Maori Culture Essay Example for Free

Maori Culture Essay Abstract The Maori, which means ordinary or common, arrived in New Zealand in the 14th century. Polynesian by descent, they came from the mythical land of Hawaiki, believed by many experts to be a combination of places, including Tahiti, Samoa, Hawaii and the Cook Islands. Upon arriving in New Zealand, the Maori dubbed the picturesque land Aotearoa, or land of the long white cloud. The Maori Culture The Maori like many other Pacific Islanders started their journey in a canoe. Living on an island afforded the Maori with a unique and diverse culture that is still evident in Modern day New Zealand. In the next few pages I will give you a brief glimpse of the Maori way of life then and now. I will discuss the belief and value system, gender roles, healing the sick and also the impact of Colonialism on the Maori way of life. There are three basic beliefs and values of the Maori. I nga wa o Mua, Whakapapa and Mana. I nga wa o Mu. Maori believe that ancestors and supernatural beings are ever-present and able to help the tribe in times of need. The Maori world view is to look in front of us to the past for guidance as that is where we came from. It was because of this philosophy that the Maori did not conveniently forget about the Treaty of Waitangi once it was signed. Through facing the past they can learn from past mistakes and not repeat them. This concept is totally reversed in other cultures, who try to encourage them to forget about the past and to put things behind them Whakapapa Whakapapa translated means genealogy. The Maori believe that everything and everyone are connected and therefore a part of their Whakapapa. Whakapapa includes genealogies of spiritual and mythological significance, as well as information about the persons tribe and the land he or she lives on. The Whakapapa is passed down orally in the form of stories. One of the most famous stories is story of the creation of Aotearoa. Aotearoa was pulled from the sea by the demi god Maui. Maui was the last of five brothers and was known to be clever. He hid in the canoe of his brothers and when they would not give him bait to fish he took his magical hook and slashed his face and smeared the blood on his hook so that his blood would attract the fish. Smelling the blood the god of the sea gave Maui his biggest fish. Maui asked his brothers to not cut up and eat the fish until proper arrangements had been made to appease and thank the gods for their gift. While Maui was on land trying to pull the boat to shore his brothers started to cut the fish because it started to move. That is why Aotearoa the fish and the mountains and the valleys are where Maui’s brothers tried to cut the fish. Mana According to the Merriam-Webster dictionary, Mana is â€Å"Among Polynesian and Melanesian peoples, a supernatural force or power that may be ascribed to persons, spirits, or inanimate objects. Mana may be good or evil, beneficial or dangerous, but it is not impersonal; it is never spoken of except in connection with powerful beings or things. The term was first used in the 19th century in the West in connection with religion, but mana is now regarded as a symbolic way of expressing the special qualities attributed to persons of status in a hierarchical society, of providing sanction for their actions, and of explaining their failures†. The Maori believe in three forms of Mana. The first type of Mana is the Mana that you have when you are born. This Mana comes from your Whakapapa and can attribute to the rank and status of your descendants. This Mana is not only the ancestor themselves but also the deeds that they did and the skills, traits and abilities taught to them by their tupuna (elders). The second type of Mana is Mana given to you by other people. Today there are people who seek Mana and deliberately go around trying to gain Mana by telling people about their own importance. There is a Maori saying: â€Å" The Kumara does not talk about its’ own sweetness.† But Mana seekers do exactly that. Humbleness is a very highly valued trait in the Maori world. Many of the great leaders are very humble people, hence part of their greatness. The Maori people sing their praises, thereby heightening their Mana. You will never hear the great leaders singing their own praises. It is not that they are trying to be humble; it is that they just are. The third type of Mana is Mana from the group. The best example I could come up with is the Mana of the marae. The marae is the sacred courtyard that you must be formally invited to enter for the first time. The marae is where challenges are met and issues are debated. When you stay on a Marae all are treated well and fed great food. When the visitor leaves they tell everyone about the great time they had thus increasing the Mana of the marae. If they tell everyone they were treated ill and unkind then the Mana of the marae decreases. Traditional Maori folklore focuses on oppositions between pairs, such as earth and sky, life and death, and male and female. From the time of creation the original couple, Rangi (sky) and Papa (earth) were locked in sexual union until the god Tane was able to push them apart and provide for the creation of human life. So as you can see opposition existed before the creation of human life according to Maori traditional stories. It then would suffice that opposition would exist throughout Maori culture. Premarital sexual relationships were considered normal for Maori adolescents. Both males and females were expected to have a series of private relationships before they married. When Maori females became sexually active, they were to publicly acknowledge this so that they could become tattooed. Tattooing marked their ritual and public passage into adulthood. It was also considered extremely attractive and erotic. Tattooing among the Maori was highly developed and extremely symbolic. Maori facial tattoos were created by two methods. One was by piercing and pigmenting the skin with a tattooing comb. The other was by creating permanent grooves in the face with a chisel-like instrument. . Females were also tattooed in Maori society. Female facial tattooing was known as ta ngutu. Designs were placed on the chin and lips. When it comes to sickness and healing in Maori culture things were very different before Colonization. In traditional times before the colonization of New Zealand, Maori saw science and religion as the same entity and believed that illnesses were caused by supernatural sources. Maori had a good concept of anatomy, physiology and the use of plants for healing; however there was an undefined distinction between the mind and body. Maori believed an evil spirit or a type of witchcraft would attack an individual to cause ill-health as a punishment for breaking the tapu (sacred restriction) of the family that the spirit belonged to. This type of illness was called mate atua (disease of the gods) since there was no obvious physical cause. The individual would experience pain, weakness, loss of appetite, malaise, fever and occasionally delirium due to possession of the spirit. When Captain James Cook colonized New Zealand in 1830 he brought with him, evasive plants and animals as well as guns, alcohol and diseases that the Maori were previously exposed to. New Zealand’s isolation meant that the Maori people lacked immunity to bacterial and viral infections that were common in other countries. The Maori found that their healing methods were ineffective against the new diseases and had to rely on the medicines of the missionaries. The effectiveness and popularity of the missionaries’ medicines assisted in the conversion of Maori to Christianity. It appeared to the Maori that the Christian god had superior powers and this attributed to the health and prosperity of the Europeans. The fundamentals of Maori society, culture, religion and medicine became strained as religion was involved in their everyday lives and many of their beliefs were based upon it. The people began to lose their Mana due to the shift of religion and the spread of Western knowledge undermining the tohunga’s ( spiritual leader) authority The downfall of the whare wananga (school of learning) was also due to conflict between Maori religion and Christianity. In 1907 the Tohunga Supression Act was passed due to concern being raised over the practice and safety of some tohunga. Maori healing was seen as ‘dangerous’ by Western modern medicine as it was not scientifically proven. The Tohunga Suppression Act was repealed in 1962 however this had little significance as some tohunga had practiced throughout the 20th century especially in remote rural areas of the country. Tohunga are still significant in current Rongoa Maori however modern tohunga have not been trained in traditional methods giving them a position of authority and prestige however they are still recognized as experts in their field. Many modern tohunga showed potential in their childhood by spending time with their elders and learning tribal and cultural lore. They then became an apprentice under an established tohunga to learn their expertise Current Maori healthcare is based on a holistic model that incorporates the physical, emotional, family and spiritual aspects of health. Each aspect must be treated or used to ensure full recovery of a patient. The current function of modern tohunga is varied. Conventional medicine is incorporated into the tohunga’s practice however traditional methods of karakia (chants) and inoi (prayer) are still extensively used. Native plants for medicinal purposes are widely used however application of uses varies between each practitioner. References 1. Franklin- Barbajosa, Cassandra. Tattoo: Pigments of Imagination. National Geographic News. March 7, 2008. http://ngm.nationalgeographic.com/ngm/0412/online_extra.html 2. Maori.org.nz. http://www.maori.org.nz/ 3. Moriori. Encyclopedia Britannica Online. http://www.britannica.com/eb/article-9053755/Morior 4. The Legend of Maui. http://www.sacredtexts.com/pac/maui/maui04.htm 5. The Definition of Mana. http://www.merriam-webster.com/dictionary/mana 6. Maori Colonization. http://www.heritagehistory.com/www/heritage.php?Dir=erasFileName=britain_11.php

Importance Of Staphylococcus Aureus To Humans Biology Essay

Importance Of Staphylococcus Aureus To Humans Biology Essay The bacterial genus to be isolated and identification in this project is Staphylococcus. This genus has been chosen for the reason of its abundance on the skin of mammals and the pathogenic nature of one of its member, Staphylococcus aureus. Apart from skin infections, Staphylococcus aureus could mutate to Methicillin-resistant Staphylococcus aureus (MRSA). In both cases, these give rise to medical implications. In addition, the distinctive features of Staphylococcus aureus from other species in the genus allow it to be easily isolated and identified via culturing and biochemical tests. Staphylococcus was first discovered in 1880 by Alexander Ogston (Paniker 2005, p.192). Currently, more than 30 different species of the genus has been identified (Deurenberg Stobberingh 2008). The name Staphylococcus was derived from Greek, with the prefix Staphylo referring to bunches of grapes and the suffix coccus referring to granule (Ryan Ray 2004). As the meanings suggest, bacteria from Staphylococcus are circular-shaped and their arrangement resembles bunches of grapes when observed under a microscope. Typically, a Staphylococcus has a diameter of approximately 1ÃŽÂ ¼m (Willey, Sherwood Woolverton 2011, p.562). The aim of the project is to isolate Staphylococcus aureus from the genus from a bundle of cat hairs and verify its identity via microscopic examination. No human specimen is used due to the potential pathogenic property of Staphylococcus. It is intended that a pure culture of pathogenic Staphylococcus aureus is obtained. For the purposes of this project, the importance of Staphylococcus aureus to humans, its classification in terms of morphology, physiology and structure, methods of isolation and identification by biochemical tests would be the objectives to be addressed. Importance of Staphylococcus aureus to humans The importance of Staphylococcus aureus to humans would be outlined by a review of the cell structure, cell physiology and environmental niches, followed by the medical implications of Staphylococcus. Cell structure Staphylococcus is a cocci bacterium. As a member of the Bacteria domain, it is expected that Staphylococcus has bacterial cell structure. In other words, it lacks nucleus and membrane-bound organelles. The structural elements in a cell of Staphylococcus should include a cell membrane, cell wall, ribosome and nucleoid (Campbell et al. 2009, p.98). On the other hand, it is worthwhile to note that Staphylococcus does not have flagella and spores (Paniker 2005, p.193). In