SCHEDULE 13D: Activist Investor Wynnefield Capital Secures Board Seat at Quest Resource Holding Corp

Wynnefield Capital, a significant shareholder, has entered into a Cooperation Agreement with Quest Resource Holding Corp, leading to the appointment of Robert Lipstein to the company's Board of Directors and an agreement on voting matters.

Summary

• Wynnefield Reporting Persons, including various Wynnefield entities and individuals Nelson Obus and Joshua Landes, collectively beneficially own 2,734,349 shares of Quest Resource Holding Corp Common Stock, representing approximately 13.3% of the outstanding shares as of May 7, 2025.
• The shares were acquired through open market purchases for an approximate total of $8,472,971, which includes brokerage commissions.
• On May 7, 2025, the Wynnefield Reporting Persons entered into a Cooperation Agreement with Quest Resource Holding Corp.
• Under the terms of the Cooperation Agreement, Quest's Board of Directors will expand by one member, and Robert Lipstein will be appointed as a Class III director with a term expiring at the Issuer's 2027 annual meeting of stockholders, and will also be appointed to the Audit Committee of the Board.
• The agreement includes provisions for a replacement director if Mr. Lipstein is unable to serve, contingent on the Wynnefield Reporting Persons continuously maintaining an "Ownership Minimum" of at least the lesser of 7.5% of outstanding shares or 1,545,480 shares.
• Wynnefield Reporting Persons have agreed to customary standstill provisions from the date of the Cooperation Agreement until 30 calendar days prior to the deadline for director nominations for the 2027 Annual Meeting, with a potential extension to the 2028 meeting if Mr. Lipstein is re-nominated and accepted.
• During the Cooperation Period, Wynnefield Reporting Persons will vote their shares in favor of Board-recommended director nominees and other proposals, with specific exceptions for Institutional Shareholder Services Inc. (ISS) and Glass Lewis & Co., LLC (Glass Lewis) recommendations on non-director proposals and sole discretion on Extraordinary Transactions.
• Quest Resource Holding Corp agreed to reimburse the Wynnefield Reporting Persons for their reasonable and documented legal fees, not to exceed $10,650.

Sentiment

Score: 7

Explanation: The document indicates a constructive resolution between a significant activist shareholder and the company, leading to a board appointment and a period of cooperation. This generally signals stability and a potential for improved governance, which is a positive development, though not directly tied to financial performance.

Positives

• Resolution of potential activist pressure through a Cooperation Agreement, indicating a constructive engagement between a significant shareholder and the company.
• Appointment of a new independent director, Robert Lipstein, to the Board and Audit Committee, potentially enhancing corporate governance and oversight.
• The agreement includes a voting commitment from a 13.3% shareholder, providing stability for Board-recommended proposals during the Cooperation Period.

Risks

• If the Wynnefield Reporting Persons fail to maintain the "Ownership Minimum" (lesser of 7.5% of outstanding shares or 1,545,480 shares), the newly appointed director, Robert Lipstein, would be required to resign.
• If the Wynnefield Reporting Persons deliver a notice of intent to nominate directors during the Cooperation Period, the newly appointed director would be required to resign, indicating a potential breakdown of the cooperative agreement.
• The standstill provisions and voting agreements are temporary, expiring prior to the 2027 Annual Meeting (or 2028 if extended), after which the Wynnefield Reporting Persons may pursue other actions regarding their investment.

Future Outlook

The Wynnefield Reporting Persons intend to continuously review their investment in Quest Resource Holding Corp. Subject to the Cooperation Agreement and applicable law, they may engage in discussions with other stockholders, management, and the Board regarding the Issuer's business, operations, future plans, corporate governance, and Board composition. Depending on various factors, including the Issuer's financial position, stock price levels, market conditions, and general economic/industry conditions, they may purchase additional shares, sell shares, engage in short selling or hedging, or take other actions with respect to their investment.

