Sulzer Implant Settlement

Final Notice

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

IN RE: SULZER HIP PROSTHESIS AND
KNEE PROSTHESIS PRODUCT
LIABILITY LITIGATION

This Document Relates to All Cases :

MDL DOCKET NO. 1401

Judge Kathleen M. O’Malley

FINAL NOTICE OF SETTLEMENT OF NATIONWIDE HIP PROSTHESIS
AND KNEE PROSTHESIS PRODUCT LIABILITY
CLASS ACTION LITIGATION

YOUR RIGHTS MAY BE AFFECTED BY THE SETTLEMENT OF A CLASS ACTION LAWSUIT NOW PENDING IN THIS COURT. PLEASE READ THIS FINAL NOTICE CAREFULLY. IF YOU OR YOUR SPOUSE HAVE HAD A HIP OR KNEE IMPLANT YOU MAY BE ENTITLED TO MONEY.

This is not a lawsuit against you. You are NOT being sued. This is a notice of a proposed class action settlement ("Final Notice" ¹), whereby eligible Class Members may receive compensation. The terms of the proposed March 13, 2002 Class Action Settlement Agreement are more advantageous to you than those contained in the Class Action Settlement proposed in October 2001. This Final Notice includes important information that will help you decide whether to participate in this Class Action Settlement (the "Settlement").

1 If there are discrepancies between the Settlement Agreement and the Final Notice, the Settlement Agreement shall control.

TO: All citizens or residents of the United States who have had implanted an affected Inter-Op™ Acetabular Shell, Reprocessed Inter-Op™ Acetabular Shell or affected Natural Knee II® Tibial Baseplate (collectively referred to herein as "Affected Products" ²) in their bodies, together with their associated consortium claimants ("Derivative Claimants" ³).

THIS FINAL NOTICE IS BEING SENT TO:

• Advise you of the Court’s provisional certification of this Class Action and the Court’s preliminary approval of a Settlement Agreement executed on March 13, 2002 between Sulzer Orthopedics Inc., Sulzer Medica Ltd. (a.k.a. Sulzer Medica AG) (hereinafter collectively referred to as "Sulzer") and Sulzer Ltd. (a.k.a. Sulzer AG) and individuals who were implanted with Affected Products (Affected Product Recipients⁴ and Representative Claimants⁵).
• Notify you of a Fairness Hearing to be held before Judge Kathleen M. O’Malley on May 6, 2002 in the United States District Court for the Northern District of Ohio in Cleveland, Ohio, to determine the fairness, adequacy and reasonableness of the proposed Settlement.
• Advise you of your rights as a Class Member⁶ to support or object to the Settlement.
• Advise you of your right to participate in the benefits offered in the Settlement, including the right to receive accelerated payments through the Guaranteed Payment Option ("GPO") or to exclude yourself ("Opt-Out") from the benefits offered in the Settlement.
• Alert you to the following important dates and deadlines for Class Members:
  
  1. April 29, 2002: Deadline for written comments and objections to the Settlement;
     
  2. May 6, 2002"Fairness Hearing" before the Court;
     
  3. Five (5) business days after Trial Court Approval⁷: Deadline for submission of necessary paperwork to Opt-Out of the Settlement. (NOTE: The necessary paperwork for an individual to exercise his/her Opt-Out Right must be received by the Claims Administrator by 5:00 p.m. on or before the above date in order to be valid). (See What Are Opt-Out Rights And How Do I Exercise Them, below,for an explanation on how to Opt-Out and the ramifications of exercising an Opt-Out Right).

Included with this Final Notice is the Class Member and Attorney Guide to the Sulzer Hip/Knee Class Action Settlement ("Class Member Guide"), which contains instructions to make a claim and the forms that must be completed by each Class Member to receive benefits under the Settlement. If you choose to Opt-Out, you are NOT eligible to receive the benefits offered in the Settlement, and you should NOT submit any Claim Forms.

WHAT IS THE SULZER HIP PROSTHESIS KNEE PROSTHESIS PRODUCT LIABILITY LITIGATION ABOUT?

Inter-Op™ Acetabular Shell and Reprocessed Inter-Op™ Shells ("Hip Implants").

Sulzer designs, manufactures and distributes orthopedic implants for hips, knees, shoulders, and elbows. One of its products is known as the Inter-Op™ Acetabular Shell (otherwise referred to herein as an Inter-Op™ Shell). Sulzer also distributed Reprocessed Inter-Op™ Shells that have undergone additional manufacturing reprocessing.

