--------------------------------------------------------------------------------

Exhibit 10.2
 
Amended And Restated
EMPLOYEE MATTERS AGREEMENT

BY AND BETWEEN

CAPITAL SOUTHWEST CORPORATION

AND

CSW INDUSTRIALS, INC.

DATED AS OF SEPTEMBER 4, 2015
 

--------------------------------------------------------------------------------

TABLE OF CONTENTS

Page
ARTICLE I
DEFINITIONS
1
           
Section 1.1
 
Definitions
1
 
Section 1.2
 
Reference; Interpretation
5
         
ARTICLE II
GENERAL PRINCIPLES FOR ALLOCATION OF LIABILITIES
6
           
Section 2.1
 
General Principles
6
 
Section 2.2
 
Service Credit
7
 
Section 2.3
 
Transferring Employees
8
 
Section 2.4
 
Collective Bargaining
8
 
Section 2.5
 
Non-U.S. Regulatory Compliance
8
         
ARTICLE III
EQUITY, INCENTIVE AND EXECUTIVE COMPENSATION
8
           
Section 3.1
 
Generally
8
 
Section 3.2
 
Equity Incentive Awards
9
 
Section 3.3
 
Capital Southwest Incentive Awards
11
         
ARTICLE IV
QUALIFIED RETIREMENT PLANS
13
           
Section 4.1
 
The Retirement Plan
13
 
Section 4.2
 
401(k) Plans
13
 
Section 4.3
 
ESOP
13
         
ARTICLE V
NONQUALIFIED DEFERRED COMPENSATION PLANS
14
           
Section 5.1
 
The Restoration Plan
14
 
Section 5.2
 
The Executive Compensation Plan
15
         
ARTICLE VI
WELFARE PLANS
15
           
Section 6.1
 
CSWI Assumption
15
 
Section 6.2
 
Establishment of Capital Southwest Health and Welfare Plans
15
 
Section 6.3
 
Welfare Transition Period
15
 
Section 6.4
 
COBRA
16
 
Section 6.5
 
Vacation, Holidays and Leaves of Absence
16
 
Section 6.6
 
Severance and Unemployment Compensation
16
 
Section 6.7
 
Workers’ Compensation
16
         
ARTICLE VII
Non-U.S. Employees
17
           
Section 7.1
 
Treatment of Non-U.S. Employees
17
         
ARTICLE VIII
MISCELLANEOUS
17
           
Section 8.1
 
At-Will Status
17
 
Section 8.2
 
Severance
17
 
Section 8.3
 
Change in Control
17
 
Section 8.4
 
Employee Records
17
 
Section 8.5
 
Preservation of Rights to Amend
18
 
Section 8.6
 
Fiduciary Matters
19
 
Section 8.7
 
Complete Agreement; Construction
19
 
Section 8.8
 
Counterparts
19
 
Section 8.9
 
Survival of Agreements
19

 
i

--------------------------------------------------------------------------------

TABLE OF CONTENTS
(cont.)
 
Page

 
Section 8.10
 
Notices
19
 
Section 8.11
 
Waivers
20
 
Section 8.12
 
Amendments
20
 
Section 8.13
 
Assignment
20
 
Section 8.14
 
Successors and Assigns
20
 
Section 8.15
 
Termination
20
 
Section 8.16
 
Third Party Beneficiaries
20
 
Section 8.17
 
Title and Headings
20
 
Section 8.18
 
Governing Law
20
 
Section 8.19
 
Waiver of Jury Trial
21
 
Section 8.20
 
Specific Performance
21
 
Section 8.21
 
Severability
21

ii

--------------------------------------------------------------------------------

EMPLOYEE MATTERS AGREEMENT

This Amended and Restated Employee Matters Agreement, dated as of September 14,
2015 (the “Agreement”), is by and between Capital Southwest Corporation, a Texas
corporation (“Capital Southwest”), and CSW Industrials, Inc., a Delaware
corporation (“CSWI,” and together with Capital Southwest, the “Parties”).

WHEREAS, the Board of Directors of Capital Southwest (the “Capital Southwest
Board”) has determined that it is in the best interests of Capital Southwest and
its shareholders to separate the CSWI Businesses from Capital Southwest’s other
businesses;

WHEREAS, in furtherance of the foregoing, the Capital Southwest Board has
authorized the distribution to the holders of the issued and outstanding shares
of common stock, par value $0.25 per share, of Capital Southwest (the “Capital
Southwest Shares”) as of the Record Date of all the issued and outstanding
shares of common stock, par value $0.01 per share, of CSWI (each such share is
individually referred to as a “CSWI Share” and collectively referred to as the
“CSWI Shares”), respectively, on the basis of one CSWI Share for every share of
Capital Southwest Shares (the “Share Distribution”);

WHEREAS, in order to effect the Share Distribution, Capital Southwest and CSWI
have entered into a Distribution Agreement, dated as of September 8, 2015 (the
“Distribution Agreement”); and

WHEREAS, in addition to the matters addressed by the Distribution Agreement, the
Parties desire to enter into this Agreement to set forth the terms and
conditions of certain employment, compensation and benefit matters.

NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties intending to be legally bound, hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1                          Definitions.   For purposes of this
Agreement, the following terms shall have the meanings set forth below. 
Capitalized terms used in this Agreement but not otherwise defined herein shall
have the meanings ascribed to them in the Distribution Agreement.

“Agreement” has the meaning set forth in the preamble to this Agreement and
shall include all Schedules hereto and all amendments, modifications, and
changes hereto.

“Benefit Plan” means any contract, agreement, policy, practice, program, plan,
trust, commitment or arrangement providing for benefits, perquisites or
compensation of any nature from an employer to any Employee, or to any family
member, dependent, or beneficiary of any such Employee, including pension plans,
thrift plans, supplemental pension plans and welfare plans, and contracts,
agreements, policies, practices, programs, plans, trusts, commitments, and
arrangements providing for terms of employment, fringe benefits, severance
benefits, change in control protections or benefits, travel and accident, life,
accidental death and dismemberment, disability and accident insurance, tuition
reimbursement, travel and reimbursement, vacation, sick, personal or bereavement
days, leaves of absences and holidays; provided, however, the term “Benefit
Plan” does not include any governmental-sponsored benefits, such as workers’
compensation, unemployment or similar plans, programs or policies.
 

--------------------------------------------------------------------------------

“Capital Southwest” has the meaning set forth in the preamble to this Agreement.

“Capital Southwest Awards” means Capital Southwest Options, Capital Southwest
Restricted Stock Awards and Capital Southwest Incentive Awards, collectively.

“Capital Southwest Board” has the meaning set forth in the recitals to this
Agreement.

“Capital Southwest Change of Control” has the meaning set forth in Section
3.2(c).

“Capital Southwest Companies” means Capital Southwest and its Subsidiaries other
than CSWI and the CSWI Companies.

“Capital Southwest Company Employee” means any employee of a Capital Southwest
Company that is not a CSWI Company Employee.

“Capital Southwest Compensation Committee” means the Compensation Committee of
the Capital Southwest Board.

“Capital Southwest Equity Plan” means any equity compensation plan sponsored or
maintained by Capital Southwest immediately prior to the Distribution Date,
including the Capital Southwest Corporation 1999 Stock Option Plan, the Capital
Southwest Corporation 2009 Stock Incentive Plan, as amended, and the Capital
Southwest Corporation 2010 Restricted Stock Award Stock Plan, as amended.

“Capital Southwest Incentive Awards” means those cash incentive awards listed on
Schedule 1.1 which were granted pursuant to a phantom stock option agreement
entered into with Capital Southwest that are outstanding as of immediately prior
to the Distribution Date.

