Note

- Share-Based Compensation

Equity Plans

In connection with the Nabors Merger, the Company approved and adopted the C&J Energy Services

2015

Long Term Incentive Plan (the

“2015

LTIP”), effective as of

March

23,

2015,

contingent upon the consummation of the Nabors Merger. The

2015

LTIP served as an assumption of the Old C&J

2012

Long-Term Incentive Plan, including the sub-plan titled the C&J International Middle East FZCO Phantom Equity Arrangement (the

“2012

LTIP”), with certain non-material revisions made and no increase in the number of shares remaining available for issuance under the

2012

LTIP. Prior to the adoption of the

2015

LTIP, all share-based awards granted to Old C&J employees, consultants and non-employee directors were granted under the

2012

LTIP and, following the

2015

LTIP’s adoption, no further awards will be granted under the

2012

LTIP. Awards that were previously outstanding under the

2012

LTIP will continue and remain outstanding under the

2015

LTIP, as adjusted to reflect the Nabors Merger. At the closing of the Nabors Merger, restricted shares and stock option awards were granted under the

2015

LTIP to certain employees of the C&P Business and approximately

0.4

million C&J common shares underlying those awards were deemed part of the consideration paid to Nabors for the Nabors Merger.

The

2015

LTIP provides for the grant of share-based awards to the Company’s employees, consultants and non-employee directors. The following types of awards are available for issuance under the

2015

LTIP: incentive stock options and nonqualified stock options, share appreciation rights, restricted shares, restricted share units, dividend equivalent rights, performance awards and share awards. As of

December

31,

2016

only nonqualified stock options and restricted shares have been awarded under the

2015

LTIP and

2012

LTIP. No grants were issued during the year ended

December

31,

2016.

A total of

4.3

million common shares were originally authorized and approved for issuance under the

2012

LTIP and on

June

2015,

the shareholders of the Company approved the First Amendment to the

2015

LTIP, which increased the number of common shares that

may

be issued under the

2015

LTIP by approximately

3.6

million shares. The shareholders of the Company approved the Second Amendment to the

2015

LTIP in

February

2016,

which increased the number of common shares that

may

be issued by approximately

6.0

million shares. Including the add-back of approximately

0.9

million restricted shares and

0.7

million options canceled or expired under the

2012

LTIP and

2015

LTIP during

2016,

approximately

11.3

million shares were available for issuance under the

2015

LTIP as of

December

31,

2016.

The number of common shares available for issuance under the

2015

LTIP is subject to adjustment in the event of a reclassification, recapitalization, merger, consolidation, reorganization, spin-off, split-up, issuance of warrants, rights or debentures, share dividend, share split or reverse share split, cash dividend, property dividend, combination or exchange of shares, repurchase of shares, change in corporate structure or any similar corporate event or transaction. The number of common shares available for issuance

may

also increase due to the termination of an award granted under the

2015

LTIP, the

2012

LTIP or the Prior Plans (as defined below), by expiration, forfeiture, cancellation or otherwise without the issuance of the common shares.

Prior to the approval of the

2012

LTIP, all share-based awards granted to Old C&J’s employees, consultants and non-employee directors were granted under the C&J Energy Services

2006

Stock Option Plan and subsequently under the C&J Energy Services

2010

Stock Option Plans (collectively known as the “Prior Plans”). No additional awards will be granted under the Prior Plans.

Stock Options

The fair value of each option award granted under the

2015

LTIP, the

2012

LTIP and the Prior Plans is estimated on the date of grant using the Black-Scholes option-pricing model. Option awards are generally granted with an exercise price equal to the market price of the Company’s common shares on the grant date. For options granted prior to Old C&J’s initial public offering, which closed on

August

2011,

the calculation of Old C&J’s share price involved the use of different valuation techniques, including a combination of an income and/or market approach. Determination of the fair value was a matter of judgment and often involved the use of significant estimates and assumptions. Additionally, due to the Company’s lack of historical volume of option activity, the expected term of options granted is derived using the “plain vanilla” method. In addition, expected volatilities have been based on comparable public company data, with consideration given to the Company’s limited historical data. The Company makes estimates with respect to employee termination and forfeiture rates of the options within the valuation model. The risk-free rate is based on the approximate U.S. Treasury yield rate in effect at the time of grant. No options were granted during the year ended

December

31,

2016.

During the year ended

December

31,

2015,

approximately

0.3

million replacement option awards were granted by the Company to employees in connection with the Nabors Merger.

The following table presents the assumptions used in determining the fair value of option awards during the year ended

December

31,

2015.

No stock options were granted by the Company for the year ended

December

31,

2016

and for the year ended

December

31,

2014.

