10.

STOCK-BASED COMPENSATION

The Company has

three

stock-based compensation plans under which stock options or other stock-based awards have been granted, the Northern Technologies International Corporation

2019

Stock Incentive Plan (the

2019

Plan), which was approved by stockholders at the

2019

annual meeting of stockholders, the Northern Technologies International Corporation Amended and Restated

2007

Stock Incentive Plan (the

2007

Plan) and the Northern Technologies International Corporation Employee Stock Purchase Plan (the ESPP). The

2019

Plan replaced the

2007

Plan with respect to future grants; and, therefore,

further awards

may

be made under the

2007

Plan. The Compensation Committee of the Board of Directors and the Board of Directors administer these plans.

The

2019

Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, stock unit awards, performance awards, and stock bonuses to eligible recipients to enable the Company and its subsidiaries to attract and retain qualified individuals through opportunities for equity participation in the Company and to reward those individuals who contribute to the achievement of the Company’s economic objectives. Subject to adjustment as provided in the

2019

Plan, up to a maximum of

800,000

shares of the Company’s common stock are issuable under the

2019

Plan. Options granted generally have a term of

ten

years and become exercisable over a

one

- or

three

- year period beginning on the

one

-year anniversary of the date of grant. Options are granted at per share exercise prices equal to the market value of the Company’s common stock on the date of grant. The Company issues new shares upon the exercise of options. As of

August 31, 2019,

stock options or other equity awards had been granted under the

2019

Plan.

The maximum number of shares of common stock of the Company available for issuance under the ESPP is

200,000

shares, subject to adjustment as provided in the ESPP. The ESPP provides for

six

-month offering periods beginning on

September 1

and

March 1

of each year. The purchase price of the shares is

90%

of the lower of the fair market value of common stock at the beginning or end of the offering period. This discount

may

not

exceed the maximum discount rate permitted for plans of this type under Section

423

of the Internal Revenue Code of

1986,

as amended. The ESPP is compensatory for financial reporting purposes. The Company issued

2,462

and

1,970

shares on

March 1, 2019

and

2018,

respectively, and

1,748

and

1,780

shares on

September 1, 2018

and

2017,

respectively, under the ESPP. As of

August 31, 2019,

91,044

shares of common stock remained available for sale under the ESPP.

The fair value of option grants is determined at date of grant, using the Black-Scholes option pricing model with the assumptions listed below. The volatility factor used in the Black-Scholes option pricing model is based on historical stock price fluctuations, and the risk-free interest rate is based on U.S. treasury rates appropriate for the expected term. Dividend yield and expected volatility are estimated using historical amounts that are anticipated to be consistent with current values. Expected life of the option is based on the life of the option agreements. Based on these valuations, the Company recognized compensation expense of

$1,431,925

and

$413,010

during fiscal

2019

and fiscal

2018,

respectively, related to the options that vested during such time. As of

August

31,

2019,

the total compensation cost for non-vested options

not

yet recognized on the Company’s consolidated statements of operations was

$65,270,

which is expected to be recognized during fiscal

2020,

based on outstanding options as of

August 31, 2019.

Future option grants will impact the compensation expense recognized. Stock-based compensation expense is included in general and administrative expense on the consolidated statements of operations.

The fair value of each option grant is estimated on the grant date using the Black-Scholes option pricing model with the following assumptions and results for the grants:

	Fiscal Year 2019			Fiscal Year 2018
Dividend yield		1.32	%		2.18	%
Expected volatility		45.8	%		45.9	%
Expected life of option (years)		10			10
Weighted average risk-free interest rate		2.75	%		1.87	%

Stock option activity during the periods indicated was as follows:

	Number of Shares (#)			Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding at August 31, 2017		615,716			6.97
Options granted		94,504			9.18
Options exercised		(12,814	)		5.80
Options terminated		—			—

Outstanding at August 31, 2018		697,406			7.29
Options granted		141,767			18.23
Options exercised		—			—
Options terminated		—			—

Outstanding at August 31, 2019		839,173		$	9.13	$	2,610,422

Exercisable at August 31, 2019		640,617		$	7.20	$	2,403,847

*Share and per share data have been adjusted for all periods presented to reflect the

two

-for-

one

stock split effective

June 28, 2019.

The weighted average per share fair value of options granted during fiscal

2019

and fiscal

2019

was

$9.02

and

$3.88,

respectively. The weighted average remaining contractual life of the options outstanding and exercisable as of

August 31, 2019

was

5.90

years and

5.06

years, respectively.