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GLOSSARY of CORPORATE TERMS

AB | C | D | E | F | G | H

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A

Accrual Method of Accounting

A method of keeping accounts which shows expenses incurred and income earned for a given period, although such expenses and income may not have been actually paid or received. Right to receive, and not actual receipt, determines the inclusion of an item in gross income. Obligations payable to or by a taxpayer are treated as if they are discharged when they are incurred.

Abnormal Returns

The difference between the return on a reputation portfolio and the return on the market index

Accountability

The liability of a board of directors to shareholders and stockholders for corporate performance and actions of the corporation.

Acquisition

Acquiring control of a corporation by stock purchase or exchange, either hostile or friendly.

Adoption

This is a contract principle whereby a person agrees to assume a contract previously made for his or her benefit. This concept is applied when a newly formed corporation accepts a pre-incorporation contract made for its benefit by a promoter.

ADR

A special, negotiable certificate issued by a US depository bank which represents a specific number of shares of stock issued in a foreign country and traded on a US stock exchange.

Affiliate

A corporation that is related to another corporation by share holdings or other means of control (such as parent/subsidiaries or corporations under common control).

AFL-CIO

Voluntary federation of America's labor unions formed in 1955 by the merger of the American Federation of Labor and the Congress of Industrial Organizations to give America's working class a voice and power in bringing about economic and social reforms.

Agent

Generally, a person authorized by another (known as the principal to act for or in place of him. An agent can enter into binding contracts or take legal action on behalf of another. In the corporate setting, a company’s officers, directors, and employees may act as corporate agents depending on their level of responsibility.

AGM

A company gathering, usually held at the end of each fiscal year, at which shareholders and management discuss the previous year and the outlook for the future, directors are elected and other shareholder concerns are addressed.

American Depository Receipt

A special, negotiable certificate issued by a US depository bank which represents a specific number of shares of stock issued in a foreign country and traded on a US stock exchange.

American Federation of Labor

Congress of Industrial Organizations (US) Voluntary federation of America's labor unions formed in 1955 by the merger of the American Federation of Labor and the Congress of Industrial Organizations to give America's working class a voice and power in bringing about economic and social reforms.

American Stock Exchange

The second-largest stock exchange in the U.S., after the NYSE.

AMEX

The second-largest stock exchange in the US, after the NYSE.

Amortization

An accounting procedure which gradually reduces the cost or value of a limited life or intangible asset through periodic charges against income. This procedure is also commonly known as depreciation with the periodic charges usually treated as current expenses for purposes of determining income.

Annual Shareholders’ Meeting

A company gathering, usually held at the end of each fiscal year, at which shareholders and management discuss the previous year and the outlook for the future, directors are elected and other shareholder concerns are addressed.

Annual Report

An audited document issued annually by all publicly listed corporations to their shareholders in accordance with SEC regulation. Contains information on financial results and overall performance of the previous fiscal year and comments on future outlook

Antidilution Provision

Agreement that protects an investor from a reduction in fractional ownership in a company in the event of a stock split, issuance of additional stock or other such measure.

Antitakeover Defense

A device designed to prevent a hostile takeover by increasing the takeover cost usually through the issuance of new preferred shares that carry severe redemption provisions. AKA: poison pill, shareholder rights plan

Articles of Dissolution

An official document filed with the Secretary of State of the state of incorporation prior to dissolution of a partnership or corporation outlining the provisions for the distribution of assets.

Articles of Incorporation

An official document filed with the Secretary of State of the state of incorporation outlining a corporation's purpose, powers under state law, authorized classes of securities to be issued and the rights and liabilities of shareholders and directors.

Articles of Organization

This is the name customarily given to the document that is filed in order to form a Limited Liability Company. It is very similar in content and function to the Articles of Incorporation for a corporation.

Asset

Anything owned, whether tangible or intangible, that has monetary value.

Assumed Name

A name under which an entity (i.e. a corporation) conducts business that is not the legal name of the entity. Many states require the filing of a registration in order to conduct business under an assumed name in their territories.

Audit Report

Statement of the accounting firm's assessment of the validity and accuracy of a company's financial information and conformity with accepted accounting practices.

Authorized Shares

Authorized shares are the shares described in the articles of incorporation which a corporation is permitted to issue. It is often advisable to authorize more shares than will be issued so that the company has a reserve for the future.

