Document:

Ex10.1 GST Agreement and Amendment No 3 to Credit Agreement

Exhibit 10.1

AGREEMENT, WAIVER AND AMENDMENT NO. 3 TO  
SECOND AMENDED AND RESTATED CREDIT AGREEMENT

This Agreement, Waiver and Amendment No. 3 to Second Amended and Restated Credit Agreement ("Agreement") dated as of March 12, 2014 ("Effective Date"), is among Gastar Exploration Inc., a Delaware corporation and formerly known as “Gastar Exploration USA, Inc.” ("Borrower"), the Guarantors (as defined in the Credit Agreement referenced below), the Lenders (as defined below), and Wells Fargo Bank, National Association, as administrative agent for such Lenders (in such capacity, the "Administrative Agent"), as collateral agent (in such capacity, the "Collateral Agent"), as swing line lender (in such capacity, "Swing Line Lender"), and as issuing lender (in such capacity, the "Issuing Lender").

RECITALS

A.The Borrower is party to that certain Second Amended and Restated Credit Agreement dated as of June 7, 2013, among the Borrower, the lenders thereto from time to time (the "Lenders"), the Administrative Agent, the Collateral Agent, the Swing Line Lender, and the Issuing Lender, as heretofore amended (as so amended, the "Credit Agreement").

B.The Borrower has requested that Administrative Agent and the Lenders, subject to the terms and conditions set forth herein, (i) amend the Credit Agreement as provided herein and (ii) provide a waiver of the Event of Default arising as a result of the Borrower changing its name to “Gastar Exploration Inc.” without the necessary notice and consent required under Section 6.11 of the Credit Agreement (the “Existing Default”).

THEREFORE, the Borrower, the Guarantors, the Lenders, the Issuing Lender, the Swing Line Lender, the Collateral Agent, and the Administrative Agent hereby agree as follows:
Section 1.Defined Terms; Interpretation.  As used in this Agreement, each of the terms defined in the opening paragraph and the Recitals above shall have the meanings assigned to such terms therein.  Each term defined in the Credit Agreement and used herein without definition shall have the meaning assigned to such term in the Credit Agreement, unless expressly provided to the contrary.  The words "hereby", "herein", "hereinafter", "hereof", "hereto" and "hereunder" when used in this Agreement shall refer to this Agreement as a whole and not to any particular Article, Section, subsection or provision of this Agreement.  Article, Section, subsection and Exhibit references herein are to such Articles, Sections, subsections and Exhibits of this Agreement unless otherwise specified. All titles or headings to Articles, Sections, subsections or other divisions of this Agreement or the exhibits hereto, if any, are only for the convenience of the parties and shall not be construed to have any effect or meaning with respect to the other content of such Articles, Sections, subsections, other divisions or exhibits, such other content being controlling as the agreement among the parties hereto.  Whenever the context requires, reference herein made to the single number shall be understood to include the plural; and likewise, the plural shall be understood to include the singular.  Words denoting sex shall be construed to include the masculine, feminine and neuter, when such construction is appropriate; and specific enumeration shall not exclude the 

general but shall be construed as cumulative.  Definitions of terms defined in the singular or plural shall be equally applicable to the plural or singular, as the case may be, unless otherwise indicated.
Section 1.    Waiver.  The Borrower hereby acknowledges the existence of the Existing Default.  Subject to the terms and conditions of this Agreement, the Lenders hereby waive the Existing Default.  The waiver by the Lenders described in this Section 2 is limited to the Existing Default and shall not be construed to be a consent to, or a permanent waiver of, noncompliance with Section 6.11 of the Credit Agreement, or any other terms, provisions, covenants, warranties or agreements contained in the Credit Agreement or in any of the other Loan Documents.  The Lenders expressly reserve the right to exercise any rights and remedies available to them in connection with any present or future defaults with respect to the Credit Agreement or any other provision of any Loan Document other than the Existing Default.  The description herein of the Existing Default is based upon the information provided to the Lenders on or prior to the date hereof and shall not be deemed to exclude the existence of any other Defaults or Events of Default.  The failure of the Lenders to give notice to any Loan Party of any such other Defaults or Events of Default is not intended to be nor shall be a waiver thereof.  Each Loan Party hereby agrees and acknowledges that the Lenders require and will require strict performance by the Loan Parties of all of their respective obligations, agreements and covenants contained in the Credit Agreement and the other Loan Documents, and no inaction or action by the Administrative Agent, the Collateral Agent, the Issuing Lender, the Swing Line Lender, or any Lender regarding any Default or Event of Default (including but not limited to the Existing Default) under any of the Loan Documents is intended to be or shall be a waiver thereof other than the waiver of the Existing Default expressly provided for in this Section 2.  Other than the waiver of the Existing Default expressly provided for in this Section 2, each Loan Party hereby also agrees and acknowledges that no course of dealing and no delay in exercising any right, power, or remedy conferred to any Lender in the Credit Agreement or in any other Loan Document or now or hereafter existing at law, in equity, by statute, or otherwise shall operate as a waiver of or otherwise prejudice any such right, power, or remedy (collectively, the "Lender Rights").  For the avoidance of doubt, each Loan Party also agrees and acknowledges that neither the waiver provided in this Agreement nor any other waiver provided by the Lenders prior to the date hereof shall operate as a waiver of or otherwise prejudice any of the Lender Rights other than the waiver of the Existing Default expressly provided for in this Section 2.
Section 2.    Amendments to Credit Agreement.
(a)    The cover page and page 1 of the Credit Agreement are hereby amended by placing each reference to “Gastar Exploration USA, Inc.” with a reference to “Gastar Exploration Inc.” 
(b)    Section 1.01 of the Credit Agreement (Certain Defined Terms) is hereby amended by deleting the definition for “Borrowing Base” and replacing it with the following:
“Borrowing Base” means at any particular time, the Dollar amount determined in accordance with Section 2.02 on account of Proven Reserves attributable to Oil and Gas Properties of the Loan Parties and their Subsidiaries (other than Non-Guarantor Subsidiaries).

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(c)    Section 1.01 of the Credit Agreement (Certain Defined Terms) is hereby amended by adding the following terms to appear in the appropriate alphabetical order:
“Immaterial Subsidiary” means any Subsidiary, when taken together with all other Subsidiaries that are not Guarantors at the time of determination, at such time has either assets or quarterly revenues of less than 2.00% of the consolidated assets or quarterly revenues of the Borrower and its consolidated Subsidiaries, in each case, based upon the most recent financial statements available to the Borrower; provided that, in any event, if any Subsidiary (i) provides a guarantee, collateral or any other credit support for any Debt of the Borrower or any other Subsidiary or (ii) incurs any Debt (other than purchase money indebtedness or capital leases incurred in the ordinary course of business and permitted under Section 6.02(b) and limited in amount as provided in Section 6.01(b)), such Subsidiary shall not be an Immaterial Subsidiary regardless of the value of its assets or amount of quarterly revenues.

“Net Investment Amount” means, as of any date of determination, the amount equal to (a) the aggregate amount of Investments made by Loan Parties to Non-Guarantor Subsidiaries since the Effective Date, including the initial Investments made to create such Subsidiaries, minus (b) the aggregate amount of Restricted Payments made by Non-Guarantor Subsidiaries to the Loan Parties since the Effective Date (it being agreed that the amount of such Restricted Payment that constitute Property shall be deemed to be the purchase price for such Property that was acquired with the proceeds of Investments made by the Loan Parties to the Non-Guarantor Subsidiaries). 

“Non-Guarantor Subsidiary” means any Immaterial Subsidiary so long as such Subsidiary is not a Guarantor.

(d)    Section 5.06 of the Credit Agreement (Reporting Requirements) is hereby amended by replacing clause (a), clause (b) and clause (l) in their entirety with the corresponding clause (a), clause (b) and clause (l) set forth below:
 (a)    Annual Financials.  As soon as available and in any event not later than 90 days after the end of each fiscal year of the Borrower and its consolidated Subsidiaries, commencing with fiscal year ending December 31, 2013, (i) a copy of the annual audit report for such year for the Borrower and its consolidated Subsidiaries, including therein the Borrower’s and its consolidated Subsidiaries’ balance sheets as of the end of such fiscal year and the Borrower’s and its consolidated Subsidiaries’ statements of income, cash flows, and retained earnings, in each case certified by an independent certified public accountants reasonably acceptable to the Administrative Agent and including any management letters delivered by such accountants to the Borrower or any Subsidiary in connection with such audit, (ii) any management letters delivered by such accountants to the Borrower or any Subsidiary, (iii) a Compliance Certificate executed by a Responsible Officer of the Borrower, and (iv) an officer’s certificate setting forth the Borrower’s 

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and its consolidated Subsidiaries’ assets or quarterly revenues and the calculations reflecting whether a Subsidiary is an Immaterial Subsidiary based on the financial statements for such fiscal year end, with such details and supporting document that the Administrative Agent may reasonably request;

(b)    Quarterly Financials.  As soon as available and in any event not later than 60 days after the end of each fiscal quarter of each fiscal year of each Loan Party and its consolidated Subsidiaries, (i) commencing with the fiscal quarter ending June 30, 2013, the unaudited balance sheet and the statements of income, cash flows, and retained earnings of each such Person for the period commencing at the end of the previous year and ending with the end of such fiscal quarter, all in reasonable detail and duly certified with respect to such consolidated statements (subject to yearend audit adjustments) by a Responsible Officer of the Borrower as having been prepared in accordance with GAAP, (ii) a Compliance Certificate executed by the Responsible Officer of the Borrower, and (iii) an officer’s certificate setting forth the Borrower’s and its consolidated Subsidiaries’ assets or quarterly revenues and the calculations reflecting whether a Subsidiary is an Immaterial Subsidiary based on the financial statements for such fiscal year end, with such details and supporting document that the Administrative Agent may reasonably request;

(l)    Material Changes.  Prompt written notice of any condition or event of which any Loan Party or Subsidiary has knowledge, which condition or event (i) has resulted or could reasonably be expected to result in a Material Adverse Change, (ii) has resulted in a breach of or noncompliance with any material term, condition, or covenant of any material contract to which any Loan Party or Subsidiary is a party or by which they or their Properties are bound, or (iii) has resulted or could reasonably be expected to result in a Subsidiary ceasing to be an Immaterial Subsidiary;

(e)    Section 6.04 of the Credit Agreement (Merger or Consolidation; Asset Sales) is hereby amended by replacing clause (b)(iii) therein in its entirety with the following:
(iii)    (A) the Disposition of Property between or among a Guarantor (other than the Parent) and the Borrower or between or among Guarantors (other than the Parent), (B) the transfer of Property in the form of a Restricted Payment by an Immaterial Subsidiary to the Borrower or a Guarantor, and (C) the sale of Property by an Immaterial Subsidiary to the Borrower or a Guarantor so long as the terms thereof are satisfactory to the Administrative Agent;

(f)    Section 6.05 of the Credit Agreement (Restricted Payments) is hereby amended by replacing clause (b) and clause (c) in their entirety with the corresponding clause (b) and clause (c) set forth below:
(b)     any Guarantor may make Restricted Payments to any other Guarantor and to the Borrower; and

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(c)    a Non-Guarantor Subsidiary may make Restricted Payments to any Guarantor and to the Borrower.

(g)    Section 6.06 of the Credit Agreement (Investments) is hereby amended by replacing clause (c) therein in its entirety with the following:
(c)     (i) creation of any Immaterial Subsidiary in compliance with Section 6.15 and other Investments made by any Loan Party to any Non-Guarantor Subsidiary solely for the purpose of such Non-Guarantor Subsidiary purchasing Oil and Gas Properties; provided that, the aggregate Net Investment Amount shall not, at any time, exceed 2.00% of the consolidated assets or quarterly revenues of the Borrower and its consolidated Subsidiaries, in each case, based upon the most recent financial statements available to the Borrower, and (ii) creation of any Subsidiary that becomes a Guarantor in compliance with Section 6.15 and other Investments made by any Loan Party to any other Loan Party;

(h)    Section 6.15 of the Credit Agreement (Additional Subsidiaries) is hereby replaced in its entirety with the following:
Section 6.15 Additional Subsidiaries.  No Loan Party shall, nor shall any Loan Party permit any of its Subsidiaries to, create or acquire any additional Subsidiaries without (a) providing the Administrative Agent with notice of such creation or acquisition within ten (10) days after such creation or acquisition (or such later time period acceptable to the Administrative Agent in its sole discretion), (b) such new Subsidiary that is not an Immaterial Subsidiary executing and delivering to the Collateral Agent, at either Agent’s request and within the time period requested by such Agent, a Guaranty, a Pledge Agreement, a Security Agreement and a Mortgage, and such other Security Instruments as either Agent or the Required Lenders may reasonably request, and (c) the delivery by the Borrower of any certificates, opinions of counsel, title opinions or other documents as and when either Agent may reasonably request; provided that, in any event, no Subsidiary may be created or acquired if a Default has occurred before or after giving effect to such creation or acquisition of the new Subsidiary.  Notwithstanding the foregoing, if any Subsidiary shall cease to be an Immaterial Subsidiary for any reason, then at either Agent’s request and within the time period requested by such Agent (i) such Subsidiary shall execute and deliver a Guaranty, a Pledge Agreement, a Security Agreement and a Mortgage, and such other Security Instruments as either Agent or the Required Lenders may reasonably request, and (ii) the Borrower shall deliver certificates, opinions of counsel, title opinions or other documents as either Agent may reasonably request.

(i)    Article VI of the Credit Agreement (Negative Covenants) is hereby amended by adding a new Section 6.24 as follows:
Section 6.24    Non-Guarantor Subsidiaries.  Notwithstanding anything to the contrary contained herein, including any other provision of this Article VI, no 

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Loan Party shall, nor shall any Loan Party permit any of its Subsidiaries to, (a) create, assume, incur or suffer to exist any Lien on or in respect of any of its Property for the benefit of any Non-Guarantor Subsidiary, (b) sell, assign, pledge, or otherwise transfer any of its Properties (other than cash in the form of an Investment that is permitted under Section 6.06(c)) to any Non-Guarantor Subsidiary, (c) permit Non-Guarantor Subsidiaries to engage in any activity other than the acquisition of Oil and Gas Properties with the proceeds of Investments made to such Non-Guarantor Subsidiaries from the Loan Parties and other ancillary activities solely and directly related to the operation and maintenance of such Oil and Gas Properties, or (d) permit the aggregate assets or quarterly revenues of Non- Guarantor Subsidiaries to exceed 2.00% of the consolidated assets or quarterly revenues of the Borrower and its consolidated Subsidiaries, in each case, based upon the most recent financial statements available to the Borrower.  In furtherance of the foregoing, each Loan Party shall (i) as to Non-Guarantor Subsidiaries, cause such Non-Guarantor Subsidiaries to transfer 100% of all its assets to a Loan Party on at least a semi-annual basis, on June 30th and December 31st of each year (or such later dates acceptable to the Administrative Agent in its sole discretion so long as there are at least two transfers per fiscal year under this clause (i)), and (ii) as to any Subsidiary, at any time when the value of its assets or quarterly revenues would cause such Subsidiary to cease to be an Immaterial Subsidiary, cause such Subsidiary to transfer 100% of all its assets to a Loan Party.

