UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant ☒
Filed by a Party other than the Registrant ☐
Check the appropriate box:
☐ | | | | | | | | | | | | | | |
Filed by the Registrant ý |
Filed by a Party other than the Registrant o |
| Check the appropriate box: |
| o | | Preliminary Proxy Statement |
☐o | | Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)14a‑6(e)(2)) |
☒ý | | Definitive Proxy Statement |
☐o | | Definitive Additional Materials |
☐o | | Soliciting Material Pursuant to Rule 14a-11(c)14a‑11(c) or Rule 14a-1214a‑12 |
CAPITAL SOUTHWEST CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
☒CAPITAL SOUTHWEST CORPORATION |
| (Name of Registrant as Specified In Its Charter) |
| (Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) |
| Payment of Filing Fee (Check the appropriate box): |
| ý | | No fee required. |
☐o | | Fee paid previously with preliminary materials. |
| o | | Fee computed on table belowin exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11. |
| 1) | Title of each class of securities to which transaction applies: |
| 2) | Aggregate number of securities to which transaction applies: |
| 3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
| 4) | Proposed maximum aggregate value of transaction: |
☐ | Fee paid previously with preliminary materials:
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☐ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.
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| 1) | Amount previously paid: |
| 2) | Form, Schedule or Registration Statement No.: |
| 5400 LBJ Freeway,8333 Douglas Avenue, Suite 1300
1100
Dallas, TX 75240 75225
214.238.5700
www.capitalsouthwest.com
|
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 20, 2016
27, 2022
To the Shareholders of Capital Southwest Corporation:
The 20162022 Annual Meeting of Shareholders of Capital Southwest Corporation (“Capital Southwest”) will be held on July 20, 2016,27, 2022, at 9:00 a.m., Dallas time (the “Annual Meeting”). We will hold ourThe Annual Meeting will be held in a virtual meeting format setting only. You can participate in the Madison Conference Room, Hilton Dallas Lincoln Centre, 5410 LBJ Freeway, Dallas, Texas 75240.Annual Meeting, vote, and submit questions via live webcast by visiting www.virtualshareholdermeeting.com/CSWC2022 and entering your control number on your proxy card or voting instruction form. The purpose of this meetingthe Annual Meeting is for our shareholders to consider and vote to:
1.Elect six directors to serve until the 2023 Annual Meeting of Shareholders or until their respective successors are duly elected and qualified;
| (1) | elect seven (7) directors to serve until the 2017 Annual Meeting of Shareholders or until their respective successors are duly elected and qualified; |
2.Approve, on an advisory basis, the compensation of our named executive officers;
3.Approve the Capital Southwest Corporation 2021 Non-Employee Director Restricted Stock Award Plan;
| (2) | approve, on an advisory basis, the compensation of our named executive officers; |
4.Ratify the appointment of RSM US LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2023; and
| (3) | ratify the appointment by our Audit Committee of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2017; and |
| (4) | transact5.Transact such other business as may properly come before the Annual Meeting. |
You have the right to receive notice and to vote at the Annual Meeting ifMeeting.
Capital Southwest's board of directors recommends you were a shareholdervote “FOR” each of its four proposals.
Shareholders of record at the close of business on June 1, 2016.2022 are entitled to receive notice and to vote at the Annual Meeting.
Your vote is very important. Accordingly, please vote or authorize a proxy to vote, whether or not you plan to participate in the Annual Meeting. You may vote or authorize your proxy to vote by (1) mail by completing, signing, dating and returning the enclosed proxy card in the postage-paid envelope we have provided; (2) Internet at www.proxyvote.com; (3) phone by calling 1‑800‑690‑6903; or (4) participating the Annual Meeting and voting your shares at the Annual Meeting.
If you hold your shares through a broker, bank or other nominee and you want to participate in and vote at the Annual Meeting, you must obtain a legal proxy from the record holder of your shares and present it at the Annual Meeting. If you plan to participate in the Annual Meeting to vote and are a “shareholder of record" (i.e. you hold shares directly with Capital Southwest or with our transfer agent, American Stock Transfer & Trust Company), no further action is required.
Capital Southwest has elected to provide access to its proxy materials to its shareholders over the Internet under the Securities and Exchange Commission's (the “SEC”) “notice and access” rules. On or about June 7, 2022, the Company is mailing to its shareholders a Notice of Internet Availability of Proxy Materials containing instructions on how to access the proxy statement and annual report on Form 10-K for the year ended March 31, 2022 (the “Annual Report”). The Notice of Internet Availability of Proxy Materials also contains instructions on how you may request from us, free of charge, hard copies of the proxy statement and the Annual Report. Capital Southwest believes that providing its proxy materials over the Internet will expedite shareholders' receipt of proxy materials, lower the costs associated with the Annual Meeting and conserve resources.
Thank you for your support of Capital Southwest Corporation.
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| By Order of the Board of Directors |
| |
| Michael S. Sarner |
| Chief Financial Officer, |
| Chief Compliance Officer, Secretary, and Treasurer |
June 3, 2022
Dallas, Texas
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING TO BE HELD ON JULY 20, 2016. Our proxy statement27, 2022.
The Notice of Annual Meeting, this Proxy Statement and ourthe Annual Report on Form 10-K forare available online at www.proxyvote.com. This Proxy Statement and the fiscal year ended March 31, 2016 (“Annual Report”) are availableReport can also be found on our website (http://ir.capitalsouthwest.com/sec.cfm). The EDGAR version of our Annual Report is also available atwww.capitalsouthwest.com under the “SEC Filings” tab or on the SEC’s EDGAR website (www.sec.gov).at www.sec.gov.
Your vote is very important. Accordingly, please vote, whether or not you plan The following information applicable to attend the Annual Meeting. YouMeeting may vote by (1) mail by marking, signing, datingbe found in this Proxy Statement and returning the accompanying proxy card in the postage-paid envelope we have provided; (2) Internet at www.proxyvote.com; (3) phone by calling 1-800-690-6903; or (4) attendingcard:
•The date and time of the Annual Meeting and votinginstructions to participate in person. If you plan to attend the Annual Meeting to vote in person and your shares are registered in your own name with our transfer agent, American Stock Transfer & Trust Company, you may do so. If your shares are held in the name of a broker or bank, you must secure a proxy from the broker or bank assigning voting rights to you for your shares. This proxy statement, proxy card and any accompanying proxy materials are being mailed to stockholders on or about June 21, 2016.via live webcast;
You have several ways to revoke or change your vote: (1) execute and submit a later dated proxy card; (2) authorize a subsequent proxy card through the Internet or by telephone; (3) send a written revocation of proxy to our Secretary at our principal executive office; or (4) attend the Annual Meeting and vote in person.
Thank you for your support of Capital Southwest Corporation.
By Order•A list of the Board of Directorsmatters intended to be acted on and our recommendations regarding those matters; and
•Any control/identification numbers that you need to access your proxy card.
/s/ Michael Sarner
Chief Financial Officer,
Chief Compliance Officer
and Secretary
June 20, 2016
Dallas, Texas
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PROXY STATEMENT
2022 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 20, 201627, 2022
GENERAL INFORMATION
We are furnishing you this proxy statementProxy Statement in connection with the solicitation of proxies by the Board of Directors (the “Board”) of Capital Southwest Corporation, a Texas corporation (the “Company,” “Capital Southwest,” “we,” “us,” or “our”). These proxies will be used atThis Proxy Statement addresses the items of business for the 2022 Annual Meeting of Shareholders of Capital Southwest (the “Annual Meeting”) to be held on July 20, 201627, 2022 or any postponement or adjournment thereof. We will hold the Annual Meeting at 9:00 a.m., Dallas time Central time. You can participate in the Madison Conference Room, Hilton Dallas Lincoln Centre, 5410 LBJ Freeway, Dallas, Texas 75240. ThisAnnual Meeting, vote, and submit questions via live webcast by visiting www.virtualshareholdermeeting.com/CSWC2022. You will be able to vote by following the instructions on the enclosed proxy statement,card. The Notice of Internet Availability of Proxy Materials containing instructions on how to access this Proxy Statement, our Annual Report on Form 10-K for the fiscal year ended March 31, 2022 (the “Annual Report”), the proxy card and any accompanying proxy materials, and how to vote or authorize a proxy are being mailed to shareholders on or about June 21, 2016.7, 2022.
QUESTIONS AND ANSWERS We encourage you to vote your shares by participating in the Annual Meeting, by telephone, through the Internet, or by granting a proxy (i.e., authorizing someone to vote your shares). If you properly sign and date the enclosed proxy card, or authorize your proxy by telephone or through the Internet, and the Company receives your vote in time for voting at the Annual Meeting, the persons named as proxies will vote your shares in the manner that you specify. If you give no instructions on the proxy card, the shares covered by the proxy card will be voted FOR the election of the nominees as directors and FOR other matters listed in the accompanying Notice of Annual Meeting of Shareholders in accordance with the recommendation of the Board.
At the Annual Meeting, you will be asked to vote on the following four proposals:
A: | Shareholders entitled to vote will vote at the Annual Meeting on: (1) the election of seven directors to hold office for a one-year term; (2) the proposal to approve, on an advisory basis, the compensation of our named executive officers; and (3) the ratification of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2017. |
•Proposal 1: Elect six directors to serve until the 2023 Annual Meeting of Shareholders or until their respective successors are duly elected and qualified;
•Proposal 2: Approve, on an advisory basis, the compensation of our named executive officers;
Q: | Who is entitled to vote? |
•Proposal 3: Approve the Capital Southwest Corporation 2021 Non-Employee Director Restricted Stock Award Plan (the “Non-Employee Director Plan”);
•Proposal 4: Ratify the appointment of RSM US LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2023.
A: | Shareholders as of the close of business on June 1, 2016 (“shareholders of record”) are entitled to vote at the Annual Meeting. Each share of common stock is entitled to one vote. |
Our Board recommends that you vote FOR Proposal 1, Proposal 2, Proposal 3 and Proposal 4.
Record Date and Who May Vote
A: | You may vote by any of the methods describe below. If you do not mark any selection Our Board designated the close of business on June 1, 2022 as the record date (the “Record Date”) for determining shareholders entitled to vote at the Annual Meeting. As of the Record Date, we had 25,594,515 shares of common stock outstanding and entitled to vote. Each share of our common stock is entitled to one vote on each matter that is voted on the proxy card, the proxy holders named on your proxy card will vote your shares in favor of (1) the election of all of the director nominees, (2) the proposal to approve, on an advisory basis, of the compensation of our named executive officers; and (3) the ratification of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2017. You may change your vote or revoke your proxy at any time before the Annual Meeting by submitting written notice to our Secretary, submitting another proxy that is properly signed and later dated or voting in person at the Annual Meeting. In each case, the later submitted votes will be recorded and the earlier votes revoked. |
If you are a “shareholder of record” (i.e., you hold shares directly with Capital Southwest or with our transfer agent, American Stock Transfer & Trust Company) as of the Record Date, you may vote your shares by (1) participating in the Annual Meeting and voting your shares, (2) submitting a completed, signed, and dated proxy card, or (3) voting through the Internet or by telephone. Specific instructions to be followed by shareholders of record interested in voting via the Internet or by telephone are shown on the enclosed proxy card and the Notice of Internet Availability of Proxy Materials.
Under If your shares are held in a brokerage account or bank, you are considered the Nasdaq Marketplace rules,beneficial owner of the shares of common stock, and these proxy materials, together with the enclosed voting instruction form, are being forwarded to you by
your broker or bank. As a beneficial owner, you must instruct your broker, trustee or other representative how to vote. Your broker cannot vote your shares of common stock on your behalf without your instructions. A “broker non-vote” with respect to a matter occurs when a broker, bank or other nominee holding shares on behalf of a beneficial owner has not received voting instructions from the beneficial owner on a particular proposal and does not have discretionary authority to vote the shares on such proposal. Brokers, banks and other nominees will not have discretionary authority to vote on the proposals with respect to the election of directors (Proposal 1), the advisory vote on executive compensation (Proposal 2), and the approval of the Non-Employee Director Plan (Proposal 3); however, brokers, banks and other nominees will have discretionary authority to vote on the proposals to ratify the appointment of independent registered public accountants is consideredRSM US LLP (Proposal 4). Shareholders have no dissenters’ or appraisal rights in connection with any of the proposals described herein.
If you hold shares of common stock through a “discretionary” item. This means that brokerage firmsbroker, bank or other nominee and you want to participate and vote at the Annual Meeting, you must obtain a legal proxy from the record holder of your shares and present it at the Annual Meeting. Depending upon your broker or custodian, you may be able to vote either by telephone or through the Internet. Please refer to the enclosed instruction form or the Notice of Internet Availability of Proxy Materials for instructions on how to vote electronically. You may also vote by signing, dating and returning the enclosed proxy card.
Voting by Internet, by Phone, by Mail or at the Annual Meeting via Live Webcast
If your shares are held directly in your name, you may vote in their discretion on this matter on behalf of clients who have not furnished voting instructions at least 10 days before the date of the Annual Meeting.
You mayor authorize a proxy to vote using any of the following methods:
•By Internet:Internet: Go to www.proxyvote.comand use the Internet to transmit your voting instructions and forby electronic delivery of information until 11:59 p.m. Eastern Time on July 19, 2016.26, 2022. Have your proxy card in hand when you access the website and then follow the instructions.
•By Phone:Phone: Call 1‑800‑690‑6903 Call 1-800-690-6903 on any touch-tone telephone to transmit your voting instructions until 11:59 p.m. Eastern Time on July 19, 2016.26, 2022. Have your proxy card in hand when you call and then follow the instructions.
•By Mail:Mail: Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided. The named proxies will vote your shares according to your directions. If you submit a signed proxy card without indicating your vote, the person voting the proxy will vote in favor of proposals 1, 2, and 3.
•By Attending the Annual Meeting in Person:Live Webcast: You may vote shares held directly in your name in person at the meeting.Annual Meeting. If you want to vote shares that you hold in “street name” at the meeting,Annual Meeting, you must request a legal proxy from your broker, bank or other nominee that holdsnominee.
If you sign, date and return your shares.
Ifproxy card but do not make any selection on the proxy card, in accordance with the recommendations of the Board, the proxy holders named on your proxy card will vote your shares are held by a bank, brokerageFOR the proposals to: (1) elect each of the director nominees, (2) approve, on an advisory basis, the compensation of our named executive officers, (3) approve the Non-Employee Director Plan, and (4) ratify the appointment of RSM US LLP as our independent registered public accounting firm or other nominee, you are consideredfor the “beneficial owner” of shares held in “street name.”fiscal year ending March 31, 2023.
If your shares are held in street name, these proxy materials are being forwarded to you by your bank, brokerage firm or other nominee (the “account holder”),account holder, along with a voting instruction card.instructions. As the beneficial owner, you have the right to direct your account holder how to vote your shares, and the account holder is required to vote your shares in accordance with your instructions. In addition, as the beneficial holderowner of shares, you are entitled to attendparticipate in the Annual Meeting. If you are a beneficial owner, however, you may not vote your shares in person at the meetingAnnual Meeting unless you obtain a legal proxy, executed in your favor, from the account holder of your shares.
Q: | Is my vote confidential? |
You may receive more than one proxy statement and proxy card or voting instructions form if your shares are held through more than one account (e.g., through different account holders). Each proxy card or voting instructions form only covers those shares of common stock held in the applicable account. If you hold shares in more than one account, you must provide voting instructions as to all your accounts to vote all your shares.
Confidentiality
A: | Yes. Proxy cards, ballots and voting tabulations that identify individual shareholders are confidential. Only the inspectors of election and certain employees associated with processing proxy cards and counting the vote Proxy cards, ballots and voting tabulations that identify individual shareholders are confidential. Only the inspectors of election and certain employees associated with processing proxy cards and counting the votes have access to your proxy card. Additionally, all comments directed to management (whether written on the proxy card or elsewhere) will remain confidential, unless you ask that your name be disclosed. |
If you are a “shareholder of record,” you may revoke a proxy or change your vote at any time before the Annual Meeting by any of the following methods:
Q: | Who will count the vote and how are votes counted? |
•sending a written revocation to our Secretary at our principal executive office;
A: | All votes will be tabulated by the inspector of election appointed for the Annual Meeting, who will separately tabulate affirmative votes, negative votes and abstentions. |
•authorizing your proxy through the Internet or by telephone;•executing and submitting a later-dated proxy card; or
•voting at the Annual Meeting.
Unless you participate in the Annual Meeting and vote your shares at the Annual Meeting, you should change your vote using the same method (by telephone, Internet or mail) that you first used to vote your shares. That way, the inspectors of election for the Annual Meeting will be able to verify your latest vote.
For shares held in street name, you should follow the instructions in the voting instructions form provided by the account holder to change your vote. If you want to change your vote as to shares held in street name by voting at the Annual Meeting, you must obtain a legal proxy from the record holder of your shares and present it at the Annual Meeting.
Quorum and Adjournment
The Annual Meeting will be held only if a quorum is present. The presence at the Annual Meeting, present or by proxy, of holders of a majority of the shares entitled to vote at the Annual Meeting will constitute a quorum. Abstentions and “broker non-votes” will be treated as shares present for determining whether a quorum is established. A “broker non-vote” with respect to a matter occurs when a broker, bank or other nominee holding shares in on behalf of a beneficial owner has not received voting instructions from the beneficial owner on a particular proposal and does not have discretionary authority to vote the shares on such proposal.
If a quorum is not present at the Annual Meeting, the shareholders who are represented may adjourn the Annual Meeting until a quorum is present. Such adjournment will be permitted if approved by the holders of a majority of the shares represented via live webcast or by proxy at the Annual Meeting, whether or not a quorum is present. Abstentions and “broker non-votes” will not be counted as votes cast on such adjournment and will have no effect on the adjournment vote.
Vote Required; How Votes Are Counted
All votes will be tabulated by the inspectors of election appointed for the Annual Meeting, who will separately tabulate affirmative votes, negative votes and abstentions. Shareholders may not cumulate their votes on any proposals.
Assuming a quorum is present at the Annual Meeting, the following votes are required to approve each proposal:
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| | |
| Proposal | | Vote Required |
| | |
Proposal One: Election of Directors | | In an uncontested election, our by-laws require that the director nominees receive theThe affirmative vote of the holders of a pluralitymajority of the votes cast whether in personby holders of our shares as of the Record Date present or represented at the Annual Meeting is required for the approval of this proposal. Abstentions and “broker non-votes” will not be included in determining the number of votes cast and, as a result, do not affect the outcome. |
Proposal Two: Advisory Vote on the Compensation of our Named Executive Officers | | The affirmative vote of a majority of the votes cast by proxy,holders of our shares as of the Record Date present or represented at the Annual Meeting is required to approve, on an advisory basis, the compensation of our named executive officers (“NEOs”). Abstentions and “broker non-votes” will not be elected.included in determining the number of votes cast and, as a result, do not affect the outcome. While your vote is advisory and therefore not binding on us, it will provide information to the Compensation Committee regarding investor sentiment about our executive compensation philosophy, policies and practices, which the Compensation Committee will take into consideration when making future decisions regarding executive compensation. |
Proposal Three: Approval of the Non-Employee Director Plan | | The affirmative vote of a majority of the votes cast by holders of our shares as of the Record Date present or represented at the Annual Meeting is required for the approval of this proposal. Abstentions have the same effect as votes cast against the proposal, while broker non-votes arewill not counted for purposesbe included in determining the number of votes cast and, as a result, do not affect the election of directors. |
| | outcome. |
Proposal Two:Four: Approval by Non-Binding VoteRatification of Executive CompensationIndependent Registered
Public Accounting Firm | | The affirmative vote of the holders of a majority of the votes cast by holders of our shares as of common stockthe Record Date present or represented in person or by proxy.at the Annual Meeting is required to ratify the appointment of RSM US LLP to serve as our independent registered public accounting firm for fiscal year ending March 31, 2023. Abstentions have the same effect as votes cast against the proposal, while broker non-votesproposal. Abstentions will not be included in determining the number of votes cast and, as a result, will have no effect on this proposal. Because brokers will have discretionary authority to vote for the ratification of the appointment of the Company’s independent registered public accounting firm in the event that they do not affectreceive voting instructions from the outcome. |
| | |
Proposal Three:
Ratification of Independent Registered Public Accounting Firm
| | The affirmative vote of the holders of a majoritybeneficial owner of the shares, of common stock represented in person or by proxy. Abstentions have the same effect as votes cast against theyour broker may vote your shares for this proposal. |
Each
We are not aware of any other matters that may be presented or acted on at the Annual Meeting. If you vote by signing and returning the enclosed proxy delivered to us, unlesscard or using the telephone or Internet voting procedures, the individuals named as proxies on the card may vote your shares, in their discretion, on any other matter requiring a shareholder otherwise specifies therein,vote that comes before the Annual Meeting.
Information regarding this Solicitation
The Company will be voted “FOR” proposals 1, 2, and 3. In each case where the shareholder has appropriately specified how the proxy is to be voted, it will be votedbear all expenses incurred in accordanceconnection with the shareholder’s specification.
“Broker non-votes” are proxies from brokers or other nominees indicating that such person has not received instructions fromfor the beneficial owner or other person entitled to voteAnnual Meeting, including the shares that are the subjectcost of the proxy on a particular matter with respect to which the broker or nominee does not have discretionary voting powers.
Q: | What constitutes a quorum? |
A: | As of the record date for the Annual Meeting, 15,726,006 shares of common stock were issued and outstanding. A majority of the outstanding shares, present or represented by proxy, constitutes a quorum for the transaction of business at the Annual Meeting. Abstentions and broker non-votes will be counted in determining the presence of a quorum. |
Q: | Who can attend the Annual Meeting? |
A: | All shareholders of record as of the close of business on June 1, 2016 can attend. |
Q: | Who pays for this proxy solicitation? |
A: | We will bear the entire cost of solicitation of proxies, including preparation, assembly and mailing of this proxy statement, the proxy card and any additional information we furnish to shareholders. Copies of solicitation materials will be furnished to banks, brokerage firms, fiduciaries and custodians holding shares of our common stock in their names that are beneficially owned by others to enable these account holders to forward the solicitation material to such beneficial owners. We may reimburse persons representing beneficial owners for their costs of forwarding the solicitation material to such beneficial owners. Original solicitation of proxies by mail may be supplemented by telephone or personal solicitation by our directors, officers or employees. We will not pay any additional compensation to directors, officers, or employees for such services. |
Q: | What if I receive more than one proxy card? |
A: | You may receive multiple proxy cards if you hold shares of common stock in different ways (such as, trusts and custodial accounts) or in multiple accounts. You should vote and sign each proxy card you receive. |
A: | Yes. You can revoke or change your vote on a proposal at any time before the Annual Meeting for any reason by revoking your proxy. For shareholders of record, proxies may be revoked by delivering a written notice of revocation, bearing a later date than your proxy, to our Secretary at or before the Annual Meeting. Any written notice of a revocation of a proxy should be sent to Capital Southwest Corporation, 5400 LBJ Freeway, Suite 1300, Dallas, Texas 75240, Attention: Secretary. To be effective, the revocation must be received by our Secretary before the taking of the vote at the Annual Meeting. |
Proxies may also be revoked by:
| 1) | voting again by Internet or telephone before 11:59 p.m., Eastern Time, on July 19, 2016; or |
| 2) | submitting a new written proxy bearing a later date than a proxy you previously submitted prior to or at the Annual Meeting; |
| 3) | attending the Annual Meeting and voting in person. |
In each case, the later submitted vote will be recordedpreparing and posting this Proxy Statement and the earlier vote revoked.
Annual Report to the Internet, the cost of mailing the Notice of Internet Availability of Proxy Materials, and any requested proxy materials to the shareholders. In addition, our executive officers and employees may solicit your proxy by telephone or by facsimile transmission, for which they will not be separately compensated. If your shares are held in street name, you must follow the specific voting directions provided to you by your bank, broker, nominee or other holder of record to change or revoke any instructions you have already provided. Alternatively, obtainthrough a proxy from your bank, broker or other holdernominee (i.e., in “street name”), we have requested that your broker or nominee forward this Proxy Statement to you and obtain your voting instructions, for which the Company will reimburse them for reasonable out-of-pocket expenses. Our principal executive office is located at 8333 Douglas Avenue, Suite 1100, Dallas, Texas 75225.
Notice of Internet Availability of Proxy Materials
In accordance with regulations promulgated by the Securities and provide it with your voteExchange Commission (the “SEC”), the Company has made this Proxy Statement, the Notice of Annual Meeting of Shareholders, and the Annual Report available to shareholders on the Internet. Shareholders may (i) access and review the Company's proxy materials and (ii) authorize their proxies, as described in “Voting by Internet, by Phone, by Mail or at the Annual Meeting.
At their discretion,Meeting via Live Webcast” above. While the Company encourages shareholders to take advantage of electronic delivery of proxy holders are authorizedmaterials, which helps to vote on any other matters that may properly come beforereduce the environmental impact of the Annual Meeting and atthe cost associated with the physical printing and mailing of materials, shareholders may request a printed set of proxy materials. The Notice of Internet Availability of Proxy Materials contains instructions on how you can elect to receive a printed copy of the Proxy Statement and the Annual Report.
Questions
If you have any postponement or adjournment thereof. The Board knows of no other items of business that will be presented for consideration atquestions about the Annual Meeting, voting or your ownership of our common stock or other thaninformation related to the proposals described in this proxy statement. In addition, no shareholder proposals or nominations were received on a timely basis, so no such matterssolicitation, you may be brought to a votecontact Michael Sarner at the Annual Meeting.214-238-5700.
PROPOSAL ONE: ELECTION OF DIRECTORS
Prior to this At the Annual Meeting, there are currently sevensix directors onwill be elected to serve one-year terms expiring at the Board. Six2023 Annual Meeting of our directors are standing for reelection and one is standing for initial election. Joseph B. Armes,Shareholders. Christine S. Battist, David R. Brooks, Jack D. Furst, T. Duane Morgan,Ramona L. Rogers-Windsor, William R. Thomas, III, John H. Wilson and Bowen S. Diehl are currently directors and each has been nominated to continue to serve as a director.director of the Company. The director nominees were selected by the Nominating/Corporate Governance Committee (the "NCG Committee") and approved by the Board for submission to the shareholders. Each director electednominee has consented to being named in this Proxy Statement and to serving as a director if re-elected at the Annual Meeting will hold office for a one-year term expiring atMeeting. Accordingly, the 2017 annual meeting of shareholders.
All nominees have consented to serve as directors. The Board has no reason to believe that any of the director nominees will be unable or unwilling to act as director. However, if a director is unableserve.
Pursuant to stand for re-election,the Company's Director Retirement and Term Limitation Policy, T. Duane Morgan will retire from the Board, may eithereffective as of the date of the Annual Meeting, and, as a result, the Board determined to reduce the size of the Board or the Nominating and Corporate Governance Committee may designate a substitute. If a substitute nominee is named, the proxies will vote for the electionfrom seven to six members, effective as of the substitute. Directors are elected by a majoritydate of the votes cast at the Annual Meeting. Each share of our common stock is entitled to one vote for each of the seven director nominees. Cumulative voting is not permitted.
The Nominating and Corporate GovernanceNCG Committee seeks directors with established, strong professional reputations and experience in areas relevant to the strategy and operations of our business.investment strategy. Each of the nominees for election as a director at the Annual Meetingnominees holds or has held senior executive positions in large, complex organizations and has experience that meets this objective, as described below.objective. In these positions, they haveeach of the director nominees has also gained experience in core management skills, such as strategic and financial planning, public company financial reporting, compliance, risk management and leadership development. Each of our directorsdirector nominees also has experience serving on or advising boards of directors and board committees of other organizations and has an understanding of corporate governance practices and trends.
The Nominating and Corporate GovernanceNCG Committee also believes that each of the director nominees has other key attributes that are important to an effective board: integrity, candor, analytical skills, the willingness to engage management and each other in a constructive and collaboratecollaborative fashion, and the ability and commitment to devote significant time and energy to serve on the Board and its committees. The Nominating and Corporate GovernanceNCG Committee takes into account diversity considerations in determining the director nominees and planning for director succession and believes that, as a group, the director nominees bring a diverse range of perspectives to the Board’s deliberations.
In addition to the above, the Nominating and Corporate GovernanceNCG Committee also considered the specific experienceexperiences described in the biographical details that followinformation below in determining to nominaterecommend to the individuals set forth belowBoard to approve the nominations of the director nominees for election as directors.at the Annual Meeting.
Director Qualifications
The NCG Committee reviews with the Board on an annual basis the appropriate skills and characteristics required of Board members in the context of the then-current composition of the Board. This assessment includes, in addition to qualities of intellect, integrity and judgment, the consideration of business experience and knowledge, reputation and character, issues of diversity, relevant industry and trade association knowledge and participation, accounting and financial expertise, public company experience, willingness and ability to devote the time and effort required to effectively serve on the Board and relevant legal and regulatory qualifications. The NCG Committee makes this determination in the context of an assessment of the perceived needs of the Board at that point in time.
The Board recognizes that its members benefit from service on the boards of other companies. While we encourage that service, we also believe it is critical that directors have the ability to dedicate sufficient time to their service on our Board.
Information about the Director Nominees
For each director nominee, we have highlighted certain key areas of experience that qualify him or her to serve on the Board in each of their respective biographies below. The business address of each director nominee listed below is 5400 LBJ Freeway,8333 Douglas Avenue, Suite 1300, Dallas,1100, Texas 75240.75225. No director nominee otherwise serves as a director of an investment company subject to the Investment Company Act of 1940, as amended (the “1940 Act”). There are currently no family relationships among any director, nominee, or executive officer.
| | | | | | | | | | | | | | | | | | | | |
| Name and Age | | Position Held with
Company | | Year First
Elected or
Appointed | | Principal Occupation |
| Independent Directors | | | | | | |
David R. Brooks (63)
| | Chairman of the Board
| | 2014 | | Chairman and Chief Executive Officer of Independent Bank Group, Inc. |
| Christine S. Battist (53) | | Director | | 2018 | | Chief Financial Officer of Avison Young |
| Jack D. Furst (63) | | Director | | 2014 | | Founder of Oak Stream Investors |
| Ramona L. Rogers-Windsor (61) | | Director | | 2021 | | Former Managing Director and Portfolio Manager of Northwestern Mutual |
| William R. Thomas (51) | | Director | | 2014 | | President of Thomas Heritage Foundation |
| Interested Director | | | | | | |
| Bowen S. Diehl (53) | | Director, President and Chief Executive Officer | | 2015 | | President and Chief Executive Officer of Capital Southwest Corporation |
Joseph B. Armes
, 54,
Director Nominee Biographies
Independent Directors
The Board has beendetermined that Mses. Battist and Rogers-Windsor and Messrs. Brooks, Furst, and Thomas are “independent” as defined by the Nasdaq Stock Market Rules and are not “interested persons” for purposes of the 1940 Act.
