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<SEC-DOCUMENT>/in/edgar/work/0000897101-00-001148/0000897101-00-001148.txt : 20001130
<SEC-HEADER>0000897101-00-001148.hdr.sgml : 20001130
ACCESSION NUMBER:		0000897101-00-001148
CONFORMED SUBMISSION TYPE:	10KSB40
PUBLIC DOCUMENT COUNT:		7
CONFORMED PERIOD OF REPORT:	20000831
FILED AS OF DATE:		20001129

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			NORTHERN TECHNOLOGIES INTERNATIONAL CORP
		CENTRAL INDEX KEY:			0000875582
		STANDARD INDUSTRIAL CLASSIFICATION:	 [2670
]		IRS NUMBER:				410857886
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			0831
</COMPANY-DATA>

		FILING VALUES:
			FORM TYPE:		10KSB40
			SEC ACT:		
			SEC FILE NUMBER:	001-11038
			FILM NUMBER:		779717
</FILING-VALUES>

			BUSINESS ADDRESS:	
				STREET 1:		6680 N HIGHWAY 49
				CITY:			LINO LAKES
				STATE:			MN
				ZIP:			55014
				BUSINESS PHONE:		6127841250
</BUSINESS-ADDRESS>

				FORMER COMPANY:	
					FORMER CONFORMED NAME:	NORTHERN INSTRUMENTS CORP
					DATE OF NAME CHANGE:	19930328
</FORMER-COMPANY>
</FILER>
</SEC-HEADER>
<DOCUMENT>
<TYPE>10KSB40
<SEQUENCE>1
<FILENAME>0001.txt
<TEXT>


================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                         ------------------------------

                                   FORM 10-KSB

(Mark one)
                [X]     ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934


FOR THE FISCAL YEAR ENDED AUGUST 31, 2000            COMMISSION FILE NO. 1-11038

                [ ]     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                 NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
        (Exact name of small business issuer as specified in its charter)

                   DELAWARE                                 41-0857886
        (State or other jurisdiction of                  (I.R.S. Employer
        incorporation or organization)                  Identification No.)

                 6680 N. HIGHWAY 49, LINO LAKES, MINNESOTA 55014
               (Address of principal executive offices) (Zip code)

       Registrant's telephone number, including area code: (651) 784-1250

           Securities registered pursuant to Section 12(b) of the Act:

          Title of each class          Name of each exchange on which registered

     COMMON STOCK, $.02 PAR VALUE               AMERICAN STOCK EXCHANGE

           Securities registered pursuant to Section 12(g) of the Act:

                                      NONE.

       Check whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.

YES [X] NO [ ]

       Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained herein, and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

       The Registrant's revenues for the fiscal year ended August 31, 2000 were
$11,032,199.

       As of November 17, 2000, 3,794,284 shares of Common Stock of the
Registrant were outstanding, and the aggregate market value of the Common Stock
of the Registrant as of that date (based upon the closing price of the Common
Stock at that date as reported on the American Stock Exchange) excluding
outstanding shares beneficially owned by directors and executive officers, was
approximately $17,669,313.

       Documents incorporated by reference: None.

       Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]

================================================================================

<PAGE>


                                     PART I

           THIS FORM 10-KSB CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. FOR
THIS PURPOSE, ANY STATEMENTS CONTAINED IN THIS FORM 10-KSB THAT ARE NOT
STATEMENTS OF HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS.
WITHOUT LIMITING THE FOREGOING, WORDS SUCH AS "MAY," "WILL," "EXPECT,"
"BELIEVE," "ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR COMPARABLE TERMINOLOGY ARE
INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS BY THEIR
NATURE INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES, AND ACTUAL RESULTS MAY
DIFFER MATERIALLY DEPENDING ON A VARIETY OF FACTORS, INCLUDING THOSE SET FORTH
IN THE SECTION BELOW ENTITLED "CERTAIN IMPORTANT FACTORS" AND IN "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" IN
THIS REPORT.


ITEM 1. DESCRIPTION OF BUSINESS.

(a)      BUSINESS DEVELOPMENT.

         Northern Instruments, Inc., a predecessor to Northern Technologies
International Corporation, was incorporated in the State of Minnesota on August
4, 1970. In 1976, Northern Instruments, Inc. changed its name to Northern
Instruments Corporation. In 1978, Northern Instruments Corporation, a Minnesota
corporation, was merged with and into Northern Instruments Corporation, a
newly-formed Delaware corporation. In 1993, Northern Technologies International
Corporation, a wholly-owned subsidiary, was merged into Northern Instruments
Corporation. As a result of such merger, Northern Instruments Corporation
changed its name to Northern Technologies International Corporation, hereafter
referred to as the "Company" or "NTIC." In 1999, the Company organized Northern
Instruments Corporation, LLC, an Ohio limited liability company ("NIC"); and the
instruments operation of the Company were transferred into NIC. NIC is a
wholly-owned subsidiary of the Company. Effective March 4, 1999, Special Control
Systems, Inc., an Ohio corporation 100% owned by the Company, was merged into
NIC. The Company established a wholly-owned subsidiary NTI Facilities, Inc. on
January 1, 2000. The operating results and assets of NIC and NTI Facilities,
Inc. are included in the consolidated financial statements of the Company.

(b)      BUSINESS OF THE COMPANY.

GENERAL

         The Company is a developer, manufacturer and marketer of materials
science based industrial packaging products and systems and electronic sensing
instruments. The Company's corrosion inhibiting industrial packaging products
and systems, marketed under the name ZERUST(R) ("ZERUST"), are utilized in
protective packaging serving a wide variety of companies in industries such as
transportation, fossil fuel power generation, electronics, on-and off-road
automotive equipment, machinery for agriculture and metal processing. The ZERUST
product line accounted for approximately 97% of the Company's sales during its
fiscal year ended August 31, 2000.

         The Company's electronic sensing instruments include portable oil
quality analyzers for on-site evaluation of various types of oils and fluids,
instruments that provide for on- and off-line measurement of fiber denier and
other devices, which utilize microwave technology to measure moisture and the
tempo of manufacturing process in metallurgical facilities.


                                       2
<PAGE>


INTERNATIONAL JOINT VENTURES AND EUROPEAN HOLDING COMPANY

         The Company participates in an expanding number of international joint
venture arrangements that provide for the manufacturing, marketing and
distribution of materials science based industrial packaging products based upon
the Company's technology. Both the Company and the Company's corporate joint
venture in Germany, Excor Korrosionsschutz - Technologien und Produkte GmbH
("Excor"), through Excor's wholly owned subsidiary Excor Korrosionsforschung
GmbH, manufacture and supply the proprietary ingredients that make the finished
product functional, but the actual manufacturing of the finished product itself
takes place in each country in which the Company has a joint venture or similar
relationship. Manufacturing the product in foreign countries lowers shipping
costs and improves on-time delivery to foreign customers. The international
joint venture arrangements allow the Company to successfully market and sell its
products in foreign countries through the marketing efforts of joint venture
partners without the Company having to develop its own international sales
force. The Company's international joint venture partners are knowledgeable in
the applicable environmental, labor, tax and other requisite regulations and
laws of the respective foreign countries in which they operate, as well as the
local customs and business practices, and have a vested interest in making each
joint venture a success.

         The Company participates in various corporate joint ventures in
countries outside the United States and in similar non-contractual arrangements
in various other countries. The international joint ventures provide for the
manufacturing, marketing, and distribution of materials science based industrial
packaging products. The Company also has a 50% ownership interest in NTI ASEAN,
LLC, for its joint venture investments in the ASEAN region, which does not
encompass Japan or South Korea. Taiyo Petroleum Gas Co. Ltd., an existing joint
venture partner, owns the remaining 50% ownership interest in NTI ASEAN, LLC
subject to final capitalization of NTI ASEAN, LLC. The Company has an ownership
interest either directly or indirectly in the following joint ventures:

                                                        Date of Original
               Country                                     Investment
               -------                                     ----------

               Japan                                          1987
               France                                         1990
               Taiwan*                                        1990
               Germany                                        1991
               Singapore*                                     1991
               Sweden                                         1991
               Brazil                                         1993
               Austria                                        1994
               Russia                                         1994
               South Korea                                    1994
               Finland                                        1995
               Italy                                          1996
               United Kingdom                                 1997
               Czech Republic                                 1997
               Poland                                         1998
               Thailand*                                      1998
               China*                                         2000
               India                                          2000
               Malaysia*                                      2000
                 *INDIRECT OWNERSHIP INTEREST THROUGH NTI ASEAN, LLC


                                       3
<PAGE>


         The Company had invested $100,000 in 1998 to fund its interest in a
joint venture in Indonesia. During the fiscal year ended August 31, 2000, the
Company withdrew from this joint venture, receiving back its $100,000 investment
and interest thereon. The Company currently has no joint venture interests in
Indonesia.

         In addition to the Company's investments in the international corporate
joint ventures listed above, the Company acquired a 50% ownership interest in a
European holding company during fiscal year 1997; however, to date, this entity
has been inactive.

         While the Company is not aware of any specific potential risk beyond
its initial investment and undistributed earnings of the international joint
ventures, there can be no assurance that the Company will not be subject to
lawsuits based on product liability claims or other claims arising out of the
activities of each international joint ventures. To protect against such an
occurrence, the Company maintains liability insurance specifically applicable to
its ownership positions in the international joint venture arrangements in
excess of any insurance the joint ventures may maintain.

PRODUCTS

         The Company operates in two businesses: materials science based
industrial packaging products and systems and electronic sensing instruments.
Materials science based industrial packaging products and systems accounted for
approximately 97% of the Company's sales in fiscal year 2000.

         MATERIALS SCIENCE BASED INDUSTRIAL PACKAGING PRODUCTS AND SYSTEMS.
Corrosion negatively affects products and components in the manufacturing
industry. This applies to the rusting of ferrous (iron and steel) metals and the
deterioration by oxidation of nonferrous (aluminum, copper, brass, etc.) metals.
In combating corrosion, the traditional approach has been to apply oils and
greases to protect metal parts. This approach commonly requires specialized
application equipment. In addition, the oils and greases may pose unacceptable
health and fire hazards and also may collect and trap dirt and debris that, in
some cases, may actually initiate corrosion. For the removal of such oils and
greases, chemical solvents and specialized safety equipment may be necessary
that typically introduce additional health and hazardous waste disposal
problems.

         ZERUST volatile corrosion inhibiting ("VCI") products may entirely
eliminate or reduce the use of oils and greases to inhibit corrosion; for ZERUST
formulations contain proprietary chemical systems that emit a nontoxic vapor
that is diffused throughout an enclosure. Electron scanning microscopy shows
that the VCI-rich atmosphere causes VCI molecules to condense in a microscopic
layer on all surfaces they reach. The corrosion inhibiting layer is maintained
so long as the metal product to be protected remains within the ZERUST package.
Electron scanning further shows that once the contents are removed from the
ZERUST package, the VCI layer revolatilizes from the contents' surfaces within
two hours, leaving a clean, dry and corrosion-free product. This mechanism of
corrosion protection enables the Company's customers to package and ship metal
parts so that they arrive ready for use. Furthermore, by eliminating costly
greasing and degreasing processes, ZERUST VCI technology provides significant
savings in labor, material and capital expenditures for equipment to apply,
remove and dispose of oil and grease, as compared to traditional methods of
corrosion prevention.

         In 1980, the Company developed a means of combining ZERUST VCI systems
with polyethylene and polypropylene resins, and was granted a patent on this
process on September 22, 1981. Subsequently, a line of flexible packaging
products in the form of low and high density polyethylene bags and shroud film,
stretch, shrink, skin and bubble cushioning film, woven scrim and foam sheeting
was introduced to United States industry. This gave packaging engineers an
opportunity to ship and store ferrous, nonferrous and mixed multi-metal products
in a clean, dry and corrosion-free condition, with an attendant overall savings
in total packaging cost.


                                       4
<PAGE>


         The Company subsequently expanded the ZERUST product line to include a
range of rigid plastic products in the form of profile and corrugated board,
thermoformed dunnage trays and bins, injection and blow molded products and flat
netting. The Company also has developed additives in liquid form to imbue
corrugated cardboard, solid fiber and chipboard packaging materials with VCI
corrosion protection properties.

         ELECTRONIC SENSING INSTRUMENTS. The Company's electronic sensing
instruments accounted for approximately 3% of the Company's sales in fiscal year
2000. The Company's electronic sensing instruments include oil quality
analyzers, fiber monitors and testers, and other instruments used primarily for
process and quality control of materials in hostile environments, such as steel
mills. Several of the Company's electronic sensing instruments are based on the
measurement of the change in dielectric properties of different liquids and
fibers by means of capacitance sensors. The instrument product line, however,
also includes measurement devices for materials and moisture testing based upon
microwave technology.

MANUFACTURING

         The Company produces certain proprietary materials science based
industrial packaging formulations and products at its facility in Lino Lakes,
Minnesota and electronic sensing instruments at facilities in Forest Lake,
Minnesota and Cleveland, Ohio. The Company's materials science based industrial
packaging end products include flexible and rigid packaging systems and other
products that are produced to customer specification by selected contractors who
are supplied with the necessary active ingredients by the Company, under a Trade
Secrecy Agreement.

         The Company is ISO 9001 certified with respect to the manufacturing of
its materials science based industrial packaging products. The Company believes
that the process of ISO 9001 certification serves as an excellent tool for total
quality management, enabling the Company to provide consistency and excellence
in its products. Also, because potential customers may prefer or require
manufacturers to have achieved ISO certification, such ISO certification may
provide the Company with certain competitive advantages.

SALES AND MARKETING OF MATERIALS SCIENCE BASED INDUSTRIAL PACKAGING PRODUCTS

         In the United States, the Company markets its materials science based
industrial packaging products principally to industrial users by a direct sales
force and through a network of distributors and sales representatives. The
Company's technical service representatives work directly with the end users of
the Company's products to analyze their specific needs and develop systems to
meet their technical requirements.

         Internationally, the Company has entered into joint ventures and
similar arrangements with foreign partners (either directly or through NTI
ASEAN, LLC). Pursuant to these arrangements, the Company and/or Excor supply
certain proprietary formulations to the foreign joint venture entities, which in
turn provide for the international manufacture and marketing of ZERUST and
others finished products. The Company receives fees for providing technical
support and marketing assistance to the joint ventures in accordance with the
terms of the joint venture arrangements.


                                       5
<PAGE>


COMPETITION

         The Company is aware of other organizations that manufacture and market
corrosion inhibiting packaging products, which compete with the Company's ZERUST
products. The Company evaluates competing products on an ongoing basis and
believes that none of the competing products on the market at this time are
superior to the Company's products.

         The Company is aware of competitors in the "Lubri-Sensor" oil quality
analyzer area; however, the Company does not have any knowledge as to the
business effectiveness of such competitors and believes that the Company's
products are competitive with all other products currently on the market. In the
"Foodoil Sensor" oil quality analyzer area, the Company is aware of a competitor
who does not provide an analysis instrument but instead provides a paper test
strip. Although the Company believes that its product offers significant
advantages over paper test strips, the Company believes that sales of the
Foodoil Sensor have historically been limited by price sensitivity rather than
differences in product capabilities.

         Some of the Company's competitors, in both the materials science based
industrial packaging area and the electronic instrument area, are established
companies that may have financial and other resources greater than those of the
Company. Additionally, some of these companies may have achieved significant
market impact and brand recognition. The Company competes with such companies by
providing high quality products and by attempting to provide the highest level
of customer service, including real time direct technical support and
applications engineering.

SIGNIFICANT CUSTOMERS

         One customer accounted for approximately 14% and 16% of net sales for
the fiscal years ended August 31, 2000 and 1998, respectively. No single
customer accounted for more than 10% of net sales for the fiscal year ended
August 31, 1999.

RESEARCH AND DEVELOPMENT

         The Company's research and development activities are directed at the
improvement of existing products, the development of new products and quality
assurance through improved testing of the Company's products. The Company's
research and development expenditures, including engineering and technical
support, were $587,434, $578,231, and $487,456 in fiscal years 2000, 1999 and
1998, respectively. In 1997, the Company's joint venture in Germany, Excor,
established a wholly-owned subsidiary, Excor Korrosionsforschung GmbH, to
conduct research into new fields of materials science based industrial packaging
and the applications engineering thereof in conjunction with the Company's
domestic research and development operation. Today the Company's internal
research and development activities are conducted at its Minnesota headquarters,
in Beachwood, Ohio, in Dresden, Germany; and at various international locations
under the direction of internationally known scientists and research institutes
under exclusive contract to the Company with respect to the subject of their
respective research efforts. The conduct of the research and development
activities outside Minnesota and Germany, like the results of the Company's
research and development efforts generally, invariably engenders certain
proprietary rights for the Company.

PATENTS AND TRADEMARKS

         The Company is committed to the timely and continual upgrading of its
product line and the introduction of new products, developed in-house or via
exclusive technology agreements. The Company currently owns one United States
patent, which expired in 2000, relating to its corrosion inhibiting products.
The Company believes that trade secrets and proprietary (albeit unpatented)
know-how are at least as important as patent protection in establishing and
maintaining a competitive advantage; and that mere patent protection without
close technical support and applications engineering will not serve to keep any
given supplier in the forefront of any sophisticated technology based market.


                                       6
<PAGE>


         The Company also has several registered trademarks in the United States
and certain foreign countries. The registered trademarks in the U.S. are: the
logo "NTI", the word "ZERUST", the words "THE ZERUST PEOPLE", the word
"PLASTABS", the words "COR TAB" and the color "YELLOW" "for anticorrosive
plastic film used for packaging metallic products, for industrial and consumer
use". The Company's trademarks have a life, subject to periodic maintenance, of
10 to 20 years, which may be extended.

BACKLOG

         The Company did not have a significant order backlog as of August 31,
2000. Customers generally place orders on an "as needed" basis and expect
delivery within a relatively short period of time.

WORKING CAPITAL AND AVAILABILITY OF MATERIALS

         The Company does not carry excess quantities of raw materials or
purchased parts because of widespread availability thereof from various
suppliers. The Company has sufficient working capital to meet all obligations
when due.

EMPLOYEES

         As of August 31, 2000, the Company had 31 full-time direct employees in
the United States, consisting of six engaged in administration, ten in sales and
marketing, four in research and development, ten in operations and one person
responsible for international coordination. There are no unions representing the
Company's employees and the Company believes that its relations with employees
are good. There are no pending or, to the Company's knowledge, threatened labor
or employment disputes or work interruptions.

CERTAIN IMPORTANT FACTORS

         In addition to the influences identified above, there are several
important factors that could cause the Company's actual results to differ
materially from those anticipated by the Company or which are reflected in any
forward-looking statements of the Company. Such factors, which may impact on the
success of the Company's operations and its ability to achieve its goals,
include the following:

         (1)      The Company's ability to make investments in existing and
                  future joint ventures to generate a positive rate of return
                  and demonstrate a pattern of growth consistent with past and
                  current performance; and

         (2)      The Company's ability to continue to enter into international
                  markets in a timely fashion; and

         (3)      The Company's ability to maintain gross margins at a level
                  consistent with the technological advantages of its
                  proprietary products.


                                       7
<PAGE>


ITEM 2. DESCRIPTION OF PROPERTY.

         The Company's primary office, production facilities and domestic
research and development operations are located at 6680 North Highway 49, Lino
Lakes, Minnesota 55014. The Company owns approximately 3.5 acres at this site
and three buildings thereon. The main building, consisting of approximately
15,300 square feet, is used for office, production, research and development and
shipping and receiving. A second building of approximately 7,200 square feet and
a third building of approximately 4,800 square feet are used for warehouse
space. In 1995, the Company acquired an approximately 10 acre parcel of land
located in Forest Lake, Minnesota, approximately six miles from the Company's
offices. On this parcel, the Company built a warehouse of approximately 18,000
square feet that was completed in November 1996.

         A subsidiary of the Company, NTI Facilities, Inc., acquired a one-third
ownership of Omni - Northern Ltd., an Ohio limited liability company, in
contemplation of entering into a lease (as described below) for approximately
50% of the net rentable space in the building itself. Omni - Northern Ltd. owns
and operates a rental property located at 23205 Mercantile Road, Beachwood,
Ohio, comprising approximately 1.989 acres of land and a building of
approximately 33,877 square feet, having an approximate value of $2,205,000
based upon the cash - to mortgage acquisition price of the property paid in
fiscal year 2000. The Company has guaranteed up to $339,235 of the Omni -
Northern Ltd.'s $2,035,000 mortgage obligation with National City Bank,
Cleveland, Ohio. NTI Facilities, Inc. has entered into a 15 year lease agreement
for approximately 16,826 square feet of office, manufacturing, laboratory and
warehouse space requiring monthly payments of $13,194 (approximately $9.41 per
square foot), which can be adjusted annually according to the annual consumer
price index through November 2014. By its ownership in Omni - Northern Ltd., NTI
Facilities Inc. is entitled to one third of the operating results of
Omni - Northern Ltd. The building is now fully leased.

ITEM 3. LEGAL PROCEEDINGS.

         There is no material pending or threatened legal, governmental,
administrative or other proceeding to which the Company is a party or of which
any of its property is the subject.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.


                                       8
<PAGE>


                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
        MATTERS.

         Effective September 10, 1993, the Company's Common Stock commenced
trading on, and it continues to trade on, the American Stock Exchange under the
symbol NTI.


                                                            COMMON STOCK
                                                            ------------
                                                        HIGH            LOW
                                                        ----            ---
         2000:
              Fourth fiscal quarter.............      $ 8 7/8        $ 5 3/4

              Third fiscal quarter..............        8 1/8          6 3/8

              Second fiscal quarter.............        9 5/8          6 1/8

              First fiscal quarter..............        7 9/16         5 1/4

         1999:
              Fourth fiscal quarter.............      $ 8 3/8        $ 5 11/16

              Third fiscal quarter..............        6 7/8          5 1/2

              Second fiscal quarter.............        7 1/4          5 3/8

              First fiscal quarter..............        7              5

         The Company declared Common Stock cash dividends of $.15 per share to
shareholders of record on December 4, 1998; and $.16 per share to shareholders
of record on December 3, 1999; and $.17 per share to shareholders of record on
December 1, 2000. The Company's Board of Directors will continue to consider the
payment of dividends annually, based on the Company's net income and operating
cash requirements.

         As of August 31, 2000, the Company's Common Stock was held by
approximately 460 shareholders of record.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

RESULTS OF OPERATIONS

FISCAL YEAR 2000 COMPARED TO FISCAL YEAR 1999

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION

         NET SALES AND COST OF SALES. The Company had net sales originating in
the United States of $11,032,199 in fiscal year 2000; an increase of $1,161,668
or 11.8% from net sales of $9,870,531 in fiscal year 1999. The increase in net
sales was due primarily to an increase in the volume of materials science based
industrial packaging products sold to new and existing customers in North
America. One existing customer accounted for 14% of sales in fiscal year 2000
and 7% of sales in fiscal year 1999.


                                       9
<PAGE>


         The cost of sales increased as a percentage of sales to 50.4% in fiscal
year 2000 from 47.9% in fiscal year 1999. The variation in the cost of sales
percentage includes an obsolete inventory charge of $90,000 and the impact of
the increase in the market price for certain raw materials and labor cost. The
Company does not anticipate a further ongoing increase in cost of sales in
fiscal year 2001 as a percentage of sales.

         SELLING EXPENSES. The Company's selling expenses decreased by $182,242
or 12.2% to $1,308,615 in fiscal year 2000 from $1,490,857 in fiscal year 1999.
The decrease in selling expenses in fiscal year 2000 was primarily related to a
decrease in external selling commissions and related expenses, which was
partially offset with an increase in salaries. As a percentage of sales these
costs decreased to 11.9% in fiscal year 2000 from 15.1% in fiscal year 1999 due
to the increased level of net sales and the overall decrease in selling expenses
in fiscal year 2000. The Company anticipates that its selling expenses will
increase in fiscal year 2001 due to planned increases in marketing efforts.

         GENERAL AND ADMINISTRATIVE EXPENSES. The Company's general and
administrative expenses increased by $433,055 or 26.0% to $2,097,991 in fiscal
year 2000 from $1,664,936 in fiscal year 1999. The increase in general and
administrative expenses in fiscal year 2000 was primarily due to increases in
various professional fees (e.g. for the filing and defense of U.S. and foreign
patents and trademarks), group insurance and development of the Company's
facilities, including technical equipment and a new laboratorium. As a
percentage of sales general and administrative expenses increased to 19.0% in
fiscal year 2000 from 16.9% in fiscal year 1999. The Company anticipates that
its general and administrative expenses will continue to increase in fiscal year
2001, for the reasons cited.

         RESEARCH, ENGINEERING, AND TECHNICAL SUPPORT EXPENSES. The Company's
research, engineering, and technical support expenses increased by $9,203 or
1.6% to $587,434 in fiscal year 2000 from $578,231 in fiscal year 1999. As a
result of the Company's international research and development activities
certain proprietary rights to new technology have been added to the Company. As
a percentage of sales, research, engineering and technical support expenses
decreased to 5.3% in fiscal year 2000 from 5.9% in fiscal year 1999 due to the
increased level of net sales. The Company anticipates that in fiscal year 2001
research, engineering and technical support expenses will surpass expenses
incurred in fiscal year 2000.

OPERATIONS OF INTERNATIONAL JOINT VENTURES

         CORPORATE JOINT VENTURES AND EUROPEAN HOLDING COMPANY. The Company
continues its business program of establishing corporate joint venture
arrangements in international markets directly or indirectly through NTI ASEAN,
LLC ("NTI ASEAN"). The Company maintains a 50% ownership interest in NTI ASEAN,
with the remaining 50% ownership interest owned by Taiyo Petroleum Gas Co. Ltd.,
which also owns the other 50% ownership interest in the Company's corporate
joint venture located in Japan.

         The Company and/or an existing corporate joint venture manufactures and
supplies patented and/or proprietary ingredients, which make the finished
products functional and enable manufacturing of the finished products to take
place in the foreign countries. The corporate joint ventures then market the
finished products in their respective territories, and the corporate joint
ventures' profits are shared by the respective corporate joint venture
shareholders in accordance with share ownership.


                                       10
<PAGE>


         Corporate joint venture sales were as follows:

                                                       2000             1999

        Direct ownership interest                  $23,913,708      $22,022,767
        Indirect ownership interest (NTI ASEAN)      1,288,396
                                                   -----------      -----------
        Total                                      $25,202,104      $22,022,767
                                                   ===========      ===========

         The Company received fees for technical and other support to the
corporate joint ventures based on the revenues of the individual corporate joint
ventures. The Company recognized fees for such support in the amounts of
$2,749,578 and $2,459,697 for fiscal years 2000 and 1999, respectively. The
increase in fees for technical and other support to corporate joint ventures was
primarily due to the greater efficacy of the Company's service to its corporate
joint ventures, which provided for increased sales volume at certain of the
Company's corporate joint ventures.

         The Company incurred direct expenses related to corporate joint
ventures and the European holding company of $1,312,213 and $741,703 in fiscal
years 2000 and 1999, respectively. These expenses include: technical and
marketing services to existing joint ventures, legal fees regarding the
establishment of new joint ventures, registration and promotion of worldwide
trade marks and legal fees incurred in the filing of letters patent for new
technologies to which the Company acquired certain rights. The Company
anticipates that expenses relating to corporate joint ventures will continue to
increase in the future due to the Company providing ongoing technical, marketing
and other support to its joint ventures, to the development of new corporate
joint ventures and to the development of new technologies and their concomitant
intellectual property rights.

         The Company and NTI ASEAN anticipate that in the future they will enter
into joint ventures in other foreign countries and in the ASEAN region.

         The Company's investments in corporate joint ventures and the European
holding company are accounted for using the equity method and resulted in income
to the Company of $854,032 and $368,711 for fiscal years 2000 and 1999,
respectively. Net income of the corporate joint ventures in fiscal year 2000 of
$1,810,885 represents a 74.3% increase from fiscal year 1999.

         The Company also has an investment in a European holding company, which
is currently inactive.

INTEREST INCOME

         INTEREST INCOME. The Company's interest income increased to $238,858 in
fiscal year 2000 from $111,901 in fiscal year 1999 due partially to the interest
received upon a full payment of a note from purchase of common stock.

INCOME BEFORE INCOME TAXES

         INCOME BEFORE INCOME TAXES. The comparison of the income before income
taxes of the Company reveals an increase of $397,620 to $4,005,805 in fiscal
year 2000, over the income before income taxes of $3,608,185 in fiscal year
1999, a net gain of 11.0% year to year.


                                       11
<PAGE>


INCOME TAXES

         INCOME TAXES. The Company's effective income tax rates were 34.3% and
29.7% for fiscal years 2000 and 1999, respectively. The effective income tax
rate for the Company in fiscal year 2000 was lower than the statutory rate,
since the Company's equity in income of its international corporate joint
ventures and in the European holding company are recognized based on after tax
earnings of these entities, resulting in foreign tax credits. Thus, to the
extent the corporate joint ventures' and the foreign company's undistributed
earnings were distributed to the Company during fiscal years 2000 and 1999, such
did not result in material additional income tax liability after the application
of foreign tax credits. The increase in the Company's effective income tax rate
in fiscal year 2000 is primarily due to the utilization of a net operating loss
carry forward in fiscal year 1999, which was exhausted in that period.


FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION

         NET SALES AND COST OF SALES. The Company's net sales originating in the
United States were $9,870,531 in fiscal year 1999; a decrease of $206,963 or
2.1% from net sales of $10,077,494 in fiscal year 1998. The decrease in net
sales is due primarily to a decrease in the volume of materials science based
industrial packaging products sold to the Company's international corporate
joint ventures which was only partially offset by an increase in the volume of
such products sold to new and existing customers in North America. During fiscal
year 1999, certain of the corporate joint ventures purchased active formulations
previously sourced from the Company from a corporate joint venture of the
Company.

         No single customer accounted for more than 10% of sales in fiscal year
1999, whereas, in fiscal year 1998 sales to one customer accounted for 16% of
total sales. The decrease in sales to a single customer is a result of a major
industrial customer's changing logistic firms during fiscal year 1999.

         The cost of sales decreased as a percentage of sales to 47.9% in fiscal
year 1999 from 49.1% in fiscal year 1998. The variation in the cost of sales
percentage reflects changes in product mix.

         SELLING EXPENSES. The Company's selling expenses increased by $230,249
or 18.3% to $1,490,857 in fiscal year 1999 from $1,260,608 in fiscal year 1998.
The increase in selling expenses in fiscal year 1999 was primarily related to
increases in salaries and related expenses, sales promotion, and travel. As a
percentage of sales these costs increased to 15.1% in fiscal year 1999 from
12.5% in fiscal year 1998 reflecting the decreased level of net sales together
with the overall increase in selling expenses in fiscal year 1999.

         GENERAL AND ADMINISTRATIVE EXPENSES. The Company's general and
administrative expenses increased by $218,155 or 15.1% to $1,664,936 in fiscal
year 1999 from $1,446,781 in fiscal year 1998. The increase in general and
administrative expenses in fiscal year 1999 was primarily due to increases in
salaries and related expenses, various professional fees, and building
maintenance. As a percentage of sales, general and administrative expenses
increased to 16.9% in fiscal year 1999 from 14.4% in fiscal year 1998 reflecting
the decreased level of net sales and the overall increase in general and
administrative expenses in fiscal year 1999.


                                       12
<PAGE>


         RESEARCH, ENGINEERING, AND TECHNICAL SUPPORT EXPENSES. The Company's
research, engineering, and technical support expenses increased by $90,775 or
18.6% to $578,231 in fiscal year 1999 from $487,456 in fiscal year 1998. The
increase in research, engineering and technical support expenses in fiscal year
1999 was primarily due to the increase of research and development activities
conducted at various international locations with and through independent
contractors under the direct supervision of the Company. The conduct of the
Company's research and development activities, both internationally and
domestically, invariability engender certain proprietary rights to the results
thereof to the Company. As a percentage of sales research, engineering and
technical support expenses costs increased to 5.9% in fiscal year 1999 from 4.8%
in fiscal year 1998 due to the increased research, engineering, and technical
support activities in fiscal year 1999, as against the decreased level of net
sales in that period.

OPERATIONS OF INTERNATIONAL JOINT VENTURES

         CORPORATE JOINT VENTURES AND EUROPEAN HOLDING COMPANY. The Company's
investments in international corporate joint ventures and the European holding
company are accounted for using the equity method and resulted in income to the
Company of $368,711 and $549,875 for fiscal years 1999 and 1998, respectively.
The decrease in equity in income of international corporate joint ventures and
the European holding company was primarily due to a write down of the U.S.
dollar value of the Company's investment in its Brazilian joint venture
accompanied by the erosion in value of the Brazilian Real. Net income of the
Company's international corporate joint ventures in fiscal year 1999 in the
amount of $1,038,785 represents a 14.6% decrease from the net income of the
Company's international joint ventures in fiscal year 1998, due partially to
higher operating expenses in those companies and in some measure to currency
fluctuations. The Company also receives fees for technical and other support to
its international corporate joint ventures, based on the revenues of each
individual corporate joint venture. The Company recognized fees for such support
in the amounts of $2,459,697 and $1,868,938 for fiscal years 1999 and 1998,
respectively. The increase in fees for technical support and other services to
international corporate joint ventures was primarily due to the greater efficacy
of the Company's services to its corporate joint ventures, which provided for
increased sales volume at certain of the Company's international corporate joint
ventures located in the Pacific Rim and Europe. Sales of the international
corporate joint ventures in fiscal year 1999 increased $2,444,772 or 12.5% to
$22,022,767.

         The Company incurred direct expenses related to its support of the
international corporate joint ventures and the European holding company of
$741,703 and $566,051 in fiscal years 1999 and 1998, respectively. These
expenses consisted primarily of cost incurred to provide technical and marketing
services to existing joint ventures, legal fees incurred for the development of
new joint ventures, and travel and meetings expenses; but do not include an
allocation of research and development expenses or of selling expenses incurred
by the Company, including, for example, for participation in the international
trade fairs and symposia.

INCOME TAXES

         INCOME TAXES. The Company's effective income tax rates were 29.7% and
33.5% for fiscal years 1999 and 1998, respectively. The decrease in the
effective income tax rate in fiscal year 1999 as compared to fiscal year 1998
was due to the utilization of a net operating loss carry forward that became
available in fiscal year 1999. The effective income tax rate for the Company's
fiscal year 1999 was lower than the statutory rate, since the equity in income
of its international corporate joint ventures and the European holding company
are recognized based on after tax earnings of these entities. Thus, to the
extent the corporate joint ventures' and the foreign company's undistributed
earnings were distributed to the Company during fiscal years 1999 and 1998, such
did not result in material additional income tax liability after the application
of foreign tax credits.


                                       13
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

         At August 31, 2000, the Company's working capital was $6,078,694
including $3,840,057 in cash and cash equivalents, with a current ratio of
7.3:1. At August 31, 1999, the Company's working capital was $5,471,523,
including $2,750,209 in cash and cash equivalents, with a current ratio of
9.1:1. To date, net cash provided from operations has been sufficient to meet
liquidity requirements, capital expenditures, research and development cost, and
expansion of operations of the Company's international joint ventures. Cash flow
from operations totaled $2,620,833, $1,983,425, and $2,048,207 for the fiscal
years 2000, 1999, and 1998, respectively. The net cash flow from operations for
fiscal years 2000, 1999, and 1998 resulted principally from net income and
international joint venture dividends offset by a non-cash component of net
income identified as equity in income of international corporate joint ventures
and European holding company.

         Net cash used in investing activities totaled $429,420, $641,317 and
$91,682 for fiscal years 2000, 1999, and 1998, respectively. The primary uses of
cash in fiscal year 2000 were investments in international corporate joint
ventures, and additions to property, and an increase in other assets. In fiscal
year 2000, the Company's expenditures of cash for investing activities were
offset by payment of the note receivable from purchase of common stock. The
primary use of cash in fiscal years 1999 and 1998 were investments in corporate
joint ventures and additions to property. In fiscal years 1999 and 1998 the
Company's expenditures of cash for investing activities were offset by payment
of an international corporate joint venture note and proceeds from the sale of
trading investments, respectively.

         Net cash used in financing activities was $1,101,565, $792,389, and
$3,701,602 for fiscal years 2000, 1999, and 1998, respectively. The primary uses
of cash in financing activities resulted from the payment of dividends and the
repurchase of common stock. The primary source of cash provided by financing
activities was proceeds from the exercise of stock options.

         The Company and its subsidiaries have no long-term debt and no material
lease commitments as of August 31, 1999, except for an office, manufacturing,
laboratory and warehouse lease requiring monthly payments of $13,194, which can
be adjusted annually according to the annual consumer price index through
November 2014.

         The Company has no postretirement benefit plan and does not anticipate
establishing any postretirement benefit program.

         Inflation in the U.S. historically has had little effect on the
Company.

EURO CURRENCY ISSUE

         On January 1, 1999, eleven of the fifteen member countries of the
European Union established fixed conversion rates between their respective
existing currencies and the Euro and to adopt the Euro as their common legal
currency on that date (the "Euro Conversion"). Following the Euro Conversion,
however, the previously existing currencies of the participating countries were
scheduled to remain legal tender in the participating countries from January 1,
1999 to January 2002. During this transition period, public and private parties
may pay for goods and services using either the Euro or the previously existing
currencies. Beginning January 1, 2002, the participating countries will issue
new Euro-denominated bills and coins for use in cash transactions. No later than
July 1, 2002, the participating countries will withdraw all bills and coins
denominated in the previously existing currencies making Euro Conversion
complete.

         The Company, its international corporate joint ventures and the
European holding company have been evaluating the potential impact the Euro
Conversion to the Euro Currency may have on their results of operations,
liquidity or financial condition. The Company has determined that expected costs
for compliance will not be material to its results of operations, liquidity,
financial condition or capital expenditures. However, significant noncompliance
by the Company's international corporate joint ventures, and their customers or
suppliers could adversely impact the Company's results of operations, liquidity
or financial condition. Accordingly, until the Company completes its assessment
of the Euro Conversion impact, there can be no assurance that the Euro
Conversion will not have a material impact on the overall business operations of
the Company.


                                       14
<PAGE>


RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

         In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement requires
companies to record derivatives on the balance sheet as assets and liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. To date, the Company believes the
adoption of SFAS No. 133 will not have a significant impact on its financial
position or the results of its operations.

         In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulleting (SAB) No. 101 that provides the staff's views in applying
generally accepted accounting principles to selected revenue recognition issues.
The Company is required to modify its revenue recognition policy to comply with
SAB No. 101, as amended, no later than August 31, 2001. Management has not yet
determined the effects SAB No. 101 will have on the Company's financial position
or the results of the operations.


                                       15
<PAGE>


ITEM 7. FINANCIAL STATEMENTS.


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

         The following items are included herein:

         Financial Statements:                                            Page
         --------------------                                             ----

         Independent Auditors' Report..................................... 17
         Consolidated Balance Sheets as of August 31, 2000 and 1999....... 18
         Consolidated Statements of Income for the years ended August 31,
          2000, 1999 and 1998............................................. 19
         Consolidated Statements of Stockholders' Equity for the years
          ended August 31, 2000, 1999 and 1998............................ 20
         Consolidated Statements of Cash Flows for the years ended
          August 31, 2000, 1999 and 1998.................................. 21
         Notes to Consolidated Financial Statements....................... 22-32


                                       16
<PAGE>


INDEPENDENT AUDITORS' REPORT


To the Stockholders and Board of Directors
Northern Technologies International Corporation
Lino Lakes, Minnesota

We have audited the accompanying consolidated balance sheets of Northern
Technologies International Corporation and Subsidiaries (the Company) as of
August 31, 2000 and 1999 and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended August 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Northern Technologies International
Corporation and Subsidiaries at August 31, 2000 and 1999 and the results of
their operations and their cash flows for each of the three years in the period
ended August 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.



/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
November 17, 2000


                                       17
<PAGE>


NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
AUGUST 31, 2000 AND 1999
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                             2000              1999
<S>                                                                                      <C>              <C>
ASSETS

CURRENT ASSETS:
   Cash and cash equivalents                                                             $  3,840,057     $  2,750,209
   Receivables:
     Trade, less allowance for doubtful accounts of $30,000 and $27,000, respectively       1,390,264        1,704,536
     International corporate joint ventures                                                   608,136          473,553
   Inventories                                                                                929,661        1,013,525
   Prepaid expenses and other                                                                  51,066           37,008
   Deferred income taxes                                                                      220,000          170,000
                                                                                         ------------     ------------
           Total current assets                                                             7,039,184        6,148,831

PROPERTY AND EQUIPMENT, net                                                                 1,219,189        1,115,229

OTHER ASSETS:
   Investments in international corporate joint ventures                                    3,602,692        3,424,623
   Investment in European holding company                                                     243,598          247,253
   Deferred income taxes                                                                      310,000          210,000
   Other                                                                                      703,631          315,662
                                                                                         ------------     ------------
                                                                                            4,859,921        4,197,538
                                                                                         ------------     ------------
                                                                                         $ 13,118,294     $ 11,461,598
                                                                                         ============     ============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable                                                                      $    221,236     $    149,328
   Income taxes                                                                               313,806          307,188
   Accrued liabilities:
     Payroll and related benefits                                                             224,445           54,182
     Other                                                                                    201,003          166,610
                                                                                         ------------     ------------
           Total current liabilities                                                          960,490          677,308

DEFERRED GROSS PROFIT                                                                          50,000           60,000

COMMITMENTS AND CONTINGENCIES (Note 10)

STOCKHOLDERS' EQUITY:
   Preferred stock, no par value; authorized 10,000 shares; none issued
   Common stock, $.02 par value per share; authorized 10,000,000 shares;
     issued and outstanding 3,803,118 and 3,865,103 shares, respectively                       76,062           77,302
   Additional paid-in capital                                                               4,532,550        4,613,806
   Retained earnings                                                                        8,093,286        6,481,550
   Accumulated other comprehensive loss (Note 1)                                             (594,094)        (318,561)
                                                                                         ------------     ------------
                                                                                           12,107,804       10,854,097
   Notes and related interest receivable from purchase of common stock                             --         (129,807)
                                                                                         ------------     ------------
           Total stockholders' equity                                                      12,107,804       10,724,290
                                                                                         ------------     ------------
                                                                                         $ 13,118,294     $ 11,461,598
                                                                                         ============     ============
</TABLE>


See notes to consolidated financial statements.


                                       18
<PAGE>


NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED AUGUST 31, 2000, 1999, AND 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                  2000             1999             1998
<S>                                                                           <C>              <C>              <C>
SALES                                                                         $ 11,032,199     $  9,870,531     $ 10,077,494

COST OF GOODS SOLD                                                               5,562,609        4,726,928        4,947,816
                                                                              ------------     ------------     ------------

GROSS PROFIT                                                                     5,469,590        5,143,603        5,129,678

OPERATING EXPENSES:
   Selling                                                                       1,308,615        1,490,857        1,260,608
   General and administrative                                                    2,097,991        1,664,936        1,446,781
   Research, engineering, and technical support                                    587,434          578,231          487,456
                                                                              ------------     ------------     ------------
                                                                                 3,994,040        3,734,024        3,194,845
                                                                              ------------     ------------     ------------

OPERATING INCOME                                                                 1,475,550        1,409,579        1,934,833

INTERNATIONAL CORPORATE JOINT VENTURES AND
EUROPEAN HOLDING COMPANY:
   Equity in income of international corporate joint ventures and
     European holding company                                                      854,032          368,711          549,875
   Fees for technical support and other services provided to international
     corporate joint ventures                                                    2,749,578        2,459,697        1,868,938
   Expenses incurred in support of international corporate joint ventures       (1,312,213)        (741,703)        (566,051)
                                                                              ------------     ------------     ------------
                                                                                 2,291,397        2,086,705        1,852,762

INTEREST INCOME                                                                    238,858          111,901          151,720
                                                                              ------------     ------------     ------------

INCOME BEFORE INCOME TAXES                                                       4,005,805        3,608,185        3,939,315

INCOME TAXES                                                                     1,375,000        1,070,000        1,320,000
                                                                              ------------     ------------     ------------

NET INCOME                                                                    $  2,630,805     $  2,538,185     $  2,619,315
                                                                              ============     ============     ============

NET INCOME PER SHARE:
   Basic                                                                      $        .68     $        .65     $        .64
                                                                              ============     ============     ============
   Diluted                                                                    $        .68     $        .64     $        .63
                                                                              ============     ============     ============

WEIGHTED AVERAGE COMMON SHARES ASSUMED
     OUTSTANDING:
   Basic                                                                         3,857,964        3,915,001        4,084,408
                                                                              ============     ============     ============
   Diluted                                                                       3,869,075        3,956,977        4,157,721
                                                                              ============     ============     ============
</TABLE>


See notes to consolidated financial statements.


                                       19
<PAGE>


NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                          NOTES AND
                                                                                                           RELATED
                                                                                                           INTEREST
                                                                                                          RECEIVABLE
                                                                                            ACCUMULATED      FROM          TOTAL
                                          COMMON STOCK          ADDITIONAL                     OTHER      PURCHASE OF     COMMON
                                   -------------------------     PAID-IN       RETAINED    COMPREHENSIVE    COMMON     STOCKHOLDERS'
                                      SHARES        AMOUNT       CAPITAL       EARNINGS        LOSS         STOCK         EQUITY
<S>                                  <C>         <C>           <C>           <C>           <C>           <C>           <C>
BALANCE AT AUGUST 31, 1997           4,202,508   $    84,050   $ 5,185,828   $ 5,217,221   $  (252,591)  $  (129,807)  $10,104,701

   Repurchase of common stock         (374,765)       (7,495)     (775,131)   (2,364,042)           --            --    (3,146,668)
   Stock options exercised              19,709           394        66,470            --            --            --        66,864
   Dividends on common stock -
     $.15 per share                         --            --            --      (621,798)           --            --      (621,798)
   Comprehensive earnings, 1998:
     Foreign currency translation
       adjustment                           --            --            --            --      (140,930)           --      (140,930)
     Net income                             --            --            --     2,619,315            --            --     2,619,315
                                                                                                                       -----------
       Comprehensive earnings 1998          --            --            --            --            --            --     2,478,385
                                   -----------   -----------   -----------   -----------   -----------   -----------   -----------

BALANCE AT AUGUST 31, 1998           3,847,452        76,949     4,477,167     4,850,696      (393,521)     (129,807)    8,881,484

   Repurchase of common stock          (80,989)       (1,620)     (186,275)     (326,227)           --            --      (514,122)
   Issuance of common stock for
     services provided                   3,200            64        21,986            --            --            --        22,050
   Stock options exercised              95,440         1,909       300,928            --            --            --       302,837
   Dividends on common stock -
     $.15 per share                         --            --            --      (581,104)           --            --      (581,104)
   Comprehensive earnings, 1999:
     Foreign currency translation
       adjustment                           --            --            --            --        74,960            --        74,960
     Net income                             --            --            --     2,538,185            --            --     2,538,185
                                                                                                                       -----------
       Comprehensive earnings 1999          --            --            --            --            --            --     2,613,145
                                   -----------   -----------   -----------   -----------   -----------   -----------   -----------

BALANCE AT AUGUST 31, 1999           3,865,103        77,302     4,613,806     6,481,550      (318,561)     (129,807)   10,724,290

   Repurchase of common stock          (74,874)       (1,498)     (149,748)     (400,137)           --            --      (551,383)
   Stock options exercised              12,889           258        68,492            --            --            --        68,750
   Payment received on note
     receivable                             --            --            --            --            --       129,807       129,807
   Dividends on common stock -
     $.16 per share                         --            --            --      (618,932)           --            --      (618,932)
   Comprehensive earnings, 2000:
     Foreign currency translation
       adjustment                           --            --            --            --      (275,533)           --      (275,533)
     Net income                             --            --            --     2,630,805            --            --     2,630,805
                                                                                                                       -----------
       Comprehensive earnings 2000          --            --            --            --            --            --     2,355,272
                                   -----------   -----------   -----------   -----------   -----------   -----------   -----------

BALANCE AT AUGUST 31, 2000           3,803,118   $    76,062   $ 4,532,550   $ 8,093,286   $  (594,094)  $        --   $12,107,804
                                   ===========   ===========   ===========   ===========   ===========   ===========   ===========
</TABLE>


See notes to consolidated financial statements.


                                       20
<PAGE>


NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, 2000, 1999, AND 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                           2000             1999             1998
<S>                                                                    <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                          $  2,630,805     $  2,538,185     $  2,619,315
   Adjustments to reconcile net income to net cash provided
       by operating activities:
     Depreciation                                                           198,264          156,540          118,127
     Impairment loss                                                             --           50,941               --
     Equity in income of international corporate joint ventures
       and European holding company                                        (854,032)        (368,711)        (549,875)
     Dividends received from international corporate joint ventures         273,119           88,890          284,461
     Deferred income taxes                                                 (150,000)         (30,000)          20,000
     Deferred gross profit                                                  (10,000)         (60,000)           2,000
     Common stock issued for services                                            --           22,050               --
     Changes in assets and liabilities:
       Receivables:
         Trade receivables                                                  314,272         (662,108)         122,232
         International corporate joint ventures                            (134,583)        (121,389)         165,387
       Inventories                                                           83,864          (44,005)        (127,902)
       Prepaid expenses and other                                           (14,058)          81,251            8,937
       Accounts payable                                                      71,908           (7,276)          (5,873)
       Income taxes                                                           6,618          240,772         (310,451)
       Accrued liabilities                                                  204,656           98,285         (298,151)
                                                                       ------------     ------------     ------------
           Total adjustments                                                 (9,972)        (554,760)        (571,108)
                                                                       ------------     ------------     ------------
           Net cash provided by operating activities                      2,620,833        1,983,425        2,048,207

CASH FLOWS FROM INVESTING ACTIVITIES:
   Additions to property                                                   (302,224)        (316,759)        (110,809)
   Investments in international corporate joint ventures                   (101,083)        (522,661)        (199,311)
   (Increase) decrease in other assets                                     (155,920)         198,103          218,438
   Payment on note receivable from purchase of
     common stock                                                           129,807               --               --
                                                                       ------------     ------------     ------------
           Net cash used in investing activities                           (429,420)        (641,317)         (91,682)

CASH FLOWS FROM FINANCING ACTIVITIES:
   Dividends paid                                                          (618,932)        (581,104)        (621,798)
   Repurchase of common stock                                              (551,383)        (319,122)      (3,146,668)
   Issuance of common stock                                                  68,750          107,837           66,864
                                                                       ------------     ------------     ------------
           Net cash used in financing activities                         (1,101,565)        (792,389)      (3,701,602)
                                                                       ------------     ------------     ------------

NET INCREASE (DECREASE) IN CASH AND
   CASH EQUIVALENTS                                                       1,089,848          549,719       (1,745,077)

CASH AND CASH EQUIVALENTS AT BEGINNING
   OF YEAR                                                                2,750,209        2,200,490        3,945,567
                                                                       ------------     ------------     ------------

CASH AND CASH EQUIVALENTS AT END OF YEAR                               $  3,840,057     $  2,750,209     $  2,200,490
                                                                       ============     ============     ============
</TABLE>

See notes to consolidated financial statements.


                                       21
<PAGE>


NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 2000, 1999, AND 1998
- --------------------------------------------------------------------------------

1.      NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

        BUSINESS OPERATIONS - Northern Technologies International Corporation
        and Subsidiaries (the Company) are engaged in the development,
        manufacture, and marketing of proprietary material science based
        industrial packaging products and electronic sensing instruments.

        CONSOLIDATION - The consolidated financial statements include the
        accounts of Northern Technologies International Corporation and its
        wholly owned subsidiaries. All significant intercompany transactions
        have been eliminated.

        CASH EQUIVALENTS - The Company considers investments with an original
        maturity of three months or less to be cash equivalents.

        INVENTORIES - Inventories are recorded at the lower of cost (first-in,
        first-out basis) or market.

        PROPERTY AND DEPRECIATION - Property and equipment are stated at cost.
        Depreciation is computed using the straight-line method at rates based
        on the estimated service lives of the various assets as follows:

        Buildings and improvements                                 5-20 years
        Machinery and equipment                                    2-10 years

        INVESTMENTS IN INTERNATIONAL CORPORATE JOINT VENTURES - Investments in
        international corporate joint ventures are accounted for using the
        equity method. Intercompany profits on inventories held by the
        international corporate joint ventures which were purchased from the
        Company have been eliminated based on the Company's ownership percentage
        in each international corporate joint venture.

        INVESTMENT IN EUROPEAN HOLDING COMPANY - Investment in the European
        holding company is accounted for using the equity method.

        RECOVERABILITY OF LONG-LIVED ASSETS - The Company reviews its long-lived
        assets whenever events or changes in circumstances indicate the carrying
        amount of the assets may not be recoverable. The Company determines
        potential impairment by comparing the carrying value of the assets with
        expected net cash flows expected to be provided by operating activities
        of the business or related products. Should the sum of the expected
        future net cash flows be less than the carrying value, the Company would
        determine whether an impairment loss should be recognized. An impairment
        loss would be measured by comparing the amount by which the carrying
        value exceeds the fair value of the asset based on market value that is
        based on the discounted cash flows expected to be generated by the
        asset. As of August 31, 2000, the Company did not consider any of its
        assets impaired.

        INCOME TAXES - The Company utilizes the liability method of accounting
        for income taxes as set forth in Statement of Financial Accounting
        Standards (SFAS) No. 109, ACCOUNTING FOR INCOME TAXES. SFAS No. 109
        requires an asset and liability approach to financial accounting and
        reporting for income taxes. Deferred income tax assets and liabilities
        are computed annually for differences between the financial statement
        and tax basis of assets and liabilities that will result in taxable or
        deductible amounts in the future, based on enacted tax laws and rates
        applicable to the periods in which the differences are expected to
        affect taxable income. Valuation allowances are established when
        necessary to reduce deferred tax assets to the amount expected to be
        realized. Income tax expense is the tax payable or refundable for the
        period plus or minus the change during the period in deferred tax assets
        and liabilities.


                                       22
<PAGE>



        FOREIGN CURRENCY TRANSLATION - The functional currency of the
        international corporate joint ventures and the foreign company is the
        applicable local currency. The translation of the applicable foreign
        currencies into U.S. dollars is performed for balance sheet accounts
        using current exchange rates in effect at the balance sheet date and for
        revenue and expense accounts using an average monthly exchange rate.
        Translation gains or losses are reported as an element of other
        comprehensive income (loss).

        REVENUE RECOGNITION - Revenue is recognized when products are shipped. A
        portion of the gross profit on products shipped to the Company's
        international corporate joint ventures is deferred until such products
        are sold by the international corporate joint ventures.

        RESEARCH AND DEVELOPMENT - Research and development expenditures are
        expensed as incurred. Total research and development expenses were
        $587,434, $578,231, and $487,456 for the fiscal years ended August 31,
        2000, 1999, and 1998, respectively.

        FEES FOR TECHNICAL SUPPORT AND OTHER SERVICES PROVIDED TO INTERNATIONAL
        CORPORATE JOINT VENTURES - Fees for technical support and other services
        to the international corporate joint ventures are recognized at the time
        the service is provided.

        STOCK-BASED COMPENSATION - The Company has adopted SFAS No. 123,
        ACCOUNTING FOR STOCK-BASED COMPENSATION. This statement defines a fair
        value-based method of accounting for an employee stock option or similar
        equity instrument and encourages all entities to adopt that method of
        accounting for all of their employee stock compensation plans. However,
        the statement also allows an entity to continue to measure compensation
        cost for those plans using the intrinsic value-based method of
        accounting prescribed by Accounting Principles Board (APB) Opinion No.
        25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Under the fair value-based
        method, compensation cost is measured at the grant date based on the
        value of the award and is recognized over the service period, which is
        usually the vesting period. Under the intrinsic value-based method,
        compensation cost is the excess, if any, of the quoted market price of
        the stock at the grant date or other measurement date over the amount an
        employee must pay to acquire the stock. The Company accounts for stock
        options grants and awards to employees in accordance with APB Opinion
        No. 25 and related interpretations.

        NET INCOME PER SHARE - Basic net income per share is computed by
        dividing net income by the weighted average number of common shares
        outstanding during the period. Diluted net income per share assumes the
        exercise of stock options using the treasury stock method, if dilutive.
        Diluted net income per share is computed by dividing net income by the
        weighted average common and common equivalent shares outstanding during
        the period. For the fiscal years ended August 31, 2000, 1999, and 1998,
        the assumed exercise of stock options increased the weighted average
        common and common equivalent shares outstanding by 11,111, 41,976, and
        73,313 shares, respectively. Options to purchase 15,489, 29,041, and
        11,575 shares of common stock as of August 31, 2000, 1999, and 1998,
        respectively, were not included in the computations of diluted net
        income per share because the options' exercise prices were greater than
        the average market price of the Company's common stock during the
        respective periods.


                                       23
<PAGE>


        USE OF ESTIMATES - The preparation of the financial statements in
        conformity with accounting principles generally accepted in the United
        States of America (generally accepted accounting principles) requires
        management to make estimates and assumptions that affect the reported
        amounts of assets and liabilities and disclosure of contingent assets
        and liabilities at the date of the financial statements and the reported
        amounts of revenues and expenses during the reporting period. Actual
        results could differ from those estimates.

        FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS - Cash and cash
        equivalents, receivables, and current liabilities are carried at amounts
        which reasonably approximate their fair value due to their short-term
        nature.

        NEW ACCOUNTING STANDARDS - In June 1998 the Financial Accounting
        Standards Board issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
        INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 requires companies to
        record derivatives on the balance sheet as assets and liabilities,
        measured at fair value. Gains or losses resulting from changes in the
        values of those derivatives would be accounted for depending on the use
        of the derivative and whether it qualifies for hedge accounting. The
        Company will adopt SFAS No. 133 in the first quarter of fiscal year
        2001. The Company does not anticipate that the adoption of SFAS No. 133
        will have a significant impact on the Company's financial position or
        the results of its operations.

        In December 1999 the Securities and Exchange Commission released Staff
        Accounting Bulletin (SAB) No. 101 that provides the staff's views in
        applying generally accepted accounting principles to selected revenue
        recognition issues. The Company is required to modify its revenue
        recognition policy to comply with SAB No. 101, as amended, no later than
        August 31, 2001. Management has not yet determined the effects SAB No.
        101 will have on the Company's financial position or the results of its
        operations.

2.      INVENTORIES

        Inventories at August 31 consist of the following:

                                                        2000           1999

        Production materials                       $     267,175   $    218,701
        Work-in-process                                   23,947         24,753
        Finished goods                                   638,539        770,071
                                                   -------------   ------------
                                                   $     929,661   $  1,013,525
                                                   =============   ============


                                       24
<PAGE>


3.      PROPERTY AND EQUIPMENT

        Property and equipment at August 31 consist of the following:

                                                        2000           1999

        Land                                       $     246,097   $    246,097
        Buildings and improvements                     1,180,938      1,100,757
        Machinery and equipment                        1,168,812        964,152
                                                   -------------   ------------
                                                       2,595,847      2,311,006
        Less accumulated depreciation                  1,376,658      1,195,777
                                                   -------------   ------------
                                                   $   1,219,189   $  1,115,229
                                                   =============   ============

4.      INVESTMENTS IN INTERNATIONAL CORPORATE JOINT VENTURES AND EUROPEAN
        HOLDING COMPANY

        JOINT VENTURES - The Company participates in various international
        corporate joint ventures in countries outside the United States and in
        similar noncontractual arrangements in various other countries. The
        international corporate joint ventures provide for the manufacturing,
        marketing, and distribution of materials science based industrial
        packaging products. The Company also has a 50% ownership interest in NTI
        ASEAN, LLC for its joint venture investments in the ASEAN region, which
        does not encompass Japan or South Korea. An existing joint venture
        partner owns the remaining 50% interest in NTI ASEAN, LLC. The Company
        has an ownership interest either directly or indirectly in international
        corporate joint ventures in the following countries:

                                                              Date of Original
                 Country                                         Investment
                 -------                                         ----------

                 Japan                                              1987
                 France                                             1990
                 Taiwan*                                            1990
                 Germany                                            1991
                 Singapore*                                         1991
                 Sweden                                             1991
                 Brazil                                             1993
                 Austria                                            1994
                 Russia                                             1994
                 South Korea                                        1994
                 Finland                                            1995
                 Italy                                              1996
                 United Kingdom                                     1997
                 Czech Republic                                     1997
                 Poland                                             1998
                 Thailand*                                          1998
                 China*                                             2000
                 India                                              2000
                 Malaysia*                                          2000

                   *Indirect ownership interest through NTI ASEAN, LLC.


                                       25
<PAGE>


        Fees earned from the international corporate joint ventures under
        licenses and technical and other support agreements were $2,749,578,
        $2,459,697, and $1,868,938 for the fiscal years ended August 31, 2000,
        1999, and 1998, respectively.

        The Company incurred expenses associated with the performance of its
        services to its international corporate joint ventures of $1,312,213,
        $741,703, and $566,051 for the fiscal years ended August 31, 2000, 1999,
        and 1998, respectively. These expenses were incurred primarily in
        conjunction with the performance of the technical services to existing
        international corporate joint ventures, travel and legal fees regarding
        the development of new joint ventures.

        Composite financial information from the audited and unaudited financial
        statements of the Company's international joint ventures carried on the
        equity basis is summarized as follows:

<TABLE>
<CAPTION>
                                                                                    August 31
                                                                          -----------------------------
                                                                               2000            1999
<S>                                                        <C>            <C>              <C>
        Current assets                                                    $ 10,465,397     $ 11,417,847
        Total assets                                                        12,507,607       12,595,710
        Current liabilities                                                  4,759,056        5,658,770
        Noncurrent liabilities                                                  44,719           52,968
        Joint ventures' equity                                               7,703,832        6,883,972
        Northern Technologies International Corporation's
         share of international corporate joint ventures' equity             3,602,692        3,424,623

<CAPTION>
                                                                   Fiscal Years Ended August 31
                                                           --------------------------------------------
                                                                2000          1999              1998

        Sales*                                             $ 23,913,708   $ 22,022,767     $ 19,577,995
        Gross profit                                         12,448,148     11,389,838        9,930,884
        Net income                                            1,810,885      1,038,785        1,216,111
        Northern Technologies International
         Corporation's share of equity in income
         of international corporate joint ventures              857,687        369,325          556,644
</TABLE>

        * Excludes sales of NTI ASEAN, LLC's joint ventures

        During fiscal year 1999, the Company purchased the local 50% ownership
        interests of two international corporate joint ventures the Company did
        not previously own for a total of $452,152. The Company has not
        consolidated the accounts of the two international corporate joint
        ventures in its financial statements due to the Company's intention of
        reducing its ownership in fiscal year 2000. The Company sold its
        ownership interest over 50% in one of the international corporate joint
        ventures in fiscal year 2000. The Company sold a portion of its
        ownership interest over 50% in the other international corporate joint
        venture in fiscal year 2000 and does not have unilateral control of the
        latter international corporate joint venture's operations.

        EUROPEAN HOLDING COMPANY - During the fiscal year 1997 the Company
        invested $254,639 for a 50% ownership interest in a European holding
        company. To date, the entity has been inactive and its assets as of
        August 31, 2000 and 1999 consisted primarily of cash and cash
        equivalents. The Company's share of equity in loss of the European
        holding company was $3,655, $614, and $6,769 for the fiscal years ended
        August 31, 2000, 1999, and 1998, respectively.


                                       26
<PAGE>


5.      STOCKHOLDERS' EQUITY

        During fiscal years 2000, 1999, and 1998, the Company acquired and
        retired 74,874, 80,989, and 374,765 shares of common stock for $551,383,
        $514,122, and $3,146,668, respectively.

        During fiscal year 1999 the Company issued 3,200 shares of common stock
        in return for services provided. The value of the common stock issued,
        $22,050, was determined based on the market value of the Company's
        common stock.

        A note receivable of $129,807 (including accrued interest of $4,432)
        resulting from the exercise of warrants was presented as a reduction of
        stockholders' equity prior to fiscal year 2000. The note receivable had
        an interest rate of 11% and was due on demand. The increase in accrued
        interest receivable on the outstanding note receivable as of August 31,
        1999 had been fully reserved for, due to the uncertainty as to when the
        interest would be paid. The note receivable and all interest were paid
        in full in fiscal year 2000.

        During fiscal years 2000 and 1994 the Company's Board of Directors and
        shareholders approved stock option plans (the Plans) providing for the
        granting of options to purchase 450,000 shares of common stock in toto.
        Under the Plans, incentive stock options and nonqualified stock options
        could be granted to directors, officers, nonofficer employees, and
        others. The options have a term of five years and become exercisable
        ratably over a three- or four-year period beginning on the first annual
        anniversary date of the grant. Options are granted at prices equal to
        the market value of the stock on the date of grant.

        A summary of the status of the Company's stock options for the years
        ended August 31 is as follows:

<TABLE>
<CAPTION>
                                                      2000                    1999                     1998
                                            ----------------------   ----------------------   ----------------------
                                                         Wgtd Avg                 Wgtd Avg                 Wgtd Avg
                                              Shares    Exer Price    Shares     Exer Price    Shares     Exer Price

<S>                                           <C>        <C>          <C>         <C>          <C>         <C>
        Outstanding at beginning of year      80,796     $   6.83     124,236     $   4.24     132,370     $   3.46
        Granted                               47,655         6.89      52,000         6.31      11,575        11.81
        Exercised                            (12,889)        5.33     (95,440)        3.17     (19,709)        3.39
        Canceled                             (21,000)        9.02          --           --          --           --
                                            --------     --------    --------                 --------

        Outstanding at end of year            94,562     $   6.57      80,796     $   6.83     124,236     $   4.24
                                            ========     ========    ========     ========    ========     ========

        Options exercisable at year-end       19,718         6.07      17,751     $   6.51     101,909     $   3.25
                                            ========     ========    ========     ========    ========     ========
</TABLE>


                                       27
<PAGE>


        The following table summarizes information about stock options
        outstanding at August 31, 2000:

<TABLE>
<CAPTION>
                                      Options Outstanding
                                      -------------------
                                            Weighted                         Options Exercisable
                                             Average                      ------------------------
                                            Remaining       Weighted                      Weighted
          Range of                         Contractual       Average                       Average
          Exercise           Number           Life          Exercise        Number        Exercise
           Prices          Outstanding       (Years)          Price       Exercisable       Price
<S>     <C>                    <C>              <C>        <C>               <C>           <C>
        $5.00 - $7.00          92,987           3.43       $   6.51          18,668        $   5.81
        $10.63                  1,575           2.22          10.63           1,050           10.63
                            ---------                                     ---------
        $5.00 - $10.63         94,562           3.41       $   6.57          19,718        $   6.07
                            =========       ========       ========       =========        ========
</TABLE>

        If compensation cost for the Company's Plan had been determined based on
        the fair value at the grant date for awards in the fiscal years ended
        August 31, consistent with the provisions of SFAS No. 123, the Company's
        net income would have changed to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                              2000           1999           1998
<S>                                                       <C>            <C>            <C>
        Net income, as reported                           $ 2,630,805    $ 2,538,185    $ 2,619,315
        Net income, pro forma                               2,558,094      2,488,042      2,594,076

        Basic net income per common share, as reported    $       .68    $       .65    $       .64
        Basic net income per common share, pro forma              .66            .64            .64

        Diluted net income per share, as reported                 .68            .64            .63
        Diluted net income per share, pro forma                   .66            .63            .62
</TABLE>

        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:

<TABLE>
<CAPTION>
                                                                 2000           1999           1998
<S>                                                          <C>            <C>            <C>
        Dividend yield                                            2.0%           2.0%           2.0%
        Expected volatility                                      46.6%          48.2%          49.0%
        Expected life of option                               5 years        5 years        5 years
        Average risk-free interest rate                          5.79%          4.71%          6.16%
        Average fair value of options on grant date          $   2.84       $   2.57       $   5.09
</TABLE>

6.      SEGMENT INFORMATION

        The Company is engaged in the development, manufacture, and marketing of
        proprietary materials science based industrial packaging products and
        electronic sensing instruments. Further disclosure regarding the two
        businesses is not presented, as management uses the consolidated
        information to allocate resources and evaluate performance.


