Team, Inc
TEAM INC (Form: 10-Q, Received: 10/09/2008 15:57:45)
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2008

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period              to             

Commission file number 001-08604

 

 

TEAM, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Texas   74-1765729

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

200 Hermann Drive, Alvin, Texas   77511
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code (281) 331-6154

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer   ¨     Accelerated filer   x     Non-accelerated filer   ¨     Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x

On October 7, 2008, there were 18,820,827 shares of the Registrant’s common stock outstanding.

 

 

 


Table of Contents

TEAM, INC.

INDEX

 

        Page No.
PART I FINANCIAL INFORMATION   3
Item 1.   Consolidated Condensed Financial Statements   3
  Consolidated Condensed Balance Sheets—August 31, 2008 (Unaudited) and May 31, 2008   3
  Unaudited Consolidated Condensed Statements of Operations for the Three Months Ended August 31, 2008 and August 31, 2007   4
  Unaudited Consolidated Statements of Comprehensive Income for the Three Months Ended August 31, 2008 and 2007   5
  Unaudited Consolidated Condensed Statements of Cash Flows for the Three Months Ended August 31, 2008 and August 31, 2007   6
  Notes to Consolidated Condensed Financial Statements   7
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   17
Item 3.   Quantitative and Qualitative Disclosures about Market Risk   20
Item 4.   Controls and Procedures   20
PART II OTHER INFORMATION   21
Item 1.   Legal Proceedings   21
Item 1A.   Risk Factors   21
Item 4.   Submission of Matters to a Vote of Security Holders   21
Item 5.   Other Information   22
Item 6.   Exhibits   22
SIGNATURES   23
Certification of CEO Pursuant to Section 302  
Certification of CFO Pursuant to Section 302  
Certification of CEO Pursuant to Section 906  
Certification of CFO Pursuant to Section 906  
Canadian Line of Credit—Loan Agreement  
Team, Inc. Unconditional Guarantee of Canadian Subsidiary Debt  

 

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PART I—FINANCIAL INFORMATION

 

ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

TEAM, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(in thousands except share and per share data)

 

     August 31, 2008     May 31, 2008
     (unaudited)      

ASSETS

    

Current Assets:

    

Cash and cash equivalents

   $ 8,454     $ 6,600

Receivables, net of allowance of $3,918 and $3,586

     121,416       126,854

Inventory

     18,604       16,408

Income tax receivable

     3,460       834

Deferred income taxes

     1,120       687

Prepaid expenses and other current assets

     6,092       6,831
              

Total Current Assets

     159,146       158,214

Property, plant and equipment, net

     56,308       56,138

Intangible assets, net of accumulated amortization of $1,417 and $1,308

     1,084       1,276

Goodwill

     58,276       62,904

Other assets, net

     3,546       1,929
              

Total Assets

   $ 278,360     $ 280,461
              

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Current Liabilities:

    

Current maturities

   $ 6,165     $ 6,249

Accounts payable

     16,599       21,462

Other accrued liabilities

     22,180       25,636

Insurance note payable

     2,472       3,397
              

Total Current Liabilities

     47,416       56,744

Deferred income taxes

     5,792       6,137

Long-term debt

     97,925       96,818
              

Total Liabilities

     151,133       159,699

Commitments and Contingencies

    

Stockholders’ Equity:

    

Preferred stock, 500,000 shares authorized, none issued

     —         —  

Common stock, par value $.30 per share, 30,000,000 shares authorized; 18,809,577 and 18,580,171 shares issued

     5,643       5,574

Additional paid-in capital

     59,640       55,250

Retained earnings

     62,324       57,367

Accumulated other comprehensive income

     (380 )     2,571
              

Total Stockholders’ Equity

     127,227       120,762
              

Total Liabilities and Stockholders’ Equity

   $ 278,360     $ 280,461
              

See notes to unaudited consolidated condensed financial statements.

 

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TEAM, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(in thousands except per share data)

 

     Three Months Ended
August 31,
     2008    2007
     (unaudited)    (unaudited)

Revenues

   $ 123,338    $ 103,488

Operating expenses

     84,229      71,181
             

Gross margin

     39,109      32,307

Selling, general and administrative expenses

     29,658      24,536

Earnings from unconsolidated affiliates

     264      —  
             

Operating income

     9,715      7,771

Interest expense, net

     1,447      1,754
             

Earnings before income taxes

     8,268      6,017

Provision for income taxes

     3,311      2,505
             

Net income

   $ 4,957    $ 3,512
             

Net income per share - Basic

   $  0.27    $ 0.19

Net income per share - Diluted

   $ 0.25    $ 0.18

Weighted averages shares outstanding

     

Basic

     18,684      18,023

Diluted

     19,907      19,585

See notes to unaudited consolidated condensed financial statements.

 

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TEAM, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

     Three Months Ended
August 31,
 
     2008     2007  
     (unaudited)     (unaudited)  

Net income

   $ 4,957     $ 3,512  

Foreign currency translation adjustment

     (6,111 )     154  

Interest rate swap

     —         (123 )

Foreign currency hedge

     1,318       —    

Tax provision

     1,842       (56 )
                

Comprehensive income

   $ 2,006     $ 3,487  

 

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TEAM, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

 

     Three Months Ended
August 31,
 
     2008     2007  
     (unaudited)     (unaudited)  

Cash Flows From Operating Activities:

    

Net income

   $ 4,957     $ 3,512  

Adjustments to reconcile net income to net cash provided by operating activities:

    

Earnings from unconsolidated affiliates

     (264 )     —    

Depreciation and amortization

     2,913       2,278  

Loss on asset sales

     (4 )     (3 )

Amortization of deferred loan costs

     72       77  

Allowance for doubtful accounts

     332       639  

Minority interest in earnings and other

     —         (69 )

Deferred income taxes

     (778 )     (578 )

Non-cash compensation cost

     1,008       405  

Changes in assets and liabilities, net of effects from business acquisitions:

    

(Increase) decrease:

    

Accounts receivable

     5,106       2,914  

Inventories

     (2,196 )     (975 )

Prepaid expenses and other current assets

     740       1,961  

Increase (decrease):

    

Accounts payable

     (4,863 )     (4,669 )

Other accrued liabilities

     (3,456 )     2,235  

Income taxes payable

     —         1,688  

Income taxes receivable

     (408 )     —    
                

Net cash provided by operating activities

     3,159       9,415  

Cash Flows From Investing Activities:

    

