. Stock Option Plans:

The Company’s

1996

Stock Option Plan (the

“1996

Plan”) was established for the benefit of the employees, officers, directors and certain consultants of the Company. The maximum number of common shares which

may

be set aside for issuance under the

1996

Plan was

2,787,500

shares, provided that the Board of the Company has the right, from time to time, to increase such number subject to the approval of the shareholders of the Company when required by law or regulatory authority. Generally, options issued under the

1996

Plan vest over a

four

-year period. The

1996

Plan expired on

February

25,

2006;

options were issued from this plan after that date.

November

22,

2006,

the shareholders of the Company approved the Company’s

2006

Equity Compensation Plan (the

“2006

Plan”), which was amended and restated effective

July

29,

2010

and which serves as a successor to the

1996

Plan. The

2006

Plan has been established for the benefit of the employees, officers, directors and certain consultants of the Company. The maximum number of common shares which have been set aside for issuance under the

2006

Plan is

1.25

million shares. On

October

2010,

the

2006

Plan was amended to increase the number of shares which have been set aside for issuance by an additional

0.475

million shares to

1.725

million shares. In

September 2015,

the

2006

Plan was amended to increase the number of shares which have been set aside for issuance by an additional

0.75

million shares to

2.475

million shares. Generally, options issued under the

2006

Plan vest over a

four

-year period and have a term

not

exceeding

seven

years, except for automatic formula grants of non-qualified stock options, which vest after

one

year and have a

five

-year term. Prior to the

September 2015

amendment to the

2006

Plan, automatic formula grants of non-qualified stock options vested immediately upon grant.

Our current equity-based compensation plans include provisions that allow for the “net exercise” of stock options by all plan participants. In a net exercise, any required payroll taxes, federal withholding taxes and exercise price of the shares due from the option holder can be paid for by having the option holder tender back to the Company a number of shares at fair value equal to the amounts due. These transactions are accounted for by the Company as a purchase and retirement of shares.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. Because option-pricing models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of the options. The assumptions presented in the table below represent the weighted average of the applicable assumption used to value stock options at their grant date. The Company calculates expected volatility based on historical volatility of the Company’s common shares. The expected term, which represents the period of time that options granted are expected to be outstanding, is estimated based on historical exercise experience. The Company evaluated historical exercise behavior when determining the expected term assumptions. The risk-free rate assumed in valuing the options is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option. The Company determines the expected dividend yield percentage by dividing the expected annual dividend by the market price of Tucows Inc. common shares at the date of grant.

The fair value of stock options granted during the years ended

December

31,

2018,

2017

and

2016

was estimated using the following weighted average assumptions:

	Year ended December 31,
	2018			2017			2016

Volatility		37.9	%		41.6	%		66.1	%
Risk-free interest rate		2.7	%		1.8	%		1.3	%
Expected life (in years)		4.48			4.55			4.3
Dividend yield		—	%		—	%		—	%
The weighted average grant date fair value for options issued, with the exercise price equal to market value on the date of grant	$	22.22		$	20.08		$	11.18

Details of stock option transactions are as follows:

	Year ended December 31,					Year ended December 31,					Year ended December 31,
	2018					2017					2016
	Number of shares			Weighted average exercise price per share		Number of shares			Weighted average exercise price per share		Number of shares			Weighted average exercise price per share

Outstanding, beginning of period		653,571		$	36.69		474,501		$	12.67		513,366		$	9.24
Granted		163,366			62.80		370,025			54.10		81,750			22.66
Exercised		(63,886	)		12.86		(172,759	)		7.88		(109,963	)		3.79
Forfeited		(50,714	)		52.33		(18,196	)		37.70		(9,902	)		16.80
Expired		—			—		—			—		(750	)		3.76
Outstanding, end of period		702,337			43.80		653,571			36.69		474,501			12.67
Options exercisable, end of period		326,937		$	28.91		243,771		$	14.79		332,192		$	10.08

As of

December

31,

2018,

the exercise prices, weighted average remaining contractual life of outstanding options and intrinsic values were as follows:

					Options outstanding								Options exercisable
Exercise price					Number outstanding		Weighted average exercise price per share		Weighted average remaining contractual life (years)		Aggregate intrinsic value		Number exercisable		Weighted average exercise price per share		Weighted average remaining contractual life (years)		Aggregate intrinsic value

$	5.52	-	$	8.56		58,135	$	6.92		0.9	$	3,089		58,135	$	6.92		0.9	$	3,090
$	10.16	-	$	19.95		99,588		16.44		2.5		4,344		97,088		16.35		2.5		4,244
$	21.10	-	$	27.53		65,000		23.47		3.2		2,378		55,000		23.91		3.0		1,988
$	35.25	-	$	37.35		14,375		35.89		4.4		347		10,625		36.11		4.2		254
$	43.15	-	$	47.00		18,500		44.19		5.1		294		8,000		43.75		5.1		131
$	53.20	-	$	58.65		328,387		55.67		5.4		1,443		98,089		55.21		5.1		476
$	64.10	-	$	64.10		118,352		64.10		6.4		—		—		—		—		—
						702,337	$	43.80		4.6	$	11,895		326,937	$	28.91		3.2	$	10,183

Total unrecognized compensation cost relating to unvested stock options at

December 31, 2018,

prior to the consideration of expected forfeitures, is approximately

$6.5

million and is expected to be recognized over a weighted average period of

2.7

years.

The total intrinsic value of options exercised during the years ended

December

31,

2018,

2017

and

2016

was

$2.9

million,

$7.6

million and

$2.4

million, respectively. Cash received from the exercise of stock options during the years ended

December

31,

2018,

2017

and

2016

was

$0.1

million,

$0.2

million and

$0.1

million respectively.

The Company recorded stock-based compensation amounting to

$2.6

million,

$1.5

million and

$0.8

million for the years ended

December

31,

2018,

2017

and

2016

respectively. Stock-based compensation has been included in operating expenses as follows (Dollar amounts in thousands of US dollars):

	Year ended December 31, 2018		Year ended December 31, 2017		Year ended December 31, 2016
Network expenses	$	223	$	110	$	22
Sales and marketing		1,025		573		236
Technical operations and development		636		360		98
General and administrative		690		414		443
	$	2,574	$	1,457	$	799