References to "DCRD," "our," "us" or "we" refer to Decarbonization Plus
Acquisition Corporation IV. The following discussion and analysis of DCRD's
financial condition and results of operations should be read in conjunction with
the unaudited financial statements and the notes thereto contained in Item 1. of
this report. Certain information contained in the discussion and analysis set
forth below includes forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those anticipated
in these forward-looking statements as a result of many factors.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). We have based these forward-looking statements on our current
expectations and projections about future events. These forward-looking
statements are subject to known and unknown risks, uncertainties and assumptions
about us that may cause our actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by such
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may," "should," "could," "would," "expect,"
"plan," "anticipate," "believe," "estimate," "continue," or the negative of such
terms or other similar expressions. Such statements include, but are not limited
to, possible business combinations and the financing thereof, and related
matters, as well as all other statements other than statements of historical
fact included in this Form 10-Q. Factors that might cause or contribute to such
a discrepancy include, but are not limited to, those described in our other
Securities and Exchange Commission ("SEC") filings.
Overview
We are a blank check company incorporated as a Cayman Islands exempted company
and formed for the purpose of effecting a merger, amalgamation, share exchange,
asset acquisition, share purchase, reorganization or similar business
combination with one or more businesses (the "initial business combination").
Our Sponsor is Decarbonization Plus Acquisition Sponsor IV LLC, a Cayman Islands
limited liability company ("Sponsor") and an affiliate of Riverstone Investment
Group LLC, a Delaware limited liability company, and its affiliates
("Riverstone"). Although we may pursue an acquisition opportunity in any
business or industry, we intend to capitalize on the Riverstone platform to
identify, acquire and operate a business in industries that may provide
opportunities for attractive risk-adjusted returns in one of the multiple
sectors that may advance the objectives of global decarbonization. This includes
the energy and agriculture, industrials, transportation and commercial and
residential sectors.
The Registration Statement for our initial public offering was declared
effective on August 10, 2021 (the "Public Offering"). On August 13, 2021, we
consummated the Public Offering of 31,625,000 units (the "Units") at $10.00 per
Unit, generating gross proceeds of $316,250,000, and incurring transaction costs
of approximately $19.4 million, consisting of $6.3 million of underwriting fees,
$11.07 million of deferred underwriting fees and approximately $2 million of
other offering costs. The underwriters were granted a 45-day over-allotment
option to purchase up to 4,125,000 units (the "Over-Allotment Units") at the
Public Offering price, less the underwriting discounts and commissions. The
underwriters exercised the over-allotment option in full and purchased the
Over-Allotment Units at the closing of the Public Offering.
Simultaneously with the consummation of the Public Offering, we consummated the
sale of 12,737,500 private placement warrants (the "Private Placement Warrants")
at a price of $1.00 per Private Placement Warrant in a private placement to our
Sponsor and independent directors, generating gross proceeds of $12,737,500 (the
"Private Placement").
Approximately $319,412,500 ($10.10 per Unit) of the net proceeds of the Public
Offering (including the Over-Allotment Units and $11.07 million of the
underwriters' deferred discount) and certain of the proceeds of the Private
Placement were placed in a trust account (the "Trust Account") located in the
United States with the Continental Stock Transfer & Trust Company, and invested
only in U.S. "government securities," within the meaning set forth in Section
2(a)(16) of the Investment Company Act of 1940 (the "Investment Company Act"),
with a maturity of one hundred eighty-five (185) days or less, or in money
market funds meeting the conditions of paragraphs (d)(1), (d)(2), (d)(3) and
(d)(4) of Rule 2a-7 under the Investment Company Act, which invest only in
direct U.S.
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government treasury obligations, as determined by the Company, until the earlier
of: (i) the completion of our initial business combination and (ii) the
distribution of the Trust Account as otherwise permitted under our amended and
restated memorandum and articles of association.
If we are unable to complete an initial business combination within eighteen
(18) months from the closing of the Public Offering, or February 13, 2023, we
will (i) cease all operations except for the purpose of winding up, (ii) as
promptly as reasonably possible but not more than ten (10) business days
thereafter, redeem the public shares, at a per-share price, payable in cash,
equal to the aggregate amount then on deposit in the Trust Account, including
interest earned on the funds held in the Trust Account and not previously
released to us to pay our taxes (less up to $100,000 of interest to pay
dissolution expenses and net of taxes payable), divided by the number of
then-outstanding public shares, which redemption will completely extinguish
public shareholders' rights as shareholders (including the right to receive
further liquidating distributions, if any), subject to applicable law, and (iii)
as promptly as reasonably possible following such redemption, subject to the
approval of our remaining shareholders and our board of directors, dissolve and
liquidate, subject in each case to our obligations under Cayman Islands law to
provide for claims of creditors and the requirements of other applicable law.
Proposed Business Combination
Business Combination Agreement
On September 25, 2022, the Company, Hammerhead Resources Inc., an Alberta
corporation ("Hammerhead"), Hammerhead Energy Inc., an Alberta corporation and
wholly owned subsidiary of Hammerhead ("NewCo"), and 2453729 Alberta ULC, an
Alberta unlimited liability corporation and wholly owned subsidiary of the
Company ("AmalCo"), entered into a Business Combination Agreement (the "Business
Combination Agreement"), pursuant to which, among other things and subject to
the terms and conditions contained therein, (i) the Company will transfer by way
of continuation from the Cayman Islands to Alberta in accordance with the Cayman
Islands Companies Act (as amended) and domesticate as an Alberta corporation in
accordance with the Business Corporations Act (Alberta) (the "Domestication"),
(ii) the Company will amalgamate with NewCo (the "SPAC Amalgamation") to form
one corporate entity ("New SPAC") and NewCo will survive the SPAC Amalgamation
as New SPAC in accordance with the terms of a Plan of Arrangement (the "Plan of
Arrangement") and (iii) Hammerhead will amalgamate with AmalCo (the "Company
Amalgamation" and together with the SPAC Amalgamation, the "Amalgamations") to
form a wholly owned subsidiary of New SPAC in accordance with the terms of the
Plan of Arrangement. The Amalgamations, together with the other transactions
contemplated by the Business Combination Agreement, the Plan of Arrangement and
all other agreements, certificates and instruments entered into in connection
therewith, are referred to herein as the "Proposed Transactions." We expect the
Proposed Transactions to be completed in the first quarter of 2023, subject to,
among other things, the approval of the Proposed Transactions by our
shareholders, satisfaction of the conditions in the Business Combination
Agreement and other customary closing conditions.
Affiliates of Riverstone Holdings LLC (the "Riverstone Parties"), which is
affiliated with our Sponsor, collectively own approximately 83% of the common
shares of Hammerhead (the "Hammerhead Common Shares") (on an as-converted basis)
and two members of the board of directors of Hammerhead (the "Hammerhead Board")
are affiliates of Riverstone Holdings LLC. The board of directors of the Company
and the Hammerhead Board each formed special committees to review and approve
the Proposed Transactions.
Amended and Restated Registration Rights Agreement
Concurrently with the closing (the "Closing") of the Proposed Transactions, the
Company will amend and restate its registration rights agreement, dated
August 10, 2021, pursuant to which New SPAC will agree that, within 15 business
days after the Closing, New SPAC will file with the SEC (at New SPAC's sole cost
and expense) a registration statement registering the resale of certain
securities held by or issuable to certain existing shareholders of the Company,
including the Riverstone Parties, and Hammerhead (the "Resale Registration
Statement"), and New SPAC will use its commercially reasonable efforts to have
the Resale Registration Statement declared effective as soon as reasonably
practicable after the filing thereof. In certain circumstances, the holders will
be able to demand New SPAC's assistance with underwritten offerings and block
trades. The holders will be entitled to customary piggyback registration rights.
