FRANCHISE WORKSHOP                                INTRODUCTION


                     IS FRANCHISING FOR ME?

                            WORKBOOK


                       Training Module - 1



Workshop Objectives


By the end of this workshop, you should be able to:

     - Define franchising.

     - Determine whether franchising is the best business option for you.   
         - Evaluate your skills and experience.
         - Identify your reasons for purchasing a franchise.
         - Personal Characteristics
         - Personal Conditions
         - Experience

     - List.
         - advantages of franchising for both the franchisor and franchisee 
         - disadvantages of franchising for both the franchisor and         
           franchisee

     - Identify franchisor's responsibilities.

     - Determine what is contained in a franchise package.

     - Understand the franchise contract
          - legal implications
          - your rights and obligations as a franchisee
          - financial statements, contracts and receipts.
          - trademarks and copyrights
          - restrictions on goods and services to be offered by franchisees 
          - renewal, termination and sale of the franchise
BUSINESS FORMATTING - WHAT IS FRANCHISING?


Deciding whether or not to go into business is a very important step in the
business start-up process for new and potential small business owners. Each
year, thousands of entrepreneurs and potential entrepreneurs are faced with
this difficult decision. Because of the risk and the amount of work involved
in starting a new business, many new and potential small business owners
choose franchising as an alternative to starting a new, independent business.


Although the success rate for franchise-owned businesses is significantly
better than the success rate for many independent businesses, there is no
formula to guarantee success. One of the biggest mistakes you can make is to
be in a hurry to get into business. That's why it's important to understand
your reasons for going into business, and to determine if owning a business
is right for you.

If you are concerned about the risk involved in a new, independent business
venture, then franchising may be the best business option for you. Remember,
however, that hard work, dedication and sacrifice are key elements in the
success of any business venture, including franchising.

WHAT IS FRANCHISING?

A franchise is a legal and commercial relationship between the owner of a
trademark, service mark, trade name or advertising symbol and an individual
or group seeking the right to use that identification in a business. The
franchise governs the method of conducting business between the two parties.
Generally, a franchisee sells goods or services supplied by the franchisor or
sells goods or services that meet the franchisor's quality standards.
Franchising is based on mutual trust between the franchisor and franchisee.
The franchisor provides the business expertise (i.e., marketing plans,
management guidance, financing assistance, site location, training etc.) that
otherwise would not be available to the franchisee. The franchisee brings to
the franchise operation the entrepreneurial spirit and drive necessary to
make the franchise a success.

While forms of franchising have been in use since the Civil War, enormous
growth has occurred in franchising only recently. By the end of 1985, 500,000
establishments in 50 industries achieved gross sales of over half a trillion
dollars and employed 5.6 million full and part-time employees. Franchising
created 18,500 new businesses in 1991 and approximately 108,000 new jobs to
the economy. Business format franchises experienced sales growth of 8.9
percent from $213.2 billion in 1990 to 232.2 billion in 1991. Industries that
rely on franchised businesses to distribute their products and services touch
every aspect of life from automobile sales and real estate to fast foods and
tax preparation. Thus, we can see that franchising can be is a viable,
lucrative business alternative.

There are primarily two forms of franchising:

          - product/trade name franchising and
          - business format franchising.

In the simplest form, a franchisor owns the right to the name or trademark
and sells that right to a franchisee. This is known as "product/trade name
franchising." In the more complex form, "business format franchising," a
broader and ongoing relationship exists between the two parties. Business
format franchises often provide a full range of services, including site
selection, training, product supply, marketing plans and even assistance in
obtaining financing. 


SELF-PACED ACTIVITY


During this activity you will:

     - List at least three reasons for going into business.

     - Identify the type of business you are interested or may be interested 
       in operating.
IS FRANCHISING FOR YOU?


As with any business, the first step in determining whether or not to enter
into the venture is to assess your reasons for going into business. If you
feel you need a change, or you're tired of having other people tell you what
to do, then you should reassess your decision before investing your time,
money and energy because operating a business requires more than a need for
a change, or the desire to do as you please. Purchasing a franchise like any
other business requires a total commitment of your time, energy and financial
resources. If you are not prepared to invest these qualities and resources
into your franchise, then you should stop at this point.


