As filed with the Securities and Exchange Commission on April 7, 2008
Registration No. 333-148215
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
INTREPID POTASH, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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1400
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26-1501877
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(State or other jurisdiction of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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700 17
th
Street, Suite 1700
Denver, CO 80202
(303) 296-3006
(Address, including zip code and
telephone number, including
area code, of registrant’s principal executive offices)
Robert P. Jornayvaz III
Chairman of the Board and Chief
Executive Officer
Intrepid Potash, Inc.
700 17
th
Street, Suite 1700
Denver, CO 80202
(303)
296-3006
(Name, address, including zip code and telephone number, including area code, of agent for service)
Copies to:
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W. Dean Salter
Mashenka Lundberg
Holme Roberts & Owen LLP
1700 Lincoln Street, Suite 4100
Denver, CO 80203
(303) 861-7000
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G. Michael O’Leary
Meredith S. Mouer
Andrews Kurth LLP
600 Travis, Suite 4200
Houston, TX 77002
(713) 220-4200
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Approximate date of commencement of
proposed sale to the public:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933,
check the following box.
¨
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
¨
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering.
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If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering.
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CALCULATION OF REGISTRATION FEE
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Title of Each Class of
Securities to be Registered
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Amount to be
Registered
(1)(2)
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Proposed
Maximum
Offering Price
Per Share
(3)
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Proposed
Maximum
Aggregate
Offering Price
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Amount of
Registration Fee
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Common stock, par value $0.001 per share
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27,600,000
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$26.00
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$717,600,000
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$28,202
(4)
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(1)
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Estimated pursuant to Rule 457(a).
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(2)
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Including shares of common stock which the underwriters have an option to purchase.
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(3)
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Anticipated to be between $24.00 and $26.00 per share.
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(4)
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Includes $3,070 previously paid.
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The registrant hereby amends this
Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. These securities may
not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or
sale is not permitted.
Subject to
Completion, Dated April 7, 2008
24,000,000 Shares
Intrepid Potash, Inc.
Common Stock
This is an initial public offering of shares of common stock of Intrepid Potash, Inc. The company is a corporation recently formed by Intrepid Mining
LLC. All of the 24,000,000 shares of common stock are being sold by the company.
To the extent that the underwriters sell more than
24,000,000 shares of common stock, the underwriters have the option to purchase up to an additional 3,600,000 shares from Intrepid Potash, Inc. at the initial public offering price less the underwriting discount. We intend to use the net proceeds we
receive from any shares sold pursuant to the underwriters’ option to purchase additional shares to pay a dividend to the current members of Intrepid Mining LLC.
Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $24.00 and $26.00. Intrepid Potash, Inc. has
applied to list the common stock on the New York Stock Exchange under the symbol “IPI”.
See “
Risk Factors
” on page 15 to read about factors you should consider before buying shares of the common stock.
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Price to
Public
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Underwriting
Discounts and
Commissions
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Proceeds to
Intrepid
Potash, Inc.
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Per Share
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$
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$
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$
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Total
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$
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$
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$
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The underwriters expect to deliver the shares against payment in New York, New York on
, 2008.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
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Goldman, Sachs & Co.
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Merrill Lynch & Co.
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Morgan Stanley
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RBC Capital Markets
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BMO Capital Markets
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Prospectus
dated , 2008
TABLE OF CONTENTS
Prospectus
Through and including
, 2008 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any
unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current
only as of its date.
We own, or claim ownership rights to, a variety of trade names, service marks and trademarks for use in our business, including
Intrepid Potash, Intrepid Potash (stylized logo) appearing on the cover page of this prospectus,
in the U.S. and, where appropriate, in foreign countries. This prospectus also includes product names and other trade names and service marks
owned by us and other companies. The trade names and service marks of other companies are the property of those other companies.
Market data and
industry statistics used throughout this prospectus are based on independent industry publications and other publicly available information. Although we believe these third-party sources are reliable, you should not place undue reliance on this
information.
Actual production, revenue and expenditures with respect to our reserves will likely vary from estimates, and these variations may be
material. As a result, you should not place undue reliance on the muriate of potash and langbeinite reserve data included in this prospectus.
i
PROSPECTUS SUMMARY
The following summary highlights selected information contained in other parts of this
prospectus. The summary is qualified in its entirety by the information contained elsewhere in this prospectus. You should read the entire prospectus carefully, especially the matters discussed under “Risk Factors” and the financial
statements and related notes included in this prospectus, before deciding to invest in our common stock. We include a glossary of some of the terms used in this prospectus as Appendix A.
References in this prospectus to “Intrepid Potash”, “our”, “we” or “us” are to Intrepid Potash, Inc. and its
consolidated subsidiaries and include Intrepid Mining LLC unless the context otherwise requires. References to “Intrepid Mining” are to Intrepid Mining LLC. References to Intrepid Moab, Intrepid New Mexico and Intrepid Wendover are to
Intrepid Potash–Moab, LLC, Intrepid Potash–New Mexico, LLC and Intrepid Potash–Wendover, LLC, respectively, our principal operating subsidiaries. References to “tons” in this prospectus refer to short tons. One short ton
equals 2,000 pounds. References to “the current members of Intrepid Mining” or “the original stockholders” are to Harvey Operating and Production Company, Intrepid Production Corporation, and Potash Acquisition, LLC, who, as of
the date of this prospectus, collectively own 100% of the membership interests of Intrepid Mining. Unless otherwise indicated, references to “potash” in this prospectus refer to muriate of potash.
Intrepid Potash, Inc.
Overview
We are the largest producer of muriate of potash (MOP, or potassium chloride) in the U.S. and are dedicated to the production and marketing of potash and
langbeinite (sulfate of potash magnesia), another mineral containing potassium. Potassium is one of the three primary nutrients essential to plant formation and growth. Since 2004, we have supplied, on average, 1.5% of world potash consumption and
8.5% of U.S. consumption annually, and we have supplied a considerably higher proportion of the potash consumed in the southwestern and western U.S., our core markets. We are one of two exporting producers in the world of langbeinite, a low-chloride
fertilizer that is better suited than MOP for chloride-sensitive crops. We also produce salt, magnesium chloride and metal recovery salts from our potash mining processes. We own five active potash production facilities—three in New Mexico and
two in Utah—and we have the nameplate capacity to produce 1,200,000 tons of potash and 250,000 tons of langbeinite annually. In 2007, we sold approximately 893,000 tons of potash and approximately 158,300 tons of langbeinite, an increase of 22%
and 66%, respectively, over 2006. Our preliminary estimate of production for the first quarter of 2008 is 224,000 tons of potash and 56,000 tons of langbeinite as compared to 218,000 tons and 45,000 tons, respectively, in the first quarter of 2007.
We own two development assets in New Mexico—the HB Mine, which is an idled potash mine that we are in the process of reopening as a
solution mine, and the North Mine. Based on our five-year operating plan, we expect that expansion opportunities at our operating facilities and the HB Mine will increase production by an aggregate of over 370,000 tons of potash and langbeinite
annually.
Our principal assets include:
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Two conventional, underground potash mines in Carlsbad, New Mexico—the West Mine and the East Mine—and the North Facility compaction plant. The West Mine has the
nameplate capacity to produce 510,000 tons of potash annually. Potash from our West Mine is processed at our North Facility compaction plant. The East Mine produces two products, with the nameplate capacity to produce 390,000 tons of potash and
250,000 tons of langbeinite annually. The East Mine mill is a dual potash and langbeinite facility that uses a first-of-its-kind milling process.
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Two potash facilities in Utah—the Moab Mine and the Wendover Facility. The Moab Mine uses solution mining methods to extract potash and has the nameplate capacity to
produce 180,000 tons of potash annually. The Wendover Facility collects potash from natural brines and has the nameplate capacity to produce 120,000 tons of potash annually. Both of these facilities use low-cost solar evaporation to recover potash.
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Two development assets in Carlsbad, New Mexico—the HB Mine and the North Mine. The HB Mine is an idled potash mine that we are in the process of reopening as a solution
mine. We expect to commence Phase I of the project in 2008, with production beginning in 2009. We believe Phase I, which consists of the flooding of 4,400 of the 21,600 total acres of the mine, has the potential to ultimately add up to 150,000 to
200,000 tons of additional low-cost potash production annually by 2011. The North Mine is another idled underground potash mine that we may choose to reopen in the future and that already has in place mine shafts and much of the transportation and
utility infrastructure required for operation.
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In 2007, we generated net sales of $192.4 million, EBITDA of $48.5 million and
net income of $29.7 million at an average net potash sales price during the period of $194 per ton. We define net sales as gross sales less freight costs, which, in effect, results in all sales being stated net of delivery costs (FOB the mines). The
long term trend of increasing potash prices has accelerated recently. For example, our posted price for red granular potash in Carlsbad, New Mexico has increased 132% from $217 per ton on September 30, 2007 to $503 per ton as of April 1, 2008.
Actual prices realized in the market vary due to the timing and receipt of orders, among other factors.
During 2007, we sold approximately 96%
of our potash and langbeinite volumes in North America, with the remainder being sold outside North America on our behalf by Potash Corporation of Saskatchewan Inc., or PCS. The agricultural market represented approximately 64% of our potash sales
in 2007, with sales to industrial and feed markets accounting for 30% and 6% of our potash sales, respectively.
Company History
Intrepid Mining was formed in January 2000 for the purpose of acquiring the Moab Mine from PCS. The Moab Mine was a solution mine which had experienced sustained
declining production. Our management team stabilized production volumes at nearly twice the pre-acquisition level by applying horizontal drilling technology that is commonly used in the oil and gas industry but had never before been used to mine
potash.
We observed that potash from Moab shared markets with potash produced in Carlsbad, New Mexico and in Wendover, Utah. Accordingly, we
formulated a strategy to acquire assets in those areas in order to consolidate marketing efforts and effect operating synergies. We acquired the assets of Mississippi Potash, Inc. and Eddy Potash, Inc. in Carlsbad, New Mexico from Mississippi
Chemical Company in February 2004. In April 2004, we acquired the potash assets of Reilly Chemical, Inc. in Wendover, Utah.
Intrepid Potash was
formed as a Delaware corporation on November 19, 2007, and, in connection with the completion of this offering, will receive a transfer of all of the nonmonetary assets of Intrepid Mining and will assume (i) all amounts in excess of $18.9
million of Intrepid Mining’s liability under its existing senior credit facility and (ii) all other liabilities and obligations of Intrepid Mining, as described in the exchange agreement discussed under “The Formation Transactions”
beginning on page 67. Intrepid Mining will repay the $18.9 million that is not assumed by Intrepid Potash from the cash proceeds received from Intrepid Potash pursuant to the terms of the exchange agreement.
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Members of our senior management team currently own 80% of Intrepid Mining. After
this offering, our senior management team and board of directors will own 67.9% of our common stock (63.1% if the underwriters’ option to purchase additional shares is exercised in full).
Industry Overview
Fertilizers serve a fundamental role in
global agriculture by providing vital nutrients that help sustain both the yield and the quality of crops. The three primary nutrients required for plant growth are nitrogen, phosphate and potassium (potash), and there are no known substitutes for
these nutrients. A proper balance of each of the three nutrients is necessary to maximize their effectiveness. Potash helps regulate plants’ physiological functions and improves plant durability, providing crops with protection from drought,
disease, parasites and cold weather. Unlike nitrogen and phosphate, potash does not require additional chemical conversion to be used as a plant nutrient.
Fertecon Limited, a fertilizer industry consultant, expects global potash consumption to grow 3.5% annually from 2007 to 2011. This growth is driven primarily by strong global demand for agricultural commodities, which in turn is driven by
the demand for food and alternative energy sources. As populations grow, more food is required from decreasing arable land per capita, which requires higher crop yields and, therefore, more plant nutrients. As incomes grow in the developing world,
people consume more animal protein, which requires large amounts of grain for feed. In addition, high oil prices and associated energy concerns have recently placed a renewed emphasis on ethanol and bio-diesel production, which currently rely on
agricultural products as feedstocks.
Potash is mined either from conventional underground mines or, less frequently, from surface or sub-surface
brines. According to the International Fertilizer Industry Association, or IFA, six countries accounted for approximately 87% of the world’s aggregate potash production in 2007. During this time period, the top seven potash producers controlled
approximately 83% of world production. Five of the top ten producers are further concentrated into two marketing groups, which together controlled approximately 57% of global potash production in 2007.
Virtually all of the world’s potash is currently extracted from twenty commercial deposits, and the most recently constructed operating mine in the world was
opened in 1987. Barriers to adding new potash production are significant because economically recoverable potash deposits are scarce, deep in the earth and geographically concentrated. A further challenge is that the majority of unexploited
mineralized deposits of potash existing outside the Canadian province of Saskatchewan are located in remote and/or politically unstable regions such as the Congo, Thailand and Argentina.
In recent years, consistent growth in global demand coupled with limited increases in global supply have led to significant increases in producer operating rates
for potash. We believe the global potash industry has operated at or near the highest achievable production rates during 2007 and 2008 to date. As a result of increasing demand and tight supply, potash prices have increased rapidly.
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Three
Months Ended
March 31,
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Year Ended December 31,
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2008
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2007
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2007
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2006
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2005
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2004
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2003
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Average Midwestern U.S. delivered list prices for granular MOP (per ton)
(1)
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$
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502
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$
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214
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$
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257
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$
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205
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$
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210
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$
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159
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$
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121
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(1)
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Average delivery list prices include delivery to the list price location. Source: Green Markets Fertilizer Market Intelligence Weekly.
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Our Competitive Strengths
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U.S. potash-only producer.
We are the largest producer of potash in the U.S., the second largest potash-consuming country in the world.
We are dedicated to the production and marketing of potash and langbeinite, whereas nearly all of our competitors are meaningfully diversified, primarily into other fertilizer and chemical businesses. As a dedicated potash producer, we believe our
financial performance is subject to less volatility than that of other fertilizer companies. Historically, potash prices have been subject to less volatility than prices for other fertilizers and commodity chemicals. In addition, the costs to
mine and produce potash are relatively fixed and stable, whereas the costs to produce other fertilizers have significantly greater exposure to volatile raw material costs, such as natural gas used to produce nitrogen and phosphate products.
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After the completion of this offering, we will be one of two publicly-traded potash-only companies producing today, the other
being Uralkali, a Russian producer.
Additionally, as a U.S. producer, we enjoy a significantly lower total tax and royalty burden than our principal
competitors, which operate primarily in Saskatchewan, Canada. For example, we currently pay an average royalty rate of approximately 3.7% of our revenue, which compares favorably to our competitors in Canada.
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Assets located near our primary customer base
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Our mines are advantageously located near our largest customers. We believe that
our location allows us to realize higher net sales prices than our competitors, who must ship their products across longer distances to consuming markets, which are often export markets. According to state potassium fertilizer sales data collected
by the Association of American Plant Food Control Officials, Inc. and our sales data, annual consumption of potassium products in our markets is greater than five times our current annual production. This allows us to target sales to the markets in
which we have the greatest transportation advantage, maximizing our net sales per ton. Our access to strategic rail destination points and our location along major agricultural trucking routes support this advantage. In addition, our location in an
oil and gas producing region allows us to serve industrial customers, the majority of whom we reach by truck. Our geographic advantage is difficult for competitors to erode, particularly in an environment of historically high and rising
transportation costs.
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The chart below sets forth what we believe to be our average net sales per ton advantage, which results
primarily from our freight cost advantage, over our primary Canadian competitors per product ton of potassium chloride for each of 2007, 2006 and 2005.
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2007
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2006
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2005
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Intrepid Potash net sales per ton advantage
(1)
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$
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39
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$
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43
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$
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29
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(1)
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Based on net sales per ton for Agrium, Mosaic and PCS for muriate of potash only. Mosaic’s MOP revenues were calculated by
subtracting langbeinite-only revenues, assuming $115 net sales per ton for langbeinite (K-Mag
®
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Diversification into niche markets.
We sell to three different markets for potash—the agricultural, industrial and feed markets.
During 2007, these markets represented approximately 64%, 30% and 6% of our potash sales, respectively. According to the IFA, 95% of all potash produced is used as a fertilizer. As a result, we believe our sales are diversified across more distinct,
unrelated consumer markets than those of many of our competitors, adding stability to our potash revenues. A primary component of the industrial markets we serve is the oil and natural gas services industry, where potash is commonly used in drilling
and fracturing oil and natural gas wells. According to SRI Consulting, U.S. industrial
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consumption of potash is growing rapidly relative to the agricultural market, with a compound annual growth rate of 5.1% from 1990 to 2005.
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We are one of two exporting producers of langbeinite in the world. Both producing facilities are located in Carlsbad, New Mexico.
Given the greater scarcity of langbeinite relative to potash and its agronomic suitability for certain soils and crops, there is demand for our langbeinite production outside of our core potash markets. PCS markets our langbeinite production outside
North America. This relationship gives us access to PCS’ extensive international sales network and informs us about developments in the international market. During 2007, we sold approximately 158,300 tons of langbeinite, representing 15.0% of
our total product tons sold during this period.
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Significant reserve life and water rights.
Our potash and langbeinite reserves each have substantial life, with remaining reserve life
ranging from 28 to 124 years, based on proven and probable reserves estimated in accordance with Securities and Exchange Commission, or SEC, requirements. This lasting reserve base is the result of our past acquisition and development strategy. In
addition to our reserves, we have access to significant mineralized deposits for potential future exploitation and valuable water rights.
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Valuable existing facilities and infrastructure.
Constructing a new potash production facility requires extensive capital investment in
mining, milling and infrastructure, which is expensive and requires substantial time to complete. Our five operating facilities and the HB Mine already have significant facilities and infrastructure in place. We have the ability to expand our
business using existing installed infrastructure, in less time and with lower expenditures than would be required to construct entirely new mines.
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Track record of innovation and modernization.
Our management team has a history of building successful operations through the acquisition
of underutilized assets, followed by creative use of technology to increase productivity and reliability. As an entrepreneurial, potash-only producer, we have devoted considerable management attention to each facility, with a focus on modernization
and improving production. We have applied technologies from other industries, including the oil and gas industry, and implemented innovative production processes. From inception to December 31, 2007, we have spent approximately $80 million on
capital expenditures at our facilities. We believe these investments have enhanced the reliability and productivity of our operations.
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Low-cost solar evaporation operations.
The Moab Mine and the Wendover Facility, both located in the Utah desert, use solar evaporation to
crystallize potash from brines. Solar evaporation is a low-cost and energy-efficient method of producing potash. Our understanding and application of solution mining, combined with our location in regions with favorable climates for evaporation,
allow our Utah facilities to enjoy low production costs. We plan to develop the HB Mine using the same solar evaporation and solution mining technology we use at our Moab Mine.
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Our Business Strategy
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Expand potash production from existing facilities.
We have expansion opportunities at our operating facilities that we expect will
significantly increase production, drive down our unit cost per ton and increase our cash flow. Because of our market share, we believe increases in our production have limited effect on international potash prices, allowing us to enjoy expanding
margins on incremental production through full price realization and decreasing production costs per ton. Based on our five-year operating plan, we estimate that these
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opportunities will increase annual potash production by an expected aggregate of over 110,000 tons.
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Reopen the HB Mine as a solution mine.
The HB Mine, located in Carlsbad, New Mexico, was formerly operated as a conventional underground
mine and was idled in 1996 by its previous owner. We are in the process of reopening the HB Mine as a solution mine, using the same solar evaporation and solution mining technology we currently use at our Moab Mine. We believe the HB Mine is
especially suitable for solution mining due to the easily accessible mineral resource and our ability to rely in part on existing equipment and personnel to process potash. We expect production from the HB Mine to begin in 2009 and believe Phase I
of the project has the potential to ultimately add up to 150,000 to 200,000 tons of additional potash production annually by 2011. We expect the potash produced from the mine to be our lowest-cost product on a per-ton basis.
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Expand langbeinite production and demand.
We are one of two exporting producers of langbeinite. We mine langbeinite in Carlsbad, New
Mexico from the only known reserves of langbeinite in the world. In order to better capitalize on the strong and growing demand for langbeinite, we have initiated two projects that we expect will allow us to increase our annual langbeinite
production by an aggregate of approximately 90,000 tons over the next three to four years and lower our production costs per ton.
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Increase our profitability.
We will continue to seek to increase our profitability both by targeting sales to our most profitable markets
and reducing per ton operating costs. We plan to execute on additional opportunities to further reduce our fixed and variable operating expenses and pursue various projects designed to increase the reliability of our mining facilities and minimize
production downtime.
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Summary of Risk Factors
An investment in our common stock involves risks associated with our business, this offering and our corporate structure. The following list of principal risk
factors is not exhaustive. Please carefully read the more detailed discussion of these and other risks under “Risk Factors”.
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Our potash sales are subject to price and demand volatility resulting from periodic imbalances of supply and demand, which may negatively affect our operating results.
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Mining is a complex and hazardous process which frequently experiences production disruptions, and the nature of our operations may make us more vulnerable to such
disruptions than our competitors.
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New product supply can create structural market imbalances, which could negatively affect our operating results and financial performance.
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The grade of ore that we mine may vary from our projections due to the complex geology of potash reserves, which could adversely affect our potash production and our
financial results.
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Any decline in U.S. agricultural production or limitations on the use of our products for agricultural purposes could materially adversely affect the market for our products.
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A decline in oil and gas drilling or a reduction in the use of potash in drilling fluids in the Permian Basin or Rocky Mountain regions may increase our operating costs and
decrease our average net sales per ton of potash.
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Weakening of the Canadian dollar and Russian ruble against the U.S. dollar could lead to lower domestic potash prices, which would adversely affect our operating results, and
fluctuations in these currencies may cause our operating results and our stock price to fluctuate.
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Formation Transactions and Organizational Structure
General
Intrepid Potash is a Delaware corporation that was
formed on November 19, 2007 and is a wholly-owned subsidiary of Intrepid Mining. In connection with this offering, we will enter into the following transactions, which we refer to in this prospectus as the “formation transactions”.
At or before the completion of this offering, Intrepid Potash and Intrepid Mining will enter into an exchange agreement, which will provide for
the assignment of all of Intrepid Mining’s assets other than cash to Intrepid Potash in exchange for:
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cash in an amount of approximately $419.8 million (approximately 75.0% of the net proceeds from this offering);
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47,239,000 shares of common stock of Intrepid Potash; and
|
|
|
Ÿ
|
|
the assumption by Intrepid Potash of (i) $82.5 million (based on outstanding amounts as of December 31, 2007) of Intrepid Mining’s liability under its existing
senior credit facility and (ii) all other liabilities and obligations of Intrepid Mining, as described in the exchange agreement discussed under “The Formation Transactions” beginning on page 67.
|
The transactions provided for in the exchange agreement and this offering will be consummated simultaneously.
As a part of the formation transactions, we will declare a dividend with respect to our common stock currently issued and outstanding, which we refer to in this
prospectus as the “formation distribution”. The formation distribution will be paid in 3,600,000 shares of our common stock; provided, however, that for each share of our common stock purchased by the underwriters pursuant to their option
to purchase additional shares, the number of shares payable pursuant to the formation distribution will be reduced, one-for-one, and in lieu of such shares, we will pay cash in an amount equal to the net proceeds, after underwriting discounts and
commissions, we receive from the exercise of the underwriters’ option to purchase additional shares. The formation distribution will be payable to Intrepid Mining, the holder of record of the common stock prior to this offering, upon the
earlier of the expiration or the exercise of the option to purchase additional shares.
After the completion of this offering, Intrepid Mining
will liquidate and distribute its remaining assets, including the cash and common stock received pursuant to the exchange agreement and the right to receive the formation distribution described above, to the current members of Intrepid Mining.
Organizational Structure After the Formation Transactions
Once this offering and the related formation transactions are completed, assuming the underwriters do not exercise any portion of their option to purchase additional shares, the common stock of Intrepid Potash will be held as follows:
|
|
Ÿ
|
|
32.1% by public stockholders;
|
|
|
Ÿ
|
|
27.2% by Harvey Operating and Production Company, a Colorado corporation, which we refer to as HOPCO, wholly-owned by Hugh E. Harvey, Jr., our Executive Vice President of
Technology and one of our directors;
|
7
|
|
Ÿ
|
|
27.2% by Intrepid Production Corporation, a Colorado corporation, which we refer to as IPC, wholly-owned by Robert P. Jornayvaz III, our Chairman of the Board and Chief
Executive Officer; and
|
|
|
Ÿ
|
|
13.5% by Potash Acquisition, LLC, a Delaware limited liability company, which we refer to as PAL, the largest beneficial owner of which is Platte River Ventures I, L.P., a
Delaware limited partnership. One of our directors, J. Landis Martin, is the managing member of Platte River Ventures I, L.P.’s general partner, PRV Investors I, LLC, a Delaware limited liability company.
|
Principal Executive Offices and Internet Address
Our
principal executive offices are located at 700 17th Street, Suite 1700, Denver, Colorado 80202 and our telephone number is (303) 296-3006. Our website is located at
www.intrepidpotash.com
. We expect to make our periodic reports and other
information filed with or furnished to the SEC available, free of charge, through our website as soon as reasonably practicable after those reports and other information are electronically filed with or furnished to the SEC. Information on our
website or any other website is not incorporated by reference into this prospectus and does not constitute a part of this prospectus.
The Offering
|
Common stock offered by us
|
24,000,000 shares.
|
|
Common stock outstanding after this offering
|
74,846,000 shares (including 1,000 shares outstanding before the offering, stock grants totaling 6,000 shares to our non-employee directors (estimated using the midpoint of the price range set forth on the cover page
of this prospectus) and 3,600,000 shares that will be sold to the underwriters pursuant to the exercise of their option to purchase additional shares or, to the extent the option to purchase additional shares is not exercised, distributed to the
current members of Intrepid Mining pursuant to the formation distribution).(1)
|
|
Option to purchase additional shares
|
We have granted the underwriters a 30-day option to purchase up to 3,600,000 additional shares of our common stock at the initial public offering price less underwriting discounts and commissions. The option may be
exercised only to cover options to purchase additional shares of common stock. To the extent that the underwriters exercise their option to purchase additional shares, all of the net proceeds we receive from the exercise of the option to purchase
additional shares will be used to pay the formation distribution to Intrepid Mining. Any amount of the formation distribution that is not paid in cash will be paid to Intrepid Mining in shares of our common stock.
|
|
(1)
|
Excludes 607,500 shares of unvested restricted stock that will be granted by Intrepid Potash on or around the completion of this offering.
|
8
|
Use of proceeds
|
We expect to receive net proceeds of approximately $559.8 million from this offering, assuming an offering price of $25.00 per share (the midpoint of the price range set forth on the cover page of this
prospectus), after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We expect to apply the net proceeds from this offering as follows:
|
|
|
•
|
|
approximately $419.8 million (approximately 75.0% of the net proceeds from this offering) will be paid to Intrepid Mining (together with 47,239,000 shares of our common
stock) in exchange for all of Intrepid Mining’s assets other than cash;
|
|
|
•
|
|
based on outstanding amounts as of December 31, 2007, approximately $82.5 million (approximately 14.7% of the net proceeds from this offering) will be used by us
for repayment of debt assumed from Intrepid Mining pursuant to the exchange agreement, leaving us with no outstanding debt. We will assume (i) all amounts in excess of $18.9 million of Intrepid Mining’s liability under its existing senior
credit facility and (ii) all other liabilities and obligations of Intrepid Mining, as described in the exchange agreement discussed under “The Formation Transactions” beginning on page 67; and
|
|
|
•
|
|
the remainder of the net proceeds, $59.2 million of cash in the December 31, 2007 pro forma combined as adjusted balance sheet, will be used to fund production expansions and
other growth opportunities and for general corporate purposes. (The $59.2 million is adjusted for $1.7 million of transaction fees paid in 2007.)
|
|
|
After the completion of this offering, Intrepid Mining will liquidate and distribute its remaining assets, including the cash and common stock received pursuant to the exchange agreement and the right to receive the
formation distribution, to the current members of Intrepid Mining.
|
A $1.00 increase (decrease) in the assumed initial public
offering price per share would increase (decrease) net proceeds to us from this offering by approximately $22.6 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and would increase
(decrease) the amount of net proceeds payable to Intrepid Mining pursuant to the exchange agreement by an equal amount. Assuming that the underwriters exercise their option to purchase additional shares in full, a $1.00 increase (decrease) in the
assumed initial public offering price would increase (decrease) net proceeds to us from the exercise of the option to purchase additional shares by approximately
9
|
|
$3.4 million and would increase (decrease) the cash payable to Intrepid Mining pursuant to the formation distribution by an equal amount.
|
|
Voting rights
|
One vote per share.
|
|
Exchange listing
|
We have applied to list our common stock on the New York Stock Exchange, or NYSE, under the symbol “IPI”.
|
|
Risk factors
|
See “Risk Factors” beginning on page 15 and other information included in this prospectus for a discussion of factors you should carefully consider before deciding whether to invest in our common stock.
|
The number of shares of common stock to be outstanding after this offering is 74,846,000. Except as otherwise indicated or required by
context, all information in this prospectus:
|
|
Ÿ
|
|
excludes 607,500 shares of unvested restricted stock that will be granted by Intrepid Potash on or around the completion of this offering;
|
|
|
Ÿ
|
|
assumes that the underwriters will not exercise any portion of their option to purchase additional shares (and, therefore, that 3,600,000 shares will be distributed to the
current members of Intrepid Mining pursuant to the formation distribution); and
|
|
|
Ÿ
|
|
assumes that the initial offering price is $25.00 per share, the midpoint of the range set forth on the cover page of this prospectus.
|
10
Summary Historical and Pro Forma Combined as Adjusted Financial and Operating
Data
The following tables show summary historical financial and operating data of Intrepid Mining and pro forma combined as adjusted financial
and operating data of Intrepid Mining and Intrepid Potash for the periods and as of the dates indicated. The historical financial statements included in this prospectus reflect the results of operations of Intrepid Mining. The summary historical
financial data as of December 31, 2007 and 2006 and for the years ended December 31, 2007, 2006 and 2005 are derived from Intrepid Mining’s audited financial statements and related notes included elsewhere in this prospectus. The
summary pro forma combined as adjusted financial data for the year ended December 31, 2007 are derived from the unaudited pro forma combined financial statements of Intrepid Mining and Intrepid Potash included elsewhere in this prospectus. The
pro forma adjustments have been prepared as if certain transactions to be effected upon completion of this offering had taken place on December 31, 2007, in the case of the pro forma combined as adjusted balance sheet; and as of January 1,
2007, in the case of the pro forma combined as adjusted statements of operations for the year ended December 31, 2007. The transactions reflected in the pro forma adjustments assume that Intrepid Potash will complete its initial public offering
of common stock, receive a transfer of all of the nonmonetary assets of Intrepid Mining, and assume (i) all amounts in excess of $18.9 million of Intrepid Mining’s liability under its existing senior credit facility and (ii) all other
liabilities and obligations of Intrepid Mining in exchange for stock and cash, as described in the exchange agreement discussed under “The Formation Transactions”. The pro forma combined as adjusted financial information should not be
relied upon as being indicative of Intrepid Potash or Intrepid Mining’s results of operations or financial condition had the transactions been completed on January 1, 2007, with respect to the pro forma combined as adjusted statements of
operations, or as of December 31, 2007, with respect to the pro forma combined as adjusted balance sheet.
The summary historical and pro forma
combined as adjusted financial and operating data should be read in conjunction with the information contained in “Selected Historical and Pro Forma Combined as Adjusted Financial and Operating Data”, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes of Intrepid Mining and Intrepid Potash included elsewhere in this prospectus.
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
Combined
As
Adjusted
December 31,
2007
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except share and per share data)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
213,459
|
|
|
$
|
213,459
|
|
|
$
|
152,709
|
|
|
$
|
151,280
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight costs
|
|
|
21,095
|
|
|
|
21,095
|
|
|
|
12,178
|
|
|
|
9,519
|
|
|
Warehousing and handling costs
|
|
|
5,479
|
|
|
|
5,479
|
|
|
|
3,879
|
|
|
|
2,759
|
|
|
Cost of goods sold
|
|
|
134,387
|
|
|
|
134,387
|
|
|
|
110,995
|
|
|
|
97,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
52,498
|
|
|
|
52,498
|
|
|
|
25,657
|
|
|
|
41,899
|
|
|
Selling and administrative
|
|
|
24,155
|
|
|
|
15,997
|
|
|
|
10,054
|
|
|
|
7,530
|
|
|
Other operating—net
|
|
|
190
|
|
|
|
190
|
|
|
|
(4,386
|
)
|
|
|
329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
28,153
|
|
|
|
36,311
|
|
|
|
19,989
|
|
|
|
34,040
|
|
|
Interest expense—net
|
|
|
170
|
|
|
|
9,350
|
|
|
|
2,907
|
|
|
|
1,473
|
|
|
Other non-operating
|
|
|
(2,723
|
)
|
|
|
(2,723
|
)
|
|
|
(7,016
|
)
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
30,706
|
|
|
$
|
29,684
|
|
|
$
|
24,098
|
|
|
$
|
32,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma income tax
(1)
|
|
|
12,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma income from continuing operations
|
|
$
|
18,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Share and Per Share Data (unaudited)
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
74,922,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
75,453,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
Combined
As
Adjusted
December 31,
2007
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
EBITDA
(3)
|
|
$
|
40,280
|
|
|
$
|
48,502
|
|
|
$
|
35,033
|
|
|
$
|
39,580
|
|
|
Depreciation, depletion, amortization and accretion
|
|
|
9,404
|
|
|
|
9,468
|
|
|
|
8,028
|
|
|
|
5,493
|
|
|
Capital expenditures
|
|
|
(31,168
|
)
|
|
|
(31,168
|
)
|
|
|
(12,391
|
)
|
|
|
(21,733
|
)
|
(footnotes on page 14)
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
Combined
As
Adjusted
December 31,
2007
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
Selected Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales volume (in thousands of tons):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potash
|
|
|
893
|
|
|
|
893
|
|
|
|
729
|
|
|
|
869
|
|
|
Langbeinite
|
|
|
158
|
|
|
|
158
|
|
|
|
95
|
|
|
|
6
|
|
|
Gross sales (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
199,017
|
|
|
$
|
199,017
|
|
|
$
|
143,544
|
|
|
$
|
148,646
|
|
|
International
|
|
|
14,442
|
|
|
|
14,442
|
|
|
|
9,165
|
|
|
|
2,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
213,459
|
|
|
|
213,459
|
|
|
|
152,709
|
|
|
|
151,280
|
|
|
Freight costs (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
18,426
|
|
|
|
18,426
|
|
|
|
10,489
|
|
|
|
8,505
|
|
|
International
|
|
|
2,669
|
|
|
|
2,669
|
|
|
|
1,689
|
|
|
|
1,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
21,095
|
|
|
|
21,095
|
|
|
|
12,178
|
|
|
|
9,519
|
|
|
Net sales
(4)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
180,591
|
|
|
|
180,591
|
|
|
|
133,055
|
|
|
|
140,141
|
|
|
International
|
|
|
11,773
|
|
|
|
11,773
|
|
|
|
7,476
|
|
|
|
1,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
192,364
|
|
|
|
192,364
|
|
|
|
140,531
|
|
|
|
141,761
|
|
|
Average net selling prices (per ton):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potash
|
|
$
|
194
|
|
|
$
|
194
|
|
|
$
|
179
|
|
|
$
|
162
|
|
|
Langbeinite
|
|
|
119
|
|
|
|
119
|
|
|
|
107
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warehousing and handling cost (per ton):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potash
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
|
|
3
|
|
|
Langbeinite
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
|
|
3
|
|
|
Potash cost of goods sold (per ton):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of production less inventory adjustments (exclusive of items shown separately below)
|
|
|
130
|
|
|
|
130
|
|
|
|
136
|
|
|
|
109
|
|
|
Depreciation, depletion and amortization
|
|
|
7
|
|
|
|
7
|
|
|
|
8
|
|
|
|
5
|
|
|
Royalties
|
|
|
7
|
|
|
|
7
|
|
|
|
6
|
|
|
|
3
|
|
|
By-product revenues
(5)
|
|
|
(9
|
)
|
|
|
(9
|
)
|
|
|
(9
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total potash cost of goods sold
|
|
|
135
|
|
|
|
135
|
|
|
|
141
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average potash gross margin (per ton):
|
|
$
|
54
|
|
|
$
|
54
|
|
|
$
|
33
|
|
|
$
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Langbeinite cost of goods sold (per ton)
|
|
$
|
87
|
|
|
$
|
87
|
|
|
$
|
88
|
|
|
$
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average langbeinite gross margin (loss) (per ton)
|
|
$
|
27
|
|
|
$
|
27
|
|
|
$
|
14
|
|
|
$
|
(93
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
Combined
As
Adjusted
December 31,
2007
|
|
|
As of December 31,
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
Selected Balance Sheet Data:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
59,215
|
|
|
$
|
1,960
|
|
|
$
|
286
|
|
|
$
|
157
|
|
|
Total current assets
|
|
|
102,981
|
|
|
|
47,447
|
|
|
|
50,853
|
|
|
|
29,124
|
|
|
Total assets
|
|
|
385,907
|
|
|
|
146,727
|
|
|
|
129,314
|
|
|
|
106,506
|
|
|
Total current liabilities
|
|
|
25,316
|
|
|
|
30,315
|
|
|
|
24,112
|
|
|
|
19,061
|
|
|
Total debt
|
|
|
5
|
|
|
|
101,355
|
|
|
|
132,189
|
|
|
|
37,156
|
|
|
Stockholders’ equity (deficit)
|
|
|
350,927
|
|
|
|
10,397
|
|
|
|
(31,458
|
)
|
|
|
42,485
|
|
(footnotes on following page)
13
|
(1)
|
A pro forma provision for income taxes at statutory rates has been made in the pro forma financial statements on the assumption that Intrepid Mining was a taxable entity for the respective
period presented. As a limited liability company, Intrepid Mining’s taxable income was included in its members’ income tax returns whereas Intrepid Potash will be subject to income tax as a corporation.
|
|
(2)
|
Pro forma net income per share is based on the weighted average number of shares of common stock outstanding after giving effect to the offering, assuming that the offering had occurred as of
the beginning of the earliest period presented. Basic shares include the estimated 74,846,000 shares that will be outstanding at the initial public offering, plus the 76,000 weighted average shares that relate to stock awards with a vesting period
of less than one year. The adjustment for diluted shares includes the impact of the number of the remaining nonvested shares that are expected to be awarded upon the completion of the initial public offering. The diluted weighted average shares
total 75,453,500 shares.
|
|
(3)
|
We define EBITDA as income from continuing operations before interest, income taxes, depreciation, depletion, amortization and accretion. EBITDA is used as a supplemental financial measure by
our management and by external users of our financial statements to assess:
|
|
|
Ÿ
|
|
the financial performance of our assets without regard to financing methods, capital structure or historical cost basis;
|
|
|
Ÿ
|
|
our operating performance and return on capital as compared to other companies in the fertilizer business, without regard to financing or capital structure; and
|
|
|
Ÿ
|
|
the viability of acquisitions and capital expenditure projects and the overall rates of return on alternative investment opportunities.
|
|
|
The economic substance behind management’s use of EBITDA is to measure the ability of our assets to generate cash sufficient to be utilized for capital investment, pay interest costs,
support our indebtedness and pay dividends, if any, to our investors.
|
|
|
The GAAP measure most directly comparable to EBITDA is income from continuing operations. Our non-GAAP financial measure of EBITDA should not be considered as an alternative to GAAP income
from continuing operations. EBITDA is not a presentation made in accordance with GAAP and has important limitations as an analytical tool. You should not consider EBITDA in isolation or as a substitute for analysis of our results as reported under
GAAP. Because EBITDA excludes some, but not all, items that affect income from continuing operations and is defined differently by different companies in our industry, our definition of EBITDA may not be comparable to similarly titled measures of
other companies.
|
|
|
Management compensates for the limitations of EBITDA as an analytical tool by reviewing the comparable GAAP measures, understanding the differences between the measures and incorporating this
information into management’s decision-making processes.
|
|
|
EBITDA is calculated and reconciled to income from continuing operations in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
Combined
As
Adjusted
December 31,
2007
|
|
Year Ended December 31,
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
Calculation of EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
18,577
|
|
$
|
29,684
|
|
$
|
24,098
|
|
$
|
32,614
|
|
Income tax provision
|
|
|
12,129
|
|
|
|
|
|
|
|
|
|
|
Interest—net
|
|
|
170
|
|
|
9,350
|
|
|
2,907
|
|
|
1,473
|
|
Depreciation, depletion, amortization and accretion
|
|
|
9,404
|
|
|
9,468
|
|
|
8,028
|
|
|
5,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
40,280
|
|
$
|
48,502
|
|
$
|
35,033
|
|
$
|
39,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4)
|
We define net sales as gross sales less freight, which in effect results in all sales being stated net of delivery costs (FOB the mines).
|
|
(5)
|
When by-product inventories are sold, a by-product credit to the cost of goods sold is recognized.
|
14
RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully consider the
following risk factors together with all of the other information included in this prospectus in evaluating an investment in our common stock. If any of the following risks were actually to occur, our business, financial condition or results of
operations could be materially and adversely affected. In that case, the trading price of our common stock could decline and you could lose all or part of your investment.
Risks Related to Our Business
Our potash sales are subject to price and demand volatility resulting from
periodic imbalances of supply and demand, which may negatively affect our operating results.
Historically, the market for potash has been
cyclical, and the prices and demand for potash have fluctuated. Periods of high demand, increasing profits and high capacity utilization tend to lead to new plant investment and increased production. This growth continues until the market is
over-saturated, leading to decreased prices and capacity utilization until the cycle repeats. Furthermore, potash producers have, at various times, suspended production in response to delayed purchasing decisions by potash customers in anticipation
of lower prices. For example, in 2006, protracted negotiations between China and international producers delayed purchases of potash by the Chinese, which led to a build-up of inventory in North America. In response, suppliers slowed production of
potash, notably in Canada and Russia, until the conclusion of negotiations with the Chinese. As a result, the price of potash has been volatile. This volume and price volatility may reduce profit margins and negatively affect our operating results.
We sell the majority of our potash into the spot market in the U.S. and have no long-term or material short-term contracts for the sale of potash. In addition, there is no active hedge market for potash as compared to the gold market, for example.
As a result, we do not have and cannot obtain protection from this volume and price volatility.
Mining is a complex and hazardous process which frequently
experiences production disruptions, and the nature of our operations may make us more vulnerable to such disruptions than our competitors.
The process of mining is complex and equipment- and labor-intensive, and involves risks and hazards including environmental hazards, industrial accidents, labor disputes, unusual or unexpected geological conditions or acts of nature.
Production delays can occur due to equipment failures, unforeseen mining problems and other unexpected events. For example, in December 2007, an outage at one of our power provider’s transformers caused three days of lost production at our West
Mine. In addition, we must transport mined product for long distances to remove it from the mines for processing, which creates a higher probability of accidents. Our facilities and equipment are older than the average North American potash mine and
may require more maintenance or be more likely to fail than newer facilities or equipment. Our shafts at our West Mine were constructed in 1931 and require frequent maintenance due to water inflow, wooden structure and salt buildup and are located
in an area of known subsidence. Additionally, langbeinite ore is harder and more abrasive than muriate of potash ore and has caused greater wear on our mining and milling equipment at our East Mine, which has increased and may continue to increase
the expense and frequency of maintenance and repairs. Operational difficulties can also arise from our milling processes; for example, our East Mine mill experiences build-ups of glaserite, an undesirable by-product of langbeinite production, and we
must remove this build-up. The amounts that we are required to spend on maintenance and repairs may be significant and higher than expected, and we may have to divert resources from our planned capital expenditures focused on growth, such as
increases in nameplate and effective capacity, for use on capital expenditures to maintain existing effective capacity. Production delays or stoppages will adversely affect our sales and operating results, and higher than expected maintenance and
repair expenses may adversely affect our operating results.
15
New product supply can create structural market imbalances, which could negatively affect our operating results and financial
performance.
Potash is a commodity, and the market for potash is highly competitive and affected by global supply and demand. With recent
favorable prices for potash products, producers have been, and will likely continue to be, engaged in expansion and development projects to increase production. Many of these projects to increase potash production are speculative. However, if potash
production is increased beyond potash demand, the price at which we sell our potash and our sales volume would likely fall, which would materially adversely affect our operating results and financial condition.
The grade of ore that we mine may vary from our projections due to the complex geology of potash reserves, which could adversely affect our potash production and our
financial results.
Our potash production is affected by the ore grade, or potassium content of the ore. Our projections of ore grade may vary
from time to time, and the amount of potash that we actually produce may vary substantially from our projections. There are numerous uncertainties inherent in estimating ore grade, including many factors beyond our control. Potash ore bodies have
complex geology. The occurrence of large, unknown salt deposits, known as salt horsts, in core ore areas located in Carlsbad, New Mexico or Moab, Utah would adversely affect ore grades. An unexpected reduction in the grade of our ore reserves would
decrease our potash production because we would need to process more ore to produce the same amount of saleable-grade product. As a result, our expected future cash flows would be materially adversely affected.
Our reserve estimates depend on many assumptions that may be inaccurate, which could materially adversely affect the quantities and value of our reserves.
Our reserve estimates may vary substantially from the actual amounts of muriate of potash and langbeinite we may be able to economically
recover from our reserves. There are numerous uncertainties inherent in estimating quantities of reserves, including many factors beyond our control. Estimates of muriate of potash and langbeinite reserves necessarily depend upon a number of
variables and assumptions, any one of which, if incorrect, may result in an estimate that varies considerably from actual results. These factors and assumptions relate to:
|
|
Ÿ
|
|
future potash prices, operating costs, capital expenditures, royalties, severance and excise taxes and development and reclamation costs;
|
|
|
Ÿ
|
|
future mining technology improvements;
|
|
|
Ÿ
|
|
the effects of regulation by governmental agencies; and
|
|
|
Ÿ
|
|
geologic and mining conditions, which may not be fully identified by available exploration data and may differ from our experiences in areas where we currently mine or
operate.
|
Because reserves are only estimates, they cannot be audited for the purpose of verifying exactness. Instead, reserve
information is reviewed by a reserve engineer in sufficient detail to determine if, in the aggregate, the data provided by us are reasonable and sufficient to estimate reserves in conformity with practices and standards generally employed by and
within the mining industry and in accordance with SEC requirements.
Our business depends upon skilled and experienced personnel, and employee turnover may
have a material adverse effect on our development and operating results.
The success of our business depends upon our ability to attract and
retain skilled managers and other personnel. We compete for experienced laborers with other industries, including a copper mine in Moab, Utah, a nuclear waste management facility in southeast New Mexico, and oil fields and other
16
potash facilities in Carlsbad, New Mexico. A new uranium enrichment facility in Eunice, New Mexico has just begun construction. Employee turnover in Carlsbad has
generally been high, and the continued expansion of nuclear facilities in Carlsbad threatens to increase competition for qualified workers. If we are not able to attract and retain the personnel necessary for the development of our business, we may
have to raise wages to keep employees or hire less qualified workers, either of which would ultimately result in higher labor costs per ton of potash produced.
Prices of natural gas and other important raw materials and energy used in our businesses are volatile. Changes in the prices of raw materials or energy or disruptions to supply could adversely impact our business and our sales.
Natural gas, electricity, steel, water, chemicals and fuel (diesel and gasoline) are key raw materials used in our production of potash
products. Natural gas is a significant energy source used in the solution mining process at the Moab Mine and at the East Mine processing plant. Our sales and profitability from time to time have been and may in the future be impacted by the price
and availability of these raw materials and other energy costs. Currently, we have no derivative contracts in place for 2008 with respect to natural gas or other raw materials, although we will continue to evaluate the possibility of entering into
such arrangements in the future. A significant increase in the price of natural gas, electricity and fuel that is not recovered through an increase in the price of our potash, or an extended interruption in the supply of natural gas, electricity,
water or fuel to our production facilities, could materially adversely affect our business, financial condition or operating results. High natural gas costs also may increase farm input costs, which may cause our potash sales to decline.
The price of natural gas in North America is highly volatile. Since January 2004, natural gas prices according to the El Paso Natural Gas. Co. Permian Basin
Index, on which the prices we pay for natural gas are primarily based, have ranged from a high of $10.75 per MMBtu in November 2005 to a low of $3.57 per MMBtu in October 2006. Steel is a commodity that is also subject to volatile pricing. Since
January 2004, hot rolled steel prices have ranged from a high of $780 per ton in August 2004 to a low of $360 per ton in January 2004. Our forecasts of capital expenditures are based on assumptions with respect to prices of skilled labor and
commodities, including steel and concrete. We cannot predict future commodity prices, and if such prices are higher than expected, we may lose sales to competitors with lower production costs, our profitability could be materially adversely affected
and our capital expenditures could increase.
Aggressive pricing strategies by our competitors could materially adversely affect our sales and profitability.
Many of our competitors have significantly larger operations than we do and mine potash from reserves that are thicker, higher-grade and less
geologically complex than our reserves. The large size of some of our competitors may give them greater leverage in pricing negotiations with customers and may enable them to negotiate better rates for transportation of products sold. The nature of
our competitors’ reserves and the economies of scale of their operations may allow them to mine their potash at a lower cost. If one or more of these competitors were to decide for any reason to aggressively lower prices in an attempt to
increase their sales, our size and cost structure might not allow us to match that pricing, such that we would likely lose sales and our operating results and profitability would be materially adversely affected.
Any decline in U.S. agricultural production or limitations on the use of our products for agricultural purposes could materially adversely affect the market for our
products.
Conditions in the U.S. agricultural industry can significantly impact our operating results. The U.S. agricultural industry can be
affected by a number of factors, including weather patterns and field
17
conditions, current and projected grain inventories and prices, the domestic and international demand for U.S. agricultural products and U.S. and foreign policies
regarding trade in agricultural products.
State and federal governmental policies, including farm and ethanol subsidies and commodity support
programs, may also directly or indirectly influence the number of acres planted, the mix of crops planted and the use of fertilizers for particular agricultural applications. In addition, several states are currently considering limitations on the
use and application of fertilizers due to concerns about the impact of these products on the environment.
A decline in oil and gas drilling or a reduction in
the use of potash in drilling fluids in the Permian Basin or Rocky Mountain regions may increase our operating costs and decrease our average net sales per ton of potash.
A significant portion of our sales consists of sales of standard potash for use in oil and gas drilling fluids in the Permian Basin and Rocky Mountain regions. If
oil and gas drilling were to decline significantly, we would be required to compact our standard product in order to sell it into the agricultural market, which would increase our production costs. Furthermore, our net sales per ton for these
additional agricultural tons would likely be lower than the industrial sales they would replace, as agricultural sales may require transportation to more distant delivery points. Alternative products that have some of the clay-inhibiting properties
of potash in oil and gas drilling fluids are commercially available. As the price of potash increases, these alternative products may replace some of our sales of standard potash, which would reduce our industrial sales and result in the same
increases in production costs and decreases in net sales per ton.
Some of our competitors have greater capital and human resources than we do, which may place
us at a competitive disadvantage and adversely affect our sales and profitability.
We compete with a number of producers in North America and
throughout the world. Some of these competitors may have greater total resources than we do. Competition in our product lines is based on a number of considerations, including product performance, transportation costs, brand reputation, price and
quality of client service and support. To remain competitive, we need to invest continuously in production infrastructure, marketing and customer relationships. We may have to adjust the prices of some of our products to stay competitive. We may
also need to borrow funds and become more highly leveraged. We may not have sufficient resources to continue to make such investments or maintain our competitive position relative to some of our competitors who have greater capital and human
resources. To the extent other potash producers enjoy competitive advantages, the price of our products, our sales volumes and our profits could be materially adversely affected.
A shortage of railcars and trucks for carrying our products as well as increased transit time could result in customer dissatisfaction, loss of production or sales and higher transportation or equipment costs.
We rely heavily upon truck and rail transportation to deliver our products to our customers. In addition, the cost of transportation is an important
component of the price of our products. Identifying and securing affordable and dependable transportation is important in supplying our customers and, to some extent, in the delivery to us of chemicals and other supplies and equipment for our mining
operations. A shortage of railcars for carrying product as well as increased transit time in North America due to congestion in the rail system could prevent us from making timely delivery to our customers or lead to higher transportation costs,
either of which could result in customer dissatisfaction or loss of sales. In addition, PCS, which markets our products outside North America, may have difficulty obtaining access to ships for sales of our products overseas. Higher costs for
transportation services or an interruption or slowdown in these transport services due to high demand, labor disputes,
18
adverse weather or other environmental events, or changes to rail systems, would negatively affect our ability to deliver products to our customers, which would harm
our performance and operating results.
The seasonal demand for our products and the variations in our cash flows from quarter to quarter may have an adverse
effect on our operating results and make the price of our common stock more volatile.
The fertilizer business is seasonal, with operating
results that vary from quarter to quarter as a result of crop growing and harvesting seasons and weather conditions, as well as other factors. Over the last three years, we have averaged 28% of our annual potash sales volume during the three-month
period from February through April, when the demand for fertilizer typically peaks. We and our customers generally build inventories during low-demand periods of the year in order to ensure timely product availability during peak sales seasons. The
seasonality of crop nutrient demand results in our sales volumes and net sales revenue typically being the highest during the North American spring season and our working capital requirements typically being the highest just before the start of the
spring season. Our quarterly financial results can vary significantly from one year to the next due to weather-related shifts in planting schedules and purchasing patterns. If seasonal demand exceeds our projections, our customers may acquire
products from our competitors, and our profitability could be materially reduced as a result. If seasonal demand is less than we expect, we will be left with excess inventory and higher working capital and liquidity requirements.
We rely on our innovative senior management personnel for the development and execution of our business strategy, and the loss of any member of our senior management team
may have a material adverse effect on our growth and operating results.
Our executives have an average of over 25 years of relevant industry
experience. Our senior management team has developed and implemented first-of-their-kind processes and other innovative ideas that are largely responsible for the success of our business. The loss of the services of any of our key executives could
prevent us from achieving our business strategies or limit our business growth and operating results. We do not currently maintain “key person” life insurance on any of our key executives.
Weakening of the Canadian dollar and Russian ruble against the U.S. dollar could lead to lower domestic potash prices, which would adversely affect our operating results,
and fluctuations in these currencies may cause our operating results and our stock price to fluctuate.
The U.S. imports the majority of
its potash from Canada and Russia. As the Canadian dollar, or the loonie, and the Russian ruble strengthen in comparison to the U.S. dollar, foreign suppliers realize a smaller margin in their local currencies unless they increase their nominal U.S.
dollar prices. In 2007, the loonie and ruble strengthened to an average of $0.93565 and $0.03913, respectively, compared to the U.S. dollar. As of March 31, 2008, the loonie and ruble were trading at $0.9758 and $0.04256, respectively, against the
U.S. dollar. The continued strengthening of the loonie and ruble thus tend to support higher U.S. potash prices, as Canadian and Russian potash producers attempt to maintain their margins. However, if the loonie and ruble were to weaken in
comparison to the U.S. dollar, foreign competitors may choose to lower prices significantly to increase sales volumes. A decrease in the net realized sales price of our potash would adversely affect our operating results, and the potential for
volatility in potash prices may cause our operating results to vary significantly from quarter to quarter, which may create volatility in our stock price.
19
Existing and further oil and gas development in the “Potash Area” in New Mexico could result in methane gas leaking
into our mines that could result in the loss of life and significant property damage, and require indefinite suspension of operations unless extensive modifications were made to the mines.
Our New Mexico operations are primarily on leased federal land administered by the Bureau of Land Management, or BLM, in the 497,000-acre “Potash Area”
established by a 1986 order of the U.S. Secretary of the Interior. Under our leases, the BLM retains the right to permit other uses of the land on which our leases are located. The Potash Area also contains significant oil and gas deposits that are
below our potash reserves, and approximately 3,000 oil and gas wells have been drilled in the Potash Area. Several oil and gas companies are actively seeking BLM and state permits to drill additional wells in the Potash Area.
Oil and gas drilling near our mines poses risks to our operations. The subsidence of the surface and underlying strata that occurs following completion of mining
operations will damage the casing of any oil or gas well located within the subsidence area. That damage may result in methane gas escaping from the well and migrating through surrounding strata into our mines. Methane gas could also leak from a
well located outside the subsidence area and migrate into a mine. We test our mines for methane gas daily; however, unlike coal mines which are constructed and equipped to handle the presence of methane gas, our mines are not constructed or equipped
to deal with methane gas. Any intrusion of methane gas into our mines could cause an explosion resulting in loss of life and significant property damage and require suspension of all mining operations until the completion of extensive modifications
and reequipping of the mine. The costs of modifying our mines and equipment could make it uneconomic to reopen our mines because our liability, casualty and business interruption insurance would not be adequate to cover such catastrophic events.
Existing and further oil and gas development in the Potash Area in New Mexico could prevent us from mining potash reserves or deposits within the necessary
safety pillar around oil and gas wells.
The drilling of oil and gas wells in the Potash Area is regulated by the 1986 order of the U.S.
Secretary of the Interior as to federal lands (which constitute the vast majority of the Potash Area). Similar State of New Mexico regulations govern state and fee lands in the Potash Area. The Secretary’s order and related regulations, with
certain exceptions, restrict oil and gas drilling that would result in the undue waste of potash or would constitute a safety hazard to potash miners. Drilling that does not immediately affect our current operations may limit our ability to mine
valuable potash reserves or deposits in the future because safety considerations require that mining operations not be conducted close to a well, even if the well is inactive. As a result, we will be unable to mine potash located within the
appropriate “safety pillar” around an oil or gas well. We review applications for permits to drill oil and gas wells as they are filed with the BLM and generally protest applications for drilling permits that we believe may impair our
ability to mine our potash reserves or deposits. We may not prevail in any such protest or be able to prevent wells from being drilled in the vicinity of our potash reserves or deposits. Our potash reserves or deposits may be significantly impaired
if, notwithstanding our protests and appeals, a sufficient number of wells are drilled through or near our potash reserves or deposits. We expect oil and gas companies to continue to seek drilling permits and to contest our efforts to restrict
drilling within the Potash Area.
We have recently lobbied extensively to cause a reassessment by the BLM and Department of the Interior of their
policies concerning granting of oil and gas drilling permits in the Potash Area in order to protect our existing operations and future potash reserves or deposits from the adverse effects of oil and gas drilling. In July 2007, the Department of the
Interior said that it will conduct a new study on the safety of developing oil and gas wells in the Potash Area and that another study had been undertaken to update maps of the potash resource within the Potash Area. The outcome of these
20
studies will affect the future issuance of drilling permits that could adversely affect our mining operations and the value of our potash reserves or deposits.
Our operations depend on our having received and maintained the required permits and approvals from and lease negotiations with governmental authorities.
We hold numerous governmental, environmental, mining and other permits and approvals authorizing operations at each of our facilities. A
decision by a governmental agency to deny or delay issuing a new or renewed permit or approval, or to revoke or substantially modify an existing permit or approval, could prevent or limit our ability to continue operations at the affected facility
and have a material adverse effect on our business, financial condition and operating results. Expansion of our existing operations also would require securing the necessary environmental and other permits and approvals, which we may not receive in
a timely manner if at all. In addition, the federal government may require an environmental assessment or environmental impact statement as a condition of approving a project or permit, which could result in additional time delays and costs.
Furthermore, our mining operations take place on land that is leased from federal and state governmental authorities. Expansion of our existing operations may require securing additional federal and state leases, which we may not obtain in a timely
manner, if at all. In addition, our existing leases generally require us to commence mining operations within a specified time frame and to continue mining in order to retain the lease. The loss of a lease could adversely affect our ability to mine
the associated reserves. Also, our existing leases require us to make royalty payments based on the revenue generated by the potash we produce from the leased land. The royalty rates are subject to change, which may lead to significant increases, at
the time we renew our leases. As of December 31, 2007, approximately 46% of our state and federal lease acres at our New Mexico facilities (including leases at the HB and North Mines) and approximately 15% of our state and federal lease acres
at our Utah operations will be up for renewal within the next five years. Increases in royalty rates would reduce our profit margins and, if such increases were significant, would adversely affect our operating results.
Our preliminary plans for reopening the HB Mine and developing additional strategic growth opportunities may require more time and greater capital spending than we expect.
We currently plan to reopen the HB Mine as a solution mine. We commissioned a feasibility study, which was completed in March 2008, for
the purpose of publicly reporting the reserves related to this project. Reopening the mine will be subject to significant costs and risks. We will require site approval and various permits from the State of New Mexico and the Bureau of Land
Management, which we may be unable to obtain in a timely manner or on reasonable terms, or at all. In addition, oil and gas lessees or other third parties in the region may oppose our permitting process, which may further delay or prevent the
reopening of the mine. Even if we obtain all required approvals, it may be several years before the mine produces potash, and construction of the solar ponds and refurbishing of the mine facilities may take longer or cost significantly more than we
expect. We may be unable to produce potash economically from the HB Mine if reopened, or our profitability from the project may be lower than we expect.
We are also considering various other potential opportunities for revenue and strategic growth, including potentially reopening the idled North Mine. These potential plans are at an early stage, and we may not actually proceed with any of
them. If we do choose to proceed with any such opportunity, the project may not succeed, despite our having made substantial investments; it may cost significantly more than we expect; or we may encounter additional risks which we cannot anticipate
at this time.
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The market for langbeinite is still developing and could be affected by new market entrants or the introduction of
langbeinite alternatives.
Langbeinite, a low-chloride source of potassium, is produced by Intrepid Potash and Mosaic from the only known
langbeinite reserves located in the Carlsbad, New Mexico region. The demand for langbeinite has been limited due mostly to its limited supply and availability, and it is difficult to determine how the supply, demand and pricing for langbeinite will
develop. Furthermore, additional competition in the market for langbeinite and comparable products exists and may increase in the future. A German company is currently producing a low-chloride fertilizer similar to langbeinite, and Chinese producers
are working on a project to synthesize langbeinite from brines, with a goal of producing significant amounts of langbeinite by 2010. We plan to sell a significant amount of langbeinite in China, and these sales may be reduced to the extent China is
able to produce its own product internally. Other companies may currently or in the future seek to create and market chemically similar alternatives to langbeinite. The market for langbeinite and our langbeinite sales may be affected by the success
of these and other competitive sources for langbeinite, which could materially adversely affect the viability of our langbeinite business and our operating results and financial condition.
As a potash-only producer, we are less diversified than nearly all of our competitors, and a decrease in the demand for potash and langbeinite or increase in potash supply
could have a material adverse effect on our financial condition and results of operations.
We are dedicated exclusively to the production and
marketing of potash and langbeinite, whereas nearly all of our competitors are diversified, primarily into other nitrogen and phosphate-based fertilizer businesses and other chemical and industrial businesses. As a result of our potash focus and
domestic geographic focus, we would likely be impacted more acutely by factors affecting our industry or the regions in which we operate than we would if our business were more diversified and our sales more global. A decrease in the demand for
potash and langbeinite could have a material adverse effect on our financial condition and results of operations. Similarly, a large increase in potash supply could also materially impact our financial condition more than our diversified
competitors.
Inflows of water into our potash mines from heavy rainfall or groundwater could result in increased costs and production down time and may
require us to abandon a mine, either of which could adversely affect our operating results.
Major weather events such as heavy rainfall can
result in water inflows into our mines. In October 2006, water inflows from rainfall caused unused utilities in a mine shaft at our West Mine to break loose and block the mine shaft. As a result, we were forced to shut down the West Mine for 54 days
to remove the utilities and improve water controls in the shaft. The shutdown significantly lowered our 2006 potash production from the West Mine. Additionally, the presence of water-bearing strata in many underground mines carries the risk of water
inflows into the mines. If we experience additional water inflows at our mines in the future, our employees could be injured and our equipment and mine shafts could be seriously damaged. We might be forced to shut down the affected mine temporarily,
potentially resulting in significant production delays, and spend substantial funds to repair or replace damaged equipment. Inflows may also destabilize the mine shafts over time, resulting in safety hazards for employees and potentially leading to
the permanent abandonment of a mine. We do not carry insurance to cover the risks of water inflows.
Heavy fall precipitation or low evaporation rates at our
Moab and Wendover facilities could delay our potash production at those facilities, which could adversely affect our sales and operating results.
Our facilities in Moab and Wendover, Utah use solar evaporation ponds to form potash crystals from brines. This process is limited by rainfall and evaporation rates. Heavy rainfall in September and
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October, just after the evaporation season ends, would temporarily reduce the amount of potash we can produce by causing the potash crystals to dissolve. Lower than
average temperatures and higher than average seasonal rainfall reduce evaporation rates, which also would temporarily limit the amount of potash we are able to produce and push that production into later quarters or years. If these weather
conditions occur at either or both of our Moab and Wendover facilities, we would have less potash available for sale and our sales and operating results could be materially adversely affected. In addition, we plan to use solar evaporation ponds in
connection with the reopening of the HB Mine. As the number of our solar ponds increases, our production risks related to rainfall and evaporation rates will increase.
Environmental laws and regulations may subject us to significant liability and require us to incur additional costs in the future.
We are subject to many environmental, health and safety laws and regulations, including laws and regulations relating to mine safety, mine land reclamation, remediation of hazardous substance releases, and the regulation of discharges into
the soil, air and water. Operations by us and our predecessors have involved the historical use and handling of regulated substances, refined petroleum products, potash, salt, related potash and salt by-products, and process tailings. These
operations resulted, or may have resulted, in soil, surface water and groundwater contamination. At some locations, there are areas where salt-processing waste, building materials (including asbestos-containing transite) and ordinary trash may have
been disposed or buried, and have since been closed and covered with soil and other materials. Under environmental remediation laws such as the U.S. Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA, liability is
imposed, without regard to fault or to the legality of a party’s conduct, on certain categories of persons (known as “potentially responsible parties”) who are considered to have contributed to the release of “hazardous
substances” into the environment. We may in the future incur material liabilities under CERCLA and other environmental remediation laws, with regard to our current or former facilities, adjacent or nearby third party facilities or off-site
disposal locations. Under CERCLA, or its various state analogues, one party may, under some circumstances, be required to bear more than its proportional share of cleanup costs at a site where it has liability if payments cannot be obtained from
other responsible parties. Liability under these laws involves inherent uncertainties.
Previously, governmental agencies have required us to
undertake certain remedial activities to address identified site conditions. For example, we have worked with Utah officials to address asbestos-related issues at our Moab Mine. Many of our facilities also contain permitted asbestos landfills, some
of which have been closed. Additionally, we are currently working with federal officials to resolve issues concerning the disposal of asbestos-containing transite at an unpermitted location at our West Mine, which may require additional removal of
transite material, a land swap or another remedy.
Additionally, certain environmental laws, such as the U.S. Clean Water Act and the U.S. Clean Air
Act, regulate and permit discharges of pollutants and contaminants into the environment. Violations of these environmental, health and safety laws are subject to civil, and in some cases criminal, sanctions. We may in the future incur material
liabilities under the Clean Water Act, the Clean Air Act, or similar federal and state laws due to:
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changes in the interpretation of environmental laws;
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modifications to current environmental laws;
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the issuance of more stringent environmental laws in the future; or
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malfunctioning process or pollution control equipment.
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For example, our water disposal processes rely on dikes and reclamation ponds which could breach or leak, resulting in a possible release into the environment. Moreover, although the North and
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East Mines in New Mexico and the Moab Mine in Utah are designated as zero discharge facilities under the applicable water quality laws and regulations, these mines may
experience some discharges during significant rainfall events. Also, changes to existing environmental laws or permits, or the issuance of more stringent environmental laws or permits, could require additional equipment, facilities, or employees to
address water disposal issues.
Mining and processing of potash also generates residual materials that must be managed both during the operation of
the facility and upon facility closure. For example, potash tailings, consisting primarily of salt, iron and clay, are stored in surface disposal sites and require management. At least one of our New Mexico mining facilities, the HB Mine, may have
issues regarding lead in the tailings pile. During the life of the tailings management areas, we have incurred and will continue to incur significant costs to manage potash residual materials in accordance with environmental laws and regulations and
permit requirements.
As a potash producer, we currently are exempt from certain State of New Mexico mining laws related to reclamation obligations.
If this exemption were to be eliminated or restricted in the future, we might be required to incur significant expenses related to reclamation at our Carlsbad, New Mexico facilities.
Government and public emphasis on environmental issues can be expected to result in future investments for environmental controls at ongoing operations, which will
be charged against income from future operations. Present and future environmental laws and regulations applicable to our operations may require substantial capital expenditures and may have a material adverse effect on our business, financial
condition and operating results. For more information, see “Business—Environmental, Health and Safety Matters” beginning on page 107.
In
connection with the transactions contemplated by the exchange agreement, we will assume past, present and future liabilities related to Intrepid Mining’s business, and may be subject to liabilities of Intrepid Mining that are currently unknown
and that may have a material adverse effect on our profitability, operating results and stock price.
Pursuant to the exchange agreement
we will enter into with Intrepid Mining in connection with this offering, we will agree to assume (i) all amounts in excess of $18.9 million of Intrepid Mining’s liability under its existing senior credit facility and (ii) all other liabilities
and obligations of Intrepid Mining, as described in more detail under “The Formation Transactions” beginning on page 67. The liabilities we will assume include liabilities that may arise from circumstances existing on the closing of this
offering that are currently unknown to us or Intrepid Mining. Any such unknown liabilities may be significant and may have a material adverse effect on our profitability and results of operations. The exchange agreement will not contain any
representations or warranties concerning those liabilities. As a result, we will not be entitled to contractual indemnification from Intrepid Mining or its members for any losses that we incur related to liabilities assumed under the exchange
agreement. We will be required to indemnify Intrepid Mining from any liability or obligation of Intrepid Mining that we assume. In addition, if any liabilities that we assume are not reflected on our balance sheet, we would be required to record a
charge during each period that such liabilities became known, probable and estimable. Any such charges, if material, could have an unanticipated and significant adverse effect on our operating results and stock price.
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Our indebtedness could adversely affect our financial condition and impair our ability to operate our business.
As of the completion of this offering, we expect to have no outstanding borrowings under our credit facility. Our credit facility will
allow us to borrow up to $125 million. Our indebtedness could have important consequences, including the following:
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it may limit our ability to borrow money or sell additional shares of common stock to fund our working capital, capital expenditures and debt service requirements;
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it may limit our flexibility in planning for, or reacting to, changes in our business;
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we may be more highly leveraged than some of our competitors, which may place us at a competitive disadvantage;
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it may make us more vulnerable to a downturn in our business or the economy;
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it will require us to dedicate a substantial portion of our cash flow from operations to the repayment of our indebtedness, thereby reducing the availability of our cash flow
for other purposes; and
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it may materially and adversely affect our business and financial condition if we are unable to service our indebtedness or obtain additional financing, as needed.
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In addition, our credit facility will contain financial and other restrictive covenants that may limit our ability to engage
in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our debt. See “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 45.
Mining is a capital-intensive business, and the
inability to fund necessary or desirable capital expenditures could have an adverse effect on our growth and profitability.
Mining is a
capital-intensive business. We anticipate making significant capital expenditures over the next several years in connection with the development of new projects such as reopening the HB Mine, the various expansions at our existing operating
facilities and sustaining existing operations. Costs associated with capital expenditures have escalated on an industry-wide basis over the last several years, largely as a result of major factors beyond our control such as increases in the price of
natural gas, steel and other commodities. As costs associated with capital expenditures continue to increase, we could have difficulty funding or be unable to fund needed or planned capital expenditures, which would limit the expansion of our
production or the inability to sustain our existing operations at optimal levels. Increased costs for capital expenditures could also have an adverse effect on the profitability of our existing operations and returns from our new projects.
Market upheavals due to global pandemics, military actions, terrorist attacks and any global and domestic economic repercussions from those events could
reduce our sales and revenues.
Global pandemics, actual or threatened armed conflicts, future terrorist attacks or military or trade
disruptions affecting the areas where we or our competitors do business may disrupt the global market for potash. As a result, our competitors may increase their sales efforts in our geographic markets and pricing of potash may suffer. If this
occurs, we may lose sales to our competitors or be forced to lower our prices, which would reduce our revenues. In addition, due to concerns related to terrorism or the potential use of certain fertilizers as explosives, local, state and federal
governments could implement new regulations impacting the production, transportation, sale or use of potash. Any such regulations could result in higher operating costs or limitations on the sale of our potash and could result in significant
unanticipated costs, lower revenues and reduced profit margins.
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We are a holding company with no operations of our own and depend on our subsidiaries for cash.
Because our operations are conducted through our subsidiaries, our ability to make payments on our indebtedness and pay dividends, if any, to our stockholders is
dependent on the earnings and the distribution of funds from our subsidiaries. None of our subsidiaries is obligated to make funds available to us for payment on our indebtedness or to pay any dividends to holders of our common stock. Future
financing arrangements of our subsidiaries, such as project financing, may significantly restrict or prohibit our subsidiaries from paying dividends or otherwise transferring assets to us.
If we are unsuccessful in negotiating new collective bargaining agreements, we may experience significant increases in the cost of labor or a disruption in our Wendover
operations.
As of March 31, 2008, we had 734 employees. Approximately 5% of our workforce, consisting solely of employees at our Wendover
Facility, is represented by labor unions. Our collective bargaining agreement with our employees in Wendover will expire on May 31, 2008. Although we believe that our relations with our employees are good, as a result of general economic,
financial, competitive, legislative, political and other factors beyond our control, we may not be successful in negotiating new collective bargaining agreements. Such negotiations may result in significant increases in the cost of labor and a
breakdown in such negotiations could disrupt our Wendover operations. If employees at any of our other facilities were to unionize in the future, these risks would increase.
Risks Related to This Offering
There is no existing market for our common stock and we do not know if one
will develop. Even if a market does develop, the stock prices in the market may not exceed the offering price.
Prior to this initial
public offering, there has not been a public market for our common stock. Furthermore, because current members of Intrepid Mining will beneficially own approximately 67.9% of our common stock immediately following this offering, only a limited
number of our shares are likely to be actively traded and an active market in our shares may not develop. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market on the NYSE or
otherwise, or how liquid that market may become. If an active trading market does not develop, you may have difficulty selling any shares that you buy.
The initial public offering price for the common stock was determined by negotiations among us and the representatives of the underwriters and may not be indicative of prices that will prevail in the open market following this offering.
Consequently, you may not be able to sell shares of our common stock at prices equal to or greater than the price you pay in this offering.
Our common stock
price may be volatile and you may lose all or part of your investment.
Securities markets worldwide experience significant price and volume
fluctuations in response to general economic and market conditions and their effect on various industries. This market volatility could cause the price of our common stock to decline significantly and without regard to our operating performance, and
you may not be able to resell your shares at or above the offering price. Those fluctuations could be based on various factors in addition to those otherwise described in this prospectus, including:
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our operating performance and the performance of our competitors;
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the public’s reaction to our press releases, our other public announcements and our filings with the SEC;
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changes in earnings estimates or recommendations by research analysts who follow Intrepid Potash or other companies in our industry;
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variations in general economic, market and political conditions;
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the number of shares to be publicly traded after this offering;
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actions of our current stockholders, including sales of common stock by current members of Intrepid Mining or our directors and executive officers;
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the arrival or departure of key personnel; and
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other developments affecting us, our industry or our competitors.
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In addition, in recent years the stock market has experienced significant price and volume fluctuations. These fluctuations may be unrelated to the operating performance of particular companies. These broad market fluctuations
may cause declines in the market price of our common stock. The price of our common stock could fluctuate based upon factors that have little or nothing to do with our company or its performance, and those fluctuations could materially reduce our
common stock price.
If securities or industry analysts do not publish research or reports about us, our business or our market, or if they adversely change
their recommendations regarding our stock, our stock price and trading volume could decline.
The trading market for our common stock is
influenced by the research and reports that industry or securities analysts publish about us, our business and our market. If one or more of the analysts who cover us change their recommendation regarding our stock adversely, our stock price would
likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose viability in the financial markets, which in turn could cause our stock price or trading volume to decline.
Future sales of our common stock, or the perception that such sales may occur, could depress our common stock price.
Sales of a substantial number of shares of our common stock, or the perception that such sales may occur, following this offering could depress the market price of
our common stock. This would include sales by current members of Intrepid Mining. Under our restated certificate of incorporation, we will be authorized to issue up to 100,000,000 shares of common stock, of which 74,846,000 shares will be
outstanding after completion of this offering. Shares of our common stock held by our affiliates will continue to be subject to the volume and other restrictions of Rule 144 under the U.S. Securities Act of 1933, or the Securities Act. We and
all of our executive officers and directors, as well as the current members of Intrepid Mining, will enter into lock-up agreements described under the caption “Underwriting”. Of the shares outstanding after completion of this offering,
74,846,000 shares will be freely tradable after the expiration date of the lock-up agreements, excluding any shares acquired by persons who may be deemed to be our affiliates. Each of the current members of Intrepid Mining and their affiliates will
have the ability to cause us to register, after the expiration date of such member’s lock-up agreement, some or all of the shares held by such member and its affiliates, as described under “Certain Relationships and Related Party
Transactions—Registration Rights Agreement”. Goldman, Sachs & Co. may, in its sole discretion and at any time without notice, release all or any portion of the shares subject to the lock-up. We cannot predict the size of future
issuances of our common stock or the effect, if any, that future sales and issuances of shares of our common stock would have on the market price of our common stock.
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In addition, immediately following this offering, we intend to file a registration statement registering under
the Securities Act the shares of common stock reserved for issuance under our 2008 Equity Incentive Plan. See the information under the heading “Shares Eligible for Future Sale” for a more detailed description of the shares that will be
available for future sales upon completion of this offering.
We may issue additional securities, including securities that are senior in right of
dividends, liquidation and voting to the common stock, without your approval, which would dilute your existing ownership interests.
Our
restated certificate of incorporation will allow us to issue up to 25,154,000 additional shares of common stock and up to 20,000,000 shares of preferred stock at any time without the approval of our stockholders, except as may be required by
applicable NYSE rules. Our board of directors may approve the issuance of preferred stock with terms that are senior to our common stock in right of dividends, liquidation or voting. The issuance by us of additional common shares or other equity
securities of equal or senior rank will have the following effects:
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our stockholders’ proportionate ownership interest in us will decrease;
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the relative voting strength of each previously outstanding common share may be diminished; and
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the market price of the common stock may decline.
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We will
enter into a director designation and voting agreement with our original stockholders and, in the aggregate, our original stockholders will have sufficient voting power to control decisions that require the approval of our stockholders.
Immediately following the completion of this offering, our original stockholders, in the aggregate, will own approximately 67.9% of our common stock,
or approximately 63.1% if the underwriters’ option to purchase additional shares is exercised in full. We will enter into a director designation and voting agreement with our original stockholders, wherein they will each agree to designate one
candidate for nomination and election to the board and to vote their shares in favor of the others’ candidates and we will agree to use our best efforts to assure that such designees are included in the slate of nominees to the board and
recommended for election. As a result of the director designation and voting agreement and the voting power of the shares they hold, our original stockholders will be able to control the election of three of the members of our board without the vote
of any other stockholder. Furthermore, our original stockholders, in the aggregate, will continue to have the ability to approve any transaction that requires the approval of stockholders, regardless of whether our other stockholders believe that
any such transaction is in their own best interests.
Non-U.S. holders may be subject to U.S. taxation under the Foreign Investment in Real Property Tax
Act.
We believe that upon completion of the formation transactions, we will be a “United States real property holding corporation”
for U.S. federal income tax purposes. As a result, under U.S. federal income tax laws enacted as part of the Foreign Investment in Real Property Tax Act, non-U.S. holders of our common stock may be subject to U.S. federal withholding tax or U.S.
federal income tax, or both, and may be required to file U.S. tax returns with respect to gain on the disposition of, and certain distributions with respect to, our common stock. Non-U.S. holders are urged to consult their own tax advisors regarding
the U.S. federal income tax consequences that may arise from our expected characterization as a “United States real property holding corporation”. See the discussion under the headings “Material U.S. Federal Income Tax
Considerations—Non-U.S. Holders—Distributions” and “Material U.S. Federal Income Tax Considerations—Non-U.S. Holders—Dispositions”.
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We will incur increased costs as a result of being a publicly-traded company.
We have no history operating as a publicly-traded company. As a publicly-traded company, we will incur significant legal, accounting and other expenses that we
would not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as related rules implemented by the SEC and the NYSE, have required changes in corporate governance practices of publicly-traded companies. We expect these
new rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. For example, as a result of becoming a publicly-traded company, we will be required to have at least three
independent directors, create additional board committees and adopt policies regarding internal controls and disclosure controls and procedures, including the preparation of reports on internal control over financial reporting. In addition, we will
incur additional costs associated with our publicly-traded company reporting requirements. We also expect these new rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we
may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of
directors or as executive officers. We estimate that we will incur $2.0 million of incremental costs per year associated with being a publicly-traded company; however, it is possible that our actual incremental costs of being a publicly-traded
company will be higher than we currently estimate.
We will not be fully subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002
until the end of 2009. If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud and, as a result, our business could be harmed and current and potential
stockholders could lose confidence in us, which could cause our stock price to fall.
We will be required to document our system and process
evaluation and testing (and any necessary remediation) to comply with the management certification and auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which we expect will first apply to us for our fiscal year
ended December 31, 2009. As a result, we expect to incur substantial additional expenses and diversion of management’s time. We cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or their
effect on our operations. If we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, we may not be able to accurately report our financial results or prevent fraud and might be subject to
sanctions or investigation by regulatory authorities, such as the SEC or the NYSE. Any such action could harm our business or investors’ confidence in us, and could cause our stock price to fall.
You will experience immediate and substantial dilution in net tangible book value per share of common stock.
The initial public offering price of the common stock will be substantially higher than the pro forma combined net tangible book value per share of our outstanding
common stock. If you purchase shares of our common stock, you will incur immediate and substantial dilution in net tangible book value in the amount of $22.78 per share. See “Dilution”.
We do not intend to pay dividends for the foreseeable future.
Other than the formation distribution, we have never declared or paid any dividends on our common stock. For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not
anticipate paying any cash dividends on our common stock. See “Dividend Policy” and “The Formation Transactions”.
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Provisions in our charter documents and Delaware law may delay or prevent our acquisition by a third party.
We are a Delaware corporation and the anti-takeover provisions of Delaware law impose various barriers to the ability of a third party to
acquire control of us, even if a change of control would be beneficial to our existing stockholders. In addition, our restated certificate of incorporation and restated bylaws will contain several provisions that may make it more difficult for a
third party to acquire control of us without the approval of our board of directors. These provisions may make it more difficult or expensive for a third party to acquire a majority of our outstanding common stock. Among other things, these
provisions:
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authorize us to issue preferred stock that can be created and issued by the board of directors without prior stockholder approval, except as may be required by applicable
NYSE rules, with rights senior to those of common stock;
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do not permit cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates;
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prohibit stockholders from calling special meetings of stockholders;
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prohibit stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;
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require vacancies and newly created directorships on the board of directors to be filled only by a majority of the directors then serving on the board;
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establish advance notice requirements for submitting nominations for election to the board of directors and for proposing matters that can be acted upon by stockholders at a
meeting; and
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classify our board of directors so that only some of our directors are elected each year.
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These provisions also may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other transaction that might otherwise result in our
stockholders’ receiving a premium over the market price for their common stock. See “Description of Capital Stock—Anti-Takeover Effects of Certain Provisions of Delaware Law, the Certificate of Incorporation and the Bylaws”.
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FORWARD-LOOKING STATEMENTS
Some of the statements under “Summary”, “Risk Factors”,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Business” and elsewhere in this prospectus constitute forward-looking statements. In some cases, you can identify these statements by
forward-looking words such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “potential”, “should”,
“will” and “would” or similar words. You should read statements that contain these words carefully because they discuss our future expectations, contain projections of our future operating results or of our financial position or
state other forward-looking information. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place
undue reliance on these forward-looking statements, which apply only as of the date of this prospectus. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of
activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not
limited to the following:
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changes in the price of potash or langbeinite;
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operational difficulties at our facilities;
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Ÿ
|
|
changes in demand and/or supply for potash or langbeinite;
|
|
|
Ÿ
|
|
changes in our reserve estimates;
|
|
|
Ÿ
|
|
our ability to achieve the initiatives of our business strategy, including but not limited to the development of the HB Mine as a solution mine;
|
|
|
Ÿ
|
|
changes in the prices of our raw materials, including but not limited to the price of natural gas;
|
|
|
Ÿ
|
|
fluctuations in the costs of transporting our products to customers;
|
|
|
Ÿ
|
|
changes in labor costs and availability of labor with mining expertise;
|
|
|
Ÿ
|
|
the impact of federal, state or local government regulations, including but not limited to environmental and mining regulations;
|
|
|
Ÿ
|
|
competition in the fertilizer industry;
|
|
|
Ÿ
|
|
declines in U.S. agricultural production;
|
|
|
Ÿ
|
|
declines in oil and gas drilling;
|
|
|
Ÿ
|
|
changes in economic conditions;
|
|
|
Ÿ
|
|
adverse weather events at our facilities;
|
|
|
Ÿ
|
|
our ability to comply with covenants inherent in our current and future debt obligations to avoid defaulting under those agreements; and
|
|
|
Ÿ
|
|
other risks described under “Risk Factors”.
|
This list of factors that may affect future performance and the accuracy of forward-looking statements is illustrative but not exhaustive. Accordingly, all forward-looking statements should be evaluated with an understanding of their
inherent uncertainty. Before you invest in our common stock, you should be aware that the occurrence of the events described in “Risk Factors” and elsewhere in this prospectus could have a material adverse effect on our business, operating
results and financial position.
31
USE OF PROCEEDS
We estimate that we will receive net proceeds from this offering of approximately $559.8 million,
after deducting estimated underwriting discounts and commissions and other expenses of the offering payable by us. For purposes of estimating our net proceeds, we have assumed that the initial public offering price of the shares of common stock will
be $25.00, which is the midpoint of the price range set forth on the cover page of this prospectus, and no exercise of the underwriters’ option to purchase additional shares of common stock. A $1.00 increase (decrease) in the assumed initial
public offering price per share would increase (decrease) net proceeds to us from this offering by approximately $22.6 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and would increase
(decrease) the amount of net proceeds payable to Intrepid Mining pursuant to the exchange agreement by an equal amount. Assuming that the underwriters exercise their option to purchase additional shares in full, a $1.00 increase (decrease) in the
assumed initial public offering price would increase (decrease) net proceeds to us from the exercise of the option to purchase additional shares by approximately $3.4 million, after deducting underwriting discounts and commissions, and would
increase (decrease) the cash payable to Intrepid Mining pursuant to the formation distribution by an equal amount.
We expect to apply the net
proceeds from this offering as follows:
|
|
Ÿ
|
|
approximately $419.8 million (approximately 75.0% of the net proceeds from this offering) will be paid to Intrepid Mining (together with 47,239,000 shares of our common
stock) in exchange for all of Intrepid Mining’s assets other than cash;
|
|
|
Ÿ
|
|
based on outstanding amounts as of December 31, 2007, approximately $82.5 million (approximately 14.7% of the net proceeds from this offering) will be used by us for
repayment of debt assumed from Intrepid Mining pursuant to the exchange agreement, leaving us with no outstanding debt; and
|
|
|
Ÿ
|
|
the remainder of the net proceeds, $59.2 million of cash in the December 31, 2007 pro forma combined as adjusted balance sheet, will be used to fund production
expansions and other growth opportunities and for general corporate purposes. (The $59.2 million is adjusted for $1.7 million of transaction fees paid in 2007.)
|
We will assume (i) all amounts in excess of $18.9 million of Intrepid Mining’s liability under its existing senior credit facility and (ii) all
other liabilities and obligations of Intrepid Mining, as described in the exchange agreement discussed under “The Formation Transactions”. As of December 31, 2007, the total debt outstanding under the existing senior credit facility
was $101.4 million, which bore interest at a weighted average interest rate of 6.62%. As of March 31, 2008, Intrepid Mining had $101.9 million outstanding under the existing senior credit facility. The $125.0 million revolving portion of the
existing senior credit facility matures on March 9, 2012, and the $50.0 million term loan portion matures on March 9, 2014, with required payments of $1.25 million due quarterly until maturity. As of the date of this prospectus, we have
received approval to further amend the facility to accommodate the repayment and cancellation of the term loan. With the repayment of the term loan, we will have full availability under our $125 million revolving senior credit facility. The existing
senior credit facility was refinanced on March 9, 2007 to permit the redemption by Intrepid Mining of the membership interests of Long Canyon, LLC and to provide available credit for our capital spending program. The net proceeds we receive
from the exercise of the option to purchase additional shares will be used to pay the formation distribution to Intrepid Mining. Any amount of the formation distribution that is not paid in cash will be paid in shares of our common stock.
After the completion of this offering, Intrepid Mining will liquidate and distribute its remaining assets, including the cash and common stock
received pursuant to the exchange agreement and the right to receive the formation distribution, to the current members of Intrepid Mining.
32
DIVIDEND POLICY
With the exception of the dividend described below, we have never declared or paid any dividends on our
common stock. We anticipate that we will retain any future earnings for the operation and expansion of our business. Accordingly, we do not anticipate declaring or paying any cash dividends on our common stock in the foreseeable future.
Any future determination relating to our dividend policy will be made at the discretion of our board of directors and will depend on then existing conditions,
including our financial condition, results of operations, contractual restrictions, including our credit agreement, capital requirements, business prospects and other factors our board of directors may deem relevant.
As described under “The Formation Transactions”, we will declare a dividend to Intrepid Mining before the closing of this offering. This dividend, which
we refer to in this prospectus as the “formation distribution”, will be paid in 3,600,000 shares of our common stock; provided, however, that for each share of our common stock purchased by the underwriters pursuant to their option to
purchase 3,600,000 additional shares, the number of shares payable pursuant to the formation distribution will be reduced, one-for-one, and in lieu of such shares, we will pay cash in an amount equal to the net proceeds, before offering expenses but
after underwriting discounts and commissions, we receive from the exercise of the underwriters’ option to purchase additional shares. The formation distribution will be payable to Intrepid Mining, the holder of record of the common stock prior
to this offering, upon the earlier of the expiration or the exercise of the option to purchase additional shares.
33
CAPITALIZATION
The following table sets forth as of December 31, 2007:
|
|
Ÿ
|
|
our pro forma combined cash and cash equivalents and capitalization; the pro forma combined amounts represent the combined balance sheets of Intrepid Potash and Intrepid
Mining; and
|
|
|
Ÿ
|
|
our pro forma combined cash and cash equivalents and capitalization on an as adjusted basis reflecting (a) the formation transactions, (b) the sale of 24,000,000
shares of common stock in this offering by us at an assumed initial public offering price of $25.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by us, (c) the repayment of debt, and (d) other related adjustments as described in the footnotes to the Unaudited Pro Forma Combined As Adjusted Balance Sheet on page 43.
|
You should read this table together with the sections of this prospectus entitled “Use of Proceeds” beginning on
page 32, the Unaudited Pro Forma Combined As Adjusted Financial Information beginning on page 41, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 45, as well as
our financial statements and related notes and the other financial information appearing elsewhere in this prospectus. The data assume that there has been no exercise, in whole or in part, of the underwriters’ option to purchase additional
shares of our common stock in this offering and that the formation distribution payable to Intrepid Mining is paid in 3,600,000 shares of our common stock.
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
Pro Forma
Combined
|
|
Pro Forma
Combined
As Adjusted
|
|
|
|
|
(in thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
1,961
|
|
$
|
59,215
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt, including current portion
|
|
$
|
101,355
|
|
$
|
5
|
(2)
|
|
|
|
|
|
Members’ equity
|
|
|
10,397
|
|
|
—
|
(3)
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 1,000 shares authorized, 1,000 shares issued and outstanding actual, 74,846,000 shares issued and outstanding as
adjusted
|
|
|
—
|
|
|
75
|
(3)
|
|
|
|
|
|
Additional paid-in capital
|
|
|
1
|
|
|
351,490
|
(3)
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
—
|
|
|
(638
|
)
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
10,398
|
|
|
350,927
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
111,753
|
|
$
|
350,932
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The $59.2 million balance consists of net proceeds of $559.8 million from this offering, less the $419.8 million distribution to Intrepid Mining, less $82.5 million for the repayment of
outstanding bank debt, and is adjusted for $1.7 million of transaction fees paid in 2007. The pro forma combined as adjusted cash and cash equivalents excludes $2.0 million of cash that will be retained by Intrepid Mining.
|
|
(2)
|
The pro forma combined as adjusted debt is net of the repayment of $82.5 million of bank debt and the $18.9 million of bank debt retained by Intrepid Mining. The remaining amount is a capital
lease.
|
34
|
(3)
|
The pro forma combined as adjusted total stockholders’ equity is comprised of the following elements:
|
|
|
|
|
|
|
|
Contribution of members’ equity
|
|
$
|
10.4
|
|
|
Net proceeds from the offering
|
|
|
559.8
|
|
|
Distribution paid to Intrepid Mining of $419.8 million excluding $18.9 million in debt retained by Intrepid Mining
|
|
|
(400.9
|
)
|
|
Cash retained by Intrepid Mining
|
|
|
(2.0
|
)
|
|
Deferred tax adjustment for step-up in tax basis
|
|
|
184.1
|
|
|
Other adjustment
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
$
|
350.9
|
|
|
|
|
|
|
|
A $1.00 increase (decrease) in the assumed initial public offering price per share would increase
(decrease) net proceeds to us from this offering by approximately $22.6 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and would increase (decrease) the amount of net proceeds payable
to Intrepid Mining pursuant to the exchange agreement by an equal amount, resulting in no change to total stockholders’ equity or total capitalization.
The outstanding share information as of December 31, 2007 shown in the table above excludes 5,000,000 shares of common stock to be reserved for issuance under our 2008 Equity Incentive Plan. As of December 31, 2007, no options to
purchase shares of common stock were outstanding.
35
DILUTION
If you purchase our common stock in the offering, you will suffer an immediate and substantial dilution in
net tangible book value per share. Dilution is the amount by which the initial public offering price paid by purchasers of our common stock exceeds the net tangible book value per share of our common stock after the offering. Net tangible book value
represents the amount of our total tangible assets reduced by our total liabilities. Tangible assets equal our total assets less intangible assets. Net tangible book value per share represents our net tangible book value divided by the number
of common shares outstanding. The number of shares of our common stock outstanding after this offering will be 74,846,000 (including 3,600,000 shares that will be sold to the underwriters pursuant to the exercise of their option to purchase
additional shares or, to the extent the option to purchase additional shares is not exercised, distributed to the current members of Intrepid Mining pursuant to the formation distribution, but excluding 607,500 shares of unvested restricted stock
that will be granted by Intrepid Potash on or around the completion of this offering). As of December 31, 2007, our pro forma combined net tangible book value was $9.0 million and our pro forma combined net tangible book value per share
was $0.12.
After giving effect to the sale of 24,000,000 shares of common stock in the offering at an initial public offering price of $25.00 per
share (the midpoint of the price range set forth on the cover page of this prospectus), the distribution of 3,600,000 shares of common stock to the current members of Intrepid Mining pursuant to the formation distribution, the formation transactions
and the application of the estimated net proceeds from the offering, our pro forma adjusted net tangible book value as of December 31, 2007 would have been $165.9 million, or $2.22 per share.
(1)
This represents an immediate increase in net tangible book value of $2.10 per share to the original stockholders and an immediate dilution of $22.78 per share to new investors purchasing
shares in the offering.
(2)
The following table illustrates this per share dilution:
|
|
|
|
|
|
|
|
|
|
|
Assumed initial public offering price per share
|
|
|
|
|
|
$
|
25.00
|
|
|
Pro forma combined net tangible book value per share as of December 31, 2007
|
|
$
|
0.12
|
|
|
|
|
|
|
Increase in net tangible book value per share attributable to new investors
|
|
|
7.48
|
|
|
|
|
|
|
Decrease in net tangible book value per share distributed to existing stockholders
|
|
|
(5.38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma combined as adjusted net tangible book value per share after the offering and the formation transactions
|
|
|
|
|
|
|
2.22
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma dilution per share to new investors
|
|
|
|
|
|
$
|
(22.78
|
)
|
|
|
|
|
|
|
|
|
|
|
A $1.00 increase (decrease) in the assumed initial public offering price per share would result in
no change to our net tangible book value per share after the offering, and would increase (reduce) dilution per share to new investors by approximately $0.94, after deducting the estimated underwriting discounts and commissions and estimated
offering expenses payable by us. Assuming that the underwriters exercise their option to purchase additional shares in full, a $1.00 increase (decrease) in the assumed initial public offering price would increase (decrease) net proceeds to us
from the exercise of the option to purchase additional shares by approximately $3.4 million, after
|
(1)
|
A 10% increase in the number of shares of common stock, assuming an initial public offering price of $25.00 (the midpoint of the price range set forth on the cover page of this prospectus),
would result in no change to our net tangible book value as of December 31, 2007.
|
|
(2)
|
A 10% increase in the number of shares of common stock sold, assuming an initial public offering price of $25.00 (the midpoint of the price range set forth on the cover page of this
prospectus), would result in no change to our net tangible book value per share.
|
36
deducting the estimated underwriting discounts and commissions, and would increase (decrease) the cash payable to Intrepid Mining pursuant to the formation
distribution by an equal amount. Any amount of the formation distribution payable to Intrepid Mining that is not paid in cash will be paid in shares of our common stock.
As of the date of completion of this offering, we will issue 607,500 shares of restricted common stock to employees and consultants and 6,000 shares of stock to
non-employee directors pursuant to the 2008 Equity Incentive Plan. This number of shares has been determined by assuming an initial public offering price of $25.00 per share (the midpoint of the price range set forth on the cover page of this
prospectus). This total number of shares includes a total of 228,000 restricted shares valued at $5.7 million that will vest in early January 2009, a total of 379,500 restricted shares valued at $9.5 million that will vest in four equal installments
over the first four anniversary dates of the completion of this offering and a grant of 6,000 shares to our non-employee directors which are unrestricted and will be awarded upon the completion of the offering. To the extent these restricted shares
vest, there will be further dilution to new investors over time, but not immediately as services must be performed to earn these shares.
The
following table illustrates, on the pro forma combined as adjusted basis described above as of December 31, 2007, the total number of shares held, total consideration paid and average price per share paid by existing stockholders and by new
investors for the common stock, assuming the sale of shares of common stock in the offering at an initial public offering price of $25.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assuming No Exercise of Underwriters’ Option
|
|
|
|
Shares Purchased
|
|
|
Total Consideration
|
|
|
Average Price
Per Share
|
|
|
|
Number
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
(dollars in thousands)
|
|
|
Existing stockholders
|
|
50,840,000
|
|
67.9
|
%
|
|
$
|
(409,432
|
)
|
|
NM
|
%
|
|
$
|
(8.05
|
)
|
|
|
|
|
|
|
|
|
New investors
|
|
24,000,000
|
|
32.1
|
|
|
|
600,000
|
|
|
NM
|
|
|
|
25.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
74,840,000
|
|
100.0
|
%
|
|
$
|
190,568
|
|
|
100.0
|
%
|
|
$
|
2.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assuming Full Exercise of Underwriters’ Option
|
|
|
|
Shares Purchased
|
|
|
Total Consideration
|
|
|
Average Price
Per Share
|
|
|
|
Number
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
Existing stockholders
|
|
47,240,000
|
|
63.1
|
%
|
|
$
|
(504,832
|
)
|
|
NM
|
%
|
|
$
|
(10.69
|
)
|
|
|
|
|
|
|
|
|
New investors
|
|
27,600,000
|
|
36.9
|
|
|
|
690,000
|
|
|
NM
|
|
|
|
25.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
74,840,000
|
|
100.0
|
%
|
|
$
|
185,168
|
|
|
100.0
|
%
|
|
$
|
2.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
SELECTED HISTORICAL AND PRO FORMA COMBINED AS ADJUSTED FINANCIAL AND OPERATING DATA
The following tables show selected
historical financial and operating data of Intrepid Mining and pro forma combined as adjusted financial and operating data of Intrepid Mining and Intrepid Potash for the periods and as of the dates indicated. The historical financial statements
included in this prospectus reflect the results of operations of Intrepid Mining. The selected historical financial data as of December 31, 2007 and 2006 and for the years ended December 31, 2007, 2006 and 2005 have been derived from
Intrepid Mining’s audited consolidated financial statements and related notes included elsewhere in this prospectus. The following selected historical financial data as of December 31, 2005, 2004 and 2003 and for the years ended
December 31, 2004 and 2003 have been derived from Intrepid Mining’s audited consolidated financial statements, which are not included in this prospectus.
The selected pro forma combined as adjusted financial and operating data for the year ended December 31, 2007 is derived from the unaudited pro forma combined as adjusted financial statements of Intrepid Mining and
Intrepid Potash. The pro forma adjustments have been prepared as if certain transactions to be effected upon completion of this offering had taken place on December 31, 2007, in the case of the pro forma combined as adjusted balance sheet, or
as of January 1, 2007, in the case of the pro forma combined as adjusted statements of operations for the year ended December 31, 2007. The transactions reflected in the pro forma adjustments assume that Intrepid Potash will complete its
initial public offering of common stock, receive a transfer of all of the nonmonetary assets of Intrepid Mining, and assume (i) all amounts in excess of $18.9 million of Intrepid Mining’s liability under its existing senior credit facility
and (ii) all other liabilities and obligations of Intrepid Mining in exchange for stock and cash, as described in the exchange agreement discussed under “The Formation Transactions”. The pro forma combined as adjusted financial
information should not be relied upon as being indicative of Intrepid Potash or Intrepid Mining’s results of operations or financial condition had the transactions been completed on January 1, 2007, with respect to the pro forma combined
as adjusted statements of operations, or as of December 31, 2007, with respect to the pro forma combined as adjusted balance sheet.
You should
read the selected historical consolidated financial and operating data and the pro forma combined as adjusted financial information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of
Operations”, the “Unaudited Pro Forma Combined Financial Information” and the historical financial statements and related notes of Intrepid Mining and Intrepid Potash appearing elsewhere in this prospectus.
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
Combined
As
Adjusted
December 31,
2007
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share data)
|
|
|
Statement of Operations Data
(1)(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
213,459
|
|
|
$
|
213,459
|
|
|
$
|
152,709
|
|
|
$
|
151,280
|
|
|
$
|
111,490
|
|
|
$
|
13,262
|
|
|
Freight costs
|
|
|
21,095
|
|
|
|
21,095
|
|
|
|
12,178
|
|
|
|
9,519
|
|
|
|
10,039
|
|
|
|
1,585
|
|
|
Warehousing and handling costs
|
|
|
5,479
|
|
|
|
5,479
|
|
|
|
3,879
|
|
|
|
2,759
|
|
|
|
1,997
|
|
|
|
300
|
|
|
Cost of goods sold
(3)
|
|
|
134,387
|
|
|
|
134,387
|
|
|
|
110,995
|
|
|
|
97,103
|
|
|
|
67,334
|
|
|
|
6,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
52,498
|
|
|
|
52,498
|
|
|
|
25,657
|
|
|
|
41,899
|
|
|
|
32,120
|
|
|
|
4,904
|
|
|
Selling and administrative
|
|
|
24,155
|
|
|
|
15,997
|
|
|
|
10,054
|
|
|
|
7,530
|
|
|
|
7,065
|
|
|
|
1,958
|
|
|
Other operating—net
(4)
|
|
|
190
|
|
|
|
190
|
|
|
|
(4,386
|
)
|
|
|
329
|
|
|
|
327
|
|
|
|
279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
28,153
|
|
|
|
36,311
|
|
|
|
19,989
|
|
|
|
34,040
|
|
|
|
24,728
|
|
|
|
2,667
|
|
|
Interest expense
|
|
|
170
|
|
|
|
9,350
|
|
|
|
2,907
|
|
|
|
1,473
|
|
|
|
1,802
|
|
|
|
612
|
|
|
Other non-operating
(5)
|
|
|
(2,723
|
)
|
|
|
(2,723
|
)
|
|
|
(7,016
|
)
|
|
|
(47
|
)
|
|
|
(195
|
)
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
30,706
|
|
|
$
|
29,684
|
|
|
$
|
24,098
|
|
|
$
|
32,614
|
|
|
$
|
23,121
|
|
|
$
|
2,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma income tax
(6)
|
|
|
12,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma income from continuing operations
|
|
$
|
18,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Share and Per Share Data (unaudited)
(7)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
74,922,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
75,453,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
Combined
As
Adjusted
December 31,
2007
|
|
|
As of December 31,
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
Selected Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
59,215
|
|
|
$
|
1,960
|
|
|
$
|
286
|
|
|
$
|
157
|
|
|
$
|
2,169
|
|
|
|
$ 452
|
|
|
Total current assets
|
|
|
102,981
|
|
|
|
47,447
|
|
|
|
50,853
|
|
|
|
29,124
|
|
|
|
33,726
|
|
|
|
6,795
|
|
|
Total assets
|
|
|
385,907
|
|
|
|
146,727
|
|
|
|
129,314
|
|
|
|
106,506
|
|
|
|
90,310
|
|
|
|
24,083
|
|
|
Total current liabilities
|
|
|
25,316
|
|
|
|
30,315
|
|
|
|
24,112
|
|
|
|
19,061
|
|
|
|
24,578
|
|
|
|
1,754
|
|
|
Total debt
(8)(9)
|
|
|
5
|
|
|
|
101,355
|
|
|
|
132,189
|
|
|
|
37,156
|
|
|
|
36,387
|
|
|
|
12,379
|
|
|
Stockholders’ equity (deficit)
(9)
|
|
|
350,927
|
|
|
|
10,397
|
|
|
|
(31,458
|
)
|
|
|
42,485
|
|
|
|
23,192
|
|
|
|
7,369
|
|
|
|
|
|
|
|
|
Pro Forma
Combined
As
Adjusted
December 31,
2007
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
(10)
|
|
$
|
40,280
|
|
|
$
|
48,502
|
|
|
$
|
35,033
|
|
|
$
|
39,580
|
|
|
$
|
28,445
|
|
|
$
|
4,009
|
|
|
Depreciation, depletion, amortization and accretion
|
|
|
9,404
|
|
|
|
9,468
|
|
|
|
8,028
|
|
|
|
5,493
|
|
|
|
3,522
|
|
|
|
1,278
|
|
|
Capital expenditures
|
|
|
(31,168
|
)
|
|
|
(31,168
|
)
|
|
|
(12,391
|
)
|
|
|
(21,733
|
)
|
|
|
(8,936
|
)
|
|
|
(3,020
|
)
|
|
Acquisition costs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(38,473
|
)
|
|
|
—
|
|
(footnotes on following page)
39
|
(1)
|
In early 2004, we acquired the potash assets of Mississippi Potash, Inc., Reilly Chemical, Inc. and Eddy Potash, Inc. As a result, the magnitude of the operations, assets and liabilities, and
cash-flows all increased significantly relative to those in 2003.
|
|
(2)
|
In 2006, the results of operations were depressed principally by the ramp-up of a new plant, a partially insured business interruption at the West Mine, and insured property damage arising
from severe wind damage to the warehouse at the East Mine.
|
|
(3)
|
When by-product inventories are sold, a by-product credit to the cost of goods sold is recognized.
|
|
(4)
|
2007 and 2006 “Other operating—net” includes $0.4 million and $4.9 million, respectively, in business interruption insurance settlements. See note (2).
|
|
(5)
|
2007 and 2006 “Other non-operating” includes $3.2 million and $6.7 million, respectively, in property damage settlements. See note (2).
|
|
(6)
|
A pro forma provision for income taxes at statutory rates has been made in the financial statements on the assumption that Intrepid Mining was a taxable entity for the respective period
presented. As a limited liability company, Intrepid Mining’s taxable income was included in its members’ income tax returns whereas Intrepid Potash will be subject to income tax as a corporation.
|
|
(7)
|
Pro forma net income per share is based on the weighted average number of shares of common stock outstanding after giving effect to the offering, assuming that the offering had occurred as of
the beginning of the earliest period presented. Basic shares include the estimated 74,846,000 shares that will be outstanding at the initial public offering, plus the 76,000 weighted average shares that relate to stock awards with a vesting period
of less than one year. The adjustment for diluted shares includes the impact of the number of the remaining nonvested shares that are expected to be awarded upon the completion of the initial public offering. The diluted weighted average shares
total 75,453,500 shares.
|
|
(8)
|
In most periods, we have reduced our revolving debt rather than maintaining large cash balances.
|
|
(9)
|
On December 28, 2006, a member’s interest was redeemed at a cost of $100 million, which included a $95 million note paid in March 2007. The redemption was recognized as an equity
distribution resulting in a members’ deficit as of December 31, 2006.
|
|
(10)
|
We define EBITDA as income from continuing operations before interest, income taxes, depreciation, depletion, amortization and accretion. EBITDA is used as a supplemental financial measure by
our management and by external users of our financial statements to assess:
|
|
|
•
|
the financial performance of our assets without regard to financing methods, capital structure or historical cost basis;
|
|
|
•
|
our operating performance and return on capital as compared to other companies in the fertilizer business, without regard to financing or capital structure; and
|
|
|
•
|
the viability of acquisitions and capital expenditure projects and the overall rates of return on alternative investment opportunities.
|
|
|
The economic substance behind management’s use of EBITDA is to measure the ability of our assets to generate cash sufficient to be utilized for capital investment, pay interest costs,
support our indebtedness and pay dividends, if any, to our investors.
|
|
|
The GAAP measure most directly comparable to EBITDA is income from continuing operations. Our non-GAAP financial measure of EBITDA should not be considered as an alternative to GAAP income
from continuing operations. EBITDA is not a presentation made in accordance with GAAP and has important limitations as an analytical tool. You should not consider EBITDA in isolation or as a substitute for analysis of our results as reported under
GAAP. Because EBITDA excludes some, but not all, items that affect income from continuing operations and is defined differently by different companies in our industry, our definition of EBITDA may not be comparable to similarly titled measures of
other companies.
|
|
|
Management compensates for the limitations of EBITDA as an analytical tool by reviewing the comparable GAAP measures, understanding the differences between the measures and incorporating this
information into management’s decision-making processes.
|
|
|
EBITDA is calculated and reconciled to income from continuing operations in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
Combined
As Adjusted
December 31,
2007
|
|
Year Ended December 31,
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Calculation of EBITDA
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
18,577
|
|
$
|
29,684
|
|
$
|
24,098
|
|
$
|
32,614
|
|
$
|
23,121
|
|
$
|
2,119
|
|
Income tax provision
|
|
|
12,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest—net
|
|
|
170
|
|
|
9,350
|
|
|
2,907
|
|
|
1,473
|
|
|
1,802
|
|
|
612
|
|
Depreciation, depletion, amortization and accretion
|
|
|
9,404
|
|
|
9,468
|
|
|
8,028
|
|
|
5,493
|
|
|
3,522
|
|
|
1,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
40,280
|
|
$
|
48,502
|
|
$
|
35,033
|
|
$
|
39,580
|
|
$
|
28,445
|
|
$
|
4,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
Unaudited Pro Forma Combined As Adjusted Financial Information
Intrepid Potash was incorporated in the state of Delaware on November 19, 2007 for the purpose of completing its initial public offering and exchanging stock
and cash for all of the nonmonetary assets of Intrepid Mining and assuming all amounts in excess of $18.9 million of Intrepid Mining’s liability under its existing senior credit facility and all other liabilities and obligations of Intrepid
Mining, as described in the exchange agreement discussed under “The Formation Transactions”. Intrepid Potash intends to continue the business of Intrepid Mining in corporate form. The transfer of the nonmonetary assets from Intrepid Mining
will be accounted for at historical cost because the members of Intrepid Mining will receive common stock of Intrepid Potash in connection with its initial public offering and in exchange for a controlling interest in Intrepid Potash.
The following unaudited pro forma combined as adjusted balance sheet and statement of operations as of and for the year ended December 31, 2007 present the
combined results of operations and financial position of Intrepid Potash assuming the offering and related transactions described below had become effective as of January 1, 2007 with respect to the pro forma combined as adjusted statements of
operations, and as of December 31, 2007 with respect to the pro forma combined as adjusted balance sheet. The pro forma adjustments are based on available information and upon assumptions that management believes are reasonable to reflect, on a
pro forma basis, the impact of the historical adjustments listed below and the transaction adjustments listed below on the historical financial information of Intrepid Potash and Intrepid Mining. The adjustments as set forth below are described in
detail in the notes to the unaudited pro forma combined as adjusted statements of operations and the unaudited pro forma combined as adjusted balance sheet.
Pro forma transaction adjustments include those to reflect:
|
|
Ÿ
|
|
the net proceeds of $559.8 million raised from the initial public offering of the common stock of Intrepid Potash;
|
|
|
Ÿ
|
|
the transfer of all of the nonmonetary assets of Intrepid Mining in exchange for $419.8 million, 47,239,000 shares of common stock and the assumption of (i) $82.5
million of Intrepid Mining’s liability under its existing senior credit facility and (ii) all other liabilities and obligations of Intrepid Mining, including but not limited to those set forth on its balance sheet. The assets and
liabilities have been recorded at the historical cost basis of Intrepid Mining;
|
|
|
Ÿ
|
|
the issuance of 3,600,000 shares in connection with the formation distribution;
|
|
|
Ÿ
|
|
the subsequent repayment of approximately $101.4 million of debt, inclusive of debt retained by Intrepid Mining, with the proceeds and the reduction in interest expense and
increase in commitment fees as a result of the debt reduction;
|
|
|
Ÿ
|
|
the determination of the tax effects of all changes in the tax basis of the assets and liabilities exchanged;
|
|
|
Ÿ
|
|
the calculation of income tax provisions as if the entity had been subject to federal and state income taxes for the respective periods at the applicable statutory rates;
|
|
|
Ÿ
|
|
the elimination of the loan fee on the term loan facility; and
|
|
|
Ÿ
|
|
the 2008 Equity Incentive Plan expense of approximately $8.2 million.
|
You should read this unaudited pro forma combined as adjusted financial information together with the other information contained in this prospectus, including “Business”, “The Formation Transactions”,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations”, the audited historical financial statements and the notes thereto of Intrepid Potash and Intrepid Mining included elsewhere in this prospectus.
41
The unaudited pro forma combined as adjusted financial information is for informational purposes only and does
not purport to reflect the results of operations or financial condition of Intrepid Potash and Intrepid Mining that would have occurred had they been combined during the periods presented. The pro forma combined as adjusted financial information
should not be relied upon as being indicative of Intrepid Potash or Intrepid Mining’s results of operations or financial condition had the transactions been completed on January 1, 2007, with respect to the pro forma combined as adjusted
statements of operations, and as of December 31, 2007, with respect to the pro forma combined as adjusted balance sheet. The pro forma combined as adjusted financial information also does not project the results of operations or financial
condition for any future period or date.
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007
|
|
|
|
|
Intrepid
Potash, Inc.
|
|
Intrepid
Mining LLC
|
|
Pro Forma
Adjustments
|
|
|
Pro Forma
Combined
As Adjusted
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
(in thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1
|
|
$
|
1,960
|
|
$
|
561,495
|
(1)
|
|
$
|
59,215
|
|
|
|
|
|
|
|
|
|
|
|
(419,831
|
)
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(82,450
|
)
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,960
|
)
(4)
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
|
|
|
—
|
|
|
23,251
|
|
|
—
|
|
|
|
23,251
|
|
|
Other
|
|
|
—
|
|
|
264
|
|
|
—
|
|
|
|
264
|
|
|
Related parties
|
|
|
—
|
|
|
248
|
|
|
—
|
|
|
|
248
|
|
|
Inventory, net
|
|
|
—
|
|
|
18,501
|
|
|
—
|
|
|
|
18,501
|
|
|
Prepaid expenses and other current assets
|
|
|
—
|
|
|
3,223
|
|
|
(1,721
|
)
(5)
|
|
|
1,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1
|
|
|
47,447
|
|
|
55,533
|
|
|
|
102,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
—
|
|
|
63,519
|
|
|
—
|
|
|
|
63,519
|
|
|
Mineral properties and development costs, net
|
|
|
—
|
|
|
23,255
|
|
|
—
|
|
|
|
23,255
|
|
|
Long-term parts inventory, net
|
|
|
—
|
|
|
4,634
|
|
|
—
|
|
|
|
4,634
|
|
|
Other assets
|
|
|
—
|
|
|
7,872
|
|
|
(475
|
)
(6)
|
|
|
7,397
|
|
|
Deferred tax assets, net
(4)
|
|
|
—
|
|
|
—
|
|
|
184,121
|
(7)
|
|
|
184,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1
|
|
$
|
146,727
|
|
$
|
239,179
|
|
|
$
|
385,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
$
|
7,998
|
|
$
|
—
|
|
|
$
|
7,998
|
|
|
Accrued liabilities
|
|
|
—
|
|
|
16,532
|
|
|
—
|
|
|
|
16,532
|
|
|
Current installments of long-term debt
|
|
|
—
|
|
|
5,005
|
|
|
(5,000
|
)
(3)
|
|
|
5
|
|
|
Other current liabilities
|
|
|
—
|
|
|
781
|
|
|
—
|
|
|
|
781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
—
|
|
|
30,316
|
|
|
(5,000
|
)
|
|
|
25,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current installments
|
|
|
—
|
|
|
96,350
|
|
|
(96,350
|
)
(3)
|
|
|
—
|
|
|
Accrued pension liability
|
|
|
—
|
|
|
646
|
|
|
—
|
|
|
|
646
|
|
|
Asset retirement obligation
|
|
|
—
|
|
|
7,779
|
|
|
—
|
|
|
|
7,779
|
|
|
Other non-current liabilities
|
|
|
—
|
|
|
1,239
|
|
|
—
|
|
|
|
1,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
—
|
|
|
106,014
|
|
|
(96,350
|
)
|
|
|
9,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members’ Equity
|
|
|
—
|
|
|
10,397
|
|
|
(10,397
|
)
|
|
|
—
|
|
|
Stockholders’ Equity at par value of $0.001
|
|
|
—
|
|
|
—
|
|
|
75
|
|
|
|
75
|
|
|
Additional Paid-In Capital in excess of par
|
|
|
1
|
|
|
—
|
|
|
351,489
|
|
|
|
351,490
|
|
|
Accumulated other comprehensive loss
|
|
|
—
|
|
|
—
|
|
|
(638
|
)
|
|
|
(638
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Members’/Stockholders’ Equity
|
|
|
1
|
|
|
10,397
|
|
|
340,529
|
(1)(2)(3)(4)(5)(6)(7)
|
|
|
350,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Members’/Stockholders’ Equity
|
|
$
|
1
|
|
$
|
146,727
|
|
$
|
239,179
|
|
|
$
|
385,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
To reflect the net proceeds of $561.5 million, prior to deduction of $1.7 million for prepaid expenses, raised from the completion of this offering at an assumed price of $25.00 per share
(the midpoint of the price range set forth on the cover page of this prospectus), net of estimated underwriting discounts and commissions and estimated offering costs of $38.5 million, exclusive of $1.7 million of prepaid expenses.
|
|
(2)
|
To reflect the payment of $419.8 million, the issuance of 50,839,000 shares of common stock to the members of Intrepid Mining, (including 3,600,000 shares distributed subject to the
underwriters’ option to purchase additional shares) and the assumption of (i) $82.5 million of Intrepid Mining’s liability under its existing senior credit facility and (ii) all other liabilities and obligations of Intrepid
Mining, including but not limited to those set forth on its balance sheet, pursuant to the exchange agreement in exchange for all of the assets of Intrepid Mining other than cash.
|
43
|
(3)
|
To reflect the payment of $82.5 million under Intrepid Mining’s existing senior credit facility, with proceeds of the offering. Payment of $18.9 million is also made by Intrepid Mining.
|
|
(4)
|
To reflect cash retained by Intrepid Mining.
|
|
(5)
|
To reflect application of $1.7 million of prepaid transaction expenses to equity issued.
|
|
(6)
|
Elimination of capitalized term loan bank fee.
|
|
(7)
|
To establish the net deferred tax asset for the book and tax basis difference generated as a result of the transfer to Intrepid Potash, a taxable entity, of substantially all of the assets
and liabilities of Intrepid Mining, a nontaxable entity. The federal income tax basis of the assets transferred to Intrepid Potash pursuant to the exchange agreement discussed under “The Formation Transactions” will, in the aggregate,
equal Intrepid Mining’s existing tax basis in the assets, increased by the amount of taxable gain recognized by Intrepid Mining in connection with the formation transactions – generally, the amount of cash received by Intrepid Mining plus
the amount of the formation distribution. We expect to allocate the increase in tax basis to our property, plant and equipment and our mineral leasehold interests. As to the allocation to the mineral leasehold interests, we anticipate that
percentage depletion with respect to our mineral leasehold interests will exceed cost depletion in each taxable year. Consequently, we do not expect the increased tax basis to result in any increase in federal cost recovery deductions with respect
to our mineral leasehold interests.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
Intrepid
Potash, Inc.
|
|
Intrepid
Mining LLC
|
|
|
Pro Forma
Adjustments
|
|
|
Pro Forma
Combined
As Adjusted
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
—
|
|
$
|
213,459
|
|
|
$
|
—
|
|
|
$
|
213,459
|
|
|
Less: Freight costs
|
|
|
—
|
|
|
21,095
|
|
|
|
—
|
|
|
|
21,095
|
|
|
Warehousing and handling costs
|
|
|
—
|
|
|
5,479
|
|
|
|
—
|
|
|
|
5,479
|
|
|
Cost of goods sold
|
|
|
—
|
|
|
134,387
|
|
|
|
—
|
|
|
|
134,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
—
|
|
|
52,498
|
|
|
|
—
|
|
|
|
52,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative
|
|
|
—
|
|
|
15,997
|
|
|
|
8,158
|
(8)
|
|
|
24,155
|
|
|
Accretion of asset retirement obligation
|
|
|
—
|
|
|
579
|
|
|
|
—
|
|
|
|
579
|
|
|
Business interruption insurance settlements
|
|
|
—
|
|
|
(389
|
)
|
|
|
—
|
|
|
|
(389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
—
|
|
|
36,311
|
|
|
|
(8,158
|
)
|
|
|
28,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
—
|
|
|
(9,350
|
)
|
|
|
9,180
|
(9)
|
|
|
(170
|
)
|
|
Insurance settlements in excess of property losses
(10)
|
|
|
—
|
|
|
3,202
|
|
|
|
—
|
|
|
|
3,202
|
|
|
Other income (expense)
|
|
|
—
|
|
|
(479
|
)
|
|
|
—
|
|
|
|
(479
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before taxes
|
|
|
—
|
|
|
29,684
|
|
|
|
1,022
|
|
|
|
30,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
—
|
|
|
—
|
|
|
|
12,129
|
(11)
|
|
|
12,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
—
|
|
$
|
29,684
|
|
|
$
|
(11,107
|
)
|
|
$
|
18,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,922,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,453,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8)
|
Represents $8.2 million for 2008 Equity Incentive Plan expense, and a reduction of $0.1 million in amortization expense resulting from the elimination of the loan fee on the term loan
facility.
|
|
(9)
|
Represents the interest expense reduction, net of an increase in commitment fees, related to the payment of $101.4 million of indebtedness, inclusive of debt retained by Intrepid Mining,
under the existing senior credit facility. The interest rate applicable to the revolving and term loans is assumed to be the average rate for the periods presented. For further discussion of the existing senior credit facility, please see notes to
historical financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
|
|
(10)
|
Intrepid Mining includes a $3.2 million gain on insurance settlements related to the destruction of a warehouse, which did not result from operating activities.
|
|
(11)
|
Represents the adjustment necessary for the respective period to record estimated federal and state income taxes on the income of Intrepid Mining as if Intrepid Mining had been a taxable
entity during the period. The assumed tax rate is the statutory rate, and it does not include any adjustment for permanent differences.
|
44
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis together with our consolidated financial statements and related notes and the other financial information
that appear elsewhere in this prospectus. This discussion contains forward-looking statements that are subject to risks, uncertainties and assumptions, including those discussed under “Risk Factors” beginning on page 15. Our actual
results may differ materially from those expressed in or implied by these forward-looking statements. See “Forward-Looking Statements” for information about such statements beginning on page 31.
Overview
Our Company
We are the largest producer of muriate of potash (MOP, or potassium chloride) in the U.S. and are dedicated to the production and marketing of potash and
langbeinite (sulfate of potash magnesia), another mineral containing potassium. Potassium is one of the three primary nutrients essential to plant formation and growth. Since 2004, we have supplied, on average, 1.5% of world potash consumption and
8.5% of U.S. consumption annually, and we have supplied a considerably higher proportion of the potash consumed in the southwestern and western U.S., our core markets. We are one of two exporting producers of langbeinite, a low-chloride fertilizer
that is better suited than MOP for chloride-sensitive crops. We also produce salt, magnesium chloride and metal recovery salts from our potash mining processes. We own five active potash production facilities—three in New Mexico and two in
Utah—and we have the nameplate capacity to produce 1,200,000 tons of potash and 250,000 tons of langbeinite annually. We own two development assets in New Mexico—the HB Mine, which is an idled potash mine that we are in the process of
reopening as a solution mine, and the North Mine. Based on our five-year operating plan, we expect that expansion opportunities at our operating facilities and the HB Mine will increase production by an aggregate of over 370,000 tons of potash and
langbeinite annually.
Our History
Our
management team formed Intrepid Oil & Gas, LLC on August 30, 1996, for the purpose of acquiring oil and gas leases near Moab, Utah. While mapping the area for potential oil and gas resources, we learned about the substantial local
potash deposits and discovered that the only operating potash mine in the area, which was then in decline, was scheduled to close. We determined that the decline in production in Moab could be reversed by applying horizontal drilling technology,
commonly used in the oil and gas industry, to create potash solution mining caverns. This represented a new approach to potash mining. Our management team formed Intrepid Mining on January 26, 2000, for the purpose of acquiring Moab Salt, Inc.
from PCS for cash consideration of approximately $3 million, plus the assumption of certain liabilities and closing costs for total consideration of approximately $14.8 million. We renamed the company Intrepid Potash–Moab, LLC.
We observed that potash from Moab shared markets with potash produced in Carlsbad, New Mexico and in Wendover, Utah. Accordingly, we formulated a strategy to
acquire assets in those areas in order to consolidate marketing efforts and effect operating synergies.
|
|
Ÿ
|
|
On February 29, 2004, Intrepid Mining acquired substantially all of the assets of Mississippi Potash, Inc. and Eddy Potash, Inc. from Mississippi Chemical Company for
$36.6 million. These assets included the operating East and West potash mines, the North Facility compaction plant and the idled HB and North Mines, all located near Carlsbad, New Mexico. Mississippi Chemical, which filed for bankruptcy in May 2003,
had long since been unable to re-invest in or properly maintain the properties due to cash flow constraints stemming from its then-failing nitrogen fertilizer business.
|
45
|
|
Ÿ
|
|
Effective April 1, 2004, Intrepid Mining purchased the potash assets of Reilly Chemical, Inc. through its wholly-owned subsidiary, Intrepid Wendover, for $10.7 million.
The acquired assets included a natural brine and potash production facility on the Bonneville Salt Flats of Utah. Reilly Chemical operated a diversified business providing specialty chemicals for the agriculture, nutrition, pharmaceutical and
medical, personal care, plastics, coatings and industrial markets. We saw the opportunity to use better technology, not employed by Reilly Chemical, to improve production at Wendover.
|
During 2006, Intrepid Mining sold substantially all of its oil and gas assets. The remaining equity interests in its wholly-owned oil and gas subsidiary, Intrepid
Oil & Gas, LLC, were distributed to the members of Intrepid Mining in 2007.
Intrepid Potash was formed as a Delaware corporation on
November 19, 2007 and, in connection with the completion of this offering, will receive a transfer of all of the nonmonetary assets of Intrepid Mining and will assume (i) all amounts in excess of $18.9 million of Intrepid Mining’s
existing liability under its existing senior credit facility and (ii) all other liabilities and obligations of Intrepid Mining, as described in the exchange agreement discussed under “The Formation Transactions”. Intrepid Mining will
repay the $18.9 million that is not assumed by Intrepid Potash from the cash proceeds received from Intrepid Potash pursuant to the terms of the exchange agreement.
Our Products and Markets
Our two primary products are potash (MOP) and langbeinite (sulfate of potash magnesia). In 2007, we
derived 90% of our net sales and 92% of our gross margin from potash.
Our potash is marketed for sale into three primary markets: the
agricultural market as a fertilizer, the industrial market as a component in drilling fluids for oil and gas exploration and the animal feed market as a nutrient. The agricultural market represented approximately 64% of our sales in 2007, with sales
to industrial and feed markets accounting for 30% and 6% of our sales, respectively. Our primary regional markets include agricultural areas west of the Mississippi River, oil and gas exploration areas in the Rocky Mountains and the Permian Basin
and feedlots in Texas and other western states. In 2007, 97% of our potash sales volume was derived from sales within the U.S.
We are one of
only two companies in the world that have economic reserves of langbeinite and produce langbeinite for export, the other being Mosaic. We began producing langbeinite in late 2005 and are working to expand our production and increase demand. Although
Mosaic has sold langbeinite from the Carlsbad, New Mexico region since the 1950s, we believe that our entry into the market as a second producer has increased growers’ willingness to use langbeinite. Langbeinite is marketed into two primary
markets: the agricultural market as a fertilizer and the animal feed market as a nutrient. We market langbeinite throughout the world, including through an exclusive marketing agreement with PCS for sales outside North America. In 2007, 60% of our
langbeinite sales volume was sold in the U.S. and the remaining 40% was exported.
Key Industry Factors
We operate in a highly competitive, global industry. Potash and langbeinite are globally-traded commodities and, as a result, we compete on the basis of delivered
price, timely service and product quality. Moreover, our operating results are influenced by a broad range of factors, including those outlined below.
Fertilizer Demand
Global fertilizer demand has been driven primarily by population growth, changes in dietary habits, planted
acreage, crop yields, grain inventories, application rates, global economic conditions,
46
weather patterns and farm sector income. We expect these key variables to continue to have a significant impact on fertilizer demand for the foreseeable future.
Sustained income growth and agricultural policies in the developing world also affect demand for fertilizer. As incomes grow, diets become more diverse, nutritious and protein-rich, primarily through increased meat consumption. Producing meat from
livestock and poultry requires large amounts of grain for feed. Fertilizer demand is also affected by other geopolitical factors like temporary disruptions in fertilizer trade related to government intervention and changes in the buying patterns of
key consuming countries.
Potash Supply
Economically recoverable potash deposits occur rarely. Virtually all potash is extracted from twenty commercial deposits located in twelve countries. According to the IFA, in 2007, six of these countries (Canada, Russia, Belarus, Germany,
Israel and Jordan) accounted for approximately 87% of the world’s aggregate potash production. Companies in Canada and the former Soviet Union lead the global potash market due to the size and grade of their reserves, among other factors. The
addition of new potash production is difficult because currently unexploited deposits are rare, deep in the earth and are often located in remote areas which would require significant capital investment to exploit. The most recently constructed
operating mine in the world was opened in 1987. New potash supply projects are being developed primarily at areas of existing production, but are expected to take several years to become fully operational. Additional challenges faced by potash
producers include mine flooding risks, aging facilities, depleting ore reserves and increasing transportation costs.
Energy Demand
Energy prices and consumption affect the potash industry in several ways. Growing demands upon existing energy supplies have supported the development of biofuels,
which currently rely upon agricultural products as feedstocks. As demand and prices for these feedstocks increase, the use of fertilizer becomes more economically attractive. In addition, energy prices affect the global levels of oil and gas
drilling, which often consumes potash as a drilling fluid additive. Increases in fuel prices increase the cost of transporting potash from producing to consuming regions. Increases in natural gas prices also increase the cost of producing potash.
Foreign Currency Fluctuations
Currency
fluctuations can play a role in potash pricing. As the currencies of exporting countries strengthen, producers in those countries realize less sales revenue per ton when prices denominated in the recipient country’s currency are translated back
into the exporter’s stronger currency. If this occurs during a period of strong potash demand, exporting producers tend to raise their potash prices in the recipient country’s currency to maintain margins in their own currency. For
example, as the loonie and ruble have recently strengthened in a period of high demand, U.S. dollar prices from those exporting producers have increased. Conversely, if the currencies of exporting countries weaken, producers from those countries
realize higher sales revenue per ton on exports when prices denominated in the recipient country’s currency are translated back into the exporter’s weaker currency. If this occurs in a period of slow demand, exporters could choose to lower
prices to increase export volumes.
Governmental Policies
Increased recognition of the benefits of balanced fertilizer use by growers and governmental support thereof directly affects the applications rates and usage of fertilizer in the developing world. The potash market is a global market
experiencing demand growth in developing countries such as China, India and Brazil. The governmental policies of these and other countries have recently been supportive of agricultural policies that promote balanced fertilization, which has led to
increases in potash demand.
47
Factors Affecting Our Results
Sales
Our gross sales are derived from the sales of potash and langbeinite and are determined by the quantities of fertilizers
we sell and the selling price we realize. We quote prices to customers both on a delivered basis and on the basis of pick-up at our plants and warehouses. Freight costs are incurred only on a portion of our sales. Many of our customers arrange and
pay for their own freight. When we arrange and pay for freight, our quotes and billings are based on expected freight costs to the points of delivery. Our gross sales include the freight that we bill, but we do not believe gross sales provides an
accurate measurement of our performance in the market due to the inclusion of freight billings. We view net sales, which is gross sales less freight costs, as the key performance indicator. We primarily utilize net sales per ton in the analysis of
our sales trends in order to remove the effect of freight costs on pricing.
The volumes we sell are determined by our production capabilities and by
demand for our products. Our selling prices and product mix are determined by a combination of global and regional supply and demand factors. The domestic price of potash is impacted by international price movements and to a large extent by Canadian
and Russian producers that have a dominant share of the world market and that export to the domestic market. We benchmark our prices to international prices and have benefited from the weakening dollar. During 2007 and 2008 to date, we have been
able to raise prices because of strong demand.
Potash prices increased throughout 2007
and this trend is continuing into 2008 due primarily to potash demand increasing faster than potash supply. Fertecon forecasts a total 3.5% annual demand growth rate from 2007 to 2011, which would require an average of 1.3 million additional
tons of K
2
O every year to meet this future demand. However, potash suppliers are currently producing near their practical limits and announced expansions are not
sufficient to keep pace with expected demand. As a result, we believe the global potash market will remain tight through at least 2011.
Domestic
potash pricing is influenced by the interaction of global supply and demand; ocean, land and barge freight rates; and currency fluctuations. Our posted price (FOB the mine) for red granular potash in Carlsbad, New Mexico has increased 132% from $217
per ton on September 30, 2007 to $503 per ton as of April 1, 2008. Our posted price (FOB the mine) of granular langbeinite in Carlsbad has increased 45% from $146 per ton on September 30, 2007 to $211 per ton as of April 1, 2008.
Actual prices realized in the market vary due to the timing and receipt of orders, among other factors.
Warehousing and Handling Costs
Warehousing and handling costs are costs incurred for storing finished products at our plants and loading trucks and railcars for shipment.
These costs also include external warehousing costs. Warehousing and handling costs are most affected by labor costs, dust control chemicals and depreciation of our warehouse assets.
Cost of Goods Sold
Our cost of goods sold reflects the costs to produce our potash and langbeinite products, less
credits generated from the sale of our by-products. With limited exceptions, our costs do not change proportionally with production volumes, as most of our costs are determined by factors other than incremental production. We refer to this in
period-over-period comparisons below as costs being more fixed than variable in nature. Our production costs, however, have increased due primarily to inflation and additions to our fixed costs, primarily in the form of additional labor headcount.
Our potash production results in the joint production of by-products, which are salt, magnesium chloride and metal
48
recovery salts. Sales of these by-products are recorded as a by-product credit that reduces the cost of goods sold.
Primary production costs include direct labor and benefits, maintenance materials, contract labor and materials for operating or maintenance projects, natural gas,
electricity, operating supplies, chemicals, depreciation and depletion, royalties, leasing costs and plant overhead expenses. The cost of our labor, maintenance materials, operating supplies, and chemicals have increased with inflation in the mining
sector. For example, according to Mining Cost Service, published in 2007 by InfoMine USA, Inc., mill operating costs have increased by approximately 24% from 2004 to 2007. We expect our future production cost inflation to continue to be influenced
by inflation in the mining sector, as well as inflation trends for natural gas and electricity. We also expect our labor costs may continue to increase in Carlsbad, New Mexico as long as the demand for skilled labor remains high due to the strength
of the potash, oil and gas and nuclear waste storage industries.
From January 2004 through December 2007, we added to our fixed costs primarily
at our Carlsbad facilities. We increased our maintenance expenditures due to the age and condition of our plants and equipment and the extent to which prior owners had not performed periodic maintenance. We also added labor primarily to address our
maintenance backlog, increase the reliability of our production and staff the langbeinite facility. We expect to continue this trend in 2008 by adding additional personnel to increase the reliability and productivity of our operations. We believe
that our existing operating facilities will be fully staffed by the end of 2008.
We pay royalties to federal, state and private lessors under our
mineral leases, and such taxes are a percentage of net sales of minerals extracted and sold from the applicable lease. In some cases, federal royalties for potash are paid on a sliding-scale basis that varies with the grade of ore extracted.
We have purchased natural gas derivatives in the past. Based on our analysis of the supply and pricing fundamentals for natural gas in our operating
regions, we have chosen not to have any derivative contracts in place for 2008. However, we will continue to evaluate the possibility of entering into such arrangements in the future. Fluctuations in natural gas prices may continue to affect our
operating results.