David R. Brooks will be the Chairman of the Board of Capital Southwest since January 2014 and served asfollowing the President and Chief Executive Officer of Capital Southwest from June 2013 through September 2015. Mr. Armes has been Chairman and Chief Executive Officer of CSW Industrials, Inc. since its spin-off from Capital Southwest effective September 30, 2015. Mr. Armes serves as a director and audit committee chair for RSP Permian, Inc. (NYSE: RSPP), an independent oil and natural gas exploration and production company. He has been the President and Chief Executive Officer of JBA Investment Partners, a family investment vehicle, since 2010. Mr. Armes was the Chief Operating Officer of Hicks Holdings LLC, a private investment firm, from 2005Annual Meeting, subject to 2010. Previously, he served as Executive Vice President, Chief Financial Officer and General Counsel of Hicks Sports Group, LLC, owner and manager of various professional sports teams; Executive Vice President and General Counsel of Suiza Foods Corporation (now Dean Foods Company), a publicly held food and beverage company; and Vice President and General Counsel of The Morningstar Group, Inc., a publicly held food and beverage company. Rangers Equity Holdings GP LLC, a subsidiary of Hicks Sports Group LLC, had an involuntary bankruptcy filed against it in the U.S. Bankruptcy Court for the Northern District of Texas on May 28, 2010. Mr. Armes holds a Bachelor of Business Administration in Finance from Baylor University, a Master of Business Administration from Baylor University and Juris Doctor from Southern Methodist University. Mr. Armes, because he acted as Capital Southwest’s President and Chief Executive Officer during the last two completed fiscal years, is an “interested person” under the Investment Company Act of 1940. Capital Southwest will benefit greatly from Mr. Armes’s extensive background in strategic investing, his significant experience as a director of public and private companies and his experience as an executive in public and private companies.
David R. Brooks, 57, joined our Board in January 2014.re-election. Mr. Brooks is the Chairman of the Board, Chief Executive Officer, and a director since the formation in 2002 of Independent Bank Group, Inc. (NASDAQ:IBTX), a publicly-traded bank holding company with approximately $5.3$15 billion in assets. Mr. Brooks previously served on the board of managers of Noel-Levitz, LLC, a large national higher education consulting company, andcompany. He also previously served on the board of trustees of Houston Baptist University. Mr. Brooks has over 35 years of experience in the financial services industry and previously served as the Chief Financial Officer at Baylor University. Mr. Brooks holds Bachelor and Master degrees in Business Administration from Baylor University. Capital Southwest will benefitbenefits from Mr. Brooks’ extensive experience in overseeing the operations and growth of a bank holding company, his executive expertise in public and private companies, his significant experience as a director of public and private companies, and his expertise in financial matters.
Christine S. Battist is the Chief Financial Officer of Avison Young, a private commercial real estate services firm. Ms. Battist joined Avison Young in January 2018 and as CFO is responsible for all accounting, treasury, tax and finance activities of the company. Previously, Ms. Battist was the Chief Financial Officer and Treasurer from 2012 to 2016 at Silver Bay Realty Trust Corp. (NYSE: SBY), a public real estate investment trust focused on single-family residential properties for rental income and capital appreciation. Prior to this, from 2011 to 2012, Ms. Battist was Managing Director at Two Harbors Investment Corp. (NYSE: TWO), a public real estate investment trust focused on residential mortgage-backed securities. From 2007 to 2011, Ms. Battist was Director of Investor Relations at The Mosaic Company (NYSE: MOS), a Fortune 500 agribusiness company. Ms. Battist has over 25 years of experience in the accounting and finance fields, including leading an IPO, secondary offerings, mergers and acquisitions, debt restructurings, investor relations, internal audit and establishing finance infrastructure. Ms. Battist holds a Bachelor of Business Administration in Accounting from St. Norbert College and is a Certified Public Accountant in Texas. Capital Southwest benefits from Ms. Battist’s extensive experience and track record of managing accounting, finance and investor relations affairs for public and private companies. In addition, Capital Southwest will benefit from Ms. Battist’s qualification as an “audit committee financial expert” as defined under Item 407 of Regulation S-K.
Jack D. Furst57, joined our Board in July 2014. Mr. Furst is the founder of his ownOak Stream Investors, a private investment firm Oak Stream Investors, which he started in 2008. Mr. Furst has over 35 years of experience in leveraged acquisitions and private investments. He has been affiliated withjoined HM Capital Partners LLC, (“HM Capital”), a private equity firm, sincein 1989, the year in which it was formed (as Hicks, Muse, Tate & Furst, Inc.). Until 2008, he was a Partnerpartner in HM Capital and was involved in all aspects of the firm’s business, including originating, structuring and monitoring HM Capital’s investments. Mr. Furst has over 25 years of experience in leveraged acquisitions and private investments. Prior to joining HM Capital, Mr. Furst served as a Vice President and subsequently a Partnerpartner of Hicks & Haas from 1987 to 1989. From 1984 to 1986, Mr. Furst was a mergermergers and acquisitions/corporate finance specialist for The First Boston Corporation in New York. Before joining First Boston, Mr. Furst was a Financial Consultant at PricewaterhouseCoopers. Mr. Furst received his Bachelor of Science degree with honors from the College of Business Administration at Arizona State University and his MasterMasters of Business Administration degree with honors from the Graduate School of Business at The University of Texas at
Austin. Capital Southwest will benefitbenefits from Mr. Fursts’Furst’s senior executive and extensive private equity experience and his significant experience as a director of public and private companies.
T. Duane MorganRamona Rogers-Windsor, 66, joined our Board is a senior finance executive with over 38 years of experience across multiple segments of the financial services industry including global investment management, public accounting audit, life insurance financial risk underwriting and retail brokerage. Ms. Rogers-Windsor spent 23 years in May 2012. Mr. Morgan has been a Senior Vice President of Gardner Denver, Inc.,investment management with Northwestern Mutual, most recently as Managing Director and advisorPortfolio Manager from 2012-2019. Prior to Kohlberg Kravis Robertsher role in asset management, from 1990 through 1996, Ms. Rogers-Windsor developed financial underwriting standards for life and disability insurance and consulted on large cases for Northwestern Mutual, culminating in her role as Underwriting Standards Financial Officer. Ramona’s early career was with Robert W. Baird & Co. L.P. (“KKR”) during the transition after the purchase of Gardner Denver by KKR in July 2013. Before the purchase, Mr. Morgan was Vice President of Gardner Denver and President of the Engineered Products Group with broad experience in the global energy and industrial manufacturing sectors. Mr. Morgan also serves on the board of SACHEM, Inc., a privately held specialty chemical company. He also co-founded three independent corporations during his business career. Mr. MorganNorthwestern Mutual subsidiary, in trading and sales and at Arthur Andersen, LLP as an auditor. In March 2021, Ramona joined the Cohen & Steers Funds board and since December 2020, has served as a Board Trustee for Thomas Jefferson University in Philadelphia. Her past non-profit board experience includes Milwaukee Film from 2016 through 2019, The Girl Scouts of Milwaukee from 1987 through 1991, and University School of Milwaukee from 2004 through 2010. Ms. Rogers-Windsor holds a Bachelor of Science in MathematicsAccounting from McNeese StateMarquette University, a Master of Business Administration from Louisiana State UniversityU.S. CPA license and also served as an Army Air Defense Artillery Officer in South Korea. Mr. Morgan is a National Association of Corporate Directors (“NACD”) Governance Fellow. He has demonstrated his commitment to boardroom excellence by completing NACD’s comprehensive program of study for corporate directors. He supplements his skill sets through ongoing engagement with the director community, and access to leading practices. CFA Charterholder.Capital Southwest will benefit greatly from Mr. Morgan’s broad experience in the energy sector, his executive leadership experience and his management skills.
William R. Thomas III, 45, joined our Board in January 2014. Mr. Thomas is a private investor who provides leadership for, and invests in, organizations that create financial return, social impact or both. He also serves as a director of Encore Wire Corporation (WIRE) since 2008 he2007, a Managing Director of Ambassadors Impact Network since 2019, has served as President of the Thomas Heritage Foundation a non-profit grant-making corporation. In addition, Mr.since 2008, and manages personally and on behalf of Thomas servesHeritage Partners, Ltd. approximately 2.3% of the outstanding shares of the Company as a director of Encore Wire Corporation (NASDAQ:WIRE).the Record Date. Mr. Thomas was also a Vice President ofdeal professional with Capital Southwest from 2006 to 2012. During this time, Mr. Thomas along withmade, enhanced and monetized investments, served on the boards of a dozen portfolio companies, and oversaw valuation and regulatory compliance. From 2004 to 2006, he earned his M.B.A. from Harvard Business School, during which time he served as a consultant to private equity clients at Investor Group Services. From 1993 through 2004, Mr. Thomas Heritage Partners, Ltd.,served in the U.S. Air Force as a pilot of multiple aircraft and led training, safety, acquisition, logistics and combat operations, achieving the rank of Major. Mr. Thomas is onerecognized as a National Association of the largest shareholders of our Company representing 3.8% of voting power. Mr. ThomasCorporate Directors (NACD) Board Leadership Fellow and graduated from the United States Air Force Academy and has a Master of Business Administration from Harvard Business School.Academy. Capital Southwest will benefitbenefits from Mr. Thomas’sThomas’ history with the Company, his investment experience as well as his management and entrepreneurial skills and his significant experienceperspective as a directormajor shareholder of public and private companies.the Company.
Interested Director
John H. Wilson, 73,The Board has been a member of our Board since 1988.determined that Mr. Wilson has been President of U.S. Equity Corporation since 1983 and has over 45 years of experienceDiehl is an “interested person” as defined in the 1940 Act due to his position as an executive or investor in numerous companies inofficer of the banking, insurance, manufacturing, communications, health and transportation industries. Mr. Wilson is also a director of Encore Wire Corporation (NASDAQ: WIRE). Mr. Wilson has a Bachelor of Business Administration degree from Baylor University. Capital Southwest will benefit from Mr. Wilson’s diverse industry experience, his significant experience as a director of public and private companies, and his experience as both an executive and an investor in numerous companies.
Bowen S. Diehl, 47, has served as President and Chief Executive Officer and as a director of Capital Southwest since October 2015. Also, in October 2015, the Nominating/Corporate Governance Committee nominated Mr. Diehl to serve as a director. Mr. Diehl joined Capital Southwest in March 2014 and served as its Chief Investment Officer from March 2014 to October 2015. Prior to joining Capital Southwest, fromMr. Diehl was employed by American Capital, Ltd., a publicly traded business development company ("BDC") and global asset manager. From 2007 to March 2014, Mr. Diehlhe served as Co-Head of American Capital’s Sponsor Finance Group, the group responsible for the majority of American Capital’s middle market lending business. He was also a Principal at American Capital from 2004From 2001 to 2007, he served as a senior investment professional in the Dallas Office of American Capital. Mr. Diehl has sourced, structured and a Vice President at American Capital from 2001 to 2004. Mr. Diehl’smanaged investments that have included senior and subordinated debt, as well as preferred and common equity in both control and non-control structures. Mr. Diehl’s investments have been ininvestment experience relates to a variety of industries including healthcare, business services, industrial manufacturing and consumer finance. Prior to American Capital, Mr. Diehl was a Vice President in Investment Banking at Merrill Lynch, where he gained experience working with companies in the exploration and production, oilfield services, natural gas pipeline, natural gas gathering and processing, homebuilding and semiconductor sectors. Prior to joining Merrill Lynch, Mr. Diehl was a Vice President in the Global Oil and Gas Group at Chase Securities Inc., in New York, NY and then in Houston, TX, completing numerous transactions in the upstream and midstream oil and gas sectors. Mr. Diehl earned a Bachelor of engineeringEngineering degree, with majors in Environmental/Geotechnical Engineering and Economics, from Vanderbilt University and a Masters of Business Administration from the University of Texas at Austin. Mr. Diehl, inIn his capacity as President and Chief Executive Officer, Mr. Diehl is an “interested person” under the Investment Company Act of 1940.1940 Act. Capital Southwest will benefitbenefits from Mr. Diehl’s extensive experience as a senior investment professional as well as his knowledge of the BDC industry.
Retiring Director
DeterminationsT. Duane Morgan is the retired former President of Independence
Our Nominating/Corporate Governance Committee has determined thatthe Engineered Products Group (EPG) of Gardner Denver, a global industrial manufacturer. Under Mr. ArmesMorgan, the EPG at Gardner Denver generated $1.1 billion of revenue across four divisions and Mr. Diehl are “interested persons” as defined22 production facilities in the Investment Company ActUS, China, Germany, UK and Sweden. He spent almost 10 years with Gardner Denver until it was sold to Kohlberg Kravis Roberts (KKR) in July 2013 for $3.9 billion. Following the sale, Mr. Morgan continued as a Senior Vice President of 1940Gardner Denver and advisor to KKR through July 2014, advising on matters including
operational transition and strategy, as well as making presentations to ratings agencies that Messrs. Armesresulted in favorable financing for KKR and Diehl arethe new company. Prior to Gardner Denver, Mr. Morgan spent 20 years with Cooper Cameron, serving as President or Vice President of several of Cooper Cameron’s major divisions. Mr. Morgan also serves on the board of SACHEM, Inc., a privately-held specialty chemical company. Mr. Morgan holds a Bachelor of Science in Mathematics from McNeese State University and a Masters of Business Administration from Louisiana State University. He served as an Army Air Defense Artillery Officer in South Korea. Mr. Morgan is a National Association of Corporate Directors (“NACD”) Governance Fellow.
Vote Required
The affirmative vote of a majority of the votes cast by holders of our shares as of the Record Date present or represented by proxy at the Annual Meeting is required for the election of directors. Abstentions and “broker non-votes” will not “independent”be included in determining the number of votes cast and, as defineda result, do not affect the outcome.
THE BOARD RECOMMENDS YOU VOTE “FOR” EACH OF THE DIRECTOR NOMINEES NAMED IN THIS PROPOSAL.
If you validly sign and return a proxy card but give no instructions on the proxy card, the shares covered by the NASDAQ listing standards. Mr. Diehl is not considered independent as he is currently an executive officerproxy card will be voted FOR each of Capital Southwest. Under NASDAQ rules, Mr. Armes is not eligible to be considered independent because he was employed by Capital Southwest within the past three years. Mr. Armes left his employmentdirector nominees in accordance with Capital Southwestthe recommendation of the Board.
GOVERNANCE OF THE COMPANY
Compensation Governance Highlights
Clawback Policy
Our Board adopted a Clawback Policy effective for all “incentive-based compensation” granted on September 30, 2015. The Committee has determinedor after April 25, 2018. For more information regarding our Clawback Policy, see “Compensation Discussion and Analysis—Clawback Policy.”
Executive Stock Ownership and Holding Policy
Our Board adopted a Stock Ownership and Holding Policy, effective April 25, 2018, that Messrs. Brooks, Furst, Morgan, Thomas and Wilson are “independent” as defined by the NASDAQ and they are not “interested persons” as defined by the Investment Company Act of 1940.
Non-management directors may meet in executive session without therequires our Chief Executive Officer at any time. Theseto own common stock equal to four times his annual base salary, the Chief Financial Officer to own common stock equal to three times his annual base salary and all other executive sessions typically occur after each regularly scheduled meeting ofofficers to own common stock equal to three times their annual base salaries. For more information about our Stock Ownership and Holding Policy, see “Compensation Discussion and Analysis—Stock Ownership and Holding Policy.”
Maximum Annual Incentive Opportunity
Our Board adopted a maximum limit on the Board. There were nine executive sessions held by the Board, six executive sessions held by the Audit Committee and four executive sessions held by the Compensation Committee throughoutannual cash incentive compensation that can be paid beginning with the fiscal year ended March 31, 2016. The directors decide on2019 to our NEOs of two times their target annual incentive opportunity, which became effective April 25, 2018.
Director Governance Highlights
Voting Standard for Election of Directors Changed from Plurality Standard to Majority of Votes Cast Standard
On April 24, 2019, our Board adopted an amendment to our bylaws to change from a case by case basis which one of them will preside over each full Board executive session depending on the subject matter. The Chairman of each Committee presides over his respective committee’s executive sessions.
Directors are elected byplurality standard to a majority of the votes cast atstandard for the Annual Meeting. Each shareelection of directors. To provide shareholders a meaningful role in director elections, our common stock is entitled to one vote for each of the seven director nominees. Cumulative voting is not permitted.
The Board recommends that you vote “FOR” each of the nominees to the Board set forth in this Proposal One.
Audit Committee
The Audit Committee assists the Board in fulfilling its oversight responsibility to shareholders relating to: (1) the integrity of our financial statements; (2) our systems of internal accounting and financial controls; (3) the independence, qualification and performance of our independent auditors; and (4) our compliance with ethics policies and legal and regulatory requirements relating to financial statements and reporting. The Audit Committee has the responsibility for selecting our independent registered public accounting firm and pre-approving audit and non-audit services. Among other things, the Audit Committee prepares a report for inclusion in the annual proxy statement; reviews the Audit Committee Charter (the “Audit Committee Charter”) and the Audit Committee’s performance; approves the scope of the annual audit; and reviews our corporate policies with respect to financial reporting and valuation of our investments. The Audit Committee would oversee investigations into complaints concerning financial matters. In discharging its oversight role, the Audit Committee has authority to investigate any matter brought to its attention with full access to all books, records, facilities and personnel of Capital Southwest and the authority to engage independent counsel and other advisers as it determines necessary to carry out its duties.
The Audit Committee shall be members of, and appointed by, the Board and shall comprise at least three directors, each of whom are independent of management and Capital Southwest. The Audit Committee is currently comprised of Messrs. Brooks (Chairman), Furst, Morgan, Thomas and Wilson. Members of the Audit Committee shall be considered “independent” as long as they accept no consulting, advisory or other compensatory fees from Capital Southwest (other than directors’ fees from Capital Southwest and its portfolio companies), are not affiliated persons of Capital Southwest or its subsidiaries, and meet the independence requirements of the Sarbanes-Oxley Act of 2002 and the Nasdaq Marketplace Rules. Members of the Audit Committee are “independent” as defined above and are not “interested persons” as defined by the Investment Company Act of 1940. All committee members shall be financially literate, and at least one member shall be an “audit committee financial expert,” as defined by the SEC. The Board has determined that Mr. Brooksthe Company’s director election voting standard should be changed from a plurality voting standard to a majority of votes cast standard. The majority votes cast standard for director elections is fast becoming the audit committee financial expert as defined by SEC and Nasdaq Marketplace Rules. During the fiscal year ended March 31, 2016, the Audit Committee met six times.
The duties and responsibilitiesnorm at listed companies. Eighty-eight percent of the Audit Committee are set forthS&P 500 companies have adopted a majority vote standard. We believe this change is in the Amended and Restated Audit Committee Charter, which the Board adopted on May 27, 2003. A copy of the Amended and Restated Audit Committee Charter is provided in Appendix A of this proxy statement and is available on our website at www.capitalsouthwest.com/governance, or available by written request addressed to Capital Southwest Corporation, 5400 LBJ Freeway, Suite 1300, Dallas, Texas 75240, Attention: Secretary.
Nominating/Corporate Governance Committee
The primary objectives of the Nominating/Corporate Governance Committee (the “Governance Committee”) are to assist the Board by (1) identifying individuals qualified to become members of our Board consistent with the criteria approved by the Board in our Corporate Governance guidelines and recommending to the Board a slate of director nominees for each annual meeting of our shareholders; (2) ensuring that our Audit, Compensation and Nominating/Corporate Governance Committees shall have the benefit of qualified and experienced “independent” directors; and (3) ensuring Capital Southwest complies with its Code of Conduct and Ethics.
The Governance Committee has the responsibility to (1) establish criteria for selection of potential directors, taking into consideration an established set of desired attributes; (2) review the qualifications, performance and independence of Board members pursuant to criteria and procedures established by the Governance Committee and make recommendations whether each director should stand for re-election when his or her term expires; (3) review annually with the Board the composition of the Board as a whole and recommend, if necessary, measures to be taken so that the Board reflects the appropriate balance of knowledge, experience, skill, expertise and diversity desired for the Board as a whole and contains at least the minimum number of “independent” directors required by the Nasdaq Global Select Market and/or any other regulatory requirements; (4) identify individuals who satisfy the criteria for selection to the Board and make recommendations on new candidates for Board membership; (5) consider and evaluate shareholder nominees for election to the Board; (6) recommend to the Board the removal of a director where appropriate; (7) establish criteria for membership on the Board committees and, in consultation with the Chairman of the Board, make recommendations to the Board for appointments to and removal from committees; (8) make verbal reports to the Board after each meeting of the Governance Committee; (9) review and re-examine the Governance Committee Charter periodically and make recommendations to the Board with respect to any proposed changes; (10) review annually its own performance against the responsibilities outlined in its charter and as otherwise established by the Board; (11) obtain advice, reports or opinions from internal and external counsel, search firms and other expert advisors, as needed; (12) review, at least once annually, the Insider Trading Compliance Policies and Procedures and related policies adopted by the Board to assure that it is appropriate for us and complies with the requirements of the Nasdaq Global Select Market and/or any other regulatory requirements, recommend to the Board any desirable changes to the Code of Conduct and Ethics, consider any other corporate governance issues that arise from time to time and develop appropriate recommendations for the Board related to any such issues; (13) oversee and establish appropriate procedures for the annual evaluation of the Board and management; and (14) develop and recommend to the Board a set of Corporate Governance Guidelines applicable to us, review them annually, and if appropriate, recommend changes to the Corporate Governance Guidelines to the Board.
The Governance Committee seeks to identify director candidates who (1) have significant experience that is relevant and beneficial to the Board and Capital Southwest; (2) are willing and able to make sufficient time commitments to our affairs in order to perform their duties as directors, including regular attendance at Board and committee meetings; (3) have strong character and integrity; and (4) represent the best interests of our shareholders. The evaluation process
Director Retirement and Term Limitation Policy
On April 25, 2018, our Board adopted the Director Retirement and Term Limitation Policy that provides that no person may be nominated to stand for nominees is the same regardless of the source of the recommendation.
The members of the Governance Committee shall be elected annuallyelection or re-election to one-year terms by a majority vote of the Board as a non-employee director if the election would take place after such person has (1) reached age 72 and/or (2) served on our Board for an aggregate of 12 years. The Director Retirement and Term Limitation Policy provides that each non-employee director that reaches age 72 and/or an aggregate of 12 years of service on our Board must deliver a letter of resignation to be effective at the first meeting of the Board following thenext annual meeting of shareholders following such delivery. At the time that the Director Retirement and Term Limitation was adopted on April 25, 2018, existing directors who had already reached the age of 72 and/or had an aggregate of 12 years of service on our Board were required to deliver a letter of resignation to be effective at our 2019 annual meeting of shareholders. Vacancies
Committee Chair Term Limitation Policy
On April 25, 2018, our NCG Committee proposed and our Board adopted a limit on the Governance Committee may be filled by majority votelength of the Board at the next meeting of the Board following the occurrence of the vacancy. The Governance Committee is comprised of Messrs. Morgan (Chairman), Brooks, Furst, Thomas and Wilson. Members of the Governance Committee are “independent”time that a director can serve as defined by the NASDAQ Listing Standards and are not “interested persons” as defined by the Investment Company Act of 1940. During the fiscal year ended March 31, 2016, the Governance Committee met four times.
The duties and responsibilities of the Governance Committee are set forth in the Nominating/Corporate Governance Committee Charter, which the Board adopted on January 19, 2009. A copy of the Nominating/Corporate Governance Committee Charter is available on our website at www.capitalsouthwest.com/governance or available by written request addressed to Capital Southwest Corporation, 5400 LBJ Freeway, Suite 1300, Dallas, Texas 75240, Attention: Secretary.
Compensation Committee
The Compensation Committee has the authority and responsibility: (1) to annually review the goals and objectives and the structure of Capital Southwest’s plans for executive compensation, incentive compensation, equity-based compensation, and its general compensation plans and employee benefit plans (including retirement plans), and to recommenda committee chairperson. Pursuant to the resolution, no director may serve as a chairperson of a Board any new plans or any changescommittee for longer than six years. However, the resolution does not limit the length of time that such director can serve on a Board committee in the objectives and structure of such plans as the Compensation Committee deems necessary or desirable; (2) to annually evaluate the performance of the chief executive officer, in light of the goals and objectives of Capital Southwest’s executive compensation plans, and to determine his or her compensation level based on this evaluation; (3) to annually review and determine the compensation level of all other executive officers of Capital Southwest, in light of the goals and objectives of Capital Southwest’s executive compensation plans and the CEO’s recommendations; (4) in consultation with the CEO, to oversee the annual evaluation of management of Capital Southwest, including the other executive officers and key employees of Capital Southwest; (5) periodically, as the Compensation Committee deems necessary or desirable and pursuant to the applicable equity-based compensation plan, to recommend that the Board grant equity-based compensation awards to any officer or employee of Capital Southwest for such number of shares of common stock as the Compensation Committee, in its sole discretion, shall deem to be in the best interest of Capital Southwest; (6) to perform such duties and responsibilities as the Board may assign to the Compensation Committee regarding the terms of any compensation plans and to review and approve the amount and terms of all individual stock options that the Compensation Committee recommends that the Board grant; (7) to recommend to the Board all equity-based compensation plans, including prior approval of those plans that are subject to shareholder approval under the listing standards of NASDAQ; (8) to meet with management to review and discuss the Compensation Discussion and Analysis required by the SEC rules and regulations; and (9) to annually review and reassess the adequacy of the Compensation Committee Charter and recommend any changes to the full Board.
The Compensation Committee shall comprise at least three directors, each of whom is independent of management and Capital Southwest. Members shall be appointed and replaced by the Board. The Compensation Committee is comprised of Messrs. Wilson (Chairman), Brooks, Furst, Morgan and Thomas. Each member of the Compensation Committee (a) meets the Nasdaq Marketplace Rules with respect to independence and all other applicable legal requirements, (b) is a “non-employee director” as that term is defined under Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, and (c) is an “outside director” as that term is defined under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations promulgated thereunder. During the fiscal year ended March 31, 2016, the Compensation Committee met four times.
The duties and responsibilities of the Compensation Committee are set forth in the Compensation Committee Charter, which the Board adopted on March 29, 2007. A copy of the Compensation Committee Charter is available via the Internet on our website at www.capitalsouthwest.com/governance or available by written request addressed to Capital Southwest Corporation, 5400 LBJ Freeway, Suite 1300, Dallas, Texas 75240, Attention: Secretary.non-chairperson capacity.
Non-Employee Director Stock Ownership Requirement
Considerationour Board with our shareholders. The stock ownership requirement initially provided that each non-employee director of
Director Nominees of Shareholders
The Governance Committee will consider appropriate nominees for directors whose names are submitted in writing by a holderour Board own shares of our common stock. Nominations must be addressedstock equal to Capital Southwest Corporation, 5400 LBJ Freeway, Suite 1300, Dallas, Texas 75240, Attention: Chairman2.5 times the annual director retainer. On April 25, 2018, our Board amended this stock ownership requirement to require each non-employee director of the Nominating and Corporate Governance Committee, indicating the nominee’s qualification and other relevant biographical information and providing confirmation of the nominee’s consentour Board to serve as a director. In order to be considered for the next annual election of directors, any such written request must comply with the requirements set forth in our by-laws.
The Governance Committee considers nominees for the Board from any reasonable source, including current Board members, shareholders or other persons. While the Governance Committee has the ability to retain a third party to assist in the nomination process, we have not paid a fee to any third party to identify or assist in identifying or evaluating potential nominees.
Messrs. Joseph B. Armes, David R. Brooks, Jack D. Furst, T. Duane Morgan, William R. Thomas III, John H. Wilson and Bowen S. Diehl are currently directors and each has been nominated for reelection as a director. Mr. Bowen S. Diehl was appointed to serve as a director by the Board of Directors in October 2015 and has been nominated for reelection as a director.
own shares
GOVERNANCE OF THE COMPANYof our common stock equal to 3.5 times the annual director retainer. The Board acknowledges that the stock ownership requirement allows new directors a reasonable amount of time to comply.
During our fiscal year ended March 31, 2016, the Board held nine meetings and acted by unanimous written consent four times. All directors who were serving at the time attended our 2015 annual meeting of shareholders. Each of the directors attended at least 75% of the Board meetings held during the fiscal year ended March 31, 2016 and at least 75% of the meetings held by committees on which he served during the fiscal year ended March 31, 2016.
Board Leadership and
StructureCorporate Governance
Our business and affairs are managed under the direction of the Board. The Board recognizes that one of its key responsibilities is to evaluate and determine its optimal leadership structure so as to provide independent oversight of management. During fiscal year 2022, the Company conducted a 360-performance review of the Company's investment professionals that took into account alignment with our values and corporate governance. Additionally, through our annual performance review process, all of our employees are evaluated by supervisors and our senior management team to ensure employees continue to develop and advance as expected. During fiscal year 2021, the Board engaged a consultant to conduct a 360-performance review of the Company's senior management that took into account alignment with our values and corporate governance. The Board understands that there is no single, generally accepted approach to providing board leadership and that, given the dynamic and competitive environment in which we operate, the right board leadership structure may vary as circumstances warrant. Accordingly, the Board seeks to fulfill its responsibilities by continually seeking the appropriate board leadership and corporate governance for Capital Southwest.
Currently, the offices of Chairman of the Board and Chief Executive Officer are separated. We have no fixed policy with respect to the separation of the offices of the Chairman of the Board and Chief Executive Officer. Nonetheless, the Board believes that the separation of the offices is in the best interests of the Company at this time and is an integral part of good corporate governance and the succession planning process.
No single leadership model is right for all companies at all times. Our Board recognizes that depending on the circumstances, other leadership models might be appropriate. Accordingly, our Board periodically reviews its leadership structure as part of its annual self-assessment process.
