Vertex Energy (VTNRQ) SC 13DVertex Energy / CrowdOut Credit Opportunities Fund ownership change

The Reporting Persons acquired the Warrants (as defined below) through a series of loan fundings to the Issuer in connection with the transactions contemplated by the Loan and Security Agreement (as defined below). The source of funding for the term loans, in connection with which the Warrants were issued, was the working capital of CrowdOut Fund and CrowdOut Capital.

On April 1, 2022, CrowdOut Fund and CrowdOut Capital entered into a Loan and Security Agreement (such Loan and Security Agreement as amended to date, the “Loan and Security Agreement”) with the Issuer, as guarantor, and substantially all of the Issuer’s direct and indirect subsidiaries as borrowers or guarantors, the other lenders party thereto (together with CrowdOut Fund and CrowdOut Capital, collectively, the “Lenders”), and Cantor Fitzgerald Securities, in its capacity as administrative agent and collateral agent for the Lenders (the “Agent”).

Pursuant to the Loan and Security Agreement, the Issuer has borrowed an aggregate principal amount of $275 million of term loan from the Lenders, including an aggregate of approximately $15.0 million from CrowdOut Fund and CrowdOut Capital collectively, of which approximately $15.4 million in aggregate principal amount (inclusive of certain capitalized funding fees) held by CrowdOut Fund and CrowdOut Capital collectively remains outstanding, which amount excludes accrued and unpaid interest and certain other fees which have since been capitalized.

The term loans outstanding under the Loan and Security Agreement bear interest at a rate per annum equal to the sum of (i) the greater of (x) the per annum rate publicly quoted from time to time by The Wall Street Journal as the “Prime Rate” in the United States minus 1.50% as in effect on such day and (y) the Federal Funds rate for such day plus 0.50%, subject in the case of this clause (i), to a floor of 1.0%, plus (ii) 10.25%. Interest is payable in cash (i) quarterly, in arrears, on the last business day of each calendar quarter, (ii) in connection with any payment, prepayment or repayment of the term loans, and (iii) at maturity (whether upon demand, by acceleration or otherwise). The Issuer also agreed to pay certain fees and transaction expenses in connection with the term loans provided under the Loan and Security Agreement. Amounts owed under the Loan and Security Agreement, if not earlier repaid (including pursuant to certain required repayments on September 30, 2024 and December 31, 2024), are due on April 1, 2025.

Borrowings under the Loan and Security Agreement are secured by substantially all of the present and after-acquired assets of the Issuer and its subsidiaries. Additionally, the borrower’s obligations under the Loan and Security Agreement are jointly and severally guaranteed by the Issuer and substantially all of the Issuer’s subsidiaries. Borrowings under the Loan and Security Agreement are also secured by various deeds of trusts and mortgages for the real properties described therein, over the Issuer’s Mobile, Alabama refinery and substantially all other material owned and leased real property of the Guarantors including properties in Texas and Louisiana.

The Loan and Security Agreement includes customary indemnification obligations for a facility of this size and type, requiring the Issuer to indemnify the Agent and the Lenders for certain expenses, losses and claims.

In connection with the entry into the Loan and Security Agreement and various amendments thereto, and as additional consideration for the Lenders agreeing to loan funds to the Issuer thereunder, the Issuer granted warrants to purchase shares of Common Stock to the Lenders (“Warrants”). Such Warrants include limitations on exercise to the extent that such exercise would result in the Warrants holders (together with their affiliates and any other persons acting as a group, in each case, to the extent that such affiliates and persons acting as a group are required to aggregate their beneficial ownership of Common Stock for purposes of Section 13(d) or Section 16 of the Act) beneficially owning more than a certain percentage of the Common Stock outstanding (the “Beneficial Ownership Limitation”).

As of the date of this Schedule 13D, CrowdOut Fund and CrowdOut Capital collectively hold Warrants to purchase an aggregate 230,981 shares of Common Stock, consisting of:

All of the Warrants include weighted average anti-dilution rights and certain additional adjustment rights in the event that any person becomes the beneficial owner, directly or indirectly, of more than 33% of the Issuer’s Common Stock. In addition, the warrant agreements provide for certain put rights in connection with certain fundamental transactions described in the applicable warrant agreements and certain of the Warrants include limitations on exercise in the event that the Issuer does not receive any necessary stockholder approval under applicable Nasdaq listing rules, in which case the Issuer is required to pay the Lenders cash, based on the fair market value of any shares required to be issued upon exercise of Warrants that exceed the applicable share cap.

In connection with the issuance of the Warrants to the Lenders, including CrowdOut Fund and CrowdOut Capital, the holders of the Warrants entered into certain registration rights agreements with the Issuer (the “Registration Rights Agreements”), pursuant to which the Issuer agreed to provide certain customary registration rights (including shelf registrations as well as demand and piggyback registration rights) with respect to the shares of Common Stock issuable upon exercise of the Warrants.

On September 24, 2024, CrowdOut Fund and CrowdOut Capital entered into a Restructuring Support Agreement (the “Restructuring Support Agreement”) with the Issuer, certain of the Issuer’s affiliates (collectively with the Issuer, the “Company Parties”) and the other parties that together with CrowdOut Fund and CrowdOut Capital hold 100% of the claims under the Loan and Security Agreement (together with CrowdOut Fund and CrowdOut Capital, the “RSA Parties”), which represents an agreement between the Company Parties and the RSA Parties regarding agreed-upon terms for a financial restructuring of the Company Parties’ capital structure (such terms, the “Restructuring”) to be implemented pursuant to a chapter 11 plan filed by the Company Parties in cases (the “Chapter 11 Cases”) under chapter 11 of title 11 (“Chapter 11”) of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). Pursuant to the Restructuring Support Agreement, the Consenting Stakeholders (as defined in the Restructuring Support Agreement) have agreed, subject to certain terms and conditions, to support the Plan (as defined below). Capitalized terms used but not defined in this Schedule 13D have the meanings ascribed to them in the Restructuring Support Agreement.

The Restructuring Support Agreement contemplates the Restructuring. Pursuant to the Restructuring Support Agreement, the Debtors expect to effectuate a chapter 11 plan (the “Plan”) through either (a) a standalone recapitalization of the Issuer’s balance sheet; or (b) a sale of all, substantially all, or any portion of the Debtors’ assets through one or more sales (as applicable, a “Recapitalization Transaction”).

Pursuant to the Restructuring Support Agreement, the Consenting Stakeholders have agreed, subject to certain terms and conditions, to support the Plan, among other things.

If the Company Parties select a Successful Bid and such Successful Bid is approved by the Bankruptcy Court pursuant to an order, prior to the consummation of the asset sale, the Company Parties will establish and fund one or more reserves from cash on hand of the Company Parties and undrawn amounts under the DIP Facility (as defined below), in an amount determined in the Company Parties’ reasonable discretion and consented to by the Required Consenting Term Loan Lenders, sufficient to (a) fund the estimated fees, costs, and expenses necessary to fully administer and wind down the estates of the Company Parties, including the fees, costs, and expenses of the plan administrator selected by the Required Consenting Term Loan Lenders to wind down the Company Parties’ estates (the “Plan Administrator”), and (b) pay in full in cash all Claims required to be paid under the Bankruptcy Code and Plan in order for the Plan Effective Date to occur or otherwise be assumed or required to be paid under the terms of the Plan, in each case to the extent not liquidated and paid in full in cash on the Plan Effective Date (collectively, the “Wind Down Reserve”); provided, that (x) in no event shall the Wind Down Reserve constitute an increase to the DIP Facility at any time without the express consent of all of the DIP Lenders and (y) any new money term loans provided for the Wind Down Reserve shall be funded only in accordance with certain conditions, including, but not limited to, the absence of a default or event of default under the DIP Facility. Absent such an event of default, the Company Parties will be authorized to maintain the Wind Down Reserve in an amount and for such time as is necessary, each as determined by the Plan Administrator, to fully reconcile, liquidate, and pay in full in cash all applicable fees, costs, expenses, claims, and other obligations before distributing any excess distributable cash to holders of debtor-in-possession financing claims or any other claims and equity interests in accordance with the priorities and treatment described in the Restructuring Support Agreement.

