Share capital Earnings per share Stock-based compensation plans The Company has also established a defined benefit pension plan for certain employees. The defined benefit  plan, which provides for pensions based upon the age of the retiree at the date of retirement, is non-contributory  and unfunded. Actuarial valuation of the defined benefit plan is carried out annually or if circumstances  change. The liability recognized in the Statement of Financial Position in respect of the defined benefit pension plan  is the present value of the defined benefit obligation at the Statement of Financial Position date. The cost of  the defined benefit plan is determined using the projected unit credit method. The defined benefit obligation  is determined by discounting the estimated future cash outflows using interest rates of high-quality Canadian  denominated corporate bonds that have terms to maturity approximating the terms of the related pension  liability. Past service costs are recognized in net income when incurred. Post-employment benefits’ expense  includes the net interest on the net defined benefit liability (asset) calculated using a discount rate based on  market yields on high quality bonds. Remeasurements consisting of actuarial gains and losses, the actual  return on plan assets (excluding the net interest component) and any change in the asset ceiling are recognized  in other comprehensive income. Class A Non-Voting and Class B Common shares are classified as equity. Incremental costs attributable to  the issue of new shares or options are shown directly in equity as a deduction, net of any income tax effects. Shares repurchased by the Company are recorded as a reduction of shareholders’ equity based upon the  consideration paid, including any directly incremental costs, net of income taxes. All shares repurchased by  the Company are cancelled upon repurchase. Basic earnings per share (“EPS”) is calculated by dividing the net income for the period attributable to equity  owners of the Company by the weighted average number of Non-Voting and Common shares outstanding  during the period.  Diluted earnings per share is calculated by adjusting the weighted average number of Class A and Class  B shares outstanding to assume conversion of all dilutive potential Class A shares, typically stock options  granted to directors and employees. The calculation is performed for the stock options to determine the  number of shares that could have been acquired at fair value (determined as the average quarterly or annual,  as appropriate, market share price of the Company’s outstanding Class A shares) based on the monetary value  of the subscription rights attached to outstanding stock options. The number of shares calculated as above  is compared with the number of shares that would have been issued assuming the exercise of stock options. The Company has two stock-based compensation plans. Stock options are accounted for in accordance with  IFRS 2 (“Share-based Payments”) and qualify as equity settled share-based payments. Share appreciation  rights (“SARs”) qualify as a cash settled share-based payment plan under IFRS 2. For both stock-based  compensation plans, associated services received are measured at fair value and are calculated by multiplying  the number of options or SARs expected to vest with the fair value of one option or SAR as of the grant date.  Subject to the approval of the Company’s Board of Directors, the Company’s Corporate Governance, Nomination,  Compensation and Succession Committee may designate directors, officers, employees and other persons  providing services to the Company to be offered options to purchase Class A Non-Voting shares. 44 AKITA DRILLING LTD.  ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS