Paycheck Protection Program (PPP) Frequently Asked Questions Regarding Spending Loan Proceeds How can my business use PPP funds? The purpose of the PPP is to help you retain your employees, at their current base pay, and cover other essential business expenses like rent, mortgage or utility payments. You may use as much as you want to cover eligible costs however, only $100,000 per employee may be used for payroll expenses for the loan to be forgiven. Can I maximize my loan forgiveness benefit by reallocating salary in excess of $100,000 to other employees or by hiring a family member/friend? No. Every applicant must certify under oath that the information provided in the application is accurate and a borrower must be prepared to prove their attestations when applying for loan forgiveness. Reallocating employee salaries to maximize loan forgiveness is not permissible. Must I only pay each employee a maximum of $100k for my loan to be forgiven? You may continue to pay employees compensation in excess of $100,000, however only the portion of compensation up to $100,000 may be eligible for forgiveness. When does the 8-week “covered period” begin for loan forgiveness? The “covered period” for purposes of loan forgiveness is a consecutive eight-week period beginning on the date on which the PPP loan was drawn down by the borrower, provided that if prior headcount reductions (as compared against an eight-week measuring period in either of two prior periods, selected by the borrower: 2-15-19 to 6-30-19 or 1-1-20 to 2-29-20) are restored by June 30, 2020, full credit for loan forgiveness will be given. Maximum loan forgiveness would require that 100% of the borrowed amount that is allocable to payroll costs based on prior periods is spent. Must I spend all my loan money during my eight week “covered period?” For purposes of loan forgiveness, yes. For purposes of proper use of the loan, no. You are not required to spend the loan during any specified period post loan inception. However, you are required to document how the loan is spent and to prove that the funds were used only for the permitted purposes: payroll costs (as defined in the CARES Act and the Interim Rule) and utilities and mortgage/rent. Any portion of the loan that is not forgiven will be subject to repayment over two years, at a 1% interest rate and with a six-month payment deferral. Should I use the loan to “maximize” my loan forgiveness? No. The purpose of the CARES Act is to enable employers to maintain their employees on payroll during a period that employer would otherwise be unable to do so, under an implied assumption that the employer is operating but has been financially impacted by COVID-19. If your business is not operating, or is so impacted that practically speaking it is not operating, then paying employees for the sole purpose of obtaining loan forgiveness is a sum zero outcome – the loan proceeds will not have been put to productive use as the loan will have been spent on payroll with no return to the business. The decision on when to spend the loan should be made based on the operations of the business, not to maximize loan forgiveness. How do I prove that I spent my loan on payroll costs? The documentation to prove your payroll costs and other permissible categories is straightforward (payroll reports, payroll tax filings, etc.), HOWEVER, the government has not yet provided clarity on how it will consider other sources of capital for a borrower. For instance, if a borrower has $10 in the bank at loan inception, generates $10 of revenue over an eight-week period, has $5 of payroll costs for the eight-week period, and borrows $5, then how does the borrower establish “which” $5 was spent on payroll costs? The answer is TBD, however, we recommend as a conservative measure that the loan proceeds be deposited into a separate bank account from the general operating account for the business and that the permitted expenditures for the loan be drawn only from that account. Segregating the loan proceeds will provide some measure of proof as to which funds were used for payroll costs and other permitted expenditures. Can I “take my chances” on using the loan proceeds for purposes that are not permitted by the CARES Act? The PPP loan program is a borrower self-certified program, much like filing tax returns. The bank does not verify the accuracy of the information a borrower submits, and does not conduct any financial review, as a condition to approving or issuing the loan. Thus, both the bank, and the federal government, are relying on the borrower’s affidavit, made under oath, at the time the loan application is submitted. Note, however, that there will be a reckoning and documentation will need to be submitted after the fact, both in connection with applying for loan forgiveness and likely otherwise, to establish that the loan proceeds were used properly. The affidavit, repeated below, has serious legal consequences for a borrower that makes a misrepresentation. PPP APPLICATION CERTIFICATIONS An authorized representative of the applicant must certify: They were in operation on February 15, 2020 and had employees for whom it paid salaries or paid IC’s. Current economic uncertainty makes the loan necessary to support ongoing operations. The funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments as specified by the PPP. If the funds are knowingly used for unauthorized purposes the federal government may hold them liable, such as for fraud. They will provide the lender documentation verifying the number of employees as well as payroll costs, mortgage interest/rent payments and utilities for the 8-week period following the loan. Not more than 25% of the forgiven amount may be for non-payroll costs. During the period beginning on February 15, 2020 and ending on December 31, 2020, the Applicant has not and will not receive another loan under the Paycheck Protection Program. The information provided in the application (including supporting documents and forms) is true and accurate in all respects. False statements are punishable by up to 5 years imprisonment and/or a fine up to $250,000 and 2 years imprisonment and if submitted to a federally insured institution, imprisonment of up to 30 years and/or a fine of $1 million.

