-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QrNXyRYE8UgtOIBrh+v/r82RQphOgzeuGjTji5H/qGtypISssepdjUW1ii8qvowy 4CfOqetVs9Gix4/QPKfZfg== 0000947871-05-000046.txt : 20050110 0000947871-05-000046.hdr.sgml : 20050110 20050107215447 ACCESSION NUMBER: 0000947871-05-000046 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050107 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Changes in Registrant.s Certifying Accountant ITEM INFORMATION: Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers ITEM INFORMATION: Other Events ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050110 DATE AS OF CHANGE: 20050107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROSPECT ENERGY CORP CENTRAL INDEX KEY: 0001287032 IRS NUMBER: 432048643 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 814-00659 FILM NUMBER: 05519501 BUSINESS ADDRESS: STREET 1: 10 EAST 40TH STREET 44TH FL CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 212-448-0702 MAIL ADDRESS: STREET 1: 10 EAST 40TH STREET 44TH FL CITY: NEW YORK STATE: NY ZIP: 10016 FORMER COMPANY: FORMER CONFORMED NAME: PROSPECT STREET ENERGY CORP DATE OF NAME CHANGE: 20040414 8-K 1 f8k_010305.txt CURRENT REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): January 3, 2005 PROSPECT ENERGY CORPORATION (Exact name of registrant as specified in its charter)
Maryland 333-114552 43-2048643 - -------------------------------- ------------------------ --------------------------------- (State or other jurisdiction of (Commission File Number) (I.R.S. Employer Identification incorporation) Number)
10 East 40th Street, New York, New York 10016 ----------------------------------------------------- (Address of principal executive offices) (Zip Code) (212) 448-0702 ----------------------------------------------------- (Registrant's telephone number, including area code) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2.): |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) SECTION 1 - REGISTRANT'S BUSINESS AND OPERATIONS Item 1.01 Entry into a Material Definitive Agreement. The information set forth in Item 5.02(c) below and the agreements filed as Exhibits 10.1 and 10.2 hereto are incorporated by reference into this Item 1.01. SECTION 4 - MATTERS RELATED TO ACCOUNTANTS AND FINANCIAL STATEMENTS Item 4.01 Changes in Registrant's Certifying Accountant. (a) On January 4, 2005, KPMG notified the management of the Company and the Audit Committee that it had decided to resign as the Company's independent auditors because, based on their assessment of available resources and the expected future service needs of the Company, KPMG had concluded that it could not fully service the needs of the Company. In resigning, KPMG advised the Company that due to the existence of the internal investigation, it is possible that additional information could arise that might materially impact the fairness or reliability of the financial statements of the Company. Based upon inquiries made of KPMG in connection with the internal investigation, KPMG stated to the Company that it was not in possession of any such information at this time. The report of KPMG on the Company's financial statements as of June 24, 2004 and for the period from inception, April 13, 2004 to June 24, 2004 did not contain an adverse opinion or a disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles. In connection with that audit and in the subsequent interim period, which KPMG reviewed, there were no disagreements between KPMG and the Company on any matter of accounting principles or practice, financial statement disclosure or auditing scope or procedure or any other reportable events requiring disclosure in accordance with Item 304 of Regulation S-K. The Company highly values the work of KPMG as its auditor and appreciates the valuable assistance they provided during the Company's initial public offering and thereafter. The Company provided KPMG with a copy of the foregoing disclosures and requested in writing that KPMG furnish the Company with a letter addressed to the Securities and Exchange Commission stating whether it agrees with such disclosures. Upon receipt of the letter from KPMG, the Company will file such letter as an exhibit to its current report on Form 8-K. (b) On January 7, 2005, the Audit Committee of the Company's Board of Directors (the "Audit Committee") approved the engagement of BDO as the Company's independent auditors. The Company had retained BDO as independent accountants for the acquisition of its subsidiary, Gas Solutions II Ltd. The Company, or anyone acting on its behalf, has not consulted with BDO with respect to either (1) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company's financial statements, or (2) any matter that was the subject of a disagreement, as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K, or a reportable event, as that term is defined in Item 304(a)(1)(v) of Regulation S-K. The engagement of BDO is subject to BDO's completion of its diligence and the conclusion of the Audit Committee's investigation of the allegations. The Company looks forward to a long and productive relationship with BDO. SECTION 5 - CORPORATE GOVERNANCE AND MANAGEMENT Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers. 1 (c) The Company announced that Eugene S. Stark has joined Prospect Administration, LLC to serve as Chief Financial Officer of Prospect Energy Corporation effective January 3, 2005, and William E. Vastardis, Co-Chief Executive Officer of EOS Compliance Services LLC, has been retained to serve as Chief Compliance Officer of Prospect Energy Corporation and Prospect Capital Management, LLC, its investment adviser, effective January 4, 2005. The Company and Prospect Capital Management have each contracted with EOS Compliance Services LLC for Mr. Vastardis' services as Chief Compliance Officer, as well as for other compliance-related services that may be provided by EOS Compliance Services LLC. Mr. Vastardis will continue to perform his duties for EOS Compliance Services LLC and EOS Fund Services LLC as described below. Mr. Stark (age 46) has over 20 years of experience with investment companies registered under the Investment Company Act of 1940. Mr. Stark was employed by Prudential Financial, Inc. during the last 17 years, most recently serving as Vice President of Finance in its annuity business. Prior to that, he was principally associated with Prudential's retail mutual fund and investment products business, serving in a series of financial roles, including Treasurer of many of Prudential's investment companies. Before joining Prudential, Mr. Stark spent five years with Deloitte & Touche. He received his undergraduate degree in accounting from Rider University, his Masters in Business Administration from Rutgers University and became a Certified Public Accountant in New Jersey in 1984. Mr. Stark is expected to receive a combined salary and target bonus of approximately $300,000 per annum as remuneration for carrying out his responsibilities as Chief Financial Officer of the Company. This will be paid by Prospect Administration LLC and reimbursed by the Company. Mr. Stark is also entitled to receive an amount equal to 2.5% of the performance fee, if any, paid by the Company to Prospect Capital Management LLC. The Company will not reimburse Prospect Capital Management LLC or Prospect Administration LLC for this portion of Mr. Stark's compensation. The Company has also agreed to pay Mr. Stark a minimum severance equal to one year's salary and bonus in the event his position is terminated. Mr. Stark's appointment is not pursuant to any understanding or arrangement between him and any other person, and there are no family relationships between Mr. Stark and any other director or executive officer of the Company. In addition, Mr. Stark has never had any direct or indirect material interests in any transactions to which the Company has been a party. Mr. Stark's employment agreement is filed as Exhibit 10.1 to this Form 8-K and incorporated herein by reference. Mr. Vastardis (age 49) is a founder and President of EOS Fund Services LLC and Co-Chief Executive Officer of EOS Compliance Services LLC. Mr. Vastardis has over 26 years of experience in fund oversight and administration. Mr. Vastardis founded EOS Fund Services LLC in 2003 and EOS Compliance Services LLC in June 2004. EOS Compliance Services LLC performs chief compliance officer services for various registered mutual funds and registered investment advisers with total assets in excess of $15 billion. Prior to founding EOS Fund Services LLC, he managed a third-party fund administration firm, AMT Capital Services Inc., which was acquired by Investors Bank & Trust Company in 1998. Mr. Vastardis continued in the role of Managing Director at the renamed Investors Capital Services until he departed to found EOS Fund Services LLC. Prior to starting AMT Capital, Mr. Vastardis spent 14 years at The Vanguard Group, where he most recently served as Vice 2 President in charge of the $10 billion Private Label Group that handled the administration of over 45 outside funds. Mr. Vastardis is a graduate of Villanova University. Mr. Vastardis was retained as Chief Compliance Officer pursuant to an agreement between the Company and EOS Compliance Services LLC. For Mr. Vastardis' services as Chief Compliance Officer, he will be compensated at the monthly rate of $6,250, payable to EOS Compliance Services LLC. Mr. Vastardis' appointment is not pursuant to any understanding or arrangement between him and any other person, and there are no family relationships between Mr. Vastardis and any other director or executive officer of the Company. In addition, Mr. Vastardis has never had any direct or indirect material interests in any transactions to which the Company has been a party. Mr. Vastardis' employment agreements with the Company and Prospect Capital Administration are filed as Exhibits 10.2, respectively, to this Form 8-K and incorporated herein by reference. SECTION 8 - OTHER EVENTS. Item 8.01 Other Events. As previously disclosed by the Company in its quarterly report on Form 10-Q filed on November 12, 2004, the Company received a letter