The Restructuring Support Agreement also contemplates the cancellation of all existing equity interests of the Issuer, including the Common Stock and any interests arising from the Common Stock, including any options or warrants, at any time on or after the Plan Effective Date.

To fund the administration of the Chapter 11 Cases and the implementation of the Restructuring Transactions, all of the DIP Lenders will provide a $280 million senior secured super-priority debtor-in-possession loan and security agreement (such agreement, the “DIP Loan Agreement”, and the financing facility thereunder, the “DIP Facility”), consisting of (a) an $80 million new money term loan facility, including approximately $3.4 million from CrowdOut Fund and approximately $1.5 million from CrowdOut Capital, and (b) a “roll up” loan facility, whereby $200 million of Term Loan Claims, including an aggregate of approximately $9.2 million from CrowdOut Fund and an aggregate of approximately $3.0 million from CrowdOut Capital, will be converted on a cashless, dollar-for-dollar basis into DIP Facility loans on the terms and conditions set forth in the DIP Loan Agreement which provides for, among other things, granting a security interest in all assets of the Company Parties as collateral, and provides for a guarantee by the Company Parties. The DIP Facility will be used by the Issuer in accordance with the budget agreed upon between the Company Parties and the Required DIP Lenders.

The Company Parties will seek approval of the DIP Facility as is consistent with the DIP Loan Agreement, and the transactions contemplated by such DIP Loan Agreement are subject to approval by the Bankruptcy Court. In addition, the DIP Lenders’ obligations to provide the DIP Facility are subject to various conditions customary for debtor-in-possession financings of this type.

In accordance with the Restructuring Support Agreement, the Consenting Stakeholders agreed, among other things, to: (a) support the Restructuring Transactions as contemplated by, and within the timeframes outlined in, the Restructuring Support Agreement and the definitive documents governing the Restructuring Transactions; (b) not take action, in respect of each Consenting Stakeholder’s Company Claims/Equity Interests (as defined in the Restructuring Support Agreement), directly or indirectly, to interfere with acceptance, implementation, or consummation of the Restructuring Transactions; and (c) vote each of each Consenting Stakeholder’s Company Claims/Equity Interests owned, held, or otherwise controlled by such Consenting Stakeholder and exercise any powers or rights available to it, in each case, in favor of any matter requiring approval to the extent necessary to implement the Restructuring Transactions.

In accordance with the Restructuring Support Agreement, the Company Parties agreed, among other things, to: (a) support and take all steps reasonably necessary and desirable to consummate the Restructuring Transactions in accordance with the Restructuring Support Agreement; (b) use commercially reasonable efforts to obtain any and all required regulatory and/or third-party approvals for the Restructuring Transactions; (c) negotiate in good faith and use commercially reasonable efforts to execute and deliver certain required documents and agreements to effectuate and consummate the Restructuring Transactions as contemplated by the Restructuring Support Agreement; and (d) not, directly or indirectly, object to, delay, impede, or take any other action to interfere with acceptance, implementation, or consummation of the Restructuring Transactions.

The Restructuring Support Agreement may be terminated upon the occurrence of certain events set forth therein, including, among other things, the failure to meet specified milestones specified in the Restructuring Term Sheet and in any DIP order.

The foregoing descriptions of the Loan and Security Agreement, the warrant agreements, the Registration Rights Agreements and the Restructuring Support Agreement and the transactions and documents contemplated thereby do not purport to be complete and are qualified in their entirety by reference to each of those agreements which is filed as an exhibit hereto and are incorporated by reference herein.

As a result of the foregoing, the Reporting Persons may be deemed to have formed a “group,” as such term is used in Regulation 13D under the Act with the other parties to the Restructuring Support Agreement. The Reporting Persons disclaim any membership or participation in a “group” with such other parties to the Restructuring Support Agreement or their affiliates and further disclaims beneficial ownership of any shares of Common Stock beneficially owned by any such parties or their affiliates.

