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Equity Compensation All Stars Game: Silicon Valley vs. The Rest of the World

A SUMMARY REVIEW OF THE 2016 DOMESTIC STOCK PLAN DESIGN SURVEY RESULTS CO-SPONSORED BY DELOITTE CONSULTING LLP AND THE NASPP

Presenters: • Barbara Baksa, CEP, NASPP • Tara Tays, Deloitte Consulting LLP

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The Line-up: Survey Overview and Participant Profile

The Baseball Diamond: Plan Design

At Bat: Stock Grants/ Awards

On Deck: Performance Awards

On the Bench: Stock Options

Agenda

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Tara Tays is the West Coast leader for Deloitte Consulting LLP’s Compensation

Strategies practice. Tara has over 18 years of experience advising

management and compensation committees on a wide range of

compensation matters.

Barbara Baksa serves as Executive Director for the NASPP and has over 20

years’ experience speaking and writing on equity compensation topics. She also

serves on the Advisory Board for the CEP Institute and is co-editor of The Corporate

Executive.

Meet Your Commentators

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The Line-Up: Survey Overview and Participant Profile

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Industry Number of Survey Participants General Industry 434 High-Tech 145 Silicon Valley (includes companies headquartered in San Francisco, Oakland, San Jose, and surrounding areas in Northern California)

57

Participant Profile

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Participant Profile – Primary Industry Classification Financial Services, Energy/Mining/Oil & Gas, and Technology Services are the

three largest industries represented from General Industry

Technology Services, Computer Software and Services, and High Technology Manufacturing are the three largest industries represented from the High-Tech Industry and Silicon Valley(1)

1% 2% 3% 3% 3% 3% 3% 3% 3% 4% 4% 5% 6% 7% 7% 8% 8% 9% 9% 9% 8% 9%

17% 21% 20%

26% 26%

18% 21%

General Industry High-Tech Silicon Valley

(1) For Silicon Valley, only industries with 7 or more responses were reported.

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20% 19% 21% 10%

26%

4%

23% 13% 10% 6%

43%

5%

100%

Northeast Southeast Midwest Southwest West Headquartedoutside the U.S.

0%

20%

40%

60%

80%

100%

General Industry High-Tech Silicon Valley

Participant Profile – Location of Corporate Headquarters

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High-Tech General Industry

Is your company publicly traded? What is the primary exchange your company’s stock is traded on?

96%

4%

92%

8%

91%

9%

Yes No

70%

28%

2%

51% 47%

2%

46% 52%

2%

NYSE NASDAQ Global orGlobal Select

Markets

Other marketsystem

Silicon Valley

Participant Profile – Publicly Traded

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5% 5%

12%

19% 19%

13% 14% 13% 12% 8%

21% 19%

18%

9% 7% 7%

9% 11%

30%

14%

20%

Less than $100million

$100 – 349.9 million

$350 – 999.9 million

$1 – 2.49 billion $2.5 – 4.9 billion $5 - 9.9 billion $10 - 19.9 billion $20 billion andabove

General Industry High-Tech Silicon Valley

60% of General Industry participants generated less than $5B in revenues during the most recent FY

General Industry

High- Tech

Silicon Valley

Yes 43% 30% 21% No 57% 70% 79%

Is your company a member of the Fortune 500©?

30%

(1) For Silicon Valley, only ranges with 7 or more responses were reported.

Participant Profile – Revenues(1)

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Approximately 50% of participants have a market capitalization less than $5B

8% 8%

14%

17% 16% 14%

22%

13%

10% 11%

19% 19%

13% 15%

14% 13% 13% 14% 13% 14%

20%

Less than $350million

$350 – 999.9 million $1 – 2.49 billion $2.5 – 4.9 billion $5 - 9.9 billion $10 - 19.9 billion $20 billion andabove

General Industry High-Tech Silicon Valley

Participant Profile – Market Capitalization

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Participant Profile – Full-Time Employees General Industry

