NORTHERN TECHNOLOGIES INTERNATIONAL CORP
10-Ks and 10-Qs
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UNITED STATES
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SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
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SCHEDULE 14A
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Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
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Northern Technologies International Corporation
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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Title of each class of securities to which transaction applies:
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(2)
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Aggregate number of securities to which transaction applies:
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(3)
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
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Proposed maximum aggregate value of transaction:
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(5)
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Total fee paid:
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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Filing Party:
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Date Filed:
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NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
January 17, 2013
The Annual Meeting of Stockholders of Northern Technologies International Corporation, a Delaware corporation, will be held at NTIC’s corporate executive offices located at 4201 Woodland Road, Circle Pines, Minnesota 55014, beginning at 4:00 p.m., Central time, on Thursday, January 17, 2013, for the following purposes:
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1.
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To elect seven persons to serve as directors until our next annual meeting of stockholders or until their respective successors are elected and qualified.
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2.
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To ratify the selection of Baker Tilly Virchow Krause, LLP as our independent registered public accounting firm for the fiscal year ending August 31, 2013.
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3.
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To transact such other business as may properly come before the meeting or any adjournment of the meeting.
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Only stockholders of record at the close of business on November 21, 2012 will be entitled to notice of, and to vote at, the meeting and any adjournments thereof. A stockholder list will be available at our corporate offices beginning January 4, 2013 during normal business hours for examination by any stockholder registered on NTIC’s stock ledger as of the record date, November 21, 2012, for any purpose germane to the annual meeting.
We are pleased again this year to use the “Notice and Access” method of providing proxy materials to our stockholders via the Internet. We believe that this process expedites your receipt of our proxy materials, lowers the costs of our Annual Meeting and reduces the environmental impact of our meeting.
By Order of the Board of Directors,
Matthew C. Wolsfeld
Corporate Secretary
December 5, 2012
Circle Pines, Minnesota
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Important: Whether or not you expect to attend the meeting in person, please vote by the Internet or telephone, or request a paper proxy card to sign, date and return by mail so that your shares may be voted. A prompt response is helpful and your cooperation is appreciated.
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TABLE OF CONTENTS
Page
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INTERNET AVAILABILITY OF PROXY MATERIALS
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ii
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GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
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1
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Date, Time, Place and Purposes of Meeting
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1
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Who Can Vote
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1
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How You Can Vote
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1
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How Does the Board Recommend that You Vote
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3
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How You May Change Your Vote or Revoke Your Proxy
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3
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Quorum Requirement
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3
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Vote Required
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3
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Procedures at the Annual Meeting
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4
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SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
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5
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PROPOSAL ONE – ELECTION OF DIRECTORS
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Number of Directors
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6
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Nominees for Director
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Board Recommendation
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Information about Current Directors and Board Nominees
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6
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Additional Information about Current Directors and Board Nominees
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7
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CORPORATE GOVERNANCE
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11
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Corporate Governance Guidelines
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Board Leadership Structure
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Director Independence
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12
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Board Meetings and Attendance
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Board Committees
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12
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Audit Committee
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Compensation Committee
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Nominating and Corporate Governance Committee
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Director Nominations Process
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Board Oversight of Risk
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Code of Ethics
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Policy Regarding Director Attendance at Annual Meetings of Stockholders
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Complaint Procedures
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Process Regarding Stockholder Communications with Board of Directors
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DIRECTOR COMPENSATION
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Summary of Cash and Other Compensation
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Non-Employee Director Compensation Program
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Consulting Arrangement
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Indemnification Agreements
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EXECUTIVE COMPENSATION
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Summary of Cash and Other Compensation
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Our Executive Compensation Program
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Outstanding Equity Awards at Fiscal Year End
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Stock Incentive Plan
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Post-Termination Severance and Change in Control Arrangements
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Indemnification Agreements
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30
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RELATED PERSON RELATIONSHIPS AND TRANSACTIONS
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30
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PROPOSAL TWO — RATIFICATION OF SELECTION OF
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INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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Selection of Independent Registered Public Accounting Firm
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Audit, Audit-Related, Tax and Other Fees
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31
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Audit Committee Pre-Approval Policies and Procedures
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Board of Directors Recommendation
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32
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Audit Committee Report
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32
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OTHER MATTERS
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Section 16(a) Beneficial Ownership Reporting Compliance
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Stockholder Proposals for 2014 Annual Meeting
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Director Nominations for 2014 Annual Meeting
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34
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Other Business
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34
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Copies of Fiscal 2012 Annual Report
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34
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Householding of Annual Meeting Materials
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35
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Proxy Solicitation Costs
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35
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________________
INTERNET AVAILABILITY OF PROXY MATERIALS
________________
Again this year, instead of mailing a printed copy of our proxy materials, including our Annual Report to Stockholders, to each stockholder of record, we have decided to provide access to these materials in a fast and efficient manner via the Internet. We believe that this process expedites your receipt of our proxy materials, lowers the costs of our Annual Meeting and reduces the environmental impact of our meeting. On December 5, 2012, we began mailing a Notice of Internet Availability of Proxy Materials to stockholders of record as of November 21, 2012, and we posted our proxy materials on the website referenced in the Notice of Internet Availability of Proxy Materials (www.proxyvote.com). As more fully described in the Notice of Internet Availability of Proxy Materials, stockholders may choose to access our proxy materials at www.proxyvote.com or may request a printed set of our proxy materials. In addition, the Notice of Internet Availability of Proxy Materials and website provide information regarding how you may request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis. For those who previously requested printed proxy materials or electronic materials on an ongoing basis, you will receive those materials as you requested.
Important Notice Regarding the Availability of Proxy Materials for the
Annual Meeting of Stockholders to be Held on January 17, 2013:
The Notice of Annual Meeting of Stockholders and Proxy Statement and Annual Report to Stockholders, including our Annual Report on Form 10-K for the fiscal year ended August 31, 2012 are available at www.proxyvote.com.
ii
4201 Woodland Road, Circle Pines, Minnesota 55014
______________________________
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
January 17, 2013
______________________________
The Board of Directors of Northern Technologies International Corporation is soliciting your proxy for use at the 2013 Annual Meeting of Stockholders to be held on Thursday, January 17, 2013. The Board of Directors expects to make available to our stockholders beginning on or about December 5, 2012 the Notice of Annual Meeting of Stockholders, this proxy statement and a form of proxy on the Internet or has sent these materials to stockholders of NTIC upon their request.
GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
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Date, Time, Place and Purposes of Meeting
The Annual Meeting of Stockholders of Northern Technologies International Corporation (sometimes referred to as “NTIC,” “we,” “our” or “us” in this proxy statement) will be held on Thursday, January 17, 2013, at 4:00 p.m., Central time, at the principal executive offices of Northern Technologies International Corporation located at 4201 Woodland Road, Circle Pines, Minnesota 55014, for the purposes set forth in the Notice of Annual Meeting of Stockholders.
Who Can Vote
Stockholders of record at the close of business on November 21, 2012 will be entitled to notice of and to vote at the meeting or any adjournment of the meeting. As of that date, there were 4,418,487 shares of our common stock outstanding. Each share of our common stock is entitled to one vote on each matter to be voted on at the Annual Meeting. Stockholders are not entitled to cumulate voting rights.
How You Can Vote
Your vote is important. Whether you hold shares directly as a stockholder of record or beneficially in “street name” (through a broker, bank or other nominee), you may vote your shares without attending the Annual Meeting. You may vote by granting a proxy or, for shares held in street name, by submitting voting instructions to your broker, bank or other nominee.
1
If you are a stockholder whose shares are registered in your name, you may vote your shares in person at the meeting or by one of the three following methods:
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Vote by Internet
, by going to the website address http://www.proxyvote.com and following the instructions for Internet voting shown on the Notice of Internet Availability of Proxy Materials or on your proxy card.
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Vote by Telephone
, by dialing 1-800-690-6903 and following the instructions for telephone voting shown on the Notice of Internet Availability of Proxy Materials or on your proxy card.
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Vote by Proxy Card
, by completing, signing, dating and mailing the enclosed proxy card in the envelope provided if you received a paper copy of these proxy materials.
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If you vote by Internet or telephone, please do not mail your proxy card.
If your shares are held in “street name” (through a broker, bank or other nominee), you may receive a separate voting instruction form with this proxy statement or you may need to contact your broker, bank or other nominee to determine whether you will be able to vote electronically using the Internet or telephone.
The deadline for voting by telephone or by using the Internet is 11:59 p.m., Eastern Standard Time (10:59 p.m., Central Standard Time), on the day before the date of the Annual Meeting or any adjournments thereof. Please see the Notice of Internet Availability of Proxy Materials, your proxy card or the information your bank, broker, or other holder of record provided to you for more information on your options for voting.
If you return your signed proxy card or use Internet or telephone voting before the Annual Meeting, the named proxies will vote your shares as you direct. You have three choices on each matter to be voted on.
For the election of directors, you may:
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Vote
FOR
the seven nominees for director,
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WITHHOLD
your vote from the seven nominees for director or
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WITHHOLD
your vote from one or more of the seven nominees for director.
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For each of the other proposals, you may:
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Vote
FOR
the proposal,
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Vote
AGAINST
the proposal or
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ABSTAIN
from voting on the proposal.
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If you send in your proxy card or use Internet or telephone voting, but do not specify how you want to vote your shares, the proxies will vote your shares
FOR
all seven of the nominees for director and
FOR
all of the other proposals set forth in the Notice of Annual Meeting of Stockholders.
2
How Does the Board Recommend that You Vote
The Board of Directors unanimously recommends that you vote FOR all seven of the nominees for director and FOR the approval of all of the other proposals set forth in the Notice of Annual Meeting of Stockholders.
How You May Change Your Vote or Revoke Your Proxy
If you are a stockholder whose shares are registered in your name, you may revoke your proxy at any time before it is voted by one of the following methods:
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Submitting another proper proxy with a more recent date than that of the proxy first given by following the Internet or telephone voting instructions or completing, signing, dating and returning a proxy card to us.
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Sending written notice of your revocation to our Corporate Secretary.
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Attending the Annual Meeting and voting by ballot.
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Quorum Requirement
The presence at the Annual Meeting, in person or by proxy, of the holders of a majority (2,209,244 shares) of the outstanding shares of our common stock as of the record date will constitute a quorum for the transaction of business at the Annual Meeting. In general, shares of our common stock represented by proxies marked “For,” “Against,” “Abstain” or “Withheld” are counted in determining whether a quorum is present. In addition, a “broker non-vote” is counted in determining whether a quorum is present. A “broker non-vote” is a proxy returned by a broker on behalf of its beneficial owner customer that is not voted on a particular matter because voting instructions have not been received by the broker from the customer, and the broker has no discretionary authority to vote on behalf of such customer on such matter.
Vote Required
Assuming a quorum is represented at the Annual Meeting, either in person or by proxy, the election of the seven nominees for director in Proposal One requires the affirmative vote of a plurality of the shares of our common stock present in person or by proxy and entitled to vote at the Annual Meeting. This means that a director nominee with the most votes for a particular slot is elected for that slot. The approval of the other proposal described in this proxy statement requires the affirmative vote of the holders of a majority of the shares of our common stock present in person or by proxy and entitled to vote at the Annual Meeting.
If your shares are held in “street name” and you do not indicate how you wish to vote, your broker is permitted to exercise its discretion to vote your shares on certain “routine” matters. The election of directors in Proposal One is not a “routine” matter; whereas, the ratification of the selection of our independent registered public accounting firm in Proposal Two is a “routine” matter. Accordingly, if you do not direct your broker how to vote for a director in Proposal One, your broker may not exercise discretion and may not vote your shares on that proposal. For purposes of Proposal One, broker non-votes are considered to be shares represented by proxy at the meeting but are not considered to be shares “entitled to vote” at the meeting. As such, a broker non-vote will not be counted as a vote “For” or “Withheld” with respect to a director; and, therefore, will have no effect on the outcome of the election of directors. Proxies marked “Abstain” will be counted in determining the total number of shares “entitled to vote” and will have the effect of a vote “Against” the proposal.
