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Deconstructing Contracts with CrossCheck 365

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Missing, repeated or out-of-order sections

An orderly outline should be sequential. There should be no repeated section numbers, no missing section numbers, and no out-of-order sections. This is arguably the most basic requirement of good document structure. Also, there should be no “single-item lists,” or lists containing, for example, an item labeled “(i)” and nothing else. We found some kind of outline error in 83% of EDGAR documents analyzed.

A Merger Agreement between The Avon Water Company and Connecticut Water Service, Inc. dated October 11, 2016 is infected with this type of error. There are so many odd sequences and broken cross-references that I suspect software might be to blame–specifically, the software used to convert the document to XML for filing purposes.

In this document, the subsection numbering can only be described as random. For example, here is the entirety of Section 3.4:

3.4 Certificate of Incorporation; Bylaws; Directors and Officers.
(c) The Company has heretofore made or will, within the time period specified in Section 1.6 hereof, make available to CWS true, complete and correct copies of the Company’s Certificate of Incorporation and Bylaws, each as amended through the date of this Agreement, and said Certificate and Bylaws are in full force and effect and include any and all amendments thereto.

(d) The current members of the Board of Directors of the Company (the “Company Board”) and the officers of the Company are listed on Schedule 3.4(b) hereto.

Why bother with (a) and (b)? Let’s just jump to (c).

In this same document, Section 2.2(b) begins with subsection (iii). Section 3.1 begins with (i), which at first looks normal, but then (i) is followed by (j), (k) and (l). Section 3.2 begins with (d), Section 3.6 begins with (f), and so on.

Does this really matter? The numbers / labels are sequential and unique. It’s common practice to insert “[INTENTIONALLY DELETED]” when text has been removed, to avoid renumbering. Isn’t this just the same thing?

An outline like this might be harmless in some cases, but in this document the scrambled labeling leads to 54 broken cross-references.

If these errors were caused by XML conversion software, CrossCheck 365 might not have been able to help. However, if they exist in the original, CrossCheck 365 could have saved someone a lot of embarassment. If nothing else, this should be a cautionary tale: check your documents AFTER they have been submitted to EDGAR, as well as before.


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