EXHIBIT 10.9

INVESTMENT ADVISORY AND ADMINISTRATIVE AGREEMENT

THIS INVESTMENT ADVISORY AND ADMINISTRATIVE AGREEMENT (this “Agreement”) is
entered into as of the 2nd day of July 2004 by and between Gladstone Capital
Corporation, a Maryland corporation and its wholly-owned subsidiary (the
“Company”) and Gladstone Management Corporation, a Delaware corporation
(“Adviser”).

W I T N E S S E T H:

WHEREAS, the Company is a non-diversified closed-end management investment
company that has elected to be regulated as a business development company
pursuant to the provisions of the Investment Company Act of 1940, as amended,
and the rules and regulations promulgated thereunder (the “Investment Company
Act”); and

WHEREAS, Adviser is a registered investment adviser pursuant to the Investment
Advisers Act of 1940, as amended, and the rules and regulations promulgated
there under (the “Advisers Act”); and

WHEREAS, the Company desires to retain Adviser to serve as its investment
adviser and, in connection therewith, to perform certain administrative and
investment advisory services on the terms and conditions set forth herein;

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein
set forth, the parties agree as follows:

1.             APPOINTMENT OF ADVISER

(A)           THE COMPANY HEREBY APPOINTS ADVISER TO SERVE AS ITS INVESTMENT
ADVISER AND ADMINISTRATOR FOR THE PERIOD AND ON THE TERMS AND SUBJECT TO THE
CONDITIONS AS SET FORTH IN THIS AGREEMENT.

(B)           ADVISER HEREBY ACCEPTS APPOINTMENT AS INVESTMENT ADVISER AND
ADMINISTRATOR TO THE COMPANY AND AGREES TO RENDER THE SERVICES AND DISCHARGE THE
DUTIES SET FORTH IN THIS AGREEMENT IN COMPLIANCE WITH (I) THE TERMS AND
CONDITIONS OF THIS AGREEMENT, (II) THE ARTICLES OF INCORPORATION AND BYLAWS OF
THE COMPANY, EACH AS AMENDED FROM TIME TO TIME, (III) THE COMPANY’S STATED
INVESTMENT OBJECTIVES, POLICIES AND LIMITATIONS, (IV) APPLICABLE LAWS AND
REGULATIONS, AND SUBJECT TO THE SUPERVISION OF THE COMPANY’S BOARD OF DIRECTORS
(THE “BOARD”).

2.          SERVICES AND DUTIES OF ADVISER

(A)           ADVISER SHALL:

(I)            (A) MANAGE THE INVESTMENT AND REINVESTMENT OF THE COMPANY’S
ASSETS, INCLUDING IDENTIFYING, EVALUATING, AND STRUCTURING SUCH INVESTMENTS;

 

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(B) CONTINUOUSLY REVIEW, SUPERVISE AND ADMINISTER THE COMPANY’S INVESTMENT
PROGRAM TO DETERMINE IN ITS DISCRETION THE SECURITIES TO BE PURCHASED OR SOLD
AND THE PORTION OF THE COMPANY’S ASSETS TO BE HELD UN-INVESTED; (C) OFFER TO
PROVIDE SIGNIFICANT MANAGERIAL ASSISTANCE TO THE ISSUERS OF SECURITIES IN WHICH
THE COMPANY IS INVESTED AS REQUIRED BY THE INVESTMENT COMPANY ACT; (D) ARRANGE
DEBT FINANCING FOR THE COMPANY; (E) PROVIDE THE COMPANY WITH ALL REQUIRED
RECORDS CONCERNING ADVISER’S EFFORTS ON BEHALF OF THE COMPANY; AND (F) PROVIDE
REGULAR REPORTS TO THE COMPANY’S BOARD CONCERNING ADVISER’S ACTIVITIES ON BEHALF
OF THE COMPANY; AND

