SMITH & NEPHEW PLC (Form: S-8, Received: 02/14/2005 16:51:35)

As filed with the Securities and Exchange Commission on February 14, 2005

Registration No.

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-8

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

SMITH & NEPHEW plc

(Exact Name of Registrant as specified in its Charter)

England and Wales

None

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

15 Adam Street, London WC2N6LA

(Address of principal executive offices)

Smith & Nephew 2004 Co-Investment Plan

Smith & Nephew 2004 Executive Share Option Plan

Smith & Nephew 2004 Performance Share Plan

(Full title of the plans)

James A. Ralston

Executive Vice President and Chief Legal Officer

Smith & Nephew, Inc.

1450 Brooks Road

Memphis, Tennessee 38116

(901) 396-2121

(Name, address and telephone number, including area code, of agent for service)

Copies to:

Pran Jha

Sidley Austin Brown & Wood LLP

10 South Dearborn Street

Chicago, Illinois 60603

(312) 853-4161

CALCULATION OF REGISTRATION FEE



Title of securities to be registered	Amount to be registered	Proposed maximum offering price per share(4)	Proposed maximum aggregate offering price(4)	Amount of registration fee
Ordinary Shares represented by American Depositary Shares (1)	5,000,000 Ordinary Shares represented by 1,000,000 American Depositary Shares (2)(5)	$10.28	$51,400,000	$6,050
Ordinary Shares	6,000,000 Ordinary Shares (3)(6)	$10.28	$61,680,000	$7,260

(1)

American Depositary Shares (each an “ADS”), each representing five Ordinary Shares, 12 2/9 pence par value (the “Ordinary Shares”) of Smith & Nephew plc, a public limited company incorporated under the laws of England and Wales (the “Registrant”) issuable upon deposit of the Ordinary Shares, have been registered on a separate registration statement on Form F-6, filed December 11, 2003 (Registration No. 333-111088).

(2)	This registration statement registers 3,500,000 Ordinary Shares represented by American Depositary Shares issuable under the Smith & Nephew 2004 Co-Investment Plan and 1,500,000 Ordinary Shares represented by American Depositary Shares issuable under the Smith & Nephew 2004 Performance Share Plan.

(3)	This registration statement registers 6,000,000 Ordinary Shares issuable under the Smith & Nephew 2004 Executive Share Option Plan.

(4)

Estimated solely for the purpose of calculating the registration fee and, pursuant to Rules 457(h) and 457(c) under the Securities Act of 1933, based on the average of the high and low prices of Smith & Nephew plc American Depositary Shares reported on the New York Stock Exchange on February 7, 2005, which average was $51.42 per ADS and, therefore, represents $10.28 per Ordinary Share.

(5)	Plus such additional number of Ordinary Shares as may be issuable pursuant to the anti-dilution provisions of the Smith & Nephew 2004 Co-Investment Plan and the Smith & Nephew 2004 Performance Share Plan, in accordance with Rule 416(a) under the Securities Act.

(6)	Plus such additional number of Ordinary Shares as may be issuable pursuant to the anti-dilution provisions of the Smith & Nephew 2004 Executive Share Option Plan, in accordance with Rule 416(a) under the Securities Act.

PART II

INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

Item 3.

Incorporation of Documents by Reference.

The following Registrant’s documents are incorporated by reference in the Registrant’s registration statement:

The Registrant’s annual report on Form 20-F for the fiscal year ended December 31, 2003 filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and

The Registrant’s description of its American Depositary Shares, each representing five (5) Ordinary Shares as set forth in the Registrant’s Registration Statement on Form F-6 filed with the Commission on December 11, 2003 (Registration No. 333-111088).

All documents subsequently filed by the Registrant pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, after the date of this registration statement and prior to the filing of a post-effective amendment which indicates that all securities offered hereby have been sold or which deregisters all securities then remaining unsold, are deemed to be incorporated by reference in this registration statement and to be part hereof from the respective dates of filing of such documents (such documents, and the documents enumerated above, being hereinafter referred to as “Incorporated Documents”).

Any statement contained in an Incorporated Document shall be deemed to be modified or superseded for purposes of this registration statement to the extent that a statement contained herein or in any other subsequently filed Incorporated Document modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this registration statement.

Item 4.

Description of Securities.

Not applicable.

Item 5.

Interests of Named Experts and Counsel.

Not applicable.

Item 6.

Indemnification of Directors and Officers.

English law does not permit a company to indemnify a director or an officer of the company against any liability which by virtue of any rule of law would otherwise attach to him in respect of negligence, default, breach of duty or breach of trust in relation to the company except liability incurred by such director or officer in defending any legal proceeding (whether civil or criminal) in which judgment is given in his favor or in which he is acquitted or in certain instances where, although he is liable, a court finds such director or officer acted honestly and reasonably and that having regard to all the circumstances he ought fairly to be excused and relief is granted by the court. These restrictions do not prevent a company from purchasing and maintaining insurance against any such liability for any such director or officer.

Article 168 of the Registrant’s Articles of Association provides:

“Subject to the provisions of the Acts but without prejudice to any indemnity to which he may otherwise be entitled, every Director, Alternate Director, Secretary or other officer of the Company other than the Auditors shall be indemnified out of the assets of the Company against all costs, charges, expenses, losses, damages and liabilities incurred by him in or about the execution of his duties or the exercise of his powers or otherwise in relation thereto including (without prejudice to the generality of the foregoing) any liability incurred by him in defending any proceedings, whether civil or criminal, which relate to anything done or omitted or alleged to have been done or omitted by him as an officer or employee

-1-

of the Company in which judgment is given in his favour or in which he is acquitted, or which are otherwise disposed of without any finding or admission of material breach of duty on his part or in connection with any application in which relief is granted to him by the court from liability for negligence, default, breach of duty or breach of trust in relation to the affairs of the Company.”

Item 7.

Exemption from Registration Claimed.

Not applicable.

Item 8.

Exhibits.


Exhibit No.		Description

4.1		The Registrant’s Memorandum of Association which is incorporated by reference to Exhibit 1(a) to the Registrant’s Registration Statement on Form 20-F filed on April 26, 2001, No. 001-14978.

4.2		The Registrant’s Articles of Association which is incorporated by reference to Exhibit 1(b) to the Registrant’s Registration Statement on Form 20-F filed on March 26, 2004, No. 001-14978.

4.3		Form of Deposit Agreement among the Registrant, The Bank of New York, as Depositary, and the holders from time to time of American Depositary Receipts issued thereunder which is incorporated by reference from Exhibit 1 of the Registrant’s Registration Statement on Form F-6 filed on December 11, 2003, No. 333-111088.

4.4*		Smith & Nephew 2004 Co-Investment Plan.

4.5*		Smith & Nephew 2004 Executive Share Option Plan.

4.6*		Smith & Nephew 2004 Performance Share Plan.

5*		Opinion of Ashurst as to the legality of the securities being registered.

23.1*		Consent of Ernst & Young LLP.

23.2*		Consent of Ashurst (included in the opinion filed as Exhibit 5).

24*		Powers of Attorney (contained in the signature page to this registration statement).

*	Filed herewith.

-2-

Item 9.

Undertakings.

(a) The undersigned Registrant hereby undertakes:

(1) to file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement;

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement.

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(b) The undersigned Registrant hereby undertakes that, for purposes of determining liability under the Securities Act of 1933, each filing of the Registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

-3-

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-8 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of London, England, on February 14, 2005.


SMITH & NEPHEW plc

By:		/s/ Paul R. Chambers
		Paul R. Chambers
		Company Secretary

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each director and executive officer of Smith & Nephew plc whose signature appears below constitutes and appoints Peter Hooley and James A. Ralston, and each of them, with full power to act without the other, his or her true and lawful attorneys-in-fact and agents, with full and several power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated and on February 14, 2005.



/s/ Dudley G. Eustace Dudley G. Eustace		Director and Chairman

/s/ Sir Christopher J. O’Donnell Sir Christopher J. O’Donnell		Director and Chief Executive (Principal Executive Officer)

/s/ Peter Hooley Peter Hooley		Director and Finance Director (Principal Financial and Accounting Officer)

/s/ Richard De Schutter Richard De Schutter		Director

/s/ Brian Larcombe Brian Larcombe		Director

/s/ Dr. Pamela J. Kirby Dr. Pamela J. Kirby		Director

/s/ Dr. Rolf W.H. Stomberg Dr. Rolf W.H. Stomberg		Director

/s/ James A. Ralston James A. Ralston		Authorized U.S Representative

EXHIBIT INDEX


Exhibit Number		Description

4.1		The Registrant’s Memorandum of Association which is incorporated by reference to Exhibit 1(a) to the Registrant’s Registration Statement on Form 20-F filed on April 26, 2001, No. 001-14978.

4.2		The Registrant’s Articles of Association which is incorporated by reference to Exhibit 1(b) to the Registrant’s Registration Statement on Form 20-F filed on March 26, 2004, No. 001-14978.

4.3		Form of Deposit Agreement among the Registrant, The Bank of New York, as Depositary, and the holders from time to time of American Depositary Receipts issued thereunder which is incorporated by reference from Exhibit 1 of the Registrant’s Registration Statement on Form F-6 filed on December 11, 2003, No. 333-111088.

4.4*		Smith & Nephew 2004 Co-Investment Plan.

4.5*		Smith & Nephew 2004 Executive Share Option Plan.

4.6*		Smith & Nephew 2004 Performance Share Plan.

5*		Opinion of Ashurst as to the legality of the securities being registered.

23.1*		Consent of Ernst & Young LLP.

23.2*		Consent of Ashurst (included in the opinion filed as Exhibit 5).

24*		Powers of Attorney (contained in the signature page to this registration statement).

*	Filed herewith

Exhibit 4.4

AGM COPY

SMITH & NEPHEW plc

THE SMITH & NEPHEW 2004 CO-INVESTMENT PLAN

This is a copy of The Smith & Nephew 2004 Co-Investment Plan as produced to the Annual General Meeting

of Smith & Nephew plc held on 6 May 2004

and initialled by the Chairman for the purposes of identification only

___________________

Chairman

Inland Revenue Ref No U[ ]

Approved by shareholders: 6 May 2004

LOGO

THE SMITH & NEPHEW 2004 CO-INVESTMENT PLAN

Contents


Part A: Interpretation and Administration		Rules 1 – 3

Part B: Making of Awards		Rules 4 – 8

Part C: Vesting of Matching Share Awards		Rules 9 – 14

Part D: Recovery of Tax		Rule 15

Part E: Corporate Transactions		Rules 16 –19

Part F: Amendments		Rules 20 –21

Part G: Miscellaneous		Rules 22 –29

CONTENTS


Clause		Page

1.	Definitions	1

2.	Interpretation	6

3.	Administration	6

4.	Plan Bonus	7

5.	Bonus Share Awards	7

6.	Matching Share Awards	10

7.	Relationship with Contract of Employment	11

8.	Non-Transferability of Matching Share Awards	12

9.	Performance Target for Matching Share Awards	13

10.	Further Conditions for Receipt of Matching Shares	13

11.	Satisfaction of Matching Share Awards	13

12.	Limits on the Issue of New Shares	14

13.	Cessation of Employment	14

14.	Time of Leaving	15

15.	Recovery of Tax	16

16.	Internal Reconstruction	17

17.	Demerger, Reorganisation, Reconstruction or Amalgamation	17

18.	Change of Control	18

19.	Winding-up	18

20.	Variation of Share Capital	19

21.	Alteration of the Plan	19

22.	Allocation of Funds	20

23.	Service of Documents	20

24.	Obligation to Ensure Sufficient Available Shares	21

25.	Rights Attaching to Shares	21

26.	Stamp Duty	21

27.	Jurisdiction	21

28.	Purchases by Trustee	22

29.	Third Party Rights	22

Schedule 1: Supplemental terms relating to the grant of Awards to employees based in the USA		23

Schedule 2: Deed of Grant of Matching Share Award		24

Schedule 3: Matching Share Award Certificate		25

Appendix: Performance Target		26

Appendix: Performance Target		26

Schedule 4: Form of Acceptance of a Matching Share Award		27

Schedule 5: Notice of Payment of Option Tax Liability		30

RULES OF

THE SMITH & NEPHEW 2004 CO-INVESTMENT PLAN

This Plan is an employees’ share scheme has been approved and established by resolution of the Remuneration Committee of the Directors of the Company passed on [ ] and approved by shareholders of the Company by ordinary resolution passed on 6 May 2004.

PART A: INTERPRETATION AND ADMINISTRATION

1.	DEFINITIONS

1.1	In this Plan, the following words and expressions have the meanings given below:-


“Acquiring Company”		a company which has acquired Control of the Company

“ADRs”		American Depositary Receipts in respect of American Depositary Shares each of which represents five ordinary shares in the capital of the Company

“Announcement”		the preliminary announcement to the London Stock Exchange of the annual or interim results of the Company for a Year

“Associated Company”		any company which, in relation to the Company, is an associated company as that term is defined in section 416 of the Taxes Act but with the omission of the words “or at any time within one year previously”

“Auditors”		the auditors for the time being of the Company or in the event of there being joint auditors, such one of them as the Committee may decide, or such other firm of registered auditors as the Committee may decide

“Award”		as the context requires, either a Bonus Share Award or a Matching Share Award

“Award Multiple”		has the meaning given in Rule 6.3

“Award Tax Liability”		any liability of a Participant’s Employer or of any other person to account to the Inland Revenue, the US Internal Revenue Service or other Relevant Tax Authority for any amount of, or representing, income tax or NICs (which shall, to the extent provided for in Rule 6.7, include Employer’s NICs) or any equivalent charge in the nature of tax or social security contributions (whether under the laws of the United Kingdom or of any other jurisdiction), which may arise upon the vesting, exercise or release of, or the acquisition of Shares pursuant to, an Award

“Base Number of Shares”		has the meaning given in Rule 6.5


“Bonus”		a bonus of a given cash value (before deduction of income tax and NICs) awarded in respect of a given Year

“Bonus Award Certificate”		a certificate of beneficial ownership issued pursuant to Rule 5.5 evidencing the grant of a Bonus Share Award

“Bonus Award Date”		in relation to a Bonus Share Award, the date on which the Bonus Award Shares are acquired as mentioned in Rule 5.2.4

“Bonus Award Shares”		in respect of a Bonus Share Award, the number of Shares or ADRs acquired as mentioned in Rule 5.2 or transferred or nominated as mentioned in Rule 5.3

“Bonus Share Award”		an award of Shares or ADRs made by the Trustee in respect of a given Bonus Year pursuant to Rule 5

“Change of Control”		in relation to the Company coming under the Control of another person, or persons acting in concert, as a result of a general offer being made as mentioned in Rule 18, the time when such person obtains, or such persons together obtain such Control and any condition subject to which the offer is made has been satisfied

“Committee”		the Remuneration Committee of the Directors, or such other committee comprising a majority of non-executive directors of the Company to which the Directors delegate responsibility for the operation of this Plan or, following a Change of Control of the Company, those persons who comprised the remuneration committee or such other committee immediately before such Change of Control

“Companies Act”		the Companies Act 1985

“Company”		Smith & Nephew plc (registered in England no. 324357)

“Control”		has the meaning given in section 840 of the Taxes Act

“Daily Official List”		the Daily Official List of the London Stock Exchange

“Date of Approval”		the date on which this Plan is approved by shareholders of the Company

“Date of Grant”		the date on which an Award is made

“Dealing Day”		a day on which the London Stock Exchange or New York Stock Exchange as appropriate is open for business

“Directors”		the board of directors of the Company or a duly authorised committee of the Directors


“Eligible Employee”		an executive director or bona fide employee of any member of the Group

“Employee Stock Purchase Plan”		an employee stock purchase plan as defined in section 423(b) of the Internal Revenue Code of the USA

“Employer’s NICs”		in the UK, secondary Class I NICs or, in any other jurisdiction, such other social security contributions (or equivalent taxes) for which the Participant’s Employer is primarily liable to account

“Exchange of Awards”		the grant, to a Participant, in consideration of the cancellation of a Matching Share Award, of rights to acquire shares or American depositary receipts in an Acquiring Company or a company which has control of an Acquiring Company or either is, or has control of, a company which is a member of a consortium owning either an Acquiring Company or a company having control of an Acquiring Company being rights which are:- (a) in the opinion of the Committee, substantially equivalent in value to the value of such Matching Share Award; and (b) on terms approved by the Committee

“Group”		the Company and any company which is for the time being a Subsidiary

“ISA”		a UK Individual Savings Account

“ITEPA”		the Income Tax (Earnings & Pensions) Act 2003

“Jointly-Owned Company”		a company (and any subsidiary - as defined in section 736 of the Companies Act - of such company) of which the whole of the issued Ordinary Share Capital is jointly-owned by a member of the Group and another person (not being a member of the Group) but which is not a Subsidiary and is not under the Control of such other company

“London Stock Exchange”		London Stock Exchange plc

“Matching Award Certificate”		a certificate evidencing the grant of a Matching Share Award

“Matching Shares”		in relation to a Bonus Share Award, the maximum number of Shares or ADRs which could be transferred to a Participant after the end of the Performance Period if the Performance Target is met in full


“Matching Share Award”		the right granted to a Participant (as mentioned in Rule 6.1) to acquire additional Shares or ADRs if or insofar as the Performance Target is satisfied and otherwise upon and subject to the terms of this Plan

“Matching Share Award Gain”		in relation to a Matching Share Award, the amount of any gain realised upon the exercise or release of, or acquisition of Shares or ADRs pursuant to, such Matching Share Award, being a gain that is (or would if it were chargeable to NICs in the UK be) treated as remuneration derived from the Participant’s employment by virtue of section 4(4)(a) of the SSCBA

“Model Code”		the code adopted by the Company, which contains provisions similar in purpose and effect to the provisions of the Model Code on directors’ dealings in securities, as set out in the appendix to Chapter 16 of the Listing Rules issued by the UKLA from time to time

“NICs”		in the UK, National Insurance contributions or, in any other jurisdiction, social security contributions (or other similar taxes)

“N I Regulations”		the laws, regulations and practices currently in force relating to liability for, and the collection of, NICs

“Ordinary Share Capital”		the issued ordinary share capital of the Company, other than fixed-rate preference shares, including any Shares held in treasury

“Participant”		a person to whom an Award has been, or is to be, made or, in the event of his death, his Personal Representatives

“Participant’s Employer” or “my Employer”		such member of the Group as is a Participant’s employer or, if he has ceased to be employed within the Group, was his employer or such other member of the Group, or other person as, under the PAYE Regulations or, as the case may be, the N I Regulations, or any other statutory or regulatory enactment (whether in the United Kingdom or otherwise) is obliged to account for any Award Tax Liability

“PAYE Regulations”		the regulations made under section 684 of ITEPA

“PEP”		a UK Personal Equity Plan

“Performance Period”		the period over which the performance of the Company is to be measured for the purpose of determining whether, and to what extent, the Performance Target is met


“Performance Target”		the condition or conditions, relating to the performance of the Company over the Performance Period, imposed in relation to a Matching Share Award

“Personal Data”		the name, home address, telephone number, e-mail address, date of birth, National Insurance or other individual reference number of a Participant or other employee information, including details of all rights to acquire Shares or other securities granted to such Participant and of Shares or other securities issued or transferred to such Participant pursuant to this Plan

“Personal Representatives”		the personal representatives of a Participant (being either the executors of his will to whom a valid grant of probate has been made or, if he dies intestate, the duly appointed administrator(s) of his estate) who have produced to the Company evidence of their appointment as such

“Plan”		The Smith & Nephew 2004 Co-Investment Plan as set out in these rules and amended from time to time

“Relevant Tax Authority”		the Inland Revenue or, in any jurisdiction outside the UK, the relevant body responsible for the collection of tax or social security contributions (or equivalent)

“Salary”		the gross rate of basic annual salary (excluding any bonus, company pension contributions, and any other perquisites and benefits-in-kind) payable to a person at a given time by members of the Group

“Shares”		fully paid ordinary shares in the capital of the Company

“SSCBA”		the Social Security Contributions and Benefits Act 1992

“Subsidiary”		any company which is for the time being a subsidiary (as defined in section 736 of the Companies Act) of the Company

“Taxes Act”		the Income and Corporation Taxes Act 1988

“TCGA”		the Taxation of Chargeable Gains Act 1992

“Trust”		any trust established by the Company for the benefit of employees of the Group and which may from time to time hold cash, Shares, ADRs or other securities for the purposes of this Plan

“Trustee”		means the trustee or trustees for the time being of the Trust

“UKLA”		the Financial Services Authority in its capacity as the competent authority for the purposes of Part VI of the Financial Services and Markets Act 2000


“USA”		United States of America

“Vested Matching Shares”		Matching Shares to which a Participant has become entitled in consequence of:- (a) the Performance Target being met in full or in part, after reduction as mentioned in Rule 10.2; or, if earlier (b) the application of Rules 17, 18 or 19

“Year”		a financial year of the Company

2.	INTERPRETATION

2.1	References to Shares or ADRs in respect of which an Award subsists at any time are to be read and construed as references to the Shares or ADRs over which the Award is then held (and in respect of which it has not then lapsed and ceased to be exercisable).

2.2	Words and expressions used in this Plan and in any ancillary documents which are not defined in Rule 1 have the meanings they bear for the purposes of ITEPA.

2.3	Any reference to any enactment includes a reference to that enactment as from time to time modified, extended or re-enacted.

2.4	References to rules are to the rules of this Plan and no account shall be taken of the rule headings which are for ease of reference only.

2.5	References to a purchase of Shares (and related expressions) shall be read and construed as including references to the acquisition of Shares by way of subscription.

2.6	Words denoting the masculine gender shall include the feminine.

2.7	Words denoting the singular shall include the plural and vice versa.

2.8

If any question, dispute or disagreement arises as to the interpretation of this Plan or of any rules, regulations or procedures relating to it or as to any question or right arising from or related to this Plan, the decision of the Committee shall (except as regards any matter required to be determined by the Auditors) be final and binding upon all persons.

3.	ADMINISTRATION

3.1	The Directors may from time to time make and vary such rules and regulations not inconsistent with the rules of the Plan and establish such procedures for its administration and implementation as they think fit.

3.2	In any matter in which they are required to act in connection with this Plan, the Auditors shall be deemed to be acting as experts and not as arbitrators and the Arbitration Act 1996 shall not apply.

3.3	The Company shall bear the costs of the administration and implementation of this Plan.

PART B: MAKING OF AWARDS

4.	PLAN BONUS

4.1	Following an Announcement for a given Year, the Committee shall determine and notify to the Trustee in writing the identity of each Eligible Employee in respect of whom the Committee recommends that Bonus Share Awards be made on that occasion.

4.2	The Committee may in its discretion, and subject to Rule 4.3, invite an Eligible Employee to elect to accept payment of up to 50 per cent of his Bonus in the form of a Bonus Share Award.

4.3	The maximum amount of Bonus which may be taken by an Eligible Employee in the form of a Bonus Share Award shall not exceed 18 per cent of his Salary or, in the case of an Eligible Employee who is a member of the Group Executive Committee, 20 per cent of his Salary.

Bonus Share Awards for 2003

4.4

The Committee may, subject to Rule 4.3, invite an Eligible Employee to surrender a proportion of his Bonus for 2003 (“his Surrendered Bonus”) in exchange for a Bonus Share Award. The proportion surrendered shall not exceed 50 per cent of his Bonus for 2003 and shall be subject to the limit imposed by Rule 4.3. If such Bonus has been paid to the Participant before the Date of Approval:

4.4.1

Rules 5.2.1 and 5.2.2 shall not apply in relation to such Bonus;

4.4.2

The Participant shall repay to the Participant’s Employer the net amount (after deduction of income tax and NICs) of his Surrendered Bonus;

4.4.3

Rule 5.2.3 shall have effect as if the reference to “the net amount remaining” was a reference to such net amount of his Surrendered Bonus.

