What changed in this filing

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Item 1. Business

2022-05-24 compared with 2021-05-26 · 154 added, 130 removed, 476 unchanged (37% of the section changed)

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We were organized as a Texas corporation on April 19, 1961.

Until September 1969, we operated as a small business investment company, or SBIC, licensed under the Small Business Investment Act of 1958.

Until September 1969, we operated as a small business investment company, or SBIC, licensed under the Small Business Investment Act of 1958, as amended.

At that time, we transferred to our wholly owned subsidiary, Capital Southwest Venture Corporation, or CSVC, certain assets including our SBIC license.

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We intend to continue to provide capital to middle-market companies.

We invest primarily in debt securities, including senior debt, second lien and subordinated debt, and also invest in preferred stock and common stock alongside our debt investments or through warrants.

We invest primarily in debt securities, including senior debt and second lien, and also invest in preferred stock and common stock alongside our debt investments or through warrants.

As a BDC, we are required to comply with certain regulatory requirements.

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federal income tax purposes as a regulated investment company, or RIC, under Subchapter M of the U.S.

Internal Revenue Code of 1986, or the Code.

As such, we generally will not have to pay corporate-level U.S.

federal income tax on any ordinary income or capital gains that we timely distribute to our shareholders as dividends.

Internal Revenue Code of 1986, as amended, or the Code.

As such, we generally will not be subject to U.S.

federal income tax at corporate rates on any ordinary income or capital gains that we timely distribute to our shareholders as dividends.

To continue to maintain our RIC tax treatment, we must meet specified source-of-income and asset diversification requirements and distribute annually at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any.

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Any such carryover taxable income must be distributed through a dividend declared prior to filing the final tax return related to the year that generated such taxable income.

CSWC has a direct wholly owned subsidiary that has elected to be treated as an association taxable as a corporation for U.S.

federal income tax purposes (the “Taxable Subsidiary”).

The primary purpose of the Taxable Subsidiary is to permit us to hold certain interests in portfolio companies that are organized as limited liability companies, or LLCs (or other forms of pass-through entities) and still allow us to satisfy the RIC tax requirement that at least 90% of our gross income for U.S.

federal income tax purposes must consist of qualifying investment income.

The Taxable Subsidiary is subject to U.S.

federal income tax at normal corporate tax rates based on its taxable income.

Capital Southwest Management Corporation (“CSMC”), a wholly owned subsidiary of CSWC, was the management company for CSWC.

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After December 31, 2020, the Administrative Expenses will be directly incurred by CSWC.

The Company continues to be internally managed and the merger has no material impact on the day-to-day operations of the business.

We also have a direct wholly-owned subsidiary that has elected to be a taxable entity (the “Taxable Subsidiary”).

federal income tax purposes must consist of qualifying investment income.

The Taxable Subsidiary is taxed at normal corporate tax rates based on its taxable income.

The Company continues to be internally managed and the merger has no impact on the day-to-day operations of the business.

On April 20, 2021, our wholly owned subsidiary, Capital Southwest SBIC I, LP (“SBIC I”) received a license from the U.S.

Small Business Administration (the “SBA”) to operate as an SBIC under Section 301(c) of the Small Business Investment Act of 1958, as amended.

SBIC I will have an investment strategy substantially similar to ours and make similar types of investments in accordance with SBA regulations.

SBIC I and its general partner will be consolidated for U.S.

GAAP reporting purposes, and the portfolio investments held by it will be included in the consolidated financial statements.

SBIC I has an investment strategy substantially similar to ours and makes similar types of investments in accordance with SBA regulations.

SBIC I and its general partner are consolidated for U.S.

GAAP reporting purposes, and the portfolio investments held by it are included in the consolidated financial statements.

See “Regulation as a Small Business Investment Company” below for more information about the regulations applicable to SBIC I.

Corporate Information

Our principal executive offices are located at 5400 Lyndon B.

Johnson Freeway, Suite 1300, Dallas, Texas 75240.

Our principal executive offices are located at 8333 Douglas Avenue, Suite 1100, Dallas, Texas 75225.

We maintain a website at www.capitalsouthwest.com.

You can review the filings we have made with the Securities and Exchange Commission, or the SEC, free of charge on EDGAR, the Electronic Data Gathering, Analysis, and Retrieval System of the SEC, accessible at http://www.sec.gov.

We also make available free of charge on our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, any amendments to those reports and any other reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, or the Exchange Act, as soon as reasonably practicable after filing these reports with the SEC.

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We focus on investing in companies with histories of generating revenues and positive cash flow, established market positions and proven management teams with strong operating discipline.

We primarily target senior debt and equity investments in LMM companies, as well as first and second lien loans in UMM companies.

Our target LMM companies typically have annual earnings before interest, taxes, depreciation and amortization, or EBITDA, generally between $3.0 million and $20.0 million, and our LMM investments generally range in size from $5.0 million to $25.0 million.

Our core business is to target senior debt investments and equity investments in LMM companies.

We also opportunistically target first and second lien loans in UMM companies.

Our target LMM companies generally have annual earnings before interest, taxes, depreciation and amortization, or EBITDA, between $3.0 million and $20.0 million, and our LMM investments generally range in size from $5.0 million to $35.0 million.

Our UMM investments generally include first and second lien loans in companies with EBITDA generally greater than $20.0 million, and our UMM investments typically range in size from $5.0 million to $20.0 million.

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Our investments in UMM companies primarily consist of direct investments in or secondary purchases of interest bearing debt securities in privately held companies that are generally larger in size than the LMM companies included in our portfolio.

Our UMM debt investments are generally secured by either a first or second priority lien on the assets of the portfolio company and typically have an expected duration of between three and seven years from the original investment date.

Our UMM debt investments are generally secured by either a first or second priority lien on the assets of the portfolio company and typically have an expected duration between three and seven years from the original investment date.

We offer managerial assistance to our portfolio companies and provide them access to our investment experience, direct industry expertise and contacts.

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Recent Developments

On April 21, 2021, the Board of Directors declared a total dividend of $0.53 per share, comprised of a regular dividend of $0.43 and a supplemental dividend of $0.10, for the quarter ended June 30, 2021.

