SHARE-BASED COMPENSATION

We have adopted stock incentive plans and other arrangements pursuant to which our Board of Directors (the “Board”) may grant stock options, restricted stock, stock units, stock appreciation rights, common stock or performance awards to officers, directors and key employees. At March 31, 2017, there were approximately 0.9 million stock options, restricted stock units and performance awards outstanding to officers, directors and key employees. The exercise price, terms and other conditions applicable to each form of share-based compensation under our plans are generally determined by the Compensation Committee of our Board at the time of grant and may vary.

Our share-based payments consist primarily of stock units, performance awards, common stock and stock options. In May 2016, our shareholders approved the 2016 Team, Inc. Equity Incentive Plan (the “Plan”), which replaced all of our previous equity compensation plans. The Plan authorizes the issuance of share-based awards representing up to 2,000,000 shares of common stock. Shares issued in connection with our share-based compensation are issued out of authorized but unissued common stock.

In connection with the acquisition of Furmanite in February 2016, we assumed the share plan related to Furmanite employee grants. As provided for in the Merger Agreement, each option to purchase Furmanite common stock outstanding immediately prior to the closing of the acquisition was converted into an option to purchase Team common stock, adjusted by the 0.215 exchange ratio. Similarly, each previously existing Furmanite restricted share, restricted stock unit or performance stock unit outstanding immediately prior to the acquisition were converted into Team restricted stock units, also at the 0.215 exchange ratio. The converted awards generally have the same terms and conditions as the replaced awards, except the vesting of certain awards was accelerated to the acquisition date and any performance conditions associated with the Furmanite awards no longer apply. The fair value of the options was determined using a Black-Scholes model, while the fair value of the restricted stock units was determined based on the market price on the acquisition date. The fair value of the converted Furmanite awards was allocated between consideration transferred in the acquisition and future share-based compensation expense, based on past service completed and future service required. The converted Furmanite awards have been identified, as applicable, in the tables that follow.

Compensation expense related to share-based compensation totaled $1.7 million and $2.1 million for the three months ended March 31, 2017 and 2016, respectively. Share-based compensation expense reflects an estimate of expected forfeitures. At March 31, 2017, $18.2 million of unrecognized compensation expense related to share-based compensation is expected to be recognized over a remaining weighted-average period of 2.7 years. The excess tax benefit derived when share-based awards result in a tax deduction for the Company was not material for the three months ended March 31, 2017 and 2016.

Stock units are settled with common stock upon vesting unless it is not legally feasible to issue shares, in which case the value of the award is settled in cash. We determine the fair value of each stock unit based on the market price on the date of grant. Stock units generally vest in annual installments over four years and the expense associated with the units is recognized over the same vesting period. We also grant common stock to our directors which typically vest immediately. Compensation expense related to stock units and director stock grants totaled $1.7 million and $1.8 million for the three months ended March 31, 2017 and 2016, respectively. Transactions involving our stock units and director stock grants during the three months ended March 31, 2017 and 2016 are summarized below:



	Three Months Ended March 31, 2017				Three Months Ended March 31, 2016
	(unaudited)				(unaudited)
	No. of Stock Units		Weighted Average Fair Value		No. of Stock Units		Weighted Average Fair Value
	(in thousands)				(in thousands)
Stock and stock units, beginning of period	535		$	35.11	371		$	36.26
Changes during the period:
Granted	2		$	33.27	70		$	25.30
Assumed - Furmanite acquisition	—		$	—	40		$	25.63
Vested and settled	(21	)	$	25.33	—		$	—
Cancelled	(3	)	$	31.58	(3	)	$	28.09
Stock and stock units, end of period	513		$	35.55	478		$	33.83

