SPRUCE POWER HOLDING CORP 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures The term “disclosure controls and procedures” is defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act, as controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. The Company’s disclosure controls and procedures are designed to ensure that material information relating to the Company and its consolidated subsidiaries is accumulated and communicated to its Management, including its Chief Executive Officer and its Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. Management excluded the operations of Spruce Power from its assessment of internal control over financial reporting as of December 31, 2022 because it was acquired by the Company in a business combination in the third quarter of 2022. The Company’s Management, with the participation of its Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of its disclosure controls and procedures as of December 31, 2022. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2022, because of the material weakness in internal control over financial reporting described below. Changes in Internal Control over Financial Reporting As previously disclosed under “Item 9A – Controls and Procedures” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, Management concluded that its internal control over financial reporting was not effective based on the material weaknesses identified, Information Technology General Controls (“ ITGC ”) and M anagement Review Controls . As of December 31, 2022, the Company has completed remediation of the previously reported Management Review Controls . The Company has designed and implemented procedures and controls over the period-end close process and related documentation including, but not limited to, review and approval of journal entries, account reconciliations, accounting estimates, other technical accounting matters, general-ledger account maintenance and financial statement analysis. In connection with the acquisition of Legacy Spruce Power, the Company is integrating Legacy Spruce Power’s internal controls over financial reporting into the Company’s financial reporting framework. Such integration has resulted and may continue to result in changes that materially affect the Company’s internal control over financial reporting (as described in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Other than the changes that have and may continue to result from the integration of Legacy Spruce Power and the remediation of the Company’s Management Review Controls , there was no change in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fourth quarter of 2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Management’s Report on Internal Control Over Financial Reporting 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, internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of the Company’s financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Because of its inherent limitations, the Company’s internal control over financial reporting may not prevent or detect all misstatements, including the possibility of human error, the circumvention or overriding of controls, or fraud. Effective internal control over financial reporting can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 57 Table of Content s A material weakness is a control deficiency, or a combination of control deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022 based on the criteria established by the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO Framework”). In the course of preparing the financial statements for the year ended December 31, 2022, Management identified a material weakness in internal control over financial reporting, which relates to the ineffective design and implementation of ITGC. The Company’s ITGC deficiencies included improperly designed controls pertaining to user access rights and segregation of duties over systems that are critical to the Company’s system of financial reporting. The ITGC deficiencies represent material weaknesses in the Company’s internal control over financial reporting as there is a reasonable possibility that a material misstatement with respect to the Company’s significant accounts and disclosures will not be prevented or detected on a timely basis. Conclusion As a result of the material weaknesses described above, Management has concluded that, as of December 31, 2022, the Company’s internal control over financial reporting was ineffective. Notwithstanding the identified material weaknesses, Management believes that the Consolidated Financial Statements included in this Annual Report on Form 10-K present fairly, in all material respects, the Company's financial position, results of operations, and cash flows as of and for the periods present in accordance with U.S. GAAP. Remediation Plan Management continues its efforts to integrate Legacy Spruce Power’s internal controls over financial reporting into the Company’s financial reporting framework and to enhance the Company’s remediation plan related to its ITGC material weakness. As disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, with the acquisition of Legacy Spruce Power and the evaluation of strategic alternatives for the Company’s Drivetrain and XL Grid businesses, the Company exited the Drivetrain and XL Grid businesses and took certain restructuring actions to integrate and remove corporate function redundancies. Related to this integration the Company has been evaluating all aspects of its internal control framework to identify and remediate any potential gaps and to identify any other opportunities to ensure the effectiveness of the Company’s internal controls. The material weaknesses will not be considered remediated until Management designs and implements effective controls that operate for a sufficient period of time and Management has concluded, through testing, that these controls are effective. Management will monitor the effectiveness of its integration and remediation plans and will make changes Management determines to be appropriate. While Management believes that these efforts will improve the Company's internal controls over financial reporting, the implementation of these measures is ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles. Management believes the Company is making progress toward achieving the effectiveness of its internal controls and disclosure controls. The actions that Management is taking are subject to ongoing Management review, as well as audit committee oversight. Management will not be able to conclude whether the steps it is taking will fully remediate the material weakness in the Company's internal control over financial reporting until Management has completed its remediation efforts and subsequent evaluation of their effectiveness. Management will continue to assess the effectiveness of its internal control over financial reporting and take steps to remediate the known material weakness expeditiously. Report of Independent Registered Public Accounting Firm Because we are a non-accelerated filer, the Company's independent registered public accounting firm is not required to express an opinion on the effectiveness of the Company's internal control over financial reporting. 58 Table of Content s Item 9B. Other Information None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections None. 59 Table of Content s PART III Item 10. Directors, Executive Officers, and Corporate Governance The information required by this Item will be set forth in the sections headed “Management and Corporate Governance” and "Delinquent Section 16(a) Reports" in the Proxy Statement for the 2023 annual meeting of stockholders which will be filed within 120 days after the end of the fiscal year and is incorporated in this report by reference. The Company has adopted a code of ethics for directors, officers (including its principal executive officer) and employees, known as Our Corporate Code of Conduct and Ethics and Whistleblower Policy. A copy of Our Corporate Code of Conduct and Ethics and Whistleblower Policy is available on the Company's website at www.sprucepower.com under the Governance, Documents and Charters section of our Investors page. The Company will promptly disclose on its website (i) the nature of any amendment to the policy that applies to the Company's principal executive officer or persons performing similar functions and (ii) the nature of any waiver, including an implicit waiver, from a provision of the policy that is granted to one of these specified individuals, the name of such person who is granted the waiver and the date of the waiver. The Audit Committee of the Company’s Board of Directors is an “audit committee” for purposes of Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The members of the Audit Committee are John P. Miller (Chair), Christopher Hayes and Jonathan Ledecky. Item 11. Executive Compensation The information required by this Item will be set forth in the section headed “ Executive Officer and Director Compensation ” in the Proxy Statement for the 2023 annual meeting of stockholders which will be filed within 120 days after the end of the fiscal year and is incorporated in this report by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters The information required by this Item will be set forth in the section headed “ Security Ownership of Certain Beneficial Owners and Management ” in the Proxy Statement for the 2023 annual meeting of stockholders which will be filed within 120 days after the end of the fiscal year and is incorporated in this report by reference. Information regarding the Company's equity compensation plans will be set forth in the section headed “ Executive Officer and Director Compensation - Equity Compensation Plan Information ” in the Proxy Statement for the 2023 annual meeting of stockholders which will be filed within 120 days after the end of the fiscal year and is incorporated in this report by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this Item will be set forth in the sections headed “ Certain Relationships and Related Person Transactions ” and “Management and Corporate Governance - Our Board of Directors” in the Proxy Statement for the 2023 annual meeting of stockholders which will be filed within 120 days after the end of the fiscal year and is incorporated in this report by reference. Item 14. Principal Accountant Fees and Services The information required by this Item will be set forth in the section headed “Proposal No. 2 — Ratification of Selection of Independent Registered Public Accounting Firm ” in the Proxy Statement for the 2023 annual meeting of stockholders which will be filed within 120 days after the end of the fiscal year and is incorporated in this report by reference. 60 Table of Content s PART IV Item 15. Exhibits, Financial Statement Schedules (a) Documents filed as part of this report. 1. The following financial statements of Spruce Power Holding Corporation and Report of Marcum LLP, Independent Registered Public Accounting Firm, are included in this report: Page No. Report of Independent Registered Public Accounting Firm F- 2 Consolidated Balance Sheets as of December 31, 202 2 and 202 1 F- 4 Consolidated Statements of Operations for the Years Ended December 31, 202 2 and 202 1 F- 6 Consolidated Statement of Changes in Stockholders’ Equity for the Years Ended December 31, 202 2 and 202 1 F- 7 Consolidated Statements of Cash Flows for the Years Ended December 31, 202 2 and 202 1 F- 9 Notes to Consolidated Financial Statements F- 11 2. List of financial statement schedules: All schedules have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 3. List of Exhibits required by Item 601 of Regulation S-K. See part (b) below. (b) Exhibits. Exhibit No. Description Included Form Filing Date 2.1*+ Agreement and Plan of Reorganization, dated as of September 17, 2020, by and among Pivotal Investment Corporation II, PIC II Merger Sub Corp. and XL Hybrids, Inc. By Reference S-4/A December 4, 2020 2.2 Membership Interest Purchase and Sale Agreement, dated as of September 9, 2022, by and between the Company, SF Solar Blocker 2 LLC, SF Solar Blocker 3 LLC, Spruce Holding Company 3 Holdco LLC and HPS Investment Partners, LLC By Reference 8-K September 15, 2022 3.1 Second Amended and Restated Certificate of Incorporation. By Reference 8-K December 23, 2020 3.2 Certificate of Amendment changing name of Registrant to Spruce Power Holding Corporation By Reference 8-K November 14, 2022 3.3 Amended and Restated Bylaws , as amended as of November 10, 2022 By Reference 8-K November 14, 2022 4.2 Specimen Warrant Certificate. By Reference 8-K December 23, 2020 4.3 Warrant Agreement, dated as of July 11, 2019, between Continental Stock Transfer & Trust Company and the Registrant. By Reference 8-K July 16, 2019 4.4 Warrant Agreement, dated as of September 29, 2017, between XL Hybrids, Inc. and MOTIV Partners LLC. By Reference 10-K March 31, 2021 4.5 Amendment to Warrant Agreement, dated as of December 15, 2020, between XL Hybrids, Inc. and MOTIV Partners LLC. By Reference 10-K March 31, 2021 4.6 Description of Registered Securities By Reference 10-K March 31, 2021 61 Table of Content s Exhibit No. Description Included Form Filing Date 10.1† Supply Agreement, dated as of July 19, 2019, by and between XL Hybrids, Inc. and Parker-Hannifin Corporation. By Reference S-4/A November 10, 2020 10.2# XL Hybrids, Inc. 2010 Equity Incentive Plan, including form of stock option agreement and form of restricted stock agreement. By Reference S-4 October 2, 2020 10.3 Form of Subscription Agreement. By Reference 8-K September 18, 2020 10.4 Registration Rights Agreement. By Reference S-4 October 2, 2020 10.5 Lock-Up Agreement. By Reference S-4 October 2, 2020 10.6 Form of Letter Agreement from each of the Registrant’s initial shareholders, officers and directors. By Reference S-1 June 13, 2019 10.7 XL Fleet Corp. 2020 Equity Incentive Plan. By Reference 10-K March 31, 2021 10.8 XL Fleet Corp. 2020 Equity Incentive Plan Form of Stock Option Agreement. By Reference 8-K December 23, 2020 10.9 XL Fleet Corp. 2020 Equity Incentive Plan Form of Restricted Stock Unit Agreement. By Reference 8-K December 23, 2020 10.10 Form of Indemnification Agreement between the Registrant and each officer and director. By Reference 8-K December 23, 2020 10.12 Employment Agreement for James Berklas, dated November 4, 2021 By Reference 8-K November 10, 2021 10.13 Amended and Restated Credit Agreement, dated October 29, 2019, among Kilowatt Systems, LLC, Volta MH Owner II, LLC, Greenday Finance I LLC and SpruceKismet, LLC, as Co-Borrowers, Silicon Valley Bank, as Administrative Agent, ING Capital LLC and Silicon Valley Bank as Issuing Banks, and the financial institutions from time to time party thereto as lenders, as conformed for each of Omnibus Amendment and Consent, dated as of March 5, 2020, Amendment to Credit Agreement, dated as of May 29, 2020, and Omnibus Amendment and Consent, dated March 18, 2021. By Reference 8-K September 15, 2022 10.14 Amended and Restated Credit Agreement, dated July 12, 2022, among Spruce