Exhibit 10.12


 


NORTHERN
TECHNOLOGIES INTERNATIONAL CORPORATION


 


DESCRIPTION
OF NON-EMPLOYEE DIRECTOR

COMPENSATION ARRANGEMENTS


Overview


 


NTIC’s
non-employee directors currently consist of Pierre Chenu, Tilman B. Frank, M.D.
Soo Keong Koh, Ph.D., Sunggyu Lee, Ph.D., Ramani Narayan, Ph.D., Richard J.
Nigon and Mark J. Stone. We use a combination of cash and long-term
equity-based incentive compensation in the form of annual stock option grants
to attract and retain qualified candidates to serve on the Board of Directors.


 


Annual Retainers; Meeting Fees


 


Each
person who is a non-employee director receives an annual retainer of $10,000
for services rendered as a director of NTIC. 
The annual retainer is paid quarterly. 
NTIC’s Chairman of the Board receives an additional annual retainer of
$15,000, the Chair of the Audit Committee receives an additional annual
retainer of $5,000 and other members of the Audit Committee received an
additional annual retainer of $4,000. 
Each of our non-employee directors also receives $1,000 for each Board
and strategy review meeting attended and $1,000 for each Audit Committee,
Compensation Committee and Nominating and Corporate Governance Committee
meeting attended.  No director, however, will
earn more than $1,000 per day in Board, Board committee and strategy review
meeting fees.  Any director that is an
employee of NTIC (G. Patrick Lynch) does not receive any retainer or Board or
Committee meeting fees.


 


As
part of NTIC’s cost reduction efforts, from March 2009 to January 2010,
NTIC’s annual cash retainers and meeting fees were reduced temporarily by 10%.


 


Stock Options


 


Each
of non-employee director is automatically granted a five-year non-qualified
option to purchase 4,000 shares of NTIC common stock in consideration for their
services as directors of NTIC and the Chairman of the Board is automatically
granted an additional five-year non-qualified option to purchase 2,000 shares
of NTIC common stock in consideration for his services as Chairman on the first
day of each fiscal year.  Each
non-employee directors who is elected or appointed to the Board following the
first day of the fiscal year receives an automatic grant of an option to
purchase a pro rata portion of 4,000 shares of NTIC common stock calculated by
dividing the number of months remaining in the fiscal year at the time of
election or appointment divided by 12, which options are automatically granted
at the time of the new director’s election or appointment. Each automatically
granted option becomes exercisable, on a cumulative basis, with respect to
one-third of the shares covered by such option on each one-year anniversary of
the date of its grant.  The exercise
price of such option is equal to the fair market value of a share of NTIC
common stock on the date of grant.  All
such options are granted under the Northern Technologies International
Corporation 2007 Stock Incentive Plan.


 


Reimbursement of Expenses


 


All
of directors of NTIC are reimbursed for travel expenses for attending meetings
and other miscellaneous out-of-pocket expenses incurred in performing their
Board functions.


 

















 


Indemnification Agreements


 


NTIC
has entered into agreements with all of its directors under which NTIC is
required to indemnify them against expenses, judgments, penalties, fines, settlements
and other amounts actually and reasonably incurred, including expenses of a
derivative action, in connection with an actual or threatened proceeding if any
of them may be made a party because he or she is or was a director of NTIC.  NTIC will be obligated to pay these amounts
only if the director acted in good faith and in a manner that he or she
reasonably believed to be in or not opposed to NTIC’s best interests.  With respect to any criminal proceeding, NTIC
will be obligated to pay these amounts only if the director had no reasonable
cause to believe his or her conduct was unlawful.  The indemnification agreements also set forth
procedures that will apply in the event of a claim for indemnification.


 


Consulting Arrangements


 


NTIC
paid consulting fees to Bioplastic Polymers LLC, an entity which is owned by
Ramani Narayan, Ph.D., in the aggregate amount of $100,000 and royalty fees in
an aggregate amount of $2,668 during the fiscal year ended August 31,
2010.  The consulting services rendered
by Bioplastic Polymers LLC related to research and development associated with
various new technologies.  The royalty fees were paid pursuant to an oral
agreement pursuant to which NTIC has agreed to pay Bioplastic Polymers LLC and Dr. Narayan
in consideration of the transfer and assignment by Biopolymer Plastics LLC and Dr. Narayan
of certain biodegradable polymer technology to NTIC, an aggregate of three
percent of the gross margin on any net sales of products incorporating the
biodegradable polymer technology transferred to NTIC by Bioplastic Polymers LLC
and Dr. Narayan for a period of 10 years, provided that if a patent for or
with respect to biodegradable polymer technology is issued before the
expiration of such 10 year period, then NTIC will until the expiration of such
patent pay to Bioplastic Polymers LLC and Dr. Narayan an aggregate three
percent of the biodegradable polymer technology gross margin attributable to
such patent.


 


In
May 2009, NTIC entered into an agreement with DAK Engineering, LLC (“DAK”),
an entity owned by NTIC’s former Chief Technical Officer and a former Director
of the Company, Donald A. Kubik, Ph.D., effective as of June 1, 2009.
Pursuant to the agreement, NTIC has engaged DAK to perform certain services to
NTIC, specifically services in the area of chemistry, technology development,
supplier technical issues, production issues, product performance
characterization, and other forms of commercializing intellectual property
rights. In consideration for such services, NTIC pays DAK a monthly fee of
$7,250.  NTIC paid DAK an aggregate
amount of $87,000 during the fiscal year ended August 31, 2010 pursuant to
this agreement.  The agreement may be
terminated by either party for any reason with 30 days prior notice before the
quarter end by providing written notice to the other party and may be
terminated upon the occurrence of other certain events, as set forth in the
agreement.  The Agreement also contains
other standard terms, including provisions regarding confidentiality,
non-competition and non-solicitation.


 


In
May 2009, NTIC entered into a technology transfer and consulting agreement
with Sunggyu Lee, Ph.D., a director of NTIC, pursuant to which NTIC paid Dr. Lee
$30,000 payable in six $5,000 monthly installments in exchange for an 18-month
option to purchase certain technology developed by Dr. Lee.  If NTIC decides to exercise the option, Dr. Lee
has agreed to transfer to NTIC the technology and to provide NTIC consulting
services related to the further development and commercialization of the
technology in exchange for an additional $120,000 payable in eight $15,000
monthly installments.  If NTIC
commercializes any products or services that incorporate the transferred
technology or any other new related inventions developed by Dr. Lee during
the term of the agreement and transferred to NTIC under the agreement, NTIC has
agreed to pay Dr. Lee a royalty of three percent of any earnings before
interest and taxes to NTIC generated from the commercial exploitation by NTIC
of any products or services that incorporate the technology and/or
inventions.  Such royalties will be
required to be paid until the earlier of the last to expire of any applicable
patents covering such technology or inventions, the invalidity of such patents,
or if there are no issued patents covering such 


 


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technology
and inventions, 10 years from the first date of commercial sale or
license.  The agreement may be terminated
by NTIC if, at any stage, NTIC determines in its sole discretion not to proceed
with the project.


 


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