Share price: 105.25p

SHARE OPTION PLAN

14th March 2006

New Performance Share Option Plan

Introduction

Cello has adopted a new Performance Share Option Plan. The Remuneration Committee of Cello recently carried out a review of the long term incentive arrangements for executive directors and other senior employees. Following the review the Committee concluded that the existing arrangements should be replaced by a new Performance Share Option Plan.

Background

Cello previously operated two share option plans, the Enterprise Management Incentive Plan 2004 (‘the EMI Plan’) and the Cello Unapproved Share Option Plan 2004 (‘the Unapproved Plan’). Under these two plans (‘the original share plans’) options were granted with an exercise price equal to the market price at the grant date.

Following its review the Remuneration Committee concluded that, going forward, market value share option plans were not the most appropriate vehicles through which Cello’s senior executives should be granted long term incentives and accordingly, under the new Plan, options will be structured as conditional awards over fully paid shares with an exercise price equal to the nominal value of the shares, currently 10p per share. As relatively ungeared investments, awards under the Plan will more closely match the returns received by shareholders than is the case with market value share options. In addition, these awards are likely to provide a closer correlation between actual reward levels and accounting charges going forward, as well as being less dilutive than market value options.

In addition, directors and eligible employees who elect to receive up to 50% of cash bonuses, net of tax and national insurance, in the form of Cello shares will be granted a conditional award over an equal number of shares under the

Plan. Subject to the individual’s continued employment by Cello and ownership of the shares issued in lieu of bonus, the matching shares will vest after four years subject to the performance conditions having been met.

Principal provisions of the Plan

Individual limits. Awards of options over shares, excluding bonus matching shares, worth no more than 150% of basic salary may be made each year. There will also be a limit on the cumulative number of shares, excluding bonus matching shares, which may be awarded to any individual over the life of the Plan. This limit has been set at 500,000 shares.

Overall dilution limit. The Plan will be subject to the existing overall

dilution limit which applied to the original share plans and was set out in the Admission Document at the time of Cello’s admission to AIM in November 2004. Therefore, in any ten year period from the date of adoption of the original share plans no more than 15% of the issued ordinary share capital of the company from time to time may in aggregate be allocated under any share schemes operated

by the company.

Performance conditions. Options will be exercisable four years after grant subject to the extent to which a performance condition has been achieved over the initial three year period after the award is made and subject to the recipient’s remaining in Cello’s employment for a further year. There will be no ability to retest this condition and vesting will also be conditional upon earnings per share increasing in each of the three years after the date of grant. For any awards made in the first year following the implementation of the Plan the performance condition will be based on Cello’s compound annual growth in earnings per share in the three years following the date of grant as shown below:-

– no awards will vest if the CAGR is less than 10 per cent.

– 20 per cent of awards will vest if the CAGR is 10 per cent.

– 100 per cent of awards will vest if the CAGR is 15 per cent or more

– if the CAGR is between 10 and 15 per cent. the percentage of awards vesting will be determined on a straight line basis between 20 and 100 per cent.

Changes to performance conditions. The Remuneration Committee may apply different conditions for future awards and may also vary the performance conditions applying to existing awards, for example, to take account of technical events such as changes in accounting standards and treatments. However, in both cases, the Committee will consult with Cello’s major shareholders before doing so.

Change of control. On a change of control of the company (or, if the Committee determines, in the case of a demerger) options will be exercisable subject to the extent to which the performance conditions have been satisfied up to the date of the event (taking account of the fact that the conditions will be measured over a shorter period than originally envisaged). On a change of control that occurs as a result of an internal reorganisation, awards will be rolled over (unless the Committee determines otherwise).

Leavers. Options will normally lapse if a participant leaves the company.

However, in certain ‘good leaver’ situations (such as death, illness, disability etc.), or in other exceptional circumstances, options will either (i) be exercisable early subject to the extent to which the Committee determines that the performance conditions have been satisfied at the relevant time (again taking account of the fact that the conditions will be measured over a shorter period than originally envisaged) or (ii) remain unaffected and vest at the end of the original four year period, in both cases with a pro rata reduction in size (unless the Committee waives the requirement to pro rate awards).

Life of the Plan. The Plan will have a ten year life, although the Committee will review it after no more than five years.

Grants of awards

The Remuneration Committee expects shortly to make the first awards under the Plan at which time a further announcement will be made.

 

Contact Us

Dianna Hillier

Dianna.Hillier@cellohealth.com

Phone 020 7812 8468

Address

Cello Health plc

Queens House

8-9 Queen Street

London

EC4N 1SP

Registered Office

Queens House

8-9 Queen Street

London

EC4N 1SP

Company Registered

in England no.05120150