EXHIBIT 10.46

August 13, 2012

Miller Energy Resources, Inc.

9721 Cogdill Road, Suite 302

Knoxville, TN 37932

Attention:  Scott M. Boruff

Chief Executive Officer

Re:  Acknowledgement and Amendment Regarding Series B Preferred Stock

Ladies and Gentlemen:

We refer to that certain Loan Agreement dated as of June 29, 2012 (as heretofore
amended or otherwise modified, the “Loan Agreement”), by and among Miller Energy
Resources, Inc., a Tennessee corporation (the “Borrower”), the financial
institutions party thereto from time to time as Lenders and Apollo Investment
Corporation, as Administrative Agent for the Lenders (in such capacity, the
“Agent”).  Capitalized terms used but not otherwise defined herein shall have
the meanings given such terms in the Loan Agreement, as amended hereby.
 References herein to any Section shall be to a Section of the Loan Agreement,
as amended hereby, unless otherwise specifically provided.

The Borrower has informed the Agent that it intends to issue a class of
preferred Stock that would be redeemable within thirty (30) days after the
termination of the Aggregate Commitment and repayment in full of all of the
Obligations, to be designated the “Series B Redeemable Preferred Stock” and
which shall be limited to no more than 300,000 shares outstanding at any time
(the “Preferred Stock”).  Dividends on the Preferred Stock would be payable,
currently and in cash on a semi-annual basis (beginning on March 1, 2013), at a
rate of 12% per annum (the “Preferred Dividend”).  In connection with the
issuance of the Preferred Stock, the Borrower has requested that the Agent and
the Lenders (i) acknowledge and agree that the Preferred Stock shall not
constitute (A) Disqualified Stock for purposes of the Loan Agreement solely as a
result of the inclusion of the redemption provision described in the preceding
sentence and (B) Indebtedness in the event it should be classified as “temporary
equity” for accounting purposes, and (ii) amend Section 7.10 such that, on or
after March 1, 2013, so long as the Borrower is in compliance with the
requirements of such Section, as amended hereby, the payment of the Preferred
Dividend would be permitted thereunder.  Subject to the terms and conditions
contained herein, the Agent and the Lenders (or at least the required percentage
thereof) are willing to make such acknowledgments and amendments, in each case,
as and to the extent provided below.

Accordingly, the Borrower, the Agent and the Lenders (or at least the required
percentage thereof) hereby agree as follows:

(a)

Treatment of the Preferred Stock.  The Preferred Stock shall not constitute
Disqualified Stock for purposes of the Loan Agreement, as amended hereby, solely
as a result of the Preferred Stock being redeemable within thirty (30) days
after the

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termination of the Aggregate Commitment and repayment in full of all of the
Obligations; provided that the foregoing acknowledgement shall not in any way
limit, modify or waive the restrictions set forth in Section 7.10, as amended
hereby.  All proceeds from the issuance of such Preferred Stock shall constitute
Excluded Equity Proceeds and shall be used solely for the purposes permitted by
the Loan Agreement, as amended hereby.  In addition, and for the avoidance of
doubt, it is further agreed that the Preferred Stock shall not be treated as
Indebtedness for purposes of the Loan Agreement, as amended hereby, in the event
it shall be classified as temporary equity for accounting purposes.

(b)

Consent to Amendment of Borrower’s Article of Incorporation.  Borrower’s filing
of the amendment to its articles of incorporation in the form attached hereto as
“Exhibit A” shall not be deemed to be “materially adverse” to the Agent or the
Lenders for purposes of Section 7.19(c) of the Loan Agreement, as amended
hereby.

(c)

Amendments to Loan Agreement.  The Loan Agreement is hereby amended as follows:

(i)

Amendments to Definitions.  

(A)

New Defined Terms. The following new defined terms are added to Section 1.1, in
the appropriate alphabetical order:

“‘Series B Preferred Dividend’ means a 12% semi-annual dividend, payable in cash
on March 1 and September 1 of each year, on the Borrower’s Series B Preferred
Stock.”