Today’s work-from-home environment presents a challenge for all businesses, and while it may be easy for some to technically adapt to a remote work environment, properly doing so is not always as simple. Unfortunately, since COVID-19 caused many companies to shift their business to a remote work environment in early March, ransomware attacks have increased by over 150%, data breaches by 300%, and Coronavirus-themed phishing attacks continue to grow every day. Couple the increased breaches and hacks with the typically decreased security, training and lack of system-wide control over employees working remotely, and many companies are flirting very closely with complete disaster without necessarily even knowing it. While many view cybersecurity as optional or something to be implemented in the future, the failure to implement appropriate policies, procedures and protections leaves the door wide open to what can easily be an existential threat to a company’s very existence. We are here to help. Please contact Michael J. Feldman, Esq. (mfeldman@olenderfeldman.com) for an initial consultation to discuss and review what policies, procedures and protections (the other “PPP”) you have in place and what you may need or want to protect and secure your present and your future. For additional useful information, please visit us at https://www.olenderfeldman.com/blog/.

The Art of the Restart This is the first in a series of alerts that will provide guidance on various topics related to business continuity and strategy. Topic of this alert: Financial planning – managing the creditor and debtor relationship Managing the Creditor and Debtor Relationship Managing the pre-opening period as well as the period post-opening will require careful strategic planning. Unlike starting a company, where operational and payroll costs are typically low and enterprise value is negligible, re-starting a company that has been a going concern requires management of substantial overhead and preservation of equity value. While most companies by now have addressed their payroll costs during the past few weeks of shut-down or reduced operations, they have yet to feel the fully address the creditor-debtor relationship. Basic Types of Credit In a prior post [click here] we outlined the relationship and relative rights of landlords and tenants. This posting will focus on three categories of creditor/debtor relationships: Unsecured obligations Secured obligations Obligations with personal guarantees (which can include either unsecured or secured obligations) Unsecured obligations What is it: An unsecured obligation is an obligation owed to a third party that is not backstopped by any specific assets of the business. In the event of default, the creditor does not have a right to satisfy its balance due from any particular business asset and is generally subordinated to any secured creditors (typically a bank). Who is it: In general, unsecured obligations tend to be trade creditors (companies that provide products or services in the ordinary course of business to other companies). These obligations are typically reflected in accounts payable on the company’s balance sheet and reflect the liabilities that tend to be related to the operation of the business on an ongoing basis. Secured obligations What is it: A secured obligation is an obligation that is owed to a third party and is collateralized by specific assets. In the event of default, the remedy of the creditor includes the right to seize the collateral if the obligation is not paid by the borrower. If the balance remaining on the financing exceeds the value of the collateral, the borrower remains liable for the balance. The secured creditor is otherwise treated as an unsecured creditor – in simple terms, no right to any other specific asset of the business. Who is it: In general, this will be obligations to a bank that extended credit, or purchase money financing (e.g. financing on a piece of equipment). Personal Guarantees What is it: Either a secured or unsecured obligation that (typically) the owner(s) is personally liable to pay in the event the business defaults on the loan. The biggest misconception that guarantors have is that a creditor must first try to collect a balance due from the company before they can sue the guarantor. Most guarantees are guarantees of payment, not collection. That means that once the business has defaulted, it triggers the guarantee and the creditor can sue both the company and the guarantor. Who is it: Typical obligations that are personally guaranteed: corporate credit cards, bank loans, certain types of trade credit (for instance, material suppliers in the construction industry). Note that credit cards often catch owners by surprise – the fine print is almost always that the signor is personally guaranteeing the payment to the credit card company. Managing the Relationship There are several basic factors that determine who controls the creditor/borrower relationship and the motivation of the parties to compromise (there are others but these are the typical primary factors): Risk of loss Value of relationship Available remedies Risk of Loss The party that bears the lower risk of loss in the relationship will often, above all, dictate the relationship and be in the better position to negotiate a compromise. A fully secured and personally guaranteed obligation has a relatively low risk of loss for the creditor vs. an unsecured, non-guaranteed general trade creditor that will have a relatively higher risk of loss. Thus, the first step to a negotiation is determining which party has the higher risk in the relationship and then using that risk to allocate negotiating strength. It should be relatively obvious that a borrower will have little ability to negotiate with its bank on a fully secured line of credit that is backed by a lien on the business accounts