In connection with the Merger, the Company adopted the Sitio Royalties Corp. Long Term Incentive Plan (the “Plan”). An aggregate of 8,384,083 shares of Class A Common Stock are available for issuance under the Plan. The Plan permits the grant of stock options, stock appreciation rights, restricted stock, restricted stock units ("RSUs"), stock awards, dividend equivalents, other stock-based awards, cash awards, and substitute awards. Shares that are cancelled, forfeited, exchanged, settled in cash or otherwise terminated will be available for delivery pursuant to other awards. Dividend equivalent rights (“DERs”) are also available for grant under the Plan, either alone or in tandem with other specific awards, which will entitle the recipient to receive an amount equal to dividends paid on a Class

A Common Stock. The Plan is administered by the Compensation Committee of the Sitio Board of Directors (the "Compensation Committee").

For the three and six months ended June 30, 2022, the Company incurred $978,000 of share-based compensation which is included in general and administrative expense in the accompanying condensed consolidated statements of income. There was no share-based compensation expense recognized for the six months ended June 30, 2021. For the six months ended June 30, 2022 and 2021, no DERs were paid to RSU holders.

In accordance with the Plan, the Compensation Committee is authorized to issue RSUs to eligible executive officers and employees. The Company estimates the fair value of the RSUs as the closing price of the Company’s Class A Common Stock on the grant date of the award, which is expensed over the applicable service period. RSUs granted by the Company include dividend equivalent rights. Dividends paid in connection with the DERs are accounted for as a reduction in retained earnings for those awards that are expected to vest. RSUs that are forfeited could cause a reclassification of any previously recognized DERs payments from a reduction in retained earnings to additional compensation cost.

In connection with the Merger, the Board granted one-time equity-based awards to our executive officers and employees under the Plan, consisting of RSUs subject to a vesting period of one year. The Board also granted an annual equity-based award to our executive officers under the Plan, which consists of RSUs that vest in equal installments on the first three anniversaries of June 7, 2022.

The following table summarizes activity related to unvested RSUs for the six months ended June 30, 2022.


	Restricted Stock Units
	Number of Shares			Grant Date Fair Value
Unvested at January 1, 2022		—		$	—
Granted		339,993			29.12
Forfeited		(348	)		29.12
Vested		—			—
Unvested at June 30, 2022		339,645		$	29.12

For the six months ended June 30, 2022, the Company recognized $487,000 of share-based compensation expense related to RSUs, which is included in general and administrative expense in the accompanying condensed consolidated statements of income. As of June 30, 2022, there was approximately $9.4 million of unamortized equity-based compensation expense related to unvested RSUs. That expense is expected to be recognized over a weighted average period of approximately 1.6 years. As of and for the six months ended June 30, 2021 there was no share-based compensation expense and no unamortized expense related to RSUs.

In accordance with the Plan, the Compensation Committee is authorized to issue deferred share units (“DSUs”) to our non-employee directors. The Company estimates the fair value of the DSUs as the closing price of the Company’s Class A Common Stock on the grant date of the award, which is expensed over the applicable vesting period.

In connection with the Merger, the Board granted awards of DSUs under the Plan to each of our non-employee directors. The DSUs are expected to vest in equal quarterly installments over the one-year period beginning on June 7, 2022.

The following table summarizes activity related to unvested DSUs for the six months ended June 30, 2022.


	Deferred Share Units
	Number of Shares		Grant Date Fair Value
Unvested at January 1, 2022		—	$	—
Granted		52,155		29.12
Forfeited		—		—
Vested		—		—
Unvested at June 30, 2022		52,155	$	29.12

For the six months ended June 30, 2022, the Company recognized $96,000 of share-based compensation expense related to DSUs, which is included in general and administrative expense in the accompanying condensed consolidated statements of income. As of June 30, 2022, there was approximately $1.4 million of unamortized equity-based compensation expense related to unvested DSUs. That expense is expected to be recognized over a weighted average period of 0.9 years. As of and for the six months ended June 30, 2021 there was no share-based compensation expense and no unamortized expense related to DSUs.

In accordance with the Plan, the Compensation Committee is authorized to issue performance stock units (“PSUs”) to eligible employees and directors.

