Document:

Service Agreement of David Illingworth

 Exhibit 4 (c) (ii) 
 Dated    29 June 2007     
 EMPLOYMENT AGREEMENT 
 BETWEEN 
 (1) SMITH & NEPHEW UK LIMITED 
 And 
 (2) DAVID J. ILLINGWORTH 

 DATE OF EMPLOYMENT AGREEMENT            29 June
2007             
 PARTIES 
  

	(1)	SMITH & NEPHEW UK LIMITED whose registered office is at 15 Adam Street, London WC2N 6LA ("We") 

  

	(2)	DAVID J. ILLINGWORTH, of Flat 4, 47 Albemarle Street, London W1S 4JW ("You") 

  

	A	This Agreement sets out the terms and conditions that apply to your employment with us with effect from 1 July 2007. We also have a staff handbook that contains provisions
relevant to your employment. If there is any conflict between that handbook and this Agreement, however, this Agreement prevails. 

  

	B	Your employment with us is dependent upon You having a valid work permit. We will fund any costs relating to the renewal of your work permit or permanent residence application.

  

	C	The final section of the Agreement sets out definitions and general provisions that apply throughout the Agreement. 

  

	D	You confirm that by entering into this Agreement and working for us that You are not in breach of any obligation to any third party or of any court order. 

 

	E	You also confirm that You have disclosed to us in writing details of all previous criminal convictions (other than those that are spent). 

  

 INDEX 
  

			
	 Section
	 	 Description

	1	 	Your Job
	2	 	Your Remuneration
	3	 	Protecting the Company Whilst You Are Employed
	4	 	Discipline and Grievance.
	5	 	Sickness and Absence from Work
	6	 	Termination of Employment
	7	 	Protecting the Company After Your Employment Has Ended
	8	 	Miscellaneous and General Provisions

  

 SECTION ONE: YOUR JOB 
  

	1.	THE APPOINTMENT 

  

	1.1	You are employed by us as Chief Executive of Smith & Nephew UK Limited. For statutory purposes, You have been continuously employed by us since May 1 2002.

  

	1.2	As part of your employment duties, You will also be appointed to the position of Chief Executive of Smith & Nephew plc. Your continuing appointment in accordance with all
other main board appointments of Smith & Nephew plc, is at the will of the parties, and is subject to the articles of association of Smith & Nephew plc. For the avoidance of any doubt, the provisions of Section 6 of this
Agreement (in relation to Termination of Employment) will apply to your main board appointment. 

  

	1.3	You must comply with all of our rules, regulations, policies and procedures. 

  

	1.4	You must carry out all the assigned duties and functions consistent with your role; exercise all the powers and comply with all our instructions in connection with the business that
we reasonably require. You must use your reasonable endeavours to promote our interests. 

  

	1.5	You must devote the whole of your working time and attention to the duties assigned to You and You must well and faithfully serve the Company and the Group, except as agreed by the
board of Smith & Nephew plc. 

  

	1.6	If we ask You for any information or explanations about your employment or our business or affairs, You must give it to us as soon as reasonably practicable (in writing if
required). 

  

	1.7	You must comply with any restrictions that we may properly impose on You or other directors. In particular, You must not without our written consent: 

  

	 	(a)	Incur any capital expenditure or liability on our behalf in excess of the authorisation limits that have been set for You; and 

  

	 	(b)	Enter into any contract or obligation on our behalf that is outside the normal course of our business or your duties or is of an unusual, onerous or long-term nature.

  

	1.8	If we ask, You will accept any directorship, trusteeship or other position of responsibility in the Group that we may reasonably require which is generally consistent with your
role. 

  

	2.	HOURS OF WORK 

  

	2.1	Our normal office hours are currently 9 am to 5 pm Monday to Friday but You are expected to work whatever hours we reasonably require of You. 

  

	2.2	We acknowledge that (as a managing executive) the duration of your working time is not measured or predetermined or You can determine it yourself. Nevertheless, if the Working Time
Regulations 1998 do govern your working hours, You agree that if we need You to do so that You will work in excess of an average 48 hour working week and that You therefore agree to opt-out of the 48 hour average limit set out in those Regulations.
If the law in future permits, You agree that your average working hours should be measured against whatever reference period we may reasonably decide should apply. 

  

	3.	PLACE OF WORK 

  

	3.1	Your normal place of work is 15 Adam Street, London WC2N 6LA. You may be required to work elsewhere within the United Kingdom at the request of the Board, subject to the Company
reimbursing You in respect of all reasonable relocation expenses. 

  

	3.2	You are required to travel worldwide as part of your duties. 

  

	3.3	For the purposes of Part I of the Employment Rights Act 1996, it is not expected that You will be required to work outside the United Kingdom for more than one month at a time.

  

 SECTION TWO: ABOUT YOUR REMUNERATION 
  

	4.	SALARY 

  

	4.1	Your basic annual salary is £675,000 or such other rate as may from time to time be agreed by You and us in writing. This accrues daily and is payable in equal monthly
instalments in arrears on or before the last working day of each month. 

  

	4.2	Your salary will be reviewed by the Chairman not less than annually on or about 1 April. We are not under any obligation to increase it at each review but it shall not be reduced.

  

	4.3	There is no additional remuneration for any directorship, trusteeship or other position of responsibility that You may hold in the Group. 

  

	4.4	Every three months You will be able to advise us no later than one month before the appropriate payroll date of the percentage amount of net pay (after all deductions) that You wish
to be paid by us in US $. The exchange rate from £ sterling to US$ to be used will be the “spot” rate on the date of payment each month. The percentage will remain the same until You advise us differently, 

 

	5.	SENIOR EXECUTIVE BONUS SCHEME 

  

	5.1	You are eligible to participate in the Group Executive Bonus Scheme. Full details have been sent to You under separate cover. The scheme is performance-based and for target
achievement the current bonus payment is 65% of basic salary; for Outperformance the current maximum bonus payment is 100% of basic salary. 

  

	6.	EXECUTIVE STOCK INCENTIVE PLANS 

  

	6.1	You are eligible to participate in the Executive 2004 Stock Incentive Plans (“the 2004 Plans”), and any successor plan(s), at the discretion of the board of
Smith & Nephew plc. The 2004 Plans comprise a Performance Share Plan, a Share Option Plan and a Co-Investment Plan. 

  

	6.2	We will provide You with an additional top-up award partly under the 2004 Performance Share Plan and partly under Listing Rule 9.4.2 so that 150% of the new base salary will have
been awarded in total for the year 2007, and an additional top-up award under the 2004 Share Option Plan so that 100% of the new base salary will have been awarded in total for the year 2007. The performance conditions applying to these top-up
awards will be those applying to the awards made in March 2007. 

  

	6.3	We will provide You with a special restricted stock award to be made under Listing Rule 9.4.2 to the value of £500,000 vesting on 31 December 2009. Vesting will be
subject to achieving EIP metrics such that 100% of the award will be payable on achievement of 300bps margin improvement on the 2006 basis of 20.5% (being the market expectation) with 50% payable at target at 80% of this (i.e. 240 bps) and a pro
rata in between. This is total margin including original business plan, EIP and Plus and would be adjusted by the Remuneration Committee as appropriate for material acquisitions/divestments. 

  

	7.	EMPLOYEE SHARE OPTION SCHEME 

  

	7.1	You are eligible to join the savings related Employee Share Option Scheme. Further details will be sent to You under separate cover. 

  

	8.	COMPANY CAR 

  

	8.1	You will be provided with benefits in accordance with the Smith & Nephew UK Car Policy. Details of approved drivers and insurance cover are as follows:

  

	 	(a)	Approved drivers: Company cars may be driven by the designated company car driver, his / her spouse, children over 21, any other authorised nominated driver, and any
other Smith & Nephew employee who is a company car driver or is on the list of Approved Drivers. Nominated drivers must hold a valid full UK driving licence, and must have received prior company authorisation.

  

 The car holder’s children may only drive company cars provided they are aged over 21 and have held
a full driving licence for one year. They should at all times be accompanied by one parent with the exception of legitimate business use, e.g. dropping off at airports, medical emergencies. 
 It is a requirement that any employees entitled to a company car must sign a Driver Obligation Form prior to driving a company car. 
 Any variation to the above arrangements can only be authorised by the Company Secretary of Smith & Nephew plc by written request. 
  

	 	(b)	Insurance cover: Employees are responsible for taking care of their assigned vehicle and its contents. 

 The insurance policy arranged by the company covers all company car drivers, their spouses, and other authorised nominated drivers and any children over
21, subject to the conditions above. All company cars are insured for comprehensive cover, including third party, fire and theft. A copy of the insurance certificate will normally be issued every year. 
 The insurance cover relates only to company cars, and not to any other personal vehicle, whether or not being used on company business. 
 Any personal loss will be covered only to a maximum of (under current policy) £100. Any claim above this amount should be made through the
employee’s home or personal insurance. 
 In the event of accidents, damage, theft or vandalism occurring that is due wholly or in part
to the employee’s negligence, then the employee may be subject to company disciplinary procedures. 
  