                                       28
<PAGE>


        Sales by geographic location as a percentage of total sales were as
        follows:

                                                         2000     1999     1998

        Sales to unaffiliated customers in the U.S.A.      74%      75%      70%
        Sales outside the U.S.A. to:
         International corporate joint ventures in
             which the Company is a shareholder
             directly and indirectly                        6        6       10
         Unaffiliated customers                            20       19       20
                                                       ------   ------   ------
                                                          100%     100%     100%
                                                       ======   ======   ======

        One customer accounted for approximately 14% and 16% of net sales for
        the fiscal years ended August 31, 2000 and 1998, respectively. No single
        customer accounted for more than 10% of net sales for the fiscal year
        ended August 31, 1999.

7.      RETIREMENT PLAN

        The Company has a 401(k) employee savings plan. Employees who meet
        certain age and service requirements may elect to contribute up to 15%
        of their salaries. The Company contributes the lesser of 50% of the
        participant's contributions or 3 1/2% of the employee's salary. The
        Company recognized expense for the savings plan of $37,000, $39,000, and
        $40,000 for the fiscal years ended August 31, 2000, 1999, and 1998,
        respectively.

8.      RELATED-PARTY TRANSACTIONS

        The Company paid reimbursement for travel and related expenses of
        $378,000, $419,500, and $458,000 for the fiscal years ended August 31,
        2000, 1999, and 1998, respectively, to a financial and management
        consulting firm of which the Company's Co-Chief Executive Officer and
        Chairman of the Board and the Company's other Co-Chief Officer and
        President are officers and directors.

9.      INCOME TAXES

        The provisions for income taxes for the fiscal years ended August 31
        consisted of the following:

                                          2000           1999           1998

                Current:
                 Federal              $ 1,395,000    $   990,000    $ 1,180,000
                 State                    130,000        110,000        120,000
                                      -----------    -----------    -----------
                                        1,525,000      1,100,000      1,300,000

                Deferred:
                 Federal                 (140,000)        (5,000)        18,000
                 State                    (10,000)       (25,000)         2,000
                                      -----------    -----------    -----------
                                         (150,000)       (30,000)        20,000
                                      -----------    -----------    -----------
                                      $ 1,375,000    $ 1,070,000    $ 1,320,000
                                      ===========    ===========    ===========


                                       29
<PAGE>


        Reconciliations of the expected federal income tax at the statutory rate
        with the provisions for income taxes for the the three fiscal years
        ended August 31 are as follows:

<TABLE>
<CAPTION>
                                                               2000           1999           1998
<S>                                                        <C>            <C>            <C>
        Tax computed at statutory rates                    $ 1,400,000    $ 1,263,000    $ 1,379,000
        State income tax, net of federal benefit               100,000         71,000         80,000
        Equity in income of international joint ventures      (290,000)      (125,000)      (187,000)
        Change in valuation allowance                               --       (162,000)            --
        Other                                                  165,000         23,000         48,000
                                                           -----------    -----------    -----------
                                                           $ 1,375,000    $ 1,070,000    $ 1,320,000
                                                           ===========    ===========    ===========
</TABLE>

        The Company has not recognized a deferred tax liability relating to
        investments in international corporate joint ventures and European
        holding company that are essentially permanent in duration of $1,020,000
        and $840,000 at August 31, 2000 and 1999, respectively. If some or all
        of the undistributed earnings of the international corporate joint
        ventures and European holding company are remitted to the Company in the
        future, income taxes, if any, after the application of foreign tax
        credits will be calculated and provided at that time.

        The tax effect of the temporary differences and tax carryforwards
        comprising the net deferred taxes shown on the balance sheets at August
        31 are as follows:

<TABLE>
<CAPTION>
                                                                        2000          1999
<S>                                                                  <C>          <C>
        Current:
         Allowance for doubtful accounts                             $   10,000   $   10,000
         Inventory costs                                                 35,000       20,000
         Prepaid expenses and other                                      90,000       96,000
         Accrued expenses                                                65,000       22,000
         Deferred gross profit                                           20,000       22,000
                                                                     ----------   ----------
                   Total current                                     $  220,000   $  170,000
                                                                     ==========   ==========

        Noncurrent:
         Excess of book over tax depreciation                        $   80,000   $   76,000
         Expenses incurred to support international joint ventures      230,000       91,000
         Interest receivable relating to notes                               --       43,000
                                                                     ----------   ----------
                   Total noncurrent                                  $  310,000   $  210,000
                                                                     ==========   ==========
</TABLE>

10.     COMMITMENTS AND CONTINGENCIES

        A subsidiary of the Company acquired a one-third ownership in an Ohio
        limited liability company (the LLC). The LLC owns and operates a rental
        property located in Beachwood, Ohio, acquired at a cost of $2,205,000 in
        fiscal year 2000. The Company has guaranteed up to $339,235 of the LLC's
        $2,035,000 mortgage obligation. The Company's subsidiary has entered
        into a 15 year lease agreement for 16,826 square feet of office,
        manufacturing, laboratory and warehouse space requiring monthly payments
        of $13,194 (approximately $9.41 per square foot), which can be adjusted
        annually according to the annual consumer price index through November
        2014. Total rent expense under the lease was approximately $110,000 for
        the year ended August 31, 2000. By its ownership in LLC the Company's
        subsidiary is entitled to one third of the LLC's operating results. The
        rental property is now fully leased.


                                       30
<PAGE>


        The Company is involved in various legal actions arising in the normal
        course of business. Management is of the opinion that any judgment or
        settlement resulting from pending or threatened litigation would not
        have a material adverse effect on the financial position or results of
        operations of the Company.

11.     STATEMENTS OF CASH FLOWS

        Supplemental disclosures of cash flow information for the three fiscal
        years ended August 31 consist of:

<TABLE>
<CAPTION>
                                                                      2000           1999         1998
<S>                                                               <C>            <C>           <C>
        Cash paid during the year for income taxes                $ 1,361,000    $   733,047   $ 1,610,451
        Increase (decrease) in the Company's investment in
         international corporate joint ventures and accumulated
         other comprehensive income (loss) due to changes in
         exchange rates                                              (275,533)        74,960      (140,930)
        Issuance of common stock in exchange for services                  --         22,050            --
        Exercise of stock options with outstanding common stock            --        195,000            --
</TABLE>

12.     SUBSEQUENT EVENT

        On November 17, 2000, the Company's Board of Directors declared a $.17
        per share dividend on all outstanding shares of the Company's common
        stock to be distributed on December 15, 2000 to holders of record on
        December 1, 2000.


                                       31
<PAGE>


13.     QUARTERLY INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
                                                            Quarter Ended
                                         -----------------------------------------------------
                                         November 30   February 29      May 31       August 31
<S>                                       <C>           <C>           <C>           <C>
        Fiscal year 2000:
           Net sales                      $2,831,864    $2,693,682    $2,812,990    $2,693,663
           Gross profit                    1,483,344     1,345,997     1,467,029     1,173,220
           Income before income taxes        963,791       694,199     1,122,746     1,225,069
           Income taxes                      290,000       220,000       360,000       505,000
           Net income                        673,791       474,199       762,746       720,069

        Net income per share:
           Basic                          $      .17    $      .12    $      .20    $     0.19
           Diluted                               .17           .12           .20          0.19

        Weighted average common shares
            assumed outstanding:
          Basic                            3,867,379     3,870,127     3,865,524     3,829,061
          Diluted                          3,870,919     3,890,481     3,874,605     3,841,818

<CAPTION>
                                                            Quarter Ended
                                         -----------------------------------------------------
                                         November 30   February 28      May 31       August 31

        Fiscal year 1999:
           Net sales                      $2,155,395    $2,005,873    $2,442,319    $3,266,944
           Gross profit                    1,085,692     1,027,387     1,192,792     1,837,732
           Income before income taxes        777,643       580,278       907,074     1,343,190
           Income taxes                      220,000       205,000       245,000       400,000
           Net income                        557,643       375,278       662,074       943,190

        Net income per share:
           Basic                          $      .14    $      .10    $      .17    $      .24
           Diluted                               .14           .10           .17           .24

        Weighted average common shares
            assumed outstanding:
          Basic                            3,856,408     3,871,863     3,863,446     3,886,833
          Diluted                          3,900,463     3,911,779     3,924,514     3,912,202
</TABLE>

        During the fourth quarters of fiscal years 2000 and 1999, the Company
        adjusted the carrying value of inventory as a result of a complete
        annual physical count and valuation. This annual counting and pricing
        was more comprehensive than that which had been conducted on an interim
        basis. As a result, the Company increased cost of sales by approximately
        $300,000 in the fourth quarter of fiscal year 2000 and decreased cost of
        sales by approximately $50,000 in the fourth quarter of fiscal year
        1999. It is not practicable to determine the periods of the fiscal year
        to which these adjustments relate.


                                       32
<PAGE>


ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

         None.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(a) OF THE EXCHANGE ACT.

A.      DIRECTORS OF THE REGISTRANT

        The following table sets forth certain information as of November 17,
2000, which has been furnished to the Company by the directors named below.

<TABLE>
<CAPTION>
         NAME              AGE                 PRINCIPAL OCCUPATION                 DIRECTOR SINCE
         ----              ---                 --------------------                 --------------
<S>                         <C>    <C>                                                   <C>
Vincent J. Graziano         67     Consultant                                            1979

Dr. Donald A. Kubik         60     Vice Chairman and Chief Technology Officer of         1995
                                   the Company

Richard G. Lareau           72     Partner of Oppenheimer Wolff & Donnelly LLP           1980

Philip M. Lynch             64     Co-Chief Executive Officer and Chairman of the        1979
                                   Board of the Company and Executive Vice
                                   President of Inter Alia Holding Company

Haruhiko Rikuta             35     Corporate Officer of Taiyonic Limited and             1997
                                   President of NTI ASEAN, LLC

Prof. Milan R. Vukcevich    63     Chief Scientist Research and Development of           1995
                                   Bicron Saint-Gobain Industrial Ceramics
</TABLE>

        Mr. Sidney Dworkin, having been a Company director since 1979, died of
complications from cancer on October 17, 2000. Mr. Dworkin was wise, upbeat,
honest, straightforward and generous. The Company was honored by his
directorship service and will greatly miss his advice and counsel.

        Mr. Graziano was employed by the Company from 1976 until his retirement
from the Company in 1999, and was President of the Company at the time he
retired. Since his retirement from the Company in September 1999 Mr. Graziano
has been serving, at will, as a consultant to the Company. Prior to joining the
Company, Mr. Graziano served as Manager of Manufacturing Systems with the
management consulting department of Peat, Marwick, Mitchell & Co. in Europe and
the United States for nine years.

        Mr. Gerhard Hahn has been employed as General Manager by Knuppel KG, a
German packaging firm, since 1966. Mr. Hahn has also been employed by Excor
Korrosionsschutz-Technologien and Produkte GmbH (the Company's German joint
venture) since 1991. Mr. Hahn, due to extensive work demands resigned from his
directorship with the Company effective February 18, 2000. Mr. Hahn's
contributions as a member of the Board of Directors of the Company, particularly
regarding Europe, will be greatly missed.


                                       33
<PAGE>


        Dr. Kubik has been employed by the Company since 1978, was named Vice
Chairman in September 1999. Dr Kubik served as Vice President of the Company
from 1979 to September 1999, and was Treasurer of the Company from 1998 to
September 1999. Dr. Kubik was appointed Vice Chairman in September 1999, and is
a member of the Executive Committee, which served as Co-Chief Executive Officer
of the Company from September 1999 to May 2000. During his employment as Chief
Technology Officer with the Company, Dr. Kubik has been responsible for
developing the patent that led to the Company's introduction of protective
plastic film and paper products incorporating volatile corrosion inhibitors.
Prior to joining the Company, Dr. Kubik held a research and development position
with 3M Company.

        Mr. Lareau has been a partner of the law firm of Oppenheimer Wolff &
Donnelly LLP for more than five years. Mr. Lareau also serves as a director of
Nash Finch Company, a public company, and as a trustee of Mesabi Trust.

        Mr. Lynch has been Executive Vice President of Inter Alia Holding
Company, a financial and management consulting firm, for more than five years.
Mr. Lynch is also a member of the Board of Directors of the Fosbel Group of
Companies: Fosbel International (U.K.), Fosbel, Inc. (U.S.), Fosbel Japan, Ltd.
(Tokyo), Fosbel do Brasil (San Paulo), and Fosbel Europe BV, (operating in 17
Western and three Eastern European countries). The Fosbel Group is itself a
joint venture between multinational listed companies: Glaverbel S.A.,
(Bruxelles), a leading Belgian glass manufacturing company and an affiliate of
Asahi Glass Co., Ltd., and Burmah Castrol plc, an English petrochemical and
materials science company.

        Mr. Rikuta, a citizen of Japan, has been employed at Taiyo Petroleum Gas
Co. Ltd. as Manager, ZERUST Department, since February 1993. From August 1991 to
January 1993, Mr. Rikuta served as a Sales Representative of the Company. Mr.
Rikuta received a B.A. degree in Economics from Seijo University in Tokyo, Japan
in March 1989. In May 1991, Mr. Rikuta received a B.A. degree in International
Relations from the University of Wisconsin in Milwaukee, Wisconsin.

        Prof. Vukcevich is employed as Chief Scientist Research and Development
of Bicron Saint-Gobain Industrial Ceramics. Prof. Vukcevich was employed by GE
Lighting from 1973 to 1995, holding various positions including Chief Scientist,
Manager of Metallurgical Engineering and Coordinator of International Research
and Development in Materials Science.


                                       34
<PAGE>


B.      EXECUTIVE OFFICERS OF THE REGISTRANT

        The executive officers of the Company, their ages and the offices held,
as of November 17, 2000, are as follows:

<TABLE>
<CAPTION>
                NAME               AGE                 POSITION IN THE COMPANY
                ----               ---                 -----------------------
<S>                                 <C>    <C>
      Philip M. Lynch               64     Chairman of the Board and Co-Chief Executive Officer

      G. Patrick Lynch              33     President and Co-Chief Executive Officer*

      Dr. Donald A. Kubik           60     Vice Chairman, Chief Technology Officer*

      Loren M. Ehrmanntraut         73     Chief Financial Officer*

      Matjaz Korosec                33     Vice President of Financial Planning and Treasurer*

      Elsie F. Gilles               59     Controller and Assistant Secretary

      Irina V. Roytman              35     Vice President and Coordinator for Eastern Europe

      Tiffany M. Swann              32     Corporate Secretary

      Prof. Efim Ya. Lyublinski     63     Vice President and Director of Field Technical Support
                                           and Applications Engineering
</TABLE>

        *Members of the Executive Committee

        Mr. Philip M. Lynch has been Executive Vice President of Inter Alia
Holding Company for more than five years. Mr. Lynch is the father of Mr. G.
Patrick Lynch. Refer to "Directors of the Registrant" for a more detailed
discussion.

        Mr. G. Patrick Lynch, an employee of the Company since 1995, has been
President and Co-Chief Executive Officer since May, 2000. Mr. G. Patrick Lynch
was Vice President of Strategic Planning, Corporate Secretary and a member of
the Executive Committee, which served as Co-Chief Executive Officer from
September 1999 to May 2000. Mr. G. Patrick Lynch is also an officer and director
of Inter Alia Holding Company. Prior to joining the Company, Mr. G. Patrick
Lynch held positions in sales management for Fuji Electric Co., Ltd. in Tokyo,
Japan, and programming project management for BMW AG in Munich, Germany. Mr. G.
Patrick Lynch received an M.B.A. degree from the University of Michigan Business
School in Ann Arbor, Michigan. Mr. G. Patrick Lynch is the son of Mr. Philip M.
Lynch.

        Dr. Donald A. Kubik has been employed by the Company since 1978. Refer
to "Directors of the Registrant" for a more detailed discussion.

        Mr. Loren M. Ehrmanntraut has been employed by the Company since 1973.
He has served as Chief Financial Officer since 1997 and as Secretary of the
Company from 1978 to September 1999. He is a member of the Executive Committee,
which served as Co-Chief Executive Officer of the Company from September 1999 to
May 2000. From 1974 to March 1997, Mr. Ehrmanntraut served as Treasurer of the
Company. Prior to joining the Company, Mr. Ehrmanntraut spent four years with
Bankers Mortgage Corporation and its subsidiaries performing accounting, finance
and personnel duties. Prior to his employ with Bankers Mortgage Corporation, Mr.
Ehrmanntraut served as controller for Physicians and Surgeons Underwriters
Insurance Company, office manager for Employers Overload Corporation,
accountant, auditor, and various personnel positions with American Hardware
Mutual Insurance Company and as an auditor with Ernst and Ernst. Effective
November 20, 2000 Mr. Ehrmanntraut relinquishes the position of Chief Financial
Officer and assumes the positions of the Head of Investor Relations of the
Company and Advisor to the Board of Directors.


                                       35
<PAGE>


        Mr. Matjaz Korosec has been employed by the Company since June 1999, in
the capacity of Vice President of Financial Planning and Treasurer. He is a
member of the Executive Committee, which served as Co-Chief Executive Officer of
the Company from September 1999 to May 2000. Previously, Mr. Korosec was Advisor
to the Government and Head of Debt Management at the Ministry of Finance of the
Republic of Slovenia. He also served on the Board of Directors of the Slovenian
Ecological Fund. Prior to this, he was Controller of an Industrial Division of
Honeywell GmbH in Vienna, Austria. Mr. Korosec is a Slovenian citizen. Mr.
Korosec holds an M.B.A. degree from the University of Michigan Business School
in Ann Arbor, Michigan. Effective November 20, 2000 Mr. Korosec relinquishes the
position of Treasurer and and assumes the position of Chief Financial Officer of
the Company.

        Ms. Elsie F. Gilles has been employed by the Company since 1985, serving
in a variety of capacities in the areas of accounting and personnel. Ms. Gilles
has been Controller and Assistant Corporate Secretary of the Company since 1998.
Effective November 20, 2000 Ms. Gilles relinquishes the position of Controller
and assumes the position of Treasurer of the Company.

        Ms. Irina V. Roytman has been employed by the Company since September
1994 serving in a variety of capacities in the area of international business
development and was named Vice President and Coordinator for Eastern Europe in
July 2000. Ms. Roytman holds BS in engineering from the Technical University of
St. Petersburg.

        Ms. Tiffany Swann has been employed by the Northern Instruments
Corporation LLC, the Company's subsidiary in Ohio as Vice President, Marketing
since April 1999 and was named Corporate Secretary of the Company in November,
2000. From February 1995 until April 1999 she was employed in the furniture
industry by the Mitchell Gold Company as a Field Account Manager. Ms. Swann
received a BFA from the University of North Carolina.

        Prof. Efim Ya. Lyublinski has been employed by the Company since March
2000 in the position of Vice President and Director of Field Technical Support
and Applications Engineering. Prof. Lyublinski is a Member of the Russian
Academy of Natural Sciences. From 1984 to 1999 Prof. Lyublinski was Head of
Laboratory of Complex Methods of Corrosion Protection at the Central Research
Institute of Structural Materials (,,Prometey"), St. Petersburg. Prof Lyublinski
also held a Senior Consulting Position with Osmos Technology, Boston,
Massachusssetts from 1995 to 1999. Prof. Lyublinski holds 14 patents, 64
inventions and has authored 8 books, 6 booklets, 140 articles and 75
contributions to various conferences in the areas of materials science and
corrosion.


                                       36
<PAGE>


C.      COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

        Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers and all persons who
beneficially own more than 10% of the outstanding shares of the Company's Common
Stock to file with the Securities and Exchange Commission initial reports of
ownership and reports of changes in ownership of the Company's Common Stock.
Executive officers, directors and greater than 10% beneficial owners are also
required to furnish the Company with copies of all Section 16(a) forms they
file. To the Company's knowledge, based upon a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the year ended August 31, 2000, none of the
Company's directors or officers or beneficial owners of greater than 10% of the
Company's Common Stock failed to file on a timely basis the forms required by
Section 16 of the Exchange Act.

ITEM 10. EXECUTIVE COMPENSATION.

A.      COMPENSATION OF DIRECTORS

        DIRECTORS FEES. Each person who was a non-employee director received an
annual retainer of $5,000 in fiscal 2000 for services rendered as a director of
the Company. Each non-employee director of the Company further received $750 for
each Board meeting and $500 for each Committee (e.g. Audit, Compensation and
Strategic Planning Committees) meeting attended. The Chairman of the Board does
not receive any Board or committee meeting fee. The Company pays the premium on
a group insurance policy for the Chairman of the Board.

        AUTOMATIC OPTION GRANTS TO NON-EMPLOYEE DIRECTORS. Pursuant to the
Company's 1994 and 2000 Stock Incentive Plan (the "Plan"), each non-employee
director of the Company is automatically granted a non-qualified option to
purchase 2,000 shares of Common Stock (a "Director Option") on the first day of
each fiscal year in respect of their past year's services as a non-employee
director of the Company. Non-employee directors who are elected or appointed to
the Board following the first day of the Company's fiscal year receive pro-rata
portion of 2,000 shares of Common Stock calculated by dividing the number of
months remaining in the fiscal year at the time of election or appointment
divided by twelve, which options are granted at the end of the relevant fiscal
year.

        On September 1, 1997, Messrs. Dworkin, Hahn, Lareau, Lynch and Vukcevich
each received a Director Option to purchase 2,000 shares of Common Stock at an
exercise price of $12.00 per share; however, these options were returned and
cancelled in fiscal 2000. On November 19, 1997, Mr. Rikuta received a Director
Option to purchase 1,575 shares of Common Stock at an exercise price of $10.625
per share. On September 1, 1998, Messrs. Dworkin, Hahn, Lareau, Lynch, Rikuta
and Vukcevich each received a Director Option to purchase 2,000 shares of Common
Stock at an exercise price of $6.25 per share, and on September 1, 1999, the
same individuals each received a Director Option to purchase 2,000 shares of
Common Stock at an exercise price of $6.5625 per share. Subsequently, Mr. Lynch
returned his September 1, 1999 Director Option to purchase 2,000 shares to the
Option Plan. All of such Director Options granted vest in equal one-third
installments over a three-year period. On November 17, 2000, the Board of
Directors approved the automatic option grants as of September 1, 2000 to
Messrs. Dworkin, Lareau, Lynch, Rikuta, and Vukcevich each received a Director
Option to purchase 2,000 shares of Common Stock at an exercise price of $6.75.


                                       37
<PAGE>



B.      SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION PAID TO EXECUTIVE
        OFFICERS

        The following table provides summary information concerning cash and
non-cash compensation paid or accrued by the Company to or on behalf of the
Company's Co-Chief Executive Officers and the most highly compensated executive
officers of the Company whose cash and non-cash salary and bonus exceeded
$100,000 in the fiscal year ended August 31, 2000 (the "Named Executive
Officers").


                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                LONG-TERM
                                                      ANNUAL COMPENSATION      COMPENSATION
                                                      -------------------      ------------
                                                                                SECURITIES
                                                                      BONUS     UNDERLYING          ALL OTHER
       NAME AND PRINCIPAL POSITION          YEAR     SALARY ($)      ($)(1)     OPTIONS (#)    COMPENSATION ($)(2)
       ---------------------------          ----     ----------      ------     -----------    -------------------
<S>                                         <C>       <C>            <C>           <C>                <C>
Philip M. Lynch                             2000           $0            $0            0                  0(3)
CHAIRMAN OF THE BOARD AND CO-CHIEF          1999            0             0            0                  0(3)
EXECUTIVE OFFICER                           1998            0             0        2,000                  0(3)

Donald A. Kubik (4)                         2000      200,000             0            0              5,000
VICE CHAIRMAN                               1999      200,000             0        8,000              4,667
                                            1998      200,000        55,000            0              5,000

Loren M. Ehrmanntraut (4)                   2000       51,568             0            0              1,805
CHIEF FINANCIAL OFFICER                     1999      117,410             0       10,000              3,025
                                            1998      117,410        55,000            0              5,000

G. Patrick Lynch (4)                        2000       95,000             0        3,000              3,325(3)
PRESIDENT  AND CO-CHIEF                     1999       45,416             0            0              1,571(3)
EXECUTIVE OFFICER                           1998       32,691             0            0              1,211(3)

Matjaz Korosec (4) (5)                      2000       90,000             0        3,000              1,650
VICE PRESIDENT OF FINANCIAL PLANNING AND    1999       35,250             0            0                  0
TREASURER
</TABLE>

- -------------------------
(1)     Bonuses paid in 1998 were earned in 1997. There were no bonuses paid in
        2000 or 1999. On November 17, 2000 the Board of Directors approved
        bonuses to be paid in fiscal year 2001 related for the services
        performed in the fiscal year 2000 for Messrs. Kubik, Ehrmanntraut, G.
        Lynch and Korosec in the amount of $20,000 each, for which an accrual
        was made in the fiscal year 2000.

(2)     Compensation hereunder consists of contributions to the 401(k) plans of
        the Named Executive Officers.

(3)     Does not include any commissions payable to Inter Alia Holding Company,
        an entity of which Mr. Philip Lynch and Mr. G. Patrick Lynch are
        officers and directors, under a certain Manufacturer's Representative
        Agreement. See "Item 12 - Certain Relationships and Related Party
        Transactions."

(4)     Member of the Executive Committee, which served as Co-Chief Executive
        Officer of the Company from September 1999 to May 2000.

(5)     Mr. Korosec joined the Company during the fiscal year ended August 31,
        1999.


                                       38
<PAGE>


C.      OPTION GRANTS AND EXERCISES.

        The following tables provide information for the year ended August 31,
2000 as to individual grants of options to purchase shares of the Common Stock,
exercises of options and the potential realizable value of the options held by
the Named Executive Officers at August 31, 2000.

                          OPTION GRANTS IN FISCAL 2000

<TABLE>
<CAPTION>
                                          PERCENT OF TOTAL OPTIONS
                                            GRANTED TO EMPLOYEES    EXERCISE OR BASE
         NAME        OPTIONS GRANTED (1)     IN FISCAL YEAR (2)      PRICE ($/SHARE)    EXPIRATION DATE
        ----         -------------------     ------------------      ---------------    ---------------
<S>                           <C>                     <C>                  <C>              <C>
G. Patrick Lynch              3,000                   8.4%                 7.00             09/17/04
Matjaz Korosec                3,000                   8.4%                 7.00             09/17/04
</TABLE>

(1)     These options were granted under the Plan. The options vest in three
        equal installments on the first, second and third anniversary of the
        date of grant. To the extent not already exercisable, options granted
        under the Plan become immediately exercisable in full upon certain
        "changes in control" (as defined in the Plan) of the Company.


                 AGGREGATED OPTION EXERCISES IN FISCAL 2000 AND
                       FISCAL 2000 YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                               NUMBER OF UNEXERCISED
                                                            OPTIONS AT AUGUST 31, 2000         VALUE OF UNEXERCISED
                                                            --------------------------         IN-THE-MONEY OPTIONS
                                                                        (#)                 AT AUGUST 31, 2000 (1) ($)
                                                                        ---                 --------------------------
                        SHARES ACQUIRED       VALUE
          NAME          ON EXERCISE (#)    REALIZED ($)    EXERCISABLE    UNEXERCISABLE    EXERCISABLE    UNEXERCISABLE
          ----          ---------------    ------------    -----------    -------------    -----------    -------------
<S>                          <C>               <C>             <C>             <C>            <C>             <C>
Philip M. Lynch              3,000             8,000             667           1,333          1,254            2,506
Donald A. Kubik              2,667             1,334                           5,333                          10,026
Loren M. Ehrmanntraut                                          3,333           6,667          6,266           12,534
G. Patrick Lynch                                                               3,000                           3,390
Matjaz Korosec                                                                 3,000                           3,390
</TABLE>

(1)     Value is calculated as the excess of the fair market value of the Common
        Stock on August 31, 2000 over the exercise price of the options. On
        August 31, 2000, the fair market value of the Common Stock was $8.13 per
        share.


                                       39
<PAGE>


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT.

        The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company as of November 17, 2000, unless
other noted, (a) by each stockholder who is known by the Company to own
beneficially more than 5% of the outstanding Common Stock, (b) by each director,
(c) by each Named Executive Officer, and (d) by all executive officers and
directors of the Company as a group.

                                               SHARES OF COMMON STOCK
                                               BENEFICIALLY OWNED (1)
                                    --------------------------------------------
NAME                                       AMOUNT           PERCENT OF CLASS (2)
- ----                                       ------           --------------------

Inter Alia Holding Company               911,668 (3)               24.0%
Elsie F. Gilles                            4,200 (4)                *
Vincent J. Graziano                       37,034 (5)                1.0
Dr. Donald A. Kubik                      108,674 (6)                2.9
Richard G. Lareau                         28,677 (7)                *
Philip M. Lynch                            1,334 (8)                *
Haruhiko Rikuta                           19,576 (9)                *
Prof. Milan R. Vukcevich                   5,931 (10)               *
Loren M. Ehrmanntraut                     53,666 (11)               1.4
G. Patrick Lynch                           2,700 (12)               *
Matjaz Korosec                             1,500 (13)               *
Irina Roytman                              1,650 (14)               *
Tiffany Swann                                334 (15)               *

All directors and executive
officers as a group (14 persons)       1,176,944 (16)              31.0

- -------------------------
*       Less than 1%.

(1)     Shares not outstanding but deemed beneficially owned by virtue of the
        right of a person or member of a group to acquire them within 60 days
        are treated as outstanding only when determining the amount and percent
        owned by such person or group. Unless otherwise noted, all of the shares
        owned or held by individuals or entities possessing sole voting and
        investment power with respect to such shares.

(2)     Based on 3,794,284 shares of Common Stock outstanding as of November 17,
        2000.

(3)     Includes 911,668 shares held of record by Inter Alia Holding Company, a
        financial and management consulting firm of which Mr. Philip M. Lynch,
        the Chairman of the Board of Directors and the Co-Chief Executive
        Officer of the Company, and Mr. G. Patrick Lynch, President and the
        Co-Chief Executive Officer of the Company are officers and directors.

(4)     Includes 1,000 shares of Common Stock, which may be acquired within 60
        days pursuant to the exercise of options.

(5)     Includes 31,700 shares held jointly with his wife Leone A. Medin and
        includes 5,334 shares of Common Stock, which may be acquired within 60
        days pursuant to the exercise of options.


                                       40
<PAGE>


(6)     Includes 2,667 shares of Common Stock, which may be acquired within 60
        days pursuant to the exercise of options.

(7)     Includes 4,001 shares of Common Stock, which may be acquired within 60
        days pursuant to the exercise of options.

(8)     Does not include 911,668 shares held of record or beneficially owned by
        Inter Alia Holding Company, of which Mr. Philip M. Lynch is an officer
        and director. Includes 1,334 shares of Common Stock, which may be
        acquired within 60 days pursuant to the exercise of options.

(9)     Includes 3,576 shares of Common Stock, which may be acquired within 60
        days pursuant to the exercise of options.

(10)    Includes 657 shares held jointly with his wife Michelle Vukcevich, and
        includes 2,001 shares of Common Stock, which may be acquired within 60
        days pursuant to the exercise of options.

(11)    Includes 6,666 shares of Common Stock, which may be acquired within 60
        days pursuant to the exercise of options.

(12)    Includes 1,000 shares of Common Stock, which may be acquired within 60
        days pursuant to the exercise of options. Does not include 911,688
        shares held of record or beneficially owned by Inter Alia Holding
        Company, of which Mr. G. Patrick Lynch is an officer and director.

(13)    Includes 500 shares held jointly with his wife Margaret D. Korosec, and
        includes 1,000 shares of Common Stock, which may be acquired within 60
        days pursuant to the exercise of options.

(14)    Includes 350 shares held jointly with her husband Alexander Roytman, and
        includes 1,000 shares of Common Stock, which may be acquired within 60
        days pursuant to the exercise of options.

(15)    Includes 334 shares of Common Stock, which may be acquired within 60
        days pursuant to the exercise of options.

(16)    Includes (i) 911,668 shares held of record by Inter Alia Holding
        Company, a financial and management consulting firm of which Mr. Philip
        M. Lynch, the Chairman of the Board of Directors and the Co-Chief
        Executive Officer of the Company, and Mr. G. Patrick Lynch, President
        and the Co-Chief Executive Officer of the Company are officers and
        directors, , and (ii) options to purchase 27,579 shares which are held
        by officers and directors of the Company which are exercisable within 60
        days.


                                       41
<PAGE>


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.

        On October 1, 1976, the Company entered into a Manufacturer's
Representative Agreement with The Saxxon Organization, Incorporated (the
"Agreement"). The Agreement has no expiration date and may be terminated by
either party upon 60 days written notice. Effective January 9, 1980, the
Agreement was assigned to Inter Alia Holding Company, a financial and management
consulting firm of which Philip M. Lynch, the Chairman of the Board of Directors
of the Company, is an officer and director. Under the Agreement, Inter Alia
Holding Company (or the "Representative") is entitled to commissions from the
Company on the net proceeds of sales of the Company's product generated by Inter
Alia Holding Company. The Representative acts as an independent manufacturer's
representative of the Company. It has a non-exclusive worldwide right to offer
for sale and solicit orders for the Company's products in accordance with prices
determined by the Company. The Representative is responsible for all of its own
operating expenses with no entitlement for reimbursement from the Company for
this activity. The Representative has not effected any sales within the United
States. The Representative has developed sales outside the United States, which
resulted in commissions of approximately $42,590, $45,484, and $51,754 for the
fiscal years ended August 31, 2000, 1999 and 1998, respectively. In light of the
Company's own domestic sales effort and its distributor network within the
United States, the Company does not anticipate the Representative developing any
sales within the United States. Additionally, the Company's expanding
international joint venture program may also limit opportunities abroad for the
Representative. Thus, the Company does not anticipate that the Representative
will develop any significant sales volume for the Company in the future.

        On August 31, 1984, Inter Alia Holding Company purchased 119,083 shares
of the Common Stock and paid therefore by signing a promissory note. The
promissory note (the "Note") had a face value of $125,375 and bore interest at
11% per year. The Note was originally due on December 31, 1992, subsequently
adjusted to a demand note. The balance of the Note, including accrued interest
of $132,826, amounted to $258,201 as of August 31, 2000 and was paid on the same
day.

        The Company paid reimbursement for travel and related Company expenses
of $378,000, $419,500 and $458,000 for the year ended August 31, 2000, 1999 and
1998, respectively, to Inter Alia Holding Company of which the Company's
Co-Chief Executive Officer and Chairman of the Board is and officer and
director. Such reimbursements of travel and related expenses were not related to
the functions of Inter Alia Holding Company as representative, but rather were
paid in respect of the conduct of business for and on behalf of the Company.
`Mr. G. Patrick Lynch, President and Co-Chief Executive Officer of the Company
is also an officer and director of Inter Alia Holding Company.

        Mr. Vincent Graziano, who has retired as President and Co-Chief
Executive Officer of the Company, but remains a director of the Company, has
agreed to render services to the Company, at will, on a half time/half salary
basis from December 1, 1999 to December 31, 2000. Mr. Vincent Graziano has
received $143,750 for his services in fiscal year 2000.


                                       42
<PAGE>


ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

(a)     EXHIBITS

        Reference is made to the Exhibit Index hereinafter contained, at page 45
of this Report.

        A copy of any exhibits listed or referred to herein will be furnished at
a reasonable cost to any person who is a stockholder upon receipt from any such
person of a written request for any such exhibit. Such request should be sent
to: Mr. Matjaz Korosec, 6680 N. Highway 49, Lino Lakes, Minnesota 55014; Attn:
Stockholder Information.

        The following is a list of each management contract or compensatory plan
or arrangement required to be filed as an exhibit to this Annual Report on Form
10-KSB pursuant to Item 13(a):

        A.      Form of Incentive Stock Option Agreement for 1994 Stock
                Incentive Plan (incorporated by reference to Exhibit 10.1 to the
                Company's Annual Report on Form 10-KSB for the fiscal year ended
                August 31, 1993).

        B.      Form of Non-Qualified Stock Option Agreement for 1994 Stock
                Incentive Plan (incorporated by reference to Exhibit 10.2 to the
                Company's Annual Report on Form 10-KSB for the fiscal year ended
                August 31, 1993).

        C.      1994 Stock Incentive Plan (incorporated by reference to Exhibit
                10.3 to the Company's Annual Report on Form 10-KSB for the year
                ended August 31, 1993).

        D.      2000 Stock Incentive Plan (filed herewith)

        E.      Form of Incentive for Stock Option Agreement for 2000 Stock
                Incentive Plan (filed herewith).

        F.      Form of Non-Qualified Stock Option Agreement for 2000 Stock
                Incentive Plan (filed herewith)

(b)     REPORTS ON FORM 8-K

        The Company did not file any Current Reports on Form 8-K during the
fourth quarter of fiscal 2000.


                                       43
<PAGE>


                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15 of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                       NORTHERN TECHNOLOGIES
                                       INTERNATIONAL CORPORATION

Dated: November 17, 2000               By:  /s/ Philip M. Lynch
                                            -----------------------------------
                                            Philip M. Lynch
                                            Chairman and Co-Chief Executive
                                            Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant on November 17, 2000 in the capacities indicated.


NAME                              TITLE
- ----                              -----

/s/ Philip M. Lynch               Co-Chief Executive Officer and Chairman of the
- -----------------------------     Board of Directors (principal executive
Philip M. Lynch                   officer)

/s/ G. Patrick Lynch              President and Co-Chief Executive Officer
- -----------------------------     (principal executive officer)
G. Patrick Lynch

/s/ Matjaz Korosec                Vice President of Financial Planning and
- -----------------------------     Treasurer
Matjaz Korosec

/s/ Donald A. Kubik, Ph.D.        Vice Chairman; Director
- -----------------------------
Donald A. Kubik, Ph.D.

/s/ Loren M. Ehrmanntraut         Chief Financial Officer (principal financial
- -----------------------------     officer and principal accounting officer)
Loren M. Ehrmanntraut

/s/ Richard G. Lareau             Director
- -----------------------------
Richard G. Lareau

/s/ Milan R. Vukcevich, Ph.D.     Director
- -----------------------------
Milan R. Vukcevich, Ph.D.

                                  Director
- -----------------------------
Vincent J. Graziano

/s/ Haruhiko Rikuta               Director
- -----------------------------
Haruhiko Rikuta


                                       44
<PAGE>


                 NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
                  EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-KSB
                       FOR THE YEAR ENDED AUGUST 31, 2000

Item No.          Item                          Method of Filing
- --------          ----                          ----------------

3.1      Certificate of Incorporation           Incorporated by reference to
                                                Exhibit 3.1 contained in the
                                                Registration Statement on Form
                                                10 (File No. 0-19331).

3.2      Bylaws                                 Incorporated by reference to
                                                Exhibit 3.2 contained in the
                                                Registration Statement on Form
                                                10 (File No. 0-19331).

10.1     Form of Incentive Stock Option         Incorporated by reference to
         Agreement for 1994 Stock Incentive     Exhibit 10.1 to the Company's
         Plan                                   Annual Report on Form 10-KSB for
                                                the fiscal year ended August 31,
                                                1993.

10.2     Form of Non-Qualified Stock Option     Incorporated by reference to
         Agreement for 1994 Stock Incentive     Exhibit 10.2 to the Company's
         Plan                                   Annual Report on Form 10-KSB for
                                                the fiscal year ended August 31,
                                                1993.

10.3     1994 Stock Incentive Plan              Incorporated by reference to
                                                Exhibit 10.3 to the Company's
                                                Annual Report on Form 10-KSB for
                                                the year ended August 31, 1993.

10.4     2000 Stock Incentive Plan              Filed herewith electronically.

10.5     Form of Incentive Stock Option         Filed herewith electronically.
         Agreement for 2000 Stock Incentive
         Plan

10.6     Form of Non-Qualified Stock Option     Filed herewith electronically.
         Agreement for 2000 Stock Incentive
         Plan

21.1     Subsidiaries of the Registrant         Filed herewith electronically.

23.1     Independent Auditors' Consent          Filed herewith electronically.

27.1     Financial Data Schedule                Filed herewith electronically.


                                       45

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.4
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>2000 STOCK INCENTIVE PLAN
<TEXT>


                                                                    EXHIBIT 10.4


                            2000 STOCK INCENTIVE PLAN

                 NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION

                            2000 STOCK INCENTIVE PLAN

I.       Purpose of Plan.

The purpose of the Northern Technologies International Corporation 2000 Stock
Incentive Plan (the "Plan") is to advance the interests of Northern Technologies
International Corporation (the "Company") and its stockholders by enabling the
Company and its Subsidiaries to attract and retain persons of ability to perform
services for the Company and its Subsidiaries by providing an incentive to such
individuals through equity participation in the Company and by rewarding such
individuals who contribute to the achievement by the Company of its economic
objectives.

II.      Definitions.

The following terms will have the meanings set forth below, unless the context
clearly otherwise requires:

         A.       "Board" means the Board of Directors of the Company.

         B.       "Broker Exercise Notice" means a written notice pursuant to
                  which a Participant, upon exercise of an Option, irrevocably
                  instructs a broker or dealer to sell a sufficient number of
                  shares or loan a sufficient amount of money to pay all or a
                  portion of the exercise price of the Option and/or any related
                  withholding tax obligations and remit such sums to the Company
                  and directs the Company to deliver stock certificates to be
                  issued upon such exercise directly to such broker or dealer.

         C.       "Change in Control" means an event described in Section 13.1
                  of the Plan.

         D.       "Code" means the Internal Revenue Code of 1986, as amended.

         E.       "Committee" means the group of individuals administering the
                  Plan, as provided in Section 3 of the Plan.

         F.       "Common Stock" means the common stock of the Company; par
                  value $.02 per share, or the number and kind of shares of
                  stock or other securities into which such Common Stock may be
                  changed in accordance with Section 4.3 of the Plan.

         G.       "Disability" means the disability of the Participant such as
                  would entitle the Participant to receive disability income
                  benefits pursuant to the long-term disability plan of the
                  Company or Subsidiary then covering the Participant or, if no
                  such plan exists or is applicable to the Participant, the
                  permanent and total disability of the Participant within the
                  meaning of Section 22(e)(3) of the Code.

         H.       "Eligible Recipients" means all employees (including, without
                  limitation, officers and directors who are also employees) of
                  the Company or any Subsidiary, any non-employee consultants
                  and independent contractors of the Company or any Subsidiary
                  and any joint venture partners (including without limitation,
                  officers, directors and partners thereof) of the Company or
                  any Subsidiary.

         I.       "Exchange Act" means the Securities Exchange Act of 1934, as
                  amended.

         J.       "Fair Market Value" means, with respect to the Common Stock,
                  as of any date (or, if no shares were traded or quoted on such
                  date, as of the next preceding date on which there was such a
                  trade or quote), the closing market price per share of the
                  Common Stock as reported on the American Stock Exchange
                  Composite Tape on that date.


                                       46
<PAGE>


         K.       "Incentive Award" means an Option, Stock Appreciation Right,
                  Restricted Stock Award, Performance Unit or Stock Bonus
                  granted to an Eligible Recipient pursuant to the Plan.

         L.       "Incentive Stock Option" means a right to purchase Common
                  Stock granted to an Eligible Recipient pursuant to Section 6
                  of the Plan that qualifies as an "incentive stock option"
                  within the meaning of Section 422 of the Code.

         M.       "Non-Employee Director" means any member of the Board of
                  Directors of the Company who is not an employee of the Company
                  or any Subsidiary.

         N.       "Non-Statutory Stock Option" means a right to purchase Common
                  Stock granted to an Eligible Recipient pursuant to Section 6
                  of the Plan that does not qualify as an Incentive Stock
                  Option.

         O.       "Option" means an Incentive Stock Option or a Non-Statutory
                  Stock Option.

         P.       "Participant" means an Eligible Recipient who receives one or
                  more Incentive Awards under the Plan.

         Q.       "Performance Unit" means a right granted to an Eligible
                  Recipient pursuant to Section 9 of the Plan to receive a
                  payment from the Company, in the form of stock, cash or a
                  combination of both, upon the achievement of established
                  performance goals.

         R.       "Previously Acquired Shares" means shares of Common Stock that
                  are already owned by the Participant or, with respect to any
                  Incentive Award, that are to be issued upon the grant,
                  exercise or vesting of such Incentive Award.

         S.       "Restricted Stock Award" means an award of Common Stock
                  granted to an Eligible Recipient pursuant to Section 8 of the
                  Plan that is subject to the restrictions on transferability
                  and the risk of forfeiture imposed by the provisions of such
                  Section 8.

         T.       "Retirement" means termination of employment or service
                  pursuant to and in accordance with the regular (or, if
                  approved by the Board for purposes of the Plan, early)
                  retirement/pension plan or practice of the Company or
                  Subsidiary then covering the Participant, provided that if the
                  Participant is not covered by any such plan or practice, the
                  Participant will be deemed to be covered by the Company plan
                  or practice for purposes of this determination.

         U.       "Securities Act" means the Securities Act of 1933, as amended.

         V.       "Stock Appreciation Right" means a right granted to an
                  Eligible Recipient pursuant to Section 7 of the Plan to
                  receive a payment from the Company in the form of stock, cash
                  or a combination of both, equal to the difference between the
                  Fair Market Value of one or more shares of Common Stock and
                  the exercise price of such shares under the terms of such
                  Stock Appreciation Right.

         W.       "Stock Bonus" means an award of Common Stock granted to an
                  Eligible Recipient pursuant to Section 10 of the Plan.

         X.       "Subsidiary" means any entity that is directly or indirectly
                  controlled by the Company or any entity in which the Company
                  has a significant equity interest, as determined by the
                  Committee.

         Y.       "Tax Date" means the date any withholding tax obligation
                  arises under the Code for a Participant with respect to an
                  Incentive Award.


                                       47
<PAGE>


III.     Plan Administration.

         A.       The Committee. The Plan will be administered by the Board, all
                  of whom will be "disinterested persons" within the meaning of
                  Rule 16b-3 under the Exchange Act, or by a committee
                  consisting solely of not fewer than two members of the Board
                  who are such "disinterested persons." As used in this Plan,
                  the term "Committee" will refer to the Board or to such a
                  committee, if established. To the extent consistent with
                  corporate law, the Committee may delegate to any officers of
                  the Company the duties, power and authority of the Committee
                  under the Plan pursuant to such conditions or limitations as
                  the Committee may establish; provided, however, that only the
                  Committee may exercise such duties, power and authority with
                  respect to Eligible Recipients who are subject to Section 16
                  of the Exchange Act. Each determination, interpretation or
                  other action made or taken by the Committee pursuant to the
                  provisions of the Plan will be conclusive and binding for all
                  purposes and on all persons, and no member of the Committee
                  will be liable for any action or determination made in good
                  faith with respect to the Plan or any Incentive Award granted
                  under the Plan.

         B.       Authority of the Committee.

                  1.       In accordance with and subject to the provisions of
                           the Plan, the Committee will have the authority to
                           determine all provisions of Incentive Awards as the
                           Committee may deem necessary or desirable and as
                           consistent with the terms of the Plan, including,
                           without limitation, the following: (i) the Eligible
                           Recipients to be selected as Participants; (ii) the
                           nature and extent of the Incentive Awards to be made
                           to each Participant (including the number of shares
                           of Common Stock to be subject to each Incentive
                           Award, any exercise price, the manner in which
                           Incentive Awards will vest or become exercisable and
                           whether Incentive Awards will be granted in tandem
                           with other Incentive Awards) and the form of written
                           agreement, if any, evidencing such Incentive Award;
                           (iii) the time or times when Incentive Awards will be
                           granted; (iv) the duration of each Incentive Award;
                           and (v) the restrictions and other conditions to
                           which the payment or vesting of Incentive Awards may
                           be subject. In addition, the Committee will have the
                           authority under the Plan in its sole discretion to
                           pay the economic value of any Incentive Award in the
                           form of cash, Common Stock or any combination of
                           both.

                  2.       The Committee will have the authority under the Plan
                           to amend or modify the terms of any outstanding
                           Incentive Award in any manner, including, without
                           limitation, the authority to modify the number of
                           shares or other terms and conditions of an Incentive
                           Award, extend the term of an Incentive Award,
                           accelerate the exercisability or vesting or otherwise
                           terminate any restrictions relating to an Incentive
                           Award, accept the surrender of any outstanding
                           Incentive Award or, to the extent not previously
                           exercised or vested, authorize the grant of new
                           Incentive Awards in substitution for surrendered
                           Incentive Awards; provided, however that the amended
                           or modified terms are permitted by the Plan as then
                           in effect and that any Participant adversely affected
                           by such amended or modified terms has consented to
                           such amendment or modification. No amendment or
                           modification to an Incentive Award, however, whether


                                       48
<PAGE>


                           pursuant to this Section 3.2 or any other provisions
                           of the Plan, will be deemed to be a regrant of such
                           Incentive Award for purposes of this Plan.

                  3.       In the event of (i) any reorganization, merger,
                           consolidation, recapitalization, liquidation,
                           reclassification, stock dividend, stock split,
                           combination of shares, rights offering, extraordinary
                           dividend or divestiture (including a spin-off) or any
                           other change in corporate structure or shares, (ii)
                           any purchase, acquisition, sale or disposition of a
                           significant amount of assets or a significant
                           business, (iii) any change in accounting principles
                           or practices, or (iv) any other similar change, in
                           each case with respect to the Company or any other
                           entity whose performance is relevant to the grant or
                           vesting of an Incentive Award, the Committee (or, if
                           the Company is not the surviving corporation in any
                           such transaction, the board of directors of the
                           surviving corporation) may, without the consent of
                           any affected Participant, amend or modify the vesting
                           criteria of any outstanding Incentive Award that is
                           based in whole or in part on the financial
                           performance of the Company (or any Subsidiary or
                           division thereof) or such other entity so as
                           equitably to reflect such event, with the desired
                           result that the criteria for evaluating such
                           financial performance of the Company or such other
                           entity will be substantially the same (in the sole
                           discretion of the Committee or the board of directors
                           of the surviving corporation) following such event as
                           prior to such event; provided, however, that the
                           amended or modified terms are permitted by the Plan
                           as then in effect.

IV.      Shares Available for Issuance.

         A.       Maximum Number of Shares Available. Subject to adjustment as
                  provided in Section 4.3 of the Plan, the maximum number of
                  shares of Common Stock that will be available for issuance
                  under the Plan will be 200,000 shares.

         B.       Accounting for Incentive Awards. Shares of Common Stock that
                  are issued under the Plan or that are subject to outstanding
                  Incentive Awards will be applied to reduce the maximum number
                  of shares of Common Stock remaining available for issuance
                  under the Plan. Any shares of Common Stock that are subject to
                  an Incentive Award that lapses, expires, is forfeited or for
                  any reason is terminated unexercised or unvested and any
                  shares of Common Stock that are subject to an Incentive Award
                  that is settled or paid in cash or any form other than shares
                  of Common Stock will automatically again become available for
                  issuance under the Plan. Any shares of Common Stock that
                  constitute the forfeited portion of a Restricted Stock Award,
                  however, will not become available for further issuance under
                  the Plan.

         C.       Adjustments to Shares and Incentive Awards. In the event of
                  any reorganization, merger, consolidation, recapitalization,
                  liquidation, reclassification, stock dividend, stock split,
                  combination of shares, rights offering, divestiture or
                  extraordinary dividend (including a spin-off) or any other
                  change in the corporate structure or shares of the Company,
                  the Committee (or, if the Company is not the surviving
                  corporation in any such transaction, the board of directors of
                  the surviving corporation) will make appropriate adjustment
                  (which determination will be conclusive) as to the number and
                  kind of securities available for issuance under the Plan and,
                  in order to prevent dilution or enlargement of the rights of


                                       49
<PAGE>


                  Participants, the number, kind and, where applicable, exercise
                  price of securities subject to outstanding Incentive Awards.

V.       Participation.

Participants in the Plan will be those Eligible Recipients who, in the judgment
of the Committee, have contributed, are contributing or are expected to
contribute to the achievement of economic objectives of the Company or its
Subsidiaries. Eligible Recipients may be granted from time to time one or more
Incentive Awards, singly or in combination or in tandem with other Incentive
Awards, as may be determined by the Committee in its sole discretion. Incentive
Awards will be deemed to be granted as of the date specified in the grant
resolution of the Committee, which date will be the date of any related
agreement with the Participant.

VI.      Options.

         A.       Grant. An Eligible Recipient may be granted one or more
                  Options under the Plan, and such Options will be subject to
                  such terms and conditions, consistent with the other
                  provisions of the Plan, as may be determined by the Committee
                  in its sole discretion. The Committee may designate whether an
                  Option is to be considered an Incentive Stock Option or a
                  Non-Statutory Stock Option.

         B.       Exercise Price. The per share price to be paid by a
                  Participant upon exercise of an Option will be determined by
                  the Committee in its discretion at the time of the Option
                  grant, provided that (a) such price will not be less than 100%
                  of the Fair Market Value of one share of Common Stock on the
                  date of grant with respect to an Incentive Stock Option (110%
                  of the Fair Market Value if, at the time the Incentive Stock
                  Option is granted, the Participant owns, directly or
                  indirectly, more than 10% of the total combined voting power
                  of all classes of stock of the Company or any parent or
                  subsidiary corporation of the Company), and (b) such price
                  will not be less than 85% of the Fair Market Value of one
                  share of Common Stock on the date of grant with respect to a
                  Non-Statutory Stock Option.

         C.       Exercisabilitv and Duration. An Option will become exercisable
                  at such times and in such installments as may be determined by
                  the Committee in its sole discretion at the time of grant;
                  provided, however, that no Option may be exercisable after 10
                  years from its date of grant.

         D.       Payment of Exercise Price. The total purchase price of the
                  shares to be purchased upon exercise of an Option will be paid
                  entirely in cash (including check, bank draft or money order);
                  provided, however, that the Committee, in its sole discretion
                  and upon terms and conditions established by the Committee,
                  may allow such payments to be made, in whole or in part, by
                  tender of a Broker Exercise Notice, Previously Acquired Shares
                  or by a combination of such methods.

         E.       Manner of Exercise. An Option may be exercised by a
                  Participant in whole or in part from time to time, subject to
                  the conditions contained in the Plan and in the agreement
                  evidencing such Option, by delivery in person, by facsimile or
                  electronic transmission or through the mail of written notice
                  of exercise to the Company (Attention: Chief Financial
                  Officer) at its principal executive office in Lino Lakes,
                  Minnesota and by paying in full the total exercise price for
                  the shares of Common Stock to be purchased in accordance with
                  Section 6.4 of the Plan.

         F.       Aggregate Limitation of Stock Subject to Incentive Stock
                  Options. To the extent that the aggregate Fair Market Value
                  (determined as of the date an Incentive Stock Option is
                  granted) of the shares of Common Stock with respect to which


                                       50
<PAGE>


                  incentive stock options (within the meaning of Section 422 of
                  the Code) are exercisable for the first time by a Participant
                  during any calendar year (under the Plan and any other
                  incentive stock option plans of the Company or any subsidiary
                  or parent corporation of the Company (within the meaning of
                  the Code)) exceeds $100,000 (or such other amount as may be
                  prescribed by the Code from time to time), such excess Options
                  will be treated as Non-Statutory Stock Options. The
                  determination will be made by taking incentive stock options
                  into account in the order in which they were granted. If such
                  excess only applies to a portion of an incentive stock option,
                  the Committee, in its discretion, will designate which shares
                  will be treated as shares to be acquired upon exercise of an
                  incentive stock option.

         G.       Automatic Grants to Non-Employee Directors.

                  1.       Grant of Options. At such time as, following the
                           effective date of the Plan, Non-Employee Directors
                           are first elected or appointed to the Board of
                           Directors, such Non-Employee Directors will be
                           granted automatically, on a one-time basis on the
                           date of their election or appointment, a
                           Non-Statutory Stock Option to purchase the pro-rata
                           portion of 2,000 shares of Common Stock, calculated
                           by dividing the number of months remaining in the
                           fiscal year at the time of election or appointment
                           divided by twelve. Following the effective date of
                           the Plan, Non-Employee Directors will be granted
                           automatically, on the first day of each fiscal year,
                           a Non-Statutory Stock Option to purchase 2,000 shares
                           of Common Stock. Notwithstanding the foregoing
                           provisions of this Section 6.7(a), a Non-Statutory
                           Stock Option shall not be granted under this Section
                           6.7(a) to the extent a Non-Employee Director is
                           automatically granted a similar option under the
                           Company's 1994 Stock Incentive Plan. All automatic
                           grants pursuant to this Section 6.7 are subject to
                           adjustment as provided in Section 4.3 of the Plan.

                  2.       Option Exercise Price. The per share price to be paid
                           by the Non-Employee Director at the time an Option is
                           exercised will be 100% of the Fair Market Value of
                           one share of Common Stock on the date the Option is
                           granted. The total purchase price of the shares to be
                           purchased upon exercise will be paid entirely in cash
                           (including check, bank draft or money order).

                  3.       Duration of Options. Each Option will terminate five
                           years after its date of grant and will become
                           exercisable, on a cumulative basis, with respect to
                           33 1/3% of the shares covered by such Option on each
                           anniversary of the date of its grant.

                  4.       Effect of Termination of Directorship. In the event a
                           Non-Employee Director's service as a director of the
                           Company is terminated by reason of death, Disability
                           or retirement all outstanding Options then held by
                           the Non-Employee Director will become immediately
                           exercisable in full and will remain exercisable
                           following such termination until the expiration of
                           any such Option. In the event that a Non-Employee
                           Director's service as a director of the Company is
                           terminated for any reason other than death,
                           Disability or retirement, all outstanding Options
                           then held by the Non-Employee Director will remain
                           exercisable to the extent exercisable as of


                                       51
<PAGE>


                           such termination of service for a period of three
                           months after such termination of service (but in no
                           event after the expiration of any such Option). Such
                           Options will not be subject to the termination
                           provisions of Section 11 of the Plan.

                  5.       Manner of Option Exercise. An Option may be exercised
                           by a Non-Employee Director in whole or in part from
                           time to time, subject to the conditions contained in
                           the Plan and in the agreement evidencing such Option,
                           by giving written notice of exercise to the Company
                           at its principal executive office (such notice to
                           specify the particular Option that is being exercised
                           and the number of shares with respect to which the
                           Option is being exercised) accompanied by payment, in
                           cash or check payable to the Company, of the total
                           purchase price of the shares to be purchased under
                           the Option.

                  6.       Non-Discretionary Grants. Options granted to
                           Non-Employee Directors pursuant to this Section 6.7
                           are intended to qualify as "formula awards" within
                           the meaning of Rule 16b-3 under the Exchange Act. As
                           a result, other than as provided in Section 16 of the
                           Plan, the Committee will not have the authority to
                           amend the eligibility requirements for, or modify the
                           terms of, such Options (including, without
                           limitation, the authority to modify the rights of
                           Non-Employee Directors in connection with termination
                           of service as a director or a change in control of
                           the Company) if such amendments or modifications
                           would disqualify such Options from treatment as
                           "formula awards."

VII.     Stock Appreciation Rights.

         A.       Grant. An Eligible Recipient may be granted one or more Stock
                  Appreciation Rights under the Plan, and such Stock
                  Appreciation Rights shall be subject to such terms and
                  conditions, consistent with the other provisions of the Plan,
                  as will be determined by the Committee in its sole discretion.

         B.       Exercise Price. The exercise price of a Stock Appreciation
                  Right will be determined by the Committee, in its discretion,
                  at the date of grant but will not be less than 100% of the
                  Fair Market Value of one share of Common Stock on the date of
                  grant.

         C.       Exercisability and Duration. A Stock Appreciation Right will
                  become exercisable at such time and in such installments as
                  may be determined by the Committee in its sole discretion at
                  the time of grant; provided, however, that no Stock
                  Appreciation Right may be exercisable after 10 years from its
                  date of grant. A Stock Appreciation Right will be exercised by
                  giving notice in the same manner as for Options, as set forth
                  in Section 6.5 of the Plan.

VIII.    Restricted Stock Awards.

         A.       Grant. An Eligible Recipient may be granted one or more
                  Restricted Stock Awards under the Plan, and such Restricted
                  Stock Awards will be subject to such terms and conditions,
                  consistent with the other provisions of the Plan, as may be
                  determined by the Committee in its sole discretion. The
                  Committee may impose such restrictions or conditions, not
                  inconsistent with the provisions of the Plan, to the vesting
                  of such Restricted Stock Awards as it deems appropriate,
                  including, without limitation, that the Participant remain in
                  the continuous employ or service of the Company or a
                  Subsidiary for a certain period or that the Participant or the


                                       52
<PAGE>


                  Company (or any Subsidiary or division thereof) satisfy
                  certain performance goals or criteria.

         B.       Rights as a Stockholder; Transferability. Except as provided
                  in Sections 8.1, 8.3 and 14.3 of the Plan, a Participant will
                  have all voting, dividend, liquidation and other rights with
                  respect to shares of Common Stock issued to the Participant as
                  a Restricted Stock Award under this Section 8 upon the
                  Participant becoming the holder of record of such shares as if
                  such Participant were a holder of record of shares of
                  unrestricted Common Stock.

         C.       Dividends and Distributions. Unless the Committee determines
                  otherwise in its sole discretion (either in the agreement
                  evidencing the Restricted Stock Award at the time of grant or
                  at any time after the grant of the Restricted Stock Award),
                  any dividends or distributions (including regular quarterly
                  cash dividends) paid with respect to shares of Common Stock
                  subject to the unvested portion of a Restricted Stock Award
                  will be subject to the same restrictions as the shares to
                  which such dividends or distributions relate. In the event the
                  Committee determines not to pay such dividends or
                  distributions currently, the Committee will determine in its
                  sole discretion whether any interest will be paid on such
                  dividends or distributions. In addition, the Committee in its
                  sole discretion may require such dividends and distributions
                  to be reinvested (and in such case the Participants consent to
                  such reinvestment) in shares of Common Stock that will be
                  subject to the same restrictions as the shares to which such
                  dividends or distributions relate.

         D.       Enforcement of Restrictions. To enforce the restrictions
                  referred to in this Section 8, the Committee may place a
                  legend on the stock certificates referring to such
                  restrictions and may require the Participant, until the
                  restrictions have lapsed, to keep the stock certificates,
                  together with duly endorsed stock powers, in the custody of
                  the Company or its transfer agent or to maintain evidence of
                  stock ownership, together with duly endorsed stock powers, in
                  a certificateless book-entry stock account with the Company's
                  transfer agent.

IX.      Performance Units.

An Eligible Recipient may be granted one or more Performance Units under the
Plan, and such Performance Units will be subject to such terms and conditions,
consistent with the other provisions of the Plan, as may be determined by the
Committee in its sole discretion. The Committee may impose such restrictions or
conditions, not inconsistent with the provisions of the Plan, to the vesting of
such Performance Units as it deems appropriate, including, without limitation,
that the Participant remain in the continuous employ or service of the Company
or any Subsidiary for a certain period or that the Participant or the Company
(or any Subsidiary or division thereof) satisfy certain performance goals or
criteria. The Committee will have the sole discretion either to determine the
form in which payment of the economic value of vested Performance Units will be
made to the Participant (i.e., cash, Common Stock or any combination thereof) or
to consent to or disapprove the election by the Participant of the form of such
payment.

X.       Stock Bonuses.

An Eligible Recipient may be granted one or more Stock Bonuses under the Plan,
and such Stock Bonuses will be subject to such terms and conditions, consistent
with the other provisions of the Plan, as may be determined by the Committee in
its sole discretion. The Participant will have all voting, dividend, liquidation
and other rights with respect to the shares of Common Stock issued to a
Participant as a Stock Bonus under this Section 10 upon the Participant becoming
the holder of record of such shares; provided, however, that the Committee may
impose such restrictions on the assignment or transfer of a Stock Bonus as it
deems appropriate.


                                       53
<PAGE>


XI.      Effect of Termination of Employment or Other Service.

         A.       Termination Due to Death, Disability or Retirement. In the
                  event a Participant's employment or other service with the
                  Company and all Subsidiaries is terminated by reason of death,
                  Disability or Retirement:

                  1.       All outstanding Options and Stock Appreciation Rights
                           then held by the Participant will remain exercisable
                           to the extent exercisable as of such termination
                           following such termination until the expiration date
                           of such Option or Stock Appreciation Right;

                  2.       All Restricted Stock Awards then held by the
                           Participant that have not vested will be terminated
                           and forfeited; and

                  3.       All Performance Units and Stock Bonuses then held by
                           the Participant will vest and/or continue to vest in
                           the manner determined by the Committee and set forth
                           in the agreement evidencing such Performance Units or
                           Stock Bonuses.

         B.       Termination for Reasons Other than Death, Disability or
                  Retirement.

                  1.       In the event a Participant's employment or other
                           service is terminated with the Company and all
                           Subsidiaries for any reason other than death,
                           Disability or Retirement, or a Participant is in the
                           employ or service of a Subsidiary and the Subsidiary
                           ceases to be a Subsidiary of the Company (unless the
                           Participant continues in the employ or service of the
                           Company or another Subsidiary), all rights of the
                           Participant under the Plan and any agreements
                           evidencing an Incentive Award will immediately
                           terminate without notice of any kind, and no Options
                           or Stock Appreciation Rights then held by the
                           Participant will thereafter be exercisable, all
                           Restricted Stock Awards then held by the Participant
                           that have not vested will be terminated and
                           forfeited, and all Performance Units and Stock
                           Bonuses then held by the Participant will vest and/or
                           continue to vest in the manner determined by the
                           Committee and set forth in the agreement evidencing
                           such Performance Units or Stock Bonuses; provided,
                           however, that if such termination is due to any
                           reason other than termination by the Company or any
                           Subsidiary for "cause," all outstanding Options and
                           Stock Appreciation Rights then held by such
                           Participant will remain exercisable to the extent
                           exercisable as of such termination for a period of
                           one month after such termination (but in no event
                           after the expiration date of any such Option or Stock
                           Appreciation Right).

                  2.       For purposes of this Section 11.2, "cause" (as
                           determined by the Committee) will be as defined in
                           any employment or other agreement or policy
                           applicable to the Participant or, if no such
                           agreement or policy exists, will mean (i) dishonesty,
                           fraud, misrepresentation, embezzlement or deliberate
                           injury or attempted injury, in each case related to
                           the Company or any Subsidiary, (ii) any unlawful or
                           criminal activity of a serious nature, (iii) any
                           intentional and deliberate breach of a duty or duties
                           that, individually or in the aggregate, are material
                           in relation to the Participant's overall duties, or
                           (iv) any material breach of any employment, service,
                           confidentiality or noncompete agreement entered into
                           with the Company or any Subsidiary.


                                       54
<PAGE>


         C.       Modification of Rights Upon Termination. Notwithstanding the
                  other provisions of this Section 11, upon a Participant's
                  termination of employment or other service with the Company
                  and all Subsidiaries, the Committee may, in its sole
                  discretion (which may be exercised at any time on or after the
                  date of grant, including following such termination), cause
                  Options and Stock Appreciation Rights (or any part thereof)
                  then held by such Participant to become or continue to become
                  exercisable and/or remain exercisable following such
                  termination of employment or service and Restricted Stock
                  Awards, Performance Units and Stock Bonuses then held by such
                  Participant to vest and/or continue to vest or become free of
                  transfer restrictions, as the case may be, following such
                  termination of employment or service, in each case in the
                  manner determined by the Committee; provided, however, that no
                  Option may remain exercisable beyond its expiration date.

         D.       Breach of Confidentiality or Noncompete Agreements.
                  Notwithstanding anything in this Plan to the contrary, in the
                  event that a Participant materially breaches the terms of any
                  confidentiality or noncompete agreement entered into with the
                  Company or any Subsidiary or takes any other action that the
                  Committee, in its sole discretion, deems to be adverse to the
                  interests of the Company or any Subsidiary (an "Adverse
                  Action"), whether such Adverse Action occurs before or after
                  termination of such Participant's employment or other service
                  with the Company or any Subsidiary, the Committee in its sole
                  discretion may immediately terminate all rights of the
                  Participant under the Plan and any agreements evidencing an
                  Incentive Award then held by the Participant without notice of
                  any kind. In addition, to the extent that a Participant takes
                  such Adverse Action during the period beginning 6 months prior
                  to, and ending 6 months following, the date of such employment
                  or service termination, the Committee in its sole discretion
                  will have the authority (by so providing in the agreement
                  evidencing such Incentive Award at the time of grant) to
                  rescind (i) any grant of an Incentive Award made to such
                  Participant during such period and (ii) any exercise of an
                  Option of the Participant that was exercised during such
                  period, and to require the Participant to pay to the Company,
                  within 10 days of receipt from the Company of notice of such
                  rescission, the amount of any gain realized from such
                  rescinded grant or exercise. Such payment will be made in cash
                  (including check, bank draft or money order) or, with the
                  Committee's consent, shares of Common Stock with a Fair Market
                  Value on the date of payment equal to the amount of such
                  payment. The Company will be entitled to withhold and deduct
                  from future wages of the Participant (or from other amounts
                  that may be due and owing to the Participant from the Company
                  or Subsidiary) or make other arrangements for the collection
                  of all amounts necessary to satisfy such payment obligation.

         E.       Date of Termination of Employment or Other Service. Unless the
                  Committee otherwise determines in its sole discretion, a
                  Participant's employment or other service will, for purposes
                  of the Plan, be deemed to have terminated on the date recorded
                  on the personnel or other records of the Company or the
                  Subsidiary for which the Participant provides employment or
                  other service, as determined by the Committee in its sole
                  discretion based upon such records.


                                       55
<PAGE>


XII.     Payment of Withholding Taxes.

         A.       General Rules. The Company is entitled to (a) withhold and
                  deduct from future wages of the Participant (or from other
                  amounts that may be due and owing to the Participant from the
                  Company or a Subsidiary), or make other arrangements for the
                  collection of, all legally required amounts necessary to
                  satisfy any and all federal, state and local withholding and
                  employment-related tax requirements attributable to an
                  Incentive Award, including, without limitation, the grant,
                  exercise or vesting of, or payment of dividends with respect
                  to, an Incentive Award or a disqualifying disposition of stock
                  received upon exercise of an Incentive Stock Option, or (b)
                  require the Participant promptly to remit the amount of such
                  withholding to the Company before taking any action, including
                  issuing any shares of Common Stock, with respect to an
                  Incentive Award.

         B.       Special Rules. The Committee may, in its sole discretion and
                  upon terms and conditions established by the Committee, permit
                  or require a Participant to satisfy, in whole or in part, any
                  withholding or employment-related tax obligation described in
                  Section 12.1 of the Plan by electing to tender Previously
                  Acquired Shares or a Broker Exercise Notice, or by a
                  combination of such methods.

XIII.    Change in Control.

         A.       Change in Control. For purposes of this Section 13.1, a
                  "Change in Control" of the Company will mean (a) the sale,
                  lease, exchange or other transfer of substantially all of the
                  assets of the Company (in one transaction or in a series of
                  related transaction) to a person or entity that is not
                  controlled, directly or indirectly, by the Company, (b) a
                  merger or consolidation to which the Company is a party if the
                  stockholders of the Company immediately prior to effective
                  date of such merger or consolidation do not have "beneficial
                  ownership" (as defined in Rule 13d-3 under the Exchange Act)
                  immediately following the effective date of such merger or
                  consolidation of more than 80% of the combined voting power of
                  the surviving corporation's outstanding securities ordinarily
                  having the right to vote at elections of directors, or (c) a
                  change in control of the Company of a nature that would be
                  required to be reported pursuant to Section 13 or 15(d) of the
                  Exchange Act, whether or not the Company is then subject to
                  such reporting requirements, including, without limitation,
                  such time as (i) any person becomes, after the effective date
                  of the Plan, the "beneficial owner" (as defined in Rule 13d-3
                  under the Exchange Act), directly or indirectly, of 40% or
                  more of the combined voting power of the Company's outstanding
                  securities ordinarily having the right to vote at elections of
                  directors, or (ii) individuals who constitute the Board on the
                  effective date of the Plan cease for any reason to constitute
                  at least a majority of the Board, provided that any person
                  becoming a director subsequent to the effective date of the
                  Plan whose election, or nomination for election by the
                  Company's stockholders, was approved by a vote of at least a
                  majority of the directors comprising the Board on the
                  effective date of the Plan will, for purposes of this clause
                  (ii), be considered as though such persons were a member of
                  the Board on the effective date of the Plan.

         B.       Acceleration of Vesting. Without limiting the authority of the
                  Committee under Section 3.2 of the Plan, if a Change in
                  Control of the Company occurs, then, if approved by the
                  Committee in its sole discretion either in an agreement
                  evidencing an Incentive Award at the time of grant or at any
                  time after the grant of an Incentive Award, (a) all Options
                  and Stock Appreciation Rights will become immediately
                  exercisable in full and will remain exercisable for the
                  remainder of their terms, regardless of whether the
                  Participants to whom such Options or Stock Appreciation Rights
                  have been granted remain in the employ or service of the
                  Company or any Subsidiary; (b) all outstanding Restricted
                  Stock Awards will become immediately fully vested; and (c) all
                  Performance Units and Stock Bonuses then held by the
                  Participant will vest and/or continue to vest in the manner
                  determined by the Committee and set forth in the agreement
                  evidencing such Performance Units or Stock Bonuses.


                                       56
<PAGE>


         C.       Cash Payment for Options. If a Change in Control of the
                  Company occurs, then the Committee, if approved by the
                  Committee in its sole discretion either in an agreement
                  evidencing an Incentive Award at the time of grant or at any
                  time after the grant of an Incentive Award, and without the
                  consent of any Participant effected thereby, may determine
                  that some or all Participants holding outstanding Options will
                  receive, with respect to and in lieu of some or all of the
                  shares of Common Stock subject to such Options, as of the
                  effective date of any such Change in Control of the Company,
                  cash in an amount equal to the excess of the Fair Market Value
                  of such shares immediately prior to the effective date of such
                  Change in Control of the Company over the exercise price per
                  share of such Options.

         D.       Limitation on Change in Control Payments. Notwithstanding
                  anything in Section 13.2 or 13.3 of the Plan to the contrary,
                  if, with respect to a Participant, the acceleration of the
                  vesting of an Incentive Award as provided in Section 13.2 or
                  the payment of cash in exchange for all or part of an
                  Incentive Award as provided in Section 13.3 (which
                  acceleration or payment could be deemed a "payment" within the
                  meaning of Section 280G(b)(2) of the Code), together with any
                  other payments which such Participant has the right to receive
                  from the Company or any corporation that is a member of an
                  "affiliated group" (as defined in Section 1504(a) of the Code
                  without regard to Section 1504(b) of the Code) of which the
                  Company is a member, would constitute a "parachute payment"
                  (as defined in Section 280G(b)(2) of the Code), then the
                  payments to such Participant pursuant to Section 13.2 or 13.3
                  will be reduced to the largest amount as will result in no
                  portion of such payments being subject to the excise tax
                  imposed by Section 4999 of the Code; provided, however, that
                  if such Participant is subject to a separate agreement with
                  the Company or a Subsidiary which specifically provides that
                  payments attributable to one or more forms of employee stock
                  incentives or to payments made in lieu of employee stock
                  incentives will not reduce any other payments under such
                  agreement, even if it would constitute an excess parachute
                  payment, then the limitations of this Section 13.4 will, to
                  that extent, not apply.

XIV.     Rights of Eligible Recipients and Participants: Transferability.

         A.       Employment or Service. Nothing in the Plan will interfere with
                  or limit in any way the right of the Company or any Subsidiary
                  to terminate the employment or service of any Eligible
                  Recipient or Participant at any time, nor confer upon any
                  Eligible Recipient or Participant any right to continue in the
                  employ or service of the Company or any Subsidiary.


                                       57
<PAGE>


         B.       Rights as a Stockholder. As a holder of Incentive Awards
                  (other than Restricted Stock Awards), a Participant will have
                  no rights as a stockholder unless and until such Incentive
                  Awards are exercised for, or paid in the form of, shares of
                  Common Stock and the Participant becomes the holder of record
                  of such shares. Except as otherwise provided in the Plan, no
                  adjustment will be made for dividends or distributions with
                  respect to such Incentive Awards as to which there is a record
                  date preceding the date the Participant becomes the holder of
                  record of such shares, except as the Committee may determine
                  in its discretion.

         C.       Restrictions on Transfer. Except pursuant to testamentary will
                  or the laws of descent and distribution or as otherwise
                  expressly permitted by the Plan, no right or interest of any
                  Participant in an Incentive Award prior to the exercise or
                  vesting of such Incentive Award will be assignable or
                  transferable, or subjected to any lien; during the lifetime of
                  the Participant, either voluntarily or involuntarily, directly
                  or indirectly by operation of law or otherwise. A Participant
                  will, however, be entitled to designate a beneficiary to
                  receive an Incentive Award upon such Participant's death, and
                  in the event of a Participant's death, payment of any amounts
                  due under the Plan will be made to, and exercise of any
                  Options (to the extent permitted pursuant to Section 9 of the
                  Plan) may be made by, the Participant's legal representatives,
                  heirs and legatees.

         D.       Non-Exclusivity of the Plan. Nothing contained in the Plan is
                  intended to modify or rescind any previously approved
                  compensation plans of programs of the Company or create any
                  limitations on the power or authority of the Board to adopt
                  such additional or other compensation arrangements as the
                  Board may deem necessary or desirable.

XV.      Securities Law and Other Restrictions.

Notwithstanding any other provision of the Plan or any agreements entered into
pursuant to the Plan, the Company will not be required to issue any shares of
Common Stock under this Plan, and a Participant may not sell, assign, transfer
or otherwise dispose of shares of Common Stock issued pursuant to Incentive
Awards granted under the Plan, unless (a) there is in effect with respect to
such shares a registration statement under the Securities Act and any applicable
state securities laws or an exemption from such registration under the
Securities Act and applicable state securities laws, and (b) there has been
obtained any other consent, approval or permit from any other regulatory body
which the Committee, in its sole discretion, deems necessary or advisable. The
Company may condition such issuance, sale or transfer upon the receipt of any
representations or agreements from the parties involved, and the placement of
any legends on certificates representing shares of Common Stock, as may be
deemed necessary or advisable by the Company in order to comply with such
securities law or other restrictions.

XVI.     Plan Amendment. Modification and Termination

The Board may suspend or terminate the Plan or any portion thereof at any time,
and may amend the Plan from time to time in such respects as the Board may deem
advisable in order that Incentive Awards under the Plan will conform to any
change in applicable laws or regulations or in any other respect the Board may
deem to be in the best interests of the Company; provided, however, that (a) the
Board will not have the authority to amend the eligibility requirements for
Options granted pursuant to Section 6.7 of the Plan, or to modify the number of
shares, exercise price, exercisability, duration, manner of payment or other
terms with respect to such Options, more than once every six months, other than
to comply with changes in the Code, the Employee Retirement Income Security Act
or the rules promulgated thereunder; and (b) no amendments to the Plan will be
effective without approval of the stockholders of the Company if stockholder
approval of the amendment is then required pursuant to Rule 16b-3 under the
Exchange Act, Section 422 of the Code or the rules of the National Association
of Securities Dealers, Inc. No termination, suspension or amendment of the Plan
may adversely affect any outstanding Incentive Award without the consent of the
affected Participant; provided, however, that this sentence will not impair the
right of the Committee to take whatever action it deems appropriate under
Sections 4.3 and 13 of the Plan.


                                       58
<PAGE>


XVII.    Effective Date and Duration of the Plan

The Plan is effective as of November 19, 1999, the date it was adopted by the
Board. The Plan will terminate at midnight on November 18, 2009, and may be
terminated prior to such time to by Board action, and no Incentive Award will be
granted after such termination. Incentive Awards outstanding upon termination of
the Plan may continue to be exercised, or become free of restrictions, in
accordance with their terms.

XVIII.   Miscellaneous

         A.       Governing Law. The validity, construction, interpretation,
                  administration and effect of the Plan and any rules,
                  regulations and actions relating to the Plan will be governed
                  by and construed exclusively in accordance with the laws of
                  the State of Minnesota.

         B.       Successors and Assigns. The Plan will be binding upon and
                  inure to the benefit of the successors and permitted assigns
                  of the Company and the Participants.


                                       59

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>FORM OF INCENTIVE STOCK OPTION AGREEMENT
<TEXT>


                                                                    EXHIBIT 10.5


                    FORM OF INCENTIVE STOCK OPTION AGREEMENT


                        INCENTIVE STOCK OPTION AGREEMENT

         THIS AGREEMENT is entered into and effective as of this ______ day of
__________, 2000 (the "Date of Grant"), by and between Northern Technologies
International Corporation (the "Company") and _______________ (the "Optionee").

         A. The Company has adopted the Northern Technologies International
Corporation 2000 Stock Incentive Plan (the "Plan") authorizing the Board of
Directors of the Company, or a committee as provided for in the Plan (the Board
or such a committee to be referred to as the "Committee"), to, among other
things, grant Incentive Stock Options (as defined in the Plan) to employees.

         B. The Company desires to give the Optionee an inducement to acquire a
proprietary interest in the Company and an added incentive to advance the
interests of the Company by granting to the Optionee an option to purchase
shares of common stock of the Company pursuant to the Plan.

         Accordingly, the parties agree as follows:

XIX.     GRANT OF OPTION.

         The Company hereby grants to the Optionee the right, privilege, and
option (the "Option") to purchase __________________ shares (the "Option
Shares") of the Company's common stock, $.02 par value (the "Common Stock"),
according to the terms and subject to the conditions hereinafter set forth and
as set forth in the Plan. The option is intended to be an "incentive stock
option," as that term is used in Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").

XX.      OPTION EXERCISE PRICE.

         The per share price to be paid by Optionee in the event of an exercise
of the Option will be $________.

XXI.     DURATION OF OPTION AND TIME OF EXERCISE

         A.       Initial Period of Exercisability. The Option will become
                  exercisable with respect to the Option Shares in ___________
                  installments. The following table sets forth the initial dates
                  of exercisability of each installment and the number of Option
                  Shares as to which this Option will become exercisable on such
                  dates:

                  Initial Date of                  Number of Option Shares
                  Exercisability                   Available for Exercise
                  --------------                   ----------------------





The foregoing rights to exercise this Option will be cumulative with respect to
the Option Shares becoming exercisable on each such date but in no event will
this Option be exercisable after, and this Option will become void and expire as
to all unexercised Option Shares at, 5:00 p.m. (Minneapolis, Minnesota time) on
________________, ____ (the "Time of Termination").


                                       60
<PAGE>


B.       Termination of Employment or Other Service.

         1.       In the event that the Optionee's employment or other service
                  with the Company and all Subsidiaries is terminated by reason
                  of the Optionee's death, Disability or Retirement (as such
                  terms are defined in the Plan), this Option will remain
                  exercisable to the extent exercisable as of such termination
                  following such termination until the Time of Termination.

         2.       In the event the Optionee's employment or other service with
                  the Company and all Subsidiaries is terminated for any reason
                  other than death, Disability or Retirement, all rights of the
                  Optionee under the Plan and this Agreement will immediately
                  terminate without notice of any kind, and this Option will no
                  longer be exercisable; provided, however, that if such
                  termination is due to any reason other than termination by the
                  Company or any Subsidiary for "cause" (as defined in the
                  Plan), this Option will remain exercisable to the extent
                  exercisable as of such termination for a period of one month
                  after such termination (but in no event will this Option be
                  exercisable after the Time of Termination).

C.       Change in Control.

         1.       If any events constituting a Change in Control (as defined in
                  Section 13.1 of the Plan) of the Company occur, then this
                  Option will become immediately exercisable in full and will
                  remain exercisable until the Time of Termination, regardless
                  of whether the Optionee remains in the employ or service of
                  the Company or any Subsidiary. In addition, if a Change in
                  Control of the Company occurs, the Committee, in its sole
                  discretion and without the consent of the Optionee, may
                  determine that the Optionee will receive, with respect to some
                  or all of the Option Shares, as of the effective date of any
                  such Change in Control of the Company, cash in an amount equal
                  to the excess of the Fair Market Value (as defined in the
                  Plan) of such Option Shares immediately prior to the effective
                  date of such Change in Control of the Company over the option
                  exercise price per share of this Option.

         2.       Notwithstanding anything in this Section 3.3 to the contrary,
                  if, with respect to the Optionee, acceleration of the vesting
                  of this Option or the payment of cash in exchange for all or
                  part of this Option as provided above (which acceleration or
                  payment could be deemed a "payment" within the meaning of
                  Section 280G(b)(2) of the Code), together with any other
                  payments which the Optionee has the right to receive from the
                  Company or any corporation which is a member of an "affiliated
                  group" (as defined in Section 1504(a) of the Code without
                  regard to Section 1504(b) of the Code) of which the Company is
                  a member, would constitute a "parachute payment" (as defined
                  in Section 280G(b)(2) of the Code), the payments to the
                  Optionee as set forth herein will be reduced to the largest
                  amount as will result in no portion of such payments being
                  subject to the excise tax imposed by Section 4999 of the Code;
                  provided, however, that if the Optionee is subject to a
                  separate agreement with the Company or a Subsidiary that
                  specifically provides that payments attributable to one or
                  more forms of employee stock incentives or to payments made in
                  lieu of employee stock incentives will not reduce any other
                  payments under such agreement, even if it would constitute an
                  excess parachute payment, then the limitations of this Section
                  3.3(b) will, to that extent, not apply.


                                       61
<PAGE>


XXII.    MANNER OF OPTION EXERCISE.

         A.       Notice. This Option may be exercised by the Optionee in whole
                  or in part from time to time, subject to the conditions
                  contained in the Plan and in this Agreement, by delivery, in
                  person, by facsimile or electronic transmission or through the
                  mail, to the Company at its principal executive office in Lino
                  Lakes, Minnesota (Attention: Chief Financial Officer), of a
                  written notice of exercise. Such notice will be in a form
                  satisfactory to the Committee, will identify the Option, will
                  specify the number of Option Shares with respect to which the
                  Option is being exercised, and will be signed by the person or
                  persons so exercising the Option. Such notice will be
                  accompanied by payment in full of the total purchase price of
                  the Option Shares purchased. In the event that the Option is
                  being exercised, as provided by the Plan and Section 3.2
                  above, by any person or persons other than the Optionee, the
                  notice will be accompanied by appropriate proof of right of
                  such person or persons to exercise the Option. As soon as
                  practicable after the effective exercise of the Option, the
                  Optionee will be recorded on the stock transfer books of the
                  Company as the owner of the Option Shares purchased, and the
                  Company will deliver to the Optionee one or more duly issued
                  stock certificates evidencing such ownership.

         B.       Payment. At the time of exercise of this Option, the Optionee
                  will pay the total purchase price of the Option Shares to be
                  purchased solely in cash (including a check, bank draft or
                  money order, payable to the order of the Company); provided,
                  however, that the Committee, in its sole discretion, may allow
                  such payment to be made, in whole or in part, by tender of a
                  Broker Exercise Notice, Previously Acquired Shares or by a
                  combination of such methods. For purposes of this Agreement,
                  the terms "Broker Exercise Notice" and "Previously Acquired
                  Shares" will have the meanings set forth in the Plan. In the
                  event the Optionee is permitted to pay the total purchase
                  price of this Option in whole or in part with Previously
                  Acquired Shares, the value of such shares will be equal to
                  their Fair Market Value on the date of exercise of this
                  Option.