3
Procedures at the Annual Meeting
The presiding officer at the Annual Meeting will determine how business at the meeting will be conducted. Only matters brought before the Annual Meeting in accordance with our Bylaws will be considered.
Only a natural person present at the Annual Meeting who is either one of our stockholders, or is acting on behalf of one of our stockholders, may make a motion or second a motion. A person acting on behalf of a stockholder must present a written statement executed by the stockholder or the duly authorized representative of the stockholder on whose behalf the person purports to act.
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SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
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The following table sets forth information known to us with respect to the beneficial ownership of our common stock as of November 21, 2012 for:
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each person known by us to beneficially own more than five percent of the outstanding shares of our common stock,
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each of our directors,
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each of the executive officers named in the Summary Compensation Table included later in this proxy statement under the heading “Executive Compensation” and
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all of our current directors and executive officers as a group.
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Shares are deemed to be “beneficially owned” by a person if such person, directly or indirectly, has sole or shared power to vote or to direct the voting of such shares or sole or shared power to dispose or direct the disposition of such shares. Except as otherwise indicated, we believe that each of the beneficial owners of our common stock listed below, based on information provided by these owners, has sole dispositive and voting power with respect to its shares, subject to community property laws where applicable. 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.
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Name
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Shares Subject to Options
Immediately Exercisable or
Exercisable Within 60 Days
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Total Number of Shares
of Common Stock
Beneficially Owned
(1)
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Percent of
Total Voting
Power
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Stockholders Owning 5% or More:
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Inter Alia Holding Company
(2)
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0 | 601,668 | 13.6 | % | ||||||||
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Directors and Named Executive Officers:
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Pierre Chenu
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22,000 | 30,000 | * | |||||||||
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Soo-Keong Koh
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15,332 | 15,332 | * | |||||||||
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Sunggyu Lee, Ph.D.
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14,666 | 14,666 | * | |||||||||
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G. Patrick Lynch
(3)
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12,000 | 650,720 | 14.7 | % | ||||||||
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Ramani Narayan, Ph.D.
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14,666 | 22,166 | * | |||||||||
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Richard J. Nigon
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8,222 | 13,222 | * | |||||||||
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Mark J. Stone
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14,666 | 14,666 | * | |||||||||
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Matthew C. Wolsfeld
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9,000 | 66,876 | 1.5 | % | ||||||||
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Konstantin von Falkenhausen
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0 | 0 | — | |||||||||
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Directors and executive officers as a group (nine persons)
(4)
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110,552 | 827,648 | 18.3 | % | ||||||||
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* Represents beneficial ownership of less than one percent of our common stock.
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(1)
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Includes shares held by the following persons in securities brokerage accounts, which in certain circumstances under the terms of the standard brokerage account form may involve a pledge of such shares as collateral: Inter Alia (601,668 shares); Mr. Lynch (638,720 shares); Mr. Nigon (5,000 shares) and Mr. Wolsfeld (57,876 shares).
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(2)
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According to a Schedule 13D/A filed with the SEC on December 2, 2011, Inter Alia Holding Company is an entity of which G. Patrick Lynch, our President and Chief Executive Officer, is a 25% stockholder. G. Patrick Lynch shares equal voting and dispositive power over such shares with three other members of his family. Inter Alia Holding Company’s address is 23205 Mercantile Road, Beachwood, Ohio 44122.
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(3)
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Includes 601,668 shares held by Inter Alia Holding Company. See note (2) above. Mr. Lynch’s address is 4201 Woodland Road, Circle Pines, Minnesota 55014.
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(4)
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The amount beneficially owned by all current directors and executive officers as a group includes 601,668 shares held of record by Inter Alia Holding Company. See notes (2) and (3) above.
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5
PROPOSAL ONE – ELECTION OF DIRECTORS
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Number of Directors
Our Bylaws provide that the Board of Directors will consist of at least one member or such other number as may be determined by the Board of Directors from time to time or by the stockholders at an annual meeting. The Board of Directors has fixed the number of directors at seven effective as of the date of the Annual Meeting.
Nominees for Director
The Board of Directors has nominated the following seven individuals to serve as our directors until the next annual meeting of stockholders or until their successors are elected and qualified. All of the nominees named below are current members of the Board of Directors.
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Pierre Chenu
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Ramani Narayan, Ph.D.
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Soo-Keong Koh
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Richard J. Nigon
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Sunggyu Lee, Ph.D.
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Konstantin von Falkenhausen
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G. Patrick Lynch
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Mark J. Stone, a current director, is not standing for re-election at the Annual Meeting. Mr. Stone will continue to serve as a director of our company until the Annual Meeting. The Board of Directors thanks Mr. Stone for his many years of service to the Board.
Proxies can only be voted for the number of persons named as nominees in this proxy statement, which is seven.
Board Recommendation
The Board of Directors unanimously recommends a vote
FOR
the election of all of the seven nominees named above.
If prior to the Annual Meeting, the Board of Directors should learn that any nominee will be unable to serve for any reason, the proxies that otherwise would have been voted for this nominee will be voted for a substitute nominee as selected by the Board. Alternatively, the proxies, at the Board’s discretion, may be voted for that fewer number of nominees as results from the inability of any nominee to serve. The Board of Directors has no reason to believe that any of the nominees will be unable to serve.
Information about Current Directors and Board Nominees
The following table sets forth as of November 30, 2012 the name, age and principal occupation of each current director and each individual who has been nominated by the Board of Directors to serve as a director of our company, as well as how long each individual has served as a director of NTIC.
6
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Name
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Age
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Principal Occupation
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Director Since
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Pierre Chenu
(1)(2)
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74
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Retired
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2003
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Soo-Keong Koh
(1)(3)
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61
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Managing Director of EcoSave Pte Ltd.
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2008
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Sunggyu Lee, Ph.D.
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60
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Russ Ohio Research Scholar in Syngas Utilization and Professor of Chemical and Biomolecular Engineering at Ohio University
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2004
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G. Patrick Lynch
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45
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President and Chief Executive Officer of NTIC
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2004
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Ramani Narayan, Ph.D.
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63
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Distinguished Professor in the Department of Chemical Engineering & Materials Science at Michigan State University
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2004
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Richard J. Nigon
(1)(2)(3)
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64
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Senior Vice President of Cedar Point Capital, Inc.
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2010
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Mark J. Stone
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53
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President of Petrus International, Inc.
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2001
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Konstantin von Falkenhausen
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45
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Partner of B Capital Partners AG
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2012
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_________________________
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Nominating and Corporate Governance Committee
Additional Information about Current Directors and Board Nominees
The following paragraphs provide information about each nominee, including all positions he holds, his principal occupation and business experience for the past five years, and the names of other publicly-held companies of which he currently serves as a director or has served as a director during the past five years. We believe that all of our director nominees display personal and professional integrity; satisfactory levels of education and/or business experience; broad-based business acumen; an appropriate level of understanding of our business and its industry and other industries relevant to our business; the ability and willingness to devote adequate time to the work of the Board of Directors and its committees; a fit of skills and personality with those of our other directors that helps build a board that is effective, collegial and responsive to the needs of our company; strategic thinking and a willingness to share ideas; a diversity of experiences, expertise and background; and the ability to represent the interests of all of our stockholders. The information presented below regarding each nominee also sets forth specific experience, qualifications, attributes and skills that led the Board of Directors to the conclusion that such individual should serve as a director in light of our business and structure.
Pierre Chenu
has been a director of NTIC since 2003 and served as Non-Executive Chairman of the Board of NTIC from July 2005 to November 2012. Mr. Chenu is currently retired. Prior to his retirement, Mr. Chenu served as Vice President, Worldwide Operations, Flat Glass Activities within the Asahi-Glaverbel Glass Group, a position he had served for five years. Prior to that, Mr. Chenu was a member of the Executive Committee of Glaverbel S.A., with various operating responsibilities in France, Spain, Italy, Russia, Germany, China and the United States. Before joining Glaverbel, Mr. Chenu worked for U.S. Steel in steel production in Pittsburgh, Pennsylvania and for Corning Inc. where he held various staff, line and executive positions in the United States, France and the United Kingdom. Mr. Chenu holds a Master’s Degree in Engineering, with a specialty in metallurgy, from the University of Liege (Belgium) and a M.B.A. from Harvard University. Mr. Chenu is a citizen of Belgium. We believe Mr. Chenu’s qualifications to sit on the Board of Directors include his significant executive and operational experiences both in the United States and internationally prior to his retirement, including his positions with Asahi-Glaverbel Glass Group, U.S. Steel and Corning Inc. The Board of Directors believes such operational experience is critical to NTIC’s management in operating NTIC’s business and its various international joint ventures.
7
Soo-Keong Koh
has been a director of NTIC since May 2008. Mr. Koh is the Managing Director of Ecosave Pte Ltd., a company whose business is focused on environmental biotech and energy conservation technologies, a position he has held since April 2007. From January 1986 to April 2007, Mr. Koh served as Chief Executive Officer and President of Toll Asia Pte Ltd formerly SembCorp Logistics Ltd (SembLog), a Singapore public listed company, which was acquired by Toll in May 2006. Mr. Koh has over 20 years of experience in the logistics industry. Mr. Koh holds a Bachelor of Engineering, a Master of Business Administration and a Postgraduate Diploma in Business Law from the University of Singapore (now known as the National University of Singapore). We believe Mr. Koh’s qualifications to sit on the Board of Directors include his experience on other public company boards of directors and his significant executive experience with companies including those focused on environmental awareness, which has become a focus of NTIC during the past several years, especially in light of NTIC’s Natur-Tec® bioplastics business. Mr. Koh’s previous board of directors experience is helpful in guiding NTIC with respect to corporate governance matters, particularly in his role as Chair of the Nominating and Corporate Governance Committee. Additionally, Mr. Koh has specific executive experience with companies located in Asia, which is where several of NTIC’s more significant joint ventures are located.
Sunggyu Lee, Ph.D.
was elected a director of NTIC in January 2004. Dr. Lee is Russ Ohio Research Scholar in Syngas Utilization and Professor of Chemical and Biomolecular Engineering, Ohio University, Athens, Ohio. Previously, he held positions of Professor of Chemical and Biologic Engineering, Missouri University of Science and Technology, Rolla, Missouri from 2005 to 2010, C.W. LaPierre Professor and Chairman of Chemical Engineering at University of Missouri-Columbia from 1997 to 2005, and Robert Iredell Professor and Head of Chemical Engineering Department at the University of Akron, Akron, Ohio from 1988 to1996. He has authored seven books and over 480 archival publications and received 29 U.S. patents in a variety of chemical and polymer processes and products. He is currently serving as Editor of Encyclopedia of Chemical Processing, Taylor & Francis, New York, NY and also as Book Series Editor of Green Chemistry and Chemical Engineering, CRC Press, Boca Raton, FL. Throughout his career, he has served as consultant and technical advisor to a number of national and international companies in the fields of polymers, petrochemicals and energy. He received his Ph.D. from Case Western Reserve University, Cleveland, Ohio in 1980. We believe Dr. Lee’s qualifications to sit on the Board of Directors include his significant technical and industrial expertise with chemical and polymer processes and products. Such expertise is particularly with respect to assessing and operating NTIC’s Natur-Tec® bioplastics business.
G. Patrick Lynch
, an employee of NTIC since 1995, has been President since July 2005 and Chief Executive Officer since January 2006 and was appointed a director of NTIC in February 2004. Mr. Lynch served as President of North American Operations of NTIC from May 2004 to July 2005. Prior to May 2004, Mr. Lynch held various positions with NTIC, including Vice President of Strategic Planning, Corporate Secretary and Project Manager. Mr. Lynch is also an officer and director of Inter Alia Holding Company, which is a significant stockholder of NTIC. Prior to joining NTIC, Mr. 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. Lynch received an M.B.A. degree from the University of Michigan Business School in Ann Arbor, Michigan. We believe Mr. Lynch’s qualifications to sit on the Board of Directors include his depth of knowledge of our company and its day-to-day operations in light of his position as chief executive officer of NTIC, as well as his affiliation with a significant stockholder of NTIC, which the Board of Directors believes generally helps align management’s interests with those of our stockholders.
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Ramani Narayan, Ph.D.
has been a director of NTIC since November 2004. He is a Distinguished Professor at Michigan State University in the Department of Chemical Engineering & Materials Science, where he has 105 refereed publications in leading journals to his credit, 18 patents, edited three books and one expert dossier in the area of bio-based polymeric materials. His research encompasses design & engineering of sustainable, biobased products, biodegradable plastics and polymers, biofiber reinforced composites, reactive extrusion polymerization and processing, studies in plastic end-of-life options like biodegradation and composting. He conducts carbon footprint calculations for plastics and products. He also performs LCA (Life Cycle Assessment) for reporting a product’s environmental footprint. He serves as Scientific Chair and board member of the Biodegradable Products Institute (BPI), North America. He serves on the Technical Advisory Board of Tate & Lyle. He served on the Board of Directors of ASTM International, an international standards setting organization and currently chairs the committee on Environmentally Degradable Plastics and Biobased Products (D20.96) and the Plastics Terminology Committee D20.92. He is also the technical expert for the USA on ISO (International Standards Organization) TC 61 on Plastics – specifically for Terminology, and Biodegradable Plastics. He has won numerous awards, including the Named MSU University Distinguished Professor in 2007; the Governors University Award for commercialization excellence; Michigan State University Distinguished Faculty Award, 2006, 2005 Withrow Distinguished Scholar award, Fulbright Distinguished Lectureship Chair in Science & Technology Management & Commercialization (University of Lisbon; Portugal); First recipient of the William N. Findley Award, The James Hammer Memorial Lifetime Achievement Award, and Research and Commercialization Award sponsored by ICI Americas, Inc. & the National Corn Growers Association. We believe Dr. Narayan’s qualifications to sit on the Board of Directors include his significant technical expertise in the bioplastics area which has been helpful to NTIC’s management in assessing and operating NTIC’s Natur-Tec® bioplastics business.
Richard J. Nigon
has been a director of NTIC since February 2010 and non-executive Chairman of the Board since November 2012. Mr. Nigon is the Senior Vice President of Cedar Point Capital, Inc., a private company that raises capital for early stage companies. From February 2001 until May 2007, Mr. Nigon was a Director of Equity Corporate Finance for Miller Johnson Steichen Kinnard (“MJSK”), a privately held investment firm. In December 2006, MJSK was acquired by Stifel Nicolaus and Mr. Nigon was a Managing Director of Private Placements at Stifel Nicolaus. From February 2000 to February 2001, Mr. Nigon served as the Chief Financial Officer of Dantis, Inc., a web hosting company. Prior to joining Dantis, Mr. Nigon was employed by Ernst & Young, LLP from 1970 to 2000, where he served as a partner from 1981 to 2000. While at Ernst & Young, Mr. Nigon served as the Director of Ernst & Young’s Twin Cities Entrepreneurial Services Group and was the coordinating partner on several publicly-traded companies in the consumer retailing and manufacturing sectors. Mr. Nigon also currently serves as President of NorthStar Education Finance, Inc., a non-profit organization formed to foster, aid, encourage and assist the pursuit of higher education. In addition to NTIC, Mr. Nigon also serves on the board of directors of Vascular Solutions, Inc. and a number of privately-held companies and previously served on the board of directors of Virtual Radiologics, Inc. We believe Mr. Nigon’s qualifications to sit on the Board of Directors include: (1) his significant financial and accounting expertise, which the Board of Directors believes is critical to its financial and accounting oversight responsibilities; (2), his experience on other U.S. public company boards of directors, which allows Mr. Nigon to provide valuable perspectives and input on accounting, compensation and corporate governance matters, particularly in his roles as Chair of the Audit Committee and Compensation Committee; and (3) his experience with several private investment firms that have invested in early stage companies, which the Board of Directors believes is helpful in assessing and operating NTIC’s newer businesses.
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Mark J. Stone
has been a director of NTIC since 2001. Mr. Stone has been President of Petrus International, Inc., an international consulting firm, since 1992. Mr. Stone has advised a variety of Japanese and other multi-national corporations in areas including project finance and international investment strategy. Mr. Stone is also President of MM Management, LLC, an entity that manages Chef Masaharu Morimoto’s business interests. Mr. Stone was a director of Aqua Design, Inc., an international water desalination company, from 1988 to 1996. Mr. Stone was Director, Marketing & Business Development of Toray Marketing & Sales (America) Inc. from 1986 to 1992. From 1980 to 1986, Mr. Stone was employed by Mitsui & Co. (U.S.A.), Inc. where he founded and was Treasurer of Hydro Management Resources, a Mitsui subsidiary, which finances, owns and operates water treatment projects. Mr. Stone holds an A.B. from Harvard University. We believe Mr. Stone’s qualifications to sit on the Board of Directors include his financial and accounting expertise, which the Board of Directors believes is critical to its financial and accounting oversight responsibilities, and his significant experience working with other international companies, which the Board of Directors believes is helpful in managing NTIC’s international operations and joint ventures. Mark J. Stone is not standing for re-election at the Annual Meeting.
Konstantin von Falkenhausen
, has been a director of NTIC since November 2012. Mr. von Falkenhausen is currently a Partner of B Capital Partners AG, an independent investment advisory boutique focused on infrastructure, public private partnerships and clean energy. From February 2004 to March 2008, Mr. von Falkenhausen served as a Partner of capiton AG, a private equity firm. From March 2003 to February 2004, he served as interim Chief Financial Officer of Neon Products GmbH, a privately held neon lighting company. From May 1999 to February 2003, Mr. von Falkenhausen served as an investment manager of West Private Equity Ltd. and an investment director of its German affiliate West Private Capital GmbH. Prior to May 1999, Mr. von Falkenhausen served in several positions with BankBoston Robertson Stephens International Ltd., an investment banking firm. Mr. von Falkenhausen is a citizen of Germany. He has a Masters degree in economics (lic. oec) from the University of Fribourg (Switzerland) and an MBA from the University of Chicago. We believe Mr. von Falkenhausen’s qualifications to sit on the Board of Directors include his experience with several private investment and equity firms that have invested in early stage companies, which the Board of Directors believes is helpful in assessing and operating NTIC’s newer businesses, and his financial expertise, which the Board of Directors believes is be helpful in analyzing NTIC’s financial performance.
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CORPORATE GOVERNANCE
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Corporate Governance Guidelines
The Board of Directors has adopted Corporate Governance Guidelines. A copy of these Corporate Governance Guidelines can be found on the “Investor Relations—Board of Directors—Corporate Governance” section of our corporate website
www.ntic.com
. Among the topics addressed in our Corporate Governance Guidelines are:
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Board size, composition and qualifications;
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Selection of directors;
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Board leadership;
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Board committees;
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Board and committee meetings;
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Executive sessions of outside directors;
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Meeting attendance by directors and non-directors;
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Appropriate information and access;
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Ability to retain advisors;
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Conflicts of interest;
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Board interaction with corporate constituencies;
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Change of principal occupation and board memberships;
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Retirement and term limits;
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Board compensation;
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Stock ownership by directors and executive officers;
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Loans to directors and executive officers;
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CEO evaluation;
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Board and committee evaluation;
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Director continuing education;
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Succession planning; and
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Communications with directors.
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Board Leadership Structure
Under our Corporate Governance Guidelines, the office of Chairman of the Board and Chief Executive Officer may or may not be held by one person. The Board of Directors believes it is best not to have a fixed policy on this issue and that it should be free to make this determination based on what it believes is best under the circumstances. However, the Board of Directors strongly endorses the concept of an independent director being in a position of leadership. Under our Corporate Governance Guidelines, if at any time the Chief Executive Officer and Chairman of the Board positions are held by the same person, the Board of Directors will elect an independent director as a lead independent director.
G. Patrick Lynch currently serves as our President and Chief Executive Officer and Richard J. Nigon serves as our non-executive Chairman of the Board. Because the Chief Executive Officer and Chairman of the Board positions currently are not held by the same person, we do not have a lead independent director. We currently believe this leadership structure is in the best interests of our company and our stockholders and strikes the appropriate balance between the Chief Executive Officer’s responsibility for the strategic direction, day-to-day-leadership and performance of our company and the Chairman’s responsibility to provide oversight of our company’s corporate governance and guidance to our chief executive officer and to set the agenda for and preside over Board of Directors meetings.
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Immediately prior to all regular Board of Directors meetings, our independent directors meet in executive session with no company management or non-independent directors present during a portion of the meeting. After each such executive session, our Chairman of the Board provides our Chief Executive Officer with any actionable feedback from our independent directors.
Director Independence
The Board of Directors has affirmatively determined that six of NTIC’s current eight directors are “independent directors” under the Listing Rules of the NASDAQ Stock Market: Pierre Chenu, Soo-Keong Koh, Sunggyu Lee, Ph.D., Richard J. Nigon, Mark J. Stone and Konstantin von Falkenhausen.
In making these affirmative determinations that such individuals are “independent directors,” the Board of Directors reviewed and discussed information provided by the directors and by NTIC with regard to each director’s business and personal activities as they may relate to NTIC and NTIC’s management.
Board Meetings and Attendance
The Board of Directors met four times during the fiscal year ended August 31, 2012. Each of the directors attended at least 75 percent of the aggregate of the total number of meetings of the Board and the total number of meetings held by all Board committees on which he served.
Board Committees
The Board of Directors has a standing Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee, each of which has the composition and responsibilities described below. The Board of Directors may from time to time establish other committees to facilitate the management of our company and may change the composition and responsibilities of our existing committees. Each of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee operates under a written charter adopted by the Board of Directors, which can be found on the “Investor Relations—Corporate Governance” section of our corporate website
www.ntic.com
.
The following table summarizes the current membership of each of our three Board committees.
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Director
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Audit
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Compensation
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Nominating and
Corporate Governance
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Pierre Chenu
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—
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Soo-Keong Koh
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Chair
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Sunggyu Lee, Ph.D.
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G. Patrick Lynch
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Ramani Narayan, Ph.D.
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Richard J. Nigon
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Chair
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Chair
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√
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Mark J. Stone
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Konstantin von Falkenhausen
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Audit Committee
Responsibilities
. The Audit Committee provides assistance to the Board of Directors in fulfilling its responsibilities for oversight, for quality and integrity of the accounting, auditing, reporting practices, systems of internal accounting and financial controls, the annual independent audit of our financial statements, and the legal compliance and ethics programs of NTIC as established by management. The Audit Committee’s primary responsibilities include:
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Overseeing our financial reporting process, internal control over financial reporting and disclosure controls and procedures on behalf of the Board of Directors;
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Having sole authority to appoint, retain and oversee the work of our independent registered public accounting firm and establish the compensation to be paid to the firm;
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Reviewing and pre-approving all audit services and permissible non-audit services to be provided to NTIC by our independent registered public accounting firm;
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Establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters and for the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters; and
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Overseeing the establishment and administration (including the grant of any waiver from) a written code of ethics applicable to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
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The Audit Committee has the authority to engage the services of outside experts and advisors as it deems necessary or appropriate to carry out its duties and responsibilities.
Composition
. The current members of the Audit Committee are Mr. Chenu, Mr. Koh and Mr. Nigon. Mr. Nigon is the chair of the Audit Committee.
Each current member of the Audit Committee qualifies as “independent” for purposes of membership on audit committees pursuant to the Listing Rules of the NASDAQ Stock Market and the rules and regulations of the SEC and is “financially literate” as required by the Listing Rules of the NASDAQ Stock Market. In addition, the Board of Directors has determined that Mr. Nigon qualifies as an “audit committee financial expert” as defined by the rules and regulations of the SEC and meets the qualifications of “financial sophistication” under the Listing Rules of the NASDAQ Stock Market as a result of his extensive financial background and various financial positions he has held throughout his career. Stockholders should understand that these designations related to our Audit Committee members’ experience and understanding with respect to certain accounting and auditing matters do not impose upon any of them any duties, obligations or liabilities that are greater than those generally imposed on a member of the Audit Committee or of the Board of Directors.
Meetings
. The Audit Committee met four times during fiscal 2012, one time outside the presence of management and one time face to face with Baker Tilly Virchow Krause, LLP, our independent registered public accounting firm.
