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TESTA, HURWITZ & THIBEAULT, LLP
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ATTORNEYS AT LAW
125 High Street
Boston, Massachusetts 02110-2704
Office (617) 248-7000 Fax (617) 248-7100
Direct Dial: (617) 248-7292 E-Mail: burnett@tht.com
January 24, 2005
VIA FAX AND EDGAR
United States Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Mr. Russell Mancuso, Branch Chief
Division of Corporation Finance
Re: Ionics, Incorporated
Amendment No. 1 to Preliminary Schedule 14A filed January 14, 2005
File No. 001-07211
Dear Mr. Mancuso,
On behalf of our client, Ionics, Incorporated (the "Company" or "Ionics"),
we are conveying the Company's responses to the comments of the Staff (the
"Staff") of the Division of Corporation Finance of the Securities and Exchange
Commission (the "Commission") contained in your letter dated January 21, 2005 to
Mr. Stephen Korn, the Company's Vice President and General Counsel (the "Comment
Letter"), with respect to (i) the Company's response (the "January 14, 2005
Response") to the Staff's Comment Letter dated January 14, 2005, and (ii)
Amendment No. 1 to the Company's Preliminary Schedule 14A, which was filed with
the Commission on January 14, 2005 (the "Amended Proxy Statement"). Enclosed are
pages from the Amended Proxy Statement with the Company's proposed changes
responsive to the Staff's comments.
The responses and supplementary information set forth below have been
organized in the same manner in which the Staff's comments were presented in the
Comment Letter. The information set forth in this letter is being provided on a
supplemental basis to the Staff. Copies of this letter and the attachments to it
are also being delivered under separate cover to Eduardo Aleman of the Staff.
INTERESTS OF CERTAIN PERSONS IN THE MERGER - PAGE 6
COMMENT 1: PLEASE CLARIFY WHETHER ANY OF THE ARRANGEMENTS WERE CREATED SINCE THE
BEGINNING OF DISCUSSIONS ABOUT THE MERGER. ALSO, CLARIFY WHETHER PRESENTLY
ANTICIPATED ACTIONS WILL RESULT IN ANY PAYMENTS UNDER THE SEVERANCE AGREEMENTS.
Company Response: The Company has modified the disclosure in the Amended Proxy
Statement in response to the Staff's comment.
ECOLOCHEM - PAGE 8
COMMENT 2: CLARIFY YOUR DISCLOSURE TO RECONCILE THE 490,566 SHARES MENTIONED
HERE WITH 19.2% MENTIONED ON PAGE 6. TELL US THE NUMBER OF PARTIES TO THE
AGREEMENT AND HOW YOU SECURED THE VOTING AGREEMENT CONSISTENT WITH THE PROXY
RULES. ALSO CLARIFY WHO WOULD VOTE THE SHARES ABSENT THE VOTING AGREEMENT.
Company Response: The Company has modified the disclosure in the Amended Proxy
Statement to clarify the share numbers in response to the Staff's comment.
The five individuals who are the trustees of 19 trusts are the parties to
the Voting Agreement in their capacities as trustees. Those five individuals are
the record holders of the shares "held" by the trusts (including the shares held
in escrow). The Company believes that the five individual trustees have, and are
the only persons who have, the power (sole or shared) to vote all the shares
"held" in the names of the trusts, including the shares held in escrow. The
details regarding the voting authority of the various individuals with respect
to each trust are disclosed under the heading "Security Ownership of Certain
Beneficial Owners and Management" on page 51 of the Amended Proxy Statement.
With or without the Voting Agreement, the five individual trustees would have
the authority to vote the shares held in the names of the trusts.
Rule 14a-2(b)(2) exempts "[a]ny solicitation made otherwise than on behalf
of the registrant where the total number of persons solicited is not more than
10." In Crouch v. Prior, 905 F. Supp. 248, 257 (D.V.I. 1995), the court noted
that "to correctly count the number of persons solicited, the person soliciting
the shares must determine how many voting entities or persons actually hold the
voting rights for the shares being solicited." In this situation, the five
individuals who are party to the Voting Agreement as the trustees of the various
trusts actually hold the voting rights for the shares subject to the Voting
Agreement. As a result, the number of "persons" for these purposes subject to
the Voting Agreement is less than the 10 as permitted by Rule 14a-2(b)(2).
Further, two of the trustees, Lyman B. Dickerson and Frederick Stant, are
members of Ionics' board of directors. Therefore, both Mr. Dickerson and Mr.
Stant have intimate knowledge of Ionics, including its affairs and its strategic
alternatives. Both Mr. Dickerson and Mr. Stant voted to approve the Merger
Agreement and the Merger, and received and reviewed the fairness opinions and
related materials presented to Ionics' Board of Directors by the Company's
financial advisors.
THE MERGER - BEGINNING ON PAGE 18
COMMENT 3: PLEASE EXPAND YOUR DISCLOSURE IN RESPONSE TO COMMENT 4 TO DESCRIBE
WHY THE BOARD DECIDED TO ENGAGE TWO FINANCIAL ADVISORS (RATHER THAN ONE) AND
OBTAIN TWO FAIRNESS OPINIONS FOR THIS TRANSACTION (PARTICULARLY IN LIGHT OF THE
FACT DISCLOSED IN CONNECTION WITH COMMENT 8 THAT THE FINANCIAL ADVISORS DID NOT
PROVIDE INDEPENDENT FINANCIAL ANALYSES, BUT INSTEAD COLLABORATED). YOUR REVISED
DISCLOSURE SHOULD CLARIFY HOW A SECOND OPINION CONTRIBUTED TO MANAGEMENT'S
DELIBERATIONS GIVEN THAT EACH ADVISOR PERFORMED THE SAME ANALYSIS.