Capital expenditures

     (4,301 )     (3,522 )

Proceeds from sale of assets

     18       11  

Business acquisitions, net of cash acquired

     —         (35,371 )

Increase in other assets, net

     (1,500 )     (94 )
                

Net cash used in investing activities

     (5,783 )     (38,976 )

Cash Flows From Financing Activities:

    

Net borrowings under revolving credit agreement

     4,742       33,980  

Payments related to term loans and financing arrangements

     (1,584 )     (1,528 )

Tax benefit of stock option exercises

     1,953       568  

Insurance note payments

     (925 )     (1,549 )

Proceeds from note receivable

     111       —    

Loan financing fees

     (36 )     (86 )

Issuance of common stock

     1,498       834  
                

Net cash provided by financing activities

     5,759       32,219  

Effect Of Exchange Rate Changes On Cash

     (1,281 )     283  
                

Net increase in cash and cash equivalents

     1,854       2,941  

Cash and cash equivalents at beginning of period

     6,600       4,335  
                

Cash and cash equivalents at end of period

   $ 8,454     $ 7,276  
                

See notes to unaudited consolidated condensed financial statements.

 

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TEAM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED

FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

Introduction. Unless otherwise indicated, the terms “Team, Inc.,” “Team,” “the Company,” “we,” “our” and “us” are used in this report to refer to Team, Inc., to one or more of our consolidated subsidiaries or to all of them taken as a whole. We are incorporated in the State of Texas and our company website can be found at www.teamindustrialservices.com . Our corporate headquarters is located at 200 Hermann Drive, Alvin, Texas, 77511 and our telephone number is (281) 331-6154. Our stock is traded on the NASDAQ under the symbol “TISI” and our fiscal year ends on May 31 of each calendar year.

We are a leading provider of specialty maintenance and construction services required in maintaining high temperature and high pressure piping systems and vessels that are utilized extensively in heavy industries. We offer an array of complimentary services including:

 

   

leak repair,

 

   

hot tapping,

 

   

fugitive emissions control,

 

   

field machining,

 

   

technical bolting,

 

   

field valve repair,

 

   

non-destructive testing, and

 

   

field heat treating.

We offer these services in over 100 locations throughout the United States and international markets including Aruba, Belgium, Canada, Singapore, The Netherlands, Trinidad and Venezuela.

Basis for Presentation. These interim financial statements are unaudited, but in the opinion of our management, reflect all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of results for such periods. The consolidated condensed balance sheet at May 31, 2008 is derived from the May 31, 2008 audited consolidated financial statements. The results of operations for any interim period are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto contained in our annual report on Form 10-K for the fiscal year ended May 31, 2008.

Consolidation .  Our consolidated condensed financial statements include the financial statements of Team, Inc. and our majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in operating entities where we have the ability to exert significant influence, but where we do not control their operating and financial policies, are accounted for using the equity method. Our share of the net income of these entities is included in earnings from unconsolidated affiliates in our consolidated condensed statements of operations and our investment in these entities is included in other long-term assets as a single amount in our consolidated condensed balance sheets. Investments in net assets of unconsolidated affiliates accounted for using the equity method totaled $1.9 million and $0.1 million as of August 31, 2008 and May 31, 2008, respectively. Certain amounts in prior years have been reclassified to conform to the current year presentation.

Use of Estimates.  Our accounting policies conform to Generally Accepted Accounting Principles in the United States (“GAAP”). Our most significant accounting policies are described below. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and judgments that affect our reported financial position and results of operations. We review significant estimates and judgments affecting our consolidated financial statements on a recurring basis and record the effect of any necessary adjustments prior to their publication. Estimates and judgments are based on information available at the time such estimates and judgments are made. Adjustments made with respect to the use of these estimates and judgments often relate to information not previously available. Uncertainties with respect to such estimates and judgments are inherent in the preparation of financial statements. Estimates and judgments are used in, among other things, (1) aspects of revenue recognition, (2) analyzing tangible and intangible assets for possible impairment, (3) assessing future tax exposure and the realization of tax assets, (4) estimating various factors used to accrue liabilities for workers compensation, auto, medical and general liability, (5) establishing an allowance for uncollectible accounts receivable, and (6) estimating the useful lives of our assets.

Fair Value of Financial Instruments .  Our financial instruments consist primarily of cash, cash equivalents, accounts receivable, accounts payable and debt obligations. The carrying amount of cash, cash equivalents, trade accounts receivable and trade accounts payable are representative of their respective fair values due to the short-term maturity of these instruments. The fair value of our bank debt is representative of the carrying value based upon the variable terms and management’s opinion that the current rates available to us with the same maturity and security structure are equivalent to that of the credit facility.

 

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Cash and Cash Equivalents .  Cash and cash equivalents consist of all demand deposits and funds invested in highly liquid short-term investments with original maturities of three months or less.

Inventory.  Inventory is stated at the lower of cost (first-in, first-out method) or market. Inventory includes material, labor and certain fixed overhead costs.

Property, Plant and Equipment.  Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization of assets are computed by the straight-line method over the following estimated useful lives of the assets:

 

Classification

  

Useful Life

Buildings

   20-40 years

Leasehold improvements

   2-10 years

Machinery and equipment

   2-10 years

Furniture and fixtures

   2-10 years

Computers and computer software

   2-5 years

Automobiles

   2-5 years

Goodwill and Other Intangible Assets.  Goodwill represents the excess of costs over fair value of assets of businesses acquired. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but are instead tested for impairment at least annually in accordance with the provisions of the Financial Accounting Standards Board (“FASB”) Statement No. 142, Goodwill and Other Intangible Assets . Intangible assets with estimated useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment in accordance with FASB Statement No. 144, Accounting for Impairment or Disposal of Long-Lived Assets

Income Taxes.  We follow the guidance in FASB No. 109, Accounting for Income Taxes (“FASB No. 109”) which requires that we use the asset and liability method of accounting for deferred income taxes and provide deferred income taxes for all significant temporary differences. As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax payable and related tax expense together with assessing temporary differences resulting from differing treatment of certain items, such as depreciation, for tax and accounting purposes. These differences can result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that it is more likely than not (a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized, we must establish a valuation allowance. We consider all available evidence, both positive and negative, to determine whether, based on the weight of the evidence, a valuation allowance is needed. Evidence used includes information about our current financial position and our results of operations for the current and preceding years, as well as all currently available information about future years, including our anticipated future performance, the reversal of deferred tax liabilities and tax planning strategies.