In the past, we have used operating leases to finance some of our mining equipment. Operating lease payments are accounted for as
a cost of goods sold. We do not plan to use operating leases in this manner in the future. As a result, operating lease payments related to production assets will decrease over time as the leases expire or as we make decisions to buy-out the leases.
We intend, however, to purchase mining equipment in the future, which would result in higher depreciation expense that would largely offset lease costs in our cost of goods sold.
Selling and Administrative Expenses
Our selling and administrative expenses consist primarily of personnel and
related costs; company airplane costs; costs related to arranging truck and rail transportation; legal, accounting and other professional fees; sales and public relations expenses; and costs related to our information and technology systems. Because
our facilities are difficult to reach by commercial aviation, we operate a company airplane in the management of our facilities.
We anticipate an
increase in selling and administrative expenses after this offering. These expenses will include additional legal and corporate governance expenses, additional accounting staff costs, director compensation, exchange listing fees, transfer agent and
stockholder-related fees and increased premiums for director and officer liability insurance coverage.
49
Other Income (Expense)
Other income (expense) consists primarily of interest and financing expenses. Other income (expense) also includes insurance proceeds in excess of property losses, gain (loss) on sale or disposition of assets, investment income, unrealized
gains (losses) on investments, and other costs that do not relate directly to our core operations. In 2008, we may receive additional insurance proceeds in excess of our property losses related to the reconstruction of the warehouse at our East
Mine.
Provision for Income Taxes
As a limited
liability company, Intrepid Mining did not pay federal or state income taxes. The taxable income or loss of Intrepid Mining has historically been included in the state and federal tax returns of its members.
Intrepid Potash is a corporation that will be required to pay federal and state income taxes on its taxable income. The federal income tax basis of the assets
transferred to Intrepid Potash pursuant to the exchange agreement discussed under “The Formation Transactions” will, in the aggregate, equal Intrepid Mining’s existing tax basis in the assets, increased by the amount of taxable gain
recognized by Intrepid Mining in connection with the formation transactions—generally, the amount of cash received by Intrepid Mining plus the amount of the formation distribution. We expect to allocate the increase in tax basis to our
property, plant and equipment and our mineral leasehold interests. As to the allocation to the mineral leasehold interests, we anticipate that percentage depletion with respect to our mineral leasehold interests will exceed cost depletion in each
taxable year. Consequently, we do not expect the increased tax basis to result in any increase in federal cost recovery deductions with respect to our mineral leasehold interests.
50
Results of Operations
The following table presents selected operations data for the years ended December 31, 2007, 2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
213,459
|
|
|
$
|
152,709
|
|
|
$
|
151,280
|
|
|
Less: Freight costs
|
|
|
21,095
|
|
|
|
12,178
|
|
|
|
9,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
192,364
|
|
|
|
140,531
|
|
|
|
141,761
|
|
|
Less: Warehousing and handling costs
|
|
|
5,479
|
|
|
|
3,879
|
|
|
|
2,759
|
|
|
Cost of goods sold
|
|
|
134,387
|
|
|
|
110,995
|
|
|
|
97,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
|
52,498
|
|
|
|
25,657
|
|
|
|
41,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative
|
|
|
15,997
|
|
|
|
10,054
|
|
|
|
7,530
|
|
|
Accretion of asset retirement obligation
|
|
|
579
|
|
|
|
541
|
|
|
|
329
|
|
|
Business interruption insurance settlements
|
|
|
(389
|
)
|
|
|
(4,927
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
36,311
|
|
|
|
19,989
|
|
|
|
34,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(9,350
|
)
|
|
|
(2,907
|
)
|
|
|
(1,473
|
)
|
|
Insurance proceeds in excess of property losses
|
|
|
3,202
|
|
|
|
6,665
|
|
|
|
—
|
|
|
Other income (expense)
|
|
|
(479
|
)
|
|
|
351
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations
|
|
|
29,684
|
|
|
|
24,098
|
|
|
|
32,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations of discontinued oil and gas activities
|
|
|
—
|
|
|
|
2,407
|
|
|
|
1,849
|
|
|
Gain from sale of discontinued oil and gas assets
|
|
|
—
|
|
|
|
9,517
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
11,924
|
|
|
|
1,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
29,684
|
|
|
$
|
36,022
|
|
|
$
|
34,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
Operating Results
For the year ended December 31, 2007, we
benefited from tight global supply conditions resulting from strong potash demand. Domestic sales of potash in 2007 increased primarily due to increased demand resulting from high agricultural commodity prices and resulting increases in fertilizer
application rates. Gross margin increased $26.8 million, or 105%, from $25.7 million for the year ended December 31, 2006 to $52.5 million for the year ended December 31, 2007 due primarily to increased production volumes and price increases.
Operating income increased $16.3 million, or 82%, from $20.0 million for the year ended December 31, 2006 to $36.3 million for the year ended December 31, 2007.
51
Net Sales and Freight Costs
The following table presents potash and langbeinite sales and production for the subject periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
Change
|
|
% Change
|
|
|
|
|
2007
|
|
2006
|
|
|
|
Net sales of potash (in millions)
|
|
$
|
173.5
|
|
$
|
130.3
|
|
$
|
43.2
|
|
33
|
%
|
|
Net sales of langbeinite (in millions)
|
|
$
|
18.9
|
|
$
|
10.2
|
|
$
|
8.7
|
|
85
|
%
|
|
Sales volume of potash (thousands of tons)
|
|
|
893
|
|
|
729
|
|
|
164
|
|
22
|
%
|
|
Sales volume of langbeinite (thousands of tons)
|
|
|
158
|
|
|
95
|
|
|
63
|
|
66
|
%
|
|
Net sales per ton of potash ($/ton)
|
|
$
|
194
|
|
$
|
179
|
|
$
|
15
|
|
8
|
%
|
|
Net sales per ton of langbeinite ($/ton)
|
|
$
|
119
|
|
$
|
107
|
|
$
|
12
|
|
11
|
%
|
|
Production of potash (thousands of tons)
|
|
|
877
|
|
|
725
|
|
|
152
|
|
21
|
%
|
|
Production of langbeinite (thousands of tons)
|
|
|
177
|
|
|
156
|
|
|
21
|
|
13
|
%
|
Net sales of potash increased $43.2 million, or 33%, from $130.3 million for the year ended December 31,
2006 to $173.5 million for the year ended December 31, 2007 due primarily to increased sales volumes resulting from strong potash demand, increased production and inventory draw-downs. Production of potash increased by approximately 152,000 tons, or
21%, in the 2007 period compared to the 2006 period. In October and November 2006, the West Mine shaft disruption discussed below in “Business Interruption Insurance Settlements” reduced our production by an estimated 67,000 tons. During
2007, production returned to normal levels at the West Mine. The balance of the increased production in 2007 was due primarily to improved plant operating rates and productivity resulting from our maintenance and capital improvements. Net sales of
langbeinite increased $8.7 million, or 85%, from $10.2 million for the year ended December 31, 2006 to $18.9 million for the year ended December 31, 2007 due primarily to the same factors that increased potash sales. Production of langbeinite
increased 13% in the 2007 period compared to the 2006 period due primarily to improved operating rates at the dual potash and langbeinite plant.
Freight costs increased $8.9 million, or 73%, for the year ended December 31, 2007 compared to the year ended December 31, 2006 due primarily to increases in fuel and freight rates, a 63,000 ton increase in langbeinite sales volumes (which
have a wider geographic distribution) and a 164,000 ton increase in potash sales volumes.
Warehousing and Handling Costs
Warehousing and handling costs increased $1.6 million, or 41%, for the year ended December 31, 2007 compared to the year ended December 31, 2006. Labor and
maintenance material expenses increased primarily due to increased staffing levels and to address maintenance backlogs.
Cost of Goods Sold
The following table presents our cost of goods sold for potash and langbeinite for the subject periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
Change
|
|
|
% Change
|
|
|
Cost per ton of potash sold
(1)
|
|
$
|
135
|
|
$
|
141
|
|
$
|
(6
|
)
|
|
(4
|
)%
|
|
Cost per ton of langbeinite sold
(2)
|
|
$
|
87
|
|
$
|
88
|
|
$
|
(1
|
)
|
|
(1
|
)%
|
|
(1)
|
Per ton potash costs include $7.16 and $7.81 of depreciation expense in 2007 and 2006, respectively.
|
|
(2)
|
Per ton langbeinite costs include $11.51 and $12.93 of depreciation expense in 2007 and 2006, respectively.
|
52
The cost of goods sold per ton of potash decreased $6, or 4%, from $141 per ton for the year ended
December 31, 2006 to $135 per ton for the year ended December 31, 2007. Potash costs per ton decreased in 2007 due primarily to a 21% increase in production as our fixed costs were spread over a larger number of units of production. The
total cost of goods sold of our langbeinite decreased $1 per ton, or 1%, from $88 per ton for the year ended December 31, 2006 to $87 per ton for the year ended December 31, 2007.
Cost of goods sold increased $23.4 million, or 21%, from $111.0 million in 2006 to $134.4 million in 2007. Costs that increased materially during the year ended
December 31, 2007 compared to the year ended December 31, 2006 included labor and contractor, chemical, royalty, operating supply, and operating lease expenses. Labor and contractor costs increased $7.9 million, or 24%, in 2007 due to contract
maintenance projects, wage increases and the addition of personnel to attain appropriate staffing levels and address maintenance backlogs. Chemical costs increased $2.2 million, or 42%, in 2007 due primarily to chemical additive testing to increase
potash recoveries at the East Mine. Royalty expense increased $2.1 million, or 43%, in 2007 due to increased sales revenue and higher langbeinite sales, which incur a slightly higher average royalty than potash sales. Operating supply costs
increased $1.9 million, or 30%, in 2007 principally due to the increased volume of production. Operating lease and rental expenses increased $1.3 million, or 50%, in 2007 due to new mining equipment financed using operating leases.
Non-cash changes in the fair value of our natural gas derivative contracts decreased cost of goods sold by $4.5 million for the year ended December 31, 2007
compared to the year ended December 31, 2006. An unrealized loss of $2.3 million was recorded in 2006 compared to an unrealized gain of $2.2 million in 2007.
By-product sales credits reduced cost of goods sold by $7.8 million and $6.9 million in the years ended December 31, 2007 and December 31, 2006, respectively.
Selling and Administrative Expenses
Selling and administrative
expenses increased $5.9 million, or 59%, from $10.1 million for the year ended December 31, 2006 to $16.0 million for the year ended December 31, 2007. Selling and administrative expenses increased in 2007 due primarily to legal and lobbying fees,
additional sales, administrative and management staff, and larger aggregate salaries and bonuses paid to the management team. We are a party to various legal proceedings that challenge decisions of the Bureau of Land Management, or BLM, relating to
oil and gas drilling in the Potash Area in southeastern New Mexico, where our New Mexico mines are located. We refer to this as the “Potash Area dispute in New Mexico”. We are attempting to cause the BLM to more accurately map and protect
the potash resource, conduct a comprehensive safety study as to oil and gas drilling around our mines and limit drilling in areas that we believe contain potash deposits.
Business Interruption Insurance Settlements
East Mine wind-shear event: In April 2006, a wind-shear struck the product
warehouse at the East Mine in Carlsbad, New Mexico resulting in a property loss claim. Inventory losses resulting from the outdoor storage of product because of the damage to the warehouse were subsequently recovered from the insurance property
loss claim. In the years ended December 31, 2007 and 2006, we also received settlements of $0.4 million and $0.9 million, respectively, for lost gross margin on the langbeinite inventory destroyed when the East Mine warehouse was damaged. We refer
to this event as the “East Mine wind-shear event” and to the resulting claim as the “East Mine wind-shear claim”.
West Mine
shaft disruption: In October 2006, unused utilities in the West Mine production shaft broke loose due to an increase in groundwater flows into the shaft resulting from heavy rains from
53
Hurricane John. We incurred a 54-day shutdown to remove all the unused utilities and to improve groundwater capture and conveyance systems in the shaft. Under the
terms of our business interruption insurance policy, the first 30 days of the interruption were not covered by insurance. We refer to this event as the “West Mine shaft disruption” and to the resulting business interruption insurance claim
as the “West Mine shaft claim”. We estimate that during the 54-day shutdown period and a brief ramp-up period after the event we should have produced approximately 67,000 additional tons of potash with a market value of approximately $11.8
million, only $4.0 million of which was reimbursed after our 30-day deductible under the terms of our insurance policy. The $4.0 million reimbursement was recognized within “Business interruption insurance settlements”.
Other Income (Expense)
Other expenses increased $10.7 million, or
261%, from net income of $4.1 million for the year ended December 31, 2006 to a net expense of $6.6 million for the year ended December 31, 2007 due primarily to an increase in interest expense. Interest expense increased $6.4 million, or 222%, in
the 2007 period due primarily to higher net borrowing against our existing senior credit facility in order to redeem the membership interest of Long Canyon, LLC for $100.0 million.
For the years ended December 31, 2007 and 2006, insurance settlements in excess of property losses of $3.2 million and $6.7 million, respectively, were recognized
for proceeds received in connection with the East Mine wind-shear claim. The warehouse’s replacement cost is expected to be approximately $22.0 million. Additional insurance payments to reconstruct the warehouse are contingent upon review by
the insurer and will be recognized as settlements are agreed upon.
Discontinued Operations
During the last quarter of 2006, we sold substantially all of our oil and gas assets. Income from discontinued operations of these oil and gas activities was $2.4
million for the year ended December 31, 2006.
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
Operating Results
Operating results declined in 2006 compared
to 2005 due primarily to declines in production resulting from two disruptions discussed in the following paragraphs, partially offset by higher (10%) potash prices in 2006. Specifically, we produced approximately 172,000 fewer tons of potash and
sold approximately 140,000 fewer tons of potash in 2006 than we did in 2005. As most of our production costs are more fixed than variable in nature relative to production levels, production costs did not decrease ratably despite the lower production
levels. Cost of goods sold increased by $13.9 million, or 14%, from $97.1 million in 2005 to $111.0 million in 2006. As a result, gross margins decreased $16.2 million, or 39%, from $41.9 million for the year ended December 31, 2005 to $25.7
million for the year ended December 31, 2006 due primarily to decreased sales volumes resulting from two production disruptions. Operating income decreased $14.0 million, or 41%, from $34.0 million in 2005 to $20.0 million in 2006,
reflecting lower sales volumes and increased cost of goods sold and selling and administrative expenses.
Potash production at the West Mine
decreased 93,000 tons, or 23%, from 398,000 tons in 2005 to 305,000 tons in 2006 due primarily to the West Mine shaft disruption. We estimate that during the 54-day shutdown period and a brief ramp-up period after the event we should have produced
approximately 67,000 additional tons with a market value of approximately $11.8 million, only $4.0 million of which was reimbursed after our 30-day deductible under the terms of our insurance policy.
54
East Mine plant ramp-up disruption: Potash production at the East Mine decreased 83,000 tons, or 24%, in 2006
compared to 2005 due primarily to the October 2005 commissioning of the dual potash and langbeinite facility. Implementing the new milling process at this facility, which is a first-of-its-kind process, involved operational inefficiencies which
resulted in lower operating rates in the last quarter of 2005 and through the first three quarters of 2006. This investment in the East Mine allowed us to mine a mixed ore body containing both potash and langbeinite. We refer to this production
disruption as the “East Mine plant ramp-up disruption”. While potash production decreased, langbeinite production increased 141,000 tons in 2006, resulting in a net sales increase of approximately $300,000. The addition of the langbeinite
plant, as noted above, did result in the increase of certain elements of cost of goods sold.
Net Sales and Freight Costs
The following table presents potash and langbeinite sales and production for the subject years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
Change
|
|
|
% Change
|
|
|
Net sales of potash (in millions)
|
|
$
|
130.3
|
|
$
|
141.1
|
|
$
|
(10.8
|
)
|
|
(8
|
)%
|
|
Net sales of langbeinite (in millions)
|
|
$
|
10.2
|
|
$
|
0.7
|
|
$
|
9.5
|
|
|
1,357
|
%
|
|
Sales volume of potash (thousands of tons)
|
|
|
729
|
|
|
869
|
|
|
(140
|
)
|
|
(16
|
)%
|
|
Sales volume of langbeinite (thousands of tons)
|
|
|
95
|
|
|
6
|
|
|
89
|
|
|
1,483
|
%
|
|
Net sales per ton of potash ($/ton)
|
|
$
|
179
|
|
$
|
162
|
|
$
|
17
|
|
|
10
|
%
|
|
Net sales per ton of langbeinite ($/ton)
|
|
$
|
107
|
|
$
|
111
|
|
$
|
(4
|
)
|
|
(4
|
)%
|
|
Production of potash (thousands of tons)
|
|
|
725
|
|
|
897
|
|
|
(172
|
)
|
|
(19
|
)%
|
|
Production of langbeinite (thousands of tons)
|
|
|
156
|
|
|
15
|
|
|
141
|
|
|
940
|
%
|
Net sales of potash decreased $10.8 million, or 8.0%, from $141.1 million in 2005 to $130.3 million in 2006
due to decreased sales volumes resulting primarily from the production disruptions discussed previously under “—Operating Results”, partially offset by increased prices. The average net sales price for potash increased $17 per ton, or
10%, from $162 per ton in 2005 to $179 per ton in 2006 due in part to strong industrial potash demand and price increases initiated by international competitors. Potash production decreased 172,000 tons, or 19%, from 897,000 tons in 2005 to 725,000
tons in 2006 due primarily to the West Mine shaft disruption and the East Mine plant ramp-up disruption. Net sales of langbeinite increased $9.5 million, or 1,357%, from $0.7 million in 2005 to $10.2 million in 2006 due to a full year of langbeinite
production and sales in 2006. Langbeinite production increased 141,000 tons, or 940%, from 15,000 tons in 2005 to 156,000 tons in 2006 due primarily to having a full year of operations in the newly commissioned East Mine plant compared to only three
months in 2005.
Freight costs increased $2.7 million, or 28%, for the year ended December 31, 2006 compared to the year ended December 31, 2005 due
primarily to increased langbeinite sales, which are distributed over a wider geographic area and generally involve additional freight costs.
Warehousing and
Handling Costs
Warehousing and handling costs increased $1.1 million, or 41%, for the year ended December 31, 2006 compared to the year
ended December 31, 2005 due primarily to increased labor expenses and the increased use of dust suppressant chemicals.
55
Cost of Goods Sold
The following table presents our cost of goods sold for potash and langbeinite for the subject years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
Change
|
|
|
% Change
|
|
|
Cost per ton of potash sold
(1)
|
|
$
|
141
|
|
$
|
110
|
|
$
|
31
|
|
|
28
|
%
|
|
Cost per ton of langbeinite sold
(2)
|
|
$
|
88
|
|
$
|
201
|
|
$
|
(113
|
)
|
|
(56
|
)%
|
|
(1)
|
Per ton potash costs include $7.81 and $4.81 of depreciation expense in 2006 and 2005, respectively.
|
|
(2)
|
Per ton langbeinite costs include $12.93 and $59.39 of depreciation expense in 2006 and 2005, respectively. In 2005, langbeinite depreciation and cost of goods sold were temporarily high due
to limited production and high start-up costs.
|
The total cost of goods sold per ton of potash increased $31, or 28%, from $110 per
ton in 2005 to $141 per ton in 2006 due primarily to the impact of spreading our fixed cost structure over lower production volumes resulting from the production disruptions mentioned previously under “—Operating Results”. The total
cost of goods sold of our langbeinite decreased $113 per ton, or 56%, from $201 per ton in 2005 to $88 per ton in 2006 due primarily to high langbeinite start-up costs in 2005 and langbeinite production progressing closer to expected output in 2006.
Costs that increased materially in 2006 compared to 2005 included labor and benefits, maintenance, depreciation, royalty and operating lease
expenses. Labor and benefits costs increased $4.7 million, or 13%, in 2006 due primarily to increases in employee headcount to staff the langbeinite plant at our East Mine and address our maintenance backlog and pay rate increases needed to compete
for labor. Maintenance costs increased $3.3 million, or 18%, in 2006 relative to 2005. Maintenance costs were reduced by $3.9 million in 2005 due to the usage of low-cost spare parts inventory purchased from the previous owners of the Carlsbad
facilities.
Depreciation and amortization expenses increased $2.4 million, or 53%, in 2006 which resulted primarily from our capital replacement and
improvement program and the completion of the dual potash and langbeinite plant at the East Mine. Royalty expense increased $1.8 million, or 59%, in 2006 due to the expiration of a temporary royalty reduction on federal potash leases, higher potash
prices and increased langbeinite sales. Operating lease expenses increased $1.7 million, or 163%, in 2006 due primarily to upgrades to our mining equipment financed using operating leases.
Non-cash changes in the fair value of our natural gas derivative contracts increased cost of goods sold by $2.5 million for the year ended December 31, 2006
compared to the year ended December 31, 2005. An unrealized loss of $2.3 million was recorded in 2006 compared to an unrealized gain of $0.2 million in 2005.
Selling and Administrative Expenses
Selling and administrative expenses increased $2.6 million, or 34%, from $7.5 million in
2005 to $10.1 million in 2006. The increase was due primarily to increased legal and lobbying fees incurred in connection with the Potash Area dispute in New Mexico, additional sales, administrative and management staff and selling expenses related
to adding langbeinite as a product line and larger aggregate salaries and bonuses paid to the management team.
Business Interruption Insurance Settlements
We recognized $4.9 million in business interruption insurance settlements in 2006. The West Mine shaft claim resulted in a $4.0 million
settlement for the 24 days of outage that were covered by
56
our business interruption insurance policy. Additionally, the East Mine wind-shear claim resulted in a settlement of $0.9 million for lost gross margin on langbeinite
destroyed when the East Mine warehouse was damaged.
Other Income (Expense)
We had other income of $4.1 million in 2006 compared to an expense of $1.4 million in 2005. We recognized a net gain of $6.7 million in 2006 related to property
damage recoveries from the East Mine wind-shear claim. The insurance proceeds of $9.5 million for property damage replacement were received by early January 2007 and were partially offset by the deductible and related costs. Additional insurance
payments to reconstruct the warehouse are contingent upon review by the insurer and will be recognized as settlements are agreed upon.
Interest
expense increased $1.4 million, or 97%, from $1.5 million in 2005 to $2.9 million in 2006 due to increased debt incurred as part of our capital improvement program.
Discontinued Operations
In 2006, we sold substantially all of our oil and gas assets for gross proceeds of $19.2 million
resulting in a gain of $9.5 million from the sale of discontinued oil and gas activities. Income from discontinued operations of these oil and gas activities was $1.8 million in 2005 and $2.4 million in 2006. The remaining undeveloped oil and gas
assets were distributed to the members of Intrepid Mining in 2007.
Liquidity and Capital Resources
Since inception, we have funded our operations primarily through funds generated by operations and through borrowings under our existing senior credit facility. We
believe that the net proceeds retained by Intrepid Potash from this offering, cash flow from operations and available borrowings under our existing senior credit facility described below will be sufficient to fund our operations, our capital
spending program and debt service requirements for at least the next two years. If we do not achieve forecasted results from operations, additional financing in the form of debt or equity may be required to offset any cash flow deficiencies. As
described below, our existing senior credit facility covenants are calculated using cash flow and fixed charges, so materially adverse operating results could restrict the availability of our credit.
Cash Balances and Cash Flows
As of December 31, 2007 and
December 31, 2006, we had cash and cash equivalents of $2.0 million and $0.3 million, respectively. As of December 31, 2007 and December 31, 2006, we had $69.7 million and $17.6 million available, respectively, under the revolving
portion of our existing senior credit facility.
Operating Activities
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
Total cash provided by operating activities was
$41.8 million for 2007 compared to $14.8 million for 2006. The $27.0 million increase in cash provided by operating activities is due primarily to increases in operating income, a collection of accounts receivable related to insurance
reimbursements, an increase in current liabilities and changes in inventory levels, partially offset by
57
increased accounts receivable resulting from higher sales levels and $1.7 million for costs related to our initial public offering. Net income decreased $6.3 million,
or 18%, in 2007 compared to 2006. Income from continuing operations increased $5.6 million, or 23%, in 2007 compared to 2006 due primarily to an increase in sales volumes and potash pricing. Accounts receivable collections from insurance settlements
provided $11.8 million in 2007. Trade accounts receivable increased $7.3 million in 2007 relative to an increase of $3.3 million in 2006 as a result of increased revenues. In 2006, inventories increased $5.6 million due primarily to an increase in
langbeinite inventories, a new product for which we increased inventories to meet pending sales requirements, while in 2007 inventories declined $0.6 million due to increased demand for our products.
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
Total cash provided by operating activities decreased to $14.8 million in 2006 from $37.8 million in 2005. The $23.0 million decrease in cash provided by operating
activities in 2006 relative to 2005 was due primarily to the timing of insurance payments and changes in accounts payable and trade accounts receivable. We recognized income from business interruption insurance settlements resulting from the West
Mine shaft claim and from an insurance settlement in excess of property losses resulting from the East Mine wind-shear claim. A receivable for these combined insurance claims totaled $11.9 million at December 31, 2006. Changes in accounts
payable and trade accounts receivable resulted in a net $3.7 million decrease in cash flows from operations in 2006 compared to a net increase of $11.6 million in 2005. These changes were due to the timing of sales, purchases and receipt of
payments.
Investing Activities
Year Ended
December 31, 2007 Compared to Year Ended December 31, 2006
Total cash used in investing activities was $20.5 million for 2007 compared to cash
provided of $1.3 million for 2006. Cash invested in property, plant and equipment increased to $30.8 million in 2007 from $12.2 million in 2006. In 2007, we received $10.2 million of insurance settlements, which we used toward the construction of
warehouses at the East Mine. In 2006, we realized $18.7 million from the sale of discontinued operations. In addition, we spent $4.2 million in 2006 to acquire certain assets that were ultimately included as part of the sale of discontinued
operations.
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
Total cash provided by investing activities was $1.3 million in 2006 compared to $23.0 million used in investing activities in 2005. The $24.3 million change was
primarily due to decreased capital spending in 2006 and the sale of substantially all of our oil and gas assets. During 2005, additions to property, plant and equipment were $17.6 million compared to $12.2 million in 2006. Completion of the East
Mine dual potash and langbeinite plant added significant property, plant and equipment spending in 2005. In addition, $4.1 million was spent on additions to mineral properties during 2005, the majority of which related to horizontal mine development
at the Moab Mine. During 2006, we received net proceeds of $18.7 million from the sale of substantially all of our oil and gas assets.
Financing Activities
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
Total cash used in financing activities was $19.6 million for 2007 compared to $16.0 million for 2006. In June 2007, Potash Acquisition, LLC, or PAL, an affiliate
of Platte River Ventures I, L.P. and an unrelated party to Intrepid Mining, acquired a 20% membership interest in Intrepid Mining for $38.8 million, net of transaction costs. Funds received were used to decrease the outstanding balance of the
revolving portion of our existing senior credit facility. During 2007, net repayments of long-term debt totaled $30.8 million and distributions to our members totaled $26.1 million.
58
During 2006, net proceeds from long-term debt totaled $0.2 million and distributions to our members totaled $10.6
million.
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
Total cash used in financing activities was $16.0 million in 2006 compared to $16.9 million in 2005. During 2006, net proceeds from long-term debt totaled $0.2
million and distributions to our members totaled $10.6 million. In addition, our members agreed to redeem the membership interests of Long Canyon, LLC for $5.0 million in cash and a $95.0 million note payable.
During 2005, net proceeds from long-term debt totaled $0.8 million, and distributions to our members totaled $17.6 million.
Existing Senior Credit Facility
The credit agreement, as
amended, governing the existing senior credit facility was entered into in March 2007. The agreement currently provides for a maximum committed $125 million five-year revolving loan that matures on March 9, 2012, and a $50 million amortizing
term loan that matures on March 9, 2014. The term loan requires quarterly payments of $1.25 million, with the balance of the revolving loan and the term loan due at maturity. The senior credit facility is secured by substantially all of the
assets of Intrepid Mining and its subsidiaries. As of December 31, 2007, $55.1 million was outstanding under the revolving line of credit and there was $0.2 million in outstanding letters of credit, leaving $69.7 million of additional credit
available under the credit agreement. We repaid principal of $3.8 million in 2007, leaving a balance on the term loan of $46.3 million as of December 31, 2007.
Outstanding balances under the revolving loan and the term loan bear interest at a floating rate, which, at our option, is either (i) the London Interbank Offered Rate (LIBOR), plus a margin of between 1.25% and 2.5%,
depending upon our leverage ratio, which is equal to the ratio of our total funded debt to our adjusted earnings before income taxes, depreciation and amortization; or (ii) an alternative base rate. We must pay a quarterly commitment fee on the
outstanding portion of the unused revolving credit facility amount of between 0.25% and 0.50%, depending on our leverage ratio.
The senior
credit facility contains certain covenants customary for financings of this type, including, without limitation, restrictions on: (i) indebtedness; (ii) the incurrence of liens; (iii) investments and acquisitions; (iv) mergers
and the sale of assets; (v) guarantees; (vi) distributions; and (vii) transactions with affiliates. The credit facility also contains a requirement to maintain the following: at least $3.0 million of working capital; a ratio of
adjusted earnings before income taxes, depreciation and amortization to fixed charges of 1.3 to 1.0; and a ratio of the outstanding principal balance of debt to adjusted earnings before income taxes, depreciation and amortization of not more than
3.5 to 1.0. The credit agreement requires us to maintain interest rate derivatives to fix the interest rate for at least 75% of the projected outstanding balance of the term loan.
The senior credit facility also contains events of default customary for financings of this type, including, without limitation, failure to pay principal and
interest in a timely manner, the breach of certain covenants or representations and warranties, the occurrence of a change in control, and judgments or orders of the payment of money in excess of $1.0 million on claims not covered by insurance. We
were in compliance with all covenants with respect to the senior credit facility on December 31, 2007.
Upon the closing of this offering,
Intrepid Potash intends to replace Intrepid Mining as the borrower under the senior credit facility and request that Intrepid Mining be released. Intrepid Mining intends to repay $18.9 million of the amounts outstanding under the senior credit
facility. Intrepid Potash will repay the remaining outstanding amounts using net proceeds from this offering.
59
Capital Expenditures
We operate in a capital-intensive industry that requires consistent capital expenditures to replace assets necessary to sustain safe and reliable production. We purchased relatively old potash facilities, some out of bankruptcy, that were
all in need of investment. At each facility, we have developed a three-part accelerated investment plan to maintain safe and reliable production, improve and modernize equipment, increase production, improve environmental compliance and decrease
production costs per ton. We have identified key projects at each of our facilities that we believe will allow us to increase our potash and langbeinite production.
The primary focus of our improvement and modernization program has been the replacement of certain key items such as underground mining equipment. Through April 2007, this equipment was financed primarily through operating
leases, which were recorded as an expense. We now purchase the equipment and capitalize the costs. Additionally, we are modernizing our control systems, belt-system technology, communications systems and other equipment. We also expect that our
current high levels of spending to improve and modernize equipment will decrease in the future as we complete our accelerated investment plan. Improving and modernizing our equipment and facilities sometimes has the added benefit of improving our
environmental compliance.
Total capital spending in 2008 is expected to be approximately $90 million, which includes approximately
$16 million to replace assets needed to maintain production, $16 million to improve and modernize equipment, $46 million to increase production as described more fully below, and $10 million, which we expect will be reimbursed by
our insurance, to complete the replacement of the East Mine warehouse. Of the $16 million planned to improve and modernize equipment, approximately $9 million is planned for underground mining equipment and other equipment we would
previously have leased. We believe our cash flow and debt capacity will be adequate to fund the capital spending program in 2008.
In 2008, we expect
to undertake the following projects to improve and increase production:
|
|
Ÿ
|
|
begin construction of the HB Mine, a project with a total estimated cost of $78 to $88 million to be completed in 2010, with approximately $20 to $25 million to be spent in
2008;
|
|
|
Ÿ
|
|
install a horizontal stacker or underground storage system and implement a project to improve potash recoveries at the West Mine, projects with a total estimated cost of $13
to $15 million to be completed in 2009, with approximately $9 million to be spent in 2008;
|
|
|
Ÿ
|
|
install new thickeners in 2008 to improve potash recoveries and begin a langbeinite recovery project at the East Mine, projects with a total estimated cost of $15 to
$21 million to be completed in 2010, with approximately $6 million to be spent in 2008; and
|
|
|
Ÿ
|
|
add a new horizontal solution mining cavern at the Moab Mine, a project with a total estimated cost of $5 to $6 million to be completed in 2008.
|
All figures for future capital spending are initial estimates that are subject to change as the projects are further developed.
Capital expenditures in 2007 were $31.2 million, which includes approximately $12.5 million to replace assets needed to maintain production, $6.5
million to improve and modernize equipment, $1.0 million to increase production related primarily to the HB Mine and $11.2 million, which was reimbursed by our insurance, towards replacing the East Mine warehouse. Of the $6.5 million expenditure to
improve and modernize equipment, approximately $3.7 million was for underground mining equipment and other equipment we would previously have leased.
Capital expenditures for mining operations in 2006 were $12.4 million, which was used primarily to replace assets needed to maintain production. Included in this $12.4 million expenditure was $0.6
60
million towards replacing the East Mine warehouse, which was reimbursed by our insurance. In 2006, we also entered into operating leases for approximately $9.7 million
in mining equipment.
Capital expenditures in 2005 were $21.7 million, which includes approximately $9.0 million to replace assets needed to maintain
production and $12.7 million to increase production. The majority of the $12.7 million expenditure was incurred for the new langbeinite plant at the East Mine. In 2005, we also leased approximately $2.8 million in mining equipment and other
equipment designed to improve and modernize our equipment.
Contractual Obligations
As of December 31, 2007, we had contractual obligations totaling $195.9 million, as indicated below. All contractual commitments shown are for the full
calendar year indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period
(in thousands)
|
|
|
|
Total
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
and later
|
|
Current and long-term debt
(1)
|
|
$
|
101,350
|
|
$
|
5,000
|
|
$
|
5,000
|
|
$
|
5,000
|
|
$
|
5,000
|
|
$
|
60,100
|
|
$
|
21,250
|
|
Imputed interest on long-term debt
(2)
|
|
|
31,642
|
|
|
6,709
|
|
|
6,378
|
|
|
6,047
|
|
|
5,716
|
|
|
5,385
|
|
|
1,407
|
|
Capital lease obligations
(3)
|
|
|
5
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Operating lease obligations
(4)
|
|
|
18,994
|
|
|
5,008
|
|
|
4,797
|
|
|
3,967
|
|
|
3,258
|
|
|
878
|
|
|
1,086
|
|
Purchase commitments
(5)
|
|
|
6,097
|
|
|
6,097
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Pension obligations
(6)
|
|
|
7,806
|
|
|
99
|
|
|
127
|
|
|
144
|
|
|
183
|
|
|
199
|
|
|
7,054
|
|
Asset retirement obligation
(7)
|
|
|
18,556
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,556
|
|
Minimum royalty payments
(8)
|
|
|
11,425
|
|
|
457
|
|
|
457
|
|
|
457
|
|
|
457
|
|
|
457
|
|
|
9,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
195,875
|
|
$
|
23,375
|
|
$
|
16,759
|
|
$
|
15,615
|
|
$
|
14,614
|
|
$
|
67,019
|
|
$
|
58,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Term and revolving loan portions of the existing senior credit facility. Payments indicated include only principal.
|
|
(2)
|
Interest rates are adjusted frequently, and interest payments will vary directly with the entire loan balance outstanding, inclusive of a material revolving portion. Interest commitments have
been estimated above assuming the entire loan as of the dates shown is not repaid until its maturity dates, using the annual figures as averages for the year, and using a 6.6% interest rate.
|
|
(3)
|
Capital lease commitment for a time clock system.
|
|
(4)
|
All operating lease payments inclusive of anticipated sales tax, electrical substation leases classified as an electrical cost and railcar leases classified as a freight cost.
|
|
(5)
|
Purchase contractual commitments include the approximate amount due a vendor in the event of the cancellation of purchase commitments for three continuous miners.
|
|
(6)
|
Pension distributions as determined by our actuaries.
|
|
(7)
|
We are obligated to reclaim and remediate lands which our operations have disturbed, but because of the long-term nature of our reserves and facilities, we estimate that none of those
expenditures will be required until after 2013. Commitments shown are in today’s dollars and undiscounted.
|
|
(8)
|
Annual minimum royalties due under mineral leases.
|
Payments related to
derivative contracts cannot be reasonably estimated due to variable market conditions and are not included in the above tables.
Off-Balance Sheet
Arrangements
We do not have any contingent interest in assets transferred, derivative instruments tied to our stock and classified as equity,
long-term fixed price contracts, or variable interest entities that qualify as off-balance sheet arrangements.
61
In the normal course of business, we have entered into various indemnification obligations to counterparties in
purchasing, sales and leasing transactions. Historically, we have not made any significant payments under such indemnification obligations and no amounts have been accrued in our consolidated financial statements with respect to such indemnification
obligations, apart from accruals relating to the underlying liabilities.
Application of Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in
accordance with GAAP. The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in our financial statements. Actual results could differ
from such estimates and assumptions, and any such differences could result in material changes to our financial statements. The following discussion presents information about our most critical accounting policies and estimates.
Revenue Recognition
—Revenue is recognized when title transfers to a customer, selling price is determinable, and collection is reasonably assured.
Title passes at the shipping point: the plant, a distribution warehouse, or a port. Title for some shipments into Mexico transfers at the border crossing, the port of exit. Prices are set at the time of or prior to shipment. We use few sales
contracts so prices are based on our current published prices or upon negotiated short-term purchase orders from customers.
We quote prices to
customers both on a delivered basis and on the basis of pick-up at our plants and warehouses. Freight costs are incurred only on a portion of the sales as customers often arrange and pay for delivery to their sites. Our gross sales include freight
costs, but we do not believe gross sales provides an accurate measurement of our performance in the market due to the inclusion of freight costs. We view net sales, which is gross sales less freight costs, as the key performance indicator. We
primarily utilize net sales per ton in the analysis of our sales trends in order to remove the effect of freight costs on pricing.
Application of
this policy requires that we make estimates regarding creditworthiness of the customer, which impact our determination of allowance for doubtful accounts. We make those estimates based on the most recent information available and historical
experience, but they may be affected by subsequent changes in market conditions.
Property, Plant and Equipment
—Expenditures for new
facilities or expenditures which extend the useful lives of our existing facilities are capitalized and depreciated using the straight-line method at rates sufficient to depreciate such costs over the estimated productive lives of such facilities.
Productive lives range from 2 to 25 years. Productive lives are reviewed annually and changed as necessary. Interest expense allocable to the cost of
developing mining properties and to constructing new facilities is capitalized until
operations commence. Gains or losses from normal sales and retirements of assets are included in other income or expense.
Mineral
Properties and Development Costs
—Mineral properties and development costs, which we refer to collectively as mineral properties, include acquisition costs, the cost of drilling wells and the cost of other development work. Depletion of
mineral properties is provided using the units-of-production method over the estimated life of the relevant ore body. The lives of reserves used for accounting purposes are shorter than current reserve life determinations prepared by us and
reviewed and independently determined by Agapito Associates, Inc., due to uncertainties inherent in long-term estimates and in order to correlate to estimated building and plant lives of 25 years or less,
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where appropriate. Certain development costs are depleted over the life of the proven and probable reserves or the life of the facility. Reserve studies and mine plans
are updated periodically, and the remaining net balance of the mineral properties is depleted over the updated estimated life. Possible impairment is also considered. Our proven and probable reserves are based on extensive drilling, sampling,
mine modeling and mineral recovery from which economic feasibility has been determined. The price sensitivity of reserves depends upon several factors including ore grade, ore thickness and ore mineral composition. The reserves are estimated based
on information available at the time the reserves are calculated. Recovery rates vary depending on the mineral properties of each deposit and the production process used. The reserve estimate utilizes the average recovery rate for the deposit, which
takes into account the processing methods scheduled to be used. The cutoff grade, or lowest grade of mineralized material considered economic to process, varies with material type, mineral recoveries and operating costs. Proven and probable reserves
are based on estimates, and no assurance can be given that the indicated levels of recovery of potash and langbeinite will be realized or that production costs and estimated future development costs will not exceed the net realizable value of the
products. Tons of potash and langbeinite in the proven and probable reserves are expressed in terms of expected finished tons of product to be realized net of estimated losses. Reserve estimates may require revision based on actual production
experience. Market price fluctuations of potash or langbeinite, as well as increased production costs or reduced recovery rates, could render proven and probable reserves containing relatively lower grades of mineralization uneconomic to exploit and
might result in a reduction of reserves. In addition, the provisions of our mineral leases are subject to periodic readjustment, including royalties payable, by the state and federal government, which could impact the economics of our reserve
estimates. Significant changes in the estimated reserves could have a material impact on our results of operations and financial position.
Inventory
—Inventory consists of product and by-product stocks that are ready for delivery to market, mined ore, potash in evaporation ponds and parts and supplies inventory. Product and by-product inventory cost is determined
using the lower of average cost for the year or estimated net realizable value. For purposes of identifying and allocating costs, inventory is assumed to turn over on a first-in-first-out basis. The value of potash within the solar ponds,
work-in-process inventories, is estimated based on the amount of finished inventory expected to be recovered and the lower of cost incurred through the stage of completion or net realizable value less costs to complete the process. Estimates are
used in the allocation of costs to different products, including by-products.
We conduct detailed reviews related to the net realizable
value of parts inventory, giving consideration to quality, slow moving items, obsolescence, excessive levels and other factors. Parts inventories not having turned-over in more than a year, excluding parts classified as critical spares, are reviewed
for obsolescence and included in the determination of an allowance for obsolescence. If the carrying amount exceeds the estimated net realizable value, we adjust our inventory balances accordingly. If the actual sales price ultimately realized were
to be less than our estimate of net realizable value, additional losses would be incurred in the period of liquidation.
Recoverability of
Long-Lived Assets
—We evaluate our long-lived assets for impairment in accordance with Statement of Financial Accounting Standard, or SFAS, 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” when events or
changes in circumstances indicate that the related carrying amount may not be recoverable. Impairment is considered to exist if the total estimated future cash flow on an undiscounted basis is less than the carrying amount of the related assets. An
impairment loss is measured and recorded based on the discounted estimated future cash flows. Changes in significant assumptions underlying future cash flow estimates or fair values of assets may have a material effect on our financial position and
results of operations.
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Factors we generally will consider important and which could trigger an impairment review of the carrying value of
long-lived assets include the following:
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significant underperformance relative to expected operating results;
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significant changes in the manner of use of assets or the strategy for our overall business;
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underutilization of our tangible assets;
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discontinuance of certain products by us or our customers;
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a decrease in estimated mineral reserves; and
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significant negative industry or economic trends.
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Although we believe the carrying values of our long-lived assets were realizable as of the balance sheet dates, future events could cause us to conclude otherwise.
Asset Retirement Obligation
—All of our mining properties involve certain reclamation liabilities as required by the states in which they operate or by
the Bureau of Land Management, or BLM. These asset retirement obligations are reviewed and updated at least annually with resultant changes in balances recorded as adjustments to the related assets and liabilities. Changes in estimates follow from
changes in estimated probabilities, amounts, refinements in scope, technological developments and timing of the settlement of the asset retirement obligation, as well as changes in the legal requirements of an obligation. The estimates of amounts to
be spent are subject to considerable uncertainty and long timeframes. Changes in these estimates could have a material impact on our results of operations and financial position.
Income Taxes
—Before completion of this offering, Intrepid Mining will continue operating as a limited liability company, which does not pay federal or
state income taxes. Intrepid Mining’s taxable income or loss has been included in the state and federal tax returns of its members.
The newly
formed holding company, Intrepid Potash, Inc. will be subject to income taxes. Intrepid Potash will adopt Financial Accounting Standard, or FAS, 109,
Accounting for Income Taxes
, which requires an asset and liability approach for financial
accounting and reporting of income taxes. Intrepid Potash will also adopt FASB Interpretation Number 48, or FIN 48,
Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement Number 109
. FIN 48 prescribes a recognition
threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or one expected to be taken. Intrepid Potash is currently evaluating the impact of adopting these pronouncements. Intrepid Mining LLC
will not be impacted by these pronouncements.
Financial Instruments
—We use debt financing with variable interest rates, and we use
significant volumes of natural gas purchased at variable rates. We enter into financial contracts to manage a portion of the costs for anticipated but not yet committed transactions when such transactions are probable and the significant
characteristics and expected timing are identified. The value of these derivatives is estimated monthly based on fair market values and any change in fair market value is recorded in our income statement. Changes in these estimates could have a
material impact on our results of operations and financial position.
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Recent Accounting Pronouncements
FASB Interpretation Number 48, or FIN 48, Accounting for Uncertainty in Income Taxes, an interpretation of FIN 109
In June 2006, the Financial Accounting Standards Board, or FASB, issued FIN 48,
Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement Number 109
, which provides criteria for the
recognition, measurement, presentation and disclosure of uncertain tax positions. A tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical
merits. The provisions of FIN 48 are effective for fiscal year 2007. Under our previous limited liability company structure, FIN 48 did not have an impact on our consolidated financial statements; however, because it is a corporation, Intrepid
Potash will need to comply with the requirements of FIN 48 in future periods.
SFAS 157, Fair Value Measurements
In September 2006, the FASB issued SFAS 157,
Fair Value Measurements
. SFAS 157 defines fair value, establishes a framework for measuring fair
value and expands disclosure requirements regarding fair value measurement. Where applicable, this statement simplifies and codifies fair value related guidance previously issued within GAAP. SFAS 157 is effective for Intrepid Potash as of
January 1, 2008. Adoption of SFAS 157 will not have any impact upon our consolidated financial statements.
SFAS 159, The Fair Value Option for Financial
Assets and Financial Liabilities
In February 2007, the FASB issued SFAS 159,
The Fair Value Option for Financial Assets and Financial
Liabilities
, which permits entities to choose to measure certain financial assets and liabilities at fair value. SFAS 159 is effective for years beginning after November 15, 2007. We have not determined whether we will adopt the fair value
option permitted by SFAS 159.
SFAS 141R, Business Combinations
In December 2007, the FASB issued SFAS 141R,
Business Combinations
, which modifies the principles and requirements for the reporting entity in a business combination, including recognition and measurement in the
financial statements of the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The statement also modifies disclosure requirements to enable financial statement users to evaluate the nature and
financial effects of the business combination. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We
will adopt SFAS 141R for any future business combinations.
Quantitative and Qualitative Disclosures about Market Risks
Our operations may be impacted by commodity prices, geographic concentration, changes in interest rates and foreign currency exchange rates.
Commodity Prices
Potash and langbeinite, our principal products,
are commodities, but are not traded on any commodity exchange. As such, direct hedging of the prices for future production cannot be undertaken. We also have not entered into long-term sales contracts with customers, so prices will vary with the
transaction and individual bids received. Our potash is marketed for sale into three primary markets: the agricultural market as a fertilizer, the industrial market as a component in drilling fluids for oil and gas exploration and the animal feed
market as a nutrient. Prices will vary based upon the demand from these different markets.
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Our net sales and profitability are determined principally by the price of potash and, to a lesser extent, by the
price of natural gas and other commodities used in the production of potash. The price of potash is influenced by agricultural demand and the prices of agricultural commodities. Decreases in agricultural demand or agricultural commodity prices could
reduce our agricultural potash sales. If natural gas and oil prices were to decline enough to result in a reduction in drilling activity, our industrial potash sales would decline.
Our costs and capital investments are subject to market movements in other commodities such as natural gas, steel and chemicals. We are permitted under our
existing senior credit facility to enter into derivative contracts to fix the price of a portion of our expected natural gas usage, but we do not anticipate this occurring in 2008. We remain subject to market movements in the price of natural gas
and other commodities.
Geographic Concentration
We primarily sell potash into regional markets that include agricultural areas west of the Mississippi River, oil and gas exploration areas in the Rocky Mountains and the Permian Basin and feedlots in Texas and other southwestern and
western states. Our potash business has a geographic concentration in the western U.S. and is, therefore, affected by weather and other conditions in this region.
Interest Rate Fluctuations
We have fixed, through the use of derivatives, a portion of our floating interest rate exposure
on anticipated debt through the end of 2012. Notional amounts for which the rate has been fixed as of December 31, 2007 range between $22.8 million for the year 2012 to $52.3 million for the two months ended March 1, 2010. Our existing senior
credit facility requires us to fix a portion of our interest rate exposure through the use of derivatives. The weighted average notional amount outstanding as of December 31, 2007 and the weighted average 3-month LIBOR rate locked-in via these
derivatives are $33.9 million and 5.09%. The remainder of the debt outstanding bore an interest rate that ranged from 6.22% to 6.93% at December 31, 2007. The interest rate paid under our existing senior credit facility varies both with the change
in the 3-month LIBOR rate and with our leverage ratio.
Based on the principal outstanding under our existing senior credit facility as of
December 31, 2007, a 1% change in interest rates would increase our annual interest expense by $1.0 million.
Foreign Currency Exchange Rates
We typically have low balances of accounts receivable denominated in Canadian dollars, or loonie, and, as a result, we have minimal direct foreign
exchange risk. There is an indirect foreign exchange risk as described below.
The U.S. imports the majority of its potash from Canada and
Russia. As the loonie and the Russian ruble strengthen in comparison to the U.S. dollar, foreign suppliers realize a smaller margin in their local currencies unless they increase their nominal U.S. dollar prices. In 2007, the loonie and ruble
strengthened to an average of $0.93565 and $0.03913, respectively, compared to the U.S. dollar. As of March 31, 2008, the loonie and ruble were trading at $0.9758 and $0.04256, respectively, against the U.S. dollar. The continued strengthening
of the loonie and ruble thus tend to support higher U.S. potash prices, as Canadian and Russian potash producers attempt to maintain their margins, which has contributed to pricing strength. However, if the loonie and ruble were to weaken in
comparison to the U.S. dollar, foreign competitors may choose to lower prices significantly to increase sales volumes. A decrease in the net realized sales price of our potash would adversely affect our operating results.
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THE FORMATION TRANSACTIONS
Intrepid Potash is a Delaware corporation that was formed on November 19, 2007 and is
a wholly-owned subsidiary of Intrepid Mining. Intrepid Potash has conducted no business or activities except in connection with this offering and the formation transactions. In connection with this offering, we will enter into the following
formation transactions:
At or before the completion of this offering, Intrepid Potash and Intrepid Mining will enter into an exchange agreement,
which will provide for the assignment of all of Intrepid Mining’s assets other than cash, comprised primarily of membership interests in six wholly-owned Delaware limited liability companies including our operating subsidiaries, to Intrepid
Potash in exchange for:
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cash in an amount of approximately $419.8 million (approximately 75.0% of the net proceeds from this offering);
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47,239,000 shares of common stock of Intrepid Potash; and
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the assumption by Intrepid Potash of (i) all amounts in excess of $18.9 million of Intrepid Mining’s liability under its existing senior credit facility and
(ii) all other liabilities and obligations of Intrepid Mining.
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Pursuant to the exchange agreement, Intrepid Potash will
receive a transfer of all of the nonmonetary assets of Intrepid Mining and will assume and agree to pay and will indemnify Intrepid Mining from any liability or obligation of Intrepid Mining (other than the $18.9 million portion of Intrepid
Mining’s liability under its credit facility, as described below). The assumption of liability and indemnity are intended to cover present and future liabilities related to the assets transferred by Intrepid Mining to Intrepid Potash and the
business of Intrepid Mining as conducted before the completion of this offering. Accordingly, Intrepid Potash will be responsible for all obligations of Intrepid Mining existing on the date of completion of this offering or arising after that date
in connection with facts, events, conditions, actions or omissions existing on or before that date, whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due (other than the $18.9 million portion of Intrepid Mining’s liability under its credit facility, as described below).
The transactions provided for in the exchange agreement and this offering will be consummated simultaneously. The foregoing dollar and share figures assume in all
cases that the underwriters’ option to purchase additional shares of common stock is not exercised.
As a part of the formation
transactions, we will declare a dividend with respect to the 1,000 shares of our common stock currently issued and outstanding, which we refer to in this prospectus as the “formation distribution”. The formation distribution will be paid
in 3,600,000 shares of our common stock; provided, however, that for each share of our common stock purchased by the underwriters pursuant to their option to purchase additional shares, the number of shares payable pursuant to the formation
distribution will be reduced, one-for-one, and in lieu of such shares, we will pay cash in an amount equal to the net proceeds, before offering expenses but after underwriting discounts and commissions, we receive from the exercise of the
underwriters’ option to purchase additional shares. The formation distribution will be payable to Intrepid Mining, the holder of record of the common stock prior to this offering, upon the earlier of the expiration of the underwriters’
option to purchase additional shares or the exercise of the option to purchase additional shares.
Concurrently with the completion of this offering,
we will enter into an amendment to our existing senior credit facility to substitute Intrepid Potash as the borrower under the credit facility and release Intrepid Mining from the credit facility. The $18.9 million of Intrepid Mining’s
liability under its existing senior credit facility that is not assumed by Intrepid Potash pursuant to the terms of the exchange agreement will be repaid by Intrepid Mining from the cash proceeds received from Intrepid Potash pursuant to the terms
of the exchange agreement.
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After the completion of the offering, Intrepid Mining will liquidate and distribute its remaining assets, including
the cash and common stock received pursuant to the exchange agreement and the right to receive the formation distribution described above, to the current members of Intrepid Mining.
Once this offering and the related formation transactions are completed, assuming the underwriters do not exercise any portion of their option to purchase
additional shares, the common stock of Intrepid Potash will be held as follows:
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32.1% by public stockholders;
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27.2% by Harvey Operating and Production Company, a Colorado corporation, which we refer to as HOPCO, wholly-owned by Hugh E. Harvey, Jr., our Executive Vice President of
Technology and one of our directors;
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27.2% by Intrepid Production Corporation, a Colorado corporation, which we refer to as IPC, wholly-owned by Robert P. Jornayvaz III, our Chairman of the Board and Chief
Executive Officer; and
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13.5% by Potash Acquisition, LLC, a Delaware limited liability company, which we refer to as PAL, the largest beneficial owner of which is Platte River Ventures I, L.P., a
Delaware limited partnership. One of our directors, J. Landis Martin, is the managing member of Platte River Ventures I, L.P.’s general partner, PRV Investors I, LLC, a Delaware limited liability company.
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The following diagram depicts our current organizational structure as of the date of this prospectus:
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The following diagram depicts our organizational structure after giving effect to this offering and the related
formation transactions, assuming that the underwriters do not exercise any portion of their option to purchase additional shares of common stock (and, therefore, that 3,600,000 shares will be distributed to the current members of Intrepid Mining
pursuant to the formation distribution):
Transition Services Agreement
In connection with the completion of this offering, we will enter into a transition services agreement with Intrepid Oil & Gas, LLC, or IOG, an entity
owned by Messrs. Jornayvaz and Harvey. Pursuant to this agreement, IOG may require specified employees of Intrepid Potash or its subsidiaries (other than Messrs. Jornayvaz and Harvey) to provide a limited amount of accounting, geology, land title
and engineering services in connection with IOG’s oil and gas venture. Under the prior arrangement with IOG, beginning in 2007, IOG reimbursed Intrepid Mining for actual time and expenses incurred on IOG’s behalf. Costs and expenses
incurred during 2007 were $0.2 million.
IOG will be obligated to reimburse us for and in connection with the use of our services, in an amount equal
to the sum of:
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the number of hours our employees spent performing services under the agreement for such month, multiplied by a cost per hour for each employee, which will take into account
gross wages, salaries, bonuses, incentive compensation and payroll taxes of such employee, employee benefit plans attributable to such employee and other benefits directly attributable to such employee, plus
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all reasonably documented out-of-pocket costs and expenses incurred by us during such month.
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The transition services agreement will limit the aggregate time spent by any employee of Intrepid Potash or its subsidiaries on projects under the agreement to
15%. This limit may only be exceeded with the prior approval of our board of directors.
In addition, the parties to the transition services
agreement will (i) acknowledge that IOG owns the rights that permit IOG to drill an oil and gas well at an agreed location near the Moab Mine; and (ii) consent to and authorize the drilling of the well by IOG at its own expense, provided that
such drilling does not interfere with the operations of Intrepid Potash. Any costs we incur in connection with IOG’s drilling of the well will be reimbursable costs under the agreement. If IOG determines in its sole discretion that the well is
noncommercial for oil and gas production, and we agree that the well should be converted for use in our potash production, we will agree to buy the well from IOG for a specified amount. IOG will agree to indemnify us for any damage to the Moab Mine
that is caused by the drilling of the well.
The transition services agreement will have a one-year term and may be terminated by IOG at any
time on 30 days’ prior written notice.
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POTASH INDUSTRY OVERVIEW
We obtained the information in this prospectus about the fertilizer industry from several
independent outside sources, including: British Sulphur Consultants, or British Sulphur, a fertilizer and chemicals industries consultant; Commodity Information Systems, Inc., or CIS, a commodities trading advisor; Green Markets Fertilizer Market
Intelligence Weekly, or Green Markets, a fertilizer industry news publication; the Food and Agriculture Organization of the United Nations, or the FAO; Fertecon Limited, or Fertecon, a fertilizer industry consultant; the International Fertilizer
Industry Association, or the IFA, a not-for-profit organization representing the global fertilizer industry; Integer Research Limited, or Integer, an information services provider and consultant in fertilizers and other commodity industries; the
International Plant Nutrition Institute, or IPNI, a not-for-profit organization dedicated to responsible management of plant nutrients; Potash Corporation of Saskatchewan Inc., or PCS; SRI Consulting, a division of Access Intelligence LLC, or SRI
Consulting, a research service for the global chemical industry; The Fertilizer Institute, or TFI, a trade association representing the fertilizer industry; the United States Department of Agriculture, or the USDA; and the United States Geological
Survey, or the USGS. We also obtained some of the information in this prospectus from the public filings of our peer companies.
Overview of
Fertilizers
Fertilizers play a fundamental role in global agriculture by replacing
the nutrients that crops remove from the soil, thereby sustaining the yield and quality of crops. Nitrogen, phosphate and potassium (potash) are the three primary nutrients essential to crop development. According to the IFA, global consumption of
these three principal crop nutrients in the 2006/2007 fertilizer year (the twelve months ended June 30, 2007) was approximately 181 million nutrient tons—108 million tons of nitrogen, or N (59%), 43 million tons of
phosphate, or P
2
O
5
(24%), and 30 million tons of potash, or K
2
O (17%). Over time, these relative percentages have remained fairly consistent. Fertilizer for commercial agriculture is the primary use of these nutrients, accounting for
approximately 94% of total global consumption in 2005, according to the FAO. The balance was used primarily in industrial applications and livestock feed. Growers of the major commodity crops are the largest consumers of fertilizer in the U.S.,
where in 2006 approximately two-thirds of agricultural fertilizer was used to grow corn, wheat, soybeans and cotton. Industrial uses of fertilizer nutrients include the production of resins, plastics, synthetic fibers, drilling fluids, explosives
and detergents.
Global fertilizer demand is driven primarily by population growth and changes in dietary habits, which determine global demand
for food. As populations grow, more food is required from decreasing arable land per capita, which requires higher crop yields and, therefore, more plant nutrients. Developed countries use fertilizer more intensively than developing countries, but
sustained economic growth in the developing world is changing patterns of fertilizer use. As incomes have grown, particularly in the developing world, people have demanded a more nutritious, protein-rich diet, primarily through increased meat
consumption. Producing meat from livestock requires large amounts of grain and the fertilizer used to grow it. In addition to these historical drivers, high oil prices and associated energy concerns have recently placed a renewed emphasis on ethanol
and bio-diesel production, which currently rely on agricultural products as feedstocks.
To meet the needs of the food and biofuel markets, the FAO
estimates that world grain demand will grow 2.1% in the 2007/2008 fertilizer year, which despite expected record crops in some commodities, will cause grain inventories, or stocks, to remain at historic lows. CIS forecasts that global markets for
corn, soybeans and wheat will remain extremely tight as foreign markets look not only to meet their populations’ increasing demand but also to rebuild reserves which have recently fallen to unsustainable levels. For example, according to CIS,
foreign stocks of corn have fallen by 60% this year. Additionally, CIS expects U.S. ending corn stocks to be the lowest in ten years by 2009, even when assuming increased planted acreage and yields in the 2007/2008 fertilizer year. These
agricultural
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market conditions and record price levels make the use of fertilizer more economically attractive and, therefore, support fertilizer demand growth. Intrepid Potash
believes the significant world demand is best illustrated by the continuing reduction in world grain stocks despite record grain production.
Source: USDA
Fertilizer Inputs
Each of the three key nutrients serves a different vital function in plant formation, and a proper balance of the three nutrients is
necessary to maximize the fertilizer’s effectiveness. These functions cannot be carried out by other nutrients.
Potash helps regulate
plants’ physiological functions and improves plant durability, providing crops with protection from drought, disease, parasites and cold weather. Potash currently has no practical substitute as a potassium fertilizer source. Potash is mined
either from underground mines or, less frequently, from naturally occurring surface or sub-surface brines. Unlike nitrogen and phosphate, potash does not require additional chemical conversion to be used as a plant nutrient. Naturally occurring,
economically recoverable deposits of potash are scarce, deep in the earth and geographically concentrated. Virtually all of the world’s potash is currently extracted from twenty commercial deposits located in twelve countries. This scarcity has
resulted in a high degree of concentration among the leading producers and higher profitability with relatively low volatility.
Nitrogen has
the most visible impact on yield because it promotes protein formation. The primary input for producing nitrogen fertilizer is natural gas, which typically represents 70% to 90% of the cost to make ammonia, according to TFI. Barriers to entering the
nitrogen fertilizer business are low as widespread natural gas deposits allow many countries to produce the two most common nitrogen fertilizer products—ammonia and urea—for the domestic and international markets. Currently, approximately
68 countries produce ammonia and 55 countries produce urea, according to the IFA. Ammonia and other nitrogen fertilizers have historically been the subject of volatile product and natural gas input pricing, contributing to significant swings in
profitability.
Phosphate plays a key role in the photosynthesis process (i.e., the production, transportation and accumulation of sugars in the
plant). Phosphate is also involved in seed germination and helps plants use water efficiently. The principal mineral used in the production of phosphate fertilizers is phosphate rock, which is processed using sulfuric acid and ammonia. The primary
phosphate fertilizer products are
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diammonium phosphate (DAP), which has a phosphate content of 46% and a nitrogen content of 18%, and monoammonium phosphate (MAP), which has a phosphate content of 52%
and a nitrogen content of 11%. The leading producing regions of phosphate fertilizers are the U.S., China, Morocco and Russia, primarily because they contain the leading global deposits of phosphate rock. Markets for phosphate products are highly
competitive and industry producers have endured protracted periods of low profitability due to excess supply and high and volatile input costs, including natural gas for ammonia. For example, after China, India and Australia overbuilt capacity in
the late 1990s and early 2000s, a number of U.S. phosphate producers declared bankruptcy, and several plants were permanently closed.
Market
Structure for Key Fertilizer Nutrients
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Potash
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Nitrogen
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Phosphate
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Number of Producing Countries
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12
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68
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42
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Key Inputs
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potash ore
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natural gas (for ammonia)
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phosphate rock, sulfuric acid, ammonia
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Market Share of Top 5 Producers
(1)
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64.4%
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12.5% ammonia
38.8%
urea
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40.8% phosphoric acid 49.2% phosphate rock
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Percent of Production Government Controlled
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19%
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57%
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47%
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Industry Nameplate Capacity Operating Rate
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85%
(93% effective capacity)
(2)
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86% ammonia
89%
urea
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81% phosphoric acid 82% phosphate rock
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Time for Greenfield
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5–7 years
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2–3 years
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3–4 years
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Estimated Cost for Greenfield
(3)
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$2.5 billion for
2.2 million
tons
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$700 million for
1.1 million tons
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$1.3 billion for
1.1 million
tons
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(1)
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Potash percentage represents 2007, nitrogen and phosphate percentages represent 2005 figures from Integer.
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(2)
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Estimated by Intrepid Potash from historic production. See “—Potash—Capacity Utilization” below for a discussion of nameplate and effective capacity.
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(3)
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Does not include infrastructure outside the plant gates (e.g. rail lines, paved roads, gas, water and electricity).
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Source: IFA, Fertecon, British Sulphur, PCS, Integer, Intrepid Potash
Potash
The term potash arose from the traditional practice of producing potassium carbonate, needed for making
soap, by the leaching of wood ashes in large iron pots
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Potash is now used to describe a wide variety of compounds valued primarily for their potassium content, which is commonly measured in K
2
O units. The most concentrated and commonly available form of potash is potassium chloride (KCl—muriate of potash or MOP), which is between 60-62% K
2
O by weight and accounts for approximately 95% of total fertilizer use of K
2
O. Secondary forms of potash include sulfate of potash magnesia, also
known as langbeinite (22% K
2
O), potassium sulfate (50% K
2
O) and potassium nitrate (44%
K
2
O).
According to the IFA, 95% of all potash produced is used as a
fertilizer, most of it in the form of MOP. Nonfertilizer uses of potash include chemical and pharmaceutical products, drilling fluid additive during oil and gas exploration, animal feed, detergents, glass and ceramics, textiles and dyes.
Mining and Production of Potash
Economically recoverable
potash reserves occur naturally in rare, but large buried evaporite deposits, created when ancient seas evaporated, or less frequently in salt lakes such as the Dead Sea
73
and Great Salt Lake. Because potash occurs in concentrated, soluble forms in nature, most ores are mined and refined by direct physical means, with chemical conversion
used only for specialty products. Potash is extracted from underground deposits either by direct physical mining or by dissolving the potash in place in a process called solution mining. The extraction method for potash depends on the composition,
depth and uniformity of the ore. Potash ore that is physically mined is traditionally hoisted to the surface for potash recovery. In the solution mining process, brine is pumped into the ground, allowed to saturate with potash and then pumped back
to the surface for potash recovery.
The recovery of potash from ore is capital-intensive and requires specialized knowledge. The two most common
methods of potash recovery are flotation and crystallization. Once potash recovery is complete, the potash is dried and is often compacted to form a granular product desirable for agricultural applications.
Demand Fundamentals of Potash
The agricultural cycle of
growing and harvesting crops depletes soil of potassium, nitrogen and phosphate, which should be reapplied in appropriate ratios. As a result, potash demand depends primarily on the demand for fertilizer, which is based on the total planted acreage,
crop mix, soil characteristics, fertilizer application rates, crop yields and farm income. Each of these factors is affected by current and projected grain stocks and prices, agricultural policies, improvements in agronomic efficiency, fertilizer
application rates and weather.
From 1962 to 2007, global consumption of potash as a
fertilizer grew at a rate of 2.5% per year, from approximately 10 million nutrient tons to approximately 30 million nutrient tons, according to the IFA. The only significant downturn in global potash demand since 1962 was in the late
1980s and early 1990s when the collapse of the Soviet Union resulted in a dramatic drop in consumption there and in Eastern Europe. World consumption of potash grew at an annual rate of 2.5% since 1962, 2.7% since 1993 and 3.5% since 2000. Excluding
the former Soviet Union, or FSU, world consumption of potash grew at an annual rate of 2.8% since 1962, 3.2% since 1993 and 3.6% since 2000. If global potash consumption grows at an average rate of 3.5% per year from 2007 to 2011, as estimated
by Fertecon, an average of 1.3 million additional tons of K
2
O will be required every year by potash consumers and capacity additions will be needed to meet this
future demand.
Source: IFA
74
While developed countries have traditionally been the largest consumers of potash, developing countries are the
fastest growing markets for potash. Over the next five years, Fertecon estimates that potash fertilizer consumption will grow at an average rate of 6.0%, 4.5% and 4.5% per year in India, Brazil and China, respectively. Population growth
combined with income growth in the developing world is producing high levels of potash demand. As incomes grow, people demand a more nutritious, protein-rich diet, primarily through increased meat consumption. This creates demand for potash
fertilizers to grow grain for animal feed. From 1991 to 2004, meat production more than doubled in Brazil and China and increased 55% in India, according to the FAO. Over the same period, grain production increased 69%, 19% and 6% in Brazil, India
and China, respectively. Also driving demand in the developing world is increased recognition of fertilizer’s benefits. For example, the Chinese government actively promotes its use and sets the goal of being self-sufficient in grain
production, which according to IPNI, would require an increase in potash consumption from 8.9 million tons consumed in 2005 to 15.5 million tons consumed in 2010 and 19.2 million tons consumed in 2015. IPNI also reports that India is currently
depleting its soil of nutrients, especially potassium, because farmers are not replacing the nutrients consumed by crops with sufficient levels of fertilizer use. IPNI also expects potash consumption in Brazil to increase as additional acreage in
the fertile Cerrado region comes under cultivation. The biofuels industry has further added to global potash demand because it increases demand for feedstock crops, which require a higher ratio of potash than other crops. Increasingly, corn in the
U.S., sugar cane in Brazil and palm oil in Indonesia and Malaysia are being used for the production of biofuels.
Source: Fertecon
Over 120 countries use potash, but only twelve countries produce nearly all of the world’s supply, making much of the world dependent upon imports to satisfy their potash requirements. According to the IFA, 79% of potash produced was
traded across borders in 2006. With its highly developed agricultural economy and limited domestic production capability, the U.S. is the second largest consumer of potash globally, representing 17.7% of total estimated consumption for 2007, as
reported by Fertecon. According to Fertecon, in 2006 the U.S. was the largest importer of potash in the world, importing approximately 80% of its potash requirements. Approximately 90% of U.S. potash imports come from Canada, with the remainder
primarily coming from Belarus and Russia, according to the USGS. The high level of potash consumption in the U.S. is in large part due to its extensive cultivation of commodity crops such as corn, wheat and soybeans. Increasing global production and
use of ethanol further supports fertilizer demand, especially in the U.S., where ethanol is derived from corn.
75
Source: Fertecon
According to SRI Consulting, approximately 10% of U.S. potash consumption is used in the production of
potassium chemicals for industrial markets. Industrial applications for potassium chloride include the production of potassium hydroxide, which is used in the production of other potassium chemicals; the production of potassium carbonate, which is
primarily used for specialty glasses for cathode-ray tubes and as a component in dry-chemical fire extinguishers; leavening agents; and as a pharmaceutical ingredient. Potassium chloride is also used in the oil and gas industry as a drilling fluid
additive and we believe it represents a small fraction of drilling expense. The amount of potassium chloride used in the oil and gas industry is related to the prevailing drilling rig count. The number of oil rigs in the U.S. has more than doubled
since 2002, according to Baker Hughes. Alternative products that have some of the clay-inhibiting properties of potash in oil and gas drilling fluids are commercially available. Other industrial applications of potassium chloride include use as a
flux in secondary aluminum processing, as a potassium supplement in animal feeds, and in ceramics, textiles and dyes. From 1990 to 2005, U.S. industrial consumption of potash grew at a rate of 5.1% per year, from 450,000 tons to 943,000 tons,
according to SRI Consulting. Most industrial applications use standard 60% K
2
O grade potash, with 62% product grade required for some applications.
Source: SRI Consulting
76
Supply Fundamentals of Potash
The supply of potash fertilizers is influenced by a broad range of factors including available capacity and achievable operating rates; mining, production and freight costs; government policies and global trade. Barriers to
adding new potash production are significant because economically recoverable potash deposits with the appropriate geologic conditions occur rarely. Virtually all of the world’s potash is currently extracted from twenty commercial deposits
located in twelve countries. According to the IFA, in 2007, six of these countries (Canada, Russia, Belarus, Germany, Israel and Jordan) accounted for approximately 87% of the world’s aggregate potash production. Canada alone contains
approximately one-half of the world’s known reserves as of 2007, according to the USGS, the vast majority of which are located in the province of Saskatchewan. This scarcity has resulted in a high degree of concentration among the leading
producers. As depicted in the table on the following page, the top seven potash producers controlled approximately 83% of world potash production in 2007. Five of the top ten producers are further concentrated into two marketing groups: Canpotex,
which represents the three Canadian producers (PCS, Mosaic and Agrium), and BPC, which represents a Belarusian producer (Belaruskali) and a Russian producer (Uralkali). Together, Canpotex and BPC producers controlled approximately 57% of global
potash production in 2007. Additionally, PCS markets Intrepid Potash’s product outside North America and has equity ownership positions in a number of the leading independent potash companies: Arab Potash Company (Jordan) (26%), Sociedad
Quimica y Minera de Chile (32%), Sinofert Holdings Limited (China) (19%) and Israel Chemicals Ltd. (10%).
In the U.S., three producers account for 100% of potash production. Intrepid Potash is the largest producer, with Mosaic representing most of the remainder of domestic production. U.S. potash reserves are concentrated in the
southwestern U.S. and account for approximately 4% of world production, according to Fertecon. Intrepid Potash has estimated annual nameplate capacity of 787,000 K
2
O
tons and estimated annual effective capacity of 635,000 K
2
O tons of potash and langbeinite. As reported by Fertecon, Mosaic’s U.S. production has estimated annual
nameplate capacity of 625,000 K
2
O tons. Intrepid Potash estimates that Mosaic’s U.S. production has annual effective capacity of 553,000 K
2
O tons of potash and langbeinite.
77
Supplier Structure of Global Potash Market (000’s of K
2
O tons)
One product ton of potash equals approximately 0.61 tons of K
2
O
|
|
|
|
|
|
|
|
|
|
Producer
|
|
Primary
Production Region
|
|
2007
Production
|
|
Percent of
World
Total
|
|
|
Canpotex
|
|
|
|
|
|
|
|
|
PCS
|
|
Canada
|
|
6,159
|
|
16.4
|
%
|
|
Mosaic
(1)
|
|
Canada
|
|
4,953
|
|
13.2
|
%
|
|
Agrium
|
|
Canada
|
|
1,163
|
|
3.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,275
|
|
32.7
|
%
|
|
|
|
|
|
|
|
|
|
|
BPC
|
|
|
|
|
|
|
|
|
Belaruskali
|
|
Belarus
|
|
5,480
|
|
14.6
|
%
|
|
Uralkali
|
|
Russia
|
|
3,442
|
|
9.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,922
|
|
23.8
|
%
|
|
|
|
|
|
|
|
|
|
|
K+S
|
|
Germany
|
|
3,989
|
|
10.6
|
%
|
|
Silvinit
|
|
Russia
|
|
3,583
|
|
9.6
|
%
|
|
Israel Chemicals Ltd.
(2)
|
|
Dead Sea, Spain, UK
|
|
3,359
|
|
9.0
|
%
|
|
People’s Republic of China
|
|
China
|
|
2,590
|
|
6.9
|
%
|
|
Arab Potash Company
(2)
|
|
Dead Sea
|
|
1,188
|
|
3.2
|
%
|
|
Intrepid Potash
(3)
|
|
U.S.
|
|
574
|
|
1.5
|
%
|
|
Sociedad Quimica y Minera de Chile
(2)
|
|
Chile
|
|
456
|
|
1.2
|
%
|
|
Companhia Vale do Rio Doce
|
|
Brazil
|
|
429
|
|
1.1
|
%
|
|
Compass Minerals
(4)
|
|
U.S.
|
|
158
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,523
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Figures for 2007 are for December 2006 through November 2007. Mosaic’s fiscal year ends on May 31.
|
|
(2)
|
PCS has an ownership stake.
|
|
(3)
|
PCS markets Intrepid Potash’s products outside North America.
|
|
(4)
|
Compass Minerals produces potassium sulfate (SOP), which does not compete directly with MOP. Compass Minerals’ SOP is produced both directly and by reprocessing MOP purchased from other
producers. Intrepid Potash’s estimate of such reprocessed production is excluded from the figures for Compass Minerals. In 2007, Compass Minerals purchased 88,000 tons of MOP, all of which is assumed to have been reprocessed into SOP.
|
Source: Public filings and select country data from IFA
In addition to the scarcity of economic deposits, another significant barrier to entry into the potash business is the location of the world’s currently identified and unexploited potash reserves. A large portion of such
reserves resides in politically unstable and/or remote locations such as the Congo, Ethiopia, Laos, Russia, Thailand, Uzbekistan and the Rio Colorado region of Argentina, where it would be very costly to build the infrastructure necessary to develop
a new mine, such as electricity, water and links to rail transportation. In some cases, appropriate infrastructure, such as deep sea ports to allow shipment of potash to consuming regions, may be impractical to construct. Another barrier to entry is
the long lead time necessary to develop and construct a new mine, which adds to the development costs for a new potash mine, especially in currently unexploited regions where ore bodies tend to be much deeper in the earth than the reserves that are
currently being mined. Globally, the most recently constructed operating mine in the world is Uralkali’s Berezniki 4 mine in Russia, which opened in 1987.
The delivered cost of potash often includes a significant transportation cost component. Accordingly, producers seek markets located closer to their production sites (e.g., Saskatchewan producers serving Canada and the
midwestern U.S., New Brunswick producers serving the U.S. eastern seaboard, and New Mexico and Utah producers serving the southern and western U.S.).
78
Capacity Utilization
Intrepid Potash believes significant differences exist between the nameplate and effective capacities of potash producers. Nameplate capacity, as reported by industry consultants such as Fertecon and the IFA, is typically the maximum
achievable production the potash mill can achieve assuming there is enough ore of a specified grade to maximize the processing rate. Nameplate capacities have not typically been adjusted over time in the potash industry to give effect to the
depletion of ore resulting in lower ore grades to mills, losses in productivity that can result as facilities mature, or adverse events that materially reduce the amount of feed available to the mill. Intrepid Potash estimates the effective capacity
for potash facilities as the amount of potash production a facility can achieve based on the amount and quality of ore that can currently be mined, milled and/or processed assuming no modifications to the system and a normal amount of scheduled
down-time.
In 2005 and 2007, Intrepid Potash believes that global potash demand exceeded supply, which spurred suppliers to produce at their highest
achievable rates and draw down inventories. Demand moderated in 2006 due to protracted negotiations between China and international producers. Based on the chart below, North American inventory levels have been in decline since 1995. IPNI reports
that North American inventory levels for the twelve months ended October 31, 2007 are 26% below the average for the last twenty years and that October 2007 levels are 53% below the average for October over the last twenty years. Based on
significant potash demand, increasing prices and inventory reduction which occurred throughout 2005 and 2007, Intrepid Potash believes that the production rates achieved during those periods are most reflective of the industry’s effective
capacity rates. Intrepid Potash estimates that the industry produced at 92% and 93% of effective capacity, in 2005 and 2007, respectively, compared to 86% and 85% of nameplate capacity, respectively, as reported by Fertecon. Because production at
100% of capacity is impossible to attain for prolonged periods due to routine maintenance, equipment failures, adverse weather events, changes in ore quality and other factors, Intrepid Potash believes that the potash industry operated at or near
its highest achievable production rates in 2005 and 2007.
Source: IPNI, Fertecon, Intrepid Potash
79
Capacity Challenges and Expansions
The risk of flooding at key potash mines around the world is an ongoing challenge for their owners. For example, Uralkali has suffered the permanent loss of two of its four mines in the last 21 years. One of the consequences of
the most recent flood, at the Berezniki Mine 1 in October 2006, was the formation of a sinkhole above the mine. This sinkhole temporarily threatened delivery of additional supply from the Russian producer Silvinit, according to an announcement by
Silvinit on October 29, 2007. Additional potash mines that have flooded include PCS’ mine at Patience Lake, Saskatchewan, Canada (since converted to a solution mine); Potacan Mining Co.’s mine near Sussex, New Brunswick, Canada; and
the Holle mine in the Congo. Numerous other potash mines are currently experiencing water inflows, which create operational challenges but do not necessarily mean the mine will flood. Those mines include PCS’ Sussex, New Brunswick mine and
Mosaic’s Esterhazy, Saskatchewan mine, the world’s largest potash mine. In the over 75-year history of potash operations in Carlsbad, New Mexico, no mine floods have occurred.
A decline in potash production is natural as a mine matures. As a potash mine ages, the extraction point where ore is extracted moves further away from the shaft.
This requires longer conveyor belt distances, more transfer points, longer travel times and more road maintenance, all of which contribute to lower productivity, higher costs, and greater potential for mechanical failures. As the ore body depletes,
significant capital investments are needed to sustain production. Several mines have closed in the world due to depletion of the ore body, including former potash mines in France, Spain, Germany and the U.S.
World consumption of potash grew 3.5% per annum between 2000 and 2007, as reported by Fertecon, which expects global potash consumption to grow approximately
3.5% per annum from 2007 to 2011. With no new operating mines constructed since 1987, and with the global potash industry believed to be operating at or near the highest achievable production rates, a number of existing potash producers have
announced intentions to pursue expansions in order to keep the market from slipping into a significant supply deficit. Most recently, on November 14, 2007, PCS announced plans for a 2.2 million ton mine and mill expansion at Rocanville,
Saskatchewan, which will capitalize on existing PCS infrastructure in the region. PCS currently estimates the cost of a 2.2 million ton greenfield mine at $2.5 billion, which does not include infrastructure outside the plant gates such as rail
lines, paved roads, gas, water and electricity. Based on Fertecon’s demand growth expectations, and assuming normal effective capacity utilization rates and timely completion of all announced capacity expansions, Intrepid Potash believes the
global potash market will remain tight through at least 2011.
80
Expected World Effective Capacity Expansions (000’s of K
2
O tons)
One product ton of potash equals approximately 0.61 tons of K
2
O
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Announced Expansions
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PCS
|
|
450
|
|
|
496
|
|
|
743
|
|
|
379
|
|
|
413
|
|
|
Mosaic
|
|
598
|
|
|
(85
|
)
|
|
—
|
|
|
217
|
|
|
—
|
|
|
Agrium
|
|
205
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Intrepid Potash
|
|
—
|
|
|
14
|
|
|
73
|
|
|
63
|
|
|
42
|
|
|
Compass Minerals
(2)
|
|
—
|
|
|
25
|
|
|
25
|
|
|
—
|
|
|
—
|
|
|
Uralkali
|
|
(672
|
)
|
|
235
|
|
|
168
|
|
|
572
|
|
|
504
|
|
|
Other FSU Producers
|
|
—
|
|
|
154
|
|
|
637
|
|
|
132
|
|
|
—
|
|
|
Arab Potash
|
|
—
|
|
|
—
|
|
|
166
|
|
|
166
|
|
|
—
|
|
|
China
|
|
312
|
|
|
291
|
|
|
377
|
|
|
430
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Announced
|
|
893
|
|
|
1,130
|
|
|
2,189
|
|
|
1,959
|
|
|
1,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
World Effective Capacity
(3)
|
|
40,638
|
|
|
41,768
|
|
|
43,957
|
|
|
45,916
|
|
|
47,074
|
|
|
Industry Operating Rate
(4)
|
|
85.0
|
%
|
|
85.0
|
%
|
|
85.0
|
%
|
|
85.0
|
%
|
|
85.0
|
%
|
|
World Production
|
|
34,542
|
|
|
35,503
|
|
|
37,363
|
|
|
39,029
|
|
|
40,013
|
|
|
|
|
|
|
|
|
|
Industry Operating Rate
(4)
|
|
92.0
|
%
|
|
92.0
|
%
|
|
92.0
|
%
|
|
92.0
|
%
|
|
92.0
|
%
|
|
World Production
|
|
37,387
|
|
|
38,427
|
|
|
40,440
|
|
|
42,243
|
|
|
43,308
|
|
|
|
|
|
|
|
|
|
World Deliveries (Fertecon estimates)
(5)
|
|
38,719
|
|
|
39,901
|
|
|
41,341
|
|
|
42,565
|
|
|
43,713
|
|
|
|
|
|
|
|
|
|
Implied Global Surplus / (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85% Operating Rate
|
|
(4,177
|
)
|
|
(4,398
|
)
|
|
(3,978
|
)
|
|
(3,536
|
)
|
|
(3,700
|
)
|
|
Cumulative Surplus / (Deficit)
|
|
(4,177
|
)
|
|
(8,574
|
)
|
|
(12,552
|
)
|
|
(16,088
|
)
|
|
(19,788
|
)
|
|
|
|
|
|
|
|
|
92% Operating Rate
|
|
(1,332
|
)
|
|
(1,474
|
)
|
|
(901
|
)
|
|
(322
|
)
|
|
(405
|
)
|
|
Cumulative Surplus / (Deficit)
|
|
(1,332
|
)
|
|
(2,806
|
)
|
|
(3,707
|
)
|
|
(4,029
|
)
|
|
(4,434
|
)
|
|
(1)
|
Future production estimated based on announced completion date of the relevant project.
|
|
(2)
|
Compass Minerals produces potassium sulfate (SOP), which does not compete directly with MOP. Compass Minerals’ SOP is produced both directly and by reprocessing MOP purchased from other
producers. Intrepid Potash’s estimate of such reprocessed production is excluded from the figures for Compass Minerals.
|
|
(3)
|
Estimated by Intrepid Potash from historic production of the relevant facility. Assumes no depletion of existing effective world capacity.
|
|
(4)
|
Representative production rates, which Intrepid Potash believes is a reasonable range of achievable production rates.
|
|
(5)
|
Deliveries include consumption plus supply chain losses.
|
Source: Fertecon, British Sulphur,
Intrepid Potash, public filings, annual reports and select country data from IFA
Price Fundamentals of Potash
Before 2003, potash pricing remained relatively flat, primarily due to excess potash supply that was created following the collapse of the Soviet Union. By 2003,
potash demand had grown sufficiently to absorb this excess supply, and prices began to increase considerably. Since that time, consistent growth in global demand, coupled with limited increases in global supply, has led to a significant increase in
potash prices. For example, according to Green Markets, granular MOP prices in the midwestern U.S. were $543.50 per ton as of March 31, 2008, a 148% increase over the March 31, 2007 price of $219.00 per ton and a 375% increase over the
January 2003 price of $114.50 per ton. During 2007, Intrepid Potash believes that the industry has been operating at or near full effective capacity.
Following the collapse of the Soviet Union and during other periods of temporary demand slowing, PCS and other leading producers have chosen to temporarily idle some production. Given the
81
relatively high margins in the potash business, Saskatchewan producers in particular were able to do this and remain profitable. By comparison, global nitrogen
fertilizer and phosphate producers have historically not responded to demand slowdowns in a similar manner, leading to periods of protracted downturns, characterized by excess inventory and poor industry profitability.
While secondary to the impact of global demand and supply dynamics, U.S. potash prices have tended to increase when the U.S. dollar weakens because as the ruble
and loonie appreciate there is upward pricing pressure from the Russian and Canadian producers to maintain their profit margins on U.S. sales.
Source: Green Markets and Fertecon
Langbeinite
Like potash (which contains
between 60% to 62% K
2
O commercially), langbeinite or sulfate of potash magnesia is a source of potassium (approximately 22% K
2
O) and is therefore used primarily as a fertilizer. Langbeinite, however, also contains two additional valuable secondary nutrients—magnesium (11% Mg) and sulfur (22% SO
4
). Langbeinite’s high-nutrient and low-chloride content make langbeinite an attractive fertilizer for chloride-sensitive crops and crops that require magnesium or sulfur
applications.
Demand Fundamentals of Langbeinite
Langbeinite demand is strongly linked to its potassium and magnesium nutrient value and its low-chloride properties. Demand stems primarily from the cultivation of chloride-sensitive crops such as leafy vegetables, citrus, tobacco and palm
trees. Current demand fundamentals for langbeinite appear favorable, particularly in countries like China that are increasing vegetable production in response to dietary changes and increased demand. Palm tree cultivation has increased markedly,
because it is a major feedstock for bio-diesel. Global palm oil production has increased 52% from 2000 to 2007, according to the USDA. Palm trees require higher magnesium applications than most crops. Intrepid Mining began producing langbeinite in
the fall of 2005 and has found that global demand
82
appears to be greater than what it and the other producers can currently supply. Accordingly, Intrepid Potash has realized significant demand for its langbeinite
products at favorable prices in both the domestic and international markets.
Supply Fundamentals of Langbeinite
Langbeinite is primarily produced using underground mining techniques, similar to those used for potash, to extract the ore. It is then milled at the surface to
separate the langbeinite from salt and other accompanying minerals. The only known reserves of langbeinite in the world are in Carlsbad, New Mexico. These reserves have been mined continuously since the 1950s, and are currently owned and mined by
Intrepid Potash and Mosaic. While there are no other known langbeinite reserves in the world, a low-chloride fertilizer derived from kieserite mixed with potassium sulfate competes with langbeinite in the marketplace and is commercially available
from the German producer K+S. China produces potassium sulfate, which contains no magnesium and also competes effectively as a low-chloride product. According to the IFA, China also produces langbeinite synthesized from brines, which production
is consumed primarily in China.
The combined effective capacity of langbeinite, potassium
sulfate and other non-chloride potassium salts in K
2
O tons is summarized below:
World Langbeinite and Alternative Product Nameplate Capacity (000’s of product tons)
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
Primary
Region
|
|
Langbeinite
(22% K
2
O)
|
|
Potassium Sulfate
(50% K
2
O)
|
|
Other
(K
2
O Varies)
|
|
Mosaic
|
|
U.S.
|
|
1,300
|
|
—
|
|
—
|
|
Intrepid Potash
|
|
U.S.
|
|
250
|
|
—
|
|
—
|
|
Citic Group
|
|
China
|
|
550
|
|
—
|
|
—
|
|
Qinghai Bingdi Potash
|
|
China
|
|
225
|
|
—
|
|
—
|
|
Other China
|
|
China
|
|
25
|
|
231
|
|
—
|
|
K+S
|
|
Germany
|
|
—
|
|
1,200
|
|
1,700
|
|
Compass Minerals
(1)
|
|
U.S.
|
|
—
|
|
161
|
|
—
|
|
Atacama
|
|
Chile
|
|
—
|
|
288
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
2,350
|
|
1,880
|
|
1,700
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Compass Minerals’ SOP is produced both directly and by reprocessing MOP purchased from other producers. Intrepid Potash’s estimate of such reprocessed production is excluded from
the figures for Compass Minerals.
|
Source: British Sulphur, Intrepid Potash and select country data from IFA
Price Fundamentals of Langbeinite
Langbeinite pricing generally
follows the pricing of potash, and langbeinite often sells at a delivered price premium (on a potassium content basis) due to its added value as a magnesium, sulfur and low-chloride fertilizer. Langbeinite pricing did not decline in response to the
additional supply Intrepid Potash brought into the market. Instead, the market has experienced a price increase with supply growth as current demand for low-chloride potassium fertilizers appears to exceed supply.
83
BUSINESS
Our Company
Intrepid Potash is the largest producer of muriate of potash (MOP or potassium chloride) in the U.S. and is dedicated to the production and marketing of potash and langbeinite, another mineral containing potassium. Potassium is
one of the three primary nutrients essential to plant formation and growth. Since 2004, we have supplied, on average, 1.5% of world potash consumption and 8.5% of U.S. consumption annually, and we have supplied a considerably higher proportion of
the potash consumed in the southwestern and western U.S., our core markets. We are one of two exporting producers in the world of langbeinite (sulfate of potash magnesia), a low-chloride fertilizer that is better suited than MOP for
chloride-sensitive crops such as leafy vegetables, citrus, tobacco and palm trees.
We own five active potash production facilities—three in New
Mexico and two in Utah. At each of these facilities, we have incorporated innovative mining techniques to extend reserve life and increase annual production and have modernized the plants in order to lower operating risks and production costs. Today
we have the nameplate capacity to produce 1,200,000 tons of potash and 250,000 tons of langbeinite annually. In 2007, we sold approximately 893,000 tons of potash and approximately 158,300 tons of langbeinite, generating net sales of $192.4 million,
EBITDA of $48.5 million and net income of $29.7 million. During this period, we sold approximately 96% of our potash and langbeinite volumes in North America, with the remainder being sold outside North America on our behalf by Potash Corporation of
Saskatchewan Inc., or PCS. The agricultural market represented approximately 64% of our potash sales in 2007, with sales to industrial and feed markets accounting for 30% and 6% of our potash sales, respectively. Our preliminary estimate of
production for the first quarter of 2008 is 224,000 tons of potash and 56,000 tons of langbeinite as compared to 218,000 tons and 45,000 tons, respectively, in the first quarter of 2007.
Based on our five-year operating plan, we expect expansion opportunities at each of our operating facilities will increase annual production by an aggregate of
over 110,000 tons of potash and 90,000 tons of langbeinite, respectively. We also own two attractive development assets in New Mexico, the HB Mine, which is an idled potash mine that we are in the process of reopening as a solution mine, and the
North Mine. We currently plan to commence Phase I of the HB Mine project in 2008, with production expected to begin in 2009. Assuming a continuation of favorable market conditions and receipt of all necessary permits and approvals, we believe Phase
I of the HB Mine project, which consists of the flooding of 4,400 of the 21,600 total acres of the mine, has the potential to ultimately add up to 150,000 to 200,000 tons of additional low-cost potash production annually by 2011. At our existing
production facilities we also produce salt, magnesium chloride and metal recovery salts from our potash mining processes.
For more information on
our organizational structure, please see “The Formation Transactions” beginning on page 67.
Our History
Our management team formed Intrepid Oil & Gas, LLC on August 30, 1996, for the purpose of acquiring oil and gas leases near Moab, Utah. While mapping
the area for potential oil and gas resources, we learned about the substantial local potash deposits and discovered that the only operating potash mine in the area, which was then in decline, was scheduled to close. We determined that the decline in
production in Moab could be reversed by applying horizontal drilling technology, commonly used in the oil and gas industry, to create potash solution mining caverns. This represented a new approach to potash mining. Our management team formed
Intrepid Mining on January 26, 2000,
84
for the purpose of acquiring Moab Salt, Inc. from PCS for cash consideration of approximately $3 million, plus the assumption of certain liabilities and closing
costs for total consideration of approximately $14.8 million. We renamed the company Intrepid Potash–Moab, LLC.
We observed that potash from
Moab shared markets with potash produced in Carlsbad, New Mexico and in Wendover, Utah. Accordingly, we formulated a strategy to acquire assets in those areas in order to consolidate marketing efforts and effect operating synergies.
|
|
Ÿ
|
|
On February 29, 2004, Intrepid Mining acquired substantially all of the assets of Mississippi Potash, Inc. and Eddy Potash, Inc. from Mississippi Chemical Company for
$36.6 million. These assets included the operating East and West potash mines, the North Facility compaction plant and the idled HB and North Mines, all located near Carlsbad, New Mexico. Mississippi Chemical, which filed for bankruptcy in May 2003,
had long since been unable to re-invest in or properly maintain the properties due to cash flow constraints stemming from its then-failing nitrogen fertilizer business.
|
|
|
Ÿ
|
|
Effective April 1, 2004, Intrepid Mining purchased the potash assets of Reilly Chemical, Inc. through its wholly-owned subsidiary, Intrepid Wendover, for $10.7 million.
The acquired assets included a natural brine and potash production facility on the Bonneville Salt Flats of Utah. Reilly Chemical operated a diversified business providing specialty chemicals for the agriculture, nutrition, pharmaceutical and
medical, personal care, plastics, coatings and industrial markets. We saw the opportunity to use better technology, not employed by Reilly Chemical, to improve production at Wendover.
|
During 2006, Intrepid Mining sold substantially all of its oil and gas assets. The remaining equity interests in its wholly-owned oil and gas subsidiary, Intrepid
Oil & Gas, LLC, were distributed to the members of Intrepid Mining in 2007.
Intrepid Potash was formed as a Delaware corporation on
November 19, 2007 and, in connection with the completion of this offering, will receive a transfer of all of the nonmonetary assets of Intrepid Mining and will assume (i) all amounts in excess of $18.9 million of Intrepid Mining’s
liability under its existing senior credit facility and (ii) all other liabilities and obligations of Intrepid Mining, as described in the exchange agreement discussed under “The Formation Transactions” beginning on page 67. Intrepid
Mining will repay the $18.9 million that is not assumed by Intrepid Potash from the cash proceeds received from Intrepid Potash pursuant to the terms of the exchange agreement.
Members of our senior management team currently own 80% of Intrepid Mining. After this offering, our senior management team and board of directors will own 67.9%
of our common stock (63.1% if the underwriters’ option to purchase additional shares is exercised in full).
Our Key Assets and
Facilities
Our potash production comes from five facilities—three in or near Carlsbad, New Mexico and two in Utah, all of which we own and
operate. We also own two idled mines in Carlsbad. Our facilities near Carlsbad include the West Mine and East Mine, both of which are conventional underground mines, and the North Facility compaction plant which processes potash from the West Mine.
Our facilities in Utah are the Moab Mine, a solution mine located near Moab, and the Wendover Facility, a sub-surface brine facility located near Wendover.
Our facilities have the nameplate capacity to produce approximately 1,200,000 tons of potash and 250,000 tons of langbeinite annually, and the effective capacity to produce approximately 966,000 tons of potash and 210,000 tons of
langbeinite annually. Our nameplate capacity is the maximum achievable production our mills can achieve assuming there is enough ore of a specified grade to maximize the processing rate. Our effective capacity is the amount of potash production each
of our
85
facilities can achieve based on the amount and quality of ore that can currently be mined, milled and/or processed, assuming no modifications to the system and a
normal amount of scheduled down-time.
Since acquiring our facilities, through December 31, 2007 we have made capital expenditures of approximately
$60.3 million at our Carlsbad facilities, $14.1 million at our Moab Mine and $5.3 million at our Wendover Facility. At Carlsbad, our expenditures were intended to restore, modernize and improve the assets, and included a modification to the East
Mine surface plant that enabled the plant to profitably process a mixed ore zone, and allowed us to recover langbeinite that was previously discarded as tailings. At our Moab Mine, we have invested in a variety of capital projects, including the use
of horizontal drilling at the mine, which significantly increased the amount of reserves. At our Wendover Facility, we have invested funds to complete modernizations and improvements, including planning, drilling and properly finishing a new well
using the latest in brine well technology to lengthen well life and create more stable production.
Our production capabilities and capital
improvements at our facilities are described in more detail below:
Carlsbad, New Mexico
|
|
Ÿ
|
|
Potash ore at our Carlsbad locations is mined from a stacked ore body containing 10 different potash ore zones, six of which contain proven and probable reserves.
|
|
|
Ÿ
|
|
The West Mine has the nameplate capacity to produce 510,000 tons of red potash compactor feed annually, and the effective capacity to produce 440,000 tons of red potash
compactor feed annually. Potash produced from our West Mine is shipped to the North Facility for compaction.
|
|
|
Ÿ
|
|
The North Facility receives potash from the West Mine via truck and converts the compactor feed to finished red granular product.
|
|
|
Ÿ
|
|
The East Mine has the nameplate capacity to produce 390,000 tons of white potash and 250,000 tons of langbeinite annually, and the effective capacity to produce 340,000 tons
of white potash and 210,000 tons of langbeinite annually.
|
Moab, Utah
|
|
Ÿ
|
|
Potash ore at Moab is mined from two ore zones: the original mine workings in Potash 5 that were converted to a solution mine and the new horizontal caverns in Potash 9.
|
|
|
Ÿ
|
|
The Moab Mine has the nameplate capacity to produce 180,000 tons of potash annually, and the effective capacity to produce 93,000 tons of potash annually.
|
Wendover, Utah
|
|
Ÿ
|
|
Potash at Wendover is produced primarily from sub-surface brines containing salt, potash and magnesium chloride that are collected in ditches from the shallow aquifers of the
Bonneville Salt Flats.
|
|
|
Ÿ
|
|
The Wendover Facility has the nameplate capacity to produce 120,000 tons of potash annually, and the effective capacity to produce 93,000 tons of potash annually.
|
86
Our Development Assets
We also own two idled mines in or near Carlsbad—the HB Mine and a mine at the North Facility which we refer to as the North Mine.
HB Mine
|
|
Ÿ
|
|
The HB Mine is an idled potash mine that we are in the process of reopening as a solution mine. We currently plan to commence Phase I of this project in 2008, with production
expected to begin in 2009. Assuming a continuation of favorable market conditions and receipt of all necessary permits and approvals, we believe Phase I of the HB Mine project has the potential to ultimately add up to 150,000 to 200,000 tons of
additional low-cost potash production annually by 2011. We expect the HB Mine to be one of the lower-cost potash mines in North America.
|
|
|
Ÿ
|
|
We are currently considering the scope and timeline for a proposed Phase II of this project, which we believe would further increase potash production at the HB Mine.
|
North Mine
|
|
Ÿ
|
|
The North Mine operated from 1957 to 1984 when it was idled mainly due to low potash prices and outdated, inefficient mineral processing facilities. Although most of the
unused mining and processing equipment has been removed, the mine shafts remain open. Part of the North Mine surface plant is still active as this is where we granulate, store and ship potash produced at the West Mine. We may choose to reopen the
North Mine in the future, although no feasibility study for the project is currently contemplated due to management’s focus on the HB Mine and other projects at our operating facilities. Two operable mine shafts and much of the transportation
and utility infrastructure required to operate the mine, including mine permits, rail access, storage facilities, water rights, utilities and leases covering potash deposits, are already in place.
|
|
|
Ÿ
|
|
At the time of the purchase, potash prices were much lower and the North Mine was not expected to reopen, which resulted in no value being allocated to the mineral properties
at the idle North Mine.
|
Our By-Product Production
During the extraction of potash, we also recover marketable salt and magnesium chloride. We also produce metal recovery salt, which is potash mixed with salt in
customer-requested ratios, at our Wendover Facility. We account for the revenue generated from sales of these minerals as a reduction in the cost of goods sold of our primary potash product. During 2007, we sold a total of 320,000 tons of
by-products from our Moab Mine and Wendover Facility, which reduced our operating costs by $7.5 million in the aggregate.
Summary of Our
Reserves
The estimates of our proven and probable reserves as of December 13, 2007 and (as to the HB Mine only) March 11, 2008, were
prepared by us and were reviewed and independently determined by Agapito Associates, Inc. based on mine plans and other data furnished by us. The following table summarizes our proven and probable reserves, estimated as required by the SEC.
87
Our Proven and Probable Reserves (000’s of product
tons)
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product/Operations
|
|
Date
Mine
Opened
(2)
|
|
Current Extraction
Method
|
|
Minimum
Remaining
Life
(years)
(3)
|
|
Proven
Reserves
KCl
(4)
|
|
Proven
Ore
Grade
(5)
(% KCl
or
% Lang)
|
|
Probable
Reserves
KCl
(6)
|
|
Probable
Ore
Grade
(5)
(% KCl
or
% Lang)
|
|
Muriate of Potash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carlsbad West
|
|
1931
|
|
Underground
|
|
122
|
|
29,609
|
|
23.7
|
|
21,528
|
|
21.7
|
|
Carlsbad East
|
|
1965
|
|
Underground
|
|
42
|
|
6,148
|
|
19.0
|
|
6,511
|
|
17.8
|
|
HB Mine
(7)
|
|
2009
|
|
Solution
|
|
28
|
|
4,791
|
|
34.6
|
|
208
|
|
32.2
|
|
Moab
|
|
1965
|
|
Solution
|
|
124
|
|
3,810
|
|
41.9
|
|
7,180
|
|
41.5
|
|
Wendover
(8,9)
|
|
1932
|
|
Lake Brine Evaporation
|
|
30
|
|
—
|
|
—
|
|
2,806
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Muriate of Potash
|
|
|
|
|
|
|
|
44,358
|
|
25.8
|
|
38,233
|
|
23.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sulfate of Potash Magnesia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carlsbad East
|
|
1965
|
|
Underground
|
|
43
|
|
16,158
|
|
35.2
|
|
19,562
|
|
35.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sulfate of Potash Magnesia
|
|
|
|
|
|
|
|
16,158
|
|
35.2
|
|
19,562
|
|
35.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The determination of estimated reserves is based on an independent review and analysis of our mine plans, geologic, financial and other data and Agapito’s familiarity with the Intrepid
mines. Because reserves are only estimates, they cannot be audited for the purpose of verifying exactness. Instead, reserve information is reviewed in sufficient detail to determine if, in the aggregate, the data provided by us is reasonable and
sufficient to estimate reserves in conformity with practices and standards generally employed by and within the mining industry and that are consistent with the requirements of U.S. securities laws. One ton red muriate of potash = 0.95 ton KCl;
one ton white muriate of potash = 0.98 ton KCl; one ton sulfate of potash magnesia = 0.95 ton langbeinite.
|
|
(2)
|
These mines, excluding the Carlsbad HB Mine, have been operating in a substantially continuous manner since the dates set forth in this table. The Carlsbad HB Mine was originally opened in
1934 and operated continuously as an underground mine until 1996. The Carlsbad HB Mine is planned to begin production in 2009 as a solution mine.
|
|
(3)
|
Minimum remaining lives at the Carlsbad West, Carlsbad HB and Moab Mines are based on reserve tons divided by annual effective product capacity (with corrections for purity; see note (1)).
Carlsbad East minimum remaining life is based on three phases, with various plant capacities: first, combined potash and langbeinite production; second, langbeinite only; and third, potash only. Wendover minimum remaining life is based on a
projected average plant production of 63,000 potash tons which is estimated as 55,000 and 8,000 potash tons per year for the shallow and deep aquifers, respectively.
|
|
(4)
|
Proven reserves mean tonnages computed from projection of data using the inverse distance squared method taking into account mining dilution and recovery losses, metallurgical recovery
factors, sales prices and operating costs from potash ore zone measurements as observed and recorded either in drill holes using cores, electric logs, or other geophysical devices or in mine workings. This classification has the highest degree of
geologic assurance. The sites for measurement are so closely spaced and the geologic character so well defined that the thickness, areal extent, size, shape and depth of the potash ore zone are well-established. The maximum acceptable distance for
projection from ore zone data points varies with the geologic nature of the ore zone being studied.
|
|
(5)
|
Ore grade expressed as expected mill head feed grade to account for minimum mining height for the Carlsbad East and West Mines. The ore grade for the Wendover Facility is the brine KCl
concentration by weight. The ore grade for the Moab and Carlsbad HB Mines is the in-place KCl grade.
|
|
(6)
|
Probable reserves means tonnages computed by projection of data using the inverse distance squared method taking into account mining dilution and recovery losses, metallurgical recovery
factors, sales prices and operating costs from available ore zone measurements as observed either in drill holes using cores, electric logs or other geophysical devices or in mine workings for a distance beyond potash classified as proven reserves.
This classification has a moderate degree of geological assurance.
|
|
(7)
|
The Carlsbad HB Mine reserves are based on planned flooding of old workings and recovery of potash from the residual pillars only with the brine extracted using submersible pumps. Reserves
are based on thicknesses, grades and mine maps provided by Intrepid. Capital costs to establish economic viability for the Carlsbad HB Mine reserves are based on in-house estimates independently verified by a third party. Operating costs to
establish economic viability were based on operating costs for the Moab Mine with operating costs scaled by magnitude of production.
|
|
(8)
|
For the shallow aquifer there are no proven reserves because the shallow aquifer represents an unconventional resource and the estimating method was based on brine
concentration, porosity, and aquifer thickness from historical reports. The brine concentrations have been confirmed recently but neither the aquifer thickness nor the porosity has been verified. Probable reserves for the shallow brine at the
Wendover Facility have been calculated from KCl contained in the shallow
|
88
|
|
aquifer with an estimated porosity of 0.45 and thickness of 18 ft over the reserve area (78.8 square miles). The distance for projection of probable reserves is a
radius of three-quarters of a mile from points of measurement of brine concentration. The ore grade (KCl) is the percentage by weight of KCl in the brine.
|
|
(9)
|
Proven reserves have not been estimated due to the uncertainty of the hydrogeology of the deep aquifer. Probable reserves for the deep-brine aquifer at the Wendover Facility have been
estimated based on historical draw-down and KCl brine concentrations. The ore grade (KCl) is the percentage by weight of KCl in the brine.
|
The following table summarizes production of our primary products at each of our facilities for each of the years ended December 31, 2007, 2006 and 2005.
Production of Our Primary Products (000’s of product tons)
One product ton of potash
equals approximately 0.61 tons of K
2
O
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
2006
(1)
|
|
2005
(2)
|
|
Primary Product
|
|
Ore
Produc-
tion
|
|
Mill
Feed
Grade
|
|
|
Finished
Product
|
|
Ore
Produc-
tion
|
|
Mill
Feed
Grade
|
|
|
Finished
Product
|
|
Ore
Produc-
tion
|
|
Mill
Feed
Grade
|
|
|
Finished
Product
|
|
Muriate of Potash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carlsbad West
|
|
2,519
|
|
13.4
|
%
|
|
409
|
|
2,013
|
|
12.7
|
%
|
|
305
|
|
2,544
|
|
12.9
|
%
|
|
398
|
|
Carlsbad East
(3)
|
|
2,259
|
|
11.4
|
%
|
|
288
|
|
2,000
|
|
12.5
|
%
|
|
260
|
|
2,266
|
|
12.4
|
%
|
|
343
|
|
Moab
|
|
396
|
|
14.4
|
%
|
|
77
|
|
535
|
|
14.4
|
%
|
|
103
|
|
500
|
|
14.8
|
%
|
|
94
|
|
Wendover
|
|
461
|
|
16.9
|
%
|
|
103
|
|
378
|
|
17.5
|
%
|
|
57
|
|
339
|
|
17.3
|
%
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,635
|
|
|
|
|
877
|
|
4,926
|
|
|
|
|
725
|
|
5,649
|
|
|
|
|
897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Langbeinite
Carlsbad East
(3)
|
|
2,259
|
|
4.8
|
%
|
|
177
|
|
2,000
|
|
5.6
|
%
|
|
156
|
|
2,266
|
|
3.2
|
%
|
|
15
|
|
|
|
|
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Total Primary Products
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|
7,894
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|
|
|
|
1,054
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|
6,926
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|
|
|
|
881
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|
7,915
|
|
|
|
|
912
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|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
(1)
|
2006 production at our Carlsbad facilities was curtailed by a number of non-recurring events, including the commissioning of the dual potash and langbeinite facility at the East Mine and
shutdowns at the West Mine to remove unused utilities that were affecting production.
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|
(2)
|
2005 production at our East Mine was curtailed by the commissioning of the langbeinite plant in October 2005.
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|
(3)
|
Muriate of potash and langbeinite at our East Mine are processed from the same ore feed.
|
The following table summarizes production of by-products at each of our facilities for each of the years ended December 31, 2007, 2006 and 2005.
Production of Our By-Products (000’s of tons)
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Year Ended December 31,
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2007
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|
2006
|
|
2005
|
|
By-Product
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|
Finished Product
|
|
Finished Product
|
|
Finished Product
|
|
Salt
|
|
|
|
|
|
|
|
Moab
|
|
109
|
|
130
|
|
100
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|
Wendover
|
|
29
|
|
30
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
138
|
|
160
|
|
136
|
|
|
|
|
|
|
|
|
|
Magnesium Chloride
|
|
|
|
|
|
|
|
Wendover
|
|
163
|
|
155
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
163
|
|
155
|
|
117
|
|
|
|
|
|
|
|
|
|
Metal Recovery Salts
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|
|
|
|
|
|
|
Wendover
|
|
19
|
|
13
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
13
|
|
23
|
|
|
|
|
|
|
|
|
|
Total By-Products
|
|
320
|
|
328
|
|
276
|
|
|
|
|
|
|
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|
89
Our Competitive Strengths
We believe the following core strengths will allow us to consistently increase stockholder value:
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Ÿ
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U.S. potash-only producer.
We are the largest producer of potash in the U.S., the second largest potash-consuming country in the world.
We are dedicated solely to the production and marketing of potash-related products. After the completion of this offering, we will be one of two publicly-traded potash-only companies producing today, the other being Uralkali, a Russian producer.
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•
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As a U.S. producer that sells approximately 97% of its potash volume into the historically stable domestic market, we have limited exposure to sovereign and geopolitical
risks faced by existing producers that are based in unstable political regions and/or primarily serve emerging economies. For example, during 2006 and the first half of 2007, Uralkali reported that 78% and 84%, respectively, of its revenues were
attributed to sales to developing economies such as China, India and Brazil. Uralkali is incorporated in the Russian Federation and sells its products primarily through BPC, which is incorporated in Belarus.
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•
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|
We have followed a potash-only strategy by acquiring potash assets in New Mexico and Utah in order to consolidate marketing efforts and effect operating synergies. As a
dedicated potash producer, we believe our financial performance is subject to less volatility than that of other fertilizer companies because potash prices have been subject to less volatility than prices for other fertilizers and commodity
chemicals. In addition, the costs to mine and produce potash are relatively fixed and stable, whereas the costs to produce other fertilizers have significantly greater exposure to volatile raw material costs, such as natural gas used to produce
ammonia. Our other competitors are meaningfully diversified into the nitrogen and phosphate-based fertilizer businesses and/or other chemical and industrial businesses. See “Potash Industry Overview”.
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•
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|
As a U.S. producer, we are not subject to the significant Canadian resource and capital taxes imposed on our primary competitors, which are located in Saskatchewan, Canada.
See “—Royalties and Other Taxes”.
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Ÿ
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|
Assets located near our primary customer base
.
Our mines are advantageously located
near our largest consumers: agricultural areas west of the Mississippi River, oil and gas exploration areas in the Rocky Mountains and the Permian Basin and feedlots in Texas and other southwestern and western states. We believe that our location
allows us to realize higher net sales prices than our competitors, who must ship their products across longer distances to consuming markets, which are often export markets. Also, because annual consumption of potash in our markets (3.5 million K
2
O tons) is greater than five times our current annual production (0.6 million K
2
O
tons)
(1)
, we can target sales to the markets in which we have the greatest transportation logistical advantage, maximizing our net sales per ton. Our logistical
advantage consists of access to strategic rail destination points and proximity to major trucking routes. By participating in our local truck market, we can cost-efficiently reach regional customers that lack rail access and act as a regional
warehouse for customers that value just-in-time delivery. Because we are located on major agricultural truck routes, we can take advantage of back-haul opportunities to agricultural markets. After truckers bring agricultural products into our
region, they often use their empty trailers to back haul our potash back into those agricultural areas, which is more cost-effective than rail transportation. In addition, our location in an oil and gas producing region allows us to serve industrial
customers, the majority of whom we reach via the truck market. This geographic advantage is difficult for competitors to erode, particularly in an environment of historically high and rising transportation costs.
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(1)
|
The following states are included in this calculation: AZ, AR, CA, CO, ID, IL, IA, KS, LA, MS, MO, NE, NV, NM, OK, OR, TX, UT, WA and WY.
|
90
The chart below sets forth what we believe to be our average net sales per ton advantage, which results primarily
from our freight cost advantage, over our primary Canadian competitors per product ton of potassium chloride for each of 2007, 2006 and 2005.
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2007
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2006
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2005
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Intrepid Potash net sales per ton advantage
(1)
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$
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39
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$
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43
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$
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29
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(1)
|
Based on net sales per ton for Agrium Inc., The Mosaic Company and PCS for muriate of potash only. Mosaic’s MOP revenues were
calculated by subtracting langbeinite-only revenues, assuming $115 net sales per ton for langbeinite (K-Mag
®
).
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Ÿ
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|
Diversification into niche markets.
We sell to three different markets for potash—the agricultural, industrial and feed markets.
During 2007, these markets represented approximately 64%, 30% and 6% of our potash sales, respectively. According to the IFA, 95% of all potash produced is used as a fertilizer. North American agricultural markets primarily consume granular potash,
whereas the industrial and feed markets primarily consume standard potash. Our facilities were designed to produce either of these products, and we are able to easily switch production between them, giving us the flexibility to adjust our product
mix to market conditions. As a result, we believe our sales are diversified across more distinct, unrelated consumer markets than those of many of our competitors, adding stability to our potash revenues. A primary component of the industrial
markets we serve is the oil and natural gas services industry, where potash is commonly used in drilling and fracturing oil and natural gas wells. According to SRI Consulting, U.S. industrial consumption of potash is growing rapidly relative to the
agricultural market, with a compound annual growth rate of 5.1% from 1990 to 2005.
|
We are one of two exporting producers of
langbeinite in the world. Both producing facilities are located in Carlsbad, New Mexico. Given the greater scarcity of langbeinite relative to potash and its agronomic suitability for certain soils and crops, there is demand for our langbeinite
production outside of our core potash markets. PCS markets our langbeinite production outside North America. This relationship gives us access to PCS’ extensive international sales network and informs us about developments in the international
market. During 2007, we sold approximately 158,300 tons of langbeinite, representing 15% of our total product tons sold during this period.
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Ÿ
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Significant reserve life and water rights.
Our potash and langbeinite reserves each have substantial life, with remaining reserve life
ranging from 28 to 124 years, based on proven and probable reserves estimated in accordance with SEC requirements. This lasting reserve base is the result of our past acquisition and development strategy. In addition to our reserves, we have access
to significant mineralized deposits for potential future exploitation. We also own valuable water rights at each of our facilities, including well fields in Carlsbad, New Mexico, which we believe are sufficient for our current production and
currently planned future projects, including the proposed reopening of the HB Mine. Because available water rights are limited in Carlsbad, New Mexico and Moab, Utah, obtaining a package of water rights equivalent to our current rights or sufficient
to operate a new mine would be extremely difficult.
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Ÿ
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|
Valuable existing facilities and infrastructure.
Constructing a new potash production facility requires extensive capital investment in
mining, milling and infrastructure, which is expensive and requires substantial time to complete. Our five operating facilities and two development assets already have significant facilities and infrastructure in place—including assets capable
of mining and milling potash ore, and access to transportation channels by road and rail. We have the ability to expand our business using existing installed infrastructure, in less time and with lower expenditures than would be required to
construct entirely new mines.
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Ÿ
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|
Track record of innovation and modernization.
Our management team has a history of building successful operations through the acquisition
of underutilized assets, followed by
|
91
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|
creative use of technology to increase productivity and reliability. Each of our facilities represented only a small portion of its prior owner’s business at the
time we acquired it. As an entrepreneurial, potash-only producer, we have devoted considerable management attention to each facility, with a focus on modernization and improving production. We have applied technologies from other industries,
including the oil and gas industry, and implemented innovative production processes. We have invested approximately $80 million in capital improvements since acquisition through December 31, 2007 at our operating facilities, and we plan to
continue making capital investments in our mines. See “—Our Capital Program” below for descriptions of many of these projects.
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Ÿ
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|
Low-cost solar evaporation operations.
The Moab Mine and the Wendover Facility use solar evaporation to crystallize potash from brines.
These facilities annually account for approximately 20% of our total potash production. Solar evaporation is a low-cost and energy-efficient method of producing potash. Our understanding and application of solution mining, combined with our location
in regions with favorable climates for evaporation, allow our Utah facilities to achieve low production costs. We intend to leverage this technology and experience in constructing the HB Mine solution mine in Carlsbad, New Mexico, where evaporation
rates are comparable to those in Moab, Utah and there is adequate land available to build solar ponds.
|
Our Strategy
We intend to increase production and profitability through the execution of the following strategies, which were developed as part of our
five-year operating plan:
|
|
Ÿ
|
|
Expand potash production from existing facilities.
We have expansion opportunities at our operating facilities to significantly increase
production. We expect that expansion and improvement opportunities at our current mines will drive down our unit cost per ton and increase our cash flow. We estimate that these opportunities will require a $27 to $32 million investment over the next
five years and will increase annual potash production by an expected aggregate of over 110,000 tons over the next five to seven years. Because of our market share, we believe increases in our effective capacity have limited effect on international
potash prices. We believe we can, therefore, enjoy expanding margins on incremental production through full price realization and decreasing production costs per ton. Below we have identified our most significant opportunities at our operating
facilities and the expected production increases from those opportunities:
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•
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|
West Mine: Increase average potash production by approximately 15%, or 60,000 tons annually, by improving the ore storage and skip loading systems and by adding a tailings
regrind circuit;
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•
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|
East Mine: Increase average potash production by approximately 11%, or 34,000 tons annually, by adding a fifth operating production crew in the mine and by improving brine
recovery with new thickeners;
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|
•
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|
Moab Mine: Increase average potash production by approximately 11%, or 10,000 tons annually, by adding additional horizontal cavern systems; and
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•
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|
Wendover Facility: Increase average potash production by approximately 10%, or 6,000 tons annually, by adding additional deep brine wells.
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|
|
Ÿ
|
|
Reopen the HB Mine as a solution mine.
The HB Mine, located in Carlsbad, New Mexico, was formerly operated by Mississippi Chemical
Company as a conventional underground mine. It ceased operating in 1996 and has remained idle since that time. We are in the process of reopening the HB Mine as a solution mine, which we believe is especially suitable technology for this project due
to the easily accessible mineral resource and our ability to rely in part on
|
92
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|
existing equipment and personnel at our Carlsbad facilities to process potash. We have invested approximately $1.5 million toward this project through
December 31, 2007, and have included additional capital expenditures of $20 to $25 million in our 2008 budget. We believe that capital investments to reopen the mine, which we anticipate will require total expenditures of $78 to $88 million for
Phase I of the project, will be lower than would be required to build an entirely new mine. We expect that the HB Mine will be among the lower-cost potash mines in North America and that potash produced from the mine will be our lowest-cost product
on a per-ton basis. The idled mine contains hundreds of high-grade ore pillars that were left behind by the prior operators as roof support. These pillars have been crushed over time, exposing potash. We plan to flood the mine, similar to the
original solution mine in Moab, which will dissolve the remaining potash resource in the mine. We then plan to build solar ponds similar to those in Moab, in which we will evaporate the potash-rich brines from the mine. The resulting potash will be
harvested and processed at the West Mine processing plant, which will allow us to avoid new fixed costs.
|
For the past two
years, we have been discussing the project and permitting matters with State of New Mexico officials. We have also drilled six groundwater monitoring wells, presented a preliminary solar evaporation pond design to State of New Mexico officials,
studied the geology of the mineralized deposits and completed an underground pilot test. We filed our combined discharge and underground injection control permit application for the solution mine at the HB Mine with the State of New Mexico on
March 10, 2008, and we plan to file timely applications for additional permits and approvals with the State of New Mexico and the Bureau of Land Management, including well permits and approval of a mine reclamation plan. Following certain
public comment periods, we expect to receive all permits and approvals required to commence construction by the end of 2008, and to receive all permits and approvals required for operation of the project and commence production from the HB Mine in
2009. Assuming a continuation of favorable market conditions, we expect production from the HB Mine to begin in 2009 and believe Phase I of the project, which consists of the flooding of 4,400 of the 21,600 total acres of the mine, has the
potential to ultimately add up to 150,000 to 200,000 tons of additional low-cost potash production annually by 2011. We are currently considering the scope and timeline for a proposed Phase II of this project, which we believe would further
increase potash production at the HB Mine.
|
|
Ÿ
|
|
Expand langbeinite production and demand.
We are one of two exporting producers of langbeinite. We mine langbeinite in Carlsbad, New
Mexico from the only known reserves of langbeinite in the world. Langbeinite production at the East Mine began in August 2005 and steadily increased to 177,000 tons for 2007. We initially entered the langbeinite market on a limited basis, in order
to be able to test the level of market demand. Through our marketing efforts in North America and our relationship with PCS, which markets our langbeinite outside North America, global market demand for langbeinite has increased, and customer
relationships have been built that we believe will allow us to sell additional tons into the marketplace.
|
In order to better
capitalize on the strong and growing demand for langbeinite, we have initiated an estimated $10 to $15 million project that we expect will allow us to increase our annual langbeinite production by approximately 45%, or 80,000 tons, over the
next three to four years. By using a more efficient processing method, we expect this additional production to lower our production costs per ton. We have also added a fifth operating production crew in the mine, which we believe will further
increase our langbeinite production by approximately 6%, or 10,000 tons. We have also expanded our support systems for our langbeinite business by hiring an agronomist to educate growers about the benefits of langbeinite and by establishing a
network of warehouses throughout North America for langbeinite distribution. We believe that with additional marketing, the size of the langbeinite market could be further increased in the future.
93
|
|
Ÿ
|
|
Increase our profitability.
We will continue to seek to increase our profitability by targeting sales to more profitable markets, by
reducing per ton costs and by optimizing reliability of production. We plan to continue to pursue sales in regional markets located near our facilities, where our transportation cost advantage allows us to obtain higher net sales per ton than our
competitors. From inception to December 31, 2007, we have spent approximately $80 million on capital improvements at our facilities. We believe these investments have enhanced the reliability and productivity of our operations. These investments
have begun to produce positive results. In addition, we see further opportunities to reduce our fixed and variable operating expenses through additional strategic investments. We plan to implement projects that reduce energy consumption and water
consumption. We also plan to implement projects to reduce costs through automation, improved processing technology and other measures. Two examples of completed cost reduction projects include the installation of a high-efficiency boiler at the East
Mine and the replacement of a diesel fuel dryer with a propane dryer at the Wendover Facility. We plan to pursue various projects designed to increase the reliability of our mining facilities and minimize production downtime. For example, we plan to
add more intermediate storage facilities at the West Mine and overhaul our belt systems at the East Mine. We expect these projects to result in more stable production rates and a more predictable income stream.
|
Our Products
Muriate of potash is the primary potash
mineral, both in our business and in the potash industry generally. Secondary potash minerals include sulfate of potash magnesia, or langbeinite, which we produce, and potassium sulfate and potassium nitrate, which we do not currently produce.
Muriate of Potash
Muriate of potash, which we generally refer to as potash in this prospectus, is the most common commercial form of potassium chloride (KCl). Muriate of potash is the most abundant, least expensive source of potassium on a
delivered K
2
O basis and is the preferred source of potassium for fertilizer use, currently accounting for approximately 95% of total potassium fertilizer use. Because
the amount of potassium contained in potash varies, the industry has established a common standard of measurement by defining a product’s potassium content in terms of equivalent percentages of potassium oxide (K
2
O). Commercial grades for fertilizer use are usually 95% to 98% potassium chloride, containing about 60% to 62% K
2
O. According to the IFA, approximately 95% of muriate of potash produced is used as a fertilizer, with the remaining 5% being used in the oil and gas drilling industry and other industrial applications. Potassium chloride is the primary raw
material used to produce industrial potassium hydroxide and its derivative salts, the most commercially important of which are potassium carbonate, potassium chromate, potassium permanganate and the potassium phosphates. It is also used as an
intermediate in chemical synthesis routes to potassium sulfate and potassium nitrate. Potash is either red or white in appearance, depending on how it was produced.
We sell potash in various grades, colors and sizes typical to the industry. A description of typical potash characteristics follows:
|
|
Ÿ
|
|
Grade
. Potash is typically refined to either a 60% K
2
O content or a 62% K
2
O content, produced using either flotation or crystallization, respectively. The highest grade product is often
used in industrial applications, for animal feed and for soluble fertilizer applications. The products are, however, interchangeable in most applications. Higher-grade potash typically sells for a slight premium.
|
|
|
Ÿ
|
|
Color
. Potash mined conventionally will often have a red or pink color due to the presence of trace amounts of iron. Potash refined from brines
or from crystallization is typically white in appearance. The color of potash has no physical significance, though red-tinted potash is
|
94
|
|
almost certain to be of the 60% K
2
O grade, while white potash can be either 60% or 62%
K
2
O product, depending on the refining method. Color does not affect potash pricing.
|
|
|
Ÿ
|
|
Size (SGN)
. Potash is typically sold in four sizes: fine, standard, granular and coarse. Fine potash is the smallest in size and is typically
sold into the animal feed or soluble fertilizer markets. Standard potash is about the size of medium-grade sand and is typically sold internationally, into the industrial market, or to a fertilizer granulator. Granular potash is produced by
compacting potash and then breaking it into small two- to four-millimeter size chunks for sale into the agricultural markets. Coarse potash is fairly similar to granular potash in size, but does not require compaction as it is naturally produced
large in size. The three primary fertilizer nutrients are typically applied with one pass over the field with a fertilizer spreader. In order to assure the fertilizer is evenly spread, the nutrients must be of similar size guide number, or SGN. As
farms modernize around the globe and fertilizer is blended and spread mechanically, coarse and granular SGN are becoming increasingly important.
|
Langbeinite
Like muriate of potash (which contains between 60% and
62% K
2
O commercially), langbeinite is a source of potassium (approximately 22% K
2
O) and
is therefore used primarily as a fertilizer. Langbeinite, however, also contains two valuable secondary nutrients, magnesium (11% Mg) and sulfur (22% SO
4
). Langbeinite
is thus 55% fertilizer nutrients by weight, which is slightly below potassium chlorides at 60 to 62%. Langbeinite is an attractive fertilizer for chloride-sensitive crops and crops that require magnesium or sulfur applications because of its
high-nutrient, low-chloride content. Because of its scarcity, langbeinite has not been available to many end markets, which has resulted in unmet demand for additional production.
Sulfate of potash magnesia is the most common commercial form of langbeinite. We produce langbeinite in
three grades: fine, standard and coarse. The distinctions are very similar to those of potash. In 2007, our langbeinite production represented 15% of world effective capacity from naturally occurring langbeinite deposits. We market our langbeinite
under the name Intrepid Trio™. Mosaic, our leading competitor in the langbeinite market, markets its langbeinite under the name K-Mag
®
.
By-products
The crystallization of potash and salt through solar
evaporation at our Moab Mine and Wendover Facility yields a high-quality solar salt. We produce salt in three grades: fine, medium and coarse, which we sell as bagged or bulked out of our Moab Mine. We also sell salt in bulk form from our Wendover
Facility.
Magnesium chloride is plentiful in nature and is obtained through refining magnesium-bearing brines similar to those found in the Great
Salt Lake. We harvest magnesium chloride brines, which typically are used in the deicing and dedusting markets, during the last stages of evaporation in the solar ponds at our Wendover Facility.
We also produce metal recovery salts, which are mixtures of salt and potash. Metal recovery salts are blended in ratios requested by our customers and are sold
primarily for use in the metallurgical processing industry.
For all of our by-products, we have capacity to produce at levels to meet market demand
and choose to limit production to demand in order to control our inventories. Our by-product reserve life is linked to the underlying potash resource. As long as potash can be economically mined, the by-products may be produced. However, as we add
horizontal caverns at our Moab Mine, we will produce more potash and less salt from that mine over time.
95
Our Mining Techniques
Potash is either mined from deep ore deposits or, in a few cases, extracted from surface or sub-surface brines containing high levels of potassium. We mine our underground deposits using either conventional mining or solution
mining. The method of underground extraction depends primarily on the characteristics of the ore body. Shallow ore bodies that are relatively flat, with good roof support, minimal flood risk and above four feet in thickness will typically be mined
using conventional mining. Greenfield projects involving deposits that are deeper than 4,000 feet, have a folded or thin ore seam, poor rock mechanics, or high flood risk and are of an appropriate ore grade and mineral composition are typically
mined using solution mining. Solution mining is also used to recover additional potash left behind by or not recoverable through conventional underground mining.
Conventional Underground (Room and Pillar) Mining
We use continuous mining at our East and West Mines to extract ore for
processing in the respective surface facilities. Continuous mining is a form of room and pillar mining that uses continuous miners to cut a network of interconnected passages as high as the potash seem. Roof bolters stabilize the mine roof and
pillars are left to provide additional roof support. Ore extracted at the face is conveyed using belts and a hoist system to the surface for processing.
Our potash deposits in Carlsbad, New Mexico have traditionally been mined using continuous mining with high extraction ratios made possible by the presence of 400 feet of stable salt overburden. These conventional mining operations utilize
a shaft sunk to the ore body and continuous mining machines to cut out the ore, which is then lifted to the surface for processing.
We currently
extract approximately 2.5 million tons of ore annually from our West Mine. We currently extract 2.3 million tons of mixed potash ore and langbeinite ore annually at our East Mine.
Solution Mining
We use solution mining at our Moab Mine and plan
to utilize solution mining to extract potash from our idled HB Mine, which we are planning to reopen. Solution mining does not require men or machines to be underground. The potash in the ore zones at the Moab Mine and the HB Mine is soluble and can
be extracted from the ground by injecting a solvent (usually salt-saturated water) into a potash ore body. The solvent dissolves the potash, which causes the density of the solvent to increase. The dense, potash-rich solvent then sinks to the bottom
of the mine, where an extraction well pumps the salt and potash saturated brine to the surface for processing.
Our Moab Mine uses solution mining
technology to extract potash from a mine formerly operated as a conventional mine and from potash caverns created through an innovative horizontal drilling program initiated by Intrepid Mining. Moab’s potash reserves are extracted using
solution-mining techniques utilizing both vertical and horizontal wells and heated injection brine. At our Moab Mine, we inject heated, salt-saturated brine into a potash and salt formation to selectively dissolve potash. The double (salt and
potash) saturated brine is then extracted to the surface where the water is evaporated from the minerals in solar evaporation ponds. The salt and potash crystals are then separated in a mill.
Solar Evaporation
We use solar evaporation at our Moab Mine and
Wendover Facility, which are located in favorable climates for evaporation, with abundant sunlight, warm temperatures and low precipitation. We also plan to use solar evaporation technology similar to that used in Moab as part of the HB Mine
project, since evaporation rates in Carlsbad, New Mexico are comparable to those in Moab. The
96
Wendover Facility exploits primarily sub-surface brines containing salt, potash and magnesium chloride that are collected in ditches from the shallow aquifers of the
Bonneville Salt Flats. In dry years, brines from a deep, potassium-rich aquifer supplement the sub-surface brines. At the Moab Mine, brines are extracted from the solution mining caverns and pumped to the surface. Once a brine containing potash is
available at the surface, it is placed into solar evaporation ponds, where natural evaporation of the water is used to crystallize out the potash and salt contained in the brine. The resulting white potash and salt are then processed and prepared
for sale. At our Wendover Facility, the liquid remaining after solar evaporation contains a high concentration of magnesium chloride, which is processed to produce a by-product—magnesium chloride brine.
Our Milling (Processing) Techniques
We use either
flotation or hot leach and crystallization technology at our mills to separate potash from the salt and other minerals we send to our mills. At our East Mine, we use hot leach and crystallization to recover potash from the mixed ore and then utilize
cyclones and leaching technology to recover langbeinite.
Flotation
We use flotation at the mills at our West Mine, Moab Mine and Wendover Facility to recover potash. Potash
extracted from mines or crystallized in solar ponds must be separated from the salt that accompanies potash in the process. While in principal this is a simple process, the art of flotation requires careful management of ore grinding, insoluble
minerals, the brines used in the process, reagents ratios, product leaching and debrining and treatment of the finished product. The most common method of separating the potash from the salt is to mix a biodegradable oil called amine with potash and
salt. Amine binds to potash but not salt. Next, the salt and potash are mixed in a double-saturated brine and air is bubbled through the brine. The air attaches to the amine, causing the potash crystal to float. The floated potash is leached, dried,
screened and then either sold as standard potash or compacted to become granular grade potash. Potash refined by flotation is typically 60% K
2
O, which is the normal
standard for commercial-grade potash. We have compaction facilities at our Moab Mine and Wendover Facility. Our West Mine does not have a compaction facility, so we transport the potash by truck to the compaction mill at our North Facility, where it
is compacted and stored for final sale.
Hot Leach and Crystallization
The process of hot leaching and crystallization used at our East Mine is based on the different solubilities
of potash and salt. Potash is much more soluble at higher temperatures than at lower temperatures, while salt is equally soluble across a wide range of temperatures. The process begins by dissolving the potash away from the salt, a process called
leaching. The salt-saturated brine used to dissolve the potash is heated, which allows the brine to hold a large amount of potash in a dissolved state. After leaching the potash, we recover the potash by rapidly cooling the brine using vacuum
crystallizers. As the brine cools, it can no longer hold as much potash, which causes the potash to form solid crystals and drop out of the brine. The resulting potash, which is 62% K
2
O, is then dried and compacted for sale as granular or standard potash.
Brine Cyclones and Leaching
After the potash ore is leached from the mixed ore at the East Mine, salt and langbeinite remain as solids. We recover the langbeinite by taking advantage of two of
its key physical properties—first, langbeinite has a much higher density than salt and second, langbeinite is much less soluble in fresh water than salt. We utilize brine cyclones that circulate the langbeinite and salt at high velocities in a
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brine. This process causes the denser langbeinite material to gravitate towards the bottom of the cyclone while sending much of the salt out the top of the cyclone. We
continue processing the langbeinite and salt mixture that exits the bottom of the cyclones by combining it with fresh water and sending it into a leach pipeline to dissolve the salt. The salts dissolve in the leach pipeline, leaving behind
product-grade langbeinite, which is dried and screened into appropriate product sizes. We are the first company to use brine cyclones as a primary means of recovering langbeinite. Langbeinite can also be separated from salt using heavy media or a
flotation process similar to the flotation of potash ore.
Our Capital Expenditure Program
Our mines have long operating histories, and immediately after their acquisition required initial high levels of restoration and sustaining capital to ensure
predictable long-term operations. While much of the restoration work has been completed, we expect we will require moderately higher capital expenditures for two more years to complete identified sustaining capital projects. We have also identified
significant opportunities to increase production and are executing a capital spending program to incrementally increase production at each of our mines.
Our management team strives to increase production by looking outside the potash industry to see how other companies are addressing issues that are common to their industry and ours. We then apply that knowledge to our business, using our
own employees to develop and execute improvements. During the last five years, we have successfully executed the following opportunity capital projects, which have resulted in increased production:
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drilled and completed the first horizontal solution mining caverns in a potash application in Moab, Utah, resulting in stabilized production volumes at nearly twice the
pre-acquisition level;
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drilled and completed a corrosion-resistant deep-brine well in Wendover, Utah, applying best practices to create longer-lived wells than had previously been completed in
Wendover and to improve the reliability and productivity of the Wendover Facility;
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installed an innovative langbeinite processing facility at the East Mine to allow the co-production of potash and langbeinite from one ore feed to the plant, which allowed
the East Mine to shift from a potash ore body to a mixed ore body and allowed us to enter the langbeinite market;
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purchased high productivity mining equipment, modified for potash from its original application in the coal industry, to increase mining productivity and replace an aging
mining fleet in Carlsbad, New Mexico;
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installed new flotation equipment at the Wendover Facility and West Mine to improve recoveries of potash, based on our experience with flotation technology at all of our
facilities; and
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replaced the product dryer in Wendover to increase plant throughput and allow fuel switching to reduce costs.
