Note

- Share-Based Compensation

Successor Equity Plans

Pursuant to the Restructuring Plan, the Company adopted the C&J Energy Services, Inc.

2017

Management Incentive Plan (as amended from time to time, the "MIP") as of the Plan Effective Date.

The MIP 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 MIP: incentive stock options and nonqualified stock options, share appreciation rights, restricted shares, restricted share units, dividend equivalent rights, performance awards, share awards, other share-based awards and substitute awards. As of

December

31,

2017,

only nonqualified stock options, restricted shares and performance awards have been awarded under the MIP.

A total of approximately

8.0

million shares of common stock were originally authorized and approved for issuance under the MIP. The number of shares of common stock available for issuance under the MIP 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 shares of common stock available for issuance

may

also increase due to the termination of an award granted under the MIP or by expiration, forfeiture, cancellation or otherwise without the issuance of the common stock.

Stock Options

The fair value of each option award granted under the MIP is estimated on the date of grant using the Black-Scholes option-pricing model. 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 was derived using the “plain vanilla” method. Expected volatilities were 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. During the year ended

December 31, 2017,

approximately

0.4

million nonqualified stock options were granted under the MIP to certain of the Company's executive officers at a fair market value ranging from

$16.55

$22.19

per nonqualified stock option. Stock options granted during the

first

quarter of

2017

will expire on the

tenth

anniversary of the grant date and will vest over

three

years of continuous service from the grant date, with

34%

vesting immediately upon the grant date, and

22%

on each of the first,

second

and

third

anniversaries of the grant date. Stock options granted during the

fourth

quarter of

2017

will expire on the

tenth

anniversary of the grant date and will vest over

three

years of continuous service from the grant date, with

one

third

vesting on each of the first,

second

and

third

anniversaries of the grant date.

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

December 31, 2017.

	Year Ended December 3,
	2017
Expected volatility	50.1%	-	53.2%
Expected dividends		None
Exercise price	$30.83	-	$42.65
Expected term (in years)	5.7	-	6.0
Risk-free rate	2.03%	-	2.24%

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

December

31,

2017

was

$20.66.

A summary of the Company

’s stock option activity for the year ended

December

31,

2017

is presented below.

	Stock Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
	(in thousands)					(in years)		(in thousands)
Outstanding at December 31, 2016 (Predecessor)		4,416		$	13.18		3.86	$	—
Canceled		(4,416	)		13.18		3.86		—
Outstanding at January 1, 2017 (Successor)		—		$	—		—	$	—
Granted		351			39.43		—		—
Exercised		—			—		—		—
Forfeited		—			—		—		—
Outstanding at December 31, 2017 (Successor)		351		$	39.43		9.34	$	253
Exercisable at December 31, 2017 (Successor)		87		$	42.65		9.10	$	—

As of

December

31,

2017,

the Company had approximately

$4.2

million in unrecognized compensation cost related to outstanding stock options to be expensed over a weighted average remaining service period of

2.4

years.

Restricted Stock

The value of the Company

’s outstanding restricted stock is based on the closing price of the Company’s common stock on the NYSE on the date of grant. During year ended

December

31,

2017,

approximately

1.7

million shares of restricted stock were granted to employees and non-employee directors under the MIP, at fair market values ranging from

$31.52

$44.90

per share of restricted stock. Restricted stock awards granted to employees during the

first

quarter of

2017

will vest over

three

years of continuous service from the grant date, with

34%

having vested immediately upon the grant date, and

22%

on each of the first,

second

and

third

anniversaries of the grant date. Restricted stock awards granted to non-employee directors will vest in full on the

first

anniversary of the date of grant, subject to each director's continued service. Restricted stock awards granted to employees during the

fourth

quarter of

2017

will vest over

three

years of continuous service from the grant date, with

one

third

vesting on each of the first,

second

and

third

anniversaries.

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

December

31,

2017,

the Company had

not

issued any dividends.

A summary of the status and changes during the year ended

December

31,

2017

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 December 31, 2016 (Predecessor)		898		$	15.34
Canceled		(898	)		(15.34	)
Non-vested at January 1, 2017 (Successor)		—		$	—
Granted		1,664			37.92
Forfeited		(38	)		43.00
Vested		(288	)		43.83
Non-vested at December 31, 2017 (Successor)		1,338		$	36.51

As of

December

31,

2017,

the Company had approximately

$38.9

million in unrecognized compensation cost related to restricted stock to be expensed over a weighted average remaining service period of

2.6

years.

Performance Stock

During the

fourth

quarter of

2017,

the Company granted approximately

0.1

million shares of performance stock under the MIP to certain of the Company's executive officers at a fair market value of approximately

$37.20

per share of restricted stock. The performance award cliff vests at the end of a

three

year performance period, and the participants

may

earn between

and

200%

of the target number of the shares granted based on actual stock price performance upon comparison to a peer group. The vesting of these awards is subject to the employee's continued employment. The Company values equity awards with market conditions at the grant date using a Monte Carlo simulation model which simulates many possible future outcomes.

