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PRIVATE AND CONFIDENTIAL

ME M O R A N D U M
To: Sally Ellyson, President and CEO of Astral Corporation From: John Michael Fryback, Pranav Himatsingka, Steven Richards & Tyrone Schiff Date: November 20, 2008 Re: Cook v. Astral Lawsuit

Page 1 The following memo contains a detailed analysis of the legal challenges presented to Astral Corporation as a result of the recent personal injury product liability lawsuit served by attorney Steve Morrissey regarding the product Astraldex. As students in LHC 305 at the Ross School of Business, we have worked to lay out the most important strengths and weaknesses of our case as well as provide useful recommendations for how the company should proceed. The following three sections are organized to present our findings in the clearest manner possible and we hope to have addressed all of your concerns. _____________________________________________________________________________________ Discussion In looking at the following four counts, we believe it is important to understand the broader context of these charges in relation to the actual actions of Astral Corp. To do so, we believe it is important to keep the following two questions in mind when trying to understand the specifics of each of the four charges : (1) Whether Astral caused Mr. Cook’s condition and (2) whether Astral deserves to be held liable for it. These two broad questions give us some context for understanding how to attack each of the charges and are important to think about in any discussion of how to proceed. Count I - Negligence Based on the data provided, we believe that Astral can be considered potentially liable for negligence. An act of negligence consists of three elements, breach of duty, proximate cause and injury. In this case, there might be a breach of duty by Astral because they had superior knowledge about the product and the effects of its contents. It can be debated whether or not Astral is liable for breach of duty. They did take precautions by testing the product in the 1970’s and by showing that BMB may not be considered a potential health hazard. Also, all the producers in the market reached a consensus that the use of BMB was not a health hazard. Finally, Astraldex is a government approved product. However, there are weaknesses in Astral’s defense. Astral’s tests in the 1970’s are not conclusive and Astral did not continue testing in the 1980’s and 1990s, even though there were more research tools available. Another weakness in Astral’s defense is that the harmful consequences resulting from the use of BMB were foreseeable. It was always suspected that BMB could lead to cancer. Even after the Internet

Page 2 rumors in 2001, the tests done by other research departments were disregarded even though they showed a carcinogenic aspect to BMB. Astral’s own test, though not conclusive, did prove that there was an increased risk of lung damage to rats exposed to BMB vapors. The main defense that can be used by Astral in the negligence count is the proximate cause element. According to the proximate cause element, the plaintiff has to prove that the injury caused was the result of negligence by the defendant. In this case, the defendant suffers severe injury and illness, but it will be difficult to prove that the lung cancer is due to inhaling excess BMB. There is not sufficient proof that BMB causes lung cancer. Also, the plaintiff has asthma and is a regular smoker of cigarettes, both of which could be reasons for his illness. It will be difficult for the plaintiff to prove what portion of the injury is due to the defendant's negligence. Astral could also focus their defense on determining whether the risk of harm was unreasonable. The tests done by outside researchers showed that at worst 1 in 45,000 healthy people would have adverse reactions that would heighten the risk of cancer. However, Astral has no evidence to disprove the heightened harmful effects of BMB on users with pre-existing respiratory problems. They should have anticipated that users with health risks would have used Astraldex and created a proper warning. In its defense, Astral could discuss the cost of taking the precautions that would have reduced the risk. It is clear that if we substituted BMB with BBC, the manufacturing costs would have increased. However, the weakness in this defense is that there was a substitute that guaranteed a safe product. By not substituting, Astral could be painted as a company that cared more about making high profits than its consumer’s safety. Count VI - Strict Liability Astral should anticipate several issues arising as they relate to Count VI, strict liability. Strict liability in tort encompasses concepts such as possible product defects. Astraldex is considered a defective product under strict liability due to the apparent defects in warnings, labeling, packaging, and poor choice of material usage. Though the Astraldex solution performs its intended purpose, the packaging is inadequately labeled. The failure of a seller to warn a buyer of the product’s possible dangers and directions for safe

