ITEM 3. LEGAL PROCEEDINGS



We may be involved in a number of legal proceedings and claims, which we believe
arise from the ordinary course of our business, given our size, history,
complexity, and the nature of our business and industries in which we
participate. These legal proceedings and claims generally involve a variety of
legal theories and allegations, including, without limitation, personal injury
(e.g., slip and falls, burns, vehicle accidents), product liability (e.g., based
on product operation or claimed malfunction, failure to warn, or failure to meet
specification), product exposure (e.g., claimed exposure to chemicals, asbestos,
contaminants, radiation), property damage (e.g., claimed damage due to leaking
equipment, fire, vehicles, chemicals), economic loss (e.g., breach of contract,
other commercial claims), financial (e.g., taxes, reporting), employment (e.g.,
wrongful termination, discrimination, benefits matters), and other claims for
damage and relief.


The FDA and the United States Department of Justice have been conducting an
investigation to our knowledge since 2003 involving our SYSTEM 1® sterile
processing system. We have received requests for documents, including the
subpoena received in January 2005, and interviews of current and former
employees in connection with the investigation. We continue to respond to these
requests and cooperate with the government agencies regarding this matter. There
can be no assurance of the ultimate outcome of the investigation, or that any
matter arising out of the investigation will not result in actions by the
government agencies or third parties, or that the government agencies will not
initiate administrative proceedings, civil proceedings or criminal proceedings,
or any combination thereof, against us.


On May 16, 2008, we received a warning letter from the FDA regarding our STERIS
SYSTEM 1® sterile processor and the S-20 sterilant used with the processor
(referred to collectively in the FDA letter and in this Item 3 as the "device").
We believe this warning letter arose from the previously disclosed
investigation. In summary, the warning letter includes the FDA's assertion that
significant changes or modifications have been made in the design, components,
method of manufacture or intended use of the device beyond the FDA's 1988
clearance, such that the FDA believes a new premarket notification submission
(known within FDA regulations as a 510(k) submission) should have been made. The
warning letter references a number of changes to the device that the FDA
believes should be evaluated to determine if they significantly affect the
safety or effectiveness of the device and, if true, could require a new
premarket notification submission. The warning letter also requests
documentation and explanation regarding various corrective actions related to
the device prior to 2003, and whether those actions should be considered
corrections or removals within the meaning of FDA regulations.


We continue to believe that the changes described in the warning letter from the
FDA do not significantly affect the safety or effectiveness of the device and,
therefore, did not and do not require a new premarket notification submission,
and further, that the corrective actions were compliant with FDA regulations.
However, if the FDA's assertions are ultimately determined to be correct, the
device would be considered adulterated and misbranded under United States law,
in which case, we would be required to make a new premarket notification
submission. The FDA could also take enforcement action immediately without
providing the opportunity to make a new premarket certification submission
("510(k) submission"). If we did not make that 510(k) submission, if the FDA
rejected that 510(k) submission, if the FDA took immediate enforcement action,
or if governmental agencies and/or third parties otherwise considered the device
to be non-compliant, civil, administrative or criminal proceedings could be
initiated. These or other proceedings involving our STERIS SYSTEM 1 ® sterile
processing system or other significant product, service, or obligation, which
could possibly result in judgments requiring recall, re-labeling or restriction
on the manufacturing, sale or distribution of the device, or could require us to
take other action, pay fines or civil damages, or be subject to other
governmental or third party claims or remedies, could materially affect our
business, performance, value, financial condition, and results of operations.
The STERIS SYSTEM 1® sterile processing system has been in use since its
clearance by the FDA in the late 1980's. We estimate that the devices currently
in operation are used in excess of 30,000 times per day in the aggregate and
that over 250 million medical instruments have been processed using the STERIS
SYSTEM 1® sterile processing system. We have commenced discussions with the FDA
regarding this warning letter and the FDA has requested that we respond within
15 working days.



18







Table of Contents




We believe we have adequately reserved for our current litigation and that the
ultimate outcome of pending lawsuits and claims will not have a material adverse
affect on our consolidated financial position or results of operations taken as
a whole. Due to their inherent uncertainty, however, there can be no assurance
of the ultimate outcome of current or future litigation, proceedings,
investigations, or claims or their effect. We presently maintain product
liability insurance coverage, and other liability coverages in amounts and with
deductibles that we believe are prudent, but there can be no assurance that
these coverages will be applicable or adequate to cover adverse outcomes of
claims against us.


From time to time, STERIS is also involved in legal proceedings as a plaintiff
involving contract, patent protection, and other claims asserted by us. Gains,
if any, from these proceedings are recognized when they are realized.


Additional information regarding our commitments and contingencies is included
in Item 7, "MD&A," and in Note 11 to our consolidated financial statements
titled, "Commitments and Contingencies."