Certain Relationships and Related Persons Transactions
Our Corporate Governance Guidelines address, among other things, the consideration and approval of any related person transactions.
Under these Governance Guidelines, any related person transaction that would require disclosure by us under Item 404(a) of Regulation S-K of the rules and regulations of the
SEC, including those with respect to a director, a nominee for director or an executive officer, must be reviewed and approved or ratified by the Nominating Committee, excluding any director(s)
interested in such transaction. Any such related person transactions will only be approved or ratified if that Committee determines that such transaction will not impair the involved person(s)'
service to, and exercise of judgment on behalf of, the Company, or otherwise create a conflict of interest that would be detrimental to the Company.
Mark
N. Diker, our Chairman's son, has served as a director of Cantel since October 18, 2007. Because of such family relationship, he is not treated as an independent director.
During fiscal 2012, Mr. Mark Diker's total compensation was approximately $35,000 and he was awarded 1,340 restricted shares under the 2006 Equity Incentive Plan in connection with his
directorship at Cantel.
Other
than compensation paid to our executive officers and directors and disclosed in this Proxy Statement or otherwise approved by our Compensation Committee or Board, we did not engage
in any related person transactions in fiscal 2012.
BOARD MATTERS; COMMITTEES
Board Meetings and Attendance of Directors
The Board held four regular meetings during the fiscal year ended July 31, 2012. During fiscal 2012, each of the directors
attended 75% or more of the combined total meetings of the Board and the respective committees on which he served. Directors are required to make every reasonable effort to
11
attend
the Annual Meeting of Stockholders. All ten individuals then serving as members of the Board attended our last Annual Meeting of Stockholders.
Director Independence
In determining independence pursuant to NYSE standards, each year the Board affirmatively determines whether directors have a direct or
indirect material relationship with the Company that may interfere with their ability to exercise their independence from the Company. When assessing the materiality of a director's relationship with
the Company, the Board considers all relevant facts and circumstances, not merely from the director's standpoint, but from that of the persons or organizations with which the director has an
affiliation. Material relationships can include commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships. The Board has affirmatively determined that the
following seven directors have no material relationship with us and are independent within the meaning of Rule 10A-3 of the Securities Exchange Act of 1934 (the Exchange Act) and
within the NYSE definition of "independence": Alan R. Batkin, Ann E. Berman, Joseph M. Cohen, George L. Fotiades, Alan J. Hirschfield, Peter J. Pronovost, M.D., Ph.D. and Bruce Slovin. Our Board has
also concluded that none of these directors possessed the objective relationships set forth in the NYSE listing standards that prevent independence. None of our independent directors has any
relationship with the Company other than his or her service as a director and on committees of the Board. Independent directors receive no compensation from us for service on the Board or the
Committees other than directors' fees and equity grants under our 2006 Equity Incentive Plan.
Executive Sessions; Presiding Director
As required by the NYSE listing standards, our non-management directors meet in executive sessions at which only
non-management directors are present on a periodic basis. Mr. Batkin serves as the presiding independent director (Presiding Director) and is the chairperson for all
non-management director meetings. He has been selected by our non-management directors to serve in such position each year since December 2004.
Communications with Directors; Hotline
You may contact the entire Board, any Committee, the Presiding Director or any other non-management directors as a group or
any individual director by calling our toll-free Hotline at 1-800-826-6762 (for calls originated within the United States or Canada). For calls
originated outside the United States and Canada, the toll-free Hotline number is 1-800-714-4521; please visit our website identified below or the AT&T
website http://www.business.att.com/bt/access.jsp for international access codes required for calls originated outside the United States and Canada. An outside vendor collects all reports or
complaints and delivers them to our General Counsel, who, in appropriate cases, forwards them to the Audit Committee and/or the appropriate director or group of directors or member of management. You
are also welcome to communicate directly with the Board at the meeting. Additional information regarding the Hotline can be found by clicking on the "Corporate Governance" link in the "Investor
Relations" section of our website at www.cantelmedical.com.
