Exhibit
4.2


      


      


      


      


      
        
          

        



      RULES
OF THE

       

      SMITH
& NEPHEW PLC

       

      DEFERRED
BONUS PLAN

       

      
      

      
        

      

      


       

       

      
 

      Adopted
by the Board on 17 March 2009

       

       

       

       

      
      

      
      

      
      

      
      

      
      

      
      

      

      Hill
House

      1
Little
New Street
London
EC4A
3TR

       

       

      
      

      
      

      Ref: WALC/SLK

       

      
      

      
      

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

         

        
        

      

      RULES
OF THE

       

      
      

      SMITH
& NEPHEW PLC

       

      
      

      DEFERRED
BONUS PLAN

      
 

      
        	
                1.

              	
                DEFINITIONS
      & INTERPRETATION

              	
                3

              
	 	 	 
	
                2.

              	
                GRANT
      OF AWARDS

              	
                10

              
	 	 	 
	
                3.

              	
                TERMINATION
      OF EMPLOYMENT

              	
                11

              
	 	 	 
	
                4.

              	
                LAPSING
      OF AWARDS

              	
                12

              
	 	 	 
	
                5.

              	
                TAKEOVER
      RECONSTRUCTION AND WINDING UP

              	
                12

              
	 	 	 
	
                6.

              	
                EXCHANGE
      OF AWARDS FOLLOWING TAKEOVER, ETC.

              	
                14

              
	 	 	 
	
                7.

              	
                VESTING
      OF AWARDS

              	
                14

              
	 	 	 
	
                8.

              	
                SATISFYING
      AWARDS

              	
                15

              
	 	 	 
	
                9.

              	
                RESTRICTION
      ON GRANT AND SATISFYING AWARDS

              	
                15

              
	 	 	 
	
                10.

              	
                TAX
      LIABILITY

              	
                15

              
	 	 	 
	
                11.

              	
                TRANSFER
      OF SHARES

              	
                16

              
	 	 	 
	
                12.

              	
                ADJUSTMENTS

              	
                16

              
	 	 	 
	
                13.

              	
                ADMINISTRATION

              	
                16

              
	 	 	 
	
                14.

              	
                CHANGING
      THE PLAN

              	
                17

              
	 	 	 
	
                15.

              	
                LEGAL
      ENTITLEMENT

              	
                18

              
	 	 	 
	
                16.

              	
                GENERAL

              	
                19

              
	 	 	 
	
                17.

              	
                DATA
      PROTECTION

              	19


      

      


      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

         

      

      
      

      RULES OF THE

       

      
      

      SMITH
& NEPHEW PLC

       

      
      

      DEFERRED
BONUS PLAN

      


      
        	
                1.

              	
                DEFINITIONS
      & INTERPRETATION

              


      

      


      
        	
              	
                1.1
      

              	
                In
      this Plan, the following words and expressions shall have, where the
      context so admits, the meanings set out
below:

              


      

      


      
        	 	
                “ABP”

              	
                The
      Annual Bonus Plan.

              
	 	 	 
	 	
                “ADS”

              	
                An
      American Depository Share.

              
	 	 	 
	 	
                “Award”

              	
                An
      award under this Plan which is either subsisting or is proposed
      to be granted and which shall be:

              
	 	 	 
	 	 	
                (A)  a
      Deferred Award; or

              
	 	 	 
	 	 	
                (B)  
      in
      such other form as the Committee shall determine
      as has substantially similar purpose or effect,
      over
      such number of Shares as determined by the Committee
      on the Award Date in accordance with Schedule
      1; and

              
	 	 	
              
	 	 	
                “Award” will include any
      outstanding proportion thereof.

              
	 	 	 
	 	
                “Award
      Date”

              	
                The
      date the Grantor grants an Award under Rule 2.1.

              
	 	 	 
	 	
                “Bonus
      Award”

              	
                The
      amount of the annual bonus before the deduction of any
      taxes, national insurance or other social taxes that the
      Committee determines that it would have paid to an Eligible
      Employee under the ABP in respect of a financial
      year if the Eligible Employee had not participated
      in this Plan.

              
	 	 	 
	 	“Board”
      	
                The
      board of directors for the time being of
  the

              


      

      


      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      
        	 	 	
                Company
      or a duly authorised committee thereof.

              
	 	 	 
	 	
                “Committee”

              	
                Either:

              
	 	 	 
	 	 	
                (A) 
      in relation to an Award to executive directors of the Company
      or members of the senior management team,
      including the Company Secretary, the Remuneration
      Committee; or

              
	 	 	 
	 	 	
                (B)  
      in relation to an Award to other employees, such other
      duly authorised committee of the Board as may
      be appointed from time to time.

              
	 	 	 
	 	
                “Company”

              	
                Smith
      & Nephew plc registered in England and Wales under
      No 003243357.

              
	 	 	 
	 	
                “Control”

              	
                The
      meaning given by Section 840 of ICTA.

              
	 	 	 
	 	
                “Daily
      Official List”

              	
                The
      register of listed securities and the prices of transactions
      published by the London Stock Exchange.

              
	 	 	 
	 	
                “Dealing
      Day”

              	
                Any
      day on which the London Stock Exchange is open for
      the transaction of business.

              
	 	 	 
	 	
                “Deferred
      Award”

              	
                Subject
      to Rules 2.8 and 8.2, a deferred right to acquire Shares
      at no cost to the Participant.