addition to the above structures, Staphylococcus aureus possesses surface proteins that help attachment to proteins such as the fibronectin and fibrinogen-binding proteins involved in blood clotting (Baron 1996). This cellular property may explain the pathogenic nature of Staphylococcus aureus, as invasion might occur via wounds and abrasions. Cell physiology The cell physiology of Staphylococcus covers temperature, pH, osmolarity and oxygen requirements, as well as cell division. Staphylococcus typically grows from a temperature of 20oC to 40oC, with optimum temperature being 37oC (Todar 2000). Concerning the optimum pH for metabolism, it ranges from 7.4 to 7.6 (Paniker 2005, p.193). For osmolarity, Staphylococcus requires a water activity of at least 0.85 for substantial growth (Todar 2000). As for oxygen requirement, Staphylococcus is facultative anaerobic (Willey, Sherwood Woolverton 2011, p.562). This implies Staphylococcus can grow regardless of the presence of oxygen, but the presence of oxygen would be more favorable. Environmental niches The environmental niches of Staphylococcus can be addressed by its interactions with other organisms as to where it is found, how it synthesizes nutrients for growth and mutation. Staphylococcus is commonly found on the skin and mucous membranes of animals with stable body temperatures, including humans (OGara and Humphreys 2001, p.583). The salty environment along skin surface due to the production of sweat may account for the abundance of Staphylococcus, since its enzymatic activity is at alkaline pH (Blood et al. 2007). The prominent bacteria from the genus include Staphylococcus aureus, which colonizes in nasal cavity, larynx and on the skin surface (Andersson, Lindholm Fossum 2011). This may outline a parasitic relationship, in which Staphylococcus is the parasite and the animal supporting its growth is the host (Willey, Sherwood Woolverton 2011, p.725). In the presence of oxygen, Staphylococcus utilizes glucose to carry out cellular respiration, and electrons are passed on to the terminal acceptor, oxygen (Willey, Sherwood Woolverton 2011, p.562). When oxygen is lacking or absent, Staphylococcus may undergo fermentation and lactic acid is the usual product (Willey, Sherwood Woolverton 2011, p.562). In the process, glucose is converted into substrate pyruvate, followed by its binding to the cofactor Nicotinamide Adenine Dinucleotide (NAD+) to produce lactic acid (Campbell et al. 2009, p.178) The interactions of Staphylococcus with the environment may also be underlined by mutation, which often occurs with Staphylococcus aureus. An example would be Methicillin-resistant Staphylococcus aureus (MRSA), a Staphylococcus aureus that is resistant to the antibiotic, Methicillin (Willey, Sherwood Woolverton 2011, p.562). The mutation is caused by an alteration of the methicillin-resistance gene (mec A) coding for a penicillin-binding protein (Davis 2011). This results in failure of antibiotics to cure infections caused by Staphylococcus aureus, which will be addressed in the medical implication section. Medical implications of Staphylococcus Staphylococcus can present a great diversity of environmental, medical or biotechnological implications. Being a mesophile, Staphylococcus can carry out metabolism under normal room temperature. Together with the abundance of warm-blooded animals which act as hosts to provide a salty medium, it can be said that Staphylococcus has an environmental implication of ubiquity. Statistics show that Staphylococcus aureus is present in 30% of healthy people (National Centre for Preparedness, Detection and Control of Infectious Diseases 2003). Though Staphylococcus may colonize on the skin surface of the host without causing any harms, its ubiquity can still give rise to various medical issues. The MRSA mentioned previously would be one of the problems associated with Staphylococcus. Apart from methicillin, MRSA could show resistance against many other antibiotics such as penicillin and amoxicillin (Agodi et al. 1999, p.638). The ineffectiveness of existing antibiotics to cure MRSA infections has resulted in fatality, and it is usually characterized by the incidence of septic shock and pneumonia (Klevens et al. 2007). A rapid increase of MRSA infections has been observed over the decades. The rate of hospitalized MRSA infections was only 2% in 1974 but this figure increases dramatically to approximately 40% in 1997 (Lowy 1998). This causes deaths of 19000 in t he United States of America annually (Klevens et al. 2007). As Staphylococcus colonies on skin surfaces and mucous membrane, skin infections and diseases associated with mucous membranes could be another medical implication. It is known that Staphylococcus aureus may cause Scalded Skin and Toxic Shock syndromes. Moreover, it may cause pneumonia, urinary tract infections, food poisoning (Gill et al. 2004, p. 2426). Classification of Staphylococcus The classification of Staphylococcus can be reviewed in terms of its morphology and some of the physiological properties stated above. Morphology The morphology of Staphylococcus can be described as cocci gram positive bacteria arranged in a cluster. This can be explained by its property of cell wall and its behavior in cell division. The cell wall of Staphylococcus shows a gram positive reaction, which indicates its composition is essentially a thick layer of peptidoglycan (Todar 2011). This property of cell structure helps the identification of Staphylococcus. Moving on to cell division, it can be predicted that Staphylococcus reproduce by binary fission. The reason for its cluster formation may be explained by its capability of undergoing binary fission in multiple planes with daughter cells remains proximal to each other (Paniker 2005, p.192). Though the daughter cells remain in close proximity, the positions of attachment could vary and this leads to cluster being formed irregularly (Todar 2011). Physiological properties In terms of thermal requirement, Staphylococcus is a mesophile. Regarding pH requirements, it is a neutrophile. Being a facultative anaerobe, Staphylococcus is catalase positive. The absence of flagella indicates that Staphylococcus is a non-motile bacterium. In addition, Staphylococcus aureus is coagulase positive but not for other species in the genus. As light is not readily available on skin surface and mucous membranes, it is proposed that Staphylococcus obtain energy via organic chemical compounds. Hence it is regarded as a chemotroph (Willey, Sherwood Woolverton 2011, p.137). The facultative anaerobic property of Staphylococcus may lead to a deduction that it utilizes organic carbon as the source of electron when oxygen is present. Though some Staphylococcus may use reduced forms of inorganic nitrates to generate electrons, its preference towards an aerobic atmosphere should define it as an organotroph (Willey, Sherwood Woolverton 2011, p.137, 562). When comes to carbon source, Staphylococcus is a heterotrophy (Kumar, Hatha Christi 2007). That is to say, it attains its carbon source by converting organic substances for synthesis via oxidation (Voet, D, Voet, JG Pratt CW 2008, p.449). To sum up, Staphylococcus should be one of the members of the microbial group Chemoorganotrophic heterotrophs. Methods of Isolation of Staphylococcus The methods of isolation of Staphylococcus would include growing in medium followed by streak plating. Growth media To ensure optimum growth of colonies, Staphylococcus should be enriched in nutrient broth with sodium chloride (NaCl) before plating on a nutrient agar. A nutrient broth normally consists of beef extract and peptone as fuels for growth (Willey, Sherwood Woolverton 2011, p.148). The addition of salt allows a selective medium for Staphylococcus as it predominantly grows in salty environment. Alternatively, a growth medium can be done via a Mannitol salt agar (MSA), which consists of 7.5% of NaCl and a pH indicator. MSA essentially acts as both a selective and differential medium. NaCl selects for saline-favored Staphylococcus and the pH indicator differentiates between Staphylococcus aureus and Staphylococcus epidermidis. Differentiation can be illustrated by the fact that Staphylococcus aureus utilizes mannitol in the agar for metabolism, and the generation of acidic product is indicated by a yellow color. However, this phenomenon does not apply to non-pathogenic Staphylococcus (Willey, Sherwood Woolverton 2011, p.147). Streak Plating Following enrichment, Staphylococcus in the medium can be transferred to an agar plate with nutrient broth and salt, by employment of aseptic techniques. At the same time, a transfer to an agar plate with only nutrient broth should be performed as a control set-up. This is to ensure the effectiveness of the selective media because other bacteria could grow on the agar plate if the medium was not set up properly. Afterwards, the plates would be incubated for a week. Incubation should be done at 37oC as it is the optimum temperature for Staphylococcus to grow. Plating and incubation should be repeated a few times to make sure that the colonies grown are pure. Identification by biochemical tests The identity of Staphylococcus cannot be confirmed by carrying out the gram reaction alone due to the fact that a great variety of bacteria from other genus may also show gram positive reaction. Therefore, some biochemical tests have to be performed to verify that the bacteria isolated is in the genus of Staphylococcus and it is of the species Staphylococcus aureus. These tests include catalase, motility and cogulase. First of all, as Staphylococcus aureus is facultative anaerobic, it is expected that it contains enzymes to break down harmful products such as free radicals generated along its aerobic pathway (). In this case, the enzyme of interest is catalase, in which its presence allows the breakdown of toxic hydrogen peroxide (H2O2) into oxygen and water (). Therefore colourless gas bubbles can be observed when H2O2 is added to a colony of Staphylococcus aureus. Moreover, as Staphylococcus aureus is non-motile, motility test can be performed. In a motility medium supplied with carbon source, a pink color can only be observed along the stab line (). This essentially means that the growht Staphylococcus aureus is localized and its colonies are not motile. Furthermore, the identification test between Staphylococcus aureus and other bacteria from the genus would be based on its reaction with coagulase. Staphylococcus aureus readily coagulates plasma but not for others species in the genus (Willey, Sherwood Woolverton 2011, p.750). To ensure accuracy of the test, it is preferable to test on colonies extracted from culture plates that are known to contain coagulase positive Staphylococcus aureus and coagulase negative Staphylococcus epididymis respectively. The former acts as a positive control, while the latter acts as a negative control. Conclusion In conclusion, Staphylococcus is a ubiquitous bacterial genus that can pose various medical implications and it can be grown, isolated and identified based on its, environmental niches, morphology, physiological and structural characteristics. The aims of isolation and identification of Staphylococcus aureus can be achieved by a review of the four objectives as summarized below. Firstly, it is often found on epidermis of animal skins including humans and its ability to metabolize optimally at 37oC and at pH of 7.4-7.6 makes it a potential pathogen to humans. In particular, the species Staphylococcus aureus can cause a great diversity of diseases and the mutated Methicillin-resistant Staphylococcus aureus could be fatal owing to its resistance to most antibiotics. Secondly, it can be classified by in terms of morphology and some of the physiological characteristics. Its morphology is gram positive cocci bacteria growing in clusters. It is a mesophile, nuetrophile and facultative anaerobe. It is catalase positive and only Staphylococcus aureus is coagulase positive. The energy, electron and carbon sources of Staphylococcus aureus can be described as chemoorganotrophic heterotrophic. Thirdly, regarding growth medium, the sample of cat hair should be enriched in a medium of sodium chloride before incubating on an agar plate of nutrient broth and salt at 37oC. The colonies should be streaked plated a few times to remove contaminants. This increases the efficiency of isolation of Staphylococcus aureus. Lastly, Staphylococcus aureus can be identified by the catalase, motility and coagulase tests. It is expected that bubbling is observed as a positive result with the catalase test. As for the motility test, a negative test is expected. In other words, no growth is observed across the stab line. Clumping of plasma is seen as a positive result and this differentiates Staphylococcus aureus from other species in the genus.

