We'll go ahead and get started. This is Daniel Fisher, AAD's Vice President of Government Affairs. Good afternoon to everyone, or good morning, depending on where you're located. Welcome to this webinar on the PPP program. To PPP or not to PPP, that is the question. Our speakers today are Joe Good, Mark Leitner, and John Halpin from Lackey, Leitner & Good, a Milwaukee-based law firm. Before I turn it over to the presenters, I'd like to let those of you who are live with us know that you may submit questions during the webinar via the chat box in the lower left side of your screen. The slide deck from today's presentation is available as PDF in the handouts tab of the webinar homepage. Back to the questions regarding questions, we will answer them at the end, so if you can hold your questions toward the end, that would probably be better, just your question might get answered as we're going through this presentation. This webinar will also be recorded so that you may watch or re-watch on demand at your convenience. AAD continues to work tirelessly for its members to ensure you have the most up-to-date information and make critical decisions for your business. This webinar is just another example of that great work that AAD is doing for you. With that, I will turn it over to Joe Good. Thank you, Daniel. Folks, this is Joe Good. I'm a lawyer in Milwaukee, Wisconsin, and I'm here today with my partner, Mark Leitner, and John Halpin. Each one of us is going to take a turn with respect to today's topic, which is the dry but ever-changing rules governing the Paycheck Protection Program, PPP, which is what we're going to refer to it as today. We understand from Daniel and Liz and other people who have been helping get this organized that many of you have already applied for loans. Many of you may have already received money in relation to these loans, and some people may be still in the mode of considering whether the loans should be pursued. We're going to start out with a little bit of introduction about the program. Some of this may be old hat for those of you who have been down the path already, but the idea is to frame the question because the ultimate issue that we're going to speak to has to do with the forgiveness aspects and recent new guidelines that have been issued by the SBA with respect to how forgiveness is going to work and certifications that you may or may not have already done as part of the application process and the interplay between those certifications and forgiveness and, frankly, criminal or other penalties that may apply if you don't pass the certification upon an audit by the SBA. So the focus is going to be on forgiveness, but we're going to frame it, as I said, where we've been with PPP so everyone understands where we're talking from. A couple of caveats before we get into this. This is a very high-level overview of PPP and the forgiveness program. We, in a one-hour webinar, cannot substitute for your regular lawyers. We're happy to talk to you after this call. If you have inquiries, please, our contact data is at the end of the presentation. Feel free to reach out. But you have professionals that you should be working with, both accounting and legal professionals, with respect to the specific questions in your actual situation. We'd recommend you use this webinar as a chance to frame questions that you may have for your professionals or, as I said, feel free to follow up with us with any details after we're done. One of the things I'd like to emphasize, particularly as we start to talk about the forgiveness piece of this, and I run a law firm with 17 employees, so we're a small shop. We ourselves applied for PPP money, so I'm speaking from some first-hand experience. We don't sell construction equipment, but we are in a position where we saw it necessary to make the application and to go through the process, and we did take the funds and plan to keep the funds, if that matters to anybody. I cannot emphasize enough, though, the critical nature of working with your lender with respect to this program. While the SBA and the federal government have absolved the lending institutions in this country from a lot of exposure with respect to this program, we found working with our banker directly, they were very, very facilitative, and I think if you have a close working relationship with your lender, you're going to be better served if you decide to keep the money as you begin the process of applying for forgiveness down the road. Let's start with Milton Friedman. I don't know if anybody knows who Milton Friedman is, but he was a Nobel-winning economist from the University of Chicago, and he wasn't exactly a big fan of government, as the slide suggests. As he said, the government solution to a problem is usually as bad as the problem itself. It's a very cynical view, obviously, and everybody has their views about how government can or cannot help people. I think when the CARES Act and the coronavirus first reared its head a few months ago, we had a government that was looking at solutions, trying to figure out ways to stave off what they deemed were going to be massive unemployment in the U.S. economy, and as a result of that, Congress passed the CARES Act, the Coronavirus Aid, Relief, and Securities Act. On March 27th, President Trump signed it into law. The program that we're going to talk about, the PPP, is part of the CARES Act. It's not the entire CARES Act. It is governed by the SBA, but the private lenders throughout the country are charged with administering the PPP and the forgiveness portions of it, which are going to be coming up for those who already have money. I would say that with respect to Milton Friedman, the concept here was to have, essentially, grant money, free money, if you will, whoever heard of such a thing from the government, where small businesses that qualified could put in an application, obtain money on the commitment that they'd maintain employment. Of course, as all things work in this world, it's never as simple as we would assume, and it wasn't as free as maybe we thought. Implementation of the PPP program, particularly as guided by Treasury and by the SBA, has led to some greater confusion. Later on, we're going to talk a little bit about some of the tax implications of the program. While we are not tax lawyers, we are trial lawyers who do a lot of dealership and distribution work. We are facing a number of questions from our own clients, as well as our own, about the deductibility and the like of the program. We're going to talk about some of those things as well, because the program hasn't exactly rolled out as everybody originally envisioned it. What is the PPP? As I said before, this is a program that was designed to enhance or to incentivize employers in the United States to keep employees on board, to avoid offloading because of the number of critical factors in our market and our economy that have resulted as a result of COVID-19. The program uses an eight-week measuring period following loan origination to assess how you've used money with respect to the authorized money that's allowed for under the program. What's covered? You can use PPP money to pay rent on a commercial lease. You can use PPP money to pay mortgage interest payments, not principal, but mortgage interest payments on a mortgage that existed before February 15th of 2020. You can use PPP money to pay utility payments for things like electricity, gas, water, transportation expenses, telephone, or internet access, so long as the contracts for those utility payments existed before February 15th of 2020. Most critically, you can use PPP money for payroll costs, and it's for this eight-week period. There's a measuring period, which we're going to talk about in a minute. The eight-week period, though, runs from the date that the funds are received by you, the borrower, placed into your account for use. What are payroll costs? That has led to a lot of initial confusion. Primarily, it's salaries, wages, commissions, or other similar compensation, the way you pay your people, the way you pay yourselves. It includes cash and tips or the equivalent, probably not something that a lot of construction equipment dealers are using and doing, but it does include that. Vacation, parental, family medical, or sick leave pay, allowances for dismissal or separation. We had an employee who was severed from our employment. That's included. The payments that we're making under a severance agreement with that employee are included. Group health benefits, including insurance premiums, are included in what the PPP accounts for payroll costs, as are retirement benefits that are being paid, as well as the payment of state and local taxes on compensation. Now, just like everything in the world, there are exceptions. What's excluded from payroll costs is very important for everyone to understand. The first is any compensation beyond $100,000 is excluded. So that means the first $100,000 of salary for an employee who has paid more than $100,000 is part of the program, but anything north of it is not. Taxes that are imposed under various chapters of the Internal Revenue Code, primarily chapters 21, 22, and 24, which includes the provisions about FICA, railroad retirement, and primarily Section 24 income taxes of the IRS Code, excluded. You don't get to include those in the definition of payroll costs for purposes of use of the money and ultimate forgiveness. Compensation to employees with principal residences outside the United States, I suspect there aren't very many of you who have those types of employees, but they're excluded, as are wages that are paid, sick leave wages, where the CARES Act provides a credit and you take it, qualified family leave wages, same thing. In other words, the CARES Act provided various income tax credits. If you take those, then the perspective of the PPP program is you can't take both the PPP money for use, get it forgiven, and take the credit at the same time. That's a tax accounting question. That's a question for your financial advisors. So how much can you borrow under PPP? First of all, you've got to qualify as a small business, and we're not going to get into all the details of what that means, but if you have less than 500 employees, the affiliation rules typically associated with SBA rules are gone, and the reason you're on this phone call is more likely than not you qualify, at least within the general parameters of the program. You can borrow, if you are a small business that meets that definition as provided by the SBA, the lesser of two things, $10 million total, or two and a half times your average monthly payroll cost, and there's a formula. We just kind of went through the general parameters. There's a formula for what average monthly payroll cost is, plus any EIDL loan balance. What is the EIDL? That is the Economic Injury Disaster Loan Program that came out the same time as the PPP, and that is a separate loan program. It doesn't involve forgiveness, but it does involve very low borrowing rates. The idea is to figure out how much money you're spending on those things that are all associated with trying to keep some stability in your organization. So what are the key dates and time periods for the PPP? We're going to turn over, I'm going to turn this over in a minute to my partner, John Helping, who's going to talk about forgiveness and the general parameters of that, but everything is gearing toward the forgiveness stage of the program. But using day one as the day of loan origination, the day you've signed the promissory note with the bank and you've had your account funded with the loan proceeds, whatever they may be, the way the program tracks this is eight weeks from day one. So 56 days later, that's the eight-week period when you are to use those funds. We've had clients ask us, should you keep it in a separate account? Not a bad idea. Our accountant frankly told us, just keep a separate general ledger track with respect to PPP usage, because as John's going to talk about in a minute, the idea of the forgiveness application is going to be all about the details and being able to support how you use the PPP money during the eight-week period. Okay? You have eight weeks to use it. You don't use it. It doesn't get taken back, but you're now going to enter into a loan transaction where you're going to be paying for anything that isn't forgiven. June 30th, 2020, for those on the call who have not applied for a PPP loan at this point, that is your drop-dead deadline to do so. You probably read about in the newspaper that the program was funded. I think it was $335 billion, and it was quickly fused up. As a result of that, they funded it again. My sense of it, because of the SBA's recent addition of new rules regarding borrowing and the certifications, which we're going to talk about in a minute, we've seen some slowing with respect to the applications for the PPP. It doesn't mean don't do it. It just means that you need to be thinking about it. But if you haven't done it yet and you're considering it, your deadline is June 30th of this year. For those who are in the program, for those who are not going to return the money and are going to use it, once your eight-week period runs, you will make an application for forgiveness with your lender. The lender has 60 days under the statute to look through the forgiveness application and determine what amount of the forgiven funds, the funds that you apply for, are actually going to be forgiven. And from there, once that six-month period ends from the point of origination, that's when the deferral period on the loan ends and payments start for any unforgiven amounts. The goal should be to have the entire amount forgiven, but there are rules with respect to that. And I'm going to turn this now over to John Helpin, who's going to take you through those. John? Thanks, Joe. So let's talk a little bit, folks, about forgiveness. I assume that this is one of the reasons, if not the main reason, that you opted for the participation in the PPP loan program is the idea that the loan could be forgiven. Most traditional lending sources don't offer that. So what does it cover? Forgiveness under the PPP applies to both principal and the interest. Both of those things are eligible. The general rule that needs to be followed is the 75-25 rule, which is that at least 75 percent of the loan money must be used for payroll and not more, or conversely, not more than 25 percent of the loan can be used for rent, utilities, mortgage interest, or refinancing an EIDL loan. That may not apply to you folks. At least the current guidelines suggest that EIDL loans are only available to agricultural businesses moving forward. I don't know if anyone got that kind of relief before the guidelines changed, but that's another thing that can be included or paid back with PPP money. Those are generally smaller loans, about a $10,000 loan advance. The next slide we're going to talk about is how forgiveness, the amount you're asking to be forgiven, can be reduced. The forgiveness, the stated goal of forgiveness through the PPP program from the SBA is that forgiveness is based on an employer maintaining or quickly rehiring employees and maintaining salary levels. To the extent that you don't comply with that, there is at least a formula in place, well, not a very well-defined formula at this point, but there is the thought that your loan forgiveness can be reduced. You can be forgiven some but not all. That's an important point to note. This is not an all or nothing forgiveness structure. You can forgive some of the payments, some of the things that qualified payroll costs to the extent that you applied with the 75-25 rule, and just pay interest on the money that did not apply or was not properly used according to the guidelines. So, the amount of loan forgiveness can be reduced. If you reduce the number of full-time equivalent employees, you can reduce the amount of full-time equivalent employees, and this is a little different because when you were applying for eligibility, all employees were counted, including part-time employees, but when looking at loan forgiveness, you only have to have kept employed the full-time equivalent employees during the eight-week period. Another factor that will be considered is whether or not you reduce the total salary of wages or wages of any employee during that eight-week period by more than 25%. One of the considerations there, looking at full-time employees, whether or not they're still employed, whether or not they have the same compensation that they did, some people have asked, and it's addressed in the SBA's frequently asked questions about the PPP loan program, is what happens if I laid off an employee and I have offered to hire them back and they declined for whatever reason? And there is some guidance on that. Good faith written offers, again, in writing is important because you're going to have to document all this on the back end. Written offers to rehire an employee at the same wages and same hours will not count against you if the employee turns it down and their rejection of your continued offer of employment or renewed offer of employment is documented. One of the other things they consider, 75-25% rule. Again, not all or nothing. So if you, for example, use 70% of your loan money on payroll and 25% on rent, utilities, those sorts of things, and the other 5% for supplies, you will have to pay back that 5% for supplies. And you'll have to pay it back according to the formula that's in the next slide. The amounts that are not forgiven, that get excluded, didn't follow the 75-25% rule or somehow violated one of the other rules in terms of full-time equivalent employees or reductions in salary or payroll. Those portions of the loan that will be required to be repaid, there's a six-month deferment period before your loan payments are due. That portion that is still due, say it's the 5% for supplies, will accrue interest at 1%. The loan has a two-year maturity date. Important to note that I'm sure is something you consider with all of your loans, there is no prepayment penalty. So that's a benefit, especially if in the construction business, some of your work is seasonal. You may sell more equipment at certain times of the year, and when you have that cash flow, if you want to pay that back or pay your loans down, which I'm sure is a practice that some of you follow, that's permitted under the PPP. In order to get this forgiveness, you have to apply for it. You have to apply for it from your lender. The lender has 60 days to respond to your application from the date that they receive it. The application, as Joe alluded to earlier, must be well documented. You need payroll tax filings reported to the IRS. You need to verify the number of full-time equivalent employees. You need state income, payroll, and unemployment insurance filings. And the documentation that you will need to prove your other qualified payments, payments on leases, mortgage, interest, loan, utility, those sorts of things. There are still some gray areas. As you will see later on, we'll talk about, Mark's going to talk primarily about a lot of the gray areas in this law. But for example, what if you paid rent or utilities or other qualified expenses a day or a week before you got your PPP money? There is no guidance currently in place on whether or not you can count it, backdate it, whether you prorate it moving forward, or whether you exclude it altogether and only count payments made after the date. That's not something that we, as trial lawyers, can give you advice on, and it's not something that there is much guidance on from the SBA. But supposedly, more guidance will be forthcoming, and that's something that you should talk about and consider with your accountants, financial advisors, those sorts of folks. So now we're going to move to a little bit of advice that we can give you. We're starting with a quote from Alice and her adventures in Wonderland. She generally gave herself very good advice, though she very seldom followed it. And we're going to give you the best advice we can in these murky waters. It's a bit of reading tea leaves or looking into a crystal ball because there isn't a whole lot of guidance. There could be more forthcoming. There are notes in the frequently asked questions and all these interim final rules saying that more will be forthcoming. More should be forthcoming even this week. The frequently asked questions that were most recently out on May 6th indicated that we will be getting more information from the SBA before the loan forgiveness, the decision to pay back your loan if that's what you choose to do is going to run on May 14th, and we're supposed to get more guidance between now and May 14th even. So it's something that you need to keep abreast of, need to check in with the folks that you have on your team or your experts, your professionals that monitor these sorts of things for you. Seek advice from others, lenders, accountants, your corporate, your business attorneys, and from each other. This is a good organization, a tightly knit organization, and I know that a lot of you are regularly in contact with each other offline. To the extent that one of you has an experience or can help, that will be helpful information for others of you on the call. And to go back to the Lewis Carroll quote, the Ellis quote, have to follow through on the advice. So let's talk about that a little bit. What you said might hurt you. Back when you were applying for the PPP money, there was a certification that an authorized representative from your company was supposed to sign that said that current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant. Now, eligibility is supposed to be based on, and your certification is supposed to be based on, the laws and the rules that were in effect at the time that you signed up. You can't be held to a different standard than what you knew about or were agreeing to at the time you were applying. But there's still a lot of fudgy language, vague language in that certification, and Mark's going to talk about it some more. But the review process and what might hurt you, the SBA and Treasury have said that they are going to review, they will review all PPP loans over two million dollars, and that they will look at smaller loans as appropriate. There's some more vague language for you. There is no guidance yet on what this review process will entail. The SBA says that that guidance is forthcoming and will be forthcoming before May 14th, but we don't have it yet. Generally speaking... John, this is Joe. Can I just interject? I think that one of the things, too, that folks should just remember is it is very possible, very possible, when you apply for forgiveness that some portion of it will not be forgiven because there will be some technical reading of the rule at the time and the bank will whiplash you or the SBA will whiplash you. And that's really no way to drive the boat, but it frankly is the boat we're all in because there hasn't been a great deal of guidance. And as it's come out, it's actually gotten murkier, not better. But let's keep in mind that as long as you are acting in good faith, and Mark is going to talk about necessity and what that actually means and how it actually works legally in a little bit, at the end of the day, if you have a loan through PPP and some portion of it is not forgiven, it is uber cheap money. I mean, you have two years to pay it back, but it is uber cheap money. And so, you know, John's point before is a good one, which is not every... if you don't qualify for all forgiveness, you only have to pay back what hasn't been forgiven. And it isn't an all-or-nothing proposition. It's very important for people to remember. The key is to make good faith choices so that when you're certifying a necessity, you can bear out the application for forgiveness. I didn't mean to interrupt, John, but I thought that might be worth mentioning. No, and I think that's important because I think that, again, we don't know what this review process will entail. We've got this last bullet point here talks about criminal fines up to a million dollars and 30 years in prison. There's a five to seven year statute of limitations on most of the potential crimes that could be charged here. But again, good faith is important. I mean, to the extent that some part of your loan is determined to be non-forgivable, that doesn't necessarily mean that you perpetrated a fraud on the SBA. That should be part of your consideration here. As long as you were doing it in good faith, you weren't just out for free money, that should not be the part of something that's going to subject you to at least criminal liability. There is a provision in place for forgiveness and for non-forgiveness. So the fact that a portion of it isn't forgiven doesn't necessarily mean you're in trouble with the feds and, you know, the FBI is going to come knocking on your door. In fact, we have some guidance, and this is the way the government usually works, but the first arrests and first charges were issued last week on an SBA case. This is an extreme example. I don't expect that it's anyone that anyone in this phone call is on, but this is where we think that the government will start. There were two guys in the state of New Jersey who applied for loans for four separate businesses, took less than a million dollars in loans, but the four businesses on behalf of which they applied were restaurants that weren't actually open when the pandemic started. One was closed for other health reasons, the other one was more the idea of a restaurant. They had bought the property, hadn't done anything to redevelop it into a restaurant, wasn't open, didn't have any employees, and these two guys fabricated financial documents, employment records, all of those sorts of things. So that's an example of what will clearly be punished. That's bad faith, that's intent to commit fraud. I don't think that, you know, the fact that you bought some supplies or something that didn't qualify as a forgivable expense is something that the government's looking to prosecute here, but it is something that you need to consider when you're looking at your application for forgiveness, which is the subject of the next slide. There is going to be another certification on the forgiveness application that says all of the documentation you're providing is true and correct. Again, this is going to be an authorized signer for your company that can speak for your company. All your documentation is true and correct. The amount for which you're requesting forgiveness followed the 75-25 rule. So in other words, if you did spend 5% on supplies or something that you know is not a qualified expense, that's something you should probably front in your loan application rather than having your lender or the government come back to you and say, hey, I don't think this qualifies. If it's something you know doesn't qualify, front that on your application. Be honest. This last part is a little more difficult. It's other documentation that may later be deemed necessary. We don't know what that will be. We don't know how long these audit periods are going to last. The best estimates at this point are that audits could last three to six years after this program shut down. You will need to keep your documentation for that period of time. I assume most of you have a document retention policy in place. If not, now's a good time to think about getting one or making sure that either your PPP loan documentation fits with that policy or if you need to keep it longer, if your document retention policy is a year for some reason and you think you might need to keep this longer, I think you should. And that may be something you need to explain in a document in some way why you're keeping it longer than what your standard document retention policy is. Joe and Mark and I, our trial lawyers, we're litigators. We fight over documents all the time. Why you have them, why you don't have them, why you should have kept them. From our experience, the better you're able to document your decisions on why you kept or destroyed documents is a good thing for you and will help you in the long run. As I said, as of May 6th was the last input we got from SBA on how this program is going to work, the last update. They did say in that information they gave on May 6th that more information on how certifications will be reviewed is due from the SBA before the May 14th 2020 deadline. We don't have it yet. We don't know when we're going to get it other than supposedly before May 14th, although it's possible I guess that they could just kick the deadline again. They've done that already once. But Mark is now going to talk to you a little bit about what you should be thinking about while we're waiting for this guidance and the sort of things you should be considering and getting into line and talking about with the various professionals on your team. Go ahead, Mark. All right, we should have a we have another slide here and you should probably take note first of all that the people that were quoting on these slides, Lewis Carroll who wrote about a girl disappearing down a rabbit hole into a world where everything was upside down, and H.L. Mencken who pretty much was skeptical about the capacity of anybody, but particularly a government official, to do anything right. And that is unfortunately a fairly common theme that we will return to during our discussion today because there are a lot of moving parts still, unfortunately, in these processes. And as Mencken told us a long time ago, there is always a well-known solution to every problem, neat, plausible, and wrong. And although it seemed when the PPP program was first announced by Congress that at least the intention was that it would be a fairly simple and clean and black-and-white situation where it was given as a loan but would fairly easily qualify or turn into a grant of federal money, that isn't how it has been administered so far. The big consideration here thus far, you saw that the terms of emphasis, as Jonah John slides, that current economic uncertainty makes it necessary for you to obtain the money to fund ongoing operations. And there are three, what I would call, key terms in there, one being current economic uncertainty, the second being ongoing operations. But necessary is really where a lot of the focus has been in the sense that under the non-pandemic program that existed, that was very similar or analogous to PPP, the borrower on an SBA loan had to certify that it was unable to obtain credit anywhere else. And that requirement was relaxed in the statute by Congress. However, the way the SBA has interpreted the statute is that the certification to obtain the loan, and we are assuming the certification to seek forgiveness, you have to make a certification that the loan request is necessary. Hey Mark, this is Joe, and that comes in as a result of the first round of funding and a lot of the public backlash about some of these very, very large companies, public companies and the like, that got money through the program, right? Right, and what you're going to see here in terms of the definition of necessary, what does necessary specifically mean, in the next slide here, what does it mean? The SBA's guidance, again, I'm sure you've seen the articles about Ruth's Chris Steakhouse and Shake Shack and at least one hotel company that received the maximum ten million dollar loan, despite the fact that they were publicly traded companies. And that created quite a bit of stir, the Secretary of the Treasury came out and denounced it, and so that created a lot of hubbub, and the SBA came out again with more guidance. And the guidance in this particular phase of what the SBA said is, number one, a public company with substantial market value that can access the capital markets, and remember that that's not just stock sales, it could be all sorts of other ways, you know, commercial paper or whatnot, but in general, if you're a publicly traded company that is not insolvent, should not be applying for a PPP loan, it will not meet the necessary requirement. And obviously, it's going to be looked at, it's going to be pretty much automatically audited at that two million dollar threshold, regardless. A private company with adequate sources of liquidity to support ongoing operations is equally incapable of making this certification. And here we run into one of the classic problems of regulation and how to comply with it, is how on earth do you know what it means? The SBA, to its credit, went on to say that a business that seeks a loan under the PPP program must 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 in determining their eligibility. Well again, you know, that and a couple bucks will get you a plain old cup of coffee at Starbucks. It doesn't help, to say the least. And so what they decided they would do, rather than provide a more detailed definition or some financial information or parameters, was they said, let's just let people jump in and pay back. And if you pay back your entire PPP loan by the 14th of May, you will be determined to have made your certification in good faith and you will be free from any criminal or civil consequences. No repayment obligation of any kind. Well, there shouldn't be because you paid it all back already. And no criminal exposure. And again, somebody thought that this was a reasonable solution that would solve the problem. Obviously, nobody can make this determination reasonably within a week or two, unless it was cheating to begin with. And although you may have seen this window or this option of full repayment to protect yourself as some sort of a valuable add-on that the government put in, I don't think it's anything of the sort, because it doesn't help you as you sit there and make the decision whether you need to repay it or not. Because it turns on those very difficult conditions, what was necessary to fund ongoing operation. And we'll look at, you know, some of those specific considerations now. Number one, every company has capital needs. And those capital needs are likely to be higher in the face of a global pandemic. One of the things that happens to you is your ability to accurately forecast what the next year of business, let alone, I mean it's hard to forecast for us as a law firm, what the next three months of business are going to be like. And obviously, in your line of work, it is just as hard, if not harder. Your need for capital is, it fluctuates, it varies. And as a result, the idea that you can make a one-time certification that's going to be taken as some sort of legally binding commitment, I think, is highly unrealistic under the circumstances. Number two, even if you knew that the funds would be necessary later on in the year, because all of your sources of capital, whether it be your own pocketbook, your credit line, your floor plan, your whatever, that all that would be dried up. You know, can you be say to, can you say to have needed that in the second quarter, even though the needs wouldn't hit until the third quarter? You know, in other words, can you substitute using the PPP money now, when it's available, in order to defer your need to exist other sources later? This helps your business stay alive for another quarter at least, keeps people paid for another quarter at least, and it certainly is consistent with the underlying themes of the program, but whether it's consistent with how the SBA happens to be interpreting the rules today, that's a closer question. And so, like anything, you're going to need to consult with your attorneys, with your business advisors, who are usually, in our case, there are accountants as well, and your tax planners, who, as in our case, are our accountants. But another thing that I would at least recommend from the start is that you keep in touch with your government officials, specifically with Congress people, with your representative's office, and with your senator's offices. Those folks, Joe has been in contact, for example, Joe Good has been in contact extensively with the offices of both U.S. senators to keep them advised of how, quite frankly, how burdensome we think some of these SBA and Treasury positions have been, and how there needs to be political pressure put on that. And it helps. They say they have told us, and Joe, if you want to jump in here and give us a little bit of, yeah. Well, I mean, we're going to skip, at the end here, we're going to talk quickly about a tax slide, and I know Daniel's going to open this up into some questions. We've got a couple more slides, but, you know, one of the big issues is this was supposed to be a grant. That's what we said at the beginning of the webinar, and the IRS doesn't really necessarily look at it that way. While you won't be taxed on forgiven loan money, you might not be able to deduct payments made with PPP money, which you normally would be able to deduct, such as payroll costs, leasehold rent payments, and the like. The IRS has taken that position formally. I spoke last week to both Senator Ron Johnson and Senator Tammy Baldwin's offices about this issue, and both of the legislative directors I talked to literally expressed surprise that the IRS had done this. So this is your government hard at work, but the point is, and Mark's point is, is all of you should be reaching out to your congressional representatives, be it in the House or the Senate, to make sure that your needs and interests and concerns are measured so that they can actually maybe take some action on these things, because we think the regulators have gotten out way in front of what the actual original legislation was intended to do. They pay attention to job creators. Yeah. They may pay attention to some more than others, but they're very well aware of what the economic conditions are out here, and if you've got a PPP loan and you're using that to keep people employed, make noise. Right. I can't emphasize that anymore. Make noise. You need to take a look at what, you know, what are your business projections really look like? When does the, when is this, what are the effects going to hit? How long are the effects likely to last? Do you see a bounce back in areas where the, quote unquote, the economy is being opened up again? What sorts of information can you glean from close analysis of your financial statements? How big is your line of credit? Does your lender allow you to access your line of credit completely in a situation like this? One thing we looked at, you know, that we actually got a tip from our own business lawyer, was that you can prepare, well, if you can go to the next slide, what he did, our own lawyer, his company got a PPP loan and it did a corporate resolution laying out its financial position, laying out its revenue projections compared to prior years, laying out the expected sources of new business and drop-off predicted of new business, and just basically discussed as much about the situation as it could and justified from an objective perspective. This is something that I would encourage you to do, or at least to consider in this process, is to sit down with your corporate lawyer and set up a corporate resolution that lays out the groundwork, either before you take a PPP loan, why you did it, or during the course of your having a loan, you know, explaining why you did it in the past. It's a way to provide a track record that when and if there are issues raised about, whether there are issues raised simply about forgiveness, about whether the loan was necessary, or God forbid in the case of an SBA audit or Treasury audit of this, if you're over the $2 million or under the $2 million threshold, if you get it audited, you're going to have something in here that walks the decision-maker through your thought process, and at the very least is a demonstration of good faith. I want to talk about the issue that Joe raised previously. As he said, we are not tax lawyers, and I will clarify that we don't even play tax lawyers on television. The Act says that any loan proceeds are excluded from gross income, and normally in the ordinary operation of your business, no matter what the source of the money you had that you used to make payroll, you get to take a deduction. And indeed, being able to take a deduction for PPP money is entirely consistent with the original congressional intent that if you used it for the purposes specified, you would effectively have a subsidized payroll for that period. It would be indeed a grant. Obviously, if you can't deduct it, you are potentially no better off and conceivably even worse off, depending on what your overall tax picture is like. And most important in this context is the fact that this is a position that the IRS, unsurprisingly, took all on its own without any consultation with or consideration for what Congress had done. As you can tell from the surprise, you know, when you are a legislative aide to a couple of United States senators and you hear about this IRS position for the first time in a call from a constituent, there are some crossed wires in Washington, D.C., and obviously this is a situation that Congress supposedly is going to try to fix on its own. There are a lot of moving parts in this situation, as we said toward the introduction here. There are a lot of things that are constantly changing, and they are very, very, very difficult to figure out. And that makes it very hard for any of us to be able to predict what's going to happen, let alone to be able to give advice about it. And here I get called back to Lewis Carroll, who near the end of Alice's Adventures had the Queen say, no, no, no, no, no, sentence first, verdict afterward. And at the very end of all that, we would actually have the trial. The way the government has approached a lot of these things, particularly the IRS and the SBA, is that they have effectively turned the process on its head and said, well, here are all these nasty consequences, and we have terms like necessary and current economic uncertainty and ongoing operations, that you get to figure out what they mean yourself at the peril of being held criminally or civilly liable for fines and penalties and even having potentially to go to prison. And fortunately, we still have the ultimate backstop, which is the Due Process Clause in particular of the United States Constitution. And under the Due Process Clause of the U.S. Constitution, a law that is too vague can't be enforced. Now, we don't have, obviously, we don't have any court guidance on whether any of these provisions is too vague. But I think that there is some serious vulnerability here, particularly the way that the terms have been. Number one, SBA has added new considerations, such as this consideration of necessary, into the mix after the statute was passed, after people applied. And no matter how smart a business person you are, it is never reasonable to ask you to be a mind reader. And so that comes into the first category here. Laws must be specific enough that they inform people what to do and what to avoid so you don't accidentally violate the law and get punished. There's a very closely related concern to that, is that laws must be specific enough that they not only inform you, they inform you in advance. You have notice that when you look at the law, you can see and evaluate the consequences and plan your conduct around avoiding those consequences. And I think that the regulations that have been imposed here, at least that the SBA has imposed so far, have some serious potential problems under this vagueness aspect. Number two, they can't be so general that they let the administrators and the prosecutors and the FBI or other government agents decide what's legal and what's not. This is, I think, a much lesser consideration, but still an important one. Because even if people are trying to do the right job, if the guidance the government has issued is just so vague that you might get one decision in Sheboygan and a different decision in Spartanburg, that's too vague. That is also unconstitutional. You can't hope to have national standards even though the rules apply the same definition. The rules allegedly contain the same definition everywhere in the country. It doesn't get applied that way. And that's another problem with vagueness in due process. And finally, although it's, again, a lesser concern, vague laws invite favoritism. And here we don't really, obviously, this technically haven't gone into effect yet. We don't know whether or to what extent there could be that, but there's always that specter. But the big thing here to remember is that the biggest vagueness problem that we face is that people simply don't have notice. When we talk about ongoing operations, does that mean right now or does it mean that's going to happen in six or eight months when we really hit the peak of the economic impact from this, as some people believe? Whose disease predictions should we believe? There are, as you know, all sorts of different models out there, some of which in the most sunny, optimistic models, everything's going to be hunky-dory by the middle of September. There are other people who believe that we really will not be fully bounced back from this until halfway through 2021 at the very earliest. And so there's a certain significant extent of inability to address those questions about economic uncertainty. You know, what does current economic uncertainty really mean? Does it extend to your prediction of future economic uncertainty as best you can right now, or does it mean right now and right now only is a frozen snapshot? Nobody told us. They thought they were doing us a solid by using that term, but it just opens up more doors and you ask more questions. I think, you know, one of the things that I see coming up in the chat about a lot of these issues is, you know, what happens, you know, how are we supposed to treat our credit lines? How are we supposed to treat our own, you know, our own ability to put equity into a company? And those questions don't have any answers right now because all we can literally point you to is these broad guidelines that, you know, it's necessary, you know, in light of current economic uncertainty and potential alternative sources of capital. And you don't have any more guidance than that. Again, I think that's fundamentally unfair. I think it's unreasonable. Some people are going to get the, are going to be the unlucky ones who get to test it in court. Unless Congress actually does the right thing, steps in and it overrides a lot of this vague guidance. It's really a conundrum for people to be put in. And now we've got a few minutes left, so I will cease here at this point. And, you know, obviously I tried to summarize a few of these, the questions that were asked, but we can throw the floor open now. Daniel? Well, great. Yeah, great. Thank you. Thanks, Joe, Mark, and John. I see a few questions came in. I just wanted to emphasize a couple things, points that were made during this. One is that it's great, obviously, to build relationships with your lawmakers. And AED helps you do that through our congressional facility visits, our regular congressional calls we've been doing since COVID-19 in various parts of the country. The Washington fly-in, which, of course, was postponed. But all these are great avenues, obviously, to build relationships. And it's particularly important during these times, these uncertain times, to stay in close touch with your members of Congress and senators, as was discussed. And also, AED is a lot of the issues involving the clarity of the program, the vagueness, not following congressional intent. AED is weighed in very consistently with SBA, Treasury, and Congress, trying to get some more clarity and guidance on a lot of these issues. So, you know, AED is a great resource for the kind of engagement that was mentioned. With that, let's go to some questions here. We have, what if an employee resigns during the eight-week period? Any of you guys want to take that one? Sure, I can take that. This is Joe. So this goes to the full-time equivalent rule, okay? So there's three different ways where forgiveness can – you can have a haircut. One is the rule that John talked about, the 75-25 rule, okay? In other words, if you spend more of the PPP money on things that aren't payroll, beyond the 25% that you're allowed, you're going to get nicked, okay? The second way is if you decrease employment. And there's a look back, and it's since been modified. As everyone, I think, has driven home today, the rules keep changing a little bit. But there is a look back. There's a comparison between the full-time equivalents you had during the eight-week period, that measurement period that I talked about, and what your FTE situation was between February 15th of 2019 and June 30th of 2019. Why that period? I don't know. That's what they picked, okay? So there's going to be a comparison to how many employees FTEs you had back in 19 versus during the eight-week period. So I think the direct answer to the question, if somebody resigns, right, it's going to obviously affect that full-time equivalency, but you're either going to bring another person on board, right, or they're going to look at that in the context of where you stood in 19. It also goes to the same question, or the posit that John relayed, having to do with an employee who has been let go because of COVID, who you invite back, who then in turn rejects. They are going to, I think, be relatively flexible. That is my sense with respect to the good faith aspects of this, with respect to the certification. But John raised the point, Mark raised the point, you need to measure this in writing. Everything that happens along those lines, if somebody resigns, get it in writing. Document, document, document, document. That's the most important advice we can give you. All right. Let's see here. For usage of fund, are provisions based upon actual pay date or pay period? If a pay date, what if payroll cutoff is such that amounts actually paid does not include eight weeks pay, i.e., loan received during a nonpayroll week? I would pay it in advance. On our end, guys, from a personal level, we are applying it very strictly, money out the door in that 56-day period. All right. And then there's kind of, I guess, a couple parts to this question. Well, if private company would need to borrow to support ongoing operation, does it matter if this is PPP or requests from the lender? John, do you want to take that or Mark? Well, you know, I think that's one of the things that I was alluding to that really talks about, you know, what is the, you know, comes down to necessary. If you have any source of capital at all, should you be applying for a PPP loan? We don't know the answer to that because I think one take, certainly the approach that we took is we tried to forecast out what our cash needs would be for the rest of the year based on what our workflow looked like. And although we would be okay for a while, we were going to run into a brick wall sometime in late summer unless we started getting new work that hadn't yet come in. And as a result, we thought, you know, we decided that we would apply for the loan and, you know, try to, you know, ratchet up our ability, our, you know, making phone calls and knocking on doors and just trying to keep people aware of the fact that we were here. But if the phone doesn't ring, it doesn't ring. And if people don't come in and buy things, they don't come in and buy things. But as far as I know, there is nothing that they have done to help answer the question as to, you know, whether if you have a credit line that you have not yet tapped, must you tap that? I don't know. I can tell you that we did not. And we felt comfortable doing that. And we still have the line. I mean, our line is clear and there for the fall. And we have looked, you know, we've looked over our shoulder in the rearview mirror at it a couple of times just because there are all of these, you know, there's all these new things being thrown into the mix all the time. And, you know, I think that that is true of, of, you know, any of these potential options, you know, whether it be owners, personal assets, or whether it be the ability to get money, you know, pretty much anywhere. You know, what, you know, do you have to be absolutely, you know, at your last two nickels rubbing together? It certainly was not the way that the program was designed. You know, the program was designed in order to keep healthy operating businesses in that kind of condition rather than, you know, to be a lifeline to businesses that were about to expire. But, you know, a lot depends on what the rules say ultimately because they are going to change again. And a lot depends on what the ultimate judgment of Congress is. And to emphasize, I guess, a little bit on just the uncertainty and the kind of fluidness of the situation, I just got an email that Secretary Mnuchin, Treasury Secretary Mnuchin now said he's open to making various changes to the program. So whereas before he was kind of holding the line. So I guess this thing is changing by the minute even. So just like the disease. Exactly. Exactly. And then I think the next question, I think was already answered based on that last answer. But what is the consideration for the ability of the company to obtain money through alternate sources in general, whether by increasing a line of credit with a bank factory or owner's loan equity? I think that was answered in the same. I'm assuming that the same answer as you just gave. Yeah. Okay. Let's see. Why don't go to do fees for payroll processing qualify as a payroll expense? No. Okay. At least that's the position we've taken with our accountant. And I think that's right. Yeah. That's the advice we got. That ADP does not go in that 75%. Right. And I would say that the only time that payroll processing comes up in the frequently asked questions to the, that were answered by the SBA is that third-party documentation from a payroll processing service will suffice as proof of your payroll records. It doesn't have to be IRS records. So no real guidance other than what, you know, Joe and Mark have said we've decided to do on our end. Yeah. The rule, the 75%, I think it's, it's, it's pretty linear. It's pretty defined at this point as we laid out in one of those early slides. All right. And then why don't we just do two more questions here? Our lender has indicated that the health insurance premiums are prorated on a daily basis, irrespective of when paid. This would not be the cash basis thoughts. That's a hard one. I don't know. Whoever asked that question, email me and I'll get you an answer. My email is on this last slide. And that was Joe. It was Joe. You can send it to any one of us. We'll, we'll get it, but we're happy to follow up with whoever asked that question. All right. And then the final one, and this probably is more general, question, and I think we all may have opinions on this, but do you guys have any best sources for forecasting the impact on the economy going forward? I personally, I go with the Wall Street Journal. Yeah. I mean, my take is that you can't model this. And that any, you know, you always see how, because any model of the economy is going to be working off a model of how the disease spreads and either gets worse or better. And there isn't enough information yet to model the disease accurately. I think the assumption is that there's, there's going to be deep, you know, there already has been obviously a deep and negative impact on the economy. And that, that, that is, that's going to continue for at least the immediate next couple of months. But that's, that's just because I'm, you know, I believe that you can't model anything until you, until you have much more data and in terms of, you know, the science around this particular disease, we just don't have very much yet. We don't know whether we're doing well or poorly really. So my, my, my, I'm, I'm in those, in those situations, my modeling is always prepare to stay alive. Yeah. That's a great point, Mark. I mean, I, this is Joe. The way we've approached it guys from a business standpoint is we look at our obligation as an employer is to maintain the bones and the structure of the organization to the best of our ability, which is included by the way, the founders, the three founders, the three equity partners of my firm, essentially pulling back on compensation we pay ourselves to ensure that whenever this resolves, and we don't know Mark's a hundred percent correct, that there is something to come back to. Right. And the problem with it is, is, you know, what I would be doing is revising the planning kind of on a three, six, nine, 12 month basis and take certain educated assumptions. But as I think Daniel has pointed out, this thing's changing, not just on the government side in terms of, of programs like this, but on the disease side, as Mark pointed out, it's just, it's changing on a, on a daily basis. And so you're going to have to be really attuned to whatever plan or whatever assumptions you make, they might change. Yeah. I mean, my, my thing is, is, is, is to try to be as, you know, prepare to be robust, prepare to try to keep yourself alive, do the, the least possible things and try to stay in the game. Because if you take risks at this point, to try to maximize opportunities or something, you know, and you lose and you're out of the game. From our perspective, we're just trying to stay in the game as long as this lasts kind of outlast it and then work up from there. Yeah. Any other, it also seems like things are very regionally based or state specific for business or didn't get hit. So I think it's hard to come up with even a national forecast on this thing. I mean, it really is going to depend even in on regions within states in a lot of ways, I think it's just kind of a very unique situation. So, well, I mean, you know, a good example that Daniel is, is I think I've said this before, morning that Vermont, obviously a small state, but apparently it's doing pretty well with keeping the disease in check. Right. And they're, and they're putting up a border limitations because they're trying to limit people who come in and out of the state so that they can actually track the disease. And so, you know, that's one example on one extreme. And of course we all know from the media of other examples that are much more open about just letting people go forth. So is this too many things to, to put into the mill to make really good decisions? All you can do is make decent assumptions and then monitor, monitor, monitor. Well, with that, we've gone a few minutes over, but do really appreciate Joe, Mark and John, again with Laffy Leitner and good. Feel free to reach out to them with any further questions. And really appreciate everyone joining. As mentioned, this is changing rapidly. The policy situation is changing rapidly. And so stay tuned to AED for all your updates and do visit our coronavirus action site, which you can go to on aednet.org for all the latest information. So with that, thank you everyone for joining. Thank you to the presenters and thank you all for watching. Thank you to the presenters and have a great day. Thank you, Daniel. Thanks folks. The leader has disconnected the conference.

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