“‘Series B Preferred Stock’ means the class of equity of the Borrower to be
designated “Series B Redeemable Preferred Stock”; provided that no more than
300,000 shares of such Stock shall be authorized or outstanding at any time.”  

(B)

Amendment to “Consolidated Permitted Expenses”.  The word “and” is deleted
immediately preceding clause (m) and the following new clause (n) is added to
the definition of “Consolidated Permitted Expenses” immediately after clause (m)
therein: “; and (n) to the extent permitted under Section 7.10, payment of the
Series B Preferred Dividend.”

(C)

Amendment to “Interest Expense”.  The definition of “Interest Expense” is hereby
amended and restated as follows:

“Interest Expense” shall mean, for any period, the sum (determined without
duplication) of (a) the aggregate amount of interest expense accrued during such
period on Indebtedness of Borrower and its Subsidiaries on a consolidated basis
determined in accordance with GAAP, including the interest portion of payments
under Capital Leases and any capitalized interest, but excluding

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amortization of debt discount and expense and any interest expense accrued
solely in respect of the Make-Whole Premium or any Prepayment Premium and (b)
all dividends or other distributions paid in cash during such period in respect
of any preferred Stock of Borrower and its Subsidiaries.    

(ii)

Amendment to Section 7.10. The following amendments are made to Section 7.10.

(A)

The existing clause (d) in such Section 7.10 is redesignated as clause “(e)”;
and

(B)

The following new clause is inserted as clause (d) in Section 7.10, immediately
after the words “under the Miller 2009 Loan Documents” in clause (c) and before
“or (e)”:

“(d) on or after March 1, 2013, the payment of  the Series B Preferred Dividend
so long as (i) such payment is made during a Capital Covenant Compliance Period,
(ii) immediately after giving effect to such payment, the Borrower is in pro
forma compliance with the Capital Covenants, and (iii) immediately prior to and
after giving effect to such payment, no Default or Event of Default shall have
occurred and be continuing”.    

(iii)

 New Section 7.29.  The following new Section 7.29 is hereby added to the Loan
Agreement after Section 7.28 thereof.

Section 7.29.

Series B Preferred Stock.

(a)

Borrower covenants and agrees that it shall not redeem the Series B Preferred
Stock prior to the date that is 30 days after the date on which Security
Termination occurs.  The foregoing covenant and agreement shall survive the
termination of the Loan Documents and repayment of the Obligations.

(b)

Borrower shall not amend or otherwise modify the terms and/or conditions of the
Series B Preferred Stock (including without limitation the Series B Preferred
Dividend) without the prior written consent of Administrative Agent.

By its signature below, each Loan Party agrees that, except as expressly set
forth herein, nothing herein shall be construed as (a) an amendment, alteration,
modification, waiver or continuing waiver of the provisions of Section 7.10, any
definition set forth in the Loan Agreement or any other provision of the Loan
Agreement or any other Loan Document or (b) a waiver of any Default or Event of
Default now existing or hereafter arising under the Loan Agreement or any other
Loan Document.  Nothing contained herein shall obligate the Lenders to (i) grant
any additional or future consents, amendments or waivers under Section 7.10, any

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definition set forth in the Loan Agreement or under any other provision of the
Loan Agreement or any other Loan Document or (ii) waive any Default or Event of
Default now existing or hereafter arising under the Loan Agreement or any other
Loan Document.

By its signature below, each Loan Party hereby (a) acknowledges and agrees that,
except as expressly provided herein, the Loan Agreement, as amended hereby, and
each of the other Loan Documents are hereby ratified and confirmed in all
respects and shall remain in full force and effect; (b) ratifies and reaffirms
its obligations under, and acknowledges, renews and extends its continued
liability under, the Loan Agreement, as amended hereby, and each other Loan
Document to which it is a party; (c) ratifies and reaffirms all of the Liens
securing the payment and performance of the Obligations; and (d) represents and
warrants to the Agent and the Lenders that, as of the date hereof, (i) after
giving effect to this letter agreement, all of the representations and
warranties contained in the Loan Agreement, as amended hereby, and each other
Loan Document to which it is a party are true and correct in all material
respects, except to the extent any such representations and warranties are
expressly limited to an earlier date, in which case, such representations and
warranties shall continue to be true and correct in all material respects as of
such specified earlier date, (ii) after giving effect to this letter agreement,
no Default or Event of Default has occurred and is continuing, and (iii) the
execution, delivery, and performance of this letter agreement by such Loan Party
have been duly authorized by all necessary action on the part of such Loan
Party.  This letter agreement shall be deemed to constitute a Loan Document for
all purposes and in all respects.