(II)           MANAGE THE COMPANY’S DAY-TO-DAY OPERATIONS AND ADMINISTRATION,
RECORD KEEPING AND REGULATORY COMPLIANCE FUNCTIONS.  WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, ADVISER SPECIFICALLY SHALL BE RESPONSIBLE FOR (A)
PREPARING PERIODIC FINANCIAL STATEMENTS; (B) PREPARING FINANCIAL AND ACCOUNTING
REPORTS FOR PRESENTATION TO THE COMPANY’S BOARD AND FOR STOCKHOLDERS AND
GOVERNMENTAL AGENCIES; (C) CALCULATING AND PUBLISHING THE COMPANY’S NET ASSET
VALUE PER SHARE; (D) OVERSEEING THE PREPARATION AND FILING OF THE COMPANY’S TAX
RETURNS; (E) PREPARING AND PROVIDING SUCH REPORTS TO THE COMPANY’S BOARD AND
STOCKHOLDERS AS MAY FROM TIME TO TIME BE CONSIDERED NECESSARY OR APPROPRIATE BY
THE COMPANY’S BOARD OR ADVISER; (F) OVERSEEING PAYMENT OF THE COMPANY’S EXPENSES
AND PERFORMANCE OF ADMINISTRATIVE AND PROFESSIONAL SERVICES RENDERED TO THE
COMPANY BY OTHERS; (G) OVERSEEING PREPARATION OF AN ANNUAL PROXY STATEMENT AND
CONDUCTING THE ANNUAL MEETING OF STOCKHOLDERS OF THE COMPANY; AND (H) MANAGING
SUCH OTHER OPERATIONAL, ADMINISTRATIVE AND REGULATORY COMPLIANCE DUTIES AS SHALL
FROM TIME TO TIME ARISE AS A RESULT OF THE COMPANY’S OPERATIONS AND INVESTING
ACTIVITIES.

(B)           ADVISER SHALL FOR ALL PURPOSES HEREIN PROVIDED BE DEEMED TO BE AN
INDEPENDENT CONTRACTOR AND, EXCEPT AS EXPRESSLY PROVIDED OR AUTHORIZED HEREIN,
SHALL HAVE NO AUTHORITY TO ACT FOR OR REPRESENT THE COMPANY IN ANY WAY OR
OTHERWISE BE DEEMED AN AGENT OF THE COMPANY.

(C)           ADVISER MAY, SUBJECT TO THE APPROVALS REQUIRED UNDER THE
INVESTMENT COMPANY ACT, EMPLOY ONE OR MORE SUB-INVESTMENT ADVISERS TO ASSIST
ADVISER IN THE PERFORMANCE OF ITS DUTIES UNDER THIS AGREEMENT.  SUCH USE DOES
NOT RELIEVE ADVISER OF ANY DUTY OR LIABILITY IT WOULD OTHERWISE HAVE UNDER THIS
AGREEMENT.  COMPENSATION OF ANY SUCH SUB-INVESTMENT ADVISER FOR SERVICES
PROVIDED AND EXPENSES ASSUMED UNDER ANY AGREEMENT BETWEEN ADVISER AND SUCH
SUB-INVESTMENT ADVISER PERMITTED UNDER THIS PARAGRAPH IS THE SOLE RESPONSIBILITY
OF ADVISER.

3.          COMPENSATION

(A)           THE COMPANY SHALL PAY TO ADVISER AS COMPENSATION FOR ADVISER’S
SERVICES RENDERED A QUARTERLY INVESTMENT ADVISORY FEE EQUAL TO FIVE SIXTEENTHS
OF ONE PERCENT (0.3125%) OF THE COMPANY’S TOTAL ASSETS (THE “ADVISORY FEE”), AND
FOR THE FACILITIES FURNISHED AND FOR THE EXPENSES BORNE BY ADVISER PURSUANT TO
SECTION 4 THE COMPANY SHALL PAY TO ADVISER A QUARTERLY ADMINISTRATIVE FEE EQUAL
TO THREE SIXTEENTHS OF ONE PERCENT (0.1875%) OF THE COMPANY’S TOTAL ASSETS (THE
“ADMINISTRATIVE FEE”). THE ADVISORY FEE AND ADMINISTRATIVE FEE ARE HEREINAFTER
REFERRED TO COLLECTIVELY AS THE

