Note

- Chapter

Proceeding and Emergence

Overview

July

2016,

C&J and certain of its direct and indirect subsidiaries, including C&J Corporate Services (Bermuda) Ltd. (together with C&J, collectively the “Bermudian Entities”), C&J Energy Production Services-Canada Ltd. and Mobile Data Technologies Ltd. (together, the “Canadian Entities”), entered into a Restructuring Support and Lock-Up Agreement (the “Restructuring Support Agreement”), with certain lenders (the “Supporting Lenders”) holding approximately

90.0%

of the secured claims and interests arising under the Credit Agreement, dated as of

March

24,

2015

(as amended and otherwise modified, the “Credit Agreement”). The Restructuring Support Agreement contemplated the implementation of a restructuring of the Company, including eliminating all amounts owed under the Company’s Credit Agreement, through a debt-to-equity conversion and equity rights offering, which transaction was effectuated through the Restructuring Plan under Chapter

of Title

(“Chapter

11”)

of the United States Bankruptcy Code (the “Bankruptcy Code”), which was subject to the approval of the Bankruptcy Court.

To implement the restructuring, on

July

20,

2016

(the "Petition Date"), the Debtors filed voluntary petitions for reorganization (the "Bankruptcy Petitions") seeking relief under the provisions of Chapter

with the Bankruptcy Court. These Chapter

cases were being administered under the caption "

In re: CJ Holding Co., et al., Case No.

33590

", and the Company commenced ancillary proceedings in Canada on behalf of the Canadian Entities and a provisional liquidation proceeding in Bermuda on behalf of the Bermudian Entities. Throughout the Chapter

Proceeding, the Debtors continued operations and management of their assets in the ordinary course as debtors-in-possession under the jurisdiction of the Bankruptcy Court in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.

The Restructuring Support Agreement contained certain Restructuring Plan-related milestones, including deadlines: (a) to file the Restructuring Plan and related disclosure statement; (b) for entry of interim and final DIP orders; (c) for entry of the Disclosure Statement order; (d) for entry of the Confirmation Order; and (e) for the Plan Effective Date to occur. In accordance with the Restructuring Support Agreement, the Debtors filed the Restructuring Plan with the Bankruptcy Court on

August

19,

2016,

with a

first

amendment to the Restructuring Plan filed on

September

28,

2016

and a

second

amendment filed on

November

2016.

November

2016,

the Bankruptcy Court approved the Disclosure Statement, finding that the Disclosure Statement contained adequate information as required by the Bankruptcy Code. The Debtors then launched a solicitation of acceptances of the Restructuring Plan, as required by the Bankruptcy Code. On

December

16,

2016,

the Confirmation Order confirming the Restructuring Plan was entered by the Bankruptcy Court. On

January

2017,

the Debtors substantially consummated the Restructuring Plan and emerged from their Chapter

cases. As part of the transactions undertaken pursuant to the Restructuring Plan, C&J’s equity was canceled, and all of C&J's assets and operations were transferred to the Successor, C&J Energy Services, Inc. As a result, the Successor became the successor issuer to the Predecessor.

The key terms of the restructuring included in the Restructuring Plan were as follows:

•

Debt-to-equity Conversion: The Supporting Lenders were issued new common equity in the reorganized Company ("New Equity"), and all of the existing shares of the Predecessor common equity were canceled as of the Plan Effective Date.

•

The Rights Offering: Certain of the Supporting Lenders (the "Backstop Parties") agreed to provide an equity rights offering for an investment in the Successor in an amount of up to

$200

million as part of the approved Restructuring Plan (the “Rights Offering”). The Rights Offering was consummated on the Plan Effective Date pursuant to a Backstop Commitment Agreement, which also provided for a commitment premium of

5.0%

of the

$200

million committed amount payable in New Equity to the Backstop Parties (the “Backstop Fee”). The Rights Offering shares were issued at a price that reflects a discount of

20.0%

to the Restructuring Plan value, which was

$750

million.

•

DIP Facility: Certain of the Supporting Lenders (the “DIP Lenders”) provided a superpriority secured delayed draw term loan facility to the Predecessor in an aggregate principal amount of up to

$100

million (the “DIP Facility”). As further discussed below, on

July

25,

2016,

the Bankruptcy Court entered an order approving the Debtors’ entry into the DIP Facility on an interim basis, pending a final hearing. On

July

29,

2016,

the Debtors entered into a superpriority secured debtor-in-possession credit agreement, among the Debtors, the DIP Lenders and Cortland Capital Market Services LLC, as Administrative Agent (the “DIP Credit Agreement”), which set forth the terms and conditions of the DIP Facility. On

September

25,

2016,

the Bankruptcy Court entered a final order approving entry into the DIP Facility and DIP Credit Agreement. The Company repaid all amounts outstanding under the DIP Facility on the Plan Effective Date using proceeds from the Rights Offering.

•

The New Credit Facility: The Company and certain of its subsidiaries, as borrowers (the “Borrowers”), entered into a revolving credit and security agreement (the “New Credit Facility”) dated the Plan Effective Date, with PNC Bank, National Association, as administrative agent (the “Lender”). The New Credit Facility allows the Borrowers to incur revolving loans in an aggregate amount up to the lesser of

$100

million and a borrowing base, which borrowing base is based upon the value of the Borrowers’ accounts receivable and inventory. The New Credit Facility also contains an availability block, which will reduce the amount otherwise available to be borrowed under the New Credit Facility by

$20

million until the later of the delivery of financial statements for the fiscal year ending

December

31,

2017

and the date on which the Company achieves a fixed charge coverage ratio of

1.10:1.0.

The New Credit Facility also provides for the issuance of letters of credit, which would reduce borrowing capacity thereunder. The maturity date of the New Credit Facility is

January

2021.

•

The New Warrants: On the Plan Effective Date, the Company issued new

seven

-year warrants exercisable on a net-share settled basis into up to

6.0%

of the New Equity at a strike price of

$27.95

per warrant (the “New Warrants”). New Warrants representing up to

2.0%

of the New Equity were issued to existing holders of Predecessor common equity as a result of such holders voting as a class to accept the Restructuring Plan, and the remaining New Warrants representing up to

4.0%

of the New Equity were issued to the Debtors' general unsecured creditors.

•

Distributions: The DIP Lenders received payment in full in cash on the Plan Effective Date from cash on hand and proceeds from the Rights Offering. The Supporting Lenders received all of the New Equity, subject to dilution on account of the Management Incentive Plan (as defined below), the Rights Offering, the Backstop Fee and the New Warrants, along with all of the subscription rights under the Rights Offering. Under the Restructuring Plan, mineral contractor claimants will be paid in full in the ordinary course of business. Additionally, subject to the terms of the Restructuring Plan, certain other unsecured claimants will share in a

$33.0

million cash recovery pool, plus a portion of the New Warrants, as described above.

•

Management Incentive Plan:

10.0%

of the New Equity was reserved for a management incentive program to be issued to management of the reorganized Company after the Plan Effective Date at the discretion of the board of the reorganized Company (the “Management Incentive Plan”).

•

Governance: The board of the reorganized Company was appointed by the Supporting Lenders and includes the reorganized Company’s Chief Executive Officer.

Reorganization Process

On and after the Petition Date, the Bankruptcy Court issued certain additional interim and final orders with respect to the Company's’

first

-day motions and other operating motions that allowed the Company to operate the business in the ordinary course. The

first

-day motions provided for, among other things, the payment of certain pre-petition employee expenses and benefits, the use of the Company’s existing cash management system, the payment of certain pre-petition amounts to certain critical vendors and mineral lien claimants, the ability to pay certain pre-petition taxes and regulatory fees, and the payment of certain pre-petition claims owed on account of insurance policies and programs.

Subject to certain exceptions under the Bankruptcy Code, the filing of the Bankruptcy Petitions automatically stayed the continuation of any judicial or administrative proceedings or other actions against the Debtors or their property to recover, collect or secure a claim arising prior to the filing of the Bankruptcy Petitions. Most creditor actions to obtain possession of property from the Debtors, or to create, perfect or enforce any lien against the Debtors’ property, or to collect on monies owed or otherwise exercise rights or remedies with respect to a pre-petition claim were stayed.

Under Section

365

and other relevant sections of the Bankruptcy Code, the Debtors

may

assume, assume and assign, or reject certain executory contracts and unexpired leases, including leases of real property and equipment, subject to the approval of the Bankruptcy Court and certain other conditions, including Supporting Lender approval in accordance with the Restructuring Support Agreement.

Under Chapter

11,

the Restructuring Plan determined the rights and satisfaction of claims and interests of various creditors and security holders and was subject to negotiation amongst the Debtors’ creditors, including the Supporting Lenders and other interested parties, and required Bankruptcy Court approval via the Confirmation Order. The Restructuring Plan, among other things, provides mechanisms for treatment of the Debtors’ pre-petition obligations, treatment of the Predecessor’s existing equity holders, potential income tax liabilities and certain corporate governance and administrative matters pertaining to the Successor.