Committees
The Board has three standing committees: the Audit Committee, the Compensation Committee and the Nominating Committee. All members of
the Audit Committee, the Compensation Committee and the Nominating Committee are independent directors within the definition in the NYSE listing standards and Rule 10A-3 of the
Exchange Act. Each of the Committees has the authority to retain independent advisors and consultants, with all fees and expenses to be paid by us. The Board-approved charters of each of the
Committees can be found by clicking on the "Corporate Governance" link in the "Investor Relations" section of our website at www.cantelmedical.com or (free of charge) by
12
sending
a written request to Cantel Medical Corp., 150 Clove Road, Little Falls, NJ 07424, Attn: Assistant Secretary.
Audit Committee.
The Audit Committee is composed of Ms. Berman (Chair) and Messrs. Batkin and Slovin. All of the Audit
Committee
members are financially literate, and at least one member has accounting and financial management expertise. The Board has determined that Ms. Berman qualifies as an "audit committee financial
expert" for purposes of the federal securities laws. Ms. Berman developed such qualifications through her service as Vice President of Finance and Chief Financial Officer of Harvard University.
The
Audit Committee performs the following functions: (1) assisting the Board in fulfilling its oversight responsibilities with respect to (a) the integrity of our
financial statements, (b) our compliance with legal and regulatory requirements, (c) the independent registered public accounting firm's qualifications and independence, and
(d) the performance of our internal audit function and independent registered public accounting firm and (2) preparing a report in accordance with the rules of the SEC to be included in
our annual proxy statement.
The
Audit Committee held five meetings during fiscal 2012, of which four were meetings held prior to the filing of our Quarterly Reports on Form 10-Q or Annual Report
on Form 10-K for the primary purpose of reviewing such reports and the quarterly closing process.
Compensation Committee.
The Compensation Committee is composed of Messrs. Hirschfield (Chairman), Cohen and Batkin. The
Compensation Committee
performs the following functions: (1) discharging the Board's responsibilities relating to compensation of our executive officers; (2) producing an annual report on executive
compensation for inclusion in our proxy statement in accordance with applicable rules and regulations; and (3) administering our equity incentive plans in accordance with the terms of such
plans. The Compensation Committee held three meetings during fiscal 2012. In discharging its responsibilities, the Compensation Committee, among other things, evaluates the CEO's performance and
determines and approves the CEO's compensation level based on such evaluation. The Compensation Committee also determines and approves the compensation of other executive officers. The CEO makes
recommendations to the Compensation Committee regarding the amount and form of his compensation and the compensation of our other executive officers. Neither our management nor the Compensation
Committee retained any compensation consultants in fiscal 2012.
Compensation Committee Interlocks and Insider Participation.
None of the directors who served on the Compensation Committee
during fiscal 2012 is or
has been an officer or employee of the Company or had any relationship that is required to be disclosed as a transaction with a related person. During the fiscal year ended July 31, 2012, none
of our executive officers served as a member of the board of directors or compensation committee of any entity that has one or more executive officers who serve on our Board or our Compensation
Committee.
Nominating Committee.
The Nominating Committee is composed of Mr. Fotiades (Chairman), Dr. Pronovost and
Mr. Cohen. The
Committee performs the following functions: (1) identifying individuals qualified to become Board members, consistent with criteria approved by the Board and recommending that the Board select
the director nominees for the next Annual Meeting of Stockholders; (2) developing and recommending to the Board the Corporate Governance Guidelines; (3) overseeing evaluation of the
Board and management and (4) reviewing and assessing the compensation paid to members of the Board and its committees. The Nominating Committee held one meeting during fiscal 2012.
13
Board Leadership Structure
The CEO and Chairman roles at Cantel are separated between Andrew A. Krakauer and Charles M. Diker, respectively, in recognition of
their differing responsibilities. The CEO is responsible for leading the organization's day-to-day performance, executing the Company's strategies and ensuring the success of
our acquisition program. The Chairman is responsible for advising the CEO, collaborating on acquisitions, and presiding over meetings of the Board. In addition, the Chairman is principally responsible
for setting the strategic direction of the Company with assistance from the CEO. Although we do not have a formal policy regarding whether the offices of Chairman and CEO should be separate, our Board
believes that the existing leadership structure, with the separation of the Chairman of the Board and CEO roles, enhances the accountability of the CEO to the Board and strengthens the Board's
independence from management. In addition, the Board believes that having a separate Chairman creates an environment that is more conducive to the objective evaluation and oversight of management's
performance, increasing management accountability, and improving the ability of the Board to monitor whether management's actions are in the best interests of the Company and our stockholders.
