The book delivers a comprehensive analysis of the legal framework governing business and commerce in Minnesota, from choosing the right business entity and understanding tax implications to resolving shareholder disputes and navigating secured transactions.

For more information or to order, go to LexisNexis Minnesota Business and Commercial Law.

Susan is ranked in Chambers USA among the top corporate/M&A attorneys in Minnesota. She represents clients in general corporate, taxation, and nonprofit matters, drawing from a diverse background in government, accounting, and law to serve as a holistic business advisor. Susan regularly counsels clients on mergers and acquisitions, business formation, joint ventures, and general corporate matters, and she frequently assists with tax controversies, audits, appeals, planning, and structuring, as well as researching tax law and drafting legal appeals and memoranda. Susan also serves on the Maslon board of directors.

Katie, chair of the Corporate & Securities Group, assists clients across a broad range of corporate and transactional legal needs. She has managed and negotiated complex mergers & acquisitions, corporate reorganizations, buy-sell agreements, and business succession agreements. Her expertise also includes negotiating, drafting, and revising commercial contracts, with particular focus on technology-related agreements. In addition, she ensures clients remain up to date and compliant on data retention, website terms of use, and website privacy policies.

Terri, a business attorney and mediator, focuses her practice on M&A, restructurings and shareholder business divorces, and mediation of commercial disputes. She currently serves as a senior counsel with Maslon.

Yujin advises clients on contract drafting and negotiation, compliance issues, and general corporate law. Her background in international trade informs her approach to common and uncommon business challenges and how to successfully manage them.

Jessica assists clients in general corporate law, nonprofit formation, contracts, and mergers and acquisitions. Prior to attending law school, Jessica earned her master’s degree from Georgetown University in art and museum studies, and gained valuable experience as a museum collections and exhibitions manager and as a grant writer.

Matthew is an accomplished attorney and seasoned entrepreneur who returned to private practice after a decade of successfully running his own business. As the principal co-founder and board chair of Bauhaus Brew Labs, Matt has personally walked in the shoes of business owners, honing his capabilities in business finance, commercial transactions, strategic planning, and regulatory issues.

Laura is a Corporate & Securities Group associate who collaborates with corporate clients to achieve their business goals while protecting their legal interests. Laura focuses on mergers and acquisitions, contract drafting and negotiation, and legal compliance. She has a passion for helping small business owners and finds that these relationships are the driving force behind her work.

Bryan has helped his policyholder clients recover millions of dollars in insurance proceeds in disputes over coverage for directors and officers; employment practices; product, environmental, professional, and fiduciary liability; as well as in litigation over first-party coverage for fidelity and crime loss, property loss, business interruption, and cyber loss.

Bryan earned his law degree from the University of Minnesota Law School, where he served for several years as an adjunct professor for the university's Insurance Law Clinic, which provides students with the opportunity to provide pro bono services to policyholders who have disputes with their insurance companies.

For more information or to register, go to Minnesota CLE: How to Draft Better Contracts.

Terri Krivosha is a former partner and now senior counsel and chair of professional development at Maslon. A business attorney and mediator, she enjoys nothing more than helping shareholders, family business owners, and companies buy or sell businesses or solve their legal problems—the more complicated, the better. As a deal lawyer, rather than a litigator, she is unique among mediators because she brings her many years of experience negotiating deals to the mediation table.

For more information, go to ABA Insurance Coverage Litigation Committee CLE Seminar.

Margo co-chairs Maslon’s policyholder-only coverage practice, where she aggressively represents top-tier corporate clients, as well as individuals, religious institutions, and nonprofit organizations. She is often retained by Fortune 100 and 500 companies to pursue coverage for class action/MDL/mass tort/product liability claims, most recently involving clergy abuse claims, PFAS products, medical devices, plumbing products, pharmaceuticals, and shareholder claims. Her advocacy has resulted in high-stakes insurance recoveries through litigation, arbitration, and negotiation in the United States and abroad.

"Construction Law Today" began in 2019 and has been downloaded over 20,000 times on one platform alone. David appeared as a guest on two previous episodes, "Episode 5: Insurance Issues in Construction Litigation," and "Episode 15: Insurance Issues in Construction Litigation, Part 2."

For more information or to listen, go to ABA "Construction Law Today" Podcast.

David, a partner in Maslon's Litigation Group, is a skilled trial attorney and former federal prosecutor who regularly represents clients in construction and insurance coverage disputes, government and internal investigations, and a variety of commercial litigation. Who's Who Legal has consistently ranked David as one of the top three under-45 construction lawyers in the United States (2019-22), describing him in their annual "Future Leaders" guide as "an impressive trial lawyer whose practice spans the spectrum of construction matters from insurance to payment claims." Chambers USA published client commentary describing David's strengths as "mastery of insurance, understanding the construction industry, exceptional writing skills and aggressive negotiation." David has developed a niche national practice representing commercial policyholders in insurance coverage disputes, including on many of the largest construction projects and claims across the United States.

The American College of Coverage Counsel annual meeting is open to ACCC Fellows. For more information or to register, go to: ACCC 2021 Annual Meeting.

Margo is the head of the firm's Insurance Coverage Group, where she zealously represents top-tier corporate clients, as well as individuals, religious institutions, and nonprofit organizations. Her advocacy has resulted in high-stakes insurance recoveries through litigation, arbitration, and negotiation in the United States and abroad. Specializing in policyholder coverage work for more than 20 years, she has recovered millions of dollars on behalf of her clients.

Margo has expertise in a wide range of insurance products and coverage areas, including mass tort and product liability (in medical technology and life sciences, among other areas), directors' and officers' and professional liability, antitrust and securities liabilities, employment practices liability, asbestos and other toxic torts claims, environmental liability, cyber liability, intellectual property liability, and corporate-owned life insurance (COLI) used for funding executive benefit plans, as well as other life insurance products.

Published by Minnesota CLE, the Deskbook addresses general issues such as rules of construction, duties of insured, and ethical considerations; and specific insurance coverages such as homeowners insurance, commercial general liability insurance, professional liability insurance, workers' compensation insurance, and cyber insurance. Although the emphasis is on Minnesota law, authors have referred to commentators or seminal cases from other jurisdictions, either as additional background or as authority on an issue not yet addressed by Minnesota courts.

For more information or to purchase, go to MN Insurance Law Deskbook.

Margo is a partner in Maslon's Litigation Group and head of the Insurance Coverage Group, where she zealously represents top-tier corporate clients, as well as individuals, religious institutions, and nonprofit organizations. Her advocacy has resulted in high-stakes insurance recoveries through litigation, arbitration, and negotiation in the United States and abroad. Specializing in policyholder coverage work for more than 20 years, she has recovered millions of dollars on behalf of her clients.

Margo has expertise in a wide range of insurance products and coverage areas, including mass tort and product liability (in medical technology and life sciences, among other areas), directors' and officers' and professional liability, antitrust and securities liabilities, employment practices liability, asbestos and other toxic torts claims, environmental liability, cyber liability, intellectual property liability, and corporate-owned life insurance (COLI) used for funding executive benefit plans, as well as other life insurance products.

Bryan is a partner in Maslon's Litigation and Corporate & Securities groups, focusing his practice on insurance coverage and complex commercial litigation. He helps business policyholders secure the benefits, protection, and dollars their insurance policies are meant to provide. Bryan has assisted in recovering millions of dollars in insurance proceeds in disputes over coverage for directors and officers; employment practices; product, environmental, and fiduciary liability; as well as in litigation over first-party coverage for fidelity and crime loss, property loss, business interruption, and cyber loss. He has been recognized in the insurance coverage category on the Minnesota Super Lawyers lists since 2013.

In his commercial litigation practice, Bryan has broad experience litigating business disputes in federal courts around the country. He's worked on complex class-action defense matters under the Telephone Consumer Protection Act (TCPA) and Racketeer Influenced and Corrupt Organizations Act (RICO). He has also defended and successfully tried and arbitrated TCPA, breach of contract, and tort cases.

Judah, an attorney in the firm's Litigation Group, represents corporate and individual policyholders in insurance coverage and complex business disputes. His experience includes advising clients and litigating actions concerning product liabilities, environmental and toxic tort liabilities, director- and officer-related liabilities, first-party property loss, business interruption, and broker negligence. He has recently represented clients in insurance coverage disputes concerning COVID-19 losses. Judah also maintains a robust commercial litigation practice spanning multiple industries and forums, ranging from representing investment banking firms in federal appeals, to representing medical device manufacturers in federal and state courts, to litigating putative class actions under the Racketeer Influenced and Corrupt Organizations Act (RICO).

In the article, Margo explains that "property owners often don't realize that there are sublimits within their commercial insurance policies." She states "When the limits are low and there's not enough, people don't realize that until there's a problem."

Margo is currently offering pro bono representation to some impacted small businesses. Of those who are running up against the sublimits, she states she is "hoping to work around the problem by citing the law and ordinance provisions in policies, which require insurers to include the cost of complying with current building codes when calculating replacement costs."

To read the full article online, go to: Insurance Journal, "Owners Say Insurance Inadequate to Cover Demolition of Riot-Destroyed Buildings."

Margo Brownell has represented policyholders in litigation, arbitrations, and negotiations with their insurers for over 20 years. She has helped clients recover hundreds of millions of dollars in high-stakes insurance coverage disputes throughout the country.

Recognized as a 2018 Attorney of the Year, Margo has secured coverage for national and international companies facing a wide range of liabilities and losses, including mass tort and product liability (including medical technology and life sciences), directors' and officers' and professional liability, antitrust and securities liabilities, employment practices liability, asbestos and other toxic torts claims, cyber liability, environmental liability and intellectual property liability, and many other types of claims. In addition, Margo litigates property claims, such as those arising from major catastrophic events like the terrorist attacks of 9/11 and Hurricane Katrina as well as claims under financial institution bonds and commercial crime policies. Margo has been selected for inclusion in The Best Lawyers in America® 2021 and is recognized on the 2020 Minnesota Super Lawyers® list.

• Term. The minimum term to repay any non-forgiven proceeds for any new PPP loans is extended from 2 to 5 years (the interest rate remains at 1%). For existing loans, lenders and borrowers will have to agree to an extension.
• Covered Period. Under the prior program rules, for the loan to be forgiven, a borrower needed to use loan proceeds on specified eligible expenses during the 8-week period after receiving the loan or the 8-week period starting on the date of the first payroll cycle after receiving the loan. Now, current PPP borrowers can opt to extend the period to 24 weeks following receipt of loan proceeds, or elect to keep the original 8-week period. Any new PPP borrowers will have a 24-week covered period, but such period cannot extend beyond December 31, 2020. It is unclear at the time how the move to a 24-week covered period will impact the $15,385 cap payment to any individual employee during the 8-week period (i.e. $100,000 annualized for the 8-week period), referenced in the SBA Rules and Loan Forgiveness Application. Updated guidance from the SBA is expected. Importantly, the extension of the covered period does not extend the deadline to apply for a PPP loan, with applications for new PPP loans being accepted through June 30, 2020.
• Payroll Cost. To qualify for loan forgiveness, borrowers now must spend 60% of loan proceeds on payroll costs (previously, the SBA imposed a 75% requirement), and may use up to 40% of loan proceeds on interest payments on mortgage obligations (excluding prepayments of or payments of the principal), rent payments, or utility payments. Importantly, although this 60/40 requirement provides additional flexibility, it now appears to be a "cliff." The borrower must spend a minimum of 60% of its loan on payroll costs or none of the loan will be forgiven (i.e. if you spend 41% of loan proceeds on rent and utilities, the entire loan becomes ineligible for forgiveness).
• Rehire Safe Harbor. Previously, to be eligible for full loan forgiveness, a borrower was required to restore its full-time equivalent employee ("FTE") level and restore reduced wages (reduced by more than 25%) to the February 15, 2020 levels by June 30, 2020. This date is extended to December 31, 2020.
• Employee Availability Exemption. New under the Act, borrowers will be now exempted from a proportional reduction in loan forgiveness due to a reduction in the number of FTEs if, in "good faith," the borrower is able to document that between February 15, 2020, and December 31, 2020, the borrower was unable to (1) rehire employees who had been employed on February 15, 2020, or hire similarly qualified employees for unfilled positions on or before December 31, 2020; or (2) return to the same level of business activity at which such business was operating at before February 15, 2020, due to compliance with federal guidance related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.
• Extended Deferral Period. The Act removes the previous 6-month period to defer PPP loan payments and provides instead for deferral until the borrower applies for forgiveness. However, in the event the borrower fails to apply for forgiveness within 10 months after the last day of the covered period for PPP loan forgiveness, the borrower must then begin making payments of principal, interest, and fees on the loan.
• Defer Payroll Taxes. Borrowers may now defer payment of payroll taxes incurred between March 27 and December 31, 2020 (previously, borrowers were prohibited from both obtaining a PPP loan and utilizing this tax deferral under the CARES Act).