This letter agreement shall become effective as of the date first written above
when and only when the Agent shall have received duly executed counterparts of
this letter agreement signed by each Loan Party and the Lenders (or at least the
required percentage thereof).

This letter agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of New York.  This letter agreement may
be executed in counterparts with each counterpart constituting an original and
all of the counterparts, once executed, constituting but one original.  Delivery
of an executed counterpart by facsimile or other electronic means shall be
effective as delivery of an original executed counterpart.

[Signature Pages Follow]

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If the foregoing is acceptable to you, please execute a copy of this letter
agreement in the spaces provided below to evidence your acceptance and approval
of the foregoing and return a fully-executed counterpart of this letter to the
attention of the undersigned.

 

Very truly yours,

 

 

 

APOLLO INVESTMENT CORPORATION, as Administrative Agent for the Lenders

 

 

 

 

 

 

 

By:

Apollo Investment Management, L.P.

 

 

 

 

 

 

 

 

By:

ACC Management, LLC, as its General Partner

 

 

 

 

 

 

 

 

 

 

 

By:  

/s/ James Zelter

 

Name:

James Zelter

 

Title:

President

Acknowledgement and Amendment — Miller Energy Resources, Inc.

Signature Page

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Acknowledged, agreed and accepted as of the 13th day of August, 2012

 

 

 

 

 

 

 

BORROWER:

 

 

 

 

 

MILLER ENERGY RESOURCES, INC.,

 

 

a Tennessee corporation

 

 

 

 

 

By:

/s/ Scott M. Boruff

 

 

Name:

Scott M. Boruff

 

 

Title:

Chief Executive Officer    

 

 

 

 

 

 

 

GUARANTORS:

 

 

 

 

 

 

 

MILLER DRILLING, TN LLC

 

 

 

 

 

 

 

By:

MILLER ENERGY RESOURCES, INC.,

 

 

 

its Sole Member

 

 

 

 

 

 

 

 

By:

/s/ Scott M. Boruff

 

 

 

Name:

Scott M. Boruff

 

 

 

Title:

Chief Executive Officer

 

 

 

 

 

 

 

MILLER ENERGY SERVICES, LLC

 

 

 

 

 

 

 

By:

MILLER ENERGY RESOURCES, INC.,

 

 

 

its Sole Manager

 

 

 

 

 

 

 

 

By:

/s/ Scott M. Boruff

 

 

 

Name:

Scott M. Boruff

 

 

 

Title:

Chief Executive Officer

 

 

 

 

 

 

 

MILLER ENERGY GP, LLC

 

 

 

 

 

 

 

By:

MILLER ENERGY RESOURCES, INC.,

 

 

 

its Sole Manager

 

 

 

 

 

 

 

 

By:

/s/ Scott M. Boruff

 

 

 

Name:

Scott M. Boruff

 

 

 

Title:

Chief Executive Officer

 

 

 

 

 

 

Acknowledgement and Amendment — Miller Energy Resources, Inc.

Signature Page

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MILLER RIG & EQUIPMENT, LLC

 

 

 

 

 

 

 

By:

MILLER ENERGY RESOURCES, INC.,

 

 

 

its Sole Manager

 

 

 

 

 

 

 

 

By:

/s/ Scott M. Boruff

 

 

 

Name:

Scott M. Boruff

 

 

 

Title:

Chief Executive Officer

 

 

 

 

 

 

 

COOK INLET ENERGY, LLC

 

 

 

 

 

 

 

By:

/s/ David M. Hall

 

 

Name:

David M. Hall

 

 

Title:

Manager and Chief Executive Officer

 

 

 

 

 

 

 

EAST TENNESSEE CONSULTANTS, INC.

