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 December 31, 2017, there were approximately 1.1 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 $7.9 million, $7.3 million, $3.5 million and $4.8 million for the years ended December 31, 2017 and 2016, the seven months ended December 31, 2015 and the year ended May 31, 2015, respectively. Share-based compensation expense reflects an estimate of expected forfeitures. At December 31, 2017, $16.9 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 (deficiency) derived when share-based awards result in a tax deduction for the company was $(1.8) million, $(0.5) million, $0.4 million, and $3.0 million for the years ended December 31, 2017 and 2016, the seven months ended December 31, 2015 and the year ended May 31, 2015, respectively.

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 vests immediately. Compensation expense related to stock units and director stock grants totaled $7.1 million, $7.2 million, $3.0 million and $4.1 million for the years ended December 31, 2017 and 2016, the seven months ended December 31, 2015 and the year ended May 31, 2015, respectively. Transactions involving our stock units and director stock grants are summarized below:



	Twelve Months Ended December 31, 2017				Twelve Months Ended December 31, 2016
	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 year	535		$	35.11	371		$	36.26
Changes during the year:
Granted	563		$	13.64	322		$	34.23
Assumed - Furmanite Acquisition	—		$	—	40		$	25.63
Vested and settled	(211	)	$	34.10	(180	)	$	34.19
Cancelled	(33	)	$	30.12	(18	)	$	30.75
Stock and stock units, end of year	854		$	21.42	535		$	35.11



	Seven Months Ended December 31, 2015				Twelve Months Ended May 31, 2015
	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 year	304		$	36.23	310		$	31.42
Changes during the year:
Granted	197		$	35.14	156		$	39.51
Vested and settled	(126	)	$	34.43	(133	)	$	29.23
Cancelled	(4	)	$	39.27	(29	)	$	34.12
Stock and stock units, end of year	371		$	36.26	304		$	36.23

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 as soon as practicable following the vesting date. 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 (credit) related to performance awards totaled $0.8 million, $(0.4) million, $0.3 million and $0.2 million for the years ended December 31, 2017 and 2016, the seven months ended December 31, 2015 and the year ended May 31, 2015, respectively. Transactions involving our performance awards are summarized below:



	Twelve Months Ended December 31, 2017				Twelve Months Ended December 31, 2016
	No. of Long- Term Performance Stock Units		Weighted Average Fair Value		No. of Long- Term Performance Stock Units	Weighted Average Fair Value
	(in thousands)				(in thousands)
Long-term performance stock units, beginning of year	59		$	37.16	59	$	37.16
Changes during the year:
Granted	182		$	19.68	—	$	—
Vested and settled	—		$	—	—	$	—
Cancelled	(67	)	$	30.11	—	$	—
Long-term performance stock units, end of year	174		$	21.58	59	$	37.16



	Seven Months Ended December 31, 2015			Twelve Months Ended May 31, 2015
	No. of Long- Term Performance Stock Units	Weighted Average Fair Value		No. of Long- Term Performance Stock Units	Weighted Average Fair Value
	(in thousands)			(in thousands)
Long-term performance stock units, beginning of year	23	$	42.25	—	$	—
Changes during the year:
Granted	36	$	33.91	23	$	42.25
Vested and settled	—	$	—	—	$	—
Cancelled	—	$	—	—	$	—
Long-term performance stock units, end of year	59	$	37.16	23	$	42.25

Performance awards 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 performance award based on the market price on the date of grant. Performance awards were previously granted to our Chairman of our Board and were to vest over the longer of four years or the achievement of performance goals based upon our future results of operations. Compensation expense related to performance awards was $0.3 million for the year ended December 31, 2016, $0.5 million for seven months ended December 31, 2015 and $0.6 million for the year ended May 31, 2015. Transactions involving our performance awards are summarized below:



	Twelve Months Ended December 31, 2016				Seven Months Ended December 31, 2015
	No. of Performance Awards		Weighted Average Fair Value		No. of Performance Awards		Weighted Average Fair Value
	(in thousands)				(in thousands)
Performance awards, beginning of year	13		$	35.15	28		$	32.86
Changes during the year:
Granted	—		$	—	—		$	—
Vested and settled	(13	)	$	35.15	(15	)	$	30.82
Cancelled	—		$	—	—		$	—
Performance awards, end of year	—		$	35.15	13		$	35.15



	Twelve Months Ended May 31, 2015
	No. of Performance Awards		Weighted Average Fair Value
	(in thousands)
Performance awards, beginning of year	50		$	30.63
Changes during the year:
Granted	—		$	—
Vested and settled	(22	)	$	27.66
Cancelled	—		$	—
Performance awards, end of year	28		$	32.86

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. There was less than $0.1 million in compensation expense related to stock options for the year ended December 31, 2017 and $0.2 million of expense for the year ended December 31, 2016, but none for the seven months ended December 31, 2015 or the year ended May 31, 2015, as all stock option awards were fully vested. 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 are summarized below:



	Twelve Months Ended December 31, 2017				Twelve Months Ended December 31, 2016
	No. of Options		Weighted Average Exercise Price		No. of Options		Weighted Average Exercise Price
	(in thousands)				(in thousands)
Shares under option, beginning of year	203		$	30.63	376		$	25.71
Changes during the year:
Granted	—		$	—	—		$	—
Assumed - Furmanite Acquisition	—		$	—	132		$	33.20
Exercised	(16	)	$	27.91	(251	)	$	23.50
Cancelled	—		$	—	(50	)	$	35.00
Expired	(108	)	$	30.08	(4	)	$	44.62
Shares under option, end of year	79		$	31.94	203		$	30.63
Exercisable at end of year	79		$	31.94	203		$	30.63



	Seven Months Ended December 31, 2015				Twelve Months Ended May 31, 2015
	No. of Options		Weighted Average Exercise Price		No. of Options		Weighted Average Exercise Price
	(in thousands)				(in thousands)
Shares under option, beginning of year	490		$	24.80	816		$	19.61
Changes during the year:
Granted	—		$	—	—		$	—
Exercised	(109	)	$	21.41	(326	)	$	11.79
Cancelled	—		$	—	—		$	—
Expired	(5	)	$	30.33	—		$	—
Shares under option, end of year	376		$	25.71	490		$	24.80
Exercisable at end of year	376		$	25.71	490		$	24.80

Options exercisable at December 31, 2017 had a weighted-average remaining contractual life of 3.8 years. For total options outstanding at December 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)
$20.19 to $30.28	14	$	21.68	3.3
$30.29 to $40.38	58	$	32.07	3.6
$40.39 to $50.47	7	$	50.47	6.4
	79	$	31.94	3.8