2% 5%

7% 9% 10%

19% 16%

18%

9%

4% 2% 3%

6% 7% 8%

14% 16%

24%

14%

5%

1 - 100 101 - 250 251 - 750 751 - 1,500 1,501 -2,500

2,501 -5,000

5,001 -10,000

10,001 -30,000

30,001 -100,000

More than100,000

In the U.S. Globally

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11% 13% 14%

9%

25%

11% 11%

6%

1%

7%

12% 10% 10%

14% 14%

22%

7%

1%

1 - 250 251 - 750 751 - 1,500 1,501 -2,500

2,501 -5,000

5,001 -10,000

10,001 -30,000

30,001 -100,000

More than100,000

In the U.S. Globally

Participant Profile – Full-Time Employees High-Tech Industry

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9%

13%

25%

20%

13%

20%

9% 9%

18% 19% 19%

26%

1 - 250 251 - 750 751 - 1,500 1,501 - 2,500 2,501 - 5,000 More than 5,000

In the U.S. Globally

Participant Profile – Full-Time Employees Silicon Valley

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The Baseball Diamond: Plan Design

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81% 69% 70%

Performance Shares/Units

89% 88% 91%

Restricted Stock/Units

Employee Participants Prevalence of LTI Vehicles 79% 84% 77%

52%

19%

80% 81% 77% 66%

35%

91% 91% 86% 77% 57%

CEO, CFO andNamed Executives

Other SeniorManagement

Middle Management Other ExemptEmployees

Non-ExemptEmployees

80% 69%

24% 11% 3%

67% 59%

14% 6% 3%

68% 57%

7% 5% 0%

CEO, CFO andNamed Executives

Other SeniorManagement

Middle Management Other ExemptEmployees

Non-ExemptEmployees

50% 45%

26% 13%

7%

50% 44%

25% 19% 15%

48% 41%

23% 18% 9%

CEO, CFO andNamed Executives

Other SeniorManagement

Middle Management Other ExemptEmployees

Non-ExemptEmployees

51% 51% 48%

Stock Options/ SARs

High-Tech General Industry Silicon Valley

Prevalence of Equity Vehicles

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Approximately one third of surveyed participants have plans that use a flexible share reserve (or fungible share reserve), whereby full value awards count more against the share reserve than stock options

1.61 2.00

2.43

1.50 2.00

2.29

1.65 2.00 2.20

0.000.501.001.502.002.503.00

25th Percentile 50th Percentile 75th Percentile

General Industry High-Tech Silicon Valley

Plan Design – Source and Use of Shares

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92% of General Industry surveyed companies, 79% of High-Tech surveyed companies, and 77% of Silicon Valley surveyed companies averaged less than 15% overhang during the last three years 60%

24%

8% 9%

46%

24%

9%

21% 27% 27%

23% 23%

Less than 7.5% 7.50% - 12.49% 12.50% - 14.99% 15.00% or more

General Industry High-Tech Silicon Valley*Overhang is equal to the equity award shares outstanding plus shares available for future grant divided by common shares outstanding.

Plan Design – Overhang*

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76% of General Industry surveyed companies, 55% of High-Tech surveyed companies, and 40% of Silicon Valley surveyed companies averaged less than 2.5% burn rate for the last three years

76%

11% 12%

55%

18% 24%

40%

20%

40%

Less than 0% to 2.49% 2.50% - 3.99% 4.00 or more

General Industry High-Tech Silicon Valley*Burn rate is equal to the total number of options and restricted shares granted in a year divided by the total number of common shares outstanding.

Plan Design – Burn Rate*

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The majority of surveyed companies have clawback provisions that are applicable to the following levels of employees:

The most common events that could cause grants to be forfeited include:

99% 89%

63%

99% 96%

49%

100% 92%

50%

CEO/CFO Other NEOs Other SeniorManagement

General Industry High-Tech Silicon Valley

Event Prevalence(1)

General Industry

High- Tech

Financial Restatement Due to Fraud or Misconduct 90% 88%

Ethical Misconduct / Fraud / Intentional Misconduct 69% 69%

Inappropriate Use of Trade Secrets / Breach of Confidentiality

37% 36%

Violation of Non-Compete Agreement 37% 39%

Plan Design – Clawback Provisions

(1) Silicon Valley companies were excluded from the table due to the low number of responses.

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Majority of companies allow assumption/substitution of awards upon a CIC > 70% of General Industry > 80% of High-Tech > 90% of Silicon Valley

Does your plan allow for single or double trigger acceleration upon a change in control?