Allowance for Doubtful Accounts.  In the ordinary course of business, a percentage of our accounts receivable are not collected due to billing disputes, customer bankruptcies, dissatisfaction with the services we performed and other various reasons. To account for those accounts receivable that will eventually be deemed uncollectible we establish an allowance. The allowance for doubtful accounts is based on a combination of our historical experience and management’s review of long outstanding accounts receivable.

Workers Compensation, Auto, Medical and General Liability Accruals.  In accordance with FASB Statement No. 5, Accounting for Contingencies (“FASB No. 5”), we record a loss contingency when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We review our loss contingencies on an ongoing basis to ensure that we have appropriate reserves recorded on our balance sheet. These reserves are based on historical experience with claims incurred but not received, estimates and judgments made by management, applicable insurance coverage for litigation matters, and are adjusted as circumstances warrant. For individual workers’ compensation and automobile liability claims, our self-insured retention is $250,000 per occurrence. Multiple claims or combined workers compensation and auto liability claims are aggregated for a self-insured retention of $350,000 per occurrence. For medical claims, our self-insured retention is $150,000 per individual claimant determined on an annual basis. For general liability claims, our self-insured retention is $250,000 per occurrence. We maintain insurance for claims that exceed such self-retention limits. The insurance is subject to terms, conditions, limitations and exclusions that may not fully compensate us for all losses. Our estimates and judgment could change based on new information, changes in laws or regulations, changes in management’s plans or intentions, or the outcome of legal proceedings, settlements or other factors. If different estimates and judgments were applied with respect to these matters, it is likely that reserves would be recorded for different amounts.

Revenue Recognition.  We determine our revenue recognition guidelines for our operations based on guidance provided in applicable accounting standards and positions adopted by the FASB or the Securities & Exchange Commission, (“SEC”). Most of our projects are short-term in nature and we predominantly derive revenues by providing a variety of industrial services, on a time and material basis. For all of these services

 

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our revenues are recognized when services are rendered or when product is shipped and risk of ownership passes to the customer. However, due to various contractual terms with our customers, at the end of any reporting period there may be earned but unbilled revenue that is accrued to properly match revenues with related costs. At August 31, 2008 and May 31, 2008, the amount of earned but unbilled revenue included in accounts receivable was $8.4 million and $7.5 million, respectively.

Concentration of Credit Risk.  No single customer accounts for more than 10% of consolidated revenues.

Earnings Per Share.  Basic earnings per share are computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share are computed by dividing net income by the sum of (1) the weighted-average number of shares of common stock outstanding during the period and (2) the dilutive effect of the assumed exercise of stock options using the treasury stock method. There is no difference, for any of the years presented, in the amount of net income (numerator) used in the computation of basic and diluted earnings per share. With respect to the number of weighted average shares outstanding (denominator), diluted shares reflects only the pro forma exercise of options to acquire common stock to the extent that the options’ exercise prices are less than the average market price of common shares during the period.

All options to purchase shares of common stock outstanding during the three month periods ended August 31, 2008 and 2007, were included in the computation of diluted earnings per share because the options’ exercise prices were less than the average market price of common shares during the periods.

Foreign Currency .  For subsidiaries whose functional currency is not the U.S. Dollar, assets and liabilities are translated at period ending rates of exchange and revenues and expenses are translated at period average exchange rates. Translation adjustments for the asset and liability accounts are included as a separate component of accumulated other comprehensive income in stockholders’ equity. There were no material transaction gains or losses in any periods presented.

Accounting Principles Not Yet Adopted

FASB No. 141R.  In December 2007, the FASB issued FASB No. 141 (revised 2007), “ Business Combinations ” (“FASB No. 141R”) which replaces FASB No. 141, “ Business Combinations ”. FASB No. 141R applies to all business combinations, including combinations among mutual entities and combinations by contract alone. FASB No. 141R requires that all business combinations will be accounted for by applying the acquisition method. FASB No. 141R is effective for business combinations consummated in periods beginning on or after December 15, 2008. Early application is prohibited. We do not anticipate FASB No. 141R will have a material effect on our results of operations, financial position, or cash flows.

FASB No. 161.  In March 2008, the FASB issued FASB No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133 (“FASB No. 161”). FASB No. 161 requires enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for, and how such derivative instruments affect an entity’s financial position, financial performance and cash flows. FASB No. 161 is effective for fiscal years beginning after November 15, 2008. We do not anticipate FASB No. 161 will have a material effect on our results of operations, financial position or cash flows.

Newly Adopted Accounting Principles

FASB No. 157.   In September 2006 the FASB issued FASB No. 157, “ Fair Value Measurements ” (“FASB No. 157”). This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements for financial assets and liabilities, as well as for any other assets and liabilities that are carried at fair value on a recurring basis in financial statements. It applies under other accounting pronouncements that require or permit fair value measurements, and does not require any new fair value measurements. The application of FASB No. 157, however, may change current practice within an organization. FASB No. 157 is effective January 1, 2008, applied prospectively. In February 2008, the FASB issued FASB Staff Position No.157-2, “Effective Date of FASB Statement No. 157”, which provided a one-year deferral for the implementation of FASB No. 157 for certain non-financial assets and liabilities measured on a nonrecurring basis. Effective June 1, 2008, we adopted the provisions of FASB No. 157 relating to financial assets and liabilities. The adoption of FASB No. 157 with respect to financial assets and liabilities did not have a material financial impact on our consolidated results of operations or financial condition. We are currently evaluating the impact of implementation with respect to non-financial assets and liabilities measured on a nonrecurring basis on our consolidated financial statements, which will be primarily limited to asset impairments including goodwill, intangible assets and other long-lived assets, assets acquired and liabilities assumed in a business combination. The new disclosures regarding the level of pricing observability associated with financial instruments carried at fair value is provided in Note 11 to the accompanying unaudited consolidated condensed financial statements.

FASB No. 159 .  In February 2007, the FASB issued FASB No. 159, “ The Fair Value Option for Financial Assets and Financial Liabilities ”— Including an amendment of FASB Statement No. 115” (“FASB No. 159”), which permits an entity to choose to measure financial instruments and certain other items similar to financial instruments at fair value. All subsequent changes to fair value for the financial instrument would be reported in earnings. FASB No. 159 is effective June 1, 2008. The Company did not adopt the fair value option permitted under this statement.

