UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2005
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
Maryland 43-2048643
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [_] No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). [_] Yes [X] No
The number of shares of the registrant's Common Stock, $0.001 par value, outstanding as of April 30, 2005 was 7,055,100.
PROSPECT ENERGY CORPORATION
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2005
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION.................................................1
Item 1. Financial Statements (unaudited)......................................1
Balance Sheets (unaudited)
Statements of Operations (unaudited)
Statement of Changes in Net Assets (unaudited)
Statements of Cash Flows (unaudited)
Statement of Investments (unaudited)
Notes to Financial Statements (unaudited).............................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................14
Item 3. Quantitative and Qualitative Disclosures about Market Risk...........22
Item 4. Controls and Procedures..............................................22
PART II. OTHER INFORMATION....................................................23
Item 1. Legal Proceedings....................................................23
Item 2. Unregistered Sales in Equity Securities and Use of Proceeds..........23
Item 3. Defaults Upon Senior Securities......................................24
Item 4. Submission of matters to a Vote of Security Holders..................24
Item 5. Other Information....................................................24
Item 6. Exhibits.............................................................24
Signatures...........................................................26
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited).
PROSPECT ENERGY CORPORATION AND SUBSIDIARY
BALANCE SHEETS (UNAUDITED)
(in thousands, except share and per share amounts)
--------------------------------------------------------------------------------
March 31, June 30,
2005 2004
--------------------------------------------------------------------------------
Assets
Cash held in segregated account (Note 3) $12,848 $1
Investments, at value
(cost - $84,947, Note 3) 85,361
Accrued interest receivable 94
Prepaid expenses 143
---- ---
Total assets $98,446 $1
======= ==
Liabilities $850
Accounts payable
Accrued liabilities 224
Due to Investment Adviser (Note 5) 319 $100
Due to Prospect Administration (Note 5) 48
Other current liabilities 78
-- ---
Total liabilities 1,519 100
----- ---
Commitments and contingencies
(Notes 3 and 7)
Stockholders' Equity (Notes 1, 4 and 8)
Common stock, par value $.001 per share, 100,000,000
common shares authorized, 7,055,100 issued and
outstanding 7
Paid-in capital in excess of par 96,955 1
Overdistributed net investment income/(loss) (449) (100)
Net unrealized appreciation 414
--- ---
Total stockholders' equity 96,927 (99)
------ ----
Total liabilities and stockholders' equity $98,446 $1
======= ====
Net asset value per share $13.74 N/A
See notes to unaudited financial statements.
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PROSPECT ENERGY CORPORATION AND SUBSIDIARY
STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share amounts)
-------------------------------------------------------------------------------------------------
Three months ended March Nine months ended
31, 2005 March 31, 2005
----------------------------------------------- -------------------------- ----------------------
Investment Income
Interest income $1,288 $2,800
Dividend Income 500 2,200
----- -----
Total investment income 1,788 5,000
----- -----
Operating Expenses
Investment advisory fee 485 1,317
Administration costs 126 295
Legal and professional fees 574 1,718
Insurance expense 89 237
Directors fees 55 147
General and administrative expenses 15 48
-- --
Total operating expenses 1,344 3,762
----- -----
Net investment income 444 1,238
Net unrealized appreciation 414 414
--- ---
Net increase in stockholders' equity resulting
from operations $858 $1,652
==== ======
Basic and diluted net increase in stockholders'
equity per common share resulting from
operations (Note 6) $0.12 $0.23
See notes to unaudited financial statements.
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PROSPECT ENERGY CORPORATION AND SUBSIDIARY
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
(in thousands)
----------------------------------------------------------------------------------------------------------------------
For the period from April 13, 2004 (inception) to March 31, 2005
----------------------------------------------------------------------------------------------------------------------
------------------------------- ----------------------- ---------------- ----------------- ----------------- ---------
PAID IN OVER- TOTAL
COMMON STOCK CAPITAL IN DISTRIBUTED NET NET STOCK
EXCESS OF INVESTMENT UNREALIZED HOLDERS'
SHARES AMOUNT PAR INCOME/(LOSS) APPRECIATION EQUITY
-------------------------------- ---------- ---------- ---------------- ----------------- ----------------- ---------
-------------------------------- ---------- ---------- ---------------- ----------------- ----------------- ---------
Balance, April 13, 2004
(inception)
Issuance of common stock 0.1 $1 $1
Net decrease in stockholder's
equity from operations
for the period from
April 13, 2004
(inception) to June 30,
2004 $(100) (100)
--- -- ------ -------
Balance, June 30, 2004 0.1 1 (100) (99)
Issuance of common stock from
public offering (net of
underwriting costs) 7,055.0 $7 98,417 98,424
Offering costs (1,463) (1,463)
Net increase in stockholders' 1,238 $414 1,652
equity resulting from
operations for the nine
months ended March 31,
2005
Dividends declared and paid (1,587) (1,587)
to shareholders
------- -- ------- ------ ----- -------
Balance, March 31, 2005 7,055.1 $7 $96,955 $(449) $414 $96,927
======= == ======= ====== ===== =======
See notes to unaudited financial statements.
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PROSPECT ENERGY CORPORATION AND SUBSIDIARY
STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
-------------------------------------------------------------------------------
Nine months
ended March
31, 2005
-------------------------------------------------------------------------------
Cash Flows from Operating and Investing Activities:
Net increase in stockholders' equity resulting from operations $1,652
Adjustments to reconcile net increase in stockholders'
equity resulting from operations to net cash used in
operating activities:
Purchases of investments (111,659)
Sale (refinancing) of investments 26,712
Increase in accrued interest receivable (94)
Increase in unrealized appreciation (414)
Increase in prepaid expenses (143)
Increase in accounts payable 850
Increase in amounts due to affiliate 267
Increase in accrued expenses 224
Increase in other current liabilities 78
--------
Net cash used in operating and investing activities (82,527)
--------
Cash Flows from Financing Activities:
Net proceeds from the issuance of common stock 98,424
Offering costs from the issuance of common stock (1,463)
Dividends declared and paid (1,587)
Net cash provided by financing activities 95,374
Net increase in cash 12,847
Cash, beginning of period 1
--------
Cash, end of period $12,848
========
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See notes to unaudited financial statements.
PROSPECT ENERGY CORPORATION AND SUBSIDIARY
STATEMENT OF INVESTMENTS (UNAUDITED)
(in thousands)
March 31, 2005
-----------------------------------------------------------------------------------------------------------
PRINCIPAL
PORTFOLIO LOCALE/ AMOUNT/ FAIR VALUE % OF NET
INVESTMENTS INDUSTRY SHARES COST (1) ASSETS
-----------------------------------------------------------------------------------------------------------
Gas Solutions Texas/Gas
Holdings Inc., (2) gathering &
processing
- Common shares 100 $4,930 $5,344 5.5%
- Subordinated secured
note, 18%, 12/23/11 $18,400 18,400 18,400 19.0%
------ ------ -----
23,330 23,744 24.5%
------ ------ -----
Natural Gas Systems, Inc. Texas/oil & gas
(3) production
- Warrants 1,000 210 210 0.2%
- Senior secured note,
14%, 2/3/10 $4,000 3,724 3,724 3.8%
----- ----- ----
3,934 3,934 4.0%
----- ----- ----
Unity Virginia Holdings, Virginia/Coal
LLC (3) production
- Preferred stock, 100%,
non-voting $585 585 585 0.6%
- Subordinated secured
note, 17.65%, 1/31/09 $3,315 3,202 3,202 3.4%
----- ----- ----
3,787 3,787 4.0%
----- ----- ----
Total Portfolio
Investments $31,051 $31.465 32.5%
======= ======= =====
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AMORTIZED % OF NET
U.S. GOVERNMENT SECURITIES YIELD PAR VALUE COST FAIR VALUE ASSETS
--------------------------------------------------------------------------------------------------------------
U-S. Treasury bill 4/7/05 2.49% $16,039 $16,032 $16,032 16.5%
U.S. Treasury bill 4/14/05 2.52% 10,043 10,034 10,034 10.4%
U.S. Treasury bill 4/21/05 2.55% 10,024 10,009 10,009 10.3%
U.S. Treasury bill 4/28/05 2.58% 11,119 11,098 11,098 11.5%
U.S. Treasury bill 5/5/05 2.61% 4,000 3,990 3,990 4.1%
------- ------- ----
Total U.S. Government
Securities $51,163 $51,163 52.8%
------- ------- ----
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First American Prime Obligation
Fund (Class Y) $ 2,733 $ 2,733 2.8%
------- ------- ----
Total Investments $84,947 $85,361 88.1%
======= ======= ====
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See notes to unaudited financial statements
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(in thousands except per share amounts)
Note 1. Organization and Financial Statements
Prospect Energy, a Maryland corporation, was organized on April 13, 2004 and is a closed-end investment company that has filed an election to be treated as a business development company under the 1940 Act. On July 27, 2004, the Company completed its initial public offering and sold 7,000 shares of common stock at a price of $15.00 per share, less underwriting discounts and commissions totaling $1.05 per share. On August 27, 2004, an additional 55 shares were issued for a price of $15.00 per share, less underwriting discounts and commissions of $1.05 per share in connection with the exercise of an over-allotment option with respect to the offering.