Other Information
. Additional information regarding the Audit Committee and our independent registered public accounting firm is disclosed under the “Proposal Two —Ratification of Selection of Independent Registered Public Accounting Firm” section of this proxy statement.
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Compensation Committee
Responsibilities
. The Compensation Committee provides assistance to the Board of Directors in fulfilling its oversight responsibility relating to compensation of our chief executive officer and other executive officers and administers our equity compensation plans. In so doing, the Compensation Committee, among other things:
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recommending to the Board of Directors for its determination, the annual salaries, incentive compensation, long-term compensation and any and all other compensation applicable to our executive officers;
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establishing, and from time to time reviewing and revising, corporate goals and objectives with respect to compensation for our executive officers and establishing and leading a process for the full Board of Directors to evaluate the performance of our executive officers in light of those goals and objectives;
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administering our equity compensation plans and recommending to the Board of Directors for its determination grants of options or other equity-based awards for executive officers, employees and independent consultants under our equity compensation plans;
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reviewing our policies with respect to employee benefit plans; and
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establishing and from time to time reviewing and revising processes and procedures for the consideration and determination of executive compensation.
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The Compensation Committee has the authority to engage the services of outside experts and advisors as it deems necessary or appropriate to carry out its duties and responsibilities.
Composition
. The current members of the Compensation Committee are Mr. Chenu and Mr. Nigon. Mr. Nigon is the Chair of the Compensation Committee. The Board of Directors has determined that each of the members of the Compensation Committee is considered an “independent director” under the Listing Rules of the NASDAQ Stock Market, a “non-employee director” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, and an “outside director” within the meaning of Section 162(m) under the Internal Revenue Code of 1986, as amended.
Processes and Procedures for Consideration and Determination of Executive Compensation
. As described in more detail above under the heading “—Responsibilities,” the Board of Directors has delegated to the Compensation Committee the responsibility, among other things, to recommend to the Board of Directors any and all compensation payable to our executive officers, including annual salaries, incentive compensation and long-term incentive compensation, and to administer our equity and incentive compensation plans applicable to our executive officers. Decisions regarding executive compensation made by the Compensation Committee are not considered final and are subject to final review and approval by the entire Board of Directors. Under the terms of its formal written charter, the Compensation Committee has the power and authority, to
the extent permitted by our Bylaws and applicable law, to delegate all or a portion of its duties and responsibilities to a subcommittee of the Compensation Committee. The Compensation Committee has not generally delegated any of its duties and responsibilities to subcommittees, but rather has taken such actions as a committee, as a whole.
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Our President and Chief Executive Officer assists the Compensation Committee in gathering compensation related data regarding our executive officers and making recommendations to the Compensation Committee regarding the form and amount of compensation to be paid to each executive officer. In making final recommendations to the Board of Directors regarding compensation to be paid to our executive officers, the Compensation Committee considers the recommendations of our President and Chief Executive Officer, but also considers other factors, such as its own views as to the form and amount of compensation to be paid, the achievement by the company of pre-established performance objectives the general performance of the company and the individual officers, the performance of the company’s stock price and other factors that may be relevant.
Final deliberations and decisions by the Compensation Committee regarding its recommendations to the Board of Directors of the form and amount of compensation to be paid to our executive officers, including our President and Chief Executive Officer, are made by the Compensation Committee, without the presence of the President and Chief Executive Officer or any other executive officer of our company.
In making final decisions regarding compensation to be paid to our executive officers, the Board of Directors considers the same factors and gives considerable weight to the recommendations of the Compensation Committee.
Meetings
. The Compensation Committee met twice during fiscal 2012.
Nominating and Corporate Governance Committee
Responsibilities
. The primary responsibilities of the Nominating and Corporate Governance Committee include:
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identifying individuals qualified to become members of the Board of Directors;
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recommending director nominees for each annual meeting of our stockholders and director nominees to fill any vacancies that may occur between meetings of stockholders;
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being aware of best practices in corporate governance matters;
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developing and overseeing an annual Board of Directors and Board committee evaluation process; and
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establishing and leading a process for determination of the compensation applicable to the non-employee directors on the Board.
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The Nominating and Corporate Governance Committee has the authority to engage the services of outside experts and advisors as it deems necessary or appropriate to carry out its duties and responsibilities.
Composition
. The current members of the Nominating and Corporate Governance Committee are Mr. Koh and Mr. Nigon. Mr. Koh is the chair of the Nominating and Corporate Governance Committee. The Board of Directors has determined that each of the members of the Nominating and Corporate Governance Committee is considered an “independent director” under the Listing Rules of the NASDAQ Stock Market.
Processes and Procedures for Consideration and Determination of Director Compensation
. As mentioned above under the heading “—Responsibilities,” the Board of Directors has delegated to the Nominating and Corporate Governance Committee the responsibility, among other things, to review and make recommendations to the Board of Directors concerning compensation for non-employee members of the Board of Directors, including but not limited to retainers, meeting fees, committee chair and member retainers and equity compensation. Decisions regarding director compensation made by the Nominating and Corporate Governance Committee are not considered final and are subject to final review and approval by the entire Board of Directors. Under the terms of its formal written charter, the Nominating and Corporate Governance Committee has the power and authority, to
the extent permitted by our Bylaws and applicable law, to delegate all or a portion of its duties and responsibilities to a subcommittee of the
Nominating and Corporate Governance Committee
.
The Nominating and Corporate Governance Committee has not generally delegated any of its duties and responsibilities to subcommittees, but rather has taken such actions as a committee, as a whole.
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In making recommendations to the Board of Directors regarding compensation to be paid to our non-employee directors, the Nominating and Corporate Governance Committee considers fees and other compensation paid to directors of comparable public companies, the number of board and committee meetings that our directors are expected to attend, and other factors that may be relevant. In making final decisions regarding non-employee director compensation, the Board of Directors considers the same factors and the recommendation of the Nominating and Corporate Governance Committee.
Meetings
. The Nominating and Corporate Governance Committee met four times during fiscal 2012.
Director Nominations Process
Pursuant to a Director Nominations Process adopted by the Board of Directors, in selecting nominees for the Board of Directors, the Nominating and Corporate Governance Committee first determines whether the incumbent directors are qualified to serve, and wish to continue to serve, on the Board. The Nominating and Corporate Governance Committee believes that NTIC and its stockholders benefit from the continued service of qualified incumbent directors because those directors have familiarity with and insight into NTIC’s affairs that they have accumulated during their tenure with the company. Appropriate continuity of Board membership also contributes to the Board’s ability to work as a collective body. Accordingly, it is the practice of the Nominating and Corporate Governance Committee, in general, to re-nominate an incumbent director if the director wishes to continue his or her service with the Board, the director continues to satisfy the criteria for membership on the Board that the Nominating and Corporate Governance Committee generally views as relevant and considers in deciding whether to re-nominate an incumbent director or nominate a new director, the Nominating and Corporate Governance Committee believes the director continues to make important contributions to the Board, and there are no special, countervailing considerations against re-nomination of the director. After completing the Director Nominations Process, it was the recommendation of the Nominating and Corporate Governance Committee that based on his other commitments and priorities Mr. Stone not stand for re-election to the Board of Directors at the 2013 Annual Meeting.
Pursuant to a Director Nominations Process adopted by the Board of Directors, in identifying and evaluating new candidates for election to the Board, the Nominating and Corporate Governance Committee solicits recommendations for nominees from persons whom the Nominating and Corporate Governance Committee believes are likely to be familiar with qualified candidates having the qualifications, skills and characteristics required for Board nominees from time to time. Such persons may include members of the Board of Directors and our senior management and advisors to our company. In addition, from time to time, if appropriate, the Nominating and Corporate Governance Committee may engage a search firm to assist it in identifying and evaluating qualified candidates. Mr. von Falkenhausen was recommended by NTIC’s President and Chief Executive Officer.
The Nominating and Corporate Governance Committee reviews and evaluates each candidate whom it believes merits serious consideration, taking into account available information concerning the candidate, any qualifications or criteria for Board membership established by the Nominating and Corporate Governance Committee, the existing composition of the Board, and other factors that it deems relevant. In conducting its review and evaluation, the Nominating and Corporate Governance Committee solicits the views of our management, other Board members, and other individuals it believes may have insight into a candidate. The Nominating and Corporate Governance Committee may designate one or more of its members and/or other Board members to interview any proposed candidate.
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The Nominating and Corporate Governance Committee will consider recommendations for the nomination of directors submitted by our stockholders. For more information, see the information set forth under the heading “Other Matters ─ Director Nominations for 2014 Annual Meeting.” The Nominating and Corporate Governance Committee will evaluate candidates recommended by stockholders in the same manner as those recommended as stated above.
There are no formal requirements or minimum qualifications that a candidate must meet in order for the Nominating and Corporate Governance Committee to recommend the candidate to the Board. The Nominating and Corporate Governance Committee believes that each nominee should be evaluated based on his or her merits as an individual, taking into account the needs of our company and the Board of Directors. However, in evaluating candidates, there are a number of criteria that the Nominating and Corporate Governance Committee generally views as relevant and is likely to consider. Some of these factors include whether the candidate is an “independent director” under the Listing Rules of the NASDAQ Stock Market and meets any other applicable independence tests under the federal securities laws and rules and regulations of the Securities and Exchange Commission; whether the candidate is “financially literate” or “financially sophisticated” and otherwise meets the requirements for serving as a member of an audit committee under the Listing Rules of the NASDAQ Stock Market; whether the candidate is an “audit committee financial expert” under the federal securities laws and the rules and regulations of the Securities and Exchange Commission; the needs of our company with respect to the particular talents and experience of its directors; the personal and professional integrity and reputation of the candidate; the candidate’s level of education and business experience; the candidate’s broad-based business acumen; the candidate’s level of understanding of our business and its industry; the candidate’s ability and willingness to devote adequate time to work of the Board and its committees; the fit of the candidate’s skills and personality with those of other directors and potential directors in building a board that is effective, collegial and responsive to the needs of our company; whether the candidate possesses strategic thinking and a willingness to share ideas; the candidate’s diversity of experiences, expertise and background; and the candidate’s ability to represent the interests of all stockholders and not a particular interest group.
We do not have a formal stand-alone diversity policy in considering whether to recommend any director nominee, including candidates recommended by stockholders. As discussed above, the Nominating and Corporate Governance Committee will consider the factors described above, including the candidate’s diversity of experiences, expertise and background. The Nominating and Corporate Governance Committee seeks nominees with a broad diversity of experience, expertise and backgrounds. The Nominating and Corporate Governance Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective nominees. The Board of Directors believes that the backgrounds and qualifications of directors, considered as a group, should provide a significant mix of experience, knowledge and abilities that will allow the Board of Directors to fulfill its responsibilities. While the Nominating and Corporate Governance Committee focuses on obtaining a diversity of experiences, expertise and background on the Board of Directors rather than a diversity of personal characteristics, it recognizes the desirability of racial, ethnic, gender, age and other personal diversity and considers it an additional benefit when a new director can also increase the personal diversity of the Board of Directors as a whole. The Nominating and Corporate Governance Committee evaluates its effectiveness in achieving diversity in a broad sense on the Board of Directors through its annual review of Board member composition prior to recommending nominees for election each year.
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Board Oversight of Risk
The Board of Directors as a whole has responsibility for risk oversight, with more in-depth reviews of certain areas of risk being conducted by the relevant Board committees that report on their deliberations to the full Board of Directors. The oversight responsibility of the Board and its committees is enabled by management reporting processes that are designed to provide information to the Board about the identification, assessment and management of critical risks and management’s risk mitigation strategies. The areas of risk that we focus on include operational, financial (accounting, credit, liquidity and tax), legal, compensation, competitive, health, safety, environmental, economic, political and reputational risks.
The standing committees of the Board of Directors oversee risks associated with their respective principal areas of focus. The Audit Committee’s role includes a particular focus on the qualitative aspects of financial reporting to stockholders, on our processes for the management of business and financial risk, our financial reporting obligations and for compliance with significant applicable legal, ethical and regulatory requirements. The Audit Committee, along with management, is also responsible for developing and participating in a process for review of important financial and operating topics that present potential significant risk to our company. The Compensation Committee is responsible for overseeing risks and exposures associated with our executive compensation programs and arrangements and management succession planning. The Nominating and Corporate Governance Committee oversees risks relating to our corporate governance matters, director compensation programs and director succession planning.