              
	 	 	 
	 	
                “Dividend
      Payment Date”

              	
                A
      day upon which dividends are paid to holders of Shares.

              
	 	 	 
	 	
                “Eligible
      Employee”

              	
                Any
      person who at the Award Date:

              
	 	 	 
	 	 	
                (A) 
      was
      during the preceding Financial Year, a participant
      in the ABP; and

              
	 	 	 
	 	 	
                (B)  
      has been designated by the Committee as a Participant
      in the Plan;

              
	 	 	 
	 	“Employees’ Share
      Scheme”	
                The
      meaning given by Section 1166 of the
Companies

              


      

      


      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      
        	 	 	
                Act 2006.

              
	 	 	 
	 	
                “Exchange
      Period”

              	
                The
      period specified below (provided that if more than one
      period applies, the relevant period shall be the last period
      to expire):

              
	 	 	 
	 	 	
                (i)
      in a case falling within Rule 6.1.1, 6
      months starting with the time
      when the relevant company obtains control of the Company
      or the Group Member;

              
	 	 	 
	 	 	
                (ii)
      in a case falling with Rule 6.1.2, 6 months starting with
      the time when the Court sanctions the compromise or
      arrangement; or

              
	 	 	 
	 	 	
                (iii)
      in a case falling within Rule 6.1.3, the period during which
      the acquiring company remains so bound or entitled.

              
	 	 	 
	 	
                “Executive
      Share Plan”

              	
                An
      Employees’ Share Scheme in which participation is discretionary
      (for the avoidance of doubt, excluding any Sharesave
      Plan or Share Incentive Plan).

              
	 	 	 


      

      
        	 	
                “Financial
      Year”

              	
                A
      financial year of the Company.

              
	 	 	 
	 	
                “Grant
      Period”

              	
                The
      period of 42 days commencing on the day after any of
      the following days:

              
	 	 	 
	 	 	
                (A) 
      the
      day on which the Plan is adopted by the Company;

              
	 	 	 
	 	 	
                (B)  
      the
      day on which the Company makes an announcement
      of its results for the last preceding
      financial year,
      half-year or other period;

              
	 	 	 
	 	 	
                (C)  
      any
      day on which the Committee resolves that exceptional
      circumstances exist which justify
the

              


      

      


      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      
        	 	 	
              	 


      

       

      
        	 	 	
                making
      of an Award;

              
	 	 	 
	 	 	
                (D)  
      any
      day on which changes to the legislation affecting
      Executive Share Plans is proposed or made;
      or

              
	 	 	 
	 	 	
                (E)  
      the
      date of commencement of an Eligible Employee's
      employment with a Participating Company
      provided that the Eligible Employee is not
      already employed by a Participating Company,
      but only in respect of that Eligible Employee

              
	 	 	 
	 	 	
                PROVIDED
      THAT if by reason of primary or secondary legislation,
      regulation or government directive or by reason
      of any agreement to which the Company is or may
      be a party, the Grantor is restricted from making an Award
      under the Plan during the period specified above the
      relevant Grant Period shall be 42 days commencing on
      the day after the restriction is lifted.

              
	 	 	 
	 	
                “Grantor”

              	
                (i)
      The
      Company or any other entity which has agreed
      to grant Awards under the Plan.

              
	 	 	 
	 	
                “Group
      Member”

              	
                A
      Participating Company or body corporate which is (within
      the meaning of Section 1159 of the Companies Act
      2006) the Company’s holding company or a

                Subsidiary
      of the Company’s holding company.

              
	 	 	 
	 	
                “ICTA”

              	
                The
      Income and Corporation Taxes Act 1988.

              
	 	 	 
	 	
                “ITEPA”

              	
                The
      Income Tax (Earnings and Pensions) Act 2003.

              
	 	 	 
	 	
                “London
      Stock Exchange”

              	
                London
      Stock Exchange plc or any successor body carrying
      on the business of the same.

              
	 	 	 
	 	
                “Market
      Value”

              	
                In
      relation to a Share on any day:

              
	 	 	 
	 	 	
                (A) 
      if
      and so long as the Shares are listed on the London
      Stock Exchange, their closing
quotation

              


      

      


      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      
        	 	 	
                (as
      derived from the Daily Official List) for the immediately preceding
      Dealing Day, or the average of the closing quotations over the three
      immediate preceding Dealing Days; or

              
	 	 	 
	 	 	
                (B)  
      in any other case, their market value as determined in accordance with
      Part VIII of the Taxation of Chargeable Gains Act 1992 or similar non-UK
      legislation.

              
	 	 	 
	 	 	
                In
      relation to an ADS on any day, the closing quotation as listed on the New
      York Stock Exchange, for the immediately preceding Dealing Day or if the
      Committee determines, the average of the closing quotations over the three
      immediate preceding Dealing Days.

              
	 	 	 
	 	
                “National
      Insurance Election”

              	
                The
      meaning given in the definition of “Tax Liability”.

              
	 	 	 
	 	
                “New
      York Stock Exchange”

              	
                The
      New York Stock Exchange Group, Inc. or any successor body carrying
      on the business of the same.

              
	 	 	 


      

      
        	 	
                “Participant”

              	
                Any
      Eligible Employee to whom an Award has been granted,
      or (where the context so admits) the personal representative
      of any such person.

