ITEM NO. 1 – APPROVE AMENDMENT TO RESTATED ARTICLES OF INCORPORATION TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK
(Item No. 1 on the proxy card)
The Board of Directors recommends a vote FOR the amendment to the Articles to increase the number of shares of common stock that EQT is authorized to issue from 320,000,000 shares to 640,000,000 shares (the “Amendment”).
The Articles currently authorize the issuance of up to 320,000,000 shares of common stock. The Board has unanimously approved, and is recommending that shareholders approve, an amendment to the Articles to increase the number of shares of common stock that EQT is authorized to issue from 320,000,000 shares to 640,000,000 shares.
Rationale for the Amendment and Factors to Consider
Following the 2019 annual meeting of shareholders and successful proxy campaign led by Toby Z. Rice, in July 2019 the Board and management team were substantially reconstituted. Since that time, the actions of the Board and management have been focused on ensuring the long-term sustainability of the organization by significantly reducing operational costs, managing near-term debt maturities and reducing leverage.
In April 2020, EQT opportunistically accessed the convertible debt market, issuing $500 million aggregate principal amount of 1.75% Convertible Senior Notes due 2026 (the “Convertible Senior Notes”). 40,000,000 shares of EQT common stock were reserved for issuance upon the conversion of the Convertible Senior Notes. The proceeds raised provided a line of sight to near-term debt maturity management, a key near-term objective for EQT. As a result of the share reservation for the Convertible Senior Notes, however, less than 500,000 shares, or 0.1% of the currently authorized 320,000,000 shares of common stock, remain unreserved and available for future use.
As of June 1, 2020, 255,552,234 shares of EQT common stock were outstanding. In addition to the 40,000,000 shares reserved for issuance upon conversion of the Convertible Senior Notes, as of June 1, 2020, approximately 22,700,000 shares of EQT common stock were reserved for issuance pursuant to our equity compensation plans, approximately 900,000 shares were reserved for issuance under EQT’s 2009 Dividend Reinvestment and Stock Purchase Plan, and approximately 500,000 shares were reserved for issuance under the Employee Stock Ownership Plan (ESOP) portion of the Employee Savings Plan.
The Board believes that the additional authorized shares of common stock will provide us with the necessary flexibility to utilize shares for various corporate purposes that may be identified in the future. These corporate purposes may include, but are not limited to, potential strategic transactions (such as mergers, acquisitions and other business combinations), stock dividends, equity or equity-linked offerings and other capital-raising or financing transactions, grants and awards under equity compensation plans, and other types of general corporate purpose transactions. Further, we believe that if the Amendment were to pass, the ratio of EQT’s outstanding shares of common stock to its total authorized shares of common stock would be consistent with that of its compensation and performance peer groups (whose members are detailed in Annex C to EQT’s proxy statement for its 2020 annual meeting of shareholders (the “2020 annual meeting”)).
At this time we have no specific plans, arrangements or understandings to issue any of the shares of common stock that would be authorized by the Amendment. EQT is a 130 year-old company and has not increased its number of authorized shares of common stock, other than in proportion to and in connection with stock splits, in over 25 years. We believe that it is critical to have the flexibility to issue shares of common stock beyond the limited amount remaining, and we believe the failure to approve the proposed Amendment would likely hinder our ability to pursue shareholder value-enhancing transactions.
The Board has not proposed the increase in the number of authorized shares with the intention of discouraging tender offers or takeover attempts of EQT. Rather, the proposed Amendment has been prompted by business and financial considerations, as set out above, and it is the intended purpose of the Amendment to provide greater flexibility to the Board in considering and planning for our potential future