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PURPOSE

The purpose of the Audit Committee (the “Audit Committee”) of the Board of Directors (the “Board”) of Tucows Inc. (the “Company”) shall be to:

  • Provide oversight of the Company’s accounting and financial reporting processes and the audit of the Company’s financial statements;
  • Assist the Board in oversight of (i) the integrity of the Company’s financial statements, (ii) the Company’s compliance with legal and regulatory requirements, (iii) the qualifications, independence and performance of the Company’s independent registered public accounting firm, and (iv) the Company’s internal accounting and financial controls;
  • Provide to the Board such information and materials as it may deem necessary to make the Board aware of significant financial matters that require the attention of the Board; and
  • Oversee the management of risks associated with the Company’s financial reporting, accounting and auditing matters.

In furtherance of these purposes, the Audit Committee will undertake those specific duties and responsibilities listed below and such other duties as the Board may from time to time prescribe.

The Audit Committee’s responsibility is one of oversight. The members of the Audit Committee are not employees of the Company, and they do not perform, or represent that they perform, the functions of management or the independent auditor. The Audit Committee relies on the expertise and knowledge of management and the independent auditor in carrying out its oversight responsibilities. The management of the Company is responsible for preparing accurate and complete financial statements in accordance with generally accepted accounting principles (“GAAP”) and for establishing and maintaining appropriate accounting principles and financial reporting policies and satisfactory internal control over financial reporting. The independent auditor is responsible for auditing the Company’s annual consolidated financial statements and the effectiveness of the Company’s internal control over financial reporting and reviewing the Company’s quarterly financial statements. It is not the responsibility of the Audit Committee to prepare or certify the Company’s financial statements or guarantee the audits or reports of the independent auditor, nor is it the duty of the Audit Committee to certify that the independent auditor is “independent” under applicable rules. These are the fundamental responsibilities of management and the independent auditor.

MEMBERSHIP

The Audit Committee members shall be appointed by, and shall serve at the discretion of, the Board. The Audit Committee shall consist of at least three members of the Board. The Board may designate one member of the Audit Committee as its chair. The Audit Committee may form and delegate authority to subcommittees when appropriate. Members of the Audit Committee must meet the following criteria (as well as any other criteria required by the Securities and Exchange Commission (the “SEC”), the Nasdaq Stock Market, Inc. Marketplace Rules (the “Nasdaq Rules”), or applicable law, or as established by the Board from time to time):

  • Each member must be an independent director in accordance with (i) the audit committee requirements of the Nasdaq Rules and (ii) Rule 10A-3 of the Securities Exchange Act of 1934, as amended;
  • Each member must be able to read and understand fundamental financial statements, including the Company’s balance sheet, income statement and cash flow statement, in accordance with the Audit Committee requirements of the Nasdaq Rules;
  • At least one member must have past employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background resulting in such member’s financial sophistication, including a current or past position as a principal financial officer or other senior officer with financial oversight responsibilities; and
  • At least one member must be an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K promulgated under the Securities Act of 1933.

RESPONSIBILITIES

The following are the principal recurring responsibilities of the Audit Committee. The Audit Committee may perform such other functions as are consistent with its purpose and applicable law, rules and regulations and as the Board or the Audit Committee deem appropriate. In carrying out its responsibilities, the Audit Committee believes its policies and procedures should remain flexible, in order to best react to changing conditions and circumstances.

1. Select and Hire the Independent Auditor. The Audit Committee shall be responsible for appointing, compensating, retaining and, where appropriate, replacing the independent auditor. The independent auditor will report directly to the Audit Committee. The Audit Committee shall have sole authority to approve the hiring and discharging of the independent auditor, all audit engagement fees and terms and all permissible non-­audit engagements with the independent auditor. The Audit Committee shall also appoint, retain, compensate, oversee and where appropriate, replace any other registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company.

2. Supervise and Evaluate the Independent Auditor. The Audit Committee shall:

  • Oversee and evaluate the work of the independent auditor and any other registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attestation services for the Company, which evaluation shall include a review and evaluation of the lead partner of the independent auditor. The Audit Committee shall review, in consultation with the independent auditor, the annual audit plan and scope of audit activities and monitor such plan’s progress.
  • Review and resolve any disagreements that may arise between management and the independent auditor regarding internal controls or financial reporting.
  • At least annually, obtain and review a report by the independent auditor that describes (i) the independent auditor’s internal quality control procedures and (ii) any material issues raised by the most recent internal quality-­control review, peer review, or Public Company Accounting Oversight Board review of the independent auditor or by any other inquiry or investigation by governmental or professional authorities, within the preceding five years (or such other period as may be requested by the Audit Committee), regarding any independent audit performed by the independent auditor, and any steps taken to deal with any such issues.