Power 2, LLC, as Borrower, Silicon Valley Bank, as Administrative Agent and the Issuing Bank, and the lenders from time to time party thereto. By Reference 8-K September 15, 2022 10.15 Credit Agreement, dated November 13, 2020, among Spruce Power 3, LLC, as Borrower, KeyBank National Association, as Administrative Agent and Issuing Bank, and the lenders from time to time party thereto. By Reference 8-K September 15, 2022 10.16 Omnibus Amendment and Accession dated April 8, 2022, among KWS Solar Term Parent 1 LLC, KWS Solar Term Parent 2 LLC and KWS Solar Term Parent 3 LLC, as Co-Borrowers, KeyBank National Association, as Administrative Agent, and the lenders from time to time party thereto. By Reference 8-K September 15, 2022 62 Table of Content s Exhibit No. Description Included Form Filing Date 10.17 Waiver and Second Amendment to Amended and Restated Credit Agreement, dated July 12, 2022, among KWS Solar Term Parent 1 LLC, KWS Solar Term Parent 2 LLC, KWS Solar Term Parent 3 LLC and Spruce Power 3 Holdco, LLC, as Co-Borrowers, KeyBank National Association, as Administrative Agent, and the lenders from time to time party thereto. By Reference 8-K September 15, 2022 10.18 Executive Employment Agreement, dated September 9, 2022, by and between XL Fleet Corp. and Christian Fong. By Reference 8-K September 15, 2022 10.19 Restricted Stock Award Grant under the Registrant’s 2020 Equity Incentive Plan, dated September 9, 2022, to Christian Fong by XL Fleet Corp. By Reference 8-K September 15, 2022 10.20 Offer Letter, dated as of March 11, 2022, by and between XL Fleet Corp. and Donald P. Klein By Reference 8-K April 12, 2022 10.21 Severance Letter, dated October 26, 2022, between the Company and Donald Klein By Reference 8-K October 28, 2022 10.22 Offer Letter, dated as of May 18, 2022, by and between XL Fleet Corp. and Stacey Constas Herewith 10.23 Severance Letter, dated October 26, 2022, between the Company and Stacey Constas By Reference 8-K October 28, 2022 10.24 Executive Severance Policy By Reference 10-Q August 9, 2022 14 Amended and Restated Corporate Code of Conduct and Ethics and Whistleblower Policy. By Reference 8-K December 23, 2020 21 Subsidiaries of the Registrant. By Reference 8-K December 23, 2020 23.1* Consent of Marcum LLP, independent registered public accounting firm Herewith 31.1* Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities and Exchange Act of 1934, as amended, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Herewith 31.2* Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities and Exchange Act of 1934, as amended, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Herewith 32.1^* Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Herewith 32.2^* Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Herewith 101.INS* XBRL Instance Document Herewith 101.SCH* XBRL Taxonomy Extension Schema Document Herewith 101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document Herewith 101.DEF* XBRL Taxonomy Extension Definition Linkbase Document Herewith 101.LAB* XBRL Taxonomy Extension Label Linkbase Document Herewith 63 Table of Content s Exhibit No. Description Included Form Filing Date 101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document Herewith 104 Cover Page Interactive Data File Herewith * Filed herewith *+ Schedule and exhibits to this exhibit omitted pursuant to Regulation S-K Item 601(b)(2). The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request. † Certain confidential portions of this exhibit were omitted by means of marking such portions with asterisks because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed. # Indicates management contract or compensatory plan or arrangement. ^ In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Annual Report on Form 10-K and will not be deemed “filed” for purposes of Section 18 of the Exchange Act or deemed to be incorporated by reference into any filing under the Exchange Act or the Securities Act of 1933 except to the extent that the registrant specifically incorporates it by reference. Item 16. Form 10-K Summary Not applicable 64 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. SPRUCE POWER HOLDING CORPORATION Date: March 30, 2023 By: /s/ Christian Fong Name: Christian Fong Title: Chief Executive Officer (Principal Executive Officer) SPRUCE POWER HOLDING CORPORATION Date: March 30, 2023 By: /s/ Donald P. Klein Name: Donald P. Klein Title: Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) Person Capacity Date /s/ Christian Fong Chief Executive Officer and Director March 30, 2023 Christian Fong (Principal Executive Officer) /s/ Donald P. Klein Chief Financial Officer March 30, 2023 Donald P. Klein (Principal Financial Officer and Principal Accounting Officer) /s/ Christopher Hayes Director and Chair of the Board March 30, 2023 Christopher Hayes /s/ Kevin Griffin Director March 30, 2023 Kevin Griffin /s/ Jonathan J. Ledecky Director March 30, 2023 Jonathan J. Ledecky /s/ John P. Miller Director March 30, 2023 John P. Miller /s/ Eric Tech Director March 30, 2023 Eric Tech