A Separate Peace; Chapter Summaries :: essays research papers

A Separate Peace; Chapter Summaries Chapter 1: The narrator (Gene) returns to the Devon School in New Hampshire, that he graduated from 15 years earlier. He goes to a certain tree and switches back to the past. Phineas dares everyone to jump from a branch in the tree into the river. Phineas, and Gene both jump. On the way back Phineas and Gene play fight so that they are late for dinner. Chapter 2:Mr. Prud'homme, a master, stops by the boys' room to scold them for missing dinner again for the ninth time in two weeks. Phineas explains that they were late because they were jumping out of the tree to toughen up for the war. Mr Prud'homme, accepts the explanation because, he, and everyone else, feel sorry for the boys that will soon have to go to war. Chapter 3: The boys join The Super Suicide Society of the Summer Session. The club meets every night. Phineas and Gene open each night by jumping out of the tree. They make a new kind of war game called blitzball, in which everyone is everyone elses enemy. Phineas breaks the schools swimming record, but tells Gene not to tell anyone, he just wanted to do it for himself. Gene and Phineas of campus to the ocean to swim. They have a drink at the bar, the spend the night on the beach, and Phineas tells Gene he is his best pal. Gene is not sure if he feels the same. Chapter 4: Gene and Finny (Phineas) wake up and head back to Devon. Gene fails his trigonometry examination for the first time. Finny tells Gene that he studies too much. Gene thinks Finny is jealous. Gene wants to earn the Scholastic Achievement Citation to get even with Finny. Gene knows that Finny must be best and that he cannot be best if Gene becomes even with him through his studies. Gene decides that he and Finny are locked in a complete enmity rather than friendship. Finny announces Leper's intention to jump from the tree and coazes Gene away from his studies. Gene and Finny are going to jump together, Finny falls to the ground, then Gene jumps into the river. Chapter 5: Finny has a shattered leg. Gene bears private guilt. He puts on Finny's clothes and the sensation excites him. Dr. Stanpole, the school physician, informs Gene that Finny wants to see him. Finny recalls the fall, and expresses that he thought Gene wanted him to fall. Gene is about to confess when Dr. Stanpole interupts. Finny is taken to his home near Boston and Gene returns

The Awakening - Personality Developments :: essays research papers

PERSONALITY DEVELOPMENT The idea that one can understand and comprehend the development of an individual is profound and abstruse, but very few people have actually had success dealing with such a topic. From obstacles such as proper test subjects to the whole stigma of taboo attached in trying to understand the human mind, researchers and psychologists have had success. One of the most notable successes is that of Sigmund Freud, the father of modern psychology, as we know it. Freud’s in depth pioneering journey into the minds of people, and how the mind itself develops with the passing of time and events. Other modern psychologists have elaborated on Freud, including the psychologists Erik Erikson and Karen Horney. Their thoughts on the personality development of people relate directly to Kate Chopin’s book, The Awakening. In this book, the theories discussed by Freud and his successors are shown explicitly and implicitly. Obviously, Sigmund Freud’s work in the field of personality development was by far the most prolific and controversial. The father of modern psychology, Freud broke all barriers to expose what he thought to be the real reasons for human behavior. His theories of personality development can best start with the discussion of the conscious and the unconscious mind. The conscious mind—along with the lesser preconscious mind—is that part of the mind that one has control, or knowledge of. Ironically, this is the least part of the mind that one has control over. The so called "subconscious" mind is the part of the mind that lurks beneath the surface, filled with instincts, emotions, and unfulfilled desires (Shaffer 26). The total human mind is divided into the famous three parts of the Id, the ego, and the superego. The Id can be correlated directly to the subconscious, since it contains one’s innermost thoughts, feelings, and desires, or as Freud w ould call them, "wishes". The Id represents one’s innermost and primitive desires, such as food and reproduction, and it constantly drives one’s actions. The total antithesis of the Id is the superego. The superego in the case of personality development, comes directly from parents. This superego is consisted of the conscience (punishments and warnings) and the ego ideal (positive rewards and role models). Thus the superego can be defined as what keeps the Id in check, which leads to the ego. The ego is the rationalizing factor, it is the result of the superego and the Id, canceling each other out.

Business Association Outline

I. Agency (Chapter 1) A. Who is an Agent i. Agency Definition Agency is a fiduciary relationship which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control and consent by the other to so act. 1. Contractual relationship is not necessary, nor do either need to receive compensation 2. Agent – the one to act 3. Principal – the one for whom action is taken 4. Agency means more than mere passive permission; it involves request, instruction, or command 5.Agency cannot exist when it is against public policy or illegal 6. Agency is like an enforceable contract (offer + acceptance) but does not require consideration 7. 3 Different forms of agency: (1) Principal-Agent; (2) Master-Servant; (3) Employee-Employer or independent contractor 8. Principal cannot delegate a non-delegable act ii. Allocation of risk and responsibility based on principals of agency 1. A way to get someone to act on behalf of ano ther 2.Agency allows things to get done in a way that otherwise is not possible 3. Agents are force multipliers which allows a concentration of resources behind a collective purpose Principal-Agent-Third Party (PAT) Triangle 1. Principal is typically the lowest cost avoider and in the best position to mitigate damages 2. Agent – one authorized to act for another 3. Third Party – what does this party â€Å"see†? would a reasonable person believe that the agent had authority to bind the principal Gorton v. DotyFacts: Gorton injured in an automobile accident after Doty loaned her vehicle to coach to transport Gorton and others to football game ROL: An agency relationship results from one person's consent that another will act on his behalf and subject to his control and the other person's consent so to act Gay Jenson Farms Co. v. Cargill, Inc Facts: Plaintiffs entered into grain contracts with Warren Grain & Seed Co. , which was financed and controlled by Cargill, Inc. , a separate entity ROL: A creditor who assumes control of his debtor's business may become liable as principal for the acts of the debtor in connection with the business 1.One who contracts to acquire property from a third person and convey it to another is the agent of the other only if it is agreed that he is to act primarily for the benefit of the other and not for himself 3 Factors indicating that one is a supplier, rather than an agent: (1) that he is to received a fixed price for the property irrespective of the price paid by him – most important factor; (2) that acts in his own name and receives the title to the property, which he is to transfer; (3) that he has an independent business in buying and selling similar property Existence of agency may be proved by circumstantial evidence which shows a course of dealings between two parties Criticism and recommendations could be viewed as control B. Liability of Principal to Third Parties in Contract 1. Actual Authori ty (Express & Implied) Actual Authority: Agent must believe there is authority to act for the principal, must look through the eyes of the agent using reasonable person (RPP) standard Express Authority Express Authority: affirmative statement of authority to act, given either orally or in writing.Principal can mistakenly grant express, actual authority, but authority must be given either orally or in writing Implied Authority implied authority: is actual authority circumstantially proven which the principal actually intended the agent to posses and includes such powers as are practically necessary to carry out the duties actually delegated. Look through the agent's eyes- does the agent reasonably believe she is acting within the scope of the authority 3 ways implied actual authority can arise 1. Incidental – absent a clear, contrary instruction by the principal, the agent can use all reasonable means necessary to carry out the goals of the agency 2.Custom – if it is cu stomary in an industry for an agent to have certain authority, but the agent cannot unilaterally expand the agent's authority 3. Pattern of conduct between principal and agent- if principal fails to object to known actions of agent Mill Street Church of Christ v. Hogan Facts: Hogan was injured after he was hired by church employee to paint the inside of the church ROL: Actual authority exits until it is revokes, i. e. must be communicated. Implied authority is actual authority that is proven circumstantially to indicate that the principal intended to delegate powers to the agent that are necessary for carrying out the agent’s duties, and one major circumstantial factor is prior work performed by agent for principal. 2. Apparent AuthorityApparent authority is authority the agent is held out by the principal as possessing. It is a matter of appearances on which a third party comes to rely Person alleging agency and resulting authority has the burden of proving that it exist bas ed on the totality of the circumstances (TOC) a mere statement cannot prove agency, but it can be established by circumstantial evidence including the acts and conduct of the parties such as the continuous course of conduct of the parties covering a number of successive transactions 3 Ways to Create Apparent Authority 1. Direct communication (or conduct) by the principal to the 3rd party that the agent has actual authority, even though the agent does not. 2.Inaction by the Principal: principal must deny the authority, when he does not, then apparent authority is created 3. custom: certain positions involve generally recognized duties that include certain authority. Two ways to create: (1) 3rd par has to know that the principal placed the agent in a particular position; or (2) must be customary for an agent in that position to enter into the type of agreement in question. Three-Seventy Leasing Corporation v. Ampex Corporation Facts: 370 Leasing executed a document provided by an Ampe x Corp representative for the purchase of computer leasing equipment, but Ampex never executed the document ROL: an agent has apparent authority to bind the principal when the principal acts in such a manner as would lead a easonably prudent person to suppose the agent had the authority he purports to exercise Absent knowledge on the part of the 3rd parties to the contrary, an agent has apparent authority to do those things, which are usual and proper (custom) to the conduct of the business that he is employed to conduct Principal can protect itself from agents action by hiring well, training agents, communicating to known 3rd parties, giving accurate titles to agents 3. Inherent Authority Inherent Authority: power of agent which is not derived from authority (actual or apparent), but solely from the agency relation and exists for the protection of persons harmed by or dealing with a servant or other agent PAT Triangle 1. Looking through the eyes of the agent – agent did not have actual authority. Agent holding out not required. 2. Looking through the eyes of the 3rd party – the 3rd party did not know the agent was working for the principal; therefore, no apparent authority 3. rd party can avoid the situation, although economically inefficient, the principal is in a better position to avoid the appearance of authority Holding out: where the principal holds out the agent to the public as one having authority to act for the principal. 