Prospect Energy focuses primarily on investments in energy companies and will invest, under normal circumstances, at least 80% of its net assets (including the amount of any borrowings for investment purposes) in these companies. At March 31, 2005, 32.5% of its net assets were invested in energy companies with the remainder invested in U.S. government and money market securities. Prospect Energy is a non-diversified company within the meaning of the 1940 Act. Prospect Energy concentrates on making investments in energy companies having annual revenues of less than $250,000 and in transaction sizes of less than $100,000. In most cases, these companies are privately held or have thinly traded public equity securities.
These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or "GAAP," applicable to interim financial information and the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended.
In the opinion of management, all adjustments, consisting solely of normal recurring accruals, considered necessary for the fair presentation of the financial statements for the period, are included herein. The current period's results of operations will not necessarily be indicative of results that we may ultimately achieve for the fiscal year ending June 30, 2005.
As an investment company, Prospect Energy only consolidates subsidiaries which are also investment companies.
Note 2. Significant Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported period. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ.
The following are significant accounting policies consistently applied by Prospect Energy:
Investments:
(a) Security transactions are recorded on a trade-date basis.
(b) Valuation:
(1) Investments for which market quotations are readily available are valued at such market quotations.
(2) Short-term investments which mature in 60 days or less, such as U.S. Treasury bills, are valued at amortized cost, which approximates market value. The amortized cost method involves valuing a security at its cost on the date of purchase and thereafter assuming a constant amortization to maturity of the difference between the principal amount due at maturity and cost. Short-term securities which mature in more than 60 days are valued at current market quotations by an independent pricing service or at the mean between the bid and ask prices obtained from at least two brokers or dealers (if available, or otherwise by a principal market maker or a primary market dealer). Investments in money market mutual funds are valued at their net asset value as of the close of business on the day of valuation.
(3) It is expected that most of the investments in the Company's portfolio will not have readily available market values. Debt and equity securities whose market prices are not readily available are valued at fair value, with the assistance of an independent valuation service, using a documented valuation policy and a consistently applied valuation process which is under the direction of our board of directors.
The factors that may be taken into account in fairly valuing investments include, as relevant, the portfolio company's ability to make payments, its estimated earnings and projected discounted cash flows, the nature and realizable value of any collateral, the financial environment in which the portfolio company operates, comparisons to securities
of similar publicly traded companies and other relevant factors. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of these investments may differ significantly from the values that would have been used had a ready market existed for such investments, and any such differences could be material.
(c) Realized gains or losses on the sale of investments are calculated using the specific identification method.
(d) Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis.
(e) Dividend income is recorded on the ex-dividend date.
(f) Loan origination, facility, commitment, consent and other advance fees received by us on loan agreements or other investments are accreted into income over the term of the loan.
Per Share Information:
Basic earnings/net increase in stockholders' equity per common share is calculated using the weighted average number of common shares outstanding for the period presented.
Federal and State Income Taxes:
Prospect Energy has elected to be treated as a regulated investment company and intends to continue to comply with the requirements of the Internal Revenue Code of 1986 (the "Code"), applicable to regulated investment companies. We are required to distribute at least 90% of its investment company taxable income and intends to distribute or retain through a deemed distribution all of its investment company taxable income and net capital gain to shareholders; therefore, we have made no provision for income taxes. GSHI is a corporation subject to federal and state income taxes and records an expense (or benefit) for income taxes as appropriate.
The character of income and gains that we will distribute is determined in accordance with income tax regulations that may differ from GAAP.
Dividends and Distributions:
Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount, if any, to be paid as a dividend is approved by the board of directors each quarter and is generally based upon management's estimate of our earnings for the quarter. Net realized capital gains, if any, are distributed at least annually.
Note 3. Portfolio Investments
As required by the 1940 Act, we classify our investments by level of control. As defined in the 1940 Act, control investments are those where there is the ability or power to exercise a controlling influence over the management or policies of a company. Control is generally viewed to exist when a company or individual owns 25% or more of the voting securities of an
investee company. Affiliated investments and affiliated companies are defined by a lesser degree of influence and are deemed to exist through ownership of an amount greater than 5% but less than 25% of the voting securities of the investee company.
Our cost basis in Gas Solutions was reduced by $414 reflecting a reduction in actual acquisition costs versus those previously estimated. Otherwise, the Company's position in Gas Solutions remained unchanged during the quarter. The limited indemnity with a third party bank which provided financing to Gas Solutions also remains in effect. The indemnity provides specific assurances to the third party bank with respect to realized losses of its term loan resulting only from potential legal claims that might or could be asserted by certain third parties. This assurance is backed by segregated funds in Prospect Energy's account valued at approximately $12,848. These funds are to be released upon the earlier of legal resolution of such claims, should any be made, or 91 days after the loan with First American Bank, SSB ("FAB") is refinanced or otherwise repaid.
Debt placements and interests in non-voting equity securities with an original cost basis of $7,721 were acquired in two additional portfolio companies during the quarter ended March 31, 2005.
Note 4. Organizational and offering Expenses
A portion of the net proceeds of our initial public offering and the subsequent exercise of the over-allotment option was used for organizational and offering expenses of approximately $175 and $1,463, respectively. Organizational expenses were expensed as incurred. Offering expenses were charged against paid-in capital in excess of par. All organizational and offering expenses were borne by Prospect Energy.
Note 5. Agreements
Prospect Energy has entered into an Investment Advisory Agreement with Prospect Capital Management LLC (the "Investment Adviser") under which the Investment Adviser, subject to the overall supervision of Prospect Energy's board of directors, will manage the day-to-day operations of, and provide investment advisory services to, Prospect Energy. For providing these services the Investment Adviser will receive a fee from Prospect Energy, consisting of two components--a base management fee and an incentive fee. The base management fee will be calculated at an annual rate of 2.00% on Prospect Energy's gross assets (including amounts borrowed). For services rendered under the Investment Advisory Agreement during the period commencing from the closing of Prospect Energy's initial public offering through and including the first six months of operations, the base management fee was payable monthly in arrears. For services currently rendered under the Investment Advisory Agreement, the base management fee is payable quarterly in arrears. For the first quarter of Prospect Energy's operations commencing from the closing of Prospect Energy's initial public offering, the base management fee was calculated based on the value of Prospect Energy's gross assets at the closing of the initial public offering. Subsequently, the base management fee is calculated based on the average value of Prospect Energy's gross assets at the end of the two most recently completed calendar quarters (the closing of Prospect Energy's initial public offering was treated as a quarter end for these
purposes) and appropriately adjusted for any share issuances or repurchases during the current calendar quarter. Base management fees for any partial month or quarter are appropriately pro rated.