	 	(c)	The current company car lease value for your position is £1,155 per month. Examples of cars currently at this level are: 

  

											
	 Jaguar XJ type
	  	Mercedes S320 series	  		  	
	 BMW 750 series
	  	Audi A8	  		  	

 You can trade-up, and down (in which case You would receive the difference between the car lease
value and the actual cost of the vehicle as cash less Tax and National Insurance). 
 If You select the option of a company car You will be
reimbursed for the cost of business and private mileage (except that used for annual holidays) or receive a monthly petrol allowance of under current policy £100 less tax and national insurance. 
  

	 	(d)	Company car cash alternative: You are eligible to choose cash payments as an alternative to a company car. The allowance is not pensionable, but is subject to tax and
national insurance. Each cash alternative “contract” will last for a minimum period of 12 months. 

 You are entitled
to reimbursement of petrol costs for business and private mileage (unless incurred during any holiday period) as if You had opted for a company car. This is paid at the prevailing standard reimbursement rate through payroll, less tax and national
insurance. 
  

	8.2	You will be provided with a car and driver when necessary for company business. 

	9.	PENSIONS, LIFE ASSURANCE AND INCOME PROTECTION 

  

	9.1	Pensions, Life Assurance and Income Protection policy is subject to continuous review by the board of Smith & Nephew plc and the Remuneration Committee and may be amended
from time to time at their discretion. However, You shall be eligible for cover under any such schemes or policies from time to time in force for the benefit of directors and senior executives. 

  

	9.2	Normal retirement age is 62. 

  

	9.3	Pension Plan 

 You will be provided with an
employer pension contribution equivalent to 30% of base salary. We will discuss with You alternative methods of pension provision but the ultimate mode of delivery will be at our sole discretion and could include contribution to a UK registered
scheme, US or alternative international Plan, an unfunded reserve or payment as a non-pensionable non-bonusable cash supplement. 
  

	9.4	Life Assurance 

 We will provide You with life
assurance cover under the Smith & Nephew Stakeholder Group Death in Service Plan and an Excepted Life Policy (the "Death in Service Plan"). The cover is provided through an insurance company (the "relevant insurer"). The benefit provided on
death in service is (subject to the terms of the relevant insurer) 7 x base salary, of which 4 x will be paid as a lump sum to your dependants and 3 x will be used to purchase a pension for your dependants. 
  

	9.5	Income Protection 

 Subject to the provisions below,
we will make provision for an Income Protection Plan provided by an insurance company (the "relevant insurer") offering an income protection benefit, whilst You are an employee, of 75% of base pay (including any State Invalidity Benefits) in the
event that You are unable to work due to sickness or injury after an initial period of absence of 26 weeks. 
  

	9.6	Your participation in the Income Protection Plan is subject always to the rules of the relevant insurer's scheme for the time being in force (details of which are available from
Human Resources) and to the approval of the relevant insurer. In the event that the relevant insurer declines to provide or continue to provide benefits, as the case may be, under the Income Protection Plan, we shall not be liable to provide any
benefit or compensation in lieu thereof. Further, we shall be entitled at any time (after giving You reasonable notice and reasonable assistance in implementing alternative arrangements) to terminate the Income Protection Plan or the Death in
Service Plan or your participation in it and/or to withdraw or change the rules or benefits of the Income Protection Plan or the Death in Service Plan provided that such variation withdrawal or termination applies to all our employees who are
employed at a comparable level to You, in which case we shall not be liable to provide any benefit or compensation in lieu thereof. It is a condition of your participation and continuing participation that You agree to undergo any medical
examinations that might be required from time to time. 

  

	10.	PRIVATE MEDICAL INSURANCE 

  

	10.1	Private health cover is provided from the date of joining for yourself, and if applicable, your spouse and any of your unmarried children who are under age 21 (or under age 24 if in
full-time education). 

  

	10.2	We will also arrange for you to be covered in the out of area section of the Medical Plan in which you currently participate. 

  

	11.	FINANCIAL ADVICE 

  

	11.1	We will pay for the provision of specific tax advice in respect of the US tax years up to and ending 31 December 2008 and UK tax years up to and ending 5 April 2009.

  

	11.2	We will also pay £5,000 each year for ongoing financial advice. 

  

	12.	TRANSITION PAYMENT 

  

	12.1	We will pay You £50,000 in respect of the expenses incurred in transitioning from the US to the UK. 

  

	13.	CLUB MEMBERSHIP 

  

	13.1	For business reasons, we will pay reasonable joining and membership fees for a Home Counties golf club for You and your wife. 

  

	14.	UK ACCOMMODATION 

  

	14.1	We will pay your rent and fund utility bills and Council tax until 30 June 2008 whilst you are in rented accommodation. 

  

	14.2	You will be entitled to assistance with the purchase of a UK Property in line with our UK Domestic Relocation policy, details of which have been provided to You.

  

	15.	HOLIDAYS 

  

	15.1	Our holiday year runs from 1 January to 31 December. In addition to bank holidays, You are entitled to 25 days’ paid holiday in each holiday year.

  

	15.2	Holidays accrue pro-rata in each holiday year. 

  

	15.3	Holidays must be taken at times agreed with the Chairman. Holidays may not be carried forward from one holiday year to the next without our approval. There is no pay in lieu of
untaken holiday at the end of the holiday year. 

  

	15.4	We may decide whether or not any holiday that You have taken forms part of your entitlement under the Working Time Regulations. Unless we decide otherwise, it is assumed that
holidays accruing under those Regulations are taken first. 

  

	15.5	It may be necessary to set aside a certain number of days each year to cover the closure of the office at the Christmas and New Year periods and You will be informed if this is the
case. 

  

	16.	EXPENSES 

  

	16.1	We will reimburse You for all business expenses that are properly and reasonably incurred and claimed by You in accordance with our expenses policy. Expense claims must be supported
by whatever receipts or vouchers we require. 

  

	16.2	If we make a company credit card available to You, You must: 

  

	 	(a)	Take good care of it and immediately report if it is lost or stolen; 

  

	 	(b)	Only use the card for our business and in accordance with any applicable policy; and 

  

	 	(c)	Surrender it immediately on our request. 

 SECTION
THREE: PROTECTING THE COMPANY WHILST YOU ARE EMPLOYED 
  

	17	GENERAL DUTIES 

  

	17.1	At all times during your employment (including any period of suspension or while on garden leave) You are subject to a duty of goodwill, trust and confidence, exclusive service and
good faith towards us. Without limitation, these duties require that You must not: 

  

	 	(a)	compete with the Group; 

  

	 	(b)	make preparations (during hours when You are required to work) to compete with the Group after your employment has terminated; 

  

	 	(c)	solicit business from customers or potential customers of the Group; 

  

	 	(d)	encourage employees to leave employment with the Group against the Group’s wishes; and/or 

  

	 	(e)	copy information relating to the Group for a purpose other than for the benefit of the Group. 

  

	17.2	If You receive any approach from a third party to You, as Chief Executive of Smith & Nephew plc, to discuss a change of ownership or a significantly enhanced stake in
Smith & Nephew plc You will be required to discuss such an approach with the Chairman of Smith & Nephew plc before any response is made to the third party concerned. 

  

	17.3	As a director, You must notify the Board, the board of Smith & Nephew plc and the board of any other Group company of which You are a member, immediately if You act (or
omit to act) in a way that may amount to a breach of your obligations to the Group or if You become aware of or suspect any wrongdoing on the part of Group staff or contractors or any acts (or omissions) of third parties which might reasonably be
expected to be harmful to the Group. 

  

	18.	OTHER INTERESTS 

  

	18.1	You must devote all of your working time to the Group. You must not undertake any activity or do anything that might reasonably be expected to affect the full and proper performance
of your duties unless we agree first. Without limitation, You must not undertake any other employment or hold any other office without our prior formal agreement (such agreement not to be unreasonably withheld). 

  

	18.2	You may invest in publicly traded competitors or suppliers, provided the investment does not exceed 3 per cent in nominal value or, in the case of securities not having a
nominal value, in number, of any class of securities issued by a company, and is formally pre-authorised by the Chairman of the board of Smith & Nephew plc. Ownership of a substantial amount of stock, however, in a publicly traded
competitor or ownership of an interest in a privately held company that competes with Smith & Nephew is prohibited. 

  

	18.3	You confirm that You have informed us (and will continue to keep us informed) of any conflict that may exist between your (or your immediate family’s) interests and those of
the Group. 

  

	18.4	You are not entitled to receive any discount, rebate, commission or other benefit in respect of business carried out by the Group (whether carried out by You or not) and You must
immediately disclose to and account to us for any such benefit if You do receive it. 

  

	18.5	You must comply with our Code of Business Principles at all times. 

  

	19.	MARKET ABUSE 

  

	19.1	You acknowledge the legal and regulatory duties that arise in relation to Inside Information (without limitation) under the Financial Services and Markets Act 2000, the Market Abuse
Directive Instrument 2005 and the Market Abuse Directive (Disclosure Rules) Instrument 2005. You agree to use your best endeavours to assist us in complying with our obligations under that and any related legislation or codes, including without
limitation the Criminal Justice Act 1993 and the Takeover Code. 

  

	19.2	You acknowledge that misuse or improper circulation of Inside Information or other Market Abuse by You may constitute a criminal offence and may render You liable to (1) a
financial penalty imposed by the FSA on You or (2) to be censured by the FSA. 