The Board appoints the members of the Audit Committee, the Compensation Committee and the Nominating/Corporate GovernanceNCG Committee. Each of these committees has a written charter approved by the Board. These committee charters are available on our website at www.capitalsouthwest.com/governance.
Pursuant to the Director Retirement and Term Limitation Policy, Mr. Morgan notified the Company that he will retire from the Board, effective as of the date of the Annual Meeting. As a result of Mr. Morgan's retirement, the Board determined to reduce the size of the Board from seven to six members, effective as of the date of the Annual Meeting. Mr. Morgan has been a member of the Board since 2012. At the time of his retirement, he will have served on the Audit Committee, the Compensation Committee and the NCG Committee.
The current members of the committees are identified in the following table.
| | | | | | | | | | | | | | | | | | | | |
| | | Current Board Committees | |
| Director | | Audit | | | Compensation | | Nominating/
Corporate
Governance |
| Christine S. Battist | Nominating/
Corporate
Governance
| Chair | | X | | X |
| David R. Brooks | | | X* | | | | X | | | | X | |
| Jack D. Furst | | | X | | Chair | | X | | | | X | |
| T. Duane Morgan | | | X | | | | X | | X |
| Ramona L. Rogers-Windsor | | X* | | X | | X |
William R. Thomas III | | | X | | | | X | | | | X | |
John H. Wilson | | | X | | | | X*
| | | | X | Chair |
* Signifies Committee Chairman
Board Independence and MeetingMeetings
Board Governance Documents
The Board maintains charters for all committees. In addition, During our fiscal year ended March 31, 2022, the Board has adopted a written setheld six meetings. In fiscal year ended March 31, 2022, each director attended at least 75% of corporate governance guidelines and a codethe aggregate of business conduct and ethics. To view our committee charters, corporate governance guidelines and code(1) the total number of business conduct and ethics, please visit www.capitalsouthwest.com. Copiesmeetings of these documents are also available upon written request to our Secretary. The Board has adopted and adheres to corporate governance practices that the Board (held during the period for which he or she was a director) and executive management believe promote(2) the highest standardstotal number of integrity, are sound and represent best practices. Themeetings held by all committees of the Board periodically reviews these governance practices,on which he or she served (held during the Nasdaq Marketplace Rules, listing requirements and SEC regulations, as well as best practices suggested by recognized governance authorities.
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our shareholders. All directors who were serving at the time of our 2021 annual meeting of shareholders attended that meeting, except for one independent director.Independence
Currently, the Board has seven directors. As a result of Mr. Diehl was nominatedMorgan's retirement, the Board determined to reduce the size of the Board from seven to six members, effective as a director byof the Nominating/Corporate Governance Committee in October 2015.date of the Annual Meeting. The Board has determined after considering allthat each of the relevant facts and circumstances, that five currentour independent directors (Messrs. Brooks, Furst, Morgan, and Thomas, and Wilson)Mses. Battist and Rogers-Windsor) are not “interested persons” (as such term is defined in Section 2(a)(19) of the 1940 Act) of the Company and are independent as “independence” is defined byunder the Nasdaq MarketplaceStock Market Rules. This means that none of the independent directors has any direct or indirect material relationship with us, either directly or as a partner, shareholder or officer of an organization that has a relationship with us. As a result, the Board has a majority of independent directors on the Board as required by the 1940 Act and the Nasdaq Global SelectStock Market listing requirements.Rules. We monitor the relationships of our directors and officers through a questionnaire that each director and officer completes no less frequently than annually and updates periodically as information provided in the most recent questionnaire changes.
Executive Sessions
Non-employee Our independent directors have regularly scheduled executive sessions in which they meet without the presence of management or management directors.our interested director. These executive sessions occur after each regularly scheduled meeting of the Board.
Director QualificationsBoard Committees
Audit Committee
The Audit Committee oversees our accounting and financial reporting processes and the audits of the Company’s financial statements. The responsibilities of the Audit Committee include:
•engaging the Company’s independent registered public accounting firm and conducting an annual review of the independence of such independent registered public accounting firm;
•pre-approving and approving all audit and non-audit engagements with the Company’s independent registered public accounting firm;
•reviewing the annual audited financial statements and quarterly financial information with management and the independent registered public accounting firm, including disclosures regarding internal controls;
•reviewing with the independent registered public accounting firm the scope and the planning of the annual audit;
•reviewing and discussing with management the results of the audit of the independent registered public accounting firm;
•discussing risk assessment and corporate policies with respect to financial reporting and valuation of our investments and the Company’s financial risk exposure;
•approving related party transactions exceeding $50,000 in aggregate value;
•overseeing investigations into complaints concerning accounting, internal accounting controls and auditing matters;
•reviewing the adequacy of the Audit Committee charter on an annual basis; and
•preparing the Audit Committee report to be included in our annual proxy statement.
During the fiscal year ended March 31, 2022, the Audit Committee met five times. The Board has determined that each member of the Audit Committee is “independent” as independence for audit committee members is defined by the Nasdaq Stock Market Rules and is not an “interested person” as defined by the 1940 Act. The Board has also determined that each of the Audit Committee members is financially literate and the Board determined that each of Christine S. Battist, David R. Brooks, Jack D. Furst, and Ramona L. Rogers-Windsor is an “audit committee financial expert” as defined under Item 407 of Regulation S-K. In discharging its oversight role, the Audit Committee has authority to investigate any matter brought to its attention with full access to all books, records, facilities and personnel of Capital Southwest and the authority to engage independent counsel and other advisers as it determines necessary to carry out its duties.
Nominating/Corporate Governance Committee reviews
The responsibilities of the NCG Committee include:
•establishing criteria for selection of potential directors, taking into consideration an established set of desired attributes, and periodically assessing the criteria to ensure they are consistent with best practices and the goals of the Company;
•reviewing the qualifications, performance and independence of Board members pursuant to criteria and procedures established by the NCG Committee and making recommendations whether each director should stand for re-election when his or her term expires;
•reviewing annually with the Board on an annual basis the appropriate skills and characteristics required of Board members in the context of the then-current composition of the Board. This assessment includes,Board as a whole and recommending, if necessary, measures to be taken so that the Board reflects the appropriate balance of knowledge, experience, skill, expertise and diversity desired for the Board and so that the Board meets Nasdaq Stock Market Rules and/or any other regulatory requirements;
•identifying individuals qualified to become members of our Board consistent with the criteria approved by the Board in additionour Corporate Governance Guidelines and recommending to qualitiesthe Board a slate of intellect, integritydirector nominees for each annual meeting of our shareholders;
•considering and judgment, business experience and knowledge, reputation and character, issuesevaluating shareholder nominees for election to the Board;
•recommending to the Board the removal of diversity, relevant industry and trade association knowledge and participation, accounting and financial expertise, public company experience, willingness and ability to devote the time and effort required to effectively servea director where appropriate;
•establishing criteria for membership on the Board committees and relevant legalmaking recommendations to the Board for appointments to and regulatory qualifications. The committee makes this determinationremoval from the committees;
•reviewing and re-examining the NCG Committee Charter periodically and making recommendations to the Board with respect to any proposed changes;
•reviewing annually its own performance against the responsibilities outlined in its charter and as otherwise established by the context of an assessmentBoard;
•reviewing, at least once annually, the Company’s Compliance Manual and related policies adopted by the Board to ensure that they are appropriate for us and comply with the requirements of the perceived needsNasdaq Stock Market Rules and/or any other regulatory requirements, recommending to the Board any desirable changes to the Code of Conduct and Ethics, considering any other corporate governance issues that arise from time to time and developing appropriate recommendations for the Board related to any such issues;
•overseeing and establishing appropriate procedures for the annual evaluation of the Board and management; and
•developing and recommending to the Board a set of corporate governance guidelines applicable to the Company, reviewing them annually and, if appropriate, recommending changes to the corporate governance guidelines to the Board.
Qualifications for Director Nominees. In considering director nominees, the NCG Committee considers a number of factors, including the following:
•significant experience that is relevant and beneficial to the Board and Capital Southwest;
•the ability and willingness to make sufficient time commitments to our affairs in order to perform their duties as directors, including regular attendance at Board and committee meetings;
•consistent demonstration of strong character and integrity;
•the ability and willingness to represent the best interests of our shareholders; and
•whether the nominee is “independent” as defined by the Nasdaq Stock Market Rules, not an “interested person” as defined by the 1940 Act and/or any other regulatory requirements and the Company’s corporate governance guidelines.
During the fiscal year ended March 31, 2022, the NCG Committee met three times. The Board has determined that point in time. each member of the NCG Committee is “independent” as independence is defined by the Nasdaq Stock Market Rules and is not an “interested person” as defined by the 1940 Act.
Consideration of Director Nominees of Shareholders.The committee evaluates allNCG Committee will consider nominees for directors whose names are submitted in writing by a holder of our common stock. Nominations must be addressed to Capital Southwest Corporation, 8333 Douglas Avenue, Suite 1100, Dallas, Texas 75225, Attention: Chairman of the NCG Committee, indicating the nominee’s qualification, and other relevant biographical information and providing confirmation of the nominee’s consent to serve as a director. In order to be considered for the next annual election of directors, any such written request must comply with the requirements in our bylaws.
The NCG Committee will evaluate director based on these criteria, including nominees that may be recommended by a shareholder.shareholder, current Board member or other person according to the same criteria as a nominee identified by the NCG Committee.
Compensation Committee
The Compensation Committee has the sole authority and responsibility for establishing, administering and reviewing the Company’s policies, programs and procedures for compensating our executive officers and members of the Board. The functions and responsibilities of the Compensation Committee include:
•reviewing, at least annually, the goals and objectives and the structure of Capital Southwest’s plans for executive compensation, incentive compensation, equity-based compensation, and its general compensation plans and employee benefit plans (including retirement plans);
•making recommendations to the Board with respect to any new equity or other incentive compensation plans or any changes in the objectives and structure of existing plans;
•reviewing and evaluating annually the performance of the Company’s executive officers, in light of the goals and objectives of Capital Southwest’s executive compensation plans, and determining executive compensation;
•overseeing, in consultation with the Chief Executive Officer, the annual evaluation of other executive officers and key employees;
•recommending grants of equity-based compensation awards to any officer or other employee;
•meeting with management to review and discuss the Compensation Discussion and Analysis included in this Proxy Statement;
•reviewing and reassessing the adequacy of our Clawback Policy and our Stock Ownership and Holding Policy; and
•reviewing and reassessing annually the adequacy of the Compensation Committee Charter and recommending any changes to the Board.
During the fiscal year ended March 31, 2022, the Compensation Committee met two times. The Board recognizeshas determined that each member of the Compensation Committee (a) meets the Nasdaq Stock Market Rules with respect to independence and is not an “interested person” as defined by the 1940 Act, and (b) is a “non-employee director” as that term is defined under Rule 16b‑3 promulgated under the Securities Exchange Act of 1934, as amended (the “1934 Act”). The Compensation Committee may retain independent counsel and other independent advisors to assist it in carrying out its members benefit from service onresponsibilities.
Compensation Committee Interlocks and Insider Participation
During the boardsfiscal year ended March 31, 2022, no member of other companies. We encourage that service but also believe it is critical that directors have the ability to dedicate sufficient time to their service onCompensation Committee was an officer or employee of our Board.Company or any of our subsidiaries. No member of the Compensation Committee has any relationship with the Company requiring disclosure under Item 404 of Regulation S-K. In addition, no Compensation Committee interlocking relationship, as set forth under Item 407(e) of Regulation S-K, existed during the fiscal year ended March 31, 2022 between any member of the Board, the Compensation Committee or our executive officers.
Board and Committee Evaluations
Our Corporate Governance Guidelines require the Board and each committee of the Board to conduct an annual self-evaluation to determineassess whether the Board or respectiveand each committee is functioning effectively. The review focuses on the performance of the entire Board or the respectiveand each committee. In connection with each annual performance evaluation, the Board or committeeCompany's counsel separately surveys and receives comments from each director or committee member regarding an assessment of the Board’s or the committee’s performance.performance, as applicable. The Board also reviews the GovernanceNCG Committee’s recommendations concerning the performance and effectiveness of the Board and each of its committees. The GovernanceNCG Committee will also review the individual performance of a director as circumstances warrant.
During our fiscal year ended March 31, 2016, the Board engaged a third party consultant to conduct an evaluation of the Governance processes and procedures, and the skill sets and backgrounds of the Board members, compared to industry best practices. The third party consultant presented its evaluation to the Board and provided their recommendations.
Our by-lawsbylaws provide that the Board may increase or decrease the number of directors by resolution of the Board, provided that the tenure of office of any incumbent director will not be affected by any decrease in the number of directors. Our by-lawsbylaws also provide that if any or all of the directors cease to be directors, any vacancy other than vacancies that result from an increase in the number of directors or from the removal of a director, may in general be filled solely by a majority of the remaining directors even if the remaining directors do not constitute a quorum. Any vacancy that results from an increase in the number of directors constituting the entire Board may be filled by a majority of the entire Board. Any vacancy that results from the removal of a director may be filled either by a majority of the remaining directors or by our shareholders.shareholders at an annual meeting or a special meeting called for that purpose. Any director elected to fill a vacancy will hold office until the next annual election of directors and until atheir respective successor is elected and qualified.
Corporate Governance Guidelines,
on Governance andthe Codes of Ethics
and the Code of Conduct
The Board has adopted theCorporate Governance Guidelines on Governance to address significant corporate governance issues. These guidelines provide a framework for our corporate governance initiatives and cover a variety of topics, including the role of our
Board, boardBoard selection and composition, Board compensation, Board committees, Board operation and structure, Board orientation and evaluation, Board planning and oversight functions and stock ownership guidelines. The GovernanceNCG Committee is responsible for overseeing and reviewing the guidelinesCorporate Governance Guidelines and reporting and recommending to the Board any changes to the guidelines.
The Board has also adopted a Code of Conduct and a Code of Ethics, each of which is designatedare designed to help officers, managers and employees resolve ethical issues in an increasingly complex business environment. It covers topics such as reporting unethical or illegal behavior, compliance with the law, share trading, conflicts of interest, fair dealing, protection of our assets, disclosure of proprietary information, internal controls, personal community activities, business records, communication with external audiences and obtaining assistance to help resolve ethical issues. The Company has established a policy designed to prohibit our executive officers, directors, and employees from purchasing or selling shares of the Company while in possession of material nonpublic information, or otherwise using such information for their personal benefit or in any manner that would violate applicable laws and regulations. The Code of Ethics establishes procedures that apply to our officers, directors, employees and access persons with respect to their personal investments and investment transactions. The Code of Ethics generally does not permit investments by officers, directors, employees and access persons in securities that may be purchased or held by us.
In addition, under the Code of Ethics, no employee of the Company, including our executive officers, together with their immediate family members, may engage in any transaction involving the Company’s securities without first obtaining pre-clearance of the transaction from the Company’s Chief Compliance Officer. The Company’s directors must also receive pre-clearance approval before trading in the Company’s securities, pursuant to the Code of Ethics. Moreover, our executive officers, directors, and employees are prohibited from engaging in hedging transactions with respect to the Company’s securities.
You may obtain a copy of the committee charters,Corporate Governance Guidelines, the Guidelines on GovernanceCode of Conduct and the Code of Ethics on our website at www.capitalsouthwest.com/governance. The Company will disclose amendments to or waivers from a required provision of the Code of Ethics on Form 8-K.
CommunicationDelinquent Section 16(a) Reports
Section 16(a) of the 1934 Act requires the Company’s officers and directors, and persons who own more than 10% of our shares, to file reports of securities ownership and changes in such ownership with the BoardSEC. Officers, directors, and greater than 10% shareholders also are required by SEC rules to furnish the Company with copies of all Section 16(a) forms they file.
ShareholdersBased solely on the Company’s review of Forms 3, 4 and interested parties who wish5 filed by such persons and information provided by the Company’s directors and officers, the Company believes that during the year ended March 31, 2022, all Section 16(a) filing requirements applicable to communicatesuch persons were met in a timely manner, with any memberthe following inadvertent exception: Ramona L. Rogers-Windsor filed late Form 4s with respect to four transactions in our shares during the reporting period.
Board Diversity Matrix
On August 6, 2021, the SEC approved Nasdaq Listing Rule 5606 that requires each Nasdaq-listed company to annually disclose information on the voluntary self-identified gender, racial characteristics, and LGBTQ+ status of the Board may do so in writingcompany’s board of directors. The requirement is intended to make consistent and comparable statistics widely available to investors regarding the number of diverse directors serving on a Nasdaq-listed company’s board. In compliance with Nasdaq Rule 5606, the Company is including the following address:Board Diversity Matrix for the Company as of June 3, 2022:
Capital Southwest Corporation
5400 LBJ Freeway, Suite 1300
Dallas, Texas 75240
Attention: Board of Directors
Mr. Brooks currently reviews all correspondence addressed to the Board, or any individual Board member, for any inappropriate correspondence and correspondence more suitably directed to management. Mr. Brooks will summarize all correspondence not forwarded to the Board and make the correspondence available to the Board for its review at the Board’s request. Mr. Brooks will forward shareholder communications to the Board prior to the next regularly scheduled meeting of the Board following the receipt of the communication as appropriate.
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| | | | | | | | | | | | | | |
| Board Diversity Matrix (As of June 3, 2022) |
| Total Number of Directors | 7 |
| Female | Male | Non-Binary | Did Not Disclose Gender |
| Part I: Gender Identity |
| Directors | 2 | 5 | - | - |
| Part II: Demographic Background |
| African American or Black | 1 | - | - | - |
| Alaskan Native or Native American | - | - | - | - |
| Asian | - | - | - | - |
| Hispanic or Latinx | - | - | - | - |
| Native Hawaiian or Pacific Islander | - | - | - | - |
| White | 1 | 5 | - | - |
| Two or More Races or Ethnicities | - | - | - | - |
| LGBTQ+ | - |
| Did Not Disclose Demographic Background | - |
Risk Oversight
The Board has an active role in overseeing management of Capital Southwest’s risk.risk management. The Board regularly reviews information regarding Capital Southwest’s operational, financial, legal, regulatory, strategic and reputational risks, which isare usually conveyed to the Board by the senior management of Capital Southwest. Because overseeing risk is an ongoing process and inherent in Capital Southwest’s strategic decisions, the Board discusses risk throughout the year during its meetings in relation to specific proposed actions. The Board delegates certain risk management oversight to the Board committees. While the Board oversees Capital Southwest’s overall risk management, management is responsible for the day-to-day risk management process. Committees meet
The primary areas of risk oversight for which the Board and each Board committee is responsible are summarized in executive session with key management personnel and representativesthe chart below.
| | | | | | | | |
| Board/Committee | | Primary Areas of Risk Oversight |
| | |
Full Board | | Strategic, financial and executive risksRisks and exposures associated with strategic, financial and executive matters, including the annual operating plan and the strategic plan;plan. The Board also has oversight over legal and regulatory exposures, cybersecurity and other current matters that may present materialinformation systems risk, to our operations, plans, prospects or reputations; material acquisitions and divestitures. |
| | |
| Audit Committee | | Risks and exposures associated with accounting, auditing, reporting, financial practices (including the integrity of Capital Southwest’s financial statements and related systems of internal controls), administration and financial controls, compliance with legal and regulatory requirements, including ethical business standards, the independent registered public accounting firm’s qualifications, independence and performance and the performance of the internal audit function. The Audit Committee also has the direct responsibility for the appointment, compensation, retention and oversight of our independent registered public accounting firm, including the performance of any non-audit services. |
| | |
| Compensation Committee | | Risks and exposures associated with compensation, severance agreements, any succession plans and incentive and equity-based compensation plans for Company employees and non-employee members of the Board, including with respect to compliance of compensation plans and arrangements with applicable regulations. regulations, enforceability of our Clawback Policy and compliance with our Stock Ownership and Holding Policy. |
| | |
Nominating and Nominating/Corporate
Governance Committee | | Risks and exposures related to governance of Capital Southwest and to the composition and organization of the Board including nominations and qualification criteria for membership, Board size, and Board education and evaluation. |
Communication with the Board
Shareholders and interested parties who wish to communicate with any member of the Board may do so by writing to: Capital Southwest Corporation, 8333 Douglas Avenue, Suite 1100, Dallas, Texas 75225, Attention: Board of Directors.
Ms. Battist, the Chair of the Audit Committee, currently reviews all correspondence addressed to the Board, or any individual Board member, for any inappropriate correspondence and correspondence more suitably directed to management.Ms. Battist will summarize all correspondence not forwarded to the Board and make the correspondence available to the Board for its review at the Board’s request. Ms. Battist will forward shareholder communications to the Board prior to the next regularly scheduled meeting of the Board following the receipt of the communication as appropriate.
DIRECTOR COMPENSATION
Directors who are not employed by the Company receive an annual retainer of $102,000 for service as a director. Directors are also reimbursed for actual travel expenses related to attending Board meetings. In addition, for fiscal year ended March 31, 2022, any director who is not employed by the Company that serves as a non-voting, observer on the Company's investment committee receives an annual retainer of $15,000. On April 21, 2021, the Board approved a quarterly fee of $12,500 payable to each non-employee director during the fiscal year ending March 31, 2022, until such time that the Company is permitted to issue restricted stock to non-employee directors. If the Non-Employee Director Plan is approved by shareholders, then the Company will not pay the quarterly fee of $12,500 to non-employee directors going forward. See “Proposal Three: Approval of Non-Employee Director Plan” for more information about the plan pursuant to which the Company proposes to issue restricted stock to its non-employee directors. For fiscal year ended March 31, 2022, the non-executive Chairman of the Board and committee chairs also receive additional annual fees as follows:
| | | | | | | | |
| | |
| Position | | Annual Fee |
| Non-Executive Chairman of the Board | | $ | 40,000 | |
| Audit Committee Chair | | 15,000 | |
| Compensation Committee Chair | | 12,000 | |
| Nominating/Corporate Governance Committee Chair | | 8,000 | |
The following table sets forth the total compensation paid to our non-employee directors for the fiscal year ended March 31, 2022. During the fiscal year ended March 31, 2022, we did not grant any equity awards or pay or accrue any pension or retirement benefits for our non-employee directors.
| | | | | | | | | | | | | | |
| Name | | Fees Earned
or
Paid in Cash | | Total |
| Christine S. Battist | | $ | 167,000 | | | $ | 167,000 | |
| David R. Brooks | | 192,000 | | | 192,000 | |
| T. Duane Morgan | | 152,000 | | | 152,000 | |
| Jack D. Furst | | 164,000 | | | 164,000 | |
Ramona L. Rogers-Windsor(1) | | 154,500 | | | 154,500 | |
William R. Thomas(2) | | 172,500 | | | 172,500 | |
(1)Ms. Rogers-Windsor served on the Company's investment committee for the period February 1, 2022 through March 31, 2022 during fiscal year ended March 31, 2022.
(2)Mr. Thomas served on the Company's investment committee for the period April 1, 2022 through January 31, 2022 during fiscal year ended March 31, 2022.
In October 2015, our NCG Committee adopted a stock ownership requirement for our non-employee directors to better align the interests of our Board with our shareholders. The stock ownership requirement initially provided that each non-employee director of our Board own shares of our common stock equal to 2.5 times the annual director retainer. On April 25, 2018, our Board amended this stock ownership requirement to require each non-employee director of our Board to own shares of our common stock equal to 3.5 times the annual director retainer. Christine S. Battist became a director of the Company on August 2, 2018 and, as of the date of this Proxy Statement, she does not yet own shares of our common stock equal to 3.5 times her annual director retainer. Ramona L. Rogers-Windsor became a director of the Company on March 26, 2021 and, as of the date of this Proxy Statement, she does not yet own shares of our common stock equal to 3.5 times her annual director retainer. The Board acknowledges that the stock ownership requirement allows new directors a reasonable amount of time to comply.
On May 16, 2022, we received an exemptive order that supersedes the prior exemptive order relating to the Capital Southwest Corporation 2021 Employee Restricted Stock Award Plan (the “2021 Employee Plan”) to permit the Company to (i) issue restricted stock as part of the compensation package for both employees and non-employee directors of the Board, and (ii) withhold shares of the Company’s common stock or purchase shares of the Company’s common stock from employees and non-employee directors to satisfy tax withholding obligations relating to the vesting of restricted stock (the “Order”). Shareholders are being asked to approve the Non-Employee Director Plan (Proposal 3) at the Annual Meeting, pursuant to which the Company will issue restricted stock as part of the compensation package for non-employee directors of the Board.
EXECUTIVE OFFICERS
Bowen S. Diehl. See “Nominees for Director”“Director Nominees Biographies” for Mr. Diehl’s biography.
Michael S. Sarner, 43, joined Capital Southwest in July 201549, has served as our Chief Financial Officer, Chief Compliance Officer, Secretary and Treasurer since October 2015. Before that, he served as a Senior Vice President until he was appointed Chief Financial Officer in Octoberof Capital Southwest since July 2015. Prior to joining Capital Southwest, from 2000 to 2015, Mr. Sarner was the Senior Vice President, Treasury at American Capital, Ltd., a publicly traded BDC and global asset manager. Mr. Sarner was responsible for capital raising, debt capital markets, corporate restructurings, financial planning, corporate development of strategic initiatives, and system implementations of budget and treasury solutions. During the course of his career, he has raised over $6 billion in debt capital in Term Securitizations, Secured Revolving Linesterm securitizations, secured revolving lines of Credit, Unsecured Notes,credit, unsecured notes, and Term Loansterm loans to support middle market platforms. Mr. Sarner has also led both Corporatecorporate and Debt Restructurings,debt restructurings, serving as both the strategic lead internally and the external liaison to over twenty20 financial institutions involved in the negotiations. Prior to joining American Capital, Mr. Sarner served in various roles in the accounting and finance arenafields performing and managing due diligence, raising debt and equity capital, and performing audits in public accounting. Mr. Sarner holds a Bachelor of Business Administration in Accounting from James Madison University and a Masters of Business Administration in Finance from George Washington University. Mr. Sarner holds an inactive Certified Public Accountant License in the Commonwealth of Virginia.
Joshua S. Weinstein, 44, joined the Company as a Principal in June 2015 to support the firm’s credit-focused investment activities, was promoted to Managing Director in April 2017 and was subsequently promoted to Senior Managing Director in April 2021. Mr. Weinstein came to the Company from H.I.G. WhiteHorse, where he was a Principal responsible for all aspects of the investment process including sourcing, structuring, analyzing and monitoring middle market credits. Prior to H.I.G. WhiteHorse, Mr. Weinstein was a Vice President of WhiteHorse Capital Partners, L.P., a leading credit investor and manager of syndicated first and second lien loans and held analyst positions with Morgan Stanley and Citigroup. He earned a Bachelor of Arts in Economics/Mathematics from Columbia University, a MBA degree from the Marshall School of Business at the University of Southern California and holds the Chartered Financial Analyst designation.
STOCKSECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the beneficial ownership of our common stock as of June 20, 2016the Record Date by (1) each NEO; (2) each director and director nominee of the Company; (3) all of our directors and executive officers as a group; and (4) each person whoknown to us to beneficially own 5% or more of our outstanding common stock. Beneficial ownership is the beneficial owner (as that term is defineddetermined in accordance with the rules and regulations of the SecuritiesSEC and Exchange Commission (“SEC”)) ofincludes voting or investment power with respect to the securities. Ownership information for those persons who beneficially own 5% or more than 5% of our outstandingshares of common stock; (2) each named executive officer in the Summary Compensation Table; (3) each director that served at any time during the fiscal year ended March 31, 2016; and (4) all current directors and executive and non-executive officers as a group. The number of shares beneficially ownedstock is based upon reports filed by each entity, person, director or executive officer is determined under the rules ofsuch persons with the SEC and theother information is not necessarily indicative of beneficial ownership for any other purpose.obtained from such persons, if available. Under such rules, beneficial ownership includes any shares as to which the individual has the sole or shared voting power or investment power and also any shares that the individual has a right to acquire as of August 19, 2016 (60 days after June 20, 2016) through the exercise of any stock option or other right.right within 60 days of the Record Date. Unless otherwise indicated below, each of the persons named in the table has sole voting and investment power with respect to the shares indicated to be beneficially owned. Percentage of ownership is based on 25,594,515 shares of common stock outstanding as of the Record Date. The number of shares held by beneficial owners of 5% or more of our outstanding common stock are as of the date of the applicable SEC filing made by those owners (unless otherwise noted).
| Name and Address of Beneficial Owner | | Amount and Nature of Beneficial Ownership | | | Percent of Class | |
Moab Capital Partners, LLC(1) 15 East 62nd Street New York, NY 10065 | | | 1,565,938 | | | | 10.0 | % |
Zuckerman Investment Group(2) 155 N. Wacker Drive, Suite 1700 Chicago, IL 60606 | | | 1,416,054 | | | | 9.0 | % |
Evercore Trust Company, N.A.(3) 55 East 52nd Street, 23rd Floor New York, NY 10055 | | | 1,108,545 | | | | 7.0 | % |
First Manhattan Co.(4) 399 Park Avenue New York, NY 10022 | | | 955,560 | | | | 6.1 | % |
Punch & Associates Investment Management, Inc.(5) 3601 W. 76th Street, Suite 225 Edina, MN 55435 | | | 797,190 | | | | 5.1 | % |
River Road Asset Management, LLC(6) 462 S. 4th St., Suite 2000 Louisville, KY 40202 | | | 780,827 | | | | 5.0 | % |
William R. Thomas III(7)(8) | | | 591,838 | | | | 3.8 | % |
Bowen S. Diehl(7)(9) | | | 145,199 | | | | * | |
Joseph B. Armes(7)(10) | | | 103,088 | | | | * | |
Kelly Tacke(7)(11) | | | 52,000 | | | | * | |
Michael S. Sarner(7)(12) | | | 24,000 | | | | * | |
John H. Wilson(7) | | | 12,000 | | | | * | |
T. Duane Morgan(7)(13) | | | 4,645 | | | | * | |
David R. Brooks(7) | | | 2,600 | | | | * | |
Jack D. Furst(7) | | | 2,100 | | | | * | |
Christopher Mudd(7) | | | - | | | | N/A | |
| | | | | | | | | |
| All directors, executive officers and non-executive officers as a group (12 persons) | | | 1,020,011 | | | | 6.5 | % |
| | | | | | | | | | | | | | |
| Name and Address of Beneficial Owner | | Amount and Nature of Beneficial Ownership | | Percent of Class |
| Directors & Executive Officers | | | | |
Christine S. Battist(1) | | 8,248 | | | * |
David R. Brooks(1) | | 32,000 | | | * |
Bowen S. Diehl(1),(2) | | 497,888 | | | 1.9 | % |
Jack D. Furst(1),(3) | | 78,004 | | | * |
T. Duane Morgan(1),(4) | | 26,236 | | | * |
Ramona L. Rogers-Windsor(1) | | 3,230 | | | * |
Michael S. Sarner(1),(5) | | 277,318 | | | 1.1 | % |
William R. Thomas(1),(6) | | 592,156 | | | 2.3 | % |
Joshua S. Weinstein(1),(7) | | 146,115 | | | * |
| All directors and executive officers as a group (9 persons) | | 1,661,195 | | | 6.5 | % |
(1) | Based on information set forth in a Schedule 13G relating to Capital Southwest filed with the SEC on January 7, 2016. Moab Partners, L.P. and Michael M. Rothenberg will beneficially own and have sole voting and dispositive power with respect to 1,565,938 shares of Capital Southwest’s common stock. Moab Partners, L.P. beneficially owns and has sole voting and dispositive power with respect to 1,558,332 shares of Capital Southwest’s common stock. Moab Capital Partners, LLC is the investment adviser to Moab Partners and a certain managed account. Mr. Rothenberg is an owner and a Managing Member of Moab Capital Partners, LLC. By virtue of these relationships, each of Moab Capital Partners, LLC and Mr. Rothenberg may be deemed to beneficially own shares of Capital Southwest’s common stock owned directly by Moab Partners, L.P. and held in the managed account. |
(1)Unless otherwise indicated, the address of each of the persons whose name appears in the table above is: c/o Capital Southwest Corporation, 8333 Douglas Avenue, Suite 1100, Dallas, Texas 75225. None of the shares of Capital Southwest’s common stock owned by our directors, director nominees or executive officers are pledged as security.(2)Mr. Diehl beneficially owns (i) 137,907 shares of common stock held directly by Mr. Diehl, including 119,641 unvested restricted shares, and (ii) 359,981 shares of common stock held by PHC Investments, LLC. Mr. Diehl has shared voting and dispositive power with respect to shares held by PHC Investments, LLC, which is fifty percent owned by Mr. Diehl and fifty percent owned by his spouse. The shares held by PHC Investments, LLC are pledged as collateral for a line of collateral for PHC Investments, LLC.