Authorized Stock

See Authorized Shares



B

Benchmarking

A company's use of information about other firms in the same industry used for comparisons and to set standards and goals.

Beneficial Owner

The individual who benefits from ownership of a security, property or mutual fund regardless of who holds title.

Beta

The measurement of a stock's volatility relative to the overall market. Statistically, it is defined as the covariance of the returns on the stock with the market return divided by the variance of the market return.

Black-Scholes Equation

An equation used to determine the value of option securities prices based on the relationship between six variables -- the current underlying asset price (S), the option strike price (K), the option time-to-expiration (t), the risks to return (r), the underlying asset payout return (d), and the underlying asset volatility (s) -- work together to determine the value of a standard option.

Blue Sky Laws

State statutes that regulate the sale of securities to the public within the state. Most require the registration of new issues of securities with a state agency prior to sale. These laws also often regulate securities brokers and salesmen.

Board of Directors

The collective group of individuals elected by the shareholders of a corporation to oversee the management of the corporation.

Board of Trustees

A group of people responsible for the oversight of a nonprofit organization.

Book Value

The value of shares determined on the basis of the books of a corporation (specifically calculated from the company’s balance sheet).

Broker Non-Votes

Proxies received from brokers or nominees holding shares for a beneficial owner indicating that the broker or nominee is not voting on a particular proposal because the broker or nominee has not received instructions from the beneficial owner(s) and does not have discretionary voting power with respect to that item.

Business Judgment Rule

A rule of law which prevents directors of a corporation from being held personally liable for incorrect business decisions if the decision was informed and not made in self-interest.

Bylaws

Bylaws are the formal rules of internal governance adopted by a corporation. They are usually adopted at the first shareholders’ meeting, and contain rules governing the actions of shareholders, directors, officers, and other actions of the company.



C

California Public Employees' Retirement System

Calpers is the nation's largest public pension system and the world's third largest pension system with more than $140 billion in assets invested in domestic and international markets.

CAR

The differences between the expected return on a stock and the actual return.

Cash Balance Pension Plan

A defined benefit plan that maintains individual employee accounts like a defined contribution plan.

C Corporation

A corporation that is subject to federal income tax at the corporate level. In other words, it has not elected S corporation status. The taxable income of a C corporation is subject to tax at the corporate level while the dividends continue to be taxed at the shareholder level.

Capital Gain

The profit realized on the sale or exchange of a capital asset. The gain is the difference between the cost or adjusted basis of an asset and the net proceeds from the sale or exchange of such asset.

Capital Loss

A tax term used in reference to a loss incurred in the sale or exchange of a capital asset.

Capital Stock

Another phrase for common shares, often used when a corporation has only one class of outstanding shares.

Capitalization

An imprecise term, usually referring to the amounts received by a corporation for the issuance of its shares. It also may refer to the proceeds of loans to a corporation made by its shareholders.

Cash Method of Accounting

The practice of recording the value of assets in terms of their cost.

CBOE

Founded in 1973, the CBOE was established for the trading of call options on listed stock. Today it is the second largest securities exchange in the country and the largest options exchange in the world.

CBOT

Formed in 1948 as a central marketplace for the Midwestern grain trade, the CBOT is now the oldest and largest futures exchange in the world.

Central Index Key

A unique code used by the US Securities and Exchange Commission (SEC) to identify corporations and individual people who have filed disclosure with the SEC.

CEO

The chief executive officer or CEO is the highest ranking officer of the company, and is often Chairman of the Board as well.

Certificate of Authority

A document issued by a state corporation authority (e.g. Secretary of State) on application of a foreign corporation granting it the right to do business in the state.

Certificate of Incorporation

In most states, the document that is prepared by the Secretary of State that evidences the acceptance of the articles of incorporation and the commencement of the corporate existence. In Delaware, the certificate of incorporation is the name given to the document filed with the Secretary of State.

CFO

The corporate executive responsible for the financial planning and record-keeping of a company

Chairman of the Board

Highest-ranking director in a corporation's board of directors.