3. Evaluate the Independence of the Independent Auditor. The Audit Committee shall:

  • Review and discuss with the independent auditor the written independence disclosure required by the applicable requirements of the Public Company Accounting Oversight Board.
  • Review and discuss with the independent auditor on a periodic basis any other relationships or services (including permissible non-­audit services) that may affect its objectivity and independence.
  • Oversee the rotation of the independent auditor’s lead audit and concurring partners and the rotation of other audit partners, with applicable time-­out periods, in accordance with applicable law. Oversee the creation and maintenance of a corporate policy governing the hiring of former employees of the independent auditor as employees or independent consultants to the Company.
  • Take, or recommend to the Board that it take, appropriate action to oversee the independence of the Company’s independent auditor.

4. Approve Audit and Non-­Audit Services and Fees. The Audit Committee shall (i) review and approve, in advance, the scope and plans for the audits and the audit fees and (ii) approve in advance (or, where permitted under the rules and regulations of the SEC, subsequently) all non- audit services to be performed by the independent auditor or any other registered public accounting firm that are not otherwise prohibited by law and any associated fees. The Audit Committee chairperson may pre-­approve audit and permissible non-­audit services and any associated fees, as long as such pre-­approval is presented to the full Audit Committee at scheduled meetings. The Audit Committee may, in accordance with applicable law, establish pre-­ approval policies and procedures for the engagement of independent accountants to render services to the Company.

5. Review Financial Statements. The Audit Committee shall review and discuss the following with management and the independent auditor, as applicable:

  • The scope and timing of the annual audit of the Company’s financial statements.
  • The Company’s annual audited and quarterly financial statements and annual and quarterly reports on Form 10-­K and 10-­Q, including the disclosures in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and recommend to the Board whether the audited financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be included in the Company’s periodic reports to be filed with the SEC.
  • The results of the independent audit and the quarterly reviews, and the independent auditor’s opinion on the annual financial statements.
  • The reports and certifications regarding internal control over financial reporting and disclosure controls and procedures.
  • Major issues regarding accounting principles and financial statement presentations, including any significant changes in the Company’s selection or application of accounting principles.
  • Analyses prepared by management or the independent auditor setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements.
  • The effect of regulatory and accounting initiatives on the Company’s financial statements.
  • Any significant changes required or taken in the audit plan as a result of any material control deficiency.
  • Any problems or difficulties the independent auditor encountered in the course of its audit work, including any restrictions on the scope of the auditor’s activities or on access to requested information, and management’s response.
  • Any significant disagreements between management and the independent auditor.

6. Reports and Communications from the Independent Auditor. The Audit Committee shall review and discuss quarterly reports from the independent auditor concerning the following:

  • All critical accounting policies and practices to be used by the Company.
  • All alternative treatments of financial information within GAAP that the auditor has discussed with management, ramifications of the use of these alternative disclosures and treatments, and the treatment preferred by the independent auditor if different from that used by management.
  • Other material written communications between the independent auditor and management, such as any management letter or schedule of unadjusted differences.
  • Other matters required to be communicated to the Audit Committee under generally accepted auditing standards and other legal or regulatory requirements, including any matters required to be communicated under PCAOB Auditing Standards No. 16, Communications with Audit Committees.

7. Audit Committee Report. The Audit Committee shall prepare the report of the Audit Committee that SEC rules require to be included in the Company’s annual proxy statement.

8. Earnings Press Releases and Earnings Guidance. The Audit Committee shall review and discuss earnings press releases (with particular attention to any use of non-­GAAP financial measures), as well as financial information. The Board of Directors or its designee shall review earnings guidance provided to the public, analysts and ratings agencies, including to the extent practical reviewing in advance the script for any earnings or finance-­related conference calls to be held for the benefit of the public, analysts and ratings agencies.

9. Internal Controls. The Audit Committee shall review and discuss with management and the independent auditor the adequacy and effectiveness of the Company’s internal controls, including any changes, significant deficiencies or material weaknesses in those controls reported by the independent auditor or management, any special audit steps adopted in light of significant control deficiencies, and any fraud, whether or not material, that involves management or other Company employees who have a significant role in the Company’s internal controls.

10. Disclosure Controls and Procedures. The Audit Committee shall review and discuss the adequacy and effectiveness of the Company’s disclosure controls and procedures.

11. Legal and Regulatory Compliance. The Audit Committee shall review and discuss with management, counsel and the independent auditor (i) the overall adequacy and effectiveness of the Company’s legal, regulatory and ethical compliance programs, including the Company’s Code of Business Conduct and Ethics, compliance with the Foreign Corrupt Practices Act, and compliance with export control regulations and (ii) reports regarding compliance with applicable laws, regulations and internal compliance programs in each case to the extent pertaining to financial, accounting and/or tax matters. The Audit Committee shall discuss with management, counsel, outside legal counsel, and/or the independent auditor any correspondence with regulators or governmental agencies and any published reports that raise material issues regarding the Company’s financial statements or accounting policies. The Audit Committee shall discuss with the Company’s general counsel and/or outside legal counsel legal matters that may have a material impact on the financial statements or the Company’s compliance procedures that pertain to financial, accounting or tax matters of the Company.

12. Complaints. The Audit Committee shall oversee procedures established for the receipt, retention and treatment of complaints on accounting, internal accounting controls or audit matters, as well as for confidential and anonymous submissions by the Company’s employees concerning questionable accounting or auditing matters.

