On June 13, 2011, Miller Energy Resources, Inc. (“Miller”) entered into a Loan Agreement (the “Loan Agreement”) with Guggenheim Corporate Funding, LLC (“Guggenheim”), as Administrative Agent, Arranger and Lender and Citibank, N.A. and Bristol Investment Fund as Lenders.

The Loan Agreement provides for a credit facility of up to $100 million (the “Credit Facility”) with an initial borrowing base of $35 million. The Credit Facility matures on June 13, 2013 and is secured by substantially all the assets of Miller and its subsidiaries.  Amounts outstanding under the credit facility bear interest at a rate per annum equal to the higher of 9.5% or the prime rate plus 4.5%. In addition, Miller is required to pay an additional make-whole payment upon termination or payment in full of the Credit Facility. Beginning on January 1, 2012, or earlier under certain circumstances, Miller is required to use 90% of its consolidated monthly net revenues (after deducting general and administrative expenses to the extent permitted under the Loan Agreement) to repay the loans outstanding under the Credit Facility.  Proceeds of certain asset sales and indebtedness and other proceeds received outside the ordinary course of business are required to be used to repay loans outstanding under the Credit Facility.    Draws under the Credit Facility are subject to the discretion of the Agent and the Lenders.  The borrowing base is redetermined on a scheduled basis twice per year, and more often at the request of the Borrower or the required lenders.  The redetermination of the borrowing base is at the discretion of the lenders.  The Loan Agreement contains interest coverage, asset coverage and minimum gross production covenants, as well as other affirmative and negative covenants.  In connection with the Loan Agreement Miller has granted Guggenheim a right of first refusal to provide financing for the acquisition, development, exploration or operation of any oil and gas related properties including wells during the term of the Credit Facility and one year thereafter.

Upon an event of default under the Loan Agreement, all amounts outstanding become immediately due and payable, the Lenders may stop making advances under the Credit Facility and may terminate the agreement.  An “event of default” includes, among other things, our failure to pay any amounts when due, our failure to perform under or observe any term, covenant or provision of the Loan Agreement, the occurrence of a Material Adverse Change (as that term is defined in the Loan Agreement), the seizure of or levy upon our assets or properties, our insolvency or bankruptcy, judgments against us in excess of certain amounts, defaults under certain other agreements, the limitation or termination of the any of the guarantors, which include Miller and all of our subsidiaries, under the Guarantee and Collateral Agreement described below, the death or incapacitation of either Mr. Scott Boruff or Mr. David Hall, or if either of them cease to be substantially involved in our operations or the breach or termination of the Shareholders Agreement described below.

On the closing date of the Loan Agreement we paid the Administrative Agent, ratably for the benefit of the Lenders a non-refundable facility fee of $700,000.  We also agreed to pay a non-refundable fee of 2% on increase in the borrowing base from the borrowing base limit then in effect.  At closing we paid the Administrative Agent a non-refundable fee of $30,000 and agreed to pay annual additional fees in this amount so long as the Loan Agreement remains in effect.

Pursuant to our amended consulting agreement dated April 29, 2011 with Bristol Capital, LLC, an affiliate of one of the lenders, we are obligated to pay Bristol Capital, LLC 3% of funds actually drawn over the course of the loan, up to a total payment of up to $3,000,000 as a finder’s fee.

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