Document

As filed with the Securities and Exchange Commission on July 1, 2019
Securities Act File No. 333-220385
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 Form N-2
(check appropriate box or boxes)
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 
Pre-Effective Amendment No.
Post-Effective Amendment No.
 
 Capital Southwest Corporation
(Exact name of registrant as specified in charter)
 
 5400 Lyndon B. Johnson Freeway, Suite 1300
Dallas, TX 75240
(214) 238-5700
(Address and telephone number, including area code, of principal executive offices)
Michael S. Sarner
Chief Financial Officer, Secretary and Treasurer
Capital Southwest Corporation
5400 Lyndon B. Johnson Freeway, Suite 1300
Dallas, TX 75240
(Name and address of agent for service)
 
 COPIES TO:
Steven B. Boehm
Payam Siadatpour
Eversheds Sutherland (US) LLP
700 Sixth Street, NW, Suite 700
Washington, D.C. 20001
(202) 383-0100
 
 
Approximate date of proposed public offering: From time to time after the effective date of this Registration Statement.
If any securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with a dividend reinvestment plan, check the following box.  ☒
It is proposed that this filing will become effective (check appropriate box):  ☐ when declared effective pursuant to section 8(c).


1


CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Title of Securities Being Registered
Amount Being
Registered
Proposed Maximum Aggregate Offering Price(1)
Amount of
Registration Fee(5)
Common Stock, $0.25 par value per share(2)
 
 

 
 
 

 
 
 
 
Debt Securities(3)
 
 

 
 
 

 
 
 
 
Total
 
$
500,000,000

 
 
$
500,000,000

(4)
 
$13,328.09
 

(1)
Estimated solely for the purpose of calculating the registration fee. Pursuant to Rule 457(o) of the rules and regulations under the Securities Act of 1933, which permits the registration fee to be calculated on the basis of the maximum offering price of all the securities listed, the table does not specify by each class information as to the amount to be registered, proposed maximum aggregate offering price.
(2)
Subject to Note 4 below, there is being registered hereunder an indeterminate amount of common stock as may be sold, from time to time.
(3)
Subject to Note 4 below, there is being registered hereunder an indeterminate amount of debt securities as may be sold, from time to time. If any debt securities are issued at an original issue discount, then the offering price shall be in such greater principal amount as shall result in an aggregate price to investors not to exceed $500,000,000.
(4)
In no event will the aggregate offering price of all securities issued from time to time pursuant to this registration statement exceed $500,000,000.
(5)
Pursuant to Rule 415(a)(6) under the Securities Act, the Registrant is carrying forward to this Registration Statement $400,609,441 in aggregate offering price of unsold securities that the Registrant previously registered on its registration statement on Form N-2 (File No. 333-220385) initially filed on September 8, 2017 (the “Prior Registration Statement”). Pursuant to Rule 415(a)(6) under the Securities Act, the filing fee previously paid with respect to such unsold securities will continue to be applied to such unsold securities. The amount of the registration fee in the “Calculation of Registration Fee Under the Securities Act of 1933” table relates to the additional $99,390,559 in aggregate offering price of securities being registered hereunder. As a result, a filing fee of $13,328.09 is being paid herewith. Pursuant to Rule 415(a)(6) under the Securities Act, the offering of unsold securities under the Prior Registration Statement will be deemed terminated as of the date of effectiveness of this Registration Statement.

2

TABLE OF CONTENTS

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
 
SUBJECT TO COMPLETION, DATED JULY 1, 2019
PROSPECTUS
$500,000,000
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12991644&doc=12
Common Stock
Debt Securities
We may offer, from time to time, in one or more offerings, up to $500,000,000 of our common stock or debt securities, which we refer to, collectively, as the “securities.” Our securities may be offered at prices and on terms to be disclosed in one or more supplements to this prospectus. The offering price per share of our common stock, less any underwriting commissions or discounts, will not be less than the net asset value, or NAV, per share of our common stock at the time of the offering, except (1) with the approval of our common stockholders or (2) under such other circumstances as the Securities and Exchange Commission may permit. We are not seeking stockholder approval to issue common stock at a price below NAV per share at our 2019 annual meeting of stockholders. Sales of common stock at prices below NAV per share would dilute the interests of existing stockholders, reducing our NAV per share and may lower the market price of our common stock. Moreover, sales of common stock below NAV may have a negative impact on total returns and could have a negative impact on the market price of shares of our common stock. See “Sales of Common Stock Below Net Asset Value.”
Shares of closed-end investment companies frequently trade at a discount to NAV. This risk is separate and distinct from the risk that our NAV per share may decline. We cannot predict whether our common stock will trade above, at or below NAV. You should read this prospectus, the applicable prospectus supplement, and any free writing prospectuses carefully before you invest in our common stock.
Our securities may be offered directly to one or more purchasers through agents designated from time to time, or to or through underwriters or dealers. The prospectus supplement relating to the offering will identify any agents or underwriters involved in the sale of our securities, and will disclose any applicable purchase price, fee, commission or discount arrangement between us and our agents or underwriters or among our underwriters or the basis upon which such amount may be calculated. See “Plan of Distribution.”
We are an internally managed investment company that specializes in providing customized debt and equity financing to lower middle market, or LMM, companies and debt capital to upper middle market, or UMM, companies. Our target LMM companies typically have annual earnings before interest, taxes, depreciation and amortization, or EBITDA, between $3.0 million and $15.0 million, and our LMM investments generally range in size from $5.0 million to $25.0 million. Our UMM investments generally include syndicated first and second lien loans in companies with EBITDA generally greater than $50.0 million, and our UMM investments typically range in size from $5.0 million to $15.0 million.
Our business strategy is to achieve our investment objective of producing attractive risk-adjusted returns by generating current income from our debt investments and capital appreciation from our equity and equity related investments.
We are an internally managed, closed-end, non-diversified management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, as amended.
Our common stock is listed on The Nasdaq Global Select Market, or Nasdaq, under the symbol “CSWC.” On June 27, 2019, the last reported sale price of our common stock on the Nasdaq was $21.01 per share, and the NAV per share of our common stock on March 31, 2019 (the last date prior to the date of this prospectus on which we determined our NAV per share) was $18.62.
Investing in our securities involves a high degree of risk, and should be considered highly speculative. You should review carefully the risks and uncertainties, including the risk of leverage and dilution, described in the section titled “Risk Factors” included in, or incorporated by reference into, the applicable prospectus supplement and in any free writing prospectuses we have authorized for use in connection with a specific offering, and under similar headings in the other documents that are incorporated by reference into this prospectus before investing in our securities.
This prospectus describes some of the general terms that may apply to an offering of our securities. We will provide the specific terms of these offerings and securities in one or more supplements to this prospectus. We may also authorize one or more free writing prospectuses to be provided to you in connection with these offerings. The prospectus supplement and any related free writing prospectus may also add, update,

1

TABLE OF CONTENTS

or change information contained in this prospectus. You should carefully read this prospectus, the applicable prospectus supplement, and any related free writing prospectus, and the documents incorporated by reference, before buying any of the securities being offered. We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission. This information is available free of charge by contacting us at 5400 Lyndon B. Johnson Freeway, Suite 1300, Dallas, Texas 75240 or by telephone at (214) 238-5700 or on our website at www.capitalsouthwest.com. Information contained on our website is not incorporated by reference into this prospectus or any supplement to this prospectus, and you should not consider that information to be part of this prospectus or any supplement to this prospectus. The Securities and Exchange Commission also maintains a website at www.sec.gov that contains such information.
Neither the Securities and Exchange Commission nor any state securities commission, nor any other regulatory body, has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is                     , 2019


2


TABLE OF CONTENTS

 
Page


3

TABLE OF CONTENTS

ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we have filed with the Securities and Exchange Commission, or SEC, using the “shelf” registration process. Under this shelf registration statement, we may offer, from time to time, in one or more offerings, up to $500,000,000 of our securities on terms to be determined at the time of the offering. This prospectus provides you with a general description of the securities that we may offer. Each time we use this prospectus to offer securities, we will provide a prospectus supplement that will contain specific information about the terms of that offering. We may also authorize one or more free writing prospectuses to be provided to you that may contain material information relating to these offerings. In a prospectus supplement or free writing prospectus, we may also add, update or change any of the information contained in this prospectus or in the documents we have incorporated by reference into this prospectus. This prospectus, together with the applicable prospectus supplement, any related free writing prospectus, and the documents incorporated by reference into this prospectus and the applicable prospectus supplement, will include all material information relating to the applicable offering. Before buying any of the securities being offered, you should carefully read both this prospectus and the applicable prospectus supplement and any related free writing prospectus, together with the additional information described in the section titled “Available Information.”
This prospectus may contain estimates and information concerning our industry, including market size and growth rates of the markets in which we participate, that are based on industry publications and reports. This information involves many assumptions and limitations, and you are cautioned not to give undue weight to these estimates. We have not independently verified the accuracy or completeness of the data contained in these industry publications and reports. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors,” that could cause results to differ materially from those expressed in these publications and reports.
This prospectus includes summaries of certain provisions contained in some of the documents described in this prospectus, but reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some of the documents referred to herein have been filed, will be filed, or will be incorporated by reference as exhibits to the registration statement of which this prospectus is a part, and you may obtain copies of those documents as described in the section titled “Available Information.”
You should rely only on the information included or incorporated by reference in this prospectus, any prospectus supplement or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We have not authorized any dealer, salesperson or other person to provide you with different information or to make representations as to matters not stated in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus, any applicable prospectus supplement and any free writing prospectus prepared by or on behalf of us or to which we have referred you do not constitute an offer to sell, or a solicitation of an offer to buy, any securities by any person in any jurisdiction where it is unlawful for that person to make such an offer or solicitation or to any person in any jurisdiction to whom it is unlawful to make such an offer or solicitation. You should not assume that the information included or incorporated by reference in this prospectus or any prospectus supplement or in any such free writing prospectus is accurate as of any date other than their respective dates.


