COMPENSATION PLANS

Cash Bonus Programs—At times, we use cash bonus programs under which employees may receive cash bonuses based on corporate, department, location, or individual performance or other events or accomplishments. We accrue cash bonus expense related to the current year's performance. We did not meet our performance metrics related to the 2018 cash bonus program, and accordingly, we will not be paying cash bonuses for 2018 under the program. We did not implement a cash bonus program for 2017 or 2016.

Equity Incentive Compensation Plan—Our Board of Directors and stockholders adopted a long-term incentive compensation plan called the Intrepid Potash, Inc. Amended and Restated Equity Incentive Plan (the "Plan"). We have issued restricted shares, common stock, performance units, and non-qualified stock option awards under the Plan. As of December 31, 2018, 1,953,305 restricted shares and options to purchase 3,351,684 shares of common stock were outstanding. As of December 31, 2018, approximately 3.0 million shares of common stock remained available for issuance under the Plan. Total compensation expense related to the Plan was $4.2 million, $3.6 million, and $3.6 million, for the years ended December 31, 2018, 2017, and 2016, respectively. As of December 31, 2018, there was $5.0 million of total remaining unrecognized compensation expense that is expected to be recognized through 2020 related to share-based awards. When restricted shares and performance units vest and when stock options are exercised, new shares are issued and considered outstanding for financial statement purposes.

Restricted Shares

•Restricted Shares with Service Conditions—Under the Plan, the Compensation Committee of the Board of Directors (the "Compensation Committee") has granted restricted shares of common stock to members of the Board of Directors, executive officers, and other key employees. The restricted shares contain service conditions associated with continued employment or service. The restricted shares provide voting and regular dividend rights to the holders of the awards.

In 2018 the Compensation Committee granted 187,296 restricted shares to executives and key employees under the Plan as part of our annual equity award program. The awards vest over two years, subject to continued employment or service.

In 2018, the Compensation Committee granted 90,615 restricted shares to non-employee members of the Board of Directors and one employee member of the Board of Directors under the Plan for their annual service as directors. The restricted shares vest one year after the date of grant, subject to continued service.

We use the closing price of our common stock on the grant date as the grant date fair value for these awards. We record compensation expense monthly using the straight-line recognition method over the vesting period of the award. The weighted-average grant date fair value per share for restricted shares with service conditions issued in 2018, 2017, and 2016 was $4.16, $2.27, and $1.07, respectively.

•Restricted Shares with Service and Market Conditions—In 2017 and 2016, the Compensation Committee granted restricted shares of common stock to a member of our executive team as part of his annual compensation package. These restricted share grants contain service and market conditions, with the 2017 grant vesting over three years and the 2016 grant vesting over four years. The market condition for both awards has been met.

We used a Monte Carlo simulation valuation model to estimate the fair value of these awards on the grant date. We record compensation expense monthly using the accelerated recognition method over the longer of the explicit or derived service period of the award. The weighted-average grant date fair value per share of restricted shares with service and market conditions issued in 2017, and 2016, was $2.10, and $0.91, respectively.

Valuation models require the input of highly subjective assumptions, including the expected volatility of the price of the underlying stock. We used the following assumptions to compute the weighted-average grant date fair market value of restricted stock with service and market conditions granted in 2017 and 2016:



	2017			2016
Closing stock price on grant date	$	2.29		$	1.03
Risk free interest rate	1.7		%	1.3		%
Dividend yield	—		%	—		%
Estimated volatility	81.7		%	86.2		%
Expected life	5.00 years			5.00 years

Restricted Shares with Service and Performance Conditions—In 2018 the Compensation Committee granted 187,296 restricted shares of common stock to executive officers, and other key employees. These restricted share grants would have vested one year after the grant date, subject to continued service and the company meeting certain performance goals. We did not meet the performance goals and 187,296 restricted shares were canceled.

