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Notice of Annual General Meeting

Notice is hereby given that the seventy-first annual general meeting of the members of Smith & Nephew plc will be held on Thursday 1 May 2008 at 2.00 pm at The Royal Society, 6 – 9 Carlton House Terrace, London SW1Y 5AG, when the resolutions set out below will be proposed.

Ordinary business

To receive and adopt the audited accounts for the year ended 31 December 2007 together with the reports of the directors and auditors thereon.
To approve the remuneration report of the directors for the year ended 31 December 2007.
To confirm the 2007 first interim dividend of US¢4.51 per ordinary share and to confirm the 2007 second interim dividend of US¢7.38 per ordinary share.
To re-elect John Buchanan as a director of the Company.
To re-elect Dr Pamela J. Kirby as a director of the Company.
To re-elect Brian Larcombe as a director of the Company.
To re-elect Dr Rolf W.H. Stomberg as a director of the Company.
To re-appoint Ernst & Young LLP as auditors of the Company.
To authorise the directors to determine the remuneration of the auditors of the Company.
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 2009 or 1 August 2009, 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 US$50,194,406.

Special business

To consider and, if thought fit, pass the following resolutions as special resolutions:

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 be and is renewed until the conclusion of the annual general meeting of the Company in 2009 or 1 August 2009, 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 US$9,482,121.
That, in substitution for any existing authority to purchase ordinary shares under 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 20 US cents each in the capital of the Company (‘ordinary shares’) provided that:
- the maximum number of ordinary shares that may be purchased is 94,821,208 being approximately 10 per cent of the issued ordinary share capital as at 12 March 2008;
- the minimum price which may be paid for an ordinary share is 20 US cents and the maximum price which may be paid for an ordinary share is the higher of i) 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; and ii) an amount equal to the higher of the price of the last independent trade and the highest current independent bid as derived from the London Stock Exchange Trading System (SETS); and
- the authority hereby conferred shall expire on the earlier of the conclusion of the next annual general meeting of the Company and 1 August 2009 (the ‘Expiry Date’), unless the authority is renewed prior to the Expiry Date provided that the Company may purchase ordinary shares under this authority after the Expiry Date pursuant to a contract entered into before the Expiry Date.
That the proposed new articles of association of the Company as submitted to the meeting and signed by the Chairman for the purposes of identification be adopted as the articles of association of the Company.

To consider and, if thought fit, pass the following resolution as an ordinary resolution:

That the limit on individual participation under the Performance Share Plan be increased, so that the initial market value of the shares subject to an award shall not exceed 150% of the participant’s basic annual salary at the time the award is made.

By order of the Board, 27 March 2008

Paul Chambers
Secretary

Registered office
15 Adam Street,
London WC2N 6LA.
Registered in England No. 324357.

Notes

Only those shareholders on the register of members of the Company as at 6.00 pm on 29 April 2008 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 29 April 2008 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. You may register your proxy appointment via our registrars website at www.sharevote.co.uk. To be effective, the proxy appointment must reach the Company’s registrars not later than 2.00 pm on 29 April 2008.
A member is entitled to appoint another person as his proxy to exercise all or any of his rights to attend, to speak and to vote at the meeting. A member may appoint more than one proxy in relation to the meeting, provided that each proxy is appointed to exercise the rights attached to a different share or shares held by him. A proxy need not be a member of the Company. All proxies must be submitted at the office of the registrars not later than 48 hours before the time of the meeting. Appointing a proxy will not preclude a member attending and voting in person at the meeting. If you require additional forms of proxy, please contact the registrars of the Company on 0871 384 2081 (calls to this number are charged at 8p per minute from a BT landline. Other telephony providers' costs may vary) or +44 (0)121 415 7072 if calling from outside the UK.
In order to facilitate voting by corporate representatives at the meeting, arrangements will be put in place at the meeting so that (i) if a corporate shareholder has appointed the Chairman of the meeting as its corporate representative with instructions to vote on a poll in accordance with the directions of all of the other corporate representatives for that shareholder at the meeting, then on a poll those corporate representatives will give voting directions to the Chairman and the Chairman will vote (or withhold a vote) as corporate representative in accordance with those directions; and (ii) if more than one corporate representative for the same corporate shareholder attends the meeting but the corporate shareholder has not appointed the Chairman of the meeting as its corporate representative, a designated corporate representative will be nominated, from those corporate representatives who attend, who will vote on a poll and the other corporate representatives will give voting directions to that designated corporate representative. Corporate shareholders are referred to the guidance issued by the Institute of Chartered Secretaries and Administrators on proxies and corporate representatives
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 1 May 2008 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 Euroclear’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 2.00 pm on 29 April. 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 Euroclear 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.
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 Equiniti, including the lodgement of an electronic form of proxy, that is found to contain a computer virus will not be accepted.
Shareholders should note that it is possible that, pursuant to requests made by members of the Company under section 527 of the Companies Act 2006, the Company may be required to publish on a website a statement setting out any matter relating to: (i) the audit of the Company’s accounts (including the auditor’s report and the conduct of the audit) that are to be laid before the annual general meeting; or (ii) any circumstance connected with an auditor of the Company ceasing to hold office since the previous meeting at which annual accounts and reports were laid (in each case) that the members propose to raise at the annual general meeting. The Company may not require the members requesting any such website publication to pay its expenses in complying with sections 527 or 528 of the Companies Act 2006. Where the Company is required to place a statement on a website under section 527 of the Companies Act 2006, it must forward the statement to the Company’s auditor not later than the time when it makes the statement available on the website. The business which may be dealt with at the Annual General Meting includes any statement that the Company has been required under section 527 of the Companies Act 2006 to publish on a website.
A person who is not a shareholder of the Company, but has been nominated by a shareholder to enjoy information rights in accordance with section 146 of the Companies Act 2006 (“nominated person”) does not have a right to appoint any proxy. Nominated persons may have a right under an agreement with the shareholder to be appointed (or to have someone else appointed) as a proxy for the meeting. Alternatively, if nominated persons do not have such a right, or do not wish to exercise it, they may have a right under an agreement with the relevant shareholder to give instructions as to the exercise of voting rights. If you have been nominated to receive general shareholder communications directly from the Company, it is important to remember that your main contact in terms of your investment remains the registered shareholder or custodian or broker who administers the investment on your behalf. Therefore, any changes or queries relating to your personal details and holding (including any administration) must continue to be directed to your existing contact at your investment manager or custodian. The Company cannot guarantee to deal with matters that are directed to them in error. The only exception to this is where the Company, in exercising one of its powers under the Companies Act 2006, writes to you directly for a response.
The following documents, which are available for inspection during normal business hours at the registered office of the Company on any weekday (Saturday and public holidays excluded), and will also be available for inspection at the place of the annual general meeting from 1.30 pm on the day of the meeting until the conclusion of the meeting:
- copies of service contracts and letters of appointment of the directors with the Company;
- the register of interests of the directors in the share capital of the Company;
- copies of the deeds of indemnity of the directors;
- a copy of the proposed new articles of association of the Company; and
- a copy of the proposed amended rules of the Smith & Nephew 2004 Performance Share Plan.