Change-in-Control Arrangements

An executive employment contract that provides the executive with a lucrative severance package in the event of their termination. May include a continuation of salary, bonus and/or certain benefits and perquisites, as well as accelerated vesting of stock incentives and/or certain retirement benefits. AKA: Golden parachute

Charter

May mean either the document filed with the Secretary of State (articles of incorporation) or the grant by the State to conduct business with limited liability.

Chicago Board of Trade

Formed in 1948 as a central marketplace for the Midwestern grain trade, the CBOT is now the oldest and largest futures exchange in the world

Chicago Board Options Exchange

Founded in 1973, the CBOE was established for the trading of call options on listed stock. Today it is the second largest securities exchange in the country and the largest options exchange in the world.

Chief Executive Officer

The chief executive officer or CEO is the highest ranking officer of the company, and is often Chairman of the Board as well.

Chief Financial Officer

The corporate executive responsible for the financial planning and record-keeping of a company.

Chief Information Officer

The corporate executive responsible for corporate communications.

Chief Operating Officer

The corporate executive responsible for the day-to-day management of a company.

CII

Founded in 1985, the Council of Institutional Investors (CII) is "an organization of large public, Taft-Hartley and corporate pension funds formed to address investment issues that affect the size or security of plan assets."

CIK

A unique code used by the US Securities and Exchange Commission (SEC) to identify corporations and individual people who have filed disclosure with the SEC.

CIO

The corporate executive responsible for corporate communications.

Class Action Lawsuit

A lawsuit filed by one or more persons on behalf of a group of individuals all having the same grievance.

Class of Shares

Multiple shares issued by the same company of varying rights or powers.

Classified Board

A corporate board structure where only a portion of the board of directors is elected each year, usually to discourage takeover attempts. AKA: Staggered board.

Close Corporation

A corporation with relatively few shareholders and no regular markets for its shares. Close corporations usually have never made a public offering of shares and the shares themselves may be to subject to restrictions on transfer.

Code of Best Practice

Guiding principles for ensuring good corporate governance to which all publicly listed companies should aim.

Codetermination

Term used to describe labor representation (employees and union representatives) on corporate boards.

Collar(s)

Combinations of put options and call options that can limit, but not eliminate, the downside risk of a stock holding.

Committee on Uniform Securities Identification Procedures

A number consisting of nine characters (including letters and numbers) used to uniquely identify a company or issuer and the type of security. The CUSIP system—owned by the American Bankers Association and operated by Standard & Poor’s—facilitates the clearing and settlement process of securities. A similar system is used to identify foreign securities (CUSIP International Numbering System).

Common Shareholders

The holders of common shares, the ultimate owners of the residual interest of a corporation.

Common Shares (Common Stock)

The residual ownership in the corporation. Common shareholders select the directors to manage the corporation, are entitled to dividends out of the earnings of the corporation declared by the directors, and are entitled to a per share distribution of whatever assets remain upon dissolution of the corporation after satisfying creditors and holders of senior securities.

Common-law Voting

A voting system that allows shareholders to cast all of their votes for a single candidate nominated for a seat on the board of directors as opposed to voting for a different candidate for each available seat.

Corporate Records

Corporate records usually take the form of a corporate record book. Carefully maintaining records is very important to assure limited liability to the corporate shareholders. The records should include a copy of the articles of incorporation, the minutes of all shareholder and director meetings, and a stock register for keeping track of stock transactions.

Conglomerate

A corporation that has diversified operations by acquiring enterprises in various industries.

COO

The corporate executive responsible for the day-to-day management of a company.

Corporate Charter

An official document filed with the Secretary of State of the state of incorporation outlining a corporation's purpose, powers under state law, authorized classes of securities to be issued and the rights and liabilities of shareholders and directors.

Corporate Governance

The relationship between the shareholders, directors and management of a company, as defined by the corporate charter, bylaws, formal policy and rule of law.

Corporation: Overview

A corporation is a legal entity created through the laws of its state of incorporation. Individual states have the power to promulgate laws relating to the creation, organization and dissolution of corporations. Many states follow the Model Business Corporation Act. State corporation laws require articles of incorporation to document the corporation's creation and to provide provisions regarding the management of internal affairs. Most state corporation statutes also operate under the assumption that each corporation will adopt bylaws to define the rights and obligations of officers, persons and groups within its structure. States also have registration laws requiring corporations that incorporate in other states to request permission to do instate business.