“Capital Southwest Option” means an option to purchase Capital Southwest Shares
granted pursuant to a Capital Southwest Equity Plan that is outstanding as of
immediately prior to the Distribution Date.

“Capital Southwest Ratio” means the quotient obtained by dividing the Capital
Southwest Share Value by the Post-Separation Capital Southwest Share Value.

“Capital Southwest Restricted Stock Award” means a restricted stock award
granted pursuant to a Capital Southwest Equity Plan that is outstanding as of
immediately prior to the Distribution Date.

“Capital Southwest Shares” has the meaning set forth in the recitals to this
Agreement.

2

--------------------------------------------------------------------------------

“Capital Southwest Share Value” means the simple average of the volume weighted
average per-share price of Capital Southwest Shares trading “regular way with
due bills” on NASDAQ during each of the last ten full Trading Sessions
immediately prior to the Distribution Date.

“Capital Southwest Welfare Plans” means the group health and welfare insurance
benefit plans established by the Capital Southwest Companies pursuant to Section
6.d.

“Capital Southwest 401(k) Plan” means the Capital Southwest Management
Corporation Employee Savings Plan, as effective following the Distribution Date.

“COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985.

“Code” means the Internal Revenue Code of 1986, as amended.

“CSWI” has the meaning set forth in the preamble to this Agreement.

“CSWI Awards” means CSWI Options and CSWI Restricted Stock Awards, collectively.

“CSWI Benefit Plans” means any Benefit Plan established, sponsored or maintained
by CSWI or a CSWI Company.

“CSWI Change of Control” has the meaning set forth in Section 3.2(c).

“CSWI Company Employees” means any employee of CSWI or a CSWI Company and all
Transferring Employees.

“CSWI Compensation and Benefit Liability” has the meaning set forth in Section
2.1(a).

“CSWI Equity Plan” means the CSWI 2015 Equity and Incentive Compensation Plan.

“CSWI Option” means an option to purchase CSWI Shares granted by CSWI pursuant
to the CSWI Equity Plan in accordance with Section 3.2(b).

“CSWI Shares” has the meaning set forth in the recitals to this Agreement.

“CSWI Ratio” means the quotient obtained by dividing the Capital Southwest Share
Value by the CSWI Share Value.

“CSWI Restoration Plan” has the meaning set forth in Section 5.1.

“CSWI Restricted Stock Award” means a restricted stock award granted pursuant to
the CSWI Equity Plan in accordance with Section 3.2(a).

“CSWI Share Value” means the simple average of the volume weighted average
per-share price of CSWI Shares trading on NASDAQ during each of the first ten
full Trading Sessions immediately after the Distribution Date.
 

3

--------------------------------------------------------------------------------

“CSWI 401(k) Plan” means the Balco, Inc. Profit Sharing 401(k) Plan as effective
on the Distribution Date, which shall include the assets and account balances
merged into such plan from the Strathmore Products, Inc. 401(k) Profit Sharing
Plan.

“Distribution Agreement” has the meaning set forth in the recitals to this
Agreement.

“DOL” means the U.S. Department of Labor.

“Employee” means any Capital Southwest Company Employee or CSWI Company
Employee.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“ESOP” means the CSW Industrials, Inc. Employee Stock Ownership Plan, as
effective on the Distribution Date, and as amended from time to time.

“ESOP Asset Transfer Date” has the meaning set forth in Section 4.3(a).

“Executive Compensation Plan” means the executive compensation plan consisting
of nonqualified stock options, restricted stock and cash incentive awards
adopted by Capital Southwest on August 28, 2014.

“Former Capital Southwest Company Employee” means any individual who as of the
Distribution Date is not a Capital Southwest Company Employee or a CSWI Company
Employee, but who previously was, as between the Capital Southwest Companies,
CSWI and the CSWI Companies, most recently employed by one of the Capital
Southwest Companies.

“Former CSWI Company Employee” means any individual who as of the Distribution
Date is not a Capital Southwest Company Employee or a CSWI Company Employee, but
who previously was, as between the Capital Southwest Companies, CSWI and the
CSWI Companies, most recently employed by CSWI or one of the CSWI Companies.

“Former Employee” means any Former Capital Southwest Company Employee or Former
CSWI Company Employee.

“IRS” means the U.S. Internal Revenue Service.

“Parties” has the meaning set forth in the preamble to this Agreement.

“PBGC” means the U.S. Pension Benefit Guaranty Corporation.

“Post-Separation Capital Southwest Awards” means Post-Separation Capital
Southwest Options and Post-Separation Capital Southwest Restricted Stock Awards,
collectively.

“Post-Separation Capital Southwest Option” means a Capital Southwest Option
adjusted as of the Distribution Date in accordance with Section 3.2(b).

“Post-Separation Capital Southwest Restricted Stock Award” means a Capital
Southwest Restricted Stock Award adjusted as of the Distribution Date in
accordance with Section 3.2(a).
 

4

--------------------------------------------------------------------------------

“Post-Separation Capital Southwest Share Value” means the simple average of the
volume weighted average per-share price of Capital Southwest Shares trading on
NASDAQ during each of the first ten full Trading Sessions immediately after the
Distribution Date.

“Restoration Plan” means the Capital Southwest and its Affiliates 2009
Restoration of Retirement Income Plan, as amended and restated effective January
1, 2008, and as amended from time to time.

“Retirement Plan” means the Retirement Plan for Employees of Capital Southwest
Corporation and its Affiliates, as amended and restated effective April 1, 2011,
as amended from time to time.

“Securities Act” means the U.S. Securities Act of 1933.

“Share Distribution” has the meaning set forth in the recitals to this
Agreement.

“Share Value Factor” means the quotient obtained by dividing (a) the Capital
Southwest Share Value by (b) the sum of (i) the CSWI Share Value and (ii) the
Post-Separation Capital Southwest Share Value.

“Trading Session” means the period of time during any given calendar day,
commencing with the determination of the opening price on NASDAQ and ending with
the determination of the closing price on NASDAQ, in which trading in Capital
Southwest Shares or CSWI Shares (as applicable) is permitted on NASDAQ.

“Transferring Employees” has the meaning set forth in Section 2.3(a).

“U.S.” means the United States of America.

“Welfare Plans” means the group health and welfare insurance benefits included
on Schedule 1.2.

“Welfare Transition Period” means the period commencing on the Distribution Date
and ending on the date that the Capital Southwest Company Employees and (if
applicable) the Former Capital Southwest Company Employees begin participation
in the newly formed Capital Southwest Welfare Plans; provided, however, that in
no event will the Welfare Transition Period continue after December 31, 2015.

“401(k) Plans” means the Capital Southwest 401(k) Plan and the CSWI 401(k) Plan.

Section 1.2                          Reference; Interpretation.  Unless the
context requires otherwise, (a) all references to Sections, Articles or
Schedules are to the Sections, Articles or Schedules of or to this Agreement,
(b) each accounting term not otherwise defined in this Agreement has the meaning
commonly applied to it in accordance with United States generally accepted
accounting principles, consistently applied, and as in effect on the date of
this Agreement, (c) words in the singular include the plural and vice versa, (d)
all references to $ or dollar amounts will be to lawful currency of the U.S.,
(e) to the extent the term “day” or “days” is used, it will mean calendar days
unless Business Days are specified, (f) the pronoun “his” refers to the
masculine, feminine and neuter, the words “herein,” “hereby,” “hereof,”
“hereunder” and other words of similar import refer to this Agreement as a whole
and not to any particular Section, Article or other subdivision, (g) the term
“including” means “including without limitation,” (h) the term “or” will be
disjunctive but not exclusive, (i) the term “extent” in the phrase “to the
extent” means the degree to which a subject or other thing extends, and such
phrase will not mean simply “if,” and (j) any reference to any contract or Law
is a reference to it as amended, modified and supplemented from time to time
(and, in the case of a Law, to (i) any successor provision and (ii) the rules
and regulations promulgated thereunder).  This Agreement shall not be construed
against either Party as the principal draftsperson hereof or thereof.
 

