Northern Technologies International : 2023 Annual Report

Northern

Technologies

International

Corporation

Fiscal 2023 Annual Report

Northern Technologies

International Corporation

• Notice of 2024 Annual Meeting

• Proxy Statement

• Annual Report on Form 10-K - August 31, 2023

Our Mission:

Our business model of commercializing clean and green technologies depends heavily on the talents, perseverance, and integrity of both our employees and our worldwide federation of joint venture partners. We believe that our responsibilities are first to our worldwide customers, then to our people, next to our communities, and finally to our shareholders. Therefore, we must:

• Exercise honor, humanity, and disciplined management in our actions.
• See a unified world through the global perspectives of our people.
• Ensure that the environment becomes a better place because of what we do.
• Invest continuously in our future.

Our Environment:

NTIC uses advanced technologies to care for the world we live in, give back to society, and strive to set an example for environmental leadership and responsibility.

At NTIC, we believe that there is no alternative to doing environmentally sustainable business while working to grow the bottom line.

We encourage our employees, joint venture partners, distributors, affiliates, and suppliers to carry out our environmental commitments at the individual level through:

• Environmentally responsible business practices.
• Advanced R&D processes that promote the use of environmentally responsible raw materials.
• Selecting components and manufacturing processes that reduce waste and impact on the environment.
• Raising awareness about our technologies and how they can help solve current environmental challenges.
• Each NTIC employee is expected to practice an individual commitment to sustainability and environmental responsibility in the workplace.

Through our commitments to lessen our environmental footprint and our advanced technologies, which allow others to practice sustainability, we have the power to benefit ourselves as individuals, our federation of NTIC joint ventures, and our environment for many generations to come.

Our Technology Platforms:

ZERUST®/EXCOR® manufactures and markets corrosion-inhibiting technologies that provide customers with advanced solutions for corrosion across their production facilities and supply chains. The technology uses proprietary chemical systems to create invisible molecular corrosion shields on metal surfaces. The ZERUST®/EXCOR® teams support clients globally in a broad range of industries, including automotive, electrical, electronic, medical, machine fabrications, steel production, military, and marine. ZERUST®/EXCOR® products and services allow customers to achieve substantial cost savings as well as reduce the negative environmental impact caused by traditional corrosion prevention methods and the waste caused by the corrosion of metal assets.

Zerust® Oil & Gas provides advanced corrosion control technologies and services to the petrochemical industry. Zerust® Oil & Gas products and services utilize Zerust® proprietary corrosion inhibitors in combination with advanced cathodic protection systems to dramatically enhance the corrosion protection of capital assets. These assets include above-ground storage tanks, various pieces of process equipment, buried and submerged pipelines, mothballed large capital equipment, pipeline flanges, valves, and welded joints. Zerust® Oil & Gas technologies are currently implemented in refineries, offshore oil rigs, tank farms, and retail gas stations in several countries.

Natur-Tec® engineers and manufactures biobased and biodegradable plastic resins intended to replace conventional, petroleum-based plastics. Natur-Tec® has a broad bioplastics portfolio which spans flexible film, foam, rigid injection molded materials, and engineered plastics. These applications allow for the production of 100% certified compostable finished products, such as bags, food service products, and product packaging. Natur-Tec® products are renewable, resource-based, and do not contain conventional plastic materials. Natur-Tec® products provide sustainable alternatives to conventional plastics and enable the industry and consumers to move closer to a carbon- neutral footprint.

To the Stockholders of Northern Technologies International Corporation (NTIC),

Fiscal 2023 marked NTIC's third consecutive year of record sales, despite the growing economic challenges in both Europe and China and rising interest rates in the U.S. Our continued sales growth success demonstrates the increasing value we provide our global customers as well as the efficacy of our strategic focus on diversifying our products, end markets and geographies.

On an annual basis, consolidated net sales increased 7.7% year-over-year to a record $79.9 million, driven by stable North American ZERUST® Industrial sales, and growing Natur-Tec® and ZERUST® Oil & Gas sales. The investments we made over the years to support our emerging Natur-Tec® and ZERUST® Oil & Gas segments continue to pay off, as ZERUST® Oil & Gas net sales increased 69.3% to an annual record of $7.8 million and Natur-Tec® net sales increased 8.8% to $18.2 million in fiscal 2023. Over the past ten years, we have successfully scaled both businesses and expanded our market share in the large compostable plastics and oil & gas markets. For fiscal 2023, Natur-Tec® represented 22.7% of net sales, compared to 9.1% of net sales in fiscal 2013, while ZERUST® Oil & Gas represented 9.8% of net sales, compared to 4.4% of net sales in fiscal 2013.