There has also been a significant component of Federal corporations law since Congress passed the Securities Act of 1933, which regulates how corporate securities are issued and sold. Federal securities law also governs requirements of fiduciary conduct such as requiring corporations to make full disclosures to shareholders and investors.

The law treats a corporation as a legal "person" that has standing to sue and be sued, distinct from its stockholders. The legal independence of a corporation prevents shareholders from being personally liable for corporate debts. It also allows stockholders to sue the corporation through a derivative suit and makes ownership in the company (shares) easily transferable. The legal "person" status of corporations gives the business perpetual life; deaths of officials or stockholders do not alter the corporation's structure.

Corporations are taxable entities that fall under a different scheme from individuals. Although corporations have a "double tax" problem --both corporate profits and shareholder dividends are taxed -- corporate profits are taxed at a lower rate than rates for individuals.

Council of Institutional Investors

Founded in 1985, the Council of Institutional Investors (CII) is "an organization of large public, Taft-Hartley and corporate pension funds formed to address investment issues that affect the size or security of plan assets."

Cross-Shareholding

The holding of shares between two or more publicly listed companies that give each company involved an equity stake in the other. Often employed as a means of preventing unsolicited takeovers.

Cumulative Abnormal Return

The differences between the expected return on a stock and the actual return.

Cumulative Dividends

Dividends on preferred shares which carry over from one year to the next if a preference dividend is omitted. An omitted cumulative dividend must be made up in a later year before any dividend may be paid on the common shares in that later year.

Cumulative Voting

A method of voting that allows substantial minority shareholders to obtain representation on the board of directors by allowing a shareholder to cast all of his or her available votes in an election in favor of a single candidate.

CUSIP

A number consisting of nine characters (including letters and numbers) used to uniquely identify a company or issuer and the type of security. The CUSIP system—owned by the American Bankers Association and operated by Standard & Poor’s—facilitates the clearing and settlement process of securities. A similar system is used to identify foreign securities (CUSIP International Numbering System).



D

Dead-Hand Poison Pill

An antitakeover device designed to prevent the acquisition of a company even if a majority of shareholders favor the acquisition. Dead hand poison pills can only be removed by incumbent directors or their chosen successors.

De Facto Corporation

At common law, a partially formed corporation that provides a shield against personal liability of shareholders for corporate obligations.

DEF 14A

A document sent by publicly listed corporations to their shareholders providing material information on corporate matters subject to vote at the annual meeting. AKA: Proxy statement, proxy filing

Defined Benefits Plan

A company retirement plan in which a retired employee receives a specific monetary allotment based on salary history and years of service, and in which the employer bears the investment risk. Contributions may be made by the employee, the employer, or both.

Defined Contribution Plan

A company retirement plan, such as a 401(k) or 403(b), in which the employee chooses to defer some amount of his/her salary into the plan and bears the investment risk.

De Jure Corporation

At common law, a corporation that is sufficiently formed to be recognized as a corporation for all purposes.

Delaware Court of Chancery

The Delaware Court of Chancery is the forum for the resolution of disputes involving the internal affairs of corporations chartered in the state of Delaware.

Department of Labor

The US Department of Labor was created by federal law in 1913 to "foster, promote, and develop the welfare of the wage earners of the United States, to improve their working conditions, and to advance their opportunities for profitable employment." The DOL is responsible for the administration and enforcement of over 180 federal statutes concerning the protection of workers' rights, wages and health and safety.

Dilution

The change in earnings per share or book value per share resulting from the exercising of warrants and stock options and the conversion of convertible securities.

Dilution of Ownership

A reduction in the fractional ownership of a shareholder's stock as a result of the the issuance of additional shares of common stock and/or the conversion of convertible securities.

Director

A person elected by shareholders to serve on the corporation's board of directors.

Directors and Officers Liability Insurance (D&O)

Professional liability coverage for legal expenses and liability to shareholders, bondholders, creditors or others due to actions or omissions by a director or officer of a corporation or nonprofit organization.

Disclosure

The public dissemination of material, market-influencing information.

Dissident; Dissenting shareholder

A shareholder who objects to a proposed corporate action or position.

Dissolution

The termination of a corporation’s legal existence.

Dividend

Payment to shareholders from or out of current or past earnings.

