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
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(State or other jurisdiction of (Commission File Number) (I.R.S. Employer Identification
incorporation) Number)
10 East 40th Street, New York, New York 10016
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(Address of principal executive offices) (Zip Code)
(212) 448-0702
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(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.
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(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
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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
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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.
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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
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Name: John F. Barry III
Title: Chief Executive Officer
Date: January 7, 2005