The following table presents the assumptions used in determining the fair value of the performance stock granted during the

fourth

quarter of

2017.

	Year Ended December 3,
	2017
Expected volatility, including peer group	30.8%	-	81.6%
Expected dividends		None
30 calendar day volume weighted average stock price, including peer group	$2.13	-	$133.20
Expected term (in years)		3.0
Risk-free rate	1.94%	-	1.95%

A summary of the status and changes during the year ended

December

31,

2017

of the Company’s performance stock is presented below:

	Shares		Weighted Average Grant-Date Fair Value
	(in thousands)
Non-vested at December 31, 2017 (Predecessor)		—	$	—
Granted		92		37.20
Forfeited		—		—
Vested		—		—
Non-vested at December 31, 2017 (Successor)		92	$	37.20

As of

December

31,

2017,

the Company had approximately

$3.4

million in unrecognized compensation cost related to performance stock to be expensed over a weighted average remaining service period of

3.0

years.

Share-based compensation expense was

$23.4

million for the year ended

December

31,

2017,

and is included in selling, general and administrative expenses, direct costs and research and development on the consolidated statements of operations. Due to the valuation allowance that has been provided for NOLs as a result of the uncertainty regarding the ultimate realization of the Company's deferred tax assets, there was

income tax benefit recognized in the consolidated statements of operations in connection with share-based compensation expense for the year ended

December

31,

2017

Predecessor 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, (the

“2012

LTIP”), with certain non-material revisions made and

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,

further awards were granted under the

2012

LTIP. Awards that were previously outstanding under the

2012

LTIP would have continued to 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 provided for the grant of share-based awards to the Company

’s employees, consultants and non-employee directors. The following types of awards were 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 were awarded under the

2015

LTIP and

2012

LTIP.

grants were issued during the year ended

December 31, 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 was 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.

A total of

4.3

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

2012

LTIP and on

June 4, 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, the

2012

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

2015

LTIP was terminated as described in Note

- Chapter

Proceeding and Emergence, pursuant to the Restructuring Plan, the liquidation of C&J Energy Services Ltd. was completed under the laws of Bermuda, and all of the existing shares of the Predecessor's common equity were canceled as of the Effective Date. Also, on the Effective Date, the Successor issued the New Warrants to the holders of the canceled Predecessor common shares, provided that such class of holders voted to accept the Restructuring Plan.

Stock Options

The fair value of each option award granted under the

2015

LTIP, the

2012

LTIP and the Prior Plans was estimated on the date of grant using the Black-Scholes option-pricing model. Option awards were generally granted with an exercise price equal to the market price of the Company

’s common shares on the grant date. Due to the Company’s lack of historical volume of option activity, the expected term of options granted was derived using the “plain vanilla” method. In addition, expected volatilities were based on comparable public company data, with consideration given to the Company’s limited historical data. The Company made estimates with respect to employee termination and forfeiture rates of the options within the valuation model. The risk-free rate was based on the approximate U.S. Treasury yield rate in effect at the time of grant.

options were granted during the year ended

December

31,

2016.

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

December

31,

2015.

stock options were granted by the Company for the year ended

December

31,

2016.

	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 through

December 31, 2016

is presented below.

	Stock Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
	(in thousands)					(in years)		(in thousands)
Outstanding at December 31, 2014 (Predecessor)		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 (Predecessor)		5,119		$	11.82		4.41	$	2,874
Granted		—			—		—		—
Exercised		—			—		—		—
Forfeited		(703	)		3.19		—		—
Outstanding at December 31, 2016 (Predecessor)		4,416		$	13.18		3.86	$	—

The total intrinsic value of options exercised during the year ended

December 31, 2015

was

$0.6

million.

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

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 had 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 would have been deferred until the lapsing of the restrictions imposed on the shares and would 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, would have been made upon the lapsing of restrictions on the restricted shares, and any dividends deferred in respect of any restricted shares would be forfeited upon the forfeiture of such restricted shares. As of

December

31,

2016,

the Company did

not

issue 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 December 31, 2014 (Predecessor)		1,377		$	23.39
Granted		2,850		$	13.50
Forfeited		(238	)	$	14.81
Vested		(718	)	$	21.97
Non-vested at December 31, 2015 (Predecessor)		3,271		$	15.70
Granted		—			—
Forfeited		(576	)		15.30
Vested		(1,797	)		15.92
Non-vested at December 31, 2016 (Predecessor)		898		$	15.34

As of

December

31,

2016,

and

2015

there was

$8.9

million and

$29.9

million of total unrecognized compensation cost related to restricted shares. That cost was 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.

Share-based compensation expense was

$17.7

million and

$18.5

million for the years ended

December

31,

2016

and

2015,

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 and

$6.5

million for the years ended

December

31,

2016

and

2015,

respectively.