5

--------------------------------------------------------------------------------

ARTICLE II

GENERAL PRINCIPLES FOR ALLOCATION OF LIABILITIES

Section 2.1                          General Principles.  Unless otherwise
provided herein, Liabilities in respect of Employees and Former Employees for
compensation, wages and employee benefits shall be allocated among Capital
Southwest and CSWI according to this Section 2.1.

(a)                 Acceptance and Assumption of CSWI Compensation and Benefit
Liabilities.  On or prior to the Distribution Date, but in any case prior to the
Share Distribution, CSWI shall retain, assume and agree, as applicable, to
faithfully perform, discharge and fulfill the following Liabilities in
accordance with their respective terms (each of which shall be considered a
“CSWI Compensation and Benefit Liability”), regardless of when or where such
Liabilities arose or arise, or whether the facts on which they are based
occurred prior to or subsequent to the Distribution Date:

(i)            any and all wages, salaries, incentive compensation (as the same
may be modified by this Agreement), equity compensation (as the same may be
modified by Article III of this Agreement), commissions, bonuses and any other
employee compensation or benefits payable to or on behalf of any CSWI Company
Employee or Former CSWI Company Employee on or after the Distribution Date by
any Capital Southwest Company or CSWI Company, in each case arising out of such
CSWI Company Employee’s or Former CSWI Company Employee’s capacity as an
Employee or Former Employee of any Capital Southwest Company or CSWI Company,
and, without regard to when such wages, salaries, incentive compensation, equity
compensation, commissions, bonuses or other employee compensation or benefits
are or may have been awarded or earned; provided, however, with respect to any
CSWI Company Employees that are Transferring Employees, only wages, salaries,
incentive compensation, equity compensation, commissions, bonuses or other
employee compensation or benefits payable to or on behalf of such Transferring
Employees that have or will be awarded or earned on and after the Distribution
Date shall be assumed, performed, discharged and fulfilled by CSWI; provided,
further, that any Liability expressly retained by a Capital Southwest Company
pursuant to this Agreement will remain a Liability of the applicable capital
Southwest Company and will not be a CSWI Compensation and Benefit Liability;

(ii)            any and all Liabilities whatsoever with respect to claims made
by or with respect to any CSWI Company Employee or Former CSWI Company Employee
in connection with any Benefit Plan not retained or assumed by any of the
Capital Southwest Companies pursuant to this Agreement, the Distribution
Agreement or any other Ancillary Agreement; and
 

6

--------------------------------------------------------------------------------

(iii)            any and all Liabilities expressly assumed or retained by CSWI
or any of the CSWI Companies pursuant to this Agreement.

(b)                 Retention of Capital Southwest Compensation and Benefit
Liabilities.  Capital Southwest shall retain and agree to faithfully perform,
discharge and fulfill any and all Liabilities of Employees for compensation,
wages and employee benefits other than the CSWI Compensation and Benefit
Liabilities, in accordance with their respective terms.

(c)                 Payroll and Related Taxes. With respect to any Transferring
Employee, the Parties shall, or shall cause their respective Subsidiaries to,
(i) treat CSWI (or the applicable CSWI Companies) as a “successor employer” and
Capital Southwest (or the applicable Capital Southwest Companies) as a
“predecessor,” within the meaning of Sections 3121(a)(1) and 3306(b)(1) of the
Code, for purposes of Taxes imposed under the United States Federal Insurance
Contributions Act, as amended (“FICA”), or the United States Federal
Unemployment Tax Act, as amended (“FUTA”), (ii) cooperate with each other to
avoid, to the extent possible, the restart of FICA and FUTA upon or following
the Distribution Date with respect to each such CSWI Company Employee for the
tax year during which the Distribution Date occurs, and (iii) use commercially
reasonably efforts to implement the alternate procedure described in Section 5
of Revenue Procedure 2004-53; provided, however, that, to the extent that CSWI
(or the applicable CSWI Companies) cannot be treated as a “successor employer”
to Capital Southwest (or the applicable Capital Southwest Companies) within the
meaning of Sections 3121(a)(1) and 3306(b)(1) of the Code with respect to any
Transferring Employee, (x) with respect to the portion of the tax year
commencing on January 1, 2015 and ending on the Distribution Date, Capital
Southwest will (A) be responsible for all payroll obligations, Tax withholding
and reporting obligations for such Transferring Employee and (B) furnish a Form
W-2 or similar earnings statement to all such Transferring Employees for such
period, and (y) with respect to the remaining portion of such tax year, CSWI
will (A) be responsible for all payroll obligations, Tax withholding and
reporting obligations regarding such Transferring Employees and (B) furnish a
Form W-2 or similar earnings statement to all such Transferring Employees.

(d)                 Unaddressed Liabilities.  To the extent that this Agreement
does not address particular Liabilities for compensation, wages or employee
benefits under any Benefit Plan and the Parties later determine that they should
be allocated in connection with the Share Distribution, the Parties shall agree
in good faith on the allocation, taking into account the handling of comparable
Liabilities under this Agreement.

Section 2.2                          Service Credit.

(a)                 Service for Eligibility, Vesting and Benefit Purposes. 
Except as otherwise provided herein or in any other Ancillary Agreement, CSWI
shall, or shall cause the CSWI Companies, respectively, to, recognize each CSWI
Company Employee’s and each Former CSWI Company Employee’s full service with any
of the Capital Southwest Companies or predecessor entities at or before the
Distribution Date, to the same extent that such service was credited by the
Capital Southwest Companies for similar purposes prior to the Distribution Date
as if such full service had been performed for CSWI or the applicable CSWI
Company that is the Employee’s employer after the Distribution Date, for
purposes of eligibility, vesting and determination of level of benefits under
any Benefit Plan sponsored by CSWI or the applicable CSWI Company.
 

7

--------------------------------------------------------------------------------

(b)                 Credit for Compensation.  Except as otherwise provided
herein or in any other Ancillary Agreement, the compensation paid by Capital
Southwest and its Subsidiaries to an Employee shall be credited and recognized
for all applicable purposes under the applicable Benefit Plans following the
Distribution Date as though it were compensation from CSWI or any of the CSWI
Companies, as applicable.

Section 2.3                          Transferring Employees.

(a)                 Transferring Employees.  Capital Southwest shall, or shall
cause the Capital Southwest Companies to, transfer the employment of the
employees listed on Schedule 2.3(a) (the “Transferring Employees”) to CSWI
immediately prior to the Distribution Date.

(b)                 Employment Agreements.  To the extent necessary, Capital
Southwest shall, or shall cause the Capital Southwest Companies to, use
commercially reasonable efforts to terminate any offers of employment and/or
employment agreements entered into between a Transferring Employee and any of
the Capital Southwest Companies, effective as of the Distribution Date.  CSWI
shall, or shall cause the CSWI Companies to, enter into new employment
agreements with any Transferring Employees as it deems necessary.  Such new
employment agreements, if any, shall supersede and replace any offers of
employment and/or employment agreements entered into between such Transferring
Employee and any of the Capital Southwest Companies.