On April 27, 2022, the Board of Directors declared a quarterly dividend of $0.48 per share and a special dividend of $0.15 per share for the quarter ended June 30, 2022.

The record date for the dividend is June 15, 2022.

The payment date for the dividend is June 30, 2022.

On May 11, 2022, CSWC entered into Amendment No.

2 (the "Amendment") to the Credit Agreement.

The Amendment changed the benchmark interest rate from LIBOR to Term SOFR.

In addition, on May 11, 2022, CSWC entered into an Incremental Commitment Agreement, pursuant to which the total commitments under the Credit Agreement increased from $335 million to $380 million.

Our Business Strategy

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After investing in a company, we monitor the investment closely, typically receiving monthly, quarterly and annual financial statements.

Senior management, together with the deal team and accounting and finance departments, generally meets at least monthly to analyze and discuss in detail the company’s financial performance and industry trends.

We believe that our initial and ongoing portfolio review process allows us to monitor effectively the performance and prospects of our portfolio companies.

Senior management, together with the deal team and accounting and finance departments, generally meets at least quarterly to analyze and discuss in detail the company’s financial performance and industry trends.

We believe that our initial and ongoing portfolio review process allows us to effectively monitor the performance and prospects of our portfolio companies.

• Investing Across Multiple Companies, Industries, Regions and End Markets .

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However, not all of these criteria have been or will be met in connection with each of our investments:

• Companies with Positive and Sustainable Cash Flow :

• Positive and Sustainable Cash Flow :

We generally seek to invest in established companies with sound historical financial performance.

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We believe management teams with these attributes are more likely to manage the companies in a manner that protects and enhances value.

• Competitive Advantages in Markets:

We primarily focus on companies having competitive advantages in their respective markets and/or operating in industries with barriers to entry, which may help protect their market position.

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We have an investment committee that is responsible for all aspects of our investment process relating to investments made by us.

The current members of the investment committee are Bowen Diehl, Chief Executive Officer, Michael Sarner, Chief Financial Officer, Josh Weinstein, Senior Managing Director, and William Thomas, member of the Board of Directors.

The current members of the investment committee are Bowen Diehl, Chief Executive Officer;

Michael Sarner, Chief Financial Officer;

Josh Weinstein, Senior Managing Director;

and Ramona Rogers-Windsor, a member of the Board of Directors and a non-voting, observer of the investment committee.

Investment Process

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• Deal Generation/Origination :

Deal generation and origination is maximized through long-standing and extensive relationships with private equity firms, leveraged loan syndication desks, brokers, commercial and investment bankers, entrepreneurs, service providers such as lawyers and accountants, and current and former portfolio companies and investors.

Deal generation and origination is maximized through long-standing and extensive relationships with private equity firms, leveraged loan syndication desks, brokers, commercial and investment bankers,

entrepreneurs, service providers such as lawyers and accountants, and current and former portfolio companies and investors.

• Screening :

Once it is determined that a potential investment has met our investment criteria, we will screen the investment by performing preliminary due diligence, which could include discussions with the private equity firm, management team, loan syndication desk, etc.

Upon successful screening of the proposed investment, the investment team makes a recommendation to move forward and prepares an initial screening memo for our investment

Upon successful screening of the proposed investment, the investment team makes a recommendation to move forward and prepares an initial screening memo for our investment committee.

We then issue either a non-binding term sheet (in the case of a directly originated transaction), or submit an order to the loan syndication desk (in the case of a large-market syndicated loan transaction).

• Term Sheet :

In a directly originated transaction, the non-binding term sheet will typically include the key economic terms of our investment proposal, along with exclusivity, confidentiality, and expense reimbursement provisions, among other terms relevant to the particular investment.

In a directly originated transaction, the non-binding term sheet will typically include the key economic terms of our investment proposal, along with exclusivity, confidentiality, and expense reimbursement provisions, as well as other terms relevant to the particular investment.

Upon acceptance of the term sheet, we will begin our formal due diligence process.

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For transactions that are either over a certain hold size or outside our general investment policy, the investment team will present the transaction to our Board of Directors for approval.

Upon approval for the investment, we re-confirm our regulatory company compliance, process and finalize all required legal documents and fund the investment.

Upon approval of the investment, we re-confirm our regulatory company compliance, process and finalize all required legal documents and fund the investment.

• Post-Investment :

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As part of the monitoring process, members of our investment team will analyze monthly, quarterly and annual financial statements against previous periods, review financial projections, meet with the financial sponsor and management (when necessary), attend board meetings (when appropriate) and review all compliance certificates and covenants.

Our investment team generally meets once each month with senior management to review the performance of our portfolio companies.

We utilize an internally developed investment rating system to rate the performance and monitor the expected level of returns for each debt investment in our portfolio.

Our investment team generally meets once each quarter with senior management to review the performance of our portfolio companies.

We utilize an internally developed investment rating system to rate the performance of and monitor the expected level of returns for each debt investment in our portfolio.

The investment rating system takes into account both quantitative and qualitative factors of the portfolio company and the investments held therein, including each investment’s expected level of returns and the collectability of our debt investments, comparisons to competitors and other industry participants and the portfolio company’s future outlook.

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

All new loans are initially rated 2.

• Investment Rating 3 involves an investment performing below underwriting expectations and the trends and risk factors are generally neutral to negative.

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• the magnitude of the difference between (i) a value that our Board of Directors or an authorized committee thereof has determined reflects the current (as of a time within 48 hours, excluding Sundays and holidays) NAV of our common stock, which is based upon the NAV disclosed in the most recent periodic report we filed with the SEC, as adjusted to reflect our management’s assessment of any material change in the NAV since the date of the most recently disclosed NAV, and (ii) the offering price of the shares of our common stock in the proposed offering.

Moreover, to the extent that there is even a remote possibility that we may (i) issue shares of our common stock at a price below the then current NAV of our common stock at the time at which the sale is made or (ii) trigger the undertaking (which we provided to the SEC) to suspend the offering of shares of our common stock if the NAV fluctuates by certain amounts in certain circumstances, our Board of Directors or an authorized committee thereof will elect, in the case of clause (i) above, either to postpone the offering until such time that there is no longer the possibility of the occurrence of such event or to undertake to determine NAV within two days prior to any such sale to ensure that such sale will not be below our then

current NAV, and, in the case of clause (ii) above, to comply with such undertaking or to undertake to determine NAV to ensure that such undertaking has not been triggered.

