CAPITAL SOUTHWEST CORP (Form: 10-Q, Received: 11/07/2017 17:22:41)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ……………..to ……………..

Commission File Number: 814-00061

CAPITAL SOUTHWEST CORPORATION

(Exact name of registrant as specified in its charter)


Texas		75-1072796
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


5400 Lyndon B Johnson Freeway, Suite 1300, Dallas, Texas		75240
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code: ( 214) 238-5700

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such filings). Yes _ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer 	Accelerated filer x	Non-accelerated filer 	Smaller reporting company 	Emerging growth company 
		(Do not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

16,019,296 shares of Common Stock, $0.25 value per share, as of November 3, 2017.

Table of Contents

TABLE OF CONTENTS


		Page
PART I	FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements	3
	Consolidated Statements of Assets and Liabilities as of September 30, 2017 (Unaudited) and March 31, 2017	3
	Consolidated Statements of Operations (Unaudited) for the three and six months ended September 30, 2017 and 2016	4
	Consolidated Statements of Changes in Net Assets (Unaudited) for the six months ended September 30, 2017 and 2016	5
	Consolidated Statements of Cash Flows (Unaudited) for the six months ended September 30, 2017 and 2016	6
	Consolidated Schedule of Investments as of September 30, 2017 (Unaudited) and March 31, 2017	7
	Notes to Consolidated Financial Statements (Unaudited)	13
	Consolidated Schedule of Investments in and Advances to Affiliates (Unaudited) for the six months ended September 30, 2017	45
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	46
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	58
Item 4.	Controls and Procedures	58

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	59
Item 1A.	Risk Factors	59
Item 5.	Other Information	60
Item 6.	Exhibits	62

Signatures		63

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(In thousands, except shares and per share data)


	September 30,		March 31,
	2017		2017
	(Unaudited)
Assets
Investments at fair value:
Non-control/Non-affiliate investments (Cost: $197,653 and $172,437, respectively)	$	196,781	$	175,731
Affiliate investments (Cost: $5,932 and $5,925, respectively)		6,491		7,138
Control investments (Cost: $76,260 and $72,178, respectively)		118,588		104,011
Total investments (Cost: $279,845 and $250,540, respectively)		321,860		286,880
Cash and cash equivalents		33,329		22,386
Receivables:
Dividends and interest		3,709		3,137
Escrow		545		545
Other		461		626
Deferred tax asset		1,846		2,017
Debt issuance costs (net of accumulated amortization of $686 and $366, respectively)		1,972		2,137
Other assets		4,948		8,024
Total assets	$	368,670	$	325,752

Liabilities
Credit facility	$	56,000	$	25,000
Other liabilities		14,077		5,996
Dividends payable		3,838		7,191
Accrued restoration plan liability		2,122		2,170
Deferred income taxes		119		323
Total liabilities		76,156		40,680

Commitments and contingencies (Note 11)

Net Assets
Common stock, $0.25 par value: authorized, 25,000,000 shares; issued, 18,358,808 shares at September 30, 2017 and 18,350,808 shares at March 31, 2017		4,590		4,588
Additional paid-in capital		262,019		261,472
Net investment income in excess of (less than) distributions		(1,277)		(1,457)
Accumulated undistributed net realized gain		9,223		8,390
Unrealized appreciation of investments, net of income taxes		41,896		36,016
Treasury stock - at cost, 2,339,512 shares		(23,937)		(23,937)
Total net assets		292,514		285,072
Total liabilities and net assets	$	368,670	$	325,752
Net asset value per share (16,019,296 shares outstanding at September 30, 2017 and 16,011,296 shares outstanding at March 31, 2017)	$	18.26	$	17.80

The accompanying Notes are an integral part of these Consolidated Financial Statements.

Table of Contents

CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except shares and per share data)


		Three Months Ended				Six Months Ended
		September 30,				September 30,
	2017		2016		2017		2016
Investment income:
Interest income:
Non-control/Non-affiliate investments	$	5,136	$	2,433	$	9,438	$	4,515
Affiliate investments		141		141		281		280
Control investments		-		-		-		-
Dividend income:
Non-control/Non-affiliate investments		30		-		60		-
Control investments		3,058		1,995		6,103		3,765
Interest income from cash and cash equivalents		5		56		12		126
Fees and other income		139		101		339		197
Total investment income		8,509		4,726		16,233		8,883
Operating expenses:
Compensation		1,606		1,404		3,244		2,889
Spin-off compensation plan		173		172		345		345
Share-based compensation		384		255		752		494
Interest		911		103		1,649		103
Professional fees		481		331		960		849
Net pension expense		41		43		81		86
General and administrative		842		641		1,551		1,422
Total operating expenses		4,438		2,949		8,582		6,188
Income before taxes		4,071		1,777		7,651		2,695
Income tax expense		134		412		278		958
Net investment income	$	3,937	$	1,365	$	7,373	$	1,737

Realized gain
Non-control/Non-affiliate investments	$	210	$	(459)	$	834	$	(260)
Affiliate investments		-		3,986		-		3,986
Control investments		-		-		-		-
Total net realized gain on investments before income tax		210		3,527		834		3,726

Change in unrealized appreciation of investments
Non-control/Non-affiliate investments		(1,747)		(1,911)		(4,166)		(1,437)
Affiliate investments		(322)		-		(654)		506
Control investments		6,445		3,937		10,495		5,606
Income tax benefit (provision)		120		-		205		(522)
Total net change in unrealized appreciation of investments, net of tax		4,496		2,026		5,880		4,153

Net realized and unrealized gain on investments	$	4,706	$	5,553	$	6,714	$	7,879

Net increase in net assets from operations	$	8,643	$	6,918	$	14,087	$	9,616

Pre-tax net investment income per share - basic and diluted	$	0.25	$	0.11	$	0.48	$	0.17
Net investment income per share – basic and diluted	$	0.25	$	0.09	$	0.46	$	0.11
Net increase in net assets from operations – basic and diluted	$	0.54	$	0.44	$	0.88	$	0.61
Weighted average shares outstanding – basic		16,010,231		15,726,419		16,009,968		15,728,476
Weighted average shares outstanding – diluted		16,077,837		15,805,577		16,075,193		15,801,535

The accompanying Notes are an integral part of these Consolidated Financial Statements.

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CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)

(In thousands)


	Six Months Ended
	September 30,
	2017		2016
Operations:
Net investment income	$	7,373	$	1,737
Net realized gain on investments		834		3,726
Net change in unrealized appreciation of investments, net of tax		5,879		4,153
Net increase in net assets from operations		14,086		9,616
Distributions from:
Undistributed net investment income		(7,193)		(2,664)
Spin-Off Compensation Plan, net of tax of $117 and $346, respectively		(227)		(1,175)
Capital share transactions:
Change in pension plan funded status		24		23
Share-based compensation expense		752		494
Increase in net assets		7,442		6,294
Net assets, beginning of period		285,072		272,635
Net assets, end of period	$	292,514	$	278,929

The accompanying Notes are an integral part of these Consolidated Financial Statements.

Table of Contents

CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Six Months Ended
	September 30,
	2017		2016
Cash flows from operating activities
Net increase in net assets from operations	$	14,086	$	9,616
Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities:
Purchases and originations of investments		(69,170)		(67,520)
Proceeds from sales and repayments of debt investments in portfolio companies		40,390		12,045
Proceeds from sales and return of capital of equity investments in portfolio companies		15		4,442
Payment of accreted original issue discounts		819		220
Depreciation and amortization		368		98
Net pension benefit		(24)		(16)
Realized gain on investments before income tax		(834)		(3,726)
Net change in unrealized appreciation of investments		(5,675)		(4,675)
Accretion of discounts on investments		(383)		(176)
Payment-in-kind interest and dividends		(142)		-
Stock option and restricted awards expense		752		494
Deferred income tax expense		(182)		1,480
Changes in other assets and liabilities:
(Increase) decrease in dividend and interest receivable		(572)		14
Decrease in escrow receivables		-		1,173
Decrease in other receivables		166		115
Decrease in tax receivable		-		314
Decrease (increase) in other assets		3,029		(1,141)
Increase (decrease) in other liabilities		8,002		(1,523)
Increase in payable for unsettled transaction		-		15,421
Net cash used in operating activities		(9,355)		(33,345)
Cash flows from financing activities
Proceeds from credit facility		31,000		-
Dividends to shareholders		(10,547)		(940)
Debt issuance costs paid		(155)		(2,495)
Spin-off Compensation Plan distribution		-		(1,349)
Net cash provided by (used in) financing activities		20,298		(4,784)
Net increase (decrease) in cash and cash equivalents		10,943		(38,129)
Cash and cash equivalents at beginning of period		22,386		95,969
Cash and cash equivalents at end of period	$	33,329	$	57,840
Supplemental cash flow disclosures:
Cash paid for income taxes	$	255	$	-
Cash paid for interest		1,236		-
Supplemental disclosure of noncash financing activities:
Dividend declared, not yet paid		3,838		1,724
Noncash adjustment to realized gain for escrow receivable		-		493
Spin-off Compensation Plan distribution accrued, not yet paid		344		172

The accompanying Notes are an integral part of these Consolidated Financial Statements.

Table of Contents

CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS

(Unaudited)

September 30, 2017


			Current
	Type of		Interest						Fair
Portfolio Company 1	Investment 2	Industry	Rate 3	Maturity	Principal		Cost		Value 4
Non-control/Non-affiliate Investments 5
AAC HOLDINGS, INC.	First Lien	Healthcare services	L+6.75% (Floor 1.00%), Current Coupon 8.06%	6/30/2023	$	9,440,625	$	9,211,195	$	9,440,625
AG KINGS HOLDINGS INC. 8	First Lien	Food, agriculture & beverage	L+9.37% (Floor 1.00%), Current Coupon 10.68%	8/8/2021		9,800,000		9,638,768		9,800,000
ALLIANCE SPORTS GROUP, L.P.	Senior subordinated debt	Consumer products & retail	11.00%	2/1/2023		10,100,000		9,902,459		9,902,459
	3.88% membership interest		-	-		-		2,500,000		2,500,000
								12,402,459		12,402,459
AMERICAN TELECONFERENCING SERVICES, LTD.	First Lien	Telecommunications	L+6.50% (Floor 1.00%), Current Coupon 7.78%	12/8/2021		6,555,837		6,397,980		6,342,773
	Second Lien		L+9.50% (Floor 1.00%), Current Coupon 10.74%	6/6/2022		2,005,714		1,935,209		1,991,925
AMWARE FULFILLMENT LLC	First Lien	Distribution	L+9.50% (Floor 1.00%), Current Coupon 10.82%	5/21/2019		12,730,000		12,569,184		12,730,000
ARGON MEDICAL DEVICES, INC.	Second Lien	Healthcare products	L+9.50% (Floor 1.00%), Current Coupon 10.74%	6/23/2022		5,000,000		4,880,347		5,000,000
BINSWANGER HOLDING CORP.	First Lien	Consumer products & retail	L+8.00% (Floor 1.00%), Current Coupon 9.32%	3/9/2022		13,135,807		12,894,738		12,894,738
	900,000 shares of common stock		-	-		-		900,000		762,000
								13,794,738		13,656,738
CALIFORNIA PIZZA KITCHEN, INC.	First Lien	Restaurants	L+6.00% (Floor 1.00%), Current Coupon 7.24%	8/23/2022		4,950,000		4,907,795		4,917,008
DEEPWATER CORROSION SERVICES, INC.	127,004 shares of Series A convertible preferred stock	Energy services (upstream)	-	-		-		8,000,000		4,629,000
DIGITAL RIVER, INC.	First Lien	Software & IT services	L+6.50% (Floor 1.00%), Current Coupon 7.82%	2/12/2021		7,032,285		7,005,050		7,067,446
DIGITAL ROOM LLC	Second Lien	Paper & forest products	L+10.00% (Floor 1.00%), Current Coupon 11.24%	5/21/2023		7,000,000		6,872,147		6,965,000
DUNN PAPER, INC.	Second Lien	Paper & forest products	L+8.75% (Floor 1.00%), Current Coupon 9.99%	8/26/2023		3,000,000		2,946,215		2,970,000
ELITE SEM, INC. 8	First Lien	Media, marketing & entertainment	L+10.28% (Floor 1.00%), Current Coupon 11.60%	2/1/2022		12,150,000		11,886,728		12,150,000
	1,000 shares of common stock		12% PIK	-		-		1,079,667		1,565,000
								12,966,395		13,715,000

Table of Contents


			Current
	Type of		Interest						Fair
Portfolio Company 1	Investment 2	Industry	Rate 3	Maturity	Principal		Cost		Value 4
LIGHTING RETROFIT INTERNATIONAL, LLC	First Lien	Environmental services	L+9.25% (Floor 1.00%), Current Coupon 10.55%	6/30/2022		15,000,000		14,759,719		14,775,000
	396,825 shares of Series B preferred stock		-	-		-		500,000		500,000
								15,259,719		15,275,000
PRE-PAID LEGAL SERVICES, INC.	Second Lien	Consumer services	L+9.00% (Floor 1.25%), Current Coupon 10.25%	7/1/2020		5,000,000		4,961,421		5,040,625
REDBOX AUTOMATED RETAIL, LLC	First Lien	Gaming & leisure	L+7.50% (Floor 1.00%), Current Coupon 8.74%	9/27/2021		7,000,000		6,812,899		7,070,000
RESEARCH NOW GROUP, INC.	Second Lien	Business services	L+8.75% (Floor 1.00%), Current Coupon 10.08%	3/18/2022		7,000,000		6,924,784		6,895,000
RESTAURANT TECHNOLOGIES, INC.	Second Lien	Restaurants	L+8.75% (Floor 1.00%), Current Coupon 10.06%	11/23/2023		3,500,000		3,452,009		3,482,500
RJO HOLDINGS CORP. 14	First Lien	Financial services	L+8.02% (Floor 1.00%), Current Coupon 9.26%	5/5/2022		7,406,250		7,337,022		7,337,022
TAX ADVISORS GROUP, LLC 13	Senior subordinated debt	Consumer services	10.00% / 2.00% PIK	12/23/2022		4,600,000		4,511,370		4,511,370
	143.3 Class A units 9		-	-		-		541,176		541,176
								5,052,546		5,052,546
VISTAR MEDIA INC.	First Lien	Media, marketing & entertainment	L+10.00% (Floor 1.00%), Current Coupon 11.32%	2/16/2022		8,250,000		7,495,327		8,250,000
	Warrants		-	-		-		886,000		1,500,000
								8,381,327		9,750,000
WASTEWATER SPECIALTIES, LLC	First Lien	Business services	L+8.75% (Floor 1.00%), Current Coupon 9.99%	4/18/2022		11,000,000		10,821,549		10,109,000
ZENFOLIO INC. 15	First Lien	Business services	L+9.00% (Floor 1.00%), Current Coupon 10.30%	7/17/2022		13,500,000		13,241,238		13,241,238
	Revolving Loan		L+9.00% (Floor 1.00%)	7/17/2022		-		(19,364)		-
	190 shares of common stock		-	-		-		1,900,000		1,900,000
								15,121,874		15,141,238

Total Non-control/Non-affiliate Investments							$	197,652,632	$	196,780,905
Affiliate Investments 6
CHANDLER SIGNS, LLC 13	Senior subordinated debt	Business services	12.00%	7/4/2021	$	4,500,000	$	4,432,169	$	4,432,169
	1,500,000 units of Class A-1 common stock 9		-	-		-		1,500,000		2,059,000
								5,932,169		6,491,169

Total Affiliate Investments							$	5,932,169	$	6,491,169

Control Investments 7
I-45 SLF LLC 9, 10, 11	80% LLC equity interest	Multi-sector holdings	-	-		-	$	64,800,000	$	67,401,334
MEDIA RECOVERY, INC. 11	800,000 shares of Series A convertible preferred stock	Industrial products	-	-		-		800,000		5,888,532
	4,000,002 shares of common stock		-	-		-		4,615,000		33,969,468
								5,415,000		39,858,000

Table of Contents


			Current
	Type of		Interest						Fair
Portfolio Company 1	Investment 2	Industry	Rate 3	Maturity	Principal		Cost		Value 4
TITANLINER, INC.	1,189,609 shares of Series B convertible preferred stock	Energy services (upstream)	6% PIK	-		-		2,841,007		5,026,000
	339,277 shares of Series A convertible preferred stock		-	-		-		3,204,222		6,303,000
								6,045,229		11,329,000
Total Control Investments							$	76,260,229	$	118,588,334

TOTAL INVESTMENTS 12							$	279,845,030	$	321,860,408

All debt investments are income-producing, unless otherwise noted. Equity investments are non-income producing, unless otherwise noted.

All of the Company’s investments, unless otherwise noted, are encumbered as security for the Company’s senior secured credit facility.

The majority of investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“P”) and reset daily, monthly, quarterly, or semiannually. For each the Company has provided the spread over LIBOR or Prime and the current contractual interest rate in effect at September 30, 2017. Certain investments are subject to a LIBOR or Prime interest rate floor. Certain investments, as noted, accrue payment-in-kind (“PIK”) interest.

⁴

Investments are carried at fair value in accordance with the Investment Company Act of 1940 (the “1940 Act”) and Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 820, Fair Value Measurements and Disclosures . We determine in good faith the fair value of our Investment portfolio pursuant to a valuation policy in accordance with ASC 820 and a valuation process approved by our Board of Directors. See Note 4 to the consolidated financial statements.

⁵

Non-Control/Non-Affiliate investments are generally defined by the 1940 Act as investments that are neither control investments nor affiliate investments. At September 30, 2017, approximately 61.2% of the Company’s investment assets are non-control/non-affiliate investments. The fair value of these investments as a percent of net assets is 67.3%.

⁶

Affiliate investments are generally defined by the 1940 Act as investments in which between 5% and 25% of the voting securities are owned and the investments are not classified as control investments. At September 30, 2017, approximately 2.0% of the Company’s investment assets are affiliate investments. The fair value of these investments as a percent of net assets is 2.2%.

⁷

Control investments are generally defined by the 1940 Act as investments in which more than 25% of the voting securities are owned or where greater than 50% of the board representation is maintained. At September 30, 2017, approximately 36.8% of the Company’s investment assets are control investments. The fair value of these investments as a percent of net assets is 40.5%.

⁸

The investment is structured as a first lien last out term loan and earns interest in addition to the stated rate.

⁹

Indicates assets that are considered “non-qualifying assets” under section 55(a) of the 1940 Act. Qualifying assets must represent at least 70% of total assets at the time of acquisition of any additional non-qualifying assets. As of September 30, 2017, approximately 21.7% of the Company’s investment assets are non-qualifying assets.

¹⁰

The investment has approximately $3.2 million unfunded commitment as of September 30, 2017.

¹¹

Income producing through dividends.

¹²

As of September 30, 2017, the cumulative gross unrealized appreciation for federal income tax purposes is approximately $45.8 million; cumulative gross unrealized depreciation for federal income tax purposes is $4.3 million. Cumulative net unrealized appreciation is $41.5 million, based on a tax cost of $280.0 million.

¹³

Tax Advisors Group Class A units and Chandler Signs, LP Class A-1 common stock are held through a wholly-owned taxable subsidiary.

¹⁴

The investment is structured as a first lien first out term loan and earns less interest than the stated rate.

¹⁵

The investment has approximately $2.0 million in an unfunded revolving commitment and $2.5 million in a delayed draw commitment as of September 30, 2017.

Table of Contents

CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2017

Current

Type of

Interest

Fair

Portfolio Company 1

Investment 2

Industry

Rate 2

Maturity

Principal

Cost

Value 3

Non-control/Non-affiliate Investments 4

AG KINGS HOLDINGS 8

First Lien

Food, agriculture & beverage

L+8.50%
(Floor 1.00%)

8/10/2021

9,900,000

9,720,743

9,900,000

AMERICAN TELECONFERENCING

First Lien

Telecommunications

L+6.50%
(Floor 1.00%)

12/8/2021

6,733,503

6,559,616

6,720,709

Second Lien

L+9.50%
(Floor 1.00%)

6/6/2022

2,005,714

1,929,670

1,965,600

AMWARE FULFILLMENT

First Lien

Distribution

L+9.50%
(Floor 1.00%)

5/21/2019

13,065,000

12,858,885

12,934,350

ARGON MEDICAL DEVICES

Second Lien

Healthcare products

L+9.50%
(Floor 1.00%)

6/23/2022

5,000,000

4,871,024

5,000,000

BINSWANGER CORP.

First Lien

Consumer products & retail

L+8.00%
(Floor 1.00%)

3/9/2022

13,251,760

12,988,847

12,988,848

900,000 shares of common stock

900,000

13,888,847

13,888,848

CALIFORNIA PIZZA KITCHEN

First Lien

Restaurants

L+6.00%
(Floor 1.00%)

8/23/2022

4,975,000

4,929,234

4,975,995

CAST AND CREW PAYROLL, LLC

Second Lien

Media, marketing & entertainment

L+7.75%
(Floor 1.00%)

8/12/2023

3,705,263

3,685,537

3,671,916

DEEPWATER CORROSION SERVICES, INC.

127,004 shares of Series A convertible preferred stock

Energy services (upstream)

8,000,000

9,956,000

DIGITAL RIVER, INC.

First Lien

Software & IT services

L+6.50%
(Floor 1.00%)

2/12/2021

7,032,285

7,001,500

7,067,446

DIGITAL ROOM INC.

Second Lien

Paper & forest products

L+10.00%
(Floor 1.00%)

5/21/2023

7,000,000

6,864,682

DUNN PAPER, INC.

Second Lien

Paper & forest products

L+8.75%
(Floor 1.00%)

8/26/2023

3,000,000

2,942,972

2,970,000

ELITE SEM, INC. 8

First Lien

Media, marketing & entertainment

L+8.50%
(Floor 1.00%)

2/1/2022

12,150,000

11,864,161

1,000 shares of common stock

12% PIK

1,019,667

1,020,000

12,883,828

12,884,161

IMAGINE! PRINT SOLUTIONS, INC.

First Lien

Media, marketing & entertainment

L+6.00%
(Floor 1.00%)

3/30/2022

4,853,233

4,800,146

4,913,898

INFOGROUP INC.

First Lien

Software & IT services

L+5.50%
(Floor 1.50%)

5/26/2018

4,895,007

4,822,951

4,890,112

LIGHTING RETROFIT INTERNATIONAL

First Lien

Environmental services

L+9.75%
(Floor 0.5%)

9/28/2021

10,222,222

10,126,394

LTI HOLDINGS, INC.

Second Lien

Industrial products

L+9.25%
(Floor 1.00%)

4/17/2023

7,000,000

6,853,685

6,825,000

PREPAID LEGAL SERVICES, INC.

Second Lien

Consumer services

L+9.00%
(Floor 1.25%)

7/1/2020

5,000,000

4,955,404

5,029,000

REDBOX AUTOMATED RETAIL

First Lien

Gaming & leisure

L+7.50%
(Floor 1.00%)

9/27/2021

8,750,000

8,505,558

8,761,375

RESEARCH NOW GROUP, INC.

Second Lien

Business services

L+8.75%
(Floor 1.00%)

3/18/2022

7,000,000

6,918,134

6,860,000

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			Current
	Type of		Interest						Fair
Portfolio Company 1	Investment 2	Industry	Rate 2	Maturity	Principal		Cost		Value 3
RESTAURANT TECHNOLOGIES, INC.	Second Lien	Restaurants	L+8.75% (Floor 1.00%)	11/23/2023		3,500,000		3,449,262		3,482,500
TAXACT, INC.	First Lien	Financial services	L+6.00% (Floor 1.00%)	12/31/2022		2,775,000		2,722,263		2,775,000
VISTAR MEDIA INC.	First Lien	Media, marketing & entertainment	L+10.00% (Floor 1.00%)	2/16/2022		11,000,000		9,898,494		9,898,494
	Warrants							886,000		886,000
								10,784,494		10,784,494
WATER PIK, INC.	Second Lien	Consumer products & retail	L+8.75% (Floor 1.00%)	2/8/2021		4,473,684		4,385,853		4,507,237
WINZER CORPORATION	Senior subordinated debt	Distribution	11.00%	6/1/2021		8,100,000		7,976,347		7,976,347

Total Non-control/Non-affiliate Investments							$	172,437,029	$	175,731,064
Affiliate Investments 6
CHANDLER SIGNS, LP 13	Senior subordinated debt	Business services	12.00%	7/4/2021	$	4,500,000	$	4,425,310	$	4,477,500
	1,500,000 units of Class A-1 common stock		-	-		-		1,500,000		2,661,000
								5,925,310		7,138,500

Total Affiliate Investments							$	5,925,310	$	7,138,500

Control Investments 7
I-45 SLF LLC 9, 10, 11	80% LLC equity interest	Multi-sector holdings	-	-		-	$	60,800,000	$	63,394,679
MEDIA RECOVERY, INC. 11	800,000 shares of Series A convertible preferred stock	Industrial products	-	-		-		800,000		5,590,249
	4,000,002 shares of common stock		-	-		-		4,615,000		32,248,751
								5,415,000		37,839,000
TITANLINER, INC.	1,189,609 shares of Series B convertible preferred stock	Energy services (upstream)	6% PIK	-		-		2,758,528		2,777,000
	339,277 shares of Series A convertible preferred stock		-	-		-		3,204,222		-
								5,962,750		2,777,000
Total Control Investments							$	72,177,750	$	104,010,679

TOTAL INVESTMENTS 12							$	250,540,089	$	286,880,243

All debt investments are income-producing, unless otherwise noted. Equity investments are non-income producing, unless otherwise noted.

All of the Company’s investments, unless otherwise noted, are encumbered as security for the Company’s senior secured credit facility.

The majority of investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“P”) and reset daily, monthly, quarterly, or semiannually. For each the Company has provided the spread over LIBOR or Prime and the current contractual interest rate in effect at March 31, 2017. Certain investments are subject to a LIBOR or Prime interest rate floor.

⁴

⁵

Non-Control/Non-Affiliate investments are generally defined by the 1940 Act as investments that are neither control investments nor affiliate investments. At March 31, 2017, approximately 61.3% of the Company’s investment assets were non-control/non-affiliate investments.

⁶

Affiliate investments are generally defined by the 1940 Act as investments in which between 5% and 25% of the voting securities are owned and the investments are not classified as control investments. At March 31, 2017, approximately 2.5% of the Company’s investment assets were affiliate investments.

⁷

Control investments are generally defined by the 1940 Act as investments in which more than 25% of the voting securities are owned or maintains greater than 50% of the board representation. At March 31, 2017, approximately 36.2% of the Company’s investment assets were control investments.

⁸

The investment is structured as a first lien last out term loan and earns interest in addition to the stated rate.

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⁹

Indicates assets that the Company believes do not represent “qualifying assets” under section 55(a) of the 1940 Act. Qualifying assets must represent at least 70% of total assets at the time of acquisition of any additional non-qualifying assets.

¹⁰

The investment has approximately $7.2 million unfunded commitment as of March 31, 2017.

¹¹

Income producing through dividends on distributions.

¹²

As of March 31, 2017, the cumulative gross unrealized appreciation for federal income tax purposes is approximately $40.1 million; cumulative gross unrealized depreciation for federal income tax purposes is $3.4 million. Cumulative net unrealized appreciation is $36.7 million, based on a tax cost of $250.1 million.

¹³

Chandler Signs, LP Class A-1 common stock is held through a wholly-owned taxable subsidiary.

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Notes to Consolidated Financial Statements

1. ORGANIZATION AND BASIS OF PRESENTATION

References in this Quarterly Report on Form 10-Q to “we,” “our,” “us,” “CSWC,” or the “Company” refer to Capital Southwest Corporation, unless the context requires otherwise.

Organization

Capital Southwest Corporation is an internally managed investment company that specializes in providing customized financing to middle market companies in a broad range of industry segments located primarily in the United States. Our common stock currently trades on The Nasdaq Global Select Market under the ticker symbol “CSWC.”

CSWC was organized as a Texas corporation on April 19, 1961. Until September 1969, we operated as a Small Business Investment Company (“SBIC”) licensed under the Small Business Investment Act of 1958. At that time, CSWC transferred to its then wholly-owned subsidiary, Capital Southwest Venture Corporation (“CSVC”), certain assets including our license as an “SBIC”. CSVC was a closed-end, non-diversified investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). Effective June 14, 2016, CSVC was dissolved and its SBIC license was surrendered. All assets held in CSVC were transferred to CSWC upon dissolution. Prior to March 30, 1988, CSWC was registered as a closed-end, non-diversified investment company under the 1940 Act. On that date, we elected to be treated as a Business Development Company (“BDC”) subject to the provisions of the 1940 Act, as amended by the Small Business Incentive Act of 1980. In order to remain a BDC, we must meet certain specified requirements under the 1940 Act, including investing at least 70% of our assets in eligible portfolio companies and limiting the amount of leverage we incur.

We are also a regulated investment company (“RIC”) under Subchapter M of the U.S. Internal Revenue Code of 1986 (the “Code”). As such, we are not required to pay corporate-level income tax on our investment income. We intend to maintain our RIC status, which requires that we annually qualify as a RIC by meeting certain specified requirements.

Capital Southwest Management Company (“CSMC”), a wholly-owned subsidiary of CSWC, is the management company for CSWC. CSMC generally incurs all normal operating and administrative expenses, including, but not limited to, salaries and related benefits, rent, office expenses and other administrative costs required for its day-to-day operations.

CSWC also has a direct wholly owned subsidiary that has been elected to be a taxable entity (the “Taxable Subsidiary”). The primary purpose of the Taxable Subsidiary is to permit CSWC to hold certain interests in portfolio companies that are organized as limited liability companies, or LLCs (or other forms of pass-through entities) and still allow us to satisfy the RIC tax requirement that at least 90% of our gross income for federal income tax purposes must consist of qualifying investment income. The Taxable Subsidiary is taxed at normal corporate tax rates based on its taxable income.

We focus on investing in companies with histories of generating revenues and positive cash flow, established market positions and proven management teams with strong operating discipline. We target senior debt, subordinated debt, and equity investments in lower middle market (“LMM”) companies, as well as first and second lien syndicated loans in upper middle market (“UMM”) companies. Our target LMM companies typically have annual earnings before interest, taxes, depreciation and amortization (“EBITDA”) between $3.0 million and $15.0 million, and our LMM investments generally range from $5.0 million to $20.0 million. Our UMM investments generally include syndicated first and second lien loans in companies with EBITDA generally greater than $50.0 million, and our UMM investments typically range from $5.0 million to $10.0 million. We make available significant managerial assistance to the companies in which we invest as we believe that providing managerial assistance to an investee company is critical to its business development activities.

Basis of Presentation

The consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“U.S. GAAP”). We meet the definition of an investment company and follow the accounting and reporting guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 – Financial Services – Investment Companies (“ASC Topic 946”) . Under the rules and

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regulations applicable to investment companies, we are generally precluded from consolidating any entity other than another investment company subject to certain exceptions. One of the exceptions to this general principle occurs if the investment company has an investment in an operating company that provides services to the investment company. Accordingly, the consolidated financial statements include CSMC, our management company, and the Taxable Subsidiary.

The consolidated financial statements are presented in conformity with U.S. GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual consolidated financial statements prepared in accordance with U.S. GAAP are omitted. In the opinion of our management, the unaudited consolidated financial results included herein contain all adjustments, consisting solely of normal recurring accruals, considered necessary for the fair presentation of consolidated financial statements for the interim periods included herein. The results of operations for the three and six months ended September 30, 2017 are not necessarily indicative of the operating results to be expected for the full fiscal year. Also, the unaudited consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal years ended March 31, 2017 and 2016. Consolidated financial statements prepared on a U.S. GAAP basis require management to make estimates and assumptions that affect the amounts and disclosures reported in the consolidated financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein.

Portfolio Investment Classification

We classify our investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Control Investments” are generally defined as investments in which we own more than 25% of the voting securities or have rights to maintain greater than 50% of the board representation; “Affiliated Investments” are generally defined as investments in which we own between 5% and 25% of the voting securities, and the investments are not classified as “Control Investments”; and “Non-Control/Non-Affiliated Investments” are generally defined as investments that are neither “Control Investments” nor “Affiliated Investments.”

Under the 1940 Act, a BDC must meet certain requirements, including investing at least 70% of our assets in qualifying assets. As of September 30, 2017, the Company met the requirements under the 1940 Act for a BDC. The principal categories of qualifying assets relevant to our business are:

(1) Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC.

(2) Securities of any eligible portfolio company that we control.

(3) Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements.

(4) Securities of an eligible portfolio company purchased from any person in a private transaction if there is no readily available market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company.

(5) Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or pursuant to the exercise of warrants or rights relating to such securities.

(6) Cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment.

Additionally, in order to qualify as a RIC for U.S. federal income tax purposes, we must, among other things meet the following tests:

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(1) Continue to qualify as a BDC under the 1940 Act at all times during each taxable year.