During fiscal 2023, sales of our core ZERUST® Industrial solutions were challenged by tougher economic conditions in both Europe and China. Throughout the fiscal year, our European joint ventures had to deal with persistent inflation, as well as significant raw material and energy cost increases, and the economies of both Europe and China were being shaken by the effects of geopolitical conflicts. These trends impacted both topline results and overall profitability. We also experienced weaker overall demand at our European joint ventures and are working closely with our partners on ways to offset the impact of these softer market conditions.

Total net sales for fiscal 2023 by our joint ventures, which we do not consolidate in our financial statements, decreased 3.3% to $100.7 million. This, in turn, adversely affected our joint venture operating income, which benefitted from a one-time gain from the final liquidation of NTIC's former joint venture in China.

NTIC China sales for fiscal 2023 decreased 14.5% year-over-year, primarily due to the government-imposedCOVID-19 related lockdowns throughout much of the fiscal year, as well as weaker overall economic growth after those lockdowns were finally lifted. While sales remained below fiscal 2022 levels throughout fiscal 2023, sales did increase sequentially in the third and fourth quarters of fiscal 2023. This sequential improvement supports our expectation for higher demand in fiscal 2024. Overall, we remain committed to the Chinese market and the long-term opportunities it represents for NTIC. We continue to take steps to enhance and protect our Chinese operations, and we continue to believe China will once again be a significant contributor to the profitability of NTIC in the future.

During fiscal 2023, NTIC created a new indirect majority-owned subsidiary to assume the operations of our former joint venture in Taiwan. This investment follows the successful acquisition of the remaining ownership interest in NTIC's Indian joint venture in the fiscal 2022 first quarter, as well as the fiscal 2022 opening of a facility in Shanghai, China, that supports our R&D production, sales and marketing, and training efforts. The majority owned subsidiary in Taiwan furthers expands our commitment to the Asian Pacific region by providing another location to support NTIC's global ZERUST® Industrial, ZERUST® Oil & Gas, and Natur-Tec® compostable plastic customers.

Net income for fiscal 2023 declined 54.0% to $2.9 million, or $0.30 per diluted share, from $6.3 million, or $0.66 per diluted share, for fiscal 2022. This decrease was primarily due to the remeasurement gain on acquisition of equity method investee recognized during fiscal 2022 in connection with our acquisition of the remaining ownership interest in our Indian joint venture, which did not repeat in fiscal 2023, and, to a lesser extent, an increase in operating expenses, partially offset by an increase in gross profit. Several factors impacted our fiscal 2023 profitability, including poor European joint venture performance, significant inflation, increased salaries

and benefits, and friction across our global supply chains.

Throughout fiscal 2023, we implemented several actions to restore our profitability. However, more work in this regard is still necessary across our business and at our global joint ventures. We believe we have opportunities to drive up sales growth at NTIC China, which should improve profitability in this geography as well. In addition, while we expect ZERUST® Oil & Gas sales to be somewhat slow during the first half of fiscal year 2024, compared to ZERUST® Industrial and Natur-Tec® sales, we anticipate ZERUST® Oil & Gas will be the fastest growing segment of our business in fiscal 2024.

Overall, our financial position remains strong, and is an important asset as uncertainty about the state of the global economy has been rising of late. We ended fiscal 2023 with $23.0 million in working capital, including $5.4 million in cash and cash equivalents. On August 31, 2023, we also had $23.7 million of investments in joint ventures, of which nearly $13.8 million is cash, with the remaining balance mostly made up of other working capital. Our asset light business model and strong financial position provides us with the flexibility to allocate needed capital to support our future growth initiatives while maintaining our quarterly dividend program. In addition, we plan to use our free cash flow to pay down our revolving line of credit over the course of fiscal 2024.

During fiscal 2023, NTIC declared cash dividends of $0.28 per share, the same amount of cash dividends we declared for the prior fiscal year. We continue to closely watch our global markets as well as the capital needs of our business and will adjust our dividend policy, as necessary, to maintain our strong financial position.

ZERUST® Industrial Corrosion Prevention

ZERUST® Industrial sales remained stable throughout fiscal 2023, as sales increased 3.6% on a year-over-year basis to a record $51.7 million. ZERUST® Industrial sales benefitted from positive demand in North America, as well as from the contribution of our wholly owned subsidiary, ZERUST® India. Fiscal year 2023 net sales at our wholly owned NTIC China subsidiary were hurt by residual COVID-19 lockdowns during the year, causing sales at this operation to decline 14.5% to $13.5 million.