Board Role in Risk Oversight
The Board is responsible for oversight of the Company's management of enterprise risks. Cantel's senior management is responsible for
the Company's risk management process and the day-to-day supervision and mitigation of enterprise risks. Management of the Company advises the Board on areas of material
Company risk, including strategic, operational, financial, legal and regulatory risks. We do not believe our Board's oversight of risk influences our leadership structure, though we believe our
leadership structure helps mitigate risk by
separating oversight of our day-to-day business from the oversight of our Board.
Selection of Nominees for Election to the Board
The Nominating Committee has established a process for identifying and evaluating nominees for director. Although the Nominating
Committee will consider nominees recommended by stockholders, the Nominating Committee believes that the process it utilizes to identify and evaluate nominees for director is designed to produce
nominees that possess the educational, professional, business and personal attributes that are best suited to further our purposes. Any interested person may recommend a nominee by submitting the
nomination, together with appropriate biographical information, to the Nominating Committee, c/o Cantel Medical Corp., 150 Clove Road, Little Falls, NJ 07424, Attn: Assistant Secretary. All
recommended candidates will be considered using the criteria set forth in our Corporate Governance Guidelines.
The
Nominating Committee will consider, among other things, the following factors to evaluate recommended nominees: the Board's current composition, including expertise, diversity,
balance of management and non-management directors, independence and other qualifications required or recommended by applicable laws, rules and regulations (including NYSE requirements)
and company policies or procedures. Although the Board considers diversity as a factor to be considered in identifying and evaluating nominees, it does not have any formal policy with respect to
diversity. The Nominating Committee will also consider the general qualifications of potential nominees, including, but not limited to personal integrity; concern for Cantel's success and welfare;
experience at strategy/policy setting level; high-level leadership experience in business or administrative activity; breadth of knowledge about issues affecting Cantel; an ability to work
effectively with others; sufficient time to devote to the Company; and freedom from conflicts of interests.
14
EXECUTIVE OFFICERS OF CANTEL
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
Charles M. Diker
|
|
|
77
|
|
Chairman of the Board and member of Office of the Chairman
|
Andrew A. Krakauer
|
|
|
57
|
|
President, CEO and member of Office of the Chairman
|
Craig A. Sheldon
|
|
|
50
|
|
Senior Vice President, Chief Financial Officer and Treasurer
|
Eric W. Nodiff
|
|
|
55
|
|
Senior Vice President, General Counsel and Secretary
|
Steven C. Anaya
|
|
|
42
|
|
Vice President and Controller
|
Set
forth below is certain biographical information concerning our current executive officers who are not also directors:
Mr. Sheldon,
who has been employed by us in various executive capacities since November 1994, has served as our Senior Vice President and Chief Financial Officer since November
2002. In March 2008,
Mr. Sheldon was also appointed Treasurer. Mr. Sheldon is a certified public accountant (CPA) and a chartered global management accountant (CGMA).
Mr. Nodiff
has served as our Senior Vice President and General Counsel since January 2005. In January 2009, Mr. Nodiff was also appointed Secretary.
Mr. Anaya,
who has been employed by us since March 2002, has served as Vice President since November 2003 and Controller since November 2002. Prior thereto, he served as our
Assistant Controller. Mr. Anaya is a certified public accountant (CPA) and a chartered global management accountant (CGMA).
COMPENSATION DISCUSSION AND ANALYSIS
The Compensation Committee of our Board discharges certain responsibilities of the Board with respect to compensation of the Company's
executive officers, which, for the fiscal year ended July 31, 2012, included our Chairman of the Board and member of Office of the Chairman, Charles M. Diker; President/Chief Executive Officer
(CEO) and member of Office of the Chairman, Andrew A. Krakauer; Senior Vice President, General Counsel and Secretary, Eric W. Nodiff; Senior Vice President, Chief Financial Officer (CFO) and
Treasurer, Craig A. Sheldon; and Vice President and Controller, Steven C. Anaya (collectively, the Named Executive Officers or NEOs).
Objectives of Compensation Programs
The primary objectives of the Company's compensation program are to:
-
-
Closely align the interests of the executive officers with those of the stockholders, and
-
-
Offer compensation opportunities that attract and retain talented executive officers, motivate such officers to perform at
their highest level and reward their achievements.
The
abilities and performance of the Company's executives are critical to the Company's long-term success, and the objectives of the compensation program are designed to
complement each other by balancing the Company's interest in achieving both its short-term and long-term goals. Base salary and incentive-based cash bonuses are paid to reward
performance and the achievement of short-term objectives and equity awards are used to align the executives' interests with the long-term success of the Company.
What the Company's Compensation Program is Designed to Reward
The Company's business plan emphasizes growth through the expansion of existing operations and the addition of new products through
acquisitions and product development. This strategy is advanced by identifying and acquiring businesses; effectively integrating acquired operations, personnel, products
15
and
technologies into the organization; retaining and motivating key personnel throughout the Company; attracting and retaining customers; and encouraging new product development. In addition, the
Company relies on its executives to sustain and efficiently manage current businesses while adapting and growing its business segments in response to the ever-changing competitive
landscape, and, in general, to maximize stockholder value. The compensation program is designed to reward the NEOs for successfully managing these tasks, increasing earnings of the Company, and
creating stockholder value.
Role of Compensation Consultant and Survey Data
Although the Compensation Committee has retained and worked with an independent consulting firm in the past, it elected not to do so
for fiscal 2012. In addition, it did not utilize any specific survey data or benchmarking with respect to fiscal 2012 compensation. Instead, the Committee relied on its own analyses and processes
described herein in setting fiscal 2012 compensation for the NEOs. In the future, the Compensation Committee may elect to retain an
independent consulting firm to provide competitive pay data and compensation trends, analysis and recommendations with respect to the Company's CEO and other executive officers.
Elements of the Compensation Program; Why the Compensation Committee Chose Each Element and How it Relates to the Company's Objectives
The two principal elements comprising executive compensation are cash and equity awards. The cash element is divided into base salary
and annual cash incentives under the Company's Annual Incentive Compensation Plan, which constitutes the short term incentive compensation plan (STIP) and the equity element consists of stock options
and restricted stock awards (subject to a risk of forfeiture) under the Company's Long Term Incentive Compensation Plan (LTIP). These elements complement each other and give the Committee flexibility
to create compensation packages that provide short and long-term incentives in line with the Company's approach to compensation. Such approach is designed to provide the executive
sufficient cash to be competitive with other employment opportunities, while at the same time providing the executive with an incentive to build stockholder value by aligning the executive's interests
with those of our stockholders.
Base
salary is the primary fixed element of the Company's compensation program and is used to attract and retain, as well as motivate and reward, executive officers. In determining the
base salary of NEOs, the Compensation Committee considers the experience, skills, knowledge and responsibilities required of the executive officer in his role, specifically, the functional role of the
position, the level of the individual's responsibility, the ability to replace the individual, and if applicable, the base salary of the individual at his prior employment.
Short-term
incentive compensation is an opportunity for executives to receive cash bonuses based on the Company's (or its divisions') annual financial performance. The
short-term incentive compensation is intended to reward performance for the most recently completed fiscal year when financial objectives are achieved and motivate and retain qualified
individuals who have the opportunity to influence future results, advance business objectives, and enhance stockholder value. Likewise, this element of compensation is designed to provide a reduced
award or no award when financial objectives are not achieved. Under the STIP, target amounts for the annual bonus opportunity are required to be established within 75 days after the
commencement of the fiscal year and are based on achievement of one or more metrics described in the STIP. The exact annual metrics and targets to be used under the STIP are approved by the
Compensation Committee each year. In addition, under the STIP, the Compensation Committee has the flexibility to award additional discretionary bonuses to recognize and reward performance in excess of
measurable performance objectives. Mr. Diker does not participate in the STIP and does not receive cash bonuses.
16
For
fiscal 2012, the Committee established a target level, as a percentage of base salary, for each member of senior management for purposes of determining cash bonuses under the STIP.
