EX-99.(T3E1B) 4 dex99t3e1b.txt SECOND SUPP TO OFFER TO EXCHANGE EXHIBIT T3E(1)(B) SECOND SUPPLEMENT Dated as of April 4, 2002 to the OFFER TO EXCHANGE AND CONSENT SOLICITATION STATEMENT By SOUTHWEST ROYALTIES, INC. With Respect To Its 10 1/2% Senior Notes Due 2004 On March 5, 2002, Southwest Royalties, Inc., a Delaware corporation ("Southwest"), commenced an offer to the holders (the "Holders") of Southwest's outstanding 10 1/2% Senior Notes Due 2004 (the "Original Notes"), upon the terms and subject to the conditions set forth in that certain Offer to Exchange and Consent Solicitation Statement (as it may be amended or supplemented from time to time, the "Original Statement"), in the accompanying Consent and Letter of Transmittal (the "Consent and Letter of Transmittal"), and in the Note Exchange Agreement (the "Note Exchange Agreement" and, together with the Original Statement and the Consent and Letter of Transmittal, the "Offer"), to exchange (the "Exchange") at least $115 million of its Original Notes, and any interest accrued but not paid thereon, for $60 million of Senior Secured Notes Due 2004 (the "New Notes") and 900,000 shares (the "Class A Common Shares" and, together with the New Notes, the "Exchange Consideration") of Southwest's Class A Common Stock, par value $.01 per share. On March 22, 2002, Southwest mailed a supplement to the Original Statement (the "First Supplement") in order to (i) extend the Expiration Date of the Offer from April 1 to April 12, (ii) clarify certain terms of the Offer and (iii) send additional materials to the Holders. As a result of subsequent discussions with certain Holders and their representatives, Southwest is sending this second supplement (the "Second Supplement") in order to (i) modify certain terms of and relating to the Offer, and (ii) extend the time of the Expiration Date from 12:00 noon to 5:00 p.m. on April 12, 2002. This Second Supplement modifies certain provisions of the Original Statement and contains important information which should be read before any decision is made with respect to the Offer and the Consent Solicitation. Terms used in this Second Supplement but not otherwise defined herein have the meanings set forth in the Original Statement. COMPARISON OF ORIGINAL TERMS AND REVISED TERMS OF THE OFFER Set forth below is a comparison of certain original terms of the Offer, as were described in the Original Statement and the First Supplement, and the revised terms that Southwest now proposes in connection with the Exchange:
--------------------------- --------------------------------------------- -------------------------------------------- Issue Original Terms Revised Terms --------------------------- --------------------------------------------- -------------------------------------------- Characteristics of the In connection with the Exchange, Southwest In connection with the Exchange, Southwest Special Shares To Be would issue to Southwest Royalties will issue to SRH 200,000 shares of Issued to Southwest Holdings, Inc., Southwest's current sole Special Stock. The Special Shares will Royalties Holdings, Inc. stockholder ("SRH"), 200,000 shares of have no voting rights, no rights to Special Stock. The Special Shares would be receive dividends or other distributions entitled to one vote per share and would be from Southwest and no rights to able to participate in any dividends or participate in any liquidation or distributions by Southwest. Southwest dissolution of Southwest. Southwest will would also issue to SRH 100,000 shares of also issue to SRH 100,000 shares of Common Common Stock, which, combined with the Stock, which will represent 10% of Special Shares, would result in SRH owning Southwest's issued and outstanding voting 25% of Southwest's issued and outstanding share capital upon consummation of the voting share capital upon consummation of Exchange. the Exchange. If, prior to or on October 3, 2003, If, prior to or on October 12, 2003, Southwest paid in cash in full the New Southwest pays in cash in full the New Notes, Special Shares held by SRH would Notes, the Special Shares held by SRH will automatically on the date of such payment automatically convert on the date of such be converted into shares of Southwest's payment into shares of Common Stock on a Common Stock on a basis of one share of basis of one share of Common Stock per Common Stock per each share of Special each share of Special Stock issued and Stock issued and outstanding. outstanding. Upon conversion of the Special Shares into shares of Common Stock, combined with the 100,000 shares of Common Stock which will be held by SRH upon consummation of the Exchange, SRH