UBT Forgiveness Guide Page 1 of 20 Updated 6/24/2020

GUIDANCE FOR PPP LOAN FORGIVENESS NOTICE: The SBA continues to update regulations and provide additional guidance which may impact this guide. This information is provided as a courtesy to our customers and is for informational purposes only. It is not intended for legal, tax, or business advice. Please check back for updates as they become available.

This guide contains the following sections: 1. General Process to Obtain Loan Forgiveness

a. Limitations on Amount of Eligible Loan Forgiveness b. Definitions - Covered Period, Payroll Costs and Nonpayroll Costs

2. The PPP Loan Forgiveness Application – Determining Which Form You Will Complete

a. PPP Loan Forgiveness Application Form 3508EZ b. PPP Loan Forgiveness Calculation Form

i. PPP Schedule A Worksheet ii. Reduction in Loan Forgiveness Amount Due to Reduction in

Number of Full-Time Equivalent (FTE) Employees 1. Examples of Reduction Due to Reduction in Number of FTE

Employees 2. FTE Reduction Exemptions

iii. Reduction in Loan Forgiveness Amount Due to Reduction in Salaries or Wages

1. Examples of Reduction Due to Reduction Salaries or Wages

iv. PPP Schedule A v. PPP Loan Forgiveness Calculation Form

3. FAQ Section

Paycheck Protection Program Loan Forgiveness Application On Wednesday June 17, 2020, the SBA revised their SBA Form 3580 the PPP Loan Forgiveness Calculation Form and Instructions and released the PPP Loan Forgiveness Application Form 3508EZ and instructions. This information is provided to help guide you through completion of these applications. Union Bank will only accept forgiveness applications electronically through a link we will send via email to the customer.

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UBT Forgiveness Guide Page 2 of 20 Updated 6/24/2020

General Process to Obtain Loan Forgiveness 1. Union Bank will provide you a link to apply for loan forgiveness electronically. This will

provide a secure method for you to submit your PPP Loan Forgiveness Application and required documentation. Certain information on the application (SBA PPP Loan Number, Lender PPP Loan Number) will be completed for you on the link we send. We are only accepting loan forgiveness applications via our secure link.

2. You may submit your loan forgiveness application any time on or before the maturity date of the loan, including before the end of your loan forgiveness covered period. Your ‘loan forgiveness covered period’ is the 24-week period beginning on the date your PPP loan is disbursed (or, for loans originated prior to June 5, 2020, you may elect to have your loan forgiveness covered period be the eight-week period beginning on the date your PPP loan was disbursed).

3. We have up to 60 days from receipt of your PPP Loan Forgiveness Application and all required documentation to issue a decision to the SBA.

4. The SBA will, subject to any SBA review of the loan or loan application, remit the appropriate forgiveness amount to Union Bank, plus any interest accrued through the date of payment, no later than 90 days after we issue our decision to the SBA.

5. We will notify you of the forgiveness amount. If only a portion of the loan is forgiven, or the forgiveness request is denied, any remaining balance due on the loan must be repaid during the remaining term of the loan in equal monthly payments (fully amortized). (If your loan term is two years, you may request an extension of the term to five years. If we agree to this extension, we will provide you with a Change of Terms Agreement).

6. If you submit your loan forgiveness application to us within 10 months after the end of your loan forgiveness covered period, you will not have to make any payments of principal or interest on your loan before the date on which SBA remits the loan forgiveness amount on your loan to us (or notifies us that no loan forgiveness is allowed). Your “loan forgiveness covered period” is the 24-week period beginning on the date your PPP loan is disbursed; however, if your PPP loan was made before June 5, 2020, you may elect to have your loan forgiveness covered period be the eight-week period beginning on the date your PPP loan was disbursed.

Limitations on Amount of Eligible Loan Forgiveness The amount of loan forgiveness can be reduced due to the following:

1. At least 60% of the forgiveness amount must be used for payroll costs. For example, if you received a PPP loan in the amount of $100,000; however, you only used $50,000 for Payroll Costs, the maximum amount of loan forgiveness would be $83,333.33 ($50,000 divided by .60). This is why it is very important for you to understand what qualifies (and does not qualify) as Payroll Costs, what Payroll Costs are paid or incurred, and for those employers with payrolls biweekly or more frequently, whether choosing the Alternative Payroll Covered Period is a good option for you.

2. You did not maintain employee levels (number of FTEs). Generally, you must have the same number of Full-Time Equivalent (FTE) employees at the end of your Covered Period as you did prior to February 15, 2020. Two safe harbors apply (if you restored your FTE level by December 31, 2020; or were unable to operate due to government restrictions); and several exceptions are available (for example, if you can document you attempted to rehire to your same level). If you do not meet a safe harbor or exception, and do not maintain the same number of FTEs, the amount of loan forgiveness will be reduced.

3. You did not maintain employee compensation levels. If you reduced salary or wages by more than 25% for any employee during your Covered Period (as compared to

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UBT Forgiveness Guide Page 3 of 20 Updated 6/24/2020

first Quarter 2020) the amount of your loan forgiveness will be reduced unless you restore the salary/wage by December 31, 2020.

Definitions – Covered Period, Payroll Costs, Nonpayroll Costs Covered Period Throughout this Guide, ‘Covered Period’ means your loan forgiveness covered period, which is the 24-week period beginning on the date your PPP loan is disbursed. If your PPP loan was made before June 5, 2020, you may elect to have your loan forgiveness covered period be the eight-week period beginning on the date your PPP loan was disbursed.1 Alternative Payroll Covered Period This is an option for Borrowers who have a payroll biweekly or more frequently. It is for administrative convenience to allow you to begin your 24-week (168-day) period on the first day of your first pay period following your PPP Loan Disbursement date (or, if you originated your loan prior to June 5, 2020 at your election, the eight-week (56-day) period that begins on the first day of your first pay period following your PPP Loan Disbursement date). For example, if you use a 24-week Alternative Payroll Covered Period and received your PPP loan proceeds on Monday, April 20, and the first day of your first pay period following your PPP loan disbursement is Sunday, April 26, the first day of the Alternative Payroll Covered Period is April 26 and the last day of the Alternative Payroll Covered Period is Saturday, October 10. If you choose the Alternative Payroll Covered Period, you continue to utilize the standard Covered Period for calculation of your Nonpayroll Costs. You are not required to use the Alternative Payroll Covered Period. We suggest you review both options to determine the period that is most beneficial for you to utilize for Payroll Costs. Payroll costs paid and payroll costs incurred. Payroll costs are considered paid on the day that paychecks are distributed, or the Borrower originates an ACH credit transaction. Payroll costs incurred during the Borrower’s last pay period of the Covered Period or the Alternative Payroll Covered Period are eligible for forgiveness if paid on or before the next regular payroll date. Payroll Costs are generally incurred on the day the employee’s pay is earned (i.e., on the day the employee worked). For employees who are not performing work but are still on the borrower’s payroll, payroll costs are incurred based on the schedule established by the borrower (typically, each day that the employee would have performed work). Payroll Costs Payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation; cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); payment for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement; payment of state and local taxes assessed on compensation of employees; and for an independent contractor or sole proprietor, wages, commissions, income, or net earnings from self-employment, or similar compensation. The following are excluded from payroll costs:

1 The loan forgiveness covered period of any borrower will end no later than December 31, 2020.

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• Any compensation of an employee whose principal place of residence is outside of the United States;

• The cash compensation of an individual employee in excess of an annual salary of $100,000, prorated as necessary;

• Employer-paid payroll taxes.

• Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Public Law 116–127).

• Payments to an independent contractor or sole proprietor (the independent contractor or sole proprietor may have obtained a loan under the PPP).

Nonpayroll Costs All eligible Nonpayroll Costs must be paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period. Eligible Nonpayroll Costs cannot exceed 40% of the total forgiveness amount. Count Nonpayroll Costs that were both paid and incurred only once.

1. Interest payments on any mortgage obligation on real or personal property that was incurred before February 15, 2020 (but not any prepayment or payment of principal);

2. Payments on business rent obligations on real or personal property under a lease agreement in force before February 15, 2020; and

3. Business utility payments for the distribution of electricity, gas, water, transportation, telephone, or internet access for which the service began before February 15, 2020.

The PPP Loan Forgiveness Application Determining Which Form You Will Complete When we provide you the link to complete your Loan Forgiveness Application, we will ask you to confirm if you meet one of the following three qualifications: 1. A self-employed individual, independent contractor, or sole proprietor who had no

employees at the time of the PPP Loan Application. 2. An employer who did not reduce annual salary or hourly wages of any employee (who has

an annualized salary of $100,000 or less) by more than 25% during the Covered Period or Alternative Payroll Covered Period; and did not reduce the number of employees or the average paid hours of employees during the Covered Period.

3. Employer who did not reduce annual salary or hourly wages of any employee (who has an annualized salary of $100,000 or less) by more than 25% during the Covered Period or Alternative Payroll Covered Period; and was unable to operate during the Covered Period at the same level of business activity prior to February 15, 2020, due to compliance with requirements established by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration.2

If one of the 3 descriptions above match you, you will complete SBA Form 3508EZ. See below PPP Loan Forgiveness Application Form 3508EZ for an overview of the form. If you are an employer who does not meet one of the criteria listed above, refer to the PPP Loan Forgiveness Calculation Form.

2 See example in FAQs #19.

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PPP Loan Forgiveness Application Form 3508EZ Below is an overview of what will be required when you complete the PPP Loan Forgiveness Application Form 3508EZ3: 1. Business Legal Name (“Borrower”): We are working on a process to automatically fill this

with the name you provided at the time of your PPP Loan Application. Due to SBA requirements, this name must match your original loan application.

2. SBA PPP Loan Number, Lender PPP Loan Number, and PPP Loan Disbursement Date: We are working on a process to provide you with this information when we send you the link to complete your application for loan forgiveness. Due to the high volume of PPP Loans, we ask that you not individually contact us for this information.

3. Employees at Time of Loan Application/Time of Forgiveness Application: This is total employees (includes full-time and part-time).

4. EIDL Advance Amount/EIDL Application Number: Enter this information if you received an EIDL loan from January 31, 2020 through April 3, 2020 and refinanced your EIDL loan into your PPP loan.4

5. Payroll Schedule: Your payroll schedule. 6. Covered Period: The 24-week (168-day) period that begins on your Loan Disbursement

Date. If you received your loan prior to June 5, 2020, you may elect to use an eight-week (56-day) Covered Period.

7. Alternative Payroll Covered Period, if applicable: See Definitions section for definition of this alternative period. This is completed only if applicable to you.