Achievement of the target levels was based on attainment of the Company's fiscal 2012 targeted diluted earnings per share (EPS) and, in the case of division CEOs, budgeted operating income for the
applicable division. Factors included in the process of determining senior management target levels, as well as discretionary additional bonuses, were business performance, scope of responsibilities
and accountability, competitive and other industry compensation data, special circumstances and expertise, individual performance, comparison with compensation of our other senior managers and
recommendations of the Chairman of the Board and the CEO.
The
purpose of the LTIP is to contribute to the motivation of key employees in accomplishing the Company's long-term strategic and stockholder value goals. Through equity
awards, the LTIP is designed to communicate and reinforce strategic, operational and financial objectives linked to creating stockholder value, provide a competitive incentive for achievement of
long-term corporate stockholder value goals and establish an objective basis for determining annual long-term incentive awards for eligible participants.
Equity
awards (which may consist of restricted stock, stock options, stock appreciation rights or performance awards) are granted under the LTIP to NEOs in order to give them an
ownership interest in the Company, thereby aligning their interests with those of the stockholders and providing a long-term incentive. Restricted stock awards consist of awards of the
Company's common stock subject to specified vesting restrictions or conditions including, among other things, continued employment with the Company. Stock options and stock appreciation rights (rights
to receive a payment equal to the increase in fair market value of the Company's common stock since the grant date thereof) are equity awards whose value depends on an increase in the Company's common
stock price. The Compensation Committee determined at the end of fiscal 2010 to no longer grant stock options to management under the LTIP and rather, to grant only restricted stock to management.
Grants of restricted stock have intrinsic value regardless of price appreciation, and may create a better identity of interests between management and other stockholders. In addition, the Committee
believes that due to their intrinsic value, restricted shares may have a stronger retentive effect on management than stock options. Following fiscal 2012 restricted stock awards were granted to
management under the LTIP. Mr. Diker does not participate in the LTIP but is awarded restricted stock awards and stock options as an employee of the Company from time to time based on
recommendations of the Compensation Committee and approval of the Board.
The
Compensation Committee typically imposes time-based vesting conditions on stock options and restricted stock awards because it believes that time based vesting encourages
recipients of awards to remain employed by the Company and continue to provide services to us, and also encourages recipients to build stockholder value over a long period of time. As with other
issued shares
of our common stock, recipients of restricted stock (but not stock options) awarded under the LTIP are entitled to receive dividends we pay on our common stock.
Risk in Our NEO Compensation Program
Our Compensation Committee believes that the mix and design of the elements of executive compensation do not encourage management to
assume excessive risks. We believe the base salary levels of our executives mitigate excessive risk-taking behavior by providing reasonable predictability in the level of income earned by
each executive and alleviating pressure on executives to focus exclusively on stock price performance to the detriment of other important business metrics. We also provide a mixture of both
short-term and long-term incentives. With a significant weighting on long-term incentives that are subject to time-based vesting, we believe NEOs'
incentives are aligned with those of our stockholders and short-term risk taking is discouraged. In addition, the performance measures used for short-term incentives are
intended to be challenging yet attainable, so that it is more likely than not
17
that
the executives will earn a substantial portion of their target bonus annually, which mitigates the potential that our executives will take excessive risks. The metrics we use are typically
calculable in accordance with generally accepted accounting principles (GAAP) and audited at the end of the year. Also, short-term incentives in the form of annual performance bonus
payouts have been established, depending on an executive's position, at between 40-85% of base salary for on-target performance. Under the STIP, the Compensation Committee may
determine that extraordinary performance warrants a higher payout but with a cap of 200% of targeted bonus, which the Compensation Committee believes mitigates the likelihood that our executives will
take excessive risks. In addition, stock options and restricted stock awards granted to employees generally vest annually over three years, so executives always have a significant amount of unvested
awards that could decrease significantly in value if our business is not managed for the long-term. The Compensation Committee further retains discretion under both the STIP and LTIP to
reduce or not pay awards under such plans due to an NEO's misconduct or poor performance.
How the Compensation Committee Chose Amounts and Formulas for Each Element
Base Salary.
Currently the Compensation Committee approves the base salaries of all NEOs; however, the base salary of
Mr. Diker is also
subject to approval by the Board. In February 2012, the base salary of the CEO was increased by 8.3%, from $485,000 to $525,000 in recognition of his contributions and the performance of the Company.
The base salary of each of Messrs. Anaya, Nodiff and Sheldon was increased by 5.0% in recognition of their contributions and the performance of the Company. The Committee maintained the
relative differences among them (other than the CEO) that had been established in prior fiscal years based on the NEOs' roles and responsibilities and the Committee's prior perception of executives of
other similar companies of similar position, responsibility, experience, qualifications, and performance. The greater percentage increase for the CEO was due to his leadership of the Company, expanded
responsibilities with the growth of the Company and the excellent fiscal 2011 operating results of the Company. The base salary of Mr. Diker, who does not provide services to the Company on a
full time basis, was established by the Board in recognition of his contributions to the Company. Mr. Diker's base salary of $250,000 was not changed during fiscal 2012. The base salary of the
NEOs, which will remain in effect through at least January 31, 2013, are as follows:
|
|
|
|
|
NEO
|
|
BASE SALARY
|
|
Mr. Krakauer
|
|
$
|
525,000
|
|
Mr. Diker
|
|
|
250,000
|
|
Mr. Nodiff
|
|
|
331,778
|
|
Mr. Sheldon
|
|
|
331,778
|
|
Mr. Anaya
|
|
|
222,784
|
|
Short-Term Incentive Plan.
For fiscal 2012, the Compensation Committee chose EPS as the performance metric under the STIP to
maintain a
focus on increasing stockholder value and driving superior financial performance. The Committee believes EPS is a key metric in measuring the Company's success and provides certainty and comparability
since it is calculated in accordance with generally accepted accounting principles and audited each year. Specifically, for fiscal 2012 the performance target was EPS of $0.96.
18
For
fiscal 2012, the target incentive awards under the STIP, established as a percentage of base salary, were set by the Compensation Committee as follows:
|
|
|
|
|
NEO
|
|
TARGET
INCENTIVE AWARD
|
|
Mr. Krakauer
|
|
|
85
|
%
|
Mr. Diker
|
|
|
NA
|
|
Mr. Nodiff
|
|
|
50
|
%
|
Mr. Sheldon
|
|
|
50
|
%
|
Mr. Anaya
|
|
|
40
|
%
|
The
target incentive award for Mr. Krakauer was increased from 70% to 85% and the target incentive awards for Messrs. Nodiff and Sheldon were each increased by 5% from
fiscal 2011. The increases were made in consideration of the continued growth and positive performance of the Company and the increased responsibilities of the NEOs.
In
fiscal 2012, the Company exceeded the EPS performance target of $0.96 compared to our actual EPS of $1.15. Therefore, Messrs. Krakauer, Nodiff, Sheldon and Anaya each received
his full target incentive award. In addition, because of the significant extent by which our actual EPS exceeded our performance target and our prior year's EPS, the surpassing of other financial
targets such as cash flow and EBITDAS, as well as the successful integration of our most recent acquisitions, the Compensation Committee utilized its discretion under the STIP to award additional cash
bonuses to our NEOs (exclusive of Mr. Diker, who does not participate in our STIP). Total STIP awards to NEOs for fiscal 2012 were as follows:
|
|
|
|
|
|
|
|
|
|
|
NEO
|
|
INCENTIVE-
BASED AWARD
|
|
DISCRETIONARY
AWARD
|
|
TOTAL
CASH AWARD
|
|
Mr. Krakauer
|
|
$
|
446,250
|
|
$
|
401,625
|
|
$
|
847,875
|
|
Mr. Diker
|
|
|
NA
|
|
|
NA
|
|
|
NA
|
|
Mr. Nodiff
|
|
$
|
165,889
|
|
$
|
149,300
|
|
$
|
315,189
|
|
Mr. Sheldon
|
|
$
|
165,889
|
|
$
|
149,300
|
|
$
|
315,189
|
|
Mr. Anaya
|
|
$
|
89,114
|
|
$
|
80,202
|
|
$
|
169,316
|
|
These
discretionary STIP awards increased the incentive-based awards by 90%. The percentage of the fiscal 2012 discretionary awards was increased relative to the fiscal 2011 awards due
to the Compensation Committee's assessment of the Company's performance during fiscal 2012 relative to fiscal 2011.