  

	19.3	If You become aware of any information that leads You to suspect that an officer or employee of the Group has carried out or may be about to carry out Market Abuse then You must
immediately notify the Group Human Resources Director or Company Secretary of Smith & Nephew plc. The provisions of this clause are without prejudice to any other legal rights or duties that You may have arising out of such circumstances
including any rights under the Public Interest Disclosure Act 1998. 

  

	19.4	You must notify the Company Secretary of Smith & Nephew plc in writing of all transactions conducted by You (or on your behalf) in our shares or derivatives or any other
financial instruments relating to our shares within 4 business days of the date on which that transaction or transactions occurred. The notification must be given in the form set out in Schedule A to this Agreement. 

  

	19.5	On execution of this Agreement, You must inform any person who is a Connected Person to You that they are a “connected person” and that they are accordingly required to
notify us if transactions are conducted by them or on their behalf in our shares or derivatives or any other financial instruments relating to our shares within 4 business days of the date on which that transaction or transactions occurred. You must
confirm to us in writing within 7 days of execution of this Agreement that You have complied with your obligations under this clause. 

  

	19.6	If a person becomes a Connected Person to You after execution of this Agreement, You must notify them immediately of that status and of their obligations to notify us of
transactions as set out in clause 19.5 above. 

  

	19.7	You must use your best endeavours to procure that any of your Connected Persons notifies the Company Secretary of Smith & Nephew plc in writing of all transactions
conducted by that Connected Person (or on their behalf) in our shares or derivatives or any other financial instruments relating to our shares within 4 business days of the date on which the transaction or transactions occurred. The notification
must be given in the form set out in Schedule B to this Agreement. 

  

	20.	CONFIDENTIAL INFORMATION 

  

	20.1	During the course of your employment, You will be exposed to information that is secret, confidential or commercially sensitive and which (if disclosed or used for purposes other
than those of the Group) could cause significant harm to the Group. In this Agreement, that information is referred to as Confidential Information and includes without limitation: 

  

	 	(a)	research and development carried out by the Group (whether or not that research is complete and including the outcome of any clinical or field trials) and potential areas of
research and development identified by the Group; 

  

	 	(b)	details of any applications for regulatory approval or clearance for any products or services developed by the Group; 

  

	 	(c)	the Group's intellectual property (except where this is not protected by patent or equivalent protection); 

  

	 	(d)	the Group's manufacturing techniques and methods and ideas for manufacturing techniques and methods; 

  

	 	(e)	the Group's marketing and sales strategies and plans; 

  

	 	(f)	potential acquisitions and disposals by the Group; 

  

	 	(g)	the Group's financial and sales performance; 

  

	 	(h)	information relating to the Group's employees and contractors including without limitation their perceived strengths and weaknesses, remuneration and contact details.

  

	20.2	You must not use, disclose or permit to be used or disclosed (other than in the performance of your duties or as required by law) any Confidential Information. This restriction
applies both during the course of your employment and following its termination except in relation to Confidential Information which has come into the public domain other than by virtue of a breach of duty by You. 

  

	20.3	You acknowledge that in the ordinary course of your employment, You will have access to Inside Information. You agree that all Inside Information is confidential and must not be
used, disclosed or permitted to be used or disclosed except as may be necessary for the proper performance of your duties to us and in accordance with the requirements of the Market Abuse Directive or the law. 

  

	20.4	The provisions of this Agreement are without prejudice to any duties and obligations of confidentiality to which You may be subject at common law or equity.

  

	20.5	You must use due care and diligence in making or issuing any press statement or giving any interview to a journalist or publishing or submitting for publication any article or
opinion relating directly or indirectly to the Group. 

  

	20.6	You must not at any time make any untrue or misleading statement in relation to the Group. 

  

	21.	INTELLECTUAL PROPERTY 

  

	21.1	Due to the nature of your duties and your particular responsibilities, You recognise that You have a special obligation to further the interests of the Group.

  

	21.2	You must disclose to us at once any idea or invention created in the manner prescribed by sections 39(1) and 39(2) of the Patents Act 1977. Any such inventions will then be dealt
with in accordance with the provisions expressed in that Act. 

  

	21.3	You acknowledge that all trade marks, registered designs, design rights, copyright, database rights and other intellectual property rights (together, where registrable with the
right to apply for registration of those rights, aside from those described in clause 18.2) will vest in and be our exclusive property or any of the Group Companies which we nominate if they come into existence during the normal course of your
employment or by using materials, tools or knowledge made available through your employment. This applies regardless of whether those rights are in existence now or come into existence at any time in the future. If required to do so (whether during
or after the termination of your employment), You must sign any document and do anything necessary to vest ownership in these rights in the Group as sole beneficial owner. Where ownership does not automatically vest by Act of Parliament, You must
immediately assign all your interests to the Group. You irrevocably waive all your rights pursuant to sections 77 to 83 inclusive of the Copyright Designs and Patents Act 1988. 

 SECTION FOUR: DISCIPLINE AND GRIEVANCE 
  

	22.	You must comply with our disciplinary rules. Failure to do so is a serious breach of this Agreement. A copy of our disciplinary rules may be obtained from the Group Human Resources
Director. 

  

	23.	The disciplinary procedure is referred to in the staff handbook. That procedure does not form part of this Agreement nor does it give rise to any contractual rights as between You
and the Group. If You are dissatisfied with any disciplinary decision taken against You, You may appeal to the Chairman of the board of Smith & Nephew plc within 5 working days. 

  

	24.	If You have any grievance relating to your employment, You should raise it in the first instance with the Chairman of the board of Smith & Nephew plc and, if You so elect
or are so requested, with the Group Human Resources Director in accordance with our grievance procedure. 

  

	25.	We have the right to suspend You with full pay and benefits at any time to allow us to conduct a disciplinary investigation or if your dismissal is being contemplated. Suspension
may be for such period as is reasonably necessary in the circumstances and shall not normally exceed 7 days. 

 SECTION
FIVE: SICKNESS AND ABSENCE FROM WORK 
  

	26.	INCAPACITY 

  

	26.1.	If You are unable to attend work due to sickness or accident, You must inform the Company Secretary of Smith & Nephew plc on the first morning of absence, or as soon as is
reasonably possible. 

  

	26.2.	If your absence is for a period of 1 working day or more You will need to provide a self-certification form, obtainable from the Human Resources Department. This will cover You for
a maximum of 7 calendar days, after which a doctor’s statement is required. 

  

	26.3.	If You are absent from work owing to illness or injury You will be entitled to salary during the period of absence in accordance with the following scale. All such payments will be
subject to deduction of Statutory Sick Pay or National Insurance Sickness Benefit receivable. 

  

			
	 Length of Continuous Service
	  	 Payment entitlement in any 12 month period

	0 - 3 years	  	6 months full pay
		
		  	6 months half pay
		
	After 3 years	  	12 months full pay

  

	26.4.	Your sick pay entitlement is based on your service at the beginning of the sickness period. 

  

	26.5.	The table set out in 26.3 also indicates the maximum sick pay entitlement payable in respect of one period of continuous absence as determined by our standard Company policy. This
policy statement should be read in conjunction with Clauses 9.5 and 9.6 (Income Protection) which in your case may provide a higher level of benefit. 

  

	26.6.	Your entitlement to salary under the Company’s sick pay scheme includes any benefit from the Income Protection Plan where appropriate. 

	26.7.	At our request You will agree to undergo a medical examination performed by a doctor appointed and paid for by us. You authorise the Board and the Board of Smith & Nephew
plc to have access to any reports produced as a result of that examination provided that You are also shown copies of the same. 

 SECTION SIX: TERMINATION OF EMPLOYMENT 
  

	27	NOTICE 

  

	27.1	We have to give You twenty four months’ notice in writing to terminate your employment before 30 June 2009. We will have to give You twelve months’ notice in writing
to terminate your employment thereafter. 

  

	27.2	If You want to resign, You must give us six months’ notice in writing. 

  

	27.3	We may terminate your employment immediately and without any entitlement to notice under 27.1 or compensation if: 

  

	 	(a)	You are guilty of gross misconduct or gross negligence; 

  

	 	(b)	without reasonable cause, You neglect, omit or refuse to perform all or any of your duties or obligations under this Agreement or You fail to any substantial or material extent to
observe and perform the provisions of this Agreement to our reasonable satisfaction provided always that where such matters are capable of remedy, we shall not terminate pursuant to this clause unless and until we have given You 28 days’
written notice of the relevant matter requiring You to remedy the same and You have failed to do so; or 

  

	 	(c)	You misconduct yourself whether during or outside the course of your duties under this Agreement in such a way that in our reasonable opinion our business, operation, interests or
reputation of that of the Group are or are likely to be, prejudicially affected provided always that where such misconduct is capable of remedy so as to avoid such prejudicial effect, we shall not terminate pursuant to this clause unless and until
we have given You 28 days’ written notice of the misconduct requiring You to remedy the same and You have failed to do so; or 

  

	 	(d)	You commit any criminal offence (including in particular any offence involving dishonesty or violence) other than an offence which does not in our reasonable opinion affect your
position under this Agreement; or 

  

	 	(e)	You commit an offence under any statutory enactment or regulation or any provision of this Agreement relating to insider dealing or market abuse (whether that enactment was passed
in the United Kingdom or United States of America or elsewhere); or 

  

	 	(f)	You become bankrupt or make or attempt to make any composition with your creditors; or 

  

	 	(g)	You become prohibited by law from being a director of a company or You cease to be a director of a Group Company without our consent or concurrence; or 

  

	 	(h)	You are guilty of any deliberate act of discrimination, harassment or victimisation on grounds of race, sex, disability, sexual orientation, religion/religious belief or age.

  

	28	GARDEN LEAVE 

  

	28.1	During any period of notice, and provided that we continue to pay your salary and provide the benefits to which You are entitled under this Agreement until your employment
terminates, then we are entitled at our absolute discretion during the remaining period of your notice period (or any part of such period) to place You on garden leave provided always that You shall not be placed on garden leave for a period (or
periods in aggregate) exceeding six months. This means that we may require You: 

  

	 	(a)	not to carry out all or part of your duties or to exercise your powers or responsibilities under this Agreement or require You to carry out alternative duties;

  

	 	(b)	to resign immediately from any offices You may hold with the Group; 

  

	 	(c)	not to attend your place of work or any other Group premises; 

  

	 	(d)	not to have contact (including socially) with any suppliers or customers of the Group or with employees (other than socially) except as authorised by us; 

 

	 	(e)	to return to us all documents, computer disks and other property (including summaries, extracts or copies) belonging to the Group or to its or their customers;

  

	 	(f)	to work from your home and/or to carry out exceptional duties or special projects outside the normal scope of your duties and responsibilities provided always that such special
projects are appropriate to your status, skills and experience; and/or 

  

	 	(g)	to take or not to take all or part of any outstanding holiday during your notice period. 

  

	29	CORPORATE GOVERNANCE AND PHASED PAYMENTS 

  

	29.1	Following a decision to terminate your employment (except in the circumstances defined under 27.3) the Remuneration Committee may use its discretion to determine not to
require You either to work out your notice period in full (as provided for in clause 27.1 above) nor to place You on garden leave (as provided for in clause 28 above). In such circumstances the Remuneration Committee may determine to pay a
sum equivalent to all of the salary and benefits (including the proportion of bonus) You would have received if we had required You to work during your notice period. In deciding whether to exercise that discretion the Remuneration Committee will
take into account all relevant circumstances including the Group’s policy not to “reward for failure”, the appropriateness of your obligation to mitigate for loss, and other relevant “corporate governance” guidelines.

  

	30	CHANGE OF CONTROL 

  

	30.1	If, within the period of 12 months after a Change of Control of Smith & Nephew plc: 

  

	(a)	there is an alteration in your responsibilities or duties without your consent so that your overall status and responsibilities are materially diminished or the capacity and role in
which You are employed is substantially altered; OR 

  

	(b)	there is a reduction in the value of your overall salary and benefits package. For these purposes Your rights under share schemes and long term incentive arrangements operated prior
to the Change of Control and the long term incentive arrangements to take effect following the Change of Control shall be disregarded; OR 

  

	(c)	the location of your place of work is changed without your prior written consent and with the result that it is no longer within a reasonable commuting distance of your home at the
time; 

 AND in addition to (a), (b) and (c) above, your employment is terminated by You, or irrespective of (a),
(b) and (c) above, by us otherwise than in accordance with clause 27 or 29 of the Service Agreement, then we shall be obliged, within one month after the date your employment so terminates, to pay You a lump sum equal to the aggregate
value of the following: 
  

	(i)	12 months’ base salary as at the date of termination; 

  

	(ii)	12 months’ worth of the bonus that You could have earned for the year in which termination occurs under the Group Executive Bonus Scheme assuming on-target performance;

  

	(iii)	the cost to us of providing your car benefits for 12 months in accordance with clause 8.1 of the Service Agreement; 

  

	(iv)	the cost to us of providing your healthcare benefits for 12 months in accordance with clause 10 of the Service Agreement; and 

  

	(v)	12 months’ pension supplement (equal to 30% of your base salary) 

 The payment shall be subject to such deductions as may be required by law and shall be in full and final settlement of any claim You may have against Smith & Nephew plc or any Group Company arising from your
employment or its termination. 
  

	30.2	In the event of a Change of Control of Smith & Nephew plc before 30 June 2009 any reference to 12 months in 30.1 is replaced by 24 months. 

  

	30.3	For the avoidance of doubt, this Clause 30 does not affect your entitlements under the 2004 Senior Executive Share Plans (meaning the Performance Share Plan, the Co-Investment Plan
and the Share Option Plan), the 2001 US Share Plan and the Share Award Agreements, used to satisfy the special awards made under Listing Rule 9.4.2. Your rights are in accordance with the rules of the relevant plan and the Share Award Agreements and
are not affected by your receipt of the above payment. 

  

	31	OTHER TERMINATION PROVISIONS 

  

	31.1	Nothing in this Agreement shall prevent us from terminating your employment on grounds of ill-health if You are unable through health reasons (in circumstances of at least 26
week’s absence) to perform your duties even though at the time your employment terminates You have not exhausted your full sick pay entitlement or the consequence of the termination would be to end your entitlement to any further payments under
the Income Protection Plan. 

  

	31.2	On termination of your employment, your entitlement to accrued holiday pay will be calculated pro-rata. If You have untaken holiday due under the Working Time Regulations on the
date your employment terminates, You will be entitled to pay in lieu of that untaken holiday (save that if You are dismissed for gross misconduct or gross negligence then that pay in lieu will be calculated at the rate of £1 per day).

  

	31.3	If your employment terminates, You agree that You will immediately (at our expense) transfer all shares held by You as a result of our asking You to hold them on our behalf, either
in trust or as a nominee, to whatever persons we direct. 

  

	31.4	On termination of your employment (or earlier if requested), You will immediately return to us all Group property in your possession or control (without keeping any copies). This
obligation extends to any copies, drafts, notes, extracts or summaries (however stored or made) of all documents and software that relate to the Group’s business. If You have stored or copied any of the Group’s data or information onto a
computer, personal organiser or other electronic storage device which does not belong to the Group then You must immediately irretrievably delete that data or information and must allow us to have access to that device to verify that the data or
information has been deleted. Provided always that You shall be entitled to retain copies of Board Minutes (and documents referred to therein) relating to any period during which You are a director of the Company. 

  

	31.5	You will immediately on termination of your employment or at any other time on request of the Board, resign immediately without claim for compensation as a director of any Group
Company or from any trusteeship, office or appointment held by You on behalf of the Group provided that You shall only be required to resign as a director of Smith & Nephew Plc on or immediately before the termination of your employment.

  

 SECTION SEVEN: PROTECTING THE COMPANY AFTER YOUR EMPLOYMENT HAS ENDED 
  

	32	CONFIDENTIALITY 

  

	32.1	The confidentiality provisions set out in clause 20 continue to apply to protect Confidential Information following the termination of your employment. 

  

	33	RESTRICTIVE COVENANTS 

  

	33.1	At any time in the period set out in Column A below, You must not carry out the activities set out in Column B. The Column B activities, however, are subject to the provisos and
limitations set out in Column C. 

  

					
	 A
 (Restricted
Period)
	  	 B (Restricted Activity)
	  	 C (Provisos and Limitations)

	6 months from the date your employment with us ends	  	Accepting employment with or engaging, assisting or being interested in any undertaking which carries out research, development or manufacturing of products or services in the fields of
orthopaedics, endoscopy and/or wound management and treatment.	  	This restriction only applies where: (a) You were materially concerned with research, development or manufacturing of that type during the last 12 months of your employment; and (b) that
undertaking competes with the Group.
			
	6 months from the date your employment with us ends	  	Accepting employment with or engaging, assisting or being interested in any undertaking which carries out marketing and/or selling of products or services in the fields of orthopaedics,
endoscopy and/or wound management and treatment.	  	This restriction only applies where: (a) You were materially concerned with marketing and selling of that type during the last 12 months of your employment; and (b) that undertaking competes
with the Group; and (c) that marketing or selling takes place in a Prohibited Territory.
			
	6 months from the date your employment with us ends	  	Soliciting orders from or being concerned with the supply of orders to any person who is a customer of the Group.	  	This restriction only applies where: (a) the orders would be supplied in a Prohibited Territory; (b) the orders relate to the supply of products or services in the fields of orthopaedics,
endoscopy and/or wound management; (c) the orders are in competition with the Group; (d) that person was someone with whom (during the last 12 months of your employment) You had personal contact or were materially concerned or about whom You
possessed confidential information; and (e) that person had been a customer in the last 12 months of your employment. The expression "customer" includes a prospective customer.

					
	6 months from the date your employment with us ends	  	Interfering or trying to interfere with the continuance of supplies to the Group or the terms on which those supplies are provided	  	This restriction only applies if the supplier is a person with whom (during the last 12 months of your employment) You had personal contact or were materially concerned or about whom You
possessed confidential information.
			
	6 months from the date your employment with us ends	  	Offering employment to an employee of the Group or persuading an employee to leave the Group.	  	This restriction only applies if: (a) the employee is engaged in an executive, managerial, sales, research or development role; and (b) during the last 12 months of your employment, You had
personal contact or were materially concerned with or possessed confidential information about the employee. The expression "employee" includes consultants, non-executive directors and contractors. It is immaterial whether or not the employee leaves
the Group in breach of contract.