Under the priority scheme established by the Bankruptcy Code, unless creditors agree otherwise, pre-petition liabilities and post-petition liabilities must be satisfied in full before shareholders are entitled to receive any distribution or retain any property under a Chapter

plan. The ultimate recovery to creditors and shareholders was determined upon confirmation of the Restructuring Plan.

The Company filed schedules and statements with the Bankruptcy Court setting forth, among other things, the assets and liabilities of each of the Debtors. These schedules and statements were subject to further amendment or modification after filing. Certain holders of pre-petition claims that are not governmental units were required to file proofs of claim by the deadline for general claims, (the “bar date”), which was set by the Bankruptcy Court as

November

2016.

Differences between amounts scheduled by the Debtors and claims by creditors will be investigated and will be reconciled and resolved to within an immaterial amount in connection with the claims resolution process. In light of the expected number of creditors, the claims resolution process

may

take considerable time to complete and is continuing after the Debtors emergence from bankruptcy. Accordingly, the ultimate number and amount of allowed claims is not presently known, nor can the ultimate recovery with respect to allowed claims be presently asserted. As of

December

31,

2016,

the Company estimated that approximately

$960

million of filed claims had not yet been resolved.

Liabilities Subject to Compromise

As of

December

31,

2016,

the Company has segregated liabilities and obligations whose treatment and satisfaction were dependent on the outcome of its reorganization under the Chapter

Proceeding and has classified these items as liabilities subject to compromise. Generally, all actions to enforce or otherwise effect repayment of pre-petition liabilities of the Debtors, as well as all pending litigation against the Debtors, were stayed while the Company is subject to the Chapter

Proceeding. The ultimate amount and treatment for these types of liabilities will be subject to the claims resolution processes in the Chapter

Proceeding and the terms of the Restructuring Plan confirmed by the Bankruptcy Court in the Chapter

Proceeding. Liabilities subject to compromise includes only those liabilities that are obligations of the Debtors and excludes the obligations of the Company's non-debtor subsidiaries. As noted above, those liabilities subject to compromise

may

vary significantly from the stated amounts of claims filed with the Bankruptcy Court.

Principal and accrued interest owed to the Supporting Lenders as of the Petition Date were settled via the issuance of New Equity under the Restructuring Plan. Interest expense incurred subsequent to the Petition Date was not accrued since it was not treated as an allowed claim under the Restructuring Plan. For the year ended

December

31,

2016,

the Company did not accrue interest totaling

$60.5

million under the Credit Agreement subsequent to the Petition Date.

As of

December

31,

2016,

the Company classified the entire principal balance of the Revolving Credit Facility, the Five-Year Term Loans and the Seven-Year Term Loans (see Note

- Debt and Capital Lease Obligations for defined terms), as well as interest that was accrued but unpaid as of the Petition Date, as liabilities subject to compromise in accordance with ASC

852

Reorganizations

. The components of liabilities subject to compromise are as follows (in thousands):

	December 31, 2016
Revolving Credit Facility	$	284,400
Five-Year Term Loans		569,250
Seven-Year Term Loans		480,150
Total debt subject to compromise		1,333,800
Accrued interest on debt subject to compromise		37,516
Accounts payable and other estimated allowed claims		60,780
Related party payables		13,250
Total liabilities subject to compromise	$	1,445,346

Reorganization Items

The Company classifies all income, expenses, gains or losses that were incurred or realized as a result of the Chapter

Proceeding as reorganization items in its consolidated statements of operations. In addition, the Company reports professional fees and related costs associated with and incurred during the Chapter

Proceeding as reorganization items. The components of reorganization items are as follows (in thousands):

	Year Ended December 31, 2016
Professional fees	$	41,240
Contract termination settlements		20,383
Revision of estimated claims		782
Related party settlement		(5,226	)
Vendor claims adjustment		(1,849	)
Total reorganization items	$	55,330

In accordance with the requirements of ASC

852

Reorganizations

, the following are condensed combined financial statements of the Debtor entities:

C&J ENERGY SERVICES LTD. AND CERTAIN SUBSIDIARIES (DEBTOR-IN-POSSESSION)

(1)

CONDENSED COMBINED BALANCE SHEET

(In thousands)

(Unaudited)