              
	 	 	 
	 	
                “Participating
      Company”

              	
                (A) 
      The
      Company; and

              
	 	 	 
	 	 	
                (B)  
      any
      other company which is under the Control of
      the Company and is a Subsidiary of the Company
      except one which the Committee has designated
      shall not be a
      Participating Company.

              
	 	 	 
	 	
                “Plan”

              	
                The
      Smith & Nephew plc Deferred Bonus Plan as amended
      from time to time.

              


      

      


      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      
        	 	
                “Recognised Investment

                Exchange”

              	
                The
      meaning given by the Financial Services and Markets
      Act 2000.

              
	 	 	 
	 	
                “Relevant
      Company”

              	
                The
      meaning given in the definition of Tax Liability

              
	 	 	 
	 	
                “Remuneration
      Committee”

              	
                The
      remuneration committee of the Company.

              
	 	 	 
	 	
                “Rules”

              	
                The
      rules of the Plan as amended from time to time.

              
	 	 	 
	 	
                “Share”

              	
                A
      fully paid ordinary share in the capital of the Company,
      or where the context so admits, an ADS.

              
	 	 	 
	 	
                “Share
      Incentive Plan”

              	
                A
      share incentive plan approved under Schedule 2 to ITEPA.

              
	 	 	 
	 	
                “Sharesave
      Plan”

              	
                A
      savings related share option plan approved under Schedule
      3 to ITEPA.

              
	 	 	 
	 	
                “Subsidiary”

              	
                The
      meaning given by Section 1159 of the Companies Act
      2006.

              
	 	 	 
	 	
                “Tax
      Liability”

              	
                A
      liability, on the part of the Company, the Trustees or any
      other Group Member (the “Relevant Company”) to
      account
      for any tax, national insurance, social security or other
      levy in respect of an Award for which the person entitled
      to the Award is liable, whether by reason of grant,
      Vesting, or otherwise, including for the avoidance of
      doubt but without limitation:

              
	 	 	 
	 	 	
                (A)
      any
      liability to pay secondary class 1 national insurance
      contributions for which an agreement or
      election (“National
      Insurance Election”) has
      been entered into under paragraph 3A or 3B of
      Schedule 1 to the Social Security Contributions
      and Benefits Act 1992; and

              
	 	 	 
	 	 	
                (B) 
      any
      liability arising after termination of a Participant’s
      employment for whatever reason and
      which may arise or be incurred in
any

              


      

      


      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

      
        	 	
                jurisdiction
      whatever, and by the law of the same
      jurisdiction may or shall be recovered from
      the person entitled to the Award,

              
	 	 
	 	
                but
      subject to (A) above, not including any secondary class
      1 national insurance contributions.

              
	 	 
	
                “Taxes
      Act”

              	
                The
      Income and Corporation Taxes Act 1988.

              
	 	 
	
                “Treasury
      Shares”

              	
                Any
      Shares bought and held by the Company in accordance
      with Section 162A(3) of the Companies Act 1985
      (as amended).

              
	 	 
	
                “Trustees”

              	
                The
      trustee or trustees of the time being of any employee benefit
      trust established for the benefit of all or substantially
      all of the Eligible Employees.

              
	 	 
	
                “United
      Kingdom
      Authority”

              	
                Listing The Financial
      Services Authority, acting as the competent
      authority for listing in the UK.

              
	 	 
	
                “Vest”

              	
                In
      relation to a Deferred Award, the point at which a Participant
      first becomes entitled to the Shares, cash or other
      assets comprised in the Award and “Vesting” and
      “Vested” shall be
      construed accordingly.

              
	 	 
	
                “Vesting
      Date”

              	
                The
      date on which an Award Vests.

              


      

       

      
        	
              	
                1.2
      

              	
                Words
      and expressions not otherwise defined above have the same meanings they
      have in the Taxes Act or ITEPA (as the case may
  be).

              


      

      


      
        	
              	
                1.3
      

              	
                Reference
      in the Rules of the Plan to any statutory provisions are to those
      provisions as amended, extended or re-enacted from time to time, and shall
      include any regulations made
thereunder.

              


      

      


      
        	
              	
                1.4
      

              	
                The
      headings in the Rules are for the sake of convenience only and should be
      ignored when construing the Rules.

              


      

      


      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

      
        	
                2.

              	
                GRANT
      OF AWARDS

              


      

      


      
        	
              	
                2.1
      

              	
                The
      Grantor may during a Grant Period grant an Award to such Eligible
      Employees as it may in its absolute discretion
  determine.

              


      

      


      
        	
              	
                2.2
      

              	
                The
      grant of an Award or the delivery of any Shares following Vesting shall be
      subject to obtaining any approval or consent required under any applicable
      laws, regulations or governmental authority and the requirements of the
      United Kingdom Listing Authority and any other Recognised Investment
      Exchange on which the Shares are
traded.

