<PAGE>
As filed with the Securities and Exchange Commission on December 29, 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 (3)
------------- ------------- --------------- -------------- ----------------
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common Stock, par 2,416,667 shares(1)(2) $2.83 $6,839,168 $1,901.29
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) Includes 750,000 shares which the selling stockholder currently has a
right to purchase and may be issued in the future.
(3) The Registration Fee has been calculated pursuant to Rule 457 as
follows: 2,416,667 multiplied by .000278 multiplied by $2.83, the
average of the high and low sales prices of the Registrant's Common
Stock as included on the Nasdaq National Market on December 24, 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>
PROSPECTUS
2,416,667 SHARES
7TH LEVEL, INC.
COMMON STOCK
------------------------------------
We are furnishing this document to you to allow the selling stockholder to sell
up to 2,416,667 shares of Common Stock, par value $.01 per share, of 7th Level,
Inc., a Delaware corporation, in private or market transactions. See "Selling
Stockholder" on page 6 and "Plan of Distribution" on page 6.
------------------------------------
The Common Stock is quoted on the Nasdaq National Market under the symbol
"SEVL". On December 24, 1998, the closing price of the Common Stock was $2.78
per share.
7th Level will not receive any of the proceeds from the sale of the Common
Stock. All costs, expenses and fees in connection with the registration of the
Common Stock will be paid by 7th Level, except that the selling stockholder
will pay its own selling commissions and fees. See "Plan of Distribution" on
page 6.
------------------------------------
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 __________, 1998.
------------------------------------
<PAGE>
AVAILABLE INFORMATION
7th Level (File No. 0-24936) is subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, files reports (including Annual Reports on
Form 10-K, Quarterly Reports on Form 10- Q and Current Reports on Form 8-K),
proxy and information statements and other information with the Securities and
Exchange Commission (the "SEC"). You may read and copy any materials filed by
7th Level with the SEC at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. You may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an Internet site that contains reports, proxy and information
statements and other information regarding issuers that file electronically
with the SEC. The address of the SEC's Internet site is (http://www.sec.gov).
7th Level has filed with the SEC 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
document. This document 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 SEC. For further information with
respect to 7th Level and the securities offered by this document, reference is
made to the Registration Statement and the exhibits and schedules thereto which
are on file at the offices of the SEC and may be obtained upon payment of the
fee prescribed by the SEC, or may be examined without charge at the offices of
the SEC. Statements contained in this document 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.
No person is authorized to give any information or to make any
representation with respect to the matters described in this document other
than those contained herein or in the documents incorporated by reference
herein and, if given or made, such information or representation must not be
relied upon as having been authorized by 7th Level. This document does not
constitute an offer to sell, or a solicitation of an offer to purchase, the
securities offered hereby, in any jurisdiction in which, or to any person to
whom, it is unlawful to make such offer or solicitation of an offer. Neither
the delivery of this document nor any sale made hereby shall, under any
circumstances, create any implication that there has been no change in the
affairs of 7th Level since the date hereof, or that the information herein is
correct as of any time subsequent to its date.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents previously filed with the SEC are hereby
incorporated by reference into this document and made a part hereof:
1. 7th Level's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
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<PAGE>
2. 7th Level's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998.
3. 7th Level's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998.
4. 7th Level's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998.
5. 7th Level's Current Reports on Form 8-K dated April 23, 1998,
July 9, 1998 and December 14, 1998.
6. The description of the Common Stock contained in 7th Level's
Registration Statement on Form 8-A filed with the SEC under
the Exchange Act, including any amendment or report filed for
the purpose of updating such description.
All documents and reports subsequently filed by 7th Level pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination
of the offering shall be deemed to be incorporated by reference in this
document and to be a part of this document from the date of filing of such
documents or reports. Any statement contained herein or in a document
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this document 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 document.
7th Level hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this document 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 document 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 document, including any documents that are incorporated by
reference as set forth in "Incorporation of Certain Information 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, 7th Level's ability to complete
new products at planned
3
<PAGE>
costs and on planned schedules, 7th Level's ability to attract and retain
strategic partners, 7th Level's ability to leverage intangible assets in its
technology, the success of 7th Level's cost reduction strategy and 7th Level's
ability to maintain a sufficient level of financing for its new business
strategy. Additional factors which are beyond 7th Level's control and could
influence results include market acceptance of 7th Level's products and
adoption of the Internet as a medium of commerce and communications. See the
discussion of 7th Level's business and description of the various factors that
could materially affect the ability of 7th Level to achieve the anticipated
results which are included in 7th Level's periodic reports which are
incorporated herein by reference.
4
<PAGE>
7TH LEVEL, INC.