Equity Awards.
The Compensation Committee determines the number of shares of stock underlying the equity awards based upon each
NEO's position and
performance during the fiscal year. The Committee established fiscal 2012 equity award targets for all NEOs other than Mr. Diker based on a percentage of their base salary (described below).
Mr. Diker is not a participant in the LTIP but has received equity awards from time to time upon the recommendation of the Compensation Committee and approval of the Board. All restricted stock
awards to NEOs are subject to vesting in three equal annual installments beginning on the first anniversary of the grant date.
The
target incentive equity award percentages were determined by the Compensation Committee to reflect the objectives of the LTIP and to give effect to the positions, responsibilities
and contributions to the Company of each NEO. The percentages also reflect the Compensation Committee's view, based on past analyses which were not updated in fiscal 2012, of market-based differences
for similarly positioned executives at other companies.
19
On
October 15, 2012, the Compensation Committee awarded the NEOs restricted shares under the LTIP attributable to fiscal 2012 performance based on the $25.56 closing price of
Cantel common stock on the NYSE on that date. In addition, the Compensation Committee awarded Mr. Diker a stock option to purchase 35,000 shares based on his contributions to the Company and
for providing direction and assistance to management during fiscal 2012.
Mr. Krakauer
was awarded 39,125 shares of restricted stock, calculated by dividing $1,000,000 by $25.56. This represented a significant increase in value from the prior year's
restricted stock award to Mr. Krakauer. Following fiscal 2011, Mr. Krakauer was awarded 35,812 shares, which was calculated by dividing $485,000 by $13.54 (the closing price of Cantel
common stock on the NYSE on the date of grant). The increase was in recognition of the Company's significant growth since Mr. Krakauer became President, and subsequently, CEO of the Company, as
well as the Committee's perception of CEO compensation of other similar companies of similar position, responsibility, experience, qualifications, and performance.
The
number of shares of restricted stock issued to Messrs. Nodiff and Sheldon was calculated by (1) multiplying such NEO's base salary by the incentive award percentage and
(2) dividing the product by $25.56. The number of shares of restricted stock issued to Mr. Anaya was calculated by multiplying 50% by Mr. Sheldon's restricted stock award. There
was no change in the formulas from the prior fiscal year.
For
the awards to Mr. Diker and the NEOs, the Compensation Committee established the following payment percentages and, as a result, made the grants indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
NEO
|
|
TARGET
INCENTIVE
AWARD
|
|
VALUE OF
AWARD
|
|
NUMBER OF
RESTRICTED
SHARES AWARDED
|
|
NUMBER OF
STOCK OPTIONS
|
|
Mr. Krakauer
|
|
$1,000,000 Value
|
|
$
|
1,000,035
|
|
|
39,125
|
|
|
|
|
Mr. Diker
|
|
NA
|
|
|
|
|
|
|
|
|
35,000
|
|
Mr. Nodiff
|
|
70% of Base Salary
|
|
|
232,596
|
|
|
9,100
|
|
|
|
|
Mr. Sheldon
|
|
70% of Base Salary
|
|
|
232,596
|
|
|
9,100
|
|
|
|
|
Mr. Anaya
|
|
50% of Mr. Sheldon's award
|
|
|
116,298
|
|
|
4,550
|
|
|
|
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Post-Retirement and Other Benefits
Each of Messrs. Krakauer, Nodiff, Sheldon and Anaya is party to a severance agreement with the Company that contains certain
post-termination benefits.
The
Compensation Committee believes that post-termination benefits are an important aspect of an executive compensation program because they allow the Company to better
recruit and retain executive officers by offering competitive compensation packages. Such benefits also allow the executive officers to focus on performance of their duties and eliminate distractions
related to job security concerns. The severance agreements also provide benefits in the event of a change in control of the Company to further align the interests of the executive with those of the
stockholders. These arrangements are primarily intended to maintain the executive's motivation to consummate the sale of the Company in circumstances where such event will maximize stockholder value,
notwithstanding that such transaction may result in the executive's loss of continued employment with the Company. We believe a "double trigger" requiring actual termination following a change of
control rather than simply awarding amounts in the event of a change of control best aligns the NEOs' interests by encouraging them to continue to perform their duties adequately rather than simply
receiving an award for completing a transaction.