A summary of all activity relating to our restricted shares for the year ended December 31, 2018, is presented below:



			Weighted Average Grant-Date Fair Value
	Shares		Weighted Average Grant-Date Fair Value
Restricted shares of common stock, beginning of period	3,163,903		$	1.73
Granted with service only condition	277,911		$	4.16
Granted with service and performance conditions	187,296		$	3.91
Vested, service only condition	(1,112,256	)	$	2.14
Vested, service and market conditions	(71,251	)	$	2.10
Forfeited, service only condition	(305,002	)	$	1.67
Forfeited, service and market conditions	—		$	—
Forfeited, service and performance conditions	(187,296	)	$	3.91
Restricted shares of common stock, end of period	1,953,305		$	1.87

Performance Units

In 2015, the Compensation Committee granted at-risk performance units under the Plan to a member of our executive team as part of his annual compensation package. The performance units vested in February 2018, and payout, was based on market-based conditions relating to one-, two- and three-year performance periods beginning on the grant date. No shares were earned under the first one-year performance period, the second two-year performance period, or the third three-year performance period. The estimated fair value of the award was determined using a Monte Carlo simulation valuation model. Compensation cost was recognized monthly using the accelerated recognition method over the vesting period of the award. The weighted-average fair value per performance unit issued in 2015 was $13.84.

Non-qualified Stock Options

• Non-qualified Stock Options with Service-Based Vesting—In 2018, the Compensation Committee granted 623,274 non-qualified stock options under the Plan to a member of our executive team as part of his annual compensation package. The stock options have a ten-year term from the grant date and vest over three years.

In measuring compensation expense for options, we estimated the fair value of the award on the grant date using the Black‑Scholes option valuation model. We record compensation expense monthly using the straight-line recognition method over the vesting period of the award.

Option valuation models require the input of highly subjective assumptions, including the expected volatility of the price of the underlying stock. We used the following assumptions to compute the weighted average fair market value of options with service-based vesting granted in 2018, 2017 and 2016:



	2018			2017			2016
Closing stock price on grant date	$	3.90		$	2.29		$	1.03
Risk free interest rate	1.1		%	1.6		%	1.8		%
Dividend yield	—		%	—		%	—		%
Estimated volatility	72.8		%	71.5		%	63.8		%
Expected option life	6.00 years			6.00 years			6.25 years

Our estimate of volatility was based on the historic volatility of our common stock over a period comparable to the expected life of the option. The estimate of expected option life was determined based on the "simplified method," giving consideration to the overall vesting period and the contractual terms of the award. This method was used because we have very little option exercise history for options issued under the Plan. The risk-free interest rate for the period that matched the option awards' expected life was based on the U.S. Treasury constant maturity yield at the time of grant.

•Non-qualified Stock Options with Service and Market Conditions—In 2018, the Compensation Committee granted 934,911 non-qualified stock options with service and market conditions under the Plan to a member of our executive team as part of his annual compensation package. The stock options vest in three equal annual installments, subject to continued employment; provided, however, that no vesting would occur unless and until the volume-weighted average closing market price or our common stock equals or exceeds $5.85 for 20 consecutive trading days on or before the five-year anniversary of the grant date. As of December 31, 2018, the market condition has not been met.

We used a Monte Carlo simulation valuation model to estimate the fair value of these awards on their grant dates. We record compensation expense monthly using the accelerated recognition method over the longer of the explicit or derived service period of the award.

Valuation models require the input of highly subjective assumptions, including the expected volatility of the price of the underlying stock. We used the following assumptions to compute the weighted average fair market value of options with service and market conditions granted in 2018 and 2017:



	2018			2017			2016
Closing stock price on grant date	$	3.90		$	2.29		$	1.03
Risk free interest rate	2.9		%	2.2		%	1.9		%
Dividend yield	—		%	—		%	—		%
Estimated volatility	75.0		%	81.7		%	86.2		%
Expected life	10.00 years			10.00 years			10.00 years

Non-Qualified Stock Option Activity

A summary of all stock option activity for the year ended December 31, 2018, is as follows:



	Shares		Weighted Average Exercise Price	Aggregate Intrinsic Value¹	Weighted Average Remaining Contractual Life
Outstanding non-qualified stock options, beginning of period	2,075,821		$3.74
Granted	1,558,185		$3.90
Exercised	(95,004	)	$1.20
Forfeited	(174,025	)	$1.21
Expired	(13,293	)	$30.49
Outstanding non-qualified stock options, end of period	3,351,684		$3.91	$1,810,165	8.2

Vested or expected to vest, end of period	3,351,684		$3.91	$1,810,165	8.2

Exercisable non-qualified stock options, end of period	876,084		$6.44	$845,691	6.4


¹	The intrinsic value of a stock option is the amount by which the market value exceeds the exercise price as of the end of the period presented.

The weighted-average fair value per share of options to purchase stock granted during 2018, 2017 and 2016 was $2.33, $1.38 and $0.61 per share, respectively. The total intrinsic value of exercised options to purchase stock during 2018 and 2017 was $0.3 million. There were no options exercised to purchase stock in 2016.