(3)Mr. Furst holds 39,004 shares of Capital Southwest's common stock directly and 39,000 share indirectly through FMAB Partners, LP, a limited partnership controlled by Mr. Furst provided that he holds 50% of the membership interest in the sole general partner of FMAB Partners, LP.
(4)Mr. Morgan holds 5,060 shares of Capital Southwest’s common stock directly and 21,176 shares indirectly through the Morgan Family Trust.
(5)Mr. Sarner has voting and dispositive power with respect to 277,317 shares of common stock, including 100,813 unvested restricted shares.
(6)Mr. Thomas holds 8,217 shares of Capital Southwest’s common stock directly. Mr. Thomas is President and sole manager of Thomas Heritage Company, L.L.C., the sole general partner (the “General Partner”) of Thomas Heritage Partners, Ltd. (the “Partnership”). In such capacity, Mr. Thomas has sole voting and dispositive power with respect to 571,939 shares owned by the Partnership. Mr. Thomas beneficially owns 12,000 shares of Capital Southwest's common stock held by his minor children.
(7)Mr. Weinstein holds 144,565 shares of Capital Southwest's common stock directly, including 69,573 unvested restricted shares. Mr. Weinstein also beneficially owns 1,550 shares of Capital Southwest's common stock held by his children.
The following table sets forth as of the Record Date, the dollar range of our equity securities that is beneficially owned by each of our directors. We are not part of a "family of investment companies," as that term is defined in the 1940 Act.
(2) | Based on information set forth | | | | | | | |
| | |
| Independent Directors | | Dollar Range of Equity Securities Beneficially Owned in a Schedule 13G/A relating to Capital Southwest filed with the SEC on February 12, 2016. Zuckerman Investment Group, LLC, Sherwin A. Zuckerman and DanielCSWC
(1)(2)(3) |
| Christine S. Battist | | Over $100,000 |
David R. Zuckerman will beneficially own and have shared voting and dispositive power with respect to 1,416,054 shares of Capital Southwest’s common stock.Brooks | | Over $100,000 |
| Jack D. Furst | | Over $100,000 |
| T. Duane Morgan | | Over $100,000 |
| Ramona Rogers-Windsor | | $50,001-$100,000 |
| William R. Thomas | | Over $100,000 |
| | |
| Interested Director | | |
| Bowen S. Diehl | | Over $100,000 |
(3) | Based on information set forth in a Schedule 13G relating to Capital Southwest filed with the SEC on February 20, 2016. Evercore Trust Company, N.A. beneficially owns 1,108,545 shares of Capital Southwest’s common stock. Evercore Trust Company, N.A. has sole voting and dispositive power with respect to 166,052 shares of Capital Southwest’s common stock and shared voting and dispositive power with respect to 942,493 shares of Capital Southwest’s common stock. |
(4) | Based on information set forth in a Schedule 13G/A relating to Capital Southwest filed with the SEC on February 12, 2016. First Manhattan Co. beneficially owns and has shared dispositive power with respect to 955,560 shares of Capital Southwest’s common stock. First Manhattan Co. will have shared voting power with respect to 950,060 shares of Capital Southwest’s common stock. |
(5) | Based on information set forth in a Schedule 13G relating to Capital Southwest filed with the SEC on February 9, 2016. Punch & Associates beneficially owns and has sole voting and dispositive power with respect to 797,190 shares of Capital Southwest’s common stock. |
(6) | Based on information set forth in a Schedule 13G/A relating to Capital Southwest filed with the SEC on February 12, 2016. River Road Asset Management, LLC beneficially owns and has sole dispositive power with respect to 780,827 shares of Capital Southwest’s common stock. River Road has sole voting power with respect to 679,001 shares of Capital Southwest’s common stock. |
(7) | Unless otherwise indicated, the address of each of the persons whose name appears in the table above is: c/o Capital Southwest Corporation, 5400 Lyndon B. Johnson Freeway, Suite 1300, Dallas, Texas 75240. |
(8) | Mr. Thomas holds 7,899 shares directly. Mr. Thomas is President and sole manager of Thomas Heritage Company, L.L.C., the sole general partner (the “General Partner”) of Thomas Heritage Partners, Ltd. (the “Partnership”). In such capacity, Mr. Thomas has sole voting and depositor power with respect to 571,939 shares of Common Stock owned by the Partnership. Mr. Thomas beneficially owns 12,000 shares of Company common stock held by his minor children. |
(10) | Mr. Armes has voting power with respect to 31,000 shares of unvested restricted shares, 16,000 shares of common stock and 9,502 shares of common stock held by JBA Family Partners, L.P., a limited partnership of which he and his spouse are 50% owners of the general partner. Mr. Armes disclaims beneficial ownership of the shares held by this partnership except to the extent of his pecuniary interest therein. Lastly, 46,586 shares of his stock options granted under the 2009 stock option plan will be exercisable as of August 16, 2016. |
(9) | Mr. Diehl has voting power with respect to 78,000 unvested restricted shares and 26,587 shares of common stock. In addition, 40,612 of Mr. Diehl’s stock options granted under the 2009 stock option plan will be exercisable as of August 16, 2016. |
(11) | Ms. Tacke has voting power with respect to 31,067 shares of unvested restricted shares and 15,933 shares of common stock. In addition, 38,619 of Ms. Tacke’s stock options granted under the 2009 stock option plan will be exercisable as of August 16, 2016. |
(12) | Mr. Sarner has voting power with respect to 24,000 shares of unvested restricted shares. |
(13) | Mr. Morgan holds 3,395 shares directly and 1,250 shares indirectly through the Morgan Family Trust. |
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a)(1)Beneficial ownership has been determined in accordance with Rule 16a-1(a)(2) of the Securities Exchange Act1934 Act.
(2)The dollar range of 1934, as amended (the “1934 Act”), requiresequity securities beneficially owned by our officers and directors and persons who beneficially own more than 10%is based on the closing price of our common stock on Nasdaq of $22.28 per share as of the Record Date.
(3)The dollar ranges of equity securities beneficially owned are: none, $1-$10,000, $10,001-$50,000, $50,001-$100,000, or over $100,000.
The table below sets forth certain information as of March 31, 2022 regarding the registered shares of our common stock available for grant or granted under stock compensation plans that (1) were approved by our shareholders, and (2) were not approved by our shareholders.
| | | | | | | | | | | | | | | | | | | | |
| Plan Category | | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | | Number of Registered Securities Remaining Available for Future Issuance Under Equity Compensation Plans |
| Equity compensation plans approved by shareholders (1) | | — | | | $ | — | | | 1,200,000 | |
| Equity compensation plans not approved by shareholders (2) | | — | | | — | | | — | |
| Total | | — | | | $ | — | | | 1,200,000 | |
(1)Includes shares remaining under the 2021 Employee Plan. The right to file reportsgrant restricted stock awards under the 2010 Restricted Stock Award Plan terminated on July 18, 2021, ten years after the date that the 2010 Restricted Stock Award Plan was approved by the Company’s shareholders. For a description of securities ownershipthe 2010 Restricted Stock Award Plan and changesthe 2021 Employee Plan, please refer to Note 8 contained in such ownershipour consolidated financial statements in the Annual Report.
(2)We have no equity compensation plans that were not approved by shareholders.
PROPOSAL TWO: ADVISORY VOTE ON EXECUTIVE COMPENSATION
In accordance with Section 14A of the 1934 Act, we are asking our shareholders to provide advisory approval of the compensation of our NEOs as of March 31, 2022 as described in the “Compensation Discussion and Analysis” section of this Proxy Statement. While this vote is advisory and non-binding, it will provide information to the Compensation Committee regarding investor sentiment about our executive compensation philosophy, policies and practices, which the Compensation Committee will consider when determining executive compensation for fiscal year ending March 31, 2023 and future periods. We currently provide our shareholders with an annual vote (on a non-binding basis) on executive compensation. The next advisory vote on executive compensation will occur at our 2023 annual meeting of shareholders.
As described further in the “Compensation Discussion and Analysis” section of this Proxy Statement, our fiscal year ended March 31, 2022 compensation structure was developed and designed to:
•attract, retain and motivate exceptional executives,
•reward past performance and provide incentives for future performance,
•align executive compensation packages with the SEC. Officers, directorsCompany’s performance, and greater than 10% beneficial owners also are required by rules promulgated by the SEC to furnish us with copies of all Section 16(a) forms they file
•align our executive officer’s long-term interests with the SEC. Based solely uponinterests of our shareholders.
As a reviewBDC, the 1940 Act constrains our ability to maintain performance-based compensation. Section 57(n) of the copies1940 Act provides that a BDC, such as Capital Southwest, may not maintain both an equity incentive plan and a “profit-sharing plan,” for its NEOs and other employees. The Compensation Committee believes that equity incentives strongly align the interests of such forms furnishedNEOs and employees with those of the Company’s shareholders. Because our compensation philosophy utilizes equity compensation incentives, the Compensation Committee is not permitted to us, we believeuse non-discretionary or formulaic Company performance goals or criteria to determine executive incentive compensation or grant equity compensation that eachis earned based on the achievement of Company financial performance goals (see “Compensation Discussion and Analysis—Compensation Philosophy and Overview—1940 Act Restrictions on Company Performance Based Compensation”).
It is the intention of the Compensation Committee that our executive officers be compensated fairly, competitively and consistent with our strategy, sound corporate governance principles and shareholder interests and concerns. Our corporate governance structure (including our Clawback Policy, our Stock Ownership and Holding Policy, and independent Compensation Committee) further supports our compensation programs and align the interests of our executive officers to that of our shareholders. The table below sets forth the best practice compensation features we have adopted.
| | | | | | | | | | | |
| | | |
| Best Practice Compensation Features |
✓ What we Do | ✖ What we Don't Do |
| ✓ | DO balance both short-term and long-term incentives | ✖ | NO excessive perquisites or other benefits |
| ✓ | DO maintain rigorous stock ownership guidelines | ✖ | NO evergreen equity plan provisions |
| ✓ | DO maintain a clawback policy for both equity and cash awards | ✖ | NO guaranteed payout for cash incentive compensation |
| ✓ | DO cap payouts for awards under our short-term incentive program | ✖ | NO tax gross-ups |
| ✓ | DO appoint a compensation committee comprised solely of independent directors | ✖ | NO repricing or buyout of "underwater" stock options without shareholder approval |
Vote Required
The affirmative vote of a majority of the votes cast by holders of our shares as of the Record Date present or represented at the Annual Meeting is required to approve, on an advisory basis, the compensation of our NEOs. Abstentions and greater than 10% beneficial owners complied with all Section 16(a) filing requirements applicable“broker non-votes” will not be included in determining the number of votes cast and, as a result, do not affect the outcome.
The Board recommends that shareholders approve the program by approving the following advisory resolution:
“RESOLVED, that the shareholders of Capital Southwest Corporation approve, on an advisory basis, the compensation paid to them duringour named executive officers, as disclosed in the proxy statement relating to the fiscal year ended March 31, 2016,2022 pursuant to Item 402 of Regulation S-K (which disclosure includes the Compensation Discussion and Analysis section, the Summary Compensation Table and other compensation tables and the accompanying footnotes and narratives within the Executive Compensation section of the proxy statement).”
THE BOARD RECOMMENDS YOU VOTE “FOR” THE APPROVAL OF THE COMPENSATION OF OUR NEOS.
If you give no instructions on the proxy card, the shares covered by the proxy card will be voted FOR the approval of the compensation of our NEOs in accordance with the exceptionrecommendation of Moab Capital Partners, LLC and its affiliates, which together constitute a greater than 10% beneficial owner. Moab Capital Partners, LLC filed one late report for a series of transactions subject to Section 16(a) filing requirements; it failed to timely report the purchase of 5,800 shares of our common stock in a series of transactions on January 7, 2016 and January 8, 2016, and filed a Form 4 reporting those transactions on January 13, 2016.Board.
COMPENSATION DISCUSSION AND ANALYSIS
The following Compensation Discussion and Analysis, or CD&A, provides information relating to the compensation earned by our NEOs in the fiscal year 2016 compensation of ourended March 31, 2022 who were:
•Bowen S. Diehl, President and Chief Executive Officer (“CEO”),;
•Michael S. Sarner, Chief Financial Officer (“CFO”), Former PresidentChief Compliance Officer, Secretary, and Chief Executive Officer, Former Chief Financial OfficerTreasurer; and Former
•Joshua S. Weinstein, Senior Vice President, Operations, during the year ended March 31, 2016. These five individuals are referred to in this CD&A as the Named Executive Officers.Managing Director (“Senior MD”)
Compensation Philosophy and Overview
The Capital Southwest Compensation Committee (the “Committee”) has the primary authority to establish our compensation philosophy and the actual compensation levels for the named executive officers (“NEO’s”)NEOs and to administer all executive compensation arrangements and policies. Bowen S. Diehl,The compensation programs of the Company adopted by our Compensation Committee are designed with the goal of providing compensation that is fair, reasonable and competitive. These compensation programs are intended to align the compensation paid to our NEOs with both our short-term and long-term objectives and the interests of shareholders, which we believe will contribute to the achievement of long-term sustainable investment returns. The key elements of our compensation philosophy include: (1) designing compensation programs that enable us to attract and retain the best talent in the industry in which we compete; (2) aligning executive compensation packages with the Company’s performance; and (3) using long-term equity awards to align employee and shareholder interests.
The structure of the NEOs’ compensation program is designed to encourage and reward the following factors, among other things:
•sourcing and pursuing attractively priced investment opportunities in both upper and lower middle-market companies;
•building a well performing investment portfolio that generates sustainable income and capital gains that sustain and grow the Company’s dividends and net asset value per share;
•maintenance of liquidity and capital flexibility to accomplish the Company’s business objectives, including the preservation of investor capital;
•attainment of superior risk-adjusted returns on the Company’s investment portfolio; and
•professional development and growth of individual executives, the management team and other employees.
The Compensation Committee has the primary authority to establish compensation for the NEOs and other key employees and administers all executive compensation arrangements and policies. Our CEO assists the Compensation Committee by providing recommendations regarding the compensation of our named executive officers, excluding himself.CFO, our Senior MD and other key employees based on the compensation objectives set by the Compensation Committee as well as current business conditions. The Compensation Committee exercises itits discretion by modifying or accepting thesethe CEO’s recommendations. The Compensation Committee determines our CEO’s compensation without assistance or consultation from our CEO. The CEO routinely attends a portion of the Compensation Committee meetings. However, the Compensation Committee meets in executive session without the CEO or other members of executive management when discussingfrom time to time.
In reviewing and deliberating over our fiscal 2022 compensation program, the Compensation Committee considered, among other things:
•the economic conditions in the United States and abroad, including the continued uncertainties associated with the impact of the COVID-19 pandemic on the U.S. and global economy and capital markets and the magnitude and duration of such impact;
•our business plan and underlying assumptions;
•the goal of maintaining alignment between our senior management and our shareholders through the use of short- and long-term incentive compensation;
•the benefits of maintaining a consistent approach to compensation and the structure of our compensation programs through business cycles;
•the anticipated performance of our compensation programs based on our business plan and current financial position; and
•information and reports prepared by proxy advisors, including Glass, Lewis & Co. and Institutional Shareholder Services Inc.
To determine the competitiveness of executive compensation levels, the Compensation Committee also reviews the compensation and benefits practices of a group of other internally and externally managed BDCs, including corporate and, to the extent available, executive performance measures established to achieve total returns for shareholders. The Compensation Committee does not specifically benchmark the compensation of our NEOs against that paid by other BDCs, but takes such data into account as a factor for determining the compensation of our NEOs.
Independent Compensation Consultant
During fiscal year 2022, the Compensation Committee engaged Mercer (U.S.), Inc (referred to herein as Mercer) as an independent compensation consultant to assist the Compensation Committee and to provide guidance on a variety of compensation matters relating to executive compensation for the NEOs and non-executive directors, including, among other things, a review of our incentive compensation plans, compensation trends, and compensation planning best practices for fiscal 2023. Mercer was hired by and reports directly to the Compensation Committee. Although Mercer may work directly with management on behalf of the Compensation Committee, any such work is under the control and supervision of the Compensation Committee. Mercer does not provide any other occasionsservices to us. The Compensation Committee has also concluded that Mercer’s work raises no conflicts of interest that require disclosure under Item 407(e)(3)(iv) of Regulation S-K.
1940 Act Restrictions on Company Performance Based Compensation
As a BDC, the 1940 Act constrains our ability to maintain performance-based compensation. Consistent with Section 57(n) of the 1940 Act, a BDC, such as determinedCapital Southwest, may not maintain both an equity incentive plan and a “profit-sharing plan” for its NEOs and other employees. The Compensation Committee believes that equity incentives strongly align the interests of NEOs and employees with those of the Company’s shareholders. Accordingly, Capital Southwest previously has adopted and maintained equity incentive plans for its NEOs. As a result, the 1940 Act prohibits Capital Southwest from maintaining a “profit-sharing plan.”
The term “profit-sharing plan” is defined very broadly in the 1940 Act, but, in this context, is generally viewed as referring to incentive and other compensation being directly tied to a company’s overall financial performance metrics, such as net income, realized gains or losses and unrealized appreciation or depreciation on investments. In this regard, the SEC has indicated that a compensation program possesses profit-sharing characteristics if a company is obligated to make payments under the program based strictly on the company’s financial performance metrics.
Due to these restrictions imposed by the Committee.1940 Act, the Compensation Committee is not permitted to use non-discretionary or formulaic Company performance goals or criteria to determine executive incentive compensation or grant equity compensation that is earned based on the achievement of Company financial performance goals. Instead, the Compensation Committee considers overall Company performance along with other factors, including individual performance criteria, and uses its discretion in determining the appropriate compensation for NEOs and other key employees. The Compensation Committee’s objective is to work within the 1940 Act regulatory framework to establish appropriate compensation levels, maintain pay-for-performance alignment and implement compensation best practices.
On September 30, 2015, we completed2021 Shareholder Advisory Vote on Executive Compensation
At our 2021 annual meeting of shareholders, our shareholders approved an advisory vote with 92.0% of the spin-off of CSW Industrials, Inc. (“CSWI”). CSWI is now an independently publicly traded company. Effective October 1, 2015, Bowen S. Diehl was appointed President and Chief Executive Officervotes cast in favor of our Company,compensation philosophy, policies and Michael S. Sarner was appointed Chief Financial Officer, Chief Compliance Officerprocedures and Secretary. Joseph B. Armes, Kelly Tacke, and Christopher Mudd became employees of CSWI. In connection with the spin-off, Mr. Armes, Mr. Diehl, and Ms. Tacke were awarded nonqualified stock options, restricted stock, and cash incentive awards.
At the request2021 fiscal year compensation of the NEOs (the “Advisory Vote”). Subsequently, the Compensation Committee executive management prepares a compensation analysis of this peer group for the Committee’s use, using data pulled from public filings. The analysis generally shows trends in base salary, bonus opportunities, equity award sizes, and total compensation (as publicly reported in proxy statements).
With respect to Mr. Sarner, who joined Capital Southwest in July 2015 and was subsequently appointed Chief Financial Officer of Capital Southwest, the Committee set his employment package based on Capital Southwest’s negotiations with Mr. Sarner, takingtook into account the results of the Advisory Vote in determining compensation package from his prior employerpolicies and decisions of the opportunities Mr. Sarner had at other potential employers. Company during the fiscal year ended March 31, 2022. The Advisory Vote indicated to the Compensation Committee that our shareholders are supportive of the Company's existing compensation program.
In all categories, we believe our base salaries, annual cash bonus opportunities, restricted stock awards, and other compensation plan, taken as a whole, helphelps us attract, retain and motivate competent executive officers.
The objectives of Capital Southwest’s compensation programs are to attract, retain and motivate competentexceptional executive officers who haveand other employees, while aligning compensation with the experience and ability to enhance shareholder value and to contribute to thelong-term success of Capital Southwest’s investment management activities. The individual judgments made by the Committee are subjectiveCompany and are based largely on the recommendationsinterests and concerns of our shareholders. It is the intention of the Chief Executive Officer (except with respect to his compensation) and the Committee’s perception of each executive’s contribution to both Capital Southwest’s past performance and its future growth potential. TheCompensation Committee attempted to ensure that the total compensation paid to each executive officer is fair, reasonable, competitive and aligns the interests of executive management and the Company’s shareholders.
The principal elements of compensation forour executive officers in fiscal year 2016 were base salary, annual cash bonus opportunities, stock options granted under the 2009 Stock Incentive Plan, restricted stock granted under the 2010 Restricted Stock Award Plan, contributions to a qualified defined contribution plan (ESOP), a qualified defined benefit retirement plan and a non-qualified defined benefit retirement plan through September 30, 2015,other employees be compensated competitively and a 401K plan effective October 1, 2015.
In connectionconsistent with the spin-off, the qualified defined contribution plan was transferred to CSWI. CSWI also assumed sponsorship of the qualified defined benefit planour strategy, sound corporate governance principles and Capital Southwest withdrew as participating employers in the plan. Additionally, unvested accrued benefits under the non-qualified restoration plan were forfeited as of September 30, 2015. The committee will not grant any additional shares under the 2009 Stock Option Plan or request shareholders’ approval of any additional stock options to be added under the 2009 Stock Option Plan. The committee does not intend to grant additional Individual Incentive Awards. With the completion of the spin-off, the Committee intends for restricted stock granted under the 2010 Restricted Stock Award plan to continue as the sole long-term component of compensation for executive officers.
shareholder interests and concerns.
DeterminationElements of Compensation
Roles and Responsibilities – Compensation Committee
The Committee’s responsibilities included:
| 1) | To review at least annually, the goals and objectives and the structure of Capital Southwest’s plans for executive compensation, incentive compensation, equity-based compensation and general compensation plans and employee benefit plans (including retirement plans), and to recommend to the Board any new plans or any changes in the objectives and structure of such plans as the Committee deemed necessary or desirable. |
| 2) | To evaluate annually the performance of the Chief Executive Officer, in light of the goals and objectives of Capital Southwest’s executive compensation plans, and to determine his compensation level based on this evaluation. In determining the incentive components of his compensation, the Committee considered those factors it deems relevant, including Capital Southwest’s performance and his contribution to that performance. The Chief Executive Officer was not present during deliberations or voting pertaining to the Committee’s determination of his compensation. |
| 3) | To annually review and determine the compensation level of all other executive officers of Capital Southwest, in light of the goals and objectives of our executive compensation plans, market compensation data and the Chief Executive Officer’s recommendations. |
| 4) | In consultation with the Chief Executive Officer, to oversee the annual evaluation of the executive officers of Capital Southwest. |
| 5) | Periodically, as the Committee deemed necessary or desirable and pursuant to the applicable equity-based compensation plan, to recommend that the Board grant equity-based compensation awards to any officer or employee of Capital Southwest for such number of shares of common stock as the Committee, in its sole discretion, shall deem to be in the best interest of Capital Southwest. |
| 6) | To perform such duties and responsibilities as the Board may assign to the Committee regarding the terms of any compensation plans and to review and approve the amount and terms of all individual stock options that the Committee granted. |
| 7) | To recommend to the Board all equity-based compensation plans, including prior approval of those plans that are subject to shareholder approval under the listing standards of NASDAQ. |
| 8) | To meet with management to review, discuss and recommend to the Board the Compensation Discussion and Analysis required by the Securities and Exchange Commission’s (the “SEC”) rules and regulations. The Committee will also prepare a Compensation Committee Report for inclusion in the Company’s proxy statement and applicable filings with the SEC. |
| 9) | To annually review and reassess the adequacy of this Charter and recommend any changes to the full Board. |
Roles and Responsibilities - Executive Officers
Bowen S. Diehl, our President and CEO, made recommendations on salary, annual cash bonus opportunities, and restricted stock to the Committee based on the compensation objectives set by the Committee as well as current business conditions. More specifically, Mr. Diehl reviewed and assessed market data and recommended compensation adjustments to the Committee for all officers (other than himself).
The Committee then exercised its discretion in modifying any recommended salaries, annual cash bonus opportunities, or restricted stock. The Committee approved or, if applicable, recommended to the Board for approval, recommendations regarding stock based awards for all of its officers. Mr. Diehl could attend the meetings of the Committee at the request of the Committee Chairman, but did not attend executive sessions and did not participate in any Committee discussions relating to the final determination of his own compensation.
Executive Compensation Components
For the fiscal year ended March 31, 2016,2022, the components of Capital Southwest’s compensation program for NEO’s included:
| | | | | | | | | | | | | | |
| Compensation Element | | Form of Compensation | | Compensation Objective |
| Base Salary | | Cash paid on a regular basis throughout the year | | Provide a level of fixed income that is competitive to allow the Company to attract and retain executive talent |
| Annual Cash Incentive Opportunities | | Cash awards paid on an annual basis following year-end audit completion | | Reward NEOs who contribute to our financial performance and strategic success during the year and reward individual achievements |
Long-term Equity
Compensation Awards | | Restricted stock awards are subject to a graded vesting over four years and are contingent on continued employment with the Company | | Reward NEOs who contribute to our success through the creation of shareholder value, to provide meaningful retention incentives, to reward individual achievements and to align interests with shareholders |
| Other Benefits | | Defined contribution plan and other employee benefit plans that are available to our general employee population | | Provide competitive employee benefits and encourage employees’ retirement planning. Our NEOs participate in our defined contribution plan and other employee benefit plans on the same basis as our general employee population. |
In the fiscal year ended March 31, 2022, our compensation program was comprised primarily of the following three elements: (1) base salaries;
salary, (ii) annual cash bonus and (iii) long-term equity incentive opportunities;
compensation. The Compensation Committee does not allocate a fixed percentage of the NEO compensation packages to each of these elements. Instead, the Compensation Committee targets total compensation at levels comparable to other internally managed BDCs, private equity firms, mezzanine lenders, hedge funds, specialized commercial banks, REITs and other specialty finance companies. The long-term equity incentive compensation allows us to align a component of our compensation program over a longer-term to more closely align the interests of our NEOs with those of our shareholders. In designing our compensation program, the Compensation Committee seeks to achieve an appropriate balance among these elements to create a compensation program that incentivizes our NEOs to focus on financial and operating results in the near term and the creation of shareholder value over the long-term.long-term cash incentive and equity compensation awards; and
other benefits, including participation in Capital Southwest’s retirement plan.
Base Salaries
Salaries were determined by the Compensation Committee for each of the NEO’sNEOs on an individual basis, taking into consideration individual contributions to overall company and individual performance, length of tenure, compensation levels for comparable positions at companieswithin other internally managed BDCs and internal pay equity among similar positions within Capital Southwest.the Company. The Compensation Committee placed more emphasis on those compensation elements which are linked to long-term results.
InFor the fiscal year 2016,ended March 31, 2022, after consideration of the factors set forth above, the Compensation Committee increaseddetermined the annual base salary of Mr. Diehl from $429,000would increase to $442,000.$475,000, as compared to $454,000 in fiscal 2021 and 2020. The Compensation Committee increaseddetermined the annual base salary of Mr. Sarner from $365,000would increase to $373,000.$400,000, as compared to $385,000 in fiscal 2021 and 2020. The Compensation Committee determined the annual base salary of Mr. Weinstein to be $350,000 for fiscal 2022, as compared to $330,000 in fiscal 2021 and 2020. The Compensation Committee believes that the salary changes and resulting base salaries of our NEO’sNEOs are appropriate for each NEO as a component of his or her overall compensation package.
Annual Cash Incentive Opportunities
Annual cash incentive opportunities are intended to reward individual performance as well as operating results during the year and therefore can be highly variable from year to year. The Compensation Committee established the target annual cash incentive opportunities for the NEO’sNEOs at the start of the year, taking into account the potential contribution by that executiveNEO to overall company performance length of tenure, compensation levels for comparable positions at peer companies and internal pay equity among similar positions within Capital Southwest.each NEO’s industry experience, relative to the market. For the fiscal year ended March 31, 2016,2022, the Compensation Committee set the annual cash incentive opportunitytarget at 150% of annual base salary for Mr. Diehl, 125% of annual base salary for Mr. Sarner 150%and 125% of annual base salary for Mr. Armes, 100%Weinstein, each of annual base salary for Ms. Tacke,which are consistent with fiscal 2021 and 100% of annual base salary for Mr. Mudd. No threshold or maximum payout levels were set. The target levels for Mr. Diehl and Mr. Sarner are the same as the target annual cash incentive levels from the prior year. For the fiscal year ended March 31, 2016, the Committee made no changes to the target bonus levels for our NEO’s from the prior year, as the Committee believed the levels were sufficient to motivate each executive to achieve our objectives for the coming year.