We
believe that these severance benefits are reasonable and appropriate for our NEOs in light of the anticipated time it takes high-level executives to secure new positions
with responsibilities and
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compensation
that are commensurate with their experience. We do not include "gross-up" provisions in the severance agreements. A more detailed description of our severance agreements may
be found below under the heading "Post Termination Benefits and Change in Control."
Severance
benefits also include the vesting of 100% of the executives' unvested stock options and unvested restricted stock awards and other similar rights in certain circumstances. We
believe that the equity awards granted to our executive officers have been reasonable in amount and that, in the event of a change in control and certain other terminations, it is appropriate that our
executive officers receive the full benefit under their equity compensation awards of the increase in Cantel's value attributable to the performance of the current management team.
The
severance agreements for our NEOs provide equal benefits for each NEO that is a party to a severance agreement, other than with respect to cash severance payable in the event of a
termination in a non-change of control situation (i.e., a termination without cause). In such event, the CEO (i.e., Mr. Krakauer) is entitled to two times the sum of
the CEO's base salary and target bonus at the time of termination; a 15-year executive (e.g., Mr. Sheldon) is entitled to 18 months' base salary; and the other
executives (i.e., Messrs. Nodiff and Anaya) are entitled to 12 months' base salary. During fiscal 2012, the CEO was entitled to 18 months' base salary in this scenario. The
Compensation Committee increased such amount on October 31, 2012 to (a) 24 months' base salary plus (b) two times Mr. Krakauer's annual target bonus based on the
rate in effect as of the relevant termination date (currently 85% of his annual base salary). The change was made based on the Committee's perception of severance being paid to executives of other
similar companies of similar position, responsibility, experience, qualifications, and performance. We believe that a higher severance formula for our CEO is justified and needed in order to attract
the individual we believe is best suited for the office. Our CEO is the individual the public and our stockholders most closely identify as the face of the company. He has the greatest individual
impact on our success, and he faces the greatest personal risks when the company takes risks. We also believe that any NEO (other than Mr. Diker) who has 15 years of employment with the
Company should be entitled to additional compensation in the event of a termination of his employment in a non-change in control situation in recognition of his long service to the
Company.
In
addition to the above benefits, we provide to Messrs. Krakauer, Nodiff, Sheldon and Anaya (1) term life insurance equal to one year's base salary, (2) a car
allowance equal to $750 a month plus related expenses, (3) an executive physical once every three years (up to $3,500, subject to a gross-up to make this benefit tax neutral),
(4) a $7,000 allowance for disability insurance or long term care insurance and (5) a 401(k) plan match. We believe these perquisites are appropriate as part of a competitive benefits
package. Mr. Diker is provided a 401(k) plan match.
Say-on-Pay Vote Response
In evaluating our compensation process for fiscal 2012, our Compensation Committee generally considered the results of the advisory
vote of our stockholders on the compensation of the executive officers named in our last proxy statement related to our prior annual meeting of stockholders. Our Compensation Committee noted that more
than 97% of votes cast approved of the compensation of those executive officers as described in our last proxy statement. Our Compensation Committee considered these voting results as supportive of
the Compensation Committee's general executive compensation practices.
Tax Deductibility of Compensation
Section 162(m) of the Internal Revenue Code (the Code) limits the deduction a public company is permitted for compensation paid
to the chief executive officer and to the four most highly compensated executive officers other than the chief executive officer. Generally, amounts paid in excess of $1,000,000
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to
a covered executive cannot be deducted, unless the compensation is paid pursuant to a plan which is performance related, non-discretionary and has been approved by stockholders. In its
deliberations the Compensation Committee considers ways to maximize deductibility of executive compensation, but nonetheless retains the discretion to compensate executive officers at levels the
Committee considers commensurate with their responsibilities and achievements. We have not adopted a policy that all executive compensation be fully deductible.