 

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FIN No. 48.  In June 2006, the FASB issued Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB No. 109 (“FIN 48”), which clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with FASB No. 109. The interpretation prescribes a recognition threshold and measurement criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

In May 2007, the FASB issued FIN 48-1, Definition of “Settlement” in FASB Interpretation No. 48 (“FIN 48-1”), which provides guidance on how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits.

We adopted the provisions of FIN 48 on June 1, 2007. The adoption of FIN 48 did not have a material impact on our consolidated financial condition, results of operations or cash flows. In accordance with FIN 48, paragraph 19, our policy is to recognize interest and penalties related to unrecognized tax benefits through the tax provision. Our adoption of FIN 48 was consistent with FIN 48-1. At the beginning of the period we had liabilities for tax uncertainties of $2.2 million, which included $0.5 million of interest. The statute of limitations for the tax uncertainties expired during the current period. As these liabilities are associated with a prior acquisition, the resultant reduction of recorded liabilities was applied to reduce the balance of goodwill and as such had no effect on our effective tax rate.

Set forth below is a reconciliation of the changes in our unrecognized tax benefits associated with FIN 48 (in thousands):

 

Balance at May 31, 2008

   $ 2,218  

Decrease due to expiration of statute of limitations

     (2,218 )
        

Balance at August 31, 2008

   $ —    
        

We file income tax returns in the U.S. with federal and state jurisdictions as well as various foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for fiscal years prior to fiscal year 2005. We believe there is appropriate support for the income tax positions taken and to be taken on our tax returns and that our accruals for tax liabilities are adequate for all open tax years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter.

 

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2. ACQUISITIONS AND DISPOSITIONS

On January 9, 2008 we acquired all the stock of Leak Repair Specam, (“LRS”), a specialty industrial services company. LRS currently provides a range of services similar to those offered by our TMS division including on-stream leak sealing, hot tapping, fugitive emissions monitoring, field machining and bolting services. LRS is headquartered near Vlissingen, The Netherlands and has four service locations in The Netherlands and Belgium. The purchase price of the acquisition was $18.6 million plus working capital adjustments, professional fees and net of cash acquired. Financing for the acquisition was obtained through our banking syndicate. We are in the process of determining the fair values of assets and liabilities assumed. Preliminary information regarding the allocation of the purchase price to our acquisition is set forth below (in thousands):

 

     (unaudited)

Accounts receivable

   $ 6,030

Inventory

     579

Prepaids and other current assets

     760

Property, plant and equipment

     818

Unallocated purchase price

     14,616
      

Total Assets

   $ 22,803
      

Accounts payable

   $ 1,871

Accrued liabilities and other

     2,412
      

Total Liabilities Assumed

     4,283
      

Net Assets Acquired

   $ 18,520
      

On June 1, 2007 we acquired all the stock of Aitec, Inc. (“Aitec”) for $33.8 million, plus working capital adjustments, professional fees and net of cash acquired. The purchase price of $34.7 million includes working capital adjustments of $0.1 million and professional fees of $0.8 million. Aitec is a non-destructive testing and inspection services company headquartered near Toronto, Ontario with 13 service locations across Canada. Financing for the acquisition was obtained through our bank syndicate. Our allocation of the purchase price to our acquisition is set forth below (in thousands):

 

     (unaudited)

Accounts receivable

   $ 12,983

Inventory

     382

Prepaids and other current assets

     1,415

Property, plant and equipment

     4,460

Intangible assets—Non-competes

     1,250

Goodwill

     20,622
      

Total Assets

   $ 41,112
      

Accounts payable

   $ 3,251

Accrued liabilities and other

     3,021

Deferred taxes

     99
      

Total Liabilities Assumed

     6,371
      

Net Assets Acquired

   $ 34,741
      

 

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3. RECEIVABLES

A summary of accounts receivable as of August 31, 2008 and May 31, 2008 is as follows (in thousands):

 

     August 31, 2008
(unaudited)
    May 31, 2008  

Trade accounts receivable

   $ 116,938     $ 122,941  

Unbilled revenues

     8,396       7,499  

Allowance for doubtful accounts

     (3,918 )     (3,586 )
                

Total

   $ 121,416     $ 126,854  
                

 

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4. INVENTORY

A summary of inventory as of August 31, 2008 and May 31, 2008 is as follows (in thousands):

 

     August 31, 2008
(unaudited)
   May 31, 2008

Raw materials

   $ 3,047    $ 2,817

Work in progress

     455      498

Finished goods

     15,102      13,093
             

Total

   $ 18,604    $ 16,408
             

5. PROPERTY, PLANT AND EQUIPMENT

A summary of property, plant and equipment as of August 31, 2008 and May 31, 2008 is as follows (in thousands):

 

     August 31, 2008
(unaudited)
    May 31, 2008  

Land

   $ 959     $ 986  

Buildings and leasehold improvements

     7,620       7,643  

Machinery and equipment

     76,985       74,063  

Furniture and fixtures

     1,569       1,508  

Computers and computer software

     4,798       4,596  

Automobiles

     2,225       2,273  

Construction in progress

     8,254       8,559  
                

Total

     102,410       99,628  

Accumulated depreciation and amortization

     (46,102 )     (43,490 )
                

Property, plant and equipment, net

   $ 56,308     $ 56,138  
                

At August 31, 2008 $0.3 million of capitalized interest is included in property, plant and equipment.

6. OTHER ACCRUED LIABILITIES

A summary of other accrued liabilities as of August 31, 2008 and May 31, 2008 is as follows (in thousands):

 

     August 31, 2008
(unaudited)
   May 31, 2008

Payroll and other compensation expenses

   $ 11,061    $ 15,111

Insurance accruals

     4,784      4,087

Property, sales and other taxes

     1,400      1,770

Auto lease rebate

     842      992

Other

     4,093      3,676
             

Total

   $ 22,180    $ 25,636
             

7. LONG-TERM DEBT

In May 2007 we amended and restated our existing banking facility comprised of a term loan and a revolving credit facility. Our existing banking facility, as again amended in June 2008, provides us with a $145 million revolving line of credit and a $15 million term loan through a banking syndicate. In January 2008 we amended our existing banking facility to allow us to borrow in Euros or U.S. Dollars. Our existing banking facility, as amended (collectively, the “Credit Facility”) bears interest based on a variable Eurodollar rate option (currently LIBOR plus 1.5%) and the margin is set based on our financial covenants as set forth in the Credit Facility. The Credit Facility matures in May 2012 and is secured by virtually all of our domestic assets and a majority of the stock of our foreign subsidiaries. It also contains financial covenants and restrictions on the creation of liens on assets, the acquisition or sale of subsidiaries and the incurrence of certain liabilities. At August 31, 2008 there were $1.1 million of capitalized loan costs which are being amortized over the life of the Credit Facility. At August 31, 2008 we were in compliance with all financial covenants of the Credit Facility.