(2) Derive in each taxable year at least 90.0% of our gross income from dividends, interest, payments with respect to certain securities, loans, gains from the sale of stock or other securities, net income from certain "qualified publicly traded partnerships," or other income derived with respect to our business of investing in such stock or securities (the "90% Income Test").

(3) Diversify our holdings such that at the end of each quarter of the taxable year at least 50% of the value of our assets consists of cash, cash equivalents, U.S. Government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer; and no more than 25% of the value of our assets is invested in the securities, other than U.S. government securities or securities of other RICs, (i) of one issuer, (ii) of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses or (iii) of certain "qualified publicly traded partnerships" (collectively, the "Diversification Tests").

The two Diversification Tests must be satisfied quarterly. If a RIC satisfies the tests for one quarter, and then, due solely to fluctuations in market value, fails to meet one of the tests in the next quarter, it retains RIC status. A RIC that fails to meet the Diversification Tests as a result of a nonqualified acquisition may be subject to excess taxes unless the nonqualified acquisition is disposed of and the tests are satisfied within 30 days of the close of the quarter in which the tests are failed.

This quarter we satisfied all RIC tests and have 14.5% in nonqualified assets according to measurement criteria established in Section 851(d) of the Internal Revenue Code (as amended, the “IRC”).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies followed in the preparation of the consolidated financial statements of CSWC.

Fair Value Measurements We account for substantially all of our financial instruments at fair value in accordance with ASC Topic 820 – Fair Value Measurements and Disclosures (“ASC Topic 820”). ASC Topic 820 defines fair value, establishes a framework used to measure fair value and requires disclosures for fair value measurements, including the categorization of financial instruments into a three-level hierarchy based on the transparency of valuation inputs. ASC Topic 820 requires disclosure of the fair value of financial instruments for which it is practical to estimate such value. We believe that the carrying amounts of our financial instruments such as cash, receivables and payables approximate the fair value of these items due to the short maturity of these instruments. This is considered a Level 1 valuation technique. The carrying value of our credit facility approximates fair value because the interest rate adjusts to the market interest rate (Level 3 input). See Note 4 below for further discussion regarding the fair value measurements and hierarchy.

Investments Investments are stated at fair value and are reviewed and approved by our Board of Directors as described in the Notes to the Consolidated Schedule of Investments and Notes 3 and 4 below. Investments are recorded on a trade date basis.

Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation Realized gains or losses are measured by the difference between the net proceeds from the sale or redemption of an investment or a financial instrument and the cost basis of the investment or financial instrument, without regard to unrealized appreciation or depreciation previously recognized, and includes investments written-off during the period net of recoveries and realized gains or losses from in-kind redemptions. Net change in unrealized appreciation or depreciation reflects the net change in the fair value of the investment portfolio and financial instruments and the reclassification of any prior period unrealized appreciation or depreciation on exited investments and financial instruments to realized gains or losses.

Cash and Cash Equivalents Cash and cash equivalents, which consist of cash and highly liquid investments with an original maturity of three months or less at the date of purchase, are carried at cost, which approximates fair value. Cash and cash equivalents includes deposits at financial institutions. We deposit our cash balances in financial institutions and, at times, such balances may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. At September 30, 2017 and March 31, 2017, cash balances totaling $32.0 million and $19.6 million, respectively, exceeded FDIC insurance limits, subjecting us to risk related to the uninsured balance. All of our cash deposits are held at large

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established high credit quality financial institutions and management believes that the risk of loss associated with any uninsured balances is remote.

Segment Information We operate and manage our business in a singular segment. As an investment company, we invest in portfolio companies in various industries and geographic areas as discussed in Note 3.

Consolidation As permitted under Regulation S-X and ASC Topic 946, we generally do not consolidate our investment in a portfolio company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to CSWC. Accordingly, we consolidated the results of CSWC’s wholly-owned Taxable Subsidiary and CSWC’s wholly-owned management company, CSMC. Prior to its dissolution, we consolidated the results of CSWC’s wholly-owned subsidiary, CSVC. All intercompany balances have been eliminated upon consolidation.

Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. We have identified investment valuation and revenue recognition as our most critical accounting estimates.

Interest and Dividend Income Interest and dividend income is recorded on an accrual basis to the extent amounts are expected to be collected. Dividend income is recorded as dividends are declared by the portfolio company or at the point an obligation exists for the portfolio company to make a distribution. Discounts/premiums received to par on loans purchased are capitalized and accreted or amortized into income over the life of the loan using the effective interest method. In accordance with our valuation policy, accrued interest and dividend income is evaluated quarterly for collectability. When we do not expect the debtor to be able to service all of its debt or other obligations, we will generally establish a reserve against interest income receivable, thereby placing the loan or debt security on non-accrual status, and cease to recognize interest income on that loan or debt security until the borrower has demonstrated the ability and intent to pay contractual amounts due. If a loan or debt security’s status significantly improves regarding its ability to service debt or other obligations, it will be restored to accrual basis. As of September 30, 2017 and March 31, 2017, we did not have any investments on non-accrual status.

To maintain RIC tax treatment, non-cash sources of income such as accretion of interest income may need to be paid out to shareholders in the form of distributions, even though CSWC may not have collected the interest income. For the three and six months ended September 30, 2017, approximately 2.3% and 2.4%, respectively, of CSWC’s total investment income was attributable to interest income for the accretion of discounts associated with debt investments, net of any premium reduction. For the three and six months ended September 30, 2016, approximately 2.1% and 2.0%, respectively, of CSWC’s total investment income was attributable to interest income for the accretion of discounts associated with debt investments, net of any premium reduction.

Payment-in-Kind Interest The Company currently holds, and expects to hold in the future, some investments in its portfolio that contain payment-in-kind (“PIK”) interest and dividend provisions. The PIK interest and dividends, computed at the contractual rate specified in each loan agreement, are added to the principal balance of the loan, rather than being paid to the Company in cash, and are recorded as interest and dividend income. Thus, the actual collection of PIK interest and dividends may be deferred until the time of debt principal repayment or disposition of the equity investment. PIK interest and dividends, which are non-cash sources of income, are included in the Company’s taxable income and therefore affect the amount the Company is required to distribute to stockholders to maintain its qualification as a RIC for federal income tax purposes, even though the Company has not yet collected the cash. Generally, when current cash interest and/or principal payments on a loan become past due, or if the Company otherwise does not expect the borrower to be able to service its debt and other obligations, the Company will place the investment on non-accrual status and will generally cease recognizing PIK interest and dividend income on that loan for financial reporting purposes until all principal and interest have been brought current through payment or due to a restructuring such that the interest and dividend income is deemed to be collectible. The Company writes off any accrued and uncollected PIK interest and dividends when it is determined that the PIK interest and dividends are no longer collectible. For the three and six months ended September 30, 2017, approximately 0.8% and 0.9%, respectively, of CSWC’s total investment income was attributable to non-cash PIK interest and dividend income. For the three and six months ended September 30, 2016, none of CSWC’s investment income was attributable to non-cash PIK interest and dividend income.

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Debt Issuance Costs Debt issuance costs include commitment fees and other costs related to CSWC’s senior secured credit facility (as discussed further in Note 5). These costs have been capitalized and are amortized into interest expense over the term of the credit facility.

Federal Income Taxes CSWC has elected and intends to comply with the requirements of the IRC necessary to qualify as a RIC. By meeting these requirements, we will not be subject to corporate federal income taxes on ordinary income distributed to shareholders. In order to qualify as a RIC, the company is required to timely distribute to its shareholders at least 90.0% of investment company taxable income, as defined by the IRC, each year. Investment company taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses. Investment company taxable income generally excludes net unrealized appreciation or depreciation, as investment gains and losses are not included in investment company taxable income until they are realized.

In addition to the requirement that we must annually distribute at least 90.0% of our investment company taxable income, we may either distribute or retain our realized net capital gains from investments, but any net capital gains not distributed may be subject to corporate level tax. If we retain the capital gains, they are subject to a corporate tax rate of 35.0% and are classified as a “deemed distribution” to our shareholders. As an investment company that qualifies as a RIC, federal income taxes payable on security gains that we elect to retain are accrued only on the last day of our tax year, December 31. Any capital gains actually distributed to shareholders are generally taxable to the shareholders as long-term capital gains. See Note 6 for further discussion.

CSMC, a wholly owned subsidiary of CSWC, and the Taxable Subsidiary are not RICs and are required to pay taxes at the current corporate rate of 34%. For tax purposes, CSMC and the Taxable Subsidiary have elected to be treated as taxable entities, and therefore are not consolidated for tax purposes and are taxed at normal corporate tax rates based on taxable income and, as a result of their activities, may generate income tax expense or benefit. The taxable income, or loss, of each of CSMC and the Taxable Subsidiary may differ from its book income, or loss, due to temporary book and tax timing differences and permanent differences. This income tax expense, or benefit, if any, and the related tax assets and liabilities, are reflected in our consolidated financial statements.

Management evaluates tax positions taken or expected to be taken in the course of preparing the Company’s consolidated financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions with respect to tax at the CSWC level not deemed to meet the “more-likely-than-not” threshold would be recorded as an expense in the current year. Management’s conclusions regarding tax positions will be subject to review and may be adjusted at a later date based on factors including, but not limited to, on-going analyses of tax laws, regulations and interpretations thereof. The Company has concluded that it does not have any uncertain tax positions that meet the recognition of measurement criteria of ASC 740 for the current period. Also, we account for interest and, if applicable, penalties for any uncertain tax positions as a component of income tax expense. No interest or penalties expense was recorded during the three and six months ended September 30, 2017 and 2016.

Deferred Taxes Deferred tax assets and liabilities are recorded for losses or income at our taxable subsidiaries using statutory tax rates. A valuation allowance is provided against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized. See Note 6 for further discussion.

Stock-Based Compensation We account for our stock-based compensation using the fair value method, as prescribed by ASC Topic 718, Compensation – Stock Compensation . Accordingly, we recognize stock-based compensation cost on a straight-line basis for all share-based payments and awards granted to employees. The fair value of stock options are determined on the date of grant using the Black-Scholes pricing model and are expensed over the requisite service period of the related stock options. For restricted stock awards, we measured the grant date fair value based upon the market price of our common stock on the date of the grant. For restricted stock awards, we amortize this fair value to share-based compensation expense over the vesting term. The unvested shares of restricted stock awarded pursuant to CSWC’s equity compensation plans are participating securities and are included in the basic and diluted earnings per share calculation. On October 26, 2010, we received an exemptive order from the SEC permitting us to issue restricted stock to our executive officers and certain key employees. On August 22, 2017, we received an exemptive order that allows us to withhold shares to satisfy tax withholding obligations related to the vesting of restricted stock granted pursuant to the 2010 Restricted Stock Award Plan (the “2010 Plan”) and to pay the exercise price of options to purchase shares of our common stock granted pursuant to the 2009 Stock Incentive Plan (the “2009 Plan”).

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At the three and six months ended September 30, 2017, weighted-average basic shares were adjusted for the diluted effect of stock-based awards of 67,606 and 65,225, respectively. At the three and six months ended September 30, 2016, weighted-average basic shares were adjusted for the diluted effect of stock-based awards of 79,157 and 73,060, respectively. For individual cash incentive awards, the option value of the individual cash incentive awards is calculated based on the changes in net asset value (“NAV”) of our Company. In connection with the Share Distribution, we entered into an Employee Matters Agreement (the “Employee Matters Agreement”) with CSW Industrials, Inc. (“CSWI”). Under the Employee Matters Agreement, the value of individual cash incentive awards was determined based upon the net asset value of CSWC as of June 30, 2015. See Note 9 for further discussion.

Shareholder Distributions Distributions to common shareholders are recorded on the ex-dividend date. The amount of distributions, if any, is determined by the Board of Directors each quarter.

Presentation Presentation of certain amounts on the Consolidated Statements of Operations for the prior year comparative consolidated financial statements is updated to conform to the current period presentation. This mainly includes disclosure of amounts at a more disaggregated level.

Recently Issued or Adopted Accounting Standards In February 2016, the FASB issued ASU 2016-02, Leases , which requires lessees to recognize on the balance sheet a right-of-use asset, representing its right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases. The standard requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. The new guidance is effective for annual periods beginning after December 15, 2018, and interim periods therein. Early application is permitted. CSWC is currently evaluating the impact the adoption of this new accounting standard will have on its consolidated financial statements, but the impact of the adoption is not expected to be material.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) . ASU 2014-09 supersedes the revenue recognition requirements under SAC Topic 605, Revenue Recognition , and most industry-specific guidance throughout the Industry Topics of the ASC. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Under the new guidance, an entity is required to perform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The new guidance will significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. Additionally, the guidance requires improved disclosures as to the nature, amount, timing and uncertainty of revenue that is recognized. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606)—Narrow-Scope Improvements and Practical Expedients . This ASU clarified guidance on assessing collectability, presenting sales tax, measuring noncash consideration, and certain transition matters. The FASB tentatively decided to defer the effective date of the new revenue standard for public entities under U.S. GAAP for one year. The new guidance will be effective for the annual reporting period beginning after December 15, 2017, including interim periods within that reporting period. Early adoption would be permitted for annual reporting periods beginning after December 15, 2016. CSWC completed its initial assessment in evaluating the potential impact on its consolidated financial statements and based on its initial assessment, determined that its financial contracts are excluded from the scope of ASU 2014-09. As a result of the scope exception for financial contracts, the Company's management has determined that there will be no material changes to the recognition timing and classification of revenues and expenses; additionally, the Company's management does not expect the adoption of ASU 2014-09 to have a significant impact to pretax income or on its consolidated financial statement disclosures upon adoption. The Company will continue to evaluate the impacts of ASU 2014-09 through the date of adoption to ensure that its initial assessment continues to remain accurate.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), which is intended to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The guidance is effective for annual periods beginning after December 15, 2017, and interim periods therein. Early application is permitted. The impact of the adoption of this new accounting standard on the Company’s consolidated financial statements is not expected to be material.

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3. INVESTMENTS

The following table shows the composition of the investment portfolio, at fair value and cost (with corresponding percentage of total portfolio investments) as of September 30, 2017 and March 31, 2017:


			Percentage of		Percentage of				Percentage of
	Fair Value		Total Portfolio		Net Assets		Cost		Total Portfolio
	(dollars in millions)
September 30, 2017:
1st lien loans 1	$	136.1	42.3	%	46.5	%	$	135.0	48.2	%
2nd lien loans		32.4	10.1		11.1			32.0	11.4
Subordinated debt		18.9	5.9		6.5			18.8	6.7
Preferred equity		22.3	6.9		7.6			15.3	5.5
Common equity & warrants		44.8	13.9		15.3			13.9	5.0
I-45 SLF LLC 2		67.4	20.9		23.0			64.8	23.2
	$	321.9	100.0	%	110.0	%	$	279.8	100.0	%

March 31, 2017 3 :
1st lien loans	$	107.8	37.6	%	37.8	%	$	106.8	42.6	%
2nd lien loans		47.2	16.5		16.6			46.9	18.7
Subordinated debt		12.5	4.3		4.4			12.4	4.9
Preferred equity		18.3	6.4		6.4			14.8	5.9
Common equity & warrants		37.7	13.1		13.2			8.8	3.6
I-45 SLF LLC 2		63.4	22.1		22.2			60.8	24.3
	$	286.9	100.0	%	100.6	%	$	250.5	100.0	%

Included in 1 st lien loans are loans structured as first lien last out loans. These loans may in certain cases be subordinated in payment priority to other senior secured lenders. As of September 30, 2017 and March 31, 2017, the fair value of the first lien last out loans are $22.0 million and $21.8 million, respectively.

I-45 SLF LLC (“I-45 SLF”) is a joint venture between CSWC and Main Street Capital Corporation (“Main Street”). This entity primarily invests in syndicated senior secured loans to the UMM. The portfolio companies held by I-45 SLF represent a diverse set of industry classifications, which are similar to those in which CSWC invests directly. See Note 15 for further discussion.

Presentation of March 31, 2017 disclosure is updated to conform to the current period presentation.

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The following table shows the composition of the investment portfolio by industry, at fair value and cost (with corresponding percentage of total portfolio investments) as of September 30, 2017 and March 31, 2017:


			Percentage of		Percentage of				Percentage of
	Fair Value		Total Portfolio		Net Assets		Cost		Total Portfolio
	(dollars in millions)
September 30, 2017:
I-45 SLF LLC 1	$	67.4	20.9	%	23.0	%	$	64.8	23.2	%
Industrial Products		39.9	12.4		13.6			5.4	1.9
Business Services		28.5	8.9		9.7			28.0	10.0
Consumer Products and Retail		26.1	8.1		8.9			26.2	9.4
Media, Marketing, & Entertainment		23.5	7.3		8.0			21.4	7.6
Energy Services (Upstream)		16.0	5.0		5.5			14.0	5.0
Environmental Services		15.3	4.7		5.2			15.3	5.5
Distribution		12.7	4.0		4.3			12.6	4.5
Industrial Services		10.1	3.1		3.5			10.8	3.9
Consumer Services		10.1	3.1		3.5			10.0	3.6
Paper & Forest Products		9.9	3.1		3.4			9.8	3.5
Food, Agriculture & Beverage		9.8	3.0		3.4			9.6	3.4
Healthcare Services		9.4	2.9		3.2			9.2	3.3
Restaurants		8.4	2.6		2.9			8.4	3.0
Telecommunications		8.3	2.6		2.9			8.3	3.0
Financial Services		7.3	2.3		2.5			7.3	2.6
Gaming & Leisure		7.1	2.2		2.4			6.8	2.4
Software & IT Services		7.1	2.2		2.4			7.0	2.5
Healthcare Products		5.0	1.6		1.7			4.9	1.7
	$	321.9	100.0	%	110.0	%	$	279.8	100.0	%


			Percentage of		Percentage of				Percentage of
	Fair Value		Total Portfolio		Net Assets		Cost		Total Portfolio
	(dollars in millions)
March 31, 2017 2 :
I-45 SLF LLC 1	$	63.4	22.1	%	22.2	%	$	60.8	24.3	%
Industrial Products		44.7	15.6		15.7			12.3	4.9
Media, Marketing, & Entertainment		32.3	11.2		11.3			32.2	12.8
Distribution		20.9	7.3		7.3			20.8	8.3
Consumer Products & Retail		18.4	6.4		6.4			18.3	7.3
Business Services		14.0	4.9		4.9			12.8	5.1
Energy Services (Upstream)		12.7	4.4		4.5			14.0	5.6
Software & IT Services		12.0	4.2		4.2			11.8	4.7
Environmental Services		10.1	3.5		3.6			10.1	4.0
Food, Agriculture & Beverage		9.9	3.5		3.5			9.7	3.9
Paper & Forest Products		9.8	3.4		3.4			9.8	3.9
Gaming & Leisure		8.8	3.1		3.1			8.5	3.4
Telecommunications		8.7	3.0		3.0			8.4	3.4
Restaurants		8.4	2.9		2.9			8.4	3.4
Consumer Services		5.0	1.8		1.8			5.0	2.0
Healthcare Products		5.0	1.7		1.8			4.9	1.9
Financial Services		2.8	1.0		1.0			2.7	1.1
	$	286.9	100.0	%	100.6	%	$	250.5	100.0	%

I-45 SLF is a joint venture between CSWC and Main Street. This entity primarily invests in syndicated senior secured loans to the UMM. The portfolio companies in I-45 SLF include multi-sector holdings, which are similar to those in which CSWC invests directly. See Note 15 for further discussion.

Disclosure added to March 31, 2017 to provide comparable presentation to September 30, 2017.

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The following tables summarize the composition of the investment portfolio by geographic region of the United States, at fair value and cost (with corresponding percentage of total portfolio investments), as of September 30, 2017 and March 31, 2017:


			Percentage of				Percentage of
	Fair Value		Total Portfolio		Cost		Total Portfolio
	(dollars in millions)
September 30, 2017:
Southwest	$	79.2	24.6	%	$	42.1	15.1	%
South		74.8	23.2			75.1	26.8
I-45 SLF LLC 1		67.4	20.9			64.8	23.2
Northeast		48.5	15.1			46.2	16.5
West		30.5	9.5			30.4	10.8
Midwest		21.5	6.7			21.2	7.6
	$	321.9	100.0	%	$	279.8	100.0	%

March 31, 2017:
Southwest	$	82.6	28.8	%	$	50.0	20.0	%
I-45 SLF LLC 1		63.4	22.1			60.8	24.3
Northeast		43.7	15.2			43.4	17.4
South		38.5	13.4			38.2	15.2
West		30.3	10.6			30.2	12.0
Midwest		28.4	9.9			27.9	11.1
	$	286.9	100.0	%	$	250.4	100.0	%

I-45 SLF is a joint venture between CSWC and Main Street. This entity primarily invests in syndicated senior secured loans to the UMM. The portfolio companies held by I-45 SLF represent a diverse set of industry classifications, which are similar to those in which CSWC invests directly. See Note 15 for further discussion.

4. FAIR VALUE MEASUREMENTS

Investment Valuation Process

The valuation process is led by the finance department in conjunction with the investment team. The process includes a monthly review of each investment by our executive officers and investment teams. Valuations of each portfolio security are prepared quarterly by the finance department using updated financial and other operational information collected by the investment teams. Each investment valuation is then subject to review by the executive officers and investment teams. In conjunction with the internal valuation process, we have also engaged multiple independent consulting firms specializing in financial due diligence, valuation, and business advisory services to provide third-party valuation reviews of certain investments. The third-party valuation firms provide a range of values for selected investments, which is presented to CSWC’s executive officers and Board of Directors.

CSWC also uses a standard internal investment rating system in connection with its investment oversight, portfolio management, and investment valuation procedures for its debt portfolio. This system takes into account both quantitative and qualitative factors of the portfolio company and the investments held therein.

There is no single standard for determining fair value in good faith, as fair value depends upon the specific circumstances of each individual investment. While management believes our valuation methodologies are appropriate and consistent with market participants, the recorded fair values of our investments may differ significantly from fair values that would have been used had an active market for the securities existed. In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned. The Board of Directors has the ultimate responsibility for reviewing and approving, in good faith, the fair value of CSWC’s investments in accordance with the 1940 Act.

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Fair Value Hierarchy

CSWC has established and documented processes for determining the fair values of portfolio company investments on a recurring basis in accordance with the 1940 Act and ASC Topic 820. As required by ASC Topic 820, when the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Therefore, unrealized appreciation and depreciation related to such investments categorized within the Level 3 tables below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3). CSWC conducts reviews of fair value hierarchy classifications on a quarterly basis. We also use judgment and consider factors specific to the investment in determining the significance of an input to a fair value measurement.

The three levels of valuation inputs established by ASC Topic 820 are as follows:

Level 1: Investments whose values are based on unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2: Investments whose values are based on quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3: Investments whose values are based on unobservable inputs that are significant to the overall fair value measurement.

As of September 30, 2017 and March 31, 2017, 100% of the CSWC investment portfolio consisted of debt and equity instruments of privately held companies for which inputs falling within the categories of Level 1 and Level 2 are generally not available. Therefore, CSWC determines the fair value of its investments (excluding investments for which fair value is measured at NAV) in good faith using Level 3 inputs, pursuant to a valuation policy and process that is established by the management of CSWC, with assistance from multiple third-party valuation advisors, which is subsequently approved by our Board of Directors.

Investment Valuation Inputs

ASC Topic 820 defines fair value in terms of the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date excluding transaction costs. Under ASC Topic 820, the fair value measurement also assumes that the transaction to sell an asset occurs in the principal market for the asset or, in the absence of a principal market, the most advantageous market for the asset. The principal market is the market in which the reporting entity would sell or transfer the asset with the greatest volume and level of activity for the asset. In determining the principal market for an asset or liability under ASC Topic 820, it is assumed that the reporting entity has access to the market as of the measurement date.

The Level 3 inputs to CSWC’s valuation process reflect our best estimate of the assumptions that would be used by market participants in pricing the investment in a transaction in the principal or most advantageous market for the asset.

The fair value determination of each portfolio investment categorized as Level 3 required one or more of the following unobservable inputs:

Financial information obtained from each portfolio company, including unaudited statements of operations and balance sheets for the most recent period available as compared to budgeted numbers;

Current and projected financial condition of the portfolio company;

Current and projected ability of the portfolio company to service its debt obligations;

Type and amount of collateral, if any, underlying the investment;

Current financial ratios (e.g., fixed charge coverage ratio, interest coverage ratio and net debt/EBITDA ratio) applicable to the investment;

Current liquidity of the investment and related financial ratios (e.g., current ratio and quick ratio);

Indicative dealer quotations from brokers, banks, and other market participants;

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Market yields on other securities of similar risk;

Pending debt or capital restructuring of the portfolio company;

Projected operating results of the portfolio company;

Current information regarding any offers to purchase the investment;

Current ability of the portfolio company to raise any additional financing as needed;

Changes in the economic environment which may have a material impact on the operating results of the portfolio company;

Internal occurrences that may have an impact (both positive and negative) on the operating performance of the portfolio company;

Qualitative assessment of key management;

Contractual rights, obligations or restrictions associated with the investment; and

Other factors deemed relevant.

CSWC uses several different valuation approaches depending on the security type including the Market Approach, the Income Approach, the Enterprise Value Waterfall Approach, and the NAV Valuation Method.

Market Approach

Market Approach is a qualitative and quantitative analysis of the aforementioned unobservable inputs. It is a combination of the Enterprise Value Waterfall Approach and Income Approach as described in detail below. For debt investments recently originated or where the value has not departed significantly from its cost, we generally rely on our cost basis or recent transaction price to determine the fair value, unless a material event has occurred since origination.

Income Approach

In valuing debt securities, CSWC typically uses an Income Approach model, which considers some or all of the factors listed above. Under the Income Approach, CSWC develops an expectation of the yield that a hypothetical market participant would require when purchasing each debt investment (the “Required Market Yield”). The Required Market Yield is calculated in a two-step process. First, using quarterly market data from our third-party valuation provider we estimate the current market yield of similar debt securities. Next, based on the factors described above, we modify the current market yield for each security to produce a unique Required Market Yield for each of our investments. The resulting Required Market Yield is the significant Level 3 input to the Income Approach model. If, with respect to an investment, the unobservable inputs have not fluctuated significantly from the date the investment was made or have not fluctuated significantly from CSWC’s expectations on the date the investment was made, and there have been no significant fluctuations in the market pricing for such investments, we may conclude that the Required Market Yield for that investment is equal to the stated rate on the investment. In instances where CSWC determines that the Required Market Yield is different from the stated rate on the investment, we discount the contractual cash flows on the debt instrument using the Required Market Yield in order to estimate the fair value of the debt security.

In addition, under the Income Approach, CSWC also determines the appropriateness of the use of third-party broker quotes, if any, as a significant Level 3 input in determining fair value. In determining the appropriateness of the use of third-party broker quotes, CSWC evaluates the level of actual transactions used by the broker to develop the quote, whether the quote was an indicative price or binding offer, the depth and consistency of broker quotes, the source of the broker quotes, and the correlation of changes in broker quotes with underlying performance of the portfolio company and other market indices. To the extent sufficient observable inputs are available to determine fair value, CSWC may use third-party broker quotes or other independent pricing to determine the fair value of certain debt investments.

Fair value measurements using the Income Approach model can be sensitive to significant changes in one or more of the inputs. A significant increase (decrease) in the Required Market Yield for a particular debt security may result in a lower (higher) fair value for that security. A significant increase (decrease) in a third-party broker quote for a particular debt security may result in a higher (lower) value for that security.

Enterprise Value Waterfall Approach

In valuing equity securities (including warrants), CSWC estimates fair value using an Enterprise Value Waterfall valuation model. CSWC estimates the enterprise value of a portfolio company and then allocates the enterprise value to the portfolio company’s securities in order of their relative liquidation preference. In addition, CSWC assumes that any

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outstanding debt or other securities that are senior to CSWC’s equity securities are required to be repaid at par. Additionally, we estimate the fair value of a limited number of our debt securities using the Enterprise Value Waterfall approach.

To estimate the enterprise value of the portfolio company, CSWC uses a weighted valuation model based on public comparable companies, observable transactions and discounted cash flow analyses. A main input into the valuation model is a measure of the portfolio company’s financial performance, which generally is either earnings before interest, taxes, depreciation and amortization, as adjusted (“Adjusted EBITDA”) or revenues. In addition, we consider other factors, including but not limited to (1) offers from third parties to purchase the portfolio company and (2) the implied value of recent investments in the equity securities of the portfolio company. For certain non-performing assets, we may utilize the liquidation or collateral value of the portfolio company's assets in our estimation of its enterprise value.

The significant Level 3 inputs to the Enterprise Value Waterfall model are (1) an appropriate multiple derived from the comparable public companies and transactions, (2) discount rate assumptions used in the discounted cash flow model and (3) a measure of the portfolio company’s financial performance, which generally is either Adjusted EBITDA or revenues. Inputs can be based on historical operating results, projections of future operating results or a combination thereof. The operating results of a portfolio company may be unaudited, projected or pro forma financial information and may require adjustments for certain non-recurring items. CSWC also may consult with the portfolio company’s senior management to obtain updates on the portfolio company’s performance, including information such as industry trends, new product development, loss of customers and other operational issues. Fair value measurements using the Enterprise Value Waterfall model can be sensitive to significant changes in one or more of the inputs. A significant increase (decrease) in either the multiple, Adjusted EBITDA or revenues for a particular equity security would result in a higher (lower) fair value for that security.

NAV Valuation Method

Under the NAV valuation method, for an investment in an investment fund that does not have a readily determinable fair value, CSWC measures the fair value of the investment predominately based on the NAV of the investment fund as of the measurement date. However, in determining the fair value of the investment, we may consider whether adjustments to the NAV are necessary in certain circumstances, based on the analysis of any restrictions on redemption of our investment as of the measurement date, recent actual sales or redemptions of interests in the investment fund, expected future cash flows available to equity holders, or other uncertainties surrounding CSWC’s ability to realize the full NAV of its interests in the investment fund.

The table below presents the Valuation Techniques and Significant Level 3 Inputs (ranges and weighted averages) used in the valuation of CSWC’s debt and equity securities at September 30, 2017 and March 31, 2017. The table is not intended to be all inclusive, but instead captures the significant unobservable inputs relevant to our determination of fair value.

Fair Value at

Significant

Valuation

September 30, 2017

Unobservable

Weighted

Type

Technique

(in millions)

Inputs

Range

Average

Equity Investments

Enterprise Value Waterfall Approach

67.1

EBITDA Multiple

4.4x - 9.4x

7.26x

Weighted Average Cost of Capital

13.8% - 30.0%

18.9%

Debt Investments

Income Approach

164.0

Required Market Yield

7.8% - 14.5%

10.7%

Third Party Broker Quote

96.8 - 101.0

Market Approach

23.4

Recent Transaction

187.4

Total Level 3 Investments

254.5

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Fair Value at

Significant

Valuation

March 31, 2017

Unobservable

Weighted

Type

Technique

(in millions)

Inputs

Range

Average

Equity Investments

Enterprise Value
Waterfall Approach

56.0

EBITDA Multiple

4.10x - 9.30x

7.80x

Weighted Average Cost of Capital

14.1% - 27.8%

17.5%

Debt Investments

Income Approach

132.8

Required Market Yield

7.70% - 12.60%

10.8%

Third Party Broker Quote

97.50 - 101.25

Market Approach

34.8

Recent Transaction

167.5

Total Level 3 Investments

223.5

The following fair value hierarchy tables set forth our investment portfolio by level as of September 30, 2017 and March 31, 2017 (in millions):

Fair Value Measurements

at September 30, 2017 Using

Quoted Prices in

Significant

Active Markets

Other

Significant

for Identical

Observable

Unobservable

Assets

Inputs

Asset Category

Total

(Level 1)

(Level 2)

(Level 3)

1st lien loans

136.1

−

136.1

2nd lien loans

32.4

−

32.4

Subordinated debt

18.9

−

18.9

Preferred equity

22.3

−

22.3

Common equity & warrants

44.8

−

44.8

Investments measured at net asset value 1

67.4

−

Total Investments

321.9

−

254.5

Fair Value Measurements

at March 31, 2017 Using

Quoted Prices in

Active Markets

Significant Other

Significant

for Identical

Observable

Unobservable

Assets

Inputs

Asset Category 2

Total

(Level 1)

(Level 2)

(Level 3)

1st lien loans

107.8

−

107.8

2nd lien loans

47.2

−

47.2

Subordinated debt

12.5

−

12.5

Preferred equity

18.3

−

18.3

Common equity & warrants

37.7

−

37.7

Investments measured at net asset value 1

63.4

−

Total Investments

286.9

−

223.5

Certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in Consolidated Statements of Assets and Liabilities.