Section 2.4                          Collective Bargaining.  CSWI shall, or
shall cause the applicable CSWI Company to, retain all collective bargaining
agreements (including any national, sector or local collective bargaining
agreement) that cover CSWI Company Employees and the Liabilities arising under
such collective bargaining agreements.

Section 2.5                          Non-U.S. Regulatory Compliance.  Prior to
the Share Distribution, Capital Southwest may, to the extent necessary, adjust
the treatment described in this Agreement with respect to Employees who are
located outside of the United States in order to ensure compliance with the
applicable Laws of countries outside of the United States or to preserve the Tax
benefits provided under local Tax Law.

ARTICLE III

EQUITY, INCENTIVE AND EXECUTIVE COMPENSATION

Section 3.1                          Generally.  Each Capital Southwest Award
that is outstanding as of immediately prior to the Distribution Date shall be
adjusted as described below; provided, however, that, effective immediately
prior to the Distribution Date, the Capital Southwest Compensation Committee may
provide for different adjustments with respect to some or all Capital Southwest
Awards to the extent that the Capital Southwest Compensation Committee deems
such adjustments necessary and appropriate.  Any adjustments made by the Capital
Southwest Compensation Committee pursuant to the foregoing sentence shall be
deemed incorporated by reference herein as if fully set forth below and shall be
binding on the Parties and their respective Affiliates.  On or prior to the
Distribution Date, the CSWI Equity Plan shall be established, with such terms as
are necessary to permit the implementation of the provisions of Section 3.2.
 

8

--------------------------------------------------------------------------------

Section 3.2                          Equity Incentive Awards.

(a)                 Restricted Stock.  Each holder of an outstanding Capital
Southwest Restricted Stock Award immediately prior to the Distribution Date
shall receive, as of the Distribution Date, a CSWI Restricted Stock Award for
such number of CSWI Shares as is determined in the same way as if the
outstanding Capital Southwest Restricted Stock Award comprised fully vested
Capital Southwest Shares as of the Distribution Date.  Except as set forth in
this Section 3.2, the Post-Separation Capital Southwest Restricted Stock Award
and the CSWI Restricted Stock Award issued in accordance with this Section 3.2
both shall be subject to substantially the same terms and conditions (including
with respect to vesting) immediately after the Distribution Date as were
applicable to the Capital Southwest Restricted Stock Award immediately prior to
the Distribution Date (except as otherwise provided herein, including in Section
3.2(c)).

(b)                 Stock Options.  Each Capital Southwest Option that is
outstanding immediately prior to the Distribution Date, regardless of by whom
held, shall be converted as of the Distribution Date into both a Post-Separation
Capital Southwest Option and a CSWI Option and shall be subject to substantially
the same terms and conditions (including with respect to vesting and expiration)
after the Distribution Date as were applicable to such Capital Southwest Option
immediately prior to the Distribution Date (except as otherwise provided herein,
including in Section 3.2(c)); provided, however, that from and after the
Distribution Date:

(i)            the number of Capital Southwest Shares subject to such
Post-Separation Capital Southwest Option shall be equal to the product obtained
by multiplying (A) the number of Capital Southwest Shares subject to the
corresponding Capital Southwest Option immediately prior to the Distribution
Date by (B) the Share Value Factor, with the resulting number rounded down to
the nearest whole share;

(ii)            the number of CSWI Shares subject to such CSWI Option shall be
equal to the product obtained by multiplying (A) the number of Capital Southwest
Shares subject to the corresponding Capital Southwest Option immediately prior
to the Distribution Date by (B) the Share Value Factor, with the resulting
number rounded down to the nearest whole share;

(iii)            the per share exercise price of such Post-Separation Capital
Southwest Option shall be equal to the quotient obtained by dividing (A) the per
share exercise price of the corresponding Capital Southwest Option immediately
prior to the Distribution Date by (B) the Capital Southwest Ratio, with the
resulting number rounded up to the nearest cent; and

(iv)            the per share exercise price of such CSWI Option shall be equal
to the quotient obtained by dividing (A) the per share exercise price of the
corresponding Capital Southwest Option immediately prior to the Distribution
Date by (B) the CSWI Ratio, with the resulting number rounded up to the nearest
cent.
 

9

--------------------------------------------------------------------------------

Notwithstanding anything to the contrary in this Section 3.2(b), the exercise
price, the number of Capital Southwest Shares and CSWI Shares subject to each
Post-Separation Capital Southwest Option and CSWI Option, and the terms and
conditions of exercise of such options shall be determined in a manner
consistent with the requirements of Section 409A of the Code.  For purposes of
Section 409A of the Code, the Capital Southwest Share Value shall be treated as
the fair market value of a Capital Southwest Share immediately prior to the
substitutions described in this Section 3.2(b) and the Post-Separation Capital
Southwest Share Value and the CSWI Share Value shall be treated as the fair
market value of a Capital Southwest Share and the fair market value of a CSWI
Share, respectively, immediately after such substitutions.

(c)                 Miscellaneous Award Terms. With respect to Post-Separation
Capital Southwest Awards and CSWI Awards, (i) employment with or service to the
Capital Southwest Companies shall be treated as employment with and service to
CSWI with respect to CSWI Awards held by Capital Southwest Company Employees and
(ii) employment with or service to CSWI or a CSWI Company shall be treated as
employment with or service to Capital Southwest with respect to Post-Separation
Capital Southwest Awards held by CSWI Company Employees.  In addition, none of
the Share Distribution or any employment action described in Section 2.3 shall
constitute a termination of employment for any Employee for purposes of any
Post-Separation Capital Southwest Award or any CSWI Award.  After the
Distribution Date, for any award adjusted under this Section 3.2, any reference
to a “change in control,” “change of control” or similar definition in an award
agreement, employment agreement or Capital Southwest Equity Plan applicable to
such award (A) with respect to Post-Separation Capital Southwest Awards, shall
be deemed to refer to a “change in control,” “change of control” or similar
definition as set forth in the applicable award agreement, employment agreement
or Capital Southwest Equity Plan (a “Capital Southwest Change of Control”) and
(B) with respect to CSWI Awards, shall be deemed to refer to a “Change in
Control” as defined in the CSWI Equity Plan (a “CSWI Change of Control”). 
Without limiting the foregoing, with respect to provisions related to vesting of
awards, a Capital Southwest Change of Control shall be treated as a CSWI Change
of Control for purposes of CSWI Awards held by Capital Southwest Company
Employees and a CSWI Change of Control shall be treated as a Capital Southwest
Change of Control for purposes of Post-Separation Capital Southwest Awards held
by CSWI Company Employees.

(d)                 Tax Reporting and Withholding.

(i)            Except as otherwise provided in this Section 3.2(d), after the
Distribution Date, Post-Separation Capital Southwest Awards, regardless of by
whom held, shall be settled by Capital Southwest, and CSWI Awards, regardless of
by whom held, shall be settled by CSWI.

(ii)            Upon the vesting or exercise, as applicable, of CSWI Awards,
CSWI shall be solely responsible for ensuring (A) the satisfaction of all
applicable Tax withholding requirements on behalf of each CSWI Company Employee
and (B) the collection and remittance of employee withholding Taxes to the
Capital Southwest Companies with respect to each Capital Southwest Company
Employee (with Capital Southwest Companies being responsible for remittance of
the applicable employee Taxes and payment and remittance of the applicable
employer Taxes relating to Capital Southwest Company Employees to the applicable
Governmental Authority).
 