We recognize that a fundamental part of risk management is understanding not only the risks a company faces and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for the company. The involvement of the full Board of Directors each year in establishing our key corporate business strategies and annual fiscal budget is a key part of the Board’s assessment of management’s appetite for risk and also a determination of what constitutes an appropriate level of risk for our company.
We believe our current Board leadership structure is appropriate and helps ensure proper risk oversight for our company for a number of reasons, including: (1) general risk oversight by the full Board of Directors in connection with its role in reviewing our key business strategies and monitoring on an on-going basis the implementation of our key business strategies; (2) more detailed oversight by our standing Board committees that are currently comprised of and chaired by our independent directors, and (3) the focus of our Chairman of the Board on allocating appropriate Board agenda time for discussion regarding the implementation of our key business strategies and specifically risk management.
Code of Ethics
The Board of Directors has adopted a Code of Ethics, which applies to all of our directors, executive officers, including our Chief Executive Officer and Chief Financial Officer, and other employees, and meets the requirements of the Securities and Exchange Commission and the NASDAQ Stock Market. A copy of our Code of Ethics is available on the “Investor Relations—Corporate Governance” section of our corporate website
www.ntic.com
.
18
Policy Regarding Director Attendance at Annual Meetings of Stockholders
It is the policy of the Board of Directors that directors standing for re-election should attend our annual meeting of stockholders, if their schedules permit. A Board of Directors meeting is generally held on the day following each annual meeting of stockholders. All of our directors attended the 2012 annual meeting of stockholders, except Dr. Narayan.
Complaint Procedures
The Audit Committee has established procedures for the receipt, retention and treatment of complaints received by NTIC regarding accounting, internal accounting controls or auditing matters, and the submission by our employees, on a confidential and anonymous basis, of concerns regarding questionable accounting or auditing matters. Our personnel with such concerns are encouraged to discuss their concerns with our outside legal counsel, who in turn will be responsible for informing the Audit Committee.
Process Regarding Stockholder Communications with Board of Directors
Stockholders may communicate with the Board of Directors of NTIC by sending correspondence, addressed to our Corporate Secretary, Northern Technologies International Corporation, 4201 Woodland Road, Circle Pines, Minnesota 55014, or mwolsfeld@ntic.com with an instruction to forward the communication to a particular director. Our Corporate Secretary will receive the correspondence and forward it to any individual director or directors to whom the communication is directed.
19
DIRECTOR COMPENSATION
________________
Summary of Cash and Other Compensation
The following table provides summary information concerning the compensation of each individual who served as a director of our company during the fiscal year ended August 31, 2012, other than G. Patrick Lynch, our President and Chief Executive Officer, who was not compensated separately for serving on the Board of Directors during fiscal 2012. His compensation during fiscal 2012 for serving as an executive officer of our company is set forth under the heading “Executive Compensation” included elsewhere in this proxy statement.
DIRECTOR COMPENSATION – FISCAL 2012
|
Name
|
Fees Earned or
Paid in Cash ($)
|
Option
Awards ($)
(1)(2)
|
All Other
Compensation ($)
(3)
|
Total ($)
|
||||||||||||
|
Pierre Chenu
|
$
|
36,000
|
$
|
42,840
|
$
|
0
|
$
|
78,840
|
||||||||
|
Soo-Keong Koh
|
16,000
|
28,560
|
0
|
44,560
|
||||||||||||
|
Sunggyu Lee, Ph.D.
|
18,000
|
28,560
|
0
|
46,560
|
||||||||||||
|
Ramani Narayan, Ph.D.
|
14,000
|
28,560
|
107,745
|
150,305
|
||||||||||||
|
Richard J. Nigon
|
25,000
|
28,560
|
0
|
53,560
|
||||||||||||
|
Mark J. Stone
|
25,000
|
28,560
|
0
|
53,560
|
||||||||||||
_________________________
|
(1)
|
The amounts in this column do not reflect compensation actually received by the directors nor do they reflect the actual value that will be recognized by the directors. Instead, the amounts reflect the grant date fair value for option grants made by us in fiscal 2012, calculated in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718. On September 1, 2011, each director, other than Mr. Lynch, received a stock option to purchase 4,000 shares of our common stock at an exercise price of $16.45 per share granted under the Northern Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan, the material terms of which are described in more detail under the heading “Executive Compensation —Stock Incentive Plan.” Such options vested in full on September 1, 2012 and will expire on August 31, 2016 or earlier in the case of a director whose service as a director is terminated prior to such date. In addition, on September 1, 2011, Mr. Chenu received an additional stock option to purchase 2,000 shares of our common stock in consideration for his service as Chairman of the Board. The terms of this stock option are identical to the other director stock options granted on that date. See “—Non-Employee Director Compensation Program—Stock Options.” The grant date fair value and incremental fair value associated with these awards and as calculated in accordance with FASB ASC Topic 718 is determined based on our Black-Scholes option pricing model. The grant date value per share for the options granted on September 1, 2011 was $7.14 and was determined using the following specific assumptions: risk free interest rate: 1.31%; expected life: 5.0 years; expected volatility: 48.8%; and expected dividend yield: 0%.
|
|
(2)
|
The table below provides information regarding the aggregate number of options to purchase shares of our common stock outstanding at August 31, 2012 and held by each of the directors listed in the above Director Compensation table. Note that because of the grant date, neither the Director Compensation table above nor the table below reflects option grants on September 1, 2012. See “—Non-Employee Director Compensation Program—Stock Options.”
|
|
Name
|
Aggregate Number
Of Securities
Underlying Options
|
Exercisable/
Unexercisable
|
Exercise
Price(s)
|
Expiration
Date(s)
|
|||||||||
|
Pierre Chenu
|
24,000 | 12,000/12,000 | $ | 8.57 – 16.45 |
8/31/2013 – 8/31/2016
|
||||||||
|
Soo-Keong Koh
|
16,666 | 8,665/8,001 | 7.75 – 16.45 |
5/1/2013 – 8/31/2016
|
|||||||||
|
Sunggyu Lee, Ph.D.
|
16,000 | 7,999/8,001 | 8.57 – 16.45 |
8/31/2013 – 8/31/2016
|
|||||||||
|
Ramani Narayan, Ph.D.
|
16,000 | 7,999/8,001 | 8.57 – 16.45 |
8/31/2013 – 8/31/2016
|
|||||||||
|
Richard J. Nigon
|
10,333 | 2,889/7,444 | 9.76 – 16.45 |
2/1/2015 – 8/31/2016
|
|||||||||
|
Mark J. Stone
|
16,000 | 7,999/8,001 | 8.57 – 16.45 |
8/31/2013 – 8/31/2016
|
|||||||||
|
(3)
|
We do not provide perquisites or other personal benefits to our directors. The amounts reflected for Dr. Narayan reflects consulting fees and royalties paid during the fiscal year ended August 31, 2012 as described in more detail below under the heading “—Consulting Arrangement.”
|
20
Non-Employee Director Compensation Program
Overview.
Our non-employee directors for purposes of our director compensation program currently consist of Pierre Chenu, Soo-Keong Koh, Sunggyu Lee, Ph.D., Ramani Narayan, Ph.D., Richard J. Nigon, Mark J. Stone and Konstantin von Falkenhausen.
We use a combination of cash and long-term equity-based incentive compensation in the form of annual stock option grants to attract and retain qualified candidates to serve on the Board of Directors. In setting non-employee director compensation, we follow the process and procedures described under the heading “Corporate Governance—Nominating and Corporate Governance Committee—Processes and Procedures for the Determination of Director Compensation.”
Cash Retainers and Meeting Fees
. Each of our non-employee directors receives annual cash retainers and meeting fees. The following table sets forth the annual cash retainers paid to our non-employee directors:
|
Description
|
Annual Cash
Retainer
|
|||
|
Board Member
|
$ | 10,000 | ||
|
Chairman of the Board
|
15,000 | |||
|
Audit Committee Chair
|
5,000 | |||
|
Audit Committee Member (not including Chair)
|
4,000 | |||
The annual cash retainers are paid in the beginning of each calendar quarter. For example, the retainers paid in the beginning of the first calendar quarter are for the period from January 1 through March 31.
Each of our non-employee directors also receives $1,000 for each Board, Board committee and strategy review meeting attended. No director, however, earns more than $1,000 per day in Board, Board committee and strategy review meeting fees.
Stock Options
. Each of our non-employee directors is automatically granted a non-qualified option to purchase 4,000 shares of our common stock on the first day of each fiscal year in consideration for his service as a director of NTIC and the Chairman of the Board is automatically granted an additional non-qualified option to purchase 2,000 shares of our common stock on the first day of each fiscal year in consideration for his services as Chairman. In addition, each new non-employee director is automatically granted a non-qualified option to purchase a pro rata portion of 4,000 shares of our common stock calculated by dividing the number of months remaining in the fiscal year at the time of election or appointment by 12 on the date the director is first elected or appointed as a director of NTIC. Each automatically granted option becomes exercisable, on a cumulative basis, on the one-year anniversary of the date of its grant. The vesting of director options was changed during fiscal 2011 on a prospective basis from a three-year annual vesting to a one-year cliff vesting to conform the vesting to prevalent market practices and to reflect the fact that directors serve for one-year terms of service. The term of director options was changed during fiscal 2012 on a prospective basis from a five-year term to a ten-year term to conform the term to prevalent market practices and to provide more value to NTIC’s directors in consideration for their services as directors. The exercise price of such options is equal to the fair market value of a share of our common stock on the date of grant.
21
Under the terms of our stock incentive plan, unless otherwise provided in a separate agreement, if a director’s service with our company terminates for any reason, the unvested portion of the option will immediately terminate and the director’s right to exercise the then vested portion of the option will:
|
·
|
immediately terminate if the director’s service relationship with our company terminated for “cause”;
|
|
·
|
continue for a period of 12 months if the director’s service relationship with our company terminates as a result of the director’s death or disability; or
|
|
·
|
continue for a period of three months if the director’s service relationship with our company terminates for any reason, other than for cause or upon death or disability.
|
We refer you to note (1) to the Director Compensation Table above for a summary of all option grants to our non-employee directors during the fiscal year ended August 31, 2012 and note (2) to the Director Compensation Table for a summary of all options to purchase shares of our common stock held by our non-employee directors as of August 31, 2012.
Reimbursement of Expenses
. All of our directors are reimbursed for travel expenses for attending meetings and other miscellaneous out-of-pocket expenses incurred in performing their Board functions.
Consulting Arrangement
We paid consulting fees to Bioplastic Polymers LLC which is owned by Ramani Narayan, Ph.D. in the aggregate amount of $100,000 and royalty fees in an aggregate amount of $7,745 during the fiscal year ended August 31, 2012. The consulting services rendered by Bioplastic Polymers LLC related to research and development associated with various new technologies. The royalty fees were paid pursuant to an oral agreement pursuant to which we have agreed to pay Bioplastic Polymers LLC and Dr. Narayan in consideration of the transfer and assignment by Biopolymer Plastics LLC and Dr. Narayan of certain biodegradable polymer technology to us, an aggregate of three percent of the gross margin on any net sales of products incorporating the biodegradable polymer technology transferred to us by Bioplastic Polymers LLC and Dr. Narayan for a period of 10 years, provided that if a patent for or with respect to biodegradable polymer technology is issued before the expiration of such 10 year period, then until the expiration of such patent we will pay to Bioplastic Polymers LLC and Dr. Narayan an aggregate of three percent of the biodegradable polymer technology gross margin attributable to such patent.
Indemnification Agreements
We have entered into agreements with all of our directors under which we are required to indemnify them against expenses, judgments, penalties, fines, settlements and other amounts actually and reasonably incurred, including expenses of a derivative action, in connection with an actual or threatened proceeding if any of them may be made a party because he or she is or was one of our directors. We will be obligated to pay these amounts only if the director acted in good faith and in a manner that he or she reasonably believed to be in or not opposed to our best interests. With respect to any criminal proceeding, we will be obligated to pay these amounts only if the director had no reasonable cause to believe his or her conduct was unlawful. The indemnification agreements also set forth procedures that will apply in the event of a claim for indemnification.
