Toro’s Alternative Dispute Resolution Program Handling Product Liability Claims and Lawsuits

1. Toro’s Alternative Dispute Resolution ProgramHandling Product Liability Claims and Lawsuits J. Lawrence McIntyre Vice President, Secretary & General Counsel The Toro Company

2. Traditional Product Liability Claims Management • In the 1970’s and 80’s : Defend, Litigate and manage lawyers and litigation. • Hired trial lawyers and experts • Gathered volumes of documents for discovery and answered interrogatories • Prepared in-house people for depositions (engineering, marketing, management). The plaintiff is entitled to depose virtually any employee • Attended and testified at trials

3. Traditional Product Liability Claims Management, Cont. The Outcome of litigation • Expense • Drain on internal resources • Legal expense through trial can easily exceed $300,000. • Loss of control over our time, money, and documents. • Risk • Win some/lose some • A defense verdict in one case does not guarantee that the same type of accident/injury case will not result in a plaintiff’s verdict in different court with a different jury • Punitive damages • An award of punitive damages can wipe out the net worth of a company • Winning the case • but incurring extraordinary legal expenses, can be equally devastating to the company’s bottom line – is that really a “win” for the company? • Uncertainty • Juries are unpredictable and often mistrustful of large corporations and executives • Sympathy factor

4. ADR initially became a popular means of resolving disputes because of soaring litigation costs and other factors including: More litigious society; less personal accountability Savings Control of the outcome Civil litigation system broken in terms of producing equitable, efficient and economical results A “win” for the company: When litigation risk is reduced or eliminated and litigation costs are controlled The Alternative to Civil Litigation: Alternative Dispute Resolution

5. Toro’s ADR Program Unique 3 step program: 1. Prevention 2. Early intervention/accident investigation 3. Pre-Litigation Mediation

6. Step 1: Prevention Product Liability group participates in all aspects of product safety; including: • Product safety reviews (new product and issues arising on field units) • Operator safety instructions • On-product warning creation • Safety Watch program • Safety Education programs • Safety Standards creation & compliance

7. Goal:Obtain the information we need in order to evaluate the claim without having to go through formal litigation procedures. What we do: product specialists (non-lawyers)respond to product liability claims or lawsuits involving Toro product quickly: conduct an on-site investigation accompanied by a Toro engineer Inspect the equipment/preserve its condition and obtain historical information about the equipment Interview the injured person and witnesses; document the facts of the accident Photograph and document the site of the accident Listen and treat the claimant as a dissatisfied customer who has had a problem with Toro equipment, not an enemy Step 2: Early Intervention/Accident Investigation Process

8. Evaluate the merits of the case based on the information we have gathered: Severity of the injury How does the accident affect their day to day life The history of the product Safety record, recalls Similar accidents or complaints Liability factors including alteration, misuse, negligence, the law in the state, the favorableness of the jurisdiction General damages The process does not ignore who’s at fault for the accident and injury Step 2: Early Intervention/Accident Investigation Process, Cont.

9. Moving from Evaluation to Resolution • Share our investigation and evaluation with the claimant and his/her attorney • Lower expectations • claims are resolved for $0 • In June, 2006 we closed 17 cases, 13 with $0 payout • Willingness to settle • reasonableness vs. the moon • There are no blank checks • 67% settled or disposed of at this point in the process • If our product specialists do not resolve the case (the claimant’s expectations may be too high), the case is referred to Mediation • Plaintiff may need a neutral mediator’s evaluation to become more reasonable

10. Step 3: Mediation • Mechanics of a mediation • Enter into a formal mediation agreement with all parties • The parties meet over the course of two days and the plaintiff gives a sworn statement • Both sides present their position with regard to the facts, law, issues and arguments. Toro is represented by National Mediation Counsel, and a local attorney in the jurisdiction • Mediation is a less formal process but includes the exchange of information and preparation of mediation briefs. We come prepared to defend our product and lower the other side’s expectations.

11. Step 3: Mediation, Cont. • Over 95% of the cases submitted to mediation are resolved • If resolved, the terms of the agreement are confidential between the parties and cannot be published by the plaintiff • If the case is not resolved at mediation the local attorney representing Toro assumes a vigorous defense of the case

12. Resolving claims using ADR results: • Legal fees controlled • Over 1200 claims diverted to this program • Reduced average per claim handling expense from $115,000 to $43,000 • Eliminated animosity with customers and unwanted publicity from adverse verdicts • Position of greatest strength - we controlled the outcome and we decided when to walk away; we controlled our time, our money, and our documents

13. Average Per-Claim Costs/Fees Comparison • Average Pre -1991 Costs/Fees = $47,252 • Average 1992-2006 Costs/Fees = $10,607 • 77% Reduction in Costs/Fees

14. Average Per-Claim Verdicts/Settlements Comparison • Average Pre-1991 Payouts = $68,368 • Average 1992-2006 Payouts = $32,232 • 53% reduction in amounts paid to resolve claims

15. Comparison of AverageTotal Cost to Close a File

16. Average Claim Lifespan Comparison • Avg. Pre-1991 Claim Lifespan = 24 Months • Avg. 1992-2006 Claim Lifespan = 9.8 Months • 59% Reduction in lifespan of average claim

17. Thank You!