Evaluating Your Skills and Experience

Identify Your Reasons

As a first and often overlooked step, ask yourself why you want to purchase
a franchise. This question, although basic, is an excellent way of evaluating
your reasons for going into business. List every reason you identify no
matter how farfetched it may seem. Divide you list into two separate
components. Separate the viable reasons from the trivial reasons and
categorize them accordingly. It isn't unusual for reasons to range from the
desire to be your own boss to the desire to be a billionaire. Whatever your
reasons, remember that your future is at stake so try to be objective. Your
checklist should include reasons such as these; check each that apply to you.

                                                             YES
     - Freedom from the 9-5 daily work routine               ____
     - Being your own boss                                   ____
     - Doing what you want when you want to do it            ____
     - Improving your standard of living                     ____           
     - Bored with your present job                           ____
     - Have a product or service for which there is a demand ____

Some reasons are better than others, none are wrong; however, be aware of
tradeoffs. For example, you can escape the 9-5 daily routine, but you may
replace it with a 6 a.m. to 10 p.m. routine.

After assessing your reasons for going into business, next conduct a self
analysis to determine if you possess the personal characteristics needed to
be a successful franchise owner. Consider questions such as:

Personal Characteristics

                                                Yes       NO
     1. Are you a leader?                       ___       ___
     2. Do you like to make your own decisions? ___       ___
     3. Do others turn to you for help in 
         making decisions?                      ___       ___
     4. Are you willing to accept managerial
         assistance from the franchisor?        ___       ___
     5. Are you willing to comply with the
         provisions outlined in the franchise
         contract?                               ___       ___
     6. Do you enjoy competition?                ___       ___
     7. Do you have will power and self
         discipline?                             ___       ___
     8. Do you plan ahead?                       ___       ___
     9. Do you like people?                      ___       ___
     10. Do you get along well with others?      ___       ___

Personal Conditions

These questions cover the physical, emotional and financial strains you will
encounter operating a franchise.

                                                    YES        NO
     1. Are you aware that running your own
         franchise will require working 12-16
         hours a day, six days a week, and maybe
         even on Sundays and holidays?              ___       ___

     2. Do you have the physical stamina to
         handle the work load and schedule?         ___       ___

     3. Do you have the emotional strength to
         withstand the strain?                      ___       ___

     4. Are you prepared, if needed, to 
        temporarily lower you standard of living
        until your franchise is firmly established? ___       ___

     5. Is your family willing to go along with
         the strains they,too, must bear?           ___       ___

     6. Are your prepared to invest, and possibly
         lose your savings?                         ___       ___

Answering yes to any of these questions means that you have some of the
skills needed to operate a successful franchise; a negative answer means that
you may have to acquire these skills or hire personnel to supply them.


Experience

Certain skills and experience are critical to the success of a business.
Since it is unlikely that you possess all the skills and experience needed,
you'll need to hire personnel to supply those you lack. There are some basic
and special skills you will need for the particular franchise you purchase.
By answering the following questions, you can identify the skills you possess
and those you lack (i.e., your strengths and weaknesses).

                                                            YES       NO    
 1. Do you know what basic skills you will
         need to operate a successful franchise?            ___        ___

     2. Do you possess those skills?                        ___       ___

     3. When hiring personnel, will you be
         able to determine if the applicants'
         skills meet the requirements for the
         positions you are filling?                         ___       ___

     4. Have you ever worked in a managerial
         or supervisory capacity?                           ---       ---
     5. Have you ever worked in a business
         similar to the franchise you want
         to purchase?                                       ___       ___

     6. Have you had any business training
         in school?                                         ___       ___

     7. If you discover that you don't have the 
         basic skills needed for your franchise
         will you be willing to delay your plans
         until you've acquired the necessary
         skills?                                            ___       ___



When you complete your self analysis, discuss your results with your family
and financial advisor. Their feedback can help you make the right decision.
If you all agree that you have most of the skills needed to operate a
successful franchise, then you should feel comfortable preceding with you
plans. If, however, they feel you lack most of these skills, then you may
need to consider delaying your plans until you are better prepared. Above
all, be honest and objective with yourself; after all it is your future. 

A more detailed self analysis, the Small Business Entrepreneurs Checklist, is
located in Appendix I. This checklist is designed to assist you in
determining what you actually know about operating a business, and the skills
you will need to do so. Review it carefully before deciding whether or not to
purchase a franchise or to go into business. If you discover that you lack
many of the skills needed to operate a successful franchise, you may need to
take some training courses or hire personnel to compensate for these
deficiencies. 