 

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“MANAGEMENT FEE.”  THE MANAGEMENT FEE SHALL BE COMPUTED ON THE BASIS OF THE
COMPANY’S QUARTER ENDING TOTAL ASSETS AND SHALL BE PAID TO ADVISER AS SOON AS
PRACTICAL AFTER THE QUARTER-ENDING TOTAL ASSET AMOUNT HAS BEEN DETERMINED BUT IN
NO CASE IN LESS THAN 30 DAYS AFTER THE END OF THE QUARTER.  FOR PURPOSES OF THIS
SECTION 3, “TOTAL ASSETS” MEANS THE TOTAL ASSETS OF THE COMPANY AS REDUCED BY
CASH AND CASH EQUIVALENTS PLEDGED TO CREDITORS AND WITHOUT REDUCTION FOR ANY
LIABILITIES OF THE COMPANY WHETHER ACCRUED OR INCURRED.

(B)           IN THE EVENT THAT ADVISER HAS AGREED TO A FEE WAIVER OR AN EXPENSE
LIMITATION OR REIMBURSEMENT ARRANGEMENT WITH THE COMPANY, SUBJECT TO SUCH TERMS
AND CONDITIONS AS ADVISER AND THE COMPANY MAY SET FORTH IN SUCH AGREEMENT, THE
MANAGEMENT FEE DUE ADVISER HEREUNDER SHALL BE REDUCED, AND, IF NECESSARY,
ADVISER SHALL BEAR EXPENSES WITH RESPECT TO THE COMPANY TO THE EXTENT REQUIRED
BY SUCH FEE WAIVER OR EXPENSE LIMITATION OR REIMBURSEMENT AGREEMENT.

(C)           IN THE EVENT THIS AGREEMENT IS TERMINATED, ANY COMPENSATION TO
WHICH ADVISER MAY BE ENTITLED TO RECEIVE PURSUANT TO THIS SECTION 3 SHALL BE
COMPUTED AS OF THE PERIOD ENDING ON THE LAST BUSINESS DAY ON WHICH THIS
AGREEMENT IS IN EFFECT, SUBJECT TO PRO RATA ADJUSTMENT BASED ON THE NUMBER OF
DAYS ELAPSED IN THE CURRENT MONTH AS A PERCENTAGE OF THE TOTAL NUMBER OF DAYS IN
SUCH MONTH.

4.          EXPENSES

(A)           ADVISER WILL PAY FOR ITS OWN ACCOUNT ALL COSTS AND EXPENSES
INCURRED BY ADVISER IN RENDERING ITS SERVICES PURSUANT TO THIS AGREEMENT. 
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, ADVISER WILL PAY (I) THE
SALARIES AND OTHER EMPLOYEE BENEFITS OF THE PERSONS IN ITS ORGANIZATION WHOM
ADVISER MAY ENGAGE TO RENDER SUCH SERVICES, INCLUDING WITHOUT LIMITATION PERSONS
WHO MAY FROM TIME TO TIME ACT AS THE COMPANY’S OFFICERS OR DIRECTORS, PROVIDED,
HOWEVER, THAT THE COMPANY’S BOARD MAY, IN ITS SOLE DISCRETION, AWARD TO THE
COMPANY’S OFFICERS, EMPLOYEES OR DIRECTORS (AS DESCRIBED IN THE COMPANY’S EQUITY
INCENTIVE PLAN ADOPTED BY THE COMPANY’S BOARD AND STOCKHOLDERS IN ACCORDANCE
WITH THE INVESTMENT COMPANY ACT) OPTIONS TO ACQUIRE SHARES OF THE COMPANY’S
COMMON STOCK, WHICH SHALL NOT BE DEEMED PART OF SUCH PERSONS’ SALARIES OR OTHER
EMPLOYEE BENEFITS IN RESPECT OF THEIR EMPLOYMENT BY ADVISER, AND (II) THE COST
OF OFFICE SPACE, EQUIPMENT AND SERVICES, INCLUDING TELEPHONE SERVICE, HEAT,
UTILITIES, AND SIMILAR ITEMS REQUIRED FOR THE COMPANY’S DAY-TO-DAY OPERATIONS.

(B)           THE COMPANY WILL BE RESPONSIBLE TO PAY ALL OF ITS OPERATING
EXPENSES, EXCEPT THOSE SPECIFICALLY REQUIRED TO BE BORNE BY ADVISER UNDER THIS
AGREEMENT, AND THE COMPANY WILL REIMBURSE ADVISER PROMPTLY, AGAINST ADVISER’S
VOUCHER, FOR ANY EXPENSES INCURRED BY ADVISER FOR THE COMPANY’S ACCOUNT. 
WITHOUT LIMITATION, SUCH OPERATING EXPENSES TO BE PAID BY THE COMPANY WILL
INCLUDE ALL THE FEES AND DISBURSEMENTS OF OR TO THE COMPANY’S COUNSEL,
ACCOUNTANTS, CUSTODIAN, TRANSFER AGENT AND REGISTRAR; INTEREST AND TAXES; FEES
AND EXPENSES INCURRED IN PRODUCING AND EFFECTING FILINGS WITH FEDERAL AND STATE
SECURITIES ADMINISTRATORS; COSTS OF THE COMPANY’S PERIODIC REPORTS TO AND OTHER
COMMUNICATIONS WITH THE COMPANY’S STOCKHOLDERS; ALL OTHER EXPENSES INCIDENTAL TO
HOLDING MEETINGS OF THE COMPANY’S STOCKHOLDERS, INCLUDING PROXY

 

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SOLICITATIONS THEREFORE; ALL EXPENSES OF ANY OFFERING AND SALE BY THE COMPANY OF
ITS CAPITAL STOCK; FEES AND EXPENSES OF MEMBERS OF THE COMPANY’S BOARD WHO ARE
NOT DIRECTORS, MANAGERS, OFFICERS OR EMPLOYEES OF THE ADVISER OR OF ANY ENTITY
AFFILIATED WITH ADVISER; PREMIUMS FOR THE FIDELITY BOND, DIRECTORS AND OFFICERS
AND ERRORS AND OMMISSIONS INSURANCE POLICIES MAINTAINED BY THE COMPANY; ALL
TRANSACTION COSTS INCIDENT TO THE ACQUISITION AND DISPOSITION OF SECURITIES BY
THE COMPANY, INCLUDING, WITHOUT LIMITATION, LEGAL AND ACCOUNTING FEES AND OTHER
PROFESSIONAL OR TECHNICAL FEES AND EXPENSES (E.G., CREDIT REPORT, TITLE SEARCH
AND DELIVERY CHARGES, COSTS OF SPECIALIZED CONSULTANTS SUCH AS ACCOUNTANTS OR
INDUSTRY-SPECIFIC TECHNICAL EXPERTS, AND DEAL-SPECIFIC TRAVEL EXPENSES) INCURRED
IN MONITORING, NEGOTIATING AND WORKING-OUT SUCH INVESTMENTS, AS WELL AS
RESPONDING TO ANY LITIGATION ARISING THEREFROM.  IN ADDITION, THE COMPANY WILL
REIMBURSE ADVISER PROMPTLY, AGAINST ADVISER’S VOUCHER, FOR (A) ANY ORIGINATION
FEE WITH RESPECT TO ANY LOAN OR INVESTMENT MADE BY THE COMPANY THAT WAS
IDENTIFIED OR REFERRED TO THE COMPANY BY ANY THIRD PARTY WITH WHICH THE COMPANY
OR ADVISER THEN HAS A WRITTEN AGREEMENT OR ARRANGEMENT THAT SPECIFIES THE AMOUNT
OR RATE OF SUCH FEE OR (B) ANY ORIGINATION FEE WITH RESPECT TO ANY LOAN OR
INVESTMENT MADE BY THE COMPANY THAT WAS IDENTIFIED OR REFERRED TO THE COMPANY BY
ANY THIRD PARTY WITH WHICH THE COMPANY OR ADVISER THEN DOES NOT HAVE A WRITTEN
AGREEMENT OR ARRANGEMENT.  ALL SUCH ORIGINATION FEES REIMBURSED TO ADVISER WILL
BE REVIEWED AS OF THE END OF EACH CALENDAR QUARTER BY THE COMPANY’S BOARD.

