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A BILL TO BE ENTITLED
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AN ACT
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relating to the regulation of the provision of proxy advisory |
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services. |
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BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
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SECTION 1. The legislature finds that: |
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(1) when shareholders in this state hire professionals |
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to provide advice in the exercise of their rights as shareholders, |
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the shareholders expect that service to be performed in their |
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financial interest as shareholders, and professionals who are hired |
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by shareholders to provide that service and who deviate from that |
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expectation must clearly disclose that fact; |
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(2) there is a particular need for disclosures for |
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proxy voting advice because that advice is often: |
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(A) provided for hundreds or thousands of |
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shareholder votes each year; and |
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(B) based on lengthy policies that contain |
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general statements but do not explain whether or how the policy |
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provisions will maximize returns for investors for any particular |
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company or shareholder vote; |
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(3) proxy advisors: |
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(A) have recommended votes based on |
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environmental, social, or governance (ESG) investing, diversity, |
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equity, or inclusion (DEI), and social credit or sustainability |
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scores; and |
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(B) have not conducted financial analyses before |
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making the recommendations described by Paragraph (A) of this |
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subdivision despite having proxy voting policies claiming that the |
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purpose of the recommendation is maximizing and protecting |
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shareholder value; |
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(4) requiring proxy advisors to provide clear, factual |
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disclosures when the advisors recommend casting a vote for |
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nonfinancial reasons or provide conflicting advice to multiple |
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clients who seek to maximize financial returns is necessary in |
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order to prevent fraudulent or deceptive acts and practices in this |
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state; and |
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(5) a company that is the subject of a shareholder |
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proposal may have information regarding whether the proposal is in |
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the shareholder's financial interests or regarding the costs of the |
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proposal, and notice would allow the company to provide relevant |
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information to shareholders that may prevent fraudulent or |
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deceptive practices associated with proxy advisors making |
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recommendations for nonfinancial reasons. |
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SECTION 2. Title 1, Business Organizations Code, is amended |
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by adding Chapter 6A to read as follows: |
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CHAPTER 6A. PROXY ADVISORY SERVICES |
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SUBCHAPTER A. GENERAL PROVISIONS |
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Sec. 6A.001. DEFINITIONS. In this chapter: |
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(1) "Company" means a publicly traded, for-profit |
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corporation, limited liability company, partnership, or other |
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business entity that is organized or created under the laws of this |
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state or has its principal place of business in this state. |
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(2) "Company proposal" means a proposal made by a |
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company that is included in the company's proxy statement, |
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including a proposal regarding director nominations or elections, |
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executive compensation, corporate transactions and structure, |
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auditor selection, or similar measures. |
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(3) "Proxy advisor" means a person who, for |
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compensation, provides a proxy advisory service to shareholders of |
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a company or to other persons with authority to vote on behalf of |
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shareholders of a company. |
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(4) "Proxy advisory service" means any of the |
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following services that are provided in connection with or in |
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relation to a company: |
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(A) advice or a recommendation on how to vote on a |
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proxy proposal or company proposal; |
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(B) proxy statement research and analysis |
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regarding a proxy proposal or company proposal; |
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(C) a rating or research regarding corporate |
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governance; or |
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(D) development of proxy voting recommendations |
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or policies, including establishing default recommendations or |
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policies. |
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(5) "Proxy proposal" means a proposal made by a |
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company's shareholder that is included in the company's proxy |
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statement, including the nomination of a director. |
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(6) "Shareholder" includes a shareholder, unitholder, |
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limited partner, or other equity owner of a company. |
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SUBCHAPTER B. DISCLOSURE REQUIREMENTS FOR PROXY ADVISORS |
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Sec. 6A.101. DISCLOSURE OF NONFINANCIAL PROXY VOTING |
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SERVICES TO PREVENT FRAUD OR DECEIT. (a) For purposes of this |
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section, a proxy advisory service is not provided solely in the |
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financial interest of the shareholders of a company if the service |
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is wholly or partly based on one or more nonfinancial factors, |
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including a commitment, initiative, policy, target, or subjective |
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or value-based standard based on: |
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(1) an environmental, social, or governance (ESG) |
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goal, factor, or investment principle; |