              


      

      


      
        	
              	
                2.3
      

              	
                The
      Grantor will execute a legally binding document on the grant of an Award
      which may be in respect of an individual Award or any number of Awards
      granted at the same time. As soon as reasonably practicable after the
      Award Date, the Grantor shall issue to each Participant a certificate in
      respect of the Award which may be under the autographic or facsimile
      signature of an officer of the Company and in such form as the Grantor may
      prescribe from time to time. Unless the Grantor determines otherwise, such
      certificate must state:

              


      

       

      
        	
              	
                2.3.1
      

              	
                the
      number of Shares comprised in an
Award;

              


      

      


      
        	
              	
                2.3.2
      

              	
                the
      vesting provisions of the Award;

              


      

      


      
        	
              	
                2.3.3
      

              	
                the
      Award Date;

              


      

      


      
        	
              	
                2.3.4
      

              	
                whether
      an Award shall include the right to receive an amount equal in value to
      the dividends payable on the number of Shares subject to the Award
      (excluding any Shares subject to the Award acquired pursuant to this rule
      2.3.4). This amount may be paid in cash or Shares (as determined from time
      to time by the Committee). The Committee shall also determine when this
      amount shall be paid to
Participants.

              


      

      


      
        	
              	
                2.4
      

              	
                No
      payment by the Participant shall be required on grant of an
      Award.

              


      

       

      
        	
              	
                2.5
      

              	
                An
      Award shall be personal to the Participant to whom it is granted and shall
      not be transferable or in any way alterable without the prior written
      consent of the Committee and such transfer shall be subject to such
      conditions as the Committee may prescribe at that time except that, on the
      death of a Participant, an Award may be transmitted to his personal
      representatives.

              


      

      


      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

      
        	
              	
                2.6
      

              	
                A Participant may surrender his Award in whole or in part by
      notice in writing to the Secretary of the Company within 30 days of the
      Award Date. If this happens, the Award will, to the extent surrendered, be
      deemed for all purposes never to have been granted. No consideration is
      payable for the surrender.

              


      

      


      
        	
              	
                2.7
      

              	
                The
      Grantor may make the Vesting of an Award conditional upon an Eligible
      Employee agreeing to enter into a National Insurance
    Election.

              


      

      


      
        	
              	
                2.8
      

              	
                The
      Grantor may grant an Award at the outset to acquire cash or other assets
      which on Vesting, in the case of a Deferred Award delivers an amount to
      the Participant equivalent to the Market Value of the Shares on the
      Vesting Date in respect of which the Deferred Award Vests, and is
      otherwise subject to the Rules which shall be interpreted in such manner
      as the Grantor reasonably determines is necessary to give effect to this
      Rule 2.8.

              


      

      


      
        	
                3.

              	
                TERMINATION OF
      EMPLOYMENT

              


      

      


      
        	
              	
                3.1
      

              	
                Subject
      to Rules 3.2 and 3.3 below, an Award which has not Vested will lapse on
      the date a Participant ceases to hold office or employment with a Member
      of the Group.

              


      

      


      
        	
              	
                3.2
      

              	
                Where
      a Participant ceases to hold office or employment with a Group Member as a
      result of:-

              


      

       

      
        	
              	
                3.2.1
      

              	
                illness,
      injury or disability;

              


      

      


      
        	
              	
                3.2.2
      

              	
                redundancy
      within the meaning or the Employment Rights Act 1996 (or applicable
      equivalent foreign legislation);

              


      

      


      
        	
              	
                3.2.3
      

              	
                the
      company which employs him ceasing to be a Group
  Member;

              


      

      


      
        	
              	
                3.2.4
      

              	
                the
      transfer or sale of the undertaking or part undertaking in which he works
      to a person who is not a Group
Member;

              


      

      


      
        	
              	
                3.2.5
      

              	
                retirement
      by agreement with his employer;

              


      

      


      
        	
              	
                3.2.6
      

              	
                any
      other reason as determined by the Committee in its absolute
      discretion;

              


      

      


      his Award
will continue and vest in accordance with the provisions of the Award
certificate, unless the Committee determines that it will Vest in full on such
earlier date as the Grantor in its absolute discretion determines.

      


      
        	
              	
                3.3

              	
                If a Participant dies his Award
      will Vest on the date of
death.

              


      

      


      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      
        	
              	
                3.4
      

              	
                For the purposes of this Rule 3 and of Rule 4 below, a
      Participant shall not be treated as ceasing to hold office or employment
      with a Group Member until he has ceased to hold office or employment with
      any Group Members.

              


      

      


      
        	
              	
                3.5
      

              	
                For
      the purposes of the Plan, a woman on maternity leave will not cease to
      hold an office or employment until the earlier of the date on which she
      notifies her employer of her intention not to return or the date on which
      she ceases to have statutory or contractual rights to return to
      work.

              


      

      


      
        	
                4.

              	
                LAPSING OF
      AWARDS

              


      

      


      
        	
              	
                4.1
      

              	
                An
      Award shall lapse on the earliest
of:

              


      

      


      
        	
              	
                4.1.1
      

              	
                the
      tenth anniversary of the Award
Date;

              


      

      


      
        	
              	
                4.1.2
      

              	
                subject
      to Rules 3.2 and 3.3 the Participant ceasing to hold office or employment
      with any Group Member;

              


      

      


      
        	
              	
                4.1.3
      

              	
                where
      Rule 5.6 applies the expiry of the Exchange
  Period;

              


      

      


      
        	
              	
                4.1.4
      

              	
                the
      Participant being deprived of the legal or beneficial ownership of the
      Award by operation of law or being declared bankrupt, unless the Committee
      in its absolute discretion determines otherwise;
  and

              


      

      


      
        	
              	
                4.1.5
      

              	
                the
      Participant purporting to transfer or dispose of his Award or any rights
      in respect of it other than as permitted under Rule
  2.5.