In October 2008, subsequent to period end, our Canadian subsidiary entered into a revolving credit facility with a bank (the “Canadian Line of Credit”). The Canadian Line of Credit allows our subsidiary to borrow up to 7.5 million Canadian Dollars (approximately 8 million U.S. Dollars). We have provided an unconditional guarantee of borrowings by our Canadian subsidiary, effectively making Team Inc. liable to the bank as principal debtor. The Canadian Line of Credit also contains cross-default provisions with our Credit Facility. Borrowings under the Canadian Line of Credit will be for working capital and other general needs of our Canadian operations, will bear interest at a LIBOR based interest rate and will mature in May 2012.

 

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A summary of long-term debt as of August 31, 2008 and May 31, 2008 is as follows (in thousands):

 

     August 31, 2008
(unaudited)
    May 31, 2008  

Revolving loan portion of the Credit Facility

   $ 94,909     $ 92,298  

Term loan portion of the Credit Facility

     9,000       10,500  

Software Licensing Note

     149       232  

Auto loans

     32       37  
                
     104,090       103,067  

Current maturities

     (6,165 )     (6,249 )
                

Long-term debt, excluding current maturities

   $ 97,925     $ 96,818  
                

FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (“FASB No. 133”), established accounting and reporting standards requiring that derivative instruments be recorded at fair value and included in the balance sheet as assets or liabilities. The accounting for changes in the fair value of a derivative instrument depends on the intended use of the derivative and the resulting designation, which is established at the inception date of a derivative. Special accounting for derivatives qualifying as fair value hedges allows a derivative’s gains and losses to offset related results on the hedged item in the statement of earnings. For derivative instruments designated as cash flow hedges, changes in fair value, to the extent the hedge is effective, are recognized in other comprehensive income until the hedged item is recognized in earnings. Hedge effectiveness is measured at least quarterly based on the relative cumulative changes in fair value between the derivative contract and the hedged item over time.

On May 31, 2007 we entered into an interest rate swap with our bank to hedge at a fixed pay rate of 4.97%, a portion of the variable cash flows associated with the variable Eurodollar interest expense on our Credit Facility. The portion of the Credit Facility hedged begins with a notional value of $30 million effective June 1, 2007 and decreases to $16.3 million by March 1, 2010. Changes in the cash flows of the interest rate swap are expected to be highly effective in offsetting the changes in cash flows attributable to fluctuations in the variable LIBOR rate on the notional amounts of the Credit Facility. The interest rate swap agreement is designated as a cash flow hedge, with the changes in fair value, to the extent the swap agreement is effective, recognized in other comprehensive income until the hedged interest expense is recognized in earnings.

On February 12, 2008 we borrowed €12.3 million under the Credit Facility to serve as an economic hedge of our net investment in our European operations as fluctuations in the fair value of the borrowing attributable to the U.S. Dollar/Euro spot rate will offset translation gains or losses attributable to our investment in our European operations.

In order to secure our insurance programs we are required to post letters of credit generally issued by a bank as collateral. A letter of credit commits the issuer to remit specified amounts to the holder, if the holder demonstrates that we failed to meet our obligations under the letter of credit. If this were to occur, we would be obligated to reimburse the issuer for any payments the issuer was required to remit to the holder of the letter of credit. At August 31, 2008 we were contingently liable for outstanding stand-by letters of credit totaling $7.1 million. Outstanding letters of credit reduce amounts available under our Credit Facility and are considered as having been funded for purposes of calculating our financial covenants under the Credit Facility.

 

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8. SHARE—BASED COMPENSATION

We have adopted stock option plans pursuant to which the Board of Directors may grant stock options to officers, directors and key employees. At August 31, 2008 there were approximately 2,397,000 stock options under the plans outstanding to officers, directors, and key employees at prices equal to or greater than the market value of the common stock on the date of grant. The exercise price, terms and other conditions applicable to each option granted under our plans are generally determined by the Compensation Committee of the Board of Directors at the time of grant of each option and may vary.

Our share-based payments consist primarily of stock options. We recognize the fair value of our share-based payments over the vesting periods of the awards. The stock options generally have ten year terms and vest and become fully exercisable after a period ranging from three to four years from the date of grant. Shares issued in connection with our stock option grants are issued out of authorized but unissued common stock. The governance of our stock option grants does not directly limit the number of future stock options we may award so long as the total number of shares ultimately issued does not exceed the total number of shares cumulatively authorized which was 6,620,000 at August 31, 2008.

Our share-based payments consist of stock options and restricted stock awards. For stock options, we determine the fair value of each stock option at the grant date using a Black-Scholes model. There were no grants made during the three months ended August 31, 2008 and 2007.

Compensation expense related to options granted and restricted stock awards totaled $1.0 million and $0.4 million during the three months ended August 31, 2008 and 2007, respectively. Tax benefits related to stock option exercises were $2.0 million and $0.6 million for the three months ended August 31, 2008 and 2007, respectively. As of August 31, 2008, $10.1 million of unrecognized compensation expense related to options granted and restricted stock awarded is expected to be recognized over a remaining weighted-average period of three years.

 

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Transactions involving share-based compensation during the three months ended August 31, 2008 and 2007 are summarized below:

 

     Three Months Ended
August 31, 2008
    Three Months Ended
August 31, 2007
 
     No. of
Options
    Weighted
Average
Price
    No. of
Options
    Weighted
Average
Price
 
     (in thousands)           (in thousands)        

Shares under option, beginning of period

   2,627     $ 15.37     2,822     $ 8.58  

Changes during the period:

        

Granted

   —       $ —       —       $ —    

Exercised

   (228 )   $ (6.31 )   (164 )   $ (4.75 )

Canceled

   (2 )   $ (30.33 )   (24 )   $ (12.90 )
                            

Shares under option, end of period

   2,397     $ 16.22     2,634     $ 8.63  

Exercisable at end of period

   1,102     $ 8.86     1,642     $ 5.95  
                            

Options exercisable at August 31, 2008 had a weighted average remaining contractual life of 7.3 years. For total options outstanding at August 31, 2008, the range of exercise prices and remaining contractual lives are as follows:

 

Range of Prices

   No. of
Options
   Weighted
Average
Price
   Weighted
Average
Remaining
Life (in
years)
     (in thousands)          

$0.00 to $3.21

   183    $ 2.32    2.70

$3.21 to $6.41

   92    $ 4.20    4.44

$6.41 to $9.62

   577    $ 8.40    6.30

$9.62 to $12.82

   190    $ 11.24    7.43

$12.82 to $16.03

   648    $ 15.00    7.89

$16.03 to $32.05

   707    $ 30.22    9.15
                
   2,397    $ 16.22    7.31
                

9. ENTITY WIDE DISCLOSURES

Revenues and long-lived assets in the U.S. and other countries are as follows (in thousands):

 

       Three Months Ended
August 31, 2008
(unaudited)
   Three Months Ended
August 31, 2007
(unaudited)

Revenues

     

United States

   $ 78,939    $ 76,045

Canada

     33,197      23,557

Europe

     6,263      284

Other foreign countries

     4,939      3,602
             

Total

   $ 123,338    $ 103,488
             
     August 31, 2008
(unaudited)
   May 31, 2008

Total Assets

     

United States

   $ 164,449    $ 169,491

Canada

     78,286      73,788

Europe

     24,454      25,800

Other foreign countries

     11,171      11,382
             

Total

   $ 278,360    $ 280,461
             

10. STOCK SPLIT

On July 25, 2007 we announced a two-for-one stock split in the form of a 100 percent stock dividend payable on August 29, 2007 to all shareholders of record on August 15, 2007. To fund the requirement of new shares, we utilized approximately 1 million shares of treasury stock and issued an additional 8 million shares of common stock. All share and per share information has been retroactively adjusted to reflect the stock split.

11. Fair Value Measurements

Effective June 1, 2008 we adopted the provisions of FASB No. 157, which among other things, requires enhanced disclosures about assets and liabilities carried at fair value.

As defined in FASB No. 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. We primarily apply the market approach for recurring fair value measurements and endeavor to utilize the best information available. Accordingly, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The use of unobservable inputs is intended to allow for fair value determinations in situations in which there is little, if any, market activity for the asset or liability at the measurement date. We are able to classify fair value balances based on the observability of those inputs. FASB No. 157 establishes a fair value hierarchy such that “Level 1” measurements include unadjusted quoted market prices for identical assets or liabilities in an active market, “Level 2” measurements include quoted market prices for identical assets or liabilities in an active market which have been adjusted for items such as effects of restrictions for transferability and those that are not quoted but are observable through corroboration with observable market data, including quoted market prices for similar assets, and “Level 3” measurements include those that are unobservable and of a highly subjective measure.

The following table sets forth, by level within the fair value hierarchy, our financial assets and liabilities that are accounted for at fair value on a recurring basis as of August 31, 2008. As required by FASB No. 157, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement (in thousands):

 

     Quoted Prices in
Active Markets for

Identical Items (Level 1)
   Significant Other
Observable
Inputs (Level 2)
   Significant
Unobservable
Inputs (Level 3)
   Total

Liabilities:

           

Interest rate swap

   $ —      $ 673    $ —      $ 673

Euro denominated long-term debt

     —        17,845      —        17,845
                           

Total Liabilities

   $ —      $ 18,518    $ —      $ 18,518
                           

 

 

 

 

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Item 1 of this report, and the consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations, including Critical Accounting Policies, included in our Annual Report on Form 10-K for the year ended May 31, 2008.

We based our forward-looking statements on our current expectations, estimates and projections about ourselves and our industry. We caution that these statements are not guarantees of future performance and involve risks, uncertainties and assumptions that we cannot predict. In addition, we based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our actual results may differ materially from the future performance that we have expressed or forecast in the forward-looking statements. Differences between actual results and any future performance suggested in these forward-looking statements could result from a variety of factors, including those listed beginning on page 6 of our Annual Report on Form 10-K for the year ended May 31, 2008.

General Description of Business

We are a leading provider of specialty maintenance and construction services required in maintaining high temperature and high pressure piping systems and vessels that are utilized extensively in heavy industries. We offer an array of complimentary services including:

 

   

leak repair,

 

   

hot tapping,

 

   

fugitive emissions control,

 

   

field machining,

 

   

technical bolting,

 

   

field valve repair,

 

   

non-destructive testing, and

 

   

field heat treating.

We offer these services in over 100 locations throughout the United States and international markets including Aruba, Belgium, Canada, Singapore, The Netherlands, Trinidad and Venezuela.

Our industrial services are available 24 hours a day, 7 days a week, 365 days a year. We market our services to companies in a diverse array of industries which include the petrochemical, refining, power, pipeline, pulp and paper, and steel industries as well as some of the world’s largest engineering and construction firms, shipbuilding, Original Equipment Manufacturers (“OEMs”), distributors and end users. Our products and services are provided across a broad geographic reach.

 

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Table of Contents

Three Months Ended August 31, 2008 Compared to Three Months Ended August 31, 2007

The following table sets forth the components of revenue and operating income from our operations for the three months ended August 31, 2008 and 2007 (in thousands):

 

     Three Months ended
August 31, 2008
(unaudited)
   Three Months ended
August 31, 2007
(unaudited)
   Increase  
           $    %  

Revenues:

           

TCM division

   $ 65,255    $ 59,797    $ 5,458    9 %

TMS division

     58,083      43,691      14,392    33 %
                           

Total revenues

     123,338      103,488      19,850    19 %

Gross Margin:

           

TCM division

     20,070      17,022      3,048    18 %

TMS division

     19,039      15,285      3,754    25 %
                           

Total gross margin

     39,109      32,307      6,802    21 %

SG&A Expenses:

           

Field operations

     24,548      20,842      3,706    18 %

Corporate costs

     5,110      3,694      1,416    38 %
                           

Total SG&A

     29,658      24,536      5,122    21 %

Earnings From Unconsolidated Affiliates

     264      —        264    100 %

Operating Income

   $ 9,715    $ 7,771    $ 1,944    25 %

Revenues.  Our revenues for the three months ended August 31, 2008 were $123.3 million compared to $103.5 million for the three months ended August 31, 2007, an increase of $19.9 million or 19%. Our revenues for the three months ended August 31, 2008 include incremental revenues associated with the recent LRS acquisition of $5.9 million. Organic revenue growth also continues to be broad based. Revenues for our TCM division for the three months ended August 31, 2008 were $65.3 million compared to $59.8 million for the three months ended August 31, 2007, an increase of $5.5 million or 9%. Revenues for our TMS division (inclusive of LRS) for the three months ended August 31, 2008 were $58.1 million compared to $43.7 million for the three months ended August 31, 2007, an increase of $14.4 million, or 33%. TMS division organic growth was 19%.