Once you are certain that your reasons for going into business and the
franchise you've selected are viable, gather the information that you will
need to make an informed decision from sources, such as: 1) a directory of
franchises, e.g., the Franchise Opportunities Handbook (published by the U.S.
Department of Commerce), 2) the disclosure document, 3) current franchisees,
4) other references, such as U.S. Small Business Administration (SBA),
Federal Trade Commission (FTC), Better Business Bureau, local Chambers of
Commerce and 5) professional advisors.  
Many new small business owners choose franchising over starting a new
business because it provides easy access to an established product, reduces
many of the risks involved in opening a new business, provides access to
proven marketing methods and in some instances provides assistance in
obtaining start-up capital from financing sources.  

Franchising can be advantageous as well as disadvantageous to both the
franchisee and franchisor. A few of the advantages and disadvantages are
listed below. Study these factors carefully before choosing the franchise
option.


FRANCHISEE                                   


Advantages                                      Disadvantages  

- established product                        - failed expectations
   or service

- technical & managerial                     - service costs
   assistance

- quality control                            - overdependence
   standards

- less operating capital                     - restrictions on              
                                                  freedom of ownership

- opportunities for growth                   - termination of agreement -
                                                  territorial franchisee
- right of subfranchisees

- operating franchisee                       - performance of other         
  no right                                     franchisees


FRANCHISOR


Advantages                                   Disadvantages

- expansion                                  - company-owned vs
  - limited risk                                franchised units
  - limited capital
  - equity investment


- motivation                                 - problems with
   franchisee highly motivated                  recruitment
  
- operation of non-union business            - communication

- bulk purchasing                            - freedom

- cooperative advertising



SELF-PACED ACTIVITY



During this activity you will:

     - Determine if franchising is for you by listing at least five reasons 
       why you should choose franchising over starting a new, independent   
       business.

     - List sources where you can gather information to help you make an    
       informed decision on choosing franchising as an alternative to       
       starting a new business.      

     - Determine if you have the skills needed to own and operate a         
       successful franchise.
     


IDENTIFYING THE FRANCHISOR'S RESPONSIBILITIES


An important step in making an informed decision about purchasing a franchise
is to know the responsibilities the franchisor is legally obligated to
fulfill. One of the toughest decisions any entrepreneur faces is whether or
not to purchase a franchise. And while buying a franchise means obtaining a
complete system of doing business, there is no guarantee for success.

Being aware of the franchisor's responsibilities takes some of the guess work
out of the decision making process. Learn as much as you can about the
franchise and the franchisor's obligations before entering a purchase
agreement, or even before meeting with the franchisor or his or her
representative to discuss the possibility of purchasing a franchise.

Fourteen states have franchise disclosure or registration laws that require
the franchisor to prepare documents for submission to state authorities. The
FTC requires in all states that a lengthy disclosure document, as well as
financial statements be given to franchisees before purchasing the franchise.
In addition to state filing fees, printing and accounting and legal expenses,
the franchisor must develop internal controls and policies to ensure ongoing
compliance with regulations.

Franchisors are obligated to:

     1. Give you a copy of the Uniform Franchise Offering Circular (UFCO) at 
        least ten days before you sign the agreement. If you meet face to   
        face with the franchisor's representative and have serious          
        discussions concerning the purchase of the franchise, the UFCO also 
        must be given to you at this time.

     2. Give you a copy of the franchise agreement, other contracts and the 
        franchisor's financial statements. The franchisor, however, cannot, 
        under federal law, make claims concerning the amount of money you   
        will make. The UFCO will disclose estimates of all initial start-up 
        costs.

     3. Provide one week of training to you, the franchisee, and your manager

       in one of the parent stores, the operational manual and ongoing      
       support and assistance to you and other franchisees.
 
     4. Provide guidelines on audits and assignment procedures and any extra 
        franchisor criteria for approving an assignment (e.g., ownership    
        rights - franchisee rights to sell the franchise if it becomes      
        successful).

     5. Provide information on franchisee's initial fees and other costs    
        (e.g., royalties, promotional fees).

Franchisors should:

     6. Provide a marketing plan, promotional materials and area site       
        selection assistance to franchisees.

     7. Provide adequate insurance coverage for franchises. Insurance       
        coverage generally includes:
          - fire insurance
          - inventory insurance
          - burglary insurance
          - workmen's compensation
          - accident and health insurance
          - use and occupancy insurance
          - general liability insurance
          - automobile insurance (may be optional depending on franchise    
            type)

     8. Provide a trademark or service mark that is known, or will be known 
        through advertising in the geographic area of use.

     9. Provide guidelines on the purchase of inventory and equipment,      
        requirements on restrictions on goods sold and the terms of agreement

        and renewal.

Most of these responsibilities are or should be included in the UFOC
document, but since there are no uniform regulations governing the operation
of franchises in any given state, make sure the UFOC document complies with
the FTC's regulations, and the regulations of the state in which you plan to
purchase the franchise. Review the UFOC document carefully with your attorney
before signing the purchase agreement. SELF-PACED ACTIVITY


During this activity you will:

     - Identify issues you need to be aware of as a franchisee.


DETERMINING WHAT THE FRANCHISE PACKAGE CONTAINS


After gathering all the information you will need to make an informed
purchase decision, carefully examine this information with your attorney,
accountant or business advisor ensuring that it is addressed in the franchise
contract. Think carefully about the level of independence you will maintain
as a franchisee and how comprehensive the operating controls will be. Be very
clear about the cost of purchasing the franchise and the documents that make
up the franchise package.

You can obtain information on franchising from: 1) a directory of franchises,
2) the disclosure document, 3) current franchisees, 4) other references, such
as SBA, FTC, Better Business Bureau, local Chambers of Commerce, 5)
professional advisors and 6) reference materials on franchises from the local
library.

Your franchise package should contain the following information.

     - The full initial costs, and what it covers.

     - Licensing fees.

     - Land purchase or lease.

     - Building construction or renovation.

     - Equipment.

     - Training.

     - Starting inventory.

     - Promotional fees.

     - Use of operations manuals.

     - Continuing costs related to the franchisor.

     - Royalties.

     - Ongoing training.

     - Cooperative Advertising fees.

     - Insurance.

     - Interest on financing.

     - Requirements regarding purchasing supplies from the franchisor, and if

       the prices are competitive with other suppliers.

     - Restrictions as they apply to competition with other franchisees.

     - Terms covering renewal rights and resell of the franchise.


In reviewing the franchise contract with your attorney, familiarize yourself
with the language. Be aware of terms such as hold harmless clauses,
integration clauses and choice of venue or choice of law provisions. These
terms may favor the franchisor over you if improprieties arise during or
after the settlement process.

     Hold harmless clauses - may require that you release the franchisor from

     specific acts or violations of state laws.

     Integration clauses - may prevent you from successfully suing for any  
     deceptions preceding the signing of the contract.

     Choice of venue or choice by law provisions - are especially important
if the franchisor has headquarters in another state. These clauses may
dictate that you settle all disputes in your franchisor's state of residence,
and settle your claim under laws favorable to the franchisor.

Other important clauses to consider deal with severance, renewal and transfer
of the franchise.

Again, use professional help when examining the franchise contract. And,
remember some of the contract terms may be negotiable. Find out which terms
are negotiable before you sign; otherwise, it will be too late.
SELF-PACED ACTIVITY


During this activity you will:

     - List some of the information that should be contained in the franchise

       package.

     - Identify sources where you can obtain information on what the        
       franchise package should contain.


UNDERSTANDING THE FRANCHISE CONTRACT


The franchise contract like the UFOC is a very important document. The
contract is probably the most important document the in transaction process.
It is a legal commitment which is binding on both the franchisor and
franchisee. In the franchise contract, the franchisor's promises have to be
presented to the franchisee in writing and subjected to careful scrutiny.
During this stage of the buy/sell process, the franchisee must have competent
legal advice regarding the meaning and effect of the contract. 

When reviewing the contract, you and your attorney will need to determine if
the it confirms what you have been told. If you find improprieties in the
contract, at this point, you may decide to withdraw from the transaction
before committing your time, energy and money to an agreement that may not be
beneficial for you. If, however, you choose to continue with the process, you
may be able to negotiate favorable terms, but remember by signing the
contract, you are legally bound by the provisions of the agreement.