10

--------------------------------------------------------------------------------

(iii)            Upon the vesting or exercise, as applicable, of Post-Separation
Capital Southwest Awards, Capital Southwest shall be solely responsible for
ensuring (A) the satisfaction of all applicable Tax withholding requirements on
behalf of each Capital Southwest Company Employee and (B) the collection and
remittance of employee withholding Taxes to CSWI or the CSWI Companies with
respect to each CSWI Company Employee (with CSWI or the CSWI Companies being
responsible for remittance of the applicable employee Taxes and payment and
remittance of the applicable employer Taxes relating to CSWI Company
Employees to the applicable Governmental Authority).

(iv)            Following the Distribution Date, CSWI will be responsible for
all income Tax reporting in respect of Post-Separation Capital Southwest Awards
and CSWI Awards held by CSWI Company Employees, and Capital Southwest shall be
responsible for all income Tax reporting in respect of Post-Separation Capital
Southwest Awards and CSWI Awards held by Capital Southwest Company Employees.

(v)            Following the Distribution Date, if any Post-Separation Capital
Southwest Award held by a CSWI Company Employee shall fail to become vested,
such Post-Separation Capital Southwest Award shall be forfeited to Capital
Southwest, and if any CSWI Award held by a Capital Southwest Company Employee
shall fail to become vested, such CSWI Award shall be forfeited to CSWI.

(e)                 Registration and Other Regulatory Requirements.  CSWI agrees
to file Forms S-1, S-3 and S-8 registration statements, as applicable, with
respect to, and to cause to be registered pursuant to the Securities Act, the
CSWI Shares authorized for issuance under the CSWI Equity Plan, as required
pursuant to the Securities Act, before the date of issuance of any CSWI Shares
pursuant to the CSWI Equity Plan.  The Parties shall take such additional
actions as are deemed necessary or advisable to effectuate the foregoing
provisions of this Section 3.2(e), including compliance with securities Laws and
other legal requirements associated with equity compensation awards in affected
non-U.S. jurisdictions.  Capital Southwest agrees to facilitate the adoption and
approval of the CSWI Equity Plan consistent with the requirements of Treasury
Regulations Section 1.162-27(f)(4)(iii).

Section 3.3                          Capital Southwest Incentive Awards.

(a)            Awards Granted Prior to the Share Distribution.  Capital
Southwest will use commercially reasonable efforts to enter into an agreement
with each holder of a Capital Southwest Incentive Award that is outstanding
immediately prior to the Distribution Date to cause the “Phantom Share Value”
(as defined in the Capital Southwest Incentive Award) for purposes of any future
exercise of such award to be determined based upon the net asset value of
Capital Southwest as of the last day of the fiscal quarter ending immediately
prior to the Distribution Date.  After the Distribution Date, Capital Southwest
shall retain all Liabilities associated with the Capital Southwest Incentive
Awards held by Capital Southwest Company Employees or Transferring Employees,
including any replacement awards issued to any Capital Southwest Company
Employees pursuant to Section 3.3(b), and CSWI shall assume all Liabilities
associated with the Capital Southwest Incentive Awards held by CSWI Company
Employees who are not Transferring Employees, as well as any replacement awards
issued to CSWI Company Employees (including Transferring Employees) pursuant to
Section 3.3(b). Employment with or service to CSWI or a CSWI Company shall be
treated as employment with or service to Capital Southwest with respect to
Capital Southwest Incentive Awards held by CSWI Company Employees following the
Distribution Date.  In addition, none of the Share Distribution or any
employment action described in Section 2.3 shall constitute a termination of
employment for any Employee for purposes of any Capital Southwest Incentive
Award.
 

11

--------------------------------------------------------------------------------

(b)            Replacement Awards.  Capital Southwest and CSWI shall use
commercially reasonable efforts to agree with each holder of Capital Southwest
Incentive Awards to enter into a new agreement regarding acceptable replacement
awards to be issued by Capital Southwest, if such holder is a Capital Southwest
Company Employee, or CSWI, if such holder is a CSWI Company Employee, effective
as of the Distribution Date.  Each such replacement award shall be subject to
substantially the same terms and conditions with respect to vesting and the time
and manner of payment as applied to the applicable Capital Southwest Incentive
Award immediately prior to the Distribution Date to the extent necessary to
comply with Section 409A of the Code.

(c)            Tax Reporting and Withholding.

(i)            Upon the vesting or exercise, as applicable, of Capital Southwest
Incentive Awards, CSWI shall be solely responsible for ensuring (A) the
satisfaction of all applicable Tax withholding requirements on behalf of each
CSWI Company Employee (excluding Transferring Employees), (B) the collection and
remittance of employee withholding Taxes to the applicable Governmental
Authority with respect to each CSWI Company Employee (excluding Transferring
Employees), and (C) the remittance of employee withholding Taxes received from
Capital Southwest to the applicable Governmental Authority with respect to each
Transferring Employee, and Capital Southwest shall be solely responsible for
ensuring (A) the satisfaction of all applicable Tax withholding requirements on
behalf of each Capital Southwest Company Employee and each Transferring
Employee, (B) the collection and remittance of employee withholding Taxes to the
applicable Governmental Authority with respect to each Capital Southwest Company
Employee, and (c) the collection and remittance of employee withholding Taxes to
CSWI with respect to each Transferring Employee.

(ii)            Upon the vesting or exercise, as applicable, of any replacement
award issued pursuant to Section 3.3(b), CSWI shall be solely responsible for
ensuring (A) the satisfaction of all applicable Tax withholding requirements on
behalf of each CSWI Company Employee (including Transferring Employees) and (B)
the collection and remittance of employee withholding Taxes to the applicable
Governmental Authority with respect to each CSWI Company Employee, and Capital
Southwest shall be solely responsible for ensuring (A) the satisfaction of all
applicable Tax withholding requirements on behalf of each Capital Southwest
Company Employee and (B) the collection and remittance of employee withholding
Taxes to the applicable Governmental Authority with respect to each Capital
Southwest Company Employee.
 

12

--------------------------------------------------------------------------------

(iii)            Following the Distribution Date, CSWI will be responsible for
all income Tax reporting in respect of Capital Southwest Incentive Awards and
any replacement awards issued pursuant to Section 3.3(b) held by CSWI Company
Employees, and Capital Southwest shall be responsible for all income Tax
reporting in respect of Capital Southwest Incentive Awards and any replacement
awards issued pursuant to Section 3.3(b) held by Capital Southwest Company
Employees.

ARTICLE IV

QUALIFIED RETIREMENT PLANS

Section 4.1                          The Retirement Plan.

(a)                 CSWI Assumption.  As of the Distribution Date, CSWI will
take all actions necessary to assume sponsorship of the Retirement Plan and be
substituted as the party to any trust and/or custodian agreement related
thereto.  Prior to the Distribution Date, Capital Southwest shall take all
actions necessary to transfer the sponsorship of the Retirement Plan to CSWI, to
be effective as of the Distribution Date.  The Retirement Plan shall make
payments to Capital Southwest Company Employees and Former Employees with vested
rights thereunder in accordance with the terms of the Retirement Plan as in
effect from time to time.

(b)                 No Loss of Unvested Benefits; Distributions.  The
Transferring Employees will not lose their unvested accrued benefits (if any)
under the Retirement Plan, which shall be assumed by CSWI as provided herein. 
No Transferring Employee shall be entitled to a distribution of his or her
benefit under the Retirement Plan as a result of such transfer of employment. 
Capital Southwest Company Employees and Former Employees shall be entitled to a
distribution of their vested benefits (if any) under the Retirement Plan,
following the Share Distribution, in accordance with the terms of the Retirement
Plan, in effect from time to time.

