EQUITY-BASED COMPENSATION

SemGroup Corporation equity awards

We have reserved a total of 2,781,635 shares of common stock for issuance pursuant to employee and director compensation programs. These awards give the recipients the right to receive shares of common stock, once specified service, performance or market related vesting conditions are met. The awards typically have one year vesting period for non-management directors and three years for employees. The awards may be subject to accelerated vesting in the event of involuntary terminations. We record expense for these awards (and corresponding increases to additional paid-in capital) based on the grant date fair value of the awards over the vesting period. We use authorized but unissued shares to satisfy our equity-based payment obligations. Although these awards are to be settled in shares, we may elect to give participants the option of settling a portion of the awards in cash, to meet statutory minimum tax withholding requirements. The activity related to these awards during the period from December 31, 2011 to December 31, 2014 is summarized below:



	Unvested Shares		Average Grant Date Fair Value		Aggregate Fair Value of Shares (in thousands)
Outstanding at December 31, 2011	410,506		$	26.59
Awards granted - 2012	246,432		$	27.81
Awards vested - 2012	(162,986	)	$	25.20	$	4,107
Awards forfeited - 2012	(43,400	)	$	27.74
Outstanding at December 31, 2012	450,552		$	26.87
Awards granted - 2013	201,451		$	52.78
Awards vested - 2013	(107,988	)	$	25.71	$	2,776
Awards forfeited - 2013	(13,412	)	$	32.36
Outstanding at December 31, 2013	530,603		$	36.80
Awards granted - 2014	207,786		$	77.14
Awards vested - 2014	(169,340	)	$	33.07	$	5,600
Awards forfeited - 2014	(119,130	)	$	42.16
Outstanding at December 31, 2014	449,919		$	70.69

For certain of the awards granted in 2014, 2013 and 2012, the number of shares that will vest is contingent upon our achievement of certain specified targets. Awards with performance conditions are valued based on the grant date closing price on the New York Stock Exchange assuming that 100% of the awards will vest. Awards with market conditions are valued using Monte Carlo simulations. The following table sets forth the assumptions used in the valuations of these awards granted in 2014, 2013 and 2012:



	2014	2013
Volatility	29.3%	28.9%
Risk-free interest rate	0.66%	0.35%

Volatility assumptions related to 2014 awards containing a market condition were based on historical volatility using a simple average calculation of volatility over a period equal to the vesting period of the awards. We do not expect future volatility over the term of the awards to be significantly different from historical volatility. Volatility assumptions related to 2013 awards containing a market condition were comprised of 50% historical volatility and 50% implied volatility. We intend to use only historical volatility going forward. The change in assumption basis from 2014 to 2013 did not have a significant impact. The 2012 awards with a market condition were not material and were valued based on the grant date fair value and an estimate of the expected achievement of the market condition.

If we meet the specified maximum targets, approximately 54 thousand, 49 thousand and 25 thousand additional shares could vest related to the 2014, 2013 and 2012 awards, respectively.

During the month of January 2015, 102,103 awards vested. Of these vested awards, 36,564 shares were withheld to satisfy minimum tax withholding requirements.

The holders of certain restricted stock awards granted prior to 2013 are entitled to equivalent dividends (“UDs”) to be received upon vesting of the restricted stock awards. The dividends will be settled in common shares based on the market price of our Class A shares as of the close of business on the vesting date. The UDs are subject to the same forfeiture and acceleration conditions as the associated restricted stock awards. For the year ended December 31, 2014, 593 units were issued upon the vesting of these restricted units. For the year ended December 31, 2013, no units were issued upon the vesting of these restricted units. At December 31, 2014, the value of the UDs related to unvested restricted stock awards was approximately $155 thousand. This is equivalent to 2,263 Class A shares based on the year end close of business market price of our Class A shares of $68.39 per share. Dividends related to the 2013 and 2014 restricted stock awards will be settled in cash upon vesting. At December 31, 2014, the value of UDs to be settled in cash related to unvested restricted stock awards was approximately $244 thousand.