Page 3 use render the seller strictly liable in a tort. On their warning label, Astral failed to mention the 1970's findings concerning the hazardous risks involved in ingesting the solution. Further, research has also indicated a carcinogenic link to an ingredient found in Astraldex, BMB, that effects 1 in 45,000 healthy people without any prior risk factors. This information is not shared with the consumer via a label. Additionally, the warning label only appears on the side of boxes used while shipping 1 gallon bottles of Astraldex. This is an inadequate warning. Warning labels should be placed on all bottles of Astraldex, regardless of volume, size, or quantity. Due to the hazardous nature of the materials that make up Astraldex, Astral ought to perform the due process necessary so that packaging, labeling, and warnings are clear and conspicuous on all of their products. Furthermore, without sufficient knowledge of the contents of the product, the buyer is exposed to an unreasonable amount of danger associated with the unknown product; another instances of strict liability in tort. To be unreasonably dangerous, a product must merely contain a danger beyond which would be contemplated by the ordinary consumer with common knowledge of its characteristics. The advent of potentially contracting cancer would qualify as a danger. Without labels indicating the potentially dangerous consequences of using the product, the product is deemed defective and thus the count of strict liability in tort could be affirmed. Astral also knowingly designed their product with dangerous or hazardous materials. Since the 1970s, Astral has been aware of a substitute to BMB called BBC. Although the cleaning power decreases slightly, there are apparently no adverse health effects with BBC. This qualifies as a design defect because Astral could have designed a safer product with the given technology. However, there are several confounding factors to this contention. First, Astral had no indication that BMB was unsafe, and therefore, did not need to switch without good reasoning. Second, the switch to BBC would have increased the unit cost for Astraldex by $1.00, which would have been “corporate suicide.” These elements adversely impact Astral, especially on counts brought forth relating to strict liability. Continuing to use BMB, when BBC was a known alternative, may be used against Astral in determining strict liability, however, the line of reasoning has certain deficiencies. Yet, although Astraldex

Page 4 may have had nothing to do with Mr. Cook’s illness, the defining factor in this case for determining strict liability in tort will be the inadequacies in warnings, labeling, and packaging. Astraldex can be considered an unreasonably dangerous product. Count VII - Warranty Based upon the facts presented, defending against the charge of breach of warranty could present significant difficulties arising from Astral’s lack of a clear express warranty or disclaimer. In order for the plaintiff to bring warranty action against Astral it is necessary to prove four things: (1) that a warranty existed, (2) that the warranty has been breached, (3) that the breach of the warranty proximately caused the loss suffered, and (4) that notice of the breach of warranty has been given to Astral. The existence of an implied warranty exists as an operation of law. That is, just by virtue of selling Astraldex, the company is bound by the implied warranty to produce goods fit for their intended purpose. We believe it will be advantageous for our defense to acknowledge the existence of this implied warranty as well as to acknowledge the existence and possible faults contained in any express warranty listed by the plaintiff. Essentially, we want to make it clear that we recognize and respect the responsibility of the company to provide a safe product. The difficulty here will be that Astral has done little to provide a clear express warranty or any form of a disclaimer that might discharge us from liability in this case. The most important and most difficult issue to address in regards to Count VII is whether the warranty, either express or implicit, has been breached. According to Article 2 and 2A of the UCC, it is Astral responsibility to produce goods that are "fit for ordinary purposes" and "adequately contained, packaged, and labeled." It is our belief that Astraldex was not adequately labeled. The plaintiff has challenged that our products did not adequately warn and instruct users about the dangers of using a product containing BMB. We believe this will be difficult to defend against. While we can make solid arguments in regards to the charges of defective testing, defective design, fitness for ordinary purposes, and the like, we believe that the insufficient labeling of our product could be the one hurdle that we can't overcome in defending against this breach of warranty charge.

