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As filed with the Securities and Exchange Commission on June 9, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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.)
925 Westchester Avenue
White Plains, New York 10604
(914) 682-4300
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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STEPHEN P. GOTT
President and Chief Executive Officer
7th Level, Inc.
925 Westchester Avenue
White Plains, New York 10604
(914) 682-4300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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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. /_/
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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. /_/
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If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. /_/
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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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)
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<S> <C> <C> <C> <C> <C>
Common Stock, par 5,334,216 shares (1) $5.02 $26,777,764.32 $7,444.29
value $0.01 per share
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</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: 5,334,216 multiplied by .000278 multiplied by $5.02, the
average of the bid and asked sales prices of the Registrant's Common
Stock as included on the Nasdaq National Market on June 4, 1999.
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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 an 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.
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PROSPECTUS
7TH LEVEL, INC.
5,334,216 SHARES OF
COMMON STOCK
We are furnishing this document to you to allow the selling
stockholders to sell up to 5,334,216 shares of our common stock. The selling
stockholders may sell these shares from time to time in regular brokerage
transactions, in transactions directly with market makers or in certain
privately negotiated transactions.
Our common stock is quoted on the Nasdaq National Market under the
symbol "SEVL". On June 7, 1999, the closing price of our common stock as
reported by the Nasdaq National Market was $5.3125 per share.
WE URGE YOU TO READ CAREFULLY THE "RISK FACTORS" SECTION BEGINNING ON
PAGE 6 WHERE WE DESCRIBE SPECIFIC RISKS ASSOCIATED WITH 7TH LEVEL, INC. AND
THESE SECURITIES BEFORE YOU MAKE YOUR INVESTMENT DECISION.
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 June __, 1999.
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7TH LEVEL, INC.
BUSINESS STRATEGY AND STRATEGIC DIRECTION
Our goal is to become the world's leading provider of Internet and network
delivered learning and education. Our mission is to provide our customers,
including consumers, corporations, government agencies and educational
organizations, with a complete solution for learning and education.
In furtherance of our goal and mission, we have recently completed the
acquisition of Panmedia Corporation which produces the Learn2.com web site and
have reached an agreement to acquire ViaGrafix Corporation. Both of these
transactions are important steps in helping us to attain our goals.
We have created or licensed over 200 tutorial titles which we license to
customers on a subscription basis. The subject matter of the tutorials
includes the following:
o Desktop applications including Windows 98 and Microsoft Office 97
o Courses to prepare for Microsoft Certification
o Programming courses including Visual Basic and HTML
o Business skills including time management and interviewing skills
Our strategy includes the integration of the Learn2.com and Tutorials.com
web sites. The Learn2.com web site enables us to initiate an additional revenue
stream related to the sales of advertisements and sponsorships.
CONSUMER
TUTORIALS.COM
We market interactive multimedia tutorials to consumers on the Internet
through our Tutorials.com web site. Users of Tutorials.com can choose from a
variety of titles covering a wide range of subjects, including desktop
application software, computer programming and English as a second language.
This online library is targeted to both the mass consumer audience who
frequently use the Internet as well as the large and growing segment of work
at home professionals and students who demand instantaneous results. Our
goal is to be universal so that Tutorials.com is linked to numerous of web
sites and searches for "tutorials" will always link to Tutorials.com. We own
the domain name "Tutorials.com" and are penetrating this market through the
following channels:
o Vertical Portal - We have and are continuing to enter into revenue sharing
arrangements with widely recognized, branded web sites or portals.
Tutorials.com is an educational content provider benefitting from that
site's local traffic. To date, an anchor tenant contract with AOL represents
our most widely recognized relationship.
o PC Manufacturers - We have and are continuing to enter into revenue sharing
arrangements with PC manufacturers. Under these arrangements, an icon on the
desktop links directly to Tutorials.com. We have entered into a contract
with Gateway, Inc. which is our first step toward this objective.
o Affiliates Program - We have and are continuing to extend our market
presence through our Affiliates Program, which enables associated web sites
to make our products available to
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their audiences. We have entered into an agreement with GeoCities, in which
we are exposed to its web site owners. We have also entered into an
agreement with Linkshare, which specializes in building affiliate programs
and provides us with access to over 65,000 web sites.
o Destination Site - We are marketing Tutorials.com as a destination web site
through a comprehensive marketing strategy designed to strengthen the
tutorials.com brand name, increase customer traffic to the tutorials.com
web site, build customer loyalty, encourage repeat purchases, and develop
incremental revenue opportunities.
LEARN2.COM
We offer a wide spectrum of step-by-step instructions on skills, activities
and tasks; an extensive set of discussion forums where consumers can find
and share information; and hundreds of helpful tips through our web site,
Learn2.com. Approximately 200 comprehensive tutorials and 1,000 learnlets,
abbreviated tutorials, are currently available online, and another 200
tutorials are in the editorial development process.
CORPORATIONS AND OTHER ORGANIZATIONS - LEARNING UNIVERSITY, STREAMMAKER AND
AGENT7
Our solutions for corporations and other organizations consist primarily of the
following products and services:
o Learning University-TM-
o StreamMaker-TM- and custom tutorial creation and conversion
o Agent7-TM- and custom character creation
LEARNING UNIVERSITY - Learning University-TM- 2.8, the current version of
LU, is an interactive education and learning web site that we maintain for our
customers. LU includes tutorials, administration, reporting and e-commerce
capabilities. LU provides a cost effective, value added service that we believe
is superior to that which an organization can deliver on its own. Our customers
can offer training to their employees, across a computer network, corporate
intranet or the Internet. LU allows each customer and its employees to tailor
training to their individual needs. LU enables users to practice and test skills
as they learn utilizing simulation technologies to practice many of the concepts
introduced. After the completion of each course, users can print a completion
certificate indicating that they have successfully met all of the requirements
of the course. Users of LU can choose from a variety of titles covering a wide
range of subjects, including desktop application software, computer programming
and business skills.