DOL

The US Department of Labor was created by federal law in 1913 to "foster, promote, and develop the welfare of the wage earners of the United States, to improve their working conditions, and to advance their opportunities for profitable employment." The DOL is responsible for the administration and enforcement of over 180 federal statutes concerning the protection of workers' rights, wages and health and safety.

Domestic Corporation

A corporation is domestic to the state where it was incorporated.

Double taxation

Refers to the structure of taxation under the Internal Revenue Code which subjects income earned by a C corporation to an income tax at the corporate level and a second tax at the shareholder level if the previously taxed income is distributed to the shareholders as dividends. Note that S corporations and Limited Liability Companies are not subject to double taxation.



E

Earnings Per Share

Equals a firm’s net income divided by the number of shares held by shareholders.

Economic Value Added

A financial performance measure developed by Stern Stewart & Co. used to evaluate a company's true profit, defined by Stern Stewart as "the amount by which earnings exceed or fall short of the required minimum rate of return that shareholders and lenders could get by investing in other securities of comparable risk."

EDGAR

The SEC's Electronic Data Gathering, Analysis, and Retrieval system used by all public companies to electronically transmit required filings and ongoing disclosure obligations.

Electronic Data Gathering, Analysis, and Retrieval System

The SEC's Electronic Data Gathering, Analysis, and Retrieval system used by all public companies to electronically transmit required filings and ongoing disclosure obligations.

Employee Benefit Plan

A plan created or maintained by an employer or employee organization, providing benefits to employees. The two main types are employee pension plans and employee welfare plans.

Employee Retirement Income Security Act Federal legislation

(US Code Title 29, Chapter 18, associated Internal Revenue Code and miscellaneous provisions) adopted in 1974 that established legal guidelines for private pension plan administration and investment practices including regulations relating to plan funding, participation, vesting, termination, disclosure, federal tax treatment and fiduciary responsibility of plan administrators.

Employee Stock Ownership Plan

A trust established by a corporation for the allocation of stock to its employees as a form of employee benefit.

Equity

A financial term referring in general to the extent of an ownership interest in a venture. Equity refers not to a legal concept, but to a financial definition that an owner’s equity in a business is equal to the business’s assets minus its liabilities.

Equity Financing

Raising money by the sale of stock.

ERISA

Federal legislation (US Code Title 29, Chapter 18, associated Internal Revenue Code and miscellaneous provisions) adopted in 1974 that established legal guidelines for private pension plan administration and investment practices including regulations relating to plan funding, participation, vesting, termination, disclosure, federal tax treatment and fiduciary responsibility of plan administrators.

ESOP

A trust established by a corporation for the allocation of stock to its employees as a form of employee benefit.

EVA

A financial performance measure developed by Stern Stewart & Co. used to evaluate a company's true profit, defined by Stern Stewart as "the amount by which earnings exceed or fall short of the required minimum rate of return that shareholders and lenders could get by investing in other securities of comparable risk."

Event Study

Empirical study of the prices of an asset prior to and directly following a specific event, like an announcement, merger, or dividend.

Executive Director

A member of a company's board of directors who is also an employee of the company. AKA: Inside director

Externalization

The offsetting of costs onto society at large, as in the externalization of costs related to the health care impact of tobacco related products onto the public at large. Externalized costs do not appear on earnings statements or balance sheets, but nevertheless may impact the sustainability of the firms earnings.



F

Fair Disclosure

The release of all material, market-influencing information to the public at the same time.

FASB

A professional standards board created by accountants to establish standards of financial accounting (Generally Accepted Accounting Principles (GAAP)) and reporting in the private sector. The FASB is officially recognized as authoritative by the Securities and Exchange Commission.

FDI

Investment of foreign assets directly into a domestic company's structures, equipment, and organizations. It does not include foreign investment into the stock markets.

Federal Tax Identification Number

A number given to a business entity by the federal government for tax purposes.

Fiduciary

An individual, corporation or association entrusted with legal authority and duty to manage and invest assets for another party.

Fiduciary Trust/responsibility

The power entrusted to a individual, corporation or association (fiduciary) to manage assets for another person (principal) beneficial to his/her interests.

