What changed in this filing

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Item 9A. Controls and Procedures

2024-04-09 compared with 2023-03-30 · 80 added, 97 removed, 118 unchanged (60% of the section changed)

1 unchanged sentence

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.

As of the end of the period covered by this report, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as promulgated by Rules 13a-15(e) and 15d-15(e) of the Exchange Act under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer.

Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of that date, due to the material weaknesses in internal control over financial reporting described below.

The Company did not maintain an effective control environment based on the criteria established in the Committee of Sponsoring Organizations (“COSO”) Framework, and its relevant components, which resulted in deficiencies that constitute material weaknesses, either individually or in the aggregate.

Control Environment

The Company failed to maintain a sufficient complement of qualified personnel to perform control activities.

The lack of sufficient appropriately qualified personnel contributed to our failure to:

(i) design and implement certain risk-mitigating internal controls;

and (ii) consistently operate our internal controls.

The control environment material weaknesses contributed to material weaknesses within our system of internal control over financial reporting in the Control Activities component of the COSO Framework.

Control Activities

The Company did not maintain effective control activities based on the criteria established in the COSO Framework and identified the following control deficiencies that constitute material weaknesses from the lack of effectively designed and implemented controls, either individually or in the aggregate:

• review and approval of manual journal entries, including implementing appropriate segregation of duties

• complex transactions, inclusive of accounting for business combinations and the Company’s investment related to the SEMTH master lease agreement and the related interest income

• revenue recognition, including the review of the contracts upon inception and/or acquisition and the accounting for revenue recognition under ASC 606, Revenue from Contracts with Customers.

These deficiencies in control activities contributed to the potential for there to have been material accounting errors in multiple financial statement account balances and disclosures that would not have been prevented or detected timely.

However, after giving full consideration to these material weaknesses, and the additional analyses and other procedures that were performed to ensure that the Company’s consolidated financial statements included in this Annual Report on Form 10-K were prepared in accordance with GAAP, management has concluded that our consolidated financial statements present fairly, in all material respects, our financial position, results of operations and cash flows for the periods disclosed in conformity with GAAP.

Remediation Plan

The Company is committed to maintaining strong internal control over financial reporting.

In response to the material weaknesses described above, management, with the oversight of the Audit Committee, is taking comprehensive actions to remediate the above material weaknesses.

The remediation plan includes the following:

• developing a training program and educating control owners concerting financial statement risk and principles of the Internal Control - Integrated Framework issued by COSO;

• hired and are continuing to hire professionals with the appropriate skills to perform control activities, including those involving complex and/or non-routine transactions;

• designing and implementing additional and/or enhanced controls in the areas of account reconciliations, contract accounting, revenue recognition, and financial statement analysis prepared in conformity with GAAP and manual journal entries;

• designing and implementing controls to address the identification, accounting, review and reporting of complex and/or non-routine transactions.

• enhancing system controls to address and enforce Segregation of Duties Framework;

While Management believes that these efforts will improve the Company's internal control 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 continue to assess the effectiveness of its internal control over financial reporting and take steps to remediate the known material weaknesses expeditiously.

Remediation of Previously-Identified Material Weakness in Internal Control over Financial Reporting Related to Information Technology General Controls

The Company previously disclosed in its December 31, 2022 Annual Report a material weakness i n internal control over financial reporting, related to the ineffective design and implementation of Information Technology General Controls (“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.

Based upon remediation efforts implemented during the year, Management has concluded that the design and implementation of ITGC to be operating effectively as of December 31, 2023.

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.

Other than the material weaknesses and the remediation of the general IT control material weakness discussed above, there have been no other changes in our internal control over financial reporting during the quarter ended December 31, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

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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.

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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 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.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023 based on the criteria established by the COSO Framework.

As a result of the material weaknesses described above, Management has concluded that, as of December 31, 2023, 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.

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.

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Because Spruce Power is 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.

Other Information

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

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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 2024 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.

The Company has adopted a code of ethics for directors, officers (including its principal executive officer, principal financial officer and principal accounting 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 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, principal financial officer and principal accounting 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.

11 unchanged sentences

2 — Ratification of Selection of Independent Registered Public Accounting Firm ” in the Proxy Statement for the 2024 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.

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Exhibits, Financial Statement Schedules

(a) Documents filed as part of this report.

The following financial statements of Spruce Power Holding Corporation and Report of Marcum LLP, Independent Registered Public Accounting Firm, are included in this report:

Report of Independent Registered Public Accounting Firm

The following financial statements of Spruce Power Holding Corporation and Reports of Deloitte & Touche LLP and Marcum LLP, Independent Registered Public Accounting Firms, are included in this report:

Reports of Independent Registered Public Accounting Firms for Deloitte & Touche LLP (PCAOB ID No .34) and Marcum LLP (PCAOB ID No.

Consolidated Balance Sheets as of December 31, 202 3 and 20 2 2

9 unchanged sentences

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

2.1 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

2 unchanged sentences

By Reference 8-K December 23, 2020

3.2 Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation

By Reference 8-K October 6, 2023

3.3 Certificate of Amendment changing name of Registrant to Spruce Power Holding Corporation

By Reference 8-K November 14, 2022

3.4 Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation

October 6, 2023

3.5 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

4.1 Description of Registered Securities

By Reference 10-K March 31, 2021

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10.1 Amended and Restated Credit Agreement, dated August 18, 2023 among Spruce Power 2, LLC, as Borrower, Silicon Valley Bank, a division of First-Citizens Bank & Trust Company as Administrative Agent and the Issuing Bank, and the lenders from time to time party thereto.

November 13, 2023

Description Included Form Filing Date

2 unchanged sentences

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.

2 unchanged sentences

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.

10.5 Spruce Power Holding Corp.

2020 Equity Incentive Plan.

By Reference 10-K March 31, 2021

10.8 XL Fleet Corp.

10.6 Spruce Power Holding Corp.

2020 Equity Incentive Plan Form of Stock Option Agreement.

By Reference 8-K December 23, 2020

10.9 XL Fleet Corp.

10.7 Spruce Power Holding Corp.

2020 Equity Incentive Plan Form of Restricted Stock Unit Agreement.

By Reference 8-K December 23, 2020

10.8 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

10.9 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.

6 unchanged sentences

By Reference 8-K September 15, 2022

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Description Included Form Filing Date

10.13 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.

5 unchanged sentences

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.

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

10.16 Offer Letter, dated October 25, 2018, by and between Spruce Lending Inc.

and Sarah Weber Wells

By Reference 8-K May 11, 2023

Description Included Form Filing Date

10.17 Enhanced Severance Letter, dated April 27, 2022, between the Company and Sarah Weber Wells

By Reference 8-K May 11, 2023

10.18 Offer Letter, dated as of May 18, 2022, by and between XL Fleet Corp.

and Stacey Constas

March 30, 2023

10.19 Severance Letter, dated October 26, 2022, between the Company and Stacey Constas

2 unchanged sentences

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

C onsent of Deloit te & Touche LLP, independent registered public accounting firm

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.

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.

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.

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.

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

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Description Included Form Filing Date

S pruce Power Holding Corp oration Clawback Policy

101.INS* Inline XBRL Instance Document

101.SCH* Inline XBRL Taxonomy Extension Schema Document

101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document Herewith

104 Cover Page Interactive Data File Herewith

104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* Filed herewith

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SPRUCE POWER HOLDING CORPORATION

March 30, 2023

April 8, 2024

/s/ Christian Fong

3 unchanged sentences

SPRUCE POWER HOLDING CORPORATION

March 30, 2023

/s/ Donald P.

April 8, 2024

/s/ Sarah Weber Wells

Sarah Weber Wells

Chief Financial Officer

2 unchanged sentences

Person Capacity Date

/s/ Christian Fong Chief Executive Officer and Director March 30, 2023

/s/ Christian Fong Chief Executive Officer and Director April 8, 2024

Christian Fong (Principal Executive Officer)

/s/ Donald P.

Klein Chief Financial Officer March 30, 2023

Klein (Principal Financial Officer and Principal Accounting Officer)

/s/ Christopher Hayes Director and Chair of the Board March 30, 2023

/s/ Sarah Weber Wells

Chief Financial Officer April 8, 2024

Sarah Weber Wells

(Principal Financial Officer and Principal Accounting Officer)

/s/ Christopher Hayes Director and Chair of the Board April 8, 2024

Christopher Hayes

/s/ Kevin Griffin Director March 30, 2023

/s/ Kevin Griffin Director April 8, 2024

Kevin Griffin

/s/ Jonathan J.

Ledecky Director March 30, 2023

Miller Director March 30, 2023

/s/ Eric Tech Director March 30, 2023

Ledecky Director April 8, 2024

Miller Director April 8, 2024

/s/ Eric Tech Director April 8, 2024

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