from Mark Witt, the former CFO of the Company, and subsequently an investment professional of Prospect Capital Management, alleging unspecified "improprieties." The Audit Committee directed the Company's outside counsel handling Mr. Witt's earlier termination to look into his claims and also retained the law firm of Willkie Farr & Gallagher LLP to investigate his and any other claims, including the allegations being raised by Mr. Witt and the Company's previous CCO and any other claims arising in the course of their investigation. The Audit Committee has preliminarily concluded that none of the allegations made by Mr. Witt or the Company's CCO, or the information subsequently learned in the course of this internal investigation, reflects adversely on the fairness or reliability of the financial statements of the Company. The Audit Committee has further concluded that, on a preliminary basis, in connection with those allegations investigated by Willkie Farr, there is no evidence of fraud by management or material deficiencies in connection with the Company's public disclosure practices. SECTION 9 - FINANCIAL STATEMENTS AND EXHIBITS Item 9.01 Financial Statements and Exhibits. (c) Exhibits. Listed below are the exhibits that are furnished herewith as part of this report (according to the number assigned to them in Item 601 of Regulation S-K): Exhibit No. Description of Document - -------------------------------------------------------------------------------- 10.1 Employment Agreement between Eugene S. Stark and Prospect Administration, LLC 10.2 Agreement between EOS Compliance Services LLC and Prospect Energy Corporation 99.1* Press Release dated January 7, 2005 * The information contained in this form 8-K and Exhibit 99.1 shall not be deemed to be "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. This Form 8-K may contain, among other things, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements with respect to Prospect Energy's plans, objectives, expectations and intentions and other statements identified by words such as "may," "could," "would," "will," "should," "believes," "expects," "anticipates," "estimates," "intends," "plans" or other similar expressions. We base such statements on currently available operating, financial and competitive information; such statements are subject to various risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations. You should not place undue reliance on such forward-looking statements, as they speak only as of the date on which they are made. Additional information regarding these and other risks and uncertainties is contained in our periodic filings with the Securities and Exchange Commission. 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Current Report on Form 8-K to be signed on its behalf by the undersigned hereunto duly authorized. PROSPECT ENERGY CORPORATION (Registrant) By: /s/ John F. Barry III --------------------------------- Name: John F. Barry III Title: Chief Executive Officer Date: January 7, 2005 EX-10.1 2 ex10-1_010305.txt EMPLOYMENT AGREEMENT 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 EX-10.2 3 ex10-2_010305.txt EMPLYMNT AGT VASTARDIS AND PROSPECT ENERGY EXHIBIT 10.2 January _____, 2005 Mr. John F. Barry III Prospect Energy Corporation 10 East 40th Street 44th Floor New York, New York 10016 Re: Appointment of William E. Vastardis as Chief Compliance Officer of Prospect Energy Corporation Dear John: EOS Compliance Services LLC ("EOS Compliance") is pleased to offer to the board of directors (the "board") of Prospect Energy Corporation ("PEC") this proposal to provide the services described herein in connection with the on-going monitoring of PEC's compliance program, as mandated by Rule 38a-1 under the Investment Company Act of 1940, as amended (the "1940 Act"), as promulgated by the Securities and Exchange Commission ("SEC"), and related applicable federal laws and regulations (the "engagement" or "Agreement"). 1. Engagement of William E. Vastardis. Subject to the specific approval of at least a majority of the directors of PEC who are not "interested persons" within the meaning of the 1940 Act (the "independent directors") and in accordance with Rule 38a-1 of the 1940 Act, EOS Compliance hereby designates William E. Vastardis to serve in the capacity of the Chief Compliance Officer (the "CCO") of PEC, an investment company that has elected to be a business development company pursuant to the 1940 Act. The PEC board and specifically the independent directors thereof shall receive such information about the qualifications of and have such access in person or otherwise to Mr. Vastardis so that the board of directors may decide upon his appointment as the CCO with the benefit of all necessary and requested information. By signature hereto of an authorized person, PEC shall evidence the approval by the PEC board, including the independent directors, of the designation of William E. Vastardis as the CCO of PEC as well as his compensation as set forth in this engagement letter. The PEC board hereby acknowledges that William E. Vastardis