22
EXECUTIVE COMPENSATION
________________
Summary of Cash and Other Compensation
The following table provides summary information concerning all compensation awarded to, earned by or paid to G. Patrick Lynch, our President and Chief Executive Officer who serves as our principal executive officer, and Matthew C. Wolsfeld, our Chief Financial Officer and Corporate Secretary who serves as our principal financial officer. Mr. Lynch and Mr. Wolsfeld are the only two individuals who have been designated by our Board of Directors as “executive officers” of our company. We refer to these individuals in this proxy statement as our “named executive officers” or “executives.”
SUMMARY COMPENSATION TABLE
|
Name and Principal Position
|
Fiscal
Year
|
Salary
|
Non-Equity
Incentive Plan
Compensation
(1)
|
Stock Awards
(2)
|
All Other
Compensation
(3)
|
Total
|
||||||||||||||||||
|
G. Patrick Lynch
President and Chief Executive Officer
|
2012
2011
|
$
|
257,600
230,000
|
$
|
219,865
16,882
|
$
|
0
116,882
|
$
|
11,811
12,220
|
$
|
489,276
475,984
|
|||||||||||||
|
Matthew C. Wolsfeld
Chief Financial Officer and Corporate Secretary
|
2012
2011
|
190,400
170,000
|
162,509 88,606 |
0
88,606
|
11,568
11,839
|
364,477
359,051
|
||||||||||||||||||
_____________
|
(1)
|
Represents discretionary bonuses earned in fiscal year as indicated, but actually paid to named executive officer in the following fiscal year. The bonuses earned for fiscal 2012 were paid in cash and the bonuses earned for fiscal 2011 were paid in cash and shares of our common stock as determined by the Board of Directors, upon recommendation of the Compensation Committee. The amounts reflected in the column entitled “Non-Equity Incentive Plan Compensation” reflect the cash amount of bonus received by each of the officers during fiscal 2013 and fiscal 2012 in consideration for their fiscal 2012 and fiscal 2011 performance, respectively. The following executives also received the following number of shares of NTIC common stock as part of their fiscal 2012 and fiscal 2011 bonuses: Mr. Lynch (0 and 7,985 shares, respectively) and Mr. Wolsfeld (0 and 6,053 shares, respectively). The number of shares issued to the executives for their fiscal 2011 bonuses was determined by dividing one-half of the amounts of the total stock bonus to be awarded to the individual by the closing sale price of a share of NTIC common stock, as reported on the NASDAQ Global Market, on the date the Board of Directors determined the amount of the bonus. We refer you to the information under the heading “—Executive Compensation Program—Annual Incentive Compensation” for a discussion of the factors taken into consideration by the Board of Directors in determining the amount of bonus paid to each named executive officer.
|
|
(2)
|
As described above in note (1), the following named executive officers received the following number of shares of NTIC common stock in connection with their annual bonuses for fiscal 2011: Mr. Lynch (7,985 shares); and Mr. Wolsfeld 6,053 shares). The amounts reflected in the column entitled “Stock Awards” for each officer reflect the aggregate grant date fair value for stock awards granted to such officer computed in accordance with FASB ASC Topic 718. The grant date fair value is determined based on the closing sale price of our common stock on the date of grant.
|
|
(3)
|
The amounts shown in the column entitled “All Other Compensation” for fiscal 2012 include the following with respect to each named executive officer:
|
|
Name
|
401(k) Match
|
Personal Use
of Auto
|
||||||
|
G. Patrick Lynch
|
$ | 8,400 | $ | 3,411 | ||||
|
Matthew C. Wolsfeld
|
8,400 | 3,168 | ||||||
23
Our Executive Compensation Program
Our executive compensation program for the fiscal year ended August 31, 2012 consisted of:
|
·
|
Base salary;
|
|
·
|
Annual incentive compensation; and
|
|
·
|
All other compensation.
|
Base Salary
. We provide a base salary for our named executive officers, which, unlike some of the other elements of our executive compensation program, is not subject to company or individual performance risk. We recognize the need for most executives to receive at least a portion of their total compensation in the form of a guaranteed base salary that is paid in cash regularly throughout the year to support their standard of living.
We initially fix base salaries for our executives at a level that we believe enables us to hire and retain them in a competitive environment and to reward satisfactory individual performance and a satisfactory level of contribution to our overall business objectives. The Compensation Committee reviews base salaries for our named executive officers each year beginning in July and generally recommends to the Board of Directors any increases for the following fiscal year in July or August or as soon as practicable thereafter. Regardless of when the final decision regarding base salaries for a fiscal year is made by the Board of Directors, any increases in base salaries are effective as of September 1 of that year, which depending upon the timing of the final decision could result in a retroactive payment to the executive shortly after the final decision is made.
The Compensation Committee’s recommendations to the Board of Directors regarding the base salaries of our named executive officers are based on a number of factors, including: the executive’s level of responsibility, prior experience and base salary for the prior year, the skills and experiences required by the position, length of service with our company, past individual performance, cost of living increases and other considerations the Compensation Committee deems relevant. The Compensation Committee also recognizes that in addition to the typical responsibilities and duties held by our executives by virtue of their positions, our executives due to the small number of our employees, often possess additional responsibilities and perform additional duties that would be typically delegated to others in most organizations with additional personnel and resources.
Annualized base salary rates for fiscal 2011 and 2012 for our named executive officers were as follows:
|
Name
|
Fiscal
2011
|
Fiscal
2012
|
% Change From
Fiscal 2011
|
|||||||||
|
G. Patrick Lynch
|
$ | 230,000 | $ | 257,600 | 12.0 | % | ||||||
|
Matthew C. Wolsfeld
|
170,000 | 190,400 | 12.0 | % | ||||||||
Mr. Lynch’s base salary for fiscal 2013 is $278,208 and Mr. Wolsfeld’s base salary for fiscal 2013 is $205,632, representing base salary increases of 8.0 percent over their respective base salaries for fiscal 2011.
Annual Incentive Compensation
. In addition to base compensation, we provide our named executive officers the opportunity to earn annual incentive compensation based on the achievement of certain company and individual related performance goals. Our annual bonus program directly aligns the interests of our executive officers and stockholders by providing an incentive for the achievement of key corporate and individual performance measures that are critical to the success of our company and linking a significant portion of each executive officer’s annual compensation to the achievement of such measures.
24
Under the annual bonus plan for fiscal 2012, the total amount available under the bonus plan, as in past years, was up to 25 percent of NTIC’s earnings before interest, taxes and other income, as adjusted to take into account amounts to be paid under the bonus plan and certain other adjustments (Adjusted EBITOI), and assuming the achievement of at least a minimum Adjusted EBITOI, which is generally 70 percent of a budgeted target Adjusted EBITOI for fiscal 2012. For each plan participant, 50 percent of the amount of their individual bonus payout was determined based upon their individual allocation percentage of the total amount available under the bonus plan and 50 percent of their individual payout was determined based upon their achievement of certain pre-established but more qualitative individual performance objectives.
A plan participant’s individual allocation percentage of the total amount available under the bonus plan was based on the number of plan participants, the individual’s annual base salary and the individual’s position and level of responsibility within the company. Mr. Lynch’s individual allocation percentage for fiscal 2012 was 16.8 percent and Mr. Wolsfeld’s individual allocation percentage for fiscal 2012 was 12.4 percent.
Mr. Lynch’s individual performance objectives for fiscal 2012 related primarily to the completion of certain ZERUST infrastructure improvements and product trials, integration of the Zerust Brazil subsidiary, and improvement and maintenance of joint venture relationships, investors relations and key personnel. Mr. Wolsfeld’s individual performance objectives for fiscal 2012 related primarily to financial oversight of the Natur-Tec business, improvement and maintenance of investor relations, implementation of certain regulatory compliance matters and integration of the Zerust Brazil subsidiary. In the case of both Mr. Lynch and Mr. Wolsfeld, the Compensation Committee determined each executive achieved their individual performance objectives at a 95 percent achievement level.
Mr. Lynch received a total bonus of $219,865 for fiscal 2012 and Mr. Wolsfeld received a total bonus of $162,509 for fiscal 2012. The Compensation Committee determined to pay all bonuses in cash this year as opposed to a mix of cash and NTIC common stock in light of NTIC’s cash and cash equivalent balance which is higher than in past years and the recent implementation of a new long-term incentive plan component to NTIC’s executive compensation, payable in annual NTIC stock option grants, as described in more detail below.
The structure of the annual bonus plan for fiscal 2013 will be identical to the annual bonus plan for fiscal 2012. As in past years, the payment of bonuses under the plan will be discretionary and may be paid to executive participants in cash and/or shares of NTIC common stock.
Although we do not have any stock retention or ownership guidelines, the Board of Directors encourages our executives to have a financial stake in our company in order to align the interests of our stockholders and management. Therefore, we typically provide for a portion of our annual incentive compensation to be paid to our executives in the form of stock bonuses. We believe that stock bonuses are an important part of our overall compensation program. We believe that stock bonuses align the interests of our executives with the interests of our stockholders and long-term value creation and enable our executives to achieve meaningful equity ownership in our company. Through the grant of stock bonuses, we seek to align the long-term interests of our executives with the long-term interests of our stockholders by creating a strong and direct linkage between compensation and long-term stockholder return. When our executives deliver returns to our stockholders, in the form of increases in our stock price or otherwise, stock bonuses permit an increase in their compensation. We believe stock bonuses also may enable us to attract, retain and motivate our executives by maintaining competitive levels of total compensation.
25
All Other Compensation
. It is generally our policy not to extend significant perquisites to our executives that are not available to our employees generally. The only significant perquisite that we provide to our named executive officers is the personal use of a company owned vehicle. Our executives also receive benefits, which are also received by our other employees, including participation in the Northern Technologies International Corporation 401(k) Plan and health, dental and life insurance benefits. Under the 401(k) plan, all eligible participants, including our named executive officers, may voluntarily request that we reduce his or her pre-tax compensation by up to 10 percent (subject to certain special limitations) and contribute such amounts to a trust. We typically contribute an amount equal to 50 percent of the first seven percent of the amount that each participant contributed under this plan. We do not provide pension arrangements or post-retirement health coverage for our executives or employees. We also do not provide any nonqualified defined contribution or other deferred compensation plans.
Fiscal 2013 Changes
. In November 2012, NTIC adopted and began to implement a long-term incentive compensation plan component to its executive compensation program. The long-term incentive compensation plan consists of annual option grants to NTIC’s executives and other employees, which options will vest on an annual basis over a three-year period. Since fiscal 2012 is the first year of implementation of the plan, NTIC granted its executives and such other employees, in addition to options that vest over a three-year period, options that vest over a two-year period and options that vest over a one-year period since fiscal 2012 is the first year of implementation of the plan.
Outstanding Equity Awards at Fiscal Year End
The following table provides information regarding stock options for each of our named executive officers that remained outstanding at August 31, 2012. We did not have any equity incentive plan awards or stock awards outstanding at August 31, 2012.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END—FISCAL 2012
|
Option Awards
|
||||||||||||||
|
Name
|
Number of Securities
Underlying Unexercised
Options (#)
Exercisable
|
Number of Securities
Underlying Unexercised
Options (#)
Unexercisable
(1)
|
Option
Exercise
Price ($)
|
Option
Expiration Date
|
||||||||||
|
G. Patrick Lynch
|
8,000 | 4,000 | (2) | $ | 7.65 |
11/19/2014
|
||||||||
| 3,540 | 0 | 9.95 |
11/16/2012
|
|||||||||||
|
Matthew C. Wolsfeld
|
6,000 | 3,000 | (2) | 7.65 |
11/19/2014
|
|||||||||
| 12,950 | 0 | 9.95 |
11/16/2012
|
|||||||||||
_____________
|
(1)
|
All options described in this table were granted under our stock incentive plan described below under the heading “—Stock Incentive Plan.” Under the plan, upon the occurrence of a change in control, the unvested and unexercisable options will be accelerated and become fully vested and immediately exercisable as of the date of the change in control. For more information, we refer you to the discussion below under the heading “—Stock Incentive Plan.”
|
|
(2)
|
These options vest over a three-year period, with one-third of the underlying shares vesting on each of November 20, 2010, 2011 and 2012 so long as the individual remains an employee of NTIC as of such date.
|
Stock Incentive Plan
We have only one stock incentive plan under which stock options are currently outstanding and future stock incentive awards may be granted – the Northern Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan. Under the terms of the 2007 plan, our named executive officers, in addition to other employees and individuals, are eligible to receive stock-based compensation awards, such as stock options, stock appreciation rights, restricted stock awards, stock bonuses and performance awards. To date, only incentive and non-statutory stock options and stock bonuses have been granted under the plan. The plan contains both an overall limit on the number of shares of our common stock that may be issued, as well as individual and other grant limits.