A manufacturing defect prevented some of Sulzer’s Inter-Op™ Shells and Reprocessed Inter-Op™ Shells from functioning properly. Sulzer received reports that some individuals implanted with its Inter-Op™ Shells experienced adverse symptoms, including severe groin pain and inability to bear weight on their leg. In early December of 2000, Sulzer announced a >voluntary recall of certain manufacturing lots of its Inter-Op™ Shells.

Natural Knee II® Tibial Baseplate (Knee Implants).

Sulzer also designed, manufactured and distributed a product known as the Natural Knee II® Tibial Baseplate ("Tibial Baseplate"), an orthopedic knee implant.

A manufacturing defect prevented some of Sulzer’s Tibial Baseplates from functioning properly. Sulzer received reports that several individuals implanted with its Tibial Baseplates experienced adverse symptoms, including poor recovery progress, radiolucencies under the baseplate and ambulatory pain. In May, 2001, Sulzer issued a Special Notification, informing surgeons who had implanted its Tibial Baseplates of unanticipated adverse clinical outcomes of certain manufacturing lots of its Tibial Baseplates.

History of the Litigation.

Lawsuits were filed in both state and federal courts throughout the country against Sulzer for the defective design, marketing and manufacture of its Inter-Op™ Shells, Reprocessed Inter-Op™ Shells and Tibial Baseplates. Plaintiffs also alleged claims against Sulzer for breach of express and implied warranties associated with these devices.

On June 19, 2001, the Judicial Panel on Multi-District Litigation (the "MDL") consolidated and transferred all pending federal litigation relating to the Inter-Op™ Shell to the Honorable Kathleen M. O’Malley, United States District Court Judge, Northern District of Ohio ("the Court"). Thereafter, on August 29, 2001, the Court provisionally certified a class of Inter-Op™ Shell recipients and Derivative Claimants and granted preliminary approval to the parties’ Settlement Agreement. On September 5, 2001, the MDL transferred a case involving a Tibial Baseplate to the Northern District of Ohio, finding it involved questions of fact similar to those being addressed by the Court in the litigation involving the Inter-Op™ Shell. On October 19, 2001, the Court provisionally certified a class that included recipients of both Inter-Op™ Shells and Tibial Baseplates, as well as their Derivative Claimants. The Court additionally preliminarily approved a Settlement Agreement that involved both devices.

After extensive discovery by Plaintiffs’ attorneys regarding the liability of Sulzer Orthopedics Inc., Sulzer Medica Ltd., and Sulzer Ltd. (including their liability insurance) for all of the Affected Products, and extensive discovery regarding the financial condition of Sulzer Orthopedics Inc., Sulzer Medica Ltd., and Sulzer Ltd., a Memorandum of Understanding outlining the terms of a revised Settlement was agreed to on February 1, 2002. Thereafter, on March 13, 2002, a new Settlement was entered into by the parties.

The terms of this new settlement are significantly more favorable to the plaintiff Class Members than the terms of the prior Settlements. This Final Notice describes the new Settlement. In addition to the MDL in Federal Court, a number of cases were filed and extensively litigated in state courts around the country. This new Settlement Agreement was reached through the combined efforts of both federal and state lawyers. On March 13, 2002, this Settlement Agreement received preliminary approval from the Court.

WHAT IS A CLASS ACTION?

Class actions are lawsuits brought by representative plaintiffs ("Class Representatives") on behalf of many people. Class actions permit the Class Representatives to sue on behalf of a large number of people, who all have similar claims against the same defendants. Class actions eliminate the need for these people to file their own individual lawsuits and undertake similar costs and expenses. Class actions help the court system to resolve claims involving many people in a more efficient and economical way, and to assure that people with similar claims are similarly treated.

WHAT IS THE COURT’S ROLE IN A CLASS ACTION?

In addition to its normal duties, a Court has additional functions in a class action. It must make sure that the Class Representatives fairly and adequately represent the interests of the class and that they do not have interests that are antagonistic with the class they are representing. The Court officially appoints Class Counsel and makes sure that Class Counsel is competent to represent the interests of the Class Members. Finally, the Court must determine that any proposed settlement is fair.

HOW DO I KNOW IF I AM A CLASS MEMBER?

If you are a citizen or resident of the United States who had an Affected Product implanted in your body, you are a Class Member. You are also a Class Member if you are a "Derivative Claimant," as previously defined.

HOW DO I KNOW IF I WAS IMPLANTED WITH AN AFFECTED PRODUCT?

You were implanted with an Affected Product, if:

1. You were implanted with an Inter-Op™ Acetabular Shell or a Natural Knee II® Tibial Baseplate identified on Exhibit I; or
2. You were implanted with a Reprocessed Inter-Op™ Shell identified on Exhibit II.

If you are unsure whether you were implanted with an Affected Product, and you have previously hired your own counsel, you are encouraged to contact him/her. If you do not have your own counsel, you are encouraged to contact the Claims Administrator or Plaintiffs’ Liaison Class Counsel.

IF I AM A CLASS MEMBER, WHAT BENEFITS ARE AVAILABLE TO ME AS A RESULT OF THE SETTLEMENT?

The Settlement provides for a number of benefits to be paid from various funds. Eligibility for benefits is dependent on certain criteria outlined in the Settlement. In many cases, Class Members will be entitled to claim benefits from two or more funds, depending on their individual circumstances.

Under the terms of the Settlement, Sulzer, Sulzer Ltd. and Winterthur Insurance Company will place money in a Settlement Trust that will be established for the administration of the Settlement. The Settlement Trust will deposit the money in the following five funds:

1. The Medical Research and Monitoring Fund shall finance medical research relating to reconstructive orthopedic implants. Additionally, this fund shall establish and maintain a voluntary "registry" of Class Members to collect information and data to monitor the medical condition of Class Members.
2. The Unrevised Affected Product Recipient Fund shall pay benefits to Class Members, other than those implanted with a Reprocessed Inter-Op™ Shell, who have not undergone an Affected Product Revision Surgery⁸ ("APRS"). Additionally, this fund shall pay benefits to Derivative Claimants of these Class Members.
3. The Affected Product Revision Surgery Fund shall pay benefits to Class Members who undergo an APRS. Additionally, this fund shall pay benefits to Derivative Claimants of these Class Members.
4. The Extraordinary Injury Fund ("EIF") shall pay benefits to Class Members who suffer extraordinary harm, including, without limitation, Class Members who are in need of an APRS but are medically incapable of undergoing an APRS or Class Members who suffer complications or other harm as a result of a Covered Revision Surgery.⁹ Additionally, this fund shall pay benefits to Derivative Claimants of these Class Members.
5. The Professional Services Fund shall pay reasonable and necessary expenses incurred by Uninsured Affected Product Recipients with respect to an APRS, and it shall pay Medicare, Medicaid and other Third-Party Payors¹⁰ subrogation claims or other claims for medical expenses paid on behalf of Class Members in an amount not to exceed Fifteen Thousand Dollars ($15,000.00) in the aggregate for all claims made with respect to an APRS. This fund will also pay a portion of each Class Member’s individual attorney’s fees in connection with the benefits they receive from the Settlement, if applicable, and will pay attorney’s fees to Class Counsel.

WHAT COMPENSATION IS PAID TO CLASS MEMBERS?

Eligibility For Payment To Class Members From The Unrevised Affected Product Recipient Fund

Class Members other than those implanted with Reprocessed Inter-Op™ Shells who have not undergone an Affected Product Revision Surgery before the Final Judicial Approval Date shall be entitled to receive One Thousand Dollars ($1,000.00). Additionally, these Class Members may be eligible to receive compensation under the Extraordinary Injury Fund ("EIF"). (See Eligibility for Payment to Class Members from the Extraordinary Injury Fund section to determine eligibility for EIF compensation). Derivative Claimants are entitled to receive Two Hundred Fifty Dollars ($250.00).

Eligibility For Payment To Class Members From The Affected Product Revision Surgery Fund

Class Members who: (i) had an Inter-Op™ Shell removed on or before June 5, 2003; and/or (ii) had a Reprocessed Inter-Op™ Shell removed on or before September 8, 2004; and/or (iii) had a Tibial Baseplate removed on or before November 17, 2003, shall be entitled to receive One Hundred Sixty Thousand Dollars ($160,000.00). This Class Member will also have an opportunity to participate in a plan that guarantees payment of a portion of this money quickly under the "Guaranteed Payment Option (GPO)" (See WHAT IS THE GUARANTEED PAYMENT OPTION section for an explanation of the GPO). Additionally, this Class Member may be entitled to receive compensation under the Extraordinary Injury Fund. Derivative Claimants are entitled to receive One Thousand Six Hundred Dollars ($1,600.00).

Eligibility For Payment To Class Members From The Extraordinary Injury Fund

This fund is available to compensate Class Members who suffer extraordinary injury or other harm related to an Affected Product.

