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Note 15 - Share-based Payments

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

15. Share-based Payments:

2006 Tucows Equity Compensation Plan

On 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 had initially been set aside for issuance under the 2006 Plan is 1.25 million shares. On October 8, 2010, the 2006 Plan was amended to increase the number of shares 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 set aside for issuance by an additional 0.75 million shares to 2.475 million shares. In November 2020, the 2006 Plan was amended to increase the number of shares set aside for issuance by an additional 1.53 million shares to 4.0 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 ("Company Option") 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 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.

Details of Company Option transactions for the three and nine months ended September 30, 2023 and September 30, 2022 are as follows (Dollar amounts in thousands of U.S. dollars, except per share amounts):

		*Three Months Ended September 30, 2023*								*Three Months Ended September 30, 2022*
		*Number of shares*				*Weighted average exercise price per share*				*Number of shares*				*Weighted average exercise price per share*

Outstanding, beginning of period			1,131,882			$	55.84				1,070,045			$	59.88
Granted			29,000				20.22				24,500				43.80
Exercised			-				-				(14,142	)			20.53
Forfeited			(10,326	)			34.72				(4,414	)			66.32
Expired			(9,161	)			65.19				(21,312	)			57.96
Outstanding, end of period			1,141,395				54.83				1,054,677				60.04
Options exercisable, end of period			733,662			$	61.23				533,395			$	61.51

		*Nine Months Ended September 30, 2023*								*Nine Months Ended September 30, 2022*
		*Number of shares*				*Weighted average exercise price per share*				*Number of shares*				*Weighted average exercise price per share*

Outstanding, beginning of period			1,036,748			$	59.97				904,151			$	64.36
Granted			166,055				25.29				242,980				43.09
Exercised			-				-				(26,709	)			37.53
Forfeited			(32,500	)			61.62				(35,808	)			72.22
Expired			(28,908	)			63.43				(29,937	)			58.25
Outstanding, end of period			1,141,395				54.83				1,054,677				60.04
Options exercisable, end of period			733,662			$	61.23				533,395			$	61.51

As of September 30, 2023, the exercise prices, weighted average remaining contractual life of outstanding options and intrinsic values were as follows (Dollar amounts in thousands of U.S. dollars, except per share amounts):

		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

$19.78 - $19.78			27,500			$	19.78				4.9			$	17				-			$	-				-			$	-
$21.61 - $28.37			138,255				26.38				6.7				-				-				-				-				-
$30.70 - $30.74			20,000				30.71				6.2				-				-				-				-				-
$40.04 - $48.00			221,435				42.39				5.6				-				78,919				43.18				5.3				-
$51.82 - $59.98			194,258				55.72				1.3				-				226,462				55.70				1.1				-
$60.01 - $68.41			296,860				62.10				2.9				-				293,059				62.39				2.7				-
$70.13 - $79.51			226,587				78.51				4.3				-				126,035				78.29				4.3				-
$80.61 - $82.07			16,500				81.27				5.0				-				9,187				81.35				5.0				-
			1,141,395			$	54.83				4.0			$	17				733,662			$	61.23				2.8			$	-

Total unrecognized compensation cost relating to unvested stock options at September 30, 2023, prior to the consideration of expected forfeitures, is approximately $6.5 million and is expected to be recognized over a weighted average periodof 3.1 years.

2022 Wavelo Equity Compensation Plan

On November 9, 2022 the Board of Wavelo approved Wavelo's Equity Compensation Plan (Wavelo ECP), which has been established for the benefit of the employees, officers, directors and certain consultants of Wavelo or Tucows. The Wavelo stock options were introduced in order to provide variable compensation that helps retain executives and ensures that our executives' interests are aligned with those stakeholders of the business to grow long-term value. Wavelo is a wholly owned subsidiary of Tucows. The maximum number of Wavelo common shares which have been set aside for issuance under the 2022 Plan is 20 million shares, currently there are 100 million shares outstanding. The options issued under the ECP primarily vest over a period of three years and have a 7-year term. For the initial grants under the plan, the first 25% became exercisable within three months and vesting ratably monthly thereafter, subsequently for three years. Compensation costs for awards of stock-based compensation settled in shares are determined based on the fair value of the share-based instrument at the time of the grant and are recognized as expense over the vesting period of the share-based instrument. The Company recognizes forfeitures as they occur.

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 Company calculates expected volatility based on the actual volatility of comparable publicly traded companies. 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 assumes the expected dividend yield to be zero.

Details of Wavelo's stock option transactions for the three and nine months ended September 30, 2023 and September 30, 2022 are as follows (Dollar amounts in thousands of U.S. dollars, except per share amounts):

		*Three Months Ended September 30, 2023*								*Three Months Ended September 30, 2022*
		*Number of shares*				*Weighted average exercise price per share*				*Number of shares*				*Weighted average exercise price per share*

Outstanding, beginning of period			16,463,965			$	1.27				-			$	-
Granted			92,000				1.74				-				-
Exercised			-				-				-				-
Forfeited			(36,667	)			1.27				-				-
Expired			(15,937	)			1.27				-				-
Outstanding, end of period			16,503,361				1.27				-				-
Options exercisable, end of period			6,748,600			$	1.27				-			$	-

		*Nine Months Ended September 30, 2023*								*Nine Months Ended September 30, 2022*
		*Number of shares*				*Weighted average exercise price per share*				*Number of shares*				*Weighted average exercise price per share*

Outstanding, beginning of period			15,975,528			$	1.27				-			$	-
Granted			767,500				1.33				-				-
Exercised			-				-				-				-
Forfeited			(207,413	)			1.27				-				-
Expired			(32,254	)			1.27				-				-
Outstanding, end of period			16,503,361				1.27				-				-
Options exercisable, end of period			6,748,600			$	1.27				-			$	-

As of September 30, 2023, the exercise prices, weighted average remaining contractual life of outstanding options and intrinsic values were as follows (Dollar amounts in thousands of U.S. dollars, except per share amounts):

		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

$1.27-$1.27			16,411,361			$	1.27				6.1			$	7,713				6,748,600			$	1.27				6.1			$	3,172
$1.74-$1.74			92,000				1.74				6.8				-				-				-				-				-
			16,503,361			$	1.27				6.1			$	7,713				6,748,600			$	1.27				6.1			$	3,172

Total unrecognized compensation cost relating to unvested stock options at September 30, 2023, prior to the consideration of expected forfeitures, is approximately $4.7 million and is expected to be recognized over a weighted average period of 2.4 years.

2022 Ting Equity Compensation Plan

On January 16, 2023 the Board of Ting Fiber, LLC approved Ting's Equity Compensation Plan (Ting ECP), which has been established for the benefit of the employees, officers, directors and certain consultants of Ting or Tucows. The Ting stock options were introduced in order to provide variable compensation that helps retain executives and ensures that our executives' interests are aligned with those stakeholders of the business to grow the long-term value. The maximum number of Ting common units that have been set aside for issuance under the plan is 10 million units, currently there are 100 million common units outstanding. Generally, options issued under the ECP vest over a four-year period and have a term not exceeding ten years. Compensation costs for awards of stock-based compensation settled in shares are determined based on the fair value of share-based instrument at the time of the grant and are recognized as expense over the vesting period of the share-based instrument.

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 Company calculates expected volatility based on the actual volatility of comparable publicly traded companies. 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 assumes the expected dividend yield to be zero.

Details of Ting's stock option transactions for the three and nine months ended September 30, 2023 and September 30, 2022 are as follows (Dollar amounts in thousands of U.S. dollars, except per share amounts):

		*Three Months Ended September 30, 2023*								*Three Months Ended September 30, 2022*
		*Number of shares*				*Weighted average exercise price per share*				*Number of shares*				*Weighted average exercise price per share*

Outstanding, beginning of period			7,428,662			$	6.00				-			$	-
Granted			-				6.00				-				-
Exercised			-				-				-				-
Forfeited			(62,839	)			6.00				-				-
Expired			(49,662	)			6.00				-				-
Outstanding, end of period			7,316,161				6.00				-				-
Options exercisable, end of period			2,656,504			$	6.00				-			$	-

		*Nine Months Ended September 30, 2023*								*Nine Months Ended September 30, 2022*
		*Number of shares*				*Weighted average exercise price per share*				*Number of shares*				*Weighted average exercise price per share*

Outstanding, beginning of period			-			$	-				-			$	-
Granted			7,594,000				6.00				-				-
Exercised			-				-				-				-
Forfeited			(213,650	)			6.00				-				-
Expired			(64,189	)			6.00				-				-
Outstanding, end of period			7,316,161				6.00				-				-
Options exercisable, end of period			2,656,504			$	6.00				-			$	-

As of September 30, 2023, the exercise prices, weighted average remaining contractual life of outstanding options and intrinsic values were as follows (Dollar amounts in thousands of U.S. dollars, except per share amounts):

		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

$6.00 - $6.00			7,316,161			$	6.00				6.3			$	-				2,656,504			$	6.00				6.3			$	-
			7,316,161			$	6.00				6.3			$	-				2,656,504			$	6.00				6.3			$	-

Total unrecognized compensation cost relating to unvested stock options at September 30, 2023, prior to the consideration of expected forfeitures, is approximately $0.5 million and is expected to be recognized over a weighted average period of 2.5 years.

The Company recorded stock-based compensation expense of $2.3 million and $6.6 million for the three and nine months ended September 30, 2023, and $1.6 million and $4.4 million for the three and nine months ended September 30, 2022, respectively. The Company details of the stock-based compensation expense are as follows:

		*Three Months Ended September 30,*								*Nine Months Ended September 30,*
		*2023*				*2022*				*2023*				*2022*
Company options		$	1,819			$	1,569			$	4,999			$	4,396
Wavelo options			505				-				1,561				-
Ting options			50				-				296				-
Capitalized stock based compensation			(66	)			-				(250	)			-
Total Stock Based Compensation expense		$	2,308			$	1,569			$	6,606			$	4,396

The Company capitalizes stock-based compensation costs directly attributable to the development of qualifying assets. Qualifying assets include internal use software (IUS), assets under construction (AUC), equipment, or other long-lived assets that meet the capitalization criteria prescribed by ASC 718. During the three and nine months ended September 30, 2023 The Company capitalized $0.1 million and $0.3 million of stock based compensation directly attributable to the development of certain IUS assets.