The franchise contract consist of two main parts: 1) the purchase agreement
and  2) the franchise or license agreement. For convenience, occasionally the
franchise transaction is split into two stages. When this happens, some
franchise companies have two contracts, for each stage, rather than a single
contract. While it isn't necessary to have two contracts, it can be the
better method where there is a comprehensive equipment and initial services
package. 

The purchase agreement of the contract covers:

     - the franchise package
     - the price
     - the services to be provided.

The franchise or license agreement covers:

     - the rights granted to the franchisee
     - the obligations undertaken by the franchisor
     - the obligations imposed upon the franchisee
     - trade restrictions imposed upon the franchisee
     - assignment/death of franchisee
     - termination provisions.


A brief explanation of each agreement follows.

PURCHASE AGREEMENT

1. The franchise package. Consists of an equipment or inventory list.  This
list must contain all the items the franchisee has been told to expect. Some
franchise companies regard this list as being confidential and stipulate in
the contract that it must be so treated.

2. The Price. The price and the manner of payment will be specified. This may
be cash on signature, although rare. More often a deposit is required on
signature with payment of the balance to follow on delivery of the equipment
or at other stages of the transaction.

3. The services to be provided. This section outlines or lists the
franchisor's responsibilities to the franchisee. Those services the
franchisor is required to provide the franchisee before he or she is ready to
open for business are called the initial services. Those services the
franchisor provides periodically are called continuous services. A more
detailed explanation of the services provided by the franchisor are included
in the next section on the license agreement.

FRANCHISE OR LICENSE AGREEMENT

1. The rights granted to the franchisee. The franchisee will be given the
right as it applies to particular circumstances. As a franchisee there are
certain rights that are extended to you . 

Your rights include:

     - use of trademarks, trade names and patents of the franchisor.      -
use of the brand image and the design and decor of the premises             
developed by the franchisor. 
     - use of the franchisor's secret methods.
     - use of the franchisor's copyright materials.
     - use of recipes, formulae, specifications and processes and methods of 
       manufacture developed by the franchisor.
     - conducting the franchised business upon or from the agreed premises  
       strictly in accordance with the franchisor's methods and subject to  
       the franchisor's directions.
     - guidelines established by the franchisor regarding exclusive         
       territorial rights.
     - rights to obtain suppliers from nominated suppliers at special prices.

2. The obligation undertaken by the franchisor. This item in the contract
tells                    prospective franchisees what the franchisor will do
for them both before and after         start-up. That is why this item
frequently refers to specific contractual obligations         detailed in the
franchise agreement, which is attached to the UFOC.

3. The obligations imposed upon the franchisee. Certain obligations are     
   required of you by the franchisor. These obligations include:

     - to carry on the business franchised and no other business upon the   
       approved and nominated premises.
     - to observe certain minimum operating hours.
     - to pay a franchise fee.
     - to follow the accounting system laid down by the franchisor.
     - not to advertise without prior approval of the advertisements by the 
       franchisor.
     - to use and display such point of sale advertising materials as the   
       franchisor stipulates.
     - to maintain the premises in good, clean sanitary condition and to    
       redecorate when required to do so by the franchisor.
     - to maintain the widest possible insurance coverage.
     - to permit the franchisor's staff to enter the premises to inspect and 
       see if the franchisor's standards are being maintained.
     - to purchase goods or products from the franchisor or his designated  
       suppliers.
     - to train your staff in the franchisor's methods to ensure that they  
       are neatly and appropriately clothed.
     - not to assign the franchise contract without the franchisor's consent.

4. Trade restrictions. The restrictions imposed upon a franchisee may
prohibit him or her from carrying on a similar business except under
franchise from the franchisor, taking staff away from other franchisees,
carrying on a similar business in close proximity to other franchised
businesses within that chain, and continuing after termination of the
franchise contract to use any of the franchisor's trade names,          
secrets, and so forth.

5. Assignment/death of the franchisee. The franchisee should ensure that in
the event of death his personal representative or dependent will be able to
keep the business going until one of them can qualify as a franchisee, and
that arrangements can be made to keep the business going until a suitable
assignee can be found at a proper price.