For example, if you are entitled to payment from the Unrevised Affected Product Recipient Fund, or you were implanted with a Reprocessed Inter-Op™ Shell, you may be eligible for additional payments from the Extraordinary Injury Fund ("EIF"), if you:

1. are medically incapable of undergoing a procedure to remove the Sulzer device that would otherwise be indicated, or
2. have undergone a surgical procedure where the treating surgeon attempted to secure a loosened Affected Product using screws, cement, or some other means, and the loosening was caused by reasons other than trauma.

Further, if you are entitled to payment from the Affected Product Revision Surgery Fund, you may be entitled to additional payments from the EIF, if, as a result of a Covered Revision Surgery, you experience certain complications or other damages.

The amount of EIF compensation will depend on several facts, including (1) the complication or other harm that you have experienced; (2) the severity of your complication or other harm; (3) your age at the time that the complication or other harm occurred; and (4) the Claims Administrator’s assessment of your complication or other harm relative to the complications and harm experienced by other Class Members. Depending on these factors, Class Members may receive up to Eight Hundred Thousand Dollars ($800,000.00) in EIF benefits. Derivative Claimants will receive up to one percent (1%) of the total EIF benefit to which the Affected Product Recipient is entitled. These benefits will only be available after the Settlement receives Final Judicial Approval, as defined in footnote 11.

Eligibility For Payment To Class Members For Charges To Third Party Payors

The Settlement shall pay up to Fifteen Thousand Dollars ($15,000.00) per Class Member to: (i) Third Party Payors (including the United States on behalf of the Center for Medicare and Medicaid Services); (ii) other Third Party Payors in respect to subrogation or other claims for medical expenses; and (iii) Class Members who at the time of an APRS have no private, state, federal or other health care coverage for any medical care incurred by them with respect to an APRS (the "Uninsured Affected Product Recipients"). Sulzer also agrees to pay the reasonable and necessary medical expenses incurred by the Uninsured Affected Product Recipients with respect to an APRS that exceeds Fifteen Thousand Dollars ($15,000.00), up to a maximum of Two Million Dollars ($2,000,000.00) in the aggregate.

The Sulzer Settlement Trust shall defend and hold Class Members and Plaintiffs’ Counsel harmless against any claims by a subrogee directly against such Class Member or Plaintiffs’ Counsel for reimbursement of medical expenses of an Affected Product Recipient necessitated by an Affected Product.

Eligibility For Payment Of Class Member’s Individual Attorney Fees

Some Class Members have entered into private fee agreements with their own attorneys. Private fee agreements entered into prior to February 2, 2002 will not be affected by this Settlement, with minor exceptions noted below. The Settlement Trust will pay a portion of the attorney fees owed by class members to their attorneys under these private fee agreements.

If a Class Member entered into a contingency fee agreement with his or her own attorney, the contingency fee shall apply against benefits received by the Class Member under the Affected Product Revision Surgery Fund and the Extraordinary Injury Fund. Class Members may also receive benefits under the Unrevised Affected Product Recipient Fund, the Subrogation and Uninsured Medical Expenses Fund and the Medical Research and Monitoring Fund. Contingency fees, however, shall not apply against these benefits.

(1) Contingent Fee Calculations:

In order to calculate the fee pursuant to a contingency fee contract, the Class Member’s attorney shall apply the contingency percentage to the product reached by multiplying the stated benefit (under either the Affected Product Revision Surgery Fund or Extraordinary Injury Fund) amount by 1.25.

Example If a Class Member’s stated benefit under the Affected Product Revision Surgery Fund is $160,000, and the Class Member’s contingency contract rate is 33 1/3%, then the attorney fee calculation will be as follows:

33 1/3% of $160,000 x 1.25 = $66,666

(2) Fee Payment by the Settlement Trust:

As a benefit to the Class Member, the Settlement Trust shall pay a portion of the Class Member’s attorney fees. This contribution to the attorney fees shall be equal to 23% of the stated benefit x 1.25.

Example: If the stated benefit under the Affected Product Revision Surgery Fund is $160,000 and the contingency contract rate is 33 1/3% then the fee calculation will be as follows:

23% of $160,000 x 1.25 = $46,000

NOTE: This payment towards a Class Member’s attorney fees shall be a set off from, not an addition to, the amount of attorney fees owed by the Class Member. Therefore, under the above example, the Class Member’s attorney, after receiving the fee payment benefit under the settlement, will be entitled to collect up to $20,666 [i.e., $66,666 – $46,000] directly from the Class Member.

WHEN WILL I BE PAID?

Unrevised Affected Product Recipient Fund payments to Class Members will be paid by the date that is the later of forty-five (45) days following: (i) the Funding Date¹¹; and (ii) the date that the Claims Administrator makes a Final Determination with respect to such Class Member.¹²

Affected Product Revision Surgery Fund benefits paid to Class Members who select the GPO (See WHAT IS THE GUARANTEED PAYMENT OPTION section for a full explanation of the GPO) shall be paid as follows: (i) 25% of APRS Fund Benefits by the date that is the later of sixty (60) days after the Insurance Proceeds Delivery Date (estimated to be July 1, 2002) or forty-five (45) days after the Claims Administrator receives such Class Member’s completed Orange Form; (ii) 30% of APRS Fund Benefits by the date that is the later of forty-five (45) days following the Funding Date and the date the Claims Administrator makes a Final Determination with respect to the Class Member; and (iii) 45% of APRS Fund Benefits by the date that is the later of twenty (20) months from the CCI Issue Date¹³ and the date the Claims Administrator makes a Final Determination with respect to the Class Member.

Affected Product Revision Surgery Fund payments to Class Members who do NOT select the GPO option will be paid as follows: (i) 55% of APRS Fund Benefits by the date that is the later of forty-five (45) days following the Funding Date and the date the Claims Administrator makes a Final Determination with respect to the Class Member; and (ii) 45% of APRS Fund Benefits by the date that is the later of twenty (20) months from the CCI Issue Date and the date the Claims Administrator makes a Final Determination with respect to the Class Member.

Extraordinary Injury Fund benefits paid to Class Members will be paid in installments at the discretion of the Claims Administrator. The first payment will not be less than 50% of the total value of the EIF Benefits due to the Class Member.

Professional Services Fund benefits paid to Class Members will be paid by the date that is the later of forty-five (45) days of the Funding Date or the date the Claims Administrator makes a Final Determination as to the Class Member.

WHAT IS THE GUARANTEED PAYMENT OPTION?

In most class action settlements, Class Members must wait until after a lengthy court approval and appeals process to receive any payments. If that lengthy process does not result in "Final Judicial Approval" of the Settlement, then none of the settlement benefits are available, the Settlement is revoked and the Class Members receive no benefits. If you are entitled to receive payments under the Affected Product Revision Surgery Fund, however, you may elect the GPO. The GPO entitles you to receive and keep a portion of your settlement payments more quickly, regardless of whether the Settlement ever receives Final Judicial Approval, and without waiting for the completion of the entire approval process.

What Rights Are You Giving Up If You Choose The Guaranteed Payment Option?

If you select the GPO, you are giving up the right to:

• Opt-Out of the Settlement (See What Are Opt-Out Rights And How Do I Exercise Them section for a complete explanation of Opt-Out Rights);
• Object to the Settlement¹⁴ (See What Are Objection Rights And How Do I Exercise Them section for a complete explanation of Objection rights);
• If the Settlement does not receive Final Judicial Approval, a Class Member electing the GPO has entered into a separate agreement with Sulzer whereby he/she agrees to accept the benefits he/she would have received under the Settlement in exchange for his/her unconditional release and thereby waives any right to sue for tort damages.

WHERE IS THE MONEY COMING FROM?

The funding of the Settlement is being paid from the following sources:

• Four Hundred Twenty Five Million Dollars ($425,000,000.00) is being paid by Sulzer Medica Ltd. and its affiliates and subsidiaries, including Sulzer Orthopedics Inc. This money will, for the most part, be borrowed by Sulzer Medica Ltd. from financial institutions.
• Three Hundred Million Dollars ($300,000,000.00) of the funding will be in the form of a Convertible Callable Instrument (CCI). This financial instrument will be issued by Sulzer Orthopedics Inc. to the Settlement Trust and guaranteed by Sulzer Medica Ltd.
• Fifty Million Dollars ($50,000,000.00) is being paid by Sulzer Ltd. (a.k.a. Sulzer AG).
• Sulzer Ltd. (a.k.a. Sulzer AG) is also contributing Four Hundred Eighty Thousand Three Hundred Forty-Nine (480,349) Shares of Sulzer Medica Ltd.
• Insurance proceeds of approximately Two Hundred Eighteen Million Five Hundred Thousand Dollars ($218,500,000.00) are being paid by Winterthur Insurance.
• The total value of the Settlement Funds is approximately $1.035 Billion, exclusive of interest, based on the value of Sulzer Medica Ltd. shares on March 18, 2002.

[Final Notice Continued]