Item 1.01
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Entry into a Material Definitive Agreement.
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Acquisition
On March 22, 2017, Gastar Exploration Inc. (the Company) completed the acquisition of additional working and net revenue
interests in approximately 66 gross (9.5 net) producing wells and 5,670 net acres of additional STACK oil and gas leasehold interests in Kingfisher County, Oklahoma from multiple sellers for an aggregate cash purchase price of approximately $51.4
million, subject to adjustment for a transaction effective date of March 1, 2017 (the Acquisition). The Acquisition was made pursuant to the terms of an original offer letter of the Company dated February 24, 2017, which was
accepted on various dates by John B. Kleinheinz, Kleinheinz Capital Partners, Inc., GKK Husky, L.L.C., Husky Oklahoma, LLC and Strong Oil and Gas, Ltd.
The Acquisition was funded with a portion of net proceeds from the issuance and sale on March 21, 2017, to funds managed by (the
Purchasers) Ares Management, L.P. (Ares), of an additional $75.0 million principal amount of the Companys Convertible Notes due 2022 pursuant to a Securities Purchase Agreement dated March 20, 2017, as described in
more detail below.
Securities Purchase Agreement
On March 3, 2017, the Company issued $125.0 million in aggregate principal amount of its Convertible Notes due 2022 (the
Notes) to the Purchasers. The Notes are governed by the terms of an Indenture dated March 3, 2017 (the Indenture) by and among the Company, the subsidiary guarantor named therein, and Wilmington Trust, National
Association, as trustee (the Trustee) and collateral trustee.
In order to provide funding for the Acquisition and a portion
of the Companys 2017 capital budget, the Company entered into a Securities Purchase Agreement dated March 20, 2017 (the Purchase Agreement) with the Purchasers, pursuant to which on March 21, 2017, the Company issued and
sold at par for cash to the Purchasers an additional $75.0 million aggregate principal amount of its Notes (the Additional Notes). If on or before July 3, 2017, holders of issued and outstanding common stock, par value $0.001 per
share, of the Company (the Common Stock) (other than the Purchasers) approve the conversion rights of the outstanding Notes into Common Stock (the Requisite Stockholder Approval), then (i) $37.5 million principal amount
of the Additional Notes (together with the originally issued $125.0 million principal amount of Notes) will become convertible at any time at the option of the holder into shares (the Conversion Shares) of Common Stock, or cash or a
combination of cash and Conversion Shares in accordance with the terms of the Indenture and (ii) the remaining $37.5 million principal amount of the Additional Notes will be required to be repurchased by the Company pursuant to a conditional
mandatory repurchase obligation of the Company (the Mandatory Repurchase) under the Purchase Agreement, in exchange for the issuance of (a) 25,456,521 newly issued shares of Common Stock (the Repurchase Shares), and
(b) 2,000 shares of the Companys Special Voting Preferred Stock, par value $0.01 per share, as described in more detail below. Under the Mandatory Repurchase, one Repurchase Share would be issued for $1.4731 of outstanding principal of
the repurchased Notes, which was based on the 10-day volume weighted average trading price of the Common Stock for the period ended March 17, 2017. In the event the Requisite Stockholder Approval is not obtained, no Additional Notes will be
repurchased pursuant to the Mandatory Repurchase.
A copy of Purchase Agreement is attached hereto as Exhibit 10.1 and is incorporated
herein by reference. The description of Purchase Agreement herein does not purport to be complete and is qualified in its entirety by reference to the complete text of the Purchase Agreement.
Indenture and Additional Notes
The principal terms of the Additional Notes are governed by the Indenture, as supplemented by a First Supplemental Indenture dated
March 21, 2017 (the First Supplemental Indenture) which was entered into to accommodate the issuance of the Additional Notes. Under the Indenture, as supplemented, the Additional Notes have substantially identical terms and are
subject to substantially the same covenants and events of default as the originally issued $125.0 million principal amount of Notes. The Notes bear interest initially at 6.0% per annum and will mature on March 1, 2022, unless earlier
repurchased, redeemed or converted in accordance with the terms of the Indenture. Interest is payable on the Notes on each March 1, June 1, September 1 and December 1 of each year, commencing on June 1, 2017.
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If the Requisite Stockholder Approval is obtained, the Notes will become convertible at any time
at the option of the holder into shares of Common Stock based on an initial conversion rate of 452.4355 shares of Common Stock per $1,000 principal amount of the Notes (which is equivalent to an initial conversion price of $2.2103 per share, subject
to certain adjustments and the issuance of additional make-whole shares under circumstances specified in the Indenture. Subject to certain limitations, the Company will have the right to settle its conversion obligations on the Notes in
cash, shares of Common Stock or a combination of cash and shares of Common Stock. If the Requisite Stockholder Approval is obtained, then the Company will have the right to redeem the Notes (i) on or after March 3, 2019, if the last
reported sale price per share of Common Stock exceeds 150% of the conversion price for periods specified in the Indenture and (ii) on or after March 1, 2021 without regard to such condition, in each case at cash redemption price equal to
the principal amount of the Notes to be redeemed plus accrued interest, if any.