Section 3.    Representations and Warranties.  Each Loan Party represents and warrants that: (a) after giving effect to this Agreement, the representations and warranties contained in the Credit Agreement and the representations and warranties contained in the other Loan Documents are true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof) on and as of the date hereof; (b) after giving effect to this Agreement, no Default has occurred and is continuing; (c) the execution, delivery and performance of this Agreement are within the corporate, partnership, or limited liability company power and authority of such Loan Party, as applicable, and have been duly authorized by appropriate corporate, partnership, or limited liability company action and proceedings, as applicable; (d) this Agreement constitutes the legal, valid, and binding obligation of such Loan Party enforceable in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the rights of creditors generally and general principles of equity; (e) there are no governmental or other third party consents, licenses and approvals required in connection with the execution, delivery, performance, validity and enforceability of this Agreement; (f) the Liens under the Security Instruments are valid and subsisting and secure the Secured Obligations; and (g) as to each Guarantor, it has no defenses to the enforcement of its Guaranty.
Section 4.    Conditions to Effectiveness.  This Agreement and the amendments provided herein shall become effective and enforceable against the parties hereto upon the receipt by the Administrative Agent of:

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(a)    multiple original counterparts of this Agreement duly and validly executed and delivered by the Borrower, the Guarantors, the Administrative Agent, the Collateral Agent, the Issuing Lender, the Swing Line Lender, and the Required Lenders, and 
(b)    an officer’s certificate from the Borrower, in form and substance satisfactory to the Administrative Agent and dated as of the Effective Date, certifying (i) true and correct copy of the merger certificate evidencing the Gastar Merger, (ii) true and correct copy of the name change or other certificate evidencing the change in the Borrower’s name to Gastar Exploration Inc., (iii) the Loan Parties’ respective officers' incumbency (or if such officers’ incumbency certified with the initial closing of the Credit Agreement have not changed, then certifying no change in such incumbency), (iv) authorizing resolutions for the Loan Parties for this Agreement (or if the authorizing resolutions delivered with the initial closing of the Credit Agreement authorized amendments thereto, then certifying no change in such authorizing resolutions), and (v) true and correct copies of the organizational documents of the Loan Parties (or if the organizational documents have not changed since the initial closing of the Credit Agreement, then certifying no change in such organizational documents).
Section 5.    Effect on Loan Documents; Acknowledgments.
(a)    The Borrower acknowledges that on the date hereof all Obligations are payable without defense, offset, counterclaim or recoupment.
(b)    The Administrative Agent, the Collateral Agent, the Issuing Lender, the Swing Line Lender, and the Lenders hereby expressly reserve all of their rights, remedies, and claims under the Loan Documents.  Nothing in this Agreement shall constitute a waiver or relinquishment of (i) any Default or Event of Default under any of the Loan Documents, (ii) any of the agreements, terms or conditions contained in any of the Loan Documents, (iii) any rights or remedies of the Administrative Agent, the Collateral Agent, the Issuing Lender, the Swing Line Lender, or any Lender with respect to the Loan Documents, or (iv) the rights of the Administrative Agent, the Collateral Agent, the Issuing Lender, the Swing Line Lender, or any Lender to collect the full amounts owing to them under the Loan Documents.
(c)    Each of the Borrower, the Guarantors, the Administrative Agent, the Collateral Agent, the Issuing Lender, the Swing Line Lender, and the Lenders does hereby adopt, ratify, and confirm the Credit Agreement, as amended hereby, and acknowledges and agrees that the Credit Agreement, as amended hereby, and all other Loan Documents are and remain in full force and effect, and the Borrower acknowledges and agrees that its liabilities under the Credit Agreement and the other Loan Documents are not impaired in any respect by this Agreement.
(d)    From and after the Effective Date, all references to the Credit Agreement and the Loan Documents shall mean such Credit Agreement and such Loan Documents as amended prior hereto as described in the recitals, and by this Agreement.
(e)    This Agreement is a Loan Document for the purposes of the provisions of the other Loan Documents.  Without limiting the foregoing, any breach of representations, 

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warranties, and covenants under this Agreement shall be a Default or Event of Default, as applicable, under the Credit Agreement.
Section 6.    Reaffirmation of the Guaranty.  Each Guarantor hereby ratifies, confirms, acknowledges and agrees that its obligations under its Guaranty are in full force and effect and that such Guarantor continues to unconditionally and irrevocably guarantee the full and punctual payment, when due, whether at stated maturity or earlier by acceleration or otherwise, of all of the Guaranteed Obligations (as defined in its Guaranty), as such Guaranteed Obligations may have been amended by this Agreement, and its execution and delivery of this Agreement does not indicate or establish an approval or consent requirement by such Guarantor under its Guaranty in connection with the execution and delivery of amendments to the Credit Agreement, the Notes or any of the other Loan Documents.
Section 7.    Counterparts.  This Agreement may be signed in any number of counterparts, each of which shall be an original and all of which, taken together, constitute a single instrument.  This Agreement may be executed by facsimile or email (i.e., PDF) signature and all such signatures shall be effective as originals.
Section 8.    Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the Borrower, the Lenders, the Issuing Lender, the Swing Line Lender, the Collateral Agent, and the Administrative Agent and their respective successors and assigns permitted pursuant to the Credit Agreement.
Section 9.    Invalidity.  In the event that any one or more of the provisions contained in this Agreement shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement.
Section 10.    Governing Law.  This Agreement shall be deemed a contract under, and shall be governed by, and construed and enforced in accordance with, the laws of the State of New York applicable to contracts made and to be performed entirely within such state, without regard to conflicts of laws principles (other than Section 5-1401 and Section 5-1402 of the General Obligations Law of the State of New York).
Section 11.    Waiver of Jury.  THE BORROWER, THE LENDERS, THE ISSUING LENDER, AND THE AGENTS HEREBY ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED BY AND HAVE CONSULTED WITH COUNSEL OF THEIR CHOICE, AND HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN RESPECT OF ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
Section 12.    Entire Agreement. THIS AGREEMENT, THE CREDIT AGREEMENT AS AMENDED BY THIS AGREEMENT, THE NOTES, AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES 

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HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO.
[The remainder of this page has been left blank intentionally.]

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Exhibit 10.1

EXECUTED effective as of the date first above written.

BORROWER:

GASTAR EXPLORATION INC.

By:/s/ Michael A. Gerlich    
Michael A. Gerlich
Senior Vice President, Chief Financial Officer and
Corporate Secretary

GUARANTORS:

GASTAR EXPLORATION NEW SOUTH WALES, INC. 
GASTAR EXPLORATION TEXAS, INC. 
GASTAR EXPLORATION TEXAS LLC

Each By:    /s/ Michael A. Gerlich            
Michael A. Gerlich
Senior Vice President, Secretary and
Treasurer

GASTAR EXPLORATION TEXAS, LP

By:    GASTAR EXPLORATION TEXAS LLC, 
its General Partner

By:    /s/ Michael A. Gerlich            
Michael A. Gerlich
Senior Vice President, Secretary and 
Treasurer

Signature Page to 
Agreement, Waiver and Amendment No. 3 to
Second Amended and Restated Credit Agreement
(Gastar Exploration, Inc.)
#4498855

Exhibit 10.1

ADMINISTRATIVE AGENT/COLLATERAL AGENT/ISSUING LENDER/SWING LINE LENDER/LENDER:

WELLS FARGO BANK, NATIONAL ASSOCIATION

By: /s/Stephanie Harrell                                   
Stephanie Harrell
Assistant Vice President

Signature Page to 
Agreement, Waiver and Amendment No. 3 to
Second Amended and Restated Credit Agreement
(Gastar Exploration, Inc.)
#4498855

Exhibit 10.1

LENDER:

COMERICA BANK

By: /s/William Robinson                                   
William Robinson 
Vice President

Signature Page to 
Agreement, Waiver and Amendment No. 3 to
Second Amended and Restated Credit Agreement
(Gastar Exploration, Inc.)
#4498855

Exhibit 10.1

LENDER:

IBERIABANK

By: /s/Cameron D. Jones                                  
Cameron D. Jones
Senior Vice President

Signature Page to 
Agreement, Waiver and Amendment No. 3 to
Second Amended and Restated Credit Agreement
(Gastar Exploration, Inc.)
#4498855

Exhibit 10.1

LENDER:

ING CAPITAL LLC

By: /s/Charles Hall                                  
Name: Charles Hall
Title: Managing Director

By: /s/Juli Bieser                                  
Name: Juli Bieser
Title: Director

Signature Page to 
Agreement, Waiver and Amendment No. 3 to
Second Amended and Restated Credit Agreement
(Gastar Exploration, Inc.)
#4498855Ex 10.6