Next Steps

In light of these reforms, current borrowers should consider taking the following steps:

1. Reach out to your lender to request a loan term extension if you think any portion of the loan might not be forgiven.
2. If you elect to use the 24-week covered period, recalculate your payroll costs for the 24-weeks from your loan origination date. If you reduce the amount of loan proceeds you are using on payroll costs, ensure you are still using at least 60% of the proceeds on payroll.
3. If you anticipate difficulties in eliminating the reduction in the number of FTEs by December 31, 2020 (i.e., hiring similarly qualified or re-hiring the same employees to your pre-February 15, 2020 numbers), or you have concerns about the ability for your business to return to the same level of business activities by such time, thoroughly document any evidence supporting these concerns and your related business decisions. For example, document all written job offers, rejections and job postings, and all steps your business is taking to comply with OSHA, CDC, and HHS procedures.

We Can Help

Please contact Maslon's Corporate & Securities Group if you have questions or need assistance taking advantage of the relief provided under the CARES Act, as amended by the Paycheck Protection Program Flexibility Act of 2020.

As "falling objects," viral particles should be included in Covered Causes of Loss property and business income insurance policies which, unlike All Risks policies, require damage or loss resulting from "Specified Causes of Loss." Typically, the definition of "Specified Causes of Loss" reads:

"Specified Causes of Loss" means fire; lightning; explosion; windstorm or hail; smoke; aircraft or vehicles; riot or civil commotion; vandalism; "Sinkhole Collapse"; "Volcanic Action"; falling objects; weight of snow, ice or sleet, water damage, "Sprinkler Leakage"; "Theft"; or "Building Glass" breakage. (Emphasis added.)

Defining "Falling Objects"

The plain meaning and a layman's understanding of "falling objects" should instruct on the meaning of insurance policy terms that are not otherwise defined in the policy. In addition, insurance policies are broadly construed in favor of the policyholder and for coverage when an insurer could have further defined a term like "falling objects," but chose not to do so. This is especially key when other terms used in the same definition are defined, as is the case for some "Specified Causes of Loss," like "Sinkhole Collapse" or "Theft."

Virus Exclusions

With the "falling objects" part of the "Specified Causes of Loss" definition met, policyholders can also avoid application of certain virus exclusions often included with this type of property coverage. If, for example, a policy's virus exclusion precludes loss from "the presence, growth, proliferation, spread or any activity of . . . virus," but qualifies that "if direct physical loss or direct physical damage to Covered Property by a 'Specified Cause of Loss' results, we will pay for the resulting loss or damage caused by that 'Specified Cause of Loss,'" the bolded sentence opens the door to "falling object" losses even if the object is a viral particle.

Moreover, when property policies that require loss from "Specified Causes of Loss" include an exception to their virus exclusion under a "'Fungus,' Wet Rot, Dry Rot, Bacterial and Virus – Limited Coverage" grant, which is also often the case, there is coverage if "the virus is the result of one or more of the following causes . . . [a] 'specified cause of loss' other than fire or lighting." Policies with this additional coverage also contemplate coverage for business income losses for scheduled premises due to the necessary interruption of business operations resulting from "specified causes of loss," the falling viral particles.

In sum, with COVID-19 viral particles included as "falling objects" within the definition of "Specified Causes of Loss," policyholders have one less obstacle to overcome on the path to property and business income recovery.

Policyholders will likely be receiving denial letters from insurers soon (if not already) in response to insurance claims made in March and April, including those made seeking coverage for business interruption, delay in completion, and site cleanup costs. With particular attention to the issues that will be raised in such denial letters, a helpful road map of coverage issues policyholders should be aware of currently is provided below:

Top Issues In Play
The top issues currently in play involve first-party liability policies that insure against damage to an insured's property, projects, and work, as opposed to third-party policies that primarily cover physical injury or damage to other parties and their property. The three types of policies that most commonly fall into the category of first-party policies responsive to COVID-19 claims are:

1. Builder's Risk Insurance (BRI) policies for projects under construction;
2. Property policies; and
3. Pollution policies or pollution coverage as a portion of other policies.

As of May 12, 2020, various jurisdictions are considering legislation that would mandate COVID-19 business interruption coverage. Focusing on traditional insurance vehicles that may respond to COVID-19 insurance claims, the following represents the most significant issues to consider in pursing these claims.

BRI & PROPERTY POLICY CLAIMS ISSUES

(1) Physical loss or damage requirements.
Under BRI and property policies—the typical first-party policies with business interruption, delay in completion, or equivalent coverage—policyholders generally must demonstrate some "physical loss or damage" to get coverage. Insurers will argue that COVID-19-contaminated job sites or those shut down by government order, do not satisfy the "physical loss..." requirement, and thus, they will argue, there is no trigger for coverage.

Policyholders will have ample ammunition to fight against coverage denials based on a lack of "physical loss." Arguments advocating for coverage are stronger here:

• if there are documented COVID-19 exposures related to the insured project, building, or local area;
• if state law in the relevant jurisdiction allows for this element to be satisfied by contamination, "loss of use," or other conditions which make use of property impossible for its intended purpose; and
• potentially in states where government actors have made statements regarding damage to business and property caused by COVID-19 exposure.

All policyholders will be able to argue that the unique nature of the coronavirus, including the fact that it can survive on surfaces for days at a time, makes a compelling case for physical loss or damage to property. The language in some policies may also make "loss of use" arguments easier to support as an independent basis for coverage.

(2) Choice of law issues related to physical loss or damage requirements.
Precedent varies wildly from state to state on what constitutes physical loss or damage under these policies. Given the disparity between states on this issue, fights over which state's law applies may be outcome determinative. Similarly, courts in different states employ a variety of tests for determining which state's law applies. As a result, developing a choice of law approach in cases where more than one state's law may apply is crucial.

A policyholder in this situation may need to employ an effective strategy to frame issues favoring a particular state's law and to understand where to file suit to maximize the probability that the most favorable state's law will apply. [For further guidance on choice of law, view "Whose Law Is It Anyway?"]

(3) Differences in policy language.
First-party policies are typically not written on a single industry-wide standard form in the way many third-party policies (like CGL policies) are. Many BRI and property policies proudly declare themselves to be "manuscript" forms, and language differs a great deal from insurer to insurer and policy to policy. Insurance spokespeople have recently made statements in the press about the blanket non-applicability of certain insurance coverages, including business interruption coverage, in response to COVID-19.

The varying non-standard language in policies, particularly concerning physical loss requirements as well as virus and other exclusions, means any blanket declaration like this is simply untrue. Some policies and some sets of facts will allow for covered claims. It will all depend on the particular language in each policy.

(4) Civil authority coverage may not require direct physical loss.
"Civil authority" coverage and civil authority coverage extensions under first-party policies cover losses where access to property is prevented or limited as a result of a government order. This coverage may or may not be tied to the "physical loss or damage" or similar requirements in the policy. Arguments abound on either side regarding civil authority claims, and results will again be based on the specific policy language and which state's law applies.

Policyholders will be able to argue that government shut-down orders prevent access to offices, construction projects, and other sites such that some resulting damages may be covered.

(5) Pay attention to sub-limits and deductibles.
BRI policies in particular are notorious for limiting coverage by way of numerous coverage sub-limits. It is common to find pages of separate sub-limits, each dealing with a specific item under which policyholders can obtain coverage, but only up to a specified amount. Differing deductible payments may be associated with each respective "bucket" of sub-limited coverage.

Policyholders will want to pay attention to sub-limits and deductibles when framing their claims. Policyholders may reasonably characterize certain costs in multiple ways, and they may want to spread costs across sub-limits to maximize their overall coverage.

POLLUTION POLICIES

(6) The definition of "pollutant" is key.
The threshold question for policyholders seeking insurance coverage for COVID-19 losses under pollution policies and policy extensions (including Contractors Protective Professional Indemnity Insurance and similar policies), such as site cleanup costs, will be whether the presence of coronavirus constitutes a "pollutant" under each policy's language. Pollution policies respond by offering first-party coverage for cleanup costs and third-party coverage for bodily injury or property damage claims asserted against the policyholder. There is a wide range of threshold definitions under these policies, and much depends here on which insurer's proprietary form is used. Contrast this with most CGL policies, for example, which typically use ISO standard pollution exclusion forms.

The result of inconsistent definitions between policies is that the coronavirus may not be excluded as a "pollutant" under a CGL or other policy (and hence policyholders may be entitled to coverage under that policy), but may also be deemed a "pollutant" under a pollution policy, entitling policyholders to an additional avenue of insurance recovery.

(7) Pay attention to date limitations when framing claims.
Policyholders should pay careful attention to date limitations for noticing claims and for the extent of coverage under any given policy. While true for the BRI and property policies above as well, these limitations are particularly important for pollution policies. For example, some pollution policy forms require notice to the insurer within a certain number of days of a triggering pollution incident, and some only provide coverage for a certain number of days of cleanup costs after the claim is made or after the incident qualifying for coverage occurs. A comprehensive insurance coverage strategy should include consideration of the time frame for notice and coverage in response to any triggering event.

ISSUES IMPACTING ALL POLICIES

(8) Lack of a virus exclusion.
Policies with comprehensive well-written virus exclusions will make it more difficult for policyholders to establish coverage. Where policies do not contain such an exclusion, coverage is not automatically established, and many other considerations are in play, but policyholders will at least be able to argue that insurers could have specifically excluded this type of risk and chose not to do so. Insurers have, after all, included such exclusions in other policies. Further, some policies have virus exclusions that do not impact all aspects of the policy.

(9) Manuscript or proprietary exclusions.
Fortunately for policyholders, many first-party policies will have non-ISO exclusions, including those purporting to be "virus" or similar exclusions, and some of these policies—even those purporting to contain "virus" exclusions—will have language that arguably allows for successful claims. The only way to assess this issue is to review the actual language of the policy, including the exclusions.

(10) Other non-problematic exclusions raised to deny coverage.
Insurers have issued denial letters based on other exclusions, which in the end should not stand in the way of establishing coverage for policyholders. The most common are separate bacterial and biological exclusions. Without further specifics about viruses, these exclusions should not act to bar coverage for COVID-19 claims. For example, a bacterial exclusion should not bar coronavirus claims because…viruses are not bacteria. Bacteria are living cells; viruses are non-living particles that require other living cells or tissue in which to grow.

(11) Failure on "notice" arguments.
Some responses from insurers argue that policyholders did not give sufficient notice of COVID-19 insurance claims because a host of very specific information was allegedly not provided in the initial notice of claim. Policy language will largely determine when a successful notice of a claim has been made; however the rules don't change now simply because insurers are under pressure to respond to the weight of COVID-19 losses.

Policyholders must remain vigilant in pursuing claims even if the initial response from insurers is that they have not provided enough information and therefore have not yet made a "claim." Doing so will ensure that insurers are not afforded additional grounds for denying coverage down the road.

(12) Documenting claims.
Claim documentation, including gathering and calculating costs and expenses under each responsive coverage, will be a crucial factor in whether COVID-19 claims are ultimately accepted and paid. While policy language, state law, and the operative facts will determine the success of any given claim, quantifying the loss remains a fundamental step in establishing a policyholder's right to payment.

We Can Help
Maslon's Insurance Coverage Group has extensive experience in advising policyholders regarding insurance coverage for catastrophic losses and events, and representing them in maximizing their insurance recoveries in these situations. Please contact Maslon's insurance attorneys if you have questions or would like assistance—we stand ready to help.

Ordinarily, to be eligible for an SBA Section 7(a) business loan, businesses must be unable to obtain credit elsewhere. The PPP waives this "credit elsewhere" test, thereby expanding greatly the pool of potential business applicants. However, the PPP requires that a business certify in good faith that "[c]urrent economic uncertainty makes [its] loan request necessary to support [its] ongoing operations."

Prior to April 23, 2020, the SBA had offered little guidance on the meaning of this certification. But in the wake of high-profile publicly held companies returning their PPP loan proceeds, the SBA clarified on April 23, 2020, that this certification requires businesses to "take into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business." The SBA stated further that "it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to the SBA, upon request, the basis for its certification." Unfortunately, neither "substantial market value" nor "access to capital markets" was defined.

Key Considerations
This guidance raises potential issues for businesses who have already received PPP loans. Business recipients of a PPP loan must consider whether, in light of the SBA's new guidance, its certification of need ("necessary to support ongoing operations") remains accurate and made in good faith. This applies with equal force to private and publicly held companies.

However, the language in the SBA's new guidance raises especially difficult issues for publicly held companies. Despite meeting PPP size and affiliation requirements, publicly held companies need to consider whether they have "substantial market value" and "access to capital markets" given the lack of definitions of these terms. Further, the SBA's requirement that businesses analyze "their ability to access other sources of liquidity sufficient to support their ongoing business operations" appears to directly contravene the waiver of the "credit elsewhere" test.

While the SBA's language does not preclude all publicly held companies from obtaining a PPP loan, given the SBA's explicit example of an ineligible business as one that is publicly held, these companies must take extra precaution in analyzing their certification of need. Without further clarification on what constitutes "substantial market value," even publicly held companies with relatively small market capitalization must analyze whether they remain eligible.

Consequences of Bad Faith
Making a false statement in connection with obtaining a PPP loan can lead to serious consequences, including, but not limited to, criminal liability. However, on April 24, 2020, the SBA issued a supplemental Interim Final Rule on the PPP, providing a safe harbor for any business that applied for a loan prior to April 24, 2020, but now believes it is ineligible for lack of need. So long as such business applicant repays the loan in full by May 7, 2020, the SBA will deem the business to have made its certification in good faith.

Best Practices for Good Faith
Reports are emerging that some public companies of relatively large size are determining that they can retain their PPP loans despite the unclear language of the SBA guidance, while other companies are repaying their loans. Companies retaining the loans may have relied on language in the guidance that they are eligible if they are not able to "access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business." Given the requirement that the certification must be made in good faith, we encourage companies that conclude that they are eligible to obtain or retain the PPP loans in light of the SBA's guidance to carefully document their analysis in support of this conclusion.

We Can Help
Please contact Maslon's Corporate & Securities Group if you have questions or need assistance analyzing your eligibility for a loan under the Paycheck Protection Program.

President Trump signed into law an updated version of the CARES Act (the "Act") on March 27, 2020. The Act provides an estimated two trillion dollars' worth of relief for individuals and businesses in an effort to mitigate the effects of the ongoing COVID-19 pandemic. The Act makes available emergency funds in the form of loans, credits, and grants to businesses of all sizes.

Given the emergent situation, the Act was drafted and passed expeditiously, which resulted in certain provisions (and programs) lacking detail or otherwise requiring further rulemaking. The summary below provides our current understanding of the Act, but as more details are made available (i.e., rules are promulgated by the applicable government bodies and/or insight is gained from our experience with the Act), Maslon will provide updates. 

Update: The summary below has been updated to include information on the Main Street Lending Program announced on April 9, 2020, and to reflect clarifications found within the Interim Final Rule for the Paycheck Protection Program released on April 2, 2020 (the "Interim Final Rule"). The full Interim Final Rule is available at sba.gov.

Scroll down to view the full information on key resources available to businesses, including provision eligibility and processes, or use the below links to go directly to the section which interests you most:

• Business Loans
  • Paycheck Protection Loans for Small Businesses
  • Expansion of SBA Disaster Loans
  • Direct Loans for Eligible Businesses
  • Mid-Size Direct Lending Program (Pending)
  • Main Street Lending Program
• Tax Credits
  • Employee Retention Tax Credits
  • Delay of Payment of Employer Payroll Taxes
  • Net Operating Losses
• Additional Provisions

Business Loans

Paycheck Protection Loans for Small Businesses

The most significant financial resource available for small businesses under the Act is the "Paycheck Protection Program" (the "Program"). Employers with 500 or fewer employees can obtain loans under this Program through the Small Business Administration ("SBA") Section 7(a) loan program to pay for payroll costs and other expenses (e.g., interest on mortgage loans and other secured debt, rent and utility costs) from February 15, 2020, through June 30, 2020. Payroll costs include employee salary (up to $100,000/year for an individual employee), wages, commissions, payment for vacation, parental, family, medical, or sick leave, health and retirement benefits payments, and other costs.

The SBA clarified in the Interim Final Rule that payments made to independent contractors do not constitute payroll costs. The SBA clarified in the Interim Final Rule – Additional Eligibility Criteria and Requirements for Certain Pledges of Loans that payroll costs also include partnership draws. Partnerships and limited liability companies filing taxes as a partnership may report the self-employment income of general active partners as payroll costs (up to $100,000 annualized) on a PPP loan application filed by or on behalf of the partnership. A partner cannot submit a separate loan application as a self-employed individual. The Interim Rule is inconsistent on whether the payroll cost calculation is based upon the trailing twelve months prior to submitting a loan application or the prior calendar year. Maslon will provide additional updates as more guidance becomes available.

Loan Eligibility

Loans under the Program are available to the following businesses as long as the business was operational as of February 15, 2020, had employees, and paid wages and payroll taxes:

• Businesses with up to 500 employees, including part time employees.
• "Small business concerns" are generally eligible for SBA loans, which are independently owned and operated for-profit companies with a place of business in the U.S. (and that operate primarily within the U.S. or make significant contributions to the U.S. economy through the payment of taxes or use of American products, materials, or labor). This would generally exclude nationally-recognized companies. Whether a business is an eligible small business concern is determined by established SBA regulations, based upon limits on either revenue or employee count. Such limits vary by industry. Refer to the SBA's Table of Small Business Size Standards Matched to NAICS Codes, available at sba.gov.
• Businesses in the Accommodation and Food Service Industries (e.g., full-service restaurants, hotels) are eligible provided that if the business has more than one physical location, it does not employ more than 500 employees at each location.
• SBA "affiliation rules"—meaning that the SBA generally counts the employees or annual receipts of a business's affiliates when determining eligibility—are also waived for: (1) businesses in the Accommodation and Food Service Industries that employ not more than 500 employees; (2) franchises; or (3) businesses that receive financial assistance from a small venture investment company licensed under the SBA. For example, if a restaurant owner owns 51% of another restaurant business, the general SBA rule that the employees or receipts of the second restaurant is/are counted in determining the business's eligibility is waived.

Loan Details

• Non-seasonal businesses (in existence between February 15, 2020, through June 30, 2020) may obtain loans for up to $10 million. However, the amount of the loan a non-seasonable business is eligible for would be the lesser of: (1) The average monthly payroll costs (as described above) during the year prior to making the loan x 2.5; or (2) $10 million. Note, however, that the outstanding amount of any loan made under the SBA's Disaster Loan Program between January 31, 2020, and the date upon which such loan may be refinanced as part of the Program will be added to the preceding sub-section (1), which could further increase the loan money available to a business.
• Standard fees for SBA Section 7(a) loans are waived for loans made under the Program. The SBA's "credit elsewhere" test (i.e., the requirement that a small business is unable to obtain credit elsewhere) is also waived for these loans.
• Loans are required to be without recourse, must be unsecured, and cannot require a personal guarantee. 
• No yearly or guarantee fees for the loan, and all prepayment penalties are waived.
• The SBA clarified in the Interim Final Rule that the interest rate for a loan is 1%.
• The SBA clarified in the Interim Final Rule that loan payments are deferred for six months. Interest will continue to accrue during the deferment period.
• The SBA clarified in the Interim Final Rule that least 75% of the loan amounts must be used for payroll costs.
• The SBA clarified in the Interim Final Rule that loan maturity is 2 years.
• Because payroll costs only include employee cash compensation and partnership draws up to $100,000/year, businesses should take care not to use loan proceeds to pay any portion of these items in excess of $100,000. For example, if an employee earns $120,000/year, the employer may use loan proceeds to pay $100,000 on a pro rata basis of the employee’s salary, but must pay the remaining $20,000 on a pro rata basis using other funds. For purposes of loan forgiveness, this means a maximum of $15,385 per individual of loan proceeds may be used during the eight-week covered period.
• Please note that if PPP funds are used for unauthorized purposes, the SBA will direct businesses to repay those amounts. Knowingly misusing these funds may subject the business, shareholders, partners, and/or members to additional liability, such as fraud charges.

Loan Forgiveness

• Loans used for eligible expenses incurred during the 8-week period following the date of origination may be forgiven. In addition to payroll costs, eligible expenses include mortgage and other secured-debt interest payments, rent, and utilities, so long as those expenses existed as of February 15, 2020. For non-seasonal employers, the amount eligible for forgiveness is reduced by the following formulas:
  1. For reductions in employees, the maximum amount eligible for forgiveness, multiplied by:
     1. The average number of full-time equivalent employees ("FTEs") per month, calculated by the average number of FTEs for each pay period within a month, for the period between February 15, 2020, through June 30, 2020, divided by either, at the election of the employer:
        • The average number of FTEs per month employed from February 15, 2019, to June 30, 2019; or
        • The average number of FTEs per month employed from January 1, 2020, to February 29, 2020.
  2. For reductions in wages, the amount of any reduction in total salary or wages of any employee for the period between February 15, 2020, through June 30, 2020, that exceeds 25% of the employee's salary or wages during the employee's most recent full quarter of employment before the period before February 15, 2020.
• Employers who have terminated employees or reduced employee wages may be relieved from these forgiveness reduction penalties if they rehire employees or make up for wage reductions by June 30, 2020. Specifically, the above calculations to reduce amounts eligible for forgiveness will not apply if an employer either:
  1. Reduces its number of employees between February 15, 2020, and April 26, 2020, but subsequently "eliminated the reduction in the number of full-time equivalent employees"; or
  2. Conducts a salary reduction between February 15, 2020, and April 26, 2020, but subsequently raises salaries to pre-February 15, 2020, levels by June 30, 2020.
• Loan funds used to pay additional wages to tipped employees are also eligible for forgiveness. The Act is unclear if this includes tips and base wages or just base wages.
• Any forgiven amounts will not be considered taxable gross income.
• The SBA is required to issue regulations on the specifics of loan forgiveness (and deferment) under the Program within 30 days of the Act's enactment (i.e., by April 26, 2020).
• The SBA clarified in the Interim Final Rule that forgiveness for non-payroll costs (e.g. mortgage interest, utilities) is limited to 25% of the total amount forgivable.

Loan Process

• To obtain a loan under the Program, eligible businesses should apply through participating lenders offering SBA loans. In applying, the business must make good faith certifications that:
  1. The uncertainty of current economic conditions makes the loan necessary;
  2. Acknowledge the funds will be used for the allowable expenses (i.e., applicable payroll costs, mortgage, and other secured loan interest, rent, and utilities);
  3. The eligible business does not have a duplicate SBA loan application pending; and
  4. The eligible business has not received any duplicative loan amounts under the Program at any time after February 15, 2020, through the date on which the business obtains a loan through the Program.
• A business may not obtain multiple loans through the Program for the same purpose (i.e., loans that are duplicative of other loans received under the Program).
• Self-employed individuals, sole proprietors, and independent contractors applying for loans under the Program are required to provide certain documentation to prove eligibility, such as payroll tax filings, Forms 1099-MISC, and income and expenses from the sole proprietorship. Beyond the additional documentation requirements, the application process for these individuals is the same as for other businesses.

Expansion of SBA Disaster Loans

The Act also expands business access to economic injury disaster loans ("EIDL") through the SBA Economic Injury Disaster Loan Program. This expansion will be in effect between January 31, 2020, through December 31, 2020. These types of loans were previously available only for small business concerns, as defined by SBA, but are now temporarily available to business concerns with up to 500 employees.

Loan Eligibility

• Small business concerns, defined above; or
• Businesses with up to 500 employees.

Loan Details

• Unlike the Paycheck Protection Program, the Act does not provide for forgiveness of EIDLs.
• The amount available under an EIDL is based upon cash flow projections and demonstrated need, with a cap at $2,000,000.
• Loans may be used to pay expenses incurred in the ordinary course of business. Ordinary expenses include, but are not limited, to:
  1. Providing sick leave to employees unable to work because of the ongoing pandemic;
  2. Maintaining payroll;
  3. Meeting increased supply chain costs;
  4. Rent and mortgage payments; and
  5. Repaying debts that cannot be paid due to lost revenue.
• In general, existing rules applicable to the terms of EIDLs apply. However, two existing requirements are revised for EIDLs obtained through December 31, 2020. Specifically, for loans made during this period:
  1. Personal guarantees are not required for loans up to $200,000; and
  2. The SBA will not require that the business is unable to obtain credit elsewhere.
• Interest rates are subject to change, but currently set at 3.75%.
• Term lengths of EIDLs are either 15 or 30 years.

Loan Advance

• A business applying for an EIDL in response to COVID-19 may request an emergency advance from the SBA for up to $10,000. The advance must be paid by the SBA to the business within three days after receipt of the application.
• An advance received does not have to be repaid by the business, even if the SBA ultimately denies the business's application for an EIDL.

Direct Loans for Eligible Businesses

The Act also provides $500 billion for loans, loan guarantees, and investments in the Federal Reserve's lending facilities to support "eligible businesses" particularly distressed by the ongoing pandemic, which include air carriers and U.S. businesses that have not received "adequate economic relief" in the form of other loans or loan guarantees under the Act. Note that loans under this program are not generally available to businesses that may have been adversely affected by COVID-19. Rather, particular industries that are most affected (e.g., airlines) would be eligible. The $500 billion is allocated as follows: $25 billion in loans and loan guarantees for air carriers; $4 billion in loans and loan guarantees for cargo air carriers; $17 billion in loans and loan guarantees for businesses critical to maintaining national security; and $454 billion for loans, loan guarantees, and investments in support of facilities established by the Federal Reserve.

Loan Eligibility

The business must:

• Be created or organized in the U.S.; and
• Have significant operations in and a majority of its employees based in the U.S.

Loan Details

• The loan must be entered into directly by the eligible business as the borrower and cannot be forgiven.
• The interest rate of the loan must be based on the risk and the current average yield on outstanding marketable obligations of the United States of comparable maturity.
• Any business receiving a direct loan is prohibited for 12 months after the term of the loan, from:
  1. For any officer or employee whose total compensation exceeded $425,000 in calendar year 2019, providing:
     1. Compensation to such individual over such amount over any consecutive 12 months during the covered period; or
     2. Severance benefits exceeding more than two times such 2019 compensation amount.
  2. For any officer or employee whose total compensation exceeded $3,000,000 in calendar year 2019, providing compensation that exceeds the sum of:
     1. $3,000,000, plus
     2. 50% of the amount in excess over $3,000,000 that the officer or employee received in calendar year 2019.
• Air Carriers and related contractors (e.g., persons that perform catering functions or other functions at an airport directly related to the air transportation of persons, property, or mail) are subject to the same executive compensation limits outlined above, except that the limits apply to the two-year period ending on March 24, 2022, rather than the 12 months following the term of the loan.
• Businesses that receive a loan may not conduct a stock buyback beyond the term of the loan, and must maintain at least 90% of its employment levels as of March 24, 2020, until September 30, 2020.

Mid-Size Direct Lending Program (Pending)

The Act also directs the Treasury Secretary to create a program to provide financing to banks and other lenders who make direct loans to mid-size businesses. Additional guidance on this program will be issued by the Treasury Secretary, including guidance that may permit receiving warrants, stock options, common or preferred stock or other equity under the program without triggering an ownership change under Section 382 of the Internal Revenue Code of 1986 (i.e., allowing more favorable treatment and flexibility regarding net operating loss carryforwards).

Loan Eligibility

The business:

• Have between 500 to 10,000 employees;
• Be created or organized in the U.S.; and
• Have significant operations in and a majority of its employees based in the U.S.

Loan Details

• Loans made under the to-be created program are capped at a 2% (annualized) interest rate. During the first 6 months after a direct loan is made, or for such period set by the Treasury Secretary, no principal or interest will be due and payable.
• Loans may be used for employee retention purposes, and funds must be used to retain at least 90 percent of the business's workforce, at full compensation and benefits, until September 30, 2020.

Loan Process

• To apply for a loan under this program, an eligible business must make a good faith certification that:
  1. The uncertainty of economic conditions makes the loan necessary to support the ongoing operations;
  2. The funds received will be used to retain at least 90 percent of the business's workforce, at full compensation and benefits, until September 30, 2020;
  3. The business intends to restore not less than 90 percent of the workforce of the business that existed as of February 1, 2020, and to restore all compensation and benefits to the workers of the business no later than 4 months after the termination of the public health emergency declared on January 31, 2020;
  4. The business is domiciled in the United States with significant operations and employees located in the United States;
  5. The business is not a debtor in a bankruptcy proceeding;
  6. The business is created or organized in the United States or under the laws of the United States;
  7. The business will not pay dividends with respect to the common stock of the eligible business, or repurchase an equity security that is listed on a national securities exchange of the business while the direct loan is outstanding, except to the extent required under a contractual obligation that is in effect as of the date of the Act's enaction;
  8. The business will not outsource or offshore jobs for the term of the loan and 2 years after completing repayment of the loan;
  9. The business will not do away with existing collective bargaining agreements for the term of the loan and 2 years after completing repayment of the loan; and
  10. The business will remain neutral in any union organizing effort for the term of the loan.

Main Street Lending Program

On April 9, 2020, the Federal Reserve announced preliminary details of the Main Street Lending Program, a lending program established pursuant to Section 4003(C)(3)(d)(ii) of the CARES Act, which permits the Federal Reserve to make programs aimed at providing financing to small and mid-sized businesses affected by the COVID-19 pandemic. This program offers potential relief for businesses too large to take advantage of the Paycheck Protection Program ("PPP") (which is an SBA-based lending program for small companies). More details about this program can be found at: CARES Act: The Main Street Lending Program Offers Relief for Small and Mid-Sized Businesses.

Tax Credits

Employee Retention Tax Credits

The Act creates a tax credit each quarter to offset 50% of each employee's qualifying wages, including qualifying health care plan costs, on up to $10,000 of wages paid per employee (i.e., up to $5,000 in actual credit per employee). This employee retention tax credit is available for wages incurred from March 12, 2020 – December 31, 2020, but is unavailable for paid sick leave or expanded FMLA wages paid under the Families First Coronavirus Response Act (FFCRA). Notably, this credit is in addition to the payroll tax created under the FFCRA.

Employer Eligibility

• The credit is available to employers, who do not receive a loan under the Paycheck Protection Program discussed above, whose (1) operations were shut-down or partially suspended due to a COVID-19 related shut down order, or (2) gross receipts fell more than 50% when compared to the same quarter in the previous year.
• For employers eligible for the credit due to a decline in gross receipts, eligibility ends with the calendar quarter in which the gross receipts exceed 80 percent of the calendar quarter in the previous year.
• Private employers of all sizes may apply for the credit; however, employers with more than 100 full-time employees, may only receive the tax credit for employee wages where the employee was not providing services due to one of the reasons listed above. Employers with 100 or fewer employees qualify for the credit, regardless of whether the business is shut down pursuant to a shut-down order.

Claiming Credit

• The tax credit only offsets employment taxes owed by an employer. To the extent 50% of the qualifying wages exceed the employer's employment tax liability, the employer will be refunded the difference. The Treasury Secretary is expected to issue further guidance, forms, and regulations for these tax credits, including provisions allowing businesses to receive advance payment of the credit.
• The CARES Act also facilitates reimbursement for employee wages paid pursuant to the Families First Coronavirus Response Act ("FFCRA").
• Employers can claim the credit each quarter they are eligible through December 31, 2020.

Delay of Payment of Employer Payroll Taxes

To provide further assistance to employers, the CARES Act authorizes deferral of 2020 payroll taxes to 2021 and 2022. Half of the deferred 2020 employment taxes must be paid by December 31, 2021. Any remaining amount owed for 2020 employment taxes is due to the IRS by December 31, 2022. Like the employee retention tax credits, this deferral is unavailable to employers who receive a small business "paycheck protection" loan. Note, there is also no provision in the Act that the IRS "trust fund recovery penalty" (which is equal to 100% of unpaid employment taxes) is being altered in any way. This penalty may be assessed against any person (including officers, employees, members, and directors) who is responsible for managing and paying employment taxes on behalf of the employer and who willfully fails to collect or pay such taxes. Accordingly, if a business is unable to pay the deferred taxes after the deferral period (e.g., due to insolvency and bankruptcy), key officers and employees may remain liable for payroll taxes.

Net Operating Losses

The Act also suspends certain deduction limits previously imposed by the Tax Cuts and Jobs Act (TCJA), including:

• Allowing Net Operating Losses (NOLs)—which occur when a businesses's allowable deductions exceed its taxable income within a tax period—arising in 2018, 2019, and 2020 to be carried back for up to five years (under the TCJA, no carrybacks were permitted);
• Suspending the TCJA's 80 percent cap on NOL carryovers for three years (cap would not apply to taxable years beginning in 2018, 2019, and 2020); and
• Suspending certain rules relevant to farming losses for NOLs arising in taxable years beginning in 2018, 2019, and 2020.

Additional Provisions

The Act includes a number of additional provisions for the benefit of unemployed workers, financial institutions, community banks, the health care industry (including medical device companies), and borrowers of federally backed mortgage loans. For more information about these and other provisions, reach out to Maslon's Corporate & Securities Group.

We Can Help

Please contact Maslon's Corporate & Securities Group and Labor & Employment Group if you have questions or need assistance taking advantage of the relief provided under the CARES Act.

The process related to Paycheck Protection Program ("PPP") loans under the CARES Act is moving quickly. Lenders may begin processing PPP loans as early as Friday, April 3, 2020, but it's unlikely all lenders will be ready to process and/or fund loans by this time. Although PPP loans will be available through June 30, 2020, eligible businesses should apply as soon as possible given concerns that the allocated funds may not cover demand. Funds will be given on a first come, first serve basis.

On April 2, the U.S. Small Business Administration ("SBA") published its Interim Final Rule, which provides guidance on the implementation of the PPP, including a helpful Q&A section. Comments on the Interim Final Rule will be accepted through the Federal eRulemaking Portal for 30 days after date of publication of the Interim Final Rule in the Federal Register. The SBA will provide further guidance through SBA notices and a program guide, which will be posted to the SBA’s website. While full details about the PPP are still forthcoming, current guidance provides the following information:

Proactive Steps to Apply

Eligible businesses can apply through existing SBA Section 7(a) loan program lenders or through any participating federally insured depository institution, federally insured credit union, and Farm Credit System institution. Additional lenders will be able to make PPP loans once approved and enrolled in the PPP. It is anticipated that lenders will provide their specific application process information once available, which may be as soon as Friday, April 3, 2020.

Register to Submit Application

If a business believes it may be eligible for a PPP loan, it should connect as soon as possible with a PPP lender to get registered. Applications for a PPP loan will be specific to each lender, and you should obtain the proper forms from your lender. While businesses cannot yet apply, businesses may be able to "get a spot in line" to submit applications by reaching out to lenders now.

Assemble Potentially Required Application Documentation

While PPP loan application processes will be specific to each lender, the SBA has issued a sample application form to assist businesses in preparing for the lender's application. Based on the sample application form provided and traditional SBA loan rules, we suggest you assemble the following documentation to get a head start, keeping in mind that actual document requirements may vary across lenders. If you have an existing relationship with an SBA-approved lender, consider reaching out to that lender first for a PPP loan, as the lender likely already has on file potentially required documentation, which may speed up the application process.

• Traditional SBA Loan Documentation Requirements:
  • Articles or Certificate of Incorporation/Organization for each borrower;
  • Bylaws/Operating/Member Control Agreement for each borrower; and
  • Driver's licenses for all owners.
• Payroll Expense Verification Documents:
  • IRS Form 941 Employers Quarterly Tax Return and Form 944 Employers Annual Tax Return (if filed);
  • Payroll summary report form provided with corresponding bank statements or employee paystubs as of February 15, 2020 (or corresponding period) with corresponding bank statements;
  • 1099s for independent contractors;
  • Statement that all employees are United States residents or detailed list of employees outside the United States with their salaries (whose wages must be excluded); and
  • Profit and loss statement for the prior 12 months.
• Most recent mortgage statement or rent invoice and lease.
• Documentation of the average monthly payroll based on the 12 months between April 2019 to March 2020, reduced for payroll individuals that exceed $100,000 on an annualized basis (i.e., average payroll, capped at $100,000 (annualized) per employee).
  • Average payroll should be separated by category: Salary, Hourly, Commissions, Vacation, Sick Leave, Group Health Care (both union / non-union), and Retirement Contributions (both union / non-union).
• Total monthly rent (or mortgage interest) over the prior 12 months.
• Total amount spent on utilities over the prior 12 months (Electricity, Gas, Water, Transportation, Telephone, and Internet, etc.).
• Total interest on other debt obligations incurred before February 15, 2020.
• Entity's tax EIN and full legal name (you can find this on your tax return).
• Personal financial statements may be requested for all owners.

Potential Disqualifiers

Based on questions borrowers must answer on the SBA sample application form, the following factors may disqualify certain businesses from PPP loans. As more information is made available, we will clarify this list:

• If the business or any of its owners are presently involved in any bankruptcy;
• If the business or any of its owners are presently suspended, debarred, proposed for debarment, declared ineligible, or are voluntarily excluded from participation in the PPP by a federal department or agency;
• If the business or any of its owners, or any business owned or controlled by any of them, have ever taken a loan from the SBA or any other federal agency that is currently delinquent or that has defaulted in the last seven years and caused a loss to the government;
• If any 20% or more owner of the business is currently subject to an indictment, criminal information, arraignment, or any other means by which formal criminal charges are brought in any jurisdiction;
• If any 20% or more owner of the business is currently incarcerated, on probation, or on parole; and
• If any 20% or more owner of the business has, within the last seven years, pleaded guilty to, pleaded nolo contendere, been placed on pretrial diversion, been placed on any form of parole or probation, or been convicted of any felony or misdemeanor against a minor.

We Can Help

Please contact Maslon's Corporate & Securities Group if you have questions or need assistance applying for a PPP loan.

• Previously, borrowers could only use the 8-week period after receiving the loan (the "Covered Period") to calculate forgiveness for the loan. Now, borrowers with a bi-weekly (or more frequent) payroll cycle (i.e., paying employees every other week or more frequently) may choose to calculate forgiveness only for amounts spent on payroll using the 8-week period beginning on the first day of the first payroll cycle. Forgiveness of loan amounts spent on non-payroll costs, however, can only be calculated using the initial "Covered Period" (8 weeks after receiving the loan).
• The Rule also clarified several points left open by the CARES Act and other guidance from the SBA:
  • Payroll costs incurred but not paid during the borrower's last payroll cycle are eligible for forgiveness if paid on or before the next regular payroll date (regardless of which 8 week period is used to calculate forgiveness).
    • Payroll costs are generally incurred on the day the employee's pay is earned (i.e., on the day the employee worked).
    • Payroll costs include hazard pay, bonuses, and compensation for furloughed employees, in addition to other compensation to employees (e.g., salary, wages, commissions, etc.).
  • Similarly, non-payroll costs incurred but not paid during the 8 weeks after receiving the loan are forgivable if paid on or before the next regular billing cycle, even if that date is after such 8-week period.
  • An FTE is defined as an employee who works 40 hours or more, on average, each week.
    • A single employee cannot count as more than 1.0 FTE (e.g., if the employee works an average of 45 hours per week they are still a 1.0 FTE).
    • A borrower has two choices for calculating how part-time employees count towards its average number of FTEs. The borrower may either:
      • Calculate the average number of hours for which the part-time employee was paid per week during the 8-week period being used to calculate forgiveness (so, for example, if an employee was paid for an average of 10 hours per week, that employee would be a 0.25 FTE (10 hours/week divided by 40)); or
      • Elect to use an FTE of 0.5 for each part-time employee.
  • For reductions in forgiveness based upon salary or wage reductions, the amount of forgiveness will only be reduced if not attributable to an FTE reduction. That is, if the borrower ends up paying an employee less because they had to cut the employee's hours, the company could still count the amounts paid to such employee for forgiveness (but forgiveness will be reduced because of the effect this has on the borrower's FTE levels). However, the forgivable amount will be reduced if the employee's compensation rate decreased but they still had to work the same amount of hours (e.g., reducing someone's hourly rate but still keeping their same hours).
  • The amount of loan forgiveness for owner-employees and self-employed individuals' payroll compensation is capped at the lesser of 8/52 of 2019 compensation (approximately 15.38% of 2019 compensation) or $15,385 per individual in total across all businesses (because the maximum compensation eligible for PPP loan use is up to $100,000 per-person, per-year). It is unclear at this time what is meant by "owner-employees," but it likely means S-Corp shareholders that are also employees of the company. General partners are also capped by the amount of their 2019 net earnings from self-employment (reduced by claimed section 179 expense deduction, unreimbursed partnership expenses, and depletion from oil and gas properties) multiplied by 0.9235.
• Forgiveness will not be reduced if an employee:
  • Is fired for cause;
  • Voluntarily resigns; or
  • Voluntarily requests a reduced schedule during the applicable 8-week covered period.
• The borrower may exclude any reduction in total FTE headcount attributable to a single employee if:
  • the borrower made a good faith, written offer to rehire the employee (or, if applicable, restore the reduced hours of the employee) during the covered 8 weeks;
  • the offer was made on the same terms (e.g., wages and hours) the employee had in the last pay period prior to the separation or hours reduction;
  • the offer was rejected by the employee;
  • the borrower has maintained records documenting the offer and its rejection; and
  • the borrower informed the applicable state unemployment insurance office of the employee's rejected offer or re-employment within 30 days of the employee's rejection.
• For the "Re-Hire Exemption" (outlined below), the Rule still did not definitively state whether a 100% of a company's workforce has to be rehired or whether 100% of wages have to be restored to pre-loan levels. However, the SBA's loan forgiveness application states the borrower is required to restore "its FTE employee levels by not later than June 30, 2020 to its FTE employee levels in the [b]orrower's pay period that included February 15, 2020." This likely means that (at least with respect to re-hiring), 100% of the workforce that was terminated/furloughed needs to be re-hired by June 30th (subject to the exception above regarding employees who reject the offer to return).
• Other than these clarifications, the majority of the rules for the loan forgiveness process remain the same. For instance, 75% of the loan proceeds must be used for payroll costs (for such amounts to be forgiven), eligible expenses remain the same, and there has been no change to the formula for calculating any reductions to loan forgiveness.

Pursuant to the CARES Act (the "Act"), up to 100% of a PPP loan may be forgiven if loan proceeds are used for specified eligible expenses during the Covered Period, or, as an alternative for payroll costs, the 8-week period beginning the first day of the first payroll cycle in the Covered Period (the "Alternative Payroll Covered Period"). Important considerations to maximize loan forgiveness are outlined in this legal alert.

This legal alert does not address additional considerations for borrowers who are independent contractors, sole proprietors, or self-employed individuals.

Loan Forgiveness Requirements under the PPP

• Loans under the PPP are eligible for forgiveness to the extent the proceeds are used to pay the eligible expenses incurred during the Covered Period, which are payroll costs, interest on secured debt, rent, and utilities. The amount of loan forgiveness is only for that portion of the loan used to pay such expenses, which can be up to the full loan amount (including principal and interest).
• The SBA requires that at least 75% of the loan proceeds used on eligible expenses be used for payroll costs for those loan proceeds to be eligible for forgiveness.
• For the purposes of federal income tax, amounts forgiven are not considered gross income of the borrower. However, borrowers should note that each state will determine whether forgiven amounts will be considered income for state income tax purposes.

Eligible Expenses

More specifically, expenses eligible for forgiveness are:

• Payroll costs
  • Proceeds used to pay compensation to employees:
    • Salary, wages, commissions, or similar compensation (including the employee's share of federal payroll taxes);
    • Payment of cash tip or equivalent;
    • Payment for vacation, parental, family, medical, or sick leave;
    • Allowance for dismissal or separation;
    • Payment required for the provision of group health care benefits, including insurance premiums;
    • Payment of any retirement benefits; and
    • Payment of state or local tax assessed on the compensation of employees.
  • Payroll costs do not include:
    • The sum of payments of any cash compensation of an individual employee, including severance payments, in excess of $100,000, as prorated for the period between February 15, 2020, through June 30, 2020 (put otherwise, employees who make more than $100,000 of cash compensation are capped at $100,000 for the purpose of calculating payroll costs);
    • The borrower's share of federal payroll taxes;
    • Qualified sick leave or family leave wages for which credit is allowed under the Families First Coronavirus Response Act (which provides for, among other things, 14-day paid leave for American workers affected by the pandemic); or
    • Payments made to independent contractors.
• Mortgage Interest (Real Estate & Other Secured Credit)
  • Proceeds used to pay interest on a mortgage loan are eligible for forgiveness if the mortgage:
    • Was first incurred prior to February 15, 2020.
    • Is on real or personal property (i.e., the statute seems to cover interest on secured credit lines, etc., even if they are secured by something other than real estate, provided the other requirements are met); and
    • Is the borrower's liability;
    • However, to be forgivable, loan proceeds may not be used to prepay or make principal payments on the mortgage obligation.
• Rent
  • Proceeds used to pay for rent owed under a lease agreement in force prior to February 15, 2020, are eligible for forgiveness.
• Utilities
  • Proceeds used to pay for electricity, gas, water, transportation, telephone, or internet access ("Covered Utility Payments") are eligible for forgiveness, so long as service began prior to February 15, 2020.

Reduction of Amounts Forgivable

• The amount eligible for forgiveness will be reduced if the borrower, during the Covered Period:
  • Reduces the number of full-time equivalent employees ("FTEs"); or
  • Reduces an employee's salary or wages by more than 25% compared to what the employee earned during the most recent full quarter during which the employee was employed before the Covered Period. Note that this applies to any employee who did not receive wages or salary of more than $100,000 annualized during any single pay period during 2019.
• For non-seasonal borrowers, the reduction in the amount that can be forgiven due to a reduction of FTEs is calculated as:
  • Amounts used for eligible expenses, multiplied by:
    • The average number of FTEs per month employed by the borrower during the Covered Period, divided by, at the borrower's election, either:
      • The average number of FTEs employed per month during the period between February 15, 2019, through June 30, 2019; or
      • The average number of FTEs employed per month during the period between January 1, 2020, through February 29, 2020.
• For the purposes of forgiveness, the average number of FTEs is determined by calculating the average number of FTEs employed during each pay period falling within a month. Put otherwise, borrowers should find the average FTEs per pay period in a given month, do that for each month, and then find the average of the monthly numbers.

Re-Hire Exemption

• If the borrower reduced the number of FTEs or salaries and wages paid to any employees during the period between February 15, 2020, and April 26, 2020, thereby reducing the loan proceeds eligible for forgiveness, such proceeds become re-eligible for forgiveness if:
  • The borrower eliminates the reduction in the number of FTEs by June 30, 2020; or
  • The borrower eliminates the reduction in salary or wages of employees by June 30, 2020.
• A plain reading of the Act indicates a 100% elimination of the reduction of FTEs or employee salary or wages is required to make loan proceeds re-eligible for forgiveness. However, the Act gives the SBA discretion to issue regulations granting minor exceptions to this 100% elimination requirement, and we are hopeful the SBA will do so. Maslon will update this legal alert as additional guidance becomes available on this key issue.

Application for Forgiveness

• To seek loan forgiveness, borrowers will "apply" to the lender originating the loan, by submitting the SBA's loan forgiveness application (SBA Form 3508 or a lender equivalent). Documents that all lenders will require from borrowers include:
  • Payroll tax filings reported to the Internal Revenue Service (for the 8-week covered period);
  • State income, payroll, and unemployment insurance filings (for the prior-year baseline period);
  • Evidence of the payment of eligible expenses, including cancelled checks, payment receipts, transcripts of accounts, or other documents verifying payments on eligible mortgage interest payments, rent obligations, and utility payments;
  • Certifications that: (i) the documentation provided is true and correct; and (ii) the amount for which forgiveness is being requested was used to retain employees, make interest payments on eligible mortgage interest, rent, or utilities; and
  • Any other documentation the SBA deems necessary.
• The lender is required to issue a decision within 60 days after receiving an application for forgiveness.

What If A Loan Isn't Forgiven?

Loan portions that are not forgiven have a term of 2 years and an interest rate of 1%. There is no pre-payment penalty.

Proactive Steps To Take

Borrowers can take the following steps to maximize their chances of loan forgiveness:

• Properly document fund use and allocation. This includes keeping track of cancelled checks, payment receipts, and transcripts of accounts.
• Consider separating PPP loan proceeds from other funds (i.e., in a different bank account) and putting other accounting controls in place (such as keeping a separate ledger for loan proceeds). Many SBA lenders are requiring borrowers to take similar actions.
• If there has been any reduction in FTEs or employee salaries or wages, begin strategizing now to try and ensure a full elimination of the reduction by June 30, 2020 (if feasible, understanding that your business circumstance may not allow for this).
• Work with your accountant to calculate your total eligible expenses in the Covered Period or Alternative Covered Period. After the proceeds hit your bank account, spend as much as you can on eligible expenses, but not more than 25% of your anticipated forgivable amount on non-payroll expenses.

We Can Help

Please contact Maslon's Corporate & Securities Group if you have questions or need assistance taking advantage of loan forgiveness afforded by the Paycheck Protection Program.

The Main Street Lending Program is distinct from the yet-to-be created "Mid-Size Direct Lending Program," which is expected to provide financing to banks and other lenders who make direct loans to businesses with between 500 to 10,000 employees. Preliminary details on the Mid-Size Direct Lending Program are available at: Maslon Legal Alert: COVID-19 - Key Business Resources Under the CARES Act. It is unclear at this time whether a business may receive a loan under both the Main Street Lending Program and the Mid-Size Direct Lending Program.

The summary below provides our current understanding of the Main Street Lending Program, the terms and conditions of which may be—and likely will be—adjusted. Because many lenders are still processing PPP loan applications, additional guidance on the Main Street Lending Program (such as when and how businesses can apply) may be slow. This summary reflects current guidance released by the Federal Reserve on April 9, 2020, and will be updated as more details are made available.

Loan Overview

Under the program, eligible businesses (as defined below) can apply for either a Main Street New Loan Facility ("MSNLF") loan or Main Street Expanded Loan Facility ("MSELF") loan from eligible lenders, which are U.S. insured depository institutions, U.S. bank holding companies, and U.S. savings and loan holding companies. MSNLF loans are new, unsecured term loans that originate on or after April 8, 2020. MSELF loans increase the size of existing loans (originated prior to April 8, 2020) to businesses. Businesses may participate in either the MSNLF or the MSELF, but not both. Lenders can sell up to 95% of each loan to a Special Purpose Vehicle ("SPV") (with lenders retaining 5% of the loan). The Federal Reserve will purchase up to $600 billion in MSNLF and MSELF loans. The SPV will stop purchasing loans on September 30, 2020, unless the MSNLF and MSELF are extended.

Loan Eligibility

To be eligible under either the MSNLF or MSELF, businesses must:

• Be in "good financial standing" before the crisis. It is unclear how this will be evaluated, but commentators speculate it will likely be left up to lenders given that they will retain 5% of the loan.
• Have 10,000 (or fewer) employees or less than $2.5 billion in 2019 annual revenues.
• Be created in the United States with significant U.S.- based employees and operations.
• Only participate in one of the following: (i) MSNLF; (ii) MSELF; or (iii) the Primary Market Corporate Credit Facility, which the Federal Reserve established on March 23, 2020, in response to the COVID-19 pandemic to support credit to employers through new bond and loan issuance.

It is unclear whether a business will be considered together with its affiliates for purposes of determining program eligibility. Guidance is expected, but it is unclear when.

Loan Details

Although MSNLF and MSELF loans contain many similar features, they operate differently, and for purposes of clarity are discussed separately below:

MSNLF

A MSNLF loan is an unsecured term loan originating on or after April 8, 2020, with the following features:

• 4-year maturity
• Unsecured
• Principal and interest payments will be deferred for one year from origination date
• An interest rate equal to the Secured Overnight Financing Rate ("SOFR") in effect on the date the loan is made (which is published each business day by the New York Federal Reserve), plus 250-400 basis points. It is unclear whether the Federal Reserve or individual lenders will determine the rate above basis.
• Loan to each business will be at least $1 million, but is capped at the lesser of (i) $25 million or (ii) an amount that, when added to the business's existing outstanding and committed but undrawn debt, does not exceed four times the business's 2019 earnings before interest, taxes, depreciation, and amortization ("EBITDA")
• Pre-payment is permitted without penalty
• Required attestations (detailed below)

MSELF

A MSELF loan is an existing term loan issued by an eligible lender to an eligible business that originated before April 8, 2020. Put otherwise, the MSELF permits eligible lenders to expand on loans previously issued to eligible businesses, provided that the upsized tranche of the loan has the features detailed below. It is unclear at this time whether any loan previously issued by an eligible lender to an eligible business may be expanded under the MSELF, or if additional restrictions are forthcoming.

• 4-year maturity
• May be secured or unsecured:
  • Any collateral securing a loan, whether the collateral was pledged under the original terms of the loan or at the time of upsizing, will secure the loan participation on a pro rata basis
• Principal and interest payments will be deferred for one year from origination
• Adjustable rate of SOFR + 250-400 basis points
• Loan to each business will be at least $1 million, but is capped at the lesser of (i) $150 million; (ii) 30% of the business's existing outstanding and committed but undrawn bank debt; or (iii) an amount that, when added to the business's existing outstanding and committed but undrawn debt, does not exceed six times the business's 2019 EBITDA (Please note: This differs from MSNLF loans, which only requires four times the business's 2019 EBITDA.)
• Pre-payment is permitted without penalty
• Required attestations (detailed below), that apply with respect to the upsized tranche of each eligible loan (not the pre-existing portion of the loan)

Loan Proceed Uses

It is unclear at this time exactly how businesses may use loan proceeds under the Main Street Lending Program. However, we do know that at a minimum, businesses must use proceeds to make "reasonable efforts" to maintain payroll and retain its employees during the term of the loan.

Loan proceeds cannot be used for the following:

• To repay or refinance pre-existing loans or lines of credit made by the lender to the business. In the context of MSELF loans, this includes using the proceeds of the upsized tranche of the MSELF loan to repay or refinance the pre-existing portion of the MSELF loan.
• To repay other loan balances; or repay debt of equal or lower priority, with the exception of mandatory principal payments, unless the business has first repaid the MSNLF or MSELF loan in full.

Loan Restrictions

Businesses receiving a loan under the program must comply with the following stock repurchase, capital distribution, and compensation restrictions that apply to direct loan programs under section 4003(c)(3)(A)(ii) of the CARES Act:

• Stock Repurchase: While the loan is outstanding and for 12 months thereafter, businesses cannot repurchase an equity security that is listed on a national securities exchange of the business or any parent company of the business (unless there is a contractual obligation to do so that predates March 27, 2020).
• Capital Distribution: Until the date 12 months after the date on which the loan is no longer outstanding, business are prohibited from paying dividends or making other capital distributions with respect to the common stock of the business.
• Compensation: Any business receiving a loan is prohibited for 12 months after the term of the loan, from:
  1. For any officer or employee whose total compensation exceeded $425,000 in calendar year 2019, providing:
     1. Compensation to such individual over such amount over any consecutive 12 months during the covered period; or
     2. Severance benefits exceeding more than two times such 2019 compensation amount.
  2. For any officer or employee whose total compensation exceeded $3,000,000 in calendar year 2019, providing compensation that exceeds the sum of:
     1. $3,000,000, plus
     2. 50% of the amount in excess over $3,000,000 that the officer or employee received in calendar year 2019.

Loan Process

The specific loan application process will be left to lenders and is not yet available. However, all applicants will be required to meet (at a minimum) the following requirements:

Fees

• Origination Fee: For MSNLF loans, businesses will pay the lender an origination fee of 100 basis points of the principal amount of the loan. Similarly, for MSELF loans, businesses will pay the lender a fee of 100 basis points of the principal amount of the upsized tranche of the loan at the time of upsizing.
• Facility Fee: For MSNLF loans, lenders may choose to require businesses to pay the "facility fee" that lenders are required to pay to the SPV, which is equal to 100 basis points of the principal amount of the loan participation purchased by the SPV.

Attestations

In addition to certifications required by applicable statutes and regulations, businesses must make the following attestations when applying for either a MSNLF or MSELF loan:

1. Attest to the loan proceed use restrictions discussed above pertaining to repaying or refinancing pre-existing loans or lines of credit, and paying down other debt.
2. Attest that it will not seek to cancel or reduce any of its outstanding lines of credit with the lender providing the loan or any other lender.
3. Attest that it requires financing due to the exigent circumstances presented by the COVID-19 pandemic, and that, using the proceeds of the MSNLF loan (or proceeds of the upsized tranche of the MSELF loan), it will make reasonable efforts to maintain its payroll and retain its employees during the loan term.
4. Attest it meets the EBITDA leverage condition stated above (i.e, the loan size does not exceed an amount that, when added to the business's existing outstanding and committed but undrawn debt, does not exceed 4x the business's 2019 EBITDA in the case of a MSNLF loan, or 6x the business's 2019 EBITDA in the case of a MSELF loan).
5. Attest that it will follow compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs under section 4003(c)(3)(A)(ii) of the CARES Act.
6. Certify that the entity is eligible to participate in the MSNLF or MSELF, as applicable, including in light of the conflicts of interest prohibition in Section 4019(b) of the CARES Act, which prohibits business from receiving funds if they are directly or indirectly owned by the President, certain executive branch officials, or members of Congress.

We Can Help

Please contact Maslon's Corporate & Securities Group if you have questions regarding the Main Street Lending Program.

• Healthcare and public health, including workers supporting manufacturers and technicians, logistics, and warehouse operators.
• Food and agricultural, such as grocery workers, restaurant carry-out and delivery employees, and farm workers.
• Transportation and logistics, including truck drivers, dispatchers, warehouse workers, and roadway construction, maintenance, and utility project workers.
• Critical manufacturing, meaning workers manufacturing materials and products for medical supply chains and supply chains associated with transportation, energy, communications, food, and agriculture.
• Construction and critical trade, including skilled trade workers (i.e. electricians, plumbers, HVAC, and elevator technicians).

Verify Business Eligibility

Businesses can also determine eligibility by reviewing the MN Critical Businesses List. If an industry description is marked as YES in the "Critical Industry" column, then a worker in that industry is essential and is exempt from the Order to the extent the worker is going into the business's physical location for job functions that cannot be done from home.

Employee Verification Letters

Although not required under the Order, it is best practice for employers to provide a letter to their employees to keep on hand that verifies that the employee works for the employer, and the employee's work for the employer is in furtherance of the employer's business operations that fall within one of the Order's identified sectors. This is a particularly good idea as the Order provides criminal penalties for willful violators. Providing employees with an employee verification letter can help put the employee's mind at ease if they are stopped by law enforcement on the way to work.

We Can Help

Please contact attorneys in Maslon's Corporate & Securities and/or Labor & Employment Groups if you have questions or would like assistance drafting an employee verification letter.

April 15th Income Tax Return Filing Deadline
Today, Treasury Secretary Steve Mnuchin stated the IRS will move the income tax filing deadline from April 15 to July 15. This will allow taxpayers additional time to file and make payments without the imposition of penalties or interest. Individual taxpayers and entities being taxed as S corporations, C Corporations, sole proprietorships, or single member limited liability companies, are subject to the April 15th deadline and will benefit from this extension.

Proposed Legislation: The Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act")
On March 19, Senate Republicans unveiled proposed legislation seeking to provide individuals and businesses with a variety of benefits to combat the financial fall-out associated with the ongoing COVID-19 pandemic. Although the bill is likely to change as it moves through Congress, if passed into law in its current form, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") would potentially impact businesses. The Act is comprised of seven divisions, each divided into further titles and subdivisions. Those most applicable to business owners include:

Division A
Division A seeks to support small businesses by expanding the Small Business Administration ("SBA") Section 7(a) loan program through December 31, 2020. Under the expansion, certain businesses that employ less than 500 employees would be eligible to receive a loan, the proceeds of which could be used for payroll support (including paid sick, medical, or family leave), employee salaries, rent, utilities, or other debt obligations. Each loan would be capped at the price of covering the business's monthly operating costs (e.g. payroll, utilities, mortgage and other debt payments) for up to four (4) months—up to the maximum amount of $10,000,000. All loan amounts used for applicable payroll costs would be eligible for forgiveness.

Division B
Title II of Division B would provide several tax-related benefits to businesses to mitigate financial damage caused by the COVID-19 pandemic. Proposed benefits include:

• Delay of estimated tax payments for corporations. Allows corporations to postpone estimated tax payments due after the enactment of the bill until October 15, 2020.
• Delay of payment of employer payroll taxes. Allows deferring of payment of the business's share of the Social Security tax for which they are otherwise responsible, with deferred taxes being paid over the two years after enactment.
• Modifications for net operating losses. Relaxes limitations on the business's use of losses from prior years—particularly that a loss from 2018, 2019, or 2020 can be carried back five years—and temporarily removes the taxable income limitation to allow net operating losses to fully offset income.
• Modification of limitation on losses for taxpayers other than corporations. Modifies the loss limitation applicable to pass-through entities and sole proprietors so they can benefit from the net operating loss carryback rules described above.
• Modification of credit for prior year minimum tax liability of corporations. Accelerates a company's ability to recover Alternative Minimum Tax credits.
• Modifications of limitation on business interest. Temporarily increases the amount of interest expense businesses may deduct on their tax returns, by increasing the 30-percent limitation to 50 percent of the taxable income for 2019 and 2020.
• Technical amendment regarding qualified improvement property. Enables business—with particular attention to the hospitality industry—to immediately write off costs associated with improving facilities instead of having to depreciate those improvements over the 39-year life of the building.
• Installments not to prevent credit or refund of overpayments or increase estimated taxes. Corrects an error in the Tax Cuts and Jobs Act to allow businesses to recover any overpayment of taxes paid pursuant to the Section 965 one-time repatriation toll charge.
• Restoration of limitation on downward attribution of stock ownership in applying constructive ownership rules. Clarifies that certain foreign subsidiaries should not be subject to certain requirements of the Tax Cuts and Jobs Act, and will allow those companies to amend their 2018 tax return to reflect the clarification.

Division C
Division C, which is titled "Coronavirus Economic Stabilization Act of 2020," seeks to provide loans to eligible, severely distressed businesses impacted by COVID-19 (up to $208,000,000,000 in the aggregate). This includes up to $50,000,000,000 to passenger air carriers, $8,000,000,000 to cargo air carriers, and $150,000,000,000 to other eligible businesses. Executives at companies receiving money may not make more than $425,000 in total annual compensation for two years, or receive severance pay or other termination benefits which exceed twice the maximum total compensation the executive received in 2019.

Division D
Title III of Division D provides various provisions relating to paid leave. This includes providing guidance on the applicability of the Emergency Family Medical Leave Expansion Act ("EFMLEA") eligibility for rehired employees after a layoff. Currently, rehired employees would not be EFMLEA eligible until employed for at least 30 days. The bill would change that, providing that employees who were laid off after March 1, 2020, and were rehired would be immediately eligible for EFMLEA protections, provided the employee had worked for that employer for at least 30 of the last 60 calendar days prior to the layoff. Further, the bill provides that if an employer fails to make an employment tax deposit with the IRS due to the anticipation of EFMLEA payroll credits, any tax penalties will be waived.

Division E
Division E provides that Section 131 of the Emergency Economic Stabilization Act of 2008, which relates to certain restrictions on guaranteeing money market mutual funds, would not apply during the national emergency period for COVID-19.

We Can Help
Maslon is closely monitoring this bill as it moves through Congress and will continue to provide updates on policies that will affect your businesses. In the meantime, Maslon's Corporate & Securities and Labor & Employment attorneys are here to answer any questions you may have relating to new and proposed laws addressing the COVID-19 pandemic.

Action Items
Businesses should evaluate potential paths to insurance recovery under available policies for COVID-19 risks before losses occur or mount. The steps detailed below increase chances of recovery:

1. Gather and Review. Businesses should determine what insurance they presently own and if it will potentially respond to COVID-19 risks. The types of coverage most likely to be responsive are addressed below. If complete policies are not on hand, businesses should request them from insurance agents, brokers, or insurers so that they can be reviewed for available coverage and for when and how to notice a claim or document and prove a loss. If responsive coverage is not in place, this pandemic presents an opportunity to understand coverage gaps for exploration with a broker or agent when coverages are renewed so that insurance solutions might be purchased to protect against a future outbreak.
    
2. Document. If coverages are potentially responsive to the risks faced, keeping detailed records, including invoices, spreadsheets, communications, and contact information, is critical.  For instance, any lost profit or other expenses incurred as a result of the pandemic should be tracked in order to make it easier to submit a business interruption or contingent business interruption claim.
    
3. Notice. As soon as circumstances that might give rise to a loss or a claim are known, notice should be provided to insurer(s). Follow to the letter instructions detailed in the policies regarding who should receive the notice and how it should be sent. Failure to do so can result in potential coverage disputes down the road. Also, if you are going to hire a lawyer to respond to a claim or will be spending money to reduce or mitigate loss, tell the insurer in the notice what you are intending to do and ask for their immediate acknowledgment and assistance to minimize disagreements on what is or is not covered.

Potentially Responsive Insurance Policies
Coverage may be available under a variety of insurance policies for COVID-19 related losses and costs, some of which are highlighted below:  

1. Business Interruption and Contingent Business Interruption Insurance.
   The most notable insurance coverage implicated by COVID-19 is business interruption (BI) and contingent business interruption (CBI) coverage, which can be stand-alone policies or part of first-party property policies. BI indemnifies the insured against financial losses that occur when its own business operations are unexpectedly interrupted for sustained periods. CBI provides similar coverage, but for financial losses resulting from disruptions to a business's customers or suppliers—not their own operations. In most such policies, coverage is triggered when there is direct physical loss of or damage to the insured property (such as a store, factory, or product).
   
   Policyholders should expect insurers to argue that contagious diseases do not constitute property damage. However, depending on the policy wording, physical damage can include contamination. For example, contamination in a covered HVAC system has been held to constitute property damage. Given recent reports that COVID-19 can live on surfaces (up to three days), coverage may exist. Insurers may also attempt to invoke other exclusions, such as Bacterial/Virus Exclusions and Pollution Exclusions.
    
2. Civil Authority.
   Many commercial property insurance policies contain what is known as civil authority insurance, which provides coverage for business income losses that occur when a civil authority denies access to the insured property. Given China's quarantine of the city of Wuhan and Italy's recent order to close all non-essential shops, U.S. businesses should review their policies to determine whether they contain such coverage. Policies may or may not require damage to insured property. Additionally, policyholders should be aware that depending on the specific policy language, insurers may contest coverage to the extent the civil authority’s order denying access is advisory or voluntary in nature.
    
3. Commercial General Liability.
   Practically all businesses possess commercial general liability (CGL) insurance, which protects against third-party liability claims for bodily injury or property damage arising out of exposure to harmful conditions. To trigger coverage, most CGL policies require showing there was "bodily injury" caused by an "occurrence," which is usually defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." As the pandemic continues to grow, businesses may face allegations from customers that the business failed to protect them against the risk of exposure to COVID-19. For example, a couple stuck on a cruise ship where 21 cases of COVID-19 have been diagnosed recently sued the cruise line for $1 million, arguing that the cruise line acted negligently and the couple is at risk of immediate physical injury. In seeking coverage for such lawsuits, businesses should look to their CGL policies.
    
4. Directors & Officers and Errors & Omissions.
   In addition to lawsuits against the business, directors and officers should be aware of potential shareholder lawsuits alleging they mismanaged the company by failing to adequately respond to COVID-19, contributing to business disruptions, resulting losses, or harm to third parties. Clearly anticipating such claims, the Securities and Exchange Commission has encouraged companies to "provide investors with insight regarding their assessment of, and plans for addressing, material risks to their business and operations resulting from the coronavirus to the fullest extent practicable to keep investors and markets informed of material developments."
   
   In the event a director or officer faces a shareholder lawsuit, there may be coverage under directors & officers (D&O) insurance, which provides liability coverage for directors and officers for claims made against them while serving on a board of directors and/or as an officer. Also, coverage may be available under errors and omissions insurance (E&O), which protects the insured against liability for committing an error or omission in performing professional duties.  

We Can Help
The above information is not intended to be an exhaustive review of coverage options for claims or losses related to COVID-19. Rather, we have addressed the coverages most likely to respond, but other types of policies may apply. Any analysis of coverage potential requires a careful review of the applicable insurance language as well as the relevant facts.

Maslon's Insurance Coverage Group has extensive expertise in advising policyholders regarding insurance coverage for catastrophic losses and events, and representing them in maximizing their insurance recoveries in these situations. Please contact Maslon's insurance attorneys if you have questions or would like assistance with risk evaluation, insurance policy review, insurer communications, and claim and loss documentation and recovery—we are ready to help in this daunting time.

Margo has represented policyholders in litigation, arbitrations, and negotiations with their insurers for almost 20 years. She has helped clients recover hundreds of millions of dollars in high-stakes insurance coverage disputes throughout the country. In 2018, she was recognized as an "Attorney of the Year" by Minnesota Lawyer for her insurance coverage work in the Archdiocese of Saint Paul and Minneapolis Bankruptcy Case. Margo is also engaged with advancing both the profession and the community. Of particular note, she served as an Adjunct Professor of Law at the University of Minnesota Law School, where she taught insurance law and founded the Insurance Law Clinic, which provides student-led representation for individuals and small businesses with insurance claims and/or coverage disputes, often on a pro bono basis for low income individuals.

To receive future COVID-19-related legal alerts, please email us.

TOPICS:

• Most Recent
• Corporate
• Mergers & Acquisitions
• Labor & Employment
• Product Liability Litigation
• Construction
• Insurance Coverage
• Cybersecurity
• Estate Planning
• Supporting the Effort
   

Most Recent:

• January 14, 2022 — Supreme Court Halts OSHA's COVID-19 Vaccine and Testing Mandate
• December 20, 2021 — OSHA's COVID-19 Vaccine and Testing Mandate Is Back in Business After Sixth Circuit Court of Appeals Lifts Stay
• November 8, 2021  — Fifth Circuit Court of Appeals Stays OSHA's COVID-19 Vaccine and Testing Mandate: Next Steps for Employers
• November 5, 2021 — What Employers Need to Know About OSHA's New Vaccine and Testing Requirements
• November 1, 2021 — 5 New Legal Risks for Product Manufacturers During COVID-19
• September 10, 2021 — Path Out of the Pandemic: Biden Administration Will Require Employers with 100+ Employees to Mandate COVID-19 Vaccination or Weekly Testing
• August 24, 2021 — Updated COVID-19 Guidance from OSHA and the CDC: What It Means for Your Business

Corporate:

• February 16, 2022 — Can You Spot a Liar? Key Factors for Determining Credibility in Internal Investigations
• January 8, 2021 — New SBA Guidance Released: Interim Final Rules on the Revived Paycheck Protection Program
• December 28, 2020 — Coronavirus Relief Under the Consolidated Appropriations Act, 2021
• June 5, 2020 — CARES Act PPP Reform: Paycheck Protection Program Flexibility Act of 2020
• April 27, 2020 — New SBA Guidance Released: PPP Loan Certification Requirements for Good Faith
• April 16, 2020 — CARES Act: Paycheck Protection Program Loan Forgiveness
• April 10, 2020 — CARES Act: The Main Street Lending Program Offers Relief for Small and Mid-Sized Businesses
• April 2, 2020 — CARES Act: Paycheck Protection Program - Proactive Steps to Apply
• March 30, 2020 — COVID-19: Key Business Resources Under the CARES Act
• March 26, 2020 — COVID-19: Key Business Considerations for Minnesota Emergency Executive Order 20-20
• March 20, 2020 — COVID-19 Business Update: Tax Deadline and Proposed CARES Act
• March 16, 2020 — COVID-19: Force Majeure Contract Clauses
   

Mergers & Acquisitions:

• April 18, 2020 — Video: COVID-19 Business Owner's Survival Guide—M&A After COVID-19 (29:00), Presented by Terri Krivosha
   

Labor & Employment:

• February 16, 2022 — Can You Spot a Liar? Key Factors for Determining Credibility in Internal Investigations
• January 14, 2022 — Supreme Court Halts OSHA's COVID-19 Vaccine and Testing Mandate
• December 20, 2021 — OSHA's COVID-19 Vaccine and Testing Mandate Is Back in Business After Sixth Circuit Court of Appeals Lifts Stay
• November 8, 2021  — Fifth Circuit Court of Appeals Stays OSHA's COVID-19 Vaccine and Testing Mandate: Next Steps for Employers
• November 5, 2021 — What Employers Need to Know About OSHA's New Vaccine and Testing Requirements
• November 1, 2021 — 5 New Legal Risks for Product Manufacturers During COVID-19
• September 10, 2021 — Path Out of the Pandemic: Biden Administration Will Require Employers with 100+ Employees to Mandate COVID-19 Vaccination or Weekly Testing
• August 24, 2021 — Updated COVID-19 Guidance from OSHA and the CDC: What It Means for Your Business
• May 24, 2021 — What Employers Need to Know Now That the CDC Has Relaxed Mask Recommendations for Those Who Are Fully Vaccinated
• March 24, 2021 — The American Rescue Plan Act of 2021—Key Implications for Employers
• December 30, 2020 — New Year, New Rules: Employer Implications of the New COVID-19 Relief Legislation
• December 22, 2020 — Employers: EEOC Releases New Vaccine Guidelines to Address Five Key Concerns
• September 14, 2020 — FFCRA Update: Department of Labor Revises Regulations, Largely Rejects SDNY Court Ruling
• August 5, 2020 — Key FFCRA Regulations Vacated by Federal Court, Dramatically Expand FFCRA Leave Eligibility
• July 24, 2020 — #MaskUpMN: Key Employer Re

Rikke has a well-earned reputation for providing strategic, service-oriented representation to corporate policyholder clients across insurance recovery, insurance claims assistance, risk management, and international business issues. She serves as national insurance counsel to business policyholders, with particular depth in the food, agriculture, manufacturing, financial, and construction industries.

Rikke has successfully handled high-stakes insurance claims in bench and jury trials throughout the U.S., assisting 100+ clients each year to recover on small to multimillion-dollar insurance claims. She also realizes that litigation is not always the best path, and leverages prior experience as part of the national coverage counsel team for St. Paul Companies to help policyholder clients work with claims representatives and coverage counsel to achieve maximum payment. She is skilled at fully and correctly documenting many different types of insurance claims—and is a fierce advocate on behalf of her clients.

Notably, Rikke was instrumental in obtaining over $200 million in commercial property insurance recoveries for clients resulting from Hurricanes Harvey, Maria, Isaac, and Katrina. She serves as the Honorary Consul for Denmark in Minnesota, North Dakota, and South Dakota, having been appointed by Queen Margrethe II of Denmark in 2014.

David, a skilled trial attorney and former federal prosecutor, regularly represents clients in construction and insurance coverage disputes, government and internal investigations, and a variety of commercial litigation. In the 2019 Who's Who Legal worldwide ranking of construction law "Future Leaders," David was the sole ranked practitioner from the United States, described as "an impressive trial lawyer whose practice spans the spectrum of construction matters from insurance to payment claims." The 2019 edition of Chambers USA ranks David as one of the top Minnesota construction lawyers and notes that sources describe him as "an excellent attorney with a superb grasp of construction law." David serves on the Trial Network's Executive Committee and he has acted as first-chair trial counsel for a variety of bench and jury trials in courts across the country.

Jason focuses his litigation practice on representing clients from the construction, real estate, financial services, food, and railroad industries. He regularly appears in federal and state court on behalf of design-build firms, general contractors, architects, engineers, specialty contractors, property management companies, real estate owners, and lenders. A portion of Jason's practice also involves representing a major U.S. railroad in disputes throughout Minnesota and North Dakota. Recognized by Chambers USA for construction law in 2016-2019, he is described as "an esteemed trial lawyer with a wealth of experience assisting with litigation mandates relating to construction defects and insurance coverage issues."

For more information, go to: Mission: Possible — Winning Strategies for Litigation Management.

Jason focuses his litigation practice on representing clients from the construction, real estate, financial services, food, and railroad industries. He regularly appears in federal and state court on behalf of design-build firms, general contractors, architects, engineers, specialty contractors, property management companies, real estate owners, and lenders. A portion of Jason's practice also involves representing a major U.S. railroad in disputes throughout Minnesota and North Dakota.

Recognized by Chambers USA for construction law in 2016-2019, Jason is described as "an esteemed trial lawyer with a wealth of experience assisting with litigation mandates relating to construction defects and insurance coverage issues."

In addition to his litigation practice, Jason served as a member of Maslon's Governance Committee from 2017-2019 and as the committee's vice chair from 2018-2019. Prior to joining Maslon in 2002, Jason honed his trial and appellate skills as a Naval Officer with the United States Navy Judge Advocate General's Corps, where he led hundreds of courts-martial, administrative hearings, and military appeals.

Joe is a partner in Maslon's Tort & Product Liability and Litigation Groups practicing primarily on product liability litigation, successfully defending major medical device manufacturers in all stages of dispute resolution and litigation. He also represents clients in complex business, intellectual property and insurance coverage litigation. Joe also devotes significant time to pro bono work, most recently representing victims of domestic abuse in contested order for protection trials.

John is a partner in Maslon's Litigation Group. His practice is focused on complex commercial litigation, including business torts and contract disputes, with a particular emphasis on noncompete and trade secret litigation. John helps clients navigate all stages of the litigation process and has significant experience representing large and small businesses in all forums: federal and state courts, arbitrations, and mediations.

Bryan is an experienced trial lawyer and partner in Maslon's Litigation Group. He concentrates his work on insurance coverage and complex commercial litigation. In particular, Bryan helps business policyholders secure the benefits, protection, and dollars their insurance policies are meant to provide. He has helped policyholder clients recover millions of dollars in insurance proceeds. Bryan also has experience representing businesses in complex commercial disputes, including class-action matters under the Telephone Consumer Protection Act (TCPA) and Racketeer influenced and Corrupt Organizations Act (RICO). Prior to joining Maslon, Bryan was the chair of the litigation group at another large Twin Cities private law firm. 

Leora is a partner in Maslon's Litigation Group and trial lawyer practicing primarily in the areas of general business and trust and estate litigation. She works with multimillion-dollar companies to startups facing conflicts that threaten to distract from the products they sell and services they provide. As a trust and estate litigator, Leora partners with other attorneys in the Estate Planning Group to handle contested matters in probate courts, representing her clients in disputes regarding the obligations of fiduciaries such as trustees, executors, conservators, and guardians. In 2016 Leora was recognized as a 40 Under 40 Honoree by The Minneapolis/St. Paul Business Journal. 

Margo represents commercial policyholders with complex insurance claims under all types of property and liability policies, including commercial general liability, directors and officers liability, professional liability, cyber-liability, and intellectual property liability coverage. In addition, she handles complex property claims, such as those arising from major catastrophic events like the terrorist attacks of 9/11 and Hurricane Katrina as well as claims under financial institution bonds and commercial crime policies. Margo has been an Adjunct Professor of Law at the University of Minnesota Law School, where she has taught insurance law and founded the Insurance Law Clinic.

For more information or to register, go to: The American Bar Association's Insurance Coverage Litigation Committee CLE Seminar.