7th Level and Pulse Cancel Merger Plans

Dallas-based 7th Level Inc.said that
it and privately-held Pulse
Entertainment Inc.
of Los Angeles have decided not to proceed with
their proposed merger.

Separately, 7th Level said it has obtained commitments for a $4.5 million
bridge loan and a $10 million private placement to finance the rollout of 7th
Level’s new line of technology products, including streaming animations for
use in Internet advertising.

Donald Schupak, chairman of 7th Level, and Bill Woodward, CEO of game company
Pulse, said the decision was mutual, friendly and in the best interest of both
companies. “After thorough due diligence,” they said in a joint statement, “we
concluded it would be more profitable for each company to develop and market
its own technology separately.”

Under the originally proposed terms, 7th Level would have issued approximately
21 million common shares to Pulse shareholders and would have had to raise $15
million in a private placement.

“As an independent 7th Level,” Schupak said, “we have accepted subscriptions
for a $10 million private placement of preferred stock including a $4.5
million bridge loan. Under the terms of the placement, the company may be
obligated to issue up to 8.275
million shares of common stock on conversion of preferred stock and exercise
of any $0.01 warrants.”

“We have raised the funds called for by our business plan and our existing
will experience substantially less dilution than they would have had the
merger and related financing been completed,” he said. The company did not say
who is providing the financing.

Earlier this month, 7th Level, once a game company, said it had developed a
new technology for preparing and streaming real-time, intelligent, interactive
animations over the Internet. The company signed an agreement with AudioNet,
the broadcast network on the Internet, to support and deliver the new
technology and market it to Internet advertisers.

Earlier this week, 7th Level announced an agreement with WaveTop, a data
broadcaster, to provide a similar technology solution for use in the creation
of interactive, character-based advertisements. WaveTop broadcasts Web content
via the television
bandwidth to home PC users in 50 major markets.

“Remaining independent enables 7th Level to focus exclusively on its strategy
of supplying tools and services directed at enabling interactive animation
over the Internet, corporate intranets and other network environments,” said

A key premise for the merger was that it would combine 3D authoring
applications from Pulse with 2D production and animation systems from
7th Level. But 7th Level said its technology has since leapfrogged
significantly. Beta versions of the streaming animation software are
expected in May.

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