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In addition, in the last five years, we have completed the following modernizations and improvements at our facilities:
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installed a state-of-the-art underground wireless communications system in the East and West Mines to increase safety, improve productivity and allow future technology
additions;
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installed Mincom enterprise resource planning and asset management software to improve our maintenance and mine planning functions and consolidate reporting;
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upgraded and improved lab equipment, including the additions of an x-ray diffraction analyzer, an inductively coupled plasma (ICP) spectrometer, an ion chromatograph and a
new particle size analyzer, which have greatly improved our ability to respond to changes in our ore feed and product quality;
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used oil and gas logs and 3-D seismic surveys to delineate potash ore zones; and
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replaced outmoded control equipment with new, state-of-the-art digital control panels.
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During the next five years, we plan to execute the following opportunity capital projects to increase our production:
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install larger surface and underground storage systems at the West Mine to decrease the hoisting distance and decouple the mine from the mill, and install a coarse tailings
regrind circuit to improve potash recovery, which we expect will increase potash production by approximately 15%;
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improve the production of potash and langbeinite at the East Mine by approximately 11% and 51%, respectively, by adding an additional miner, improving brine recovery with new
thickeners and installing flotation cells that will both improve recoveries and decrease water usage;
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drill additional horizontal caverns in Moab to increase residence time in all the solution mining caverns at Moab, resulting in higher potash saturation levels in the brines
and an approximately 11% increase in potash production; and
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drill additional deep-brine wells at the Wendover Facility to increase the amount of brine available to evaporate, resulting in an approximately 10% increase in potash
production.
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Our Marketing and Distribution
North American Marketing and Distribution
We sell the majority of our potash, approximately 81% in 2007, on the spot
market in the U.S. The remainder of our sales were under short-term industrial or feed contracts. We have no material contracts to sell potash at pre-determined prices in the future. Our primary regional markets include agricultural areas west
of the Mississippi River, oil and gas exploration areas in the Rocky Mountains and the Permian Basin and feedlots in Texas and other southwestern and western states. We sell potash in North America through our Arlington, Texas and Denver, Colorado
sales offices.
The cost of transporting potash is significant and gives a clear cost advantage to producers located near potash consumers. We
enjoy a transportation cost advantage in the potash-consuming regions we can most easily reach using our primary rail service and local truck markets. Our assets are located along major truck routes used to transport grain from the midwestern U.S.
into our region and then back haul potash from our mines back to those agricultural areas. In addition, our location in an oil and gas producing region allows us to serve industrial customers, the majority of whom we reach via the truck market. We
also have access to primary rail lines that allow us to reach strategic destinations without switching rail carriers, which lowers transportation costs. In 2007, we transported approximately 59% of our potash by rail and 41% by truck. The regional
truck market poses some additional barriers to entry for competitors as they would have longer hauls and need to establish trans-loading and warehouse facilities to reach our truck customers. Additionally, because truck shipments are more frequent
and of a smaller size than rail shipments, participating in the regional truck market enables us to manage inventory levels and service customers who value just-in-time delivery. Due to the close proximity of our mines to potash-consuming regions
and our ability to sell over 97% of our potash production into the domestic market, we command much higher net sales per ton than our competitors who must transport their potash over longer distances to reach a broader
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North American market and also must ship much of their production to foreign ports. In most cases, we sell our product net of delivery costs (FOB the mines), which
means our customers acquire title to the product once it is loaded and leaves the plant and they therefore bear the cost and risk of transportation.
We own, lease or contract for the necessary infrastructure and distribution system to store and deliver our products. We have significant storage capacity at our facilities, and in addition, we have contractual arrangements with a number of
strategically located warehouses that provide for timely local delivery. We lease a number of rail cars and use system cars for the remainder of our deliveries.
During 2007, we sold approximately 60% of our langbeinite production into the domestic spot market. We began marketing langbeinite in late 2005 with a team of experienced salespeople who have helped build a diverse and growing
customer base. We have also expanded our support systems for our langbeinite business by hiring an agronomist and establishing a network of warehouses throughout North America for the distribution of langbeinite. While we enjoy a freight advantage
relative to our competitors with respect to potash sales, the same is not true for langbeinite as our primary competitor is also located in Carlsbad, New Mexico.
International Marketing and Distribution
All of our international sales of potash, with the exception of sales to Canada and
Mexico, are negotiated by PCS on a spot basis. During 2007, approximately 40% of our langbeinite was sold internationally, and the majority of these international sales were negotiated on our behalf through PCS. Our relationship with PCS is
important to us because it gives us access to PCS’ extensive international sales network and informs us about developments in the international market. The chart below shows the percentage of sales of potash and langbeinite made to various
countries during the years ended December 31, 2007, 2006 and 2005. We expect continued growth in international sales, particularly for langbeinite.
Geographic Breakdown of Net Sales
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Percentage of Net Sales
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Year Ended December 31,
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Region
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2007
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2006
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2005
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Mexico/Latin America
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4.4
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%
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4.4
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%
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2.7
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%
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Caribbean
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0.2
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0.9
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1.0
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Canada
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0.9
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0.2
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—
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Other
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0.7
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—
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—
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Export Subtotal
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6.2
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5.5
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3.7
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USA
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93.8
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94.5
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96.3
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Total Sales
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100.0
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%
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100.0
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%
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100.0
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%
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Customers
We have a diversified customer base exceeding 280 customers. We sell to three different markets for potash—the agricultural, industrial and feed markets. In 2007, these markets represented approximately 64%, 30% and 6% of our potash
sales, respectively. According to the IFA, 95% of all potash produced is used as a fertilizer. As a result, we believe our sales are diversified across more distinct consumer markets than those of many of our competitors, adding stability to our
potash revenues. We are one of two exporting producers of langbeinite in the world. Both producing facilities
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are located in Carlsbad, New Mexico. Given the greater scarcity of langbeinite relative to potash and its agronomic suitability for certain soils and crops, there is
demand for our langbeinite production outside of our core potash markets.
Within the agricultural market, we supply a diversified customer base of
distributors, retailers and cooperatives, who in turn supply growers producing a wide range of crops. Agricultural markets primarily consume granular potash, whereas the industrial and feed markets primarily consume standard potash. Our facilities
were designed to produce either of these products, and we are able to easily switch production between them, giving us the flexibility to adjust our product mix to market conditions. Servicing the industrial market provides us with customers that
are unrelated to agricultural markets.
In 2007, 2006 and 2005, one customer, a distributor, accounted for 10.5%, 10.0% and 14.9% of net sales,
respectively. In 2007, 2006 and 2005, a second customer, also a distributor, accounted for 9.7%, 10.9% and 10.2% of net sales, respectively. Although we consider our relationships with both of these customers to be very important, we do not believe
that under normal market conditions, their loss or a significant decline in their purchases would have a material adverse effect upon our financial results.
Marketing of Salt
Salt produced at our Moab Mine is sold in either a dried bulk or dried and packaged form. Salt produced at
our Wendover Facility is sold in bulk form only. Salt sales help reduce total production costs, as salt is considered a by-product. Due to the cost of transporting salt, it is typically sold into local markets by truck and rail.
Marketing of Magnesium Chloride
In 2004, Intrepid Mining entered
into an exclusive magnesium chloride marketing agreement with Envirotech Services, Inc. of Greeley, Colorado. Under this agreement, Envirotech markets the majority of our magnesium chloride.
Seasonality
The sales patterns of our agricultural products are generally seasonal. Over the last
three years, we have averaged 28% of our annual potash sales volume during the three-month period from February through April, when the demand for fertilizer typically peaks. The strongest demand for our fertilizer products occurs during the spring
planting season, with a second period of strong demand following the fall harvest. We and our customers generally build inventories during the low demand periods of the year in order to ensure timely product availability during the peak sales
seasons. The seasonality of fertilizer demand results in our sales volumes and net sales being the highest during the spring and our working capital requirements being the highest just before the start of the spring season. Our quarterly financial
results can vary from one year to the next due to weather-related shifts in planting schedules and purchasing patterns. Our higher percentage of sales to industrial and animal feed markets relative to our competitors tends to smooth the seasonal
sales pattern.
Our Competition
We sell into commodity markets and compete based on delivered price, timely service and quality product.
Products must maintain particle size and K
2
O content benchmarks to compete effectively. Further, our customers highly value the ability to deliver product in a timely
manner.
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We compete primarily with much larger potash producers, principally Canadian producers and, to a lesser extent,
producers located in the former Soviet Union. As a smaller producer, we seek to maintain an advantage through timely service, the ability to time our sales to market conditions and a focus on the markets in which we have a transportation cost
advantage.
Our Employees
As of March
31, 2008, we had 734 employees. Of these employees, 611 were located in Carlsbad, New Mexico, 46 in Wendover, Utah, 50 in Moab, Utah, 20 in Denver, Colorado and 7 in other locations. We have a collective bargaining agreement with a labor
organization representing our employees in Wendover, Utah, which expires on May 31, 2008. We consider our relationships with our employees to be satisfactory.
Legal Proceedings
We are a party to various legal proceedings that challenge decisions of the Bureau of Land
Management, or BLM, relating to oil and gas drilling in the Potash Area in southeastern New Mexico, where our New Mexico mines are located. Through the proceedings described below, we are attempting to cause the BLM to more accurately map and
protect the potash resource, conduct a comprehensive safety study as to oil and gas drilling around our mines and limit drilling in areas that we believe contain potash deposits.
Potash Association of New Mexico v. United States Department Of The Interior, et al
., pending in the United States District Court for the District of New
Mexico. We are not a party to this action, which does not currently involve any claims against us. We are a member of the Potash Association of New Mexico, or PANM, and in that capacity we are participating in this action. On December 6, 2006, PANM
commenced this challenge of certain holdings of the Interior Board of Land Appeals, or IBLA, in
IMC Kalium Carlsbad, Inc., et al
., 170 IBLA 25 (2006) (We are not a party in
IMC Kalium
).
IMC Kalium
, commenced July 29, 1992,
involves appeals of the denial of 72 applications for permits to drill, or APDs, for oil and gas wells in the Potash Area, including approximately 40 APDs on our federal potash leases or adjacent areas of interest to us. The BLM denied these APDs
between 1992 and 1994 under the applicable order of the Secretary of the Interior, or the Secretarial Order, relating to the Potash Area. The holdings being appealed relate to how and to what extent the BLM may consider the potential impact of a
proposed oil and gas well on the safety of potash miners when acting on an APD. If this appeal is not successful, it may result in the BLM granting the APDs that are the subject of
IMC Kalium
, or APDs for other wells, on or near our potash
leases that the BLM would not grant if the appeal is successful. Such wells would interfere with our ability to mine the potash reserves and other potash deposits within a reasonable safety buffer around the wells.
Intrepid Potash–New Mexico, LLC v. BLM
. We filed this appeal on September 19, 2006, challenging the BLM’s approval of 11
APDs located approximately one and one-half miles east of our East Mine near Carlsbad, New Mexico. This appeal does not currently involve any claims against us, and our current potash leases do not cover the lands on which these wells would be
drilled. We argue in this appeal that: (i) BLM failed to consider electric log data in mapping commercially recoverable potash in violation of its duties under the Secretarial Order to use the latest information and technology to map and
protect commercially recoverable potash from undue waste from oil and gas drilling and (ii) BLM did not comply with the requirements imposed by the National Environmental Policy Act when considering the APDs, including the impact of wasting the
potash resource. The IBLA has granted our motion to stay BLM’s approval of the APDs pending resolution of the appeal, citing the IBLA’s prior decision in
IMC Kalium
in finding that the BLM may not approve the APDs unless its potash
mapping standard is updated using the latest data and technology available, and finding that Intrepid Mining had
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demonstrated a likelihood that it would prevail in its argument that the mapping standard is deficient in this respect. If Intrepid Mining’s appeal is not
successful, the BLM may grant APDs for wells in areas that we believe contain potash reserves or other commercially recoverable potash deposits but that the BLM is unwilling to recognize unless we drill additional core holes to corroborate the
electric log data relied on by Intrepid Mining. There is no assurance that we would be able to obtain the necessary permits for such core holes and drill such core holes quickly enough to substantiate the presence of commercially recoverable potash
prior to the drilling of the wells. Such wells would interfere with our ability to mine the potash deposits within a reasonable safety buffer around the wells.
Protests of Pending APDs
. As of March 31, 2008, Intrepid Mining has protested approximately 25 additional APDs in the Potash Area on or near its BLM and State of New Mexico potash leases that have
been submitted by various oil and gas operators. These protests, filed in 2006 and 2007, do not currently involve any claims against us. Intrepid Mining’s protests are based on the arguments advanced in the proceedings described above, and
additional arguments including that the proposed drilling presents an unacceptable safety hazard to our underground potash operations. There can be no assurance that our protests will result in the denial of the APDs and, if these APDs are granted
and we are not successful in any appeal thereof, the wells would interfere with our ability to mine the potash reserves and other potash deposits within a reasonable safety buffer around the wells.
We are subject to claims and legal actions in the ordinary course of our business. We do not believe any currently pending or threatened matter would have a
material adverse effect on our business, results of operations or financial condition.
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Our Properties
We control the rights to mine approximately 109,000 acres of land northeast of Carlsbad, New Mexico. We lease approximately 28,000 acres from the State of New Mexico and approximately 81,000 acres from the federal government through the
Bureau of Land Management, or BLM.
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We control the rights to mine approximately 7,000 acres of land west of Moab, Utah. We lease all of this acreage
from the State of Utah. We own approximately 3,600 surface acres overlying and adjacent to portions of our State of Utah mining leases.
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We control the rights to mine approximately 88,000 acres of land near Wendover, Utah. We own approximately 57,000
acres, and we lease approximately 6,000 acres from the State of Utah and approximately 25,000 acres from the federal government through the BLM.
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We conduct most of our mining operations on properties that we lease from the state or federal government. These
leases generally require us to commence mining operations within a specified term and continue mining to retain the lease.
Our leases with the State
of New Mexico are issued for terms of 10 years and for as long thereafter as potash is produced in commercial quantities. Our State of Utah leases are issued for terms of 10 years subject to extension by the State of Utah. Our leases for our Moab
Mine are operated as a unit under a unit agreement with the State of Utah, which extends the terms of all of the leases as long as operations are conducted on any portion of the leases. The terms of the leases for our Moab Mine are currently
extended until 2014. Our federal leases are issued for indefinite terms subject to readjustment every 20 years.
The provisions of our leases are
subject to periodic readjustment by the state and federal government. The lease provisions could change in the future, and such changes could impact the economics of our operations. Our federal leases are subject to readjustment of the lease
provisions, including the royalty payable to the federal government, every 20 years. Our leases with the State of New Mexico are subject to readjustment of the lease provisions, including the royalty payable to the state, every five to ten years.
Our leases with the State of Utah are subject to extension and possible readjustment of the lease provisions every ten years. As of December 31, 2007, approximately 46% of our state and federal lease acres at our New Mexico facilities (including
leases at the HB and North Mines) and approximately 15% of our state and federal lease acres at our Utah operations will be up for renewal within the next five years.
We pay royalties to the state and federal governments for potash produced from our leases. The royalty rates on our state and federal leases in New Mexico are
currently set at various rates from two to five percent, with most of our recent royalty rates set at five percent. The royalty rates on our state and federal leases in Utah are currently set at rates from two to three percent.
We have water rights at each of our mine properties that we believe are adequate for our needs.
We lease approximately 10,486 square feet of office space in Denver, Colorado for a term extending through May 31, 2008. We also lease approximately 2,400
square feet of office space in Arlington, Texas for a term extending through August 31, 2010.
All of our mining operations are accessible by
paved state highways. All of our operations obtain electric power under contracts with local utilities.
Our mines, plants and equipment have
been in substantially continuous operation since the dates indicated in the chart on page 88. We have made significant expenditures to modernize and improve the condition of our plants and equipment. We believe that our plants and equipment are
adequate for conducting our operations. For more information about our mine properties, see “—Our History” beginning on page 84, “—Our Key Assets and Facilities” beginning on page 85 and “—Our
Capital Expenditure Program” on page 98.
Environmental, Health and Safety Matters
We mine and process potash and potash-related products which subjects us to an evolving set of federal, state and local environmental, health and safety, or EHS,
laws that regulate, or propose to regulate: (i) product content and labeling; (ii) conduct of mining and production operations, including safety procedures followed by employees; (iii) management and handling of raw materials;
(iv) air and water quality impacts from our facilities; (v) disposal, storage and management of hazardous and solid wastes; (vi) remediation of contamination at our facilities and (viii) post-mining land reclamation.
107
We employ, both within the company and outside the company, environmental health professionals to review our
operations and assist with environmental compliance. These environmental health professionals identify and address compliance issues regarding used oil and petroleum product management, solid and hazardous waste management and disposal, water and
air quality, asbestos abatement, drinking water quality, radiation control and other EHS issues.
We have spent, and anticipate that we will
continue to spend, substantial financial and managerial resources to comply with EHS standards. The majority of these resources will be expended through our capital budget which is expected to be approximately $90 million in 2008. For the details on
those capital projects, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Expenditures” on page 60. In addition to these capital expenditures, for 2008, we have budgeted
approximately $0.4 million for environmental and remediation-related expenditures at our facilities. In 2007, our capital expenditures were $31.2 million. In addition to these capital expenditures, in 2007, our environmental and remediation-related
expenditures at our facilities totaled approximately $0.9 million.
We cannot predict the impact of new or changed laws, regulations or permit
requirements, including the matters discussed below, or changes in the ways that such laws, regulations or permit requirements are enforced, interpreted or administered. Environmental, health and safety laws and regulations are complex, change
frequently and have tended to become more stringent over time. It is possible that greater than anticipated EHS capital expenditures or reclamation expenditures will be required in 2008 or in the future. We expect continued government and public
emphasis on environmental issues will result in increased future investments for environmental controls at our operations.
Product Registration Requirements
We are required to register fertilizer products with each U.S. state and foreign country where products are sold. Each brand and grade of
commercial fertilizer must be registered with the appropriate state agency before being offered for sale, sold or distributed in that state. Registration requires a completed application, guaranteed analysis, product labels and registration fee.
Sold products must have specified information printed on the bag, on tags affixed to the end of the package, or, if in bulk shipments, written or printed on the invoice, bill of lading or shipping papers.
State registrations are for one- to two-year periods, depending on each state’s requirements. In addition, each state also requires tonnage reporting for
products sold into that state either monthly, quarterly, semi-annually or annually, depending on each state’s requirements. Some states do require the same registration and reporting process for feed grade products; industrial grade products do
not require registration or tonnage reporting.
Operating Requirements
Permits
. We are subject to numerous EHS laws and regulations, including laws and regulations regarding land reclamation; release of air or water contaminants; the generation, treatment, storage,
disposal and handling of hazardous substances and wastes; and the cleanup of hazardous substances releases. These laws include the Clean Air Act, Clean Water Act, RCRA, CERCLA, the Toxic Substances Control Act, and various other federal, state, and
local laws and regulations. Violations can result in substantial penalties, court orders to install pollution-control equipment, civil and criminal sanctions, permit revocations and facility shutdowns. In addition, EHS laws and regulations may
impose joint and several liability, without regard to fault, and for cleanup costs on potentially responsible parties who have released, disposed of or arranged for release or disposal of hazardous substances in the environment.
We hold numerous environmental, mining and other permits or approvals authorizing operations at each of our facilities. Our operations are subject to permits for,
among other things, extraction of salt and brine, discharges of process materials to air and surface water, and injection of brine and
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wastewater to sub-surface wells. Some of our proposed activities may require waste storage permits. A decision by a government agency to deny or delay issuing a new or
renewed permit or approval, or to revoke or substantially modify an existing permit or approval, could limit or prevent us from mining at these properties. In addition, changes to environmental and mining regulations or permit requirements could
limit our ability to continue operations at the affected facility. Expansion of our operations also is predicated upon securing the necessary environmental or other permits or approvals. For instance, over the next several years, we will be
continuing our efforts to obtain permits in support of an anticipated expansion of our New Mexico mining operations at certain properties, including the HB Mine. For years, we have successfully permitted mining properties and anticipate that we will
be able to permit these properties as well. A denial of these permits or the issuance of permits with cost-prohibitive conditions would prevent us from mining at these properties.
In certain cases, as a condition to procuring such permits and approvals, we are required to comply with financial assurance regulatory requirements. The purpose
of these requirements is to assure the government that sufficient company funds will be available for the ultimate closure, post-closure care and/or reclamation at our facilities. We obtain bonds as financial assurance for these obligations. These
bonds require annual payment and renewal.
Except as set forth herein, we believe we are in material compliance with existing regulatory
programs, permits, and approvals. From time to time, we have received notices from governmental agencies that we are not in compliance with certain environmental laws, regulations, permits or approvals. For example, although designated as zero
discharge facilities under the applicable water quality laws and regulations, our East Mine, North Mine and Moab Mine at times may experience some discharges during significant rainfall events. We have identified, and are in the process of
implementing, several initiatives to attempt to address this issue, including reconstruction or modification of certain dams, increased evaporation through water sprays, pumping and a reduction of process discharges. State and federal officials are
aware of this issue and have visited the site to review the issue. No citations or orders have been issued regarding this issue. We have undertaken several projects to attempt to address this issue, including check dams and recovery of fugitive
brine. We have expended significant sums in 2007 and have budgeted additional significant funds in 2008 to address this issue at our facilities.
In 2006, Notices of Violation were issued by the applicable New Mexico authorities regarding drinking water-related issues at our New Mexico facilities. We believe these issues were addressed in 2006. In May 2007, an administrative order
was issued by New Mexico authorities requiring us to take action to comply with drinking water standards at our New Mexico facilities, but not imposing any penalties in connection with this order. As a result, we have submitted quarterly progress
reports and taken steps to correct the problems, including some repairs to our New Mexico drinking water systems.
Air
Emissions
. With respect to air emissions, we anticipate that additional actions and expenditures may be required in the future to meet increasingly stringent U.S. federal and state regulatory and permit requirements,
including existing and anticipated regulations under the federal Clean Air Act. The U.S. Environmental Protection Agency has issued a number of regulations establishing requirements to reduce nitrogen oxide emissions and other air pollutant
emissions. Additionally, with increased attention paid to emissions of greenhouse gases, including carbon dioxide, new regulations could develop that may affect our operations. We will continue to monitor developments in these various programs and
assess their potential impacts on our operations.
We received a Notice of Violation in October 2006 regarding certain air quality violations at
one of our New Mexico facilities. We took corrective action in response to that Notice of Violation and, in the last quarter of 2007, resolved the Notice of Violation by agreeing to pay an approximately $13,000 monetary penalty and performing a
supplemental environmental project (paving an access road to control dust). In December 2007 we received an air quality Notice of Violation related to fugitive
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emissions at the East Mine in New Mexico. We are working with state officials to resolve this situation and expect to pay a penalty of not more than $15,000 and to
implement appropriate engineering and operational measures. In 2008, we have budgeted and expect to spend significant funds to improve our production and pollution control equipment. Although we are not aware of any additional air quality
enforcement actions pending for our New Mexico facilities, the malfunction or failure of pollution control equipment and/or production equipment, more stringent air quality regulations, or a change in interpretation and enforcement of applicable air
quality laws and regulations could result in an enforcement action.
Health and Safety Regulation and
Programs
. Our New Mexico and Utah facilities are subject to either the Occupational Safety and Health Act, the Mine Safety and Health Act, related state statutes and regulations, or a combination of these laws.
The Mine Safety and Health Administration, referred to herein as MSHA, is the governing agency for our New Mexico facilities. As required by MSHA for
underground mines and attendant surface facilities, our New Mexico facilities are inspected by MSHA personnel regularly. Over the past three years, MSHA citations and orders, both significant and substantial and non-significant and substantial, have
decreased steadily. Recently, our New Mexico facilities have begun participating in MSHA’s Region 8 “partnership” program. Intrepid is one of nine facilities in the partnership program of over 1500 mines in the South Central District
of MSHA. This is a formally signed document and plan, pursuant to which each party commits to specific actions and behaviors. Principles include for example, working for an open, cooperative environment, agreeing to citation and conflict processes,
improving training, and helping other, less equipped or staffed locations. Annual and refresher training for all employees at our New Mexico facilities is held, covering required topics as well as site-specific issues and incidents. Each of our New
Mexico facilities is serviced by a trained mine rescue team, which is ready to respond to any on-site incidents. The team practices and participates at state and federal events and competitions. Our New Mexico facilities also recently embarked on a
behavior-based safety initiative in which the hourly workforce takes the lead to observe and coach proper safety behavior.
Because our Utah
facilities are not underground operations, OSHA governs the safety standards at those facilities. Both our Moab Mine and Wendover Facility have active safety and health programs. Regular meetings are held covering various safety topics. Annual and
refresher training is held for all employees at these facilities, covering required topics, as well as site specific issues and incidents.
Remediation at Intrepid Facilities
. Many of our current facilities have been in operation for a number of years. Operations by us and our predecessors have involved the historical use and handling of regulated
substances, refined petroleum products, potash, salt, related potash and salt by-products and process tailings. These operations resulted, or may have resulted, in soil, surface water and groundwater contamination. At some locations, there are areas
where salt-processing waste, building materials (including asbestos-containing transite), and ordinary trash may have been disposed or buried, and have since been closed and covered with soil and other materials.
At many of these facilities, spills or other releases of regulated substances have occurred previously and potentially could occur in the future, possibly
requiring us to undertake or fund cleanup efforts under CERCLA or state laws governing cleanup or disposal of hazardous and solid waste substances. In some instances, we have agreed, pursuant to consent orders or agreements with the appropriate
governmental agencies, to undertake investigations, which currently are in progress, to determine whether remedial action may be required to address such contamination. At other locations, we have entered into consent orders or agreements with
appropriate governmental agencies to perform required remedial activities that will address identified site conditions.
For example, buildings
located at our facilities in both Utah and New Mexico have a type of transite siding that contains asbestos. We have adopted programs to encapsulate and stabilize the siding through use of an adhesive spray and to remove the transite siding,
replacing it with an
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asbestos-free material. Also, we have authorized asbestos abatement crews that handle and dispose of the asbestos-containing transite and related materials. Many of
our facilities also contain permitted asbestos landfills, some of which have been closed. We have worked closely with Utah officials to address asbestos-related issues at our Moab Mine. We are working with federal officials to resolve issues
concerning the disposal of asbestos-containing transite at an unpermitted location at our West Mine, which may require additional removal of transite material, a land swap or another remedy.
At other locations, we have undertaken voluntary environmental remediation and/or compliance programs. Expenditures for these known conditions currently are not
expected, individually or in the aggregate, to be material. However, if additional contamination is discovered or the contamination is of a greater magnitude than currently estimated, material expenditures could be required in the future to
remediate the contamination at these or at other current or former sites.
Reclamation Obligations
Mining and processing of potash generates residual materials that must be managed both during the operation of the facility and upon facility closure. Potash
tailings, consisting primarily of salt and clay, are stored in surface disposal sites. These tailing materials may also include other contaminants, such as lead, that may require additional management and could cause additional disposal and
reclamation requirements to be imposed. For example, at least one of our New Mexico mining facilities, the HB Mine, may have issues regarding lead in the tailings pile. During the life of the tailings management areas, we have incurred and will
continue to incur significant costs to manage potash residual materials in accordance with environmental laws and regulations and with permit requirements. Additional legal and permit requirements will take effect when these facilities are closed.
Additionally, several of our permits require us to reclaim property disturbed by operations at our facilities. Our operations in Utah and New Mexico
have specific reclamation obligations related to restoration of the land after mining and processing operations are concluded. As of December 31, 2007, the discounted present value of our estimated reclamation costs for our mines is as follows:
approximately $2.6 million at our Moab Mine; approximately $1.3 million at our Wendover Facility; approximately $1.4 million at our West and North Mines; approximately $0.7 million at our East Mine; and approximately $1.7 million at our HB Mine,
resulting in a total present value of approximately $7.7 million, which is reflected in our financial statements. However, various permits and authorization documents negotiated with or issued by the appropriate governmental authorities include
these estimated reclamation costs on an undiscounted basis. As of December 31, 2007, these undiscounted amounts are as follows: approximately $5.7 million at our Moab Mine; approximately $3.2 million at our Wendover Facility; approximately $3.7
million at our West and North Mines; approximately $2.0 million at our East Mine; and approximately $4.0 million at our HB Mine, resulting in a total undiscounted value of approximately $18.6 million.
Our remediation and reclamation obligations and potential liabilities have been, and can be expected to continue to be, significant. It is often difficult to
estimate and predict the potential costs and liabilities associated with remediation and reclamation, and there is no guarantee that we will not in the future be identified as potentially responsible for additional remediation and reclamation costs,
either as a result of changes in existing laws and regulations or as a result of the identification of additional matters or properties subject to remediation and/or reclamation obligations or liabilities.
Royalties and Other Taxes
The potash we produce and sell
from fee leases is subject to royalty payments. The terms of the royalty payments are determined at the time of the issuance or renewal of the leases. Some royalties are determined as a fixed percent of revenue and others are on a sliding scale that
varies with the ore grade. We paid $7.0 million in royalties in 2007.
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Our principal competitors operate primarily in Saskatchewan, Canada. The Saskatchewan tax system for potash
producers includes a capital tax and several potash mineral taxes, none of which are imposed on us as a U.S. producer. The Saskatchewan potash mineral tax includes a crown royalty, a base payment and a profit tax. The combination of the capital tax
and potash mineral taxes creates a much greater tax and royalty burden per ton for Saskatchewan producers than we experience as a U.S. producer. This relative tax and royalty advantage for U.S. producers becomes more pronounced when profits per ton
increase due primarily to the profit tax component of the Saskatchewan potash mineral tax.
Income Taxes
Before this offering, we have operated as a limited liability company, with income taxes paid by the members of Intrepid Mining. After the completion of this
offering, we will be treated as a corporation for federal income tax purposes.
The federal income tax basis of the assets transferred to
Intrepid Potash pursuant to the exchange agreement discussed under “The Formation Transactions” will, in the aggregate, equal Intrepid Mining’s existing tax basis in the assets, increased by the amount of taxable gain recognized by
Intrepid Mining in connection with the formation transactions—generally, the amount of cash received by Intrepid Mining plus the amount of the formation distribution. We expect to allocate the increase in tax basis to our property, plant and
equipment and our mineral leasehold interests. As to the allocation to the mineral leasehold interests, we anticipate that percentage depletion with respect to our mineral leasehold interests will exceed cost depletion in each taxable year.
Consequently, we do not expect the increased tax basis to result in any increase in federal cost recovery deductions with respect to our mineral leasehold interests.
Insurance
We maintain insurance policies covering general liability, property and business interruption, workers’
compensation, business automobile, umbrella liability, aviation hull and liability, directors and officers liability and various ancillary and customary policies.
In 2006, we suffered two insurable losses. The first loss occurred on April 22, 2006, when a wind-shear struck the product warehouse at the East Mine in Carlsbad, New Mexico. Damage to the warehouse and the product in
the warehouse and alternative handling and storage costs were covered by our insurance policies at replacement value less a $1 million deductible. The warehouse’s replacement cost is expected to be approximately $22 million. Additional
insurance payments to reconstruct the warehouse are still contingent upon review by the insurer and, therefore, will be recognized in the future as settlements, if any, are agreed upon. Through December 31, 2007, we had received insurance
settlements on the East Mine of approximately $15.4 million, comprised of property loss settlements of $14.1 million, resulting in a gain of $9.9 million, and business interruption settlements of $1.3 million.
The second loss occurred on October 10, 2006, when unused utilities in the West Mine production shaft broke loose due to an increase in groundwater flows into
the shaft resulting from heavy rains from Hurricane John. We incurred a 54-day shutdown to remove all the unused utilities and to improve groundwater capture and conveyance systems in the shaft. Under the then terms of our business interruption
insurance policy, the first 30 days of the interruption were not covered by insurance. We received full payment of $4.0 million in insurance settlements on the West Mine on our business interruption claim.
While experiencing a significant increase in premiums, we were able to renew the property insurance program with the same insurance carrier in 2007. Limits and
coverage were improved from the previous policy periods.
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MANAGEMENT
Directors, Executive Officers and Key Employees
The table below shows information about our directors, executive officers and key employees as of March 31, 2008:
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Name
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Age
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Position
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Robert P. Jornayvaz III
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49
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Chairman of the Board and Chief Executive Officer
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Hugh E. Harvey, Jr.
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55
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Executive Vice President of Technology and Director
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Patrick L. Avery
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55
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President and Chief Operating Officer
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R.L. Moore
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58
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Senior Vice President of Marketing and Sales
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James N. Whyte
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49
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Executive Vice President of Human Resources and Risk Management
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David W. Honeyfield
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41
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Executive Vice President, Chief Financial Officer and Treasurer
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Rodney D. Gloss
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51
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Vice President and Controller
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J. Landis Martin
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62
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Director
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Robert P. Jornayvaz III
has served as Chairman of the Board and Chief Executive Officer of
Intrepid Potash since its formation in November 2007 and has served, directly or indirectly, as a manager of Intrepid Mining since its formation in January 2000. Mr. Jornayvaz is 100% owner of Intrepid Production Corporation, which owns 40% of
Intrepid Mining and 100% of IPC Management LLC, one of two managers of Intrepid Mining. He also owns 50% of Intrepid Oil & Gas, LLC. He graduated from Phillips Exeter Academy and holds a B.A. degree from the Plan II Honors Program at the
University of Texas and has 27 years’ experience in the oil and gas industry. Mr. Jornayvaz has been associated with Mr. Harvey for approximately 12 years, participating in joint property acquisition arrangements through their own
companies until forming Intrepid Oil & Gas, LLC in 1996.
Hugh E. Harvey, Jr.
has served as Executive Vice President of Technology
and Director of Intrepid Potash since its formation in November 2007 and has served, directly or indirectly, as a manager of Intrepid Mining since its formation in January 2000. Mr. Harvey is 100% owner of Harvey Operating and Production
Company, which owns 40% of Intrepid Mining and 100% of HOPCO Management LLC, one of two managers of Intrepid Mining. He also owns 50% of Intrepid Oil & Gas, LLC. Mr. Harvey earned a B.Sc. in Mining Engineering and an M.E. in Petroleum
Engineering, from the Colorado School of Mines. He has ten years’ experience in the mining industry, over 24 years of experience in the oil and gas industry and a unique combination of mining, mineral processing, drilling, field operations and
economic evaluation experience. Mr. Harvey has been associated with Mr. Jornayvaz for approximately 12 years, participating in joint property acquisition arrangements through their own companies until forming Intrepid Oil & Gas,
LLC in 1996.
Patrick L. Avery
has served as President and Chief Operating Officer of Intrepid Potash since its formation in November 2007. He
joined Intrepid Mining as Vice President of Operations and Chief Operating Officer in April 2007 and was named Intrepid Mining’s President and Chief Operating Officer in October 2007. Prior to joining Intrepid Mining, Mr. Avery served in
various capacities for J.R. Simplot, a privately-held food and agribusiness company, for over ten years. Most recently, Mr. Avery led and managed all aspects of Simplot’s agribusiness fertilizer and chemical business. As Senior Vice
President of Mining and Manufacturing for Simplot, Mr. Avery was responsible for production, optimization, capital and project management, lean manufacturing and Six Sigma efforts. In such capacity, Mr. Avery was responsible for ten
facilities, a $600 million operating budget with 5 million tons of fertilizer. Mr. Avery holds a B.A. in Biology and Chemistry from the University of Colorado, an M.S. in Engineering from Loyola, and an M.B.A. from Pepperdine University.
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R.L. Moore
has served as Senior Vice President of Marketing and Sales of Intrepid Potash since its formation
in November 2007. He has served as Senior Vice President of Marketing of Intrepid New Mexico since March 2005 and prior to such time, served as Vice President of Marketing of Intrepid New Mexico since March 2004. Prior to joining Intrepid New
Mexico, Mr. Moore served as Vice President of Marketing for Mississippi Potash, Inc. since August 1996. Mr. Moore directed all marketing and sales activities for Mississippi Potash’s potash mining and processing. Mr. Moore holds
a Certified Traffic Manager Certification from the College of Advanced Traffic.
James N. Whyte
has served as Executive Vice President of
Human Resources and Risk Management of Intrepid Potash since its formation in November 2007. He joined Intrepid Mining as Vice President of Human Resources and Risk Management in January 2004 and was named Executive Vice President of Human Resources
and Risk Management in October 2007. Prior to joining Intrepid Mining, Mr. Whyte served as President of Caleb Insurance Group, Inc. since December 1998. Mr. Whyte’s other previous roles included serving as a Senior Vice President for
Marsh and McLennan, a global professional services and insurance brokerage firm, and a senior landman for Diamond Shamrock, an oil refining and marketing company. Mr. Whyte holds a B.B.A. in Finance from Southern Methodist University and an
M.B.A. from The University of Denver.
David W. Honeyfield
joined us as Executive Vice President, Chief Financial Officer and Treasurer in
March 2008. From May 2003 to March 2008, he held various positions with St. Mary Land & Exploration Company, including Senior Vice President and Chief Financial Officer from March 2007 to March 2008, Chief Financial Officer from May 2005 to
March 2007 and Vice President - Finance, Treasurer and Secretary from May 2003 to May 2005. Prior to joining St. Mary, Mr. Honeyfield was Controller and Chief Accounting Officer of Cimarex Energy Co. from September 2002 to May 2003 and Controller
and Chief Accounting Officer of Key Production Company, Inc., which was acquired by Cimarex in September 2002. Prior to joining Key Production Company in April 2002, Mr. Honeyfield was a senior audit manager with Arthur Andersen LLP in Denver.
Mr. Honeyfield had been with Arthur Andersen since January 1991, and he served clients primarily in the mining, oil and gas, and manufacturing sectors. Mr. Honeyfield holds a B.A. in Economics from the University of Colorado.
Rodney D. Gloss
has served as Vice President and Controller of Intrepid Potash since its formation in November 2007 and has served as Intrepid
Mining’s Vice President and Controller since July 2004. Prior to that time, he held the positions of Vice President, Chief Financial Officer and Controller of Timminco Limited, an international light metal manufacturing and mining company,
since November 1998. Mr. Gloss’ additional experience includes positions as the Finance Manager and Controller with Sulzer Intermedics, an international manufacturer of high-tech medical devices, and the Controller and Director of Finance
with North American Chemical, a private international mining and processing company of inorganic chemicals. Mr. Gloss holds an M.B.A. in Business Administration from the Anderson School, University of California—Los Angeles and a B.S. in
Math and B.S.B.A. in Business Administration from Northern Arizona University.
J. Landis Martin
has served as a director of Intrepid Potash
since November 2007 and a director of Intrepid Mining since June 2007. Mr. Martin is the founder of the private equity firm Platte River Ventures and has been a Managing Director since November 2005. Mr. Martin retired as Chairman and
Chief Executive Officer of Titanium Metals Corporation, an integrated producer of titanium metals, where he served from 1989 until November 2005. Mr. Martin served as President and Chief Executive Officer of NL Industries, Inc., a manufacturer
of titanium dioxide chemicals, from 1987 to 2003 and was Chairman and Chief Executive Officer of Baroid Corporation from 1990 to 1994. Mr. Martin is Chairman of the Board of Directors of Crown Castle International Corp. and is also a director
of Halliburton Company and Apartment Investment Management Company. Mr. Martin holds a B.S.B.A. in Business Administration and Economics from Northwestern University and a J.D. from Northwestern University School of Law.
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Membership of Our Board of Directors
Our board of directors currently consists of three directors. The members of our board of directors named above will appoint two additional members effective as of
the consummation of this offering and the formation transactions, and a third additional member thereafter. Each of the three additional members will be “independent” as that term is defined by the rules of the NYSE. Independent members of
our board of directors will serve as the initial members of the audit, compensation and nominating and corporate governance committees.
Board
Composition Following the Offering
Following the offering, our board will consist of six directors, who will be divided into three classes,
designated as Class I, Class II and Class III. Upon completion of this offering, we will have five directors in office as set forth below:
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Name
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Age
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Position
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Robert P. Jornayvaz III
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49
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Chairman of the Board and Chief Executive Officer (Class III)
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Hugh E. Harvey, Jr.
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55
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Executive Vice President of Technology and Director (Class III)
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Terry Considine
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60
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Director (Class I)
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J. Landis Martin
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62
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Director (Class II)
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Barth E. Whitham
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52
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Director (Class II)
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The members of each class shall serve for a staggered three-year term, except that Class I
directors in the initial term immediately following the offering will serve for one year and the Class II directors in the initial term immediately following the offering will serve for two years. Each director will be elected to serve until
the election of the director’s successor at an annual meeting of stockholders for the election of directors for the year in which the director’s term expires or at a special meeting called for that purpose. Directors may be removed only
for cause.
Set forth below is a brief description of the business experience of each of the individuals that will become directors upon
completion of this offering. We expect to appoint a sixth member of the board following the completion of this offering. For a description of the business experience of Messrs. Jornayvaz, Harvey and Martin, see “—Directors, Executive
Officers and Key Employees” above. Pursuant to the director designation and voting agreement discussed under “Certain Relationships and Related Party Transactions—Director Designation and Voting Agreement”, each of the original
stockholders will agree to designate one candidate for nomination and election to the board and to vote their shares in favor of the others’ candidates. The initial nominees of the original stockholders will be Mr. Harvey (nominated by
HOPCO), Mr. Jornayvaz (nominated by IPC) and Mr. Martin (nominated by PAL).
Terry Considine
has served as Chief Executive Officer and
Chairman of Apartment Investment Management Company, a publicly held, multi-family apartment real estate investment trust, since July 1994. Mr. Considine has also served as Chief Executive Officer and Chairman of American Land Lease, Inc., another
publicly held real estate investment trust, since July 1996. Mr. Considine holds a B.A. in English History and a J.D. from Harvard University.
Barth E. Whitham
has served as President and Chief Executive Officer of Enduring Resources, LLC, a company focused on the acquisition and exploitation of long-lived natural gas assets in domestic onshore basins, since July
2005, and also serves on its board of directors. From January
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1991 to June 2005, Mr. Whitham served as President and Chief Operating Officer of Westport Resources Corp., a publicly traded Rocky Mountain-based exploration and
production company, and also served on its board of directors. Mr. Whitham also serves as a director and member of the audit committee of Ensign Energy Services Inc., an oilfield services company publicly traded on the Toronto Stock Exchange. Mr.
Whitham holds a B.S. in Petroleum Engineering and an M.S. in Economics from the Colorado School of Mines.
Board Committees
The board of directors will have a standing audit committee, a standing compensation committee and a standing nominating and corporate governance committee.
Audit Committee.
The audit committee will be responsible, among its other duties and responsibilities, for
engaging, overseeing and evaluating our independent registered public accounting firm, pre-approving all audit and non-audit services by that firm, reviewing the scope of the audit plan and the results of each audit with management and our
independent registered public accounting firm, reviewing the internal audit function, reviewing the adequacy of our system of internal accounting controls and disclosure controls and procedures, reviewing the financial statements and related
financial information we will include in our SEC filings and exercising oversight with respect to our code of conduct and other policies and procedures regarding adherence with legal requirements. All of the members of the audit committee will be
independent within the meaning of the independent director guidelines of the NYSE and applicable federal securities laws and regulations. Our board will have one “audit committee financial expert” as defined in the federal securities laws
and regulations.
Compensation Committee.
The compensation committee and its designated subcommittee will be
responsible, among its other duties and responsibilities, for establishing the compensation and benefits of our executive officers and other key employees, monitoring compensation arrangements applicable to management employees for consistency with
corporate objectives and stockholders’ interests, succession planning for officers and key executives and administering our stock incentive plans. All of the members of our compensation committee will be independent within the meaning of the
independent director guidelines of the NYSE and applicable federal securities laws and regulations.
Nominating and Corporate Governance
Committee.
The nominating and corporate governance committee will be responsible for recommending candidates for election to the board of directors. The committee is also responsible, among its other duties and
responsibilities, for making recommendations to the board of directors or otherwise acting with respect to corporate governance matters, including board size and membership qualifications, new director orientation, committee structure and membership
and non-employee director compensation. The nominating and corporate governance committee will also be responsible for assessing the adequacy of our code of conduct, governance guidelines and other internal policies and reviewing and making
recommendations to the board with regard to requests for waivers from any such policies. All of the members of our nominating and corporate governance committee will be independent within the meaning of the independent director guidelines of the
NYSE and applicable federal securities laws and regulations.
Messrs. Considine, Martin and Whitham will be members of each of the Audit,
Compensation and Nominating and Corporate Governance Committees following the completion of this offering.
The board has not yet determined who will serve as chairs of each of the committees.
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Compensation Discussion and Analysis
The following discussion and analysis of the compensation arrangements of our named executive officers should be read together with the tables and related
disclosures set forth below under the heading entitled “—Executive Compensation”. The following discussion contains forward-looking statements that are based on our current plans, considerations, expectations and determinations
regarding future executive compensation programs. Actual compensation programs that we adopt may differ materially from the anticipated programs described below.
Overview
Our primary goals with respect to executive compensation are to attract, retain, motivate and reward talented
executives, to tie compensation incentives to individual and company performance, and to sustain our continued growth and profitability by having total executive compensation reflect the overall success of the business. We currently use a mix of
base salary, annual cash bonuses, benefits and perquisites to achieve those goals, although we anticipate transitioning from cash bonuses to a short-term incentive program and adding equity incentive awards to our executive compensation packages on
or after the completion of the offering.
Evolution of our Compensation Approach
Our compensation approach has traditionally been tied to the operation of the business as a closely held limited liability company. Historically, the principal
owners of Intrepid Mining, Robert P. Jornayvaz III and Hugh E. Harvey, Jr., have been solely responsible for setting and adjusting the overall design of our pay programs for the named executive officers, except for themselves and for
Patrick A. Quinn, an independent contractor who served as our Interim Chief Financial Officer prior to the hiring of our current Chief Financial Officer, David W. Honeyfield.
General Compensation Approach for Executives
. The principal owners negotiate executive compensation packages for all named executive
officers (except for themselves and for Mr. Quinn) as part of the hiring process and review the aggregate levels of each executive’s compensation as part of the annual budget and performance review processes. In setting or adjusting
executive compensation packages, the principal owners have relied on compensation consultants to recommend pay levels to ensure that executive compensation remains competitive in the marketplace. For example, we engaged Mercer, LLC in 2004 and 2005
and Delphi Management Solutions, Inc. in 2006 to recommend competitive base salary ranges and associated target bonus opportunities for our executive officers and other key employees. In developing pay recommendations, both consulting companies used
several different proprietary compensation surveys containing pay data for companies similar in size, revenue and industry. In 2006, Delphi Management Solutions, Inc. recommended base salary ranges and target bonus opportunities that were at the
median of the data pulled by them from the surveys. The recommended base salary ranges and target bonus opportunities were generally continued in effect through 2007, subject to certain position-specific adjustments to base salary effected in April
and October of 2007. See “—Base Salary” below. In setting the exact amount and mix of compensation elements for executive officers, the principal owners have in the past considered the following:
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their understanding of the compensation paid by other companies with whom we compete for executive talent;
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the seniority and responsibility level of the executive officer;
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the talents of the executive officer and market availability of similar personnel;
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market forces involved directly in the hiring of the executive;
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the existing levels of pay among the executive officers relative to each other; and
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the individual performance of each executive officer.
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Compensation Approach for our Principal Owners.
In 2003 and 2004, the principal owners entered into negotiations with the minority owner of the business at the time in order to establish base salary and target
cash bonus levels for themselves. As a direct result of these negotiations, Intrepid Mining engaged J. Richard & Co., a nationally recognized compensation consultant, to recommend compensation for the principal owners. Those recommendations
were eventually instituted by the principal owners in fiscal 2004 and 2005. In 2006, J. Richard & Co. updated its initial report and recommended new base salary and bonus opportunities for the principal owners. In arriving at its
recommendations for 2006, J. Richard & Co. first established a peer group of the following 10 publicly-traded companies involved in natural resource extraction, the fertilizer industry, or both:
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Alliance Resource Partners LP
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Coeur D’Alene Mines Corporation
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Compass Minerals International, Inc.
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Foundation Coal Holdings, Inc.
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James River Coal Company
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Potash Corporation of Saskatchewan Inc.
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This peer group
was designed to reflect a representative cross-section of companies of different sizes involved in businesses similar to ours. J. Richard & Co. then used the executive compensation data publicly reported by each of these companies to run a
regression analysis comparing the base salary and total cash compensation of chief executive officers to the market capitalization and revenues of the companies in the peer group. They then applied the results of that analysis to our revenues and
hypothetical market capitalization in formulating their recommendations. The recommendations as to both base salary and bonus opportunity were not targeted at a specified level relative to the peer group of comparator companies. Instead, J. Richard
& Co. used the data and its regression analysis to formulate recommendations that it thought would be appropriate for the principal owners. The recommendations were instituted in 2006 and continued in 2007 (with certain modifications as to
bonuses; see “—Annual Cash Bonuses” below), and were approved by Potash Acquisition, LLC, the current minority owner of the business, upon the purchase of its interest in Intrepid Mining. Because the compensation of the principal
owners was the subject of negotiation, and because the principal owners were historically responsible for the growth and success of the company, their base salary and bonus opportunities tend to be significantly larger than those for other named
executives and their bonuses tend to be far more dependent on meeting objective performance targets.
Compensation Approach for our Former
Interim Chief Financial Officer
. Our former Interim Chief Financial Officer, Mr. Quinn, is an independent contractor who performs services for us through the accounting firm of Quinn & Associates, P.C., of
which he is the primary owner. Although Mr. Quinn was replaced as Chief Financial Officer by Mr. Honeyfield in March 2008, we expect that Mr. Quinn and Q&A will continue to perform services for us into fiscal 2009. Q&A bills us at their
hourly rates for services performed on our behalf by Mr. Quinn and the other professionals in his firm. Rates are
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identical to those charged by Q&A to other third-party clients, and are adjusted from time to time in accordance with market conditions, most recently in February
2007. The compensation programs described in this prospectus are inapplicable to Mr. Quinn.
Changes to our Compensation
Approach.
As we continue to evolve as a company, we expect that the specific direction, emphasis and components of our executive compensation programs will also continue to evolve. For example, over time, we expect to add
equity incentives to executive pay packages, to transition from discretionary annual bonuses to a formal short-term cash incentive program, and to use peer groups and survey data in determining compensation for all of our executive officers. We
anticipate that doing so will allow us to offer incentive compensation programs that are more in line with those used by public companies, including our primary competitors. We also believe that this approach will better motivate and reward our
executive team. In furtherance of those expectations, we engaged Towers Perrin in the fall of 2007 to recommend ranges for base salary levels, target short-term incentive/annual bonus awards, and annual equity incentive awards for our named
executive officers, including Messrs. Jornayvaz and Harvey. In developing its recommendations, Towers Perrin relied on two sets of internally generated survey data, one set for all companies in Towers Perrin’s compensation database, the other
including only the following companies in the agricultural/chemical industries:
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CF Industries Holdings, Inc.
|
|
|
Ÿ
|
|
The Scotts Miracle-Gro Company
|
These data sets were then
manipulated through a regression analysis to generate information regarding pay levels for executives of companies of our size. Towers Perrin then selected a peer group of the following similarly sized, publicly-traded companies engaged in potash
extraction, fertilizer production, or in the agricultural/chemical industries generally in order to gather information on the pay practices of our closest competitors:
|
|
Ÿ
|
|
American Vanguard Corporation
|
|
|
Ÿ
|
|
CF Industries Holdings, Inc.
|
|
|
Ÿ
|
|
EDEN Bioscience Corporation
|
|
|
Ÿ
|
|
Potash Corporation of Saskatchewan Inc.
|
|
|
Ÿ
|
|
The Scotts Miracle-Gro Company
|
Towers Perrin analyzed each of
the data points and recommended ranges for base salary levels, target short-term incentive/annual bonus awards and annual equity awards for our executives that were benchmarked at the median of the regressed survey data. The recommendations as to
base salary
119
resulted in increases to the base salaries of Messrs. Avery and Whyte late in 2007. See “—Base Salary” below. The recommendations as to short-term
incentive/annual bonus awards will be incorporated into our 2008 bonus plan, and the recommendations as to long-term equity incentive awards will be used in formulating grants to be made upon the completion of this offering. See “—Annual
Cash Bonuses—Annual Bonuses for 2008” and “—Establishment of Long-Term Incentive Program” below.
For fiscal years
beginning after completion of the offering, we expect that management, in consultation with Towers Perrin, will make annual recommendations of executive base salaries, short-term incentive/annual bonus awards and annual equity awards to our
compensation committee, which will review the recommendations and make all final decisions with regard to our executive compensation programs and packages.
Current Executive Compensation Components
Our executive compensation program currently consists of the following components:
In general, base salary and annual cash
bonus opportunities are established jointly for each executive officer based on the principal owners’ review of recommendations from the various compensation consultants described above, in order to set a total target cash pay opportunity for
the executive for the year that is at or around the median of the total cash compensation data pulled by the relevant consultant. In order to better incentivize those individuals who can have the greatest impact on our success, the more senior the
executive, the more of that individual’s total cash pay opportunity is generally weighted toward bonus. Benefits are available to all employees regardless of the base salary, bonus opportunity or perquisites made available to the employee.
Perquisites are determined individually for each employee based on the individual’s job responsibilities and position with the company and have not generally affected the base salary or bonus opportunities of our executives.
Base Salary
We consider a competitive base salary to be essential
to fulfilling our stated compensation goals of attracting and retaining talented executives. Base salaries for executive officers other than our principal owners are established based on position-specific responsibilities, taking into account the
median competitive market compensation for similar positions as set forth in the relevant survey data described above, the seniority of the individual, internal equity among executive officers, and other subjective factors deemed relevant by the
principal owners. The base salaries of those executive officers are reviewed annually and may be adjusted pursuant to such review or at other appropriate times to reflect significant changes in job responsibilities or market conditions, as well as
to reflect individual performance of the executive and the growth of the business. Historically, in determining salary adjustments, we have placed particular emphasis on an individual’s performance, as determined by our principal owners.
Several salary adjustments were made by us with respect to our named executive officers (other than our principal owners) in 2007. The adjustments are described below, together with the material factors considered by us in connection with each
adjustment.
|
|
Ÿ
|
|
Mr. Avery’s salary was increased approximately 6.0% in 2007 based on our review of recommendations from Towers Perrin which reflected that Mr. Avery’s
salary had fallen below the median of salaries of similarly situated executives.
|
120
|
|
Ÿ
|
|
Mr. Moore’s salary was increased approximately 7.5% in 2007 in connection with his annual review. Mr. Moore met his sales target goals, sales
“net-back” goals, and sales and marketing staffing goals.
|
|
|
Ÿ
|
|
Mr. Whyte’s salary was increased twice in 2007 for a total increase of approximately 15.4%. The first increase was made in connection with Mr. Whyte’s
annual review. Mr. Whyte effectively managed issues related to human resources and risk management and was highly successful in recruiting and retaining key employees. The second increase was made based on our review of recommendations from
Towers Perrin which reflected that Mr. Whyte’s salary had slipped below the median of salaries of similarly situated executives.
|
These were the only adjustments to the base salaries of our named executive officers for the 2007 year. The base salaries of our named executive officers (other than our principal owners) were in the median range of the compensation for
similar positions as set forth in the relevant survey data.
Base salaries for the principal owners were set in 2006 at the average of the salary
range recommended by J. Richard & Co. ($475,000-$500,000) and have not changed in 2007. Base salaries of all of our executive officers after the offering will be set by our compensation committee within base salary ranges recommended by
Towers Perrin, which we expect to be benchmarked at the median of the competitive market data. The exact amount of an executive’s salary will be determined by our compensation committee after taking into account the factors described above.
Annual Cash Bonuses
We consider annual cash
bonuses to be essential to fulfilling our stated compensation goals of tying compensation incentives to individual and company performance and to sustaining our growth and profitability by having total executive compensation reflect the overall
success of the business.
Principal Owners
. Bonus amounts for the principal owners are determined for each fiscal year,
generally in accordance with one or more objective formulas developed by J. Richard & Co. In addition, the managers may award discretionary bonus amounts in excess of the amounts calculated under the objective formulas to take into account
exceptional efforts or time spent by the principal owners in managing the business.
2006 Bonuses.
In 2006, the
objective piece of the bonus was calculated by taking the average of the bonuses calculated under two separate bonus formulas—(i) the formula historically in effect prior to 2006; and (ii) the 2006 formula recommended by J. Richard & Co.
Each bonus formula was applied using the same two EBITDA targets for 2006. EBITDA for each target was calculated based on our preliminary financial results, except that the bonuses paid to the principal owners for 2006 were added back to earnings,
yielding a 2006 EBITDA of $33,571,455 for purposes of determining bonus amounts. The first EBITDA target was based on the original financial case submitted to the various banking institutions upon the purchase of the Carlsbad facility from
Mississippi Chemical Company in February 2004 and was $23,333,312. This target EBITDA was achieved in 2006. The second EBITDA target was based on our 2006 operating plan and was $44,594,130. This target EBITDA was not achieved in 2006. The bonus
formulas for 2006 were as follows:
|
|
Ÿ
|
|
The first bonus formula set a target annual bonus amount of 55% of base salary, and then multiplied the target annual bonus amount by a percentage derived from a sliding
scale of percentages from 0% to 180% based on the extent to which the EBITDA targets described above were achieved. As a result of our performance in 2006, the bonus calculated under this formula was $241,313—90% of the target annual bonus
amount.
|
121
|
|
Ÿ
|
|
The second bonus formula set a target annual bonus amount of 112.5% of base salary, and then multiplied the target annual bonus amount by a percentage derived from a sliding
scale of percentages from 0% to 250% based on the extent to which the EBITDA targets described above were achieved. As a result of our performance in 2006, the bonus calculated under this formula was $548,438—100% of the target annual bonus
amount.
|
The bonus amounts calculated under each of the formulas were averaged, resulting in a total bonus under the objective
formula for each of the principal owners of $394,875. In addition, discretionary bonus amounts of $85,000 and $45,000 were then added to the amount calculated under the objective formula in order to compensate Messrs. Jornayvaz and Harvey,
respectively, for the significant additional effort and time necessary to address the needs of the business in 2006, as compared to prior years. See “Business—Insurance” above. The bonus amount for Mr. Jornayvaz was larger
because of the proportionately greater time he spent on business travel. The proposed bonus calculation, as described above, was approved by the managing members in October 2006. The bonuses, totaling $479,875 for Mr. Jornayvaz and $439,875 for Mr.
Harvey, were paid in a lump sum in early 2007.
2007 Bonuses
. In 2007, the objective piece of the bonus for our
principal owners was calculated solely based on the formula recommended by J. Richard & Co. in its 2006 recommendations. That bonus formula sets a target annual bonus amount of 112.5% of base salary, and then multiplies the target annual bonus
amount by a percentage derived from a sliding scale of percentages from 250% to 0% based on the extent to which we met our performance targets for the year. For 2007, the performance target was the EBITDA projection set forth in our 2007 operating
plan, which was $45,872,538. Actual EBITDA was calculated generally in accordance with the calculation of EBITDA on page 14, except that (i) certain insurance proceeds in excess of property losses (in the amount of $3,201,724) were subtracted
from earnings, and (ii) bonuses paid to the principal owners for 2007 were added back to earnings, yielding a 2007 EBITDA for bonus purposes of $46,547,151. As a result of our performance in 2007, and our achievement of the EBITDA target for
the year, the bonus calculated under the objective formula was $548,438—100% of the target annual bonus amount. Additional bonus amounts of $100,000 and $50,000 were then added to the amount calculated under the objective formula in order to
compensate Messrs. Jornayvaz and Harvey, respectively, for their efforts in regards to certain significant corporate developments occurring during the year, such as matters related to this offering. The bonus amount for Mr. Jornayvaz was larger
because of the proportionately greater time he spent dealing with such developments. The bonuses, totaling $648,438 for Mr. Jornayvaz and $598,438 for Mr. Harvey, were approved by the managing members of Intrepid Mining in February 2008
and were paid in a lump sum in March 2008.
Other
Executives
. The principal owners have traditionally awarded to executive officers and other key employees discretionary annual bonuses in order to compensate those employees for individual and company performance during
the year, as determined in the sole discretion of the principal owners. As described previously, target bonuses, expressed as a percentage of base salary, are established by the principal owners for each executive based on the recommendations from
the relevant compensation consultant. However, the amount actually awarded in a given fiscal year is highly variable and can be eliminated entirely or exceed the target percentage based on the principal owners’ review of individual performance
during the year and our financial performance during the year. Our principal owners have traditionally placed the greatest emphasis on individual performance in determining an executive’s annual bonus, and have determined that only truly
exceptional individual performance warrants a bonus in excess of the target amount. Bonus payments are made in a lump sum by March 15
th
of the following fiscal
year.
122
2006 Bonuses
. For 2006, the percentage of the target bonus actually earned by each of
our named executive officers other than our principal owners was as follows:
|
|
Ÿ
|
|
Mr. Moore earned 75% of his target bonus. This was based on Mr. Moore meeting sales target goals, sales “net-back” goals, and sales and marketing staffing
goals. The bonus was not awarded at the full target amount due to certain adverse production issues at the Carlsbad facility.
|
|
|
Ÿ
|
|
Mr. Whyte earned 100% of his target bonus. The bonus was awarded based on Mr. Whyte effectively managing issues related to human resources and risk management and
his highly successful recruiting and retention of key employees.
|
2007 Bonuses
. For 2007, the
percentage of the target bonus actually earned by each of our named executive officers other than our principal owners was as follows:
|
|
Ÿ
|
|
Mr. Avery earned 120% of his target bonus. The bonus was awarded at this level based on Mr. Avery’s exceptional individual performance in managing our mining
operations, including greatly increasing operational efficiencies and consistency of production, creating synergies between the various mines in terms of knowledge management and best practices, and advancing certain capital projects from idea to
project inception.
|
|
|
Ÿ
|
|
Mr. Moore earned approximately 125% of his target bonus. The bonus was awarded at this level based on Mr. Moore’s exceptional sales and marketing efforts
during the year, including “net-back” sales that were consistently higher than that normally seen in our industry and much higher than we budgeted for the year, sales of nearly 100% of our potash volumes during the year, and marketing and
sales successes with regard to our langbeinite products.
|
|
|
Ÿ
|
|
Mr. Whyte earned approximately 136% of his target bonus. The bonus was awarded at this level based primarily on Mr. Whyte’s exceptional efforts in the
recruitment of over 200 new employees during the year, including the filling of certain key positions within the company that produced immediate results. Also, Mr. Whyte’s efforts in reducing human resources consulting fees during the year
and his efforts in ensuring the prompt payment of certain insurance claims in 2007 were considered.
|
Annual Bonuses for
2008
. Prior to the completion of the offering, we will adopt for 2008 an annual bonus plan, the Intrepid Potash, Inc. 2008 Senior Management Performance Incentive Plan, which we refer to herein as the “2008
bonus plan”, for the benefit of our named executive officers and certain other senior executives. The 2008 bonus plan will be designed to provide an incentive for those individuals to meet the detailed goals and objectives set out for them in
their most recent annual reviews or to otherwise meet personal performance expectations. The 2008 bonus plan will also be designed to reward such individuals based on our financial performance in fiscal 2008. The plan will initially cover the
following participants and will provide the following target bonus opportunities, which are based on recommendations from Towers Perrin. See “—Changes to our Compensation Approach” above.
|
|
|
|
|
|
Named Executive Officer
|
|
Target Bonus
(% of Salary)
|
|
|
Robert P. Jornayvaz III
|
|
150
|
%
|
|
Hugh E. Harvey, Jr.
|
|
150
|
%
|
|
Patrick L. Avery
|
|
50
|
%
|
|
David W. Honeyfield
|
|
50
|
%
|
|
R.L. Moore
|
|
40
|
%
|
|
James N. Whyte
|
|
40
|
%
|
123
We anticipate that similar senior level executives hired during the year, if any, would also participate in the
plan. The compensation committee will administer the plan, and we expect that actual bonuses may be less than, equal to, or greater than the target bonus opportunities stated above, depending on company financial performance in 2008 and the extent
to which the individuals listed above have met the goals set out for them in their most recent annual reviews or have otherwise met personal performance expectations, as determined by our compensation committee. The 2008 bonus plan will limit actual
bonus amounts to no more than two times an individual’s target bonus established for the year. All bonus amounts will be paid in cash or in stock in 2009. We expect that the 2008 bonus plan will generally require participants to be employed on
the date of payment in order to receive a bonus for 2008. However, the committee will have discretion to pay bonuses in the event of death, disability or change of control prior to the date on which payment would otherwise be made. Our board of
directors may amend or terminate the 2008 bonus plan at any time.
Annual Bonuses in 2009 and Following Years.
We
intend to transition from annual bonuses to a more formal short-term incentive program for all executive officers in 2009 and following years. See “—Transition From Annual Cash Bonuses to Short-Term Incentive Program” below.
Benefits
Our employees, including our named
executive officers, are entitled to various employee benefits, including medical and dental insurance, group life, accidental death, and disability insurance, health and dependent care flexible spending accounts, a 401(k) plan, and paid time off.
Pursuant to the terms of the 401(k) plan, we generally match 100% of an employee’s deferrals up to a specified percentage of compensation.
Perquisites
We view perquisites as necessary to fulfill the stated compensation goals of attracting and retaining executive talent. As such, all of
our executive officers, aside from Mr. Whyte, receive use of a company-provided automobile of their choice. Personal use of a company automobile is a relatively inexpensive perquisite that we feel satisfies a compensation expectation of our
executive team based on their collective work experience in the mining, oil and gas, and fertilizer industries. Our principal owners are also each entitled to personal use of the company aircraft to the extent such use does not conflict with
business use of the aircraft. Use of the aircraft was granted based on the relatively low additional cost to us, the security that it affords each of our principal owners in their personal travels and the benefit to us of keeping those individuals
safe, and the fact that by virtue of their ownership of Intrepid Mining, each of the principal owners is an indirect stakeholder in the aircraft. We expect that management, together with our compensation committee, will address perquisites for our
named executive officers after the offering.
Establishment of Long-Term Incentive Program
We anticipate that in the future, creating long-term value for our stockholders will be achieved, in part, by aligning the interests of our executive officers with
those of our stockholders through the use of equity incentive awards. Therefore, prior to the completion of the offering, we will adopt for the first time a long-term equity incentive plan, the Intrepid Potash, Inc. 2008 Equity Incentive Plan, which
we refer to herein as the “long-term equity incentive plan”. We expect that the long-term equity incentive plan will assist us in meeting our stated compensation goals of attracting, motivating and retaining employees, directors and
consultants, and rewarding such individuals for achievement of long-term financial objectives and company growth. Given the lack of current equity holdings by our executive officers other than our principal owners, we anticipate making significant
initial grants to such non-equity-holding executive officers on or around the closing of the offering.
124
The awards will consist of two types of restricted stock grants which may be awarded to our named executive
officers (other than our principal owners, who will forego receipt of any grants in connection with the completion of the offering). The first type of grants will vest in full on January 30, 2009. These grants, which will be made to some, but not
all of our named executive officers, are designed to reward certain individuals for their historic service to Intrepid Mining and for the successful completion of the offering. The amount of these grants will be determined by our board of directors
in its discretion based on the perceived value of each such individual’s historic service and efforts in moving the offering to completion. The second type of grants vests incrementally over approximately four years. These grants are designed
to retain and incentivize our named executive officers in the future over the course of our long-term business plan. The amount of each grant will be determined by our board and will generally be equal to a multiple of between three to five times
the recommended annual equity incentive award amount determined for each individual by Towers Perrin. See “—Changes to our Compensation Approach” above. The multiple range (three to five times) was recommended by Towers Perrin based
on its general experience with equity grants upon initial public offerings for companies that, like Intrepid Potash, did not have existing equity awards prior to going public. The exact multiple applied to each individual will be determined by our
board of directors based on the board’s perception of such individual’s value to Intrepid Potash and job performance.
Based on an assumed
initial public offering price of $25.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), the number of (i) shares of restricted stock to be granted on or around the closing of the offering to our named
executive officers (other than our principal owners), and other key employees and consultants, and the value thereof, and (ii) shares of stock to be granted to our non-employee directors on or around the closing of the offering, and the value
thereof, are set forth in the following table:
Intrepid Potash, Inc. 2008 Equity Incentive Plan
|
|
|
|
|
|
|
|
Name and Position
|
|
Dollar Value
($)
|
|
Number of
Shares
|
|
|
Robert P. Jornayvaz III,
|
|
—
|
|
—
|
|
|
Chief Executive Officer
|
|
|
|
|
|
|
Hugh E. Harvey, Jr.,
|
|
—
|
|
—
|
|
|
Executive
Vice President of Technology
|
|
|
|
|
|
|
Patrick L. Avery,
|
|
1,250,000
|
|
50,000
|
(1)
|
|
President and Chief Operating Officer
|
|
1,750,000
|
|
70,000
|
(3)
|
|
David W. Honeyfield,
|
|
500,000
|
|
20,000
|
(2)
|
|
Executive Vice President, Chief Financial Officer and Treasurer
|
|
189,000
|
|
7,560
|
(3)
|
|
Patrick A. Quinn,
Former Interim Chief Financial Officer
|
|
1,000,000
|
|
40,000
|
(1)
|
|
R.L. Moore,
|
|
300,000
|
|
12,000
|
(1)
|
|
Senior Vice President of Marketing and Sales
|
|
700,000
|
|
28,000
|
(3)
|
|
James N. Whyte,
|
|
750,000
|
|
30,000
|
(1)
|
|
Executive Vice President of Human Resources and Risk Management
|
|
720,000
|
|
28,800
|
(3)
|
|
Executive Group
|
|
7,159,000
|
|
286,360
|
|
|
Non-Employee Director Group
|
|
150,000
|
|
6,000
|
(4)
|
|
Non-Executive Officer Employee and Consultant Group
|
|
8,028,500
|
|
321,140
|
(3)
|
|
Total, All Grants
|
|
15,337,500
|
|
613,500
|
|
|
(1)
|
Grants will vest in full on January 5, 2009.
|
|
(2)
|
Grant will vest incrementally as follows: 24% on December 31, 2008, 36% on February 28, 2009, 13% on December 31, 2009, 15% on February 28, 2010, and 12% on February 28, 2011.
|
125
|
(3)
|
Grants will vest incrementally as follows: 25% on each of the first four anniversary dates of the completion of this offering.
|
|
(4)
|
Grants are fully vested upon issuance.
|
Equity incentive awards made after
the initial grants will be determined by our compensation committee and are expected to be more in line with the annual equity incentive award amounts recommended by Towers Perrin. See “—Grants of Plan-Based Awards—Adoption of
Long-Term Equity Incentive Plan” below for a description of the terms of the long-term equity incentive plan.
Transition from Annual Cash Bonuses to
Short-Term Incentive Program
Prior to the completion of the offering, we will adopt the Intrepid Potash, Inc. Short-Term Incentive Plan,
a formal annual “short-term incentive plan” that will provide for target award opportunities and performance goals that are communicated in advance to program participants and payouts that are conditioned explicitly on achievement of those
goals. The plan will be approved by our stockholders prior to the offering and awards will be made under the plan beginning in fiscal 2009. The plan would be designed to pay “qualified performance based compensation” within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as amended (referred to herein as the Code). See “—Effect of Accounting and Tax Treatment on Compensation Decisions” below. Although our current annual bonus program and the 2008
bonus plan reward similar achievements and fulfill similar objectives of our executive compensation program, we believe it important to be able to pay compensation that complies with Section 162(m) and we anticipate that the pre-establishment
of performance goals and the communication of those goals under this plan may provide more transparency to annual incentive compensation decisions and may better motivate and reward our executive team.
The plan will be administered by our compensation committee, which, within 90 days of the beginning of each
relevant fiscal year, will select those named executive officers and other senior executives who will participate in the plan for such year and will establish for such individuals target bonus amounts and performance goals for the year. The plan
will require that shortly after the close of the relevant fiscal year, our compensation committee will determine the cash awards to be made for the year, if any, based on the extent to which the pre-established performance goals have been achieved.
All awards would be paid in cash or in stock as soon as administratively feasible following the committee’s determination, but in all events prior to March 15
th
of
the following year. The plan will provide for a maximum bonus of $2,000,000 per executive for any fiscal year. Although our board of directors would have the ability to amend or terminate the plan at any time, the right would be limited so as to
comply with Section 162(m) of the Code.
The performance goals that could be used for any participant for any fiscal year would include:
(a) total stockholder return; (b) return on assets, return on equity, or return on capital employed; (c) measures of profitability such as earnings per share, corporate or business-unit net income, net income before extraordinary or
one-time items, earnings before interest and taxes, or earnings before interest, taxes, depreciation and amortization; (d) cash flow from operations; (e) gross or net revenues or gross or net margins; (f) levels of operating expense
or other expense items reported on the income statement; (g) measures of customer satisfaction and customer service; (h) safety; (i) annual or multi-year average production growth; (j) efficiency or productivity measures such as
annual or multi-year absolute or per-unit operating and maintenance costs; (k) satisfactory completion of a major project or organizational initiative with specific criteria set in advance by the compensation committee; (l) debt ratios or
other measures of credit quality or liquidity; (m) strategic asset sales or acquisitions in compliance with specific criteria set in advance by the compensation committee; (n) sales and marketing measures, such as annual or multi-year
“net-back” sales or the introduction of new products in accordance with specific goals set in advance by the compensation committee; and (o) staffing and retention.
126
Effect of Accounting and Tax Treatment on Compensation Decisions
Prior to 2008, the principal owners did not consider accounting and tax treatment in structuring our executive compensation programs as they focused primarily on
the practical aspects of compensating our executives and because, unlike equity incentive awards, the selected programs were subject to little variability in their accounting and tax treatment. However, in the course of reevaluating our compensation
programs as described above, we are considering the anticipated accounting and tax implications to us and our executives. For example, upon completion of the offering, Section 162(m) of the Internal Revenue Code will impose a limit on the
amount of compensation that we may deduct in any one year with respect to our named executive officers, unless certain specific and detailed criteria are satisfied. The 2008 bonus plan is designed to comply with a transition rule under Section
162(m) such that compensation paid pursuant to that plan should be deductible by us. In addition, adoption of a formal short-term incentive plan prior to the offering is designed to allow us for fiscal 2009 and thereafter to pay “qualified
performance based compensation,” which is also exempt from Section 162(m). See “—Transition from Annual Cash Bonuses to Short-Term Incentive Program” above. We intend to monitor our executive pay programs with respect to
Section 162(m) to maximize the deductibility of compensation paid to our named executives. However, we may pay compensation in excess of the Section 162(m) limitation if we conclude that doing so would be in the best interests of the
company and its stockholders. In addition, after the offering, we will take into account the accounting treatment of equity awards made under the long-term equity incentive plan under SFAS No. 123(R) in determining the amount and type of such
equity awards. While we will consider the applicable accounting and tax treatment, these factors alone are not dispositive, and we will also consider the cash and non-cash impact of the programs and whether a program is consistent with our overall
compensation philosophy and objectives.
127
Executive Compensation
The following table sets forth the compensation paid to the two principal owners of Intrepid Mining, Intrepid Mining’s Chief Financial Officer and the three other most highly compensated individuals who were serving as
Intrepid Mining’s executive officers on December 31, 2007. These individuals are sometimes referred to collectively as the “named executive officers”.
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
|
Non-Equity
Plan
Compensation
($)
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
Robert P. Jornayvaz III
(1)
|
|
2007
|
|
487,500
|
|
648,438
|
|
|
—
|
|
263,130
|
(2)(3)(4)
|
|
1,399,068
|
|
Chief Executive Officer
|
|
2006
|
|
487,500
|
|
479,875
|
|
|
—
|
|
179,092
|
(2)(3)(4)
|
|
1,146,467
|
|
|
|
|
|
|
|
|
|
Hugh E. Harvey, Jr.
(1)
|
|
2007
|
|
487,500
|
|
598,438
|
|
|
—
|
|
155,759
|
(4)(5)(6)
|
|
1,241,697
|
|
Executive Vice President
|
|
2006
|
|
487,500
|
|
439,875
|
|
|
—
|
|
29,698
|
(4)(5)(6)
|
|
957,073
|
|
of Technology
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patrick A. Quinn
(7)
|
|
2007
|
|
—
|
|
—
|
|
|
—
|
|
240,638
|
(8)
|
|
240,638
|
|
Former Interim Chief Financial Officer
|
|
2006
|
|
—
|
|
—
|
|
|
—
|
|
175,175
|
(8)
|
|
175,175
|
|
|
|
|
|
|
|
|
|
Patrick L. Avery
(9)
|
|
2007
|
|
228,519
|
|
250,400
|
(
10
)
|
|
|
|
355,803
|
(4)(11)(12)
|
|
834,722
|
|
President and Chief
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R.L. Moore
|
|
2007
|
|
221,510
|
|
113,000
|
|
|
—
|
|
—
|
|
|
334,510
|
|
Senior Vice President of
|
|
2006
|
|
207,270
|
|
63,000
|
|
|
—
|
|
—
|
|
|
270,270
|
|
Marketing and Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James N. Whyte
|
|
2007
|
|
207,825
|
|
120,500
|
|
|
—
|
|
—
|
|
|
328,325
|
|
Executive Vice President
|
|
2006
|
|
181,765
|
|
78,000
|
|
|
—
|
|
17,762
|
(13)(14)
|
|
277,527
|
|
of Human Resources and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Messrs. Jornayvaz and Harvey were the principal owners of Intrepid Mining and have served, directly or indirectly, as managers of Intrepid Mining in 2007. Mr. Jornayvaz has served as Chief
Executive Officer of Intrepid Potash since its formation in November 2007. Mr. Harvey has served as Executive Vice President of Technology of Intrepid Potash since its formation in November 2007.
|
|
(2)
|
Includes $11,000 in 2007 and $11,000 in 2006 in matching contributions made on behalf of Mr. Jornayvaz to our 401(k) plan.
|
|
(3)
|
Includes $250,404 in 2007 and $165,968 in 2006 for use of the company aircraft for purposes unrelated to our business, calculated based on the direct variable costs, such as fuel, of
operating the plane for Mr. Jornayvaz’s flights. Mr. Jornayvaz is a 40% owner of Intrepid Mining.
|
|
(4)
|
Other perquisites include use of a company-provided automobile.
|
|
(5)
|
Includes $11,000 in 2007 and $11,000 in 2006 in matching contributions made on behalf of Mr. Harvey to our 401(k) plan.
|
|
(6)
|
Includes $143,637 in 2007 and $16,733 in 2006 for use of the company aircraft for purposes unrelated to our business, calculated based on the direct variable costs, such as fuel, of operating
the plane for Mr. Harvey’s flights. Mr. Harvey is a 40% owner of Intrepid Mining.
|
|
(7)
|
Mr. Quinn is an independent contractor who has assumed the role of Chief Financial Officer on an interim basis until a full-time employee replacement can be found. Mr. Quinn performs services
through the accounting firm of Quinn & Associates, P.C., of which he is the primary owner. Q&A bills us directly at their standard hourly rates for services performed on our behalf by Mr. Quinn and the other professionals in the firm.
|
|
(8)
|
Represents the amount paid by us to Q&A attributable directly to the services performed on our behalf by Mr. Quinn. In total, as more fully described below under “Certain
Relationships and Related Party Transactions”, we paid Q&A $567,769 for services rendered on our behalf in 2007 and $468,456 for services rendered on our behalf in 2006.
|
|
(9)
|
Mr. Avery was hired on March 19, 2007.
|
|
(10)
|
Includes a signing bonus of $50,000.
|
|
(11)
|
Includes $10,517 in matching contributions made on behalf of Mr. Avery to our 401(k) plan.
|
128
|
(12)
|
Includes $342,764 in relocation benefits itemized as follows: $125,000 of cash relocation payments paid directly to Mr. Avery, $24,606 of company-paid moving and related expenses, $87,908
representing the loss to the company from the purchase and resale of Mr. Avery’s former primary residence, $6,634 of personal use of the company aircraft for travel to and from Mr. Avery’s prior residence (calculated in the same manner as
described above with respect to Messrs. Jornayvaz and Harvey), and $98,616 of tax gross-ups paid with respect to the relocation benefits.
|
|
(13)
|
Includes $10,174 of commission income paid to Whyte Insurance Co., Mr. Whyte’s wholly-owned insurance brokerage firm, for the renewal of a reclamation bond originally purchased by
Intrepid Mining in 2000 prior to Mr. Whyte’s employment with Intrepid Mining. The brokerage relationship, along with any future commissions from the renewal of the reclamation bond, were assigned by Whyte Insurance Co. to an unrelated and
independent insurance brokerage firm in late 2007.
|
|
(14)
|
Includes $7,588 in matching contributions made on behalf of Mr. Whyte to our 401(k) plan.
|
Employment Agreements
We have not entered into employment agreements with any of our named executive officers. However, on
March 19, 2007, we extended an offer letter to Patrick L. Avery, our Chief Operating Officer, which sets forth certain terms and conditions of his employment. We considered the extension of a formal offer letter, and the items of compensation
provided therein, to be vital to our ability to secure Mr. Avery’s employment, which was in high demand. Mr. Avery received a $50,000 signing bonus pursuant to the offer letter. His current base salary is $334,000. In addition to base
salary, Mr. Avery is eligible for an annual cash bonus, determined in the same manner as bonuses are determined for other executives, equal to 50% of his base salary. Mr. Avery is entitled to a company-provided vehicle of his choice, and
received relocation benefits and the reimbursement of personal travel expenses to and from his prior state of employment on an as-needed basis through July 1, 2007. In the event that Intrepid Mining effectuates a major financial restructuring,
such as this offering, Mr. Avery is entitled to a long-term incentive compensation reward appropriate for his position. We believe this obligation would be satisfied through the equity incentive grant that we anticipate making to him in connection
with the offering. See “—Compensation Discussion and Analysis—Establishment of Long-Term Incentive Program” above. In the event that Mr. Avery is terminated without cause as a result of a change of control of Intrepid
Potash, he is eligible for severance equal to two (2) times his annual salary. Pursuant to the terms of the offer letter, such amount is decreased by 1/24 for each month Mr. Avery is employed by us and such amount will be eliminated
entirely upon his vesting (on January 30, 2009) in the equity incentive grant that we anticipate making to him in connection with this offering. Mr. Avery is also entitled to use the company aircraft for business purposes.
On January 29, 2008, we extended an offer letter to David W. Honeyfield for the position of Chief Financial Officer, which sets forth the terms and conditions of
his employment. The extension of the offer letter was necessary to attract Mr. Honeyfield away from his previous employer. Pursuant to the offer letter, Mr. Honeyfield is entitled to a signing bonus of $50,000 and a starting base salary of $315,000
per annum. He is eligible for an annual cash bonus, determined in the same manner as bonuses are determined for other executives, with an expected target range of 50% of his base salary. In order to compensate Mr. Honeyfield for the forfeiture
of certain equity awards granted by his current employer, he is also entitled to a long-term equity incentive award upon completion of the offering having a value equal to $500,000. Such award is expected to be in the form of restricted stock and
will be subject to the following vesting schedule:
|
|
Ÿ
|
|
December 31, 2008 – 24%;
|
|
|
Ÿ
|
|
February 28, 2009 – 36%;
|
|
|
Ÿ
|
|
December 31, 2009 – 13%;
|
|
|
Ÿ
|
|
February 28, 2010 – 15%; and
|
|
|
Ÿ
|
|
February 28, 2011 – 12%.
|
In the event that Mr.
Honeyfield is terminated without cause as a result of a change of control of Intrepid Potash, he is entitled to severance equal to two (2) times his annual base salary, but such severance amount will be decreased by 1/24 for each month Mr.
Honeyfield is employed by us.
129
We will enter into employment agreements with Messrs. Jornayvaz and Harvey in connection with the
completion of this offering
in order to secure their services on a long-term basis and to protect the company following their termination of employment by securing their agreement not to compete with us. The terms of the employment agreements
were developed based on recommendations by Towers Perrin and input from counsel and the principal owners.
Pursuant to the terms of these agreements,
Mr. Jornayvaz will agree to serve as our Chairman and Chief Executive Officer and Mr. Harvey will agree to serve as our Executive Vice President of Technology. We expect that Messrs. Jornayvaz and Harvey will devote substantially full-time
attention to their employment with us. In addition, they may continue to manage their personal investments owned in whole or in part by each executive, including Intrepid Oil & Gas, provided the management of such investments does not
interfere substantially with the performance of their duties for Intrepid Potash. The employment agreements will have initial terms of 18 months from the completion of this offering, with automatic extensions for successive terms of 12 months each,
unless notice of termination is given by us or the executive 90 days prior to the end of the initial or any successive term. The agreements will provide for an annual base salary of $487,500, subject to annual review by the compensation committee
with adjustments, which cannot decrease base salary, to be consistent with salaries paid to executives holding similar positions at peer group companies. The agreements will provide for the executives to be eligible for all benefits offered
generally to senior management, for participation in the senior management bonus programs established by the compensation committee, for grants under the Intrepid Potash Inc. 2008 Equity Incentive Plan in such amounts and subject to such terms and
conditions as are established by our compensation committee and for all perquisites available generally to senior management. Each of Messrs. Jornayvaz and Harvey shall be entitled to a company-provided automobile of his choice valued at under
$75,000, the use of our company aircraft for purposes unrelated to our business, to the extent such use does not conflict with business use of the aircraft, and the right to dry lease our aircraft for purposes unrelated to our business on the same
terms as we dry lease the aircraft to unrelated third parties.
These agreements will provide that if an executive is terminated for cause, the
executive will be paid accrued compensation, if any, and will be offered continued group health care coverage as required by law, but the executive will not be entitled to severance. If the executive is terminated without cause, the executive will
be paid accrued compensation, if any, and will be offered continued group health care coverage as required by law and will be entitled to severance in the amount of compensation payable for the remainder of the current term of the agreement. The
employment agreements will also provide that, in the event that we experience a change of control, as defined in the employment agreements, all equity awards to executives will become vested in full.
The employment agreements will contain an “efficient” golden parachute tax gross up. Thus, if any of the payments and benefits due an executive upon a
change in control would constitute an “excess parachute payment” (as defined in Section 280G of the Internal Revenue Code), then we will first perform a calculation to determine the net after-tax benefit to the executive assuming the
executive receives either (a) all compensation and benefits due as a result of the change in control (other than any excise tax gross up provided for in his employment agreement), or (b) the maximum amount of compensation and benefits
permissible without triggering an excess parachute payment under Section 280G. If the executive would receive a greater after-tax benefit by cutting back to the maximum amount permissible without triggering an excess parachute payment, then the
executive’s compensation and benefits upon the change in control will be cut back to that amount. If the executive would receive a greater after-tax benefit by receiving the full amount of compensation and benefits due upon the change in
control (without regard to any excise tax gross up), then the executive shall receive the full amount of such compensation and benefits plus an additional payment that would, after payment of all federal, state and local taxes on such payment, equal
the amount of excise tax due.
130
Under the terms of these employment agreements, the executives will agree that during the term of their
employment and for a period of 24 months after a termination event, the executives will not solicit our employees or compete with us in the potash business and any other business in which we are engaged during the term or at the termination of the
employment agreement. However, if the executive’s employment is terminated without cause more than 24 months after the date of the employment agreement, the non-solicitation and non-compete obligations will survive only until the end of the
current term of the employment agreement. In addition, the agreements will prohibit the executives from divulging our confidential information, which prohibition will survive the termination of employment.
Grants of Plan-Based Awards
As discussed previously, we
have not yet adopted any formal incentive plans and have not to date made equity incentive awards of any type. Therefore, there were no grants of plan based awards to our named executive officers during the 2007 fiscal year, there were no
outstanding equity awards at the end of the 2007 fiscal year for the named executive officers, and no options were exercised by any of the named executive officers during the 2007 fiscal year.
Adoption of Long-Term Equity Incentive Plan
As described
previously, prior to the completion of the offering, we will adopt for the first time a long-term equity incentive plan. The long-term equity incentive plan will provide for the grant of options, stock appreciation rights, restricted stock,
restricted stock units, and other equity-based and cash incentive awards to directors, officers, employees, consultants and other individuals (including advisory board members) who perform services for us or for our affiliates.
Share Reserve
The total number of shares of our common stock
that we plan to make available for issuance or delivery under the long-term equity incentive plan will be 5,000,000 shares, subject to adjustment in the event of any stock dividend or split, reorganization, recapitalization, merger, share exchange
or any other similar corporate event. For purposes of determining the number of shares remaining available for issuance under the long-term equity incentive plan, to the extent that an award expires or is canceled, forfeited, settled in cash or
otherwise terminated without delivery to the participant of the full number of shares to which the award related, the undelivered shares will again be available for grant. Shares withheld in payment of the exercise price or taxes relating to an
award and shares equal to the number surrendered in payment of any exercise price or taxes relating to an award will be deemed to constitute shares not delivered to the participant and will be deemed to again be available for awards under the plan.
Shares issued under the long-term equity incentive plan may be authorized and unissued shares or treasury shares.
The maximum number or value of
shares that may be covered by an award granted under the long-term equity incentive plan to any single participant in any calendar year will not exceed the lesser of 300,000 shares or $5,000,000.
Administration
Generally, the compensation committee, or the
committee, will administer the long-term equity incentive plan and will designate those persons who will be granted awards and the amount, type and other terms and conditions of the awards. The committee will have full authority to administer the
long- term equity incentive plan, including the authority to interpret and construe any provision in the plan
131
and the terms of any award agreement and to adopt such rules and regulations for administering the plan that it may deem necessary or appropriate. Pursuant to this
authority, on or after the date of grant of an award, the committee may:
|
|
Ÿ
|
|
accelerate the date on which the award becomes vested, exercisable or transferable;
|
|
|
Ÿ
|
|
extend the term of any award, including, without limitation, extending the period following termination of a participant’s service with us or our affiliates during which
the incentive award may remain outstanding; or
|
|
|
Ÿ
|
|
waive any conditions to the vesting, exercisability or transferability of an award.
|
Significant Features of Incentive Awards
The following is a description of the significant terms that will
apply to each type of award issued under the long-term equity incentive plan:
Options and Stock Appreciation
Rights
. Each option will entitle the holder to purchase a specified number of shares at a specified exercise price. Each option agreement will specify whether the option is an “incentive stock option”, or
“ISO” (within the meaning of Section 422 of the Code), or a nonqualified stock option. Each stock appreciation right will entitle the holder to receive, upon exercise, the excess of the fair market value of a share at the time of
exercise over the base price of the stock appreciation right multiplied by the specified number of shares to which the stock appreciation right is being exercised. The exercise or base price of each option and stock appreciation right will be at
least 100% of the fair market value of a share on the date the award is granted. The term of any option or stock appreciation right will not exceed ten years and the option or stock appreciation right will vest over a period determined by the
committee. Each option or stock appreciation right agreement will specify the consequences to the award with respect to a termination of service with us and our affiliates.
Restricted Stock and Restricted Stock Units
. The committee may grant a restricted stock award, which is a grant of actual shares
subject to a risk of forfeiture and restrictions on transfer. The committee may also grant an award of restricted stock units, a contractual commitment to deliver shares at a future date based on the fulfillment of certain service or performance
based vesting conditions. The terms and conditions of any restricted stock award or award of restricted stock units will be determined by the committee. The committee may provide for the payment of ordinary dividends or dividend equivalents with
regard to such awards.
Other Equity-Based Awards
. The committee may grant other types of equity-based awards in
such amounts and subject to such terms and conditions as the committee determines. Each such award may, among other things, (i) involve the transfer of actual shares, either at the time of grant or thereafter, or payment in cash of amounts
based on the value of shares; (ii) be subject to performance-based and/or service-based vesting conditions; and (iii) be in the form of phantom stock, performance shares, deferred share units or other full value stock awards.
Performance Based Compensation
. The committee may grant one or more awards designed to qualify as “performance
based” compensation under Section 162(m) based on the grant or vesting of such awards being contingent on the achievement of certain pre-established performance goals. In such case, the following performance goals may be used for any particular
grant: (a) total stockholder return; (b) return on assets, return on equity, or return on capital employed; (c) measures of profitability such as earnings per share, corporate or business-unit net income, net income before
extraordinary or one-time items, earnings before interest and taxes, or earnings before interest, taxes, depreciation and amortization; (d) cash flow from operations; (e) gross or net revenues or gross or net margins; (f) levels of
operating expense or other expense items reported on the income statement; (g) measures of
132
customer satisfaction and customer service; (h) safety; (i) annual or multi-year average production growth; (j) efficiency or productivity measures such
as annual or multi-year absolute or per-unit operating and maintenance costs; (k) satisfactory completion of a major project or organizational initiative with specific criteria set in advance by the compensation committee; (l) debt ratios or
other measures of credit quality or liquidity; (m) strategic asset sales or acquisitions in compliance with specific criteria set in advance by the compensation committee; (n) sales and marketing measures, such as annual or multi-year
“net-back” sales or the introduction of new products in accordance with specific goals set in advance by the compensation committee; and (o) staffing and retention.
Tax Withholding
The plan will provide that participants may elect to satisfy certain federal income tax
withholding requirements by remitting to us cash or, subject to certain conditions, shares, or by instructing us to withhold shares payable to the participant.
Amendment and Termination
Our board of directors may amend, suspend, discontinue, or terminate the long-term equity incentive
plan or the committee’s authority to grant awards under the long-term equity incentive plan in any respect, except that, to the extent that any applicable law, regulation or rule of a stock exchange requires stockholder approval for any
revision or amendment to be effective, the revision or amendment will not be effective without stockholder approval. We will not make any grants under the long-term equity incentive plan following the tenth anniversary of the date the plan becomes
effective, but awards outstanding at that time will continue in accordance with their terms.
Federal Income Tax Consequences
The following is intended only as a brief summary of the material U.S. federal income tax consequences of the long-term equity incentive plan. The tax consequences
to a participant will depend generally upon the type of award issued to the participant. In general, if a participant recognizes ordinary income in connection with the grant, vesting or exercise of an award, we will be entitled to a corresponding
deduction equal to the amount of the income recognized by the participant. This summary does not address the effects of other federal taxes (including possible “golden parachute” excise taxes) or taxes imposed under state, local or foreign
tax laws.
Options and Stock Appreciation Rights
. In general, a participant does not have taxable income upon the
grant of an option or a stock appreciation right. The participant will recognize ordinary income upon exercise of a nonqualified stock option equal to the excess of the fair market value of shares acquired on exercise over the aggregate option price
for the shares. Upon exercising a stock appreciation right, the participant will recognize ordinary income equal to the cash or fair market value of the shares received over the aggregate base price for the shares. A participant will not recognize
ordinary income upon exercise of an ISO, except that the alternative minimum tax may apply. If a participant disposes of shares acquired upon exercise of an ISO before the end of the applicable holding periods, the participant will recognize
ordinary income. Otherwise, a sale of shares acquired by exercise of an option or a stock appreciation right generally will result in short-term or long-term capital gain or loss measured by the difference between the sale price and the
participant’s tax basis in the shares. We normally can claim a tax deduction equal to the amount recognized as ordinary income by a participant in connection with an option or stock appreciation right, but no tax deduction relating to a
participant’s capital gains. We will not be entitled to any tax deduction with respect to an ISO if the participant holds the shares for the applicable ISO holding periods before selling or transferring the shares.
133
Restricted Stock, Restricted Stock Units and Other Equity-Based Awards
. If an award
is subject to a restriction on transferability and a substantial risk of forfeiture (for example, restricted stock), the participant generally must recognize ordinary income equal to the fair market value of the transferred amounts at the earliest
time either the transferability restriction or risk of forfeiture lapses. If an award has no restriction on transferability or is not subject to a substantial risk of forfeiture, the participant generally must recognize ordinary income equal to the
cash or the fair market value of shares received. We can ordinarily claim a tax deduction in an amount equal to the ordinary income recognized by the participant, except as discussed below regarding Section 162(m). A participant may irrevocably
elect to accelerate the taxable income to the time of grant of restricted stock rather than upon lapse of restrictions on transferability or the risk of forfeiture (Section 83(b) election).
Section 409A
. Section 409A of the Code imposes election, payment and funding requirements on “nonqualified deferred
compensation” plans. If a nonqualified deferred compensation arrangement subject to Section 409A of the Code fails to meet, or is not operated in accordance with, the requirements of Section 409A, then compensation deferred under the
arrangement may become immediately taxable and subject to a 20% additional tax. Certain awards that may be issued under the plan may constitute a “deferral of compensation” subject to the requirements of Section 409A of the Code.
Section 162(m)
. Compensation that qualifies as “performance-based” compensation is excluded from the $1
million deduction limitation of Section 162(m) of the Code. Under the long-term equity incentive plan, options and stock appreciation rights granted with an exercise price at least equal to 100% of the fair market value of the underlying shares
on the date of grant and certain other awards that are conditioned upon achievement of performance goals are intended to qualify as “performance-based” compensation. A number of requirements must be met in order for particular compensation
to so qualify, and we cannot assure you that compensation under the long-term equity incentive plan will be fully deductible by us under all circumstances.
Pension Benefits
None of our named executive officers participate in or have accrued benefits under qualified or non-qualified
defined benefit plans sponsored by us. We do not anticipate establishing such plans at any time in the future.
Non-qualified Deferred Compensation
None of our named executive officers participate in or have account balances in non-qualified defined contribution plans or other deferred
compensation plans maintained by us. While we do not currently anticipate establishing any such plans or programs, our compensation committee may in the future determine that doing so would be desirable and may institute such plans or programs at
that time.
Termination and Change of Control Payments
The following summarizes potential termination and change in control payments to be made to our named executive officers.
Messrs.
Jornayvaz and Harvey
Messrs. Jornayvaz and Harvey will be eligible for the following termination and change in control payments pursuant
to the terms of their employment agreements, which will be in effect as of the completion of this offering.
134
Termination Benefits for Messrs. Jornayvaz and Harvey
The terms of the employment agreements will provide for severance solely in the event that either is terminated without “cause,” as defined in the
agreements. In such event, the executive will be entitled to severance in the amount of compensation payable for the remainder of the then-current term of the agreement.
Change in Control Benefits for Messrs. Jornayvaz and Harvey
The terms of the employment agreements also will provide that, in the event that we experience a change in control, as defined in the agreements, (a) all equity awards to these executives will become vested in full, and (b) the executives
will be entitled to an “efficient” gross up of any golden parachute tax due. See “Executive Compensation—Employment Agreements” above. A termination of employment is not required to receive the change in control benefits.
Assuming the events below had each occurred on December 31, 2007, the above-described payments and benefits to each of Messrs. Jornayvaz and
Harvey would have had the estimated values set forth in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Severance
|
|
|
Value of
Accelerated
Equity
Awards
(1)
|
|
280G
Gross Up
(2)
|
|
Termination For Cause
|
|
|
—
|
|
|
—
|
|
—
|
|
Termination Without Cause
|
|
$
|
731,250
|
(3)
|
|
—
|
|
—
|
|
Change of Control
|
|
|
—
|
|
|
—
|
|
—
|
|
(1)
|
No outstanding equity grants have been made to Messrs. Jornayvaz and Harvey as of the date of this prospectus. No equity grants are anticipated to be made as of the effective date of the
offering.
|
|
(2)
|
Based on historic compensation levels.
|
|
(3)
|
Assumes that the termination occurs at the beginning of the 18-month initial term of the agreement, and that at such time, the executive’s salary is $487,500 per annum.
|
Other Named Executive Officers
We are not currently obligated to pay severance or other amounts to our other named executive officers upon termination of employment or a change in control, except to Messrs. Avery and Honeyfield pursuant to their offer letters. Pursuant
to Mr. Avery’s offer letter, in the event that Mr. Avery is terminated without cause as a result of a change of control of Intrepid Potash, he is eligible for severance equal to two (2) times his annual salary. Such amount is decreased by 1/24
for each month Mr. Avery is employed by us and such amount is eliminated entirely upon his receipt of an equity incentive award on or around the closing of the offering. Pursuant to Mr. Honeyfield’s offer letter, he is entitled to severance
equal to two (2) times his annual base salary in the event that he is terminated without cause as a result of a sale or change in control of Intrepid Potash. Such severance amount will be decreased by 1/24 for each month Mr. Honeyfield is
employed by us. See “—Employment Agreements” above.
Assuming that both Mr. Avery and Mr. Honeyfield were terminated as a result of a
change of control of Intrepid Potash on December 31, 2007 (and assuming further that Mr. Honeyfield had been employed as of such date), the severance payments to each of Messrs. Avery and Honeyfield would have had the estimated values set forth
below:
|
|
|
|
|
|
|
Mr. Avery
|
|
$
|
417,500
|
(1)
|
|
Mr. Honeyfield
|
|
$
|
630,000
|
(2)
|
|
(1)
|
Assumes that Mr. Avery had worked 9 months as of the date of termination and was therefore entitled to 15 months of severance at an annual base salary rate of $334,000.
|
|
(2)
|
Assumes Mr. Honeyfield would have been entitled to 2 years of severance at an annual base salary rate of $315,000.
|
135
Director Compensation
We will not pay any compensation to our directors prior to this offering, although we will reimburse directors for any out-of-pocket expenses incurred by them in connection with services provided in such capacity. Our board of
directors will adopt a non-employee director compensation program to be effective upon the completion of this offering. Pursuant to this program, each member of our board of directors who is not an employee will receive, as applicable, the following
cash compensation for board services, which we expect to pay quarterly:
|
|
Ÿ
|
|
$50,000 annual retainer for service as a board member;
|
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$15,000 annual retainer for service as chairman of the audit committee;
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$10,000 annual retainer for service as chairman of the compensation committee; and
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$5,000 annual retainer for service as chairman of the nominating and corporate governance committee.
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Members of our board of directors who are not employees will also receive each year a fully vested annual stock grant under the long-term equity incentive plan
having a value of $60,000 at the time of grant. Annual grants will be made each year at the first board of directors meeting following Intrepid Potash’s annual stockholders meeting. No annual grants are anticipated until 2009.
We expect that we will continue to reimburse our non-employee directors for their reasonable expenses incurred in their service as board members.
In addition to the non-employee director compensation described above, we anticipate that each non-employee director as of the closing of this offering will
receive a one-time stock grant determined by dividing $50,000 by the per share offering price. These grants are also fully vested upon issuance. See “—Compensation Discussion and Analysis—Establishment of Long-Term Incentive
Program” above for a tabular presentation of stock grants and restricted stock grants to be made in connection with the offering.
Compensation Committee Interlocks and Insider Participation
An acquisition of a 20% membership interest in Intrepid Mining by a
new member, PAL, was completed for $39.0 million in June 2007. The largest beneficial owner of PAL is Platte River Ventures I, L.P., a Delaware limited partnership. One of our directors, J. Landis Martin, is the managing member of Platte River
Ventures I, L.P.’s general partner, PRV Investors I, LLC, a Delaware limited liability company.
Other than as disclosed above, we do not
anticipate any interlocking relationships between any member of our compensation committee or our nominating and corporate governance committee and any of our executive officers that would require disclosure under the applicable rules promulgated
under the U.S. federal securities laws.
Limitation of Liability and Indemnification
As permitted by the Delaware General Corporation Law, or DGCL, our restated certificate of incorporation will contain provisions that limit or eliminate the
personal liability of our directors and officers for monetary damages for a breach of their fiduciary duty of care as a director or officer. The duty of care generally requires that, when acting on behalf of the corporation, directors and officers
136
exercise an informed business judgment based on all material information reasonably available to them. Consequently, a director or officer will not be personally
liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director or officer, except for liability for:
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any breach of the person’s duty of loyalty to us or our stockholders;
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any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
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any act related to unlawful stock repurchases, redemptions or other distributions or payment of dividends; or
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any transaction from which the person derived an improper personal benefit.
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These limitations of liability do not generally affect the availability of equitable remedies such as injunctive relief or rescission.
As permitted by the DGCL, our restated certificate of incorporation and restated bylaws will provide that:
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we will indemnify our current and former directors and officers and anyone who is or was serving at our request as the director, officer, employee or agent of another entity,
and may indemnify our current or former employees and other agents, to the fullest extent permitted by the DGCL, subject to limited exceptions; and
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we may purchase and maintain insurance on behalf of our current or former directors, officers, employees or agents against any liability asserted against them and incurred by
them in any such capacity, or arising out of their status as such.
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We intend to obtain liability insurance for our directors and
officers.
Our restated certificate of incorporation will require us to advance expenses to our directors and officers in connection with a legal
proceeding, subject to receiving an undertaking from such director or officer to repay advanced amounts if it is determined he or she is not entitled to indemnification. Our restated bylaws will provide that we may advance expenses to our employees
and other agents, upon such terms and conditions, if any, as we deem appropriate.
We will enter into separate indemnification agreements with
each of our directors and officers, which may be broader than the specific indemnification provisions contained in the DGCL. These indemnification agreements may require us, among other things, to indemnify our directors and officers against
liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct. These indemnification agreements may also require us to advance any expenses incurred by the directors
or officers as a result of any proceeding against them as to which they could be indemnified and to obtain directors’ and officers’ insurance, if available on reasonable terms.
To our knowledge, there is currently no pending litigation or proceeding involving any of our directors, officers, employees or agents in which indemnification by
us is sought, nor are we aware of any threatened litigation or proceeding that may result in a claim for indemnification.
Insofar as indemnification
for liabilities arising under the Securities Act may be permitted for our directors, officers and controlling persons under the foregoing provisions or otherwise, we have been informed that, in the opinion of the SEC, such indemnification is against
public policy as expressed in the Securities Act and is, therefore, unenforceable.
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Approval of Related Party Transactions
We will adopt a written statement of policy with regard to related party transactions to be administered by the audit committee. Under the policy, a related party
transaction is any transaction between Intrepid Potash and any related party where the aggregate amount involved will or may be expected to exceed $120,000 and any related party will have a direct or indirect material interest. A related party is:
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(i)
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any executive officer, director or nominee for election as director of Intrepid Potash;
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(ii)
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a 5% stockholder of Intrepid Potash;
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(iii)
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a family member of any of the foregoing; or
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(iv)
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any firm, corporation or other entity in which any of the foregoing persons is employed or is a partner or other principal or has a substantial ownership interest or control of such entity.
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Pursuant to our policy, a related party transaction must be approved or ratified by our audit committee in accordance with the
terms of the policy, or the chief executive officer and chief financial officer may pre-approve or ratify such transaction if the amount involved in the transaction is less than $100,000, provided that the chief executive officer and chief financial
officer report to the audit committee with respect to transactions they have authorized at the audit committee’s next regularly scheduled meeting.
Currently, Intrepid Mining’s restated limited liability company agreement covers the review, approval and ratification of related party transactions between Intrepid Mining and its members. The amended and restated limited liability
company agreement includes a list of specified transactions which are authorized and approved. Related party transactions not specifically identified in the agreement currently require the approval of a disinterested majority of the board or members
of Intrepid Mining if such transactions are on terms less favorable than the terms of similar transactions entered into in arms-length agreements with third parties.
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PRINCIPAL STOCKHOLDERS
The table presented below shows information regarding the beneficial ownership of our
common stock as of March 31, 2008, before and after giving effect to the offering and the formation transactions described under “The Formation Transactions” above, by:
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each person or entity known by us to own beneficially more than 5% of our outstanding common shares;
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each of our directors and nominees for director;
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each of our named executive officers; and
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all of our directors and executive officers as a group.
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The information in the following table has been presented in accordance with the rules of the SEC. Under SEC
rules, beneficial ownership of a class of securities includes any shares of such class as to which a person, directly or indirectly, has or shares voting power or investment power and also any shares as to which a person has the right to acquire
such voting or investment power within 60 days through the exercise of any stock option, warrant or other right. If two or more persons share voting power or investment power with respect to specific securities, each such person is deemed to be the
beneficial owner of such securities. Except as otherwise indicated below, we believe that the beneficial owners of the common shares listed below, based on information they have furnished to us, have sole voting and investment power with respect to
the shares shown. Percentage of beneficial ownership is based on 74,846,000 shares of common stock to be outstanding after the completion of this offering, assuming that the underwriters will not exercise any portion of their option to purchase
additional shares (and therefore, that 3,600,000 shares will be distributed to the current members of Intrepid Mining pursuant to the formation distribution). No shares of our common stock are subject to options. Unless otherwise specified, the
address of each named beneficial owner is c/o Intrepid Potash, Inc., 700 17
th
Street, Suite 700, Denver, CO 80202.
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Name of Beneficial Owner
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Shares Beneficially
Owned Before Offering
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Shares Acquired
in Connection
with the
Offering and the
Formation
Transactions
(1)
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Shares Beneficially
Owned After Offering
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Number
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Percent
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Number
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Percent
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Intrepid Mining LLC
(2)
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1,000
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100
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%
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—
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0
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0
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%
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Harvey Operating and Production Company
(3)
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20,336,000
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20,336,000
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27.2
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Intrepid Production Corporation
(4)
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20,336,000
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20,336,000
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27.2
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Potash Acquisition, LLC
(5)
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10,168,000
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10,168,000
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13.5
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Robert P. Jornayvaz III
(4)
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20,336,000
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20,336,000
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27.2
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Hugh E. Harvey, Jr.
(3)
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20,336,000
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20,336,000
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27.2
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Patrick L. Avery
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120,000
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(6)
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120,000
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*
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David W. Honeyfield
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27,560
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(7)
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27,560
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*
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R.L. Moore
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40,000
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(8)
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40,000
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*
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James N. Whyte
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58,800
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(9)
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58,800
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*
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Patrick A. Quinn
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40,000
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(10)
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40,000
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*
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J. Landis Martin
(5)
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10,170,000
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10,170,000
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13.5
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Terry Considine
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2,000
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2,000
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*
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Barth E. Whitham
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2,000
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2,000
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*
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All directors and executive officers as a group (9 persons)
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55,130,360
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55,130,360
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73.4
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*
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Represents beneficial ownership of less than 1%.
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(1)
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Assumes the liquidation of Intrepid Mining will occur simultaneously with the consummation of this offering and the transactions provided for in the exchange agreement.
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(2)
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Intrepid Mining is owned 40% by Harvey Operating and Production Company, 40% by Intrepid Production Corporation and 20% by Potash Acquisition, LLC.
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(3)
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Harvey Operating and Production Company is wholly-owned by Hugh E. Harvey, Jr.
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(4)
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Intrepid Production Corporation is wholly-owned by Robert P. Jornayvaz III.
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(5)
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J. Landis Martin is the managing member and chief executive officer of PRV Investors I, LLC, the manager of PAL, and also holds certain indirect membership interests in PAL. Mr. Martin
disclaims beneficial ownership of the shares of our common stock held by PAL except to the extent of his pecuniary interest therein. The address of PAL and Mr. Martin is 200 Fillmore Street, Suite 200, Denver, CO 80206.
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(6)
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Includes 120,000 shares of restricted stock, 50,000 of which vest on January 5, 2009 and 70,000 of which vest 25% on each of the first four anniversary dates of the completion of this
offering.
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(7)
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Includes 27,560 shares of restricted stock, 4,800 of which vest on December 31, 2008, 7,200 of which vest on February 28, 2009, 2,600 of which vest on December 31, 2009, 3,000 of which vest
on February 28, 2010, 2,400 of which vest on February 28, 2011 and 7,560 of which vest 25% on each of the first four anniversary dates of the completion of this offering.
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(8)
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Includes 40,000 shares of restricted stock, 12,000 of which vest January 5, 2009 and 28,000 of which vest 25% on each of the first four anniversary dates of the completion of this offering.
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(9)
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Includes 58,800 shares of restricted stock, 30,000 of which vest on January 5, 2009 and 28,800 of which vest 25% on each of the first four anniversary dates of the completion of this
offering.
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(10)
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Includes 40,000 shares of restricted stock, which vest on January 9, 2009.
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140
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
General
Before the completion of this offering, Intrepid Mining has been wholly owned by the original stockholders. The agreements and arrangements currently in effect
between Intrepid Mining and the original stockholders were made in the context of an affiliated relationship. As a result, the terms of these agreements and arrangements may be less favorable to Intrepid Mining than terms that it might have obtained
in negotiations with unaffiliated third parties in similar circumstances.
We will enter into several agreements to effect the formation
transactions and to define and regulate the relationships among us and the original stockholders after the completion of the formation transactions and this offering. Except as described in this section, we do not expect to have any material
arrangements with Intrepid Mining, the original stockholders or any of our or their respective directors, officers or other affiliates after the completion of the formation transactions and this offering, other than ordinary course business
relationships on arm’s-length terms.
The summaries of the agreements contained in this prospectus are qualified by reference to the complete
text of the agreements, each of which will be filed as exhibits to the registration statement of which this prospectus is a part. For information on how to obtain copies of these agreements or other exhibits, see “Where You Can Find More
Information” on page 161.
Director Designation and Voting Agreement
Our board of directors currently consists of three directors. The members of our board of directors named above will appoint two additional members effective as of
the consummation of this offering and the formation transactions and a third additional member thereafter. In connection with the formation transactions, we will enter into a director designation and voting agreement with the original stockholders,
wherein they will each agree to designate one candidate for nomination and election to the board and to vote their shares in favor of the others’ candidates and we will agree to use our best efforts to assure that such designees are included in
the slate of nominees to the board and recommended for election. Pursuant to the terms of the agreement, we also may add one additional director to the board, without prior consent of the original stockholders, in the future as may be required by
the rules of the NYSE. The original stockholders will own in the aggregate, after giving effect to this offering and assuming the underwriters do not exercise their option to purchase additional shares, 67.9% of our issued and outstanding common
stock. The initial nominees of the original stockholders will be Mr. Harvey (nominated by HOPCO), Mr. Jornayvaz (nominated by IPC) and Mr. Martin (nominated by PAL). The rights and obligations under the agreement will not be
transferable upon sale or other transfer of common stock by an original stockholder except to any affiliate of the original stockholder. The agreement will terminate with respect to an original stockholder and its affiliates when their collective
beneficial ownership falls below 5% of our outstanding common stock.
Under the agreement, each original stockholder will also agree, except in the
case of a transfer to another original stockholder, an affiliate of an original stockholder or a public tender offer, to not knowingly sell shares of its common stock to any person if the result of that sale would be that the purchaser of such
shares would own, directly or indirectly, 5% or more of the outstanding common stock of Intrepid Potash.
Registration Rights Agreement
We will enter into a registration rights agreement with the original stockholders. Under the registration rights agreement, each of the original
stockholders will have the right, in certain
141
circumstances after the consummation of this offering, to require us to register for sale some or all of the shares of common stock held by such stockholder. Subject
to the terms and conditions of the registration rights agreement, each original stockholder will have the right to make three such “demands” for registration, one of which may require a shelf registration statement. In addition, in
connection with registered offerings by us after the consummation of this offering, whether pursuant to a “demand” registration or otherwise, the original stockholders will have the ability to exercise certain “piggyback registration
rights” and have some or all of their shares included in the registration statement. Notwithstanding the foregoing, no registration statement may be filed during the lock-up period following the date of this prospectus, as described under
“Shares Eligible for Future Sale—Sale of Restricted Shares and Lock-Up Agreements”. We will bear all costs of registration pursuant to the registration rights provided in the registration rights agreement.
Airplane Use Policy
Under Intrepid Mining’s
existing policy, which will remain in effect until completion of this offering, managing members are allowed to use Intrepid Mining’s plane for non-business purposes. This is recorded by Intrepid Mining as compensation to the members. The
amounts classified as compensation are recorded as partial offsets to the operating expenses of the plane. See “Management—Executive Compensation”. In addition, IPC and HOPCO have the right to use our plane
under a time-sharing
arrangement pursuant to which they reimburse us for the cost of such use up to the limits allowed by FAA regulations.
Following completion of
the offering, we will have employment agreements with Mr. Jornayvaz and Mr. Harvey, and arrangements with certain other named executive officers, that will allow each of them to use our plane for non-business purposes under a similar
arrangement, whereby they will be imputed compensation income, to the extent such use does not conflict with business use of the aircraft and to continue the time-sharing arrangements with IPC and HOPCO.
Transition Services Agreement
In connection with the
completion of this offering, we will enter into a transition services agreement with Intrepid Oil & Gas, LLC, or IOG, an entity owned by Messrs. Jornayvaz and Harvey. Pursuant to this agreement, IOG, may require specified employees of
Intrepid Potash or its subsidiaries (other than Messrs. Jornayvaz and Harvey) to provide a limited amount of accounting, geology, land title and engineering services in connection with IOG’s oil and gas venture. Under the prior arrangement with
IOG, beginning in 2007, IOG reimbursed Intrepid Mining for actual time and expenses incurred on IOG’s behalf. Costs and expenses incurred during 2007 were $0.2 million. For more information on the transition services agreement, see “The
Formation Transactions—Transition Services Agreement” beginning on page 69.
Relationship with Quinn & Associates,
P.C.
Mr. Quinn, who served as our Interim Chief Financial Officer until March 24, 2008, is an independent contractor and performs
services for us through the accounting firm of Quinn & Associates, P.C., of which he is the primary owner. In 2007, we paid Q&A $567,769 for services rendered on our behalf by Mr. Quinn and other employees of Q&A, $240,638 of which
was attributable directly to services performed by Mr. Quinn. In 2007, payments from Intrepid Mining represented approximately 39% of Q&A’s annual revenue.
142
Acquisition of Membership Interest by PAL
An acquisition of a 20% membership interest in Intrepid Mining by a new member, PAL, was completed for $39.0 million in June 2007. The largest beneficial owner of
PAL is Platte River Ventures I, L.P., a Delaware limited partnership. One of our directors, J. Landis Martin, is the managing member of Platte River Ventures I, L.P.’s general partner, PRV Investors I, LLC, a Delaware limited liability company.
Redemption of Long Canyon Membership Interest
On December 28, 2006, Intrepid Mining agreed to redeem the entire membership interest of Long Canyon, which at the time represented 42.5% of Intrepid Mining’s outstanding membership interests. The total redemption price was $100.0
million, which included a $95.0 million note paid in March 2007. The $100.0 million cost to redeem the membership interest of Long Canyon, as well as costs of the redemption transaction, were treated as distributions to Long Canyon, resulting in
Intrepid Mining having a members’ deficit as of December 31, 2006.
Intrepid Mining Transactions with Members
Intrepid Mining declared special distributions to its members of $3.9 million and $15.0 million in June 2007 and October 2007, respectively. These 2007
distributions were funded by draws upon the existing revolving line of credit. Intrepid Mining declared a special distribution to its members of $15.0 million in March 2008 which was paid out of cash on hand; no amounts were drawn against the
revolving line of credit to make this distribution. All distributions were permitted under the existing senior credit facility.
In early 2007,
Intrepid Mining decided to distribute its remaining interests in Intrepid Oil and Gas, LLC (IOG) to its members. The amount of the equity distribution was $0.9 million. At December 31, 2007, Intrepid Mining had outstanding advances to IOG of
$0.2 million. All such advances have been repaid to Intrepid Mining.
Intrepid Mining made advances from time to time to its managing members. At
December 31, 2007 and 2006, the outstanding advances were approximately $32,000 and $302,000, respectively. All 2007 and 2006 advances have been repaid to Intrepid Mining.
143
DESCRIPTION OF CAPITAL STOCK
The following description of material terms of our capital stock and certain
provisions of our restated certificate of incorporation and restated bylaws, each of which will be in effect on the completion of this offering, are summaries and are qualified by reference to the restated certificate of incorporation and restated
bylaws, copies of which have been filed as exhibits to the registration statement, of which this prospectus forms a part.
Authorized Capital
Our authorized capital stock consists of:
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100,000,000 shares of common stock, par value $0.001 per share; and
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20,000,000 shares of preferred stock, par value $0.001 per share.
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Common Stock
Upon the completion of this offering, we expect there will be 74,846,000 shares of common stock issued
and outstanding, excluding any restricted stock issued under our 2008 Equity Incentive Plan and including 3,600,000 shares that will be sold to the underwriters pursuant to the exercise of their option to purchase additional shares or, to the extent
the underwriters’ option to purchase additional shares is not exercised, distributed to the current members of Intrepid Mining pursuant to the formation distribution.
Voting Rights
Each holder of common stock will be entitled to one vote per share on all matters to be voted on by
stockholders except those matters on which a separate class of stockholders vote by class to the exclusion of the shares of common stock. Generally, matters to be voted on by stockholders must be approved by the vote of a majority (or, in the case
of election of directors and routine matters, a plurality) of our outstanding common stock. Except as otherwise required by the DGCL, our restated certificate of incorporation or the voting rights granted to any preferred stock we subsequently
issue, the holders of outstanding shares of common stock and preferred stock entitled to vote thereon, if any, will vote as one class with respect to all matters to be voted on by our stockholders.
Dividend Rights
Subject to preferences that may apply to shares
of preferred stock outstanding at the time, the holders of outstanding shares of our common stock are entitled to receive dividends out of funds legally available if our board of directors, in its discretion, determines to declare dividends and only
then at the times and in the amounts that our board of directors may determine.
No Preemptive or Similar Rights
Holders of common stock do not have any preemptive, subscription or conversion rights.
Right to Receive Liquidation Distributions
Upon our dissolution, liquidation or winding-up, the assets legally available for
distribution to our stockholders are distributable ratably among the holders of our common stock, subject to prior satisfaction of all outstanding debts and liabilities and the preferential rights and payment of liquidation preferences, if any, on
any outstanding shares of preferred stock.
144
Preferred Stock
Our board of directors will be authorized, without further stockholder approval except as may be required by applicable NYSE rules, to issue from time to time up to an aggregate of 20,000,000 shares of preferred stock in one or
more series and to fix or alter the designations, preferences, rights and any qualifications, limitations or restrictions of the shares of each such series thereof, including the dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption (including sinking fund provisions), redemption price or prices, liquidation preferences and the number of shares constituting any series or designations of such series. No shares of preferred stock are presently outstanding and
we have no present plans to issue any shares of preferred stock.
Director Designation and Voting Agreement
Our board of directors currently consists of three directors. The members of our board of directors named above will appoint two additional members effective as of
the consummation of this offering and the formation transactions and a third additional member thereafter. In connection with the formation transactions, the original stockholders will enter into a director designation and voting agreement, wherein
they will each agree to designate one candidate for nomination and election to the board and to vote their shares in favor of the others’ candidates and we will agree to use our best efforts to assure that such designees are included in the
slate of nominees to the board and recommended for election. Pursuant to the terms of the agreement, we also may add one additional member to the board, without prior consent of the original stockholders, in the future as may be required by the
rules of the NYSE. For more information on the agreement, see “Certain Relationships and Related Party Transactions—Director Designation and Voting Agreement” on page 141.
Stock Awards Under the 2008 Equity Incentive Plan
We will issue restricted stock awards
representing 607,500 shares under our 2008 Equity Incentive Plan to our employees and 6,000 unrestricted shares to our non-employee directors at or before the completion of this offering. See “Management—Grants of Plan-Based Awards”
and “Shares Eligible for Future Sale.”
Anti-Takeover Effects of Certain Provisions of Delaware Law, the Certificate of
Incorporation and the Bylaws
Some provisions of Delaware law and our restated certificate of incorporation and restated bylaws could make the
following transactions more difficult:
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acquisition of our company by means of a tender offer, a proxy contest or otherwise; and
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removal of our incumbent officers and directors.
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These
provisions, summarized below, are expected to discourage and prevent coercive takeover practices and inadequate takeover bids. These provisions are designed to encourage persons seeking to acquire control of our company to first negotiate with our
board of directors. They are also intended to provide our management with the flexibility to enhance the likelihood of continuity and stability if our board of directors determines that a takeover is not in the best interests of our stockholders.
These provisions, however, could have the effect of discouraging attempts to acquire us, which could deprive our stockholders of opportunities to sell their shares of common stock at prices higher than prevailing market prices.
145
Delaware Anti-Takeover Statute.
We are subject to Section 203 of the
Delaware General Corporation Law. Section 203 is an anti-takeover law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three
years following the date that the person became an interested stockholder, unless the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a business combination
includes a merger, asset or stock sale, or another transaction resulting in a financial benefit to the interested stockholder. Generally, an interested stockholder is a person who, together with affiliates and associates, owns 15% or more of the
corporation’s voting stock. The existence of this provision may have an anti-takeover effect with respect to transactions that are not approved in advance by our board of directors, including discouraging attempts that might result in a premium
over the market price for the shares of common stock held by stockholders.
Special Stockholder
Meetings.
Under our restated certificate of incorporation and restated bylaws, only our board of directors will be able to call special meetings of stockholders.
Election and Removal of Directors.
Our restated certificate of incorporation and our restated bylaws will contain provisions
that establish specific procedures for appointing and removing members of the board of directors. Under our restated certificate of incorporation and restated bylaws, our board will be classified into three classes of directors and, under our
restated bylaws, directors will be elected by a plurality of the votes cast in each election. Only one class will stand for election at each annual meeting, and directors will be elected to serve three-year terms. In addition, our restated
certificate of incorporation and restated bylaws will provide that vacancies and newly created directorships on the board of directors may be filled only by a majority of the directors then serving on the board (except as otherwise required by law
or by resolution of the board). Our restated certificate of incorporation and restated bylaws will provide that directors may be removed only for cause.
Undesignated Preferred Stock.
The authorization of undesignated, or “blank check”, preferred stock will make it possible for our board of directors to issue preferred stock with voting or other
rights or preferences that could impede the success of any attempt to change control of our company. See “—Preferred Stock”.
Requirements for Advance Notification of Stockholder Nominations and Proposals.
Our restated bylaws will establish advance notice procedures with respect to stockholder proposals and the nomination of
candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors. See “—Advance Notice Requirements for Stockholder Proposals and Director
Nominations”.
No Stockholder Action by Written Consent.
Our restated certificate of incorporation and
restated bylaws will not permit stockholders to act by written consent without a meeting.
No Cumulative
Voting.
Under Delaware law, cumulative voting for the election of directors is not permitted unless a corporation’s certificate of incorporation authorizes cumulative voting. Our restated certificate of
incorporation and restated bylaws will not provide for cumulative voting in the election of directors. Cumulative voting allows a minority stockholder to vote a portion or all of its shares for one or more candidates for seats on the board of
directors. Without cumulative voting, a minority stockholder will not be able to gain as many seats on our board of directors based on the number of shares of our stock the stockholder holds as the stockholder would be able to gain if cumulative
voting were permitted. The absence of cumulative voting makes it more difficult for a minority stockholder to gain a seat on our board of directors to influence our board’s decision regarding a takeover.
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These and other provisions could have the effect of discouraging others from attempting hostile takeovers and, as a
consequence, they may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our management.
It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.
Advance Notice Requirements for Stockholder Proposals and Director Nominations
Our restated bylaws will provide that stockholders seeking to bring business before an annual meeting of stockholders, or to nominate candidates for election as directors at an annual meeting of stockholders, must provide
timely notice thereof in writing. To be timely, a stockholder’s notice must be delivered to the company secretary between the 120
th
day and the 90
th
day before the anniversary of the preceding year’s annual meeting. If, however, the date of the meeting is advanced more than 30 days before, or delayed more than
70 days after, the anniversary of the annual meeting, notice must be delivered between the 120
th
day before the meeting and the later of the 90
th
day before the meeting or the 10
th
day after we publicly announce the date of the meeting. Our
restated bylaws also will specify certain requirements as to the form and content of a stockholder’s notice. These provisions may preclude stockholders from bringing matters before an annual meeting of stockholders or from making nominations
for directors at an annual meeting of stockholders.
Authorized but Unissued Shares
The authorized but unissued shares of common stock and preferred stock are available for future issuance without stockholder approval, except as may be required by
applicable NYSE rules. These additional shares may be used for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans.
Corporate Opportunities
Our restated certificate of
incorporation will provide for the allocation of certain corporate opportunities between us, on the one hand, and the original stockholders and their affiliates, on the other hand. Specifically:
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None of IPC, HOPCO and their affiliates (whether or not they are also a director, officer or employee of Intrepid Potash except as provided below) will have any duty to
refrain from engaging directly or indirectly in any investments, business activities or lines of business other than the following, each a “potash opportunity”: (i) the acquisition, ownership, operation, mining, distribution or sale
of potash, potassium, langbeinite, salt or magnesium chloride, or properties containing or prospective for commercial quantities thereof, anywhere in the world, and (ii) the acquisition, ownership or control of equity interests in any person
that owns or engages in any of the foregoing if the interests owned or controlled by IPC, HOPCO and their affiliates exceeds 5% of all of the equity interests in such person. These provisions will have no further force or effect (a) for IPC, at
such time as IPC and its affiliates cease to own, in the aggregate, 5% or more of our then outstanding common stock; and (b) for HOPCO, at such time as HOPCO and its affiliates cease to own, in the aggregate, 5% or more of our then outstanding
common stock.
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None of PAL and its affiliates (whether or not they are also a director, officer or employee of Intrepid except as provided below) will have any duty to refrain from engaging
directly or indirectly in any investments, business activities or lines of business other than any investment,
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business activity or line of business for which the activities described in clauses (i) and (ii) above constitute in excess of 50% of the revenues thereof in
any twelve-month period. These provisions will have no further force or effect at such time as PAL and its affiliates cease to own, in the aggregate, 10% or more of our then outstanding common stock.
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Except as noted below, we will renounce any interest or expectancy that we may have in any potential transaction or opportunity for any original stockholder or their
respective affiliates, as applicable, on the one hand, and us, on the other hand, other than with respect to a potash opportunity from which such original stockholder or affiliate has a duty to refrain (as described above), and therefore none of the
original stockholders or their affiliates will have any duty to communicate or offer any corporate opportunity to us other than potash opportunities from which they have a duty to refrain, and will be entitled to pursue or acquire any opportunity,
other than potash opportunities from which they have a duty to refrain, for itself, and we will have no right in or to any such opportunity. Notwithstanding the prior sentence, we are not renouncing any interest or expectancy in any corporate
opportunity that is offered to any original stockholder or affiliate of an original stockholder that is also one of our directors, officers, or employees, if (i) such opportunity is expressly offered to such party solely in, and as a direct
result of, his or her capacity as our director, officer or employee; (ii) we would be permitted to undertake the opportunity under our restated certificate of incorporation, and (iii) we have sufficient financial resources to undertake the
opportunity, as determined by our board of directors.
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Amendments to Certificate of Incorporation or Bylaws
The affirmative vote of the holders of at least a majority of our issued and outstanding common stock, voting as a single class, is generally required to amend or
repeal our restated certificate of incorporation. In addition, under the DGCL, an amendment to our restated certificate of incorporation that would alter or change the powers, preferences or special rights of the common stock so as to affect them
adversely also must be approved by a majority of the votes entitled to be cast by the holders of the shares affected by the amendment, voting as a separate class. Subject to our restated bylaws, our board of directors may from time to time make,
amend, supplement or repeal our restated bylaws by vote of a majority of our board of directors.
Registration Rights
We will enter into a registration rights agreement with the original stockholders. For more information on the registration rights agreement, see “Certain
Relationships and Related Party Transactions—Registration Rights Agreement” on page 141.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock will be Computershare Trust Company, New York, New York.
Listing
We have applied to list our common stock on the
NYSE under the symbol “IPI”.
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SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our common stock, and we
cannot assure you that a significant public market for our common stock will develop or be sustained after this offering. Sales of significant amounts of our common stock in the public market after this offering, or the perception that such sales
could occur, could adversely affect the prevailing market price of our common stock and could impair our future ability to raise capital through the sale of our equity securities.
Sale of Restricted Shares and Lock-Up Agreements
Upon completion of this offering, 74,846,000
shares of common stock will be outstanding, including 3,600,000 shares that will be sold to the underwriters pursuant to the exercise of their option to purchase additional shares or, to the extent the option to purchase additional shares is not
exercised, distributed to the current members of Intrepid Mining pursuant to the formation distribution.
Of the 74,846,000 shares of common stock to
be outstanding upon completion of this offering, 24,000,000 shares of common stock offered pursuant to this offering will be freely tradable without restriction or further registration under federal securities laws, except to the extent shares of
common stock are purchased in this offering by our affiliates, as that term is defined in Rule 144 under the Securities Act.
We and all of our
executive officers and directors, as well as the current members of Intrepid Mining, will agree with the underwriters not to offer, sell, dispose of or hedge any shares of our common stock or securities convertible into or exchangeable for shares of
our common stock, subject to specified limited exceptions and extensions described elsewhere in this prospectus, during the period continuing through the date that is 180 days (subject to extension) after the date of this prospectus, except with the
prior written consent of Goldman, Sachs & Co., on behalf of the underwriters. Goldman, Sachs & Co., in its sole discretion on behalf of the underwriters, may release any of the securities subject to these lock-up agreements at any time
without notice. The lock-up period may be extended in the circumstances described under “Underwriting”.
Rule 144
In general, Rule 144 as currently in effect allows a stockholder (or stockholders where shares are aggregated) who has beneficially owned
shares of our common stock for at least six months (including the holding period of any prior owner other than an affiliate) and who has not been an affiliate of ours for 90 days preceding the sale to sell those shares, subject to the
availability of current public information about us. Affiliates are allowed to sell their shares after the same six-month holding period, subject to the public information requirement as well as compliance with manner of sale restrictions, a volume
limitation and the filing of a Form 144 with the SEC if the sale exceeds 5,000 shares or $50,000 in value. The volume limitation restricts sales within any three-month period to a number of shares that does not exceed the greater of:
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1% of the number of shares of our common stock then outstanding, which will equal 748,460 shares immediately after this offering, assuming no exercise by the underwriters of
their option to purchase additional shares; or
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the average weekly trading volume of our common stock during the four calendar weeks preceding the filing of the Form 144 with respect to such sale.
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An “affiliate” is a person that directly, or indirectly, through one or more intermediate controls or is
controlled by, or is under common control with us.
Registration Rights
For more information on the registration rights agreement with the original stockholders, see “Certain Relationships and Related Party
Transactions—Registration Rights Agreement” on page 141.
Stock Awards Under the 2008 Equity Incentive Plan
We will issue restricted stock awards representing 607,500 shares under our 2008 Equity Incentive Plan to our employees and 6,000 nonrestricted shares to our
non-employee directors at or before the completion of this offering. See “Management—Grants of Plan-Based Awards” and “Shares Eligible for Future Sale.”
As soon as practicable after the completion of this offering, we intend to file a registration statement on Form S-8 under the Securities Act covering shares
of our common stock reserved for issuance under our 2008 Equity Incentive Plan. Accordingly, shares of our common stock registered under such registration statement will be available for sale in the open market upon exercise by the holders, subject
to vesting restrictions, Rule 144 limitations applicable to our affiliates and the contractual lock-up provisions described above.
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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the material U.S. federal
income tax considerations generally applicable to beneficial owners of our common stock that acquire shares of our common stock pursuant to this offering and that hold such shares as capital assets. Such persons are referred to in this summary as
“acquiring holders”. For purposes of this summary, the term “U.S. holder” means an acquiring holder that is, for U.S. federal income tax purposes:
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an individual who is a citizen or resident of the U.S.;
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a corporation (including any entity or arrangement treated as a corporation for U.S. federal income tax purposes) created in or organized under the laws of the U.S., any
state thereof, or the District of Columbia;
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an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
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a trust (i) if a court within the U.S. is able to exercise primary supervision over the administration of such trust and one or more “United States persons”,
as defined in section 7701(a)(30) of the U.S. Internal Revenue Code of 1986, as amended, or the Code, have the authority to control all substantial decisions of such trust or (ii) that has a valid election in effect under applicable U.S.
Treasury regulations to be treated as a United States person.
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For purposes of this summary, the term “non-U.S. holder”
means an acquiring holder that is neither a U.S. holder nor a partnership (including an entity or arrangement treated as a partnership for U.S. federal income tax purposes).
If a partnership, or other entity or arrangement treated as a partnership for U.S. federal income tax purposes, is an acquiring holder, the U.S. federal income tax
treatment of a partner in that partnership generally will depend upon the status of the partner and the activities of the partnership. We urge each beneficial owner of our common stock that is such a partnership, and the partners of each such
partnership, to consult their tax advisors regarding the tax consequences of acquiring, owning and disposing of our common stock.
This summary is
based upon provisions of the Code, applicable U.S. Treasury regulations, and administrative and judicial interpretations thereof, all as of the date hereof and all of which are subject to change (possibly on a retroactive basis), as well as
differing interpretations. This summary does not include any discussion of any non-U.S., state, local or other tax considerations.
This summary
does not consider specific facts and circumstances that may be relevant to a person’s particular tax position and does not apply to persons that are subject to special tax treatment under U.S. federal income tax laws (including, without
limitation, partnerships or other pass-through entities, financial institutions, insurance companies, dealers in securities, regulated investment companies, persons that hold our common stock as part of a “straddle”, “hedge”,
“conversion transaction”, or other risk-reduction or integrated transaction, controlled foreign corporations, passive foreign investment companies, companies that accumulate earnings to avoid U.S. federal income tax, U.S. holders whose
“functional currency” is not the U.S. dollar, tax-exempt organizations, and individuals subject to tax as U.S. expatriates).
