FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of
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1934
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April 8, 2004
Commission File Number 001-14978
SMITH & NEPHEW plc
(Registrant's name)
15 Adam Street
London, England WC2N 6LA
(Address of registrant's principal executive offices)
[Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.]
Form 20-F X Form 40-F
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[Indicate by check mark if the registrant is submitting the Form 6-K in paper
as permitted by Regulation S-T Rule 101(b)(1).]
Yes No X
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[Indicate by check mark if the registrant is submitting the Form 6-K in paper
as permitted by Regulation S-T Rule 101(b)(7).]
Yes No X
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[Indicate by check mark whether by furnishing the information contained
in this Form, the registrant is also thereby furnishing information to the
Commission pursuant to Rule 12g3-2 (b) under the Securities Exchange Act of
1934.]
Yes No X
------- -------
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82- n/a.
Total Pages: 24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Smith & Nephew plc
(Registrant)
Date: April 8, 2004 By: /s/ Paul Chambers
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Paul Chambers
Company Secretary
2
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. It contains
the resolutions to be voted on at the Company's annual general meeting to be
held on Thursday 6 May 2004 at 1.00 pm. If you are in any doubt as to the
action to be taken, you should consult your stockbroker, bank manager,
solicitor, accountant or other independent financial adviser duly authorised
under the Financial Services and Markets Act 2000 (or, if you are resident
outside the United Kingdom, an appropriately qualified independent financial
adviser). If you have sold or transferred all of your shares in Smith & Nephew
plc please forward this document, together with the accompanying documents, to
the purchaser or transferee or to the stockbroker, bank or other agent through
whom the sale or transfer was effected for transmission to the purchaser or
transferee.
26 March 2004
Dear Shareholder,
Annual General Meeting 2004
The annual general meeting of the Company is to be held on Thursday 6 May
2004, at The Lincoln Centre, 18 Lincolns Inn Fields, London WC2A 3ED. The
meeting will commence at 1.00 pm and refreshments will be served beforehand
from 12.00 noon onwards.
Notice of the annual general meeting is contained on pages 2 to 4 of this
letter and a detailed explanation of the business to be conducted at the
meeting is outlined on pages 5 to 8. A separate circular explaining the
proposed senior executive share-based incentive plan (resolutions 10 to 14) is
also enclosed.
As part of the ordinary business to be conducted at the meeting, resolutions
3, 5 and 6 seek to reappoint Mr Warren Knowlton, Mr Richard De Schutter and Dr
Rolf Stomberg as non-executive directors of the Company. After evaluation and
review by the Nominations Committee, I am satisfied that each of these
directors has demonstrated commitment to his role and that, furthermore, their
performance has continued to be fully effective and beneficial to the workings
of your Board.
Your directors believe that all of the proposals set out in both this document
and the enclosed circular are in the best interests of shareholders and the
Company and recommend that you vote in favour of all the resolutions.
If you are not able to come to the meeting in person, your vote is still
important and I would urge you to complete, sign and return the enclosed form
of proxy by 1.00 pm on 4 May 2004. You may register your proxy appointment
electronically by accessing our registrar's website at www.sharevote.co.uk.
Yours sincerely,
Dudley Eustace
Chairman
[NEW BRANDING TO BE INSERTED]
Notice of Annual General Meeting
Notice is hereby given that the sixty-seventh annual general meeting of the
members of Smith & Nephew plc will be held on Thursday 6 May 2004 at 1.00 pm,
at The Lincoln Centre, 18 Lincoln's Inn Fields, London WC2A 3ED, when the
resolutions set out below will be proposed.
Resolutions
To consider and, if thought fit, to pass the following resolutions, of which
numbers 1 to 16 and 21 will be proposed as ordinary resolutions and numbers 17
to 20 as special resolutions.
Ordinary business
1 To receive and adopt the audited accounts for the year ended 31 December
2003 together with the reports of the directors and auditors thereon.
2 To declare a final dividend of 3.1 pence per ordinary share in respect of
the year ended 31 December 2003.
3 To re-elect Mr Warren Knowlton as a director of the Company.
4 To re-elect Sir Christopher O'Donnell as a director of the Company.
5 To re-elect Mr Richard De Schutter as a director of the Company.
6 To re-elect Dr Rolf Stomberg as a director of the Company.
7 To reappoint Ernst & Young LLP as auditors of the Company and to
authorise the directors to determine their remuneration.
8 To renew the directors' authorisation to allot securities granted by
article 9.2 of the Company's articles of association until the conclusion
of the annual general meeting of the Company in 2005 or 5 August 2005,
whichever is earlier, and for the purposes of article 9 of the Company's
articles of association the 'section 80 amount' for this period shall be
(GBP)33,321,078.
Special business
9 That the remuneration report of the directors for the year ended 31
December 2003 be approved.
10 That the Smith & Nephew 2004 Performance Share Plan (the 'Performance
Share Plan'), a copy of the rules of which has been produced to the
meeting and initialled by the Chairman for the purposes of identification
and a summary of the main provisions of which is set out in parts A and D
of the appendix to the shareholders' circular dated 26 March 2004, be and
is approved and established.
11 That the Smith & Nephew 2004 Executive Share Option Plan (the '2004
Option Plan'), a copy of the rules of which has been produced to the
meeting and initialled by the Chairman for the purposes of identification
and a summary of the main provisions of which is set out in parts B and D
of the appendix to the shareholders' circular dated 26 March 2004, be and
is approved and established.
12 That the Smith & Nephew 2004 Co-investment Plan (the '2004 Co-investment
Plan'), a copy of the rules of which has been produced to the meeting and
initialled by the Chairman for the purposes of identification and a
summary of the main provisions of
which is set out in parts C and D of the appendix to the shareholders'
circular dated 26 March 2004, be and is approved and established.
13 That the directors be and are authorised to exercise the powers of the
company to establish other schemes for employees resident or working
outside the United Kingdom based on the Performance Share Plan, the 2004
Option Plan and the 2004 Co-investment Plan (together 'the Principal
Schemes'), but modified to take account of local tax, exchange control
and securities law, provided that:
(a) such other schemes shall confer benefits and contain limits so as to
ensure, so far as the directors consider practicable, substantial
equality of treatment with employees participating in the Principal
Schemes, and;
(b) any shares issued or which might be issued under such other schemes
are treated as counting against the overall limitations on the issue
of new shares as set out in the Principal Schemes.
14 That the directors be and are authorised to establish the new
discretionary trust for the benefit of employees and former employees of
the Company and its subsidiaries a copy of the trust deed of which has
been produced to the meeting and initialled by the Chairman for the
purposes of identification.