 

 

 

 

 

 

 

By:

/s/ Douglas G. Melton

 

 

Name:

Douglas G. Melton

 

 

Title:

Vice President and Secretary

 

 

 

 

 

 

 

EAST TENNESSEE CONSULTANTS II, L.L.C.

 

 

 

 

 

 

 

By:

/s/ Douglas G. Melton

 

 

Name:

Douglas G. Melton

 

 

Title:

Manager and Secretary

 

Acknowledgement and Amendment — Miller Energy Resources, Inc.

Signature Page

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Exhibit A: Amendment to Borrower’s Charter

Article 6 of the Corporation’s Amended and Restated Charter is hereby amended by
adding the following:

In accordance with Sections 48-20-102 and 48-20-106 of the Tennessee Business
Corporation Act (“TBCA”), the undersigned corporation adopts the following
Articles of Amendment (the “Articles of Amendment”) to its Charter (the
“Charter”):

1.

The name of this corporation is Miller Energy Resources, Inc.

2.

Article Six of the Charter is hereby amended, pursuant to the authority granted
to the Board of Directors of this corporation by Section 6(c) of the Charter, by
(i) deleting the existing subsection (d) of Article Six of the Charter, relating
to the designation of issuance of the Corporation’s “Series A Redeemable
Preferred Stock,” none of which are outstanding (having all been redeemed), and
no more of which will be issued in the future, and (ii) replacing it with the
following, which subsection (d) which states the number, designation, relative
rights, preferences and limitations of a new series of preferred stock as fixed
by the Board of Directors and shall read in its entirety as follows:

(d)

Series B Redeemable Preferred Stock.  

(i)

Designation and Amount.  The shares of such series shall be designated as
“Series B Redeemable Preferred Stock” (the “Series B Preferred Stock”) and the
number of shares constituting the Series B Preferred Stock shall be 300,000.
Such number of shares may be increased or decreased by resolution of the Board
of Directors; provided, that no decrease shall reduce the number of shares of
Series B Preferred Stock to a number less than the number of shares then
outstanding.

(ii)

Stated Value.  The stated value of the Series B Preferred Stock shall be $100.00
per share.

(iii)

Dividends.  Subject to the Corporation’s ability to pay dividends pursuant to
the provisions of Section 48-16-401 of the TBCA, the holders of the shares of
Series B Preferred Stock (each, a "Holder" and collectively, the "Holders")
shall be entitled to receive dividends ("Dividends") at the rate of 12% per
annum payable on the Stated Value of such preferred share.  So long as, (A) such
payment of Dividends is made during a Capital Covenant Compliance Period (as
defined under the Loan Agreement of the Corporation, dated as of June 29, 2012
(as amended, restated or otherwise modified from time to time, the “Senior Loan
Agreement”), between the Corporation, as Borrower and Apollo Investment
Corporation, as Administrative Agent and sole initial Lender, (B) immediately
after giving effect to such payment of Dividends, the Corporation is in pro
forma compliance with the Capital Covenants (as defined in the Senior Loan
Agreement), and (C) immediately prior to and after giving effect to such payment
of Dividends, no Default or Event of Default (as each such term is defined in
the Senior Loan Agreement) shall have occurred and be continuing (the foregoing
clauses (A), (B) and (C) being collectively referred to herein as the “Financing
Condition”), the Dividends shall be payable in cash on a semi-annual basis, in
arrears, each March 1 and September 1 (each, a "Dividend Date"), with the first
Dividend being payable on March 1, 2013.  In the event the Financing Condition
is not satisfied, or the Corporation shall fail to make the necessary payment of
Dividends for any other reason, such Dividends shall be cumulative.  Dividends
on the shares of Series B Preferred Stock shall commence accruing on the initial
issuance date of such shares (the “Issuance Date”) and shall be computed on the
basis of a 365-day year and actual days elapsed.

 

(v)

Conversion.  The shares of Series B Preferred Stock are not convertible into or
exchangeable for any other security of the Corporation.

Acknowledgement and Amendment — Miller Energy Resources, Inc.

Exhibit A

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(vi)

Redemption.  