Moreover, to the extent that there is even a remote possibility that we may (i) issue shares of our common stock at a price below the then current NAV of our common stock at the time at which the sale is made or (ii) trigger the undertaking (which we would provide to the SEC) to suspend the offering of shares of our common stock if the NAV fluctuates by certain amounts in certain circumstances, our Board of Directors or an authorized committee thereof will elect, in the case of clause (i) above, either to postpone the offering until such time that there is no longer the possibility of the occurrence of such event or to undertake to determine NAV within two days prior to any such sale to ensure that such sale will not be below our then current NAV, and, in the case of clause (ii) above, to comply with such undertaking or to undertake to determine NAV to ensure that such undertaking has not been triggered.

These processes and procedures are part of our compliance policies and procedures.

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HUMAN CAPITAL

As of March 31, 2021, we had twenty-one employees.

These employees include our corporate officers, investment and portfolio management professionals and administrative staff.

All of our employees are located in our principal executive offices in Dallas, Texas.

Our employees are vital to our success as an internally managed BDC.

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The departure of our key investment and operations personnel could cause our operating results to suffer.

We strive to recruit talented and driven individuals who share our values.

Our investment strategy depends heavily on the business owners, management teams, and financial sponsors of our portfolio companies and their respective employees, contractors and service providers.

In our investment process, the analysis of these individuals is a critical part of our overall investment underwriting process and as a result we carefully review the qualifications and experience of the portfolio company’s business owners and management team and their employment practices.

We strive to partner with business owners, management teams, and financial sponsors whose business practices reflect our core values.

We also strive to recruit talented and driven individuals who share our values.

Our recruiting efforts utilize strong relationships with a variety of sources from which we recruit.

We offer selected students investment analyst internships, which are expected to lead to permanent roles for high performing and high potential interns.

Through our internship program, interns who want to become investment analysts have the opportunity to see the full investment process from origination to closing, as well as post-closing portfolio management activities.

We routinely promote from within, promoting current employees who have shown the technical ability, attitude, interest and the initiative to take on greater responsibility.

In addition to our normal prioritization of the health and safety of our employees, since March 2020, to address the specific safety and health matters of our workforce in response to the COVID-19 pandemic, we implemented the following, among other steps:

• Temporarily closing our offices and establishing new safety protocols and procedures;

• Maintaining regular communication with our employees regarding the impacts of the COVID-19 pandemic on our team members and operations;

• Developing and distributing return-to-office guidelines to ensure the safe return of employees to our office;

• Enhanced cleaning protocols;

• Creating and refining protocols to address actual and suspected COVID-19 cases and potential exposure of our employees.

We have designed a compensation structure, including an array of benefit plans and programs, that we believe is attractive to our current and prospective employees.

For certain employees, our compensation strategy also includes an equity incentive plan, which we have structured to further align the interests of our employees with our shareholders, and to cultivate a strong sense of ownership and commitment to our Company.

Through our performance review processes, our employees are annually evaluated by supervisors and our senior management team to ensure employees continue to develop and advance as

We provide a workplace designed to enable our employees to balance work, family and family-related situations including flexible working arrangements.

Our employees have access to a parental leave program for birth, adoption placement or foster child placement.

We are committed to creating and maintaining an atmosphere where all employees feel welcomed, valued, respected and heard so that they feel motivated and encouraged to contribute fully to their careers, our Company and our communities.

We are committed to fostering a workplace conducive to the open communication of any concerns regarding unethical, fraudulent or illegal activities.

We seek to promote a safe environment that is free of harassment or bullying.

We do not tolerate discrimination or harassment of any kind, including, but not limited to, sexual, gender identity, race, religion, ethnicity, age, or disability, among others.

We seek feedback from employees on matters related to their employment or our operations including its financial statement disclosures, accounting, internal accounting controls or auditing matters.

Under our Whistleblower Policy, each employee of the Company has the ability to confidentially report via a dedicated, confidential reporting hotline questionable or improper accounting, internal controls, auditing matters, disclosure, or fraudulent business practices or other illegal or unethical behavior.

We seek to protect the confidentiality of those making reports of possible misconduct and our Whistleblower Policy prohibits retaliation against those who report activities believed in good faith to be a violation of any law, rule, regulation or internal policy.

Our Code of Business Conduct establishes applicable policies, guidelines, and procedures that promote ethical practices and conduct by the Company and all its employees, officers, and directors.

Our Whistleblower Policy and Code of Business Conduct can be found on our website at www.capitalsouthwest.com/governance.

As of March 31, 2022, we had twenty-three employees.

These employees include our corporate officers, investment and portfolio management professionals and administrative staff.

All of our employees are located in our principal executive offices in Dallas, Texas.

We borrow funds to make investments, a practice known as “leverage,” in an attempt to increase returns to our shareholders.

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Additionally, the Board of Directors approved a resolution that limits the Company's issuance of senior securities such that the asset coverage ratio, taking into account any such issuance, would not be less than 166%, at any time after the effective date.

The amount of leverage that we employ at any

particular time will depend on management’s and our Board of Directors’ assessments of portfolio mix, prevailing market advance rates and other market factors at the time of any proposed borrowing.

See “Risk Factors – Risks Related to Our Business and Structure – Because we borrow money to make investments, the potential for gain or loss on amounts invested in us is magnified and may increase the risk of investing in us.” On April 30, 2021, we filed an exemptive application with the SEC to permit us to modify the asset coverage requirement to exclude SBA-guaranteed debentures from the calculation.

There can be no assurance if and when the Company will receive the exemptive relief.

The amount of leverage that we employ at any particular time will depend on management’s and our Board of Directors’ assessments of portfolio mix, prevailing market advance rates, and other market factors at the time of any proposed borrowing.

