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Item 4. Purpose of Transaction.
Reference is made to that certain letter from Ergon, Inc. (“Ergon”), the parent of Blueknight Energy Partners G.P., LLC (the general partner of the Issuer (the “General Partner”)), to the Board of Directors of the General Partner (the “Board”), dated October 8, 2021, a copy of which was filed as Exhibit 99.H to a Schedule 13D/A filed by Ergon and certain other persons related thereto on October 8, 2021 (the “Ergon Letter”). Pursuant to the Ergon Letter, Ergon proposed to acquire all of (i) the outstanding Common Units representing limited partner interests in the Issuer and (ii) the outstanding Series A Preferred Units representing limited partner interests in the Issuer, in each case, not already owned by Ergon and its affiliates (the “Proposed Transaction”). The Reporting Persons believe that the consideration being offered for the Common Units in the Proposed Transaction substantially undervalues the Common Units. As a result, the Reporting Persons currently intend to oppose the Transaction, including with respect to the Common Units beneficially owned by the Reporting Persons.
On October 12, 2021, the Reporting Persons delivered to the Board a copy of the letter attached hereto as Exhibit 99.2, the contents of which are incorporated herein by reference.
The Reporting Persons intend to review their investment in the Issuer on a continuing basis. Depending on various factors including, without limitation, the Issuer’s financial position and investment strategy, the price levels of the Common Units and the Series A Preferred Units, conditions in the securities markets and general economic and industry conditions, the Reporting Persons intend to continue to consider, explore and/or develop plans and may in the future take such actions with respect to their investment in the Issuer as they deem appropriate including, without limitation, engaging in communications with the Issuer’s management and the Board (including the Conflicts Committee of the Board), engaging in discussions with shareholders of the Issuer and others about the Proposed Transaction, as it may be modified from time to time, and the Issuer and the Reporting Persons’ investment, making proposals to the Issuer concerning changes to the Proposed Transaction, capital allocation strategy, capitalization, ownership structure, other strategic transactions, including business combinations, a sale of the Issuer as a whole or in parts or acquisitions or investments by the Issuer, Board structure (including Board composition), operations of the Issuer, purchasing additional Units, selling some or all of their Units, engaging in short selling of or any hedging or similar transaction with respect to the Units, or take any other actions with respect to their investment in the Issuer permitted by law, including any or all of the actions set forth in paragraphs (a)-(j) of Item 4 of Schedule 13D. The Reporting Persons may at any time reconsider and change their plans or proposals relating to the foregoing.
Item 5. Interest in Securities of the Issuer.
The responses of the Reporting Persons to rows 7, 8, 9, 10, 11 and 13 on the cover pages of this Schedule 13D are incorporated herein by reference.
(a)–(b) Each Reporting Person’s beneficial ownership of the Common Units as of the date of this Schedule 13D is reflected on that Reporting Person’s cover page. DG Capital and Dov Gertzulin beneficially own, in the aggregate, 3,193,778 Common Units, representing approximately 7.69% of the Issuer’s Common Units issued and outstanding. DG Value beneficially owns 2,746,825 Common Units, representing approximately 6.62% of the Issuer’s Common Units issued and outstanding. The percentages herein are calculated based on 41,513,083 Common Units issued and outstanding as of July 29, 2021, as reported in the Issuer’s Quarterly Report on Form 10-Q filed with the Commission on August 4, 2021.
The Common Units reported herein are held by private investment funds, including DG Value Partners II Master Fund, LP, and separately managed accounts (the “DG Entities”) for which DG Capital serves as the investment manager. Dov Gertzulin serves as the managing member of DG Capital. By virtue of these relationships, the Reporting Persons may be deemed to have shared voting and dispositive power with respect to the Common Units owned directly by the DG Entities. This report shall not be deemed an admission that the Reporting Persons are beneficial owners of the Common Units for purposes of Section 13 of the Securities Exchange Act of 1934, as amended, or for any other purpose. Each of the Reporting Persons disclaims beneficial ownership of the Units reported herein except to the extent of the Reporting Person’s pecuniary interest therein.
(c) On October 11, 2021, DG Capital acquired through two open market purchases (i) 1,202 Common Units at a price of $3.23 per unit, and (ii) 798 Common Units as a price of $3.23 per unit. There have been no other transactions effected by the Reporting Persons during the past sixty (60) days with respect to the Issuer’s Common Units.