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(2) diversity, equity, or inclusion (DEI), including |
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any attempt to provide preferential treatment based on |
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characteristics protected under Section 21.051, Labor Code; |
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(3) a social credit or sustainability factor or score; |
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or |
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(4) membership in or commitment to an organization or |
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group that wholly or partly bases its evaluation or assessment of a |
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company's value over any period on nonfinancial factors. |
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(b) If a proxy advisor provides a proxy advisory service |
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that is not provided solely in the financial interest of the |
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shareholders of a company, the advisor shall: |
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(1) include a conspicuous disclosure to each |
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shareholder or entity or other person acting on behalf of a |
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shareholder receiving the service that: |
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(A) states that the service is not being provided |
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solely in the financial interest of the company's shareholders |
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because it is based wholly or partly on one or more nonfinancial |
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factors; and |
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(B) briefly explains the basis of the proxy |
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advisor's advice and recommendation; |
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(2) immediately provide a copy of the notice under |
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Subdivision (1) to the company that is the subject of the service; |
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and |
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(3) publicly and conspicuously disclose on the home or |
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front page of the proxy advisor's publicly accessible Internet |
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website that the advisor's proxy advisory services include advice |
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and recommendations that are not based solely on the financial |
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interest of shareholders. |
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Sec. 6A.102. DISCLOSURES IF PROVIDING CONFLICTING VOTER |
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ADVICE OR RECOMMENDATIONS. (a) For purposes of this section, |
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"materially different," with respect to advice or a recommendation |
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on how to vote on a company proposal or proxy proposal, means |
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simultaneously advising or recommending that: |
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(1) one or more clients vote for the proposal and one |
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or more clients vote against the proposal; or |
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(2) one or more clients vote for a nominee for a |
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company's governing authority and one or more clients vote against |
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or abstain from voting for the same nominee. |
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(b) If a proxy advisor provides to different clients who |
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have not expressly requested services for a nonfinancial purpose |
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either advice or a recommendation on how to vote on a proxy or |
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company proposal that is materially different, the advisor shall: |
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(1) if applicable, comply with disclosure |
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requirements for nonfinancial proxy advisory services under |
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Section 6A.101(b); |
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(2) notify the following persons, in writing or by |
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electronic means, of the conflicting advice or recommendation: |
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(A) each shareholder receiving the advice or |
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recommendation; |
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(B) each entity or other person receiving the |
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advice or recommendation on behalf of a shareholder; |
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(C) the company that is the subject of the |
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company or proxy proposal; and |
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(D) the attorney general; and |
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(3) disclose which of the conflicting advice or |
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recommendations is: |
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(A) provided solely in the financial interest of |
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the shareholders; and |
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(B) supported by any specific financial analysis |
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performed or relied on by the advisor. |
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SUBCHAPTER C. ENFORCEMENT |
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Sec. 6A.201. DECEPTIVE TRADE PRACTICE. A violation of this |
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chapter is a deceptive trade practice under Subchapter E, Chapter |
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17, Business & Commerce Code, and is actionable under Section 17.47 |
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of that code. |
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Sec. 6A.202. DECLARATORY JUDGMENT OR INJUNCTIVE RELIEF. |
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(a) In this section, "affected party" includes: |
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(1) the recipient of proxy advisory services provided |
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by the proxy advisor; |
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(2) the company that is the subject of the proxy |
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advisory services; or |
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(3) any shareholder of the company described by |
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Subdivision (2). |
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(b) An affected party may bring an action seeking a |
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declaratory judgment or injunctive relief under Chapter 37, Civil |
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Practice and Remedies Code, against a proxy advisor who violates |
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this chapter. Not later than the seventh day after the date on |
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which an action is brought under this subsection, the plaintiff |
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shall provide notice to the attorney general, who may intervene in |
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the action. |
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SECTION 3. The changes in law made by this Act apply only to |
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a proxy advisory service provided on or after the effective date of |
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this Act. |
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SECTION 4. This Act takes effect July 1, 2025, if it |
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receives a vote of two-thirds of all the members elected to each |
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house, as provided by Section 39, Article III, Texas Constitution. |
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If this Act does not receive the vote necessary for effect on that |
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date, this Act takes effect September 1, 2025. |
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