Capital Southwest: Files Proxy
Capital Southwest Corporation (CSWC) filed its Definitive Proxy Statement on June 16, 2017, in advance of its annual shareholders meeting to be held in August. The BDC News Of The Day had already reviewed the preliminary Proxy in great detail on May 12th. However, there are two items that CSWC shareholders may want to note:
LETTER
Chief Executive Officer Bowen Diehl penned a “Letter To Shareholders” dated June 16, and which serves as a useful summary of the “new” BDC’s year-in-review and the strategy going forward. See the first SEC filing above. Regarding the latter, Mr Diehl explained how CSWC can be both oriented towards both the upper middle market and lower middle market at the same time. However, in the long run, CSWC’s orientation is to book lower middle market loans and equity investments, in a strategy partly reminiscent of what Main Street Capital (MAIN) has been successfully doing for a decade on a much bigger scale. (MAIN and CSWC – in an ironic twist – are partners in a JV, but focused on loans to larger sized companies and with no equity exposure).
TABLE
One of the main issues on this year’s ballot is getting shareholder approval to switch from a Texas jurisdiction to a Maryland one. The BDC Reporter discussed the subject in great detail in the last discussion of the CSCWC Proxy, mentioned above. Then as now we point out that the proposed switch in jurisdiction and the changes to the BDC’s charter are not all as “shareholder friendly” as Mr Diehl’s letter and the Proxy materials would have one to understand, but may be better than the Maryland standard – not a high bar. In any case, one of the disclosures is a table which shows that a number of changes to shareholder rights that are to occur under the switch to Maryland have altered from the preliminary Proxy, and are updated in the final version.See the second SEC filing above.
From a BDC Activist point of view, less “friendly” is that stockholders with at least 25% of the shares outstanding have to band together to call a “Special Shareholders Meeting”. The current Texas standard is 10%, but the standard Maryland requirement is a majority. So one step back and one step forward.
If as a shareholder you wanted to submit a proposal or suggest a director, the Texas charter is mute as to when and how to proceed. Maryland gives a 120–150 day window. The CSWC language is 90-120 days.
A plus for shareholders (albeit likely never to be utilized) is that errant directors can be removed by shareholders holding a majority of the shares versus two-thirds as per Texas and Maryland.
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Governance Provision
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Current CSWC
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CSWC Maryland Charter Proposed in Preliminary Proxy Statement
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CSWC Maryland Charter Proposed in Definitive Proxy Statement
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Director Elections
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CSWC’s directors are elected by a plurality of all votes cast.
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Same as CSWC Texas Charter.
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In uncontested elections, a director will be elected by the affirmative vote of a majority of all votes cast. In contested elections, directors will be elected by a plurality of the votes cast.
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Removal of Directors
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CSWC’s directors may only be removed for cause with the vote of holders of two-thirds of outstanding shares.
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Same as CSWC Texas Charter.
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CSWC’s directors may only be removed for cause with the vote of holders of a majority of outstanding shares.
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Special Meeting of Shareholders
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Stockholders holding at least 10% of the shares entitled to be cast may call a special stockholder meeting.
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Stockholders holding at least a majority of the shares entitled to be cast may call a special stockholder meeting.
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Stockholders holding at least 25% of the shares entitled to be cast may call a special stockholder meeting.
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Advance Notice Bylaw
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None.
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Shareholders must submit proposals or director nominees to CSWC Maryland no more than 150 days and no less than 120 days prior to the anniversary date of the prior year’s annual proxy mailing date.
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Shareholders must submit proposals or director nominees to CSWC Maryland no more than 120 days and no less than 90 days prior to the anniversary date of the prior year’s annual proxy mailing date. |
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