October 8, 2013
VIA EDGAR
United States Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E., Stop 4631
Washington, DC 20549
Attn: Larry Spirgel, Assistant Director
This letter is being submitted in response to the comments provided by the Staff of the Division of Corporation Finance (the "Staff") of the United States Securities and Exchange Commission (the "Commission") set forth in your letter dated October 2, 2013 (the "Comment Letter") with respect to the above-referenced Proxy Statement on Schedule 14A filed by Zoom Technologies, Inc. (the "Company").
For your convenience, we set forth each comment from the Comment Letter in bold typeface and included the Company's response below it.
1. Please revise your proxy to address how the reverse stock split would impact the number of shareholders required under NASDAQ listing standards possibly triggering a going private transaction under Rule 13e-3. We note that in your Form 10-K for fiscal year ended December 31, 2013, you disclose having only 166 stockholders of record as of March 28, 2013.
We respectfully advise the Staff that the reverse stock split transaction (the "Transaction") will not have an impact on our Nasdaq eligibility and that the Transaction will not trigger a going private transaction under Rule 13e-3 ("Rule 13e-3") promulgated under the Exchange Act (the "Exchange Act") and nor is the Transaction part of a broader plan to take the Company private. In fact, as set forth in the proxy, the purpose of the Transaction is to the contrary, to allow the Company to remain on Nasdaq which requires a stock price in excess of $1.00 per share.
Rule 5550 of the Nasdaq Stock Market Rules requires that the Company, among other things, have "at least 300 Public Holders" to continue listing its equity securities on Nasdaq, where "Public Holders" are defined as "holders of a security that includes both beneficial holders and holders of record." The Company had more than 4,000 Public Holders before the Transaction, and the Company believes that it will continue to have greater than 4,000 Public Holders following the Transaction. To accommodate the Staff's concern, we have added the following disclosure to the last paragraph on Page 16:
"It is the Company's intent to continue to be listed on the Nasdaq after the Reverse Split. As of the date of this proxy statement, we believe we have more than 4,000 beneficial stockholders and 205 record shareholders. The Nasdaq Marketplace Rules requires we have more than 300 Public Holders, which is defined as "holders of a security that includes both beneficial holders and holders of record, but does not include any holder who is, either directly or indirectly, an Executive Officer, director, or the beneficial holder of more than 10% of the total shares outstanding" under Rule 5005. Because the decrease of the number of shares owned by each of our stockholders due to the Reverse Split will not decrease the number of our Public Holders, the Reverse Split should not affect our continued listing status on the Nasdaq."
Additionally, we have removed the following language from the first paragraph on Page 18:
"This has two disadvantages. First, the Nasdaq Marketplace Rules require that we have at least 300 round lot stockholders. Second,"
and have replaced "Second," with "Because". We have also removed "Consequently," from the first paragraph on Page 18 to make the sentence flow. We have attached the changed pages to our proxy statement to this correspondence.
With respect to Rule 13-e3, the Company's obligation to comply with Rule 13e-3 arises from its engagement in a Rule 13e-3 transaction (or series of transactions) which has a reasonable likelihood or a purpose of producing, either directly or indirectly, any of the following effects: (A) causing any class of equity securities of the issuer which is subject to section 12(g) or section 15(d) of the Exchange Act to become eligible for termination of registration under Exchange Act Rules 12g-4 or 12h-6 or causing the reporting obligations with respect to such class to become eligible for termination under Exchange Act Rule 12h-6; or suspension under Exchange Act Rule 12h-3 or Section 15(d) of the Exchange Act; or (B) causing any class of equity securities of the issuer which is either listed on a national securities exchange or authorized to be quoted in an inter-dealer quotation system of a registered national securities association to be neither listed on any national securities exchange nor authorized to be quoted on an inter-dealer quotation system of any registered national securities association.
We determined that Rule 13e-3 was not applicable to the Transaction because prior to and at the time of the preliminary proxy statement, the Company had fewer than 300 record holders of its securities and was therefore eligible, prior to delivering the proxy statement to the SEC, to terminate the registration of its common stock under Section 12g-4 and to suspend its obligation to report under Rule 12h-3 and Section 15(d). Pursuant to CD&I 104.01 of "Going Private Transactions, Exchange Act Rule 13e-3 and Schedule 13E-3," a transaction is not deemed to have "caused" a class of securities to become eligible for termination of registration or suspension of the obligation to report if an issuer was already eligible to terminate the registration under Section 12(g) or to suspend the obligation to report under Section 15(d) since the reduction in the number of security holders would not produce the going private effect specified in Rule 13e-3(a)(3)(ii)(A). Accordingly, the Transaction could not be deemed to have "caused" our common stock to become "eligible" for termination of registration or suspension of our obligation to report since our common stock was eligible for termination/suspension prior to sending the proxy. In addition, as we discussed above, we believe the Transaction will not cause our common stock to be delisted from Nasdaq because, after the Transaction, the Company will continue to have more than 300 Public Holders, which will satisfy Nasdaq continued listing requirement regarding number of Public Holders.
Finally, on page 16 of the preliminary proxy statement, we have indicated to our shareholders that the Transaction is not part of a broader plan to take the Company private.
End.
In preparing our response to the comments, the Company acknowledges that:
The Company is responsible for the adequacy and accuracy of the disclosures in our filings;
Staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and
The Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
We appreciate the assistance the Staff has provided with its comments. If you have any questions, please do not hesitate to call me at +86 138 2625 8562 or our counsel, David Selengut, Esq. of the law firm Ellenoff Grossman & Schole LLP at (212) 370-1300.
Sincerely,
/s/ Patrick Wong
Patrick Wong
Chief Financial Officer
with such Reverse Split to be effected at such time and date, if at all, as determined by the Board in its sole discretion. The Board is now asking you to approve this Amendment.