is the Co-Chief Executive Officer of EOS PEC ____ WEV ____ Prospect Energy Corporation Chief Compliance Officer Appointment Page 2 of 7 Compliance and that certain employees of EOS Compliance shall assist him from time to time as necessary in accomplishing the functions of this CCO engagement. Nothing in this Agreement shall be construed to permit or appoint any other individual or employee of EOS Compliance except William E. Vastardis to serve as the PEC CCO. 2. Independent Authority. The CCO as named herein shall have the power and authority mandated by the PEC board to perform all functions related to that officer capacity. These functions shall be determined as a result of EOS Compliance's activities in connection with the review, continuation and amendment, as needed, of PEC's compliance program and shall be approved by the PEC board from time to time after consultation with the CCO. 3. On-Going Monitoring of the PEC Compliance Program. EOS Compliance shall continue to monitor PEC's compliance program as shall be required in order for PEC to comply with current SEC rules and regulations related to compliance matters, including without limitation Rule 38a-1 under the 1940 Act. In connection therewith, the CCO, or EOS Compliance acting at his direction, shall: o conduct on-going review of PEC's policies and procedures with respect to its existing compliance procedures; o determine policies and procedures that must be created in order for PEC to comply with SEC rules and regulations, including any changes in law, regulations or SEC interpretations thereunder that occur during the term of this Agreement; o edit, revise and update PEC's existing policies and procedures as necessary for PEC to satisfy new SEC rules and regulations; o revise testing criteria and methodology with respect to PEC's compliance policies and procedures, as necessary; o monitor the ongoing activities of PEC and its service providers, including Prospect Capital Management, LLC ("PCM") and Prospect Administration, LLC ("PA"), for compliance with PEC's policies and procedures and applicable laws, rules and regulations; o submit new, material compliance policies and procedures, when prepared or updated, to PEC for board review and approval; and o undertake to perform all other activities reasonably requested to be performed by PEC or otherwise necessary in the judgment of EOS Compliance to complete satisfactorily the scope of this engagement. 4. Cooperation. In furtherance of this engagement and its intended results, the CCO will be relying upon the meaningful and timely cooperation of management and PEC ____ WEV ____ Prospect Energy Corporation Chief Compliance Officer Appointment Page 3 of 7 certain selected personnel of PEC's investment adviser and fund administrator, PCM and PA, respectively. In order for the CCO, or EOS Compliance acting at his direction, to conduct proper and effective on-going monitoring of the PEC compliance programs, PEC acknowledges that the CCO, or EOS Compliance acting at his direction, will require complete and unfettered access to (i) PEC's books and records, (ii) PCM's officers and employees, (iii) all officers and employees of PEC's portfolio companies, (iv) all books and records of PEC's portfolio companies, and (v) a number of third parties (including, without limitation, service providers) with whom PEC has dealings or agreements. 5. In-Person Visits. The CCO shall attend each PEC board meeting upon receipt of reasonable advance notice thereof. The CCO shall also meet privately with the independent directors of the board at their request and no less frequently than annually. In addition, the CCO (or his designee, when appropriate) shall visit PCM or any of PEC's third-party service providers in the ordinary course of performing his duties and as often as is required to discharge the CCO's duties and responsibilities. 6. Term. The term of the CCO role shall be from month to month, starting as of the date hereof, and shall be automatically renewed on a monthly basis unless either the CCO or the PEC board shall otherwise advise the other party by reasonable written notice prior to the next renewal date. 7. Fees. PEC will compensate EOS Compliance for allowing William E. Vastardis to serve as the Chief Compliance Officer of PEC at the monthly rate of US$ 6,250.00. EOS Compliance determines the compensation to be paid to the CCO based on the company's experience in providing compliance services to the investment industry and a case-by-case evaluation of the time and resources that would be required in order to effectively fulfill the duties of the CCO with respect to each registered investment company (or business development company) or registered investment adviser. Any differential in fees paid by an investment company (or business development company) and its affiliated investment adviser with respect to the CCO of each who has or have been appointed by or through the offices of EOS Compliance shall be based solely upon the determination by EOS Compliance that the different CCO roles require different degrees