4

TABLE OF CONTENTS

PROSPECTUS SUMMARY
This summary highlights the information included elsewhere in this prospectus or incorporated by reference. It is not complete and may not contain all of the information that you should consider before making your investment decision. You carefully should read the entire prospectus, the applicable prospectus supplement, and any related free writing prospectus, including the risks of investing in our securities discussed in the section titled “Risk Factors” in the applicable prospectus supplement and any related free writing prospectus, and under similar headings in the other documents that are incorporated by reference into this prospectus. Before making your investment decision, you should also carefully read the information incorporated by reference into this prospectus, including our financial statements and related notes, and the exhibits to the registration statement of which this prospectus is a part. Any yield information contained or incorporated by reference in this prospectus related to debt investments in our investment portfolio is not intended to approximate a return on your investment in us and does not take into account other aspects of our business, including our operating and other expenses, or other costs incurred by you in connection with your investment in us.
Capital Southwest Corporation, which we refer to as CSWC or the Company, is an internally managed closed-end, non-diversified investment company that has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940, as amended, or the 1940 Act. We specialize in providing customized financing to middle market companies in a broad range of industry segments located primarily in the United States. Our common stock currently trades on The Nasdaq Global Select Market under the ticker symbol “CSWC.”
CSWC was organized as a Texas corporation on April 19, 1961. Prior to March 30, 1988, CSWC was registered as a closed-end, non-diversified investment company under the 1940 Act. On that date, we elected to be treated as a BDC under the 1940 Act.
We have elected, and intend to qualify annually, to be treated for U.S. 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 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. 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.
On September 30, 2015, we completed the spin-off, which we refer to as the Share Distribution, of CSW Industrials, Inc., or CSWI. CSWI is now an independent publicly traded company. The Share Distribution was effected through a tax-free, pro-rata distribution of 100% of CSWI’s common stock to our shareholders. Each of our shareholder received one share of CSWI common stock for every one share of our common stock on the record date, September 18, 2015. Cash was paid in lieu of any fractional shares of CSWI common stock.
Following the Share Distribution, we have maintained operations as an internally managed BDC and pursued a credit-focused investing strategy akin to similarly structured organizations. We continue to provide capital to middle-market companies. We intend to 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.
The following diagram depicts CSWC’s current summary organizational structure:

http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12991644&doc=11

5

TABLE OF CONTENTS

Capital Southwest Management Corporation, or CSMC, a wholly-owned subsidiary of CSWC, is the management company for CSWC. CSMC generally incurs all normal operating and administrative expenses, including, but not limited to, salaries and related benefits, rent, equipment and other administrative costs required for day-to-day operations.
CSWC also has a direct wholly owned subsidiary that has been elected to be a taxable entity, or the Taxable Subsidiary. The primary purpose of the Taxable Subsidiary is to permit CSWC to hold certain interests in portfolio companies that are organized as limited liability companies, or LLCs (or other forms of pass-through entities) and still allow us to satisfy the RIC tax requirement that at least 90% of our gross income for U.S. 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.
Overview
CSWC is an internally managed closed-end, non-diversified investment company that has elected to be regulated as a BDC under the 1940 Act. We specialize in providing customized debt and equity financing to lower middle market, or LMM, companies and debt capital to upper middle market, or UMM, companies in a broad range of investment segments located primarily in the United States. Our investment objective is to produce attractive risk-adjusted returns by generating current income from our debt investments and capital appreciation from our equity and equity related investments. Our investment strategy is to partner with business owners, management teams and financial sponsors to provide flexible financing solutions to fund growth, changes of control, or other corporate events. We invest primarily in senior debt securities, secured by security interests in portfolio company assets, and in secured and unsecured subordinated debt securities. We also invest in equity interests in our portfolio companies alongside our debt securities.
We focus on investing in companies with histories of generating revenues and positive cash flow, established market positions and proven management teams with strong operating discipline. We target senior debt, subordinated debt, and equity investments in LMM companies, as well as first and second lien syndicated loans in UMM companies. Our target LMM companies typically have annual earnings before interest, taxes, depreciation and amortization, or EBITDA, between $3.0 million and $15.0 million, and our LMM investments generally range in size from $5.0 million to $25.0 million. Our UMM investments generally include syndicated first and second lien loans in companies with EBITDA generally greater than $50.0 million, and our UMM investments typically range in size from $5.0 million to $15.0 million.
We seek to fill the financing gap for LMM companies, which historically have had more limited access to financing from commercial banks and other traditional sources. The underserved nature of the LMM creates the opportunity for us to meet the financing needs of LMM companies while also negotiating favorable transaction terms and equity participation. Our ability to invest across a LMM company’s capital structure, from secured loans to equity securities, allows us to offer portfolio companies a comprehensive suite of financing options. Providing customized financing solutions is important to LMM companies. We generally seek to partner directly with financial sponsors, entrepreneurs, management teams and business owners in making our investments. Our LMM debt investments typically include senior loans with a first lien on the assets of the portfolio company, as well as subordinated debt, which may either be secured or unsecured subordinated loans. Our LMM debt investments typically have a term of between five and seven years from the original investment date. We also often seek to invest in the equity securities of our LMM portfolio companies.
Our investments in UMM companies primarily consist of direct investments in or secondary purchases of interest bearing debt securities in privately held companies that are generally larger in size than the LMM companies included in our portfolio. Our UMM debt investments are generally secured by either a first or second priority lien on the assets of the portfolio company and typically have an expected duration of between three and seven years from the original investment date.

We offer managerial assistance to our portfolio companies and provide them access to our investment experience, direct industry expertise and contacts. Our obligation to offer to make available significant managerial assistance to our portfolio companies is consistent with our belief that providing managerial assistance to a portfolio company is important to its business development activities.
Because we are internally managed, we do not pay any external investment advisory fees, but instead directly incur the operating costs associated with employing investment and portfolio management professionals. We believe that our internally managed structure provides us with a beneficial operating expense structure when compared to other publicly traded and privately held investment firms that are externally managed, and our internally managed structure allows us the opportunity to leverage our non-interest operating expenses as we grow our investment portfolio.
Our principal executive offices are located at 5400 Lyndon B. Johnson Freeway, Suite 1300, Dallas, Texas 75240. We maintain a website at http://www.capitalsouthwest.com. Information contained on our website is not incorporated by reference into this

6

TABLE OF CONTENTS

registration statement or any accompanying post-effective amendment or prospectus, and you should not consider that information to be part of this registration statement or any accompanying post-effective amendment or prospectus.
Legal Proceedings
We may, from time to time, be involved in litigation arising out of our operations in the normal course of business or otherwise. Furthermore, third parties may try to seek to impose liability on us in connection with the activities of our portfolio companies. As of the date hereof, we are not a party to, and none of our assets are subject to, any material pending legal proceedings and are not aware of any claims that could have a materially adverse effect on our financial position, results of operations or cash flows.
Risks Relating to our Business
Our business is subject to numerous risks, as described in the section titled “Risk Factors” in the applicable prospectus supplement and in any free writing prospectuses we have authorized for use in connection with a specific offering, and under similar headings in the documents that are incorporated by reference into this prospectus, including the section titled “Risk Factors” included in our most recent Annual Report on Form 10-K, as well as in any of our subsequent SEC filings.


7

TABLE OF CONTENTS

The Offering
We may offer, from time to time, in one or more offerings, up to $500,000,000 of our securities, on terms to be determined at the time of the offering. Our securities may be offered at prices and on terms to be disclosed in one or more prospectus supplements. Our securities may be offered directly to one or more purchasers by us or through agents designated from time to time by us, or to or through underwriters or dealers. The prospectus supplement relating to the offering and any related free writing prospectus will disclose the terms of the offering, including the name or names of any agents or underwriters involved in the sale of our securities by us, the purchase price, and any fee, commission or discount arrangement between us and our agents or underwriters or among our underwriters or the basis upon which such amount may be calculated. See “Plan of Distribution.”
Set forth below is additional information regarding the offering of our securities:

Use of proceeds
Unless otherwise specified in a prospectus supplement, we intend to use the net proceeds from any offering to make investments in LMM and UMM portfolio companies in accordance with our investment objective and strategies. While we work to invest these proceeds in LMM and UMM portfolio companies, we may use the proceeds to pay down revolver debt outstanding, to make investments in marketable securities and other temporary investments, and for other general corporate purposes, including payment of operating expenses. See “Use of Proceeds.”
 
 
Nasdaq Exchange symbol
“CSWC” (common stock).
 
 
Dividends and distributions
We currently pay quarterly dividends and may pay supplemental dividends to our stockholders. Our quarterly dividends, if any, will be determined by our board of directors on a quarterly basis. Our supplemental dividends, if any, will be determined by our board of directors.
 
 
 
Our ability to declare dividends depends on our earnings, our overall financial condition (including our liquidity position), maintenance of our RIC tax treatment and such other factors as our board of directors may deem relevant from time to time.
 
 
 
When we make distributions, we are required to determine the extent to which such distributions are paid out of current or accumulated earnings, recognized capital gains or capital. To the extent there is a return of capital (a distribution of the stockholders’ invested capital), investors will be required to reduce their basis in our stock for U.S. federal tax purposes. In the future, our distributions may include a return of capital.
 
 
Taxation
We have elected to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Code. As a RIC, we generally will not have to pay corporate-level U.S. federal income tax on any ordinary income or capital gains that we distribute to our stockholders 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. See “Plan of Distribution” and “Certain U.S. Federal Income Tax Considerations.”
 
 
Dividend reinvestment plan
We have adopted a dividend reinvestment plan, or DRIP, that provides for the reinvestment of dividends on behalf of our registered stockholders who hold their shares with American Stock Transfer and Trust Company, the plan administrator and our transfer agent and registrar. As a result, if we declare a cash dividend, our registered stockholders who have “opted in” to our DRIP by the dividend record date will have their cash dividend automatically reinvested into additional shares of our common stock.
 
 

8

TABLE OF CONTENTS

 
Stockholders who receive dividends in the form of stock will be subject to the same U.S. federal, state and local tax consequences as stockholders who elect to receive their dividends in cash. See “Dividend Reinvestment Plan.”
 
 
Trading at a discount
Shares of closed-end investment companies frequently trade at a discount to their net asset value, or NAV. This risk is separate and distinct from the risk that our NAV per share may decline. We cannot predict whether our shares will trade above, at or below NAV.
 
 
Sales of common stock below NAV
The offering price per share of our common stock, less any underwriting commissions or discounts, will not be less than the NAV per share of our common stock at the time of the offering, except (i) with the requisite approval of our common stockholders or (ii) under such other circumstances as the Securities and Exchange Commission may permit. In addition, we cannot issue shares of our common stock below NAV unless our board of directors determines that it would be in our and our stockholders’ best interests to do so. We are not seeking stockholder authorization to issue common stock at a price below NAV per share at our 2019 annual meeting of stockholders.
 
 
 
Sales by us of our common stock at a discount from our NAV pose potential risks for our existing stockholders whether or not they participate in the offering, as well as for new investors who participate in the offering. See “Sales of Common Stock Below Net Asset Value.”
 
