Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
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;
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• 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; and
• 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
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
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.
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, 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.
Report of Independent Registered Public Accounting Firm
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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.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
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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 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, 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, 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. 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 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.
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 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.
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 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.
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 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.
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 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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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 Reports of Deloitte & Touche LLP and Marcum LLP, Independent Registered Public Accounting Firms, are included in this report:
Page No.
Reports of Independent Registered Public Accounting Firms for Deloitte & Touche LLP (PCAOB ID No .34) and Marcum LLP (PCAOB ID No. 688)
F- 2
Consolidated Balance Sheets as of December 31, 202 3 and 20 2 2
F- 6
Consolidated Statements of Operations for the Years Ended December 31, 202 3 and 20 2 2
F- 8
Consolidated Statement of Changes in Stockholders’ Equity for the Years Ended December 31, 20 2 3 and 20 2 2
F- 9
Consolidated Statements of Cash Flows for the Years Ended December 31, 202 3 and 20 2 2
F- 11
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 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 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
By Reference
8-K
October 6, 2023
3.5 Amended and Restated Bylaws, as amended as of November 10, 2022
By Reference 8-K November 14, 2022
4.1 Description of Registered Securities
By Reference 10-K March 31, 2021
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.
By Reference
10-Q
November 13, 2023
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Exhibit No. Description Included Form Filing Date
10.2†
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
10.3 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 Spruce Power Holding Corp. 2020 Equity Incentive Plan.
Herewith
10.6 Spruce Power Holding Corp. 2020 Equity Incentive Plan Form of Stock Option Agreement.
Herewith
10.7 Spruce Power Holding Corp. 2020 Equity Incentive Plan Form of Restricted Stock Unit Agreement.
Herewith
10.8 Form of Indemnification Agreement between the Registrant and each officer and director.
By Reference 8-K December 23, 2020
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.
By Reference 8-K September 15, 2022
10.10 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
10.11 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
10.12 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
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.
By Reference 8-K September 15, 2022
10.14 Executive Employment Agreement, dated September 9, 2022, by and between XL Fleet Corp. and Christian Fong.
By Reference 8-K September 15, 2022
10.15 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
10.16 Offer Letter, dated October 25, 2018, by and between Spruce Lending Inc. and Sarah Weber Wells
By Reference 8-K May 11, 2023
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Exhibit No. 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
By Reference
10-K
March 30, 2023
10.19 Severance Letter, dated October 26, 2022, between the Company and Stacey Constas
By Reference 8-K October 28, 2022
10.20 Executive Severance Policy
By Reference 10-Q August 9, 2022
21 Subsidiaries of the Registrant
Herewith
23.1* Consent of Marcum LLP, independent registered public accounting firm
Herewith
23.2*
C onsent of Deloit te & Touche 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
97*
S pruce Power Holding Corp oration Clawback Policy
Herewith
101.INS* Inline XBRL Instance Document
Herewith
101.SCH* Inline XBRL Taxonomy Extension Schema Document
Herewith
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document
Herewith
101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document
Herewith
101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document
Herewith
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document Herewith
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
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.
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Item 16. Form 10-K Summary
Not applicable
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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: April 8, 2024
By: /s/ Christian Fong
Name: Christian Fong
Title: Chief Executive Officer
(Principal Executive Officer)
SPRUCE POWER HOLDING CORPORATION
Date: April 8, 2024
By: /s/ Sarah Weber Wells
Name: Sarah Weber Wells
Title: Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Person Capacity Date
/s/ Christian Fong Chief Executive Officer and Director April 8, 2024
Christian Fong (Principal Executive Officer)
/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 April 8, 2024
Kevin Griffin
/s/ Jonathan J. Ledecky Director April 8, 2024
Jonathan J. Ledecky
/s/ John P. Miller Director April 8, 2024
John P. Miller
/s/ Eric Tech Director April 8, 2024
Eric Tech
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