We have a performance stock unit award program whereby we grant Long-Term Performance Stock Unit (“LTPSU”) awards to our executive officers. Under this program, the Company communicates “target awards” to the executive officers at the beginning of a performance period. LTPSU awards cliff vest with the achievement of the performance goals and completion of the required service period. Settlement occurs with common stock within 20 business days of vesting. LTPSU awards granted on November 4, 2014 and October 15, 2015 are subject to a three-year performance period and a concurrent three-year service period. The performance target is based on results of operations over the three-year performance period with possible payouts ranging from 0% to 300% of the “target awards.” LTPSU awards granted on March 15, 2017 are subject to a two-year performance period and a concurrent two-year service period. For these awards, the performance goal is separated into three independent performance factors based on (i) relative shareholder total return (“RTSR”) as measured against a designated peer group, (ii) RTSR as measured against a designated index and (iii) results of operations over the two-year performance period, with possible payouts ranging from 0% to 200% of the “target awards” for the first two performance factors and ranging from 0% to 300% of the “target awards” for the third performance factor.

We determine the fair value of each LTPSU award based on the market price on the date of grant. However, for the portion of the LTPSU awards that are subject to the RTSR performance factors, we determine the fair value of that portion of the award based on the results of a Monte Carlo simulation, which uses market-based inputs as of the date of grant to simulate future stock returns. Compensation expense is recognized on a straight-line basis over the vesting term. For LTPSU awards (or portions thereof) subject to a results of operations performance goal, compensation expense is recognized based upon the performance target that is probable of being met. For the portion of LTPSU awards subject to the RTSR performance factors, because the expected outcome is incorporated into the grant date fair value, compensation expense is not subsequently adjusted for changes in the expected or actual performance outcome. Compensation expense related to performance awards totaled $0.1 million and $0.2 million for the three months ended March 31, 2017 and 2016, respectively. Transactions involving our performance awards during the three months ended March 31, 2017 and 2016 are summarized below:



	Three Months Ended March 31, 2017			Three Months Ended March 31, 2016
	(unaudited)			(unaudited)
	No. of Stock Units	Weighted Average Fair Value		No. of Stock Units	Weighted Average Fair Value
	(in thousands)			(in thousands)
Long-term performance stock units, beginning of period	59	$	37.16	59	$	37.16
Changes during the period:
Granted	167	$	20.24	—	$	—
Vested and settled	—	$	—	—	$	—
Cancelled	—	$	—	—	$	—
Long-term performance stock units, end of period	226	$	24.64	59	$	37.16

We determine the fair value of each stock option at the grant date using a Black-Scholes model and recognize the resulting expense of our stock option awards over the period during which an employee is required to provide services in exchange for the awards, usually the vesting period. Compensation expense related to stock options for the three months ended March 31, 2017 and 2016 was not material. Our options typically vest in equal annual installments over a four-year service period. Expense related to an option grant is recognized on a straight line basis over the specified vesting period for those options. Stock options generally have a ten-year term. Transactions involving our stock options during the three months ended March 31, 2017 and 2016 are summarized below:



	Three Months Ended March 31, 2017				Three Months Ended March 31, 2016
	(unaudited)				(unaudited)
	No. of Options		Weighted Average Exercise Price		No. of Options		Weighted Average Exercise Price
	(in thousands)				(in thousands)
Shares under option, beginning of period	203		$	30.63	376		$	25.71
Changes during the period:
Granted	—		$	—	—		$	—
Assumed - Furmanite acquisition	—		$	—	132		$	33.20
Exercised	(16	)	$	27.91	(64	)	$	15.67
Cancelled	—		$	—	(2	)	$	50.10
Expired	(1	)	$	32.05	(5	)	$	30.33
Shares under option, end of period	186		$	30.87	437		$	29.26
Exercisable at end of period	185		$	30.71	419		$	28.92

Options exercisable at March 31, 2017 had a weighted-average remaining contractual life of 2.6 years. For total options outstanding at March 31, 2017, the range of exercise prices and remaining contractual lives are as follows:



Range of Prices	No. of Options	Weighted Average Exercise Price		Weighted Average Remaining Life
	(in thousands)			(in years)
$20.18 to $30.28	29	$	24.81	2.2
$30.29 to $40.38	150	$	31.08	2.5
$40.39 to $50.47	7	$	50.47	7.1
Total	186	$	30.87	2.6