2020.
At the start of each fiscal year, the Compensation Committee also establishes non-formulaic Company performance measures. The Compensation Committee strives to ensure that these non-formulaic performance measures utilized each year to evaluate NEO performance effectively align the performance goals to be achieved to earnof each individual NEO with the targetperformance of the Company and the interests of shareholders. The fiscal 2022 non-formulaic Company performance measures used for determining the annual cash incentive award. Forfor NEOs included, among other things, the fiscal year ended March 31, 2016, the Committee selected certain strategic goals for each NEO including (1) to support the progressfollowing:
•Dividend growth;
•Preservation of net asset value;
•Capital raised;
•Portfolio growth;
•Portfolio non-accruals;
•Successful portfolio exits; and completion of a transformative transaction such as the Share Distribution, (2) to lead the active management of Capital Southwest’s credit investment portfolio by implementing rigorous evaluation processes for all investments and monetizing appropriate investments and (3) to fill leadership positions at Capital Southwest and certain portfolio companies. No quantitative performance goals were established.
•Operating leverage.
The Compensation Committee evaluated the overall outcome of these performance against these goalsmeasures on a holistic basis in determining the annual cash incentive payout. In determining the cash incentive awards for the fiscal year ended March 31, 20162022, the Compensation Committee considered the following: (1) declared $1.82 per share in April 2016 and determined each NEO’s achievementregular cash dividends compared to $1.65 per share in regular cash dividends, an increase of 10.3% from the prior year; (2) capital raised of approximately $249.6 million in gross proceeds consisting of $150 million from the issuance of the goalsCompany's 3.375% notes due 2026 and $99.6 million from the paymentsale of shares pursuant to those goals.the Company's equity at-the-market program; (3) $937 million of investments at fair value, compared to $689 million investments at fair value at the end of the prior year, an increase of 36.0%; (4) $309.2 million in proceeds received from twenty-four portfolio company exits, generating a weighted average IRR of 15.8%; and (5) run-rate operating leverage, defined as total operating expenses, excluding interest expense, divided by annual average total assets, decreased to 2.2% compared to 2.4% in the prior year.
The Compensation Committee concluded that the performance of the Company and each individual NEO was at a consistently high level in fiscal 2022, resulting in excellent financial results. Based on thatthe Board’s evaluation forof fiscal year 2016,2022, and upon completion of the annual audit, Mr. Diehl was paidawarded an annual cash incentive of $643,500 and$1,081,877 (representing 152% of his target bonus), Mr. Sarner was paidawarded an annual cash incentive of $482,649. Effective with the spin-off$759,212 (representing 152% of CSWI, Mr. Armes, Ms. Tacke,his target bonus) and Mr. Mudd became employees of CSWI. Prior to the spin-off, Mr. ArmesWeinstein was paid a partial yearawarded an annual cash incentive of $339,750 as the acting CEO, Ms. Tacke was paid a partial year annual cash incentive$664,310 (representing 152% of $127,500 as the acting CFO, and Mr. Mudd was paid a partial year annual cash incentive of $137,500 as the acting Senior Vice President of Operations.
his target bonus). The Compensation Committee believes the annual cash incentives earned by the NEO’sNEOs are appropriate in relation to Capital Southwest’s financial performance for fiscal year 2016 as well as each named executive officer’s individual performance during that period.2022. In an effort to maintain appropriate dividend growth and coverage, the Compensation Committee and management will continually assess the appropriate annual cash incentive levels paid to our NEOs.
Long-Term Incentive Awards
Equity Compensation
The Board and its shareholders previously approved Capital Southwest’s 2009 Stock Incentive Plan andthe 2010 Restricted Stock Award Plan and the 2021 Employee Plan. Those plans, in addition to our Individual Incentive Awards, allowThe 2010 Restricted Stock Award Plan previously allowed, and the 2021 Employee Plan allows Capital Southwest to provide cash andlong-term stock-based compensation opportunities to certain key employees, including NEO’s.our NEOs. Capital Southwest uses both cash-based awards andutilizes long-term stock-based awards as long-term incentivea component of NEO compensation in order to: (1) align compensation commensurate with the creation of shareholder value; (2) create opportunities for increased stock ownership by executives; and (3) attain competitive levels of total compensation over the long term.
Spin-Off Compensation Plan
The Committee structured the Spin-Off Compensation Plan to have a value equal to six percent of the accretion in aggregate value of the shares of both the Company and CSWI from the grant date of the options and restricted stock awards through the Determination Date. The Committee believed this amount would incentivize the participants in the plan, including Mr. Armes, Mr. Diehl and Ms. Tacke, to focus on completing a transformative transaction of such as the spin-off while directly linking executives’ incentive awards to the value created for shareholders through the spin-off.
On August 28, 2014, the Board adopted the Spin-Off Compensation Plan, which entitled Mr. Armes, Mr. Diehl and Ms. Tacke to certain stock options, restricted stock and cash awards upon the consummation of the spin-off. 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, Mr. Armes, Mr. Diehl and Ms. Tacke 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 “Determination Date”). The first plan component consists of awards of nonqualified options to purchase 259,000 shares of common stock at an exercise price of $36.60 per share. The second plan component consists of awards of 127,000 shares of restricted stock, which have voting rights but do not have cash dividend rights. The final plan component consists 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 Determination Date of the awardee’s restricted common stock and nonqualified option awards under the plan.
The Committee granted options to purchase 86,333 shares of Company common stock to each of Mr. Armes and Ms. Tacke and options to purchase 86,334 shares of Company common stock to Mr. Diehl. The Company also granted 42,000 shares of restricted stock to each of Messrs. Armes and Diehl and 43,000 shares of restricted stock to Ms. Tacke. The Committee granted a cash award to Messrs. Armes and Diehl and Ms. Tacke that will be used in the event of any shortfall between (1) the value of the options and restricted stock awards and (2) six percent of the accretion in aggregate value of shares of Company common stock and CSWI common stock from the grant date of such awards through the Determination Date (as defined below).
On September 8, 2015, the Board designated the spin-off of CSWI as a transformative transaction for purposes of the executive 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 tax-free spin-off of CSWI through a pro-rata share distribution of CSWI's common stock to CSWC shareholders of record on September 18, 2015.
Effective immediately with the spin-off of CSWI, both Mr. Armes and Ms. Tacke became employees of CSWI and Mr. Diehl continued to be an employee of our Company. Capital Southwest entered into an Employee Matters Agreement with CSWI. Under this agreement, we retained the cash incentive awards granted under the Spin-off Compensation Plan and thus, the cash bonuses will be payable by Capital Southwest. The equity awards payable under the plan include stock options and restricted shares of both Capital Southwest and CSWI. The equity based awards became vested with respect to one-third of the shares on the Determination Date (i.e. December 29, 2015), and will become vested with respect to one-third of the shares on each of the first and second anniversaries of the Determination Date.
The total value accretion was six percent of the aggregate appreciation in Capital Southwest’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 first cash payment was made in January 2016. The remaining two payments will be made on December 29, 2016 and December 29, 2017.
In order to successfully complete the transformative transaction that unlocked value for shareholders in Fiscal Year 2016, the Committee needed to align management compensation with the organizational goals. The Capital Southwest Compensation Committee believes the spin-off compensation plan put in place to incentivize the management team was set at proper levels to ensure the organization achieved its goal.
2010 Restricted Stock Award Plan
The Company received exemptive relief from the SEC that permits Capital Southwestright to grant restricted stock in exchange for or in recognition of servicesawards under the 2010 Restricted Stock Award Plan terminated on July 18, 2021, ten years after the date that the 2010 Restricted Stock Award Plan was approved by the Company's shareholders pursuant to its executive officers and certain key employees.terms. Pursuant to the 2010 Restricted Stock Award Plan, the Compensation Committee may awardawarded shares of restricted stock to plan participants in such amounts and on such terms as the Compensation Committee determinesdetermined in its sole discretion, provided that such awards were consistent with the conditions in the SEC’s exemptive order. Each restricted stock grant iswas for a fixed number of shares as set forth in an award agreement between the grantee and Capital Southwest. Award agreements describedescribed the applicable time and/or performance vesting schedules and other appropriate terms and/or restrictions with respect to awards, including rights to dividends and voting rights. Except for restricted stock granted in connection with the spin-off as described below, the grants of restricted stock vest ratably over four or five years.
If a participant’s employment is terminated for any reason, including retirement, other than death or disability, the participant’s unvested restricted stock awards shall be forfeited. If a participant’s employment is terminated due to death or disability or if a change in control (as defined in the 2010 Restricted Stock Award Plan) occurs, the participant’s unvested restricted stock awards will vest immediately.awards. Participants who have received restricted stock awards will receive dividends at the same time as our shareholders do and will have voting rights with respect to such shares. In connection with the spin-off of CSWI, each holder of an outstanding Capital SouthwestThe restricted stock award immediately priorgranted under the 2010 Restricted Stock Award Plan vest ratably over four or five years. At the 2018 Annual Meeting of Shareholders, shareholders voted to approve the spin-off received, asAmendment and Restatement of the Distribution Date,2010 Restricted Stock Award Plan to implement the following best practice governance provisions: (i) double-trigger vesting upon a CSWIchange in control for all future awards of restricted stock awardgranted under the 2010 Restricted Stock Award Plan, (ii) a one-year minimum vesting period for all future awards of restricted stock granted under the 2010 Restricted Stock Award Plan (except with respect to up to 5% of the number of CSWI shares as ifof our common stock available for issuance under the outstanding2010 Restricted
Stock Award Plan) and (iii) the cancellation or forfeiture of future awards of restricted stock award comprised fully vested Capital Southwest shares as ofgranted under the Distribution Date.2010 Restricted Stock Award Plan in the event the participant engages in detrimental activity in accordance with our Clawback Policy.
In November 2015, ourOn an annual basis, the Compensation Committee consideredconsiders employee performance during fiscal 2016 inand future potential when determining the amount of restricted stock awards to recommend for each executive officer.NEO. In addition, the Compensation Committee considers each NEO'sNEO’s total cash compensation in relation to the proposed stock award and the effect of dilution of net asset value per share and earnings per share prior to awarding the stock grants. On November 10, 2015April 21, 2021, the Board, upon recommendation ofthrough the Compensation Committee, approved restricted stock awards for NEO’s.our NEOs. Mr. Diehl was awarded 47,00045,668 shares of restricted stock in November 2015 for his performance during fiscal 2016.stock. The aggregate grant date fair value of the November 2015 award was $698,890. This$1,260,437. The Compensation Committee's determination to grant this award reflectsis based on Mr. Diehl’s leadership during fiscal 2016,in the strategic direction of the Company, the asset allocation strategy and the investment committee, which enabled us to achieve our operational and financial objectives. Mr. Diehl’s performance during this time period was vital to our Company’s success. Mr. Sarner was awarded 24,00038,818 shares of restricted stock in November 2015 for his performance during fiscal 2016.stock. The aggregate grant date fair value of the November 2015 award was $356,880. This$1,071,377. The Compensation Committee's determination to grant this award reflectsis based on Mr. Sarner’s role in managing all financial aspects of our Company, and his leadership in matters relating to our capital structure, investment committee and investor relations. Mr. Sarner’s restricted stock awards also reflect his continued service as our CFO, Chief Compliance Officer, and Secretary.Secretary, and Treasurer. Mr. Weinstein was awarded 33,109 shares of restricted stock. The Compensation Committee's determination to grant this award is based on Mr. Weinstein's role in originating, underwriting and managing our investment portfolio as well as his participation on the investment committee. The aggregate grant date fair value of the award was $913,808.
2021 Employee Restricted Stock Plan
In August 2014,connection with the Committee granted restricted stock awards to eachtermination of Mr. Armes, Mr. Diehlthe 2010 Plan, the Board and Ms. Tackeshareholders approved the 2021 Employee Plan as part of the Spin-Off Compensationcompensation package for its employees, the terms of which are, in all material respects, identical to the 2010 Restricted Stock Award Plan. On July 19, 2021, we received an exemptive order that supersedes the prior exemptive order relating to the 2010 Restricted Stock Award Plan (the “Order”) to incentivize Mr. Armes, Mr. Diehl and Ms. Tackepermit the Company to complete a transformative transaction such as the spin-off. The(i) issue restricted stock awards vested and became payable after the completion of a transformative transaction, with one-third vesting on the Determination Date (as defined below), one-third on the first anniversaryas part of the Determination Datecompensation package for its employees in the 2021 Employee Plan, and one-third on the second anniversary(ii) withhold shares of the Determination Date. In addition,Company’s common stock or purchase shares of the numberCompany’s common stock from the participants to satisfy tax withholding obligations relating to the vesting of restricted stock awards held by Mr. Armes, Mr. Diehl and Ms. Tacke are subjectpursuant to reduction if the value of restricted stock awards plus the value of the options granted under the Spin-Off Compensation Plan to Mr. Armes, Ms. Tacke and Mr. Diehl exceeds six percent of the accretion in the aggregate value of the then outstanding Company and CSWI shares, together with interim dividends paid on the Company shares over the aggregate value of Company shares on the grant date, realized from the grant date through the Determination Date. See “Spin-Off Compensation Plan” for an additional discussion of the restricted stock awards and the terms of the potential reduction in the awards.
Individual Incentive Awards
The Committee has historically used our long-term incentive awards (“Individual Incentive Awards”) as a way to motivate its executives to increase the value of the Company as reflected by our net asset value, without the dilution that accompanies the use of stock options or restricted stock awards. Individual Incentive Awards generally vest on the fifth anniversary of the award date, providing a meaningful retention device. The Committee generally sets the baseline for measuring increases in net asset value at Capital Southwest’s most recent quarterly net asset value per share at the time of issuance, requiring sustained asset value appreciation for the awards to provide a meaningful return. In connection with the spin-off of CSWI, all Individual Incentive Awards were amended to provide that the payments due thereunder would be based on our net asset value as of June 30, 2015.2021 Employee Plan. As of March 31, 2016,2022, there are 58,000 Individual Incentive Awardsno restricted stock outstanding for our Named Executive Officers. We retained all liabilities related to Individual Incentive Awards granted to NEO’s following the spin-off, including with respect to those executive officers whose employment transferred to CSWI. Upon exercise of an Individual Incentive Award, Capital Southwest pays the recipient a cash payment in an amount equal to (1) the net asset value per share as of June 30, 2015 minus the baseline net asset value per share, multiplied by (2) the number of units subject to such Individual Incentive Award. The Committee did not grant any Individual Incentive Awards during fiscal year 2016.
The Committee does not intend to grant additional Individual Incentive Awards in the future.
2009 Stock Incentive Plan
The Committee previously granted options to purchase Capital Southwest’s common stock (including incentive stock options and nonqualified stock options). Options were granted with an exercise price at the NASDAQ closing price of Capital Southwest’s stock on the date of grant and thus have no ultimate value unless the value of Capital Southwest’s stock appreciates. Capital Southwest has never granted options with an exercise price that was less than the closing price of Capital Southwest’s common stock on the grant date, nor has it granted options which are priced on a date other than the grant date.
Historically, granted options have become exercisable on or after the first anniversary of the date of grant in five annual installments and have a term of 10 years. Upon termination or retirement, option holders have 30 days to exercise vested options to purchase shares except in the case of death or disability (subject to a 6-month limitation). Prior to the exercise of options, holders have no rights as shareholders with respect to the shares subject to such option, including voting rights and the right to receive dividends or dividend equivalents. The Board retained the right to make option holders whole in certain situations, such as distributions.
From time to time, the Committee has recommended and the Board has granted qualified and non-qualified stock options to certain key employees and named executive officers. In August 2014, the Committee granted stock options to each of Mr. Armes, Mr. Diehl and Ms. Tacke to incentivize Mr. Armes, Mr. Diehl and Ms. Tacke to complete a transformative transaction, with one-third vesting 90 days after the consummation of the spin-off (the “Determination Date”), one-third on the first anniversary of the Determination Date and one-third on the second anniversary of the Determination Date. Please see “Spin-Off Compensation Plan” for an additional discussion of these options.
The Committee ceased granting additional options prior to the spin-off and will not grant additional options under the 2009 Stock Incentive Plan or request shareholders’ approval of any additional stock options to be added to the 2009 Stock Incentive2021 Employee Plan. In connection with the spin-off of CSWI, certain adjustments, using volumetric weighted-average prices for the 10-day period immediately prior to and immediately following the spin-off, were made to the exercise price and number of shares of our stock subject to the awards, with the intention of preserving the economic value of the awards immediately prior to the spin-off for all of our employees.
Other Compensation
Defined Contribution Plan
Prior to the spin-off of CSWI, Capital Southwest subsidiaries maintained two Employee Stock Ownership Plans, or ESOPs, as an additional way to align the compensation and interests of our employees with the interests of our shareholders. Employees who had completed one year of credited service were generally eligible to participate in an ESOP. The Company made discretionary contributions to the ESOPs within limits established by the Code. Funds contributed to the trust established under the ESOPs were applied by the trustees to the purchase of our common stock. A participant’s interest in contributions in the ESOP fully vested after three years of credited service, and such vested interest was distributed to a participant after the ESOP accounts have been adjusted for the plan year which includes the participant’s retirement, death or total disability, or after a one year break in service resulting from termination of employment for any other reason, upon the participant’s election. Thus, the ESOPs rewarded long-term employees, aligning their interests with those of our shareholders. In fiscal year 2016, the Company did not make a contribution to the ESOPs. In connection with the spin-off of CSWI, the ESOPs related to CSWI employees were transferred to CSWI effective September 30, 2015. We no longer contribute to the ESOP.
Benefits
Effective October 1, 2015, we established a qualified defined contribution plan (the “401(k) Plan”) intended to meet the requirements of Section 401(k) of the Internal Revenue Code of 1986, as amended (the “401K Plan”“Code”). The 401K401(k) Plan permits all full-time employees to defer a portion of their total annual compensation up to the maximum amount allowed under the Internal Revenue Code. We make contributions to the 401K401(k) Plan on behalf of employees up to 4.5% of the employee’s eligible compensation, all of which is fully vested immediately. The account balances in the ESOPs of participants who remained our employees following the spin-off, including Mr. Diehl, were either transferred to the 401K Plan or paid in cash following the spin-off of CSWI.
Retirement Plans
Prior to the spin-off of CSWI, we maintained a qualified defined benefit retirement plan (the “Retirement Plan”) for our employees and employees of certain of our wholly-owned portfolio companies. In fiscal year 2016, we did not make any contributions to the Retirement Plan. The Retirement Plan was transferred to CSWI in connection with the spin-off of CSWI effective as of September 30, 2015 and CSWI assumed all future funding obligations for providing benefits for the participants in the Retirement Plan, including with respect to benefits accrued thereunder prior to the spin-off on behalf of our employees.
Prior to the spin-off of CSWI, we also maintained a non-qualified, unfunded defined benefit plan (the “Restoration Plan”) that provided benefits to the participants of the Retirement Plan to fulfill the intent of our Retirement Plan without regard to the limitations imposed by the Code. Effective September 30, 2015, the benefits accrued under the Restoration Plan on behalf of CSWI employees, including employees who transferred from Capital Southwest to CSWI, were transferred to a non-qualified deferred compensation plan established by CSWI, and CSWI assumed all future funding obligations with respect to the retirement benefits accrued under the Restoration Plan on behalf of CSWI employees. Capital Southwest retained all liabilities with respect to all other retirement benefits accrued under the Restoration Plan. The Restoration Plan was closed to new participants and all benefit accruals were frozen thereunder effective as of September 30, 2015.
The retirement benefits payable to Capital Southwest’s NEO’s under the Retirement Plan and the Restoration Plan depend on the participant’s years of service under our plan and their final average monthly compensation determined by averaging the five consecutive years of highest compensation prior to retirement. For pension calculation purposes, earnings include salaries and annual cash bonuses reported in the Summary Compensation Table. Mr. Armes, Mr. Diehl and Ms. Tacke were eligible to participate in both plans in fiscal year 2016 prior to the spin-off. Following the spin-off, Mr. Armes and Ms. Tacke became employees of CSWI and all related retirement benefits were assumed by CSWI. Mr. DiehlSarner and Mr. SarnerWeinstein were eligible to participate in the 401K401(k) Plan in fiscal year 2016.2022 on the same basis as all other employees of the Company.
Additionally, the Company’s NEOs participate in the same benefit plans and programs as the Company’s other employees, including comprehensive medical and dental insurance and vision care.
The Company provides no other material benefits, perquisites or retirement benefits to the NEOs. Potential Payments upon Change in Control or Termination of Employment
Capital Southwest offers severance and change-in-control benefits under its long-term incentive plans to motivate executives to focus on transactions that are likely in the best interests of Capital Southwest’s shareholders, even though such transactions may result in a loss of employment for the executives. Capital Southwest believes its programs are consistent with themarket practices of its selected peer group of companies and therefore also serve to attract and retain its executives. In addition, as part of its negotiations with Mr. MuddRestricted Stock awards granted under the 2010 Restricted Stock Award Plan and to motivate him to join Capital Southwest at a time when Capital Southwest specifically motivated its executives to focus on a “trigger event” (the spin-off), the Committee approved severance rights for Mr. Mudd. These rights and all associated obligations were assumed by CSWI upon the completion of the spin-off on September 30, 2015.
Accounting for Stock-Based Compensation
Generally, the Committee was made aware of the tax and accounting treatments of various compensation alternatives. ASC 718, Compensation – Stock Compensation (“ASC 718”) requires Capital Southwest to record the fair value of equity awards on the date of grant as a component of equity. Capital Southwest accounted for stock option grants in accordance with the provisions of ASC 718, which requires2021 Employee Plan that we determine the fair value of all share-based payments to employees, including the fair value of grants of employee stock options, and record these amounts as an expense in the statement of operations over the vesting period with a corresponding increase to our additional paid-in-capital. The increase to Capital Southwest’s operating expense was offset by the increase to Capital Southwest’s additional paid-in capital, resulting in no impact on Capital Southwest’s net asset value. If and when the options were exercised, net asset value per share would decrease if the net asset valueare outstanding at the time of exercisea change of control will only vest upon such change in control if either (1) within two years following the change in control, the participant’s service is higherinvoluntarily terminated for reasons other than for cause or the participant terminates his or her employment or service for good reason or (2) such awards are not assumed or converted into replacement awards in a manner described in the 2010 Restricted Stock Award Plan and the 2021 Employee Plan.
Clawback Policy
On April 25, 2018, our Board adopted a Clawback Policy effective for all incentive-based compensation granted on or after April 25, 2018. Under the Clawback Policy, “incentive-based compensation” refers to “(i) the annual and other short-term incentive awards granted or earned based on individual or Company-wide goalsunder the Company’s annual or short-term cash incentive compensation programs; (ii) the restricted stock awards and other long-term incentive awards granted or vested under the Company’s equity or long-term incentive plans and programs; and (iii) any other incentive-based compensation granted or earned pursuant to an “incentive plan,” as such term is defined for purposes of Regulation S-K under the 1934 Act; plus any shares of stock issued under, and/or any other benefit related to, such compensation.” The Board adopted the Clawback Policy in anticipation of the requirements to be adopted by the SEC and the listing requirements expected to be adopted by the Nasdaq Global Select Market that would implement the incentive-based compensation recovery requirements set forth in Section 10D of the 1934 Act. We believe our Clawback Policy supports our compensation structure and further aligns the interests of our executive officers to the interests and concerns of our shareholders. Our Clawback Policy applies to our executive officers, which currently consists only of our NEOs.
If the Company is required to prepare an accounting restatement due to the Company’s material non-compliance with any financial reporting requirement under the U.S. federal securities laws and the Compensation Committee reasonably, and in good faith, determines that any current or former executive officer of the Company who was granted and received incentive-based compensation on or after April 25, 2018 has willfully committed misconduct that contributed to the non-compliance that resulted in the Company’s obligation to prepare the accounting restatement, then the Compensation Committee will direct the Company to, subject to the terms of the Clawback Policy, use prompt and reasonable efforts to recover from each such executive officer the excess incentive-based compensation, as determined by the Compensation Committee, in its sole discretion, such executive officer received over what would have been received based on the accounting restatement. For this purpose, “misconduct” means an act of fraud or dishonesty in the performance of an executive officer’s duties. A restatement of the Company’s financial statements due to a change in accounting policies or principles shall not require a clawback of excess incentive-based compensation. Additionally, if the Compensation Committee reasonably, and in good faith, determines that an executive officer who was granted and received incentive-based compensation on or after April 25, 2018 has engaged in detrimental activity, then the Compensation Committee will direct the Company to, subject to the terms of the Clawback Policy, use prompt and reasonable efforts to recover from such executive officer any incentive-based compensation that the Compensation Committee reasonably and in good faith deems appropriate. For this purpose, “detrimental activity” includes the following: (1) use for profit or disclosure to unauthorized persons of confidential information or trade secrets of the Company; or (2) engagement in any misconduct that results in significant financial or reputational harm to the Company or any of its subsidiaries. The Compensation Committee has the exclusive authority to determine the amount of the excess incentive-based compensation.
Stock Ownership and Holding Policy
On April 25, 2018, our Board adopted a Stock Ownership and Holding Policy that is applicable to all of our executive officers. The Stock Ownership and Holding Policy requires our CEO to own common stock equal to four times his annual base salary, our CFO to own common stock equal to three times his annual base salary and all other executive officers to own common stock equal to three times their base salary. Our executive officers are also required to hold 100% of all net shares (i.e. shares remaining after payment of taxes) of our common stock acquired pursuant to the exercise price,of stock options or vesting of restricted stock until the earlier of twelve months following vesting (or exercise for stock options) or their termination of employment. Our executive officers’ compliance with the Stock Ownership and increase ifHolding policy will be measured as of March 31 of each year. Our Compensation Committee has discretion under the net asset value per share atStock Ownership and Holding Policy to grant a waiver of these requirements upon request based on the timepersonal circumstances of exercise is lower thanour executive officers. Currently, all of our NEOs are in compliance with the exercise price. As a result, although we considered the accounting treatment when granting awards, we did not consider the accounting treatment to be a dominant factor in the form and/or design of awards.Stock Ownership and Holding Policy.
Tax Deductibility of Compensation
Section 162(m) of the Code generally disallows a deduction to public companies to the extent of excess annual compensation over $1 million paid to certain executive officers, except for qualified performance-based compensation. The Committee may authorize forms of compensation that might not be deductible if the Committee deems such to be in the best interests of Capital Southwest Corporation and its shareholders.
Shareholder Advisory Vote on Executive Compensation
At Capital Southwest’s 2015 annual meeting of shareholders, Capital Southwest shareholders approved an advisory vote with 87% of the votes cast in favor of Capital Southwest’s compensation philosophy, policies and procedures and the 2015 fiscal year compensation of the NEO’s. The Committee considered the results of that vote as an affirmation of Capital Southwest’s executive compensation decisions and policies.
Compensatory Risk Assessment
Capital Southwest works to integrate sound risk management into its compensation programs. Capital Southwest believes it is critical to bringimplements a multi-faceted strategy toward mitigatingto mitigate risk in compensation. Capital Southwest believes our focus on long-term stable compensation programs and retainingour ability to retain long-term employees who have dedicated more than a decade to our success, work to limit incentives to take unnecessary or imprudent risk-taking actions. Capital Southwest also provides stable fixed cash compensation to each of itsour executive officers as a counterbalance to limit the financial exposure that our named executive officersNEOs face as significant holders of significant equity in our enterprise. In April 2016,
During fiscal 2022, the Compensation Committee undertook a reviewreviewed the elements of itsthe Company's compensation programs to determine whether any portion of compensation encourages excessive risk-taking and determinedconcluded:
•compensation is allocated among base salary, cash bonus, and short-term and long-term compensation opportunities in such a way as to not encourage excessive risk-taking;
•executive goals are appropriately established across several key metrics and criteria in order to avoid an outcome where the failure to achieve any individual target would result in a large percentage loss of compensation; and
•multi-year vesting of restricted stock coupled with our executive stock ownership and holding policy and maximum annual incentive opportunity policy properly account for the time horizon of risks.
In addition, the Compensation Committee believes that the programs are not reasonably likelytotal compensation paid to have a material adverse effect on Capital Southwest.
the NEOs in fiscal 2022 was consistent with the overall objectives of the Company’s executive compensation program.
COMPENSATION COMMITTEE
REPORTREPORT*
The Compensation Committee of Capital Southwest’s Board hasWe have reviewed and discussed with management the above Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K. Basedincluded in this Proxy Statement with Capital Southwest’s management and, based on suchour review and discussions, the Compensation Committeewe recommended to the Board that the Compensation Discussion and Analysis be included in Capital Southwest’s proxy statement on Schedule 14A and, by reference, its Annual Report on Form 10-K for the fiscal year ended March 31, 2016.
The foregoing report is provided by the following directors who constitute the Compensation Committee as of the date of this proxy statement.
Proxy Statement.
| Compensation Committee | |
| |
| John H. Wilson, Chairman | Compensation Committee |
| Jack D. Furst, Chairman |
| Christine S. Battist |
| David R. Brooks | |
| Jack D. Furst | |
| T. Duane Morgan |
| Ramona L. Rogers-Windsor |
| William R. Thomas III | |
The material contained in the foregoing Compensation Committee
InterlocksReport is not “soliciting material,” is not deemed “filed” with the SEC, and
Insider Participation
None of our executive officers served as a memberis not to be incorporated by reference into any filing of the Compensation CommitteeCompany under the Securities Act of 1933, as amended, or the Board1934 Act, whether made before or as a member ofafter the compensation committee or as a directordate hereof and irrespective of any other entity.general incorporation language in any such filing.
Certain Relationships and Related Party Transactions
Our CEO is responsible for reviewing and approving all material transactions with any related party. If there is a related party transaction involving our CEO, the entire Board will review and approve the transaction. Related parties include any of our directors or executive officers, certain of our shareholders and their immediate family members.