(A)

Commencing immediately upon issuance, all or any of the shares of Series B
Preferred Stock are redeemable at any time at the sole option of the Corporation
(subject to subparagraph (B) below) upon notice to the Holder (the “Redemption
Notice”) at a redemption price per share (the “Redemption Price”) as follows:

(7)

If the Redemption Notice is given on or prior to the first anniversary of the
issuance date of the shares of Series B Preferred Stock, the Redemption Price
shall be 103% of the Stated Value per share plus any accrued but unpaid
dividends; or

(8)

If the Redemption Notice is given after the first anniversary of the issuance
date of the shares of Series B Preferred Stock but on or prior to the second
anniversary thereof, the Redemption Price shall be 106% of the Stated Value per
share plus any accrued but unpaid dividends; or

(9)

If the Redemption Notice is given after the second anniversary of the issuance
date of the shares of Series B Preferred Stock but on or prior to the third
anniversary thereof, the Redemption Price shall be 109% of the Stated Value per
share plus any accrued but unpaid dividends; or

(10)

If the Redemption Notice is given after the third anniversary of the issuance
date of the shares of Series B Preferred Stock but on or prior to the fourth
anniversary thereof, the Redemption Price shall be 112% of the Stated Value per
share plus any accrued but unpaid dividends; or

(11)

If the Redemption Notice is given after the fourth anniversary of the issuance
date of the shares of Series B Preferred Stock, the Redemption Price shall be
115% of the Stated Value per share plus any accrued but unpaid dividends; or

(12)

If the Series B Preferred Stock has not been redeemed prior to the fifth (5th)
anniversary of the date of its issuance, then it shall be redeemed on the later
of (i) such fifth (5th) anniversary and (ii) 30 days after the date on which
Security Termination (as defined in the Senior Loan Agreement) under the
Company’s Senior Loan Agreement occurs (a “Repayment Event”), in each case with
a Redemption Price equal to 115% of the Stated Value per share plus any accrued
but unpaid dividends.

(B)

The Company will not, in any event, redeem the Series B Preferred Stock prior to
the occurrence of the Repayment Event.

(C)

Payment in full of the Redemption Price shall be payable in cash to the Holder
immediately upon surrender of the certificates representing the shares so
redeemed.

(D)

In the event any shares of Series B Preferred Stock shall be redeemed pursuant
to this section, the shares so redeemed shall automatically be cancelled and
returned to the status of authorized but unissued shares of preferred stock.

Acknowledgement and Amendment — Miller Energy Resources, Inc.

Exhibit A

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(vii)

Voting Rights.  The shares of Series B Preferred Stock shall have no voting
rights except as may be specifically provided for in the TBCA, except that the
affirmative vote of at least a majority of the Series B Preferred Stock, voting
as a class, shall be required to authorize, effect or validate the creation and
issuance of any class or series of stock ranking equal to or senior to the
shares of the Series B Preferred Stock with respect to the declaration and
payment of dividends or distribution of assets on liquidation, dissolution or
winding-up (provided, however, that another class or series of stock shall not
be deemed to be senior to the Series B Preferred Stock solely on account of the
fact that cash dividends may be payable with respect thereto on different dates
or more frequent intervals than it is to holders of the Series B Preferred
Stock, so long as no payments of Dividends on the Series B Preferred Stock
remain unpaid or are in arrears).  No such vote is required if, prior to the
time such class is issued, provision is made for the redemption of all shares of
the Series B Preferred Stock and such shares of the Series B Preferred Stock are
redeemed on or prior to the date of issuance of such class.

(viii)

Liquidation, Dissolution, Winding-Up.  In the event of the liquidation,
dissolution or winding up of the affairs of the Corporation, whether voluntary
or involuntary, the holders of shares of the Series B Preferred Stock then
outstanding shall be entitled to receive, out of the remaining assets of the
Corporation available for distribution to its shareholders, an amount equal to
the Stated Value per share.

(ix)

Rank.  The shares of Series B Preferred Stock shall rank, with respect to the
payment of dividends and distribution of assets, senior to any other series of
preferred stock of the Corporation.

Acknowledgement and Amendment — Miller Energy Resources, Inc.

Exhibit A