26
Incentive stock options must be granted with a per share exercise price equal to at least the fair market value of a share of our common stock on the date of grant. For purposes of the plan, the fair market value of our common stock is the mean between the reported high and low sale price of our common stock, as reported by the NASDAQ Global Market. We generally set the per share exercise price of all stock options granted under the plan at an amount equal to the fair market value of a share of our common stock on the date of grant.
Except in connection with certain specified changes in our corporate structure or shares, the Board of Directors or Compensation Committee may not, without prior approval of our stockholders, seek to effect any re-pricing of any previously granted, “underwater” option or stock appreciation right by amending or modifying the terms of the underwater option or stock appreciation right to lower the exercise price, cancelling the underwater option or stock appreciation right in exchange for cash, replacement options or stock appreciation rights having a lower exercise price, or other incentive awards, or repurchasing the underwater options or stock appreciation rights and granting new incentive awards under the plan. For purposes of the plan, an option or stock appreciation right is deemed to be “underwater” at any time when the fair market value of our common stock is less than the exercise price.
We generally provide for the vesting of stock options in equal annual installments over a three-year period commencing on the one-year anniversary of the date of grant for employees and in full on the one-year anniversary of the date of grant for directors and for option terms of five years.
Optionees may pay the exercise price of stock options in cash, except that the Compensation Committee may allow payment to be made (in whole or in part) by (1) using a broker-assisted cashless exercise procedure pursuant to which the optionee, upon exercise of an option, irrevocably instructs a broker or dealer to sell a sufficient number of shares of our common stock 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 us and directs us to deliver stock certificates to be issued upon such exercise directly to such broker or dealer; or (2) using a cashless exercise procedure pursuant to which the optionee surrenders to us shares of our common stock either underlying the option or that are otherwise held by the optionee.
Under the terms of the plan, unless otherwise provided in a separate agreement, if a named executive officer’s employment or service with our company terminates for any reason, the unvested portion of the option will immediately terminate and the executive’s right to exercise the then vested portion of the option will:
|
·
|
immediately terminate if the executive’s employment or service relationship with our company terminated for “cause”;
|
|
·
|
continue for a period of 12 months if the executive’s employment or service relationship with our company terminates as a result of the executive’s death, disability or retirement; or
|
|
·
|
continue for a period of three months if the executive’s employment or service relationship with our company terminates for any reason, other than for cause or upon death, disability or retirement.
|
As set forth in the plan, the term “cause” is as defined in any employment or other agreement or policy applicable to the named executive officer or, if no such agreement or policy exists, means (i) dishonesty, fraud, misrepresentation, embezzlement or other act of dishonesty with respect to us 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 overall duties, or (iv) any material breach of any employment, service, confidentiality or non-compete agreement entered into with us or any subsidiary.
27
Under the terms of the plan, if a participant is determined by the committee to have taken any action that would constitute “cause” or an “adverse action” during or within one year after the termination of the participant’s employment or other service with our company, all rights of the participant under the plan and any agreements evidencing an award then held by the participant will terminate and be forfeited and the committee may require the participant to surrender and return to us any shares received, and/or to disgorge any profits or any other economic value made or realized by the participant in connection with any awards or any shares issued upon the exercise or vesting of any awards during or within one year after the termination of the participant’s employment or other service. Additionally, as applicable, we may defer the exercise of any option or stock appreciation right for a period of up to six months after receipt of a participant’s written notice of exercise or the issuance of share certificates upon the vesting of any incentive award for a period of up to six months after the date of such vesting in order for the committee to make any determination as to the existence of cause or an adverse action. An “adverse action” includes any of the following actions or conduct that the committee determines to be injurious, detrimental, prejudicial or adverse to our interests: (i) disclosing any confidential information of our company or any subsidiary to any person not authorized to receive it; (ii) engaging, directly or indirectly, in any commercial activity that in the judgment of the committee competes with our business or the business of any of our subsidiaries; or (iii) interfering with our relationships or the relationships of our subsidiaries and our and their respective employees, independent contractors, customers, prospective customers and vendors.
As described in more detail under the heading “—Post-Termination Severance and Change in Control Arrangements” if there is a change in control of our company, then, under the terms of agreements evidencing options granted to our named executive officers and other employees under the plan, all outstanding options will become immediately exercisable in full and will remain exercisable for the remainder of their terms, regardless of whether the executive to whom such options have been granted remains in the employ or service of us or any of our subsidiaries.
Post-Termination Severance and Change in Control Arrangements
During 2011, we entered into an employment agreement with each of G. Patrick Lynch, NTIC’s President and Chief Executive Officer, and Matthew C. Wolsfeld, NTIC’s Chief Financial Officer and Corporate Secretary. Although each of the executive’s employment with our company remains “at will,” the employment agreements provide each of the executives certain severance benefits in the event the executive’s employment is terminated by us without “cause” or by the executive for “good reason” and the executive executes and does not revoke a separation agreement and a release of all claims.
If an executive’s employment is terminated by us without “cause” or by the executive for “good reason,” in addition to any accrued but unpaid salary and benefits through the date of termination, the executive will be entitled to a severance cash payment from us in an amount equal to two times (one and one-half times, in the case of Mr. Wolsfeld) the executive’s average total annual compensation for the two most recently completed fiscal years, plus a pro rata portion of the target bonus that the executive otherwise would have been eligible to receive under our bonus plan for the fiscal year during which the executive’s employment is terminated, with such pro rata portion based on the number of complete months during the fiscal year that the executive was employed with our company. The severance payment will be paid in several installments in the form of salary continuation in accordance with our normal payroll practices over a 24-month period (18-month period, in the case of Mr. Wolsfeld). If, however, the termination event occurs within 24 months after a change in control of our, the severance payment will be paid in one lump sum. If the executive is eligible for and timely elects continued coverage under our group medical plan, group dental plan and/or group vision plan pursuant to Section 4980B of the Internal Revenue Code of 1986, as amended (“COBRA”), for each of the first 18 months of the COBRA continuation period, we also will reimburse the executive in an amount equal to the difference between the amount the executive pays for such COBRA continuation coverage each month and the amount paid by a full-time active employee each month for the same level of coverage elected by the executive. In addition, all outstanding and unvested options to purchase shares of our common stock and other stock incentive awards granted to the executive under our stock incentive plan will become immediately vested and exercisable.
28
Under the employment agreements, “cause” is defined as (i) the executive’s material breach of any of the executive’s obligations under the employment agreement, or the executive’s willful and continued failure or refusal to perform his duties, responsibilities and obligations as an executive officer of our company, for reasons other than the executive’s disability, to the satisfaction of the Board of Directors; (ii) the executive’s commission of an act of dishonesty, fraud, embezzlement, misappropriation, or intentional and deliberate injury or material breach of fiduciary duty, or material breach of the duty of loyalty related to or against us or our business, or any unlawful or criminal activity of a serious nature involving any felony, or conviction by a court of competent jurisdiction of, or pleading guilty or nolo contendere to, any felony or any crime involving moral turpitude; or (iii) the existence of any court order or settlement agreement prohibiting the executive’s continued employment with our company. “Good reason” is defined as (i) a material diminution in the executive’s authority, duties or responsibilities; (ii) a material diminution in the executive’s annual base salary; (iii) a material change in the geographic location at which we require the executive to provide services, except for travel reasonably required in the performance of the executive’s responsibilities; or (iv) any action or inaction that constitutes a material breach by us of the employment agreement. “Change in control” has the meaning assigned to such term in our stock incentive plan as in effect from time to time to the extent such change in control is a “change of control event” as defined under Code Section 409A and applicable Internal Revenue Service regulations. Under the terms of our stock incentive plan, a “change in control” means:
|
·
|
the sale, lease, exchange or other transfer of all or substantially all of our assets to a corporation that is not controlled by us;
|
|
·
|
the approval by our stockholders of any plan or proposal for our liquidation or dissolution;
|
|
·
|
certain merger or business combination transactions;
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|
·
|
more than 40 percent of our outstanding voting shares are acquired by any person or group of persons who did not own any shares of common stock on the effective date of the plan; and
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|
·
|
certain changes in the composition of our Board of Directors.
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If a change in control of our company had occurred on August 31, 2012, the number of options indicated in the table below held by each of our named executive officers would have been automatically accelerated and exercisable. The estimated value of the automatic acceleration of the vesting of unvested stock options held by a named executive officer as of August 31, 2012 is also indicated in the table below and is based on the difference between: (i) the market price of the shares of our common stock underlying the unvested stock options held by such officer as of August 31, 2012 (based on the closing sale price of our common stock on August 31, 2012 — $10.25), and (ii) the exercise price of the options.
|
Executive Officer
|
Number of
Unvested Options
Subject to
Automatic
Acceleration
|
Estimated Value
of Automatic
Acceleration
of Vesting
|
||||||
|
G. Patrick Lynch
|
4,000 | $ | 10,400 | |||||
|
Matthew C. Wolsfeld
|
3,000 | 7,800 | ||||||
29
If the employment agreements described above were in effect as of August 31, 2012, our named executive officers would have been entitled to the following compensation and benefits in connection with a termination of their employment as of such date depending upon the applicable triggering event:
|
Triggering Event
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|||||||||||||||||||||
|
Executive Officer
|
Type of Payment
|
Voluntary/
For Cause
Termination
|
Involuntary
Termination
without Cause
|
Qualifying
Change in
Control
Termination
|
Death
|
Disability
|
|||||||||||||||
|
G. Patrick Lynch
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Cash severance
(1)
|
$ | 0 | $ | 965,260 | $ | 965,260 | $ | 0 | $ | 0 | ||||||||||
|
Benefits continuation
(2)
|
0 | 17,768 | 17,768 | 0 | 0 | ||||||||||||||||
|
Pro rata target bonus
(3)
|
0 | 331,589 | 331,589 | 331,589 | 331,589 | ||||||||||||||||
|
Equity acceleration
(4)
|
0 | 10,400 | 10,400 | 0 | 0 | ||||||||||||||||
|
Total:
|
0 | $ | 1,325,017 | $ | 1,325,017 | $ | 331,589 | $ | 331,589 | ||||||||||||
|
Matthew C. Wolsfeld
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Cash severance
(1)
|
$ | 0 | $ | 542,646 | $ | 542,646 | $ | 0 | $ | 0 | ||||||||||
|
Benefits continuation
(2)
|
0 | 21,216 | 21,216 | 0 | 0 | ||||||||||||||||
|
Pro rata target bonus
(3)
|
0 | 245,087 | 245,087 | 245,087 | 245,087 | ||||||||||||||||
|
Equity acceleration
(4)
|
0 | 7,800 | 7,800 | 0 | 0 | ||||||||||||||||
|
Total:
|
0 | $ | 816,749 | $ | 816,749 | $ | 245,087 | $ | 245,087 | ||||||||||||
|
|
(1)
|
Includes the value of two times (one and one-half times, in the case of Mr. Wolsfeld) the executive’s average total annual compensation for the two most recently completed fiscal years.
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|
|
(2)
|
Includes the value of medical, dental and vision benefit continuation for each executive and their family for 18 months following the executive’s termination.
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|
|
(3)
|
Includes value of full target bonus for the entire year in light of assumed termination date of August 31, 2012, the last day of the fiscal year.