Presentation of March 31, 2017 disclosure updated to conform to current period presentation.

Changes in Fair Value Levels

We monitor the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model based valuation techniques may require the transfer of financial instruments from one fair value level to another. We recognize the transfer of financial instruments between levels at the end of each quarterly reporting period. During the three and six months ended September 30, 2017 and 2016, we had no transfers between levels.

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The following tables provide a summary of changes in the fair value of investments measured using Level 3 inputs during the six months ended September 30, 2017 and 2016 (in millions):



			Realized &
	Fair Value		Unrealized		Purchases of				PIK Interest				Fair Value at
	3/31/2017		Gains (Losses)		Investments 1		Repayments		Earned		Divestitures		9/30/2017
1st lien loans	$	107.8	$	0.6	$	45.6	$	(17.9)	$	—	$	—	$	136.1
2nd lien loans		47.2		0.3		0.1		(15.2)		—		—		32.4
Subordinated debt		12.5		0.1		14.4		(8.1)		—		—		18.9
Preferred equity		18.3		3.4		0.5		—		0.1		—		22.3
Common equity & warrants		37.7		2.1		4.9		—		0.1		—		44.8
Total Investments	$	223.5	$	6.5	$	65.5	$	(41.2)	$	0.2	$	—	$	254.5

			Realized &
	Fair Value		Unrealized		Purchases of				PIK Interest				Fair Value at
	3/31/2016		Gains (Losses)		Investments 1		Repayments		Earned		Divestitures		9/30/2016
1st lien loans	$	39.5	$	1.2	$	52.7	$	(7.1)	$	—	$	—	$	86.3
2nd lien loans		38.2		0.4		3.0		(5.1)		—		—		36.5
Subordinated debt		15.1		(0.2)		—		(0.1)		—		—		14.8
Preferred equity		13.2		1.3		—		—		—		—		14.5
Common equity & warrants		36.1		—		—		—		—		(0.4)		35.7
Total Investments	$	142.1	$	2.7	$	55.7	$	(12.3)	$	—	$	(0.4)	$	187.8

Includes purchases of new investments, as well as discount accretion on existing investments.

The total net unrealized gains (excluding reversals) included in earnings that related to assets still held at the report date for the six months ended September 30, 2017 and 2016 were $6.0 million and $5.8 million, respectively.

5. CREDIT FACILITY

In August 2016, CSWC entered into a senior secured credit facility (the “Credit Facility”) to provide additional liquidity to support its investment and operational activities, which included total commitments of $100.0 million. The Credit Facility also contains an accordion feature that allows CSWC to increase the total commitments under the facility up to $150.0 million from new and existing lenders on the same terms and conditions as the existing commitments. In August 2017, we increased our total commitments by $15 million through adding an additional lender using the accordion feature. As of September 30, 2017, the Credit Facility includes total commitments of $115.0 million from a diversified group of six lenders and is scheduled to mature August 30, 2020.

Borrowings under the Credit Facility bear interest on a per annum basis at a rate equal to the applicable LIBOR rate plus 3.25% with no LIBOR floor. CSWC pays unused commitment fees of 0.50% to 1.50% per annum, based on utilization, on the unused lender commitments under the Credit Facility.

The Credit Facility contains certain affirmative and negative covenants, including but not limited to: (1) certain reporting requirements, (2) maintaining RIC and BDC status, (3) maintaining a minimum shareholders’ equity, (4) maintaining a minimum consolidated net worth, (5) maintaining a regulatory asset coverage of not less than 200.0%, (6) maintaining a consolidated interest coverage ratio of at least 2.5 to 1.0, and (7) at any time the outstanding advances exceed 90.0% of the borrowing base, maintaining a minimum liquidity of not less than 10.0% of the covered debt amount.

The Credit Facility also contains customary events of default, including, without limitation, nonpayment, misrepresentation of representations and warranties in a material respect, breach of covenant, bankruptcy, and change of control, with customary cure and notice provisions. If the Company defaults on its obligations under the Credit Facility, the lenders may have the right to foreclose upon and sell, or otherwise transfer, the collateral subject to their security interests.

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September 30, 2017, substantially all of the Company’s assets were pledged as collateral for the Credit Facility.

At September 30, 2017, CSWC had $56.0 million in borrowings outstanding under the Credit Facility. CSWC recognized interest expense related to the Credit Facility, including unused commitment fees and amortization of deferred loan costs of $0.9 million and $1.6 million, respectively, for the three and six months ended September 30, 2017. For both the three and six months ended September 30, 2016, CSWC recognized interest expense of $0.1 million. The weighted average interest rate on the Credit Facility was 4.76% as of September 30, 2017. Average borrowings for the three and six months ended September 30, 2017 were $49.7 million and $37.4 million, respectively. As of September 30, 2017, CSWC was in compliance with all financial covenants under the Credit Facility.

6. INCOME TAXES

We have elected to be treated as a RIC under Subchapter M of the IRC and have a tax year end of December 31. In order to qualify as a RIC, we must annually distribute at least 90% of our investment company taxable income, as defined by the IRC, to our shareholders in a timely manner. Investment company income generally includes net short-term capital gains but excludes net long-term capital gains. A RIC is not subject to federal income tax on the portion of its ordinary income and long-term capital gains that is distributed to its shareholders, including “deemed distributions” as discussed below. A s part of maintaining RIC status, undistributed taxable income, which is subject to a 4% non-deductible U.S. federal excise tax, pertaining to a given fiscal year may be distributed up to 12 months subsequent to the end of that fiscal year, provided such dividends are declared on or prior to the later of (1) the filing of the U.S. federal income tax return for the applicable fiscal year and (2) the fifteenth day of the ninth month following the close of the year in which such taxable income was generated.

As of September 30, 2017, CSWC qualified to be taxed as a RIC. We intend to meet the applicable qualifications to be taxed as a RIC in future periods. However, the Company’s ability to meet certain portfolio diversification requirements of RICs in future years may not be controllable by the Company.

During the quarter ended September 30, 2017, CSWC declared quarterly dividends in the amount of $3.8 million, or $0.24 per share.

The determination of the tax attributes for CSWC’s distributions is made annually, based upon its taxable income for the full year and distributions paid for the full year. Therefore, any determination made on an interim basis is forward-looking based on currently available facts, rules and assumptions and may not be representative of the actual tax attributes of distributions for a full year.

Ordinary dividend distributions from a RIC do not qualify for the 20.0% maximum tax rate (plus a 3.8% Medicare surtax, if applicable) on dividend income from domestic corporations and qualified foreign corporations, except to the extent that the RIC received the income in the form of qualifying dividends from domestic corporations and qualified foreign corporations. The tax attributes for distributions will generally include both ordinary income and capital gains, but may also include qualified dividends or return of capital.

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The following reconciles net increase in assets resulting from operations to estimated RIC taxable income for the six months ended September 30, 2017 and 2016:


	Six Months Ended September 30,
Reconciliation of RIC Taxable Income 1	2017		2016
Net increase in net assets from operations	$	14,087	$	9,616
Net change in unrealized appreciation on investments		(5,880)		(4,153)
Income/gain (expense/loss) recognized for tax on pass-through entities		1,852		(794)
Gain recognized for tax on dispositions		—		2,122
Net operating loss - management company and taxable subsidiary		468		961
Non-deductible tax expense		(31)		211
Other book/tax differences		—		(105)
Estimated taxable income before deductions for distributions	$	10,496	$	7,858

The calculation of taxable income for each period is an estimate and will not be finally determined until the Company files its tax return each year. Final taxable income may be different than this estimate.

A RIC may elect to retain its long-term capital gains by designating them as a “deemed distribution” to its shareholders and paying a federal tax rate of 35% on the long-term capital gains for the benefit of its shareholders. Shareholders then report their share of the retained capital gains on their income tax returns as if it had been received and report a tax credit for tax paid on their behalf by the RIC. Shareholders then add the amount of the “deemed distribution” net of such tax to the basis of their shares.

CSMC, a wholly-owned subsidiary of CSWC, is not a RIC and is required to pay taxes at the current corporate rate. For tax purposes, CSMC has elected to be treated as a taxable entity, and therefore is not consolidated for tax purposes and is taxed at normal corporate tax rates based on its taxable income and, as a result of its activities, may generate income tax expense or benefit. The taxable income, or loss, of CSMC may differ from its book income, or loss, due to temporary book and tax timing differences and permanent differences. This income tax expense, or benefit, if any, and the related tax assets and liabilities, are reflected in our consolidated financial statements. CSMC records individual cash incentive award and bonus accruals on a quarterly basis. Deferred taxes related to the changes in the qualified defined pension plan, restoration plan, individual cash incentive award and bonus accruals are also recorded on a quarterly basis. A valuation allowance is provided against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized. Establishing a valuation allowance of a deferred tax asset requires management to make estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecasted cash flows from CSMC’s operations. As of September 30, 2017, CSMC had a deferred tax asset of approximately $3.1 million, our valuation allowance was $1.3 million and our net deferred tax asset was $1.8 million. As of September 30, 2017, we believe that it is more likely than not that we will be able to utilize $1.8 million of our deferred tax assets. We will continue to assess our ability to realize our existing deferred tax assets. As of March 31, 2017, CSMC had a deferred tax asset of $2.0 million.

Based on our assessment of our unrecognized tax benefits, management believes that all benefits, net of the valuation allowance, will be realized and they do not contain any uncertain tax positions.

In addition, we have a wholly-owned taxable subsidiary, or the Taxable Subsidiary, which holds a portion of one or more of our portfolio investments that are listed on the Consolidated Schedule of Investments. The Taxable Subsidiary is consolidated for financial reporting purposes in accordance with U.S. GAAP, so that our consolidated financial statements reflect our investments in the portfolio companies owned by the Taxable Subsidiary. The purpose of the Taxable Subsidiary is to permit us to hold certain interests in portfolio companies that are organized as limited liability companies, or LLCs (or other forms of pass-through entities) and still satisfy the RIC tax requirement that at least 90.0% of our gross income for federal income tax purposes must consist of qualifying investment income. Absent the Taxable Subsidiary, a proportionate amount of any gross income of a partnership or LLC (or other pass-through entity) portfolio investment would flow through directly to us. To the extent that our income did not consist of investment income, it could jeopardize our ability to qualify as a RIC and therefore cause us to incur significant amounts of corporate-level U.S. federal income taxes. Where interests in LLCs (or other pass-through entities) are owned by the Taxable Subsidiary, however, the income from those interests is taxed to the Taxable Subsidiary and does not flow through to us, thereby helping us preserve our RIC status and resultant tax advantages. The Taxable Subsidiary is not consolidated for U.S. federal income tax purposes

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and may generate income tax expense as a result of their ownership of the portfolio companies. The income tax expense, or benefit, and the related tax assets and liabilities, if any, are reflected in our Statement of Operations.

The income tax expense, or benefit, and the related tax assets and liabilities, generated by CSWC, CSMC and the Taxable Subsidiary, if any, are reflected in CSWC’s consolidated financial statements. For the three months ended September 30, 2017, we recognized a net income tax expense of $0.1 million, principally consisting of a provision for current U.S. federal income taxes of $0.1 million, a $0.1 million accrual for excise tax on our estimated undistributed taxable income, and a $0.1 million benefit relating to the Taxable Subsidiary. For the six months ended September 30, 2017, we recognized a net income tax expense of $0.3 million, principally consisting of a provision for current U.S. federal income taxes of $0.3 million. For the three months ended September 30, 2016, we recognized a net income tax expense of $0.4 million, principally consisting of a provision for current U.S. federal income taxes of $0.3 million and $0.1 million relating to the Taxable Subsidiary. For the six months ended September 30, 2016, we recognized a net income tax expense of $1.0 million, principally consisting of a provision for current U.S. federal income taxes of $0.7 million and $0.2 million relating to the Taxable Subsidiary, and a $0.1 million accrual for excise tax on our estimated undistributed taxable income. Although we believe our tax returns are correct, the final determination of tax examinations could be different from what was reported on the returns. In our opinion, we have made adequate tax provisions for years subject to examination. Generally, we are currently open to audit under the statute of limitations by the Internal Revenue Service as well as state taxing authorities for the years ended December 31, 2013 through December 31, 2016.

7. ACCUMULATED undistributed Net Realized Gains on Investments

The Company may retain some or all of its realized net long-term capital gains in excess of realized net short-term capital losses and may designate the retained net capital gain as a “deemed distribution.” For the tax year ended December 31, 2016, the Company did not elect to designate retained net capital gains as deemed distributions. “Deemed distributions” are generally reclassified from accumulated undistributed net realized gains into additional capital after our tax year ends each December 31.

8. SPIN-OFF COMPENSATION PLAN

On August 28, 2014, our Board of Directors adopted a compensation plan (the “Spin-off Compensation Plan”) consisting of grants of nonqualified stock options, restricted stock and cash incentive awards to certain officers of the Company at the time. The plan was intended to align the compensation of the Company’s key officers with the Company’s strategic objective of increasing the market value of the Company’s shares through a transformative transaction for the benefit of the Company’s shareholders. Under the plan, Joseph B. Armes, former CEO of the Company, Kelly Tacke, former CFO of the Company, and Bowen S. Diehl, former CIO and current CEO of the company, in aggregate, were eligible to receive an amount equal to six percent of the aggregate appreciation in the Company’s share price from August 28, 2014 (using a base price of $36.16 per share) to 90 days after the completion of a transformative transaction (the “Trigger Event Date”). The first plan component consisted of nonqualified options awarded to purchase 259,000 shares of common stock at an exercise price of $36.60 per share. The second plan component consisted of awards of 127,000 shares of restricted stock, which, prior to their vesting, have voting rights but do not have cash dividend rights. See Note 9 for further discussion on the first two components of the Executive Compensation Plan. The final plan component consisted of cash incentive payments awarded to each participant in an amount equal to the excess of each awardee’s allocable portion of the total payment amount over the aggregate value as of the Trigger Event Date of the awardee’s restricted common stock and nonqualified option awards under the plan.

On September 8, 2015, the Board of Directors designated the Share Distribution as a transformative transaction for purposes of the Spin-off Compensation Plan and amended the award agreements granted under the plan to provide for accelerated vesting of the awards held by a participant in the event of a termination of that participant’s service effected by the participant for good reason, by the employer without cause, or as a result of the disability or death of the participant. On September 30, 2015, we completed the Share Distribution.

Effective immediately with the Share Distribution, both Joseph B. Armes and Kelly Tacke became employees of CSWI and Bowen Diehl, our President and Chief Executive Officer, continued to be an employee of our Company. The Company entered into the Employee Matters Agreement with CSWI as discussed above. Under the Employee Matters Agreement, we retained the cash incentive awards granted under the Spin-off Compensation Plan, and all liabilities with respect to the cash incentive awards remained liabilities of CSWC. The equity based awards vesting terms are as follows:

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(1) one-third on December 29, 2015; (2) one-third on December 29, 2016; and (3) one-third on December 29, 2017, subject to accelerated vesting as described above.

The total value accretion was six percent of the aggregate appreciation in the Company’s share price from $36.16 to the combined volume-weighted average prices of both CSWC and CSWI stock as of December 29, 2015. The cash component of the Spin-off Compensation Plan was the difference between the total value accretion and the aggregate value of the awardee’s restricted common stock and non-qualified option awards under the plan. The total cash liabilities for three participants under the plan totaled $6.1 million, of which $2.1 million was fully vested as of December 29, 2015 and was subsequently paid out in January 2016. $1.4 million was fully vested as of December 29, 2016 and was subsequently paid out in January 2017. The remaining payment will be fully vested on December 29, 2017, subject to accelerated vesting as described above.

During the three and six months ended September 30, 2017, we recognized the cash component of spin-off compensation expense of $0.2 million and $0.3 million, respectively, which represented the cash component of spin-off compensation for our current employee. During the three and six months ended September 30, 2017, we also recorded $0.2 million and $0.3 million, respectively, directly to additional capital for the cash component of the spin-off compensation related to the employee who transferred to CSWI. During the three and six months ended September 30, 2016, we recognized the cash component of spin-off compensation expense of $0.2 million and $0.3 million, respectively, which represented the cash component of spin-off compensation for our current employee. During the three and six months ended September 30, 2016, we also recorded $0.2 million and $1.5 million, respectively, directly to additional capital for the cash component of the spin-off compensation related to the two employees who transferred to CSWI, of which $1.3 million was paid to Kelly Tacke upon her separation from CSWI.

9. Employee Stock based Compensation plans

Stock Awards

Pursuant to the Capital Southwest Corporation 2010 Plan, our Board of Directors originally reserved 188,000 shares of restricted stock for issuance to certain of our employees. At our annual shareholder meeting in August 2015, our shareholders approved an increase of an additional 450,000 shares to our 2010 Restricted Stock Award Plan. A restricted stock award is an award of shares of our common stock, which generally have full voting and dividend rights but are restricted with regard to sale or transfer. Restricted stock awards are independent of stock grants and are generally subject to forfeiture if employment terminates prior to these restrictions lapsing. Unless otherwise specified in the award agreement, these shares vest in equal annual installments over a four- to five-year period from the grant date and are expensed over the vesting period starting on the grant date.

On August 28, 2014, our Board of Directors amended the 2010 Plan, as permitted pursuant to Section 14 of the 2010 Plan (the “First Amendment to the 2010 Plan”). The First Amendment to the 2010 Plan provides that an award agreement may allow an award to remain outstanding after a spin-off or change in control of one or more wholly-owned subsidiaries of CSWC. In addition, on August 28, 2014, the Board of Directors granted 127,000 shares of restricted stock under the Spin-off Compensation Plan.

On August 22, 2017, we received an exemptive order from the SEC that allows us to withhold shares to satisfy tax withholding obligations related to the vesting of restricted stock granted pursuant to the 2010 Plan.

On September 30, 2015, we completed the Share Distribution. Each holder of an outstanding Capital Southwest Restricted Stock Award immediately prior to the Share Distribution received, as of the effective date of the Share Distribution, a CSWI Restricted Stock Award for the number of CSWI Shares the holder would have received if the outstanding Capital Southwest Restricted Stock Award comprised fully vested Capital Southwest Shares as of the effective date.

The vesting terms for restricted stock awards previously granted under the Spin-off Compensation Plan are as follows: (1) one-third on December 29, 2015; (2) one-third on December 29, 2016; and (3) one-third on December 29, 2017, subject to accelerated vesting as described above.

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The following table summarizes the restricted stock available for issuance for the six months ended September 30, 2017:


Restricted stock available for issuance as of March 31, 2017		190,502
Additional restricted stock approved under the plan		−
Restricted stock granted during the six months ended September 30, 2017		(13,000)
Restricted stock forfeited during the six months ended September 30, 2017		5,000
Restricted stock available for issuance as of September 30, 2017		182,502

We expense the cost of the restricted stock awards, which is determined to equal the fair value of the restricted stock award at the date of grant on a straight-line basis over the requisite service period. For these purposes, the fair value of the restricted stock award is determined based upon the closing price of our common stock on the date of the grant. Due to the Share Distribution, the Company evaluated (1) the value of the CSWC stock awards prior to the Share Distribution and (2) the combined value of CSWC and CSWI stock awards following the Share Distribution and recorded additional incremental stock based compensation expenses.

For the three months ended September 30, 2017 and 2016, we recognized total share based compensation expense of $0.4 million and $0.2 million, respectively, related to the restricted stock issued to our employees and officers. For the six months ended September 30, 2017 and 2016, we recognized total share based compensation expense of $0.7 million and $0.4 million, respectively, related to the restricted stock issued to our employees and officers.

As of September 30, 2017, the total remaining unrecognized compensation expense related to non-vested restricted stock awards was $3.1 million, which will be amortized over the weighted-average vesting period of approximately 2.7 years. Subsequent to the Share Distribution, the compensation expense related to non-vested awards held by employees who are now employed by CSWI is recorded by CSWI.

The following table summarizes the restricted stock outstanding as of September 30, 2017:


		Weighted Average		Weighted Average
		Fair Value Per		Remaining Vesting
Restricted Stock Awards	Number of Shares	Share at grant date		Term (in Years)
Unvested at March 31, 2017	294,043	$	14.99	3.1
Granted	13,000		16.69	−
Vested	(3,125)		13.94	−
Forfeited	(5,000)		14.48	−
Unvested at September 30, 2017	298,918	$	15.00	2.7

Stock Options

On July 20, 2009, shareholders approved the 2009 Plan, which provides for the granting of stock options to employees and officers and authorizes the issuance of common stock upon exercise of stock options for up to 560,000 shares. All options are granted at or above market price, generally expire up to 10 years from the date of grant and are generally exercisable on or after the first anniversary of the date of grant in five annual installments.

On August 28, 2014, our Board of Directors amended the 2009 Plan, as permitted pursuant to Section 18 of the 2009 Plan (the “First Amendment to the 2009 Plan”). The First Amendment to the 2009 Plan provides that an award agreement may allow an award to remain outstanding after a spin-off or change in control of one or more wholly-owned subsidiaries of the Company. In addition, on August 28, 2014, options to purchase 259,000 shares at $36.60 per share were granted under the 2009 Plan, as amended. On September 8, 2015, the Board of Directors designated the Share Distribution a transformative transaction for purposes of the 2009 Plan and amended the award agreements granted under the 2009 Plan to provide for accelerated vesting of the awards held by a participant in the event of a termination of such participant’s service effected by the participant for good reason, by the employer without cause, or as a result of the disability or death of the participant. A third of these options were vested on December 29, 2015, a third vested on December 29, 2016 and the remaining options will vest on December 29, 2017, subject to accelerated vesting as described above.

On August 22, 2017, we received an exemptive order from the SEC that allows us to withhold shares of our common stock to satisfy the exercise of options to purchase shares of our common stock granted pursuant to the 2009 Plan.

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At September 30, 2017, there are options to acquire 206,364 shares of common stock outstanding. The Compensation Committee does not intend to grant additional options under the 2009 Plan or request shareholders’ approval of additional stock options to be added under the 2009 Plan.

We previously granted stock options under our 1999 Stock Option Plan (the “1999 Plan”), as approved by shareholders on July 19, 1999. The 1999 Plan expired on April 19, 2009. Options previously granted under our 1999 Plan and outstanding on July 20, 1999 continue in effect and are governed by the provisions of the 1999 Plan. All options granted under the 1999 Plan were granted at market price on the date of grant, generally expire up to 10 years from the date of grant and are generally exercisable on or after the first anniversary of the date of grant in five to ten annual installments. At September 30, 2017, there are no options to acquire shares of common stock outstanding under the 1999 Plan.

At September 30, 2015, in connection with the Share Distribution, we entered into the Employee Matters Agreement, which provided that each option to acquire CSWC common stock that was outstanding immediately prior to September 30, 2015, would be converted into both an option to acquire post-Share Distribution CSWC common stock and an option to acquire CSWI common stock and would be subject to substantially the same terms and conditions (including with respect to vesting and expiration) after the September 30, 2015. Certain adjustments, using volumetric weighted-average prices for the 10-day period immediately prior to and immediately following the distribution, were made to the exercise price and number of shares of CSWC subject to such awards, with the intention of preserving the economic value of the awards immediately prior to the distribution for all CSWC employees. We compared the fair market value of our stock options on the day of the Share Distribution with the combined fair value of our stock options and CSWI stock options the day after the completion of the Share Distribution. The distribution-related adjustments did not have an impact on compensation expense for the three and six months ended September 30, 2017.

The following table summarizes activity in the 2009 Plan and the 1999 Plan as of September 30, 2017, including adjustments in connection with the Share Distribution:


		Weighted
		Average
		Exercise
	Number of Shares	Price
2009 Plan
Balance at March 31, 2016	362,513	$	11.21*
Granted	–		–
Exercised	(131,252)		11.48
Canceled/Forfeited	(24,897)		10.56
Balance at March 31, 2017	206,364		11.12
Granted	–		–
Exercised	–		–
Canceled/Forfeited	–		–
Balance at September 30, 2017	206,364	$	11.12


		Aggregate
	Weighted Average	Intrinsic
September 30, 2017	Remaining Contractual Term	Value
Outstanding	6.0 years	$	1,240,529
Exercisable	5.6 years	$	813,587

Certain adjustments were made to the exercise price and number of shares of Capital Southwest awards using volumetric weighted-average prices for the 10-day period immediately prior to and immediately following the distribution with the intention of preserving the economic value of the awards immediately prior to the distribution for all Capital Southwest employees.

We recognize compensation cost using the straight-line method for all share-based payments. The fair value of stock options are determined on the date of grant using the Black-Scholes pricing model and are expensed over the requisite service period of the related stock options. Accordingly, for both the three months ended September 30, 2017 and 2016, we recognized stock option compensation expense of $48.0 thousand related to the stock options held by our employees

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and officers. For both the six months ended September 30, 2017 and 2016, we recognized stock option compensation expense of $0.1 million related to the stock options held by our employees and officers.

As of September 30, 2017, the total remaining unrecognized compensation cost related to non-vested stock options was $0.1 million, which will be amortized over the weighted-average vesting period of approximately 1.3 years. During the quarter ended September 30, 2017, we recognized stock-based compensation expense for awards that are held by our employees.

At September 30, 2017, the range of exercise prices was $7.55 to $11.66 and the weighted-average remaining contractual term of outstanding options was 6.0 years. The total number of shares of common stock exercisable under both the 2009 Plan and the 1999 Plan at September 30, 2017 was 131,117 shares with a weighted-average exercise price of $10.92. During the quarter ended September 30, 2017, 5,976 options became exercisable and no options were exercised. During the quarter ended September 30, 2016, 5,975 options became exercisble and no options were exercised.

Individual Incentive Awards

On January 16, 2012, our Board of Directors approved the issuance of 104,000 individual cash incentive awards with a baseline for measuring increases in NAV per share of $36.74 (NAV at December 31, 2011) to provide deferred compensation to certain key employees. Under the individual cash incentive award agreements, awards vest on the fifth anniversary of the award date. Upon exercise of an individual cash incentive award, the Company pays the recipient a cash payment in an amount equal to the NAV per share minus the baseline NAV per share, adjusted for capital gain dividends declared.

In connection with the Share Distribution, we entered into the Employee Matters Agreement with CSWI. Under the Employee Matters Agreement, the individual cash incentive award agreements were amended to provide that the value of each individual cash incentive award was determined based upon the NAV of CSWC as of June 30, 2015. The remaining terms of each individual cash incentive award agreement, including the vesting and payment terms, will remain unchanged. After the effective date of the Share Distribution, CSWC retains all liabilities associated with all individual cash incentive awards granted by CSWC.

There are currently 48,000 individual cash incentive awards outstanding as of September 30, 2017 and the liability for individual cash incentive awards was $0.3 million at September 30, 2017. As of September 30, 2017, there is no remaining unrecognized compensation expense related to individual cash incentive awards.

There were no individual cash incentive awards vested or granted during the six months ended September 30, 2017.


				Weighted
				Average
		Weighted		Remaining
	Number of	Average Grant		Vesting Term
Individual Cash Incentive Awards	Shares	Price Per Share		(in Years)
Unvested at March 31, 2017	48,000	$	47.03	1.6
Granted	−		−	−
Vested	−		−	−
Forfeited or expired	−		−	−
Unvested at September 30, 2017	48,000	$	47.03	1.1

10. OTHER EMPLOYEE COMPENSATION

We established a 401(k) plan (“401K Plan”) effective October 1, 2015. All full-time employees are eligible to participate in the 401K Plan. The 401K Plan permits employees to defer a portion of their total annual compensation up to the Internal Revenue Service annual maximum based on age and eligibility. During the quarter ended September 30, 2017, we made contributions to the 401K Plan of up to 4.5% of the Internal Revenue Service’s annual maximum eligible compensation, all of which is fully vested immediately. During the three months ended September 30, 2017 and 2016, we made matching contributions of approximately $25.7 thousand and $21.3 thousand, respectively. During the six months ended September 30, 2017 and 2016, we made matching contributions of approximately $78.3 thousand and $68.7 thousand, respectively.

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11. Commitments AND CONTINGENCIES

In the normal course of business, the Company is a party to financial instruments with off-balance sheet risk, consisting primarily of unused commitments to extend financing to the Company’s portfolio companies. Since commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.

The balances of unused commitments to extend financing as of September 30, 2017 and March 31, 2017 were as follows:


		September 30,		March 31,
Portfolio Company	Investment Type	2017		2017
I-45 SLF LLC	Equity Investment	$	3,200,000	$	7,200,000
Zenfolio Inc.	Delayed Draw Term Loan		2,500,000		−
Zenfolio Inc.	Revolving Loan		2,000,000		−
Total unused commitments to extend financing		$	7,700,000	$	7,200,000

We may, from time to time, be involved in litigation arising out of our operations in the normal course of business or otherwise. Furthermore, third parties may try to seek to impose liability on us in connection with the activities of our portfolio companies. To our knowledge, we have no currently pending material legal proceedings to which we are party or to which any of our assets is subject.

12. RELATED PARTY TRANSACTIONS

As a BDC, we are obligated under the 1940 Act to make available to our portfolio companies significant managerial assistance. “Making available significant managerial assistance” refers to any arrangement whereby we provide significant guidance and counsel concerning the management, operations, or business objectives and policies of a portfolio company. We are also deemed to be providing managerial assistance to all portfolio companies that we control, either by ourselves or in conjunction with others. The nature and extent of significant managerial assistance provided by us will vary according to the particular needs of each portfolio company. During both the three months ended September 30, 2017 and 2016, we received management and other fees from certain of our portfolio companies totaling $0.1 million, which were recognized as Fees and other income on the Consolidated Statements of Operations. During both the six months ended September 30, 2017 and 2016, we received management and other fees from certain of our portfolio companies totaling $0.2 million, which were recognized as Fees and other income on the Consolidated Statements of Operations. Additionally, as of September 30, 2017 and March 31, 2017, we had dividends receivable from I-45 SLF of $2.2 million and $2.1 million, respectively, which were included in dividends and interest receivables on the Consolidated Statements of Assets and Liabilities.

13. SUBSEQUENT EVENTS

On October 2, 2017, CSWC paid quarterly dividends declared on August 30, 2017 in the amount of $3.8 million, or $0.24 per share.

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14. SUMMARY OF PER SHARE INFORMATION

The following presents a summary of per share data for the three and six months ended September 30, 2017 and 2016 (share amounts presented in thousands).


	Three Months Ended						Six Months Ended
	September 30,						September 30,
Per Share Data:	2017			2016			2017			2016
Investment income 1	$	0.53		$	0.30		$	1.01		$	0.56
Operating expenses 1		(0.27)			(0.18)			(0.53)			(0.39)
Income taxes 1		(0.01)			(0.03)			(0.02)			(0.06)
Net investment income 1		0.25			0.09			0.46			0.11
Net realized gain 1		0.01			0.22			0.05			0.24
Net change in unrealized appreciation of investments 1		0.28			0.13			0.37			0.27
Total increase from investment operations		0.54			0.44			0.88			0.62
Dividends to shareholders		(0.24)			(0.11)			(0.45)			(0.17)
Spin-off Compensation Plan distribution, net of tax		(0.01)			0.01			(0.02)			(0.08)
Forfeiture (issuance) of restricted stock 2		(0.01)			—			(0.01)			—
Share based compensation expense		0.03			0.01			0.05			0.03
Other 3		(0.01)			—			0.01			—
Increase in net asset value		0.30			0.35			0.46			0.40
Net asset value
Beginning of period		17.96			17.39			17.80			17.34
End of period	$	18.26		$	17.74		$	18.26		$	17.74

Ratios and Supplemental Data
Ratio of operating expenses, excluding interest expense, to average net assets 4		1.22	%		1.08	%		2.40	%		2.26	%
Ratio of net investment income to average net assets 4		1.36	%		0.50	%		2.56	%		0.63	%
Portfolio turnover		4.88	%		0.49	%		12.06	%		5.74	%
Total investment return 4,5		8.02	%		8.34	%		4.04	%		7.23	%
Total return based on change in NAV 4,6		3.01	%		2.65	%		5.11	%		3.29	%

Weighted-average common shares outstanding		16,010			15,726			16,010			15,728
Weighted-average fully diluted shares outstanding		16,078			15,806			16,075			15,802
Common shares outstanding at end of period		16,019			15,726			16,019			15,726

Based on weighted average of common shares outstanding for the period.

Reflects impact of the different share amounts as a result of issuance or forfeiture of restricted stock during the period.

Includes the impact of the different share amounts as a result of calculating certain per share data based on the weighted-average basic shares outstanding during the period and certain per share data based on the shares outstanding as of a period end.

⁴

Not annualized.

⁵

Total investment return based on purchase of stock at the current market price on the first day and a sale at the current market price on the last day of each period reported on the table and assumes reinvestment of dividends at prices obtained by CSWC’s dividend reinvestment plan during the period. The return does not reflect any sales load that may be paid by an investor.

