10.

STOCK-BASED COMPENSATION

The Company has

two

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

2007

Stock Incentive Plan and the Northern Technologies International Corporation Employee Stock Purchase Plan (ESPP). The Compensation Committee of the Board of Directors and the Board of Directors administer these plans.

The

2007

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

2007

Plan, up to a maximum of

800,000

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

2007

Plan. Options granted under the

2007

Plan generally have a term of

ten

years and become exercisable over a

three

- or

four

-year period beginning on the

one

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

February 28, 2018,

only stock options and stock bonuses had been granted under the

2007

Plan.

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

100,000

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

six

-month offering periods beginning on

September 1

and

March 1

of each year. The purchase price of the shares is

90%

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

may

not

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

423

of the Internal Revenue Code of

1986,

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

The Company granted options to purchase an aggregate of

47,252

and

56,677

shares of its common stock during the

six

months ended

February 28, 2018

and

2017,

respectively. The fair value of option grants is determined at date of grant, using the Black-Scholes option pricing model with the assumptions listed below. The Company recognized compensation expense of

$206,534

and

$195,832

during the

six

months ended

February 28, 2018

and

2017,

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

February 28, 2018,

the total compensation cost for nonvested options

not

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

$425,669.

Stock-based compensation expense of

$206,534

is expected through the remainder of fiscal year

2018,

and

$153,901

and

$65,234

is expected to be recognized during fiscal

2019

and fiscal

2020,

respectively, based on outstanding options as of

February 28, 2018.

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

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

	Three and Six months ended
	February 28, 2018	February 28, 2017
Dividend yield	2.18%	0.00%
Expected volatility	45.9%	46.4%
Expected life of option (in years)	10	10
Average risk-free interest rate	1.87%	1.63%

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

six

months ended

February 28, 2018

and

2017

was

$7.75

and

$7.69,

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

February 28, 2018

and

2017

was

6.75

years and

6.91

years, respectively.