3rd party must have knowledge of both the principal, the agent, and the P-A relationship in order to have a holding out. Inherent authority is about economic efficiency- who should bear the loss? the lowest cost avoider; the party who could have most beared the cost. an undisclosed principal is subject to liability to a 3rd party who is justifiably induced to make a detrimental change in position by an agent on the principal's behalf without actual authority Watteau v. Fenwick Facts: Humble operated Fenwick's tavern u nder Humble's name and credit.Humble purchased goods from Watteau without Fenwick's express authority ROL: When a principal is undisclosed to 3rd parties, the actions taken by an agent in furtherance of the principal's usual and ordinary business binds the principal. Risk of loss in on the principal Restatements a. becomes the enunciation of the rules and if adopted by statues, they form a standardized or form contract and applies by operation of law; rules and the parties can modify rule through own agreements b. 3 Transactional costs: (1) the cost to â€Å"get the job done,† what does it cost to complete the entire transaction; (2) the cost above and beyond the services/goods one is seeking; (3) the restatements provide certainty and uncertainty results in severe transactional cost c. principals of economic maximization – get the most out of it Agency a. most common business association is agency b. person includes natural persons, but also includes legal persons suc h as corporations, partnerships, non-natural people, NGO, legal personage c. An agent's consent can be inferred from conduct d. Burden of proof (by mere preponderance of the evidence) falls on the party claiming that an agency relationship exists. (i) consideration is not needed; (ii) does not need to be formal or in writing, can be established through conduct; (iii) legal capacity is not necessary to form an agency relationship; i. e. , minor, as an agent, can enter into a contract on the principals behalf to bind the principal e. an agency relationship can exist even where the parties did not want, nor intend, that such a relationship to exist f.On behalf of the principal (i) agent must act primarily for the benefit of the principal; (ii) must be the expectation that the acts of the agent are on behalf of the principal; (iii) must be the expectation that the acts of the agent are on behalf of the principal; (iv) Can have an agency even where the agent is not producing a benefit fo r the principal–no particular result is required g. Control: if the principal specifies the task the agent performs that is sufficient for control to be present; very little control is needed. C. Liability of Principal to Third Parties in Tort 1. Servant Versus Independent Contractor ROL: A master is liable for the torts of its servants under the doctrine of respondent superior. A master servant relationship exists when the servant has agreed to work on behalf of the mater and subject to the master's control or right to control the physical conduct of the servant 3 Important actors of business relationships: (1) duration; (2) control (more control–less liability protection); (3) risk of loss and return (existence of independent contract reduces risk) The test of an independent contractor applies to whether the company has retained the right to control the day to day operations of the service station: control or influence over results alone being viewed as insufficient Humble Oil & Refining Co. v. Martin Facts: Martin was injured by a vehicle that rolled away from the service station owned by Humble Oil & Refining Co, but operated by another under contract ROL: Determining whether a master-servant relationship exists, rather than an independent contractor relationship, is a question of fact that will be answered in the affirmative when the master exerts a considerable amount of control over the responsibilities of the servant Hoover v. Sun Oil Company Facts: Hoover was injured when his car caught fire while a service station employee was fueling it.ROL: A master-servant relationship does not exist when an independent contractor controls the day-to-day operations of the entity that is responsible for damages suffered by a plaintiff. Restatement of Law (Second) Agency  § 220, Definition of Servant The principal is only liable for the actions of servant/employee Before assigning liability to the master must determine if the servants conduct is with in the employment scope. In determining whether one acting for another is servant or independent contract, the following 10 matters of fact, among others are considered: 1. the extent of control which, by agreement, the master may exercise over the details of the work 2. whether or not the one employed is engaged in a distinct occupation or business 3. he kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision 4. the skill required in the particular occupation 5. whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work 6. the length of time for which the person is employed 7. the method of payment, whether by time or by job 8. whether or not the work is part of the regular business of the employer 9. whether or not the parties believe they are creating the relation of master and servant 10. whether the princ ipal is or is not a business 2. Scope of Employment servant's acts may be within the scope of employment although consciously criminal or tortious, but serious crimes are outside the scope. a servant's use of force against another is within the scope of employment if the use of force is not unexpected by the master such as a bouncer a single comment by a customer does not justify imposition of liability on the employer Manning v. Grimsley Facts: Grimsley threw a baseball at Manning in response to Manning's heckling at a baseball game ROL: to recover damages from an employer for injuries from an employee's assault, the plaintiff must establish that the assault was in response to the plaintiff's conduct that was presently interfering with the employee's ability to perform his duties successfully.Presently interfering test: the interference may be in the form of an affirmative attempt to prevent an employee from carrying out his assignments D. Fiduciary Obligation of Agents (Duties Dur ing Agency) Under an agent's fiduciary duty to the principal, the agent is bound to the exercise of the utmost good faith and loyalty so that the agent did not act adversely to the interests of the principal by serving or acquiring any private interest of the agent or a third party from which the agent gets a benefit, i. e. , kickback Agent is bound to act for the furtherance and advancement of the interest of the principal General Automotive Manufacturing v. Singer Facts: Singer while employed by General Automotive Mfg, Co. secretly concealed profits earned by accepting personal orders from the plaintiff's customers ROL: An employee will be held to his or her contractual duty of loyalty, and their fiduciary duty would forbid them from engaging in activities that are competitive with their employer. Agent is only entitle to received what the agent agreed to receive from the principal, secret profits are illegal If the principal knows and acquiesces to the agent's act of acquiring an d furthering private interests of the agent that are similar to or the same as the principal's interests, then the agent will not be found to have breached the agent's fiduciary duty to the principal II. Partnerships (Chapter 2) A. What is a partnership? And Who are Partners? 1. Partners compared with EmployeesPartnership is an association of two or more persons to carry on as co-owners of a business for profit Burden to establish partnership is upon the one upon who alleges the partnership exists Totality of the Circumstances To Establish a Partnerships Court Looks at 8 Elements: 1. intention of the parties, agreement is evidential, but not conclusive 2. Right to share profits, evidential, but not conclusive. Strongly indicative of a partnership. No inference of partnership shall be inferred where received in payment as wages of an employee 3. obligation to share in losses 4. ownership and control of the partnership property and business 5. Community of power in administration â₠¬â€œ Control is strongly indicative of a partnership 6. Language in the agreement, either including or excluding one from the benefits or obligations of the partnership 7.Conduct of the parties toward the third person 8. Rights of the parties on dissolution Fenwick v. Unemployment Compensation Commission Facts: Cheshire and Fenwick entered into a partnership agreement regarding salon, pursuant to which Fenwick contributed all capital investment, possessed exclusive control over the management of the business, and bore the risk of all business losses. ROL: the sharing of profits does not alone create a partnership, despite the parties’ intentions 2. Partners versus Contract Southex Exhibitions, Inc. v. Rhode Island Builders Assoc. , Inc. Facts: Rhode Island Builders replaced Southex Exhibitions as the promoter of its home how after termination a contract it had entered into with the plaintiff's predecessor ROL: Profit sharing alone insufficient to establish a partnership, rath er the court must assess the totality of the circumstances–mutual control, contributions of valuable property by both parties, shared profits B. The Fiduciary Obligations of Partners Meinhard v. Salomon Facts: Salmon terminated a lease belonging to his joint venture with Meinhard to enter into a new lease on behalf of his solely owned business. ROL: partners owe one another (1) the highest fiduciary duty of loyalty while the enterprise is ongoing, including as well (2) the duty of good faith and (3) duty to disclose. this ROL lowers transaction costs A trustee is held to something stricter than the morals of the market place- at a minimum there must be disclosure Meehan v. Shaughnessy Facts: Plaintiffs, James Meehan and Leo Boyle, left the law firm of the Defendants, Maurice Shaughnessy et al. Plaintiffs wanted money they believed was owed to them under their partnership agreement, and Defendants countered that Plaintiffs violated their fiduciary duty and interfered with Defe ndants’ business ROL: a partner has an obligation to provide true and full information of all things affecting the partnership to any partner ROL: Partners owe each other a fiduciary duty of â€Å"the utmost good faith and loyalty. As a fiduciary, a partner must consider his or her partner's welfare, and refrain from acting for purely private gain-the partners cannot improperly lure away clients from the partnership ROL: fiduciaries may plan to compete with the entity to which they owe allegiance, provided that in the course of such arrangements they do not otherwise act in violation of their fiduciary duty Constructive trust – created by operation of law as a result of breach of a fiduciary duty by a partner, what money the partner received by the bad acts is held in â€Å"trust† for the partnership Fiduciary duties can be varied by the parties by contract Lawyers Departing from a partnership may (1) take steps to locate office space, secure financing, and alt ernative affiliations; (2) inform clients about departure from the partnership and the new practice but cannot solicity clients; (3) lawyer can remind client to retain counsel of the client's choice; (4) refrain from competing before disassociation 603(b)(3) 403(c)(2) 404(b)(3) 603(b)(2) C. The Rights of Partners in Management 1. All partners are jointly and severally liable for the acts and obligations of the partnership. 2.Creditors can collect full amount of judgment against any individual partner. However if one partner pays more than his fair share, the partner can seek contribution from the other partners National Biscuit Company v. Stroud Facts: Freeman purchased bread from National Biscuit Co. , although his partner, Stroud, had informed Freeman and the plaintiff that he would not longer be responsible for additional bread purchases ROL: the acts of a partner, if performed on behalf of the partnership and within the scope of its business, are binding upon all co-partners ROL : every partner is an agent for the partnership with actual authority by the agent to bind the principal, i. e. the partnership.A partner cannot restrict the power and authority of a partner from pursing a going concern for the partnership, if such purchases are an ordinary matter connected with the partnership business unless there is a majority consent by the partners-50% is not enough In the absence of a partnership agreement, partners will have an equal vote in the management of the partnership Difficult for partnerships to remove apparent authority because it is hard to find all creditors to put them on notice that a partner does not have the authority to bind the partnership D. Partnership Dissolution – The Right to Dissolve Owen v. Cohen Facts: Respondent Russ Owen and Appellant Israel Cohen entered a partnership agreement to run a bowling alley. Within a few months Respondent moved for a dissolution of the business once the partners’ relationship turned sour. R OL: Courts of equity may order the dissolution of partnership where the quarrels and disagreements are of such a nature and to such an extent that all confidence and cooperation between the parties has been destroyed or if a partner's misbehavior materially hinders the proper conduct of the partnership's business. E. Limited PartnershipLimited Partnership – a voluntary agreement entered into by two or more parties where one or more general partners are responsible for the enterprise's liabilities and management and the other partners are only liable to the extent of their investments General Partnership – a voluntary agreement entered into by two or more parties to engage in business whereby each of the parties share in any profits and losses equally and each participates equally in the management of the enterprise A limited partner shall not become liable as a general partner unless in addition to the exercise of his rights and powers as a limited partner, he takes co ntrol of the business. Limited partner – investment is passive General Partner – directing management and control of firm If a limited partner takes part in the control of the business and is not a general partner, the limited partner is only liable to persons who transact business with the limited partnership and who reasonably believed based on their conduct, that the limited partner is a general partner. Holzman v. DeEscamilla Facts: The appointed trustee of a bankrupt estate, Plaintiff Lawrence Holzman, brought this action to hold Defendants, Ricardo de Escamilla et al. liable as general partners of the business at issue ROL: if a limited partner exercises control over the business he becomes a general partner and loses any limited partnership protection III. Corporations (Chapter 3) A. The Nature of the Corporation a. Shareholders are the owners of the corporations with 2 fundamental rights: (1) residual value of the firm and (2) elect the member of the board of d irectors b. Directors are (1) elected by shareholders based on the shareholders percentage of ownership (proportional); (2) have a fiduciary duty to manage the firm on behalf of the shareholders; and (3) may have a responsibility to 3rd party by statute c.Officers (CEO, CFO, CO, etc. ) are (1) hired by the board of directors for day to day operations; (2) responsible to the BOD for day to day operations for the benefit of the shareholders; and (3) the certificates of incorporation or bylaws will define which roles are officer positions d. Promoters: (1) people who are doing the work to create the corporation; (2) before certificate of incorporation creates shareholders, directors, and officers; and (3) can become a shareholder, director, or officer e. 3rd Parties: something impacted by the corporations including customers, suppliers, vendors, government, environment B. Promoters and the Corporate EntityCorporation: A distinct legal entity characterized by continuous existence; free alienability of interests held therein; centralized management; and limited liability on the part of the shareholders of the corporation Southern-Gulf Marine Co. No. 9, Inc. v. Camcraft, Inc. Facts: Plaintiff, Southern-Gulf Marine Co. No. 9, Inc. , contracted with Defendant, Camcraft, Inc. , to buy a supply vessel from Defendant. Defendant refused to comply with the agreement, arguing that the contract was invalid because Plaintiff was not incorporated in Texas as the initial agreement stated. ROL: where a party has contracted with what he acknowledges to be a corporation, he is estopped from denying the existence or the legal validity of such a corporation C. The Corporate Entity and Limited Liability Corporate veilCorporate veil – refers to the shielding from personal liability of a corporations officers, directors, or shareholders for unlawful conduct engaged in by the corporation when corporate formalities are respected, the corporate veil will be left intact courts will disregard the corporate veil whenever necessary to prevent fraud or to achieve equity Corporate veil makes risk finite in terms of liability to that which is invested to encourage investors to invest in those with managerial skills and contribution of capital into the business The combination of capital and managerial expertise is key to effective business operation Piercing the corporate veil is an act of equity Walkovszky v. Carlton Facts: A pedestrian struck by a taxicab sued the corporation in whose name the taxi was registered, the cabdriver, nine corporations in whose names other taxicabs were registered, two additional corporations, and three individuals. ROL: An individual can be held liable for the acts of a corporation through the doctrine of respondeat superior if it can be shown that the individual used his control of the corporation for personal gain. a. pon the principal of respondeat superior, the liability extends to negligent acts as well as commercial dealings b. h owever, where a corporation is a fragment of a larger corporation combine which actually conducts the business, a court will not pierce the corporate veil to hold individual shareholders liable Under capitalization is a value judgment Sea-Land Services, Inc. v. Pepper Source Facts: Plaintiff corporation, Sea-Land Services, Inc. , delivered a shipment of peppers for Defendant, Pepper Source, but was never paid and Pepper Source was dissolved before judgment could be enforced against it. Plaintiff wanted to hold Pepper Source and the other Defendants, Gerald Marchese and other corporations he controlled, liable.ROL: Van Dorn Test: In order to pierce the corporate veil and impose individual liability, a creditor must show (1) that there was such a unity of interest between the individual and the corporate entity that separate identities no longer existed, and (2) that a failure to do so would promote â€Å"injustice† or sanction a fraud in some way beyond simply leaving a credit or unable to satisfy its judgment 4 Factors in evaluating the unity of interest: (1) failure to maintain adequate corporate records or comply with corporate formalities; (2) commingling of funds or assets; (3) undercapitalization; (3) one corporation treating the assets of another corporation as its own Possible for one corporation to be liable for the acts of another through a piercing of the corporate veil, in this case there was a reverse piercing, must initially pierce the corporate veil to get to the other corporation. Reverse piercing puts Sea-Land into the position of a debtor instead of shareholder and would have a higher priority to receive funds Commingling assets- combining of money or property into a joint account or asset An unpaid judgment is insufficient to pierce a corporate veil- must examine to see if he shareholder treated the corporation as something different Fulfilling corporate niceties are a transactional cost to the business Frigidaire Sales Corporation v. U nion Properties, Inc. Facts: Frigidaire Sales Corp, a creditor of Commercial Investors, a limited partnership, brought an action against the corporate general partner and its limited partners individually when the partnership failed to pay installments due on contract ROL: Limited partners are not liable for the debts of a limited partnership simple by their status as officers, directors, or stockholders of the corporate general partner as long as they conscientiously keep the corporate matters General partners are liable for the debts of limited partners Officers generally not liable for corporate debts Shareholders (owners of the company) rights: (1) money-residual value of the firm, usually by way of dividends or through appreciation of price stock trades. P/E Ratio where P is market price and E is earnings, divide profits by shares outstanding, 12 P/E means 2 years to get your money back; and (2) vote-for directors of the corporation D. Shareholder Derivative Actions Shareholder derivative lawsuit: lawsuit brought by shareholders on behalf of the organization to compel the organization to take certain action Why? because shareholders feel the corporation is not protecting shareholder interest. The shareholder steps into the shoes of the corporation When? ypically found where officers have some relationship with third party or the third party is the corporate officers Precondition of a derivative lawsuit: shareholder must demand corporation to act before suing. Some jurisdictions excuse the demand requirement where the demand would be futile (i. e. asking the director to sue self) Applies when? the corporation has suffered a loss. Distinguished from direct shareholder loss Institutional investor- people who have significant investments in a corporation Cohen v. Beneficial Industrial Loan Corp. Facts: Plaintiff brought a stockholder’s derivative action in federal court. Defendant, Beneficial Industrial Loan Corporation, argued that a New Jersey tate l aw requiring parties to secure a bond for payment of the opposing party’s legal fees should be followed ROL: A shareholder’s derivative suit will follow state non-procedural laws regarding the derivative suits when possible. E. The Role and Purposes of Corporations A. P. Smith Mfg. Co. v. Barlow Facts: Diversity lawsuit. Defendant stockholders, Ruth Barlow et al. , questioned the legality of a charitable donation to Princeton University made by Plaintiff corporation, A. P. Smith Manufacturing Company. ROL: State legislation adopted in the public interest can be constitutionally applied to preexisting corporations under the reserved power. Corporate gift-giving is an allowable method of increasing goodwill. nder Erie doctrine, state rules apply for substantive issues whereas, federal rules apply for procedural issues Business Judgment Rule (BJR) Doctrine that relieves corporate directors and/or officers from liability for decisions honestly and rationally made in the co rporations best interest BJR: In the absence of fraud, illegality, or conflict of interest, the court will not substitute its judgment for the judgment of the corporate managers Why? (1) there are identifiable transactional costs for hesitating; (2) designed to accommodate the appropriate level of risk, which is better for the economy as a whole Dodge v. Ford Motor Co. Facts: Plaintiff shareholders, Dodge et al. brought an action against Defendant corporation, Ford Motor Company, to force Defendant to pay a more substantial dividend, and to change questionable business decisions (expand factory capability by adding steel plant & use profits to lower price of its cars) by Defendant. ROL: The purpose of a corporation is to make a profit for the shareholders, but a court will not interfere with decisions that come under the business judgment of directors. Although a corporation's directors have discretion in the means they choose to make products and earn a profit, the directors may no t reduce profits or withhold dividends from the corporation's shareholders in order to benefit the public. IV. The Duties of Officers, Directors, and Other Insiders (Chapter 5) A. The Obligations of Control: Duty of CareFiduciary Duty: a legal obligation to act for the benefit of another, including subordinating one's personal interests to that of the other person Business Corporation law: permits actions against directors for failure to perform duties in managing corporate assets option: the right to buy X shares at Y price for Z amount of time Kamin v. American Express Company Facts: Stockholders brought a derivative action, asking for a declaration that certain dividend in kind was a waste of corporate assets ROL: Whether or not a dividend is to be declared or a distribution made is exclusively a matter of business judgment for the board of directors, and the courts will not interfere as long as the decision is made in good faith.ROL: A complaint alleging some course of action ot her than that taken by the board would not have been more advantageous does not give rise to a cause of action for damages Errors in judgment are not sufficient grounds for equity interference for the powers of the entrusted with corporate management are largely discretionary-courts will not interfere with such discretion unless it first appears that the directors are acting in bad faith or for a dishonest purpose Smith v. Van Gorkam Facts: Plaintiffs, Alden Smith and John Gosselin, brought a class action suit against Defendant corporation, Trans Union, and its directors, after the Board approved a merger proposal based solely on the representations of the CEO of Trans Union, fellow Defendant Jerome Van Gorkom.ROL: The business judgment rule presumes that, when making business decisions, directors act on an informed basis, in good faith, and in the company's best interest ROL: the business judgment rule shields directors or officers of a corporation from liability only if, in reachi ng a business decision, the directors acted on an informed basis, availing themselves of all material information reasonably available. 1. Director may only rely on credible information provided by competent individuals, after taking reasonable measure to substantiate it 2. Directors have a duty to be informed to go about their responsibilities in a deliberate manner – hire outside experts (attorneys and investment bankers) 3. Gross negligence is the standard Directors are fully protected in relying in good faith on reports made by officers.The term â€Å"report† has been liberally construed to include reports of informal personal investigations of corporate officers There is no protection for directors who made unintelligent or unadvised judgment Valuing the Business Intrinsic value – what the company is really worth – no one knows what this is 3 Value indicators of a business: (1) cash flow; (2) asset value; (3) share price Discounted Present Value (DPV ) – what is the present value of the income stream. What would you pay to get X dollars tomorrow – a dollar today is worth more than a dollar tomorrow because of inflation. DPV is just one value indicator of a company's value Leveraged BuyoutLeverage Buyout – purchase of a company financed by a relatively small amount of equity and a large amount of debt. Management Leveraged Buyout (MLBO) – inherent conflict in that the management would be making money. (1) Sellers are the shareholders and they want to get the highest price possible, represented by the BOD; (2) Buyers want to pay as little as possible, in a MLBO, the BOD are the one's buying the firm. In a MLBO, the directors are on both sides of the bidding table; therefore we need to have a disinterested director or 3rd party value the firm BJR 1. If the BJR applies, then the analysis ends, no further inquiry needed 2. If BJR does not apply, then look to see if there is a breach of duty 3.A combination of fiduciary duties of care and loyalty give rise to the requirement that a director discloses to the shareholder all material facts bearing upon a merger vote 4. Five Factors to consider in the fairness of the transactions: (1) timing; (2) initiation; (3) negotiation; (4) structure of the transaction; (5) disclosure to and by the directors and shareholders Francis v. United States Facts: Plaintiffs, the trustees in bankruptcy of Pritchard & Baird Intermediaries Corporation (†P&B†), filed suit against Defendant, the executrix of the estate of Lillian Pritchard, for a breach of fiduciary duty as a director of P&B. Lillian Pritchard did not exercise ordinary care n monitoring the finances of P&B when her sons, other members of P&B management, misappropriated funds ROL: Directors have the duty to act honestly and in good faith and with the same degree of diligence, care and skills that a reasonably prudent person would use in similar circumstances ROL: Liability of a corpo rations directors to its clients requires the following to be demonstrated: (1) a duty existed; (2) the directors breached that duty; (3) the breach was a proximate cause of the client's loss ROL: A director's general obligation make it incumbent upon directors to discharge their duties in good faith and with that degree of diligence, care, and skill which ordinarily prudent men would exercise under similar circumstances in like positions. The general rule is that Directors are not personally liable for the debts of the corporation ROL: a director should acquire at least a rudimentary understanding of the business of the corporation . 1) a director should become familiar with the fundamentals of the business in which the corporation is engaged. (2) Because directors are bound to exercise ordinary care, they cannot set up as a defense lack of knowledge needed to exercise the requisite degree of care ROL: Directors are under a continuing obligation to keep informed about the activitie s of the corporation and cannot rely on reports/information by officers if the director knows or should have known that such information is not reliable ROL: Usually a director can absolve himself of liability by informing other directors of the impropriety and voting for a proper course of action. 1) Conversely, a director who votes for or concurs in certain actions may be liable to the corporation for the benefit of its creditors or shareholders, to the extent of any injuries suffered by such persons, respectively, as a result of such action. (2) A director who is present at a board meeting is presumed to concur in a corporate action taken at the meeting unless his dissent is entered in the minutes of the meeting or filed promptly after adjournment ROL: if the business judgment rule does not apply, determine if the decision of the director was a breach of fiduciary duty and establish if it was the proximate cause of the damages B. Duty of Loyalty Bayer v. Beran Facts: Plaintiffs, Bayer et al. filed a derivative shareholder action against Defendant directors, Beran et al. , contesting their decision to pay for radio advertising that employed a director’s wife. Plaintiffs also argued that Defendants needlessly renew the employment contract of Dr. Henri Dreyfus. ROL: A director does not breach his fiduciary duty by approving a radio advertising program in which the wife of the corporate president, who is also a member of the BOD, was one of the featured performers ROL: A director has a fiduciary duty to support the corporation’s interest over his or her own conflicting interests, and any competing interests renders the business judgment rule inapplicable. i. f the BJR does not apply, the directors have the burden of proof, to prevent a conflict of interest, demonstrating they dealt at an arm's length with the specific transaction ii. if a disinterested majority of directors have ratified a contract and if the complaining party could not prove it u nfair, the courts generally hold the contract valid C. Corporate Opportunities Broz v. Cellular Information Systems, Inc. Facts: Defendant, Robert Broz, was the sole stockholder of RFB Cellular, Inc. (†RFBC†) while also acting as an outside director for Plaintiff Cellular Information Systems, Inc. (†CIS†). Plaintiff brought an action against Defendant when Defendant purchased a cellular license for RFBC over a bid by CIS.ROL : The corporate opportunity doctrine holds that an officer or director of a corporation can take a corporate opportunity (1) if the opportunity is presented to them in their individual capacity; (2) the opportunity is nonessential to the corporation; (3) the corporation has no expectation for the opportunity; (4) and they have not wrongfully utilized corporate resources to take advantage of the opportunity. HC ROL: Under the doctrine of corporate opportunity, a corporate fiduciary must place the corporation's interest before his own inter ests in appropriate circumstance, but a corporate fiduciary does not breach his or her duty by not considering the interests of another corporation proposing to acquire the corporation in deciding to make a corporate purchase.Usurpation of Corporate opportunity factors: (1) corporation is financially able to take advantage of the opportunity; (2) the opportunity is in the corporate line of business; (3) corporation has an expectancy interest; and (4) accepting the opportunity would create a conflict of interest In Re eBay, Inc. Shareholders Litigation Facts: Shareholders of eBay brought derivative action against certain eBay officers and directors for usurping corporate opportunities when they accepted thousands of initial public offering shares at the initial offering price from eBay's investment banker, Goldman Sachs ROL: Where a corporation regularly and consistently invests in marketable securities, a claim for usurpation is stated where it is alleged the corporation's officers and directors accepted the IP share allocations at the initial offering price instead of having those shares allocated to the corporation.ROL: A claim of aiding and abetting a breach of fiduciary duty is stated where it is alleged that an investment banker has allocated lucrative IPO shares to a corporations insiders knowing(1) that the insider owed a fiduciary duty to the corporation not to profit personally at the corporations expense i. e. created a conflict of interest; (2) the corporation regularly invested in marketable securities, i. e. , in the line of business; and (3) the company was financially able to take advantage of the opportunity E. Dominant Shareholders Sinclair Oil Corp. v. Levien Facts: Plaintiff, Francis Levien, brought suit as a minority shareholder of Sinclair Venezuelan Oil Company (†Sinven†) which was a subsidiary of Defendant, Sinclair Oil Corporation. Plaintiff alleged that Defendant caused Sinven to pay out excessive dividends, and that Defend ant breached their contract with Sinven.CB ROL: A standard of intrinsic fairness will be applied in any self-dealing transaction by a parent corporation whose majority ownership places a fiduciary duty upon the parent corporation, but the transaction only be self-dealing if the transaction is to the detriment of minority shareholders. Self Dealing: transaction in which a fiduciary uses property of another, held by virtue of the confidential relationship, for personal gain. Shareholders do not have a fiduciary duty to one another 3 Cause of Action Arguments (1) Excessive dividends (Self-Dealing): No self dealing because each shareholder received a proportionate share of divided payment (2) Usurpation of corporate opportunities: No opportunities presented to Siven independently and which Sinclair either took for itself or denied to Sinven.OK to use different subsidiaries in other countries for different business opportunities-apply BJR (3) Breach of contract: self-dealing involved and Sinclair required to account to Sinven Intrinsic Fairness Test (IFT) ROL: IFT should not be applied to business transactions where a fiduciary duty exist but is unaccompanied by self dealing IFT is a defense to a claim that a director engaged in an interested transaction by showing the transaction's fairness to the corporation when the situation involves a parent and subsidiary, with the parent controlling the transaction and fixing the terms, the test of intrinsic fairness, with its resulting shifting of burden of proof, is applied.The basic situation for the application of the rule is the one in which the parent has received a benefit to the exclusion and at the expense of the subsidiary if such a dividend is in essence self-dealing by the parent, then intrinsic fairness standard is the proper standard for example, suppose a parent dominates a subsidiary and its board of directors. The subsidiary has two classes of stock, X and Y. Class X is owned by the parent and Class Y is own ed by minority stockholders of the subsidiary. If the subsidiary, at the direction of the parent, declares a dividend on its Class X stock only, this might well be self-dealing by the parent. If would be receiving something from the subsidiary to the exclusion of and detrimental to its minority stockholders.This self-dealing, coupled with the parent's fiduciary duty, would make intrinsic fairness the proper standard by which to evaluate the dividend payment Dominant Shareholder Some fiduciary duties imposed (1) controlling shareholders can control the board. It is possible to control the board with less than 50% ownership (2) Some corporate actions require the shareholder vote and if the shareholder uses the vote in an unfair manner, the court will hold the shareholder liable. Intrinsic Fairness Test is triggered when one party is on both side of the transaction. The controlling shareholder has the burden of proving that transaction was fair to the corporation F. Ratification Fleigl er v. LawerenceFacts: Plaintiff, Irving Fliegler, brought a suit on behalf of Agau Mines, Inc. , against Defendant directors, John Lawrence et al. , after they voted to exercise an option to purchase shares of another company. CB ROL: Shareholder ratification of a transaction between the corporation and an interested party will not be legitimate if the majority of the shareholders are the interested parties. G. Disclosure and Fairness H. Delaware General Corporation Law Section 144 Rule 10b-5 (a) unlawful to defend or make untrue statements in connection with purchase or sale of securities-Look for deception or manipulation (i) disclosures must be honest (ii) allows for a private cause of action iii) companies are required to speak to tell things to the market and when they disclose it must be honest (iv) if a company discloses information to the market, whether required to disclose or not, must make an honest disclosure (v) typically, companies refrain from disclosing unless requi red by the SEC or required by market forces. Basic Inc. B Levinson Facts: Respondents, Max Levinson et al. , held shares in Petitioner Corporation, Basic Inc. Respondents brought this action after 3 misleading statements concerning a potential merger induced them to sell their shares at a depressed price. CB ROL: Misleading statements during merger discussions will be material under Rule 10b-5 if the misstatements would have changed the view of the total information by a reasonable investor.ROL: whether a company's state is material, in the context of merger discussions, requires a case-by-case analysis of the probability that transaction will be consummated and the significance of the transaction to the issuers of the securities ROL: an investor's reliance on material, public, misrepresentations may be presumed under the fraud-on-the-market theory for purposes of a Rule 10b-5 action Materiality importance-the degree of relevance or necessity to the particular matter, a fact based i nquiry (1) to fulfill the materiality requirement there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the â€Å"total† mix of information available. Does the statement made by the company change the total mix of the information available? 2) materiality depends on the significance the reasonable investor would place on the withheld or misrepresented information (3) As the probability of the event increases, it becomes more and more material and increases the need to disclose (4) As the magnitude of the event increases, it becomes more and more material and increases the need to disclose (5) Probability x Magnitude = Materiality SEC Securities and exchange commission encourages transparency through disclosure of information that is material Fraud on Market (FOM) FOM the price of a company's stock is determined by the available information regarding the company and its b usiness. Misleading statements will therefore defraud purchasers of stock even if the purchasers do not directly rely on the misstatements. The market must be able to recognize the information and reflect the information in an adjustment in the price of stock Dissent in Basic he court should not endorse the fraud on market theory for 3 reasons: (1) common law doctrine of fraud and deceit; (2) the court presumption of reliance also assumes that buyers and sellers rely not just on the market price, but on the integrity of that price; and (3) many investors purchase or sell stock because they believe the price inaccurately reflects the corporations worth. Therefore, Efficient Market Theory (EMT) in a deep and liquid market, The market takes into account all available information and no one has any additional, valuable information if that's true, over the long term you can't beat the market because the market will always have more information than an individual over time. Therefore, for Rule 10b-5 action the court presumption is that the shareholder relied on the price of the stock. now the burden of proof is on the defendants to prove that the shareholders actions were not in reliance on the price of the stock but some other reason. RelianceReliance provides the requisite causal connection between the defendants misrepresentation and a plaintiff's injury we previously dispensed with a requirement of positive proof of reliance, where a duty to disclose material information had been breached, concluding that the necessary nexus between the plaintiff's injury and the defendant's wrongful conduct had been established Reliance of individuals on the integrity of the market price may be presume; however, that presumption can be rebutted Misc because most publically available information is reflected in the market price, an investor's reliance on any public material misrepresentation. The court adopted the TSC Industries standard of materiality for 10b5, which concludes that an omitted fact is material if there is a substantial likelihood that reasonable shareholder would consider it important in deciding how to vote. (a) further to fulfill the materiality requirement, there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the total mix of information made available. b) there must be reliance on the statement or omission. (1) there is more than one way to demonstrate the casual connection between the misrepresentation and the plaintiff's injury–no requirement of positive proof of reliance, (2) the class action is extremely important because it allows the plaintiffs to secure counsel to pursue claims that otherwise would be cost prohibitive; (3) The court held that there is a presumption of reliance. Agreement in Principle Test Preliminary merger discussions do not become material until agreement in principle as to the price and structure of the transaction have been reached between the would be merger partners. rationales are offered in support of this (1) an investor should not be overwhelmed by excessively detailed and trivial information and focuses on the substantial risk that preliminary merger discussions may collapse (2) it helps to preserve the confidentiality of merger discussions where earlier disclosure might prejudice the negotiations. (3) the test also provides a usable, bright line rule for determining when disclosures must be made. In Basic, the shareholders sold stock based on their reliance on the integrity of the price set by the market, but because of Basic's material misrepresentation that market prices had been frequently depressed Probability/Magnitude Approach ateriality will depend at any given time upon a balancing of both the indicated probability that the event will occur and the anticipated magnitude that the event will occur and the anticipated magnitude of the event in light of the tot ality of the company activity (1) to assess the probability, a fact finder will need to look to indicia of interest in the transaction at the highest corporate levels–board resolutions, instructions to investment bankers, and actual negotiations between principals or their intermediaries may serve as indicia of interest (2) to assess magnitude of the transaction to the issuer, a fact finder will need to consider such facts as (a) the size of the two corporate entities and (b) the potential premiums over market value Why allow private individuals to press claims? allows people with a real stake in the claim to pursue it encourages reaching the larger statutory goal of disclosure by having mini-private-attorney generals–basically a multiplier for the SEC West v. Prudential Securities, Inc. Facts: Plaintiffs, Dean West et al. brought an action under the fraud-on-the-market doctrine after a stockbroker