7th Level, Inc., based in Dallas, Texas, is a leading provider of
enhanced communications applications for creating interactive, talking animated
characters to expand the effectiveness and reduce the cost of media-rich
webpages, emails and presentations for a wide variety of online and desktop
uses. 7th Level's first generation of enhanced communications protocols enable
users to animate and lip synch 2D, 3D and photo-realistic characters for
e-mail, web publishing, desk top applications and instant messaging. For
professional developers and consumers who want to increase the effectiveness
and reduce the cost of media rich presentations and communications, 7th Level
technology and applications have become the industry standard for quickly and
inexpensively producing broadcast quality, interactive, talking animated
characters for Internet and Windows 95/98 applications. Unlike costly and
time-consuming traditional methods of producing frame-based animation, 7th
Level's voice-activated characters can be used to create an unlimited number of
interactive, animated sequences in seconds.
Over the course of the last nine months, 7th Level has announced a
growing number of relationships designed to expand presence and usage of its
technology. Most recently, 7th Level announced agreements with GeoCities to
market and promote 7th Level applications to the GeoCities web community, with
RealNetworks to market and promote a special version of 7th Level's Agent 7
animated character technology that integrates with RealNetworks new RealPlayer
G2 industry standard web multimedia technology, and with the New England
Patriots NFL Football Team to integrate 7th Level's technology into its online
marketing and branding campaign. 7th Level continues to explore potential
strategic alliances or other arrangements to maximize stockholder value.
Additional information on 7th Level is available via its web site at
www.7thlevel.com. 7th Level's principal executive offices are located at 1201
Richardson Drive, Suite 277, Richardson, Texas 75080, telephone (972) 498-8100.
USE OF PROCEEDS
7th Level will not receive any of the proceeds from the sale of the
shares of Common Stock described in this document. All proceeds will be
received by the selling stockholder.
DIVIDEND POLICY
No cash dividends have ever been declared by 7th Level on the Common
Stock. 7th Level intends to retain earnings to finance the development and
growth of its business. Accordingly, 7th Level 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 7th Level's
financial condition, results of operations, business conditions, capital
requirements, restrictions contained in agreements, future prospects and other
factors deemed relevant by 7th Level's Board of Directors.
5
<PAGE>
SELLING STOCKHOLDER
The following securities are covered by this document:
1. The resale by Fletcher International Limited of up to 2,416,667
shares of Common Stock that have been acquired or may be acquired
pursuant to the Subscription Agreement, dated as of December 14,
1998, by and between 7th Level and Fletcher.
The shares of Common Stock offered hereby are being sold by Fletcher.
The table below sets forth, as of December 15, 1998 and as adjusted to reflect
the sale of the shares of Common Stock, certain information regarding the
ownership of the Common Stock by Fletcher. 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, Fletcher 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. On December 15, 1998, 7th Level
had 20,426,970 shares of Common Stock outstanding not including the 1,666,667
shares of Common Stock issued to Fletcher on such date.
<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>
Fletcher International
Limited(1) 1,666,667 7.54% 2,416,667 0 0
- ------------------------------
</TABLE>
(1) Does not include certain rights to purchase 750,000 shares of Common Stock
which are not deemed to be beneficially owned by Fletcher to the extent they
would cause Fletcher to beneficially own more than 9.75% of the shares of
Common Stock outstanding.
PLAN OF DISTRIBUTION
7th Level is registering the shares of Common Stock on behalf of the
selling stockholder. The selling stockholder may sell its shares from time to
time.
As used herein, the "selling stockholder" includes donees and pledgees
selling shares of Common Stock received from the selling stockholder after the
date of this document. All costs, expenses and fees in connection with the
registration of the shares of Common Stock offered hereby will be borne by 7th
Level. Underwriting or brokerage commissions and similar selling expenses, if
any, attributable to the sale of shares of Common Stock will be borne by the
selling stockholder. Sales of shares of Common Stock may be effected by the
selling stockholder from time to time in one or more types of transactions
(which may include block transactions) on the Nasdaq Stock Market, in the
over-the-counter market, in negotiated transactions, through put or
6
<PAGE>
call options transactions relating to the shares of Common Stock, through short
sales of shares of Common Stock, 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 stockholder in connection
with such sales of shares of Common Stock. Such transactions may or may not
involve brokers or dealers. 7th Level is not aware of the selling stockholder
having entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of its shares of Common
Stock, nor is 7th Level aware of any underwriter or coordinating broker acting
in connection with the proposed sale of shares of Common Stock by the selling
stockholder.
The selling stockholder may effect such transactions by selling shares
of Common Stock 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
stockholder and/or the purchasers of shares of Common Stock 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 stockholder and any broker-dealers that act in connection
with the sale of shares of Common Stock might be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act of 1933, as amended
(the "Securities Act"), and any commissions received by such broker-dealers and
any profit on the resale of the shares of Common Stock sold by them while
acting as principals might be deemed to be underwriting discounts or
commissions under the Securities Act. 7th Level has agreed to indemnify the
selling stockholder against certain liabilities, including liabilities arising
under the Securities Act. The selling stockholder may agree to indemnify any
agent, dealer or broker-dealer that participates in transactions involving
sales of the shares of Common Stock against certain liabilities, including
liabilities arising under the Securities Act.