Gross Margin.  Our gross margin for the three months ended August 31, 2008 was $39.1 million compared to $32.3 million for the three months ended August 31, 2007, an increase of $6.8 million or 21%. Gross margin as a percentage of revenue was 32% for the three months ended August 31, 2008 compared to 31% for the three months ended August 31, 2007. Gross margin for our TCM division for the three months ended August 31, 2008 was $20.1 million compared to $17.0 million for the three months ended August 31, 2007, an increase of $3.1 million or 18%. TCM division gross margin as a percentage of revenue was 31% for the three months ended August 31, 2008 compared to 28% for the three months ended August 31, 2007. Gross margin for our TMS division (inclusive of LRS) was $19.0 million for the three months ended August 31, 2008 compared to $15.3 million for the three months ended August 31, 2007, an increase of $3.8 million or 25%. TMS division gross margin as a percentage of revenue was 33% for the three months ended August 31, 2008 compared to 35% for the three months ended August 31, 2007. The decline in TMS gross margin was primarily due to increased pass-through costs related to logistics of a large remote project in Alberta.

Selling, General, and Administrative Expenses.  Our SG&A for the three months ended August 31, 2008 was $29.7 million compared to $24.5 million for the three months ended August 31, 2007, an increase of $5.1 million or 21%. This reflects investments in our network of over 100 locations. Approximately $3.7 million of the increase in SG&A was due to field operations and $1.4 million of the increase was due to centralized corporate support costs. The $1.4 million increase in corporate support costs in the current period included $0.6 million of share-based employee compensation expense. SG&A as a percentage of revenue was 24% for the three months ended August 31, 2008, consistent with the three months ended August 31, 2007.

Due to the significant increase in market value of our common stock over the last five years, which is a primary determinant in the Black-Scholes valuation of our stock options, the increased value of recent stock grants has led to increased unrecognized future compensation expense attributable to currently unvested options. As a result, we expect non-cash compensation expense to increase $0.7 million, to approximately $4 million for the fiscal year ending May 31, 2009. As a consequence of the escalation in the Black-Scholes valuation of our stock option grants, and the associated escalation in future compensation expense, we are suspending the use of stock options as a long-term incentive to our managers. We will continue to use restricted stock and other forms of long-term equity awards with time based vesting to provide long-term incentives to our managers.

 

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Earnings From Unconsolidated Affiliates. Our earnings from unconsolidated affiliates consists entirely of our joint venture (50% ownership) formed in May 2008, to perform non-destructive testing and inspection services in Alaska. The joint venture is an integral part of our operations in Alaska and all technicians working on behalf of the joint venture are our employees. Revenues of the joint venture, and excluded from our results, were $3.3 million for the three months ended August 31, 2008.

Interest .  Interest expense was $1.4 million for the three months ended August 31, 2008 compared to $1.8 million for the three months ended August 31, 2007. The reduction in interest expense is due to decreasing borrowing rates offset by increased debt levels.

Taxes .  The provision for income taxes was $3.3 million on pretax income of $8.3 million for the three months ended August 31, 2008. The provision for income taxes was $2.5 million on pretax income of $6.0 million for the three months ended August 31, 2007. The effective tax rate for three months ended August 31, 2008 was 40% compared to 42% for three months ended August 31, 2007. The rate differential is due to the mixture of domestic and foreign taxes to which the income is subject.

Liquidity and Capital Resources

Financing for our operations consists primarily of vendor financing and leasing arrangements, banking facilities and cash flows attributable to our operations, which we believe are sufficient to fund our capital expenditures, debt maturities and other business needs.

Cashflows Attributable to Our Operations.  For the three months ended August 31, 2008, cash provided by operating activities was $3.2 million. Net income from continuing operations of $5.0 million and cash used for working capital was $5.1 million. Working capital was adversely affected by $5.4 million of receivables relating to a large project in which we were a subcontractor and in which payment was delayed pending the resolution of a dispute between the general contractor and end customer. Payment of these receivables is expected in our second fiscal quarter.

Cashflows Attributable to Our Investing Activities.  For the three months ended August 31, 2008, cash used in investing activities was $5.8 million, consisting primarily of $1.5 million to fund our Alaska joint venture and $4.3 million of capital expenditures. Capital expenditures can vary depending upon specific customer needs that may arise unexpectedly. We anticipate capital expenditures for the fiscal year 2009 to be approximately $15 million to $20 million.

Cashflows Attributable to Our Financing Activities.  For the three months ended August 31, 2008, cash provided by financing activities was $5.8 million. Borrowings under the Credit Facility provided $4.7 million of cash and $1.5 million was provided by the issuance of our common stock in connection with our stock option compensation plans and was offset by $2.5 million in principal payments under our Credit Facility and other financings.

Critical Accounting Estimates

We disclosed our critical accounting estimates in our Annual Report on Form 10-K for the year ended May 31, 2008. No significant changes have occurred to those policies except our adoption of FASB No. 157 effective June 1, 2008. FASB No. 157 requires enhanced disclosures about assets and liabilities carried at fair value. The following financial assets and liabilities are recorded at fair value as of August 31, 2008: (1) Interest rate swap and (2) Euro denominated long-term debt under our Credit Facility.

As defined in FASB No. 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. We primarily apply the market approach for recurring fair value measurements and endeavor to utilize the best information available. Accordingly, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The use of unobservable inputs is intended to allow for fair value determinations in situations in which there is little, if any, market activity for the asset or liability at the measurement date. We are able to classify fair value balances based on the observability of those inputs. FASB No. 157 establishes a fair value hierarchy such that Level 1 measurements include unadjusted quoted market prices for identical assets or liabilities in an active market, Level 2 measurements include quoted market prices for identical assets or liabilities in an active market which have been adjusted for effects of restrictions and those that are not quoted but are observable through corroboration with observable market data, including quoted market prices for similar assets, and Level 3 measurements include those that are unobservable and of a highly subjective measure. As part of adopting FASB No. 157, we did not have a transition adjustment to our retained earnings.

 

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Table of Contents
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have operations in foreign countries with a functional currency that is not the U.S. Dollar. We are exposed to market risk, primarily related to foreign currency fluctuations related to these operations.