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STREAMMAKER - StreamMaker-TM- 5.0A, the current version of our authoring
tool, utilizes patent pending technology to produce fully synchronized,
interactive, CD-ROM quality multimedia streams that can be delivered through
computer network connections, including a 28.8 modem connection, without
download. The benefits of StreamMaker include:
o A proprietary method for graphics compression
o A patent pending technology which ensures that the elements of a multimedia
production including audio, graphics, animation, video and text are
synchronized
o The ability to develop interactive streams
o A design which facilitates integration with other technologies
To date, we have licensed StreamMaker to several companies including IBM and
Intuit.
CUSTOM TUTORIAL CREATION AND CONVERSION - We use StreamMaker to stream or
create "7thStreet-Enabled" tutorials for our customers' web based applications
or proprietary software. We are currently marketing these services to companies
that have active web sites. Our services are intended to help our customers
educate their customers on the use of, navigation of, content of, and products
on their web sites. We also use StreamMaker to convert existing content so that
it can be streamed. In certain cases we may recommend authorized consultants to
our customers to create original or convert existing content for them.
AGENT7 AND CUSTOM CHARACTER CREATION - We have integrated Agent7-TM- into
StreamMaker. Agent7 is our intelligent agent authoring tool that streams
data to enable animated characters to automatically speak and gesture based
on speaker-independent voice recognition and text-to-speech synthesis. The
benefits of Agent7 include:
o The ability to reuse animation gestures with different dialogs. This saves
production costs and allows the modification of character gestures and
dialogs in only minutes instead of days or weeks.
o The quality and impact of the animation experience exceeds the typical
quality experienced at normal Internet modem speeds by streaming animation
data, then assembling it on the PC.
o No special programming skills are necessary.
o Users can program interactivity to link the characters to web pages and
applications.
We can create custom characters that represent a company's mascot or logo.
Agent7 characters can deliver virtually any kind of information and provide
interactivity to assist and instruct the average Internet user. Agent7
characters can be delivered over the Internet in a variety of ways including
embedded into web pages and delivered in e-mails.
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THE TOTAL SOLUTION
We believe that there is a significant market opportunity for our flexible,
engaging and cost-effective education and training solutions. We believe that
the combination of our off the shelf and custom products and services will
attract customers who desire the convenience of one stop shopping. In addition,
we believe that once customers have purchased our products and services we will
have significant opportunities to sell additional products and services.
Additional information about our company is available via its web site at
WWW.7THSTREET.COM. Our principal executive offices are located at 925
Westchester Avenue, White Plains, New York 10604, telephone (914) 682-4300.
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RISK FACTORS
WE HAVE A LIMITED OPERATING HISTORY.
As an early-stage Internet company, we have an evolving and unpredictable
business model. In addition, we face intense competition and we must effectively
manage our growth and respond quickly to rapid changes in customer demands and
industry standards. We may not succeed in addressing these challenges and risks.
WE HAVE A HISTORY OF LOSSES AND AN ACCUMULATED DEFICIT.
Commencing in the summer of 1997, we changed our business from that of a
producer and distributor of CD ROM content to that of a supplier of animation
technology principally directed at the Internet market. From inception in May
1993, we have never earned an annual profit. We introduced Agent7, our first
Internet product in August 1998. In 1998, we generated relatively limited
revenues from operations, and have incurred net losses each year since our
inception in May 1993. Our net losses for the 1995, 1996, 1997 and 1998 fiscal
years were approximately $14.6 million, $24.3 million, $22.5 million and $16.8
million, respectively. As of December 31, 1998, we had an accumulated deficit of
approximately $85 million. Of the $16.8 million loss for the 1998 fiscal year,
approximately $5.4 million was due to a beneficial conversion feature contained
in the terms of a convertible preferred stock issuance completed in May 1998. We
expect to incur significant net losses through approximately the end of 1999 and
may continue to incur net losses thereafter.
WE FACE FUTURE CAPITAL NEEDS AND UNCERTAINTY IN ACQUIRING ADDITIONAL FINANCING
TO MEET THOSE NEEDS.
We anticipate that currently available funds, including funds we may receive
from selling additional shares of common stock to Fletcher International Limited
under its subscription agreement, dated as of December 14, 1998, and cash flow
generated from business operations, will be sufficient to meet anticipated needs
for working capital and capital expenditures for at least the next twelve
months. We expect to raise additional funds in order to develop, acquire
and/or market products, businesses or technologies. If additional funds are
raised through the issuance of equity or convertible securities, your
percentage ownership in 7th Level will be reduced. Also, these securities may
have rights, preferences or privileges senior to common stock. However, it is
possible that additional financing may not be available on terms favorable to
us, or at all. If adequate funds are not available or are not available on
acceptable terms, we may not be able to take advantage of our business
opportunities.
OUR RECENT ACQUISITION OF STREET TECHNOLOGIES, INC. MAY AFFECT OUR SHORT-TERM
BUSINESS PROSPECTS.
The successful combination of 7th Level and 7th Street.com, Inc. (formerly,
Street Technologies, Inc.) will require substantial effort. The diversion of
the attention of management and difficulties encountered in the transition
process could have an adverse impact on our ability to realize the full benefits
of the merger. The successful combination of the two companies will also require
coordination of our sales and
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marketing efforts. In addition, the process of combining the two organizations
could cause the interruption of, or loss of momentum in, our activities.
THE FAILURE OF OUR ACQUISITION OF PANMEDIA CORPORATION TO QUALIFY AS A POOLING
OF INTERESTS WOULD NEGATIVELY AFFECT OUR COMBINED FINANCIAL RESULTS.
The failure of our acquisition of Panmedia Corporation to qualify for pooling of
interests accounting treatment for financial reporting purposes for any reason
would materially and adversely affect our reported earnings and could also
adversely affect the market price of our common stock.