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Lock-Up Agreement
On the date of Closing, pursuant to the Business Combination Agreement and as
set forth in the Plan of Arrangement, certain existing shareholders of
Hammerhead, including the Riverstone Parties, will become bound by
a Lock-Up Agreement with New SPAC pursuant to which they will agree, subject to
certain customary exceptions, not to (i) effect any sale of, offer to sell,
contract or agree to sell, hypothecate, pledge, grant any option to purchase or
otherwise dispose of or agree to dispose of, directly or indirectly, or
establish or increase a put equivalent position or liquidation with respect to
or decrease a call equivalent position within the meaning of Section 16 of the
Exchange Act, and the rules and regulations of the SEC promulgated thereunder
with respect to, any securities of New SPAC, (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of any securities of New SPAC, whether any such
transaction is to be settled by delivery of such securities, in cash or
otherwise or (iii) make any public announcement of any intention to effect any
transaction specified in clause (i) or (ii), until the earlier of (a) six months
after the Closing or (b) the date that the last sale price of the Class A common
share in the authorized share capital of the New SPAC (the "New SPAC Class A
Common Shares") equals or exceeds $12.00 per share (as adjusted for share
subdivisions, share dividends, reorganizations, recapitalizations and the like)
for any 20 trading days within any 30-day trading period.
Sponsor Support Agreement
In connection with the execution of the Business Combination Agreement, on
September 25, 2022, the Sponsor and an affiliate of the Riverstone Parties
("Fund V") entered into a letter agreement with the Company, NewCo and
Hammerhead (the "Sponsor Support Agreement"), pursuant to which, among other
things, the Sponsor and Fund V agreed to (i) waive the anti-dilution rights set
forth in the Company's amended and restated memorandum and articles of
association with respect to the Class B ordinary shares, par value $0.0001, of
the Company (the "Founder Shares"), held by it, (ii) vote all Class A ordinary
shares, par value $0.0001, of the Company (the "Class A Ordinary Shares") and
Founder Shares held by it in favor of the adoption and approval of the Proposed
Transactions and each other proposal related to the Proposed Transactions
included on the agenda for the Company's extraordinary general meeting of its
shareholders (the "Company Shareholders Meeting"), except that the Sponsor and
Fund V will not vote any Class A Ordinary Shares purchased by the Sponsor or
Fund V after the Company publicly announces its intention to engage in the
Proposed Transactions for or against the Proposed Transactions, (iii) not redeem
any Founder Shares in connection with the Company Shareholders Meeting, (iv) not
transfer the Founder Shares, a Class B common share of the Company following the
Domestication or a Class B common share in the authorized share capital of New
SPAC (the "New SPAC Class B Common Shares") (or New SPAC Class A Common Shares
issuable upon conversion of New SPAC Class B Common Shares in connection with
the Proposed Transactions) until the earlier of (a) one year after the Closing
or (b) subsequent to the Closing, (x) if the last sale price of the New SPAC
Class A Common Shares equals or exceeds $12.00 per share (as adjusted for share
subdivisions, share dividends, reorganizations, recapitalizations and the like)
for any 20 trading days within any 30-trading day period commencing at least 150
days after the Closing or (y) the date on which New SPAC completes a
liquidation, amalgamation, share exchange or other similar transaction that
results in all of New SPAC's shareholders having the right to exchange their
shares for cash, securities or other property and (v) not transfer any warrants
to purchase Class A Ordinary Shares, each issued and outstanding warrant to
acquire one Class A common share of the Company following the Domestication, or
warrant to acquire one New SPAC Class A Common Share pursuant to the Warrant
Agreement, dated August 10, 2021, between the Company and Continental Stock
Transfer & Trust Company, as warrant agent ("New SPAC Warrants") (or New SPAC
Class A Common Shares issued or issuable upon exercise of the New SPAC Warrants)
until 30 days after the Closing.
