Mr. Eugene Stark
7 Linderberry Court
Martinsville, NJ 08836


Dear Gene:

This letter confirms the terms of your employment with Prospect Administration,
LLC ("PA"), the administrator of Prospect Energy Corporation ("PSEC"). Although
you will be employed by PA, your engagement will be as Chief Financial Officer
of PSEC.

Your primary responsibility will be to fulfill all responsibilities of the Chief
Financial Officer of PSEC.

You will be compensated at a rate so as to be entitled to an annual salary of
$150,000, payable in 12 monthly installments in arrears. Your initial target
bonus will be $150,000 for any full calendar year (pro rated for the portion of
the current calendar year remaining), depending on your and PSEC's performance,
paid at the end of such calendar year or as soon thereafter as practicable. The
full target bonus will be paid unless the Board of Directors of PSEC directs a
lesser amount pursuant to a resolution stating the reasons therefor. Your full
time start date will be on January 3, 2004.

In addition, Prospect Capital Management, LLC ("PCM"), the investment adviser of
PSEC, allocates up to half (50%) of the incentive carry received under the
investment advisory agreement between PSEC and PCM to the professionals
originating, closing, monitoring and exiting the transactions earning that
incentive carry (the "Professional Share"), and you will receive from PCM 1/20
(5%) of that Professional Share (1/40 or 2.5% of the entire incentive carry) as
and when paid during your tenure with PSEC. You hereby agree and acknowledge
that your employment under the terms of this letter does not include being a
member of the investment committee of PCM and your participation in the
Professional Share as described above shall not entitle you to any such
position.

You understand that any increase in the amount of your bonus, and incentive
carry payments in excess of the minimum stated above, if any, will be subject to
the sole discretion of the Board of Directors of PSEC (in the case of the bonus)
and PSEC and PCM (in the case of the incentive carry), which discretion shall be
subject to no




standard of reasonableness or review, and shall give rise to no claim in any
judicial, regulatory or arbitration body.

You will receive the same health benefit package I receive (the waiting period
is 30 days).

This agreement may be terminated at any time by either party provided that, if
you are terminated not for cause, you shall be paid $300,000. Cause shall be
defined as (i) willful failure to discharge the responsibilities of the Chief
Financial Officer, (ii) commission of a felony involving dishonesty or (iii) a
finding by the Board of Directors of PSEC that you have committed a wrongful act
materially adverse to PSEC. In addition to other common law duties imposed on an
officer or employee, you agree not to aid any competitor to the potential
detriment of PSEC, PA, PCM or their affiliates during the term of your
employment with PA or your position as Chief Financial Officer of PSEC and for
six months thereafter.

You agree to respect the confidentiality of all confidential or proprietary
information you obtain as a result of your employment by PA or your position
with PSEC or its affiliates. You agree not to use any such confidential or
proprietary information to compete with or otherwise harm PSEC, PA, PCM or any
of their affiliates. You agree to keep this agreement confidential, except as
required by law. This confidentiality provision shall survive for two years
following the term of this agreement.

This agreement shall be governed by the laws of the State of New York for
contracts made and to be enforced therein. We agree that we shall resolve any
dispute through binding arbitration in New York City according to the rules of
the American Arbitration Association.

This agreement is our entire agreement, superseding all other agreements, and
this agreement cannot be amended except in writing by the party charged.

You acknowledge that allocations of credit to team members for closed
transactions and for bonus purposes is not amenable to any simple or precise
formula but must be entrusted to the discretion of PSEC and PCM; accordingly,
wherever this agreement refers to such allocations or to the discretion of PSEC
and PCM, such discretion is subject to no standard of reasonableness, shall be
unreviewable by any judicial, arbitration or regulatory body and shall not give
rise to any claim in arbitration or the courts.




Gene, you have an important role and we look forward to you stepping aboard as
soon as possible.

Very truly yours,


Prospect Energy Corporation

By:  ____________________
      Name:  John Barry
      Title: Chief Executive Officer


Prospect Administration, LLC

By:  ____________________
      Name:  John Barry
      Title:

Prospect Capital Management, LLC
(solely for purposes of the portion of this letter
relating to the participation in its carried interest)

By: _____________________
      Name:  John Barry
      Title:



Accepted and Agreed to:



_________________________
Eugene Stark


_________________________
Date