To identify related party transactions, each year, in addition to the ongoing reporting obligations of our related parties, we submit and require our directors and executive officers to complete Director and Officer Questionnaires identifying any transactions with us in which the executive officer or director or their family members have an interest. We review related party transactions due to the potential for a conflict of interest. A conflict of interest occurs when an individual’s private interest interferes with the interests of Capital Southwest as a whole. Our Code of Ethics, which is signed by all employees and directors on an annual basis, requires all directors, officers and employees who have a conflict of interest to immediately notify our CEO or CFO. If there were any actions or relationships that might give rise to a conflict of interest, such actions or relationships would be reviewed and pre-approved by the Board.
We expect our directors, officers and employees to act and make decisions that are in our best interests and encourage them to avoid situations which present a conflict between our interests and their own personal interests. Our directors, officers and employees are prohibited from taking any action that may make it difficult for them to perform their duties, responsibilities and services to Capital Southwest in an objective and fair manner. A copy of our Code of Ethics will be mailed to shareholders upon request to 5400 LBJ Freeway, Suite 1300, Dallas, Texas 75240, Attention: Secretary. Additionally, a copy is available over the Internet at www.capitalsouthwest.com/governance.
There were no related party transactions for the fiscal year ended March 31, 2016.
The tables on the following pages provide information about compensation for our senior executive team, which includes the required disclosures about our named executive officers.
SUMMARY COMPENSATION
TABLEOF EXECUTIVE OFFICERS
Summary Compensation Table
The following table includes information concerning compensation received by our NEOs for thefiscal years ended March 31, 2016, 20152022, 2021 and 2014:2020, as applicable:
| Name and Principal Position | | Fiscal Year | | | Salary | | | | | | | | | | | | Non-Equity Incentive Plan Compensation | | | Change in Pension Value and Nonqualified Deferred Compensation Earnings (3) | | | All Other Compen- sation (4) | | | Total | |
Bowen S. Diehl(5) | | 2016 | | | $ | 429,000 | | | $ | - | | | $ | 698,890 | | | $ | - | | | $ | 1,359,586 | (17) | | $ | 16,530 | | | $ | 114,295 | | | $ | 2,618,301 | |
President and Chief Executive Officer | | 2015 | | | $ | 428,000 | | | $ | 14,151 | (14) | | $ | 637,980 | | | $ | 499,874 | | | $ | 643,500 | | | $ | 48,410 | | | $ | 27,000 | | | $ | 2,298,915 | |
Michael S. Sarner(6) Chief Financial Officer, Chief Compliance Officer, Secretary, and Senior Vice President | | 2016 | | | $ | 261,349 | (10) | | $ | 75,000 | | | $ | 356,880 | | | $ | - | | | $ | 482,649 | | | $ | - | | | $ | 4,206 | | | $ | 1,180,084 | |
Joseph B. Armes(7) | | 2016 | | | $ | 292,500 | (11) | | $ | - | | | $ | - | | | $ | - | | | $ | 1,029,441 | (18) | | $ | 24,254 | | | $ | 400 | | | $ | 1,346,595 | |
Chairman and Former President, Chief | | 2015 | | | $ | 447,250 | | | $ | 18,875 | (15) | | $ | 637,980 | | | $ | 499,868 | | | $ | 679,500 | | | $ | 130,969 | | | $ | 29,150 | | | $ | 2,443,592 | |
Executive Officer and Chairman | | 2014 | | | $ | 340,417 | | | $ | 9,704 | | | $ | 185,100 | | | $ | 354,600 | | | $ | 869,000 | | | $ | - | | | $ | 7,625 | | | $ | 1,766,446 | |
Kelly Tacke(8) | | 2016 | | | $ | 127,500 | (12) | | $ | - | | | $ | - | | | $ | - | | | $ | 799,821 | (19) | | $ | 21,484 | | | $ | 320 | | | $ | 949,125 | |
Former Chief Financial Officer, Chief | | 2015 | | | $ | 253,750 | | | $ | 10,625 | (16) | | $ | 653,170 | | | $ | 499,868 | | | $ | 255,000 | | | $ | 73,592 | | | $ | 26,800 | | | $ | 1,772,805 | |
Compliance Officer, Secretary, Treasurer and Senior Vice President | | 2014 | | | $ | 93,750 | | | $ | 1,302 | | | $ | 134,080 | | | $ | 209,250 | | | $ | 253,600 | | | $ | - | | | $ | - | | | $ | 691,982 | |
Christopher J. Mudd(9) Former Senior Vice President, Operations | | 2016 | | | $ | 137,500 | (13) | | $ | - | | | $ | - | | | $ | - | | | $ | 137,500 | | | $ | - | | | $ | 17,939 | | | $ | 292,939 | |
| | | 2015 | | | $ | 65,753 | | | $ | - | | | $ | - | | | $ | - | | | $ | 68,750 | | | $ | - | | | $ | 10,344 | | | $ | 144,847 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name and Principal Position | | Fiscal Year | | Salary | | Bonus | | | Stock Awards (1) | | Non-Equity Incentive Plan Compensation | | | All Other Compensation (2) | | Total |
| Bowen S. Diehl | | 2022 | | $ | 475,000 | | | $ | 1,081,877 | | | | $ | 1,260,437 | | | $ | — | | | | $ | 346,962 | | | $ | 3,164,276 | |
| President and Chief | | 2021 | | $ | 454,000 | | | $ | 814,067 | | | | $ | 1,011,459 | | | $ | — | | | | $ | 301,946 | | | $ | 2,581,472 | |
| Executive Officer | | 2020 | | $ | 454,000 | | | $ | 510,750 | | | | $ | 474,525 | | | $ | — | | | | $ | 298,032 | | | $ | 1,737,307 | |
| Michael S. Sarner | | 2022 | | $ | 400,000 | | | $ | 759,212 | | | | $ | 1,071,377 | | | $ | — | | | | $ | 294,393 | | | $ | 2,524,982 | |
| Chief Financial Officer, Chief Compliance Officer, | | 2021 | | $ | 385,000 | | | $ | 575,286 | | | | $ | 842,900 | | | $ | — | | | | $ | 254,995 | | | $ | 2,058,181 | |
| Secretary and Treasurer | | 2020 | | $ | 385,000 | | | $ | 360,938 | | | | $ | 400,710 | | | $ | — | | | | $ | 248,424 | | | $ | 1,395,072 | |
| Joshua S. Weinstein(3) | | 2022 | | $ | 350,000 | | | $ | 664,310 | | | | $ | 913,808 | | | $ | — | | | | $ | 205,585 | | | $ | 2,133,703 | |
| Senior Managing Director | | | | | | | | | | | | | | | | |
(1) |
(1)These amounts represent the grant date fair value of restricted stock awards determined in accordance with ASC 718 based on the closing price of our common stock on the date of grant for 2016 and 2014 awards. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. The amounts do not correspond to the actual value that will be recognized by our named executive officers upon vesting dates of such grants. Monte Carlo simulation was utilized to develop the grant date fair value for 2015 restricted stock awards. In connection with the spin-off, all previously granted restricted stock awards were adjusted. Each holder of a restricted stock award received one restricted share of CSWI stock for every Capital Southwest restricted share held. Awardees now hold equivalent amounts of restricted shares in both CSWI and Capital Southwest. An immaterial amount of incremental fair value was granted through this adjustment. Awards made in fiscal year 2016 were granted after the spin-off and required no adjustment in connection with spin-off. See Note 9 of the consolidated financial statements in Capital Southwest’s Annual Report for the year ended March 31, 2016 regarding assumptions underlying valuation of equity awards. |
(2) | These amounts represent the grant date fair value of stock option awards using Black-Scholes pricing model determined in accordance with ASC 718 based on the closing price of our common stock on the date of grant. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. The amounts do not correspond to the actual value that will be recognized by our named executive officers upon vesting dates of such grants. The number of shares and the strike price of option awards granted prior to the completion of the spin-off were adjusted for the spin-off transaction. No incremental fair value was granted through this adjustment. See Note 9 of the consolidated financial statements in the Company’s Annual Report for the year ended March 31, 2016 regarding the assumptions underlying the valuation of equity awards. |
(3) | Amounts shown reflect the aggregate change during the year in actuarial present value of accumulated benefit under the Retirement Plan and the Restoration Plan, as applicable. The Retirement Plan was transferred to CSWI effective as of September 30, 2015, and CSWI assumed liability for all future funding obligations thereunder. Therefore, amounts shown in this column for 2016 with respect to the Retirement Plan reflect the aggregate change during the partial year beginning April 1, 2015 and ending September 30, 2015. Additionally, all liabilities under the Restoration Plan with respect to employees transferred to CSWI were transferred to CSWI effective as of September 30, 2015. Therefore, the amounts in this column for 2016 with respect to the Restoration Plan for Ms. Tacke and Mr. Armes only include the aggregate change during the partial year beginning April 1, 2015 and ending September 30, 2015. See Note 11 of the consolidated financial statements in Capital Southwest’s Annual Report for the year ended March 31, 2016 regarding assumptions used in determining these amounts. |
(4) | See “All Other Compensation” table below for detail of amounts included in this column. |
(5) | Effective October 1, 2015 with the completion of the spin-off, Mr. Diehl was appointed President and Chief Executive Officer of Capital Southwest Corporation. |
(6) | Effective July 14, 2015, Mr. Sarner joined Capital Southwest Corporation as Senior Vice President. Effective October 1, 2015 with the completion of the spin-off, Mr. Sarner was appointed Chief Financial Officer, Chief Compliance Officer, Secretary and Treasurer. |
(7) | Effective October 1, 2015 with the completion of the spin-off, Mr. Armes became an employee of CSWI. |
(8) | Effective October 1, 2015 with the completion of the spin-off, Ms. Tacke became an employee of CSWI. |
(9) | Effective October 1, 2015 with the completion of the spin-off, Mr. Mudd became an employee of CSWI. |
(10) | Mr. Sarner’s compensation reflects partial year salary from July 14, 2015 to March 31, 2016 for fiscal year 2016. |
(11) | Mr. Armes’s compensation reflects partial year salary from April 1, 2015 to September 30, 2015 for fiscal year 2016, as well as director compensation of $66,000. |
(12) | Ms. Tacke’s compensation reflects partial year salary from April 1, 2015 to September 30, 2015 for fiscal year 2016. |
(13) | Mr. Mudd’s compensation reflects partial year salary from April 1, 2015 to September 30, 2015 for fiscal year 2016. |
(14) | “Bonus” for Mr. Diehl for 2015 consists of $14,151 for a non-discretionary bonus that was previously reported in the “Non-Equity Incentive Plan Compensation” column. The amounts were moved to more accurately reflect the nature of these awards. |
(15) | “Bonus” for Mr. Armes for 2015 consists of $18,875 for a non-discretionary bonus that was previously reported in the “Non-Equity Incentive Plan Compensation” column. The amounts were moved to more accurately reflect the nature of these awards. |
(16) | “Bonus” for Ms. Tacke for 2015 consists of $10,625 for a non-discretionary bonus that was previously reported in the “Non-Equity Incentive Plan Compensation” column. The amounts were moved to more accurately reflect the nature of these awards. |
(17) | “Non-Equity Incentive Plan Compensation” for Mr. Diehl includes $689,686 for cash incentive awards related to the Spin-Off Compensation Plan. See “Spin-Off Compensation Plan Awards” table below. |
(18) | “Non-Equity Incentive Plan Compensation” for Mr. Armes includes $689,691 for cash incentive awards related to the Spin-Off Compensation Plan. See “Spin-Off Compensation Plan Awards” table below. |
(19) | “Non-Equity Incentive Plan Compensation” for Ms. Tacke includes $672,321 for cash incentive awards related to the Spin-Off Compensation Plan. See “Spin-Off Compensation Plan Awards” table below. |
Spin-Off Compensation Plan Awards
| Name and Principal Position | Fiscal Year | | Stock Awards (1) | | | Option Awards (2) | | | Non-Equity Incentive Plan Awards (3) | | | Total | |
| Bowen S. Diehl | 2016 | | $ | - | | | $ | - | | | $ | 689,686 | | | $ | 689,686 | |
| President and Chief Executive Officer | 2015 | | $ | 637,980 | | | $ | 499,874 | | | $ | - | | | $ | 1,137,854 | |
| Joseph B. Armes | 2016 | | $ | - | | | $ | - | | | $ | 689,691 | | | $ | 689,691 | |
| Chairman and Former President, Chief Executive Officer and Chairman | 2015 | | $ | 637,980 | | | $ | 499,868 | | | $ | - | | | $ | 1,137,848 | |
| Kelly Tacke | 2016 | | $ | - | | | $ | - | | | $ | 672,321 | | | $ | 672,321 | |
| Former Chief Financial Officer, Chief Compliance Officer, Secretary, Treasurer and Senior Vice President | 2015 | | $ | 653,170 | | | $ | 499,868 | | | $ | - | | | $ | 1,153,038 | |
(1) | These amounts represent the grant date fair value of restricted stock awards determined in accordance with ASC 718 based on the closing price of our common stock on the date of grant. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. The amounts do not correspond to the actual value that will be recognized by our named executive officers upon vesting dates of such grants. Monte Carlo simulation was utilized to develop the grant date fair value for 2015 restricted stock awards. In connection with the spin-off, all previously granted restricted stock awards were adjusted. Each holder of a restricted stock award received one restricted share of CSWI stock for every Capital Southwest restricted share held. Awardees now hold equivalent amounts of restricted shares in both CSWI and Capital Southwest. An immaterial amount of incremental fair value was granted through this adjustment. Awards made in fiscal year 2016 were granted after the spin-off and required no adjustment in connection with spin-off. See Note 8 of the consolidated financial statements in Capital Southwest’s Annual Report for the year ended March 31, 2016 regarding assumptions underlying valuation of equity awards. |
(2) | These amounts represent the grant date fair value of stock option awards using Black-Scholes pricing model determined in accordance with ASC 718 based on the closing price of our common stock on the date the stock options were adjusted in connection with the spin-off of CSWI. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. The amounts do not correspond to the actual value that will be recognized by our named executive officers upon vesting dates of such grants. The number of shares and the strike price of option awards granted prior to the completion of the spin-off were adjusted for the spin-off transaction. No incremental fair value was granted through this adjustment. See Note 8 of the consolidated financial statements in Capital Southwest’s Annual Report for the year ended March 31, 2016 regarding assumptions underlying the valuation of equity awards. |
(3) | These amounts represent the cash incentive amounts paid during the fiscal year ended March 31, 2016 in connection with the Spin-Off Compensation Plan. The remaining awards will be paid on equal installments on December 29, 2016 and December 29, 2017. |
All Other Compensation
| Name and Principal Position | Fiscal Year | | Accrued Non Vested Benefits Upon Termination of ESOP (1) | | | 401K Plan/ESOP Contributions | | | Dividends | | | Automobile Allowance | | | Living Expenses | | | Total | |
| Bowen S. Diehl | 2016 | | $ | 105,851 | | | $ | 8,044 | | | $ | 400 | | | $ | - | | | $ | - | | | $ | 114,295 | |
| President and Chief Executive Officer | 2015 | | $ | - | | | $ | 26,000 | | | $ | 1,000 | | | $ | - | | | $ | - | | | $ | 27,000 | |
| Michael S. Sarner | 2016 | | $ | - | | | $ | 4,106 | | | $ | - | | | $ | - | | | $ | 100 | | | $ | 4,206 | |
Chief Financial Officer, Chief Compliance Officer, Secretary, Treasurer and Senior Vice President | 2015 | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| Joseph B. Armes | 2016 | | $ | - | | | $ | - | | | $ | 400 | | | $ | - | | | $ | - | | | $ | 400 | |
Chairman and Former President, Chief Executive Officer and Chairman | 2015 | | $ | - | | | $ | 26,000 | | | $ | 900 | | | $ | 2,250 | | | $ | - | | | $ | 29,150 | |
| | 2014 | | $ | - | | | $ | - | | | $ | 500 | | | $ | 7,125 | | | $ | - | | | $ | 7,625 | |
| Kelly Tacke | 2016 | | $ | - | | | $ | - | | | $ | 320 | | | $ | - | | | $ | - | | | $ | 320 | |
Former Chief Financial Officer, Chief Compliance Officer, Secretary, Treasurer and Senior Vice President | 2015 | | $ | - | | | $ | 26,000 | | | $ | 800 | | | $ | - | | | $ | - | | | $ | 26,800 | |
| Christopher J. Mudd | 2016 | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | 17,939 | | | $ | 17,939 | |
| Former Senior Vice President, Operations | 2015 | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | 10,344 | | | $ | 10,344 | |
| (1) | This column represents cash paid in connection with the termination of the ESOP. Effective September 30, 2015, the ESOPs transferred to CSWI in connection with the spin-off. All employees with accrued vested benefits had those benefits transferred into the 401K Plan. All accrued non-vested benefits were paid out in cash. |
Severance Agreement with Former Senior Vice President, Christopher J. Mudd
In connection with Mr. Mudd’s acceptance of employment by Capital Southwest, Mr. Mudd and Capital Southwest entered into a Severance Agreement dated March 1, 2015 (the “Severance Agreement”). The Severance Agreement provides that Mr. Mudd remains an at-will employee and may be terminated at any time with or without notice and with or without “cause,” as that term is defined in the Severance Agreement. In the event that Mr. Mudd is terminated without “cause,” Mr. Mudd is eligible to receive: (1) all accrued obligations in a lump sum in cash within 30 days of his termination, consisting of (a) current base salary through the date of his termination, (b) the amount of any bonus, incentive compensation, deferred compensation and other cash compensation earned as of the date of his termination, (c) any expense reimbursements and other cash entitlements accrued as of the date of his termination that are submitted within 90 days of his termination; and (2) a lump sum payment equal to one year of annual base salary (excluding any bonuses, incentives, perquisites or other forms of compensation Mr. Mudd receives) (the “Lump Sum Payment”). The Lump Sum Payment is payable within 60 days of Mr. Mudd’s termination date, subject to his execution and non-revocation of a separation agreement.
The Severance Agreement defines “cause” to mean: (1) violation of any standard, written, workplace security, administrative, safety or other policy or procedure concerning workplace behavior, such standard to be determined by Capital Southwest in good faith and acting with reasonable discretion; (2) a breach of Mr. Mudd’s fiduciary duty to Capital Southwest; (3) failure to follow the lawful instructions of Mr. Mudd’s superiors or their designees; (4) arrest, conviction or entering of a plea of nolo contendere (no contest) of a felony or any crime involving financial impropriety or moral turpitude; (5) fraud, embezzlement or other non-de minimis misappropriation of funds or property of Capital Southwest; (6) disclosure of Capital Southwest’s confidential or proprietary information other than in the proper course of Mr. Mudd’s duties; (7) Mr. Mudd’s disparagement of Capital Southwest or its senior management; (8) Mr. Mudd’s death or disability (as defined in Capital Southwest’s long term disability insurance policy); (9) gross neglect of duties; or (10) conduct that Capital Southwest in its reasonable judgment determines materially injurious to the reputation and/or operations of Capital Southwest, or that has a material adverse effect on any of the assets, liabilities, business, reputation or prospects of Capital Southwest. Upon completion of the spin-off, CSWI assumed the obligations of Mr. Mudd’s Severance Agreement.
2009 Stock Incentive Plan
The Capital Southwest Corporation 2009 Stock Incentive Plan (the “2009 Stock Incentive Plan”) was approved by our shareholders in July 2009 and is administered by the Committee. The 2009 Stock Incentive Plan permits awards in the form of non-statutory stock options and incentive stock options. The shareholders of Capital Southwest approved at the 2015 Annual Meeting an amendment to the 2009 Stock Incentive Plan that increased the maximum number of options to purchase our common stock that may be issued to any individual participant in a single fiscal year under the 2009 Stock Incentive Plan to 120,000 shares.
As of June 17, 2016, there were 4,000 shares available to be issued under the 2009 Stock Incentive Plan. The Compensation Committee does not intend to grant additional options under the 2009 Stock Incentive Plan or request shareholders’ approval of additional stock options to be added under the 2009 Stock Incentive Plan.
With respect to non-statutory stock options, if a participant’s employment is terminated for any reason, the participant’s non-vested non-statutory stock options will be forfeited. If a participant’s employment is terminated other than for death or disability or for cause, the participant’s vested non-statutory stock options will remain exercisable for one month following the date of termination. If a participant’s employment is terminated for death or disability, the participant’s vested non-statutory stock options will remain exercisable for six months following the date of termination. If a participant’s employment is terminated for cause, all non-statutory stock options will be forfeited on the date of termination.
With respectgrant. Pursuant to non-statutory stock options, if a participant’s employment is terminated for any reason,SEC rules, the participant’s non-vested incentive stock optionsamounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. The amounts do not correspond to the actual value that will be forfeited. If a participant’s employment is terminated for death or disability, the participant’s vested incentive stock options will remain exercisable for six months following the date of termination. If a participant’s employment is terminated for cause, all inventive stock options will be forfeited on the date of termination. Upon a change in control, all unvested awards granted under the 2009 Stock Incentive Plan will immediately vest.
2010 Restricted Stock Award Plan
The Capital Southwest Corporation 2010 Restricted Stock Award Plan (the “2010 Restricted Stock Award Plan”) was approvedrecognized by our shareholdersNEOs upon vesting of these grants. See Note 8 of the consolidated financial statements in July 2011Capital Southwest’s Annual Report for the fiscal year ended March 31, 2022 regarding assumptions underlying valuation of equity awards.
(2)See “All Other Compensation” table below for information regarding amounts included in this column.
(3)Mr. Weinstein did not serve as an executive officer of the Company during fiscal years ended March 31, 2021 and is administered2020. Mr. Weinstein became an executive officer of the Company in connection with his promotion from a Managing Director to a Senior Managing Director of the Company, effective on April 21, 2021.
All Other Compensation | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name and Principal Position | | Fiscal Year | | 401K Plan Contributions | | Dividends (1) | | Total |
| Bowen S. Diehl | | 2022 | | $ | 13,286 | | | $ | 333,676 | | | $ | 346,962 | |
| President and Chief | | 2021 | | $ | 12,825 | | | $ | 289,121 | | | $ | 301,946 | |
| Executive Officer | | 2020 | | $ | 12,735 | | | $ | 285,297 | | | $ | 298,032 | |
| Michael S. Sarner | | 2022 | | $ | 13,219 | | | $ | 281,174 | | | $ | 294,393 | |
| Chief Financial Officer, Chief Compliance Officer, | | 2021 | | $ | 12,825 | | | $ | 242,170 | | | $ | 254,995 | |
| Secretary and Treasurer | | 2020 | | $ | 13,255 | | | $ | 235,169 | | | $ | 248,424 | |
| Joshua S. Weinstein(2) | | 2022 | | $ | 13,275 | | | $ | 192,310 | | | $ | 205,585 | |
| Senior Managing Director | | | | | | | | |
(1)These amounts reflect dividends received on unvested restricted shares held by the Committee. The Plan permits awardsNEO, which were not included in the formgrant date fair value of restricted stock. At our 2015 Annual Meeting, the shareholdersawards previously reported.
(2)Mr. Weinstein did not serve as an executive officer of Capital Southwest approved an increase of an additional 450,000 shares to the 2010 Restricted Stock Award Plan. As ofCompany during fiscal years ended March 31, 2016, there were 344,540 shares2021 and 2020. Mr. Weinstein became an executive officer of our common stock available for further issuance under the 2010 Restricted Stock Award Plan.Company in connection with his promotion from a Managing Director to a Senior Managing Director of the Company, effective on April 21, 2021.
If a participant’s employment is terminated for any reason, including retirement, other than death or disability, the participant’s unvested restricted stock awards shall be forfeited. If a participant’s employment is terminated due to death or disability or if a change in control (as defined in the 2010 Restricted Stock Award Plan) occurs, the participant’s unvested restricted stock awards will vest immediately.
Participants who have received restricted stock awards will receive dividends prior to vesting (except with respect to awards granted under the Spin-Off Compensation Plan) and will have voting rights with respect to such shares. Restricted stock awards granted under the Spin-Off Compensation Plan have voting rights, but do not have cash dividend rights. Upon a change in control, all unvested awards granted under the 2010 Restricted Stock Award Plan will immediately vest.
GRANTS OF PLAN-BASED AWARDS FOR NAMED EXECUTIVE OFFICERSGrants of Plan-Based Awards
The following table sets forth certain information with respect to each grant of a plan-based award to our named executive officersNEOs in the fiscal year ended March 31, 2016.2022.
| | | | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | | | Stock Awards: Number of Shares of Stock | | | Option Awards: Number of Securities Underlying Options | | | Exercise or Base Price of Option Awards
(per share) | | | Grant Date Fair Value of Stock and Option Awards(3) | | | | | | | | | | | | | | | | | | |
| Name | | Grant Date | | Threshold ($) | | | | | | Maximum ($) | | | | | | | | | | Name | | Grant Date | | Stock Awards:
Number of Shares of Stock (1) | | Grant Date Fair Value of Stock Awards (2) |
| Joseph B. Armes | | 06/30/2015 | | | - | | | $ | 679,500 | (2) | | | - | | | | - | | | | - | | | | - | | | | - | | |
| Bowen S. Diehl | | 11/10/2015 | | | - | | | | - | | | | - | | | | 47,000 | | | | - | | | | - | | | $ | 698,890 | | |
| | 04/20/2016 | | | - | | | $ | 643,500 | | | | - | | | | - | | | | - | | | | - | | | | - | | Bowen S. Diehl | | 6/10/2021 | | 45,668 | | | $ | 1,260,437 | |
| Michael S. Sarner | | 11/10/2015 | | | - | | | | - | | | | - | | | | 24,000 | | | | - | | | | - | | | $ | 356,880 | | Michael S. Sarner | | 6/10/2021 | | 38,818 | | | $ | 1,071,377 | |
| | 04/20/2016 | | | - | | | $ | 456,250 | | | | - | | | | - | | | | - | | | | - | | | | - | | |
| Christopher J. Mudd | | 06/30/2015 | | | - | | | $ | 275,000 | (2) | | | - | | | | - | | | | - | | | | - | | | | - | | |
| Kelly Tacke | | 06/30/2015 | | | - | | | $ | 255,000 | (2) | | | - | | | | - | | | | - | | | | - | | | | - | | |
| Joshua S. Weinstein | | Joshua S. Weinstein | | 6/10/2021 | | 33,109 | | | $ | 913,808 | |
(1) | The non-equity incentive plan awards for fiscal year 2016 did not have a threshold or maximum levels for the award. |
(2) | Estimated future payouts to Mr. Armes, Ms. Tacke and Mr. Mudd were based on service for the full fiscal year ended March 31, 2016. Actual payouts were prorated for service from April 1, 2015 to September 30, 2015. |
(1)These restricted stock awards under the 2010 Restricted Stock Award Plan vest one-fourth each year beginning on the first anniversary of the grant date, subject to continued employment. Restricted stock awards entitle the holder to dividends and voting rights beginning on the grant date.(3) | (2)The amounts represent the grant date fair value of restricted stock awards determined in accordance with ASC 718 based on the closing price of our common stock on the date of grant. |
On November 10, 2015, Mr. Diehl and Mr. Sarner were granted shares of restricted stock. These shares vest in equal annual installments over a four-year period. Restricted stock awards are independent of stock grants and are generally subject to forfeiture if employment terminates prior to these restrictions lapsing. The fair value of restricted stock awards is determined based upon the closing price of our common stock on the date of the grant.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR ENDOutstanding Equity Awards at Fiscal Year End
The following table sets forth certain information with respect to the outstanding equity awards held by our named executive officersNEOs as of March 31, 2016.2022.
| | | Option Awards | | | Stock Awards | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name | | Number of securities underlying unexercised options (#) exercisable | | | Number of securities underlying unexercised options (#) unexercisable | | | Option exercise price(1) | | | Option expiration date | | | Number of shares of stock that have not vested(2) | | | Market value of shares of stock that have not vested(3) | | Name | | Number of
securities
underlying
unexercised
Options (#)
exercisable | | Number of
securities
underlying
unexercised
options (#)
unexercisable | | Number of securities underlying unexercised unearned options (#) | | Option
exercise
price | | Option
expiration
date | | Number of
shares of
stock that
have not
vested(1) | | Market value
of shares of
stock that have
not vested(2) |
| Joseph B. Armes | | | 11,951 | | | | 17,926 | | | $ | 11.66 | | | 7/15/2023 | | | | 31,000 | | | $ | 429,970 | | |
| | | | 28,660 | | | | 57,321 | | | | 11.53 | | | 8/28/2024 | | | | | | | | | | |
| Bowen S. Diehl | | | 11,951 | | | | 17,926 | | | | 11.00 | | | 3/17/2024 | | | | 78,000 | | | | 1,081,860 | | Bowen S. Diehl | | — | | | — | | | — | | | — | | | — | | | 119,641 | | | $ | 2,839,081 | |
| | | | 28,661 | | | | 57,321 | | | | 11.53 | | | 8/24/2024 | | | | | | | | | | |
| Christopher J. Mudd | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | |
| Michael S. Sarner | | | - | | | | - | | | | - | | | | - | | | | 24,000 | | | | 332,880 | | Michael S. Sarner | | — | | | — | | | — | | | — | | | — | | | 100,813 | | | $ | 2,392,292 | |
| Kelly Tacke | | | 9,959 | | | | 14,938 | | | | 10.56 | | | 1/20/2024 | | | | 31,067 | | | | 430,899 | | |
| | | | 28,660 | | | | 57,321 | | | | 11.53 | | | 8/28/2024 | | | | | | | | | | |
| Joshua S. Weinstein | | Joshua S. Weinstein | | — | | | — | | | — | | | — | | | — | | | 69,573 | | | $ | 1,650,967 | |
(1) | Represents the closing price on the date of grant. Exercise prices for options granted prior to the spin-off were adjusted in connection with the spin-off effective as of September 30, 2015. No incremental fair value was granted through this adjustment. |
(2) | With respect to Mr. Armes, 1,000 shares of restricted stock will vest on July 15, 2016 and on each of the next two anniversaries. With respect to Mr. Diehl, 1,000 shares of restricted stock will vest on March 17, 2017 and on each of the next two anniversaries and 11,750 shares of restricted stock will vest on November 10, 2016 and on each of the next three anniversaries. With respect to Ms. Tacke, 800 shares of restricted stock will vest on November 18, 2016 and on each of the next two anniversaries. In addition, 14,000 shares (for Mr. Armes and Mr. Diehl) and 14,333 shares (for Ms. Tacke) vested on December 29, 2015, and the remaining shares will vest in two equal installments on December 29, 2016 and December 29, 2017. With respect to Mr. Sarner, 6,000 shares of restricted stock will vest on November 10, 2016 and on each of the next three anniversaries. |
(1)With respect to Mr. Diehl, 12,750 shares of restricted stock will vest on November 15, 2022, 5,625 shares of restricted stock will vest on each of November 15, 2022 and 2023, 16,658 shares of restricted stock will vest on each of June 10, 2022, 2023 and 2024 and 11,417 shares of restricted stock will vest on each of June 10, 2022, 2023, 2024 and 2025. With respect to Mr. Sarner, 10,850 shares of restricted stock will vest on November 15, 2022, 4,750 shares will vest on each November 15, 2022 and 2023, 13,882 shares of restricted stock will vest on each of June 10, 2022, 2023 and 2024 and 9,705 shares of restricted stock will vest on each of June 10, 2022, 2023, 2024 and 2025. With respect to Mr. Weinstein, 6,500 shares of restricted stock will vest on November 15, 2022, 2,875 shares of restricted stock will vest on each of November 15, 2022 and 2023, 8,071 shares of restricted stock will vest on each of June 10, 2022, 2023 and 2024 and 8,277 shares of restricted stock will vest on each of June 10, 2022, 2023, 2024 and 2025.(3) | The value of the non-vested restricted stock was computed by multiplying the number of non-vested shares of restricted stock by $13.87, the closing stock price on March 31, 2016, the last trading day of Capital Southwest’s 2016 fiscal year. |
(2)The value of the non-vested restricted stock was computed by multiplying the number of non-vested shares of restricted stock by $23.73, the closing stock price on March 31, 2022, the last trading day of fiscal 2022.