  

	33.2	These covenants prevent You from doing the restricted activities yourself or in any other way. You must not do them through others acting on your behalf or on your instructions or
with your encouragement. You must not do them whether they are for your benefit or not. 

  

	33.3	The duration of these restrictive covenants shall be reduced by an amount equal to the time that You may be placed on garden leave under Clause 28 by us. 

 

	33.4	The expression "last 12 months of your employment" excludes any time spent by You on garden leave. 

  

	33.5	The expression "Prohibited Territory" means: 

  

	 	(a)	In North and South America—Canada, Mexico, Puerto Rico and the United States 

  

	 	(b)	In Europe—Austria, Belgium, Bulgaria, Croatia, Czech Republic, Denmark, Eire, Estonia, Finland, France, Germany, Hungary, Italy, Latvia, Lithuania, Netherlands, Norway,
Portugal, Russian Federation, Slovakia, Slovenia, Spain, Sweden, Switzerland, United Kingdom 

  

	 	(c)	In Asia—Brunei, China, Hong Kong, India, Indonesia, Japan, Malaysia, Myanmar, Pakistan, Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand

  

	 	(d)	In Australasia—Australia, New Zealand 

  

	 	(e)	In Middle East—United Arab Emirates 

  

	 	(f)	In Africa—South Africa 

 as well as any other country
in which (at the date your employment terminates) the Group markets or sells products or services directly or via a distributor or agent. 
  

	33.6	If the business of the Group expands beyond the fields of orthopaedics, endoscopy and wound management/treatment then the restrictive covenants in Clause 33.1 will also apply to
protect those new fields of activity. 

  

	33.7	If You apply for or are offered a new employment, appointment or engagement, You must immediately bring the terms of this Agreement to the attention of the person to whom You are
applying or the person making that offer. 

 SECTION EIGHT: MISCELLANEOUS AND GENERAL PROVISIONS 
  

	34	DEFINITIONS 

  

	34.1	In this Agreement, the following words have the following meanings: 

  

			
	Board	  	Our Board of Directors from time to time and any person or committee authorised by the Board to act as its representative for the purposes of this Agreement
		
	Change of Control	  	Change of Control shall mean the acquisition by any person (whether alone or together with any person acting in concert with him) of the Control of Smith & Nephew plc but shall not mean an
acquisition of Control of Smith & Nephew plc by another company the shares of which, immediately following such an acquisition, are all held by the holders of the shares of Smith & Nephew plc immediately prior to such an acquisition in
materially the same proportion as they held shares in Smith & Nephew plc immediately prior to such an acquisition
		
	Control	  	Control shall mean the power of any person (whether alone or together with any person acting in concert with him) to control the composition of the Board of Smith & Nephew plc or otherwise
to secure (whether by means of the holding of shares or the possession of a voting power in relation to Smith & Nephew plc) that the affairs of Smith & Nephew plc are conducted in accordance with the wishes of that person
		
	Connected Person	  	(a) Your spouse, civil partner, child or step-child under the age of 18; (b) a company or other body corporate with which You are associated; (c) a trustee of any trust of which You or any of
the persons named at (a) and (b) above are beneficiaries; (d) a person acting as your partner or the partner of any of the persons named at (a) to (c) above; (e) a Scottish firm in which You are a partner or any partner in that firm who falls within
categories (a) to (c) above or in which a partner in that firm is itself a Scottish firm in which You are a partner or one of its partners falls within categories (a) to (c) above; (f) a relative of yours who has shared the same household as You for
at least 12 months; or (g) a company or other body corporate in which You (or any person connected with You under (a) to (f) above) are either (i) a director or (ii) a senior executive who has the power to make management decisions affecting the
future development and business prospects of that company or body corporate.
		
	FSA	  	Financial Services Authority
		
	Group	  	All or any of the Group Companies
		
	Group Company	  	Smith & Nephew plc and its subsidiaries and any holding company and the other subsidiaries of that holding company (as those expressions are defined in the Companies Act 1985) together with
any associated company (which means any other company in which we or our holding company or any subsidiary of ours or our holding company beneficially holds not less than 20% of the equity share capital)
		
	 Inside
 Information
	  	As defined by s.118C of the Financial Services and Markets Act 2000 and Annex A to the Market Abuse Directive Instrument 2005 (but including without limitation information which would, if
generally available, be likely to have a significant effect on the price of our shares or derivatives or any other financial instruments relating to our shares).

			
		
	Market Abuse	  	The behaviour described in s.118 of the Financial Services and Markets Act 2000 and Annex A to the Market Abuse Directive Instrument 2005 (but including without limitation dissemination of
misleading or false information about our shares; distortion of the market in our shares; improper disclosure of Inside Information; manipulating devices and transactions in our shares; misleading behaviour in relation to our shares and misuse of
information contrary to the standards reasonably expected of a person in your position.)
		
	Remuneration Committee	  	The sub-committee of the board of Smith & Nephew plc comprising non-executive directors, responsible for setting (inter alia) the pay and benefits of the executive directors of Smith
& Nephew plc.

  

	34.2	Any reference to a statutory provision includes all re-enactments and modifications of that provision and any regulations made under it or them. 

  

	34.3	The headings in this Agreement are for convenience only. They do not form part of this Agreement and do not affect its interpretation. 

  

	34.4	Any reference in this Agreement to You, if appropriate, includes your personal representatives. 

  

	34.5	Any reference in this Agreement to we or us includes any Group Company if the context requires or if we so decide. 

  

	35	GENERAL PROVISIONS 

  

	35.1	Any provision in this Agreement which confers any rights or powers means those rights or powers as exercised by us from time to time. Those rights or powers may be exercised by the
Board or by any other person acting on our behalf and within the scope of their authority. 

  

	35.2	Any reference to any rule, regulation, policy, procedure or scheme means the rule, regulation, policy, procedure or scheme that is in force and as amended from time to time.

  

	35.3	Any rule, regulation, policy, procedure or scheme referred to in this Agreement may be varied (in whole or part) or cancelled or terminated by us at any time. We are not obliged to
give any prior warning before making that variation, cancellation or termination nor are we under any obligation to compensate You for that variation, cancellation or termination, even if You are disadvantaged (financially or otherwise) as a result.
We are not obliged to substitute a replacement rule, regulation, policy, procedure or scheme but, if we do provide a substitute, it may be on whatever terms we consider appropriate provided always that You shall be treated no less favourably than
other senior executives of comparable status to yourself under those terms. The duty of trust and confidence shall not extend to any exercise by us of the rights and powers contained in this clause. 

  

	35.4	If any scheme provider (not limited to an insurance company) or other third party refuses for any reason to provide any benefit which is set out in this Agreement (or to provide any
benefit on terms that we consider to be reasonable) in relation to You or if applicable to your spouse, partner or children then we are not liable to make any payment; provide any replacement benefit or pay compensation in lieu of that benefit. We
may in our discretion challenge any refusal (and shall not unreasonably refuse your request for such a challenge) by any scheme provider or other third party to provide benefits but, if we do, it is on condition that: 

  

	 	(a)	You take all proper measures to appeal against the refusal in accordance with any applicable scheme and meet all reasonable costs associated with that appeal;

  

	 	(b)	You co-operate fully with us and disclose all relevant personal information; 

  

	 	(c)	If required, You attend a medical examination with one or more medical practitioners selected and instructed by us; and 

  

	 	(d)	You indemnify us fully against all reasonable costs, expenses and claims incurred by us in connection with challenging that refusal. 

  

	35.5	Any provision of this Agreement which says that You must not do something means that You must not do it yourself or in any other way. You must not do it through others acting on
your behalf or on your instructions or with your encouragement. 

  

	35.6	You agree to comply with all our policies and procedures including without limitation our email and internet policy and data protection policy. 

  

	35.7	Nothing in this Agreement confers any rights on your spouse, dependants, relatives or any third party except that, for the purposes of the Contracts (Rights of Third Parties) Act
1999, the Group can enforce the restrictive covenants, confidentiality, intellectual property clauses and any other clause of this Agreement that purports to confer rights on the Group in relation to You. 

  

	35.8	Any delay by the Group or You in exercising any of its rights under this Agreement will not constitute a waiver of those rights. 

  

	35.9	You appoint us to be your attorney (in your name and on your behalf) to execute any instrument or do any thing necessary for the purpose of giving to us or our nominee the full
benefit of the provisions of clauses 21, 31.3 and 31.5 of this Agreement. You acknowledge in favour of any third party that a certificate in writing, which is signed by any director or secretary of the Board, or of the board of Smith &
Nephew plc, stating that any instrument or act falls within the authority conferred shall be conclusive evidence that such is the case. 

  

	36	DEDUCTIONS 

  

	36.1	You authorise us at any time during your employment or following its termination (whether or not that termination is lawful) to deduct from your wages (as that expression is defined
in the Employment Rights Act 1996) any monies due from You to the Group, including without limitation the outstanding balance of any loan account; the cost of repairing any damage or loss to Group property caused by You; any overpayment of holiday
pay; and any loss suffered by the Group as a result of any breach of contract, statutory duty or tort committed by You. 

  

	37	DATA PROTECTION 

  

	37.1	You consent to us processing personal data (both manually and electronically) about You for the purposes of the Data Protection Act 1998 and consent to us transferring data to
countries outside the European Economic Area for administration purposes or other purposes connected with the Employment where it is necessary or desirable for the Company or any Group Company to do so . 

  

	37.2	You agree to use all reasonable endeavours to keep us informed of any changes to your personal data and to comply with the Data Protection Act 1998. 

  

	38	COLLECTIVE AGREEMENTS 

  

	38.1	There are no collective agreements with trade unions that directly affect your terms and conditions of employment. 

  

	39	NOTICES 

  

	39.1	Any notice to be given under this agreement shall be in writing. Notices may be delivered by hand; sent by first-class post or email. In your case, a notice will be deemed to have
been validly served if it is sent to the last address that You have notified to us as being your address. In our case, any notice should be addressed to the Company Secretary of Smith & Nephew plc and should be sent to our registered office
address or to their personal email address. 

  

	39.2	Any notice served by post will be deemed to have been served 48 hours after it was posted or in the case of email, 1 hour after it was sent. 

  

	40.	TERMINATION OF PREVIOUS AGREEMENTS 

  

	40.1	This Agreement, together with any other documents referred to in this Agreement, constitutes the entire agreement and understanding between the parties, and supersedes all other
agreements both oral and in writing between You and us which shall be deemed to have been terminated by mutual consent as from the date of this Agreement. 

  

	40.2	You acknowledge that You have not entered into this Agreement in reliance upon any representation, warranty or undertaking which is not set out in this Agreement or expressly
referred to in it as forming part of your contract of employment. 

  

	41	CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999 

  

	41.1	A person who is not a party to this Agreement shall have no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any of its terms. 

  

	42	GOVERNING LAW AND JURISDICTION 

  

	42.1	This Agreement is governed by and interpreted in accordance with English law. 

  

	42.2	The parties submit to the non-exclusive jurisdiction of the High Court of England and Wales in connection with any claim, dispute or matter arising out of relating to this
Agreement. 

 IN WITNESS of which the parties have executed this Agreement on the date set out above. 
  

			
	EXECUTED AS A DEED	 	SIGNED and delivered as a deed by
	Director/Secretary	 	David J. Illingworth
		
	Signature:	 	Signature:
		
		 	in the presence of
		
	Name:	 	Signature of Witness:
		
		 	Name:
		
		 	Address of Witness:

 SCHEDULE A 
 NOTIFICATION OF TRANSACTIONS CARRIED OUT BY OR ON YOUR BEHALF 
 To: the Company Secretary, Smith & Nephew
plc, 15 Adam Street, London WC2N 6LA, United Kingdom 
  

	1	My name is
                                        
of
                                        
(address) 

  

	2	The reason why I am notifying You of this transaction is because I am a director of Smith & Nephew plc (or its subsidiary and associated companies).

  

	3	The transaction relates to Smith & Nephew plc 

  

	4	The transaction related to shares/derivatives/other financial instruments relating to shares* 

  

	5	The nature of the transaction was
                                        
(e.g. acquisition/disposal) 

  

	6	The date and place of the transaction were                     
20     at                      (location) 

  

	7	The price of the transaction was                      and the volume of
the transaction was                      (e.g. number of shares) 

 Signed: 
 Dated: 
 * = delete
as applicable 
 NB: this notification must be given to the Company Secretary of Smith & Nephew plc within no later than 4 business days
following the date of the transaction. 

 SCHEDULE B 
 NOTIFICATION OF TRANSACTIONS CARRIED OUT BY OR ON BEHALF OF A CONNECTED PERSON 
 To: the Company Secretary,
Smith & Nephew plc, 15 Adam Street, London WC2N 6LA, United Kingdom 
  

	1	My name is
                                        
of
                                        
(address) 

  

	2	The reason why I am notifying You of this transaction is because I am a connected person to
                                        
(name of director/manager at Smith & Nephew plc) 

  

	3	The transaction relates to Smith & Nephew plc 

  

	4	The transaction related to shares/derivatives/other financial instruments relating to shares* 

  

	5	The nature of the transaction was
                                        
(e.g. acquisition/disposal) 

  

	6	The date and place of the transaction were                     
20     at                      (location) 

  

	7	The price of the transaction was                      and the volume of
the transaction was                      (e.g. number of shares) 

 Signed: 
 Dated: 
 * = delete
as applicableTwelfth Waiver to Debtor-in-Possession Credit and Security Agreement

 Exhibit 4.1 
 EXECUTION VERSION 
 TWELFTH WAIVER TO DEBTOR-IN-POSSESSION CREDIT AND SECURITY AGREEMENT

 TWELFTH WAIVER, dated as of March 24, 2008 (this “Waiver”), to the Debtor-in-Possession Credit and
Security Agreement, dated as of November 19, 2007, as amended by the First Amendment and Waiver dated as of December 20, 2007 and as amended by the Second Amendment dated as of February 14, 2008, to the Debtor-in-Possession Credit and
Security Agreement (as heretofore amended or otherwise modified, the “Credit Agreement”), by and among POPE & TALBOT, INC., a Delaware corporation, as a debtor and debtor-in-possession under the US Bankruptcy Code and as a
debtor company under the CCAA (the “Parent”), POPE & TALBOT LTD., a Canadian corporation, as a debtor and debtor-in-possession under the US Bankruptcy Code, and as a debtor company under the CCAA (the
“Borrower”), the Guarantors set forth on the signature pages thereto, the several banks and other financial institutions or entities from time to time parties thereto (the “Lenders”), WELLS FARGO FINANCIAL
CORPORATION CANADA, a Nova Scotia unlimited liability company, as administrative agent (in such capacity, together with its permitted successors and assigns, the “Administrative Agent”), ABLECO FINANCE LLC, as Collateral Agent (in
such capacity, together with its permitted successors and assigns, the “Collateral Agent”), and ABLECO FINANCE LLC, as Term Loan B Agent (in such capacity, together with its permitted successors and assigns, the “Term Loan B
Agent” and together with the Administrative Agent and the Collateral Agent, each an “Agent” and collectively, the “Agents”). 
 WHEREAS, the Borrower, the Parent, the Agents and the Lenders entered into that certain Eleventh Waiver to the Credit Agreement dated as of March 7, 2008 in order to waive certain provisions of the Credit
Agreement, subject to the terms and conditions set forth therein; and 
 WHEREAS, the Agents and the Lenders are willing to enter into this
Waiver in order to waive certain provisions of the Credit Agreement, subject to the terms and conditions set forth in this Waiver. 
 NOW,
THEREFORE, the Parent, the Borrower, the Agents and the Lenders hereby agree as follows: 
 1. Capitalized Terms. Any capitalized term
used herein which is defined in the Credit Agreement shall have the meaning assigned to it in the Credit Agreement. 

 2. Limited Waivers. 
 (a) In accordance with Section 10.1 of the Credit Agreement and notwithstanding any of the provisions otherwise set forth in the
Credit Agreement, as of the Waiver Effective Date, the Majority Facility Lenders in respect of the Term Loan and the Majority Revolving Credit Facility Lenders hereby irrevocably and permanently waive any Default or Event of Default whether now
existing or hereafter arising under Section 8 (aa) of the Credit Agreement resulting from the occurrence of a Material Adverse Deviation with respect to the disbursement line items for (i) Payroll Taxes and Benefits during the week ended
March 14, 2008 and on a cumulative basis for all periods ended on or prior to March 14, 2008; (ii) Payroll during the week ended March 14, 2008; and (iii) Utilities/Energy payments during the week ended March 14, 2008.

 (b) The waiver set forth in this Section 2 shall (i) become effective after satisfaction of the conditions set
forth in Section 3, (ii) shall be effective only in this specific instance and for the specific purposes set forth herein, and (iii) does not allow for any other or further departure from the terms and conditions of the Credit
Agreement or any other Loan Document, which terms and conditions shall continue in full force and effect. 
 3. Conditions. This
Waiver shall become effective as of March 24, 2008, but only upon the satisfaction in full, in a manner reasonably satisfactory to the Agents, of the following conditions precedent (the first date upon which all such conditions have been
satisfied being herein called the “Waiver Effective Date”): 
 (a) Representations and Warranties. The
representations and warranties contained in this Waiver and in Section 4 of the Credit Agreement and in each other Loan Document, certificate or other writing delivered on or on behalf of any Loan Party to any Agent or any Lender pursuant to
the Credit Agreement or any other Loan Document on or prior to the Waiver Effective Date shall be true and correct on and as of the Waiver Effective Date as though made on and as of such date (except where such representations and warranties relate
to an earlier date in which case such representations and warranties shall be true and correct as of such earlier date). 
 (b) No Event of Default. No Default or Event of Default shall have occurred and be continuing on the Waiver Effective Date or would result from this Waiver becoming effective in accordance with its terms. 
 (c) Delivery of Documents. The Collateral Agent shall have received on or before the Waiver Effective Date the following, each in
form and substance reasonably satisfactory to the Collateral Agent and, unless indicated otherwise, dated the Waiver Effective Date: 
 (i) counterparts of this Waiver which bear the signatures of the Parent, the Borrower, the Agents and the Majority Facility Lenders in respect of the Term Loan and the Majority Revolving Credit Facility Lenders; and 
 (ii) an acknowledgment and consent, in the form attached as Exhibit A to this Waiver, duly executed by each Guarantor. 
  