              


      

      


      
        	
                5.

              	
                TAKEOVER RECONSTRUCTION AND
      WINDING UP

              


      

      


      
        	
              	
                5.1
      

              	
                Subject
      to Rules 5.2 and 5.6 if any person makes
either:

              


      

      


      
        	
              	
                5.1.1
      

              	
                a
      general offer to acquire the whole of the issued ordinary share capital of
      the Company (which is either unconditional or made on a condition such
      that if it is satisfied the person making the offer will have Control of
      the Company); or

              


      

      


      
        	
              	
                5.1.2
      

              	
                a
      general offer to acquire all the Shares in the Company which are of the
      same class as the Shares,

              


      

      


      (in
either case disregarding any Shares already owned by it or by any company
associated with it), Awards shall Vest on the earliest of:

      


      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      
        	
              	
                (A)
      

              	
                the date (being prior to the date on which the person making
      the offer under Rule 5.1.1 or 5.1.2 obtains Control of the Company) on
      which the Committee resolves that, in its reasonable opinion, to do
      otherwise would result in a loss of a corporation tax deduction pursuant
      to Schedule 23 of the Finance Act 2003;
or

              


      

      


      
        	
              	
                (B)
      

              	
                the
      time when the person making the offer has obtained Control of the Company
      and any condition subject to which the offer was made has been
      satisfied.

              


      

      


      For the
purpose of this Rule 5.1 a person shall be deemed to have obtained Control of
the Company if he and others acting in concert (as defined by the City Code on
Take-overs and Mergers) with him have together obtained Control of
it.

      


      
        	
              	
                5.2
      

              	
                Subject
      to Rule 5.6
      if any person becomes bound or entitled to acquire Shares
      under Sections 979 to 982 of the Companies Act 2006, Awards shall Vest on
      the date on which that person first becomes so bound or
      entitled.

              


      

      


      
        	
              	
                5.3
      

              	
                If
      under Section 899 of the Companies Act 2006 the Court sanctions a
      compromise or arrangement between the Company and its members which if
      effective would result in a person obtaining Control of the Company or
      where the Committee determines that Participants could be unfairly
      disadvantaged if Awards did not Vest, subject to Rule 5.6, the Award will
      Vest on the date of such compromise or arrangement being
      sanctioned by the Court;

              


      

      


      
        	
              	
                5.4
      

              	
                If
      notice is duly given of a resolution for the voluntary winding-up of the
      Company, the Company shall notify all Participants. Awards will Vest and
      may be exercised, in each case conditionally on the resolution being duly
      passed.

              


      

      


      
        	
              	
                5.5
      

              	
                If
      the Committee becomes aware that the Company is expected to be, or has
      been, affected by any demerger, dividend in specie, super dividend or
      other transaction which, in the opinion of the Committee, could affect (or
      has affected) the current or future value of any Award, the Committee may,
      acting fairly, reasonably and objectively, allow an Award to Vest to such
      extent and subject to such conditions as it
  determines.

              


      

      


      
        	
              	
                5.6
      

              	
                If
      as a result of events specified in Rules 5.1, 5.2, 5.3 or Rule 12 another
      company (the "Acquiror") obtains
      Control of the Company; and

              


      

       

      
        	
              	
                5.6.1
      

              	
                immediately
      after the Acquiror obtains Control, the issued ordinary share capital of
      the Acquiror is owned substantially by the same persons who were
      equity

              


      

      


      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

      shareholders of the Company immediately prior to the Acquiror
obtaining Control; and


      


      
        	
              	
                5.6.2
      

              	
                the
      Acquiror agrees to grant New Awards in accordance with Rule 6.1 in
      consideration for the release of any Awards which have not
      lapsed

              


      

      


      Awards
will not Vest. Instead Awards will be exchanged in accordance with Rule
6.

      


      
        	
                6.

              	
                EXCHANGE OF AWARDS FOLLOWING
      TAKEOVER, ETC.

              


      

      


      
        	
                6.1
      

              	
                If
      a company:

              


      

      


      
        	
              	
                6.1.1
      

              	
                obtains
      Control of the Company in accordance with Rule 5.1;
  or

              


      

      


      
        	
              	
                6.1.2
      

              	
                obtains
      Control of the Company under a compromise or arrangement sanctioned by the
      court under Section 899 of the Companies Act 2006;
  or

              


      

      


      
        	
              	
                6.1.3
      

              	
                becomes
      bound or entitled to acquire Shares under Sections 979 to 982 of the
      Companies Act 2006.

              


      

      


      during
the Exchange Period any Participant may, by agreement with the relevant company,
or where Rule 5.6 applies, must, release any Award which has not lapsed (the
"Old Award") in
consideration of the grant to him of an award (the "New Award") which relates to
shares in a different company (whether the company which has obtained Control of
the Company or the Group Member itself or some other company). In the case of a
demerger, a New Award may be granted in respect of an appropriate part of an Old
Award.

      


      
        	
                6.2
      

              	
                Where
      Rule 6.1 applies, the provisions of the Plan shall for this purpose be
      construed as if:

              


      

      


      
        	
              	
                6.2.1
      

              	
                the
      New Award were an award granted under the Plan at the same time as the Old
      Award;

              


      

      


      
        	
              	
                6.2.2
      

              	
                except
      for the purpose of the definition of "Participating Company" in Rule 1.1
      as if the reference to Smith & Nephew plc in the definition of the
      “Company” in Rule 1.1 were a reference to the different company mentioned
      in Rule 6.1;

              


      

      


      
        	
                7.

              	
                VESTING OF
      AWARDS

              


      

      


      
        	
                7.1

              	
                Subject to Rules 4, 5 and 6 an
      Award will Vest in accordance with the Award
      certificate.

              


      

      


      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

      
        	
                8.

              	
                SATISFYING
      AWARDS

              


      

      


      
        	
                8.1
      

              	
                Subject
      to Rules 2.2, 2.8, 8.2, 9, 10 and 11, after an Award has Vested, the
      Grantor will procure the transfer of the Vested Shares to the Participant
      within 30 days of the Vesting Date.

              


      

      


      


      
        	
                8.2
      

              	
                Subject
      to Rules 2.8, 9 and 10, the Committee may, within 30 days of the Vesting
      Date, determine that Shares may not be transferred to the Participant. If
      this occurs, Awards will be satisfied in cash, within 30 days of such
      determination.

              


      

      


      
        	
                9.
      

              	
                RESTRICTION
      ON GRANT AND SATISFYING AWARDS

              


      

      


      No Award
may be granted, released, surrendered or Vest at a time when such grant,
release, surrender or Vest would not be in accordance with the “Model Code on
Directors’ Dealings in Securities” issued by the UK Listing Authority as amended
from time to time.

      


      
        	
                10.
      

              	
                TAX
      LIABILITY

              


      

      


      
        	
                10.1
      

              	
                The
      Participant shall be responsible for and shall indemnify the Relevant
      Company (as defined in the definition of “Tax Liability”) against any Tax
      Liability. Without prejudice to Rule 10.2 below, the Relevant Company may
      withhold any amounts from the Participant’s net pay for the relevant pay
      period or make such arrangements as are necessary to satisfy any Tax
      Liability.

              


      

      


      


      
        	
                10.2
      

              	
                In
      the event that any Tax Liability arises on the Vesting of an Award, the
      Participant will be deemed to have given irrevocable instructions to the
      Company’s brokers (or any other person acceptable to the Company) for the
      sale of sufficient Shares acquired on Vesting of the Award to realise an
      amount equal to the Tax Liability and the payment of that amount to the
      Relevant Company, unless

              


      

      


      
        	
              	
                10.2.1
      

              	
                the
      Relevant Company decides to, and is able to, deduct an amount equal to the
      whole of the Tax Liability from the Participant’s net pay for the relevant
      pay period; or

              


      

       

      
        	
              	
                10.2.2
      

              	
                the
      Participant has paid to the Relevant Company an amount equal to the Tax
      Liability; or

              


      

      


      
        	
              	
                10.2.3
      

              	
                the
      Committee determines otherwise.

              


      

      


      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

      


      
        	
                11.

              	
                TRANSFER OF SHARES

              


      

      


      
        	
                11.1
      

              	
                Awards
      may not be satisfied by the issue of new Shares or the transfer of
      Treasury Shares until such time as the Company has approved such issue or
      transfer in general meeting. Following such approval, the rules will be
      amended accordingly.

              


      

      


      
        	
                11.2
      

              	
                The
      Company shall procure that sufficient Shares are available for transfer
      (whether by the Trustees or otherwise) to satisfy all outstanding Awards
      over Shares.

              


      

      


      
        	
                11.3
      

              	
                Shares
      transferred pursuant to the Plan will rank equally in all respects with
      the Shares then in issue, except that they shall not rank for any right
      attaching to Shares by reference to a record date preceding the effective
      date of transfer.

              


      

      


      
        	
                11.4
      

              	
                Any
      Shares acquired on the Vesting of Awards will be subject to the articles
      of association of the Company from time to
time.

              


      

      


      
        	
                12.

              	
                ADJUSTMENTS

              


      

      


      
        	
                12.1
      

              	
                The
      number of Shares subject to an Award shall be adjusted in such manner as
      the Remuneration Committee shall determine following any capitalisation
      issue, any offer or invitation made by way of rights, subdivision,
      consolidation, reduction or other variation in the share capital of the
      Company, demerger, dividend in specie, super dividend or other corporate
      event which in the reasonable opinion of the Remuneration Committee
      justifies such an adjustment.

              


      

      


      
        	
                12.2
      

              	
                The
      Grantor may take such steps as it may consider necessary to notify
      Participants of any adjustment made under this Rule 12 and to call in,
      cancel, endorse, issue or reissue any certificate consequent upon such
      adjustment.

              


      

      


      
        	
                13.

              	
                ADMINISTRATION

              


      

      


      
        	
                13.1
      

              	
                The
      Plan shall be administered by the Committee. The Committee shall have full
      authority, consistent with the Plan, to administer the Plan, including
      authority to interpret and construe any provision of the Plan and to adopt
      such regulations for administering the Plan as it may deem necessary or
      appropriate. Decisions of the Committee shall be final and binding on all
      parties.