would then own 25% of Southwest's issued and outstanding voting share capital. If on or prior to October 3, 2003, either If on or prior to October 12, 2003, either (i) the New Notes were not paid in cash in (i) the New Notes are not paid in cash in full or (ii) there was a voluntary or full or (ii) there is a voluntary or involuntary bankruptcy filing by or against involuntary bankruptcy filing by or Southwest, then, upon the earlier of such against Southwest, then, upon the earlier event, the Special Shares would be deemed of such event, the Special Shares will be canceled, would be null and void and of no deemed canceled, shall be null and void further effect. Upon cancellation of the and of no further effect. Upon Special Shares, SRH would then own only 10% cancellation of the Special Shares, SRH of Southwest's issued and outstanding share would continue to own only 10% of capital. Southwest's issued and outstanding voting share capital. --------------------------- --------------------------------------------- --------------------------------------------
--------------------------- --------------------------------------------- ---------------------------------------------- Issue Original Terms Revised Terms --------------------------- --------------------------------------------- ---------------------------------------------- Board Representation The Board of Directors would initially be The Board of Directors will be composed of composed of seven members. While any Class A seven members. While any Class A Common Common Shares remain outstanding, the Shares remain outstanding, the beneficial beneficial owners of the Class A Common owners of the Class A Common Shares are Shares would be entitled to elect four out entitled to elect six out of seven total of seven total members to Southwest's Board members to Southwest's Board of Directors. of Directors. The remaining three directors The remaining director will be appointed would be appointed by the holder of Common by the holder of Common Stock. Stock and Special Stock. In the event the Special Shares were cancelled (as described above), at the option of the holders of the Class A Common Shares, such holders of Class A Common Shares would be entitled to elect a fifth representative out of eight total members to serve on Southwest's Board of Directors. --------------------------- --------------------------------------------- ---------------------------------------------- Interest on the New Notes Interest on the New Notes will Interest on the New Notes will begin to begin to accrue on February 1, accrue on October 15, 2001 (as if the 2002 (as if the New Notes were New Notes were issued on such date) at a rate issued on such date) at a rate of of 10-1/2% per annum through December 31, 2002, 10-1/2% per annum through 11-1/2% from January 1, 2003 through December 31, 2002, 11-1/2% December 31, 2003 and 12-1/2% thereafter. from January 1, 2003 through December 31, 2003 and 12-1/2% thereafter. --------------------------- --------------------------------------------- ---------------------------------------------- Redemption of Shares of One of the conditions of the Exchange In addition to the redemption of H.H. Southwest Royalties requires the written cancellation of a $1.6 Wommack, III's shares of SRH common stock, Holdings, Inc. Held by million note issued by H.H. Wommack, III, in the event the New Notes are not Wommack Southwest's Chief Executive Officer and satisfied and paid in full prior to or on President, to SRH in exchange for 123,710 October 12, 2003, then SRH has the option shares of SRH common stock held by Mr. to purchase 39,856 additional shares of Wommack. SRH common stock from Mr. Wommack for $1. --------------------------- --------------------------------------------- ---------------------------------------------- Expiration Date April 12, 2003 at 12:00 noon, New York, New April 12, 2003 at 5:00 p.m., New York, New York Time York Time --------------------------- --------------------------------------------- ---------------------------------------------- Minimum Tender $115 million (unless waived by certain $120 million (unless waived by certain Holders) Holders) --------------------------- --------------------------------------------- ----------------------------------------------
Additional Exhibit ------------------ In connection with the Exchange, in addition to the Original Statement, and exhibits thereto, and the First Supplement, and the exhibits thereto, which were previously sent to Holders, Southwest is sending to Holders a Revised Form of Amended and Restated Certification of Incorporation, attached hereto as Exhibit A. ---------