CAPITAL SOUTHWEST CORP
SEVERANCE PAY AGREEMENT DATE JULY 18, 2005
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>capital8kex101071805.txt
<DESCRIPTION>SEVERANCE PAY AGREEMENT DATE JULY 18, 2005
<TEXT>

                                                                    Exhibit 10.1


                             SEVERANCE PAY AGREEMENT


         THIS SEVERANCE PAY AGREEMENT ("Agreement") is executed and effective as
of the 18th day of July,  2005,  by and  between  Capital  Southwest  Management
Corporation,  a Nevada corporation (the "Company"), and William M. Ashbaugh (the
"Employee").

                                  WITNESSETH:

         WHEREAS,  the Employee is an officer of the Company and has made and is
expected to continue to make  contributions to the  profitability  and growth of
the Company; and

         WHEREAS,  the Company  desires to induce its  officers to remain in the
employment  of the  Company  and to assure  itself of both  present  and  future
continuity  of  management  in the event of any actual or  threatened  change in
control of the Company or of Capital Southwest Corporation ("CSC"); and

         WHEREAS,  the  Employee  desires  to  remain in the  employment  of the
Company;

         NOW,  THEREFORE,  in  consideration  of the  premises  and  the  mutual
covenants herein contained, the parties hereto agree as follows:

                                    AGREEMENT

         Section 1: Operation of Agreement.  This  Agreement  shall be effective
immediately upon its execution, but its provisions shall not be operative unless
and until a Change in Control as defined in Section 2 hereof has  occurred.  The
provisions  of the  Agreement  shall not be operative and shall not apply to any
termination of employment for any reason prior to a Change in Control.

         Section 2: Change in Control. For purposes of this Agreement, Change in
Control means the first to occur of any of the following:

         (a)      the   effective   date  of  any   transaction   or  series  of
                  transactions  (other than a transaction  to which only CSC and
                  one or more of its subsidiaries are parties) pursuant to which
                  CSC becomes a subsidiary of another  corporation  or is merged
                  or  consolidated   with  or  into  another   corporation,   or
                  substantially all of the assets of CSC are sold to or acquired
                  by another person,  corporation or group of associated persons
                  acting in concert;

         (b)      the   effective   date  of  any   transaction   or  series  of
                  transactions  (other than a  transaction  to which only CSC or
                  the Company and one or more subsidiaries of CSC or the Company
                  are  parties)  pursuant  to which the  Company  or its  parent
                  company  becomes a  subsidiary  of another  corporation  or is
                  merged or consolidated  with or into another  corporation,  or
                  substantially  all of  the  assets  or  more  than  50% of the
                  outstanding  voting stock of the Company or its parent company
                  are sold to or  acquired  by another  person,  corporation  or
                  group of associated persons acting in concert;

         (c)      the  date  upon  which  any  person,  corporation  or group of
                  associated  persons  acting in concert,  excluding any persons
                  who have then owned  more than 10% of the voting  stock of CSC
                  for a continuous period of at least ten (10) years,  becomes a


<PAGE>

                  direct or indirect  beneficial owner of shares of stock of CSC
                  representing  an  aggregate of more than 25% of the votes then
                  entitled to be cast at an election of Directors of CSC; or

         (d)      the date upon which the persons who were  members of the Board
                  of  Directors  of CSC as of the date first above  written (the
                  "Original  Directors"),  cease to constitute a majority of the
                  Board of  Directors;  provided,  however that any new Director
                  whose  nomination  or  selection  has  been  approved  by  the
                  affirmative  vote of at least three of the Original  Directors
                  then in office shall also be deemed an Original Director.

         Section 3: Severance Pay Upon  Termination by Company  Without Cause or
by Employee for Cause.  If, during the two-year period  immediately  following a
Change in Control,  the  Employee's  employment  with the Company is  terminated
either:

         (a)      by the Company  for no reason or for any reason  other than as
                  the  result  of the  Employee's  willful  misconduct  or gross
                  negligence in the performance of his duties, or for any act of
                  dishonesty  of the  Employee,  including,  but not limited to,
                  theft of or other  unauthorized  personal use of Company funds
                  or other property or the acceptance of unauthorized gratuities
                  or other  remuneration  from  Company  suppliers  or potential
                  suppliers; or