              


      

       

      
        	
                13.2
      

              	
                Any
      notice or other communication in connection with the Plan may be given by
      personal delivery or by sending the same by electronic means or by
      post;

              


      

      


      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

       

      
        	
              	
                13.2.1
      

              	
                in the case of a company to its registered office (for the
      attention of the company secretary);
and

              


      

      


      
        	
              	
                13.2.2
      

              	
                in
      the case of an individual:

              


      

      


      
        	
              	
                (A)
      

              	
                by
      e-mail or fax to any e-mail address or fax number which according to the
      records of his employing company is used by him;
  and

              


      

      


      
        	
              	
                (B)
      

              	
                in
      the case of postal delivery to his last known address, or, where he is an
      officer or employee of a Group Member, either to his last known address
      according to the records of his employing company or to the address of the
      place of business at which he performs the whole or substantially the
      whole of the duties of his office or
employment.

              


      

      


      
        	
              	
                13.2.3
      

              	
                Where
      a notice or other communication is given by post, it shall be deemed to
      have been received 72 hours after it was put into the post properly
      addressed and stamped, and if by electronic means when the sender receives
      an electronic confirmation of delivery or if not available 24 hours after
      sending of the notice.

              


      

      


      
        	
                13.3
      

              	
                The
      Company may distribute to Participants copies of any notice or document
      normally sent by the Company to the holders of
  Shares.

              


      

      


      
        	
                13.4
      

              	
                If
      any award certificate is worn out, defaced or lost, it may be replaced on
      such evidence being provided as the Grantor may
  require.

              


      

      


      
        	
                13.5
      

              	
                The
      Participating Companies shall bear the costs of administering the Plan in
      such proportions as may be determined by the
  Company.

              


      

      


      
        	
                13.6
      

              	
                The
      Company and any Subsidiary of the Company may provide money to the
      Trustees or any other person to enable them or him to acquire Shares to be
      held for the purpose of the Plan, or enter into any guarantee or indemnity
      for those purposes, to the extent permitted by Section 153 of the
      Companies Act 1985. In addition, the Company may require any Subsidiary of
      the Company to enter into such other agreement or agreements to require
      such Subsidiary of the Company to reimburse the Company for any other
      amounts paid by the Company under the Plan, directly or indirectly in
      respect of such Subsidiary's
employees.

              


      

      


      
        	
                14.
      

              	
                CHANGING
      THE PLAN

              


      

      


      
        	
                14.1
      

              	
                The
      Remuneration Committee may at any time (but only with the prior consent of
      the Trustees, if there are subsisting Awards which they have granted or
      agreed to satisfy which

              


      

      


      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

       

      will be affected by the alteration or addition) alter or add to all
or any of the provisions of the Plan in any respect.

      


      
        	
                14.2
      

              	
                No
      alteration shall be made to the Plan, if following the alteration the Plan
      would cease to be an Employees' Share
Scheme.

              


      

      


      
        	
                14.3
      

              	
                Notwithstanding
      any other provision of the Plan other than Rule 14.1, the Remuneration
      Committee may establish separate plans mirroring the terms of the Plan for
      the purpose of granting Awards to overseas Eligible Employees, subject to
      such modifications as may be necessary or desirable to take account of or
      to mitigate or to comply with relevant taxation, securities or exchange
      control laws provided that the terms of Awards granted to such Eligible
      Employees are not overall materially more favourable than the terms of
      Awards granted to other Eligible
Employees.

              


      

      


      
        	
                14.4
      

              	
                As
      soon as reasonably practicable, the Grantor shall give notice of any
      alteration or addition under Rule 14 to any Participant materially
      affected.

              


      

      


      
        	
                14.5
      

              	
                No
      alteration, deletion or addition under Rule 14 shall require the consent
      of any person unless expressly provided for in these
  Rules.

              


      

      


      
        	
                15.
      

              	
                LEGAL
      ENTITLEMENT

              


      

      


      
        	
                15.1
      

              	
                The
      Plan shall not form part of a Participant’s employment contract or terms
      and conditions of employment. Furthermore, nothing in the Plan, or in any
      instrument executed pursuant to it shall confer on any person any right to
      continue in employment, nor will it affect the right of any provider of
      any service relationship to terminate the employment of any person without
      liability at any time with or without cause, nor will it impose upon the
      Grantor or any other person any duty or liability whatsoever (whether in
      contract, tort, or otherwise howsoever) in connection
  with:

              


      

      


      
        	
              	
                15.1.1
      

              	
                the
      lapsing of any Award pursuant to the
Plan;

              


      

      


      
        	
              	
                15.1.2
      

              	
                the
      failure or refusal to exercise any discretion under the Plan;
      and/or

              


      

      


      
        	
              	
                15.1.3
      

              	
                a
      Participant ceasing to be a person who has a service relationship for any
      reason whatever.

              


      

      


      
        	
                15.2
      

              	
                Awards
      shall not (except as may be required by taxation law) form part of the
      emoluments of individuals or count as wages or remuneration for pension or
      other purposes.

              


      

      


      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

       

      
        	
                15.3
      

              	
                Any person who ceases to be an officer or employee with any
      Group Member as a result of the termination of his employment for any
      reason and however that termination occurs, whether lawfully or otherwise,
      shall not be entitled and shall be deemed irrevocably to have waived any
      entitlement by way of damages for dismissal or by way of compensation for
      loss of office or employment or otherwise to any sum, damages or other
      benefits to compensate that person for the loss or alteration of any
      rights, benefits or expectations in relation to any Award, the Plan or any
      instrument executed pursuant to
it.

              


      

      


      
        	
                15.4
      

              	
                Nothing
      in the Plan shall be deemed to give any Eligible Employee any right to
      participate in the Plan.