In connection with the Merger, the Board granted an annual equity-based award (“2022 Annual Equity Award") to our executive officers under the Incentive Plan, which consisted of PSUs. The PSUs will be eligible to be earned based on achievement of certain pre-established goals for annualized absolute Total Shareholder Return (“TSR”) over a three-year period following the consummation of the Merger.

The performance targets associated with the PSU award structure are outlined below:


	Annualized Absolute TSR Goal			Percentage of Target PSUs Earned
Base of Range	Less than 0%				0	%
Threshold		0	%		50	%
Target		10	%		100	%
Maximum		20	%		200	%

For purposes of determining our annualized absolute TSR over the performance period, the beginning stock price will be based on our 20-day volume weighted average stock price beginning on June 8, 2022 and the ending price will generally be based on the 20-day volume weighted average stock price ending on the last day of the performance period. PSU payouts for results that fall in between a stated threshold will be interpolated linearly.

The grant date fair values of the PSUs were determined using Monte Carlo simulations, which use a probabilistic approach for estimating the fair value of the awards. The expected volatility was derived from the historical volatility of Falcon. The risk-free interest rate was determined using the yield for zero-coupon U.S. Treasury bills that is commensurate with the performance measurement period. The PSU award agreements provide that TSR will be calculated assuming dividends distributed will be reinvested over the performance period. As such, we have applied a dividend yield of 0.00%, which is mathematically equivalent to reinvesting dividends.

The following table summarizes the weighted average fair value of the PSUs and the assumptions used to determine the fair value :


	2022
Volatility		67.23	%
Risk-free rate		2.89	%
Dividend yield		0.00	%
Weighted average fair value	$	39.11

The following table summarizes activity related to unvested PSUs for the six months ended June 30, 2022.


	Preferred Stock Units
	Number of Shares		Grant Date Fair Value
Unvested at January 1, 2022		—	$	—
Granted		300,913		39.11
Forfeited		—		—
Vested		—		—
Unvested at June 30, 2022		300,913	$	39.11

For the six months ended June 30, 2022, the Company recognized $247,000 of share-based compensation expense related to PSUs, which is included in general and administrative expense in the accompanying condensed consolidated statements of income. As of June

30, 2022, there was approximately $11.5 million of unamortized equity-based compensation expense related to unvested PSUs. That expense is expected to be recognized over a weighted average period of 2.9 years. As of and for the six months ended June 30, 2021 there was no share-based compensation expense and no unamortized expense related to PSUs.

In connection with the Merger, legacy Desert Peak owners (the "Merger Sponsors"), desired to assign, transfer and convey their rights to receive a portion of their Merger Consideration to our executive officers as an incentive to continue to serve as executive officers following the Merger. The Merger Consideration consists of units of Sitio Royalties OpCo Partnership (“OpCo units”) and an equal number of shares of Class C Common Stock. The conveyance of Merger Consideration, which consists of Class C Common Stock, is deemed to be a grant of restricted stock awards (each, an "RSA") to our executive officers. Each Sitio OpCo RSA is expected to vest in equal installments on the first four anniversaries of June 6, 2022. The Company estimates the fair value of the RSAs as the closing price of the Company’s Class C Common Stock on the grant date of the award, which is expensed over the applicable vesting period.

The following table summarizes activity related to unvested Sitio OpCo RSAs for the six months ended June 30, 2022.


	Sitio OpCo Restricted Stock Awards
	Number of Shares		Grant Date Fair Value
Unvested at January 1, 2022		—	$	—
Granted		309,527		29.12
Forfeited		—		—
Vested		—		—
Unvested at June 30, 2022		309,527	$	29.12

For the six months ended June 30, 2022, the Company recognized $148,000 of share-based compensation expense related to the Sitio OpCo RSAs, which is included in general and administrative expense in the accompanying condensed consolidated statements of income. As of June 30, 2022, there was approximately $8.9 million of unamortized equity-based compensation expense related to the unvested Sitio OpCo RSAs. That expense is expected to be recognized over a weighted average period of approximately 3.9 years. As of and for the six months ended June 30, 2021 there was no share-based compensation expense and no unamortized expense related to the Sitio OpCo RSAs.