Management Comments

• "Mr. Obus may be deemed to hold an indirect beneficial interest in these shares... because he is a co-managing member of Wynnefield Capital Management, LLC, a principal executive officer of Wynnefield Capital, Inc. (the investment manager of Wynnefield Small Cap Value Offshore Fund, Ltd.), and a co-trustee of Wynnefield Capital, Inc. Profit Sharing Plan. The filing of this Schedule 13D and any future amendment by Mr. Obus... shall not be considered an admission that he, for the purpose of Section 16(b) of the Exchange Act, is the beneficial owner of any shares in which he does not have a pecuniary interest. Mr. Obus disclaims any beneficial ownership of the shares of Common Stock covered by this Schedule 13D."
• "The Wynnefield Reporting Persons intend to review their investment in the Issuer on a continuing basis, and to the extent permitted by the Cooperation Agreement and applicable law, may seek to engage in discussions with other stockholders and/or with management and the board of directors (the 'Board') of the Issuer concerning the business, operations, future plans or corporate governance of the Issuer as well as the Board's composition and structure."

Industry Context

This filing reflects a common dynamic in the public markets where activist investors, like Wynnefield Capital, acquire significant stakes in companies and then seek to influence corporate strategy, governance, or financial performance. Such agreements often aim to align shareholder interests with board decisions, potentially leading to operational improvements or strategic shifts. For Quest Resource Holding Corp, this indicates a period of increased shareholder oversight and potential strategic adjustments driven by a major investor.

Comparison to Industry Standards

• The appointment of an independent director from an activist investor group to the Audit Committee is a standard practice in cooperation agreements, aiming to enhance financial oversight and transparency, aligning with best practices for corporate governance.
• Standstill agreements and voting commitments are typical components of such agreements, providing a framework for constructive engagement and preventing disruptive proxy contests for a defined period. This is a common resolution for activist campaigns, seen across various industries when companies seek to avoid prolonged public disputes.
• The reimbursement of legal fees, while specific to this agreement ($10,650), is also a common clause in cooperation agreements, covering the activist's expenses incurred during negotiations.

Management Changes

Corporate Governance

Related Party Transactions

• Cooperation Agreement, dated May 7, 2025, between Wynnefield Reporting Persons and Quest Resource Holding Corporation, detailing board appointment, voting agreements, and standstill provisions.
• Joint Filing Agreement, dated May 8, 2025, among Wynnefield Partners Small Cap Value, L.P.; Wynnefield Partners Small Cap Value, L.P. I; Wynnefield Small Cap Value Offshore Fund, Ltd.; Wynnefield Capital, Inc. Profit Sharing Plan; Wynnefield Capital Management, LLC; Wynnefield Capital, Inc.; Nelson Obus and Joshua H. Landes, agreeing to jointly file Schedule 13D.

Stakeholder Impact

• Shareholders: The agreement provides clarity on the relationship with a significant activist investor, potentially reducing uncertainty. The appointment of a new director may lead to enhanced governance and strategic focus.
• Management: The agreement defines the terms of engagement with a major shareholder, potentially streamlining decision-making processes by reducing the threat of immediate activist challenges.
• Board of Directors: The board gains a new member and enters into a structured cooperation framework with a key shareholder, which can lead to more aligned strategic discussions.

Next Steps

• Robert Lipstein to commence service as a Class III director on the Board of Quest Resource Holding Corp.
• Robert Lipstein to be appointed to the Audit Committee of the Board.
• Wynnefield Reporting Persons to vote their shares according to the Cooperation Agreement during the Cooperation Period.
• Potential extension of the Cooperation Period if Robert Lipstein is re-nominated for the 2028 annual meeting and Wynnefield Reporting Persons accept.
• Wynnefield Reporting Persons will continue to review their investment and may engage in further discussions or transactions related to their holdings, subject to the Cooperation Agreement.

Key Dates

Keywords

Quest Resource Holding Corp, Wynnefield Capital, Schedule 13D, Activist Investor, Board Appointment, Corporate Governance, Cooperation Agreement, Shareholder Agreement, Robert Lipstein, Audit Committee