As we are all aware, the approaching millennium raises significant problems for a world dependent upon computers. Simply stated, most computer programs currently employed use only two digits to represent the year so that, for example, 1997 is simply "97." Unless the problematic lines of code are found and fixed, on January 1, 2000, many of the systems will set the year to be "00" - and the computers will assume the year is 1900, causing unthinkable confusion and disruption. It has been estimated there will be a large number of business catastrophes resulting directly from the failure of those businesses to adequately prepare their computer systems and software for the Year 2000.
Lenders embarking upon credit arrangements would be well advised to conduct inquiry as to a prospective borrower's efforts in this area and to, both through representations and covenants in the loan documents, assure that attention is being paid to this critical concern. Similar attention should be paid by lenders to their existing customers' efforts at Year 2000 compliance. There has already developed a "cottage" industry of software professionals specializing in addressing the problem. The Securities and Exchange Commission considers the status of a public corporation's preparation for the Year 2000 problem to be of such magnitude that it represents a concern as to which public disclosures should be made.
A simple means of "fleshing" out the issue is through the inclusion in loan documents of representations as to the Year 2000 capability of a borrower's computer systems. Naturally, not every borrower will be able to confirm that it has already addressed the concern or is taking steps to do so. However, by including a Year 2000 provision in the loan documents, this important issue is, at minimum, opened for discussion and can be addressed (by covenant or otherwise). In certain situations, the lender may not wish to proceed with the loan unless satisfactory Year 2000 compliance is obtained or assured.
The following are possible Year 2000 representations which could be used in loan documents:
(a) The software of the borrower is designed to be used prior to, during, and after calendar year 2000 A.D. and such software will operate during each such time period without error relating to date data, specifically including any error relating to, or the conduct of, date data which represents or references different centuries or more than one century. Without limiting the generality of the foregoing, (i) the software of the borrower will not abnormally end or provide invalid or incorrect results as a result of date data, and (ii) the software of the borrower has been designed to ensure year 2000 A.D. compatibility, including date data, century recognition, calculations which accommodate same century and multicentury formulas and date values, and date data interface values that reflect the century.
(b) The software of the borrower includes "Year 2000 Capabilities." For purposes of this Agreement, "Year 2000 Capabilities" means the software (i) will manage and manipulate data involving dates, including single century formulas and multicentury formulas, and will not cause an abnormally ending scenario within the application or generate incorrect values or invalid results involving such dates, (ii) provides that all date-related users interface functionalities and data fields include the indication of century, and (iii) provides that all date-related data interface functionalities include the indication of century.
It is likely that many borrowers will not be able to make the above representations without qualification. In such event, modified representations should be included together with a covenant which obliges the borrower to undertake efforts to obtain "Year 2000 Capabilities" within a reasonable period of time.