of resources and effort by EOS Compliance personnel. Accordingly, each of a client registered investment company (or business development company) and its affiliated investment adviser for whom EOS Compliance has appointed the CCO shall be billed solely according to the amount of work, effort and services that EOS Compliance determines to have been supplied to each such entity. A registered investment company shall not be permitted to advance or pay for the fees and expenses of its affiliated investment adviser that are due to EOS Compliance. Upon an initial review of the current compliance program in effect at PEC, EOS Compliance has determined that certain special projects outside the purview of the role and office of the CCO may be required in order to amend, make current or further PEC ____ WEV ____ Prospect Energy Corporation Chief Compliance Officer Appointment Page 4 of 7 strengthen PEC's compliance policies and procedures, and evaluate and further organize PEC's books and records in order to comply with applicable federal securities laws and regulations. Such services shall be billed monthly in arrears at the rate of US$ 275.00 per hour. EOS Compliance shall confer with PEC and provide written work orders, as requested, prior to the commencement of any services described or contemplated in this paragraph. PEC will also reimburse EOS Compliance Services LLC for out-of-pocket costs of the CCO and EOS Compliance (including reasonable travel costs required for the CCO and personnel of EOS Compliance acting at his direction to conduct necessary on-site evaluations, due diligence inquiries and other on-going compliance monitoring at PEC's offices or elsewhere on behalf of PEC). Fees for Mr. Vastardis' Chief Compliance Officer services will be invoiced on a monthly basis, payable in advance to EOS Compliance Services LLC, in full by wire transfer upon receipt. Fees for services outside of the CCO role will be invoiced on a monthly basis as incurred, payable to EOS Compliance Services LLC, in full by wire transfer upon receipt. Expenses will be invoiced on a monthly basis, as incurred at the end of each month, payable to EOS Compliance Services LLC, in full by wire transfer upon receipt. In the event that the CCO is terminated for cause pursuant to Section 8 below, EOS Compliance shall rebate any prepaid fees for the month in which the termination occurs. 8. Termination. The PEC board reserves the right to terminate the engagement of the CCO at any time by written notice, subject to Rule 38a-1 under the 1940 Act. If the PEC board terminates the engagement of the CCO without "cause" (as hereinafter defined), then PEC shall be liable to pay the remaining unpaid fees if any that would have accrued to the CCO under Section 7 hereof for the remainder of the then current term of this engagement. Termination for "cause" means that the CCO has materially breached the terms of this engagement letter, has been convicted of a felony, has willfully neglected the performance of his duties as set forth herein, or has been otherwise rendered unable or unqualified to serve as an officer of an investment company pursuant to the applicable provisions of Section 9 of the 1940 Act. This Agreement shall terminate immediately if Mr. Vastardis is no longer associated with EOS Compliance or is for any other reason unable or unwilling to serve as PEC's CCO. 9. Indemnification. Except to the extent prohibited by any federal or state laws to the contrary, the CCO and EOS Compliance shall not be liable to PEC or any affiliate thereof for any errors, acts or omissions in the performance of services hereunder PEC ____ WEV ____ Prospect Energy Corporation Chief Compliance Officer Appointment Page 5 of 7 except for losses arising out of the CCO's reckless disregard of the duties involved in the conduct of the office of the CCO, EOS Compliance's reckless disregard for any of its duties hereunder, or the CCO's or EOS Compliance's willful misconduct or gross negligence in the performance of their respective duties and obligations hereunder. PEC agrees to, and hereby does, indemnify the CCO and EOS Compliance for any claims, losses, costs, damages or expenses whatsoever arising from or due to the CCO's acts or omissions or those of EOS Compliance in the performance or attempted performance of their respective duties hereunder, except for those claims, losses, costs, damages and expenses resulting from the reckless disregard of the duties involved in the conduct of the CCO's office or the willful misconduct or gross negligence of the CCO or the employees, agents or contractors of EOS Compliance acting at the CCO's direction during the course of such performance or attempted performance. Notwithstanding anything to the contrary herein, PEC agrees that the CCO shall be covered as an officer of PEC at all times during this engagement under the directors and officers/errors and omissions insurance policy then in place for PEC's officers and directors. PEC further agrees to hold harmless and indemnify EOS Compliance and the CCO, from any claims, losses, costs, damages