13. Risks. The Audit Committee shall review and discuss with management and the independent auditor, as appropriate, the Company’s major financial risk exposures and the steps management has taken to monitor and control those exposures, including the Company’s guidelines and policies with respect to risk assessment and risk management pertaining to financial, accounting and tax matters.

14. Related Party Transactions. The Audit Committee shall review the Company’s related party transaction policy and review and oversee all transactions between the Company and a related person for which review or oversight is required by applicable law or that are required to be disclosed in the Company’s financial statements or SEC filings.

15. Hiring of Auditor Personnel. The Audit Committee shall set hiring policies for the Company with regard to employees and former employees of the Company’s independent auditor.

The function of the Audit Committee is primarily one of oversight. The Company’s management is responsible for preparing the Company’s financial statements, and the independent auditor is responsible for auditing and reviewing those financial statements. The Audit Committee is responsible for assisting the Board in overseeing the conduct of these activities by management and the independent auditor. The Audit Committee is not responsible for providing any expert or special assurance as to the financial statements or the independent auditor’s work. It is recognized that the members of the Audit Committee are not full-­time employees of the Company, that it is not the duty or responsibility of the Audit Committee or its members to conduct “field work” or other types of auditing or accounting reviews or procedures or to set auditor independence standards, and that each member of the Audit Committee shall be entitled to rely on (i) the integrity of those persons and organizations within and outside the Company from which the Audit Committee receives information and (ii) the accuracy of the financial and other information provided to the Audit Committee, in either instance absent actual knowledge to the contrary.

MEETINGS AND PROCEDURES

1. Meetings.

  • The Audit Committee will meet at least four (4) times each year (with additional meetings as it deems necessary or appropriate) at such times and places as the Audit Committee determines, including by telephone or Internet-facilitated meeting. The chairperson of the Audit Committee shall preside at each meeting. If a chairperson is not designated or present, an acting chair may be designated by the Audit Committee members present. The Audit Committee may act by written consent (which may include electronic consent), which shall constitute a valid action of the Audit Committee if it has been approved by each Audit Committee member and shows the date of approval. Any written consent will be effective on the date of the last signature and will be filed with the minutes of the meetings of the Board.
  • The Audit Committee shall cause to be kept written minutes of its proceedings, which minutes will be filed with the minutes of the meeting of the Board.
  • The Audit Committee shall meet periodically with members of management and the independent auditor in separate executive sessions as the Audit Committee deems appropriate.
  • The Audit Committee may invite to its meetings any director, officer or employee of the Company and such other persons as it deems appropriate in order to carry out its responsibilities. The Audit Committee may also exclude from its meetings any persons it deems appropriate in order to carry out its responsibilities, including non-­management directors who are not members of the Audit Committee.

2. Reporting to the Board of Directors. The Audit Committee shall report regularly to the Board with respect to the Audit Committee’s activities, including any significant issues that arise with respect to the quality or integrity of the Company’s financial statements, the Company’s compliance with legal or regulatory requirements or the performance and independence of the Company’s independent auditor, as applicable.

3. Authority to Retain Advisors. The Audit Committee shall have the authority to engage independent counsel or other advisors as it deems necessary or appropriate to carry out its duties. The Company will provide appropriate funding, as determined by the Audit Committee, to pay the independent auditor, any outside advisors hired by the Audit Committee and any administrative expenses of the Audit Committee that are necessary or appropriate in carrying out its activities.

4. Subcommittees. The Audit Committee may form subcommittees for any purpose that the Audit Committee deems appropriate and may delegate to such subcommittees such power and authority as the Audit Committee deems appropriate. If designated, each such subcommittee will establish its own schedule and maintain written minutes of its meetings, which minutes will be filed with the minutes of the meetings of the Board. The Audit Committee shall not delegate to a subcommittee any power or authority required by law, regulation or listing standard to be exercised by the Audit Committee as a whole.

5. Committee Charter Review. The Audit Committee shall review and reassess the adequacy of this charter annually and shall submit any recommended changes to this charter to the Board for approval.

6. Performance Review. The members of the Audit Committee shall review and assess the performance of the Audit Committee on an annual basis.

7. Authority to Investigate. In the course of its duties, the Audit Committee shall have authority, at the Company’s expense, to investigate any matter brought to its attention.

8. Access. The Audit Committee shall be given full access to the chairperson of the Board, management and the independent auditor, as well as the Company’s books, records, facilities and other personnel.

9. Compensation. Members of the Audit Committee shall receive such fees, if any, for their service as Audit Committee members as may be determined by the Board in its sole discretion. Members of the Audit Committee may not receive any compensation from the Company except the fees that they receive for service as members of the Board or any committee thereof.

I. Purpose

The purpose of the Corporate Governance, Nominating and Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) of Tucows Inc. (“the Company”) is to:

  • Identify individuals qualified to become board members, consistent with criteria approved by the Board.
  • Select, or recommend that the Board select, the director nominees for election at each annual meeting of stockholders.
  • Oversee the evaluation of the Board and management.
  • Review and approve corporate goals and objectives relevant to the Company’s Chief Executive Officer (“CEO”) compensation, evaluate the CEO’s performance in light of those goals and objectives, and, either as a committee or together with the other independent directors (as directed by the Board), determine and approve the CEO’s compensation level based on this evaluation.
  • Review and approve non-CEO Executive compensation including incentive compensation and equity-based compensation.
  • Provide oversight of the Company’s compensation policies and plans and benefits programs, and overall compensation philosophy.
  • Administer the Company’s equity compensation plans for its executive officers and employees and the granting of equity awards pursuant to such plans or outside of such plans.
  • Cause to be prepared the report of the Committee required by the rules and regulations of the Securities and Exchange Commission (the “SEC”).

II. Membership

A. Number and Independence. The Committee shall be composed of at least three directors, each of whom shall be independent. A director shall qualify as independent if the Board has affirmatively determined, consistent with the independence criteria set forth in Rule 10C-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) promulgated by the SEC and the corporate governance rules of the NASDAQ Stock Market, that the director is independent. In addition, at least two members of the Committee must qualify as “non-employee directors” for the purposes of Rule 16b-3 under the Exchange Act, and as “outside directors” for the purposes of Section 162(m) of the Internal Revenue Code (the “IRC”), as amended.

B. Appointment and Removal. The members of the Committee shall be appointed annually by the Board and may be replaced or removed by the Board at any time with or without cause. Resignation or removal of the Director from the Board, for whatever reason, shall automatically constitute resignation or removal, as applicable, from this committee. Vacancies occurring, for whatever reason, may be filled by the Board. The Board shall designate one member of the Committee to serve as Chair of the Committee.

III. Meetings and Procedures

A. Meetings. The Committee shall meet as frequently as it may deem necessary and appropriate in its judgment. Generally, the Committee shall meet at least twice annually, prior to each face-to-face meeting of the Board of Directors, and hold an additional meeting to review proposed incentive compensation awards for senior management. The Committee may meet in person or by telephone or by Internet-facilitated software. The Committee may also act by unanimous written consent.

B. Quorum. A majority of the members of the Committee shall constitute a quorum for the transaction of business.

C. Special Meetings. The Chairperson of the Committee or a majority of the members of the Committee may call a special meeting of the Committee.

D. Delegation. The Committee may delegate authority to one or more members of the Committee or one or more members of management when appropriate, but no such delegation shall be permitted if the authority is required by law, regulation or listing standard to be exercised by the Committee as a whole.

E. Additional Attendees. The Committee may invite to its meetings any officer, employee or director of the Company and such other persons as it deems appropriate in order to carry out its duties.

F. Minutes. The Committee shall maintain minutes or other records of meetings and activities of the Committee in accordance with the laws of the Commonwealth of Pennsylvania and the Company’s By-laws, which minutes shall be maintained with the books and records of the Company.

IV. Duties and Responsibilities

The Committee shall have the following duties and responsibilities:

A. Compensation Responsibilities

The following are the principal recurring compensation related responsibilities of the Committee. The Committee may perform such other functions as are consistent with its purpose and applicable law, rules and regulations and as the Board may request. In reviewing and approving the Company’s annual and long-­term incentive compensation plans for Executive Officers and other senior executives, including equity incentive plans, the Committee shall consider the results of the most recent stockholder advisory vote on executive compensation required by Section 14a-21 of the Exchange Act.

1. Set Compensation for Executive Officers. The Committee shall:

  • Review and approve annually the corporate goals and objectives applicable to the compensation of the CEO, evaluate at least annually the CEO’s performance in light thereof, and consider factors related to the performance of the Company in approving the compensation level of the CEO. The CEO may not be present during deliberations or voting on such matters.
  • Review and approve annually the CEO’s (a) base salary, (b) incentive bonus, including the specific goals and amount, (c) equity compensation, (d) any employment agreement, severance arrangement or change of control protections and (e) any other benefits, compensation or similar arrangements (including, without limitation, perquisites and any other form of compensation such as a signing bonus or payment of relocation costs). In determining the long-­term incentive component of CEO compensation, the Committee may consider, among other things, the Company’s performance and relative stockholder return, the value of similar incentive awards to CEOs at comparable companies and the awards given to the Company’s CEO in past years. The CEO may not be present during deliberations or voting on such matters.
  • In consultation with the CEO review annually and approve items (a) through (e) in the previous bullet for the other individuals who are deemed to be “officers” of the Company under Rule 16a-­1(f) promulgated under the Exchange Act (the “Executive Officers”). An Executive Officer may not be present during deliberations or voting on his or her matters.
  • Review and approve any compensatory contracts or similar transactions or arrangements with current or former Executive Officers, including consulting arrangements, employment contracts, severance or termination arrangements, which shall include any benefits to be provided in connection with a change of control. In this regard, the Committee shall have the power and authority to adopt, amend and terminate such contracts, transactions or arrangements.

2. Set Compensation for Directors. The Committee shall evaluate director compensation and make recommendations to the Board regarding director compensation, including consulting, retainer, Board meeting, committee and committee chair fees and stock option grants or awards.

3. Oversee Compensation Plans and Programs. The Committee shall:

  • Review, approve and administer annual and long-­term incentive compensation plans for service providers of the Company, including Executive Officers and other senior executives, including:
    • Establishing performance objectives and certifying performance achievement; and
    • Reviewing and approving all equity incentive plans and grant awards of shares and stock options pursuant to such plans.
  • Administer the Company’s equity incentive plans. In its administration of the plans, the Committee may (i) grant stock options, restricted stock units, stock purchase rights or other equity-­based or equity-­linked awards to individuals eligible for such grants (including grants to individuals subject to Section 16 of the Exchange Act in compliance with Rule 16b-­3 promulgated thereunder) in accordance with procedures and guidelines as may be established by the Board and (ii) amend such stock options, restricted stock units, stock purchase rights or other equity-­based or equity-­linked awards. The Committee may also adopt, amend and terminate such plans, including approving changes in the number of shares reserved for issuance thereunder.
  • Approve all option grants and performance awards to Executive Officers of the Company to the extent necessary or desirable to ensure that such grants and awards comply with Section 162(m) of the IRC. The Committee will not be required to qualify awards under Section 162(m) of the IRC if it determines it is not in the Company’s interest to do so.
  • Review, approve and administer any of the Company’s employee benefit plans that the Committee deems appropriate, including by adopting, amending and terminating such plans.
  • Oversee the Company’s overall compensation philosophy and any compensation plans and benefits programs that the Committee deems appropriate, and amend or, make recommendations to the Board, with respect to improvements or changes to such plans or programs or the termination or adoption of plans or programs when appropriate.
  • In connection with executive compensation programs:
    • Review and approve new executive compensation programs;
    • Review on a periodic basis the operations of the Company’s executive compensation programs to determine whether they are properly coordinated and achieving their intended purpose(s); and
    • Establish and periodically review policies for the administration of executive compensation programs.
  • Periodically review executive compensation programs and total compensation levels, including the impact of tax and accounting rules changes.
  • Periodically review remuneration to ensure no bias exists by gender and make recommendations to the Board on any required actions.
  • If applicable, review and recommend to the Board for approval the frequency with which the Company will conduct stockholder advisory votes on executive compensation (“Say on Pay Vote”), taking into account the results of the most recent stockholder advisory vote on frequency of Say on Pay Votes required by Section 14a-21 of the Exchange Act, and review and approve the proposals regarding the Say on Pay Vote and the frequency of the Say on Pay Vote to be included in the Company’s proxy statement.
  • Review and discuss annually with management the risks arising from the Company’s compensation philosophy and practices applicable to all employees to determine whether they encourage excessive risk-­taking and to evaluate compensation policies and practices that could mitigate such risks.

4. Compliance. The Committee shall:

  • Review and discuss with management the Company’s Compensation Discussion and Analysis (“CD&A”) and related disclosures required by the rules and regulations of the SEC, to the extent required of the Company. The Committee will also review and recommend the final CD&A to the Board for inclusion in the Company’s annual report on Form 10-­K or proxy statement, to the extent required of the Company.
  • Prepare a report of the Committee required by the rules and regulations of the SEC to be included with the Company’s annual report on Form 10-­K or proxy statement.
  • Oversee the Company’s submissions to stockholders on executive compensation matters, including advisory votes on executive compensation and the frequency of such votes, incentive and other executive compensation plans, and amendments to such plans (to the extent required under the listing standards of the securities exchange on which the Company’s securities are listed) and, engagement with proxy advisory firms and other stockholder groups on executive compensation matters.

B. Nominating and Corporate Governance Responsibilities

The following are the principal recurring responsibilities of the Committee with respect to nominating and corporate governance. The Committee may perform such other functions as are consistent with its purpose and applicable law, rules and regulations and as the Board may request.

1. Board Composition, Evaluation and Nominating Activities. The Committee shall:

  • Determine the qualifications, qualities, skills and other expertise required to be a director and to develop, and recommend to the Board for its approval, criteria to be considered in selecting nominees for director (see Appendix A for the “Director Criteria”).
  • Evaluate the current composition, organization and governance of the Board and its committees, determine future requirements and make recommendations to the Board for approval consistent with the Director Criteria.
  • Search for, identify, evaluate and select, or recommend for selection by the Board, candidates to fill new positions or vacancies on the Board consistent with the Director Criteria, and review any candidates recommended by stockholders, provided such stockholder recommendations are made in compliance with the Company’s bylaws and its stockholder nominations and recommendations policies and procedures.
  • Review and consider any nominations of director candidates validly made by stockholders in accordance with applicable laws, rules and regulations and the provisions of the Company’s certificate of incorporation and bylaws.
  • Evaluate the performance of individual members of the Board eligible for re-election, and select, or recommend for the selection of the Board, the director nominees by class for election to the Board by the stockholders at the annual meeting of stockholders or any special meeting of stockholders at which directors are to be elected.
  • Consider the Board’s leadership structure, including the separation of the Chairman and CEO roles and/or appointment of a lead independent director of the Board, either permanently or for specific purposes, and make such recommendations to the Board with respect thereto as the Committee deems appropriate.
  • Develop and review periodically the policies and procedures for considering stockholder nominees for election to the Board.
  • Evaluate and recommend termination of membership of individual directors for cause or for other appropriate reasons.
  • Evaluate the “independence” of directors and director nominees against the independence requirements of the securities exchange on which the Company’s securities are listed, applicable rules and regulations promulgated by the SEC and other applicable laws.

2. Board Committees. The Committee shall:

  • Review annually the structure and composition of each committee of the Board and make recommendations, if any, to the Board for changes to the committees of the Board, including changes in structure, composition or mandate of committees, as well as the creation or dissolution of committees.
  • Recommend to the Board persons to be members and chairpersons of the various committees.

3. Corporate Governance. The Committee shall:

  • Develop and recommend to the Board a set of corporate governance guidelines applicable to the Company.
  • Review annually the corporate governance guidelines approved by the Board and their application, and recommend any changes deemed appropriate to the Board for its consideration.
  • Oversee the Company’s corporate governance practices, including reviewing and recommending to the Board for approval any changes to the Company’s corporate governance framework, including its certificate of incorporation and bylaws.
  • Develop, subject to approval by the Board, a process for an annual evaluation of the Board and its committees, and to oversee the conduct of this annual evaluation.
  • Conduct a periodic review of the Company’s succession planning process for the CEO and any other members of the Company’s executive management team, report its findings and recommendations to the Board, and assist the Board in evaluating potential successors to the CEO or other members of the Company’s executive management team.
  • Evaluate the participation of members of the Board in orientation and continuing education activities in accordance with applicable listing standards.
  • Review the disclosure included in the Company’s proxy statement regarding the Company’s director nomination process and other corporate governance matters.
  • Review any proposals properly submitted by stockholders for action at the annual meeting of stockholders and make recommendations to the Board regarding action to be taken in response to each such proposal.
  • Review and discuss with management the disclosure regarding the operations of the Committee and director independence, and recommend that this disclosure be included in the Company’s proxy statement or annual report on Form 10-K.

4. Conflicts of Interest. The Committee shall:

  • Review and monitor compliance with the Company’s Code of Business Conduct and Ethics.
  • Consider questions of possible conflicts of interest of Board members and of corporate officers.
  • Review actual and potential conflicts of interest of Board members and corporate officers, other than related party transactions reviewed by the Audit Committee of the Board, and approve or prohibit any involvement of such persons in matters that may involve a conflict of interest or the taking of a corporate opportunity.

C. General

  • Develop and periodically review and assess the adequacy of any of the Company’s Corporate Governance Guidelines, Code of Conduct and Ethics Policy, monitor compliance with those policies and make recommendations for changes to the Board when necessary.
  • Review on an ongoing basis all related-party transactions required to be disclosed pursuant to Regulation S-K for potential conflict of interest situations and approve all such transactions.
  • Report to the Board with respect to the Committee’s activities and report to the Company’s shareholders in the annual proxy statement.
  • Consult with the CEO, as appropriate, and other Board members to assure that its decisions facilitate a sound relationship between and among the Board, Board committees, individual directors, and management.
  • Review and assess the performance of the Committee on an annual basis.
  • Review and reassess the adequacy of this Charter and the charters of each of the other standing committees of the Board annually and recommend any proposed changes to the Board for its approval.
  • Perform any other activities consistent with this Charter, the Company’s Articles of Incorporation, the Company’s By-laws and governing law as the Committee or the Board deems necessary or appropriate.

D. Other Matters

  • Nothing contained in this Charter is intended to, or should be construed as, creating any responsibility or liability of the members of the Committee except to the extent otherwise provided under the laws of the Commonwealth of Pennsylvania which shall continue to set the legal standard for the conduct of the members of the Committee.

APPENDIX A

Criteria for Director Nominees

In making recommendations to the Company’s Board to serve as directors, the Committee will examine each director nominee on a case-by-case basis, regardless of who recommended the nominee, and take into account all factors it considers appropriate, which may include strength of character, mature judgment, career specialization, relevant technical skill, financial acumen, diversity of viewpoint, and industry knowledge. However, the Board and the Committee believe the following minimum qualifications must be met by a director nominee to be recommended by the Committee:

  • Each director must display high personal and professional ethics, integrity and values.
  • Each director must have the ability to exercise sound business judgment.
  • Each director must be accomplished in his or her respective field, with broad experience at the executive and/or policy-making level in business, government, education, technology or public interest.
  • Each director must have relevant expertise and experience, and be able to offer advice and guidance based on that expertise and experience.
  • Each director must be able to represent all shareholders of the Company and be committed to enhancing long-term shareholder value.
  • Each director must have sufficient time available to devote to activities of the Board and to enhance his or her knowledge of the Company’s business.

The Board also believes the following qualities or skills are necessary for one or more directors to possess:

  • At least one independent director should have the requisite experience and expertise to be designated as an “audit committee financial expert” as defined by applicable SEC rules.
  • One or more of the directors generally should be active or former executive officers of public or private companies or leaders of major complex organizations, including commercial, scientific, government, educational and other similar institutions.
  • Directors should be selected so that the Board as a whole collectively possess a broad range of skills, expertise, industry and other knowledge, and business and other experience useful to the effective oversight of the Company’s business.

The Board also seeks members from diverse backgrounds so that the Board consists of members with a broad spectrum of experience and expertise and with a reputation for integrity. Directors should have experience in positions with a high degree of responsibility, be leaders in the companies or institutions with which they are affiliated, and be selected based upon contributions that they can make to the Company.

– Tucows Reports Continuing Strong Financial Results for Third Quarter 2018 –

TORONTO, November 7, 2018 – Tucows Inc. (NASDAQ:TCX, TSX:TC), a provider of network access, domain names and other Internet services, today reported its financial results for the third quarter ended September 30, 2018. All figures are in U.S. dollars.

Summary Financial Results

(In Thousands of US Dollars, Except Per Share Data)

3 Months Ended September 30 9 Months Ended September 30
2018
(Unaudited)
2017
(Unaudited)
% Change 2018
(Unaudited)
2017
(Unaudited)
% Change
Net revenue 83,519 85,008 -2% 260,401 238,800 9%
Net income 5,346 3,440 55% 12,698 11,128 14%
Basic Net earnings per common share 0.50 0.33 52% 1.20 1.06 13%
Adjusted EBITDA1 11,858 9,368 27% 33,425 26,082 28%
Net cash provided by operating activities 11,214 7,282 54% 26,541 17,814 49%

1. This Non-GAAP financial measure is described below and reconciled to GAAP net income in the accompanying table.

 

Summary of Revenues and Gross Margin
(In Thousands of US Dollars)

Revenue Gross Margin
3 Months ended September 30 3 Months ended September 30
2018
(Unaudited)
2017
(Unaudited)
2018
(Unaudited)
2017
(Unaudited)
Network Access Services:
Mobile Services 22,546 21,749 11,147 9,384
Other Services 2,033 1,442 1,161 847
Total Network Access Services 24,579 23,191 12,308 10,231
Domain Services:
Wholesale
Domain Services 45,070 47,770 7,656 5,477
Value Added Services 4,541 4,203 3,734 3,516
Total Wholesale 49,611 51,973 11,390 8,993
Retail 8,731 8,873 4,266 4,262
Portfolio 598 971 450 791
Total Domain Services 58,940 61,817 16,106 14,046
Network Expenses:
Network, other costs (2,315) (2,461)
Network, depreciation and amortization costs (1,838) (1,322)
Total Network expenses (4,153) (3,783)
Total revenue/gross margin 83,519 85,008 24,261 20,494

 

“Our third quarter results again demonstrate how the consistent performance and cash flow generation of our Domains and Ting Mobile businesses are enabling us to invest in the build out of the Ting Internet footprint for our next phase of outsized growth,” said Elliot Noss, President and Chief Executive Officer, Tucows Inc. “Gross margin contribution expanded in each of our businesses, with Domains benefiting from normalized margins following the Enom acquisition and Network Access benefiting from Ting Mobile’s lower costs, a larger subscriber base and higher usage per subscriber, as we continue to reposition our offering for renewed growth. Importantly, Ting Internet continues to steadily advance its network builds, grow its number of serviceable addresses, and expand its subscriber base. We now have five fully active towns where we are installing, activating and supporting customers every day.”

Financial Results

Net revenue for the third quarter of 2018 was $83.5 million compared with $85.0 million for the third quarter of 2018, with the decrease due primarily to acceleration of revenue in the first quarter of 2018 related to the bulk transfer of 2.65 million very low margin domain names, which was partially offset by the continued growth of Ting Mobile and a bulk transfer of 0.2 million very low margin domains names in the third quarter of 2018. Excluding the impact of these of bulk transfers, net revenue for the third quarter of 2018 increased 3.5% compared to the third quarter of 2017.
Net income for the third quarter of 2018 increased 55% to $5.3 million, or $0.50 per share from $3.4 million, or $0.33 per share, for the third quarter of 2017.

Adjusted EBITDA1 for the third quarter of 2018 increased 27% to $11.9 million from $9.4 million for the third quarter of 2017.
Cash and cash equivalents at the end of the third quarter of 2018 was $10.8 million compared with $11.2 million at the end of the second quarter of 2018 and $12.5 million at the end of the third quarter of 2017.

Notes:
1. Adjusted EBITDA

Tucows reports all financial information required in accordance with United States generally accepted accounting principles (GAAP). Along with this information, to assist financial statement users in an assessment of our historical performance, the Company typically discloses and discusses a non-GAAP financial measure, adjusted EBITDA, in press releases and on investor conference calls and related events that exclude certain non-cash and other charges as the Company believes that the non-GAAP information enhances investors’ overall understanding of our financial performance.

The Company believes that the provision of this supplemental non-GAAP measure allows investors to evaluate the operational and financial performance of the Company’s core business using similar evaluation measures to those used by management. The Company uses adjusted EBITDA to measure its performance and prepare its budgets. Since adjusted EBITDA is a non-GAAP financial performance measure, the Company’s calculation of adjusted EBITDA may not be comparable to other similarly titled measures of other companies; and should not be considered in isolation, as a substitute for, or superior to measures of financial performance prepared in accordance with GAAP. Because adjusted EBITDA is calculated before recurring cash charges, including interest expense and taxes, and is not adjusted for capital expenditures or other recurring cash requirements of the business, it should not be considered as a liquidity measure. Non-GAAP financial measures do not reflect a comprehensive system of accounting and may differ from non-GAAP financial measures with the same or similar captions that are used by other companies and/or analysts and may differ from period to period. The Company endeavors to compensate for these limitations by providing the relevant disclosure of the items excluded in the calculation of adjusted EBITDA to net income based on U.S. GAAP, which should be considered when evaluating the Company’s results. Tucows strongly encourages investors to review its financial information in its entirety and not to rely on a single financial measure.

The Company’s adjusted EBITDA definition excludes depreciation, amortization of intangible assets, income tax provision, interest expense, interest income, stock-based compensation, asset impairment, gains and losses from unrealized foreign currency transactions and infrequently occurring items, including acquisition and transitions costs. Gains and losses from unrealized foreign currency transactions removes the unrealized effect of the change in the mark-to-market values on outstanding unhedged foreign currency contracts, as well as the unrealized effect from the translation of monetary accounts denominated in non-U.S. dollars to U.S. dollars.

The following table reconciles net income to adjusted EBITDA (dollars in thousands):

3 months ended September 30 9 months ended September 30
2018
(unaudited)
2017
(unaudited)
2018
(unaudited)
2017
(unaudited)
Net income for the period 5,346 3,440 12,698 11,128
Depreciation of property and equipment 1,445 978 4,007 2,614
Amortization of intangible assets 2,296 2,245 6,953 6,070
Impairment of intangible assets 2 2
Interest expense, net 914 864 2,761 2,703
Provision for income taxes 1,370 1,823 3,781 2,781
Stock-based compensation 711 203 1,904 834
Unrealized loss (gain) on change in fair value of forward contracts (35) 1 7 (37)
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities (269) (427) 191 (761)
Acquisition and transition costs* 80 239 1,123 748
Adjusted EBITDA 11,858 9,368 33,425 26,082
*Acquisition and other costs represents transaction-related expenses, transitional expenses, such as duplicative post-acquisition expenses, related to our acquisition of Enom in January 2017. Expenses include severance or transitional costs associated with department, operational or overall company restructuring efforts, including geographic alignments.

 

Conference Call
As per its new quarterly conference call format initiated last quarter, concurrent with the dissemination of this news release, management’s pre-recorded remarks discussing the quarter and outlook for the Company have been posted to the Tucows web site at https://www.tucows.com/investors/financials/. In lieu of a live question and answer period, for the next five days (until Monday, November 12), shareholders, analysts and prospective investors can submit questions to Tucows’ management at ir@tucows.com. Management will post responses to questions of general interest to the Company’s web site at https://www.tucows.com/investors/financials/ on Friday, November 16 at approximately 4:00 p.m. ET. All questions will receive a response, however, questions of a more specific may be responded to directly.

About Tucows
Tucows is a provider of network access, domain names and other Internet services. Ting (https://ting.com) delivers mobile phone service and fixed Internet access with outstanding customer support. OpenSRS (http://opensrs.com) and Enom (http://www.enom.com) manage a combined 23 million domain names and millions of value-added services through a global reseller network of over 38,000 web hosts and ISPs. Hover (http://hover.com) makes it easy for individuals and small businesses to manage their domain names and email addresses. More information can be found on Tucows’ corporate website (http://tucows.com).

This release includes forward-looking statements as that term is defined in the U.S. Private Securities Litigation Reform Act of 1995 including statements regarding our expectations regarding our future financial results and, including, without limitation, our expectation regarding our ability to realize synergies from the Enom acquisition and our expectation for growth of Ting Internet. These statements are based on management’s current expectations and are subject to a number of uncertainties and risks that could cause actual results to differ materially from those described in the forward-looking statements. Information about other potential factors that could affect Tucows’ business, results of operations and financial condition is included in the Risk Factors sections of Tucows’ filings with the Securities and Exchange Commission. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. All forward-looking statements are based on information available to Tucows as of the date they are made. Tucows assumes no obligation to update any forward-looking statements, except as may be required by law.

Tucows, Ting, OpenSRS, Enom and Hover are registered trademarks of Tucows Inc. or its subsidiaries.

Contact:
Lawrence Chamberlain
Loderock Advisors
(416) 519-4196
lawrence.chamberlain@loderockadvisors.com

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