NTIC's ZERUST® Industrial business continues to benefit from strong relationships with leading, multinational companies. As we look to fiscal 2024, we remain committed to providing our customers with leading corrosion prevention solutions and technical advice. We will continue supporting our customers global supply chains and we are developing additional opportunities to enhance our capabilities and technologies. Fiscal 2024 sales are expected to benefit from stable North American demand, and several large new customer wins.

ZERUST® in the Oil & Gas Industry

As expected, fiscal 2023 was a strong year of ZERUST® Oil & Gas sales growth, as sales increased 69.3% to a record $7.8 million. Our performance during fiscal 2023 follows over 10 years of providing value-added corrosion prevention solutions to some of the largest oil & gas companies globally. These customers have successfully deployed our VCI technology to provide cost-effective solutions to protect various assets, including above- ground storage tanks, pipelines, offshore platforms, and other types of oil & gas equipment and spare parts. In addition, we have seen accelerating adoption of our solutions within the oil & gas industry following the favorable technical report that was released in calendar 2021 by the American Petroleum Institute (API) detailing how VCI based technologies, like the ones offered by ZERUST® Oil & Gas, provide effective corrosion protection for the bottoms of above-ground storage tanks. In combination, these factors validate our technology, and are helping our long-term sales efforts within the global oil & gas market. We expect positive momentum within our ZERUST® Oil & Gas business to continue and we believe there are substantial opportunities to drive growth throughout fiscal 2024 and beyond.

Natur-Tec® Bioplastics

Demand patterns for our Natur-Tec® business continued to strengthen during fiscal 2023, reflecting recovering market dynamics and growing adoption of compostable plastics globally. Natur-Tec® sales increased 8.8% to a record $18.2 million and have increased 66.1% over the past two years, reflecting a significant rebound since the COVID-19 pandemic.

We continue to see growing market demand for new applications of certified compostable plastic products and resin compounds, as well as increasing interest in commercial and municipal programs that use certified compostable plastics as alternatives to conventional plastics. As a result, we believe we are well positioned for long-term sustainable growth within our Natur-Tec® Bioplastics business and believe NTIC is well positioned to achieve another year of record Natur-Tec® sales in fiscal 2024.

Closing

While fiscal 2023 was a record sales year, profitability was challenged by several items that we are focused on addressing in fiscal 2024. NTIC ended the year with a strong and diverse platform supported by our global footprint, our experienced and committed team members, and our robust corrosion prevention and compostable plastic solutions. We serve large, multinational customers, and continue to increase our market share across large, global markets. We have work to do to enhance our profitability, but I believe our strong platform will drive improving profitability in fiscal 2024 and into the future. On behalf of everyone at NTIC, I am confident in the opportunities we are pursuing and the direction we are headed. As a result, we expect fiscal 2024 to be another good year for NTIC and our stockholders.

Sincerely,

G. Patrick Lynch

President & CEO, NTIC

G. Patrick Lynch

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

January 19, 2024

The Annual Meeting of Stockholders of Northern Technologies International Corporation, a Delaware corporation, will be held at our corporate executive offices located at 4201 Woodland Road, Circle Pines, Minnesota 55014, beginning at 8:00 a.m., Central Standard Time, on Friday, January 19, 2024, for the following purposes:

1. To elect eight persons to serve as directors until our next annual meeting of stockholders or until their respective successors are elected and qualified.
2. To approve, on an advisory basis, the compensation of our named executive officers, as disclosed in the accompanying proxy statement.
3. To ratify the appointment of Baker Tilly US, LLP as our independent registered public accounting firm for the fiscal year ending August 31, 2024.
4. To approve the Northern Technologies International Corporation 2024 Stock Incentive Plan.
5. To transact such other business as may properly come before the meeting or any adjournment of the meeting.

Only those stockholders of record at the close of business on November 21, 2023 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 9, 2024 during normal business hours for examination by any stockholder registered on NTIC's stock ledger as of the record date, November 21, 2023, for any purpose germane to the Annual Meeting.

By Order of the Board of Directors,

Matthew C. Wolsfeld

Corporate Secretary

December 4, 2023

Circle Pines, Minnesota

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
PROXY STATEMENT SUMMARY	4
GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING	15
Date, Time, Place and Purposes of Meeting	15
Who Can Vote	15
How You Can Vote	15
How Does the Board Recommend that You Vote	17
How You May Change Your Vote or Revoke Your Proxy	17
Quorum Requirement	17
Vote Required	17
Other Business	19
Procedures at the Annual Meeting	19
Householding of Annual Meeting Materials	19
Proxy Solicitation Costs	20
PROPOSAL ONE-ELECTION OF DIRECTORS	21
Number of Directors	21
Nominees for Director	21
Information about Current Directors and Board Nominees	21
Additional Information about Current Directors and Board Nominees	22
Board Recommendation	25
PROPOSAL TWO-ADVISORY VOTE ON EXECUTIVE COMPENSATION	26
Introduction	26
Board Recommendation	27
PROPOSAL THREE-RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM	28
Appointment of Independent Registered Public Accounting Firm	28
Audit, Audit-Related, Tax and Other Fees	28
Audit Committee Pre-Approval Policies and Procedures	29
Board Recommendation	29
PROPOSAL FOUR-APPROVAL OF NORTHERN TECHNOLOGIES INTERNATIONAL
CORPORATION 2024 STOCK INCENTIVE PLAN	30
Background	30
Reasons Why You Should Vote in Favor of the 2024 Plan	31
Summary of Sound Governance Features of the 2024 Plan	32
Background for Shares Authorized for Issuance	32
Summary of the 2024 Plan Features	34
U.S. Federal Income Tax Consequences	43
New Plan Benefits	45
Board Recommendation	45
STOCK OWNERSHIP	46
Beneficial Ownership of Significant Stockholders and Management	46
Stock Ownership Guidelines	48
Securities Authorized for Issuance Under Equity Compensation Plans	48
CORPORATE GOVERNANCE	50
Governance Best Practices	50
Corporate Governance Guidelines	51
Board Leadership Structure	51
Director Independence	52

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Board Meetings and Attendance	52
Board Committees	52
Audit Committee	52
Compensation Committee	54
Nominating and Corporate Governance Committee	56
Director Nominations Process	57
Board Diversity Matrix	58
Board Oversight of Risk	59
Board Oversight of Strategy	60
Board and Board Committee Evaluations	60
Code of Ethics	60
No Political Contributions	60
Policy Regarding Director Attendance at Annual Meetings of Stockholders	60
Complaint Procedures	61
Stockholder Engagement	61
Process Regarding Stockholder Communications with Board of Directors	62
DIRECTOR COMPENSATION	63
Summary of Cash and Other Compensation	63
Non-Employee Director Compensation Program	64
Consulting Agreement	66
EXECUTIVE COMPENSATION	67
Compensation Review	67
Summary of Cash and Other Compensation	77
Outstanding Equity Awards at Fiscal Year End	78
Option Exercises for Fiscal 2023	79
Stock Incentive Plans	79
Post-Termination Severance and Change in Control Arrangements	81
Pay Versus Performance Disclosure	83
Compensation Committee Interlocks and Insider Participation	88
RELATED PERSON RELATIONSHIPS AND TRANSACTIONS	89
Introduction	89
Procedures Regarding Approval of Related Party Transactions	89
Description of Related Party Transactions	90
STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS FOR 2025 ANNUAL
MEETING OF STOCKHOLDERS	91
COPIES OF FISCAL 2023 ANNUAL REPORT	91
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References in this proxy statement to:

• "NTIC," "we," "us," "our," or the "Company" refer to Northern Technologies International Corporation;
• "Board" refer to the Board of Directors of NTIC;
• "Annual Meeting" refer to our 2024 Annual Meeting of Stockholders; and
• "Fiscal 2023 Annual Report" or "Fiscal 2023 Annual Report to Stockholders" refer to our Annual Report to Stockholders for fiscal 2023, including our Annual Report on Form 10-K for the year ended August 31, 2023, being made available together with this proxy statement.

Information on our website and any other website referenced herein is not incorporated by reference into, and does not constitute a part of, this proxy statement.

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• and ® denote trademarks and registered trademarks of Northern Technologies International Corporation or our affiliates, registered as indicated in the United States. All other trademarks and trade names referred to in this proxy statement are the property of their respective owners.

We intend to make this proxy statement and our Fiscal 2023 Annual Report available on the Internet and to commence mailing of the notice to all stockholders entitled to vote at the Annual Meeting beginning on or about December 4, 2023. We will mail paper copies of these materials, together with a proxy card, within three business days of a request properly made by a stockholder entitled to vote at the 2024 Annual Meeting of Stockholders.

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