(c)                 PBGC Notice.  Capital Southwest shall file all applicable
notices with the PBGC as required under Section 4043 of ERISA that are triggered
as a result of the transfer of sponsorship of the Retirement Plan to CSWI,
either alone or in combination with any other event or circumstance.

Section 4.2                          401(k) Plans.

(a)                 Capital Southwest 401(k) Plan. Prior to the Distribution
Date, Capital Southwest will take all actions necessary to cause Capital
Southwest Management Corporation to establish the Capital Southwest 401(k) Plan
to be effective following the Distribution Date.  Media Recovery, Inc. shall
retain sponsorship of the Media Recovery, Incorporated Employee Savings Plan
following the Distribution Date, and such plan will be merged into the Capital
Southwest 401(K) Plan as soon as administratively practical following the
Distribution Date.
 
(b)                 CSWI 401(k) Plan.  As of the Distribution Date, CSWI will
take all actions necessary to assume sponsorship of the CSWI 401(k) Plan and be
substituted as the party to any trust and/or custodian agreement related
thereto.  Prior to the Distribution Date, Capital Southwest shall take all
actions necessary to cause the applicable CSWI Company to transfer sponsorship
of the CSWI 401(k) Plan to CSWI, to be effective as of the Distribution Date.
 

13

--------------------------------------------------------------------------------

Section 4.3                          ESOP.

(a)                 Treatment of the ESOP.  As of the Distribution Date, CSWI
will assume sponsorship of the ESOP and will be substituted as the party to any
trust and/or custodian agreement related thereto.  Prior to the Distribution
Date, Capital Southwest shall take all actions necessary to cause the applicable
CSWI Companies to transfer sponsorship of the ESOP to CSWI, to be effective as
of the Distribution Date.  As soon as administratively practicable following the
Distribution Date, CSWI shall cause a transfer of the plan assets of the Capital
Southwest Company Employees who have an account balance under the ESOP as of the
Distribution Date, valued as of the date such assets are transferred, from the
trust maintained with respect to the ESOP to the trust maintained with respect
to the Capital Southwest 401(k) Plan, and Capital Southwest will cause the trust
maintained with respect to the Capital Southwest 401(k) Plan to accept such
transfer of assets (the date on which such transfer occurs is referred to as the
“ESOP Asset Transfer Date”).  On and after the Distribution Date and until the
ESOP Asset Transfer Date, the ESOP shall make payments to Employees and Former
Employees with respect to their vested benefits thereunder in accordance with
the terms of the ESOP, as in effect from time to time.  On and after the ESOP
Asset Transfer Date, the Capital Southwest 401(k) Plan shall make payments to
Capital Southwest Company Employees with respect to their vested benefits
transferred from the ESOP, in accordance with the terms of the Capital Southwest
401(k) Plan, as in effect from time to time, and the ESOP shall make payments to
CSWI Company Employees and Former Employees with respect to their vested
benefits under the ESOP in accordance with the terms of the ESOP, as in effect
from time to time.

(b)                 CSWI Shares in the ESOP.  CSWI Shares distributed in
connection with the Share Distribution in respect of Capital Southwest Shares
held in the ESOP shall be allocated to the applicable Employees’ and Former
Employees’ account under the ESOP.

(c)                 No Loss of Unvested Benefits; No Distributions.  The
Transferring Employees will not lose their unvested benefits (if any) under the
ESOP, which shall be assumed by CSWI as provided herein.  No Transferring
Employee shall be entitled to a distribution of his or her benefit under the
ESOP as a result of such transfer of employment nor shall any Capital Southwest
Company Employee be entitled to a distribution of his or her benefit that is
transferred from the ESOP to the Capital Southwest 401(k) Plan as a result of
the Share Distribution.

ARTICLE V

NONQUALIFIED DEFERRED COMPENSATION PLANS

Section 5.1                          The Restoration Plan.  Capital Southwest
shall retain sponsorship of the Restoration Plan.  Effective as of the
Distribution Date, all CSWI Company Employees shall cease active participation
in the Restoration Plan.  CSWI shall take all actions necessary to establish a
non-qualified deferred compensation plan containing substantially the same terms
as the Restoration Plan, effective as of the Distribution Date (the “CSWI
Restoration Plan”).  All Liabilities with respect to benefits accrued under the
Restoration Plan on behalf of CSWI Company Employees shall be transferred to the
CSWI Restoration Plan and assumed by CSWI.  All CSWI Company Employees who
participated in the Restoration Plan immediately prior to the Distribution Date
shall become active participants in the CSWI Restoration Plan effective on the
Distribution Date.  After the Distribution Date, Capital Southwest shall make
payments to Capital Southwest Company Employees and Former Employees with vested
benefits under the Restoration Plan in accordance with the terms of the
Restoration Plan, as in effect from time to time, and CSWI shall make payments
to CSWI Company Employees under the CSWI Restoration Plan in accordance with the
terms of the CSWI Restoration Plan, as in effect from time to time.
 

14

--------------------------------------------------------------------------------

Section 5.2                          The Executive Compensation Plan.  Capital
Southwest shall retain the cash incentive awards granted under the Executive
Compensation Plan, and from and after the Distribution Date, all Liabilities
with respect to such cash incentive awards shall remain Liabilities of Capital
Southwest.  Capital Southwest shall pay such cash incentive awards to Employees
who are entitled to payment thereunder in the time and manner provided under the
Executive Compensation Plan.  After the Distribution Date, any reference to a
“change in control,” “change of control” or similar definition in a cash
incentive award agreement entered pursuant to the Executive Compensation Plan
shall be deemed to refer to a Capital Southwest Change of Control for purposes
of awards held by Capital Southwest Company Employees and to either a CSWI
Change of Control or Capital Southwest Change in Control for purposes of such
awards held by CSWI Company Employees.

ARTICLE VI

WELFARE PLANS

Section 6.1                          CSWI Assumption.  Prior to the Distribution
Date, CSWI shall take all actions necessary to assume sponsorship of the Welfare
Plans and any insurance policies related thereto, and from and after the
Distribution Date, all assets and Liabilities thereunder shall be assets and
Liabilities of CSWI.  Prior to the Distribution Date, Capital Southwest shall
take all actions necessary to transfer the sponsorship of the Welfare Plans and
assign any insurance policies related thereto to CSWI, to be effective as of the
Distribution Date.  Strathmore Products, Inc. shall retain sponsorship of the
health and welfare plans sponsored by Strathmore Products, Inc.

Section 6.2                          Establishment of Capital Southwest Health
and Welfare Plans.  Effective as soon as administratively possible following the
Distribution Date but in no event later than December 31, 2015, Capital
Southwest shall establish the Capital Southwest Welfare Plans, and the Capital
Southwest Company Employees and (if applicable) the Former Capital Southwest
Company Employees shall cease participation in the Welfare Plans and shall be
eligible to participate in the newly formed Capital Southwest Welfare Plans. 
All assets and Liabilities under the Capital Southwest Welfare Plans shall be
assets and Liabilities of Capital Southwest or one of its Subsidiaries.