The incentive fee has two parts. The first part, the income incentive fee, is calculated and payable quarterly in arrears based on Prospect Energy's pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees and other fees that Prospect Energy receives from portfolio companies) accrued during the calendar quarter, minus Prospect Energy's operating expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement described below, and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with payment in kind interest and zero coupon securities), accrued income that we have not yet received in cash. Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Pre-incentive fee net investment income, expressed as a rate of return on the value of Prospect Energy's net assets at the end of the immediately preceding calendar quarter, is compared to a "hurdle rate" of 1.75% per quarter (7% annualized). The net investment income used to calculate this part of the incentive fee is also included in the amount of the gross assets used to calculate the 2% base management fee. Prospect Energy pays the Investment Adviser an income incentive fee with respect to Prospect Energy's pre-incentive fee net investment income in each calendar quarter as follows: (1) no incentive fee in any calendar quarter in which Prospect Energy's pre-incentive fee net investment income does not exceed the hurdle rate; (2) 100% of Prospect Energy's pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 125% of the quarterly hurdle rate in any calendar quarter (8.75% annualized assuming a 7% annualized hurdle rate); and (3) 20% of the amount of Prospect Energy's pre-incentive fee net investment income, if any, that exceeds 125% of the quarterly hurdle rate in any calendar quarter (8.75% annualized assuming a 7% annualized hurdle rate). These calculations are appropriately pro rated for any period of less than three months and adjusted for any share issuances or repurchases during the current quarter.
The second part of the incentive fee, the capital gains incentive fee, is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), and equals 20.0% of Prospect Energy's realized capital gains for the calendar year, if any, computed net of all realized capital losses and unrealized capital depreciation at the end of such year. In determining the capital gains incentive fee payable to the Investment Adviser, Prospect Energy calculates the aggregate realized capital gains, aggregate realized capital losses and aggregate unrealized capital depreciation, as applicable, with respect to each of the investments in its portfolio. For this purpose, aggregate realized capital gains, if any, equals the sum of the differences between the net sales price of each investment, when sold, and the original cost of such investment since inception. Aggregate realized capital losses equal the sum of the amounts by which the net sales price of each
investment, when sold, is less the original cost of such investment since inception. Aggregate unrealized capital depreciation equals the sum of the difference, if negative, between the valuation of each investment as of the applicable date and the original cost of such investment. At the end of the applicable period, the amount of capital gains that serves as the basis for Prospect Energy's calculation of the capital gains incentive fee equals the aggregate realized capital gains less aggregate realized capital losses and less aggregate unrealized capital depreciation with respect to its portfolio of investments. If this number is positive at the end of such period, then the capital gains incentive fee for such period is equal to 20% of such amount, less the aggregate amount of any capital gains incentive fees paid in respect of its portfolio in all prior periods.
Prospect Energy has also entered into an Administration Agreement with Prospect Administration, LLC ("Prospect Administration") under which Prospect Administration, among other things, provides administrative services and facilities for Prospect Energy. Prospect Administration has engaged EOS Fund Services LLC to serve as sub-administrator of Prospect Energy. For providing these services, Prospect Energy reimburses Prospect Administration for Prospect Energy's allocable portion of overhead incurred by Prospect Administration in performing its obligations under the Administration Agreement, including rent, the fees of the sub-administrator for services provided with respect to Prospect Energy and Prospect Energy's allocable portion of the compensation of its chief compliance officer and chief financial officer and their respective staffs. Prospect Administration also provides on Prospect Energy's behalf managerial assistance to those portfolio companies to which Prospect Energy is required to provide such assistance. Prospect Administration is a wholly owned subsidiary of the Investment Adviser.
For the nine months ended March 31, 2005, the Company paid the Investment Adviser $1,317 in base management fees and no incentive fee.
For the nine months ended March 31, 2005, the Company reimbursed Prospect Administration $295 for services it provided to Prospect Energy at cost. The Company also reimbursed Prospect Administration for certain expenses which it initially funded on behalf of the Company.
Note 6. Financial Highlights
The following is a schedule of financial highlights for the three and nine-month periods ended March 31, 2005:
For the three For the nine
months ended months ended
March 31, 2005 March 31, 2005
Per Share Data (1):
Net asset value at beginning of period $13.74 $ (.01)
Proceeds from initial public offering -- 13.95
Costs related to the initial public offering -- (.21)
Net investment income .06 .17
Net unrealized appreciation .06 .06
Dividends declared and paid (.12) (.22)
------ ------
Net asset value at March 31, 2005 $13.74 $13.74
====== ======
Per share market value at March 31, 2005 $12.90 $12.90
Total return based on market value (2) 8.54% (12.46%)
Total return based on net asset value (2) 0.88% (6.88%)
Shares outstanding at March 31, 2005 7,055.1 7,055.1
Ratio/Supplemental Data:
Net assets at end of period (in thousands) $96,927 $96,927
Annualized ratio of operating expenses to average net
assets 5.51% 5.11%
Annualized ratio of net operating income to average net
assets 1.82% 1.68%
Portfolio turnover -0-% 91%
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(2) Total return based on market value is based on the change in market price per share between the opening and ending market prices per share in each period and assumes that dividends are reinvested in accordance with Prospect Energy's dividend reinvestment plan. Total return based on net asset value is based upon the change in net asset value per share between the opening and ending net asset values per share in each period and assumes that dividends are reinvested in accordance with Prospect Energy's dividend reinvestment plan. The total return is not annualized.
Note 7. Litigation
The Company is a defendant in two legal actions arising out of its activities. While predicting the outcome of litigation is inherently very difficult, and the ultimate resolution, range of loss
and impact on operating results cannot be reliably estimated, management believes, based upon its understanding of the facts and the advice of legal counsel, that it has meritorious defenses for all such actions and Prospect Energy intends to defend each of these actions vigorously, and believes that resolution of these actions will not have a materially adverse effect on the Company's financial position.
Note 8. Subsequent Events
On April 11, 2005, Prospect Energy provided $9.8 million of senior secured debt and equity financing to Stryker Energy II, LLC.
On April 14, 2005, Prospect Energy provided $4.9 million of senior secured debt and preferred equity financing to Whymore Coal Company.
On April 15, 2005, Eugene S. Stark tendered his resignation as the Chief Financial Officer to Prospect Energy.
On April 20, 2005, William E. Vastardis was appointed as the Chief Financial Officer to Prospect Energy by its board of directors.
On April 22, 2005, Prospect Energy announced a cash dividend of $0.15 per share to holders of record on June 10, 2005 payable on June 30, 2005.
On May 9, 2005, Prospect Energy provided $3.15 million of senior secured debt financing to Miller Petroleum, Inc. and also received warrants.
As of May 9, 2005, Prospect Energy has invested in long term investments 51% of its initial equity capital. Accordingly, the Company has recently initiated discussions with providers of commercial credit with respect to a syndicated commercial credit facility which, together with other borrowings (including reverse repurchase agreements and other similar transactions), may be used in the future to leverage the Company's capital.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(Financial data in this section are not presented in
thousands unless so indicated.)
In this Quarterly Report, the "Company," "Prospect Energy," "we," "us" and "our" refer to Prospect Energy Corporation and its consolidated subsidiary unless the context otherwise states.
Amounts are expressed in thousands except per share amounts.