 
Incorporation by Reference
This prospectus is part of a registration statement that we have filed with the SEC. In accordance with the Small Business Credit Availability Act, we are allowed to “incorporate by reference” the information that we file with the SEC, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to comprise a part of this prospectus from the date we file that document. Any reports filed by us with the SEC subsequent to the date of this filing and before the date that any offering of any securities by means of this prospectus and any accompanying prospectus supplement is terminated will automatically update and, where applicable, supersede any information contained in this prospectus or incorporated by reference in this prospectus. See “Incorporation by Reference.”
 
 
Available Information
We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission, or SEC, under the Securities Exchange Act of 1934, or the Exchange Act. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding registrants filed electronically by us with the SEC, which are available free of charge on the SEC’s website at www.sec.gov. This information is also available free of charge by contacting us at 5400 Lyndon B. Johnson Freeway, Suite 1300, Dallas, Texas 75240, by telephone at 214-238-5700 or on our website at http://www.capitalsouthwest.com. Information contained on our website is not incorporated by reference into this prospectus or any prospectus supplement, and you should not consider that information to be part of this prospectus or any prospectus supplement. You can request a copy of any of our SEC filings, including those incorporated by reference herein, at no cost, by writing or telephoning us at our address or telephone number above.
 







9

TABLE OF CONTENTS

FEES AND EXPENSES
The following table is intended to assist you in understanding the costs and expenses that an investor in an offering will bear directly or indirectly. We caution you that some of the percentages indicated in the table below are estimates and may vary. Except where the context suggests otherwise, whenever this prospectus contains a reference to fees or expenses paid by “you,” “us” or “CSWC,” or that “we” will pay fees or expenses, stockholders will indirectly bear such fees or expenses as investors in us.
Stockholder Transaction Expenses:
 
 
 
Sales load (as a percentage of offering price)
 
2.00
%
(1)
Offering expenses (as a percentage of offering price)
 
1.10
%
(2)
Dividend reinvestment plan expenses
 
%
(3)
Total stockholder transaction expenses (as a percentage of offering price)
 
3.10
%
(4)
 
 
 
 
Annual Expenses (as a percentage of net assets attributable to common stock for the fiscal year ended March 31, 2019):
 
 
 
Operating expenses
 
4.63
%
(5)
Interest payments on borrowed funds
 
4.28
%
(6)
Income tax expense
 
0.38
%
(7)
Acquired fund fees and expenses
 
2.14
%
(8)
Total annual expenses
 
11.43
%
 
(1)
In the event that our securities are sold to or through underwriters, a corresponding prospectus supplement will disclose the applicable sales load.
(2)
In the event that we conduct an offering of our securities, a corresponding prospectus supplement will disclose the estimated offering expenses.
(3)
The expenses of administering our DRIP are included in operating expenses. The DRIP does not allow shareholders to sell shares through the DRIP. If a shareholder wishes to sell shares they would be required to select a broker of their choice and pay any fees or other costs associated with the sale.
(4)
Total stockholder transaction expenses may include sales load and will be disclosed in a future prospectus supplement, if any.
(5)
Operating expenses in this table represent the estimated annual operating expenses of CSWC and its consolidated subsidiaries based on annualized operating expenses for the quarter ended March 31, 2019. We do not have an investment adviser and are internally managed by our executive officers under the supervision of our board of directors. As a result, we do not pay investment advisory fees, but instead we pay the operating costs associated with employing investment management professionals including, without limitation, compensation expenses related to salaries, discretionary bonuses and restricted stock grants.
(6)
Interest payments on borrowed funds represents our estimated annual interest payments based on actual interest rate terms under our Credit Facility, our anticipated drawdown from our Credit Facility, and 5.95% Notes due 2022 (the “December 2022 Notes”). The future issuances of debt securities will be made at the discretion of management and our board of directors after evaluating the investment opportunities and economic situation of the Company and the market as a whole.
(7)
Income tax expense relates to the accrual of (a) deferred and current tax provision (benefit) for U.S. federal income taxes and (b) excise, state and other taxes. Deferred taxes are non-cash in nature and may vary significantly from period to period. We are required to include deferred taxes in calculating our annual expenses even though deferred taxes are not currently payable or receivable. Income tax expense represents the estimated annual income tax expense of CSWC and its consolidated subsidiaries based on annualized income tax expense for the quarter ended March 31, 2019.
(8)
Acquired fund fees and expenses represent the estimated indirect expense incurred due to our investment in the I-45 Senior Loan Fund based upon the actual amount incurred for the fiscal year ended March 31, 2019.

Example
The following example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in our common stock. In calculating the following expense amounts, we have assumed we would have no additional leverage and that our annual operating expenses would remain at the levels set forth in the table above. In the event that shares to which this prospectus relates are sold to or through underwriters, a corresponding prospectus supplement will restate this example to reflect the applicable sales load.
 
 
1 Year
 
3 Years
 
5 Years
 
10 Years
You would pay the following expenses on a $1,000 investment, assuming 5.0% annual return
 
$
114

 
$
321

 
$
503

 
$
864

The example and the expenses in the table above should not be considered a representation of our future expenses, and actual expenses may be greater or less than those shown. While the example assumes, as required by the SEC, a 5.0% annual return, our performance will vary and may result in a return greater or less than 5.0%. In addition, while the example assumes reinvestment of all dividends at NAV, participants in our DRIP will receive a number of shares of our common stock, determined by dividing the total dollar amount of the dividend payable to a participant by the average purchase price of all shares of common stock purchased by the administrator of the DRIP in the event that shares are purchased in the open market

10

TABLE OF CONTENTS

to satisfy the share requirements of the DRIP, which may be at, above or below NAV. See “Dividend Reinvestment Plan” for additional information regarding our DRIP.


11

TABLE OF CONTENTS

RISK FACTORS
Investing in our securities involves a number of significant risks. In addition to the other information contained in this prospectus and any accompanying prospectus supplement, you should consider carefully the following information before making an investment in our securities. Before deciding whether to invest in our securities, you should carefully consider the risks and uncertainties described in the section titled “Risk Factors” in the applicable prospectus supplement and any related free writing prospectus, and discussed in the section titled “Risk Factors” in our most recent Annual Report on Form 10-K and any subsequent filings we have made with the SEC that are incorporated by reference into this prospectus, together with other information in this prospectus, the documents incorporated by reference, and any free writing prospectus that we may authorize for use in connection with this offering. The risks and uncertainties described in these documents could materially adversely affect our business, financial condition and results of operations. Risks and uncertainties not presently known to us, or not presently deemed material by us, may also impair our operations and performance. If any of the risks described in these documents, or risks not presently known to us, actually occur, the trading price of our common stock could decline, and you may lose all or part of your investment. Please also read carefully the section titled “Cautionary Statement Concerning Forward-Looking Statements.”


12

TABLE OF CONTENTS

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This prospectus, including the documents that we incorporate by reference herein, contains, and any applicable prospectus supplement or free writing prospectus, including the documents we incorporate by reference therein, may contain forward-looking statements, including statements regarding our future financial condition, business strategy, and plans and objectives of management for future operations. All statements other than statements of historical facts, including statements regarding our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations, are forward-looking statements. Any such forward-looking statements may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations are generally identifiable by use of the words “may,” “predict,” “will,” “continue,” “likely,” “would,” “could,” “should,” “expect,” “anticipate,” “potential,” “estimate,” “indicate,” “seek,” “believe,” “target,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements involve risks and uncertainties and are based on assumptions that may be incorrect, and we cannot assure you that the projections included in these forward-looking statements will come to pass. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those expressed or implied by the forward-looking statements. The forward-looking statements contained or incorporated by reference in this prospectus and any applicable prospectus supplement or free writing prospectus may include statements as to:
 
our future operating results;
market conditions and our ability to access debt and equity capital and our ability to manage our capital resources effectively;
the timing of cash flows, if any, from the operations of our portfolio companies;
our business prospects and the prospects of our existing and prospective portfolio companies;
the financial condition and ability of our existing and prospective portfolio companies to achieve their objectives;
the adequacy of our cash resources and working capital;
our ability to recover unrealized losses;
our expected financings and investments;
our contractual arrangements and other relationships with third parties;
the impact of fluctuations in interest rates on our business;
the impact of a protracted decline in the liquidity of credit markets on our business;
our ability to operate as a BDC and a RIC, including the impact of changes in laws or regulations governing our operations or the operations of our portfolio companies;
the dependence of our future success on the general economy and its impact on the industries in which we invest;
our ability to successfully invest any capital raised in an offering;
the return or impact of current and future investments;
the valuation of our investments in portfolio companies, particularly those having no liquid trading market;
our regulatory structure and tax treatment; and
the timing, form and amount of any dividend distributions.
 
Discussions containing these forward-looking statements may be found in the sections titled “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” incorporated by reference from our most recent Annual Report on Form 10-K and our subsequent SEC filings. We discuss in greater detail, and incorporate by reference into this prospectus in their entirety, many of these risks and uncertainties in the sections titled “Risk Factors” in the applicable prospectus supplement, in any free writing prospectus we may authorize for use in connection with a specific offering and in our most recent Annual Report on Form 10-K, as well as in any of our subsequent SEC filings. In addition, statements that we “believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the applicable date of this prospectus, free writing prospectus and documents incorporated by reference into this prospectus and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely on these statements.
 


13

TABLE OF CONTENTS

USE OF PROCEEDS
Unless otherwise specified in any applicable prospectus supplement or in any free writing prospectus we have authorized for use in connection with a specific offering, we intend to use the net proceeds from any offering to make investments in LMM and UMM portfolio companies in accordance with our investment objective and strategies. While we work to invest these proceeds in LMM and UMM portfolio companies, we may use the proceeds to pay down revolver debt outstanding, to make investments in marketable securities and other temporary investments, and for other general corporate purposes, including payment of operating expenses. We anticipate that substantially all of any remainder of the net proceeds of an offering will be invested in accordance with our investment objective within twelve months following completion of such offering, depending on the availability of appropriate investment opportunities consistent with our investment objectives and market conditions. We cannot assure you that we will achieve our targeted investment pace. Pending our investments in portfolio companies, we will invest the remaining net proceeds of an offering primarily in cash, cash equivalents, U.S. Government securities and other high-quality debt investments that mature in one year or less from the time of investment. These securities may have lower yields than our other investments and accordingly may result in lower distributions, if any, during such period.
We intend to raise new equity or issue debt securities when we have attractive opportunities available. We are not seeking stockholder authorization to issue common stock at a price below NAV per share at our 2019 annual meeting of stockholders.
 