5.	BONUS SHARE AWARDS

5.1	The making of a Bonus Share Award shall be conditional upon the Participant having first agreed and undertaken (in such form as the Company may require) to accept and be bound by the following rules of this Plan.

5.2	A Bonus Share Award shall be made as follows:-

5.2.1

The Participant’s Employer shall award to the Participant a cash sum equal in amount to the gross amount of Bonus which the Participant has elected to receive in the form of a Bonus Share Award.

5.2.2

The Participant’s Employer shall deduct from such amount, and account to the Relevant Tax Authority for, the appropriate amount of income tax and employees’ NICs for which the Participant’s Employer is liable to account.

5.2.3

Subject to Rule 5.3, the net amount remaining shall, as soon as practicable thereafter, be applied on behalf of the Participant in the acquisition of Shares or ADRs at the best price at which such Shares or ADRs can reasonably be acquired at the time of purchase.

5.2.4

Bonus Award Shares may be so acquired by:-

(a)

purchase in the market; or

(b)

purchase from the Trustee; or

(c)

subscription or purchase out of treasury

and, in any such case, shall, except as mentioned in Rule 5.5, be registered in the name of the Participant.

5.2.5

The share certificates or other evidence of title to the Bonus Award Shares shall be deposited with the Company, or such other person as the Company shall direct, until the earliest to occur of:-

(a)

the date on which the Participant ceases to hold the office or employment within the Group by virtue of which he is eligible to participate in this Plan; and

(b)

the date on which the Participant directs the Trustee either to sell such Shares on the Participant’s behalf or transfer the legal title in such Shares to or to the order of the Participant; or

(c)

the third anniversary of the Bonus Award Date.

5.3	If the Committee so determines in relation to a Participant on any occasion on which a Bonus Share Award is to be made, the Participant may:-

5.3.1

transfer to, or deposit with, the Trustee, out of his or her existing holding of Shares or ADRs, such number of Shares or ADRs as is equal to the number of Shares or ADRs which would otherwise have been acquired pursuant to Rule 5.2.3; or

5.3.2

nominate a given number of Shares as is mentioned in Rule 5.4

and, in any such case:-

(a)

Rules 4.4.2 and 5.2.3 to 5.2.4 shall not apply;

(b)

the Shares or ADRs so transferred or nominated shall be treated for the purposes of this Plan as Bonus Award Shares; and

(c)

in the case of Bonus paid for 2004 or any later year, the net amount of such Bonus shall be paid to the Participant in cash

PROVIDED THAT no such determination shall be made unless the Committee is satisfied that the Participant has, and will remain beneficially entitled to, a number of Shares which is not less than the minimum shareholding requirement specified by the Committee from time to time.

5.4

A Participant may, for the purposes of satisfying the requirement of a Participant to transfer or deposit shares with the Trustee, as mentioned in Rule 5.3, nominate a given number of Shares held for such Participant in a PEP, an ISA or an Employee Stock Purchase Plan. In this event, the Participant shall provide to the Trustee evidence (to the satisfaction of the Trustee) that such Shares are so held on his behalf.

5.5

The Company may determine, in relation to any Bonus Share Award, that the Bonus Award Shares acquired as mentioned in Rule 5.2, or transferred as mentioned in Rule 5.3, shall be registered in the name of the Trustee and in this event the Trustee shall issue to the Participant a Bonus Award Certificate which specifies:-

5.5.1

the number of Shares or ADRs which have been so acquired on behalf of the Participant or transferred by the Participant to the Trustee on that occasion; and

5.5.2

the latest date when the Trustee will release such Shares or ADRs and either sell them on the Participant’s behalf or transfer the legal title in such Shares or ADRs to or to the order of the Participant

and shall otherwise be in such form as the Company may specify.

5.6	Bonus Award Shares may only be so acquired as mentioned in Rule 5.2, or transferred as mentioned in Rule 5.3:-

5.6.1

42 days following the Date of Approval;

5.6.2

42 days beginning with the fourth Dealing Day following an Announcement;

5.6.3

subject to the Model Code, at any other time but only if, in the opinion of the Committee, the circumstances are exceptional.

5.7

If on any occasion the acquisition of Bonus Award Shares as mentioned in Rule 5.2.4 is restricted by statute, order or regulation (including any regulation, order or requirement imposed by the London Stock Exchange or any other regulatory authority) such Bonus Award Shares shall be so acquired or transferred within the period of 42 days beginning with the date on which all such restrictions are removed.

5.8	No Bonus Award Shares may be so acquired after 6 May 2014.

5.9	Bonus Award Shares shall:-

5.9.1

if they are held by the Trustee as mentioned in Rule 5.2, or deposited with the Trustee as mentioned in Rule 5.3, be so retained by the Trustee; or

5.9.2

if they are held on behalf of the Participant in a PEP or an ISA, remain so held

throughout the period ending upon the earliest to occur of:-

(a)

the date on which the Participant ceases to hold office or employment within the Group by virtue of which he is eligible to participate in this Plan;

(b)

the date on which the Participant directs the Trustee either to sell such Shares on the Participant’s behalf or transfer the legal title in such Shares to or to the order of the Participant; or

(c)

the third anniversary of the Bonus Award Date

and for the purposes of this Rule 5.9, a Participant shall not be treated as ceasing to hold office or employment with any member of the Group unless and until he no longer holds office or employment with any member of the Group, any Associated Company or any Jointly-Owned Company.

5.10

Any Bonus Award Shares held by the Trustee at the third anniversary of the Bonus Award Date shall, in the absence of any direction by the Participant to the contrary, be released by the Trustee and transferred into the name of the Participant whereupon the Trustee shall procure the issue to the Participant of a share certificate or such other acknowledgement of shareholding as is prescribed from time to time in respect of such Shares.

5.11	In relation to Bonus Award Shares held by the Trustee:-

5.11.1

the Trustee shall pay over to the Participant any dividends or other money or money’s worth received by the Trustee in respect of, or by reference to, any of a Participant’s Bonus Award Shares other than money’s worth consisting of shares acquired by the Trustee in consequence of a corporate reorganisation (as mentioned in section 126 of the TCGA) and shall deal with any right to be allotted other shares securities or rights of any description (being rights conferred in respect of any of the Bonus Award Shares) only pursuant to a direction in writing given by the Participant;

5.11.2

the Trustee may (but shall not be obliged to) seek irrevocable directions in writing from the Participant in relation to the exercise of any voting or other rights attaching to Bonus Award Shares but shall not exercise any such rights otherwise than in accordance with such directions. If no directions are received or such directions are not received within such reasonable period (as the Trustee may determine) before the Trustee has to exercise such rights, the Trustee shall refrain from exercising any such rights and shall not be liable for any loss resulting therefrom.

5.12

Notwithstanding the provisions of Rule 5.11.2, a Participant may on any occasion direct the Trustee in writing as to the exercise of any voting or other rights attaching to Bonus Award Shares and provided that such directions are received by the Trustee not less than five working days before the last day on which proxy forms must be lodged in relation to any vote for which the Participant wishes to give voting instructions or five working days before the last day on which written acceptances must be received in respect of the take up of any other rights, the Trustee shall act in accordance with such directions.

6.	MATCHING SHARE AWARDS

6.1

If a Participant receives a Bonus Share Award in respect of any Bonus Year, the Company may, if the Committee so agrees (but shall not be obliged to) grant to such Participant or procure the grant to the Participant of the right to acquire additional Shares or ADRs pursuant to and in accordance with the following rules of this Plan.

6.2	The number or proportion of Matching Shares which a Participant shall become entitled to acquire pursuant to a Matching Share Award shall (except as otherwise provided by the following provisions of these rules) be determined according to the extent (if any) to which the Performance Target is met.

6.3	The maximum number of Matching Shares which may be transferred pursuant to a Matching Share Award if the Performance Target is met in full shall be expressed as a multiple (“the Award Multiple”) of the Base Number of Shares.

6.4	The Award Multiple shall not in any event exceed 2.

6.5	The Base Number of Shares shall be such number of Shares as is equal to:-


A
C

where:	A	is the gross amount of Bonus (before deduction of income tax and NICs) awarded in the form of a Bonus Share Award

	C	is the average price per Share (or ADR) at which the corresponding Bonus Award Shares were acquired by or on behalf of the Participant as mentioned in Rule 5.2 or at which Shares (or ADRs) equal in number to those transferred as mentioned in Rule 5.3 would, but for the application of Rule 5.3, otherwise have been so acquired.

Tax Indemnity

6.6	In accepting the grant of a Matching Share Award, the Participant shall indemnify the Participant’s Employer against any Award Tax Liability.

Transfer of Burden of Employer’s NICs

6.7	A Participant shall, if required by the Company, agree with and undertake to the Company and any other company which is the Participant’s Employer that:-

6.7.1

the Participant’s Employer may (if or insofar as it is lawful to do so) recover from the Participant, the whole or any part of any Employer’s NICs payable in respect of any Matching Share Award Gain; and

6.7.2

the Participant shall enter into a joint election with the Participant’s Employer (in a form approved by the Inland Revenue under paragraph 3B of Schedule 1 to the SSCBA) for the transfer to the Participant of the whole, or such part as the Company may determine, of any liability of the Participant’s Employer to Employer’s NICs on any Matching Share Award Gain.

6.8	Data Protection

In accepting the grant of a Matching Share Award, a Participant shall agree and consent to:-

(a)

the collection, use, processing and transfer of his Personal Data by any member of the Group, any Associated Company or Jointly-Owned Company and the Trustee;

(b)

any members of the Group, any Associated Company or Jointly-Owned Company and if it is not the Company, the Grantor and any third party trustee or administrator of the Plan transferring the Participant’s Personal Data amongst themselves for the purposes of implementing, administering and managing this Plan and the transfer of Shares pursuant to a Matching Share Award;

(c)

the use of Personal Data by any such person for any such purposes; and

(d)

the transfer to and retention of Personal Data by third parties (whether or not any such third party is situated outside the European Economic Area) for or in connection with such purposes.

7.	RELATIONSHIP WITH CONTRACT OF EMPLOYMENT

7.1

The making of a Matching Share Award shall not form part of the Participant’s entitlement to remuneration or benefits pursuant to his contract of employment nor does the existence of a contract of employment between any person and the Company or any present or past Subsidiary, Associated Company or Jointly-Owned Company, give such person any right or entitlement to have a Matching Share Award granted to him in respect of any number of Shares or any expectation that a Matching Share Award might be granted to him, whether subject to any conditions or at all.

7.2	The rights and obligations of a Participant under the terms of his contract of employment with the Company or any present or past Subsidiary, Associated Company or Jointly-Owned Company shall not be affected by the grant of a Matching Share Award or his participation in this Plan.

7.3

The rights granted to a Participant on the grant of a Matching Share Award shall not afford the Participant any rights or additional rights to compensation or damages in consequence of the loss or termination of his office or employment with the Company or any present or past Subsidiary, Associated Company or Jointly-Owned Company for any reason whatsoever (whether or not the termination is ultimately held to be wrongful or unfair).

7.4

A Participant shall not be entitled to any compensation or damages for any loss or potential loss which he may suffer by reason of being unable to acquire Shares or ADRs pursuant to a Matching Share Award in consequence of the loss or termination of his office or employment with the Company or any present or past Subsidiary, Associated Company or Jointly-Owned Company for any reason whatsoever (whether or not the termination is ultimately held to be wrongful or unfair).

8.	NON-TRANSFERABILITY OF MATCHING SHARE AWARDS

8.1	A Matching Share Award is personal to a Participant and may not be transferred during his lifetime.

8.2	A Matching Share Award shall immediately lapse and cease to be exercisable if the Participant:-

8.2.1

transfers or assigns it (other than to his Personal Representatives), mortgages, charges or otherwise disposes of it;

8.2.2

is adjudged bankrupt or an interim order is made because he intends to propose a voluntary arrangement to his creditors under the Insolvency Act 1986;

8.2.3

makes or proposes a voluntary arrangement under the Insolvency Act 1986, or any other plan or arrangement in relation to his debts, with his creditors or any section of them; or

8.2.4

is otherwise deprived (except on death) of the legal or beneficial ownership of the Matching Share Award by operation of law or doing or omitting to do anything which causes him to be so deprived.

PART C: VESTING OF MATCHING SHARE AWARDS

9.	PERFORMANCE TARGET FOR MATCHING SHARE AWARDS

The Committee shall determine and specify when a Matching Share Award is granted the condition (or conditions) relating to the performance of the Company, over a minimum period of three Years beginning not earlier than that in which falls the Bonus Award Date, which (except as otherwise provided by the following provisions of these rules) must be satisfied before Shares or ADRs shall be transferred pursuant to a Matching Share Award.

10.	FURTHER CONDITIONS FOR RECEIPT OF MATCHING SHARES

10.1

Unless the Company otherwise determines in relation to a Matching Share Award, no Matching Shares shall be transferred to a Participant unless such Participant has, within 30 days after the Date of Grant of such Matching Share Award (or such later time as the Company may notify to the Participant), notify the Company of his acceptance of such Matching Share Award and has agreed to be bound by the rules of this Plan by executing and delivering to the Company a duly completed Form of Acceptance, substantially in the form set out out in Schedule 4 or such other form as the Company may from time to time specify and notify to the Participant.

10.2

If at any time before the end of the Performance Period the Participant transfers, assigns, charges or otherwise disposes of his interest in any of his Bonus Award Shares (otherwise than upon a change of Control or reconstruction or reorganisation of the share capital of the Company), the maximum number of Matching Shares which could be transferred pursuant to a Matching Share Award shall be reduced in direct proportion to the proportion of the Bonus Award Shares (or of the Participant’s interest in such Bonus Award Shares) so transferred, charged or otherwise disposed of.

10.3

Except as otherwise provided in Rule 13, no Matching Shares shall be transferred to or to the order of a Participant if the Participant has then ceased to hold office or employment with any member of the Group or has then given or received notice of termination of any office or employment within the Group or with any Associated Company or Jointly-Owned Company and, upon the occurrence of any such event, the Participant shall thereupon cease to have any entitlement or expectation to any of the Matching Shares.

10.4

For the purposes of securing compliance with Rule 10.1, if any of a Participant’s Bonus Award Shares are Shares held on the Participant’s behalf in a PEP, an ISA, or an Employee Stock Purchase Plan, no Matching Shares shall be transferred to or to the order of the Participant unless the Participant first provides evidence to the satisfaction of the Trustee that the Participant has retained beneficial ownership of the relevant Bonus Award Shares throughout the Performance Period.

11.	SATISFACTION OF MATCHING SHARE AWARDS

11.1	Subject to Rules 13 and 17 – 19, as soon as practicable after any Matching Shares have become Vested Matching Shares or, if later, the third anniversary of the Bonus Award Date, the Company shall procure the transfer of Vested Matching Shares to or to the order of the Participant.

11.2	Vested Matching Shares may not be transferred to or to the order of a Participant on any occasion if such transfer would not then be in compliance with the Model Code.

11.3	If on any occasion the transfer of any Vested Matching Shares is restricted by reason of the Model Code or any other regulation, requirement or guidance issued by the London

Stock Exchange or the UK Listing Authority and which relates to dealings in Shares by directors or employees of any member of the Group, such Shares shall be transferred as soon as practicable after all such restrictions have been lifted.

12.	LIMITS ON THE ISSUE OF NEW SHARES

5% in 10 year limit for executive (discretionary) schemes

12.1

The number of Shares which may be issued for the purposes of satisfying Matching Share Awards on any day, when added to the number of Shares issued and in respect of which rights to subscribe for Shares have previously been granted (and which have neither been exercised nor have ceased to be exercisable) pursuant to this Plan and any other executive (discretionary) share scheme in the period of ten years preceding that day shall not exceed 5 per cent of the Ordinary Share Capital.

10% in 10 year limit for all the Schemes

12.2

The number of Shares which may be issued for the purposes of satisfying Matching Share Awards on any day, when added to the number of Shares issued and in respect of which rights to subscribe for Shares have previously been granted (and which have neither been exercised nor have ceased to be exercisable) pursuant to this Plan and other employees’ share scheme in the period of ten years preceding that day shall not exceed 10 per cent of the Ordinary Share Capital.

12.3	For the purposes of this Rule 12, references to rights to subscribe for Shares shall be taken to include references to a right to acquire Shares issued or to be issued out of treasury.

13.	CESSATION OF EMPLOYMENT

13.1	If, before the end of the Performance Period, a Participant ceases to hold employment within the Group by reason of:-

13.1.1

injury, ill-health or disability (evidenced to the satisfaction of the Committee);

13.1.2

death in service;

13.1.3

redundancy (within the meaning of the Employment Rights Act 1996);

13.1.4

retirement;

13.1.5

the fact that the office or employment by virtue of which he is eligible to participate in this Plan relates to a business or part of a business which is transferred to a person who is not a member of the Group, an Associated Company or a Jointly-Owned Company; or

13.1.6

the fact that the company with whom he holds office or employment by virtue of which he is eligible to participate in this Plan is no longer a member of the Group or an Associated Company or a Jointly-Owned Company

then the Company or the Trustee shall as soon as practicable after the end of the Performance Period transfer to the Participant (or, if appropriate, his Personal Representatives) a proportion of the Vested Matching Shares corresponding to such proportion of the Performance Period as had elapsed at the date of such cessation and the Participant shall thereupon cease to have any entitlement or expectation to the remainder of the Matching Shares.

13.2	The Committee may increase the proportion of Matching Shares which may be transferred as mentioned in Rule 13.1, but only if and insofar as the Committee is then satisfied that such increase is justified by the performance of the Company since the Bonus Award Date.

Leaving for Other Reasons

13.3

If, before the end of the Performance Period, a Participant ceases to hold employment within the Group for any reason otherwise than as mentioned in Rule 13.1 above then, unless the Committee otherwise determines within three months of the date of such cessation, a Matching Share Award shall lapse and cease to be exercisable and the Participant shall thereupon cease to have any entitlement or expectation to any of the Matching Shares save and to the extent that Committee may otherwise determine within three months of the date of such termination.

14.	TIME OF LEAVING

For the purposes of Rules 10.3 and 13, a Participant shall be treated as ceasing to hold employment within the Group only when he no longer holds any office or employment with any member of the Group or with any Associated Company or a Jointly-Owned Company or is summarily dismissed from any such office or employment.

PART D: RECOVERY OF TAX

15.	RECOVERY OF TAX

If an Award Tax Liability arises on the transfer of Matching Shares or the release of a Matching Share Award then, unless:-

(a)

the Participant has indicated (in such manner as the Company may specify) that he will make a payment to the Company of an amount equal to the Award Tax Liability; and

(b)

the Participant does, within 14 days of being notified by the Company of the amount of the Award Tax Liability, make such payment to the Company

the Trustee and the Company shall, to the extent necessary to satisfy the indemnity given in Rule 6.6, each have the right:-

(i)

to retain and sell Matching Shares acquired pursuant to a Matching Share Award and procure payment to the Participant’s Employer, out of the net proceeds of sale of such Matching Shares (after deducting fees, commissions and expenses incurred in relation to the sale), of monies sufficient to satisfy such indemnity; or

(ii)

to withhold the necessary amount from any payment of the Participant’s remuneration.

PART E: CORPORATE TRANSACTIONS

16.	INTERNAL RECONSTRUCTION

If:-

(a)

in consequence of a demerger, reconstruction, reorganisation or amalgamation, the Company shall come under the control of another company, or the business of the Company shall then be carried on by another company, and in either case, the persons who owned the Ordinary Share Capital immediately before such change of control will immediately thereafter continue to have control of the Company and will then own more than 50 per cent of the issued ordinary share capital of such other company (other than fixed-rate preference shares); and

(b)

a Participant is offered an Exchange of Awards

then:-

(i)

the provisions of Rules 17 and 18 shall not apply; and

(ii)

a Participant shall, at the end of the period of 21 days beginning with the date on which such invitation is made or, if later, the end of the period in which the Participant may accept such invitation, cease to have any expectation or entitlement pursuant to any Matching Share Award in respect of which Matching Shares have not then vested.

17.	DEMERGER, REORGANISATION, RECONSTRUCTION OR AMALGAMATION

17.1

If the Company’s shareholders are notified of a proposed demerger of the Company or of any Subsidiary, the Committee may (notwithstanding that the Performance Target has not then been met) determine and notify Participants that a proportion (not exceeding such proportion of the Performance Period as fell before the date of such notification) of the Matching Shares shall become Vested Matching Shares at such time as the Committee shall specify.

17.2

No such determination shall be made by the Committee unless the Auditors have confirmed in writing to the Committee that (disregarding any Performance Target to which any Matching Share Award is then subject) the interests of Participants would or might be substantially prejudiced if, before the proposed demerger has effect, Participants could not acquire Shares or ADRs pursuant to a Matching Share Award and be registered as the holders of the Shares or ADRs so acquired.

17.3

If notice is given to shareholders of the Company of a resolution to approve the reorganisation, reconstruction or amalgamation of the Company or of any other member of the Group, the Committee may vary the terms of Matching Share Awards made on any occasion and/or the relevant Performance Targets in such manner as the Committee may determine and notify to Participants.

17.4

In making any such determination as is mentioned in Rules 17.1 and 17.3, the Committee shall act fairly and reasonably, taking proper account of the circumstances and having due regard to the objectives of the Company in establishing this Plan, and shall apply the same criteria to the holders of all Matching Share Awards granted on the same occasion.

17.5	If, pursuant to Rule 17.1 or 17.3, Matching Shares become Vested Matching Shares, Rule 11.1 shall then apply as if the reference to “or, if later, the third anniversary of the Bonus Award Date” were omitted.

18.	CHANGE OF CONTROL

18.1	If, as a result of:-

18.1.1

a general offer to acquire the whole of the Ordinary Share Capital which is made on a condition such that if it is satisfied the person making the offer will have Control of the Company; or

18.1.2

a general offer to acquire all the shares in the Company of the same class as the Shares; or

18.1.3

a compromise or arrangement sanctioned by the court pursuant to section 425 of the Companies Act 1985 ; or

18.1.4

any person becoming bound or entitled to acquire Shares under sections 428 – 430F (inclusive) of the Companies Act

the Company shall come under the Control of another person or persons, the Committee may determine and notify Participants that a proportion of the Matching Shares (corresponding to such proportion of the Performance Period as fell before the Change of Control) shall then become Vested Matching Shares.

18.2	In determining the proportion of Matching Shares which shall become Vested Matching Shares, the Committee shall have regard to the performance of the Company over that part of the Performance Period as has then elapsed.

18.3	For the purposes of this Rule 18, a person shall be deemed to have Control of a company if he and others acting in concert with him have together obtained Control of it.

18.4	If, pursuant to Rule 18.1, Matching Shares become Vested Matching Shares, Rule 11.1 shall then apply as if the reference to “or, if later, the third anniversary of the Bonus Award Date” were omitted.

19.	WINDING-UP

19.1	If the Company’s shareholders are notified of a resolution for the voluntary winding-up of the Company, the Committee may vary the terms of Matching Share Awards in such manner as the Committee may consider to be appropriate.

19.2	All Matching Share Awards shall immediately lapse and cease to be exercisable on the commencement of the Company’s winding-up.

PART F: AMENDMENTS

20.	VARIATION OF SHARE CAPITAL

20.1	If the Ordinary Share Capital is altered by way of capitalisation or rights issue, sub-division, consolidation or reduction or there is any other variation in the share capital of the Company, the Committee may make such adjustment as it considers appropriate:-

20.1.1

to the Base Number of Shares and/or the aggregate number of Matching Shares subject to any Matching Share Award; and/or

20.1.2

to the maximum limit on the number of Shares in respect of which Matching Share Awards are made to any individual in any calendar year, as set forth in Schedule 1.

PROVIDED THAT

(a)

except in the case of a sub-division, consolidation or a capitalisation issue, the Auditors shall give written confirmation that the adjustment is, in their opinion, fair and reasonable;

(b)

the number of Shares as so adjusted has been rounded down to the nearest whole number.

20.2	The Company shall as soon as reasonable practicable notify every Participant affected by an adjustment made pursuant to Rule 20.1.

20.3	The Committee shall deliver, or procure the delivery of, a revised Matching Award Certificate to any Participant who makes a request in writing for an amended Matching Award Certificate.

21.	ALTERATION OF THE PLAN

21.1

The Directors may at any time alter or add to any of the provisions of this Plan in any respect PROVIDED THAT no such alteration or addition shall be made to the advantage of existing or new Participants to the provisions relating to eligibility to participate, the overall limitations on the issue of new Shares, the individual limitation on the award of Matching Shares under this Plan, the basis for determining Participants’ rights to acquire Matching Shares, the adjustment of such rights in the event of variation of the Ordinary Share Capital or this Rule 21 without the prior approval by ordinary resolution of the shareholders of the Company SAVE THAT the provisions of this Rule 21.1 shall not apply to the extent that such alteration or addition is in the opinion of the Directors:-

21.1.1

a minor amendment which is necessary or appropriate to benefit the administration of this Plan;

21.1.2

to take account of any change in legislation; or

21.1.3

to obtain or maintain favourable tax, exchange control or regulatory treatment for existing or new Participants, the Company or any Associated Company.

21.2	Details of any alteration or addition shall be given by the Company to every affected Participant (if any) as soon as reasonably practicable.

PART G: MISCELLANEOUS

22.	ALLOCATION OF FUNDS

22.1	The Company may from time to time procure the payment of sums by members of the Group or any Associated Company or Jointly-Owned Company to the Trustee for the purpose of enabling the Trustee to acquire Matching Shares.

22.2	The aggregate amount to be paid to the Trustee in any Year shall be such amount (if any) as the Committee may determine SAVE THAT in the case of payments made by a Subsidiary the amount of any such payment shall be determined by agreement between the Company and the Subsidiary.

22.3

A member of the Group shall only pay to the Trustee such sums as are required in connection with the acquisition of Shares by the Trustee for the purpose of providing benefits to Eligible Employees and former Eligible Employees who are or were previously in the service of that Participating Company.

23.	SERVICE OF DOCUMENTS

23.1	Except as otherwise provided in this Plan, any notice or document to be given by, or on behalf of, the Company, the Trustee or any administrator of this Plan to any Eligible Employee or Participant in accordance or in connection with this Plan shall be duly given:-

23.1.1

by sending it through the post in a pre-paid envelope to the address last known to the Company to be his address and, if so sent, it shall be deemed to have been duly given if sent by first class post on the day after posting and if sent by second class post on the second day after; or

23.1.2

if he holds office or employment with any member of the Group or any Associated Company or Jointly-Owned Company, by delivering it to him at his place of work or by sending a facsimile transmission or an e-mail addressed to him at his place of work and, if so sent, it shall be deemed to have been duly given on the day following transmission SAVE THAT a notice or document shall not be duly given by e-mail unless that person is known by his employer company to have personal access during his normal business hours to information sent by e-mail.

23.2

Any notice or document so sent to an Eligible Employee or Participant shall be deemed to have been duly given notwithstanding that such person is then deceased (and whether or not the Company or the Trustee has notice of his death) except where his Personal Representatives have supplied an alternative address to which documents are to be sent to the Company.

23.3	Any written notice or document to be submitted or given to the Company, the Trustee or any administrator of this Plan in accordance or in connection with this Plan may be delivered, sent by post, facsimile transmission or e-mail but shall not in any event be duly given unless:-

23.3.1

it is actually received (or, in the case of an e-mail, opened) by the secretary of the Company or such other individual as may from time to time be nominated by the Company and whose name and address is notified to Participants; and

23.3.2

if given by e-mail (and if so required by the Company), it includes a digitally encrypted signature of the Participant.

23.4	For the purposes of this Plan, an e-mail shall be treated as not having been duly made or received if the recipient of such e-mail notifies the sender that it has not been opened

because it contains, or is accompanied by a warning or caution that it could contain or be subject to, a virus or other computer programme which could alter, damage or interfere with any computer software or e-mail.

24.	OBLIGATION TO ENSURE SUFFICIENT AVAILABLE SHARES

24.1

No Matching Share Award shall be granted by any person unless that person beneficially owns sufficient Shares or ADRs at the date of grant of such Matching Share Award or the Directors are satisfied that sufficient Shares or ADRs will be made available to satisfy in full all Matching Share Awards granted or to be granted by that person.

24.2	The Company may issue Shares, and grant rights to acquire Shares or ADRs, to the trustees of any trust established for the benefit of persons who include employees of the Group for the purpose of enabling such trustees, in the exercise of their powers to:-

24.2.1

make Matching Share Awards; and

24.2.2

transfer or procure the issue or transfer of Shares or ADRs pursuant to Matching Share Awards granted by such trustees

PROVIDED THAT any Shares issued or in respect of which rights are granted by the Company (and, if not exercised, do not lapse) shall count in applying the overall limitations on the issue of Shares imposed by Rule 12.

25.	RIGHTS ATTACHING TO SHARES

25.1

A transfer of Shares or ADRs or of any interest in Shares or ADRs under this Plan shall be subject to the Memorandum and Articles of Association of the Company, the Listing Rules, the Model Code or any other requirement or guidance issued by the UKLA or the London Stock Exchange or the New York Stock Exchange and which relates to dealings in Shares by directors or employees of any member of the Group and to any necessary consents of any government or any other authorities (whether in the United Kingdom or otherwise) under any enactments or regulations from time to time in force. It shall be the responsibility of the Participant to do all such things as may be necessary to obtain or obviate the necessity for any such consent.

25.2	All Shares or ADRs allotted or transferred under this Plan shall rank equally in all respects with the Shares or ADRs then in issue, except for any rights attaching to such Shares or ADRs by reference to a record date prior to the date of such allotment or transfer.

26.	STAMP DUTY

Any stamp duty or stamp duty reserve tax payable in respect of a transfer of Shares to or at the direction of a Participant (other than stamp duty or stamp duty reserve tax payable on a sale of Shares by the Trustee at the direction of the Participant) shall be paid by the Company or, if requested by the Company, the Trustee (who shall be reimbursed by the Company).

27.	JURISDICTION

27.1	This Plan and any Award shall be governed by, and construed in accordance with, the laws of England and Wales.

27.2	The courts of England shall have exclusive jurisdiction in relation to any claim, dispute or difference concerning an Award and any matter arising from or in relation to this Plan.

28.	PURCHASES BY TRUSTEE

Subject to Rule 15, a Participant may, subject to the Model Code, direct the Trustee to sell Vested Matching Shares on his behalf and, in this event, the Shares or ADRs may, if the Trustee so determines, be purchased by the Trustee PROVIDED THAT the price per Share or ADR paid by the Trustee is not less than the Market Value of a Share or ADR on the date of purchase.

29.	THIRD PARTY RIGHTS

Except as otherwise expressly stated to the contrary, neither this Plan nor the making of any Award shall have the effect of giving any third party any rights under this Plan pursuant to the Contracts (Rights of Third Parties) Act 1999 and that Act shall not apply to this Plan or to the terms of any Award under it.

SCHEDULE 1

Supplemental terms relating to the grant of Awards to employees based in the USA

Subject to the following provisions of this Schedule, the Committee may (and in the case of an Award to be granted to an Eligible Employee who is a resident of the U.S.A., shall) determine that an Award shall be subject to the additional terms set out in this Schedule and any such Award is referred to below as “a U.S. Award”.

B.	A U.S. Award may not be granted otherwise than in compliance with the US Securities Act of 1933 (as amended), if applicable, and all applicable US State Securities laws, as they are in effect at the time of grant of the Award.

C.	A U.S. Award may not be settled unless such settlement is in compliance with the US Securities Act of 1933 (as amended), if applicable, and all applicable US state securities laws, as they are in effect at the time of the settlement of such Award.

Unless sold outside of the United States of America in a manner which removes the sale from the purview of the US federal securities laws, all Shares acquired upon the settlement of a U.S. Award must be held indefinitely unless they are registered under the Securities Act of 1933 or an exemption from registration is available.

E.	The transfer of any Shares acquired upon the settlement of a U.S. Award may be restricted or affected by various state securities laws in the United States of America.

F.	Unless the Directors otherwise specify, a US Award shall be a right to acquire ADRs representing Shares, rather than Shares.

The maximum number of Shares that shall be subject to all Awards granted under the Plan, all options granted under the Company’s 2004 Executive Share Option Plan and all performance shares granted under the Company’s 2004 Performance Share Plan to any individual in any calendar year shall not exceed 400,000 Shares in the aggregate, subject to adjustment in accordance with Rule 20.

To the extent a Matching Share Award is intended to be qualified performance-based compensation within the meaning of section 162(m) of the Code, the Performance Target applicable to such Award shall be limited to the total shareholder return of the Company or growth in the earnings per share of the Company.

SCHEDULE 2

THE SMITH & NEPHEW 2004 CO-INVESTMENT PLAN

Deed of Grant of Matching Share Award

Words and phrases used in this Deed of Grant have the meanings given in Rule 1 of the Plan.

[Schedule]

Name

Employer

company

Shares or

ADRs?

No. of Bonus Award
Shares/ADRs

Base no. of Shares

/ADRs

Maximum Award
Multiple

[2]


EXECUTED AS A DEED this [ ] day of [ ] 200 [ ] by [SMITH & NEPHEW plc/ [ ] TRUSTEES LIMITED]* acting by:-		) ) ) )

		Director/Authorised Signatory


		Director/Secretary

*	Delete as appropriate

SCHEDULE 3

THE SMITH & NEPHEW 2004 CO-INVESTMENT PLAN

Matching Share Award Certificate



Name of Participant:

Address of Participant:



Employer Company:

National Insurance No:

Bonus Award Date:

Number of Bonus Award [Shares/ADRs]*:

Base No. of Matching [Shares/ADRs]*:

Maximum Award Multiple:

This is to certify that [SMITH & NEPHEW plc/[ ] TRUSTEES LIMITED]* (the “ Grantor ”) has granted the Participant named above a Matching Share Award by reference to the Base No. of [Shares/ADRs]* shown above.

The Participant’s entitlement to acquire [Shares/ADRs]* pursuant to this Matching Share Award is subject to the rules of The Smith & Nephew 2004 Co-Investment Plan, as amended from time to time. The multiple of such Base Number of Shares to which a Participant may become entitled is dependent upon the performance of the Company over the three financial years beginning with [2004] determined in accordance with the Performance Target set out in the Appendix to this Certificate.

The actual number of Matching Shares (if any) to which a Participant may become entitled is also dependent upon:-

(a)	the Participant remaining in employment with the Group throughout the 3-year Performance Period; and

(b)	the Participant not transferring assigning charging or otherwise disposing of his interest in any of the Bonus Award Shares at any time before the end of the Performance Period.

This Matching Share Award will lapse unless the Participant executes and returns to the Grantor so as to be received no later than [ ] the accompanying Form of Acceptance.

This Matching Share Award is not transferable otherwise than to the Participant’s personal representatives in the event of the Participant’s death.

__________________________________

for and on behalf of [Smith & Nephew plc/[ ] Trustees Limited]

Date______________________________

*	Delete as appropriate

APPENDIX

Performance Target

If, but only if, the growth in the Company’s EPSA over the 3 years ending 31 December 2006 is at least 48 per cent (ie 14 per cent per annum, compounded annually), the Award Multiple shall be 1.

If, but only if, the growth in the Company’s EPSA over the 3 years ending 31 December 2006 is at least 60 per cent (ie 17 per cent per annum, compounded annually), the Award Multiple shall be 2.

If the growth in the Company’s EPSA over the 3 years ending 31 December 2006 is less than 48 per cent (ie 14 per cent per annum, compounded annually), the Award Multiple shall be zero and the Participant shall cease to have any entitlement to Matching Shares.

For these purposes, EPSA means the basic earnings per share of the Company adjusted to exclude the amortisation of goodwill and exceptional items.

SCHEDULE 4

THE SMITH & NEPHEW 2004 CO-INVESTMENT PLAN

Form of Acceptance of a Matching Share Award

To: [The Company Secretary, Smith & Nephew plc, 15 Adam Street, London WC2N 6LA/[ ] Trustees Limited, [address]]*

I agree to accept the Matching Share Award made to me on (date) (“ the Matching Share Award ”) and agree and undertake to be bound by the terms and conditions set out in the rules of The Smith & Nephew 2004 Co-Investment Plan (the “ Plan ”) and the Appendix to the Matching Share Award Certificate.

Tax indemnity

2.	I agree to indemnify the Company and my Employer in respect of any liability of any such person to account for any tax, NICs or other equivalent social security charges arising on the acquisition of [Shares/ADRs]* pursuant to the Matching Share Award (“ Award Tax Liability ”).

3.	I understand and agree that, if an Award Tax Liability arises on any occasion then, unless either:-

3.1

my Employer (or former employer) is able to withhold the amount of such Award Tax Liability from payment of my remuneration, within the period of 30 days from the date on which [Shares/ADRs]* are transferred to me pursuant to the Matching Share Award; or

3.2

I have indicated in writing to my Employer (or former employer) either on the notice of exercise or in a manner agreed with the Company, that I will make a payment to the Company of an amount equal to the Award Tax Liability and I do in fact make such a payment, within 14 days of being notified by the Company of the amount of the Award Tax Liability; or

3.3

I have authorised the Grantor (in another manner agreed with the Company) to sell sufficient of the [Shares/ADRs]* acquired pursuant to the Matching Share Award and to procure payment to my Employer (or former employer) of monies sufficient to satisfy such indemnity out of the net proceeds of sale of such [Shares/ADRs]*,

the Grantor shall be entitled to sell sufficient of the [Shares/ADRs]* acquired pursuant to the Matching Share Award necessary to satisfy the indemnity and to procure payment to my Employer (or former employer) out of the net proceeds of sale of such [Shares/ADRs]* of monies sufficient to satisfy the indemnity mentioned in clause 2.

Agreement to bear the cost of Employer’s NICs

4.	I agree with, and undertake to, the Company and any other company which is my Employer, that my Employer may recover from me the whole or any part of any Employer’s NICs payable in respect of the transfer to me of any Shares pursuant to the Matching Share Award.

[Election for transfer of liability to Employer’s NICs

I agree and undertake to join with my Employer in making an election (in a form satisfactory to the Company and the Inland Revenue) for any liability of my Employer Company to Employers’ NICs payable in respect of the transfer to me of any Shares pursuant to the Matching Share Award, to be transferred to me (“ an NIC Election ”). ]

Power of Attorney

6.	I hereby appoint the Company Secretary or any director of the Company to act as my attorney for the purposes of:-

6.1

selling (at the best price that can reasonably be expected to be obtained at the time of sale) such number of the [Shares/ADRs]* to which I become entitled pursuant to the Matching Share Award as will realise sufficient monies (after deduction of all commissions and expenses incurred in relation to such sale) to satisfy my liability under the indemnity referred to in clause 2 above; and

6.2

paying such monies to my Employer.

Data protection

7.	I agree and consent to:-

7.1

the collection, use, processing and transfer by any member of the Group, an administrator and, if it is not the Company, the Grantor of my Personal Data;

7.2

any member of the Group, an administrator and, if it is not the Company, the Grantor, transferring my Personal Data amongst themselves for the purposes of the implementation, administration and management of this Plan and the acquisition of [shares/ADRs]* pursuant to the Matching Share Award;

7.3

the use of my Personal Data by any such person for any such purposes; and

7.4

the transfer to and retention of such Personal Data by third parties (whether or not any such third party is situated outside the European Economic Area) in connection with such purposes.

No contractual rights

8.	I agree and understand that the Matching Share Award does not form part of my contract of employment and that the Grantor is under no obligation to make any further Bonus Share Award or Matching Share Award to me.

Interpretation

9.	Words and phrases used in this Form of Acceptance shall have the meanings they bear for the purposes of the Plan.

*	Delete as appropriate


SIGNED and delivered AS A DEED by	)
	)
in the presence of:-	)
		(Participant’s signature)


Witness signature:

Witness Name (print):

Address:



Occupation:

Date:

YOUR SIGNATURE MUST BE WITNESSED BY A PERSON OVER 18 WHO IS NOT RELATED TO YOU BY BLOOD OR MARRIAGE AND RETURNED TO [ ] BY OR THE MATCHING SHARE AWARD WILL BE DEEMED TO HAVE LAPSED.

SCHEDULE 4

THE SMITH & NEPHEW 2004 CO-INVESTMENT PLAN

Notice of Payment of Option Tax Liability

To:	[The Company Secretary, Smith & Nephew plc, 15 Adam Street, London WC2N 6LA/[ ] Trustees Limited, [address]]*

Payment of Option Tax Liability

I understand that, as a result of my becoming entitled to Shares pursuant to the Matching Share Award made to me in 2004 (in respect of the Bonus Share Award made to me for 2003), an Award Tax Liability may arise which I am required to satisfy. I wish to meet this Award Tax Liability by:-


¨		authorising the Company or my Employer (or former employer) to deduct the necessary amount from my next salary payment under the PAYE procedure;

¨		paying the Company such amount as is necessary to cover the Award Tax Liability within 14 days of my receiving details of that Award Tax Liability from the Company; or

¨		agreeing to the Grantor selling sufficient of my [Shares/ADRs]* so that the net proceeds of sale will cover the Award Tax Liability.

Please tick the box for your preferred payment method.

If you do not tick any box, or if you tick more than one box, the [Company will first seek to withhold an amount sufficient to cover the Award Tax Liability from your next salary payment, and if the Award Tax Liability cannot then be satisfied in full, the] Grantor will sell sufficient of your [Shares/ADRs]* to meet that liability.


Name (block letters)				Signature


Address

				Date

*	Delete as appropriate

**	Delete/insert number as appropriate

***	Delete/insert payee as appropriate

Exhibit 4.5

AGM COPY

SMITH & NEPHEW plc

THE SMITH & NEPHEW 2004 EXECUTIVE SHARE OPTION PLAN

This is a copy of the rules of The Smith & Nephew 2004

Executive Share Option Plan as produced to the Annual

General Meeting of Smith & Nephew plc held on 6 May 2004

and initialled by the Chairman for the purposes of

identification only

__________________

Chairman

Inland Revenue ref U[ ]

Approved by shareholders: 6 May 2004

LOGO

THE SMITH & NEPHEW 2004 EXECUTIVE SHARE OPTION PLAN

Contents


Part A: Interpretation and Administration		Rules 1 –3

Part B: Grant of Options		Rules 4 –13

Part C: Exercise of Options		Rules 14 – 22

Part D: Recovery of Tax		Rule 23

Part E: Corporate Transactions		Rules 24 – 27

Part F: Amendments		Rules 28 – 29

Part G: Miscellaneous		Rules 30 – 36

CONTENTS


Clause		Page
1.	Definitions	1

2.	Interpretation	6

3.	Administration	6

4.	Eligibility	7

5.	Timing of Grant of an Option	7

6.	Grant Effected by Execution of a Deed	7

7.	Acceptance of an Option	8

8.	Data Protection	8

9.	Exercise Price	9

10.	Relationship with Contract of Employment	9

11.	Non-Transferability of Options	9

12.	Company Limits on the Granting of Subscription Options	10

13.	Individual Limits on the Granting of Options	10

14.	General Rules	12

15.	Performance Targets	12

16.	Earliest Date for Exercise	12

17.	Last Date for Exercise	12

18.	Cessation of Employment	13

19.	Leaving for Other Reasons	14

20.	Time of Leaving	15

21.	Manner of Exercise of an Option	15

22.	Issue or Transfer of Shares or ADRs	15

23.	Recovery of Tax	17

24.	Internal Reconstruction	18

25.	Demerger, Reorganisation, Reconstruction or Amalgamation	18

26.	Change of Control	19

27.	Winding-up	19

28.	Variation of Share Capital	21

29.	Alteration of the Plan	21

30.	Service of Documents	23

31.	Obligation to Ensure Sufficient Available Shares	23

32.	Stamp Duty	24

33.	Rights Attaching to SHares	24

34.	Jurisdiction	24

35.	Purchases by Trustee	24

36.	Third Party Rights	24


Schedule 1: Supplemental terms relating to the grant of Options to employees based in the USA		25

Schedule 2: Deed of Grant		27

Schedule 3: Option Certificate		28

Incentive Stock Option Certificate		31

Schedule 3: Appendix: Performance Target		32

Schedule 4: Form of Acceptance of Grant		33

Schedule 5: Notice of Exercise of Option		36

RULES OF

THE SMITH & NEPHEW 2004 EXECUTIVE SHARE OPTION PLAN

This Plan is an employees’ share scheme established by resolution of the Remuneration of the Directors of the Company passed on [ ] and approved by the shareholders of the Company by ordinary resolution passed on 6 May 2004.