 2 

 (d) Proceedings. All legal matters incident to this Waiver shall be reasonably
satisfactory to the Agents and their counsel. 
 4. Representations and Warranties. To induce the Agents and Lenders to enter into
this Waiver, each of the Parent and the Borrower hereby represents and warrants to the Agents and Lenders as follows: 
 (a)
Organization, Good Standing, Etc. Each Loan Party (i) is duly organized, validly existing and in good standing under the laws of the state or jurisdiction of its organization, (ii) has all requisite power and authority to conduct
the business in which it is currently engaged, and to execute and deliver this Waiver, and to consummate the transactions contemplated hereby and by the Credit Agreement, and (iii) is duly qualified to do business and is in good standing in
each jurisdiction in which its ownership, lease or operation of Property or the conduct of its business requires such qualification, except where the failure to be so qualified could not reasonably be expected to have a Material Adverse Effect.

 (b) Authorization, Etc. The execution, delivery and performance of this Waiver and each other Loan Document being
executed in connection with this Waiver by each Loan Party that is a party thereto, and the performance of the Credit Agreement hereby (i) have been duly authorized by all necessary action, (ii) do not and will not contravene any Loan
Party’s Constituent Documents or any applicable law or any material contractual restriction binding on or otherwise affecting it or any of its properties, (iii) do not and will not result in or require the creation of any Lien (other than
pursuant to any Loan Document) upon or with respect to any of its properties, and (iv) do not and will not result in any default, noncompliance, suspension, revocation, impairment, forfeiture or nonrenewal of any material permit, license,
authorization or approval applicable to its operations or any of its properties. 
 (c) Governmental Approvals. No
authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or other regulatory body is required in connection with the due execution, delivery and performance by any Loan Party of this Waiver or any
other Loan Document to which it is a party being executed in connection with this Waiver, or for the performance of the Credit Agreement. 
 (d) Enforceability of Loan Documents. Each of this Waiver, the Credit Agreement and each other Loan Document is a legal, valid and binding obligation of each Loan Party party thereto, enforceable against such
Loan Party in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws of general application relating to the enforcement of creditor’s rights
and by general equitable principles. 
 (e) Representations and Warranties; No Event of Default. The representations
and warranties herein, in Section 4 of the Credit Agreement and in each other Loan Document are true and correct on and as of the Waiver Effective Date as though made on and as of such date (except where such representations and warranties
relate to an earlier date in which case such representations and warranties shall be true and correct as of such earlier date), and no Default or Event of Default has occurred and is continuing as of the Waiver Effective Date or would result from
this Waiver becoming effective in accordance with its terms. 
  

 3 

 (f) Existing Indentures. No consent with respect to the execution, delivery or
performance of this Waiver is required under the Existing Indentures. 
 5. Continued Effectiveness of the Credit Agreement and Loan
Documents. Each of the Parent and the Borrower hereby (i) acknowledges and consents to this Waiver, (ii) confirms and agrees that each Loan Document to which it is a party is, and shall continue to be, in full force and effect and is
hereby ratified and confirmed in all respects, and (iii) confirms and agrees that to the extent that any such Loan Document purports to assign or pledge to the Collateral Agent for the ratable benefit of the Secured Parties, or to grant to the
Collateral Agent for the ratable benefit of the Secured Parties a security interest in or Lien on, any Collateral as security for the Obligations of any Loan Party from time to time existing in respect of the Credit Agreement and the Loan Documents,
such pledge, assignment and/or grant of the security interest or Lien is hereby ratified and confirmed in all respects. This Waiver does not and shall not affect any of the Obligations of any Loan Party, other than as expressly provided herein.

 6. Waiver as Loan Document. Each of the Parent and the Borrower hereby acknowledges and agrees that this Waiver constitutes a
“Loan Document” under the Credit Agreement. Accordingly, it shall be an Event of Default under the Credit Agreement if (i) any representation or warranty made by the Parent or the Borrower under or in connection with this Waiver shall
have been untrue, false or misleading in any material respect when made, or (ii) the Parent or the Borrower shall fail to perform or observe any term, covenant or agreement contained in this Waiver. 
 7. Miscellaneous. 
 (a) This Waiver may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original but all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of this Waiver by telefacsimile or electronic mail shall be equally effective as delivery of an original executed counterpart of this Waiver. Any party delivering an executed counterpart of this Waiver
by telefacsimile or electronic mail also shall deliver an original executed counterpart of this Waiver, but the failure to deliver an original executed counterpart shall not affect the validity, enforceability and binding effect of this Waiver.

 (b) Section and paragraph headings herein are included for convenience of reference only and shall not constitute a part of
this Waiver for any other purpose. 
 (c) The Borrower will pay on demand all reasonable fees, costs and expenses of the
Agents in connection with the preparation, execution and delivery of this Waiver and all documents incidental hereto, including, without limitation, the reasonable fees, disbursements and other charges of counsel to the Collateral Agent and the
Administrative Agent. 
  

 4 

 (d) THIS WAIVER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK. 
 (e) Any provision of this Waiver that is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. 
 THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS WAIVER OR ANY OF
THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. 
 [Signature Page Follows] 
  

 5 

 IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be executed and delivered as of the
date set forth on the first page hereof. 
  

			
	PARENT:
	
	POPE & TALBOT, INC., as a Debtor and Debtor-in-Possession under the US Bankruptcy Code and as a debtor company under the CCAA
		
	By:	 	/s/ R. Neil Stuart
		 	Name: R. Neil Stuart
		 	Title: VP & CFO
	
	BORROWER:
	
	POPE & TALBOT LTD., as a Debtor and Debtor-in-Possession under the US Bankruptcy Code and as a debtor company under the CCAA
		
	By:	 	/s/ R. Neil Stuart
		 	Name: R. Neil Stuart
		 	Title: VP & CFO
	
	COLLATERAL AGENT AND TERM LOAN B AGENT:
	
	 ABLECO FINANCE LLC,
 on behalf of itself and
its Affiliate assigns

		
	By:	 	/s/ Kevin Genda
		 	Name: Kevin Genda
		 	Title: Vice Chairman

			
	ADMINISTRATIVE AGENT AND LENDER:
	
	WELLS FARGO FINANCIAL CORPORATION CANADA
		
	By:	 	/s/ Nick Scarfo
		 	Name: Nick Scarfo
		 	Title: Vice President

			
	LENDERS:
	
	STYX PARTNERS, L.P.
		
	By:	 	Styx Associates, LLC, as its General Partner
		
	By:	 	/s/ Kevin Genda
		 	Name: Kevin Genda
		 	Title: Sr. Managing Director

			
	OHSF FINANCING, LTD.
		
	By:	 	/s/ Robert Okun
		 	Name: Robert Okun
		 	Title: Authorized Person
	
	OHSF II FINANCING, LTD.
		
	By:	 	/s/ Robert Okun
		 	Name: Robert Okun
		 	Title: Authorized Person
	
	OAK HILL CREDIT OPPORTUNITIES FINANCING, LTD.
		
	By:	 	/s/ Robert Okun
		 	Name: Robert Okun
		 	Title: Authorized Person
	
	OAK HILL CREDIT ALPHA FINANCE I, LLC
		
	By:	 	 Oak Hill Credit Alpha Fund, L.P.,
 its
Member

		
	By:	 	 Oak Hill Credit Alpha Gen Par, L.P.,
 its General
Partner

		
	By:	 	 Oak Hill Credit Alpha MGP, LLC,
 its General Partner

		
	By:	 	/s/ Robert Okun
		 	Name: Robert Okun
		 	Title: Authorized Person

			
	OAK HILL CREDIT ALPHA FINANCE I (OFFSHORE), LTD.
		
	By:	 	/s/ Robert Okun
		 	Name: Robert Okun
		 	Title: Authorized Person
	
	 LERNER ENTERPRISES, LLC (fka Lerner Enterprises, LP)

		
	By:	 	Oak Hill Advisors, L.P., as Investment Advisor for Lerner Enterprises, L.P.
		
	By:	 	/s/ Robert Okun
		 	Name: Robert Okun
		 	Title: Authorized Person
	
	OHA CAPITAL SOLUTIONS, L.P.
		
	By:	 	 OHA Capital Solutions GenPar, L.P.,
 its General
Partner

		
	By:	 	 OHA Capital Solutions MGP, LLC,
 its General Partner

		
	By:	 	/s/ Robert Okun
		 	Name: Robert Okun
		 	Title: Authorized Person
	
	OHA CAPITAL SOLUTIONS, LTD.
		
	By:	 	/s/ Robert Okun
		 	Name: Robert Okun
		 	Title: Authorized Person

			
	REGIMENT CAPITAL SPECIAL SITUATIONS FUND III, L.P.
		
	By:	 	 Regiment Capital GP, LLC,
 its General
Partner

		
	By:	 	/s/ Richard T. Miller
		 	Name: Richard T. Miller
		 	Title: Authorized Signatory

			
	DRAWBRIDGE SPECIAL OPPORTUNITIES FUND LP
		
	By:	 	 Drawbridge Special Opportunities GP LLC,
 its general
partner

		
	By:	 	 
		 	Name:
		 	Title:

			
	CREDIT GENESIS CLO 2005-1 LTD.
		