⁶

Total return based on change in NAV was calculated using the sum of ending NAV plus dividends to shareholders and other non-operating changes during the period, as divided by the beginning NAV, and has not been annualized .

15. SIGNIFICANT SUBSIDIARIES

Media Recovery, Inc.

Media Recovery, Inc. (MRI), through its subsidiary, ShockWatch, provides solutions that currently enable over 3,000 customers and some 200 partners in 62 countries to detect mishandling that causes product damage and spoilage during transport and storage. The ShockWatch product portfolio includes impact, tilt, temperature, vibration, and humidity detection systems and is widely used in the energy, transportation, aerospace, defense, food, pharmaceutical, medical device, consumer goods and manufacturing sectors.

Table of Contents

At September 30, 2017, the value of Media Recovery, Inc. represented 10.8% of our total assets. Below is certain selected key financial data from its Balance Sheet at September 30, 2017 and March 31, 2017 and Income Statement for the three and six months ended September 30, 2017 and 2016 (amounts in thousands).


	September 30, 2017		March 31, 2017
Current Assets	$	9,235	$	9,935
Non-Current Assets		24,827		23,173
Current Liabilities		3,176		2,083
Non-Current Liabilities	$	2,755	$	2,396


	Three months ended				Six months ended
	9/30/2017		9/30/2016		9/30/2017		9/30/2016
Revenue	$	6,247	$	4,591	$	11,242	$	9,825
Income (loss) from continuing operations		628		(541)		920		268
Net income		628		(541)		920		268

TitanLiner, Inc.

TitanLiner, Inc. engages in the manufacture, installation and rental of spill containment systems for oilfield applications.

At September 30, 2017, the value of TitanLiner, Inc. represented 3.1% of our total assets. Below is certain selected key financial data from its Balance Sheet at September 30, 2017 and March 31, 2017 and Income Statement for the three and six months ended September 30, 2017 and 2016 (amounts in thousands).


	September 30, 2017		March 31, 2017
Current Assets	$	7,057	$	5,712
Non-Current Assets		3,154		2,276
Current Liabilities		2,232		1,709
Non-Current Liabilities	$	1,380	$	1,638


	Three months ended				Six months ended
	9/30/2017		9/30/2016		9/30/2017		9/30/2016
Revenue	$	4,029	$	1,828	$	8,237	$	4,118
Income (loss) from continuing operations		831		(184)		1,533		(115)
Net income		831		(184)		1,533		(115)

Table of Contents

I-45 SLF LLC

In September 2015, we entered into an LLC agreement with Main Street to form I-45 SLF. I-45 SLF began investing in syndicated senior secured loans in the upper middle market during the quarter ended December 31, 2015. The initial equity capital commitment to I-45 SLF totaled $85.0 million, consisting of $68.0 million from us and $17.0 million from Main Street. Approximately $81.0 million was funded as of September 30, 2017, relating to these commitments, of which $64.8 million was from CSWC. As of September 30, 2017, CSWC has unfunded equity commitments outstanding of $3.2 million. We own 80.0% of I-45 SLF and have a profits interest of 75.6%, while Main Street owns 20.0% and has a profits interest of 24.4%. I-45 SLF's Board of Managers makes all investment and operational decisions for the fund, and consists of equal representation from CSWC and Main Street.

As of September 30, 2017, I-45 SLF had total assets of $240.0 million. I-45 SLF currently has approximately $223.8 million of credit investments at fair value as of September 30, 2017. The portfolio companies in I-45 SLF are in industries similar to those in which we may invest directly. As of September 30, 2017, approximately $13.5 million were unsettled trades. During the three months ended September 30, 2017, I-45 SLF declared a total dividend of $2.9 million of which $2.2 million was paid to CSWC in October 2017.

Additionally, I-45 SLF closed on a $75.0 million 5-year senior secured credit facility (the “I-45 credit facility”) in November 2015. This facility includes an accordion feature which will allow I-45 SLF to achieve leverage of approximately 2x debt-to-equity. Borrowings under the facility are secured by all of the assets of I-45 SLF and bear interest at a rate equal to LIBOR plus 2.5% per annum. During the year ended March 31, 2017, I-45 SLF increased debt commitments outstanding by an additional $90.0 million by adding three additional lenders to the syndicate, bringing total debt commitments to $165.0 million. In July 2017, the I-45 credit facility was amended to extend the maturity to July 2022. Additionally, borrowings bear interest at a rate equal to LIBOR plus 2.4% per annum. Under the I-45 credit facility, $139.0 million has been drawn as of September 30, 2017.

Table of Contents

Below is a summary of I-45 SLF’s portfolio, followed by a listing of the individual loans in I-45 SLF’s portfolio as of September 30, 2017 and March 31, 2017:

I-45 SLF LLC Loan Portfolio as of September 30, 2017

Current

Investment

Maturity

Interest

Portfolio Company

Industry

Type

Date

Rate 1

Principal

Cost

Fair Value 2

L+6.75%

AAC Holdings

Healthcare services

First Lien

6/30/2023

(Floor 1.00%)

7,651,875

7,481,678

7,651,875

Ahead, LLC

Business services

First Lien

11/2/2020

L+ 6.50%

4,562,500

4,477,481

4,562,500

L+6.50%

American Scaffold Holdings

Aerospace & defense

First Lien

3/31/2022

(Floor 1.00%)

2,850,000

2,816,842

2,835,750

L+6.50%

American Teleconferencing

Telecommunications

First Lien

12/8/2021

(Floor 1.00%)

5,560,608

5,153,997

5,379,889

L+9.50%

Second Lien

6/6/2022

(Floor 1.00%)

1,708,571

1,647,900

1,696,825

L+6.50%

Ansira Partners

Business services

First Lien

12/20/2022

(Floor 1.00%)

4,469,751

4,175,589

4,183,112

L+7.25%

Array Technologies

Technology products & components

First Lien

6/22/2021

(Floor 1.00%)

3,807,227

3,744,499

3,797,709

L+6.00%

ATX Networks Corp.

Technology products & components

First Lien

6/11/2021

(Floor 1.00%)

4,874,687

4,833,532

4,825,940

L+5.00%

Beaver-Visitec International

Healthcare products

First Lien

8/21/2023

(Floor 1.00%)

4,950,000

4,907,818

4,974,750

L+6.00%

California Pizza Kitchen

Food, agriculture & beverage

First Lien

8/23/2022

(Floor 1.00%)

6,934,962

6,894,479

6,888,741

L+6.00%

CMN.com (Higher Education)

Consumer services

First Lien

11/3/2021

(Floor 1.00%)

6,825,000

6,713,318

6,825,000

L+6.50%

Digital River

Software & IT services

First Lien

2/12/2021

(Floor 1.00%)

7,015,452

6,991,760

7,050,529

L+10.00%

Digital Room

Paper & forest products

Second Lien

5/21/2023

(Floor 1.00%)

4,000,000

3,930,332

3,980,000

L+4.25%

Highline Aftermarket

Automobile

First Lien

3/17/2024

(Floor 1.00%)

2,871,595

2,858,248

2,900,311

L+6.00%

Hunter Defense Technologies

Aerospace & defense

First Lien

8/5/2019

(Floor 1.00%)

2,644,737

2,639,555

2,624,901

L+6.00%

iEnergizer

Business services

First Lien

5/1/2019

(Floor 1.25%)

5,797,170

5,563,050

5,782,678

L+8.75%

Imagine! Print Solutions

Media, marketing & entertainment

Second Lien

6/21/2023

(Floor 1.00%)

3,000,000

2,956,799

2,970,000

L+5.00%

InfoGroup Inc.

Software & IT services

First Lien

4/3/2023

(Floor 1.00%)

2,985,000

2,957,395

2,921,569

L+5.75%

Integro Parent Inc.

Business services

First Lien

10/31/2022

(Floor 1.00%)

4,913,923

4,779,886

4,901,639

L+6.00%

iPayment, Inc.

Financial services

First Lien

4/11/2023

(Floor 1.00%)

5,000,000

4,953,502

5,062,500

Table of Contents

Current

Investment

Maturity

Interest

Portfolio Company

Industry

Type

Date

Rate 1

Principal

Cost

Fair Value 2

L+6.00%

KeyPoint Government Solutions

Business services

First Lien

4/18/2024

(Floor 1.00%)

4,875,000

4,829,433

L+5.50%

LifeMiles

Consumer services

First Lien

8/18/2022

(Floor 1.00%)

2,500,000

2,475,332

2,525,000

L+5.75%

Logix Communications

Telecommunications

First Lien

8/9/2024

(Floor 1.00%)

4,729,730

4,682,432

4,771,115

L+6.00%

LSF9 Atlantis Holdings

Telecommunications

First Lien

5/1/2023

(Floor 1.00%)

6,956,250

6,891,069

6,998,266

L+7.00%

Lulu's Fashion Lounge

Consumer products & retail

First Lien

8/23/2022

(Floor 1.00%)

4,545,454

4,410,691

L+5.25%

MHVC Acquisition

Aerospace & defense

First Lien

4/29/2024

(Floor 1.00%)

5,985,000

5,956,790

6,052,331

L+5.50%

Nielsen and Bainbridge

Wholesale

First Lien

4/26/2024

(Floor 1.00%)

3,000,000

2,943,617

2,985,000

L+6.25%

New Media Holdings II LLC

Media, marketing & entertainment

First Lien

7/14/2022

(Floor 1.00%)

7,864,532

7,842,054

7,876,840

L+5.50%

PetValu

Consumer products & retail

First Lien

7/5/2022

(Floor 1.00%)

4,950,000

4,910,627

4,950,000

L+5.25%

Polycom

Telecommunications

First Lien

9/27/2023

(Floor 1.00%)

6,022,333

6,111,163

L+5.25%

Prepaid Legal Services, Inc.

Consumer services

First Lien

7/1/2019

(Floor 1.25%)

4,253,522

4,250,823

4,292,059

L+9.00%

Second Lien

7/1/2020

(Floor 1.25%)

405,000

397,143

408,291

L+6.50%

PT Network

Healthcare products

First Lien

11/30/2021

(Floor 1.00%)

4,972,917

3,870,886

3,912,222

L+7.50%

Redbox Automated Retail

Gaming & leisure

First Lien

9/27/2021

(Floor 1.00%)

4,900,000

4,781,800

4,949,000

L+7.50%

Sigma Electric

Industrial products

First Lien

10/13/2021

(Floor 1.00%)

4,975,000

4,874,669

4,975,000

L+6.50%

SRP Companies

Consumer services

First Lien

9/8/2023

(Floor 1.00%)

5,946,868

5,895,838

5,946,868

L+8.50%

Teleguam Holdings

Telecommunications

Second Lien

4/12/2024

(Floor 1.00%)

2,000,000

1,960,957

2,020,000

L+6.25%

Terra Millennium

Industrial products

First Lien

10/31/2022

(Floor 1.00%)

6,868,750

6,807,706

6,903,094

L+5.50%

TestEquity

Capital equipment

First Lien

4/28/2022

(Floor 1.00%)

4,977,625

4,931,437

L+5.00%

Time Manufacturing

Capital equipment

First Lien

2/3/2023

(Floor 1.00%)

4,972,506

4,929,391

4,941,428

L+6.75%

Traeger Grills

Durable consumer goods

First Lien

9/25/2024

(Floor 1.00%)

4,000,000

3,417,627

3,473,813

L+8.50%

Second Lien

9/25/2025

(Floor 1.00%)

2,500,000

2,462,500

2,512,500

Table of Contents

Current

Investment

Maturity

Interest

Portfolio Company

Industry

Type

Date

Rate 1

Principal

Cost

Fair Value 2

L+6.00%

Turning Point Brands

Consumer products & retail

First Lien

5/17/2022

(Floor 1.00%)

4,975,000

4,929,677

4,962,563

L+6.00%

Tweddle Group

Media, marketing & entertainment

First Lien

10/24/2022

(Floor 1.00%)

2,443,269

2,401,613

2,449,377

L+8.50%

UniTek Global Services

Telecommunications

First Lien

1/13/2019

(Floor 1.00%)

4,584,809

L+6.00%

US Joiner (IMECO and RAACI)

Transportation & logistics

First Lien

4/16/2020

(Floor 1.00%)

4,482,308

4,439,693

4,448,690

L+5.00%

US Telepacific

Telecommunications

First Lien

5/2/2023

(Floor 1.00%)

6,982,500

6,902,236

6,818,411

L+6.00%

VIP Cinema

Hotel, gaming & leisure

First Lien

3/1/2023

(Floor 1.00%)

4,875,000

4,852,935

4,926,797

L+6.00%

Wirepath

Durable consumer goods

First Lien

8/5/2024

(Floor 1.00%)

3,000,000

2,985,271

3,024,375

Total Investments

221,119,049

223,806,791

Represents the interest rate as of September 30, 2017. All interest rates are payable in cash, unless otherwise noted. The majority of investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“P”) which reset daily, monthly, quarterly, or semiannually. For each the Company has provided the spread over LIBOR or Prime and the current contractual interest rate in effect at September 30, 2017. Certain investments are subject to a LIBOR or Prime interest rate floor.

Represents the fair value determined utilizing a similar process as the Company in accordance with ASC 820. However, the determination of such fair value is determined by the Board of Managers of the Joint Venture. It is not included in the Company’s Board of Directors’ valuation process described elsewhere herein.

Table of Contents

I-45 SLF LLC Loan Portfolio as of March 31, 2017

Current

Investment

Maturity

Interest

Portfolio Company

Industry

Type

Date

Rate 1

Principal

Cost

Fair Value 2

Ahead, LLC

Business services

First Lien

11/2/2020

L+ 6.50%

4,687,500

4,585,980

4,640,625

American Scaffold Holdings

Aerospace & defense

First Lien

3/31/2022

L+6.50%
(Floor 1.00%)

2,925,000

2,887,177

2,910,375

American Teleconferencing

Telecommunications

First Lien

12/8/2021

L+6.50%
(Floor 1.00%)

5,711,302

5,243,687

5,700,451

Second Lien

6/6/2022

L+9.50%
(Floor 1.00%)

1,708,571

1,643,620

1,674,400

Ansira Partners

Business services

First Lien

12/31/2022

L+6.50%
(Floor 1.00%)

3,921,777

3,884,092

3,893,523

Array Technologies

Technology products & components

First Lien

6/22/2021

L+7.25%
(Floor 1.00%)

4,325,000

4,542,126

4,613,437

ATX Networks Corp.

Technology products & components

First Lien

6/12/2021

L+6.00%
(Floor 1.00%)

4,924,812

4,877,593

4,875,564

Beaver-Visitec International

Healthcare products

First Lien

8/21/2023

L+5.00%
(Floor 1.00%)

4,975,000

4,928,997

4,975,000

California Pizza Kitchen

Food, agriculture & beverage

First Lien

8/23/2022

L+6.00%
(Floor 1.00%)

6,969,987

6,925,133

6,971,381

CMN.com (Higher Education)

Consumer services

First Lien

10/15/2021

L+6.00%
(Floor 1.00%)

6,912,500

6,785,531

Contextmedia

Media, marketing & entertainment

First Lien

12/31/2021

L+6.50%
(Floor 1.00%)

1,975,000

1,787,489

1,975,000

Digital River

Software & IT services

First Lien

2/12/2021

L+6.50%
(Floor 1.00%)

7,015,452

6,988,236

7,050,529

Digital Room

Paper & forest products

Second Lien

5/28/2023

L+10.00%
(Floor 1.00%)

4,000,000

3,924,128

Highline Aftermarket

Automobile

First Lien

3/17/2024

L+4.25%
(Floor 1.00%)

3,000,000

2,985,000

3,033,900

Hunter Defense Technologies

Aerospace & defense

First Lien

8/5/2019

L+6.00%
(Floor 1.00%)

2,703,947

2,697,208

2,514,671

ICSH, Inc.

Containers & packaging

First Lien

12/31/2018

L+5.75%
(Floor 1.00%)

6,698,007

6,670,865

6,685,051

iEnergizer

Business services

First Lien

5/1/2019

L+6.00%
(Floor 1.25%)

6,567,046

6,217,720

6,542,748

IG Investments Holdings

Business services

First Lien

10/31/2021

L+5.00%
(Floor 1.00%)

2,480,470

2,469,439

2,507,856

Imagine! Print Solutions

Media, marketing & entertainment

First Lien

3/30/2022

L+6.00%
(Floor 1.00%)

3,565,489

3,526,760

3,610,057

InfoGroup Inc.

Software & IT services

First Lien

5/28/2018

L+5.50%
(Floor 1.50%)

5,913,550

5,813,451

5,907,637

First Lien

4/3/2023

L+5.00%
(Floor 1.50%)

3,000,000

2,970,000

Table of Contents

Current

Investment

Maturity

Interest

Portfolio Company

Industry

Type

Date

Rate 1

Principal

Cost

Fair Value 2

Integro Parent Inc.

Business services

First Lien

11/2/2022

L+5.75%
(Floor 1.00%)

4,938,924

4,790,756

4,963,618

iPayment, Inc.

Financial services

First Lien

5/8/2017

L+5.25%
(Floor 1.50%)

6,964,029

6,947,920

6,929,209

LTI Holdings, Inc.

Industrial products

First Lien

4/17/2022

L+4.25%
(Floor 1.00%)

1,974,874

1,780,886

1,974,874

Mood Media Corporation

Business services

First Lien

5/1/2019

L+6.00%
(Floor 1.00%)

4,503,289

4,427,043

4,483,024

MWI Holdings

Industrial products

First Lien

6/29/2020

L+5.50%
(Floor 1.00%)

4,962,500

4,921,442

5,006,170

New Media Holdings II LLC

Media, marketing & entertainment

First Lien

6/4/2020

L+6.25%
(Floor 1.00%)

6,901,894

6,886,200

6,867,385

Northstar Travel

Media, marketing & entertainment

First Lien

6/7/2022

L+6.25%
(Floor 1.00%)

4,090,625

4,036,655

4,070,172

PetValu

Consumer products & retail

First Lien

7/5/2022

L+5.50%
(Floor 1.00%)

4,975,000

4,931,261

4,987,438

Pike Corp.

Utilities

Second Lien

8/30/2024

L+8.00%
(Floor 1.00%)

1,000,000

990,000

1,017,500

Polycom

Telecommunications

First Lien

9/27/2023

L+6.50%
(Floor 1.00%)

6,445,833

6,547,678

Prepaid Legal Services, Inc.

Consumer services

First Lien

7/1/2019

L+5.25%
(Floor 1.25%)

4,474,279

4,470,626

4,507,836

Second Lien

7/1/2020

L+9.00%
(Floor 1.25%)

405,000

395,663

407,349

PT Network

Healthcare products

First Lien

11/30/2021

L+6.50%
(Floor 1.00%)

3,930,277

3,883,735

Redbox Automated Retail

Gaming & leisure

First Lien

9/27/2021

L+7.50%
(Floor 1.00%)

6,125,000

5,958,692

6,132,963

Safe Guard

Automobile

First Lien

3/31/2024

L+5.00%
(Floor 1.00%)

3,250,000

3,152,500

3,225,625

Sigma Electric

Industrial products

First Lien

8/31/2021

L+7.50%
(Floor 1.00%)

5,000,000

4,886,637

SRP Companies

Consumer services

First Lien

9/8/2023

L+6.50%
(Floor 1.00%)

5,152,273

5,106,492

5,132,212

TaxACT

Financial services

First Lien

12/31/2022

L+6.00%
(Floor 1.00%)

1,269,915

1,238,463

1,269,915

Terra Millennium

Industrial products

First Lien

11/23/2022

L+6.25%
(Floor 1.00%)

6,956,250

6,889,423

6,956,250

Time Manufacturing

Capital Equipment

First Lien

2/10/2022

L+5.00%
(Floor 1.00%)

3,000,000

2,985,343

Turning Point Brands

Retail

First Lien

12/31/2021

L+6.00%
(Floor 1.00%)

5,000,000

4,950,846

Tweddle Group

Media, marketing & entertainment

First Lien

10/24/2022

L+6.00%
(Floor 1.00%)

2,506,731

2,459,763

2,525,531

Table of Contents

Current

Investment

Maturity

Interest

Portfolio Company

Industry

Type

Date

Rate 1

Principal

Cost

Fair Value 2

US Joiner (IMECO and RAACI)

Transportation & logistics

First Lien

4/16/2020

L+6.00%
(Floor 1.00%)

4,791,601

4,737,062

4,767,643

VIP Cinema

Hotel, gaming & leisure

First Lien

3/31/2023

L+6.00%
(Floor 1.00%)

5,000,000

4,975,275

5,059,500

Water Pik, Inc.

Consumer products & retail

First Lien

7/8/2020

L+4.75%
(Floor 1.00%)

1,137,090

1,135,097

1,139,478

Second Lien

1/8/2021

L+8.75%
(Floor 1.00%)

1,789,474

1,756,683

1,802,895

Total Investments

197,494,528

200,242,690

Represents the interest rate as of March 31, 2017. All interest rates are payable in cash, unless otherwise noted. The majority of investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“P”) which reset daily, monthly, quarterly, or semiannually. For each the Company has provided the spread over LIBOR or Prime and the current contractual interest rate in effect at March 31, 2017. Certain investments are subject to a LIBOR or Prime interest rate floor.

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Below is certain summarized financial information for I-45 SLF LLC as of September 30, 2017 and for the three and six months ended September 30, 2017 (amounts in thousands):


	September 30, 2017		March 31, 2017
Selected Balance Sheet Information:
Investments, at fair value (cost $221,119 and $197,494)	$	223,807	$	200,243
Cash and cash equivalents		12,054		12,093
Due from broker		1,029		1,732
Deferred financing costs and other assets		2,357		1,659
Interest receivable		802		474
Total assets	$	240,049	$	216,201

Senior credit facility payable	$	139,000	$	122,000
Payable for unsettled transactions		13,497		11,795
Other liabilities		3,125		2,988
Total liabilities	$	155,622	$	136,783
Members’ equity		84,427		79,418
Total liabilities and net assets	$	240,049	$	216,201


	Three Months Ended				Six Months Ended
	9/30/2017		9/30/2016		9/30/2017		9/30/2016
Selected Statement of Operations Information:
Total revenues	$	4,349	$	2,776	$	8,300	$	4,934
Total expenses		(1,643)		(967)		(3,195)		(1,721)
Net investment income		2,706		1,809		5,105		3,213
Net unrealized appreciation		(281)		1,589		(60)		2,397
Net realized gains		324		172		938		360
Net increase in members’ equity resulting from operations	$	2,749	$	3,570	$	5,983	$	5,970

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CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES

Consolidated Schedule of Investments in and Advances to Affiliates (Unaudited)

Six Months Ended September 30, 2017

(amounts in thousands)


		Amount of
		Interest
		or Dividends		Fair Value		Amount of		Amount of		Gross		Fair Value at
		Credited in		at March 31,		Realized		Unrealized		Additions		September 30,
Portfolio Company	Type of Investment (1)	Income (2)		2017		Gain/(Loss)		Gain/(Loss)		(3)		2017
Control Investments
I-45 SLF LLC	80% LLC equity interest	$	4,516	$	63,395	$	—	$	6	$	4,000	$	67,401

Media Recovery, Inc.	800,000 shares Series A Convertible Preferred Stock, convertible into 800,000 shares common stock		222		5,590		—		299		—		5,889
	4,000,002 shares common stock		1,283		32,249		—		1,720		—		33,969

TitanLiner	1,189,609 shares Series B convertible preferred stock (6% PIK)		82		2,777		—		2,167		82		5,026
	702,475 shares Series A convertible preferred stock		—		—		—		6,303		—		6,303
Total Control Investments		$	6,103	$	104,011	$	—	$	10,495	$	4,082	$	118,588
Affiliate Investments
Chandler Signs, LP	Senior subordinated debt (12.00% cash)		281		4,478		—		(52)		6		4,432
	1,500,000 units of Class A-1 common stock		—		2,661		—		(602)		—		2,059
Total Affiliate Investments		$	281	$	7,139	$	—	$	(654)	$	6	$	6,491
Total Control & Affiliate Investments		$	6,384	$	111,150	$	—	$	9,841	$	4,088	$	125,079

(1)

The principal amount and ownership detail as shown in the Consolidated Schedules of Investments.

(2)

Represents the total amount of interest or dividends credited to income for the portion of the year an investment was included in the Control or Affiliate categories, respectively.

(3)

Gross additions include increases in the cost basis of investments resulting from new portfolio investments, follow-on investments, accrued PIK interest, and accretion of OID. Gross additions also include movement of an existing portfolio company into this category and out of a different category.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017 as filed with the SEC on June 1, 2017 (the “Form 10-K”).

The information contained herein may contain “forward-looking statements” based on our current expectations, assumptions and estimates about us and our industry. These forward-looking statements involve risks and uncertainties. Words such as “believe,” “seek,” “estimate,” “expect,” “intend,” “target,” “will,” “would,” “may,” “could,” “continue” and other similar expressions identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements that are subject to risks, uncertainties and assumptions. Our actual results could differ materially from those we express in the forward-looking statements as a result of several factors more fully described in “Risk Factors” and elsewhere in our Form 10-K for the year ended March 31, 2017 and in this Form 10-Q. The forward-looking statements made in this Form 10-Q relate only to events as of the date on which the statements are made. You should read the following discussion in conjunction with the consolidated financial statements and related footnotes and other financial information included in our Form 10-K for the year ended March 31, 2017. We undertake no obligation to update publicly any forward-looking statements for any reason, whether as a result of new information, future events or otherwise, except as required by law.

OVERVIEW

Capital Southwest Corporation, which we refer to as CSWC or the Company, is an internally managed investment company that specializes in providing customized debt and equity financing to lower middle market, or LMM, companies and debt capital to upper middle market, or UMM, companies in a broad range of investment segments located primarily in the United States. Our principal investment objective is to produce attractive risk-adjusted returns by generating current income from our debt investments and capital appreciation from our equity and equity related investments. Our investment strategy is to partner with business owners, management teams and financial sponsors to provide flexible financing solutions to fund growth, changes of control, or other corporate events. We invest primarily in senior debt securities, secured by security interests in portfolio company assets, and in secured and unsecured subordinated debt securities. We also invest in equity interests in our portfolio companies alongside our debt securities.

We focus on investing in companies with histories of generating revenues and positive cash flow, established market positions and proven management teams with strong operating discipline. We target senior debt, subordinated debt, and equity investments in LMM companies, as well as first and second lien syndicated loans in UMM companies. Our target LMM companies typically have annual earnings before interest, taxes, depreciation and amortization, or EBITDA between $3.0 million and $15.0 million, and our LMM investments generally range from $5.0 million to $20.0 million. Our UMM investments generally include syndicated first and second lien loans in companies with EBITDA generally greater than $50.0 million, and our UMM investments typically range from $5.0 million to $10.0 million.

We seek to fill the financing gap for LMM businesses, which, historically, have had more limited access to financing from commercial banks and other traditional sources. The underserved nature of the LMM creates the opportunity for us to meet the financing needs of LMM companies while also negotiating favorable transaction terms and equity participations. Our ability to invest across a company’s capital structure, from secured loans to equity securities, allows us to offer portfolio companies a comprehensive suite of financing options. Providing customized financing solutions is important to LMM companies. We generally seek to partner directly with financial sponsors, entrepreneurs, management teams and business owners in making our investments. Our LMM debt investments typically include first lien senior debt, secured by a first lien on the assets of the portfolio company, as well as subordinated debt. Our LMM investments typically have a term of between five and seven years from the original investment date. We also often seek to invest in equity securities in our LMM portfolio companies.

Our investments in UMM companies primarily consist of direct investments in or secondary purchases of interest bearing debt securities in privately held companies that are generally larger in size than the LMM companies included in our portfolio. Our UMM debt investments are generally secured by either a first or second priority lien on the assets of the portfolio company and typically have an expected duration of between three and seven years from the original investment date.

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CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

The preparation of our consolidated financial statements in accordance with Generally Accepted Accounting Principles in the United States of America, or U.S. GAAP, requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses for the periods covered by the consolidated financial statements. We have identified investment valuation and revenue recognition as our most critical accounting estimates. On an on-going basis, we evaluate our estimates, including those related to the matters below. These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from those estimates under different assumptions or conditions. A discussion of our critical accounting policies follows.

Valuation of Investments

The most significant determination inherent in the preparation of our consolidated financial statements is the valuation of our investment portfolio and the related amounts of unrealized appreciation and depreciation. As of September 30, 2017 and March 31, 2017, our investment portfolio at fair value represented approximately 87.3% and 88.1%, respectively, of our total assets. We are required to report our investments at fair value. We follow the provisions of Accounting Standards Codification, or ASC, 820, Fair Value Measurements and Disclosures ("ASC 820"). ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value, and enhances disclosure requirements for fair value measurements. ASC 820 requires us to assume that the portfolio investment is to be sold in the principal market to independent market participants, which may be a hypothetical market. See Note 4 — “Fair Value Measurements” in the notes to consolidated financial statements for a detailed discussion of our investment portfolio valuation process and procedures.

Due to the inherent uncertainty in the valuation process, our determination of fair value for our investment portfolio may differ materially from the values that would have been determined had a ready market for the securities actually existed. In addition, changes in the market environment, portfolio company performance, and other events may occur over the lives of the investments that may cause the gains or losses ultimately realized on these investments to be materially different than the valuations currently assigned. We determine fair value of each individual investment and record changes in fair value as unrealized appreciation or depreciation.

Our Board of Directors has the final responsibility for reviewing and approving, in good faith, our determination of the fair value for our investment portfolio and our valuation procedures, consistent with the Investment Company Act of 1940 requirements. We believe our investment portfolio as of September 30, 2017 and March 31, 2017 approximates fair value as of those dates based on the markets in which we operate and other conditions in existence on those reporting dates.

Revenue Recognition

Interest and Dividend Income

Interest and dividend income is recorded on an accrual basis to the extent amounts are expected to be collected. Dividend income is recognized on the date dividends are declared. Discounts/premiums received to par on loans purchased are capitalized and accreted or amortized into income over the life of the loan. In accordance with our valuation policy, accrued interest and dividend income is evaluated periodically for collectability. When we do not expect the debtor to be able to service all of its debt or other obligations, we will generally establish a reserve against interest income receivable, thereby placing the loan or debt security on non-accrual status, and cease to recognize interest income on that loan or debt security until the borrower has demonstrated the ability and intent to pay contractual amounts due. If a loan or debt security’s status significantly improves regarding ability to service debt or other obligations, it will be restored to accrual basis. As of September 30, 2017, we did not have any investments on non-accrual status.

Recently Issued Accounting Standards

In February 2016, the FASB issued ASU 2016-02, Leases , which requires lessees to recognize on the balance sheet a right-of-use asset, representing its right to use the underlying asset for the lease term, and a lease liability for all

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leases with terms greater than 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases. The standard requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. The new guidance is effective for annual periods beginning after December 15, 2018, and interim periods therein. Early application is permitted. CSWC is currently evaluating the impact the adoption of this new accounting standard will have on its consolidated financial statements, but the impact of the adoption is not expected to be material.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) . ASU 2014-09 supersedes the revenue recognition requirements under SAC Topic 605, Revenue Recognition , and most industry-specific guidance throughout the Industry Topics of the ASC. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Under the new guidance, an entity is required to perform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The new guidance will significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. Additionally, the guidance requires improved disclosures as to the nature, amount, timing and uncertainty of revenue that is recognized. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606)—Narrow-Scope Improvements and Practical Expedients . This ASU clarified guidance on assessing collectability, presenting sales tax, measuring noncash consideration, and certain transition matters. The FASB tentatively decided to defer the effective date of the new revenue standard for public entities under U.S. GAAP for one year. The new guidance will be effective for the annual reporting period beginning after December 15, 2017, including interim periods within that reporting period. Early adoption would be permitted for annual reporting periods beginning after December 15, 2016. CSWC completed its initial assessment in evaluating the potential impact on its consolidated financial statements and based on its initial assessment determined that its financial contracts are excluded from the scope of ASU 2014-09. As a result of the scope exception for financial contracts, the Company's management has determined that there will be no material changes to the recognition timing and classification of revenues and expenses; additionally, the Company's management does not expect the adoption of ASU 2014-09 to have a significant impact to pretax income or on its consolidated financial statement disclosures upon adoption. The Company will continue to evaluate the impacts of ASU 2014-09 through the date of adoption to ensure that its initial assessment continues to remain accurate.

INVESTMENT PORTFOLIO COMPOSITION

Our LMM investments consist of secured debt, subordinated debt, equity warrants and direct equity investments in privately held LMM companies based in the United States. Our LMM portfolio companies generally have annual EBITDA between $3.0 million and $15.0 million, and our LMM investments typically range from $5.0 million to $20.0 million. The LMM debt investments are typically secured by either a first or second priority lien on the assets of the portfolio company, generally bear interest at floating rates, and generally have a term of between five and seven years from the original investment date.

