1
1 MISSOURI GAMING COMMISSION
STATE OF
MISSOURI
2
3
4 January 12, 2005
Commission
Meeting
5 Missouri Gaming Commission
3417 Knipp
Drive
6 Jefferson City, Missouri
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8
BEFORE: Floyd O. Bartch,
Chairman
Judith Sutter-Hinrichs,
Vice-Chairman
9 Ralph Biele, Commissioner
Jack E. Gant,
Commissioner
10 George Hartsfield, Commissioner
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12
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REPORTED BY:
20 KELLENE K. FEDDERSEN, RPR, CSR, CCR
MIDWEST
LITIGATION SERVICES
21 714 West High Street
P.O. Box
1308
22 Jefferson City, MO 65101
(573)636-7551
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25
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1 I N D E X
2
Call to Order 3
3
Consideration of Minutes 61
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Consideration of Hearing Officer Recommendations
IOC-Kansas City, Inc. 63
5 Autumn A. Powers 77
Ryan J. Sprague 79
6 Mark Taykowski 81
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Consideration of Relicensure of Certain Suppliers 85
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Consideration of Suitability for Licensure of
Class A Licensee
9 HGI-St. Jo, Inc. 5
HGI-Mark Twain, Inc. 5
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Consideration of Licensure of Level I/Key
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Applicants 18
12
Consideration of Design & Dockside Approvals
Casino One Corporation 20
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Consideration of Disciplinary
Action 86
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Consideration of Settlement
Agreement 93
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Consideration of Proposed Rules
& Regulations 95
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1 P R O C E E D I N G S
2 COMMISSIONER HINRICHS: We'll call to
3
order. And, Angie, would you
call the roll, please.
4 MS. FRANKS:
Chairman Bartch?
5 CHAIRMAN BARTCH:
Present.
6 MS. FRANKS:
Commissioner Hinrichs?
7 COMMISSIONER HINRICHS: Present.
8 MS. FRANKS:
Commissioner Gant?
9 COMMISSIONER GANT: Present.
10 MS. FRANKS:
Commissioner Hartsfield?
11 COMMISSIONER HARTSFIELD: Present.
12 MS. FRANKS:
Commissioner Biele?
13 COMMISSIONER BIELE: Present.
14 COMMISSIONER HINRICHS: Thank you. And
15
welcome all. At the request of
our phone-in members,
16
we're going to change the agenda a little bit; is that
17
correct?
18 MR. KEVIN MULLALLY: Yes, Madam Chairman. If
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we could, to accommodate Chairman Bartch and Judge Gant, if
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we could depart from the order in the agenda and go
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directly to Roman Numeral V, which is the consideration of
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suitability for licensure of a Class A Licensee. This is
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a matter which deals with the acquisition, proposed
24 acquisition by
Herbst Gaming of the properties formerly
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held by Mr. Bill Grace.
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1 And in consideration of this item, we would
2
first hear from the company and then hear the
3
investigative report by the Missouri State Highway Patrol
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investigators.
5 COMMISSIONER HINRICHS: Weren't we also
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going to add another item to that early consideration?
7 MR. MULLALLY:
Yeah. Then we would go
8
to --
9 COMMISSIONER HINRICHS: No. 7?
10 MR.
MULLALLY: Following the consideration
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of the Herbst acquisition, we would hear the consideration
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of Level I and Key Applicants, which are all the Herbst
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Key people and Level I's, and then the consideration of the
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design and dockside approvals for Casino One Corporation,
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and also an update on the Pinnacle projects in St. Louis.
16 At that time it's my understanding that
17 Chairman Bartch and Judge Gant would be off the phone and
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we would consider the remainder of the business.
19 COMMISSIONER HINRICHS: So we would start
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with, that would be No. 5, Roman Numeral V, and that's K
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in our book?
22 MR. MULLALLY:
Yes. And I believe Sean
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Higgins and some of the Herbst family is here to make a
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presentation on behalf of the company.
25
COMMISSIONER HINRICHS: Thank
you.