Hammerhead Shareholder Support Agreements
In connection with the execution of the Business Combination Agreement, on
September 25, 2022, the Company, Hammerhead and certain securityholders of
Hammerhead, including the Riverstone Parties, entered into support agreements
(the "Hammerhead Shareholder Support Agreements") pursuant to which, among other
things, such shareholders agreed to vote (or cause to be voted) all of their
Class A Common Shares of Hammerhead and Class B Common Shares of Hammerhead and
other voting securities of Hammerhead ("Subject Securities") in favor of the
special resolution of Hammerhead shareholders in respect of the Plan of
Arrangement, to be considered at Hammerhead's shareholders meeting.
Additionally, such shareholders agreed, among other things, not to, prior to the
Closing, (a) transfer any of their Subject Securities (or enter into any
agreement, arrangement or understanding in connection therewith other than
pursuant to the Plan of Arrangement), subject to certain customary exceptions,
or (b) enter into any voting arrangement that is inconsistent with the
Hammerhead Shareholder Support Agreements.
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Amendment to the IPO Letter Agreement
In connection with the execution of the Business Combination Agreement, on
September 25, 2022, the Company, its officers and directors and the Sponsor
entered into an amendment to the Letter Agreement, dated August 10, 2021 (the
"IPO Letter Agreement" and such amendment, the "Letter Agreement Amendment"),
pursuant to which such parties agreed, effective concurrently with the execution
and delivery of the Business Combination Agreement, that the Sponsor will be
prohibited from voting any Class A Ordinary Shares purchased by the Sponsor
following the Company's public announcement of its intention to engage in the
Proposed Transactions for or against the Proposed Transactions.
Sponsor Side Letter
In connection with the execution of the Business Combination Agreement, on
September 25, 2022, the Company, certain affiliates of the Riverstone Parties,
the Sponsor and the other holders of Founder Shares and the Private Placement
Warrants (the Sponsor and such other holders, the "Sponsor Group Members")
entered into a letter agreement (the "Sponsor Side Letter") whereby each of the
Sponsor Group Members agreed to assign and transfer to an affiliate of the
Riverstone Parties certain of the Founder Shares and Private Placement Warrants
in connection with the Proposed Transactions, subject to the terms and
conditions in the Sponsor Side Letter.
The affiliates of the Riverstone Parties also agreed to be bound by the transfer
restrictions applicable to the Founder Shares and Private Placement Warrants in
the IPO Letter Agreement and the Sponsor Support Agreement.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from February 22, 2021 (inception) through September 30,
2022 were organizational activities, those necessary to prepare for the Public
Offering, described below, the Company's search for a target business with which
to complete an initial business combination and activities in connection with
the Proposed Transactions. We do not expect to generate any operating revenues
until after the completion of our initial business combination, at the earliest.
We generate non-operating income in the form of interest income on marketable
securities. We are incurring expenses as a result of being a public company (for
legal, financial reporting, accounting and auditing compliance), as well as for
due diligence expenses in connection with completing an initial business
combination.
For the three months ended September 30, 2022, we had a net loss of $11,963,348
which consists of formation and operating costs of $3,475,847, interest income
of $1,444,322 and a loss on the change in fair value of derivative warrant
liabilities of $9,931,823.
For the three months ended September 30, 2021, we had a net loss of $12,941,894,
which consists of formation and operating costs of $574,351, interest income of
$2,453, a loss on the change in fair value of derivative warrant liabilities of
$10,987,689, and transaction costs that were allocated to derivative warrant
liabilities of $1,382,307.
For the nine months ended September 30, 2022, we had net income of $6,642,013,
which consists of formation and operating costs of $6,980,131, interest income
of $1,924,055 and gain on fair value of derivative warrant liabilities of
$11,698,089.
For the period from February 22, 2021 (inception) through September 30, 2021, we
had a net loss of $13,469,409, which consists of formation and operating costs
of $1,101,866, interest income of $2,453, a loss on the change in fair value of
derivative warrant liabilities of $10,987,689 and transaction costs that were
allocated to derivative warrant liabilities of $1,382,307.
Liquidity and Going Concern
As of September 30, 2022, the Company had no cash on hand and a working capital
deficit of $11,955,421. The proceeds from the Public Offering that were intended
for working capital and other corporate activities have been fully utilized.