8. Borrower (with affiliates if applicable) received PPP loans in excess of $2 million: Check if applicable to you.

Forgiveness Amount Calculation: Summary provided below, for complete instructions, see PPP Loan Forgiveness Application Form 3508EZ Instructions 1. Payroll Costs: Total eligible Payroll Costs paid or incurred during your Covered Period or

the Alternative Payroll Covered Period. Includes: a. Cash Compensation paid to employees: If you have employees, the sum of

gross salary, gross wages, gross tips, gross commissions, paid leave (e.g. vacation, medical). The total cash compensation for each employee may not exceed an annual salary of $100,000 ($46,154 for a 24-week Covered Period; $15,385 for an eight-week Covered Period). You can only include compensation of employees who were employed at any point during the Covered Period or Alternative Payroll Covered Period and whose principal place of residence is the United States.

b. Employee Benefits: The total amount paid by the Borrower for: i. Employer Contributions for employee health insurance.5 ii. Employer contributions to employee retirement plans.6 iii. State unemployment taxes paid by the Borrower and assessed on

employee compensation.

3 Link to pdf document is provided as a courtesy. Do not complete and send to us. Union Bank will provide you a link to securely complete this form at the time of your loan forgiveness application. 4 If you received an EIDL loan from January 31, 2020 through April 3, 2020 from the SBA and utilized the funds for payroll costs, the EIDL loan was required to be refinanced into your PPP loan. Do not enter information for EIDL loans received prior to January 31, 2020, or after April 3, 2020. 5 Do not include employer health insurance contributions made on behalf of a self-employed individual, general partners, or owner-employees of an S-corporation. 6 Do not include employer retirement contributions made on behalf of a self-employed individual or general partner.

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c. Owner Compensation: Amounts paid to owners (owner-employees and self-employed individuals. For a 24-week Covered Period, this amount is capped at 2.5 months’ worth (2.5/12) of 2019 compensation, or $20,833 per individual, whichever is less, in total across all businesses. (For borrowers that received a PPP loan before June 5, 2020 and elect to use an eight-week Covered Period, this amount is capped at 8/52 of 2019 compensation, or $15,385 per individual, whichever is less, in total across all businesses).7

d. Business Mortgage Interest Payments: The total amount of business mortgage interest payments paid or incurred during the Covered Period for any business mortgage obligation on real or personal property incurred before February 15, 2020. Do not include prepayments.

e. Business Rent or Lease Payments: The total amount of business rent or lease payments paid or incurred for real or personal property during the Covered Period, pursuant to lease agreements in force before February 15, 2020.

f. Business Utility Payments: The total amount of business payments for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.

2. Potential Forgiveness Amount: The Forgiveness Amount is the lesser amount of the following three amounts:

a. The total of Payroll and Nonpayroll Costs b. The PPP Loan Amount c. Payroll Costs divided by .60.

Examples of Potential Forgiveness Amount:

• Example 1: Assume a PPP loan of $100,000. The total of Payroll and Nonpayroll Costs was $110,000. Payroll Costs were $75,000.

o $110,000 was total of Payroll and Nonpayroll Costs o $100,000 PPP Loan Amount o Payroll Costs of $75,000 divided by .60 = $125,000 In this example, the amount of $100,000 is the lesser amount, so it is the Potential Forgiveness Amount

• Example 2: Assume a PPP loan of $100,000. The total of Payroll and Nonpayroll Costs was $100,000. Payroll Costs were $45,000.

o $100,000 was total of Payroll and Nonpayroll Costs o $100,000 PPP Loan Amount o Payroll Costs of $45,000 divided by .60 = $75,000 In this example, the amount of $75,000 is the lesser amount, so it is the Forgiveness Amount.

Documentation You Must Submit with Form 3508EZ Below is a summary of documentation you must provide. Refer to Page 4 of the PPP-Loan-Forgiveness-Application-Form-EZ-Instructions for complete details of the documentation you must submit (and the documentation you must maintain).

7 Schedule C or F filers are capped by the amount of their owner compensation replacement, calculated based on 2019 net profit. General partners are capped by the amount of their 2019 net earnings from self-employment (reduced by claimed section 179 expense deduction, unreimbursed partnership expenses, and depletion from oil and gas properties) multiplied by 0.9235.

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1. Payroll documentation. If you have employees, you must provide each of the following for costs paid during the Covered Period:

a. Bank account statements or third-party payroll service provider reports for the periods that overlap with the Covered Period; and

b. IRS Form 941 and State quarterly unemployment tax filings (or equivalent third-party payroll service provider reports) for the periods that overlap the Covered Period; and

c. Payment receipts, cancelled checks, or account statements documenting the amount of employer contributions to employee health insurance and retirement plans (if applicable); and

d. If you are claiming you did not reduce salaries or wages and did not reduce the number of employees or average paid hours of employees, documentation of the number of FTE employees on payroll employed by you on January 1, 2020 and at the end of your Covered Period.

2. Nonpayroll Documentation: Documentation verifying existence of the obligations/services prior to February 15, 2020 and eligible payments during the Covered Period as follows:

a. Copy of lender amortization schedule and receipts or cancelled checks verifying eligible interest payments during the covered period.

b. Copy of current lease/rent agreement(s) and receipts or cancelled checks verifying eligible payments during the covered period.

c. Copy of utility payment invoices paid during the covered period and cancelled checks showing payment of items.

3. Owner Compensation: For self-employed individuals, you must provide your 2019 1040 Schedule C or Schedule F. For General Partners, you must provide your 2019 K-1 (Form 1065).