14

TABLE OF CONTENTS

PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS
Market Information
Our common stock is traded on Nasdaq under the symbol “CSWC.”
The following table set forth, for each fiscal quarter within the two most recent fiscal years and each full fiscal quarter since the beginning of the current fiscal year, the range of high and low selling prices of our common stock as reported on Nasdaq, as applicable, and the sales price as a percentage of the NAV per share of our common stock.
 
 
 
 
Price Range
 
 
 
 
 
 
NAV (1)
 
High
 
Low
 
Premium (Discount) of High Sales Price to NAV (2)
 
Premium (Discount) of Low Sales Price to NAV (2)
Year ending March 31, 2020
 
 
 
 
 
 
 
 
 
 
First Quarter (through June 27, 2019)
 
*
 
$ 22.49

 
$ 20.86

 
*
 
*
Year ending March 31, 2019
 
 
 
 
 
 
 
 
 
 
Fourth Quarter
 
$
18.62

 
$
22.60

 
$
19.06

 
21.37
 %
 
2.36
 %
Third Quarter
 
18.43

 
24.18

 
17.22

 
31.20

 
(6.57
)
Second Quarter
 
18.84

 
19.80

 
18.00

 
5.10

 
(4.46
)
First Quarter
 
18.87

 
19.38

 
16.53

 
2.70

 
(12.4
)
Year ended March 31, 2018
 
 
 
 
 
 
 
 
 
 
Fourth Quarter
 
$
19.08

 
$
18.00

 
$
14.85

 
(5.66
)%
 
(22.17
)%
Third Quarter
 
18.44

 
17.76

 
16.15

 
(3.69
)
 
(12.42
)
Second Quarter
 
18.26

 
17.50

 
16.00

 
(4.16
)
 
(12.38
)
First Quarter
 
17.96

 
17.34

 
15.20

 
(3.45
)
 
(15.37
)

(1)
NAV per share, is determined as of the last day in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low sales prices. The NAVs shown are based on outstanding shares at the end of each period.
(2)
Calculated as the respective high or low share price divided by NAV and subtracting 1.
*
NAV has not yet been determined.
On June 27, 2019, we had 408 stockholders of record. On June 27, 2019, the last sale price of our common stock on Nasdaq was $21.01 per share.
Shares of BDCs may trade at a market price that is less than the value of the net assets attributable to those shares. The possibility that our shares of common stock will trade at a discount from NAV per share or at premiums that are unsustainable over the long term are separate and distinct from the risk that our NAV per share will decrease. It is not possible to predict whether our common stock will trade at, above, or below NAV per share.
DISTRIBUTIONS
We intend to make distributions on a quarterly basis to our shareholders of substantially all of our taxable income. In lieu of cash, we may make deemed distributions of certain net capital gains to our shareholders.

The payment dates and amounts of cash dividends per share on a post-split basis for the past five years are as follows:

15

TABLE OF CONTENTS

Payment Date
 
Cash Dividend
May 30, 2014
 
0.10

November 28, 2014
 
0.10

June 10, 2015
 
0.10

April 1, 2016
 
0.04

July 1, 2016
 
0.06

October 1, 2016
 
0.11

January 3, 2017
 
0.17

April 3, 2017(1)
 
0.45

July 3, 2017
 
0.21

October 2, 2017
 
0.24

January 2, 2018
 
0.26

April 2, 2018
 
0.28

July 2, 2018(2)
 
0.89

September 28, 2018(3)
 
0.44

December 31, 2018(4)
 
0.46

March 29, 2019(5)
 
0.48

June 28, 2019(6)
 
0.49

(1)
On April 3, 2017, CSWC paid a quarterly dividend of $0.19 per share and a supplemental dividend of $0.26 per share.
(2)
On July 2, 2018, CSWC paid a quarterly dividend of $0.29 per share and a supplemental dividend of $0.60 per share.
(3)
On September 28, 2018, CSWC paid a quarterly dividend of $0.34 per share and a supplemental dividend of $0.10 per share.
(4)
On December 31, 2018, CSWC paid a quarterly dividend of $0.36 per share and a supplemental dividend of $0.10 per share.
(5)
On March 29, 2019, CSWC paid a quarterly dividend of $0.38 per share and a supplemental dividend of $0.10 per share.
(6)
On June 28, 2019, CSWC paid a quarterly dividend of $0.39 per share and a supplemental dividend of $0.10 per share.
The amounts and timing of cash dividend payments have generally been dictated by requirements of the Code regarding the distribution of taxable net investment income (ordinary income) of regulated investment companies.
On March 1, 2016, we established a share repurchase plan (the “Share Repurchase Plan”) in compliance with the requirements of Rules 10b5-1(c)(1)(i)(B) and 10b-18 under the Exchange Act. The Share Repurchase Plan was established pursuant to a $10 million share repurchase program that the board approved on January 20, 2016. The Share Repurchase Plan became effective immediately and shall terminate on the earliest of: (1) the date on which a total of $10 million worth of common shares have been purchased under the plan; (2) the date on which the terms set forth in the purchase instructions have been met; or (3) the date that is one trading day after the date on which insider notifies broker in writing that this agreement shall terminate. During the year ended March 31, 2019, the Company repurchased a total of 10,452 shares at an average price of $17.72 per share, including commissions paid, under the Share Repurchase Plan. As of March 31, 2019, we had repurchased a total of 46,363 shares of our common stock in the open market under the Share Repurchase Plan, at an average price of $16.67, including commissions paid, leaving approximately $9.2 million available for additional repurchases under the Share Repurchase Plan.
Distribution Policy
We generally intend to make distributions on a quarterly basis to our shareholders of substantially all of our taxable income. In order to avoid certain excise taxes imposed on RICs, we must distribute during each calendar year an amount at least equal to the sum of (1) 98.0% of our ordinary income for the calendar year, (2) 98.2% of our capital gains in excess of capital losses for the one year period ended each October 31, and (3) any ordinary income and net capital gains for the preceding year that were not distributed during that year. We will not be subject to excise taxes on amounts on which we are required to pay corporate income tax (such as retained net capital gains). In order to obtain the tax benefits applicable to RICs, we will be required to distribute to our shareholders with respect to each taxable year at least 90.0% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses. We may retain for investment realized net long-term capital gains in excess of realized net short-term capital losses. We may make deemed distributions to our shareholders of any retained net capital gains. If this happens, our shareholders will be treated as if they received an actual distribution of the capital gains we retain and then reinvested the net after-tax proceeds in our common stock. 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 tax we paid on the capital gains deemed distributed to them. We may, in the future, make actual distributions to our shareholders of some or all realized net long-term capital gains in excess of realized net short-term capital losses. We can offer no assurance that we will achieve results that will permit the payment of any

16

TABLE OF CONTENTS

cash distributions and, if we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings.
We have adopted a DRIP which provides for reinvestment of our distributions on behalf of our common shareholders if opted into by a common shareholder.
Shareholders who receive dividends in the form of stock generally are subject to the same U.S. federal, state and local tax consequences as are shareholders who elect to receive their dividends in cash. A shareholder’s basis for determining gain or loss upon the sale of stock received in a dividend from us will be equal to the total dollar amount of the dividend payable to the shareholder. Any stock received in a dividend will have a holding period for tax purposes commencing on the day following the day on which the shares are credited to the U.S. shareholder’s account.
Our ability to make distributions will be limited by the asset coverage requirements under the 1940 Act.



17

TABLE OF CONTENTS

SENIOR SECURITIES
Information about our senior securities is shown in the following table for the years ended March 31, 2019, 2018, and 2017. The Company did not have any senior securities outstanding prior to the year ended March 31, 2017. The reports of RSM US LLP, our independent registered public accountants for the fiscal years ended March 31, 2019 and 2018, on the senior securities table as of March 31, 2019 and 2018, are attached as exhibits to the registration statement of which this prospectus is a part. The report of Grant Thornton LLP, our independent registered public accountants for the fiscal year ended March 31, 2017, on the senior securities table as of March 31, 2017, is attached as an exhibit to the registration statement of which this prospectus is a part.
Class and Year
 
Total Amount Outstanding Exclusive of Treasury Securities (1)
 
Asset Coverage per Unit (2)
 
Involuntary Liquidating Preference per Unit (3)
 
Average Market Value per Unit
 
 
(dollars in thousands)
 
 
 
 
 
 
Credit Facility
 
 
 
 
 
 
 
 
2019
 
$
141,000

 
$
2.49

 

 
N/A

2018
 
40,000

 
4.16

 

 
N/A

2017
 
25,000

 
12.40

 

 
N/A

December 2022 Notes
 
 
 
 
 
 
 
 
2019
 
$
77,136

 
$
2.49

 

 
$
25.50

2018
 
57,500

 
4.16

 

 
25.40

2017
 

 

 

 


(1)
Total amount of each class of senior securities outstanding at the end of the period presented.
(2)
Asset coverage per unit is the ratio of the carrying value of our total consolidated assets, less all liabilities and indebtedness not represented by senior securities, to the aggregate amount of senior securities representing indebtedness. Asset coverage per unit is expressed in terms of dollar amounts per $1,000 of indebtedness.
(3)
The amount to which such class of senior security would be entitled upon the involuntary liquidation of the issuer in preference to any security junior to it. The “-” indicates information which the SEC expressly does not required to be disclosed for certain types of senior securities.
(4)
Average market value per unit for our Credit Facility is not applicable because this is not registered for public trading.



18

TABLE OF CONTENTS

PORTFOLIO COMPANIES
The following table sets forth information as of March 31, 2019, for the portfolio companies in which we had a debt or equity investment. Other than these investments, our only formal relationships with our portfolio companies are the managerial assistance ancillary to our investments and the board observer or participation rights we may receive. The following table excludes our investments in marketable securities and temporary investments.
Portfolio Company1
 
Type of Investment2,14
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
Non-control/Non-affiliate Investments5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AAC HOLDINGS, INC.
200 Powell Place
Brentwood, TN 37027
 
First Lien
 
Healthcare services
 
L+6.75% (Floor 1.00%)/Q, 4.00% PIK, Current Coupon 13.49%
 
6/30/2023
 
9,084

 
8,912

 
8,403

 
 
First Lien
 
Healthcare services
 
L+11.00% (Floor 1.00%)/M
 
3/31/2020
 
1,170

 
1,158

 
1,182

 
 
 
 
 
 
 
 
 
 
 
 
10,070

 
9,585

ACE GATHERING, INC.
24275 Katy Freeway, Suite 325
Katy, TX 77494
 
Second Lien15
 
Energy services (midstream)
 
L+8.50% (Floor 2.00%)/Q, Current Coupon 11.09%
 
12/13/2023
 
9,938

 
9,747

 
9,783

ADAMS PUBLISHING GROUP, LLC
103 West Summer St.
Greeneville, TN 37743
 
First Lien
 
Media, marketing & entertainment
 
L+7.50% (Floor 1.00%)/Q, Current Coupon 10.30%
 
7/2/2023
 
13,566

 
13,320

 
13,308

 
 
Delayed Draw Term Loan10
 
 
 
L+7.50% (Floor 1.00%)
 
7/2/2023
 

 
(29
)
 

 
 
 
 
 
 
 
 
 
 
 
 
13,291

 
13,308

AG KINGS HOLDINGS INC.8,16 
700 Lanidex Plaza
Parsippany, NJ 07054
 
First Lien
 
Food, agriculture & beverage
 
L+10.02% (Floor 1.00%)/M, Current Coupon 12.69%
 
8/8/2021
 
9,308

 
9,194

 
8,330

ALLIANCE SPORTS GROUP, L.P.
3025 N. Great Southwest Parkway
Grand Prairie, TX 75050
 
Senior subordinated debt
 
Consumer products & retail
 
11.00%
 
2/1/2023
 
10,100

 
9,946

 
9,807

 
 
3.88% preferred membership interest
 
 
 
 
 

 
2,500

 
2,500

 
 
 
 
 
 
 
 
 
 
 
 
12,446

 
12,307

AMERICAN NUTS OPERATIONS LLC13 
12950 San Fernando Rd.
Sylmar, CA 91342
 
First Lien - Term Loan
 
Food, agriculture and beverage
 
L+9.50% (Floor 1.00%)/Q, Current Coupon 12.30%
 
4/10/2023
 
17,369

 
17,075

 
16,822

 
 
First Lien - Term Loan C10
 
 
 
L+9.50% (Floor 1.00%)/Q, Current Coupon 12.30%
 
4/10/2023
 
1,750

 
1,723

 
1,695

 
 
3,000,000 units of Class A common stock9
 
 
 
 
 

 
3,000

 
1,505

 
 
 
 
 
 
 
 
 
 
 
 
21,798

 
20,022

AMERICAN TELECONFERENCING SERVICES, LTD.
3280 Peachtree Road NE
Suite 1000
Atlanta, GA 30305
 
First Lien
 
Telecommunications
 
L+6.50% (Floor 1.00%)/Q, Current Coupon 9.24%
 
12/8/2021
 
6,023

 
5,922

 
3,953


19

TABLE OF CONTENTS

Portfolio Company1
 
Type of Investment2,14
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
 
 
Second Lien
 
 
 
L+9.50% (Floor 1.00%)/Q, Current Coupon 12.30%
 
6/6/2022
 
2,006

 
1,954

 
1,103

 
 
 
 
 
 
 
 
 
 
 
 
7,876

 
5,056

AMWARE FULFILLMENT LLC 4505 Newpoint Place,
Lawrenceville, GA 33043
 
First Lien
 
Distribution
 
L+9.50% (Floor 1.00%)/M, Current Coupon 12.10%
 
12/31/2020
 
12,753

 
12,666

 
12,651

ASC ORTHO MANAGEMENT COMPANY, LLC13 
10215 Fernwood Rd Ste 506, Bethesda, MD 20817
 
Revolving Loan10
 
Healthcare services
 
L+7.50% (Floor 1.00%)
 
8/31/2023
 

 
(27
)
 

 
 
First Lien
 
 
 
L+7.50% (Floor 1.00%)/Q, Current Coupon 10.30%
 
8/31/2023
 
9,261

 
9,094

 
9,095

 
 
Second Lien
 
 
 
13.25% PIK
 
12/1/2023
 
3,250

 
3,178

 
3,178

 
 
2,042 Common Units9
 
 
 
 
 

 
750

 
750

 
 
 
 
 
 
 
 
 
 
 
 
12,995

 
13,023

BINSWANGER HOLDING CORP.
965 Ridge Lake Blvd.,
Suite 305
Memphis, TN 38120
 
First Lien
 
Distribution
 
L+8.00% (Floor 1.00%)/M, Current Coupon 10.60%
 
3/9/2022
 
12,150

 
11,992

 
12,016

 
 
900,000 shares of common stock
 
 
 
 
 

 
900

 
1,013

 
 
 
 
 
 
 
 
 
 
 
 
12,892

 
13,029

BLASCHAK COAL CORP.
1166 W Centre St
Mahanoy City, PA 17948
 
Second Lien15
 
Commodities & mining
 
L+10.00%/Q, 1.00% PIK, Current Coupon 13.81%
 
7/30/2023
 
8,537

 
8,383

 
8,511

CALIFORNIA PIZZA KITCHEN, INC.
12181 Bluff Creek Drive
5th Floor
Playa Vista, CA 90094
 
First Lien
 
Restaurants
 
L+6.00% (Floor 1.00%)/M, Current Coupon 8.50%
 
8/23/2022
 
4,875

 
4,844

 
4,723

CAPITAL PAWN HOLDINGS, LLC
3771 Tamiami Trl E
Naples, FL 34112
 
First Lien
 
Consumer products & retail
 
L+9.50%/Q, Current Coupon 12.30%
 
7/8/2020
 
11,448

 
11,315

 
11,310

CLICKBOOTH.COM, LLC
5911 N Honore Ave #114
Sarasota, FL 34243
 
Revolving Loan10
 
Media, marketing & entertainment
 
L+8.50% (Floor 1.00%)
 
12/5/2022
 

 
(15
)
 

 
 
First Lien
 
 
 
L+8.50% (Floor 1.00%)/Q, Current Coupon 11.31%
 
12/5/2022
 
16,953

 
16,684

 
17,292

 
 
 
 
 
 
 
 
 
 
 
 
16,669

 
17,292

DANFORTH ADVISORS, LLC13
278 Elm St Ste 228
Somerville, MA 02144
 
Revolving Loan10
 
Business services
 
L+7.25% (Floor 2.00%)
 
9/28/2023
 

 
(18
)
 

 
 
First Lien
 
 
 
L+7.25% (Floor 2.00%)/Q, Current Coupon 10.05%
 
9/28/2023
 
7,250

 
7,117

 
7,145

 
 
875 Class A equity units9
 
 
 
 
 

 
875

 
875

 
 
 
 
 
 
 
 
 
 
 
 
7,974

 
8,020

DELPHI INTERMEDIATE HEALTHCO, LLC
1901 W Cypress Creek Rd.
Ste #600
Fort Lauderdale, FL 33309
 
First Lien
 
Healthcare services
 
L+7.50% (Floor 1.00%)/Q, Current Coupon 10.23%
 
10/3/2022
 
11,400

 
11,310

 
11,023


20

TABLE OF CONTENTS

Portfolio Company1
 
Type of Investment2,14
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
DIGITAL RIVER, INC.
8000 Haskell Avenue
Van Nuys, CA 91406
 
First Lien
 
Software & IT services
 
L+6.00% (Floor 1.00%)/Q, Current Coupon 8.60%
 
2/12/2021
 
6,285

 
6,277

 
6,128

DUNN PAPER, INC.
218 Riverview St.
Port Huron, MI 48060
 
Second Lien
 
Paper & forest products
 
L+8.75% (Floor 1.00%)/M, Current Coupon 11.25%
 
8/25/2023
 
3,000

 
2,957

 
2,883

ELITE SEM, INC.8
142 W 36th Street
Floor 11
New York, NY 10018
 
First Lien
 
Media, marketing & entertainment
 
L+8.40% (Floor 1.00%)/M, Current Coupon 11.00%
 
2/1/2022
 
14,000

 
13,717

 
14,000

 
 
1,443 Investment Units (Preferred)
 
 
 
12% PIK
 
 

 
2,068

 
4,457

 
 
 
 
 
 
 
 
 
 
 
 
15,785

 
18,457

ENVIRONMENTAL PEST SERVICE MANAGEMENT COMPANY, LLC
5670 W. Cypress St.
Suite B
Tampa, FL 33607
 
First Lien
 
Consumer services
 
L+7.25%/Q, Current Coupon 10.06%
 
6/22/2023
 
16,169

 
15,921

 
16,169

 
 
Delayed Draw Term Loan10
 
 
 
L+7.25%/Q, Current Coupon 10.06%
 
6/22/2023
 
6,461

 
6,353

 
6,461

 
 
 
 
 
 
 
 
 
 
 
 
22,274

 
22,630

FAST SANDWICH, LLC
6400 Shafer Court
Suite 250
Rosemont, IL 60018
 
Revolving Loan10
 
Restaurants
 
L+9.00% (Floor 1.00%)
 
 

 
(57
)
 

 
 
First Lien
 
 
 
L+9.00% (Floor 1.00%)/Q, Current Coupon 11.80%
 
5/23/2023
 
3,238

 
3,191

 
3,190

 
 
 
 
 
 
 
 
 
 
 
 
3,134

 
3,190

JVMC HOLDINGS CORP.
222 S. Riverside Plaza
Suite 1200
Chicago, IL 60606
 
First Lien
 
Financial services
 
L+6.50% (Floor 1.00%)/M, Current Coupon 9.00%
 
2/28/2024
 
9,152

 
9,062

 
9,062

 
 
Delayed Draw Term Loan10
 
 
 
L+6.50% (Floor 1.00%)
 
2/28/2024
 

 
(7
)
 

 
 
 
 
 
 
 
 
 
 
 
 
9,055

 
9,062

LGM PHARMA, LLC13
2758 Circleport Dr.
Erlanger, KY 41018
 
First Lien
 
Healthcare products
 
L+8.50% (Floor 1.00%)/M, Current Coupon 10.99%
 
11/15/2022
 
9,875

 
9,723

 
10,073

 
 
Delayed Draw Term Loan
 
 
 
L+8.50% (Floor 1.00%)/M, Current Coupon 10.99%
 
11/15/2022
 
1,785

 
1,753

 
1,820

 
 
110,000 units of Class A common stock9
 
 
 
 
 

 
1,100

 
821

 
 
 
 
 
 
 
 
 
 
 
 
12,576

 
12,714

LIGHTING RETROFIT INTERNATIONAL, LLC
750 MD Route 3 South
Suite 19
Gambills, MD 21054
 
First Lien
 
Environmental services
 
L+9.25% (Floor 1.00%)/Q, Current Coupon 11.84%
 
6/30/2022
 
13,688

 
13,580

 
12,606

 
 
25,603 shares of Series C preferred stock
 
 
 
 
 

 
26

 
28

 
 
396,825 shares of Series B preferred stock
 
 
 
 
 

 
500

 
307

 
 
 
 
 
 
 
 
 
 
 
 
14,106

 
12,941


21

TABLE OF CONTENTS

Portfolio Company1
 
Type of Investment2,14
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
RESEARCH NOW GROUP, INC.
5800 Tennyson Parkway
Suite 600
Plano, TX 75024
 
Second Lien
 
Business services
 
L+9.50% (Floor 1.00%)/M, Current Coupon 12.00%
 
12/20/2025
 
10,500

 
9,838

 
10,437

SCRIP INC.8
360 Veterans Parkway, Suite 115 Bolingbrook, IL 60440
 
First Lien
 
Healthcare products
 
L+10.00% (Floor 2.00%)/M, Current Coupon 12.49%
 
3/21/2024
 
16,750

 
16,250

 
16,250

 
 
100 shares of common stock
 
 
 
 
 

 
1,000

 
1,000

 
 
 
 
 
 
 
 
 
 
 
 
17,250

 
17,250

TAX ADVISORS GROUP, LLC13
12400 Coit Road
Suite 1270
Dallas, TX 75251
 
143.3 Class A units9
 
Financial services
 
 
 

 
541

 
645

VISTAR MEDIA INC.
1420 Walnut Street
Philadelphia, PA 19102
 
First Lien
 
Media, marketing & entertainment
 
L+10.00% (Floor 1.00%)/M, Current Coupon 12.60%
 
2/16/2022
 
7,975

 
7,447

 
7,975

 
 
Warrants (Expiration - February 17, 2027)
 
 
 
 
 

 
886

 
2,378

 
 
 
 
 
 
 
 
 
 
 
 
8,333

 
10,353

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Non-control/Non-affiliate Investments
 
 
 
 
 
 
 
 
 
 
 
$
305,596

 
$
304,663

Affiliate Investments6
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CHANDLER SIGNS, LLC13
3201 Manor Way
Dallas, TX 75235
 
Senior subordinated debt
 
Business services
 
12.00% / 1.00% PIK
 
7/4/2021
 
$
4,557

 
$
4,512

 
$
4,480

 
 
1,500,000 units of Class A-1 common stock9
 
 
 
 
 

 
1,500

 
1,937

 
 
 
 
 
 
 
 
 
 
 
 
6,012

 
6,417

DYNAMIC COMMUNITIES, LLC13
5415 W Sligh Ave Ste 102,
Tampa, FL 33634
 
Revolving Loan10
 
Business services
 
L+8.00% (Floor 1.00%)
 
7/17/2023
 

 
(4
)
 

 
 
First Lien
 
 
 
L+8.00% (Floor 1.00%)/M, Current Coupon 10.59%
 
7/17/2023
 
11,060

 
10,863

 
10,972

 
 
2,000,000 Preferred Units9
 
 
 
 
 

 
2,000

 
2,849

 
 
 
 
 
 
 
 
 
 
 
 
12,859

 
13,821

ITA HOLDINGS GROUP, LLC13
4105 Tradewind St.
Hangar #4
Amarillo, TX 79118
 
Revolving Loan10
 
Transportation & logistics
 
L+9.00% (Floor 1.00%)/Q, 1.00% PIK, Current Coupon 12.60%
 
2/14/2023
 
2,000

 
1,960

 
2,000

 
 
First Lien - Term Loan
 
 
 
L+8.00% (Floor 1.00%)/Q, 1.00% PIK, Current Coupon 11.60%
 
2/14/2023
 
7,659

 
7,533

 
7,475

 
 
First Lien - Term B Loan
 
 
 
L+11.00% (Floor 1.00%)/Q, 1.00% PIK, Current Coupon 14.60%
 
2/14/2023
 
3,830

 
3,762

 
3,829

 
 
First Lien - PIK Note A
 
 
 
10.00% PIK
 
2/14/2023
 
2,250

 
1,692

 
2,005


22

TABLE OF CONTENTS

Portfolio Company1
 
Type of Investment2,14
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
 
 
First Lien - PIK Note B
 
 
 
10.00% PIK
 
2/14/2023
 
89

 
89

 
79

 
 
Warrants (Expiration - March 29, 2029)9
 
 
 
 
 

 
538

 
1,557

 
 
9.25% Class A Membership Interest9
 
 
 
 
 

 
1,500

 
923

 
 
 
 
 
 
 
 
 
 
 
 
17,074

 
17,868

ROSELAND MANAGEMENT, LLC
2737 S Broadway Ave Tyler, TX 75701
 
Revolving Loan10
 
Healthcare services
 
L+7.00% (Floor 2.00%)
 
11/9/2023
 

 
(32
)
 

 
 
First Lien
 
 
 
L+7.00% (Floor 2.00%)/Q, Current Coupon 9.80%
 
11/9/2023
 
10,474

 
10,302

 
10,474

 
 
10,000 Class A Units
 
 
 
 
 

 
1,000

 
1,487

 
 
 
 
 
 
 
 
 
 
 
 
11,270

 
11,961

SIMR, LLC
5360 Legacy Dr Ste 120,
Plano, TX 75024
 
First Lien
 
Healthcare services
 
L+9.00% (Floor 2.00%)/M, Current Coupon 11.62%
 
9/7/2023
 
11,542

 
11,332

 
11,403

 
 
5,724,000 Class B Common Units
 
 
 
 
 

 
5,724

 
5,724

 
 
 
 
 
 
 
 
 
 
 
 
17,056

 
17,127

ZENFOLIO INC.
3515A Edison Way
Menlo Park, CA 94025
 
Revolving Loan10
 
Business services
 
L+9.00% (Floor 1.00%)
 
7/17/2022
 

 
(13
)
 

 
 
First Lien
 
 
 
L+9.00% (Floor 1.00%)/Q, Current Coupon 11.60%
 
7/17/2022
 
13,298

 
13,119

 
13,165

 
 
190 shares of common stock
 
 
 
 
 

 
1,900

 
546

 
 
 
 
 
 
 
 
 
 
 
 
15,006

 
13,711

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Affiliate Investments
 
 
 
 
 
 
 
 
 
 
 
$
79,277

 
$
80,905

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Control Investments7
 
 
 
 
 
 
 
 
 
 
 
 
 
 
I-45 SLF LLC9,11
5400 LBJ Freeway
Suite 1300
Dallas, TX 75240
 
80% LLC equity interest
 
Multi-sector holdings
 
 
 

 
$
68,000

 
$
65,743

MEDIA RECOVERY, INC.11
510 Corporate Drive
Graham, TX 76450
 
800,000 shares of Series A convertible preferred stock
 
Industrial products
 
 
 

 
800

 
7,795

 
 
4,000,002 shares of common stock
 
 
 
 
 

 
4,615

 
44,965

 
 
 
 
 
 
 
 
 
 
 
 
5,415

 
52,760

PRISM SPECTRUM HOLDINGS, LLC13
5670 W. Cypress Street
Suite B
Tampa, FL 33607
 
First Lien
 
Environmental services
 
L+9.50% (Floor 2.25%)/M, Current Coupon 12.12%
 
2/6/2023
 
13,461

 
13,229

 
13,461

 
 
96,498.32 Class A units9
 
 
 
 
 

 
6,538

 
6,539

 
 
 
 
 
 
 
 
 
 
 
 
19,767

 
20,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Control Investments
 
 
 
 
 
 
 
 
 
 
 
93,182

 
138,503

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL INVESTMENTS12
 
 
 
 
 
 
 
 
 
 
 
$
478,055

 
$
524,071


23

TABLE OF CONTENTS

1 
All debt investments are income-producing, unless otherwise noted. Equity investments and warrants are non-income producing, unless otherwise noted.
2 
All of the Company’s investments, unless otherwise noted, are encumbered as security for the Company’s senior secured credit facility.
3 
The majority of investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“P”) and reset daily (D), monthly (M), quarterly (Q), or semiannually (S). For each the Company has provided the spread over LIBOR or Prime and the current contractual interest rate in effect at March 31, 2019. Certain investments are subject to a LIBOR or Prime interest rate floor. Certain investments, as noted, accrue payment-in-kind ("PIK") interest.
4 
The Company's investment portfolio is comprised entirely of privately held debt and equity securities for which quoted prices falling within the categories of Level 1 and Level 2 inputs are not available. Therefore, the Company values all of its portfolio investments at fair value, as determined in good faith by the Board of Directors, using significant unobservable Level 3 inputs. Refer to Note 4 for further discussion.
5 
Non-Control/Non-Affiliate investments are generally defined by the Investment Company Act of 1940 (the “1940 Act”) as investments that are neither control investments nor affiliate investments. At March 31, 2019, approximately 58.2% of the Company’s investment assets were non-control/non-affiliate investments. The fair value of these investments as a percent of net assets is 93.5%.
6 
Affiliate investments are generally defined by the 1940 Act as investments in which between 5% and 25% of the voting securities are owned and the investments are not classified as control investments. At March 31, 2019, approximately 15.4% of the Company’s investment assets were affiliate investments. The fair value of these investments as a percent of net assets is 24.8%.
7 
Control investments are generally defined by the 1940 Act as investments in which more than 25% of the voting securities are owned. At March 31, 2019, approximately 26.4% of the Company’s investment assets were control investments. The fair value of these investments as a percent of net assets is 42.5%.
8 
The investment is structured as a first lien last out term loan.
9 
Indicates assets that are considered "non-qualifying assets” under section 55(a) of the 1940 Act. Qualifying assets must represent at least 70% of total assets at the time of acquisition of any additional non-qualifying assets. As of March 31, 2019, approximately 16.1% of the Company's investment assets are non-qualifying assets.
10 
The investment has an unfunded commitment as of March 31, 2019. Refer to Note 12 - Commitments and Contingencies for further discussion.
11 
Income producing through dividends or distributions.
12 
As of March 31, 2019, the cumulative gross unrealized appreciation for federal income tax purposes is approximately $56.6 million; cumulative gross unrealized depreciation for federal income tax purposes is $11.6 million. Cumulative net unrealized appreciation is $45.0 million, based on a tax cost of $477.8 million.
13 
ASC Ortho Management Company, LLC common units, Danforth Advisors, LLC common units, American Nuts Operations LLC Class A common stock, LGM Pharma, LLC Class A common stock, Tax Advisors Group, LLC Class A units, Chandler Signs, LP Class A-1 common stock, Dynamic Communities, LLC Preferred units, ITA Holdings Group, LLC membership interest, and Prism Spectrum Holdings LLC Class A units are held through a wholly-owned taxable subsidiary.
14 
The Company generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"). These investments are generally subject to certain limitations on resale, and may be deemed "restricted securities" under the Securities Act.
15 
The investment is structured as a split lien term loan, which provides the Company with a first lien priority on certain assets of the obligor and a second lien priority on different assets of the obligor.
16 
Investment was on non-accrual status as of March 31, 2019, meaning the Company has ceased to recognize interest income on the investment.
Set forth below is a brief description of each portfolio company in which we have made an investment that represents greater than 5% of our total assets as of March 31, 2019.
I-45 SLF LLC

In September 2015, we entered into an LLC agreement with Main Street Capital to form I-45 SLF LLC. I-45 SLF LLC began investing in UMM syndicated senior secured loans during the quarter ended December 31, 2015. The initial equity capital commitment to I-45 SLF LLC totaled $85.0 million, consisting of $68.0 million from CSWC and $17.0 million from Main Street Capital, all of which was funded as of March 31, 2019.  CSWC owns 80% of I-45 SLF LLC and has a profits interest of 75.6%,

24

TABLE OF CONTENTS

while Main Street Capital owns 20% and has a profits interest of 24.4%.  I-45 SLF LLC’s Board of Managers make all investment and operational decisions for the fund, and consists of equal representation from CSWC and Main Street Capital.  
 