Explanatory Notes

Resolution 1: Report and accounts

This is a standard resolution common to all annual general meetings.

Resolution 2: Remuneration report

All UK listed companies are required to put their remuneration report to shareholders. The full remuneration report can be found on pages 61 to 72 of the 2007 Annual Report which can be viewed here.

Resolution 3: Dividend

Under the articles of association the directors may declare and pay dividends as interim dividends. As such, they are not dependent on shareholder approval. However, in accordance with good practice, shareholders are provided with the opportunity to vote on the 2007 first interim dividend declared by the directors on 2 August 2007 and paid on 9 November 2007 and the 2007 second interim dividend declared by the directors on 7 February 2008 and payable on 9 May 2008.

Resolutions 4 to 7: Re-election of directors

Under the Company’s articles of association directors appointed by the Board are required to submit themselves for re-election at the first annual general meeting following their appointment and in addition, each director retires at the third annual general meeting after he or she was last re-elected. In accordance with the articles of association, John Buchanan, Dr Pamela Kirby and Brian Larcombe, independent non-executive directors retire at the annual general meeting and seek re-election. Dr Rolf Stomberg has served as a director for 10 years and in line with good corporate governance practice retires each year at the annual general meeting and seeks re-election.

John Buchanan (64). Independent non-executive Chairman. He was appointed independent non-executive Deputy Chairman in 2005 and became Chairman in April 2006. He is Chariman of the Nominations Committee. He is Deputy Chairman of Vodafone Group Plc and a non-executive director of AstraZeneca PLC and BHP Billiton. He was formerly Group Chief Financial Officer of BP plc.
Dr. Pamela J. Kirby (54). Independent non-executive director. She was appointed a director in March 2002 and is a member of the Remuneration Committee. She is non-executive Chairman of Scynexis Inc and a non-executive director of Informa plc, Curalogic A/S and Novo Nordisk A/S.
Brian Larcombe (54). Independent non-executive director. He was appointed a director in March 2002 and is a member of the Audit Committee. He is Chairman of Bramdean Alternatives Limited and a non-executive director of F&C Asset Management plc. Previously he was Chief Executive Officer of 3i Group plc.
Dr. Rolf W. H. Stomberg (67). Independent non-executive director and Senior Independent Director. He was appointed a director in 1998 and is Chairman of the Remuneration Committee and a member of the Audit Committee and Nominations Committee. He is Chairman of Francotyp – Postalia Holding AG and Lanxess AG and a non-executive director of Reed Elsevier plc, Hoyer GmbH, TNT N.V., Deutsche BP AG, Biesterfeld AG and Serverstal.

Resolutions 8 and 9: Reappointment and remuneration of auditors

Resolution 8 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. Resolution 9 proposes that their remuneration be determined by the directors.

Resolution 10: General authority to allot shares

Resolution 10 seeks to renew the directors’ general authority to allot shares up to an aggregate nominal amount of US$50,194,406 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 250,972,028 shares and represents approximately 28% of the nominal amount of the issued share capital (excluding treasury shares) as at 12 March 2008. At this date, the Company held 57,744,483 ordinary shares in treasury, representing 6.5% of the issued share capital excluding treasury shares. Other than in connection with the Company’s various share-based plans for senior executives and employees, the 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 11: Disapplication of pre-emption rights

Resolution 11 is a special resolution which seeks to renew the directors’ power to allot shares or grant rights over shares or 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 treasury shares for cash up to an aggregate nominal value of US$9,482,121 (being 5% of the issued ordinary share capital at 12 March 2008). If given, this authority will expire on 1 August 2009 or at the conclusion of the annual general meeting in 2009, whichever is the earlier. The directors, in any three year period, will not issue more than 7.5% of the issued share capital on a pre-emptive basis.

Resolution 12: Purchase of own shares

Resolution 12 is a special resolution which seeks renewal of the general authority from shareholders to purchase the Company’s own shares. As announced on 8 February 2007, the directors intend to purchase up to US$1.5 billion of the Company’s shares over a two year period ending February 2009. The Company subsequently announced on 7 February 2008 that this period will be extended for a further 12 months. In purchasing the Company’s shares, the directors would consider the effects on earnings per share and the benefits for shareholders generally. Any shares purchased by the Company will either be cancelled immediately and the number of shares in issue will be reduced accordingly, or held as treasury shares in accordance with the Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003 for re-sale, transfer for use with the Company’s employee share plans or for cancelling. As at 12 March 2008, 57,744,483 ordinary shares are held in treasury. The holding of shares as treasury shares provides the Company with additional flexibility in the management of its capital base. 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 would be effected by purchases in the market.

Resolution 13: Adoption of new articles

During the last year, a number of sections of the Companies Act 2006 (the “2006 Act”) have come into force which affect the constitutional documents of UK listed public companies. Given the number of amendments to be made in connection with this, the directors consider it prudent to adopt new articles of association in order to comply with this new legislation. A full copy of the proposed new articles of association will be available for inspection until the date of the annual general meeting at the registered office of the Company and also at the place specified for the annual general meeting for 30 minutes prior to and during the annual general meeting. The principal changes to be made to the existing articles of association are:

changes to the article on indemnities and defence expenditure are proposed to reflect the latest market practice following statutory changes to the Companies Act 1985;
the 2006 Act provides for enhanced rights or proxies to speak at meetings and vote on a show of hands; in addition, multiple proxies and corporate representatives may now be appointed by the same shareholder. The articles will be updated to reflect these rights;
references to having an age limit for directors are proposed to be deleted to conform with new age discrimination laws;
some changes will be made to reflect the latest practice as to electronic communications;
notice periods for meetings were changed by the 2006 Act, so that 21 days notice must be given for an AGM but only 14 days notice is needed for other general meetings, so the articles will be changed to reflect this; and
companies are now required to have their AGM within 6 months of their year end (rather than the previous situation, which was within 15 months of the previous AGM), so the articles will be changed to reflect this.
Further to the above changes, a number of minor changes are proposed to bring the articles in line with the latest changes to company law and best practice and to update references to now repealed statutes.
The Companies Act 2006 sets out directors’ general duties which largely codify the existing law but with some changes. Under the Companies Act, from 1 October 2008 a director must avoid a situation where he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the Company’s interests. The requirement is very broad and could apply, for example, if a director becomes a director of another company or a trustee of another organization. The Companies Act 2006 allows directors of public companies to authorise conflicts and potential conflicts where appropriate, where the articles of association contain a provision to this effect. The Companies Act 2006 also allows the articles to contain other provisions for dealing with directors’ conflicts of interest to avoid a breach of duty. The new articles of association give the directors authority to approve such situations and to include other provisions to allow conflicts of interest to be dealt with in a similar way to the current position.

There are safeguards that will apply when directors decide whether to authorise a conflict. First, only directors who have no interest in the matter being considered will be able to take the relevant decision, and secondly, in taking the decision the directors must act in a way they consider, in good faith, will be most likely to promote the Company’s success. The directors will be able to impose limits or conditions when giving authorisation if they think this is appropriate.

It is also proposed that the new articles of association should contain provisions relating to confidential information, attendance at Board meetings and availability of board papers to protect a director being in breach of duty if a conflict of interest or potential conflict of interest arises. These provisions will only apply where the position giving rise to the potential conflict has previously been authorised by the directors.

It is the Board’s intention to report annually on the Company’s procedures for ensuring that the board’s powers of authorisation of conflicts are operated effectively and that the procedures have been followed.

Due to the phased nature of implementation of the 2006 Act it is likely that further related changes to the articles of association will be proposed at a later annual general meeting.

Resolution 14: Amendment to the 2004 Performance Share Plan (“PSP”)

Resolution 14 seeks approval to increase the limit on individual participation under the PSP, so that the initial market value of the shares subject to an award shall not exceed 150% of the participant’s basic annual salary at the time the award is made. This amendment forms part of a wider review of executive remuneration, which is detailed in the Remuneration Report (found on pages 61 to 72 of the 2007 Annual Report which can be viewed here).

The maintenance and integrity of the Smith & Nephew plc web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the Annual report and Summary Financial Statement since they were initially presented on the web site.