Our UMM investments consist of direct investments in or secondary purchases of interest-bearing debt securities in privately held companies based in the United States that are generally larger in size than the LMM companies included in our portfolio with EBITDA generally greater than $50.0 million. Our UMM investments typically range from $5.0 million to $10.0 million. Our UMM debt investments are generally secured by ether a first or second priority lien on the assets of the portfolio company and typically have a term of between three and seven years from the original investment date.

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The total value of our investment portfolio was $321.9 million as of September 30, 2017, as compared to $286.9 million as of March 31, 2017. As of September 30, 2017, we had investments in 27 portfolio companies with an aggregate cost of $279.8 million. As of March 31, 2017, we had investments in 28 portfolio companies with an aggregate cost of $250.5 million.

As of September 30, 2017 and March 31, 2017, approximately $168.5 million, or 89.9%, and $155.0 million, or 92.6%, respectively, of our debt investment portfolio (at fair value) bore interest at floating rates, all of which were subject to contractual minimum interest rates. As of September 30, 2017 and March 31, 2017, approximately $18.8 million, or 10.1%, and $12.4 million, or 7.4%, respectively, of our debt investment portfolio (at fair value) bore interest at fixed rates.

The following tables provide a summary of our investments in LMM and UMM companies as of September 30, 2017 and March 31, 2017 (excluding our investment in I-45 SLF LLC):


	As of September 30, 2017
	LMM (a)		UMM
	(dollars in thousands)
Number of portfolio companies		13		13
Fair value	$	170,139	$	84,320
Cost	$	131,762	$	83,283
% of portfolio at cost - debt		77.8%		100.0%
% of portfolio at cost - equity		22.2%		-
% of debt investments at cost secured by first lien		63.5%		61.6%
Weighted average annual effective yield(b)(c)		11.4%		9.9%
Weighted average EBITDA(c)	$	9.1	$	93.8
Weighted average leverage through CSWC security(c)(d)		3.5x		3.7x

(a)

At September 30, 2017, we had equity ownership in approximately 84.6% of our LMM investments.

(b)

The weighted-average annual effective yields were computed using the effective interest rates for all debt investments at cost as of September 30, 2017, including accretion of original issue discount but excluding fees payable upon repayment of the debt instruments and any debt investments on non-accrual status. As of September 30, 2017, there were no investments on non-accrual status. Weighted-average annual effective yield is higher than what an investor in shares in our common stock will realize on its investment because it does not reflect our expenses or any sales load paid by an investor.

(c)

Weighted average metrics are calculated using investment cost basis weighting.

(d)

Includes CSWC debt investments only. Calculated as the amount of each portfolio company’s debt (including CSWC’s position and debt senior or pari passu to CSWC’s position, but excluding debt subordinated to CSWC’s position) in the capital structure divided by each portfolio company’s adjusted EBITDA. Management uses this metric as a guide to evaluate relative risk of its position in each portfolio debt investment.

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	As of March 31, 2017
	LMM (a)		UMM
	(dollars in thousands)
Number of portfolio companies		10		17
Fair value	$	126,305	$	97,180
Cost	$	93,822	$	95,918
% of portfolio at cost - debt		74.8%		100.0%
% of portfolio at cost - equity		25.2%		-
% of debt investments at cost secured by first lien		61.5%		51.2%
Weighted average annual effective yield(b)(c)		11.4%		9.6%
Weighted average EBITDA(c)	$	7.4	$	101.3
Weighted average leverage through CSWC security(c)(d)		3.1x		4.0x

(a)

At March 31, 2017, we had equity ownership in approximately 70.0% of our LMM investments.

(b)

The weighted-average annual effective yields were computed using the effective interest rates for all debt investments at cost as of March 31, 2017, including accretion of original issue discount but excluding fees payable upon repayment of the debt instruments and any debt investments on non-accrual status. As of March 31, 2017, there were no investments on non-accrual status. Weighted-average annual effective yield is higher than what an investor in shares in our common stock will realize on its investment because it does not reflect our expenses or any sales load paid by an investor.

(c)

Weighted average metrics are calculated using investment cost basis weighting.

(d)

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As of September 30, 2017 and March 31, 2017, our investment portfolio consisted of the following investments:


			Percentage of				Percentage of
	Fair Value		Total Portfolio		Cost		Total Portfolio
	(dollars in millions)
September 30, 2017:
1st lien loans 1	$	136.1	42.3	%	$	135.0	48.2	%
2nd lien loans		32.4	10.1			32.0	11.4
Subordinated debt		18.9	5.9			18.8	6.7
Preferred equity		22.3	6.9			15.3	5.5
Common equity & warrants		44.8	13.9			13.9	5.0
I-45 SLF LLC 2		67.4	20.9			64.8	23.2
	$	321.9	100.0	%	$	279.8	100.0	%

March 31, 2017 3 :
1st lien loans	$	107.8	37.6	%	$	106.8	42.6	%
2nd lien loans		47.2	16.5			46.9	18.7
Subordinated debt		12.5	4.3			12.4	4.9
Preferred equity		18.3	6.4			14.8	5.9
Common equity & warrants		37.7	13.1			8.8	3.6
I-45 SLF LLC 2		63.4	22.1			60.8	24.3
	$	286.9	100.0	%	$	250.5	100.0	%

I-45 SLF, LLC is a joint venture between CSWC and Main Street Capital. This entity primarily invests in syndicated senior secured loans in the UMM. The portfolio companies held by I-45 SLF represent a diverse set of industry classifications, which are similar to those in which CSWC invests directly. We own 80.0% of I-45 SLF and have a profits interest of 75.6%, while Main Street Capital owns 20.0% and has a profits interest of 24.4%. I-45 SLF’s Board of Managers makes all investment and operational decisions for the fund, and consists of equal representation from our Company and Main Street. The Company does not guarantee or otherwise obligate itself to make payments on debts owed by I-45 SLF.

Presentation of the March 31, 2017 disclosure is updated to conform to the current period presentation.

Portfolio Asset Quality

We utilize an internally developed investment rating system to rate the performance and monitor the expected level of returns for each debt investment in our portfolio. The investment rating system takes into account both quantitative and qualitative factors of the portfolio company and the investments held therein, including each investment's expected level of returns and the collectability of our debt investments, comparisons to competitors and other industry participants and the portfolio company's future outlook. The ratings are not intended to reflect the performance or expected level of returns of our equity investments.

Investment Rating 1 represents the least amount of risk in our portfolio. The investment is performing materially above underwriting expectations and the trends and risk factors are generally favorable.

Investment Rating 2 indicates the investment is performing as expected at the time of underwriting and the trends and risk factors are generally favorable to neutral.

Investment Rating 3 involves an investment performing below underwriting expectations and the trends and risk factors are generally neutral to negative. The portfolio company or investment may be out of compliance with financial covenants and interest payments may be impaired, however principal payments are generally not past due.

Investment Rating 4 indicates that the investment is performing materially below underwriting expectations, the trends and risk factors are generally negative and the risk of the investment has increased substantially. Interest and principal payments on our investment are likely to be impaired.

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The following table shows the distribution of our debt portfolio investments on the 1 to 4 investment rating scale at fair value as of September 30, 2017 and March 31, 2017:


	As of September 30, 2017
	Debt
	Investments at		Percentage of
Investment Rating	Fair Value		Debt Portfolio
	(dollars in thousands)
1	$	8,250	4.4	%
2		168,957	90.2
3		10,109	5.4
4		-	-
Total	$	187,316	100.0	%


	As of March 31, 2017
	Debt
	Investments at		Percentage of
Investment Rating	Fair Value		Debt Portfolio
	(dollars in thousands)
1	$	12,173	7.3	%
2		155,276	92.7
3		-	-
4		-	-
Total	$	167,449	100.0	%

Interest and dividend income is recorded on an accrual basis to the extent amounts are expected to be collected. When we do not expect the debtor to be able to service all of its debt or other obligations, we will generally establish a reserve against interest income receivable, thereby placing the loan or debt security on non-accrual status, and cease to recognize interest income on that loan or debt security until the borrower has demonstrated the ability and intent to pay contractual amounts due.

As of September 30, 2017 and March 31, 2017, we did not have any investments on non-accrual status.

Investment Activity

During the six months ended September 30, 2017, we made debt investments in six new portfolio companies totaling $55.2 million, follow-on debt investments in one portfolio company totaling $4.6 million, and equity investments in one existing and three new portfolio companies totaling $5.4 million. We also funded $4.0 million on our existing equity commitment to I-45 SLF. We received contractual principal repayments totaling approximately $5.6 million and full prepayments of approximately $35.6 million from seven portfolio companies.

During the six months ended September 30, 2016, we made debt investments in seven new portfolio companies totaling $48.9 million, follow-on debt investments in three portfolio companies totaling $6.4 million, and an equity investment in one existing portfolio company totaling $12.0 million. We received contractual principal repayments totaling approximately $1.2 million and full prepayments of approximately $11.0 million from two portfolio companies. We received proceeds related to the sales of certain equity securities totaling $4.4 million and recognized realized gains on such sales totaling $4.0 million.

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Total portfolio investment activity for the six months ended September 30, 2017 and 2016 was as follows (dollars in thousands):


							Preferred &
	1st Lien		2nd Lien		Subordinated		Common		I-45 SLF,
Six months ended September 30, 2017	Loans		Loans		Debt		Equity		LLC		Total
Fair value, beginning of period	$	107,817	$	47,176	$	12,453	$	56,039	$	63,395	$	286,880
New investments		45,323		-		14,406		5,441		4,000		69,170
Proceeds from sales of investments		-		-		-		(15)		-		(15)
Principal repayments received		(17,930)		(15,179)		(8,100)		-		-		(41,209)
PIK interest earned		-		-		-		142		-		142
Accretion of loan discounts		304		54		25		-		-		383
Realized gain		465		241		114		14				834
Unrealized gain (loss)		146		53		(52)		5,522		6		5,675
Fair value, end of period	$	136,125	$	32,345	$	18,846	$	67,143	$	67,401	$	321,860
Weighted average yield on debt investments at end of period												10.71	%
Weighted average yield on total investments at end of period												10.65	%


							Preferred &
	1st Lien		2nd Lien		Subordinated		Common		I-45 SLF,
Six months ended September 30, 2016	Loans		Loans		Debt		Equity		LLC		Total
Fair value, beginning of period	$	39,491	$	38,227	$	15,114	$	49,267	$	36,337	$	178,436
New investments		52,580		2,940		-		-		12,000		67,520
Proceeds from sales of investments		-		-		-		(4,442)		-		(4,442)
Principal repayments received		(7,098)		(5,088)		(79)		-		-		(12,265)
Accretion of loan discounts		114		45		17		-		-		176
Realized gain		28		193		-		3,998		-		4,219
Unrealized gain (loss)		1,160		146		(203)		1,388		2,184		4,675
Fair value, end of period	$	86,275	$	36,463	$	14,849	$	50,211	$	50,521	$	238,319
Weighted average yield on debt investments at end of period												10.00	%
Weighted average yield on total investments at end of period												9.13	%

RESULTS OF OPERATIONS

The composite measure of our financial performance in the Consolidated Statements of Operations is captioned “Net increase in net assets from operations” and consists of three elements. The first is “Net investment income,” which is the difference between income from interest, dividends and fees and our combined operating and interest expenses, net of applicable income taxes. The second element is “Net realized gain on investments before income tax,” which is the difference between the proceeds received from the disposition of portfolio securities and their stated cost, net of applicable income tax expense based on our tax year. The third element is the “Net change in unrealized appreciation of investments, net of tax,” which is the net change in the market or fair value of our investment portfolio, compared with stated cost. It should be noted that the “Net realized gain on investments before income tax” and “Net change in unrealized appreciation of investments, net of tax” are directly related in that when an appreciated portfolio security is sold to realize a gain, a corresponding decrease in net unrealized appreciation occurs by transferring the gain associated with the transaction from being “unrealized” to being “realized.” Conversely, when a loss is realized on a depreciated portfolio security, an increase in net unrealized appreciation occurs.

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Comparison of three months ended September 30, 2017 and September 30, 2016


	Three Months Ended
	September 30,				Net Change
	2017		2016		Amount		%
	(in thousands)
Total investment income	$	8,509	$	4,726	$	3,783	80.0	%
Total operating expenses		(4,439)		(2,949)		(1,490)	50.5	%
Income before taxes		4,070		1,777		2,293	129.0	%
Income tax expense		133		412		(279)	(67.7)	%
Net investment income		3,937		1,365		2,572	188.4	%
Net realized gain on investments before income tax		210		3,527		(3,317)	(94.0)	%
Net change in unrealized appreciation on investments, net of tax		4,495		2,026		2,469	121.9	%
Net increase in net assets from operations	$	8,642	$	6,918	$	1,724	24.9	%

Investment Income

Total investment income consisted of interest income, management fees, dividend income and other income for each applicable period. For the three months ended September 30, 2017, Capital Southwest reported investment income of $8.5 million, a $3.8 million, or 80.0%, increase as compared to the three months ended September 30, 2016. The increase was primarily due to a $2.7 million, or 103.6%, increase in interest income generated from our debt investments due to a 35.6% increase in the cost basis of debt investments held from $137.0 million to $185.8 million year over year in addition to an increase in the weighted average yield on debt investments from 10.00% to 10.71% year over year. Additionally, there was an increase of approximately $1.0 million in dividend income due to an increase in dividends received from I-45 SLF LLC and Media Recovery, Inc.

Operating Expenses

Due to the nature of our business, the majority of our operating expenses are related to employees’ and directors’ compensation, office expenses, and legal, professional and accounting fees.

For the three months ended September 30, 2017, our total operating expenses were $4.4 million, an increase of $1.5 million, or 50.5%, as compared to the total operating expenses of $2.9 million for the three months ended September 30, 2016. The increase was primarily attributable to a $0.8 million increase in interest expense incurred on our senior secured credit facility, or Credit Facility, due to an increase in borrowings during the three months ended September 30, 2017. The remaining increase was due to individually immaterial items within compensation, professional fees and general and administrative fees.

Net Investment Income

For the three months ended September 30, 2017, income before taxes increased by $2.3 million, or 129.0%. As a result of the $3.8 million increase in total investment income, offset by a $1.5 million increase in operating expenses, net investment income increased from the prior year period by $2.6 million to $3.9 million.

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Increase in Net Assets from Operations

During the three months ended September 30, 2017, we recognized realized gains totaling $0.2 million, which consisted of net gains on the full repayments of three non-control/non-affiliate investments.

In addition, during the three months ended September 30, 2017, we recorded a net change in unrealized appreciation of investments totaling $4.5 million, consisting of net unrealized appreciation on our current portfolio of $4.5 million, the reversal of $0.1 million of net unrealized appreciation recognized in prior periods due to realized gains noted above, and net unrealized appreciation related to deferred tax associated with the Taxable Subsidiary of $0.1 million. Net unrealized appreciation on our current portfolio included unrealized gains on Media Recovery, Inc. of $4.1 million and TitanLiner, Inc. of $2.4 million, partially offset by unrealized losses on Deepwater Corrosion Services of $1.2 million. These unrealized gains and losses were due to changes in fair value based on the overall EBITDA performance and cash flows of each investment.

During the three months ended September 30, 2016, we recognized realized gains totaling $3.5 million, which consisted of net gains on the partial repayments of seven non-control/non-affiliate investments, prepayment of one non-control/non-affiliate investment, the sale of certain equity securities, and the write down of two escrow receivables. In addition, during the three months ended September 30, 2016, we recorded a net change in unrealized appreciation of investments totaling $2.0 million, consisting of net unrealized appreciation on our current portfolio of $5.8 million and the reversal of $3.8 million of net unrealized appreciation recognized in prior periods due to realized gains noted above. Net unrealized appreciation on our current portfolio included unrealized gains on Deepwater Corrosion Services of $3.4 million and Media Recovery, Inc. of $2.5 million.

Comparison of six months ended September 30, 2017 and September 30, 2016


	Six Months Ended
	September 30,				Net Change
	2017		2016		Amount		%
	(in thousands)
Total investment income	$	16,233	$	8,883	$	7,350	82.7	%
Total operating expenses		(8,582)		(6,188)		(2,394)	38.7	%
Income before taxes		7,651		2,695		4,956	183.9	%
Income tax expense		278		958		(680)	(71.0)	%
Net investment income		7,373		1,737		5,636	324.5	%
Net realized gain on investments before income tax		834		3,726		(2,892)	(77.6)	%
Net change in unrealized appreciation on investments, net of tax		5,880		4,153		1,727	41.6	%
Net increase in net assets from operations	$	14,087	$	9,616	$	4,471	46.5	%

Investment Income

Total investment income consisted of interest income, management fees, dividend income and other income for each applicable period. For the six months ended September 30, 2017, Capital Southwest reported investment income of $16.2 million, a $7.4 million, or 82.7%, increase as compared to the six months ended September 30, 2016. The increase was primarily due to a $5.0 million, or 100.6%, increase in interest income generated from our debt investments due to a 35.6% increase in the cost basis of debt investments held from $137.0 million to $185.8 million year over year in addition to an increase in the weighted average yield on debt investments from 10.00% to 10.71% year over year. Additionally, there was an increase of $2.3 million in dividend income due to dividends received from I-45 SLF LLC and Media Recovery, Inc.

Operating Expenses

Due to the nature of our business, the majority of our operating expenses are related to employees’ and directors’ compensation, office expenses, and legal, professional and accounting fees.

For the six months ended September 30, 2017, our total operating expenses were $8.6 million, an increase of $2.4 million, or 38.7%, as compared to the total operating expenses of $6.2 million for the six months ended September 30, 2016. The increase was primarily attributable to a $1.5 million increase in interest expense incurred on the Credit Facility

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and a $0.6 million increase in compensation (including both cash and share-based compensation) during the six months ended September 30, 2017.

Net Investment Income

For the six months ended September 30, 2017, income before taxes increased by $5.0 million, or 183.9%. As a result of the $7.4 million increase in total investment income, offset by a $2.4 million increase in operating expenses, net investment income increased from the prior year period by $5.6 million to $7.4 million.

Increase in Net Assets from Operations

During the six months ended September 30, 2017, we recognized realized gains totaling $0.8 million, which consisted of net gains on the partial repayments of two non-control/non-affiliate investments, full repayment on seven non-control/non-affiliate investments, and the sale of one non-control/non-affiliate equity investment.

In addition, during the six months ended September 30, 2017, we recorded a net change in unrealized appreciation of investments totaling $5.9 million, consisting of net unrealized appreciation on our current portfolio of $6.0 million, the reversal of $0.3 million of net unrealized appreciation recognized in prior periods due to realized gains noted above, and net unrealized appreciation related to deferred tax associated with the Taxable Subsidiary of $0.2 million. Net unrealized appreciation on our current portfolio included unrealized gains on TitanLiner, Inc. of $8.5 million, Media Recovery, Inc. of $2.0 million and Vistar Media of $1.4 million, partially offset by unrealized losses on Deepwater Corrosion Services of $5.3 million. These unrealized gains and losses were due to changes in fair value based on the overall EBITDA performance and cash flows of each investment.

During the six months ended September 30, 2016, we recognized realized gains totaling $3.7 million, which consisted of net gains on the partial repayments of seven non-control/non-affiliate investments, prepayment of one non-control/non-affiliate investment, the sale of certain equity securities, and the write down of two escrow receivables. In addition, during the six months ended September 30, 2016, we recorded a net change in unrealized appreciation of investments totaling $4.2 million, consisting of net unrealized appreciation on our current portfolio of $7.9 million, the reversal of $3.2 million of net unrealized appreciation recognized in prior periods due to realized gains noted above, and net unrealized depreciation related to deferred tax associated with the Taxable Subsidiary of $0.5 million. Net unrealized appreciation on our current portfolio included unrealized gains on Deepwater Corrosion Services of $4.3 million and Media Recovery, Inc. of $3.4 million.

FINANCIAL LIQUIDITY AND CAPITAL RESOURCES

Management believes that the Company’s cash and cash equivalents, cash available from investments, and commitments under the Credit Facility are adequate to meet its needs for the next twelve months.

Cash

At September 30, 2017, the Company had cash and cash equivalents of approximately $33.3 million.

Financing Transactions

In August 2016, we entered into the Credit Facility, which provides additional liquidity to support our investment and operational activities, which included total commitments of $100.0 million. The Credit Facility also contains an accordion feature which allows us to increase the total commitments under the facility up to $150.0 million from new and existing lenders on the same terms and conditions as the existing commitments. In August 2017, we increased our total commitments by $15 million through adding an additional lender using the accordion feature. As of September 30, 2017, the Credit Facility includes total commitments of $115.0 million from a diversified group of six lenders and is scheduled to mature August 30, 2020.

Borrowings under the Credit Facility bear interest on a per annum basis at a rate equal to the applicable LIBOR rate plus 3.25% with no LIBOR floor. We pay unused commitment fees of 0.50% to 1.50% per annum, based on utilization, on the unused lender commitments under the Credit Facility.

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The Credit Facility is secured by (1) substantially all of the present and future property and assets of the Company and the guarantors and (2) 100.0% of the equity interests in the Company’s wholly-owned subsidiaries. As of September 30, 2017, substantially all of the Company’s assets were pledged as collateral for the Credit Facility.

Our primary use of funds will be investments in portfolio companies and operating expenses.

CONTRACTUAL OBLIGATIONS

There have been no material changes to our contractual obligations from what was previously disclosed in our Annual Report filed with the SEC.

OFF-BALANCE SHEET ARRANGEMENTS

We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our portfolio companies. These instruments may include commitments to extend credit and fund equity capital and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet. At September 30 , 2017, we had a total of approximately $7.7 million in currently unfunded commitments, consisting of $3.2 million in equity capital commitments to I-45 SLF that had not been fully called and a $2.0 million revolver and $2.5 million delayed draw term loan to Zenfolio Inc. The Company believes its assets will provide adequate cover to satisfy these commitments. As of September 30, 2017, the Company had cash and cash equivalents of $33.3 million and $59.0 million in available borrowings under the Credit Facility. At March 31, 2017, we had a total of approximately $7.2 million in outstanding commitments related to equity capital commitments to I-45 SLF that had not been fully called. At March 31, 2017, the commitment to I-45 SLF was our sole unfunded obligation.

RECENT DEVELOPMENTS

On October 2, 2017, CSWC paid quarterly dividends declared on August 30, 2017 in the amount of $3.8 million, or $0.24 per share.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are subject to market risk. Market risk includes risk that arise from changes in interest rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. The prices of securities held by us may decline in response to certain events, including those directly involving the companies in which we invest; conditions affecting the general economy; overall market changes; legislative reform; local, regional, national or global political, social or economic instability; and interest rate fluctuations.

Interest Rate Risk

We are subject to interest rate risk. Interest rate risk is defined as the sensitivity of our current and future earnings to interest rate volatility, variability of spread relationships, the difference in re-pricing internals between our assets and liabilities and the effect that interest rates may have on our cash flows. Changes in the general level of interest rates can affect our net interest income, which is the difference between the interest income earned on interest earning assets and our interest expense incurred in connection with our interest-bearing liabilities. Changes in interest rates can also affect, among other things, our ability to acquire and originate loans and securities and the value of our investment portfolio. Our net investment income is affected by fluctuations in various interest rates including LIBOR and prime rates. Our risk management systems and procedures are designed to identify and analyze our risk, to set appropriate policies and limits and to continually monitor these risks. We regularly measure exposure to interest rate risk and determine whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates. As of June 30, 2017, we were not a party to any hedging arrangements.

As of September 30, 2017, approximately 89.9% of our debt investment portfolio (at fair value) bore interest at floating rates, all of which were subject to contractual minimum interest rates. A hypothetical 100 basis point increase in interest rates could increase our net investment income by a maximum of $1.8 million, or $0.11 per share, on an annual basis. A hypothetical 100 basis point decrease in interest rates could increase our net investment income by a maximum of $0.5 million, or $0.03 per share, on an annual basis. As of September 30, 2017, none of our idle fund investments bore interest at floating rates. Our Credit Facility bears interest on a per annum basis equal to the applicable LIBOR rate plus 3.25%. We pay unused commitment fees of 0.50% to 1.50% per annum, based on utilization.

Because we currently borrow, and plan to borrow in the future, money to make investments, our net investment income is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest the funds borrowed. Accordingly, there can be no assurance that a significant change in interest rates will not have a material adverse effect on our net investment income. In periods of rising interest rates, our cost of funds would increase, which could reduce our net investme income if there is not a corresponding increase in interest income generated by our investment portfolio.

Item 4. Controls and Procedures

As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including the President and Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 of the Securities Exchange Act of 1934). Based upon this evaluation, management, including our President and Chief Executive Officer and our Chief Financial Officer, concluded that our current disclosure controls and procedures are effective as of September 30, 2017.

During the three months ended September 30, 2017, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

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PART II. – OTHER INFORMATION

Item 1. Legal Proceedings

We may, from time to time, be involved in litigation arising out of our operations in the normal course of business or otherwise. Furthermore, third parties may try to seek to impose liability on us in connection with the activities of our portfolio companies. We have no currently pending material legal proceedings to which we are party or to which any of our assets is subject.

Item 1A. Risk Factors

Investing in our common stock involves a number of significant risks. There have been no material changes to the risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017 that we filed with the SEC on June 1, 2017, and as updated in our registration statement on Form N-2 (No. 333-220385) filed on October 23, 2017 (Pre-Effective Amendment No. 1).

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Item 5. Other Information

Form of Director and Officer Indemnification Agreement

On November 6, 2017, our Board of Directors approved the entry into a form of indemnification agreement, an Indemnification Agreement, with each of its directors and named executive officers, each an Indemnitee. The Indemnification Agreement provides for the indemnification, and advancement of expenses, to the full extent permitted by law, against judgments, arbitration awards, mediation amounts, penalties, settlements, fines, excise or similar taxes, and reasonable expenses incurred by the Indemnitee in connection with any threatened, pending or completed action, suit or proceeding on account of Indemnitee’s service as a director, officer, employee or agent of the Company.

The foregoing description of the Indemnification Agreement does not purport to be complete and is qualified in its entirety by reference to the form Indemnification Agreement, a copy of which is attached hereto as Exhibit 10.1 to this Quarterly Report on Form 10-Q and incorporated herein by reference.

Second Amended and Restated Bylaws and Change to Nomination Procedures

On November 6, 2017, our Board of Directors approved an amendment and restatement of the Company’s Amended and Restated Bylaws, as amended and restated, the Bylaws, effective as of such date. The amendment added Section 2.14, which is an advance notice provision for director nominations and stockholder proposals.

The advance notice provisions provides, among other things, that a shareholder who desires to (1) nominate a director for election to the Board of Directors at the Company’s annual meeting or (2) propose other business to be considered by the shareholders at the Company’s annual meeting, to provide written notice to the Company not earlier than the 120 th day nor later than the 90 th day prior to the first anniversary of the date of the proxy statement for the preceding year’s annual meeting.

The advance notice provisions applies to the Company’s 2018 annual meeting.

The foregoing summary of the revisions to the Bylaws does not purport to be complete and is qualified in its entirety by the full text of the Bylaws. The full text of the Bylaws is attached as Exhibit 3.2 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.

Restricted Stock Award Plan and Stock Incentive Plan

On August 22, 2017, we received an exemptive order that allows us to withhold shares of our common stock to satisfy tax withholding obligations related to the vesting of restricted stock granted pursuant to the Company’s 2010 Restricted Stock Award Plan, as amended (the “2010 Plan”) and to pay the exercise price of options to purchase shares of our common stock granted pursuant to the Company’s 2009 Stock Incentive Plan, as amended (the “2009 Plan”).

In connection with the exemptive order, our Board of Directors approved an amendment to the 2010 Plan (the “Restricted Stock Plan Amendment”). The Restricted Stock Plan Amendment allows the Company to withhold shares of our common stock from a participant’s restricted stock award in order to satisfy tax withholding obligations related to the vesting of such restricted stock. Shares withheld by us pursuant to the Restricted Stock Plan Amendment will not be available for issuance or reissuance under the 2010 Plan. Our Board of Directors approved the Restricted Stock Plan Amendment pursuant to the powers granted under Section 14 of the 2010 Plan. The foregoing description of the Restricted Stock Plan Amendment does not purport to be complete and is qualified in its entirety by reference to the Restricted Stock Plan Amendment, a copy of which is attached hereto as Exhibit 10.3 to this Quarterly Report on Form 10-Q and incorporated herein by reference.

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In addition, our Board of Directors approved an amendment to the 2009 Plan (the “Stock Incentive Plan Amendment”). The Stock Incentive Plan Amendment allows a participant of such plan to pay the exercise price of an option with cash or pursuant to a net exercise feature that allows the Company to withhold the number of shares of our common stock from such participant’s option equal to the aggregate exercise price of the option being exercised divided by the fair market value of a share of our common stock. Shares withheld by us pursuant to the Stock Incentive Plan Amendment will not be available for issuance or reissuance under the 2009 Plan. Our Board of Directors approved the Stock Incentive Plan Amendment pursuant to the powers granted under Section 18 of the 2009 Plan. The foregoing description of the Stock Incentive Plan Amendment does not purport to be complete and is qualified in its entirety by reference to the Stock Incentive Plan Amendment, a copy of which is attached hereto as Exhibit 10.4 to this Quarterly Report on Form 10-Q and incorporated herein by reference.

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Item 6. Exhibits



	Exhibit No.		Description
	3.2*		Second Amended and Restated Bylaws of Capital Southwest Corporation.
	10.1*+		Form of Director and Officer Indemnification Agreement.
	10.2*		Incremental Assumption Agreement dated as of August 18, 2017 among Capital Southwest Corporation, the Lenders party thereto, ING Capital LLC, as Administrative Agent, Arranger and Bookrunner and Texas Capital Bank, N.A., as Documentation Agent
	10.3*+		Third Amendment to the Capital Southwest Corporation 2010 Restricted Stock Award Plan
	10.4*+		Third Amendment to the Capital Southwest Corporation 2009 Stock Incentive Plan
	31.1*		Certification of President and Chief Executive Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
	31.2*		Certification of Chief Financial Officer required by Rule 13a-14(a) of the Exchange Act.
	32.1*^		Certification of President and Chief Executive Officer required by Rule 13a-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code.
	32.2*^		Certification of Chief Financial Officer required by Rule 13a-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code.

* Filed herewith

+ Indicates management contract or compensatory plan or arrangement

^ The certifications attached as Exhibit 32.1 and 32.2 accompany this Quarterly Report pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the registrant for purposes of Section 18 of the Exchange Act, and are not to be incorporated by reference into any of the registrant’s filings under the Securities Act or the Exchange Act, whether made before or after the date of this Quarterly Report, irrespective of any general incorporation language contained in any such filing.

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SIGNATURES

Pursuant to the requirements the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	CAPITAL SOUTHWEST CORPORATION

November 7, 2017	By:	/s/ Bowen S. Diehl
Date		Bowen S. Diehl
		President and Chief Executive Officer

November 7, 2017	By:	/s/ Michael S. Sarner
Date		Michael S. Sarner
		Chief Financial Officer, Secretary and Treasurer

Exhibit 3.2

SECOND AMENDED AND RESTATED BYLAWS

CAPITAL SOUTHWEST CORPORATION

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SECOND AMENDED AND RESTATED BYLAWS

CAPITAL SOUTHWEST CORPORATION


		Page
ARTICLE I	OFFICES	1
1.01	Registered Office	1
1.02	Other Offices	1
ARTICLE II	MEETINGS OF THE SHAREHOLDERS	1
2.01	Place of Meetings	1
2.02	Annual Meeting	1
2.03	Special Meetings	1
2.04	Notice of Annual or Special Meeting	1
2.05	Notice by Electronic Transmission	2
2.06	Business at Special Meeting	2
2.07	Quorum of Shareholders	2
2.08	Act of Shareholders’ Meeting	3
2.09	Voting of Shares	3
2.10	Proxies	3
2.11	Voting List	4
2.12	Action by Written Consent Without a Meeting	4
2.13	Presence at Meeting	4
2.14	Advance Notice of Shareholder Nominees for Director and Other Shareholder Proposals	4
ARTICLE III	BOARD OF DIRECTORS	11
3.01	Powers	11
3.02	Number of Directors	11
3.03	Election and Term	11
3.04	Vacancies	11
3.05	Resignation and Removal	11
3.06	Compensation of Directors	12
3.07	Chairman of the Board	12
ARTICLE IV	MEETINGS OF THE BOARD	12
4.01	First Meeting	12
4.02	Regular Meetings	12

4.03	Special Meetings	12
4.04	Written Notice	12
4.05	Notice by Electronic Transmission	12
4.06	Waiver of Notice	13
4.07	Attendance as Waiver	13
4.08	Business at Regular or Special Meeting	13
4.09	Quorum of Directors	13
4.10	Interested Directors	13
4.11	Act of Directors’ Meeting	14
4.12	Action by Written Consent Without a Meeting	14
4.13	Presence at Meeting	14
ARTICLE V	COMMITTEES	14
5.01	Designation of Committees	14
5.02	Authority and Proceedings of Committees	15
5.03	Employee Director	15
5.04	Regular Meetings	15
5.05	Special Meetings	15
5.06	Quorum; Majority Vote	15
5.07	Minutes	15
5.08	Compensation	15
5.09	Responsibility	16
ARTICLE VI	MEETING BY USE OF CONFERENCE TELEPHONE OR SIMILAR COMMUNICATIONS EQUIPMENT	16
ARTICLE VII	OFFICERS	16
7.01	Executive Officers	16
7.02	Election and Qualification	16
7.03	Compensation	16
7.04	Term, Removal, and Vacancies	16
7.05	Chief Executive Officer	17
7.06	President	17
7.07	Vice Presidents	17
7.08	Secretary	17
7.09	Assistant Secretary	17
7.10	Treasurer	17
7.11	Assistant Treasurer	18
7.12	Officer’s Bond	18
ARTICLE VIII	CERTIFICATES FOR SHARES	18
8.01	Certificates Representing Shares	18

8.02	Restriction on Transfer of Shares	19
8.03	Voting and Shareholder Agreements	19
8.04	Transfer of Shares	19
8.05	Lost, Stolen or Destroyed Certificates	19
8.06	Closing of Transfer Books and Record Date	19
8.07	Registered Shareholders	20
ARTICLE IX	GENERAL PROVISIONS	20
9.01	Dividends	20
9.02	Reserves	20
9.03	Negotiable Instruments	21
9.04	Fiscal Year	21
9.05	Seal	21
9.06	Books and Records	21
ARTICLE X	AMENDMENTS	21

SECOND AMENDED AND RESTATED BYLAWS

CAPITAL SOUTHWEST CORPORATION

ARTICLE I

OFFICES

1.01 Registered Office . The registered office, until changed by action of the Board of Directors, shall be at 12900 Preston Road, Suite 700, City of Dallas, County of Dallas, State of Texas.