16% 17% 51% 50% 28% 28%

Restricted Stock/Units Performance Awards

Single TriggerDouble TriggerAt Discretion of Board/Committee

18% 17% 62% 60%

17% 17%

Restricted Stock/Units Performance Awards

Single TriggerDouble TriggerAt Discretion of Board/Committee

18% 18% 31% 30% 38% 39%

Restricted Stock/Units Performance Awards

Single TriggerDouble TriggerAt Discretion of Board/Committee

Plan Design – Treatment of Change-in-Control

General Industry

High-Tech

Silicon Valley

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At Bat: Stock Grants / Awards

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Percentage of surveyed companies with employees currently receiving the following types of stock/unit grants:

Stock Gants/Awards – Current Participants(1)

31%

6%

83%

14% 4% 2%

26%

7%

83%

15% 6% 4%

13%

90%

18%

0%

20%

40%

60%

80%

100%

RS (not in lieu ofcash)

RS (in lieu ofsalary or bonus)

RSUs (not in lieuof cash)

RSUs (in lieu ofsalary or bonus)

Unrestricted stock(not in lieu of cash)

Unrestricted stock(in lieu of salary or

bonus)

General Industry High-Tech Silicon Valley

24 (1) For Silicon Valley companies, only answers with 7 or more responses were reported.

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Grants to non-Section 16 insiders are approved by:

Stock Grants/Awards – Grant Approval Procedures(1)

1%

25%

58%

6% 9%

28%

50%

7% 14%

24%

59%

0%

20%

40%

60%

80%

CFO CEO Committee of theboard

Fullboard

Other management

General Industry High-Tech Silicon Valley

25 (1) For High-Tech and Silicon Valley companies, only answers with 7 or more responses were reported.

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Grants to non-Section 16 insiders are approved as follows:

Stock Grants/Awards – Grant Approval Procedures(1) (cont.)

26

General Industry High-Tech Silicon Valley

When the compensation committee meets 26% 27% 27% Once a month (at the same time every month) 22% 33% 44% Once a quarter (at the same time every quarter) 17% 18% 22% On hire date 9% 7% N/A Once a year (at the same time every year) 8% 5% N/A When the board meets 5% 7% N/A We do not issue new hire grants 3% N/A N/A Only during open-window periods 3% N/A N/A After earnings are released 2% N/A N/A Other 2% N/A N/A No set schedule 14% 7% N/A

(1) For High-Tech and Silicon Valley companies, only answers with 7 or more responses were reported.

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For General Industry participants, graded vesting is the most commonly utilized vesting form (72%), followed by cliff vesting (29%).

Graded vesting is even more common in High-Tech (87%) and Silicon Valley (98%)

The chart below illustrates the length of graded vesting schedules:

Stock Grants/Awards – Graded Vesting(1)

28

44% 43%

8% 4%

24%

64%

6%

80%

0%

20%

40%

60%

80%

100%

3 years 4 years 5 years Other

General Industry High-Tech Silicon Valley

(1) For High-Tech and Silicon Valley companies, only answers with 7 or more responses were reported.

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Are awards subject to a post holding vesting period?

Stock Grants/Awards – Post-Vesting Holding Periods(1)

14% 2% 2%

82%

9%

88% 90%

0%

20%

40%

60%

80%

100%

For executives only For a broader group ofemployees, but not all

employees

For all employees No

General Industry High-Tech Silicon Valley

29 (1) For High-Tech and Silicon Valley companies, only answers with 7 or more responses were reported.