15 That the directors be and are authorised to make such amendments to the
rules of the Smith & Nephew 2001 UK Approved Share Option Plan (the
'Approved Plan') as are marked on the copy of the rules produced to the
meeting and initialled by the Chairman for the purposes of identification
and which are described in the explanatory note to this resolution and to
make such further amendments to the rules of the Approved Plan as may be
necessary to maintain the approved status of the Approved Plan under the
Income Tax (Earnings and Pensions) Act 2003.
16 That the directors be and are authorised to make such amendments to the
rules of the Smith & Nephew 2001 UK Unapproved Share Option Plan as are
marked on the copy of the rules produced to the meeting and initialled by
the Chairman for the purposes of identification and which are described
in the explanatory note to this resolution.
17 That the one issued 'B' ordinary share of 12 2/9 pence be and is
reclassified as an ordinary share having the same rights and subject to
the same restrictions as the existing ordinary shares of the Company
including an entitlement to receive the same dividend as any existing
ordinary share.
18 That pursuant to section 166 of the Companies Act 1985 (the 'Act') the
Company be and is generally and unconditionally authorised to make market
purchases (within the meaning of section 163(3) of the Act) of any of its
ordinary shares of 12 2/9 pence each in the capital of the Company
('ordinary shares') provided that:
(a) the maximum number of ordinary shares that may be purchased is
93,486,408 being approximately 10 per cent of the issued ordinary
share capital as at 16 March 2004;
(b) the minimum price which may be paid for an ordinary share is 12 2/9
pence;
(c) the maximum price which may be paid for an ordinary share is an
amount equal to 105% of the average of the middle market quotations
for an ordinary share as derived from the London Stock Exchange
Daily Official List for the five business days immediately preceding
the day on which the ordinary share is contracted to be purchased;
(d) the authority hereby conferred shall expire on the earlier of the
conclusion of the next annual general meeting of the Company and 5
August 2005 (the 'Expiry Date'), unless the authority is renewed
prior to the Expiry Date;
(e) the Company may purchase ordinary shares under this authority after
the Expiry Date pursuant to a contract entered into before the
Expiry Date; and
(f) the authority hereby conferred is in substitution for any existing
authority to purchase ordinary shares under section 166 of the Act.
19 That with effect from the passing of this resolution, new articles of
association in the form contained in the articles of association produced
to the meeting and initialled by the Chairman for the purposes of
identification, be and are adopted as the articles of association of the
Company in substitution for and to the exclusion of all previous articles
of association, but without prejudice to the authorities granted under
resolutions 8 and 20.
20 That the directors' power to allot securities otherwise than to existing
shareholders pro rata to their holdings granted by article 9.3 of the
Company's articles of association adopted pursuant to resolution 19 be
and is renewed until the conclusion of the annual general meeting of the
Company in 2005 or 5 August 2005, whichever is earlier, and for the
purposes of article 9 of the Company's articles of association the
'section 89 amount' for this period shall be (GBP)5,713,057.
21 That the aggregate ordinary remuneration permitted to be paid to
non-executive directors in accordance with article 115 of the Company's
articles of association adopted pursuant to resolution 19 be and is
increased to an amount not exceeding (GBP)900,000 per year.
By order of the Board, 26 March 2004
Paul Chambers Registered office
Secretary 15 Adam Street, London, WC2N 6LA. Registered in England No.
324357
Notes
1 Only those shareholders on the register of members of the Company as at
6.00 pm on 4 May 2004 will be entitled to attend or vote at the annual
general meeting and they may only vote in respect of the number of shares
registered in their name at that time. Changes to entries on the register
of members after 6.00 pm on 4 May 2004 will be disregarded in determining
the rights of any person to attend or vote at the meeting. A member who
is unable to attend the meeting is entitled to appoint one or more
proxies (whether members or not) to attend and, on a poll, to vote
instead of him. A form for appointing a proxy is enclosed with this
Notice. To be effective, the form of proxy must be completed and reach
the Company's registrars not later than 1.00 pm on 4 May 2004. You may
also submit your proxy electronically, see proxy card for details of how
to register your vote.
2 CREST members holding their shares in uncertificated form who wish to
appoint a proxy or proxies through the CREST electronic proxy appointment
service may do so for the annual general meeting to be held on 6 May 2004
and any adjournment(s) thereof by using the procedures described in the
CREST Manual. CREST personal members or other CREST sponsored members and
those CREST members who have appointed a voting service provider(s),
should refer to their CREST sponsor or voting service provider(s) who
will be able to take the appropriate action on their behalf.
In order for a proxy appointment or instruction made using the CREST
service to be valid, the appropriate CREST message (a 'CREST Proxy
Instruction') must be properly authenticated in accordance with CRESTCo's
specifications and must contain the information required for such
instructions, as described in the CREST Manual. The message, regardless
of whether it constitutes the appointment of a proxy or relates to an
amendment to the instruction given to a previously appointed proxy, must,
in order to be valid, be transmitted so as to be received by the issuer's
agent (CREST ID 7RA01) no later than 1.00 pm on 4 May 2004. For this
purpose, the time of receipt will be taken to be the time (as determined
by the timestamp applied to the message by the CREST Applications Host)
from which the issuer's agent is able to retrieve the message by enquiry
to CREST in the manner prescribed by CREST. No messages received through
the CREST network after
this time will be accepted. After this time any change of instructions to
proxies appointed through CREST should be communicated to the appointee
through other means.
CREST members and, where applicable, their CREST sponsors or voting
service providers should note that CRESTCo does not make available
special procedures in CREST for any particular messages. Normal system
timings and limitations will therefore apply in relation to the input of
CREST Proxy Instructions. It is the responsibility of the CREST member
concerned to take (or, if the CREST member is a CREST personal member or
sponsored member or has appointed a voting service provider(s), to
procure that his CREST sponsor or voting service provider(s) take(s))
such action as shall be necessary to ensure that a message is transmitted
by means of the CREST system by any particular time. In this connection,
CREST members and, where applicable, their CREST sponsors or voting
service provider(s) are referred, in particular, to those sections of the
CREST Manual concerning practical limitations of the CREST system and
timings.
The Company may treat as invalid a CREST Proxy Instruction in the
circumstances set out in Regulation 35(5)(a) of the Uncertificated
Securities Regulations 2001.
3 The Company cannot accept responsibility for loss or damage arising from
the opening or use of any emails or attachments from the Company and
recommends that shareholders subject all messages to virus checking
procedures prior to opening or use. Any electronic communication received
by the Company and/or Lloyds TSB Registrars, including the lodgement of
an electronic form of proxy, that is found to contain a computer virus
will not be accepted.
