Exhibit 99.3
TRANSPRO, INC.
000 Xxxxx Xxxxx
Xxx Xxxxx, XX 00000
October 28, 2004
Modine Manufacturing Company
0000 XxXxxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxxxxx
Ladies and Gentlemen:
This letter outlines the terms upon which Transpro, Inc. ("Transfer")
proposes to acquire the business of Modine Manufacturing Company ("Thermal")
relating to the design, manufacturing, marketing, packaging and distributing of
thermal management products and systems to be supplied as replacement parts
through the vehicular aftermarket, excluding generally any such products or
systems supplied, directly or indirectly, to original equipment manufacturers
for any purpose (the "Business").
1. Transaction Structure. The proposed transaction would be comprised of
(i) the consolidation into Modine Aftermarket Holdings, Inc., a wholly
owned subsidiary of Thermal ("Newco"), of (A) all of the assets (other
than intellectual property) of Thermal that relate to or are used in
the Business and (B) all intellectual property of Thermal that is used
exclusively in the Business (the "Contribution"), (ii) the distribution
by Thermal of all of the issued and outstanding capital stock of Newco
to Thermal's shareholders on a pro rata basis (the "Spin-Off"), and
(iii) the acquisition by Transfer of all of the issued and outstanding
capital stock of Newco, through a merger of Newco with and into
Transfer in which the outstanding Newco stock would be converted into
shares of Transfer common stock (the "Merger"). For federal income tax
purposes, it is contemplated that (i) the Spin-Off would be tax-free to
Thermal and to the shareholders of Thermal pursuant to Section 355 of
the Internal Revenue Code of 1986, as amended (the "Code"), and (ii)
the Merger would qualify as a tax-free reorganization within the
meaning of Section 368 of the Code. Immediately following the Merger,
Thermal's shareholders would hold 54% of the shares of Transfer and
Transfer's shareholders would hold 46% of the shares of Transfer,
calculated as if shares of common stock into which all outstanding
Transfer preferred stock is convertible are outstanding and outstanding
Transfer stock options are fully exercised, consistent with the example
set forth in Annex A hereto.
2. OEM Stock Sale. Immediately prior to the Merger, Thermal would purchase
from Transfer, and Transfer would sell and deliver to Thermal, all of
the issued and outstanding shares of capital stock of G&O
Manufacturing, Inc., a wholly owned
subsidiary of Transfer ("G&O"), for a purchase price of $17 million in
cash (the "OEM Stock Sale"). Thermal and Transfer would agree to take
all actions necessary to make an election under Section 338(h)(10) of
the Code in respect of the OEM Stock Sale. The Contribution, the
Spin-Off, the OEM Stock Sale and the Merger are sometimes collectively
referred to herein as the "Transaction."
3. Closing. It is anticipated that definitive agreements concerning the
Transaction would be executed in November 2004 and that the closing of
the Transaction (the "Closing") would occur as soon as practicable
thereafter, following the satisfaction or waiver of all conditions to
Closing set forth in the definitive agreements providing for the
Transaction (the "Definitive Agreements").
4. Investigation and Due Diligence. Following execution of this letter by
the parties, Thermal and Transfer will be entitled to continue their
respective due diligence investigations of the Business and G&O and
each will provide the other with monthly financial statements regarding
the Business and the business of G&O, as applicable; provided, however,
that each party acknowledges that it believes it has completed the
basic transactional due diligence reviews necessary to permit it to
enter into the Definitive Agreements and agrees that, other than with
respect to environmental matters as described below, the Transaction
terms outlined in this letter will not be subject to change based upon
the parties' ongoing due diligence investigations. Thermal will have
the right to conduct further reasonable environmental investigations,
testing and/or due diligence (the "Environmental Due Diligence") at
Transfer's Jackson, Mississippi facility (the "Xxxxxxx Facility") and
Transfer will have the right to conduct reasonable Environmental Due
Diligence at Thermal's Mill, Netherlands facility, provided, that
Thermal or Transfer, as the case may be, provides the other reasonable
advance notice of any such Environment Due Diligence and the scope
thereof and endeavors to complete its respective Environmental Due
Diligence as expeditiously as practicable and with minimal disruption
to the other's normal operations. The Definitive Agreements would
provide that if, as of the Closing, the midpoint of the range of
estimated clean-up and related costs of one of the facilities exceeds
the midpoint of the range of estimated clean-up and related costs of
the other facility, the owner of the former facility prior to the
Closing would bear the cost differential, on a discounted cash flow
basis. Each party will be solely responsible for all costs and expenses
incurred in conducting its respective Environmental Due Diligence and
solely liable for any injuries or other losses suffered or incurred by
the persons conducting such Environmental Due Diligence on its behalf.
5. Definitive Agreements. The legal counsel of Transfer and Thermal will
collectively draft a definitive contribution agreement providing for
the Contribution and the Spin-Off, a definitive merger agreement
providing for the Merger and a definitive stock purchase agreement
providing for the OEM Stock Sale consistent with this letter containing
representations, warranties, agreements, conditions and non-compete
covenants of the type normally associated with such transactions,
including without limitation, customary representations and warranties
that will expire at Closing and a five-year noncompete binding upon
Transfer with respect to G&O's business and a five-year noncompete
binding upon Thermal with respect to the Business; provided, that the
foregoing non-competes will have customary exceptions for ownership of
publicly traded
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entities that engage in the restricted business and the acquisition and
subsequent ownership and operation by Transfer or Thermal, as
applicable, of any diversified company having attributes that do not
exceed certain mutually agreed to thresholds and certain other mutually
agreed to exceptions. The parties will negotiate in good faith with
respect to other provisions that may be appropriate in the
circumstances, including possible provisions for the registration of
stock received in the Merger by Thermal's employee benefit plans.
6. Conditions. The parties' obligations to consummate the Transaction
pursuant to the Definitive Agreements would be subject to a number of
customary conditions, including but not necessarily limited to the
following, as appropriate:
(a) all necessary corporate actions shall have been taken;
(b) the satisfaction of all governmental conditions or
obligations, including without limitation pursuant to the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
amended, and the obtaining of any other agreed to third-party
consents or approvals necessary for the consummation of the
transactions contemplated herein, including without
limitation the consent of Thermal's and Transfer's lenders;
(c) all assets (other than intellectual property), including the
Xxxxxxx Facility, owned by Transfer and used primarily by
G&O, and all intellectual property owned by Transfer and used
exclusively in the business of G&O, shall have been
transferred to G&O prior to the effective time of the OEM
Stock Sale;
(d) the receipt of a ruling from the United States Internal
Revenue Service or, if acceptable to both parties, an opinion
of Ernst & Young LLP regarding the Transaction and in form
and substance reasonably satisfactory to Thermal and, in
respect of the Merger, to Transfer, including a ruling that
the Contribution, the Spin-Off and the Merger are tax-free as
transactions described in Sections 355 and 368 of the Code;
(e) Transfer's shares shall be listed on the Nasdaq Stock Market
or a mutually acceptable stock exchange to be determined as
of the effective time of the Closing;
(f) each party's accountants shall have provided two customary
comfort letters, one dated as of the date the Form S-4
relating to the Transaction ("Form S-4") filed with the
Securities and Exchange Commission (the "SEC") is declared
effective and one dated as of the date of the Closing (the
"Closing Date");
(g) the Form S-4 shall have been declared effective prior to the
mailing of the disclosure document constituting a part
thereof by each of Thermal and Transfer to their respective
shareholders;
(h) Newco shall have $6.3 million in cash as of consummation of
the Spin-Off and net working capital (assuming a $2.0 million
increase in cash) consistent with
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past practice in light of its results of operations from
December 31, 2003 to the Closing Date;
(i) Thermal shall have implemented, at its option, a customer
sponsored program to factor NAPA's accounts receivable to
Thermal, estimated to be $2.5 million;
(j) no material adverse change shall have occurred with respect
to the Business or G&O, as applicable, in any case arising
from or relating to a breach by the applicable party of any
of its covenants or representations or warranties in the
Definitive Agreements that results from an act of or omission
by such breaching party;
(k) Transfer shall have delivered to Thermal audited financial
statements of G&O for the 2003 calendar year and through June
30, 2004 (the "G&O Financial Statements");
(l) Thermal shall have delivered to Transfer financial
statements, including a balance sheet, prepared by Thermal
for the Business for the period ending as close as
practicable to the Closing Date; and
(m) at a mutually agreed to time prior to the Closing, Thermal
and Transfer shall have delivered to each other supporting
information that confirms certain financial summaries
previously provided to each other.
7. Certain Governance Matters. The surviving company in the Merger would
be governed by a ten-member Board of Directors, which would include six
members of Transfer's existing Board and four members selected by
Thermal. One of Transfer's current outside directors will serve as
chairman of the surviving company's Board, and Xxxxxxx X. Xxxxxxx will
serve as the surviving company's chief executive officer.
8. Transition Services, Supply and Licensing Arrangements. (a) In order to
facilitate Thermal's transition of the business of G&O from Transfer to
Thermal and Thermal's transition of the Business to Newco, Transfer and
Thermal will enter into a Transition Services Agreement and Newco and
Thermal will enter into a Transition Services Agreement (collectively,
the "TSAs"). The TSAs will contain customary terms and conditions.
Under each TSA, Transfer or Thermal, as the case may be, will provide
(a "Provider") certain transition services after the Closing for an
initial period to be agreed upon (the "Initial Transition Period"), and
Thermal or Transfer, as applicable, will pay the Provider its fully
allocated costs of providing such services. However, if the Provider
provides transition services after the Initial Transition Period, the
beneficiary of the services may terminate the applicable TSA sooner
upon 30 days' notice as to categories of services, and Thermal or
Transfer, as applicable, will pay the Provider its fully allocated
costs of providing such services plus an additional amount to be agreed
upon.
(b) Thermal and Transfer will enter into a Supply Agreement
relating to the G&O business and Thermal and Newco will enter
into a Supply Agreement
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relating to the Business, pursuant to which Transfer will
sell to Thermal and Thermal will sell to Newco, as
applicable, certain products, to be agreed upon.
(c) The parties will enter into mutually acceptable long-term,
royalty-free, non-exclusive licenses permitting (i) Newco to
use patents and other intellectual property of Thermal that
are not currently used exclusively in the Business, as
identified therein, including improvements, and (ii) Thermal
to use patents and other intellectual property of Transfer
that are not currently used exclusively in G&O's business, as
identified therein, including improvements.
9. No-Shop, Break-Up Fee and Expenses. (a) Prior to December 15, 2004 or
such later date to which the parties agree in writing to extend this
letter agreement (the "Termination Date"), neither party will initiate
discussions or negotiations with any other party relating to a merger,
purchase or sale of assets or stock or other transaction that would be
intended or reasonably expected to preclude the completion of the
Transaction, including the sale of Transfer's G&O business to another
party or the sale of the Business to a third party or any such merger,
purchase or sale of assets or stock or other transaction involving
Thermal or Transfer that would prohibit, materially delay or otherwise
materially and adversely affect the likelihood of completing the
Transaction (any such merger, purchase or sale of assets or stock or
other transaction, a "Competing Transaction"); provided, however, that
the foregoing will not limit or restrict Transfer's possible sale of
its A/C business as previously described to Thermal. For the avoidance
of doubt, this paragraph will not, however, preclude either party from
taking such action as its board of directors determines is necessary to
comply with its fiduciary duties in response to any unsolicited
proposal for a Competing Transaction.
(b) If the Definitive Agreements are not executed prior to the
Termination Date, each of Transfer and Thermal will bear its
own expenses incurred in connection with this letter, except
that filing fees under the antitrust laws will be borne
equally by Thermal and Transfer. Notwithstanding the
foregoing, in the event that prior to the Termination Date a
party receives an unsolicited proposal or offer for a
Competing Transaction which it does not unconditionally
reject within 10 business days after receipt, then such party
will pay to the other party a break-up fee equal to $2.5
million.
(c) If the Definitive Agreements are executed, they would contain
an expense-sharing arrangement pursuant to which Newco would
bear an amount of Thermal's reasonable out-of-pocket third
party Transaction expenses (excluding expenses associated
with Thermal's audit of the Business, which will be borne
solely by Thermal) equivalent to the amount of out-of-pocket
third party expenses incurred by Transfer in connection with
the Transaction (disregarding for this purpose all expenses
associated with Transfer's audit of the G&O business),
payable to Thermal at the Closing, and provisions for
customary break-up fees and customary remedies for
intentional breaches of the applicable Definitive Agreements.
If the Definitive Agreements are executed but the Transaction
is not consummated, Thermal and Transfer will each bear its
own out-of-pocket expenses, except that filing fees under the
antitrust laws and expenses incurred in
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connection with the filing, printing and mailing of the Form
S-4 and associated proxy/information statement will be shared
equally.
(d) Neither party will have any liability or obligation hereunder
or otherwise relating in any way to the Transaction in the
event that the parties do not enter into Definitive
Agreements, except as provided in paragraph 9(b) and except
that nothing herein will affect a party's rights or
obligations under the confidentiality and standstill
agreement previously entered into by the parties.
10. Publicity. Following execution of this letter, each of Transfer and
Thermal will make a separate public announcement relating to the
execution of this letter and the Transaction, such announcements to be
coordinated by the parties and the content thereof to be approved in
advance by each of the parties. The parties will endeavor in good faith
to consult with each other after the date hereof concerning any
subsequent press releases or similar public announcements as well as
communications, and the content thereof, to employees, customers,
suppliers and any other person or entity.
11. General Provisions. The parties acknowledge that this letter omits many
terms, some of which are material. This letter is intended to be, and
will be construed only as, a letter of intent and not a binding
agreement, as the respective rights and obligations of the parties
remain to be defined in the Definitive Agreements (if and when executed
by the parties thereto), into which this letter of intent and all prior
discussions will merge; provided, however, the obligations of the
parties under paragraphs 9, 10 and 11 herein and the last sentence of
paragraph 4 herein will be binding upon the parties upon the execution
of this letter by the parties. Notwithstanding anything to the contrary
in this letter, the termination of this letter will not diminish or
otherwise affect the liability of a party for any intentional breach of
paragraph 9 occurring on or prior to such termination. This letter will
be governed by and construed in accordance with the laws of the State
of Delaware, other than the provisions governing conflict of laws
thereof. This letter may be executed in counterparts which, taken
together, will constitute a single original document.
[Remainder of Page Intentionally Left Blank]
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Please sign this letter in the space provided below, whereupon this
letter will be, to the extent provided herein, a valid and binding agreement of
the parties hereto.
Very truly yours,
TRANSPRO, INC.
By: /s/ XXXXXXX X. XXXXXXX
--------------------------------
Name: Xxxxxxx X. Xxxxxxx
------------------------------
Title: President and CEO
-----------------------------
Agreed:
MODINE MANUFACTURING COMPANY
By: /s/ X.X. XXXXXXXXXX
-------------------------------------------
Name: X.X. Xxxxxxxxxx
-----------------------------------------
Title: VP, Finance and Chief Financial Officer
----------------------------------------
Date: October 28, 2004
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Annex A
EXAMPLE
Assumptions:
Closing price of a share of Transfer Common Stock $6.00
Transfer option shares:(1) 191,817.00
Shares issuable upon conversion of Transfer preferred stock: 213,017.00
Outstanding shares of Transfer common stock: 7,106,023.00
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TOTAL 7,510,857.00
Calculation:(2)
7,510,857 / .46 = 16,327,950 total shares for purposes of the calculation
Thermal's shareholders would receive 8,817,093 shares (i.e., 16,327,950 x .54)
Transfer's shareholders would retain 7,106,023 shares and all options and
preferred stock would remain outstanding
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(1) To be calculated using the treasury method under United States generally
accepted accounting principles.
(2) To be calculated based on actual numbers and closing price of Transfer
common stock, in each case, at the close of business on the business day
preceding the Closing Date