Forward-Looking Statements
Statements in this report that relate to estimates or expectations of our future performance or financial condition may constitute "forward-looking statements" as defined under the Private Securities Litigation Reform Act of 1995. The forward-looking statements involve risks and uncertainties, including statements as to:
o our future operating results;
o our business prospects and the prospects of our portfolio companies;
o the impact of investments that we expect to make;
o the dependence of our future success on the general economy and its impact on the industries in which we invest;
o the ability of our portfolio companies to achieve their objectives;
o our expected financings and investments;
o the adequacy of our cash resources and working capital;
o the timing of cash flows, if any, from the operations of our portfolio companies; and
o future changes in laws and regulations.
We may use words such as "anticipates," "believes," "expects," "intends," "will," "should," "may" and similar expressions to identify forward-looking statements. 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, or the "SEC."
All of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and all amendments to those reports, filed with or furnished to the SEC on or after April 13, 2004, are available free of charge through our internet website, www.prospectenergy.com, as soon as reasonably practical after we have electronically filed such material with, or furnished it to, the SEC.
Overview
Prospect Energy was incorporated under the Maryland General Corporation Law in April 2004. We have elected to be treated as a business development company under the Investment Company Act of 1940, as amended (the "1940 Act"). As such, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in "qualifying assets," including securities of private or thinly traded public U.S. companies, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less.
On July 27, 2004, we completed our initial public offering and became an externally managed, non-diversified, closed-end investment company. In addition, for tax purposes we elected to be treated as a regulated investment company under the Internal Revenue Code of 1986 ("Code"). Under these elections and assuming that we remain in compliance with the relevant requirements, we generally will not have to pay corporate-level taxes on any income that we distribute to our stockholders. To the extent we do not qualify as elected, corporate-level taxes may be imposed upon our net income.
We are subject to regulation under the 1940 Act and the Code, including rules with respect to the diversification of our assets. These regulations specify certain test dates as of which our investments must comply with such diversification guidelines. We have managed and we are managing our business in such a way as to remain in compliance. We have adopted a code of ethics and a compliance manual, as required by the 1940 Act. In order to maintain compliance with all laws and regulations applicable to Prospect Energy, we may buy or sell investments, rebalance the portfolio, elect a different fiscal year end for tax reporting purposes or take other actions deemed advisable. However, we can offer no assurance with respect to the effectiveness of any portfolio action.
We have entered into an Investment Advisory Agreement with Prospect Capital Management LLC ("Prospect Capital"), the investment adviser, under which the investment adviser, subject to the overall supervision of Prospect Energy's board of directors, manages the day-to-day operations of, and provides investment advisory services to, Prospect Energy. We have also entered into an Administration Agreement with Prospect Administration, LLC ("Prospect Administration") under which Prospect Administration, among other things, provides administrative services and facilities for Prospect Energy. Prospect Administration is a wholly owned subsidiary of Prospect Capital.
Investment Activity
We completed our third quarter of operations on March 31, 2005 with 52.8% of the Company's net assets invested in obligations of the U.S. Treasury; 32.5% in long-term portfolio investments; and 2.8% in a money market fund.
Long-term Portfolio Investments
Our cost basis in Gas Solutions was reduced by $414,000 reflecting a reduction in actual acquisition costs versus those previously estimated. Otherwise, our position in Gas Solutions remained unchanged during the quarter. Two additional portfolio investments were made during the quarter.
On January 31, 2005, we provided $3.9 million in financing to Unity Virginia Holdings LLC ("UVH"). The UVH financing is comprised of two facilities: $3.3 million in secured subordinated debt and $585,000 in redeemable preferred stock. UVH is a coal mining company located near Norton, Virginia, and UVH is owned by the principals of Unity Platform LLC ("Unity"), a Dallas-based coal management and private investment firm with interests in operating US coal mines. In addition to $1.5 million in common equity from Unity and financing from Prospect, Plains Capital Bank of Dallas is providing senior secured financing totaling $4.5 million. Capital from the transaction is being utilized to support UVH's acquisition and development of certain assets of Appalachian Resources, Inc. ("ARI"), including 6,800 acres of mineral reserves which contain 11 million estimated tons of coal, as well as a coal preparation plant and load-out facility on the Norfolk & Southern Railway. ARI has been in bankruptcy since early 2004 when the owners of ARI encountered difficulty developing the property. We understand that those difficulties stemmed largely from lack of access to capital and financing.
UVH is actively pursuing its business plan and has made satisfactory progress during the first three months since our investment was made, including the construction of a new operating platform. The preparation plant and material handling facilities are now fully operational and coal is being processed and shipped. Saleable quantities of metallurgical coal are expected to be mined and marketed during May. If demand and pricing for coal remain at current levels in both the domestic and export markets, we believe that UVH can attain strong operating margins in these operations.
On February 3, 2005, we agreed to provide up to $4.8 million of senior secured debt financing to Natural Gas Systems, Inc. (OTC BB: NGSY) ("NGS"), an oil and gas production company based in Houston, Texas. An initial investment of $3 million was made at that time and a further $1 million was invested on March 16, 2005. We also received a total of 600,000 non-revocable warrants and 400,000 revocable warrants with an exercise price of $0.75 cents per share, which is below where NGS has recently traded. NGS acquires and develops oil and gas fields, applying both conventional and specialized technology to accelerate production and develop incremental reserves in those fields. NGS owns 100% working interests in the Delhi and Tullos Urania fields in central and northern Louisiana, which encompass a series of producing oil and gas wells plus opportunities for development of shut-in wells and new well drilling.
We neither control nor are we affiliated with either UVH or NGS.
Results of Operations of Prospect Energy
Overview
We commenced operations on July 30, 2004 and therefore have no prior periods with which to compare operating results for the quarter and nine-month period ended March 31, 2005. As of March 31, 2005, we continue to pursue our investment strategy and 32.5% of our net assets were invested in energy companies with the remainder invested in U.S. government and money market securities.
Investment Income
We generate revenue in the form of interest income on the debt securities that we own, dividend income on any common or preferred stock that we own, and capital gains or losses on any debt or equity securities that we acquire in portfolio companies and subsequently sell. Our investments, if in the form of debt securities, will typically have a term of one to ten years and bear interest at a fixed or floating rate. To the extent achievable, we will seek to collateralize our investments by obtaining security interests in our portfolio companies' assets. We also may acquire minority or majority equity interests in our portfolio companies, which may pay cash or in-kind dividends on a recurring or otherwise negotiated basis. In addition, we may generate revenue in other forms including commitment, origination, structuring or due diligence fees; fees for providing managerial assistance; and possibly consultation fees. Any such fees generated in connection with our investments are recognized as earned.
Investment income, which consists of interest income and dividend income, was $1.8 million for the three months ended March 31, 2005 and $5 million for the nine months ended March 31, 2005. Interest income increased by 3% quarter-over-quarter as a result of interest received from two additional portfolio investments in UVH and NGS made during the quarter and described earlier. A decline in dividend income on Gas Solutions is the result of four factors. First, the prior fiscal quarter's dividend from Gas Solutions was based upon a four-month period (the effective date of our acquisition of the equity of Gas Solutions was September 2, 2004 and the December 2004 dividend from Gas Solutions to the Prospect Energy therefore covered the period from that date through calendar year end of December 31, 2004) versus a three month period during the current quarter. Second, gas processing volumes typically experience a seasonal decline during the winter months due to the impact of cold weather upon the processing speed of the gas. Third, pricing was generally softer than that experienced during the prior fiscal quarter. Fourth, Gas Solutions made capital expenditures of approximately $2.25 million in its business to maintain and expand gas processing volumes, which decreased the immediate cash available for distribution. The remaining investment income during the three and nine months ended March 31, 2005 was generated primarily from investments in short-term U.S. Treasury bills and cash equivalents.
Operating Expenses
Our primary operating expenses consist of investment advisory fees, legal and professional fees and other operating and overhead-related expenses. These expenses include our allocable
portion of overhead under the Administration Agreement with Prospect Administration under which Prospect Administration provides administrative services and facilities for Prospect Energy. Our investment advisory fees compensate our investment adviser for its work in identifying, evaluating, negotiating, closing and monitoring our investments. We bear all other costs and expenses of our operations and transactions in accordance with our Administration Agreement with Prospect Administration.
Operating expenses were $1.34 million for the three months ended March 31, 2005 and $3.76 million for the nine months ended March 31, 2005. These expenses consisted of investment advisory and administrative services fees, professional fees, insurance expenses, directors' fees and other general and administrative expenses. The base investment advisory fee was $485,000 for the three months ended March 31, 2005 and $1.3 million for the nine months ended March 31, 2005. No incentive fee has yet been incurred pursuant to the Investment Advisory Agreement. Administrative services fees incurred under the Administration Agreement were $126,000 for the three months ended March 31, 2005 and $295,000 for the nine months ended March 31, 2005. Legal and professional fees were higher during the three months and nine months ended March 31, 2005 than we would expect in future periods due to the occurrence of certain items and their associated costs which we would not expect to occur at this level in the future. These items include consultation and preparation of initial corporate documents including the initial Form 10-Q and compliance and procedural manuals, costs associated with an internal investigation, tax compliance consultation and analysis, Sarbanes-Oxley Act of 2002 related matters, litigation-related costs and the costs of hiring personnel.
Net Investment Income, Net Unrealized Appreciation and Net Increase in Stockholders' Equity Resulting from Operations
Prospect Energy's net investment income was $444 for the three months ended March 31, 2005 and $1.2 million for the nine months ended March 31, 2005. Net investment income represents the difference between investment income and operating expenses and is directly impacted by the items described above. Net unrealized appreciation increased by $414 during the three and nine months ended March 31, 2005 as a result of a reduction in the cost basis of our investment in Gas Solutions. The reduction in cost basis resulted from lower actual versus estimated acquisition costs relating to Gas Solutions which did not impact the overall fair market value of our investment. Net increase in stockholders' equity resulting from operations represents the sum of the returns generated from net investment income and from unrealized appreciation.
Financial Condition, Liquidity and Capital Resources
We generated $97 million in cash from the net proceeds of our initial offering. We also generated $2.8 million in cash flow from operations (investment income less operating expenses) and $26.7 million from the sale of securities. We expended $112 thousand in cash through the acquisition of investments and an additional $1.6 million through the payment of quarterly dividends. In the future, we may also fund a portion of our investments through borrowings from banks, issuances of senior securities or secondary offerings. We may also
securitize a portion of our investments in mezzanine or senior secured loans or other assets. Our primary use of funds will be investments in portfolio companies and cash distributions to holders of our common stock.
At March 31, 2005, we had $12.9 million in cash which was held in a segregated account in conjunction with a limited indemnity issued to First American Bank, SSB ("FAB"). The limited indemnity with FAB provides assurance to FAB with respect to realized losses of its term loan resulting only from potential legal claims that might or could be asserted by certain third parties. These funds are to be released after the earlier of legal resolution of such claims, should any be made, or 91 days after the FAB loan is refinanced or otherwise repaid.
Dividends
Assuming that we maintain our status as a regulated investment company under Subchapter M of the Code, we intend to make distributions to our stockholders on a quarterly basis of substantially all of our net operating income. We may also make distributions of net realized capital gains, as appropriate.
Tax characteristics of all dividends will be reported to shareholders, as appropriate, on Form 1099-DIV after the end of the year. The board of directors of Prospect Energy presently intends to declare and pay quarterly dividends on the common stock. Prospect Energy's ability to pay dividends could be affected by future business performance, liquidity, capital needs, alternative investment opportunities and loan covenants.
On February 9, 2005, we announced a cash dividend of $0.125 per share to holders of record on March 11, 2005, payable on March 31, 2005. The dividend was paid primarily out of available taxable income earned through March 31, 2005. For tax purposes, this dividend is expected to be taxable as ordinary income. We also expect that a portion of this dividend may be eligible for the maximum 15% U.S. federal income tax rate on qualified dividend income. However, a final assessment cannot be made until after the conclusion of the Company's tax year end on August 31, 2005. A definitive tax report regarding this and all calendar year 2005 dividends will be furnished to our shareholders in January 2006 on Form 1099- DIV.
Regulated Investment Company Status
We elected an August 31st fiscal year end for income tax reporting purposes, commencing with the initial taxable year ended August 31, 2004. Our fiscal year-end for financial reporting purposes will remain June 30th. The Company has qualified and elected to be subject to taxation as a regulated investment company under Subchapter M of the Code for the taxable year ended August 31, 2004. As long as the Company continues to so qualify as a regulated investment company, the Company will not be subject to tax on its investment company taxable income or its net capital gains, to the extent that such taxable income or gains are distributed, or deemed to be distributed, as dividends to our shareholders on a timely basis. Certain investments in the partnerships, limited liability companies, joint ventures and other "pass through" entities common in the energy industry can create enhanced risks of compliance with the requirements
applicable to regulated investment companies under the Code.
Dividends and distributions declared and paid to shareholders may differ from
net income for financial reporting and taxable fiscal years due to the timing of
recognition of income and expenses, realization of gains and losses, occurrence
of a return of capital, and/or net realized appreciation or depreciation in
investments, which may not be included in taxable income.
To remain in compliance with Subchapter M of the Code with respect to the Company's taxable year, the Company is generally required to maintain its status as a business development company in accordance with the 1940 Act, derive at least 90% of its gross income from dividends, interest, gains from the sales of securities and other specified types of income required under Subchapter M of the Code, satisfy certain asset diversification requirements as defined in Subchapter M of the Code, and distribute to shareholders at least 90% of the Company's investment company taxable income as defined in Subchapter M of the Code. However, we offer no assurance that we will continue to qualify for such treatment in future taxable years. If we fail to qualify as a regulated investment company, then we will be subject to corporate-level taxes on our taxable income, whether or not such taxable income is distributed to our shareholders. The imposition of corporate-level taxes on us will substantially reduce the amount of income available for distribution to our shareholders. Even if we qualify as a regulated investment company for any taxable year in question, we will be subject to corporate-level income tax on any income not distributed to our shareholders. Moreover, we will be subject to a 4%, entity-level excise tax, for any calendar year in which we do not distribute an amount equal to or exceeding the sum of 98% of our calendar year ordinary income and 98% of our capital gain net income for the one-year period ended October 31st, computed in accordance with Section 4982 of the Code.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. Our critical accounting policies are those applicable to the valuation of investments and certain revenue recognition matters as discussed below.
As an investment company, Prospect Energy only consolidates subsidiaries which are also investment companies.
Valuation of Portfolio Investments
As a business development company, we invest in illiquid securities including debt and equity securities of companies. Our investments are generally subject to restrictions on resale and generally have no established trading market. We value substantially all of our investments at fair value as determined in good faith by the Board of Directors in accordance with our valuation policy. We determine fair value to be the amount for which an investment could be exchanged
in an orderly disposition over a reasonable period of time between willing parties other than in a forced or liquidation sale. Our valuation policy considers the fact that no ready market exists for substantially all of the securities in which we invest. Our valuation policy is intended to provide a consistent basis for determining the fair value of the portfolio. We record unrealized depreciation on investments when we believe that an investment has become impaired, including where collection of a loan or realization of an equity security is doubtful, or when the enterprise value of the portfolio company does not currently support the cost of our debt or equity investments. Enterprise value means the entire value of the company to a potential buyer, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time. We record unrealized appreciation if we believe that the underlying portfolio company has appreciated in value and, therefore, our equity security has also appreciated in value. The value of investments in publicly traded securities is determined using quoted market prices discounted for restrictions on resale, if any.
Loans
For loans, fair value generally approximates cost unless the borrower's enterprise value, overall financial condition or other factors lead to a determination of fair value at a different amount.