Section 6.3                          Welfare Transition Period.  During the
Welfare Transition Period, Capital Southwest Company Employees and (if
applicable) Former Capital Southwest Company Employees will continue to
participate in the Welfare Plans at the same level such Capital Southwest
Company Employees and (if applicable) such Former Capital Southwest Company
Employees participated in the Welfare Plans immediately prior to the
Distribution Date.  During the Welfare Transition Period, Capital Southwest
shall (A) pay CSWI for the employer portion of insurance premiums and flexible
spending account contributions for all Capital Southwest Company Employees and
(if applicable) Former Capital Southwest Company Employees participating in the
Welfare Plans, (B) collect the employee portion of such premiums and
contributions from such Capital Southwest Company Employees and (if applicable)
such Former Capital Southwest Company Employees and (C) remit the employee
portion of such premiums and contributions to CSWI.
 

15

--------------------------------------------------------------------------------

Section 6.4                          COBRA.  CSWI will be responsible for
complying with, and providing coverage pursuant to, the health care continuation
requirements of COBRA and the corresponding provisions of the Welfare Plans with
respect to any Employee and any Former Employee who incurs a qualifying event
under COBRA before, as of, or after the Distribution Date; provided, however,
that Capital Southwest will be responsible for complying with, and providing
coverage pursuant to, the health care continuation requirements of COBRA and the
corresponding provisions of the Capital Southwest Welfare Plans with respect to
any Capital Southwest Company Employee or any Former Capital Southwest Company
Employee who incurs a qualifying event under COBRA on or after January 1, 2016. 
The Parties agree that the consummation of the transactions contemplated by the
Distribution Agreement shall not constitute a COBRA qualifying event for any
purpose of COBRA.

Section 6.5                          Vacation, Holidays and Leaves of Absence. 
Without limiting the generality of Section 2.1, effective as of the Distribution
Date, CSWI shall assume all Liabilities with respect to vacation, holiday,
annual leave of absence, and required payments related thereto, for each
Transferring Employee.  Capital Southwest or one of its Subsidiaries shall
retain all Liabilities with respect to vacation, holiday, annual leave of
absence, and required payments related thereto, for each Capital Southwest
Company Employee and each Former Capital Southwest Company Employee, and CSWI or
one of the CSWI Companies shall retain all Liabilities with respect to vacation,
holiday, annual leave of absence, and required payments related thereto, for
each CSWI Company Employee (excluding the Transferring Employees) and each
Former CSWI Company Employee.

Section 6.6                          Severance and Unemployment Compensation. 
Without limiting the generality of Section 2.1, effective as of the Distribution
Date, CSWI shall assume any and all Liabilities to, or relating to, the
Transferring Employees in respect of severance and unemployment compensation
with respect to Liabilities that are triggered by events occurring after the
Distribution Date.  Capital Southwest or one of its Subsidiaries shall be
responsible for any and all Liabilities to, or relating to, the Capital
Southwest Company Employees and Former Capital Southwest Company Employees in
respect of severance and unemployment compensation, regardless of whether the
event giving rise to the Liability occurred before, at or after the Distribution
Date, and CSWI or one of the CSWI Companies shall be responsible for any and all
Liabilities to, or relating to, the CSWI Company Employees (excluding the
Transferring Employees) and Former CSWI Company Employees in respect of
severance and unemployment compensation, regardless whether the event giving
rise to the Liability occurred before, at or after the Distribution Date.

Section 6.7                          Workers’ Compensation.  With respect to
claims for workers’ compensation, (a) CSWI or a CSWI Company shall be
responsible for claims in respect of CSWI Company Employees (excluding the
Transferring Employees) and Former CSWI Company Employees, whether occurring
before, at or after the Distribution Date, and (b) Capital Southwest or one of
its Subsidiaries shall be responsible for all claims in respect of Capital
Southwest Company Employees and Former Capital Southwest Company Employees,
whether occurring before, on or after the Distribution Date.  CSWI shall be
responsible for any and all Liabilities with respect to claims for workers’
compensation by the Transferring Employees occurring after the Distribution
Date, and Capital Southwest shall retain all Liabilities with respect to claims
for workers’ compensation by the Transferring Employees occurring on or prior to
the Distribution Date.  Notwithstanding anything contained herein to the
contrary, to the extent any claims occurring on or before the Distribution Date
are covered by any insurance contract, such claims shall continue to be paid,
administered and processed under such insurance contract.
 

16

--------------------------------------------------------------------------------

ARTICLE VII

NON-U.S. EMPLOYEES

Section 7.1                          Treatment of Non-U.S. Employees.  CSWI
Company Employees and Former CSWI Company Employees who are residents outside of
the United States or otherwise are subject to non-U.S. Law and their related
benefits and Liabilities shall be treated in the same manner as the CSWI Company
Employees and Former CSWI Company Employees, respectively, who are residents of
the United States and are not subject to non-U.S. Law.  Notwithstanding anything
in this Agreement to the contrary, all actions taken with respect to non-U.S.
Employees or U.S. Employees working in non-U.S. jurisdictions shall be subject
to and accomplished in accordance with applicable Law in the custom of the
applicable jurisdictions.

ARTICLE VIII

MISCELLANEOUS

Section 8.1                          At-Will Status.  Nothing in this Agreement
shall create any obligation on the part of the Parties or any of their
Subsidiaries to (i) continue the employment of any Employee or permit the return
from a leave of absence for any period after the date of this Agreement (except
as required by applicable Law) or (ii) change the employment status of any
Employee from “at-will,” to the extent that such Employee is an “at-will”
employee under applicable Law.

Section 8.2                          Severance.  The Parties acknowledge and
agree that the Share Distribution and the assignment, transfer or continuation
of the employment of the Employees as contemplated by this Agreement shall not
be deemed an involuntary termination of employment entitling any Capital
Southwest Company Employee or CSWI Company Employee to severance payments or
benefits.

Section 8.3                          Change in Control.  The Parties acknowledge
and agree that neither the consummation of the Share Distribution nor any
transaction contemplated by this Agreement, the Distribution Agreement or any
other Ancillary Agreement shall be deemed a “change of control,” “change in
control,” or term of similar import for purposes of any Benefit Plan sponsored
or maintained by any of the Capital Southwest Companies, CSWI or any of the CSWI
Companies.
 

17

--------------------------------------------------------------------------------

Section 8.4                          Employee Records.

(a)                 Sharing of Information.  Subject to any limitations imposed
by applicable Law, each Party will, and will cause its Subsidiaries to, provide
to the other Party and such other Party’s authorized agents and vendors all
information necessary for the Parties to perform their respective duties under
this Agreement.

(b)                 Transfer of Personnel Records and Authorization.  Subject to
any limitation imposed by applicable Law and to the extent that it has not done
so before the Distribution Date, Capital Southwest shall transfer to CSWI any
and all employment records (including any Form I-9, Form W-2 or other IRS forms)
with respect to CSWI Company Employees and Former CSWI Company Employees and
other records reasonably requested by CSWI to enable CSWI to properly to carry
out its obligations under this Agreement.  Such transfer of records generally
shall occur as soon as administratively practicable at or after the Distribution
Date.  Pursuant to Section 5.1 and Section 5.2 of the Distribution Agreement,
each Party will permit the other reasonable access to Employee records, to the
extent reasonably necessary for such accessing Party to carry out its
obligations hereunder.

(c)                 Access to Records.  To the extent, due to restrictions by
applicable Law, any employment records (including any Form I-9, Form W-2 or
other IRS forms) with respect to CSWI Company Employees and Former CSWI Company
Employees that are not transferred to CSWI pursuant to Section 8.4(b), from and
after the Distribution Agreement, Capital Southwest shall provide CSWI access to
such records in accordance with Sections 5.1 and 5.2 of the Distribution
Agreement.

