Blueprint
|
Robert R. Kaplan, Jr.
Direct
Dial: 804.823.4055
Direct
Fax: 804.823.4099
rkaplan@kvlegal.com
|
May 16,
2018
VIA EDGAR AND FEDEX OVERNIGHT
Sonia
Bednarowski Anne Nguyen Parker
Office
of Transportation and Leisure Division of Corporation
Finance
United
States Securities and Exchange Commission 100 F Street,
N.E.
Washington, DC
20549
Amendment
No. 2 toOffering Statement on Form 1A Filed May 16,
2018
Dear
Ms. Bednarowski and Ms. Parker:
This
letter is submitted on behalf of The Chosen, LLC, a Utah limited
liability company (the “Issuer”), in response to
comments received from the staff of the Division of Corporation
Finance (the “Staff”) of the U.S.
Securities and Exchange Commission (the “Commission”) in a letter
(the “Comment
Letter”) dated May 4, 2018 with respect to the
Issuer’s first amendment filed with the Commission on April
25, 2018 (the “First
Amendment”) to its Offering Statement on Form 1A
(File No. 02410814) filed with the Commission on March 8,
2018 (the “Offering
Statement”). This letter is being submitted
contemporaneously with the filing of the second amendment of the
Offering Statement (the “Second Amendment”)
containing changes made in response to the Staff’s comments
and for the purpose of updating and revising certain information in
the Offering Statement. Certain capitalized terms set forth in this
letter are used as defined in the Second Amendment.
For
ease of reference, each Staff comment contained in the Comment
Letter is reprinted below in bold, numbered to correspond with the
paragraph numbers assigned in the Comment Letter and is followed by
the corresponding response of the Issuer.
For the
Staff’s ease of review, we have also provided two clean
copies of the Second Amendment, along with two redlines marked
against the First Amendment. All page references within the
Issuer’s responses are to pages of the clean copy of the
Second Amendment.
1401
E. Cary St. | Richmond, VA 23219 | Phone: 804.823.4000
P.O. Box 2470 | Richmond, VA 232182470 www.kvlegal.com
General
1.
We
note your response to our prior comment 1 and reissue in part.
Please update the solicitation of interest found on VidAngel's site
for your offering to link to the most recent amendment of your Form
1-A. In this regard, the VidAngel solicitation currently links to
the Form 1-A filed on March 8, 2018.
Issuer’s
Response:
In
response to the Staff’s comment, the VidAngel solicitation
page has been updated with the URL to our Form 1-A/A filed on April
25, 2018 and will be updated to link to the Form 1-A/A filed
contemporaneously with this letter when such link becomes
available.
2.
We
note your revised disclosure regarding the increase in price per
unit due to decrease in bonus units issued after the completion of
each tranche. Please revise to offer the units at a fixed price for
the duration of the offering. Refer to Rule 251(d)(3)(ii) of
Regulation A.
Issuer’s
Response:
We
respectfully disagree with the Staff’s comment. We do not
believe that Rule 251(d)(3)(ii) serves to prohibit an issuer from
offering bonus securities to investors purchasing under certain
circumstances in a fixed priced offering, effectively resulting in
a reduced offering price to those investors.
On its
face, Rule 251(d)(3)(ii) prohibits the “at the market”
offering, and further defines “at the market” to mean
“an offering of equity securities into an existing trading
market for outstanding shares of the same class at other than a
fixed price.” There is no existing trading market for the
Units offered by the Issuer. Further the price for the Units does
not fluctuate, rather there is a fixed cost to an investor per
tranche of the offered Units. Because the Units are not being
offered into an existing market and the price per Unit is fixed,
subject to the issuance of a fixed amount of bonus Units per
tranche resulting in a fixed reduction in the effective cost per
Unit in each tranche, we believe that the issuance of the bonus
Units and attendant reduction in the effective cost per Unit is not
prohibited by Rule 251(d)(3)(ii) of Regulation A.
3.
We
note your disclosure on the cover page and throughout that "the
initial closing date will occur at the Company's sole discretion
and may be any date after the Company has received and accepted
subscriptions and before the Termination Date" and that "[i]f on
the initial closing date, [you] have sold less than the Maximum
Offering Amount, then [you] will hold one or more additional
closings for additional sales, up to the Maximum Offering Amount,
through the Termination Date." We further note your statement that
"If a closing of the Offering does not occur for any reason, the
proceeds from such closing will be promptly returned to investors
without interest."
Please
add a risk factor that addresses the risk that investors will not
know the date on which their closing will occur when they subscribe
for the shares or tell us why you believe this is not necessary. In
addition, please discuss the circumstances under which a closing
may not occur. Please also disclose what rights the investors have
after remitting payment but prior to closing. For example, please
disclose whether they may request that the funds be returned to
them prior to closing.
Issuer’s
Response:
Please
see the issuer’s revised disclosure regarding the initial and
subsequent closings of the offering on the cover page and elsewhere
within the offering circular. We have indicated that the initial
closing will occur within a month of the receipt of the first
subscription in the offering and subsequent closings will occur
monthly thereafter. We have further disclosed that a subscriber may
not request the return of the subscriber’s subscription
payment once a subscription is submitted to and accepted by the
Issuer. Each subscriber will know that his closing date will be no
later than a month from when his subscription is submitted and
accepted, and, resultingly, we do not believe a risk factor
relating to a subscriber not knowing when his closing will occur is
necessary.
Cover Page
4.
We
note your response to our prior comment 2 and reissue in part.
Please disclose in the footnotes to your table, if true, that
VidAngel will receive Common Units of the Company's membership
interest equal to 2.0% of the Company's aggregate outstanding
Membership Units as of the closing of the offering. In addition, we
note your revised disclosure on page 15 stating that, regardless of
the amount of units Cambria Capital places in this offering, you
will pay Cambria Capital at least $10,000 and that you will pay up
to $25,000 to Cambria Capital with the proceeds of the offering to
reimburse Cambria Capital for cost of its counsel. Please update
the footnotes in your table to disclose these payments to Cambria
Capital.
Issuer’s
Response:
As
noted on the cover page and elsewhere in the offering circular, we
have terminated our engagement with Cambria Capital. As a result,
we have included a footnote to the table on the cover page
indicating that we will reimburse $13,875 of accountable expense
incurred by Cambria Capital pursuant to the terms of our
engagement.
Risk Factors
Revenues – Revenues for Season 1 are likely to decrease over
time, page 6
5.
We
note your response to our prior comment 3 that "revenues for Season
1 will likely decrease over time as subsequent seasons of the
Series are released" and reissue in part. Please revise the risk
factor to address the risk that once the television show is
complete, regardless of how many seasons are produced, the revenues
from the produced seasons, over time, are likely to
decrease.
Issuer’s
Response:
In
response to the Staff’s comment, please see the
Issuer’s revised disclosure on page 6 of the
Amendment.
Failure to Raise Funds for Production, page 7
6.
We
note your revised disclosure of the risk that you may not raise
sufficient proceeds in this offering to complete production of
Season 1. Please disclose here and in your "Summary" section the
amount of funds necessary to complete production of Season
1.
Issuer’s
Response:
In
response to the Staff’s comment, please see the
Issuer’s revised disclosure on pages 1 and 7 of the
Amendment.
7.
We
note your statement that “The Company anticipates that the
proceeds from the Offering will be sufficient for it to complete
principal photography and post-production of Season 1.”
Please disclose the amount of funds needed to complete principal
photography and post-production of Season 1.
Issuer’s
Response:
In
response to the Staff’s comment, please see the
Issuer’s revised disclosure on page 7 of the
Amendment.
Use of Proceeds, page 16
8.
Please
describe any anticipated material changes in the use of proceeds if
all of the securities being qualified on the offering statement are
not sold pursuant to Instruction 3 of Item 6 of Form
1-A.
Issuer’s
Response:
In
response to the Staff’s comment, please see the
Issuer’s revised disclosure on page 16 of the
Amendment.
Securities Being Offered
General, page 26
9.
We
note your revised disclosure in response to our prior comment 6
regarding your mandatory arbitration provision in Article 12.5 of
your Amended and Restated Operating Agreement. Please further
revise your disclosure on page 26 in your offering statement to
expand your discussion of the mandatory arbitration provision's
scope and its potential impact on the rights of investors,
including whether the provision applies to claims made under the
federal securities laws.
If
your provision does not apply to claims made under the federal
securities laws, please revise the provision to clearly state that
it does not apply to federal securities law claims. To the extent
that your provision does apply to claims made under the federal
securities laws, please disclose that by agreeing to the provision,
investors will not be deemed to have waived your compliance with
the federal securities laws and the rules and regulations provided
thereunder.