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PPP Loan Forgiveness Calculation Form The PPP Loan Forgiveness Calculation Form 3508 is used if you did not meet one of the criteria listed in the section “Determining Which Form You Will Complete,” Below is an overview of what will be required when you complete the PPP Loan Forgiveness Calculation Form8:

PPP Schedule A Worksheet The Schedule A Worksheet is on Page 4 of the PPP Loan Forgiveness Calculation Form. At the time you apply for loan forgiveness, you will need to complete this worksheet or have documentation from your payroll software or payroll provider that contains this information. Below is a summary of what is in the Worksheet (for complete information see Pages 4 & 5 of the Loan Forgiveness Application Instructions for Borrowers). The information must include:

1. Employee’s Name and last 4 digits of their SSN. 2. The sum of the cash compensation for each employee paid or incurred during the 24-week

Covered Period9 or Alternative Payroll Covered Period. a. Cash Compensation: The sum of gross salary, gross wages, gross tips, gross

commissions, paid leave (e.g. vacation, medical). The total cash compensation for each employee may not exceed an annual salary of $100,000 ($46,154 for a 24-week Covered Period; $15,385 for an eight-week Covered Period).

3. Average FTE In the PPP Schedule A Worksheet, Table 1 is designed for employees who have a Cash Compensation of $100,000 or less per year. Table 2 is for employees with a Cash Compensation of more than $100,000 per year. These are separated for the purpose of the Reduction in Loan Forgiveness Amount Due to Reduction in Salaries or Wages, which is only applicable for employees with a Cash Compensation of $100,000 or less per year.

Average FTE: To calculate the average full-time equivalency, for each employee paid during the Covered Period or the Alternative Payroll Covered Period, you must calculate the average number of hours paid per week, divide by 40, and round the total to the nearest tenth. The maximum for each employee is capped at 1.0. As an option, a simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours may be used. The below example outlines both methods:

We suggest you calculate FTE utilizing both methods and determine which one is most beneficial for you to use. Once you determine how you will calculate FTE employees, you must use the same method consistently for all FTE calculations.

8 Link to pdf document is provided as a courtesy. Do not complete and send to us. Union Bank will provide you a link to securely complete this form at the time of your loan forgiveness application. 9 If you received your loan prior to June 5, 2020, you may use an eight-week Covered Period.

1 2 3 4 5 6 7 8

Employee A 20 25 20 30 27 20 30 25 24.6 0.6 0.5

Employee B 40 40 45 40 42 40 40 40 40.9 1.0 1.0

Employee C 38 42 40 40 35 42 42 42 40.1 1.0 1.0

Employee D 50 50 52 50 52 50 50 50 50.5 1.0 1.0

Employee E 38 38 36 36 34 35 40 35 36.5 0.9 0.5

Employee F 12 16 40 15 20 20 20 20 20.4 0.5 0.5

5.0 4.5

Week Number

Ho

urs

Wo

rked

Weekly

Avg.FTE

Simplified

Method FTE

FTE's

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Reduction in Loan Forgiveness Amount Due to Reduction in Number of Full-Time Equivalent (FTE) Employees The amount of eligible loan forgiveness may be reduced if you have not maintained or rehired your number of FTE employees during the Covered Period or Alternative Payroll Covered Period. A Borrower is exempt from such reduction if either of the FTE Reduction Safe Harbors apply:

• FTE Reduction Safe Harbor 1: The Borrower is exempt from the reduction in loan forgiveness based on a reduction in FTE employees if the Borrower, in good faith, is able to document that it was unable to operate between February 15, 2020, and the end of the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020, by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.

• FTE Reduction Safe Harbor 2: The Borrower is exempt from the reduction in loan forgiveness based on a reduction in FTE employees if both of the following conditions are met: (a) the Borrower reduced its FTE employee levels in the period beginning February 15, 2020, and ending April 26, 2020; and (b) the Borrower then restored its FTE employee levels by not later than December 31, 2020 to its FTE employee levels in the Borrower’s pay period that included February 15, 2020.

If you meet either of the above Safe Harbors, you will not have a reduction in the loan forgiveness amount. You will answer the applicable question on the PPP Schedule A (page 3 of the PPP Loan Forgiveness Calculation Form).

If you do not meet a Safe Harbor, you may qualify for an FTE Reduction Exception (see Page 5 of the Loan Forgiveness Application Instructions for Borrowers).

FTE Reduction Exceptions Any FTE reductions due to the following will not reduce your loan forgiveness.

1. Any positions for which the Borrower made a good-faith, written offer to rehire an individual who was an employee on February 15, 2020 and the Borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020;

2. Any positions for which the Borrower made a good-faith, written offer to restore any reduction in hours, at the same salary or wages, during the Covered Period or the Alternative Covered Period and the employee rejected the offer,

3. Any employee that was fired by cause, voluntarily resigned, or voluntarily requested and received a reduction of their hours.

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Examples of Reduction Due to Reduction in Number of FTE Employees FTE Reduction Safe Harbor 2 Explanation: If you had a reduction in FTE employees during the period beginning on February 15, 2020 and ending on April 26, 2020 and you eliminated the reduction in the number of FTE employees no later than December 31, 2020, there will not be a reduction in the amount eligible for forgiveness.

Example showing test being passed (no reduction in forgiveness applied)

Total FTE employees as of 2/15/2020 pay period 20 Starting point Avg. monthly FTE employees 2/15/2020 – 4/26/2020 5 FTEs decreased Total FTE employed as of 12/31/2020 20 Test passed

Example showing test failed (reduction in forgiveness may apply, see #2)

Total FTE employees as of 2/15/2020 20 Starting point Avg. monthly FTE employees 2/15/2020 – 4/26/2020 5 FTEs decreased Total FTE employed as of end of covered period or 12/31/2020 15 Test failed

If the Safe Harbor test is not applicable to you (you failed the test above, and you had a reduction in workforce from 2/15/2020-4/26/2020 that you did not eliminate by the end of your Covered Period or 12/31/2020, whichever is earlier) the amount of loan forgiveness, in general, is reduced by the same percentage as the percentage of reduction in FTE employees.10

Selecting a Reference Period for FTE Comparison You must first select a reference period by selecting one of the following: 1. Your average number of FTE employees per month during the period beginning on

February 15, 2019 and ending on June 30, 2019; or 2. Your average number of FTE equivalent employees per month during the period beginning

on January 1, 2020 and ending on February 29, 202011. Your FTE Reduction Quotient is determined by dividing the Total Average FTE employees during your Covered Period or Alternative Payroll Covered Period by the average number of FTE employees during your chosen reference period. For example, if you had 8 Total Average FTE employees during your Covered Period, and 10 Total Average FTE employees during your chosen reference period, your FTE Reduction Quotient is 80% (8 divided by 10).