OUR RECENT ACQUISITION OF PANMEDIA CORPORATION MAY AFFECT OUR SHORT-TERM
BUSINESS PROSPECTS.
The successful combination of Panmedia Corporation and 7th Street.com, Inc.,
including the successful integration of the Tutorials.com and Learn2.com web
sites, will require substantial effort. The diversion of the attention of
management and difficulties encountered in the transition process could have an
adverse impact on our ability to realize the full benefits of the merger. The
successful combination of the two companies will also require coordination of
our sales and marketing efforts. In addition, the process of combining the two
organizations could cause the interruption of, or loss of momentum in, our
activities.
WE MAY NOT BE ABLE TO COMPLETE OUR PROPOSED ACQUISITION OF VIAGRAFIX
CORPORATION.
Our proposed acquisition of ViaGrafix Corporation is subject to a number of
customary conditions, including the vote of both companies stockholders and
registration of our common stock to be issued in the merger. If one or more of
those conditions are not met, we will not be able to complete our acquisition of
ViaGrafix which could materially affect our future business plans. In addition,
if we do not complete the acquisition, we may not be able to retain ViaGrafix as
a supplier of content.
OUR EXPECTED BENEFITS OF THE VIAGRAFIX ACQUISITION MAY NOT BE REALIZED.
If we are not able to effectively integrate our operations and personnel in a
timely and efficient manner, then the benefits of the merger will not be
realized. In particular, if the integration is not successful:
o Our operating results may be adversely affected
o We may lose key personnel
In addition, the attention and effort devoted to the integration of the two
companies will significantly divert management's attention from other important
issues, and could have a material adverse impact on the combined company.
THE ACQUISITION OF VIAGRAFIX COULD ADVERSELY AFFECT COMBINED FINANCIAL RESULTS.
If the benefits of the merger do not exceed the costs associated with the
merger, including the dilution to our stockholders resulting from the issuance
of our common stock in connection with the merger, then our financial results,
including earnings per share, could be adversely affected.
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DUE TO OUR LIMITED OPERATING HISTORY AND THE UNPREDICTABILITY OF OUR INDUSTRY,
WE CANNOT ACCURATELY FORECAST OUR REVENUES.
We base our current and future expense levels on our investment plans and
estimates of future revenues. Our expenses are to a large extent fixed. We may
not be able to adjust our spending quickly if our revenues fall short of our
expectations. Further, we may make pricing, purchasing, service, marketing,
acquisition or financing decisions that could adversely affect our business
results.
Our quarterly operating results will fluctuate for many reasons, including:
o Our ability to retain existing customers, attract new customers and satisfy
our customers' demand
o Our ability to acquire content and manage our content relationships
o Changes in gross margins of our current and future products, services and
markets
o Introduction of our new web sites, services and products or those of our
competitors
o Changes in usage of the Internet and online services and consumer acceptance
of the Internet and electronic commerce
o Timing of upgrades and developments in our systems and infrastructure
o The level of traffic on our web sites
o The effects of acquisitions and other business combinations, and related
integration
o Technical difficulties, system downtime or Internet brownouts
You should not rely on period-to-period comparisons of our financial results to
forecast our future performance. Our future operating results may fall below the
expectations of securities analysts or investors, which would likely cause the
trading price of our common stock to decline.
WE FACE RAPID TECHNOLOGICAL CHANGE AND FREQUENT NEW PRODUCT INTRODUCTIONS.
The markets for our products and services are characterized by rapid
technological change, frequent new product introductions and evolving industry
standards. We believe that our future success depends upon our ability to
develop and market products and services that incorporate and apply new
technologies, and our ability to enhance and expand our existing product lines
and services. We will need to spend significant amounts of capital to develop,
market and enhance our products and services to meet and take advantage of
technological changes. We may not be:
o Able to develop or market new products or services successfully
o Successful in commercially developing new products and services
o Able to respond effectively to technological changes, new industry
standards, or new products or services offered by our competitors
o Able to raise sufficient capital when required to implement our strategies
Our future success will depend upon, among other factors, the extent to which
companies continue to adopt web based training programs, the proliferation of
multimedia PCs inside
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corporations and the acceptance of the Internet as a viable distribution medium.
If our solutions do not become widespread or we do not achieve market
acceptance, or are unable to anticipate technological change or evolving
industry standards and successfully introduce new products our business, results
of operations, and financial condition could be adversely affected.
WE DEPEND UPON STRATEGIC ALLIANCES OR RELATIONSHIPS.
We depend upon third parties for several critical elements of our business
including technology, content development and distribution activities.
Technology - Technology critical to our products and solutions including speech
recognition and the speech synthesis engine are licensed from third parties. We
have improved these technologies and applied them in unique ways with our other
proprietary techniques. If the licensors were to terminate our license
agreements, we may have to make substantial expenditures to develop or license
replacement technology. This could adversely affect the performance of our
business.
Content Development - Some of our licensed content is available from a
limited number of resources. Currently, seventy-five percent (75%) of our
tutorials are licensed from two sources, ViaGrafix and NIIT. Although to date
we have been able to license adequate tutorials, our inability in the future
to obtain content from third parties, or to develop our own content could
result in delays in product introductions or shipments. We depend on the
quality and reliability of the tutorials licensed and timely delivery of
these tutorials by our sources. Although we have agreements specifying the
terms of the licenses, these agreements may not be enforceable. We believe
that we can arrange alternate sources for some or all of these tutorials, but
the inability of any of these content providers to provide these tutorials to
us on a timely basis could affect the performance of our business. Our
planned acquisition of ViaGrafix, whether or not completed, may alienate
certain of ViaGrafix's competitors from doing business with us in the future.
Distribution Activities - We currently have relationships with online services
and Internet content providers including AOL, GeoCites and Linkshare.
Additionally, we have relationships with authorized resellers. Under our
agreement with AOL, its members will have direct access to Tutorials.com.