Financial Accounting Standards Board

A professional standards board created by accountants to establish standards of financial accounting (Generally Accepted Accounting Principles (GAAP)) and reporting in the private sector. The FASB is officially recognized as authoritative by the Securities and Exchange Commission.

Financial Statement

A written report that quantitatively summarizes the financial status of an organization for a stated period of time. Includes an income statement and balance sheet describing the flow of resources, profit or loss, and the distribution or retention of profits.

Fiscal Year

A twelve month period used by a company for accounting purposes.

Focus List

The California Public Employees' Retirement System (CalPERS) annual list of under-performing companies whose poor long-term stock performance, corporate governance practices and economic value-added (EVA) evaluation provide the focus for the pension fund's corporate governance activism.

Foreign Direct Investment

Investment of foreign assets directly into a domestic company's structures, equipment, and organizations. It does not include foreign investment into the stock markets.

Foreign Corporation

A corporation is referred to as a foreign corporation in all states outside its state of incorporation. In order to conduct business in another state, it must register for a certificate of authority to conduct business in the other state.

Form 10K

An audited document issued annually by all publicly listed corporations to their shareholders in accordance with SEC regulation. Contains information on financial results and overall performance of the previous fiscal year and comments on future outlook. AKA: Annual report

Form 10Q

A report filed quarterly in accordance with SEC regulations containing unaudited financial statements. AKA: Quarterly report

Form 8K

Form filed by corporations with the SEC to report corporate changes or material events which are important to investors and not previously disclosed in any other form.

Forward Looking Statement

A statement made by an official representative of a corporation concerning future earnings potential or operations.

Franchise Tax

A tax on the privilege of carrying on business in a state. It is typically measured by the earnings or amount of business done within the state.

Friendly Takeover

A takeover favored and supported by the management of the target company



G

GAAP

A set of uniform accounting rules for recording and reporting financial information as established by the Financial Accounting Standards Board.

GASB

An accounting standards board formed in 1984 by the Financial Accounting Foundation (FAF) to develop accounting standards for state and local governmental entities.

Generally Accepted Accounting Principles

A set of uniform accounting rules for recording and reporting financial information as established by the Financial Accounting Standards Board.

General Corporation

A general corporation, also known as a “C” corporation, is the most common corporate structure. A general corporation may have an unlimited number of stockholders. Consequently, it is usually chosen by those companies planning to have more than 30 stockholders or large public stock offerings. Since a corporation is a separate legal entity, a stockholder's personal liability is usually limited to the amount of investment in the corporation and no more.

GIGN

The GIGN is an informal network of international institutional investors who share a common interest in good corporate governance and improving long-term shareholder value.

Glass-Steagall Act

Federal legislation passed in 1933 that separated investment and commercial banking firms and prohibited banks from owning corporate stock.

Global Institutional Governance Network

The GIGN is an informal network of international institutional investors who share a common interest in good corporate governance and improving long-term shareholder value.

Golden Bungee (cords)

A lucrative executive pay package that includes a severance agreement and cash, options, or other incentive to remain associated with the company. Usually included as a provision in an executives employment contract that is triggered as a result of a merger or buyout. The executive reaps the benefits of a farewell package but retains a position with the newly combined company.

Golden Handshake

A clause in an executive employment contract that provides the executive with a lucrative severance package in the event of their termination. May include a continuation of salary, bonus and/or certain benefits and perquisites, as well as accelerated vesting of stock options.

Golden Hello

A cash payment or other remuneration paid to a new executive as an incentive to join a company

Golden Parachute

A clause in an executive employment contract that provides the executive with a lucrative severance package in the event of their termination. May include a continuation of salary, bonus and/or certain benefits and perquisites, as well as accelerated vesting of stock options. AKA: Golden handshake

Government Accounting Standards Board

An accounting standards board formed in 1984 by the Financial Accounting Foundation (FAF) to develop accounting standards for state and local governmental entities.

Greenmail(ing)

The practice of taking a stake in a company subject to a hostile takeover, forcing the target company to buy back its own shares at a premium to prevent a takeover.



H

Historical Cost

An accounting principle requiring all financial statement items to be based on original cost.

Holding Company

A company that owns a majority of the shares of one or more corporations. A holding company is not engaged in any business other than the ownership of shares.

Hostile Takeover

An unsolicited takeover not supported by the management and board of directors of the target company.


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