5
1
Welcome.
2 COMMISSIONER GANT: Judy, where are we in
3 the book?
4 COMMISSIONER HINRICHS: We're under K in
5
the book.
6 COMMISSIONER GANT: Okay. Sorry. I didn't
7
catch that first part.
8 MR. SEAN
HIGGINS: Good morning, Chairman
9
Hinrichs.
10 COMMISSIONER HINRICHS: It's Hinrichs, for
11
whatever it's worth.
12 MR. HIGGINS:
Sorry about that.
13 COMMISSIONER HINRICHS: That's okay.
14 MR. HIGGINS:
Sean Higgins, General Counsel
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for Herbst Gaming.
Commissioners, good morning.
16
Executive Director Mullally, good morning.
17 Before I get started with our presentation,
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I do want to express the thanks of myself in particular
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and the company in general for the work of Executive
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Director Mullally, Deputy Director Steve Johnson, Captain
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Bloomberg, and our investigation team Sergeant Hamilton,
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Sergeant Morrison, Sergeant Scism, Sergeant Ed Aylward, Bill
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Fox, Don Krieg, Rolland Hopson, and the financial investigator,
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Mr. Oberkirsch.
25 Anyhow, I just want to say they were very
6
1
easy to work with. They tried to
accommodate us. It was
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wonderful to work with them.
They were great throughout
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the whole process, and I do want to express that to the
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Commission before I get started, and I thank them.
5 COMMISSIONER HINRICHS: That's nice to
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hear.
7 MR. HIGGINS:
Next I'd like to introduce
8
the people here with me today.
I'll just start at this
9 end here. The first gentleman is Mark Sterbens. He is
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our Director of Casino Operations in Las Vegas and --
11 COMMISSIONER GANT: Judy, can you tell him
12
to speak up a little?
13
COMMISSIONER HINRICHS: You need
more
14
volume? You need to get closer
to the microphone,
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perhaps.
16 MR. HIGGINS:
How's that?
17 COMMISSIONER HINRICHS: Is that better?
18
Commissioner Gant, can you hear now?
Can you hear now?
19 MR. HIGGINS:
Well, I'll continue and you
20
can tell me if you can't.
21 Next to Mark is Ed Herbst, our Chairman of
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the Board and President of the company; MaryBeth Higgins,
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Chief Financial Officer; Tim Herbst, owner and
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Secretary/Treasurer of the company; and Troy Herbst, Vice
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President. Actually, I got those
two wrong, backwards,
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1
but that's okay.
2 UNIDENTIFIED SPEAKER: The Herbst boys.
3 MR. HIGGINS:
That would be them. That
4
would be them.
5 I want to start with a little background on
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the Herbst family and the Terrible name, because we get
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questions all the time. So I
thought the best place to
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start was, where did you come up with a name like Terrible
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Herbst? Well, Ed, Tim and Troy,
along with their father
10
Jerry, are in the gas service station business as well
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throughout the western states in the United States.
12 That company was started by Mr. Herbst's
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father, the original Ed Herbst, in Chicago in 1937, and he
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made it a point of providing high-quality, high-value
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service to his customers. When
people came to fill their
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cars with gas, he had pony rides for the kids, gave bubble
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gum out to them. Everywhere he
went, his competition
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hated him.
19 So as he moved westward with his company, I
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believe it was Cheyenne, Wyoming he was in, and he had a
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lead man out there who would go find sites for him. And
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there was a meeting of all the guys who had gas stations
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in town, and one of them said, my gas station's for sale.
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That no-good terrible SOB Herbst has run me out of
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business in the last few towns, and I'm not staying here.
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1 Well, Mr. Herbst's lead man thought it was
2 a cute little name, so he put the name, coming soon,
3
Terrible Herbst's. Well, by the
time Ed, Tim and Troy's
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grandfather caught up with his partner, he didn't like the
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name, but all of his friends back in Chicago said, that's
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the greatest marketing scheme we've ever seen, Ed. How
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did you come up with it? He
said, it was all my idea.