Because the selling stockholder may be deemed to be an "underwriter"
within the meaning of Section 2(11) of the Securities Act, the selling
stockholder will be subject to the prospectus delivery requirements of the
Securities Act. The selling stockholder will be subject to applicable
provisions, if any, of the Exchange Act and rules and regulations thereunder,
including the anti-manipulative provisions of Regulation M promulgated under
the Exchange Act which limit the timing of purchases and sales of any of the
securities by the selling stockholder. All of the foregoing may affect the
marketability of the securities.
At the time a particular offer of the shares of Common Stock offered
hereby is made, to the extent required, a supplement to this document will be
distributed (or, if required, a post-effective amendment to the Registration
Statement of which this document is a part will be filed) which will identify
the specific shares of Common Stock being offered and set forth the aggregate
amount of shares of Common Stock being offered, the purchase price and the
terms of the offering, including the name or names of the selling stockholder
and of any underwriters, dealers or agents, the purchase price paid by any
underwriter for shares of Common Stock purchased from the selling stockholder,
any discounts, commissions and other items constituting
7
<PAGE>
compensation from the selling stockholder 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 Subscription Agreement granting registration
rights to the selling stockholder, 7th Level will use its reasonable best
efforts to keep the Registration Statement, of which this document forms a
part, effective under the Securities Act until the earliest to occur of certain
events described in the Subscription Agreement.
The certificates representing the shares of Common Stock offered
hereby contain legends as to their restricted transferability. Upon the
effectiveness of the Registration Statement, of which this document forms a
part, and the transfer of the shares of Common Stock pursuant thereto, such
legends will no longer be necessary, and accordingly, new certificates
representing such shares of Common Stock will be issued to the transferee
without any such legends unless otherwise required by law.
The selling stockholder also may resell all or a portion of the shares
of Common Stock in open market transactions in reliance upon Rule 144 under the
Securities Act, provided it meets the criteria and conform to the requirements
of such Rule. Under the securities law of certain states, the securities
offered hereby may be sold in such states only through registered or licensed
brokers or dealers. In addition, if the shares of Common Stock are delisted
from the Nasdaq National Market, in certain states it is possible that the
securities may not be sold unless the securities have been registered or
qualified for sale in such state or an exemption from registration of
qualification is available and is complied with.
8
<PAGE>
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby will be
passed upon for 7th Level by Swidler Berlin Shereff Friedman, LLP, New York,
New York.
EXPERTS
The consolidated financial statements and financial statement schedule
of 7th Level, 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 7th Level 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 7th
Level'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.
9
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission Registration Fee................. $ 1,901.29
Printing and Engraving.............................................. 4,000
Legal Fees and Expenses............................................. 10,000
Accounting Fees and Expenses........................................ 1,000
Miscellaneous....................................................... 1,000
Total ..................................................... 17,901.29
</TABLE>
All of the above items, except the registration fee, are estimated.
All expenses incurred in connection with this offering will be borne by 7th
Level.
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 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
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<PAGE>
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 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
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<PAGE>
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.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
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).
</TABLE>
ITEM 17. UNDERTAKINGS
(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
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<PAGE>
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 7th Level 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.
(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.
II-4
<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 22nd day of
December, 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 December 22, 1998
- ---------------------------- (Principal Executive Officer)
Richard S. Merrick
/s/ Donald Schupak Chairman of the Board of Directors and
- ---------------------------- Director (Principal Financial and
Donald Schupak Accounting Officer) December 22, 1998
/s/ Robert Alan Ezrin Vice Chairman of the Board of Directors
- ---------------------------- and Director December 23, 1998
Robert Alan Ezrin
/s/ Merv Adelson
- ---------------------------- Director December 24, 1998
Merv Adelson
/s/ James A. Cannavino
- ---------------------------- Director December 23, 1998
James A. Cannavino
</TABLE>
II-5
<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)
II-6
<PAGE>
December 29, 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 2,416,667 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 Subscription Agreement, dated as of
December 14, 1998 (the "Subscription Agreement"), by and between the Company
and Fletcher International Limited. 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 Rights, the Subscription
Agreement 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 are admitted to the Bar of the State of New York and
express no opinion as to the laws of any other jurisdiction, except with
respect to the federal laws of the United States of America and except to the
extent that matters of Delaware general corporate law are involved in the
opinions expressed below. With respect to any matters concerning Delaware
general corporate law involved in the opinions set forth below, any such
opinions are based upon our reading of standard published compilations of such
laws.
<PAGE>
7th Level, Inc.
December 29, 1998
Page 2
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 set forth in the Subscription Agreement, 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:RAG: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 these uncertainties.
/s/ KPMG PEAT MARWICK LLP
---------------------------
KPMG PEAT MARWICK LLP
Dallas, Texas
December 28, 1998