As of March 31, 2019 and 2018, I-45 SLF LLC had total assets of $246.5 million and $233.4 million, respectively. I-45 SLF LLC had approximately $237.5 million and $220.8 million of credit investments at fair value as of March 31, 2019 and 2018, respectively. The portfolio companies in I-45 SLF LLC are in industries similar to those in which CSWC may invest directly. As of March 31, 2019 and 2018, approximately $0.9 million and $3.2 million, respectively, of the credit investments were unsettled trades. For the years ended March 31, 2019 and 2018, I-45 SLF LLC declared total dividends of $12.4 million and $11.9 million, respectively.
Media Recovery, Inc.
Media Recovery, Inc., dba SpotSee Holdings, through its subsidiary ShockWatch, provides solutions that currently enable over 3,000 customers and some 200 partners in 62 countries to detect mishandling that causes product damage and spoilage during transport and storage. The ShockWatch product portfolio includes impact, tilt, temperature, vibration, and humidity detection systems and is widely used in the energy, transportation, aerospace, defense, food, pharmaceutical, medical device, consumer goods and manufacturing sectors.


25

TABLE OF CONTENTS

SALES OF COMMON STOCK BELOW NET ASSET VALUE
Our stockholders may from time to time vote to allow us to issue common stock at a price below the NAV per share of our common stock. In such an approval, our stockholders may not specify a maximum discount below NAV at which we are able to issue our common stock. In order to sell shares pursuant to such a stockholder authorization:

a majority of our independent directors who have no financial interest in the sale must have approved the sale; and
a majority of such directors, who are not interested persons of CSWC, in consultation with the underwriter or underwriters of the offering if it is to be underwritten, must have determined in good faith, and as of a time immediately prior to the first solicitation by us or on our behalf of firm commitments to purchase such shares or immediately prior to the issuance of such shares, that the price at which such shares are to be sold is not less than a price which closely approximates the market value of those shares, less any underwriting commission or discount.
Any offering of common stock below NAV per share will be designed to raise capital for investment in accordance with our investment objectives and business strategies.
In making a determination that an offering below NAV per share is in our and our stockholders’ best interests, our board of directors would consider a variety of factors including:
The effect that an offering below NAV per share would have on our stockholders, including the potential dilution they would experience as a result of the offering;
The amount per share by which the offering price per share and the net proceeds per share are less than the most recently determined NAV per share;
The relationship of recent market prices of our common stock to NAV per share and the potential impact of the offering on the market price per share of our common stock;
Whether the proposed offering price would closely approximate the market value of our shares;
The potential market impact of being able to raise capital during the current financial market difficulties;
The nature of any new investors anticipated to acquire shares in the offering;
The anticipated rate of return on and quality, type and availability of investments to be funded with the proceeds from the offering, if any; and
The leverage available to us, both before and after any offering, and the terms thereof.
Sales by us of our common stock at a discount from NAV pose potential risks for our existing stockholders whether or not they participate in the offering, as well as for new investors who participate in the offering.
The following three headings and accompanying tables will explain and provide hypothetical examples on the impact of an offering at a price less than NAV per share on three different sets of investors:
existing stockholders who do not purchase any shares in the offering;
existing stockholders who purchase a relatively small amount of shares in the offering or a relatively large amount of shares in the offering; and
new investors who become stockholders by purchasing shares in the offering.

Impact on Existing Stockholders who do not Participate in the Offering
Our existing stockholders who do not participate in an offering below NAV per share or who do not buy additional shares in the secondary market at the same or lower price we obtain in the offering (after expenses and commissions) face the greatest potential risks. These stockholders will experience an immediate decrease (often called dilution) in the NAV of the shares they hold and their NAV per share. These stockholders will also experience a disproportionately greater decrease in their participation in our earnings and assets and their voting power than the increase we will experience in our assets, potential earning power and voting

26

TABLE OF CONTENTS

interests due to the offering. These stockholders may also experience a decline in the market price of their shares, which often reflects to some degree announced or potential decreases in NAV per share. This decrease could be more pronounced as the size of the offering and level of discount to NAV increases.
The following table illustrates the level of NAV dilution that would be experienced by a nonparticipating stockholder in four different hypothetical offerings of different sizes and levels of discount from NAV per share. Actual sales prices and discounts may differ from the presentation below.
The examples assume that Company XYZ has 1,000,000 common shares outstanding, $15,000,000 in total assets and $5,000,000 in total liabilities. The current NAV and NAV per share are thus $10,000,000 and $10.00, respectively. The table illustrates the dilutive effect on nonparticipating Stockholder A of (1) an offering of 50,000 shares (5% of the outstanding shares) at $9.50 per share after offering expenses and commissions (a 5% discount from NAV), (2) an offering of 100,000 shares (10% of the outstanding shares) at $9.00 per share after offering expenses and commissions (a 10% discount from NAV) and (3) an offering of 250,000 shares (25% of the outstanding shares) at $8.00 per share after offering expenses and commissions (a 20% discount from NAV). The prospectus supplement pursuant to which any discounted offering is made will include a chart based on the actual number of shares in such offering and the actual discount to the most recently determined NAV.

27

TABLE OF CONTENTS

 
 
 
 
Example 1
5% Offering at 5% Discount
 
Example 2
10% Offering at 10% Discount
 
Example 2
10% Offering at 10% Discount
 
 
Prior to Sale Below NAV
 
Following Sale
% Change
 
Following Sale
% Change
 
Following Sale
% Change
Offering Price
 
 
 
 
 
 
 
 
 
 
 
Price per Share to Public(1)
 
 
 
$
10.00

 
 
$
9.47

 
 
$
8.42

 
Net Proceeds per Share to Issuer
 
 
 
$
9.50

 
 
$
9.00

 
 
$
8.00

 
Increase in Shares and Decrease to NAV
 
 
 
 
 
 
 
 
 
 
 
Total Shares Outstanding
 
1,000,000

 
1,050,000

5.00
 %
 
1,100,000

10.00
 %
 
1,250,000

25.00
 %
NAV per Share
 
$
10.00

 
$
9.98

(0.24
)%
 
$
9.91

(0.91
)%
 
$
9.60

(4.00
)%
Dilution to Nonparticipating Stockholder A
 
 
 
 
 
 
 
 
 
 
 
Share Dilution
 
 
 
 
 
 
 
 
 
 
 
Shares Held by Stockholder A
 
10,000

 
10,000

 
 
10,000

 
 
10,000

 
Percentage Outstanding Held by Stockholder A
 
1.00
%
 
0.95
%
(4.76
)%
 
0.91
%
(9.09
)%
 
0.80
%
(20.00
)%
NAV Dilution
 
 
 
 
 
 
 
 
 
 
 
Total NAV Held by Stockholder A
 
$
100,000

 
$
99,762

(0.24
)%
 
$
99,091

(0.91
)%
 
$
96,000

(4.00
)%
Total Investment by Stockholder A (Assumed to be $10 per Share)
 
$
100,000

 
$
100,000

 
 
$
100,000

 
 
$
100,000

 
Total Dilution to Stockholder A (Total NAV Less Total Investment)
 
$

 
$
(238
)
 
 
$
(909
)
 
 
$
(4,000
)
 
NAV Dilution per Share
 
 
 
 
 
 
 
 
 
 
 
NAV per Share Held by Stockholder A
 
 
 
$
9.98

 
 
$
9.91

 
 
$
9.60

 
Investment per Share Held by Stockholder A (Assumed to be $10 per SHare on Shares Held Prior to Sale)
 
$
10.00

 
$
10.00

 
 
$
10.00

 
 
$
10.00

 
NAV Dilution per Share Experienced by Stockholder A (NAV per Share Less Investment per Share)
 
 
 
$
(0.02
)
 
 
$
(0.09
)
 
 
$
(0.40
)
 
Percentage NAV Dilution per Share Experienced by Stockholder A (NAV Dilution per Share Divided by Investment per Share)
 
 
 
 
(0.24
)%
 
 
(0.91
)%
 
 
(4.00
)%
(1)
Assumes 5% in selling compensation and expenses paid by us
Impact on Existing Stockholders who do Participate in the Offering
Our existing stockholders who participate in an offering below NAV per share or who buy additional shares in the secondary market at the same or lower price as we obtain in the offering (after expenses and commissions) will experience the same types of NAV dilution as the nonparticipating stockholders, albeit at a lower level, to the extent they purchase less than the same percentage of the discounted offering as their interest in our shares immediately prior to the offering. The level of NAV dilution to such stockholders will decrease as the number of shares such stockholders purchase increases. Existing stockholders who buy more than their proportionate percentage will experience NAV dilution but will, in contrast to existing stockholders who purchase less than their proportionate share of the offering, experience an increase (often called accretion) in NAV per share over their investment per share and will also experience a disproportionately greater increase in their participation in our earnings and assets and their voting power than our increase in assets, potential earning power and voting interests due to the offering. The level of accretion will increase as the excess number of shares purchased by such stockholder increases. Even a stockholder who over-participates will, however, be subject to the risk that we may make additional discounted offerings in which such stockholder does not participate,

28

TABLE OF CONTENTS

in which case such a stockholder will experience NAV dilution as described above in such subsequent offerings. These stockholders may also experience a decline in the market price of their shares, which often reflects to some degree announced or potential decreases in NAV per share. This decrease could be more pronounced as the size of the offering and the level of discount to NAV increases.
The following chart illustrates the level of dilution and accretion in the hypothetical 25% offering at a 20% discount from the prior chart (Example 3) for a stockholder that acquires shares equal to (1) 50% of its proportionate share of the offering (i.e., 1,250 shares, which is 0.5% of an offering of 250,000 shares rather than its 1.0% proportionate share) and (2) 150% of such percentage (i.e., 3,750 shares, which is 1.5% of an offering of 250,000 shares rather than its 1.0% proportionate share). The prospectus supplement pursuant to which any discounted offering is made will include a chart for this example based on the actual number of shares in such offering and the actual discount from the most recently determined NAV per share.
 