	By:	 	/s/ Maurine R. Bartlett
		 	Name: Maurine R. Bartlett
		 	Title: Partner, Cadwalader, Wickersham
		 	          & Taft LLP
		 	          Pursuant to a Power of Attorney
	
	DURHAM ACQUISITION CO., LLC
		
	By:	 	/s/ Maurine R. Bartlett
		 	Name: Maurine R. Bartlett
		 	Title: Partner, Cadwalader, Wickersham
		 	          & Taft LLP
		 	          Pursuant to a Power of Attorney

			
	HBK MASTER FUND L.P.
		
	By:	 	 HBK Investments L.P.
 its Investment
Advisor

		
	By:	 	 
		 	 Name:
 Title:

			
	BANK OF AMERICA, N.A.
		
	By:	 	/s/ Jonathan M. Barnes
		 	 Name: Jonathan M. Barnes
 Title: Vice
President

			
	 CONCORDIA PARTNERS, L.P.
 acting by and
through Concordia Advisors, L.L.C.,
 as a Lender

		
	By:	 	 
		 	 Name:
 Title:

			
	MONARCH MASTER FUNDING LTD
		
	By:	 	 Monarch Alternative Capital LP
 Its:
Advisor

		
	By:	 	/s/ Andrew Herenstein
		 	Name: Andrew Herenstein
		 	Title: Managing Principal

			
	DK ACQUISITION PARTNERS, L.P.
		
	By:	 	M.H. Davidson & Co., its General Partner
		
	By:	 	 
		 	 Name:
 Title:

			
	ABN AMRO BANK N.V., Canada Branch
		
	By:	 	/s/ Bryan J. Matthews
		 	Name: Bryan J. Matthews
		 	Title: First Vice President
		
	By:	 	/s/ David W. Stack
		 	Name: David W. Stack
		 	Title: Senior Vice President

 EXHIBIT A 
 ACKNOWLEDGMENT AND CONSENT 
 The undersigned, as a party to one or more Loan Documents, as defined in
the Debtor-in-Possession Credit and Security Agreement dated as of November 19, 2007, as amended by the First Amendment and Waiver dated as of December 20, 2007 and as amended by the Second Amendment dated as of February 14, 2008, to
the Debtor-in-Possession Credit and Security Agreement (as heretofore amended or otherwise modified, the “Credit Agreement”), by and among POPE & TALBOT, INC., a Delaware corporation, as a debtor and debtor-in-possession
under the US Bankruptcy Code (the “Parent”), POPE & TALBOT LTD., a Canadian corporation, as a debtor and debtor-in-possession under the US Bankruptcy Code, and as a debtor company under the CCAA (the
“Borrower”), the Guarantors set forth on the signature pages thereto, the several banks and other financial institutions or entities from time to time parties thereto (the “Lenders”), WELLS FARGO FINANCIAL
CORPORATION CANADA, a Nova Scotia unlimited liability company, as administrative agent (in such capacity, together with its permitted successors and assigns, the “Administrative Agent”), ABLECO FINANCE LLC, as Collateral Agent (in
such capacity, together with its permitted successors and assigns, the “Collateral Agent”), and ABLECO FINANCE LLC, as Term Loan B Agent (in such capacity, together with its permitted successors and assigns, the “Term Loan B
Agent” and together with the Administrative Agent and the Collateral Agent, each an “Agent” and collectively, the “Agents”), hereby (i) acknowledges and consents to the Twelfth Waiver dated the date
hereof (the “Waiver”, all terms defined therein being used herein defined therein) to the Credit Agreement; (ii) confirms and agrees that each Loan Document to which it is a party is, and shall continue to be, in full force and
effect and is hereby ratified and confirmed in all respects; and (iii) confirms and agrees that to the extent that any such Loan Document purports to assign or pledge to the Collateral Agent, for the benefit of the Secured Parties, or to grant
to the Collateral Agent, for the benefit of the Secured Parties, a security interest in or lien on, any collateral as security for the obligations of any Guarantor from time to time existing in respect of the Loan Documents, such pledge, assignment
and/or grant of a security interest or lien is hereby ratified and confirmed in all respects as security for, in addition to the other obligations secured thereby, all obligations of such Guarantors outstanding upon the taking effect of the Waiver.

 Dated: as of March 24, 2008 
 [signature
pages follow] 

			
	POPE & TALBOT SPEARFISH LIMITED PARTNERSHIP, as a Debtor and Debtor-in-Possession under the US Bankruptcy Code
		
	By:	 	 POPE & TALBOT LTD.,
 as a Debtor and
Debtor-in-Possession under the US Bankruptcy Code and as a debtor company under the CCAA, as its General Partner

		
	By:	 	/s/ R. Neil Stuart
		 	Name: R. Neil Stuart
		 	Title: VP & CFO
	
	PENN TIMBER, INC., as a Debtor and Debtor-in-Possession under the US Bankruptcy Code and as a debtor company under the CCAA
		
	By:	 	/s/ R. Neil Stuart
		 	Name: R. Neil Stuart
		 	Title: VP & CFO
	
	POPE & TALBOT RELOCATION SERVICES, INC., as a Debtor and Debtor-in-Possession under the US Bankruptcy Code and as a debtor company under the CCAA
		
	By:	 	/s/ R. Neil Stuart
		 	Name: R. Neil Stuart
		 	Title: VP & CFO
	
	P&T POWER COMPANY, as a Debtor and Debtor-in-Possession under the US Bankruptcy Code and as a debtor company under the CCAA
		
	By:	 	/s/ R. Neil Stuart
		 	Name: R. Neil Stuart
		 	Title: VP & CFO
	
	POPE & TALBOT PULP SALES U.S., INC., as a Debtor and Debtor-in-Possession under the US Bankruptcy Code and as a debtor company under the CCAA

			
		
	By:	 	/s/ R. Neil Stuart
		 	Name: R. Neil Stuart
		 	Title: VP & CFO
	
	POPE & TALBOT LUMBER SALES, INC., as a Debtor and Debtor-in-Possession under the US Bankruptcy Code and as a debtor company under the CCAA
		
	By:	 	/s/ R. Neil Stuart
		 	Name: R. Neil Stuart
		 	Title: VP & CFO
	
	MACKENZIE PULP LAND LTD., as a Debtor and Debtor-in-Possession under the US Bankruptcy Code and as a debtor company under the CCAA
		
	By:	 	/s/ R. Neil Stuart
		 	Name: R. Neil Stuart
		 	Title: VP & CFO

			
	P&T LFP INVESTMENT LIMITED PARTNERSHIP, as a Debtor and Debtor-in-Possession under the US Bankruptcy Code
		
	By:	 	 P&T FUNDING LTD.,
 as a Debtor and
Debtor-in-Possession under the US Bankruptcy Code and as a debtor company under the CCAA, as its General Partner

		
	By:	 	/s/ R. Neil Stuart
		 	Name: R. Neil Stuart
		 	Title: VP & CFO
	
	P&T FUNDING LTD., as a Debtor and Debtor-in-Possession under the US Bankruptcy Code and as a debtor company under the CCAA
		
	By:	 	/s/ R. Neil Stuart
		 	Name: R. Neil Stuart
		 	Title: VP & CFO
	
	P&T FINANCE ONE LIMITED PARTNERSHIP, as a Debtor and Debtor-in-Possession under the US Bankruptcy Code
		
	By:	 	 PENN TIMBER, INC.,
 as a Debtor and
Debtor-in-Possession under the US Bankruptcy Code and as a debtor company under the CCAA, as its General Partner

		
	By:	 	/s/ R. Neil Stuart
		 	Name: R. Neil Stuart
		 	Title: VP & CFO

			
	P&T FINANCE TWO LIMITED PARTNERSHIP, as a Debtor and Debtor-in-Possession under the US Bankruptcy Code
		
	By:	 	 PENN TIMBER, INC.,
 as a Debtor and Debtor-in-Possession
under the US Bankruptcy Code and as a debtor company under the CCAA, as its General Partner

		
	By:	 	/s/ R. Neil Stuart
		 	Name: R. Neil Stuart
		 	Title: VP & CFO
	
	P&T FACTORING LIMITED PARTNERSHIP as a Debtor and Debtor-in-Possession under the US Bankruptcy Code
		
	By:	 	 POPE & TALBOT PULP SALES U.S., INC.,
 as a
Debtor and Debtor-in-Possession under the US Bankruptcy Code and as a debtor company under the CCAA, as its Managing General Partner

		
	By:	 	/s/ R. Neil Stuart
		 	Name: R. Neil Stuart
		 	Title: VP & CFO
	
	P&T FINANCE THREE LLC, as a Debtor and Debtor-in-Possession under the US Bankruptcy Code and as a debtor company under the CCAA
		
	By:	 	 POPE & TALBOT LTD.,
 as a Debtor and
Debtor-in-Possession under the US Bankruptcy Code and as a debtor company under the CCAA, as its Manager

		
	By:	 	/s/ R. Neil Stuart
		 	Name: R. Neil Stuart
		 	Title: VP & CFO

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