10.

Shareholders’ Equity

Dividends

Our dividend policy and the payment of cash dividends under that policy are subject to the Board of Director’s continuing determination that the dividend policy and the declaration of dividends are in the best interest of the Company’s shareholders. Future dividends and the dividend policy may be changed or cancelled at the Company’s discretion at any time. Payment of dividends is also subject to the continuing compliance with our financial covenants under our Credit Facility. During 2014, 2013 and 2012, our Board declared the following quarterly cash dividends on our common stock:


Dividend Per Share	Record Date		Payment Date
$0.060		December 19, 2014		December 30, 2014
$0.060		September 16, 2014		September 30, 2014
$0.060		June 13, 2014		June 27, 2014
$0.050		March 19, 2014		March 31, 2014
$0.050		December 17, 2013		December 31, 2013
$0.050		September 16, 2013		September 30, 2013
$0.050		June 14, 2013		June 28, 2013
$0.050		March 18, 2013		March 28, 2013
$0.045		December 17, 2012		December 31, 2012
$0.045		September 16, 2012		September 30, 2012
$0.035		June 14, 2012		June 28, 2012
$0.035		March 18, 2012		March 28, 2012

On March 4, 2015, our Board of Directors declared a quarterly dividend of $0.066 per share. The dividend will be paid on March 31, 2015 to all shareholders of record at the close of business on March 19, 2015.

Effective August 13, 2012, the Company implemented a Dividend Reinvestment Plan (the “Plan”), under which the Company may issue up to 750,000 shares of common stock. The Plan provides a way for interested shareholders to increase their holdings in our common stock. Participation in the Plan is strictly voluntary and is open only to existing shareholders. The Plan has had limited participation.

Share-Based Compensation

The 2007 Equity Incentive Plan (the “2007 Plan”) was approved by shareholders on May 23, 2007 and replaced the 1997 Stock Option Plan (the “1997 Plan”). The 1997 Plan remains in effect solely for the purpose of the continued administration of the options outstanding under the 1997 Plan. The plans are administered by the Compensation Committee (the “Committee”) of the Board of Directors. The 2007 Plan permits the granting of stock options and stock awards which are granted at a price equal to or greater than the fair market value of the Company’s common stock at the date of grant. Generally, stock options or stock awards granted to non-employee directors vest in periods of one to three years from the date of grant. Stock options granted to employees generally vest equally over a period of three to five years from the date of grant. Stock awards granted to employees generally vest equally over a period of up to three years from the date of grant for awards subject to service requirements. Stock awards may be granted and vest based on the achievement of certain performance requirements as established by the Committee. Stock awards also may be granted without service or performance requirements, as determined by the Committee. The Committee, at its discretion, may establish other vesting periods and performance requirements when appropriate. During 2014, 280,000 stock options and 6,000 restricted stock awards were granted to plan participants under the 2007 Plan. During 2013, 923,000 stock options were granted to plan participants under the 2007 Plan. No stock awards were granted in 2014, 2013 or 2012. Also, there are no performance-based awards outstanding at either December 31, 2014 or 2013. The number of shares reserved for issuance under the 2007 Plan is 2,600,000, of which 309,000 shares were available for future grant as of December 31, 2014.

Share-based compensation expense for stock options and restricted stock awards under these plans of $1.7 million, $1.1 million and $0.7 million was recorded in the years ended December 31, 2014, 2013 and 2012, respectively. The tax benefit related to stock based compensation expense was $0.2 million, $0.3 million, and zero in 2014, 2013 and 2012, respectively. No equity compensation expense has been capitalized in inventory or fixed assets.

Employee Stock Purchase Plan

The 2009 Employee Stock Purchase Plan (“ESPP”) was approved by shareholders on May 21, 2009.

The ESPP is administered by the Committee. The aggregate maximum number of shares of the Company’s common stock that may be granted under the ESPP is 1,500,000 shares over the ten-year term of the ESPP, subject to adjustment in the event there is a reorganization, merger, consolidation, recapitalization, reclassification, stock split-up, or similar transaction with respect to the common stock.

The ESPP allows employees to purchase shares of common stock at a 15% discount from market price and pay for the shares through payroll deductions. Eligible employees can enter the plan at specific “offering dates” that occur in six month intervals.

The Company recognized employee stock purchase plan expense of $19,000, $19,000 and $16,000 during the years ended December 31, 2014, 2013 and 2012, respectively.

In addition to the Company’s share-based compensation plans, certain other warrants have been issued that are not compensatory in nature. See further discussion in the “Warrants to Purchase Common Stock” section below.

Employees’ Stock Ownership Trust:

The Company sponsors an employee stock ownership plan under which it may make discretionary contributions to the trust, either in cash or in shares of Company common stock, for certain salaried employees of Met-Pro in the United States who are eligible to participate in the Plan. There were no contributions to the Employees’ Stock Ownership Trust for the years ended December 31, 2014, 2013 and 2012. All shares are considered to be allocated to participants or to be released for allocation to participants, and are included in the earnings per share computations.

Stock Options and Restricted Awards

The weighted-average fair value of stock options granted during 2014, 2013 and 2012 was estimated at $6.48, $6.18 and $3.81 per option, respectively, using the Black-Scholes option-pricing model based on the following assumptions:

Expected Volatility: The Company utilizes a volatility factor based on the Company’s historical stock prices for a period of time equal to the expected term of the stock option utilizing weekly price observations. For 2014, 2013 and 2012, the Company utilized weighted-average volatility factors of 55%, 57% and 60%, respectively.

