THERMAL INDUSTRIES, INC.
301 Brushton Avenue
Pittsburgh, Pennsylvania 15221
(412) 244-6400
__________________________________
SUPPLEMENT TO PROXY STATEMENT
dated May 6, 1997
for
SPECIAL MEETING OF SHAREHOLDERS
To Be Held on May 22, 1997
__________________________________
Thermal Industries, Inc. (the "Company") received the
following letter dated May 6, 1997 from Quest Advisory Corp., a
holder of approximately 7.3% of the Company's Common Stock:
Board of Directors
Thermal Industries, Inc.
301 Brushton Avenue
Pittsburgh, PA 15221-2168
Gentlemen:
I am writing to request clarification of certain
important issues in the third Preliminary Proxy
Statement Schedule 14A that Thermal Industries filed
with the Securities and Exchange Commission on April
29, 1997.
On page 14 (of a copy downloaded from the EDGAR
system), the Proxy Statement states that:
"Thermal's Board has determined to take no action with
respect to the Hicks Muse Proposal. . . The Board made
its determination and took these actions because of (i)
the position of the principal shareholders regarding
the HIG Merger and the Hicks Muse Proposal, (ii) the
importance of avoiding exposing the Company to paying a
substantial fee to HIG pursuant to the HIG Merger
Agreement and (iii) uncertainty regarding the effect
upon the Hicks Muse Proposal, including whether the $19
per share offered price would be reduced, if Thermal
became obligated to pay a significant fee to HIG
pursuant to the HIG Merger Agreement."
The Proxy Statement then goes on to spell out the
provisions that would obligate Thermal to pay HIG $5
million and reimburse its expenses up to $500,000.
None of these provisions bar the Board from exploring
further the Hicks Muse Proposal in accordance with the
Board's fiduciary duties. Indeed, these fiduciary
duties are explicitly referenced on page 26:
Nonsolicitation. The Merger Agreement provides that
Thermal and its respective subsidiaries will not,
directly or indirectly, authorize or permit any of its
officers, directors, employees, representatives and
agents to solicit or encourage, or take any other
action to facilitate, any inquiries or the making of
any proposal which constitutes, or may reasonably be
expected to lead to, any takeover proposal, or agree to
or endorse any takeover proposal or participate in any
discussions or negotiations, or provide third parties
with any nonpublic information, relating to any such
inquiry or proposal, EXCEPT TO THE EXTENT THERMAL'S
BOARD MAY PROVIDE SUCH INFORMATION AS MAY BE REQUIRED
BY ITS FIDUCIARY DUTIES. . ." (emphasis added).
(1) Did the Board obtain independent legal advice to determine
if the Board's fiduciary duties required it to obtain further
information on the Hicks Muse Proposal? If the Board did not,
what was the reason it did not do so? Why were these important
issues not explored in the Proxy Statement?
(2) We have been reliably informed that the $19 per share offer
was indeed net of all break-up fees. Does the Board not consider
that resolution of this point clearly material to an informed
vote of the shareholders at the proposed special meeting?
This seems particularly true because--absent the break-
up fee--the Hicks Muse offer is worth about $21.50 per
share, 43% more than the HIG offer. Do you not agree
that information of this type would be materially
useful to shareholders with respect to their decisions
on appraisal rights?
(3) According to the Proxy Statement, HIG was offered
"an exclusivity period of approximately one month to
perform due diligence, negotiate the acquisition and
[demonstrate financial ability]".
Hicks Muse has requested a 10-day period to do its own
due diligence. Under the circumstances, why should the
Board not allow this to take place, given their
fiduciary responsibilities?
It seems to us particularly bizarre that the Board
has acquiesced to the notion that the principal
shareholders (in their fiduciary roles as members of
the Board of Directors) could possibly have formed the
belief:
"that HIG would represent a better strategic fit for
Thermal and the HIG Merger would be better for
Thermal's employees and the communities in which
Thermal is located."
if the principal shareholders have not even explored
the proposal with Hicks Muse in their Board roles.
Indeed, the Board itself has noted the importance
of examining such offers carefully in the section
entitled "Recommendation of the Board and Reasons for
the Merger":
"The Board believes that the sale of the Company is the
best way to maximize the value of Thermal's stock for
its shareholders."
"In evaluating...whether or not to authorize and
approve the Company's entering into [the HIG agreement]
and to recommend to the shareholders that they vote for
such a merger, the Board Considered (sic) a number of
factors."
The first, or "relatively most important" one was:
"(i) the absence of any firm offers or indications of
interest to purchase Thermal from third parties at a
price equal to or exceeding the Merger Consideration."
As beneficial shareholders of approximately 7.3%
of Thermal's shares, we have our own fiduciary
responsibilities to examine these important issues. We
regard that the Board's response to these questions is
material to decisions that will be made by all
shareholders and should, as a matter of fairness, be
included in t he final proxy material.
Given the information so far provided to us in the
Preliminary Proxy Statement, we intend to vote against
the Merger Agreement and perfect our appraisal rights.
Sincerely,
W. Whitney George
Managing Director
The Company issued the following response to the three
questions raised in the above letter:
(1) The reasons for the Board of Directors' actions regarding
the Hicks Muse proposal are set forth on page 9 in the Proxy
Statement:
"The Board made its determination and took these
actions because of (i) the position of the
principal shareholders regarding the HIG Merger and
the Hicks Muse Proposal, (ii) the importance of
avoiding exposing the Company to paying a
substantial fee to HIG pursuant to the HIG Merger
agreement and (iii) uncertainty regarding the
effect upon the Hicks Muse Proposal, including
whether the $19 per share offered price would be
reduced, if Thermal became obligated to pay a
significant fee to HIG pursuant to the HIG Merger
agreement."
(2) The Board of Directors' belief regarding the Hicks Muse
proposal and the break-up fees are set forth in the sentence
quoted above. Since the Board of Directors has not received any
additional information from Hicks Muse regarding this issue, it
cannot provide any additional comment on this issue.
(3) The reasons for the Board of Directors' actions are set
forth in the material above quoted from the Proxy Statement.
May 7, 1997
