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 surrendering a portion of the awards, to meet statutory minimum tax withholding requirements. The activity related to these awards during the period from December 31, 2012 to December 31, 2015 is summarized below:



	Unvested Shares		Average Grant Date Fair Value		Aggregate Fair Value of Shares (in thousands)
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
Awards granted - 2015	151,789		$	77.93
Awards vested - 2015	(181,906	)	$	35.18	$	6,399
Awards forfeited - 2015	(8,494	)	$	42.05
Outstanding at December 31, 2015	411,308		$	75.25

Of the awards vested during the years ended December 31, 2015, 2014 and 2013, 62,291, 11,120 and 8,591 shares were withheld to satisfy minimum tax requirements, respectively.

For certain of the awards granted in 2015, 2014 and 2013, 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 based on the number of awards expected to 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 2015, 2014 and 2013:



	2015	2014	2013
Volatility	26.8%	29.3%	28.9%
Risk-free interest rate	1.06%	0.66%	0.35%

Volatility assumptions related to 2015 and 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.

If we meet the specified maximum targets, approximately 72 thousand, 51 thousand and 47 thousand additional shares could vest related to the 2015, 2014 and 2013 awards, respectively.

The holders of certain restricted stock awards are entitled to equivalent dividends (“UDs”) to be received upon vesting of the restricted stock awards. The UDs are subject to the same forfeiture and acceleration conditions as the associated restricted stock awards. For awards granted prior to 2013, the dividends were settled in common shares based on the market price of our Class A shares as of the close of business on the vesting date. For the year ended December 31, 2015, 1,793 shares were issued upon the vesting of these restricted stock awards. For the year ended December 31, 2014, 593 shares were issued upon the vesting of these restricted stock awards. No shares were issued upon vesting of restricted stock awards for the year ended December 31, 2013. As of December 31, 2015, all awards granted prior to 2013 have vested. UDs related to restricted stock awards granted after 2013 will be settled in cash upon vesting. At December 31, 2015, the value of UDs to be settled in cash related to unvested restricted stock awards was approximately $595 thousand.

Compensation costs expensed for the years ended December 31, 2015, 2014 and 2013 were $9.1 million, $7.3 million and $6.5 million, respectively. As of December 31, 2015, there was $13.0 million of total unrecognized compensation cost related to our non-vested awards, which is expected to be recognized over a weighted-average period of 17 months.

Director Retainer

During the year ended December 31, 2015 we issued 1,104 shares of common stock to a director in lieu of an annual cash retainer.

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 years ended December 31, 2015 and 2014, we issued 24,882 and 6,999 shares under our ESPP, respectively.

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. 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, 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
Awards granted - 2015	36,527		$	39.03
Awards vested - 2015	(38,366	)	$	27.54	$	1,057
Awards forfeited - 2015	(310	)	$	42.80
Outstanding at December 31, 2015	100,191		$	38.70

Of the awards vested during the year ended December 31, 2015, 12,892 units were withheld to satisfy minimum tax requirements. No units were withheld to satisfy minimum tax requirements for the years ended December 31, 2014 and 2013.

Compensation cost expensed for the years ended December 31, 2015, 2014 and 2013 was $1.4 million, $0.9 million and $0.8 million, respectively, and represents an increase in noncontrolling interests in consolidated subsidiaries. As of December 31, 2015, there was $1.9 million of total unrecognized compensation cost related to the non-vested awards, which is expected to be recognized over a weighted-average period of 14 months.

The holders of certain of these restricted unit awards are entitled to equivalent distributions (“UUDs”) to be received upon vesting of the restricted unit awards. For awards granted prior to 2013, the UUDs were settled in common units based on the market price of our limited partner common units as of the close of business on the vesting date. For the year ended December 31, 2015, 3,335 UUDs were issued upon the vesting of these restricted units. No UUD units were issued upon vesting of restricted units for the year ended December 31, 2014. For the year ended December 31, 2013, 406 UUDs were issued upon the vesting of these restricted units. As of December 31, 2015, all awards granted prior to 2013 have vested. UUDs related to the restricted unit awards granted subsequent to 2013 will be settled in cash upon vesting. At December 31, 2015, the value of these cash settled UUDs related to unvested restricted units was approximately $381 thousand.