 
 
 
50% Participation
 
150% Participation
 
 
Prior to Sale Below NAV
 
Following Sale
% Change
 
Following Sale
% Change
Offering Price
 
 
 
 
 
 
 
 
Price per Share to Public(1)
 
 
 
$
8.42

 
 
$
8.42

 
Net Proceeds per Share to Issuer
 
 
 
$
8.00

 
 
$
8.00

 
Increase in Shares and Decrease to NAV
 
 
 
 
 
 
 
 
Total Shares Outstanding
 
1,000,000

 
1,250,000

25.00
 %
 
1,250,000

25.00
 %
NAV per Share
 
$
10.00

 
$
9.60

(4.00
)%
 
$
9.60

(4.00
)%
Dilution to Nonparticipating Stockholder A
 
 
 
 
 
 
 
 
Share Dilution
 
 
 
 
 
 
 
 
Shares Held by Stockholder A
 
10,000

 
11,250

12.50
 %
 
13,750

37.50
 %
Percentage Outstanding Held by Stockholder A
 
1.00
%
 
0.90
%
(10.00
)%
 
1.10
%
10.00
 %
NAV Dilution
 
 
 
 
 
 
 
 
Total NAV Held by Stockholder A
 
$
100,000

 
$
108,000

8.00
 %
 
$
132,000

32.00
 %
Total Investment by Stockholder A (Assumed to be $10 per Share)
 
$
100,000

 
$
110,525

 
 
$
131,575

 
Total Dilution to Stockholder A (Total NAV Less Total Investment)
 
$

 
$
(2,525
)
 
 
$
425

 
NAV Dilution per Share
 
 
 
 
 
 
 
 
NAV per Share Held by Stockholder A
 
 
 
$
9.60

 
 
$
9.60

 
Investment per Share Held by Stockholder A (Assumed to be $10 per SHare on Shares Held Prior to Sale)
 
$
10.00

 
$
9.82

(1.76
)%
 
$
9.57

(4.31
)%
NAV Dilution per Share Experienced by Stockholder A (NAV per Share Less Investment per Share)
 
 
 
$
(0.22
)
 
 
$
0.03

 
Percentage NAV Dilution per Share Experienced by Stockholder A (NAV Dilution per Share Divided by Investment per Share)
 
 
 
 
(2.28
)%
 
 
0.32
 %
(1)
Assumes 5% in selling compensation and expenses paid by us
Impact on New Investors
Investors who are not currently stockholders, but who participate in an offering below NAV and whose investment per share is greater than the resulting NAV per share due to selling compensation and expenses paid by us will experience an immediate decrease, albeit small, in the NAV of their shares and their NAV per share compared to the price they pay for their shares (Example 1 below). On the other hand, investors who are not currently stockholders, but who participate in an offering below NAV per share and whose investment per share is also less than the resulting NAV per share will experience an immediate increase in the NAV of their shares and their NAV per share compared to the price they pay for their shares (Examples 2 and 3 below). These latter investors will experience a disproportionately greater participation in our earnings and assets and their voting power than our increase in assets, potential earning power and voting interests. These investors will, however, be subject to the risk that we may make additional discounted offerings in which such new stockholder does not participate, in which case such new stockholder will experience dilution as described above in such subsequent offerings. These investors may also experience a decline in the

29

TABLE OF CONTENTS

market price of their shares, which often reflects to some degree announced or potential decreases in NAV per share. This decrease could be more pronounced as the size of the offering and level of discount to NAV increases.
 
The following chart illustrates the level of dilution or accretion for new investors that would be experienced by a new investor in the same hypothetical discounted offerings as described in the first chart above. The illustration is for a new investor who purchases the same percentage (1.00%) of the shares in the offering as Stockholder A in the prior examples held immediately prior to the offering. The prospectus supplement pursuant to which any discounted offering is made will include a chart for these examples based on the actual number of shares in such offering and the actual discount from the most recently determined NAV per share.
 
 
 
 
Example 1
5% Offering at 5% Discount
 
Example 2
10% Offering at 10% Discount
 
Example 2
10% Offering at 10% Discount
 
 
Prior to Sale Below NAV
 
Following Sale
% Change
 
Following Sale
% Change
 
Following Sale
% Change
Offering Price
 
 
 
 
 
 
 
 
 
 
 
Price per Share to Public(1)
 
 
 
$
10.00

 
 
$
9.47

 
 
$
8.42

 
Net Proceeds per Share to Issuer
 
 
 
$
9.50

 
 
$
9.00

 
 
$
8.00

 
Increase in Shares and Decrease to NAV
 
 
 
 
 
 
 
 
 
 
 
Total Shares Outstanding
 
1,000,000

 
1,050,000

5.00
 %
 
1,100,000

10.00
 %
 
1,250,000

25.00
 %
NAV per Share
 
$
10.00

 
$
9.98

(0.24
)%
 
$
9.91

(0.91
)%
 
$
9.60

(4.00
)%
Dilution to Nonparticipating Stockholder A
 
 
 
 
 
 
 
 
 
 
 
Share Dilution
 
 
 
 
 
 
 
 
 
 
 
Shares Held by Stockholder A
 

 
500

 
 
1,000

 
 
2,500

 
Percentage Outstanding Held by Stockholder A
 
%
 
0.05
%
 
 
0.09
%
 
 
0.20
%
 
NAV Dilution
 
 
 
 
 
 
 
 
 
 
 
Total NAV Held by Stockholder A
 
$

 
$
4,988

 
 
$
9,909

 
 
$
24,000

 
Total Investment by Stockholder A (Assumed to be $10 per Share)
 
$

 
$
5,000

 
 
$
9,470

 
 
$
21,050

 
Total Dilution to Stockholder A (Total NAV Less Total Investment)
 
$

 
$
(12
)
 
 
$
439

 
 
$
2,950

 
NAV Dilution per Share
 
 
 
 
 
 
 
 
 
 
 
NAV per Share Held by Stockholder A
 
 
 
$
9.98

 
 
$
9.91

 
 
$
9.60

 
Investment per Share Held by Stockholder A (Assumed to be $10 per Share on Shares Held Prior to Sale)
 
 
 
$
10.00

 
 
$
9.47

 
 
$
8.42

 
NAV Dilution per Share Experienced by Stockholder A (NAV per Share Less Investment per Share)
 
 
 
$
(0.02
)
 
 
$
0.44

 
 
$
1.18

 
Percentage NAV Dilution per Share Experienced by Stockholder A (NAV Dilution per Share Divided by Investment per Share)
 
 
 
 
(0.20
)%
 
 
4.64
 %
 
 
14.01
 %
(1)
Assumes 5% in selling compensation and expenses paid by us




30

TABLE OF CONTENTS

DIVIDEND REINVESTMENT PLAN
We have adopted a DRIP that provides for the reinvestment of dividends on behalf of our registered stockholders who hold their shares with American Stock Transfer and Trust Company, LLC, the plan administrator and our transfer agent and registrar. As a result, if we declare a cash dividend, our registered stockholders who have “opted in” to our DRIP by the dividend record date will have their cash dividend automatically reinvested into additional shares of our common stock.
In addition to reinvestment of dividends, participating stockholders have the option of purchasing additional shares of common stock on a periodic basis through our DRIP. A participating stockholder may elect to invest from $100 to $10,000 in any calendar month into the plan by sending occasional cash payments or by authorizing monthly automatic cash withdrawals from the participants checking, savings or other bank accounts.
In order to participate in the DRIP, a holder of record of 25 or more shares must sign and return an authorization form to the plan administrator.
The share requirements of our DRIP may be satisfied through open market purchases of common stock by the plan administrator. Shares purchased in the open market to satisfy the DRIP requirements will be valued based upon the average price of the applicable shares purchased by the plan administrator, before any associated brokerage or other costs.
Participants in the DRIP will only pay their share of brokerage costs. We will pay the plan administrator’s fees under the plan.
Stockholders who receive dividends in the form of stock generally are subject to the same U.S. federal, state and local tax consequences as are stockholders who elect to receive their dividends in cash. A stockholder’s basis for determining gain or loss upon the sale of stock received in a dividend from us will be equal to the total dollar amount of the dividend payable to the stockholder. Any stock received in a dividend will have a holding period for tax purposes commencing on the day following the day on which the shares are credited to the U.S. stockholder’s account.
Participants may terminate their accounts under the plan by notifying the plan administrator via its website at www.amstock.com, by filling out the transaction request form located at the bottom of their statement and sending it to the plan administrator at American Stock Transfer & Trust Company, LLC, Dividend Reinvestment Dept., Wall Street Station, P.O. Box 922, New York, NY 10269-0560 or by calling the plan administrators at (888) 666-0141. If notice of termination is received less than five (5) business days before a dividend record date, the plan administrator may not be able to process participant’s notice until after the reinvestment of that dividend.
We may terminate the plan upon notice in writing mailed to each participant at least 30 days prior to any record date for the payment of any dividend by us. All correspondence concerning the plan should be directed to the plan administrator by mail at American Stock Transfer & Trust Company, LLC, Dividend Reinvestment Dept., Wall Street Station, P.O. Box 922, New York, NY 10269-0560 or by telephone at (888) 666-0141.


31

TABLE OF CONTENTS

DESCRIPTION OF COMMON STOCK
The following description is based on relevant portions of the Texas Business Organizations Code, or TBOC, and our articles of incorporation, as amended, which we refer to as our charter, and our amended and restated bylaws, as amended, which we refer to as our bylaws. This summary may not contain all of the information that is important to you, and we refer you to the TBOC, our charter and bylaws for a more detailed description of the provisions summarized below. We urge you to read the applicable prospectus supplement and any related free writing prospectus that we may authorize to be provided to you related to any shares of our capital stock being offered.
Authorized Capital Stock
Our authorized capital stock consists of 25,000,000 shares of common stock, par value $0.25 per share. Set forth below is a chart describing the classes of our common stock outstanding as of June 27, 2019:

(1)
 
(2)
 
(3)
 
(4)
Title of Class