The example in ATC session 16 IFRS 2

In Session 16 for IFRS 2 in illustration 4 there are follow wording “exercise price is $35 but falls to $25 if earnings increase by $12 on average over three-year period” and “on grant date the estimate fair value of an option is $12 for an exercise price of $25 and $9 in exercise price is $35”. I understand logic in wording meaning if managers will work for best then they can buy option cheaper. But I cannot understand why exercise price falls due to increasing of earnings and what is difference between exercise price and fair value of option. I am misled