XXIII.   ADVERSE ACTION

         A.       Termination. Notwithstanding anything in this Agreement to the
                  contrary, in the event that the Optionee materially breaches
                  the terms of any confidentiality or noncompete agreement
                  entered into with the Company or takes any other Adverse
                  Action (as defined in the Plan), whether such Adverse Action
                  occurs before or after termination of the Optionee's
                  employment or other service with the Company or any
                  Subsidiary, the Committee in its sole discretion may
                  immediately terminate all rights of the Optionee under this
                  Agreement without notice of any kind.

         B.       Recission. In addition to the Company's right of termination
                  as provided in Section 5.1, to the extent that the Optionee
                  takes such Adverse Action during the period beginning 6 months
                  prior to, and ending 6 months following, the date of such
                  employment or service termination, the Committee in its sole
                  discretion will have the authority to rescind (i) this Option
                  if it was granted during such period and (ii) any exercise of
                  this Option by the Optionee during such period, and to require
                  the Optionee to pay to the Company, within 10 days of receipt
                  from the Company of notice of such rescission, the amount of
                  any gain realized from this rescinded grant or exercise. Such
                  payment will be made in cash (including check, bank draft or
                  money order) or, with the Committee's consent, shares of
                  Common Stock with a Fair Market Value on the date of payment
                  equal to the amount of such payment. The Company will be
                  entitled to withhold and deduct from future wages of the
                  Optionee (or from other amounts that may be due and owing to
                  the Optionee from the Company or Subsidiary) or make other
                  arrangements for the collection of all amounts necessary to
                  satisfy such payment obligation.


                                       62
<PAGE>


         C.       Certification. Upon exercise, payment or delivery pursuant to
                  this Option, the Optionee or grantee shall certify on a form
                  acceptable to the Committee that he or she is in compliance
                  with the terms and conditions of the Plan and this Agreement.

XXIV.    NONTRANSFERABILITY.

         Neither this Option nor the Option Shares acquired upon exercise may be
transferred by the Optionee, either voluntarily or involuntarily, or subjected
to any lien, directly or indirectly, by operation of law or otherwise, except as
provided in the Plan. Any attempt to transfer or encumber this Option or the
Option Shares other than in accordance with this Agreement and the Plan will be
null and void and will void this Option.

XXV.     LIMITATION OF LIABILITY.

         Nothing in this Agreement will be construed to (a) limit in any way the
right of the Company to terminate the employment or service of the Optionee at
any time, or (b) be evidence of any agreement or understanding, express or
implied, that the Company will retain the Optionee in any particular position,
at any particular rate of compensation or for any particular period of time.

XXVI.    WITHHOLDING TAXES.

         The Company is entitled to (a) withhold and deduct from future wages of
the Optionee (or from other amounts which may be due and owing to the Optionee
from the Company), or make other arrangements for the collection of, all legally
required amounts necessary to satisfy any federal, state or local withholding
and employment-related tax requirements attributable to the grant or exercise of
this Option or otherwise incurred with respect to this Option, or (b) require
the Optionee promptly to remit the amount of such withholding to the Company
before acting on the Optionee's notice of exercise of this Option. In the event
that the Company is unable to withhold such amounts, for whatever reason, the
Optionee hereby agrees to pay to the Company an amount equal to the amount the
Company would otherwise be required to withhold under federal, state of local
law.

XXVII.   ADJUSTMENTS.

         In the event of any reorganization, merger, consolidation,
recapitalization, liquidation, reclassification, stock dividend, stock split,
combination of shares, rights offering, divestiture or extraordinary dividend
(including a spin-off), or any other change in the corporate structure or shares
of the Company, the Committee (or, if the Company is not the surviving
corporation in any such transaction, the board of directors of the surviving
corporation), in order to prevent dilution or enlargement of the rights of the
Optionee, will make appropriate adjustment (which determination will be
conclusive) as to the number, kind and exercise price of securities subject to
this Option.


                                       63
<PAGE>


XXVIII.  SUBJECT TO PLAN.

         The Option and the Option Shares granted and issued pursuant to this
Agreement have been granted and issued under, and are subject to the terms of,
the Plan. The terms of the Plan are incorporated by reference in this Agreement
in their entirety, and the Optionee, by execution of this Agreement,
acknowledges having received a copy of the Plan. The provisions of this
Agreement will be interpreted as to be consistent with the Plan, and any
ambiguities in this Agreement will be interpreted by reference to the Plan. In
the event that any provision of this Agreement is inconsistent with the terms of
the Plan, the terms of the Plan will prevail.

XXIX.    MISCELLANEOUS.

         A.       Binding Effect. This Agreement will be binding upon the heirs,
                  executors, administrators and successors of the parties to
                  this Agreement.

         B.       Governing Law. This Agreement and all rights and obligations
                  under this Agreement will be construed in accordance with the
                  Plan and governed by the laws of the State of Minnesota.

         C.       Entire Agreement. This Agreement and the Plan set forth the
                  entire agreement and understanding of the parties to this
                  Agreement with respect to the grant and exercise of this
                  Option and the administration of the Plan and supersede all
                  prior agreements, arrangements, plans and understandings
                  relating to the grant and exercise of this Option and the
                  administration of the Plan.

         D.       Amendment and Waiver. Other than as provided in the Plan, this
                  Agreement may be amended, waived, modified or canceled only by
                  a written instrument executed by the parties hereto or, in the
                  case of a waiver, by the party waiving compliance.


                                       64
<PAGE>


         The parties to this Agreement have executed this Agreement effective
the day and year first above written.


                                       NORTHERN TECHNOLOGIES
                                       INTERNATIONAL CORPORATION



                                       By:
                                          --------------------------------------

                                       Its:
                                           -------------------------------------


                                       OPTIONEE



                                       -----------------------------------------
                                                     (Signature)

                                       -----------------------------------------
                                                  (Name and Address)


                                       -----------------------------------------


                                       -----------------------------------------


                                       65

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.6
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>FORM OF NON-QUALIFIED STOCK OPTION AGREEMENT
<TEXT>


                                                                    EXHIBIT 10.6


                  FORM OF NON-QUALIFIED STOCK OPTION AGREEMENT


                      NON-STATUTORY STOCK OPTION AGREEMENT

         THIS AGREEMENT is entered into and effective as of this ______ day of
______________, 2000 (the "Date of Grant"), by and between Northern Technologies
International Corporation (the "Company") and ________________ (the "Optionee").

         A. The Company has adopted the Northern Technologies International
Corporation 2000 Stock Incentive Plan (the "Plan") authorizing the Board of
Directors of the Company, or a committee as provided for in the Plan (the Board
or such a committee to be referred to as the "Committee"), to, among other
things, grant non-statutory stock options to employees, non-employee consultants
and independent contractors of the Company and its Subsidiaries and any joint
venture partners (including without limitation, officers, directors and partners
thereof) of the Company or any Subsidiaries (as defined in the Plan).

         B. The Company desires to give the Optionee an inducement to acquire a
proprietary interest in the Company and an added incentive to advance the
interests of the Company by granting to the Optionee an option to purchase
shares of common stock of the Company pursuant to the Plan.

         Accordingly, the parties agree as follows:

XXX.     GRANT OF OPTION.

         The Company hereby grants to the Optionee the right, privilege, and
option (the "Option") to purchase ______________ shares (the "Option Shares") of
the Company's common stock, $.02 par value (the "Common Stock"), according to
the terms and subject to the conditions hereinafter set forth and as set forth
in the Plan. The Option is not intended to be an "incentive stock option," as
that term is used in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").

XXXI.    OPTION EXERCISE PRICE.

         The per share price to be paid by Optionee in the event of an exercise
of the Option will be $________.

XXXII.   DURATION OF OPTION AND TIME OF EXERCISE.

         A.       Initial Period of Exercisability. The Option will become
                  exercisable with respect to the Option Shares in _____________
                  installments. The following table sets forth the initial dates
                  of exercisability of each installment and the number of Option
                  Shares as to which this Option will become exercisable on such
                  dates:

                  Initial Date of                 Number of Option Shares
                  Exercisability                  Available for Exercise
                  --------------                  ----------------------





The foregoing rights to exercise this Option will be cumulative with respect to
the Option Shares becoming exercisable on each such date but in no event will
this Option be exercisable after, and this Option will become void and expire as
to all unexercised Option Shares at, 5:00 p.m. (Minneapolis, Minnesota time) on
____________, _________ (the "Time of Termination").


                                       66
<PAGE>


         B.       Termination of Employment or Other Service.

                  1.       In the event that the Optionee's employment or other
                           service with the Company and all Subsidiaries is
                           terminated by reason of the Optionee's death,
                           Disability or Retirement (as such terms are defined
                           in the Plan), this Option will remain exercisable to
                           the extent exercisable as of such termination
                           following such termination until the Time of
                           Termination.

                  2.       In the event the Optionee's employment or other
                           service with the Company and all Subsidiaries is
                           terminated for any reason other than death,
                           Disability or Retirement, all rights of the Optionee
                           under the Plan and this Agreement will immediately
                           terminate without notice of any kind, and this Option
                           will no longer be exercisable; provided, however,
                           that if such termination is due to any reason other
                           than termination by the Company or any Subsidiary for
                           "cause" (as defined in the Plan), this Option will
                           remain exercisable to the extent exercisable as of
                           such termination for a period of one month after such
                           termination (but in no event will this Option be
                           exercisable after the Time of Termination).

         C.       Change in Control.

                  1.       If any events constituting a Change in Control (as
                           defined in Section 13.1 of the Plan) of the Company
                           occur, then this Option will become immediately
                           exercisable in full and will remain exercisable until
                           the Time of Termination, regardless of whether the
                           Optionee remains in the employ or service of the
                           Company or any Subsidiary. In addition, if a Change
                           in Control of the Company occurs, the Committee, in
                           its sole discretion and without the consent of the
                           Optionee, may determine that the Optionee will
                           receive, with respect to some or all of the Option
                           Shares, as of the effective date of any such Change
                           in Control of the Company, cash in an amount equal to
                           the excess of the Fair Market Value (as defined in
                           the Plan) of such Option Shares immediately prior to
                           the effective date of such Change in Control of the
                           Company over the option exercise price per share of
                           this Option.

                  2.       Notwithstanding anything in this Section 3.3 to the
                           contrary, if, with respect to the Optionee,
                           acceleration of the vesting of this Option or the
                           payment of cash in exchange for all or part of this
                           Option as provided above (which acceleration or
                           payment could be deemed a "payment" within the
                           meaning of Section 280G(b)(2) of the Code), together
                           with any other payments which the Optionee has the
                           right to receive from the Company or any corporation
                           which is a member of an "affiliated group" (as
                           defined in Section 1504(a) of the Code without regard
                           to Section 1504(b) of the Code) of which the Company
                           is a member, would constitute a "parachute payment"
                           (as defined in Section 280C1(b)(2) of the Code), the
                           payments to the Optionee as set forth herein will be
                           reduced to the largest amount as will result in no
                           portion of such payments being subject to the excise
                           tax imposed by Section 4999 of the Code; provided,
                           however, that if the Optionee is subject to a
                           separate agreement with the Company or a Subsidiary
                           that specifically provides that payments


                                       67
<PAGE>


                           attributable to one or more forms of employee stock
                           incentives or to payments made in lieu of employee
                           stock incentives will not reduce any other payments
                           under such agreement, even if it would constitute an
                           excess parachute payment, then the limitations of
                           this Section 3.3(b) will, to that extent, not apply.

XXXIII.  MANNER OF OPTION EXERCISE.

         A.       Notice. This Option may be exercised by the Optionee in whole
                  or in part from time to time, subject to the conditions
                  contained in the Plan and in this Agreement, by delivery, in
                  person, by facsimile or electronic transmission or through the
                  mail, to the Company at its principal executive office in Lino
                  Lakes, Minnesota (Attention: Chief Financial Officer), of a
                  written notice of exercise. Such notice will be in a form
                  satisfactory to the Committee, will identify the Option, will
                  specify the number of Option Shares with respect to which the
                  Option is being exercised, and will be signed by the person or
                  persons so exercising the Option. Such notice will be
                  accompanied by payment in full of the total purchase price of
                  the Option Shares purchased. In the event that the Option is
                  being exercised, as provided by the Plan and Section 3.2
                  above, by any person or persons other than the Optionee, the
                  notice will be accompanied by appropriate proof of right of
                  such person or persons to exercise the Option. As soon as
                  practicable after the effective exercise of the Option, the
                  Optionee will be recorded on the stock transfer books of the
                  Company as the owner of the Option Shares purchased, and the
                  Company will deliver to the Optionee one or more duly issued
                  stock certificates evidencing such ownership.

         B.       Payment. At the time of exercise of this Option, the Optionee
                  will pay the total purchase price of the Option Shares to be
                  purchased solely in cash (including a check, bank draft or
                  money order, payable to the order of the Company); provided,
                  however, that the Committee, in its sole discretion, may allow
                  such payment to be made, in whole or in part, by tender of a
                  Broker Exercise Notice, Previously Acquired Shares or by a
                  combination of such methods. For purposes of this Agreement,
                  the terms "Broker Exercise Notice" and "Previously Acquired
                  Shares" will have the meanings set forth in the Plan. In the
                  event the Optionee is permitted to pay the total purchase
                  price of this Option in whole or in part with Previously
                  Acquired Shares, the value of such shares will be equal to
                  their Fair Market Value on the date of exercise of this
                  Option.

XXXIV.   ADVERSE ACTION

         A.       Termination. Notwithstanding anything in this Agreement to the
                  contrary, in the event that the Optionee materially breaches
                  the terms of any confidentiality or noncompete agreement
                  entered into with the Company or takes any other Adverse
                  Action (as defined in the Plan), whether such Adverse Action
                  occurs before or after termination of the Optionee's
                  employment or other service with the Company or any
                  Subsidiary, the Committee in its sole discretion may
                  immediately terminate all rights of the Optionee under this
                  Agreement without notice of any kind.

         B.       Recission. In addition to the Company's right of termination
                  as provided in Section 5.1, to the extent that the Optionee
                  takes such Adverse Action during the period beginning 6 months
                  prior to, and ending 6 months following, the date of such
                  employment or service termination, the Committee in its sole
                  discretion will have the authority to rescind (i) this Option
                  if it was granted during such period and (ii) any exercise of
                  this Option by the Optionee during such period, and to require
                  the Optionee to pay to the Company, within 10 days of receipt
                  from the Company of notice of such rescission, the amount of
                  any gain realized from this rescinded grant or exercise. Such
                  payment will be made in cash (including check, bank draft or
                  money order) or, with the Committee's consent, shares of
                  Common Stock with a Fair Market Value on the date of payment
                  equal to the amount of such payment. The Company will be
                  entitled to withhold and deduct from future wages of the
                  Optionee (or from other amounts that may be due and owing to
                  the Optionee from the Company or Subsidiary) or make other
                  arrangements for the collection of all amounts necessary to
                  satisfy such payment obligation.


                                       68
<PAGE>


         C.       Certification. Upon exercise, payment or delivery pursuant to
                  this Option, the Optionee or grantee shall certify on a form
                  acceptable to the Committee that he or she is in compliance
                  with the terms and conditions of the Plan and this Agreement.

XXXV.    NONTRANSFERABILITY.

         Neither this Option nor the Option Shares acquired upon exercise may be
transferred by the Optionee, either voluntarily or involuntarily, or subjected
to any lien, directly or indirectly, by operation of law or otherwise, except as
provided in the Plan. Any attempt to transfer or encumber this Option or the
Option Shares other than in accordance with this Agreement and the Plan will be
null and void and will void this Option.

XXXVI.   LIMITATION OF LIABILITY.

         Nothing in this Agreement will be construed to (a) limit in any way the
right of the Company to terminate the employment or service of the Optionee at
any time, or (b) be evidence of any agreement or understanding, express or
implied, that the Company will retain the Optionee in any particular position,
at any particular rate of compensation or for any particular period of time.

XXXVII.  WITHHOLDING TAXES.

         The Company is entitled to (a) withhold and deduct from future wages of
the Optionee (or from other amounts which may be due and owing to the Optionee
from the Company), or make other arrangements for the collection of, all legally
required amounts necessary to satisfy any federal, state or local withholding
and employment-related tax requirements attributable to the grant or exercise of
this Option or otherwise incurred with respect to this Option, or (b) require
the Optionee promptly to remit the amount of such withholding to the Company
before acting on the Optionee's notice of exercise of this Option. In the event
that the Company is unable to withhold such amounts, for whatever reason, the
Optionee hereby agrees to pay to the Company an amount equal to the amount the
Company would otherwise be required to withhold under federal, state or local
law.

XXXVIII. ADJUSTMENTS.

         In the event of any reorganization, merger, consolidation,
recapitalization, liquidation, reclassification, stock dividend, stock split,
combination of shares, rights offering, divestiture or extraordinary dividend
(including a spin-off), or any other change in the corporate structure or shares
of the Company, the Committee (or, if the Company is not the surviving
corporation in any such transaction, the board of directors of the surviving
corporation), in order to prevent dilution or enlargement of the rights of the
Optionee, will make appropriate adjustment (which determination will be
conclusive) as to the number, kind and exercise price of securities subject to
this Option.


                                       69
<PAGE>


XXXIX.   SUBJECT TO PLAN.

         The Option and the Option Shares granted and issued pursuant to this
Agreement have been granted and issued under, and are subject to the terms of,
the Plan. The terms of the Plan are incorporated by reference in this Agreement
in their entirety, and the Optionee, by execution of this Agreement,
acknowledges having received a copy of the Plan. The provisions of this
Agreement will be interpreted as to be consistent with the Plan, and any
ambiguities in this Agreement will be interpreted by reference to the Plan. In
the event that any provision of this Agreement is inconsistent with the terms of
the Plan, the terms of the Plan will prevail.

XL.      MISCELLANEOUS.

         A.       Binding Effect. This Agreement will be binding upon the heirs,
                  executors, administrators and successors of the parties to
                  this Agreement.

         B.       Governing Law. This Agreement and all rights and obligations
                  under this Agreement will be construed in accordance with the
                  Plan and governed by the laws of the State of Minnesota.

         C.       Entire Agreement. This Agreement and the Plan set forth the
                  entire agreement and understanding of the parties to this
                  Agreement with respect to the grant and exercise of this
                  Option and the administration of the Plan and supersede all
                  prior agreements, arrangements, plans and understandings
                  relating to the grant and exercise of this Option and the
                  administration of the Plan.

         D.       Amendment and Waiver. Other than as provided in the Plan, this
                  Agreement may be amended, waived, modified or canceled only by
                  a written instrument executed by the parties hereto or, in the
                  case of a waiver, by the party waiving compliance.


                                       70
<PAGE>


         The parties to this Agreement have executed this Agreement effective
the day and year first above written.


                                       NORTHERN TECHNOLOGIES
                                       INTERNATIONAL CORPORATION



                                       By:
                                          --------------------------------------

                                       Its:
                                           -------------------------------------


[By execution of this Agreement,
the Optionee acknowledges having       OPTIONEE
received a copy of the Plan.]


                                       -----------------------------------------
                                                     (Signature)

                                       -----------------------------------------
                                                  (Name and Address)


                                       -----------------------------------------


                                       -----------------------------------------


                                       71

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>SUBSIDIARIES OF THE REGISTRANT
<TEXT>


                                                                    EXHIBIT 21.1


                         SUBSIDIARIES OF THE REGISTRANT


                          State or Other
                          Jurisdiction of                      Names Under Which
                         Incorporation or                       Subsidiary Does
    Name of Subsidiary     Organization    Ownership Interest       Business
    ------------------     ------------    ------------------       --------

Northern Instruments
Corporation, LLC               Ohio               100%               Same

NTI Facilities, Inc.           Ohio               100%               Same


                                       72

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>6
<FILENAME>0006.txt
<DESCRIPTION>INDEPENDENT AUDITORS' CONSENT
<TEXT>


                                                                    EXHIBIT 23.1





INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statements No.
333-33931 and No. 333-32596 of Northern Technologies International Corporation
on Form S-8 of our report dated November 17, 2000, appearing in the Annual
Report on Form 10-KSB of Northern Technologies International Corporation for the
fiscal year ended August 31, 2000.



/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
November 28, 2000


                                       73

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27.1
<SEQUENCE>7
<FILENAME>0007.txt
<DESCRIPTION>FINANCIAL DATA SCHEDULE
<TEXT>

<TABLE> <S> <C>


<ARTICLE> 5

<S>                                  <C>
<PERIOD-TYPE>                        12-MOS
<FISCAL-YEAR-END>                                AUG-31-2000
<PERIOD-START>                                   SEP-01-1999
<PERIOD-END>                                     AUG-31-2000
<CASH>                                             3,840,057
<SECURITIES>                                               0
<RECEIVABLES>                                      1,420,264
<ALLOWANCES>                                          30,000
<INVENTORY>                                          929,661
<CURRENT-ASSETS>                                   7,039,184
<PP&E>                                             2,595,847
<DEPRECIATION>                                     1,376,658
<TOTAL-ASSETS>                                    13,118,294
<CURRENT-LIABILITIES>                                960,490
<BONDS>                                                    0
<PREFERRED-MANDATORY>                                      0
<PREFERRED>                                                0
<COMMON>                                              76,062
<OTHER-SE>                                        12,031,742
<TOTAL-LIABILITY-AND-EQUITY>                      13,118,294
<SALES>                                           11,032,199
<TOTAL-REVENUES>                                  11,032,199
<CGS>                                              5,562,609
<TOTAL-COSTS>                                      5,562,609
<OTHER-EXPENSES>                                           0
<LOSS-PROVISION>                                           0
<INTEREST-EXPENSE>                                         0
<INCOME-PRETAX>                                    4,005,805
<INCOME-TAX>                                       1,375,000
<INCOME-CONTINUING>                                2,630,805
<DISCONTINUED>                                             0
<EXTRAORDINARY>                                            0
<CHANGES>                                                  0
<NET-INCOME>                                       2,630,805
<EPS-BASIC>                                             0.68
<EPS-DILUTED>                                           0.68



</TABLE>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