GeoCities and Linkshare market our Affiliates Program to their customers.
These distribution agreements typically are not exclusive and may be
terminated upon certain conditions. Many of our agreements with our
distribution partners do not require minimum purchase commitments or have
payment terms for periods up to one year. There is no assurance that these
contracts will result in revenues.
WE FACE A RISK OF SYSTEM FAILURE.
Our operations depend to a significant extent on our ability to maintain our
computer and telecommunications systems. Currently, we are using one major
Internet service provider. We must also protect our systems against damage from
fire, natural disaster, power loss, telecommunications failure or similar
events. Our business depends in significant part on our operations center in
Golden, Colorado. Although we have arranged for off-site back-up for our network
control, this measure does not eliminate the risk to our operations from a
natural disaster or system failure. In addition, growth of our customer base may
strain the capacity of our
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computer operations center and telecommunications systems and/or lead to
degradations in performance or system failure. Any damage to or loss of our
computer and telecommunications networks including our operations center could
adversely affect the performance of our business.
A LARGE PORTION OF OUR REVENUES COMES FROM A SMALL NUMBER OF CUSTOMERS.
At present, a relatively small group of our customers are responsible for a
significant percentage of our revenue. For example, for the year ended December
31, 1998, royalties and production fees from our largest customer accounted for
34% of net revenue. Although we believe that our current relationships with our
customers are generally good, the loss of one or more of our major customers
could affect the performance of our business.
THE MARKET PRICE OF OUR COMMON STOCK IS VOLATILE.
The trading price of our common stock can fluctuate significantly. For example,
during the 52- week period ended June 7, 1999, the market price of our stock
ranged from $1.25 to $12.625. The market price of our common stock may fluctuate
in response to certain events and factors. For example, on March 5, 1999, we
announced an agreement with AOL to offer training to AOL members through
Tutorials.com. As a result of the announcement, on the following Monday March 8,
1999, the stock price ranged from $5.00 to $8.884 with a trading volume of
38,259,000 shares.
The Internet is an evolving commercial venue. We consider building and
maintaining key marketing and technology relationships an important factor in
our success. In addition these relationships are likely to impact the trading
price of our common stock.
A drop in the market price of our common stock may adversely affect our business
and financing opportunities. In addition, the stock market in general and the
market prices for Internet-related companies in particular have experienced
volatility that often has been unrelated to the operating performance of these
companies.
CERTAIN EVENTS COULD RESULT IN A DILUTION OF YOUR OWNERSHIP OF OUR COMMON STOCK.
As of May 14, 1999, we had 32,642,902 shares of common stock outstanding and
8,984,801 common stock equivalents including convertible notes, warrants and
stock options. The exercise prices and conversion prices, as the case may be, of
the common stock equivalents range from $.01 and $11.50 per share. These
securities also provide for antidilution protection upon the occurrence of stock
splits, redemptions, mergers and other similar transactions. If one or more of
these events occurs the number of shares of our common stock that may be
acquired upon conversion or exercise would increase. If converted or exercised
these securities will result in a dilution to your percentage ownership of our
common stock. If we continue to acquire new companies through the issuance of
common or preferred stock your percentage of ownership may be diluted.
Under the terms of the subscription agreement with Fletcher, Fletcher purchased
1,666,667 shares of common stock for $5,000,000, or $3.00 per share, and rights
to purchase an additional
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100,000 and 650,000 shares of common stock for $.01 and $4.50, respectively. On
March 16, 1999, we granted Fletcher rights to purchase 100,000 shares of our
common stock for $.01. The subscription agreement provides that at our election
and as long as the market price of our common stock is greater than $3.00 per
share, Fletcher is obligated to purchase up to an additional $5,000,000 of
common stock at market prices when we elect to exercise our right to sell shares
to Fletcher. In addition, Fletcher may receive additional shares of common stock
if our common stock does not meet certain price targets or if we do not have an
effective registration statement for the resale of Fletcher's shares of our
common stock. Any additional issuances to Fletcher would further dilute your
percentage ownership of our common stock
This prospectus relates to the sale by, among others, the Street stockholders of
shares of our common stock which they have received under the Agreement and Plan
of Merger, dated February 16, 1999. We have already issued 4,948,182 shares of
our common stock and 21,661 shares of our Series D Preferred Stock to the Street
stockholders. The Street stockholders' shares of Series D Preferred Stock will
automatically convert into 7,220,323 shares of our common stock if approved by
our stockholders. In addition, options and warrants to purchase 4,907 shares of
Series D Preferred Stock are currently outstanding which will be exercisable for
1,635,355 shares of our common stock if approved by our stockholders. The
conversion of Series D Preferred Stock would further dilute your percentage
ownership of our common stock.
Upon completion of the ViaGrafix acquisition we will issue approximately 10.7
million shares of common stock. This issuance will further dilute your
percentage of ownership of common stock.
Year 2000 Impact
Many currently installed computer systems and software may be coded to accept
only two-digit entries in the date code field and cannot distinguish 21st
century dates from 20th century dates. As a result, many software and
computer systems may need to be upgraded or replaced. We are in the process
of assessing the Year 2000 issue and expect to complete the program in the
second quarter of 1999. We have not incurred material costs to date in the
process, and do not believe that the cost of additional actions will have a
material effect on our consolidated financial position or results of
operations. Our current systems and products may contain undetected errors or
defects with Year 2000 date functions that may result in material costs. In
addition, we utilize third-party equipment, software and content, including
non-information technology systems that may not be Year 2000 compliant. We
are in the process of completing our activities relative to assessing whether
our internally developed software, third-party systems and non-information
technology systems are adequately addressing the Year 2000 issue. Failure of
third-party equipment, software or content to operate properly with regard to
the Year 2000 issue could require unanticipated expenses, which could have a
material adverse effect on our business. We are assessing whether our
suppliers are adequately addressing their Year 2000 compliance issues. We
have initiated formal communications with our significant suppliers and
service providers to determine the extent to which their systems or services
may be vulnerable if they fail to address and correct their own Year 2000
issues. We cannot guarantee that the systems of suppliers or other companies
on which we rely will be Year 2000 compliant. We are in the process of
developing a contingency plan that will address situations that may result
should Year 2000 compliance for critical operations not be fully achieved in
1999.