1.02 Other Offices . The corporation also may have offices at such other places both within and without the State of Texas as the Board of Directors may from time to time determine or as the business of the corporation may require.

ARTICLE II

MEETINGS OF THE SHAREHOLDERS

2.01 Place of Meetings . Meetings of shareholders for the election of directors or for any other proper purpose shall be held at such place within or without the State of Texas as the Board of Directors may from time to time designate. At the discretion of the Board of Directors, or as agreed to by all persons entitled to notice of the meeting, meetings of shareholders may also be held or shareholders may participate in meetings of shareholders by means of remote communication authorized under the Texas Business Organizations Code as stated in the notice of such meeting or a duly executed waiver of notice thereof.

2.02 Annual Meeting . An annual meeting of shareholders shall be held at such time and date as the Board of Directors may determine. Subject to Section 2.14(a) , at such meeting the shareholders entitled to vote thereat shall elect a Board of Directors and may transact such other business as may properly be brought before the meeting.

2.03 Special Meetings . Special meetings of shareholders may be called by the Chairman of the Board of Directors, the President, the Board of Directors, or the holders of at least 10% of all the shares entitled to vote at the proposed special meeting. If not otherwise fixed in accordance with these Bylaws, the record date for determining shareholders entitled to call a special meeting is the date the first shareholder signs the notice of such meeting.

2.04 Notice of Annual or Special Meeting . Written or printed notice stating the place, if any, day and hour of the meeting, the means of any remote communications by which shareholders may be considered present and may vote at the meeting and the means of accessing the remote communications system, and, in the case of a special meeting, the purpose or purposes for which the meeting is called shall be delivered not less than 10 nor more than 60 days before the date of the meeting, personally, by electronic transmission, or by mail, or by any other method permitted by applicable law, by or at the direction of the President, the Secretary, or the officer or person

calling the meeting, to each shareholder entitled to vote at such meeting except as otherwise provided in the Texas Business Organizations Code. If the meeting is held by means of remote communications, the notice of meeting shall include information on how to access the list of shareholders entitled to vote at the meeting required by Section 2.11 . If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at his address as it appears on the share transfer records of the corporation, with postage thereon prepaid. Whenever any notice is required to be given to any shareholder under the provisions of any law, the Articles of Incorporation, or these Bylaws, a waiver thereof in writing signed by the person or persons entitled to such notice, or a waiver by electronic transmission by the person or persons entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice.

2.05 Notice by Electronic Transmission . On consent of a shareholder, notice from the corporation under any applicable law, the Articles of Incorporation, or these Bylaws may be given to the shareholder by electronic transmission. The shareholder may specify the form of electronic transmission to be used to communicate notice. The shareholder may revoke this consent by written notice to the corporation. The consent of a shareholder is considered revoked if the corporation is unable to deliver by electronic transmission two consecutive notices, and the secretary, assistant secretary or transfer agent of the corporation, or another person responsible for delivering notice on behalf of the corporation, knows that delivery of these two electronic transmissions was unsuccessful. Inadvertent failure to treat the unsuccessful transmissions as a revocation of the shareholder’s consent does not affect the validity of a meeting or other action. Notice by electronic transmission shall be deemed given when the notice is: (1) transmitted to a facsimile number provided by the shareholder for the purpose of receiving notice; (2) transmitted to an electronic mail address provided by the shareholder for the purpose of receiving notice; (3) posted on an electronic network and a message is sent to the shareholder at the address provided by the shareholder for the purpose of alerting the shareholder of a posting; or (4) communicated to the shareholder by any other form of electronic transmission consented to by the shareholder.

2.06 Business at Special Meeting . Subject to Section 2.14(b) , the business transacted at any special meeting of shareholders shall be limited to the purposes stated in the notice thereof.

2.07 Quorum of Shareholders . Unless otherwise provided in the Articles of Incorporation, the holders of a majority of the shares entitled to vote at a meeting of shareholders, represented in person or by proxy, shall constitute a quorum for any matter to be presented at that meeting. If, however, a quorum shall not be present or represented at any meeting of the shareholders, unless otherwise provided in the Articles of Incorporation, the holders of a majority of the shares represented in person or by proxy at the meeting shall have the power to adjourn the meeting until such time and to such place as they shall determine, without notice other than announcement at the meeting. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted that might have been transacted at the meeting as originally notified. Unless otherwise provided in the Articles of Incorporation, the shareholders present at a duly organized meeting may continue to transact business until adjournment, and the subsequent withdrawal of any shareholder or the refusal of any shareholder to vote shall not affect the presence of a quorum at the meeting.

2.08 Act of Shareholders’ Meeting . With respect to any matter, other than the election of directors, a vote on a “fundamental action” as defined in the Texas Business Organizations Code (a “Fundamental Action”), a vote on a “fundamental business transaction” as defined in the Texas Business Organization Code (a “Fundamental Business Transaction”), or another matter for which the affirmative vote of the holders of a specified portion of the shares entitled to vote is required by law or the Articles of Incorporation, the affirmative vote of the holders of a majority of the shares entitled to vote on, and that voted for or against or expressly abstained with respect to, that matter at a meeting of shareholders at which a quorum is present shall be the act of shareholders. Unless otherwise provided in the Articles of Incorporation, directors shall be elected by a plurality of the votes cast by the holders of shares entitled to vote in the election of directors at a meeting of shareholders at which a quorum is present. Unless otherwise provided in the Texas Business Organizations Code or the Articles of Incorporation, the vote required for approval of a Fundamental Action or a Fundamental Business Transaction by the shareholders is the affirmative vote of the holders of at least two-thirds of the outstanding shares entitled to vote on the Fundamental Action or Fundamental Business Transaction.

2.09 Voting of Shares . Each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders, except to the extent otherwise provided by law or the Articles of Incorporation. At each election for directors, every shareholder entitled to vote at such election shall have the right to vote the number of shares owned by him for as many persons as there are directors to be elected and for whose election he has the right to vote. Unless expressly permitted by the Articles of Incorporation, no shareholder shall be entitled to cumulate his votes by giving one candidate as many votes as the number of such directors to be elected multiplied by the number of shares owned by such shareholder or by distributing such votes on the same principle among any number of such candidates.

2.10 Proxies . At any meeting of the shareholders, each shareholder having the right to vote shall be entitled to vote either in person or by proxy executed in writing by the shareholder. A telegram, telex, cablegram, or other form of electronic transmission, including telephone transmission, by the shareholder, or a photographic, photostatic, facsimile, or similar reproduction of a writing executed by the shareholder, shall be treated as an execution in writing for purposes of this section. Any electronic transmission must contain or be accompanied by information from which it can be determined that the transmission was authorized by the shareholder. No proxy shall be valid after 11 months from the date of its execution unless otherwise provided in the proxy. Each proxy shall be revocable unless the proxy form conspicuously states that the proxy is irrevocable and the proxy is coupled with an interest. An irrevocable proxy, if noted conspicuously on the certificate representing the shares that are subject to the irrevocable proxy, shall be specifically enforceable against the holder of those shares or any successor or transferee of the holder. Unless noted conspicuously on the certificate representing the shares that are subject to the irrevocable proxy, an irrevocable proxy, even though otherwise enforceable, is ineffective against a transferee for value without actual knowledge of the existence of the irrevocable proxy at the time of the transfer or against any subsequent transferee (whether or not for value), but such an irrevocable proxy shall be specifically enforceable against any other person who is not a transferee for value from and after the time that the person acquires actual knowledge of the existence of the irrevocable proxy.

2.11 Voting List . The officer or agent having charge of the share transfer records for shares of the corporation shall make, not later than the 11 th day before the date of each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of and number and type of shares held by each shareholder, which list, for a period of ten days prior to such meeting, shall be kept on file at the registered office or principal executive office of the corporation and shall be subject to inspection by any shareholder at any time during usual business hours. Such list also shall be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original share transfer records shall be prima-facie evidence as to who are the shareholders entitled to examine such list or transfer records or to vote at any such meeting of shareholders. Instead of being kept on file, the list may be kept on a reasonably accessible electronic network if the information required to gain access to the list is provided with notice of the meeting. If the list is made available on an electronic network, the corporation shall take reasonable measures to ensure the information is available only to shareholders of the corporation. If a meeting of shareholders is held by means of remote communication, the list must be open to inspection by a shareholder during the meeting on a reasonably accessible electronic network.

2.12 Action by Written Consent Without a Meeting . Any action required or permitted to be taken at any annual or special meeting of the shareholders may be taken without a meeting, without prior notice, and without a vote, if a consent or consents in writing, setting forth the action so taken, is signed by the holder or holders of all the shares entitled to vote with respect to the action that is the subject of the consent or consents. A telegram, telex, cablegram, or other electronic transmission by a shareholder consenting to an action to be taken is considered to be written, signed, and dated for the purposes of this section if the transmission sets forth or is delivered with information from which the corporation can determine that the transmission was transmitted by the shareholder and the date on which the shareholder transmitted the transmission. Any photographic, photostatic, facsimile, or similarly reliable reproduction of a consent in writing signed by a shareholder may be substituted or used instead of the original writing for any purpose for which the original writing could be used, if the reproduction is a complete reproduction of the entire original writing.

2.13 Presence at Meeting . Participation in a meeting shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.

2.14 Advance Notice of Shareholder Nominees for Director and Other Shareholder Proposals .

(a) Annual Meetings of Shareholders . (1) Nominations of individuals for election to the Board of Directors and the proposal of other business to be considered by the shareholders may be made at an annual meeting of shareholders (i) pursuant to the corporation ’ s notice of such meeting, (ii) by or at the direction of the Board of Directors or (iii) by any shareholder of the corporation who was a shareholder of record at the record date set by the Board of Directors for the purpose of determining shareholders entitled to vote at the annual meeting, at the time of giving of notice by the shareholder as provided for in this Section 2.14(a) and at the time of the annual

meeting (and any adjournment thereof), who is entitled to vote at the meeting in the election of each individual so nominated or on any such other business and who has complied with this Section 2.14(a) .

(1) For any nomination or other business to be properly brought before an annual meeting by a shareholder pursuant to clause (iii) of paragraph (a)(1) of this Section 2.14 , the nomination or other business must be permitted by law, the Articles of Incorporation and these Bylaws, and the shareholder must have given timely notice thereof in writing to the Secretary and any such other business must otherwise be a proper matter for action by the shareholders. To be timely, a shareholder ’ s notice shall set forth all information required under this Section 2.14 and shall be delivered to the Secretary at the principal executive office of the corporation not earlier than the 120th day nor later than 5:00 p.m., Central Time, on the 90th day prior to the first anniversary of the date of the proxy statement (as defined in Section 2.14(c)(3) of this Article II) for the preceding year ’ s annual meeting; provided, however, that in the event that the date of the annual meeting is advanced or delayed by more than 30 days from the first anniversary of the date of the preceding year ’ s annual meeting (or if an annual meeting has not previously been held), in order for notice by the shareholder to be timely, such notice must be so delivered not earlier than the 120th day prior to the date of such annual meeting and not later than 5:00 p.m., Central Time, on the later of the 90th day prior to the date of such annual meeting, as originally convened, or the tenth day following the day on which public announcement of the date of such meeting is first made. The public announcement of an adjournment of an annual meeting shall not commence a new time period for the giving of a shareholder ’ s notice as described above.

(2) Such shareholder ’ s notice shall set forth:

(i) as to each individual whom the shareholder proposes to nominate for election or reelection as a director (each, a “ Proposed Nominee ” ),

(A) all information relating to the Proposed Nominee that would be required to be disclosed in connection with the solicitation of proxies for the election of the Proposed Nominee as a director in an election contest (even if an election contest is not involved), or would otherwise be required in connection with such solicitation, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934 (the “Exchange Act”), and

(B) whether such shareholder believes any such Proposed Nominee is, or is not, an “ interested person ” of the corporation, as defined in the Investment Company Act of 1940, as amended, and the rules and regulations promulgated thereunder (including any successor provision thereunder, the “ 1940 Act ” ) and information regarding such individual that is sufficient, in the discretion of the Board of Directors or any committee thereof or any authorized officer of the corporation, to make such determination;

(ii) as to any other business that the shareholder proposes to bring before the meeting, a description in reasonable detail of such business, the shareholder ’ s reasons for proposing such business at the meeting (including the text of any reasons for the business that will be disclosed in any proxy statement or supplement thereto to be filed with the Securities and Exchange Commission), the text of the proposal or business (including the text of any resolutions proposed for consideration) and a description in reasonable detail of any material interest in such

business of such shareholder or any Shareholder Associated Person (as defined below), individually or in the aggregate, including any anticipated benefit to the shareholder or the Shareholder Associated Person therefrom, and all other information related to such proposed business that would be required to be disclosed in a proxy statement or other filing required to be made by the shareholder or any Shareholder Associated Person in connection with the solicitation of proxies or consents in support of such proposed business by such shareholder or one or more Shareholder Associated Persons pursuant to Section 2.14(a) and Regulation 14A under the Exchange Act;

(iii) as to the shareholder giving the notice, any Proposed Nominee and any Shareholder Associated Person:

(A) the class, series and number of all shares of stock or other securities of the corporation or any affiliate thereof (collectively, the “ Company Securities ” ), if any, which are owned (beneficially or of record) (including any shares of any class or series of stock of the corporation as to which such shareholder has a right to acquire beneficial ownership at any time in the future, whether such right is exercisable immediately, only after the passage of time or only upon the satisfaction of certain conditions precedent) by such shareholder, Proposed Nominee or Shareholder Associated Person, the date on which each such Company Security was acquired and the investment intent of such acquisition, and any short interest (including any opportunity to profit or share in any benefit from any decrease in the price of such stock or other security) in any Company Securities of any such person,

(B) the nominee holder for, and number of, any Company Securities owned beneficially but not of record by such shareholder, Proposed Nominee or Shareholder Associated Person,

(C) whether and the extent to which such shareholder, Proposed Nominee or Shareholder Associated Person, directly or indirectly (through brokers, nominees or otherwise), is subject to or during the last six months has engaged in any hedging, derivative or other transaction or series of transactions or entered into any other agreement, arrangement or understanding (including any short interest, any borrowing or lending of securities or any proxy or voting agreement), the effect or intent of which is to (I) manage risk or benefit of changes in the price of (x) Company Securities or (y) any security of any other closed-end investment company (a “ Peer Group Company ” ) for such shareholder, Proposed Nominee or Shareholder Associated Person or (II) increase or decrease the voting power of such shareholder, Proposed Nominee or Shareholder Associated Person in the corporation or any affiliate thereof (or, as applicable, in any Peer Group Company) disproportionately to such person ’ s economic interest in the Company Securities (or, as applicable, in any Peer Group Company),

(D) any substantial interest, direct or indirect (including, without limitation, any existing or prospective commercial, business or contractual relationship with the corporation), by security holdings or otherwise, of such shareholder, Proposed Nominee or Shareholder Associated Person, in the corporation or any affiliate thereof, other than an interest arising from the ownership of Company Securities where such shareholder, Proposed Nominee or Shareholder Associated Person receives no extra or special benefit not shared on a pro rata basis by all other holders of the same class or series,

(E) a description in reasonable detail of all agreements, arrangements and understandings, written or oral and formal or informal, (1) between or among the shareholder giving the notice and any of the Shareholder Associated Persons or (2) between or among the shareholder giving the notice or any of the Shareholder Associated Persons and any other person or entity (naming each such person or entity) in connection with or related to the proposal of business by a shareholder or any Proposed Nominee, including without limitation (x) any understanding, formal or informal, written or oral, that the shareholder giving the notice or any of the Shareholder Associated Persons may have reached with any shareholder of the corporation (including their names) with respect to how such shareholder will vote its shares in the corporation at any meeting of the corporation ’ s shareholders or take other action in support of or related to any business proposed or any Proposed Nominee, or other action to be taken, by the proposing shareholder or any of the Shareholder Associated Persons, and (y) any agreements that would be required to be disclosed by the shareholder giving the notice or any Shareholder Associated Person or any other person or entity pursuant to Item 5 or Item 6 of a Schedule 13D that would be filed pursuant to the Exchange Act and the rules and regulations promulgated thereunder (regardless of whether the requirement to file a Schedule 13D is applicable to the shareholder giving the notice or any Shareholder Associated Person or other person or entity),

(F) a description in reasonable detail of any rights to dividends on the shares of any class or series of stock of the corporation directly or indirectly held of record or beneficially by such person that are separated or separable from the underlying shares of the corporation, and

(G) a description in reasonable detail of any performance-related fees (other than an asset-based fee) to which the person may be entitled as a result of any increase or decrease in the value of shares of the corporation or any of its derivative securities;

(iv) a description in reasonable detail of any pending, or to such Shareholder Associated Person ’ s knowledge, threatened legal proceeding in which any Shareholder Associated Person is a party or participant involving the corporation or any officer, “ affiliate ” (for purposes of these Bylaws, as such term is used by Rule 12b ‑ 2 under the Exchange Act) or “ associate ” (for purposes of these Bylaws, as such term is used by Rule 12b ‑ 2 under the Exchange Act) of the corporation;

(v) as to the shareholder giving the notice, any Shareholder Associated Person with an interest or ownership referred to in clauses (ii) or (iii) of this paragraph (3) of this Section 2.14(a) and any Proposed Nominee,

(A) the name and address of such shareholder, as they appear on the corporation ’ s books and records, and the current name and business address, if different, of each such Shareholder Associated Person and any Proposed Nominee, and

(B) the investment strategy or objective, if any, of such shareholder and each such Shareholder Associated Person who is not an individual and a copy of the prospectus, offering memorandum or similar document, if any, provided to investors or potential investors in such shareholder and each such Shareholder Associated Person, and

(C) the name and address of any person who contacted or was contacted by the shareholder giving the notice or any Shareholder Associated Person about the Proposed Nominee or other business proposal;

(vi) to the extent known by the shareholder giving the notice, the name and address of any other shareholder supporting the Proposed Nominee for election or reelection as a director or the proposal of other business;

(vii) a representation as to whether the shareholder or any Shareholder Associated Person intends to deliver a proxy statement and form of proxy to holders of at least the percentage of the corporation ’ s beneficial owners of outstanding shares of stock entitled to vote and required to approve the proposed business described in such shareholder ’ s notice or to approve any Proposed Nominee and at least the percentage of the corporation ’ s record owners of outstanding shares of stock entitled to vote on the proposed business described in such shareholder ’ s notice to approve any Proposed Nominee; and

(viii) a representation that the shareholder or its qualified representative intends to appear in person at the meeting to propose the action specified in the notice and to vote all proxies solicited.

(3) Such shareholder ’ s notice shall, with respect to any Proposed Nominee, be accompanied by a written undertaking executed by the Proposed Nominee (i) that such Proposed Nominee (A) is not, and will not become, a party to any agreement, arrangement or understanding with any person or entity other than the corporation in connection with service or action as a director that has not been disclosed to the corporation and (B) will serve as a director of the corporation if elected; and (ii) attaching a completed Proposed Nominee questionnaire (which questionnaire shall be provided by the corporation, upon request by the shareholder providing the notice, and shall include all information relating to the Proposed Nominee that would be required to be disclosed in connection with the solicitation of proxies for the election of the Proposed Nominee as a director in an election contest (even if an election contest is not involved), or would otherwise be required in connection with such solicitation, in each case pursuant to Regulation 14A under the Exchange Act, or would be required pursuant to the rules of any national securities exchange on which any securities of the corporation are listed or over-the-counter market on which any securities of the corporation are traded).

(4) Notwithstanding anything in this subsection (a) of this Section 2.14 to the contrary, in the event that the number of directors to be elected to the Board of Directors is increased, and there is no public announcement of such action at least 130 days prior to the first anniversary of the date of the proxy statement (as defined in Section 2.14(c)(3) of this Article II) for the preceding year ’ s annual meeting, a shareholder ’ s notice required by this Section 2.14(a) shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive office of the corporation not later than 5:00 p.m., Central Time, on the tenth day following the day on which such public announcement is first made by the corporation.

(5) For purposes of this Section 2.14 , “ Shareholder Associated Person ” of any shareholder shall mean (i) any person who is a member of a “ group ” (as such term is used in

Rule 13d ‑ 5 of the Exchange Act) with or otherwise acting in concert with such shareholder, (ii) any beneficial owner of shares of stock of the corporation owned of record or beneficially by such shareholder (other than a shareholder that is a depositary), (iii) any person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such shareholder or such Shareholder Associated Person and beneficially owns, directly or indirectly, shares of stock of the corporation, (iv) any person that directly or indirectly through one or more intermediaries, controls such shareholder or any Shareholder Associated Person and (v) any participant (as defined in paragraphs (a)(ii)-(vi) of Instruction 3 to Item 4 of Schedule 14A, or any successor instructions) with such shareholder or other Shareholder Associated Person in respect of any proposals or nominations, as applicable.

(b) Special Meetings of Shareholders . Only such business shall be conducted at a special meeting of shareholders as shall have been brought before the meeting pursuant to the corporation ’ s notice of meeting. Nominations of individuals for election to the Board of Directors may be made at a special meeting of shareholders at which directors are to be elected only (i) by or at the direction of the Board of Directors or (ii) provided that the special meeting has been called in accordance with Section 2.03 of this Article II for the purpose of electing directors, by any shareholder of the corporation who is a shareholder of record at the record date set by the Board of Directors for the purpose of determining shareholders entitled to vote at the special meeting, at the time of giving of notice provided for in this Section 2.14 and at the time of the special meeting (and any adjournment thereof), who (in the case of (ii)) is entitled to vote at the meeting in the election of each individual so nominated and who (in the case of (ii)) has complied with the notice procedures set forth in this Section 2.14 . In the event the corporation calls a special meeting of shareholders for the purpose of electing one or more individuals to the Board of Directors, any shareholder may nominate an individual or individuals (as the case may be) for election as a director as specified in the corporation ’ s notice of meeting, if the shareholder ’ s notice, containing the information required by paragraphs (a)(3) and (4) of this Section 2.14 , is delivered to the Secretary at the principal executive office of the corporation not earlier than the 120th day prior to such special meeting and not later than 5:00 p.m., Central Time, on the later of the 90th day prior to such special meeting or the tenth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. The public announcement of an adjournment of a special meeting shall not commence a new time period for the giving of a shareholder ’ s notice as described above.

(c) General . (1) If information submitted pursuant to this Section 2.14 by any shareholder proposing a nominee for election as a director or any proposal for other business at a meeting of shareholders shall be inaccurate in any material respect, such information may be deemed not to have been provided in accordance with this Section 2.14 . Any such shareholder shall notify the corporation of any inaccuracy or change (within two business days of becoming aware of such inaccuracy or change) in any such information. Upon written request by the Secretary or the Board of Directors, any such shareholder shall provide, within five business days of delivery of such request (or such other period as may be specified in such request), (A) written verification, satisfactory, in the discretion of the Board of Directors or any authorized officer of the corporation, to demonstrate the accuracy of any information submitted by the shareholder pursuant to this Section 2.14 , and (B) a written update of any information (including, if requested by the corporation, written confirmation by such shareholder that it continues to intend to bring such nomination or other business proposal before the meeting) submitted by the shareholder

pursuant to this Section 2.14 as of an earlier date. If a shareholder fails to provide such written verification or written update within such period, the information as to which written verification or a written update was requested may be deemed not to have been provided in accordance with this Section 2.14 .

(6) Only such individuals who are nominated in accordance with this Section 2.14 shall be eligible for election by shareholders as directors, and only such business shall be conducted at a meeting of shareholders as shall have been brought before the meeting in accordance with this Section 2.14 . The chairman of the meeting shall have the power to determine whether a nomination or any other business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with this Section 2.14 .

(7) For purposes of this Section 2.14 , “ the date of the proxy statement ” shall have the same meaning as “ the date of the company ’ s proxy statement released to shareholders ” as used in Rule 14a ‑ 8(e) promulgated under the Exchange Act, as interpreted by the Securities and Exchange Commission from time to time. “ Public announcement ” shall mean disclosure (A) in a press release reported by the Dow Jones News Service, Associated Press, Business Wire, PR Newswire or other widely circulated news or wire service or (B) in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to the Exchange Act or the 1940 Act.

(8) Notwithstanding the foregoing provisions of this Section 2.14, a shareholder shall also comply with all applicable requirements of state law and of the Exchange Act with respect to the matters set forth in this Section 2.14 . Nothing in this Section 2.14 shall be deemed to affect any right of a shareholder to request inclusion of a proposal in, or the right of the corporation to omit a proposal from, any proxy statement filed by the corporation with the Securities and Exchange Commission pursuant to Rule 14a ‑ 8 (or any successor provision) under the Exchange Act. Nothing in this Section 2.14 shall require disclosure of revocable proxies received by the shareholder or Shareholder Associated Person pursuant to a solicitation of proxies after the filing of an effective Schedule 14A by such shareholder or Shareholder Associated Person under Section 14(a) of the Exchange Act.

(9) Notwithstanding anything in these Bylaws to the contrary, except as otherwise determined by the chairman of the meeting, if the shareholder giving notice as provided for in this Section 2.14 does not appear in person or by proxy at such annual or special meeting to present each nominee for election as a director or the proposed business, as applicable, such matter shall not be considered at the meeting.

(10) For the notice required by Section 2.14(a) to comply with the requirements of this Section 2.14 , it must set forth in writing directly within the body (as opposed to being incorporated by reference from any other document or writing) of such notice all the information required to be included therein as set forth in this Section 2.14 . For the avoidance of doubt, such notice shall not be deemed to be in compliance with this Section 2.14 if it attempts to include the required information by incorporating by reference any other document, writing or part thereof where such information may be included.

ARTICLE III

BOARD OF DIRECTORS

3.01 Powers . The powers of the corporation shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of, the Board of Directors, which may exercise all such powers of the corporation and do all such lawful acts and things as are not by law, the Articles of Incorporation, or these Bylaws directed or required to be exercised and done by the shareholders.

3.02 Number of Directors . The Board of Directors shall consist of one or more directors. The initial Board of Directors shall be fixed by the Articles of Incorporation; thereafter, the number of directors shall be determined by resolution of the Board of Directors, but no decrease in the number of directors shall have the effect of shortening the term of any incumbent director.

3.03 Election and Term . The directors, other than the initial Board of Directors, shall be elected at each annual meeting of the shareholders, except as provided in Section 3.04 of this Article, and each director elected shall hold office until the next succeeding annual meeting and until his successor is elected and qualified or until his death, resignation, or removal in accordance with these Bylaws. Directors need not be residents of the State of Texas or shareholders of the corporation.

3.04 Vacancies . Any vacancy occurring in the Board of Directors may be filled by an election at an annual or special meeting of the shareholders called for that purpose or by the affirmative vote of a majority of the remaining directors though less than a quorum of the Board of Directors. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. Any directorship to be filled by reason of an increase in the number of directors may be filled by election at an annual or special meeting of the shareholders called for that purpose or may be filled by the Board of Directors for a term of office continuing only until the next election of one or more directors by the shareholders; provided that the Board of Directors may not fill more than two such directorships during the period between any two successive annual meetings of shareholders.

3.05 Resignation and Removal . Any director may resign at any time by giving notice in writing or by electronic transmission to the corporation. At any meeting of shareholders called expressly for the purpose of removing a director or directors, any director or the entire Board of Directors may be removed, with or without cause, by a vote of the holders of a majority of the shares then entitled to vote at an election of directors.

3.06 Compensation of Directors . As specifically prescribed from time to time by resolution of the Board of Directors, the directors of the corporation may be paid their expenses of attendance at each meeting of the Board and may be paid a fixed sum for attendance at each meeting of the Board or a stated salary in their capacity as directors. This provision shall not preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for service on any such committee.

3.07 Chairman of the Board . The Board of Directors, at its first meeting after each annual meeting of shareholders, may elect one of its members Chairman of the Board. Subject to the authority of the Board of Directors, the Chairman of the Board shall preside at all meetings of the Board of Directors and shall have such other powers and duties as usually pertain to such position or as may be delegated by the Board of Directors.

ARTICLE IV

MEETINGS OF THE BOARD

4.01 First Meeting . The first meeting of each newly elected Board of Directors shall be held without notice immediately following the shareholders’ annual meeting at which such directors were elected, at the same place as such shareholders’ meeting or at such other time and place either within or without the State of Texas as shall be designated by the Secretary upon the written request of a majority of the directors then elected.

4.02 Regular Meetings . Regular meetings of the Board of Directors may be held with or without notice at such time and at such place either within or without the State of Texas as from time to time shall be prescribed by resolution of the Board of Directors.

4.03 Special Meetings . Special meetings of the Board of Directors may be called by the Chairman of the Board of Directors or the President, and shall be called by the Chairman of the Board of Directors, the President, or the Secretary on the written request of two directors. Notice of special meetings of the Board of Directors, either in writing or by electronic transmission, shall be given to each director at least 24 hours prior to the time of the meeting.

4.04 Written Notice . Whenever any notice is required to be given to any director under the provisions of any law, the Articles of Incorporation, or these Bylaws, and the director has not consented to notice by electronic transmission, it shall be given in writing and delivered personally or mailed, or delivered by any other method permitted under applicable law, to such director at such address as appears on the records of the corporation, and, if mailed, such notice shall be deemed to be delivered at the time when the same shall be deposited in the United States mail with sufficient postage thereon prepaid.

4.05 Notice by Electronic Transmission . On consent of a director, notice of the date, time, place, or purpose of a regular or special meeting of the Board of Directors may be given to the director by electronic transmission. The director may specify the form of electronic transmission to be used to communicate notice. Notice by electronic transmission shall be deemed given when the notice is: (1) transmitted to a facsimile number provided by the director for the

purpose of receiving notice; (2) transmitted to an electronic mail address provided by the director for the purpose of receiving notice; (3) posted on an electronic network and a message is sent to the director at the address provided by the director for the purpose of alerting the director of a posting; or (4) communicated to the director by any other form of electronic transmission consented to by the director. The director may revoke this consent by written notice to the corporation. The director’s consent under this Section is considered revoked if the corporation is unable to deliver by electronic transmission two consecutive notices, and the secretary, assistant secretary, or transfer agent of the corporation, or another person responsible for delivering notice on behalf of the corporation, knows that delivery of those two electronic transmissions was unsuccessful. Inadvertent failure to treat the unsuccessful transmissions as a revocation of the director’s consent does not affect the validity of a meeting or other action.

4.06 Waiver of Notice . Whenever any notice is required to be given to any director under the provisions of any law, the Articles of Incorporation, or these Bylaws, a waiver thereof in writing signed by the director or directors entitled to such notice, or a waiver by electronic transmission by the director or directors entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice.

4.07 Attendance as Waiver . Attendance of a director at a meeting of the Board of Directors or a committee thereof shall constitute a waiver of notice of such meeting, except when a director attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.

4.08 Business at Regular or Special Meeting . Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice, or waiver of notice, whether in writing or by electronic transmission, of such meeting.

4.09 Quorum of Directors . A majority of the Board of Directors shall constitute a quorum for the transaction of business. If a quorum shall not be participating at any meeting of the Board of Directors, the directors participating thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be participating.

4.10 Interested Directors . An otherwise valid contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and any other corporation or other entity in which one or more of its directors or officers are directors, officers or other managerial officials or have a financial interest, shall be valid notwithstanding that the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof that authorizes the contract or transaction, and notwithstanding whether his or their votes are counted for such purpose, if:

(a) The material facts as to his relationship or interest and as to the contract or transaction are disclosed to or are known by the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested directors or committee members, even though the disinterested directors be less than a quorum; or

(b) The material facts as to his relationship or interest and as to the contract or transaction are disclosed to or are known by the shareholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the shareholders; or

(c) The contract or transaction is fair as to the corporation as of the time it is authorized, approved, or ratified by the Board of Directors, a committee thereof, or the shareholders.

Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee that authorizes the contract or transaction.

4.11 Act of Directors’ Meeting . The act of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors unless the act of a greater number is required by the Articles of Incorporation, by these Bylaws or by law.

4.12 Action by Written Consent Without a Meeting . Any action required or permitted to be taken at a meeting of the Board of Directors or any committee thereof may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all members of the Board of Directors or committee, as the case may be. A telegram, telex, cablegram, or other electronic transmission by a director is considered written, signed, and dated for the purposes of this section if the transmission sets forth or is delivered with information from which the corporation can determine that the transmission was transmitted by the director and the date on which the director transmitted the transmission. Such consent shall be filed with the minutes of the proceedings of the Board of Directors or committee, as the case may be. Such consent shall have the same force and effect as a unanimous vote at a meeting.

4.13 Presence at Meeting . Participation in a meeting shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.

ARTICLE V

COMMITTEES

5.01 Designation of Committees . The Board of Directors, by resolution, may designate from among its members one or more committees; provided, however, the Board of Directors shall establish all committees required by the Securities and Exchange Commission or the principal securities exchange on which the corporation's securities are listed for trading. No director who is employed by the corporation may serve on the audit, nominating or compensation committees. Each committee shall be comprised of one or more directors, and the Board may designate one or more of its members as alternate members of any committee, who may, subject to any limitations imposed by the Board of Directors, replace absent or disqualified members at any meeting of that committee. The Board of Directors may remove a member of a committee appointed by the Board if the Board determines the removal is in the best interests of the corporation. The removal shall

be without prejudice to any contract rights of the person removed. Appointment of a committee member shall not of itself create contract rights.

5.02 Authority and Proceedings of Committees. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all of the authority of the Board of Directors, subject to the limitations imposed by applicable law. Each committee shall keep regular minutes of its proceedings and report the same to the Board of Directors when required. To the extent applicable, the provisions of Article IV of these Bylaws governing the meetings of the Board of Directors shall likewise govern the meetings of any committee thereof.

5.03 Employee Director . No director who is also employed by the corporation shall serve on any audit, nominating or compensation committee.

5.04 Regular Meetings . Regular meetings of any committee may be held without notice at such time and place as may be designated from time to time by the committee and communicated to all members thereof.

5.05 Special Meetings . Special meetings of any committee may be held whenever called by any committee member. The committee member calling any special meeting shall cause notice of such special meeting, including therein the time and place of such special meeting, to be given to each committee member at least two days before such special meeting. Neither the business to be transacted at, nor the purpose of, any special meeting of any committee need be specified in the notice or waiver of notice of any special meeting.

5.06 Quorum; Majority Vote . At meetings of any committee, a majority of the number of members designated by the Board of Directors shall constitute a quorum for the transaction of business. If a quorum is not present at a meeting of any committee, a majority of the members present may adjourn the meeting from time to time, without notice other than an announcement at the meeting, until a quorum is present. The act of a majority of the members present at any meeting at which a quorum is in attendance shall be the act of a committee, unless the act of a greater number is required by law, the Articles of Incorporation, or these Bylaws. If any committee shall consist of two members, the presence of both directors shall be necessary to constitute a quorum, and the consent of both members shall be necessary to approve any action.

5.07 Minutes . Each committee shall cause minutes of its proceedings to be prepared and shall report the same to the Board of Directors upon the request of the Board of Directors. The minutes of the proceedings of each committee shall be delivered to the Secretary of the corporation for placement in the minute books of the corporation.

5.08 Compensation . Committee members may, by resolution of the Board of Directors, be allowed a fixed sum and expenses of attendance, if any, for attending any committee meetings or a stated salary.

5.09 Responsibility . The designation of any committee and the delegation of authority to it shall not operate to relieve the Board of Directors or any director of any responsibility imposed upon it or such director by law.

ARTICLE VI

MEETING BY USE OF CONFERENCE TELEPHONE
OR SIMILAR COMMUNICATIONS EQUIPMENT

The shareholders, members of the Board of Directors, or members of any committee designated by the Board of Directors may participate in and hold a meeting of such shareholders, Board of Directors, or committee by means of conference telephone or similar communications equipment or another suitable electronic communications system, including videoconferencing technology or the Internet, or any combination if the telephone or other equipment or system permits each person participating in the meeting to communicate with all other persons participating in the meeting and, if voting is to take place at the meeting, to vote. If voting is to take place at the meeting, the corporation must implement reasonable measures to verify that each person voting at the meeting by means of remote communications is sufficiently identified and entitled to vote and must keep a record of any vote or other action taken.

ARTICLE VII

OFFICERS

7.01 Executive Officers . The officers of the corporation shall consist of a President and a Secretary, and may also include one or more Vice Presidents, a Treasurer, and such other officers as are provided for in this Article. Each officer of the corporation shall be elected by the Board of Directors as provided in Section 7.02 of this Article. Any two or more offices may be held by the same person.

7.02 Election and Qualification . The Board of Directors, at its first meeting after each annual meeting of shareholders, shall elect a President and a Secretary. The Board of Directors also may elect one or more Vice Presidents, a Treasurer, and such other officers, including assistant officers and agents, as may be deemed necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors.

7.03 Compensation . The compensation of all officers and agents of the corporation shall be determined by or determined in a manner specified by the Board of Directors.

7.04 Term, Removal, and Vacancies . Each officer of the corporation shall hold office until his successor is chosen and qualified or until his death, resignation, or removal. Any officer may resign at any time upon giving written notice to the corporation, but such resignation shall be without prejudice to the contract rights, if any, of the corporation. Any officer or agent may be removed by the Board of Directors for or without cause whenever in its judgment the best interests of the corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer shall not

of itself create contract rights. Any vacancy occurring in any office of the corporation by death, resignation, removal, or otherwise shall be filled by the Board of Directors.

7.05 Chief Executive Officer . Unless the Board of Directors designates otherwise, the President shall be the chief executive officer of the corporation. The Chief Executive Officer shall preside at all meetings of the shareholders. The Chief Executive Officer shall have such other powers and duties as usually pertain to such office or as may be delegated by the Board of Directors.

7.06 President . Unless the Board of Directors shall otherwise delegate such duties, the President shall have general powers of oversight, supervision, and management of the business and affairs of the corporation, and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall have such powers and duties as usually pertain to such office, except as the same may be modified by the Board of Directors. He shall execute bonds, mortgages, instruments, contracts, agreements, and other documentation, except when the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the corporation.

7.07 Vice Presidents . Unless otherwise determined by the Board of Directors, the Vice Presidents in order of their seniority as such seniority may from time to time be designated by the Board of Directors, shall perform the duties and exercise the powers of the President in absence or disability of the President. They shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.

7.08 Secretary . The Secretary shall attend all meetings of the Board of Directors and of the shareholders, record all the proceedings of the meetings of the Board of Directors and of the shareholders in a book to be kept for that purpose, and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the shareholders and special meetings of the Board of Directors as may be prescribed by the Board of Directors or the President. He shall keep in safe custody the seal of the corporation, and, when authorized by the Board of Directors, affix the same to any instrument requiring it. When so affixed, such seal shall be attested by his signature or by the signature of the Treasurer or an Assistant Secretary. He shall perform all duties incident to the office of the Secretary and such other duties as may from time to time be assigned to him by the Board of Directors.

7.09 Assistant Secretary . An Assistant Secretary, unless otherwise determined by the Board of Directors, shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary. An Assistant Secretary shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.

7.10 Treasurer . The Treasurer shall have the custody of the corporate funds and securities, shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors at its regular meetings, or when the Board of Directors so requires, an account of all his

transactions as Treasurer, and of the financial condition of the corporation. The Treasurer shall perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board of Directors.

7.11 Assistant Treasurer . An Assistant Treasurer, unless otherwise determined by the Board of Directors, shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer. An Assistant Treasurer shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.

7.12 Officer’s Bond . If required by the Board of Directors, any officer so required shall give the corporation a bond (which shall be renewed as the Board of Directors may require) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement, or removal from office, of any and all books, papers, vouchers, money, and other property of whatever kind in his possession or under his control belonging to the corporation.

ARTICLE VIII

CERTIFICATES FOR SHARES

8.01 Certificates Representing Shares . The corporation shall deliver certificates representing shares to which shareholders are entitled, provided that the Board of Directors may provide by resolution that some or all of any class or series of the corporation's stock may be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation (or the transfer agent or registrar, as the case may be). Notwithstanding the adoption of such resolution by the Board of Directors, every holder of stock represented by certificates and, upon request, a holder of uncertificated shares shall be entitled to have a certificate signed in the name of the corporation by the Chairman of the Board, if any, or the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or any Assistant Secretary, certifying the number of shares and the class or series of shares of the corporation owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. If a holder of uncertificated shares elects to receive a certificate for shares of the corporation's stock, the corporation (or the transfer agent or registrar, as the case may be) shall (to the extent permitted under applicable law and rules, regulations and listing requirements of any stock exchange or stock market on which the corporation's shares are listed or traded), cease providing annual statements indicating such holder's holdings of shares in the corporation.. Such certificates shall be numbered and shall be entered in the books of the corporation as they are issued, and shall be signed by the President or any Vice President and the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the corporation, and may be sealed with the seal of the corporation or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation

with the same effect as if he were such officer at the date of its issuance. Each certificate representing shares issued by the corporation shall conspicuously set forth such provisions as are required by applicable law. Each certificate representing shares shall state upon the face thereof that the corporation is organized under the laws of the State of Texas, the name of the person to whom issued, the number and class of shares and the designation of the series, if any, that such certificate represents and the par value of each share represented by such certificate or a statement that the shares are without par value. No certificate shall be issued for any share until the full amount of the consideration therefor, fixed as provided by law, has been paid or delivered.

8.02 Restriction on Transfer of Shares . Any restriction on the transfer, or registration of the transfer, of shares shall be noted conspicuously on each certificate representing shares that are subject to the restriction in accordance with applicable law.

8.03 Voting and Shareholder Agreements . Any voting or shareholder agreement shall be noted conspicuously on each certificate representing the shares that are subject to the agreement in accordance with applicable law.

8.04 Transfer of Shares . Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment, or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction upon its books.

8.05 Lost, Stolen or Destroyed Certificates . The Board of Directors, or such officer or officers of the corporation as the Board of Directors may from time to time designate, may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, or destroyed upon the making of an affidavit of that fact by the person claiming the certificate or certificates of stock to be lost, stolen, or destroyed. When authorizing the issuance of a new certificate or certificates, the Board of Directors, or such officer or officers, in its or his discretion and as a condition precedent to the issuance thereof, may require the owner of such lost, stolen, or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it or he shall require or to give the corporation a bond in such form, in such sum, and with such surety or sureties as it or he may direct as indemnity against any claim that may be made against the corporation on account of the certificate or certificates alleged to have been lost, stolen, or destroyed or the issuance of the new certificate or certificates.

8.06 Closing of Transfer Books and Record Date . For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive a distribution by the corporation (other than a distribution involving a purchase or redemption by the corporation of any of its own shares) (a “Distribution”) or a share dividend, or in order to make a determination of shareholders for any other proper purpose (other than determining shareholders entitled to consent to action taken by shareholders that is proposed to be taken without a meeting of shareholders), the Board of Directors may provide that the share transfer records shall be closed for a stated period but not to exceed, in any case, 60 days. If the share transfer records shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such records shall be closed for at least 10 days

immediately preceding such meeting. In lieu of closing the share transfer records, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than 60 days and, in case of a meeting of shareholders, not less than 10 days, prior to the date on which the particular action requiring such determination of shareholders is to be taken. If the share transfer records are not closed and no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive a Distribution or a share dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such Distribution or share dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this Section 9.06 , such determination shall apply to any adjournment thereof, except when the determination has been made through the closing of the share transfer records and the stated period of closing has expired. Unless a record date shall have previously been fixed or determined pursuant to this Section 9.06 , whenever action by shareholders is proposed to be taken by consent in writing without a meeting of shareholders, the Board of Directors may fix a record date for the purpose of determining shareholders entitled to consent to that action, which record date shall not precede, and shall not be more than ten days after, the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors and the prior action of the Board of Directors is not required by law, the record date for determining shareholders entitled to consent to action in writing without a meeting shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation. If no record date shall have been fixed by the Board of Directors and prior action of the Board of Directors is required by law, the record date for determining shareholders entitled to consent to action in writing without a meeting shall be at the close of business on the date on which the Board of Directors adopts a resolution taking such prior action.

8.07 Registered Shareholders . The corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law.

ARTICLE IX

GENERAL PROVISIONS

9.01 Dividends . The Board of Directors from time to time may authorize and declare, and the corporation may pay, dividends or other distributions on its outstanding shares in cash, property, or its own shares pursuant to law and subject to the provisions of the Articles of Incorporation and these Bylaws.

9.02 Reserves . The Board of Directors may by resolution create a reserve or reserves out of surplus for any proper purpose or purposes, and may abolish any such reserve in the same manner.

9.03 Negotiable Instruments . All bills, notes, checks, or other instruments for the payment of money shall be signed or countersigned by such officer or officers or such other person or persons and in such manner as are permitted by these Bylaws or in such manner as the Board of Directors from time to time may designate.

9.04 Fiscal Year . The fiscal year of the corporation shall be fixed by resolution of the Board of Directors.

9.05 Seal . The corporation may have a corporate seal and, if the Board of Directors adopts a corporate seal, the corporate seal shall have inscribed thereon the name of the corporation and may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.

9.06 Books and Records . The corporation shall keep books and records of account and shall keep minutes of the proceedings of the shareholders, the Board of Directors, and each committee of the Board of Directors. The corporation shall keep at its registered office or principal place of business, or at the office of its transfer agent or registrar, a record of the original issuance of shares issued by the corporation and a record of each transfer of those shares that have been presented to the corporation for registration of transfer. Such records shall contain the names and addresses of all past and current shareholders of the corporation and the number and class or series of shares issued by the corporation held by each of them. Any books, records, minutes, and share transfer records may be in written form or in any other form capable of being converted into written paper form within a reasonable time.

ARTICLE X

AMENDMENTS

These Bylaws may be amended or repealed or new Bylaws may be adopted by the Board of Directors at any regular or special meeting of the Board, unless the Articles of Incorporation or applicable law reserves the power exclusively to the shareholders in whole or part or the shareholders in amending, repealing or adopting a particular bylaw expressly provide that the Board may not amend or repeal that bylaw. In addition, unless the Articles of Incorporation or a Bylaw adopted by the shareholders provides otherwise as to all or a part of the corporation’s Bylaws, the shareholders may amend or repeal the corporation’s Bylaws.

CERTIFICATE OF SECRETARY

The undersigned does hereby certify that (i) he is the duly elected and qualified Secretary of Capital Southwest Corporation, a Texas corporation and (ii) the foregoing is a true and correct copy of the Second Amended and Restated Bylaws of the corporation as of __________, 2017.

Exhibit 10.1

capital southwest corporation

INDEMNIFICATION AGREEMENT

This Indemnification Agreement (this “ Agreement ”) is made and entered into as of the ______ day of ________________ 20___, by and between Capital Southwest Corporation, a Texas corporation (the “ Corporation ”), and ________________ (“ Indemnitee ”).

RECITALS

A. It is critically important to the Corporation and its shareholders that the Corporation be able to attract and retain the most capable persons reasonably available to serve as directors and officers of the Corporation.

B. In recognition of the need for corporations to be able to induce capable and responsible persons to accept positions in corporate management, Texas law authorizes (and in some instances requires) corporations to indemnify their directors and officers, and further authorizes corporations to purchase and maintain insurance for the benefit of their directors and officers.

C. Federal legislation and rules adopted by the Securities and Exchange Commission and the national securities exchanges have imposed additional disclosure and corporate governance obligations on directors and officers of public companies and have exposed such directors and officers to new and substantially broadened civil liabilities.

D. These legislative and regulatory initiatives have also exposed directors and officers of public companies to a significantly greater risk of criminal proceedings, with attendant defense costs and potential criminal fines and penalties.

E. Indemnitee is a director and/or officer of the Corporation and his/her willingness to serve in such capacity is predicated, in substantial part, upon the Corporation’s willingness to indemnify him/her in accordance with the principles reflected above, to the full extent permitted by the laws of the State of Texas, and upon the other undertakings set forth in this Agreement.

F. Therefore, in recognition of the need to provide Indemnitee with substantial protection against personal liability, in order to procure Indemnitee’s continued service as a director and/or officer of the Corporation and to enhance Indemnitee’s ability to serve the Corporation in an effective manner, and in order to provide such protection pursuant to express contract rights (intended to be enforceable irrespective of, among other things, any amendment to the Corporation’s Articles of Incorporation, as amended (the “ Articles ”) or Second Amended and Restated Bylaws, as further amended from time to time (the “ Bylaws ”) or any change in the composition of the Corporation’s Board of Directors (the “ Board ”)), the Corporation wishes to provide in this Agreement for the indemnification of and the advancement of Expenses (as defined in Article I ) to Indemnitee as set forth in this Agreement and for the continued coverage of Indemnitee under the Corporation’s directors’ and officers’ liability insurance policies.

G. In light of the considerations referred to in the preceding recitals, it is the Corporation’s intention and desire that the provisions of this Agreement be construed liberally, subject to their express terms, to maximize the protections to be provided to Indemnitee hereunder.

NOW, THEREFORE, in order to induce Indemnitee to continue to serve in his/her present capacity, the Corporation and Indemnitee hereby agree as follows:

Certain Definitions

As used herein, the following words and terms shall have the following respective meanings (whether singular or plural):

“ Claim ” means an actual or threatened claim or request for relief.

“ Corporate Status ” means the status of a person as a current or former director or officer of the Corporation or, at the request of the Corporation, as a current or former director, officer, partner, venturer, proprietor, trustee, employee, administrator, agent or similar functionary of another foreign or domestic corporation, other enterprise or organization or trust or fund or employee benefit plan.

“ Disinterested Director ” means a director of the Corporation who is not and was not a party to the Proceeding or Claim in respect of which indemnification is sought by Indemnitee.

“ Expenses ” means all attorneys’ fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing costs, telephone charges, postage, delivery service fees and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating or being or preparing to be a witness in a Proceeding.

“ Governing Authority ” means the person or group of persons entitled to manage and direct the affairs of the Corporation with respect to a matter under the Articles, Bylaws or the Texas Business Organizations Code (the “ TBOC ”). The term includes the Board or other persons authorized to perform the functions of the Board. The term does not include an officer who is acting in the capacity of an officer.

“ Governing Person ” means a person serving as part of the Governing Authority of the Corporation.

“ Incumbent Directors ” means the individuals who, as of the date hereof, are directors of the Corporation and any individual becoming a director subsequent to the date hereof whose election, nomination for election by the Corporation’s shareholders, or appointment, was approved by a vote of at least two-thirds of the then-Incumbent Directors (either by a specific vote or by approval of the proxy statement of the Corporation in which such person is named as a nominee for director, without objection to such nomination); provided , however , that an individual shall not be an Incumbent Director if such individual’s election or appointment to the Board occurs as a result of an actual or threatened election contest (as described in Rule 14a-

12(c) under the Securities Exchange Act of 1934, as amended) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board.

“ Independent Counsel ” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Corporation or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other named (or, as to a threatened matter, reasonably likely to be named) party in the Proceeding or Claim giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, Independent Counsel shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Corporation or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.

“ Official Capacity ” means (a) with respect to a Governing Person, the office of the Governing Person in the Corporation or the exercise of authority by or on behalf of the Governing Person under the Articles, Bylaws or TBOC, and (b) with respect to a person other than a Governing Person, the elective or appointive office, if any, in the Corporation held by the person or the relationship undertaken by the person on behalf of the Corporation.

“ Proceeding ” means (a) a threatened, pending or completed action or other proceeding, whether civil, criminal, administrative, arbitrative or investigative (except one initiated by Indemnitee pursuant to Article V of this Agreement to enforce his/her rights under this Agreement), (b) an appeal of an action or proceeding described by paragraph (a) of this definition, and (c) an inquiry or investigation that could lead to an action or proceeding described by paragraph (a) of this definition.

Indemnification

General . The Corporation shall indemnify, and advance Expenses to, Indemnitee to the full extent permitted by applicable law in effect on the date hereof and to such greater extent as applicable law may thereafter from time to time permit. The rights of Indemnitee provided under the preceding sentence shall include, but shall not be limited to, the right to be indemnified and to have Expenses advanced in all Proceedings to the full extent permitted by Title 1, Chapter 8 of the TBOC (or any successor provision). The provisions set forth in this Agreement are provided in addition to and as a means of furtherance and implementation of, and not in limitation of, the obligations expressed in this Article II .

Additional Indemnity of the Corporation . Indemnitee shall be entitled to indemnification pursuant to this Section 2.2 if, by reason of his/her Corporate Status, he/she is, was or is threatened to be made a party to any Proceeding (except to the extent limited by Section 2.3 ). Pursuant to this Section 2.2 , Indemnitee shall be indemnified against judgments, arbitration awards, mediation amounts, penalties, settlements, fines, excise or similar taxes, including excise taxes assessed against him/her with respect to an employee benefit plan, and reasonable Expenses actually incurred by him/her or on his/her behalf in connection with such Proceeding

or any Claim therein, if (a) he/she acted in good faith, (b) he/she reasonably believed: (i) in the case of conduct in his/her Official Capacity, that his/her conduct was in the Corporation’s best interests; and (ii) in any other case, that his/her conduct was not opposed to the Corporation’s best interests, and (c) in the case of a criminal Proceeding, he/she did not have a reasonable cause to believe his/her conduct was unlawful. Nothing in this Section 2.2 shall limit the benefits of Section 2.1 or any other Section hereunder.

Limitation on Indemnity . The indemnification otherwise available to Indemnitee under Section 2.2 shall be limited to the extent set forth in this Section 2.3 . In the event that Indemnitee is found liable to the Corporation or is found liable because Indemnitee improperly received a personal benefit (a) Indemnitee shall, with respect to the Claim in the Proceeding in which such finding is made, be indemnified only against reasonable Expenses actually incurred by him/her in connection with that Claim and (b) such indemnification will not include judgments, arbitration awards, mediation amounts, penalties, fines, excise or similar taxes, including excise taxes assessed against him/her with respect to an employee benefit plan. Notwithstanding the foregoing, no indemnification against such Expenses shall be made in respect of any Claim in such Proceeding as to which Indemnitee shall have been adjudged to be liable for (a) willful or intentional misconduct in the performance of his/her duty to the Corporation, (b) breach of his/her duty of loyalty owed to the Corporation, or (c) an act or omission not committed in good faith that constitutes a breach of a duty owed by him/her to the Corporation; provided , however, that indemnification against such Expenses shall nevertheless be made by the Corporation to the extent that a court may order in accordance with Title 1, Chapter 8 of the TBOC (or any successor provision) or any other applicable law.

Expenses

Expenses of a Party Who Is Wholly or Partly Successful . Indemnitee shall be indemnified against all reasonable Expenses actually incurred by him/her in connection with a Proceeding in which Indemnitee is a party by reason of his/her Corporate Status and in which Indemnitee is wholly successful, on the merits or otherwise, in the defense of such Proceeding. In the event that Indemnitee is not wholly successful, on the merits or otherwise, in a Proceeding but is successful, on the merits or otherwise, as to any Claim in such Proceeding, the Corporation shall indemnify Indemnitee against all reasonable Expenses actually incurred by him/her or on his/her behalf relating to each such Claim. For purposes of this Section 3.1 and without limitation, the termination of a Claim in a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such Claim.

Expenses of a Witness . To the extent that Indemnitee is, by reason of his/her Corporate Status, a witness or otherwise participates in any Proceeding at a time when he/she is not named a defendant or respondent in the Proceeding, he/she shall be indemnified against all Expenses incurred by him/her or on his/her behalf in connection therewith.

Advancement of Expenses . The Corporation shall pay or reimburse all reasonable Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding or Claim, whether brought by the Corporation or otherwise, in advance of any determination respecting entitlement to indemnification pursuant to Article IV hereof within ten business days after the

receipt by the Corporation of a written request from Indemnitee setting forth a written affirmation of his/her good faith belief that he/she has met the standard of conduct necessary for indemnification under applicable law, confirming his/her obligation under the last sentence of this Section 3.3 and requesting such payment, payments or reimbursement from time to time, whether prior to or after final disposition of such Proceeding or Claim. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee. Indemnitee hereby undertakes and agrees that he/she will repay the Corporation for any Expenses so paid or reimbursed to the extent that it shall ultimately be determined by a court in a final adjudication from which there is no further right of appeal, that Indemnitee has not met the standard of conduct necessary for indemnification under applicable law or is not entitled to be indemnified against such Expenses.

Procedure for Determination of Right to Indemnification

Request for Indemnification . To obtain indemnification under this Agreement, Indemnitee shall submit to the Corporation a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification for a Proceeding or Claim. The Secretary or an Assistant Secretary of the Corporation shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that Indemnitee has requested indemnification. If, at the time of the receipt of such request, the Corporation has directors’ and officers’ liability insurance in effect under which coverage for such Proceeding or Claim is potentially available, the Corporation shall give prompt written notice of such Proceeding or Claim to the applicable insurers in accordance with the procedures set forth in the applicable policies. The Corporation shall provide to Indemnitee a copy of such notice delivered to the applicable insurers, and copies of all subsequent correspondence between the Corporation and such insurers regarding the Proceeding or Claim, in each case substantially concurrently with the delivery or receipt thereof by the Corporation. The failure by Indemnitee to timely notify the Corporation of any Proceeding or Claim shall not relieve the Corporation from any liability hereunder unless, and only to the extent that, the Corporation did not otherwise learn of such Proceeding or Claim and such failure results in forfeiture by the Corporation of substantial defenses, rights or insurance coverage.

Determination of Right to Indemnification .

To the extent that Indemnitee shall have been wholly successful, on the merits or otherwise, in defense of any Proceeding or Claim or in defense of any issue or matter therein, including without limitation dismissal without prejudice, Indemnitee shall be indemnified against judgments, arbitration awards, mediation amounts, penalties, settlements, fines, excise or similar taxes, including excise taxes assessed against him/her with respect to an employee benefit plan, and reasonable Expenses actually incurred by him/her or on his/her behalf in connection with any such Proceeding or Claim or any issue or matter therein in accordance with Article II and no Standard of Conduct Determination (as defined in Section 4.2(b) ) shall be required.

Upon written request by Indemnitee for indemnification pursuant to Section 4.1 hereof, a determination of whether Indemnitee has satisfied any applicable standard of conduct

under Texas law that is a legally required condition precedent to indemnification of Indemnitee hereunder with respect to Indemnitee’s entitlement thereto (a “ Standard of Conduct Determination ”) shall be made in the specific case in accordance with Title 1, Chapter 8 of the TBOC (or any successor provision). Indemnitee will cooperate with the person or persons making such Standard of Conduct Determination, including providing to such person or persons, upon reasonable advance request, any documentation or information that is not privileged or otherwise protected from disclosure and that is reasonably available to Indemnitee and reasonably necessary to such determination. The Corporation shall indemnify and hold harmless Indemnitee against and, if requested by Indemnitee, shall reimburse Indemnitee for, or advance to Indemnitee, within five business days of such request, any and all costs and expenses (including attorneys’ and experts’ fees and expenses) incurred by Indemnitee in so cooperating with the person or persons making such Standard of Conduct Determination.

The Corporation shall use its reasonable best efforts to cause any Standard of Conduct Determination required under Section 4.2(b) to be made as promptly as practicable. If (i) the person or persons empowered or selected under this Section 4.2 to make the Standard of Conduct Determination shall not have made a determination within 30 days after the later of (A) receipt by the Corporation of written notice from Indemnitee advising the Corporation of the final disposition of the applicable Proceeding or Claim (the date of such receipt being the “ Notification Date ”) and (B) the selection of special legal counsel, if such determination is to be made by special legal counsel, that is permitted under the provisions of Section 4.2(e) to make such determination, and (ii) Indemnitee shall have fulfilled his/her obligations set forth in the second sentence of Section 4.2(b) , then Indemnitee shall be deemed to have satisfied the applicable standard of conduct; provided that such 30-day period may be extended for a reasonable time, not to exceed an additional 30 days, if the person or persons making such determination in good faith requires such additional time for obtaining or evaluating documentation and/or information relating thereto; and provided, further, that the 30-day limitation set forth in this Section 4.2(c) shall not apply and such period shall be extended as necessary if, within 30 days after receipt by the Corporation of the request for indemnification under Section 4.1 , the Board has resolved to submit such determination to the shareholders for their consideration at an annual meeting thereof to be held within 90 calendar days after such receipt and such determination is made thereat, or a special meeting of shareholders is called within 30 calendar days after such receipt for the purpose of making such determination, such meeting is held for such purpose within 60 calendar days after having been so called and such determination is made thereat.

If (i) Indemnitee shall be entitled to indemnification hereunder pursuant to Section 4.2(a) , (ii) no determination of whether Indemnitee has satisfied any applicable standard of conduct under Texas law is a legally required condition precedent to indemnification of Indemnitee hereunder, or (iii) Indemnitee has been determined or deemed pursuant to Section 4.2(b) or (c) to have satisfied any applicable standard of conduct under Texas law that is a legally required condition precedent to indemnification of Indemnitee hereunder, then the Corporation shall pay to Indemnitee, within five business days after the later of (x) the Notification Date in respect of the applicable Proceeding or Claim and (y) the earliest date on which the applicable criterion specified in clause (i) , (ii) or (iii) above shall have been satisfied, all reasonable Expenses incurred by him/her in connection with the applicable Proceeding or Claim.

If a Standard of Conduct Determination is to be made by special legal counsel pursuant to Title 1, Chapter 8 of the TBOC (or any successor provision), such special legal counsel must be Independent Counsel (as defined in Article I hereof) and the Corporation shall give written notice to Indemnitee advising him/her of the identity of the special legal counsel so selected. Indemnitee may, within five business days after receiving written notice of selection from the Corporation, deliver to the Corporation a written objection to such selection; provided , however , that such objection may be asserted only on the ground that the special legal counsel so selected does not satisfy the criteria set forth in the definition of “Independent Counsel” in Article 1 , and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person or firm so selected shall act as special legal counsel. If such written objection is properly and timely made and substantiated, (i) the special legal counsel so selected may not serve as special legal counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit, and (ii) the Corporation may, at its option, select an alternative special legal counsel and give written notice to Indemnitee advising him/her of the identity of the alternative special legal counsel so selected, in which case the provisions of the two immediately preceding sentences and clause (i) of this sentence shall apply to such subsequent selection and notice. If applicable, the provisions of clause (ii) of the immediately preceding sentence shall apply to successive alternative selections. If no special legal counsel that is permitted under the foregoing provisions of this Section 4.2(e) to make the Standard of Conduct Determination shall have been selected within 30 days after the Corporation gives its initial notice pursuant to the first sentence of this Section 4.2(e) , Indemnitee may petition the courts of the State of Texas for resolution of any objection which shall have been made by Indemnitee to the Corporation’s selection of special legal counsel and/or for the appointment as special legal counsel of a person or firm selected by the Court or by such other person as the Court shall designate, and the person or firm with respect to whom all objections are so resolved or the person or firm so appointed will act as special legal counsel. In all events, the Corporation shall pay all of the reasonable fees and expenses of the special legal counsel incurred in connection with the special legal counsel’s determination pursuant to Section 4.2(b) .

No Other Presumption . The termination of any Proceeding or of any Claim by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) by itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did meet the requirements for indemnification under Section 2.2 . Indemnitee shall be deemed to have been found liable in respect of any Claim only after he/she shall have been so adjudged by a court of competent jurisdiction after exhaustion of all appeals therefrom.