See further examples below:

10 Documented FTE Reduction Exceptions will not reduce loan forgiveness. See FTE Reduction Exceptions. 11 Seasonal employers may choose either of these two dates, or any consecutive 12-week period between May 1, 2019 and September 15, 2019.

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Example showing reduction in amount of forgiveness

Time period Avg Number FTE Percent of funds eligible for forgiveness

Covered/Alternative Payroll Covered Period

16

2/15/2019-6/30/2019 22 72.7%

1/1/2020-2/29/2020 20 80%

In the example above, choosing the dates of 1/1/2020-2/29/2020 would result in a 20% reduction of funds eligible for forgiveness due to FTE employee count

Example showing no reduction in amount of forgiveness

Time period Avg Number FTE Percent of funds eligible for forgiveness

Covered/Alternative Payroll Covered Period

16

2/15/2019-6/30/2019 16 100%

1/1/2020-2/29/2020 20 80%

In the example above, choosing the dates of 2/15/2019-6/30/2019 would result in no reduction of funds eligible for forgiveness due to FTE employee count.

Reduction in Loan Forgiveness Amount Due to Reduction in Salaries or Wages In addition to any reduction due to the number of FTE employees, the eligible amount of loan forgiveness amount may be reduced if you reduced salary or wages of any employee (applicable only for employees with salary/wage of $100,000 or less per year).

Did you reduce an employee’s12 salary or hourly wage during the Covered Period or Alternative Payroll Covered Period by more than 25% of that employee’s salary or hourly wage (as compared to the first quarter of 2020)?

• If no, this section is not applicable to you.

• If yes, review the section below.

Examples of Reduction Due to Reduction Salaries or Wages

1. Exemption if employer has eliminated the reduction in the salary or wages of employees. If you had a reduction in salary/wages for an employee during the period beginning on February 15, 2020 and ending on April 26, 2020 and you eliminated the reduction no later than December 31, 2020, there will not be a reduction in the amount eligible for forgiveness. See below for examples:

Example showing test being passed (no reduction in forgiveness applied)

Annual Employee Salary as of 2/15/2020 $40,000 Starting point Annual Employee Salary 2/15/2020 – 4/26/2020 $35,000 Salary decrease Annual Employee Salary as of 12/31/2020 $40,000 Test passed

12 Only applicable if the employee’s annualized cash compensation is $100,000 or less.

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Example showing test failed (reduction in forgiveness may apply)

Annual Employee Salary as of 2/15/2020 $40,000 Starting point Annual Employee Salary 2/15/2020 – 4/26/2020 $30,000 Salary decrease Annual Employee Salary as of the end of the Covered Period or 12/31/2020 $35,000 Test failed

2. If you failed the test above, and you had a reduction in the salary/wage of an

employee13 from 2/15/2020-4/26/2020 that you did not eliminate by the end of your Covered Period, or by 12/31/2020 in general, the amount of loan forgiveness shall be reduced by the amount of any reduction in total salary or wages of an employee (with an annual salary of $100,000 or less) during the Covered Period that is in excess of 25% of the total salary or wages of the employee during the most recent full quarter during which the employee was employed before the covered period.

• Example 1 – no reduction in amount of loan forgiveness: Employee A’s annualized salary in Q1 of 2020 was $52,000 ($1,000 per week). During the 24-week period, Employee A’s annualized salary was $41,600 ($800 per week). Per the instructions on the bottom of Page 4 of the Loan Forgiveness Application Instructions for Borrowers, for “Salary/Hourly Wage Reductions” - Step 1conduct the following calculation:

o $41,600 divided by $52,000 = 80%. There is no reduction in the amount of loan forgiveness for this employee, since the salary during the Covered Period (or Alternative Covered Period) was more than 75% of the salary for that employee in the 1st Quarter of 2020.

• Example 2 – reduction in amount of loan forgiveness: Employee B’s annualized salary in Q1 of 2020 was $52,000 ($1,000 per week). During the Covered Period, Employee B’s annualized salary was $36,400 ($700 per week). Per the instructions on the bottom of Page 4 of the PPP Loan Forgiveness Application – Step 1, conduct the following calculation:

o $36,400 divided by $52,000 = 70%. Since the salary during the Covered Period (or Alternative Covered Period) was less than 75% of the salary for that employee in the 1st Quarter of 2020, there will be a reduction in loan forgiveness calculated as follows:

▪ $52,000 (salary on 2/15/2020) multiplied by .75 = $39,000 ▪ $39,000 minus $36,400 (salary in Covered Period) = $2,600 ▪ $2,600 multiplied by 2414 = $62,400 ▪ $62,400 divided by 52 = $1,20015 In this example, for this employee, the amount of $1,200 would be listed as the salary/hourly wage reduction for that employee.