for Defendant, Prudential Securities, Inc. , gave then non-public tips that were fraudulent. CB ROL: A fraudulent statement needs to be made publicly accessible in order for a plaintiff to claim that the statement caused a loss on the investment. ROL: Unless the information reaches the market, there can be no fraud on the market to satisfy the reliance factor Santa Fe Industries, Inc. v. Green Facts: Plaintiffs, Green et al. , were minority shareholders of Kirby Lumber Corp. Plaintiffs brought this action to recover a greater share price after Defendant majority shareholder, Santa Fe Industries, Inc. , forced Plaintiffs to sell their shares.CB ROL: Section 10(b) of the Securities Exchange Act and Rule 10b-5 prohibit conduct involving manipulation or deception, but are not so expansive as to govern incidences of fiduciary breach. ROL: before a claim of fraud or breach of fiduciary duty may be maintained under 10b-5, there must first be showing of manipulation and deception Manipulation and Deception inadequate compensation does not rise to level of mani pulation or deception when all facts are disclosed No manipulation or deception; therefore, the shareholders filed the wrong cause of action and should have sought an appraisal remedy In addition, state law generally governs the internal affairs of a corporation, such as fiduciary responsibility Remember Rule 10b-5 is a federal cause of actionThe Court granted which relief that could be granted (a) federal law was asserted violated because the merger was undertaken without prior notice (b) the low valuation placed on the shares in the cash exchange offer was itself said to be fraud that is actionable under 10b-5 (c) the purpose of getting rid of the minority shareholder helps to eliminate the fiduciary duty and also if you can buy the minority shareholders out at a lower price, there's more money to be made (d) 10b-5 cause of action is based on market manipulation and there can also be a 10b-5 action when there is no sufficient disclosure, but not for insufficient compensation 10b-5 reach for minority shareholder squeeze out 0b-5 reaches breaches of fiduciary duty by a majority shareholder against a minority shareholder without any charge of misrepresentation or lack of disclosure Neither misrepresentation nor non-disclosure are necessary elements of rule 10b-5 starting point of every 10b-5 case involving construction of a statute is the language itself–the language gives no indication that Congress meant to prohibit any conduct not involving manipulation or deception Two factors determine whether Congress intended to create a federal cause of action: (1) language of the statute; and (2) whether the cause of action is traditionally relegated to state law. Absent a clear indication of congressional intent, the Courts are reluctant to federalize the substantial portion of the law of corporations that deals with transactions in securities, particularly where established state policies of corporate regulation exist. 2 Reasons Sante Fe is an appropriate case for an appeal 1) the district court's order marked an substantial extension of the fraud on the market approach Basic held that because most publicly available information is reflected in the market price, an investor's reliance on any public material misrepresentation-that public information trades quickly and influences securities prices (2) Few securities transactions are litigated to conclusion, so a review of this novel and important legal issue may be possible only through the Rule 23(f) device (a)it is hard to see how Hofman's non public statements could have caused changes in the price of Jefferson's Savings stock -found the fraud on the market doctrine on a causal mechanism with both theoretical and empirical power, for non public information there is nothing comparable (b) there is non public information and securities prices, let alone show that the link is as strong as the one deemed sufficient (c) Blue Chip Stamps court held plaintiff had no cause of action under 10b-5 because it had neither bought or sold shares, plaintiff argued because the corporation negatively painted their position, it exercised the right not to purchase share on which they would have made a profit. (d) Ernst v.Ernst court held that liability for issuance of a false or misleading statement requires proof of a state of mind referred to scienter, court also held recklessness would be sufficent (e) Central Bank court held that there was not implied private right of action against those who aid and abet violation of Rule 10b-5 I. Inside Information Securities and Exchange Commission v. Texas Gulf Sulfur Co. Facts: Plaintiff, the Securities and Exchange Commission, brought this suit against Defendants, Texas Gulf Sulphur Co. , et al. , after Defendants bought shares of Texas Gulf while they secretly had positive information regarding mining activities carried out by the company.CB ROL: Insiders cannot act on material information (information that a reasonable man would deem impo rtant to the value of the stock) until the information is reasonably, publicly disseminated. ROL: it is unlawful to trade on material inside information until such information has been disclosed to the public and has had time to become equally available to all investors ROL: A company press release is considered to have been issued in connection with the purchase or sale of a security for purposes of imposing liability under the federal securities laws, and liability will flow if a reasonable investor, in the exercise of due care, would have been misled by it. The essence of Rule 10b-5 is that anyone, would have been misled by it.In the securities if a corporation has access, directly or indirectly, to information intended to be available only for a corporate purpose and not for the personal benefit of anyone may not take advantage of such information knowing it is unavailable to those whom he is dealing Rule of Disclosure or Abstention Anyone in possession of material inside inform ation must either disclose it to the investing public, or if he disabled from disclosing it in order to protect a corporate confidence, or he chooses not to do so, must abstain from trading or recommending the securities concerned while such inside information remains undisclosed. Becomes a Rule of Abstention insider must either disclose or abstain. in this instance the company prohibited the insider from disclosing the information..Thus even if the insider quit the company and sought to disclose, the insider's fiduciary obligation to the company prohibits the insider from disclosing the information (i) because the information is private information of the company, it ultimately results in requiring the insider to abstain from trading (ii) insiders must refrain from trading until the market digests the information Materiality Test the basic test of materiality is whether a reasonable man would attach importance in determining his choice of action in the transaction in question. (i) this encompasses any fact which in reasonable and objective contemplation might affect the value of the corporation's stock or securities. ii) thus, material facts include not only information disclosing the earnings and distribution of a company, but also those facts which affect the probable future of the company and those which may affect the desire of the investors to buy, sell, or hold the company's securities Required Disclosures 10Q – quarterly earnings 10k – annual earnings 8k – material events that occur between reporting periods. Insider Information anyone in possession of material inside information must either disclose it to the investing public or if he is prevented from disclosing to protect corporate confidence, or he chooses not to do so, must abstain from trading in or recommending the securities concerned while such inside information remains undisclosed. a) the insider's duty to disclose information or his duty to abstain from dealing in his c ompany's securities arise only in situation which are essentially extraordinary in nature and which are reasonably certain to have a substantial effect on the market price of the security if the extraordinary situation is disclosed (b)the test of materiality is whether a reasonable would attach importance in determining this choice of action in the transaction in question (c) corporations are only required to disclose that information that is required to be disclosed–there is a duty to disclose every annually, quarterly, and between quarters those events and activities that are extraordinary information (d) a survey of the facts establish that knowledge of the results of the discovery hole K 55 1 would have been important to a reasonable investor and might affect the price of stock (e) a major factor in determining discovery was material is the importance attached to the drilling result by those who knew about it (1) once the information is disclosed, the market will adjust ( 2) the insider traders can start trading as soon as the market can digest the information (in modern society that's quickly) Holding: All transactions in TSG stock or calls by individuals apprised by the drilling results were made in violation of Rule 10b-5 V. Problems of Control (Chapter 6) A. Proxy Fights Proxy is the right to vote someone else's shares Proxies are need to establish quorums (50%+1), which are typically required for an election to count The outcome of voting will depend on which group has collected the most proxies: Under corporate law, shareholders may appoint an agent to attend the meeting and vote on their behalf and hareholder proxy holder Incumbent managers of large firms solicit proxies from shareholders directly Both Tender offers and proxy fights are subject both to the 1934 Securities Exchange Act and to state corporate statutes SEC – Federal Rules Require Certain Disclosures when Soliciting Proxies Proxy statement must be given– statement mu st disclose material information Proxy battles is a way to change the way a firm is manage Proxy Contest proxy contest is a struggle between two corporate factions to obtain the votes of uncommitted shareholders. A proxy contest occurs when a group of dissident shareholders mounts a battle against corporations managers 1.Strategic Use of Prox

General Nutrition Companies Inc

General Nutrition Companies Inc. , was founded 65 years ago in Pittsburgh, Pennsylvania on the premise that Americans wanted to maintain control over their health. David Shakirian founded the company. In 1935 he launched a dream of his by establishing a little health food store in Pittsburgh, Pennsylvania. He called it Lackzoom. The products that were offered at his store included yogurt and healthy foods such as honey, grains and healthy sandwiches. The concept of being a health store and serving health food was thought to be a fad that would soon pass over back then. To the surprise of many of Shakarian's critics, many people embraced Lackzoom. David and his store came a long way from its first day†s receipts of 35 dollars to open a second store six months later. Since those first two stores, Lackzoom, which is now GNC, has grown to be the largest manufacturer of vitamins and mineral supplements in the United States (1998 Annual Report). General Nutrition Companies, Inc. , collectively with its subsidiaries, is the only nationwide specialty retailer of vitamin and mineral supplements, sports nutrition products and herbs, and is also a leading provider of personal care, and other health-related products. The products were sold through 3,757 General Nutrition Centers, 2,531 of which were owned and operated by the company and the other 1,226 stores were franchised. Much of the growth of GNC has occurred in the last 7 years. Since 1992, the Company has opened or acquired in the United States 2,593 new GNC stores (SEC 10k form). The company†s initial growth was through company-owned stores located primarily in regional malls. Many of the stores that were created in the past 7 years have been franchises. This franchise initiative has enabled GNC to expand into secondary locations as well as International markets. It appears that there is no end to the growth of GNC. At a Franchising meeting on February 6,1999 GNC awarded and agreed to open an additional 323 domestic and 428 international franchise locations. All of these stores report to GNC headquarters, which is located in Pittsburgh, Pennsylvania. Pittsburgh is also home to one of General Nutrition†s three distribution centers. The other two distribution centers are located in Atlanta and Phoenix. The products that are distributed through these channels are manufactured in Greenville, South Carolina. This facility is one of the largest and most modern vitamin and supplement manufacturing facilities in the United States. Within the coming months a new 600,000 sq. ft. manufacturing plant and distribution center in Anderson, SC will open which will double the capacity of the company (www. gnc. com/about/history). As you can see net revenue increased to 1. 4 billion dollars, an increase of 18. 