Sulzer Implant Settlement

Class Action Settlement Agreement

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ARTICLE 2. SULZER SETTLEMENT TRUST AND FUNDS

Section 2.1 ESTABLISHMENT OF SULZER SETTLEMENT TRUST

(a) The Sulzer Settlement Trust has been established to receive amounts to be paid by Sulzer, Sulzer AG and Winterthur, as applicable, and to receive and dispose of the CCI and the Settlement Shares for the benefit of Class Members pursuant to the terms of this Settlement Agreement and the Trust Agreement.

(b) On or after May 20, 2002, there shall be a single corporate Trustee of the Sulzer Settlement Trust, which shall succeed the interim Trustee. Such Trustee shall be a bank organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $100,000,000, subject to supervision and examination by federal or state authority and shall be appointed by Sulzer (with the consent of Class Counsel and the Special State Counsel Committee, such consent not to be unreasonably withheld), subject to the approval of the Court. The Trustee may serve as the paying agent responsible for distribution of payments at the direction of the Claims Administrator, as specified in Article 3 herein.

(c) None of Sulzer, Sulzer AG or Winterthur shall have any right to any of the funds previously deposited into or property previously transferred to, nor to any of the funds subsequently deposited into or property transferred to, the Sulzer Settlement Trust, on or after the date that such applicable amount is funded in accordance with Section 2.5 hereof. Upon satisfaction in full of all obligations hereunder, any remaining funds and property shall be distributed in accordance with Section 15.6 hereunder.

(d) Subject to the conditions set forth in this Settlement Agreement, amounts paid in accordance with Section 2.5 shall be allocated as set forth in Section 2.2(a) (the “Medical Research and Monitoring Fund”), Section 2.2(b) (the "Unrevised Affected Product Recipient Fund"), Section 2.2(c) (the “Affected Product Revision Surgery Fund”), Section 2.2(d) (the “Extraordinary Injury Fund”), Section 2.2(e) (the “Professional Services Fund”), Section 2.2(e)(i) (the "Subrogation and Uninsured Expenses Sub-Fund") and Section 2.2(e)(ii) (the “Plaintiffs’ Counsel Sub-Fund”).

Section 2.2 ESTABLISHMENT OF PATIENT BENEFIT FUNDS

(a) Medical Research and Monitoring Fund. The Sulzer Settlement Trust shall allocate $1.0 million to the Medical Research and Monitoring Fund, subject to Section 2.5(c).

(b) Unrevised Affected Product Recipient Fund. The Sulzer Settlement Trust shall initially allocate $28.0 million to the Unrevised Affected Product Recipient Fund.

(c) Affected Product Revision Surgery Fund. The Sulzer Settlement Trust shall initially allocate $622.5 million to the Affected Product Revision Surgery Fund.

(d) Extraordinary Fund Extraordinary Injury Fund. The Sulzer Settlement Trust shall allocate a minimum of $100.0 million to the Extraordinary Injury Fund.

(e) Professional Services Fund. The Sulzer Settlement Trust shall initially allocate $244.0 million to the Professional Services Fund, (i) $60.0 million of which shall be allocated out of the Initial Insurance Proceeds to the Subrogation and Uninsured Expenses Sub-Fund and (ii) $184.0 million of which shall be allocated to the Plaintiffs’ Counsel Sub-Fund.

(f) Re-Allocation. The Claims Administrator, with a recommendation from Class Counsel, together with the Special State Counsel Committee, may re-allocate the balance left in any of the various Funds under this Section 2.2 after payment of benefits to Class Members and/or associated professionals, as necessary to provide benefits to Class Members, with approval from the Court.

Section 2.3 SULZER SETTLEMENT TRUST BROKERAGE ACCOUNT

(a) Sulzer AG shall cause 480,349 Shares (the “Settlement Shares”) to be transferred to a brokerage account established by the Trustee on behalf of the Sulzer Settlement Trust (the “Settlement Trust Brokerage Account”) in accordance with Section 2.5(b) below and the Escrow Agreement.

(b) Upon transfer to the Settlement Trust Brokerage Account, each certificate evidencing Settlement Shares shall be stamped or otherwise imprinted (or, in the event the Settlement Shares shall then be uncertificated "book-entry" shares, the appropriate "stop-transfer" instructions and legend shall be provided to the transfer agent) with any legend that may be required under applicable United States, state or foreign securities laws, if any, as well as the following legend:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER SET FORTH IN THE CLASS ACTION SETTLEMENT AGREEMENT DATED AS OF MARCH 13, 2002, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL OFFICES.

Upon transfer to a Third Party Purchaser (as defined below) or in any other permitted sale in accordance with Section 2.3(c), the legend or "stop-transfer" instructions and legend (as applicable) set forth in Section 2.3(b)(ii) may be removed with respect to Settlement Shares delivered to such Third Party Purchaser or other transferee.

(c) In the event that the Trustee proposes to sell (i) more than 10% of the aggregate amount of Settlement Shares originally transferred to the Sulzer Settlement Trust in accordance with Section 2.5(b) and the terms of the Escrow Agreement in open market trades during any fifteen (15) day period or (ii) Settlement Shares in excess of 25,000 shares during any fifteen (15) day period in block trades, in any one or more related transactions (the “Proposed Disposition”), held in the Settlement Trust Brokerage Account (such Settlement Shares proposed to be transferred being referred to herein as the “Disposition Shares”), to a bona fide third party purchaser (the “Third Party Purchaser”), not less than ten (10) Business Days prior to such Proposed Disposition, the Trustee shall provide SML with written notice of such Proposed Disposition (the “Disposition Notice”). Such Disposition Notice shall include (i) all material terms and conditions of the Proposed Disposition, including the identity of the Third Party Purchaser and (ii) an irrevocable offer to sell the Disposition Shares to SML upon the same terms (including price) and subject to the same conditions as those contemplated in the Proposed Disposition (except that if any of the consideration therefor shall be other than cash, such offer shall be for cash consideration equal to the fair market value of such non-cash consideration). SML shall have the irrevocable right and option, within ten (10) Business Days after receipt of the Disposition Notice, to accept the offer to purchase any or all of the Disposition Shares on its behalf or for the benefit of its existing shareholders by delivering written notice to the Trustee (the “Election Notice”). In the event SML exercises its right to purchase the Disposition Shares, the consummation of such disposition shall take place no later than three (3) Business Days after the receipt by the Trustee of the Election Notice. In the event that SML elects not to purchase any portion of the Disposition Shares or fails to respond to the Disposition Notice, the Trustee shall have ninety (90) days in which to complete the Proposed Disposition of the remaining Disposition Shares to the Third Party Purchaser on terms and conditions not more favorable to the Third Party Purchaser than those contained in the Disposition Notice. If, at the end of such ninety (90) day period, the Trustee has not completed the disposition of any such Disposition Shares, the Trustee shall no longer be permitted to transfer such shares without again complying with the right of first refusal contained in this Section 2.3(c) with respect to such Disposition Shares.

(d) In the event that the CCI is converted in whole or in part into ADRs or Shares pursuant to the terms thereof, the Trustee shall deliver such ADRs or Shares to the Settlement Trust Brokerage Account for the purpose of either (i) distribution to Class Members, Common Benefit Attorneys and/or Plaintiffs’ Counsel pursuant to Section 3.4 and Article 5 of this Settlement Agreement or (ii) sale to third parties. The CCI, ADRs and/or Shares shall be issued by SOUS or SML, as applicable, in the United States pursuant to an exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”) by virtue of Section 3(a)(10) of the Securities Act. Sulzer shall take, at its sole expense, all action reasonably necessary to comply with the rules and regulations of the Securities and Exchange Commission and interpretations of the staff thereof to exempt the issuance of such instruments pursuant to Section 3(a)(10) of the Securities Act. It is the intent of the Parties that the ADRs or Shares received by third parties or Class Members, Common Benefit Attorneys and/or Plaintiffs’ Counsel in the United States shall be freely tradable by such persons upon issuance. Notwithstanding the foregoing, it is the intent of the Parties that Class Members shall receive the cash equivalent of such ADRs or Shares.

(e) The Sulzer Settlement Trust shall be the holder of record of all Settlement Shares and ADRs and/or Shares held in the Settlement Trust Brokerage Account until released therefrom and delivered to either (i) a Class Member, Common Benefit Attorneys or Plaintiffs’ Counsel in accordance with Section 3.4. and Article 5 hereof and/or (ii) a third party (in the case of any Settlement Shares, in accordance with Section 2.3(c)) and shall be entitled to all dividends or other distributions in respect of such Settlement Shares, ADRs and/or Shares, as applicable, until so delivered, provided that the Trustee shall vote the Settlement Shares, ADRs and/or Shares, as applicable, at the direction of the recommendation of the board of directors of SML; provided, that such vote is not inconsistent with the terms hereof.

Section 2.4 SECURITY ARRANGEMENTS

(a) The Parties agree that on or prior to the Fairness Hearing Date, the Trust shall enter into such agreements and documents as reasonably necessary to affect the release of all Liens on Sulzer’s assets in connection with the security interest previously granted to the Sulzer Settlement Trust, including but not limited to, UCC-3s or other evidence of release of Lien or mortgage, as applicable.

Section 2.5 FUNDING

(a) Sulzer shall deliver to the Sulzer Settlement Trust:

on or prior to the date that is the later of (x) one-hundred and eighty (180) days after the Trial Court Approval Date and (y) sixty (60) days after the Final Judicial Approval Date (such date of delivery being the "Funding Date"), $425.0 million in cash (less any payments made in respect of the Notice and claims administration fees and expenses paid pursuant to Section 2.5(f) below prior to the Funding Date) (the "Financing Amount"); provided, however, that such amount shall be increased by an amount equal to interest calculated at a floating LIBOR rate (such rate shall equal the one-month LIBOR as published in the Wall Street Journal on the date from which interest is calculated and shall be adjusted at the end of each three-month period during which interest is being calculated pursuant to this clause (i)) on the Financing Amount compounded annually and beginning one-hundred and eighty (180) days after Trial Court Approval Date through the Funding Date (if Sulzer does not pay the Financing Amount into the Sulzer Settlement Trust by the Funding Date and the Settlement Agreement has not been earlier terminated pursuant to Article 10 hereof, Sulzer shall be in default of this Settlement Agreement);

on the CCI Issue Date, the CCI, such instrument to be payable in accordance with the terms set forth on Annex V; and

on the Insurance Proceeds Delivery Date (as defined below), an amount in cash equal to the negative difference between the value of the Initial Insurance Proceeds required to be delivered by Winterthur pursuant to the Indemnification Agreement (plus any amounts paid pursuant to Section 3.9(a) prior to the Insurance Proceeds Delivery Date) and $178.5 million.

(b) On the 60th day following the Trial Court Approval Date, Sulzer AG shall deliver (i) $50.0 million in cash and (ii) the Settlement Shares to an escrow account pursuant to the terms of the escrow agreement (the “Escrow Agreement”) attached hereto as Exhibit A. Unless this Settlement Agreement is earlier terminated, the escrow account shall release such cash and the Settlement Shares to the Sulzer Settlement Trust in accordance with the terms of the Escrow Agreement.

(c) Winterthur shall fund, no later than the date that is thirty (30) Business Days after Trial Court Approval (the "Insurance Proceeds Delivery Date"), (i) the aggregate cash proceeds of the Initial Insurance Proceeds to the Affected Product Revision Surgery Fund and (ii) the Second Year Insurance Proceeds (which amount shall be $40.0 million) to an escrow account, in accordance with the terms of the Indemnification and Release Agreement dated as of March 13, 2002 (the “Indemnification Agreement”), by and among Sulzer, Sulzer AG and Winterthur. The Second Year Insurance Proceeds shall be delivered to the Sulzer Settlement Trust on the date that is the earlier of (x) the Funding Date and (y) the date that Class Members representing claims for no less than 800 Affected Product Revision Surgeries have validly elected the GPO in accordance with Article 8 hereof and all of the Initial Insurance Proceeds have been paid out of the Sulzer Settlement Trust. The Insurance Proceeds shall be used for the purposes of (i) paying Class Member benefits pursuant to Section 3.4 and Section 3.5, in accordance with Article 8 or otherwise, (ii) paying Extraordinary Injury Fund Benefits to Class Members pursuant to Section 3.7 hereof, (iii) paying attorneys' fees pursuant to Article 5 hereof with respect to Class Member payments payable under Sections 3.4, 3.5, and 3.7 hereof and expenses pursuant to Section 5.4 hereof and (iv) paying medical expenses to Medicare, other Third-Party Payors and Uninsured Class Members pursuant to Section 3.9 hereof. The Insurance Proceeds shall not be used for any purposes other than (i) paying Class Member benefits pursuant to Section 3.4, Section 3.5(b), and Section 3.5(c), in accordance with Article 8 or otherwise, (ii) paying Extraordinary Injury Fund Benefits to Class Members pursuant to Section 3.7 hereof, (iii) paying attorneys’ fees pursuant to Article 5 hereof with respect to Class Member payments payable under Sections 3.4, 3.5, and 3.7 hereof and expenses pursuant to Section 5.4 hereof and (iv) paying medical expenses to Medicare, other Third-Party Payors and Uninsured Class Members pursuant to Section 3.9 hereof. Winterthur shall have the right conduct an audit in respect of any Insurance Proceeds paid out of the Sulzer Settlement Trust. In the event that Winterthur does not deliver the Insurance Proceeds in accordance with this Section 2.5(c) in breach of the Indemnification Agreement, Sulzer and Sulzer AG agree to use commercially reasonable efforts to enforce such Indemnification Agreement to the extent of Winterthur’s obligation thereunder as it relates to Winterthur’s delivery of the Insurance Proceeds hereunder.

(d) In the event that there are more than 4,000 Affected Products Recipients that have an Affected Product Revision Surgery relating to (i) an Inter-Op Shell (other than a Reprocessed Inter-Op Product) prior to June 5, 2003 and/or (ii) a Tibial Baseplate prior to November 17, 2003 and who have made a claim in accordance with this Settlement Agreement, the Parties agree that any benefits owed to such Class Member pursuant to Section 3.4(a), Section 3.5(b), Section 3.7 and Section 3.9(a) shall be borne equally by Sulzer and the Sulzer Settlement Trust such that Sulzer shall deliver to the Sulzer Settlement Trust 50% of any such benefit at the time such benefit is paid to a Class Member and the Sulzer Settlement Trust shall provide for the additional 50% with funds payable pursuant to Sections 2.5(a)-(c) above.

(e) In the event that there are more than sixty-four (64) Affected Product Recipients that have Affected Product Revision Surgery relating to an Inter-Op Shell that is a Reprocessed Inter-Op Product prior to September 8, 2004 and who have made a claim in accordance with this Settlement Agreement, the Parties agree that any benefits owed to such Class Member pursuant to Section 3.4(a), Section 3.5(b), Section 3.7 and Section 3.9(a) shall be borne 100% by Sulzer and Sulzer shall deliver to the Sulzer Settlement Trust 100% of any such benefit at the time such benefit is paid to a Class Member.

(f) Sulzer agrees periodically upon invoice to pay reasonable fees and expenses related to the Notice (including, but not limited to fees and expenses relating to preliminary notification) and administration of claims incurred as of the date hereof and from and following the date hereof until the earlier of the termination of this Agreement in accordance with Article 10 and the Funding Date; provided, that such amount shall not exceed $4.5 million in the aggregate, without the prior written consent of Sulzer.

(g) In the event Sulzer is able to obtain insurance to cover the cost of additional benefits owed to Class Members pursuant to Section 2.5(d) and (e) above, Sulzer will negotiate in good faith with the Sulzer Settlement Trust, if requested, to include coverage of obligations of the Sulzer Settlement Trust pursuant to Section 2.5(d) and to allocate premiums as applicable.

Section 2.6 OTHER PROVISIONS

(a) The Parties agree that the Sulzer Settlement Trust is being established to resolve or satisfy one or more contested or uncontested claims that have resulted or may result from an event (or related series of events) that has occurred and has given rise to claims asserting liability arising out of a tort. The Sulzer Settlement Trust shall be structured and managed to qualify as a Qualified Settlement Fund under Section 468B of the Code and related Treasury Regulations and will contain customary provisions for such trusts including obligations of the Sulzer Settlement Trust to provide such information to Sulzer as Sulzer shall reasonably request for financial, legal, regulatory and tax purposes.

(b) The Parties agree that all of the amounts being paid to or on behalf of Class Members or Derivative Claimants pursuant to the terms of this Settlement Agreement are being paid as damages (other than punitive damages) on account of alleged personal physical injuries or alleged physical sickness of the members of the Settlement Class, including physical injuries or physical sickness resulting from alleged emotional harm, as described in Section 104(a)(2) of the Code. The Parties further agree that the claims set forth in the definition of Settled Claims in Article 1 have their origin in such alleged physical personal injuries or physical sickness.

(c) Neither Sulzer nor Sulzer AG shall have any financial obligations under this Settlement Agreement other than the payment obligations explicitly set forth in this Settlement Agreement. Neither Sulzer nor Sulzer AG or any of the other Released Parties shall have any responsibility for the management of the Sulzer Settlement Trust or any liability to any Class Member arising from the handling of claims by the Trustee and/or Claims Administrator.

(d) All cash and property transferred into the Sulzer Settlement Trust shall be the sole property of the Sulzer Settlement Trust, and the Trustee shall withhold and pay over such taxes as may be required and shall fulfill all tax filing obligations, including applicable reporting obligations with respect to all distributions and payments pursuant to the terms of this Settlement Agreement. The Sulzer Settlement Trust shall be responsible for all fees, taxes and other costs of administration of the Funds, including, without limitation, taxes on any income or gain earned on such Funds.

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