	December 31, 2016

ASSETS
Current assets:
Cash and cash equivalents	$	47,780
Accounts receivable, net of allowance of $2,951		136,608
Inventories, net		52,413
Prepaid and other current assets		36,801
Deferred tax assets		5,817
Total current assets		279,419
Property, plant and equipment, net of accumulated depreciation of $681,788		950,207
Intangible assets, net		59,934
Investments in non-debtor subsidiaries		7,489
Intercompany receivables from non-debtor subsidiaries		42,909
Other noncurrent assets		33,397
Total assets	$	1,373,355
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable	$	74,993
Accrued expenses and other		76,624
DIP Facility		25,000
Total current liabilities		176,617
Deferred tax liabilities		15,196
Intercompany payables to non-debtor subsidiaries		3,557
Other long-term liabilities		11,903
Total liabilities not subject to compromise		207,273
Liabilities subject to compromise		1,445,346
Total liabilities		1,652,619
Total shareholders' deficit		(279,264	)
Total liabilities and shareholders’ deficit	$	1,373,355

C&J ENERGY SERVICES LTD. AND CERTAIN SUBSIDIARIES (DEBTOR-IN-POSSESSION)

(1)

CONDENSED COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

	Year Ended December 31, 2016
Revenue	$	970,837
Costs and expenses:
Direct costs		940,352
Selling, general and administrative expenses		238,679
Research and development		7,718
Depreciation and amortization		214,335
Impairment expense		423,216
(Gain) loss on disposal of assets		3,097
Operating loss		(856,560	)
Other income (expense):
Interest expense, net		(155,132	)
Equity in losses of non-debtor subsidiaries		(30,133	)
Other income (expense), net		19,375
Total other income (expense)		(165,890	)
Loss before reorganization items and income taxes		(1,022,450	)
Reorganization items		55,330
Income tax benefit		(133,768	)
Net loss		(944,012	)
Comprehensive loss, net of income taxes:
Net loss		(944,012	)
Other comprehensive income (loss):
Foreign currency translation gain (loss), net of tax		1,425
Comprehensive loss	$	(942,587	)

C&J ENERGY SERVICES LTD. AND CERTAIN SUBSIDIARIES (DEBTOR-IN-POSSESSION)

(1)

CONDENSED COMBINED STATEMENT OF CASH FLOWS

(In thousands)

(Unaudited)

	Year Ended December 31, 2016
Cash flows from operating activities:
Net loss	$	(944,012	)
Adjustments to reconcile net loss to net cash used in operating activities		855,421
Net cash used in operating activities		(88,591	)
Cash flows from investing activities:
Purchases of and deposits on property, plant and equipment		(54,499	)
Proceeds from disposal of property, plant and equipment		32,786
Investment in unconsolidated affiliate		(408	)
Payments made for business acquisitions, net of cash acquired		(1,419	)
Investment in non-debtor subsidiaries		(8,244	)
Payments made for intercompany receivables		(8,538	)
Net cash used in investing activities		(40,322	)
Cash flows from financing activities:
Proceeds from revolving debt		174,000
Payments on revolving debt		(10,600	)
Payments on term loans		(2,650	)
Proceeds from DIP Facility		23,000
Payments of capital lease obligations		(2,388	)
Financing costs		(1,009	)
Payments on non-debtor intercompany notes		(2,281	)
Employee tax withholding on restricted shares vesting		(497	)
Excess tax expense from share-based compensation		(5,592	)
Net cash provided by financing activities		171,983

Effect of exchange rate changes on cash		(2,129	)

Net increase in cash and cash equivalents		40,941
Cash and cash equivalents, beginning of period		6,839
Cash and cash equivalents, end of period	$	47,780

(1)

As of

December

31,

2016,

the subsidiaries of C&J Energy Services Ltd. that had filed voluntary petitions seeking relief under the Chapter

Proceeding were CJ Holding Co.; Blue Ribbon Technology Inc.; C&J Corporate Services (Bermuda) Ltd.; C&J Energy Production Services-Canada Ltd.; C&J Energy Services, Inc.; C&J Spec-Rent Services, Inc.; C&J VLC, LLC; C&J Well Services Inc.; ESP Completion Technologies LLC; KVS Transportation, Inc.; Mobile Data Technologies Ltd.; Tellus Oilfield Inc.; Tiger Cased Hole Services Inc.; and Total E&S, Inc. The condensed combined balance sheet, the condensed combined statements of operations and comprehensive loss and the condensed combined statement of cash flows above include only those entities that were subject to Chapter

Proceeding as of

December

31,

2016.

All direct and indirect investments in debtor subsidiaries that were included in the condensed combined financial statements have been eliminated.