              


      

      


      
        	
                16.

              	
                GENERAL

              


      

      


      
        	
                16.1
      

              	
                The
      Plan shall terminate upon the tenth anniversary of its adoption by the
      Board or at an earlier time by the passing of a resolution by the
      Committee. Termination of the Plan will be without prejudice to the
      subsisting rights of Participants.

              


      

      


      
        	
                16.2
      

              	
                These
      Rules shall be governed by and construed in accordance with the laws of
      England. Any person referred to in this Plan submits to the exclusive
      jurisdiction of the English courts.

              


      

       

      
        	
                17.

              	
                DATA
      PROTECTION

              


      

      


      
        	
                17.1
      

              	
                By
      participating in the Plan the Participant consents to the holding and
      processing of personal data provided by the Participant to any Group
      Member, Trustee or third party service provider for all purposes relating
      to the operation of the Plan. These include, but are not limited
      to

              


      

       

      
        	
              	
                17.1.1
      

              	
                administering
      and maintaining Participant
records;

              


      

      


      
        	
              	
                17.1.2
      

              	
                providing
      information to trustees of any employee benefit trust, registrars, brokers
      savings carrier or other third party administrators of the
      Plan;

              


      

      


      
        	
              	
                17.1.3
      

              	
                providing
      information to future purchasers of the Company or the business in which
      the Participant works; and

              


      

      


      
        	
              	
                17.1.4
      

              	
                the
      transfer of information about him to persons to jurisdictions outside the
      European Economic Area that may not provide the same statutory protection
      as his home country.

              


      

      


      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

         

      

      SCHEDULE
1

      


      


      The
number of Shares subject to an Award granted to an Eligible Employee shall be
calculated in accordance with the following formula:

      


      
        	 	
                N

              	=
      (BA
      x P)/MV
	 	 	 
	
                Where

              	
                N

              	
                =
      the number of Shares subject to an Award;

              
	 	 	 
	 	
                BA

              	
                =
      the Bonus Award, any currency conversion taking place at the mid-market
      spot
      rate for the relevant currency at the close of business on the business
      day preceding
      the Award Date, as published by the Financial Times (or such other 
      date
      as the Committee, in its absolute discretion deems
      reasonable);

              
	 	 	 
	 	
                P

              	
                =
      the percentage of a Bonus Award which is to be deferred into Shares under
      this
      Plan;

              
	 	 	
              
	 	
                MV

              	
                =
      the Market Value of a Share on the Award
Date.

              


      

      


      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

         

      

      SCHEDULE
2

      
 

      


      US
ADDENDUM

      


      
        	
                1.

              	
                DEFINITIONS

              


      

      


      The words
and expressions used in this US Addendum which have capital letters have the
same meanings they have in the Rules of the Plan to which this US Addendum is
attached.

      


      For the
purpose of this US Addendum the following words shall have the following
meaning:

      


      “Tax Year”
shall mean the year that begins
on 1 January and ends on 31
December.

      


      
        	
                2.

              	
                AMENDMENTS
      TO THE PLAN

              


      

      


      The
purpose of this US Addendum is to benefit Eligible Employees who areresident in
the United States of America, or who are subject to taxation under the laws of
the United States of America. This US Addendum applies to any Award specified as
having been granted subject to it terms and conditions.

      


      For the
purpose of Awards granted under this US Addendum, the Rules of the Plan shall
apply as amended below:

      
 

      TERMINATION
OF EMPLOYMENT

      


      Rules 3.2
and 3.3 shall be deleted and replaced as follows:

      


      
        	
                3.2

              	
                If
      a Participant ceases to hold office or employment with a Group Member as a
      result of :

              


      

       

      
        	
              	
                i.

              	
                death;

              


      

      


      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

       

      
        	
              	
                ii.
      

              	
                redundancy (within the meaning of the Employment Rights Act
      1996) or applicable equivalent foreign
  legislation;

              


      

      


      
        	
              	
                iii.
      

              	
                a
      company ceasing to be a Group Member or the transfer of an undertaking or
      part of an undertaking to a person who is not a Group
    Member;

              


      

      


      
        	
              	
                iv.
      

              	
                retirement
      by agreement with the company which employs him;
  or

              


      

      


      
        	
              	
                v.
      

              	
                any
      other reason as determined by the Grantor in its absolute
      discretion;

              


      

      


      an Award
which has not Vested in accordance with Rule 3.2 on the date of his cessation of
office or employment shall Vest on the date of such cessation.

      


      
        	
                3.3
      

              	
                If
      a Participant suffers injury, illness or disability and as a result the
      Grantor determines that the Participant is likely to cease employment with
      the Group (as evidenced in each case to the satisfaction of the Grantor),
      the Grantor may determine that his Award will Vest on the date of such
      determination.

              


      

      


      Where an
Award Vests in accordance with Rule 3.2 or 3.3, Shares will be transferred to
the Participant within two and a half months following the end of the calendar
year in which such Vesting occurs.

      


      For the
purposes of the Plan, if the Grantor so determines, a Participant will not be
treated as ceasing to hold an office or employment with a Group Member if such
Participant is on an extended leave of absence, until the earlier of the date on
which he notifies his employer of his intention not to return or the date on
which he ceases to have any statutory or contractual rights to return to
work.

       

      23