See “Risk Factors – Risks Related to Our Business and Structure – Because we borrow money to make investments, the potential for gain or loss on amounts invested in us is magnified and may increase the risk of investing in us.” On August 11, 2021, we received an exemptive order from the SEC to permit us to exclude the senior securities issued by SBIC I or any future SBIC subsidiary of the Company from the definition of "senior securities" in the asset coverage requirement applicable to the Company under the 1940 Act.

We intend to continue borrowing under our senior secured credit facility with ING Capital LLC (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Facility") in the future, and we may increase the size of the Credit Facility, add additional credit facilities, or otherwise issue additional debt securities or other evidences of indebtedness in the future, although there can be no assurance that we will be able to do so.

See "Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Liquidity and Capital Resources" as well as Note 5 to our consolidated financial statements for the year ended March 31, 2021 for information regarding the Credit Facility, and the issuance of the 5.375% Notes due 2024 (the "October 2024 Notes") and the 4.50% Notes due 2026 (the "January 2026 Notes").

See "Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Liquidity and Capital Resources" as well as Note 5 to our consolidated financial statements for the year ended March 31, 2022 for information regarding the Credit Facility and the issuance of the 4.50% Notes due 2026 (the "January 2026 Notes") and the 3.375% Notes due 2026 (the "October 2026 Notes").

BROKERAGE ALLOCATION AND OTHER PRACTICES

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Our investment team is primarily responsible for the execution of the publicly traded securities portion of our portfolio transactions and the allocation of brokerage commissions.

We do not expect to execute transactions through any particular broker or dealer, but will seek to obtain the best net results for us, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution, and operational facilities of the firm and the firm’s risk and skill in positioning blocks of securities.

We do not expect to execute transactions through any particular broker or dealer, but will seek to obtain the best net results for us, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution, operational facilities of the firm and the firm’s risk and skill in positioning blocks of securities.

While we will generally seek reasonably competitive trade execution costs, we will not necessarily pay the lowest spread or commission available.

Subject to applicable legal requirements, we may select a broker based partly upon brokerage or research services provided to us.

In return for such services, we may pay a higher commission than other brokers would charge if we determine in good faith that such commission is reasonable in relation to the services provided.

In return for such services, we may pay a higher commission than other brokers would charge if we determine in good faith that such

commission is reasonable in relation to the services provided.

We did not pay any brokerage commissions during the fiscal years ended March 31, 2022, 2021 and 2020.

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• We intend to distribute substantially all of our income to our shareholders.

We generally will be required to pay income taxes only on the portion of our taxable income we do not distribute to shareholders (actually or constructively).

As a RIC, so long as we meet certain minimum distribution, source of income and asset diversification requirements, we generally are required to pay U.S.

federal income taxes only on the portion of our taxable income and gains we do not distribute (actually or constructively) and certain built-in gains.

We generally will be subject to U.S.

federal income tax only on the portion of our taxable income we do not timely distribute to shareholders (actually or constructively).

As a RIC, so long as we meet certain minimum distribution, source of income, and asset diversification requirements, we generally are subject to U.S.

federal income tax only on the portion of our taxable income and gains that we do not distribute (actually or constructively) and certain built-in gains.

Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year distributions into the next year and pay a 4% U.S.

federal excise tax on such income.

Any such carryover taxable income must be distributed through a dividend declared prior to filing the final tax return related to the year that generated such taxable income.

We intend to distribute to our shareholders substantially all of our income.

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If this happens, our shareholders will be treated as if they received an actual distribution of the net capital gains and reinvested the net after-tax proceeds in us.

Our shareholders also may be eligible to claim a tax credit (or, in certain circumstances, a tax refund) equal to their allocable share of the corporate-level U.S.

Our shareholders also may be eligible to claim a tax credit (or, in certain circumstances, a tax refund) equal to their allocable share of the U.S.

federal income tax we pay on the deemed distribution.

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federal income tax purposes must consist of qualifying investment income.

Absent the Taxable Subsidiary, a proportionate amount of any gross income of a partnership or LLC (or other pass-through entity) portfolio investment would flow through directly to us.

To the extent that such income did not consist of investment income, it could jeopardize our ability to qualify as a RIC and therefore cause us to incur significant amounts of corporate-level U.S.

Absent the Taxable Subsidiary, a proportionate amount of any gross income of a partnership or LLC (or other pass-through entity) portfolio investment generally would flow through directly to us.

To the extent that such income did not consist of investment income, it could jeopardize our ability to qualify as a RIC and therefore cause us to incur significant amounts of U.S.

federal income taxes.

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The Taxable Subsidiary is not consolidated for U.S.

federal income tax purposes and may generate income tax expense as a result of its ownership of the portfolio companies.

This income tax expense, if any, is reflected in our Consolidated Statements of Operations.

federal income tax purposes and may generate U.S.

federal income tax expense as a result of its ownership of the portfolio companies.

federal income tax expense, if any, is reflected in our Consolidated Statements of Operations.

• Our ability to use leverage as a means of financing our portfolio of investments is limited.

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While the use of leverage may enhance returns if we meet our investment objective, our returns may be reduced or eliminated if our returns on investments are less than the costs of borrowing.

On August 11, 2021, we received an exemptive order from the SEC to permit us to exclude the senior securities issued by SBIC I or any future SBIC subsidiary of the Company from the definition of senior securities in the asset coverage requirement applicable to the Company under the 1940 Act.

• We are required to comply with the provisions of the 1940 Act applicable to business development companies.

As a BDC, we are required to have a majority of directors who are not “interested persons” as such term is defined in Section 2(a)(19) of the 1940 Act.

In addition, we are required to comply with other applicable provisions of the 1940 Act, including those requiring the adoption of a code of ethics, maintaining a fidelity bond and placing and maintaining its securities and similar investments in custody.

See “Regulation as a Business Development Company” below.

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(2) has a class of securities listed on a national securities exchange with an equity market capitalization of less than $250 million;

or (3) is controlled by the BDC itself or together with others and, as a result of such control, the BDC has an affiliated person on the board of directors of the

or (3) is controlled by the BDC itself or together with others and, as a result of such control, the BDC has an affiliated person on the board of directors of the company.