6. Termination provisions. The termination of a franchise is an event heavily
regulated by the franchise laws of 17 states. Franchise relationship laws in
many states specify the conditions under which a franchisor may terminate or
refuse to renew the franchise, imposing a standard of "good cause,"
"reasonable cause," or "just cause" as defined by those laws. Minimum advance
notice usually has an opportunity to cure the default and avoid termination;
notice ranges from five days to 90 days. Many states also specify
circumstances under which the standard notice and cure requirements need not
be met.

In view of the close working relationship that must exist between the
franchisee and franchisor all provisions must be stated clearly in the
contract. In this transaction, no small print should exist. Make sure, if
possible, the franchise contract contains provisions that are favorable for
both you and the franchisor.
SELF-PACE ACTIVITY

During this activity you will:

     - List at least four rights and four obligations you as the franchisee 
      are entitled to and required to fulfill. 
APPENDIX 1


                  SMALL BUSINESS ENTREPRENEURS
                            CHECKLIST


A. Business Planning and Management Limitations

B. Market Analysis

C. Marketing Strategy

D. Financial Controls

E. Personnel Function

F. Operation, Organization and Special Areas
                  SMALL BUSINESS ENTREPRENEURS
                            CHECKLIST


A. Business Planning and Management Limitations

1.   Do you know your own personal management assets and
     liabilities?

     ___ yes   ___ partially  ___ no

2.   Do you have a written small business plan covering 1 to 5 years?

     ___ yes   ___ partially  ___ no

3.   Can you concretely define what product or service franchise you are in?

     ___ yes   ___ partially  ___ no

4.   Can you describe in writing what business franchise you are in?

     ___ yes   ___ partially  ___ no


B. Market Analysis

5.   Do you know in detail what factual market conditions and
     government requirements impact on your franchise?

     ___ yes   ___ partially  ___ no

6.   Do you know your specific geographic and demographic market
     areas?

     ___ yes   ___ partially  ___ no

7.   Do you know your market area business and franchise competitor
     by name, organization, size and gross sales?

     ___ yes   ___ partially  ___ no

8.   Can you describe in writing the strengths and weaknesses of
     competitors in your defined market areas?

     ___ yes   ___ partially  ___ no


C. Marketing Strategy

9.   Can you identify in a written business plan what advantages your       
     franchise's products or services have over specific competitors?

     ___ yes   ___ partially  ___ no

10.  Based on the guidelines from the franchisor, can you describe in       
     writing how your products and services are distributed or sold?

     ___ yes   ___ partially  ___ no

11.  Based on the guidelines from the franchisor, do you know what
     sources of supplies and costs are required to operate your
     franchise?

     ___ yes   ___ partially  ___ no


D. Financial Controls

12.  Can you detail the specific monthly cash and credit requirements of    
     your franchise?

     ___ yes   ___ partially  ___ no

13.  Do you maintain a file of and stay aware of the advantages of
     small business computer planning, accounting, financial
     management and marketing controls?

     ___ yes   ___ partially  ___ no

14.  Do you use Standard Financial Industry Ratios as a guide to
     measure your franchise's annual performance?

     ___ yes   ___ partially  ___ no

15.  Do you maintain written costs of sales, breakeven analyses,
     profit and loss statements and appropriate accounting journals?

     ___ yes   ___ partially  ___ no


E. Personnel Function

16.  Do you know how much personnel money your franchise spends
     on human resource development as compared to competitors?

     ___ yes   ___ partially  ___ no

17.  Do you know exactly what employee benefits cost your
     franchise?
     Do you know the impact when compared with industry
     standards?

     ___ yes   ___ partially  ___ no


18.  Based on guidelines from the franchisor, do you have a detailed        
     personnel plan for the management staff, clerical and specific
     labor (i.e., part-time, union) required to operate your franchise?

     ___ yes   ___ partially  ___ no


F. Operation, Organization, and Special Areas

19.  Based on guidelines from the franchisor, do you have a detailed        
     building or facility plan which documents the space required to        
     operate the business?

     ___ yes   ___ partially  ___ no

20.  Do you know why your business is a franchise and the legal
     limitations or advantages of this business form?

     ___ yes   ___ partially  ___ no

21.  Do you use specialized consultants on a pre-planned basis for
     accounting, legal, tax, insurance, employee benefits and other
     critical business operational areas?

     ___ yes   ___ partially  ___ no    
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