This calculation must be completed for each employee (who did not receive, during any single pay period during 2019, wages or salary at an annualized rate of pay in an amount more than

13 Applicable to employees with annual cash compensation of $100,000 or less. 14 For 24-month Covered Period. If Covered Period is eight weeks, multiply by 8, which would equal $20,800. 15 For 24-month Covered Period. If Covered Period is eight weeks, $400 would be listed as the salary/hourly wage reduction for that employee.

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$100,000) that had a reduction in wage or salary in excess of 25% as compared to the most recent full quarter during which the employee was employed before the covered period.

PPP Schedule A Once you complete the PPP Schedule A Worksheet (if you have employees); then you will complete the PPP Schedule A (Page 3 of the PPP Loan Forgiveness Calculation Form). 1. PPP Schedule A Worksheet, Table 1 Totals: Includes the cash compensation16 totals for

the Covered Period or Alternative Payroll Covered Period paid to your employees with Cash Compensation of $100,000 or less per year (Line 1); the Average FTE calculated for these employees (Line 2); and if applicable, the total of any Salary/Hourly Wage Reduction for the Covered Period or Alternative Payroll Covered Period (Line 3).

2. PPP Schedule A Worksheet, Table 2 Totals: Includes the cash compensation totals for the Covered Period or Alternative Payroll Covered Period paid to your employees with Cash Compensation of over $100,000 per year (Line 4), and the Average FTE calculated for these employees (Line 5).

3. Non-Cash Compensation Payroll Costs During the Covered Period or the Alternative Payroll Covered Period: This includes the total amount paid by you for employer contributions for:

a. Employer Contributions for employee health insurance (Line 6).17 b. Employer contributions to employee retirement plans (Line 7).18 c. State unemployment taxes paid by the Borrower and assessed on employee

compensation (Line 8). 4. Compensation to Owners (Line 9): This is the amount paid to owner-employees/self-

employed individual/general partners (Line 9) These amounts are not included in the PPP Schedule A Worksheet Table 1 or 2.

a. If there is more than one individual being paid, you must attach a separate table that lists the names of and payments to each.

b. Amounts paid to owners (owner-employees, a self-employed individual, or general partners) are limited. For a 24-week Covered Period, this amount is capped at $20,833 (the 2.5-month equivalent of $100,000 per year for each individual or the 2.5-month equivalent of their applicable compensation in 2019,19 whichever is lower. For an eight-week Covered Period, this amount is capped at 8/52 of 2019 compensation (up to $15,385).

5. Total Payroll Costs (Line 10): Adding all the applicable items in Lines 1, 4, 6, 7, 8, and 9. 6. FTE Reduction Calculation:

a. If you did not reduce the number of FTE employees or the average paid hours of your employees between January 1, 2020 and the end of your Covered Period, check the box and skip Lines 11 and 12, and enter 1.0 on Line 13.

b. If you did reduce the number of FTE employees and either Safe Harbor 1 or Safe Harbor 2 was met check the applicable box, skip Lines 11 and 12, and enter 1.0 on Line 13.

16 Sum of gross salary, gross wages, gross tips, gross commissions, paid leave, and allowances for dismissal or separation paid or incurred during the Covered Period or Alternative Payroll Covered Period. 17 Do not include employer health insurance contributions made on behalf of a self-employed individual, general partners, or owner-employees of an S-corporation. 18 Do not include employer retirement contributions made on behalf of a self-employed individual or general partner. 19 Net Profit as per 2019 IRS Form 1040 Schedule C line 31; or 2019 IRS Form Schedule F line 34.

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c. If you did reduce the number of FTE employees and neither Safe Harbor was met enter your Average FTE during your chose reference period20 on Line 11, and complete the calculations for Line 12 and Line 13.

PPP Loan Forgiveness Calculation Form Once you complete the PPP Schedule A, you will be ready to complete the PPP Loan Calculation Forgiveness Form. 1. Business Legal Name (“Borrower”): We are working on a process to automatically fill this

with the name you provided at the time of your PPP Loan Application. Due to SBA requirements, this name must match your original loan application.

2. SBA PPP Loan Number, Lender PPP Loan Number, and PPP Loan Disbursement Date: We are working on a process to provide you with this information when we send you the link to complete your application for loan forgiveness. Due to the high volume of PPP Loans, we ask that you not individually contact us for this information.

3. Employees at Time of Loan Application/Time of Forgiveness Application: This is total employees (includes full-time and part-time).

4. EIDL Advance Amount/EIDL Application Number: If you received an EIDL from the SBA and utilized the funds for payroll costs, and the combined PPP Loan and EIDL exceeded your payroll costs, enter in this information.21

5. Payroll Schedule: Your payroll schedule. 6. Covered Period: The 24-week (168-day) period that begins on your Loan Disbursement

Date. If you received your loan prior to June 5, 2020, you may elect to use an eight-week (56-day) Covered Period.

7. Alternative Payroll Covered Period, if applicable: See Definitions section for definition of this alternative period. This is completed only if applicable to you.

8. Borrower (with affiliates if applicable) received PPP loans in excess of $2 million: Check if applicable to you.

9. Payroll and Nonpayroll Costs a. Payroll Costs will come from your PPP Schedule A. b. Business Mortgage Interest Payments: The total amount of business

mortgage interest payments paid or incurred during the Covered Period for any business mortgage obligation on real or personal property incurred before February 15, 2020. Do not include prepayments.

c. Business Rent or Lease Payments: The total amount of business rent or lease payments paid or incurred for real or personal property during the Covered Period, pursuant to lease agreements in force before February 15, 2020.

d. Business Utility Payments: The total amount of business payments for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.