The 1940 Act presumes that a person has “control” of a portfolio company if that person owns at least 25% of its outstanding voting securities.

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• We are required to adopt and implement written policies and procedures reasonably designed to prevent violation of the federal securities laws, review these policies and procedures annually for their adequacy and the effectiveness of their implementation and designate a chief compliance officer to be responsible for administering these policies and procedures.

On March 23, 2018, the Small Business Credit Availability Act (the “SBCAA”) was signed into law and, among other things, instructs the SEC to issue rules or amendments to rules allowing BDCs to use the same registration, offering and communication processes that are available to operating companies.

communication processes that are available to operating companies.

The rules and amendments specified by the SBCAA became self-implementing on March 24, 2019.

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BDCs generally have been permitted by the 1940 Act, under specific conditions, to issue multiple classes of debt and one class of stock senior to its common stock if its asset coverage, as defined by the 1940 Act, is at least 200% immediately after each such issuance.

However, recent legislation has modified the 1940 Act by allowing a BDC to increase the maximum amount of leverage it may incur by reducing the minimum asset coverage ratio from 200% to 150%, if certain requirements are met.

However, the 1940 Act allows a BDC to increase the maximum amount of leverage it may incur by reducing the minimum asset coverage ratio from 200% to 150%, if certain requirements under the 1940 Act are met.

On April 25, 2018, the Board of Directors unanimously approved the application of the recently modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act.

As a result, the minimum asset coverage ratio applicable to the

Company was decreased from 200% to 150%, which became effective April 25, 2019.

As a result, the minimum asset coverage ratio applicable to the Company was decreased from 200% to 150%, which became effective April 25, 2019.

Additionally, the Board of Directors also approved a resolution that limits the Company’s issuance of senior securities such that the asset coverage ratio, taking into account any such issuance, would not be less than 166%, at any time after the effective date.

We are required to make certain disclosures on our website and in SEC filings regarding, among other things, the receipt of approval to reduce its asset coverage requirement to 150%, its leverage capacity and usage, and risks related to leverage.

As of March 31, 2021, we had $120.0 million, $125.0 million and $140.0 million in total aggregate principal amount of debt outstanding under our Credit Facility, the October 2024 Notes and the January 2026 Notes, respectively.

As of March 31, 2021, our asset coverage was 187%.

In addition, while any preferred stock or publicly traded debt securities are outstanding, we may be prohibited from making distributions to our shareholders or the repurchasing of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase.

We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard to asset coverage.

We are required to make certain disclosures on our website and in SEC filings regarding, among other things, the receipt of approval to reduce our asset coverage requirement to 150%, our leverage capacity and usage, and risks related to leverage.

As of March 31, 2022, we had $205.0 million, $140.0 million and $150.0 million in total aggregate principal amount of debt outstanding under our Credit Facility, the January 2026 Notes and the October 2026 Notes, respectively.

As of March 31, 2022, our asset coverage for borrowed amounts was 193%.

In addition, while any preferred stock or publicly traded debt securities are outstanding, we may be prohibited from making distributions to our shareholders or repurchasing such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase.

We may also borrow amounts up to 5% of the value of our total assets for

temporary or emergency purposes without regard to asset coverage.

Under specific conditions, we are also permitted by the 1940 Act to issue warrants.

We are not generally able to issue and sell our common stock at a price below NAV per share.

We may, however, sell our common stock, warrants, options or rights to acquire our common stock, at a price below the current NAV of the common stock if our Board of Directors determines that such sale is in our best interests and that of our shareholders, and our shareholders approve such sale.

We may, however, sell our common stock, warrants, options or rights to acquire our common stock at a price below the then current NAV of our common stock if our Board of Directors determines that such sale is in our best interests and that of our shareholders, and our shareholders approve such sale.

In any such case, the price at which our securities are to be issued and sold may not be less than a price which, in the determination of our Board of Directors, closely approximates the market value of such securities (less any distributing commission or discount).

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Shareholders may obtain information, without charge, regarding how we voted proxies with respect to our portfolio securities by making a written request for proxy voting information to:

Chief Financial Officer c/o Capital Southwest Corporation, 5400 Lyndon B.

Johnson Freeway, Suite 1300, Dallas, Texas 75240.

Chief Financial Officer c/o Capital Southwest Corporation, 8333 Douglas Avenue, Suite 1100, Dallas, Texas 75225.

Compliance Policies and Procedures

We have adopted and implemented written policies and procedures reasonably designed to prevent violation of the U.S.

federal securities laws, and are required to review these compliance policies and procedures annually for their adequacy and the effectiveness of their implementation, and to designate a Chief Compliance Officer to be responsible for administering these policies and procedures.

federal securities laws, and we are required to review these compliance policies and procedures annually for their adequacy and the effectiveness of their implementation.

We are further required to designate a Chief Compliance Officer to be responsible for administering these policies and procedures.

Sarner serves as our Chief Compliance Officer.

Exemptive Relief

On October 26, 2010, we received an exemptive order from the SEC permitting us to issue restricted stock to our executive officers and certain key employees, or the Original Order.

On August 22, 2017, we received an exemptive order that supersedes the Original Order, or the Exemptive Order, and in addition to the relief granted under the Original Order, allows us to withhold shares to satisfy tax withholding obligations related to the vesting of restricted stock granted pursuant to the 2010 Restricted Stock Award Plan, or the 2010 Plan, and to pay the exercise price of options to purchase shares of our common stock granted pursuant to the 2009 Stock Incentive Plan, or the 2009 Plan.

The right to grant restricted stock awards under the 2010 Plan will terminate ten years after the date that the 2010 Plan was approved by the Company’s shareholders, which is July 18, 2021.

In connection with the termination of the 2010 Plan, the Company’s Board of Directors of Company approved the Capital Southwest Corporation 2021 Employee Restricted Stock Award Plan (the "2021 Employee Plan") as part of the compensation packages for its employees, the terms of which are, in all material respects, identical to the 2010 Plan.

In connection therewith, on March 29, 2021, we filed an exemptive application with the SEC that would supersede the Exemptive Order (the “Superseding Exemptive Order”) to permit the Company to (i) issue restricted stock as part of the compensation package for its employees in the 2021 Employee Plan, and (ii) withhold shares of the Company’s common stock or purchase shares of the Company’s common stock from the participants to satisfy tax withholding obligations relating to the vesting of restricted stock pursuant to the 2021 Employee Plan.

In addition, on March 29, 2021, we filed an exemptive application with the SEC (the “Non-Employee Director Plan Exemptive Order”) to permit the Company to (i) issue restricted stock as part of the compensation package for non-employee directors of the Board of Directors (the “Non-Employee Directors”) under the Capital Southwest Corporation 2021 Non-Employee Director Restricted Stock Award Plan (the “Non-Employee Director Plan”), and (ii) withhold shares of the Company’s common stock or purchase shares of the Company’s common stock from the Non-Employee Directors to satisfy tax withholding obligations relating to the vesting of restricted stock pursuant to the Non-Employee Director Plan.

There can be no assurance if and when the Company will receive the Superseding Exemptive Order or the Non-Employee Director Plan Exemptive Order.

The terms of the Superseding Exemptive Order and the Non-Employee Director Plan Exemptive Order, if received, is expected to be substantially similar to the Exemptive Order.

Each of the 2021 Employee Plan and the Non-Employee Director Plan will also be subject to shareholder approval upon receipt of the Superseding Exemptive Order and the Non-Employee Director Plan Exemptive Order, respectively.

The right to grant restricted stock awards under the 2010 Restricted Stock Award Plan (the "2010 Plan") terminated on July 18, 2021, ten years after the date that the 2010 Plan was approved by the Company's shareholders pursuant to its terms.

In connection with the termination of the 2010 Plan, the Company’s Board of Directors and shareholders approved the Capital Southwest Corporation 2021 Employee Restricted Stock Award Plan (the "2021 Employee Plan") as part of the compensation package for its employees, the terms of which are, in all material respects, identical to the 2010 Plan.

On July 19, 2021, we received an exemptive order that supersedes the prior exemptive order relating to the 2010 Plan (the “Order”) to permit the Company to (i) issue restricted stock as part of the compensation package for its employees in the 2021 Employee Plan, and (ii) withhold shares of the Company’s common stock or purchase shares of the Company’s common stock from the participants to satisfy tax withholding obligations relating to the vesting of restricted stock pursuant to the 2021 Employee Plan.

In addition, the Company's Board of Directors approved the Capital Southwest Corporation 2021 Non-Employee Director Restricted Stock Award Plan (the "Non-Employee Director Plan") as part of the compensation package for non-employee

directors of the Board of Directors.

In connection therewith, on May 16, 2022, we received an exemptive order that supersedes the Order (the "Superseding Order") and will cover both the employees and non-employee directors of the Board of Directors.

The Non-Employee Director Plan will become effective upon shareholder approval at our 2022 annual meeting of shareholders.

We may also be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of our Board of Directors who are not interested persons and, in some cases, prior approval by the SEC.

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• A citizen or individual resident of the United States;

• A corporation, or other entity treated as a corporation for U.S.

federal income tax purposes, created or organized in or under the laws of the United States or any state thereof of the District of Columbia;

• A corporation, or other entity treated as a corporation, created or organized in or under the laws of the United States or any state thereof or the District of Columbia;

• An estate, the income of which is subject to U.S.

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We have elected to be treated as a RIC under Subchapter M of the Code.

As a RIC, we generally are not subject to corporate-level U.S.

federal income taxes on any income that we distribute to our shareholders from our tax earnings and profits.

As a RIC, we generally are not subject to U.S.

federal income taxes on any income that we timely distribute to our shareholders from our tax earnings and profits.

To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below).

In addition, in order to obtain RIC tax treatment, we must distribute to our shareholders, for each taxable year, at least 90% of our “investment company taxable income,” which is generally our net ordinary income plus the excess, if any, of realized net short-term capital gain over realized net long-term capital loss, or the Annual Distribution Requirement.

Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year distributions into the next year and pay a 4% U.S.

federal excise tax on such income.

Any such carryover taxable income must be distributed through a dividend declared prior to filing the final tax return related to the year that generated such taxable income.

Even if we qualify as a RIC, we generally will be subject to corporate-level U.S.

federal income tax on our undistributed taxable income and could be subject to U.S.

In addition, in order to obtain RIC tax treatment, we generally must distribute to our shareholders, for each taxable year, at least 90% of our “investment company taxable income,” which is generally our net ordinary income plus the excess, if any, of realized net short-term capital gain over realized net long-term capital loss, or the Annual Distribution Requirement.

Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year distributions into the next year.

In such case, we generally will be subject to U.S.

federal income tax at corporate rates on our undistributed taxable income and could be subject to U.S.

federal excise, state, local and foreign taxes.

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• Qualify to be treated as a BDC or be registered as a management investment company under the 1940 Act at all times during each taxable year;

• Derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale or other disposition of stock or other securities or foreign currencies or other income derived with respect to our business of investing in such stock, securities or currencies and net

income derived from an interest in a “qualified publicly traded partnership” (as defined in the Code), or the 90% Income Test;

• Diversify our holdings so that at the end of each quarter of the taxable year:

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Government securities, securities of other RICs, and other securities, if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer (which for these purposes includes the equity securities of a “qualified publicly traded partnership”);

◦ no more than 25% of the value of our assets is invested in the securities, other than U.S.

Government securities or securities of other RICs, (1) of one issuer (2) of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses or (3) of one or more “qualified publicly traded partnerships,” or the Diversification Tests.

◦ no more than 25% of the value of our assets is invested in (i) the securities, other than U.S.

Government securities or securities of other RICs, of one issuer, (ii) the securities, other than the securities of other RICs, of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses, or (iii) the securities of one or more “qualified publicly traded partnerships,” or the Diversification Tests.

To the extent that we invest in entities treated as partnerships for U.S.

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In addition, we generally must take into account our proportionate share of the assets held by partnerships (other than a “qualified publicly traded partnership”) in which we are a partner for purposes of the Diversification Tests.