Effecting the Reverse Split requires that Article FOURTH of our Certificate of Incorporation be amended to include a reference to the Reverse Split. The additional text added to Article FOURTH, is attached as Appendix A to this proxy statement. If approved, the Amendment will be effective upon the filing of the Amended and Restated Certificate of Incorporation in the form attached as Appendix A with the Secretary of State of Delaware with such filing to occur at the sole discretion of the Board.
The intention of the Board in effecting the Reverse Split is to increase the stock price of our Common Stock, which is currently trading on The Nasdaq Capital Market ("Nasdaq"), to a level sufficiently above the $1.00 minimum bid price requirement that is required for continuing listing on Nasdaq.
One principal effect of the Reverse Split would be to decrease the number of outstanding shares of our Common Stock. Except for de minimus adjustments that may result from the treatment of fractional shares as described below, the Reverse Split will not have any dilutive effect on our stockholders since each stockholder would hold the same percentage of our Common Stock outstanding immediately following the Reverse Split as such stockholder held immediately prior to the Reverse Split. The relative voting and other rights that accompany the shares of Common Stock would not be affected by the Reverse Split. The table below sets forth the number of shares of our Common Stock outstanding before and after the Reverse Split based on [●] shares of Common Stock outstanding as of [●], 2013.
|
Prior to the |
Assuming a |
Assuming a |
||||
|
Aggregate Number of Shares of Common Stock |
[●] |
[●] |
[●] |
|||
Although the Reverse Split will not have any dilutive effect on our stockholders, the proportion of shares owned by our stockholders relative to the number of shares authorized for issuance will decrease because the Reverse Split does not change the current authorized number of shares of Common Stock (60,000,000). The remaining authorized shares may be used for various purposes, including, without limitation, raising capital, providing equity incentives to employees, officers or directors, effecting stock dividends, establishing strategic relationships with other companies and expanding our business through the acquisition of other businesses or products. We do not currently have any plans, proposals or arrangements to issue any of the newly available authorized shares for any purposes. In order to support our projected need for additional equity capital and to provide flexibility to raise the capital as necessary, our Board believes the number of shares of Common Stock should be maintained at 60,000,000.
The Reverse Split is not part of a broader plan to take us private. It is the Company's intent to continue to be listed on the Nasdaq
after the Reverse Split. As of the date of this proxy statement, we believe we have more than 4,000 beneficial stockholders and 205 record shareholders. The Nasdaq Marketplace Rules requires we have more than 300 Public Holders, which is defined as "holders of a security that includes both beneficial holders and holders of record, but does not include any holder who is, either directly or indirectly, an Executive Officer, director, or the beneficial holder of more than 10% of the total shares outstanding" under Rule 5005. Because the decrease of the number of shares owned by each of our stockholders due to the Reverse Split will not decrease the number of our Public Holders, the Reverse Split should not affect our continued listing status on the Nasdaq.16
The number of shares held by each individual stockholder would be reduced if the Reverse Split is implemented. This will increase
the number of stockholders who hold less than a "round lot," or 100 shares. This has two disadvantages. First, the Nasdaq
Marketplace Rules require that we have at least 300 round lot stockholders. Second,
Although our Board believes that the decrease in the number of our Common Stock outstanding as a consequence of the Reverse Split and the anticipated increase in the market price of our Common Stock could encourage interest in our Common Stock and possibly promote greater liquidity for our stockholders, such liquidity could also be adversely affected by the reduced number of shares outstanding after the Reverse Split.
Upon receipt of stockholder approval for the Amendment, if our Board concludes that it is in the best interests of our Company and our stockholders to effect the Reverse Split, the Board would determine the conversion ratio and the Amendment will be filed with the Secretary of State of Delaware. The actual timing of the filing of the Amendment with the Secretary of State of the State of Delaware to effect the Reverse Split will be determined by our Board. In addition, if for any reason our Board deems it advisable to do so, the Reverse Split may be abandoned at any time prior to the filing of the Amendment, without further action by our stockholders. The Reverse Split will be effective as of the date of filing with the Secretary of State of Delaware (the "Effective Time").
Upon the filing of the Amendment, without further action on our part or our stockholders, the outstanding shares of Common Stock held by stockholders of record as of the Effective Time would be converted into a lesser number of shares of Common Stock based on a Reverse Stock Split ratio as determined by the Board. For example, if you presently hold 1,000 shares of our Common Stock, you would hold 200 shares of our Common Stock following the Reverse Split if the ratio is one-for-five or you would hold 100 shares of our Common Stock if the ratio is one-for-ten.
Effect on Outstanding Shares, Options and Certain Other Securities
If the Reverse Split is implemented, the number of shares our Common Stock owned by each stockholder will be reduced in the same proportion as the reduction in the total number of shares outstanding, such that the percentage of our Common Stock owned by each stockholder will remain unchanged except for any de minimus change resulting from rounding up to the nearest number of whole shares so that we are not obligated to issue cash in lieu of any fractional shares that such stockholder would have received as a result of the Reverse Split. The number of shares of our Common Stock that may be purchased upon exercise of outstanding options or other securities convertible into, or exercisable or exchangeable for, shares of our Common Stock, and the exercise or conversion prices for these securities, will also be ratably adjusted in accordance with their terms as of the Effective Time.
|
Prior to the Reverse Split |
After the Reverse Split |
|
Warrants |
[8,638,604] |
[1,727,720] |
Options |
[1,910,000] |
[382,000] |
Effect on Registration
Our Common Stock is currently registered under the Securities Act of 1933, as amended, and we are subject to the periodic reporting and other requirements of the Securities Exchange Act of 1934, as amended. The proposed Reverse Split will not affect the registration of our Common Stock.
18