EQUITY-BASED COMPENSATION

SemGroup Corporation equity awards

We have reserved a total of 3,710,220 shares of common stock for issuance pursuant to employee and director compensation programs. Awards under these programs 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 a 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, 2014 to December 31, 2017 is summarized below:



	Unvested Shares		Average Grant Date Fair Value		Aggregate Fair Value of Shares (in thousands)
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
Awards granted - 2016	702,309		$	19.18
Awards vested - 2016	(168,096	)	$	20.38	$	3,426
Awards forfeited - 2016	(34,255	)	$	42.42
Outstanding at December 31, 2016	911,266		$	31.09
Awards granted - 2017	377,766		$	35.22
Awards vested - 2017	(149,961	)	$	33.60	$	5,039
Awards forfeited - 2017	(54,981	)	$	81.80
Outstanding at December 31, 2017	1,084,090		$	29.07

Of the awards vested during the years ended December 31, 2017, 2016 and 2015, 42,347, 46,941 and 62,291 shares were withheld to satisfy minimum tax requirements, respectively.

Included in the awards granted for the year ended December 31, 2016, is 128,585 restricted stock awards granted in exchange for Rose Rock equity based awards which were canceled as part of the Merger transaction described in Note 5. Incremental compensation expense was not significant. Accrued unvested unit distribution rights associated with unvested Rose Rock restricted unit awards carried over to the restricted stock awards issued in the exchange.

For certain of the awards granted in 2017, 2016, and 2015, 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 2017, 2016 and 2015:



	2017	2016	2015
Volatility	54.2%	51.9%	26.8%
Risk-free interest rate	1.57%	0.98%	1.06%

Volatility assumptions 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.

If we meet the specified maximum targets, approximately 505 thousand additional shares could vest.

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, respectively. As of December 31, 2015, all awards granted prior to 2013 had vested. UDs related to restricted stock awards granted after 2013 will be settled in cash upon vesting. At December 31, 2017, the value of UDs to be settled in cash related to unvested restricted stock awards was approximately $1.9 million.

Compensation costs expensed for the years ended December 31, 2017, 2016 and 2015 were $10.1 million, $8.8 million and $9.1 million, respectively. As of December 31, 2017, there was $10.2 million of total unrecognized compensation cost related to our non-vested awards, which is expected to be recognized over a weighted-average period of 16 months.

Director retainer

For the year ended December 31, 2016, we issued 2,676 shares of common stock to a director, in lieu of an annual cash retainer. No shares were issued to directors in lieu of an annual cash retainer for the year ended December 31, 2017.

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, 2017, 2016 and 2015, we issued 39,545, 46,836 and 24,882 shares, respectively, under our ESPP.

Rose Rock equity-based compensation

Prior to the Merger, certain of our employees who supported Rose Rock participated in Rose Rock's equity-based compensation program. Awards under this program generally represented awards of restricted common units representing limited partner interests of Rose Rock. Generally, the awards vested 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 have been subject to accelerated vesting in the event of involuntary terminations. Awards were valued based on the grant date closing price listed on the New York Stock Exchange. Compensation expense was recognized over the vesting period and was discounted for estimated forfeitures. Vesting of these awards diluted 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, 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
Awards granted - 2016	117,204		$	9.62
Awards vested - 2016	(57,458	)	$	11.58	$	665
Awards forfeited - 2016	(1,846	)	$	26.55
Awards converted to SemGroup awards	(158,091	)	$	19.57
Outstanding at December 31, 2016	—		$	—

Of the awards vested during the years ended December 31, 2016 and 2015, 254 and 12,892, respectively, were withheld to satisfy minimum tax requirements.

Compensation cost expensed for the years ended December 31, 2016 and 2015 was $1.2 million and $1.4 million, respectively, and represents an increase in noncontrolling interests in consolidated subsidiaries.

The holders of certain of these restricted unit awards were entitled to equivalent distributions (“UUDs”) to be received upon vesting of the restricted unit awards. As part of the Merger transaction, the value of these cash settled UUDs related to unvested restricted units was transferred to SemGroup and is now included in the balance for SemGroup UD's noted above.