Interest income is recorded on an accrual basis to the extent that such amounts are expected to be collected. Interest on loans is not accrued if we have doubt about interest collection. Loan origination fees are capitalized and then amortized into interest income using the effective interest method. Upon the prepayment of a loan, any unamortized loan origination fees are recorded as interest income. Prepayment premiums are recorded on loans when received.
Equity and Partnership Interests
Equity and partnership interests in portfolio companies for which there is no liquid public market are valued at fair value based on the enterprise value of the portfolio company, which is determined using various factors, including cash flow from operations of the portfolio company and other pertinent factors, such as recent offers to purchase a portfolio company, recent transactions involving the purchase or sale of the portfolio company's equity securities, or other liquidation events. The equity and partnership values so determined are generally discounted to account for restrictions on resale and minority ownership positions.
Dividend income is recorded, to the extent that such amounts are expected to be collected, on the record date for private companies or on the ex-dividend date for publicly traded companies.
Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation
Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the cost basis of the investment without regard to unrealized appreciation or depreciation previously recognized, and includes investments charged off during the year, net of recoveries. Net change in unrealized appreciation or depreciation reflects the change in
portfolio investment values during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.
Fee Income
Fee income includes fees for services rendered by us to portfolio companies such as management services, and other advisory services. Management and other advisory services fees are generally recognized as income as the services are rendered.
Within the context of these critical accounting policies, we are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.
At this time, we do not have any off-balance sheet liabilities or other contractual obligations, other than the Investment Advisory Agreement, the Administration Agreement and the limited indemnity with FAB.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are subject to financial market risks, including changes in interest rates. We expect that some of the loans in our portfolio may have floating rates. To date, a significant, but declining, percentage of our assets have been and are invested in short-term U.S. Treasury bills. We may hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of higher interest rates with respect to our portfolio of investments. During the three and nine months ended March 31, 2004, we did not engage directly in hedging activities though, our subsidiary, Gas Solutions, did engage in such activities.
Item 4. Controls and Procedures.
As of the end of the period covered by this report, Prospect Energy carried out an evaluation, under the supervision and with the participation of Prospect Energy's management, including Prospect Energy's chief executive officer and chief financial officer, of the effectiveness of the design and operation of Prospect Energy's disclosure controls and procedures (as defined in Rule 13a-15 of the Securities Exchange Act of 1934). Based on that evaluation, the chief executive officer and the chief financial officer have concluded that Prospect Energy's current disclosure controls and procedures are effective in timely alerting them of material information relating to Prospect Energy that is required to be disclosed by Prospect Energy in the reports it files or submits under the Securities Exchange Act of 1934.
There have been no changes in Prospect Energy's internal control over financial reporting that occurred during the three and nine months ended March 31, 2005 that have materially affected, or are reasonably likely to materially affect, Prospect Energy's internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
As previously disclosed in our quarterly reports on Form 10-Q, we have been named as a defendant in Karen O. Donnelly, Attorney at Law, v. Prospect Street, et al. and Charles M. Costenbader, filed August 4, 2004 in the 164th Judicial District Court of Harris County, Texas. Donnelly alleges she is the former attorney of Christian Operating Co. and Christian Intergy, Inc., companies with which Prospect Energy formerly considered entering into a credit facility. Donnelly alleges she had a finder's fee contract with these companies, and that Prospect Energy tortiously interfered with her contractual arrangement with these companies. Donnelly seeks damages of $1,283,000, plus attorney's fees and court costs. We do not believe this claim has any merit and intend to defend this matter vigorously.
On December 6, 2004, Dallas Gas Partners, LP ("DGP") served Prospect Energy with a complaint filed November 30, 2004 in the United States District Court for the Southern District of Texas in Galveston. DGP alleges that DGP was defrauded and that Prospect Energy breached its fiduciary duty to DGP and tortiously interfered with DGP's contract with Gas Solutions in connection with Prospect Energy's agreement with DGP. The complaint seeks relief not limited to $100 million. Each of the principals of the predecessor general partner of DGP, constituting all the management and ownership interests in such predecessor, and all of the limited partners of DGP on September 24, 2004 executed a release in favor of Prospect Energy, forever discharging Prospect Energy from any and all claims in connection with Prospect Energy's agreement with DGP. Prospect Energy believes that the DGP complaint is frivolous and without merit, and Prospect Energy intends to defend the matter vigorously.
A former officer of the Company has filed a complaint with the Occupational Safety and Health Administration of the Department of Labor alleging discrimation, retaliation, infliction of emotional distress and other claims. This officer seeks economic reinstatement and other relief. The Company believes the complaint is without merit and intends to defend itself vigorously.
We are not aware of any other material pending legal proceeding, and no such material proceedings are known to be contemplated, to which Prospect Energy is a party or of which any of its property is subject.
Item 2. Unrealized Sales of Equity Securities and Use of Proceeds.
(a) We did not issue any equity securities that were not registered under the Securities Act during the three and nine months ended March 31, 2005.
(b) On July 27, 2004, our registration statement on Form N-2 (File No. 333-114552), for the initial public offering of 7,000 shares of our common stock became effective. All 7,000 shares were sold upon completion of the initial public offering at an initial offering price of $15.00 per share for aggregate initial public offering gross proceeds of $105,000.
Ferris, Baker Watts acted as Book-Running Manager. D.A. Davidson & Co., Sterne, Agee & Leach, Inc., and Wunderlich Securities also acted as underwriters for the initial public offering.
In connection with the initial public offering, we also registered and offered the underwriters an option to purchase an additional 1,050 shares of common stock at the $15.00 per share offering price. The underwriters exercised this option in respect of over-allotments in our initial public offering and acquired and resold an additional 55 shares at a price of $15.00 per share for aggregate proceeds of $825.
In connection with the initial public offering, we incurred expenses of approximately $1,463. Of that, no amounts were paid directly or indirectly to our directors, officers or associates, or to persons owning 10% or more of our common stock or that of other affiliates. After deducting underwriting discounts and commissions and other expenses, we received net proceeds of $96,961 from the initial public offering, including the over-allotment option.
There has been no material change in the planned use of proceeds as described in our final prospectus.
(c) We did not repurchase any shares of our common stock during the three or nine months ended March 31, 2005.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of matters to a vote of Security Holders.
Not Applicable.
Item 5. Other Information.
Not Applicable
Item 6. Exhibits
Exhibit No. Description of Exhibit
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----------------------- --------------------------------------------------------
10.1 Employment agreement between EOS Fund Services LLC
and Prospect Energy Corporation
31.1 Certification of Chief Executive Officer Pursuant
to Rule 13a-14(a)/15d-14(a)
31.2 Certification of Chief Financial Officer Pursuant
to Rule 13a-14(a)/l5d-14(a)
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32.1 Certification of Chief Executive Officer Pursuant
to Section 906 of the Sarbanes-Oxley
Act of 2002, 18 U.S.C. 1350
32.2 Certification of Chief Financial Officer Pursuant
to Section 906 of the Sarbanes-Oxley
Act of 2002, 18 U.S.C. 1350
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PROSPECT ENERGY CORPORATION
(Registrant)
Dated: May 12, 2005 By: /s/ John F. Barry III
---------------------
John F. Barry III
Chief Executive Officer and
Chairman of the
Board of Directors
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EXHIBIT 10.1
May 1, 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 Financial Officer of Prospect Energy Corporation
Dear John:
EOS Fund Services LLC ("EOS") 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 appointment of William E. Vastardis as the Chief Financial Officer of PEC (the "CFO"). EOS's obligations to PEC are exclusively those set forth in this engagement letter (also referred to as the "Agreement"). Schedule A sets forth the limitations of EOS's liability and other terms and conditions, which allow EOS to permit Mr. Vastardis to serve as PEC's CFO.
