Document zQ1LOnJZ2v633EJ98r9gReVX0

MAFCO CONSOLIDATED GROUP INC (Form- 10-K, Received 03/28/1997 00:00.0 . Page 10 of 116 Cigar manufacturers, like other producers of tobacco products, are subject to regulation in the Umted States at federal, state and local levels. Together with changing public attitudes towards smoking, a constant expansion of smoking regulations since the early 1970's has been a major cause of 8 the overall decline in consumption of tobacco products Moreover, the trend is toward mcreasmg regulation of the tobacco industry Federal law has required health warnings on cigarettes smce 1965 and has recently required states, in order to receive full funding for federal substance abuse block grants, to establish a minimum age of 18 years for the sale of tobacco products together with an appropriate enforcement program In recent years, a variety of bills relating to tobacco issues have been introduced in the Congress of the United States, including bills that would have (i) prohibited the advertising and promotion of all tobacco products and/or restricted or eliminated the deductibility of such advertising expenses, (n) increased labelmg requirements on tobacco products to include, among other things, addiction warnings and lists of additives and toxins; (in) modified federal preemption of state laws to allow state courts to hold tobacco manufacturers liable under common law or state statutes, (iv) shifted regulatory control of tobacco products and advertisements from the Federal Trade Commission to the Food and Drug Administration (the "FDA"); (v) increased tobacco excise taxes; and required tobacco companies to pay for health care costs incurred by the federal government in connection with tobacco related diseases. Hearings have been held on certain of these proposals, however, to date, none of such proposals have been passed by Congress Future enactment of such proposals or similar bills may have an adverse effect on the sales or operations of the Company In addition, various federal agencies, including the FDA, have recently proposed to regulate the tobacco industry. In addition, the majority of states restrict or prohibit smoking m certain public places and restrict the sale of tobacco products to minors Local legislative and regulatory bodies have also mcreasingly moved to curtail smoking by prohibiting smoking in certain buildings or areas or by requiring designated "smoking" areas In a few states, legislation has been introduced, but has not yet passed, which would require all little cigars sold in those states to be "fire-safe" (l e., cigars which extinguish themselves if not contmuously smoked) Passage of this type of legislation could have a material adverse effect on the Company's little cigar sales because of the technological difficulties in complying with such legislation The Company does not expect the passage of any such legislation to have a material adverse effect on the Company's busmess or results of operations taken as a whole. There is currently an effort by the U.S Consumer Product Safety Commission to establish such standards for cigarettes The enabling legislation, as originally proposed, included little cigars, however, little cigars were deleted due to the lack of information on fires caused by these products. Increased cigar consumption and the publicity such increase has received may increase the risk of additional regulation of tobacco products or of cigars. Consideration at both the federal and state level also has been given to the consequences of tobacco smoke on others who are not currently smoking (so called "second-hand" smoke) There can be no assurance that regulation relating to second-hand smoke will not be adopted or that such regulation or related litigation would not have a material adverse effect on the Company's results of operations or financial condition Although federal law has required health warnings on cigarettes smce 1965, there is no federal law requiring that cigars or pipe tobacco carry such warnings However, California requires "clear and reasonable" warnings to consumers who are exposed to chemicals known to the state to cause cancer or reproductive toxicity, including tobacco smoke and several of its constituent chemicals Violations of http://www edgarpro com/EFX_dll/EDGARpro dlUFetchFilingHTMLl?ID=969943&Ses. 10/19/2003