(C)           THE COMPANY’S BOARD RETAINS, AND HAS THE EXCLUSIVE RIGHT, TO:

(I)            GRANT STOCK COMPENSATION TO THE OFFICERS AND DIRECTORS OF THE
COMPANY AND ANY EMPLOYEE OF THE ADVISER WHO IS ALSO AN EMPLOYEE OF THE COMPANY
(“DUAL EMPLOYEES”);

(II)           HIRE, FIRE AND  CONTROL THE ACTIVITIES OF DUAL EMPLOYEES IN
CONNECTION WITH AND TO THE EXTENT OF SUCH DUAL EMPLOYEES’ SERVICES PROVIDED TO
THE COMPANY;

(III)          DETERMINE THE ECONOMIC VALUE OF THE SERVICES PERFORMED BY DUAL
EMPLOYEES FOR THE COMPANY (INCLUDING WAGES AND THE NUMBER OF UNITS AND VALUE OF
ANY STOCK COMPENSATION GRANTED TO SUCH DUAL EMPLOYEES); AND

(IV)          REMIT FUNDS SUFFICIENT TO COVER THE COMPLETE COMPENSATION,
INCLUDING ALL PAYROLL TAXES, OF DUAL EMPLOYEES PROVIDING SERVICES TO THE
COMPANY.

5.          LIMITATION OF LIABILITY

In the absence of: (i) willful misfeasance, bad faith or gross negligence on the
part of Adviser in the performance of its obligations and duties hereunder; (ii)
reckless disregard by Adviser of its obligations and duties hereunder; or (iii)
a loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages shall be limited
to the period and the amount set forth in Section 36(b)(3) of the Investment
Company Act), Adviser shall not be subject to liability to the Company or any of
its stockholders for any error of

 

 

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judgment, mistake of law or any other act or omission in the course of, or
connected with, its rendering of services hereunder including, without
limitation, for any losses that may be sustained in connection with the
purchase, holding, redemption or sale of any security by Adviser on behalf of
the Company.

6.          EXCLUSIVITY

The services provided by Adviser hereunder are not exclusive and Adviser shall
therefore remain free to render such services to others.

7.          DURATION

This Agreement shall be effective beginning on the date set forth in the
preamble hereof, and shall remain in force for an initial period of two (2)
years. Upon expiration of the initial term, the term of this Agreement shall be
automatically extended for successive one (1) year periods, provided that each
such one (1) year extension is approved by the Company’s Board or by the holders
of at least a majority of the Company’s outstanding voting securities, and the
vote of a majority of the Company’s directors who are not parties to this
Agreement or interested persons of any such party, in accordance with the
requirements of the Investment Company Act.