We urge
you to consult your own tax advisor with respect to the application of U.S. federal income tax laws to your particular situation, as well as any other U.S. federal tax consequences and any tax consequences that may arise under the laws of any
non-U.S., state, local or other taxing jurisdiction or under any applicable tax treaty.
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U.S. Holders
The following discussion summarizes certain material U.S. federal income tax consequences of the acquisition, ownership and disposition of our common stock generally applicable to U.S. holders, subject to the limitations described above.
Distributions
As discussed above under
“Dividend Policy”, we do not anticipate declaring or paying any cash dividends on our common stock in the foreseeable future. However, if we do make distributions of cash or property in respect of our common stock, the distributions
generally will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles, and will be includible in gross income by a
U.S. holder upon receipt. Any distribution that is a dividend will be eligible for the dividends received deduction if received by an otherwise qualifying corporate U.S. holder that meets the holding period and other requirements for the dividends
received deduction. Dividends paid by us to certain non-corporate U.S. holders, including individuals, with respect to taxable years beginning on or before December 31, 2010, are eligible for U.S. federal income taxation at the rates generally
applicable to long-term capital gains for individuals, currently at a maximum tax rate of 15%, provided that the U.S. holder receiving the dividend satisfies applicable holding period and other requirements.
If the amount of a distribution exceeds our current and accumulated earnings and profits, the excess first will be treated as a return of capital to the extent of
the U.S. holder’s adjusted tax basis in our common stock, and thereafter, will be treated as gain realized on a sale or other disposition of the common stock, taxable as described below under “—U.S. Holders—Dispositions”.
Dispositions
Upon a sale, exchange or other
taxable disposition of our common stock, a U.S. holder generally will recognize capital gain or loss equal to the difference between the amount realized on the sale, exchange or other taxable disposition and the U.S. holder’s adjusted tax basis
in the shares of our common stock. Such capital gain or loss will be long-term capital gain or loss if the U.S. holder has held the shares of the common stock for more than one year at the time of disposition. Long-term capital gains of certain
non-corporate U.S. holders, including individuals, are currently subject to U.S. federal income taxation at a maximum rate of 15%. The deductibility of capital losses is subject to limitations under the Code.
Information Reporting and Backup Withholding Requirements
In
general, dividends on our common stock, and payments of the proceeds of a sale, exchange or other disposition of our common stock paid to a U.S. holder are subject to information reporting and may be subject to backup withholding at a current
maximum rate of 28% unless the U.S. holder (i) is an exempt recipient (such as a corporation) and properly establishes its exemption, or (ii) provides an accurate taxpayer identification number and certifies that it is not subject to
backup withholding.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a U.S.
holder generally will be refunded or credited against the U.S. holder’s U.S. federal income tax liability, if any, provided that the required information is timely furnished to the Internal Revenue Service, or IRS.
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Non-U.S. Holders
The following discussion summarizes the material U.S. federal income tax consequences of the acquisition, ownership and disposition of our common stock generally applicable to non-U.S. holders, subject to the limitations described above.
U.S. Trade or Business Income
For purposes of this
discussion, dividend income and gain on the sale, exchange or other taxable disposition of our common stock by a non-U.S. holder will be considered to be “U.S. trade or business income” if the income or gain is (i) effectively
connected with the conduct by such non-U.S. holder of a trade or business within the U.S. and (ii) in the case of a non-U.S. holder that is eligible for the benefits of an income tax treaty with the U.S., attributable to a permanent
establishment or a fixed base maintained by the non-U.S. holder in the U.S. Generally, U.S. trade or business income is not subject to withholding of U.S. federal income tax, provided the non-U.S. holder complies with applicable certification and
disclosure requirements; instead, a non-U.S. holder is subject to U.S. federal income tax on a net income basis at regular U.S. federal income tax rates, in the same manner as a United States person, on its U.S. trade or business income. Any U.S.
trade or business income received by a non-U.S. holder that is a corporation also may give rise to a “branch profits tax” at a 30% rate, or at a lower rate prescribed by an applicable income tax treaty, under specific circumstances.
Distributions
As discussed above under
“Dividend Policy”, we do not anticipate declaring or paying any cash dividends on our common stock in the foreseeable future. However, if we do make distributions of cash or property in respect of our common stock, the distributions
generally will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. If the amount of a distribution exceeds our
current and accumulated earnings and profits, the excess will first be treated as a return of capital to the extent of the non-U.S. holder’s tax basis in our common stock, and thereafter, will be treated as gain realized on a sale or other
disposition of the common stock, taxable as described below under “—Non-U.S. Holders—Dispositions”.
A non-U.S. holder generally
will be subject to withholding of U.S. federal income tax at a 30% rate, or at a reduced rate prescribed by an applicable income tax treaty, on any dividends received in respect of our common stock. In order to obtain a reduced rate of U.S. federal
income tax withholding under an applicable income tax treaty, a non-U.S. holder generally will be required to provide a properly executed IRS Form W-8BEN certifying its entitlement to benefits under the treaty. A non-U.S. holder of our common stock
that is eligible for a reduced rate of U.S. federal income tax withholding under an income tax treaty may generally obtain a refund or credit of any excess amounts withheld by filing an appropriate claim for a refund with the IRS. In addition,
because we likely are and will continue to be a “United States real property holding corporation”, as defined under “—Dispositions” below, if a non-U.S. holder’s interest in our common stock constitutes a United States
real property interest, we generally will be required to withhold 10% of any distribution that exceeds our current and accumulated earnings and profits. Consequently, although we generally intend to withhold at a rate of 30%, or a lower rate as
specified in an applicable income tax treaty, on the entire amount of any distribution, to the extent that we do not do so, we generally will withhold at a rate of 10% on any portion of a distribution not subject to withholding at a rate of 30%, or
a lower rate as specified in an applicable income tax treaty.
The 30% withholding, or a lower rate as specified in an applicable income tax treaty,
described in the preceding paragraph does not apply to dividends that represent U.S. trade or business income of a
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non-U.S. holder that provides a properly executed IRS Form W-8ECI, certifying that the dividends are effectively connected with the non-U.S. holder’s conduct of a
trade or business within the U.S.
Dispositions
Under the Foreign Investment in Real Property Tax Act of 1980, or FIRPTA, any person who acquires a “United States real property interest”, as described below, from a non-U.S. holder generally must deduct and withhold a tax equal
to 10% of the amount realized by the transferor, referred to as “FIRPTA withholding”. In addition, a non-U.S. holder who disposes of a United States real property interest generally is required to recognize gain or loss in the same manner
as a United States person, referred to as the “FIRPTA tax”.
Stock in a “United States real property holding corporation” is
generally treated as a United States real property interest. A corporation is a United States real property holding corporation if the fair market value of its U.S. real property interests equals or exceeds 50% of the sum of the fair market value of
its worldwide real property interests plus its other assets used or held for use in a trade or business. We believe that we currently are, and we anticipate remaining, a United States real property holding corporation. As a result, a non-U.S. holder
generally will be taxed on a disposition of our common stock at capital gain rates applicable to United States persons, subject to applicable alternative minimum tax. However, if our common stock is treated as being regularly traded on an
established securities market, within the meaning of applicable U.S. Treasury regulations, (i) the FIRPTA tax would not apply to any non-U.S. holder who, directly, indirectly or constructively, held 5% or less of the total fair market value of
our common stock at all times during the shorter of the non-U.S. holder’s holding period or the five-year period preceding the date of the disposition and (ii) regardless of the amount of our common stock owned by a non-U.S. holder, FIRPTA
withholding would not apply to the disposition of our common stock by such holder.
If we are not a United States real property holding corporation
or if the tax under FIRPTA does not otherwise apply, a non-U.S. holder generally will not be subject to U.S. federal income or withholding tax in respect of any gain realized on a sale, exchange or other taxable disposition of our common stock
unless:
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the gain is U.S. trade or business income, in which case, such non-U.S. holder will be subject to U.S. federal income tax on such gain in the manner described above under
“—Non-U.S. Holders—U.S. Trade or Business Income”; or
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the non-U.S. holder is an individual who is present in the U.S. for 183 or more days in the taxable year of the disposition and meets other conditions, in which case, such
non-U.S. holder will be subject to U.S. federal income tax at a rate of 30%, or a reduced rate under an applicable tax treaty, on the amount by which certain capital gains allocable to U.S. sources exceed certain capital losses allocable to U.S.
sources.
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Information Reporting and Backup Withholding Requirements
We must report annually to the IRS and to each non-U.S. holder the amount of any dividends paid to that holder and the tax withheld with respect to those dividends.
Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities of the country in which the non-U.S. holder resides.
Under certain circumstances, the Code imposes a backup withholding obligation, currently at a rate of 28%, on certain reportable payments. Dividends paid to a
non-U.S. holder of common stock generally will be exempt from backup withholding if the non-U.S. holder provides a properly executed IRS Form W-8BEN, or otherwise establishes an exemption, and the payor does not have actual knowledge or reason to
know that such person is a U.S. person.
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The payment of the proceeds from the disposition of our common stock to or through the U.S. office of any broker,
U.S. or foreign, generally will be subject to information reporting and possible backup withholding unless the owner certifies as to its non-U.S. status under penalties of perjury or otherwise establishes an exemption and provided that the broker
does not have actual knowledge or reason to know that such person is a U.S. person or that the conditions of any other exemption are not, in fact, satisfied. The payment of the proceeds from the disposition of our common stock to or through a
non-U.S. office of a non-U.S. broker will not be subject to information reporting or backup withholding unless the non-U.S. broker has certain types of relationships with the U.S. (a “U.S. related person”). In the case of the payment of
the proceeds from the disposition of our common stock to or through a non-U.S. office of a broker that is either a U.S. person or a U.S. related person, the Treasury regulations require information reporting, but not backup withholding, on the
payment unless the broker has documentary evidence in its files that the owner is a non-U.S. holder and the broker has no knowledge to the contrary or an exemption is otherwise established.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a non-U.S. holder may be allowed as a refund
or credit against the non-U.S. holder’s U.S. federal income tax liability, if any, provided that the required information is timely furnished to the IRS.
Significant Transferors—Information to be Filed with Tax Returns
This offering and the formation transactions, together, are
intended to be treated as an exchange described in Section 351 of the Code. Although this treatment generally does not affect persons who acquire shares of our common stock for cash pursuant to this offering, an acquiring holder who,
immediately following this offering, owns at least 5% of the total combined voting power or total fair market value of our outstanding common stock will be required to include on or with such person’s income tax return for the taxable year in
which the offering is consummated a statement that contains the information set forth in Treasury Regulation Section 1.351-3. No private letter ruling from the IRS is being requested in connection with this offering, the formation transactions,
or the integrated exchange described in Section 351 of the Code.
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UNDERWRITING
We and the underwriters named below have entered into an underwriting agreement with respect to the
shares being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares indicated in the following table. Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan
Stanley & Co. Incorporated are the representatives of the underwriters.
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Underwriters
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Number of
Shares
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Goldman, Sachs & Co
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Merrill Lynch, Pierce, Fenner & Smith
Incorporated
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Morgan Stanley & Co. Incorporated
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RBC Capital Markets Corporation
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BMO Capital Markets Corp
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Total
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24,000,000
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The underwriters are committed to take and pay for all of the shares being offered, if any are taken,
other than the shares covered by the option described below unless and until this option is exercised.
If the underwriters sell more shares than
the total number set forth in the table above, the underwriters have an option to buy up to an additional 3,600,000 shares from the company. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the
underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.
The following table shows the per
share and total underwriting discounts and commissions to be paid to the underwriters by the company. Such amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase 3,600,000 additional shares.
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Paid by the Company
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No Exercise
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Full Exercise
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Per Share
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$
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$
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Total
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$
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$
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Shares sold by the underwriters to the public will initially be offered at the initial public offering price
set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $ per share from the initial public
offering price. If all the shares are not sold at the initial public offering price, the representatives may change the offering price and the other selling terms. The offering of the shares by the underwriters is subject to receipt and acceptance
and subject to the underwriters’ right to reject any order in whole or in part.
We, all of our directors and officers and the holders of
substantially all of our outstanding common stock will agree that, subject to certain exceptions, without the prior written consent of Goldman, Sachs & Co. on behalf of the underwriters, we and they will not, during the period ending 180 days
after the date of this prospectus:
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offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend,
or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock;
|
156
|
|
Ÿ
|
|
in our case, file any registration statement with the Securities and Exchange Commission relating to the offering of any shares of common stock or any securities convertible
into or exercisable or exchangeable for shares of common stock (other than on Form S-8 or a successor form thereon); or
|
|
|
Ÿ
|
|
enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock,
|
whether any such transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise. In
addition, each such person will agree that, without the prior written consent of Goldman, Sachs & Co. on behalf of the underwriters, it will not, during the period ending 180 days after the date of this prospectus, make any demand for, or
exercise any right with respect to, the registration of any shares of common stock or any security convertible into or exercisable or exchangeable for common stock.
The restrictions described in the immediately preceding paragraph will not apply to:
|
|
Ÿ
|
|
the sale of shares to the underwriters in this offering;
|
|
|
Ÿ
|
|
transactions relating to shares of common stock or other securities acquired by stockholders in open market transactions after the completion of the offering of the shares;
|
|
|
Ÿ
|
|
transfers by stockholders of shares of common stock or any security convertible into common stock as a bona fide gift;
|
|
|
Ÿ
|
|
transfers by the original stockholders of shares of common stock or any security convertible into common stock to the affiliates of the original stockholders or to any
investment fund or other entity controlled or managed by the original stockholders;
|
|
|
Ÿ
|
|
transfers by the original stockholders of shares of common stock or any security convertible into common stock to a trust, partnership, limited liability company or other
entity, all of the beneficial interests of which are held, directly or indirectly, by the original stockholders;
|
|
|
Ÿ
|
|
distributions of shares of common stock or any security convertible into or exercisable for common stock to partners, members or equityholders of the stockholder;
|
|
|
Ÿ
|
|
a stockholder’s entry into a written trading plan designed to comply with Rule 10b5-1 under the Exchange Act, provided that no sales are made pursuant to such
trading plan during the restricted period;
|
|
|
Ÿ
|
|
the issuance of options not exercisable during the restricted period pursuant to the Intrepid Potash, Inc. 2008 Equity Incentive Plan described in this prospectus; or
|
|
|
Ÿ
|
|
the filing of a registration statement on Form S-8 to register common stock under the Intrepid Potash, Inc. 2008 Equity Incentive Plan described in this prospectus;
|
provided that in the case of each of the fourth and fifth types of transactions, each donee, distributee, transferee and recipient agrees to be
subject to the restrictions described in the preceding paragraph and in the case of each of the third, fourth and fifth types of transactions, no filing under Section 16(a) of the Securities Exchange Act of 1934, as amended, reporting a
reduction in beneficial ownership of shares of common stock is required or voluntarily made in connection with these transactions during this 180-day restricted period.
The restricted period described in the preceding paragraphs will be extended if:
|
|
Ÿ
|
|
during the last 17 days of the restricted period, we issue an earnings release or material news or a material event relating to our company occurs; or
|
|
|
Ÿ
|
|
prior to the expiration of the restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the restricted
period;
|
157
in which case the above restrictions shall continue to apply until the expiration of the 18-day period beginning on the issuance of
the earnings release or the occurrence of the material news or material event, unless Goldman, Sachs & Co. waives, in writing, such extension.
Prior to the offering, there has been no public market for the shares. The initial public offering price has been negotiated among us and the representatives. Among the factors to be considered in determining the initial public offering
price of the shares, in addition to prevailing market conditions, will be our historical performance, estimates of our business potential and earnings prospects, an assessment of our management and the consideration of the above factors in relation
to market valuation of companies in related businesses.
An application has been made to list the common stock on the New York Stock Exchange under
the symbol ”IPI”. In order to meet one of the requirements for listing the common stock on the NYSE, the underwriters have undertaken to sell lots of 100 or more shares to a minimum of 2,000 beneficial holders.
In connection with the offering, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. “Covered” short sales are
sales made in an amount not greater than the underwriters’ option to purchase additional shares from the company in the offering. The underwriters may close out any covered short position by either exercising their option to purchase additional
shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase additional shares pursuant to the option granted to them. “Naked” short sales are any sales in excess of such option. The underwriters must close out any naked short position by purchasing
shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect
investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of common stock made by the underwriters in the open market prior to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount
received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.
Purchases to cover a short position and stabilizing transactions, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in the market price of the
company’s stock, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might
exist in the open market. If these activities are commenced, they may be discontinued at any time. These transactions may be effected on the NYSE, in the over-the-counter market or otherwise.
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), each underwriter has
represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant Implementation Date) it has not made and will not make an offer of shares to the public
in that Relevant Member State prior to the publication of a prospectus in relation to the shares which has been approved by the competent authority in that Relevant Member State or,
158
where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the
Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of shares to the public in that Relevant Member State at any time:
|
|
(a)
|
to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities;
|
|
|
(b)
|
to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than
€
43,000,000 and (3) an annual net turnover of more than
€
50,000,000, as shown in
its last annual or consolidated accounts;
|
|
|
(c)
|
to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the representatives for any such
offer; or
|
|
|
(d)
|
in any other circumstances which do not require the publication by the Issuer of a prospectus pursuant to Article 3 of the Prospectus Directive.
|
For the purposes of this provision, the expression an “offer of shares to the public” in relation to any shares in any Relevant Member State means the
communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in that Relevant Member
State by any measure implementing the Prospectus Directive in that Relevant Member State and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.
Each underwriter has represented and agreed that:
|
|
(a)
|
it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of
Section 21 of the FSMA) received by it in connection with the issue or sale of the shares in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer; and
|
|
|
(b)
|
it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom.
|
The shares may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer
to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made
thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to
the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong
Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the
Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
This prospectus has not been registered as a
prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the
159
offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the
subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the
“SFA”), (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of,
any other applicable provision of the SFA.
Where the shares are subscribed or purchased under Section 275 by a relevant person which is:
(a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust
(where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights
and interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the shares under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or
any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.
The securities have not been and will not be registered under the Securities and Exchange Law of Japan (the Securities and Exchange Law) and each underwriter has
agreed that it will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity
organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the
Securities and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.
At our request, the underwriters
have reserved approximately five percent of the shares of common stock offered by this prospectus for sale, at the initial public offering price, to officers, directors, employees and friends. The number of shares of common stock available for sale
to the general public will be reduced to the extent these persons purchase such reserved shares. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered by
this prospectus.
The underwriters do not expect sales to discretionary accounts to exceed five percent of the total number of shares offered.
The company estimates that its share of the total expenses of the offering, excluding underwriting discounts and commissions, will be
approximately $4.2 million.
The company has agreed to indemnify the several underwriters against certain liabilities, including liabilities
under the Securities Act of 1933.
Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the
future perform, various financial advisory and investment banking services for the company, for which they received or will receive customary fees and expenses.
160
VALIDITY OF THE COMMON SHARES
The validity of the common shares offered by this prospectus will be passed upon for us
by Holme Roberts & Owen LLP, Denver, Colorado. The underwriters have been represented by Andrews Kurth LLP, Houston, Texas.
EXPERTS
The consolidated financial statements of Intrepid Mining LLC as of December 31, 2007 and 2006, and for
the years then ended, have been included herein in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
The financial statement of Intrepid Potash, Inc. as of December 31, 2007 has been included herein in reliance upon the report of KPMG LLP,
independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
The financial statements of Intrepid Mining LLC as of December 31, 2005, and for the year ended December 31, 2005 included in this prospectus have been audited by Hein & Associates LLP, independent registered public
accounting firm, as stated in their report appearing in this registration statement, and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
Estimated quantities of our proven and probable reserves as of December 13, 2007 and (as to the HB Mine only) March 11, 2008, set forth in this prospectus are
based upon reserve reports prepared by us and reviewed and independently determined by Agapito Associates, Inc., independent engineering reserve consultants, based on mine plans and other data furnished by us.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1, including
exhibits, schedules and amendments filed with the registration statement, under the Securities Act with respect to the shares of common stock to be sold in the offering. This prospectus does not contain all of the information contained in the
registration statement. For further information about us and our common stock, we refer you to the registration statement and the exhibits and schedules that have been filed with the registration statement. Statements in this prospectus concerning
the contents of any contract or any other document are not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, we refer you to that exhibit. Each statement in this prospectus relating to a
contract or document filed as an exhibit to the registration statement is qualified by the filed exhibit.
Upon completion of the offering, we will
become subject to the reporting and information requirements of the Securities Exchange Act and, as a result, will file periodic and current reports, proxy statements and other information with the SEC. You may read and copy, at prescribed rates,
all or any portion of the registration statement or any other information that we file with the SEC at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information concerning the operation of the
SEC’s public reference room by calling the SEC at 1-800-SEC-0330. Our SEC filings, including the registration statement, will also be available to the public on the SEC’s Internet site at
http://www.sec.gov
.
161
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Intrepid Potash, Inc.
Intrepid Mining LLC and Subsidiaries
|
|
|
|
|
|
|
Page
|
|
Reports of Independent Registered Public Accounting Firms
|
|
F-5
|
|
Consolidated Balance Sheets—As of December 31, 2007 and 2006
|
|
F-7
|
|
Consolidated Statements of Income—For the Years Ended December 31, 2007, 2006, and 2005
|
|
F-8
|
|
Consolidated Statements of Members’ Equity (Deficit) and Comprehensive Income—For the Years Ended December 31, 2007, 2006, and 2005
|
|
F-9
|
|
Consolidated Statements of Cash Flows—For the Years Ended December 31, 2007, 2006, and 2005
|
|
F-10
|
|
Notes to Financial Statements
|
|
F-11
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholder
Intrepid Potash, Inc.:
We have audited the
accompanying balance sheet of Intrepid Potash, Inc. (the Company) as of December 31, 2007. This balance sheet is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all material
respects, the financial position of Intrepid Potash, Inc. as of December 31, 2007, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Denver, Colorado
March 12, 2008
F-2
INTREPID POTASH, INC.
BALANCE SHEET AS OF DECEMBER 31, 2007
|
|
|
|
|
|
Assets
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,000
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,000
|
|
|
|
|
|
|
Stockholder’s Equity
|
|
|
|
|
Common stock, $.001 par value, 1,000 shares authorized, issued and outstanding
|
|
$
|
1
|
|
Additional paid-in capital in excess of par
|
|
$
|
999
|
|
|
|
|
|
|
Total stockholder’s equity
|
|
$
|
1,000
|
|
|
|
|
|
See accompanying note to this
balance sheet.
F-3
INTREPID POTASH, INC.
NOTES TO BALANCE SHEET
AS OF DECEMBER 31, 2007
1. Organization
Intrepid Potash, Inc. (the “Company”), was incorporated in the state of Delaware on November 19, 2007 for the purpose of continuing the business of
Intrepid Mining LLC in corporate form. The Company was capitalized with $1,000 cash and has 1,000 shares of $.001 par value common stock authorized, issued and outstanding. The Company filed its initial registration statement on Form S-1 with the
Securities and Exchange Commission in December 2007 concerning the sale of common stock. At or before the completion of its initial public offering, the Company and Intrepid Mining LLC will enter into an exchange agreement, which will provide for
the contribution of all of Intrepid Mining LLC’s nonmonetary assets to the Company in exchange for cash and shares of the Company’s common stock. The Company will assume (i) a portion of Intrepid Mining LLC’s liability under its
existing senior debt facility and (ii) all other liabilities and obligations of Intrepid Mining LLC. As part of the contribution and exchange transaction described above, the Company will declare a dividend with respect to its common stock
currently issued and outstanding. The dividend will be paid in shares of the Company’s common stock; provided, however, that for each share of common stock purchased by the underwriters pursuant to their option to purchase additional shares,
the number of shares payable pursuant to the dividend will be reduced, one-for-one, and in lieu of such shares, the Company will pay cash in an amount equal to the net proceeds, before offering expenses, but after underwriting discounts and
commissions received from the exercise of the underwriters’ option to purchase additional shares. The dividend will be payable to Intrepid Mining LLC upon the earlier of the expiration of the underwriters’ option to purchase additional
shares or the exercise of the option to purchase additional shares.
F-4
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Members
Intrepid Mining LLC:
We have audited the
accompanying consolidated balance sheets of Intrepid Mining LLC and subsidiaries (the Company) as of December 31, 2007 and 2006, and the related consolidated statements of income, members’ equity (deficit) and comprehensive income,
and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Intrepid Mining LLC and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting
principles.
KPMG LLP
Denver, Colorado
March 12, 2008
F-5
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Members
Intrepid Mining LLC
We have audited the accompanying consolidated statements of income, members’ equity and comprehensive income, and cash flows of Intrepid Mining LLC and
subsidiaries (the “Company”) for the year ended December 31, 2005. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the results of operations of Intrepid Mining LLC and subsidiaries and their cash flows for the year ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.
Hein & Associates LLP
Denver, Colorado
April 7, 2006
F-6
INTREPID MINING LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2007
|
|
2006
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,960,406
|
|
$
|
285,947
|
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
Trade
|
|
|
23,251,154
|
|
|
15,954,150
|
|
|
Insurance
|
|
|
—
|
|
|
11,920,896
|
|
|
Other receivables
|
|
|
263,904
|
|
|
90,420
|
|
|
Related parties
|
|
|
248,396
|
|
|
302,097
|
|
|
Inventory, net
|
|
|
18,501,012
|
|
|
20,994,887
|
|
|
Prepaid expenses and other current assets
|
|
|
3,222,617
|
|
|
1,304,975
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
47,447,489
|
|
|
50,853,372
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
63,518,608
|
|
|
42,370,980
|
|
|
Mineral properties and development costs, net
|
|
|
23,254,993
|
|
|
24,328,989
|
|
|
Oil & gas properties—unproved, at cost, using the full-cost method of accounting
|
|
|
—
|
|
|
886,121
|
|
|
Long-term parts inventory, net
|
|
|
4,633,729
|
|
|
3,371,180
|
|
|
Other assets
|
|
|
7,872,241
|
|
|
7,503,664
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
146,727,060
|
|
$
|
129,314,306
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND MEMBERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
7,997,615
|
|
$
|
6,232,090
|
|
|
Accrued liabilities
|
|
|
16,531,349
|
|
|
11,255,201
|
|
|
Current installments of long-term debt
|
|
|
5,005,398
|
|
|
3,808,701
|
|
|
Other current liabilities
|
|
|
780,975
|
|
|
2,816,008
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
30,315,337
|
|
|
24,112,000
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current installments
|
|
|
96,350,000
|
|
|
128,380,788
|
|
|
Accrued pension liability
|
|
|
646,370
|
|
|
943,959
|
|
|
Asset retirement obligation, net of current portion
|
|
|
7,778,977
|
|
|
7,202,611
|
|
|
Other non-current liabilities
|
|
|
1,239,021
|
|
|
132,946
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
136,329,705
|
|
|
160,772,304
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Members’ Equity (Deficit)
|
|
|
10,397,355
|
|
|
(31,457,998
|
)
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Members’ Equity (Deficit)
|
|
$
|
146,727,060
|
|
$
|
129,314,306
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to
these consolidated financial statements.
F-7
INTREPID MINING LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Sales
|
|
$
|
213,458,759
|
|
|
$
|
152,709,217
|
|
|
$
|
151,280,444
|
|
|
Less: Freight costs
|
|
|
21,094,268
|
|
|
|
12,178,364
|
|
|
|
9,519,142
|
|
|
Warehousing and handling costs
|
|
|
5,479,323
|
|
|
|
3,879,006
|
|
|
|
2,759,098
|
|
|
Cost of goods sold
|
|
|
134,386,807
|
|
|
|
110,994,751
|
|
|
|
97,102,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
|
52,498,361
|
|
|
|
25,657,096
|
|
|
|
41,899,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative
|
|
|
15,997,862
|
|
|
|
10,054,055
|
|
|
|
7,530,569
|
|
|
Accretion of asset retirement obligation
|
|
|
578,630
|
|
|
|
541,022
|
|
|
|
328,993
|
|
|
Business interruption insurance settlements
|
|
|
(389,086
|
)
|
|
|
(4,926,988
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
36,310,955
|
|
|
|
19,989,007
|
|
|
|
34,039,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(9,349,757
|
)
|
|
|
(2,906,842
|
)
|
|
|
(1,473,426
|
)
|
|
Insurance settlements in excess of property losses
|
|
|
3,201,724
|
|
|
|
6,664,842
|
|
|
|
—
|
|
|
Other income (expense)
|
|
|
(479,018
|
)
|
|
|
350,829
|
|
|
|
47,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations
|
|
|
29,683,904
|
|
|
|
24,097,836
|
|
|
|
32,614,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations of discontinued oil and gas activities
|
|
|
—
|
|
|
|
2,407,327
|
|
|
|
1,848,909
|
|
|
Gain from sale of discontinued oil and gas assets
|
|
|
—
|
|
|
|
9,517,279
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
11,924,606
|
|
|
|
1,848,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
29,683,904
|
|
|
$
|
36,022,442
|
|
|
$
|
34,463,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to
these consolidated financial statements.
F-8
INTREPID MINING LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY (DEFICIT) AND COMPREHENSIVE
INCOME
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
equity (deficit)
|
|
|
Accumulated
other
comprehensive
income (loss)
|
|
|
Total
Members’
equity (deficit)
|
|
|
Balance, January 1, 2005
|
|
$
|
25,123,940
|
|
|
$
|
(1,932,128
|
)
|
|
$
|
23,191,812
|
|
|
Net income
|
|
|
34,463,051
|
|
|
|
—
|
|
|
|
34,463,051
|
|
|
Minimum pension liability adjustment
|
|
|
—
|
|
|
|
43,287
|
|
|
|
43,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,463,051
|
|
|
|
43,287
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
34,506,338
|
|
|
Distributions
|
|
|
(15,213,468
|
)
|
|
|
—
|
|
|
|
(15,213,468
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
|
44,373,523
|
|
|
|
(1,888,841
|
)
|
|
|
42,484,682
|
|
|
Net income
|
|
|
36,022,442
|
|
|
|
—
|
|
|
|
36,022,442
|
|
|
Minimum pension liability adjustment
|
|
|
—
|
|
|
|
990,838
|
|
|
|
990,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,022,442
|
|
|
|
990,838
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
37,013,280
|
|
|
Redemption of Members’ interest
|
|
|
(100,431,384
|
)
|
|
|
—
|
|
|
|
(100,431,384
|
)
|
|
Distributions
|
|
|
(10,524,576
|
)
|
|
|
—
|
|
|
|
(10,524,576
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
(30,559,995
|
)
|
|
|
(898,003
|
)
|
|
|
(31,457,998
|
)
|
|
Net income
|
|
|
29,683,904
|
|
|
|
—
|
|
|
|
29,683,904
|
|
|
Minimum pension liability adjustment
|
|
|
—
|
|
|
|
259,787
|
|
|
|
259,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,683,904
|
|
|
|
259,787
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
29,943,691
|
|
|
Distribution of oil and gas assets
|
|
|
(937,532
|
)
|
|
|
—
|
|
|
|
(937,532
|
)
|
|
Capital contributions
|
|
|
38,782,176
|
|
|
|
—
|
|
|
|
38,782,176
|
|
|
Distributions
|
|
|
(26,080,921
|
)
|
|
|
—
|
|
|
|
(26,080,921
|
)
|
|
Repayment of Members’ loans
|
|
|
147,939
|
|
|
|
—
|
|
|
|
147,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
$
|
11,035,571
|
|
|
$
|
(638,216
|
)
|
|
$
|
10,397,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to
these consolidated financial statements.
F-9
INTREPID MINING LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
29,683,904
|
|
|
$
|
36,022,442
|
|
|
$
|
34,463,051
|
|
|
Items not affecting cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion, amortization and accretion
|
|
|
9,468,266
|
|
|
|
8,027,549
|
|
|
|
5,493,062
|
|
|
Gain on sale of discontinued operations
|
|
|
—
|
|
|
|
(9,517,279
|
)
|
|
|
—
|
|
|
Loss on disposal of assets and other
|
|
|
777,372
|
|
|
|
332,468
|
|
|
|
126,579
|
|
|
Pension expense (income)
|
|
|
(37,802
|
)
|
|
|
(3,277
|
)
|
|
|
(66,194
|
)
|
|
Financial instruments loss (gain)
|
|
|
(279,773
|
)
|
|
|
2,771,388
|
|
|
|
(488,364
|
)
|
|
Bond sinking fund unrealized loss (gain)
|
|
|
21,580
|
|
|
|
(388,224
|
)
|
|
|
(161,499
|
)
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
(7,297,004
|
)
|
|
|
(3,322,406
|
)
|
|
|
4,493,386
|
|
|
Insurance and other receivables
|
|
|
1,574,267
|
|
|
|
(12,011,316
|
)
|
|
|
—
|
|
|
Inventory
|
|
|
565,364
|
|
|
|
(5,615,744
|
)
|
|
|
(4,423,680
|
)
|
|
Prepaid expenses and other assets
|
|
|
(2,330,579
|
)
|
|
|
230,902
|
|
|
|
(207,710
|
)
|
|
Accounts payable and accrued liabilities
|
|
|
9,902,097
|
|
|
|
(365,204
|
)
|
|
|
7,105,726
|
|
|
Discontinued operations
|
|
|
—
|
|
|
|
(407,795
|
)
|
|
|
(7,794,426
|
)
|
|
Other current liabilities
|
|
|
(272,768
|
)
|
|
|
(962,783
|
)
|
|
|
(709,039
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash provided by operating activities
|
|
|
41,774,924
|
|
|
|
14,790,721
|
|
|
|
37,830,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from insurance reimbursements
|
|
|
10,226,845
|
|
|
|
—
|
|
|
|
—
|
|
|
Additions to property, plant, and equipment
|
|
|
(30,795,485
|
)
|
|
|
(12,150,223
|
)
|
|
|
(17,586,731
|
)
|
|
Additions to mineral properties and development costs
|
|
|
(373,133
|
)
|
|
|
(241,381
|
)
|
|
|
(4,145,563
|
)
|
|
Proceeds from sale of assets
|
|
|
499,719
|
|
|
|
—
|
|
|
|
—
|
|
|
Additions to bond sinking fund
|
|
|
(56,262
|
)
|
|
|
(51,055
|
)
|
|
|
(150,681
|
)
|
|
Additions to unproven oil and gas properties
|
|
|
—
|
|
|
|
(733,046
|
)
|
|
|
—
|
|
|
Proceeds from sale of discontinued operations
|
|
|
—
|
|
|
|
18,652,962
|
|
|
|
—
|
|
|
Additions to non-current assets of discontinued operations
|
|
|
—
|
|
|
|
(4,152,945
|
)
|
|
|
(1,083,556
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash (used in) provided by investing activities
|
|
|
(20,498,316
|
)
|
|
|
1,324,312
|
|
|
|
(22,966,531
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
291,236,098
|
|
|
|
57,467,381
|
|
|
|
39,106,190
|
|
|
Repayments on long-term debt
|
|
|
(322,011,488
|
)
|
|
|
(57,310,835
|
)
|
|
|
(38,350,679
|
)
|
|
Payments of capital leases
|
|
|
(58,701
|
)
|
|
|
(123,381
|
)
|
|
|
(13,264
|
)
|
|
Debt issuance costs
|
|
|
(1,617,252
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Redemption of Members’ Interest
|
|
|
—
|
|
|
|
(5,431,384
|
)
|
|
|
—
|
|
|
Members’ loan repayment
|
|
|
147,939
|
|
|
|
—
|
|
|
|
—
|
|
|
Members’ capital contributions
|
|
|
38,782,176
|
|
|
|
—
|
|
|
|
—
|
|
|
Members’ distributions
|
|
|
(26,080,921
|
)
|
|
|
(10,588,240
|
)
|
|
|
(17,618,629
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash used in financing activities
|
|
|
(19,602,149
|
)
|
|
|
(15,986,459
|
)
|
|
|
(16,876,382
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents
|
|
|
1,674,459
|
|
|
|
128,574
|
|
|
|
(2,012,021
|
)
|
|
Cash and Cash Equivalents,
beginning of year
|
|
|
285,947
|
|
|
|
157,373
|
|
|
|
2,169,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents,
end of year
|
|
$
|
1,960,406
|
|
|
$
|
285,947
|
|
|
$
|
157,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Paid for Interest
|
|
$
|
7,938,510
|
|
|
$
|
2,911,049
|
|
|
$
|
1,999,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Non-cash Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2006, in addition to paying $5,431,384 in cash including transaction costs, the Company issued a $95 million note for the redemption of Long Canyon’s Membership Interest, which
was repaid in 2007.
|
|
See accompanying notes to
these consolidated financial statements.
F-10
INTREPID MINING LLC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. Company Background:
Intrepid Mining LLC and its subsidiaries
(“Intrepid” or the “Company”) produce muriate of potash (MOP or potassium chloride or potash). Intrepid has one operating segment as defined by FAS 131, the extraction and production of potash-related products.
Intrepid’s mining operations also extract one co-product, langbeinite, and various by-products including: salt, magnesium chloride, and metal recovery salt. As of December 31, 2007, Intrepid has five active potash production
facilities; three in New Mexico and two in Utah. The cash flow and profitability of Intrepid’s operations are affected by the market prices of potash, our other products, natural gas, and commodities such as chemicals and steel. These commodity
prices can fluctuate widely and are affected by numerous factors beyond Intrepid’s direct control.
Intrepid was formed as a Colorado limited
liability company in January 2000 for the purpose of acquiring all of the common stock of Moab Salt, Inc. (“Moab”) from PCS Phosphate Company, Inc. (“PCS”). Moab was acquired in February 2000 for cash consideration of
approximately $3 million, plus the assumption of certain liabilities and closing costs for total consideration of approximately $14.8 million. Moab was converted into a limited liability company on February 23, 2000 and was renamed Intrepid
Potash—Moab, LLC in June 2004. Moab owns and operates a potash and salt mine located along the Colorado River southwest of Moab, Utah. Moab’s potash reserves are extracted using solution mining techniques utilizing both vertical and
horizontal wells and heated injection brine.
In February 2004 Intrepid acquired substantially all of the assets of Mississippi Potash, Inc.
(“MPI”) and Eddy Potash, Inc. for cash consideration of $28.4 million, and the assumption of certain liabilities for total consideration of approximately $36.6 million. The assets acquired included two conventional, operating potash
mines and two inactive potash mines in the Carlsbad, New Mexico area. The surface facility at one of the inactive mines is operating to compact, store, and ship product from one of the active mines. HB Potash, LLC (“HB”), a wholly
owned subsidiary, was formed in 2004 to acquire one of the inactive mines. Intrepid Potash—New Mexico, LLC (“NM”), also a wholly owned subsidiary, was formed in 2004 to acquire the two active mines and the second inactive mine.
In April 2004, Intrepid purchased the potash assets of Reilly Chemical, Inc. (“Reilly”) for consideration of $10.7 million. Including
liabilities assumed and closing costs, the total acquisition cost of approximately $12 million was recorded in Intrepid Potash—Wendover (“Wendover”). Acquired assets included a natural brine and potash production facility on the
Bonneville salt-flats of Utah.
In 2001, Intrepid formed Moab Gas Pipeline, LLC (“Moab Pipeline”) for the purpose of acquiring and
operating the natural gas transmission line that services the Moab mine. The line was acquired from the local utility for the assumption of ongoing maintenance commitments.
In 2004, Intrepid Aviation, LLC (“Aviation”) was formed to lease and operate an aircraft.
During 2006, Intrepid sold all of its producing oil and gas operations, owned by Intrepid’s wholly owned subsidiary Intrepid Oil & Gas, LLC
(“IOG”) for approximately $18.6 million net of transaction costs, resulting in a gain from sale of discontinued oil and gas operations of $9.5 million. The remaining unproven IOG assets, $937,532, were included in the
December 31, 2006 balance sheet, but were distributed to the Members effective January 1, 2007.
2. Summary of Significant Accounting Policies:
Principles of Consolidation
—The consolidated financial statements include the accounts of Intrepid Mining LLC and its wholly owned
subsidiaries: Moab, IOG, NM, HB, Wendover, Moab Pipeline, and Aviation. All intercompany balances and transactions have been eliminated in consolidation.
F-11
Use of Estimates—
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Intrepid bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances.
Accordingly, actual results may differ significantly from these estimates under different assumptions or conditions.
Significant estimates with
regard to Intrepid’s consolidated financial statements include the estimate of proved and probable mineral reserve volumes, useful lives of plant assets and the related present value of estimated future net cash flows. There are numerous
uncertainties inherent in estimating quantities of proved and probable reserves, projecting future rates of production, and the timing of development expenditures. Future mineral prices may vary significantly from the prices in effect at the time
the estimates are made as may estimates of future operating costs. The estimate of proven and probable mineral reserve volumes, useful lives of plant assets and the related present value of estimated future net cash flows can affect depletion, the
net carrying value of Intrepid’s mineral properties, and the useful lives of related property, plant and equipment and consequently, depreciation expenses.
The determination of reclamation liabilities also involve significant estimates, including the projections of future costs of the reclamation projects, the potentially changing scope of the projects, and the present value
factors used to discount the future commitments. The estimates can affect the carrying value of the reclamation liability as well as the accretion expense. Salvage values are determined and considered separately from reclamation
liabilities. Estimates of salvage value are considered in the calculation of depreciation expense and in the determination of the carrying value of the assets.
Valuations of acquired businesses require us to make significant estimates, which are derived from information obtained from the management of acquired businesses, our business plans for the acquired business or intellectual
property and other sources. Critical assumptions and estimates used in the initial valuation of mineral resources and other tangible and intangible assets include, but are not limited to:
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Ÿ
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Assessments of appropriate valuation methodologies in the circumstances;
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Ÿ
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Future expected cash flows from product sales and acquired intellectual property;
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|
Ÿ
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The acquired companies’ ability to effectively sell product in a competitive market;
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Ÿ
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Assumptions about the period of time over which we will continue to use the assets; and
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The determination of the value of
product inventories, supply inventories, accounts receivable, property, plant and equipment and water rights also involve material estimates. The estimates include: the allocation of production costs, the value of byproducts, the determination of
impairment, collectibility of receivables, the risk of obsolescence, the depreciable lives, and the rates of depreciation, depletion, and amortization.
The Company enters into financial contracts to manage a portion of the costs for anticipated but not yet committed transactions when such transactions are probable and the significant characteristics and expected timing are identified. The
value of these derivatives is estimated monthly based on fair market values and any change in fair market value is recorded in our income statement.
Other significant estimates impacting the financial statements include post retirement benefits for certain pension holders and employees’ health care costs.
F-12
Revenue Recognition—
Revenue is recognized when evidence of an arrangement exists, risks and
rewards of ownership have been transferred to customers, which is when title passes, selling price is fixed and determinable and collection is reasonably assured. Title passes at the shipping point, which can vary. The shipping point may be the
plant, a distribution warehouse, or a port. Title transfers for some shipments into Mexico at the border crossing which is the port of exit. Prices are set at the time of or prior to shipment. Intrepid uses few sales contracts, so prices are
based on Intrepid’s current published prices or upon negotiated short-term purchase orders from customers. Sales are final with customers not having any right of return.
Sales are reported on a gross basis. Intrepid quotes prices to customers both on a delivered basis and on the basis of pick-up at Intrepid’s plants and
warehouses. Intrepid incurs and bills for freight, packaging, and certain other distribution costs only on the portion of its sales for which it is responsible as customers often arrange for and pay for these costs.
Byproduct credits—
When byproduct inventories are sold, a byproduct credit to “Cost of Goods Sold” is recognized.
Concentrations of Credit Risk—
Credit risk represents the loss that would be recognized at the reporting date if counterparties failed completely
to perform as contracted.
Intrepid’s products are marketed for sale into three primary markets: the agricultural market as a fertilizer, the
industrial market as a component in drilling fluids for oil and gas exploration, and the animal feed market as a nutrient. Credit risks associated with the collection of accounts receivable are primarily related to the impact of external factors on
our customers. Our customers are distributors and end-users whose credit worthiness and ability to meet their payment obligations will be affected by factors in their industries and markets. Those factors include: soil nutrient levels, crop prices,
weather, the type of crops planted, changes in diets, growth in population, the amount of land under cultivation, fuel prices and consumption, the demand for biofuels, government policy, and the relative value of currencies.
Concentrations of credit risk, whether on or off balance sheet, that arise from financial instruments exist for counterparties when they have similar economic
characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.
Intrepid maintains cash accounts with several financial institutions. At times the balances in the accounts may exceed the $100,000 balance insured by the Federal Deposit Insurance Corporation.
Allowance for Doubtful Accounts—
Trade accounts receivable are recorded at their estimated net realizable value. The allowance for doubtful
accounts is determined through an analysis of the past-due status of accounts receivable and assessments of risk regarding collectibility. If the financial condition of Intrepid’s customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required. The consolidated balances of the allowance for doubtful accounts as of December 31, 2007 and 2006, respectively, were approximately $38,000 and $104,000.
Cash and Cash Equivalents—
Cash and cash equivalents consist of all cash balances and highly liquid investments with original maturity dates of
three months or less.
Inventory and Long-Term Parts Inventory—
Inventory consists of product and byproduct stocks, which are ready
for delivery to market, mined ore, MOP in evaporation ponds and parts and supplies inventory. Product and byproduct inventory cost is determined using the lower of average cost for the year or estimated net realizable value. Product inventory costs
include direct costs, operational overhead, depreciation, depletion, amortization, and equipment lease costs applicable to the production process. Direct costs and operational overhead include labor.
F-13
Parts inventory, including critical spares, that is not expected to be utilized within a period of one year is
classified as non-current. Parts and supply inventory cost is determined using the lower of average acquisition cost or estimated replacement cost.
Intrepid conducts detailed reviews related to the net realizable value of inventory, giving consideration to quality, slow-moving items, obsolescence, excessive levels and other factors. Parts inventories not having turned-over in more than
a year, excluding parts classified as critical spares, are reviewed for obsolescence and included in the determination of an allowance for obsolescence.
Financial Instruments—
Intrepid uses debt financing with variable interest rates, and Intrepid uses significant volumes of natural gas in its production operations which are purchased at variable rates. Intrepid
enters into financial derivative contracts to fix a portion of the interest and natural gas costs for anticipated but not yet committed borrowings and transactions when such borrowings and transactions are probable and the significant
characteristics and expected timing are identified. These derivative contracts are not designated as an accounting hedge, and changes in their fair market values are included in the “Statement of Income”. The realized and unrealized gains
or losses resulting from the natural gas derivative contracts are recorded as a component of natural gas expense within production costs. The Company also enters into interest rate derivative instruments to swap a portion of floating rate debt to
fixed rate. These items are not accounted for as hedge items, accordingly, the change in fair value from period to period associated with realized and unrealized gains or losses on interest-rate derivative contracts are shown within interest
expense. Unrealized gains or losses resulting from investments constituting portions of security bonds or other sources are recorded as investment income and included in “Other Income (Expense).”
Property, Plant, and Equipment—
Costs of property, plant, and equipment are capitalized when the asset is estimated to have a future economic
benefit and a useful and economic life of over one year. Property, plant, and equipment are stated at historical cost or at the allocated values determined upon acquisition of the business entities. Property, plant, and equipment are depreciated
under the straight-line method using estimated useful lives. No depreciation is taken on construction in progress until the asset is placed in service. Gains and losses are recorded upon retirement, sale, or disposal of assets. Maintenance and
repair costs are expensed as incurred.
Exploration Costs—
Mineral exploration costs are expensed as incurred.
Mineral Properties and Development Costs—
Mineral properties and development costs include acquisition costs and development costs for proven and
probable reserves. Depletion of mineral properties and development costs is determined using the units-of-production method over the estimated life of the proven and probable reserves. The lives of reserves used for accounting purposes are
shorter than current reserve-life determinations due to uncertainties inherent in long term estimates and to correlate to estimated building and plant lives of 25 years or less where appropriate. Internal labor and overhead directly incurred as a
result of development is capitalized.
Oil and Gas Properties—
Intrepid used the full cost method of accounting for its oil and gas
operations. All costs associated with property acquisition, exploration, and development activities were capitalized. Exploration and development costs included dry hole costs, geological and geophysical costs, direct overhead related to
exploration, and development activities and other costs incurred for the purpose of finding oil and gas reserves. Capitalized costs were depleted using the units-of-production method based on estimated proven reserves.
Capitalized costs of oil and gas properties, net of accumulated depletion, were limited to an amount equal to the estimated future net cash flows from proved oil
and gas reserves, discounted at 10%, using year-end pricing, plus the cost (net of impairment) of unproved properties as adjusted for
F-14
related tax effects (the full cost ceiling test limitation). If capitalized costs exceeded this limit, the excess was charged to expense. The expense was not reversed
in future periods, even if higher oil and gas prices subsequently increased the full cost ceiling limitation. Costs of acquiring and evaluating unproved properties were initially excluded from the costs subject to depletion. These unproved
properties were assessed periodically to ascertain whether impairment had occurred. When proved reserves were assigned or the property was considered to be impaired, the cost of the property or the amount of the impairment was added to the costs
subject to depletion.
Research and Development Expenditures—
Research and development costs are expensed as incurred. There
were no research and development costs in the years ended December 31, 2007 and 2006. Intrepid expensed $968,626 during the year ended December 31, 2005 for costs incurred in developing new production equipment and processes; principally
for its langbeinite product and on experimental drilling techniques for a new horizontal injection well in Moab.
Impairment of Long Lived
Assets—
Intrepid evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amount may not be recoverable. Impairment is considered to exist if the total estimated future
cash flow on an undiscounted basis is less than the carrying amount of the related assets. An impairment loss is measured and recorded based on the discounted estimated future cash flows. Changes in significant assumptions underlying future cash
flow estimates or fair values of assets may have a material effect on Intrepid’s financial position and results of operations.
Asset
Retirement Obligation—
Reclamation costs are allocated to expense over the life of the related assets and are periodically adjusted to reflect changes in the estimates of either the timing or amount of the reclamation and abandonment
costs. The asset retirement obligation is based on when the spending for an existing environmental reclamation activity is expected to occur. Intrepid reviews, on at least an annual basis, the asset retirement obligation at each mine site to
determine whether any adjustments are necessary.
While updating estimates in 2006, it was determined that the inactive HB mine would be reopened as
a solution mine at a future date and that the activities related to the HB asset retirement obligation would not occur until the reopened solution mine’s operations ceased. The change in the estimated timing of the related activities resulted
in an adjustment to the estimated discounted fair value of the future retirement obligation. The HB obligation was previously undiscounted because reclamation was expected to be currently undertaken.
The carrying costs for mineral properties, buildings, plant, and ponds which are the assets most related to the retirement obligations, are adjusted based on
changes in the asset retirement obligations.
Following is a table of the changes to Intrepid’s asset retirement obligations for the years ended
December 31, 2007 and 2006. Accretion in 2005 was $328,993.
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2007
|
|
|
2006
|
|
Asset retirement obligation at January 1,
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$
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7,202,611
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|
|
$
|
6,466,144
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|
Changes in estimated obligations
|
|
|
(2,264
|
)
|
|
|
195,445
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|
Accretion of discount
|
|
|
578,630
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|
|
|
541,022
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|
|
|
|
|
|
|
|
|
|
Total asset retirement obligation—December 31,
|
|
|
7,778,977
|
|
|
|
7,202,611
|
|
Less current portion
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|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Long-Term asset retirement obligation—December 31,
|
|
$
|
7,778,977
|
|
|
$
|
7,202,611
|
|
|
|
|
|
|
|
|
|
F-15
Annual maintenance—
Each operation typically shuts-down annually for maintenance. The NM
operations typically shut-down for ten to fourteen days. Generally the Moab and Wendover operations cease harvesting potash from our solar ponds during one or more summer months to make the most of the evaporation season. During these summer
shut-downs, annual maintenance is performed. Intrepid expenses the cost of the maintenance performed during the shut-downs when it occurs.
Leases—
Upon entering into leases, Intrepid evaluates whether they are operating or capital leases. Operating lease expense is recognized as incurred. If lease payments change over the contractual term, the total cost over
the term is recognized on a straight-line basis.
Future Employee Benefits—
Intrepid accrues its obligations under a frozen
defined-benefit plan for Moab and the related costs of administration as incurred and as determined periodically by independent actuaries. The plan is frozen in the sense that only employees hired before February 22, 2000 are eligible to
participate and only pay and service through February 22, 2002 are included in the calculation of benefits.
Income Taxes—
As
a limited liability company, Intrepid does not pay federal or state income taxes, except for the Texas franchise tax which is based on gross margin. The taxable income or loss of Intrepid will be included in the state and federal tax returns of the
Members.
Comprehensive Income—
Comprehensive income consists of net income and accrued pension benefit obligations in excess of
plan assets.
Fair Value of Financial Instruments—
Intrepid’s financial instruments including cash and cash equivalents,
restricted cash, accounts receivable and accounts payable are carried at cost, which approximate fair value due to the short-term maturity of these instruments. The revolving credit facility’s recorded value approximates its fair value as
it bears interest at a floating rate. Intrepid’s interest rate and natural gas swaps are recorded at fair value using established counterparty evaluations that are subjected to our review. Since considerable judgment is required to develop
estimates of fair value, the estimates provided are not necessarily indicative of the amounts the Company could realize upon the sale or refinancing of such instruments.
Business Interruption Insurance Reimbursement—
In October of 2006, heavy rain from the remnants of a hurricane caused abandoned utility lines to break loose from and block the mine shaft at the West Carlsbad,
New Mexico site. The mine and mill were closed for 54 days to clean-out the shaft and all of the abandoned utility lines. Business interruption insurance did not cover the first 30 days as this was considered a deductible period, but the
insurance did cover the next 24 days. The insurer agreed to reimburse Intrepid approximately $4.0 million for this 24 day period. Such amount is included within “Business interruption insurance settlements” for 2006.
Additionally, $389,086 and $884,182 of estimated lost gross margins on the product destroyed during the wind-shear incident, described below in “Property
Insurance Settlements”, was paid by the insurer and included within business interruption insurance settlements in 2007 and 2006, respectively.
Discontinued Operations—
In 2006, all of the operating properties of Intrepid Oil and Gas, LLC were sold. IOG operations and the sale of the oil and gas assets have been reclassified as discontinued operations in both 2006
and 2005. Initial drilling costs for a well-in-progress and certain unproved oil and gas rights were retained by IOG and are included in the balance sheets as of December 31, 2006 and 2005. The remaining IOG assets, $937,532, were distributed
to the Members effective January 1, 2007.
Property Insurance Settlements—
In April 2006, a wind-shear struck the product
warehouse at the East Carlsbad, New Mexico site. The warehouse had a book value of $9,000. Its replacement cost
F-16
is expected to be approximately $22 million. Damage to the warehouse, damage to the product stored in the warehouse, and alternative handling and storage costs
are covered by Intrepid’s insurance policies at replacement value, less a $1 million deductible. Insurance payments to Intrepid for property losses through January of 2007 of approximately $9.5 million less the deductible and related costs
for a net gain of $6.7 million were recognized as “Insurance settlements in excess of property losses” in 2006 as such payments were considered non-refundable. Additional insurance payments to Intrepid for property losses through December
of 2007 of approximately $4.6 million less related costs for a net gain of $3.2 million have been recognized as “Insurance settlements in excess of property losses” in 2007 as such payments were considered non- refundable. Additional
insurance payments to reconstruct the warehousing facilities are still contingent upon review by the insurer and therefore will be recognized in the future as settlements are agreed upon. Subsequent to December 31, 2007, through March 12,
2008, the Company received $7 million in insurance settlements related to the wind-shear claim.
Redemption of Equity Interest—
On
December 28, 2006, the Members of Intrepid agreed to redeem the Membership interest of Long Canyon, LLC, at the time representing 42.5% of the Membership interests of Intrepid, for a total redemption cost of $100 million, which included a $95
million note paid in March 2007. The $100 million cost to redeem Long Canyon, LLC as well as costs of the redemption transaction were treated as distributions to Long Canyon, LLC resulting in Intrepid having a Members’ deficit as of
December 31, 2006.
Reclassifications—
Certain reclassifications have been made to the prior year consolidated financial
statements to conform to the current year presentation. Such reclassifications had no effect on net income.
Impact of recent accounting pronouncements—
FASB Interpretation Number 48, or FIN 48, Accounting for Uncertainty in Income Taxes, an interpretation of FIN 109: In
June 2006, the Financial Accounting Standards Board, or FASB, issued FIN 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement Number 109, which provides criteria for the recognition, measurement,
presentation and disclosure of uncertain tax positions. A tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merits. The provisions of
FIN 48 are effective for fiscal year 2007. Under our limited liability corporate structure, FIN 48 did not have an impact on our consolidated financial statements.
SFAS 157, Fair Value Measurements: In September 2006, the FASB issued SFAS 157, Fair Value Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosure
requirements regarding fair value measurement. Where applicable, this statement simplifies and codifies fair value related guidance previously issued within GAAP. SFAS 157 is effective for the Company as of January 1, 2008. Adoption of SFAS 157
is not expected to have any impact upon our consolidated financial statements.
SFAS 159, The Fair Value Option for Financial Assets and Financial
Liabilities: In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities, which permits entities to choose to measure certain financial assets and liabilities at fair value. SFAS 159 is effective
for years beginning after November 15, 2007. We have not determined whether we will adopt the fair value option permitted by SFAS 159.
SFAS
141R, Business Combinations: In December 2007, the FASB issued SFAS 141R, Business Combinations, which modifies the principles and requirements for the reporting entity in a business combination, including recognition and measurement in the
financials statements of the
F-17
identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The statement also modifies disclosure requirements to enable
financial statement users to evaluate the nature and financial effects of the business combination. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. We will adopt SFAS 141R for any future business combinations.
3. Membership Interests and Related
Parties:
The Members of Intrepid as of December 31, 2007 include Intrepid Production Corp. (“IPC”), whose sole shareholder is
Robert P. Jornayvaz III (“Jornayvaz”), Harvey Operating and Production Company (“HOPCO”), whose sole shareholder is Hugh E. Harvey, Jr. (“Harvey”), and Potash Acquisition, LLC (“PAL”), controlled by PRV
Investors I, LLC. Long Canyon, LLC, an entity controlled by Aspect Energy, LLC, (“Aspect”) was a Member until December 28, 2006 when their 42.5% interest was redeemed for $100.4 million, inclusive of transaction costs. In June of
2007, a 20% membership interest was sold to PAL, a then unrelated party, for a gross price of $39 million; or approximately $38.8 million net of transaction costs.
At December 31, 2007 and 2006, related parties accounts receivable balances were $248,396 and $302,097, respectively, and consisted of advances to IOG, Members, and employees. In addition, a contra-equity balance existed
at December 31, 2006 of $147,939 related to a receivable from Jornayvaz and Harvey for the purchase of Membership interests from Aspect in 2002. This amount was repaid to Intrepid in 2007. Non-business expenses initially paid by Intrepid and
recognized as a receivable from Jornayvaz and Harvey were $210,811, $361,319 and $133,528 in 2007, 2006, and 2005, respectively. Related party receivable balances were collected subsequent to year-end.
Effective January 1, 2007, the Members decided to distribute their remaining interests in IOG. The amount of the equity distribution was $937,532. While IOG
continued as a related party, this distribution effectively separated IOG from Intrepid. In 2007, Intrepid funded net expenses of $216,421 for IOG, which same amount was due from IOG at December 31, 2007 and is included in the related parties
accounts receivable disclosed above. This $216,421 was repaid to Intrepid in early 2008.
Under Intrepid’s policy, Jornayvaz and Harvey were
allowed to use Intrepid’s plane for non-business purposes. This use of the aircraft has been treated as compensation to them at the federal income tax standard rate for such travel. Additionally, Members may use the plane under dry-leases and
reimburse Intrepid the lesser of the actual cost or the maximum amount chargeable under Federal Aviation Regulation 91-501(d). The amounts recognized as compensation and the reimbursements for the use by Members are recorded as offsets to the
operating expenses of the plane. Personal use of the airplane is calculated based on occupied seat-miles, rather than flight miles. Flight segments may have passengers for both personal and business purposes. Each seat occupied for personal use is
multiplied by the flight-segment miles to calculate the percentage of flight time reported as personal use. Non-business use of the plane treated as compensation was $71,505, $32,718, and $24,439 in 2007, 2006, and 2005, respectively. These figures
are also included in the non-business expenses summarized in the prior paragraph.
Intrepid’s interim Chief Financial Officer is the primary
owner of a firm of certified public accountants, Quinn & Associates, P.C. (“Q&A”) that provides accounting, consulting, and tax services to Intrepid. Q&A billed Intrepid based on actual hours incurred and at standard
hourly rates. Q&A billings to Intrepid aggregated $567,769, $468,456, and $352,183 in 2007, 2006 and 2005, respectively.
F-18
4. Notes Payable and Long-term Debt:
The following summarizes Intrepid’s long-term debt at December 31, 2007 and 2006:
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|
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|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Credit Agreement
|
|
$
|
101,350,000
|
|
|
$
|
37,125,390
|
|
|
Long Canyon, LLC “Redemption” Note
|
|
|
—
|
|
|
|
95,000,000
|
|
|
Other
|
|
|
5,398
|
|
|
|
64,099
|
|
|
|
|
|
|
|
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|
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|
|
Total
|
|
|
101,355,398
|
|
|
|
132,189,489
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|
|
Less current installments
|
|
|
(5,005,398
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)
|
|
|
(3,808,701
|
)
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|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
96,350,000
|
|
|
$
|
128,380,788
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|
|
|
|
|
|
|
|
|
|
|
On March 9, 2007, Intrepid and US Bank National Association (the “Bank”) entered into a new
credit agreement in part to retire the Note to Long Canyon, LLC issued in connection with the redemption transaction described in Note 2. The line of credit is also being used to fund capital projects and to meet working capital requirements. The
Bank, with the full cooperation and agreement of Intrepid, formed a syndication of banks to assume the lender’s responsibilities. Intrepid paid issuance costs of 1% of the $150 million line of credit under the new credit agreement of March
2007.
The credit agreement has been amended since March 9, 2007. The current credit agreement, as amended through October 12, 2007, is a
syndicated facility led by US Bank National Association (the “Bank”) as the agent bank. The total credit amount under the credit agreement provides a total commitment from the Syndication of $175 million. This consisted of an initial $50
million term loan and a $125 million revolving credit line that terminates on March 9, 2012. The $50 million term loan requires a principal repayment of $1.25 million each quarter beginning June 29, 2007 and terminates with its outstanding
balance due on March 9, 2014. The Syndication has a security interest in substantially all of the assets of Intrepid. Obligations are cross-collateralized between all of Intrepid’s legal entities, parent and subsidiaries.
Effective March 9, 2007, interest rate spreads and commitment rates under the credit agreement are as shown in the table below, in each case dependent on the
level of borrowings. The ‘debt usage level’ used to measure the level of borrowings is a defined cash flow leverage ratio based on the most recently completed quarterly period’s cash flow and debt.
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|
|
|
|
|
|
|
|
|
|
|
Debt Usage Level
|
|
Commitment Fee
|
|
|
LIBOR Spread
|
|
|
Base Rate Spread
|
|
|
<1.5 to 1
|
|
0.250
|
%
|
|
1.250
|
%
|
|
0.000
|
%
|
|
>1.5 to 1 and < 2 to 1
|
|
0.250
|
%
|
|
1.500
|
%
|
|
0.000
|
%
|
|
> 2 to 1 and < 2.5 to 1
|
|
0.325
|
%
|
|
1.750
|
%
|
|
0.000
|
%
|
|
> 2.5 to 1 and < 3 to 1
|
|
0.375
|
%
|
|
2.125
|
%
|
|
0.375
|
%
|
|
>3 to 1
|
|
0.500
|
%
|
|
2.500
|
%
|
|
0.750
|
%
|
Through July 1, 2005, interest on the loans was at either LIBOR plus between 2.75% and 3.25% or the
Bank’s prime rate plus between 0% and 0.5%, in each case dependent on the level of borrowings. From July 1, 2005 until March 9, 2007, interest on the loan was set at either LIBOR plus between 1.5% and 2.0% or the Bank’s prime
rate plus between 0% and 0.5%, in each case dependent on the level of borrowings. The LIBOR-based interest rate, including the Bank’s margin, ranged from 6.22% to 6.93% at December 31, 2007 and ranged from 7.12% to 7.51% at
December 31, 2006. There were no outstanding prime-rate advances at December 31, 2007 and 2006; however effective rates as of these dates would have been 7.25% and 8.5%, respectively.
A commitment fee has been charged Intrepid for the unused portion of the revolving line of credit since July, 1, 2005. The commitment fee has been 0.35% to 0.5%,
dependent on the level of
F-19
borrowings. Capital leases of up to $8 million and operating leases with annual payments of up to $10 million are permitted. The credit agreement requires the Company
to maintain interest rate derivatives to fix the interest rate for at least 75% of the projected outstanding balance of the term loan. The credit agreement also includes covenants requiring the Company to maintain a specified net working capital, a
current ratio, cash flow and fixed charge coverage. The Company is in compliance with all financial and non-financial covenants.
The following
summarizes the scheduled maturities of Intrepid’s long-term debt as of the amendment dated October 12, 2007:
|
|
|
|
|
|
Years Ending December 31,
|
|
|
|
2008
|
|
$
|
5,005,398
|
|
2009
|
|
|
5,000,000
|
|
2010
|
|
|
5,000,000
|
|
2011
|
|
|
5,000,000
|
|
2012
|
|
|
60,100,000
|
|
2013 and thereafter
|
|
|
21,250,000
|
|
|
|
|
|
|
Total long-term debt, including current portion
|
|
$
|
101,355,398
|
|
|
|
|
|
The Note to Long Canyon, LLC was $95 million. The Note was presented as long-term debt as of
December 31, 2006 giving consideration to the refinancing with the Bank. This Note was retired in March of 2007 and the average interest rate for the period it had been outstanding was approximately 8%.
Intrepid had capital lease obligations totaling $5,410 and $64,099 at December 31, 2007 and 2006, respectively. The remaining capital lease matures on
February 1, 2008 and has future minimum principal and interest payments due of $5,398 and $12, respectively, in 2008. The lease obligation is collateralized by the related equipment, which had a net book value of $56,744 and $86,816 at
December 31, 2007 and 2006, respectively.
5. Inventory and Long-term Parts Inventory:
The following summarizes Intrepid’s inventory, recorded at the lower of average cost or estimated net realizable value, as of December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
Product inventory
|
|
$
|
8,613,729
|
|
$
|
12,466,604
|
|
In-process mineral inventory
|
|
|
2,806,086
|
|
|
2,325,202
|
|
Current parts inventory
|
|
|
7,081,197
|
|
|
6,203,081
|
|
|
|
|
|
|
|
|
|
Total current inventory
|
|
|
18,501,012
|
|
|
20,994,887
|
|
Long-term parts inventory
|
|
|
4,633,729
|
|
|
3,371,180
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
23,134,741
|
|
$
|
24,366,067
|
|
|
|
|
|
|
|
|
Parts inventories are shown net of obsolescence reserves of $491,632 and $668,154 as of December 31,
2007 and 2006, respectively. No obsolescence or other reserves were deemed necessary for the product inventories.
F-20
6. Property, Plant, Equipment and Mineral Properties:
“Property, plant and equipment” and “Mineral properties and development costs” were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
December 31,
|
|
|
Ranges of useful
lives (years):
|
|
|
|
2007
|
|
|
2006
|
|
|
Lower
limit
|
|
Upper
limit
|
|
Buildings and Plant
|
|
$
|
18,948,927
|
|
|
$
|
9,913,819
|
|
|
5
|
|
25
|
|
Machinery and equipment
|
|
|
42,034,363
|
|
|
|
34,335,938
|
|
|
3
|
|
25
|
|
Vehicles
|
|
|
4,260,420
|
|
|
|
2,474,349
|
|
|
3
|
|
7
|
|
Office and other equipment
|
|
|
213,275
|
|
|
|
157,518
|
|
|
3
|
|
7
|
|
Computers
|
|
|
592,500
|
|
|
|
517,827
|
|
|
2
|
|
5
|
|
Software
|
|
|
1,430,359
|
|
|
|
1,325,793
|
|
|
3
|
|
3
|
|
Leasehold improvements
|
|
|
128,084
|
|
|
|
112,357
|
|
|
1.5
|
|
10
|
|
Ponds and land improvements
|
|
|
2,821,069
|
|
|
|
1,682,730
|
|
|
5
|
|
25
|
|
Construction in progress
|
|
|
11,390,334
|
|
|
|
3,340,176
|
|
|
|
|
|
|
Land
|
|
|
427,457
|
|
|
|
427,457
|
|
|
|
|
|
|
Accumulated depreciation
|
|
|
(18,728,180
|
)
|
|
|
(11,916,984
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
63,518,608
|
|
|
$
|
42,370,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral properties and development costs
|
|
|
28,308,927
|
|
|
|
28,037,851
|
|
|
21
|
|
22
|
|
Accumulated depletion
|
|
|
(5,053,934
|
)
|
|
|
(3,708,862
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,254,993
|
|
|
$
|
24,328,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Water rights in “Other Assets”
|
|
|
2,670,229
|
|
|
|
2,670,229
|
|
|
18
|
|
18
|
|
Accumulated depletion
|
|
|
(52,827
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,617,402
|
|
|
$
|
2,670,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
“Mineral properties and development costs” include the inactive HB mine with costs of
approximately $1.5 million at December 31, 2007 and 2006. Pending reopening as a solution mine, no depletion is currently being recognized on this property.
7. Depreciation, Depletion, Amortization and Accretion:
Intrepid incurred the following costs for depreciation, depletion,
amortization and accretion, which included costs capitalized into inventory.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Depreciation
|
|
$
|
7,231,154
|
|
$
|
5,541,897
|
|
$
|
3,419,843
|
|
Depletion
|
|
|
1,397,899
|
|
|
1,837,691
|
|
|
1,614,224
|
|
Amortization
|
|
|
260,583
|
|
|
106,939
|
|
|
130,002
|
|
Accretion
|
|
|
578,630
|
|
|
541,022
|
|
|
328,993
|
|
|
|
|
|
|
|
|
|
|
|
|
Total incurred
|
|
$
|
9,468,266
|
|
$
|
8,027,549
|
|
$
|
5,493,062
|
|
|
|
|
|
|
|
|
|
|
|
8. Commitments and Contingencies:
Marketing Agreements—
In 2004, NM and PCS entered into a marketing agreement appointing PCS the exclusive sales representative for potash export sales, with the exception of those to Canada and Mexico, and
appointing PCS a non-exclusive sales representative for potash sales into Mexico. This agreement is cancelable with thirty days written notice.
F-21
In 2004, Wendover and Envirotech Services, Inc. (“ESI”) entered into a sales agreement appointing ESI the
exclusive distributor for magnesium chloride, with the exception of up to 15,000 tons per year sold for applications other than dust control, de-icing, and soil stabilization. This agreement is cancelable with two year’s written notice,
unless a breach or other specified special event has occurred. Sales prices were specified to ESI in the agreement subject to cost-based escalators. Wendover also participates in excess profits, as defined by the agreement, earned by ESI upon
resale. Excess profits of $221,232, $41,134 and $4,227 were earned by Intrepid in 2007, 2006 and 2005, respectively, and recognized within “Cost of goods sold” as a component of the byproduct credits.
Reclamation Deposits, Surety Bonds and Sinking Fund—
From June 2000 through February 2005, approximately $14.2 million in surety bonds was
provided the State of Utah and the BLM for Moab reclamation through an agreement between Intrepid and an insurance company (“Insurer”). In February 2005, the amount of the required surety bonds was decreased by agreement with the
State of Utah and the BLM to approximately $6.8 million. The terms of the surety-agreement include provisions governing the operation of the Moab mine; provide the Insurer a security interest in approximately 56% of the surface land owned by
Moab; require the establishment and maintenance of a sinking fund; and require payment of an annual 1.5% premium. Bond premium expense was $104,269, $107,831 and $106,316 in 2007, 2006, and 2005, respectively. The sinking fund is a restricted asset
that provides security to the State of Utah and to the BLM, but its value is determined independently of the asset retirement obligations.
Through
the first quarter of 2005 Intrepid funded the sinking fund through a monthly payment. Intrepid paid $90,000 into the sinking fund during the year ended December 31, 2005. The sinking fund, a restricted deposit, is included within other
long-term assets and had a balance of approximately $2.9 million as of December 31, 2007 and 2006. Assuming an approximate annual return of 6.5%, Intrepid has invested enough in the sinking fund to meet Moab’s expected reclamation
cost inclusive of estimated inflation. Intrepid is allowed to invest the sinking fund as the Members deem appropriate. The following unrealized gains and losses were recognized in the statements of income in 2007, 2006, and 2005, respectively,
on the marketable securities held for trade by the sinking fund: $21,580 loss, $388,224 gain; and $161,499 gain.
Intrepid had reclamation security
deposits outstanding for the NM and HB facilities of $677,000 and $634,584 at December 31, 2007 and 2006. Security deposits related to the Wendover facility of $299,000 were outstanding at both December 31, 2007 and 2006. These
restricted deposits were included within “Other” long term assets.
As of December 31, 2006, two letters of credit issued through the
Bank were outstanding with the State of Utah in the total amount of $165,000, security for the unproven oil and gas properties held by IOG. As of December 31, 2007, the two letters of credit with the State of Utah related to the unproven oil
and gas properties held by IOG, having become a related party in 2007, had been reduced to $45,000. As of December 31, 2007 and 2006, a third letter of credit in the amount of $109,610 issued through the Bank to the State of Utah was
outstanding as security on a landfill site at Moab. As of December 31, 2007 and 2006, a fourth letter of credit in the amount of $5,000 and $45,000, respectively, issued through the Bank to the State of Utah was outstanding as security on a
Wendover mineral lease. Letters of credit have been issued through the Bank and reduce the amount available to borrow under our line of credit on a dollar-for-dollar basis. Letters of credit involve a fee equal to the LIBOR spread multiplied by the
commitment amount.
Intrepid may be required to post additional security to fund future reclamation obligations as reclamation plans are updated or
as governmental entities change requirements.
Health Care Costs—
Intrepid is self-insured, subject to a stop-loss policy, for its
employees’ health care costs. The estimated liability for outstanding medical costs has been based on the
F-22
historical pattern of claim settlements. The medical-claims liability was $593,582, $788,248 and $525,706 as of December 31, 2007, 2006, and 2005.
Future Operating Lease Commitments—
Intrepid has certain operating leases for land, mining and other operating equipment, an
airplane, offices, railcars, and vehicles, with original terms ranging up to twenty years.
The minimum future operating lease payments by year,
inclusive of railcars and an electrical substation, are as follows:
|
|
|
|
|
|
Years Ending December 31,
|
|
|
|
2008
|
|
$
|
5,007,945
|
|
2009
|
|
|
4,796,861
|
|
2010
|
|
|
3,967,226
|
|
2011
|
|
|
3,258,363
|
|
2012
|
|
|
878,377
|
|
2013 and beyond
|
|
|
1,085,724
|
Payments on the operating lease for the airplane in 2009 through 2014, included above, will be adjusted
based upon market interest rates in September 2009.
Rental and lease expenses were approximately $5.0 million, $2.8 million and $1.5 million for the
years ended December 31, 2007, 2006, and 2005, respectively. These rental and lease expenses exclude lease payments for railcars used to deliver product; approximately $0.5 million, $0.4 million, and $0.4 million in 2007, 2006, and 2005,
respectively; and recorded as a distribution cost. These stated rental and lease expenses also exclude lease payments for an electrical substation, approximately $0.2 million in each of the three years, recorded as a cost of electricity.
9. Financial Instruments:
Intrepid has managed through the use
of interest-rate derivative contracts a portion of its floating interest rate exposure. Intrepid’s forward LIBOR-based contracts reduce Intrepid’s risk from interest rate movements as gains and losses on such contracts partially
offset the impact of changes in Intrepid’s variable-rate debt. The interest rate paid under Intrepid’s credit agreement varies both with the change in the 3-month LIBOR rate and with Intrepid’s leverage ratio. The counterparty to
the contracts is a large commercial bank and therefore credit risk of counterparty non-performance is unlikely. Notional amounts for which the rate had been fixed as of December 31, 2007 ranged between $22.8 million for the year ending
December 31, 2012 to $52.25 million for the two months ending March 1, 2010. The weighted average notional amount outstanding as of December 31, 2007 and the weighted average 3-month LIBOR rate locked-in via these derivatives were
$33.9 million and 5.1%. Notional amounts for which the rate had been fixed as of December 31, 2006 ranged between $17.5 million for the year ending March 1, 2010 to $30 million for the two months ending March 1, 2007. The weighted
average notional amount outstanding as of December 31, 2006 and the weighted average 3-month LIBOR rate locked-in via these derivatives were $22.5 million and 4.6%.
F-23
A tabular presentation of the outstanding interest rate derivatives as of December 31, 2007 follows:
|
|
|
|
|
|
|
|
|
Termination Date
|
|
Notional
Amount
|
|
Weighted
Average
Fixed Rate
|
|
|
March 1–3, 2008
|
|
$
|
29,000,000
|
|
3.97
|
%
|
|
December 31, 2008
|
|
$
|
20,150,000
|
|
4.96
|
%
|
|
March 1, 2009
|
|
$
|
20,000,000
|
|
5.23
|
%
|
|
December 31, 2009
|
|
$
|
20,400,000
|
|
4.89
|
%
|
|
March 1, 2010
|
|
$
|
17,500,000
|
|
5.28
|
%
|
|
December 31, 2010
|
|
$
|
34,750,000
|
|
5.03
|
%
|
|
December 31, 2011
|
|
$
|
29,400,000
|
|
5.20
|
%
|
|
December 31, 2012
|
|
$
|
22,800,000
|
|
5.26
|
%
|
Intrepid has managed through the use of natural gas derivative contracts a portion of its exposure to
movements in the market price of natural gas. Intrepid’s forward Permian-basis contracts reduced Intrepid’s risk from movements in the cost of gas consumed as gains and losses on such financial contracts offset losses and gains on its
variable-cost supply contracts. The counterparties to the contracts were credit worthy trading houses and therefore credit risk of counterparty non-performance was unlikely. At December 31, 2007, Intrepid had no outstanding natural
gas derivative contracts. At December 31, 2006, Intrepid had outstanding financial contracts through December 31, 2007 for notional quantities of 1,200,000 MMBTU’s at a weighted average cost of $8.12/MMBTU.
The fair value of financial instruments included in the financial statements as of December 31, 2007 and 2006 are depicted below.
|
|
|
|
|
|
|
|
|
Fair value of financial instruments at December 31,
|
|
2007
|
|
2006
|
|
Current Assets
|
|
$
|
57,143
|
|
$
|
93,060
|
|
Long-Term Assets
|
|
|
—
|
|
$
|
340,500
|
|
Current Liabilities
|
|
$
|
431,933
|
|
$
|
2,194,198
|
|
Long-Term Liabilities
|
|
$
|
1,239,021
|
|
$
|
132,946
|
10. Future Employee Benefits:
401K Plan—
The Company maintains a savings plan qualified under Internal Revenue Code Sections 401(a) and
401(k). The 401K Plan is available to all eligible employees of all of the consolidated entities. Employees may contribute amounts as allowed by the U.S. Internal Revenue Service to the 401K Plan (subject to certain restrictions) in either
before tax or after tax contributions. Intrepid matches employee contributions on a dollar for dollar basis up to a maximum of 3% or 5%, dependent on the site, and on the employee’s base compensation. For the years ended December 31,
2007, 2006, and 2005, Intrepid contributed $839,722, $794,411and $747,669 respectively, to the 401K Plan.
Defined Benefit Pension Plan—
In accordance with the terms of the Moab Purchase Agreement with PCS, in 2000 Intrepid established an Employee Defined Benefit Pension Plan
(“Pension Plan”). Pursuant to the terms of the Moab Purchase Agreement, PCS calculated the present value of the future benefits under the Pension Plan as of February 22, 2000 to be approximately $1.5 million and transferred the
funds to the Pension Plan. In February 2002, Intrepid froze the benefits to be paid under the Pension Plan in the sense that only employees hired before February 22, 2000 are eligible to participate and only pay and service through
February 22, 2002 are included in the calculation of benefits; however, Intrepid is required to maintain the Pension Plan for the existing participants as of that date.
F-24
Accumulated other comprehensive gains as of December 31, 2007, 2006, and 2005 were $259,787, $990,838 and
$43,287, respectively, resulting from unrecognized actuarial gains associated with the Pension Plan.
The following table provides a reconciliation
of the changes in the Pension Plan’s benefit obligations and fair value of assets for the years ended December 31, 2007, 2006 and 2005, as measured on those dates, and a statement of the funded status as of December 31, 2007, 2006,
and 2005. Intrepid adopted FAS 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”, effective December 31, 2006. There was no impact upon the financial results or position of Intrepid from
adopting FAS 158.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified Pension Benefits
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Obligations and funded status at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
3,208,007
|
|
|
$
|
3,862,494
|
|
|
$
|
3,676,908
|
|
|
Service cost
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Interest cost
|
|
|
182,071
|
|
|
|
208,813
|
|
|
|
197,078
|
|
|
Benefit payments
|
|
|
(78,798
|
)
|
|
|
(82,081
|
)
|
|
|
(71,342
|
)
|
|
Actuarial losses (gains)
|
|
|
(194,240
|
)
|
|
|
(781,219
|
)
|
|
|
59,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
3,117,040
|
|
|
|
3,208,007
|
|
|
|
3,862,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
2,264,048
|
|
|
|
1,924,420
|
|
|
|
1,629,353
|
|
|
Actual return on assets (net of expenses)
|
|
|
167,481
|
|
|
|
194,794
|
|
|
|
79,088
|
|
|
Employer contributions
|
|
|
117,939
|
|
|
|
226,915
|
|
|
|
287,321
|
|
|
Benefit payments
|
|
|
(78,798
|
)
|
|
|
(82,081
|
)
|
|
|
(71,342
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
2,470,670
|
|
|
|
2,264,048
|
|
|
|
1,924,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unfunded status
|
|
|
(646,370
|
)
|
|
|
(943,959
|
)
|
|
|
(1,938,074
|
)
|
|
|
|
|
|
|
Items not yet recognized as a component of net periodic pension cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized transition obligation/(asset)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Unrecognized prior service cost
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Unrecognized actuarial loss/(gain)
|
|
|
638,216
|
|
|
|
898,003
|
|
|
|
1,888,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sum of deferrals
|
|
|
638,216
|
|
|
|
898,003
|
|
|
|
1,888,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid / (accrued) benefit cost
|
|
$
|
(8,154
|
)
|
|
$
|
(45,956
|
)
|
|
$
|
(49,233
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss/(gain)
|
|
$
|
638,216
|
|
|
$
|
898,003
|
|
|
$
|
1,888,841
|
|
|
Prior service cost
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
638,216
|
|
|
$
|
898,003
|
|
|
$
|
1,888,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions used to determine benefit obligations as of end of fiscal year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.25
|
%
|
|
|
5.75
|
%
|
|
|
|
|
|
Salary scale
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
Intrepid reviewed prevailing interest rates for high-quality fixed-income investments, those rated Aa or
better. The duration of the Plan’s liabilities as of December 31, 2007 was 11.8 years. Based on this review and the plans duration, Intrepid determined a reasonable discount rate for the benefit obligations as of December 31, 2007 was
6.25%.
F-25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Interest cost
|
|
|
182,071
|
|
|
|
208,813
|
|
|
|
197,078
|
|
|
Expected return on assets
|
|
|
(159,654
|
)
|
|
|
(138,501
|
)
|
|
|
(115,273
|
)
|
|
Amortization of transition obligation/(asset)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Amortization of prior service cost
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Amortization of actuarial loss/(gain)
|
|
|
57,720
|
|
|
|
153,326
|
|
|
|
139,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
80,137
|
|
|
$
|
223,638
|
|
|
$
|
221,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
$
|
259,787
|
|
|
$
|
990,838
|
|
|
$
|
43,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts included in AOCI expected to be recognized during the next fiscal year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition obligation/(asset)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss/(gain)
|
|
$
|
33,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions used in computing net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.75
|
%
|
|
|
5.5
|
%
|
|
|
5.75
|
%
|
|
Expected return on assets
|
|
|
7.00
|
%
|
|
|
7.00
|
%
|
|
|
7.00
|
%
|
|
Salary scale
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
The discount rate determined on the benefit obligations as of December 31, 2006, 5.75%, was used in
computing the net periodic benefit cost in 2007.
The basis used to determine the overall expected long-term rate of return on assets assumptions was
an analysis of the historical rate of return for a portfolio with a similar asset allocation. The assumed long-term asset allocation for the plan is: 47% equity securities, 43% fixed income, 5% real estate, and 5% cash.
Using historical investment returns, the Plan’s expected asset mix, and adjusting for the difference
between expected inflation and historical inflation, the 25
th
to 75
th
percentile range
of annual rates of return is 7.0%—8.5%. Intrepid selected a rate of return of 7.00%, which reflects our judgment of the best estimate for this assumption based on the historical investment returns and expected future conditions. This rate
is net of investment related expenses.
Plan Assets—
The Pension Plan’s weighted-average asset allocations at December 31
by asset category are as follows:
|
|
|
|
|
|
|
|
|
Asset Category
|
|
2007
|
|
|
2006
|
|
|
Equity securities
|
|
51
|
%
|
|
51
|
%
|
|
Fixed income
|
|
37
|
%
|
|
38
|
%
|
|
Cash
|
|
4
|
%
|
|
5
|
%
|
|
Real estate
|
|
8
|
%
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
100
|
%
|
|
100
|
%
|
The investment policy for pension plan assets is to maximize the expected return for an acceptable level of
risk. As the Plan has a long-term investment horizon, limited liquidity needs, and exposure to purchasing power risk, and little concern for income stability, Intrepid has set the following target asset allocation: 20% - 100% equity
securities, 15% - 88% fixed income, 0% - 10% real estate, and 0% - 10% cash.
F-26
Cash Flows:
Contributions:
Intrepid expects to contribute $203,000 to its pension plan in 2008.
Estimated
future benefit payments:
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
|
|
|
|
|
|
|
|
Pension Benefits
|
|
2008
|
|
$
|
99,000
|
|
2009
|
|
|
127,000
|
|
2010
|
|
|
144,000
|
|
2011
|
|
|
183,000
|
|
2012
|
|
|
199,000
|
|
Years 2013 – 2017
|
|
|
1,196,000
|
11. Concentration Information:
Intrepid extracts, processes, and sells potash and langbeinite as well as byproducts; salt, magnesium chloride, and metal recovery salt. (See Note 2 regarding discontinuance of IOG operating activities in 2006.)
All assets reside in the United States, with the exception of approximately $29,000 and $110,000 of langbeinite inventory held in Ontario, Canada at
December 31, 2007 and 2006, respectively. Over 90% of our sales in each of the three years ended December 31, 2007, 2006 and 2005 are to customers located in the United States.
Sales from discontinued operations were $4,409,000 and $3,718,000 in 2006 and 2005, respectively.
In 2007, 2006 and 2005, one customer, a distributor, accounted for 9.4%, 14.3% and 9.3% of sales, respectively. In 2007, 2006 and 2005, a second distributor,
accounted for 8.6%, 9.5% and 10.1% of sales, respectively.
12. Event Subsequent to Date of Audit Report (unaudited)
Intrepid Mining declared a special distribution to its members of $15.0 million in March 2008.
F-27
Appendix A
GLOSSARY OF TERMS
Brownfield
: A brownfield mine is a project which is constructed on previously developed land. An example of a brownfield project is our planned addition of new horizontal caverns at our Moab
Mine.
Effective Capacity
: As estimated by Intrepid Potash, the amount of potash production a facility can
achieve based on the amount and quality of ore that can currently be mined, milled and/or processed assuming no modifications to the system and a normal amount of scheduled down-time.
Greenfield
: A greenfield mine is a project constructed on previously undeveloped land. An example of a greenfield mine is Rio
Tinto’s proposed potash mine in the Rio Colorado region of Argentina.
Imperial Ton
: A long ton or gross
ton, a measurement of mass equal to 2,240 pounds.
Magnesium Chloride
(MgCl
2
): An effective de-icing and de-dusting agent that is sold primarily into the Mountain West and Pacific Northwest regions.
Metal Recovery Salt
: Potash combined with salt in various ratios chemically enhances the recovery of aluminum
in aluminum recycling processing facilities.
MMBtu
: Million British Thermal Units.
Nameplate Capacity
: Typically the maximum achievable production the potash mill can achieve assuming there is enough ore of a
specified grade to maximize the processing rate. Nameplate capacities have not typically been adjusted over time in the potash industry for the depletion of ore resulting in lower ore grades to mills, losses in productivity that can result as
facilities mature, or adverse events that materially reduce the amount of feed available to the mill.
PCS
: Potash Corporation of Saskatchewan Inc. and its subsidiaries, including PCS Sales (USA), Inc., with whom Intrepid Potash has entered into an exclusive marketing agreement, and PCS Phosphate Company,
Inc., from whom Intrepid Potash acquired Moab Salt, Inc.
Potash
: A generic term for potassium salts (primarily
potassium chloride, but also sulfate of potash magnesia or langbeinite, potassium nitrate and potassium sulfate) used predominantly and widely as a fertilizer in agricultural markets worldwide. Potash also has numerous industrial uses, including oil
and gas drilling and stimulation fluids. Potash ore is commonly called sylvite. Unless otherwise indicated, references to “potash” in this prospectus refer to muriate of potash.
Potassium Chloride
(KCl—muriate of potash or MOP): The most
abundant, least expensive source of potassium on a delivered K
2
O basis and the preferred source of potassium for fertilizer use, currently accounting for approximately
95% of total fertilizer use of K
2
O. Commercial grades for fertilizer use are typically 95-98% potassium chloride, containing about 60-62% K
2
O. Potassium chloride is the primary raw material used to produce industrial potassium hydroxide and its derivative salts, the most commercially important of which are potassium carbonate,
potassium chromate, potassium permanganate and the potassium phosphates. It is also used as an intermediate in chemical synthesis routes to potassium sulfate and potassium nitrate. Muriate of potash is either red or white in appearance, depending on
how it is produced.
A-1
Potassium Nitrate
(KNO
3
—niter, saltpeter, nitrate of potash or sal prunella): A white crystalline salt. In the U.S., its use is limited but it is used as a nonchloride source
of potash and nitrate nitrogen. The nutrient content of commercial, fertilizer-grade material is about 13-14% nitrogen and 44% K
2
O. Although potassium nitrate does
exist as such in nature, there are no known large deposits of concentrated potassium nitrate-containing minerals. Recovery of naturally occurring materials has been primarily from the crude sodium nitrate (caliche) beds in Chile.
Potassium Sulfate
(K
2
SO
4
—sulfate of potash or SOP): A crystalline salt that is derived directly from brines or synthesized from other potassium salts
and minerals. Commercial grades for fertilizer use are usually 93-95% potassium sulfate, containing 50-51% K
2
O. Potassium sulfate accounts for 1-2% of total potash
fertilizer use.
Probable (Indicated) Reserves
: Reserves for which quantity and grade and/or quality are
computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance of probable (indicated)
reserves, although lower than that for proven (measured) reserves, is high enough to assume geological continuity between points of observation.
Proven (Measured) Reserves
: Reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of
detailed sampling, and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that the size, shape, depth and mineral content of the reserves are well established.
Reserve
: That part of a mineral deposit which could be economically and legally extracted or produced at the time of the
reserve determination.
Salt
(NaCl—sodium chloride): The salt industry is a commodity business with a heavy
emphasis on price competition, which results in market boundaries being defined by delivered costs.
Sulfate of Potash Magnesia
(K
2
Mg
2
(SO
4
)
3
)—langbeinite or potassium magnesium sulfate): A double salt containing potassium
and magnesium sulfates. In the U.S., sulfate of potash magnesia, produced by refining langbeinite ore, accounts for approximately 3% of potash fertilizer. Commercial products typically contain 22% K
2
O, 11% magnesium and 22% sulfur. In Europe, a variety of these mixed salts is made from different ores, in grades ranging from 12% to 42% K
2
O, 2% to 5% magnesium and 3% to 7% sulfur. Langbeinite is marketed for sale as a low-chloride potassium, magnesium and sulfur-bearing fertilizer primarily for use in citrus, vegetable, sugarcane and palm applications and as an animal feed
supplement.
Tailings
: Salt and insoluble minerals that remain after potash is removed from ore during
processing, typically disposed of in a tailings pile.
Ton
: A short ton, a measurement of mass equal to 2,000
pounds. References to “tons” in this prospectus refer to short tons.
Tonne
: A metric ton, a
measurement of mass equal to 1,000 kilograms or 2,204.6 pounds.
A-2
PART II
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the various fees and expenses, other than the underwriting discounts and commissions, payable by Intrepid Potash, Inc., or the
registrant, in connection with the sale of the shares of common stock being registered hereby. All amounts shown are estimates except for the SEC registration fee and the NASD filing fee.
|
|
|
|
|
|
|
|
Amount
|
|
SEC registration fee
|
|
$
|
28,202
|
|
FINRA filing fee
|
|
|
72,260
|
|
New York Stock Exchange listing fee
|
|
|
250,000
|
|
Blue sky qualification fees and expenses
|
|
|
0
|
|
Accounting fees and expenses
|
|
|
807,000
|
|
Legal fees and expenses
|
|
|
2,171,000
|
|
Printing and engraving expenses
|
|
|
260,000
|
|
Transfer agent and registrar fees
|
|
|
11,000
|
|
Miscellaneous expenses
|
|
|
600,538
|
|
|
|
|
|
|
Total
|
|
$
|
4,200,000
|
|
|
|
|
|
Item 14. Indemnification of Directors and Officers
Section 102 of the Delaware General Corporation Law, or the DGCL, grants us the power to limit the personal liability of our directors or our stockholders for
monetary damages for breach of a fiduciary duty. Article VI of our restated certificate of incorporation eliminates the personal liability of directors for monetary damages for actions taken as a director, except for liability for breach of the duty
of loyalty; for acts or omissions not in good faith or involving intentional misconduct or knowing violation of law; under Section 174 of the DGCL (unlawful dividends); or for transactions from which the director derived improper personal
benefit.
Under Section 145 of the DGCL, a corporation has the power to indemnify directors and officers under certain prescribed circumstances
against certain costs and expenses, actually and reasonably incurred in connection with any action, suit or proceeding, whether civil, criminal, administrative or investigative, to which any of them is a party by reason of his being a director or
officer of the corporation if it is determined that he acted in accordance with the applicable standard of conduct set forth in such statutory provision. Article IX of our restated bylaws requires us to indemnify any current or former directors
or officers to the fullest extent permitted by the DGCL, and to pay expenses incurred in defending any such proceeding in advance of its final disposition upon delivery to us of an undertaking, by or on behalf of an indemnified person, to repay all
amounts so advanced if it should be determined ultimately that such person is not entitled to be indemnified under this section or otherwise. Article IX also permits us to indemnify any current or former employees or agents to the fullest
extent permitted by the DGCL, and to pay expenses incurred in defending any such proceeding in advance of its final disposition upon such terms and conditions, if any, as we deem appropriate.
Section 145 of the DGCL authorizes a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation against any liability asserted against and incurred by such person in any such capacity, or arising out of such
II-1
person’s status as such. As permitted by Section 145 and Section 9.05 of our restated bylaws, we intend to obtain insurance policies insuring its
directors and officers against certain liabilities that they may incur in their capacity as directors and officers.
We will enter into separate
indemnification agreements with each of our directors and officers, which may be broader than the specific indemnification provisions contained in the DGCL. These indemnification agreements may require us, among other things, to indemnify our
directors and officers against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct. These indemnification agreements may also require us to advance any
expenses incurred by the directors or officers as a result of any proceeding against them as to which they could be indemnified and to obtain directors’ and officers’ insurance, if available on reasonable terms.
The Underwriting Agreement to be filed as an exhibit to this registration statement will obligate the underwriters, under certain circumstances, to indemnify our
directors and officers for certain liabilities, including liabilities arising under the Securities Act.
The indemnification rights set forth
above shall not be exclusive of any other right which an indemnified person may have or hereafter acquire under any statute, provision of our restated certificate of incorporation or restated bylaws, agreement, vote of stockholders or disinterested
directors or otherwise.
Item 15. Recent Sales of Unregistered Securities
Except as set forth below, in the three years preceding the filing of this registration statement, the registrant has not issued any securities that were not registered under the Securities Act.
On December 7, 2007, in connection with the incorporation of the registrant, the registrant issued 1,000 shares of common stock to Intrepid Mining LLC in
exchange for $1,000. The offer, sale and issuance of these securities was made in reliance upon the exemption from the registration requirements of the Securities Act provided for by Section 4(2) thereof for transactions not involving a public
offering. Appropriate legends have been affixed to the securities issued in this transaction. The purchaser of the securities had adequate access, through business or other relationships, to information about us.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
The exhibits to this registration statement are listed on the exhibit index, which appears elsewhere herein and is incorporated by reference.
(b) Financial Statement Schedules
See the
Index to Financial Statements included on page F-1 for a list of the financial statements included in this registration statement.
All schedules not
identified above have been omitted because they are not required, are not applicable or the information is included in the selected consolidated financial data or notes contained in this registration statement.
II-2
Item 17. Undertakings
(a) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2) For the
purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes to provide to
the underwriter at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Denver, Colorado, on
April 7, 2008.
|
|
|
|
|
INTREPID POTASH, INC.
|
|
|
|
|
By:
|
|
*
|
|
Name:
|
|
Robert P. Jornayvaz III
|
|
Title:
|
|
Chairman of the Board and Chief Executive Officer
|
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the date indicated.
|
|
|
|
|
|
|
Name
|
|
Title
|
|
Date
|
|
*
Robert P.
Jornayvaz III
|
|
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
|
|
April 7, 2008
|
|
|
|
|
|
/
S
/ H
UGH
E. H
ARVEY
,
J
R
.
Hugh E. Harvey, Jr.
|
|
Executive Vice President of Technology and Director
|
|
April 7, 2008
|
|
|
|
|
|
/
S
/ D
AVID
W.
H
ONEYFIELD
David W. Honeyfield
|
|
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
|
|
April 7, 2008
|
|
|
|
|
|
*
Rodney D.
Gloss
|
|
Vice President and Controller (Principal Accounting Officer)
|
|
April 7, 2008
|
|
|
|
|
|
*
J. Landis
Martin
|
|
Director
|
|
April 7, 2008
|
|
|
|
|
|
|
|
|
*By:
|
|
/
S
/ H
UGH
E. H
ARVEY
,
J
R
.
|
|
|
|
Attorney-in-fact
|
II-4
EXHIBIT INDEX
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
1.1*
|
|
Form of Underwriting Agreement.
|
|
|
|
|
3.1***
|
|
Certificate of Incorporation of Intrepid Potash, Inc.
|
|
|
|
|
3.2***
|
|
Bylaws of Intrepid Potash, Inc.
|
|
|
|
|
3.3*
|
|
Form of Restated Certificate of Incorporation of Intrepid Potash, Inc.
|
|
|
|
|
3.4*
|
|
Form of Restated Bylaws of Intrepid Potash, Inc.
|
|
|
|
|
4.1*
|
|
Specimen common stock certificate of Intrepid Potash, Inc.
|
|
|
|
|
5.1*
|
|
Opinion of Holme Roberts & Owen LLP regarding the validity of the common shares.
|
|
|
|
|
10.1*
|
|
Form of Intrepid Potash, Inc. 2008 Equity Incentive Plan.+
|
|
|
|
|
10.2*
|
|
Form of Employment Agreement (schedule of employees attached thereto).+
|
|
|
|
|
10.3***
|
|
Form of Indemnification Agreement.+
|
|
|
|
|
10.4*
|
|
Form of Registration Rights Agreement.
|
|
|
|
|
10.5*
|
|
Form of Director Designation and Voting Agreement.
|
|
|
|
|
10.6*
|
|
Form of Exchange Agreement.
|
|
|
|
|
10.7*
|
|
Third Amended and Restated Credit Agreement, dated as of March 9, 2007, by and among Intrepid Mining LLC, Intrepid Potash–Moab, LLC, Intrepid Potash–New Mexico, LLC, Intrepid
Potash–Wendover, LLC, U.S. Bank National Association and the Lenders named therein.
|
|
|
|
|
10.8*
|
|
First Amendment of Third Amended and Restated Credit Agreement, dated as of May 23, 2007, by and among Intrepid Mining LLC, Intrepid Potash–Moab, LLC, Intrepid Potash– New Mexico, LLC, Intrepid
Potash–Wendover, LLC, U.S. Bank National Association and the Lender named therein.
|
|
|
|
|
10.9*
|
|
Second Amendment of Third Amended and Restated Credit Agreement, dated as of September 11, 2007, by and among Intrepid Mining LLC, Intrepid Potash–Moab, LLC, Intrepid Potash–New Mexico, LLC,
Intrepid Potash–Wendover, LLC, U.S. Bank National Association, on behalf of the Existing Lenders (as defined therein), and the Additional Lenders (as defined therein).
|
|
|
|
|
10.10*
|
|
Third Amendment of Third Amended and Restated Credit Agreement, dated as of October 12, 2007, by and among Intrepid Mining LLC, Intrepid Potash–Moab, LLC, Intrepid Potash–New Mexico, LLC,
Intrepid Potash–Wendover, LLC, U.S. Bank National Association, and the Lenders (as defined therein).
|
|
|
|
|
10.11*
|
|
Form of Fourth Amendment of Third Amended and Restated Credit Agreement, dated as of , 2008, by and among
Intrepid Mining LLC, Intrepid Potash–Moab, LLC, Intrepid Potash–New Mexico, LLC, Intrepid Potash–Wendover, LLC, U.S. Bank National Association, and the Lenders (as defined therein).
|
|
|
|
|
10.12*
|
|
Employment Offer Letter dated March 19, 2007, by and between Intrepid Mining LLC and Patrick L. Avery.+
|
|
|
|
|
10.13*
|
|
Employment Assumption Letter dated April 1, 2008, by and between Intrepid Potash, Inc. and Patrick L. Avery.+
|
|
|
|
|
10.14*
|
|
Employment Offer Letter dated January 29, 2008, by and between Intrepid Mining LLC and David W. Honeyfield.+
|
|
|
|
|
10.15*
|
|
Employment Assumption Letter dated April 1, 2008, by and between Intrepid Potash, Inc. and David W. Honeyfield.+
|
|
|
|
|
10.16*
|
|
Form of Intrepid Potash, Inc. Short Term Incentive Plan.+
|
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
10.17*
|
|
Form of Intrepid Potash, Inc. 2008 Senior Management Performance Incentive Plan.+
|
|
|
|
|
10.18*
|
|
Form of Restricted Stock Grant Agreement.+
|
|
|
|
|
10.19*
|
|
Form of Director Stock Grant Agreement.+
|
|
|
|
|
21.1***
|
|
List of Subsidiaries.
|
|
|
|
|
23.1*
|
|
Consent of KPMG LLP.
|
|
|
|
|
23.2*
|
|
Consent of Hein & Associates LLP.
|
|
|
|
|
23.3*
|
|
Consent of Holme Roberts & Owen LLP (included in Exhibit 5.1).
|
|
|
|
|
23.4*
|
|
Consent of Agapito Associates, Inc.
|
|
|
|
|
23.5***
|
|
Consent of David W. Honeyfield to be named as an executive officer.
|
|
|
|
|
23.6*
|
|
Consent of Terry Considine to be named as a director nominee.
|
|
|
|
|
23.7*
|
|
Consent of Barth E. Whitham to be named as a director nominee.
|
|
|
|
|
24.1***
|
|
Power of Attorney (included on signature page).
|
|
|
|
|
99.1*
|
|
Form of Transition Services Agreement.
|
|
**
|
To be filed by amendment.
|
Exhibit 1.1
[
] Shares
Intrepid
Potash, Inc.
Common Stock (Par Value $0.001 Per Share)
UNDERWRITING AGREEMENT
April __, 2008
April __, 2008
Goldman, Sachs & Co.
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated
RBC Capital Markets Corporation
BMO Capital Markets Corp.
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Ladies and
Gentlemen:
Intrepid Potash, Inc., a Delaware corporation (the “
Company
”), proposes to issue and sell to the several
Underwriters named in Schedule I hereto (the “
Underwriters
”)
[
]
shares of the Common Stock (par value $0.001 per share) of the Company (the
“
Firm Shares
”). The Company also proposes to issue and sell to the several Underwriters not more than an additional
[
]
shares of its Common Stock
(par value $0.001 per share) (the “
Additional Shares
”) if and to the extent that you, as Managers of the offering, shall have determined to exercise, on behalf of the Underwriters, the right to purchase such shares of Common Stock
granted to the Underwriters in Section 1(ii) hereof. The Firm Shares and the Additional Shares are hereinafter collectively referred to as the “
Shares
.” The shares of Common Stock (par value $0.001 per share) of the Company to
be outstanding after giving effect to the sales contemplated hereby are hereinafter referred to as the “
Common Stock
.”
The Company has filed with the Securities and Exchange Commission (the “
Commission
”) a registration statement (SEC File No. 333-148215), including a prospectus, relating to the Shares (the “
Initial Registration
Statement
”). The Initial Registration Statement as amended at the time it becomes effective, including the information (if any) deemed to be part of such registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the “
Securities Act
”), is hereinafter referred to as the “
Registration Statement
;” any preliminary prospectus included in the Initial Registration Statement or filed with the
Commission pursuant to Rule 424(a) of the rules and regulations of the Commission under the Securities Act is hereinafter referred to as the “
Preliminary Prospectus
;” the prospectus in the form first used to confirm sales of Shares
(or in the form first made available to the Underwriters by the Company to meet requests of purchasers pursuant to Rule 173 under the Securities Act) is hereinafter referred to as the “
Prospectus
.” If the Company has filed an
abbreviated registration statement to register additional
shares of Common Stock pursuant to Rule 462(b) under the Securities Act (the “
Rule 462 Registration Statement
”), then any
reference herein to the term “
Registration Statement
” shall be deemed to include such Rule 462 Registration Statement.
For purposes of this Agreement, “
free writing prospectus
” has the meaning set forth in Rule 405 under the Securities Act, “
Time of Sale Prospectus
” means the Preliminary Prospectus relating to the Shares
that was included in the Registration Statement immediately prior to the Applicable Time (as defined in Section 1(b) hereof), together with all free writing prospectuses, if any, filed by the Company under Rule 433(d) of the Securities Act as
identified in Schedule II hereto, and “
broadly available road show
” means a “bona fide electronic road show” as defined in Rule 433(h)(5) under the Securities Act that has been made available without restriction to any
person. As used herein, the terms “Registration Statement,” “Preliminary Prospectus,” “Time of Sale Prospectus” and “Prospectus” shall include the documents, if any, incorporated by reference therein.
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (“
Merrill Lynch
”) has agreed to
reserve a portion of the Shares to be purchased by it under this Agreement for sale to the Company’s directors, officers, employees and business associates and other parties related to the Company (collectively,
“
Participants
”), as set forth in the Prospectus under the heading “Underwriting” (the “
Directed Share Program
”). The Shares to be sold by Merrill Lynch and its affiliates pursuant to the Directed Share
Program are referred to hereinafter as the “
Directed Shares
”. Any Directed Shares not orally confirmed for purchase by any Participant by the end of the business day on which this Agreement is executed will be offered to the public
by the Underwriters as set forth in the Prospectus.
On the Closing Date (as defined in Section 4 hereof), the Company shall enter
into an Exchange Agreement (the “
Exchange Agreement
”), by and between the Company and Intrepid Mining LLC, a Delaware limited liability company (“
Intrepid Mining
”), pursuant to which, on or before the Closing Date,
Intrepid Mining will assign all of its assets other than cash to the Company in exchange for cash in an amount of $
[
]
,
[
]
shares of the Company’s Common Stock, and the assumption by the Company of all of Intrepid Mining’s liability and obligations under its existing
senior credit facility (other than $18,900,000 of the outstanding principal balance of such senior credit facility, unpaid interest accrued on such principal balance, and fees, charges and other costs relating to such principal balance, which
obligations shall be retained by Intrepid Mining), and substantially all other liabilities and obligations of Intrepid Mining. Intrepid Mining and the Company are sometimes referred to collectively herein as the “
Intrepid Parties
.”
2
1.
Representations and Warranties
. Each of the Intrepid Parties, jointly and severally, represents
and warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purpose are pending before or, to the knowledge of the Company, threatened by the Commission.
(b) (i) The Registration Statement, when it became effective, did not contain and, as amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) the Registration Statement and the Prospectus comply and, as amended or supplemented,
if applicable, will comply in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder, (iii) the Time of Sale Prospectus together with the price to the public and number of Shares to
be included on the cover page of the Prospectus does not, and at
[
5:00
]
p.m. (Eastern time) on the date of this Agreement (the “
Applicable Time
”) and at the Closing Date (as defined in Section 4), as then amended
or supplemented by the Company, if applicable, will not, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not
misleading, (iv) each broadly available road show, if any, when considered together with the Time of Sale Prospectus and the price to the public and number of Shares to be included on the cover page of the Prospectus, does not contain any
untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading and (v) the Prospectus does not contain and, as amended
or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except
that the representations and warranties set forth in this paragraph do not apply to statements or omissions in the Registration Statement, the Time of Sale Prospectus or the Prospectus based upon information relating to any Underwriter furnished to
the Company in writing by any of Goldman, Sachs & Co., Merrill Lynch or Morgan Stanley & Co. Incorporated (together, the “
Representatives
”) expressly for use therein.
(c) The Company is not an “ineligible issuer” in connection with the offering pursuant to Rules 164, 405 and 433 under the Securities Act. Any
free writing prospectus that the Company is required to file pursuant to Rule 433(d) under the Securities Act has been, or will be, filed with the Commission in accordance with the requirements of the Securities Act and the applicable rules and
regulations of the Commission thereunder. Each free writing prospectus that the Company has filed, or is required to file, pursuant to Rule 433(d) under the
3
Securities Act or that was prepared by or on behalf of or used or referred to by the Company complies or will comply in all material respects with the
requirements of the Securities Act and the applicable rules and regulations of the Commission thereunder. Each free writing prospectus identified in Schedule II hereto does not conflict with the information contained in the Registration Statement,
any Preliminary Prospectus or the Prospectus. Each broadly available road show does not conflict with the information contained in the Registration Statement, any Preliminary Prospectus or the Prospectus. Except for the free writing prospectuses, if
any, identified in Schedule II hereto, and broadly available road shows, if any, each furnished to you before first use, the Company has not prepared, used or referred to, and will not, without your prior consent, prepare, use or refer to, any free
writing prospectus.
(d) The Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in the Time of Sale Prospectus and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the
current or future financial position, stockholders’ equity or results of operations of the Company, Intrepid Mining and the Intrepid Subsidiaries as defined below (collectively, the “
Intrepid Entities
”), taken as a whole (a
“
Material Adverse Effect
”).
(e) Intrepid Mining has been duly formed, is validly existing as a limited liability company,
and is in good standing under the laws of the State of Delaware, and has the limited liability company power and authority to own its property and to conduct its business as described in the Time of Sale Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not
have a Material Adverse Effect; all of the issued limited liability company interests of Intrepid Mining have been duly and validly authorized and issued, are fully paid (to the extent required under the Amended and Restated Limited Liability
Company Agreement for Intrepid Mining, dated June 5, 2007, as amended) and non-assessable (except as such nonassessability may be affected by matters described in Sections 18-303 and 18-607 of the Delaware Limited Liability Company Act (the
“
Delaware LLC Act
”) and are owned directly by Harvey Operating and Production Company, Intrepid Production Corporation and Potash Acquisition, LLC, in each case free and clear of all liens, encumbrances, equities or claims.
(f) Each of Intrepid Potash-New Mexico, LLC (“
Intrepid New Mexico
”), Intrepid Potash-Moab, LLC (“
Intrepid
Moab
”), Intrepid Potash-Wendover, LLC (“
Intrepid Wendover
”), HB Potash, LLC (“
HB Potash
”),
4
Intrepid Aviation LLC (“
Intrepid Aviation
”) and Moab Gas Pipeline LLC (“
Moan Pipeline
”) (collectively, the
“
Intrepid Subsidiaries
”) has been duly formed, is validly existing as a limited liability company, and, other than Intrepid Moab, is in good standing under the laws of the jurisdiction of its formation; Intrepid Moab is in good
standing under the laws of the State of Delaware; each of the Intrepid Subsidiaries has the limited liability company power and authority to own its property and to conduct its business as described in the Time of Sale Prospectus and is duly
qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect; all of the issued limited liability company interests of each Intrepid Subsidiary have been duly and validly authorized and issued, are fully paid (to the extent required under the Operating
Agreements for each of the respective Intrepid Subsidiaries) and non-assessable (except as such nonassessability may be affected by matters described in (i) Sections 18-303 and 18-607 of the Delaware LLC Act as to Intrepid Moab,
(ii) Sections 7-80-606 and 7-80-703 of the Colorado Limited Liability Company Act as to Intrepid Wendover, Intrepid Aviation and Moab Pipeline and (iii) Sections 53-19-13 and 53-19-27 of the New Mexico Limited Liability Company Act as to
Intrepid New Mexico and HB Potash) and are owned directly by Intrepid Mining and, on the Closing Date, will be owned directly by the Company, in each case free and clear of all liens, encumbrances, equities or claims, other than those arising under
the Third Amended and Restated Credit Agreement dated as of March 9, 2007, by and among Intrepid Mining, Intrepid New Mexico, Intrepid Moab, Intrepid Wendover, U.S. Bank National Association and the lenders named therein, as amended.
(g) Except for the Intrepid Subsidiaries, neither of the Intrepid Parties will, on the Closing Date, own, directly or indirectly, any
equity or long-term debt securities of any corporation, partnership, limited liability company, joint venture, association or other entity.
(h) This Agreement has been duly authorized, executed and delivered by each of the Intrepid Parties.
(i) On or before the Closing
Date, the Exchange Agreement will have been duly authorized, executed and delivered by each of the Intrepid Parties and will be a valid and legally binding agreement of each of them, enforceable against each of them in accordance with its terms.
(j) On or before the Closing Date, the documents and instruments listed in Schedule III attached hereto (the “
Credit
Documents
”), amending and supplementing the senior credit facility of Intrepid Mining to substitute the Company as a borrower thereunder will have been duly authorized, executed and delivered by each of the Intrepid Parties.
5
(k) The authorized capital stock of the Company conforms as to legal matters to the description thereof
contained in each of the Time of Sale Prospectus and the Prospectus.
(l) The shares of Common Stock outstanding prior to the issuance of
the Shares to be sold by the Company have been duly authorized and are validly issued, fully paid and non-assessable.
(m) The Shares to be
sold by the Company have been duly authorized and, when issued and delivered in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable, and the issuance of such Shares will not be subject to any preemptive
or similar rights.
(n) The execution and delivery by the Intrepid Parties of, and the performance by the Intrepid Parties of their
respective obligations under, this Agreement, the Exchange Agreement and the Credit Documents will not contravene (i) any provision of applicable law, (ii) as applicable, the certificate of incorporation, by-laws, or other organizational
or governing documents of the Intrepid Parties, (iii) any agreement or other instrument binding upon any of the Intrepid Entities that is material to the Intrepid Entities, each taken as a whole, or (iv) any judgment, order or decree of
any governmental body, agency or court having jurisdiction over the Intrepid Entities, except in the case of (i), (iii) and (iv) as would not have a Material Adverse Effect. No consent, approval, authorization or order of, or qualification
with, any governmental body or agency is required for the performance by the Intrepid Parties of their respective obligations under this Agreement, except for such consents, approvals, authorizations, orders or qualifications as have been obtained,
or as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Shares.
(o)
Since the respective dates as which information is given in the Registration Statement and the Time of Sale Prospectus, there has not occurred any material adverse change, or any development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or operations of the Intrepid Entities, taken as a whole, from that set forth in the Registration Statement and the Time of Sale Prospectus.
(p) There are no legal or governmental proceedings pending or, to the knowledge of the Company, threatened to which any of the Intrepid Entities is a
party or to which any of the properties of the Intrepid Entities is subject (i) other than proceedings accurately described in all material respects in the Time of Sale Prospectus and proceedings that would not have a Material Adverse Effect,
or a material adverse effect on the power or ability of the Intrepid Parties to perform their respective obligations under this Agreement or to consummate the transactions contemplated by the Time of Sale Prospectus or (ii) that are required to
be described in the Registration Statement, the Time of Sale Prospectus or the
6
Prospectus and are not so described; and there are no statutes, regulations, contracts or other documents that are required to be described in the
Registration Statement, the Time of Sale Prospectus or the Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required.
(q) Each Preliminary Prospectus filed as part of the registration statement as originally filed or as part of any amendment thereto, or filed pursuant to
Rule 424 under the Securities Act, complied when so filed in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder.
(r) Neither of the Intrepid Parties are, and after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will be, required to register as an “investment company” as such term is defined in the Investment Company Act of 1940, as amended.
(s) Except as set forth in the Time of Sale Prospectus, the Intrepid Entities (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of
human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (“
Environmental Laws
”), (ii) have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive
required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, have a Material Adverse Effect.
(t) Except as set forth in the Time of Sale Prospectus, there are no costs or liabilities required to be incurred as of the date of this Agreement
pursuant to Environmental Laws (including, without limitation, any capital or operating expenditures presently required for clean-up, closure of properties or compliance with Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third parties) which would, singly or in the aggregate, have a Material Adverse Effect.
(u) Except as described in the Time of Sale Prospectus, there are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a
registration statement under the Securities Act with respect to any securities of the Company or to require the Company to include such securities with the Shares registered pursuant to the Registration Statement.
7
(v) Subsequent to the respective dates as of which information is given in each of the Registration
Statement, the Time of Sale Prospectus and the Prospectus, (i) the Intrepid Entities have not incurred any material liability or obligation, direct or contingent, nor entered into any material transaction; (ii) the Company has not
purchased any of its outstanding capital stock, nor declared, paid or otherwise made any dividend or distribution of any kind on its capital stock other than ordinary and customary dividends; and (iii) there has not been any material change in
the capital stock, short-term debt or long-term debt of the Intrepid Entities, except in each case as described in each of the Registration Statement, the Time of Sale Prospectus and the Prospectus, respectively.
(w) The Intrepid Entities have good and indefeasible title in fee simple to all real property and good and marketable title to all personal property
owned by them which is material to the business of the Intrepid Entities, in each case free and clear of all liens, encumbrances and defects except such as are described in the Time of Sale Prospectus or such as would not, singly or in the
aggregate, have a Material Adverse Effect; and any real property and buildings held under lease by the Intrepid Entities are held by them under valid, subsisting and enforceable leases with such exceptions as would not, singly or in the aggregate,
have a Material Adverse Effect, in each case except as described in the Time of Sale Prospectus.
(x) The Intrepid Entities own or possess,
or can acquire on reasonable terms, all material patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names currently employed by them in connection with the business now operated by them, except where the failure to own, possess or have the right to acquire such intellectual property would not have a Material
Adverse Effect, and none of the Intrepid Entities has received any notice of infringement of or conflict with asserted rights of others with respect to any of the foregoing which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a Material Adverse Effect.
(y) No material labor dispute with the employees of any of the Intrepid
Entities exists, except as described in the Time of Sale Prospectus, or, to the knowledge of the Intrepid Parties, is imminent; and the Intrepid Parties are not aware of any existing, threatened or imminent labor disturbance by the employees of any
of its principal suppliers, manufacturers or contractors that would have a Material Adverse Effect.
(z) Each of the Intrepid Entities is
insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as the Intrepid Parties reasonably believe are prudent and customary in the businesses in which they are engaged; none of the Intrepid
Entities has been refused any insurance coverage sought or applied for; and neither of the Intrepid Parties has
8
any reason to believe that any of the Intrepid Entities will not be able to renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect, except as described in the Time of Sale Prospectus.
(aa) Except as described in the Time of Sale Prospectus, the Intrepid Entities possess all certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, and none of the Intrepid Entities has received any notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a Material Adverse Effect, except as described in the Time of Sale Prospectus.
(bb) The Intrepid Parties, on behalf of each of the Intrepid Entities, maintain a system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with accounting
principles generally accepted in the United States (“
GAAP
”) and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and
(iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as described in the Time of Sale Prospectus, since the end of
Intrepid Mining’s most recent audited fiscal year, there has been (i) no material weakness in the Intrepid Parties’ internal control over financial reporting (whether or not remediated) and (ii) no change in the Intrepid
Parties’ internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Intrepid Parties’ internal control over financial reporting.
(cc) Except as described in the Time of Sale Prospectus, the Intrepid Parties have not sold, issued or distributed any shares of Common Stock or other
equity securities during the six-month period preceding the date hereof, including any sales pursuant to Rule 144A under, or Regulation D or S of, the Securities Act, other than shares issued pursuant to employee benefit plans, qualified
stock option plans or other employee compensation plans or pursuant to outstanding options, rights or warrants.
(dd) The Registration
Statement, the Prospectus, the Time of Sale Prospectus and any Preliminary Prospectus comply, and any amendments or supplements thereto will comply, with any applicable laws or regulations of foreign jurisdictions in which the Prospectus, the Time
of Sale Prospectus or any Preliminary Prospectus, as amended or supplemented, if applicable, are distributed in connection with the Directed Share Program.
9
(ee) No consent, approval, authorization or order of, or qualification with, any governmental body or
agency, other than those obtained, is required in connection with the offering of the Directed Shares in any jurisdiction where the Directed Shares are being offered.
(ff) The Company has not offered, or caused Merrill Lynch to offer, Shares to any person pursuant to the Directed Share Program with the specific intent to unlawfully influence (i) a customer or supplier of the
Company to alter the customer’s or supplier’s level or type of business with the Company, or (ii) a trade journalist or publication to write or publish favorable information about the Company or its products.
(gg) The Shares have been duly approved for listing, subject only to official notice of issuance, on the New York Stock Exchange, Inc. (the
“
NYSE
”).
(hh) The Intrepid Entities have filed all foreign, federal, state and local tax returns with the appropriate tax
authorities that are required to be filed, or have duly requested extensions thereof, and have paid all taxes required to be paid by them and any other assessment, fine or penalty levied against them, except in each case in which the failure to so
file or pay would not have a Material Adverse Effect. The charges, accruals and reserves on the books of each of the Intrepid Entities in respect of any income and entity-level tax liability for any years not finally determined are adequate to meet
any assessments or re-assessments for additional income or entity-level tax for any years not finally determined, except to the extent of any inadequacy that would not have a Material Adverse Effect.
(ii) The Intrepid Parties, on behalf of each of the Intrepid Entities, maintain disclosure controls and procedures (as such term is defined in Rule
13a-15(e) under the Securities Exchange Act of 1934, as amended (the “
Exchange Act
”)) that comply with the requirements of the Exchange Act; such disclosure controls and procedures have been designed to ensure that material
information relating to the Intrepid Entities is made known to the respective principal executive officer and principal financial officer of the Company by others within the Intrepid Entities; and such disclosure controls and procedures are
effective.
(jj) The historical financial statements, together with the related notes and schedules, of the Intrepid Parties included in
the Time of Sale Prospectus, the Prospectus and the Registration Statement present fairly the financial condition of each of the Intrepid Parties, and the results of operations and cash flows of the Intrepid Parties, as of the dates and for the
periods indicated; such financial statements have been prepared in conformity with GAAP applied on a consistent basis throughout the periods involved. The financial statements, together with the related notes and schedules, of the Intrepid Parties
included in the Time of Sale Prospectus, the Prospectus and the Registration Statement comply with the applicable accounting requirements of Regulation S-X under the Securities Act. The summary historical and pro forma financial information set
forth in the Time
10
of Sale Prospectus, the Prospectus and the Registration Statement under the caption “Prospectus Summary— Summary Historical and Pro Forma Combined
Financial and Operating Data,” and the selected historical and pro forma financial information set forth under the caption “Selected Historical and Pro Forma Combined Financial and Operating Data” in the Time of Sale Prospectus, the
Prospectus and Registration Statement is accurately presented in all material respects and prepared on a basis consistent with the audited and unaudited historical financial statements and pro forma financial statements, as applicable, from which it
has been derived. The pro forma financial statements included in the Time of Sale Prospectus, the Prospectus and the Registration Statement have been prepared in accordance with the applicable accounting requirements of Regulation S-X under the Act
and include assumptions that provide a reasonable basis for presenting the significant effects directly attributable to the transactions and events described therein, the related pro forma adjustments give appropriate effect to those assumptions,
and the pro forma adjustments reflect the proper application of those adjustments to the historical financial statement amounts in the pro forma financial statements included in the Time of Sale Prospectus, the Prospectus and the Registration
Statement.
(kk) KPMG LLP and Hein & Associates LLP, who have certified certain financial statements of the Intrepid Parties and
their subsidiaries, are each independent public accountants as required by the Securities Act and the rules and regulations of the Commission thereunder.
(ll) On and after the Closing Date, the Company will be in compliance in all material respects with all applicable provisions of the Sarbanes-Oxley Act of 2002, the rules and regulations promulgated in connection
therewith and the rules of the NYSE that are effective and applicable to the Company.
(mm) None of the Intrepid Entities, nor, to the
knowledge of the Intrepid Parties, any director, officer, agent, employee or affiliate of any Intrepid Entity, is aware of or has taken any action, directly or indirectly, that would result in a violation by such persons of the Foreign Corrupt
Practices Act of 1977, as amended, and the rules and regulations thereunder (collectively, the “
FCPA
”), including, without limitation, making use of the mails or any means or instrumentality of interstate commerce corruptly in
furtherance of an offer, payment, promise to pay or authorization of the payment of any money, or other property, gift, promise to give, or authorization of the giving of anything of value to any “foreign official” (as such term is defined
in the FCPA) or any foreign political party or official thereof or any candidate for foreign political office, in contravention of the FCPA; the Intrepid Entities and their affiliates have conducted their businesses in compliance with the FCPA; and
the Intrepid Parties, on behalf of each of the Intrepid Entities, have instituted and maintain policies and procedures applicable to themselves and all of their subsidiaries that are reasonably designed to ensure, and that are reasonably expected to
continue to ensure, continued compliance therewith.
11
(nn) The operations of the Intrepid Entities are and have been conducted at all times in compliance with,
in each case to the extent applicable, the financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the anti-money laundering statutes of all jurisdictions, the rules and
regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “
Anti-Money Laundering Laws
”) and no action, suit or proceeding by or
before any court or governmental agency, authority or body or any arbitrator involving any of the Intrepid Entities with respect to the Anti-Money Laundering Laws is pending or, to the knowledge of the Intrepid Parties, threatened.
(oo) None of the Intrepid Entities, nor, to the knowledge of the Intrepid Parties, any director, officer, agent, employee or affiliate of any Intrepid
Entity is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“
OFAC
”); and the Company will not directly or indirectly use the proceeds of the offering, or
lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC.
(pp) None of the Intrepid Parties has taken, directly or indirectly, any action designed to or that would constitute or that might
reasonably be expected to cause or result in, under the Exchange Act or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares.
All of the representations, warranties, obligations and agreements of Intrepid Mining contained in this Agreement shall terminate, and be of no further
force or effect, as of the execution and delivery of the Exchange Agreement by the Company and Intrepid Mining.
2.
Agreements to Sell
and Purchase
. The Company hereby agrees to sell to the several Underwriters, and each Underwriter, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees, severally and not
jointly, to purchase from the Company the respective number of Firm Shares (subject to such adjustments to eliminate fractional shares as you may determine) set forth in Schedule I hereto opposite its name at
$
[
]
a share (the “
Purchase Price
”).
On the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, the Company agrees to sell to the Underwriters the Additional Shares, and the Underwriters shall have the right to
purchase, severally and not jointly, up to
[
]
Additional Shares at the Purchase Price. You may exercise this right on behalf of the Underwriters in whole or from
time to time in part by giving written notice not later than 30 days
12
after the date of this Agreement. Any exercise notice shall specify the number of Additional Shares to be purchased by the Underwriters and the date on which
such shares are to be purchased. Each purchase date must be at least one business day after the written notice is given and may not be earlier than the closing date for the Firm Shares nor later than ten business days after the date of such notice.
Additional Shares may be purchased as provided in Section 4 hereof solely for the purpose of covering over-allotments made in connection with the offering of the Firm Shares. On each day, if any, that Additional Shares are to be purchased (an
“
Option Closing Date
”), each Underwriter agrees, severally and not jointly, to purchase the number of Additional Shares (subject to such adjustments to eliminate fractional shares as you may determine) that bears the same proportion
to the total number of Additional Shares to be purchased on such Option Closing Date as the number of Firm Shares set forth in Schedule I hereto opposite the name of such Underwriter bears to the total number of Firm Shares.
3.
Terms of Public Offering
. The Company is advised by you that the Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have become effective as in your judgment is advisable. The Company is further advised by you that the Shares are to be offered to the public initially at
$
[
]
a share (the “
Public Offering Price
”) and to certain dealers selected by you at a price that represents a concession not in excess of
$
[
]
a share under the Public Offering Price, and that any Underwriter may allow, and such dealers may reallow, a concession, not in excess of
$
[
]
a share, to any Underwriter or to certain other dealers.
4.
Payment and Delivery
. Payment for the Firm Shares shall be made to the Company in Federal or other funds immediately available in New York City against delivery of such Firm Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on [
] [__], 2008, or at such other time on the same or such other date, not later than
[
] [__], 2008
[5 business days after date inserted above]
, as shall be designated in writing by you. The time and date of such payment are hereinafter referred to
as the “
Closing Date
.”
Payment for any Additional Shares shall be made to the Company in Federal or other funds
immediately available in New York City against delivery of such Additional Shares for the respective accounts of the several Underwriters at 10:00 a.m., New York City time, on the date specified in the corresponding notice described in
Section 2 or at such other time on the same or on such other date, in any event not later than [
] [__], 2008
[10 business days after expiration of over-allotment
option]
, as shall be designated in writing by you.
The Firm Shares and Additional Shares shall be registered in such names and in such
denominations as you shall request in writing not later than one full business day prior to the Closing Date or the applicable Option Closing Date, as
13
the case may be. The Firm Shares and Additional Shares shall be delivered to you on the Closing Date or an Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable in connection with the transfer of the Shares to the Underwriters duly paid, against payment of the Purchase Price therefor.
5.
Conditions to the Underwriters’ Obligations
. The obligations of the Company to sell the Shares to the Underwriters and the several
obligations of the Underwriters to purchase and pay for the Shares on the Closing Date or the applicable Option Closing Date are subject to the condition that the Registration Statement shall have become effective not later than [__:__] p.m. (New
York City time) on the date hereof.
The several obligations of the Underwriters are subject to the following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall any notice have been given of any intended or potential downgrading or of any
review for a possible change that does not indicate the direction of the possible change, in the rating accorded any of the securities of the Company or any of the Intrepid Subsidiaries by any “nationally recognized statistical rating
organization,” as such term is defined for purposes of Rule 436(g)(2) under the Securities Act; and
(ii) there
shall not have occurred any change, or any development involving a prospective change, in the condition, financial or otherwise, or in the earnings, business or operations of the Intrepid Entities, taken as a whole, from that set forth in the Time
of Sale Prospectus as of the date of this Agreement that, in your judgment, is material and adverse and that makes it, in your judgment, impracticable or inadvisable to market the Shares on the terms and in the manner contemplated in the Time of
Sale Prospectus.
(b) The Underwriters shall have received on the Closing Date (i) a certificate dated the Closing Date and signed by
each of the Managers of Intrepid Mining and (ii) a certificate dated the Closing Date and signed by each of the Chairman of the Board and Chief Executive Officer and the Executive Vice President of Technology of the Company, in each case to the
effect set forth in Section 5(a)(i) above, to the effect that the representations and warranties of Intrepid Mining and the Company, respectively, contained in this Agreement are true and correct as of the Closing Date, to the effect that each
of Intrepid Mining and the Company, respectively, has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied hereunder on
14
or before the Closing Date and to such other matters as the Underwriters may reasonably request. The officers signing and delivering such certificates may
rely upon the best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an
opinion of Holme Roberts & Owen LLP, outside counsel for the Company, dated the Closing Date, in the form attached hereto as Exhibit C.
(d) The Underwriters shall have received on the Closing Date an opinion of Andrews Kurth LLP, counsel for the Underwriters, dated the Closing Date, covering the matters set forth in Exhibit B hereto, in form and substance satisfactory to
the Underwriters.
(e) The opinion of Holme Roberts & Owen LLP described in Section 5(c) above shall be rendered to the
Underwriters at the request of the Company and shall so state therein.
(f) The Underwriters shall have received, on each of the date
hereof and the Closing Date, a letter dated the date hereof or the Closing Date, as the case may be, in form and substance satisfactory to the Underwriters, from each of KPMG LLP and Hein & Associates LLP, each independent public
accountants, containing statements and information of the type ordinarily included in accountants’ “comfort letters” to underwriters with respect to the financial statements and certain financial information contained in the
Registration Statement, the Time of Sale Prospectus and the Prospectus;
provided
that the letters delivered on the Closing Date shall use a “cut-off date” not earlier than the date hereof.
(g) The “lock-up” agreements, each substantially in the form of Exhibit A hereto, between you and certain shareholders, officers and directors
of the Company, relating to sales and certain other dispositions of shares of Common Stock or certain other securities, delivered to you on or before the date hereof, shall be in full force and effect on the Closing Date.
(h) The transactions described in the Registration Statement, the Time of Sale Prospectus and the Prospectus under the caption “The Formation
Transactions” shall, with the exception of the payment of the “formation distribution” described therein, have been consummated on or prior to the Closing Date.
The several obligations of the Underwriters to purchase Additional Shares hereunder are subject to the delivery to you on the applicable Option Closing
Date of such documents as you may reasonably request with respect to the good standing of the Company, the due authorization and issuance of the Additional Shares to be sold on such Option Closing Date and other matters related to the issuance of
such Additional Shares.
15
6.
Covenants of the Company
. The Company covenants with each Underwriter as follows:
(a) To furnish to you, without charge,
[
]
signed copies of the
Registration Statement (including exhibits thereto) and for delivery to each other Underwriter a conformed copy of the Registration Statement (without exhibits thereto) and to furnish to you in New York City, without charge, prior to 10:00 a.m.
New York City time on the business day next succeeding the date of this Agreement and during the period mentioned in Section 6(e) or 6(f) below, as many copies of the Time of Sale Prospectus, the Prospectus and any supplements and amendments
thereto or to the Registration Statement as you may reasonably request.
(b) Before amending or supplementing the Registration Statement,
the Time of Sale Prospectus or the Prospectus, to furnish to you a copy of each such proposed amendment or supplement and not to file any such proposed amendment or supplement to which you reasonably object, and to file with the Commission within
the applicable period specified in Rule 424(b) under the Securities Act any prospectus required to be filed pursuant to such Rule.
(c) To furnish to you a copy of each proposed free writing prospectus including electronic road shows to be prepared by or on behalf of, used by, or referred to by the Company and not to use or refer to any proposed free writing prospectus
to which you reasonably object.
(d) Not to take any action that would result in an Underwriter or the Company being required to file with
the Commission pursuant to Rule 433(d) under the Securities Act a free writing prospectus prepared by or on behalf of the Underwriter that the Underwriter otherwise would not have been required to file thereunder.
(e) If the Time of Sale Prospectus is being used to solicit offers to buy the Shares at a time when the Prospectus is not yet available to prospective
purchasers and any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Time of Sale Prospectus in order to make the statements therein, in the light of the circumstances, not misleading, or if any
event shall occur or condition exist as a result of which the Time of Sale Prospectus conflicts with the information contained in the Registration Statement then on file, or if, in the opinion of counsel for the Underwriters, it is necessary to
amend or supplement the Time of Sale Prospectus to comply with applicable law, forthwith to prepare, file with the Commission and furnish, at its own expense, to the Underwriters and to any dealer upon request, either amendments or supplements to
the Time of Sale Prospectus so that the statements in the Time of Sale Prospectus as so amended or supplemented will not, in the light of the circumstances when the Time of Sale Prospectus is delivered to a prospective purchaser, be misleading or so
that the Time of Sale Prospectus, as amended or
16
supplemented, will no longer conflict with the Registration Statement, or so that the Time of Sale Prospectus, as amended or supplemented, will comply with
applicable law.
(f) If, during such period after the first date of the public offering of the Shares as in the opinion of counsel for the
Underwriters the Prospectus (or in lieu thereof the notice referred to in Rule 173(a) of the Securities Act) is required by law to be delivered in connection with sales by an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus (or in lieu thereof the notice referred to in Rule 173(a) of the Securities Act) is
delivered to a purchaser, not misleading, or if, in the opinion of counsel for the Underwriters, it is necessary to amend or supplement the Prospectus to comply with applicable law, forthwith to prepare, file with the Commission and furnish, at its
own expense, to the Underwriters and to the dealers (whose names and addresses you will furnish to the Company) to which Shares may have been sold by you on behalf of the Underwriters and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances when the Prospectus (or in lieu thereof the notice referred to in Rule 173(a) of the Securities Act) is
delivered to a purchaser, be misleading or so that the Prospectus, as amended or supplemented, will comply with applicable law.
(g)
Promptly from time to time to take such action as you may reasonably request to qualify the Shares for offering and sale under the securities laws of such jurisdictions as you may reasonably request and to comply with such laws so as to permit the
continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Shares, provided that in connection therewith the Company shall not be required to qualify as a foreign corporation
or to file a general consent to service of process in any jurisdiction.