Page 5 Perhaps our best chance to defend ourselves centers around whether any breach of warranty actually caused the condition(s) that Mr. Cook is suffering from. Given Mr. Cook's medical history, a strong case can be made that the use of BMB containing products was not the underlying cause of his health problems. Furthermore, this argument could lend credence to the effectiveness of our testing procedures by showing that health problems are only likely to occur if the user has a related preexisting medical condition such as asthma or engages in other dangerous behavior like smoking. It is important, however, that we do not charge that Mr. Cook did not properly use our product. In doing so, we would only be further highlighting Astral’s ineffective labeling and ineffective warning as to the dangers of using BMB containing products. While it may seem easy to claim that it's "common sense" to use industrial cleaners in well ventilated areas and only with adequate protection, nowhere in any of the materials provided with our Astraldex do we expressly direct customers to do so. This would be required if we are to disclaim any express warranty. Finally, given the particulars of this case, it might be possible for Astral to charge that adequate notice had not been given to the corporation. However, because the injuries to Mr. Cook have developed over a long period of time, it will be difficult to argue that he should have brought this suit earlier or in a more reasonable time period. At the same time, in order to show that Astral Corp has genuine concern for his injuries, we believe it might be more advantageous to focus on the actual effects of Astral products rather than what the plaintiff could or should have done differently. Count VIII – Willful and Wanton Misconduct / Intentional Tort With regard to Count VIII, the court should not find the company liable of intentional tort. The definition of an intentional tort is the desire to cause the consequences of an act or knowledge that the consequences are substantially certain to result from the act. The assumption is that as a company, we were substantially certain that by using BMB there would be a link to cancer or other types of diseases. However, the testing done during the initial launch of Astraldex was sufficient in determining that there was no link between the standard use of the product and lung cancer. The lab rats that had extensive exposure to BMB and had ingested the chemical were most at risk for cancer. This finding was consistent

Page 6 with the findings of the other three companies in the field and inline with government regulation. Therefore, when we first released Astraldex, we were substantially certain that using BMB should have no adverse health effects in humans. After the initial testing proved the chemical was substantially safe for use, rumors concerning the risks of using the BMB surfaced and required more testing. The testing done in 2002 found an increased risk of lung damage to rats that inhaled Astraldex vapors for long periods of time. Outside studies suggested that at worst 1 in 45,000 people would have an adverse reaction that might heighten the risk of cancer. For all products, there is always some risk that when used improperly there could be a greater risk of injury. The knowledge of risks to healthy people who are exposed to BMB for long periods of time does not change the fact we were not substantially certain that using BMB would be a link to cancer. Even government and consumer safety organizations did not come out claiming the risk to humans by using this product. Furthermore, even our findings after 2002 showed that there wasn’t any significant relationship between Astraldex and cancer in humans. There is one potential line of reasoning that could be used by the plaintiff. The studies that were published in 2003 did uncover a carcinogenic aspect to BMB. We might have uncovered this link had we done more research in between the end of 1970 and early 2000s. The plaintiff could prove that the knowledge that there was an outside risk to cancer would lead to us being liable for releasing a potentially dangerous product. However, this point should not hurt our defense because we did not have this knowledge initially. There isn't enough of a link to prove that the consumer could have been harmed by our product. If we would have uncovered this data when launching the product, we would be exposed to the potential of an intentional tort lawsuit. The extensive testing at launch and lack of knowledge concerning the health risks of BMB should protect us from being charged with the intent to hurt the consumer. We shot a gun into the desert. We didn’t intend to hit anyone, but Mr. Cook got hurt. Even though we knew we were going to shoot the gun, we didn’t think anyone would be walking through the desert.

Page 7 This is a simplification of what actually happened, but we should not be liable for Count VIII, concerning intentional tort. ____________________________________________________________________________________ Recommendations One of our primary recommendations is to substantially improve the current location and wording of the warning label. The most important change will be placing warning labels on all Astraldex products, not only on the boxes used to ship them. This will ensure that users of the product are aware of the product’s risk factors. Also, the warning label should not include traces of product promotion. Instead, the focus of the warning label should be on symbols and proper descriptions of the risk factors involved in using Astraldex. The warning label is intended to inform the user of potential hazards associated with use of the product and should not be used as a marketing tool. The warning label also needs to be edited for its content. The warning needs to be more comprehensive, detailing risk factors directly and definitively. It should detail individuals who would be at most risk while using this product. It should include statements about how to handle the product or necessary precautions that should be taken in using the product. We have attached a new warning label that is more closely aligned with the improvements we have suggested (see appendix item). We think that this change will benefit Astral immensely and shield it from further litigation in the future. Astral will need to be proactive with their customers, board, shareholders, and the media. The situation surrounding this lawsuit is very serious. The company has exposed the customers to a potentially dangerous product and the only solution is to ensure the public that steps are being taken to remedy the situation. Employees should be the first to understand how Astral will be changing their products to prevent future lawsuits. Informing the employee will allow them to communicate this information directly the the distributors and customers. The company should be transparent while making these changes to regain the public’s trust. The customers are important to our company and we need to ensure that they will still consume our product. Allowing the media to investigate and broadcast the changes being made would also help ease consumer fears. Finally, the board and shareholders should understand the potential

Page 8 liability in the lawsuit and how the changes will affect the bottom line of Astral. Management needs to ensure that the changes being made will not bankrupt the company and are feasible in the long run. We must review every aspect of our company and keep the lines of communication open while we make these changes. Even though this lawsuit might be a setback, we will be able to communicate with these different groups and restore confidence in our product and brand. Astral should also take action on the products they have previously shipped, to prevent future lawsuits. They should post on their website and in newspapers their new warning label and information about health problems caused due to Astraldex. Making this information publicly available will allow existing users to understand the dangers and take safety precautions. Also, they should distribute the new warning labels to their distributor Okkervil and other stores that sell Astral. The clerks at these stores will be able to successfully transmit the update warning to the consumers to protect the company from future liability. _____________________________________________________________________________________ Conclusion Upon analyzing the case as presented to us, we believe that Astral will face significant challenges in defending itself against the allegations of the plaintiff. We have expressed specific concern in regards to the charges of negligence (Count I), strict liability (Count VI), and breach of warranty (Count VII). Each of these charges are closely related and present the challenge facing Astral Corp in its defense. The most important issues from our perspective are: (1) Whether Astral caused Mr. Cook’s condition and (2) whether Astral deserves to be held liable for it. The ability to adequately defend against these two questions will determine the outcome of the case. The fundamental part of the case is the lack of clear and direct communication concerning the risks involved in using Astraldex. This refers directly to the question as to whether or not Astral deserves to be held liable for any detriment caused to the plaintiff. To avoid similar lawsuits in the future, Astral should have included direct labeling and a disclaimer. Failing to instruct the users of Astraldex of its dangers is a major gaffe in our eyes and potentially to any jury or judge that Astral may face. From the

Page 9 company’s perspective, the failure to “cover our tracks” by providing a disclaimer, step by step directions, or a warning could prove to be a fatal mistake. Accordingly, the appropriate changes to Astraldex packaging should be made as soon as possible. Despite the challenges in defending Astral, there are opportunities to make a strong case against the plaintiff. In answering the question related to Mr. Cook’s unfortunate condition, there are many important arguments that must be articulated. Perhaps the strongest piece evidence centers on the idea of proximate cause. With Mr. Cook’s medical history and the research conducted regarding the effects of BMB, it is certainly possible for Astral to win an argument that Mr. Cook’s use of Astraldex was not the determining factor in his condition. If this is proven, the plaintiff’s case loses a tremendous amount of traction. Without direct causation, it will be difficult to be found liable for further damages no matter how lacking Astraldex labels and warnings are. By following through with the recommendations laid out in this memo, we believe that Astral can weather the current storm. By addressing customers, employees, shareholders, the media and our board proactively, we can address the issues at hand. The incorporation of our recommendations is essential if Astral is to protect against further lawsuits and maintain goodwill. Taking a proactive stance towards Astral’s responsibilities to its customers, both in legal terms and on a moral/personal level, should prove to be an important tool for ensuring success for years to come.

Appendix Item #1 Below is our recommended warning label

Make sure to use in a well ventilated area. Use gloves while handling the product for further protection. Astraldex contains an ingredient called BenzeMethylBenzene (BMB), which has been known to heighten the risk factors involved with cancer. Users with health risk factors relating to respiratory illness may find that Astraldex potentially causes minor respiratory tract infections and minor digestive tract irritation or adverse tissue reactions. Astraldex may cause skin and eye irritation. Keep out of reach from children and animals. Do not breathe the vapors deeply or drink the Astraldex solution. Do not use near an open flame. If Astraldex solution is accidentally ingested or has contact with an open wound or enters the eye, please contact the American Association of Poison Control Centers: 1-800-222-1222.