Document G5Dz6zLDrYrDX5pooQMr3DD14

MAFCO CONSOLIDATED GROUP INC (Form. 10-K, Received. 03/28/1997 00 00:0. Page 12 of 116 Litigation Histoncally, the cigar industry has not experienced material health-related litigation and, to date, the Company has not been the subject of any material health-related litigation However, the cigarette and smokeless tobacco industries have experienced and are experiencing significant health-related litigation involving tobacco and health issues 10 Litigation against the cigarette industry has histoncally been brought by individual cigarette smokers. In 1992, the United States Supreme Court in Cippollone v. Liggett Group, Inc ruled that federal legislation relating to cigarette labeling requirements preempts claims based on failure to warn consumers about the health hazards of cigarette smoking, but does not preempt claims based on express warranty, misrepresentation, fraud or conspiracy. To date, individual cigarette smokers' claims against the cigarette industry have been generally unsuccessful; however, on August 9,1996, a Florida jury in Carter v. Brown & Williamson Tobacco Corporation determined that a cigarette manufacturer was negligent in the production and sale of its cigarettes and sold a product that was unreasonably dangerous and defective, awarding the plaintiffs a total of $750,000 m compensatory damages. The verdict is on appeal. Current tobacco litigation generally falls within one of three categories: class actions, individual actions (which have been filed mainly in the State of Florida), or actions brought by individual states or localities to recover Medicaid costs allegedly attributable to tobacco-related illnesses The pendmg actions allege a broad range of injuries resultmg from the use of tobacco products or exposure to tobacco smoke and seek various remedies, including compensatory and, in some cases, pumtive damages together with certain types of equitable relief such as the establishment of medical monitoring funds and restitution The major tobacco companies are vigorously defending these actions, including by challenging the authority of state attorneys general to bring Medicaid actions attributable to tobaccorelated illnesses and, in some states, bringing preemptive lawsuits to enjoin the state attorneys general from instituting litigation The recent increase in the sales of cigars and the publicity such increase has received may have the effect of increasing the probability of legal claims. Also, a recent study published m the journal Science reported that a chemical found in tobacco smoke has been found to cause genetic damage m lung cells that is identical to damage observed m many malignant tumors of the lung and, thereby, directly links lung cancer to smoking This study could affect pendmg and future tobacco regulation or litigation. In May 1996, the Fifth Circuit Court of Appeals in Castano v. American Tobacco, et al. reversed a Louisiana district court's certification of a nationwide class consisting essentially of mcotine dependent cigarette smokers Notwithstanding the dismissal, new class actions asserting claims similar to those in Castano have recently been filed in certain states To date, two pendmg class actions against major cigarette manufacturers have been certified. The first case is limited to Florida citizens allegedly injured by their addiction to cigarettes, the other is limited to flight attendants allegedly injured through exposure to secondhand smoke There can be no assurance that there will not be an increase in health-related litigation involving tobacco and health issues against the cigarette industry or similar litigation in the future against cigar manufacturers The costs to the Company of defending prolonged litigation and any settlement or successful prosecution of any material health-related litigation agamst manufacturers of cigars, cigarettes or smokeless tobacco or suppliers to the tobacco industry could have a material adverse effect on the Company's busmess http //www.edgarpro com/EFX_dll/EDGARpro.dll?FetchFilmgHTML 1 ?ID=969943&Ses.. 10/19/2003