Exhibit 10.6

CONFORMED COPY

AVAGO TECHNOLOGIES LIMITED
SEVERANCE BENEFIT AGREEMENT
This Severance Benefit Agreement (the “Agreement”) is made and entered into by and between Hock E. Tan (“Executive”) and Avago Technologies Limited (company registration number 200510713C), a public company incorporated under the Singapore Companies Act (the “Company”), effective as of the later of the (i) the latest date set forth by the signatures of the parties hereto below or (ii) the date the Company’s shareholders approve this Agreement (the “Effective Date”).  Upon the Effective Date, this Agreement supersedes the change in control and severance provisions of that certain offer letter agreement between the Company and Executive, as amended (the “Offer Letter”), in their entirety.  In the event, the shareholders of the Company fail to approve this Agreement at the Company’s 2014 annual general meeting of shareholders, it shall become void ab initio, and the change in control and severance provisions of the Offer Letter shall remain in full force and effect.
R E C I T A L S
A.The Compensation Committee (the “Compensation Committee”) of the Board of Directors of the Company (the “Board”) recognizes that the possibility of an acquisition of the Company or an involuntary termination can be a distraction to Executive and can cause Executive to consider alternative employment opportunities.  The Compensation Committee has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication and objectivity of Executive, notwithstanding the possibility, threat or occurrence of such an event.
B.The Compensation Committee believes that it is in the best interests of the Company and its shareholders to provide Executive with an incentive to continue Executive’s employment and to motivate Executive to maximize the value of the Company upon a Change in Control (as defined below) for the benefit of its shareholders.
C.The Compensation Committee believes that it is imperative to provide Executive with severance benefits upon certain terminations of Executive’s service to the Company and its subsidiaries (collectively, “Avago”) that enhance Executive’s financial security and provide incentive and encouragement to Executive to remain with Avago notwithstanding the possibility of such an event.
D.Unless otherwise defined herein, capitalized terms used in this Agreement are defined in Section 8 below.
The parties hereto agree as follows:
1.Term of Agreement.  This Agreement shall become effective as of the Effective Date and terminate upon the date that all obligations of the parties hereto with respect to this Agreement have been satisfied.

2.At-Will Employment.  The Company and Executive acknowledge that Executive’s employment with Avago is and shall continue to be “at-will,” as defined under applicable law.  If Executive’s employment with Avago terminates for any reason, Executive shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement.
3.Change in Control.  In the event that the price per Company ordinary share paid by an acquirer in a Change in Control is equal to or greater than the minimum share price contingency upon which a portion of a performance-based share option or other equity award would become vested and/or exercisable under the applicable award agreement, then such minimum share price contingency shall be deemed to have been satisfied as of immediately prior to the Change in Control.  In the event Executive holds performance-based equity awards that vest based upon the achievement of performance goals other than average share price, then the performance goals applicable to such performance-based equity awards shall be deemed satisfied up to 100% to the extent determined appropriate by the Board, in its sole discretion, based upon the performance of the Company through the date of such Change in Control.  
4.Covered Termination Other Than During a Change in Control Period.  If Executive experiences a Covered Termination at any time other than during a Change in Control Period, and if Executive delivers to the Company a general release of all claims against the Company and its affiliates in a form acceptable to the Company (a “Release of Claims”) that becomes effective and irrevocable within sixty (60) days, or such shorter period of time specified by Avago, following such Covered Termination, then in addition to any accrued but unpaid salary, bonus, benefits, vacation and expense reimbursement payable in accordance with applicable law, Executive shall be entitled to receive Executive’s base salary at the rate in effect immediately prior to the Termination Date during the period of time commencing on the Termination Date and ending on the first (1st) anniversary of the Termination Date.  Executive shall also be entitled to receive an additional amount equal to the lesser of (i) Executive’s actual cash bonus for the prior year and (ii) Executive’s target cash bonus for the prior year.  Such payments shall be made in substantially equal installments in accordance with Avago’s standard payroll policies, less applicable withholdings, with such installments to commence on the sixtieth (60th) day following the Termination Date with the first installment to include any amount that would have been paid had installments commenced on the Termination Date.
5.Covered Termination During a Change in Control Period.  If Executive experiences a Covered Termination during a Change in Control Period, and if Executive delivers to Avago a Release of Claims that becomes effective and irrevocable within sixty (60) days, or such shorter period of time specified by Avago, following such Covered Termination, then in addition to any accrued but unpaid salary, bonus, benefits, vacation and expense reimbursement payable in accordance with applicable law, Avago shall provide Executive with the following, provided that such payments shall be reduced by any payments which as of such date have already been made pursuant to Section 4 hereof:
(a)Severance.  Executive shall be entitled to receive Executive’s base salary at the rate in effect immediately prior to the Termination Date during the period of time commencing on the Termination Date and ending on the second (2nd) anniversary of the Termination Date.  Executive shall also be entitled to receive an additional amount equal to the lesser of two hundred percent (200%) of (i) Executive’s actual cash bonus for the prior year and (ii) Executive’s target cash bonus for the prior year.  Such payments shall be made in substantially equal installments in accordance with Avago’s 