PART A: INTERPRETATION AND ADMINISTRATION

1.	DEFINITIONS

1.1	In this Plan the following words and expressions have the meanings given below:-


“Acquiring Company”		a company which has acquired Control of the Company

“ADRs”		American Depositary Receipts in respect of American Depositary Shares each of which represents five ordinary shares in the capital of the Company

“Announcement”		the preliminary announcement to the London Stock Exchange of the annual or interim results of the Company for a Year

“Associated Company”		any company which, in relation to the Company, is an associated company as that term is defined in section 416 of the Taxes Act but with the omission of the words “or at any time within one year previously”

“Auditors”		the auditors for the time being of the Company or in the event of there being joint auditors, such one of them as the Committee may decide, or such other firm of registered auditors as the Committee may decide

“Change of Control”		in relation to the Company coming under the Control of another person, or persons acting in concert, as a result of a general offer being made as mentioned in Rule 26, the time when such person obtains, or such persons together obtain such Control and any condition subject to which the offer is made has been satisfied

“Code”		the United States Internal Revenue Code of 1986 (as amended)

“Committee”		the Remuneration Committee of the Directors, or such other committee comprising a majority of non-executive directors of the Company to which the Directors delegate responsibility for the operation of this Plan or, following a Change of Control of the Company, those persons who comprised the Remuneration Committee or such other committee of the Directors immediately before such Change of Control


“Companies Act”		the Companies Act 1985

“Company”		Smith & Nephew plc (registered in England no 324357)

“Control”		has the meaning given in section 840 of the Taxes Act

“Daily Official List”		the Daily Official List of the London Stock Exchange

“Date of Approval”		the date on which this Plan is approved by shareholders of the Company

“Date of Grant”		the date on which an Option is granted in accordance with Rule 6.1

“Dealing Day”		a day on which the London Stock Exchange or New York Stock Exchange as appropriate is open for business

“Directors”		the board of directors of the Company or a duly authorised committee of the directors

“Eligible Employee”		an executive director or bona fide employee of any member of the Group

“Employer’s NICs”		in the UK, secondary Class I NICs or, in any other jurisdiction, such other social security contributions (or equivalent taxes) for which the Optionholder’s Employer is primarily liable to account

“Exchange of Options”		the grant, to an Optionholder, in consideration of the release of an Option, of rights to acquire shares or American depositary receipts in an Acquiring Company or a company which has Control of an Acquiring Company or either is, or has Control of, a company which is a member of a consortium owning either an Acquiring Company or a company having Control of an Acquiring Company, being rights which are:-

		(a) in the opinion of the Committee, substantially equivalent in value to the value of such Option; and

		(b) on terms approved by the Committee

“Exercise Price”		the price per Share or ADR payable on the exercise of an Option

“Fair Market Value”		has the meaning it bears for the purposes of section 422 of the Code


“Grantor”		in relation to an Option the person who intends to grant or has granted that Option

“Group”		the Company and any company which is for the time being a Subsidiary

“Incentive Stock Option”		an incentive stock option within the meaning of section 422(b) of the Code granted to an Eligible Employee resident in the USA

“ITEPA”		the Income Tax (Earnings and Pensions) Act 2003

“Jointly-Owned Company”		a company (and any subsidiary – as defined in section 736 of the Companies Act – of such company) of which the whole of the issued Ordinary Share Capital is jointly-owned by a member of the Group and another person (not being a member of the Group) but which is not a Subsidiary and is not under the Control of such other company

“London Stock Exchange”		London Stock Exchange plc

“Market Value”		on a given day, the average of the middle market quotations of a Share as derived from the Daily Official List for the 3 consecutive Dealing Days last preceding that day or, in relation to an ADR, the average of the closing prices of an ADR on the New York Stock Exchange on the 3 consecutive Dealing Days last preceding that day or, to the extent required under section 422 of the Code, the Fair Market Value of an ADR on that day

“Model Code”		the code adopted by the Company, which contains provisions similar in purpose and effect to the provisions of the Model Code on directors’ dealings in securities, as set out in the appendix to Chapter 16 of the Listing Rules issued by the UKLA from time to time

“NICs”		in the UK, National Insurance contributions or, in any other jurisdiction, social security contributions (or other similar taxes)

“NI Regulations”		the laws, regulations and practices currently in force relating to liability for, and the collection of, NICs

“Non-Qualified Stock Option”		an Option granted to an Eligible Employee resident in the USA and which is not intended to be an Incentive Stock Option

“Notice of Exercise”		a form evidencing the exercise of an Option as mentioned in Rule 21.1

“Official List”		the official list of the UKLA

“Option”		a right to acquire Shares or ADRs granted in accordance with, and subject to, the rules of this Plan


“Option Certificate”		a certificate evidencing the grant of an Option as mentioned in Rule 6.2

“Option Gain”		in relation to an Option, the amount of any gain realised upon the exercise or release of, or acquisition of Shares or ADRs pursuant to, such Option, being a gain that is (or would if it were chargeable to NICs in the UK be) treated as remuneration derived from the Optionholder’s employment by virtue of section 4(4)(a) of the SSCBA

“Optionholder”		a person who has been granted an Option or, in the event of his death, his Personal Representatives

“Optionholder’s Employer” or “my Employer”		such member of the Group as is an Optionholder’s employer or, if he has ceased to be employed within the Group, was his employer or such other member of the Group, or such other person as, under the PAYE Regulations or, as the case may be, the NI Regulations, or any other statutory or regulatory provision (whether in the United Kingdom or otherwise) is obliged to account for any Option Tax Liability

“Option Shares”		the Shares or ADRs over which an Option subsists

“Option Tax Liability”		any liability of an Optionholder’s Employer or of any other person (apart from the Participant) to account to the Inland Revenue, the US Internal Revenue Service or other tax authority for any amount of, or representing, income tax or NICs (which shall, to the extent provided for in Rule 7.3, include Employer’sNICs) or any equivalent charge in the nature of tax or social security contributions (whether under the laws of the United Kingdom or of any other jurisdiction) which may arise upon the vesting, exercise or release of, or the acquisition of Shares and ADRs pursuant to, an Option

“Ordinary Share Capital”		the issued ordinary share capital of the Company, other than fixed-rate preference shares, including any Shares held in treasury

“PAYE Regulations”		the regulations made under section 684 of ITEPA

“Performance Period”		the period over which the performance of the Company is to be measured for the purposes of determining whether, and to what extent, the Performance Target is met

“Performance Target”		the condition or conditions, relating to the performance of the Company over the Performance Period, imposed on the exercise of an Option


“Personal Data”		the name, home address, telephone number, e-mail address, date of birth, National Insurance or other individual reference number of an Optionholder or other employee, information including details of all rights to acquire Shares or other securities granted to such Optionholder and of Shares or other securities issued or transferred to such Optionholder pursuant to this Plan

“Personal Representatives”		the personal representatives of an Optionholder (being either the executors of his will to whom a valid grant of probate has been made or, if he dies intestate, the duly appointed administrator(s) of his estate) who have produced to the Company evidence of their appointment as such

“Plan”		The Smith & Nephew 2004 Executive Share Option Plan, as set out in these rules and amended from time to time

“Salary”		the gross rate of basic annual salary (excluding any bonus, company pension contributions, and any other perquisites and benefits-in-kind) payable to a person at a given time by members of the Group

“SSCBA”		the Social Security Contributions and Benefits Act 1992

“Shares”		fully-paid ordinary shares in the capital of the Company

“Subscription Option”		a right to subscribe for Shares granted in accordance with, and subject to, the rules of this Plan

“Subsidiary”		any company which is for the time being a subsidiary (as defined in section 736 of the Companies Act) of the Company

“Taxes Act”		the Income and Corporation Taxes Act 1988

“TCGA”		the Taxation of Chargeable Gains Act 1992

“Trust”		any trust established by the Company for the benefit of employees of the Group and which may from time to time hold cash, Shares, ADRs or other securities for the purposes of this Plan

“Trustee”		the trustee or trustees for the time being of the Trust

“U.S. Option”		an Option which is subject to the additional terms set out in Schedule 1 to this Plan

“UKLA”		the Financial Services Authority in its capacity as the competent authority for the purposes of Part VI of the Financial Services and Markets Act 2000


“USA”		United States of America

“Vested Shares”		Option Shares in respect of which an Option may be exercised at a given time in consequence of either:- (a) the Optionholder having been notified that the Option may be exercised in respect of a given number or proportion of the Option Shares in consequence of the Performance Target having been met; or, if earlier (b) the Option having been deemed to have become vested as mentioned in Rule 18.6; or (c) the application of the provisions of Rules 25, 26 or 27

“Year”		a financial year of the Company

2.	INTERPRETATION

2.1	References to Shares or ADRs in respect of which an Option subsists at any time are to be read and construed as references to the Shares or ADRs over which the Option is then held (and in respect of which it has not then lapsed and ceased to be exercisable).

2.2	Words and expressions used in this Plan and in the ancillary documents which are not defined in Rule 1 have the meanings they bear for the purposes of ITEPA.

2.3	Any reference to any enactment includes a reference to that enactment as from time to time modified, extended or re-enacted.

2.4	References to rules are to the rules of this Plan and no account shall be taken of the rule headings which are for ease of reference only.

2.5	Words denoting the masculine gender shall include the feminine.

2.6	Words denoting the singular shall include the plural and vice versa.

2.7

3.	ADMINISTRATION

3.1	The Directors may from time to time make and vary such rules and regulations not inconsistent with the rules of the Plan and establish such procedures for its administration and implementation as they think fit.

3.2	In any matter in which they are required to act in connection with this Plan, the Auditors shall be deemed to be acting as experts and not as arbitrators and the Arbitration Act 1996 shall not apply.

3.3	The Company shall bear the costs of the administration and implementation of this Plan.

PART B: GRANT OF OPTIONS

4.	ELIGIBILITY

4.1

Subject to the following provisions of this Rule 4, the Committee shall have absolute discretion as to the selection of persons to whom Options may be granted and, if appropriate, to determine whether Options are intended to qualify as Incentive Stock Options or be treated as Non-Qualified Stock Options.

4.2	An Option may only be granted to an Eligible Employee.

4.3	Subject to paragraph C of the Schedule to this Plan, an Option shall not be granted to any Eligible Employee within the period of 6 months ending with the date on which that person is bound to retire in accordance with his contract of employment.

4.4	An Option shall not be granted by any person other than the Company without the prior approval of the Directors.

5.	TIMING OF GRANT OF AN OPTION

5.1	An Option may only be granted during the period of:-

5.1.1

42 days following the Date of Approval;

5.1.2

42 days beginning with the fourth Dealing Day following an Announcement;

5.1.3

28 days immediately after the person to whom it is granted first becomes an Eligible Employee; or

5.1.4

subject to the Model Code, at any other time but only if, in the opinion of the Committee, the circumstances are exceptional.

5.2

If the Grantor is restricted by statute, order or regulation (including any regulation, order or requirement imposed on the Company by the London Stock Exchange or any other regulatory authority) from granting an Option within any period as mentioned in Rules 5.1.1, 5.1.2 or 5.1.3, the Grantor may grant an Option at any time during the period of 42 days (or, in the circumstances referred to in Rule 5.1.3, 28 days) beginning with the date on which all such restrictions are removed.

5.3	No Option may be granted in breach of the Model Code.

5.4	No Option may be granted after 6 May 2014.

6.	GRANT EFFECTED BY EXECUTION OF A DEED

6.1	An Option shall be granted by the Grantor executing a deed, substantially in the form set out in Schedule 2.

6.2	As soon as practicable after an Option has been granted the Company shall procure the issue to the Optionholder of an Option Certificate (which may be in an electronic form) which specifies:-

6.2.1

the Grantor;

6.2.2

the Date of Grant;

6.2.3

the number of Option Shares;

6.2.4

the Exercise Price;

6.2.5

the Performance Target;

6.2.6

the last date on which the Option may be exercised;

6.2.7

that it is a condition of exercise of the Option that the Optionholder agrees to indemnify the Grantor and the Optionholder’s Employer in respect of any Option Tax Liability.

and is otherwise substantially in one of the forms set out in Schedule 3 or such other form as the Grantor may from time to time specify.

6.3

The Committee may determine that an Option shall be subject to the additional terms and conditions set out in the Schedule to this Plan (and which relates to the grant of Options to persons resident in the USA). In respect of Options intended to qualify as Incentive Stock Options, the provisions of Schedule 1 to this Plan shall supersede any contrary provisions of this Plan and shall supplement complementary provisions of this Plan. In addition, any provisions of the Plan that would cause an Option intended to qualify as an Incentive Stock Option to fail to meet the requirements as applicable United States law shall be deemed ineffective with respect to an Incentive Stock Option.

7.	ACCEPTANCE OF AN OPTION

7.1

Unless the Grantor otherwise determines in relation to the grant of an Option, an Option shall not in any event be capable of being exercised on any occasion unless the Optionholder has, within the period of 30 days after the Date of Grant (or such later time as the Grantor may notify to the Optionholder), notified the Company of his acceptance of such Option and has agreed to be bound by the rules of this Plan by executing and delivering to the Grantor a duly completed Form of Acceptance, substantially in the form set out in Schedule 4 or such other form as the Grantor may from time to time specify and notify to the Optionholder.

Tax indemnity

7.2	In accepting an Option, the Optionholder shall indemnify the Optionholder’s Employer against any Option Tax Liability.

Transfer of burden of Employer’s NICs

7.3	In accepting an Option, the Optionholder shall, if required by the Grantor, agree with and undertake to the Company and any other company which is the Optionholder’s Employer that:-

7.3.1

the Optionholder’s Employer may (if or insofar as it is lawful to do so) recover from the Optionholder, as mentioned in Rule 7.2, the whole or any part of any Employer’s NICs payable in respect of any Option Gain; and

7.3.2

the Optionholder shall enter into a joint election with the Optionholder’s Employer (in a form approved by the Inland Revenue under paragraph 3B of Schedule 1 to the SSCBA) for the transfer to the Optionholder of the whole, or such part as the Company may determine, of any liability of the Optionholder’s Employer to Employer’s NICs on any Option Gain.

8.	DATA PROTECTION

In accepting the grant of an Option, an Optionholder shall agree and consent to:-

(a)

the collection, use, processing and transfer of his Personal Data by any member of the Group, any Associated Company or Jointly-Owned Company and, if it is not the Company, the Grantor and any third party trustee or administrator of the Plan;

(b)

members of the Group, any Associated Company or Jointly-Owned Company and, if it is not the Company, the Grantor and any third party trustee or administrator of the Plan, transferring the Optionholder’s Personal Data amongst themselves for the purposes of implementing, administering and managing this Plan and the grant of Options and the acquisition of Shares pursuant to Options;

(c)

the use of Personal Data by any such person for any such purposes; and

(d)

the transfer to and retention of Personal Data by third parties including any third party trustee or administrator of the Plan (whether or not any such third party is situated outside the European Economic Area) for or in connection with such purposes.

9.	EXERCISE PRICE

9.1	Subject to Rule 9.2 and any adjustment being made pursuant to Rule 28, the Exercise Price shall be determined by the Committee (with the prior consent of the Grantor, if appropriate) but shall be not less than Market Value.

9.2	The Exercise Price in respect of a Subscription Option shall not (except as mentioned in sub-paragraph (c) of Rule 28.1) be less than the nominal value of a Share.

10.	RELATIONSHIP WITH CONTRACT OF EMPLOYMENT

10.1

The grant of an Option shall not form part of the Optionholder’s entitlement to remuneration or benefits pursuant to his contract of employment nor does the existence of a contract of employment between any person and the Company or any present or past Subsidiary, Associated Company or Jointly-Owned Company, give such person any right or entitlement to have an Option granted to him in respect of any number of Shares or any expectation that an Option might be granted to him, whether subject to any conditions or at all.

10.2	The rights and obligations of an Optionholder under the terms of his contract of employment with the Company or any present or past Subsidiary, Associated Company or Jointly-Owned Company shall not be affected by the grant of an Option or his participation in this Plan.

10.3

The rights granted to an Optionholder on the grant of an Option shall not afford the Optionholder any rights or additional rights to compensation or damages in consequence of the loss or termination of his office or employment with the Company or any present or past Subsidiary, Associated Company or Jointly-Owned Company for any reason whatsoever (whether or not the termination is ultimately held to be wrongful or unfair).

10.4

An Optionholder shall not be entitled to any compensation or damages for any loss or potential loss which he may suffer by reason of being unable to exercise an Option in consequence of the loss or termination of his office or employment with the Company or any present or past Subsidiary, Associated Company or Jointly-Owned Company for any reason whatsoever (whether or not the termination is ultimately held to be wrongful or unfair).

11.	NON-TRANSFERABILITY OF OPTIONS

11.1	An Option is personal to an Optionholder and may not be transferred during his lifetime.

11.2	An Option shall immediately lapse and cease to be exercisable if the Optionholder:-

11.2.1

transfers or assigns it (other than to his Personal Representatives), mortgages, charges or otherwise disposes of it;

11.2.2

is adjudged bankrupt or an interim order is made because he intends to propose a voluntary arrangement to his creditors under the Insolvency Act 1986;

11.2.3

makes or proposes a voluntary arrangement under the Insolvency Act 1986, or any other plan or arrangement in relation to his debts, with his creditors or any section of them; or

11.2.4

is otherwise deprived (except on death) of the legal or beneficial ownership of the Option by operation of law or doing or omitting to do anything which causes him to be so deprived.

12.	COMPANY LIMITS ON THE GRANTING OF SUBSCRIPTION OPTIONS

Institutional Limits

5% in 10 year limit for executive (discretionary) schemes

12.1

The number of Shares in respect of which Subscription Options may be granted on any day, when added to the number of Shares issued and in respect of which rights to subscribe for Shares have previously been granted (and which have neither been exercised nor have ceased to be exercisable) pursuant to this Plan and any other executive (discretionary) share scheme in the period of ten years preceding that day shall not exceed 5 per cent of the Ordinary Share Capital.

10% in 10 year limit for all schemes

12.2

The number of Shares in respect of which Subscription Options may be granted on any day, when added to the number of Shares issued or in respect of which rights to subscribe for Shares have previously been granted (and which have neither been exercised nor have ceased to be exercisable) pursuant to this Plan and any other employees’ share scheme in the period of ten years preceding that day shall not exceed 10 per cent of the Ordinary Share Capital.

12.3	For the purposes of this Rule 12, references to rights to subscribe for Shares shall be taken to include references to a right to acquire Shares issued or to be issued out of treasury.

US Internal Revenue Limit

12.4	For the purpose only of satisfying the requirements of section 422(b)(1) of the Code, the maximum aggregate number of Shares over which Incentive Stock Options may be granted pursuant to and in accordance with this Plan shall be 45,000,000, subject to adjustment pursuant to Rule 28.

13.	INDIVIDUAL LIMITS ON THE GRANTING OF OPTIONS

13.1

The aggregate Market Value (as at the respective Dates of Grant) of Shares in respect of which Options may be granted to an Eligible Employee in any Year shall not, except in consequence of the application of Rule 13.2, be greater than the amount of such Eligible Employee’s Salary at the Date of Grant.

13.2

If, in relation to an Option, the Optionholder is required (as mentioned in Rule 7.3) to bear the cost of Employer’s NICs payable on any Option Gain, the number of Shares in respect of which such Option is granted may (notwithstanding the limit imposed by Rule 13.1), be increased by such number of Shares as the Committee shall determine to be appropriate (having regard to the expected rate of Employer’s NICs) for the purpose of compensating the Optionholder for assuming, or agreeing to assume, the burden of such Employer’s NICs.

PART C: EXERCISE OF OPTIONS

14.	GENERAL RULES

14.1	An Option may not be exercised on any occasion if such exercise would not then be in compliance with the Model Code.

14.2	An Option may not be exercised if the Optionholder, having been required to do so as mentioned in Rule 7.3.2, has not then entered into a joint election for the transfer to him of the liability to Employer’s NICs on the Option Gain.

15.	PERFORMANCE TARGETS

15.1	Exercise of an Option shall be conditional beginning not earlier than that in which the Option is granted, on the performance of the Company, measured over a minimum period of three Years against such objective criteria as shall be determined by the Committee.

15.2	A Performance Target may provide that the Option shall become vested in respect of a given number or proportion of the Option Shares according to whether, and the extent to which, any specified target level of performance is met or exceeded.

15.3	After an Option has been granted, the Committee may, in appropriate circumstances, amend or waive altogether a Performance Target PROVIDED THAT :-

15.3.1

an amendment shall not be made unless an event has occurred or events have occurred in consequence of which the Committee reasonably considers that the existing Performance Target should be amended to ensure that either:-

(a)

the objective criteria against which performance will then be measured will be a fairer measure of performance; or

(b)

any amended Performance Target will afford a more effective incentive to the Optionholder; and

15.3.2

in either case, the amended Performance Target will be no more difficult to satisfy than was the original Performance Target when first set.

15.4	If, in consequence of a Performance Target being met, an Option becomes vested in respect of some, but not all, of the Shares over which it is held, it shall thereupon lapse and cease to be exercisable in respect of the balance of the Option Shares.

15.5	The Company shall, as soon as practicable after the end of a Performance Period, notify Optionholders in writing of the number or proportion of the Option Shares in respect of which an Option has become vested.

16.	EARLIEST DATE FOR EXERCISE

Save as otherwise provided in Rules 18, 18.4, 19, 25, 26 and 27 an Option may only be exercised on or after the third anniversary of the Date of Grant, or such later time as the Grantor may specify on the Date of Grant.

17.	LAST DATE FOR EXERCISE

An Option may not be exercised on or after the tenth anniversary of the Date of Grant or such earlier date as the Grantor may specify when the Option is granted.

18.	CESSATION OF EMPLOYMENT

18.1	The provisions of Rules 18.2 and 18.3 shall apply if an Optionholder ceases to hold office or employment within the Group by reason of:-

18.1.1

Injury, ill-health or disability (evidenced to the satisfaction of the Committee);

18.1.2

redundancy (within the meaning of the Employment Rights Act 1996);

18.1.3

retirement;

18.1.4

death;

18.1.5

the fact that the office or employment by virtue of which he is eligible to participate in this Plan relates to a business or part of a business which is transferred to a person or Company which is not an Associated Company, a Jointly-Owned Company or a member of the Group; or

18.1.6

the fact that the company with which he holds the office or employment by virtue of which he is eligible to participate in this Plan is no longer a member of the Group or an Associated Company or a Jointly-Owned Company.

18.2	Subject to Rule 18.8, if such cessation occurs after the end of the Performance Period, the Optionholder may, within the period of 6 months beginning with the date of such cessation (or, if later, the third anniversary of the Date of Grant), exercise an Option, but only in respect of Vested Shares.

18.3

If such cessation occurs during the Performance Period, the Optionholder (or, if he has died, his Personal Representatives) may retain the benefit of an Option granted to him and exercise such Option within the period of 6 months beginning with the third anniversary of the Date of Grant, or such longer period (not exceeding 12 months beginning with the third anniversary of the Date of Grant) as the Committee may determine, but only in respect of a proportion of the Vested Shares corresponding to such proportion of the Performance Period as fell before the date of such cessation.

18.4	If and to the extent that an Option is not exercised within the relevant period of 6 months mentioned in Rule 18.2 or 18.3, or such longer period as the Committee may permit, such Option shall lapse and cease to be exercisable at the end of such period.

Death in service – before the end of a Performance Period

18.5

If the Optionholder dies in service during the Performance Period, the Optionholder’s Personal Representatives may, if the Committee so determines, exercise his Option within the period of 12 months beginning with the date of death, over a proportion, corresponding to such proportion of the Performance Period as fell before the date on death, of such of the Option Shares as are deemed to be Vested Shares. In this event, Rule 18.3 shall not apply and the Optionholder’s Personal Representatives shall have no further right or entitlement to any Option Shares.

Deemed vesting

18.6

For the purposes of Rule 18.5, Option Shares shall be deemed to be vested only if and to the extent that the Committee is of the opinion that the performance of the Company, judged as at the time of death, is such that the Performance Target is likely to be met to a particular extent so that a given percentage of the Option Shares would, if the Optionholder had remained an employee within the Group throughout the Performance Period, be likely to become Vested Shares and accordingly the Personal Representatives

may only exercise such Option over the said proportion of such percentage of the Option Shares.

Committee discretion to vary the proportion which vests

18.7	The Committee may increase the proportion of Option Shares which become or are deemed to be Vested Shares as mentioned in Rules 18.3 and 18.5, but only if and insofar as the Committee is then satisfied that such increase is justified by the performance of the Company.

Death in service – after the end of a Performance Period

18.8

If an Optionholder dies in service after the end of a Performance Period, his Personal Representatives may exercise his Option within the period of 12 months beginning with the date of his death in respect of Vested Shares. The Option shall, to the extent that it has not then been exercised, lapse and cease to be exercisable at the end of that period.

Death after service

18.9	If an Optionholder dies after ceasing to hold office or employment within the Group, his Personal Representatives may exercise his Option:-

18.9.1

within the period of 12 months beginning with the date of his death in respect of Vested Shares at the time of death; or

18.9.2

if the Optionholder dies before the end of the Performance Period, within the period of 12 months beginning with the third anniversary of the Date of Grant but only in respect of a proportion of the Vested Shares corresponding to such proportion of the Performance Period as fell before the date of such cessation.

The Option shall, to the extent that it has not then been exercised, lapse and cease to be exercisable at the end of that period.

19.	LEAVING FOR OTHER REASONS

Leaving before the end of a Performance Period

19.1

If an Optionholder ceases to hold office or employment within the Group during a Performance Period for any reason other than those set out in Rule 18, he may only exercise his Option (if at all) in relation to such proportion of the Option Shares, and within such period, as the Committee shall determine and notify to him. The Option shall, to the extent that it has not then been exercised, lapse and cease to be exercisable at the end of any period so notified to him.