In order to meet the 90% Income Test, we have established the Taxable Subsidiary to hold assets from which we do not anticipate earning dividend, interest or other income under the 90% Income Test.

We may establish additional subsidiaries for the same purpose in the future.

Any investments held through a Taxable Subsidiary generally are subject to U.S.

In order to meet the 90% Income Test, we have established the Taxable Subsidiary to hold assets from which we do not anticipate earning dividends, interest or other income under the 90% Income Test.

We may establish additional subsidiaries

for the same purpose in the future.

Any investments held through the Taxable Subsidiary generally are subject to U.S.

federal income and other taxes, and therefore we can expect to achieve a reduced after-tax yield on such investments.

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We may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose.

If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level U.S.

If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to U.S.

federal income tax.

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We are authorized to borrow funds and to sell assets in order to satisfy distribution requirements.

Under the 1940 Act, we are not permitted to make distributions to our shareholders while our debt obligations and other senior securities are

outstanding unless certain “asset coverage” tests are met.

Under the 1940 Act, we are not permitted to make distributions to our shareholders while our debt obligations and other senior securities are outstanding unless certain “asset coverage” tests are met.

See “Regulation as a Business Development Company” above.

Moreover, our ability to dispose of assets to meet our distribution requirements may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our status as a RIC, including the Diversification Tests.

If we dispose of assets in order to meet the Annual Distribution Requirement or to avoid the excise tax, we may make such dispositions at times that, from an investment standpoint, are not advantageous.

If we dispose of assets in order to meet the Annual Distribution Requirement or to avoid the excise tax, we may make such dispositions at times that are not advantageous from an investment standpoint.

If we fail to satisfy the Annual Distribution Requirement or otherwise fail to qualify as a RIC in any taxable year, we will be subject to tax in that year on all of our taxable income, regardless of whether we make any distributions to our shareholders.

In that case, all of such income will be subject to corporate-level U.S.

federal income tax, reducing the amount available to be distributed to our shareholders.

In that case, all of such income will be subject to U.S.

federal income tax at corporate rates, reducing the amount available to be distributed to our shareholders.

See “Failure To Obtain RIC Tax Treatment” below.

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Certain of our investment practices may be subject to special and complex U.S.

federal income tax provisions that may, among other things, (1) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (2) convert lower taxed long-term capital gain and qualified dividend income into higher taxed short-term capital gain or ordinary income, (3) convert an ordinary loss or a deduction into a capital loss (the deductibility of which is more limited), (4) cause us to recognize income or gain without a corresponding receipt of cash, (5) adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur, (6) adversely alter the characterization of certain complex financial transactions and (7) produce income that will not be qualifying income for purposes of the 90% Income Test.

federal income tax provisions that may, among other things, (1) disallow, suspend, or otherwise limit the allowance of certain losses or deductions, (2) convert lower taxed long-term capital gain and qualified dividend income into higher taxed short-term capital gain or ordinary income, (3) convert an ordinary loss or a deduction into a capital loss (the deductibility of which is more limited), (4) cause us to recognize income or gain without a corresponding receipt of cash, (5) adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur, (6) adversely alter the characterization of certain complex financial

transactions and (7) produce income that will not be qualifying income for purposes of the 90% Income Test.

We will monitor our transactions and may make certain tax elections in order to mitigate the effect of these provisions.

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federal income tax purposes to prevent our disqualification as a RIC.

We may invest in preferred securities or other securities the U.S.

federal income tax treatment of which may not be clear or may be subject to re-characterization by the Internal Revenue Service, or the IRS.

To the extent the tax treatment of such securities or the income from such securities differs from the expected tax treatment, it could affect the timing or character of income recognized, requiring us to purchase or sell securities, or otherwise change our portfolio, in order to comply with the tax rules applicable to RICs under the Code.

We may invest in preferred securities or other securities for which the U.S.

federal income tax treatment may not be clear or may be subject to re-characterization by the Internal Revenue Service, or the IRS.

To the extent the tax treatment of such securities or the income from such securities differs from the expected tax treatment, such tax treatment could affect the timing or character of income recognized, requiring us to purchase or sell securities or otherwise change our portfolio in order to comply with the tax rules applicable to RICs under the Code.

We may distribute taxable dividends that are payable in cash or shares of our common stock at the election of each shareholder.

Under certain applicable provisions of the Code and the Treasury regulations, distributions payable in cash or in shares of stock at the election of shareholders are treated as taxable dividends.

The IRS has issued a revenue procedure indicating that this rule will apply where the total amount of cash to be distributed is not less than 20% of the total distribution (which has been temporarily reduced to 10% for distributions declared on or after April 1, 2020, and on or before December 31, 2020).

The IRS has issued a revenue procedure indicating that this rule will apply where the total amount of cash to be distributed is not less than 20% of the total distribution.

This 20% limitation has been temporarily reduced to 10% for distributions declared on or after November 1, 2021, and on or before June 30, 2022.

Under this revenue procedure, if too many shareholders elect to receive their distributions in cash, each such shareholder would receive a pro rata share of the total cash to be distributed and would receive the remainder of their distribution in shares of stock.

If we decide to make any distributions consistent with this revenue procedure that are payable in part in our stock, taxable shareholders receiving such dividends will be required to include the full amount of the dividend (whether received in cash, our stock, or a combination thereof) as ordinary income (or as long-term capital gain to the extent such distribution is properly reported as a capital gain dividend) to the extent of our current and accumulated earnings and profits for United States federal income tax purposes.

If we decide to make any distributions consistent with this revenue procedure that are payable in part in our stock, taxable shareholders receiving such dividends will be required to include the full amount of the dividend (whether received in cash, our stock, or a combination thereof) as ordinary income (or as long-term capital gain, to the extent such distribution is properly reported as a capital gain dividend) to the extent of our current and accumulated earnings and profits for U.S.

federal income tax purposes.

As a result, a U.S.

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tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock.

If a significant number of our shareholders

determine to sell shares of our stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our stock.

If a significant number of our shareholders determine to sell shares of our stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our stock.