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standard payroll policies, less applicable withholdings, with such installments to commence on the sixtieth (60th) day following the Termination Date and with the first installment to include any amount that would have been paid had the installments commenced on the Termination Date.
(b)Equity Awards.  Each outstanding and unvested equity and equity-linked  award that, pursuant to its terms and after giving effect to any deemed satisfaction of performance goals pursuant to Section 3 vests solely based upon continued service, including, without limitation, each time-based share option and restricted share unit award, held by Executive shall automatically become vested and, if applicable, any forfeiture restrictions or rights of repurchase thereon shall immediately lapse, in each case, with respect to one-hundred percent (100%) of that number of unvested shares underlying such equity award as of the Termination Date. 
6.Other Terminations.  If Executive’s service with Avago is terminated by Avago or by Executive for any or no reason other than as a Covered Termination, then Executive shall not be entitled to any benefits hereunder other than accrued but unpaid salary, bonus, vacation and expense reimbursement in accordance with applicable law and to elect any continued healthcare coverage as may be required under COBRA or similar state law.  
7.Limitation on Payments. Notwithstanding anything in this Agreement to the contrary, if any payment or distribution Executive would receive pursuant to this Agreement or otherwise (“Payment”) would (a) constitute a “parachute payment” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), and (b) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment shall either be (i) delivered in full, or (ii) delivered as to such lesser extent which would result in no portion of such Payment being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the Excise Tax, results in the receipt by Executive on an after-tax basis, of the largest payment, notwithstanding that all or some portion the Payment may be taxable under Section 4999 of the Code.  The accounting firm engaged by Avago for general audit purposes as of the day prior to the effective date of the Change in Control shall perform the foregoing calculations.  Avago shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder.  The accounting firm shall provide its calculations to Avago and Executive within fifteen (15) calendar days after the date on which Executive’s right to a Payment is triggered (if requested at that time by Avago or Executive) or such other time as requested by Avago or Executive.  Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon Avago and Executive.  Any reduction in payments and/or benefits pursuant to this Section 7 will occur in the following order: (1) reduction of cash payments; (2) cancellation of accelerated vesting of equity awards other than share options; (3) cancellation of accelerated vesting of share options; and (4) reduction of other benefits payable to Executive.
8.Definition of Terms.  The following terms referred to in this Agreement shall have the following meanings:

(a)Cause.  “Cause” means (i) Executive’s willful refusal to perform in any material respect Executive’s lawful duties or responsibilities for Avago or willful disregard in any material respect 

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of any financial or other budgetary limitations established in good faith by the Board; (ii) Executive’s material breach of any provision of this Agreement that is not cured upon ten (10) days notice thereof; (iii) the engaging by Executive in conduct that causes material and demonstrable injury, monetarily or otherwise, to Avago, including, but not limited to, misappropriation or conversion of assets of Avago (other than non-material assets); or (iv) Executive’s conviction of or entry of a plea of nolo contendere to a felony.    
(b)Change in Control.  “Change in Control” shall mean and includes each of the following: 
i.A transaction or series of transactions (other than an offering of Company ordinary shares to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) (other than the Company, any of its subsidiaries, an employee benefit plan maintained by the Company or any of its subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) of securities of the Company possessing more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or
ii.During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new director(s) (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in Sections 8(b)(i) or 8(b)(iii) hereof) whose election by the Board or nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or
iii.The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or shares of another entity, in each case other than a transaction:
A.     Which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and

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B.     After which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this Section 8(b)(iii)(B) as beneficially owning 50% or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or
iv.The Company’s shareholders approve a liquidation or dissolution of the Company.
Notwithstanding the foregoing, a “Change in Control” must also constitute a “change in control event,” as defined in Treasury Regulation §1.409A-3(i)(5).  
(c)Change in Control Period.  “Change in Control Period” means the period of time commencing three (3) months prior to and ending twelve (12) months following a Change in Control.
(d)Covered Termination.  “Covered Termination” means the termination of Executive’s employment by Avago other than for Cause, by Executive for Good Reason, or because of Executive’s death or permanent disability, in each case, to the extent necessary, that constitutes a “Separation from Service” (as defined below).
(e)Good Reason. “Good Reason” means any of the following: (A) a material reduction in Executive’s salary (other than as part of a broad salary reduction program instituted because Avago is in financial distress); (B) a substantial reduction in Executive’s duties and responsibilities; (C) the elimination or reduction of Executive’s eligibility to participate in Avago’s benefit programs that is inconsistent with the eligibility of executive employees of Avago to participate therein; (D) Avago informs Executive of its intention to transfer Executive’s primary workplace to a location that is more than 50 miles from the location of Executive’s primary workplace as of such date; (E) Avago’s material breach of this Agreement that is not cured within sixty (60) days written notice thereof; and (F) any serious chronic mental or physical illness of Executive or a member of Executive’s family that requires Executive to terminate Executive’s employment because of substantial interference with Executive’s duties at Avago; provided, that at Avago’s request Executive shall provide Avago with a written physician’s statement confirming the existence of such mental or physical illness.  Notwithstanding the foregoing, Executive shall not be deemed to have “Good Reason” under this Agreement unless Executive provides written notice to Avago of the event or condition giving rise to Good Reason within ninety (90) days after its initial occurrence, such event or condition continues to exist on the thirtieth (30th) day following Avago’s receipt of such notice (the “Cure Period”) and Executive’s resignation is effective within sixty (60) days following the end of the Cure Period.
(f)Termination Date.      “Termination Date” means the date Executive experiences a Covered Termination.
9.Successors.

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(a)Company’s Successors.  Any successor to the Company (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession.  For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets which executes and delivers the assumption agreement described in this Section 9(a) or which becomes bound by the terms of this Agreement by operation of law.
(b)Executive’s Successors.  The terms of this Agreement and all rights of Executive hereunder shall inure to the benefit of, and be enforceable by, Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.
10.Notices.  Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or one day following mailing via Federal Express or similar overnight courier service.  In the case of Executive, mailed notices shall be addressed to Executive at Executive’s home address that Avago has on file for Executive.  In the case of the Company or Avago, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of the Company’s General Counsel.
11.Confidentiality; Non-Disparagement.
(a)Confidentiality.  Executive hereby expressly confirms Executive’s continuing obligations to Avago pursuant to Executive’s confidential information and inventions assignment agreement with the Company (the “Confidential Information Agreement”).
(b)Non-Disparagement.  Executive agrees that he or she shall not disparage, criticize or defame the Company, its affiliates and their respective affiliates, directors, officers, agents, partners, shareholders or employees, either publicly or privately.  The Company agrees that it shall not, and it shall instruct its officers and members of its Board to not, disparage, criticize or defame Executive, either publicly or privately.  Nothing in this Section 11(b) shall have application to any evidence or testimony required by any court, arbitrator or government agency.
12.Dispute Resolution.  To ensure the timely and economical resolution of disputes that arise in connection with this Agreement, Executive and the Company agree that any and all disputes, claims, or causes of action arising from or relating to the enforcement, breach, performance or interpretation of this Agreement, Executive’s employment, or the termination of Executive’s employment, shall be resolved to the fullest extent permitted by law by final, binding and confidential arbitration, by a single arbitrator, in Santa Clara County, California, conducted by Judicial Arbitration and Mediation Services, Inc. (“JAMS”) under the applicable JAMS employment rules.  By agreeing to this arbitration procedure, both Executive and the Company waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding.  The arbitrator shall:  (i) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (ii) issue a written arbitration decision, to include the arbitrator’s essential findings and conclusions and a statement of the award.  The arbitrator shall be 

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authorized to award any or all remedies that Executive or the Company would be entitled to seek in a court of law.  Avago shall pay all JAMS’ arbitration fees in excess of the amount of court fees that would be required if the dispute were decided in a court of law.  Nothing in this Agreement is intended to prevent either Executive or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration.  Notwithstanding the foregoing, Executive and the Company each have the right to resolve any issue or dispute over intellectual property rights by Court action instead of arbitration.
13.Miscellaneous Provisions.
(a)Section 409A.  
i.Separation from Service.  Notwithstanding any provision to the contrary in this Agreement, no amount deemed deferred compensation subject to Section 409A of the Code shall be payable pursuant to Sections 4 or 5 above unless Executive’s termination of employment constitutes a “separation from service” with Avago within the meaning of Section 409A of the Code and the Department of Treasury regulations and other guidance promulgated thereunder (“Separation from Service”).
ii.Specified Employee.  Notwithstanding any provision to the contrary in this Agreement, if Executive is deemed at the time of his separation from service to be a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code, to the extent delayed commencement of any portion of the benefits to which Executive is entitled under this Agreement is required in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, such portion of Executive’s benefits shall not be provided to Executive prior to the earlier of (a) the expiration of the six (6)-month period measured from the date of Executive’s Separation from Service or (b) the date of Executive’s death.  Upon the first business day following the expiration of the applicable Code Section 409A(a)(2)(B)(i) period, all payments deferred pursuant to this Section 13(a)(ii) shall be paid in a lump sum to Executive, and any remaining payments due under this Agreement shall be paid as otherwise provided herein.
iii.Installments.  For purposes of Section 409A of the Code (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii)), Executive’s right to receive any installment payments under this Agreement shall be treated as a right to receive a series of separate payments and, accordingly, each such installment payment shall at all times be considered a separate and distinct payment.
(b)Waiver.  No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by Executive and by an authorized officer of the Company (other than Executive).  No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.
(c)Whole Agreement.  This Agreement and the Confidential Information Agreement represent the entire understanding of the parties hereto with respect to the subject matter hereof and supersede all prior arrangements and understandings regarding same, including, without limitation, the change in control and severance provisions of the Offer Letter.  
(d)Choice of Law.  The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California.
(e)Severability.  The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.
(f)Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.
(Signature page follows)

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IN WITNESS WHEREOF, each of the parties has executed this Severance Benefit Agreement, in the case of the Company by its duly authorized officer, as of the day and year set forth below.

AVAGO TECHNOLOGIES LIMITED 
(Company Registration Number 200510713C)

        
By:     /s/ James V. Diller    
Title:   Chairman of the Board of Directors    
Date:   January 23, 2014    

EXECUTIVE
/s/ Hock E. Tan    
Hock E. Tan
    
Date:   January 23, 2014    

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