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RECENT DEVELOPMENTS
VIAGRAFIX CORPORATION ACQUISITION
On June 1, 1999, we entered into an Agreement and Plan of Merger with
ViaGrafix Corporation. Under the terms of the Agreement and Plan of Merger, we
will acquire all of the shares of common stock of ViaGrafix. Each ViaGrafix
share will be exchanged for 1.846 shares of our common stock. The closing of the
acquisition of ViaGrafix is subject to a number of customary conditions,
including the vote of both companies' stockholders and registration of our
common stock to be issued in the merger.
ViaGrafix's training courses include interactive multimedia courses and
tutorials for IT training and other subjects for a variety of computer software.
ViaGrafix has an existing library of more than 1,000 titles. Its subsidiary,
eTracks.com, Inc., provides interactive email broadcast services for
businesses that rely on Web-based commerce and transactions and operates
ClubMail, which in less than two years has developed an online community of
more than 500,000 members.
PANMEDIA CORPORATION ACQUISITION
On May 13, 1999, we acquired all of the outstanding common stock of
Panmedia Corporation, a privately held company. We issued 1,543,860 shares of
our common stock to the Panmedia stockholders, Jason and Patricia Roberts. In
connection with our acquisition of Panmedia, we appointed Jason Roberts,
Panmedia's founder, President and Chief Executive Officer, as an Executive Vice
President and member of our Board of Directors.
Panmedia is the owner of Learn2.com, an internet learning community
that offers step-by-step instructions on a wide spectrum of skills, activities
and tasks; an extensive set of discussion forums where consumers can find and
share information; and hundreds of helpful tips. Approximately 200 comprehensive
tutorials and 1,000 learnlets, abbreviated tutorials, are currently available
online, and another 200 tutorials are in the editorial development process.
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STREET TECHNOLOGIES, INC. ACQUISITION
On February 19, 1999, we acquired all of the outstanding common stock
and preferred stock of Street Technologies, Inc., a privately held company, and
renamed it 7thStreet.com, Inc. We issued 4,948,182 shares of our common stock
and 21,644 shares of our Series D Preferred Stock to the Street stockholders.
The shares of our Series D Preferred Stock will automatically convert into
approximately 7,214,666 shares of our common stock upon stockholder approval.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the common
stock described in this document. The selling stockholders will receive all of
the proceeds from the sale of the common stock described in this prospectus.
DIVIDEND POLICY
We have never declared cash dividends on our common stock. We intend to
retain any earnings to finance the development and growth of our business.
Accordingly, we do not anticipate that we will declare any cash dividends on our
common stock for the foreseeable future. Our payment of cash dividends, if any,
will depend upon our general financial condition and other factors deemed
relevant by our board of directors.
13
<PAGE>
SELLING STOCKHOLDERS
CHARTERHOUSE EQUITY PARTNERS II, L.P.
Chaterhouse Equity Partners received 4,267,965 shares of our common
stock as payment for its approximately 5,510,220.72 shares of Street preferred
stock. The general partner of Charterhouse Equity Partners is CHUSA Equity
Investors II, L.P., whose general partner is Charterhouse Equity II, Inc., a
wholly-owned subsidiary of Charterhouse Group International, Inc. As a result of
the foregoing, all of the shares of Common Stock held by Charterhouse Equity
Partners would, for purposes of Section 13(d) of the Securities Exchange Act of
1934, be considered to be beneficially owned by Charterhouse Group. Patricia
Riley, a Managing Director of Charterhouse Group, was a director of Street from
April 9, 1996 until its acquisition by 7th Level.
CHEF NOMINEES LIMITED
Chef received 8,295 shares of our common stock as payment for its
approximately 10,709.01 shares of Street preferred stock. Chef is an employee
benefit plan for employees of a minority holder of non-voting stock of
Charterhouse Group.
STEPHEN P. GOTT
Mr. Gott received 557,847 shares of our common stock and 17,969 shares
of our Series D Preferred Stock as payment for his 11,625,000 shares of Street
common stock. Mr. Gott's Series D Preferred Stock will be converted into
5,989,786 shares of our common stock if our stockholders approve the conversion.
Mr. Gott was the founder, President, Chief Executive Officer and Chairman of the
Board of Street. Mr. Gott is our President and Chief Executive Officer and is a
member of our Board of Directors.
SCOTT NEAR
Mr. Near received 47,987 shares of our common stock and 1,546 shares of
our Series D Preferred Stock as payment for his 1,000,000 shares of Street's
common stock. Mr. Near's Series D Preferred Stock will be converted into 515,344
shares of our common stock if our stockholders approve the conversion. Mr. Near
is a Senior Vice President-Development which was also his position at Street.
SAFA ALAI
Mr. Alai received 47,987 shares of our common stock and 1,546 shares of
our Series D Preferred stock as payment for his 1,000,000 shares of Street's
common stock. Mr. Alai's Series D Preferred Stock will be converted into 515,344
shares of our common stock if our stockholders approve the conversion. Mr. Alai
is a Vice President of Engineering which was also his position at Street.
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<PAGE>
WARD BITTER
Mr. Bitter received 17,995 shares of our common stock and 580 shares of
our Series D Preferred Stock as payment for his 375,000 shares of Street's
common stock. Mr. Bitter's Series D Preferred Stock will be converted into
193,218 shares of our common stock if our stockholders approve the conversion.
Mr. Bitter served as a Vice President of Street and currently is an employee of
7th Level.
JASON ROBERTS AND PATRICIA ROBERTS
Jason Roberts and Patricia Roberts received 1,543,860 shares of our
common stock as payment for their 1,000 shares of Panmedia common stock. Mr.
Roberts was the founder, President and Chief Executive Officer of Panmedia. Mrs.
Roberts was the Secretary and Treasurer of Panmedia. Mr. Roberts is an Executive
Vice President and is a member of our Board of Directors.
ROBERTS-SHEFTS LLC
Jason Roberts and Patricia Roberts contributed 231,579 shares of the
common stock described above to the Roberts-Shefts LLC as part of a joint
venture with Brian Shefts, the Vice President of Business Development of
Panmedia, to invest in 7th Level. Jason Roberts, Patricia Roberts and Brian
Shefts are the only members in the LLC.
HOWARD AND TERRY MANDEL RECOVERABLE TRUST
On May 18, 1999, we entered into an agreement with Alevy Productions,
Inc. and Howie Mandel pursuant to which, among other things, we issued a warrant
to purchase 25,126 shares of our common stock to the Howard and Terry Mandel
Revocable Trust. Neither Alevy nor the Mandels have held any position or office
nor had any material relationship with us during the past three years.
The following table provides information regarding the selling
stockholders' beneficial ownership of our common stock as of May 14, 1999 and as
adjusted to reflect the sale of the shares of common stock offered under this
prospectus. Beneficial ownership as defined in the Exchange Act includes options
and other convertible securities which are exercisable within 60 days. However,
for purposes of this table, we have assumed that our Series D Preferred Stock
has already been converted into 7,220,323 shares of our common stock.
Unless we have indicated otherwise, to our knowledge, each of the
selling stockholders has sole voting and investment power with respect to its
securities. On May 14, 1999, we had 32,642,902 shares of common stock
outstanding.
15
<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
Stockholder Number Percent -------- Number Percent
- ----------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Charterhouse Equity Partners 4,267,965 10.71% 4,267,965 0 0
II, L.P.
Chef Nominees Limited 8,295 * 8,295 0 0
Stephen P. Gott 6,547,632 16.43% 648,215 5,899,417 14.80%
Scott Near 563,331 1.41% 140,810 422,521 1.06%
Safa Alai 563,331 1.41% 140,810 422,521 1.06%
Ward Bitter 563,331 1.41% 17,995 545,336 1.37%
Jason Roberts and 1,312,281 3.29% 80,000 1,232,281 3.09%
Patricia Roberts
Roberts-Shefts LLC 231,579 * 5,000 226,579 *
Howard and Terry Mandel 25,126 * 25,126 0 0
Revocable Trust
</TABLE>
- ------------------------
*Less than 1%
PLAN OF DISTRIBUTION
We are registering the shares of our common stock covered by this
prospectus.
As used in this prospectus, the selling stockholders include donees,
pledgees, transferees or other successors in interest who will hold the selling
stockholders' shares after the date of this prospectus. We are paying the costs,
expenses and fees of registering the common stock, but the selling stockholders
will pay any underwriting or brokerage commissions and similar selling expenses
relating to the sale of the shares of common stock.
The selling stockholders may sell our common stock at market prices
prevailing at the time of the sale, at prices related to the prevailing market
prices, at negotiated prices or at fixed prices, which may be changed. The
selling stockholders may sell some or all of their common stock through:
o ordinary brokers' transactions which may include long or short sales;
o transactions involving cross or block trades or otherwise on the Nasdaq
National Market;
o purchases by brokers, dealers or underwriters as principal and resale
by those purchasers
16
<PAGE>
for their own accounts under this prospectus;
o market makers or into an existing market for the common stock;
o other ways not involving market makers or established trading markets,
including direct sales to purchasers or sales effected through agents;
o transactions in options, swaps or other derivatives; or
o any combination of the selling options described in this prospectus, or
by any other legally available means.
The selling stockholders may enter into hedging transactions with
broker-dealers who may engage in short sales of our common stock in the course
of hedging the positions they assume. The selling stockholders also may enter
into option or other transactions with broker-dealers that require the delivery
by those broker-dealers of the common stock. Thereafter, the shares may be
resold under this prospectus.
In their selling activities, the selling stockholders will be subject
to applicable provisions of the Exchange Act and the Exchange Act's rules and
regulations, including Regulation M, which may limit the selling stockholders'
timing of purchases and sales of our common stock.
The selling stockholders and any broker-dealers involved in the sale or
resale of our common stock may qualify as "underwriters" within the meaning of
Section 2(11) of the Securities Act of 1933, as amended. In addition, the
broker-dealers' commissions, discounts or concessions may qualify as
underwriters' compensation under the Securities Act. If the selling stockholders
or any broker-dealer qualifies as an "underwriter," then they will be subject to
the prospectus delivery requirements of Rule 153 of the Securities Act, which
may include delivery through the facilities of the NASD.
In conjunction with sales to or through brokers, dealers or agents, the
selling stockholders may agree to indemnify them against liabilities arising
under the Securities Act. We know of no existing arrangements between the
selling stockholders, any other stockholder, broker, dealer, underwriter or
agent relating to the sale or distribution of our common stock. We have also
agreed to indemnify the selling stockholders and certain related persons against
certain liabilities, including liabilities under the Securities Act.
In addition to selling its common stock under this prospectus, the
selling stockholders may:
o Transfer their common stock in other ways not involving market makers
or established trading markets, including by gift, distribution, or
other transfer; or
o Sell their common stock under Rule 144 of the Securities Act, if the
transaction meets the requirements of Rule 144.
We will amend or supplement this prospectus if required under the
Securities Act. We
17
<PAGE>
have agreed to keep the Registration Statement effective until certain events
occur which are described in the relevant Registration Rights Agreement.
If the selling stockholders sell their shares of common stock in
accordance with this prospectus, then the legends that restrict the
transferability of their common stock will no longer be necessary. Accordingly,
the new certificates will be issued to the transferee without restrictive
legends.