and expenses whatsoever arising from the errors, acts or omissions of any of PEC, its affiliates, or any predecessors thereof, and PEC's directors, officers, employees and agents that: (a) occurred or commenced prior or contemporaneous to the engagement of EOS Compliance and the CCO or pursuant to such engagement for any errors, acts or omissions, including the willful misconduct or gross negligence of any of PEC, its affiliates and PEC's directors, officers, employees and agents (excluding EOS Compliance and the CCO) that may arise and of which neither EOS Compliance nor Mr. Vastardis has prior knowledge despite their reasonable efforts under this Agreement; (b) occur pursuant to such engagement and of which neither EOS Compliance nor the CCO has prior knowledge despite their reasonable efforts under this Agreement; (c) occur despite contrary advice or instructions given by the CCO, pursuant to the CCO's duties under this Agreement; or (d) occur in violation of established policies and procedures of PEC or PCM. Furthermore, the parties to this Agreement acknowledge that the CCO and EOS Compliance may reasonably rely upon the statements, representations, and information provided by any of PEC, its affiliates and PEC's directors, officers, employees, counsel and agents in the course of their performance or attempted performance under this Agreement except in so far that the CCO becomes aware of circumstances, facts, or allegations that require, in the CCO's best judgment, reasonable efforts to investigate further in compliance with applicable federal securities and other laws and regulations. PEC ____ WEV ____ Prospect Energy Corporation Chief Compliance Officer Appointment Page 6 of 7 The provisions of this Section 9 shall survive any early termination of the engagement of the CCO without cause, as discussed in Section 8 above. This Section 9 may not be construed in violation of the limitations on indemnification under the 1940 Act, including indemnification for claims, losses, costs, damages and expenses arising as a result of any willful misconduct or gross negligence by the CCO or EOS Compliance under the terms of this Agreement. PEC may, at its option, at any time upon written notice to EOS Compliance, direct the defense of any proceeding subject to this indemnity and may designate counsel reasonably satisfactory to the CCO in connection therewith, provided that the counsel so designated would have no actual or potential conflict of interest in connection with such representation. 10. Confidentiality. The parties hereto agree that each shall treat confidentially the terms and conditions of this Agreement, subject to applicable disclosure requirements under federal securities and other laws and regulations, and all information provided by each party to the other regarding its business and operations. All confidential information provided by a party hereto, shall be used by any other party hereto solely for the purpose of rendering services pursuant to this Agreement. The foregoing shall not be applicable to any information that is publicly available when provided or thereafter becomes publicly available other than through a breach of this Agreement, or that is required to be disclosed by any regulatory authority, by judicial or administrative process or otherwise by applicable law or regulation. 11. Assignment. This Agreement may not be assigned by any party without the express written consent of each other party. 12. Governing Law. This Agreement shall be construed in accordance with laws of the State of New York and the applicable provisions of the 1940 Act, if any. To the extent that the applicable laws of the State of New York, or any of the provisions herein, conflict with the applicable provisions of the Investment Company Act, if any, the latter shall control. 13. Entire Agreement. This Agreement contains the entire agreement of the parties and supersedes all prior agreements, understandings and arrangements with respect to the subject matter hereof. 14. Saving Clause. If any provision of this Agreement, or the application of such provision to any party or circumstance, shall be held invalid, the remainder of this Agreement, or the application of such provision to parties or circumstances other than those as to which it is held invalid, shall not be affected thereby. If the operation of any provision of this Agreement would contravene the provisions of the 1940 Act, such provision shall be void and ineffectual. 