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 Investment Company Act of 1940 (the "1940 Act") (the "independent directors"), EOS hereby designates William E. Vastardis to serve in the capacity of the CFO 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 continued appointment as the CFO 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 CFO 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 Chief Executive Officer of EOS and that, at his sole discretion, certain employees of EOS shall assist him from time to time as necessary in accomplishing the functions of the
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office of the CFO provided that such employees shall be supervised by Mr. Vastardis and EOS, and Mr. Vastardis will be responsible for any actions taken by such employees on behalf of the Corporation as if such actions had been taken by Mr. Vastardis. Nothing in this Agreement shall be construed to permit or appoint any other individual or employee of EOS except William E. Vastardis to serve as the PEC CFO.
2. Services to be Provided. The CFO shall, among other things, provide the financial services and monitoring listed in Exhibit I to this Agreement. In general, CFO will provide services and assistance to enable PEC to comply with its reporting obligations under the Securities Exchange Act of 1934 (the "1934 Act"). Such assistance will include preparation of Forms 10-K, 10-Q and 8-K under the 1934 Act. Accounting and financial reporting policies and procedures may also be established or modified by the CFO. All public releases of financial information will be authorized in advance by the CEO of PEC as well as the CFO. The CFO will administer a program to promote compliance by the officers and directors of PEC with their reporting requirements under Section 13 and 16 of the 1934 Act. The CFO shall prepare with the assistance of counsel as needed, documents necessary for officer and director compliance under Section 16 of the 1934 Act, including Forms 3, 4, 5, 13G and 13D. The CFO shall cause to be maintained detailed records and SEC receipts of all filings.
3. Cooperation. In furtherance of this engagement and its intended results, the CFO will be relying upon the meaningful and timely cooperation of management and certain selected personnel of PEC's investment adviser, Prospect Capital Management, LLC ("PCM"), and its fund administrator, Prospect Administration, LLC ("PA"). In order for the CFO, or EOS acting at his direction, to conduct proper and effective on-going monitoring of the PEC financial operations and accounting functions, PEC acknowledges that the CFO, or EOS acting at the CFO's sole 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.
4. In-Person Visits. The CFO shall attend each PEC board meeting. The CFO shall also meet privately with the independent directors of the board at their request and no less frequently than quarterly. In addition, the CFO (or his designee, when appropriate) may visit PCM, PEC's portfolio companies 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 CFO's duties and responsibilities.
5. Term. The term of the CFO role shall be from month to month, starting as of the date hereof, and shall be automatically renewed on a monthly basis unless the PEC board provides reasonable written notice prior to the next renewal date or the CFO provides sixty (60) days' written notice to the PEC board.
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6. Fees. PEC will compensate EOS for allowing William E. Vastardis to serve as the Chief Financial Officer of PEC at the monthly rate of US$ 18,750.00.
In the event EOS is required to commit personnel or other resources in the performance of its obligations hereunder that are disproportionate to the projected fees set forth herein, the parties agree to negotiate in good faith in an effort to adjust the monthly fee or to consider in good faith payment by PEC to EOS of a supplemental fee in addition to the scheduled monthly fee.
PEC will also reimburse EOS for out-of-pocket costs of the CFO and EOS (including reasonable travel costs required for the CFO and personnel of EOS 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 Financial Officer services will be invoiced on a monthly basis, payable in advance upon receipt to EOS, in full by wire transfer. Expenses will be invoiced on a monthly basis, as incurred at the end of each month, payable to EOS, in full by wire transfer upon receipt of backup documentation reasonably acceptable to PEC.
In the event that the CFO is terminated for cause pursuant to Section 7 below, EOS shall promptly rebate any prepaid fees for the month in which the termination occurs.
7. Termination. The PEC board reserves the right to terminate the engagement of the CFO at any time by written notice. If the PEC board terminates the engagement of the CFO without "cause" (as hereinafter defined), then PEC shall be liable to pay the remaining unpaid fees, if any, which would have accrued to the CFO under Section 6 hereof for the remainder of the then current term of this engagement.
Termination for "cause" means that the CFO 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 automatically if Mr. Vastardis is no longer associated with EOS.
8. Indemnification. Except to the extent prohibited by any federal or state laws to the contrary, the CFO and EOS shall not be liable to PEC or any affiliate thereof for any errors, acts or omissions in the performance of services hereunder except for losses arising out of the CFO's reckless disregard of the duties involved in the conduct of the office of the CFO, EOS's reckless disregard for any of its duties hereunder, or the CFO's or EOS's willful misconduct, bad faith or gross negligence in the performance of
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their respective duties and obligations hereunder. PEC agrees to, and hereby does, indemnify the CFO and EOS for any claims, losses, costs, damages or expenses whatsoever arising from or as a result of the CFO's acts or omissions or those of EOS 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 CFO's office or the willful misconduct, bad faith or gross negligence of the CFO or the employees, agents or contractors of EOS acting at the CFO's direction during the course of such performance or attempted performance. Notwithstanding anything to the contrary herein, PEC agrees that the CFO shall be covered as an officer of PEC at all times during this engagement under the directors and officers/errors and omissions insurance policy in place for PEC's officers and directors.
PEC further agrees to hold harmless and indemnify EOS and the CFO, from any claims, losses, costs, damages or expenses incurred by EOS or the CFO as a result of 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 to or contemporaneous to the engagement of EOS and the CFO under this engagement letter; or
(b) occur pursuant to such engagement and of which neither EOS nor the CFO has prior knowledge, including constructive knowledge, despite either of their reasonable efforts under this Agreement; or
(c) occurs despite contrary advice or instructions given by the CFO, pursuant to the CFO's duties under this Agreement; or
(d) occurs in violation of established policies and procedures of PEC;
provided that EOS, any of its employees or the CFO do not knowingly or materially participate in any such error, act or omission that contributes to any claim, losses, costs, damages or other expenses, and provided further that nothing in this engagement letter shall cause EOS or the CFO to not be liable for any claims, losses, costs, damages or other expenses that it or he would otherwise be liable under that certain agreement dated January 4, 2005 between PEC and EOS Compliance Services LLC in which Mr. Vastardis serves in the capacity of Chief Compliance Officer of PEC.
Furthermore, the parties to this Agreement acknowledge that the CFO and EOS 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 CFO becomes aware of circumstances, facts, or allegations that require, in the CFO's best judgment, reasonable efforts to investigate further in compliance with applicable federal securities and other laws and regulations.
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Chief Financial Officer Appointment
The provisions of this Section 8 shall survive any early termination of the engagement of the CFO without cause, as discussed in Section 7 above. PEC may, at its option, at any time upon written notice to EOS, direct the defense of any proceeding subject to this indemnity and may designate counsel reasonably satisfactory to the CFO in connection therewith, provided that the counsel so designated would have no actual or potential conflict of interest in connection with such representation.
9. 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 PEC or its affiliate or any of its service providers to EOS, shall be used by EOS solely for the purpose of rendering services pursuant to this Agreement and as permitted by law. 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.
10. Assignment. No party may assign this engagement letter nor any of the rights or duties hereunder without the express written consent of each other party.
11. 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 1940 Act, if any, the latter shall control.
12. Entire Agreement. This Agreement contains the entire agreement between the parties hereto with respect to the subject matter hereof, superseding any prior oral or written statements or agreements.
13. 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, provided that, no term of this Agreement may be amended except in a writing signed by EOS and PEC. If the operation of any provision of this Agreement would contravene the provisions of the 1940 Act, such provision shall be void and ineffectual.
The provisions in this Agreement concerning payment of compensation, limitation of liability, reimbursement of costs and expenses, directors' and officers' insurance, and arbitration will survive any termination or expiration of this Agreement.
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Prospect Energy Corporation
Chief Financial Officer Appointment
14. 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.
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Chief Financial Officer Appointment
15. 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 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 CFO, as well as the agreement to pay the CFO's compensation and fees, then please sign and return the attached copy of this letter to the undersigned at your earliest convenience.
Each person signing below is authorized to sign on behalf of the party indicated, and in each case such signature is the only one necessary.