(d)                 Maintenance of Records.  With respect to retaining,
destroying, transferring, sharing, copying and permitting access to all
Employee-related information, each Party shall, and shall cause its Subsidiaries
to, comply with all applicable Laws and internal policies, and shall indemnify
and hold harmless the other from and against any and all Losses that arise from
a failure (by the indemnifying Party or its Subsidiaries or their respective
agents) to so comply with all applicable Laws and internal policies applicable
to such information.

(e)                 Cooperation.  Each Party shall use commercially reasonable
efforts to cooperate and work together to unify, consolidate and share (to the
extent permissible under applicable privacy/data protection Laws) all relevant
documents, resolutions, government filings, data, payroll, employment and
benefit plan information on regular timetables and cooperate as needed with
respect to (i) any Action with respect to any employee benefit plan, policy or
arrangement contemplated by this Agreement, (ii) efforts to seek a determination
letter, private letter ruling or advisory opinion from the IRS or DOL on behalf
of any employee benefit plan, policy or arrangement contemplated by this
Agreement, and (iii) any filings that are required to be made or supplemented to
the IRS, PBGC, DOL or any other Governmental Authority; provided, however, that
requests for cooperation must be reasonable and not interfere with daily
business operations.

(f)                  Confidentiality.  Notwithstanding anything in this
Agreement to the contrary, all confidential records and data relating to
Employees to be shared or transferred pursuant to this Agreement shall be
subject to Section 5.4 o f the Distribution Agreement and the requirements of
applicable Law.
 

18

--------------------------------------------------------------------------------

Section 8.5                          Preservation of Rights to Amend.  The
rights of the Capital Southwest Companies, CSWI and the CSWI Companies to amend,
waive, or terminate any Benefit Plan or any other plan, arrangement, agreement,
program, or policy referred to herein shall not be limited in any way by this
Agreement.

Section 8.6                          Fiduciary Matters.  Each Party acknowledges
that actions required to be taken pursuant to this Agreement may be subject to
fiduciary duties or standards of conduct under ERISA or other applicable Law,
and no Party shall be deemed to be in violation of this Agreement if it fails to
comply with any provisions hereof based upon its good-faith determination (as
supported by advice from counsel experienced in such matters) that to do so
would violate such a fiduciary duty or standard.  Each Party shall be
responsible for taking such actions as are deemed necessary and appropriate to
comply with its own fiduciary responsibilities and shall fully release and
indemnify the other Party for any Liabilities caused by the failure to satisfy
any such responsibility.

Section 8.7                          Complete Agreement; Construction.  This
Agreement, including the schedules attached hereto, the Distribution Agreement
and the Ancillary Agreements shall constitute the entire agreement between the
Parties with respect to the subject matter hereof and shall supersede all
previous negotiations, commitments and writings with respect to such subject
matter.

Section 8.8                          Counterparts.  This Agreement may be
executed in one or more counterparts, all of which shall be considered one and
the same agreement, and shall become effective when one or more such
counterparts have been signed by each of the Parties and delivered to the other
Party.  The delivery of an executed Agreement by facsimile or other electronic
delivery shall be sufficient to bind the Party so delivering such Agreement.

Section 8.9                          Survival of Agreements.  Except as
otherwise contemplated by this Agreement, all covenants and agreements of the
Parties contained in this Agreement shall survive the Distribution Date.

Section 8.10                       Notices.  All notices and other
communications hereunder shall be in writing, shall reference this Agreement and
shall be hand delivered or mailed by registered or certified mail (return
receipt requested) to the Parties at the following addresses (or at such other
addresses for a Party as shall be specified by like notice) and will be deemed
given on the date on which such notice is received:

To Capital Southwest:

Capital Southwest Corporation
5400 Lyndon B. Johnson Freeway, Suite 1300
Dallas, Texas 75240
Attention:  Chief Executive Officer

To CSWI:

CSW Industrials, Inc.
5400 Lyndon B. Johnson Freeway, Suite 1300
Dallas, Texas 75240
Attention:  Chief Executive Officer
 

19

--------------------------------------------------------------------------------

Section 8.11                       Waivers.  The failure of any Party to require
strict performance by any other Party of any provision in this Agreement will
not waive or diminish that Party’s right to demand strict performance thereafter
of that or any other provision hereof.

Section 8.12                       Amendments.  This Agreement may not be
modified or amended except by an agreement in writing signed by each of the
Parties.

Section 8.13                       Assignment.  This Agreement shall not be
assignable, in whole or in part, directly or indirectly, by any Party without
the prior written consent of the other Party and any attempt to assign any
rights or obligations arising under this Agreement without such consent shall be
void; provided, however, that either Party may assign this Agreement to a
purchaser of all or substantially all of the properties and assets of such
Party; provided, that no such assignment will relieve the assigning Party of its
obligations hereunder.

Section 8.14                       Successors and Assigns.  The provisions to
this Agreement shall be binding upon, inure to the benefit of and be enforceable
by the Parties and their respective successors and permitted assigns.

Section 8.15                       Termination.  This Agreement may be
terminated at any time prior to the Share Distribution by and in the sole
discretion of Capital Southwest without the approval of CSWI or the shareholders
of Capital Southwest.  In the event of such termination, no Party shall have any
liability of any kind to any other Party or any other Person.  After the Share
Distribution, this Agreement may not be terminated except by an agreement in
writing signed by the Parties.

Section 8.16                       Third Party Beneficiaries.  This Agreement is
solely for the benefit of the Parties and their respective Subsidiaries,
Affiliates, successors and assigns and shall not be deemed to confer upon any
other Person any remedy, claim, liability, reimbursement, cause of action or
other right in excess of those existing without reference to this Agreement. 
The Parties agree that each CSWI Indemnitee and Capital Southwest Indemnitee who
is not a party to this Agreement is an intended third party beneficiary of the
indemnification provisions of this Agreement.

Section 8.17                       Title and Headings.  Titles and headings to
Sections herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.

Section 8.18                       Governing Law.  THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF DELAWARE.
 

20

--------------------------------------------------------------------------------

Section 8.19                       Waiver of Jury Trial.  The Parties hereby
irrevocably waive any and all right to trial by jury in any legal proceeding
arising out of or related to this Agreement.

Section 8.20                       Specific Performance.  From and after the
Share Distribution, in the event of any actual or threatened default in, or
breach of, any of the terms, conditions and provisions of this Agreement, the
Parties agree that the Party to this Agreement who is or is to be thereby
aggrieved shall have the right to specific performance and injunctive or other
equitable relief of its rights under this Agreement, in addition to any and all
other rights and remedies at law or in equity, and all such rights and remedies
shall be cumulative.  The Parties agree that, from and after the Share
Distribution, the remedies at Law for any breach or threatened breach of this
Agreement, including monetary damages, are inadequate compensation for any loss,
that any defense in any action for specific performance that a remedy at Law
would be adequate is hereby waived, and that any requirements for the securing
or posting of any bond with such remedy are hereby waived.

Section 8.21                       Severability.  In the event any one or more
of the provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby.  The Parties shall endeavor in good faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions, the economic effect of which comes as close as possible to
that of the invalid, illegal or unenforceable provisions.

[Signature page follows]
 

21

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed
as of the day and year first above written.

 
CAPITAL SOUTHWEST CORPORATION
     
By:
/s/ Bowen S. Diehl
 
Name:  Bowen S. Diehl
 
Title:    Chief Investment Officer
     
CSW INDUSTRIALS, INC.
     
By:
/s/ Joseph B. Armes
 
Name:  Joseph B. Armes
 
Title:   Chief Executive Officer

[Signature page to Employee Matters Agreement]
 

--------------------------------------------------------------------------------