OPTION EXERCISES AND STOCK VESTEDOption Exercises and Stock Awards Vested in Fiscal Year
The following table provides information regarding the vesting of restricted stock held by each of our named executive officersNEOs for the fiscal year ended March 31, 2016.
| | | Option Awards | | | Stock Awards | |
| | | Number of Shares Acquired on Exercise | | | Value Realized on Exercise | | | Number of Shares Acquired on Vesting(1) | | | Value Realized on Vesting(2) | |
| Joseph B. Armes | | | - | | | | - | | | | 15,000 | | | $ | 249,530 | |
| Bowen S. Diehl | | | - | | | | - | | | | 15,000 | | | | 213,460 | |
| Christopher J. Mudd | | | - | | | | - | | | | - | | | | - | |
| Michael S. Sarner | | | - | | | | - | | | | - | | | | - | |
| Kelly Tacke | | | - | | | | - | | | | 15,133 | | | | 215,238 | |
(1) | Includes vesting of the first one-third of restricted shares granted under the Spin-Off Compensation Plan |
(2) | The value realized equals the number of shares multiplied by closing price on the vesting date. |
The following table sets forth information about the pension benefits attributable to our named executive officers as of March 31, 2016, and any pension benefit payments to them during the year ended March 31, 2016. Mr. Mudd and Mr. Sarner were not eligible to participate in either our Retirement Plan or Restoration Plan inNEOs for the fiscal year ended March 31, 2016.2022.
| Name | | Plan Name | | | Number of Years Credited Service | | | Present Value Of Accumulated Benefits as of 3/31/16(1) | | | Payments During Last Fiscal Year ($) | |
| Joseph B. Armes | | Retirement Plan | | | | 2.250 | | | $ | 71,997 | | | | - | |
| | | Restoration Plan | | | | 2.250 | | | $ | 83,226 | | | | - | |
| Bowen S. Diehl | | Retirement Plan | | | | 1.500 | | | $ | 46,109 | | | | - | |
| | | Restoration Plan | | | | 1.500 | | | $ | 18,831 | | | | - | |
| Christopher J. Mudd | | | - | | | | - | | | | - | | | | - | |
| Michael S. Sarner | | | - | | | | - | | | | - | | | | - | |
| Kelly Tacke | | Retirement Plan | | | | 1.833 | | | $ | 77,254 | | | | - | |
| | | Restoration Plan | | | | 1.833 | | | $ | 17,822 | | | | - | |
| | | | | | | | | | | | | | |
| | | Stock Awards |
| | | Number of Shares
Acquired on Vesting | | Value Realized
on Vesting (1) |
| Bowen S. Diehl | | 46,733 | | | $ | 1,284,040 | |
| Michael S. Sarner | | 39,232 | | | $ | 1,077,913 | |
| Joshua S. Weinstein | | 23,946 | | | $ | 657,828 | |
| (1) | Represents present value of accumulated benefits through September 30, 2015. No benefits accrued after September 30, 2015 when plans were transferred to CSWI. |
(1)The Retirement Plan is a qualified defined benefit pension plan providing annual retirement benefits to eligible employees. Capital Southwest assumes that retirement occurs at age 65 and that benefits are payable only duringvalue realized equals the employee’s lifetime. The amountnumber of the monthly retirement benefit payable beginning at age 65 is calculated as follows: (a) 1.2% of the final average monthly compensation in the five successive calendar years out of the last ten completed calendar years that gives the highest average; (b)shares multiplied by years of credited service (not in excess of 40 years); (c) plus 0.65% of that portion of the final average monthly compensation which exceeds Social Security covered compensation in effectclosing price on the day prior to the vesting date of retirement times the employee’s credited service (not in excess of 35 years).
Benefits provided under the Retirement Plan are based on compensation up to a maximum annual limit under the Code (which was $265,000 calendar year 2015). In addition, benefits provided under the Retirement Plan may not exceed a benefit annual limit under the Code (which was $210,000 payable as a single life annuity beginning at normal retirement age in calendar year 2015). Benefits under the Restoration Plan providetaking into account any net exercise for the payment of taxes).
Potential Payments Upon Termination or Change in Control
The agreements governing our restricted stock awards and our long-term cash incentive awards to participating employees, including NEOs, provide upon retirement,certain transactions involving a change in control or upon a participant’s death or disability (each as defined in the award agreement or plan documents), that unvested shares of the difference between the maximum annual payment permissible under the Retirement Plan pursuant to limitation under the Coderestricted stock will fully vest and the amount whichlong term cash incentive awards would otherwise have been payable under the Retirement Plan.
be paid. The actuarial present valueacceleration of the accumulated benefit obligation to each named executive officer was determined based on the mortality table and discount rate assumptions utilized in our audited financial statements for the year ended March 31, 2016 and other respective measurement dates for previous years.
None of our named executive officers is currently eligible for early retirement.
During fiscal year 2016, we did not make any contributions to the Retirement Plan. In connection with the spin-off of CSWI, the Retirement Plan was transferred to CSWI effective as of September 30, 2015, and CSWI assumed all future funding obligations with respect to the Retirement Plan. Therefore, the table above reflects the present value of accumulated benefits under the Retirement Plan for only the partial year beginning on April 1, 2015 and ending September 30, 2015. Additionally, all liabilities with respect to benefits accrued under the Restoration Plan on behalf of employees who transferred to CSWI in connection with the spin-off of CSWI were transferred to and assumed by CSWI effective as of September 30, 2015. Therefore, the table above reflects the present value of accumulated benefits under the Restoration Plan only for the partial year beginning on April 1, 2015 and ending September 30, 2015 with respectunvested restricted stock would apply to Mr. ArmesDiehl, Mr. Sarner and Ms. Tacke. Benefit accruals under the Restoration Plan were frozen effective as of September 30, 2015.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
Mr. Weinstein.
The following table quantifies potential compensation that would have become payable to each of our named executive officers under severance agreements, Individual Incentive Award agreements and Company plans and policies (as in effect on March 31, 2016)NEOs if their employment had terminated on March 31, 2016,2022, given the named executive officer’s base salary on that date and the closing price of our common stock on March 31, 2016.that date. In addition, the table quantifies the compensation that would have become payable to each of our named executive officersNEOs assuming that a change in control of Capital Southwest had occurred on March 31, 2016,2022, and determining any amounts that would be payable under the employmentall compensation agreements in effect as of that date.
| | | Cash Payments | | | Acceleration of Equity Awards(1) | | | Total | | | | | | | | | | | | | | | | | | |
| Joseph B. Armes | | | | | | | | | | |
| Termination for Cause | | $ | - | | | $ | - | | | $ | - | | |
| Termination without Cause | | | 1,379,382 | | | | 756,979 | | | | 2,136,361 | | |
| Death or Disability | | | 1,602,800 | | | | 1,079,972 | | | | 2,682,772 | | |
| Change in Control | | | 1,602,800 | | | | 1,079,972 | | | | 2,682,772 | | |
| | | Cash Payments | | Acceleration of
Equity Awards | | Total |
| Bowen S. Diehl | | | | | | | | | | | | | Bowen S. Diehl | | | | | | |
| Termination for Cause | | | - | | | | - | | | | - | | Termination for Cause | | $ | — | | | $ | — | | | $ | — | |
| Termination without Cause | | | 1,379,372 | | | | 756,979 | | | | 2,136,351 | | Termination without Cause | | — | | | — | | | — | |
| Change in Control(1) | | Change in Control(1) | | — | | | — | | | — | |
| Double-Trigger Vesting(2) | | Double-Trigger Vesting(2) | | — | | | 2,839,081 | | | 2,839,081 | |
| Death or Disability | | | 1,442,043 | | | | 1,686,800 | | | | 3,128,843 | | Death or Disability | | — | | | 2,839,081 | | | 2,839,081 | |
| Change in Control | | | 1,442,043 | | | | 1,686,800 | | | | 3,128,843 | | |
| Christopher J. Mudd | | | | | | | | | | | | | |
| Termination for Cause | | | - | | | | - | | | | - | | |
| Termination without Cause | | | - | | | | - | | | | - | | |
| Death or Disability | | | - | | | | - | | | | - | | |
| Change in Control | | | - | | | | - | | | | - | | |
| Michael S. Sarner | | | | | | | | | | | | | Michael S. Sarner | | | | | | |
| Termination for Cause | | | - | | | | - | | | | - | | Termination for Cause | | — | | | — | | | — | |
| Termination without Cause | | | - | | | | - | | | | - | | Termination without Cause | | — | | | — | | | — | |
| Change in Control(1) | | Change in Control(1) | | — | | | — | | | — | |
| Double-Trigger Vesting(2) | | Double-Trigger Vesting(2) | | — | | | 2,392,292 | | | 2,392,292 | |
| Death or Disability | | | - | | | | 356,880 | | | | 356,880 | | Death or Disability | | — | | | 2,392,292 | | | 2,392,292 | |
| Change in Control | | | - | | | | 356,880 | | | | 356,880 | | |
| Kelly Tacke | | | | | | | | | | | | | |
| Joshua S. Weinstein | | Joshua S. Weinstein | |
| Termination for Cause | | | - | | | | - | | | | - | | Termination for Cause | | — | | | — | | | — | |
| Termination without Cause | | | 1,344,642 | | | | 767,111 | | | | 2,111,753 | | Termination without Cause | | — | | | — | | | — | |
| Change in Control(1) | | Change in Control(1) | | — | | | — | | | — | |
| Double-Trigger Vesting(2) | | Double-Trigger Vesting(2) | | — | | | 1,650,967 | | | 1,650,967 | |
| Death or Disability | | | 1,370,755 | | | | 972,592 | | | | 2,343,347 | | Death or Disability | | — | | | 1,650,967 | | | 1,650,967 | |
| Change in Control | | | 1,370,755 | | | | 972,592 | | | | 2,343,347 | | |
| (1) | Amounts reflected in this table do not include the value of any CSWI equity awards that will accelerate upon a change in control of CSWC. |
The following table sets forthcontrol payment does not assume or require termination of the compensation paid by us to our non-employee directors for the fiscal year ended March 31, 2016. During the fiscal year ended March 31, 2016, we did not grant any equityemployee and includes only those awards or pay or accrue any pension or retirement benefits for our non-employee directors.
| Name | | Fees Earned or Paid in Cash | | | Total | |
| Joseph B. Armes | | $ | 66,000 | (1) | | | 66,000 | |
| David R. Brooks | | | 109,500 | | | | 109,500 | |
| T. Duane Morgan | | | 106,000 | | | | 106,000 | |
| Jack D. Furst | | | 102,000 | | | | 102,000 | |
| William R. Thomas III | | | 102,000 | | | | 102,000 | |
| John H. Wilson | | | 107,000 | | | | 107,000 | |
In addition to reimbursement of travel expenses for attendance at Board meetings, a director who is not our employee receives an annual fee of $102,000 for service as a director. We also pay an additional fee of $30,000granted prior to the director who serves asAmended and Restated 2010 Restricted Stock Award Plan effective August 2, 2018.
(2)In the non-executive Chairmanevent of the Board. Beginning October 1, 2015, committee chairs also receive annual feesconsummation of a change in control in the Company, all outstanding awards granted under the Amended and Restated 2010 Restricted Stock Award Plan effective August 2, 2018 will vest only where either (1) within two years following the change in control, the participant’s employment or service is involuntarily terminated for reasons other than for cause (as defined in the 2010 Restricted Stock Award Plan) or the participant terminates his or her employment or service for good reason (as defined in the 2010 Restricted Stock Award Plan) or (2) such awards are not assumed or converted into replacement awards in a manner described in the 2010 Restricted Stock Award Plan (hereinafter referred to as follows:
| Committee | | Fees | |
| Audit | | $ | 15,000 | |
| Compensation | | | 10,000 | |
| Nominating/Corporate Governance | | | 8,000 | |
In October 2015,“Double-Trigger Vesting”). All awards of restricted stock granted under the Nominating/Corporate Governance Committee elected2010 Restricted Stock Award Plan prior to amend the stock ownership policy for membersadoption and approval of the Board. Each non-employee director is now required to own sharesAmended and Restated 2010 Restricted Stock Award Plan on August 2, 2018 accelerate automatically upon a change in control of Capital Southwest stock equal to 2.5 times his annual fee, or $255,000. Each director has 5 years to establish this required minimum ownership position.
(1) Fees earned or paid in cash for Mr. Armes includes director compensation for the period October 1, 2015 through March 31, 2016.
PROPOSAL TWO: ADVISORY (NON-BINDING) VOTE ON EXECUTIVE COMPENSATION
Pay Ratio Disclosure
We are askingproviding the following information about the relationship of the median of the annual total compensation of all of our shareholders to provide advisory approvalemployees (other than Mr. Diehl, our President and CEO) and the annual total compensation of Mr. Diehl. As of March 31, 2022, we determined that the median of the annual total compensation of all of our employees, other than our CEO, was $239,090 and the annual total compensation of our current named executive officers,CEO, as we described in the “Compensation Discussion and Analysis” section of this proxy statement. While this vote is advisory and non-binding, it will provide information to the Compensation Committee regarding investor sentiment about our executive compensation philosophy, policies and practices, which the Compensation Committee will be able to consider when determining executive compensation for fiscal 2017 and beyond. Based upon the shareholder vote received at our 2012 annual meeting, we will be requesting our shareholders to vote annually (on a non-binding basis) on executive compensation.
The Compensation Committee strives to attract, retain and motivate exceptional executives, to reward past performance and provide incentives for future performance and to align executive’s long-term interests with the interests of our shareholders. To achieve these objectives, the Compensation Committee expects to implement and maintain compensation plans that tie a substantial portion of executive’s overall compensation to key strategic financial and operational goals such as maintaining and growing our portfolio. It is always the intention of the Compensation Committee that our executive officers be compensated competitively and consistent with our strategy, sound corporate governance principles and shareholder interests and concerns.
The Board recommends that shareholders approve the program by approving the following advisory resolution:
“RESOLVED, that the shareholders of Capital Southwest Corporation approve, on an advisory basis, the compensation of the individuals identifiedreported in the Summary Compensation Table in this Proxy Statement, was $3,164,276. Based on this information, the ratio of the annual total compensation of our CEO to the median of the annual compensation of all employees in fiscal 2022 was 13.2 to 1.
The pay ratio provided is a reasonable estimate as disclosedof March 31, 2022 calculated in a manner consistent with Item 402(u) of Regulation S-K. The data used to calculate the pay ratio are specific to our Company and our employee population. As a result, our pay ratio may not be comparable to the pay ratios of other companies. We had 22 employees (excluding Mr. Diehl) as of March 31, 2022, all of whom were located in our Dallas, Texas office. To identify the median employee from our employee population, we compared the salary, bonus, restricted stock awards, option awards, non-equity incentive plan compensation, 401(k) Plan employer match and dividends. Upon identifying our median employee, we combined all of the elements of such employee’s compensation for fiscal 2022 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual compensation for the median employee of $239,090. The Company annualized the salary and bonus component of total compensation for employees that were employed by the Company for less than the full fiscal year. We used the annual total compensation of our CEO as reported in the proxy statement relating“Total” column of our Summary Compensation Table in this Proxy Statement.
PROPOSAL THREE: APPROVAL OF THE NON-EMPLOYEE DIRECTOR PLAN
Reasons for the Proposal
On March 26, 2021, our Board approved the Non-Employee Director Plan as part of the compensation packages for its non-employee directors. The Board unanimously recommends that our shareholders consider and adopt the Non-Employee Director Plan.
While the Company recognizes that non-employee director retention is critical for all companies, the Company also believes that the highly specialized nature of its business and the competitiveness of its market make such retentions even more critical for the Company. In that regard, the ability to offer equity-based compensation to its non-employee directors, which aligns Board behavior with shareholder interests and provides a retention tool, is vital to the 2016 fiscal yearCompany’s future growth and success.
The Non-Employee Director Plan would enable the Company to offer non-employee directors compensation packages that are more competitive with those offered by other lending businesses and investment management businesses, which would enhance the ability of the Company to attract and retain qualified non-employee directors. Offering competitive compensation packages is critical to the Company’s ability to generate the best possible risk-adjusted returns for its shareholders.
The effective date of the Non-Employee Director Plan is the date on which it is approved by our shareholders.
Summary of the Non-Employee Director Plan
The following is a summary of the material features of the Non-Employee Director Plan for which we have received exemptive relief from the SEC (as described below) and are seeking stockholder approval. It may not contain all of the information important to our shareholders. Our shareholders are encouraged to read the Non-Employee Director Plan, a copy of which is attached as Appendix A to this Proxy Statement.
General. The Non-Employee Director Plan contemplates the grant of restricted stocks to “non-employee directors” within the meaning of Rule 16b-3 under the 1934 Act, each of whom also is not an “interested person” of the Company within the meaning of Section 2(a)(19) of the 1940 Act. If the Non-Employee Director Plan is approved, we intend to use the shares authorized under the Non-Employee Director Plan to provide additional incentives for non-employee directors to exert their best efforts on behalf of the Company, and to provide a means to attract and retain persons of outstanding ability to the service of the Company.
Eligibility. The persons eligible to receive grants of restricted stock awards under the Non-Employee Director Plan are the members of our Board who are not employees of the Company. As of the date of this Proxy Statement, there are six non-employee directors of the Company eligible to participate in the Non-Employee Director Plan. Any shares of restricted stock we grant under the Non-Employee Director Plan will be for compensatory purposes only and will not involve payment of any cash consideration by any of our non-employee directors to us.
Number of Shares Authorized. Under the Non-Employee Director Plan, the total number of shares of common stock that may be subject to restricted stock awards is 120,000 shares. Shares underlying restricted stock awards that expire or otherwise terminate, in whole or in part, will revert to and again become available for issuance under the Non-Employee Director Plan. Any shares used for tax withholding will not again be available for issuance under the Non-Employee Director Plan. Our Board is authorized to adjust the limitation on shares available for restricted stock awards and outstanding restricted stock awards in the event of a dividend or other distribution payable in shares of our common stock, or any division, combination or reclassification of our shares of common stock.
Annual Awards. Under the Non-Employee Director Plan, at the beginning of each one-year term of service on our Board, each non-employee director will receive a number of shares equivalent to $50,000 based on the market value at the close of the Nasdaq Global Select Market on the date of grant. Forfeiture provisions will lapse as to the entire restricted stock award at the end of the one-year term. Grants of restricted stock awards under the Non-Employee Director Plan will be automatic and may not be changed without further approval from the SEC.
Administration. The Non-Employee Director Plan will be administered by the Compensation Committee, which is comprised solely of directors who are considered independent under the Nasdaq Stock Market Rules and are not “interested persons” (as defined in Section 2(a)(19) of the 1940 Act) of the Company. Subject to the terms of the Non-Employee Director
Plan, our Compensation Committee is authorized to make all determinations that may be necessary or advisable for the administration of the Non-Employee Director Plan.
General Terms of Awards. Our Compensation Committee is authorized to grant restricted stock awards. All restricted stock granted under the Non-Employee Director Plan will be evidenced by an agreement containing such terms and conditions as the Compensation Committee may determine. A grant of restricted stock is a grant of shares of our common stock that, at the time of issuance, are subject to certain forfeiture provisions, and thus are restricted as to transferability until such forfeiture restrictions have lapsed. The restrictions on the restricted stock issued pursuant to the compensation disclosure rulesNon-Employee Director Plan relate to continued service on our Board (lapsing on an annual basis).
The restricted stock will be subject to restrictions on transferability and other restrictions as required by our Compensation Committee from time to time. Except to the extent restricted under the terms of the SEC (which disclosure includesNon-Employee Director Plan, a non-employee director granted a restricted stock award will have all the Compensation Discussion and Analysis section,rights of any other stockholder, including the compensation tablesright to vote the restricted shares and the accompanying footnotes and narratives withinright to receive dividends or distributions made on the Executive Compensation sectioncommon stock of the proxy statement).”Company. During the restriction period (i.e., prior to the lapse of applicable forfeiture provisions), the restricted stock generally may not be transferred except to the spouse or lineal descendants (including adopted children) of the non-employee director, any trust for the benefit of the spouse or lineal descendants of non-employee director, or the guardian or conservator of the non-employee director.
Vote RequiredChange in Control. Unless the terms of a restricted stock award provide otherwise, in the event of a specified transaction involving a “change in control” (as defined in the Non-Employee Director Plan) in which there is an acquiring or surviving entity, the Board may provide for the assumption of some or all outstanding restricted stock awards, or for the grant of substitute awards, by the acquirer or survivor. In the event no such assumption or substitution occurs, each restricted stock award, subject to its terms, will become fully vested or exercisable prior to the change in control on a basis that gives the holder of the restricted stock award a reasonable opportunity, as determined by the Board, to participate as a stockholder in the change in control following vesting or exercise. The restricted stock award will terminate upon consummation of the change in control.
The approvalTransactions involving a “change in control” under the Non-Employee Director Plan include the following, other than where our stockholders continue to have substantially the same proportionate ownership in an entity which owns substantially all of this advisory resolution requiresour assets immediately following such transaction:
•a single person or entity or group of persons and/or entities, other than us, any of our employee benefit plans, a company owned by our stockholders in substantially the affirmativesame proportions as their ownership in us or an underwriter temporarily holding securities pursuant to an offering by us, becomes the beneficial owner of more than 30% of the combined voting power of our voting securities then outstanding;
•a change in the membership of our Board such that the individuals who, as of the effective date of the Non-Employee Director Plan, constitute the Board (the “Continuing Directors”), and any new director whose election or nomination to the Board was approved by a vote of at least a majority of the Continuing Directors, cease to constitute at least a majority of the Board;
•a merger, reorganization or business combination of us or one of our subsidiaries with or into any other entity, other than where the holders of our voting securities outstanding immediately before such transaction would represent immediately thereafter more than a majority of the combined voting power of the voting securities of us or the surviving entity or the parent of such surviving entity;
•a sale or disposition of all or substantially all of our assets, other than where the holders of our voting securities outstanding immediately before such transaction hold securities immediately thereafter which represent more than a majority of the combined voting power of the voting securities of the acquirer or the parent of such acquirer of such assets; or
•our stockholders approve a plan of complete liquidation or dissolution of us.
Amendment and Term. Our Board may modify, revise or terminate the Non-Employee Director Plan at any time and from time to time, subject to the terms of (i) the Order (as described below), (ii) our charter and bylaws and (iii) applicable law. Our Board will seek shareholder approval of any action modifying a provision of the Non-Employee Director Plan when the Board determines that such shareholder approval is required under the provisions of applicable law. The Non-Employee Director Plan will terminate on the day prior to the tenth anniversary of the date the Non-Employee Director Plan is approved by our shareholders, unless terminated sooner by action of our Board. No restricted stock awards may be granted under the
Non-Employee Director Plan after its termination, but restricted stock awards granted prior to termination will continue to be effective and governed by the Non-Employee Director Plan.
The Order and Limitations on Restricted Stock Awards. On May 16, 2022, the SEC granted us the Order that authorizes us to issue restricted shares of our common stock representedto our non-employee directors, subject to shareholder approval of the Non-Employee Director Plan. Awards under the Non-Employee Director Plan will comply with all aspects of the Order, including the following:
•each issuance of restricted stock to our non-employee directors will be approved by a required majority of our Board, as defined under the 1940 Act, on the basis that such award is in person or by proxythe best interests of our company and stockholders;
•the amount of voting securities that would result from the exercise of all of our outstanding warrants, options and rights, together with any restricted stock issued and outstanding pursuant to the Non-Employee Director Plan and the 2021 Employee Plan, and any other compensation plans of ours, at the Annual Meeting. Abstentionstime of issuance will not exceed 25% of our outstanding voting securities, except that if the amount of voting securities that would result from the exercise of all of our outstanding warrants, options and broker non-votesrights issued to our directors, officers and employees, together with any restricted stock issued pursuant to the Non-Employee Director Plan and the 2021 Employee Plan, and any other compensation plans of ours, would exceed 15% of our outstanding voting securities, then the total amount of voting securities that would result from the exercise of all outstanding warrants, options and rights, together with any restricted stock issued pursuant to the Non-Employee Director Plan and the 2021 Employee Plan, and any other compensation plans of ours, at the time of issuance will not exceed 20% of our outstanding voting securities;
•the amount of restricted stock issued and outstanding will not at the time of issuance of any restricted stock exceed 10% of our outstanding voting securities; and
•both our Board and our Compensation Committee will review prior to any grant of restricted stock, and no less than annually, the potential impact that the issuance of restricted stock will have on this Proposal Two haveour earnings and net asset value per share.
Certain Federal Income Tax Considerations. The following discussion is a summary of certain federal income tax considerations that may be relevant to participants in the same effectNon-Employee Director Plan. The discussion is for general informational purposes only and does not purport to address specific federal income tax considerations that may apply to a participant based on his or her particular circumstances, nor does it address foreign, state or local income tax or other tax considerations that may be relevant to a participant.
Generally, a grant of restricted stock under the 2021 Employee Restricted Stock Plan will not result in taxable income to the recipient for U.S. federal income tax purposes at the time of the grant. The value of restricted stock generally will be taxable to the recipient as ordinary income in the years in which the restrictions on the shares lapse. Such value will be the fair market value of the shares on the dates the restrictions lapse. Any recipient, however, may elect pursuant to Section 83(b) of the Code to treat the fair market value of the restricted stock on the date of grant as ordinary income in the year of the grant, provided the recipient makes the election within 30 days after the date of the grant. Generally, participants forego such elections in order to avoid the risk of being taxed on compensation they never realize, either because they forfeit the restricted stock or the value of the restricted stock drops prior to vesting.
On the date the restricted stock vests (assuming no Section 83(b) election has been made), the shares are released to the participant and available for sale or transfer (subject to the Company’s share retention guidelines). In accordance with the applicable regulations of the Internal Revenue Service (the “IRS”), the Company requires the recipient to pay to it an amount sufficient to satisfy withholding taxes in respect of such compensation income at the time the restrictions on the shares lapse or the recipient makes a Section 83(b) election. Where the cumulative withholding for all employees exceeds $100,000, the amounts withheld generally must be deposited with the IRS by the next business day; therefore, procedures generally must be implemented to collect the withholding from employees on the vesting date itself or as soon as possible thereafter.
In lieu of receiving a cash payment or withholding from other compensation from a participant, typically a stock plan will provide for withholding of shares equal in value at the vesting date to the monetary amount of the company’s withholding obligation, sometimes referred to as a vote against“net share settlement.” In this proposal.scenario, shares with value equal to the tax payment are withheld from the award and may be returned to the plan reserve, if permitted under the terms of the plan or award agreement. If the Company withholds shares to satisfy this withholding tax obligation, instead of cash, the recipient nonetheless will be required to include in income the fair market value of the shares withheld.
The Board recommendsNon-Employee Director Plan incorporates this concept of “net share settlement.” Specifically, it provides that the Company will be authorized to withhold the Company’s common stock (in whole or in part) from any award of restricted shares granted at the time the restricted stock is taxed in satisfaction of a participant’s tax obligations. However, no such withholding of shares will take place except pursuant to written assurance from the SEC staff or exemptive relief from the SEC. The Order granted to the Company by the SEC permits the Company to withhold shares of the Company’s common stock.
Withholding. The Company has the right to deduct from the payment of any restricted stock awards all applicable income and employment taxes required by federal, state, local or foreign law to be withheld, or may require the participant to pay such withholding taxes to the Company as a condition of receiving payment of the restricted stock award. The participant has the right to satisfy his or her withholding tax obligations by transferring to the shares of the Company shares of our common stock owned by the participant.
THE BOARD RECOMMENDS YOU VOTE “FOR” THE APPROVAL OF THE NON-EMPLOYEE DIRECTOR PLAN.
If you vote “give no instructions on the proxy card, the shares covered by the proxy card will be voted FOR” the approval of the advisory resolution set forthNon-Employee Plan in this Proposal Two.
accordance with the recommendation of the Board.
PROPOSAL THREE:FOUR: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED ACCOUNTING FIRM
The Audit Committee in accordance with its charter,and the Board has appointed the firm of Grant ThorntonRSM US LLP to serve as the independent registered accounting firm to audit our financial statementsfor the Company for the fiscal year ending March 31, 2016. We are asking2023.