Expected Term: Due to limited historical exercise data, the Company utilizes the simplified method of determining the expected term based on the vesting schedules and terms of the stock options. For 2014, 2013 and 2012, the Company utilized weighted-average expected term factors of 6.3 years, 6.5 years and 6.2 years, respectively.

Risk-Free Interest Rate: The risk-free interest rate factor utilized is based upon the implied yields currently available on U.S. Treasury zero-coupon issues over the expected term of the stock options. For 2014, 2013 and 2012, the Company utilized a weighted-average risk-free interest rate factor of 2.2%, 2.2% and 1.2%, respectively.

Expected Dividends: The Company utilized a weighted average expected dividend rate of 1.7%, 1.6% and 1.9% to value options granted during 2014, 2013 and 2012, respectively.

The fair value of the stock options granted is recorded as compensation expense on a straight-line basis over the vesting periods of the options adjusted for the Company’s estimate of pre-vesting forfeitures. The pre-vesting forfeiture estimate is based on historical activity and is reviewed periodically and updated as necessary.

Information related to all stock options under the 2007 Plan and 1997 Plan for the years ended December 31, 2014, 2013 and 2012 is shown in the tables below:


(Shares in thousands)	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value ($000)
Outstanding at December 31, 2013		1,807		$	9.05		7.7 years
Granted		280			13.78
Forfeitures		(121	)		12.45
Exercised		(239	)		5.18

Outstanding at December 31, 2014		1,727			10.12		8.2 years	$	9,390

Exercisable at December 31, 2014		655			5.02		5.8 years	$	5,332


(Shares in thousands)	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value ($000)
Outstanding at December 31, 2012		1,244		$	5.18		6.8 years
Granted		923			12.72
Forfeitures		(44	)		9.83
Exercised		(316	)		4.41

Outstanding at December 31, 2013		1,807			9.05		7.7 years	$	12,830

Exercisable at December 31, 2013		557			5.76		5.2 years	$	5,786


(Shares in thousands)	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value ($000)
Outstanding at December 31, 2011		1,174		$	4.74		7.3 years
Granted		163			7.96
Forfeitures		(52	)		5.87
Exercised		(41	)		5.95

Outstanding at December 31, 2012		1,244			5.18		6.8 years	$	6,198

Exercisable at December 31, 2012		614			5.36		5.9 years	$	3,086

Information related to all restricted stock awards under the 2007 Plan for the year ended December 31, 2014 is shown in the table below. No restricted stock awards were outstanding during the years ended December 31, 2013 and 2012.


(Shares in thousands)	Shares		Weighted Average Grant Date Fair Value
Nonvested at December 31, 2013		—	$	—
Granted		6		14.41
Vested		—		—
Forfeited		—		—

Nonvested at December 31, 2014		6		14.41

The Company received $1.2 million in cash from employees exercising options during the year ended December 31, 2014, $1.4 million in cash from employees exercising options during the year ended December 31, 2013 and $0.2 million from employees exercising options during the year ended December 31, 2012. The intrinsic value of options exercised during the years ended December 31, 2014, 2013 and 2012 was $2.4 million, $2.7 million and $0.1 million, respectively. Unrecognized compensation expense related to nonvested shares of stock options and restricted stock was $5.4 million at December 31, 2014 and will be recognized over a weighted average vesting period of 4.0 years.

Warrants to Purchase Common Stock

The Company has historically issued warrants to purchase common shares in conjunction with business acquisitions, debt issuances and employment contracts. The estimated fair value of warrants granted in conjunction with employment agreements is reflected as compensation expense over their related vesting periods, none of which extended into 2014, 2013 or 2012. Fair value of warrants was determined using a Black-Sholes valuation model with assumptions similar to the ones we used to value stock option awards.

On December 28, 2006, the Company issued warrants to purchase 250,000 shares to Icarus Investment Corp. (“Icarus”), a related party, at an exercise price of $9.07 and an expiration date of December 26, 2016. These warrants represent the only outstanding warrants as of December 31, 2014 and 2013.

Stock Purchase

During 2014, the Company repurchased 61,500 shares of common stock from a former director for a total cost of $1.0 million. The shares were immediately retired.

During 2013, pursuant to the approval of the Board of the Directors of the Company, the Company purchased 180,000 shares of common stock held by the Company’s Chief Executive Officer. The shares were purchased at the then-current market price of $13.14 for a total transaction value of $2.4 million and the shares were immediately retired.

During 2012, the Company purchased 63,000 shares of common stock for a total of $0.5 million pursuant to a stock repurchase program announced in August 2011 under which the Company was able to repurchase up to 500,000 shares of the Company’s common stock over an eighteen-month period. The repurchased shares were immediately retired.

Convertible Debt

During 2012, subordinated convertible promissory notes (“Investor Notes”) in the aggregate principal amount of $9.6 million were converted into 2,400,000 shares of common stock. The Investor Notes were with a group of investors including the following related parties: Icarus, which is controlled by Jason DeZwirek, our Chairman; JMP Fam Holdings, Inc., which is controlled by Jonathan Pollack, one of our directors; and Harvey Sandler Revocable Trust, which owns over 10% of our outstanding common stock.