Gastar -- summary under Outbound continuances

Overview

Pursuant to a Plan of Arrangement under s. 193 of the ABCA, the jurisdiction of incorporation of Gastar will be changed from Alberta to Delaware by way of a domestication under s. 388 of the Delaware General Corporation Law ("DGCL") – so that its existence as a corporation will be deemed to have commenced on December 22, 2005, the date of original incorporation under the ABCA. Gastar will delist from the TSX.

Gastar

Gastar is a Houston-based corporation with a market cap of $173M engaged in the exploration and production of natural gas and oil, with a focus on the Marcellus Shale play in Appalachia. It is listed on the NYSE Amex (as well as on the TSX). Its share price has declined from around $25 shortly after its incorporation at the end of 2005 to $2.50 currently.

Plan of Arrangement

Under the Plan of Arrangement:

• dissenters will be deemed to have transferred their Gastar shares to Gastar for cancellation and will cease to have any rights other than to be paid the fair value of their shares
• Gastar shall continue under the DGCL as Gastar Delaware so that inter alia each outstanding Gastar share shall be exchanged for one share of Gastar Delaware , the property of Gastar shall continue to be property of Gastar Delaware, and Gastar Delaware will continue to be liable for obligations of Gastar

U.S. securities laws

The shares of Gastar Delaware to be issued will not be registered in reliance on the s. 3(a)(10) exemption.

Canadian tax consequences

Continuance. Upon the continuance, Gastar will be deemed (by s. 128.1(4)(b)) to have disposed of each of its properties for their fair market value, which could cause Gastar to incur a Canadian income tax liability. Furthermore, an emigration tax will be imposed (under s. 219.1) on the amount by which the fair market value of all of the properties of Gastar exceeds the aggregate of the paid-up capital of its shares and its liabilities. Tax will be so imposed at a 5% rate "unless one of the main reasons for our Company changing its residence to the United States was to reduce the amount of this corporate emigration tax or the amount of Canadian withholding tax paid by our Company, in which case the rate will be 25%" (s. 219.3). Management is of the view that there should be no material Canadian tax arising as a consequence of the continuance.

Shareholders

A Canadian resident holder (as well as a non-resident shareholder) should not be deemed to have disposed of its Gastar shares as consequence only of the continuance. Standard disclosure re dissenters.

U.S. tax consequences

Potential FIRPTA tax. As a result of the continuance, Gastar will be treated as (i) transferring all of its assets and liabilities to Gastar Delaware in exchange for stock of Gastar Delaware , and (ii) distributing to its shareholders the stock of Gastar Delaware in redemption of the shareholders' stock in Gastar. As Gastar Delaware will be a United States real property holding company (USRPC) within the meaning of Code s. 897, in the absence of an applicable exception, Gastar would be required to recognize any gain realized on its constructive distribution in (ii).

Private letter ruling/toll charge

In a private letter ruling, the IRS ruled that Gastar would qualify for an exception (and thus not realize gain in (ii)) provided that the reorganization qualified as a s. 368(a) reorganization and Gastar paid a "toll charge" equal to the taxes that would have been imposed under s. 897 on all persons who disposed of Gastar stock within the 10 years preceding the continuance if Gastar had been a domestic corporation, plus interest thereon. Gastar expects this toll charge to be approximately $500,000.

S 368(a) reorg

Although the ruling did not address the status of the continuance as a s. 368(a) reorganization, a condition to the completion of the reorganization will be an opinion of Bingham McCutchen that it so qualifies.

U.S. Holders – s. 367

If the continuance qualifies as a Code s. 368(a) reorganization, U.S. holders of Gastar shares generally will not recognize any gain or loss for Code purposes upon the exchange of their Gastar shares for shares of New Gastar pursuant to the continuance unless the Code s. 367 rules or PFIC rules apply. A U.S. holder that owns, directly or indirectly (under constructive ownership rules) less than 10% of the combined voting power of all classes of stock of Gastar and owns shares of Gastar with a fair market value of less than $50,000 is not subject to the s. 367 rules. A 10% Shareholder will be required to recognize as dividend income its proportionate share of Gastar's "all earnings and profits amount", with a corresponding increase in its tax basis. A U.S. holder that is not a 10% Shareholder but whose shares have a fair market value of at least $50,000 generally will recognize gain (but not loss) upon the exchange of its Gastar stock for Gastar Delaware stock. However, it will not be required to recognize any gain if it instead elects to include as a deemed dividend the "all earnings and profits amount" with respect to its Gastar stock if inter alia Gastar provides sufficient information to compute the "all earnings and profits amount" with respect to its stock. Gastar believes that it has incurred deficits in earnings and profits in each tax year beginning after 2005 except for the 2009 tax year. It will post information regarding its earnings and profits (or deficits) on its website.

U.S. Holders – PFIC

Gastar believes that it is not and never has been a PFIC. Accordingly, the continuance should not be a taxable event for any U.S. holder under the PFIC rules.

Non- U.S. Holders

The exchange of shares of Gastar for shares of Gastar Delaware by a non-U.S. holder on the continuance generally will not be a taxable transaction.