In January 2015, the 2012 restricted stock awards vested and 1,793 UD shares were issued.

Compensation costs expensed for the years ended December 31, 2014, 2013 and 2012 were $7.3 million, $6.5 million and $6.2 million, respectively. As of December 31, 2014, there was $14.2 million of total unrecognized compensation cost related to our non-vested awards, which is expected to be recognized over a weighted-average period of 18 months.

Employee stock purchase plan

Our employee stock purchase plan ("ESPP") allows eligible employees to contribute up to 10% of their base earnings toward the semi annual purchase of our common stock, subject to an annual maximum dollar amount. The purchase price is 85% of the closing price on the last business day of the offering period. We have reserved a total of 1,000,000 shares of common stock for issuance under the ESPP. During the year ended December 31, 2014, we issued 6,999 shares under our ESPP.

Rose Rock Midstream L.P. equity-based compensation

Certain of our employees who support Rose Rock participate in Rose Rock's equity-based compensation program. Awards under this program generally represent awards of restricted common units representing limited partner interests of Rose Rock. Generally, the awards vest three years after the date of grant for employees and one year after the date of grant for non-management directors, contingent upon the continued service of the recipients and may be subject to accelerated vesting in the event of involuntary terminations. Awards are valued based on the grant date closing price listed on the New York Stock Exchange. Compensation expense is recognized over the vesting period and is discounted for estimated forfeitures. Vesting of these awards dilutes our ownership interest and requires additional equity contributions to Rose Rock to maintain our 2% general partner interest. The activity related to these awards is summarized below:



	Unvested Units		Average Grant Date Fair Value		Aggregate Fair Value of Units (in thousands)
Outstanding at December 31, 2011	—		$	—
Awards granted - 2012	46,069		$	21.97
Awards vested - 2012	—		$	—	$	—
Awards forfeited - 2012	(2,109	)	$	20.60
Outstanding at December 31, 2012	43,960		$	21.91
Awards granted - 2013	49,104		$	34.41
Awards vested - 2013	(9,333	)	$	27.25	$	254
Awards forfeited - 2013	(783	)	$	34.40
Outstanding at December 31, 2013	82,948		$	28.59
Awards granted - 2014	46,536		$	41.35
Awards vested - 2014	(5,712	)	$	35.87	$	205
Awards forfeited - 2014	(21,432	)	$	29.82
Outstanding at December 31, 2014	102,340		$	33.79

During the month of January 2015, 25,745 of these awards vested. Of these vested awards, 10,537 units were withheld to satisfy minimum tax requirements.

Compensation cost expensed for the years ended December 31, 2014, 2013 and 2012 was $0.9 million, $0.8 million and $0.3 million, respectively, and represents an increase in noncontrolling interests in consolidated subsidiaries. As of December 31, 2014, there was $1.8 million of total unrecognized compensation cost related to the non-vested awards, which is expected to be recognized over a weighted-average period of 19 months.

The holders of certain of these restricted unit awards granted prior to 2013 are entitled to equivalent distributions (“Unvested Unit Distributions” or “UUD’s”) to be received upon vesting of the restricted unit awards. The distributions will be settled in common units based on the market price of Rose Rock's limited partner common units as of the close of business on the vesting date. The UUD’s are subject to the same forfeiture and acceleration conditions as the associated restricted units. For the year ended December 31, 2014, no UUDs were issued upon the vesting of these restricted units. For the year ended December 31, 2013, 406 UUDs were issued upon the vesting of these restricted units. At December 31, 2014, the value of the UUD’s was approximately $129 thousand. This is equivalent to approximately 2,835 common units based on the year end close of business market price of Rose Rock's common units of $45.45 per unit. During the month of January 2015, 3,335 units were issued upon the vesting of restricted units noted above. Distributions related to the restricted unit awards granted subsequent to 2012 will be settled in cash upon vesting. At December 31, 2014, the value of these UUDs related to cash settled unvested restricted units was approximately $177 thousand.