15. Notices. Any notice under this Agreement shall be given in writing, addressed and delivered or mailed, postage prepaid, to the other party at its principal office. PEC ____ WEV ____ Prospect Energy Corporation Chief Compliance Officer Appointment Page 7 of 7 16. Counterparts. The Agreement may be executed in several counterparts by facsimile, and all so executed shall constitute one (1) agreement, binding on all the parties hereto, even though all parties are not signatories to the original or the same counterpart. Any counterpart of the Agreement shall for all purposes be deemed a fully executed instrument. The parties hereto shall promptly exchange original signatures in the case that this Agreement is executed by facsimile. If this letter clearly sets forth for the PEC board the scope of the intended engagement of William E. Vastardis as the PEC CCO, as well as the agreement to pay the CCO's compensation and fees, then please sign and return the attached copy of this letter to the undersigned at your earliest convenience. Sincerely, William E. Vastardis EOS Compliance Services LLC ACKNOWLEDGMENT OF PROSPECT ENERGY CORPORATION: On behalf of the Prospect Energy Corporation and its board of directors, and intending to bind PEC, I hereby acknowledge that this engagement letter sets out the full and complete understanding by PEC of the scope and objectives of the described engagement of William E. Vastardis as the PEC CCO, as well as the agreement to pay the fees and costs described hereinabove to EOS Compliance Services LLC. - ---------------------------- Name: John F. Barry III Title: Chairman of the Board Date: January 7, 2005 PEC ____ WEV ____ EX-99.1 4 ex99-1_010305.txt PRESS RELEASE EXHIBIT 99.1 The following press release was issued by Prospect Energy Corporation on January 7, 2005. Prospect Energy Corporation Announces Appointment of Officers and Approval of BDO Seidman Engagement NEW YORK, NY - 01/07/05 - Prospect Energy Corporation (NASDAQ: PSEC) (the "Company") announced today that it has expanded its professional team to enhance its financial and compliance capabilities, that KPMG LLP ("KPMG") has resigned as the Company's independent auditor, and that the Audit Committee of the Board of Directors of the Company (the "Audit Committee") has approved the engagement of BDO Seidman, LLP ("BDO") as its independent auditor. The Company announced that Eugene S. Stark has joined Prospect Administration, LLC to serve as Chief Financial Officer ("CFO") of the Company effective January 3, 2005, and William E. Vastardis, Co-Chief Executive Officer of EOS Compliance Services LLC, has been retained to serve as Chief Compliance Officer ("CCO") of the Company and Prospect Capital Management, LLC, its investment adviser, effective January 4, 2005. The Company and Prospect Capital Management have each contracted with EOS Compliance Services LLC for Mr. Vastardis' services as CCO, as well as for other compliance-related services that may be provided by EOS Compliance Services LLC. Mr. Vastardis will continue to perform his duties for EOS Compliance Services LLC and EOS Fund Services LLC as described below. Mr. Stark (age 46) has over 20 years of experience with investment companies registered under the Investment Company Act of 1940. Mr. Stark was employed by Prudential Financial, Inc. during the last 17 years, most recently serving as Vice President of Finance in its annuity business. Prior to that, he was principally associated with Prudential's retail mutual fund and investment products business, serving in a series of financial roles, including Treasurer of many of Prudential's investment companies. Before joining Prudential, Mr. Stark spent five years with Deloitte & Touche. He received his undergraduate degree in accounting from Rider University, his Masters in Business Administration from Rutgers University and became a Certified Public Accountant in New Jersey in 1984. Mr. Vastardis (age 49) is a founder and President of EOS Fund Services LLC and Co-Chief Executive Officer of EOS Compliance Services LLC. Mr. Vastardis has over 26 years of experience in fund oversight and administration. Mr. Vastardis founded EOS Fund Services LLC in 2003 and EOS Compliance Services LLC in June 2004. EOS Compliance Services LLC performs chief compliance officer services for various registered mutual funds and registered investment advisers with total assets in excess of $15 billion. Prior to founding EOS Fund Services LLC, he managed a third-party fund administration firm, AMT Capital Services Inc., which was acquired by Investors Bank & Trust Company in 1998. Mr. Vastardis continued in the role of Managing Director at the renamed Investors Capital Services until he departed to found EOS Fund Services LLC. Prior to AMT Capital, Mr. Vastardis spent 14 years at The Vanguard Group where he most recently served as Vice President in charge of the $10 billion Private Label Group that handled the administration of over 45 outside funds. Mr. Vastardis is a graduate of Villanova University. "We are delighted with the addition of Gene and Bill to our team," said John F. Barry, Chairman and CEO of Prospect Energy Corporation. "These individuals bring significant industry experience that will enhance our ability to serve our shareholders." As previously disclosed by the Company in its quarterly report on Form 10-Q filed on November 12, 2004, the Company received a letter from Mark Witt, the former CFO of the Company, and subsequently an investment professional of Prospect Capital Management, alleging unspecified "improprieties." The Audit Committee directed the Company's outside counsel handling Mr. Witt's earlier termination