	Year Ended December 31,
	2015

Expected volatility	52.3%
Expected dividends	None
Exercise price	$7.93	-	$27.12
Expected term (in years)	0.3	-	4.3
Risk-free rate	0.03%	-	1.3%

The weighted average grant date fair value of options granted during the year ended

December

31,

2015,

was

$4.74.

A summary of the Company’s stock option activity for the year ended

December

31,

2016

is presented below.

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
	(in thousands)					(in years)		(in thousands)
Outstanding at January 1, 2014		5,283		$	11.69		6.36	$	65,351
Granted		—			—		—		—
Exercised		(159	)		5.23		—		—
Forfeited		(57	)		29.00		—		—
Outstanding at December 31, 2014		5,067		$	11.70		5.40	$	21,395
Granted		267			10.49		—		—
Exercised		(154	)		2.94		—		—
Forfeited		(61	)		19.03		—		—
Outstanding at December 31, 2015		5,119		$	11.82		4.41	$	2,874
Granted		—			—		—		—
Exercised		—			—		—		—
Forfeited		(703	)		3.19		—		—
Outstanding at December 31, 2016		4,416		$	13.18		3.86	$	—
Exercisable at December 31, 2016		4,416		$	13.18		3.86	$	—

The total intrinsic value of options exercised during the years ended

December

31,

2016

and

2015

was

zero

and

$0.6

million, respectively. As of

December

31,

2016,

there was no more remaining unrecognized compensation cost related to outstanding stock options.

Restricted Shares

Historically, restricted shares were valued based on the closing price of the Company’s common shares on the NYSE on the date of grant. During the year ended

December

31,

2016

there were no restricted shares granted to employees and non-employee directors under the

2015

LTIP. During the year ended

December

31,

2015

approximately

2.8

million restricted shares were granted to employees and non-employee directors under the

2015

LTIP, including approximately

0.6

million replacement restricted shares, at fair market values ranging from

$3.55

$15.10

per share.

To the extent permitted by law, the recipient of an award of restricted shares will have all of the rights of a shareholder with respect to the underlying common shares, including the right to vote the common shares and to receive all dividends or other distributions made with respect to the common shares. Dividends on restricted shares will be deferred until the lapsing of the restrictions imposed on the shares and will be held by the Company for the account of the recipient (either in cash or to be reinvested in restricted shares) until such time. Payment of the deferred dividends and accrued interest, if any, shall be made upon the lapsing of restrictions on the restricted shares, and any dividends deferred in respect of any restricted shares shall be forfeited upon the forfeiture of such restricted shares. As of

December

31,

2016,

the Company had not issued any dividends.

A summary of the status and changes during the year ended

December

31,

2016

of the Company’s shares of non-vested restricted shares is presented below:

	Shares			Weighted Average Grant-Date Fair Value
	(in thousands)
Non-vested at January 1, 2016		3,271		$	15.70
Forfeited		(576	)		15.30
Vested		(1,797	)		15.92
Non-vested at December 31, 2016		898		$	15.34

As of

December

31,

2016

and

2015,

respectively, there were

$8.9

million and

$29.9

million of total unrecognized compensation cost related to restricted shares. That cost is expected to be recognized over a weighted-average period of

1.42

years. The weighted-average grant-date fair value per share of restricted shares granted during the year ended

December

31,

2015

was

$13.50.

As of

December

31,

2016,

the Company had

5.3

million stock options and restricted shares outstanding to employees and non-employee directors,

0.3

million of which were issued under the

2006

Plan,

3.9

million were issued under the

2010

Plan,

0.2

million were issued under the

2012

Plan and the remaining

0.9

million were issued under the

2015

Plan. As of

December

31,

2015,

the Company had

8.4

million stock options and restricted shares outstanding to employees and non-employee directors,

0.9

million of which were issued under the

2006

Plan,

4.0

million were issued under the

2010

Plan ,

0.7

million were issued under the

2012

Plan and the remaining

2.8

million were issued under the

2015

Plan.

Share-based compensation expense was

$17.7

million,

$18.5

million and

$18.4

million for the years ended

December

31,

2016,

2015

and

2014,

respectively, and is included in selling, general and administrative expenses, direct costs and research and development on the consolidated statements of operations. The total income tax benefit recognized in the consolidated statements of operations in connection with share-based compensation expense was approximately

$6.2

million,

$6.5

million and

$6.4

million for the years ended

December

31,

2016,

2015

and

2014,

respectively.

Emergence from Chapter

Proceeding

January

2017,

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

Proceeding. As part of the transactions undertaken pursuant to the Restructuring Plan, all of the existing shares of the Predecessor common equity were canceled as of the Plan Effective Date. As a result, on the Plan Effective Date

all equity based awards issued under the equity plans discussed above were canceled as part of the Restructuring Plan, and the equity plans discussed above were dissolved.