19.2	Unless a determination as mentioned in Rule 19.1 is made by the Committee within the period of three months beginning with the date of cessation, the Option may not be exercised and shall be deemed to have lapsed and ceased to be exercisable as from the date of cessation.

Leaving after the end of a Performance Period

19.3

If an Optionholder ceases to hold office or employment within the Group after the end of a Performance Period for any reason other than those set out in Rule 18, he may exercise his Option (if at all) in respect of Option Shares which were Vested Shares at the date of cessation, within the period of 6 months beginning with the date of cessation. The Option shall, to the extent that it has not then been exercised, lapse and cease to be exercisable at the end of that period.

20.	TIME OF LEAVING

For the purposes of Rules 18 and 19, an Optionholder shall be treated as ceasing to hold office or employment within the Group only when he no longer holds any office or employment with any member of the Group, any Associated Company or any Jointly-Owned Company or is summarily dismissed from any such office or employment.

21.	MANNER OF EXERCISE OF AN OPTION

21.1	To exercise an Option, the Optionholder shall serve a written notice on the Grantor which:-

21.1.1

specifies the number of Option Shares over which the Option is exercised on that occasion which in any event shall not:-

(a)

exceed the number of Option Shares; nor

(b)

be less than 100 Shares or 20 ADRs, if less, the number of Vested Shares; and

21.1.2

unless the Optionholder has entered into arrangements approved by the Company for procuring payment to the Company of the aggregate Exercise Price, is accompanied by payment of the Exercise Price;

and is otherwise substantially in the form set out in Schedule 5 or in such form as the Grantor may from time to time determine.

22.	ISSUE OR TRANSFER OF SHARES OR ADRS

22.1

Subject to Rule 23, within the period of 30 days beginning with the date on which the Grantor receives a Notice of Exercise which complies with Rule 21.1, the Company (if it is the Grantor) shall allot or otherwise procure the transfer, or the Grantor (if it is not the Company) shall transfer or procure the issue of the number of Shares or ADRs specified in the Notice to the Optionholder.

22.2

If the Grantor is restricted from issuing, transferring or procuring the transfer of Shares on the exercise of an Option by reason of any statutory, regulatory or other legal provision or rule or the Model Code or any other requirement or guidance issued by the London Stock Exchange or on behalf of institutional investors in the Company or any other body and which relates to dealings in Shares or ADRs by directors or employees or any member of the Group, the Grantor shall not be obliged to issue, transfer or procure the transfer of the Shares or ADRs until after all such restrictions are lifted and shall then do so within the immediate period of 30 days.

22.3	Subject to Rule 22.4, as soon as reasonably practicable after the allotment or transfer of any Shares or ADRs pursuant to Rules 22.1 or 22.2, the Grantor shall procure:-

22.3.1

the issue of a definitive share certificate or such acknowledgement of shareholding as is prescribed from time to time in respect of the Shares or ADRs so allotted or transferred to the Optionholder;

22.3.2

if Shares are to be allotted, and on the date of allotment Shares of the same class are listed on the Official List, that any Shares so allotted are admitted to the Official List.

22.4	If the Optionholder requests, some or all of the Shares he acquires on the exercise of an Option may be issued or transferred to a nominee of the Optionholder, provided that beneficial ownership of the Shares shall be vested in the Optionholder.

PART D: RECOVERY OF TAX

23.	RECOVERY OF TAX

If an Option Tax Liability arises on the vesting, exercise or release of, or acquisition of Shares or ADRs pursuant to, an Option then, unless:-

(a)

the Optionholder has indicated (either in the Notice of Exercise or other manner as the Company may specify) that he will make a payment to the Company of an amount equal to the Option Tax Liability; and

(b)

the Optionholder does, within 14 days of being notified by the Company of the amount of the Option Tax Liability, make such payment to the Company

the Grantor shall, to the extent necessary to satisfy the indemnity given in Rule 7.2, have the right:-

(i)

to retain and sell Shares or ADRs acquired pursuant to the Option and procure payment to the Optionholder’s Employer, out of the net proceeds of sale of such Shares or ADRs (after deducting fees, commissions and expenses incurred in relation to the sale), of monies sufficient to satisfy such indemnity; or

(ii)

to withhold the necessary amount from any payment of the Optionholder’s remuneration.

PART E: CORPORATE TRANSACTIONS

24.	INTERNAL RECONSTRUCTION

24.1

If:-

24.1.1

in consequence of a demerger, reorganisation, reconstruction or amalgamation, the Company will come under the Control of another company, or the business of the Company will then be carried on by another company and, in either case, substantially all of the persons who owned the Ordinary Share Capital immediately before such change of Control will immediately thereafter continue to have Control of the Company and will then own more than 50 per cent of the issued ordinary share capital of such other company (other than fixed-rate preference shares); and

24.1.2

an Optionholder is invited to accept an Exchange of Options

then:-

(a)

the provisions of Rules 25 and 26 shall not apply; and

(b)

Options shall lapse and cease to have effect at the end of the period of 21 days beginning with the date on which such invitation is made or, if later, the end of the period in which the Optionholder may accept such invitation.

24.2	The following provisions of Rules 25 and 26 shall have effect subject to this Rule 24.

25.	DEMERGER, REORGANISATION, RECONSTRUCTION OR AMALGAMATION

25.1

If the Company’s shareholders are notified of a proposed demerger of the Company or of any Subsidiary, Options may be exercised (notwithstanding that any Performance Target is not then satisfied) over such number or proportion of the Option Shares as the Committee (with the consent of the Grantor, if it is not the Company) may then determine and notify to Optionholders and within such period as the Committee may specify in the notice to Optionholders.

25.2	Options shall, to the extent not then exercised, lapse and cease to be exercisable at the end of that period.

25.3

No such notice shall be given by the Committee unless the Auditors have confirmed in writing to the Committee that (disregarding any Performance Target subject to which any Option is then exercisable) the interests of Optionholders would or might be substantially prejudiced if, before the proposed demerger has effect, Optionholders could not exercise their Options and be registered as the holders of the Shares or ADRs so acquired.

25.4

If notice is given to shareholders of the Company of a resolution to approve the reorganisation, reconstruction or amalgamation of the Company or of any other member of the Group, the Committee may vary the terms of exercise of Options granted on any occasion and/or the relevant Performance Targets in such manner as the Committee may determine and notify to Optionholders.

25.5

In making any such determination as is mentioned in Rules 25.1 and 25.4, the Committee shall act fairly and reasonably, taking proper account of the circumstances and having due regard to the objectives of the Company in establishing this Plan, and shall apply the same criteria to the holders of all Options granted on the same occasion.

26.	CHANGE OF CONTROL

26.1	If, as a result of:-

26.1.1

a general offer to acquire the whole of the Ordinary Share Capital other than Shares held in treasury which is made on a condition such that if it is satisfied the person making the offer will have Control of the Company; or

26.1.2

a general offer to acquire all the shares in the Company of the same class as the Shares other than Shares held in treasury; or

26.1.3

a compromise or arrangement sanctioned by the court pursuant to section 425 of the Companies Act 1985

the Company shall come under the Control of another person or persons, Options may be exercised (notwithstanding that any Performance Target is not then satisfied):-

(a)

within the period of one month (or such longer period, not exceeding six months, as the Committee may determine and notify to Optionholders) beginning with the Change of Control;

(b)

in respect of a proportion of the Option Shares (corresponding to such proportion of the Performance Period as fell before the Change of Control) or such greater proportion of the Option Shares as the Committee may determine and notify to Optionholders PROVIDED THAT no such determination shall be made by the Committee unless and insofar as the Committee is then satisfied that such increase in the proportion of the Option Shares in respect of which any Option may then be exercised is justified by the performance of the Company since the Date of Grant.

26.2	Options shall, to the extent not then exercised, lapse and cease to be exercisable at the end of such period as is mentioned in sub-paragraph (a) above.

26.3	If at any time any person becomes entitled or bound to acquire Shares under sections 428 to 430F (inclusive) of the Companies Act, Options may then be exercised (notwithstanding that any Performance Target is not then satisfied):-

(a)

within such period as such person remains so entitled or bound to acquire Shares; and

(b)

in respect of such proportion of the Option Shares as is mentioned in or determined pursuant to sub-paragraph (b) of Rule 26.1 above

and, to the extent not then exercised, such Options shall lapse and cease to be exercisable at the end of such period.

26.4	For the purposes of the preceding provisions of this Rule 26, a person shall be deemed to have Control of the Company if he and others acting in concert with him have together obtained Control of it.

27.	WINDING-UP

27.1

If the Company’s shareholders are notified of a resolution for the voluntary winding-up of the Company, Options may be exercised (notwithstanding that any Performance Target is not then satisfied) over such number or proportion of the Option Shares as the Committee may determine and notify to Optionholders, at any time before the winding-up commences, or within such other period as the Committee may notify to Optionholders.

27.2	All Options shall immediately lapse and cease to be exercisable on the commencement of the Company’s winding-up.

PART F: AMENDMENTS

28.	VARIATION OF SHARE CAPITAL

28.1	If the Ordinary Share Capital is altered by way of capitalisation or rights issue, sub-division, consolidation or reduction or there is any other variation in the share capital of the Company, the Committee may make such adjustment as it considers appropriate:-

28.1.1

to the aggregate number or amount of Shares or ADRs subject to any Option; and/or

28.1.2

to the Exercise Price of any Option; and/or

28.1.3

if an Option has been exercised but no Shares or ADRs have been allotted or transferred in accordance with Rule 22.1, to the number of Shares or ADRs which may be so allotted or transferred and the Exercise Price of each Share or ADR; and/or

28.1.4

to the maximum limit on the number of Shares that can be subject to Incentive Stock Options as mentioned in Rule 12.4, and to the maximum limit on the number of Shares subject to Options and Awards granted to any individual in any calendar year, as mentioned in Schedule 1

PROVIDED THAT:-

(a)

except in the case of a sub-division, consolidation or a capitalisation issue, the Auditors shall give written confirmation that the adjustment is, in their opinion, fair and reasonable;

(b)

except insofar as the Directors (on behalf of the Company) agree to capitalise the Company’s reserves and apply the same at the time of exercise in paying up the difference between the Exercise Price and the nominal value of the Shares, the Exercise Price of any Subscription Option shall not be reduced below a Share’s nominal value;

(c)

the number of Shares as so adjusted has been rounded down to the nearest whole number and the Exercise Price has been rounded up to the nearest whole penny; and

(d)

if the Grantor is not the Company, no such adjustment shall be made without the Grantor’s consent.

28.2	The Directors (on behalf of the Grantor) shall notify every Optionholder affected by an adjustment under Rule 28.1 as soon as reasonably practicable after making the adjustment.

28.3	The Directors shall deliver, or procure the delivery of, a revised Option Certificate to any Optionholder who makes a request (in writing) for an amended Option Certificate.

29.	ALTERATION OF THE PLAN

29.1

ADRs, the adjustment of such rights in the event of variation of the Ordinary Share Capital or this Rule 29 without the prior approval by ordinary resolution of the shareholders of the Company SAVE THAT the provisions of this Rule 29.1 shall not apply to the extent that such alteration or addition is in the opinion of the Directors:-

29.1.1

a minor amendment which is necessary or appropriate to benefit the administration of this Plan;

29.1.2

to take account of any change in legislation; or

29.1.3

to obtain or maintain favourable tax, exchange control or regulatory treatment for existing or new Optionholders, the Company or any Associated Company; and

29.1.4

if in relation to any Options the Grantor is not the Company, no alteration or addition shall be made to the terms of such Options without the approval of the Grantor.

29.2	Details of any alteration or addition shall be given by the Directors (on behalf of the Company) to every affected Optionholder (if any) as soon as reasonably practicable.

PART G: MISCELLANEOUS

30.	SERVICE OF DOCUMENTS

30.1	Except as otherwise provided in this Plan, any notice or document to be given by, or on behalf of, the Company or other Grantor or any administrator of this Plan to any Eligible Employee or Optionholder in accordance or in connection with this Plan shall be duly given:-

30.1.1

by sending it through the post in a pre-paid envelope to the address last known to the Company to be his address and, if so sent, it shall be deemed to have been duly given on the day after posting and if sent by second class post on the second day after posting; or

30.1.2

30.2

Any notice or document so sent to an Eligible Employee or Optionholder shall be deemed to have been duly given notwithstanding that such person is then deceased (and whether or not the Company or other Grantor has notice of his death) except where his Personal Representatives have supplied an alternative address to which documents are to be sent to the Company.

30.3	Any written notice or document to be submitted or given to the Grantor, the Company or any administrator of this Plan in accordance or in connection with this Plan may be delivered, sent by post, facsimile transmission or e-mail but shall not in any event be duly given unless:-

30.3.1

30.3.2

if given by e-mail (and if so required by the Company), it includes a digitally encrypted signature of the Optionholder.

30.4

For the purposes of this Plan, an e-mail shall be treated as not having been duly made or received if the recipient of such e-mail notifies the sender that it has not been opened because it contains, or is accompanied by a warning or caution that it could contain or be subject to, a virus or other computer programme which could alter, damage or interfere with any computer software or e-mail.

31.	OBLIGATION TO ENSURE SUFFICIENT AVAILABLE SHARES

31.1	The Company shall always keep sufficient authorised but unissued Shares available to satisfy the exercise in full of all Subscription Options for the time being remaining capable of being exercised under this Plan.

31.2

No Option to purchase existing Shares or ADRs shall be granted by any person unless that person beneficially owns such Shares or ADRs at the Date of Grant or the Directors are satisfied that sufficient Shares will be made available to satisfy the exercise in full of all Options granted or to be granted by that person.

31.3	The Company may issue Shares, and grant rights to acquire Shares or ADRs, to the trustees of any trust established for the benefit of persons who include employees of the Group for the purpose of enabling such trustees, in the exercise of their powers to:-

31.3.1

grant Options; and

31.3.2

transfer or procure the issue or transfer of Shares or ADRs on the exercise of Options granted by such trustees

PROVIDED THAT any Shares issued or in respect of which rights are granted by the Company (and, if not exercised, have not lapsed) shall count in applying the overall limitations on the issue of Shares imposed by Rule 12.

32.	STAMP DUTY

Any stamp duty or stamp duty reserve tax payable in respect of a transfer of Shares to or at the direction of the Optionholder (other than stamp duty or stamp duty reserve tax payable on a sale of Shares by the Grantor at the direction of the Optionholder) shall be paid by the Company or, if different, the Grantor (who shall be reimbursed by the Company).

33.	RIGHTS ATTACHING TO SHARES

33.1

The allotment or transfer of any Shares or ADRs under this Plan shall be subject to the Company’s Memorandum and Articles of Association, the Listing Rules, the model Code or any other requirement or guidance issued by the UKLA or the London Stock Exchange or the New York Stock Exchange and which relates to dealings in Shares by directors or employees of any member of the Group and to any necessary consents of any governmental or other authorities (whether in the United Kingdom or otherwise) under any enactments or regulations from time to time in force. It shall be the responsibility of the Optionholder to comply with any requirements to be fulfilled in order to obtain or obviate the necessity of any such consent.

33.2	Shares or ADRs allotted or transferred under this Plan shall rank equally in all respects with the Shares then in issue except for any rights attaching to such Shares or ADRs by reference to a record date prior to the date of such allotment or transfer.

34.	JURISDICTION

34.1	This Plan and any Option shall be governed by, and construed in accordance with, the laws of England and Wales.

34.2	The courts of England shall have exclusive jurisdiction in relation to any claim, dispute or difference concerning an Option and any matter arising from or in relation to this Plan.

35.	PURCHASES BY TRUSTEE

Subject to Rule 23, a Participant may, subject to the Model Code, direct the Trustee to sell Shares or ADRs on his behalf and, in this event, the Shares or ADRs may, if the Trustee so determines, be purchased by the Trustee PROVIDED THAT the price per Share or ADR paid by the Trustee is not less than the Market Value of a Share or ADR on the date of purchase.

36.	THIRD PARTY RIGHTS

SCHEDULE 1

(as mentioned in rule 6.3)

Supplemental terms relating to the grant of

Options to employees based in the USA

Subject to the following provisions of this Schedule, the Committee may (and in the case of an Option to be granted to an Eligible Employee who is a resident of the U.S.A., shall) determine that an Option shall be subject to the additional terms set out in this Schedule and any such Option is referred to below as “a U.S. Option”.

B.	A U.S. Option may not be granted otherwise than in compliance with the US Securities Act of 1933 (as amended), if applicable, and all applicable US State Securities laws, as they are in effect at the time of grant of the Option.

A U.S. Option may be granted to any Eligible Employee working in the United States of America notwithstanding that he is at the Date of Grant within six months of the date on which he is bound to retire in accordance with the term of his contract of employment and rule 4.3 shall not apply to restrict the grant of such Option.

D.	A U.S. Option may not be exercised unless such exercise is in compliance with the US Securities Act of 1933 (as amended), if applicable, and all applicable US state securities laws, as they are in effect at the time of exercise of such Option.

Unless sold outside of the United States of America in a manner which removes the sale from the purview of the US federal securities laws, all Shares acquired upon the exercise of a U.S. Option must be held indefinitely unless they are registered under the Securities Act of 1933 or an exemption from registration is available.

F.	The transfer of any Shares acquired upon the exercise of a U.S. Option may be restricted or affected by various state securities laws in the United States of America.

G.	Unless the Committee otherwise specifies, a US Option shall be an Option to acquire ADRs representing Shares, rather than over Shares.

H.	The Committee may, in relation to any Option, determine and specify that such Option shall be an Incentive Stock Option and a U.S. Option which is intended to be such an Incentive Stock Option is referred to below as an “ISO”.

The aggregate Fair Market Value (determined as at the Date of Grant) of the Shares over which Incentive Stock Options held by an individual first become exercisable in any calendar year (under this Plan and all other incentive stock option plans of the Company and its Subsidiaries) shall not exceed $100,000 (or such other limit as may be required by the Code), if such limitation is necessary to qualify the Option as an Incentive Stock Option, and to the extent an Option or Options granted to an Optionholder exceed such limit, such Option or Options shall be treated as a Non-Qualified Stock Option.

J.	An ISO shall not be granted to any individual unless the Company is then the “parent corporation” (as that term is defined in section 424(e) of the Code) of the corporation which, in relation to such individual, is then the employer corporation.

K.	The price payable for Shares upon exercise of an ISO shall be not less than the Fair Market Value of such Shares on the Date of Grant.

L.	An ISO shall not be granted at any time to any individual who, at that time, owns 10 per cent or more of the total combined voting power of all classes of stock of the employer corporation or of its parent or subsidiary corporation unless:-

(a)

the Exercise Price is at least 110 per cent of the Fair Market Value of Shares subject to the Option on the Date of Grant; and

(b)

the Option may not be exercised after the expiration of 5 years from the Date of Grant.

M.	No modification, extension or renewal of an ISO shall be made under any power contained in this Plan which would give the Optionholder additional benefits for the purposes of section 424(h)(3) of the Code.

If the Optionholder disposes of any Shares acquired pursuant to the exercise of an ISO before the second anniversary of the Date of Grant or, if later, the first anniversary of the date on which the Shares are allotted or transferred to him then such Option shall cease to be an ISO and the Optionholder shall notify the Company in writing within 14 days of such disposition.

The maximum number of Shares that shall be subject to all Options granted under the Plan, all Awards granted under the Company’s 2004 Performance Share Plan and all Matching Shares granted under the Company’s 2004 Co-investment Plan to any individual in any calendar year shall not exceed 400,000 Shares in the aggregate, subject to adjustment in accordance with Rule 28.

SCHEDULE 2

THE SMITH & NEPHEW 2004 EXECUTIVE SHARE OPTION PLAN

DEED OF GRANT

[Smith & Nephew plc/[ ] Trustees Limited (acting in its capacity as trustee of the [Smith & Nephew Employees’ Share Trust]* GRANTS to each of the Eligible Employees named [below/in the Schedule attached to this Deed] an Option to [acquire/subscribe] such number of Shares [ADRs] as is respectively shown against the name of each such Eligible Employee at an Exercise Price shown opposite his name. Each such Option shall be exercisable only subject to, and in accordance with, the rules of The Smith & Nephew 2004 Executive Share Option Plan as amended from time to time (the “ Plan ”).

Words and phrases used in this Deed of Grant have the meanings given in Rule 1 of the Plan.

[Schedule]

Name

No. of Option

Shares/ADRs

Exercise Price

Incentive Stock Option

£/$


EXECUTED AS A DEED this [ ] day of	)
[ ] 200[ ] by [SMITH &	)
NEPHEW plc/ [ ] TRUSTEES	)
LIMITED ]* acting by:-	)

		Director/Authorised Signatory


		Director/Secretary

* Delete as appropriate

SCHEDULE 3

THE SMITH & NEPHEW 2004 EXECUTIVE SHARE OPTION PLAN

OPTION CERTIFICATE


Name of Optionholder:

Address of Optionholder:



Employer Company:

National Insurance No:

Date of Grant:

Number of Shares:

Exercise Price:

This is to certify that [SMITH & NEPHEW plc/[ ] TRUSTEES LIMITED]* (the “ Grantor ”) has granted the Optionholder named above an Option to [subscribe for/acquire] ** the above number of Shares in the Company at the above Exercise Price.

The Option is exercisable subject to, and in accordance with, the rules of The Smith & Nephew 2004 Executive Share Option Plan, as amended from time to time. The Option may not normally be exercised before the Optionholder has been notified that the Performance Target set out in the Appendix to this Option Certificate has been met.

The Option may not be exercised after the day immediately preceding the tenth anniversary of the Date of Grant shown above.

This Option will lapse and cease to be exercisable unless the Optionholder executes and returns to the Grantor so as to be received no later than [ ] the enclosed Form of Acceptance.

The Option is not transferable but may be capable of exercise by the Optionholder’s personal representatives if the Optionholder dies.

It is a condition of the Option’s exercise that the Optionholder indemnifies the Company and the Optionholder’s Employer against any liability of any such person to account for any tax or NICs [(including employer’s NICs)]** arising upon the vesting, exercise or release of, or acquisition of Shares pursuant to, this Option (“ Option Tax Liability ”). If an Option Tax Liability arises on any occasion and, within 30 days, the appropriate amount cannot be withheld from payment of the Optionholder’s salary and the Company has not received payment from the Optionholder of such amount, the Grantor shall be entitled to sell sufficient of the Shares acquired on the exercise of the Option necessary to reimburse the Optionholder’s Employer and to procure payment out of the proceeds of sale to the Optionholder’s Employer, of the amount necessary to satisfy such indemnity.

[It is also a condition of the Option’s exercise that the Optionholder join with the Optionholder’s Employer (or former employer) in making an election for liability to employer’s NICs arising on the

*	Delete as appropriate

**	Delete as appropriate

vesting, exercise or release of, or the acquisition of Shares pursuant to, the Option to be transferred to the Optionholder]***.



for and on behalf of Smith & Nephew plc

Date

***	Delete as appropriate

[US Employee Stock Option Certificate]

THE SMITH & NEPHEW 2004 EXECUTIVE

SHARE OPTION PLAN

OPTION CERTIFICATE


Name of Optionholder:

Address of Optionholder:







[Employer Company:]

Date of Grant:

Number of ADRs:

Exercise Price:

Social Security Number:

Grantor:

This is to certify that [SMITH & NEPHEW plc/[ ] TRUSTEES LIMITED] * has granted to the Optionholder named above an Option to [subscribe for/acquire]** the above number of [Shares/ADRs] in the Company at the above Exercise Price.