Certain Remedies of Indemnitee

Indemnitee Entitled to Adjudication in an Appropriate Court . In the event (a) a determination is made pursuant to Article IV that Indemnitee is not entitled to indemnification under this Agreement, or (b) there has been any failure by the Corporation to make timely payment or advancement of any amounts due hereunder, Indemnitee shall be entitled to commence an action seeking an adjudication in an appropriate court of the State of Texas, or in any other court of competent jurisdiction, of his/her entitlement to such indemnification or

advancement of Expenses. Indemnitee shall commence such action seeking an adjudication within 180 days following the date on which Indemnitee first has the right to commence such action pursuant to this Section 5.1 , or such right shall expire. The Corporation agrees not to oppose Indemnitee’s right to seek any such adjudication.

Adverse Determination Not to Affect any Judicial Proceeding . In the event that a determination shall have been made pursuant to Article IV that Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Article V shall be conducted in all respects as a de novo trial on the merits, and Indemnitee shall not be prejudiced by reason of such initial adverse determination. In any judicial proceeding commenced pursuant to this Article V , the Corporation shall have the burden of proving, by clear and convincing evidence, that Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be.

Corporation Bound by Determination Favorable to Indemnitee in any Judicial Proceeding . If a determination shall have been made or deemed to have been made pursuant to Article IV that Indemnitee is entitled to indemnification, the Corporation shall be bound by such determination in any judicial proceeding commenced pursuant to this Article V , absent a knowing misstatement by Indemnitee of a material fact, or a knowing omission of a material fact necessary to make a statement by Indemnitee not materially misleading, in connection with the request for indemnification.

Corporation Bound by this Agreement . The Corporation shall be precluded from asserting in any judicial proceeding commenced pursuant to this Article V that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Corporation is bound by all the provisions of this Agreement.

Indemnitee Entitled to Expenses of Judicial Proceeding . In the event that Indemnitee seeks a judicial adjudication of his/her rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Corporation, and shall be indemnified by the Corporation against, any and all reasonable expenses (of the types described in the definition of Expenses in Article I ) incurred by him/her in such judicial adjudication but only if he/she prevails therein. If it shall be determined in said judicial adjudication that Indemnitee is entitled to receive part but not all of the indemnification or advancement of expenses or other benefit sought, the expenses incurred by Indemnitee in connection with such judicial adjudication shall be reasonably prorated in good faith by counsel for Indemnitee.

No Diminishment of Rights . The Corporation shall not adopt any amendment to the Articles or Bylaws the effect of which would be to deny, diminish or encumber Indemnitee’s rights to indemnity pursuant to the Articles, Bylaws, the TBOC or any other applicable law as applied to any act or failure to act occurring in whole or in part prior to the date (the “ Effective Date ”) upon which the amendment was approved by the Board or the shareholders of the Corporation, as the case may be. In the event that the Corporation shall adopt any amendment to the Articles or Bylaws the effect of which is to so deny, diminish or encumber Indemnitee’s rights to indemnity, such amendment shall apply only to acts or failures to act occurring entirely after the Effective Date thereof. No repeal or amendment of any law of the State of Texas shall

in any way diminish or adversely affect the rights of Indemnitee pursuant to this Agreement in respect of any occurrence or matter arising prior to any such repeal or amendment.

Miscellaneous

Non-Exclusivity . The rights of Indemnitee to receive indemnification and advancement of Expenses under this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Articles or Bylaws, any other agreement, vote of shareholders or a resolution of directors of the Corporation, or otherwise. No amendment or alteration of the Articles or Bylaws or any provision thereof shall adversely affect Indemnitee’s rights hereunder and such rights shall be in addition to any rights Indemnitee may have under the Articles, Bylaws, the TBOC or otherwise. To the extent that there is a change in the TBOC (whether by statute or judicial decision) which allows greater indemnification by agreement than would be afforded currently under the Articles or Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by virtue of this Agreement the greater benefit so afforded by such change.

Insurance and Subrogation .

For the duration of Indemnitee’s service as a director and/or officer of the Corporation, and thereafter for so long as Indemnitee shall be subject to any pending or possible Proceeding or Claim, the Corporation shall use commercially reasonable efforts (taking into account the scope and amount of coverage available relative to the cost thereof) to cause to be maintained in effect policies of directors’ and officers’ liability insurance providing coverage for directors and/or officer of the Corporation. The Corporation shall provide Indemnitee with a copy of all directors’ and officers’ liability insurance applications, binders, policies, declarations, endorsements and other related materials. Without limiting the generality or effect of the two immediately preceding sentences, the Corporation shall not discontinue or significantly reduce the scope or amount of coverage from one policy period to the next (i) without the prior approval thereof by a majority vote of the Incumbent Directors, even if less than a quorum, or (ii) if at the time that any such discontinuation or significant reduction in the scope or amount of coverage is proposed there are no Incumbent Directors, without the prior written consent of Indemnitee (which consent shall not be unreasonably withheld or delayed). In all policies of directors’ and officers’ liability insurance obtained by the Corporation, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits, subject to the same limitations, as are accorded to the Corporation’s directors and officers most favorably insured by such policy. The Corporation may, but shall not be required to, create a trust fund, grant a security interest or use other means, including without limitation a letter of credit, to ensure the payment of such amounts as may be necessary to satisfy its obligations to indemnify and advance Expenses pursuant to this Agreement.

In the event of any payment by the Corporation under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the related rights of recovery of Indemnitee against other persons or entities (other than Indemnitee’s successors). Indemnitee shall execute all papers reasonably required to evidence such rights (all of

Indemnitee’s reasonable Expenses related thereto to be reimbursed by or, at the option of Indemnitee, advanced by the Corporation).

The Corporation shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

Defense of Claims . The Corporation shall be entitled to participate in the defense of any Proceeding or Claim or to assume the defense thereof, with counsel reasonably satisfactory to Indemnitee; provided that if Indemnitee believes, after consultation with counsel selected by Indemnitee, that (a) the use of counsel chosen by the Corporation to represent Indemnitee would present such counsel with an actual or potential conflict, (b) the named parties in any such Proceeding or Claim (including any impleaded parties) include both the Corporation and Indemnitee and Indemnitee shall conclude, based on the advice of counsel, that there may be one or more legal defenses available to him/her that are different from or in addition to those available to the Corporation, or (c) any such representation by such counsel would be precluded under the applicable standards of professional conduct then prevailing, then Indemnitee shall be entitled to retain separate counsel (but not more than one law firm plus, if applicable, local counsel in respect of any particular Proceeding or Claim) at the Corporation’s expense. The Corporation shall not be liable to Indemnitee under this Agreement for any amounts paid in settlement of any Proceeding or Claim effected without the Corporation’s prior written consent. The Corporation shall not, without the prior written consent of Indemnitee, effect any settlement of any Proceeding or Claim to which Indemnitee is, or could have been, a party unless such settlement solely involves the payment of money and includes a complete and unconditional release of Indemnitee from all liability on any claims that are the subject matter of such Proceeding or Claim. Neither the Corporation nor Indemnitee shall unreasonably withhold its consent to any proposed settlement; provided , that Indemnitee may withhold consent to any settlement that does not provide a complete and unconditional release of Indemnitee.

Exculpation of Directors . If Indemnitee is or was a director of the Corporation, he/she shall not in that capacity be liable to the Corporation or its shareholders for monetary damages for an act or omission in Indemnitee’s capacity as a director, except that Indemnitee’s liability shall not be eliminated or limited for: (a) a breach of Indemnitee’s duty of loyalty to the Corporation or its shareholders, (b) an act or omission not committed in good faith that constitutes a breach of duty owed by Indemnitee to the Corporation or an act or omission that involves intentional misconduct or a knowing violation of the law, (c) a transaction from which Indemnitee received an improper benefit, whether or not the benefit resulted from an action taken within the scope of Indemnitee’s office, or (d) an act or omission for which the liability of Indemnitee is expressly provided for by statute.

Duration of Agreement . This Agreement shall continue for so long as Indemnitee serves as a director or officer of the Corporation or, at the request of the Corporation, as a director, officer, partner, venturer, proprietor, trustee, employee, administrator, agent or similar functionary of another foreign or domestic corporation, other enterprise or organization or employee benefit plan, and thereafter shall survive until and terminate upon the later to occur of (a) the final termination of all pending Proceedings in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any proceeding

commenced by Indemnitee pursuant to Article V relating thereto, and (b) the expiration of all statutes of limitation applicable to possible Claims arising out of Indemnitee’s Corporate Status.

Successors and Binding Agreement .

The Corporation shall require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Corporation, by agreement in form and substance reasonably satisfactory to Indemnitee and his/her counsel, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Corporation would be required to perform if no such succession had taken place. This Agreement shall be binding upon and inure to the benefit of the Corporation and any successor to the Corporation, including without limitation any person acquiring directly or indirectly all or substantially all of the business or assets of the Corporation whether by purchase, merger, consolidation, reorganization or otherwise (and such successor will thereafter be deemed the “ Corporation ” for purposes of this Agreement), but shall not otherwise be assignable or delegable by the Corporation.

This Agreement shall inure to the benefit of and be enforceable by Indemnitee’s personal or legal representatives, executors, administrators, heirs, distributees, legatees and other successors.

This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 6.6(a) and 6.6(b) . Without limiting the generality or effect of the foregoing, Indemnitee’s right to receive payments hereunder shall not be assignable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by Indemnitee’s will or by the laws of descent and distribution, and, in the event of any attempted assignment or transfer contrary to this Section 6.6(c) , the Corporation shall have no liability to pay any amount so attempted to be assigned or transferred.

Legal Fees and Expenses . It is the intent of the Corporation that Indemnitee not be required to incur legal fees or other Expenses associated with the interpretation, enforcement or defense of Indemnitee’s rights under this Agreement by litigation or otherwise because the cost and expense thereof would substantially detract from the benefits intended to be extended to Indemnitee hereunder. Accordingly, without limiting the generality or effect of any other provision hereof, if it should appear to Indemnitee that the Corporation has failed to comply with any of its obligations under this Agreement or in the event that the Corporation or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, Indemnitee the benefits provided or intended to be provided to Indemnitee hereunder, the Corporation irrevocably authorizes Indemnitee from time to time to retain counsel of Indemnitee’s choice, at the expense of the Corporation as hereafter provided, to advise and represent Indemnitee in connection with any such interpretation, enforcement or defense, including without limitation the initiation or defense of any litigation or other legal action, whether by or against the Corporation or any director, officer, shareholder or other person affiliated with the Corporation, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between the Corporation and such counsel, the Corporation

irrevocably consents to Indemnitee’s entering into an attorney-client relationship with such counsel, and in that connection the Corporation and Indemnitee agree that a confidential relationship shall exist between Indemnitee and such counsel. Without respect to whether Indemnitee prevails, in whole or in part, in connection with any of the foregoing, the Corporation will pay and be solely financially responsible for any and all attorneys’ and related fees and expenses incurred by Indemnitee in connection with any of the foregoing to the fullest extent permitted or required by the laws of the State of Texas in effect on the date hereof or as such laws may from time to time hereafter be amended or otherwise changed to increase the scope of such permitted or required payment of such fees and expenses.

Notice by Each Party . Indemnitee agrees to promptly notify the Corporation in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document or communication relating to any Proceeding or Claim for which Indemnitee may be entitled to indemnification or advancement of Expenses hereunder. The Corporation agrees to promptly notify Indemnitee in writing, as to the pendency of any Proceeding or Claim which may involve a claim against Indemnitee for which Indemnitee may be entitled to indemnification or advancement of Expenses hereunder.

Amendment . This Agreement may not be modified or amended except by a written instrument executed by or on behalf of each of the parties hereto.

Waivers . The observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) by the party entitled to enforce such term only by a writing signed by the party against which such waiver is to be asserted. Unless otherwise expressly provided herein, no delay on the part of any party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party hereto of any right, power or privilege hereunder operate as a waiver of any other right, power or privilege hereunder nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder.

Entire Agreement . This Agreement and the documents expressly referred to herein constitute the entire agreement between the parties hereto with respect to matters covered hereby, and any other prior or contemporaneous oral or written understandings or agreements with respect to the matters covered hereby are expressly superseded by this Agreement. To the extent the Corporation previously entered into an agreement with Indemnitee providing for indemnification of and the advancement of Expenses to Indemnitee, the Corporation does not intend this Agreement to reduce or otherwise limit in any manner the Corporation’s obligations, or Indemnitee’s rights, under such prior agreement.

Severability . If any provision of this Agreement or the application of such provision to any person or circumstance, shall be judicially declared to be invalid, unenforceable or void, such decision will not have the effect of invalidating or voiding the remainder of this Agreement or affect the application of such provision to other persons or circumstances, and the parties hereto agree that the part or parts of this Agreement so held to be invalid, unenforceable or void will be deemed to have been stricken herefrom and the remainder of this Agreement will have the same force and effectiveness as if such part or parts had never been included herein;

provided , however , that the parties shall negotiate in good faith with respect to an equitable modification of the provision or application thereof declared to be invalid, unenforceable or void. Any such finding of invalidity or unenforceability shall not prevent the enforcement of such provision in any other jurisdiction to the maximum extent permitted by applicable law.

Notices . Unless otherwise expressly provided herein, all notices, requests, demands, consents, waivers, instructions, approvals and other communications hereunder shall be in writing and shall be deemed to have been duly given if personally delivered to or mailed, certified mail return receipt requested, first-class postage paid, addressed as follows: (i) if to the Corporation, Capital Southwest Corporation, 5400 Lyndon B. Johnson Freeway, Suite 1300, Dallas, Texas, 75240, Attn: Secretary, and (ii) if to Indemnitee, at the address specified on the signature page of this Agreement, or to such other address or to such other individuals as any party shall have last designated by notice to the other parties. All notices and other communications given to any party in accordance with the provisions of this Agreement shall be deemed to have been given when delivered or sent to the intended recipient thereof in accordance with the provisions of this Section 6.13 .

Governing Law; Consent to Jurisdiction . This Agreement shall be construed in accordance with and governed by the laws of the State of Texas without regard to the principles of conflict of laws. Each of the Corporation and Indemnitee hereby absolutely and irrevocably consents and submits to the jurisdiction of the courts of the State of Texas and of any Federal court located in Dallas County, Texas in connection with any actions or proceedings arising out of or relating to this Agreement.

Headings . The Article and Section headings in this Agreement are for convenience of reference only, and shall not be deemed to alter or affect the meaning or interpretation of any provisions hereof.

Counterparts . This Agreement may be executed in two counterparts, each of which shall be deemed to be an original and both of which together shall be deemed to be one and the same instrument.

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered to be effective as of the date first above written.

CAPITAL SOUTHWEST CORPORATION

By:___________________________________________________________________________________________________

Name:

Title:

INDEMNITEE

Indemnitee Notice Address :

Exhibit 10.2

Execution Version

INCREMENTAL ASSUMPTION AGREEMENT

dated as of August 18, 2017,

made by

LEGACYTEXAS BANK,

as Assuming Lender,

relating to the

SENIOR SECURED REVOLVING CREDIT AGREEMENT

dated as of August 30, 2016,

among

CAPITAL SOUTHWEST CORPORATION,

as Borrower,

the Lenders from time to time party thereto,

ING CAPITAL LLC,

as Administrative Agent,

Arranger and Bookrunner

and

TEXAS CAPITAL BANK, N.A.,

as Documentation Agent,

INCREMENTAL ASSUMPTION AGREEMENT, dated as of August 18, 2017(this “ Assumption Agreement ”), by and among CAPITAL SOUTHWEST CORPORATION (the “ Borrower ”), ING CAPITAL LLC (“ ING ”), in its capacity as Administrative Agent (in such capacity, the “ Administrative Agent ”), and LEGACYTEXAS BANK (the “ Assuming Lender ”), relating to the SENIOR SECURED REVOLVING CREDIT AGREEMENT, dated as of August 30, 2016 (as amended, restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among the Borrower, the Administrative Agent, the several lenders from time to time party to the Credit Agreement and TEXAS CAPITAL BANK, N.A., as documentation agent.

A. The Borrower has requested that the Assuming Lender provide a Commitment in an amount equal to $15,000,000 (the “ Incremental Commitment ”), pursuant to Section 2.06(f) of the Credit Agreement.

B. The Assuming Lender is willing to make such an Incremental Commitment to the Borrower on the terms and subject to the conditions set forth herein and in the Credit Agreement.

Accordingly, in consideration of the mutual agreements herein contained and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto agree as follows:

SECTION 1. Defined Terms; Interpretation; Etc . Capitalized terms used and not defined herein shall have the meanings assigned to such terms in the Credit Agreement. The rules of construction set forth in Section 1.03 of the Credit Agreement shall apply equally to this Assumption Agreement. This Assumption Agreement shall be a “Loan Document” for all purposes of the Credit Agreement and the other Loan Documents.

SECTION 2. Incremental Commitment . (a) Pursuant to Section 2.06(f) of the Credit Agreement and subject to the terms and conditions hereof, the Assuming Lender hereby agrees to make the Incremental Commitment to the Borrower effective on and as of the Increase Effective Date (as defined below). The Incremental Commitment shall constitute an additional “Commitment” and a “Commitment Increase” for all purposes of the Credit Agreement and the other Loan Documents, and the Increase Effective Date shall be the “Commitment Increase Date” of the Incremental Commitment for purposes of Section 2.06(f) of the Credit Agreement.

(b) The terms of the Incremental Commitment shall be the same as the other Commitments made under the Credit Agreement.

(c) On the Increase Effective Date, in connection with the adjustments to any outstanding Loans and participation interests contemplated by Section 2.06(f)(iv) of the Credit Agreement, the Assuming Lender shall make a payment to the Administrative Agent, for account of the other Lenders, in an amount calculated by the Administrative Agent in accordance with such section, so that after giving effect to such payment and to the distribution thereof to the other Lenders in accordance with such section, the Loans are held ratably by the Lenders in accordance with the respective Commitments of such

Lenders (after giving effect to the Incremental Commitment and any other Commitment Increases, if any, occurring on the date hereof).

(d) As of the Increase Effective Date, the Assuming Lender shall become a Lender under the Credit Agreement and shall have all rights and obligations of a Lender under the Credit Agreement and any other documents or instruments delivered pursuant thereto.

SECTION 3. Conditions Precedent to Incremental Commitment . This Assumption Agreement, and the obligations of the Assuming Lender to make its Incremental Commitment, shall become effective on and as of the Business Day (the “ Increase Effective Date ”) occurring on or before August 18, 2017, on which the following conditions precedent have been satisfied:

(a) the Administrative Agent shall have received counterparts of this Assumption Agreement that, when taken together, bear the signatures of the Borrower, the Administrative Agent and the Assuming Lender;

(b) on the date hereof, each of the conditions set forth or referred to in Section 2.06(f)(i) of the Credit Agreement shall be satisfied, and pursuant to Section 2.06(f)(ii)(x) of the Credit Agreement the Administrative Agent shall have received a certificate of a duly authorized officer of the Borrower dated the date hereof certifying as to the foregoing;

(c) (i) the Assuming Lender shall have received all fees due to such Assuming Lender on the date hereof pursuant to any outstanding fee letters or commitment letters by and between the Borrower and the Assuming Lender, and (ii) ING, in its capacity as the Lead Arranger, shall have received all fees due to it on the date hereof pursuant to any outstanding fee letters by and between the Borrower and ING;

(d) the Administrative Agent shall have received for the account of the Lenders the amounts, if any, payable under Section 2.13 of the Credit Agreement as a result of the adjustments of Borrowings pursuant to Section 2(c) of this Assumption Agreement; and

(e) pursuant to Section 9.03 of the Credit Agreement, the Administrative Agent shall have received all other reasonable and documented out-of- pocket fees and expenses related to this Agreement owing on the date hereof.

SECTION 4. Representations and Warranties of the Borrower . To induce the other parties hereto to enter into this Assumption Agreement, the Borrower represents and warrants to the Administrative Agent and the Assuming Lender that, as of the date hereof:

(a) This Assumption Agreement has been duly authorized, executed and delivered by the Borrower, and constitutes a legal, valid and binding obligation of the Borrower in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting

the enforcement of creditors’ rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law).

(b) Each of the representations and warranties made by the Borrower in or pursuant to the Loan Documents are true and correct in all material respects as if made on such date (except to the extent they relate specifically to an earlier date, in which case they are true and correct in all material respects as of such earlier date, and unless a representation or warranty is already qualified by materiality or by Material Adverse Effect, in which case it is true and correct in all respects).

(c) No Default or Event of Default has occurred and is continuing on the date hereof or shall result from the Incremental Commitment.

SECTION 5. Representations, Warranties and Covenants of the Assuming Lender . The Assuming Lender (a) represents and warrants that (i) from and after the Increase Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of the Incremental Commitment, shall have the obligations of a Lender thereunder, and (ii) it has received a copy of the Credit Agreement, together with copies of the statement of assets and liabilities and partners’ capital and the related statements of operations, statement of changes in net assets, statement of cash flows and related schedule of investments delivered pursuant to Section 4.01(c) thereof, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assumption Agreement and to make the Incremental Commitment on the basis of which it has made such analysis and decision independently and without reliance on the Administrative Agent or any other Lender; and (b) agrees that (i) it will, independently and without reliance on the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.

SECTION 6. Consent and Reaffirmation . (a) The Borrower agrees that, notwithstanding the effectiveness of this Assumption Agreement, the Guarantee and Security Agreement and each of the other Security Documents continue to be in full force and effect, (b) the Borrower acknowledges that the terms “Revolving Credit Agreement Obligations,” “Guaranteed Obligations” and “Secured Obligations” (each as defined in the Guarantee and Security Agreement) include any and all Loans made now or in the future by the Assuming Lender in respect of the Incremental Commitment and all interest and other amounts owing in respect thereof under the Loan Documents (including all interest and expenses accrued or incurred subsequent to the commencement of any bankruptcy or insolvency proceeding with respect to the Borrower, whether or not such interest or expenses are allowed as a claim in such proceeding), and (c) the Borrower confirms its grant of a security interest in its assets as Collateral for the Secured Obligations, all as provided in the Loan Documents as originally executed (and amended prior to the date hereof and supplemented hereby). On the Increase Effective Date, each reference in the Credit Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or words of similar import shall mean and be a reference to the Credit Agreement as modified by this

Agreement and each reference in any other Loan Document shall mean the Credit Agreement as modified hereby.

SECTION 7. Notices . All notices hereunder shall be given in accordance with the provisions of Section 9.01 of the Credit Agreement.

SECTION 8. Expenses . The Borrower agrees to pay all reasonable out-of-pocket expenses incurred by the Administrative Agent in connection with this Assumption Agreement in accordance with the Credit Agreement, including the reasonable and documented fees, charges and disbursements of one outside counsel for the Administrative Agent.

SECTION 9. Counterparts . This Assumption Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same contract. Delivery of an executed counterpart of a signature page of this Assumption Agreement by facsimile or electronic transmission shall be as effective as delivery of a manually executed counterpart hereof.

SECTION 10. Applicable Law; Jurisdiction; Consent to Service of Process; Other . THIS ASSUMPTION AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. THE PROVISIONS OF SECTION 9.09 OF THE CREDIT AGREEMENT (AND ALL OTHER APPLICABLE PROVISIONS OF ARTICLE IX OF THE CREDIT AGREEMENT) ARE HEREBY INCORPORATED BY REFERENCE.

SECTION 11. Headings . The headings of this Assumption Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning hereof.

SECTION 12. No Third Party Beneficiaries . This Assumption Agreement is intended to be solely for the benefit of the parties hereto and is not intended to confer any benefits upon, or create any rights in favor of, any other person or entity. No person or entity other than the parties hereto shall have any rights under or be entitled to rely upon this Assumption Agreement.

SECTION 13. Acknowledgments . Pursuant to Section 2.06(f)(i)(C) of the Credit Agreement, each of the Administrative Agent and the Borrower consents to the Assuming Lender becoming a Lender under the Credit Agreement and to the Commitment Increases provided for herein. For the avoidance of doubt, pursuant to Section 2.06(f)(iv) of the Credit Agreement, the Borrower hereby acknowledges, and consents to the fact, that the Increase Effective Date (and thereby the Commitment Increase Date with respect to the Incremental Commitment provided for herein) may occur on a day other than the last day of an Interest Period.

[ Remainder of page intentionally left blank ]

IN WITNESS WHEREOF, the parties hereto have caused this Assumption Agreement to be duly executed and delivered by their proper and duly authorized representatives as of the day and year first above written.

	CAPITAL SOUTHWEST CORPORATION,
	as Borrower


	By:
	Name:
	Title:

	ING CAPITAL LLC,
	as Administrative Agent


	By:
	Name:
	Title:


	By:
	Name:
	Title:

	LEGACYTEXAS BANK,
	as Assuming Lender


	By
	Name:
	Title:

Exhibit 10.3

THIRD AMENDMENT TO THE

CAPITAL SOUTHWEST CORPORATION

2010 RESTRICTED STOCK AWARD PLAN

WHEREAS, Capital Southwest Corporation (the “Company”) previously adopted the Capital Southwest Corporation 2010 Restricted Stock Award Plan (as previously amended, the “2010 Plan”);

WHEREAS, on August 22, 2017 the Company received an exemptive order from the U.S. Securities and Exchange Commission that allows it to withhold shares of its common stock from a 2010 Plan participant to satisfy tax withholding obligations related to the vesting of restricted stock pursuant to the 2010 Plan;

WHEREAS, Section 14 of the 2010 Plan provides that the Board of Directors of the Company (the “Board”), may, subject to certain limitations, amend the 2010 Plan; and

WHEREAS, the Board has determined that it is in the best interests of the Company to amend the 2010 Plan, effective as of the date of the exemptive order, as provided below.

NOW, THEREFORE, the 2010 Plan is hereby amended as follows:

1. Section 2(q) of the 2010 Plan is deleted in its entirety and replaced with the following:

(q) “Fair Market Value” on any date means the closing sales price of the Common Stock on the Nasdaq Global Select Market (or any other such exchange on which the Common Stock may be traded in the future) on the date of determination.

Whenever possible, the determination of Fair Market Value by the Committee shall be based on the prices reported in The Wall Street Journal. The Committee’s determination of Fair Market Value shall be conclusive and binding on all persons.

2. Section 2(z) of the 2010 Plan is deleted in its entirety and replaced with the following:

(z) “Subsidiary” means Capital Southwest Management Company.

3. Section 13 of the 2010 Plan is deleted in its entirety and replaced with the following:

13. TAX WITHHOLDING

The Company’s obligation to make cash payments pursuant to a Restricted Stock Award or deliver Shares, or any other event with respect to rights and benefits hereunder, shall be subject to the Participant’s satisfaction of all applicable federal, state and local income and employment tax withholding obligations. To the extent that the Company is required to withhold any federal, state or local income and employment taxes in respect of any compensation income realized by the Participant in respect of Shares acquired pursuant to a Restricted Stock Award, or in respect of any Shares becoming vested, then the Company shall deduct from any payments of

any kind otherwise due to such Participant the aggregate amount of such federal, state or local income and employment taxes required to be so withheld. If no such payments are due or become due to such Participant, or if such payments are insufficient to satisfy such federal, state or local income or employment taxes, then such Participant will be required to pay to the Company, or make other arrangements satisfactory to the Company regarding payment to the Company of, the aggregate amount of any such taxes. The Committee, in its discretion, may permit the Participant to satisfy the obligation, in whole or in part, by irrevocably electing to have the Company withhold Shares, or to deliver to the Company Shares that he or she already owns, having a value equal to the amount required to be withheld. The value of the Shares to be withheld, or delivered to the Company, shall be based on the Fair Market Value of Shares on the date the amount of tax to be withheld is determined. As an alternative, the Company may retain, or sell without notice, a number of such Shares sufficient to cover the amount required to be withheld.

4. The amendments set forth above shall be effective as of August 22, 2017.

5. The 2010 Plan, as amended hereby, shall continue in full force and effect.

IN WITNESS WHEREOF, the Company has caused this Third Amendment to the 2010 Plan to be executed by its duly authorized officer, on this 7th day of November, 2017.


	CAPITAL SOUTHWEST CORPORATION By: /s/ Michael S. Sarner
	Name: Michael S. Sarner
	Title: Chief Financial Officer, Secretary and Treasurer

Exhibit 10.4

THIRD AMENDMENT TO THE

CAPITAL SOUTHWEST CORPORATION

2009 stock incentive plan

WHEREAS, Capital Southwest Corporation (the “Company”) previously adopted the Capital Southwest Corporation 2009 Stock Incentive Plan (as previously amended, the “2009 Plan”);

WHEREAS, on August 22, 2017 the Company received an exemptive order from the U.S. Securities and Exchange Commission that allows the Company to withhold shares of its common stock to satisfy the exercise of options to purchase shares of the Company’s common stock that were granted pursuant to the 2009 Plan;

WHEREAS, Section 18 of the 2009 Plan provides that the Board of Directors of the Company (the “Board”), may, subject to certain limitations, amend the 2009 Plan; and

WHEREAS, the Board has determined that it is in the best interests of the Company to amend the 2009 Plan, effective as of the date of the exemptive order, as provided below.

NOW, THEREFORE, the 2009 Plan is hereby amended as follows:

1. Section 2(r) of the 2009 Plan is deleted in its entirety and replaced with the following:

(r) “Fair Market Value” on any date means the closing sales price of the Common Stock on the Nasdaq Global Select Market (or any other such exchange on which the Common Stock may be traded in the future) on the date of determination.

2. Section 5(c)(ii)B of the 2009 Plan is deleted in its entirety and replaced with the following:

B. Shares withheld by, or otherwise remitted (either by actual delivery, attestation, or net exercise) to satisfy a Participant’s tax withholding obligations upon the lapse of restrictions on a Restricted Stock, the exercise of Options granted under the Plan or upon any other payment or issuance of Shares under the Plan.

3. Section 9 of the 2009 Plan is deleted in its entirety and replaced with the following:

9. METHOD OF EXERCISE OF OPTIONS

Subject to any applicable Award Agreement, any Option may be exercised by the Participant in whole or in part at such time or times, and the Participant may make payment of the Exercise Price in such form or forms, including, without limitation, payment by delivery of cash or Common Stock owned by the Participant for more

than six months having a Fair Market Value on the exercise date equal to the total Exercise Price, or by any combination of cash and Shares, including (except with respect to any Incentive Stock Options) by delivery of a notice of “net exercise” to or as directed by the Company, as a result of which the Participant will receive (i) the number of Shares underlying the portion of the Option exercised less (ii) such number of Shares as is equal to (X) the aggregate Exercise Price for the portion of the Option being exercised divided by (Y) the Fair Market Value on the date of exercise. The Participant may deliver shares of Common Stock either by attestation or by the delivery of a certificate or certificates for shares duly endorsed for transfer to the Company.

4. The amendments set forth above shall be effective as of August 22, 2017.

5. The 2009 Plan, as amended hereby, shall continue in full force and effect.

IN WITNESS WHEREOF, the Company has caused this Third Amendment to the 2009 Plan to be executed by its duly authorized officer on this 7th day of November 2017.


	CAPITAL SOUTHWEST CORPORATION By: /s/ Michael S. Sarner
	Name: Michael S. Sarner
	Title: Chief Financial Officer, Secretary and Treasurer

Exhibit 31.1

CERTIFICATIONS

I, Bowen S. Diehl, certify that:

I have reviewed this quarterly report on Form 10-Q of Capital Southwest Corporation (the “registrant”);

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: November 7, 2017	By:	/s/ Bowen S. Diehl
		Bowen S. Diehl
		President and Chief Executive Officer

Exhibit 31.2

CERTIFICATIONS

I, Michael S. Sarner, certify that:

I have reviewed this quarterly report on Form 10-Q of Capital Southwest Corporation (the “registrant”);

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: November 7, 2017	By:	/s/ Michael S. Sarner
		Michael S. Sarner
		Chief Financial Officer

Exhibit 32.1

Certification of the President and Chief Executive Officer

Pursuant to 18 U.S.C. Section, as adopted pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002

I, Bowen S. Diehl, President and Chief Executive Officer of Capital Southwest Corporation, certify that, to my knowledge:

The Form 10-Q for the quarter ended September 30, 2017, filed with the Securities and Exchange Commission on November 7, 2017 (“accompanied report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the accompanied report fairly presents, in all material respects, the consolidated financial condition and results of operations of Capital Southwest Corporation.


Date: November 7, 2017	By:	/s/ Bowen S. Diehl
		Bowen S. Diehl
		President and Chief Executive Officer

Exhibit 32.2

Certification of the Chief Financial Officer

Pursuant to 18 U.S.C. Section, as adopted pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002

I, Michael S. Sarner, Chief Financial Officer of Capital Southwest Corporation, certify that, to my knowledge:

The information contained in the accompanied report fairly presents, in all material respects, the consolidated financial condition and results of operations of Capital Southwest Corporation.


Date: November 7, 2017	By:	/s/ Michael S. Sarner
		Michael S. Sarner
		Chief Financial Officer