In
discussing the scope of the provision, please also explain the
meaning of “this Agreement” as used in the provision,
and explain which matters would be subject to the mandatory
arbitration provision and not the exclusive forum provision. Your
disclosure should also address the enforceability of the provision
under relevant state law and how the provision could affect the
ability of investors to bring class-action lawsuits. In addition,
please revise your disclosure on page 6 to include a separate risk
factor addressing the effects of the provision on your
investors.
Issuer’s
Response:
The
Issuer has determined to remove the arbitration provision from its
Amended and Restated Operating Agreement. Please see the First
Amendment to Company’s Amended and Restated Operating
Agreement filed as Exhibit 2(d) to the Amendment.
10.
Please
revise to disclose the fee shifting provision in Article 12.13 of
your Restated and Amended Operating Agreement. Discuss the scope of
the provision, including the types of actions subject to the
fee-shifting provision, including whether you intend to apply the
provision to claims under the federal securities laws, and who
would be allowed to recover under the provision. In addition,
please add a risk factor that addresses the risks associated with
the fee-shifting provision.
Issuer Response:
In
response to the Staff’s comment, please see the
Issuer’s revised disclosure on pages 6 and 26 of the
Amendment.
11.
We
note your revised disclosure on page 26 in response to our prior
comment 6 regarding the exclusive forum provision in Article 12.4
of your Amended and Restated Operating Agreement. Please further
revise the disclosure in this section to address the exclusive
forum provision's scope, its enforceability and its potential
impact on the rights of investors. In discussing the scope of the
provision, please disclose and explain the provision's statement
regarding service of process. The provision seems to state that
service of process to a member may be effected by registered or
certified mail addressed to the company, as that is the only
address provided in Exhibit A.
In
addition, please revise your risk factor on page 6 to discuss the
effects of Article 12.4, including the possibility that the
provision may discourage unit holder lawsuits, or limit unit
holders’ ability to bring a claim in a judicial forum that it
finds favorable for disputes with the company and its officers and
directors.
Issuer Response:
In
response to the Staff’s comment, please see the
Issuer’s revised disclosure on pages 6 and 26 of the
Amendment. Please note that we have indicated that the exclusive
forum provision may not be enforceable in all jurisdictions. We do
not believe we can describe the enforceability of the exclusive
forum clause beyond such statement because to do so would place an
untenable burden on the Issuer of knowledge of the laws (including
common law) with respect to the enforceability of exclusive forum
provisions of operating agreements in each jurisdiction from which
an investment may hail.
With
regard to the service of process on a member, the provision does
not provide that service on a member may be delivered to the
company, but rather to the member’s address on Exhibit A as
updated by the Manager or Transfer Agent in accordance with Section
3.1. The Issuer has engaged Direct Transfer, LLC as its transfer
agent and expects that the Direct Transfer, LLC, or a successor
transfer agent, will keep and maintain the Issuer’s register,
containing the members’ addresses among other
information.
Description of Our Business
Writer Work-For-Hire Agreements, page
18
12.
We
note your response to our prior comment 5 and reissue. On page 18,
you disclose that pursuant to the Writer Work-For-Hire Agreements,
you paid $18,337.09 to Mr. Jenkins, $12,499.60 to Mr. Thompson and
$12,499.50 to Mr. Swanson. However, the compensation in the
Work-For-Hire Agreements for Mr. Jenkins, Mr. Thompson and Mr.
Swanson do not seem to correspond to the amounts paid to each.
Please revise to describe and clarify the material terms of each
agreement.
Issuer’s
Response:
The
Issuer has revised its disclosure on page 18 of the Amendment to
describe that each of writers has been paid a total of $22,499 in
cash to date for writing episodes of Season 1. The Issuer has
entered into two written agreements, one relate to writing the
pilot episode and one related to writing episode two, with each of
the writers. In addition, as disclosed on page 18, pursuant to oral
agreements with the Issuer, each writer had begun to write episode
three and has received payment of $4,166.50. The writing for
episode three is currently paused pending the commencement of the
offering.
The
Issuer respectfully believes that the information contained herein
is responsive to the Comments. Please feel free to contact me at
the above number for any questions related to this letter. We
appreciate the Staff’s timely response.
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Very
truly yours,
/s/ Robert R. Kaplan, Jr.
Robert
R. Kaplan, Jr.
|
cc:
Derral Eves (via
electronic mail)
T. Rhys
James, Esq. (via electronic mail)
Kaitlin
L. Cannavo, Esq. (via electronic mail)