Those funds were used in the payment of existing accounts payable, identifying
and evaluating prospective acquisition candidates, performing business due
diligence on prospective target businesses, traveling to and from the offices,
plants or similar locations of prospective target businesses, reviewing
corporate documents and material agreements of prospective target businesses,
selecting the target business to acquire and structuring,
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negotiating and consummating the initial business combination. The Sponsor or an
affiliate of the Sponsor, or the Company's officers and directors may, but are
not obligated to, provide the Company $1.5 million in loans to cover working
capital needs until the consummation of an initial business combination
("Working Capital Loans").
The Company has incurred, and expects to incur, additional significant costs in
pursuit of its financing and acquisition plans, including the proposed business
combination. In connection with the Company's assessment of going concern
considerations in accordance with FASB ASC Topic 205-40, "Presentation of
Financial Statements- Going Concern," management has determined that the Company
has access to funds from our Sponsor, and our Sponsor has the financial ability
to provide such funds, that are sufficient to fund the working capital needs of
the Company until the earlier of the consummation of the initial business
combination and one year from the date of issuance of these financial
statements. However, management has determined that if the Company is unable to
complete an initial business combination by February 13, 2023, then the Company
will cease all operations except for the purpose of liquidating. The date for
the mandatory liquidation and subsequent dissolution raise substantial doubt
about the Company's ability to continue as a going concern. No adjustments have
been made to the carrying amounts of assets or liabilities should the Company be
required to liquidate after this date. The Company intends to complete an
initial business combination before the mandatory liquidation date.
Contractual Obligations
Registration Rights
The holders of the Founder Shares, Private Placement Warrants and warrants that
may be issued upon conversion of Working Capital Loans, if any, and any Class A
Ordinary Shares issuable upon the exercise of the Private Placement Warrants and
warrants that may be issued upon conversion of Working Capital Loans and upon
conversion of the Founder Shares will be entitled to registration rights
pursuant to a registration rights agreement. These holders will be entitled to
certain demand and "piggyback" registration rights. We will bear the expenses
incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The underwriters were entitled to an underwriting discount of $0.20 per unit, or
$6,325,000 in the aggregate, paid upon closing of the Public Offering.
In addition, $0.35 per unit, or approximately $11,068,750 in the aggregate, will
be payable to the underwriters for deferred underwriting commissions. The
deferred fee will become payable to the underwriters from the amounts held in
the Trust Account solely in the event that we complete an initial business
combination, subject to the terms of the underwriting agreement.
Administrative Services Agreement
Commencing on the date that our securities were first listed on the NASDAQ
Capital Market and continuing until the earlier of our consummation of an
initial business combination or our liquidation, we have agreed to pay an
affiliate of our Sponsor a total of $10,000 per month for office space,
utilities, secretarial support and administrative support made available to the
Company. We recorded an aggregate of $30,000 and $86,129 for the three and nine
months ended September 30, 2022, in general and administrative expenses in
connection with the related agreement in the accompanying statement of
operations. Upon completion of our initial business combination or liquidation,
we will cease paying these monthly fees. There was $136,129 and $50,000
outstanding as of September 30, 2022 and December 31, 2021, respectively.
Related Party Loans
Our Sponsor has agreed to pay for certain of our expenses in the form of
non-interest bearing advances. Approximately $1,656,022 was due to our Sponsor
as of September 30, 2022.
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Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and expenses during the
periods reported. Actual results could materially differ from those estimates.
We have identified the following critical accounting policies:
Derivative Warrant Liabilities
We account for the warrants issued in connection with our Public Offering in
accordance with Accounting Standards Codification ("ASC") 815-40, Derivatives
and Hedging-Contracts in Entity's Own Equity ("ASC 815"), under which the
warrants do not meet the criteria for equity classification and must be recorded
as liabilities. As the warrants meet the definition of a derivative as
contemplated in ASC 815, the warrants are measured at fair value at inception
and at each reporting date in accordance with ASC 820, Fair Value Measurement,
with changes in fair value recognized in the Statements of Operations in the
period of change.
