Item 1.01. Entry into a Material Definitive Agreement.
On January 15, 2013, our wholly owned subsidiary, Earth911, Inc., a Delaware corporation (Earth911), entered into an
Option Agreement (the Option Agreement) with Quest Resources Group, LLC, a Delaware limited liability company (Seller), pursuant to which Earth911 acquired an option (the Option) to purchase all of the issued and
outstanding membership interests of Quest Resource Management Group, LLC, a Delaware limited liability company (Quest), held by Seller, comprising 50% of the membership interests of Quest. Earth911 currently holds the remaining 50% of
the membership interests of Quest. Upon Earth911s exercise of the Option, Quest will become a wholly owned subsidiary of Earth911. Quest engages in the business of recycling management for large and mid-size corporations in the automotive
aftermarket, fleet, municipal, food service, hospitality, retail, office building, construction, hospital, and manufacturing industries.
The Option became exercisable by Earth911 as of January 22, 2013 following the satisfaction of all of the conditions to effectiveness of the Option set forth in the Option Agreement and will remain
exercisable until April 30, 2013, or such later date as may be agreed to by the parties. The exercise of the Option is in Earth911s sole discretion and will take place three business days following Earth911s written notice to Seller
of Earth911s intention to exercise the Option (the Closing).
The exercise price to be paid to Seller in
connection with Earth911s exercise of the Option will be an amount equal to the total of (a) $25,000,000 plus (b) $5,000,000 of our common stock, based on the average closing stock price of our common stock for the five-day period
ending three days prior to the Closing. In addition, Seller will be entitled to receive earn-out payments of (a) $5,000,000 of our common stock, based on the average closing stock price of our common stock for the five-day period following
Earth911s receipt of the 2013 audit report, if the 2013 EBITDAS (as defined in the Option Agreement) meets or exceeds a certain defined target, and (b) amounts equal to 10% of the amount by which the 2013 EBITDAS, 2014 EBITDAS, 2015
EBITDAS, 2016 EBITDAS, and 2017 EBITDAS (each as defined in the Option Agreement) exceed certain defined targets.
In
connection with a future Closing under the Option Agreement, Seller is required to deliver the following: (a) an employment agreement (the Employment Agreement) with Brian Dick, the Chief Executive Officer of Quest; (b) a
consulting agreement (the Consulting Agreement) with Jeff Forte, the current President of Quest; and (c) non-competition agreements (the Non-Competition Agreements) executed by each of Messrs. Dick and Forte in their
capacity as principal owners of Seller.
The Employment Agreement will provide for Mr. Dicks continued service as
Chief Executive Officer of Quest for a period of five years. Mr. Dick will be entitled to receive a base salary of $300,000 per annum; an annual bonus based upon achievement of performance goals as determined by the Board of Directors of Quest,
which bonus for 2013 will not be less than $250,000 if the 2013 EBITDAS (as defined in the Option Agreement) meets or exceeds a certain defined target; and annual stock-based compensation awards determined by our Board of Directors. Mr. Dick
will also be eligible to participate in executive compensation programs, group insurance, pension, retirement, vacation, expense reimbursement, and other plans, programs, and benefits approved by the Board of Directors of Quest and generally made
available to executive employees of Quest. Mr. Dick also will be entitled to severance benefits in certain events following a termination of employment by Quest or following a change in control as described in the Employment Agreement. The
Employment Agreement will also provide for a non-competition period equal to the longer of 12 months after the termination of Mr. Dicks employment with Quest and the period during which Mr. Dick receives cash severance and for
non-solicitation of employees and customers of Quest for a period of 24 months after the termination of Mr. Dicks employment with Quest.
The Consulting Agreement will provide for Mr. Fortes continued service to Quest as a Special Projects Consultant on a part-time basis for a period of five years. Mr. Forte will be entitled
to receive compensation of $25,000 per annum. Mr. Forte will also be eligible to participate in any group insurance, pension, retirement, vacation, expense reimbursement, and other plans, programs, and benefits approved by the Board of
Directors of Quest and generally made available to part-time employees of Quest. The Consulting Agreement will also provide for a non-competition period of 12 months after the termination of Mr. Fortes engagement with Quest and for
non-solicitation of employees and customers of Quest for a period of 24 months after the termination of Mr. Fortes engagement with Quest.
The Non-Competition Agreement for each of Messrs. Dick and Forte will provide that Messrs.
Dick and Forte may not engage or become financially interested in any Competitive Business within the Restricted Territory (each as defined in the Non-Competition Agreement) for a period of six years from the date of the Closing. The Non-Competition
Agreements will also provide restrictions with respect to customers of Quest and non-solicitation of employees of Quest for a period of six years from the date of the Closing.
The Option Agreement is subject to termination prior to the Closing only (a) by mutual agreement of the parties, or (b) at the option of Earth911 or Seller, if there have been instituted and
pending or threatened any legal proceeding before any court or governmental agency seeking to restrain or prohibit or to obtain damages in respect of the Option Agreement or the consummation of the transactions contemplated by the Option Agreement,
or if any order restraining or prohibiting the transactions contemplated by the Option Agreement have been issued by any court or governmental agency and are in effect.
A copy of the Option Agreement is attached hereto as Exhibit 2.5 and is incorporated by reference into this Item 1.01. The foregoing description of the Option Agreement and the transactions
contemplated thereby is a summary only and does not purport to be a complete description of all of the terms, provisions, covenants, and agreements contained in the Option Agreement, and is subject to and qualified in its entirety by reference to
the full text of the Option Agreement.
The Option Agreement has been included to provide investors and security holders with
information regarding its terms. It is not intended to provide any other factual or financial information about Earth911, Seller, Quest, or their respective subsidiaries or affiliates. The representations, warranties, and covenants contained in the
Option Agreement were made only for purposes of that agreement and as of specific dates; were solely for the benefit of the parties to the Option Agreement; may be subject to limitations agreed upon by the parties, including being qualified by
confidential disclosures made for the purpose of allocating contractual risk between the parties to the Option Agreement instead of establishing these matters as facts; and may be subject to standards of materiality applicable to the contracting
parties that differ from those applicable to investors. Investors should not rely on the representations, warranties, and covenants or any description thereof as characterizations of the actual state of facts or condition of Earth911, Seller, Quest,
or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations, warranties, and covenants may change after the date of the Option Agreement, which subsequent information may or may
not be fully reflected in public disclosures. The Option Agreement should not be read alone, but should instead be read in conjunction with the other information regarding the companies and the proposed transaction that will be contained in, or
incorporated by reference into, our public disclosures.