(h) To make generally available to the Company’s security
holders and to you as soon as practicable an earnings statement covering a period of at least twelve months beginning with the first fiscal quarter of the Company occurring after the date of this Agreement which shall satisfy the provisions of
Section 11(a) of the Securities Act and the rules and regulations of the Commission thereunder.
(i) To comply with all applicable
securities and other laws, rules and regulations in each jurisdiction in which the Directed Shares are offered in connection with the Directed Share Program.
(j) Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, to pay or cause to be paid all
17
expenses incident to the performance of its obligations under this Agreement, including: (i) the fees, disbursements and expenses of the Intrepid
Entities’ outside counsel, the Intrepid Entities’ accountants in connection with the registration and delivery of the Shares under the Securities Act and all other fees or expenses in connection with the preparation and filing of the
Registration Statement, any Preliminary Prospectus, the Time of Sale Prospectus, the Prospectus, any free writing prospectus prepared by or on behalf of, used by, or referred to by the Company and amendments and supplements to any of the foregoing,
including all printing costs associated therewith, and the mailing and delivering of copies thereof to the Underwriters and dealers, in the quantities hereinabove specified, (ii) all costs and expenses related to the transfer and delivery of
the Shares to the Underwriters, including any transfer or other taxes payable thereon, (iii) the cost of printing or producing any Blue Sky or Legal Investment memorandum in connection with the offer and sale of the Shares under state
securities laws and all expenses in connection with the qualification of the Shares for offer and sale under state securities laws as provided in Section 6(g) hereof, including filing fees and the reasonable fees and disbursements of outside
counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky or Legal Investment memorandum, (iv) all filing fees and the reasonable fees and disbursements of outside counsel to the Underwriters
incurred in connection with the review and qualification of the offering of the Shares by the Financial Industry Regulatory Authority, (v) all fees and expenses in connection with the preparation and filing of the registration statement on Form
8-A relating to the Common Stock and all costs and expenses incident to listing the Shares on the New York Stock Exchange, (vi) the cost of printing certificates representing the Shares, (vii) the costs and charges of any transfer agent,
registrar or depositary, (viii) the costs and expenses of the Company relating to investor presentations on any “road show” undertaken in connection with the marketing of the offering of the Shares, including, without limitation,
expenses associated with the preparation or dissemination of any electronic road show, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show
presentations with the prior approval of the Intrepid Parties, travel and lodging expenses of the representatives and officers of the Intrepid Parties and any such consultants, and one-half of the cost of any aircraft chartered in connection with
the road show, (ix) the document production charges and expenses associated with printing this Agreement, (x) all reasonable fees and disbursements of outside counsel incurred by the Underwriters in connection with the Directed Share
Program and stamp duties, similar taxes or duties or other taxes, if any, incurred by the Underwriters in connection with the Directed Share Program, (xi) all expenses in connection with any offer and sale of the Shares outside of the United
States, including filing fees and the reasonable fees and disbursements of outside counsel for the Underwriters in connection with offers and sales outside of the United States and (xii) all other costs and expenses incident to the performance
of the obligations of the Intrepid
18
Parties hereunder for which provision is not otherwise made in this Section. It is understood, however, that except as
provided in this Section, Section 8 entitled “Indemnity and Contribution”, Section 9 entitled “Directed Share Program Indemnification
”
and the last paragraph of Section 11 below, the Underwriters will
pay all of their costs and expenses, including fees and disbursements of their counsel, stock transfer taxes payable on resale of any of the Shares by them and any advertising expenses connected with any offers they may make.
The Company also covenants with each Underwriter that, without the prior written consent of Goldman, Sachs & Co. (“
Goldman
Sachs
”) on behalf of the Underwriters, it will not, during the period ending 180 days after the date of the Prospectus, (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or
(2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or such other securities, in cash or otherwise or (3) file any registration statement with the Commission relating to the offering of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock.
The restrictions contained in the preceding paragraph shall not apply to (a) the Shares
to be sold hereunder, (b) the issuance by the Company of shares of Common Stock upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof and described in the Registration Statement, the Time of
Sale Prospectus or the Prospectus, (c) the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of Common Stock,
provided
that such plan does not provide for the transfer of Common
Stock during the restricted period, (d) the issuance of options not exercisable during the restricted period pursuant to the Intrepid Potash, Inc. 2008 Equity Incentive Plan described in the Registration Statement, the Time of Sale Prospectus
or the Prospectus, (e) the filing of a registration statement on Form S-8 to register Common Stock under the Intrepid Potash, Inc. 2008 Equity Incentive Plan described in the Registration Statement, the Time of Sale Prospectus or the Prospectus
and (f) the shares of Common Stock issued pursuant to the “formation distribution” as described in the Registration Statement, the Time of Sale Prospectus and the Prospectus under the caption “The Formation Transactions.”
Notwithstanding the foregoing, if (1) during the last 17 days of the restricted period the Company issues an earnings release or material news or a material event relating to the Company occurs; or (2) prior to the expiration of the
restricted period, the Company announces that it will release earnings results during the 16-day period beginning on the last day of the restricted period, the restrictions
19
imposed by this agreement shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the
occurrence of the material news or material event unless Goldman Sachs waives, in writing, such extension. The Company shall promptly notify Goldman Sachs of any earnings release, news or event that may give rise to an extension of the restricted
period.
7.
Covenants of the Underwriters
. Each Underwriter severally covenants with the Company not to take any action that would
result in the Company being required to file with the Commission under Rule 433(d) a free writing prospectus prepared by or on behalf of such Underwriter that otherwise would not be required to be filed by the Company thereunder, but for the action
of the Underwriter.
8.
Indemnity and Contribution
. (a) The Company will indemnify and hold harmless each Underwriter against
any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus, the Time of Sale Prospectus or the Prospectus, or any amendment or supplement thereto, any issuer
free writing prospectus as defined in Rule 433(h) under the Securities Act or any “issuer information” filed or required to be filed pursuant to Rule 433(d) under the Securities Act, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter
in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the Time of Sale Prospectus or the Prospectus, or any amendment or supplement thereto,
or any issuer free writing prospectus as defined in Rule 433(h) under the Securities Act, in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives expressly for use therein.
(b) Each Underwriter will, severally and not jointly, indemnify and hold harmless the Company against any losses, claims, damages or
liabilities to which the Company may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, any Preliminary Prospectus, the Time of Sale Prospectus or the Prospectus, or any amendment or supplement thereto, or any issuer free writing prospectus as defined in Rule 433(h)
under the
20
Securities Act, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any
Preliminary Prospectus, the Time of Sale Prospectus or the Prospectus, or any amendment or supplement thereto, or any issuer free writing prospectus as defined in Rule 433(h) under the Securities Act, in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through the Representatives expressly for use therein; and will reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or
defending any such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under such subsection. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to
such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case
subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or
compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party.
(d) If the
indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions in respect
21
thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Shares.
If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under subsection (c) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received
by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Underwriters on the other and the parties’ relative intent, knowledge, access to information and opportunity to correct
or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this subsection (d) were determined by pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (d). The amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this subsection (d), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters’ obligations in this
subsection (d) to contribute are several in proportion to their respective underwriting obligations and not joint.
22
(e) The obligations of the Company under this Section 8 shall be in addition to any liability which
the Company may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Securities Act and each broker-dealer affiliate of any Underwriter; and the
obligations of the Underwriters under this Section 8 shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company
(including any person who, with his or her consent, is named in the Registration Statement as about to become a director of the Company) and to each person, if any, who controls the Company within the meaning of the Securities Act.
(f) The indemnity and contribution provisions contained in this Section 8 and the representations, warranties and other statements of the Company
contained in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Underwriter, any person controlling any Underwriter or
any affiliate of any Underwriter, or by or on behalf of the Company, its officers or directors or any person controlling the Company and (iii) acceptance of and payment for any of the Shares.
9.
Directed Share Program Indemnification.
(a) The Company will indemnify and hold harmless Merrill Lynch, each person, if any, who controls
Merrill Lynch within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act and each affiliate of Merrill Lynch within the meaning of Rule 405 of the Securities Act (“
Merrill Lynch
Entities
”) against any losses, claims, damages or liabilities, joint or several, to which Merrill Lynch Entities may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) (i) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any material prepared by or with the consent of the Company for distribution to Participants in connection
with the Directed Share Program, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading (ii) are caused by the
failure of any Participant to pay for and accept delivery of Directed Shares that the Participant agreed to purchase; (iii) arise out of the violation of any applicable laws or regulations of foreign jurisdictions where Directed Shares have
been offered; or (iv) are related to, arise out of, or in connection with the Directed Share Program, and will reimburse the Merrill Lynch Entities for any legal or other expenses reasonably incurred by the Merrill Lynch Entities in connection
with investigating or defending any such action or claim as such expenses are incurred.
(b) Promptly after receipt by the Merrill Lynch
Entity seeking indemnity under subsection (a) above of notice of the commencement of any action, the Merrill Lynch Entity shall, if a claim in respect thereof is to be made
23
against the Company under subsection (a) above, notify the Company in writing of the commencement thereof; but the omission so to notify the Company
shall not relieve it from any liability which it may have to the Merrill Lynch Entities otherwise than under such subsection. In case any such action shall be brought against the Merrill Lynch Entities and it shall notify the Company of the
commencement thereof, the Company shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to the Merrill
Lynch Entities (who shall not, except with the consent of the Merrill Lynch Entities, be counsel to the Company), and, after notice from the Company to the Merrill Lynch Entities of its election so to assume the defense thereof, the Company shall
not be liable to the Merrill Lynch Entities under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by the Merrill Lynch Entities, in connection with the defense thereof other than
reasonable costs of investigation. The Company shall not, without the written consent of the Merrill Lynch Entities, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution may be sought hereunder (whether or not the Merrill Lynch Entities are an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes
an unconditional release of the Merrill Lynch Entities from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of the Merrill
Lynch Entities.
(c) If the indemnification provided for in this Section 9 is unavailable to or insufficient to hold harmless the
Merrill Lynch Entities under subsection (a) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then the Company shall contribute to the amount paid or payable by the Merrill Lynch
Entities as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Merrill Lynch Entities on the
other hand from the offering of the Directed Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the Merrill Lynch Entities failed to give the notice required under subsection
(b) above, then the Company shall contribute to such amount paid or payable by the Merrill Lynch Entities in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand
and the Merrill Lynch Entities on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Merrill Lynch Entities on the other in connection with the offering of the Directed Shares shall be deemed to be in the same proportion as the total net proceeds from the offering of
24
the Directed Shares (before deducting expenses) received by the Company and the total underwriting discounts and commissions received by the Merrill Lynch
Entities for the Directed Shares, bear to the aggregate Public Offering Price of the Directed Shares. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Merrill Lynch Entities on the other and the parties’ relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and the Merrill Lynch Entities agree that it would not be just and equitable if contribution pursuant to this subsection (c) were determined by pro rata allocation (even
if the Merrill Lynch Entities were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (c). The amount paid or payable by the
Merrill Lynch Entities as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (c) shall be deemed to include any legal or other expenses reasonably incurred by the Merrill
Lynch Entities in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (c), no Merrill Lynch Entity shall be required to contribute any amount in excess of the amount by which the
total price at which the Directed Shares distributed to the public were offered to the public exceeds the amount of any damages which such Merrill Lynch Entity has otherwise been required to pay by reason of such untrue or alleged untrue statement
or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(d) The indemnity and contribution provisions contained in this Section 9 shall remain operative and in full force
and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Merrill Lynch Entity or the Company, its officers or directors or any person controlling the Company and
(iii) acceptance of and payment for any of the Directed Shares.
10.
Termination
. The Underwriters may terminate this Agreement
by notice given by you to the Company, if after the execution and delivery of this Agreement and prior to the Closing Date (i) trading generally shall have been suspended or materially limited on, or by, as the case may be, any of the New York
Stock Exchange, the American Stock Exchange or the NASDAQ Global Market, (ii) trading of any securities of the Company shall have been suspended on any exchange or in any over-the-counter market, (iii) a material disruption in securities
settlement, payment or clearance services in the United States shall have occurred, (iv) any moratorium on commercial banking activities shall have been declared by Federal or New York State authorities or (v) there shall have
25
occurred any outbreak or escalation of hostilities, or any change in financial markets or any calamity or crisis that, in your judgment, is material and
adverse and which, singly or together with any other event specified in this clause (v), makes it, in your judgment, impracticable or inadvisable to proceed with the offer, sale or delivery of the Shares on the terms and in the manner
contemplated in the Time of Sale Prospectus or the Prospectus.
11.
Effectiveness; Defaulting Underwriters
. This Agreement shall
become effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or an Option Closing Date, as the
case may be, any one or more of the Underwriters shall fail or refuse to purchase Shares that it has or they have agreed to purchase hereunder on such date, and the aggregate number of Shares which such defaulting Underwriter or Underwriters agreed
but failed or refused to purchase is not more than one-tenth of the aggregate number of the Shares to be purchased on such date, the other Underwriters shall be obligated severally in the proportions that the number of Firm Shares set forth opposite
their respective names in Schedule I hereto bears to the aggregate number of Firm Shares set forth opposite the names of all such non-defaulting Underwriters, or in such other proportions as you may specify, to purchase the Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date;
provided
that in no event shall the number of Shares that any Underwriter has agreed to purchase pursuant to this
Agreement be increased pursuant to this Section 11 by an amount in excess of one-ninth of such number of Shares without the written consent of such Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Firm Shares to be purchased on such date, and arrangements satisfactory to you and the Company
for the purchase of such Firm Shares are not made within 36 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter or the Company. In any such case either you or the Company shall
have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement, in the Time of Sale Prospectus, in the Prospectus or in any other documents or
arrangements may be effected. If, on an Option Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Additional Shares and the aggregate number of Additional Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Additional Shares to be purchased on such Option Closing Date, the non-defaulting Underwriters shall have the option to (i) terminate their obligation hereunder to purchase the Additional Shares to be sold
on such Option Closing Date or (ii) purchase not less than the number of Additional Shares that such non-defaulting Underwriters would have been obligated to purchase in the absence of such default. Any action taken under this paragraph shall
not relieve any defaulting
26
Underwriter from liability in respect of any default of such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of them, because of any failure or refusal on the part of the Intrepid Parties to
comply with the terms or to fulfill any of the conditions of this Agreement, other than by reason of a default by any of the Underwriters described in the preceding paragraph, or if for any reason the Intrepid Parties shall be unable to perform
their respective obligations under this Agreement, the Intrepid Parties will reimburse the Underwriters or such Underwriters as have so terminated this Agreement with respect to themselves, severally, for all out-of-pocket expenses (including the
fees and disbursements of their outside counsel) reasonably incurred by such Underwriters in connection with this Agreement or the offering contemplated hereunder.
12.
Entire Agreement
. (a) This Agreement, together with any contemporaneous written agreements and any prior written agreements (to the extent not superseded by this Agreement) that relate to the offering
of the Shares, represents the entire agreement between the Intrepid Parties and the Underwriters with respect to the preparation of any Preliminary Prospectus, the Time of Sale Prospectus, the Prospectus, the conduct of the offering, and the
purchase and sale of the Shares.
(b) Each of the Intrepid Parties acknowledges that in connection with the offering of the Shares:
(i) the Underwriters have acted at arms length, are not agents of, and owe no fiduciary duties to, the Intrepid Parties or any other person, (ii) the Underwriters owe the Intrepid Parties only those duties and obligations set forth in this
Agreement and prior written agreements (to the extent not superseded by this Agreement), if any, and (iii) the Underwriters may have interests that differ from those of the Intrepid Parties. Each of the Intrepid Parties waives to the full
extent permitted by applicable law any claims it may have against the Underwriters arising from an alleged breach of fiduciary duty in connection with the offering of the Shares.
13.
Counterparts
. This Agreement may be signed in two or more counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
14.
Applicable Law
. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York.
15.
Headings
. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part of this Agreement.
27
16.
Notices.
All communications hereunder shall be in writing and effective only upon receipt and
if to the Underwriters shall be delivered, mailed or sent to you in care of Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004, Attention: Registration Department; Merrill Lynch, Pierce, Fenner & Smith Incorporated, 4
World Financial Center, New York, New York 10080, attention of Equity Capital Markets with a copy to the attention of Global Origination Count; and Morgan Stanley & Co. Incorporated, 1585 Broadway, New York, New York 10036, Attention:
Equity Syndicate Desk, with a copy to the Legal Department; if to either or both of the Intrepid Parties shall be delivered, mailed or sent to 700 17th Street, Suite 1700, Denver, Colorado 80202, Attention: Chief Executive Officer.
In accordance with the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), the Underwriters are
required to obtain, verify and record information that identifies their respective clients, including the Intrepid Entities, which information may include the name and address of their respective clients, as well as other information that will allow
the Underwriters to properly identify their respective clients.
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Very truly yours,
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INTREPID POTASH, INC.
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By:
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Name:
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Title:
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INTREPID MINING LLC
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By:
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Name:
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Title:
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28
Accepted as of the date hereof
Goldman, Sachs & Co.
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated
Acting severally on behalf of themselves and
the several
Underwriters named in
Schedule I hereto
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By:
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Goldman, Sachs & Co.
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By:
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Name:
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Title:
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By:
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Merrill Lynch, Pierce, Fenner & Smith Incorporated
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By:
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Name:
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Title:
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By:
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Morgan Stanley & Co. Incorporated
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By:
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Name:
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Title:
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29
SCHEDULE I
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Underwriter
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Number of Firm Shares
To Be Purchased
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Goldman, Sachs & Co.
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Merrill Lynch, Pierce, Fenner & Smith Incorporated
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Morgan Stanley & Co. Incorporated
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RBC Capital Markets Corporation
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BMO Capital Markets Corp.
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Total:
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II-1
SCHEDULE II
All free writing prospectuses filed by the Company
under Rule 433(d) of the Securities Act
[None]
III-1
SCHEDULE III
Credit Documents
1. Fourth Amendment of Third Amended and Restated Credit Agreement, by and among
Intrepid Mining, Intrepid Potash—Moab, LLC, Intrepid Potash-New Mexico, LLC, Intrepid Potash-Wendover, LLC, Intrepid Potash, Inc., and U.S. Bank National Association.
2. Security Agreement (Membership Interests) between Intrepid Potash, Inc. and U.S. Bank National Association.
3. Security Agreement (Accounts, General Intangibles, Equipment and Inventory) between Intrepid Potash, Inc. and U.S. Bank National Association.
III-1
EXHIBIT A
[FORM OF LOCK-UP LETTER]
____________, 2008
Goldman, Sachs & Co.
Merrill Lynch, Pierce, Fenner, &
Smith Incorporated
Morgan Stanley & Co. Incorporated
RBC Capital Markets Corporation
BMO Capital Markets Corp.
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Ladies and Gentlemen:
The undersigned understands that Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner, & Smith Incorporated, and Morgan
Stanley & Co. Incorporated (together, the “
Representatives
”) propose to enter into an Underwriting Agreement (the “
Underwriting Agreement
”) with Intrepid Potash, Inc., a Delaware corporation (the
“
Company
”), providing for the public offering (the “
Public Offering
”) by the several Underwriters, including the Representatives (the “
Underwriters
”), of
[
] shares (the “
Shares
”) of the Common Stock, par value $0.001 per share, of the Company (the “
Common Stock
”).
To induce the Underwriters that may participate in the Public Offering to continue their efforts in connection with the Public Offering, the undersigned
hereby agrees that, without the prior written consent of Goldman, Sachs & Co. on behalf of the Underwriters, it will not, during the period commencing on the date of the Underwriting Agreement and ending 180 days after the date of the final
prospectus relating to the Public Offering (the “
Prospectus
”), (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or (2) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (a) transactions relating to shares of Common Stock or other securities acquired in open market transactions after the completion of the Public Offering,
provided
that no filing
under Section 16(a) of the Securities Exchange Act of 1934, as amended (the “
Exchange Act
”), shall be required or shall be voluntarily
made in connection with subsequent sales of Common Stock or other securities acquired in such open market transactions, (b) transfers of shares of Common Stock or any security convertible into Common Stock as a bona fide gift,
(c) transfers of shares of Common Stock or any security convertible into Common Stock to the undersigned’s affiliates or to any investment fund or other entity controlled or managed by the undersigned, (d) transfers of shares of
Common Stock or any security convertible into Common Stock to a trust, partnership, limited liability company or other entity, all of the beneficial interests of which are held, directly or indirectly, by the undersigned, or (e) distributions
of shares of Common Stock or any security convertible into Common Stock to limited partners, members or stockholders of the undersigned;
provided
that in the case of any transfer or distribution pursuant to clause (b) through (e),
(i) each transferee, donee or distributee shall sign and deliver a lock-up letter substantially in the form of this letter and (ii) no filing under Section 16(a) of the Exchange Act, reporting a reduction in beneficial ownership of
shares of Common Stock, shall be required or shall be voluntarily made during the restricted period referred to in the foregoing sentence;
provided further
that in the case of any transfer or distribution pursuant to clause (c) through
(e), such transfer or distribution shall not involve a disposition for value, or (f) the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of Common Stock,
provided
that such plan
does not provide for the transfer of Common Stock during the restricted period. In addition, the undersigned agrees that, without the prior written consent of Goldman, Sachs & Co. on behalf of the Underwriters, it will not, during the
period commencing on the date hereof and ending 180 days after the date of the Prospectus, make any demand for or exercise any right with respect to, the registration of any shares of Common Stock or any security convertible into or exercisable or
exchangeable for Common Stock; provided that, if applicable, the undersigned may issue to the Company a notice of demand pursuant to the Registration Rights Agreement, dated April __, 2008, by and among the Company and Harvey Operating and
Production Company, Intrepid Production Corporation and Potash Acquisition, LLC so long as no registration statement is filed during the restricted period. The undersigned also agrees and consents to the entry of stop transfer instructions with the
Company’s transfer agent and registrar against the transfer of the undersigned’s shares of Common Stock except in compliance with the foregoing restrictions.
If:
(1) during the last 17 days of the restricted period the Company issues an earnings release or
material news or a material event relating to the Company occurs; or
2
(2) prior to the expiration of the restricted period, the Company announces that it will release earnings
results during the 16-day period beginning on the last day of the restricted period;
the restrictions imposed by this agreement shall continue to apply
until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event, unless Goldman, Sachs & Co. waives, in writing, such extension.
The undersigned shall not engage in any transaction that may be restricted by this agreement during the 34-day period beginning on the last day of the
restricted period unless the undersigned requests and receives prior written confirmation from the Company or Goldman, Sachs & Co. that the restrictions imposed by this agreement have expired.
The undersigned understands that the Company and the Underwriters are relying upon this agreement in proceeding toward consummation of the Public
Offering. The undersigned further understands that this agreement is irrevocable and shall be binding upon the undersigned’s heirs, legal representatives, successors and assigns.
Whether or not the Public Offering actually occurs depends on a number of factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to negotiation between the Company and the Underwriters.
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Very truly yours,
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[Officer / Director / 5% Stockholder] [Address]
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(Name)
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(Address)
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3
Exhibit 3.3
FORM OF
RESTATED CERTIFICATE OF INCORPORATION
OF
INTREPID POTASH, INC.
Intrepid Potash, Inc., a Delaware corporation, hereby certifies as follows:
A. The name of the corporation is Intrepid Potash, Inc. The corporation was incorporated under the name Intrepid Potash, Inc. and the original
Certificate of Incorporation was filed with the Delaware Secretary of State on November 19, 2007.
B. This Restated Certificate of
Incorporation amends and restates the Certificate of Incorporation in its entirety, and has been duly adopted in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware.
C. The text of the Certificate of Incorporation is amended and restated to read in its entirety as follows.
ARTICLE I
NAME
The name of the corporation (the “
Corporation
”) is Intrepid Potash, Inc.
ARTICLE II
REGISTERED ADDRESS, AGENT
The address of the Corporation’s current registered office is 1209 Orange Street, Wilmington, Delaware, 19801, in the County of New Castle. The name
of the Corporation’s registered agent at that address is The Corporation Trust Company.
ARTICLE III
PURPOSE
The purpose of the
Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware (the “
DGCL
”).
ARTICLE IV
AUTHORIZED SHARE CAPITAL
Section 4.01
Total Authorized Shares
. The total number of shares of capital stock that the Corporation shall have authority to issue is
120,000,000, which shall be divided into 100,000,000 shares of common stock, par value $0.001 (the “
Common Stock
”), and 20,000,000 shares of preferred stock, par value $0.001 per share (the “
Preferred Stock
”).
Section 4.02
Shares Non-Assessable
. The capital stock of the Corporation shall not be assessable.
The private property of the stockholders shall not be liable for the debts, obligations or liabilities of the Corporation.
Section 4.03
Preferred Stock
. The Board of Directors is authorized, subject to any limitations prescribed by applicable law, to provide from time to time for the issuance of shares of Preferred Stock in one or more series, and by filing a certificate
pursuant to the DGCL (a “
Preferred Stock Designation
”), to establish the voting powers, if any, and the designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations and
restrictions thereof, of each series of Preferred Stock including the following:
(a) the number of shares of that series,
which may subsequently be increased or decreased (but not below the number of shares of that series then outstanding) by resolution of the Board of Directors, and the distinctive serial designation thereof;
(b) the voting powers, full or limited, if any, of the shares of that series and the number of votes per share generally or upon a
specified event;
(c) the rights in respect of dividends on the shares of that series, whether dividends shall be cumulative
and, if so, from which date or dates and the relative rights or priority, if any, of payment of dividends on shares of that series and any limitations, restrictions or conditions on the payment of dividends;
(d) the relative amounts, and the relative rights or priority, if any, of payment in respect of shares of that series, which the holders
of the shares of that series shall be entitled to receive upon any liquidation, dissolution or winding up of the Corporation;
(e) the terms and conditions (including the price or prices, which may vary under different conditions and at different redemption or purchase dates), if any, upon which all or any part of the shares of that series may be redeemed or
purchased by the Corporation, and any limitations, restrictions or conditions on such redemption or purchase;
(f) the
terms, if any, of any purchase, retirement or sinking fund to be provided for the shares of that series;
(g) the terms, if
any, upon which the shares of that series shall be convertible into or exchangeable for shares of any other class, classes or series, or other securities, whether or not issued by the Corporation;
(h) the restrictions, limitations and conditions, if any, upon issuance of indebtedness of the Corporation so long as any shares of that
series are outstanding; and
2
(i) any other preferences and relative, participating, optional or other rights and
limitations that are not inconsistent with law, this Article IV or any resolution of the Board of Directors pursuant to this Article IV.
All shares of any one series of Preferred Stock shall be alike in all respects. Except to the extent otherwise expressly provided in the Preferred Stock Designation for a series of Preferred Stock, and except as may be required by
applicable law, the holders of shares of such series shall have no voting rights. Further, unless otherwise expressly provided in the Preferred Stock Designation for a series of Preferred Stock, no consent or vote of the holders of shares of
Preferred Stock or any series thereof shall be required for any amendment to this Restated Certificate of Incorporation that would increase the number of authorized shares of Preferred Stock or the number of authorized shares of any series thereof
or decrease the number of authorized shares of Preferred Stock or the number of authorized shares of any series thereof (but not below the number of authorized shares of Preferred Stock of such series, as the case may be, then outstanding). Except
as may be provided by the Board of Directors in a Preferred Stock Designation or by applicable law, shares of any series of Preferred Stock that have been redeemed (whether through the operation of a sinking fund or otherwise) or purchased by the
Corporation, or which, if convertible or exchangeable, have been converted into or exchanged for shares of stock of any other class or series shall have the status of authorized and unissued shares of Preferred Stock and may be reissued as a part of
the series of which they were originally a part or may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors or as part of any other series of Preferred Stock.
ARTICLE V
BOARD OF DIRECTORS
Section 5.01
Classification and Election of Directors
. The business and affairs of the Corporation shall be managed by a Board of
Directors. Except as otherwise provided for or fixed pursuant to the provisions of Article IV of this Restated Certificate of Incorporation relating to the rights of holders of any series or class of Preferred Stock to elect additional directors,
the number of directors constituting the entire board shall be fixed exclusively by the Board of Directors from time to time. The directors (other than those directors elected by the holders of any series or class of Preferred Stock provided for or
fixed pursuant to Article IV hereof) shall be divided as evenly as possible into three classes, designated Class I, Class II and Class III. If the number of directors is not evenly divisible by three, the remaining positions shall be allocated first
to Class III and then to Class II. The initial terms of the Class I Directors shall expire at the first annual meeting of stockholders following the effectiveness of the filing of this Restated Certificate of Incorporation; the initial terms of
the Class II Directors shall expire at the second annual meeting of stockholders following the effectiveness of the filing of this Restated Certificate of Incorporation; and the initial terms of the Class III Directors shall expire at the third
annual meeting of stockholders following the effectiveness of the filing of this Restated Certificate of Incorporation. The directors in office immediately prior to the filing of
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this Restated Certificate of Incorporation shall assign members of the Board of Directors then in office to such Classes at the time the classification of
the Board of Directors becomes effective. At each annual meeting of stockholders of the Corporation, the successors of that class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the third annual
meeting of stockholders of the Corporation following the annual meeting at which they are elected.
Section 5.02
Term and Vacancies
.
A director shall hold office until his or her successor shall be elected and qualified, subject, however, to prior death, resignation, retirement or removal from office. Subject to the rights of holders of any series of Preferred Stock, and except
as otherwise provided by applicable law, any newly created directorship resulting from an increase in the number of directors or any other vacancy in the Board of Directors, however caused, shall be filled only by a majority of the directors then in
office, even though less than a quorum, or by a sole remaining director. Any director elected to fill a newly created directorship or other vacancy shall hold office until the next election of the Class for which such director shall have been chosen
and until such director’s successor has been elected and qualified. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director, except as may be provided in a Preferred Stock
Designation with respect to any additional director elected by the holders of the applicable series of Preferred Stock.
Section 5.03
Removal
. Subject to the rights of the holders of any series of Preferred Stock, any or all of the directors may be removed from the Board of Directors only for cause upon the affirmative vote of holders of a majority of the issued and
outstanding Common Stock.
Section 5.04
Notice of Nominations
. Advance notice of nominations for the election of directors, other
than nominations by the Board of Directors or a committee thereof, shall be given to the Corporation in the manner provided in the Bylaws.
ARTICLE VI
DIRECTOR LIABILITY
To the fullest extent permitted by the DGCL, as now existing or hereafter amended, a director of the Corporation shall not be personally liable to the Corporation or any of its stockholders for monetary damages for
breach of his or her fiduciary duty as a director. Any amendment, modification or repeal of this Article VI shall be prospective only and shall not adversely affect any limitation, right or protection of a director of the Corporation existing under
this Article VI with respect to any act or omission occurring prior to such amendment, modification or repeal.
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ARTICLE VII
INDEMNIFICATION
Without limitation of any right to indemnification or advancement of expenses that
any person may have under the Corporation’s Bylaws or under any other agreement or arrangement, the Corporation shall indemnify and advance expenses to each director and officer of the Corporation to the fullest extent permitted by applicable
law; provided, however, that the Corporation shall not be required to indemnify or advance expenses to any officer or director in connection with any proceeding (or part thereof) initiated by such director or officer, unless such proceeding (or part
thereof) was authorized in the first instance by the Board of Directors. The modification or repeal of this Article VII shall not adversely affect the right to indemnification or advancement of expenses of any director or officer hereunder with
respect to any act or omission occurring prior to such modification or repeal.
ARTICLE VIII
STOCKHOLDER ACTION
Except as provided
in any Preferred Stock Designation, after the Corporation first has a class of securities registered under Section 12(g) of the Securities Exchange Act of 1934, as amended, or its equivalent, any action required or permitted to be taken by the
stockholders of the Corporation must be taken at a duly called annual or special meeting of the stockholders and may not be taken by consent in writing or otherwise.
ARTICLE IX
SPECIAL MEETINGS OF STOCKHOLDERS
Except as otherwise required by law or provided in the Bylaws of the Corporation, and subject to the rights of the holders of any class or series of
shares issued by the Corporation having a preference over the Common Stock as to dividends or upon liquidation to elect directors in certain circumstances, special meetings of the stockholders of the Corporation may be called only by the Board of
Directors pursuant to a resolution approved by the affirmative vote of a majority of the directors then in office and not by any other person.
ARTICLE X
BYLAWS
The Board of Directors shall have the power to adopt, alter, amend or repeal the Bylaws of the Corporation by vote of a majority of the directors then in office.
ARTICLE XI
COMPETITION AND
CORPORATE OPPORTUNITIES
Section 11.01
General Statement
. To the fullest extent permitted by law, none of Intrepid Production
Corp. (“
IPC
”) and Harvey Operating and Production Company (“
HOPCO
”)
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and their Affiliates (whether or not a director, officer or employee of the Corporation except as provided in Section 11.02(b) below) will have any duty
to refrain from engaging directly or indirectly in any investments, business activities or lines of business other than a Potash Opportunity, as defined in Article XII. None of Potash Acquisition, LLC (“
PAL
” and, collectively with
IPC and HOPCO, the “
Original Stockholders
”) and its Affiliates (whether or not such party is also a director, officer or employee of the Corporation except as provided in Section 11.02(b) below) will have any duty to refrain
from engaging directly or indirectly in any investment, business activities or lines of business other than any investment, business activity or line of business for which the activities described in clauses (i) and (ii) of the definition
of “Potash Opportunity” constitute more than 50% of the revenues thereof in any twelve-month period.
Section 11.02
Allocation
of Corporate Opportunities
.
(a) Except as provided in Section 11.02(b); (a) the Corporation renounces any
interest or expectancy that it may have in any potential transaction or opportunity available to any Original Stockholder or its respective Affiliates, as applicable, on the one hand, and the Corporation, on the other hand, other than with respect
to a potential transaction or opportunity from which such Original Stockholder or its Affiliates have a duty to refrain pursuant to Section 11.01; and (b) therefore none of the Original Stockholders or their Affiliates will have any duty
to communicate or offer any corporate opportunity to the Corporation other than an opportunity from which such Original Stockholder or its Affiliates have a duty to refrain pursuant to Section 11.01, and will be entitled to pursue or acquire
any opportunity, other than an opportunity from which such Original Stockholder or its Affiliates have a duty to refrain pursuant to Section 11.01, for itself, and the Corporation will have no right in or to any such opportunity.
(b) Notwithstanding anything in Section 11.02(a), the Corporation is not renouncing any interest or expectancy in any corporate
opportunity that is offered to any Original Stockholder or Affiliate of an Original Stockholder who is also a director, officer, or employee of the Corporation, if (i) such opportunity is expressly offered to such party solely in, and as a
direct result of, his or her capacity as a director, officer or employee of the Corporation, (ii) the Corporation would be permitted to undertake the opportunity under its certificate of incorporation as then in effect, and (iii) the
Corporation has sufficient financial resources to undertake the opportunity as determined by the Board of Directors.
(c)
Any director or officer of the Corporation that fails to offer an opportunity to the Corporation in accordance with this Section 11.02 shall not have committed thereby any breach of fiduciary duty of such director or officer to the Corporation
and its stockholders.
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Section 11.03
Expiration
. The provisions of this Article XI will cease to be of any force or
effect: (a) with respect to IPC, at any time as IPC and its Affiliates cease to own (beneficially or of record), in the aggregate, 5% or more of the then-outstanding Common Stock; (b) with respect to HOPCO, at any time as HOPCO and its
Affiliates cease to own (beneficially or of record), in the aggregate, 5% or more of the then-outstanding Common Stock; and (c) with respect to PAL, at any time as PAL and its Affiliates cease to own (beneficially or of record), in the
aggregate, 10% or more of the then-outstanding Common Stock.
Section 11.04
Deemed Notice
. Any person or entity purchasing or
otherwise acquiring any interest in any shares of the Corporation shall be deemed to have notice and to have consented to the provisions of this Article XI.
Section 11.05
Severability
. The invalidity or unenforceability of any particular provision, or part of any provision, of this Article XI shall not affect the other provisions or parts hereof, and this Article
XI shall be construed in all respects as if such invalid or unenforceable provisions or parts were omitted.
ARTICLE XII
DEFINITIONS
“
Affiliate
” shall mean, with respect to an Original Stockholder, any person that, directly or indirectly, controls, is controlled by, or is under common control with, such Original Stockholder and shall include any
principal, member, director, partner, shareholder, officer, manager, employee or other representative of any of the foregoing (other than the Corporation and any entity that is controlled by the Corporation). For purposes of this definition, the
term “controls,” “is controlled by,” or “is under common control with” means the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by
contract or otherwise.
“
Potash Opportunity
” means (i) the acquisition, ownership, operation, mining, distribution or
sale of potash, potassium, langbeinite, salt or magnesium chloride, or properties containing or prospective for commercial quantities thereof, anywhere in the world, and (ii) the acquisition, ownership or control of equity interests in any
person that owns or engages in any of the businesses set out in (i), if the interests owned or controlled by IPC, HOPCO and their Affiliates exceeds 5% of all of the equity interests in such person.
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ARTICLE XIII
AMENDMENT
This Corporation reserves the right to amend, alter, change or repeal any provision
contained in this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon the stockholders herein are granted subject to this reservation.
ARTICLE XIV
EXISTENCE
The term of the existence of the Corporation shall be perpetual.
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IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been signed this
day of
, 2008.
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INTREPID POTASH, INC.
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By:
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Robert P. Jornayvaz III
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Chief Executive Officer
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Exhibit 3.4
FORM OF
AMENDED AND RESTATED BYLAWS OF
INTREPID POTASH, INC.
(THE “CORPORATION”)
ARTICLE I
OFFICES
Section 1.01
Delaware Office
. The registered office of the Corporation required by the General Corporation Law of the State of Delaware (the
“
DGCL
”) to be maintained in Delaware shall be as set forth in the certificate of incorporation of the Corporation (the “
Certificate of Incorporation
”), unless changed as provided by law.
Section 1.02
Other Offices
. The Corporation may also have an office or offices and keep the books and records of the Corporation, except as
otherwise may be required by law, in such other place or places, either within or outside the State of Delaware, as the Board of Directors of the Corporation (the “
Board
”) may from time to time determine or the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.01
Place of Meetings
. Each meeting of the stockholders of
the Corporation shall be held at such place, either within or outside the State of Delaware, as may be designated in the notice of such meeting, or, if no place is designated in such notice, at the principal office of the Corporation. The Board may,
in its sole discretion, determine that a meeting of stockholders shall not be held at any place, but may instead be held solely by means of remote communications in accordance with the DGCL.
Section 2.02
Annual Meetings
. An annual meeting of the stockholders of the Corporation shall be held on such date, at such place, if any, and at
such time as may be determined by the Board, for the purpose of electing directors and for the transaction of such other business as may properly come before such meeting.
Section 2.03
Special Meetings
. Special meetings of the stockholders of the Corporation, for any purpose or purposes, unless otherwise prescribed
by law or the Certificate of Incorporation, may be called only by the Board pursuant to a resolution approved by the affirmative vote of a majority of the directors of the Corporation then in office. Such resolution of the Board shall state the
purpose or purposes of such proposed meeting. Business transacted at any special meetings of the stockholders shall be limited to the purpose or purposes stated in the notice of the special meeting.
Section 2.04
Notice of Meetings
.
(a) Except as otherwise required herein, by the Certificate of Incorporation or by applicable law, whenever stockholders are required or
permitted to take any action at a meeting, notice in writing or by electronic transmission of each meeting of the stockholders of the Corporation stating the place, if any, day and hour of such meeting, the means of remote communications, if any, by
which stockholders and proxy holders may be deemed to be present in person and vote at such meeting and, in the case of a special meeting of the stockholders of the Corporation, the purpose or purposes for which such meeting is called, shall be
given in accordance with applicable law, not less than ten (10) nor more than sixty (60) days before the date of such meeting.
(b) Notice shall be deemed to be given, if personally delivered, when delivered to the stockholder, and, if mailed, when deposited in the United States mail, postage prepaid, and if by electronic transmission, when
given in accordance with applicable law.
(c) When a meeting of the stockholders of the Corporation is adjourned to another
time or place, if any, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At such adjourned meeting the Corporation may transact any business that might
have been transacted at the original meeting of the stockholders of the Corporation. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for such adjourned meeting, notice of such
adjourned meeting shall be given to each stockholder of record of the Corporation entitled to vote at the meeting in accordance with the foregoing provisions of this Section 2.04.
(d) Notice shall be deemed to be given to all stockholders of record who share an address if notice is given in accordance with the
“householding” rules set forth in Rule 14a-3(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 233 of the DGCL.
Section 2.05
Quorum
. At each meeting of stockholders of the Corporation, the holders of shares having a majority of the voting power of the issued
and outstanding capital stock of the Corporation shall be present or represented by proxy to constitute a quorum for the transaction of business, except as otherwise provided by law. Where a separate vote by a class or classes or series is required,
a majority of the shares of such class or classes or series in person or represented by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter.
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Section 2.06
Adjournments
. In the absence of a quorum at any meeting of stockholders or any
adjournment or adjournments thereof, the Chair of the Board or holders of shares having a majority of the voting power of the capital stock present or represented by proxy at the meeting may adjourn the meeting from time to time until a quorum shall
be present or represented by proxy. At any such adjourned meeting at which a quorum shall be present or represented by proxy, any business may be transacted which might have been transacted at the meeting as originally called if a quorum had been
present or represented by proxy.
Section 2.07
Notice of Stockholder Business and Nominations
.
(a)
Annual Meetings of Stockholders
.
(1) Nominations of persons for election to the Board of the Corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders only (A) pursuant to the
Corporation’s notice of meeting (or any supplement thereto), (B) by or at the direction of the Board or any committee thereof or (C) by any stockholder of the Corporation who was a stockholder of record of the Corporation at the time
the notice provided for in this Section 2.07 is delivered to the Secretary of the Corporation, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 2.07.
(2) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (C) of
paragraph (a)(1) of this Section 2.07, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and any such proposed business other than the nominations of persons for election to the Board must
constitute a proper matter for stockholder action under the laws of Delaware. To be timely, a stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on
the ninetieth (90th) day, nor earlier than the close of business on the one hundred twentieth (120th) day, prior to the first anniversary of the preceding year’s annual meeting, which anniversary date, in the case of the first annual
meeting following the closing of the Corporation’s initial public offering, shall be deemed to be
, 2008 (provided, however, that in the
event that the date of the annual meeting is more than thirty (30) days before or more than seventy (70) days after such anniversary date, notice by the stockholder must be so delivered not earlier than the close of business on the one
hundred twentieth (120th) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or the tenth (10th) day following the day on which public
announcement of the date of such meeting is first made by the Corporation). In no event shall the public announcement of an adjournment or
3
postponement of an annual meeting commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.
Such stockholder’s notice shall set forth: (A) as to each person whom the stockholder proposes to nominate for election as a director (i) all information relating to such person that is required to be disclosed in solicitations of
proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to and in accordance with Regulation 14A under the Exchange Act and (ii) such person’s written consent to being named in the proxy
statement as a nominee and to serving as a director if elected; (B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the text of
the proposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend the Bylaws of the Corporation, the language of the proposed amendment), the reasons for
conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (C) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner, (ii) the class and number of shares of capital
stock of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner, (iii) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to propose such business or nomination, and (iv) a representation whether the stockholder or the beneficial owner, if any, intends or is part of a group which intends (x) to
deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to approve or adopt the proposal or elect the nominee and/or (y) otherwise to solicit proxies from
stockholders in support of such proposal or nomination. The foregoing notice requirements of this Section 2.07 shall be deemed satisfied by a stockholder if the stockholder has notified the Corporation of his, her or its intention to present a
proposal or nomination at an annual meeting in compliance with applicable rules and regulations promulgated under the Exchange Act and such stockholder’s proposal or nomination has been included in a proxy statement that has been prepared by
the Corporation to solicit proxies for such annual meeting. The Corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a director
of the Corporation.
(3) Notwithstanding anything in the second sentence of paragraph (a)(2) of this Section 2.07 to
the contrary, in the event that the number of directors to be elected to the Board of the Corporation at an annual meeting is
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increased and there is no public announcement by the Corporation naming the nominees for the additional directorships at least one hundred (100) days
prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice required by this Section 2.07 shall also be considered timely, but only with respect to nominees for the additional directorships, if it
shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation.
(b)
Special Meetings of Stockholders
. Only such business shall be conducted at a special meeting of stockholders as
shall have been brought before the meeting pursuant to the Corporation’s notice of meeting. Nominations of persons for election to the Board may be made at a special meeting of stockholders at which directors are to be elected pursuant to the
Corporation’s notice of meeting (1) by or at the direction of the Board or any committee thereof or (2) provided that the Board has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who
is a stockholder of record at the time the notice provided for in this Section 2.07 is delivered to the Secretary of the Corporation, who is entitled to vote at the meeting and upon such election and who complies with the notice procedures set
forth in this Section 2.07. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board, any such stockholder entitled to vote in such election of directors may nominate a
person or persons (as the case may be) for election to such position(s) as specified in the Corporation’s notice of meeting, if the stockholder’s notice required by paragraph (A)(2) of this Section 2.07 shall be delivered to the
Secretary at the principal executive offices of the Corporation not earlier than the close of business on the one hundred twentieth (120th) day prior to such special meeting and not later than the close of business on the later of the ninetieth
(90th) day prior to such special meeting or the tenth (10th) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting. In no
event shall the public announcement of an adjournment or postponement of a special meeting commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.
(c)
General
.
(1) Only such persons who are nominated in accordance with the procedures set forth in this Section 2.07 shall be eligible to be elected at an annual or special meeting of stockholders of the Corporation to serve as directors and only
such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth
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in this Section 2.07. Except as otherwise provided by law, the chairperson of the meeting shall have the power and duty (A) to determine whether a
nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 2.07 (including whether the stockholder or beneficial owner, if any, on
whose behalf the nomination or proposal is made solicited (or is part of a group which solicited) or did not so solicit, as the case may be, proxies in support of such stockholder’s nominee or proposal in compliance with such stockholder’s
representation as required by clause (a)(2)(C)(iv) of this Section 2.07) and (B) if any proposed nomination or business was not made or proposed in compliance with this Section 2.07, to declare that such nomination shall be
disregarded or that such proposed business shall not be transacted. Notwithstanding the foregoing provisions of this Section 2.07, unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not
appear at the annual or special meeting of stockholders of the Corporation to present a nomination or proposed business, such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect
of such vote may have been received by the Corporation. For purposes of this Section 2.07, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or
must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic
transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders.
(2) For
purposes of this Section 2.07, “public announcement” shall include disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3)
Notwithstanding the foregoing provisions of this Section 2.07, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this
Section 2.07. Nothing in this Section 2.07 shall be deemed to affect any rights of the holders of any series of preferred stock to elect directors pursuant to any applicable provisions of the Certificate of Incorporation.
Section 2.08
Proxies and Voting
. Except as otherwise provided in the Certificate of Incorporation at each meeting of stockholders, each holder of
shares of capital stock of the Corporation shall be entitled to one vote per share. Except as otherwise provided in these Bylaws, the Certificate of Incorporation, applicable law or the rules and regulations
6
of any stock exchange on which the Corporation’s stock is listed, or any other rule or regulation applicable to the Corporation or it stock, all matters
shall be decided by a majority of the votes cast at such meeting of stockholders by the holders of shares of capital stock present or represented by proxy and entitled to vote thereon, a quorum being present. At any meeting of stockholders, every
stockholder entitled to vote may vote in person or by proxy authorized in accordance with applicable law. Unless otherwise provided by the Certificate of Incorporation, voting need not be by ballot.
Section 2.09
Inspectors
. For each election of directors by the stockholders and in any other case in which it shall be advisable, in the opinion
of the Board, that the voting upon any matter shall be conducted by inspectors of election, the Board shall appoint an inspector or inspectors of election. If, for any such election of directors or the voting upon any such other matter, any
inspector appointed by the Board shall be unwilling or unable to serve, or if the Board shall fail to appoint inspectors, the chairperson of the meeting shall appoint the necessary inspector or inspectors. The inspector(s) so appointed, before
entering upon the discharge of their duties, shall be sworn faithfully to execute the duties of inspectors with strict impartiality, and according to the best of their ability, and the oath so taken shall be subscribed by them. Such inspectors shall
determine the number of shares of capital stock of the Corporation outstanding and the voting power of each of the shares represented at the meeting, the existence of a quorum, and the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairperson of the meeting or any stockholder entitled to vote thereat, the inspectors shall make a report in writing of any challenge, question or matter determined by them and shall execute a
certificate of any fact found by them. No director or candidate for the office of director shall act as an inspector of election of directors. Inspectors need not be stockholders.
Section 2.10
Stock List
. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder and the number of shares which are registered in such stockholder’s name, shall be maintained by the Corporation and open to the examination of any such stockholder, for any
purpose germane to the meeting, (i) during ordinary business hours for a period of at least ten (10) days prior to the meeting at the principal place of business of the Corporation or (ii) on a reasonably accessible electronic
network, provided that the information required to gain access to such list is provided with the notice of the meeting. The stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination
of any such stockholder who is present for any purpose germane to the meeting. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the
7
list required by this section or to vote in person or by proxy at any meeting of stockholders.
Section 2.11
Organization
. Meetings of stockholders shall be presided over by the Chair of the Board, if any, or in his or her absence by the
President, or in his or her absence by a Vice President, or in the absence of the foregoing persons by a chairperson designated by the Board, or in the absence of such designation by a chairperson chosen at the meeting. The Secretary shall act as
secretary of the meeting, but in his or her absence the chairperson of the meeting may appoint any person to act as secretary of the meeting.
Section 2.12
Conduct of Meetings
. The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting by the person presiding over the
meeting. The Board may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board, the person
presiding over any meeting of stockholders shall have the right and authority to convene and to adjourn the meeting, to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such presiding person, are
appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board or prescribed by the chairperson of the meeting, may include, without limitation, the following: (i) the establishment of an
agenda or order of business for the meeting; (ii) the opening and closing of the polls; (iii) rules and procedures for maintaining order at the meeting and the safety of those present; (iv) limitations on attendance at or
participation in the meeting to stockholders of record of the corporation, their duly authorized and constituted proxies or such other persons as the chairperson of the meeting shall determine; (v) restrictions on entry to the meeting after the
time fixed for the commencement thereof; and (vi) limitations on the time allotted to questions or comments by participants. The chairperson of any meeting of stockholders, in addition to making any other determinations that may be appropriate
to the conduct of the meeting, shall, if the facts warrant, determine and declare to the meeting that a matter or business was not properly brought before the meeting and if such chairperson should so determine, such chairperson shall so declare to
the meeting and any such matter or business not properly brought before the meeting shall not be transacted or considered. Unless and to the extent determined by the Board or the chairperson of the meeting, meetings of stockholders shall not be
required to be held in accordance with the rules of parliamentary procedure.
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ARTICLE III
DIRECTORS
Section 3.01
Powers
. The business and affairs of the Corporation shall be managed
by or under the direction of the Board, except as otherwise provided in the DGCL or the Certificate of Incorporation.
Section 3.02
Number; Terms and Vacancies
. The number of directors of the Corporation shall be fixed in accordance with the terms of the Certificate of Incorporation. The directors shall be divided as evenly as possible into three classes as provided in
the Certificate of Incorporation. At each annual meeting of the stockholders of the Corporation, the successors of that class of directors of the Corporation whose term expires at that meeting shall be elected to hold office for a term expiring at
the third annual meeting of the stockholders of the Corporation following the annual meeting at which they are elected. Each director of the Corporation shall hold office until his or her successor shall be duly qualified and elected, subject,
however, to such director’s earlier death, resignation, retirement or removal. Any newly created directorship or vacancy shall be filled as set forth in the Certificate of Incorporation. No decrease in the number of directors constituting the
Board shall shorten the term of any incumbent director, except as may be provided for in a Preferred Stock certificate of designation with respect to any additional director elected by the holders of the applicable series of Preferred Stock.
Section 3.03
Qualifications; Election
. Directors shall be at least 21 years of age. Directors need not be stockholders. At
each meeting of stockholders for the election of directors at which a quorum is present, the persons receiving a plurality of the votes cast shall be elected directors.
Section 3.04
Place of Meetings
. Meetings of the Board shall be held at the Corporation’s office in the State of Delaware or at such other places, within or outside such State, as the Board may from time to
time determine or as shall be specified or fixed in the notice or waiver of notice of any such meeting.
Section 3.05
Regular
Meetings
. Regular meetings of the Board shall be held without notice as determined by the Board by resolution.
Section 3.06
Special
Meetings
. Special meetings of the Board may be called by a majority of the directors then in office or by the Chair of the Board and shall be held at such place, on such date, and at such time as they or he or she shall fix.
Section 3.07
Notice of Meetings
. Notice of each special meeting of the Board stating the time, place and purposes thereof, shall be provided
(i) if mailed, not less than five days prior to the meeting, addressed to such director at his or her residence or usual
9
place of business, or (ii) by courier or by facsimile or other electronic transmission (including email) or other similar method at least twenty-four
(24) hours before the meeting.
Section 3.08
Quorum and Manner of Acting
. The presence of at least a majority of the directors
then in office shall constitute a quorum for the transaction of business at any meeting of the Board. If a quorum shall not be present at any meeting of the Board, a majority of the directors present may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be present. Except where a different vote is required or permitted by law, the Certificate of Incorporation or these Bylaws or otherwise, the act of a majority of the
directors present at any meeting at which a quorum shall be present shall be the act of the Board. Any action required or permitted to be taken by the Board may be taken without a meeting if all the directors consent thereto in writing or by
electronic transmission, and the writing or writings, or the transmission or transmissions, are filed with the minutes of the proceedings of the Board. Any one or more directors may participate in any meeting of the Board by means of a conference
telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall be deemed to constitute presence in person at a meeting of the Board.
Section 3.09
Resignation
. Any director may resign at any time by notice given in writing or by electronic transmission to the Corporation. Any
such notice provided to the Board, the Chair of the Board, the Chief Executive Officer of the Corporation or the Secretary of the Corporation shall be deemed to constitute notice to the Corporation. Such resignation shall take effect upon delivery,
unless the resignation specifies a later effective date or an effective date determined upon the happening of an event or events and, unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective.
Section 3.10
Compensation of Directors
. The Board may provide for the payment to any of the directors of a specified amount for
services as director or member of a committee of the Board, or of a specified amount for attendance at each regular or special Board meeting or committee meeting, or of both, and all directors shall be reimbursed for expenses of attendance at any
such meeting;
provided, however
, that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.
ARTICLE IV
COMMITTEES OF THE BOARD
Section 4.01
Appointment and Powers of Audit Committee
. The Board shall establish an Audit Committee consisting of at least
three members. The Audit
10
Committee shall have the duties and responsibilities set forth in the Audit Committee Charter established by the Board.
Section 4.02
Appointment and Powers of Nominating and Corporate Governance Committee
. The Board shall establish a Nominating and Corporate
Governance Committee. The Nominating and Corporate Governance Committee shall have the duties and responsibilities set forth in the Nominating and Corporate Governance Committee Charter established by the Board.
Section 4.03
Appointment and Powers of Compensation Committee
. The Board shall establish a Compensation Committee. The Compensation Committee
shall have the duties and responsibilities set forth in the Compensation Committee Charter established by the Board.
Section 4.04
Other
Committees
. The Board shall establish such other committees of the Board as the Board may determine. Such committees shall in each case consist of such number of directors as the Board may determine, and shall have and may exercise, to the
extent permitted by law, such powers as the Board may delegate to them in the respective resolutions appointing them.
Section 4.05
Process
. A majority of the members of any committee of the Board shall constitute a quorum for the transaction of business by the committee and the act of a majority of the members of such committee present at a meeting at which a quorum
shall be present shall be the act of the committee. Each committee of the Board may determine its manner of acting and fix the time and place of its meetings, unless the Board shall otherwise provide.
Section 4.06
Action Without a Meeting; Participation by Telephone or Similar Equipment
. Unless the Board shall otherwise provide, any action
required or permitted to be taken by any committee may be taken without a meeting if all members of the committee consent thereto in writing or by electronic transmission and the consent or consents, or the transmission transmissions, are filed with
the minutes of the proceedings of the committee. Unless the Board shall otherwise provide, any one or more members of any such committee may participate in any meeting of the committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear each other. Participation by such means shall constitute presence in person at a meeting of the committee.
Section 4.07
Resignations; Removals
. Any member of any committee may resign from such committee at any time by giving notice to the Board of such
resignation. Notice to the Board, the Chair of the Board, the Chief Executive Officer of the Corporation, the chairperson of such committee or the Secretary of the Corporation shall be deemed to constitute notice to the Corporation. Such resignation
shall take effect
11
upon receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, acceptance of such resignation shall not be
necessary to make it effective. Any member of any such committee may be removed at any time, either with or without cause, by the affirmative vote of a majority of the directors. Any vacancies on any committee of the Board shall be filled in the
manner set forth above in respect of the appointment of such committee.
ARTICLE V
OFFICERS
Section 5.01
Number and
Qualification
. The officers of the Corporation shall consist of a Chair of the Board, a Chief Executive Officer, a Chief Financial Officer, one or more Vice Presidents, a Secretary and such other officers as may from time to time be elected by
the Board. Each officer shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Any number of offices may be held by the same person.
Section 5.02
Chair of the Board
. The Chair of the Board shall be a director and shall preside at all meetings of the stockholders and directors or
may designate another director to so preside.
Section 5.03
Chief Executive Officer
. The Chief Executive Officer shall supervise the
daily operations of the business of the Corporation. Subject to the provisions of these Bylaws and to the direction of the Chair of the Board or the Board, he or she shall perform all duties and have all powers which are commonly incident to the
office of Chief Executive Officer or that are delegated to him or her by the Chair of the Board or the Board. He or she shall have power to sign all stock certificates, contracts and other instruments of the Corporation which are authorized and
shall have general supervision and direction of all of the other officers, employees and agents of the Corporation.
Section 5.04
President
. The President of the Corporation, if any, shall, subject to the direction and supervision of the Board, perform all duties incident to the office of President and as from time to time may be assigned to him by the Board. At the
request of the Chief Executive Officer of the Corporation or in his or her absence or in the event of his or her inability or refusal to act, the President of the Corporation shall perform the duties of the Chief Executive Officer of the
Corporation, and when so acting shall have all the powers and be subject to all the restrictions of the Chief Executive Officer of the Corporation.
Section 5.05
Chief Operating Officer
. The Chief Operating Officer of the Corporation, if any, shall, subject to the direction and supervision of the Board, supervise the day to day operations of the Corporation and perform all other
duties incident to the
12
office of Chief Operating Officer as from time to time may be assigned to him or her by the Chair of the Board of the Corporation, the Board or the Chief
Executive Officer of the Corporation. At the request of the President of the Corporation, or in his or her absence or inability or refusal to act, the Chief Operating Officer of the Corporation shall perform the duties of the President of the
Corporation, and when so acting shall have all the power of and be subject to all the restrictions upon the President of the Corporation.
Section 5.06
Chief Financial Officer
. The Chief Financial Officer of the Corporation shall: (i) be the principal financial officer of the Corporation (ii) upon request of the Board, make such reports to it as may be
required at any time; and (iii) perform all duties incident to the office of Chief Financial Officer and treasurer and such other duties as from time to time may be assigned to him or her by the Board or by the Chief Executive Officer of the
Corporation. Treasurers and assistant treasurers of the Corporation, if any, shall have the same powers and duties, subject to the supervision by the Chief Financial Officer of the Corporation.
Section 5.07
Vice President
. Each Vice President shall have such powers and duties as may be delegated to him or her by the Chair of the Board,
the Chief Executive Officer or the Board.
Section 5.08
Secretary
. The Secretary shall issue all authorized notices for, and shall
keep minutes of, all meetings of the stockholders and the Board. He or she shall have charge of the corporate books and shall perform such other duties as the Chair of the Board or the Board may from time to time prescribe. Assistant secretaries of
the Corporation, if any, shall have the same duties and powers, subject to supervision by the Secretary.
Section 5.09
Controller
.
The Controller, if any, shall have direct responsibility for and supervision of the accounting records of the Corporation and of its subsidiaries and managed affiliated corporations, and shall see that adequate examination and audits thereof are
currently and regularly made. He or she shall have such other powers and perform such other duties, as may be prescribed by the Board or be assigned to him or her by the Chair of the Board, the Chief Executive Officer or the Chief Financial Officer.
Section 5.10
Delegation of Authority
. To the fullest extent permitted by law, the Chair of the Board or the Board may from time to
time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof.
Section 5.11
Removal
. Any officer of the Corporation may be removed at any time, with or without cause, by the Chair of the Board, the Chief Executive Officer or the Board.
13
Section 5.12
Resignation
. Any officer may resign at any time by giving written notice to the
Corporation; provided, however, that notice to the Board, Chair of the Board, the Chief Executive Officer or the Secretary shall be deemed to constitute notice to the Corporation. Such resignation shall take effect upon receipt of such notice or at
any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
Section 5.13
Vacancies
. Any vacancy among the officers, whether caused by death, resignation, removal or any other cause, shall be filled in the manner prescribed for election or appointment to such office.
Section 5.14
Action with Respect to Securities of Other Corporations
. Unless otherwise directed by the Board, the Chief Executive
Officer, the Chief Financial Officer, the President or any Vice President shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders
of any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation.
Section 5.15
Bonds of Officers
. If required by the Chair of the Board or the Board, any officer of the Corporation shall give a bond for the
faithful discharge of his or her duties in such amount and with such surety or sureties as the Board may require.
ARTICLE VI
CAPITAL STOCK
Section 6.01
Certificates of Stock
. Shares of stock of the Corporation shall be represented by certificates, provided that the Board may provide by resolution or resolutions that some or all of any or all classes or series of stock
shall be uncertificated shares. Each holder of stock represented by a certificate shall be entitled to a certificate signed by, or in the name of the Corporation by, the Chair of the Board, Chief Executive Officer or a Vice President, and by the
Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, certifying the number of shares owned by him or her. Any or all of the signatures on the certificate may be by facsimile.
Section 6.02
Transfers of Stock
. Where shares of stock are represented by a certificate, transfers of shares shall be made only upon the transfer
books of the Corporation kept at an office of the Corporation or by transfer agents designated to transfer shares of the stock of the Corporation, and where shares of stock are uncertificated, such shares may be transferred in accordance with
applicable law.
14
Section 6.03
Lost, Stolen or Destroyed Certificates
. In the event of the loss, theft or
destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the Board may establish concerning proof of such loss, theft or destruction and concerning the giving of satisfactory bond or bonds of
indemnity.
Section 6.04
Regulations
. The issue, transfer, conversion and registration of certificates of stock or uncertificated
shares shall be governed by such other regulations as the Board may establish.
ARTICLE VII
WAIVER OF NOTICES
A written waiver of
any notice, signed by a stockholder, director, officer, employee or agent, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such stockholder, director,
officer, employee or agent. Neither the business nor the purpose of any meeting need be specified in such a waiver.
ARTICLE VIII
MISCELLANEOUS
Section
8.01
Record Date
. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders, or to receive payment of any dividend or other distribution or allotment of any rights or to
exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix a record date, which record date shall not precede the date on which the resolution fixing the record date
is adopted and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of any meeting of stockholders, nor more than sixty (60) days prior to the time for such other action as hereinbefore
described; provided, however, that if no record date is fixed by the Board, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the
day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, and, for determining stockholders entitled to receive payment of any dividend or other distribution or
allotment of rights or to exercise any rights of change, conversion or exchange of stock or for any other purpose, the record date shall be at the close of business on the day on which the Board adopts a resolution relating thereto. A determination
of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting.
15
Section 8.02
Facsimile Signatures
. In addition to the provisions for use of facsimile signatures
elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board or a committee thereof.
Section 8.03
Corporate Seal
. The Board may provide a suitable seal, containing the name of the Corporation, which seal shall be in the charge of
the Secretary of the Corporation. Duplicates of the seal may be kept and used by the Corporation’s Chief Financial Officer or Treasurer or by an Assistant Secretary or Assistant Treasurer.
Section 8.04
Reliance Upon Books, Reports and Records
. Each director, each member of any committee designated by the Board, and each officer of
the Corporation shall, in the performance of his or her duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation and upon such information, opinions, reports or statements presented to the
Corporation by any of its officers or employees, or committees of the Board so designated, or by any other person as to matters which such director or committee member reasonably believes are within such other person’s professional or expert
competence and who has been selected with reasonable care by or on behalf of the Corporation.
Section 8.05
Fiscal Year
. The fiscal
year of the Corporation shall end on December 31 of each year, or shall be as otherwise fixed by the Board.
Section 8.06
Time
Periods
. In applying any provision of these Bylaws which requires that an act be done or not be done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar
days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included.
Section 8.07
Inconsistent Provisions
. In the event that any provision of these Bylaws is or becomes inconsistent with any provision of the Certificate of Incorporation, the DGCL or any other applicable law, the provision of these Bylaws shall not be given
any effect to the extent of such inconsistency but shall otherwise be given full force and effect.
ARTICLE IX
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 9.01
Right to Indemnification
. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative
(hereinafter, a “
proceeding
”), by reason of the fact that he or she is or was a director or an officer of the Corporation or, while serving as a director or officer of the Corporation, is or was serving
16
at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan (hereinafter, an “
indemnitee
”), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in
any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of
any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss
(including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith; provided, however, that, except as provided in
Section 9.03 hereof with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or
part thereof) was authorized in the first instance by the Board.
Section 9.02
Right to Advancement of Expenses
. The right to
indemnification conferred in Section 9.01 hereof shall include the right to be paid by the Corporation the expenses (including attorneys’ fees) incurred in defending any such proceeding in advance of its final disposition (hereinafter, an
“
advancement of expenses
”); provided, however, that, if the DGCL requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or
is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter, an “
undertaking
”), by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter, a “
final adjudication
”) that such indemnitee is not entitled
to be indemnified for such expenses under this Article IX or otherwise. The rights to indemnification and to the advancement of expenses conferred in Sections 9.01 and 9.02 hereof shall be contract rights and such rights shall continue as to an
indemnitee who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the indemnitee’s heirs, executors and administrators.
Section 9.03
Right of Indemnitee to Bring Suit
. If a claim under Section 9.01 is not paid in full by the Corporation within sixty (60) days (or, with respect to claims under Section 9.01, twenty
(20) days) after a written claim has been received by the Corporation, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit,
or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Indemnitee, to the fullest extent permitted by law, shall be entitled to be paid also the expense of prosecuting or defending
such suit. In
17
(i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right
to an advancement of expenses) it shall be a defense that, and (ii) any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses
upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the DGCL. Neither the failure of the Corporation (including its Board, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the
Corporation (including its Board, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or,
in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article IX or otherwise shall be on the Corporation.
Section 9.04
Non-Exclusivity of Rights; Effect of Amendment
. The rights to indemnification and to the advancement of expenses
conferred in this Article IX shall not be exclusive of any other right which any person may have or hereafter acquire by any statute, the Corporation’s Certificate of Incorporation or Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise. Any amendment, alteration or repeal of this Article IX that adversely affects any right of an indemnitee or it successors shall be prospective only and shall not limit or eliminate any such right with respect to
any proceeding involving any occurrence or alleged occurrence of any action or omission to act that took place prior to such amendment, alteration or repeal.
Section 9.05
Insurance
. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint
venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL.
Section 9.06
Indemnification of Employees and Agents of the Corporation
. The Corporation may, to the extent authorized from time to time by the
Board, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article IX with respect to the indemnification and advancement of expenses of
directors and officers of the Corporation.
18
ARTICLE X
AMENDMENTS
The Board may from time to time make, amend, supplement or repeal these Bylaws by vote
of a majority of directors then in office; provided, however, that the stockholders may change or amend or repeal any provision of these Bylaws by the affirmative vote of the holders of a majority of the voting power of the outstanding Common Stock,
voting together as a single class. In addition to and not in limitation of the foregoing, these Bylaws or any of them may be amended or supplemented in any respect at any time at any meeting of stockholders, provided that any amendment or supplement
proposed to be acted upon at any such meeting shall have been described or referred to in the notice of such meeting.
19
Exhibit 4.1
016570|
003590|127C|RESTRICTED||4|057-423
COMMON STOCK
PAR VALUE $0.001
Certificate Number
ZQ 000000
THIS CERTIFIES THAT
is the owner of
COMMON STOCK
THIS CERTIFICATE IS TRANSFERABLE IN CANTON, MA, JERSEY CITY, NJ AND GOLDEN, CO
Shares
* * 6 0 0 6 2 0 * * * * * * * * * 6 0 0 6 2 0 * * * * * * * * * 6 0 0 6 2 0 * * * * * * * * * 6 0 0 6 2 0 * * * * * * * * * 6 0 0 6 2 0 *
*
CUSIP XXXXXX XX X
SEE REVERSE FOR CERTAIN DEFINITIONS
FULLY-PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
Intrepid Potash, Inc. (hereinafter called the “Company”), transferable on the books of the Company in person or
by duly authorized attorney, upon surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby, are issued and shall be held subject to all of the provisions of the Articles of Incorporation, as amended, and
the By-Laws, as amended, of the Company (copies of which are on file with the Company and with the Transfer Agent), to all of which each holder, by acceptance hereof, assents. This Certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
Witness the facsimile seal of the Company and the facsimile signatures of its duly authorized
officers.
DATED <<Month Day, Year>> FACSIMILE SIGNATURE TO COME COUNTERSIGNED AND REGISTERED:
COMPUTERSHARE TRUST COMPANY, N.A.
President TRANSFER AGENT AND REGISTRAR,
FACSIMILE SIGNATURE TO COME
By
Secretary
AUTHORIZED SIGNATURE
INTREPID POTASH, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
** Mr. Alexander
David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample ****
Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David
Sample **** Mr. Alexander David Sample MR. SAMPLE & MRS. SAMPLE &**** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample ****
Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David
Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample ****
Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander MR. SAMPLE & MRS. SAMPLE David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David
Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample ****
Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David
Sample **** Mr. Alexander David Sample **** Mr. Sample **** Mr. Sample
**600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares***
*600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****
600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****6
00620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****60 * * * SIX HUNDRED THOUSAND
0620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600
620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares***600620**Shares****600620**Shares****60062
0**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620
**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620*
*Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620** SIX HUNDRED AND TWENTY* * *
Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**S
hares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Sh
Intrepid Potash, Inc.
PO BOX 43004, Providence, RI 02940-3004
MR A SAMPLE
DESIGNATION (IF ANY)
ADD 1
ADD 2
ADD 3
ADD 4
CUSIP
XXXXXX XX X
Holder ID XXXXXXXXXX
Insurance Value 1,000,000.00
Number of Shares 123456
DTC 12345678 123456789012345
Certificate Numbers
1234567890/1234567890
1234567890/1234567890
1234567890/1234567890
1234567890/1234567890
1234567890/1234567890
1234567890/1234567890
Total Transaction
Num/No.
123456
Denom.
123456
Total
1234567
The following
abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM—as tenants in common UNIF GIFT MIN ACT- . . . . .
. . . . .Custodian . . . . . . . . . . . . . . .
TEN ENT—as tenants by the entireties under Uniform Gifts to Minors
Act . . . . . . . . . . . . .
JT TEN—as joint tenants with right of survivorship UNIF TRF MIN ACT . . . . . . . . . .
. . . . .Custodian (until age. . . ). . . . . . . . . . .
and not as tenants in common (Cust) (Minor)
under Uniform Transfers to Minors Act. . . . . . . . . .
(State)
Additional abbreviations may also be used though not in the above
list.
For value received, ____________________________hereby sell, assign and transfer unto
_______________________________________________________________________________________________________________________ Shares
_______________________________________________________________________________________________________________________ Attorney
Dated: __________________________________________20__________________
Signature: ____________________________________________________________
Signature: ____________________________________________________________
Notice: The signature to this assignment must correspond with the name
as written upon the face of the certificate, in every particular,
without alteration or enlargement, or any change whatever.
(Cust) (Minor)
(State)
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, OF ASSIGNEE)
of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises.
.
INTREPID
POTASH, INC.
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO REQUESTS, A SUMMARY OF THE POWERS,
DESIGNATIONS,
PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OF THE
COMPANY AND THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND RIGHTS, AND THE VARIATIONS IN RIGHTS,
PREFERENCES AND
LIMITATIONS DETERMINED FOR EACH SERIES, WHICH ARE FIXED BY THE ARTICLES OF INCORPORATION OF THE COMPANY, AS
AMENDED, AND THE
RESOLUTIONS OF THE BOARD OF DIRECTORS OF THE COMPANY, AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO
DETERMINE VARIATIONS
FOR FUTURE SERIES. SUCH REQUEST MAY BE MADE TO THE OFFICE OF THE SECRETARY OF THE COMPANY OR TO THE
TRANSFER AGENT. THE
BOARD OF DIRECTORS MAY REQUIRE THE OWNER OF A LOST OR DESTROYED STOCK CERTIFICATE, OR HIS LEGAL
REPRESENTATIVES, TO GIVE
THE COMPANY A BOND TO INDEMNIFY IT AND ITS TRANSFER AGENTS AND REGISTRARS AGAINST ANY CLAIM THAT
MAY BE MADE AGAINST THEM
ON ACCOUNT OF THE ALLEGED LOSS OR DESTRUCTION OF ANY SUCH CERTIFICATE.
Signature(s) Guaranteed: Medallion Guarantee Stamp
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (Banks,
Stockbrokers, Savings and Loan Associations and Credit Unions) WITH MEMBERSHIP IN AN APPROVED
SIGNATURE
GUARANTEE MEDALLION PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15.
Exhibit 5.1
[LETTERHEAD OF HOLME ROBERTS & OWEN LLP]
April 7, 2008
Intrepid Potash, Inc.
700 17
th
Street, Suite 1700
Denver, Colorado
80202
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Re:
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Intrepid Potash, Inc.
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Registration Statement on Form S-1 (File No. 333-148215)
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Ladies and
Gentlemen:
As counsel for Intrepid Potash, Inc., a Delaware corporation (the “
Company
”), we have examined the
above-referenced Registration Statement on Form S-1 (the “
Registration Statement
”) under the Securities Act of 1933, as amended (the “
Act
”), that the Company has filed with the United States Securities and Exchange
Commission (the “
SEC
”) with respect to the registration of 27,600,000 common shares of its common stock, par value $0.001 per share (the “
Shares
”). The Shares consist of 27,600,000 Shares to be sold pursuant to an
Underwriting Agreement to be entered into among the Company, Intrepid Mining LLC, a Delaware limited liability company, Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner, & Smith Incorporated and Morgan Stanley & Co.
Incorporated, as representatives of the several underwriters (in the form filed as Exhibit 1.1 to the Registration Statement, the “
Underwriting Agreement
”) including (i) 24,000,000 Shares to be sold by the Company and
(ii) up to 3,600,000 Shares to be sold by the Company if the underwriters exercise their over-allotment option.
In connection with
the Company’s preparation and filing of the Registration Statement, we have examined originals or copies of all documents, corporate records or other writings that we consider relevant for the purposes of this opinion. In such examination, we
have assumed the genuineness of all signatures on all original documents, the legal competency of each individual executing any such documents, the authenticity of all documents submitted to us as originals, and the conformity to original documents
of all documents submitted to us as photocopies of originals. As to matters of fact not directly within our actual knowledge, we have relied upon certificates, telegrams and other documents from public officials in certain jurisdictions.
Intrepid Potash, Inc.
April 7, 2008
Page 2
Based on
and subject to the foregoing and the limitations, qualifications, exceptions and assumptions set forth herein, it is our opinion that, upon the execution and delivery of the Underwriting Agreement, the Shares will be duly authorized, and the Shares
will be validly issued, fully paid and non-assessable when the Shares have been issued and sold by the Company and the Company has received the purchase price therefor, in accordance with the terms of the Underwriting Agreement.
The opinions expressed herein are limited to the General Corporation Law of the State of Delaware (including the statutory provisions and all applicable
provisions of the Delaware Constitution and reported judicial decisions interpreting these laws).
We hereby consent to the reference to us
in the Registration Statement and all amendments to the Registration Statement under the caption “Validity of the Common Shares” and the use of this opinion as an exhibit to the Registration Statement; provided however, in giving this
consent we do not admit that we are included in the category of people whose consent is required under Section 7 of the Act or the rules of the SEC promulgated thereunder. We express no opinion as to any matters not expressly set forth herein.
This letter is our opinion as to certain legal conclusions as specifically set forth herein and is not and should not be deemed to be a
representation or opinion as to any factual matters.
Very truly yours,
/s/ HOLME ROBERTS & OWEN LLP
Exhibit 10.1
FORM OF
INTREPID POTASH, INC.
2008 EQUITY INCENTIVE PLAN
(Adopted April __, 2008)
(Approved by the Company’s stockholders on April __, 2008)
TABLE OF CONTENTS
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Page
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1. ESTABLISHMENT AND PURPOSE
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1
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1.1 Establishment
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1
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1.2 Purpose
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1
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2. DEFINITIONS
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1
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3. PLAN ADMINISTRATION
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7
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3.1 General
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7
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3.2 Delegation by the Committee
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8
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3.3 Limitations on Authority
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8
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3.4 Deferral Arrangement
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8
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3.5 No Liability
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8
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3.6 Book Entry
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8
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4. STOCK SUBJECT TO THE PLAN
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9
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4.1 Number of Shares
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9
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4.2 Individual Award Limits.
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9
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4.3 Share Counting
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9
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5. ELIGIBILITY AND PARTICIPATION
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9
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6. STOCK OPTIONS
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9
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6.1 Grant of Options
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9
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6.2 Award Agreement
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10
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6.3 Exercise of Option
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10
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6.4 Termination of Service
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11
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6.5 Limitations on Incentive Stock Options
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11
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6.6 Transferability
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11
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6.7 Family Transfers
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12
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6.8 Rights of Holders of Options
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12
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7. STOCK APPRECIATION RIGHTS
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12
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7.1 Grant of Stock Appreciation Rights
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12
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7.2 Award Agreement
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12
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7.3 Exercise of Stock Appreciation Right
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13
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7.4 Effect of Exercise
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13
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7.5 Termination of Service
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13
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7.6 Transferability
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13
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8. RESTRICTED STOCK AND RESTRICTED STOCK UNITS
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14
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8.1 Grant of Restricted Stock or Restricted Stock Units
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14
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8.2 Award Agreement
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14
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8.3 Restrictions on Transfer
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14
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8.4 Forfeiture; Other Restrictions
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14
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OTASH
, I
NC
. 2008 E
QUITY
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LAN
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8.5 Restricted Stock Units
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14
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8.6 Termination of Service
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14
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8.7 Stockholder Privileges
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15
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9. QUALIFIED PERFORMANCE BASED COMPENSATION
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15
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9.1 Grant or Vesting of Award Subject to Objective Performance Goals
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15
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9.2 Establishment of Performance Goals
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15
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9.3 Achievement of Performance Goals
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15
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9.4 Committee to Comply with Section 162(m)
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16
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10. OTHER STOCK-BASED AWARDS
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16
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11. DIVIDENDS AND DIVIDEND EQUIVALENTS
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16
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12. TAX WITHHOLDING
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16
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13. PARACHUTE LIMITATIONS
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17
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14. EFFECT OF CHANGES IN CAPITALIZATION
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18
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14.1 Changes in Stock
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18
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14.2 Change of Control
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18
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14.3 Reorganization in Which the Company Is the Surviving Entity and in Which No Change of Control
Occurs
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19
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14.4 Adjustment
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19
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14.5 No Limitations on the Company
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19
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15. REQUIREMENTS OF LAW
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19
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15.1 General
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19
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15.2 Rule 16b-3
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20
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16. GENERAL PROVISIONS
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20
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16.1 Disclaimer of Rights
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20
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16.2 Nontransferability of Awards
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21
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16.3 Changes in Accounting or Tax Rules
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21
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16.4 Nonexclusivity of the Plan
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21
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16.5 Captions
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21
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16.6 Other Award Agreement Provisions
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21
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16.7 Other Employee Benefits
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21
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16.8 Severability
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22
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16.9 Governing Law
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22
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16.10 Section 409A
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22
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17. AMENDMENT, MODIFICATION AND TERMINATION
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22
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17.1 Amendment, Modification, and Termination
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22
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17.2 Awards Previously Granted
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23
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18. STOCKHOLDER APPROVAL; EFFECTIVE DATE OF PLAN
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23
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NTREPID
P
OTASH
, I
NC
. 2008 E
QUITY
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NCENTIVE
P
LAN
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ii
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19. DURATION
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23
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20. EXECUTION
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23
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I
NTREPID
P
OTASH
, I
NC
. 2008 E
QUITY
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NCENTIVE
P
LAN
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iii
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INTREPID POTASH, INC.
2008 EQUITY INCENTIVE PLAN
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1.
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ESTABLISHMENT AND PURPOSE
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1.1
Establishment.
Intrepid Potash, Inc., a Delaware corporation (the
“
Company
”
), hereby establishes the Intrepid Potash, Inc. 2008 Equity Incentive Plan (the
“
Plan
”
). The Plan permits the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based and cash awards in accordance
with the terms hereof.
1.2
Purpose.
The Plan is intended to enhance the Company’s and its Affiliates’ (as defined
herein) ability to attract and retain highly qualified officers, directors, key employees, and other persons, and to motivate such persons to serve the Company and its Affiliates and to expend maximum effort to improve the business results and
earnings of the Company, by providing to such persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company.
For purposes of interpreting the Plan
and related documents (including Award Agreements), the following definitions shall apply:
2.1
“Affiliate”
means
with respect to the Company, (i) any company or other trade or business that controls, is controlled by or is under common control with the Company within the meaning of Rule 405 of Regulation C under the Securities Act, including without
limitation, any Subsidiary, and (ii) any corporation or other entity controlling, controlled by, or under common control with the Company, including any member of an affiliated group of which the Company is a common parent corporation or
subsidiary corporation (within the meaning of Section 424 of the Code).
2.2
“Award”
means a grant under the
Plan of an Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, or Other Stock-Based Award.
2.3
“Award
Agreement”
means the written or electronic agreement setting forth the terms and conditions applicable to each Award. The Award Agreement is subject to the terms and conditions of the Plan. In the event of any inconsistency between the
provisions of the Plan and any Award Agreement, the provisions of the Plan shall govern, except to the extent the Plan would be considered to provide an additional benefit as determined under Sections 409A and 424 of the Code.
2.4
“Benefit Arrangement”
means as defined in Section 13.
2.5
“Board”
or
“Board of Directors”
means the board of directors of Intrepid Potash, Inc.
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NTREPID
P
OTASH
, I
NC
. 2008 E
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NCENTIVE
P
LAN
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2.6
“Business Combination”
means as defined in Section 2.8.
2.7
“Cause”
means, as determined by the Committee and unless otherwise provided in an employment, consulting or other services
agreement, if any, between the Service Provider and the Company or an Affiliate, (i) any willful breach of any material written policy of the Company or an Affiliate that results in material and demonstrable liability or loss to the Company or
the Affiliate; (ii) engaging in any conduct involving moral turpitude that causes material and demonstrable injury, monetarily or otherwise, to the Company or an Affiliate, including, but not limited to, misappropriation or conversion of assets
of the Company or an Affiliate (other than immaterial assets); (iii) a conviction of or entry of a plea of nolo contendere to a felony; or (iv) a material breach by the Service Provider of any term of any employment, consulting or other
services, confidentiality, intellectual property or non-competition agreements, if any, between the Service Provider and the Company or an Affiliate. No act or failure to act by the Service Provider shall be deemed “willful” if done, or
omitted to be done, by him or her in good faith and with the reasonable belief that his or her action or omission was in the best interest of the Company or an Affiliate.
2.8
“Change of Control”
means and shall be deemed to have occurred upon the occurrence of:
(a) the acquisition by any individual, entity, or group (within the meaning of Sections 13(d)(3) or 14(d)(2) of the Exchange Act (a “
Person
”) of “beneficial ownership” (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 50% of the combined voting power of the Company’s then outstanding securities entitled to vote generally in the election of directors, other than any acquisition
(1) directly from, or by, the Company, (2) by a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, or (3) by Robert P. Jornayvaz III, Hugh E. Harvey Jr. or J. Landis
Martin (collectively the “
Principals
”), or by any “group” (within the meaning of Section 13(d)(3) of the Exchange Act) that is controlled by one or more of the Principals;
(b) the individual directors of the Board as of the Effective Date (the “
Incumbent Directors”
) cease to constitute
at least two-thirds of the Board; provided, however, that for purposes of this paragraph, any new director whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least a majority of the
Incumbent Directors shall be considered an Incumbent Director;
(c) consummation, in one transaction or a series or related
transactions, of a reorganization, merger, or consolidation of the Company or sale or other disposition, direct or indirect, of all or substantially all of the assets of the Company (a “
Business Combination
”), in each case,
unless, following such Business Combination, the Persons who were the “beneficial owners” of outstanding voting securities of the Company immediately prior to such Business Combination “beneficially own,” by reason of such
ownership of the Company’s voting securities immediately before the Business Combination, more than 50% of the combined voting power of the company resulting from such Business Combination (including, without limitation, a company which as a
result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or
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more subsidiaries) in substantially the same proportions as their ownership of the outstanding voting securities of the Company immediately prior to such
Business Combination; or
(d) approval by those Persons holding the voting securities of the Company of a complete
liquidation or dissolution of the Company.
A Person will not be deemed to be a member of a “group” for purposes of this
definition solely by virtue of becoming party to an agreement with one or more Principals that requires such Person to vote the voting stock of the Company in a manner specified by the Principals.
Notwithstanding the foregoing, solely with respect to any Award that is subject to Section 409A of the Code and payable upon a Change of Control,
the term “Change of Control” shall mean an event described in one or more of the foregoing provisions of this definition, but only if it also constitutes a “change in control event” within the meaning of Treas. Reg.
Section 1.409A-3(i)(5).
2.9
“Code”
means the Internal Revenue Code of 1986, as amended, and the regulations,
interpretations, and administrative guidance issued thereunder.
2.10
“Committee”
means the Compensation Committee
of the Board or any committee designated by the Board to administer the Plan, or if no committee is or has yet been appointed, the Board. The Compensation Committee or the Board may designate one or more subcommittees to (i) consist solely of
persons who satisfy the applicable requirements of any stock exchange or national market system on which the shares of Stock may be listed, (ii) consist solely of persons who qualify as an “outside director” within the meaning of
Section 162(m) of the Code, and (iii) consist solely of persons who qualify as a “non-employee director” within the meaning of Rule 16b-3 promulgated under the Exchange Act.
2.11
“Company”
means Intrepid Potash, Inc., a Delaware corporation.
2.12
“Corporate Event”
means an event described in Section 14.1.
2.13
“Disabled”
or
“Disability”
means, unless otherwise provided in an employment, consulting or other
services agreement, if any, between the Participant and the Company or an Affiliate, the Participant is unable to perform each of the essential duties of such Participant’s position by reason of a medically determinable physical or mental
impairment which is potentially permanent in character or which can be expected to last for a continuous period of not less than 12 months; provided that, the following shall apply:
(a) With respect to rules regarding expiration of an Incentive Stock Option following termination of the Participant’s Service,
Disability has the meaning set forth in Section 22(e)(3) of the Code.
(b) With respect to any Award subject to
Section 409A of the Code, the Participant is: (i) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last
for a continuous period of not less than 12 months; (ii) by reason of any
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medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less
than 12 months, is receiving income replacement benefits for a period of not less than three months under an accident or health plan covering employees of the Participant’s employer; or (iii) determined to be totally disabled by the Social
Security Administration.
2.14
“Dividend Equivalent”
means a right granted under Section 11.
2.15
“Effective Date”
means the effective date of the Plan, April __, 2008, the date the Plan was approved by the Board.
2.16
“Employee”
means any individual who is a common-law employee of the Company or an Affiliate determined in
accordance with the Company’s standard personnel policies and practices.
2.17
“Exchange Act”
means the U.S.
Securities Exchange Act of 1934, as it may be amended from time to time, or any successor act thereto.
2.18
“Exercise
Price”
means the price at which a share of Stock may be purchased pursuant to the exercise of an Option.
2.19
“Fair Market Value”
means the value of a share of Stock as of a particular date, determined as follows: (a) the closing sale price reported for such share on the national securities exchange or national market system on
which such stock is principally traded, or if no sale of shares is reported for such trading day, on the next preceding day on which a sale was reported, or (b) if the shares of Stock are not then listed on a national securities exchange or
national market system, or the value of such shares is not otherwise determinable, such value as determined by the Committee in good faith in its sole discretion consistent with the requirements under Section 409A of the Code; notwithstanding
the foregoing, the Fair Market Value of a share of Stock for purposes of Awards with a Grant Date as of the Company’s initial public offering shall be the price per share of Stock in such initial public offering, as determined by the Committee.
2.20
“Family Member”
means a person who is a spouse, former spouse, child, stepchild, grandchild, parent,
stepparent, grandparent, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother, sister, brother-in-law, or sister-in-law, including adoptive relationships, of the Participant, a trust in which any one or more of these
persons have more than fifty percent (50%) of the beneficial interest, a foundation in which any one or more of these persons (or the Participant) control the management of assets, and any other entity in which one or more of these persons (or
the Participant) own more than fifty percent (50%) of the voting interests; provided, however, that to the extent required by applicable law, the term Family Member shall be limited to a person who is a spouse, former spouse, child, stepchild,
grandchild, parent, stepparent, grandparent, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother, sister, brother-in-law, or sister-in-law, including adoptive relationships, of the Participant or a trust or foundation for the
exclusive benefit of any one or more of these persons.
2.21
“Good Reason”
means, unless otherwise provided in an
employment, consulting or other services agreement, if any, between the Service Provider and the Company or an
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Affiliate, (i) a material reduction in the Service Provider’s base salary, (ii) a material diminution of the Service Provider’s title,
office, position or authority, excluding for this purpose an action not taken in bad faith and which is remedied within twenty (20) days after receipt of written notice thereof given by the Service Provider, (iii) the assignment to the
Service Provider of any duties inconsistent with the Service Provider’s position (including status or reporting requirements), authority, or material responsibilities, or the removal of the Participant’s authority or material
responsibilities, excluding for this purpose an action not taken in bad faith and which is remedied by the Company within twenty (20) days after receipt of notice thereof given by the Service Provider, (iv) a transfer of the Service
Provider’s primary workplace by more than fifty (50) miles from the current workplace, or (v) a material breach of any term of any employment, consulting or other services agreement, if any, between the Service Provider and the
Company or an Affiliate by the Company which is not remedied within twenty (20) days after receipt of written notice thereof given by the Service Provider.
2.22
“Grant Date”
means, as determined by the Committee, the latest to occur of (i) the date on which the Committee approves an Award, (ii) the date on which the recipient of an Award
first becomes eligible to receive an Award under Section 5, or (iii) such other date as may be specified by the Committee in the Award Agreement.
2.23
“Grant Price”
means the per share exercise price of a Stock Appreciation Right granted to a Participant under Section 7.
2.24
“Incentive Stock Option”
means an Option to purchase shares of Stock designated as an Incentive Stock Option that is
intended to meet the requirements of Section 422 of the Code.
2.25
“Incumbent Directors”
means as defined in
Section 2.8.
2.26
“Minimum Statutory Withholding”
means as defined in Section 12.
2.27
“Non-Qualified Stock Option”
means any Option other than an Incentive Stock Option.
2.28
“Option”
means an option to purchase one or more shares of Stock at a stated or formula price for a specified period of
time. An Option granted under the Plan shall be either an Incentive Stock Option or a Non-Qualified Stock Option.
2.29
“Other
Agreement”
means as defined in Section 13.
2.30
“Other Stock-Based Award”
means an Award that is
granted to a Participant under Section 10.
2.31
“Parachute Payment”
means as defined in Section 13.
2.32
“Participant”
means any eligible individual as defined in Section 5 who is granted an Award under the
Plan.
2.33
“Person”
means as defined in Section 2.8.
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2.34
“Plan”
means this Intrepid Potash, Inc. 2008 Equity Incentive Plan, as
amended from time to time.
2.35
“Restricted Stock”
means an Award of shares of Stock granted under Section 8.
2.36
“Restricted Stock Unit”
or
“RSU”
means a bookkeeping entry representing the
equivalent of shares of Stock granted under Section 8.
2.37
“Restriction Period”
means the period during
which Restricted Stock and Restricted Stock Units are subject to a substantial risk of forfeiture (based upon the passage of time, the achievement of performance goals or upon the occurrence of other events as determined by the Committee, in its
discretion), as provided in Sections 8.3 and 8.4.
2.38
“Securities Act”
means the U.S. Securities Act of 1933, as
it may be amended from time to time, or any successor act thereto.
2.39
“Service”
means service as a Service
Provider to the Company or an Affiliate. Unless otherwise stated in the applicable Award Agreement, a Participant’s change in position or duties shall not result in interrupted or terminated Service, so long as such Participant continues to be
a Service Provider to the Company or an Affiliate. Subject to the preceding sentence, whether a termination of Service shall have occurred for purposes of the Plan shall be determined by the Committee, which determination shall be final, binding and
conclusive. Notwithstanding the foregoing, solely with respect to any Award that is subject to Section 409A of the Code and payable upon a termination of Service, a Participant shall be considered to have terminated Service with the Company or
an Affiliate only when the Participant incurs a “separation from service” with respect to the Company or an Affiliate within the meaning of Section 409A(a)(2)(A)(i) of the Code.
2.40
“Service Provider”
means an employee, officer or director of the Company or an Affiliate, or a consultant or adviser
currently providing services to the Company or an Affiliate.
2.41
“Stock”
or
“Common
Stock”
means a share of Intrepid Potash, Inc., common stock, $0.001 par value per share.
2.42
“Stock Appreciation
Right”
or
“SAR”
means an Award granted under Section 7.
2.43
“Subsidiary”
means any “subsidiary corporation” of the Company within the meaning of Section 424(f) of the Code.
2.44
“Substitute Awards”
means Awards granted in substitution for, or in assumption of, outstanding awards previously granted by an entity acquired by the Company or a Subsidiary or an Affiliate or with which the Company or
Subsidiary or Affiliate combines. The terms and conditions of any Substituted Awards shall comply with the requirements for substitutions of awards made in connection with a corporate transaction or certain other adjustments that are not treated as
modifications under Treas. Reg. Section 1.424-1 and Section 409A of the Code, as applicable.
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3.1
General.
The
Plan shall be administered by the Committee, which shall have full power and authority to take all actions and to make all determinations as are required or permitted under the Plan. In accordance with the provisions of the Plan, the Committee
shall, in its sole discretion, select the Participants from among the eligible individuals described in Section 5, determine the Awards to be made pursuant to the Plan, or shares of Stock to be issued thereunder and the time at which such
Awards are to be made, fix the Option Price (or Grant Price), period and manner in which an Option (or Stock Appreciation Right) becomes exercisable, establish the duration and nature of Restricted Stock or Restricted Stock Unit restrictions,
establish the terms and conditions applicable to, and establish such other terms and requirements of the various compensation incentives under the Plan as the Committee may deem necessary or desirable and consistent with the terms of the Plan. The
Committee shall determine the form of the Award Agreements with Participants that shall evidence the particular provisions, terms, conditions, rights and duties of the Company and the Participants with respect to Awards granted pursuant to the Plan,
which provisions need not be identical except as may be provided herein. The Committee may amend, modify, or supplement the terms of any outstanding Award including, but not limited to, amending an Award or exercising discretion under an Award or
under the Plan to: (i) accelerate the date on which an Award becomes vested, exercisable, or transferable, (ii) extend the term of any Award, including the period following the termination of the Service Provider’s Service to the
Company during which the Award shall remain outstanding, (iii) waive any conditions with regard to vesting, exercisability, or transferability of an Award, and (iv) recognize differences in local law, tax policy, or custom with regard to
Awards made to foreign nations or individuals who are employed outside the United States. Notwithstanding the foregoing, no amendment or modification may be made to an outstanding Option or Stock Appreciation Right that (i) causes the Option or
Stock Appreciation Right to become subject to Section 409A of the Code, (ii) reduces the Exercise Price or Grant Price, either by lowering the Exercise Price or Grant Price or by canceling the outstanding Option or Stock Appreciation Right
and granting a replacement Option or Stock Appreciation Right with a lower Exercise Price or Grant Price, or (iii) would be treated as a repricing under the rules of the exchange upon which shares of Stock of the Company trade, without, with
respect to item (i), the Participant’s written prior approval, and with respect to items (ii) and (iii), without the approval of the stockholders of the Company, provided, that, appropriate adjustments may be made to outstanding Options
and Stock Appreciation Rights pursuant to Section 14.
As a condition to any Award, the Committee shall have the right, at its
discretion, to require Participants to return to the Company Awards previously granted under the Plan. Subject to the terms and conditions of the Plan, any such subsequent Award shall be upon such terms and conditions as are specified by the
Committee at the time the new Award is granted. The Company may retain the right in an Award Agreement to cause a forfeiture of the gain realized by a Participant on account of actions taken by the Participant in violation or breach of or in
conflict with any non-competition agreement, any agreement prohibiting solicitation of employees or clients of the Company or any Affiliate thereof or any confidentiality obligation with respect to the Company or any Affiliate thereof or otherwise
in competition with the Company or any Affiliate thereof, to the extent specified in such Award Agreement applicable to the Participant. Furthermore, the Committee may annul an Award if the Participant is an
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employee of the Company or an Affiliate thereof and is terminated for Cause as defined in the applicable Award Agreement or the Plan, as applicable.
The Committee may from time to time adopt such rules and regulations for carrying out the purposes of the Plan as it may deem proper and
in the best interests of the Company. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any Award Agreement entered into hereunder in the manner and to the extent it shall deem expedient and
it shall be the sole and final judge of such expediency. The determinations, interpretations and other actions of the Committee pursuant to the provisions of the Plan shall be binding and conclusive for all purposes and on all persons.
3.2
Delegation by the Committee
.
The Committee may, from time to time, delegate, to specified officers of the Company, the power
and authority to grant or document Awards under the Plan to specified groups of eligible individuals, subject to such restrictions and conditions as the Committee, in its sole discretion, may impose. The delegation shall be as broad or as narrow as
the Committee shall determine. To the extent that the Committee has delegated the authority to determine certain terms and conditions of an Award, all references in the Plan to the Committee’s exercise of authority in determining such terms and
conditions shall be construed to include the officer or officers to whom the Committee has delegated the power and authority to make such determination. However, any delegation (a) shall not result in the loss of an exemption under
Rule 16b-3(d) for Awards granted to Participants subject to Section 16 of the Exchange Act in respect of the Company, (b) will not cause Awards intended to qualify as “performance-based” compensation under Code
Section 162(m) to fail to so qualify, (c) will not result in a related-person transaction with an executive officer required to be disclosed under Item 404(a) of Regulation S-K (in accordance with Instruction 5.a.ii thereunder)
under the Exchange Act and (d) shall be permitted under Section 157 and other applicable provisions of the Delaware General Corporation Law.
3.3
Limitations on Authority
.
The Committee shall, in exercising its discretion under the Plan, comply with all contractual and legal obligations of the Company or the Committee in effect from
time to time, whether contained in the Company’s charter, bylaws, or other binding contract, or in the Compensation Committee’s charter, or in applicable law.
3.4
Deferral Arrangement
.
The Committee may permit or require the deferral of any Award payment into a deferred compensation arrangement, subject to such rules and procedures as it may
establish in accordance with Section 409A of the Code, which may include provisions for the payment or crediting of interest or Dividend Equivalents, including converting such credits into deferred Stock units.
3.5
No Liability
.
No member of the Board or of the Committee shall be liable for any action or determination made in good
faith with respect to the Plan, any Award or any Award Agreement.
3.6
Book Entry
.
Notwithstanding any other provision
of this Plan to the contrary, the Company may elect to satisfy any requirement under this Plan for the delivery of stock certificates through the use of electronic or other forms of book-entry.
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4.
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STOCK SUBJECT TO THE PLAN
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4.1
Number of
Shares
.
Subject to adjustment as provided in Section 14, the maximum number of shares of Stock available for issuance under the Plan shall be 5,000,000 shares. Subject to adjustment as provided in Section 14,
5,000,000 shares of Stock available for issuance under the Plan shall be available for issuance pursuant to Incentive Stock Options. Such maximum numbers may be increased from time to time by approval of the Board and by the stockholders of the
Company if, in the opinion of counsel for the Company, stockholder approval is required. Stock issued or to be issued under the Plan shall be authorized but unissued shares; or, to the extent permitted by applicable law, issued shares that have been
reacquired by the Company.
4.2
Individual Award Limits
.
Subject to adjustment as provided in Section 14, the
maximum number or value of shares of Stock that may be covered by an Award granted under the Plan (other than Substitute Awards) to a single Participant in any calendar year shall not exceed the lesser of 300,000 shares or $5,000,000.
4.3
Share Counting
.
The Committee may adopt reasonable counting procedures to ensure appropriate counting, avoid double
counting (as, for example, in the case of tandem Awards) and make adjustments in accordance with Section 14. If the Exercise Price of any Option granted under the Plan, or if pursuant to Section 12 the tax withholding obligation of any
Participant with respect to an Option or other Award, is satisfied by tendering shares of Stock to the Company (either by actual deliver or by attestation) or by withholding shares of Stock, the number of shares of Stock issued net of the shares of
Stock tendered or withheld shall be deemed delivered for purposes of determining the maximum number of shares of Stock available for delivery under the Plan. To the extent that an Award under the Plan is canceled, expired, forfeited, settled in
cash, settled by issuance of fewer shares than the number underlying the Award, or otherwise terminated without delivery of shares to the Participant, the shares of Stock retained or returned to the Company will also be available under the Plan.
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5.
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ELIGIBILITY AND PARTICIPATION
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Individuals eligible
to participate in this Plan include all Service Providers of the Company, or any Affiliate;
provided, however,
to the extent required under Section 409A of the Code, an Affiliate of the Company shall include only an entity in which the
Company possesses at least twenty percent (20%) of the total combined voting power of the entity’s outstanding voting securities or such other threshold ownership percentage permitted or required under Section 409A of the Code.
Subject to the provisions of this Plan, the Committee may, from time to time, select from all eligible individuals, those individuals to whom Awards shall be granted. An eligible person may receive more than one Award, subject to such restrictions
as are provided herein.
6.1
Grant of
Options
.
Subject to the provisions of this Plan, Options may be granted to Participants in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee, it its sole discretion;
provided that Incentive Stock
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Options may be granted only to eligible Employees of the Company or of any parent corporation or subsidiary corporation (as permitted by Section 422 of
the Code).
6.2
Award Agreement
.
Each Option granted under the Plan shall be evidenced by an Award Agreement
that shall specify the Exercise Price, the number of shares of Stock covered by the Option, the maximum duration of the Option, the conditions upon which an Option shall become vested and exercisable and such other provisions as the Committee shall
determine, consistent with the terms of the Plan. The Award Agreement shall specify whether the Option is intended to be an Incentive Stock Option or a Non-Qualified Stock Option.
(a)
Exercise Price.
The Exercise Price for each Option shall be as determined by the Committee and shall be specified in the
Award Agreement. The Exercise Price shall be: not less than one hundred percent (100%) of the Fair Market Value of a share of Stock on the Grant Date;
provided, however,
that the foregoing minimum Exercise Price shall not apply to
Substitute Awards. In no case shall the Exercise Price of any Option be less than the par value of a share of Stock.
(b)
Number of Shares.
Each Award Agreement shall state that it covers a specified number of shares of Stock, as determined by the Committee.
(c)
Term.
Each Option shall terminate as set forth in the Award
Agreement and all rights to purchase shares of Stock shall expire at such time as the Committee shall determine at the time of grant;
provided, however,
no Option shall be exercisable later than the tenth (10
th
) anniversary of the Grant Date.
(d)
Restrictions on Exercise.
The Award Agreement shall set forth any installment or other restrictions on exercise of the Option during the term of the Option. Each Option shall become exercisable and shall vest over such
period of time, or upon such events, as determined by the Committee.
6.3
Exercise of Option
.
(a)
Manner of Exercise.
An Option granted hereunder shall be exercised, in whole or in part, by providing written or
electronic notice, on a form provided by the Company, to an employee as designated by the Company, specifying the number of shares of Stock to be purchased and accompanied by full payment of the Exercise Price for the shares and satisfaction of any
tax withholding requirements.
(b)
Payment.
A condition to the issuance or other delivery of shares of Stock
as to which an Option shall be exercised shall be the payment of the Exercise Price and satisfaction of any tax withholding requirements. The Exercise Price of an Option shall be payable to the Company in full, in any method permitted under the
Award Agreement, including: (i) in cash or in cash equivalents acceptable to the Company; (ii) by tendering (either by actual delivery or by attestation) unrestricted shares of Stock already owned by the Participant (for at least six
(6) months or such other period as may be required by the Committee in order to comply with applicable law and to avoid adverse accounting consequences) on the date of surrender to the extent the shares of Stock have a Fair Market Value on the
date of surrender equal to the aggregate Exercise Price of the shares as to which such Option shall be exercised,
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provided that, in the case of an Incentive Stock Option, the right to make payment in the form of already owned shares of Stock may be authorized only at the
time of grant, (iii) any other method approved or accepted by the Committee in its sole discretion, including, but not limited to a cashless (broker-assisted) exercise, or (iv) any combination of the foregoing. Unless otherwise determined
by the Committee, all payments under all of the methods indicated above shall be paid in United States dollars.
(c)
Delivery of Shares.
Promptly after the exercise of an Option by a Participant and the payment in full of the Exercise Price, such Participant shall be entitled to the issuance of certificates evidencing such Participant’s
ownership of the shares of Stock purchased upon exercise of the Option. Notwithstanding any other provision of this Plan to the contrary, the Company may elect to satisfy any requirement under this Plan for the delivery of certificates through the
use of electronic or other forms of book-entry.
6.4
Termination of Service
.
Each Award Agreement shall set
forth the extent to which the Participant shall have the right to exercise the Option following termination of the Participant’s Service. Such provisions shall be determined in the sole discretion of the Committee, need not be uniform among all
Options issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination of Service.
6.5
Limitations
on Incentive Stock Options
.
(a)
Initial Exercise.
The aggregate Fair Market Value of the
shares of Stock with respect to which Incentive Stock Options are exercisable for the first time by a Participant in any calendar year, under the Plan or otherwise, shall not exceed $100,000. For this purpose, the Fair Market Value of the shares of
Stock shall be determined as of the Grant Date and each Incentive Stock Option shall be taken into account in the order granted.
(b)
Ten Percent Stockholders.
An Incentive Stock Option granted to a Participant who is the holder of record of more than ten percent (10%) of the combined voting power of all classes of stock of the Company shall have an
Exercise Price at least equal to one hundred and ten percent (110%) of the Fair Market Value of a share of Stock on the Grant Date of the Option and the term of the Option shall not exceed five (5) years.
(c)
Notification of Disqualifying Disposition.
If any Participant shall make any disposition of shares of Stock acquired
pursuant to the exercise of an Incentive Stock Option under the circumstances described in Section 421(b) of the Code (relating to certain disqualifying dispositions), the Participant shall notify the Company of such disposition within ten
(10) days thereof.
(d)
Limitations on Exercise.
No Incentive Stock Option shall be exercisable as an
Incentive Stock Option more than three (3) months after the Participant ceases to be an Employee for any reason other than death or Disability, or more than one (1) year after the Participant ceases to be an Employee due to death or
Disability.
6.6
Transferability
.
Except as provided in Section 6.7, during the lifetime of a Participant,
only the Participant (or, in the event of legal incapacity or incompetency, the Participant’s guardian or legal representative) may exercise an Option. Except as provided in
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Section 6.7, no Option shall be assignable or transferable by the Participant to whom it is granted, other than by will or the laws of descent and
distribution.
6.7
Family Transfers
.
If authorized in the applicable Award Agreement, a Participant may
transfer, not for value, all or part of an Option to any Family Member. For the purpose of this Section 6.7, a “not for value” transfer is a transfer which is (i) a gift, (ii) a transfer under a domestic relations order in
settlement of marital property rights; or (iii) unless applicable law does not permit such transfers, a transfer to an entity in which more than fifty percent (50%) of the voting interests are owned by Family Members (or the Participant)
in exchange for an interest in that entity. Following a transfer under this Section 6.7, any such Option shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer. Subsequent transfers of
transferred Options are prohibited except to Family Members of the original Participant in accordance with this Section 6.7 or by will or the laws of descent and distribution. The events of termination of Service under an Option shall continue
to be applied with respect to the original Participant, following which the Option shall be exercisable by the transferee only to the extent, and for the periods specified in the applicable Award Agreement.
6.8
Rights of Holders of Options
.
Unless otherwise stated in the applicable Award Agreement, an individual holding or
exercising an Option shall have none of the rights of a stockholder of the Company (for example, the right to receive cash or dividend payments or distributions attributable to the subject shares of Stock or to direct the voting of the shares of
Stock) until the shares of Stock covered thereby are fully paid and issued to such individual. Except as provided in Section 14 hereof, no adjustment shall be made for dividends, distributions or other rights for which the record date is prior
to the date of such issuance.
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7.
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STOCK APPRECIATION RIGHTS
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7.1
Grant of Stock
Appreciation Rights
.
Subject to the provisions of this Plan, Stock Appreciation Rights may be granted to Participants at any time and from time to time as shall be determined by the Committee. The Committee may grant
freestanding Stock Appreciation Rights, Stock Appreciation Rights that are granted in tandem with an Option, or any combination thereof.
7.2
Award Agreement
.
Each Stock Appreciation Right shall be evidenced by an Award Agreement that shall specify the Grant Price, the number of shares of Stock covered by the Stock Appreciation Right, the maximum
duration of the Stock Appreciation Right, the conditions upon which the Stock Appreciation Right shall become vested and exercisable and such other provisions as the Committee shall determine, consistent with the terms of the Plan.
(a)
Grant Price.
The Grant Price for each Stock Appreciation Right shall be determined by the Committee and shall be
specified in the Award Agreement. Other than with respect to Substitute Awards, the Grant Price shall not be less than one hundred percent (100%) of the Fair Market Value of a share of Stock on the Grant Date of the Stock Appreciation Right.
(b)
Number of Shares.
Each Award Agreement shall state that it covers a specified number of shares of Stock,
as determined by the Committee.
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(c)
Term.
Each Stock
Appreciation Right shall terminate and all rights with respect to the Stock Appreciation Right shall expire at such time as the Committee shall determine at the time of grant;
provided, however,
no Stock Appreciation Rights shall be
exercisable later than the tenth (10
th
) anniversary of the Grant Date.
(d)
Restrictions on Exercise.
The Award Agreement shall set forth any installment or other restrictions on exercise of the
Stock Appreciation Right during its term. Each Stock Appreciation Right shall become exercisable and shall vest over such period of time, or upon such events, as determined by the Committee (including based on achievement of performance goals or
future service requirements).
7.3
Exercise of Stock Appreciation Right
.
A Participant desiring to exercise a
Stock Appreciation Right shall give written or electronic notice, on a form provided by the Company, of such exercise to the Company with the information the Company deems reasonably necessary to exercise the Stock Appreciation Right. If a Stock
Appreciation Right is issued in tandem with an Option, except as may otherwise be provided by the Committee, the Stock Appreciation Right shall be exercisable during the period that its related Option is exercisable. Upon the exercise of a Stock
Appreciation Right, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying:
(a) The excess of the Fair Market Value of a share of Stock on the date of exercise over the Grant Price; by
(b)
The number of shares of Stock with respect to which the Stock Appreciation Right is exercised.
At the discretion of the Committee, the
payment upon exercise may be in cash, shares of Stock or any combination thereof, or in any other manner approved by the Committee in its sole discretion. The Committee’s determination as to the form of settlement shall be set forth in the
Award Agreement.
7.4
Effect of Exercise
.
If a Stock Appreciation Right is issued in tandem with an Option, the
exercise of the Stock Appreciation Right or the related Option will result in an equal reduction in the number of corresponding shares of Stock subject to the Option or Stock Appreciation Right that were granted in tandem with such Stock
Appreciation Right and Option.
7.5
Termination of Service
.
Each Award Agreement shall set forth the extent to
which the Participant shall have the right to exercise the Stock Appreciation Right following termination of the Participant’s Service. Such provisions shall be determined in the sole discretion of the Committee, need not be uniform among all
Stock Appreciation Rights issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination of Service. Any Stock Appreciation Right issued in tandem with an Option shall be exercisable following termination of the
Participant’s Service to the same extent that its related Option is exercisable following the Participant’s termination of Service.
7.6
Transferability
.
A Stock Appreciation Right shall only be transferable upon the same terms and conditions with respect to transferability as are specified in Sections 6.6 and 6.7 with respect to Options.
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8.
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RESTRICTED STOCK AND RESTRICTED STOCK UNITS
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8.1
Grant of Restricted Stock or Restricted Stock Units
.
Subject to the provisions of this Plan, the Committee at any time and from time to time, may grant shares of Restricted Stock or Restricted Stock Units to Participants
in such amounts as the Committee shall determine. The
8.2
Award Agreement
.
Each grant of Restricted Stock or
Restricted Stock Units shall be evidenced by an Award Agreement that shall specify the Restriction Period, the number of shares of Restricted Stock or the number of Restricted Stock Units granted and such other provisions as the Committee shall
determine.
8.3
Restrictions on Transfer
.
Except as provided in this Plan or an Award Agreement, the shares of
Restricted Stock and Restricted Stock Units may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated until the end of the Restriction Period established by the Committee and specified in the Award Agreement (and in the
case of Restricted Stock Units until the date of delivery or other payment), or upon earlier satisfaction or any other conditions, as specified by the Committee, in its sole discretion. All rights with respect to the Restricted Stock or Restricted
Stock Units granted to a Participant shall be available during his or her lifetime only to such Participant, except as otherwise provided in an Award Agreement or at any time by the Committee.
8.4
Forfeiture; Other Restrictions
.
The Committee shall impose such other conditions and restrictions on any shares of
Restricted Stock or Restricted Stock Units as it may deem advisable including a requirement that the Participant pay a specified amount to purchase each share of Restricted Stock, restrictions based upon the achievement of specific performance
goals, time-based restrictions on vesting following the attainment of the performance goals, time-based restrictions or restrictions under applicable laws or under the requirements of any stock exchange or market upon which shares of Stock are then
listed or traded, or holding requirements or sale restrictions placed on the shares of Stock by the Company upon vesting of such Restricted Stock or Restricted Stock Units.
8.5
Restricted Stock Units
.
A holder of Restricted Stock Units shall have no rights other than those of a general creditor of
the Company. Restricted Stock Units represent an unfunded and unsecured obligation of the Company, subject to the terms and conditions of the applicable Award Agreement. Restricted Stock Units may be settled in cash or Stock, as determined by the
Committee and set forth in the Award Agreement.
8.6
Termination of Service
.
Unless otherwise provided by the
Committee in the applicable Award Agreement, upon the termination of a Participant’s Service with the Company or an Affiliate, any shares of Restricted Stock or Restricted Stock Units held by such Participant that have not vested, or with
respect to which all applicable restrictions and conditions have not lapsed, shall immediately be deemed forfeited, and the Participant shall have no further rights with respect to such Awards, including but not limited to any right to vote
Restricted Stock or any right to receive dividends or Dividend Equivalents with respect to Restricted Stock or Restricted Stock Units.
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8.7
Stockholder Privileges
.
Unless otherwise determined by the Committee and
set forth in the Award Agreement:
(a) A Participant holding shares of Restricted Stock shall generally have the rights of
stockholder to vote the shares or Restricted Stock during the Restriction Period. The Committee may provide in an Award Agreement that the holder of such Restricted Stock shall be entitled to receive ordinary cash dividends actually paid with
respect to the Restricted Stock in accordance with Section 11.
(b) A Participant holding Restricted Stock Units shall
have no rights of a stockholder of the Company with respect to the Restricted Stock Units. The Committee may provide in an Award Agreement that the holder of such Restricted Stock Units shall be entitled to receive Dividend Equivalents in accordance
with Section 11.
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9.
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QUALIFIED PERFORMANCE BASED COMPENSATION
|
9.1
Grant or Vesting of Award Subject to Objective Performance Goals
.
The Committee may, in its discretion, condition the grant, vesting, or payment of an Award on the attainment of one or more pre-established objective
performance goals, in accordance with the “qualified performance based compensation” exception to Code Section 162(m).
9.2
Establishment of Performance Goals
.
All performance goals established pursuant to this Article 9 shall be objective and shall be established by the Committee within 90 days after the beginning of the period of service to
which the performance goal relates (and in no event after passage of more than 25% of the period to which the performance goal relates). Performance goals may include alternate and multiple goals and shall be based on one or more of the following
criteria: (a) total shareholder return; (b) return on assets, return on equity, or return on capital employed; (c) measures of profitability such as earnings per share, corporate or business-unit net income, net income before
extraordinary or one-time items, earnings before interest and taxes, or earnings before interest, taxes, depreciation and amortization; (d) cash flow from operations; (e) gross or net revenues or gross or net margins; (f) levels of
operating expense or other expense items reported on the income statement; (g) measures of customer satisfaction and customer service; (h) safety; (i) annual or multi-year average production growth; (j) efficiency or productivity
measures such as annual or multi-year absolute or per-unit operating and maintenance costs; (k) satisfactory completion of a major project or organizational initiative with specific criteria set in advance by the Committee; (l) debt ratios
or other measures of credit quality or liquidity; (m) strategic asset sales or acquisitions in compliance with specific criteria set in advance by the Committee; (n) sales and marketing measures, such as annual or multi-year
“net-back” sales or the introduction of new products in accordance with specific goals set in advance by the Committee; and (o) staffing and retention. The performance goals applicable to a particular Award shall be set forth by the
Committee in the Award Agreement for such Award.
9.3
Achievement of Performance Goals
.
The Committee shall
certify in writing prior to the grant, vesting, or payment of any Award that the applicable performance goals have been satisfied. Except as may otherwise be provided herein or as may otherwise be contained in the Award Agreement (which provisions
shall comply with Section 162(m)), in the event that the
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performance goals are not satisfied, the Award shall not be granted or become vested or payable, as applicable.
9.4
Committee to Comply with Section 162(m)
.
Notwithstanding anything to the contrary herein, the “Committee,”
for purposes of this Section 9, shall consist solely of two or more persons who qualify as “outside directors” within the meaning of Section 162(m) of the Code.
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10.
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OTHER STOCK-BASED AWARDS
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From time to time during
the duration of this Plan, the Committee may, in its sole discretion, adopt one or more incentive compensation arrangements for Participants pursuant to which the Participants may (i) acquire shares of Stock under the Plan, whether by purchase,
outright grant, or otherwise, or (ii) receive an Award, whether payable in cash or in Stock, the value of which is determined, in whole in part, based on the value of Common Stock. Any such arrangements shall be subject to the general
provisions of this Plan and all cash payments or shares of Stock issued pursuant to such arrangements shall be made under this Plan.
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11.
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DIVIDENDS AND DIVIDEND EQUIVALENTS
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Subject to the
terms of the Plan and any applicable Award Agreement, a Participant shall, if so determined by the Committee, be entitled to receive, currently, or on a deferred basis, dividends or Dividend Equivalents, with respect to the shares of Stock covered
by the Award. The Committee may provide that any dividends paid on shares of Stock subject to an Award must be reinvested in additional shares of Stock, which may or may not be subject to the same vesting conditions and restrictions applicable to
the Award. Notwithstanding the award of Dividend Equivalents or dividends, a Participant shall not be entitled to receive a special or extraordinary dividend or distribution unless the Committee shall have expressly authorized such receipt. All
distributions, if any, received by a Participant with respect to an Award as a result of any split, Stock dividend, combination of shares of Stock, or other similar transaction shall be subject to the restrictions applicable to the original Award.
The Company or any Affiliate, as
the case may be, shall have the right to deduct from payments of any kind otherwise due to a Participant any federal, state, or local taxes, domestic or foreign, of any kind required by law with respect to the vesting of or other lapse of
restrictions applicable to Awards or upon the issuance of any shares of Stock or payment of any kind upon the exercise of any Options or Stock Appreciation Rights. At the time of such vesting, lapse, payment, or exercise, the Participant shall pay
to the Company or Affiliate, as the case may be, any amount that the Company or Affiliate may reasonably determine to be necessary to satisfy such withholding obligation.
Subject to the prior approval of the Company or the Affiliate, which may be withheld by the Company or the Affiliate, as the case may be, in its sole discretion, the Participant may elect to have shares of Stock
withheld or to deliver shares to satisfy the minimum statutory withholding rates for federal, state and local income taxes and employment taxes that are applicable to supplemental taxable income (
“Minimum Statutory
Withholding”
) obligations.
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The Participant may elect to satisfy Minimum Statutory Withholding obligations, in whole or in part, (i) by causing the Company or the Affiliate to
withhold shares of Stock otherwise issuable to the Participant or (ii) by delivering to the Company or the Affiliate shares of Stock already owned by the Participant (for at least six (6) months or such other period as may be required by
the Committee in order to comply with applicable law and to avoid adverse accounting consequences). The shares of Stock so delivered or withheld shall have an aggregate Fair Market Value not in excess of such withholding obligations. The Fair Market
Value of the shares of Stock used to satisfy such withholding obligation shall be determined by the Committee as of the date that the amount of tax to be withheld is to be determined. A Participant who has made an election pursuant to this
Section 12 may satisfy his or her withholding obligation only with shares of Stock that are not subject to any repurchase, forfeiture, unfulfilled vesting, or other similar requirements.
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13.
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PARACHUTE LIMITATIONS
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Notwithstanding any other
provision of this Plan or of any other agreement, contract, or understanding heretofore or hereafter entered into by a Participant with the Company or any Affiliate, except an agreement, contract, or understanding that expressly or impliedly
modifies or excludes application of this Section 13 (an
“Other Agreement”
), and notwithstanding any formal or informal plan or other arrangement for the direct or indirect provision of compensation to the Participant
(including groups or classes of participants or beneficiaries of which the Participant is a member), whether or not such compensation is deferred, is in cash, or is in the form of a benefit to or for the Participant (a
“Benefit
Arrangement”
), if the Participant is a “disqualified individual,” as defined in Section 280G(c) of the Code, any Awards held by that Participant and any right to receive any payment or other benefit under this Plan shall
not become exercisable or vested (i) to the extent that such right to exercise, vesting, payment, or benefit, taking into account all other rights, payments, or benefits to or for the Participant under this Plan, all Other Agreements, and all
Benefit Arrangements, would cause any payment or benefit to the Participant under this Plan to be considered a “parachute payment” within the meaning of Section 280G(b)(2) of the Code as then in effect (a
“Parachute
Payment”
) and (ii) if, as a result of receiving a Parachute Payment, the aggregate after-tax amounts received by the Participant from the Company under this Plan, all Other Agreements, and all Benefit Arrangements would be less
than the maximum after-tax amount that could be received by the Participant without causing any such payment or benefit to be considered a Parachute Payment. In the event that the receipt of any such right to exercise, vesting, payment, or benefit
under this Plan, in conjunction with all other rights, payments, or benefits to or for the Participant under any Other Agreement or any Benefit Arrangement would cause the Participant to be considered to have received a Parachute Payment under this
Plan that would have the effect of decreasing the after-tax amount received by the Participant as described in clause (ii) of the preceding sentence, then the Committee shall have the right, in its sole discretion, to designate those rights,
payments, or benefits under this Plan, any Other Agreements, and any Benefit Arrangements to be reduced or eliminated so as to avoid having the payment or benefit to the Participant under this Plan be deemed to be a Parachute Payment.
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14.
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EFFECT OF CHANGES IN CAPITALIZATION
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14.1
Changes in Stock.
The number of shares of Stock for which Awards may be made under the Plan shall be proportionately increased or decreased for any increase or decrease in the number of shares of Stock on account of any
recapitalization, reclassification, split, reverse split, combination, exchange, dividend or other distribution payable in shares of Stock, or for any other increase or decrease in such shares of Stock effected without receipt of consideration by
the Company occurring after the Effective Date (any such event hereafter referred to as a
“Corporate Event”
). In addition, subject to the exception set forth in the second sentence of Section 14.4, the number and kind of
shares for which Awards are outstanding shall be proportionately increased or decreased for any increase or decrease in the number of shares of Stock on account of any Corporate Event. Any such adjustment in outstanding Options or Stock Appreciation
Rights shall not increase the aggregate Exercise Price or Grant Price payable with respect to shares that are subject to the unexercised portion of an outstanding Option or Stock Appreciation Right, as applicable, and the adjustment shall comply
with the requirements under Section 409A of the Code. The conversion of any convertible securities of the Company shall not be treated as an increase in shares effected without receipt of consideration. Notwithstanding the foregoing, in the
event of any distribution to the Company’s stockholders of securities of any other entity or other assets (including an extraordinary cash dividend but excluding a non-extraordinary dividend payable in cash or in stock of the Company) without
receipt of consideration by the Company, the Company shall proportionately adjust (i) the number and kind of shares subject to outstanding Awards and/or (ii) the Exercise Price per share of outstanding Options and the Grant Price of
outstanding Stock Appreciation Rights to reflect such distribution. Notwithstanding the foregoing, upon the occurrence of any event or transaction contemplated in this Section 14.1, any changes contemplated herein shall be modified to the
minimum extent necessary, in the sole discretion of the Committee, to avoid any tax that may otherwise become due under Section 409A of the Code.
14.2
Change of Control.
Subject to the exception set forth in the second sentence of Section 14.4, upon a Change of Control, the Committee may take any one or more of the following actions with
respect to non-vested Awards as of the date of the Change of Control: (i) provide that any or all such outstanding Awards shall be fully vested, exercisable, and/or payable regardless of whether all vesting conditions relating to length of
service, attainment of performance goals, or otherwise have been satisfied; (ii) provide that any or all such outstanding Awards shall become fully vested, exercisable, and/or payable if, within a reasonable period of time not to exceed 18
months after the consummation of a Change of Control, a Participant’s Service is terminated by either the Company, an Affiliate or a successor in interest to the Company or an Affiliate without Cause or by the Participant for Good Reason; or
(iii) make any other provision for such outstanding Awards as the Committee deems appropriate, including, but not limited to, providing that the vesting conditions relating to length of service, attainment of performance goals, or otherwise
shall continue unaffected. The Committee may provide that any Awards shall expire at the time of the Change of Control; provided, however, that the Committee shall not provide for expiration of outstanding Awards unless it has also provided that
such Awards are fully vested, exercisable, and/or payable upon the Change of Control. With respect to Options or Stock Appreciation Rights, the Committee may provide that the holder thereof shall receive a cash payment in exchange for the
cancellation of such Award, equal to the excess, if any, between the Fair Market Value of a share of Stock immediately prior to the Change of
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Control and the per share exercise price set forth in the Award Agreement, multiplied by the number of shares of Stock then covered by the Award. Provision
may also be made in writing in connection with a Change of Control for the assumption or continuation of the Awards theretofore granted, or for the substitution for such Awards for new options, restricted stock or other equity awards relating to the
stock or units of a successor entity, or a parent or subsidiary thereof, with appropriate adjustments as to the number of shares or units and option and grant prices, in which event the Awards theretofore granted shall continue in the manner and
under the terms so provided. The Committee need not take the same action with respect to all outstanding Awards or to all outstanding Awards of the same type.
14.3
Reorganization in Which the Company Is the Surviving Entity and in Which No Change of Control Occurs.
Subject to the exception set forth in the second sentence of Section 14.4, if the Company
shall be the surviving entity in any reorganization, merger, or consolidation of the Company with one or more other entities and in which no Change of Control occurs, any Award theretofore made pursuant to the Plan shall pertain to and apply solely
to the securities to which a holder of the number of securities subject to such Award would have been entitled immediately following such reorganization, merger, or consolidation, and, in the case of Options and Stock Appreciation Rights, with a
corresponding proportionate adjustment of the Exercise Price or Grant Price per share so that the aggregate Exercise Price or Grant Price thereafter shall be the same as the aggregate Exercise Price or Grant Price of the shares of Stock remaining
subject to the Option or Stock Appreciation Right immediately prior to such reorganization, merger, or consolidation. Subject to any contrary language in an Award Agreement evidencing any other Award, any restrictions applicable to such Award shall
apply as well to any replacement shares of Stock received by the Participant as a result of the reorganization, merger or consolidation. Notwithstanding the foregoing, upon the occurrence of any event or transaction contemplated in this
Section 14.3, any changes contemplated herein shall be modified to the minimum extent necessary, in the sole discretion of the Committee, to avoid any tax that may otherwise become due under Section 409A of the Code.
14.4
Adjustment.
Adjustments under Section 14 related to shares of Stock or securities of the Company shall be made by the Committee,
whose determination in that respect shall be final, binding and conclusive. The Committee may provide in the Award Agreements at the time of Award, or any time thereafter with the consent of the Participant, for different provisions to apply to an
Award in place of those described in Sections 14.1, 14.2 and 14.3. Notwithstanding the foregoing, any different provisions or changes to provisions contemplated herein shall be modified to the minimum extent necessary, in the sole discretion of the
Committee, to avoid any tax that may otherwise become due under Section 409A of the Code.
14.5
No Limitations on the
Company
.
The making of Awards pursuant to the Plan shall not affect or limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure
or to merge, consolidate, dissolve, or liquidate, or to sell or transfer all or any part of its business or assets.
15.1
General
.
The Company shall not be required to issue or sell any shares of Stock under any Award if the issuance or sale of such shares would constitute a violation by the
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Participant, any other individual exercising an Option or Stock Appreciation Right, or the Company of any provisions of any law or regulation of any
governmental authority, including without limitation any federal or state securities laws or regulations. If at any time the Company shall determine, in its discretion, that the listing, registration or qualification of any shares subject to an
Award upon any securities exchange or under any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the issuance or purchase of shares of Stock hereunder, no shares of Stock may be issued or sold to the
Participant or any other individual exercising an Option or Stock Appreciation Right pursuant to such Award unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not
acceptable to the Company, and any delay caused thereby shall in no way affect the date of termination of the Award. Specifically, in connection with the Securities Act, upon the exercise of any Option or the delivery of any shares of Stock
underlying an Award, unless a registration statement under the Securities Act is in effect with respect to the shares of Stock covered by such Award, the Company shall not be required to issue or sell such shares of Stock unless the Committee has
received evidence satisfactory to it that the Participant or any other individual exercising an Option may acquire such shares of Stock pursuant to an exemption from registration under the Securities Act. Any determination in this connection by the
Committee shall be final, binding, and conclusive. The Company may, but shall in no event be obligated to, register any securities covered hereby pursuant to the Securities Act. The Company shall not be obligated to take any affirmative action in
order to cause the exercise of an Option or the issuance or sale of shares of Stock pursuant to the Plan to comply with any law or regulation of any governmental authority. As to any jurisdiction that expressly imposes the requirement that an Option
shall not be exercisable until the shares of Stock covered by such Option are registered or are exempt from registration, the exercise of such Option (under circumstances in which the laws of such jurisdiction apply) shall be deemed conditioned upon
the effectiveness of such registration or the availability of such an exemption.
15.2
Rule 16b-3
.
During any
time when the Company has a class of equity security registered under Section 12 of the Exchange Act, it is the intent of the Company that Awards pursuant to the Plan and the exercise of Options granted hereunder will qualify for the exemption
provided by Rule 16b-3 under the Exchange Act. To the extent that any provision of the Plan or action by the Committee does not comply with the requirements of Rule 16b-3, it shall be deemed inoperative to the extent permitted by law and deemed
advisable by the Committee, and shall not affect the validity of the Plan. In the event that Rule 16b-3 is revised or replaced, the Committee may exercise its discretion to modify this Plan in any respect necessary to satisfy the requirements of, or
to take advantage of any features of, the revised exemption or its replacement.
16.1
Disclaimer of
Rights
.
No provision in the Plan, in any Award or in any Award Agreement shall be construed to confer upon any individual the right to remain in the employ or service of the Company or any Affiliate, or to interfere in any way
with any contractual or other right or authority of the Company either to increase or decrease the compensation or other payments to any individual at any time, or to terminate any employment or other relationship between any individual and the
Company or any Affiliate. The obligation of the Company to pay any benefits pursuant to this Plan shall be interpreted as a contractual obligation to pay only
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those amounts described herein, in the manner and under the conditions prescribed herein. The Plan shall in no way be interpreted to require the Company to
transfer any amounts to a third party trustee or otherwise hold any amounts in trust or escrow for payment to any participant or beneficiary under the terms of the Plan.
16.2
Nontransferability of Awards
.
Except as provided in Sections 6.6, 6.7, and 7.6 or otherwise at the time of grant or thereafter, no right or interest of any Participant in an Award
granted pursuant to the Plan shall be assignable or transferable during the lifetime of the Participant, either voluntarily or involuntarily, or subjected to any lien, directly or indirectly, by operation of law, or otherwise, including execution,
levy, garnishment, attachment, pledge or bankruptcy, except pursuant to a domestic relations order in settlement of marital property rights. In the event of a Participant’s death, a Participant’s rights and interests in Awards shall only
be transferable by will or the laws of descent and distribution to the extent provided under this Plan, and payment of any amounts due thereunder shall be made to, and exercise of any Option or Stock Appreciation Right may be made by, the
Participant’s legal representatives, heirs or legatees. If in the opinion of the Committee a person entitled to payments or to exercise rights with respect to the Plan is unable to care for his or her affairs because of mental condition,
physical condition or age, payment due such person may be made to, and such rights shall be exercised by, such person’s guardian, conservator or other legal personal representative upon furnishing the Committee with evidence satisfactory to the
Committee of such status.
16.3
Changes in Accounting or Tax Rules
.
Except as provided otherwise at the time an
Award is granted, notwithstanding any other provision of the Plan to the contrary, if, during the term of the Plan, any changes in the financial or tax accounting rules applicable to any Award shall occur which, in the sole judgment of the
Committee, may have a material adverse effect on the reported earnings, assets or liabilities of the Company, the Committee shall have the right and power to modify as necessary, any then outstanding and unexercised Options, Stock Appreciation
Rights and other outstanding Awards as to which the applicable services or other restrictions have not been satisfied.
16.4
Nonexclusivity of the Plan
.
The adoption of the Plan shall not be construed as creating any limitations upon the right and authority of the Committee to adopt such other incentive compensation arrangements (which
arrangements may be applicable either generally to a class or classes of individuals or specifically to a particular individual or particular individuals) as the Committee in its discretion determines desirable.
16.5
Captions
.
The use of captions in this Plan or any Award Agreement is for the convenience of reference only and shall not
affect the meaning of any provision of the Plan or such Award Agreement.
16.6
Other Award Agreement
Provisions
.
Each Award Agreement may contain such other terms and conditions not inconsistent with the Plan as may be determined by the Committee, in its sole discretion.
16.7
Other Employee Benefits
.
The amount of any compensation deemed to be received by a Participant as a result of the
exercise of an Option or Stock Appreciation Right, the sale of Shares received upon such exercise, the vesting of any Restricted Stock, receipt of
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Performance Shares, distributions with respect to Restricted Stock Units or Performance Units, or Other Stock-Based Awards shall not constitute
“earnings” or “compensation” with respect to which any other employee benefits of such employee are determined, including without limitation, benefits under any pension, profit sharing, 401(k), life insurance or salary
continuation plan, except as may be specifically be provided otherwise under the terms of such other employee benefit plan or program.
16.8
Severability
.
If any provision of the Plan or any Award Agreement shall be determined to be illegal or unenforceable by any court of law in any jurisdiction, the remaining provisions hereof and thereof shall
be severable and enforceable in accordance with their terms, and all provisions shall remain enforceable in any other jurisdiction.
16.9
Governing Law
.
The validity and construction of this Plan and the Award Agreements shall be construed in accordance with and governed by the laws of the State of Delaware other than any conflicts or choice of law rule or
principle that might otherwise refer construction or interpretation of this Plan and the Award Agreements to the substantive laws of any other jurisdiction.
16.10
Section 409A
.
Notwithstanding anything in this Plan to the contrary, the Plan and Awards made under the Plan are intended to comply with the requirements imposed by
Section 409A of the Code. If any Plan provision or Award under the Plan would result in the imposition of an additional tax under Section 409A of the Code, the Company and the Participant intend that the Plan provision or Award will be
reformed to avoid imposition, to the extent possible, of the applicable tax and no action taken to comply with Section 409A of the Code shall be deemed to adversely affect the Participant’s rights to an Award. The Participant further
agrees that the Committee, in the exercise of its sole discretion and without the consent of the Participant, may amend or modify an Award in any manner and delay the payment of any amounts payable pursuant to an Award to the minimum extent
necessary to meet the requirements of Section 409A of the Code as the Committee deems appropriate or desirable. Subject to any other restrictions or limitations contained herein, in the event that a “specified employee” (as defined
under Section 409A of the Code) becomes entitled to a payment under the Plan that is subject to Section 409A of the Code on account of a “separation of service” (as defined under Section 409A oft the Code), such payment
shall not occur until the date that is six months plus one day from the date of such “separation from service.” Any amount that is otherwise payable within the six (6) month period described herein will be aggregated and paid in a
lump sum amount without interest.
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17.
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AMENDMENT, MODIFICATION AND TERMINATION
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17.1
Amendment, Modification, and Termination
.
Subject to Sections 3.2, 16.10 and 17.2, the Board may at any time terminate, and from time to time may amend or modify the Plan provided, however, that no amendment or
modification may become effective without approval of the stockholders of the Company if stockholder approval is required to enable the Plan to satisfy any applicable statutory or regulatory requirements, or if the Company, on the advice of counsel,
determines that stockholder approval is otherwise necessary or desirable.