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Below are the extent to which stock grants/awards are forfeited for each industry under normal retirement:

Stock Grants/Awards – Termination/Forfeiture Provisions: Normal Retirement

16%

20%

31%

4%

14%

27%

8%

8%

7%

73%

56%

36%

0% 20% 40% 60% 80% 100%

Silicon Valley

High-Tech

General Industry

Accelerated Vesting Continued Vesting Other/Discretionary Forfeiture

30

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Below are the extent to which stock grants/awards are forfeited for each industry under disability:

Stock Grants/Awards – Termination/Forfeiture Provisions: Disability

33%

40%

66%

8%

15%

4%

8%

6%

63%

45%

23%

0% 20% 40% 60% 80% 100%

Silicon Valley

High-Tech

General Industry

Accelerated Vesting Continued Vesting Other/Discretionary Forfeiture

31

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Below are the extent to which stock grants/awards are forfeited for each industry under death:

Stock Grants/Awards – Termination/Forfeiture Provisions: Death

33%

51%

69%

2%

6%

4%

10%

5%

63%

37%

20%

0% 20% 40% 60% 80% 100%

Silicon Valley

High-Tech

General Industry

Accelerated Vesting Continued Vesting Other/Discretionary Forfeiture

32

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On Deck: Performance Awards

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95%

19% 8%

93%

8% 14%

97%

6% 6% 0%

20%

40%

60%

80%

100%

120%

Performance awardspaid out in stock

Performance awardspaid out in cash

Stock options

General Industry High-Tech Silicon Valley

35

Percentage of surveyed companies with employees currently receiving the following types of performance awards:

Performance Plans – Current Participants

-36- 36

Percentage of surveyed companies with the following types of performance metrics:

16%

0%

48%

35%

12%

9%

33%

26%

49%

13%

17%

21%

28%

52%

0% 10% 20% 30% 40% 50% 60%

EBITDA

ROIC/RONA

Revenue

EPS

TSR

General Industry High-Tech Silicon Valley

Performance Plans – Performance Metrics(1)

(1) For Silicon Valley companies, only answers with 7 or more responses were reported.

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92%

8%

92%

8%

100%

0% 0%

20%

40%

60%

80%

100%

120%

Yes No

General Industry High-Tech Silicon Valley

38

For surveyed companies that grant Total Shareholder Return (TSR) awards, is TSR relative?

Performance Plans – Performance Metrics

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81%

19%

85%

15%

0%

20%

40%

60%

80%

100%

Yes No

General Industry High-Tech

39

For surveyed companies that grant Total Shareholder Return (TSR) awards, do awards pay out if TSR is negative but the company outperformed its peers?

(1) Silicon Valley companies were excluded from graph due to the low number of responses.

Performance Plans – Performance Metrics(1)

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69%

31%

69%

31%

0%

20%

40%

60%

80%

Yes, in all instances No

General Industry High-Tech

40

For surveyed companies that grant Total Shareholder Return (TSR) awards, are TSR awards subject to a payout cap?

(1) Silicon Valley companies were excluded from graph due to the low number of responses.

Performance Plans – Performance Metrics(1)

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39% 42%

19%

47% 41%

12%

55%

29%

16%

0%

20%

40%

60%

1 2 3 or more

General Industry High-Tech Silicon Valley

41

How many performance metrics are your awards typically subject to? Performance Plans – Performance Metrics

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62%

18% 20%

51%

27% 22%

55%

21% 24%

0%

20%

40%

60%

80%

Yes No Combination

General Industry High-Tech Silicon Valley

43

Are the performance metrics different than the measures utilized in the company’s annual incentive plan?

Performance Plans – Performance Metrics

Approximately 90% of respondents measure performance at the corporate level only.

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Indicate the length of the performance period (period in which performance is measured):

12%

13%

15%

4%

2%

15%

78%

78%

42%

4%

5%

27%

2%

0% 20% 40% 60% 80% 100%

Performance Shares

PerformanceCash/Units

PerformanceOptions/SARs

1 Year 2 Years 3 Years 4 years or longer Other

Performance Plans – Performance Period and Holding: General Industry(1)

(1) High-Tech and Silicon Valley companies were excluded from graph due to the low number of responses.