4 The following documents, which are available for inspection during normal
business hours at the registered office of the Company as well as at both
the offices of Ashurst, Broadwalk House, 5 Appold Street, London EC2A 2HA
and Pinsents, Dashwood House, 69 Old Street, London EC2M 1NR on any
weekday (Saturday and public holidays excluded), will also be available
for inspection at the place of the annual general meeting from 12.00 noon
on the day of the meeting until the conclusion of the meeting:
(i) copies of service contracts of the directors with the Company
(non-executive directors do not have service contracts);
(ii) the register of interests of the directors in the share capital of
the Company;
(iii) copies of the rules of the proposed share schemes and trust deed
comprising the 2004 Plan for senior executives;
(iv) copies of the existing rules of the 2001 UK Approved and
Unapproved Share Option Plans marked up to show the proposed
amendments to these rules;
(v) the existing articles of association of the Company and the
proposed new articles of association marked up to show the
proposed amendments.
Explanatory Notes
Resolutions 1 and 2: Report and accounts and dividend
These are standard resolutions common to all annual general meetings.
Resolution 2, to declare a dividend, relates to the recommended final
dividend for the year ended 31 December 2003. If approved, the final
dividend will be paid on 14 May 2004 to shareholders on the register at
the close of business on 23 April 2004.
Resolutions 3 to 6: Re-election of directors
Under the Company's articles of association each director retires at the
third annual general meeting after he or she was last re-elected. This
year, Mr Warren Knowlton, Sir Christopher O'Donnell, Mr Richard De
Schutter and Dr Rolf Stomberg will retire by rotation and resolutions 3
to 6 propose their re-election as directors. A biographical summary for
each of the directors seeking re-election is found below. Full
biographical details of all directors are found on page 44 of the Annual
Report and page 10 of the Summary Financial Statement. The Chairman has
confirmed that, following evaluation and review by the Nominations
Committee of each of Mr Warren Knowlton, Mr Richard De Schutter and Dr
Rolf Stomberg, their respective performances continue to be effective and
demonstrate commitment to their roles. Dr Stomberg did not participate in
the Nominations Committee's review of his own performance.
o Mr Warren Knowlton was appointed a director in November 2000.
He is Chairman of the Audit Committee and a member of the
Remuneration Committee.
o Sir Christopher O'Donnell was appointed a director in 1992 and
became Chief Executive in 1997.
o Mr Richard De Schutter was appointed a director in January
2001. He is a member of the Remuneration and Audit Committees.
o Dr Rolf Stomberg was appointed a director in 1998. He is the
senior independent director, Chairman of the Remuneration
Committee and a member of the Audit and Nominations Committees.
Resolution 7: Reappointment of auditors
Resolution 7 proposes the reappointment of Ernst & Young LLP as the
Company's auditors to hold office from the conclusion of this meeting
until the conclusion of the next general meeting at which the accounts
are laid before the Company, at a remuneration to be determined by the
directors.
Resolution 8: General authority to allot shares
Resolution 8 seeks to renew the directors' general authority to allot
shares up to an aggregate nominal amount of (GBP)33,321,078 as
permitted by the Company's articles of association and pursuant to the
provisions of section 80 of the Companies Act 1985. This amount is
equivalent to 272,609,714 shares and represents approximately 22.3% of
the nominal amount of the issued share capital as at 16 March 2004. Other
than in connection with the Company's various existing and proposed
share-based incentive plans for senior executives and employees, your
Board has no present intention of allotting any of the unissued and
uncommitted authorised share capital. No issue of shares will be made
which would effectively alter control of the Company without the sanction
of shareholders in general meeting.
Resolution 9: Remuneration report
All UK listed companies are now required to put their remuneration report
to shareholders. The full remuneration report can be found on pages 51 to
58 of the Annual Report 2003 and a summary can be found on pages 16 and
17 of the Summary Financial Statement.
Resolutions 10 to 14: 2004 executive share plan and establishment of a
discretionary trust
A detailed explanation of these resolutions is contained in the enclosed
shareholders' circular.
Resolutions 15 and 16: Amendment of existing 2001 UK approved and
unapproved executive share option plans
The existing 2001 UK Approved and Unapproved Share Option Plans approved
by shareholders at the annual general meeting held on 4 April 2001,
provide that an optionholder who leaves for a 'good reason' (for example
retirement, ill-health, redundancy) may exercise an option within six
months of ceasing employment. It is proposed that the rules of these two
2001 plans be amended so that an optionholder should instead be able to
retain an option and exercise it either within six months of cessation
or, if later, within six months after it vests (normally at its third
anniversary).
Resolution 17: To approve the re-classification of one 'B' ordinary share
Resolution 17 is a special resolution which seeks to reclassify the one
'B' ordinary share of 12 2/9 pence as one ordinary share of 12 2/9 pence.
The 'B' ordinary share was created by the reclassification of an ordinary
share as part of the proposed scheme of arrangement approved by
shareholders at the extraordinary general meeting held on 19 May 2003. As
the proposed scheme of arrangement did not become effective, there is no
longer a requirement for this different class of ordinary share.
Resolution 18: Purchase of own shares
Resolution 18 is a special resolution which seeks renewal of the general
authority from shareholders to purchase the Company's own shares. The
directors would only exercise this authority after considering the
effects on earnings per share and the benefits for
shareholders generally. Any shares purchased in this way will either be
cancelled and the number of shares in issue will be reduced accordingly
or held as treasury shares for re-sale at a future date. The resolution
specifies the maximum number of shares which may be purchased and the
maximum and minimum prices at which they may be bought. The purchase of
shares by the Company under this authority will be effected by purchases
in the market.
The Companies (Acquisition of Own Shares) (Treasury Shares) Regulations
2003 (the 'Regulations') came into force on 1 December 2003. The
Regulations enable companies to hold shares repurchased as treasury
shares with a view to possible re-sale at a future date rather than
cancelling them. The Company will consider holding shares purchased
pursuant to the authority conferred by this resolution as treasury
shares. This would give the Company the ability to sell shares held in
treasury quickly and cost effectively and would provide the Company with
additional flexibility in the management of its capital base.
Resolution 19: Adoption of new articles of association
Resolution 19 is a special resolution for the adoption of new articles of
association in place of the existing articles. The adoption of the
proposed new articles of association is designed to delete existing
provisions which are now obsolete, and at the same time to bring the
Company's articles into line with best practice and to take account of
relevant changes in legislation. The principal differences between the
Company's existing articles of association and the proposed new articles
of association are summarised below. Article numbers refer to the
proposed new articles of association.
Removal of references to preference shares - following approval by
shareholders on 19 May 2003, the Company's preference shares were repaid
and cancelled, thereby removing them from the share capital of the
Company. Consequently, all references to the preference shares in the
existing articles of association have been removed in the proposed new
articles.
Proposed scheme of arrangement - at the extraordinary general meeting of
the Company held on 19 May 2003 relating to the proposed acquisition of
Centerpulse AG and InCentive Capital AG, shareholders approved a scheme
of arrangement and consequential amendments to the articles of
association, including the payment of dividends through dividend access
shares. However, the acquisition of Centerpulse AG and InCentive Capital
AG was not completed and accordingly the scheme of arrangement did not
become effective. Consequently all references to the scheme of
arrangement and procedures associated with it have been removed.
Variation of class rights - article 5 has been amended for the sake of
clarity. The proposed article 5 would expressly permit the rights of any
class of the Company's shares to be modified, abrogated or varied with
the consent in writing of the holders of three-quarters in nominal value
of the issued shares of that class, or with the sanction of an
extraordinary resolution passed at a separate general meeting of the
class holders.
Treasury shares - a new article 9.3 (b) would permit the Board to sell
the Company's shares for cash, otherwise than to existing shareholders
pro rata to their holdings, so long as immediately prior to the sale such
shares were held as treasury shares.
Remuneration report - article 61.6 has been added for the sake of clarity
so that the approval of the remuneration report of the directors is
classified as ordinary business at the Company's annual general meetings.
The other differences between the existing articles and the proposed new
articles of association are of a minor or technical nature.
Resolution 20: Disapplication of pre-emption rights
Resolution 20 is a special resolution which seeks to renew the directors'
power to allot shares or grant rights over shares or sell treasury shares
where they propose to do so for cash and otherwise than to existing
shareholders pro rata to their holdings as permitted by the Company's
articles of association.
Apart from rights issues, the power will be limited to the issue of
shares and sales of treasury shares for cash up to an aggregate nominal
value of (GBP)5,713,057 (being five per cent. of the issued ordinary
share capital at 16 March 2004). If given, this authority will expire on
5 August 2005 or at the conclusion of the annual general meeting in 2005,
whichever is the earlier.
Resolution 21: To approve an increase in the aggregate fees payable to
non-executive directors
The aggregate annual limit under the Company's articles of association no
longer allows sufficient future scope for the appointment of additional
non-executive directors (should this be required). The Company attaches
particular importance to the knowledge and breadth of experience that
such directors bring to the Board and so it is proposed to invite
shareholders to approve an increase in this limit to (GBP)900,000. The
new amount will not be needed in full immediately but will provide the
flexibility necessary to maintain fees at an appropriate level in
comparison to companies of similar size and international operation and,
if necessary, to make additional appointments without having to return
regularly to shareholders to increase the limit.
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are
in any doubt as to the action to be taken, you should consult your
stockbroker, bank manager, solicitor, accountant or other independent
financial adviser duly authorised under the Financial Services and Markets Act
2000 (or, if you are resident outside the United Kingdom, an appropriately
qualified independent financial adviser). If you have sold or transferred all
of your shares in Smith & Nephew plc please forward this document, together
with the accompanying documents, to the purchaser or transferee or to the
stockbroker, bank or other agent through whom the sale or transfer was
effected for transmission to the purchaser or transferee.
Smith & Nephew plc T 44 (0) 207 401 7646 [LOGO OMITTED] We are smith&nephew
15 Adam Street F 44 (0) 207 960 2358
London WC2N 6LA www.smith-nephew.com
England
26 March 2004
Dear Shareholder,
Annual General Meeting 2004
Proposed new Senior Executive Share-based Incentive Plan
I am writing on behalf of the Board to seek your support for resolutions
numbered 10 to 14, to be proposed as special business at the 2004 annual
general meeting, approving the adoption of new share-based incentive
arrangements for senior executives. The resolutions are presented separately,
for clarity and understanding, but together form a combined plan designed to
encourage high levels of business performance and align the interests of the
Company, its shareholders and senior executives. The proposed arrangements are
referred to below as the "2004 Plan".
Over the last four years, Smith & Nephew has transformed its business into a
high technology, high performing global medical devices company. During that
period the Company has delivered consistent growth and high levels of total
shareholder return. As the current long-term incentive plan pre-dates this
period of transformation, the Remuneration Committee has reviewed whether any
changes need to be introduced to maintain and enhance this record of success.
Having taken advice from Watson Wyatt, the Remuneration Committee has
determined that current arrangements for senior executives need to be
restructured to maintain competitiveness and to be more highly geared to
target the highest levels of performance. This is consistent with the stated
policy of the Remuneration Committee to provide base pay and benefits which
are targeted at median competitive levels for fully acceptable performance and
bonus plans which are designed to motivate and reward for outperformance. The
Remuneration Committee is also mindful of an increasingly competitive
recruitment environment for the best executives both in the United Kingdom and
the United States (where the greater proportion of the senior group of Smith &
Nephew executives are based).
Participation in the proposed 2004 Plan is presently intended to be restricted
to executive directors, members of the Group Executive Committee ("GEC") and
the next level of senior executives within Smith & Nephew, currently a total
of approximately 40 participants ("Participants").
Outline of the 2004 Plan
The proposed 2004 Plan comprises three discrete components:
1 A new PERFORMANCE SHARE PLAN; and
2 A new SHARE OPTION PLAN; and
3 A CO-INVESTMENT PLAN to encourage Participants to build and maintain a
stake in the business.
In summary, the proposed arrangements
o provide competitive levels of reward geared to the attainment of
challenging levels of Company performance;
o deliver maximum vesting only if the Company achieves top decile
performance and exceptional levels of earnings growth (as detailed in the
performance conditions described below), and the Participant makes a
personal investment under the Co-Investment Plan;
o offer no opportunity for retesting against performance criteria;
o allow for options and awards granted to US-based Participants to be taken
in the form of awards or options over American Depositary Receipts
("ADRs") representing American Depositary Shares in the Company; and
o for Participants, will replace the Company's other existing discretionary
executive share option or share incentive plans, except as described in
(iv) Existing share option plans on page 4.
Component 1: New Performance Share Plan
The principal terms of the proposed new Smith & Nephew 2004 Performance Share
Plan are summarised in Parts A and D of the appendix to this letter. The key
aspects of the Plan are as follows:
(i) Annual awards
It is intended to make Awards over shares in the Company ("Award
Shares") dependent on the performance of the Company. These Awards
would be made annually, usually after the announcement of the Company's
preliminary results of the previous year, and would vest only if
defined levels of shareholder returns are attained over a fixed period
of three financial years beginning with that in which the Award is
made. There will be no retesting. A Participant may, if the
Remuneration Committee so provides, defer the acquisition of vested
shares for up to a further seven years (ten years from the date of the
Award).
(ii) Performance targets
It is intended that the Award Shares would be divided into two tranches
so as to measure total shareholder returns relative to both the UK FTSE
100 and the major companies in the medical devices industry. Vesting of
Award Shares in the first tranche would be dependent upon the Company's
growth in total shareholder return ("TSR") ranked against that of
companies comprising the UK FTSE 100 at the time of the award. Vesting
of Award Shares in the second tranche would be dependent upon the
Company's growth in the TSR of ADRs relative to that of not fewer than
10, mainly US, companies within the medical devices industry to be
determined annually in relation to awards made in that year. In both
cases, growth in TSR would be measured over a fixed period of three
years beginning with that in which the Award is made.
The Remuneration Committee will determine the proportion of Award
Shares in each tranche when an Award is made. For Awards made in 2004,
50 per cent of the Award Shares will be in the first tranche and 50 per
cent in the second tranche. No Award Shares in a tranche will vest
unless the Company's TSR is ranked at the median level in that tranche.
If, in relation to either tranche, the Company is ranked at, or
exceeds, the median level, 25 per cent of the Award Shares in that
tranche would vest. If the Company is ranked at the 75th centile
(counting from the bottom), all of the Award Shares in that tranche
would vest. The percentage of Award Shares which vest if the Company is
ranked between those levels would increase pro-rata, on a straight-line
basis, between 25 per cent and 100 per cent of the Award Shares. If the
Company is ranked above the 75th centile, the number of shares which
vest would be further increased pro-rata, on a straight-line basis, up
to a maximum of 150 per cent of the Award Shares if, exceptionally, the
Company is ranked at, or above, the 90th centile.
The Remuneration Committee shall have the discretion to reduce the
number or percentage of shares which vest if, notwithstanding that the
Company is ranked at or above the median level in respect of either
tranche of the Award Shares, the Remuneration Committee is of the
opinion that the growth in the Company's TSR achieved over the
performance period is not a genuine reflection of the Company's
underlying financial performance.
(iii) Limit on individual participation
In relation to Awards made to executive directors, the initial market
value (effective at the date of the award) of the Award Shares which
may vest if the Company is ranked at the 75th centile in respect of
both tranches of the Award Shares shall not exceed the amount of their
basic annual salary when the Award is made. In relation to Awards made
to other members of the GEC, the initial market value of such Award
Shares shall not exceed 75 per cent of their basic annual salary when
the Award is made and, in relation to Awards made to other
Participants, 35 per cent of their basic annual salary.
(iv) Existing Long Term Incentive Plan
The Performance Share Plan will replace the existing Smith & Nephew
Long-Term Share Incentive Plan which was established in 1997. This
provided for annual share awards with an initial value of up to 100 per
cent of basic annual salary for executive directors, or 75 per cent for
members of the GEC.
Component 2: New Share Option Plan
The principal terms of the proposed new Smith & Nephew 2004 Executive Share
Option Plan are summarised in Parts B and D of the appendix to this letter.
(i) Annual awards
It is intended that all executives selected to participate in the 2004
Plan be granted each year, in addition to any Award under the
Performance Share Plan, options to acquire shares in the Company at the
market value at the time of grant. Such options will normally only
become exercisable if challenging graduated target levels of growth in
the Company's adjusted basic earnings per share before deducting
goodwill amortisation and exceptional items ("EPSA") are achieved over
a fixed three-year period beginning with that in which the option is
granted. There will be no
retesting. Options which vest would then be exercisable normally over a
period of up to ten years from the date of grant.
(ii) Performance targets
The target levels of EPSA growth for each grant will be set by the
Remuneration Committee. It is intended that, in relation to options
granted in 2004, 25 per cent of the option shares will vest if growth
in EPSA over the three-year period ending 31 December 2006 is or
exceeds 26 per cent (ie 8 per cent, compounded annually), with 50 per
cent vesting if such growth is at least 48 per cent (ie 14 per cent,
compounded annually). Only if growth in EPSA over that period exceeds
73 per cent (ie 20 per cent, compounded annually) will all of the
option shares vest. Option shares will vest pro rata, on a
straight-line basis, if growth in EPSA over that period is between
these levels.
(iii) Limit on individual participation
The maximum market value of shares over which options may be granted to
a Participant in each year will be that of the Participant's basic
annual salary at the time of grant.
(iv) Existing share option plans
Share options awarded each year under the existing 2001 UK Approved and
Unapproved Executive Share Option Plans for UK-based executives are
subject to EPSA growth of at least 3 per cent per annum over UK price
inflation being achieved over three years, with retesting allowed. For
US-based executives the existing awards are performance-linked on grant
and are not subject to the attainment of EPSA growth targets. UK
Participants in the 2004 Plan will continue to participate in the 2001
UK Approved Share Option Plan to take advantage of the favourable tax
treatment of that plan but only to the extent that their limit of
(GBP)30,000 value of shares has not been utilised. However, the
performance targets applicable to such approved share options will be
the same as under the new 2004 Plan and options granted under the
existing 2001 UK Approved Share Option Plan will be counted in applying
the limits on individual participation in the 2004 Plan.
Component 3: Co-investment Plan
The principal terms of the proposed Smith & Nephew 2004 Co-investment Plan are
summarised in Parts C and D of the appendix to this letter.
(i) Annual invitation
Under the Smith & Nephew 2004 Co-investment Plan, Participants may be
invited each year to take part of their annual bonus in the form of
shares in the Company. The Participant would then elect the level of
bonus to be used for this purpose up to a maximum of one half of the
annual gross bonus capped at 20 per cent of basic annual salary for
executive directors and members of the GEC and at 18 per cent of basic
annual salary for other Participants. The net (after tax) amount of the
gross amount elected would then be used to purchase shares in the
Company. The Remuneration Committee intends that the first invitation
will be in respect of bonuses paid for 2003.
(ii) Matching awards and performance targets
If such shares are held for three years, and the Participant remains
employed within Smith & Nephew, the Participant will then be entitled
to additional matching shares if the Company achieves a target level of
growth in EPSA over that three year period of at least 48 per cent
(i.e. 14 per cent, compounded annually). At that level the
Participant will be entitled to one additional share for every share
that could have been acquired out of the gross equivalent amount of the
net bonus used to acquire shares. If such growth in EPSA is at least 60
per cent (ie 17 per cent, compounded annually), the Participant would
then be entitled to two matching shares for each share which could have
been so acquired out of the gross equivalent amount of the net bonus
applied to shares. There is no sliding scale or pro rata vesting of
matching awards between these performance levels. There will be no
retesting.
New Employees' Share Trust
Resolution number 14 seeks your approval of the establishment of a new
discretionary trust for the benefit of employees and former employees within
Smith & Nephew. The principal purpose of the trust is to acquire shares in the
Company to be held for the purposes of satisfying Awards and options under the
proposed new plans. The principal terms of the trust are summarised in Part E
of the appendix to this letter.
General Rules and Conditions of the 2004 Plan
Determination of EPSA for the purposes of the 2004 Plan
The Remuneration Committee may adjust an EPSA performance target and the basis
on which such adjusted earnings per share are determined, insofar as may be
necessary to ensure that, including any change in standard accounting practice
during the performance period (such as the adoption of International Financial
Reporting Standards), the performance of the Company is measured, and the
performance targets are applied, on a consistent, fair and reasonable basis
throughout the performance period. Adjusted earnings per share currently means
basic earnings per share adjusted to exclude the amortisation of acquisition
goodwill and exceptional items.
Shareholding requirement
Executive directors will be formally requested by the Board to maintain or, in
the case of new appointments, build over a five-year period, a minimum
shareholding in the Company equal in value to their basic annual salary. The
Remuneration Committee will set appropriate target levels of shareholdings in
the Company for other Participants in the 2004 Plan. Unless the Remuneration
Committee considers there are justifiable circumstances, future awards under
the 2004 Plan will be reduced if any Participant has failed to satisfy this
shareholding requirement.
Value of awards
The table in Part F of the appendix to this letter illustrates the value of
the initial Awards in 2004 under the proposed Plan, taking account of the
probability that the relevant performance criteria may be achieved using the
"Present Economic Value" methodology developed by Watson Wyatt.
Company cost of awards and grants under the 2004 Plan
On the basis that EPSA growth of 14 per cent per annum is achieved, it is
estimated that, under the proposed new rules for accounting for share-based
payments, the likely charge to profit for the initial options and Awards made
under the 2004 Plan in 2004 will be approximately (GBP)5 million spread over
the 3-year performance period. The actual charge may vary depending on the
level of TSR and EPSA growth assumed.
Dilution of shareholders' interests
Shares awarded under the 2004 Plan may be purchased in the market, be newly
issued by the Company or, if permitted by the Listing Rules of the UK Listing
Authority ("the Listing Rules"), be transferred out of treasury. Shares issued
by the Company, or transferred out of treasury, will be counted in applying
the existing limit of 5 per cent of the issued share
capital of the Company, on shares which may be issued or put under option
under any of the Company's executive share incentive schemes in a rolling
period of ten years.
At the date of this letter, the number of shares over which rights to
subscribe for new shares have been granted (and, if not exercised, have not
lapsed) in the period of ten years ending on that date is 29.0 million,
representing approximately 3.2 per cent of the current issued share capital of
the Company. Accordingly, the number of shares remaining available to be put
under options to subscribe for new shares (or be acquired out of treasury)
under this and any existing discretionary share option or share incentive
schemes is currently 17.8 million.
Options and awards for participants based in jurisdictions other than the UK
and the US
Each of the proposed new plans includes a provision which reserves to the
Remuneration Committee the right to modify the terms of an award or an option
as may be necessary or appropriate to take account of local laws and
regulations (including tax rules) in jurisdictions other than the UK and the
US provided that the overall and individual limits on participation described
above are not exceeded and provided also that the applicable performance
targets are no less onerous.
In certain jurisdictions it may be necessary or appropriate for Smith & Nephew
to establish a distinct plan to accommodate or ensure compliance with local
requirements. Accordingly, and consistent with the requirements of the Listing
Rules, resolution number 13 would, if passed, authorise the directors to
establish any such plan, based on any of the proposed new plans.
Documents for inspection
Copies of each of:
o the rules of the Smith & Nephew 2004 Performance Share Plan;
o the rules of the Smith & Nephew 2004 Executive Share Option Plan;
o the rules of the Smith & Nephew 2004 Co-investment Plan; and
o the draft trust deed
and a letter from Watson Wyatt confirming their agreement to the inclusion of
references to their name in this letter in the contexts in which they appear,
are available for inspection at the registered office of the Company and at
the offices of both Ashurst, Broadwalk House, 5 Appold Street, London EC2A 2HA
and Pinsents, Dashwood House, 69 Old Broad Street, London EC2M 1NR during
normal office hours (Saturdays, Sundays and Bank Holidays excepted) until the
date of the 2004 Annual General Meeting and at the place of the meeting for at
least 15 minutes prior to and during that meeting.
Directors' recommendation
Your directors believe that the adoption of the 2004 Plan, which includes the
Smith & Nephew 2004 Performance Share Plan, the Smith & Nephew 2004 Executive
Share Option Plan and the Smith & Nephew 2004 Co-investment Plan, is in the
best interests of shareholders and the Company and recommend that you vote in
favour of the resolutions numbered 10 to 14.
Yours sincerely,
Dudley Eustace
Chairman
Registered Office: 15 Adam Street, London, WC2N 6LA. Registered in England No.
324357
Watson Wyatt have given, and have not withdrawn, their consent to the
references to their name in the context in which they appear in this letter.
APPENDIX
Summary of the principal terms of the 2004 Plan
PART A: The Smith & Nephew 2004 Performance Share Plan (the "Performance Share
Plan")
1 Share Awards
Under the Performance Share Plan, the Remuneration Committee of the directors
(the "Committee") may each year make awards ("Awards") over shares in the
Company (or, in the case of US-based executives, American Depositary Receipts
- "ADRs" - representing American Depositary Shares in the Company) ("Award
Shares"), to executive directors, members of the Group Executive Committee
("GEC"), and the next level of senior executives within Smith & Nephew
("Participants").
2 Making of Awards
An Award takes the form of a notification to a Participant that, if and to the
extent that the performance targets in relation to that Award are met or
exceeded, and any other conditions imposed by the Committee are satisfied, the
Award Shares will vest. Vesting means that either such Award Shares net of any
payroll withholding taxes will then be transferred to the Participant or, the
Participant will be granted a nil-cost option (a "Vested Option") to acquire
such Award Shares. A Vested Option will be exercisable, net of any payroll
withholding taxes until the 10th anniversary of the date of the Award or such
earlier time as the Committee may determine. Instead of granting a Vested
Option to a US Participant, the Committee may permit such Participant to elect
to defer the receipt of vested Award Shares to a date not later than the 10th
anniversary of the date of the Award or such earlier time as the Committee may
determine. Any such deferral election must be made at least six months prior
to the vesting of the Award Shares and in accordance with such other rules and
procedures prescribed by the Committee.
3 Performance targets
The Committee will set targets relating to the performance of the Company
ranked against that of comparable companies over a fixed minimum period of
three years beginning with that in which the Award is made (the "Performance
Period"). The Committee will ensure that such performance targets are
challenging and will align the interests of Participants with those of
shareholders.
4 Limit on individual participation
If the Company's performance over the Performance Period is ranked at the 75th
centile (counting from the bottom) of comparable companies, the market value
(as at the time the Award is made) of Award Shares which could vest under
Awards made in any year to a Participant will not exceed the Participant's
basic annual salary (excluding benefits in kind) when the Award is made
("Salary").
The maximum initial market value of the Award Shares which could vest will not
exceed 150 per cent of salary if exceptional 90th centile, or higher,
performance (relating to other comparable companies) is achieved.
The above awards may be increased in line with the provisions of Part D. 2
National Insurance contributions and social security charges (see page 10).
For the purposes of this section, the market value of a share is the average
of the middle market quotations of a share for the three dealing days
immediately preceding the date the Award is made as derived from the Daily
Official List of the London Stock Exchange (or, in the case of ADRs, the
average of the closing prices of an ADR on the New York
2
Stock Exchange on the three dealing days immediately preceding the date on
which the Award is made).
5 Leaving employment/special circumstances
If, within the Performance Period, a Participant ceases employment within
Smith & Nephew by reason of injury, disability, death, redundancy, divestment
of a Participant's business unit or retirement (an "Accepted Reason"), the
Award may be retained but the Award Shares will be reduced pro rata to the
proportion of the Performance Period throughout which the Participant held
such employment (or such lesser proportion as the Committee may determine). If
a Vested Option has been granted it shall lapse 12 months after the
Participant has ceased employment.
If, during the Performance Period, a Participant dies in service, the
Committee may determine the extent to which Award Shares were expected at the
date of death to become vested and in this event, a proportion (corresponding
to such proportion of the Performance Period as elapsed before the date of
death) of such shares shall be transferred to the Participant's personal
representatives.
If a Participant ceases to hold employment within the Group for any other
reason, the Award will lapse except insofar as the Committee may determine
otherwise.
Under special circumstances, such as the death of a Participant, the Committee
may determine that a cash sum equal to the market value of such Award Shares
be paid in lieu of the Award Shares being transferred.
PART B: The Smith & Nephew 2004 Executive Share Option Plan (the "2004 Option
Plan")
1 Grant of market value share options
Under the 2004 Option Plan, Participants may, in any year, be granted rights
to acquire shares (or ADRs) ("Options ") in the Company which are normally
exercisable after three years if and to the extent that performance targets
have then been met. For US executives subject to US Federal Income Tax at the
time of grant, Options may be granted as either Incentive Stock Options
("ISOs") or non-qualified stock options.
2 Exercise price
The price per share at which shares may be acquired upon the exercise of an
Option will be determined by the Committee at the time of grant, but shall be
not less than the average of the middle market quotations of a share in the
Company for the three dealing days immediately preceding the date of grant, as
derived from the Daily Official List of the London Stock Exchange or, in the
case of ADRs, the average of the closing prices of an ADR on the New York
Stock Exchange on the three dealing days immediately preceding that on which
the Option is granted (or such other price as may be required for an option
granted in the US to qualify as an incentive stock option).
3 Performance targets
The Committee will set performance targets relating to the performance of the
Company over a fixed minimum period of three years beginning with that in
which the Option is granted (the "Performance Period"). There will be no
retesting. The Committee will ensure that such performance targets are
challenging and will align the interests of Participants with those of
shareholders.
4 Exercise of options
Options may normally be exercised only in respect of shares or ADRs under
option which become vested in consequence of a performance target being met.
An Option may not in any event be exercised after the tenth anniversary of the
date of grant or such earlier time as may be specified at the date of grant.
5 Individual limit on grant of options
The maximum initial market value of shares over which Options may be granted
to a Participant in any year will not exceed 100 per cent of basic annual
salary.
The above limit may be increased in line with the provisions of Part D. 2
National Insurance contributions and social security charges (see page 10).
The maximum aggregate fair market value of shares comprising ISOs, as
determined at the date of grant, which first become capable of being purchased
in any calendar year by an individual US Participant who is subject to
taxation in the United States may not exceed US$100,000 (or such other limit
imposed by the US Internal Revenue Code).
6 Leaving employment
If a Participant ceases employment within the Group after the end of the
Performance Period, a vested Option may be exercised within six months after
the date of cessation. If, within the Performance Period, a Participant ceases
employment within the Group for an Accepted Reason, the Option may be
retained, but the shares or ADRs under option will be reduced pro rata to the
proportion of the Performance Period throughout which the Participant held
such employment (or such other proportion as the Committee may determine).
If, during the Performance Period, a Participant dies in service, the
Committee may determine the extent to which the Participant's shares or ADRs
under option were expected at the date of death to become vested, and in this
event a Participant's Option may be exercised by their personal
representatives not more than 12 months after the date of death, over a
proportion (corresponding to such proportion of the Performance Period as
elapsed before the date of death) of such Options. If, within the Performance
Period, a Participant ceases employment within the Group for any other reason,
an Option will lapse, except insofar as the Committee may determine otherwise.
PART C: The 2004 Co-investment Plan
1 Annual bonus in shares
Under the 2004 Co-investment Plan, Participants may, if the Committee so
determines, be invited to take part of their net (after tax) annual bonus in
the form of shares in the Company ("Bonus Award Shares"). The Participant
would then elect the level of bonus to be used for this purpose up to a
maximum of one half of the annual gross bonus capped at 20 per cent of basic
annual salary for executive directors and members of the GEC and at 18 per
cent of basic annual salary for other Participants. The net (after tax) amount
of the gross amount elected would then be used to purchase shares in the
Company.
2 Matching share awards
If Bonus Award Shares are retained by the Participant, and the Participant
remains employed within the Group for three years from the date of award (the
"Retention Period"), the Trustee may then transfer to the Participant
additional shares in the Company ("Matching Shares"). The number of Matching
Shares which may be so transferred will be in direct proportion to the number
of Bonus Award Shares held by the Participant at the end of that three year
period.
3 Performance targets for matching shares
The proportion of Matching Shares transferred to the Participant will depend
upon the performance of the Company over the Retention Period against
performance targets set by the Committee. The Committee will ensure that such
performance targets are challenging and will align the interests of
Participants with those of shareholders.
4 Limit on matching shares
The maximum number of Matching Shares which may be transferred will be
determined by the Committee when the amount of annual bonus is determined, but
will not exceed twice the number of shares as could have been purchased with
the gross amount of bonus elected at the time the Bonus Award Shares were
acquired.
5 Leaving employment
If a Participant ceases employment within Smith & Nephew for an Accepted
Reason, the Matching Shares will be reduced pro rata to the proportion of the
Retention Period throughout which the Participant held such employment. If a
Participant leaves Smith & Nephew for any other reason, no Matching Shares may
be transferred except insofar as the Committee may determine otherwise.
PART D: Provisions common to the 2004 Performance Share Plan, the 2004 Option
Plan and the 2004 Co-investment Plan
1 Making of awards and grant of options
Awards may be made and Options granted (a) within the period ending 42 days
after the close of the 2004 annual general meeting, (b) within the period of
42 days beginning with the fourth dealing day following an announcement of the
Company's annual or interim results; or (c) within the period of 28 days after
an employee first becomes eligible to participate, but otherwise only in
circumstances judged by the Committee to be exceptional. Awards, Options and
Matching Share Awards are not transferable and are not pensionable benefits.
No Awards or Options under the 2004 Plan may be granted after 5 May 2014.
2 National Insurance contributions and social security charges
The Committee shall determine if any Company National Insurance contributions
or social security charges on shares which vest shall be met by the Company or
passed to the Participant. If they are to be passed to the Participant, the
initial value of shares will be grossed up to compensate the Participant for
the consequent increase in the Participant's tax burden on exercise of the
Award or Option.
3 Source of shares
Shares used to satisfy Awards, Options and Matching Share Awards may be issued
or purchased in the market or subscribed for by the trustee of the proposed
new employees' share trust (the "Plan Trustee") using funds advanced on loan
by Smith & Nephew, or by the transfer by the Company of shares purchased in
the market and held in treasury.
4 Limitations on the issue of shares
There is a limit, of 5 per cent of issued share capital, on the number of
shares which may be issued, or over which rights to subscribe for new shares
or acquire shares from treasury ("Subscription Rights") may be granted, under
the 2004 Plan and any other discretionary executive share option or incentive
scheme of the Company in any period of ten years. There is an ultimate limit
of 10 per cent of issued share capital, on the number of shares which may be
issued, or over which Subscription Rights may be granted, under the 2004 Plan
and any other executive or employee share scheme established by the Company in
any period of ten years.
For the purpose only of satisfying the requirements of the US Internal Revenue
Code, there is a limit, of 45 million, on the maximum number of shares over
which incentive stock options may be granted under the 2004 Option Plan.
The maximum number of Shares (whether or not in the form of ADRs) that shall
be subject to all Awards, Options and Matching Share Awards granted to an
individual who is subject to US Federal Income Tax in a given year during that
calendar year shall be 400,000.
5 Change of control of the Company
If the Company is the subject of a successful takeover, the Committee shall
then determine what proportion of the Award Shares or Options shall then
become vested or what proportion of the Matching Shares shall then be
transferred to the Participant having regard to both the proportion of the
Performance Period which has then elapsed and the performance of the Company
over that period.
6 Demerger, reconstruction or winding-up of the Company
In the event of a statutory reconstruction or reorganisation of Smith &
Nephew, not involving a change of control of the Company, Participants may be
invited to accept a corresponding award or option over shares in the new
holding company in exchange for the release of an Award or Option. If such
invitation is declined, any entitlement under the Award or Option will lapse.
In the event of a demerger or winding-up of the Company, or if a resolution is
proposed for the voluntary winding-up of the Company, the Committee may make
appropriate provision for the variation and/or early vesting of Awards or
Options or early transfer of Matching Shares.
7 Variation of share capital
In the event of a variation in the ordinary share capital of the Company, the
Committee may adjust the number of shares (or ADRs) subject to any Awards,
Options or Matching Share Awards, the exercise price of Options, the maximum
number of shares over which incentive stock options may be granted and/or the
maximum number of shares subject to all Awards, Options and Matching Share
Awards granted to any individual who is subject to US Federal Income Tax in a
given year provided that, except in the case of a subdivision, consolidation
or capitalisation issue, any such adjustment must be confirmed in writing by
the auditors of the Company to be, in their opinion, fair and reasonable.
8 Amendment
The Committee may amend the 2004 Performance Share Plan, the 2004 Option Plan
and the 2004 Co-investment Plan in any respect but may not make any alteration
or addition to the advantage of existing or new Participants to the provisions
relating to eligibility, the overall and individual limits, or the adjustment
of such entitlements on a variation of share capital, without the prior
approval of shareholders in general meeting, except for minor amendments to
benefit the administration of the 2004 Plan, to take account of any change in
legislation or to obtain or maintain favourable tax, exchange control or
regulatory treatment for Participants or any member of the Group.
PART E: Summary of the principal terms of The Smith & Nephew 2004 Employees'
Share Trust (the "Trust")
The Trust is a discretionary settlement for the benefit of employees and
former employees of companies within the Group and their respective
dependants. The Company itself is excluded from benefiting under the Trust.
The Trust will be controlled and managed outside the UK and will have a single
corporate trustee which is an independent trustee services organisation. The
right to remove the trustee and appoint a new trustee vests in
the Company. The trustee is required to waive both voting rights and dividends
payable on any share in the Company unless otherwise directed by the Company.
The Trust may not, without the prior approval by ordinary resolution of the
members of the Company, hold shares which when added to shares held by any
other employees' share trust (excluding shares over which a beneficial
interest has been transferred) represent more than 5 per cent of the issued
share capital of the Company.
The above summary of the principal terms of the components which comprise the
2004 Plan and the Trust do not form part of the rules of the components which
comprise the 2004 Plan or Trust and should not be taken as affecting the
interpretation of the detailed terms and conditions of the Trust, the
components which comprise the 2004 Plan or any element of it. The Directors
reserve the right, up to the time of the forthcoming annual general meeting,
to make such amendments and additions to the rules of the components which
comprise the 2004 Plan and the Trust as they consider to be necessary or
appropriate provided that such amendments do not conflict in any material
respect with the above summary.
PART F: Summary of the present value of the proposed initial grants and awards
under the 2004 Plan
In order to assess the relative value of different incentive plans and the
impact of performance conditions the Committee has used Watson Wyatt's
"Present Economic Value" ("PEV") methodology. The PEV of the maximum proposed
awards and options to be granted to Participants in the 2004 Plan are set out
in the table below expressed as a percentage of basic annual salary:
----------------------------- --------------- -------------- ------------------- ----------
Participants Performance Share Options Matching Share Total
Share Awards (the Co-
Plan investment Plan)
Awards
----------------------------- --------------- -------------- ------------------- ----------
Executive director 65% 25% 19% 109%
----------------------------- --------------- -------------- ------------------- ----------
Other member of GEC 49% 25% 19% 93%
----------------------------- --------------- -------------- ------------------- ----------
Other senior executive 23% 25% 17% 65%
----------------------------- --------------- -------------- ------------------- ----------
The table shows the estimated value at the time of the Award or Option grant.
The actual value that any Participant will receive from the 2004 Plan when
either the Options are exercised or the Award is vested will depend on the
extent to which the Company meets the performance conditions set for each
Award or Option grant and the Company's share price at that time.
In broad terms PEV is a Watson Wyatt LLP proprietary mechanism which provides
a value for options and awards at the time of grant similar to a Black-Scholes
methodology. However PEV enhances Black-Scholes by taking into account other
factors, such as performance conditions, to give a more realistic value of
such grants.
29 March 2004
The Secretary
London Stock Exchange
RNS
Old Broad Street
London
EC2N 1HP
DOCUMENTS FOR VIEWING
A copy of the following documents:
Notice of Annual General Meeting 2004; and Shareholders' Circular: Proposed
new Senior Executive Share-based Incentive Plan, have been submitted to the UK
Listing Authority and will shortly be available for inspection at the UKLA
document viewing facility, which is situated at:
Financial Services Authority
25 The North Colonnade
Canary Wharf
London
E14 5HS