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Item 9A. Controls and Procedures

2024-02-29 compared with 2023-03-15 · 69 added, 75 removed, 146 unchanged (50% of the section changed)

Controls and Procedures

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Annual Report, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2022, our disclosure controls and procedures were ineffective, due to the material weaknesses described below.

However, after giving full consideration to these material weaknesses, and the additional analyses and other procedures that we performed to ensure that our consolidated financial statements included in this Annual Report were prepared in accordance with U.S.

GAAP, our management has concluded that our consolidated financial statements included in this Annual Report fairly present, in all material respects, our financial position, results of operations, and cash flows for the periods presented.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2023, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act).

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in the Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on the assessment, management concluded that our internal control over financial reporting was ineffective as of December 31, 2022, due to the material weaknesses described below.

Material Weaknesses in Internal Control over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

In connection with the preparation and audit of our financial statements for the year ended December 31, 2020, we identified certain control deficiencies in the design and operation of our internal control over financial reporting that constituted material weaknesses.

The material weaknesses are:

Based on the assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2023.

The effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in its report which appears within Item 8 of this Annual Report on Form 10-K.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management, including the Chief Executive Officer and Chief Financial Officer, recognizes that our disclosure controls and procedures or our internal control over financial reporting cannot prevent or detect all possible instances of errors and all fraud.

A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met.

The design of a control system must reflect the fact that there are resource constraints, and management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Remediation of Prior Year Material Weaknesses

We previously identified and disclosed in our 2022 Annual Report on Form 10-K as well as in our Quarterly Report on Form 10-Q for each interim period in fiscal 2023, the following material weaknesses in our internal control over financial reporting:

▪ We did not design and maintain an effective control environment commensurate with our financial reporting requirements.

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Additionally, the limited personnel resulted in an inability to consistently establish appropriate authorities and responsibilities in pursuit of financial reporting objectives, as demonstrated by, among other things, insufficient segregation of duties in our finance and accounting functions.

The material weakness in the control environment contributed to the following additional material weaknesses:

▪ We did not design and maintain an effective risk assessment process at a precise enough level to identify new and evolving risks of material misstatement in our financial statements.

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• computer operations controls to ensure that data backups are authorized and monitored.

These material weaknesses resulted in a revision to our consolidated condensed financial statements for the period ended March 31, 2021 to reclassify certain costs within operating expenses from research and development expense to other warrant expense and immaterial errors to our previously issued consolidated financial statements which were corrected in the consolidated financial statements as of and for the year ended December 31, 2022.

Additionally, each of these material weaknesses could result in a misstatement of substantially all of our accounts or disclosures that would result in a material misstatement to the annual or interim financial statements that would not be prevented or detected.

Remediation Measures

We are taking the steps we believe are necessary to remediate these material weaknesses to comply with the rules and regulations of the SEC regarding compliance with Section 404(a) of the Sarbanes-Oxley Act.

Management, with the participation of the Audit Committee and the Board of Directors, is engaged in remediation activities to address the material weaknesses described above.

Those remediation measures are ongoing and include the following:

We have taken the steps we believe are necessary to remediate these material weaknesses to comply with the rules and regulations of the SEC regarding compliance with Section 404(a) of the Sarbanes-Oxley Act.

Those remediation measures included the following:

▪ We prepared a remediation plan for each of the material weaknesses and trained process owners, developed new controls, enhanced existing controls and evaluated process adoption, and are monitoring results;

▪ We hired a new Chief Financial Officer in February 2022 and have hired and plan to continue to hire additional accounting, human resources and payroll, and IT personnel to bolster our accounting and IT capabilities and capacity, and to establish and maintain our internal controls;

▪ We have implemented and continue to implement controls to formalize roles and review responsibilities that align with our team’s skills and experience and to ensure segregation of duties;

▪ We engaged third-party professionals to design and implement a formal risk assessment process and identified and evaluated changes in our internal controls;

▪ We have implemented formal processes, policies, and procedures supporting our financial close process, including establishing and reviewing thresholds for business performance reviews, formalizing procedures over the review of financial statements, and creation of standard balance sheet reconciliation templates and journal entry controls;

▪ We continue to design and implement IT general controls, including controls over the review and updating of user access rights and privileges and implementing more robust IT policies and procedures over change management, data backup authorization and computer operations;

▪ We implemented a new enterprise resource planning (“ERP”) system in February 2023 that is expected to be capable of automating some of our manual financial reporting processes, enhancing our information technology control environment, and mitigating some of the internal control gaps and limitations that cannot be addressed by our current system.

We believe we are making progress toward achieving the effectiveness of our internal control over financial reporting and disclosure controls and procedures.

The actions that we are taking are subject to ongoing senior management review, as well as Audit Committee oversight.

We will not be able to conclude whether the steps we are taking will fully remediate these material weaknesses in our internal control over financial reporting until we have completed our remediation efforts including evaluation of their ongoing effectiveness for a sufficient period of time.

We may also conclude that additional measures may be required to remediate the material weaknesses in our internal control over financial reporting, which may necessitate additional implementation and evaluation time.

We will continue to assess the effectiveness of our internal control over financial reporting and take steps to remediate the known material weaknesses expeditiously.

▪ We hired a new Chief Financial Officer in February 2022 and hired additional accounting, human resources and payroll, and IT personnel to bolster our accounting and IT capabilities and capacity, in order to establish and maintain our internal controls;

▪ We implemented controls to formalize roles and review responsibilities that align with our team’s skills and experience and to ensure segregation of duties;

▪ We engaged third-party professionals to aid in the design and implementation of a formal risk assessment process and identified and evaluated changes in our internal controls;

▪ We implemented formal processes, policies, and procedures supporting our financial close process, including establishing and reviewing thresholds for business performance reviews, formalizing procedures over the review of financial statements, and creation of standard balance sheet reconciliation templates and journal entry controls;

▪ We designed and implemented IT general controls, including controls over the review and updating of user access rights and privileges and segregation of duties, and implemented more robust IT policies and procedures over change management, data backup authorization and computer operations;

▪ We implemented a new enterprise resource planning system in February 2023 that automated some of our manual financial reporting processes, enhanced our information technology control environment, and mitigated necessary internal control gaps and limitations that previously resulted in the material weaknesses noted above.

As of December 31, 2023, management has concluded that the actions described above were satisfactorily implemented and have been in place for a sufficient period of time to demonstrate the previously identified material weaknesses have been remediated.

Changes in Internal Control Over Financial Reporting

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Other Information

Rule 105b5-1 Trading Plans.

During the three months ended December 31, 2023, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of Regulation S-K.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

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Directors, Executive Officers and Corporate Governance

The information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2023 Annual Meeting of Stockholders (the “2023 Proxy Statement”) to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report.

The information required by this item is incorporated herein by reference to our Proxy Statement to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report.

Executive Compensation

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001-39668), filed September 22, 2021 )

3.2 Amended and Restated Bylaws of Archer ( incorporated by reference to Exhibit 3.

1 to Form 8-K (File No.

3.2 Amended and Restated Bylaws of Archer ( incorporated by reference to Exhibit 3.1 to Form 8-K (File No.

001-39668), filed February 7, 2023 )

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001-39668), filed February 10, 2021)

10.2 Amended and Restated Sponsor Letter Agreement, dated as of July 29, 2021, by and among Atlas Crest Investment Corp., Atlas Crest Investment LLC, Leg acy Archer , and the individuals named therein (incorporated by reference to Annex D-2 to Registration Statement on Form S-4 (File No.

10.2 Amended and Restated Sponsor Letter Agreement, dated as of July 29, 2021, by and among Atlas Crest Investment Corp., Atlas Crest Investment LLC, Legacy Archer, and the individuals named therein (incorporated by reference to Annex D-2 to Registration Statement on Form S-4 (File No.

333-254007), filed August 3, 2021)

16 unchanged sentences

Exhibit Description

10.11† Form of Irrevocable Deferral Election under Archer Director Equity Deferral Plan (incorporated by reference to Exhibit 10.

3 to Form 10-Q (File No.

10.11† Form of Irrevocable Deferral Election under Archer Director Equity Deferral Plan (incorporated by reference to Exhibit 10.3 to Form 10-Q (File No.

001-39668), filed August 10, 2022)

10.12† Offer Letter, dated September 16, 2021, by and between Archer and Brett Adcock (incorporated by reference to Exhibit 10.12 to Form 8-K (File No.

001-39668), filed September 22, 2021)

10.13† Separation Agreement of Brett Adcock, dated April 28, 2022 (incorporated by reference to Exhibit 10.1 to Form 8-K (File No.

001-39668) filed April 29, 2022)

Offer Letter, dated September 16, 2021, by and between Archer and Adam Goldstein (incorporated by reference to Exhibit 10.13 to Form 8-K (File No.

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333-254007) filed August 10, 2021)

10.16† Offer Letter, dated January 16, 2022, by and between Mark Mesler and Archer (incorporated by reference to Exhibit 10.4 to Form 10-Q (File No.

001-39668) filed May 12, 2022)

10.17†* Offer Letter, dated May 28, 2021, by and between Tosha Perkins and Archer

10.18 Sublease Agreement, dated July 1, 2020, by and between Aurora Innovation, Inc.

and Le gacy Arc her (incorporated by reference to Exhibit 10.12 to Registration Statement on S-4 (File No.

333-254007), filed August 10, 2021)

10.19 Lease Agreement, dated December 11, 2020, by and between Jack Dymond Lathing Co.

and Legacy Archer (incorporated by reference to Exhibit 10.13 to Registration Statement on S-4 (File No.

333-254007), filed August 10, 2021)

10.20 Sublease Agreement, dated March 1, 2020, by and between Delta Mike Enterprises, LLC and Legacy Archer (incorporated by reference to Exhibit 10.14 to Registration Statement on S-4 (File No.

333-254007), filed August 10, 2021)

10.21 Lease Agreement, dated April 14, 2021, by and between NC Investments, LLC and Legacy Archer (incorporated by reference to Exhibit 10.15 to Registration Statement on S-4 (File No.

Offer Letter, dated May 5.

2021, by and between the Company and Andy Missan (incorporated by reference to Exhibit 10.17 to Registration Statement on Form S-4 (File No.

333-254007) filed August 10, 2021 )

10.22†† Sublease Agreement, dated January 14, 2022, between Fo r e scout Technologies, Inc.

Settlement Agreement, dated August 10, 2023, by and among Archer, The Boeing Company and Wisk Aero LLC (incorporated by reference to Exhibit 10.1 to Form 10-Q (File No.

001-39668), filed November 9, 2023

Sublease Agreement, dated January 14, 2022, between Forescout Technologies, Inc.

and Archer (incorporated by reference to Exhibit 10.2 to Form 10-Q (File No.

001-39668) filed May 12, 2022)

10.23†† Lease Agreement, dated March 9, 2022, between SIR Properties Trust and Archer (incorporated by reference to Exhibit 10.5 to Form 10-Q (File No.

001-39668) filed May 12, 2022)

10.24 Storage/R&D Space License Agreement, dated March 15, 2021, by and between J.V.

Lewis Enterprises, Inc.

and Legacy Archer (incorporated by reference to Exhibit 10.16 to Registration Statement on S-4 (File No.

First Warrant to Purchase Shares, dated August 15, 2023, by and among Archer, Wisk Aero LLC and The Boeing Company (incorporated by reference to Exhibit 4.9 to Registration Statement on Form S-3 (File No.

333-273996), filed August 15, 2023)

10.18 Warrant to Purchase Shares, dated January 3, 2023, by and between Archer and Stellantis N.V.

(incorporated by reference to Exhibit 10.3 to Archer’s Current Report on Form 8-K filed with the SEC on January 9, 2023)

10.19 Warrant to Purchase Shares, dated as of November 6, 2020, by and among FCA US LLC and Legacy Archer (incorporated by reference to Exhibit 10.8 to Registration Statement on S-4 (File No.

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1 to Warrant to Purchase Shares, dated August 9, 2022, by and among United Airlines, Inc.

and Archer (incorporated by reference to Exhibit 10.1 to form 10-Q (File No.

and Archer (incorporated by reference to Exhibit 10.1 to F orm 10-Q (File No.

001-39668), filed November 10, 2022)

10.22 Warrant to Purchase Shares, dated as of February 26, 2021, by and among Mesa Air Group, Inc.

and Legacy Archer (incorporated by reference to Exhibit 10.

11 to Registration Statement on S-4 (File No.

and Legacy Archer (incorporated by reference to Exhibit 10.11 to Registration Statement on S-4 (File No.

333-254007), filed August 10, 2021)

10.23 Warrant to Purchase Shares, dated as of July 19, 2021, by and between FCA Italy, S.p.A.

and Legacy Archer (in corporated by reference to Exhibit 10.23 to Form 10-K (File No.

and Legacy Archer (incorporated by reference to Exhibit 10.23 to Form 10-K (File No.

001-39668), filed March 14, 2022)

10.24 Form of Subscription Agreement (incorporated by reference to Exhibit 10.1 to Form 8-K (File No.

001-39668), filed February 10, 2021 )

001-39668), filed August 10, 2023)

10.25 Amended and Restated Registration Rights Agreement, by and between Archer and certain stockholders, dated September 16, 2021 (incorporated by reference to Exhibit 10.2 to Form 8-K (File No.

001-39668), filed September 22, 2021)

Exhibit Description

10.26 Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.3 to Form 8-K (File No.

001-39668), filed August 10, 2023)

10.27 Registration Rights Agreement, dated January 3, 2023, by and between Archer and Stellantis N.V.

(incorporated by reference to Exhibit 10.4 to Form 8-K (File No.

001-39668), filed with the SEC on January 9, 2023)

10.28 Loan and Security Agreement, dated July 9, 2021, by and among Silicon Valley Bank, in its capacity as administrative agent and collateral agent, Silicon Valley Bank and SVB Innovation Credit Fund VIII, L.P., as lenders, and Legacy Archer (incorporated by reference to Exhibit 10.10 to Registration Statement on Form S-4 (File No.

333-254007), filed August 3, 2021)

Credit Agreement, dated as of October 5, 2023, by and among Archer, the subsidiary guarantors thereto, and Synovus Bank, as administrative agent and lender

Form of Indemnity Agreement (incorporated by reference to Exhibit 10.26 to Form 8-K (File No.

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333-254007), filed March 8, 2021)

Exhibit Description

10.33 Restricted Stock Purchase Agreement, dated August 10, 2023, by and between Archer and Gibson, Dunn & Crutcher LLP (incorporated by reference to Exhibit 4.10 to Registration Statement on Form S-3 (File No.

333-273996), filed August 15, 2023)

10.34 Forward Purchase Agreement, dated January 3, 2023, by and between Archer and Stellantis N.V.

(incorporated by reference to Exhibit 10.2 to Form 8-K (File No.

001-39668), filed January 9, 2023)

10.35 Manufacturing Collaboration Agreement, dated January 3, 2023, by and between Archer and Stellantis N.V.

(incorporated by reference to Exhibit 10.1 to Form 8-K (File No.

001-39668), filed January 9, 2023)

Design-Build Agreement, dated as of October 3, 2023, by and between Archer and Evans General Contractors, LLC

10.37 Controlled Equity Offering SM Sales Agreement, dated November 9, 2023, by and between Archer and Cantor Fitzgerald & Co.

(incorporated by reference to Exhibit 1.2 to Registration Statement on Form S-3 (File No.

333-275465), filed November 13, 2023)

21.1* List of Subsidiaries

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31.1* Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2* Certification of Principal Finan cial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2* Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1# Certification of Principal Executive Officer pursuant to 18 U.S.C.

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Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

97.1 Clawback Policy

101.INS* Inline XBRL Instance Document

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* Filed herewith.

** Portions of this exhibit are redacted pursuant to Regulation S-K Item 601(b)(10)(iv)

† Indicates management contract or compensatory plan or arrangement.

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The registrant agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request.

# This certification is deemed not filed for purpose of section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.

# This certification is deemed not filed for the purpose of section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.

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ARCHER AVIATION INC.

March 15, 2023 By:

February 29, 2024 By:

/s/ Mark Mesler

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( Principal Executive Officer )

March 15, 2023

February 29, 2024

Adam Goldstein

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( Principal Financial and Accounting Officer )

March 15, 2023

February 29, 2024

/s/ Deborah Diaz

March 15, 2023

February 29, 2024

/s/ Fred Diaz

March 15, 2023

February 29, 2024

/s/ Oscar Munoz

March 15, 2023

February 29, 2024

/s/ Barbara J.

March 15, 2023

February 29, 2024

/s/ Maria Pinelli

March 15, 2023

February 29, 2024

Maria Pinelli

/s/ Michael Spellacy

March 15, 2023

February 29, 2024

Michael Spellacy

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures