Subsequent Events

9 Months Ended

Jul. 31, 2020

Subsequent Events [Abstract]

Subsequent Events

Subsequent Events

Chapter 11 Filing

On August 30, 2020, Shiloh Industries, Inc., a Delaware corporation, and its U.S. subsidiaries (together with Shiloh Industries, Inc., the “Debtors”) filed voluntary petitions (the “Bankruptcy Petitions,” and the cases commenced thereby, the “Chapter 11 Cases”) for relief under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Chapter 11 Cases are being jointly administered under the caption “In re Shiloh Industries, Inc.”

No trustee has been appointed and the Company will continue to manage itself and its subsidiaries as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code. In connection with the Chapter 11 Cases, the Debtors are seeking authority to sell substantially all of their assets pursuant to Section 363 of the Bankruptcy Code.

On September 1 and 2, 2020, the Bankruptcy Court issued orders approving the “first day” relief motions on an interim basis (the “Interim DIP Order”), authorizing the Company to, among other things, enter into the DIP Credit Agreement (as defined below) and initially borrow an approved amount, maintain existing cash management system and pay employee wages and benefits.

On September 1, 2020, we received notice from the Listing Qualifications Staff of the Nasdaq Stock Market LLC (“Nasdaq”) that it had determined to commence proceedings to delist our common stock at the opening of business on September 10, 2020 as a result of the Chapter 11 Cases. The Company does not intend to take any further action to appeal Nasdaq’s decision. Therefore, it is expected that the Company’s common stock will be delisted after the completion of Nasdaq’s application to the SEC to delist the Company’s common stock.

Stock and Asset Purchase Agreement

In connection with the Chapter 11 Cases, on August 30, 2020, the Debtors entered into a Stock and Asset Purchase Agreement (the “Stock and Asset Purchase Agreement”) with Grouper Holdings, LLC, a Delaware limited liability company (the “Purchaser”) and subsidiary of MiddleGround Capital LLC. Pursuant to the Stock and Asset Purchase Agreement, the Purchaser will acquire substantially all of the Debtors’ assets, including the equity interests of certain of the Debtors’ direct subsidiaries. The aggregate consideration for the purchased assets and equity interests will be $218 million in cash, subject to working capital and net debt adjustments, and assumption of certain liabilities of the Debtors.

The consummation of the transactions contemplated by the Stock and Asset Purchase Agreement is subject to customary closing conditions, including, among others, (i) entry of an order approving the Stock and Asset Purchase Agreement by the Bankruptcy Court; (ii) the accuracy of representations and warranties of the parties; and (iii) material compliance with the obligations set forth in the Stock and Asset Purchase Agreement.

The asset and equity purchase pursuant to the Stock and Asset Purchase Agreement is expected to be conducted under the provisions of Section 363 of the Bankruptcy Code and will be subject to proposed bidding procedures and receipt of higher or otherwise better competing bids. Upon entry by the Bankruptcy Court, the bidding procedures order will provide that Purchaser is the “stalking horse” bidder for the assets and equity identified in the Stock and Asset Purchase Agreement. The Stock and Asset Purchase Agreement calls for the Company to pay a break-up fee to Purchaser equal to $7.1 million upon the consummation of an alternate transaction involving the sale of a material portion of the Debtors’ assets to any person or entity other than the Purchaser (an “Alternative Transaction”). The Stock and Asset Purchase Agreement also provides for reimbursement of an amount not to exceed $1.5 million for expenses incurred by the Purchaser in connection with the Stock and Asset Purchase Agreement in the event the Stock and Asset Purchase Agreement is terminated in certain circumstances, including, among others, upon the entry into an Alternative Transaction.

DIP Financing

Filing of the Bankruptcy Petitions resulted in a default on the Credit Agreement. In connection with the Chapter 11 Cases, on August 30, 2020, the Debtors filed a motion (the "DIP Motion") seeking Bankruptcy Court approval of, among other things, interim and final approval of postpetition, debtor-in-possession financing on the terms set forth in that certain proposed Superpriority Secured Debtor-in-Possession Credit Agreement (the “DIP Credit Agreement”), among the Company, as borrower, the other Debtors as guarantors thereto, the various lenders from time to time party thereto and Bank of America, N.A., as administrative agent and collateral agent (the “DIP Agent”).

On September 2, 2020, the Company entered into the DIP Credit Agreement with the Lenders, as well as the related postpetition security and pledge agreements with the DIP Agent. The DIP Credit Agreement is subject to approval by the Bankruptcy Court, which has only been granted on an interim basis. The Debtors will seek final approval of the DIP Credit Agreement at a hearing before the Bankruptcy Court on or about September 25, 2020.

The DIP Credit Agreement provides for a senior secured superpriority debtor-in-possession financing in an aggregate principal amount not to exceed $123.5 million (the “DIP Facility”) consisting of (i) an approximately $23.5 million new money subfacility comprised of revolving loans and (ii) a roll-up of approximately $100 million of commitments under the Company’s existing revolving credit facility, which will be deemed loans under the DIP Facility. $18.1 million of the DIP Facility is available following entry of the Interim DIP Order and until the entry of the final order approving the DIP Credit Agreement (the “Final DIP Order”), secured by, among other things, (a) a first priority lien on all unencumbered tangible and intangible property and assets of the Loan Parties, (b) a first priority, senior priming lien on all prepetition collateral, and (c) all real property owned or leased by the Company or the Guarantors, subject to certain carve outs.

The proceeds from the DIP Financing will be used, subject to the Interim DIP Order and the Final DIP Order, for working capital, administrative costs, and premiums and fees associated with the Chapter 11 Cases, payment of court-approved prepetition obligations and other purposes such as are consistent with the DIP Credit Agreement or as otherwise approved by the agent and lenders.

Retention Bonus Plan

On August 25, 2020, the compensation committee of the board of directors (the “Board”) of the Company approved a Key Employee Retention Program, pursuant to which certain executive officers and key employees of the Company received one-time cash retention incentive awards (the “Retention Incentives”).

The Retention Incentives were paid on August 28, 2020 and are subject to the terms of the corresponding Retention Incentive Letter Agreements (the “Retention Letter Agreement”). Pursuant to the Retention Letter Agreement, if the employee terminates his or her employment for any reason or the employee’s employment is terminated by the Company for cause prior to the earlier of (i) the Closing Date (as such term is defined in the Retention Letter Agreement) or (ii) December 31, 2020, the employee will forfeit his or her entitlement to the Retention Incentive and must repay to the Company the full, aggregate amount of the Retention Incentive before the date on which the Company pays the employee his or her final wages.

Reorganization accounting

Effective August 31, 2020, we will apply ASC, No. 852, “Reorganizations” (“ASC 852”), which is applicable to companies under Chapter 11 bankruptcy protection. ASC 852 requires the financial statements for periods subsequent to the

Chapter 11 filing to distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Expenses, realized gains and losses, and provisions for losses that are directly associated with reorganization proceedings must be reported separately as “Reorganization items, net” in the condensed consolidated statements of operations. In addition, the balance sheet must distinguish between debtor pre-petition liabilities subject to compromise from pre-petition or post-petition liabilities that are not subject to compromise. Liabilities subject to compromise are pre-petition obligations that are not fully secured and have at least a possibility of not being repaid at the full claim amount.