SEC regulations and the Nasdaq Stock Market Rules require the Company’s independent registered public accounting firm to be engaged, retained and supervised by the Audit Committee. However, the Board considers the selection of an independent registered public accounting firm to be an important matter to shareholders. Accordingly, the Board considers a proposal for shareholders to ratify this appointment to be an opportunity for shareholders to provide input to the appointment of Grant Thornton LLP as our independent registered accounting firm forAudit Committee and the fiscal year ending March 31, 2017. In order to ratify the appointment of Grant Thornton LLP as our independent registered accounting firm for the year ending March 31, 2017, the proposal must receive the favorable vote ofBoard on a majority of the shares represented in person or by proxy at the annual meeting.key corporate governance issue. If shareholders fail to ratify the appointment, the Audit Committee may, but is not required to, reconsider the appointment.
RSM US LLP has advised us that neither the firm nor any present member or associate of it has any material financial interest, direct or indirect, in the Company or its affiliates. A representative of Grant ThorntonRSM US LLP will be present at the annual meetingAnnual Meeting and will have the opportunity to make a statement regarding our financial statements for the fiscal year ended March 31, 2016 and is expected to be available to respond to appropriate questions you may have.
Vote Required
The affirmative vote of a majority of the votes cast by holders of our shares as of the Record Date present or represented at the Annual Meeting is required to ratify the appointment of RSM US LLP to serve as our independent registered public accounting firm for the fiscal year ending March 31, 2023. Abstentions have the same effect as votes cast against the proposal. Abstentions will not be included in determining the number of votes cast and, as a result, will have no effect on this proposal. Because brokers will have discretionary authority to vote for the ratification of the appointment of the Company’s independent registered public accounting firm in the event that they do not receive voting instructions from the beneficial owner of the shares, your broker may vote your shares for this proposal. THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF RSM US LLP AS OUR INDEPENDENT REGISTERED ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING MARCH 31, 2023.
If you give no instructions on the proxy card, the shares covered by the proxy card will be voted FOR the ratification of the appointment of RSM US LLP as our independent registered accounting firm for the fiscal year ending March 31, 2023 in accordance with the recommendation of the Board.
Audit and Other Fees
Paid to Prior Independent Registered Public Accounting Firm
The following table sets forth fees for services rendered by Grant ThorntonRSM US LLP for the fiscal years endedending March 31, 20162022 and March 31, 20152021 as of the date of this proxy statement.Proxy Statement.
| | Service | | 2016 | | | 2015 | | Service | | 2022 | | 2021 |
| Audit Fees (1) | | $ | 149,950 | | | $ | 167,500 | | Audit Fees (1) | | $ | 599,550 | | | $ | 468,825 | |
| Audit Related Fees (2) | | | 448,011 | | | | 309,823 | | Audit Related Fees (2) | | — | | | — | |
| Tax Fees (3) | | | 47,213 | | | | 54,835 | | Tax Fees (3) | | — | | | — | |
| All Other Fees | | | - | | | | - | | |
| All Other Fees (4) | | All Other Fees (4) | | — | | | — | |
| Total Fees | | $ | 645,174 | | | $ | 532,158 | | Total Fees | | $ | 599,550 | | | $ | 468,825 | |
(1) | Represents fees for the audit of our annual financial statements, internal controls and review of our quarterly financial statements and audit services provided in connection with our statutory and regulatory filings. |
(2) | Audit-related fees for the fiscal year ended March 31, 2016 consist of $388,750 of professional service fees in connection with the spin-off of CSWI. In addition, $59,261 was related to professional services provided in connection with various SEC filings. Audit-related fees for the fiscal year ended March 31, 2015 consist of $295,923 of professional service fees in connection with the audit of the proposed spin-off of Capital Southwest’s industrial products, coatings, sealants and adhesives and specialty chemical businesses into a standalone publicly traded company as of June 25, 2015. In addition, $13,900 was relating to professional services provided in connection with the audit of our qualified pension plan for our employees and certain of our wholly-owned portfolio companies. |
(1)Audit fees include fees billed for the audit of our financial statements included in the Annual Report, the review of financial statements included in our Quarterly Reports on Form 10-Q, the audit of the effectiveness of our internal control over financial reporting, and for services that are provided by RSM US LLP in connection with statutory regulatory filings or engagements.(3) | Represents fees for services provided in connection with tax compliance, tax advice and tax planning. |
The (2)Audit Committee has determinedrelated fees would include fees for assurance and related services that are reasonably related to the provisionperformance of non-audit services by Grant Thornton LLP is compatible with maintaining Grant Thornton’s independence. At its regularly scheduledthe audit or review of the Company’s financial statements and special meetings, the Audit Committee considers and pre-approves any audit and non-audit services to bethat are traditionally performed by ourthe independent accountants, Grant Thornton LLP. In accordance with its charter,accountant, such as attest services that are not required by statute or regulation.
(3)Tax fees would include professional services rendered for corporate and subsidiary tax compliance and consulting.
(4)Fees for other services would include fees for products and services other than the Audit Committee approves in advance all audit and tax services to be provided by Grant Thornton LLP. During the fiscal year 2016, all services were pre‑approved by the Audit Committee in accordance with this policy.reported above.
AUDIT COMMITTEE REPORT*
As of the appointmentdate of Grant Thornton LLP as our independent registered public accountant requiresthis report, the affirmative vote of a majority of the shares of common stock represented in person or by proxy at the Annual Meeting. Abstentions on this Proposal Three have the same effect as a vote against this proposal.
The Board recommends that you vote “FOR” the ratification of the appointment of Grant Thornton LLP as our independent registered accounting for fiscal 2017 described in this Proposal Three.
The Audit Committee is currently composed of fivesix members of the Board. Each member is an independent director as required by the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and NASDAQ.Nasdaq Stock Market Rules. The Audit Committee operates under a written chartedcharter adopted by the Board and reviewed annually by the Audit Committee. The Audit Committee's charter is available on Capital Southwest’s website at http://www.capitalsouthwest.com/media/audit-committee-charter.pdf.
The Audit Committee oversees Capital Southwest’s financial reporting process and system of internal control over financial reporting on behalf of the Board. Management is responsible for preparing Capital Southwest’s financial statements and Capital Southwest’s reporting process, including Capital Southwest’s system of internal control over financial reporting. In fulfilling its oversight responsibilities, the Audit Committee reviewed the audited consolidated financial statements in the Annual Report with management, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of the valuation of securities and other significant judgments, and the clarity of disclosures in the financial statements. The Audit Committee is not, however, professionally engaged in the practice of accounting or auditing, and does not provide any expert or other special assurance as to such financial statements concerning compliance with the laws, regulations or accounting principlesU.S. generally accepted in the United Statesaccounting principles (“GAAP”). The Audit Committee relies, without independent verification, on the information provided to them and on the representations made by management and Capital Southwest’s independent registered public accounting firm.
Audit Firm Selection/Ratification
Capital Southwest’sThe Audit Committee is directly responsible for the appointment, compensation, retention, oversight and termination of the Company’s registered independent auditors.
At least annually, the Audit Committee reviews the Company’s independent registered public accounting firm Grant Thorntonto decide whether to retain such firm on behalf of the Company. RSM US LLP ishas been the Company’s independent registered public accounting firm since June 2017.
When conducting its latest review of RSM US LLP, the Audit Committee actively engaged with RSM US LLP’s engagement partners and considered, among other factors:
•the professional qualifications of RSM US LLP and that of the lead audit partner and other key engagement members relative to the current and ongoing needs of the Company;
•RSM US LLP’s historical and recent performance on the Company’s audits, including the extent and quality of RSM US LLP’s communications with the Audit Committee related thereto;
•management’s assessment of RSM US LLP’s performance;
•the appropriateness of RSM US LLP’s fees relative to both efficiency and audit quality;
•RSM US LLP’s independence policies and processes for maintaining its independence;
•reports of the Public Company Accounting Oversight Board (United States) (“PCAOB”) on RSM US LLP;
•RSM US LLP’s tenure as the Company’s independent registered public accounting firm and its related depth of understanding of the Company’s businesses, operations and systems and the Company’s accounting policies and practices;
•RSM US LLP’s demonstrated professional integrity and objectivity; and
•the relative benefits, challenges, overall advisability and potential impact of selecting a different independent registered public accounting firm.
As a result of this evaluation, the Audit Committee approved the appointment of RSM US LLP for the fiscal year ending March 31, 2023.
Pre-Approval Policy
The Audit Committee has determined that the provision of non-audit services by RSM US LLP was compatible with maintaining RSM US LLP’s independence. At its regularly scheduled and special meetings, the Audit Committee considers and pre-approves all audit, audit related and non-audit services to be performed by our independent accountants in accordance with its pre-approval policy. In accordance with the Audit Committee’s charter, the Audit Committee approves in advance all audit, audit related and tax services to be provided by our independent registered public accounting firm. During fiscal 2022, all services were pre-approved by the Audit Committee in accordance with its pre-approval policy.
Review with Management
The Audit Committee has reviewed the audited financial statements and met and held discussions with management regarding the audited financial statements. Management has represented to the Audit Committee that the Company’s financial statements were prepared in accordance with GAAP.
Review and Discussion with Independent Registered Public Accounting Firm
The Company’s independent registered public accounting firm, RSM US LLP, was responsible for performing an independent audit of Capital Southwest’s consolidated financial statements for the fiscal year ended March 31, 2022 in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”)PCAOB and for expressing an opinion on the conformity of those audited financial statements with GAAP. The Audit Committee reviewed with Grant ThorntonRSM US LLP its judgment as to the quality, not just the acceptability, of Capital Southwest’s accounting principles, the reasonableness of the valuation of securities and other significant judgments, the clarity of disclosures in the financial statements and such other matters as are required to be discussed with the Audit Committee by Statements on Auditing Standards No. 16,1301, as adopted by the PCAOB in Rule 3200T and by SEC RegulationsRule 2‑07 under Regulation S-X Rule 2-07,under the 1934 Act, Communications with Audit Committees, as currently in effect. In addition, theThe Audit Committee discussed with Grant Thornton LLP its independence from management and Capital Southwest, including the matters inhas received the written disclosures and the letter Capital Southwest received from them asRSM US LLP required by applicable requirements of the EthicsPCAOB regarding RSM US LLP’s communications with the Audit Committee concerning RSM US LLP’s independence, and Independence Rule 3526, and consideredhas discussed with RSM US LLP the compatibility of non-audit services with theirindependent accountant’s independence.
The Audit Committee discussed with Grant ThorntonRSM US LLP the overall scope and plans for their audit and also met with them, with and without management present, to discuss the results of their audit, their evaluation of Capital Southwest’s system of internal controls over financial reporting and the overall quality of Capital Southwest’s financial reporting.
The Audit Committee reviewed and discussed the audited consolidated financial statements for the fiscal year ended March 31, 20162022 with management and Grant ThorntonRSM US LLP and also discussed with management and Grant ThorntonRSM US LLP the process used to support certifications by our Chief Executive Officer and Chief Financial Officer that are required by the SEC and the Sarbanes-Oxley Act to accompany our periodic filings with the SEC.
Conclusion
Based on the reviews and discussions referred to above and subject to the limitations on the Audit Committee’s role and responsibilities referred to above and in the Audit Committee Charter,charter, all of the Audit Committee members, whose names are listed below, recommended to the Board that the Board approve the inclusion of the audited consolidated financial statements in the Annual Report on Form 10-K for the fiscal year ended March 31, 2016 for filing with2022 in the SEC.Annual Report on Form 10‑K.
| Audit Committee | |
| |
| Audit Committee |
| Christine S. Battist, Chair |
David R. Brooks Chairman | |
| Jack D. Furst | |
| T. Duane Morgan |
| Ramona L. Rogers-Windsor |
| William R. Thomas III | |
| John H. Wilson | |
* The material contained in the foregoing Audit Committee Report is not “soliciting material,” is not deemed “filed” with the SEC, and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the 1934 Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
We have written procedures in place for the review, approval and monitoring of transactions involving us and certain persons related to us. As a BDC, the 1940 Act restricts us from participating in transactions with any persons affiliated with us, including our officers, directors and employees and any person controlling or under common control with us, subject to limited exceptions.
In order to ensure that we do not engage in any prohibited transactions with any persons affiliated with CSWC, our officers screen each of our transactions for any possible affiliations, close or remote, between the proposed portfolio investment, us, companies controlled by us and our employees and directors. The Audit Committee isresponsible for approving related party transactions exceeding $50,000 in aggregate value.
In addition, our Code of Conduct and our Code of Ethics, which are applicable to all of our employees, officers and directors, require that all employees, officers and directors avoid any conflict, or the appearance of a conflict, between an individual’s personal interests and our interests. Our Code of Conduct and our Code of Ethics are available at www.capitalsouthwest.com/governance.
PRIVACY NOTICE
We are committed to protecting your privacy. This privacy notice, which is required by state and federal law, explains the privacy policies of Capital Southwest and its affiliated companies. This notice supersedes any other privacy notice you may have received from Capital Southwest, and its terms apply both to our current stockholders and to former stockholders as well.
We will safeguard, according to strict standards of security and confidentiality, all information we receive about you. With regard to this information, we maintain physical, electronic, and procedural safeguards that comply with federal and state standards. The only information we collect from you is your name, address, and number of shares you hold. This information is used only so that we can send you annual reports and other information about Capital Southwest, and send you proxy statements or other information required by law.
We will periodically review the way that third-party service providers handle information and ensure that it is in compliance with our standards of security and confidentiality. We do not share your information with any non-affiliated third party except as described below.
•The People and Companies that Make Up Capital Southwest.It is our policy that only authorized employees who need to know your personal information will have access to it. Capital Southwest personnel who violate our privacy policy are subject to disciplinary action.
•Service Providers. We may disclose your personal information to companies that provide services on our behalf, such as record keeping, processing your trades, and mailing you information. These companies are required to protect your information and use it solely for the purpose for which they received it.
•Courts and Government Officials. If required by law, we may disclose your personal information in accordance with a court order or at the request of government regulators. Only that information required by law, subpoena, or court order will be disclosed.
OTHER MATTERS
As of the mailing date of this proxy statement,Proxy Statement, the Board knows of no other matters to be presented at the meeting.Annual Meeting. Should any of the matters requiring a vote of the shareholders arise at the meeting,Annual Meeting, the persons named in the proxy will vote the proxies in accordance with their best judgment.
Shareholder Proposals for
20172023 Annual Meeting
Any shareholder who intends to present a proposal atfor the 2023 annual meeting in the year 2017, and who wishes to have the proposal included in our proxy statement for that meeting,of shareholders must deliver the proposalbe sent to our corporate secretary at 5400 LBJ Freeway,8333 Douglas Avenue, Suite 1300,1100, Dallas, Texas 75240,75225, Attention: Secretary, no later thanSecretary. The deadline for receipt of a proposal to be considered for inclusion in the proxy statement for the 2023 annual meeting of shareholders is 5 p.m., Central Time, on February 17, 2017.3, 2023. Our NCG Committee will review all shareholder proposals and makes recommendations to the Board for action on such proposals. All proposals must meet the requirements set forth in the rules and regulations of the SEC in order to be eligible for inclusion in the proxy statement for that meeting.
Any shareholder, who intends to bring business to the 2023 annual meeting in the year 2017, but not include the proposal in our proxy statement, orof shareholders.
Our bylaws require that any shareholder wishing to nominate a personcandidate for director or to propose other business at the Board,2023 annual meeting of shareholders (other than proposals submitted pursuant to Rule 14a-8 under the 1934 Act) must also give us written notice between February 3, 2023 and March 5, 2023, unless the 2023 annual meeting of shareholders is called for a date that is not within 30 days before or after the anniversary of the 2022 annual meeting of shareholders, in which case notice must be received in compliance with our bylaws. The notice must comply with the requirements of our bylaws and any applicable law. Any such business should be addressed to our corporate secretary at 8333 Douglas Avenue, Suite 1100, Dallas, Texas 75225, Attention: Secretary. Any proposal or nomination that is not timely received by our Secretary or otherwise does not meet the addressrequirements set forth in our bylaws or applicable SEC rules may not be considered at the preceding paragraph, no later than May 21, 2017.next annual meeting.
Expenses for Solicitation of Proxies
In addition to the use of the mails, proxies may be solicited by personal interview and telephone by our directors, officers and employees, who will not receive additional compensation for such services. We will request brokerage houses, nominees, custodians and fiduciaries to forward soliciting materials to the beneficial owners of stock held of record by them and will reimburse such persons for forwarding materials. The cost of soliciting proxies will be borne by us.
Reduce Duplicate Mailings
We are required to provide an annual report and proxy statement or notice of availability of these materials to all shareholders of record. If you share an address with another shareholder, you may receive only one set of proxy materials unless you have more than one account in your name or at the same address as other shareholders,provided contrary instructions, we or your broker may discontinue mailings of multiple copies. If you wish to receive separate mailings for multiple accounts at the same address, you should mark the designated box on your proxy card. If you are voting by telephone or the Internet and you wish to receive multiple copies, you may notify us at the address and phone number at the end of the following paragraph if you are a shareholder of record or notify your broker or another account holder if you hold your shares through a broker or another account holder.
Once you have received notice from your broker, anotherthe account holder or us that they or we will discontinue sending multiple copies to the same address, you will receive only one copy until you are notified otherwise or until you revoke your consent. If you received only one copy of this proxy statement and annual report or noticethe Notice of availabilityInternet Availability of these materialsProxy Materials and you wish to receive a separate copy for each shareholder at your household, or if, at any time, you wish to resume receiving separate proxy statements or annual reports or notices of availability, or if you are receiving multiple statements and reports and wish to receive only one, please notify your broker or another account holder if your shares are held in a brokerage account or us if you hold registered shares.shares in your name. You can notify us by sending a written request to Capital Southwest Corporation, 5400 LBJ Freeway,8333 Douglas Avenue, Suite 1300,1100, Dallas, Texas 75240,75225, Attention: Secretary, or by contacting us at (214) 238-5700,238‑5700, and we will promptly deliver materials as requested.
Appendix A
CAPITAL SOUTHWEST CORPORATION
2021 NON-EMPLOYEE DIRECTOR RESTRICTED STOCK AWARD PLAN
1. PURPOSE OF THE PLAN
The Annual Report coveringpurpose of this Restricted Stock Plan (this “Plan”) is to advance the fiscal year ended March 31, 2016 mailed on or about June 20, 2016 is not deemed a partinterests of the proxy soliciting material. A copy of our Annual Report on Form 10-K for the fiscal year ended March 31, 2016, as filed with the SEC, will be mailed to shareholders upon request to Capital Southwest Corporation 5400 LBJ Freeway, Suite 1300, Dallas, Texas 75240, Attention: Secretary. A copy(the “Company”) by providing to members of the Form 10-K is available at our website http://ir.capitalsouthwest.com/sec.cfm and the EDGAR version of such report is available at the SEC’s website (www.sec.gov).
1 1 12345678 12345678 12345678 12345678 12345678 12345678 12345678 12345678 NAME → x 02 0000000000 JOB # 1 OF 2 1 OF 2 PAGE SHARES CUSIP # SEQUENCE # THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date CONTROL # SHARES To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. 0 0 0 0 0 0 0 0 0 0000295448_1 R1.0.1.25 For Withhold For All All All Except TheCompany’s Board of Directors recommends you vote FORwho are not employees of the following: 1. ElectionCompany (“Non-Employee Directors”) additional incentives, to the extent permitted by law, to exert their best efforts on behalf of the Company, and to provide a means to attract and retain persons of outstanding ability to the service of the Company. It is recognized that the Company’s efforts to attract or retain these individuals will be facilitated with this additional form of compensation.
2. ADMINISTRATION
This Plan shall be administered by the Compensation Committee (the “Committee”) of the Company’s Board of Directors Nominees 01 Joseph B. Armes 02 David R. Brooks 03 Bowen S. Diehl 04 Jack D. Furst 05 T. Duane Morgan 06 William R. Thomas III 07 John H. Wilson CAPITAL SOUTHWEST CORPORATION ATTN: ALLY BENSON 5400 LBJ FREEWAY, SUITE 1300 DALLAS, TX 75240 VOTE BY INTERNET - www.proxyvote.com Use(the “Board”), which is comprised solely of directors who are not interested persons of the InternetCompany within the meaning of Section 2(a)(19) of the Investment Company Act of 1940, as amended (the “Act”). The Committee shall interpret this Plan and, to transmit yourthe extent and in the manner contemplated herein, shall exercise the discretion reserved to it hereunder. The Committee may prescribe, amend and rescind rules and procedures relating to this Plan and make all other determinations necessary for its administration. The decision of the Committee on any interpretation of this Plan or administration hereof, if in compliance with the provisions of the Act and regulations promulgated thereunder, shall be final and binding with respect to the Company and the Non-Employee Directors.
3. SHARES SUBJECT TO THE PLAN
The shares subject to this Plan shall be shares of the Company’s common stock, par value $0.25 per share (“Shares”). Subject to the provisions hereof concerning adjustment, the total number of shares that may be awarded as restricted shares under this Plan shall not exceed 120,000 Shares. Any Shares that were granted pursuant to an award of restricted stock under this Plan but that are forfeited pursuant to the terms of the Plan or an award agreement shall again be available under this Plan. Shares used for tax withholding shall not again be available under this Plan. Shares may be made available from authorized, un-issued or reacquired stock or partly from each.
4. AWARDS
(A) Non-Employee Directors. Non-Employee Directors will each receive a grant of shares of restricted stock at or about the beginning of each one-year term of service on the Board, for which forfeiture restrictions will lapse at the end of that term; provided that the Board may provide in any award agreement, or may determine in any individual case, that restrictions or forfeiture conditions relating to restricted stock will be waived in whole or in part in the event of terminations resulting from any cause, and the Board may in other cases waive in whole or in part the forfeiture of restricted stock. The number of shares of restricted stock granted to each Non-Employee Director each year will be the equivalent of $50,000 worth of Shares based on the market value at the close of the Nasdaq Global Select Market on the date of grant.
(B) Award Agreements. All restricted stock granted under this Plan will be evidenced by an agreement. The agreement documenting the award of any restricted stock granted pursuant to this Plan shall contain such terms and conditions as the Committee shall deem advisable, including but not limited to the lapsing of forfeiture restrictions. Agreements evidencing awards made to different participants or at different times need not contain similar provisions. In the case of any discrepancy between the terms of this Plan and the terms of any award agreement, the Plan provisions shall control.
(C) Stockholder Rights. Holders of restricted stock shall have all the rights of a holder upon issuance of the restricted stock award including, without limitation, voting instructionsrights and the right to receive dividends.
5. LIMITATIONS ON RESTRICTED STOCK AWARDS
Grants of restricted stock awards shall be subject to the following limitations:
(A) The total number of shares that may be outstanding as restricted shares under all of the Company’s compensation plans shall not exceed ten (10) percent of the total number of Shares outstanding on the effective date of the Plan and the Company’s 2021 Employee Restricted Stock Award Plan (together, the “Plans”) plus ten (10) percent of the number of shares of Stock issued or delivered by the Company (other than pursuant to compensation plans) during the term of the Plans.
(B) The amount of voting securities that would result from the exercise of all of the Company’s outstanding warrants, options, and rights, together with any restricted stock issued pursuant to this Plan and any other compensation plan of the Company, at the time of issuance shall not exceed twenty-five (25) percent of the outstanding voting securities of the Company, provided, however, that if the amount of voting securities that would result from the exercise of all of the Company’s outstanding warrants, options, and rights issued to the Company’s directors, officers, and employees, together with any restricted stock issued pursuant to this Plan and any other compensation plan of the Company, would exceed fifteen (15) percent of the outstanding voting securities of the Company, then the total amount of voting securities that would result from the exercise of all outstanding warrants, options, and rights, together with any restricted stock issued pursuant to this Plan and any other compensation plan of the Company, at the time of issuance shall not exceed twenty (20) percent of the outstanding voting securities of the Company.
6. TRANSFERABILITY OF RESTRICTED STOCK
While subject to forfeiture provisions, restricted stock shall not be transferable other than to the spouse or lineal descendants (including adopted children) of the participant, any trust for electronic deliverythe benefit of information up until 11:59 P.M. Eastern Timethe participant or the benefit of the spouse or lineal descendants (including adopted children) of the participant, or the guardian or conservator of the participant (“Permitted Transferees”).
7. EFFECT OF CHANGE IN STOCK SUBJECT TO THE PLAN
(A) Capitalization Adjustments. In the event of a stock dividend, stock split or combination of shares (including a reverse stock split), recapitalization or other change in the Company’s capital structure, the Board will make appropriate adjustments to the maximum number of shares that may be delivered under this Plan, to the maximum per-participant share limit, and will also make appropriate adjustments to the number and kind of shares of stock or securities subject to awards then outstanding or subsequently granted and any other provision of awards affected by such change. To the extent consistent with continued exclusion from or compliance with Section 409A of the Internal Revenue Code of 1986, as amended and in effect, or any successor statute as from time to time in effect, and other applicable law, the Board may also make adjustments of the type described in the preceding sentence to take into account distributions to stockholders other than those provided for in such sentence, or any other event, if the Board determines that adjustments are appropriate to avoid distortion in the operation of the Plan and to preserve the value of awards granted hereunder.
(B) Change in Control. Except as otherwise provided in an award, in the event of a Change in Control (as defined below) in which there is an acquiring or surviving entity, the Board may provide for the assumption of some or all outstanding awards, or for the grant of new awards in substitution therefor, by the acquirer or survivor or an affiliate of the acquirer or survivor, in each case on such terms and subject to such conditions as the Board determines. In the absence of such an assumption or if there is no substitution, except as otherwise provided in the award, each award will become fully vested or exercisable prior to the Change in Control on a basis that gives the holder of the award a reasonable opportunity, as determined by the Board, to participate as a stockholder in the Change in Control following vesting or exercise, and the award will terminate upon consummation of the Change in Control.
A “Change in Control” means an event set forth in any one of the following paragraphs:
(i) any “person” or group (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (as amended, and including the rules and regulations promulgated thereunder, the “Exchange Act”), and as modified in Section 13(d) and 14(d) of the Exchange Act), together with their affiliates and associates (both as defined in Rule 12b-2 under the Exchange Act) other than (i) the Company or any of its subsidiaries, (ii) any employee benefit plan of the Company or any of its subsidiaries, or the trustee or other fiduciary holding securities under any such employee benefit plan, (iii) a company owned, directly or indirectly, by stockholders of the Company in substantially the same proportions as their ownership of the Company or (iv) an underwriter temporarily holding securities pursuant to an offering of such securities by the Company, becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of more than thirty (30) percent of combined voting power of the voting securities of the Company then outstanding; or
(i) individuals who, as of the effective date of the Plan, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that for purposes of this definition of Change in Control, any individual becoming a director subsequent to the effective date of the Plan whose appointment or nomination for election to the Board was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an election contest with respect to the election or removal of directors or other solicitation of proxies or consents by or on behalf of a person other than the Board; or
(iii) the consummation of any merger, reorganization, business combination or consolidation of the Company or one of its subsidiaries (a “Business Combination”) with or into any other entity, other than a merger, reorganization, business combination or consolidation a result of which (or immediately after which) the holders of the voting securities of the Company outstanding immediately prior thereto holding securities would represent immediately after such merger, reorganization, business combination or consolidation more than a majority of the combined voting power of the voting securities of the Company or the surviving entity or the parent of such surviving entity; or
(iv) the consummation of a sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition if the holders of the voting securities of the Company outstanding immediately prior thereto hold securities immediately thereafter which represent more than a majority of the combined voting power of the voting securities of the acquirer, or parent of the acquirer, of such assets; or
(v) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company.
Notwithstanding the foregoing, a “Change in Control” shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions.
8. MISCELLANEOUS PROVISIONS
(A) The Committee is authorized to take appropriate steps to ensure that neither the grant of nor the lapsing of the forfeiture restrictions on awards under this Plan would have an effect contrary to the interests of the Company’s stockholders. This authority includes the authority to prevent or limit the granting of additional awards under this Plan.
(B) The granting of any award under the Plan shall not impose upon the Company any obligation to appoint or to continue to appoint as a director or employee any participant, and the right of the Company and its subsidiaries to terminate the employment of any employee, or service of any director, shall not be diminished or affected by reason of the fact that an award has been made under the Plan to such participant.
(C) The Company may make such provisions as it deems appropriate to withhold any taxes the Company determines it is required to withhold with respect to any award.
(D) The Plan and all awards and actions taken hereunder shall be governed by the laws of the state of Texas, without regard to the choice of law principles of any jurisdiction.
9. AMENDMENT AND TERMINATION
(A) The Board may modify, revise or terminate this Plan at any time and from time to time, subject to applicable requirements in (a) the Company’s articles of incorporation, as amended from time to time (the “Articles of Incorporation”), or the Company’s second amended and restated bylaws, as amended from time to time (the “Bylaws”), and (b) applicable law and orders. The Board shall seek stockholder approval of any action modifying a provision of the Plan where it is determined that such stockholder approval is appropriate under the provisions of (a) applicable law or orders, or (b) the Articles of Incorporation or the Bylaws.
(B) Unless sooner terminated, the Plan shall terminate on the day before the cut-offtenth (10th) anniversary of the date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. The Board of Directors recommends you vote FOR proposals 2 and 3. For Against Abstain 2 Proposal to approve, by non-binding vote, executive compensation. 3 Proposal to ratify the appointment by our Audit Committee of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2017. NOTE: Such other business as may properly come before the meeting or any adjournment thereof. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer. 0000295448_2 R1.0.1.25
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice & Proxy Statement, Form 10-K is/are available at www.proxyvote.com CAPITAL SOUTHWEST CORPORATION Annual Meeting of Shareholders July 20, 2016 9:00 AM This proxyPlan is solicitedapproved by the Boardstockholders of Directors the Company. Notwithstanding the termination of the Plan, awards granted prior to termination of the Plan shall continue to be effective and shall be governed by the Plan.
10. EFFECTIVE DATE OF THE PLAN
The shareholders hereby appoint Michael S. Sarner and Ally M. Benson, or either of them, as proxies, each withPlan shall become effective upon the power to appoint (his/her) substitute, and hereby authorizes them to represent and to vote, as designated on the reverse sideapproval of this ballot, allPlan by the shareholders of the shares of Common stock of Capital Southwest Corporation, that the shareholders is/are entitled to vote at the Annual Meeting of shareholders to be held at 9:00 AM, CDT on July 20th, 2016, at the Hilton Dallas Lincoln Center located at 5410 LBJ Freeway, Dallas, Texas 75240, and any adjournment or postponement thereof. This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors' recommendations. Continued and to be signed on reverse sideCompany.
