The fair values of options granted during the year has been calculated using the Black-Scholes model, taking  into account price volatility, risk free interest rates and the dividend yield.  At the 2009 AGM the Board proposed, upon recommendations by an independent consultant to the  Remuneration Committee, the introduction of performance rights alongside changes to the vesting criteria  and hurdles.  The plan operates by granting a right to acquire an ordinary share at nil consideration at a predetermined  time in the future. During the 2010 financial year 359,000 rights with a grant date fair value of $1,098,625  were issued with a vesting period of three years from the grant date.  Each right is convertible to one ordinary share. All rights expire on the earlier of their expiry date or  termination of the employee’s employment. The rights may be exercised at any time during a one-year  period ending thirty-six months after the date the rights are issued if performance hurdles have been met.  There are no voting or dividend rights attached to the rights. Voting rights and dividends will be attached to  the ordinary shares issued when the rights have been exercised.  Page 12 of 80  Rights  The options issued during FY2010 are subject to a performance hurdle and to vest the Company must  achieve earnings per share (EPS) growth in accordance with the following scale:  The options issued prior to FY2010 are subject to a performance hurdle and will not vest unless there has  been at least a 5% improvement per year (compounded) in the earnings per share of the Company over the  vesting periods.  The options outstanding at 30 June 2010 have not vested, are not exercisable at 30 June 2010 and have an  exercise price in the range of $3.35 to $7.71.  Cardno Limited and its Controlled Entities for the year ended 30 June 2010  Directors’ Report  EPS Growth Over 3 Years  % of Performance Options in  Tranche to Vest  <12.5% (<4% pa)  0%  12.5% (4% pa)  30%  >12.5% (4% pa) & <26% (8% pa)  Pro rata  26% (8% pa)  70%  >26% (8% pa) & <40% (12% pa)  Pro rata  ≥ 40% (12% pa)  100%  Grant Date  Vesting  Date  Expiry Date  Exercise  Price  $  Fair  Value at  Grant  Date  $  Number of  Options at  Beginning  of Year  Options  Granted  Options  Lapsed  Options  Vested  Not  Exercised  Number of  Options as  at 30 June  2010  25 October  2007  19 October  2009  25 October  2009  7.57 0.68 230,000 - - 230,000 - 25 October  2007  19 October  2010  25 October  2010  7.57 0.92 330,000 - - - 330,000 5 December  2007  29 November  2009  5 December  2009  7.71 0.70 1,272,500 - 103,000 1,169,500 - 5 December  2007  29 November  2010  5 December  2010  7.71 0.95 1,719,000 - 180,500 - 1,538,500 5 December  2008  29 November  2011  5 December  2011  3.35 0.41 2,421,000 - 163,000 - 2,258,000 2 December  2009  2 December  2012  2 December  2013  4.43 0.77 - 2,244,900 - - 2,244,900 Weighted average exercise price  5.93  4.43  6.12  7.69  5.00  Weighted average remaining contract life  670 days  Total expense recognised $454,311 (2009: $552,687) 