[The Option is intended to qualify as an Incentive Stock Option and, accordingly, the directors of the Company have determined that the Option is subject to the additional terms and conditions set out in Schedule 1 to the rules of the Plan.]

The Option is exercisable subject to and in accordance with the rules of The Smith & Nephew 2004 Executive Share Option Plan (as varied by the Schedule) as they are amended from time to time [and is also subject to the Performance Target] [and additional conditions] set out in the Appendix to this Option Certificate]. The Option may not normally be exercised before the Optionholder has been notified that the Performance Target set out in the Appendix to this Option Certificate has been met.

The Option may not be exercised after the day immediately preceding the tenth anniversary of the Date of Grant shown above.

This Option will lapse and cease to be exercisable unless the Optionholder executes and returns to the Grantor so as to be received no later than [ ] the enclosed Form of Acceptance.

A charge to tax and social security or welfare contributions may arise upon the vesting, exercise, or release or acquisition of Shares of the Option. It is a condition of exercise of the Option that you agree to indemnify the Company (or your employer company, if different) against all liability to account for any tax and employees’ social security contributions (“ Option Tax Liability ”) which may be required to be accounted for on your behalf at that time. If an Option Tax Liability arises on any occasion and, within 30 days, the appropriate amount cannot be withheld from payment of the

*	Delete as appropriate

Optionholder’s salary and the Company has not received payment from the Optionholder of such amount, the Grantor shall be entitled to sell sufficient of the Shares or ADRs acquired on the exercise of the Option necessary to reimburse the Optionholder’s Employer and to procure payment out of the proceeds of sale to the Optionholder’s Employer, of the amount necessary to satisfy such indemnity.

[In accordance with the United States Securities Act of 1933, as amended, the [insert relevant state security law] or any other applicable Securities Laws of any State of the United States, restrictions may apply to the sale, transfer, hypothecation, pledging or disposal of any ADRs acquired on the exercise of the Option. A legend detailing any such restrictions will be placed on the Certificate(s) issued on the exercise of the Option.]

for and on behalf of Smith & Nephew plc

Date:-

APPENDIX

Performance Target

(in relation to Options granted in 2004)

If the growth in EPSA over the Performance Period is less than 26 per cent, none of the Option Shares shall become Vested Shares and the Option shall lapse and cease to be exercisable.

If the growth in EPSA over the Performance Period is 26%*, 25 per cent of the Option Shares shall become Vested Shares.

If the growth in EPSA over the Performance Period is 48%**, then 50 per cent of the Option Shares shall become Vested Shares.

If the growth in EPSA over the Performance Period is or exceeds 73%***, then all of the Option Shares shall become Vested Shares.

If the growth in EPSA over the Performance Period is greater than 26% but less than 48%, then the percentage of Option Shares which become Vested Shares shall increase pro rata on a straight-line basis, between 25 and 50 per cent.

If the growth in EPSA over the Performance Period is greater than 48% but less than 76%, then the percentage of Option Shares which become Vested Shares shall increase pro rata on a straight-line basis, between 50 and 100 per cent.

For these purposes:-

1.	EPSA means the basic earnings per share of the Company adjusted to exclude the amortisation of goodwill and exceptional items;

2.	the Performance Period means the 3 years ending 31 December 2006.

Notes:

*	ie 8% p.a. compounded annually

**	ie 14% p.a. compounded annually

***	ie 20% p.a. compounded annually

SCHEDULE 4

THE SMITH & NEPHEW 2004 EXECUTIVE SHARE OPTION PLAN

FORM OF ACCEPTANCE OF GRANT

To: [The Company Secretary, Smith & Nephew plc, 15 Adam Street, London WC2N 6LA/[ ] Trustees Limited, [address]]*

I agree to accept the grant of the Option to acquire [Shares/ADRs]* granted to me on (date) (“my Option”) and agree and undertake to be bound by the terms and conditions set out in the rules of The Smith & Nephew 2004 Executive Share Option Plan (the “Plan”) and the Appendix to the Option Certificate.

Tax indemnity

I agree to indemnify the Company and my Employer in respect of any liability of any such person to account for any tax, NICs or other equivalent social security charges arising on the vesting, exercise or release of, or acquisition of [Shares/ADRs]* pursuant to, my Option (“ Option Tax Liability ”).

3.	I understand and agree that, if an Option Tax Liability arises on any occasion then, unless either:-

3.1

my Employer (or former employer) is able to withhold the amount of such Option Tax Liability from payment of my remuneration, within the period of 30 days from the date I exercise my Option; or

3.2

I have indicated in writing to my Employer (or former employer) either on the notice of exercise or in a manner agreed with the Company, that I will make a payment to the Company of an amount equal to the Option Tax Liability and I do in fact make such a payment, within 14 days of being notified by the Company of the amount of the Option Tax Liability; or

3.3

I have authorised the Grantor (either on the notice of exercise of the Option or in another manner agreed with the Company) to sell sufficient of the [Shares/ADRs]* acquired on the exercise of my Option and to procure payment to my Employer (or former employer) of monies sufficient to satisfy such indemnity out of the net proceeds of sale of the [Shares/ADRs]*,

the Grantor of my Option shall be entitled to sell sufficient of the [Shares/ADRs]* acquired pursuant to the Option necessary to satisfy the indemnity and to procure payment to my Employer (or former employer) out of the net proceeds of sale of such [Shares/ADRs]* of monies sufficient to satisfy the indemnity mentioned in clause 2.

Agreement to bear the cost of Employer’s NICs

4.	I agree with and undertake to the Company and any other company which is my Employer, that my Employer may recover from me the whole or any part of any employer’s NICs payable in respect of any Option Gain in the manner mentioned in Rule 23 of the Plan.

*	Delete as appropriate

[Election for transfer of liability to Employer’s NICs

5.	I agree and undertake to join with my Employer in making an election (in a form satisfactory to the Company and the Inland Revenue) for any liability of my Employer Company to employers’ NICs payable in respect of any Option Gain, to be transferred to me (“ an NIC Election ”).

Power of Attorney

6.	I hereby appoint the Company Secretary or any director of the Company to act as my attorney for the purposes of:-

6.1

selling (at the best price that can reasonably be expected to be obtained at the time of sale) such number of the [Shares/ADRs]* to which I become entitled upon the exercise of my Option as will realise sufficient monies (after deduction of all commissions and expenses incurred in relation to such sale) to satisfy my liability under the indemnity referred to in clause 2 above; and

6.2

paying such monies to my Employer.

Data protection

7.	I agree and consent to:-

7.1

the collection, use, processing and transfer by any member of the Group, an administrator and, if it is not the Company, the Grantor of my Personal Data;

7.2

7.3

the use of my Personal Data by any such person for any such purposes; and

7.4

the transfer to and retention of such Personal Data by third parties (whether or not any such third party is situated outside the European Economic Area) in connection with such purposes.

No contractual rights

8.	I agree and understand that the Option does not form part of my contract of employment and that the Grantor is under no obligation to grant any further options to me.

Interpretation

9.	Words and phrases used in this Form of Acceptance shall have the meanings they bear for the purposes of the Plan.


SIGNED and delivered AS A DEED by		) )
in the presence of:-		)

*	Delete as appropriate


		(Optionholder signature)

Witness signature:

Witness Name (print):

Address:





Occupation:

Date:

YOUR SIGNATURE MUST BE WITNESSED BY A PERSON OVER 18 WHO IS NOT RELATED TO YOU BY BLOOD OR MARRIAGE AND RETURNED TO [ ] BY OR THE OPTION WILL BE DEEMED TO HAVE LAPSED.

SCHEDULE 5

[Notice of Exercise to be attached to the Option Certificate]

THE SMITH & NEPHEW 2004 EXECUTIVE SHARE OPTION PLAN

NOTICE OF EXERCISE OF OPTION

To:	[The Company Secretary, Smith & Nephew plc, 15 Adam Street, London WC2N 6LA/[ ] Trustees Limited, [address]]*

1.	I exercise the Option referred to overleaf in respect of all/ ** of the [Shares/ADRs]* over which the Option subsists, and request the allotment or transfer to me of those Shares in accordance with the rules of the Plan and the Memorandum and Articles of Association of the Company.

2.	I enclose a cheque made payable to Smith & Nephew plc/[ ] Trustees Limited*** in the sum of £/$ being the aggregate Exercise Price of such [Shares/ADRs]*.

Payment of Option Tax Liability

I understand that, as a result of the exercise of the Option, an Option Tax Liability may arise which I am required to satisfy. I wish to meet this Option Tax Liability by:-

¨	authorising the Company or my Employer (or former employer) to deduct the necessary amount from my next salary payment under the PAYE procedure;

¨	paying the Company such amount as is necessary to cover the Option Tax Liability within 14 days of my receiving details of that Option Tax Liability from the Company; or

¨	agreeing to the Grantor selling sufficient of my [Option Shares/ADRs]* so that the net proceeds of sale will cover the Option Tax Liability.

Please tick the box for your preferred payment method.

If you do not tick any box, or if you tick more than one box, the [Company will first seek to withhold an amount sufficient to cover the Option Tax Liability from your next salary payment, and if the Option Tax Liability cannot then be satisfied in full, the] Grantor will sell sufficient of your [Shares/ADRs]* to meet that liability.


Name (block letters)		Signature
		_________________________________________
Address

		Date______________________________________

NOTES:-

1.	This form must be accompanied by payment of the Exercise Price for the [Shares/ADRs] in respect of which the Option is exercised.

2.	The Option may not be exercised in respect of less than [100/20 Shares/ADRs] or (if less) all of the [Shares/ADRs] over which the Option may then be exercised.

3.	If the Option is exercised by personal representatives, an office copy of the Probate or Letters of Administration should accompany the form.

Under current tax rules, a charge to income tax and NICs will arise when the Option is exercised, on the amount of the positive difference between the market value of the Option shares at that time and the price paid for them (“the Option Tax Liability”). The Option Tax Liability is collected under PAYE. It is a term of the Option that the Optionholder will be required to enter into arrangements satisfactory to the Grantor to ensure that any such Option Tax Liability [(including employer’s Class 1 NICs)]*** which cannot be collected from the Optionholder under PAYE will be recovered from the Optionholder. The Grantor may sell sufficient of the [Shares/ADRs] acquired upon the exercise of an Option as will realise sufficient monies (after deduction of all commissions, fees and expenses incurred in relation to such sale) to satisfy any Option Tax Liability. A charge to capital gains tax may arise on any subsequent growth in value of the shares acquired.

5.	IMPORTANT. Neither the Company nor the Grantor undertake to advise you on the tax consequences of exercising your Option. If you are unsure of the tax liabilities which may arise, you should take appropriate professional advice before exercising your Option.

6.	An Optionholder, whether or not a director of any company, shall not be entitled to exercise an Option at any time when to do so would contravene the provisions of the Company’s Code governing share dealings by directors and employees.

*	Delete as appropriate

**	Delete/insert number as appropriate

***	Delete/insert payee as appropriate

Exhibit 4.6

AGM COPY

SMITH & NEPHEW plc

THE SMITH & NEPHEW 2004 PERFORMANCE SHARE PLAN

This is a copy of the rules of the Smith & Nephew 2004

Performance Share Plan as produced to the Annual

General Meeting of Smith & Nephew plc held on 6 May

2004 and signed by the Chairman for the purposes of

identification only

___________________

Chairman

Inland Revenue Ref No U[ ]

Approved by shareholders: 6 May 2004

LOGO

THE SMITH & NEPHEW 2004 PERFORMANCE SHARE PLAN

Contents


Part A: Interpretation and Administration		Rules 1 – 3

Part B: Making of Awards		Rules 4 – 13

Part C: Vesting and Satisfaction of Award Shares		Rules 14 –18

Part D: Recovery of Tax		Rule 19

Part E: Corporate Transactions		Rules 20 –23

Part F: Amendments		Rules 24 –25

Part G: Miscellaneous		Rules 26 –33

CONTENTS


1.	Definitions	1

2.	Interpretation	6

3.	Administration	6

4.	Eligibility	7

5.	Making of Awards	7

6.	Timing of an Award	7

7.	Individual Limit on the Making of Awards	7

8.	Award Certificates	8

9.	Acceptance of an Award	8

10.	Data Protection	9

11.	Relationship with Contract of Employment	9

12.	Non-Transferability of Awards	10

13.	Company Limits on Subscription for Shares	10

14.	Performance Targets	11

15.	Vesting of Awards	11

16.	Satisfaction of Awards	12

17.	Cessation of Employment	13

18.	Time of Leaving	14

19.	Recovery of Tax	15

20.	Internal Reconstruction	16

21.	Demerger, Reorganisation, Reconstruction or Amalgamation	16

22.	Change of Control	17

23.	Winding-up	17

24.	Variation of Share Capital	18

25.	Alteration of the Plan	18

26.	Allocation of Funds	20

27.	Service of Documents	20

28.	Obligation to Ensure Sufficient Available Shares	21

29.	Rights Attaching to Shares	21

30.	Stamp Duty	21

31.	Jurisdiction	22

32.	Purchases by Trustee	22

33.	Third Party Rights	22

Schedule 1: The Performance Target		23

Schedule 2: List of Comparator Companies to be used		27

Schedule 3: Supplemental terms relating to Awards to employees based in the USA		28

Schedule 4: Share Award Certificate		29

Schedule 5: Form of Acceptance of Grant of an Award		30

RULES OF

THE SMITH & NEPHEW 2004 PERFORMANCE SHARE PLAN

This Plan is an employees’ share scheme approved and established by resolution of the Remuneration Committee of the Directors of the Company passed on [ ], and approved both by resolution of [ ] Trustees (as trustee of the Smith & Nephew [2004 Employees’ Share Trust]) in the exercise of its powers under clause [2.5] of the Trust Deed dated [ ] and by shareholders of the Company by ordinary resolution passed on 6 May 2004.

PART A: INTERPRETATION AND ADMINISTRATION

1.	DEFINITIONS

1.1	In this Plan the following words and expressions have the meanings given below:-


“Acquiring Company”		a company which has acquired Control of the Company

“ADRs”		American Depositary Receipts in respect of American Depositary Shares each of which represents five ordinary shares in the capital of the Company

“Announcement”		the preliminary announcement to the London Stock Exchange of the annual or interim results of the Company for a year

“Associated Company”		any company which, in relation to the Company, is an associated company as that term is defined in section 416 of the Taxes Act but with the omission of the words “or at any time within one year previously”

“Auditors”		the auditors for the time being of the Company or in the event of there being joint auditors, such one of them as the Committee may decide, or such other firm of registered auditors as the Committee may decide

“Award”		a notification by the Committee (on behalf of the Company) that, subject to the terms of this Plan and, except as otherwise provided by the provisions of this Plan, if or insofar as the Performance Target is met, and provided that the Committee is satisfied that the attainment of the Performance Target properly reflects the underlying performance of the Company, the Company will procure:- (a) the transfer of Vested Shares to, or to the order of, the Awardholder; or (b) the grant to the Awardholder of an Option; or (c) the payment to the Awardholder of a cash sum as mentioned in Rule 16.1.2

“Award Certificate”		a certificate evidencing an Award


“Award Date”		in relation to an Award, the date on which that Award is made

“Award Gain”		the amount of any gain realised upon the acquisition of Shares pursuant to an Award or Option, or the exercise, assignment or release of an Option, being a gain that is (or would, if it were chargeable to NICs in the UK, be) treated as remuneration derived from the Awardholder’s employment by virtue of section 4(4)(a) of the SSCBA

“Awardholder”		a person to whom an Award has been made or, in the event of his death, his Personal Representatives

“Awardholder’s Employer” (or “my Employer”)		such member of the Group as is an Awardholder’s employer or, if he has ceased to be employed within the Group, was his employer or such other member of the Group, or such other person as, under the PAYE Regulations or, as the case may be, the NI Regulations, or any other statutory or regulatory provision (whether in the United Kingdom or otherwise) is obliged to account for any Award Tax Liability

“Award Shares”		in relation to an Award at any given time, the number of Shares or ADRs in respect of which such Award has been made

“Award Tax Liability”		any liability of an Awardholder’s Employer or of any other person (apart from the Awardholder) to account to the Inland Revenue, the US Internal Revenue Service or other tax authority for any amount of, or representing, income tax or NICs (which shall, to the extent provided for in Rule 9.3 include Employer’s NICs) or any equivalent charge in the nature of tax or social security contributions (whether under the laws of the United Kingdom or of any other jurisdiction) which may arise upon the vesting or release of, or the acquisition of Shares or ADRs pursuant to, an Award or an Option

“Change of Control”		in relation to the Company coming under the Control of another person, or persons acting in concert, as a result of a general offer being made as mentioned in Rule 22, the time when such person obtains, or such persons together obtain such Control and any condition subject to which the offer is made has been satisfied

“Committee”		the Remuneration Committee of the Directors, or such other committee comprising a majority of non-executive directors of the Company to which the Directors delegate responsibility for the operation of this Plan or, following a Change of Control of the Company, those persons who comprised the Remuneration Committee or such other committee of the Directors immediately before such Change of Control


“Companies Act”		the Companies Act 1985

“Company”		Smith & Nephew plc (registered in England no 324357)

“Control”		has the meaning given in section 840 of the Taxes Act

“Daily Official List”		the Daily Official List of the London Stock Exchange

“Date of Approval”		the date on which this Plan is approved by shareholders of the Company

“Dealing Day”		a day on which the London Stock Exchange or New York Stock Exchange as appropriate is open for business

“Directors”		the board of directors of the Company or a duly authorised committee of the directors

“Eligible Employee”		an executive director or bona fide employee of any member of the Group

“Employer’s NICs”		in the UK, secondary Class I NICs and, in any other jurisdiction, such other social security contributions (or equivalent taxes) for which the Awardholder’s Employer is primarily liable to account

“Exchange of Awards”		the grant, to an Awardholder, in consideration of the cancellation of an Award, of rights to acquire shares or American depositary receipts in an Acquiring Company or a company which has control of an Acquiring Company or either is, or has control of, a company which is a member of a consortium owning either an Acquiring Company or a company having control of an Acquiring Company being rights which are:- (a) in the opinion of the Committee, substantially equivalent in value to the value of such Award; and (b) on terms approved by the Committee

“Grantor”		in relation to an Option, the person who intends to grant or has granted such Option

“Group”		the Company and any company which is for the time being a Subsidiary

“Initial Value”		means a notional sum determined by the Committee which represents the maximum aggregate Market Value (as at the Award Date) of Shares or ADRs which might, subject to attainment in full of the Performance Target, (and disregarding the application of Rules 7.3 and 15.2) become Vested Shares


“ITEPA”		the Income Tax (Earnings and Pensions) Act 2003

“Jointly-Owned Company”		a company (and any subsidiary, as defined in section 736 of the Companies Act 1985, of such company) of which the whole of the issued Ordinary Share Capital is jointly-owned by a member of the Group and another person (not being a member of the Group) but which is not a Subsidiary and is not under the Control of such other company

“London Stock Exchange”		London Stock Exchange plc

“Market Value”		on a given day, the average of the middle market quotations of a Share as derived from the Daily Official List for the 3 consecutive Dealing Days last preceding that day or, in relation to an ADR, the average of the closing prices of an ADR on the New York Stock Exchange on the 3 consecutive Dealing Days last preceding that day

“Model Code”		the code adopted by the Company, which contains provisions similar in purpose and effect to the provisions of the Model Code on directors’ dealings in securities, as set out in the appendix to Chapter 16 of the Listing Rules issued by the UKLA from time to time

“NICs”		in the UK, National Insurance contributions or, in any other jurisdiction, social security contributions (or other similar taxes)

“NI Regulations”		the laws, regulations and practices currently in force relating to liability for, and the collection of, NICs

“Option”		a right to acquire Vested Shares granted in accordance with, and exercisable subject to, the rules of this Plan and which has not lapsed and ceased to be exercisable

“Ordinary Share Capital”		the issued ordinary share capital of the Company, other than fixed-rate preference shares, including any Shares held in treasury

“PAYE Regulations”		the regulations made under section 684 of ITEPA

“Performance Period”		the period over which the performance of the Company is to be measured for the purpose of determining whether, and to what extent, the Performance Target is met

“Performance Target”		the condition or conditions, relating to the performance of the Company over the Performance Period, imposed in relation to an Award

“Personal Data”		the name, home address, telephone number, e-mail address, date of birth, or National Insurance (or other


		individual reference) number of an Awardholder, or other employee information including details of all rights to acquire Shares or other securities granted to such Awardholder and of Shares or other securities issued or transferred to such Awardholder pursuant to this Plan

“Personal Representatives”		the personal representatives of an Awardholder (being either the executors of his will to whom a valid grant of probate has been made or, if he dies intestate, the duly appointed administrator(s) of his estate) who have produced evidence to the Company of their appointment as such

“Plan”		The Smith & Nephew 2004 Performance Share Plan, as set out in these rules and amended from time to time

“Salary”		the gross rate of basic annual salary (excluding any bonus, company pension contributions, and any other perquisites and benefits-in-kind) payable to a person at a given time by members of the Group

“Shares”		fully paid ordinary shares in the capital of the Company (or following a reconstruction, demerger or reorganisation of the Company or a Change of Control, shares or other securities acquired by virtue of, or in exchange for, such ordinary shares)

“SSCBA”		the Social Security Contributions and Benefits Act 1992

“Subscription Right”		an Option granted as a right to subscribe for Shares

“Subsidiary”		any company which is for the time being a subsidiary (as defined in section 736 of the Companies Act) of the Company

“Taxes Act”		the Income and Corporation Taxes Act 1988

“Trust”		means the employees’ trust known as the Smith & Nephew 2004 Employees’ Share Trust constituted by a deed dated [ ] 2004 (or any other trust established by the Company for the benefit of employees of the Group and which may from time to time hold cash, Shares, ADRs or other securities for the purposes of this Plan)

“Trust Deed”		the deed by which the Trust was established

“Trustee”		the trustee or trustees for the time being of the Trust

“UKLA”		the Financial Services Authority in its capacity as the competent authority for the purposes of Part VI of the Financial Services and Markets Act 2000

“USA”		United States of America


“Vested Shares”		in relation to an Award, Award Shares which an Awardholder has become entitled to acquire in consequence of:- (a) the Performance Target having been met in full or in part; or, if earlier (b) the Award being deemed to have become vested as mentioned in Rules 17.3 and 17.5; or (c) a determination by the Committee made pursuant to Rule 17.6; or (d) the application of Rules 20, 22 or 23

“Year”		a financial year of the Company

2.	INTERPRETATION

2.1	References to Shares or ADRs in respect of which an Award subsists at any time are to be read and construed as references to the Shares or ADRs over which the Award is then held (and in respect of which it has not then lapsed and ceased to be exercisable).

2.2	References to an Award being satisfied (and related expressions) shall be read and construed as references to Awardholders acquiring Shares or ADRs, or being granted an Option, in full satisfaction of any right or entitlement which the Awardholder has or might have in relation to an Award.

2.3	Words and expressions used in this Plan and in the ancillary documents which are not defined in Rule 1 have the meanings they bear for the purposes of ITEPA.

2.4	Any reference to any enactment includes a reference to that enactment as from time to time modified, extended or re-enacted.

2.5	References to rules are to the rules of this Plan and no account shall be taken of the rule headings, which are for ease of reference only.

2.6	Words denoting the masculine gender shall include the feminine.

2.7	Words denoting the singular shall include the plural and vice versa.

2.8

3.	ADMINISTRATION

3.1	The Directors may from time to time make and vary such rules and regulations not inconsistent with the rules of the Plan and establish such procedures for its administration and implementation as they think fit.