In the event the Requisite Stockholder Approval is not
obtained, (a) the Notes will not become convertible into Common Stock and will not be redeemable by the Company prior to maturity except upon payment of a make-whole redemption premium and (b) the interest rate on the Notes
will increase in increments to 15% per annum, up to 7.0% per annum of which is payable in kind through the issuance of additional Notes in the principal amount of such interest at the option of the Company. The interest rate on
the Notes will also be subject to an increase in certain circumstances if the Company fails to comply with certain obligations under the Registration Rights Agreement, as amended (as defined below), or in the case of certain issuances of Common
Stock by the Company at a price below $1.7002 per share (subject to adjustment).
The Notes are secured by a second-priority lien, on
substantially all of the assets of the Company. The Indenture restricts the ability of the Company and certain of its subsidiaries to, among other things: (i) pay dividends or make other distributions in respect of the Companys capital
stock or make other restricted payments; (ii) incur additional indebtedness and issue preferred stock; (iii) make certain dispositions and transfers of assets; (iv) engage in transactions with affiliates; (v) create liens;
(vi) engage in certain business activities that are not related to oil and gas; and (vii) impair any security interest. These covenants are subject to a number of exceptions and qualifications.
The Indenture provides that a number of events will constitute an Event of Default (as defined in the Indenture), including, among other
things: (i) a failure to pay the Notes when due at maturity, upon redemption or repurchase; (ii) failure to pay interest for 30 days; (iii) the Companys failure to deliver certain notices; (iv) a default in the
Companys obligation to convert the Notes; (v) the Companys failure to comply with certain covenants relating to merger, consolidation or sale of assets; (vi) the Companys failure to comply, for 60 days following notice,
with any of the other covenants or agreements in the Indenture; (vii) a default, which is not cured within 30 days, by the Company or any Restricted Subsidiaries (as defined in the Indenture) with respect to any mortgages or any indebtedness
for money borrowed of at least $15 million; (viii) one or more final judgments against the Company or any of its Restricted Subsidiaries for the payment of at least $15 million; (ix) the Companys failure to make any payments required
under that certain development agreement; (x) causing any Guarantee (as defined in the Indenture) to cease to be in full force and effect; (xi) the cessation to be in full force and effect of any of the collateral agreements related to the
Transactions; and (xii) certain events of bankruptcy or insolvency. In the case of an Event of Default arising from certain events of bankruptcy or insolvency with respect to the Company, all outstanding Notes will become due and payable
immediately without further action or notice. If any other Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and
payable immediately. If Requisite Stockholder Approval is not obtained, then upon any acceleration of the Notes following an Event of Default, holders will be entitled to receive a make-whole premium in addition to principal and accrued
interest.
If at least a majority of the outstanding Notes issued cease to be held by affiliates of Ares after receipt of Requisite
Stockholder Approval as provided in the Indenture, the liens securing the Notes will be released and substantially all of the restrictive covenants in the Indenture will terminate.
A copy of the First Supplemental Indenture is filed herewith as Exhibit 4.2 and is incorporated herein by reference. The description of the
First Supplemental Indenture herein does not purport to be complete and is qualified in its entirety by reference to the complete text of the First Supplemental Indenture. The description of the Indenture is qualified in its entirety by reference to
the full text of the Indenture, a copy of which was previously filed as Exhibit 4.1 to the Companys Current Report on Form 8-K filed with the SEC on March 7, 2017.
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Term Loan
On March 20, 2017, the Company entered into Amendment No. 1 to the Third Amended and Restated Credit Agreement (the Term Loan
Amendment) among the Company, as borrower, the guarantor party thereto, AF V Energy I Holdings, L.P., an affiliate of Ares, as initial lender, and Wilmington Trust, National Association, as administrative agent. The Term Loan Amendment permits
the issuance of the Additional Notes in accordance with Purchase Agreement.
A copy of the Term Loan Amendment is attached hereto as
Exhibit 10.2 and is incorporated herein by reference. The description of the Term Loan Amendment herein does not purport to be complete and is qualified in its entirety by reference to the complete text of the Term Loan Amendment.
Amendment No. 1 to Registration Rights Agreement
On March 21, 2017, the Company entered into Amendment No. 1 (the Amendment) to the previously announced Registration
Rights Agreement (the Registration Rights Agreement) with the Purchasers dated March 3, 2017, pursuant to which the Registration Rights Agreement was amended to include the Conversion Shares issuable upon conversion of the
Additional Notes and the shares of Common Stock issuable in the Mandatory Repurchase as securities that are required to be registered for resale under the Securities Act.
A copy of the Amendment is filed herewith as Exhibit 4.4 and is incorporated herein by reference. The description of the Amendment herein does
not purport to be complete and is qualified in its entirety by reference to the complete text of the Amendment. The description of the Registration Rights Agreement is qualified in its entirety by reference to the full text of the Registration
Rights Agreement, a copy of which was previously filed as Exhibit 4.3 to the Companys Current Report on Form 8-K filed with the SEC on March 7, 2017.