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Below are the extent to which performance awards are forfeited for each industry under normal retirement:

17%

34%

61%

6%

5%

10%

6%

6%

73%

54%

27%

0% 20% 40% 60% 80% 100%

Silicon Valley

High-Tech

General Industry

Payout at end of performance period Payout at time of terminationOther/Discretionary Forfeiture

Performance Plans – Termination/Forfeiture Provisions: Normal Retirement

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Below are the extent to which performance awards are forfeited for each industry under disability:

19%

32%

48%

16%

21%

30%

16%

14%

7%

48%

33%

17%

0% 20% 40% 60% 80% 100%

Silicon Valley

High-Tech

General Industry

Payout at end of performance periodPayout at time of termination

Performance Plans – Termination/Forfeiture Provisions: Disability

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Below are the extent to which performance awards are forfeited for each industry under death:

19%

33%

48%

20%

28%

35%

16%

10%

7%

45%

29%

15%

0% 20% 40% 60% 80% 100%

Silicon Valley

High-Tech

General Industry

Payout at end of performance period Payout at time of terminationOther/Discretionary Forfeiture

Performance Plans – Termination/Forfeiture Provisions: Death

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9%

24%

5%

27% 36% 36%

25% 28%

48%

21% 15%

0%

20%

40%

60%

Other At Board/CommitteeDiscretion

Performance awards aresettled at maximum grant

value

Performance awards arepro-rated and settled

based on the achievementof the performance

metric(s) between the startof the performance periodand change in control date

Performance awards aresettled at target grant

value

General Industry High-Tech Silicon Valley

48

The chart below summarizes if all or a portion of performance awards accelerate upon a change in control:

Performance Plans – Change in Control Acceleration(1)

(1) For High-Tech and Silicon Valley companies, only answers with 7 or more responses were reported.

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On the Bench: Stock Options

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18%

86%

8% 8%

28%

81%

32%

82%

0%

20%

40%

60%

80%

100%

ISO NQSO Stock SAR Cash SAR

General Industry High-Tech Silicon Valley

50

Approximately 55% of the survey respondents maintain a stock option plan; below are the following types of stock options/SARs disclosed by individuals that currently receive stock option awards:

(1) For High-Tech and Silicon Valley companies, only answers with 7 or more responses were reported.

Stock Options – Current Participants(1)

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83%

1% 1% 9% 1% 3% 3%

62%

21% 25%

45%

0%20%40%60%80%

100%

Annually Quarterly Monthly One-year cliff,monthly

thereafter

Six-month cliff,monthly

thereafter

One-year cliff,quarterlythereafter

Other

General Industry High-Tech Silicon Valley

51

The majority of the surveyed companies utilize graded vesting followed by cliff vesting For surveyed companies with graded vesting, the options vest as follows(1):

Stock Options – Vesting

Industry Graded Vesting Cliff Vesting General Industry 90% 10% High-Tech 97% 3% Silicon Valley 91% 9%

(1) For High-Tech and Silicon Valley companies, only answers with 7 or more responses were reported.

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Below are the extent to which performance awards are forfeited for each industry under normal retirement:

14%

11%

27%

5%

21%

28%

5%

8%

7%

76%

60%

38%

0% 20% 40% 60% 80% 100%

Silicon Valley

High-Tech

General Industry

Accelerated Vesting Continued Vesting Other/Discretionary Forfeiture

Stock Options – Termination/Forfeiture Provisions: Normal Retirement

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Below are the extent to which performance awards are forfeited for each industry under disability:

34%

36%

50%

6%

17%

5%

5%

5%

62%

53%

34%

0% 20% 40% 60% 80% 100%

Silicon Valley

High-Tech

General Industry

Accelerated Vesting Continued Vesting Other/Discretionary Forfeiture

Stock Options – Termination/Forfeiture Provisions: Disability

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Below are the extent to which performance awards are forfeited for each industry under death:

34%

48%

62% 4%

5%

5%

5%

62%

47%

31%

0% 20% 40% 60% 80% 100%

Silicon Valley

High-Tech

General Industry

Accelerated Vesting Continued Vesting Other/Discretionary Forfeiture

Stock Options – Termination/Forfeiture Provisions: Death

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2017 Domestic Stock Plan Administration Survey is currently in progress

Covers a variety of topics related to stock compensation, including: – Administration and communication of stock plans – ESPPs – Stock ownership guidelines – Insider trading compliance – Outside director plans

Register to participate today at bit.ly/survey17cep

Don’t Miss Out on This Year’s Survey

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Contact Information

Barbara Baksa, CEP

NASPP

510-493-7599

bbaksa@naspp.com

Tara Tays

Deloitte Consulting LLP

213-688-5244

ttays@deloitte.com

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