NOTE

. Incentive Plan

401

(k)

lan.

The HighPeak Energy Employees, Inc

401

(k) Plan (the

“401

(k) Plan”) is a defined contribution plan established under Section

401

of the Internal Revenue Code of

1986,

as amended (the "Code"). As of

October 1, 2020,

all regular full-time and part-time employees of the Company are eligible to participate in the

401

(k) Plan after

three

continuous months of employment with the Company. Participants

may

contribute up to

percent of their annual base salary into the

401

(k) Plan. Matching contributions are made to the

401

(k) Plan in cash by the Company in amounts equal to

100

percent of a participant's contributions to the

401

(k) Plan that are

not

in excess of

four

percent of the participant's annual base salary (the “Matching Contribution”). Each participant's account is credited with the participant's contributions, Matching Contributions and allocations of the

401

(k) Plan's earnings. Participants are fully vested in their account balances at their eligibility date. The Company has

not

made any contributions as of

September 30, 2020.

Long-Term Incentive Plan.

The Company's

2020

Long-Term Incentive Plan (“LTIP”) provides for the granting of stock awards, stock options, dividend equivalents and substitute awards to directors, officers and employees of the Company. The number of shares available for grant pursuant to awards under the LTIP are as follows:

	September 30, 2020
Approved and authorized awards		11,907,006
Awards granted under plan		(9,705,495	)
Awards available for future grant		2,201,511

Stock Options.

Stock options were granted to employees on

August 24, 2020.

Stock-based compensation expense for the period from

August 22, 2020

September 30, 2020

for the Company was

$14.5

million, and as of

September 30, 2020

there was

$4.8

million of unrecognized stock-based compensation expense related to unvested stock-based compensation awards. The unrecognized compensation expense will be recognized on a straight-line basis over the remaining vesting periods of the awards, which is a period of less than

two

years.

The Company estimates the fair values of stock options granted using a Black-Scholes option valuation model, which requires the Company to make several assumptions. The expected term of options granted was determined based on the simplified method of the midpoint between the vesting dates and the contractual term of the options. The risk-free interest rate is based on the U.S. treasury yield curve rate for the expected term of the option at the date of grant and the volatility was based on the volatility of a peer group of companies with similar characteristics of the Company on the date of grant since the Company did

not

have any trading history. More detailed stock options activity and details are as follows:

	Stock Options		Exercise Price		Remaining Term in Years		Intrinsic Value
Outstanding at August 22, 2020		-
Awards granted		9,705,495	$	10.00
Awards forfeited		-
Exercised		-
Outstanding at September 30, 2020		9,705,495	$	10.00		9.9		-

Vested at September 30, 2020		7,204,037	$	10.00		9.9		-
Exercisable at September 30, 2020		7,204,037	$	10.00		9.9		-