8 % over 1997. This increase was driven by the success of the Company†s store expansion program and increased demand for the Company†s products, as reflected by increased sales, across all business segments. During 1998, the Company developed a web site, GNC. com, to sell products via the Internet. Although still in the early stages of operation, the Company expects sales to increase based on the growth of the Internet. The history of GNC shows their excellence in planning and execution of these plans. Going into the next millennium, the Company must actively scan their environment for opportunities and threats. The General Nutrition Company is exposed to many external threats. Over the past five years there has been a trend in consumer behavior towards healthy living. This trend has caused the health product and supplement market to drastically increase. Some of the most prominent external threats that GNC faces are new competitors, competing products and services, new technologies, government regulations, increasing customer expectations, general economic conditions, and the different cultural ways of the host countries. Some of GNC†s new competitors include Internet and mail order companies such as discountnutrition. com and the Vitamin Shoppe have entered the vitamin and supplement market recently. They have taken some of the Company†s residual sales by offering different mediums of purchase. The Internet and mail order companies tend to offer discounted prices because they buy their products in bulk. A new competitor that has appeared in small regions across the United States has been Vitamin World. These shops tend to carry a similar product line with the exception of General Nutrition†s exclusive products. In addition to Vitamin World many other small chains have been started. Two of these chains are Great Earth and Vitamin Specialty of New York. These stores propose more of a threat to GNC†s corporate stores rather than the franchises because of the personalized service. The franchise stores also have more leniency in determining the final price and any discounts or specials. With the addition of these new competitors and the threat that they pose the Company has maintained if not increased its market share in many markets. GNC manufactures and sells several lines of supplements, vitamins and minerals, as well as a variety of health foods. These product lines carry many names. Some of these names include Preventative Nutrition, GNC, and Pro Performance. All of these lines are sold exclusively at GNC stores and at their online manufacturer. In addition to their own product lines, GNC stores carry a variety of products from third-party vendors. These third-party vendors include big names such as EAS (Experimental and Applied Sciences), Twinlab, Met-Rx, and Metaform. All of these vendors are in the top 5% of sales for their flagship product. The Company must realize this and make their own products more attractive to the consumer. Competing products from the third-party vendors are also sold at other stores, so this forces the Company to not only compete within their own store but to also compete in the marketplace. Today, many companies are facing the threat of the internet. Many companies are not used to this advanced technological system and do not have the resources to compete. Not only is the Internet used for advertising purposes but it is also being used as an online ordering system. With the shift towards an online ordering system many things have to be taken into consideration and changed accordingly. The entire supply chain must be examined to identify any and all potential problems and differences that must be made as a result of this shift. In this case, the manufacture, supply, distribution, and information flow are critical and will inevitably be modified from the traditional way of supply the product to the retail centers. Government regulations pose an enormous threat to the company. Potential government regulations will mandate FDA regulations and the testing of all products. This will dramatically increase the cost of production, which will ultimately be passed on to the end consumer. Some sport and diet supplements sold by the company today could be ruled illegal in the coming months if this occurs. This could potentially reduce the number of products available as well as the customer base. With the nation†s shift towards healthier living, many consumers have begun to experience unrealistic expectations of the products offered by the company. This can be witnessed by the fact that 45% of all adult American†s take some form of supplement. An attitude that many American†s exert today is that they want the â€Å"pill† or supplement to take the place of the work that they themselves would otherwise have to do. Customers are also looking for a company that offers exceptional customer service and sales associate knowledge. With today†s flourishing economy, the average American†s income is at an all time high. If anything would happen to cause a negative occurrence in the economy the average American†s disposable income would, as a result, probably decrease. This decrease in their disposable income would take away from their ability and/or desire to spend their money on products offered by GNC. The Different Cultural Ways of Host Countries The way that GNC handles their international business is through franchising. The franchising done internationally is done differently than is domestically. During the international franchising process, the entire General Nutrition rights are sold to the franchisee for the entire country, not just an individual store as done domestically. The government regulations and culture differences or preferences are left to the discretion of the potential or existing franchisee. The threat is posed as a result of the lack of assistance and guidelines that would normally come from the corporation headquarters. As far as dealing with the individual host country†s government regulations and culture, it may discourage business in that country all together. The availability of raw materials poses basically no threat to the company at this point because of their vast resources and long term contracts with their suppliers. But, in the future with the addition of many new entrants into the market a shortage of some raw materials and components may occur. General Nutrition was the pioneer of the nutrition industry and will continue to be for years to come. On of the major contributing factors to their success has been their ability to maximize their external opportunities. Around the late 1980's the average Americans active lifestyle had reached an all time low. With the 1990's came the current trend of healthier living. It was at this time that consumers turned to GNC to help maintain a healthy lifestyle. GNC capitalized on this opportunity in several different ways. They began to change the typical consumer†s idea and preferences about the General Nutrition stores and products. They began advertising to all people and having specially trained employees with knowledge of all products that were carried. This helped to make the store a more inviting place to everyone from a young high school athlete to a middle-aged mother of two. This also lead to new product market niches. Some of the more successful are the pro-performance line which is geared towards athletes, also the live well concept which promotes an overall healthy lifestyle which would be more suited for the average adult. With the change in customer preferences, GNC has the opportunity to increase market share by creating customer loyalty and trust through groundbreaking products. General Nutrition has done a tremendous job on utilizing these opportunities and in order to remain atop the competition they must continue to fine tune the and analyze the business strategy. Definitely one of General Nutrition†s greater external opportunities is their franchising and long-term alliance with Rite Aid. This opportunity is so tremendous that along with 697 stores opened in 1998 they also signed an alliance with Rite Aid. The alliance with Rite Aid allows GNC to enter a new channel for marketing its supplements. With a the average American only five miles away from a GNC, there still is such a demand for the stores that they plan to open an additional 250 stores in the next year alone. This combined with a total commitment to providing customer support has helped make GNC one of the most successful franchises for the past decade. To continue to capitalize on these external opportunities the company can look to actively pursue their franchising capabilities while avoiding cannibalization of existing stores to allow them to remain the pinnacle of the health food industry. The main reason that GNC has been and will remain the world leader in the nutrition industry is due to their ability to use technology to receive great benefits. Their greatest areas of technology that set them apart from the rest are their manufacturing and distribution. This past year the company took a tremendous leap into the 21 century with the completion of a 630,000 square foot state of the art manufacturing facility in South Carolina. Along with the new manufacturing facility, the Company was involved in a recent merger with the Dutch pharmaceutical company Royal Numico. This merger makes the Company the world†s largest manufacturer of vitamins and supplements. This merger presents the company with a great opportunity to take advantage of the world class research facilities available to them. The Company should streamline their supply chain to fully take advantage of the new manufacturing and distribution facilities. This will increase the Company†s overall efficiency. The Company should look for a strategic alliance with an established online drugstore to broaden the Company†s market share. This would also allow the Company to gain entry into the world of e-commerce. Internal strengths of the company include quality products emphasizing vitamins and minerals along with sports nutrition. This product mix focuses on high margin value added products, which are sold under the GNC proprietary brand. Along with vitamins, herbal, and sports supplements the Company also offers customers the opportunity the Gold Card program. This program enables stores to add to their product line. The basis for this program charges a $15 annual fee that entitles each member to a 20% discount on all products one time each month. Sales of proprietary brands represented over 50% of total sales in 1998. Company reputation is another strength for the company. The Company is the only nationwide specialty retailer of vitamin, mineral supplement, sports nutrition products, and herbs. Along with these products the Company is also the leading provider of personal healthcare products. The company†s reputation was built on two basic principles. The first of these is strong customer service. The Company has a strong competitive advantage over competitors because of well-trained and informed employees who have knowledge of the entire product line. The Company†s employees are knowledgeable and efficient because of the strong employee-training program. The second principal that has built their reputation is a superior product line. The proprietary brands along with other strong brand names enable them to have a product line better than the competitor. Production capabilities at the Company have enabled them to become the world leader in the their industry. The Company will be able to maintain their position as a leader because of their capacity to not only meet company inventory requirements, but also enough to sell to third parties in the wholesale market. The Company is able to maintain strong production capabilities because of their emphasis on quality control. Each product is tested from the beginning to the end until the final product meets their standard. The Company has experienced a strong sense of executive leadership. The current president has 25 years of experience within the company and the CEO has 18 years. The executive vice president has 19 years of experience and the head of logistics has 22 years under his belt. Along with this experience it is evident to see that there is an extremely low employee turnover ratio within management. Turnover within this company as with any retail organization occurs with retail store management and part time sales positions. To keep this factor at a low level the Company started the franchise program. The Company wanted to bring strategic partners into their system that would personally invest in the Company†s program. Along with strong management leadership the Company maintains a strong employee base through orientation and hiring kits that enable the new employee to adjust quickly and become an efficient employee. The company gives their employees the opportunity for tuition reimbursement, profit sharing, good medical and health benefits, and 401k and stock options. All of these factors allow a GNC employee to be part of a team. The Company uses patents to its advantage. By having patents on their proprietary formulas, vitamins, sports nutrition, and herbal supplements, the Company creates barriers between themselves and competitors. Along with their patents the Company conducts research with other companies. One such company is Proctor and Gamble. Recently the Company has held the patent with Proctor and Gamble on calcium (calcium citrate malate). This product was found to be more absorbent than any other type of calcium. The Company achieves economies of scale throughout the entire organization and network of 5,000 retail stores by a close arrangement of entities. These include arrangements with product suppliers, raw materials, packaging material, store supplies, retail advertising, third party advertising, insurance coverage, and credit card processing. The close surveillance and agreement of these entities allows the company to achieve greater economies of scale. The mission of the Company is to maintain quality over quantity in its products. The company typically introduces 25 to 30 new products each year and reformulates existing products on an annual basis. An annual reset is done for the stores to introduce new vendor third party products, and new company products through expansion and deletion of retail shelf space. General Nutrition Companies Incorporated is the leader in health products but the company is not adverse to risk. These risks that we can find within the company are considered to be the weaknesses of the company. The first risk is that Royal Numico has acquired GNC, now being a part of a larger company they must now try to fit into the larger system and integrate themselves. With the integration of the Company into Royal Numico there will be a significant amount of cash spent, some potentially dilutive issuance†s of equity securities, incurrence of debt or amortization expenses, related to goodwill and other intangible assets. Any of these can adversely affect the company; it†s operating results and financial conditions. In addition to the financial and operating factors we could find difficulties in the assimilation of the technologies, products and personnel of the integrated company. Another weakness that the company has is their leverage problem. This means that the company has raised much of its capital through debt financing, including loans. Based on the current level of operations and anticipated level of growth, the company†s available cash flow, together with other sources of liquidity, will be adequate to meet to future needs of capital. Although it looks to be enough, there can be no assurance that the company will generate enough cash flow.