to look into his claims and also retained the law firm of Willkie Farr & Gallagher LLP to investigate his and any other claims, including the allegations being raised by Mr. Witt and the Company's previous CCO and any other claims arising in the course of their investigation. The Audit Committee has preliminarily concluded that none of the allegations made by Mr. Witt or the Company's CCO, or the information subsequently learned in the course of this internal investigation, reflects adversely on the fairness or reliability of the financial statements of the Company. The Audit Committee has further concluded that, on a preliminary basis, in connection with those allegations investigated by Willkie Farr, there is no evidence of fraud by management or material deficiencies in connection with the Company's public disclosure practices. On January 4, 2005, KPMG notified the management of the Company and the Audit Committee that it had decided to resign as the Company's independent auditors because, based on their assessment of available resources and the expected future service needs of the Company, KPMG had concluded that it could not fully service the needs of the Company. In resigning, KPMG advised the Company that due to the existence of the internal investigation, it is possible that additional information could arise that might materially impact the fairness or reliability of the financial statements of the Company. Based upon inquiries made of KPMG in connection with the internal investigation, KPMG stated to the Company that it was not in possession of any such information at this time. The report of KPMG on the Company's financial statements as of June 24, 2004 and for the period from inception, April 13, 2004 to June 24, 2004 did not contain an adverse opinion or a disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles. In connection with that audit and in the subsequent interim period, which KPMG reviewed, there were no disagreements between KPMG and the Company on any matter of accounting principles or practice, financial statement disclosure or auditing scope or procedure or any other reportable events requiring disclosure in accordance with Item 304 of Regulation S-K. The Company highly values the work of KPMG as its auditor and appreciates the valuable assistance they provided during the Company's initial public offering and thereafter. The Company provided KPMG with a copy of the foregoing disclosures and requested in writing that KPMG furnish the Company with a letter addressed to the Securities and Exchange Commission stating whether it agrees with such disclosures. Upon receipt of the letter from KPMG, the Company will file such letter as an exhibit to its current report on Form 8-K. On January 7, 2005, the Audit Committee approved the engagement of BDO as the Company's independent auditors. The Company had retained BDO as independent accountants for the acquisition of its subsidiary, Gas Solutions II Ltd. However, the Company, or anyone acting on its behalf, has not consulted with BDO with respect to either (1) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company's financial statements, or (2) any matter that was the subject of a disagreement or a reportable event. The engagement of BDO is subject to BDO's completion of its diligence and the conclusion of the Audit Committee's investigation of the allegations. The Company looks forward to a long and productive relationship with BDO. About Prospect Energy Corporation - --------------------------------- Prospect Energy Corporation is a financial services company that lends to and invests in energy related businesses and assets. Prospect Energy's investment objective is to generate both current income and long-term capital appreciation through debt and equity investments. This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties, including, but not limited to, statements as to our future operating results; our business prospects and the prospects of our portfolio companies; the impact of investments that we expect to make; the dependence of our future success on the general economy and its impact on the industries in which we invest; the ability of our portfolio companies to achieve their objectives; our expected financings and investments; the adequacy of our cash resources and working capital; and the timing of cash flows, if any, from the operations of our portfolio companies. We may use words such as "anticipates," "believes," "expects," "intends", "will", "should," "may" and similar expressions to identify forward-looking statements. Such statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations. Undue reliance should not be placed on such forward-looking statements as such statements speak only as of the date on which they are made. We do not undertake to update our forward-looking statements unless required by law. Contact: Please send investment proposals to: Prospect Energy Corporation John Barry jbarry@prospectstreet.com 212-448-0702 Grier Eliasek grier@prospectstreet.com 212-448-0702 -----END PRIVACY-ENHANCED MESSAGE-----