We hold certain floating-rate obligations. We are exposed to market risk, primarily related to potential increases in interest rates related to our debt.

We carry Euro based debt to serve as an economic hedge of our net investment in our European operations as fluctuations in the fair value of the borrowing attributable to the U.S. Dollar/Euro spot rate will offset translation gains or losses attributable to our investment in our European operations. We are exposed to market risk, primarily related to foreign currency fluctuations related to the unhedged portion of our investment in our European operations.

From time to time, we have utilized, and expect to utilize, derivative financial instruments with respect to a portion of our interest rate risks to achieve a more predictable cash flow by reducing our exposure to interest rate fluctuations. These transactions generally are interest rate swap agreements and are entered into with major financial institutions. Derivative financial instruments related to our interest rate risks are intended to reduce our exposure to increases in the LIBOR-based interest rates underlying our floating rate Credit Facility. We do not enter into derivative financial instrument transactions for speculative purposes.

At May 31, 2007 we entered into an interest rate swap agreement with a fixed pay rate of 4.97% that has a notional value of $30 million beginning on June 1, 2007 and decreasing to $16.3 million by March 1, 2010. The interest rate swap agreement is designated as a cash flow hedge, with the changes in fair value, to the extent the swap agreement is effective, recognized in other comprehensive income until the hedged interest expense is recognized in earnings.

 

ITEM 4. CONTROLS AND PROCEDURES

Limitations on Effectiveness of Control.  Our management, including the principal executive and financial officers, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of our control system reflects the fact that there are resource constraints and the benefits of such controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control failures and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part on certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of management’s assessments of the current effectiveness of our disclosure controls and procedures and its internal control over financial reporting are subject to risks. However, our disclosure controls and procedures are designed to provide reasonable assurance that the objectives of our control system are met.

Evaluation of Disclosure Controls and Procedures .  As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). This evaluation included consideration of the various processes carried out under the direction of our disclosure committee in an effort to ensure that information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified by the SEC. This evaluation also considered the work completed relating to our compliance with Section 404 of the Sarbanes-Oxley Act of 2002, which is further described below.

Based on this evaluation, our CEO and CFO concluded that, as of August 31, 2008, our disclosure controls and procedures were operating effectively to ensure that the information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the requisite time periods and that such information is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting .  There were no changes in our internal control over financial reporting (as defined in Rules 13a-13(f) and 15d-15(f) of the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting during the first quarter of fiscal 2009.

 

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PART II—OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

In August 2005, we were served in a lawsuit styled Paulette Barker, as named Executor for the Estate of Robert Barker, et. al. v. Emmett J. Lescroart, Michael Urban, Team, Inc. et. al., Case Number 355868-402 in the Probate Court #1, Harris County, Texas. The dispute arises out of the sale by Mr. Barker to Mr. Lescroart of stock in Thermal Solutions, Inc. (“TSI”). Subsequently, we acquired all of the outstanding stock of TSI in April 2004 allegedly for a much higher price than Mr. Lescroart paid Mr. Barker in July 2003. The plaintiff claims damages in excess of $1.0 million. We intend to continue our vigorous defense of this action. We believe the outcome of this matter will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

We have, from time to time, provided temporary leak repair services for the steam operations of Consolidated Edison of New York (“Con Ed”) located in New York City. In July 2007, a Con Ed steam main located in midtown Manhattan ruptured causing one death and other injuries and property damage. Multiple separate lawsuits have been filed against Con Ed and us in the Supreme Courts of New York located in Kings, New York and Bronx County, alleging that our temporary leak repair services may have contributed to the cause of the rupture. The lawsuits seek generally unspecified compensatory damages for personal injury, property damage and business interruption. Additionally, on March 31, 2008 we received a letter from Con Ed alleging that our contract with Con Ed requires us to indemnify and defend Con Ed for additional claims filed against Con Ed as a result of the rupture. Con Ed filed an action to join Team and the city of New York as defendants in all lawsuits filed against Con Ed that did not include Team and the city of New York as direct defendants. We intend to vigorously defend the lawsuits and Con Ed’s claim for indemnification. We are unable to estimate the amount of liability to us, if any, associated with these lawsuits and the claim for indemnification. We maintain insurance coverage, subject to a deductible limit of $250,000, which we believe should cover these claims and have placed our insurers on notice. We do not believe the final resolution of these matters will have a material adverse effect on our consolidated financial position, results of operations or cash flows.

In February 2007, one of our employees sustained serious injuries as a result of a fire at the Valero McKee Refinery in Sunray, Texas. The employee and his family made a demand on Valero for compensation related to his injuries. Pursuant to the terms of our contract, we indemnified Valero for losses they incurred as a result of claims by our employee. In September, 2008, subsequent to our quarter end, a final settlement was reached among our employee, our insurers, Valero and us. Our insurance provided coverage for the claims subject to our self insured retention. The final settlement did not have a material effect on our consolidated financial position, results of operations or cash flows.

We are involved in various other lawsuits and are subject to various claims and proceedings encountered in the normal conduct of business. In our opinion, any uninsured losses that might arise from these lawsuits and proceedings will not have a materially adverse effect on our consolidated financial statements.

 

ITEM 1A. RISK FACTORS

Item 1A. Risk Factors beginning on page 5 of our Annual Report on Form 10-K for the year ended May 31, 2008 includes a detailed discussion of our risk factors.

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS

Our 2008 Annual Meeting of Shareholders was held on September 25, 2008. At that meeting, Messrs., Philip J. Hawk and Louis A. Waters were elected to serve as Class I directors for a three-year term. The votes with respect to the election of each director were as follows:

 

NAME

                   FOR                                    WITHHELD                

Philip J. Hawk

   16,949,996    364,278

Louis A. Waters

   16,934,142    380,132

The shareholders also approved the proposal to approve the material terms of the performance goals that may apply to awards under the Team, Inc. 2006 Stock Incentive Plan, as amended and restated effective August 1, 2008, by the following vote:

 

FOR

 

AGAINST

 

ABSTAIN

 

BROKER NON-VOTE

14,148,382

  1,215,870   12,232   1,937,790

 

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ITEM 5. OTHER INFORMATION

NONE

 

ITEM 6. EXHIBITS

 

Exhibit
Number

  

Description

31.1    Certification for Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2    Certification for Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1    Certification for Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2    Certification for Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1    Canadian Line of Credit—Loan Agreement
99.2    Team, