Registrant's Certificate entitles directors and
officers of the Registrant to indemnification to the fullest extent permitted by
Section 145 of the DGCL, as the same may be supplemented from time to time. The
Certificate further provides that the Registrant may, to the fullest extent
authorized by the Board of Directors, indemnify any employee or agent of the
Registrant.
Pursuant to Section 145(g) of the DGCL, the Registrant's By-Laws, as
amended, authorize the Registrant to obtain insurance to protect officers and
directors from certain liabilities, including liabilities against which the
Registration cannot indemnify its officers and directors. The Registrant
maintains a primary directors and officers liability and company reimbursement
policy which, among other things, provides for payment up to $3 million on
behalf of any of the Registrant's past, present or future directors or officers
against Loss (as defined in such policy). The Registrant also maintains a
supplemental insurance and company reimbursement policy providing for, among
other things, payment up to $2 million on behalf of any of the Registrant past,
present or future directors or officers against Loss (as defined in such
policy).
ITEM 16. EXHIBITS
The following exhibits are filed as part of this Registration Statement.
EXHIBIT
NUMBER DESCRIPTION
------ -----------
5.1 Opinion of Swidler Berlin Shereff Friedman, LLP.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Swidler Berlin Shereff Friedman, LLP (included in
Exhibit 5.1).
24.1 Power of Attorney (appears on signature page).
ITEM 17. UNDERTAKINGS
16
<PAGE>
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in this Registration
Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Securities and Exchange
Commission pursuant to Rule 424(b) promulgated under the
Securities Act of 1933 if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in this Registration
Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;
Provided, however, that paragraphs (a)(1)(i) and (ii) shall not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Company pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
17
<PAGE>
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, hereunto duly
authorized, in the City of Richardson, State of Texas, on this 25th day of
September, 1998.
7TH LEVEL, INC.
By: /s/ RICHARD S. MERRICK
----------------------------------------
Richard S. Merrick
Chief Executive Officer and Director
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned whose
signature appears below constitutes and appoints Richard S. Merrick and Donald
Schupak, and each of them (with full power of each of them to act alone), his
true and lawful attorneys-in-fact, with full power of substitution and
resubstitution for him and on his behalf, and in his name, place and stead, in
any and all capacities to execute and sign any and all amendments or post-
effective amendments to this registration statement, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact or any of them or their or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof and the Registrant hereby
confers like authority on its behalf.
Pursuant to the requirements of the Securities Act of 1933, the
Registration Statement has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ RICHARD S. MERRICK
- --------------------------- Chief Executive Officer and Director September 25, 1998
Richard S. Merrick (Principal Executive Officer)
/s/ DONALD SCHUPAK
- ---------------------------
Donald Schupak Chairman of the Board of Directors and September 25, 1998
Director (Principal Financial and
Accounting Officer)
/s/ ROBERT ALAN EZRIN
- ---------------------------
Robert Alan Ezrin Vice Chairman of the Board of September 25, 1998
Directors and Director
/s/ MERV ADELSON
- ---------------------------
Merv Adelson Director September 25, 1998
/s/ JAMES A. CANNAVINO
- ---------------------------
James A. Cannavino Director September 24, 1998
</TABLE>
<PAGE>
7TH LEVEL, INC.
FORM S-3
REGISTRATION STATEMENT
EXHIBIT INDEX
Exhibit
-------
5.1 Opinion of Swidler Berlin Shereff Friedman, LLP
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Swidler Berlin Shereff Friedman, LLP (included in
Exhibit 5.1)
24.1 Power of Attorney (appears on signature page)
20
<PAGE>
EXHIBIT 5.1
September 25, 1998
7th Level, Inc.
1201 Richardson Drive - Suite 277
Richardson, Texas 75080
Ladies and Gentlemen:
On the date hereof, 7th Level, Inc., a Delaware corporation (the
"Company"), intends to transmit for filing with the Securities and Exchange
Commission a Registration Statement on Form S-3 (the "Registration Statement")
relating to 9,175,000 shares (the "Shares") of common stock, par value $.01 per
share (the "Common Stock"), of the Company which have been issued, or are
issuable, pursuant to the exercise of certain warrants ("Warrants") and
conversion of Series B Convertible Preferred Stock (the "Series B Stock"). This
opinion is an exhibit to the Registration Statement.
We have at times acted as counsel to the Company with respect to
certain corporate and securities matters, and in such capacity we are familiar
with the various corporate and other proceedings taken by or on behalf of the
Company in connection with the proposed offer and sale of the Shares as
contemplated by the Registration Statement. We have examined copies (in each
case signed, certified or otherwise proven to our satisfaction to be genuine) of
the Company's Restated Certificate of Incorporation as presently in effect, its
By-Laws as presently in effect, minutes and other instruments evidencing actions
taken by its directors and stockholders, the Warrants, the Series B Stock and
such other documents and instruments relating to the Company and the proposed
offering as we have deemed necessary under the circumstances. Insofar as this
opinion relates to securities to be issued in the future, we have assumed that
all applicable laws, rules and regulations in effect at the time of such
issuance are the same as such laws, rules and regulations in effect as of the
date hereof.
We note that we are members of the Bar of the State of New York and
that we are not admitted to the Bar in the State of Delaware. To the extent
that the opinions expressed herein involve the law of the State of Delaware,
such opinions are based solely upon our reading of the Delaware General
Corporation Law as reported by Prentice-Hall Legal and Financial Services,
without any investigation of the legal decisions or other statutory provisions
in effect in such state that may relate to the opinions expressed herein.
Based on the foregoing, and subject to and in reliance on the accuracy
and completeness of the information relevant thereto provided to us, it is our
opinion that the Shares have been duly authorized and, subject to the
effectiveness of the Registration Statement and compliance with applicable state
securities laws, are, or when issued and paid for in accordance with the terms
<PAGE>
7th Level, Inc.
September 25, 1998
Page 2
set forth in the Warrants and Series B Stock, will be legally and validly
issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and as an exhibit to any filing made by the Company under
the securities or "Blue Sky" laws of any state.
This opinion is furnished to you in connection with the filing of the
Registration Statement, and is not to be used, circulated, quoted or otherwise
relied upon for any other purpose, except as expressly provided in the preceding
paragraph, without our express written consent, and no party other than you is
entitled to rely on it. This opinion is rendered to you as of the date hereof
and we undertake no obligation to advise you of any change, whether legal or
factual, after the date hereof.
Very truly yours,
/s/ SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
SBSF,LLP:GA:JSH:DIG
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
7th Level, Inc.:
We consent to the incorporation by reference herein of our report related to the
consolidated balance sheets of 7th Level, Inc. and subsidiaries as of December
31, 1997 and 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows and the financial statement schedule for
each of the years in the three-year period ended December 31, 1997, which report
appears in the December 31, 1997 Annual Report on Form 10-K of 7th Level, Inc.
We also consent to the reference to our firm under the heading "Experts" in the
prospectus.
Our report 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
that uncertainty.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Dallas, Texas
September 25, 1998