Ordinary shares subject to possible redemption
We account for the Class A Ordinary Shares subject to possible redemption in
accordance with the guidance in ASC 480, Distinguishing Liabilities from Equity.
Class A Ordinary Shares subject to mandatory redemption are classified as a
liability instrument and are measured at fair value. Conditionally redeemable
ordinary shares (including ordinary shares that feature redemption rights that
are either within the control of the holder or subject to redemption upon the
occurrence of uncertain events not solely within DCRD's control) are classified
as temporary equity. At all other times, ordinary shares are classified as
shareholders' equity. Our Class A Ordinary Shares feature certain redemption
rights that are considered to be outside of our control and subject to
occurrence of uncertain future events.
Net income (loss) per share
Net income (loss) per share is computed by dividing net income (loss) applicable
to shareholders by the weighted average number of ordinary shares outstanding
during the period, plus, to the extent dilutive, the incremental number of
ordinary shares to settle warrants, as calculated using the treasury stock
method.
As of September 30, 2022, the Company did not have any dilutive securities and
other contracts that could, potentially, be exercised or converted into ordinary
shares and then share in the earnings of the Company under the treasury stock
method. Since the exercise of Warrants is contingent upon the occurrence of
future events, diluted loss per ordinary share is the same as basic loss per
ordinary share.
The Company has two classes of shares, which are referred to as Class A and
Class B ordinary shares. Earnings are shared pro rata between the two classes of
shares which assumes a business combination as the most likely outcome.
Accretion associated with the redeemable shares of Class A Ordinary Shares is
excluded from earnings per share as the redemption value approximates fair
value.
Impact of COVID-19 and Russia/Ukraine Conflict
Our Sponsor continues to evaluate the impact of the COVID-19 pandemic and has
concluded that while it is reasonably possible that the virus could have a
negative effect on our financial position, results of operations and/or search
for a target company, the specific impact is not readily determinable as of the
balance sheet date.
In February 2022, the Russian Federation and Belarus commenced a military action
with the country of Ukraine. As a result of this action, various nations,
including the United States, have instituted economic sanctions against the
Russian Federation and Belarus. Further, the impact of this action and related
sanctions on the world economy are not determinable as of the date of these
financial statements and the specific impact on the Company's financial
condition, results of operations, and cash flows is also not determinable as of
the date of these financial statements.
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Recent Accounting Pronouncements
We do not believe that any recently issued, but not yet effective, accounting
pronouncements, if currently adopted, would have a material impact on our
financial statements.
Off-Balance Sheet Arrangements
As of the date of this Quarterly Report, we did not have any off-balance sheet
arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
JOBS Act
On April 5, 2012, the Jumpstart Our Business Startups Act of 2012 (the "JOBS
Act") was signed into law. The JOBS Act contains provisions that, among other
things, relax certain reporting requirements for qualifying public companies. We
qualify as an "emerging growth company" under the JOBS Act and are allowed to
comply with new or revised accounting pronouncements based on the effective date
for private (not publicly traded) companies. We elected to delay the adoption of
new or revised accounting standards, and as a result, we may not comply with new
or revised accounting standards on the relevant dates on which adoption of such
standards is required for non-emerging growth companies. As a result, our
financial statements may not be comparable to companies that comply with new or
revised accounting pronouncements as of public company effective dates.
As an "emerging growth company," we are not required to, among other things, (i)
provide an auditor's attestation report on our system of internal controls over
financial reporting, (ii) provide all of the compensation disclosure that may be
required of non-emerging growth public companies, (iii) comply with any
requirement that may be adopted by the Public Company Accounting Oversight Board
regarding mandatory audit firm rotation or a supplement to the auditor's report
providing additional information about the audit and the financial statements
(auditor discussion and analysis), and (iv) disclose comparisons of the CEO's
compensation to median employee compensation. These exemptions will apply for a
period of five (5) years following the completion of our Public Offering or
until we otherwise no longer qualify as an "emerging growth company."
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