Under the securities law of certain states, the common stock offered by
the selling stockholders may only be sold in those states using registered or
licensed brokers or dealers.
EXPERTS
The consolidated financial statements and financial statement schedule
of 7th Level, incorporated by reference herein and in the Registration
Statement, have been audited by Arthur Andersen LLP, as of December 31, 1998 and
for the year ended December 31, 1998, independent public accountants, as
indicated in their report with respect thereto, and are incorporated by
reference herein and therein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said report.
The financial statements of 7thStreet.com, Inc. (formerly known as
Street Technologies, Inc.), incorporated by reference herein and in the
Registration Statement, have been audited by Arthur Andersen LLP, as of December
31, 1998 and for the year ended December 31, 1998, independent public
accountants, as indicated in their report with respect thereto, and are
incorporated by reference herein and therein in reliance upon the authority of
said firm as experts in accounting and auditing in giving said report.
The consolidated financial statements and financial statement schedule
of 7th Level, as of December 31, 1997 and for each of the years in the two-year
period ended December 31, 1997, have been incorporated by reference herein and
in the Registration Statement in reliance upon the report of KPMG 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 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.
The financial statements of 7thStreet.com, Inc. (formerly known as
Street Technologies, Inc.) as of and for the year ended December 31, 1997, have
been incorporated by reference herein and in the Registration Statement in
reliance upon the report of KPMG LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
18
<PAGE>
ADDITIONAL INFORMATION MADE AVAILABLE TO YOU
This prospectus is part of a Registration Statement on Form S-3 that we
are filing with the SEC. Certain information in the Registration Statement has
been omitted from this prospectus in accordance with the rules of the SEC.
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. Our file number is 0-24936.
You may read and copy materials that we have filed with the SEC,
including the registration statement, at the following SEC public reference
rooms:
450 Fifth Street, N.W. Northwest Atrium Center 7 World Trade Center
Room 1024 500 West Madison Street Suite 1300
Washington, D.C. 20549 Suite 1400 New York, New York 10048
Chicago, Illinois 60661
You may call the SEC at 1-800-732-0330 for further information about
the public reference room.
We are also required to file electronic versions of these documents
with the SEC, which may be accessed through the SEC's World Wide Web site at
HTTP://WWW.SEC.GOV. Our common stock is quoted on the Nasdaq National Market.
Reports, proxy and information statements and other information concerning 7th
Level may be inspected at the Nasdaq Stock Market at 1735 K Street, NW,
Washington, D.C. 20006.
We have not authorized any dealer, salesperson or other person to give
any information or represent anything not contained in this prospectus. You
should not rely on any unauthorized information. This prospectus does not offer
to sell or buy any shares in any jurisdiction in which it is unlawful. The
information in this prospectus is current as of the date on the cover.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to "incorporate by reference" certain of our
publicly-filed documents into this prospectus, which means that information
included in these documents is considered part of this prospectus. Information
that we file with the SEC subsequent to the date of this prospectus will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any future filings made with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, until the selling stockholders have sold all the shares of common stock
described in this prospectus.
The following documents filed with the SEC are incorporated by
reference in this prospectus:
1. Our Annual Report on Form 10-K/A for the year ended December 31,
1998.
2. Our Quarterly Report on Form 10-Q/A for the quarter ended
March 31, 1999.
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<PAGE>
3. Our Current Reports on Form 8-K dated January 15, 1999, February
16, 1999 and May 13, 1999 and Form 8-K/A filed with the SEC on
April 16, 1999.
4. The description of our common stock contained in our Registration
Statement on Form 8-A filed with the SEC under the Exchange Act.
We will furnish without charge to you, on written or oral request, a
copy of any or all of the documents incorporated by reference, other than
exhibits to those documents. You should direct any requests for documents to:
7th Level, Inc., 925 Westchester Avenue, White Plains, New York 10604,
Attention: Chief Executive Officer, or by telephone (914) 682-4300.
FORWARD-LOOKING STATEMENTS IN THIS PROSPECTUS
MAY NOT PROVE TO BE ACCURATE
This prospectus contains or incorporates forward-looking statements
including statements regarding, among other items, our business strategy, growth
strategy, and anticipated trends in our business. We may make additional written
or oral forward-looking statements from time to time in filings with the SEC or
otherwise. When we use the words "believe," "expect," "anticipate," "project"
and similar expressions, this should alert you that this is a forward-looking
statement. Forward-looking statements speak only as of the date the statement is
made.
These forward-looking statements are based largely on our expectations.
They are subject to a number of risks and uncertainties, some of which cannot be
predicted or quantified and are beyond our control. Future events and actual
results could differ materially from those set forth in, contemplated by, or
underlying the forward-looking statements. Statements in this prospectus or made
in documents incorporated into this prospectus, describe factors that could
contribute to or cause differences between our expectations and actual results.
We have described many of these factors in "Risk Factors" and "7th
Level, Inc." Because of these risks and uncertainties, the forward-looking
information contained in this prospectus may not in fact occur or prove to be
accurate. All subsequent written and oral forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in
their entirety by this section.
20
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee........................$ 7,444.29
Printing and Engraving..................................................... 6,000.00
Legal Fees and Expenses.................................................... 10,000.00
Accounting Fees and Expenses............................................... 10,000.00
Miscellaneous.............................................................. 1,000.00
Total ...................................................................$34,444.29
</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
II-1
<PAGE>
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 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
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<PAGE>
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.
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
5.1 Opinion of Swidler Berlin Shereff Friedman, LLP
23.1 Consent of KPMG LLP
23.2 Consent of KPMG LLP
23.3 Consent of Arthur Andersen LLP
23.4 Consent of Arthur Andersen LLP
23.5 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
II-3
<PAGE>
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
SEC 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.
(c) 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 SEC 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.
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<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 White Plains, State of New York, on this 8th day of
June, 1999.