receivable, and a borrower that owes a trade creditor a relatively small amount of money will be in a stronger position to negotiate payment terms or a discount. Value of Relationship Offsetting the relative strength of a party in a risk of loss negotiation is whether the relationship is valuable to one or both of the parties. A business might be in a position to negotiate payment terms or a discount on a balance due with a trade creditor if the risk of loss to the trade creditor is higher than the financial impact to the business, but if the business depends on the creditor (e.g. a key supplier), then the risk to the business operations can offset the risk of loss. Example: a vendor that is the sole source of a highly specialized good or service to a business can refuse to continue providing services if it does not reach an appropriate resolution on its accounts receivable. Available Remedies The ease of ability and likelihood of success for a creditor to enforce its rights is the final factor. Despite that a creditor may otherwise have the upper hand, if its available legal remedies are not practical or time consuming to enforce, then it will be forced to compromise. Legal actions are time consuming and expensive (and during the pendency of a lawsuit the financial circumstances of a party can change), and even once a remedy is obtained (e.g. a judgment in favor of the creditor), actually collecting payment is often difficult. The overall length of time that legal actions take can be a disincentive to enforce rights, especially if the creditor wants payment now. Moreover, often the remedy that the creditor has available is impractical. A creditor that is secured by equipment does not typically want its equipment back – it wants payment. Thus, if forced to elect its remedies, it may find itself obtaining an outcome that is counter to its objective. Conclusion Knowing your rights and determining your relative bargaining strength has a significant effect on the ultimate outcome in the negotiation of a compromise between creditors and borrowers. To read Part Two, click here.To read Part Three, click here.

Many of our clients have recently asked whether they should bring claims against their insurance carriers in order to recover business losses caused by the COVID-19 pandemic. Faced with pronouncements by their insurance carriers that they do not plan on covering coronavirus-related losses, these businesses are left wondering whether legal action is the correct course. While the answer to that depends on the particular facts and circumstances, understanding the type of coverage that may cover these business losses, as well as any applicable exclusions, is critical in assessing the likelihood of lodging a successful suit. What Type of Insurance Could Cover Losses Caused by COVID-19? Two principal forms of coverage, found in most commercial insurance policies, may cover business losses associated with the COVID-19 pandemic: (a) Business Interruption Coverage; and (b) Civil Authority Coverage. Business Interruption Coverage allows a business to recover losses sustained as a result of direct physical loss or damage that prevents the company from operating its business. Civil Authority Coverage allows a business to recover losses sustained as a result of an order from a civil authority preventing access to an insured’s property typically as a result of direct physical loss or damage to an adjacent property. If your business has a policy containing coverage in one or more of these areas, you need to review the actual policy language to determine the viability of your claim. What Does Business Loss Insurance Cover? Business interruption coverage typically covers lost revenue and certain fixed expenses, such as rent, employee wages, and taxes. Coverage may also include certain extra expenses that a business may incur in excess of normal operating expenses, i.e., temporary office space, computer equipment, overtime wages, which are necessary to mitigate damages during a period of restoration. These latter expenses may have less relevance for COVID-19 losses since many businesses cannot operate in any form or fashion at present. What Are the Coverage Requirements Associated with Business Loss Insurance? A. The Direct Physical Damage or Loss of Property Requirement Almost every business loss insurance policy, whether based on business interruption or civil authority coverage, contains a requirement that the business losses stem or flow from “direct physical damage” or “loss to property.” Accordingly, the business must be able to connect the suspension of operations or other business loss to one of these conditions. The leading argument on behalf of business owners is that the presence of the coronavirus on or around the business properties has rendered the premises unsafe and unfit for their intended use and, therefore, caused physical property damage or loss as required by the applicable policy. This argument is strengthened by the fact that most states have issued stay-at-home or lockdown orders in response to these physical conditions. Many insurers, however, have predictably taken the position that the presence of an infectious agent or communicable disease generally does not constitute physical loss or damage to the property, and that physical loss or damage to the property typically means that the physical structure or physical characteristics of the property have been altered by a covered peril. At least one carrier has explicitly noted that loss of use or diminished value of property does not constitute physical loss or damage. Ultimately, the courts will determine which of these conflicting positions will prevail. Most insurance policies do not define the phrase “direct physical loss or damage” so the courts will have to analyze the phrase based on its plain meaning and relevant case law. New Jersey may be a favorable venue for business owners presenting their business loss claims since the Third Circuit (and New Jersey district courts) have been more flexible in their interpretation of “direct physical loss or damage.” Of particular import to the COVID-19 insurance claims, these courts have held that unseen contaminants, such as asbestos and ammonia -- which do not alter a building’s physical structure -- can cause “direct physical loss or damage” when such contaminants render a building “useless or uninhabitable” or “unfit for normal human occupancy.” Since COVID-19 contaminants can linger on surfaces for days, the contaminants themselves may amount to physical loss or damage. This is one of the arguments advocated by Fiorino’s, a local restaurant in Summit, New Jersey, in its class action against Chubb. Specifically, Fiorino alleges, among other things, that COVID-19 contaminants caused direct physical loss and damage, thereby, triggering policy coverage. B. Virus Exclusions In addition to determining whether policy coverage has been triggered, policies must be reviewed carefully for any relevant exclusions. Notably, following the SARS outbreak in and around 2003, many insurers began including an exclusion for viruses and bacteria. The typical exclusion reads as follows: “We will not pay for loss or damage caused by or resulting from any virus, bacterium or other micro-organism that induces or is capable of inducing physical distress, illness, or disease.” Accordingly, as with all coverage claims, the ability to recover against carriers will rest primarily on the underlying circumstances, the specific language contained in the insurance policy at issue, as well as the case law interpreting the applicable policy provisions. However, it is important for business owners to review their policies, to gather information regarding their damages, and to evaluate the strength of their claims as soon as possible. Failure to do so may impact the viability of any potential claim and may even result in a waiver of rights. Please do not hesitate to reach out to Karen Stringer or Christian Jensen in OlenderFeldman’s Litigation Department for an in-depth assessment of your claim and a recommended strategy with your ca

United States Supreme Court Rules Willful Infringement Not Required To Award Profits In Trademark Infringement Litigation Under 15 U.S.C. §1125(a). United States Supreme Court rules that 15 U.S.C. §1125(a) does not require a finding willful infringement in order to warrant an award of infringer’s profits. Decision will likely have far reaching effects on trademark enforcement strategy and encourage diligence in trademark search and positioning in infringement negotiation. A clearer pathway to an award of profits increases leverage in negotiation and increases potential recovery. In a case closely monitored by trademark infringement litigators throughout the nation, on April 23, 2020, the United States Supreme Court unanimously ruled in Romag Fasteners, Inc. v. Fossil, Inc. that a plaintiff need not demonstrate that a defendant willfully infringed plaintiff’s trademark in order to require disgorgement of profits to as a remedy under 15 U.S.C. §1125(a). At the trial level, a jury found that Fossil violated the Lanham Act and infringed Romag’s trademark resulting in an award of Fossil’s profits. However, the court ultimately denied the award of profits because Fossil’s actions were motivated by “callous disregard” and did not rise to the level of “willful.” Accordingly, the Federal Circuit agreed that the relevant sections of the Lanham Act precluded an award of profits. The Supreme Court reversed the decision of Federal Circuit primarily based upon statutory construction. At a high-level, the court acknowledged that while trademark dilution claims brought pursuant to 15 U.S.C. §1125(c) expressly require a finding of willfulness as a precondition to an award of profits, Romag alleged and proved infringement under 15 U.S.C 1125(a) which contains no such requirement. The Supreme Court grounded its decision in the logical notion that if the legislature had desired to include intent as a threshold requirement for entitlement to certain remedies, it was free to do so. The fact that the subject section of the Lanham Act had no such requirement when other sections expressly addressed intent prohibited courts from inferring such a requirement in connection with section 1125(a) claims. Stated most concisely in the concurrence - “willfulness is a highly important consideration in awarding profits under [these circumstances], but not an absolute precondition.” This ruling appears to clear up a long-standing circuit split and now presents potential litigants with trademark infringement claims a path to an award of profits without an express finding of willfulness. That said, it remains an open question as to whether or not profits will be obtainable in innocent or negligent infringement disputes. While the bar has been lowered from a showing of willfulness, logic dictates that if infringement is innocent then equity would not require an award of profits. For trademark owners, this decision raises strategic business and legal considerations. At the least, for trademark enforcement, it provides additional leverage for negotiation in and outside of litigation when evaluating potential damage due to infringement. By confirming a lower bar to seek an award profits – which can be very significant depending on the nature of the business – the decision may both chill infringement and hopefully curtail baseless defenses to infringement claims. If you would like guidance on the impact of this decision and other recent legal developments on your business or to discuss how to approach trademark protection and/or enforcement, please contact either Christian Jensen (cjensen@olenderfeldman.com) or Michael Zussman (mzussman@olenderfeldman.com).

OlenderFeldman will be hosting our premiere Zoom webinar. Leveraging the Lockdown is a two-part/one-hour free webinar series on May 7 and May 14, 2020 at 12 noon with Q&A to follow. The purpose of the series is to provide practical guidance on how your business should be taking advantage of the pause in business operations in assessing your restart plan, including handling your workforce, so that you are primed to hit the ground running when the restrictions end. Don’t miss this opportunity to get ahead of the curve and maximize your successful return to business. Registration Link Here: https://lnkd.in/eTGNNyP

Update: Recently, Treasury Secretary Steve Mnuchin announced that all businesses receiving Paycheck Protection Plan (“PPP) loans of greater than $2 million will be subject to a “full review of that loan before there is loan forgiveness.” This review was further described as a “full audit,” though it is not clear what this audit will entail. However, the Treasury Secretary stated his opinion that the certification “was very clear that if people had other sources of liquidity they could not take this loan.” What does this mean? If you look back to the purpose of the CARES Act, it becomes fairly clear: the Act was intended to provide financial support to businesses that have been adversely affected by COVID-19, and as a result, lack the financial resources necessary to support their payroll. In short – job preservation. Thus, it should also be clear that the federal government is neither “giving money away” nor making low interest loans to businesses that can otherwise afford to maintain their payroll. Am I the intended recipient of a PPP loan? Congratulations if you received your funded PPP loan. You have successfully submitted an application that was “approved”, which means that you submitted the required documentation to calculate the amount of the PPP loan that you requested. This does not mean that you are an intended recipient – see prior point. Questions you should be asking to determine if your business is an intended recipient include: Based on the facts and circumstances known at the time you applied for the loan, can you prove that you had a reasonable belief that your business was or would be negatively impacted: Did you lose key customers or a significant number of customers, or anticipate that you would? Did you have a valid basis to believe that customers would slow pay or become non-payers? Did you lack access to financial resources to be able to withstand a decline in revenue? Can you prove the facts and circumstances for the first bullet point with written documentation? From the date that you applied for the loan and the date that you received it, has the business improved or declined? What if my business was not negatively impacted despite COVID-19 and I received a PPP loan? There are three considerations: Certification. Every borrower had to certify that “The uncertainty of current economic conditions makes the loan request necessary to support ongoing operations.” Though the government did not initially provide such a standard, they have now stated that this certification requires the business 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.” If your business improved financially despite COVID-19, and you received a PPP loan, serious consideration needs to be given as to whether the certification was falsely made. A falsely made certification has serious legal repercussions beyond mere repayment of the loan. The government will ultimately require backup documentation to be submitted that proves the financial impacts that the business allegedly suffered. Borrowers can anticipate that such documentation may include full financials from 2019 so that current and prior periods can be compared. Things to do: Memorialize in writing the circumstances which constituted “uncertainty” for the business. This can be a memo to a file, board resolution, or a compilation of documentation that supports the circumstances. Preferably all three. Track the business financial performance year over year to demonstrate COVID-19 impact. Document in real time the impacts to the business. Forgiveness. The purpose of the loan forgiveness is to assist business that lacked the resources to cover their normal levels of payroll during the 8-week period following the loan inception. Much has been written about how to calculate the amount of the loan that may be forgiven, but if you are paying attention, you will note that not much has been written about the qualification for forgiveness as the government has not provided much guidance in that regard. The difference between the two is that the first is a math exercise, and the second is a policy exercise that remains pending. Borrowers should: Maintain the PPP loan proceeds in a separate bank account from all other funds of the company. Fund payroll costs (as defined under the CARES Act) and other permissible expenses directly from the PPP loan account. Do not comingle funds from other sources. Do not operate the business for the purpose of maximizing loan forgiveness. Operate the business as would be prudent under the circumstances. As is well known by now, any portion of the PPP loans that are not forgiven are to be repaid over a 2-year period, starting 6 months following loan inception. Coming full circle to the prior two points, a borrower should not assume that if they were not a proper borrower in the first instance that they will have 2 years to repay the loan. If the certification is believed by the government to have been falsely made, the government can require immediate repayment. Similarly, if the borrower had sufficient resources to maintain payroll, but did have a reasonable basis to apply for the loan in the first instance, then the possibility remains that the government will still require repayment and not permit forgiveness – this is logical if one assumes that the government is not giving away “free money” to businesses that have adequate financial resources. The bottom line is that if you cannot justifiably defend the reason for applying for the PPP loan and your business otherwise has adequate financial resources, do not assume that you will receive the full benefits made available under the CARES Act. Notably, there is no prepayment penalty for paying the funds back early – a good conservative rule of thumb is to consider early repayment if business turns out better than expected during the period of shut-down. In addition, the government has provided a limited safe harbor period whereby if a business that improperly obtained funds under the PPP returns those funds on or before May 7, the government will deem the initial certification to have been in made good faith, thus effectively eliminating the possibility of an audit or criminal or other sanctions. To read Part One, click here.To read Part Three, click here.

Leveraging The Lockdown - OlenderFeldman Presents In case you missed Part One of this two part series on how your business should be taking advantage of the pause in business operations, here is a video of the event: https://lnkd.in/e7XyYgp Part Two is scheduled for May 14th, 12:00 pm. We hope you will join us then. Click here to Register

Topic of this alert: Preparing your office for re-opening. Just as those business which were fully prepared to quickly make the jump to remote-offices and/or a socially-distanced workplace were able to transition more easily and typically more successfully, the same is true for the transition back to the office and the business world. This article briefly examines some of the steps you should be taking now, so that when the government allows you to go back to work, you are safely first in line to do so. Determine how to best have a socially distanced workplace: Examine and consider the physical layout of your office, how your employees physically work together, which employees and groups are more essential to work in the office, and how you can operate while minimizing people from having to come into contact with each other. Consider safety in areas such as the restroom, the copier, common areas, the entrance/exit, mail distribution, etc. Similarly, it may make sense to stagger the days or times during which people work in the office versus working remote – perhaps by which functions benefit most from being in the office, or separate by team, division, or the physical proximity of employees to each other. Note that these procedures may also require input from your employees so you can determine if there are any employees who are more vulnerable directly or indirectly (i.e., caring for someone who is more vulnerable) to the extent that information may impact your decisions. Determine what office areas should be closed: You may need to temporarily eliminate common use areas such as the conference rooms, kitchen, the water cooler, etc. Understand all legal safety requirements: Make sure you fully understand all rules, regulations, requirements and advice from at least the CDC, OSHA and your governor, as well as any applicable industry specific rules. If you do not fully understand these rules and guidance, check with your attorney. Plan your own unique or required safety requirements: Consider what additional safety requirements you will have unique to your business. For example, will you provide masks to your employees, or can/should they bring their own, and if so, what kind? If the business is supplying masks, do you have a source to acquire what is needed? Will you have regular cleaning or sterilization of certain high use areas of the office, or how many bottles of hand sanitizer will you need? Will you allow people to use the conference room or phone therein, and if so, how will you keep it safe and sanitized? Will clients/customers be permitted to visit onsite, and if so, what precautions will be in place? Brainstorm. Appropriately monitor employees: Be sure to have strict procedures in place for reporting illness of an employee or anyone with whom the employee resides or comes into contact, while assuring that you also comply with all applicable privacy laws, rules, and regulations. Be prepared to operate if absenteeism spikes: You should have a plan in place to deal with the possibility that employees become sick so you can seamlessly adapt. Implement sound data privacy and security policies: Data breaches have increased, by some measures, by over 300% in the United States since February 2020, and the trend is expected to continue. When your business moves back to the office, holes in your data privacy and security policies and procedures can be exacerbated. For example, if people are now required to bring their computers, hard drives, and any paper work, back and forth from home to the office on a consistent basis, there is another opportunity for items to be lost or security procedures to not be followed. Make your rules, policies and procedures clear: Do not let there be any doubt about what your rules, policies and procedures are. Consider posting the rules in writing, circulating them via e-mail, and having a conference call of some sort where the rules are explained – how and why. Conclusion: Start your preparations now to allow your business to re-open quickly, efficiently and safely as soon as you are permitted to do so. For more information, please email us at info@olenderfeldman.com or call 908-964-2485. Your inquiry will be directed to the appropriate attorney who will be able to assist. For additional information on COVID-19 and your business, please visit us at https://www.olenderfeldman.com/blog/. To read Part One, click here.To read Part Two, click here.

Effective May 7, 2020, the FDA banned 65 respirator (N95-type masks) manufacturers in China from its approved list of manufacturers. Only 14 manufacturers remain. Suppliers of respirators, such as N95 masks for use in hospitals and Emergency Use Authorization (EAU), should be aware of the updated “Appendix A” which you can find here. The new list was adjusted to address significant shortfalls in the safety and health standards used by other manufacturers previously included on the approved list due to emergent need. The FDA has now taken the time to test the adequacy of all such products. As a result, the new list of the 14 approved manufacturers will increase quality of masks used by healthcare workers and other businesses in the United States as only FDA approved masks will be formally certified in connection with the customs process. Who might this impact? These changes will impact hospitals, large health systems, and other businesses using NIOSH or 3M FDA approved masks. Many of them will have to immediately shift their purchasing standards and find new resources. These changes are likely to have an impact on every part of the supply chain - purchasers, suppliers, warehouses, sales representatives, resellers, logistics companies, customs brokers etc. What issues might impacted parties need to consider? Parties may be liable for selling or using inventory from manufacturers no longer on the approved list. Buyers may be bound by executed purchase orders of products from banned manufacturers, but this may hinge on the terms and conditions of delivery and title and the effective date of the FDA certification. Businesses may be impacted by their ability to operate at the same capacity level due to a decrease in the supply of PPE. For counsel on these matters, please contact OlenderFeldman corporate and healthcare attorneys Kurt D. Olender or Craig D. Bronsnick. For additional information on COVID-19 and your business, please visit us at https://www.olenderfeldman.com/blog/.

Part One – Negotiated Solutions to the Commercial Landlord/Tenant Relationship This is the first in a series of alerts that will provide guidance on various topics related to the business considerations and the rapid evolution of the Commercial Real Estate Market as a result of COVID-19 Modifying the Relationship Managing the landlord/tenant relationship during the time of COVID-19 and the resulting economic downturn will require careful strategic planning and increased dialogue. Unlike the pre-pandemic period, where a strong economy drove increased land and rental values, the post-pandemic period will see both landlords and tenants struggling to maintain healthy cash flow and capital reserves. While most commercial landlords and tenants have now considered their pressing tenancy issues as a result of the nationwide shut-downs, they have yet to address their relationships going forward to ensure continued occupancy or the termination of same. In a prior alert [click here] we outlined the relationship and relative rights of landlords and tenants. This posting will focus on two potential courses of action to address the landlord/tenant relationship as a result of the post-pandemic world. One avenue will discuss maintenance of the landlord/tenant relationship and the other will discuss the termination of relationship. Both seek to avoid needless legal expenses and litigation costs. These two options are: Negotiated Lease Modifications; and Negotiated Lease Terminations Negotiated Lease Modifications (“NLMs”) When Should Landlords Consider a Lease Modification: For obvious reasons, landlords and tenants have a mutual interest in maintaining a tenancy. Landlords have debt-service obligations and in many cases, lender-imposed occupancy ratios. Tenants’ businesses require optimal use of the leased premises. The current economy has impacted all sectors - some positively, like warehousing, and some catastrophically, like the restaurant industry. There are certain sectors, however, that have a reduced need for leased space, but still need to maintain a physical footprint. Legal and accounting firms are just two examples. For those tenants who are forced to reduce their work force commensurate with reduced market demand, a reduction in square footage may allow them to utilize the leased premises optimally as they did prior to the pandemic. In situations where a tenant’s business will continue to operate, but not on a pre-pandemic scale, it is in the best interest of the parties to work toward a negotiated solution through an NLM. The parties could consider a reduction in a tenant’s monthly rental obligations, but this would not “optimize” the usage of the leased premises. The better option is the reduction of the tenant’s leased premises footprint. Although reduction of a footprint will necessarily reduce a tenant’s monthly rental obligation, it will avoid the legal expenses associated with the eviction of a defaulting tenant and resulting litigation to recover monetary damages. Additionally, a landlord will “free-up” square footage that it can re-let to a new tenant that may also be experiencing a need for reduced space. Further, the immediacy of the negotiated solution will preclude any need on the part of the landlord to mitigate its damages by finding a tenant able to occupy the entire lease space. In this scenario, the tenant reduces its leased premises footprint and the landlord has options available to address the rapidly evolving market. An NLM is preferable to the termination of a lease for both the landlord and tenant because it will permit the landlord to maintain a revenue stream while the tenant maintains a physical work-space. In the event a tenant’s business is in the “catastrophic” sector mentioned above, however, a lease termination may be the only option. Negotiated Lease Terminations (“NLTs”) When Should Landlords Consider a Lease Termination: A landlord should consider an NLT for those tenants whose business operations have been catastrophically altered as a result of the pandemic. Restaurants