8.          TERMINATION

(A)           THIS AGREEMENT MAY BE TERMINATED BY (I) THE COMPANY’S BOARD OR
(II) THE HOLDERS OF A MAJORITY OF THE COMPANY’S OUTSTANDING VOTING SECURITIES AT
ANY TIME AND WITHOUT PENALTY, UPON DELIVERY OF WRITTEN NOTICE OF SUCH
TERMINATION AT LEAST SIXTY (60) DAYS PRIOR TO THE TERMINATION DATE.

(B)           THIS AGREEMENT MAY BE TERMINATED BY ADVISER AT ANY TIME AND
WITHOUT PENALTY, UPON DELIVERY OF WRITTEN NOTICE OF SUCH TERMINATION AT LEAST
SIXTY (60) DAYS PRIOR TO THE TERMINATION DATE.

(C)           THIS AGREEMENT SHALL IMMEDIATELY AND AUTOMATICALLY TERMINATE IN
THE EVENT OF ITS ASSIGNMENT WITHOUT THE WRITTEN CONSENT OF THE COMPANY.

9.          AMENDMENTS

This Agreement may be amended with the mutual consent of the parties; provided,
however, that the Company shall not consent to any such amendment unless such
amendment shall be approved by (i) a majority of the Company’s directors, (ii) a
majority the Company’s directors who are not interested persons of the Company
or of Adviser and (iii) the holders of a majority of the Company’s outstanding
voting securities.

10.        SEVERABILITY

If any term or condition of this Agreement shall be found to be invalid or
unenforceable to any extent or in any application, the remainder of this
Agreement,

 

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including such term or condition, except to the extent or in such application
such term or condition is held invalid or unenforceable, shall not be affected
thereby, and each and every term and condition of this Agreement shall be valid
and enforceable to the fullest extent and in the broadest application permitted
by law.

11.        CAPTIONS

The captions of this Agreement are included for convenience only and in no way
define or limit any of the provisions hereof or otherwise affect their
construction or effect.

12.        DEFINITIONS

For purposes of this Agreement, “majority of the outstanding voting securities,”
“assignment” and “interested person” shall have the respective meanings assigned
to them in the Investment Company Act, subject, however, to such exemptions as
may be granted by the Securities and Exchange Commission pursuant to its
rule-making authority as set forth in the Investment Company Act or the Advisers
Act, as the case may be.

13.        NOTICES

All notices required or permitted to be delivered under or pursuant to this
Agreement shall be so delivered by certified mail, postage prepaid, as follows:

If to Adviser:

 

Gladstone Management Corporation

1750 Tyson’s Blvd., 4th Floor

McLean, VA 22102

Attn:  David Gladstone

If to the Company:

 

Gladstone Capital Corporation

1616 Anderson Road, 2nd Floor

McLean, VA 22102

Attn:  Terry Brubaker and Harry Brill

Any notice delivered pursuant to this Section 13 shall be deemed delivered on
the third day following its deposit in the United States mail or the date such
notice is actually received by the addressee, whichever shall occur first.

14.        ENTIRE AGREEMENT

This Agreement contains the entire agreement of the parties with respect to the
matters referred to herein and supersedes all prior agreements, negotiations,
commitments or understandings.

 

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15.        COUNTERPARTS

This Agreement may be executed in any number of counterparts, each of which when
so executed and delivered shall be taken to be an original and together shall
constitute one and the same document.

16.        GOVERNING LAW

This Agreement shall be construed in accordance with the laws of the State of
Delaware and the applicable provisions of the Investment Company Act and the
Investment Advisers Act.

17.        EFFECTIVE DATE

This Agreement shall become effective on October 1, 2004 or any date before that
date if both parties agree.

IN WITNESS WHEREOF, the undersigned have executed and delivered this Agreement
as of the date first above written.

 

Gladstone Capital Corporation

 

 

 

 

By

/s/ TERRY BRUBAKER

 

 

Terry Brubaker
President and COO
Gladstone Management Corporation

 

 

 

By

/s/ DAVID GLADSTONE

 

 

David Gladstone
Chairman of the Board and CEO

 

 

 

 

 

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