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17.2
Awards Previously Granted
.
Except as otherwise may be required under
Section 16.10, notwithstanding Section 17.1 to the contrary, no amendment, modification or termination of the Plan or Award Agreement shall adversely affect in any material way any previously granted Award, without the written consent of
the Participant holding such Award.
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18.
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STOCKHOLDER APPROVAL; EFFECTIVE DATE OF PLAN
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The
Plan shall be effective as of the Effective Date. Any Option that is designated as an Incentive Stock Option shall be a Nonqualified Stock Option if the Plan is not approved by the stockholders of the Company within twelve (12) months after the
Effective Date of the Plan.
Unless sooner terminated by the Board,
this Plan shall terminate automatically 10 years from the Effective Date. After the Plan is terminated, no Awards may be granted. Awards outstanding at the time the Plan is terminated shall remain outstanding in accordance with the terms and
conditions of the Plan and the Award Agreement.
To record adoption of the Plan by the
Board as of April __, 2008, the Company has caused its authorized officer to execute the Plan.
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INTREPID POTASH, INC.
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By:
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Robert P. Jornayvaz III
Chief Executive
Officer
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Date:
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Exhibit 10.2
FORM OF
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT
(the “
Agreement
”) dated ______, 2008 between Intrepid Potash Inc., a Delaware corporation, having its
principal executive offices in Denver, Colorado, (the “
Company
”) and _______________ (“
Executive
”).
RECITALS
A.
Executive is the principal executive of Intrepid Mining LLC (“
Intrepid Mining
”), a
Delaware limited liability company that owns and operates potash mining and processing facilities in Utah and New Mexico and that produces and markets potash related products and by-products.
B.
On December 20, 2007, the Company filed a registration statement on Form S-1 with respect to the initial sale of shares of its common
stock to the public (the “
IPO
”).
C.
Immediately prior to the IPO, Intrepid Mining will contribute its assets to
the Company and the Company will thereafter conduct the business formerly conducted by Intrepid Mining and employ those individuals formerly employed by Intrepid Mining.
D.
In connection with the IPO, the Company and Executive wish to enter into an employment agreement to memorialize the terms and conditions of Executive’s employment as Chief Executive Officer of the
Company on and after the IPO.
AGREEMENT
In consideration of the mutual promises and agreements set forth below, the Company and Executive agree as follows:
1.
TERM OF EMPLOYMENT
:
Subject to the terms of this Agreement, the Company agrees to employ Executive, and Executive hereby accepts such employment, effective as of the date on which the IPO is effective (the
“
Effective Date
”). Executive’s employment shall be for a term of eighteen months, subject to earlier termination as provided in paragraph 4, herein (the “
Term
”); provided, however, that the Term will
automatically be extended by twelve months on the last day of the initial eighteen month term and on each anniversary of such date thereafter, unless one party to this Agreement provides written notice of non-renewal to the other party at least 90
days prior to the effective date of such automatic extension.
2.
POSITION AND DUTIES
:
a.
Position
: Executive shall serve as Chief Executive Officer of the Company and shall have the same duties, responsibilities, and
authority as he had in his capacity as the principal executive of Intrepid Mining immediately prior to the IPO, along with such other duties, responsibilities and authority as the Company’s Board of Directors (the “
Board
”) may
establish. Executive shall report directly to the Board and shall perform his duties and responsibilities primarily at the Company’s offices in Denver, Colorado.
b.
Commitment of Executive
: Executive shall devote substantially his full business time, energy, and ability to the business of the Company and its subsidiaries; provided, however, that Executive shall
be entitled to remain actively involved in the management and operation of Intrepid Oil and Gas, LLC and the other investment entities owned in whole or in part by Executive as of the Effective Date, to the extent such activities do not interfere
materially with the performance of Executive’s duties and responsibilities hereunder. Except as may otherwise be permitted by this Agreement or with the prior express authorization of the Board, Executive shall not render business or
professional services to any other person or firm, whether for compensation or otherwise.
c.
Other Positions and Services
:
Executive may, if such activities do not interfere materially with the performance of Executive’s duties and responsibilities hereunder, (i) continue to serve as a director or trustee of the other for-profit corporations or businesses for
which he is serving as a director or trustee on the Effective Date, (ii) with the prior approval of the Board, serve as a director or trustee of other for profit corporations or businesses,
provided,
that if the Board later determine
that it no longer approves of the directorship, it shall notify Executive in writing and Executive shall resign such directorship within a reasonable period of time, (iii) serve on civic or charitable boards or committees, and (iv) deliver
lectures, fulfill speaking engagements, or teach at educational institutions (and retain any fees therefrom).
d.
Investments
: Executive may invest in other businesses (an “
Investment
”);
provided
, that the Investment shall not (i) pose a conflict of interest with regard to Executive’s employment hereunder,
(ii) require Executive’s active involvement in the management or operation of such Investment (recognizing that Executive shall be permitted to monitor and oversee the Investment), except as permitted in 2(b), above, or
(iii) interfere materially with the performance of Executive’s duties and obligations hereunder. For the purposes of clause (i) of the preceding sentence, Executive shall not be deemed to be subject to a conflict of interest merely by
reason of (i) his ownership of Intrepid Oil and Gas, LLC and the other investment entities owned in whole or in part by Executive as of the Effective Date, or (ii) his ownership of less than five percent (5%) of (A) the
outstanding stock of any entity whose stock is traded on an established stock exchange or on the
2
National Association of Securities Dealers Automated Quotation System, or (B) the outstanding equity interests of any venture fund, investment pool or
similar investment vehicle that solicits investments on a “blind pool” basis.
e.
No Conflict
: Executive represents
and warrants that the execution of this Agreement and performance of his duties hereunder will not conflict with or constitute a default under any contract or legal obligation he owes to any third party.
3.
COMPENSATION AND BENEFITS
:
The Company shall compensate Executive for his services as set forth in this paragraph 3 with the objective
of compensating the Executive at levels consistent with similarly situated executives at peer companies; provided that the Company may change from time to time the terms and benefits of any retirement, welfare or fringe benefit plan of the Company,
including the right to change any service provider, so long as such change applies generally to the senior executives of the Company.
a.
Salary
:
The Company shall pay Executive a base salary of $487,500 per annum (the “
Base Salary
”) in periodic installments in accordance with the Company’s payroll practices. Amounts payable shall be reduced by
standard withholding and other authorized deductions. The Compensation Committee of the Board (the “
Compensation Committee
”) will review Executive’s salary at least annually and may increase (but not decrease) the Base Salary.
Executive’s salary as so adjusted shall thereafter be treated as Executive’s Base Salary hereunder.
b.
Cash Bonus /
Short-Term Incentives
:
Executive shall be eligible to receive annual bonuses/short-term cash incentives in accordance with the Company’s annual cash bonus/short-term incentive program(s) for senior management, as such program(s) may be
modified from time to time.
c.
Equity Compensation
.
(i)
General
. Upon the IPO, the Company will adopt an equity incentive plan for the benefit of its eligible service providers (the “
2008
Equity Plan
”). Executive shall be entitled to participate in the 2008 Equity Incentive Plan and any subsequent equity compensation programs sponsored by the Company or its subsidiaries (the “
Equity Plans
”) on such terms as
shall be established by the Compensation Committee in its sole discretion.
(ii)
Change of Control
. All grants made under the
Equity Incentive Plans shall vest in full immediately prior to the occurrence of a Change of Control. For purposes of this Agreement, a Change of Control means: (A) the acquisition by any individual, entity, or group (within the meaning of
Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “
Exchange Act
”)) (a “
Person
”) of “beneficial ownership” (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of more than 50% of the combined
3
voting power of the Company’s then outstanding securities entitled to vote generally in the election of directors, other than any acquisition
(1) directly from, or by, the Company, (2) by a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, or (3) by Robert P. Jornayvaz III, Hugh E. Harvey Jr. or J. Landis
Martin (collectively the “
Principals
”), or by any “group” (within the meaning of Section 13(d)(3) of the Exchange Act) that is controlled by one or more of the Principals; (B) the individual directors of the
Board as of the Effective Date (the “
Incumbent Directors
”) cease to constitute at least two-thirds of the Board; provided, however, that for purposes of this paragraph, any new director whose election by the Board or nomination for
election by the Company’s stockholders was approved by a vote of at least a majority of the Incumbent Directors shall be considered an Incumbent Director; (C) consummation, in one transaction or a series or related transactions, of a
reorganization, merger, or consolidation of the Company or sale or other disposition, direct or indirect, of all or substantially all of the assets of the Company (a “
Business Combination
”), in each case, unless, following such
Business Combination, the Persons who were the “beneficial owners” of outstanding voting securities of the Company immediately prior to such Business Combination “beneficially own,” by reason of such ownership of the
Company’s voting securities immediately before the Business Combination, more than 50% of the combined voting power of the company resulting from such Business Combination (including, without limitation, a company which as a result of such
transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership of the outstanding voting securities of the Company
immediately prior to such Business Combination; or (D) approval by those Persons holding the voting securities of the Company of a complete liquidation or dissolution of the Company. A Person will not be deemed to be a member of a
“group” for purposes of this definition solely by virtue of becoming party to an agreement with one or more Principals that requires such Person to vote the voting stock of the Company in a manner specified by the Principals.
d.
Retirement Plans
:
Executive shall be entitled to participate in all retirement plans applicable generally to other senior executives
of the Company, in accordance with the terms of such plans, as they may be amended from time to time.
e.
Welfare Benefit
Plans
:
Executive and his family shall be eligible to participate in and receive all benefits under the Company’s welfare benefit plans and programs applicable generally to other senior executives of the Company (collectively, as amended
from time to time, the “
Company Plans
”), in accordance with the terms of the Company Plans.
f.
Vacation and Sick
Leave
:
Executive shall be entitled to vacation, sick leave, and paid time off in accordance with the plans, policies, and programs in effect generally with respect to other senior executives of the Company, including the limitations, if any,
on the carry-over of accrued but unused time.
4
g.
Expenses
:
The Company shall reimburse Executive for reasonable expenses for cellular
telephone usage, entertainment, travel, meals, lodging, and similar items incurred in the conduct of the Company’s business. Such expenses shall be reimbursed in accordance with the Company’s expense reimbursement policies and guidelines.
h.
Fringe Benefits and Perquisites
. Executive and his family shall be eligible for all other fringe benefits or perquisites
offered generally to senior executives of the Company and their families. In addition, Executive shall be entitled to (i) use of a company-provided automobile of his choice valued at no more than $75,000, (ii) personal use of the Company
aircraft to the extent such use does not interfere with the Company’s use of the aircraft for business purposes, and (iii) the right to dry lease the aircraft (either personally or through a business entity controlled, directly or
indirectly, by Executive) on the same terms and conditions as the Company aircraft is leased to unrelated third parties.
i.
Officers
and Directors Liability Insurance; Indemnification
:
During Executive’s employment with the Company and thereafter so long as Executive may have liability arising out of Executive’s service as an officer or director of the Company
or any subsidiary, the Company will continue and maintain directors and officers liability insurance (“
D&O Insurance
”) covering Executive in an amount and scope that is at least as favorable as the coverage applicable to the
officers and employees of Intrepid Mining as of the date hereof; provided, however, that if such a policy cannot be procured for a premium equal to or less than the premium paid for the year in which the Effective Date occurs, the Company shall
procure an insurance policy with the greatest coverage and scope procurable for such premium.
4.
TERMINATION
:
This Agreement
may be terminated by the Company or Executive prior to the expiration of the Term pursuant to this paragraph 4.
a.
Cause
:
The Company may terminate this Agreement for “Cause” immediately upon written notice to Executive. For purposes of this Agreement, “
Cause
” shall mean any one or more of the following events:
(i) conviction of (or pleading
nolo contendere
to) a felony;
(ii) engaging in theft, fraud, embezzlement, or willful misappropriation of the property of the Company;
(iii) violation of any Company policy or practice regarding discrimination or harassment that would be grounds for termination of a Company employee in general;
5
(iv) Executive’s willful failure to perform substantially Executive’s material duties as
contemplated by paragraph 2 above (other than such failure resulting from incapacity due to physical or mental illness), which, for avoidance of doubt, shall include Executive’s insubordination to the Board, after (i) a written demand for
corrected performance is delivered to Executive by the Board that identifies specifically the manner in which the Board believes Executive has not performed substantially Executive’s material duties, and (ii) Executive fails to cure the
matters identified in the written demand within 30 days. No act or failure to by Executive shall be deemed “willful” if done, or omitted to be done, by him in good faith and with the reasonable belief that his action or omission was in the
best interest of the Company; or
b.
Death or Disability
:
If Executive has a Disability (as defined below), the Company may
give to Executive written notice of its intention to terminate this Agreement. In such event, this Agreement shall terminate effective on the 30th day after receipt of such notice by Executive, provided that Executive shall not have returned to
full-time performance of Executive’s material duties within the 30-day period after such receipt. For purposes of this Agreement, “
Disability
” shall mean any physical or mental condition which prevents Executive, for a period
of 90 consecutive days, from performing and carrying out Executive’s material duties and responsibilities with the Company, as determined by the Board. This Agreement shall terminate automatically upon Executive’s death.
c.
Other than Death or Disability or Cause
:
The Company may terminate this Agreement upon thirty (30) days written notice to Executive
at any time and for any reason.
d.
Termination by Executive
:
Executive may terminate this Agreement upon thirty
(30) days written notice to the Company at any time and for any reason.
e.
Survival of Terms
: Portions of this
Agreement that by their terms provide or imply that they survive the end of the Term shall survive the end of the Term.
5.
OBLIGATIONS OF THE COMPANY AND EXECUTIVE UPON TERMINATION
:
a.
Cause
:
If this Agreement is terminated by the
Company for Cause under paragraph 4(a), the Term shall end without further obligation to Executive other than:
(i) payment of the sum of
(A) any Base Salary earned but not yet paid to Executive through the date of termination, (B) any bonus earned and payable in accordance with the terms of an applicable Company bonus plan but not
6
yet paid to Executive as of the date of termination, and (C) any other compensation earned through the date of termination but not yet paid to Executive
(“
Accrued Obligations
”),
(ii) the payments and benefits provided in paragraph 5(g).
b.
Death or Disability
:
If this Agreement is terminated by reason of Executive’s death or Disability under paragraph 4(b), the Company
shall provide to Executive or Executive’s legal representatives: (i) payment of the Accrued Obligations, and (ii) the payments and benefits provided in paragraph 5(g).
c.
Other than Death or Disability or Cause
:
If the Company terminates this Agreement for any reason other than pursuant to paragraph 4(a)
or 4(b), Executive shall be entitled to:
(i) payment of the Accrued Obligations,
(ii) the payments and benefits provided in paragraph 5(g),
(iii) continued payment of the Executive’s then-current salary for the remainder of the Term in accordance with the Company’s normal payroll processes, except as otherwise required by paragraph 5(i), below.
The Company shall be obligated to make the foregoing payments upon receipt by the Company of a release (the “
Release
”)
given by Executive (or, if applicable, Executive’s legal representative) of all claims against the Company and its subsidiaries, and their respective directors, agents, employees, and assigns, in a form provided by the Company, which release
shall, if applicable, give Executive appropriate notifications under the Age Discrimination in Employment Act, as amended by the Older Workers Benefit Protection Act. The Release shall not affect the rights of Executive or his dependents under the
Consolidated Omnibus Budget Reconciliation Act of 1985 (“
COBRA
”).
d.
Voluntary Termination by Executive
:
If
this Agreement is terminated by Executive pursuant to paragraph 4(d) without “Good Reason,” as defined below, the Company shall provide to Executive: (i) payment of the Accrued Obligations, and (ii) the payments and benefits
provided in paragraph 5(g):
e.
Termination by Executive for Good Reason
:
(i)
In General
. If this Agreement is terminated by Executive pursuant to paragraph 4(d) for Good Reason, as defined below, Executive shall, upon
signing a Release, be entitled to the payments, benefits and other compensation provided above in paragraph 5(c).
7
(ii) “
Good Reason
”. For purposes of this Agreement, Executive’s termination of
this Agreement shall be on account of “
Good Reason
” if Executive resigns as a result of any of the following events or conditions which remain in effect for at least thirty (30) days after notice has been provided by Executive
to the Company of the existence of such event or condition: (A) a reduction in Executive’s Base Salary, provided reductions are not made on a substantially similar basis to all members of the Company’s senior management; (B) a
material diminution in Executive’s responsibility or authority; (C) a change of more than 50 miles in the location at which Executive primarily performs his services; or (D) any other material failure by the Company to comply with any
material term of this Agreement. It is the intent of the Company that “Good Reason,” as herein defined, shall meet the definition of “involuntary separation” set forth in Treasury Regulation Section 1.409A-1(n), and this
Agreement shall be interpreted accordingly.
f.
Expiration of the Term
. In the event this Agreement is terminated as a result
of the non-renewal and subsequent expiration of the Term, the Company shall provide to Executive: (i) payment of the Accrued Obligations, and (ii) the payments and benefits provided in paragraph 5(g).
g.
Exclusive Remedy
:
Except for the payments and benefits provided in this paragraph 5, upon termination Executive shall have no other
claims against, and shall be entitled to no other payments or benefits from the Company under this Agreement or pursuant to the Company’s policies and plans, other than (A) Executive’s rights under COBRA, (B) payment of any
amounts due as of the date of termination pursuant to the terms of any equity-based plan of the Company or any welfare or retirement plan of the Company or of any other amounts or benefits under such plans which by their specific terms extend beyond
such date of termination, and (C) rights with respect to D&O Insurance. In no event shall Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Executive under any of the
provisions of this Agreement and, except as specifically provided otherwise herein, such amounts shall not be reduced whether or not Executive obtains other employment.
h.
Resignations
:
On and as of the date this Agreement terminates for any reason, Executive shall resign from his position as an officer and director of the Company, resign from all other positions he
holds as a director, officer or employee of any subsidiary of the Company, and resign as a named fiduciary of any employee benefit plans sponsored by the Company or its subsidiaries.
i.
409A Payment and Ordering Rules
. Payments under this paragraph 5 are intended to qualify to the maximum extent possible as
“short-term deferrals” exempt from the application of Code Section 409A. Any payments that do not so qualify are intended to qualify for the Code Section 409A exemption set forth in Treasury Regulation
Section 1.409A-1(b)(9)(iii) (which exempts from Code
8
Section 409A certain payments made upon an “involuntary separation from service”). To the extent that payments made pursuant to this paragraph
5 are made upon an “involuntary separation from service” but exceed the exemption threshold set forth in Treasury Regulation Section 1.409A-1(b)(9)(iii), the exemption will first be applied to any continued health and welfare benefits
payable under this paragraph 5 (to the extent such benefits are subject to Code Section 409A and are payable within six (6) months from the Executive’s “separation from service,” as defined for purposes of Code
Section 409A (the “
Delayed Payment Date
”)) and thereafter to the cash payments that are payable closest in time to the date of termination, until the exemption has been applied in full. Any payments under this paragraph 5 that
are not exempted from Code Section 409A and that are payable prior to the Delayed Payment Date shall be withheld by the Company and paid to Executive on the Delayed Payment Date or as soon thereafter as is administratively feasible. For
purposes of this paragraph, any payment to be made in installments shall be deemed a series of separate payments pursuant to Treasury Regulation Section 1.409A-2(b)(2)(iii). Nothing in this paragraph shall prohibit the Company and Executive
from making use of any other Code Section 409A exemption that may be applicable to a payment or benefit hereunder.
6.
280G
Provisions
.
a.
Determination; Efficient Gross-Up
: If it is determined that any payment or benefit provided to or for
the benefit of Executive (a “
Payment
”), whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, would be subject to the excise tax imposed by Code section 4999 or any interest or
penalties with respect to such excise tax (such excise tax together with any such interest and penalties, shall be referred to as the “
Excise Tax
”), then a calculation shall first be made under which such payments or benefits
provided to Executive are reduced to the extent necessary so that no portion thereof shall be subject to the Excise Tax (the “4999 Limit”). The Company shall then compare (a) Executive’s Net After-Tax Benefit (as defined below)
assuming application of the 4999 Limit with (b) Executive’s Net After-Tax Benefit without application of the 4999 Limit. “Net After-Tax Benefit” shall mean the sum of (i) all payments that Executive receives or is entitled
to receive that are contingent on a change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company within the meaning of Code section 280G(b)(2), less (ii) the amount of
federal, state, local, employment, and Excise Tax (if any) imposed with respect to such payments. In the event (a) is greater than (b), Executive shall receive Payments solely up to the 4999 Limit and Executive shall choose which payments shall
be reduced and the amount of the reduction of each payment. In the event (b) is greater than (a), then Executive shall be entitled to receive all such Payments along with an additional payment (a “
Gross-Up Payment
”) in an
amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and
Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
9
b.
Calculations
: All determinations required under this paragraph 6, including the
determination of whether a Payment is subject to the Excise Tax or the amount of any required Gross-Up Payment, shall be made by tax counsel, a nationally recognized certified public accounting firm not serving as auditor for the Company, or another
tax professional with experience in such calculations, as selected by the Company and reasonably acceptable to Executive (the “
Tax Professional
”). The Tax Professional shall provide detailed supporting calculations for its
determinations both to the Company and Executive within fifteen days of receipt of any Payment, or such sooner period as may be requested by the Company. All costs relating to the Tax Professional shall be borne exclusively by the Company. Subject
to paragraph 6(d), below, any determination by the Tax Professional shall be binding upon the Company and Executive.
c.
Payment of
Gross-Up
: Any Gross-Up Payment, as determined pursuant to this paragraph 6, shall be paid by the Company to Executive within five business days of the receipt of the Tax Professional’s determination, but in no event later than the
end of Executive’s taxable year next following the taxable year in which the original Excise Tax on the Payments is remitted to the Internal Revenue Service. As a result of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Tax Professional hereunder, it is possible that a Gross-Up Payment which will not have been made by the Company should have been made (“
Underpayment
”). In the event that the Company
exhausts its remedies pursuant to paragraph 6(d) and Executive thereafter is required to make a payment of any Excise Tax, the Tax Professional shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of Executive, but in no event shall such payment be made later than the end of Executive’s tax year following the tax year in which the Excise Tax is remitted to the Internal Revenue Service.
d.
Tax Controversy
: Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of an Underpayment. Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to be paid. Executive shall not pay such claim prior to the expiration of the thirty-day period following the date on which it gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies Executive in writing prior to the expiration of such period that it desires to contest such claim, Executive shall:
(i) give the Company any information reasonably requested by the Company relating to such claim,
10
(ii) take such action in connection with contesting such claim as the Company shall reasonably request
in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to contest such claim, and
(iv)
permit the Company to participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect
thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this paragraph 6(d), the Company shall control all proceedings taken in connection with such contest and,
at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue
for a refund or to contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the
Company’s control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
e.
Refunds; Etc.:
If, after the receipt by Executive of an amount advanced by
the Company pursuant to Section 6(d), Executive becomes entitled to receive any refund with respect to such claim, Executive shall (subject to the Company’s complying with the requirements of Section 6(d)) promptly pay to the Company
the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 6(d), a determination is made
11
that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify Executive in writing of its intent to contest
such denial of refund prior to the expiration of thirty days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of
Underpayment required to be paid.
7.
CONFIDENTIAL INFORMATION; NON-COMPETITION, NON-SOLICITATION
:
a.
Confidential Information
: Except as expressly authorized by the Board, during the Term or at any time thereafter, Executive shall not
divulge, furnish, make accessible to anyone, lay claim to, attempt to lay claim to or use, or attempt to use, in any way (other than in the ordinary course of the business of the Company) any confidential or secret knowledge or information of
Intrepid Mining or of the Company or its subsidiaries (collectively the “
Intrepid Parties
”) that Executive has acquired or become acquainted with or will acquire or become acquainted with during the period of Executive’s
employment by Intrepid Mining and by the Company, whether developed by himself or by others, concerning any pricing information, trade secrets, confidential or business plans or material (whether or not patented or patentable) directly or indirectly
useful in any aspect of the business of the Intrepid Parties, any customer or dealer lists of the Intrepid Parties, any confidential or secret development of the Intrepid Parties, or any other confidential information or secret aspects of the
business of the Intrepid Parties (collectively, “
Confidential Information
”). Executive acknowledges that the Confidential Information constitutes a unique and valuable asset of the Intrepid Parties and represents a substantial
investment of time and expense by the Intrepid Parties, and that any disclosure or other use of the Confidential Information other than for the sole benefit of the Intrepid Parties would be wrongful and would cause irreparable harm to the Intrepid
Parties. Both during and after the Term, Executive shall refrain from any acts or omissions that would reduce the value of the Confidential Information. The foregoing obligations of confidentiality shall not apply to any knowledge or information
(i) that is now published or that subsequently becomes generally publicly known in the form in which it was obtained from the Intrepid Parties, other than as a direct or indirect result of the breach of this Agreement by Executive; or
(ii) is lawfully obtained by Executive from a third party, provided that Executive did not have actual knowledge that such third party was restricted or prohibited from disclosing such information to Executive. At the time of the termination of
Executive’s employment, or at such other time as the Company may request, Executive shall return all memoranda, notes, plans, records, computer tapes and software and other documents and data (and copies thereof) relating to Confidential
Information that Executive may then possess or have under his or her control.
12
b.
Non-competition; Non-solicitation
: In his capacity as an employee, Executive has met
with and will continue to meet with the Intrepid Parties’ current or prospective customers, suppliers, partners, licensees or other business relations (collectively, “
Business Relations
”) on behalf of the Intrepid Parties, and,
as a consequence of using or associating himself with the Intrepid Parties’ name, goodwill, and professional reputation, Executive has been placed in a position where he can develop personal and professional relationships with the Intrepid
Parties’ current and prospective customers. In addition, during the course and as a result of Executive’s employment, Executive has been or may be provided certain specialized training or know-how. Executive acknowledges that this goodwill
and reputation, as well as Executive’s knowledge of Confidential Information and specialized training and know-how, could be used unfairly in competition against the Intrepid Parties. Accordingly, in consideration of the employment of Executive
by the Company pursuant to this Agreement, Executive agrees that:
(i) during the time period commencing on the date hereof and
terminating on the Non-Competition/Non-Solicitation End Date (as defined below), Executive shall not directly or indirectly, individually or collectively in conjunction with others, engage in activities that compete with the businesses that the
Intrepid Parties are then engaged in (or, with respect to periods on and after the end of the Term, are engaged in at the time of the termination of Executive’s employment) in whatever geographic regions the Intrepid Parties then engage in such
businesses; or
(ii) during the time period commencing on the date hereof and terminating on the Non-Competition/Non-Solicitation End Date
(as defined below), Executive shall not directly or indirectly through another entity or person (i) induce or attempt to induce any employee of the Intrepid Parties to leave the employ of the Intrepid Parties, (ii) hire any person who was
employed by the Intrepid Parties at any time during the one-year period immediately preceding the termination of Executive’s employment with the Intrepid Parties, or (iii) induce or attempt to induce any current or prospective Business
Relation of the Intrepid Parties (including, without limitation, any business entity that the Intrepid Parties have contacted in order to make a proposal to enter into a business relationship) to withdraw, curtail or cease doing business with the
Intrepid Parties.
For purposes of this Agreement, the “
Non-Competition/Non-Solicitation End Date
” shall mean the date
that is 24 months from the date this Agreement is terminated or expires; provided, however, that in the event this Agreement is terminated more than 24 months after the Effective Date by the Company other than pursuant to paragraphs 4(a) or 4(b), or
by Executive for Good Reason pursuant to paragraph 4(d), the Non-Competition/Non-Solicitation End Date shall mean the date on which the then-remaining Term would have otherwise expired (assuming no further extension thereof).
13
Executive acknowledges that as an executive of a publicly traded company he falls within the exception to
C.R.S 8-2-113(2)(d), which exempts executive and management personnel and officers from the prohibitions of non-compete provisions. Executive agrees that, during the period for which Executive has continuing obligations under this paragraph 7(b), he
shall inform any new employer or other person or entity with whom Executive enters into a business relationship, before accepting employment or entering into such business relationship, of the existence of this Agreement and shall give the employer,
person or other entity a copy of this paragraph 7(b).
c.
Third-Party Beneficiaries
: The provisions of this paragraph 7 may
be enforced by any of the Intrepid Parties, and the protections afforded herein shall inure to each such Intrepid Party as an intended third-party beneficiary.
d.
Severability
: To the extent that any provision of this paragraph shall be determined to be invalid or unenforceable, the invalid or unenforceable portion of such provision shall be deleted from this
Agreement, and the validity and enforceability of the remainder of such provision and of this paragraph shall be unaffected. In furtherance of and not in limitation of the foregoing, should the duration of or geographical extent of, or business
activities covered by, the noncompetition and non-solicitation agreements contained in paragraph 7(b) be determined to be in excess of that which is valid or enforceable under applicable law, then such provision shall be construed to cover only that
duration, extent, or those activities which may validly or enforceably be covered. Executive acknowledges the uncertainty of the law in this respect and expressly stipulates that this paragraph shall be construed in a manner which renders its
provisions valid and enforceable to the maximum extent (not exceeding its express terms) possible under applicable law.
e.
Injunctive Relief
: Executive agrees that it would be difficult to compensate the Intrepid Parties fully for damages for any violation of the provisions of this paragraph 7. Accordingly, Executive specifically agrees that the Intrepid
Parties shall be entitled to temporary and permanent injunctive relief to enforce the provisions of this paragraph and that such relief may be granted without the necessity of proving actual damages. This provision with respect to injunctive relief
shall not, however, diminish the right of the Intrepid Parties to claim and recover damages in addition to injunctive relief.
8.
SUCCESSORS
:
This Agreement shall inure to the benefit of and be binding upon the Company and its successors and permitted assigns and any such successor or permitted assignee shall be deemed substituted for the Company under the terms
of this Agreement for all purposes. As used herein, “successor” and “assignee” shall be limited to any person, firm, corporation, or other business entity which at any time, whether by purchase, merger, reorganization, or
otherwise, directly or indirectly acquires the stock of the Company or to which the Company assigns this Agreement by operation of law or otherwise in connection with any sale of all or substantially all of the assets of the Company,
provided
that any successor or permitted assignee promptly assumes in a writing delivered to Executive this
14
Agreement and, in no event, shall any such succession or assignment release the Company from its obligations thereunder. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as herein before defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise.
9.
DISPUTE RESOLUTION
:
To the
extent permitted by applicable law, and except as provided below, any dispute arising out of this Agreement shall be submitted to binding arbitration in Denver, Colorado pursuant to the rules of the American Arbitration Association. In the event any
dispute arising out of this Agreement may not be arbitrated under applicable law (which, for purposes of this Agreement, shall be deemed to include actions for temporary injunctive relief to enforce the provisions of paragraph 7 hereof), litigation
concerning such dispute shall be brought and maintained only in the District Court for the City and County of Denver, Colorado, the County Court for the City and County of Denver, Colorado, or the U.S. District Court for the District of Colorado.
The prevailing party in any arbitration or litigation concerning this Agreement shall recover, in addition to any damages or other relief awarded to that party, the prevailing party’s reasonable costs and attorneys fees.
10.
GOVERNING LAW
:
The provisions of this Agreement shall be construed in accordance with, and governed by, the laws of the State of
Colorado without regard to principles of conflict of laws.
11.
SAVINGS CLAUSE
:
If any provision of this Agreement or the
application thereof is held invalid, the invalidity shall not affect other provisions or applications of the Agreement which can be given effect without the invalid provisions or applications and to this end the provisions of this Agreement are
declared to be severable.
12.
MODIFICATION, WAIVER
: Except as provided in paragraph 19, below, no provision of this
Agreement may be amended, modified, or waived except by written agreement signed by the party sought to be charged with such amendment, modification, or waiver.
13.
ASSIGNMENT OF AGREEMENT
:
Executive acknowledges that Executive’s services are unique and personal. Accordingly, Executive may not assign Executive’s rights or delegate Executive’s
duties or obligations under this Agreement to any person or entity;
provided
,
however
, that payments may be made to Executive’s estate or beneficiaries as expressly set forth herein.
15
14.
ENTIRE AGREEMENT
:
This Agreement is an integrated document and constitutes and contains
the complete understanding and agreement of the parties with respect to the subject matter addressed herein, and supersedes and replaces all prior negotiations and agreements, whether written or oral, concerning the subject matter hereof.
15.
CONSTRUCTION
:
Each party has cooperated in the drafting and preparation of this Agreement. Hence, in any construction to
be made of this Agreement, the same shall not be construed against any party on the basis that the party was the drafter. The captions of this Agreement are not part of the provisions and shall have no force or effect.
16.
NOTICES
:
Notices and all other communications provided for in this Agreement shall be in writing and shall be delivered personally or
sent by registered or certified mail, return receipt requested, postage prepaid, or sent by facsimile or prepaid overnight courier to the parties at the addresses set forth below (or at such other addresses as shall be specified by the parties by
like notice). Such notices, demands, claims, and other communications shall be deemed given:
a. in the case of delivery by overnight
service with guaranteed next day delivery, such next day or the day designated for delivery;
b. in the case of certified or registered
United States mail, five days after deposit in the United States mail; or
c. in the case of facsimile, the date upon which the
transmitting party received confirmation of receipt by facsimile, telephone, or otherwise; and
d. in the case of personal delivery, when
received.
Communications that are to be delivered by the United States mail or by overnight service are to be delivered to the addresses
set forth below:
Intrepid Potash Inc.
Attn: ______________
700 17
th
Street, Suite 1700
Denver, CO 80202
[ ]
[ ]
16
Each party, by written notice furnished to the other party, may modify the acceptable delivery address, except that
notice of change of address shall be effective only upon receipt.
17.
TAX WITHHOLDING
:
The Company may withhold from any
amounts payable under this Agreement such federal, state, or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.
18.
REPRESENTATION
:
Executive represents that he is knowledgeable and sophisticated as to business matters, including the subject matter of this Agreement, that he has read this Agreement and that he
understands its terms. Executive acknowledges that, prior to assenting to the terms of this Agreement, he has been given a reasonable time to review it, to consult with counsel of Executive’s choice, and to negotiate at arm’s-length with
the Company as to its contents. Executive and the Company agree that the language used in this Agreement is the language chosen by the parties to express their mutual intent, and that they have entered into this Agreement freely and voluntarily and
without pressure or coercion from anyone.
19.
409A SAVINGS CLAUSE
: The parties intend that payments or benefits payable
under this Agreement not be subject to the additional tax imposed pursuant to Section 409A of the Code, and the provisions of this Agreement shall be construed and administered in accordance with such intent. To the extent such potential
payments or benefits could become subject to Code Section 409A, the parties shall cooperate to amend this Agreement with the goal of giving Executive the economic benefits described herein in a manner that does not result in such tax being
imposed. If the parties are unable to agree on a mutually acceptable amendment, the Company may, without Executive’s consent and in such manner as it deems appropriate or desirable, amend or modify this Agreement or delay the payment of any
amounts hereunder to the minimum extent necessary to meet the requirements of Code Section 409A.
17
IN WITNESS WHEREOF, the Company and Executive, intending to be legally bound, have executed this
Agreement on the day and year first above written.
INTREPID POTASH INC.
By:
Name:
Title:
EXECUTIVE
18
Schedule of Employees
Robert P. Jornayvaz III
Hugh E. Harvey, Jr.
19
Exhibit 10.4
FORM OF
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this “
Agreement
”) is entered into as of
, 2008 by and among Intrepid Potash, Inc., a Delaware corporation
(the “
Company
”), Harvey Operating & Production Company, a Colorado corporation (“
HOPCO
”), Intrepid Production Corporation, a Colorado corporation (“
IPC
”), and Potash Acquisition, LLC, a
Delaware limited liability company (“
PAL
” and, collectively with HOPCO and IPC, the “
Original Stockholders
”).
RECITALS
A. The Company intends to offer shares of Common Stock (as defined below) in a registered public offering (the
“
IPO
”) pursuant to a prospectus and registration statement filed on Form S-1 with the U.S. Securities and Exchange Commission (the “
SEC
”);
B. The Company and Intrepid Mining LLC, a Delaware limited liability company wholly-owned by the Original Stockholders (“
Mining
”),
propose to enter into an Exchange Agreement of even date hereof (the “
Exchange Agreement
”), pursuant to which Mining will transfer to the Company all right, title and interest to all of its assets in exchange for Common Stock and
other consideration;
C. Mining intends to distribute to the Original Stockholders the Common Stock received as consideration pursuant to
the Exchange Agreement; and
D. Under the terms of the Amended and Restated Limited Liability Company Agreement of Mining (the
“
Mining LLC Agreement
”), the Company is obligated to provide registration rights to the Original Stockholders with regard to the shares of Common Stock issued pursuant to the Exchange Agreement (the “
Exchange
Shares
”).
THEREFORE, in consideration of the mutual promises, covenants and conditions set forth herein, the parties agree as
follows.
AGREEMENT
1.
Definitions
.
For the purposes of this Agreement:
“
Affiliate
” means with respect to a Person, any other Person that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person, and in the case of an individual, includes any member of such Person’s immediate family or other relative of such Person
or such immediate family who has the same home as such Person. As used in this definition, the word “control” means the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise. Notwithstanding the
foregoing, for purposes of this Agreement, neither the Company nor Mining shall be an Affiliate of any Original Stockholder.
“
Board
” means the board of directors of the Company.
“
Business Day
” means any day other than a
Saturday or Sunday or other day upon which banks are authorized or required to close in the State of Colorado.
“
Change in
Control
” means, with respect to a Person, (a) a transfer, directly or indirectly (including by merger), of all or substantially all of the assets of such Person (including a transfer in liquidation of such Person), (b) the
transfer, directly or indirectly, of more than 50% of the equity interests of such Person in one or a series of related transactions, or (c) the transfer, directly or indirectly, of control of such Person, whether by sale, merger or
consolidation. As used in this definition, the word “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting
securities, by contract or otherwise.
“
Common Stock
” means the common stock, par value $0.001 per share, of the Company.
“
Demand Registration
” means the registration under the Securities Act of Common Stock pursuant to a Demand Notice as
described in
Section 2.01
.
“
Demand Registration Group
” means each of (i) HOPCO and any assignees,
transferees or successors, with respect to any Registrable Securities, (ii) IPC and any assignees, transferees or successors, with respect to any Registrable Securities, and (iii) PAL and any assignees, transferees or successors, with
respect to any Registrable Securities.
“
Exchange Act
” shall mean the Securities Exchange Act of 1934, including the rules
and regulations promulgated thereunder, as amended from time to time. Any reference herein to a specific section or sections of the Exchange Act shall be deemed to include a reference to any corresponding provision of future law.
“
Holder
” means any owner of Registrable Securities.
“
Lien
” means any mortgage, deed of trust, lien (statutory or otherwise), pledge, hypothecation, charge, deposit arrangement, preference, priority, security interest, option, right of first refusal or
other transfer restriction or encumbrance of any kind (including preferential purchase rights, conditional sales agreements or other title retention agreements, and the filing of or agreement to give any financing statement under the
Uniform Commercial Code or comparable law of any jurisdiction to evidence any of the foregoing).
“
Person
” means a natural person, corporation, joint venture, partnership, limited liability partnership, limited partnership, limited
liability limited partnership, limited liability company, trust, estate, business trust, association, governmental authority or any other entity.
“
Piggyback Registration
” means the registration of Common Stock pursuant to a Piggyback Notice as described in
Section 2.02(a)
.
“
Prospectus
” means the prospectus included in any Registration Statement, as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the
Registrable Securities covered by such Registration Statement and all other amendments and supplements to the prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in
such prospectus.
“
register
,” “
registered
,” and “
registration
” means a registration
effected by preparing and filing a Registration Statement or similar document in compliance with the Securities Act, and the declaration or ordering of effectiveness of such Registration Statement or document.
“
Registrable Securities
” means (a) the Exchange Shares and (b) any equity securities of the Company issued as (or issuable
upon the conversion or exercise of any warrant, option, right or other security that is issued as) a dividend or other distribution with respect to, or in exchange for, or in replacement of, the Exchange Shares that have been issued to any Holder.
As to any particular securities that are Registrable Securities, such securities shall cease to be Registrable Securities when (A) a Registration Statement with respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance with such Registration Statement, (B) such securities shall have been distributed to the public in reliance upon Rule 144, provided that at the time such securities
are proposed to be disposed of, they may be sold under Rule 144 without any limitation on the amount of such securities which may be sold or (C) they shall have ceased to be outstanding.
“
Registration Statement
” means in connection with the public offering and sale of Exchange Shares or other equity securities of the
Company, a registration statement (including pursuant to Rule 415 under the Securities Act) in compliance with the Securities Act.
“
Rule 144
” means Rule 144 (or any successor provision) under the Securities Act.
“
Securities Act
” means the Securities Act of 1933, including the rules and regulations
promulgated thereunder, as amended from time to time. Any reference herein to a specific section or sections of the Securities Act shall be deemed to include a reference to any corresponding provision of future law.
“
underwritten registration
” or “
underwritten offering
” means a registration in which Registrable Securities are sold to
an underwriter for reoffering to the public.
2.
Registration
.
|
2.01.
|
Demand Registrations
.
|
(a)
Demand
. At any
point following the completion of the IPO, upon receipt of a written request (a “
Demand Notice
”) from any Holder within a Demand Registration Group that the Company file a Registration Statement covering the registration of
Registrable Securities held by such Holder, the Company shall, within 10 Business Days of receipt of the Demand Notice, (i) give written notice of such request (the “
Request Notice
”) to all Holders and, (ii) in addition to
complying with its obligations under
Section 2.02
, shall use its reasonable best efforts to effect, as soon as practicable, the registration of the number of Registrable Securities specified by the Holder in the Demand Notice, subject
only to the limitations of
Section 2.01(b)
and the rights of the other Holders pursuant to
Section 2.02
;
provided
, that the Company shall not be obligated to effect any such registration if the Company has, within the
six month period preceding the date of such Demand Notice, already effected a registration pursuant to this
Section 2.01(a)
or
Section 2.02
in which the Holder participated, other than a registration from which all or a
portion of the Registrable Securities of the Holder were excluded pursuant to the provisions of
Section 2.01(b)
or
Section 2.02(c)
; and
provided further
, that if the Company determines that the requested registration
would be materially detrimental to the Company because such registration would (x) materially interfere with a significant acquisition, reorganization or other similar transaction involving the Company, (y) require premature disclosure of
material information that the Company has a
bona fide
business purpose for preserving as confidential, or (z) render the Company unable to comply with requirements under applicable securities laws, then the Company shall have the right
to postpone such requested registration for a period of not more than 90 days after receipt of the Holder’s Demand Notice,
provided that
such right to postpone registration pursuant to this
Section 2.01(a)
shall not to be
utilized more than once in any twelve-month period. The Company shall be obligated to effect only three such registrations pursuant to this
Section 2.01(a)
on behalf of each Demand Registration Group, one of which may be a
“shelf” registration in accordance with
Section 2.01(c)
. A registration shall be effected for purposes of this
Section 2.01(a)
when and if a Registration Statement is declared effective by the SEC and the
distribution of securities thereunder has been completed without the occurrence of any stop order or proceeding relating thereto suspending the effectiveness of the registration.
(b)
Underwriting Requirements
. If a Holder intends to distribute the Registrable Securities
covered by its Demand Notice by means of an underwritten offering, then it shall so advise the Company as a part of the Demand Notice, and the Company shall include such information in the Request Notice. In such event, the right of any Holder to
include his, her or its Registrable Securities in such registration pursuant to the rights set forth in
Section 2.02
shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s
Registrable Securities in the underwriting as provided in this Agreement. The Company and all Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the managing
underwriter or underwriters selected for such underwriting by the Company. All Holders, whether or not they are participating in such offering, and the Company agree not to effect any transfer of Registrable Securities (or any securities of the
Company exchangeable or convertible into Registrable Securities) during the “lock-up” periods set forth in such underwriting agreement or separate “lock-up” agreement. Notwithstanding any other provision of this
Section 2.01
or
Section 2.02
, if the managing underwriters with respect to the proposed offering advise the Company in writing that, in their opinion, the number of securities requested to be included in such registration
exceeds the number of securities which can be sold in such offering without being likely to have a material adverse effect on the offering of securities as then contemplated (including a material adverse effect on the price at which it is proposed
to sell the securities), then the Company shall so advise all Holders of securities that would otherwise be included in such registration, and the number of securities that may be included in the registration shall be allocated: (i) first,
pro rata
among the Holders electing to participate in such registration (whether pursuant to this
Section 2.01
or
Section 2.02
) according to the total amount of Registrable Securities requested by such Holders to be
included in such registration, (ii) second, to securities being sold for the account of the Company, and (iii) last,
pro rata
among the other selling security holders of the Company, if any, according to the total amount of
securities requested to be included in such registration. For any Holder that is a partnership, the Holder and the partners and retired partners of such Holder, or the estates and family members of any such partners and retired partners and any
trusts for the benefit of any of the foregoing Persons, and for any Holder that is a corporation, the Holder and all corporations that are Affiliates of such Holder, shall be deemed to be a single “Holder,” and any
pro rata
reduction with respect to such “Holder” shall be based upon the aggregate amount of Registrable Securities owned by all entities and individuals included in such “Holder,” as defined in this sentence.
(c)
Shelf Registration
. If the Company is eligible to register the resale of Registrable Securities by Holders on Form S-3, then any registration
under
Section 2.01(a)
shall, if requested in the Demand Notice, be effected pursuant to a “shelf” Registration Statement covering the Registrable Securities specified by the Holder on an appropriate form under Rule 415 under
the Securities Act, or any similar rule that may be adopted by the SEC, subject to the conditions and limitations set forth in
Section 2.01(a)
.
|
2.02.
|
Piggyback Registrations
.
|
(a)
Piggyback
Rights
. Prior to the Company registering, whether or not for its own account and whether pursuant to
Section 2.01
or otherwise, any Registrable Securities or other equity securities in connection with a public offering for cash (but
excluding (i) any registration relating solely to the sale of securities to participants in a Company-sponsored benefit plan on Form S-1 or Form S-8 under the Securities Act or similar forms that may be promulgated under the
Securities Act in the future, (ii) any registration relating to a corporate reorganization, acquisition or other transaction contemplated by Rule 145 under the Securities Act on Form S-4 under the Securities Act or similar forms that
may be promulgated under the Securities Act in the future, and (iii) the IPO), the Company shall promptly give each Holder written notice of such registration (a “
Piggyback Notice
”), including, if such registration is pursuant
to
Section 2.01
, the applicable Request Notice. Upon the written request of each Holder given in writing to the Company within 15 days after receipt of such Piggyback Notice by the Company, the Company shall, subject to the provisions of
Section 2.02(b)
, as applicable, include in the Registration Statement all of the Registrable Securities that each such Holder has requested to be registered, subject to the limitations of
Section 2.02(c)
.
(b)
Right to Terminate Registration
. The Company shall have the right to terminate or withdraw any registration initiated by it under this
Section 2.02
that is not initiated in response to a Demand Notice prior to the effectiveness of such registration and the commencement of the public offer of the securities covered by such registration whether or not any Holder has
elected to include securities in such registration. The expenses of such withdrawn registration shall be borne by the Company in accordance with
Section 5
hereof. Any such withdrawal shall be without prejudice to the rights of any Holder
to request that a registration of its Registrable Securities be included in subsequent registrations under
Section 2.02(a)
.
(c)
Underwriting Requirements
. If a Registration Statement referred to in the Piggyback Notice is for an underwritten offering, then the Company shall so advise the Holders. In such event, the right of any such Holder to include
Registrable Securities in such a registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting as provided in this Agreement. All
Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the managing underwriter or underwriters selected by the Company for such underwriting. All
Holders, whether or not they are participating in such offering, and the Company agree not to effect any transfer of Registrable Securities (or any securities of the Company exchangeable or convertible into Registrable Securities) during the
“lock-up” periods set forth in such underwriting agreement or separate “lock-up” agreement. Notwithstanding any other provision of
Section 2.01
or this
Section 2.02
, if any registration under
Section 2.02(a)
is undertaken other than in
response to a Demand Notice delivered under
Section 2.01
(in which case the corresponding provisions of
Section 2.01(b)
shall apply)
and the managing underwriters with respect to the proposed offering advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number of securities which can be sold in such
offering without being likely to have a material adverse effect on the offering of securities as then contemplated (including a material adverse effect on the price at which it is proposed to sell the securities), then the Company shall so advise
all Holders of securities that would otherwise be included in such registration, and the number of securities that may be included in the registration shall be allocated: (i) first, to securities being sold for the account of the Company,
(ii) second,
pro rata
among the Holders electing to participate in such registration in accordance with this
Section 2.02
according to the total amount of Registrable Securities requested by such Holders to be included in
such registration, and (iii) last,
pro rata
among the other selling security holders of the Company, if any, according to the total amount of securities requested to be included in such registration. The defined term “Holder”
shall be construed for purposes of this
Section 2.02(c)
in the same manner as set forth in the last sentence of
Section 2.01(b)
.
3.
Obligations of the Company
. Subject to the Company’s right to terminate or withdraw certain registrations under
Section 2.02(b)
, whenever the Company is required under this Agreement to effect the registration of
any Registrable Securities, the Company shall, as expeditiously as reasonably possible:
(a) prepare and file with the SEC a Registration
Statement with respect to such Registrable Securities not later than 90 days after a Demand Notice is given by any Holder pursuant to Section 2.01(a) and keep such Registration Statement effective for a period of up to 180 days or, if
earlier, until the distribution contemplated in the Registration Statement has been completed;
(b) prepare and file with the SEC such
amendments and supplements to such Registration Statement and the Prospectus used in connection with such registration as may be necessary to comply with the provisions of the Securities Act with respect to disposition of all securities covered by
such Registration Statement for the period set forth in
Section 3(a)
;
(c) furnish to each selling Holder and their counsel
selected in accordance with
Section 5
copies of all documents proposed to be filed with the SEC in connection with such registration, which documents will be provided to such counsel and each selling Holder prior to the filing thereof;
(d) furnish to the selling Holders, without charge, such number of (i) conformed copies of the Registration Statement and of each
amendment or supplement thereto (in each case including all exhibits and documents filed therewith), and (ii) copies
of the Prospectus included in such Registration Statement, including each preliminary Prospectus and any summary Prospectus, in conformity with the
requirements of the Securities Act, and such other documents, in each case, as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them in accordance with the intended method or methods of such
disposition;
(e) in the event of any underwritten offering, enter into and perform its obligations under an underwriting agreement, in
usual and customary form, with the managing underwriters of such offering and enter into such other agreements and take such other actions in order to expedite or facilitate the disposition of such Registrable Securities, including preparing for,
and participating in, “road shows” and all other customary selling efforts, all as the underwriters reasonably request;
(f)
notify each selling Holder covered by such Registration Statement, at any time when a Prospectus relating thereto is required to be delivered under the Securities Act, of (i) the issuance of any stop order by the SEC in respect of such
Registration Statement (and use every reasonable effort to obtain the lifting of any such stop order at the earliest possible moment), (ii) any period when the Registration Statement ceases to be effective, or (iii) the happening of any
event as a result of which the Prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing, and, as promptly as is practicable, prepare and furnish to such selling Holder a reasonable number of copies of any supplement to or amendment of such Prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such securities, such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing;
(g) cause all such Registrable Securities registered
hereunder to be listed on each securities exchange or other automated quotation system on which similar securities issued by the Company are then listed or, if not so listed, use its commercially reasonable efforts to cause such Registrable
Securities registered hereunder to be listed on a securities exchange or other automated quotation system selected by the Company;
(h)
provide a transfer agent and registrar for all Registrable Securities registered pursuant hereto and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration;
(i) use its reasonable best efforts to register and qualify the securities covered by such Registration Statement under such other securities or blue sky
laws of such jurisdictions in the United States as shall be reasonably requested by the selling Holders and such other jurisdictions as shall be reasonably requested by the managing
underwriters (or obtain an exemption from registration or qualification under such laws) and do any and all other acts and things which may be necessary or
advisable to enable such selling Holders to consummate the disposition of the Registrable Securities in such jurisdictions in accordance with the intended method or methods of distribution thereof;
provided, however
, that the Company shall
not be required in connection therewith or as a condition thereto to qualify to do business, where not otherwise required, or to file a general consent to service of process or become subject to taxation in any such states or jurisdictions;
(j) use its reasonable efforts to cause all Registrable Securities covered by such Registration Statement to be registered with or
approved by such other governmental authorities as may be necessary by virtue of the business and operations of the Company and its subsidiaries to enable each selling Holder thereof to consummate the disposition of such Registrable Securities in
accordance with the intended method or methods of disposition thereof;
(k) furnish to each selling Holder and underwriter a signed opinion
of counsel for the Company, which counsel is experienced in securities law matters, dated the effective date of the Registration Statement (and, if any registration includes an underwritten offering, the date of the closing under the underwriting
agreement), addressed to such selling Holder, covering such matters as are customarily covered in opinions of issuer’s counsel delivered to the underwriters in underwritten offerings of securities and such other matters as may be reasonably
requested by the Holders, if any;
(l) otherwise use its commercially reasonable efforts to comply with all applicable rules and
regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, an earnings statement of the Company (in form complying with the provisions of Rule 158 under the Securities Act) covering, subject to
Section 3(f)
, the period of at least 12 months, but not more than 18 months, beginning with the first month after the effective date of the Registration Statement; and
(m) use its commercially reasonable efforts to take all other reasonable and customary steps typically taken by issuers to effect the registration and
disposition of such Registrable Securities as contemplated hereby.
4.
Obligations of Holder
.
(a)
Information from Holder
. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Agreement
with respect to the Registrable Securities of any selling Holder that such Holder shall, within 10 Business Days of a request by the Company, furnish to the Company such customary information regarding itself, the Registrable Securities held by
it, and the intended
method of disposition of such securities as shall be reasonably required by the Company to effect the registration of such Holder’s Registrable
Securities.
(b)
Participation in Underwritten Registrations
. No Holder may participate in any underwritten registration unless such
Holder (i) agrees to sell such Holder’s securities on the basis provided in any underwriting arrangements approved by the Persons entitled under this Agreement to approve such arrangements and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements.
5.
Registration Expenses
. All expenses (other than underwriting discounts and commissions) incurred in connection with registrations pursuant to
Section 2.01
or
Section 2.02
, including all registration, filing
and qualification fees, printers’ and accounting fees, fees and disbursements of counsel for the Company and independent certified public accountants, underwriters (excluding discounts and commissions) and other Persons retained by the Company
and the reasonable fees and disbursements of one counsel for the Holders holding a majority of the Registrable Securities to be included in such registration (collectively, “
Registration Expenses
”), shall be borne by the Company.
6.
Delay of Registration
. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the interpretation or administration of this Agreement.
7.
Indemnification and
Contribution
. In the event any Registrable Securities are included in a Registration Statement under this Agreement
(a)
Indemnification of Holders
. To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, members, managers, officers and directors of each Holder, any underwriter (as defined in the Securities Act)
for such Holder and each Person, if any, who controls such Holder or underwriter, within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, expenses or liabilities (joint or several) (or actions, proceedings
or settlements in respect thereof), to which they may become subject under the Securities Act, the Exchange Act or other federal, state or foreign securities laws, or common law, insofar as such losses, claims, damages, expenses or liabilities (or
actions proceeding or settlements in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a “
Violation
”) by the Company: (i) any untrue statement or alleged
untrue statement of a material fact contained in such Registration Statement, including any preliminary Prospectus or final Prospectus (or similar offering documents) contained therein or any amendments or supplements thereto, or any other document
required in connection therewith or any qualification or compliance associated therewith;
(ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not
misleading; or (iii) any violation or alleged violation of the Securities Act, the Exchange Act, any state or foreign securities laws or any rule or regulation promulgated under the Securities Act, the Exchange Act or other federal, state or
foreign securities laws or common law. The Company will reimburse each such indemnified party for any legal or other expenses reasonably incurred by them in connection with investigating or defending or settling any such loss, claim, damage,
liability or action as such expenses are incurred;
provided, however
, that the indemnity agreement contained in this
Section 7(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent
that it arises out of or is based upon a Violation that occurs in reliance upon and in conformity with information furnished to the Company expressly for use in connection with such registration by such Holder, underwriter or controlling Person.
Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of any Holder and shall survive the transfer of such securities by any Holder.
(b)
Indemnification of the Company
. To the extent permitted by law, each selling Holder, on a several and not joint basis, will indemnify and hold
harmless the Company, each of its directors, each of its officers who signed the Registration Statement, each Person, if any, who controls the Company within the meaning of the Securities Act, any underwriter, any other Holder selling securities in
such Registration Statement and any controlling Person of any such underwriter or other Holder, against any losses, claims, damages, expenses or liabilities (joint or several) (or actions, proceedings or settlements in respect thereof) to which any
of the foregoing Persons may become subject, under the Securities Act, the Exchange Act or other federal, state or foreign securities laws, or common law, insofar as such losses, claims, damages or liabilities (or actions proceedings or settlements
in respect thereto) arise out of or are based upon any Violation (but excluding clause (iii) of the definition thereof), in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder to the Company expressly for use in connection with such registration; and each such Holder will reimburse any Person intended to be indemnified pursuant to this
Section 7(b)
for any legal or
other expenses reasonably incurred by such Person in connection with investigating or defending any such loss, claim, damage, liability or action;
provided, however
, that the indemnity agreement contained in this
Section 7(b)
shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld or delayed),
provided,
further
that in no event shall any indemnity under this
Section 7(b)
exceed the net proceeds from the offering received by such Holder.
(c)
Procedures
. Promptly after receipt by an indemnified party under this
Section 7
of
written notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this
Section 7
, deliver to the
indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to
assume the defense thereof with counsel mutually satisfactory to the parties;
provided, however
, that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the
right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action,
if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this
Section 7
to the extent of such prejudice, but the omission to so deliver written
notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party other than under this
Section 7
. No indemnifying party, in the defense of any such claim or action, shall, except with the
consent of each indemnified party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by claimant or plaintiff to such indemnified party of a release from all liability in
respect of such claim or action.
(d)
Adjustments
. If the indemnification provided for in this
Section 7
is held by a
court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall
contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of and, except as to the Company where the Company
does not participate in the offering, the relative benefits received by the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim,
damage or expense, as well as any other relevant equitable considerations, provided that no Person guilty of fraud shall be entitled to contribution. The relative fault of the indemnifying party and of the indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’
relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. The relative benefits received by the indemnifying party and the indemnified party shall be determined by reference to the net
proceeds and
underwriting discounts and commissions from the offering received by each such party. In no event shall any contribution of any Holder under this
Section 7(d)
exceed the net proceeds from the offering received by such Holder, less any amounts paid under
Section 7(b)
.
(e)
Conflict With Underwriting Agreement
. Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into by the Company and a Holder in
connection with an underwritten offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control with respect to the Company and such Holder.
(f)
Survival
. The obligations of the Company and Holders under this
Section 7
shall survive the completion of any offering of
Registrable Securities in a Registration Statement under this Agreement and the termination of this Agreement.
(g)
Not Exclusive
.
The obligations of the parties under this
Section 7
shall be in addition to any liability which any party may otherwise have to any other party.
8.
Successors, Assigns and Transferees
. This Agreement shall be binding upon and shall inure to the benefit of each party hereto, and their respective successors, assigns and transferees. Any Holder under this Agreement may assign
its rights under this Agreement to any Affiliate or to other successors, assigns and transferees of such Holder;
provided, however
, that prior to, or within a reasonable period of time after, any such assignment, the assigning Holder shall
provide written notice thereof to the Company, which notice shall include the name and address of the transferee or assign and identify the securities with respect to which the rights hereunder are being transferred. As a condition to the
effectiveness of any transfer permitted hereunder, the transferee or assign shall agree, in writing, upon request of the Company, to be bound by the provisions of this Agreement. This Agreement shall survive any transfer of Registrable Securities
to, and shall inure to the benefit of, an Affiliate or such other successors, assigns and transferees of such Holder. In addition, and whether or not any express transfer or assignment shall have been made, the provisions of this Agreement which are
for the benefit of the parties hereto other than the Company shall also be for the benefit of and enforceable by any subsequent Holder of Registrable Securities.
9.
Miscellaneous
.
(a)
Adjustments Affecting Registrable Securities
. The Company will not take any action, or permit
any change to occur, with respect to its securities that would adversely affect the ability of the Holders to include their respective Registrable Securities in a registration undertaken pursuant to this Agreement.
(b)
No Waivers
. No failure or delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
(c)
Amendments
. Any provision of this Agreement
may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Company and each Original Stockholder or, in the case that any Original Stockholder has transferred all of its Registrable Securities in accordance
with Section 8 of this Agreement, the transferee of such Original Stockholder holding a majority of the Registrable Securities so transferred.
(d)
Severability
. If any term or provision of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms and provisions shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
(e)
Notices
. All notices required or permitted by this Agreement shall be in
writing and shall be hand delivered, sent by reputable overnight courier, sent by registered or certified mail, or sent by email or facsimile if confirmed by electronic confirmation of receipt. Notices shall be given to such party at its mailing
address, facsimile number or email address set forth on the signature pages hereof, or such other address, or facsimile number as such party may hereafter specify for such purpose. Each such notice, request or other communication shall be effective
(i) if given by facsimile or email, when such notice is transmitted to the destination specified on the signature page hereto and the appropriate answer back (i.e., machine confirmation, email confirmation or telephone confirmation) is
received, (ii) if given by registered or certified mail, 72 hours after such communication is deposited in the mail with first class postage prepaid, addressed as aforesaid, or (iii) if given by any other means, when received at the
address specified on the signature pages hereof.
(f)
Entire Agreement
. This Agreement constitutes the entire agreement and
understanding among the parties hereto with respect to the transactions contemplated hereby and supersedes any and all prior agreements and understandings, written or oral, relating to the subject matter hereof, including, without limitation,
Sections 11.1 through 11.7 of the Mining LLC Agreement.
(g)
Governing Law
. The laws of the State of Colorado shall govern the
interpretation, validity and performance of the terms of this Agreement, regardless of the law that might be applied under applicable principles of conflicts of laws.
(h)
Counterparts
. This Agreement may be executed in counterparts, each of which shall be an
original with the same effect as if the signatures thereto and hereto were upon the same instrument.
(i)
No Third Party
Beneficiaries
. Except as provided by
Section 8
, nothing in this Agreement shall confer any rights upon any Person other than the parties hereto, each such party’s respective successors and permitted assigns and transferees.
(j)
Registration Rights in Mining LLC Agreement
. This Agreement supersedes in their entirety the agreements, rights and obligations
of Mining and the Original Stockholders contained in Sections 11.1 through 11.7 of the Mining LLC Agreement.
(k)
Company IPO
. The
Original Stockholders hereby agree not to effect any transfer of Registrable Securities during the lock-up periods set forth in (i) the Underwriting Agreement dated _________, 2008 entered into in connection with the Company’s IPO or
(ii) any separate “lock-up” agreement executed in connection with the IPO, in each case only as such is applicable to each Original Stockholder, respectively.
[Signature page follows]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective
authorized officers or representatives, as of the date first above written.
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THE COMPANY
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INTREPID POTASH, INC.
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By:
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Name:
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Title:
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Address:
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700 17th Street, Suite 1700
Denver, CO
80202
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Facsimile:
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303-298-7502
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Attention:
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HOPCO
:
HARVEY OPERATING AND
PRODUCTION COMPANY
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By:
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Name:
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Hugh E. Harvey, Jr.
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Title:
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President
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Address:
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700 17th Street, Suite 1700
Denver, CO
80202
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Facsimile:
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303-298-7502
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Attention:
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Hugh E. Harvey, Jr.
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[Signature Page to Registration Rights Agreement]
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IPC
:
INTREPID PRODUCTION
CORPORATION
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By:
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Name:
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Robert P. Jornayvaz III
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Title:
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President
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Address:
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700 17th Street, Suite 1700
Denver, CO
80202
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Facsimile:
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303-298-7502
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Attention:
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Robert P. Jornayvaz III
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PAL
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POTASH ACQUISITION, LLC
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By:
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PRV Investors I, LLC
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Its:
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Manager
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By:
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Name:
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Gregory A. Sissel
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Title:
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Chief Financial Officer
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Address:
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200 Fillmore Street, Suite 200
Denver, CO
80206
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Facsimile:
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303-292-7310
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Attention:
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Gregory A. Sissel
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[Signature Page to Registration Rights Agreement]
Exhibit 10.5
FORM OF
DIRECTOR DESIGNATION AND VOTING AGREEMENT
THIS DIRECTOR DESIGNATION AND VOTING AGREEMENT dated as of [__________ __], 2008 (this “
Agreement
”), is among Intrepid Potash, Inc., a
Delaware corporation (“
Intrepid
”), Harvey Operating and Production Company, a Colorado corporation (“
HOPCO
”), Intrepid Production Corporation, a Colorado corporation (“
IPC
”), and Potash Acquisition,
LLC, a Delaware limited liability company (“
PAL
” and, collectively with HOPCO and IPC, the “
Founding Stockholders
”). Certain terms used in this Agreement are defined in Section 1.1.
RECITALS
A. As of the date of this
Agreement, the Founding Stockholders own all of the outstanding membership units of Intrepid Mining LLC, a Delaware limited liability company (“
Intrepid LLC
”).
B. Pursuant to the terms and subject to the conditions of an Exchange Agreement dated as of [______ __,] 2008, between Intrepid and Intrepid LLC, it
is contemplated that Intrepid will acquire substantially all of the assets of Intrepid LLC in exchange for shares of Common Stock and a cash payment (the “
Exchange
”).
C. Intrepid is contemplating an offer and sale of shares of its Common Stock to the public in an underwritten initial public offering (the
“
IPO
”) simultaneously with closing the consummation of the Exchange.
D. It is also contemplated that, immediately
following the consummation of the Exchange and the closing of the IPO, Intrepid LLC will satisfy its outstanding liabilities, liquidate and distribute all of its cash and shares of Common Stock to the Founding Stockholders (the
“
Distribution
”).
E. The Founding Stockholders and Intrepid wish to set forth certain understandings with respect to the
Founding Stockholders’ holdings of Common Stock (including such shares of Common Stock contemplated to be received in the Distribution).
F. The Certificate of Incorporation of Intrepid (the “
Charter
”) provides that Intrepid shall have a staggered board of directors (the “
Board
”) that consists of three classes of directors and that the term
of one class of directors will expire at each annual meeting of the stockholders of Intrepid (the “Annual Meetings”).
AGREEMENT
In consideration of the covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Intrepid and the Founding Stockholders agree
as follows.
1. Definitions
1.1
Certain Definitions.
For purposes of this Agreement, the following terms shall have the meanings specified in this Section 1.1:
“
Affiliate
” means any person that directly or indirectly through one or more intermediaries controls or is controlled by or is under common control with the specified person. As used in this definition of
“Affiliate,” (i) the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities,
by contract, or otherwise, and (ii) the term “person” means any individual, corporation, association, partnership, limited liability company, joint venture, trust, estate or other entity or organization.
“
Common Stock
” means the common stock, par value $0.001 per share, of Intrepid.
“
Director
” means a member of the Board.
“
Nominating Committee
” means the nominating/governance committee of the Board.
“
Permitted Transferee
” means (i) in the case of HOPCO , Hugh E. Harvey, Jr. and, in the case of IPC, Robert P. Jornayvaz III, any of their respective Affiliates, and (A) a spouse or lineal descendant (whether
natural or adopted), sibling, parent, heir, executor, administrator, testamentary trustee, lifetime trustee or legatee of Harvey or Jornayvaz, (B) any trust, the majority of trustees of which include only Harvey or Jornayvaz or persons named in
clause (A) and the beneficiaries of which include only the persons named in clause (A), (C) any corporation, limited liability company or partnership, the stockholders, members or general or limited partners of which include only the
persons named in clause (A), (D) in the case of a trust, the beneficiary or beneficiaries authorized or entitled to receive distributions from such trust, and all subsequent trusts that may result from the division of such trust into two
or more separate trusts, or any trust resulting from the combination of two or more of such trusts into a single trust, (E) any foundation or other entity established by Harvey or Jornayvaz for charitable purposes, and (ii) in the case of
PAL, any of (A) an Affiliate of PAL and (B) the owners of equity interests in PAL or its parent entities provided the Transfer of
2
Common Stock is substantially in accordance with their respective equity interests in PAL or such parent.
“
Registration Statement
” means the registration statement filed with the Securities Exchange Commission on December 20, 2007 on
Form S-1 in relation to the IPO, as amended.
“
Retiring Director
” means any Director whose term expires at the next
Annual Meeting pursuant to the terms of the Charter.
“
Transfer
” means, with respect to any share of Common Stock (or
direct or indirect economic or other interest therein), a transfer, sale, assignment, pledge, hypothecation or other disposition, whether directly or indirectly (pursuant to the creation of a derivative security or otherwise), the grant of an option
or other right or the imposition of a restriction on disposition or voting or by operation of law. When used as a verb, “Transfer” shall have the correlative meaning.
2. Nominee Designation
2.1 Nomination Right
. Subject to any limitations imposed by the New
York Stock Exchange and the conditions set forth in this Section 2, each Founding Stockholder and its Affiliates and Permitted Transferees (as a group) shall have the right to designate persons to be appointed or nominated for election to the
Board as follows (each, a “
Designee
”):
(a) each Founding Stockholder hereby designates the Designee named
opposite such Founding Stockholder’s name below for appointment as an initial Director and each such Director shall belong to the respective class of directors whose initial terms shall expire at the Annual Meeting indicated below:
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Founding Stockholder
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Designee
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Annual Meeting
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HOPCO
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Hugh E. Harvey, Jr.
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2011
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IPC
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Robert P. Jornayvaz III
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2011
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PAL
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J. Landis Martin
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2010
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(b) at every Annual Meeting hereafter at which the term of a Director designated by
a Founding Stockholder in accordance with this Section 2.1 shall expire, such Founding Stockholder (and its Affiliates and Permitted Transferees, as a group) may name a Designee to be nominated for election to the Board in
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place of such Retiring Director;
provided
that such Retiring Director may be named by the Founding Stockholder as its Designee for the succeeding
term.
(c) if a vacancy occurs because of the death, disability, retirement, resignation or removal of a Director that was a
Designee of a Founding Stockholder, such Founding Stockholder (and its Affiliates and Permitted Transferees, as a group) shall name a Designee to fill such vacancy as soon as reasonably practicable, and the Board, subject to
paragraph 2.4(b)(ii) below, shall elect the Designee to the Board to fill the vacancy.
2.2 Effect of Reduction of Holdings
. At
such time as any Founding Stockholder and its Affiliates and Permitted Transferees no longer beneficially own at least five percent of the issued and outstanding shares of Common Stock (calculated on a fully diluted and as converted basis, and
adjusted to reflect any additional issuance of Common Stock or any split, dividend or other distribution by Intrepid to the holders of Common Stock), such Founding Stockholder (and its Affiliates and Permitted Transferees) shall cease to have any
rights of designation under Section 2.1 or right of approval under paragraph 2.4(c).
2.3
Personal Right
. Each
Founding Stockholder’s rights under this Section 2 are personal to such Founding Stockholder (and its Affiliates and Permitted Transferees) and may not be assigned except in accordance with Section 7.3.
2.4 Intrepid Obligations.
(a) To the fullest extent permitted by law, Intrepid agrees to use its best efforts to assure that, with respect to each election of directors hereafter:
(i) the Founding Stockholders’ respective Designees are included in the Board’s slate of nominees and are recommended for
election by Intrepid; and
(ii) each such Designee is included in the proxy statement prepared by Intrepid in connection
with soliciting proxies for every meeting of the stockholders of Intrepid called with respect to such election, and at every adjournment or postponement thereof, and on every action or approval by written consent of the stockholders of Intrepid or
the Board with respect to such election.
(b) Notwithstanding anything herein to the contrary, Intrepid shall not be
obligated to cause to be nominated for election to the Board or recommend to the stockholders the election of any Designee if (i) such Designee fails to submit to Intrepid on a timely basis such questionnaires as Intrepid may require of its
directors generally and such other information as Intrepid may reasonably request,
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or (ii) the Board or the Nominating Committee determines in good faith, after consultation with legal counsel, that such action would be inconsistent
with its fiduciary duties or applicable law;
provided, however,
that if the Board or the Nominating Committee determine in good faith, after consultation with legal counsel, that such action would be inconsistent with its fiduciary duties or
applicable law, Intrepid shall promptly, and sufficiently in advance of any meetings of the stockholders called with respect to such election of nominees, notify the applicable Founding Stockholder of such determination and permit the applicable
Founding Stockholder to provide an alternate Designee.
(c) For so long as any Founding Stockholder (or its Affiliates and
Permitted Transferees, as applicable) shall have any rights of designation under this Section 2, Intrepid shall not take any action to change the size of the Board to exceed seven members without the prior consent of Founding Shareholders (or
their respective Affiliates and Permitted Transferees, as applicable) that beneficially own a majority of the outstanding shares beneficially owned by all Founding Stockholders (and their Affiliates and Permitted Transferees).
3. Voting.
To the fullest extent permitted by law, each Founding Stockholder agrees (a) to vote (and so long as shares of Common Stock are held by Intrepid
LLC to cause Intrepid LLC to vote) all its shares of Common Stock or any other equity securities of the Company, whether now owned or hereafter acquired or that such Founding Stockholder may be empowered to vote (or to act by written consent with
respect to such shares of Common Stock or other securities), from time to time and at all times, in favor of the election to the Board of each Designee, and (b) to not vote (nor act by written consent) in favor of any individual who is not
nominated by the Nominating Committee.
4. Transfer Limitations.
(a) Subject to Section 4(b), each Founding Stockholder agrees that it shall not Transfer, whether in a single transaction or a series
of related transactions, any of its shares of Common Stock (nor permit its Affiliates to Transfer any of their shares of Common Stock), if, to the actual knowledge of such Founding Stockholder immediately prior to such Transfer, the transferee (or
any group of which such transferee is a member) would, after giving effect to such Transfer, own or have rights to acquire in excess of five percent of the issued and outstanding shares of Common Stock.
(b) The Transfer limitations in Section 4(a) above shall not apply to, nor prohibit, any (i) Transfer from one Founding
Stockholder or its Affiliates to another Founding Stockholder or it is Affiliates or (ii) tender by any Founding Stockholder or its Affiliates of his or its Common Stock pursuant to a tender offer in which each Founding Stockholder and its
Affiliates is permitted to participate
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on terms no less favorable than those applicable to each other Founding Stockholder and its Affiliates or (iii) transfers by a Founding Stockholder to a
Permitted Transferee who signs and agrees to be bound by this Agreement.
5. Specific Performance.
Each of the parties to this Agreement
acknowledges and agrees that each party hereto will be irreparably damaged if any of the provisions of this Agreement are not performed by the parties hereto in accordance with their specific terms or are otherwise breached. Accordingly, it is
agreed that each of Intrepid and the Founding Stockholders shall be entitled to an injunction to prevent breaches of this Agreement and to specific enforcement of this Agreement and its terms and provisions in any action instituted in any court of
the United States or any state having subject matter jurisdiction, in addition to any other remedy to which the parties hereto may be entitled at law or in equity. Each of the parties hereto hereby consents to personal jurisdiction in any such
action brought in the United States District Court for the District of Colorado or in any court of the State of Colorado sitting in the City and County of Denver having subject matter jurisdiction.
6. Termination.
If the Registration Statement is withdrawn for any reason, this Agreement shall become null and void and be of no further force or effect
whatsoever and neither the Founding Stockholders nor Intrepid shall have any further obligations hereunder or with respect hereto.
7. Miscellaneous
7.1
Governing Law
. This Agreement shall be governed by and construed in all respects in accordance with the laws of the
State of Delaware without giving effect to principles of conflicts of law.
7.2
Notices
. All notices, demands or other
communications to be given under or by reason of this Agreement shall be in writing and shall be delivered by hand or sent by facsimile or overnight courier service and shall be deemed given when received, as follows:
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If to Intrepid
:
Intrepid Potash,
Inc.
700 17
th
Street
Suite 1700
Denver, CO 80202
Attention: Robert P. Jornayvaz III
Fax: (303) 298-7502
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If to HOPCO
:
Harvey Operating and Production
Company
700 17
th
Street
Suite 1700
Denver, CO 80202
Attention: Hugh E. Harvey, Jr.
Fax: (303) 298-7502
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with a copy to
:
Holme Roberts & Owen
LLP
1700 Lincoln Street, Suite
4100
Denver, CO 80203-4541
Attention: Steven B.
Richardson
Fax: (303) 866-0200
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with a copy to
:
[Address to be inserted.]
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If to IPC
:
Intrepid Production
Corporation
700 17
th
Street
Suite 1700
Denver, CO 80202
Attention: Robert P. Jornayvaz III
Fax: (303) 298-7502
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If to PAL
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Potash Acquisition, LLC
c/o Platte River Ventures I, L.P.
200 Fillmore Street
Suite 200
Denver, CO 80206
Attention: J. Landis Martin
Fax: (303) 292-7310
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with a copy to
:
[Address to be inserted.]
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with a copy to
:
Bartlit Beck Herman Palenchar & Scott LLP
1899 Wynkoop Street, Suite 800
Denver, CO 80202
Attention: James L. Palenchar
Fax: (303) 592-3140
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Any party to this Agreement may change its address for notices, demands and other communications
under this Agreement by giving notice of such change to the other parties hereto in accordance with this Section 7.2.
7.3
Benefit of Parties; Assignment
. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, legal representatives and permitted assigns. This Agreement may not be assigned by
either Intrepid or any Founding Stockholder except with the prior written consent of the other parties;
provided, however
, no prior consent shall be required for an assignment by a Founding Stockholder to its stockholders or members in
connection with a distribution of
7
Common Stock by such Founding Stockholder, provided each assignee expressly agrees to be bound by this Agreement. Notwithstanding anything to the contrary in
the preceding sentence, in the case of an assignment by PAL to its members in connection with a distribution of Common Stock by PAL (which shall not require the prior consent of any party hereto), no member of PAL, other than Platte River Ventures
I, L.P. and CCF/PRV Co-Investment Holdings, L.P., shall be required to agree to be bound by this Agreement in connection with such assignment. Nothing herein contained shall confer or is intended to confer on any third party or entity that is not a
party to this Agreement any rights under this Agreement.
7.4
Amendment
. This Agreement may not be amended, modified, altered
or supplemented except by means of a written instrument executed on behalf of Intrepid and each of the Founding Stockholders.
7.5
Waiver
. No failure on the part of any party hereto to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of any party hereto in exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver thereof; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy.
7.6
Severability
. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.
7.7
Entire Agreement
. This Agreement sets forth the entire understanding of the parties hereto and supersedes all other agreements and
understandings between the parties hereto relating to the subject matter hereof.
7.8
Counterparts and Facsimiles
. This
Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the others. The
parties hereto may execute the signature pages hereof and exchange such signature pages by facsimile transmission.
7.9 Interpretation
of Agreement.
(a) As used in this Agreement, the words “include” and “including,” and variations
thereof, shall not be deemed to be terms of limitation, and shall be deemed to be followed by the words “without limitation.”
8
(b) Unless otherwise specified, references in this Agreement to “Sections” and
“Exhibits” are intended to refer to Sections of, and Exhibits to, this Agreement.
(c) The Section headings
contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement.
(d) Each party hereto and its counsel cooperated in drafting and preparation of this Agreement and the documents referred to in this
Agreement. Any rule of law or any legal decision that would require interpretation of any ambiguities in this Agreement against the party that drafted it is of no application and is hereby expressly waived.
[Signature page to follow]
9
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the day and year
first above written.
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INTREPID
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INTREPID POTASH, INC.
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By:
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Name:
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Title:
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HOPCO
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HARVEY OPERATING AND
PRODUCTION
COMPANY
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By:
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Name:
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Title:
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IPC
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INTREPID PRODUCTION
CORPORATION
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By:
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Name:
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Title:
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PAL
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POTASH ACQUISITION, LLC
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By:
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Name:
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Title:
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[Signature Page to Director Designation and Voting Agreement]
Exhibit 10.6
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT dated as of __________, 2008 (this
“
Agreement
”), is between Intrepid Potash, Inc., a Delaware corporation (“
Intrepid Potash
”), and Intrepid Mining LLC, a Delaware limited liability company (“
Intrepid Mining
”). Certain terms used in
this Agreement are defined in Section 1.1.
RECITALS
A. Intrepid Potash is contemplating an offer and sale of its Common Stock to the public in an underwritten initial public offering (the
“
IPO
”).
B. As of the date hereof, Intrepid Mining owns all 1,000 of the issued and outstanding shares of Common Stock of
Intrepid Potash.
C. Intrepid Mining wishes to assign all of its assets (other than cash) to Intrepid Potash, and Intrepid Potash wishes to
accept such assignment of assets in exchange for a portion of the net proceeds of the IPO, shares of Intrepid Potash’s Common Stock and the assumption of (i) a portion of Intrepid Mining’s liability under the Credit Agreement (as
defined below) and (ii) substantially all other liabilities and obligations of Intrepid Mining, (collectively, the “
Exchange
”).
D. In connection with the Exchange, Intrepid Potash intends to declare a dividend with respect to the 1,000 shares of its Common Stock currently issued and outstanding (the “
Formation Distribution
”),
which will be paid in shares of Common Stock;
provided, however
, that for each share of Common Stock purchased by the underwriters pursuant to the over-allotment option granted in connection with the IPO, the number of shares payable pursuant
to the Formation Distribution will be reduced, one-for-one, and in lieu of such shares, Intrepid Potash will pay cash in an amount equal to the net proceeds, before offering expenses but after underwriting discounts and commissions, it receives from
the exercise of the underwriters’ over-allotment option.
AGREEMENT
In consideration of the covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Intrepid Potash and Intrepid Mining agree as follows:
1.
Definitions
1.1
Certain Definitions
. For purposes of this Agreement, the following terms shall have the meanings specified in this Section 1.1:
“
Accountants
” means the Denver, Colorado office of
[
], or if such firm is not available and willing to serve, then a mutually acceptable nationally or regionally recognized firm of independent certified public accountants
that has not provided material services to either Intrepid Mining or Intrepid Potash or their respective Affiliates in the preceding three years.
“
Affiliate
” means with respect to any Person, any Person that directly or indirectly, through one or more intermediaries Controls, is Controlled by or is under common Control with such Person.
“
Common Stock
” means the common stock, par value $0.001 per share, of Intrepid Potash.
“
Control
” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of
a Person, whether through ownership of voting securities, by contract or otherwise.
“
Credit Agreement
” means the Third
Amended and Restated Credit Agreement dated as of March 9, 2007, by and among Intrepid Mining, Intrepid New Mexico, Intrepid Moab, Intrepid Wendover, U.S. Bank National Association and the lenders named therein, as amended.
“
Fourth Amendment
” means the Fourth Amendment to the Credit Agreement dated as of the Closing Date and among Intrepid Potash, Intrepid
Mining, Intrepid New Mexico, Intrepid Moab, Intrepid Wendover, U.S. Bank National Association and the lenders named therein.
“
Income Taxes
” or “
Income Tax
” means any and all federal, state, local, foreign and other Taxes imposed on, or measured by, income, franchise, profits or gross receipts, and includes alternative minimum
Taxes and estimated Taxes.
“
Losses
” means any and all losses, claims, fines, penalties, fees, deficiencies, damages,
liabilities, joint or several, or Proceedings (whether commenced or threatened) and costs and expenses (including interest, court costs, reasonable fees of attorneys, accountants and other experts, reasonable expenses of investigation, and other
expenses of litigation or other proceedings).
“
Person
” means a natural person, corporation, joint venture, partnership,
limited liability partnership, limited partnership, limited liability limited partnership, limited liability company, trust, estate, business trust, association, governmental authority or any other entity.
2
“
Proceeding
” means any action, arbitration, audit, hearing, investigation, litigation,
suit, or other proceeding, including those of a judicial, regulatory, governmental entity or agency, or administrative nature.
“
Tax Return
” means any return, report, exhibit, schedule, information return, or statement and other documentation (including any additional or supporting material, attachment, amendment or supplement thereto) filed or
maintained, or required to be filed or maintained, in connection with the calculation, determination, assessment, or collection of any Tax, and shall include an amended return or claim for refund.
“
Taxes
” or “
Tax
” means any and all federal, state, local, foreign and other taxes, levies, fees, imposts and duties of
whatever kind (including any interest, penalties or additions to the tax imposed in connection therewith or with respect thereon), including taxes imposed on, or measured by, income, franchise, profits or gross receipts, alternative minimum taxes,
estimated taxes and also including ad valorem, value added, sales, use, service, real or personal property, capital stock, business license, payroll, withholding, employment, social security, workers’ compensation, unemployment, severance,
production, excise, stamp, occupation, premium, windfall profits, real estate transfer, and customs tariffs, imposts, assessments, obligations, and charges, and including any liability for any of the foregoing items that arises by reason of a
contract, assumption, transferee or successor liability, operation of law, or otherwise.
“
Underwriting Agreement
” means
the underwriting agreement to be entered into among Intrepid Potash and the managing underwriters for the IPO.
1.2
Additional
Terms
. In addition to defined terms identified in Section 1.1, the following terms have the meanings assigned in the Sections referred to in the table below:
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Term
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Section
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Agreement
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Preamble
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Assumed Liabilities
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2.3
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Breakage Costs
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2.3(a)
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Cash Portion
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2.5(a)
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Closing
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3.1
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Closing Date
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3.1
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Exchange
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Recitals
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Exchange Consideration
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2.5
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Exchanged Assets
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2.1
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Excluded Assets
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2.2
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Formation Distribution
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Recitals
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HB Potash
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2.1(d)
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Intrepid Aviation
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2.1(f)
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Intrepid Mining
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Preamble
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Intrepid Moab
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2.1(b)
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Intrepid New Mexico
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2.1(a)
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Intrepid Potash
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Preamble
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Intrepid Wendover
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2.1(c)
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IPO
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Recitals
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Moab Pipeline
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2.1(e)
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Retained Liabilities
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2.4
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Stock Portion
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2.5(b)
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3
2.
Exchange Transaction.
2.1
Exchanged Assets
. Upon the terms and subject to the conditions contained in this Agreement, at the Closing, Intrepid Mining shall contribute, assign, transfer and convey to Intrepid Potash, and
Intrepid Potash shall acquire and accept from Intrepid Mining, all right, title and interest of Intrepid Mining in and to the properties, assets and rights of every nature, kind and description, owned or held, directly or indirectly, by Intrepid
Mining, other than the Excluded Assets (the “
Exchanged Assets
”), and subject to the Assumed Liabilities. The Exchanged Assets include the following assets and properties:
(a) all outstanding membership interests of Intrepid Potash – New Mexico, LLC, a New Mexico limited liability company
(“
Intrepid New Mexico
”);
(b) all outstanding membership interests of Intrepid Potash – Moab, LLC, a
Delaware limited liability company (“
Intrepid Moab
”);
(c) all outstanding membership interests of Intrepid
Potash – Wendover, LLC, a Colorado limited liability company (“
Intrepid Wendover
”);
(d) all
outstanding membership interests of HB Potash, LLC, a New Mexico limited liability company (“
HB Potash
”);
(e) all outstanding membership interests of Moab Pipeline LLC, a Colorado limited liability company (“
Moab Pipeline
”);
(f) all outstanding membership interests of Intrepid Aviation LLC, a Colorado limited liability company (“
Intrepid Aviation
”);
(g) all employees of Intrepid Mining; and
(h) all other assets, property (whether real, personal or mixed, tangible or intangible), leasehold interests, equipment, contract rights, and other rights owned or held by Intrepid Mining that are necessary or
appropriate to enable Intrepid Potash to continue the business of Intrepid Mining substantially as conducted by Intrepid Mining on or prior to the Closing Date other than the Excluded Assets.
2.2
Excluded Assets
. Intrepid Mining will retain ownership of all of its cash as of the Closing Date and any receivable that constitutes a
credit in the form of a
4
personal loan to or for any person who is or is expected to become a director or executive officer of Intrepid Potash (the “
Excluded
Assets
”).
2.3
Assumed Liabilities
. Subject to the terms and conditions set forth herein, at the Closing, Intrepid
Potash shall assume and agree to pay, honor and discharge when due the Assumed Liabilities. “
Assumed Liabilities
” shall mean:
(a) (i) pursuant to the Fourth Amendment, any and all amounts in excess of $18.9 million of the amounts outstanding on the Closing Date under the Credit Agreement, and (ii) the obligation to pay all breakage
costs for the termination of any interest rate swaps or hedging agreements (“
Breakage Costs
”) in connection with the repayment of the amounts described in clause “(i)” by Intrepid Potash or the repayment by Intrepid Mining
of the amounts described in Section 2.4(a);
(b) any and all liabilities set forth on Intrepid Mining’s balance
sheet dated _______, _______;
(c) any and all liabilities and obligations existing as of the Closing Date, whether known or
unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due, including, without limitation, any and all indemnification obligations of
Intrepid Mining; and
(d) any and all liabilities and obligations arising after the Closing Date in connection with facts,
events, conditions, actions or omissions existing or occurring on or before the Closing Date, whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due.
2.4
Retained Liabilities
. Intrepid Potash shall not assume and Intrepid Mining shall
promptly satisfy the following liabilities and obligations (the “
Retained Liabilities
”):
(a) pursuant to
the Fourth Amendment, $18.9 million outstanding on the Closing Date under the Credit Agreement, together with all unpaid interest accrued thereon and any fees, charges and other costs owed to the lenders (but not any Breakage Costs), and
(b) the liabilities in respect of Taxes retained by Intrepid Mining from and after the Closing pursuant to Article 7.
2.5
Exchange Consideration
. The consideration for the Exchanged Assets (the “
Exchange Consideration
”) shall be:
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(a) $________ in cash (the “
Cash Portion
”);
(b) ________ shares of Common Stock of Intrepid Potash (the “
Stock Portion
”); and
(c) assumption by Intrepid Potash of the Assumed Liabilities.
3.
Closing.
3.1
Time and Place of Closing
. The closing (the
“
Closing
”) of the transactions contemplated hereby shall be held at the offices of Holme Roberts & Owen LLP, 1700 Lincoln Street, Suite 4100, Denver, Colorado 80203 at the time and date on which all the conditions set forth
in Section 4 have been satisfied or waived, or at such later time and date as Intrepid Potash and Intrepid Mining shall agree in writing (such time and date, the “
Closing Date
”).
3.2
Closing Deliverables
.
(a) Intrepid Mining shall deliver, or cause to be delivered, the following to Intrepid Potash at Closing:
(i) instruments of transfer conveying the outstanding membership interests of each of Intrepid New Mexico, Intrepid Moab, Intrepid Wendover, HB Potash, Moab Pipeline and Intrepid Aviation;
(ii) an executed copy of the Fourth Amendment;
(iii) all documents, certificates and agreements necessary to transfer the Exchanged Assets to Intrepid Potash, including:
(1) bills of sale, transfers of title, assignments and general conveyances, in form and substance reasonably satisfactory to Intrepid
Potash, dated the Closing Date; and
(2) assignments of all contracts, intellectual property, permits and any other
agreements and instruments constituting Exchanged Assets, dated the Closing Date, assigning to Intrepid Potash all of Intrepid Mining’s right, title and interest therein and thereto; and
(iv) such other documents, instruments or certificates, in form and substance reasonably satisfactory to Intrepid Potash, as Intrepid
Potash may reasonably request in order to effect and evidence the contribution, assignment, transfer and conveyance of the Exchanged
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Assets to Intrepid Potash and the other transactions contemplated by this Agreement.
(b) Intrepid Potash shall deliver, or cause to be delivered, the following to Intrepid Mining at Closing:
(i) the Cash Portion of the Exchange Consideration by wire transfer of immediately available funds to an account designated by Intrepid
Mining;
(ii) an executed copy of the Fourth Amendment;
(iii) one or more stock certificates in the name of Intrepid Mining representing the Stock Portion of the Exchange Consideration; and
(iv) instruments of assumption and such other documents, in form and substance reasonably satisfactory to Intrepid Mining,
as Intrepid Mining may reasonably request in order to effect and evidence Intrepid Potash’s assumption of the Assumed Liabilities and the other transactions contemplated by this Agreement.
4.
Conditions to Closing
.
4.1
Conditions to
the Obligations of All Parties
. The obligations of the parties under this Agreement are subject to the fulfillment or waiver of the following conditions:
(a) There shall not have been issued and be in effect any order, decree or judgment of, or in, any court, tribunal of competent
jurisdiction or governmental authority which makes the transactions contemplated by this Agreement illegal or invalid; and
(b) Intrepid Potash shall have entered into the Underwriting Agreement with respect to the IPO and all conditions to the consummation thereof shall have been, or will contemporaneously be, satisfied, except for conditions to be satisfied at
the Closing under the Underwriting Agreement or this Agreement.
4.2
Condition to Obligations of Intrepid Potash
.
In
addition to the conditions specified in Section 4.1, the obligations of Intrepid Potash under this Agreement are subject to the fulfillment or waiver of the following conditions:
(a) all covenants, agreements and conditions contained in this Agreement to be performed by Intrepid Mining on or prior to the Closing
shall have been performed or complied with in all material respects; and
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(b) Intrepid Mining shall have delivered, or caused to be delivered, to Intrepid Potash
each of the deliverables identified in Section 3.2(a).
4.3
Conditions to the Obligations of Intrepid Mining
. In
addition to the conditions specified in Section 4.1, the obligations of Intrepid Mining under this Agreement are subject to the fulfillment or waiver of the following conditions:
(a) all covenants, agreements and conditions contained in this Agreement to be performed by Intrepid Potash on or prior to the Closing
shall have been performed or complied with in all material respects; and
(b) Intrepid Potash shall have delivered, or
caused to be delivered, to Intrepid Mining each of the deliverables identified in Section 3.2(b).
5.
Termination
. If the conditions set forth
in Section 4 are not satisfied or waived on or before __________, 2008
[Note: date thirty days or so after execution to be added]
or if the registration statement with respect to the IPO is withdrawn for any reason prior to that date,
this Agreement shall become null and void and be of no further force or effect whatsoever and neither Intrepid Mining nor Intrepid Potash shall have any further obligations hereunder or with respect hereto.
6.
Covenants
.
6.1 Intrepid Mining and Intrepid
Potash agree (a) to furnish or cause to be furnished, upon request to each other such further information; (b) to execute and deliver to each other such other documents; and (c) to do such other acts and things, all as the other party
may reasonably request for the purpose of carrying out the intent of this Agreement. Without limiting the generality of the foregoing, from and after the Closing Date, Intrepid Mining shall promptly remit to Intrepid Potash any funds that are
received by Intrepid Mining and that are included in, or that represent payment of receivables included in, the Exchanged Assets.
6.2
Intrepid Mining (a) hereby irrevocably authorizes Intrepid Potash, at all times on and after the Closing Date, to endorse in the name of Intrepid Mining any check or other instrument that is made payable to Intrepid Mining and that represents
funds included in, or that represents the payment of any receivable included in, the Exchanged Assets; (b) hereby irrevocably nominates, constitutes and appoints Intrepid Potash as the true and lawful attorney-in-fact of Intrepid Mining (with
full power of substitution) effective as of the Closing Date; and (c) hereby authorizes Intrepid Potash, in the name of and on behalf of Intrepid Mining, to execute, deliver, acknowledge, certify, file and record any document, to institute and
prosecute any Proceeding and to take any other action (on or at any time after the Closing Date) that Intrepid Potash may deem appropriate for the purpose of (i) collecting, asserting, enforcing or perfecting any claim,
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right or interest of any kind that is included in or relates to any of the Exchanged Assets, (ii) defending or compromising any claim, right, audit,
investigation or Proceeding relating to any of the Exchanged Assets, or (iii) otherwise carrying out or facilitating any of the transactions contemplated hereby. The power of attorney referred to in the preceding sentence is and shall be
coupled with an interest and shall be irrevocable, and shall survive the dissolution or insolvency of Intrepid Mining.
7. Tax Matters.
7.1
Transfer Taxes
.
Intrepid Potash shall pay all sales, use, transfer and other similar Taxes and fees (collectively,
“
Transfer Taxes
”) arising out of or in connection with the transactions provided for in this Agreement, and all such Transfer Taxes shall constitute Assumed Liabilities from and after the Closing. Intrepid Potash shall prepare (or
cause to be prepared) and timely file (or cause to be filed) all necessary documentation and Tax Returns with respect to any such Transfer Taxes.
7.2
Pre-Closing Returns
.
(a) Intrepid Mining shall prepare (or cause to be prepared) and
timely file (or cause to be filed) all Tax Returns that are required to be filed (giving effect to extensions) by Intrepid Mining or any of Intrepid New Mexico, Intrepid Moab, Intrepid Wendover, HB Potash, Moab Pipeline, or Intrepid Aviation
(collectively, the “
Subsidiaries
”) on or before the Closing Date (each a “
Pre-Closing Return
”) and shall timely pay (or cause to be paid) all Taxes shown as due on such Pre-Closing Returns.
(b) All liabilities of Intrepid Mining for Income Taxes that result from or are attributable to the ownership or operations of the
Subsidiaries for any taxable period covered by a Pre-Closing Return shall constitute Retained Liabilities from and after the Closing; all other liabilities for Taxes for the taxable periods covered by Pre-Closing Returns and not paid by Intrepid
Mining on or before the Closing Date shall constitute Assumed Liabilities from and after the Closing.
(c) Intrepid Mining
shall be entitled to receive, credit and apply in its discretion any refund or overpayment with respect to a taxable period covered by a Pre-Closing Return (i) that is received, credited or applied on or before the Closing Date or
(ii) that is received, credited or applied after the Closing Date and represents an amount which, if payable as a liability after the Closing, would constitute a Retained Liability. To the extent that Intrepid Mining actually realizes a benefit
from a refund or overpayment with respect to a taxable period covered by a Pre-Closing Return that is received, credited or applied after the Closing Date and represents an amount which, if payable as a liability after the Closing, would constitute
an Assumed Liability, Intrepid Mining shall pay to Intrepid Potash, without interest, the amount of the realized benefit promptly following the date it is realized.
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7.3
Mining Post-Closing Returns
.
(a) Except as provided in Section 7.1, Intrepid Mining shall prepare (or cause to be prepared) and timely file (or cause to be filed)
all Tax Returns that are required to be filed (giving effect to extensions) by Intrepid Mining after the Closing Date (each a “
Mining Post-Closing Return
”) and shall timely pay (or cause to be paid) all Taxes shown as due on such
Mining Post-Closing Returns;
provided
that Intrepid Potash shall reimburse Intrepid Mining (i) for all liabilities of Intrepid Mining and any direct or indirect owner (for Income Tax purposes) of Intrepid Mining for Income Taxes related
to a Mining Post-Closing Return that result from or are attributable to the ownership or operation of Exchanged Assets (including the operations of the Subsidiaries) or otherwise with respect to the Assumed Liabilities, to the extent attributable to
the portion of any taxable period covered by a Mining Post-Closing Return that begins after the Closing Date (each a “
Potash Post-Closing Income Tax Liability
”) (such liabilities being determined by treating the Closing Date as the
end of a taxable period) and (ii) for all Taxes other than Income Taxes shown as due on a Mining Post-Closing Return to the extent that such Taxes other than Income Taxes result from or are attributable to the ownership or operation of
Exchanged Assets (including the operations of the Subsidiaries) or otherwise with respect to the Assumed Liabilities, for any taxable period (each a “
Potash Post-Closing Non-Income Tax Liability
”). If Intrepid Mining intends to
assert a reimbursement claim against Intrepid Potash for any amount described in
clause (i)
or
clause (ii)
of the preceding sentence with respect to a Mining Post-Closing Return, then Intrepid Mining shall, at least 45 days
prior to the due date (including extensions) of such Mining Post-Closing Return, deliver a copy of the Mining Post-Closing Return to Intrepid Potash, together with a written notice setting forth the due date of such return, an explanation of the
basis for the reimbursement, in reasonable detail, and a calculation of the Potash Post-Closing Income Tax Liability and/or the Potash Post-Closing Non-Income Tax Liability, as applicable, and Intrepid Potash shall pay such amount(s) to Intrepid
Mining (by wire transfer of immediately available funds) at least 5 days prior to the due date of such return. If Intrepid Potash disputes the amount of the Potash Post-Closing Income Tax Liability and/or the Potash Post-Closing Non-Income Tax
Liability with respect to a Mining Post-Closing Return, Intrepid Potash shall notify Intrepid Mining at least 30 days prior to the due date of such return and the parties shall submit the dispute to binding arbitration to be conducted in accordance
with the following procedures by the Accountants as the sole arbitrator. Each party shall submit to the Accountants, at least 20 days prior to the due date of the applicable return, its explanation of the basis for the reimbursement, if any, and a
calculation of the Potash Post-Closing Income Tax Liability and/or the Potash Post-Closing Non-Income Tax Liability, if any, and shall reasonably cooperate with the Accountants in connection with the arbitration. The Accountants shall use
commercially reasonable efforts to render their written decision specifically establishing the amount(s) of the Potash Post-Closing Income Tax Liability and/or the Potash Post-Closing Non-Income Tax Liability, as applicable, prior to the due date of
the applicable Tax Return, but in all events shall render such decision
10
within 30 days after the parties initiate the arbitration proceeding. The fees and other costs of the arbitration and the reasonable attorney fees, expert
witness fees, and costs, if any, of Intrepid Mining shall be borne by Intrepid Potash unless the sum of any Potash Post-Closing Income Tax Liability
plus
any Potash Post-Closing Non-Income Tax Liability asserted by Intrepid Mining with
respect to the Mining Post-Closing Return exceeds the sum of such amounts established by the Accountants by at least 20%, in which case, the fees and other costs of the arbitration and the reasonable attorney fees, expert witness fees, and costs, if
any, of Intrepid Potash shall be borne by Intrepid Mining. The Accountants’ decision shall include an award of such fees and costs provided by this Section 7.3(a). The decision may be filed in any court of competent jurisdiction and may be
enforced by any party as a final judgment of such court. Without the consent of Intrepid Mining and Intrepid Potash, the arbitration shall not determine any issues other than those set forth in this Section 7.3(a); all other disputes shall be
handled pursuant to the provisions of Article 8. For purposes of determining any liability of any direct or indirect owner (for Income Tax purposes) of Intrepid Mining for Income Taxes described in
clause (i)
above, the tax rate
applicable to any income or gain allocable to such direct or indirect owner shall be deemed to be the highest rate applicable to an individual with respect to income or gain of such character in the applicable jurisdiction.
(b) All liabilities of Intrepid Mining and any direct or indirect owner (for Income Tax purposes) of Intrepid Mining for Income Taxes that
result from or are attributable to the ownership or operation of Exchanged Assets (including the operations of the Subsidiaries) or otherwise with respect to the Assumed Liabilities, to the extent attributable to the portion of any taxable period
covered by a Mining Post-Closing Return that begins after the Closing Date, shall constitute Assumed Liabilities from and after the Closing; all liabilities for Taxes other than Income Taxes that result from or are attributable to the ownership or
operation of Exchanged Assets (including the operations of the Subsidiaries) or otherwise with respect to the Assumed Liabilities, to the extent attributable to any taxable period covered by a Mining Post-Closing Return, shall constitute Assumed
Liabilities from and after the Closing; and, subject to Section 7.1, all other liabilities with respect to Taxes of the type and for the taxable periods covered by Mining Post-Closing Returns shall constitute Retained Liabilities from and after
the Closing.
(c) Intrepid Mining shall be entitled to receive, credit and apply in its discretion any refund or overpayment
with respect to a taxable period covered by a Mining Post-Closing Return;
provided, however
, that to the extent that Intrepid Mining actually realizes a benefit from such a refund or overpayment that represents an amount which, if payable as
a liability after the Closing, would constitute an Assumed Liability, Intrepid Mining shall pay to Intrepid Potash, without interest, the amount of the realized benefit promptly following the date it is realized.
11
7.4
Potash Post-Closing Returns
.
Except with respect to Mining Post-Closing Returns,
Intrepid Potash shall prepare (or cause to be prepared) and timely file (or cause to be filed) all Tax Returns that are required to be filed (giving effect to extensions) by the Subsidiaries or with respect to the ownership or operation of Exchanged
Assets (including the operations of the Subsidiaries) or otherwise with respect to the Assumed Liabilities, after the Closing Date (each a “
Potash Post-Closing Return
”) and shall timely pay (or cause to be paid) all Taxes shown as
due on such Potash Post-Closing Returns.
(a) All liabilities with respect to Taxes of the type and for the taxable periods
covered by Potash Post-Closing Returns shall constitute Assumed Liabilities from and after the Closing.
(b) Intrepid Potash
shall be entitled to receive, credit and apply in its discretion any refund or overpayment with respect to a period covered by a Potash Post-Closing Return.
7.5
Access to Information and Personnel
.
(a) From and after the
Closing, Intrepid Potash shall grant (and shall cause its Affiliates to grant) to Intrepid Mining (or Intrepid Mining’s designees) access at all reasonable times to the books and records of, and all other information regarding, the ownership
and operation of Exchanged Assets (including the operations of the Subsidiaries) and the Assumed Liabilities, which information is within the possession of Intrepid Potash or the Subsidiaries or their respective Affiliates (including work papers and
correspondence with taxing authorities, but excluding work product of and attorney-client communications with any of Intrepid Potash’s legal counsel), and shall afford Intrepid Mining (or Intrepid Mining’s designees) the right (at Intrepid
Mining’s expense) to take extracts therefrom and to make copies thereof, to the extent reasonably necessary to permit Intrepid Mining (or Intrepid Mining’s designees) to prepare Tax Returns, to conduct negotiations with Tax authorities,
and to implement the provisions of, or to investigate or defend any claims between the parties arising under, this Agreement.
(b) Notwithstanding any provision of this Agreement to the contrary, none of Intrepid Potash, any Affiliate or designee of Intrepid Potash, any of the Accountants, or any arbitrator or other person under this Agreement shall be entitled to
any access to (or be permitted to extract or make copies of) any Tax Return or any other information regarding the Taxes or Tax Returns of any direct or indirect owner of Intrepid Mining.
(c) Intrepid Potash will preserve and retain (or cause to be preserved and retained) all Tax Returns, schedules, work papers, and other
documents relating to (i) any Tax Return of a Subsidiary, (ii) any Taxes with respect to the ownership or
12
operation of the Exchanged Assets (including the operations of the Subsidiaries) or otherwise with respect to the Assumed Liabilities, or (iii) any Tax
claims, audits, or other proceedings affecting the Exchanged Assets (including the operations of the Subsidiaries) or the Assumed Liabilities, until the later to occur of (x) the seventh anniversary of the Closing Date, (y) the expiration
of the statute of limitations (including extensions) applicable to the taxable period to which such documents relate, or (iii) the final determination of any controversy with respect to such taxable period and the final determination of any
payment that may be required with respect to such taxable period under this Agreement.
(d) At Intrepid Mining’s
request, Intrepid Potash shall provide reasonable access to its and its Affiliates’ (including the Subsidiaries’) personnel who have knowledge of the information described in this Section 7.5, and Intrepid Potash shall reasonably
cooperate (and shall cause its Affiliates (including the Subsidiaries) to reasonably cooperate) with Intrepid Mining with respect to the matters covered by this Section 7.6.
7.6
Employment Tax Withholding
.
Intrepid Potash shall effect all employment-Tax related withholdings in accordance with the Forms
W-4 and W-5 transferred by Intrepid Mining to Intrepid Potash with respect to all transferred employees. Intrepid Potash shall report all wages paid and taxes withheld by Intrepid Potash and Intrepid Mining for the calendar year in which the Closing
Date occurs. Intrepid Potash and Intrepid Mining shall each attach the information required by Revenue Procedure 2004-53 to the Form 941 filed by each for the year in which the Closing Date occurs. Intrepid Potash and Intrepid Mining agree to comply
with all requirements of Revenue Procedure 2004-53 and to cooperate with each other in complying with such requirements.
7.7
Consistent Tax Treatment
.
Intrepid Mining and Intrepid Potash each covenant and agree, for all applicable Tax purposes, to treat the IPO, the Exchange, and the Formation Distribution as one integrated transaction in which the
purchasers of the Common Stock in the IPO and Intrepid Mining are transferors to a controlled corporation (Intrepid Potash) in an exchange described by section 351(a) of the Internal Revenue Code of 1986, as amended (the
“
Code
”), and in which Intrepid Mining receives “boot” in an amount equal to the sum of the Cash Portion and the Formation Distribution. Intrepid Mining and Intrepid Potash each covenant and agree (i) that it will not
take or assert any position that is contrary to the treatment described in the preceding sentence on any Tax Return or in connection with any audit or other examination of any Tax Return (unless required by or pursuant to a closing agreement with
the Internal Revenue Service (the “
IRS
”) or applicable state or local governmental authority, an agreement contained in IRS Form 870-AD or other similar form, an agreement that constitutes a determination under section 1313(a)(4) of
the Code or a comparable provision of applicable state or local law, or a decision of any court of competent jurisdiction that is not subject to appeal
13
or as to which the period for appeal has expired) and (ii) that it will reasonably cooperate with the other party to report the transactions
contemplated by this Agreement in a manner that is consistent, as between the parties, for Tax purposes.
8.
Indemnification
.
8.1
Right to Indemnification
. Intrepid Potash shall indemnify, defend and save and hold harmless Intrepid Mining, its members and managers,
and their respective officers, directors, members, managers, employees, consultants, representatives, agents and Affiliates (the “
Indemnified Parties
”), for, against, from and in respect of any and all Losses which may be sustained
or suffered by any of them arising out of or resulting from or pertaining to:
(a) any failure of Intrepid Potash to perform
any covenant or agreement or fulfill any other obligation in respect hereof; or
(b) any of the Assumed Liabilities.
8.2
Procedure for Indemnification
.
(a) Promptly after receipt by an Indemnified Party hereunder of written notice of the commencement of any Proceeding with respect to which
a claim for indemnification may be made pursuant to this Section 8, such Indemnified Party will, if a claim in respect thereof is to be made against Intrepid Potash, give written notice to Intrepid Potash of the commencement of such Proceeding;
provided, however
, that the failure of the Indemnified Party to give notice as provided herein shall not relieve Intrepid Potash of its obligations under this Section 8, except to the extent that Intrepid Potash is materially prejudiced
by such failure to give notice.
(b) In case any such Proceeding is brought against an Indemnified Party, unless in such
Indemnified Party’s reasonable judgment (after consultation with legal counsel) a bona fide conflict of interest between such Indemnified Party and Intrepid Potash may exist in respect of such Proceeding, Intrepid Potash will be entitled to
participate in and to assume the defense thereof (at its expense) with counsel reasonably satisfactory to such Indemnified Party, and after notice from Intrepid Potash to such Indemnified Party of its election so to assume the defense thereof,
Intrepid Potash will not be liable to such Indemnified Party for any legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense thereof other than reasonable costs of investigation;
provided,
however
, in the event Intrepid Potash declines or fails to assume the defense of the Proceeding or to employ counsel reasonably satisfactory to the Indemnified Party, in either case within a 30-day period, or if a court of
14
competent jurisdiction determines that Intrepid Potash is not vigorously defending such Proceeding, or if there is a bona fide conflict of interest between
Intrepid Potash and the Indemnified Party, then such Indemnified Party may employ counsel to represent or defend it in any such Proceeding and Intrepid Potash shall pay the reasonable fees and disbursements of such counsel or other representative as
incurred;
provided, further, however
, that Intrepid Potash shall not be required to pay the fees and disbursements of more than one counsel for all Indemnified Parties in any jurisdiction in any single Proceeding.
(c) Intrepid Potash will not settle any such Proceeding or consent to the entry of any judgment without the prior written consent of the
Indemnified Party, unless such settlement or judgment (i) includes as an unconditional term thereof the giving by the claimant or plaintiff of a release to such Indemnified Party from all liability in respect of such Proceeding and
(ii) does not involve the imposition of equitable remedies or the imposition of any obligations on such Indemnified Party and does not otherwise adversely affect such Indemnified Party, other than as a result of the imposition of financial
obligations for which such Indemnified Party will be indemnified hereunder. No Indemnified Party will settle any such Proceeding or consent to the entry of any judgment without the prior written consent of Intrepid Potash (such consent not to be
unreasonably withheld).
9.
Miscellaneous
9.1
Governing Law
. This Agreement shall be governed by and construed in all respects in accordance with the laws of the State of Delaware without giving effect to principles of conflicts of law.
9.2
Notices
. All notices, demands or other communications to be given under or by reason of this Agreement shall be in writing and shall be
deemed to have been received when delivered personally, or when transmitted by overnight delivery service, addressed as follows:
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If to Intrepid Potash:
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If to Intrepid Mining:
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Intrepid Potash, Inc.
700 17th Street, Suite 1700
Denver, CO 80202
Attention: Chief Financial Officer
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Intrepid Mining LLC
700 17th Street, Suite
1700
Denver, CO 80202
Attention: Chief Financial
Officer
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15
Any party to this Agreement may change its address for notices, demands and other communications under this Agreement by
giving notice of such change to the other party hereto in accordance with this Section 9.2.
9.3
Survival
. The
representations, warranties, covenants and agreements made herein shall survive any investigation made by any of the parties hereto and the Closing of the transactions contemplated hereby.
9.4
Benefit of Parties; Assignment
. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, the other
Indemnified Parties, and their respective successors, legal representatives and permitted assigns. This Agreement may not be assigned by either Intrepid Potash or Intrepid Mining except with the prior written consent of Intrepid Mining, in the case
of an assignment by Intrepid Potash, or Intrepid Potash, in the case of an assignment by Intrepid Mining. Nothing herein contained shall confer or is intended to confer on any third party or entity that is not a party to this Agreement, other than
the Indemnified Parties, any rights under this Agreement.
9.5
Amendment
. This Agreement may not be amended, modified,
altered or supplemented except by means of a written instrument executed on behalf of each of Intrepid Potash and Intrepid Mining.
9.6
Waiver
. No failure on the part of either party hereto to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of either party hereto in exercising any power, right, privilege or remedy under
this Agreement, shall operate as a waiver thereof; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy.
9.7
Severability
. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.
9.8
Entire Agreement
. This Agreement sets forth the entire understanding of parties hereto and supersedes all other agreements and
understandings between the parties hereto relating to the subject matter hereof.
9.9
Counterparts and Facsimiles
. This
Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other. The
parties hereto may execute the signature pages hereof and exchange such signature pages by facsimile transmission.
16
9.10
Interpretation of Agreement
.
(a) As used in this Agreement, the words “include” and “including,” and variations thereof, shall not be deemed to be
terms of limitation, and shall be deemed to be followed by the words “without limitation.”
(b) Unless otherwise
specified, references in this Agreement to “Sections” are intended to refer to Sections of this Agreement.
(c)
The Section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement.
(d) Each party hereto and its counsel cooperated in drafting and preparation of this Agreement and the documents referred to in this
Agreement. Any rule of law or any legal decision that would require interpretation of any ambiguities in this Agreement against the party that drafted it is of no application and is hereby expressly waived.
[Signature page to follow]
17
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the day and year
first above written.
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INTREPID POTASH
:
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Intrepid Potash, Inc.
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By:
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Name:
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Title:
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INTREPID MINING
:
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Intrepid Mining LLC
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By:
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IPC Management LLC Manager
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By:
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Name:
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Robert P. Jornayvaz III
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Title:
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Manager
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[Signature page of Exchange Agreement]
18
Exhibit 10.7
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
INTREPID MINING LLC
INTREPID POTASH-MOAB, LLC
INTREPID POTASH-NEW MEXICO, LLC
INTREPID POTASH-WENDOVER, LLC
and
U.S. BANK NATIONAL ASSOCIATION, AS LEAD ARRANGER
AND ADMINISTRATIVE AGENT
and
THE LENDERS NAMED HEREIN
March 9, 2007
TABLE OF CONTENTS
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ARTICLE I Definitions and References
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1
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Section 1.1.
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Defined Terms
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1
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Section 1.2.
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Incorporation of Exhibits
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16
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Section 1.3.
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Amendment of Defined Instruments
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16
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Section 1.4.
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References and Titles
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16
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Section 1.5.
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Calculations and Determinations
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17
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ARTICLE II The Loans
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17
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Section 2.1.
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The Revolving Loan
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17
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Section 2.2.
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The Term Loan
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19
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Section 2.3.
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The Notes; Interest
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20
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Section 2.4.
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Mandatory Principal Payments
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21
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Section 2.5.
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Voluntary Prepayments
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22
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Section 2.6.
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Termination of Agreement; Reduction of Aggregate Lenders’ Commitment (Revolving)
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22
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Section 2.7.
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Payments to Agent
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22
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ARTICLE III Security; Fees; Letters of Credit; LIBOR Provisions
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23
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Section 3.1.
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The Security
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23
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Section 3.2.
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Perfection and Protection of Security Interests and Liens
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23
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Section 3.3.
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Bank Accounts and Offset
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24
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Section 3.4.
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Fees
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24
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Section 3.5.
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Special LIBOR Provisions
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25
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Section 3.6.
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Increased Capital Costs
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26
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Section 3.7.
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Taxes
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26
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Section 3.8.
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Obligations Absolute
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28
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Section 3.9.
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Indemnification
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28
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i
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Section 3.10.
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Liability of Agent and Lenders
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29
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ARTICLE IV Conditions Precedent to Loans
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29
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Section 4.1.
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Conditions Precedent to Initial Advance
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29
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Section 4.2.
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Additional Conditions Precedent
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30
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Section 4.3.
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Condition Precedent to Effectiveness of this Agreement
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31
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ARTICLE V Representations and Warranties
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31
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Section 5.1.
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Borrowers’ Representations and Warranties
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31
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Section 5.2.
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Representations by Lenders
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36
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ARTICLE VI Covenants of Borrowers
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36
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Section 6.1.
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Affirmative Covenants
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36
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Section 6.2.
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Negative Covenants
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41
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ii
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ARTICLE VII Events of Default and Remedies
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48
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Section 7.1.
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Events of Default
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48
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Section 7.2.
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Remedies
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49
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Section 7.3.
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Indemnity
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50
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ARTICLE VIII Agent
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51
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Section 8.1.
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Appointment; Nature of Relationship
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51
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Section 8.2.
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Powers
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51
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Section 8.3.
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General Immunity
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51
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Section 8.4.
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No Responsibility for Loans, Recitals, etc.
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51
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Section 8.5.
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Action on Instructions of Lenders
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52
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Section 8.6.
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Employment of Agents and Counsel
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52
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Section 8.7.
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Reliance on Documents; Counsel
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52
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Section 8.8.
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Agent’s Reimbursement and Indemnification
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52
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Section 8.9.
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Notice of Default
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53
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Section 8.10.
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Rights as a Lender
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53
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Section 8.11.
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Lender Credit Decision
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53
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Section 8.12.
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Successor Agent
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53
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Section 8.13.
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Delegation to Affiliates
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54
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Section 8.14.
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Other Agents
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54
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Section 8.15.
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Withholding and Withholding Certificates
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54
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Section 8.16.
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Decisions by Lenders
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55
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Section 8.17.
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Benefit of Article VIII
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55
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ARTICLE IX Setoff; Ratable Payments
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55
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Section 9.1.
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Setoff
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55
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Section 9.2.
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Ratable Payments
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55
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ARTICLE X Benefit of Agreement; Assignments; Participations
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56
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iii
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Section 10.1.
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Successors and Assigns
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56
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Section 10.2.
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Participations
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56
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Section 10.3.
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Assignments
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56
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Section 10.4.
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Dissemination of Information
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57
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ARTICLE XI Miscellaneous
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57
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Section 11.1.
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Waiver and Amendment
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57
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Section 11.2.
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Survival of Agreements; Cumulative Nature
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58
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Section 11.3.
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Notices
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58
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Section 11.4.
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Joint and Several Liability; Parties in Interest
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58
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Section 11.5.
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Governing Law
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58
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Section 11.6.
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Limitation on Interest
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59
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Section 11.7.
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Waiver of Jury Trial, Punitive Damages, etc.
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59
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Section 11.8.
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USA Patriot Act
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60
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Section 11.9.
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Release
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60
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Section 11.10.
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Severability
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60
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Section 11.11.
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Counterparts
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60
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Section 11.12.
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Conflicts
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60
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Section 11.13.
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Entire Agreement
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60
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Section 11.14.
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Facsimile Delivery
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60
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EXHIBITS:
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EXHIBIT A — PROMISSORY NOTE
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A-1
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EXHIBIT B — REQUEST FOR REVOLVING ADVANCE
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B-1
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EXHIBIT C — REQUEST FOR SWING-LINE ADVANCE
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C-1
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EXHIBIT D — REQUEST FOR ISSUANCE OF LETTER OF CREDIT
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D-1
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EXHIBIT E — INTEREST RATE ELECTION
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E-1
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EXHIBIT F — CALCULATION OF LIBOR BREAKAGE COSTS
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F-1
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EXHIBIT G — QUARTERLY COMPLIANCE CERTIFICATE
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G-1
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iv
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EXHIBIT H — ASSIGNMENT AND ASSUMPTION
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H-1
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EXHIBIT I — QUARTERLY SALES/PRODUCTION/EXPENSE REPORT
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I-1
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SCHEDULES:
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SCHEDULE I — LENDERS’ COMMITMENTS AND OTHER LENDER/AGENT DATA
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I-1
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SCHEDULE II — DISCLOSURE SCHEDULE
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II-1
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v
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
THIS THIRD AMENDED AND RESTATED CREDIT AGREEMENT, dated as of March 9, 2007, is by and among INTREPID MINING LLC, a Colorado limited liability
company (“IMLLC”), INTREPID POTASH-MOAB, LLC, a Delaware limited liability company (“IPMLLC”), INTREPID POTASH-NEW MEXICO, LLC, a New Mexico limited liability company (“IPNMLLC”), INTREPID POTASH-WENDOVER, LLC, a
Colorado limited liability company (“IPWLLC”), U.S. BANK NATIONAL ASSOCIATION, a national banking association (“USB”), in its capacity as lead arranger and Agent (as defined below), and the Lenders referred to below.
RECITALS
A. IMLLC, IPMLLC,
IPNMLLC and IPWLLC (“Borrowers”), USB, in its capacity as agent thereunder, and USB, in its capacity as the sole lender thereunder, are parties to a Second Amended and Restated Credit Agreement dated as of March 1, 2004, as amended
(as so amended, the “Existing USB Credit Agreement”), setting forth the terms upon which USB would make advances to, and issue letters of credit at the request of, Borrowers and by which such advances and letters of credit would be
governed and repaid.
B. Borrowers, Agent and Lenders desire that this Third Amended and Restated Credit Agreement be executed and
delivered in order to amend and restate in their entirety the terms and provisions of the Existing USB Credit Agreement, to refinance the loans made pursuant to the Existing USB Credit Agreement, to provide for the terms upon which Agent, on behalf
of Lenders, will make available to Borrowers a revolving line of credit (including a swing-line feature) and an amortizing term loan and by which the advances made pursuant to such revolving line of credit and such term loan will be governed and
repaid and to provide for the terms upon which Agent, on behalf of Lenders, will issue letters of credit upon the request of Borrowers and by which such letters of credit will be governed and repaid.
AGREEMENT
NOW, THEREFORE, in
consideration of the premises and the mutual covenants and agreements contained herein, the parties hereto agree as follows:
ARTICLE I
Definitions and References
Section 1.1.
Defined Terms
. As used in this Agreement, each of the following terms has the meaning given it in this Section 1.1 or in the sections and subsections referred to below:
“
Advance
” means a Revolving Advance or a Swing-Line Advance.
1
“
Affiliate
” means, with respect to any Person, each Person that directly or indirectly
(through one or more intermediaries or otherwise) controls, is controlled by, or is under common control with, the subject Person; provided that, for the purposes of this definition, a Person shall be deemed to control another entity if the
controlling Person possesses, directly or indirectly, the power to direct or control the direction of the management and policies of such entity, whether through the ownership of stock or other interests therein, by contract or otherwise, and shall
include without limitation any controlling shareholder or owner thereof.
“
Agent
” means U.S. Bank National Association, as
administrative agent hereunder, and its successors in such capacity.
“
Aggregate Lenders’ Commitment
” means, at any
time, the sum of the Commitments of all Lenders at that time.
“
Aggregate Lenders’ Commitment (Revolving)
” means, at
any time, the sum of the Commitments (Revolving) of all Lenders at that time.
“
Aggregate Lenders’ Commitment (Term)
”
means, at any time, the sum of the Commitments (Term) of all Lenders at that time.
“
Agreement
” means this Third Amended
and Restated Credit Agreement.
“
Aircraft Guarantees
” means the Guarantees dated as of September 21, 2004, from one
or more of Borrowers to U.S. Bancorp Equipment Financing, Inc., covering the obligations of Intrepid Aviation LLC under the Aircraft Lease.
“
Aircraft Lease
” means the Aircraft Lease Agreement dated as of September 21, 2004, between U.S. Bancorp Equipment Financing, Inc., and Intrepid Aviation LLC.
“
Amortization Amount (Term)
” has the meaning given such term in Section 2.4(a) below.
“
Base Rate
” means, for any day, the fluctuating rate of interest per annum equal to the greater of: (a) the Prime Rate in effect on
such day, or (b) the Federal Funds Rate in effect on such day plus one-half of one percentage point.
“
Base Rate
Portion
” means the portion of the Loans (excluding any outstanding Swing-Line Advances) bearing interest based upon the Base Rate.
“
Base Rate Spread
” means, for any day, the following: (a) if the Debt Usage Level shall be less than 2.50:1.00 for such day, 0.00 percentage points per annum; (b) if the Debt Usage Level shall be greater than or
equal to 2.50:1.00 but less than 3.00:1.00 for such day, 0.375 percentage points per annum; and (c) if the Debt Usage Level shall be greater than or equal to 3.00:1.00 for such day, 0.75 percentage points per annum.
2
“
Borrower Properties
” means any and all interests of any Borrower or of any Guarantor
Subsidiary, whether now owned or hereafter acquired, in any and all mining properties, lands, leases, equipment, processing plants and other rights and assets.
“
Borrowers
” has the meaning given such term in Recital A above. “
Borrower
” means any of the entities constituting “Borrowers.”
“
Business Day
” means: (a) with respect to the making, prepaying, repaying or issuance of, or otherwise relating to, any LIBOR
Tranche or to the determination of Overnight LIBOR, any day which is not a Saturday, a Sunday or a legal holiday on which commercial banks are authorized or required to be closed in Denver, Colorado, Seattle, Washington, New York, New York or any
other city in the United States which is the location of a Lender’s office for administering the Loans and which is also a day on which dealings are carried on in the London interbank eurocurrency market, and (b) for all other purposes
hereof, any day which is not a Saturday, a Sunday or a legal holiday on which commercial banks are authorized or required to be closed in Denver, Colorado, Seattle, Washington, New York, New York or any other city in the United States which is the
location of a Lender’s office for administering the Loans.
“
Cash Flow Leverage Ratio
” means, at any time, the ratio
of: (a) the outstanding principal balance at that time of any and all interest-bearing Debt owed by IMLLC or by any Consolidated Affiliate of IMLLC; to (b) EBITDAX (Adjusted) of IMLLC and its Consolidated Affiliates for the then most
recently completed four consecutive Fiscal Quarters as to which financial statements shall have been submitted by Borrowers pursuant to Section 6.1(b) below.
“
Cash Flow Leverage Ratio (Distributions)
” means, at any time, the ratio of: (a) the outstanding principal balance at that time of any and all interest-bearing Debt owed by IMLLC or by any
Consolidated Affiliate of IMLLC; to (b) EBITDAX of IMLLC and its Consolidated Affiliates for the then most recently completed four consecutive Fiscal Quarters as to which financial statements shall have been submitted by Borrowers pursuant to
Section 6.1(b) below.
“
CERCLA
” means the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended by the Superfund Amendments and Reauthorization Act of 1986.
“
Change in Control
” means the occurrence or
existence of any event or condition whereby: (a) IMLLC does not continue to own (either directly or through wholly owned Subsidiaries, the equity ownership interests in which are pledged to Agent as Collateral) 100 percent of the equity
interests in all of IPMLLC, IPNMLLC and IPWLLC, or (b) Robert P. Jornayvaz III and Hugh E. Harvey (or their respective estates or heirs or any trust established for the benefit of either of them or for the benefit of their
respective spouses, their respective lineal descendants (including adopted children) or the spouses of their respective lineal descendants, or any charitable organization described in Section 501(c)(3) of the Code that is effectively controlled
by them or the Persons described in this parenthetical) do not continue to own, directly or indirectly, at least 51 percent of the equity interests in IMLLC that are entitled to vote upon the election of the managers, the members of the board of
directors or other governing body of IMLLC.
3
“
Code
” means the Internal Revenue Code of 1986, as amended from time to time, and any
successor statute and all regulations thereunder.
“
Collateral
” means: (a) any and all accounts at USB or any other
Lender, including without limitation any and all general, special, deposit and time accounts, of any Borrower or of any Guarantor Subsidiary; (b) any and all accounts receivable of any Borrower or of any Borrower or of any Guarantor Subsidiary;
(c) any and all inventory of any Borrower or of any Guarantor Subsidiary; (d) 100 percent of the membership interests in IPMLLC, IPNMLLC, IPWLLC and any and all capital stock, membership interests or other equity interests owned directly
or indirectly by any Borrower in any other Subsidiary of any Borrower (other than IOG); (e) any and all other Borrower Properties which, under the terms of any Security Document, is or is purported to be covered thereby or subject thereto; and
(f) any and all proceeds of the foregoing; provided that the “Collateral” shall not include the membership interests in the Solution Mining Sub or any portion of the Solution Mining Project that is or becomes part of the Permitted
Third-Party Solution Mining Project Security.
“
Commitment
” means, at any time, for any Lender, such Lender’s
Commitment (Revolving) plus such Lender’s Commitment (Term).
“
Commitment (Revolving)
” means, at any time, for any
Lender: (a) such Lender’s Initial Commitment (Revolving), plus (b) any portion of any other Lender’s Initial Commitment (Revolving) that has been assigned to such Lender pursuant to Section 10.3 below, minus (c) any
portion of such Lender’s Initial Commitment (Revolving) that it has assigned to any other Lender pursuant to Section 10.3 below, minus (d) any reduction in such Lender’s Commitment (Revolving) pursuant to Section 2.6 below.
“
Commitment (Term)
” means, at any time, for any Lender: (a) such Lender’s Initial Commitment (Term), plus
(b) any portion of any other Lender’s Initial Commitment (Term) that has been assigned to such Lender pursuant to Section 10.3 below, minus (c) any portion of such Lender’s Initial Commitment (Term) that it has assigned to
any other Lender pursuant to Section 10.3 below, minus (d) any principal payments on the Term Loan theretofore received by such Lender (or, as to any portion of any other Lender’s Initial Commitment (Term) that has been assigned to
such Lender pursuant to Section 10.3 below, by such Lender’s predecessor(s) in interest).
“
Commitment Fee Rate
”
means, for any day, the following: (a) if the Debt Usage Level shall be less than 2.00:1.00 for such day, 0.25 percentage points per annum; (b) if the Debt Usage Level Leverage Ratio shall be greater than or equal to 2.00:1.00 but less
than 2.50:1.00 for such day, 0.325 percentage points per annum; (c) if the Debt Usage Level shall be greater than or equal to 2.50:1.00 but less than 3.00:1.00 for such day, 0.375 percentage points per annum; and (d) if the Debt Usage
Level shall be greater than or equal to 3.00:1.00 for such day, 0.50 percentage points per annum.
“
Consolidated
” refers
to the consolidation of any Person, in accordance with GAAP, with its properly consolidated Affiliates. References herein to a Person’s Consolidated financial statements, financial position, financial condition, liabilities,
etc
. refer
to the consolidated
4
financial statements, financial position, financial condition, liabilities, etc. of such Person and its properly consolidated Affiliates.
“
Debt
” means, as to any Person, all indebtedness, liabilities and obligations of such Person, whether primary or secondary, direct or
indirect, absolute or contingent.
“
Debt Usage Level
” means, for each day during a Debt Usage Period, the Cash Flow
Leverage Ratio, determined from Borrowers’ quarterly financial statements as of the close of the most recently completed Fiscal Quarter ending prior to the commencement of such Debt Usage Period; provided that if, for any Fiscal Quarter,
Borrowers shall fail to deliver to Agent in a timely manner their quarterly financial statements pursuant to Section 6.1(b)(2) below, the “Debt Usage Level” shall be deemed to be 3.00:1.00 from the first day of the applicable Debt
Usage Period until the day that is two Business Days after such quarterly financial statements shall actually be delivered to Agent; provided further that the “Debt Usage Level” for the Debt Usage Period from the date of the Initial
Advance through June 1, 2007 shall be deemed to be 2.25:1.00.
“
Debt Usage Period
” means any of the following time
periods: (a) the time period from the date of the Initial Advance through June 1, 2007, and (b) any time period beginning on a day that is two Business Days after any date that Borrowers’ quarterly financial statements are due
pursuant to Section 6.1(b)(2) below through the day prior to the beginning of the next such time period.
“
Default
”
means any Event of Default or any default, event or condition which would, with the giving of any requisite notice and/or the passage of time, constitute an Event of Default.
“
Disclosure Schedule
” means Schedule II attached hereto and made a part hereof.
“
Distribution
” means any distribution payable in cash or property to any owner of IMLLC in respect of such owner’s ownership
interest in IMLLC (excluding payments received by such owner as reasonable employment compensation if such owner is a manager or employee of IMLLC), or any purchase, redemption or retirement of, or other payment with respect to, any ownership
interest in IMLLC.
“
Dry Lease
” means the lease by IMLLC of the aircraft that is the subject of the Aircraft Lease from
Intrepid Aviation LLC.
“
EBITDAX
” means, for any Fiscal Quarter: (a) net income of IMLLC and its Consolidated
Affiliates for that Fiscal Quarter, excluding any and all gains and losses from any mark-to-market of unliquidated Hedging Activities and any other item properly classified as an “extraordinary item” or the “discontinuance of a
business” in accordance with GAAP, plus (b) the following, to the extent, and only to the extent, that they have been deducted in computing net income of IMLLC and its Consolidated Affiliates for that Fiscal Quarter: interest expenses,
income taxes, depreciation, depletion, amortization, exploration expenses with respect to oil and gas operations, non-cash mine reclamation expenses and non-cash abandonment and impairment losses, all determined in accordance with GAAP.
5
“
EBITDAX (Adjusted)
” means, for any Fiscal Quarter: (a) EBITDAX for that Fiscal
Quarter, plus (b)(1) as to the Fiscal Quarter ending March 31, 2006, $7,514,000, (2) as to the Fiscal Quarter ending June 30, 2006, $2,134,000, (3) as to the Fiscal Quarter ending September 30, 2006, $4,182,000, (4) as
to the Fiscal Quarter ending December 31, 2006, $6,694,000, (5) as to each Fiscal Quarter of IMLLC ending during 2007, any amounts that may have reduced the net income of IMLLC and its Consolidated Affiliates for such Fiscal Quarter by
reason of: (A) sales cycle adjustments for extended negotiations with Chinese purchasers during 2006, up to a maximum of $297,168 in the aggregate for all four Fiscal Quarters of IMLLC ending during 2007, or (B) the langbeinite plant
start-up, up to a maximum of $477,588 in the aggregate for all four Fiscal Quarters of IMLLC ending during 2007, (6) as to each Fiscal Quarter of IMLLC ending during 2007 or 2008, any amounts that may have reduced the net income of IMLLC and
its Consolidated Affiliates for such Fiscal Quarter by reason of IPNMLLC’s horizontal stacker project, up to a maximum of $370,884 in the aggregate for all eight Fiscal Quarters of IMLLC ending during 2007 or 2008, and (7) as to any other
Fiscal Quarter, $0.00.
“
Environment
” or “
Environmental
” has the meaning set forth in 43 U.S.C. 9601(8)
(1988).
“
Environmental Law
” means, as to any Borrower or any Subsidiary of any Borrower, any statutory, regulatory,
administrative or other legal requirements or common law theories applicable to such Borrower or such Subsidiary arising from, relating to or in connection with the Environment, health or safety, including without limitation CERCLA and any other
statute, rule, regulation, ordinance or other legal requirement or common law theory relating to: (a) pollution, contamination, injury, destruction, loss, protection, cleanup, reclamation or restoration of the air, surface water, groundwater,
land, surface or subsurface strata or other natural resources; (b) solid, gaseous or liquid waste generation, treatment, processing, recycling, reclamation, cleanup, storage, disposal or transportation; (c) exposure to pollutants,
contaminants, hazardous substances, medical infections or toxic substances, materials or wastes; (d) the safety or health of employees; or (e) the manufacture, processing, handling, transportation, distribution in commerce, use, storage or
disposal of hazardous substances, medical infections or toxic substances, materials or wastes.
“
ERISA
” means the Employee
Retirement Income Security Act of 1974, as amended from time to time, together with all rules and regulations promulgated with respect thereto.
“
ERISA Affiliate
” means each trade or business (whether or not incorporated) which, together with any Obligated Person, would be deemed to be a single employer (as described in Section 4001(b)(1) of ERISA or any of
subsections (b), (c), (m) or (o) of Section 414 of the Internal Revenue Code).
“
ERISA Plan
” means any
employee pension benefit plan subject to Title IV of ERISA maintained by any Obligated Person or any ERISA Affiliate with respect to which any Obligated Person or any ERISA Affiliate has a fixed or contingent liability.