Company Response: The Company has modified the disclosure in the Amended Proxy
Statement in response to the Staff's comment.
COMMENT 4: PLEASE EXPAND YOUR DISCLOSURE IN RESPONSE TO THE SECOND SENTENCE OF
COMMENT 5 TO CLARIFY HOW THE PARTIES TO THE "ARM'S LENGTH NEGOTIATIONS"
DETERMINED THE PRICE TO OFFER.
Company Response: The Company has modified the disclosure in the Amended Proxy
Statement in response to the Staff's comment.
OPINIONS OF IONICS' FINANCIAL ADVISORS - BEGINNING ON PAGE 21
COMMENT 5: WE NOTE YOUR RESPONSE TO OUR PRIOR COMMENT 6. SUPPLEMENTALLY TELL US
(I) HOW MUCH COMPENSATION EACH FINANCIAL ADVISOR HAS RECEIVED FROM GE AND ITS
AFFILIATES WITHIN THE LAST TWO YEARS AND (II) WHY YOU BELIEVE SUCH INFORMATION
IS NOT NECESSARY FOR INVESTORS TO UNDERSTAND YOUR DISCLOSURE IN CONTEXT.
Company Response: The Company will verbally disclose to the Staff the
compensation each financial advisor received from GE and its affiliates within
the last two years.
The Company believes that disclosure of the compensation each financial
advisor received from GE and its affiliates within the last two years is not
required by the Commission's rules and is not material to stockholders decisions
as to how to vote on the Merger. As discussed in the January 14, 2005 Response,
the Amended Proxy Statement includes the information required to be disclosed by
the Commission's rules regarding the opinions it received from Goldman Sachs and
UBS. Those rules, however, do not require any specific disclosure of information
regarding relationships or compensation received by the Company's financial
advisors from GE (the other party to the transaction).
Further, the Company does not believe that disclosure of the compensation
paid by GE to Goldman Sachs or UBS is material. The standard for determining
materiality was set forth in TSC Industries, Inc. v. Northway, Inc., 426 U.S.
438 (1970):
An omitted fact is material if there is a substantial likelihood that a
reasonable shareholder would consider it important in deciding how to
vote. . . . What the standard does contemplate is a showing of a
substantial likelihood that, under the circumstances, the omitted fact
would have assumed actual significance in the deliberations of the
reasonable shareholder. Put another way, there must be a substantial
likelihood that the disclosure of the omitted fact would have been viewed
by the reasonable investor as having significantly altered the "total mix"
of information made available.
The Company does not believe that the addition of the amount of
compensation that Goldman Sachs and UBS received from GE would have actual
significance in the deliberations of a reasonable shareholder or would
significantly alter the "total mix" of information made available. In addition
to the information required by the Commission's rules, the Amended Proxy
Statement includes information regarding the investment banking and other
services that they had provided to GE. Ionics' board of directors was aware of
the investment banking and other services that Goldman Sachs and UBS had
provided to GE. GE, Goldman Sachs and UBS are large organizations with extensive
business relationships with many organizations. Based on publicly reported
financial information regarding Goldman Sachs and UBS, the amounts paid by GE to
Goldman Sachs and UBS for these matters are not material to Goldman Sachs and
UBS, respectively. Goldman Sachs and UBS are internationally recognized
investment banking firms that have substantial experience in transactions
similar to the Merger. Their businesses rely on their ability to advise their
clients appropriately in these transactions and to deliver independent advice as
to the fairness, from a financial point of view, of the consideration being paid
and the perception that they are able to do so.
The Amended Proxy Statement contains extensive disclosure regarding the
background to the Merger, Ionics' board of directors reasons for the Merger, the
terms and conditions of the Merger, and the analyses that the investment banks
conducted in reaching their conclusions, and includes the fairness
opinions. As is disclosed in the Amended Proxy Statement, the fairness opinions
and the financial advisors' analyses and advice constitute part of the reasons
for the Merger. In addition, since the Merger was publicly announced on November
24, 2004, no party has emerged to make any competing offer for the Company. In
light of these factors, the Company believes that the disclosure requested by
the Staff is not important to a reasonable stockholder in deciding how to vote,
would not have actual significance in the deliberations of a reasonable
shareholder and does not significantly alter the "total mix" of information made
available in the Amended Proxy Statement.
* * *
If you have any questions with regard to these responses, need further
information or would like to discuss any of the matters covered in this letter,
please contact Mr. Korn at (617) 926-2500 or the undersigned at (617) 248-7292.
Sincerely,
/s/ Mark H. Burnett
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Mark H. Burnett
Enclosure
cc: Eduardo Aleman
Douglas R. Brown
Stephen Korn, Esq.
James W. Burns, Esq.
Scott Seeley, Esq.
Howard Chatzinoff, Esq.