Sincerely,
William E. Vastardis
Chief Executive Officer
EOS Fund Services LLC
ACKNOWLEDGMENT OF PROSPECT ENERGY CORPORATION:
On behalf of the Prospect Energy Corporation, 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 CFO, as well as the agreement to pay the fees and costs described hereinabove to EOS Services LLC.
Name: John F. Barry
Title: Chairman of the Board
Date:
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Prospect Energy Corporation
Chief Financial Officer Appointment
SCHEDULE A
DISCLAIMERS AND RELATED TERMS
DISCLAIMERS & LIMITATIONS OF LIABILITY
It is to be understood that EOS Fund Services LLC ("EOS") does not have a contractual obligation to PEC hereunder other than to make William E. Vastardis available to serve as the PEC CFO and to make its resources available, as needed, through Mr. Vastardis.
PEC acknowledges that any resources will be provided by EOS to Mr. Vastardis as a tool to be used solely at the discretion of Mr. Vastardis. EOS makes no representation or warranty as to the accuracy or reliability of reports, projections, forecasts, or any other information derived from use of the EOS' resources and will not be liable for any claims of reliance on such reports, projections, forecasts, or information. EOS disclaims all warranties, either express or implied, including, but not limited to, implied warranties of merchantability and fitness for a particular purpose, with regard to all information and applications that may be provided by EOS. EOS will not be liable for any non-compliance of reports, projections, forecasts, or information or services with federal, state, or local laws or regulations; provided, however, that nothing herein shall be interpreted to mean that the CFO shall not be liable as to the accuracy or reliability of reports, projections, forecasts, or any other information with respect to PEC derived from EOS' resources, or for the non-compliance of reports, projections, forecasts, or other information or services with respect to PEC for which the CFO has direct responsibility or for which the CFO has the duty to and has made a written attestation with respect to the accuracy of such items pursuant to federal, state, or local laws or regulations.
PEC agrees that, with respect to any claims it may assert against EOS in connection with this Agreement or the relationship arising hereunder, EOS's total liability will not exceed two months of compensation fees.
As a condition for recovery of any liability, PEC must give EOS written notice of the alleged basis for liability within thirty (30) days of discovering the circumstances giving rise thereto, provided that the failure of PEC to give such notice will only affect the rights of PEC to the extent that EOS is actually prejudiced by such failure. In any event, EOS must assert any claim against EOS within six (6) months after discovery or thirty (30) days after the termination or expiration of this Agreement, whichever is earlier.
EOS will not be liable in any event for incidental, consequential, punitive, or special damages, including without limitation, any interruption of business or loss of business, profit, or goodwill.
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Chief Financial Officer Appointment
In furnishing PEC with services as herein provided, neither EOS nor any of its officers, directors or agents shall be liable to PEC or its creditors or shareholders for errors of judgment or for anything except willful malfeasance, bad faith or gross negligence in the performance of their duties or reckless disregard of their obligations and duties under the terms of this Agreement. The provisions of this Agreement are for the sole benefit of PEC and EOS and will not, except to the extent otherwise expressly stated herein, inure to the benefit of any third party.
ARBITRATION
If the parties are unable to resolve any dispute arising out of or in connection with this Agreement, either party may refer the dispute to arbitration by a single arbitrator selected by the parties according to the rules of the American Arbitration Association ("AAA"), and the decision of the arbitrator will be final and binding on both parties. Such arbitration will be conducted by the New York, New York office of the AAA and governed by New York law. In the event that the parties fail to agree on the selection of the arbitrator within thirty (30) days after either party's request for arbitration under this paragraph, the arbitrator will be chosen by AAA. The arbitrator may in his discretion order documentary discovery, but in no event may depositions be taken. The arbitrator will have no authority to award punitive damages. Judgment on the award of the arbitrator may be entered in and enforced by any court of competent jurisdiction. The arbitrator will have no authority to award damages in excess or in contravention of this Schedule A and may not amend or disregard any provision of this Schedule A. Notwithstanding the foregoing, no issue related to the ownership of intellectual property will be subject to arbitration but will instead be subject to determination by a court of competent jurisdiction.
DIRECTOR AND OFFICER INSURANCE
To the extent PEC has directors' and officers' liability insurance in effect, PEC will provide such insurance coverage for Mr. Vastardis, along with written evidence to EOS that Mr. Vastardis is covered by such insurance.
LEGAL EXPENSES
In the event that any officer of EOS (including without limitation Mr. Vastardis to the extent not otherwise entitled in his or her capacity as an officer of PEC) is subpoenaed or otherwise required to appear as a witness or any EOS employee is required to provide evidence, in either case in connection with any action, suit, or other proceeding initiated by a third party against PEC or by PEC against a third party, then the Company shall reimburse EOS for the costs and expenses (including reasonable attorneys' fees) actually incurred by EOS or such EOS employee and provide EOS with compensation at EOS's customary rate of $275 per hour for the time incurred.
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Chief Financial Officer Appointment
EXHIBIT I
CHIEF FINANCIAL OFFICER SERVICES PROVIDED
A. Corporate Record Keeping. The CFO shall cause to be maintained detailed records of PEC's historical and current financial data. In addition, the CFO shall assist in preparing the minutes of meetings of the boards of directors and shareholders, and shall maintain records pertaining to stock offerings, acquisition transactions, and annual meetings.
B. Annual Stockholders Meetings and Proxy Statement Preparation. The CFO shall provide assistance to conduct the annual meeting of PEC stockholders. The CFO shall assist in the preparation of the notice of the annual meeting, proxies and proxy statements related thereto, the solicitation of proxies, and the filing of any preliminary or definitive proxy statements with the SEC. The CFO shall assist PEC in design, preparation, drafting and distribution of its annual reports to stockholders. Preparation and distribution costs related to the proxy materials for the annual meeting shall be paid by PEC.
C. Tax Matters. The CFO will assist PEC to prepare and file state and federal income tax returns in conjunction with PEC's outside tax preparers and accountants and will consult with PEC regarding tax planning matters.
D. Other Financial Officer Services. The CFO will assist PEC with banking services administration, as well as financial management and information; with the preparation of financial statements; preparation of all reports filed by PEC with the SEC; and certifications as may be required of PEC under the Sarbanes-Oxley Act of 2002.
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EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a)/15d-14(a)
I, John F. Barry III, Chief Executive Officer and Chairman of the Board of Prospect Energy Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Prospect Energy Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over the financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated this 12th day of May, 2005
/s/ John F. Barry III ---------------------- John F. Barry III Chief Executive Officer and Chairman of the Board |
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a)/15d-14(a)
I, William E. Vastardis, Chief Financial Officer and Treasurer of Prospect Energy Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Prospect Energy Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over the financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated this 12th day of May, 2005
/s/ William E. Vastardis ------------------------ William E. Vastardis Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, 18 U.S.C. 1350
In connection with the Quarterly Report on Form 10-Q for the period ended March 31, 2005 (the "Report") of Prospect Energy Corporation (the "Registrant"), as filed with the Securities and Commission on the date hereof, I, John F. Barry III, the Chief Executive Officer of the Registrant, hereby certify, to the best of my knowledge, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
/s/ John F. Barry III -------------------------- Name: John F. Barry III Date: May 12, 2005 |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Prospect Energy Corporation and will be retained by Prospect Energy Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. ss. 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, 18 U.S.C. 1350
In connection with the Quarterly Report on Form 10-Q for the period ended March 31, 2005 (the "Report") of Prospect Energy Corporation (the "Registrant"), as filed with the Securities and Exchange Commission on the date hereof, I, William E. Vastardis, the Chief Financial Officer of the Registrant, hereby certify, to the best of my knowledge, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
/s/ William E. Vastardis -------------------------------- Name: William E. Vastardis Date: May 12, 2005 |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Prospect Energy Corporation and will be retained by Prospect Energy Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. ss. 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.