are the most obvious example, but movie theaters, retail locations, and group gathering places, like bowling alleys, are other examples of businesses that will have a very difficult time surviving once the “restart” occurs. In this situation, a tenant has come to terms with the fact that it will no longer have a need for the leased premises. In this scenario, if a landlord chooses to take a hardline position, opting to evict a tenant and pursue monetary damages through litigation, the resulting expenses and time spent may outweigh the ultimate recovery. As with NLMs, NLTs will allow a landlord to avoid legal expenses and the effort associated with attempting to mitigate its damages. Perhaps most importantly, a landlord who chooses to pursue an NLT will be able to realize capital quickly by negotiating a payout from the tenant at the time of the termination. In most cases, the tenant will be a limited liability company or a corporation which may choose to file for bankruptcy protection. Even in those instances where a landlord has obtained a personal guaranty from one of the tenant’s individual owners, the landlord will still need to take steps to collect on the guaranty. These steps will include the filing of a claim and ensuing litigation. In addition, and as with most things, time is the enemy. No rational actor would accept one million dollars if the payment period was one hundred years. With litigation comes uncertainty and even strong claims are susceptible to effective opposing counsel and court delays. If possible, it should be avoided. An NLT will serve this purpose and allow a landlord to obtain the best deal quickly with certainty of outcome. Conclusion Knowing your rights and determining your relative bargaining strength has a significant effect on the ultimate outcome in the negotiation of a compromise between landlords and tenants.. For more information, contact Rich Angowski, rangowski@olenderfeldman.com, (908) 624-6293.

That is the pivotal question confronting many business owners who have received PPP loans and are grappling with recent guidance from the Small Business Association (SBA) regarding loan necessity. While the SBA issued further clarification on the loan necessity certification that should bring comfort to many borrowers, business owners should still carefully review their certifications, including the necessity certification, to ensure compliance with the law. To take advantage of the so-called safe harbor, which protects applicants from further scrutiny with respect to the necessity certification, borrowers must return their funds by May 18th. Even if the deadline has passed, you should still consider returning your funds after conducting a careful review of all your certifications. What is the Necessity Certification? All businesses applying for a PPP loan certified that "[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant." In earlier guidance, the SBA advised that in order to make this so-called “Necessity Certification” in good faith, businesses are required to take into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing business operations in a way that is not detrimental to the business. How Has the SBA Clarified its Guidance on Loan Necessity? With limited time left before the expiration of the safe harbor, the SBA issued additional guidance, which separates borrowers into two groups: those with loans under $2 million and those with loans over $2 million. Loans less than $2 million: The SBA will presume that the Necessity Certification was made in good faith. Loans more than $2 million: The SBA will conduct audits to determine whether the Necessity Certification was made in good faith pursuant to SBA guidance. Does that Mean You Are Free of Government Audits and Investigation if Your Loans is Less than $2 Million? No. The SBA has told borrowers that it will audit loans falling below the $2 million threshold as it deems “appropriate.” You can, therefore, expect the SBA to conduct random audits, looking for potential fraud and abuse, just like the IRS does when people file taxes. If a loan raises a red flag, you can also expect that the SBA will analyze the loan in its entirety, including the veracity of your certifications. In this circumstance, borrowers will not be able to simply rely on the SBA’s presumption of good faith. As with a tax audit, the government may ask for proof and documentation to support a borrower’s certification. What are the Potential Penalties? If the SBA determines that a loan was not necessary, it well send a notification to the borrower before taking further action. This notice will inform the borrower that the loan is not eligible for forgiveness and will request repayment of the loan in its entirety. So long as the borrower repays the loan, the SBA has said that it will not pursue administrative enforcement or refer the loan to other agencies. If a borrower refuses to pay the loan or if the SBA finds other fraud or abuse, including with respect to other certifications, the borrower could potentially face criminal or civil penalties, such as treble damages under the False Claims Act. What Does This Mean for You? Regardless of whether you have a loan greater than or less than $2 million, you will want to review all your certifications, and ensure that they are true and accurate and made in good faith. With respect to the Necessity Certification, in particular, you should analyze a number of factors regarding your current business situation to determine whether the loan is, in fact, necessary, and you should document those reasons in case questions are asked later. You should also be mindful that the safe harbor has just been extended until May 18th. This safe harbor will provide protection from further audits and investigation if your loan proceeds are returned by that date. For assistance with this assessment process, or to obtain an independent evaluation from our corporate team, please email us at info@olenderfeldman.com and reference “Necessity Certification” in your subject line.