The Reporting Persons intend to review their investment in the Issuer on a continuing basis. Depending on various factors, including, without limitation, the status of the Restructuring Transactions, the terms of the Restructuring Support Agreement, the outcome of any discussions referenced above, the Issuer’s financial position, results and strategic direction, actions taken by the Issuer’s management and the Board, price levels of the shares of Common Stock, other investment opportunities available to the Reporting Persons, conditions in the securities market and general economic and industry conditions, the Reporting Persons may in the future take such actions with respect to their investment in the Issuer as they deem appropriate, including, without limitation, exchanging information with the Issuer or other third parties pursuant to appropriate confidentiality or similar agreements; proposing changes in the Issuer’s operations, management, Board, governance or capitalization; acquiring additional shares of Common Stock and/or other equity, debt, notes, instruments or other securities of the Issuer (collectively, “Securities”) or, subject to the limitations set forth in the Restructuring Support Agreement, disposing of some or all of the Securities beneficially owned by them, in public market or privately negotiated transactions; entering into financial instruments or other agreements that increase or decrease the Reporting Persons’ economic exposure with respect to their investment in the Issuer and/or otherwise changing their intention with respect to any and all matters referred to in Item 4 of Schedule 13D.

The information contained in rows 7, 8, 9, 10, 11 and 13 on each of the cover pages of this Schedule 13D is incorporated by reference in its entirety into this Item 5.

(a-b) The number of shares of Common Stock beneficially owned by each Reporting Person is based on an aggregate 230,981 Warrants beneficially owned by the Reporting Persons. This amount includes 147,486 Warrants directly owned by CrowdOut Fund and 83,495 Warrants directly owned by CrowdOut Capital. As the managing member of CrowdOut Fund, CrowdOut Capital may be deemed to indirectly beneficially own the 147,486 Warrants directly owned by CrowdOut Fund. As the managing members of CrowdOut Capital, Mr. Schoenbaum and Mr. Gilmore may be deemed to indirectly beneficially own the 147,486 Warrants directly owned by CrowdOut Fund and the 83,495 Warrants directly owned by CrowdOut Capital.

In addition, pursuant to Section 13(d)(3) of the Act, the Reporting Persons and the other parties to the Restructuring Support Agreement may, on the basis of the facts described elsewhere in this Schedule 13D, be considered to be a “group.” The Reporting Persons disclaim any membership or participation in a “group” with such other parties to the Restructuring Support Agreement or their affiliates and further disclaim beneficial ownership of any shares of Common Stock beneficially owned by such parties or their affiliates. Due to the ownership limitations described in Item 6 below, an aggregate 230,981 shares of Common Stock underlying the Warrants that are included in the Reporting Persons’ beneficial ownership reported herein may not be exercisable to the extent that the Reporting Persons are deemed to be members of a “group” with the other parties to the Restructuring Support Agreement. As noted above, the Reporting Persons disclaim any membership or participation in a “group” with such other parties to the Restructuring Support Agreement or their affiliates.

The percentage of shares of Common Stock beneficially owned by each Reporting Person is based on (i) 93,514,346 shares of Common Stock outstanding as of August 7, 2024, as disclosed on the Issuer’s quarterly report on Form 10-Q filed on August 8, 2024, plus (ii) 147,486 shares of Common Stock obtainable upon the conversion of the Warrants directly owned by CrowdOut Fund, and, for each of CrowdOut Capital, Mr. Schoenbaum and Mr. Gilmore, (iii) 83,495 shares of Common Stock obtainable upon the conversion of the Warrants directly owned by CrowdOut Capital, each of which (ii) and (iii) has been added to the total shares of Common Stock outstanding pursuant to Rule 13d-3(d)(1)(i) under the Act for the respective Reporting Person.

(c) The Reporting Persons have not effected transactions in the shares of Common Stock during the past sixty days.

(d) Not applicable.

(e) Not applicable.