3.2	In any matter in which they are required to act in connection with this Plan, the Auditors shall be deemed to be acting as experts and not as arbitrators and the Arbitration Act 1996 shall not apply.

3.3	The Company shall bear the costs of the administration and implementation of this Plan.

PART B: MAKING OF AWARDS

4.	ELIGIBILITY

4.1	Subject to the following provisions of this Rule 4 the Committee shall have absolute discretion as to the selection of persons to whom Awards may be made.

4.2	An Award may only be made to an Eligible Employee.

4.3	Subject to paragraph C of Schedule 3 to this Plan, an Award shall not be made to any Eligible Employee within the period of six months ending with the date on which that person is bound to retire in accordance with his contract of employment.

5.	MAKING OF AWARDS

5.1	Awards shall be made on behalf of the Company by resolution of the Committee.

5.2	When making an Award, the Committee shall determine:-

5.2.1

the number of Award Shares;

5.2.2

the Performance Target; and

5.2.3

whether, in the case of a Share Award, the Awardholder shall be required to bear the cost of Employer’s NICs payable in respect of any gain realised upon the acquisition of Shares or ADRs pursuant to such Award.

6.	TIMING OF AN AWARD

6.1	An Award may only be made during the period of:-

6.1.1

42 days following the Date of Approval;

6.1.2

42 days beginning with the fourth Dealing Day following an Announcement;

6.1.3

28 days immediately after the person to whom it is issued first becomes an Eligible Employee; or

6.1.4

subject to the Model Code, at any other time, but only if, in the opinion of the Committee, the circumstances are exceptional.

6.2

If the Company is restricted by statute, order or regulation (including any regulation, order or requirement imposed on the Company by the London Stock Exchange or any other regulatory authority) from making Awards within any period as mentioned in Rule 6.1, the Committee may do so at any time during the period of 42 days (or, in the circumstances referred to in Rule 6.1.3, 28 days) beginning with the date on which all such restrictions are removed.

6.3	No Award may be made in breach of the Model Code.

6.4	No Award shall be made after 6 May 2014.

7.	INDIVIDUAL LIMIT ON THE MAKING OF AWARDS

7.1	The Initial Value of an Award shall not be greater than the amount of the Awardholder’s Salary at the Award Date.

7.2

If it is intended by the Committee that an Awardholder shall bear the cost of the Employer’s NICs arising upon the acquisition of Shares pursuant to a Share Award, the number of Shares in respect of which such Award is made may, notwithstanding the limit imposed by Rule 7.1, be increased by such number of Shares as the Committee shall determine to be appropriate (having regard to the expected rate of Employer’s NICs) for the purpose of compensating the Awardholder for assuming, or agreeing to assume, the burden of such Employer’s NICs.

7.3

The number of Shares or ADRs which, in relation to an Award, become Vested Shares may, if the Company’s performance over a Performance Period measured against criteria set out in the Performance Target is considered by the Committee to constitute exceptional performance as mentioned in Rule 15.2, exceed the number or Shares or ADRs in respect of which such Award was made, but shall not in any event exceed 150 per cent of the number of Shares or ADRs in respect of which such Award was made.

8.	AWARD CERTIFICATES

8.1	As soon as practicable after an Award has been made the Company shall issue to the Awardholder an Award Certificate which specifies:-

8.1.1

the Award Date;

8.1.2

the number of Award Shares;

8.1.3

the Performance Target;

8.1.4

that, pursuant to Rule 19, it is a term of the Award that the Awardholder agrees to indemnify the Company, the Grantor and the Awardholder’s Employer in respect of any Award Tax Liability.

8.2	The Committee may determine that an Award shall be subject to the additional terms and conditions set out in Schedule 3 to this Plan and which relate to the grant of Awards to persons resident in the USA.

9.	ACCEPTANCE OF AN AWARD

9.1

Unless the Committee otherwise determines in relation to an Award, no Award Shares shall in any event become Vested Shares unless, within the period of 30 days after the Award Date (or such later time as the Grantor may notify to the Awardholder) the Awardholder has notified the Grantor of his acceptance of such Award, and has agreed to accept and be bound by the rules of this Plan, by executing and delivering to the Company a duly completed Form of Acceptance, substantially in the form set out in Schedule 5 or such other form as the Company may from time to time specify to the Awardholder.

Tax Indemnity

9.2	In accepting the grant of an Award, the Awardholder shall indemnify the Awardholder’s Employer against any Award Tax Liability.

Transfer of Burden of Employer’s NICs

9.3	In accepting an Award, the Awardholder shall, if required by the Committee, agree and undertake to the Company and any other company which is the Awardholder’s Employer that:-

9.3.1

the Awardholder’s Employer may (if or insofar as it is lawful to do so) recover from the Awardholder, as mentioned in Rule 19, the whole or any part of any Employer’s NICs payable in respect of (a) any gain realised upon the acquisition of Shares or ADRs pursuant to an Award and (b) any Option Gain; and

9.3.2

the Awardholder shall join with the Awardholder’s Employer in making an election (in such terms and such form as may be approved by the Inland Revenue) for the transfer of the whole, or such part as the Company may determine, of any liability of the Awardholder’s Employer to Employer’s NICs on (a) any gain realised upon the acquisition of Shares or ADRs pursuant to an Award, and (b) any Option Gain, to be transferred to the Awardholder.

10.	DATA PROTECTION

In accepting the grant of an Award, an Awardholder shall agree and consent to:-

(a)

(b)

members of the Group, any Associated Company or Jointly-Owned Company and, if it not the Company, the Grantor or any third party or administrator of the Plan, transferring the Awardholder’s Personal Data amongst themselves for the purposes of implementing, administering and managing this Plan and the grant of Awards and the acquisition of Shares pursuant to Awards;

(c)

the use of Personal Data by any such person for any such purposes; and

(d)

11.	RELATIONSHIP WITH CONTRACT OF EMPLOYMENT

11.1

The making of an Award shall not form part of the Awardholder’s entitlement to remuneration or benefits pursuant to his contract of employment nor does the existence of a contract of employment between any person and the Company or any present or past Subsidiary, Associated Company or Jointly-Owned Company, give such person any right or entitlement to an Award in respect of any number of Shares or any expectation that an Award might be made to him, whether subject to any conditions or at all.

11.2	The rights and obligations of an Awardholder under the terms of his contract of employment with the Company or any present or past Subsidiary, Associated Company or Jointly-Owned Company shall not be affected by the making of an Award or his participation in this Plan.

11.3

Any rights or entitlement of an Awardholder created by the making of an Award shall not afford the Awardholder any rights or additional rights to compensation or damages in consequence of the loss or termination of his office or employment with the Company or any present or past Subsidiary, Associated Company or Jointly-Owned Company for any reason whatsoever (whether or not the termination is ultimately held to be wrongful or unfair).

11.4	An Awardholder shall not be entitled to any compensation or damages for any loss or potential loss which he may suffer by reason of being unable to exercise an Award in

consequence of the loss or termination of his office or employment with the Company or any present or past Subsidiary, Associated Company or Jointly-Owned Company for any reason whatsoever (whether or not the termination is ultimately held to be wrongful or unfair).

12.	NON-TRANSFERABILITY OF AWARDS

12.1	An Award is personal to an Awardholder and may not be transferred during his lifetime.

12.2	An Award shall immediately lapse and cease to be exercisable if the Awardholder:-

12.2.1

transfers or assigns it (other than to his Personal Representatives), mortgages, charges or otherwise disposes of it;

12.2.2

is adjudged bankrupt or an interim order is made because he intends to propose a voluntary arrangement to his creditors under the Insolvency Act 1986;

12.2.3

makes or proposes a voluntary arrangement under the Insolvency Act 1986, or any other plan or arrangement in relation to his debts, with his creditors or any section of them; or

12.2.4

is otherwise deprived (except on death) of the legal or beneficial ownership of the Award by operation or law or doing or omitting to do anything which causes him to be so deprived.

13.	COMPANY LIMITS ON SUBSCRIPTION FOR SHARES

13.1

Subject always to the Model Code and the rules relating to the prohibition of ‘insider dealing’, the Trustee may apply sums received from members of the Group in purchasing Shares (either in the market or out of treasury) or subscribing for Shares for a consideration which is not less than the current market value of such Shares.

5% in 10 year limit for executive (discretionary) schemes

13.2

The number of Shares in respect of which Subscription Rights may be granted on any day, when added to the number of Shares issued or in respect of which rights to subscribe for Shares have previously been granted (and which have neither been exercised nor have ceased to be exercisable) pursuant to the Plan and any other executive (discretionary) share scheme of the Company in the period of ten years preceding that day shall not exceed 5 per cent of the Ordinary Share Capital.

10% in 10 year limit for all schemes

13.3

The number of Shares in respect of which Subscription Rights may be granted on any day, when added to the number of Shares issued or in respect of which rights to subscribe for Shares have previously been granted (and which have neither been exercised nor have ceased to be exercisable) pursuant to this Plan and any other employees’ share scheme in the period of ten years preceding that day shall not exceed 10 per cent of the Ordinary Share Capital.

13.4	For the purposes of this Rule 13, references to rights to subscribe for Shares shall be taken to include references to a right to acquire Shares issued or to be issued out of treasury.

PART C: VESTING AND SATISFACTION OF AWARD SHARES

14.	PERFORMANCE TARGETS

14.1

The number or proportion of Award Shares which shall become Vested Shares shall be conditional on the performance of the Company, measured over a minimum period of three Years, beginning not earlier than that in which the Award is made, against such objective criteria as shall be determined by the Committee when the Award is made.

14.2	A Performance Target may provide that a given number or proportion of the Award Shares may become Vested Shares according to whether, and the extent to which, any given target level of performance is met or exceeded.

14.3	After an Award has been made, the Committee may, in appropriate circumstances, amend or waive altogether a Performance Target PROVIDED THAT :-

14.3.1

(a)

the objective criteria against which performance will then be measured will be a fairer measure of performance; or

(b)

any amended Performance Target will afford a more effective incentive to the Awardholder; and

14.3.2

in either case, the amended Performance Target will be no more difficult to satisfy than was the original Performance Target when first set.

15.	VESTING OF AWARDS

Reduced vesting if underlying performance is unsatisfactory

15.1	The Committee may reduce the number or proportion of Award Shares which become Vested Shares if, in the opinion of the Committee, the actual attainment of the Performance Target to any extent is not a genuine reflection of the Company’s underlying financial performance.

Enhanced vesting for exceptional performance

15.2

If, in relation to an Award, the Company’s performance over a Performance Period measured by the criteria set out in the Performance Target is considered by the Committee to be exceptional, the number of Award Shares which, in relation to such Award, become Vested Shares may, if the Committee so determines, be increased but shall not in any event exceed the limit imposed by Rule 7.3.

Notification of vesting

15.3	As soon as practicable after the end of the Performance Period, the Company shall determine and notify the Awardholder of the number of Award Shares which have become Vested Shares in consequence of the Performance Target having been met.

15.4	If on any occasion and in relation to an Award, some but not all of the Award Shares become Vested Shares, the Awardholder shall have no right or entitlement to the balance of such Award Shares.

16.	SATISFACTION OF AWARDS

16.1	Subject to the following provisions of this Rule 16 and Rules 19 to 25, as soon as practicable after any Award Shares have become Vested Shares or, if later, the third anniversary of the Award Date, the Company shall either:-

16.1.1

procure the transfer of Vested Shares to or to the order of the Awardholder; or

16.1.2

if in the opinion of the Committee there are special circumstances, and the Committee so determines, the payment to the Awardholder of a cash sum of an amount equal to the Market Value (as at the date on which notice is given to the Awardholder pursuant to Rule 15.3) of Vested Shares.

Grant of an Option to acquire Vested Shares

16.2	The Company may, instead of procuring the transfer of Vested Shares, grant to the Awardholder a right to acquire such Vested Shares (“an Option”) which is on terms that:-

16.2.1

the price payable for such Vested Shares upon the exercise of such Option (if any) shall be not greater than £1;

16.2.2

the Option shall first become exercisable not later than one month after its date of grant; and

16.2.3

the Option shall not in any event be exercisable after the tenth anniversary of the Award Date or such earlier date as the Company may specify

and is otherwise exercisable on such terms as the Company shall determine and notify to the Awardholder when such Option is granted.

16.3	An Option shall not be exercisable later than the first anniversary of the date on which the Awardholder to whom it is granted ceases to hold office or employment within the Group.

Dividends on Shares or ADRs under Option

16.4

The Committee may determine that, for so long as any Option remains unexercised, the Grantor shall apply the net amount of any cash dividends received in respect of the Shares or ADRs under Option in the acquisition of additional Shares or ADRs and will transfer such additional Shares or ADRs to the Awardholder when the Option is exercised.

Effect of Restrictions upon Transfer of, or Grant of Option over, Vested Shares

16.5	Vested Shares may not be transferred, nor may an Option be granted, to or to the order of an Awardholder on any occasion if such transfer or grant would not then be in compliance with the Model Code.

16.6

If on any occasion the transfer of any Vested Shares or the grant or exercise of an Option is restricted by reason of the Model Code or any other regulation, requirement or guidance issued by the London Stock Exchange or the UK Listing Authority and which relates to dealings in Shares by directors or employees of any member of the Group, such Shares shall be transferred, or such Option shall be granted or may be exercised, as soon as practicable after all such restrictions have been lifted.

17.	CESSATION OF EMPLOYMENT

17.1	The following provisions of this Rule 17 shall apply if, before the end of the Performance Period, the Awardholder ceases to hold office or employment within the Group by reason of:-

17.1.1

Injury, ill-health or disability (evidenced to the satisfaction of the Committee);

17.1.2

redundancy (within the meaning of the Employment Rights Act 1996);

17.1.3

retirement;

17.1.4

death;

17.1.5

17.1.6

17.2	The Awardholder (or, if he has died, his Personal Representatives) may retain the benefit of an Award granted to him except that, save as otherwise provided by Rule 17.5, the number of Award Shares (if any) which become Vested Shares shall be determined as:-


	A x B

where:	A	is the number of Award Shares which (after the application of Rule 15.2) would have become Vested Shares if the Awardholder had not ceased to hold office or employment within the Group before the end of the Performance Period; and

	B	is such proportion of the Performance Period as fell before the date of such cessation or such lesser proportion as the Committee may determine.

Death before the end of a Performance Period

17.3	If an Awardholder dies during the Performance Period, the Company may, if the Committee so determines, either:-

17.3.1

procure the transfer to the Awardholder’s Personal Representatives of a proportion, corresponding to such proportion of the Performance Period as fell before the date of death (or, if earlier, the date on which the Awardholder ceased to hold office or employment within the Group as mentioned in Rule 17.1), of such of the Award Shares (if any) as are deemed to be Vested Shares; or

17.3.2

pay, or procure the payment, to or to the order of the Awardholder’s Personal Representatives a cash sum equal in amount to the Market Value at the date of death of such proportion (as mentioned in Rule 17.3.1) of such of the Award Shares (if any) as are deemed to be Vested Shares.

In this event, Rule 17.2 shall not apply and the Awardholder’s Personal Representatives shall have no further right or entitlement to any Award Shares.

Deemed vesting

17.4

For the purposes of Rule 17.3, Award Shares shall be deemed to be vested only if and to the extent that the Committee is of the opinion that the performance of the Company, judged as at the time of death, is such that the Performance Target is likely to be met to a particular extent so that a given percentage of the Award Shares would, if the Awardholder had continued to hold office or employment within the Group throughout the Performance Period, be likely to become Vested Shares and accordingly only the said proportion of such percentage of the Award Shares shall be deemed to be Vested Shares.

Committee discretion to vary proportion which vests

17.5	The Committee may increase the proportion of Award Shares which become or are deemed to be Vested Shares as mentioned in Rules 17.2 and 17.3 but only if and insofar as the Committee is then satisfied that such increase is justified by the performance of the Company.

Leaving for other reasons

17.6	An Awardholder who ceases to hold office or employment within the Group during the Performance Period for any reason other than those set out in Rule 17.1 shall, unless and insofar as the Committee may determine otherwise, cease to have any right or entitlement to any Award Shares.

18.	TIME OF LEAVING

For the purposes of Rule 17, an Awardholder shall be treated as ceasing to hold office or employment within the Group only when he no longer holds any office or employment with any member of the Group, any Associated Company or any Jointly-Owned Company or is summarily dismissed from any such office or employment.

PART D: RECOVERY OF TAX

19.	RECOVERY OF TAX

19.1	If an Award Tax Liability arises on the vesting, exercise or release of, or acquisition of Shares or ADRs pursuant to, an Award or the exercise of an Option then, unless:-

(a)

the Awardholder has indicated (in such manner as the Company may specify) that he will make a payment to the Company of an amount equal to the Award Tax Liability; and

(b)

the Awardholder does, within 14 days of being notified by the Company of the amount of the Award Tax Liability, make such payment to the Company

the Company or, if different, the Grantor shall, to the extent necessary to satisfy the indemnity given pursuant to Rule 9.2, have the right:-

(i)

to retain and sell Shares or ADRs acquired pursuant to the Award or exercise of the Option and procure payment to the Awardholder’s Employer, out of the net proceeds of sale of such Shares or ADRs (after deducting fees, commissions and expenses incurred in relation to the sale), of monies sufficient to satisfy such indemnity; or

(ii)

to withhold the necessary amount from any payment of the Awardholder’s remuneration.

19.2	Any cash sum paid to an Awardholder or his Personal Representatives pursuant to Rules 16.1.2 or 17.3.2 shall be subject to deduction of income tax and NICs.

PART E: CORPORATE TRANSACTIONS

20.	INTERNAL RECONSTRUCTION

If:-

(a)

(b)

an Awardholder is offered an Exchange of Awards

then:-

(i)

the provisions of Rules 20 and 21 shall not apply; and

(ii)

an Awardholder shall, at the end of the period of 21 days beginning with the date on which such invitation is made or, if later, the end of the period in which the Awardholder may accept such invitation, cease to have any expectation or entitlement pursuant to any Award in respect of which Award Shares have not then vested.

21.	DEMERGER, REORGANISATION, RECONSTRUCTION OR AMALGAMATION

21.1

Subject to Rule 20, if the Company’s shareholders are notified of a proposed demerger of the Company or of any Subsidiary, the Committee may (notwithstanding that the Performance Target has not then been met) determine and notify Awardholders that a proportion (not exceeding such proportion of the Performance Period as fell before the date of such notification) of the Award Shares shall become Vested Shares at such time as the Committee shall specify.

21.2

No such determination shall be made by the Committee unless the Auditors have confirmed in writing to the Committee that (disregarding any Performance Target to which any Award is then subject) the interests of Awardholders would or might be substantially prejudiced if, before the proposed demerger has effect, Awardholders could not receive Shares or ADRs or exercise their Options and be registered as the holders of the Shares or ADRs so acquired.

21.3

If notice is given to shareholders of the Company of a resolution to approve the reorganisation, reconstruction or amalgamation of the Company or of any other member of the Group, the Committee may vary the terms of Awards made on any occasion and/or the relevant Performance Targets in such manner as the Committee may determine and notify to Awardholders.

21.4

In making any such determination as is mentioned in Rules 21.1 and 21.3, the Committee shall act fairly and reasonably, taking proper account of the circumstances and having due regard to the objectives of the Company in establishing this Plan, and shall apply the same criteria to the holders of all Awards granted on the same occasion.

21.5	If, pursuant to Rule 21.1 or 21.3, Award Shares become Vested Shares, Rule 16.1 shall then apply as if the reference to “or, if later, the third anniversary of the Award Date” were omitted.

22.	CHANGE OF CONTROL

22.1	Subject to Rule 20, if, as a result of:-

22.1.1

a general offer to acquire the whole of the Ordinary Share Capital (other than Shares held in treasury) which is made on a condition such that if it is satisfied the person making the offer will have Control of the Company; or

22.1.2

a general offer to acquire all the shares in the Company of the same class as the Shares (other than Shares held in treasury); or

22.1.3

a compromise or arrangement sanctioned by the court pursuant to section 425 of the Companies Act

the Company shall come under the Control of another person or persons, the Committee may determine and notify Awardholders that a proportion of the Award Shares shall then become Vested Shares.

22.2	In determining the proportion of Award Shares which shall become Vested Shares, the Committee shall have regard both to such proportion of the Performance Period to the performance of the Company over that part of the Performance Period as has then elapsed.

22.3	Any Options granted prior to the Change of Control shall, to the extent not then exercised, lapse and cease to be exercisable at the end of such period as shall be determined by the Committee and notified to Optionholders.

22.4

If at any time any person becomes entitled or bound to acquire Shares under sections 428 to 430F (inclusive) of the Companies Act, an Option must be exercised within such period as such person remains so entitled or bound to acquire Shares and shall lapse and cease to be exercisable at the end of such period.

22.5	For the purposes of the preceding provisions of this Rule 22, a person shall be deemed to have Control of the Company if he and others acting in concert with him have together obtained Control of it.

22.6	If, pursuant to Rule 22.1, Award Shares become Vested Shares, Rule 16.1 shall then apply as if the reference to “or, if later, the third anniversary of the Award Date” were omitted.

23.	WINDING-UP

23.1	If the Company’s shareholders are notified of a resolution for the voluntary winding-up of the Company, the Committee may vary the terms of Awards in such manner as the Committee may consider to be appropriate.

23.2	All Awards and Options shall immediately lapse and cease to be exercisable on the commencement of the Company’s winding-up.

PART F: AMENDMENTS

24.

VARIATION OF SHARE CAPITAL

24.1	If the Ordinary Share Capital is altered by way of capitalisation or rights issue, sub-division, consolidation or reduction or there is any other variation in the share capital of the Company, the Committee may make such adjustment as it considers appropriate:-

24.1.1

to the number of Award Shares which are the subject of any Award or Option; and/or

24.1.2

if Award Shares have become Vested Shares, the number of Vested Shares; and/or

24.1.3

if an Option has been exercised but no Shares or ADRs have been allotted or transferred in satisfaction of an Award, to the number of Shares or ADRs which may be so allotted or transferred; and/or

24.1.4

to the maximum limit on the number of Shares subject to Awards granted to any individual in any calendar year, as mentioned in Schedule 3

PROVIDED THAT:-

(a)

except in the case of a sub-division, consolidation or a capitalisation issue, the Auditors shall give written confirmation that the adjustment is, in their opinion, fair and reasonable;

(b)

the number of Shares or ADRs as so adjusted has been rounded down to the nearest whole number; and

(c)

if the Grantor of an Option is not the Company, no such adjustment shall be made without the Grantor’s consent.

24.2	The Company shall as soon as reasonably practicable notify every Awardholder affected by an adjustment made pursuant to Rule 24.1.

24.3	The Committee shall deliver, or procure the delivery of, a revised Award Certificate to any Awardholder who makes a request in writing for an amended Award Certificate.

25.	ALTERATION OF THE PLAN

25.1

The Directors may at any time alter or add to any of the provisions of this Plan in any respect PROVIDED THAT no such alteration or addition shall be made to the advantage of existing or new Awardholders to the provisions relating to eligibility to participate, the overall limitations on the issue of new Shares, the individual limitations on Awards granted under this Plan, the basis for determining Awardholders’ rights to acquire Shares or ADRs, the adjustment of such rights in the event of variation of the Ordinary Share Capital, or this Rule 25, without the prior approval by ordinary resolution of the shareholders of the Company SAVE THAT the provisions of this Rule 25.1 shall not apply to the extent that such alteration or addition is in the opinion of the Directors:-

25.1.1

a minor amendment which is necessary or appropriate to benefit the administration of this Plan;

25.1.2

to take account of any change in legislation; or

25.1.3

to obtain or maintain favourable tax, exchange control or regulatory treatment for existing or new Awardholders, the Company or any Associated Company; and

25.1.4

if in relation to any Option the Grantor is not the Company, no alteration or addition shall be made to the terms of such Option without the approval of the Grantor.

25.2	The Company shall, as soon as reasonably practicable, give details of any such alteration or addition to every Awardholder (if any) affected by it.

PART G: MISCELLANEOUS

26.	ALLOCATION OF FUNDS

26.1	The Company may from time to time pay, or procure the payment of sums by members of the Group or any Associated Company or Jointly-Owned Company, to the Trustee for the purpose of enabling the Trustee to acquire Shares or ADRs to be transferred or put under Options in satisfaction of Awards.

26.2	The aggregate amount to be paid to the Trustee in any year shall be such amount (if any) as the Committee may determine SAVE THAT in the case of payments made by a Subsidiary, the amount of any payment shall be determined by agreement between the Company and the directors of the Subsidiary.

26.3	A member of the Group shall only pay to the Trustee such sums as are required in connection with the acquisition of Shares by the Trustee for the purpose of providing benefits to Eligible Employees and former Eligible Employees who are or were previously in the service of that member of the Group.

27.	SERVICE OF DOCUMENTS

27.1	Except as otherwise provided in this Plan, any notice or document to be given by, or on behalf of, the Company, the Committee or other Grantor, the Trustee or any administrator of this Plan to any person in accordance or in connection with this Plan shall be duly given:-

27.1.1

27.1.2

if he holds office or employment with any member of the Group or any Associated Company or Jointly-Owned Company, by delivering it to him at his place of work or by sending to him a facsimile transmission or e-mail addressed to him at his place of work and if so sent it shall be deemed to have been duly given at the time of transmission SAVE THAT a notice or document shall not be duly given by e-mail unless that person is known by his employer company to have personal access during his normal business hours to information sent to him by e-mail.

27.2

Any written notice or document so sent to an Eligible Employee or Awardholder shall be deemed to have been duly given notwithstanding that such person is then deceased (and whether or not the Company or other Grantor has notice of his death) except where his Personal Representatives have supplied to the Company an alternative address to which documents are to be sent.

27.3

Any written notice or document to be submitted or given to the Grantor, the Company, the Committee, a Trustee or any administrator of this Plan in accordance or in connection with this Plan may be delivered, sent by post, facsimile transmission or e-mail but shall not in any event be duly given unless:-

27.3.1

27.3.2

if given by e-mail (and is so required by the Company), it includes a digitally encrypted signature of the Awardholder.

27.4

For the purposes of this Plan, an e-mail shall be treated as not having been duly made or received if the recipient of such e-mail notifies the sender that it has not been opened because it contains, or is accompanied by a warning or caution that it could contain or be subject to, a virus or other computer programme which could alter damage or interfere with any computer software or e-mail.

28.	OBLIGATION TO ENSURE SUFFICIENT AVAILABLE SHARES

28.1	The Company shall always keep sufficient authorised but unissued Shares available to satisfy the exercise in full of all Subscription Rights for the time being remaining capable of being exercised under this Plan.

28.2	No Option over existing Shares or ADRs shall be granted by any person unless that person beneficially owns such Shares or ADRs at the date of grant or the Directors are satisfied that sufficient Shares will be made available to satisfy such Option in full.

28.3	The Company may issue Shares, and grant rights to acquire Shares or ADRs, to the trustees of any trust established for the benefit of persons who include employees of the Group for the purpose of enabling such trustees, in the exercise of their powers to:-

28.3.1

transfer Vested Shares;

28.3.2

grant Options; and

28.3.3

transfer or procure the issue or transfer of Shares or ADRs on the exercise of Options granted by such trustees

29.	RIGHTS ATTACHING TO SHARES

29.1

A transfer of Shares or ADRs or of any interest in Shares or ADRs under this Plan shall be subject to the Company’s Memorandum and Articles of Association, the Listing Rules, the Model Code or any other requirement or guidance issued by the UKLA or the London Stock Exchange or the New York Stock Exchange and which relates to dealings in Shares by directors or employees of any member of the Group and to any necessary consents of any government or any other authorities (whether in the United Kingdom or otherwise) under any enactments or regulations from time to time in force. It shall be the responsibility of the Awardholder to do all such things as may be necessary to obtain or obviate the necessity for any such consent.

29.2	All Shares or ADRs allotted or transferred under this Plan shall rank equally in all respects with the Shares or ADRs then in issue, except for any rights attaching to such Shares or ADRs by reference to a record date prior to the date of such allotment or transfer.

30.	STAMP DUTY

Any stamp duty or stamp duty reserve tax payable in respect of a transfer of Shares to or at the direction of a Awardholder (other than stamp duty or stamp duty reserve tax payable on a sale of Shares by the Grantor at the direction of the Awardholder) shall be paid by the Company or, if different, the Grantor (who shall be reimbursed by the Company).

31.	JURISDICTION

31.1	This Plan and any Award shall be governed by and construed in all respects in accordance with the laws of England and Wales.

31.2	The courts of England shall have exclusive jurisdiction in relation to any claim, dispute or difference concerning an Award and any matter arising from or in relation to this Plan.

32.	PURCHASES BY TRUSTEE

Subject to Rule 19, an Awardholder may, subject to the Model Code, direct the Trustee to sell Vested Shares on his behalf and, in this event, the Shares or ADRs may, if the Trustee so determines, be purchased by the Trustee PROVIDED THAT the price per Share or ADR paid by the Trustee is not less than the Market Value of a Share or ADR on the date of purchase.

33.	THIRD PARTY RIGHTS

Except as otherwise expressly stated to the contrary, neither this Plan nor the making of any Award shall have the effect of giving any third party any rights under this Plan and that Act shall not apply to this Plan pursuant to the Contracts (Rights of Third Parties) Act 1999 or to the terms of any Award under it.

SCHEDULE 1

THE PERFORMANCE TARGET

Performance Target to be applied to the exercise of Awards granted in 2004

(as mentioned in Rule 14)

1.	The number of Shares in respect of which the Award is made shall be divided into two equal tranches.

2.	The number or proportion of Award Shares in each tranche which shall become Vested Shares shall be determined as follows:-

If, but only if, the Company is ranked at or above the median level in a table of comparator companies ranked according to growth in Total Shareholder Return over the period of 3 years ending 31 December 2006, then the number of Award Shares in the first tranche which shall become Vested Shares shall be as nearly as may be equal to, but shall not exceed, 25 per cent of the Award Shares in that tranche.

If the Company is ranked at the 75th centile (counting from the bottom), all of the Award Shares in that tranche shall become Vested Shares.

If the Company is ranked anywhere between the median level and the 75th centile, then the number of Award Shares in that tranche which shall become Vested Shares shall be increased above 25 per cent (but so as not to exceed 100 per cent) on a straight-line basis between the median level and the 75th centile.

If the Company is ranked at the 90th centile, 150 per cent of the Award Shares in that tranche shall become Vested Shares.

If the Company is ranked anywhere between the 75th centile and the 90th centile, then the number of Award Shares in that tranche which shall become Vested Shares shall be increased above 100 per cent (but so as not to exceed 150 per cent) on a straight-line basis between the 75th centile and the 90th centile.

3.	For the purposes of the first tranche, the group of comparator companies shall comprise, in addition to the Company, all those companies which, at the Date of Grant, are included in the FTSE 100 Index.

4.	For the purposes of the second tranche, the group of comparator companies shall comprise, in addition to the Company, each of the following companies:-

Boston Scientific

Conmed

Coloplast

Orthofix

St Jude Medical

Wright Medical

Johnson & Johnson

Edwards LifeSciences Corp

Stryker

Biomet

Medtronic

Beckton Dikinson

Baxter

Synthes-Stratec

Guidant

Arthrocare

Zimmer

***********************************************************

Notes:

Total Shareholder Return is the annual compound return an investor would have received by investing in a share. It comprises any increase or decrease in the share price over the Performance Period, plus all dividend payments made during the period, and any other benefits accruing to shareholders.

To measure comparative TSR performance (as opposed to absolute performance), it shall be assumed that one share is purchased in each of the companies in the comparator group at the start of the Performance Period. Dividend payments during the period are assumed to have been reinvested at the gross level on the day the share went ex.

To minimise the effect of temporary share price fluctuations, the price at which each share is bought is calculated as the average of the daily closing prices over a period of one year immediately before the Performance Period begins. The closing share price is also calculated as the average of the closing prices over the period of one year ending with the last day of the Performance Period.

Outlined below is an example of how TSR is calculated for one company in the comparator group.

EXAMPLE

(a)

Presented below is the share price and dividend performance of a fictitious company. Dividends are assumed to have been used to purchase a fraction of a share at the closing share price on the day the share goes ex.


Dividends paid in Performance Period			Share Price P	Gross Dividend P	Fraction Purchased
2004	-	2003 Final	540	20.0	0.037
	-	2004 Interim	580	15.0	0.026

2005	-	2004 Final	550	16.0	0.029

	-	2005 Interim	600	12.0	0.020

2006	-	2005 Final	630	21.0	0.033

	-	2006 Interim	700	19.0	0.027
Additional share purchased					0.172

(b)

The final fraction is an aggregate of all fractions of shares purchased at the appropriate share price throughout the Performance Period. The fraction of a share purchased is 0.172 in this example.

(c)

The shareholder who purchased one share on 1 January 2004 and reinvested gross dividends would own 1.172 shares at 31 December 2006.

(d)

The opening share price is the average of the closing share prices on all trading days over the year preceding the cycle (ie 1 January 2003 to 31 December 2003). In this instance we shall assume that the opening share price is £4.50.

(e)

The closing share price is the average of the closing share prices on all trading days over the final year of the cycle (ie 1 January 2006 to 31 December 2006). In this instance the closing price is £6.70.

(f)

At the end of the Performance Period the shareholder has 1.172 shares at £6.70. The total value of the shareholding is, therefore, £7.85.

(g)

Total shareholder return is the difference between the initial investment (£4.50) and the final holding (£7.85).


TSR	=	785–450	x	100	= 74.4%
TSR	=	450	x	100	= 74.4%

(h)

The TSR over the three year performance period is 74.4%. This represents an annual compound return of 20.4%.

(i)

The annual compound TSR is calculated on the same basis as outlined above for all of the companies in the comparator group and the companies ranked in order.

If a company in the comparator group ceases to be a company whose shares are traded on a public market or, because of a change in the nature of its business(es) or the structure of ownership of its business(es), it is no longer appropriate for such company to be in the comparator group, the Committee may remove that company from the comparator group and may substitute another company whose shares are traded on a public market and in any such case the company concerned shall be left out of account or, as the case may be, be included within the comparator group as from the start of the Performance Period.

The Committee may make such consequential adjustments to the calculation of the percentage of Share Awards which shall become vested (according to the ranking of the Company) as may be appropriate to take proper account of the changes in the companies included in the comparator group.

If there occurs a takeover of one company within the comparator group by another, then the Committee may make such adjustments to the calculation of the TSR of the acquiring company as shall ensure that the basis of comparison between companies within the comparator group is consistent.

The Committee may at any time vary the basis of calculation of Total Shareholder Return as set out in these notes for the purpose of ensuring that its determination of whether the performance condition is satisfied in relation to awards made in a given year is made on a proper and consistent basis.

Any decision of the Committee made for the purposes of this Plan regarding:-

(a)	the calculation of Total Shareholder Return;

(b)	the identity of the Comparator Companies;

(c)	the ranking of the Company in such table

shall be final and binding on all Participants.

***********************************************************

SCHEDULE 2

LIST OF COMPARATOR COMPANIES TO BE USED

(as mentioned in Schedule 1)

SCHEDULE 3

Supplemental terms relating to the grant of Awards to employees based in the USA

B.	A U.S. Award may not be granted otherwise than in compliance with the US Securities Act of 1933 (as amended), if applicable, and all applicable US State Securities laws, as they are in effect at the time of grant of the Award.

A U.S. Award may be granted to any Eligible Employee working in the United States of America notwithstanding that he is at the Award Date within six months of the date on which he is bound to retire in accordance with the term of his contract of employment and Rule 4.3 shall not apply to prevent the grant of such Award.

D.	A U.S. Award may not be exercised unless such exercise is in compliance with the US Securities Act of 1933 (as amended), if applicable, and all applicable US state securities laws, as they are in effect at the time of exercise of such Award.

Unless sold outside of the United States of America in a manner which removes the sale from the purview of the US federal securities laws, all Shares acquired upon the exercise of a U.S. Award must be held indefinitely unless they are registered under the Securities Act of 1933 or an exemption from registration is available.

F.	The transfer of any Shares acquired upon the exercise of a U.S. Award may be restricted or affected by various state securities laws in the United States of America.

G.	Unless the Directors otherwise specify, a US Award shall be a right to acquire ADRs representing Shares, rather than Shares.

The Company may, instead of procuring the transfer of Vested Shares to an Awardholder, permit such Awardholder to make an election to defer the receipt of such Vested Shares to a date not later than the 10 ^th anniversary of the Award Date. Any such deferral election shall be made at least six months prior to the last day of the applicable Performance Period and shall comply with such other rules and procedures as shall be established by the Committee from time to time.

The maximum number of Shares that shall be subject to all Awards granted under the Plan, all options granted under the Company’s 2004 Executive Share Option Plan and all matching shares granted under the Company’s 2004 Co-Investment Plan to any individual in any calendar year shall not exceed 400,000 Shares in the aggregate, subject to adjustment in accordance with Rule 24.

To the extent an Award is intended to be qualified performance-based compensation within the meaning of section 162(m) of the Code, (i) the Performance Target applicable to such Award shall be limited to the total shareholder return of the Company and growth in the earnings per share of the Company and (ii) the Committee shall not exercise any discretion to increase the amount payable upon the settlement of an Award pursuant to Rule 17.5.

SCHEDULE 4

SMITH & NEPHEW 2004 PERFORMANCE SHARE PLAN (THE “PLAN”)

SHARE AWARD CERTIFICATE


Name of Awardholder:

Address of Awardholder:




Award Date:

Number of Shares:

This is to certify that [Smith & Nephew plc/TRUSTEES]* as trustee of The Smith & Nephew 2004 Employees’ Share Trust (the “ Trustee ”) has made an Award in respect of the above number of [Ordinary Shares/ADRs] (“ Award Shares ”) in the capital of Smith & Nephew plc (the “ Company ”) to the Awardholder named above.

The Award is made subject to, and in accordance with, the rules of the Plan, as amended from time to time. Vesting of Award Shares is subject to performance targets set out in the Appendix attached to this Award Certificate. Award Shares will normally become Vested Shares only if or insofar as the Performance Target is met [Vested Shares will normally be transferred to you (or an option to acquire such Vested Shares will be granted to you) after the third anniversary of the Award Date [unless you elect to defer the receipt of such Vested Shares at least 6 months prior to the third anniversary of the Award Date].

This Award will lapse and cease to be exercisable unless the Awardholder executes and returns to the Grantor, so as to be received no later than [ ], the enclosed of Form of Acceptance.

It is a condition of an Award that the Awardholder indemnifies the Company and the Awardholder’s Employer against any liability of any such person to account for any tax or NICs [(including employer’s NICs)]* arising upon the vesting, exercise or release of, an Award, or acquisition of Award Shares or the payment of a cash sum (“ Award Tax Liability ”).

[It is also a condition of the exercise of an Option that the Awardholder join with the Awardholder’s Employer (or former employer) in making an election for liability to Employer’s NICs arising on the vesting, exercise or release of, or the acquisition of Vested Shares pursuant to, an Option, to be transferred to the Awardholder]*.

The Award is not transferable but Vested Shares may be transferred to, or an Option exercised by, the Awardholder’s personal representatives in the event of his death, as specified in the rules of the Plan.



Signed
		for and on behalf of Smith & Nephew plc

SCHEDULE 5

THE SMITH & NEPHEW 2004 PERFORMANCE SHARE PLAN (THE “PLAN”)

FORM OF ACCEPTANCE OF AN AWARD

To:	[ ] Trustees Limited, [address]

1.	I agree to accept the grant of the Award over [Shares/ADRs]* (“ Award Shares ”) granted to me on (date) and agree and undertake to be bound by the terms and conditions set out in the rules the Plan and the Appendix to the Award Certificate.

Tax indemnity

I agree to indemnify the Company and my Employer in respect of any liability of any such person to account for any tax, NICs or other equivalent social security charges arising on the vesting, exercise or release of the Award, or the acquisition of Award Shares or in respect of any cash payment (“ Award Tax Liability ”).

3.	I understand and agree that, if an Award Tax Liability arises on any occasion then, unless either:-

(a)

I have agreed with the Company, that I will make a payment to the Company of an amount equal to the Award Tax Liability and I do in fact make such a payment, within 14 days of being notified by the Company of the amount of the Award Tax Liability; or

(b)

I have authorised the Company or the Grantor to sell sufficient of the Vested Shares to which I become entitled and to procure payment to my Employer (or former employer) of monies sufficient to satisfy such indemnity out of the net proceeds of sale of the Vested Shares

the Company or, if different, the Grantor of my Option shall be entitled to sell Shares to which I become entitled and to procure payment to my Employer out of the net proceeds of sale such Vested Shares of monies sufficient to satisfy the indemnity mentioned in clause 2.

[Agreement to bear the cost of Employer’s NICs

I agree with and undertake to the Company and any other company which is my Employer, that my Employer may recover from me the whole or any part of any employer’s NICs payable in respect of any gain realised upon the acquisition of Shares or ADRs pursuant to an Award, and any Option Gain, as mentioned in the Plan.]

[Election for transfer of liability to Employer’s NICs

I agree and undertake to join with my Employer in making an election (in a form satisfactory to the Company and the Inland Revenue) for any liability of my Employer Company to employers’ NICs payable in respect of any gain realised upon the acquisition of Shares pursuant to an Award, and any Option Gain, to be transferred to me (an “ NIC Election ”).]

*	Delete as appropriate

Power of Attorney

6.	I hereby appoint the Company Secretary or any director of the Company to act as my attorney for the purposes of:-

6.1

selling (at the best price that can reasonably be expected to be obtained at the time of sale) such number of the [Shares/ADRs]* to which I become entitled upon the exercise of the Award as will realise sufficient monies (after deduction of all commissions and expenses incurred in relation to such sale) to satisfy my liability under the indemnity referred to in clause 2 above; and

6.2

paying such monies to my Employer.

Data protection

7.	I agree and consent to:-

7.1

the collection, use, processing and transfer by any member of the Group, an administrator and, if it is not the Company, the Grantor of my Personal Data;

7.2

any member of the Group, any Associated Company or Jointly-Owned Company, an administrator and, if it is not the Company, the Grantor, transferring my Personal Data amongst themselves for the purposes of the implementation, administration and management of this Plan and the acquisition of [Shares/ADRs]* pursuant to the Award;

7.3

the use of my Personal Data by any such person for any such purposes; and

7.4

the transfer to and retention of such Personal Data by third parties (whether or not any such third party is situated outside the European Economic Area) in connection with such purposes.

No contractual rights

8.	I agree and understand that the Award does not form part of my contract of employment and that the Company is under no obligation to grant any further awards to me.

Interpretation

9.	Words and phrases used in this Form of Acceptance shall have the meanings they bear for the purposes of the Plan.

*	Delete as appropriate


SIGNED and delivered AS A DEED by	)
	)
in the presence of:-	)
		(Awardholder signature)


Witness signature:

Witness Name (print):

Address:

Occupation:

Date:

YOUR SIGNATURE MUST BE WITNESSED BY A PERSON OVER 18 WHO IS NOT RELATED TO YOU BY BLOOD OR MARRIAGE AND RETURNED TO [ ] BY OR THE AWARD WILL BE DEEMED TO HAVE LAPSED.

Exhibit 5


Our ref:	DRK\ZZZ01.00001	Ashurst
Direct line:	+44 (0)20 7859 1205	Broadwalk House
E-mail:	david.kershaw@ashurst.com	5 Appold Street
		London EC2A 2HA


		Tel +44 (0)20 7638 1111
8 February 2005		Fax +44 (0)20 7638 1112
		DX 639 London/City
		www.ashurst.com A list of partners and their qualifications is available for inspection at this address Regulated by the Law Society

Smith & Nephew plc

15 Adam Street

London WC2N 6LA

LOGO

Ladies & Gentlemen

Smith & Nephew 2004 Co-Investment Plan

Smith & Nephew 2004 Executive Share Option Plan

Smith & Nephew 2004 Performance Share Plan

(together the “Plans”)

Up to 11,000,000 shares of common stock, 12 2/9 pence par value

We refer to the Registration Statement on Form S-8 (the “Registration Statement”) being filed by Smith & Nephew plc, a public limited company incorporated under the laws of England and Wales (the “Company”), with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Securities Act”), relating to the registration of shares of common stock, 12 2/9 pence par value, of the Company (the “Ordinary Shares”).

We are familiar with the proceedings to date with respect to the proposed issuance of up to an aggregate of 11,000,000 Ordinary Shares (the “Registered Shares”). Of these, 5,000,000 Ordinary Shares are to be issued pursuant to the Smith & Nephew 2004 Co-Investment Plan and the Smith & Nephew 2004 Performance Share Plan and will be represented by 1,000,000 American Depositary Shares (the “ADSs”), each ADS representing five Ordinary Shares. The remaining 6,000,000 million Ordinary Shares are to be issued pursuant to the Smith & Nephew 2004 Executive Share Option Plan. We have examined such records, documents and questions of law, and satisfied ourselves as to such matters of fact, as we have considered relevant and necessary as a basis for this opinion.

Based on the foregoing, we are of the opinion that:

1.	The Company is duly incorporated and validly existing under the laws of England and Wales.

Each of the Registered Shares which is newly issued pursuant to the Plans will constitute a share of common stock of the Company which has been duly authorised and validly issued and is fully paid and non-assessable when (i) the Registration Statement on form S-8 shall have become effective under the Securities Act, of 1933, as amended; (ii) the Company’s board of directors or a duly authorised committee thereof shall have duly adopted final resolutions authorising the issuance and sale of such share as contemplated by the Plans; and (iii) the name of the holder shall have been entered in the Register of Members and a certificate representing such share shall have been duly executed, countersigned and registered and duly delivered upon payment of the agreed consideration therefor (not less than the par value thereof) determined in accordance with the terms of the Plans.

B RUXELLES F RANKFURT L ONDON M ADRID M ILANO M UNCHEN N EW D ELHI N EW Y ORK P ARIS S INGAPORE T OKYO


Smith & Nephew plc		8 February 2005		Page 2

This Opinion is limited to English law as applied by the English courts and is given on the basis that it will be governed by and be construed in accordance with English law. We consent to the filing of this opinion as an exhibit to the Registration Statement relating to such Ordinary Shares. In giving such consent, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act.

Yours faithfully

/s/ Ashurst

ASHURST

LOGO

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement (Form S-8) pertaining to The Smith & Nephew 2004 Performance Share Plan, The Smith & Nephew 2004 Executive Share Option Plan and The Smith & Nephew 2004 Co-investment Plan of our report dated 16 March 2004, with respect to the consolidated financial statements and schedule of Smith & Nephew plc included in its combined Annual Report and Form 20-F for the year ended December 31, 2003 filed with the Securities and Exchange Commission.

/s/ ERNST & YOUNG LLP

Ernst & Young LLP

London, England

Dated: February , 2005