Failure to Obtain RIC Tax Treatment

If we fail to satisfy the 90% Income Test or the Diversification Tests for any taxable year, we may nevertheless continue to qualify as a RIC for that year if certain relief provisions are applicable (which may, among other things, require us to pay certain corporate-level U.S.

federal taxes or to dispose of certain assets).

If we were unable to obtain tax treatment as a RIC, we would be subject to tax on all of our taxable income at regular corporate rates.

federal tax at corporate rates or to dispose of certain assets).

If we were unable to obtain tax treatment as a RIC, we would be subject to U.S.

federal income tax on all of our taxable income at regular corporate rates.

We would not be able to deduct distributions to shareholders, nor would they be required to be made.

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Subject to certain limitations under the Code, corporate distributees would be eligible for the dividends-received deduction.

Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the shareholder’s tax basis, and any remaining distributions would be treated as a capital gain.

If we fail to meet the RIC requirements for more than two consecutive years, and then seek to re-qualify as a RIC, we would be subject to corporate-level U.S.

federal income taxation on any built-in gain recognized during the succeeding 5-year period unless we made a special election to recognize all that built-in gain upon our re-qualification as a RIC and to pay the corporate-level U.S.

federal income tax on that built-in gain.

Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the shareholder’s adjusted tax basis, and any remaining distributions would be treated as a capital gain.

If we fail to meet the RIC requirements for more than two consecutive years and then seek to re-qualify as a RIC, we would be subject to U.S.

federal income tax at corporate rates on any built-in gain recognized during the succeeding five-year period, unless we made a special election to recognize all built-in gain upon our re-qualification as a RIC and pay the U.S.

federal income tax on such built-in gain.

Coronavirus Aid, Relief and Economic Security Act

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federal income tax treatment of an investment in our stock may be modified by legislative, judicial or administrative action at any time, and that any such action may affect investments and commitments previously made.

The rules dealing with U.S.

The rules governing U.S.

federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S.

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REGULATION AS A SMALL BUSINESS INVESTMENT COMPANY

SBIC I’s SBIC license will allow it to incur leverage by issuing SBA-guaranteed debentures, subject to the issuance of a leverage commitment by the SBA and other customary procedures.

SBIC I’s SBIC license allows it to incur leverage by issuing SBA-guaranteed debentures, subject to the issuance of a leverage commitment by the SBA and other customary procedures.

SBA regulations currently permit SBIC I to borrow up to $175 million in SBA-guaranteed debentures with at least $87.5 million in regulatory capital (as defined in the SBA regulations), subject to SBA approval.

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Treasury Notes with ten-year maturities.

Receipt of an SBIC license does not assure that SBIC I will receive SBA guaranteed debenture funding, which is dependent upon SBIC I continuing to be in compliance with SBA regulations and policies.

Receipt of an SBIC license does not assure that SBIC I will receive SBA-guaranteed debenture funding;

rather, such funding is dependent upon SBIC I continuing to be in compliance with SBA regulations and policies.

The SBA, as a creditor, will have a superior claim to SBIC I’s assets over our shareholders in the event we liquidate SBIC I or the SBA exercises its remedies under the SBA-guaranteed debentures issued by SBIC I upon an event of default.

On April 21, 2021, we filed an application requesting exemptive relief from the SEC to permit us to exclude the debt of SBIC I guaranteed by the SBA from the definition of senior securities in the asset coverage requirement applicable to us under the 1940 Act.

The SEC previously has granted exemptive relief to permit similar operations, but there can be no assurance that such exemptive relief will be granted and the timing thereof.

SBICs are designed to stimulate the flow of private investor capital to eligible “small businesses” as defined by the SBA.

Under SBA regulations, SBICs may make loans to eligible small businesses, invest in the equity securities of such businesses, and provide them with consulting and advisory services.

Under current SBA regulations, eligible small businesses generally include businesses that (together with their affiliates) have a tangible net worth not exceeding $19.5 million and have average annual net income after U.S.

federal income taxes not exceeding $6.5 million (average net income to be computed without benefit of any carryover loss) for the two most recent fiscal years.

In addition, an SBIC must invest 25.0% of its investment capital to “smaller enterprises” as defined by the SBA.

The definition of a smaller enterprise generally includes a business that (together with its affiliates) has a tangible net worth not exceeding $6.0 million for the most recent fiscal year and have average net income after U.S.

federal income taxes not exceeding $2.0 million (average net income to be computed without benefit of any carryover loss) for the two most recent fiscal years.

SBA regulations also provide alternative industry size standard criteria to determine eligibility for designation as an eligible small business or a smaller enterprise, which criteria depend on the primary industry in which the business is engaged and is based on the number of employees or gross revenue of the business and its affiliates.

SBA regulations also provide alternative industry size standard criteria to determine eligibility for designation as an eligible small business or a smaller enterprise, which criteria depends on the primary industry in which the business is engaged and is based on the number of employees or gross revenue of the business and its affiliates.

However, once an SBIC has invested in an eligible small business, it may continue to make follow-on investments in the company, regardless of the size of the company at the time of the follow-on investment, up to the time of the company's initial public offering, if any.

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The SBA places certain limitations on the financing terms of investments by SBICs in portfolio companies (such as limiting the permissible interest rate on debt securities held by an SBIC in a portfolio company).

An SBIC may exercise control over a small business for a period of up to seven years from the date on which the SBIC initially acquires its control position.

An SBIC may exercise control

over a small business for a period of up to seven years from the date on which the SBIC initially acquires its control position.

This control period may be extended for an additional period of time with the SBA's prior written approval.

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SBA regulations also prohibit, without prior SBA approval, a “change of control” or “change in ownership” of transfer of an SBIC (as such terms are defined in the SBA regulations) and require that SBICs invest idle funds in accordance with SBA regulations.

In addition, SBIC I may also be limited in its ability to make distributions to us if they do not have sufficient capital, in accordance with SBA regulations.

In addition, SBIC I may also be limited in its ability to make distributions to us if it does not have sufficient capital, in accordance with SBA regulations.

SBIC I is subject to regulation and oversight by the SBA, including, among other things, requirements with respect to maintaining certain minimum financial ratios and other covenants, a periodic examination by an SBA examiner, and the performance of a financial audit by an independent auditor.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business