10. Potential Forgiveness Amount: The Forgiveness Amount is the lesser amount of the following three amounts:

a. The total of Payroll and Nonpayroll Costs multiplied by the FTE Reduction Quotient (PPP Schedule A Line 13).

b. The PPP Loan Amount c. Payroll Costs (PPP Schedule A Line 10) divided by .60.

20 See “Selecting a Reference Period for FTE Comparison”. 21 Do not report EIDL if you did not use for payroll costs; or, if your payroll costs exceed the amount of the combined PPP Loan and EIDL.

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Examples of Potential Forgiveness Amount: a. Example 1: Assume a PPP loan of $100,000. The total of Payroll and

Nonpayroll Costs was $110,000. There was no FTE Reduction. Payroll Costs were $75,000.

i. $110,000 was total of Payroll and Nonpayroll Costs (no FTE Reduction)

ii. $100,000 PPP Loan Amount iii. Payroll Costs of $75,000 divided by .60 = $125,000

In this example, the loan amount of $100,000 is the lesser amount, so it is the potential Forgiveness Amount

b. Example 2: Assume a PPP loan of $100,000. The total of Payroll and Nonpayroll Costs was $100,000. FTEs had reduced from 10 to 8 FTE. Therefore, the FTE Reduction Quotient was 80%. Payroll Costs were $45,000.

iv. $100,000 Payroll and Nonpayroll Costs multiplied by the FTE Reduction Quotient of 80% = $80,000.

v. $100,000 PPP Loan Amount vi. Payroll Costs of $45,000 divided by .60 = $75,000

In this example, the amount of $75,000 is the lesser amount, so it is the potential Forgiveness Amount.

Documentation You Must Submit With Loan Forgiveness Application Form 3508. Below is a summary of the documentation you must submit with your application for forgiveness. Please refer to Page 6 of the Loan Forgiveness Application Instructions for Borrowers for complete details of the documentation you must submit (and the documentation you must maintain).

1. Payroll documentation. You must provide each of the following for costs paid during the Covered Period:

a. Bank account statements or third-party payroll service provider reports for the periods that overlap with the Covered Period; and

b. IRS Form 941 and State quarterly unemployment tax filings (or equivalent third-party payroll service provider reports) for the periods that overlap the Covered Period; and

c. Payment receipts, cancelled checks, or account statements documenting the amount of employer contributions to employee health insurance and retirement plans (if applicable).

2. FTE Documentation: Documentation showing (at the election of the Borrower): a. Your average number of FTE employees per month during the period beginning

on February 15, 2019 and ending on June 30, 2019; or b. Your average number of FTE employees per month during the period beginning

on January 1, 2020 and ending on February 29, 202022. 3. Nonpayroll Documentation: Documentation verifying existence of the

obligations/services prior to February 15, 2020 and eligible payments during the covered period as follows:

a. Copy of lender amortization schedule and receipts or cancelled checks verifying eligible interest payments during the covered period.

22 Seasonal employers may choose either of these two dates, or any consecutive 12-week period between May 1, 2019 and September 15, 2019.

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b. Copy of current lease/rent agreement(s) and receipts or cancelled checks verifying eligible payments during the covered period.

c. Copy of utility payment invoices paid during the covered period and cancelled checks showing payment of items.

4. Owner Compensation: If you are requesting forgiveness for the amount paid to owners (owner-employees, a self-employed individual, or general partners), provide the applicable 2019 tax form (e.g. Schedule C, Schedule F, K-1).

FAQ Section 1. What Amounts are Eligible for Forgiveness?

The amount of loan forgiveness can be up to the full principal amount of the loan plus accrued interest. The actual amount of loan forgiveness will depend, in part, on the total amount spent on qualified payroll costs and nonpayroll costs over the 24-week period beginning on the date your PPP loan is disbursed.23

2. When should I complete and submit the PPP Loan Forgiveness Application?

Union Bank will provide a secure, electronic link for you to complete your Loan Forgiveness Application. You may complete your application any time prior to the maturity date of your loan.

3. How soon will you decide on the amount of my forgiveness?

Per the CARES Act, we are required to issue you a decision within 60 days after we receive your application for loan forgiveness. If we approve your amount of forgiveness, we will submit our decision to the SBA, who will issue their decision within 90 days following our decision.

4. If I do not receive full loan forgiveness, will the payments follow the original loan

terms? If you utilized all the funds from your loan, once the Forgiveness Amount is applied, we will work with you on a payment schedule that will fit your needs. If your current loan term is 2 years, you may request to extend the maturity to five years. Payments will be fully amortized over the term of the loan. If you did not utilize all your loan funds, or do not intent to utilize them, you may simply make a principal payment on your loan. You will also be responsible for accrued interest on the portion that is not forgiven.

5. Will I be responsible for making payments on my loan while I wait on a determination

for loan forgiveness? If you submit to your loan forgiveness application to us within 10 months after the end of your loan forgiveness covered period, you will not have to make any payments of principal or interest on your loan before the date on which SBA remits the loan forgiveness amount on your loan to us (or notifies us that no loan forgiveness is allowed). Your “loan forgiveness covered period” is the 24-week period beginning on the date your PPP loan is disbursed; however, if your PPP loan was made before June 5, 2020, you may elect to have your loan forgiveness covered period be the eight-week period beginning on the date your PPP loan was disbursed. Interest continues to accrue during the deferment period. If you do not

23 If your PPP loan was made before June 5, 2020, you may elect to have your covered period be the eight-week

period beginning on the date your PPP loan was disbursed. In addition, under section 3(b)(1) of the Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act), the covered period of any borrower will end no later than December 31, 2020.

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submit a loan forgiveness application within 10 months after the end of your loan forgiveness covered period, you must begin paying principal and interest after that period.

6. Are salary, wages, or commission payments to furloughed employees; bonuses;

additional wages to tipped employees; increases in salary; or hazard pay during the covered period eligible for loan forgiveness? Yes, if the employees are part of your payroll (provided they do not exceed $100,000 total compensation annualized).

7. Can I prepay mortgage interest with the loan funds?

No. This is specifically prohibited per SBA rules. 8. Can I prepay our lease payments or utilities with the loan funds?

Current guidance indicates this is allowed. 9. Can I utilize loan funds to pay other operational expenses, such as business

insurance premiums, cleaning services, delivery services, bank fees, association fees, software fees, costs of employee protection equipment, etc.? Those costs do not qualify as forgivable non-payroll costs.

10. Is the amount of PPP loan forgiveness taxable by the IRS?

No. By statute, the amount forgiven on PPP loans is not taxable. However; please seek counsel from your tax advisor regarding IRS Notice 2020-32 issued on April 30, 2020 to eliminate the deductibility of expenses that qualify for loan forgiveness under the CARES Act.

11. If I had an EIDL loan refinanced into my PPP loan, how does that affect the amount of

loan forgiveness? If you refinanced your EIDL loan into your PPP loan, proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan.

12. How do I calculate the average number of FTE employees?

Per the Instructions for PPP Schedule A Worksheet on the Paycheck Protection Program Loan Forgiveness Application for each employee, you calculate the average number of hours paid per week, divide by 40, and round the total to the nearest tenth. The maximum for each employee is capped at 1.0. A simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours may be used at the election of the Borrower.24

13. Will the SBA review individual loan files?

Yes. SBA may review any PPP loan, as follows: 1. Borrower Eligibility: Whether or not the borrower is eligible for the PPP loan based on

provisions of the CARES Act and rules and guidance available to the borrower at the time of their loan application.

2. Loan Amounts and Use of Proceeds: Whether a borrower calculated the loan amount correctly and used loan proceeds for allowable uses.

24 Updated 5/17/2020

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3. Loan Forgiveness Amount: Whether the borrower is entitled to loan forgiveness in the amount claimed on the borrower’s Loan Forgiveness Application (SBA Form 3508 or lender’s equivalent form).

14. When will SBA undertake a loan review?

At any time. Per the Loan Forgiveness Application Form, the borrower must retain PPP documentation in its files for six years after the date the loan is forgiven or repaid in full, and permit authorized representatives of SBA, including representatives of its Office of Inspector General, to access such files upon request.

15. Will I have the opportunity to respond to SBA’s questions in a review?

Yes. If loan documentation submitted to SBA by the lender or any other information indicates that the borrower may be ineligible for a PPP loan or may be ineligible to receive the loan amount or loan forgiveness amount claimed by the borrower, SBA will require the lender to contact the borrower in writing to request additional information. SBA may also request information directly from the borrower. The lender will provide any additional information provided to it by the borrower to SBA. SBA will consider all information provided by the borrower in response to such an inquiry.

16. If SBA determines that a borrower is ineligible for a PPP loan, can the loan be

forgiven? No.

17. Can my loan forgiveness application be denied? Yes. We are required to review your loan forgiveness application and confirm the documentation you provide supports the amounts requested. If we deny your request, we must notify you (in writing) and the SBA. You may notify us within 30 days of notification that you request the SBA to review our decision. In addition, as previously noted, the SBA has the ultimate authority to approve or deny a loan forgiveness application. Even if we approve your loan forgiveness application, the SBA may deny a portion or total of the amount of loan forgiveness based on their review.

18. May a borrower appeal SBA’s determination that the borrower is ineligible for a PPP

loan or ineligible for the loan amount or the loan forgiveness amount claimed by the borrower? Yes. SBA intends to issue a separate interim final rule addressing this process.

19. What is an example of a business being impacted by requirements established by the

Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration? For example, a PPP borrower is in the business of selling beauty products both online and at its physical store. During the covered period, the local government where the borrower’s store is located orders all non-essential businesses, including the borrower’s business, to shut down their stores, based in part on COVID-19 guidance issued by the CDC in March 2020. Because the borrower’s business activity during the covered period was reduced compared to its activity before February 15, 2020 due to compliance with COVID Requirements or Guidance, the borrower satisfies the Flexibility Act’s exemption and will not have its forgiveness amount reduced because of a reduction in FTEs during the covered period, if the borrower in good faith maintains records regarding the reduction in business activity and the local government’s shutdown orders that reference a COVID Requirement or Guidance.

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20. I reduced the number of hours for an employee; therefore, lowering their salary.

Since I already calculated a reduction in the amount of loan forgiveness due to the reduction in hours, do I also calculate a reduction in loan forgiveness due to the reduction in salary? No. If the reduction in the salary is attributable to the FTE reduction, you are not doubly penalized for salary/wage reduction. The salary/wage reduction applies only to the portion of the decline in the employee salary and wages that is not attributable to the FTE reduction.

21. If I restore reductions made to employee salaries and wages no later than December

31, 2020, will I avoid a reduction in my loan forgiveness amount? Yes. If employee25 salaries and wages were reduced between February 15, 2020 and April 26, 2020, and you eliminate those reductions by the earlier of December 31, 2020 or the date you submit your loan forgiveness application, you are exempt from any reduction in loan forgiveness amount that would otherwise be required due to reductions in salaries and wages.

25 Applicable to employees with annual cash compensation of $100,000 or less.