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|
|
(4)
|
Includes the value of acceleration of all unvested shares that are subject to options, based on a closing sale price of $10.25 per share as of August 31, 2012.
|
Indemnification Agreements
We have entered into agreements with all of our executive officers under which we are required to indemnify them against expenses, judgments, penalties, fines, settlements and other amounts actually and reasonably incurred, including expenses of a derivative action, in connection with an actual or threatened proceeding if any of them may be made a party because he is or was one of our executive officers. We will be obligated to pay these amounts only if the executive officer acted in good faith and in a manner that he or she reasonably believed to be in or not opposed to our best interests. With respect to any criminal proceeding, we will be obligated to pay these amounts only if the executive officer had no reasonable cause to believe his conduct was unlawful. The indemnification agreements also set forth procedures that will apply in the event of a claim for indemnification.
RELATED PERSON RELATIONSHIPS AND TRANSACTIONS
________________
Please see “Director Compensation” and “Executive Compensation” for information regarding consulting arrangements we have with one of our current directors and the other compensation arrangements with our directors and executive officers during fiscal 2012.
30
PROPOSAL TWO — RATIFICATION OF SELECTION OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
_________________
Selection of Independent Registered Public Accounting Firm
The Audit Committee of the Board of Directors has selected Baker Tilly Virchow Krause, LLP to serve as our independent registered public accounting firm for the fiscal year ending August 31, 2013. Although it is not required to do so, the Board of Directors is asking our stockholders to ratify the Audit Committee’s selection of Baker Tilly Virchow Krause, LLP. If our stockholders do not ratify the selection of Baker Tilly Virchow Krause, LLP, another independent registered public accounting firm will be considered by the Audit Committee of the Board of Directors. Even if the selection is ratified by our stockholders, the Audit Committee may in its discretion change the appointment at any time during the year, if it determines that such a change would be in the best interests of our company and its stockholders.
Representatives of Baker Tilly Virchow Krause, LLP will be present at the Annual Meeting to respond to appropriate questions. They will also have the opportunity to make a statement if they wish to do so.
Audit, Audit-Related, Tax and Other Fees
The following table presents the aggregate fees billed to us by Baker Tilly Virchow Krause, LLP, our independent registered public accounting firm, for the fiscal years ended August 31, 2012 and August 31, 2011.
|
Aggregate Amount Billed by
Baker Tilly Virchow Krause, LLP ($)
|
||||||||
|
Fiscal 2012
|
Fiscal 2011
|
|||||||
|
Audit Fees
(1)
|
$ | 229,171 | $ | 195,433 | ||||
|
Audit-Related Fees
(2)
|
— | 3,400 | ||||||
|
Tax Fees
|
— | — | ||||||
|
All Other Fees
|
— | — | ||||||
__________________________
|
(1)
|
These fees consisted of the audit of our annual financial statements by year, review of financial statements included in our quarterly reports on Form 10-Q and other services normally provided in connection with statutory and regulatory filings or engagements.
|
|
(2)
|
These fees consisted of reviews of quarterly financials, Sarbanes Oxley controls testing, reviews of registration statements and the issuance of consents. The Audit Committee has considered whether the provision of these services is compatible with maintaining the independence of Baker Tilly Virchow Krause, LLP and has determined that it is.
|
Audit Committee Pre-Approval Policies and Procedures
Rules adopted by the Securities and Exchange Commission in order to implement requirements of the Sarbanes-Oxley Act of 2002 require public company audit committees to pre-approve audit and non-audit services provided by a company’s independent registered public accounting firm. All services rendered by Baker Tilly Virchow Krause, LLP to NTIC were permissible under applicable laws and regulations and all services provided to NTIC, other than de minimis non-audit services allowed under applicable law, were approved in advance by the Audit Committee in accordance with these rules. The Audit Committee has not adopted any formal pre-approval policies and procedures.
31
Board of Directors Recommendation
The Board of Directors unanimously recommends that our stockholders vote
FOR
ratification of the selection of Baker Tilly Virchow Krause, LLP, as our independent registered public accounting firm for the fiscal year ending August 31, 2013.
Audit Committee Report
This report is furnished by the Audit Committee of the Board of Directors with respect to NTIC’s financial statements for the fiscal year ended August 31, 2012.
One of the purposes of the Audit Committee is to oversee NTIC’s accounting and financial reporting processes and the audit of NTIC’s annual financial statements. NTIC’s management is responsible for the preparation and presentation of complete and accurate financial statements. NTIC’s independent registered public accounting firm, Baker Tilly Virchow Krause, LLP, is responsible for performing an independent audit of NTIC’s financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) and for issuing a report on their audit.
In performing its oversight role, the Audit Committee has reviewed and discussed NTIC’s audited financial statements for the fiscal year ended August 31, 2012 with NTIC’s management. Management represented to the Audit Committee that NTIC’s financial statements were prepared in accordance with generally accepted accounting principles. The Audit Committee has discussed with Baker Tilly Virchow Krause, LLP, NTIC’s independent registered public accounting firm, the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. The Audit Committee has received the written disclosures and the letter from Baker Tilly Virchow Krause, LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding the Baker Tilly Virchow Krause, LLP’s communications with the Audit Committee concerning independence. The Audit Committee has discussed with Baker Tilly Virchow Krause, LLP its independence and concluded that the independent registered public accounting firm is independent from NTIC and NTIC’s management.
Based on the review and discussions of the Audit Committee described above, in reliance on the unqualified opinion of Baker Tilly Virchow Krause, LLP regarding NTIC’s audited financial statements, and subject to the limitations on the role and responsibilities of the Audit Committee discussed above and in the Audit Committee’s charter, the Audit Committee recommended to the Board of Directors that NTIC’s audited financial statements for the fiscal year ended August 31, 2012 be included in its Annual Report on Form 10-K for the fiscal year ended August 31, 2012 for filing with the Securities and Exchange Commission.
This report is dated as of November 15, 2012.
Audit Committee
Richard J. Nigon, Chair
Pierre Chenu
Soo-Keong Koh
32
OTHER MATTERS
________________
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers and all persons who beneficially own more than 10 percent of the outstanding shares of our common stock to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of our common stock. Executive officers, directors and greater than 10 percent beneficial owners are also required to furnish NTIC with copies of all Section 16(a) forms they file. To our knowledge, based upon a review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended August 31, 2012, none of our directors or executive officers or beneficial owners of greater than 10 percent of our common stock failed to file on a timely basis the forms required by Section 16 of the Exchange Act, except that: (1) G. Patrick Lynch, Inter Alia Holding Company and Julianne Lynch filed a late Form 4 on September 6, 2011 reporting, among other transactions, an open market sale of shares of our common stock effected on September 1, 2011 by Inter Alia Holding Company; (2) and Mark J. Stone filed a late Form 4 on March 1, 2012 reporting an open market sale of shares of our common stock effected on February 27, 2012.
Stockholder Proposals for 2014 Annual Meeting
Stockholders who, in accordance with Rule 14a-8 under the Exchange Act, wish to present proposals for inclusion in the proxy materials relating to the 2014 Annual Meeting of Stockholders must submit their proposals so that they are received by us at our principal executive offices no later than the close of business on August 5, 2013, unless the date of the meeting is delayed by more than 30 calendar days. The proposals must satisfy the requirements of the proxy rules promulgated by the Securities and Exchange Commission and as the rules of the SEC make clear, simply submitting a proposal does not guarantee that it will be included.
Any other stockholder proposals to be presented at the 2014 Annual Meeting of Stockholders (other than a matter brought pursuant to SEC Rule 14a-8) must be given in writing to our Corporate Secretary and must be delivered to or mailed and received at our principal executive offices, not less than 90 days nor more than 120 days prior to the anniversary date of the 2013 Annual Meeting of Stockholders; provided, however, that in the event that the 2014 Annual Meeting of Stockholders is not held within 30 days before or after such anniversary date, notice by the stockholder to be timely must be received not later than the close of business on the 10
th
day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made, whichever first occurs. The proposal must contain specific information required by our Bylaws, a copy of which may be obtained by writing to our Corporate Secretary. If a proposal is not timely and properly made in accordance with the procedures set forth in our Bylaws, it will be defective and may not be brought before the meeting. If the proposal is nonetheless brought before the meeting and the Chairman of the meeting does not exercise the power and duty to declare the proposal defective, the persons named in the proxy may use their discretionary voting with respect to the proposal.
33
Director Nominations for 2014 Annual Meeting
In accordance with procedures set forth in our Bylaws, NTIC stockholders may propose nominees for election to the Board of Directors only after providing timely written notice to our Corporate Secretary. To be timely, a stockholder’s notice to the Corporate Secretary must be delivered to or mailed and received at NTIC’s principal executive offices not less than 90 days nor more than 120 days prior to the anniversary date of the immediately preceding annual meeting; provided, however, that in the event that the annual meeting with respect to which such notice is to be tendered is not held within 30 days before or after such anniversary date, notice by the stockholder to be timely must be received not later than the close of business on the 10
th
day following the day on which such notice of the date of the meeting was mailed or public disclosure was made, whichever first occurs. The notice must set forth, among other things:
|
·
|
the nominee’s name, age, business address, residence address and record address;
|
|
·
|
the nominee’s principal occupation or employment;
|
|
·
|
the class and number of shares of NTIC capital stock which are beneficially owned by the nominee;
|
|
·
|
signed consent to serve as a director of NTIC; and
|
|
·
|
any other information concerning the nominee required under the rules of the Securities and Exchange Commission in a proxy statement soliciting proxies for the election of directors.
|
Submissions must be made by mail, courier or personal delivery. E-mailed submissions will not be considered. The Nominating and Corporate Governance Committee will consider only those stockholder recommendations whose submissions comply with the procedural requirements set forth in NTIC’s Bylaws. The Nominating and Corporate Governance Committee will evaluate candidates recommended by stockholders in the same manner as those recommended by others.
Other Business
Our management does not intend to present other items of business and knows of no items of business that are likely to be brought before the Annual Meeting, except those described in this proxy statement. However, if any other matters should properly come before the Annual Meeting, the persons named in the enclosed proxy will have discretionary authority to vote such proxy in accordance with their best judgment on the matters.
Copies of Fiscal 2012 Annual Report
We have sent or made electronically available to each of our stockholders a copy of our annual report on Form 10-K (without exhibits) for the fiscal year ended August 31, 2012. The exhibits to our Form 10-K are available by accessing the SEC’s EDGAR filing database at www.sec.gov. We will furnish a copy of any exhibit to our Form 10-K upon receipt from any such person of a written request for such exhibits upon the payment of our reasonable expenses in furnishing the exhibits. This request should be sent to: Northern Technologies International Corporation, 4201 Woodland Road, Circle Pines, Minnesota 55014, Attention: Stockholder Information.
34
Householding of Annual Meeting Materials
Some banks, brokers and other nominee record holders may be participating in the practice of “householding” proxy statements and annual reports. This means that only one copy of this proxy statement or NTIC’s Annual Report to Stockholders may have been sent to multiple stockholders in each household. NTIC will promptly deliver a separate copy of either document to any stockholder upon written or oral request to NTIC’s Stockholder Information Department, Northern Technologies International Corporation, 4201 Woodland Road, Circle Pines, Minnesota 55014, telephone: (763) 225-6637. Any stockholder who wants to receive separate copies of this proxy statement or NTIC’s Annual Report to Stockholders in the future, or any stockholder who is receiving multiple copies and would like to receive only one copy per household, should contact the stockholder’s bank, broker, or other nominee record holder, or the stockholder may contact NTIC at the above address and phone number.
Proxy Solicitation Costs
The cost of soliciting proxies, including the preparation, assembly, electronic availability and mailing of proxies and soliciting material, as well as the cost of making available or forwarding this material to the beneficial owners of our common stock will be borne by NTIC. Our directors, officers and regular employees may, without compensation other than their regular compensation, solicit proxies by telephone, e-mail, facsimile or personal conversation. We may reimburse brokerage firms and others for expenses in making available or forwarding solicitation materials to the beneficial owners of our common stock.
_________________________
Your vote is important. Whether or not you plan to attend the Annual Meeting in person, vote your shares of NTIC common stock by the Internet or telephone, or request a paper proxy card to sign, date and return by mail so that your shares may be voted.
By Order of the Board of Directors
Richard J. Nigon
Chairman of the Board
December 5, 2012
Circle Pines, Minnesota
35
TABLE OF CONTENTS