7TH LEVEL, INC.
By: /s/ Marc E. Landy
-----------------------------------------
Marc E. Landy
Vice President, Chief Financial Officer
and Secretary
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned whose
signature appears below constitutes and appoints Stephen P. Gott and Marc E.
Landy, 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, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Stephen P. Gott President, Chief Executive Officer and
- ---------------------- Director (Principal Executive Officer) June 8, 1999
Stephen P. Gott
/s/ Marc E. Landy Vice President, Chief Financial Officer
- ---------------------- and Secretary (Principal Financial and
Marc E. Landy Accounting Officer) June 8, 1999
/s/ Donald Schupak Chairman of the Board of Directors
- ---------------------- and Director June 8, 1999
Donald Schupak
/s/ Robert Alan Ezrin Vice Chairman of the Board of Directors
- ---------------------- and Director June 8, 1999
Robert Alan Ezrin
/s/ Merv Adelson Director June 8, 1999
- ----------------------
Merv Adelson
/s/ James A. Cannavino Director June 8, 1999
- ----------------------
James A. Cannavino
/s/ Jason R. Roberts Director June 8, 1999
- ----------------------
Jason R. Roberts
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<PAGE>
7TH LEVEL, INC.
FORM S-3
REGISTRATION STATEMENT
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
- -------
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5.1 Opinion of Swidler Berlin Shereff Friedman, LLP
23.1 Consent of KPMG LLP
23.2 Consent of KPMG LLP
23.3 Consent of Arthur Andersen LLP
23.4 Consent of Arthur Andersen LLP
23.5 Consent of Swidler Berlin Shereff Friedman, LLP (included in
Exhibit 5.1)
24.1 Power of Attorney (appears on signature page)
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Exhibit 5.1
June 8, 1999
7th Level, Inc.
925 Westchester Avenue
White Plains, new York 10604
Ladies and Gentlemen:
On the date hereof, 7th Level, Inc., a Delaware corporation (the
"Company"), intends to transmit to the Securities and Exchange Commission a
Registration Statement on Form S-3 (the "Registration Statement") relating to
5,334,216 shares (the "Shares") of common stock, par value $.01 per share (the
"Common Stock"), of the Company. 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. In connection with this opinion, we
have examined and are familiar with originals or copies, certified or otherwise
identified to our satisfaction, of (i) the Company's Restated Certificate of
Incorporation as presently in effect, (ii) its By-Laws as presently in effect,
(iii) minutes and other instruments evidencing actions taken by its directors
and stockholders, (iv) the Agreement and Plan of Merger, dated as of February
16, 1999, by and among 7th Level, Inc., 7th Level Merger Corporation, Street
Technologies, Inc. ("Street") and the stockholders of Street named therein (the
"Street Agreement"), (v) the Agreement and Plan of Merger, dated as of May 13,
1999, by and among 7th Level, Inc., 7th Level Acquisition Corporation, Panmedia
Corporation, Jason Roberts and Patricia Roberts, (vi) the Certificate of
Designations, Preferences and Rights of Series D Preferred Stock (the
"Certificate of Designations"), (vii) the Subscription Agreement, dated as of
December 14, 1999 (the "Subscription Agreement"), by and between 7th Level, Inc.
and Fletcher International Limited, (viii) the Warrant, dated May ___, 1999 (the
"Warrant"), issued to the Howard and Terry Mandel Revocable Trust and such other
documents and instruments relating to the Company and the proposed offering as
we have deemed necessary under the circumstances. In our examination of all such
agreements, documents, certificates and instruments, we have assumed the
genuineness of all signatures and the authenticity of all agreements, documents,
certificates and instruments submitted to us as originals and the conformity
with the originals of all agreements, documents, certificates and instruments
submitted to us as certified, conformed or photostatic copies. Insofar as this
opinion relates to
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7th Level, Inc.
June 8, 1999
Page 2
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.
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 Street Agreement, the Certificate of Designations, the
Subscription Agreement and the Warrant, as the case may be, 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,
SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
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EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors of 7th Level, Inc.:
We consent to the incorporation by reference in this Registration
Statement on Form S-3 of 7th Level, Inc. of our report, dated January 30, 1998,
related to the consolidated balance sheet of 7th Level, Inc. and subsidiaries as
of December 31, 1997, and the related consolidated statements of operations,
stockholders' equity, and cash flows and the financial statement schedule for
each of the years in the two-year period ended December 31, 1997, which report
appears in the December 31, 1998 Annual Report on Form 10-K/A 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 LLP
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KPMG LLP
Dallas, Texas
June 7, 1999
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EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors of 7th Level, Inc.:
We consent to the incorporation by reference in this Registration
Statement on Form S-3 of 7th Level, Inc. of our report dated June 5, 1998, with
respect to the balance sheet of 7thStreet.com, Inc. (formerly known as Street
Technologies, Inc.) as of December 31, 1997, and the related statements of
operations, stockholders' equity (deficit), and cash flows for the year then
ended, which report appears in the Form 8-K/A of 7th Level, Inc. filed with the
Securities and Exchange Commission on April 16, 1999. We also consent to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
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KPMG LLP
Stamford, Connecticut
June 8, 1999
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EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this registration statement of our report dated
March 17, 1999 included in 7th Level, Inc.'s Form 10-K/A for the year ended
December 31, 1998 and to all references to our Firm included in this
Registration Statement filed on Form S-3.
/s/ ARTHUR ANDERSEN LLP
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ARTHUR ANDERSEN LLP
New York, New York
June 8, 1999
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EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this registration statement of our report dated
February 17, 1999 included in 7th Level, Inc.'s Form 8-K/A filed with the
Securities and Exchange Commission on April 16, 1999 and to all references to
our Firm included in this Registration Statement filed on Form S-3.
/s/ ARTHUR ANDERSEN LLP
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ARTHUR ANDERSEN LLP
New York, New York
June 8, 1999