         (b)      by the  Employee  as the result of,  and  within  thirty  days
                  following,  a significant  reduction by the Company of his job
                  responsibilities  with  the  Company  or a  reduction  by  the
                  Company  of his base  salary  from the  Company  as in  effect
                  immediately  prior to the Change in  Control,  or because of a
                  move of his job location by more than 50 miles;

then,  subject to the limitation  contained in the next  sentences,  the Company
shall pay to the Employee,  within  thirty days after the effective  date of his
termination,  an amount  equal to the sum of (i) his annual base salary and (ii)
if the Employee  has  completed a period of service with the Company of at least
five  years  (whether  or  not  continuous)  as of the  Change  in  Control,  an
additional  amount equal to his monthly base salary  multiplied by the number of
whole 12-month  periods of service in excess of five years completed  during his
total period of service,  whether or not continuous,  with the Company as of the
Change in Control.  The amount payable under this Agreement  shall not exceed an
amount  equal to the  lesser  of (i) two  times the  compensation  the  Employee
received  from the Company (or any other entity for which  service is considered
in this Section 3) during the  twelve-month  period  immediately  preceding  his
termination  of service,  or (ii)  twenty-four  multiplied  by his monthly  base
salary.  For purposes of this Section 3, an Employee's  base salary shall be the
amount payable to the Employee during the month immediately preceding the Change
of Control  and the  Employee's  annual base  salary  shall be his monthly  base
salary  multiplied  by twelve.  Both annual base salary and monthly  base salary
shall include earned  commissions but shall be determined  without regard to any
overtime  pay or  bonuses.  If  applicable  to the  determination  of the amount
payable  hereunder,  an  Employee's  period of service with the Company shall be
deemed to include all service, whether or not continuous, with Capital Southwest
Corporation  and any  subsidiary  corporation of which it directly or indirectly
owns the  majority  interest.  The Company may  withhold  from such  payment any
federal, state, city, county or other taxes.

         Section  4:  No  Severance  Pay  Upon  Other   Termination.   Upon  any
termination  of  the  Employee's  employment  with  the  Company  other  than  a
termination specified in Section 3 hereof, the sole obligation of the Company to
the Employee  shall be to pay to him the amount of  compensation  he has accrued
through the effective date of the termination.



<PAGE>

         Section 5:  Entire  Obligation.  Payment to the  Employee  pursuant  to
Section 3 or 4 of this Agreement shall  constitute the entire  obligation of the
Company to the  Employee  and full  settlement  of any claim under law or equity
that the  Employee  might  otherwise  assert  against  the Company or any of its
employees, officers or directors on account of the Employee's termination.

         Section 6:  Non-competition  Agreement.  Notwithstanding  the facts and
circumstances which entitle the Employee to severance pay under Section 3 of the
Agreement, the Employee shall remain subject to and bound by any non-competition
agreement  he may have entered into with the Company that is in effect as of the
date of his termination of employment.

         Section 7: No Obligation to Continue Employment.  This Agreement is not
an  employment  contract and does not create any  obligation  on the part of the
Company to continue to employ the  Employee  following a Change in Control or in
the absence of a Change in Control.

         Section 8: Term of Agreement.  This  Agreement  shall  terminate and no
longer be  effective  on the  earlier of (i) July 18, 2025 or such later date as
may be  established  by the  Company  or (ii) the date upon  which the  Employee
ceases to be an  employee  of the  Company;  provided,  however,  if a Change in
Control  occurs  prior  to the  date  of  termination  of this  Agreement,  this
Agreement  shall continue to be effective until the date two years following the
Change in Control.

         Section 9: Assignment,  Successors in Interest.  This Agreement,  being
personal to the Employee,  may not be assigned by him. The terms and  conditions
of the  Agreement  shall  inure  to the  benefit  of and  be  binding  upon  the
successors  and assigns  (whether  direct or indirect,  by  purchase,  merger or
otherwise) to all or substantially all of the business or assets of the Company,
and the heirs, executors and personal representatives of the Employee.

         Section 10: Waiver.  Failure to insist upon strict  compliance with any
of the terms,  covenants or conditions of this  Agreement  shall not be deemed a
waiver  of  such  term,   covenant  or  condition,   nor  shall  any  waiver  or
relinquishment  of any  right or  power  hereunder  at any one or more  times be
deemed a waiver or  relinquishment  of such  right or power at any other time or
times.

         Section 11:  Attorney's  Fees. If the Employee is determined by a court
of  competent  jurisdiction  to be entitled  to  severance  pay under  Section 3
hereof,  he shall be  entitled  to  reasonable  attorney's  fees and court costs
associated with any legal action brought by him to enforce his rights under this
Agreement.

         IN WITNESS WHEREOF, this Agreement has been executed by the undersigned
as of the date first above written.


                                        CAPITAL SOUTHWEST MANAGEMENT CORPORATION

                                        By: /s/ William R. Thomas
                                           ----------------------
                                           William R. Thomas (Company)


                                            /s/ William M. Ashbaugh
                                           ------------------------
                                           William M. Ashbaugh (Employee)


</TEXT>
</DOCUMENT>