“
Event of Default
” has the meaning given such term in Section 7.1 below.
6
“
Existing USB Credit Agreement
” has the meaning given such term in Recital A above.
“
Existing USB Loan
” means the loan previously made by USB to Borrowers pursuant to the Existing USB Credit Agreement.
“
Existing USB Note
” means the Promissory Note dated March 1, 2004, as amended, in the face amount of $70,000,000,
executed and delivered by Borrowers to USB in connection with the Existing USB Credit Agreement.
“
Federal Funds Rate
”
means, for any day, a fluctuating interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the preceding Business Day) by the Federal Reserve Bank of New York or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions
received by Agent from three Federal funds brokers of recognized standing selected by it.
“
Fee Letter
” means a separate
letter agreement entered into contemporaneously herewith among Borrowers and Agent.
“
Fiscal Quarter
” means a three-month
period ending on the last day of March, June, September or December of any year.
“
Fiscal Year
” means a twelve-month
period ending on December 31 of any year.
“
Fixed Charge Coverage Ratio
” means, as to IMLLC, as of the end of any
Fiscal Quarter, the ratio of: (a) (1) EBITDAX (Adjusted) of IMLLC and its Consolidated Affiliates for the four consecutive Fiscal Quarters then ended, minus (2) assumed replacement capital expenditures in the amount of $8,000,000,
minus (3) Distributions made for the payment of income taxes by IMLLC for the four consecutive Fiscal Quarters then ended (but excluding Distributions for the payment of income taxes with respect to any item properly classified as an
“extraordinary item” or the “discontinuance of a business”); to (b) the aggregate amount of interest expenses and required principal payments, whether under this Agreement or otherwise (but excluding principal payments under
the Long Canyon Note), payments under capital leases and any and all other contractually fixed payment obligations of IMLLC or any of its Consolidated Affiliates for the four consecutive Fiscal Quarters then ended, all determined in accordance with
GAAP, except as otherwise specifically provided above.
“
GAAP
” means those generally accepted accounting principles and
practices which are recognized as such by the Financial Accounting Standards Board (or any generally recognized successor thereto) and which, in the case of any Borrower or any Guarantor: (a) are applied for all periods in a consistent manner
(provided that any Borrower or any Guarantor may modify its accounting principles and practices so as to comply with any change in such generally accepted accounting principles and practices), and (b) are applied for all periods after the date
hereof so as to properly reflect, in accordance with such generally accepted accounting principles and practices, the financial condition, and the results of operations and changes in financial position, of any such Person.
7
“
Guarantor Subsidiary
” means any Subsidiary that has been requested to execute a
Guaranty and/or any Security Document as provided in Section 6.2(p) below.
“
Guarantors
” means the Initial Guarantors
and each other Person that hereafter executes and delivers a guaranty of all or any part of the Obligations.
“
Guaranty
”
means any guaranty executed and delivered contemporaneously herewith or at any time hereafter by any Guarantor to Agent, on behalf of Lenders, to guaranty the Obligations.
“
HB Potash
” means HB Potash LLC, a New Mexico limited liability company.
“
Hedging Activities
” means, with respect to any Person, activities of such Person directly relating to: (a) interest rate swap
agreements, interest rate cap agreements, interest rate collar agreements and all other agreements and arrangements designed to protect such Person against fluctuations in interest rates, or (b) commodity hedge, commodity swap, exchange, collar
or cap agreements, fixed price agreements and all other agreements and arrangements designed to protect such Person against fluctuations in the price of oil, gas, hydrocarbons, electricity, potash, magnesium chloride, salt or other minerals.
“
IMLLC
” has the meaning given such term in the first paragraph of this Agreement.
Indebtedness
” means (a) Debt for borrowed money, (b) liabilities and obligations under Hedging Activities, (c) reimbursement
obligations and other liabilities of any Borrower or of any Guarantor Subsidiary with respect to surety bonds (whether bid, performance or otherwise) and letters of credit, banker’s acceptances or similar documents or instruments issued for the
account of any Borrower or of any Guarantor Subsidiary, (d) indebtedness and liabilities secured by a Lien (other than a Permitted Lien) on or payable out of the proceeds or production from any Borrower Property, regardless of whether such
liability has been assumed by any Borrower or any Guarantor Subsidiary, (e) indebtedness evidenced by notes, bonds, debentures, or similar contracts, (f) the principal component of obligations of any Borrower or of any Guarantor Subsidiary
as lessee under any lease that has been or should be recorded as a capital lease in accordance with GAAP, (g) any amount payable under an operating lease of equipment, and (h) any guaranty or endorsement of, or responsibility for, any
other Indebtedness described in this definition, in each case whether contingent, fixed or otherwise, heretofore, now and from time to time hereafter owing, due or payable, however evidenced, created, incurred, acquired or owing and however arising,
whether under written or oral agreement, operation of law or otherwise; provided, however, that “Indebtedness” shall not include any trade payable or accrued expense (including accrued wages, salaries, benefits, taxes, etc.) that is not
represented by a promissory note or similar evidence of indebtedness and that is either not more than 90 days past due or by its terms is due not more than 90 days after the date of the sale or provision of services giving rise thereto.
“
Initial Advance
” means the first Revolving Advance, which shall be made on the date that Borrowers submit the Advance
Request therefor pursuant to Section 2.1(a) below (or if all conditions precedent set forth in Article IV have not been satisfied or waived by Agent and
8
Lenders as of such date, the first Business Day thereafter on which all such conditions precedent have been waived by Agent and Lenders or satisfied), in the
following amount: (a) the amount required to repay in full the Existing USB Loan, including without limitation any and all outstanding principal, accrued interest and unpaid fees and expenses payable thereunder, plus (b) the amount
required to repay in full the Long Canyon Note, including without limitation any and all outstanding principal, accrued interest and unpaid fees and expenses payable thereunder, plus (c) the amount required to pay in full any and all fees and
expenses payable to Agent or any Lender on or before the funding of the Loans pursuant to the terms of this Agreement or the Fee Letter, minus (d) $50,000,000.
“
Initial Commitment (Revolver
)” means, as to any Lender, the amount shown for that Lender under the Column headed “Initial Commitment (Revolver)” on Schedule I attached hereto and made a
part hereof.
“
Initial Commitment (Term
)” means, as to any Lender, the amount shown for that Lender under the Column
headed “Initial Commitment (Term)” on Schedule I attached hereto and made a part hereof.
“
Initial Financial
Statements
” means the audited annual Consolidated financial statements of IMLLC dated as of December 31, 2005, and the unaudited quarterly Consolidated financial statements of IMLLC dated as of March 31, 2006, June 30, 2006,
September 30, 2006 and December 31, 2006, copies of which Initial Financial Statements have heretofore been delivered by Borrowers to Agent.
“
Initial Guarantors
” means: (a) HB Potash, and (b) Moab Gas Pipeline, LLC, a Colorado limited liability company.
“
Interest Rate Election
” means an election delivered by Borrowers to Agent in the form of Exhibit D attached hereto and made a part
hereof (or in a manner otherwise acceptable to Agent).
“
IOG
” means Intrepid Oil & Gas LLC, a Colorado limited
liability company.
“
IPMLLC
” has the meaning given such term in the first paragraph of this Agreement.
“
IPNMLLC
” has the meaning given such term in the first paragraph of this Agreement.
“
IPWLLC
” has the meaning given such term in the first paragraph of this Agreement.
“
Lender Hedging Obligations
” means Hedging Activities: (a) that are undertaken by or on behalf of any Borrower, (b) as to
which any Lender is the named counterparty, and (c) that are permitted under the terms of Section 6.2(o) below.
“
Lenders
” means each signatory hereto (other than USB, in its capacity as Agent, and Borrowers), including USB in its capacity as a lender hereunder rather than as Agent, and any permitted successor or assignee of each as
the holder of a Note.
9
“
Letter of Credit
” means a standby letter of credit issued by Agent, on behalf of
Lenders, pursuant to Section 2.1 below; provided that any “Letter of Credit” (as defined in the Existing USB Credit Agreement) outstanding on the date of the Initial Advance shall be deemed to have been converted into a “Letter
of Credit” hereunder on the date of the Initial Advance.
“
LIBOR
” means, with respect to each LIBOR Tranche and the
related LIBOR Interest Period, the applicable one-, two-, three- or six-month rate of interest per annum quoted by Agent from Telerate page 3750 or any successor thereto (which shall be the LIBOR rate in effect two Business Days prior to the first
day of such LIBOR Interest Period), adjusted for any reserve requirement and any subsequent costs arising from any change in government regulation. “LIBOR,” as determined by Agent with respect to a particular LIBOR Tranche, shall be fixed
at such rate for the duration of the associated LIBOR Interest Period. If Agent is unable so to determine “LIBOR” for any LIBOR Tranche, or if “LIBOR” would exceed the maximum rate of interest, if any, then permitted to be
charged under applicable law, Borrowers shall be deemed. to have elected to have included in the Base Rate Portion the portion of the Revolving Loan that would otherwise have been included in such LIBOR Tranche.
“
LIBOR Interest Period
” means, with respect to each LIBOR Tranche, a period of one, two, three or six months, as specified in the
Interest Rate Election submitted by Borrowers pursuant to Section 2.3(b) below with respect thereto, beginning on and including the date specified as such in such Interest Rate Election (which must be a Business Day) and ending on (but not
including, for the purpose of computing the number of days in the “LIBOR Interest Period”) the date which corresponds numerically to such beginning date one, two, three or six months thereafter, as applicable (or, if such month has no
numerically corresponding date, on the last Business Day of such month); provided that each “LIBOR Interest Period” that would otherwise end on a day that is not a Business Day shall end on the next succeeding Business Day unless such next
succeeding Business Day is the first Business Day of a calendar month, in which case such “LIBOR Interest Period” shall end on the Business Day next preceding such numerically corresponding day. No “LIBOR Interest Period” may be
elected with respect to all or any portion of the Revolving Loan that would end after the Maturity Date (Revolving). No “LIBOR Interest Period” may be elected with respect to all or any portion of the Term Loan that would end after the
Maturity Date (Term).
“
LIBOR Spread
” means, with respect to each day during any LIBOR Interest Period, the following:
(a) if the Debt Usage Level shall be less than 1.50:1.00 for such day, 1.25 percentage points per annum; (b) if the Debt Usage Level shall be greater than or equal to 1.50:1.00 but less than 2.00:1.00 for such day, 1.50 percentage points
per annum; (c) if the Debt Usage Level shall be greater than or equal to 2.00:1.00 but less than 2.50:1.00 for such day, 1.75 percentage points per annum; (d) if the Debt Usage Level shall be greater than or equal to 2.50:1.00 but less
than 3.00:1.00 for such day, 2.125 percentage points per annum; and (e) if the Debt Usage Level shall be greater than or equal to 3.00:1.00 for such day, 2.50 percentage points per annum.
“
LIBOR Tranche
” means a portion of the Revolving Loan (other than Swing-Line Advances or Letters of Credit) or of the Term Loan (but, as
to any single LIBOR Tranche, not of both) outstanding for a specific LIBOR Interest Period and bearing interest at a fixed rate based upon LIBOR.
10
“
Lien
” means, with respect to any property or assets, any right or interest therein of a
creditor to secure Debt owed to him or any other arrangement with such creditor which provides for the payment of such Debt out of such property or assets or which allows him to have such Debt satisfied out of such property or assets prior to the
general creditors of any owner thereof, including without limitation any lien, mortgage, security interest, pledge, deposit, production payment, rights of a vendor under any title retention or conditional sale agreement or lease substantially
equivalent thereto, or any other charge or encumbrance for security purposes, whether arising by law or agreement or otherwise, but excluding any right of offset which arises without agreement in the ordinary course of business.
“
Loan Documents
” means this Agreement, the Security Documents, the Notes, the Guarantees, applications for Letters of Credit, Advance
requests and all other agreements, certificates, legal opinions and other documents, instruments and writings heretofore or hereafter delivered in connection herewith or therewith.
“
Loans
” means the Revolving Loan and the Term Loan.
“
Long Canyon Note
” means the Promissory Note dated December 28, 2006, in the face amount of $95,000,000, made by IMLLC, payable to the order of Long Canyon LLC.
“
Majority Lenders
” means: (a) at any time when there are three or fewer Lenders hereunder, two or more Lenders which have
Percentage Shares aggregating at least 75 percent, and (b) at any time when there are four or more Lenders hereunder, any three or more Lenders which have Percentage Shares aggregating at least 51 percent.
“
Mandatory Prepayment Amounts
” means any and all of the following amounts: (a) 100 percent of the net cash proceeds received by any
Borrower upon the sale, transfer or other disposition of any of its assets (other than inventory sold in the ordinary course of such Borrower’s business, accounts receivable transferred in the ordinary course of business and assets arising out
of investing activities, including without limitation assets arising out of Hedging Activities), net of taxes, payments made to repay Debt secured by such assets to the extent such payment is permitted by this Agreement, accounting, consulting and
attorneys’ fees and other commissions and premiums and underwriting discounts to obtain such payment, and reasonable reserves to fund indemnification and other contingent obligations attributable to such disposition, except to the extent that
such net cash proceeds: (1) are used to acquire replacement assets for the assets being transferred, or (2) do not exceed an aggregate amount of $5,000,000 during any Fiscal Year of Borrowers, and (b) 50 percent of the net cash
proceeds received by any Borrower upon the issuance of any subordinated debt or equity securities, except to the extent that such net cash proceeds are used for the Solution Mining Project.
“
Material Adverse Effect
” means a material adverse effect upon: (a) the business, property, condition (financial or otherwise) or
results of operations of Borrowers and their Subsidiaries, taken as a whole, (b) the ability of Borrowers to fully and timely pay the Obligations, or (c) the validity or enforceability of any of the Loan Documents or the rights or
remedies, taken as a whole, of Agent or Lenders thereunder.
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“
Maturity Date (Revolving)
” means the earlier of: (a) March 9, 2012; provided
that, upon the request of Borrowers, Agent and Lenders may, in their sole discretion, extend said date to a date not later than December 31, 2015 by giving written notice of such extension to Borrowers, but nothing contained in this Agreement,
the Notes or any other Loan Document shall be deemed to commit or require Agent and Lenders to grant any such requested extension; or (b) such date as the Revolving Loan becomes due and payable in full by acceleration, whether automatically or
at the option of Lenders, resulting from the occurrence of an Event of Default, as more fully described in Article VII below.
“
Maturity Date (Term)
” means the earlier of: (a) March 9, 2014; provided that, upon the request of Borrowers, Agent and Lenders may, in their sole discretion, extend said date to a date not later than
December 31, 2015 by giving written notice of such extension to Borrowers, but nothing contained in this Agreement, the Notes or any other Loan Document shall be deemed to commit or require Agent and Lenders to grant any such requested
extension; or (b) such date as the Term Loan becomes due and payable in full by acceleration, whether automatically or at the option of Lenders, resulting from the occurrence of an Event of Default, as more fully described in Article VII below.
“
Monthly Payment Date
” means the last Business Day of each calendar month, commencing March 30, 2007.
“
Multiemployer Plan
” means a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA.
“
Non-U.S. Lender
” has the meaning given such term in Section 3.7(b) below.
“
Notes
” means any and all Promissory Notes, substantially in the form of Exhibit A attached hereto and made a part hereof, each made by
Borrowers, with one “Note” being payable to the order of each of the Lenders.
“
Obligated Person
” means any
Borrower, any Guarantor or any other Person hereafter becoming liable for repayment of all or any part of the Loans, whether by guaranty, assumption or otherwise.
“
Obligations
” means any and all Debt from time to time owing by any or all Borrowers to any or all Lenders under or pursuant to any of the Loan Documents, including without limitation the Loans and
any and all Lender Hedging Obligations. “
Obligation
” means any part of the Obligations.
“
Overnight
LIBOR
” means: (a) with respect to any Business Day, the applicable one-month LIBOR rate quoted and reset by Agent for that Business Day from Telerate page 3750 or any successor thereto, adjusted for any reserve requirement and any
subsequent costs arising from any change in government regulation, and (b) with respect to any day other than a Business Day, on the rate determined pursuant to clause (a) above for the immediately preceding Business Day. If, for any day,
“Overnight LIBOR” cannot be determined by Agent as described above or if “Overnight LIBOR” plus the applicable LIBOR Spread would exceed the maximum rate of interest, if any, then permitted to be charged under applicable law, the
Swing-Line Interest Rate
12
shall be determined as set forth in clause (b) of the definition of such term, subject to the provisions of Section 11.6 below.
“
Participant
” has the meaning given such term in Section 10.2 below.
“
PBGC
” means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.
“
Percentage Share
” means, for any Lender, at any time, the percentage-equivalent of a fraction, the numerator of which is such
Lender’s Commitment at that time and the denominator of which is the Aggregate Lenders’ Commitment at that time.
“
Percentage Share (Revolving)
” means, for any Lender: (a) at any time that Revolving Advances are outstanding hereunder, the percentage-equivalent of a fraction, the numerator of which is the then-outstanding balance
of Revolving Advances that have been made by or on behalf of such Lender and the denominator of which is the then-outstanding balance of all Revolving Advances; and (b) at any time that no Revolving Advances are outstanding hereunder, the
percentage-equivalent of a fraction, the numerator of which is such Lender’s Commitment (Revolving) at that time and the denominator of which is the Aggregate Lenders’ Commitment (Revolving) at that time.
“
Percentage Share (Term)
” means, for any Lender, at any time, the percentage-equivalent of a fraction, the numerator of which is the
then-outstanding principal balance of the Term Loan that has been made by or on behalf of such Lender and the denominator of which is the then-outstanding principal balance of the Term Loan.
“
Permitted Liens
” means liens, encumbrances and other matters which are expressly permitted pursuant to the terms of Section 6.2(e)
below.
“
Permitted Solution Mining Project Security
” means a lien on and security interest in the Solution Mining Project
(and, if the Solution Mining Project is held in the Solution Mining Sub, the equity interests in the Solution Mining Sub and all assets and rights of the Solution Mining Sub) securing the Permitted Third-Party Solution Mining Project Debt.
“
Permitted Third-Party Solution Mining Project Debt
” means Debt of HB Potash (or, if the Solution Mining Project is held
in the Solution Mining Sub, Debt of Solution Mining Sub) owed to a Person other than Lenders or a Borrower or a Guarantor Subsidiary with a principal amount at any one time outstanding not exceeding $50,000,000 for the construction, development or
operation of the Solution Mining Project; provided that: (a) the sole recourse for nonpayment of such Debt is limited to the Solution Mining Project (and, if Solution Mining Project is held in the Solution Mining Sub, the equity interests in
the Solution Mining Sub and all assets and rights of the Solution Mining Sub) and (b) at any time any such Debt is outstanding there are no outstanding loans or advances from IMLLC to HB Potash or from HB Potash to the Solution Mining Sub.
“
Person
” means an individual, corporation, partnership, association, joint-stock company, trust or trustee thereof,
estate or executor thereof, limited liability company,
13
unincorporated organization or joint venture, court or governmental unit or any agency or subdivision thereof, or any other legally recognizable entity.
“
Prime Rate
” means the fluctuating interest rate per annum announced from time to time by Agent as its prime rate (which
may not be the lowest interest rate charged by Agent), adjusted effective as of the effective date of any change in the prime rate so announced by Agent.
“
Purchaser
” has the meaning given such term in Section 10.3 below.
“
Quarterly Payment Date
” means the last Business Day of each calendar quarter, commencing June 29, 2007.
“
RCRA
” means the Resource Conservation and Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980, the solid Waste Disposal Act Amendments of 1980 and the Hazardous and Solid Waste Amendments of 1984.
“
Release Date
” means the earlier of the following two dates: (a) the date on which the Obligations have been
irrevocably paid and performed in full and the Security Documents have been released of record, or (b) the date on which the liens of the Security Documents have been foreclosed or a deed in lieu of such foreclosure has become fully effective
and has been recorded.
“
Revolving Advance
” means an advance of funds on the Revolving Loan (other than a Swing-Line
Advance or the issuance of a Letter of Credit, but including any payment made by Agent or any Lender on a Letter of Credit) to or for the account of Borrowers by Agent, on behalf of Lenders, pursuant to Section 2.1 below.
“
Revolving Loan
” has the meaning given such term in Section 2.1(e) below.
“
Security Documents
” means all security agreements, deeds of trust, mortgages, chattel mortgages, pledges, guarantees, financing
statements, continuation statements, assignments, extension agreements and other agreements or instruments now, heretofore or hereafter delivered by any Obligated Person to Agent or any Lender in connection with this Agreement, the Existing USB
Credit Agreement or any transaction contemplated hereby or thereby, to secure or guaranty the payment of any part of the Obligations or the performance of any other duties and obligations of Borrowers under the Loan Documents, whenever made or
delivered.
“
Solution Mining Project
” means a potash solution mining project (including without limitation underground
workings, injection and extraction wells, and facilities and equipment for water and brine treatment, injection, extraction, disposal, pumping, handling, evaporation, recovery, compaction, milling, and processing, and related facilities and
equipment, fee interests, leasehold rights, operating rights, rights-of-way, easements, utility services, and all agreements, contracts, authorizations, consents and permits for the development, construction, operation and expansion of the solution
mining project and the processing, transportation, marketing and sale of production therefrom) to be constructed and operated by HB Potash (or, at IMLLC’s or HB Potash’s option, the Solution Mining Sub) on the potassium leases and fee
interests currently
14
held by HB Potash and such additional leases, interests and rights as may be acquired for such project.
“
Solution Mining Sub
” means a new Subsidiary of IMLLC or HB Potash that may be formed at the option of IMLLC or HB Potash for the sole
purpose of developing, constructing, owning and operating the Solution Mining Project and the processing, transportation, marketing and sale of production therefrom
“
Subordinated Debt
” means such amount, if any, as may be acceptable to Majority Lenders, of indebtedness or other obligations of any Borrower, to the extent that the rights of the holders thereof to
enforce the indebtedness and other obligations of any Borrower thereunder have been subordinated to the rights of Agent and Lenders hereunder or in connection herewith by subordination agreements executed by the holders of the Subordinated Debt and
satisfactory in form and substance to Majority Lenders.
“
Subsidiary
” means, as to any Person, any corporation or other
entity of which more than 50 percent of the outstanding equity interests having ordinary voting power under ordinary circumstances to elect members of the board of directors or similar governing body of such corporation or other entity (irrespective
of whether at such time equity interests of any other class or classes of such corporation or other entity shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned or controlled by such
Person, by such Person and one or more Subsidiaries of such Person or by one or more Subsidiaries of such Person. Unless otherwise indicated herein, each reference to the term “Subsidiary” shall mean a Subsidiary of one or more of
Borrowers.
“
Swing-Line Advance
” means an advance of funds to or for the account of Borrowers made solely by the
Swing-Line Lender, pursuant to Section 2.1 below.
“
Swing-Line Interest Rate
” means, for any day, at Borrowers’
election, which election may be changed by Borrowers not more often than once every 10 Business Days upon at least one Business Days’ prior written notice from Borrowers to Agent, the interest rate per annum equal to either: (a) Overnight
LIBOR, as determined for such day, plus the applicable LIBOR Spread in effect for such day, or (b) the Base Rate, as determined for such day, plus the applicable Base Rate Spread in effect for such day.
“
Swing-Line Lender
” means USB, in its capacity as the sole Lender making Swing-Line Advances, and its successors and assigns in such
capacity.
“
Taxes
” has the meaning given such term in Section 3.7 below.
“
Term Loan
” has the meaning given such term in Section 2.2(c) below.
“
Termination Event
” means: (a) the occurrence with respect to any ERISA Plan of a reportable event (as described in
Section 4043 of ERISA or the regulations promulgated thereunder); (b) the withdrawal of any Obligated Person or of any ERISA Affiliate from an ERISA Plan during a plan year in which it was a substantial employer (as defined in
Section 4001(a) (2) of ERISA); (c) the filing of a notice of intent to terminate any ERISA Plan or
15
the treatment of any ERISA Plan amendment as a termination under Section 4041 of ERISA; (d) the institution of proceedings to terminate any ERISA
Plan by the PBGC; (e) the receipt by any Obligated Person or any ERISA Affiliate of a notice of withdrawal liability pursuant to Section 4202 of ERISA; or (f) any other event or condition which might constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any ERISA Plan.
“
Transferee
” has the meaning given such term in Section 10.4 below.
“
USA Patriot Act
”
means Title III of Pub. L. 107-56, signed into law October 26, 2001.
“
USB
” has the meaning given such term in the
first paragraph of this Agreement.
“
Working Capital
” means, as to IMLLC and its Consolidated Affiliates:
(a) (1) the aggregate current assets of IMLLC and its Consolidated Affiliates, but excluding the following, to the extent that any or all of them would otherwise be included in current assets: that portion of inventory comprised of potash,
langbeinite, magnesium chloride and salt located in the evaporation ponds or otherwise in-process, any spare parts and spare equipment and any non-cash current assets resulting from the mark-to-market of Hedging Activities under GAAP, plus
(2) prior to the Maturity Date (Revolving), the excess, if any, of: (A) the Aggregate Lenders’ Commitment (Revolving), over (B) the aggregate amount of all Advances outstanding hereunder, plus (B) the face amounts of all
Letters of Credit outstanding hereunder, minus (b) the aggregate current liabilities of IMLLC and its Consolidated Affiliates (excluding current maturities of the Loans) and any non-cash current liabilities resulting from the mark-to-market of
Hedging Activities under GAAP, all determined in accordance with GAAP.
Section 1.2.
Incorporation of Exhibits
. All Exhibits
attached to this Agreement are a part hereof for all purposes.
Section 1.3.
Amendment of Defined Instruments
. Unless the
context otherwise requires or unless otherwise provided herein, the terms defined in this Agreement which refer to a particular agreement, instrument or document also refer to and include all renewals, extensions and modifications of such agreement,
instrument or document; provided that nothing contained in this section shall be construed to authorize any such renewal, extension or modification.
Section 1.4.
References and Titles
. All references in this Agreement to Exhibits, Schedules, articles, sections, subsections and other subdivisions refer to the Exhibits, Schedules, articles, sections,
subsections and other subdivisions of this Agreement unless expressly provided otherwise. Titles appearing at the beginning of any subdivisions are for convenience only and do not constitute any part of such subdivisions and shall be disregarded in
construing the language contained in such subdivisions. The words “this Agreement”, “this instrument”, “herein”, “hereof”, “hereby”, “hereunder” and words of similar import refer to this
Agreement as a whole and not to any particular subdivision unless expressly so limited. The phrases “this section” and “this subsection” and similar phrases refer only to the sections or subsections hereof in which such phrases
occur. The word “or” has the inclusive meaning frequently identified by the phrase “and/or”. Pronouns in masculine, feminine and neuter genders shall be construed to
16
include any other gender, and words in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires.
Section 1.5.
Calculations and Determinations
. All interest and fees accruing under the Loan Documents shall be calculated on
the basis of actual days elapsed (including the first day but excluding the last) and a year of 360 days; provided that, with respect to interest calculations using the Base Rate, any and all such calculations shall be made on the basis of a year of
365 or 366 days, as applicable, and the actual number of days elapsed. Unless otherwise expressly provided herein or unless Lenders otherwise consent, all financial statements and reports furnished to Agent or Lenders hereunder shall be prepared,
and all financial computations and determinations pursuant hereto shall be made, in accordance with GAAP.
ARTICLE II
The Loans
Section 2.1.
The
Revolving Loan
. (a) Subject to the other terms and conditions of this Agreement: (1) each Lender agrees to make (or reimburse Agent for) its Percentage Share (Revolving) of the Initial Advance and all subsequent Revolving Advances to
Borrowers from time to time requested upon written notice to Agent from Borrowers no later than 11:00 a.m., Seattle, Washington time: (A) as to the Initial Advance, on the date as of which Borrowers request that the Initial Advance be made,
which shall be a Business Day, or (B) as to any subsequent Revolving Advance, on the Business Day prior to the date of any such Revolving Advance, which shall also be a Business Day; provided that, with respect to any Revolving Advance which is
to be included in a LIBOR Tranche, the notice to Agent from Borrowers shall be given no later than 11:00 a.m., Seattle, Washington time, at least three Business Days prior to the date of the Revolving Advance; (2) Agent agrees to issue, and
each Lender agrees to participate in, Letters of Credit requested by Borrowers from time to time upon written notice to Agent no later than five Business Days prior to the date of issuance of such Letter of Credit, the participation by a Lender in
each Letter of Credit to be at a level equal to such Lender’s Percentage Share (Revolving); and (3) the Swing-Line Lender agrees to make (or reimburse Agent for) Swing-Line Advances to Borrowers from time to time requested upon written
notice to Agent from Borrowers no later than 11:00 a.m., Seattle, Washington time, on the day of any such Swing-Line Advance, which shall be a Business Day.
(b) The Swing-Line Lender may, at any time in its sole discretion, by notice to Agent (which shall promptly notify each Lender), not later than 11:00 a.m., Seattle, Washington time on the date of the required
Revolving Advance pursuant to this Section 2.1(b) (which shall be a Business Day), require Agent to make, and each Lender (including the Swing-Line Lender) to participate in to the extent of its Percentage Share (Revolving), a Revolving Advance
in the amount of such Lender’s Percentage Share (Revolving) of any or all outstanding Swing-Line Advances (including, without limitation, any interest accrued and unpaid thereon), for the purpose of repaying such Swing-Line Advances. Any
Revolving Advance made pursuant to this Section 2.1(b) shall initially be included in the Base Rate Portion and thereafter may be included in the LIBOR Portion in the manner provided in Section 2.3(b) below and subject to the other
conditions and limitations set forth in this Section 2.1. Unless a Lender shall have notified
17
the Swing-Line Lender, prior to the making of any Swing-Line Advance, that any applicable condition precedent set forth in Article IV below had not then been
satisfied with respect to such Swing-Line Advance, such Lender’s obligation to make Revolving Advances pursuant to this Section 2.1(b) to repay Swing-Line Advances shall be unconditional, continuing, irrevocable and absolute and shall not
be affected by any circumstance, including: (1) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against Agent, the Swing-Line Lender or any other Person, (2) the occurrence or continuance of a
Default, (3) any adverse change in the condition (financial or otherwise) of Borrowers, or (4) any other circumstance, happening or event whatsoever. If any Lender fails to make payment to Agent of any amount due under this
Section 2.1(b), Agent shall be entitled to receive, retain and apply against such obligation the principal and interest otherwise payable to such Lender hereunder until Agent shall have received such payment from such Lender or such obligation
is otherwise fully satisfied. In addition to the foregoing, if for any reason any Lender fails to make payment to Agent of any amount due under this Section 2.1(b), such Lender shall be deemed, at the option of Agent, to have unconditionally
and irrevocably purchased from the Swing-Line Lender, without recourse or warranty, an undivided interest and participation in the applicable Swing-Line Advance in the amount of such Lender’s Percentage Share (Revolving) of the required
Revolving Advance, and such interest and participation may be recovered from such Lender together with interest thereon at the Federal Funds Rate for each day during the period commencing on the date of demand and ending on the date such amount is
received.
(c) Each request by Borrowers for a Revolving Advance shall be in the form of Exhibit B attached hereto and made a part hereof.
Each request by Borrowers for a Swing-Line Advance shall be in the form of Exhibit C attached hereto and made a part hereof. Each request by Borrowers for the issuance of a Letter of Credit shall be in the form of Exhibit D attached hereto and made
a part hereof, and shall be accompanied by an application for issuance of a letter of credit on Agent’s then-standard form, duly executed by Borrowers.
(d) Notwithstanding any other provision of this Agreement or any other Loan Document, except as otherwise provided in Section 2.1(b) above with respect to the conversion of Swing-Line Advances to Revolving
Advances, neither Agent nor any Lender shall have any obligation to: (1) make a Revolving Advance or a Swing-Line Advance to Borrowers (or reimburse Agent for a Revolving Advance or a Swing-Line Advance made to Borrowers) after the Maturity
Date (Revolving), (2) issue (or participate in the issuance of) a Letter of Credit which expires later than five days prior to the Maturity Date (Revolving) or later than two years after its date of issuance; provided that the foregoing shall
not be deemed to limit the issuance of Letters of Credit that are automatically renewable on an annual or other periodic basis unless the beneficiary is notified to the contrary, (3) issue (or participate in the issuance of) a LIBOR Tranche
with respect to any one or more Revolving Advances as to which the LIBOR Interest Period does not expire on or before the Maturity Date (Revolving), (4) issue (or participate in the issuance of) a LIBOR Tranche with respect to any one or more
Revolving Advances at any time when six or more prior LIBOR Tranches are in effect with respect to the Revolving Loan, (5) make a Revolving Advance if the aggregate amount of the requested Revolving Advance is less than $500,000 or is not an
integral multiple of $100,000, except for any Revolving Advance in an amount equal to the entire remaining availability under the Revolving Loan, (6) issue (or participate in the issuance of) a LIBOR Tranche if the aggregate amount of the LIBOR
Tranche
18
is less than $500,000 or is not an integral multiple of $100,000, (7) issue (or participate in the issuance of) a Letter of Credit if, after such Letter
of Credit is issued, the face amounts of all Letters of Credit outstanding under this Agreement would exceed $10,000,000, (8) make (or reimburse Agent for) a Revolving Advance or a Swing-Line Advance or issue (or participate in the issuance of)
a Letter of Credit if, after such Revolving Advance or Swing-Line Advance is made or such Letter of Credit is issued, the aggregate principal amounts of all Revolving Advances outstanding hereunder plus the aggregate principal amounts of all
Swing-Line Advances outstanding hereunder plus the face amounts of all Letters of Credit outstanding hereunder would exceed the Aggregate Lenders’ Commitment (Revolving), (9) with respect to a Lender, reimburse Agent for a Revolving
Advance or participate in the issuance of a Letter of Credit if, after such Revolving Advance is made or such Letter of Credit is issued, such Lender’s Percentage Share (Revolving) of the aggregate amount of all Revolving Advances outstanding
hereunder plus such Lender’s Percentage Share (Revolving) of the face amounts of all Letters of Credit outstanding hereunder would exceed such Lender’s Commitment (Revolving), or (10) with respect to Agent and the Swing-Line Lender,
make (or reimburse Agent for) a Swing-Line Advance if, after such Swing-Line Advance is made, the aggregate amount of all then-outstanding Swing-Line Advances shall exceed $15,000,000.
(e) Within the limitation of the Aggregate Lenders’ Commitment (Revolving) and subject to the other terms and provisions hereof, Borrowers may
borrow, repay and reborrow in accordance with the terms of this Section 2.1. The Revolving Advances, Swing-Line Advances and Letters of Credit described in this Section 2.1 shall be herein collectively referred to as the “Revolving
Loan.” Borrowers hereby irrevocably authorize Lenders to make the Revolving Loan.
Section 2.2.
The Term Loan
. (a) Subject
to the other terms and conditions of this Agreement, each Lender agrees to make (or reimburse Agent for) its Percentage Share (Term) of an amortizing term loan in the amount of $50,000,000 to be made to Borrowers on the same date as the Initial
Advance.
(b) Notwithstanding any other provision of this Agreement or any other Loan Document, neither Agent nor any Lender shall have any
obligation to: (1) make any advance on the Term Loan to Borrowers (or reimburse Agent for any advance on the Term Loan to Borrowers) other than the advance described in Section 2.2(a) above, (2) issue (or participate in the issuance
of) a LIBOR Tranche with respect to any portion of the Term Loan as to which the LIBOR Interest Period does not expire on or before the Maturity Date (Term), (3) issue (or participate in the issuance of) a LIBOR Tranche with respect to any
portion of the Term Loan at any time when six or more prior LIBOR Tranches are in effect with respect to the Term Loan, or (4) issue (or participate in the issuance of) a LIBOR Tranche if the aggregate amount of the LIBOR Tranche is less than
$500,000.
(c) The amortizing term loan made as described in Section 2.2(a) above shall be herein referred to as the “Term
Loan”. Borrowers hereby expressly request and irrevocably authorize Lenders to make the Term Loan.
19
Section 2.3.
The Notes; Interest
. (a) Borrowers’ obligation to repay the following, with
interest thereon, shall be evidenced by the Note made payable to the order of each Lender: (1) any and all Revolving Advances, which shall be payable to each Lender in accordance with such Lender’s Percentage Share (Revolving),
(2) any and all Swing-Line Advances, which shall be payable to the Swing-Line Lender, and (3) the Term Loan, which shall be payable to each Lender in accordance with such Lender’s Percentage Share (Term). The face amount of any Note
made payable to a Lender may at any time or from time to time exceed the amount of such Lender’s Commitment; provided that no such face amount shall be deemed to commit or require the affected Lender to lend any amount greater than such
Lender’s Commitment.
(b) At any time and from time to time hereafter, if Borrowers desire to include in a LIBOR Tranche all or any
portion of the Revolving Loan (other than any outstanding Swing-Line Advances or Letters of Credit) that will not already be included in a LIBOR Tranche as of the beginning of the requested LIBOR Interest Period or all or any portion of the Term
Loan that will not already be included in a LIBOR Tranche as of the beginning of the requested LIBOR Interest Period, Borrowers shall deliver an Interest Rate Election to Agent not later than 11:00 a.m., Seattle, Washington time three Business Days
prior to the first day of the requested LIBOR Interest Period, specifying the dollar amount Borrowers desire to have included in the LIBOR Tranche, the first day of the LIBOR Interest Period, the duration of the LIBOR Interest Period and whether
such LIBOR Tranche relates to the Revolving Loan or the Term Loan. As soon as reasonably possible after LIBOR can be determined for the requested LIBOR Interest Period, Agent shall provide to Borrowers a quote of LIBOR for the dollar amount and time
period requested by Borrowers. If the inclusion of the requested portion of the Revolving Loan or the Term Loan in the requested LIBOR Tranche is in conformity with all of the terms and provisions of this Agreement, the LIBOR Tranche shall become
effective for the requested dollar amount and the applicable LIBOR Interest Period based upon the rate quoted by Agent. Any portion of the Revolving Loan (other than outstanding Swing-Line Advances or Letters of Credit) or the Term Loan which is not
included in a LIBOR Tranche shall be included in the Base Rate Portion.
(c) (1) Except as otherwise provided in (4) below, interest
on the unpaid principal balance of each LIBOR Tranche shall accrue on a daily basis at an annual rate equal to: (A) LIBOR, as fixed with respect to such LIBOR Tranche, plus (B) the applicable LIBOR Spread in effect for such day.
(2) Except as otherwise provided in (4) below, the unpaid principal balance of the Base Rate Portion shall accrue on a daily basis at an annual rate equal to the Base Rate (such interest rate to be adjusted each time that the Base Rate
changes) plus the applicable Base Rate Spread in effect for such day. (3) Except as otherwise provided in (4) below, interest on the unpaid principal balance of any and all outstanding Swing-Line Advances shall accrue on a daily basis at
an annual rate equal to the applicable Swing-Line Interest Rate for such day. (4) From and after the occurrence, and during the continuance, of any Event of Default hereunder (including without limitation any failure by Borrowers to pay the
entire outstanding principal balance of the Revolving Loan, together with all accrued interest, fees and other amounts payable in connection therewith on or before the Maturity Date (Revolving) or any failure by Borrowers to pay the entire
outstanding principal balance of the Term Loan, together with all accrued interest, fees and other amounts payable in connection therewith on or before the Maturity Date (Term)), interest on any LIBOR Tranche, on the Base Rate Portion and
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on any outstanding Swing-Line Advances shall accrue, from the date of occurrence of the Event of Default until the date the Event of Default is cured, at the
annual rate otherwise applicable to such LIBOR Tranche, Base Rate Portion or Swing-Line Advance plus two percentage points per annum.
(d)
Interest accrued on the Base Rate Portion and on any and all outstanding Swing-Line Advances shall be due and payable on each Monthly Payment Date. Interest accrued on each LIBOR Tranche shall be due and payable on the last day of the LIBOR Interest
Period for such LIBOR Tranche (and, in the case of any LIBOR Tranche having a LIBOR Interest Period in excess of three months, on the three-month anniversary of the first day of such LIBOR Interest Period). Any then-outstanding interest on the
Revolving Loan shall be due and payable not later than the Maturity Date (Revolving). Any then-outstanding interest on the Term Loan shall be due and payable not later than the Maturity Date (Term).
Section 2.4.
Mandatory Principal Payments
. (a)(1) On or before each Quarterly Payment Date prior to the Maturity Date (Term), Borrowers shall
make a principal payment to Agent, on behalf of Lenders in proportion to their respective Percentage Shares (Term), in the amount of $1,250,000 (the “Amortization Amount (Term)”), subject to any applicable adjustment pursuant to
Section 2.4(a)(2) below. (2) As to the first payment, if any, made by any Borrower within six months after the date of this Agreement, of an amount in excess of $10,000,000 that constitutes the payment of a Mandatory Prepayment Amount
determined under clause (b) of the definition of such term and/or a voluntary prepayment under Section 2.5 below, then the Amortization Amount (Term) shall be reduced to the amount that would be necessary to amortize the outstanding
principal balance of the Term Loan with level quarterly principal payments on each Quarterly Payment Date through and including the Quarterly Payment Date for the calendar quarter ending September 30, 2017.
(b) Not later than three Business Days after the receipt by any Borrower of any amount included in Mandatory Prepayment Amounts, Borrowers shall make a
principal payment to Agent, on behalf of Lenders in proportion to their respective Percentage Shares (Term), in the amount of the Mandatory Prepayment Amounts so received. Any such amount received by Agent shall be applied first against that portion
of the Term Loan that would otherwise have been due and payable on the Maturity Date (Term) until such portion of the Term Loan has been repaid in full and next against quarterly principal payments required under Section 2.4(a) above in the
inverse order of approaching maturities.
(c) The outstanding principal balance of the Revolving Loan, together with all unpaid fees and
expenses relating thereto as provided herein, shall be due and payable not later than the Maturity Date (Revolving). The outstanding principal balance of the Term Loan, together with all unpaid fees and expenses relating thereto as provided herein,
shall be due and payable not later than the Maturity Date (Term). Any payment made by any Borrower for application to the repayment of the Loans after the occurrence and during the continuance of an Event of Default shall be applied ratably between
the Revolving Loan and the Term Loan in accordance with the respective amounts due and payable on each.
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Section 2.5.
Voluntary Prepayments
. Borrowers shall have the right to prepay any or all
Advances or all or any portion of the outstanding balance of the Term Loan at any time, in whole or in part, without penalty or premium (except as otherwise described in Section 3.5 below); provided that, as to any such prepayment that will
result in a prepayment, in whole or in part, of a LIBOR Tranche prior to the last day of the relevant LIBOR Interest Period: (a) Borrowers shall give Agent at least three Business Days’ prior notice thereof, and (b) such prepayment
shall be in an amount such that the unpaid principal balance of the prepaid LIBOR Tranche shall continue to be an integral multiple of $100,000 not less than $500,000. Borrowers shall designate whether any such prepayment is to be applied to the
repayment of outstanding Revolving Advances, outstanding Swing-Line Advances or the unpaid principal balance of the Term Loan. Any prepayment received by Agent that is to be applied to the repayment of the unpaid principal balance of the Term Loan
shall be applied first against that portion of the Term Loan that would otherwise have been due and payable on the Maturity Date (Term) until such portion of the Term Loan has been repaid in full and next against quarterly principal payments
required under Section 2.4(a) above in the inverse order of approaching maturities.
Section 2.6.
Termination of Agreement;
Reduction of Aggregate Lenders’ Commitment (Revolving)
. (a) Borrowers shall have the right at any time and from time to time, upon not less than three Business Days’ prior written notice to Agent, to terminate this Agreement. No such
termination of this Agreement shall be effective until Borrowers have paid in full any and all amounts payable hereunder, including principal, interest, fees, expenses and other amounts and have caused all outstanding Letters of Credit to be
terminated and released. Any prepayment made in connection with a termination of this Agreement shall be without penalty or premium (except as otherwise described in Section 3.5 below).
(b) Borrowers shall have the right at any time and from time to time, upon not less than three Business Days’ prior written notice to Agent, to
elect to reduce the Aggregate Lenders’ Commitment (Revolving) to an amount less than otherwise specified in this Agreement, which amount shall be specified in such notice and shall be an integral multiple of $1,000,000. Any such election shall
be permanent and irrevocable and shall be accompanied by any principal payment required to reduce the outstanding balance of the Revolving Loan to an amount not greater than the reduced Aggregate Lenders’ Commitment (Revolving) so elected. Any
such reduction shall result in the pro rata reduction of the Commitments (Revolving) of all Lenders participating in the Revolving Loan.
Section 2.7.
Payments to Agent
. Borrowers shall pay to Agent, on behalf of Lenders, each payment that Borrowers owe under the Loan Documents not later than 10:00 a.m., Seattle, Washington time, on the due date, in lawful money
of the United States of America and in immediately available funds. Any payment received after such time will be deemed to have been made on the next following Business Day. Except as otherwise provided in this Agreement as to LIBOR Tranches, should
any such payment become due and payable on a day other than a Business Day, the maturity of such payment shall be extended to the next succeeding Business Day, and, in the case of a payment of principal or past due interest, interest shall accrue
and be due and payable thereon for the period of such extension. Each payment under a Loan Document shall be due and payable at the place provided therein or, if no specific place of payment is provided, shall be due and payable at the place of
payment provided in the Notes.
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With respect to any regularly scheduled payment of principal, interest, fees or other amounts due and payable hereunder,
Borrowers hereby authorize Agent to: (a) debit any deposit account of any Borrower with USB, or (b) make a Swing-Line Advance or a Revolving Advance, in the amount of the payment then due. If there are insufficient funds in such deposit
accounts to pay in full the amounts then due, such debits will be reversed (in whole or in part, at Agent’s sole discretion) and such amount not debited shall be deemed to be unpaid.
Section 2.8.
Use of Proceeds
. In no event shall any of the proceeds of the Revolving Loan or the Term Loan be used directly or indirectly for
the purpose, whether immediate, incidental or ultimate, of purchasing, acquiring or carrying any “margin stock” (as such term is defined in Regulation U promulgated by the Board of Governors of the Federal Reserve System) or to extend
credit to others directly or indirectly for the purpose of purchasing or carrying any such margin stock. Borrowers represent and warrant to Agent and Lenders that no Borrower is engaged principally, or as one of its important activities, in the
business of extending credit to others for the purpose of purchasing or carrying such margin stock. Borrowers will use the proceeds of the Loans: (a) initially, for the purposes of refinancing any and all amounts payable under or in connection
with the Existing USB Loan, repaying in full the Long Canyon Note and paying in full any and all fees and expenses payable to Agent or any Lender in connection with the funding of the Loans, and (b) thereafter, for general working capital
purposes, capital expenditures relating to the maintenance or expansion of existing potash, magnesium chloride or salt mining operations, financing permitted Distributions to members, making permitted acquisitions of other assets or operations, the
issuance of Letters of Credit in connection with Borrowers’ business activities and other lawful purposes in connection with Borrowers’ business activities and, to the extent permitted under the terms of this Agreement, making
contributions, loans or advances to any Subsidiary of any Borrower for any of the foregoing purposes.
ARTICLE III
Security; Fees; Letters of Credit; LIBOR Provisions
Section 3.1.
The Security
. The Obligations will be secured on a
pari passu
basis by the existing Security Documents heretofore executed and delivered in connection with the Existing USB Credit
Agreement, the Security Documents executed and delivered contemporaneously herewith and any additional Security Documents hereafter delivered by any Obligated Person and accepted by Agent, on behalf of Lenders; provided that, promptly after a
written request from Borrowers to Agent, contemporaneously with the incurrence of any Permitted Third-Party Solution Mining Project Debt, Agent and Lenders hereby agree to partially release the Security Documents insofar as they cover any Permitted
Solution Mining Project Security.
Section 3.2.
Perfection and Protection of Security Interests and Liens
. Borrowers will from
time to time deliver (or cause to be delivered) to Agent, on behalf of Lenders, any amendments, financing statements, continuation statements, extension agreements and other documents, properly completed and executed (and acknowledged when required)
by Borrowers or any other Obligated Person, in form and substance reasonably satisfactory to Agent, which Agent may request for the purpose of perfecting, confirming or protecting Lenders’ Liens and other rights in the Collateral.
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Section 3.3.
Bank Accounts and Offset
. To secure the repayment of the Obligations, each
Borrower hereby grants to Agent, on behalf of Lenders, a security interest, a lien and a right of offset, each of which shall be upon and against: (a) any and all moneys, securities or other property (and the proceeds therefrom) of such
Borrower now or hereafter held or received by or in transit to any Lender from or for the account of such Borrower, whether for safekeeping, custody, pledge, transmission, collection or otherwise, (b) any and all deposits (general or special,
time or demand, provisional or final) of such Borrower with any Lender, and (c) any other credits and claims of such Borrower at any time existing against any Lender, including without limitation claims under certificates of deposit; provided
that the foregoing shall not apply to any amounts held by any Lender in the capacity of an escrow agent. Upon the occurrence and during the continuance of any Event of Default, each Lender is hereby authorized to foreclose upon, offset, appropriate
and apply, at any time and from time to time, without notice to Borrowers, any and all items hereinabove referred to against the Obligations (whether or not such Obligations are then due and payable).
Section 3.4.
Fees
. (a) Borrowers shall pay to Agent, for the account of each Lender, for the time period commencing on and including the
date of the Initial Advance to but excluding the Maturity Date (Revolving), on the last day of each calendar quarter prior to the Maturity Date (Revolving) (or, if such last day is not a Business Day, on the next succeeding Business Day), and on the
Maturity Date (Revolving) (or, if the Maturity Date (Revolving) is not a Business Day, on the next succeeding Business Day), a nonrefundable commitment fee in an amount equal to the following, computed on a daily basis: (1) the Commitment Fee
Rate per annum as of each day in such calendar quarter or other time period, times (2) the excess, if any, of: (A) such Lender’s Commitment (Revolving), over (B) the sum of: (i) such Lender’s Percentage Share
(Revolving) of the aggregate outstanding principal balance of all Revolving Advances, plus (ii) such Lender’s Percentage Share (Revolving) of the face amounts of all outstanding Letters of Credit, plus (iii) in the case of the
Swing-Line Lender only, the aggregate principal balance of any and all Swing-Line Advances outstanding as of the end of such day, times (3) the length of such calendar quarter or other time period, expressed as a fraction of a year, based on
the actual number of days and a 360-day year.
(b) Borrowers shall pay to Agent, for the account of Lenders, a Letter of Credit fee in an
amount calculated on a daily basis for each calendar quarter or portion thereof from the date of the Initial Advance through the date that all Letters of Credit have been terminated, in an amount equal to: (1) the applicable LIBOR Spread per
annum in effect as of such day, times (2) the sum of the face amounts of all Letters of Credit outstanding for all or any part of such day, times (3) the length of such calendar quarter or other time period, expressed as a fraction of a
year; provided that, in addition to the fee described above, if there shall be more than one Lender hereunder as of the date of issuance (or the date of renewal) of any Letter of Credit, Borrowers shall also pay to Agent, for the benefit of Agent
and not of Lenders, a fronting fee in an amount equal to 0.125 percentage points per annum times the face amount of such Letter of Credit. In addition, at the time of issuance, amendment or drawing of each Letter of Credit, Borrowers shall pay to
Agent, for the account of Agent and not of Lenders, Agent’s customary fees for administrative issuance, amendment or drawing of such Letter of Credit; provided that no such individual administrative issuance, amendment or drawing fee shall
exceed $500. The Letter of Credit fee and, the fronting fee described above shall be calculated on the
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undrawn face amount of each Letter of Credit outstanding on each day at the above-described rates and will be due and payable in arrears on the last day of
each calendar quarter (or, if such last day is not a Business Day, on the next succeeding Business Day) and on the Maturity Date (Revolving) (or, if the Maturity Date (Revolving) is not a Business Day, on the next succeeding Business Day).
(c) Borrowers shall pay to Agent such fees as are described in the Fee Letter, which fees shall be for the account of Agent, except to the
extent otherwise provided herein or as otherwise agreed between Agent and any Lender.
Section 3.5.
Special LIBOR Provisions
.
(a) If any Lender shall reasonably determine (that the introduction of or any change in or in the interpretation of any law makes it unlawful, or any central bank or other governmental authority having jurisdiction asserts that it is unlawful,
for such Lender to fund, continue or maintain any LIBOR Tranche, the obligation of such Lender to fund, continue or maintain any such LIBOR Tranche shall, upon such determination, forthwith be suspended until such Lender shall notify Borrowers that
the circumstances causing such suspension no longer exist, and all LIBOR Tranches shall automatically be converted into the Base Rate Portion at the end of the then-current LIBOR Interest Periods with respect thereto or sooner, if required by such
law or assertion.
(b) If Agent shall reasonably determine that:
(1) U.S. Dollar deposits in the relevant amount and for the relevant LIBOR Interest Period are not available; or
(2) By reason of circumstances affecting Agent’s relevant market, adequate means do not exist for ascertaining the interest rate applicable
hereunder to LIBOR Tranches;
then, upon notice from Agent to Borrowers, the obligation of Lenders to include any portion of the Loans in a LIBOR Tranche
shall forthwith be suspended until Agent shall notify Borrowers that the circumstances causing such suspension no longer exist.
(c)
Borrowers agree to reimburse any Lender for any increase in the cost (other than Taxes, which are covered by Section 3.7), to such Lender of, or any reduction in the amount of any sum receivable by such Lender in respect of, funding, continuing
or maintaining (or of its obligation to fund, continue or maintain) any LIBOR Tranche as a result of any change in, or in the interpretation of, any law, rule, regulation or other governmental enactment or policy, by any central bank or other
governmental authority. Such Lender shall promptly notify Borrowers in writing of the occurrence of any such event, such notice to state, in reasonable detail, the reasons therefor and the additional amount required to compensate fully such Lender
for such increased cost or reduced amount. Such additional amount shall be due and payable by Borrowers to such Lender within fifteen days of Borrowers’ receipt of such notice, and such notice shall be prima facie evidence of such increase in
cost or reduction of amount receivable.
(d) In the event any Lender shall incur any loss or expense (including any loss or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
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acquired by such Lender to fund, continue or maintain any portion of the principal amount of any LIBOR Tranche) as a result of:
(1) Any conversion, repayment or prepayment (whether voluntary or mandatory) of the principal amount of any LIBOR Tranche on a date other than the
scheduled last day of the LIBOR Interest Period applicable thereto; or
(2) Any requested LIBOR Tranche not being funded as a LIBOR
Tranche in accordance with the provisions of this Agreement or the Interest Rate Election therefor for reasons beyond the control of such Lender or Agent;
then, upon the written notice of such Lender to Borrowers, Borrowers shall, within fifteen days of receipt thereof, pay such Lender such amount as will (in the reasonable determination of such Lender) reimburse such Lender for such loss or
expense. Such written notice (which shall include calculations in reasonable detail in accordance with Exhibit E attached hereto and made a part hereof) shall constitute prima facie evidence of such loss or expense.
Section 3.6.
Increased Capital Costs
. If any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or
phase-in of, any law or regulation, directive, guideline, decision or request (whether or not having the force of law) of any court, central bank, regulator or other governmental authority affects or would affect the amount of capital required or
expected to be maintained by any Lender or any Person controlling any Lender, and such Lender reasonably determines that the rate of return on its or such controlling Person’s capital as a consequence of the Loans is reduced to a level below
that which such Lender or such controlling Person could have achieved but for the occurrence of any such circumstance, then, in any such case upon notice from time to time by such Lender to Borrowers, Borrowers hereby agree to pay to such Lender,
within fifteen days of the effective date of such notice, such additional amount (as may be reasonably determined by such Lender) sufficient to compensate such Lender or such controlling Person for such reduction in rate of return. A statement to
Borrowers by any Lender as to any such additional amount or amounts (including calculations thereof in reasonable detail) shall be prima facie evidence of such amount or amounts.
Section 3.7.
Taxes
. (a) Except as otherwise required by applicable law, all payments by Borrowers of principal of, and interest on, either of
the Loans and all other amounts payable hereunder shall be made free and clear of and without deduction for any present or future income, excise, stamp or franchise taxes’ and other taxes, fees, duties, withholdings or other charges of any
nature whatsoever imposed by any taxing authority, but excluding franchise taxes and taxes imposed on or measured by any Lender’s net income or receipts (such non-excluded items being called “Taxes”). Subject to Section 3.7(b)
below, in the event that any withholding or deduction from any payment to be made by Borrowers hereunder is required in respect of any Taxes pursuant to any applicable law, rule or regulation, Borrowers will: (1) pay directly to the relevant
authority the full amount required to be so withheld or deducted; (2) promptly forward to such Lender an official receipt or other documentation satisfactory to such Lender evidencing such payment to such authority; and (3) pay such Lender
such additional amount or amounts as may be necessary to ensure that the net amount actually received by such Lender will equal the full amount such Lender would have received had no such withholding or deduction been
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required. Moreover, subject to Section 3.7(b) below, if any Taxes are directly asserted against any Lender with respect to any payment received by such
Lender hereunder, such Lender may pay such Taxes and Borrowers will promptly pay such additional amounts (including any penalties, interest or expenses) as may be necessary in order that the net amount -received by such Lender after the payment of
such Taxes (including any Taxes on such additional amount) shall equal the amount such Lender would have received had not such Taxes been asserted. If Borrowers fail to pay any Taxes when due to the appropriate taxing authority or fail to remit to
any Lender the required receipts or other required documentary evidence, then, subject to Section 3.7(b) below, Borrowers shall indemnify, save and hold harmless such Lender from and against any incremental Taxes, interest or penalties that may
become payable by such Lender as a result of any such failure.
(b) Each Lender that is not incorporated under the laws of the United
States of America or a state thereof (each a “Non-U.S. Lender”) agrees that it will, not less than ten Business Days after the date that it becomes a Lender hereunder: (1) deliver to Borrowers and to Agent two duly completed copies of
United States Internal Revenue Service Form W-8BEN or W-8ECI, certifying in either case that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, and
(2) deliver to Borrowers and to Agent a United States Internal Revenue Form W-8 or W-9, as the case may be, and certify that it is entitled to an exemption from United States backup withholding tax. Each Non-U.S. Lender further undertakes to
deliver to Borrowers and to Agent (x) renewals or additional copies of such form (or any successor form) on or before the date that such form expires or becomes obsolete, and (y) after the occurrence of any event requiring a change in the
most recent forms so delivered by it, such additional forms or amendments thereto as may be reasonably requested by Borrowers or Agent. All forms or amendments described in the preceding sentence shall certify that such Lender is entitled to receive
payments under this Agreement without deduction or withholding of any United States federal income taxes, unless an event (including any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise
be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form or amendment with respect to it and such Lender advises Borrowers and Agent that it is not capable of
receiving payments without any deduction or withholding of United States federal income tax.
(c) For any period during which a Non-U.S.
Lender has failed to provide Borrowers with an appropriate form pursuant to Section 3.7(b) above (unless such failure is due to a change in treaty, law or regulation, or any change in the interpretation or administration thereof by any
governmental authority, occurring subsequent to the date on which a form originally was required to be provided), such Non-U.S. Lender shall not be entitled to indemnification under this Section 3.7 with respect to Taxes imposed by the United
States; provided that, should a Non-U.S. Lender which is otherwise exempt from or subject to a reduced rate of withholding tax become subject to Taxes because of its failure to deliver a form required under Section 3.7(b) above, Borrowers shall
take such steps as such Non-U.S. Lender shall reasonably request to assist such Non-U.S. Lender to recover such Taxes.
(d) Any Lender that
is entitled to an exemption from or reduction of withholding tax with respect to payments under this Agreement or any Note pursuant to the law of any
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relevant jurisdiction or any treaty shall deliver to Borrowers (with a copy to Agent), at the time or times prescribed by applicable law, such properly
completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate.
(e) If the U.S. Internal Revenue Service or any other governmental authority of the United States or any other country or any political subdivision thereof asserts a claim that Agent did not properly withhold tax from amounts paid to or for
the account of any Lender (because the appropriate form was not delivered or properly completed, because such Lender failed to notify Agent of a change in circumstances which rendered its exemption from withholding ineffective or for any other
reason), such Lender shall indemnify Agent fully for all amounts paid, directly or indirectly, by Agent as tax, withholding therefor or otherwise, including penalties and interest, and including taxes imposed by any jurisdiction on amounts payable
to Agent under this Section 3.7(e), together with all costs and expenses related thereto (including expenses and fees and/or time charges of the attorneys for Agent, who may be employees of Agent). The obligations of Lenders under this
Section 3.7(e) shall survive the payment of the Obligations and termination of this Agreement.
Section 3.8.
Obligations
Absolute
. The obligation of Borrowers to repay any amount drawn on Agent pursuant to the terms of a Letter of Credit shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this
Agreement, under all circumstances whatsoever, including without limitation the following circumstances:
(a) The existence of any claim,
set-off, defense or other right which Borrowers may have at any time against any beneficiary of a Letter of Credit (or any Person for whom any such beneficiary may be acting) or any other Person, whether in connection with this Agreement, the
transactions contemplated hereby or any unrelated transactions;
(b) Any statement or any other document presented under any Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever; or
(c) Payment by Agent under any Letter of Credit against presentation of a draft or certificate which does not comply in all material respects with the terms of such Letter of Credit.
Payment by Borrowers of a reimbursement obligation in connection with a Letter of Credit issued pursuant to this Agreement shall not be deemed a waiver of any rights of
Borrowers against Agent or any Lender under Section 3.10(d) below.
Section 3.9.
Indemnification
. Borrowers hereby
indemnify and hold harmless Agent and each Lender from and against any and all claims, damages, losses, liabilities, costs or expenses whatsoever which Agent or any such Lender may incur (or which may be claimed against Agent or any such Lender by
any Person) by reason of or in connection with the execution and delivery or transfer of or payment or failure to pay under any Letter of Credit; provided, however, that Borrowers shall not be required to indemnify Agent or any Lender for
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any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by the willful misconduct or gross negligence
of’ Agent or such Lender in connection with paying a draft presented under a Letter of Credit. Nothing in this Section 3.9 is intended to limit the obligation of Borrowers to repay any amount drawn on Agent pursuant to the terms of a
Letter of Credit.
Section 3.10.
Liability of Agent and Lenders
. Borrowers assume all risks of the acts or omissions of any
beneficiary or permitted transferee of any Letter of Credit with respect to its use of such Letter of Credit. None of Agent, Lenders or any of their respective employees, officers or directors shall be liable or responsible for:
(a) The use which may be made of any Letter of Credit or for any acts or omissions of any beneficiary or transferee thereof in connection therewith;
(b) The validity, sufficiency or genuineness of documents, or of any endorsements thereon, even if such documents should in fact prove to
be in any or all respects invalid, insufficient, fraudulent or forged;
(c) Payment by Agent against presentation of documents which do not
comply with the terms of the applicable Letter of Credit, including failure of any documents to bear any reference or adequate reference to the applicable Letter of Credit; or
(d) Any other circumstance whatsoever in making or failing to make payment under the Letter of Credit, except only that Borrowers shall have a claim
against Agent or a Lender, and Agent or such Lender shall be liable to Borrowers, to the extent, but only to the extent, of any direct (as opposed to consequential) damages suffered by Borrowers which were caused by:
(1) Agent’s or such Lender’s willful misconduct, bad faith or gross negligence in connection with the Letter of Credit; or
(2) Agent’s or such Lender’s bad-faith or grossly negligent failure to pay under any Letter of Credit after the presentation to it by the
beneficiary of a draft and certificate strictly complying with the terms and conditions of such Letter of Credit.
ARTICLE IV
Conditions Precedent to Loans
Section 4.1.
Conditions Precedent to Initial Advance
. Neither Agent nor Lenders shall have any obligation to make the Initial Advance or the Term Loan or to issue or participate in any Letter of Credit unless Agent shall have
received all of the following at its office in Denver, Colorado, duly executed and delivered and in form, substance and date satisfactory to Agent:
(a) The Notes, payable to the order of each initial Lender.
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(b) A certificate of an officer or manager, as applicable, of each Borrower and of each Guarantor, which
shall contain the names and signatures of the persons authorized to execute the Loan Documents on behalf of such Borrower or Guarantor and which shall certify to the truth, correctness and completeness of the following exhibits attached thereto:
(1) a copy of the articles of organization and the operating agreement or the articles of incorporation and the bylaws of such Borrower or Guarantor and all amendments thereto, and (2) a copy of any resolutions of the managers, members,
shareholders, board of directors or other governing body of such Borrower or Guarantor required by the governing documents of such Borrower or Guarantor authorizing the Loan Documents to which such Borrower or Guarantor is a party and the
transactions contemplated hereby.
(c) A compliance certificate from a manager of IMLLC in which such person certifies to the satisfaction
of the conditions set out in subsections (a), (b), and (c) of Section 4.2 below and such other matters as Agent may request.
(d)
Any and all new Security Documents and amendments of the existing Security Documents required by Agent, on behalf of Lenders.
(e) Such
reports, certifications and other information as may be reasonably satisfactory to Agent concerning the condition of the Borrower Properties and the compliance or non-compliance with all Environmental Laws, regulations and standards by the owners
and operators thereof.
(f) Such reports, certifications and other information as may be required for Agent’s internal commercial
finance auditors to perform a collateral audit upon the Collateral in a manner satisfactory to Agent, and such pro forma financial statements and other financial statements with respect to Borrowers as Agent may reasonably require.
(g) Such legal opinions concerning Borrowers’ authority to enter into the Loan Documents, the enforceability of the Loan Documents and other matters
as may be satisfactory to Agent, and such title opinions, supplemental title opinions, UCC searches and other title information as may be reasonably satisfactory to Agent.
(h) Any and all other Loan Documents.
(i)
Payment of any and all amounts due and payable under this Agreement or under the Fee Letter upon or prior to the funding of any of the Loans, and reimbursement for any and all reimbursable costs and expenses (or reasonable estimates thereof)
incurred or to be incurred by Agent in connection with this Agreement or any other Loan Document.
Section 4.2.
Additional
Conditions Precedent
. Neither Agent nor Lenders shall have any obligation to make the Initial Advance, the Term Loan or any subsequent Advance, or any obligation to issue or participate in any Letter of Credit, unless the following conditions
precedent have been satisfied:
(a) All representations and warranties made by Borrowers in any Loan Document shall be true and correct in
all material respects on and as of the date of the Advance
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or of the Term Loan or the date of issuance of the Letter of Credit as if such representations and warranties had been made as of such date except with
respect to those representations and warranties which are expressly limited to a specific date.
(b) No Default shall have occurred and be
continuing as of the date of the Advance or of the Term Loan or the date of issuance of the Letter of Credit.
(c) Borrowers shall have
performed and complied in all material respects with all agreements and conditions herein required to be performed or complied with by them on or prior to the date of the Advance or of the Term Loan or the date of issuance of the Letter of Credit.
(d) The making of the Advance or of the Term Loan or the issuance of the Letter of Credit shall not be prohibited by any law or any
regulation or order of any court or governmental agency or authority and shall not subject Agent or any Lender to any penalty or other onerous condition under or pursuant to any such law, regulation or order.
Section 4.3.
Condition Precedent to Effectiveness of this Agreement
. Notwithstanding anything to the contrary contained in this Agreement,
the Fee Letter or any of the other Loan Documents executed and delivered contemporaneously herewith, unless and until the Initial Advance shall have been requested by Borrowers, and shall have been made by Agent and/or Lenders to Borrowers:
(a) neither this Agreement, the Fee Letter nor any of the other Loan Documents executed and delivered contemporaneously herewith shall become effective, (b) none of Agent, Lenders or Borrowers shall have any rights or obligations
hereunder, under the Fee Letter or under any of said other Loan Documents, (c) the calculation of interest and fees payable under the terms of this Agreement, the Fee Letter or any of said other Loan Documents shall not commence, and
(d) the Existing USB Loan shall remain in full force and effect, as governed by the Existing USB Credit Agreement, the Existing USB Note and the other documents executed in connection therewith; provided that this Agreement, the Fee Letter and
any and all other Loan Documents executed and delivered contemporaneously herewith shall be void and of no force or effect unless the Initial Advance is made on or before March 23, 2007.
ARTICLE V
Representations and Warranties
Section 5.1.
Borrowers’ Representations and Warranties
. To induce Agent and Lenders to enter into this Agreement and to make the Loans,
Borrowers represent and warrant to Agent and Lenders (which representations and warranties shall survive the delivery of the Notes and shall be deemed to be remade as of the date of each Advance, the date of the Term Loan, the date of each issuance
of a Letter of Credit and the date of any certificate delivered pursuant to Section 6.1(b)(3) below or Section 6.1(l) below) that:
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(a)
No Default
. No Borrower is in default in any material respect in the performance of any of the
covenants and agreements contained herein. No event has occurred and is continuing which constitutes a Default.
(b)
Organization and
Good Standing
. IMLLC is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Colorado, having all powers required to carry on its business and to enter into and carry out the
transactions contemplated hereby. IPMLLC is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware, having all powers required to carry on its business and to enter into and carry
out the transactions contemplated hereby. IPNMLLC is a limited liability company duly organized, validly existing and in good standing under the laws of the State of New Mexico, having all powers required to carry on its business and to enter into
and carry out the transactions contemplated hereby. IPWLLC is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Colorado, having all powers required to carry on its business and to enter
into and carry out the transactions contemplated hereby. Except as would not have a Material Adverse Effect, each Borrower is duly qualified, in good standing, and authorized to do business in all jurisdictions wherein the character of the
properties owned or held by it or the nature of the business transacted by it makes such qualification necessary.
(c)
Authorization
. Each Borrower has duly taken all action necessary to authorize the execution and delivery by it of the Loan Documents and to authorize the consummation of the transactions contemplated hereby and thereby and the performance of
its obligations thereunder.
(d)
No Conflicts or Consents
. The execution and delivery by the various Obligated Persons of the Loan
Documents to which each is a party, the performance by each of its obligations under such Loan Documents, and the consummation of the transactions contemplated by the various Loan Documents, do not and will not: (1) conflict with any provision
of: (A) any domestic or foreign law, statute, rule or regulation, (B) the governing documents of any Obligated Person, or (C) any agreement, judgment, license, order or permit applicable to or binding upon any Obligated Person,
except, in the case of this clause (C), as would not have a Material Adverse Effect, (2) result in the acceleration of any Debt owed by any Obligated Person, or (3) result in or require the creation of any Lien upon any assets or
properties of any Obligated Person, except as expressly contemplated by the Loan Documents. Except as expressly contemplated by the Loan Documents, no consent, approval, authorization or order of, and no notice to or filing with, any court or
governmental authority or third party is required in connection with the execution, delivery or performance by any Obligated Person of any Loan Document or to consummate any transactions contemplated by the Loan Documents.
(e)
Enforceable Obligations
. This Agreement is, and the other Loan Documents when duly executed and delivered will be, legal and binding
obligations of each Obligated Person which is a party hereto or thereto, enforceable in accordance with their respective terms except as limited by bankruptcy, insolvency or similar laws of general application relating to the enforcement of
creditors’ rights and as limited by general equitable principles.
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(f)
Initial Financial Statements
. To the best of Borrowers’ knowledge, the Initial Financial
Statements heretofore delivered by Borrowers to Agent fairly present in all material respects the Consolidated financial position of IMLLC at the dates thereof, and no event or condition has occurred or failed to occur since said dates that has had
a Material Adverse Effect upon the Consolidated financial condition of IMLLC, except as has been described in the Disclosure Schedule. To the best of Borrowers’ knowledge, all Initial Financial Statements were prepared in accordance with GAAP
(except, with respect to the quarterly financial statements, for the absence of footnotes and normal year-end adjustments for accruals).
(g)
Other Obligations
. As of the dates of the Initial Financial Statements, no Borrower had any outstanding Debt of any kind (including contingent obligations, tax assessments, and unusual forward or long-term commitments, but
excluding, as to the quarterly Initial Financial Statements, information generally included in footnotes and normal year-end adjustments for accruals) which was required to be included in financial statements prepared in accordance with GAAP and
which was not shown in the Initial Financial Statements.
(h)
Full Disclosure
. No certificate, statement or other information
delivered herewith or heretofore by any Borrower to Agent or any Lender in connection with the negotiation of this Agreement or in connection with any transaction contemplated hereby contains any untrue statement of a material fact or omits to state
any material fact actually known to any Borrower necessary to make the statements contained herein or therein not misleading in any material respect as of the date made or deemed made. As of the date of this Agreement, no Borrower is aware of any
material fact that has not been described in the Disclosure Schedule which would reasonably be expected to have a Material Adverse Effect, except for matters inherent in the type of business being conducted by Borrowers of which a knowledgeable
lender would reasonably be expected to be aware without being advised thereof by its borrower. To the best of each Borrower’s knowledge, any and all information and data provided to Agent or any Lender by any Borrower concerning any of the
Borrower Properties is based upon complete and accurate factual information in all material respects, it being understood that such information may include professional opinions, estimates and projections that Borrowers do not warrant will
ultimately prove to have been accurate.
(i)
Litigation
. Except as disclosed in the Initial Financial Statements or in the
Disclosure Schedule: (1) there are no actions, suits or legal, equitable, arbitrative or administrative proceedings pending, or to the actual knowledge of any Borrower threatened, against any Obligated Person before any federal, state,
municipal or other court, department, commission, body, board, bureau, agency, or instrumentality, domestic or foreign, which would reasonably be expected to have a Material Adverse Effect or would reasonably be expected to materially and adversely
affect the right or ability of any Obligated Person or to enter into the Loan Documents or to perform its obligations thereunder, and (2) there are no outstanding judgments, injunctions, writs, rulings or orders by any such governmental entity
against any Obligated Person which would reasonably be expected to have any such effect.
(j)
Title to Properties
. To the best of
each Borrower’s knowledge and subject to typical mineral-industry operating agreements and product-purchase contracts, except as disclosed in the Disclosure Schedule, each Borrower has good and defensible title to the assets
33
and properties that it purports to own, free and clear of all liens, encumbrances and defects of title, except for Permitted Liens. Except as disclosed in
the Disclosure Schedule, each Borrower enjoys peaceful and undisturbed possession under all material leases under which it operates, and all such leases are valid and subsisting, with no material default existing thereunder.
(k)
Place of Business
. Both the chief executive office of each Borrower and the principal place of business of each Borrower are located at the
address of Borrowers set forth in the Disclosure Schedule.
(l)
Taxes
. All tax returns required to be filed by any Borrower in any
jurisdiction prior to the date hereof have been filed (subject to the proper filing of extensions); all taxes, assessments, fees and other governmental charges upon any Borrower or upon any of any Borrower Properties, income or franchises, which are
due and payable have been paid, or adequate reserves have been provided for payment thereof.
(m)
Use of Proceeds
. No Borrower is
engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U or X of the Board of Governors of the Federal Reserve System),
and no part of the proceeds of the Revolving Loan or the Term Loan will be used to purchase or carry any such margin stock or to extend credit to any Person for the purpose of purchasing or carrying any such margin stock. No Borrower nor any Person
acting on any Borrower’s behalf has taken or will take any action which might cause this Agreement or the Notes or the application of the proceeds of the Revolving Loan or the Term Loan to violate either of said Regulations U or X or any other
regulation of the Board of Governors of the Federal Reserve System or to violate the Securities Exchange Act of 1934, in each case as now in effect or as the same may hereafter be in effect.
(n)
Environmental Matters
. Except for those conditions described in the Disclosure Schedule and except as would not have a Material Adverse
Effect:
(1) neither any property of any Borrower or any Subsidiary nor the operations conducted thereon violate any order
or requirement of any court or governmental authority or any Environmental Law;
(2) no property of any Borrower or any
Subsidiary nor the operations currently conducted thereon or, to the knowledge of Borrowers, by any prior owner or operator of such property or operation, are in violation of or subject to any existing, pending or, to the knowledge of Borrowers,
threatened action, suit, investigation, inquiry or proceeding by or before any court or governmental authority or to any remedial obligations under Environmental Law;
(3) all notices, permits, licenses, exemptions, approvals or similar authorizations, if any, required to be obtained or filed in
connection with the operation or use of any and all property of Borrowers, including, without limitation, past or present treatment, storage, disposal or release of any hazardous substance, hazardous waste or other material into the Environment,
have been
34
duly obtained or filed, and Borrowers are in compliance with the terms and conditions of all such notices, permits, licenses and similar authorizations;
(4) any and all hazardous substances, hazardous wastes and other materials generated at any property of any Borrower have
in the past been transported, treated and disposed of in accordance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment, and, to the knowledge of Borrowers, all such
transport carriers and treatment and disposal facilities have been and are operating in compliance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment, and are not the
subject of any existing, pending or, to the knowledge of Borrowers, threatened action, investigation or inquiry by any governmental authority in connection with any Environmental Laws;
(5) Borrowers have taken all steps reasonably necessary to determine and has determined that no hazardous substance, hazardous waste or
other material, has been disposed of or otherwise released and there has been no threatened release of any of the foregoing on or to any property of any Borrower except in compliance with Environmental Laws and so as not to pose an imminent and
substantial endangerment to public health or welfare or the environment;
(6) no Borrower has any known contingent liability
or the responsibility for any remedial work in connection with any release or threatened release of any hazardous substance, hazardous waste or other material into the Environment.
(o)
ERISA Liabilities
. All currently existing ERISA Plans have been described in the Disclosure Schedule. Except as disclosed in the Initial
Financial Statements or in the Disclosure Schedule, no Termination Event has occurred with respect to any ERISA Plan, and the Obligated Persons and all ERISA Plans are in compliance with ERISA in all material respects. No act, omission or
transaction has occurred which could result in the imposition on any Obligated Person or any ERISA Affiliate (whether directly or indirectly) of a civil penalty assessed pursuant to any of subsections (c), (i) or (1) of
Section 502 of ERISA, a tax imposed pursuant to Chapter 43 of Subtitle D of the Code or a breach of fiduciary duty liability damages under Section 409 of ERISA. No ERISA Plan (other than a defined contribution plan) or any trust
created under any ERISA Plan has been terminated since September 2, 1974. No liability to the PBGC (other than for the payment of current premiums that are not past due) by any Obligated Person or any ERISA Affiliate has been or is expected by
any Obligated Person or any ERISA Affiliate to be incurred with respect to any ERISA Plan. No Obligated Person is required to contribute to, or has any other absolute or contingent liability in respect of, any multiemployer plan (as defined in
Section 4001 of ERISA). Except as set forth in the Initial Financial Statements: (1) the Obligated Persons and the ERISA Affiliates have made full payment of any and all amounts required to be paid under the terms of each ERISA Plan or
applicable law, and no accumulated funding deficiency (as defined in Section 302 of ERISA or Section 412 of the Internal Revenue Code) exists with respect to any ERISA Plan, whether or not waived by the
35
Secretary of the Treasury or his delegate, and (2) the actuarial present value of each ERISA Plan’s benefit liabilities (as defined in
Section 4041 of ERISA) does not exceed the current value of such ERISA Plan’s assets (computed on a plan termination basis in accordance with Title IV of ERISA) available for the payment of such benefits. Neither any Obligated Person
nor any ERISA Affiliate sponsors, maintains or contributes to an employee welfare benefit plan (as defined in Section 3(1) of ERISA), including without limitation any such plan maintained to provide benefits to former employees of such
entities, that may not be terminated by such Obligated Person or ERISA Affiliate in its sole discretion at any time without material liability. Neither any Obligated Person nor any ERISA Affiliate is required to provide security under
Section 401(a)(29) of the Internal Revenue Code because of an amendment to an ERISA Plan that results in an increase in current liability for such ERISA Plan.
(p)
Investment Company Act Not Applicable
. No Borrower is an “investment company” or a person “controlled” by an “investment company” within the meaning of the Investment Company
Act of 1940, as amended.
Section 5.2.
Representations by Lenders
. Each Lender hereby represents that it will acquire its Note
for its own account in the ordinary course of its commercial banking business; provided that, subject to the provisions of Article VIII below, the disposition of each Lender’s property shall at all times be and remain within its control, and
this section does not prohibit any Lender’s sale of its Note or of any participation in its Note to any bank, financial institution, investor or other purchaser.
ARTICLE VI
Covenants of Borrowers
Section 6.1.
Affirmative Covenants
. Borrowers covenant and agree that, until the full and final payment of the Obligations and the
termination of this Agreement, unless Lenders have previously agreed otherwise in writing:
(a)
Payment and Performance
. Borrowers
will pay all amounts due under the Loan Documents in accordance with the terms thereof and will in all material respects observe, perform and comply with every covenant, term and condition in the Loan Documents. Borrowers will also cause each
Guarantor to observe, perform and comply, in all material respects, with every such term, covenant and condition, to the extent applicable to such Guarantor.
(b)
Books, Financial Statements and Records
. Each Borrower will at all times maintain full and accurate books of account and records, will maintain a standard system of accounting in accordance with GAAP and
will furnish the following statements and reports to Lenders at Borrowers’ expense:
(1) As soon as available, and in any event
within 120 days after the end of each Fiscal Year, commencing with the Fiscal Year ending December 31, 2006, complete Consolidated and consolidating financial statements of IMLLC, prepared in reasonable detail and
36
in accordance with GAAP, which annual financial statements shall be audited by an independent certified public accountant reasonably acceptable to Agent.
These financial statements shall contain at least a balance sheet as of the end of such Fiscal Year and a statement of earnings, cash flows and members’ equity, setting forth in comparative form the corresponding figures for the preceding
Fiscal Year and shall provide detail on a statement of operations with respect to the individual operations of IMLLC, IPMLLC, IPNMLLC and IPWLLC;
(2) As soon as available and in any event within 60 days after the end of each Fiscal Quarter (including without limitation the last Fiscal Quarter of each Fiscal Year), commencing with the Fiscal Quarter ending December 31, 2006,
complete Consolidated and consolidating financial statements of IMLLC for such Fiscal Quarter and for the then-current Fiscal Year, prepared in reasonable detail and in accordance with GAAP (except for the absence of footnotes and normal year-end
adjustments);
(3) At the time of submission of the financial statements described in (1) and (2) above, a report in the form of
Exhibit G attached hereto and made a part hereof, signed by an officer or manager of each entity for which financial statements are being submitted: (A) attesting to the authenticity of such financial statements, (B) stating that he has
read this Agreement and the Security Documents, (C) stating that after reviewing the financial statements described above he has concluded that there did not exist any condition or event as of the date of such financial statements or at the
time of his report which constituted an Event of Default or a Default, or, if he did conclude that such condition or event existed, specifying the nature and period of existence of any such condition or event, and (D) showing the calculation
of, and Borrowers’ compliance or non-compliance with, the financial covenants set forth in Sections 6.2(a), 6.2(b) and 6.2(c) below;
(4) As soon as available, and in any event: (A) by March 31, 2007, as to the Fiscal Quarter ending December 31, 2006, and (B) within 60 days after the end of each subsequent Fiscal Quarter, commencing with the Fiscal
Quarter ending March 31, 2007, a report in the form of Exhibit I attached hereto and made a part hereof, describing, for each calendar month during such Fiscal Quarter, the gross volume of mineral production and sales attributable to mineral
production (and the prices at which such sales were made and the revenues derived from such sales) for each mining operation of any Borrower, and describing the related ad valorem, severance and production taxes, operating expenses and general and
administrative expenses attributable thereto and incurred for each such calendar month;
(5) As soon as available and in any event within
30 days after filing, copies of any and all federal income tax forms filed by any Guarantor;
(6) As soon as available and in any event by
March 30, 2007 and February 28 of each year thereafter, commencing February 28, 2008, Borrowers’ internally-prepared one-year, five-year and twenty-year mine plans, together with any related budgets, forecasts and financial
statement projections for the mining operations of any and all Borrowers;
(7) Not later than March 30, 2007, an engineering report
in form and substance reasonably acceptable to Agent, prepared by an independent mining engineer chosen
37
by Borrowers and reasonably acceptable to Agent, containing an evaluation of all material Borrower Properties and showing the estimated rates of mineral
production and sales therefrom and the estimated capital and operating costs to be incurred in connection therewith for at least the ensuing 15 years; and
(8) If so requested by Agent or Lenders, promptly upon their becoming available, copies of all mining or environmental forms or reports, registration statements, periodic reports and other statements and schedules
filed by any Borrower with any local, state or federal governmental authority.
(c)
Other Information and Inspections
. Borrowers
will cause each Obligated Person to furnish to Lenders any information which Agent or any Lender may from time to time reasonably request concerning any covenant, provision or condition of the Loan Documents or any matter in connection with the
businesses or operations of any of the Obligated Persons. Borrowers will cause each Obligated Person to permit representatives appointed by Agent or any Lender, including independent accountants, agents, attorneys, appraisers and any other persons,
to visit and inspect, at their sole risk, any of such Persons’ property, including their books of account, other books and records, and any facilities or other business assets, and to make extra copies therefrom and photocopies and photographs
thereof, and to write down and record any information such representatives obtain, and each Obligated Person shall permit Agent or any Lender or their respective representatives to investigate and verify the accuracy of the information furnished to
Agent or any Lender in connection with the Loan Documents and to discuss all such matters with such Person’s officers, managers and independent accountants (provided that, in the case of independent accountants, an executive officer or manager
of such Obligated Person shall be entitled to be present).
(d)
Notice of Material Events
. Borrowers will promptly notify Agent:
(1) of any condition or event that shall have occurred or failed to occur that shall have had a Material Adverse Effect upon any Obligated Person, (2) of the occurrence of any Default, (3) of the acceleration of the maturity of any
indebtedness for borrowed money owed by any Obligated Person or of any default by any Obligated Person under any indenture, mortgage, agreement, contract or other instrument to which any of them is a party or by which any of them or any of their
properties is bound, (4) of any uninsured claim of $1,000,000 or more asserted against any Obligated Person or against any of their respective properties, (5) of the filing of any suit or proceeding against any Obligated Person (or the
occurrence of any material development in any such suit or proceeding) in which an adverse decision would reasonably be expected to have a Material Adverse Effect upon any such Person’s financial condition, business or operations (or would
reasonably be expected to result in a judgment not covered by insurance of $1,000,000 or more against any such Person), (6) of the merger or consolidation of any Obligated Person with any other business entity, and (7) of the sale,
transfer, lease, exchange or disposal by any Borrower of any material assets or properties or any assets or properties with a value in excess of $1,000,000, except sales of already-severed oil, gas, hydrocarbons, potash, salt, water, magnesium
chloride or other minerals in the ordinary course of any such Person’s business. Upon the occurrence of any of the foregoing, Borrowers will cause the Obligated Persons to remedy promptly any such Material Adverse Effect, Default, or default,
to protect against any such adverse claim, to defend any such suit or proceeding, and to resolve all controversies on
38
account of any of the foregoing. Each Borrower will also notify Agent in writing at least twenty Business Days prior to the date that such Borrower changes
its name or its state of organization or incorporation or the place where it keeps its books and records concerning the Collateral, furnishing with such notice any necessary financing statement amendments or requesting Agent and its counsel to
prepare the same.
(e)
Maintenance of Existence and Qualifications
. Each Borrower will maintain and preserve its existence and its
rights and franchises in full force and effect and will qualify to do business in all states or jurisdictions where required by applicable law, except: (1) where the failure so to qualify will not have a Material Adverse Effect, or (2) the
conversion of IMLLC into a Delaware limited liability company within 20 Business Days after the date of the Initial Advance upon the execution and delivery by IMLLC to Agent of all Loan Documents reasonably required by Agent in connection therewith.
(f)
Maintenance of Properties
. Each Borrower will in all material respects maintain, preserve, protect and keep all property used
or useful in the conduct of its business in accordance with the standards of a reasonable and prudent operator.
(g)
Payment of Trade
Debt, Taxes, etc
. Each Obligated Person will: (1) timely file all required tax returns; (2) timely pay all taxes, assessments, and other governmental charges or levies imposed upon it or upon its income, profits or property;
(3) pay all Debt owed by it on ordinary trade terms to vendors, suppliers and other Persons providing goods and services used by it in the ordinary course of its business; and (4) maintain appropriate accruals and reserves for all of the
foregoing Debt in accordance with its present system of accounting. Each Obligated Person will pay and discharge in all material respects, when due, all other Debt, taxes or assessments now or hereafter owed by it. Each Obligated Person may,
however, delay paying or discharging any such Debt so long as it is in good faith contesting the validity thereof by appropriate proceedings and has set aside on its books adequate reserves therefor.
(h)
Insurance
. Each Borrower will maintain with financially sound and reputable insurance companies, insurance with respect to its business,
operations and properties in at least such amounts and against at least such risks as are usually insured against in the same general area by companies of established repute engaged in the same or a similar business.
(i)
Payment of Expenses
. Borrowers will promptly (and in any event within 30 days after any invoice or other statement or notice) pay all
reasonable costs and expenses incurred: (1) by or on behalf of Agent (including attorneys’ fees) in connection with: (A) the preparation, execution and delivery of this Agreement and the other Loan Documents (including without
limitation any and all future amendments or supplements thereto or restatements thereof), and any and all consents, waivers or other documents or instruments relating thereto, (B) Agent’s collateral audit, including Agent’s internal
commercial finance audit fees and expenses, (C) the filing, recording, refiling and re-recording of any Security Documents and any other documents or instruments or further assurances required to be filed or recorded or refiled or re- recorded
by the terms of any Loan Document, and (D) the examination of the title of any Borrower to any of their respective assets, and (2) by or on behalf of Agent or any Lender
39
(including attorneys’ fees) in connection with the enforcement, after the occurrence of a Default or an Event of Default, of the Loan Documents.
(j)
Performance on Borrowers’ Behalf
. If any Obligated Person shall fail to pay any taxes, insurance premiums or other amounts
it is required to pay under any Loan Document, Agent, on behalf of Lenders, may pay the same. Borrowers shall immediately reimburse Agent, on behalf of Lenders, for any such payments and each amount paid shall constitute a part of the Obligations,
shall be secured by the Security Documents and shall bear interest at the rate described in Section 2.3(c)(4) above, from the date such amount is paid by Agent, on behalf of Lenders, until the date such amount is repaid to Agent, on behalf of
Lenders.
(k)
Compliance with Agreements and Law
. Each Borrower will perform all material obligations it is required to perform
under the terms of each indenture, mortgage, deed of trust, security agreement, lease, franchise, agreement, contract or other instrument or obligation to which it is a party or by which it or any of its properties is bound in a manner that will not
result in a Material Adverse Effect. Each Borrower will conduct its business and affairs in compliance with all laws, regulations, and orders applicable thereto (including those relating to pollution and other environmental matters), except as will
not have a Material Adverse Effect.
(l)
Certifications of Compliance
. Each Obligated Person will furnish to Agent at
Borrowers’ expense all certifications which Agent or any Lender from time to time reasonably requests, as to the accuracy and validity in all material respects at such time of all representations and warranties and compliance in all material
respects with all covenants made by any Person in the Loan Documents, the satisfaction of all conditions contained therein, and all other matters pertaining thereto.
(m)
Additional Security Documents
. Promptly after a request therefor by Agent, on behalf of Lenders, at any time and from time to time, each Borrower will execute and deliver to Agent, on behalf of Lenders,
such additional Security Documents and/or amendments to existing Security Documents as Agent, on behalf of Lenders, may reasonably deem necessary or appropriate in order to create, protect or preserve the liens, security interests and other rights
intended to be held by Agent, on behalf of Lenders, in the Collateral.
(n)
Operating Accounts
. Each Borrower will maintain its
principal operating accounts with USB, into which accounts the proceeds of the sales of production from the properties owned by such Borrower will be paid promptly after the receipt thereof by such Borrower.
(o)
ERISA Compliance
. Each Borrower and each ERISA Affiliate will: (1) make prompt payment of all contributions required under any and all
ERISA Plans and as required to meet the minimum funding standard set forth in ERISA with respect to any and all ERISA Plans, (2) if so requested by Lenders, within 30 days after the filing thereof, furnish to Agent each annual report/return, as
well as all schedules and attachments required to be filed with the Department of Labor or the Internal Revenue Service pursuant to ERISA, and the regulations promulgated thereunder, in connection with any and all ERISA Plans for each ERISA Plan
year, and (3) notify Agent immediately of any fact, including, but not limited to, any
40
reportable event (as described in Section 4043 of ERISA or the regulations promulgated thereunder) arising in connection with any and all ERISA Plans,
which might constitute grounds for termination thereof by the PBGC or for the appointment by the appropriate United States District Court of a trustee to administer such ERISA Plans, together with a statement, if requested by Lenders, as to the
reason therefor and the action, if any, proposed to be taken with respect thereto.
(p)
Environmental Matters
. Borrowers will
promptly notify Agent in writing of any existing, pending or, to the best knowledge of Borrowers, threatened, investigation or inquiry by any governmental authority in connection with any Environmental Law. Borrowers will take all reasonable steps
necessary to determine that no hazardous substances, hazardous wastes or solid wastes will be disposed of or otherwise released on or to any of the property owned by any Borrower in violation of any Environmental Law. Each Borrower shall keep all of
its property free of any hazardous substance, hazardous waste or solid waste (other than hazardous substances, hazardous wastes and solid wastes normally used or generated in the ordinary course of operation of Borrowers’ facilities and that
are properly stored, maintained and disposed of in accordance with Environmental Laws) and to remove the same (or if removal is prohibited by law, to take, at its sole expense, whatever actions are required by law) in accordance with Environmental
Laws. Upon Agent’s reasonable request, at any time and from time to time during the term of this Agreement (but no more often than once per calendar year in the absence of the occurrence and continuance of an Event of Default), Borrowers will
provide, at Borrowers’ sole expense, an inspection or audit, to be conducted by an engineering or consulting firm approved by Agent, of the properties owned or operated by any or all of the Borrowers, indicating the compliance by Borrowers with
all Environmental Laws.
(q)
Required Hedging
. Not later than 90 days after the date of this Agreement, Borrower shall have entered
into hedging transactions effectively converting interest rates on at least 75 percent of the projected outstanding balance of the Term Loan from floating to fixed or from shorter-term fixed to longer-term fixed for a term of not less than four
years from the date of this Agreement.
Section 6.2.
Negative Covenants
. Each Borrower covenants and agrees that until the full
and final payment of the Obligations and the termination of this Agreement, unless Lenders have previously agreed otherwise in writing:
(a)
Working Capital
. Borrowers will not permit the Working Capital of IMLLC and its Consolidated Affiliates to be less than $3,000,000 as of the close of any Fiscal Quarter ending after the date hereof.
(b)
Fixed Charge Coverage Ratio
. Borrowers will not permit the Fixed Charge Coverage Ratio of IMLLC and its Consolidated Affiliates to be less
than 1.30:1.00 as of the close of any Fiscal Quarter ending after the date hereof.
(c)
Cash Flow Leverage Ratio
. Borrowers will not
permit the Cash Flow Leverage Ratio of IMLLC and its Consolidated Affiliates to be greater than 3.50:1.00 as of the close of any Fiscal Quarter ending after the date hereof.
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(d)
Additional Indebtedness
. Neither any Borrower nor any Guarantor Subsidiary will create, incur,
assume or permit to exist Indebtedness of such entity except: (1) the Loans, (2) the Dry Lease, (3) Indebtedness disclosed in the Initial Financial Statements or in the Disclosure Schedule, (4) obligations incurred in connection
with Hedging Activities permitted pursuant to Section 6.2(o) below, including without limitation Letters of Credit issued under this Agreement (but not letters of credit issued by third parties) and guarantees securing such permitted
obligations, (5) Subordinated Debt, (6) reclamation obligations incurred by any Borrower in connection with its operations, including without limitation obligations relating to: (A) the $6,807,000 of reclamation bonds heretofore
issued in connection with the operations of IPMLLC, and (B) other bonds, undertakings and financial assurances in an aggregate amount not in excess of $10,000,000 with respect to the reclamation obligations of Borrowers and their Subsidiaries,
(7) Indebtedness of the types permitted to be secured by the security interests described in Section 6.2(e)(4) below; provided that the amount of such Indebtedness does not exceed the limits set forth in said Section, (8) capital
leases having an aggregate value not in excess of $8,000,000 at any time, (9) operating leases providing for annual rental not in excess of $10,000,000 for any calendar year, (10) guarantees and secondary liability permitted by
Section 6.2(j) below, (11) intercompany advances or loans from one Borrower or Guarantor Subsidiary to another Borrower or another Guarantor Subsidiary (including loans or advances for the Solution Mining Project to the Solution Mining Sub
provided that it becomes a Guarantor Subsidiary), (12) customer deposits in the ordinary course of business, (13) the Permitted Third-Party Solution Mining Project Debt, and (14) other reasonable obligations (other than obligations
for the repayment of borrowed money) incurred by any Borrower or any Guarantor Subsidiary in the ordinary course of operating its business.
(e)
Limitation on Liens
. Neither any Borrower nor any Guarantor Subsidiary will create, assume or permit to exist any mortgage, deed of trust, pledge, encumbrance, lien or charge of any kind (including any security interest in or
vendor’s lien on property purchased under conditional sales or other title retention agreements and including any lease intended as security or in the nature of a title retention agreement) upon any of its respective properties or assets,
whether now owned or hereafter acquired except:
(1) Liens at any time existing: (A) in favor of Agent, on behalf of Agent or any one
or more Lenders, or (B) that are specifically permitted by the express terms of any of the Security Documents;
(2) Liens on any
Borrower Property in favor of any bonding company issuing the reclamation bonds described in Section 6.2(d)(6) above;
(3) statutory
Liens for taxes, statutory or contractual mechanics’ and materialmen’s Liens incurred in the ordinary course of business, and other similar Liens incurred in the ordinary course of business, provided such Liens secure only Debt which is
not delinquent or which is being contested as provided in Section 6.1(g) above;
(4) purchase-money security interests granted by any
Borrower or any Guarantor Subsidiary on office equipment, vehicles and other personal property acquired by any such entity in the ordinary course of business; provided that the aggregate amount secured by all
42
such security interests outstanding at any one time shall not exceed $1,000,000 for any Borrower or any Guarantor Subsidiary;
(5) Liens on deposits of cash or cash equivalents made by any Borrower or any Guarantor Subsidiary with such Borrower’s or Guarantor
Subsidiary’s counterparties at any time when no Event of Default has occurred and is continuing hereunder to secure any Borrower’s or any Guarantor Subsidiary’s obligation to such counterparties in connection with Hedging Activities
permitted pursuant to Section 6.2(o) below;
(6) preferential rights to purchase and required third-party consents to assignments and
similar agreements;
(7) rights to consent by, required notices to, filings with, or other actions by local, tribal, state and federal
governmental or regulatory authorities in connection with, to the extent and only to the extent permitted by the terms of this Agreement, the sale or conveyance of, or any grant of liens on or security interests in, rights-of-way and easements or
interests therein;
(8) the terms and conditions of all applicable oil and gas, potash, potassium, magnesium chloride, salt or other
mineral leases;
(9) covenants, restrictions, rights, easements and minor irregularities in title which do not materially interfere with
the occupation, use and enjoyment of such assets or properties in the normal course of business as presently conducted or materially impair the value thereof for such business; and
(10) Permitted Solution Mining Project Security to secure Permitted Third-Party Solution Mining Debt.
(f)
Limitation on Sales of Property
. Neither any Borrower nor any Guarantor Subsidiary will sell, transfer, lease, exchange, alienate or dispose
of any of the assets of any such entity except as follows (and the following exceptions shall be subject to any limitations contained in the Security Documents):
(1) equipment: (A) having a fair market value not in excess of $5,000,000 in the aggregate during any Fiscal Year, (B) which is worthless, obsolete or not used or useful, provided, in the case of this
Section 6.2(f)(1)(B), that the proceeds are applied pursuant to Section 2.4(b) above or used to replace such equipment with other equipment of at least equal suitability and value, (C) which is salvaged from wells or properties that
have been plugged and/or abandoned by or on behalf of any such entity, or (D) which is the subject of a casualty loss, provided that the proceeds are applied as provided in Section 6.2(f)(1)(B) above;
(2) inventory (including without limitation oil, gas, hydrocarbons, potash, langbeinite, magnesium chloride, salt or other minerals sold as produced)
which is sold in the ordinary course of business;
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(3) personal property located on oil, gas, hydrocarbon, potash, langbeinite, magnesium chloride, salt or
other mineral properties operated by third parties, the sale of which personal property cannot be prevented by any such entity;
(4)
dispositions of assets arising out of investing activities, including without limitation assets arising out of Hedging Activities;
(5)
the surrender of any contractual right, or the settlement, release or surrender of any contract, tort or other litigation claim in the ordinary course of business; provided that none of the foregoing would reasonably be expected to have a Material
Adverse Effect or to adversely affect any of the Collateral;
(6) the abandonment or disposition of intellectual property or other
proprietary rights that are, in the reasonable business judgment of IMLCC, no longer practicable to maintain or useful in the conduct of the business of any Borrower or any Guarantor Subsidiary; and
(7) the transfer, lease or sale of the Solution Mining Project to the Solution Mining Sub.
(g)
Limitation on Credit Extensions
. Neither any Borrower nor any Guarantor Subsidiary will extend credit, make advances or make loans other than:
(1) normal and prudent extensions of credit to customers buying goods and services in the ordinary course of business, which extensions shall not be for longer periods than those extended by similar businesses operated in a normal and prudent
manner, (2) advances to officers, managers and employees with respect to reasonable expenses to be incurred by those Persons in the ordinary course of business of any Borrower or any Guarantor Subsidiary, (3) loans by IMLLC to IOG not
exceeding an aggregate principal balance outstanding at any time of $2,000,000 that are on terms and conditions and at rates comparable to Revolving Advances and that are secured by the membership interests in IOG, (4) loans or advances from
one Borrower or Guarantor Subsidiary to another Borrower or another Guarantor Subsidiary, and (5) loans or advances from any or all Borrowers or Guarantor Subsidiaries: (A) to Intrepid Aviation LLC to fund payments due under the Aircraft
Lease, or any other aircraft lease, not to exceed $600,000 in any Fiscal Year, and (B) in addition to loans and advances permitted by Section 6.2(g)(5)(A) above, to one or more Subsidiaries that are not Guarantor Subsidiaries, so long as
the aggregate principal amount of all such loans and advances shall not exceed $1,000,000 at any time outstanding .
(h)
Fiscal
Year
. Neither any Borrower nor any Guarantor Subsidiary will change its fiscal year.
(i)
Amendment of Contracts
. Neither any
Borrower nor any Guarantor Subsidiary will amend or permit any amendment to any other contract which could reasonably be foreseen to release, qualify, limit, make contingent or otherwise detrimentally affect, in any material way, the rights and
benefits of Agent, on behalf of Lenders, under or acquired pursuant to any of the Security Documents.
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(j)
Limitation on Guarantees
. Neither any Borrower nor any Guarantor Subsidiary will assume,
guaranty, endorse or be or become secondarily liable for any Debt which is the primary obligation of any other Person, except for: (1) endorsements for collection in the ordinary course of business, (2) the Aircraft Guarantees,
(3) guarantees of Debt of one or more other Borrowers or any Guarantor Subsidiaries, to the extent that such Debt is permitted under the terms of this Agreement, and (4) customary indemnification obligations and warranties under leases,
Hedging Activities and other contracts in the ordinary course of business of any Borrower or any Guarantor Subsidiary.
(k)
ERISA
Plans
. No Borrower will, nor will any Borrower permit any of its Subsidiaries to, directly or indirectly: (1) engage in, or permit any Subsidiary to engage in, any transaction in connection with which any Borrower or any ERISA Affiliate
could be subjected to either a civil penalty assessed pursuant to section 502(c), (i) or (l) of ERISA or a tax imposed by Chapter 43 of Subtitle D of the Code; (2) terminate, or permit any Subsidiary to terminate, any ERISA Plan in a
manner, or take any other action with respect to any ERISA Plan, which could result in any liability to any Borrower or any ERISA Affiliate to the PBGC; (3) fail to make, or permit any Subsidiary to fail to make, full payment when due of all
amounts which, under the provisions of any ERISA Plan, agreement relating thereto or applicable law, any Borrower or any ERISA Affiliate is required to pay as contributions thereto; (4) permit to exist, or allow any Subsidiary to permit to
exist, any accumulated funding deficiency within the meaning of Section 302 of ERISA or section 412 of the Code, whether or not waived, with respect to any ERISA Plan; (5) permit, or allow any Subsidiary to permit, the actuarial present
value of the benefit liabilities (as “actuarial present value of the benefit liabilities” shall have the meaning specified in section 4041 of ERISA) under any ERISA Plan maintained by any Borrower or any ERISA Affiliate which is regulated
under Title IV of ERISA to exceed the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such ERISA Plan allocable to such benefit liabilities; (6) assume an obligation to contribute to,
or permit any Subsidiary to assume an obligation to contribute to, any Multiemployer Plan; (7) acquire, or permit any Subsidiary to acquire, an 80% or greater interest in any Person if such Person sponsors, maintains or contributes to, or at
any time in the six-year period preceding such acquisition has sponsored, maintained, or contributed to: (A) any Multiemployer Plan, or (B) any other ERISA Plan that is subject to Title IV of ERISA, and in either case, the actuarial
present value of the benefit liabilities under such ERISA Plan exceeds the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such ERISA Plan allocable to such benefit liabilities, and the
withdrawal liability, if assessed, could reasonably be expected to result in a Material Adverse Effect upon any Obligated Person; (8) incur, or permit any Subsidiary to incur, a liability to or on account of an ERISA Plan under sections 515,
4062, 4063, 4064, 4201 or 4204 of ERISA; (9) assume an obligation to contribute to, or permit any Subsidiary to assume an obligation to contribute to, any employee welfare benefit plan, as defined in section 3(1) of ERISA, including, without
limitation, any such plan maintained to provide benefits to former employees of such entities, that may not be terminated by such entities in their sole discretion without any material liability; (10) amend or permit any Subsidiary to amend, an
ERISA Plan resulting in an increase in current liability such that any Borrower or any ERISA Affiliate is required to provide security to such ERISA Plan under section 401(a)(29) of the Code; or (11) permit to exist any occurrence of any
“reportable event” (as defined in Title IV of ERISA), or any other event or condition, which presents a material (in
45
the opinion of the Majority Lenders) risk of such a termination by the PBGC of any ERISA Plan that could reasonably be expected to result in a Material
Adverse Effect upon any Obligated Person.
(l)
Environmental Matters
. Neither any Borrower nor any Guarantor Subsidiary will cause
or permit any Borrower, any Guarantor Subsidiary or any property owned or used by any Borrower or any Guarantor Subsidiary to be in violation, in any material respect, of any Environmental Law. Neither any Borrower nor any Guarantor Subsidiary will
cause or permit any action or any failure to act which will subject any Borrower, any Guarantor Subsidiary or any property of any Borrower or any Guarantor Subsidiary to any remedial obligations under any Environmental Law that could have a Material
Adverse Effect, assuming full disclosure to the applicable governmental authorities of all relevant facts, conditions and circumstances. Neither any Borrower nor any Guarantor Subsidiary will cause or permit the disposal or other release of any
hazardous substance, hazardous waste or solid waste (as defined in the Environmental Laws) on or to any of the Borrower Property except in compliance with all Environmental Laws.
(m)
Distributions
. IMLLC will not make any Distributions, except as follows (and such exceptions shall not apply if, immediately before,
immediately after or as of the end of the Fiscal Quarter in which any such Distribution shall have occurred, any Default shall have occurred and be continuing): (1) for any Fiscal Year of IMLLC, at or within 30 days before the times when taxes
(or estimated taxes) are due and payable by the ultimate owners of IMLLC (up to and including April 15 of the succeeding calendar year), IMLLC may make Distributions in an aggregate amount not greater than the product of: (A) the highest
tax rate payable on ordinary taxable income under the tax laws of the United States, plus the highest tax rate payable on ordinary taxable income under the tax laws of the State of Colorado, the State of Utah or the State of New Mexico, whichever is
greatest, times (B) the taxable income of IMLLC for such Fiscal Year, to the extent that such taxable income is required to be included in the taxable income of the ultimate owners of IMLLC (or, if such taxable income is not known at such time,
the then-current estimate of such taxable income; provided that when the actual taxable income of IMLLC is determined for any Fiscal Year, an Event of Default shall be deemed to have occurred unless the owners of IMLLC repay to IMLLC, within 30 days
after IMLLC determines that excess Distributions have been made, any Distributions made pursuant to this clause (1) for such Fiscal Year that exceed 110 percent of the amount distributable under this clause (1) for such Fiscal Year, as
calculated using the actual taxable income of IMLLC for such Fiscal Year), (2) IMLLC may make a Distribution at a time when the Cash Flow Leverage Ratio (Distributions) of IMLLC and its Consolidated Affiliates shall not be greater than 2.0:1.0
immediately before and immediately after such Distribution and as of both the beginning and the end of the Fiscal Quarter in which such Distribution shall have occurred, (3) an in-kind Distribution of the membership interests in IOG and/or
IMLLC’s interests in oil and gas leases and related equipment and facilities formerly owned by IOG, or (4) a Distribution of up to 10 percent of the proceeds received by IMLLC from any issuance of equity in IMLLC that occurs within six
months after the date of this Agreement. In calculating the taxable income of IMLLC for purposes of this Section 6.2(m), costs that are capitalized for GAAP purposes but that are passed through to members of IMLLC who then separately elect to
deduct or capitalize such
46
costs on their tax returns, will be deemed to be capitalized and amortized over the statutory period.
(n)
Reorganizations; Combinations
. Except for the conversion of IMLLC to a Delaware limited liability company in accordance with
Section 6.1(e) above, neither any Borrower nor any Guarantor Subsidiary will change its name or the nature of its business, reorganize, liquidate, dissolve or enter into any merger, joint venture, partnership or other combination; provided that
Lenders will not unreasonably withhold their consent to a merger of IPMLLC, IPNMLLC or IPWLLC into IMLLC so long as Borrowers execute and deliver any and all amendments of the Loan Documents reasonably required by Agent, on behalf of Lenders, in
connection therewith and such merger does not, in the reasonable opinion of Lenders, adversely affect the prospects for repayment of either of the Loans.
(o)
Hedging Transactions
. Borrowers and Guarantor Subsidiaries, in the aggregate, will not at any time have entered into or have become party to any one or more Hedging Activities except for: (1) Hedging
Activities in amounts not in excess of 80 percent of the volume, as projected at the times such Hedging Activities are entered into, of Borrowers’ and Guarantor Subsidiaries’ consumption of natural gas, other hydrocarbons or electricity
(timed in accordance with Borrowers’ and Guarantor Subsidiaries’ expected usage rates of natural gas, other hydrocarbons or electricity), according to the then most recent forecasts submitted pursuant to Section 6.1(b)(6) above, as
such forecasts may be modified or supplemented from time to time by notice from Borrowers to Agent; (2) Hedging Activities effectively converting interest rates from floating to fixed or from shorter-term fixed to longer-term fixed, so long as
the notional amounts of such Hedging Activities do not exceed, at the time such Hedging Activities are entered into, the lesser of (A) the forecast aggregate debt level of IMLLC on a Consolidated basis for the time periods covered by such
Hedging Activities, or (B) $120,000,000; (3) Hedging Activities required pursuant to Section 6.1(q) above; and (4) Hedging Activities consented to in writing by Majority Lenders.
(p)
Additional Subsidiaries
. No Borrower shall, nor shall any Borrower permit any of its Subsidiaries to, create or acquire any additional
Subsidiaries (except the Solution Mining Sub) without: (1) the prior written consent of Agent, (2) such new Subsidiary executing and delivering to Agent, at its request, a Guaranty and such other Security Documents, all in form and
substance reasonably satisfactory to Agent, as Agent may reasonably request, (3) the equity holder of such Subsidiary executing and delivering to Agent a Security Document pledging all equity interests in such Subsidiary along with the
certificates pledged thereby, if any, and appropriately executed powers in blank, if applicable, all in form and substance reasonably satisfactory to Agent, and (4) the delivery by Borrowers and each Subsidiary of any certificates, opinions of
counsel, title opinions or other documents as Agent may reasonably request relating to such Subsidiary, all in form and substance reasonably satisfactory to Agent.
47
ARTICLE VII
Events of Default and Remedies
Section 7.1.
Events of Default
. Each of the following
events shall constitute an Event of Default under this Agreement:
(a) Borrowers shall fail to pay any and all of the Obligations when due
and payable, whether at a date for the payment of a fixed installment or of a contingent payment or other payment to Agent or any Lender or as a result of acceleration or otherwise; or
(b) Any “default” or “event of default” shall occur under any Loan Document which defines either term; or
(c) Any Obligated Person shall fail to duly observe, perform or comply with any covenant, agreement, condition or provision of any Loan Document
applicable to such Obligated Person; provided that as to any Default in compliance with an affirmative covenant contained in Section 6.1 hereof (other than a payment default), Agent shall first have given Borrowers notice of such Default and a
reasonable time period (not to exceed 30 days) in which to cure such Default; or
(d) Any representation or warranty previously, presently
or hereafter made in writing by or on behalf of any Obligated Person in connection with any Loan Document shall prove to have been false or incorrect in any material respect on any date on or as of which made; or
(e) Any Obligated Person:
(1) shall suffer
the entry against it of a judgment, decree or order for relief by a court of competent jurisdiction in an involuntary proceeding commenced under any applicable bankruptcy, insolvency or other similar law of any jurisdiction now or hereafter in
effect, including the federal Bankruptcy Code, as from time to time amended, or shall have any such proceeding commenced against it which remains undismissed for a period of 60 days; or
(2) shall suffer the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for a substantial part of its
assets or for any part of the Collateral in a proceeding brought against or initiated by it, and such appointment shall neither be made ineffective nor discharged within 30 days after the making thereof, or such appointment shall be consented to,
requested by or acquiesced to by it; or
(3) shall commence a voluntary case under any applicable bankruptcy, insolvency or similar law
now or hereafter in effect, including the federal Bankruptcy Code, as from time to time amended; or shall apply for or consent to the entry of an order for relief in an involuntary case under any such law or to the appointment of or taking
possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or other similar official of any substantial part of its assets or any part of the Collateral; or shall make a general assignment for the benefit
48
of creditors; or shall fail generally to pay (or shall admit in writing its inability to pay) its debts as such debts become due; or shall take action in
furtherance of any of the foregoing; or
(4) shall suffer the entry against it of a final judgment for the payment of money in excess of
$1,000,000 (not covered by insurance), unless the same shall be discharged within 30 days after the date of entry thereof or an appeal or appropriate proceeding for review thereof shall be taken within such period and a stay of execution pending
such appeal shall be obtained; or
(5) shall suffer the entry of an order issued by any court or tribunal taking, seizing or apprehending
all or any substantial part of its property or any part of the Collateral and bringing the same into the custody of such court or tribunal, and such order shall not be stayed or released within thirty days after the entry thereof; or
(f) Either: (1) any accumulated funding deficiency (as defined in Section 412(a) of the Internal Revenue Code) in excess of $1,000,000 shall
exist with respect to any ERISA Plan, whether or not waived by the Secretary of the Treasury or his delegate, or (2) any Termination Event shall occur with respect to any ERISA Plan and the then current value of such ERISA Plan’s benefit
liabilities exceeds the then current value of such ERISA Plan’s assets available for the payment of such benefit liabilities by more than $1,000,000 (or in the case of a Termination Event involving the withdrawal of a substantial employer, the
withdrawing employer’s proportionate share of such excess shall exceed such amount); or
(g) Any default, after giving effect to any
applicable period of grace, shall occur with respect to any other indebtedness for borrowed money in an amount in excess of $1,000,000 owed by any Obligated Person to any Person; or
(h) The Guaranty executed by any Guarantor shall cease to be in full force and effect and applicable to any and all of the Obligations covered thereby in
accordance with its terms (or any of the foregoing shall be brought into question), whether by operation of law, revocation or attempted revocation or otherwise; or
(i) Any Change in Control shall occur; or
(j) Any material adverse change shall occur in the financial
condition, business or operations of any Borrower, which Lenders shall determine, in their sole discretion, would reasonably be expected to have a Material Adverse Effect.
Section 7.2.
Remedies
. (a) Upon the occurrence of an Event of Default described in any of Sections 7.l(e)(1), 7.l(e)(2) or
7.1(e)(3) above, all of the Obligations shall thereupon be immediately due and payable, without presentment, demand, protest, notice of protest, declaration or notice of acceleration or intention to accelerate, or any other notice or declaration of
any kind, all of which are hereby expressly waived by Borrowers. During the continuance of any other Event of Default, Lenders at any time and from time to time (unless all Events of Default have theretofore been remedied) may deliver a written
notice to Borrowers declaring any or all of the Obligations immediately due and payable, and all such Obligations shall thereupon be immediately due and payable.
49
(b) If any Default or Event of Default shall occur and be continuing, the obligation of Agent and Lenders
to make Advances and to issue Letters of Credit under this Agreement shall be immediately suspended until any such Default or Event of Default shall have been cured. If any Event of Default shall occur, Agent, on behalf of Lenders, may protect and
enforce its rights under the Loan Documents by any appropriate proceedings, including proceedings for specific performance of any covenant or agreement contained in any Loan Document, and Agent, on behalf of Lenders, may enforce the payment of any
Obligations due or enforce any other legal or equitable right. All rights, remedies and powers conferred upon Agent or any Lender under the Loan Documents shall be deemed cumulative and not exclusive of any other rights, remedies or powers available
under the Loan Documents or at law or in equity.
Section 7.3.
Indemnity
. Borrowers hereby agree to indemnify, defend and hold
harmless Agent, Lenders and their respective agents, affiliates, officers, directors, and employees from and against any and all claims, losses, demands, actions, causes of action, and liabilities whatsoever (including without limitation reasonable
attorneys’ fees and expenses, and costs and expenses reasonably incurred in investigating, preparing or defending against any litigation or claim, action, suit, proceeding or demand of any kind or character) arising out of or resulting from:
(a) the Loan Documents (including without limitation the enforcement thereof), except to the extent such claims, losses, and liabilities are proximately caused by Agent’s or any Lender’s gross negligence, bad faith or willful
misconduct, (b) any violation on or prior to the Release Date of any Environmental Law, (c) any act, omission, event or circumstance existing or occurring on or prior to the Release Date (including without limitation the presence on or
release from any property owned or operated by any Borrower of hazardous substances or solid wastes disposed of or otherwise released, resulting from or in connection with the ownership, construction, occupancy, operation, use and/or maintenance of
any such property, regardless of whether the act, omission, event or circumstance constituted a violation of any Environmental Law at the time of its existence or occurrence, and (d) any and all claims or proceedings (whether brought by a
private party or governmental agencies) for bodily injury, property damage, abatement or remediation, environmental damage or impairment or any other injury or damage resulting from or relating to any hazardous or toxic substance, solid waste or
contaminated material located upon or migrating into, from or through any property owned or operated by any Borrower (whether or not the release of such materials was caused by any Borrower, a tenant or subtenant or a prior owner, tenant or
subtenant on any such property and whether or not the alleged liability is attributable to the handling, storage, generation, transportation, removal or disposal of such substance, waste or material or the mere presence of such substance, waste or
material on any such property), for which Agent or any Lender may have liability due to the making of the Loans, the granting of the Security Documents, the exercise of Agent’s or any Lender’s rights under the Loan Documents or otherwise.
WITHOUT LIMITATION, IT IS THE INTENTION OF BORROWERS, AND BORROWERS AGREE, THAT THE FOREGOING INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED PARTY WITH RESPECT TO CLAIMS, DEMANDS, LIABILITIES, LOSSES, DAMAGES, CAUSES OF ACTION, JUDGMENTS, PENALTIES,
COSTS AND EXPENSES (INCLUDING WITHOUT LIMITATION REASONABLE ATTORNEYS’ FEES) WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE NEGLIGENCE (BUT NOT THE GROSS NEGLIGENCE, BAD FAITH OR WILLFUL MISCONDUCT) OF SUCH (AND/OR ANY OTHER)
INDEMNIFIED PARTY. However, such indemnities shall not apply to any particular
50
indemnified party (but shall apply to the other indemnified parties) to the extent the subject of the indemnification is caused by or arises out of the gross
negligence or willful misconduct of such particular indemnified party. The foregoing indemnities shall not terminate upon the Release Date or upon the release, foreclosure or other termination of the Security Documents, but will survive the Release
Date, foreclosure of the Security Documents or conveyances in lieu of foreclosure, and the repayment of the Loans and the discharge and release of the Security Documents and the other documents evidencing and/or, securing the Loans.
ARTICLE VIII
Agent
Section 8.1.
Appointment; Nature of Relationship
. USB is hereby appointed by each of Lenders as Agent hereunder and under each other Loan
Document, and each of Lenders irrevocably authorizes Agent to act as the contractual representative of such Lender with the rights and duties expressly set forth herein and in the other Loan Documents. Agent agrees to act as administrative agent
upon the express conditions contained in this Article VIII. Notwithstanding the use of the defined term “Agent,” it is expressly understood and agreed that Agent shall not have any fiduciary responsibilities to any Lender by reason of this
Agreement or any other Loan Document and that Agent is merely acting as the contractual representative of Lenders with only those duties as are expressly set forth in this Agreement and the other Loan Documents. In its capacity as Agent:
(a) Agent does not assume any fiduciary duties to any of Lenders, (b) Agent is a “representative” of Lenders within the meaning of Section 9-105 of the Uniform Commercial Code, and (c) Agent is acting as an independent
contractor, the rights and duties of which are limited to those expressly set forth in this Agreement and the other Loan Documents. Each of Lenders hereby agrees to assert no claim against Agent on any agency theory or any other theory of liability
for breach of fiduciary duty, all of which claims each Lender hereby waives.
Section 8.2.
Powers
. Agent shall have and may
exercise such powers under the Loan Documents as are specifically delegated to Agent by the terms of each thereof, together with such powers as are reasonably incidental thereto. Agent shall not have any implied duties to Lenders, or any obligation
to Lenders to take any action thereunder except any action specifically provided by the Loan Documents to be taken by Agent.
Section 8.3.
General Immunity
. Neither Agent nor any of Agent’s directors, officers, agents or employees shall be liable to any Borrower or any Lender for any action taken or omitted to be taken by it or them hereunder or
under any other Loan Document or in connection herewith or therewith except to the extent such action or inaction is determined in a final non-appealable judgment by a court of competent jurisdiction to have arisen from the bad faith, gross
negligence or willful misconduct of such Person.
Section 8.4.
No Responsibility for Loans, Recitals, etc
. Neither Agent nor
any of Agent’s directors, officers, agents or employees shall be responsible to any Lender for or have any duty to any Lender to ascertain, inquire into, or verify: (a) any statement, warranty or representation made in connection with any
Loan Document or any borrowing hereunder, (b) the
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performance or observance of any of the covenants or agreements of any obligor under any Loan Document, including any agreement by an obligor to furnish
information directly to each Lender, (c) the satisfaction of any condition specified in Article IV, except for the receipt of items required to be delivered solely to Agent, (d) the existence or possible existence of any Default,
(e) the validity, enforceability, effectiveness, sufficiency or genuineness of any Loan Document or any other instrument or writing furnished in connection therewith, or (f) the financial condition of any Borrower or of any Borrower’s
Subsidiaries. Agent shall not have any duty to disclose to Lenders information that is not required to be furnished by Borrowers to Agent at such time, but is voluntarily furnished by any Borrower to Agent (either in its capacity as Agent or in its
individual capacity).
Section 8.5.
Action on Instructions of Lenders
. Agent shall in all cases be fully protected in acting,
or in refraining from acting, hereunder and under any other Loan Document in accordance with written instructions signed by the Majority Lenders (or, when expressly required hereunder, all Lenders), and such instructions and any action taken or
failure to act pursuant thereto shall be binding on all Lenders. Lenders hereby acknowledge that Agent shall not be under any duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement or any other
Loan Document unless it shall be requested in writing to do so by the Majority Lenders. Agent shall be fully justified in failing or refusing to take any action hereunder and under any other Loan Document unless it shall first be indemnified to its
satisfaction by Lenders (ratably in accordance with their respective Percentage Shares) against any and all liability, cost and expense that it may incur by reason of taking or continuing to take any such action.
Section 8.6.
Employment of Agents and Counsel
. Agent may execute any of its duties as Agent hereunder and under any other Loan Document by or
through employees, agents, and attorneys-in-fact and shall not be answerable to Lenders, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it
with reasonable care. Agent shall be entitled to the advice of counsel concerning the contractual arrangement between Agent and Lenders and all matters pertaining to Agent’s duties hereunder and under any other Loan Document.
Section 8.7.
Reliance on Documents; Counsel
. Agent shall be entitled to rely upon any Note, notice, consent, certificate, affidavit, letter,
telegram, statement, paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to legal matters, upon the opinion of counsel selected by Agent, which counsel may be
employees of Agent.
Section 8.8.
Agent’s Reimbursement and Indemnification
. Lenders agree to reimburse and indemnify
Agent, ratably in accordance with their respective Percentage Shares: (a) for any amounts not reimbursed by Borrowers for which Agent is entitled to reimbursement by Borrowers under the Loan Documents, (b) for any other expenses incurred
by Agent on behalf of Lenders, in connection with the preparation, execution, delivery, administration and enforcement of the Loan Documents (including for any expenses incurred by Agent in connection with any dispute between Agent and any Lender or
between two or more of Lenders), and (c) for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or
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disbursements of any kind and nature whatsoever which may be imposed upon, incurred by or asserted against Agent in any way relating to or arising out of the
Loan Documents or any other document delivered in connection therewith or the transactions contemplated thereby (including for any such amounts incurred by or asserted against Agent in connection with any dispute between Agent and any Lender or
between two or more of Lenders), or the enforcement of any of the terms of the Loan Documents or of any such other documents. THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT CAUSED,
IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY AGENT; PROVIDED ONLY THAT NO LENDER SHALL BE OBLIGATED UNDER THIS SECTION TO INDEMNIFY AGENT FOR THAT PORTION, IF ANY, OF ANY LIABILITIES AND COSTS WHICH IS PROXIMATELY CAUSED BY
AGENT’S OWN INDIVIDUAL GROSS NEGLIGENCE, BAD FAITH OR WILLFUL MISCONDUCT, AS DETERMINED IN A FINAL NON-APPEALABLE JUDGMENT. The obligations of Lenders under this Section 8.8 shall survive payment of the Obligations and termination of this
Agreement.
Section 8.9.
Notice of Default
. Agent shall not be deemed to have knowledge or notice of the occurrence of any
Default hereunder unless Agent has received written notice from a Lender or Borrowers referring to this Agreement describing such Default and stating that such notice is a “notice of default”. In the event that Agent receives such a
notice, Agent shall give prompt notice thereof to Lenders.
Section 8.10.
Rights as a Lender
. In the event Agent is a Lender,
Agent shall have the same rights and powers hereunder and under any other Loan Document with respect to its Commitment and its Loans as any Lender and may exercise the same as though it were not Agent, and the term “Lender” or
“Lenders” shall, at any time when Agent is a Lender, unless the context otherwise indicates, include Agent in its individual capacity. Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of
trust, debt, equity or other transaction, in addition to those contemplated by this Agreement or any other Loan Document, with any Borrower or any Borrower’s Subsidiaries in which such Borrower or such Subsidiary is not restricted hereby from
engaging with any other Person. Agent, in its individual capacity, is not obligated to remain a Lender.
Section 8.11.
Lender
Credit Decision
. Each Lender acknowledges that it has, independently and without reliance upon Agent or any other Lender and based upon the financial statements prepared by Borrowers and such other documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and without reliance upon Agent or any other Lender and based upon such
documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents.
Section 8.12.
Successor Agent
. Agent may resign at any time by giving written notice thereof to Lenders and Borrowers, such resignation to be
effective upon the appointment of a successor Agent, or, if no successor Agent has been appointed, forty-five days after the retiring Agent gives notice of its intention to resign. Upon any resignation of Agent, the Majority
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Lenders shall have the right (with, so long as no Default exists, the consent of Borrowers, which shall not be unreasonably withheld) to appoint, on behalf
of Borrowers and Lenders, a successor Agent. If no successor Agent shall have been so appointed by the Majority Lenders within thirty days after the resigning Agent’s giving notice of its intention to resign, then the resigning Agent may
appoint, on behalf of Borrowers and Lenders, a successor Agent. Notwithstanding the previous sentence, Agent may at any time without the consent of any Lender and with the consent of Borrowers, not to be unreasonably withheld or delayed, appoint any
of its Affiliates which is a commercial bank as a successor Agent hereunder. If Agent has resigned or been removed and no successor Agent has been appointed, Lenders may perform all the duties of Agent hereunder and Borrowers shall make all payments
in respect of the Obligations to the applicable Lender and for all other purposes shall deal directly with Lenders. No successor Agent shall be deemed to be appointed hereunder until such Agent has accepted the appointment. Any such successor Agent
shall be a commercial bank having capital and retained earnings of at least $100,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the resigning Agent. Upon the effectiveness of the resignation or removal of Agent, the resigning Agent shall be discharged from its duties and obligations hereunder and under the Loan Documents. After the
effectiveness of the resignation of Agent, the provisions of this Article VIII shall continue in effect for the benefit of the such Person in respect of any actions taken or omitted to be taken by such Person while such Person was acting as Agent
hereunder and under the other Loan Documents. In the event that there is a successor to Agent by merger, or Agent assigns its duties and obligations to an Affiliate pursuant to this Section 8.12, then the term “Prime Rate” as used in
this Agreement shall mean the prime rate, base rate or other analogous rate of the new Agent.
Section 8.13.
Delegation to
Affiliates
. Borrowers and Lenders agree that Agent may delegate any of its duties under this Agreement to any of its respective Affiliates. Any such Affiliate (and such Affiliate’s directors, officers, agents and employees) which performs
duties in connection with this Agreement shall be entitled to the same benefits of the indemnification, waiver and other protective provisions to which Agent is entitled under Articles VII and VIII.
Section 8.14.
Other Agents
. No Lender identified on the cover page or the signature pages of this Agreement or otherwise herein, or in any
amendment hereof or other document related hereto, as being the “Syndication Agent”, a “Co-Documentation Agent”, a “Managing Agent” or a “Co-Agent” shall have any right, power, obligation, liability,
responsibility or duty under this Agreement in such capacity other than those applicable to all Lenders. Each Lender acknowledges that it has not relied, and will not rely, on any Person so identified in deciding to enter into this Agreement or in
taking or refraining from taking any action hereunder or pursuant hereto.
Section 8.15.
Withholding and Withholding
Certificates
. Lenders agree that Agent shall deduct and withhold from payments made to Lenders such amounts as are required under applicable United States federal income tax Laws and state or local tax Laws. The amount to be deducted and
withheld by Agent may be reduced or eliminated if, prior to any payment each Lender has provided Agent with any and all appropriate withholding forms as described in Section 3.7 above.
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Section 8.16.
Decisions by Lenders
. Notwithstanding anything to the contrary contained
herein, any and all decisions to be made and actions to be taken by Lenders hereunder or under any of the Loan Documents (including without limitation any consent in connection with, waiver of or amendment to, any covenant or any acceleration of the
maturity of any of the Loans) may be made or taken by Majority Lenders on behalf of all Lenders; provided that the agreement of Lenders holding Percentage Shares of 100 percent shall be required in order to: (a) waive or consent to any default
in the timely payment of principal or interest, (b) approve any release of any of the Collateral, (c) change any interest rate or fee payable with respect to the applicable Loan, (d) increase the Aggregate Lenders’ Commitment,
(e) change the Percentage Share (Revolving), the Percentage Share (Term) or the Percentage Share of any Lender or the Commitment of any Lender (other than by a transfer involving such Lender made in accordance with this Article VIII) or the
definition of Majority Lenders, (f) extend the Maturity Date (Revolving) or the Maturity Date (Term), or (g) consent to any Distribution by IMLLC.
Section 8.17.
Benefit of Article VIII
. The provisions of this Article are intended solely for the benefit of Agent and Lenders, and no Obligated Person shall be entitled to rely on any such provision or
assert any such provision in a claim or defense against Agent or any Lender. Agent and Lenders may waive or amend such provisions as they desire without any notice to or consent of any Obligated Person; provided that any such waiver or amendment
shall not impose on any Obligated Person any additional liability, obligation or requirement.
ARTICLE IX
Setoff; Ratable Payments
Section 9.1.
Setoff
. In addition to, and without limitation of, any rights of Lenders under applicable law, if any Borrower becomes insolvent, however evidenced, or any Default occurs, any and all deposits (including all account
balances, whether provisional or final and whether or not collected or available) and any other Debt at any time held or owing by any Lender or any Affiliate of any Lender to or for the credit or account of any Borrower may be offset and applied
toward the payment of the Obligations owing to such Lender, whether or not the Obligations, or any part thereof, shall then be due.
Section 9.2.
Ratable Payments
. If any Lender, whether by setoff or otherwise, has payment made to it upon its share of the Loans (other than payments received pursuant to Article II above) in a greater proportion than that
received by any other Lender, such Lender agrees, promptly upon demand, to purchase a portion of the Loans held by the other Lenders so that after such purchase each Lender will hold its proper share of all Loans. If any Lender, whether in
connection with setoff or amounts which might be subject to setoff or otherwise, receives collateral or other protection for its Obligations or such amounts which may be subject to setoff, such Lender agrees, promptly upon demand, to take such
action necessary such that all Lenders share in the benefits of such collateral ratably in proportion to their proper shares of the Loans. In case any such payment is disturbed by legal process, or otherwise, appropriate further adjustments shall be
made.
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ARTICLE X
Benefit of Agreement; Assignments; Participations
Section 10.1.
Successors and Assigns
.
The terms and provisions of the Loan Documents shall be binding upon and shall inure to the benefit of Agent, Borrowers and Lenders and their respective successors and assigns, except that: (a) no Borrower shall have the right to assign its
rights or obligations under the Loan Documents and (b) any assignment by any Lender must be made in compliance with Section 10.3. The parties to this Agreement acknowledge that clause (b) of the foregoing sentence relates only to
absolute assignments and does not prohibit assignments creating security interests, including any pledge or assignment by any Lender of all or any portion of its rights under this Agreement and any Note to a Federal Reserve Bank; provided that no
such pledge or assignment creating a security interest shall release the transferor Lender from its obligations hereunder unless and until the parties thereto have complied with the provisions of Section 10.3. Agent may treat the Person which
made any Loan or which holds any Note as the owner thereof for all purposes hereof unless and until such Person complies with Section 10.3; provided that Agent may in its discretion (but shall not be required to) follow instructions from the
Person which made any Loan or which holds any Note to direct payments relating to such Loan or Note to another Person. Any assignee of the rights to any Loan or any Note agrees by acceptance of such assignment to be bound by all of the terms and
provisions of this Agreement and any and all other Loan Documents. Any request, authority or consent of any Person, who at the time of making such request or giving such authority or consent is the owner of the rights to any Loan (whether or not a
Note has been issued in evidence thereof), shall be conclusive and binding upon any subsequent holder or assignee of the rights to such Loan.
Section 10.2.
Participations
. (a) Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more banks or other Persons (“Participants”) participating
interests in any Loan owing to such Lender, any Note held by such Lender, any Commitment of such Lender or any other interest of such Lender under this Agreement or any other Loan Documents. In the event of any such sale by a Lender of a
participating interest to a Participant, such Lender’s obligations under this Agreement and the other Loan Documents shall remain unchanged, such Lender shall remain solely responsible to the other parties hereto for the performance of such
obligations, such Lender shall remain the owner of its Loans and the holder of any Note issued to it in evidence thereof for all purposes under this Agreement and the other Loan Documents, all amounts payable by Borrowers under this Agreement shall
be determined as if such Lender had not sold such participating interests, and Borrowers and Agent shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement and the
other Loan Documents.
(b) Each Lender shall retain the sole right to approve, without the consent of any Participant, any amendment,
modification or waiver of any provision of this Agreement and any and all other Loan Documents.
Section 10.3.
Assignments
. (a)
Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time assign to one or more banks or other Persons
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(“Purchasers”) all or any part of its rights and obligations under this Agreement and the other Loan Documents. Any such assignment shall be made
in the form of Exhibit H attached hereto and made part hereof. The consents of Borrowers and Agent (which consents shall not be unreasonably withheld or delayed by any such party) shall be required prior to an assignment becoming effective with
respect to a Purchaser which is not a Lender or an Affiliate thereof; provided that if an Event of Default shall have occurred and shall be continuing, the consent of Borrowers shall not be required; provided, further, that no assignment shall be
permitted if, as of the date thereof, any event or circumstance exists that would result in Borrowers being obligated to pay any greater amount hereunder to the Purchaser than Borrowers are obligated to pay to the assigning Lender. Each such
assignment with respect to a Purchaser which is not a Lender or an Affiliate thereof shall (unless Borrowers and Agent otherwise consent) be in an amount not less than the lesser of: (1) $5,000,000 or (2) the entire remaining amount of the
assigning Lender’s Commitment (Revolving) or Commitment (Term) and any and all outstanding Loans and participations in Letters of Credit.
(b) Upon: (1) delivery to Agent of an assignment, together with any consents required by Section 10.3(a), and (2) payment of a $3,500 fee to Agent for processing such assignment, such assignment shall become effective on the
effective date specified in such assignment. On and after the effective date of such assignment, such Purchaser shall for all purposes be a Lender party to this Agreement and any other Loan Document executed by or on behalf of Lenders and shall have
all the rights and obligations of a Lender under this Agreement and the other Loan Documents, to the same extent as if it were an original party hereto, and no further consent or action by Borrowers, Lenders or Agent shall be required to release the
transferor Lender with respect to the portion of the Loans and the Commitment assigned to such Purchaser. Upon the consummation of any assignment to a Purchaser pursuant to this Section 10.3(b), the transferor Lender, Agent and Borrowers shall
make appropriate arrangements so that a replacement Note is issued to such transferor Lender and a new Note or, as appropriate, a replacement Note, is issued to such Purchaser, in each case in the appropriate face amounts to reflect the adjustments
in their respective Commitments.
Section 10.4.
Dissemination of Information
. Borrowers authorize each Lender to disclose to
any Participant or Purchaser or any other Person acquiring an interest in the Loan Documents by operation of law (each a “Transferee”) and any prospective Transferee any and all information in such Lender’s possession concerning the
creditworthiness of Borrowers and their Subsidiaries, including any information contained in any reports delivered hereunder.
ARTICLE XI
Miscellaneous
Section 11.1.
Waiver and Amendment
. No failure or delay by Agent or any Lender in exercising any right, power or remedy which it may have under any of the Loan Documents shall operate as a waiver thereof or of any other right,
power or remedy, nor shall any single or partial exercise by Agent or any Lender of any such right, power or remedy preclude any other or further exercise thereof or of any other right, power or remedy. No waiver of any provision of any Loan
Document and no consent to any departure therefrom shall ever be effective against
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Agent or Lenders unless it is in writing and signed by Agent and Lenders, and then such waiver or consent shall be effective only in the specific instances
and for the purposes for which given and to the extent specified in such writing. No notice to or demand on Borrowers shall in any case of itself entitle Borrowers to any other or further notice or demand in similar or other circumstances. No
modification or amendment of or supplement to this Agreement or the other Loan Documents shall be valid or effective unless the same is in writing and signed by the party against whom it is sought to be enforced.
Section 11.2.
Survival of Agreements; Cumulative Nature
. All of Borrowers’ various representations, warranties, covenants and agreements
in the Loan Documents shall survive the execution and delivery of this Agreement and the other Loan Documents and the performance hereof and thereof, including without limitation the making or granting of either of the Loans and the delivery of the
Notes and the other Loan Documents, and shall further survive until all of the Obligations are paid in full to each Lender and all of Agent’s and each Lender’s obligations to Borrowers are terminated. All statements and agreements
contained in any certificate or other instrument delivered to Agent or any Lender under any Loan Document shall be deemed representations and warranties by Borrowers to Agent, on behalf of Lenders, and/or agreements and covenants of Borrowers under
this Agreement. The representations, warranties, and covenants made by the Obligated Persons in the Loan Documents, and the rights, powers, and privileges granted to Agent or any Lender in the Loan Documents, are cumulative, and no Loan Document
shall be construed in the context of another to diminish, nullify, or otherwise reduce the benefit to Agent or any Lender of any such representation, warranty, covenant, right, power or privilege. In particular and without limitation, no exception
set out in this Agreement to any representation, warranty or covenant herein contained shall apply to any similar representation, warranty or covenant contained in any other Loan Document, and each such similar representation, warranty or covenant
shall be subject only to those exceptions which are expressly made applicable to it by the terms of the various Loan Documents.
Section 11.3.
Notices
. All notices, requests, consents, demands and other communications required or permitted under any Loan Document shall be in writing and, unless otherwise specifically provided in such Loan Document, shall
be deemed sufficiently given or furnished if delivered by personal delivery, by facsimile, by expedited delivery service with proof of delivery, or by registered or certified United States mail, return receipt requested, postage prepaid, at the
address specified for Borrower in the Disclosure Schedule or the address provided for Agent or any Lender in Schedule I attached hereto and made a part hereof (unless changed by similar notice in writing given by the Person whose address is to be
changed). Any such notice or communication shall be deemed to have been given upon receipt.
Section 11.4.
Joint and Several
Liability; Parties in Interest
. All obligations of Borrowers hereunder shall be the joint and several, and not merely joint, obligations of each Borrower. All grants, covenants and agreements contained in the Loan Documents shall bind and inure
to the benefit of the parties thereto and their respective permitted successors and assigns.
Section 11.5.
Governing Law
. The
Loan Documents shall be deemed contracts and instruments made under the laws of the State of Colorado and shall be construed and enforced in
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accordance with and governed by the laws (other than choice-of-law rules) of the State of Colorado and the laws of the United States of America, except:
(a) to the extent that the law of another jurisdiction is expressly elected in a Loan Document, and (b) with respect to specific Liens, or the perfection thereof, evidenced by Security Documents covering real or personal property which by
the laws applicable thereto are required to be construed under the laws of another jurisdiction. Each Borrower hereby irrevocably submits itself to the non-exclusive jurisdiction of the state and federal courts of the State of Colorado.
Section 11.6.
Limitation on Interest
. Agent, Lenders and Borrowers intend to contract in strict compliance with applicable usury law from
time to time in effect. In furtherance thereof such persons stipulate and agree that none of the terms and provisions contained in the Loan Documents shall ever be construed to create a contract to pay, for the use, forbearance or detention of
money, interest in excess of the maximum amount of interest permitted to be charged by applicable law from time to time in effect. No Obligated Person shall ever be liable for unearned interest thereon or shall ever be required to pay interest
thereon in excess of the maximum amount that may be lawfully charged under applicable law from time to time in effect, and the provisions of this Section 11.6 shall control over all other provisions of the Loan Documents which may be in
conflict or apparent conflict herewith. Each of Agent and Lenders expressly disavows any intention to charge or collect excessive unearned interest or finance charges in the event the maturity of any Obligation is accelerated. If: (a) the
maturity of any Obligation is accelerated for any reason, (b) any Obligation is prepaid and as a result any amounts held to constitute interest are determined to be in excess of the legal maximum, or (c) any Lender or any other holder of
any or all of the Obligations shall otherwise collect moneys which are determined to constitute interest which would otherwise increase the interest on any or all of the Obligations to an amount in excess of that permitted to be charged by
applicable law then in effect, then all such sums determined to constitute interest in excess of such legal limit shall, without penalty, be promptly applied to reduce the then outstanding principal of the related Obligations or, at Agent’s
option, promptly returned to Borrowers or the other payor thereof upon such determination.
Section 11.7.
Waiver of Jury Trial,
Punitive Damages, etc
. EACH OF THE OBLIGATED PERSONS, AGENT AND LENDERS HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY: (a) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THE LOAN DOCUMENTS OR ANY TRANSACTION CONTEMPLATED THEREBY OR ASSOCIATED THEREWITH, BEFORE OR AFTER MATURITY; (b) WAIVES,
TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (c) CERTIFIES
THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND
(d) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO
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THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS
CONTAINED IN THIS SECTION.
Section 11.8.
USA Patriot Act
. Each Lender that is subject to the USA Patriot Act and Agent (for
itself and not on behalf of any Lender) hereby notifies each Borrower that, pursuant to the requirements of the USA Patriot Act, it is required to obtain, verify and record information that identifies such Borrower, which information includes the
name and address of such Borrower and other information that will allow such Lender or Agent, as applicable, to identify such Borrower in accordance with the USA Patriot Act.
Section 11.9.
Release
. Upon full payment and satisfaction of the Loans and all other amounts due in connection therewith as provided herein,
the parties shall thereupon automatically each be fully, finally and forever released and discharged from any further claim, liability or obligation in connection with the Loans, except that the indemnities contained in Sections 7.3 and 8.8 above
shall survive.
Section 11.10.
Severability
. If any term or provision of any Loan Document shall be determined to be illegal or
unenforceable, all other terms and provisions of the Loan Documents shall nevertheless remain effective and shall be enforced to the full extent permitted by applicable law.
Section 11.11.
Counterparts
. This Agreement may be separately executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to constitute one and the same Agreement.
Section 11.12.
Conflicts
. To the extent of any irreconcilable conflicts between the provisions of this Agreement and the provisions of any of the other Loan Documents, the provisions of this Agreement shall prevail.
Section 11.13.
Entire Agreement
. This Agreement, the Notes, the Security Documents and the other Loan Documents from time to time executed in
connection herewith state the entire agreement between the parties with respect to the subject matter hereof.
Section 11.14.
Facsimile Delivery
. Delivery of this Agreement and any and all other documents to be delivered in connection with this Agreement by any party other than Agent may be effected, without limitation, by faxing a signed counterpart of the
signature page of this Agreement or such other document to Agent (any party that effects delivery in such manner hereby agreeing to transmit promptly to Agent actual signed counterparts in such number as Agent may require).
Section 11.15.
Supersession
. At the time of the Initial Advance, the terms and provisions of this Agreement and the Notes shall supersede the
terms and provisions of the Existing USB Credit Agreement, the Existing USB Note and the related documents evidencing the Existing USB Loan in their entirety; provided that, except as specifically amended and restated by any of the Security
Documents, the security documents executed and delivered in
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connection with the Existing USB Credit Agreement shall remain in full force and effect and shall secure the Obligations.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Agreement is executed as of the date first written above.
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BORROWERS:
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INTREPID MINING LLC
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By:
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/s/ Hugh E. Harvey, Jr.
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Hugh E. Harvey, Jr.
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Manager
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INTREPID POTASH-MOAB, LLC
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By:
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/s/ Hugh E. Harvey, Jr.
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Hugh E. Harvey, Jr.
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Manager
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INTREPID POTASH-NEW MEXICO, LLC
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By:
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/s/ Hugh E. Harvey, Jr.
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Hugh E. Harvey, Jr.
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Manager
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INTREPID POTASH-WENDOVER, LLC
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By:
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/s/ Hugh E. Harvey, Jr.
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Hugh E. Harvey, Jr.
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Manager
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AGENT:
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U.S. BANK NATIONAL ASSOCIATION
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|
By:
|
|
/s/ Mark E. Thompson
|
|
|
|
Mark E. Thompson
|
|
|
|
Senior Vice President
|
62
|
|
|
|
|
LENDERS:
|
|
|
|
U.S. BANK NATIONAL ASSOCIATION
|
|
|
|
|
By:
|
|
/s/ Mark E. Thompson
|
|
|
|
Mark E. Thompson
|
|
|
|
Senior Vice President
|
63
Exhibit 10.8
FIRST AMENDMENT OF
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT OF THIRD AMENDED AND RESTATED CREDIT AGREEMENT (this “Amendment”), dated as of May 23, 2007, is by and among INTREPID
MINING LLC, a Colorado limited liability company (“IMLLC”), INTREPID POTASH-MOAB, LLC, a Delaware limited liability company (“IPMLLC”), INTREPID POTASH-NEW MEXICO, LLC, a New Mexico limited liability company
(“IPNMLLC”), INTREPID POTASH-WENDOVER, LLC, a Colorado limited liability company (“IPWLLC”), U.S. BANK NATIONAL ASSOCIATION, a national banking association (“USB”), in its capacity as lead arranger and Agent
(“Agent”), and the Lender referred to below.
RECITALS
A. IMLLC, IPMLLC, IPNMLLC and IPWLLC (“Borrowers”), Agent and USB, in its capacity as the sole lender thereunder (“Lender”), are
parties to a Third Amended and Restated Credit Agreement dated as of March 9, 2007 (the “Credit Agreement”).
B. Borrowers,
Agent and Lender desire that this Amendment be executed and delivered in order to amend certain terms and provisions of the Credit Agreement.
AMENDMENT
NOW, THEREFORE, in consideration of $10.00 and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
|
|
1.
|
Credit Agreement.
The Credit Agreement shall be, and hereby is, amended as follows as of the date hereof:
|
|
|
a.
|
The following shall be substituted for the definition of “Aggregate Lenders’ Commitment (Revolving)” in Section 1.1 on page 2 of the Credit Agreement:
|
“
Aggregate Lenders’ Commitment (Revolving)
” means, at any time, the sum of the
Commitments (Revolving) of all Lenders at that time; provided that, upon the request of Borrowers, unless Agent is aware, either at the time of such request or at any time prior to its implementation, of the occurrence and continuation of an uncured
Event of Default, Agent may agree to increase said amount to a maximum of $125,000,000, so long as Agent is able to obtain sufficient additional Commitments (Revolving) from Lenders (including then-existing Lenders and third parties willing to
become Lenders hereunder) to fund any such increase.
1
|
|
b.
|
In lines 3 and 4 of the definition of “Collateral” in Section 1.1 on page 4 of the Credit Agreement, “or of any Borrower” shall be deleted.
|
|
|
c.
|
The following shall be substituted for the definition of “Commitment (Revolving)” in Section 1.1 on page 4 of the Credit Agreement:
|
“
Commitment (Revolving)
” means, at any time, for any Lender: (a) such Lender’s Initial Commitment (Revolving),
plus (b) any portion of any other Lender’s Initial Commitment (Revolving) that has been assigned to such Lender pursuant to Section 10.3 below, plus (c) the portion, if any, of any and all increases in the Aggregate Lenders’
Commitment (Revolving) that such Lender has agreed to fund, minus (d) any portion of such Lender’s Initial Commitment (Revolving) that it has assigned to any other Lender pursuant to Section 10.3 below, minus (e) any reduction in
such Lender’s Commitment (Revolving) pursuant to Section 2.6 below.
|
|
d.
|
The following shall be substituted for the definition of “Guarantor Subsidiary” in Section 1.1 on page 8 of the Credit Agreement:
|
“
Guarantor Subsidiary
” means either of the Initial Guarantors or any other Subsidiary that has been requested to execute
a Guaranty and/or any Security Document as provided in Section 6.2(p) below.
|
|
e.
|
“Initial Commitment (Revolving)” shall be substituted for “Initial Commitment (Revolver)” in lines 1 and 2 of the first full paragraph on page 9 of the Credit
Agreement.
|
|
|
f.
|
In line 11 of the definition of “Mandatory Prepayment Amounts” in Section 1.1 on page 11 of the Credit Agreement, “not later than six months after the date of
transfer” shall be inserted just prior to the comma after the word “transferred”.
|
|
|
g.
|
The following shall be substituted for clause (b) of the definition of “Mandatory Prepayment Amounts” in Section 1.1 on page 11 of the Credit Agreement:
|
(b) 50 percent of the net cash proceeds received by any Borrower upon the issuance of any subordinated debt
or equity securities (excluding the proceeds of the sale of approximately 20 percent of the equity in IMLLC to Platte River Ventures or an affiliate thereof for approximately $39,000,000 on or before August 31, 2007), except to the extent that
such net cash proceeds are used for the Solution Mining Project.
|
|
h.
|
In line 2 of Section 2.2(a) on page 19 of the Credit Agreement, “Initial Commitment (Term)” shall be substituted for “Percentage Share (Term)”.
|
|
|
i.
|
In line 1 of Section 3.4(b) on page 24 of the Credit Agreement, “ratable account of Lenders having Commitments (Revolving)” shall be substituted for “account of
Lenders”.
|
2
|
|
j.
|
The open parenthesis at the beginning of line 2 of Section 3.5(a) on page 25 of the Credit Agreement shall be deleted.
|
|
|
k.
|
The following shall be inserted at the end of Section 6.1(b)(6) on page 37 of the Credit Agreement: “provided that other information satisfactory to Agent may be submitted
by Borrowers in lieu of the internally-prepared twenty-year mine plan due by March 30, 2007;”.
|
|
|
l.
|
In line 4 of Section 7.1(c) on page 48 of the Credit Agreement, “or a default under Section 6.1(d)(2) above” shall be inserted just prior to the closed
parenthesis.
|
|
|
m.
|
In line 1 of Section 7.1(h) on page 49 of the Credit Agreement, “or any Security Document” shall be inserted just after the word “Guarantor”.
|
|
|
n.
|
In line 3 of Section 7.3 on page 50 of the Credit Agreement, “obligations, damages, penalties, judgments, suits, costs, expenses, disbursements,” shall be inserted
just after the word “all”.
|
|
|
o.
|
In line 27 of Section 7.3 on page 50 of the Credit Agreement, “, and (e) matters as to which any or all Lenders are required to indemnify Agent pursuant to
Section 8.8 below” shall be inserted just prior to the period after the word “otherwise”.
|
|
|
p.
|
In line 8 of Section 8.16 on page 55 of the Credit Agreement, “or any Guarantor” shall be inserted just prior to the comma after the word “Collateral”.
|
|
|
q.
|
In lines 1 and 2 of Section 10.2(b) on page 56 of the Credit Agreement, “, without the consent of any Participant,” shall be deleted.
|
|
|
r.
|
Schedule I attached hereto shall be substituted for Schedule I originally attached to the Credit Agreement.
|
|
|
2.
|
Loan Documents.
All references in any document to the Credit Agreement shall be deemed to refer to the Credit Agreement, as amended pursuant to this Amendment.
|
|
|
3.
|
Certification by Borrowers.
Borrowers hereby certify to Agent and Lender that, as of the date of this Amendment: (a) all of Borrowers’ representations and
warranties contained in the Credit Agreement are true, accurate and complete in all material respects, (b) Borrowers have performed and complied with all agreements and conditions required to be performed or complied with by them under the
Credit Agreement and/or any Loan Document on or prior to this date, and (c) no Default or Event of Default has occurred and is continuing under the Credit Agreement.
|
|
|
4.
|
Continuation of the Credit Agreement.
Except as specified in this Amendment, the provisions of the Credit Agreement shall remain in full force and effect, and if there is a
conflict between the terms of this Amendment and those of the Credit Agreement or any other document executed and delivered in connection therewith, the terms of this Amendment shall control.
|
3
|
|
5.
|
Miscellaneous.
This Amendment shall be governed by and construed under the laws of the State of Colorado and shall be binding upon and shall inure to the benefit of the
parties hereto and their successors and assigns. This Amendment may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.
|
EXECUTED as of the date first above written.
|
|
|
|
|
BORROWERS:
|
|
|
|
INTREPID MINING LLC
|
|
|
|
|
By:
|
|
/s/ Hugh E. Harvey, Jr.
|
|
|
|
Hugh E. Harvey, Jr.
|
|
|
|
Manager
|
|
|
|
INTREPID POTASH-MOAB, LLC
|
|
|
|
|
By:
|
|
/s/ Hugh E. Harvey, Jr.
|
|
|
|
Hugh E. Harvey, Jr.
|
|
|
|
Manager
|
|
|
|
INTREPID POTASH-NEW MEXICO, LLC
|
|
|
|
|
By:
|
|
/s/ Hugh E. Harvey, Jr.
|
|
|
|
Hugh E. Harvey, Jr.
|
|
|
|
Manager
|
|
|
|
INTREPID POTASH-WENDOVER, LLC
|
|
|
|
|
By:
|
|
/s/ Hugh E. Harvey, Jr.
|
|
|
|
Hugh E. Harvey, Jr.
|
|
|
|
Manager
|
|
|
|
AGENT AND LENDER:
|
|
|
|
U.S. BANK NATIONAL ASSOCIATION
|
4
|
|
|
|
|
By:
|
|
/s/ Mark E. Thompson
|
|
|
|
Mark E. Thompson
|
|
|
|
Senior Vice President
|
|
|
|
|
|
CONSENTED AND AGREED TO BY THE UNDERSIGNED, AS GUARANTORS:
|
|
|
|
MOAB GAS PIPELINE, LLC
|
|
|
|
|
By:
|
|
/s/ Hugh E. Harvey, Jr
|
|
|
|
Hugh E. Harvey, Jr.
|
|
|
|
Manager
|
|
|
|
HB POTASH LLC
|
|
|
|
|
By:
|
|
/s/ Hugh E. Harvey, Jr
|
|
|
|
Hugh E. Harvey, Jr.
|
|
|
|
Manager
|
5
SCHEDULE I
LENDERS’ COMMITMENTS AND OTHER LENDER/AGENT DATA
A. INITIAL LENDER AND COMMITMENTS AS OF MARCH 9,
2007:
|
|
|
|
|
|
|
|
|
Initial Lender and Address
|
|
Initial
Commitment
(Revolving)
|
|
Initial
Commitment
(Term)
|
|
U.S. Bank National Association
1420 Fifth Avenue
Seattle, Washington 98101
Attention: Rick D. Arnold
Telephone: 206-344-5398
Telefax: 206-587-7022
|
|
$
|
100,000,000
|
|
$
|
50,000,000
|
|
|
|
|
|
with a copy to:
950 Seventeenth Street, 8
th
Floor
DN-CO-T8E
Denver, Colorado 80202
Attention: Mark E. Thompson
Telephone: 303-585-4213
Telefax: 303-585-4362
|
|
|
|
|
|
|
B. LENDERS AND COMMITMENTS AS OF MAY 31, 2007:
|
|
|
|
|
|
|
|
|
Lender and Address
|
|
Commitment
(Revolving)
|
|
Commitment
(Term)
|
|
|
|
|
|
U.S. Bank National Association
1420 Fifth Avenue
Seattle, Washington 98101
Attention: Rick D. Arnold
Telephone: 206-344-5398
Telefax: 206-587-7022
|
|
$
|
33,333,333.33
|
|
$
|
16,666,666.67
|
|
|
|
|
|
with a copy to:
950 Seventeenth Street, 8
th
Floor
DN-CO-T8E
Denver, Colorado 80202
Attention: Mark E. Thompson
Telephone: 303-585-4213
Telefax: 303-585-4362
|
|
|
|
|
|
|
Schedule I-1
|
|
|
|
|
|
|
|
|
Lender and Address
|
|
Commitment-
(Revolving)
|
|
Commitment
(Term)
|
|
Cooperatieve Centrale
|
|
|
|
|
|
|
|
Raiffeisen-Boerenleenbank B.A.,
|
|
|
|
|
|
|
|
“Rabobank Nederland”
|
|
|
|
|
|
|
|
New York Branch
|
|
$
|
20,000,000.00
|
|
$
|
10,000,000.00
|
|
123 North Wacker Drive
|
|
|
|
|
|
|
|
Suite 2100
|
|
|
|
|
|
|
|
Chicago, Illinois 60606
|
|
|
|
|
|
|
|
Attention: John Church
|
|
|
|
|
|
|
|
Telephone: 312-408-8249
|
|
|
|
|
|
|
|
Telefax: 312-408-8240
|
|
|
|
|
|
|
|
|
|
|
|
with a copy to:
|
|
|
|
|
|
|
|
123 North Wacker Drive
|
|
|
|
|
|
|
|
Suite 2100
|
|
|
|
|
|
|
|
Chicago, Illinois 60606
|
|
|
|
|
|
|
|
Attention: Denise DeMarco
|
|
|
|
|
|
|
|
Telephone: 312-408-8223
|
|
|
|
|
|
|
|
Telefax: 312-408-8240
|
|
|
|
|
|
|
|
|
|
|
|
Farm Credit Services of
|
|
|
|
|
|
|
|
Minnesota Valley, PCA
|
|
|
|
|
|
|
|
d/b/a FCS Commercial
|
|
|
|
|
|
|
|
Finance Group
|
|
$
|
13,333,333.33
|
|
$
|
6,666,666.67
|
|
600 South Highway 169
|
|
|
|
|
|
|
|
Suite 850
|
|
|
|
|
|
|
|
Minneapolis, Minnesota 55426
|
|
|
|
|
|
|
|
Attention: Dan Best
|
|
|
|
|
|
|
|
Telephone: 952-513-0326, ext 307
|
|
|
|
|
|
|
|
Telefax: 952-513-9956
|
|
|
|
|
|
|
|
|
|
|
|
with a copy to:
|
|
|
|
|
|
|
|
375 Jackson Street
|
|
|
|
|
|
|
|
St. Paul, Minnesota 55101
|
|
|
|
|
|
|
|
Attention: Jessica Hewitt
|
|
|
|
|
|
|
|
Telephone: 651-282-8667
|
|
|
|
|
|
|
|
Telefax: 651-282-8777
|
|
|
|
|
|
|
|
|
|
|
|
Guaranty Bank and Trust Company
|
|
$
|
16,666,666.67
|
|
$
|
8,333,333.33
|
|
1331 Seventeenth Street
|
|
|
|
|
|
|
|
Denver, Colorado 80202
|
|
|
|
|
|
|
|
Attention: Gail J. Nofsinger
|
|
|
|
|
|
|
|
Telephone: 303-293-5521
|
|
|
|
|
|
|
|
Telefax: 303-675-1130
|
|
|
|
|
|
|
Schedule I-2
|
|
|
|
|
|
|
|
|
Lender and Address
|
|
Commitment-
(Revolving)
|
|
Commitment
(Term)
|
|
with a copy to:
|
|
|
|
|
|
|
|
1331 Seventeenth Street
|
|
|
|
|
|
|
|
Denver, Colorado 80202
|
|
|
|
|
|
|
|
Attention: Lauren Cooper
|
|
|
|
|
|
|
|
Telephone: 303-293-5537
|
|
|
|
|
|
|
|
Telefax: 303-675-1130
|
|
|
|
|
|
|
|
|
|
|
|
United Western Bank
|
|
$
|
10,000,000.00
|
|
$
|
5,000,000.00
|
|
700 Seventeenth Street
|
|
|
|
|
|
|
|
Suite 100
|
|
|
|
|
|
|
|
Denver, Colorado 80202
|
|
|
|
|
|
|
|
Attention: Steve Emmons
|
|
|
|
|
|
|
|
Telephone: 720-956-6597
|
|
|
|
|
|
|
|
Telefax: 720-932-3974
|
|
|
|
|
|
|
|
|
|
|
|
with a copy to:
|
|
|
|
|
|
|
|
700 Seventeenth Street
|
|
|
|
|
|
|
|
Suite 100
|
|
|
|
|
|
|
|
Denver, Colorado 80202
|
|
|
|
|
|
|
|
Attention: Betty A. Nichols
|
|
|
|
|
|
|
|
Telephone: 720-956-5570
|
|
|
|
|
|
|
|
Telefax: 720-932-9780
|
|
|
|
|
|
|
|
|
|
|
|
Vectra Bank Colorado National Association
|
|
$
|
6,666,666.67
|
|
$
|
3,333,333.33
|
|
2000 S. Colorado Blvd.
|
|
|
|
|
|
|
|
Suite 2-1200
|
|
|
|
|
|
|
|
Denver, Colorado 80222
|
|
|
|
|
|
|
|
Attention: Brad Elliott
|
|
|
|
|
|
|
|
Telephone: 720-947-7789
|
|
|
|
|
|
|
|
Telefax: 720-947-7654
|
|
|
|
|
|
|
|
|
|
|
|
with a copy to:
|
|
|
|
|
|
|
|
361 West Highway 24
|
|
|
|
|
|
|
|
Woodland Park, Colorado 80866
|
|
|
|
|
|
|
|
Attention: Sandra Westfall
|
|
|
|
|
|
|
|
Telephone: 719-686-2598
|
|
|
|
|
|
|
|
Telefax: 719-687-0589
|
|
|
|
|
|
|
Schedule I-3
C. AGENT INFORMATION:
Agent’s Address:
|
|
|
U.S. Bank National Association
|
|
1420 Fifth Avenue
|
|
Seattle, Washington 98101
|
|
Attention: Rick D. Arnold
|
|
Telephone: 206-344-5398
|
|
Telefax: 206-587-7022
|
|
|
|
with a copy to:
|
|
950 Seventeenth Street, 8
th
Floor
|
|
DN-CO-T8E
|
|
Denver, Colorado 80202
|
|
Attention: Mark E. Thompson
|
|
Telephone: 303-585-4213
|
|
Telefax: 303-585-4362
|
Schedule I-4
Exhibit 10.9
SECOND AMENDMENT OF
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT OF THIRD AMENDED AND RESTATED CREDIT AGREEMENT (this “Amendment”), dated as of September 11, 2007, is by and among
INTREPID MINING LLC, a Delaware limited liability company (“IMLLC”), formerly by way of conversion Intrepid Mining LLC, a Colorado limited liability company, INTREPID POTASH-MOAB, LLC, a Delaware limited liability company
(“IPMLLC”), INTREPID POTASH-NEW MEXICO, LLC, a New Mexico limited liability company (“IPNMLLC”), INTREPID POTASH-WENDOVER, LLC, a Colorado limited liability company (“IPWLLC”), U.S. BANK NATIONAL ASSOCIATION, a national
banking association (“USB”), in its capacity as lead arranger and Agent (“Agent”), on behalf of the Existing Lenders (as defined below), and the Additional Lenders (as defined below).
RECITALS
A. IMLLC, IPMLLC, IPNMLLC
and IPWLLC (“Borrowers”), Agent and the lenders named therein (the “Existing Lenders”), are parties to a Third Amended and Restated Credit Agreement dated as of March 9, 2007, as amended pursuant to a First Amendment of
Third Amended and Restated Credit Agreement dated as of May 23, 2007 (as so amended, the “Credit Agreement”). Capitalized terms used herein without definition shall have the same meanings as set forth in the Credit Agreement.
B. Pursuant to the terms of the Credit Agreement, upon the request of Borrowers, Agent may agree, under certain conditions, to increase
the Aggregate Lenders’ Commitment (Revolving) to a maximum of $125,000,000.
C. Borrowers have requested, and do hereby request, that
the Aggregate Lenders’ Commitment (Revolving) be increased to $125,000,000.
D. Agent is not aware of the occurrence and continuation
of any uncured Event of Default at any time on or before the execution and delivery of this Amendment, and Agent has been able to obtain sufficient additional Commitments (Revolving) from AgFirst Farm Credit Bank and Bank of the West (the
“Additional Lenders”) to fund the requested increase.
E. Borrowers, Agent and the Additional Lenders desire that this Amendment
be executed and delivered in order to implement the above-described increase in the Aggregate Lenders’ Commitment (Revolving) pursuant to the terms of the Credit Agreement.
AMENDMENT
NOW, THEREFORE, in consideration of $10.00 and other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1
|
|
1.
|
Credit Agreement.
The Credit Agreement shall be, and hereby is, amended as follows:
|
|
|
a.
|
The Additional Lenders shall be, and are hereby, added as Lenders under the terms of the Credit Agreement, effective as of September 11, 2007 (the “Revolving Commitment
Increase Date”). On or before the Revolving Commitment Increase Date, Borrowers shall deliver to Agent, on behalf of the Additional Lenders, promissory notes that shall constitute “Notes” within the definition contained in the Credit
Agreement, evidencing Borrowers’ obligation to repay to Additional Lenders their respective shares of the Revolving Loan. On the Revolving Commitment Increase Date, Agent shall cause such payments to be made by the Additional Lenders to Agent
and by Agent to the Existing Lenders as shall result in the outstanding principal balance of the Revolving Loan being owed by Borrowers to the Existing Lenders and to the Additional Lenders in accordance with their respective Commitments
(Revolving).
|
|
|
b.
|
Schedule I attached to the Credit Agreement, as previously amended, shall be further amended by inserting the following as additional Lenders, with Commitments as set forth below,
effective as of the date hereof:
|
|
|
|
|
|
|
|
|
|
Lender and Address
|
|
Commitment
(Revolving)
|
|
Commitment
(Term)
|
|
AgFirst Farm Credit Bank
|
|
$
|
17,500,000.00
|
|
$
|
0.00
|
|
1401 Hampton Street
|
|
|
|
|
|
|
|
Columbia, South Carolina 29201
|
|
|
|
|
|
|
|
Attention: Bruce Fortner
|
|
|
|
|
|
|
|
Telephone: 803-753-2457
Telefax: 803-254-4219
|
|
|
|
|
|
|
|
|
|
|
|
Bank of the West
|
|
$
|
7,500,000.00
|
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$
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633 Seventeenth Street,
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Suite 2000
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Denver, Colorado 80202
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Attn: Mark S. Francis
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Telephone: 303-202-5523
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Telefax: 303-202-5788
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2.
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Loan Documents.
All references in any document to the Credit Agreement shall be deemed to refer to the Credit Agreement, as amended pursuant to this Amendment.
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3.
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Certification by Borrowers.
Borrowers hereby certify to Agent and Lenders that, as of the date of this Amendment: (a) all of Borrowers’ representations and
warranties contained in the Credit Agreement are true, accurate and complete in all material respects, (b) Borrowers have performed and complied with all agreements and conditions required to be performed or complied with by them under the
Credit Agreement and/or any Loan Document on or prior to this date, and (c) no Default or Event of Default has occurred and is continuing under the Credit Agreement.
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-2-
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4.
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Continuation of the Credit Agreement.
Except as specified in this Amendment, the provisions of the Credit Agreement shall remain in full force and effect, and if there is a
conflict between the terms of this Amendment and those of the Credit Agreement or any other document executed and delivered in connection therewith, the terms of this Amendment shall control.
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5.
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Miscellaneous.
This Amendment shall be governed by and construed under the laws of the State of Colorado and shall be binding upon and shall inure to the benefit of the
parties hereto and their successors and assigns. This Amendment may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.
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EXECUTED as of the date first above written.
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BORROWERS:
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INTREPID MINING LLC
By: HOPCO Management
LLC, its Manager
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By:
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/s/ Hugh E. Harvey, Jr.
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Hugh E. Harvey, Jr.
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Manager
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INTREPID POTASH-MOAB, LLC
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By:
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/s/ Hugh E. Harvey, Jr.
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Hugh E. Harvey, Jr.
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Manager
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INTREPID POTASH-NEW MEXICO, LLC
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By:
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/s/ Hugh E. Harvey, Jr.
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Hugh E. Harvey, Jr.
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Manager
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INTREPID POTASH-WENDOVER, LLC
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By:
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/s/ Hugh E. Harvey, Jr.
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Hugh E. Harvey, Jr.
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Manager
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-3-
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AGENT:
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U.S. BANK NATIONAL ASSOCIATION
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By:
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/s/ J. Tyler Fauerbach
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J. Tyler Fauerbach
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Vice President
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ADDITIONAL LENDERS:
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AGFIRST FARM CREDIT BANK
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By:
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/s/ Bruce Fortner
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Bruce Fortner
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Vice President
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BANK OF THE WEST
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By:
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/s/ G. S. Todd Berryman
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G. S. Todd Berryman
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Senior Vice President
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CONSENTED AND AGREED TO BY THE UNDERSIGNED, AS GUARANTORS:
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MOAB GAS PIPELINE, LLC
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By:
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/s/ Hugh E. Harvey, Jr.
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Hugh E. Harvey, Jr.
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Manager
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HB POTASH LLC
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By:
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/s/ Hugh E. Harvey, Jr.
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Hugh E. Harvey, Jr.
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Manager
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-4-
Exhibit 10.10
THIRD AMENDMENT OF
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
THIS THIRD AMENDMENT OF THIRD AMENDED AND RESTATED CREDIT AGREEMENT (this “Amendment”), dated as of October 12, 2007, is by and among
INTREPID MINING LLC, a Delaware limited liability company (“IMLLC”), formerly by way of conversion Intrepid Mining LLC, a Colorado limited liability company, INTREPID POTASH-MOAB, LLC, a Delaware limited liability company
(“IPMLLC”), INTREPID POTASH-NEW MEXICO, LLC, a New Mexico limited liability company (“IPNMLLC”), INTREPID POTASH-WENDOVER, LLC, a Colorado limited liability company (“IPWLLC”), U.S. BANK NATIONAL ASSOCIATION, a national
banking association (“USB”), in its capacity as lead arranger and Agent (“Agent”), and the Lenders (as defined below).
RECITALS
A. IMLLC, IPMLLC, IPNMLLC and IPWLLC (“Borrowers”), Agent and the lenders named therein (the
“Lenders”) are parties to a Third Amended and Restated Credit Agreement dated as of March 9, 2007, as amended pursuant to a First Amendment of Third Amended and Restated Credit Agreement dated as of May 23, 2007 and a Second
Amendment of Third Amended and Restated Credit Agreement dated as of September 11, 2007 (as so amended, the “Credit Agreement”). Capitalized terms used herein without definition shall have the same meanings as set forth in the Credit
Agreement.
B. Borrowers, Agent and the Lenders desire that this Amendment be executed and delivered in order to revise one of the
exceptions to the prohibition of Distributions by IMLLC, as set forth in Section 6.2(m) of the Credit Agreement.
AMENDMENT
NOW, THEREFORE, in consideration of $10.00 and other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
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1.
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Credit Agreement.
The Credit Agreement shall be, and hereby is, amended as follows:
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a.
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By substituting the following for Section 6.2(m)(2) on page 47 of the Credit Agreement:
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-1-
(2) IMLLC may make a Distribution: (A) prior to October 12, 2007, at a time when the Cash
Flow Leverage Ratio (Distributions) of IMLLC and its Consolidated Affiliates shall not be greater than 2.0:1.0 immediately before and immediately after such Distribution and as of both the beginning and the end of the Fiscal Quarter in which such
Distribution shall have occurred, and (B) from and after October 12, 2007, at a time when the Cash Flow Leverage Ratio (Distributions) of IMLLC and its Consolidated Affiliates shall not be greater than 2.5:1.0 immediately before and
immediately after such Distribution and as of both the beginning and the end of the Fiscal Quarter in which such Distribution shall have occurred; provided that, notwithstanding the foregoing, IMLLC shall be permitted to make Distributions up to but
not in excess of $15,000,000 in the aggregate during the time period from October 12, 2007 to November 30, 2007,
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2.
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Loan Documents.
All references in any document to the Credit Agreement shall be deemed to refer to the Credit Agreement, as amended pursuant to this Amendment.
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3.
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Certification by Borrowers.
Borrowers hereby certify to Agent and the Lenders that, as of the date of this Amendment: (a) all of Borrowers’ representations and
warranties contained in the Credit Agreement are true, accurate and complete in all material respects, (b) Borrowers have performed and complied with all agreements and conditions required to be performed or complied with by them under the
Credit Agreement and/or any Loan Document on or prior to this date, and (c) no Default or Event of Default has occurred and is continuing under the Credit Agreement.
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4.
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Continuation of the Credit Agreement.
Except as specified in this Amendment, the provisions of the Credit Agreement shall remain in full force and effect, and if there is a
conflict between the terms of this Amendment and those of the Credit Agreement or any other document executed and delivered in connection therewith, the terms of this Amendment shall control.
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5.
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Miscellaneous.
This Amendment shall be governed by and construed under the laws of the State of Colorado and shall be binding upon and shall inure to the benefit of the
parties hereto and their successors and assigns. This Amendment may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.
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-2-
EXECUTED as of the date first above written.
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BORROWERS:
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INTREPID MINING LLC
By: IPC Management LLC,
its Manager
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By:
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/s/ Robert P. Jornayvaz III
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Robert P. Jornayvaz III
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Manager
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INTREPID POTASH-MOAB, LLC
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By:
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/s/ Robert P. Jornayvaz III
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Robert P. Jornayvaz III
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Manager
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INTREPID POTASH-NEW MEXICO, LLC
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By:
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/s/ Robert P. Jornayvaz III
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Robert P. Jornayvaz III
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Manager
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INTREPID POTASH-WENDOVER, LLC
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By:
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/s/ Robert P. Jornayvaz III
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Robert P. Jornayvaz III
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Manager
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AGENT:
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U.S. BANK NATIONAL ASSOCIATION
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By:
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/s/ J. Tyler Fauerbach
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J. Tyler Fauerbach
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Vice President
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-3-
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LENDERS:
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AGFIRST FARM CREDIT BANK
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By:
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/s/ Bruce Fortner
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Bruce Fortner
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Vice President
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BANK OF THE WEST
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By:
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/s/ G. S. Todd Berryman
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G. S. Todd Berryman
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Senior Vice President
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COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
“RABOBANK NEDERLAND” NEW YORK BRANCH
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By:
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/s/ John L. Church
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John L. Church
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Executive Director
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By:
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/s/ Brett Delfino
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Brett Delfino
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Executive Director
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FARM CREDIT SERVICES OF
MINNESOTA VALLEY,
PCA D/B/A FCS
COMMERCIAL FINANCE GROUP
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By:
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/s/ Daniel J. Best
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Daniel J. Best
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Assistant Vice President
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-4-
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GUARANTY BANK AND TRUST COMPANY
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By:
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/s/ Gail Nofsinger
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Gail Nofsinger
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Senior Vice President
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U.S. BANK NATIONAL ASSOCIATION
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By:
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/s/ J. Tyler Fauerbach
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J. Tyler Fauerbach
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Vice President
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UNITED WESTERN BANK
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By:
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/s/ Steven C. Emmons
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Steven C. Emmons
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Senior Vice President
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VECTRA BANK COLORADO NATIONAL ASSOCIATION
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By:
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/s/ Brad Elliott
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Brad Elliott
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Assistant Vice President
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-5-
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CONSENTED AND AGREED TO BY THE UNDERSIGNED, AS GUARANTORS:
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MOAB GAS PIPELINE, LLC
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By:
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/s/ Robert P. Jornayvaz III
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Robert P. Jornayvaz III
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Manager
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HB POTASH LLC
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By:
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/s/ Robert P. Jornayvaz III
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Robert P. Jornayvaz III
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Manager
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-6-
Exhibit 10.11
FORM OF
FOURTH AMENDMENT OF
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
THIS FOURTH AMENDMENT OF THIRD AMENDED AND RESTATED CREDIT AGREEMENT (this “Amendment”), dated as of
, 2008 (the “Effective
Date”), is by and among INTREPID MINING LLC, a Delaware limited liability company (“IMLLC”), formerly by way of conversion Intrepid Mining LLC, a Colorado limited liability company, INTREPID POTASH-MOAB, LLC, a Delaware limited
liability company (“IPMLLC”), INTREPID POTASH-NEW MEXICO, LLC, a New Mexico limited liability company (“IPNMLLC”), INTREPID POTASH-WENDOVER, LLC, a Colorado limited liability company (“IPWLLC”), INTREPID POTASH, INC., a
Delaware corporation (“IPI”), U.S. BANK NATIONAL ASSOCIATION, a national banking association (“USB”), in its capacity as lead arranger and Agent (“Agent”), and the Lenders (as defined below).
RECITALS
A. IMLLC, IPMLLC, IPNMLLC
and IPWLLC (“Original Borrowers”), Agent and the lenders named therein (the “Lenders”) are parties to a Third Amended and Restated Credit Agreement dated as of March 9, 2007, as amended pursuant to a First Amendment of Third
Amended and Restated Credit Agreement dated as of May 23, 2007, a Second Amendment of Third Amended and Restated Credit Agreement dated as of September 11, 2007 and a Third Amendment of Third Amended and Restated Credit Agreement dated as
of October 12, 2007 (as so amended, the “Credit Agreement”). Capitalized terms used herein without definition shall have the same meanings as set forth in the Credit Agreement.
B. Immediately prior to the Effective Date, IMLLC owned all of the 1,000 issued and outstanding shares of common stock of IPI.
C. As of the Effective Date, IMLLC is transferring all of its assets to IPI in exchange for (i) a portion of the net proceeds of the offer and sale
by IPI of its Common Stock to the public in an underwritten initial public offering (the “IPO”), (ii) shares of IPI’s Common Stock, and (iii) the assumption by IPI of substantially all of the liabilities of IMLLC, including
the Obligations (but excluding the Temporary Paydown Obligation (defined below)) (collectively, such transaction is referred to herein as the “Exchange”), in each case as described in the final prospectus for the IPO contained in the
registration statement filed on Form S-1 with the Securities and Exchange Commission (the “Prospectus”).
D. In connection with
the Exchange, IPI intends to declare a dividend with respect to the 1,000 shares of its Common Stock currently issued and outstanding (the “Formation Distribution”), which will be paid in shares of Common Stock; provided, however, that for
each share of Common Stock purchased by the underwriters pursuant to the over-allotment option granted in connection with the IPO, the number of shares payable pursuant to the Formation Distribution will be reduced, one-for-one, and in lieu of such
shares, IPI will pay cash in an amount equal to the net proceeds, before offering expenses but after underwriting discounts and commissions, it receives from the exercise of the underwriters’ over-allotment option.
E. Original Borrowers, IPI, Agent and the Lenders desire that this Amendment be executed and delivered in
order to amend certain terms and provisions of the Credit Agreement, including without limitation by providing for the terms upon which IPI shall assume the Obligations of IMLLC (other than the Temporary Paydown Obligation), and be substituted for
IMLLC as a party to the Credit Agreement.
F. IMLLC is retaining the obligation to repay $18,900,000 of the outstanding principal balance
of the Revolving Loan, together with all unpaid interest accrued thereon and any fees, charges and other costs owing from Original Borrowers to Lenders with respect to the repayment of such principal balance on the Revolving Loan, including any
charges and costs incurred by any Lender under Section 3.5 of the Credit Agreement (collectively, the “Temporary Paydown Obligation”), and has paid to the Lenders, concurrently with the execution and delivery of this Amendment, the
amount of the Temporary Paydown Obligation.
AMENDMENT
NOW, THEREFORE, in consideration of $10.00 and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1.
Prepayment
. Concurrently with the execution and delivery of this Amendment, IMLLC has paid to Lenders in accordance with the Credit Agreement
the amount of the Temporary Paydown Obligation. Other than the Temporary Paydown Obligation, IPI hereby assumes and agrees to pay and perform all of the Obligations of IMLLC.
2.
Amendment of Credit Agreement
. The Credit Agreement shall be, and hereby is, amended as follows, effective as of the Effective Date:
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a.
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By substituting Intrepid Potash, Inc., a Delaware corporation, for Intrepid Mining LLC as a party to the Credit Agreement, inserting in the Credit Agreement the definition of
“IPI” contained in the first paragraph of this Amendment, and changing all references in the Credit Agreement to “IMLLC’ to be references to “IPI”; provided that references to “IMLLC” in the definitions of
“EBITDAX,” “EBITDAX (Adjusted)” and “Fixed Charge Coverage Ratio” and in other places in the Credit Agreement that relate to time periods prior to the Effective Date and time periods from and after the Effective Date
shall be deemed to refer to IMLLC with respect to time periods prior to the Effective Date and to IPI with respect to time periods from and after the Effective Date.
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b.
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By deleting clause (b) of the definition of “Change in Control” in Section 1.1 on page 3 of the Credit Agreement.
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c.
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By deleting “(other than IOG)” in clause (d) of the definition of “Collateral” in Section 1.1 on page 4 of the Credit Agreement.
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d.
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By deleting the definition of “IOG” in Section 1.1 of page 9 of the Credit Agreement.
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e.
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By deleting clause (b) of the definition of “Mandatory Prepayment Amounts” in Section 1.1 on page 11 of the Credit Agreement.
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f.
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By substituting the following for the first sentence of Section 5.1(b) on page 32 of the Credit Agreement:
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IPI is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, having all powers required to carry
on its business and to enter into and carry out the transactions contemplated hereby.
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g.
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By adding “and arrangements with sureties to provide financial assurances to secure such reclamation obligations” at the end of clause (6)(A) of Section 6.2(d)
on page 42 of the Credit Agreement.
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h.
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By deleting clause (3) of Section 6.2(g) on page 44 of the Credit Agreement.
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i.
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By substituting the following for Section 6.2(m) on pages 46 and 47 of the Credit Agreement:
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(m)
Distributions
. IPI will not make any Distributions, except as follows (and such exception shall not apply if, immediately
before, immediately after or as of the end of the Fiscal Quarter in which any such Distribution shall have occurred, any Default shall have occurred and be continuing): IPI may make a Distribution at a time when the Cash Flow Leverage Ratio
(Distributions) of IPI and its Consolidated Affiliates shall not be greater than 2.5:1.0 immediately before and immediately after such Distribution and as of both the beginning and the end of the Fiscal Quarter in which such Distribution shall have
occurred.
3.
The Notes
. Each of the Notes shall be amended by an Allonge (collectively, the “Allonges”) in the form of
Exhibit “A” attached hereto and made a part hereof.
4.
Release
. Subject to the fulfillment by IPI and the Original
Borrowers (other than IMLLC) of their obligations under Section 5 below, in consideration of the repayment of the Temporary Paydown Obligation and the substitution of IPI for IMLLC as a Borrower under the Credit Agreement, (a) the security
interests and liens granted to or held by the Agent under and pursuant to (i) the Second Amended and Restated Security Agreement, dated as of March 9, 2007 (the “LLC Interest Security Agreement”), between IMLLC and Agent, in its
capacity as agent for the benefit of Agent and the Lenders (as to the pledge by IMLLC of the limited liability company membership interests in IPMLLC, IPNMLLC and IPWLLC, HB Potash and Moab Gas
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Pipeline, LLC, a Colorado limited liability company (“Moab Pipeline”)), and (ii) the Second Amended and Restated Security Agreement, dated as
of March 9, 2007 (the “Assets Security Agreement”), between IMLLC and Agent, in its capacity as agent for the benefit of Agent and the Lenders (as to the pledge by IMLLC of accounts, general intangibles, equipment, inventory and the
proceeds of the foregoing), are hereby released, and the LLC Interest Security Agreement and the Assets Security Agreement are terminated and shall be of no further force and effect, (b) Agent shall promptly remove IMLLC as a named debtor from
(or, to the extent that IMLLC is the sole named debtor, terminate) any and all financing statements of record filed by Agent or the Lenders under the Credit Agreement under which IMLLC is named as a debtor, and (c) IMLLC is hereby released and
discharged from all of the Obligations under the Loan Documents, except in each case for indemnification and other provisions of the Loan Documents that by their terms survive the repayment of the Obligations and the termination of the Loan
Documents, but only with respect to any actions, occurrences or events occurring prior to the Effective Date.
5.
Loan Documents
.
All references in any document to the Credit Agreement shall be deemed to refer to the Credit Agreement, as amended pursuant to this Amendment. All references in any document to any Note shall be deemed to refer to such Note, as amended pursuant to
the applicable Allonge. Original Borrowers (other than IMLLC) and IPI (herein collectively referred to as “Borrowers”) shall also deliver to Agent such new Loan Documents and amendments to existing Loan Documents as Agent may request,
including, without limitation, (a) a security agreement between IPI and Agent, in its capacity as agent for the benefit of Agent and the Lenders, granting a security interest and lien on all of its limited liability company membership interests
in IPMLLC, IPNMLLC and IPWLLC, HB Potash and Moab Pipeline, in substantially the form of the LLC Interest Security Agreement released in accordance with Section 4 above, and (ii) a security agreement between IPI and Agent, in its capacity
as agent for the benefit of Agent and the Lenders, granting a security interest in its accounts, general intangibles, equipment, inventory and the proceeds of the foregoing, in substantially the form of the Assets Security Agreement released in
accordance with Section 4 above.
6.
Consent and Waiver
. The undersigned Agent and Lenders hereby consent to the IPO and the
Exchange, including, without limitation, the assignment by IMLLC of all of its assets to IPI, and the assumption by IPI of the Obligations (other than the Temporary Paydown Obligation), in each case as and to the extent described in the Prospectus
(collectively, the “Transactions”). The undersigned Agent and Lenders hereby waive any (a) actual or alleged Default or Event of Default under Section 2.4(b), Section 5.1(b), Section 6.2(f), Section 6.2(m) or
Section 6.2(n) of the Credit Agreement arising out of, resulting from or attributable to the consummation of the Transactions, (b) notice requirements under Section 6.1(d) or Section 6.l(e) of the Credit Agreement with respect to
the Transactions or (c) notice requirements under Section 2.5(a) of the Credit Agreement with respect to the payment of the Temporary Paydown Obligation; provided, that except as provided herein, the execution and delivery by Agent and
Lenders of this Amendment shall not operate as a waiver of any other right, power or remedy of Agent or Lenders.
7.
Certification by
Borrowers
. Borrowers hereby certify to Agent and the Lenders that, as of the date of, and after giving effect to, this Amendment: (a) all of Borrowers’ representations and warranties contained in the Credit Agreement are true, accurate
and complete
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in all material respects, (b) Borrowers have performed and complied with all agreements and conditions required to be performed or complied with by them
under the Credit Agreement and/or any Loan Document on or prior to this date, and (c) no Default or Event of Default has occurred and is continuing under the Credit Agreement.
8.
Continuation of the Credit Agreement
. Except as specified in this Amendment, the provisions of the Credit Agreement shall remain in full force
and effect, and if there is a conflict between the terms of this Amendment and those of the Credit Agreement or any other document executed and delivered in connection therewith, the terms of this Amendment shall control.
9.
Miscellaneous
. This Amendment shall be governed by and construed under the laws of the State of Colorado and shall be binding upon and shall
inure to the benefit of the parties hereto and their successors and assigns. This Amendment may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
5
EXECUTED as of the date first above written.
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ORIGINAL BORROWERS and IPI:
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INTREPID MINING LLC
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By: IPC Management LLC, its Manager
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By:
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INTREPID POTASH-MOAB, LLC
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By:
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INTREPID POTASH-NEW MEXICO, LLC
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By:
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INTREPID POTASH-WENDOVER, LLC
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By:
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INTREPID POTASH, INC.
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By:
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6
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AGENT:
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U.S. BANK NATIONAL ASSOCIATION
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By:
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J. Tyler Fauerbach
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Vice President
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LENDERS:
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AGFIRST FARM CREDIT BANK
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By:
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Bruce Fortner
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Vice President
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BANK OF THE WEST
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By:
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G. S. Todd Berryman
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Senior Vice President
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COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
“RABOBANK NEDERLAND” NEW YORK BRANCH
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By:
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John L. Church
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Executive Director
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By:
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Brett Delfino
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Executive Director
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7
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UNITED FCS, PCA (F/K/A FARM CREDIT
SERVICES
OF MINNESOTA VALLEY, PCA), D/
B/A FCS COMMERCIAL FINANCE GROUP
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By:
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Daniel J. Best
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Assistant Vice President
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GUARANTY BANK AND TRUST COMPANY
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By:
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Gail Nofsinger
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Senior Vice President
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U.S. BANK NATIONAL ASSOCIATION
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By:
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J. Tyler Fauerbach
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Vice President
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UNITED WESTERN BANK
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By:
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Steven C. Emmons
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Senior Vice President
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VECTRA BANK COLORADO NATIONAL ASSOCIATION
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By:
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Brad Elliott
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Assistant Vice President
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CONSENTED AND AGREED TO BY THE UNDERSIGNED, AS GUARANTORS:
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MOAB GAS PIPELINE, LLC
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By:
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HB POTASH LLC
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By:
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9
Exhibit 10.12
The Intrepid Companies
700 17
th
St., Suite 1700,
Denver, CO 80202
303.296.3006
303.298.7502 Fax
March 19, 2007
Mr. Patrick L. Avery
8291 S. Locust Grove
Meridian, ID 83642
Dear Pat,
On behalf of Intrepid Mining, LLC (Intrepid), I am pleased to offer you employment with our company with a
planned starting date of April 16, 2007. This letter confirms our offer of employment as described below:
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1.
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Job Title
: Chief Operating Officer. You will be responsible for all operating facilities. Initially, your direct reports will be Rick York and Randy Foote, the General
Managers of our operations. In addition, you will be provided with an administrative assistant.
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2.
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Job Location
: Denver, Colorado
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3.
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Base Salary
: $315,000 to be paid biweekly in the amount of $12,115.38. You will also be eligible for the Intrepid Performance Incentive Plan (PIP), when offered by the
company. Availability, target maximums and minimums of the PIP vary from year to year. There is no guarantee that the PIP will be offered in any year. Performance of the company and performance of the individual greatly impact the amount available
and the amount granted. However, your targeted incentive will be 50% of your annual salary when the PIP is granted.
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4.
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Salary Adjustments
: Your first eligibility for consideration of a salary increase is April, 2008.
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5.
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Recruitment Bonus
: You will receive an initial bonus of $50,000.
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6.
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Benefits
: Your eligibility for benefits such as Health, Life, Disability, 401(k), etc. is determined by the specific Plan provisions which will be provided to you when you
report to work. You will be entitled to four (4) weeks (20 days) vacation and to the paid holidays recognized by our Denver location. You will be eligible for these plans on the first day of the month following your first date of employment.
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7.
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Terms and Conditions of Employment
: Please review the attached form which describes important responsibilities and obligations as an Intrepid employee.
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8.
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Testing
: You will be expected to submit to the following reviews or tests: Drug screening, background and credit. We strongly encourage you do not resign from your current
position until we have reviewed and accepted the results of these tests.
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9.
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Reporting
: You will report directly to Hugh Harvey.
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10.
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Use of Company Plane
: Since it is our expectation that you will be spending an extensive amount of time in Carlsbad, New Mexico and occasionally in Utah, you will be entitled
to utilize the company controlled airplane as needed for business travel. Your use of the plane is subject to the priorities of Bob Jornayvaz and Hugh Harvey.
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11.
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Moving Benefits
: You will be entitled to moving benefits as described in the attachment to this letter.
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12.
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Long-Term Compensation
: It is the intention of Intrepid to affect a major financial restructuring over the next 12 to 24 months. If the company is successful in accomplishing
this goal, Intrepid will contract the services of one or more nationally recognized compensation consultants to establish an appropriate long-term compensation reward for you that will be tied to performance. Intrepid will utilize their
recommendations for an appropriate range of compensation for your position.
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13.
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Salary Guarantee
: In the event that Intrepid Mining is involved in a sale or control of ownership and if you are terminated as a result of said actions, you will be entitled
to a severance equal to two (2) times your annual salary. This benefit will be reduced monthly for each month you are employed by Intrepid. Therefore, this benefit will have no value after two (2) full years of employment with Intrepid.
This benefit is waived if you resign voluntarily or if you are asked to resign as the result of any impropriety. This benefit is also waived if you receive the benefit of the Long-Term compensation identified in paragraph 12.
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14.
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Travel expenses and paid time off prior to moving
: To accommodate your family remaining in Idaho, Intrepid will pay for your travel expenses to Idaho on an as-needed basis
until July 1, 2007. This reimbursement is in addition to any other home-buying trips that are included within the attached relocation assistance program.
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15.
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Company Vehicle
: Intrepid will provide a company-owned vehicle to you for personal and business use. All expenses related to the operation and maintenance of this vehicle
will be the expense of Intrepid. You will have a $50,000 limit to spend on an SUV-type vehicle of your choice.
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16.
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Family Move
: It is our expectation that you will offer your home for sale as soon as practically possible upon acceptance of this offer, utilizing the services of our
designated relocation company. It is also our expectation that you will move your family to the Denver area as soon as practically possible after the 2006-2007 school year.
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Please contact me if you have any questions regarding our offer. Upon verbal acceptance of these terms, we will proceed
with preparing for your arrival. Personally, I look forward to working with you.
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Sincerely,
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/s/ Jamie Whyte
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Jamie Whyte
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Vice President
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Human Resources
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Terms & Conditions of Employment
Intrepid Mining, LLC (or Company) is engaged in extracting and processing of Potash, and is subject to strict Federal and State regulations. Mining Potash requires
special attention to workplace health and safety. The Company desires that every employee understand and accept their individual responsibility for several important terms and conditions which are necessary to comply with applicable regulations,
ensure consistency in employee relations, and provide stable business operations in our industry.
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1.
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“
AT WILL” EMPLOYMENT:
I understand that my employment is “at will” for an indefinite period of time and may be terminated at any time by me or the
Company, for any reason without liability whatsoever, except for unpaid wages or salary earned through the date of termination.
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2.
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EMPLOYMENT AGREEMENTS:
I understand that only a duly authorized official of the Company has the authority to enter into any agreement for employment for a specified
period of time. This is not an employment contract, rather an offer for employment.
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3.
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EQUAL EMPLOYMENT OPPORTUNITY:
I understand that Intrepid is committed to comply with all laws and regulations pertaining to employment practices. The Company does not
discriminate with regard to race, religion, national origin, age, sex, or disability. The Company offers equal employment opportunity for employment, pay, and advancement to all qualified applicants and employees.
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4.
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COMPLIANCE WITH HEALTH, & SAFETY REGULATION:
I acknowledge my responsibility to work safely, and to understand and comply with all regulations to which
Intrepid is subject. I understand that I may be subject to
personal
liabilities and/or penalties imposed by Federal or State agencies should I knowingly violate or cause Intrepid Mining to violate any regulations of the of the Mine Safety and
Health Administration (MSHA) or the Occupational Safety and Health Administration (OSHA).
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5.
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SEXUAL HARASSMENT:
Company employees are prohibited from engaging in sexual harassment, retaliation against a person for opposing sexual harassment, or aiding or
abetting sexual harassment of any employee.
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6.
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DRUG-FREE WORKPLACE:
In compliance with the Drug-Free Workplace Act of 1988, the Company will not hire or employ individuals who use illegal drugs or abusively use
alcohol. You will be expected to sign and endorse the most current version of the Intrepid Substance Abuse Policy.
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7.
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HEALTH & MEDICAL SCREENING:
I agree to submit to medical evaluations and/or examinations, including tests for the presence of illegal drugs or alcohol (or
other Company-required workplace-related health screening requirements) during employment, or upon my employment termination, as requested by the Company.
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Page 2 of 2
Terms & Conditions of Employment,
Continued
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8.
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PROBLEM RESOLUTION:
Intrepid desires that work-related problems or complaints be resolved fairly through appropriate supervisory and management review. I agree to
submit my problems to the Company’s Problem Resolution procedure as it is communicated to me.
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9.
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MEDIATION/ARBITRATION:
When a dispute arises out of the employer/employee relationship which cannot be settled through the Problem Resolution process described in the
previous statement (No. 8), I and the Company agree to submit the dispute to Mediation and/or binding Arbitration in accordance with rules and procedures provided by the American Arbitration Association.
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10.
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CONFIDENTIAL INFORMATION:
I agree not to disclose nor use for my own or someone else’s benefit, during or after my employment, any confidential information about
the business, operations, or technical processes of Intrepid which may become known to me. Should I terminate employment I will promptly deliver to the Company all materials in my possession containing confidential information.
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11.
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CONFLICTS OF INTEREST
:
I agree not to engage in activities or have personal or financial interests which impair, or appear to impair my independence or
judgment or otherwise conflict with my responsibilities to Intrepid Mining. If unsure of a potential conflict I will review the situation with Human Resources.
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12.
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POLICIES, PROCEDURES, & RULES:
In consideration of my employment I agree to abide by policies, procedures, and rules established by the Company for its
operating purposes, including any and all conditions of employment. I accept the Company’s exclusive right to add, change, or discontinue these terms and conditions or any of its policies, benefits, procedures, and rules as it deems necessary,
with or without notice, subject to applicable laws.
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Relocation Assistance Program
Purpose
The purpose of this policy is to establish guidelines and requirements that must be met for
reimbursement of relocation expenses incurred in relocating an employee and his/her family. For purposes of this policy, “family” means the members of the employee’s immediate family sharing residence with the employee in a bona fide
dependency status, e.g., spouse, children, or other relatives whose status qualifies them as dependents under the tax statutes at the employee’s point of origin.
Scope
This policy applies to newly-hired, regular full-time exempt employees with a minimum of five years of
directly related work experience in the job category or discipline for which the person is being hired.
Policy Statement
This policy, or any part thereof, shall be applied on a case-by-case basis at the discretion of the Company, taking into account the marketability of the employee’s
existing residence, the need to obtain the new employee, and other factors.
Introduction
It is expected that the employee will be conscientious and use good judgment with regard to incurring Company-supported costs during the move. In all cases, receipts
verifying reimbursable costs must be maintained and submitted on the Relocation Expense Report within thirty (30) days of incurring the expense. All relocation benefits must be incurred within twelve (12) months of the effective date of
the employee’s new assignment.
Reimbursable Relocation Expenses
The Company will pay for:
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A.
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Home Search:
The Company will reimburse for one (1) Home Search trip, up to seven (7) continuous days, by the employee and one family member to visit the new
location for the purpose of securing a permanent residence.
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Reimbursable Home Search Expenses:
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Round-trip economy class airfare
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Meals and tips (reasonable meal expenses)
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Related incidental expenses
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The employee may prefer to drive to the new location for a Home Search trip. Mileage for the employee’s personal car
will be reimbursed at the current Company rate.
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B.
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En Route to New Location:
The Company will reimburse for transportation, meals and lodging incurred by the employee and the employee’s family for the purpose of
traveling to the new final destination. Whenever possible, the employee is expected to drive to the new location. The employee will be reimbursed at the current Company rate for up to two (2) personal vehicles.
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En route expenses begin in the departure location the evening before the employee leaves their old location, if the employee is unable to reside in their old home. En
route expenses end the morning after the employee arrives at the new destination city.
If the employee is unable to move into their permanent housing the
day after their arrival, additional lodging and meal expenses must be claimed as Temporary Living Expenses.
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C.
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Temporary Living Expenses:
Intrepid agrees to provide temporary living expenses until July 1, 2007 or until you have relocated to Denver, whichever comes first.
Extensions beyond this timeframe may be allowed if necessary and approved by Hugh Harvey.
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Temporary living expenses include reasonable and
actual lodging (hotel, motel, apartment and rental/leased/company vehicle).
The employee must complete a Relocation Expense Report on a monthly basis.
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D.
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Renters at Old Location:
The Company will reimburse the employee for reasonable fees related to a lease cancellation. Written verification that lease cancellation fees must
be and were paid as a result of the employee’s move to the new location must be submitted with the employee’s Relocation Expense Report.
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E.
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Forfeiture of Prepaid Rent:
Reimbursement may be made for up to one month of prepaid rent at the old location when the employee moves before the end of the rental period
covered and when, as a condition of the lease, prepaid rent is non-refundable.
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F.
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Home Sales Expenses:
The Company will reimburse the employee for the selling costs of their principal residence in the old location, provided the old residence is sold within
one year from the effective date of employment.
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Home Sales expenses are reimbursed for the employee’s principal residence, which must
be an employee-owned one or two family house, or an employee-owned condominium or townhouse.
Additional land adjoining the employee’s principal
residence, not to exceed one (1) acre, may be included if the Company determines it is an integral part of your principal residence.
Ineligible
properties include cooperative apartments, seasonal residences, income-producing farms, uninhabitable structures, homes under construction, properties with significant structural, safety or health problems that cannot be fully remediated, and
properties with excessive liens and/or encumbrances that cannot be satisfied at time of closing.
Reimbursable costs include:
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Real estate agent commissions (maximum of seven percent (7)).
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Other necessary closing expenses: Legal fees, documentary stamps, transfer taxes, survey, title search, or other expenses incurred as normal seller’s expenses
in connection with the closing.
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Selling expenses which are not reimbursable:
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Inspections typically paid by the buyer
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Home Warrantee Insurance Premiums
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Cost of repairs/improvements
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Yard of home maintenance
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Any cost usually paid by the buyer
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Duplicate title insurance costs
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Discount points paid by the buyer
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To receive your
reimbursement you must submit a Relocation Expense Report with a copy of the complete Closing Statement.
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G.
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Transporting Personal Effects and Household Goods:
The Company will reimburse the employee for the reasonable costs of transporting personal effects and household goods
packed and moved to the new location and, if necessary, stored for a maximum of thirty (30) days, which may include:
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Insurance for 100% of replacement value for damage or loss
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Shipment of one (1) vehicle on the moving van
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Routine disconnection and connection of major appliances at origin and destination when performed by carrier (not to include electrical, plumbing or duct work)
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Loading and transporting items of exceptional dimensions and weight, crating or special packing services require pre-approval by the
Company.
The Company will not reimburse costs for any of the following:
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Above ground Pools
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Boats over 14 feet
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Building Materials
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Farm Equipment
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Firearms
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Firewood
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Flammable or toxic substances
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Furnishings of second homes
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Horse trailers
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Hot tubs/spas
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Jewelry
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Liquor
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Plants
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RVs
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Other perishable items
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Labor to take down draperies, curtains, shades, blinds
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Cost of extra pick up or delivery at second location
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Hanging of mirrors, pictures, etc.
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Piano or organ tuning, clock servicing, electronic equipment tuning, etc.
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Dismantling or set up of swing sets, outdoor recreational equipment, etc.
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H.
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Using a Moving Company:
Human Resources will coordinate the selection of a moving company using a third-party relocation company.
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I.
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Moving Yourself:
The employee may prefer renting a truck or trailer to transport their belongings to the new location in lieu of moving company services. Rental fees for this
purpose are reimbursable.
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If the employee chooses to move their own household goods, the employee should obtain adequate insurance to cover
the value of their belongings. The Company will reimburse this expense.
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J.
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Home Purchase Assistance:
The Company will reimburse the employee for customary buyer’s closing costs in the new location if the employee purchases a home within twelve
(12) months from the transfer date and the employee is a Company employee at the time of the employee’s purchase.
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Typical
reimbursable closing costs may include:
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Mortgage application fee
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Improvement survey (if lender required)
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Attorney fees (if state required for real estate transactions)
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Items, which are not
reimbursable, are:
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Real estate commissions or finder’s fees
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Any customary seller’s closing costs
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Attorney fees in states not requiring an attorney for real estate transactions
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Reserves or pre-paid expenses such as mortgage insurance, prorated property taxes, mortgage interest, homeowners insurance, repair and other reserves/prepayments
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K.
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Advance Payment:
The company will provide an advance payment to you in the amount of $15,000 for qualifying moving expenses. This payment will be issued upon receipt of an
executed purchase and sale agreement on your existing home. Within 30 days after your move you should submit a reconciliation of all of these expenses to the HR Department. Any funds not used for the expenses outlined above should be refunded to the
company at this time. Should you need additional funds during the transition, you may request them from the HR Department.
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L.
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Inconvenience Payment:
The company will provide an advance payment to you in the amount of $25,000 to cover any incidental expenses that the Relocation Policy may not cover.
You are not required to submit a reimbursement form for these expenses and you are entitled to keep any portion of this payment not expended.
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Tax Treatment
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A.
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Relocation Expenses/Taxable Income:
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Certain
Company-paid and reimbursed expenses associated with the employee’s move are considered taxable income to the employee and will, therefore, be reported on the employee’s W-2 for the calendar year(s) in which such expenses are reimbursed or
paid. Under the Tax Reform Act of 1986, some of this additional income may be taken as an itemized deduction on the employee’s federal income tax return for the year(s) in which such expenses are paid. State laws may differ. Since each
individual’s tax circumstances will vary, the employee should consult his or her tax advisor to ascertain the specific tax consequences of this policy. IRS Publication 521, Moving Expenses, can also provide valuable assistance.
If a reimbursed expense is eligible for a deduction, that item of income will be considered income not subject to withholding by the Company. Hence, while the Company
must include that amount in the employee’s income, the Company will not withhold any taxes on such income. This does not mean that there will be no additional tax liability resulting from this additional income. If an employee has additional
income subject to withholding (i.e., not deductible on your federal income tax return), that withholding will be taken from the employee’s wages as soon as all bills and reimbursements for a particular calendar year have been processed. All
meal expense reimbursements are treated by the Company as compensation to the employee and therefore are subject to withholding.
Some relocation
reimbursements may be fully or partially deductible on the employee’s federal and/or state tax returns. Other reimbursements may not be deductible as relocation expenses and may be subject to federal and/or state personal income tax. . The
Company will report to the employee all relocation expense reimbursements and payments for relocation services made on the employee’s behalf. The Company form will be mailed to the employee after the close of the calendar year in which the
employee incurred relocation expenses.
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B.
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Tax Equalizations:
Because relocations often result in increased tax liability, the Company will provide the employee with a one-time state and federal tax allowance.
The allowance is meant to provide the employee with the funds to largely offset the increased tax liability from non-deductible moving expenses subject to withholding. It is calculated only on annualized Company income plus the non-deductible moving
expenses using appropriate deductions and marginal tax rates. Since the tax reimbursement is also income subject to withholding, it is increased to help offset the additional (compounded) tax liability. This is called a “gross-up”. You
will be provided with a copy of the calculation of your tax reimbursement. The employee should note that the tax reimbursement does not include any reimbursement for social security withholding, principally under the assumption that annualized
income including the moving expenses will exceed the social security withholding threshold. Medicare taxes will be covered by the reimbursement and gross-up. Employees who leave the Company for any reason during the calendar year in which relocation
expenses were paid will be ineligible for year-end “make whole” consideration.
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Administration
The general supervision and administering of this policy is the responsibility of the Human Resources Department. Exceptions to this policy may be made to
accommodate specific local conditions with the approval of the Vice President of Human Resources.
Exhibit 10.13
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The Intrepid Companies
700 17
th
Street, Suite 1700
Denver, CO 80202
303.296.3006
303.298.7502 fax
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April 1, 2008
Mr. Patrick L. Avery
700 17
th
Street, Suite 1700
Denver, CO 80202
Dear Pat:
Pursuant to the initial public offering (the
“IPO”) of Intrepid Potash, Inc., all employees of Intrepid Mining, LLC will become employees of Intrepid Potash, Inc. shortly prior to the closing of the IPO. The purpose of this letter is to let you know that the terms and conditions of
your employment with Intrepid Mining, LLC, as set forth in the offer letter you received on March 19, 2007, will continue to apply to you on and after the IPO. Thus, Intrepid Potash, Inc. will be responsible for fulfilling the obligations of
Intrepid Mining, LLC set forth in the offer letter and you will continue to be bound by the employment terms and conditions you agreed to in that letter. With regard to the salary guarantee set forth in Section 13 of the letter (pursuant to
which you may be entitled to severance if you are terminated upon a sale or other change in ownership of Intrepid Mining), Intrepid Potash, Inc. will interpret that section as applying if your employment is terminated without “Cause” or by
you for “Good Reason” following a “Change of Control,” as each of those terms is defined in Intrepid Potash’s 2008 Equity Incentive Plan. Intrepid Potash, Inc. will also interpret the last sentence of Section 13 of that
letter (regarding waiver of the salary guarantee in the event you receive the benefit of certain long-term compensation) as applying once you vest in one of the restricted stock grants to be made to you on or around the closing of the IPO. Thus,
based on our current expectations for your IPO restricted stock grants, we expect the salary guarantee will lapse on or around January 30, 2009.
Pat, you are an integral part of our management team and we’re very excited about the IPO and your future with us as we become a public company. Please acknowledge and indicate your acceptance of the foregoing by
signing the bottom of this page and returning it to my attention.
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Sincerely,
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/s/ Jamie Whyte
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Jamie Whyte
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Accepted and agreed to this
day of April, 2008
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/s/ Patrick L. Avery
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Patrick L. Avery
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Exhibit 10.14
The Intrepid Companies
700 17
th
St., Suite 1700,
Denver, CO 80202
303.296.3006
303.298.7502 Fax
January 29, 2008
Mr. David W. Honeyfield
Via: E-mail to dhoneyfield@stmaryland.com
Dear David,
On behalf of Intrepid Mining, LLC, I am pleased to offer you employment with our company with a planned starting date of March 24, 2008. However, you may be required to advance that start date if our “road
show” for our planned Initial Public Offering is scheduled in advance of that date. This letter confirms our offer of employment as described below:
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1.
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Job Title
: Chief Financial Officer
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2.
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Job Location
: Denver, CO
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3.
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Base Salary
: $12,115.39 paid bi-weekly with an annual equivalent salary of $315,000. You will also be eligible for the Intrepid Performance Incentive Plan (PIP), when offered
by the company. Availability, target maximums and minimums of the PIP vary from year to year. There is no guarantee that the PIP will be offered in any year. Performance of the company and performance of the individual greatly impact the amount
available and the amount granted. However, it is the objective of the company to provide you with a target range equal to 50% of the annual salary when the PIP is granted. If granted, this award will not be pro-rated in 2009.
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4.
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Salary Adjustments
: Your first eligibility for consideration of a salary increase is April, 2009.
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5.
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Benefits
: Your eligibility for benefits such as Health, Life, Disability, 401(k), etc. is determined by the specific Plan provisions which will be provided to you when you
report to work. You will be entitled to four (4) weeks (20 days) vacation and to the paid holidays recognized by our Carlsbad location. You will be eligible for these plans on the first day of the month following your first date of employment.
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6.
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Terms and Conditions of Employment
: Please review the attached form which describes important responsibilities and obligations with which Intrepid Potash requests your
consent by signing and returning an original copy upon your acceptance of employment.
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7.
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Testing
: You will be expected to submit to the following reviews or tests: Drug screening, background and credit. We strongly encourage you do not resign from your
current position until we have reviewed and accepted the results of these tests.
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8.
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Reporting
: You will report directly to Robert P. Jornayvaz III, Chairman and CEO.
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9.
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Recruitment Bonus
: You will receive an initial bonus of $50,000 within 10 business days of your start date.
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10.
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Forfeited Equity Awards
. We understand that by accepting employment with us, you will forfeit certain unvested
awards granted to you by your former employer. In order to induce you to accept our employment offer, we will pay to you in cash or provide you with replacement grants that, in total, have a value reasonably equal to the intrinsic value of the
forfeited awards. Equity grants that you were promised or otherwise expected to receive in the future from your prior employer will not be taken into account for this purpose, although you will be eligible to receive future equity awards from us in
the ordinary course of business pursuant to Paragraph 12, below, if applicable. The intrinsic value in your forfeited awards has been estimated to be $500,000. In the event that we become a public company pursuant to the registration statement filed
with the Securities and Exchange Commission on December 20, 2007, and you are an employee on the date we go public, we will provide you with replacement grants having a value equal to $500,000. The vesting schedule for your grants will be as
follows: 12/31/2008—24%; 02/28/2009—36%; 12/31/2009—13%; 02/28/2010—15%; 02/28/2011—12%. In the event that we do not become a public company within one year of your date of hire or there is a change in control of the company
(as defined in Section 409A of the Internal Revenue Code) during such one-year period but prior to us becoming a public company, we will pay to you in cash, $500,000, provided you are still employed on the one-year anniversary or change in
control date, as applicable. The payment shall be made as soon as reasonably practicable but in no event later than March 15
,
2009.
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11.
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Potential Forfeiture of Equity Awards
: We understand that after accepting employment with us, you will resign your position with St. Mary’s. Even though your start date
with Intrepid is in advance of the vesting date of certain benefits with St. Mary’s, you are going to propose that they honor those benefits due to an equitable transition period and vested vacation. If in the event, St. Mary’s does not
honor your request, Intrepid will pay you in cash for any portion they do not honor, up to a maximum of $266,000.
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12.
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Future Equity Participation
: In the event that we become a public company, you will be eligible to receive equity incentive awards at such times, in such forms, and in such
amounts as the compensation committee shall determine. Currently, we would estimate the target range for your annual Long Term Incentive award to be 60% to 75% of your annual salary.
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13.
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Salary Guarantee
: In the event that Intrepid Mining is involved in a sale or control of ownership and if you are terminated as a result of said actions, you will be entitled
to a severance equal to two (2) times your annual salary. This benefit will be reduced monthly for each month you are employed by Intrepid. Therefore, this benefit will have no value after two (2) full years of employment with Intrepid.
This benefit is waived if you resign voluntarily or if you are asked to resign as the result of any impropriety. This benefit may be replaced or eliminated if it is addressed in an employment agreement and the benefit in the employment agreement is
more beneficial to you.
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We anticipate, subject to Board approval, that the terms of this offer letter will be used to create a three-year
employment agreement with the company.
We look forward to your verbal acceptance to becoming part of the Intrepid team.
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Sincerely,
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/s/ Jamie Whyte
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Jamie Whyte
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Executive Vice-President
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Terms & Conditions of Employment
Intrepid Mining, LLC (or Company) is engaged in extracting and processing of Potash, and is subject to strict Federal and State regulations. Mining Potash requires
special attention to workplace health and safety. The Company desires that every employee understand and accept their individual responsibility for several important terms and conditions which are necessary to comply with applicable regulations,
ensure consistency in employee relations, and provide stable business operations in our industry. Please carefully read the following statements and
indicate your acceptance by signing the bottom of page two of this attachment
:
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1.
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“
AT WILL” EMPLOYMENT
:
I understand that my employment is “at will” for an indefinite period of time and may be terminated at any time
by me or the Company, for any reason without liability whatsoever, except for unpaid wages or salary earned through the date of termination.
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2.
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EMPLOYMENT AGREEMENTS
: I understand that only a duly authorized official of the Company has the authority to enter into any agreement for employment for
a specified period of time. This is not an employment contract, rather an offer for employment.
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3.
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EQUAL EMPLOYMENT OPPORTUNITY
: I understand that Intrepid is committed to comply with all laws and regulations pertaining to employment practices. The Company does not
discriminate with regard to race, religion, national origin, age, sex, or disability. The Company offers equal employment opportunity for employment, pay, and advancement to all qualified applicants and employees.
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4.
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COMPLIANCE WITH HEALTH, & SAFETY REGULATION
: I acknowledge my responsibility to work safely, and to understand and comply with all regulations to which
Intrepid is subject. I understand that I may be subject to
personal
liabilities and/or penalties imposed by Federal or State agencies should I knowingly violate or cause Intrepid Mining to violate any regulations of the of the Mine Safety and
Health Administration (MSHA) or the Occupational Safety and Health Administration (OSHA).
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5.
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SEXUAL HARASSMENT
: Company employees are prohibited from engaging in sexual harassment, retaliation against a person for opposing sexual harassment, or aiding or
abetting sexual harassment of any employee.
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6.
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DRUG-FREE WORKPLACE
: In compliance with the Drug-Free Workplace Act of 1988, the Company will not hire or employ individuals who use illegal drugs or abusively use
alcohol. You will be expected to sign the most current version of the Intrepid Substance Abuse Policy.
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7.
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HEALTH & MEDICAL SCREENING
: I agree to submit to medical evaluations and/or examinations, including tests for the presence of illegal drugs or alcohol (or
other Company-required workplace-related health screening requirements) during employment, or upon my employment termination, as requested by the Company.
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8.
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PROBLEM RESOLUTION
: Intrepid desires that work-related problems or complaints be resolved fairly through appropriate supervisory and management review. I agree to
submit my problems to the Company’s Problem Resolution procedure as it is communicated to me.
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9.
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MEDIATION/ARBITRATION
: When a dispute arises out of the employer/employee relationship which cannot be settled through the Problem Resolution process described in the
previous statement (No. 8), I and the Company agree to submit the dispute to Mediation and/or binding Arbitration in accordance with rules and procedures provided by the American Arbitration Association.
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10.
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CONFIDENTIAL INFORMATION
: I agree not to disclose nor use for my own or someone else’s benefit, during or after my employment, any confidential information about
the business, operations, or technical processes of Intrepid which may become known to me. Should I terminate employment I will promptly deliver to the Company all materials in my possession containing confidential information.
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11.
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CONFLICTS OF INTEREST
: I agree not to engage in activities or have personal or financial interests which impair, or appear to impair my independence or judgment or
otherwise conflict with my responsibilities to Intrepid Mining. If unsure of a potential conflict I will review the situation with Human Resources.
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12.
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POLICIES, PROCEDURES, & RULES
: In consideration of my employment I agree to abide by policies, procedures, and rules established by the Company for its
operating purposes, including any and all conditions of employment. I accept the Company’s exclusive right to add, change, or discontinue these terms and conditions or any of its policies, benefits, procedures, and rules as it deems necessary,
with or without notice, subject to applicable laws.
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Accepted and Agreed to, this
date of January, 2008.
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/s/ David W. Honeyfield
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David W. Honeyfield
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Exhibit 10.15
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The Intrepid Companies
700 17
th
Street, Suite 1700
Denver, CO 80202
303.296.3006
303.298.7502 fax
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April 1, 2008
Mr. David W. Honeyfield
700 17
th
Street, Suite 1700
Denver, CO 80202
Dear Dave:
Pursuant to the initial public offering (the
“IPO”) of Intrepid Potash, Inc., all employees of Intrepid Mining, LLC will become employees of Intrepid Potash, Inc. shortly prior to the closing of the IPO. The purpose of this letter is to let you know that the terms and conditions of
your employment with Intrepid Mining, LLC, as set forth in the offer letter you received on January 29, 2008, will continue to apply to you on and after the IPO. Thus, Intrepid Potash, Inc. will be responsible for fulfilling the obligations of
Intrepid Mining, LLC set forth in the offer letter and you will continue to be bound by the employment terms and conditions you agreed to in that letter. With regard to the salary guarantee set forth in Section 13 of the letter (pursuant to
which you may be entitled to severance if you are terminated upon a sale or other change in ownership of Intrepid Mining), Intrepid Potash, Inc. will interpret that section as applying if your employment is terminated without “Cause” or by
you for “Good Reason” following a “Change of Control,” as each of those terms is defined in Intrepid Potash’s 2008 Equity Incentive Plan.
Dave, you are an integral part of our management team and we’re very excited about the IPO and your future with us as we become a public company. Please acknowledge and indicate your acceptance of the foregoing
by signing the bottom of this page and returning it to my attention.
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Sincerely,
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/s/ Jamie Whyte
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Jamie Whyte
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Accepted and agreed to this
day of April, 2008
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/s/ David W. Honeyfield
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David W. Honeyfield
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Exhibit 10.16
FORM OF
INTREPID POTASH, INC.
SHORT TERM INCENTIVE PLAN
(Adopted April __, 2008)
(Approved by the Company’s stockholders on April __, 2008)
This Intrepid Potash, Inc. Short
Term Incentive Plan is an annual cash bonus plan intended to enable the Company to attract, retain, motivate and reward qualified executive officers by providing them the opportunity to earn competitive annual bonus compensation directly linked to
pre-established, objective performance goals. Compensation paid under this plan is intended to qualify as “qualified performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended
(the “
Code
”), so as to exempt such compensation from the deduction limits imposed by Code Section 162(m) and to make such compensation deductible by the Company for Federal income tax purposes. The plan will be
administered and construed in all events in accordance with the foregoing intentions.
The following words as used in this
Plan shall have the meanings ascribed to them below:
(a)
Board
means the Board of Directors of the Company.
(b)
Committee
means generally the Compensation Committee of the Board; provided, however, that for purposes
of the Plan, the Compensation Committee shall be comprised solely of two or more “outside directors” as defined in the regulations and other guidance promulgated under Section 162(m).
(c)
Company
means Intrepid Potash, Inc., a Delaware corporation.
(d)
Disability
means that the Participant is (i) unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months; (ii) by reason of any medically determinable physical or mental
impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident or health plan
covering employees of the Participant’s employer; or (iii) determined to be totally disabled by the Social Security Administration.
(e)
Participant
means (i) each executive officer of the Company or any subsidiary, and (ii) each other key employee of the Company or a subsidiary, whom the Committee designates as a
participant under this Plan for a Plan Year.
(f)
Earned Award
means the actual bonus amount, if any, payable
to a Participant under this Plan for a Plan Year, as determined by the Committee in accordance with Sections 5, 6, and 7 hereof.
(g)
Performance Goals
means one or more targeted levels of performance for a Plan Year based on one or more of the following criteria: (a) total shareholder return; (b) return on assets, return on equity, or return
on capital employed; (c) measures of profitability such as earnings per share, corporate or business-unit net income, net income before extraordinary or one-time items, earnings before interest and taxes, or earnings before interest, taxes,
depreciation
2
and amortization; (d) cash flow from operations; (e) gross or net revenues or gross or net margins; (f) levels of operating expense or other
expense items reported on the income statement; (g) measures of customer satisfaction and customer service; (h) safety; (i) annual or multi-year average production growth; (j) efficiency or productivity measures such as annual or
multi-year absolute or per-unit operating and maintenance costs; (k) satisfactory completion of a major project or organizational initiative with specific criteria set in advance by the Committee; (l) debt ratios or other measures of
credit quality or liquidity; (m) strategic asset sales or acquisitions in compliance with specific criteria set in advance by the Committee; (n) sales and marketing measures, such as annual or multi-year “net-back” sales or the
introduction of new products in accordance with specific goals set in advance by the Committee; and (o) staffing and retention.
(h)
Plan
means the Intrepid Potash, Inc. Short Term Incentive Plan, as set forth herein.
(i)
Plan Year
means the calendar year, which is also the Company’s fiscal year.
(j)
Stock
shall mean the $.001 par value common stock of the Company.
(k)
Target Award
shall mean a Participant’s
annual target award opportunity as determined by the Committee in accordance with Section 5 hereof.
The Committee will administer and
interpret this Plan. The Committee shall have the authority, subject to the terms of the Plan, to determine those eligible employees who shall participate in the Plan for each Plan Year, the Target Awards for all such Participants for each Plan
Year, the objective formula or other methodology that will be used to calculate Awards for each Plan Year, the Performance Goals that must be satisfied in order for Awards to become payable for a Plan Year (which Performance Goals need not be the
same for all Participants), whether the Performance Goals have been achieved, to calculate the amount, if any, of each Participant’s Award for the Plan Year, to reduce an Award otherwise payable to a Participant for a Plan Year, to determine
whether Awards shall be payable in cash or in Stock, and to set any other terms and conditions associated with the payment of bonuses under the Plan as it deems necessary or desirable in accordance with the terms of the Plan and the requirements of
Section 162(m) of the Code.
The Committee shall also have the authority to establish such rules and regulations, not inconsistent
with the provisions of the Plan, as it deems necessary or desirable for the proper administration of the Plan, and shall make such determinations and interpretations under and in connection with the Plan as it deems necessary or desirable. The Plan,
and all such rules, regulations, determinations, and interpretations of the Committee, shall be binding and conclusive upon the Company, its stockholders, and all Participants, and upon their legal representatives, heirs, beneficiaries, successors
and assigns and upon all other person claiming under or through any of them.
3
Within 90 days of the beginning of each Plan Year, the Committee shall designate in writing those
executive officers and other key employees of the Company and its subsidiaries who shall participate in the Plan for the Plan Year. Participation in the Plan for one Plan Year does not guarantee participation in the Plan for future Plan Years, and
the Committee may add or remove Participants in the Plan from one Plan Year to the next in its sole and absolute discretion.
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5.
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TARGET BONUSES AND PERFORMANCE GOALS.
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Coincident
with the Committee’s designation of Participants for a Plan Year, the Committee shall also determine, in writing, (i) each Participant’s Target Award for the Plan Year, (ii) the Performance Goals that must be achieved in order
for each Participant to receive an Earned Award, and (iii) the formula or other methodology to be used in determining each Participant’s Earned Award, if any, for the Plan Year, which formula or methodology shall require that the
applicable Performance Goals must be achieved in order for a Participant to receive an Earned Award. Target Awards, Performance Goals, and the formula or methodology for determining Earned Awards need not be the same for all Participants, and
Performance Goals may be based on one or more of the business criteria enumerated in the definition of Performance Goal, above, as determined by the Committee. Each Participant shall be promptly notified of their participation in the Plan for a Plan
Year, along with their Target Award for such Plan Year, the Performance Goals applicable to the Participant for the Plan Year, and the formula or other methodology to be used in determining the Participant’s Earned Award for the Plan Year.
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6.
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COMPUTATION OF BONUSES AND CERTIFICATION OF PERFORMANCE GOALS.
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Following the conclusion of each Plan Year, the Committee shall certify in writing the levels of attainment of the Performance Goals for that Plan Year and shall calculate the total Earned Award amount for each
Participant in accordance with the formula or other methodology adopted by the Committee in accordance with Section 5 at the beginning of such Plan Year. The Committee may, however, reduce or eliminate the Earned Award otherwise payable in
accordance with the preceding sentence, in its sole and absolute discretion. In no event shall a Participant receive an Earned Award if the Performance Goals applicable to such Participant are not satisfied.
All Earned Awards shall be payable as soon as reasonably practicable after the end of the Plan Year and the Committee’s computation of Earned Awards and certification of Performance Goals, but in no event later
than March 15
th
of the following Plan Year. All Earned Awards shall be payable in cash or in Stock, as determined by the Committee in its sole
discretion. Participants
must
be employed on the date of payment in order to receive payment of their Earned Awards.
The maximum Earned Award for any
Participant with respect to any Plan Year shall be $2,000,000.
4
(a)
Termination;
Amendment
. The Board may at any time amend or terminate this Plan, except that no amendment will be effective without approval by the Company’s stockholders if such approval is necessary to qualify amounts payable hereunder as
“qualified performance-based compensation” under Section 162(m). Unless it is re-approved by the stockholders, this Plan shall terminate on the date of the first stockholder meeting that occurs in the fifth year after the year of
initial stockholder approval. No termination of this Plan shall affect Performance Goals or Target Awards established by the Committee prior to such termination.
(b)
No Employment or Bonus Rights
. Nothing in this Plan will be construed as conferring upon any Participant any right to continue in the employment of the Company or any of its subsidiaries or to
receive any amounts under this Plan.
(c)
Nonalienation of Benefits
. Except as expressly provided herein or otherwise
required by applicable law, no Participant or beneficiary will have the power or right to alienate, transfer, anticipate, sell, assign, pledge, attach, or otherwise encumber the Participant’s interest under this Plan.
(d)
Withholding
. Any Earned Award to a Participant or a beneficiary under this Plan will be subject to applicable Federal, state and local
income and employment taxes and any other amounts that the Company or a subsidiary is required by law to deduct and withhold from such amounts.
(e)
Plan Unfunded
. The entire cost of this Plan shall be paid from the general assets of the Company. The rights of any Participant or beneficiary to receive payment of an Earned Award under this Plan shall be only those of a
general unsecured creditor, and neither the Company nor the Board or the Committee shall be responsible for the adequacy of the general assets of the Company to meet and discharge Plan liabilities.
(f)
Severability
. If any provision of this Plan is held unenforceable, the remainder of this Plan will continue in full force and effect
without regard to such unenforceable provision and will be applied as though the unenforceable provision were not contained in this Plan.
(g)
Governing Law
. This Plan will be construed in accordance with and governed by the laws of the State of Colorado, without reference to the principles of conflict of laws.
(h)
Headings
. Headings are inserted in this Plan for convenience of reference only and are to be ignored in any construction of the
provisions of this Plan.
(i)
409A
. This Plan and all bonuses payable hereunder are intended to comply with the requirements
imposed by Section 409A of the Code, and this Plan shall be interpreted accordingly.
(j)
Plan Approval
. This Plan was
approved and adopted by the Board and contemporaneously approved by the stockholders of the Company on April __, 2008.
5
To record adoption of the Plan by the Board on April __, 2008, the Company has caused its authorized
officer to execute the Plan.
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INTREPID POTASH, INC.
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Robert P. Jornayvaz III
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Chief Executive Officer
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Date
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6
Exhibit 10.17
FORM OF
INTREPID POTASH, INC.
2008 SENIOR MANAGEMENT PERFORMANCE INCENTIVE PLAN
(Adopted April __, 2008)
This Intrepid Potash, Inc. 2008
Senior Management Performance Incentive Plan is an annual bonus plan that is intended (i) to enable Intrepid Potash, Inc. to attract, retain, motivate and reward senior executive officers by providing them with the opportunity to earn
competitive annual bonus compensation for the 2008 calendar year, and (ii) to qualify as a compensation plan or arrangement in effect prior to the time of Intrepid Potash, Inc.’s initial public offering, such that bonuses paid hereunder
will be exempt from the deduction limitations under Section 162(m) of the Internal Revenue Code of 1986, as amended, pursuant to Treas. Reg. Section 1.162-27(f). The plan will be administered and construed in all events in accordance with
the foregoing intentions. Executive officers and other key employees not covered under the terms of this Plan may be eligible to participate in the Company’s general annual performance incentive plan (which has not been reduced to writing)
pursuant to which they may receive annual bonuses awarded in a similar manner as described herein.
The following words as used in this
Plan have the meanings ascribed to them below:
(a)
Base Salary
shall mean the annual rate of a
Participant’s base salary in effect as of the last day of the Plan Year or, in the event of death, Disability, or Change of Control, in effect immediately prior to such event.
(b)
Board
means the Board of Directors of the Company.
(c)
Change of Control
means and shall be deemed to have occurred upon the occurrence of:
(i) the acquisition by any individual, entity, or group (within the meaning of Sections 13(d)(3) or 14(d)(2) of the Exchange Act (a
“
Person
”) of “beneficial ownership” (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 50% of the combined voting power of the Company’s then outstanding securities entitled to
vote generally in the election of directors, other than any acquisition (1) directly from, or by, the Company, (2) by a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries,
or (3) by Robert P. Jornayvaz III, Hugh E. Harvey Jr. or J. Landis Martin (collectively the “
Principals
”), or by any “group” (within the meaning of Section 13(d)(3) of the Exchange Act) that is controlled
by one or more of the Principals;
(ii) the individual directors of the Board as of the Effective Date (the
“
Incumbent Directors”
) cease to constitute at least two-thirds of the Board; provided, however, that for purposes of this paragraph, any new director whose election by the Board or nomination for election by the
Company’s stockholders was approved by a vote of at least a majority of the Incumbent Directors shall be considered an Incumbent Director;
(iii) consummation, in one transaction or a series or related transactions, of a reorganization, merger, or consolidation of the Company or sale or other disposition, direct or indirect, of all or substantially all of
the assets of the Company (a “
Business
Intrepid Potash, Inc. 2008 Senior Management Performance
Incentive Plan
1
Combination
”), in each case, unless, following such Business Combination, the Persons who were the “beneficial owners” of
outstanding voting securities of the Company immediately prior to such Business Combination “beneficially own,” by reason of such ownership of the Company’s voting securities immediately before the Business Combination, more than 50%
of the combined voting power of the company resulting from such Business Combination (including, without limitation, a company which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either
directly or through one or more subsidiaries) in substantially the same proportions as their ownership of the outstanding voting securities of the Company immediately prior to such Business Combination; or
(iv) approval by those Persons holding the voting securities of the Company of a complete liquidation or dissolution of the Company.
A Person will not be deemed to be a member of a “group” for purposes of this definition solely by virtue of becoming party to an
agreement with one or more Principals that requires such Person to vote the voting stock of the Company in a manner specified by the Principals.
(d)
Committee
means the Compensation Committee of the Board.
(e)
Company
means Intrepid Potash, Inc., a Delaware corporation.
(f)
Disability
means that the
Participant is (i) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less
than 12 months; (ii) by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement
benefits for a period of not less than three months under an accident or health plan covering employees of the Participant’s employer; or (iii) determined to be totally disabled by the Social Security Administration.
(g)
Participant
means an individual identified by name in, or by the Committee in accordance with, Section 4 hereof.
(h)
Plan
means this Intrepid Potash, Inc. 2008 Senior Management Performance Incentive Plan, as set forth
herein.
(i)
Plan Year
means the 2008 calendar year.
(j)
Stock
shall mean the $.001 par value common stock of the Company.
(k)
Target Bonus Amount
means the amount of a Participant’s 2008 target bonus, expressed as a percentage of that
Participant’s Base Salary.
The Committee will administer and
interpret this Plan. The Committee shall have full authority, subject to the terms of the Plan, to determine eligibility to participate in the Plan for all
Intrepid Potash, Inc. 2008 Senior Management Performance Incentive Plan
2
executives hired after the adoption of this Plan and the target bonus percentages for all such Participants, to determine the individual and Company
performance criteria that shall be used in determining a Participant’s bonus under the Plan (which criteria need not be the same for all Participants), to determine whether such criteria have been achieved, to determine the amount, if any, of
each Participant’s annual bonus, and to set any other terms and conditions associated with the payment of annual bonuses under the Plan as it deems necessary or desirable.
The Committee shall also have the authority to establish such rules and regulations, not inconsistent with the provisions of the Plan, as it deems
necessary or desirable for the proper administration of the Plan, and shall make such determinations and interpretations under and in connection with the Plan as it deems necessary or desirable. The Plan, and all such rules, regulations,
determinations, and interpretations, shall be binding and conclusive upon the Company, its stockholders, and all Participants, and upon their legal representatives, heirs, beneficiaries, successors and assigns and upon all other person claiming
under or through any of them.
The following individuals shall be the
initial Participants in the Plan:
Robert P. Jornayvaz III,
Chief Executive Officer
Hugh E. Harvey, Jr.,
Executive Vice President of Technology
Patrick L. Avery,
President and Chief Operating Officer
David W. Honeyfield,
Executive Vice
President, Chief Financial Officer and
Treasurer
James N. Whyte,
Executive Vice President of Human Resources and Risk
Management
R.L. Moore,
Senior Vice President of Sales and Marketing
The Committee shall have discretion to designate any executive officer hired after the adoption of this Plan as an additional participant in the Plan.
Such designation shall be in writing and shall occur within thirty (30) days of the individual’s date of hire.
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5.
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2008 TARGET BONUS AMOUNTS.
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Target Bonus Amounts
for the initial participants for 2008 shall be as follows:
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Robert P. Jornayvaz III
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150% of Base Salary
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Huge E. Harvey, Jr.
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150% of Base Salary
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Partrick L. Avery
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50% of Base Salary
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David W. Honeyfield
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50% of Base Salary
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James N. Whyte
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40% of Base Salary
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R.L. Moore
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50% of Base Salary
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Upon designating any additional executive officer for participation in the Plan, the Committee
shall also designate, in writing, such individual’s Target Bonus Amount for the Plan Year, which Target Bonus Amount shall be determined by the Committee in its sole and absolute discretion.
Intrepid Potash, Inc. 2008 Senior Management Performance Incentive Plan
3
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6.
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DETERMINATION OF 2008 BONUSES
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Following the
conclusion of the Plan Year, the Committee shall determine actual 2008 bonus amounts to be payable to each Participant, which amounts may be less than, equal to, or greater than the Target Bonus Amount established for each Participant. In
determining the actual amount of a Participant’s bonus, the Committee shall consider (i) the extent to which the Participant has met the goals established for the Participant in the Participant’s most recent annual review, if
performed, (ii) the extent to which the Participant has otherwise met individual performance expectations, as determined by the Committee, (iii) the Company’s financial performance during the year, which performance may be measured
based on the Company’s 2008 operating plan or such other financial criteria as may be determined by the Committee, (iv) any extenuating circumstances relating to individual or Company performance, and (v) any other facts and
circumstances that the Committee deems relevant in determining bonus amounts for the year. It is anticipated, although not required, that the Committee will award an actual 2008 bonus in an amount equal to a Participant’s Target Bonus Amount in
the event that both individual and Company performance for the year meets expectations. It is further expected, although not required, that the Committee will award bonuses that are less than the Target Bonus Amounts in the event that individual and
Company performance fails to reach expected levels. Finally, it is expected, but not required, that exceptional individual or Company performance will warrant a bonus in excess of a Participant’s Target Bonus Amount. In no event, however, may
an actual 2008 bonus under this Plan exceed 200% of the Participant’s Target Bonus Amount. There is no minimum bonus payable under the Plan and no Participant is guaranteed a bonus based on their participation in the Plan.
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7.
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PAYMENT OF 2008 BONUSES
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2008 bonuses shall be paid
as soon as administratively feasible after determination by the Committee of such amounts pursuant to Section 6, but in no event later than March 15, 2009. Bonuses shall be payable in cash or in Stock, as determined by the Committee in its
sole discretion. A Participant
must
be employed on the date of payment in order to receive a 2008 bonus pursuant to this Section 7.
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8.
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DEATH, DISABILITY, CHANGE OF CONTROL.
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Notwithstanding Section 7 hereof, in the event of a Participant’s death or Disability, or upon a Change in Control, in all events prior to payment of the 2008 bonus, the Committee may, but need not, award to the Participant or to
the Participant’s guardian or beneficiaries a full or partial 2008 bonus under this Section 8. In determining the amount of such bonus, if any, the Committee shall apply the same methodology and criteria as are described in Section 6,
above. All bonuses payable under this Section 8 shall be paid in cash or in Stock, as determined by the Committee in its discretion, no later than March 15, 2009.
(a)
Termination;
Amendment
. The Board may at any time amend or terminate this Plan. This Plan shall terminate automatically upon payment of all 2008 bonuses, if any, due under the Plan.
Intrepid Potash, Inc. 2008 Senior Management Performance Incentive Plan
4
(b)
No Employment or Bonus Rights
. Nothing in this Plan will be construed as conferring
upon any Participant any right to continue in the employment of the Company or any of its subsidiaries or to receive a bonus under this Plan.
(c)
Nonalienation of Benefits
. No Participant or beneficiary will have the power or right to alienate, transfer, anticipate, sell, assign, pledge, attach, or otherwise encumber the Participant’s interest under this Plan.
(d)
Withholding
. Any amount payable to a Participant or a beneficiary under this Plan will be subject to any applicable
Federal, state and local income and employment taxes and any other amounts that the Company or a subsidiary is required by law to deduct and withhold from such amount.
(e)
Plan Unfunded
. The entire cost of this Plan shall be paid from the general assets of the Company. The rights of any Participant or beneficiary to receive a bonus or payment under this Plan shall be
only those of a general unsecured creditor, and neither the Company nor the Board or the Committee shall be responsible for the adequacy of the general assets of the Company to meet and discharge Plan liabilities.
(f)
Severability
. If any provision of this Plan is held unenforceable, the remainder of this Plan will continue in full force and effect
without regard to such unenforceable provision and will be applied as though the unenforceable provision were not contained in this Plan.
(g)
Governing Law
. This Plan will be construed in accordance with and governed by the laws of the State of Colorado, without reference to the principles of conflict of laws.
(h)
Headings
. Headings are inserted in this Plan for convenience of reference only and are to be ignored in any construction of the
provisions of this Plan.
(i)
409A
. This Plan and all bonuses payable hereunder are intended to comply with the requirements
imposed by Section 409A of the Code, and this Plan shall be interpreted accordingly.
To record adoption of the Plan by the Board on
April __, 2008, the Company has caused its authorized officer to execute the Plan.
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INTREPID POTASH, INC.
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By:
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Robert P. Jornayvaz III
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Chief Executive Officer
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Date:
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Intrepid Potash, Inc. 2008 Senior Management Performance Incentive Plan
5
Exhibit 10.18
Restricted Stock Grant No.: __
INTREPID POTASH, INC.
2008 EQUITY INCENTIVE PLAN
FORM OF
RESTRICTED STOCK AGREEMENT
The Board of Directors of Intrepid Potash, Inc., a Delaware corporation (the
“Company”
), has granted shares of Restricted Stock issued under the Intrepid Potash, Inc. 2008 Equity Incentive Plan (the
“Plan”
) to the Grantee named below. This Restricted Stock Agreement (the
“Agreement”
) evidences the terms of that grant of Restricted Stock.
I. NOTICE OF GRANT
Name of Grantee:
Number of Shares of Restricted Stock Granted:
Grant Date:
Vesting Schedule:
Except as
provided otherwise in this Agreement or the Plan, subject to Grantee’s continuous Service, the Restricted Stock shall vest and the restrictions set forth in Section 2 of this Agreement shall lapse as follows:
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Service Vesting Date
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Percentage of
Shares that Vest
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Number of
Shares that Vest
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II. RESTRICTED STOCK AGREEMENT
1.
Grant of Restricted Stock
.
Subject to the terms and conditions of this Agreement and the Plan, the Company granted to Grantee the
number of shares of Restricted Stock set forth in the Notice of Grant, effective on the Grant Date set forth in the Notice of Grant, and subject to the terms and conditions of the Plan, which is incorporated herein by reference. In the event of a
conflict between the terms and conditions of the Plan and this Agreement, the terms and conditions of the Plan shall govern. All capitalized terms in this Agreement shall have the meaning assigned to them in this Agreement or in the Plan.
I
NTREPID
P
OTASH
, I
NC
. R
ESTRICTED
S
TOCK
A
GREEMENT
2.
Forfeiture Restrictions.
Grantee shall not sell, transfer, assign, pledge or otherwise
encumber or dispose of, by operation of law or otherwise, the Restricted Stock for the period commencing on the Grant Date and ending on the dates described in the Vesting Schedule set forth in the Notice of Grant (the
“Restriction
Period”
). To enforce the restrictions set forth in this Paragraph 2, shares of Restricted Stock may be held in electronic or other book form in an account by the Company’s transfer agent or other designee until the restrictions set
forth in Paragraph 2 have lapsed with respect to such shares, or until this Agreement no longer is in effect. In the event the Committee elects not to hold the shares in electronic or other book form, the Restricted Stock shall be evidenced by the
issuance of share certificates in the name of Grantee with appropriate restrictive legends regarding restrictions on transfer and compliance with securities law requirements, as determined by the Committee. Any such certificates shall be held in the
custody of the Company until the restrictions set forth in this Paragraph 2 have lapsed with respect to the shares covered thereby, or until this Agreement is no longer in effect.
3.
Vesting; Lapse of Restrictions.
Except as provided otherwise in this Agreement and the Plan, if Grantee has been in continuous Service
since the Grant Date, the Restricted Stock shall vest as set forth on the Vesting Schedule in the Notice of Grant. Upon vesting, the restrictions in Paragraph 2 shall lapse and Grantee may transfer the shares of Stock in accordance with applicable
securities law requirements and the Company’s policies and procedures.
4.
Termination of Service; Forfeiture
.
Except as provided otherwise in this Agreement or the Plan, upon the termination of Grantee’s Service, any shares of Restricted Stock held by Grantee that have not vested in accordance with Paragraph 3 shall immediately be forfeited. Upon
forfeiture of the shares of Restricted Stock, Grantee shall have no further rights with respect to such shares, including but not limited to any right to vote the shares or any right to receive dividends.
5.
Leave of Absence
.
For purposes of this grant of Restricted Stock, Service does not terminate when Grantee goes on a
bona fide
employee leave of absence that was approved by the Company or an Affiliate in writing, if the terms of the leave provide for continued Service crediting, or when continued Service crediting is required by applicable law. However, Service will be
treated as terminating 90 days after Grantee went on the approved leave, unless Grantee’s right to return to active work is guaranteed by law or by a contract. Service terminates in any event when the approved leave ends unless Grantee
immediately returns to active Service. The Committee determines, in its sole discretion, which leaves of absence count for this purpose, and when Service terminates for all purposes under the Plan.
6.
Dividends
.
During the Restriction Period, regular cash dividends declared and paid with respect to shares of Restricted Stock
shall be withheld by the Company and delivered to Grantee at the same time that the related Restricted Stock vests. If shares of Restricted Stock are forfeited pursuant to Paragraph 4, the related dividends shall be forfeited at the same time.
Grantee shall not be entitled to receive any special or extraordinary cash dividends or distributions during the Restriction Period. All shares distributed to Grantee, if any, with respect to shares of Restricted Stock as a result of any split,
stock dividend, combination of shares of stock, or other similar transaction shall be subject to the same restrictions during the Restriction Period as the related shares of Restricted Stock.
7.
Tax Withholding
.
The Company or any Affiliate shall have the right to deduct from payments of any kind otherwise due to Grantee,
any federal, state, local or foreign taxes of
I
NTREPID
P
OTASH
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ESTRICTED
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TOCK
A
GREEMENT
2
any kind required by law to be withheld upon the issuance, vesting or payment of any shares of Stock or dividends. Subject to the prior approval of the
Committee, which may be withheld by the Committee, in its sole discretion, Grantee may elect to satisfy the minimum statutory withholding obligations, in whole or in part, (i) by having the Company withhold shares of Stock otherwise issuable to
Grantee or (ii) by delivering to the Company shares of Stock already owned by Grantee. The shares delivered or withheld shall have an aggregate Fair Market Value not in excess of the minimum statutory total tax withholding obligations. The Fair
Market Value of the shares used to satisfy the withholding obligation shall be determined by the Company as of the date that the amount of tax to be withheld is to be determined. Shares used to satisfy any tax withholding obligation must be vested
and cannot be subject to any repurchase, forfeiture, or other similar requirements. Any election to withhold shares shall be irrevocable, made in writing, signed by Grantee, and shall be subject to any restrictions or limitations that the Committee,
in its sole discretion, deems appropriate.
8.
Effect of Prohibited Transfer
. If any transfer of shares is made or attempted
to be made contrary to the terms of this Agreement, the Company shall have the right to acquire for its own account, without the payment of any consideration, such shares from the owner thereof or his transferee, at any time before or after such
prohibited transfer. In addition to any other legal or equitable remedies it may have, the Company may enforce its rights to specific performance to the extent permitted by law and may exercise such other equitable remedies then available. The
Company may refuse for any purpose to recognize any transferee who receives shares contrary to the provisions of this Agreement as a stockholder of the Company and may retain and/or recover all dividends on such shares that were paid or payable
subsequent to the date on which the prohibited transfer was made or attempted.
9.
Market Stand-Off Agreement
.
In
connection with the initial public offering of shares of Common Stock of the Company (the
“IPO”
), Grantee agrees not to sell, make any short sale of, loan, hypothecate, pledge, grant any option for the purchase of, or
otherwise dispose or transfer for value or agree to engage in any of the foregoing transactions with respect to any shares of Stock without prior written consent of the Company or its underwriters, for such period of time after the effective date of
the IPO registration statement under the Securities Act as may be requested by the Company or the underwriters (not to exceed 180 days in length).
10.
Investment Representations
.
The Committee may require Grantee (or Grantee’s estate or heirs) to represent and warrant in writing that the individual is acquiring the shares of Stock for investment and without
any present intention to sell or distribute such shares and to make such other representations as are deemed necessary or appropriate by the Company and its counsel.
11.
No Right to Continued Service
. Neither the grant of shares of Restricted Stock nor this Agreement gives Grantee the right to continue Service with the Company or its Affiliates in any capacity. The
Company and its Affiliates reserve the right to terminate Grantee’s Service at any time and for any reason not prohibited by law.
12.
Covenants.
Grantee expressly covenants and agrees (a) not to divulge to others or use for Grantee’s own benefit any confidential information obtained during Grantee’s Service relating to the business and operations of
the Company or any of its Affiliates; and (b) during
I
NTREPID
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OTASH
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ESTRICTED
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TOCK
A
GREEMENT
3
and for twelve (12) months after Grantee’s Service, not to solicit or otherwise induce, directly or indirectly, any current employee of the Company
or any of its Affiliates to leave employment in order to work for any other person or entity.
13.
Governing Law
.
The
validity and construction of this Agreement and the Plan shall be construed in accordance with and governed by the laws of the State of Delaware other than any conflicts or choice of law rule or principle that might otherwise refer construction or
interpretation of the Plan and this Agreement to the substantive laws of any other jurisdiction.
14.
Binding Effect
.
This Agreement shall be binding upon and inure to the benefit of the Company and Grantee and their respective heirs, executors, administrators, legal representatives, successors and assigns.
15.
Tax Treatment; Section 83(b); Section 409A.
Grantee may incur tax liability as a result of the vesting of shares of
Restricted Stock and payment of dividends or the disposition of shares of Stock. Grantee should consult his or her own tax adviser for tax advice.
Grantee hereby acknowledges that Grantee has been informed that he or she may file with the Internal Revenue Service, within 30 days of the Grant Date, an irrevocable election pursuant to Section 83(b) of the
Code to be taxed as of the Grant Date on the amount by which the Fair Market Value of the Restricted Stock on that date exceeds the amount paid for the Stock, if any. If Grantee chooses to file an election under Section 83(b) of the Code,
Grantee hereby agrees to promptly deliver a copy of any such election to the Chief Financial Officer of the Company (or his designee).
Grantee acknowledges that the Committee, in the exercise of its sole discretion and without Grantee’s consent, may amend or modify this Agreement in any manner and delay the payment of any amounts payable
pursuant to this Agreement to the minimum extent necessary to satisfy the requirements of Section 409A of the Code. The Company will provide Grantee with notice of any such amendment or modification.
16.
Amendment
.
The terms and conditions set forth in this Agreement may only be amended by the written consent of the Company and
Grantee, except to the extent set forth in Section 14 regarding Section 409A of the Code and any other provision set forth in the Plan.
17.
2008 Equity Incentive Plan
.
The shares of Restricted Stock and payment of dividends granted hereunder shall be subject to such additional terms and conditions as may be imposed under the terms of the Plan, a copy of
which has been provided to Grantee.
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INTREPID POTASH, INC.
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By:
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James N. Whyte
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Executive Vice President of Human
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Resources and Risk Management
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I
NTREPID
P
OTASH
, I
NC
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ESTRICTED
S
TOCK
A
GREEMENT
4
[Grantee Signature Page Follows]
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NTREPID
P
OTASH
, I
NC
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ESTRICTED
S
TOCK
A
GREEMENT
5
ACKNOWLEDGMENT AND AGREEMENT
Grantee acknowledges receipt of this Agreement and agrees to all of the terms and conditions described in this Agreement and in the Plan, a copy of which
is attached. Grantee acknowledges that Grantee has carefully reviewed the Plan, and agrees that the Plan will control in the event that any provision in this Agreement is in conflict with the Plan. To accept this Agreement and the shares of
Restricted Stock evidenced thereunder, Grantee must sign and date this signature page and return it to the Company no later than __________.
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GRANTEE
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Signature
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Print Name:
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Date:
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Attachments:
2008 Equity Incentive Plan
Form S-8 Prospectus
I
NTREPID
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OTASH
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ESTRICTED
S
TOCK
A
GREEMENT
6
Exhibit 10.19
Director Stock Grant No.: __
INTREPID POTASH, INC.
2008 EQUITY INCENTIVE PLAN
FORM OF
DIRECTOR STOCK GRANT AGREEMENT
The Board of Directors of Intrepid Potash, Inc., a Delaware corporation (the
“Company”
), has granted shares of Stock under the Intrepid Potash, Inc. 2008 Equity Incentive Plan (the
“Plan”
) to the Grantee named below. This Director Stock Grant Agreement (the
“Agreement”
) evidences the terms of that grant.
I. NOTICE OF GRANT
Name of Grantee:
Number of Shares of Stock Granted:
Grant Date:
II. AGREEMENT
1.
Grant of Stock
.
Subject to the terms and conditions of this Agreement and the Plan, the Company granted to Grantee the number of
shares of Stock set forth in the Notice of Grant, effective on the Grant Date set forth in the Notice of Grant. The Stock was fully vested upon issuance, and may be transferred by Grantee in accordance with applicable securities law requirements and
the Company’s policies and procedures, subject to compliance with Section 2 hereof.
2.
Market Stand-Off
Agreement
.
In connection with the initial public offering of shares of Common Stock of the Company (the
“IPO”
), Grantee agrees not to sell, make any short sale of, loan, hypothecate, pledge, grant any option
for the purchase of, or otherwise dispose or transfer for value or agree to engage in any of the foregoing transactions with respect to any shares of Stock without prior written consent of the Company or its underwriters, for such period of time
after the effective date of the IPO registration statement under the Securities Act as may be requested by the Company or the underwriters (not to exceed 180 days in length).
3.
Investment Representations
.
The Committee may require Grantee (or Grantee’s estate or heirs) to represent and warrant in
writing that the individual is acquiring the shares of Stock for investment and without any present intention to sell or distribute such shares and to make such other representations as are deemed necessary or appropriate by the Company and its
counsel.
4.
No Right to Continued Service
.
Neither the grant of shares of Stock nor this Agreement gives Grantee the
right to continue Service with the Company or its Affiliates in any capacity.
5.
Governing Law
.
The validity and
construction of this Agreement and the Plan shall be construed in accordance with and governed by the laws of the State of Delaware other
I
NTREPID
P
OTASH
, I
NC
. D
IRECTOR
S
TOCK
G
RANT
A
GREEMENT
than any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of the Plan and this Agreement to the
substantive laws of any other jurisdiction.
6.
Binding Effect
.
This Agreement shall be binding upon and inure to the
benefit of the Company and Grantee and their respective heirs, executors, administrators, legal representatives, successors and assigns.
7.
Amendment
.
The terms and conditions set forth in this Agreement may only be amended by the written consent of the Company and Grantee.
8.
2008 Equity Incentive Plan
.
The shares of Stock granted hereunder are subject to the terms and conditions of the Plan, a copy of which has been provided to Grantee. In the event of a conflict
between the terms and conditions of the Plan and this Agreement, the terms and conditions of the Plan shall govern. All capitalized terms in this Agreement shall have the meaning assigned to them in this Agreement or in the Plan.
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INTREPID POTASH, INC.
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By:
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James N. Whyte
Executive Vice President of
Human
Resources and Risk Management
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Date:
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[Grantee Signature Page Follows]
I
NTREPID
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OTASH
, I
NC
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IRECTOR
S
TOCK
G
RANT
A
GREEMENT
2
ACKNOWLEDGMENT AND AGREEMENT
Grantee acknowledges receipt of this Agreement and agrees to all of the terms and conditions described in this Agreement and in the Plan, a copy of which
is attached. Grantee acknowledges that Grantee has carefully reviewed the Plan, and agrees that the Plan will control in the event that any provision in this Agreement is in conflict with the Plan. To accept this Agreement and the shares of Stock
evidenced thereunder, Grantee must sign and date this signature page and return it to the Company no later than __________.
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GRANTEE
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Signature
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Print Name:
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Date:
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Attachments:
2008 Equity Incentive Plan
Form S-8 Prospectus
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NTREPID
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OTASH
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IRECTOR
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TOCK
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RANT
A
GREEMENT
3
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
The Shareholder
Intrepid
Potash, Inc.:
We consent to the use of our reports dated March 12, 2008 with respect to
the consolidated balance sheets of Intrepid Mining LLC and subsidiaries as of December 31, 2007 and 2006 and the related consolidated statements of income, members’ equity (deficit) and comprehensive income, and cash flows for the years
then ended, as well as with respect to the balance sheet of Intrepid Potash, Inc. as of December 31, 2007, both included herein and to the reference to our firm under the heading “Experts” in the prospectus.
/s/ KPMG
KPMG LLP
Denver, Colorado
April 3, 2008
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Registration Statement on Form S-1 of Intrepid Mining, LLC of our report dated April 7, 2006 relating to our audit of the consolidated financial
statements of Intrepid Mining, LLC for the year ended December 31, 2005, appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to our firm under the caption “Experts” in such Prospectus.
/s/ Hein & Associates LLP
HEIN
& ASSOCIATES LLP
Denver, Colorado
April 3, 2008
Exhibit 23.4
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AGAPITO ASSOCIATES, INC.
Mining & Civil Engineers & Geologists
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715 H
ORIZON
D
RIVE
S
UITE
340
G
RAND
J
UNCTION
, CO 81506
USA
V
OICE
970.242.4220
www.agapito.com
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G
OLDEN
O
FFICE
303.271.3750
C
HICAGO
O
FFICE
630.792.1520
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April 4, 2008
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363-10
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Mr. Hugh Harvey
Operating
Manager
Intrepid Mining, LLC
700 – 17th Street, Suite 1700
Denver, CO 80202
Gentlemen:
Agapito Associates, Inc. (AAI), hereby consents to the references to AAI in the Registration Statement on Form S-1 filed by Intrepid Potash, Inc. and in all
amendments to the Registration Statement, including the reference under the caption “Experts.” AAI also consents to the use of the information supplied by AAI under the caption “Summary of Our Reserves.”
Respectfully submitted,
Michael Hardy, PhD, P.E.
President and Principal
GEOENGINEERING
Ÿ
MINING ENGINEERING
Ÿ
CIVIL ENGINEERING
Exhibit 23.6
CONSENT
The undersigned hereby consents to being named in the registration statement on Form S-1
(Registration No. 333-148215) and in all subsequent amendments and post-effective amendments or supplements thereto and in any registration statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act (the “Registration Statement”) of Intrepid Potash, Inc., a Delaware corporation (the “Company”), as an individual to become a director of the Company and to the inclusion of his biographical information in the
Registration Statement.
IN WITNESS WHEREOF, this Consent is signed and dated as of
the 3
rd
day of April, 2008.
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/s/ Terry Considine
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Name: Terry Considine
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Exhibit 23.7
CONSENT
The undersigned hereby consents to being named in the registration statement on Form S-1
(Registration No. 333-148215) and in all subsequent amendments and post-effective amendments or supplements thereto and in any registration statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act (the “Registration Statement”) of Intrepid Potash, Inc., a Delaware corporation (the “Company”), as an individual to become a director of the Company and to the inclusion of his biographical information in the
Registration Statement.
IN WITNESS WHEREOF, this Consent is signed and dated as of the 29th day of March, 2008.
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/s/ Barth E. Whitham
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Name: Barth E. Whitham
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Exhibit 99.1
FORM OF
TRANSITION SERVICES AGREEMENT
This Transition Services Agreement (this “
Agreement
”), is entered into as of April ___, 2008 (the “
Effective
Date
”), between
Intrepid Potash, Inc.
, a Delaware corporation (“
Intrepid Potash
”), and
Intrepid Oil & Gas, LLC,
a Colorado limited liability company (“
IOG
”), and for the limited
purposes of joining in and agreeing to Sections 8 and 9,
Intrepid Potash-Moab, LLC
, a Delaware limited liability company (“
Intrepid Moab
”).
Recitals
A. Until June 1, 2007, IOG was a wholly owned subsidiary of Intrepid Mining
LLC, a Delaware limited liability company (“
Intrepid Mining
”). As of that date, the entire equity interest in IOG was distributed to the members of Intrepid Mining. Intrepid Mining has performed certain accounting, geology, land
title and other services for IOG and allocated the cost of such services to IOG. Intrepid Potash acquired the business and assets of Intrepid Mining as of the Effective Date.
B. IOG desires that Intrepid Potash continue to perform certain services for a transitional period following the Effective Date, and Intrepid Potash has
agreed to perform such services pursuant to the terms and subject to the conditions set forth in this Agreement.
Agreement
In consideration of the mutual promises and covenants contained herein, and other good and valuable consideration, the parties hereto
agree as follows:
1.
Services
.
(a)
Services to be Provided
. During the term of this Agreement, Intrepid Potash shall, pursuant to the terms and subject to the conditions set forth in this Agreement, provide accounting, geology, land title,
and engineering services reasonably requested by IOG in connection with IOG’s oil and gas business (the “
Services
”). The Services shall be performed by the employees of Intrepid Potash (the “
Service Employees
”)
whose job titles are set forth on
Exhibit A
hereto, as such
Exhibit A
may be amended from time to time by the mutual agreement of IOG and Intrepid Potash. The Service Employees shall devote such portion of their working time to the
performance of the Services as reasonably requested by IOG;
provided
that no Service Employee shall devote more than 15% of his or her working time to performance of the Services without the prior consent of Intrepid Potash’s Board of
Directors.
(b)
Quality of Services
. Intrepid Potash shall provide the Services to IOG in a commercially reasonable
manner and in accordance with its respective past practices and standards for the provision of such Services.
2.
Term and
Termination
. This Agreement shall continue for a period of one year from the Effective Date;
provided
, that IOG may terminate this Agreement upon 30 days’ prior written notice to Intrepid Potash. Upon the termination of this
Agreement, all rights and obligations of the parties hereunder shall terminate, except that (a) each of Intrepid Potash and
IOG shall deliver any property belonging to the other party to such other party promptly upon such termination, (b) IOG shall continue to be responsible
for, and shall pay in accordance with Section 4 hereof, any Services Fee and Reimbursements accrued prior to the date of such termination, and (c) the rights and obligations of the parties set forth in Sections 7 through 16 of this
Agreement shall survive such termination.
3.
Amounts Payable to Intrepid Potash
. During the term of this Agreement, Intrepid Potash
shall be paid an aggregate monthly fee and reimbursement (the “
Services Fee and Reimbursement
”) for and in connection with the performance of the Services equal to the sum of (i) the Service Employee Hours for such month;
multiplied by
the Employee Cost Per Hour for such month,
plus
(ii) the Direct Costs for such month;
provided
that the Services Fee and Reimbursement shall be increased by the amounts, if any, due pursuant to Section 8
of this Agreement.
(a)
Employee Time Accounting
. Each Service Employee shall separately track and account for the
number of hours spent performing the Services for each month during the term of this Agreement (the “
Service Employee Hours
”). Service Employee Hours shall be reviewed and accounted for by Intrepid Potash’s payroll accounting
personnel.
(b)
Employee Cost Per Hour
. “
Employee Cost Per Hour
” means the cost per hour of Intrepid
Potash for each Service Employee, calculated as of the first day of each calendar quarter after the Effective Date based on a 2,000 hour year, for (i) gross wages, salaries, bonuses, incentive compensation and payroll taxes of such Service
Employee,
plus
(ii) employee benefit plans attributable to such Service Employees, including, but not limited to, pension, savings, medical, dental, vision, disability and life insurance,
plus
(iii) other benefits directly
attributable to such Service Employee, including, but not limited to, fringe benefits, or other similar incentive programs, executive programs, severance pay, employee assistance programs, cafeteria plan benefits, dependent care and health care
flexible spending accounts, sick leave, legal assistance, and educational assistance. The Employee Cost Per Hour for each Service Employee as of the Effective Date is set forth on
Exhibit A
attached hereto.
(c)
Direct Costs
. “
Direct Costs
” means all reasonably documented out-of-pocket costs and expenses incurred by
Intrepid Potash for IOG in connection with the performance of the Services or otherwise.
4.
Billing and Payments
.
(a)
Invoices and Payment.
Each month Intrepid Potash shall invoice IOG for the Services Fee and Reimbursement for the preceding
month. IOG shall pay Intrepid Potash the Services Fee and Reimbursement within 30 days following receipt of such invoice.
(b)
Dispute Resolution
. If there is a dispute between IOG and Intrepid Potash regarding the amounts shown as billed to IOG on any invoice, Intrepid Potash shall furnish to IOG reasonable documentation to substantiate the amounts
billed including, but not limited to, listings of the dates, times and amounts of the Services in question where applicable and practicable. Upon delivery of such documentation, IOG and Intrepid Potash shall cooperate and use their best efforts to
resolve such dispute among themselves. If such parties are unable to
2
resolve their dispute within 30 calendar days of the initiation of such procedure, and IOG believes in good faith and with a reasonable basis that the
amounts shown as billed to IOG are inaccurate or are otherwise not in accordance with the terms of this Agreement, then IOG shall have the right to commence dispute resolution in accordance with Section 16 of this Agreement.
(c)
Failure to Remit Payment
. Notwithstanding anything contained herein to the contrary, in the event IOG fails to remit payment of
any portion of any invoice amount when due pursuant to Section 4(a), (i) IOG shall be obligated to pay, in addition to the original invoice amount due, interest on such amount at a rate per annum equal to the prime rate, as reported from
time to time by the Wall Street Journal or similar publication, plus 2% and (ii) if such failure to remit payment remains uncured for more than 60 days after the applicable due date, then Intrepid Potash may discontinue any or all Services
provided under this Agreement.
5.
Employee Matters
. Intrepid Potash shall establish all guidelines pertaining to the employment of
the Service Employees, including, without limitation, guidelines pertaining to the term of office or employment, resignation, removal and compensation of such Service Employees. All Service Employees shall be employees of Intrepid Potash, and not
IOG.
6.
Books and Records
.
(a) Intrepid Potash shall keep books and records of the Services provided and reasonable supporting documentation of all charges and expenses incurred in connection with providing such Services (collectively, the
“
Books and Records
”). Intrepid Potash will maintain and retain the Books and Records in a manner reasonably consistent with the manner in which Intrepid Potash maintains its own books and records and with Intrepid Potash’s
record retention policies.
(b) At any time during the term of this Agreement or the twelve months thereafter, but in no
event more than once during any calendar quarter, IOG, upon written notice to Intrepid Potash, shall have the right to inspect, during normal business hours and using reasonable commercial efforts not to disrupt Intrepid Potash’s normal
business operations, the Books and Records to the extent reasonably necessary to verify any information regarding the Services. IOG shall bear all costs of such inspection.
7.
Limitations on Liability; Indemnification
.
(a)
Limitations on Liability
. In the absence of gross negligence or willful misconduct, Intrepid Potash shall not be liable for any losses, damages or adverse consequences of any nature whatsoever arising out
of Intrepid Potash’s performance or failure to perform the Services under this Agreement. In the event of any such gross negligence or willful misconduct, the obligations of Intrepid Potash for any losses, damages or adverse consequences
arising in connection with the performance of Services shall in the aggregate not exceed the total amount billed or billable to IOG under this Agreement. In no event shall Intrepid Potash be liable to IOG for indirect, special, consequential,
including without limitation business interruption, or incidental damages, including without limitation loss of profits or damage to or loss or use of any property, nor shall Intrepid Potash be liable for any damages caused by IOG’s failure to
perform
3
its responsibilities hereunder. Intrepid Potash shall also not be liable to IOG for any act or omission of any Service Employee furnishing any Services under
this Agreement.
(b) OBLIGATIONS, REPRESENTATIONS AND WARRANTIES. INTREPID POTASH WILL PROVIDE THE SERVICES WITH THE LEVEL
OF CARE AND SKILL REQUIRED BY SECTION 1(b) OF THIS AGREEMENT. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, INTREPID POTASH MAKES NO REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE SERVICES PROVIDED HEREUNDER.
(c)
Indemnification
. IOG shall indemnify and hold harmless Intrepid Potash and its affiliates for any losses,
damages or adverse consequences of any nature whatsoever relating to, arising out of, or in connection with, the performance of the Services under this Agreement, including without limitation, (i) any third party claims in connection with the
performance of the Services or (ii) any property or other damages in connection with the performance of the Services, except and only to the extent that such losses, damages or adverse consequences result from Intrepid Potash’s gross
negligence or willful misconduct in the performance of such Services.
8.
Certain Oil and Gas Drilling
. Intrepid Moab and Intrepid
Potash acknowledge and agree that IOG owns the rights that permit IOG to drill the Two-Fer 26-30 Well, to be located in the SE/4SW/4 (588’ FSL, 1864’ FWL) of Section 26, T. 26 S., R. 20 E., Grand County, Utah (the “
Twofer
Well
”) at the cost and expense of IOG (and to the extent any costs are incurred by Intrepid Potash with respect thereto, such costs shall be included in the Services Fee and Reimbursement), and Intrepid Moab and Intrepid Potash hereby
consent and authorize the drilling of the Twofer Well by IOG provided that the drilling of the Twofer Well does not interfere with the operations of Intrepid Potash subject to the provisions of this Section 8. The parties agree that if
(a) the Twofer Well is subsequently determined by IOG in its sole discretion to be noncommercial for oil and gas production, and (b) Intrepid Moab and IOG determine that the Twofer Well should be converted for use in the production of
potash by Intrepid Moab, then Intrepid Moab shall purchase the Twofer Well from IOG for an amount equal to the lesser of (i) $750,000 and (ii) IOG’s actual out-of-pocket cost for the drilling and related costs and expenses incurred by
IOG to drill the Twofer Well to the base of the potash zones. IOG hereby agrees to indemnify and reimburse Intrepid Moab with respect to (x) any damage to Intrepid Moab’s properties caused by the drilling of the Twofer Well that impairs
Intrepid Moab’s ability to use such properties in the conduct of its business in a manner consistent with past practices and (y) any reasonable costs and expenses to repair such damage. IOG further agrees to carry general liability
insurance coverage of not less than $1,000,000 per occurrence and $2,000,000 in the aggregate with respect to the drilling of the Twofer Well naming Intrepid Moab as a named insured along with IOG.
9.
Confidentiality
. Each party to this Agreement shall, and shall cause its directors, officers, employees, managers, agents, consultants and
advisors to, hold in strict confidence, using the same degree of care that it normally uses to protect its own proprietary information, unless compelled to disclose by judicial or administrative process or by other legal requirements (in which case
prompt notice shall be given to the other parties unless legally prohibited), all information concerning the other parties, except to the extent that such information can be shown
4
to have been (a) in the public domain through no fault of such party or (b) later lawfully acquired on a non-confidential basis from other sources
by the party to which it was furnished. No party to this Agreement shall release or disclose such information to any other person, except as required by law or to its auditors, attorneys, financial advisors, bankers or other consultants and advisors
who shall be advised of the provisions of this Section 9.
10.
Counterparts
. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other.
11.
Governing Law
. This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado without reference to the
conflict of law provisions thereof.
12.
Assignment; Successors and Assigns
. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns. No party may assign its rights or obligations under this Agreement without the prior written consent of the other parties;
provided
, that Intrepid Potash may assign this
Agreement to a successor or assignee corporation or other entity that acquires substantially all of its assets and properties or its operating subsidiaries, including, without limitation, by merger or other operation of law, or in connection with a
public offering of its securities or the securities of an affiliate, so long as the assignee assumes the obligations of Intrepid Potash hereunder.
13.
Amendment; Waiver
. This Agreement may not be altered or amended, nor may any rights hereunder be waived, except by an instrument in writing executed by the party or parties to be charged with such amendment or waiver. No waiver
of any term, provision or condition of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, provision or condition or as a waiver of any other term, provision or
condition of this Agreement.
14.
Enforceability
. If any term or other provision of this Agreement is held to be invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any adverse manner to any party hereto.
15.
Independent Contractor
. The parties hereto acknowledge and
agree that Intrepid Potash is an independent contractor with respect to the performance of the Services as provided in this Agreement. This Agreement shall not be construed to create a partnership or joint venture, or make either of the parties
hereto liable for the debts or obligations of the other, except as expressly provided herein.
16.
Arbitration
. Except as, and only
to the extent, otherwise set forth in Section 4(b) above, any dispute, controversy or claim arising out of or relating to this Agreement (a “
Dispute
”) shall be settled by binding arbitration in accordance with the commercial
arbitration rules of the American Arbitration Association (the “
AAA
”). Any such Dispute shall be arbitrated on an individual basis, and shall not be consolidated in any arbitration with any
5
dispute, claim or controversy of any other party hereto. The arbitration shall be conducted in Denver, Colorado, and any court having jurisdiction thereof
may immediately issue judgment on the arbitration award. All costs of the Dispute resolution process contemplated by this Section 16 (including, without limitation, the fees of the arbitrator, but exclusive of attorneys’ fees) shall be
borne by the party who is the least successful in such process, which shall be determined by comparing (a) the position asserted by each party on all disputed matters taken together to (b) the final decision of the arbitrator on all
disputed matters taken together.
[Signatures on Next Page]
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The parties hereto have caused this Agreement to be executed on the day and year first above written.
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INTREPID POTASH:
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Intrepid Potash, Inc.
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a Delaware corporation
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By:
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Name:
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Title:
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IOG:
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Intrepid Oil & Gas, LLC,
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a Colorado limited liability company
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By:
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Name:
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Title:
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For the limited purposes of joining in and agreeing to Sections 8 and 9:
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Intrepid Potash-Moab, LLC,
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a Delaware limited liability company
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By:
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Name:
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Title:
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7
EXHIBIT A
Service Employees
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Employee
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Position
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Initial Employee Cost Per Hour
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1.
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2.
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3.
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4.
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5.
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6.
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7.
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A-1