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So 60-some-odd years later, the name has stuck, and we're
9 all proud to be part of
the Terrible family.
10 The gaming company Herbst Gaming started --
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was started by Ed, Tim and Troy in 1987 in Las Vegas.
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That was when we put our first gaming device into one of
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their father's convenience stores.
Obviously in the state
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of Nevada slot routes are a legal form of gaming we have.
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So that's -- we started by putting games out on the
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street.
17 Ed, Tim and Troy did every aspect of that
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business. They fixed the
machines, they did the drops,
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they did the counts, all themselves.
They were their own
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employees. So they have started
this business from the
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ground up, the three of them.
22 Over the years, we continued to grow and
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grow our slot route, adding new and larger contracts, and
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in 1995 we opened our first casino in Nevada, Terrible's
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Town Casino in Pahrump.
Continued to grow the company
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through acquisitions of other routes, both Jackpot
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Enterprises and Anchor Gaming in Nevada. And in 2000 we
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opened Terrible's Hotel and Casino in Las Vegas.
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Terrible's currently has approximately 800 gaming devices,
5 400 hotel rooms.
6 Over the next four years, we continued to
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grow the route, and we currently have over 8,400 gaming
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devices throughout 400 locations throughout the state of
9 Nevada, including five
casinos, all under the Terrible
10
flag.
11 We weren't really looking out of the state
12
of Nevada, but someone brought us the opportunity with
13
these properties, and our philosophy is you always learn
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something just by looking into something. So once we got
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the information on the Grace properties, we took a look,
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we took a trip back, and on the flight back to Las Vegas
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we all looked at each other and said, these are the kind
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of properties we can take on.
These fit very much within
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the kind of properties we operate.
So we negotiated with
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Grace folks, and on July 20th we signed a definitive
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agreement.
22 A word about Grace Entertainment. Bill
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Grace -- and I believe we've got Larry Seckington and Bruce
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Schmitter from Grace Entertainment here as well, and a
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couple other members of their staff -- one, had the
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foresight to pick great locations, both the two in
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Missouri here and the one in Iowa.
They're small, rural
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markets, much like our casinos in Pahrump and Searchlight
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I compare very much to St. Jo and LaGrange.
5 Grace has
operated the properties very well
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over their tenure. They have
excellent employees, from
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the general managers all the way down the staff. And on
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that note, we are keeping all current employees at all
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three properties as we take over the Grace properties.
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There will be no infusion of new employees other than
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through attrition as they do, but we are keeping all
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present employees.
13 I do want to thank Bruce, Larry and the
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late Bill Grace for building a company that we're going to
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be proud to steer from this point forward.
16 However, in the last couple years we
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believe these properties have been underutilized. These
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properties have great physical plants, large amounts of
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excess land to do additional development, and each of them
20 is currently in need
of capital infusion to increase the
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gaming win at the locations.
22 We're also in this for the long term. The
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Herbst family are long-term owners.
We anticipate and
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expect to be operating these properties for quite some
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time to come, and well past the initial improvements we do
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we'll be looking at long-term improvements to these
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properties as well.
3 The Grace purchase agreement called for a
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purchase price of $287 million.
We are financing this
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through a bond offering which we completed in November for
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$170 million, and a Term B loan piece for $100 million
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which is completed and just awaiting final approval and
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closing on the purchase to fund.
All the other monies
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will come out of our own funds.
10 Our plans for the Missouri properties are to
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introduce the Terrible name and brand in the state of
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Missouri, along with the cowboy logo, Mr. Terrible. We
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anticipate doing this with a targeted ad campaign of TV,
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radio, billboards and targeted mailing from the takeover
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date until our anticipated grand reopening sometime in
16 late spring of
this year.
17 We believe, we know in Nevada the name
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Terrible means value, quality, one of the best player's
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clubs in the state, good food, good service, always
20 looking out for
the customer, and we believe that the
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State of Missouri will come to understand and agree with
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that.
23 The first part of the improvement will be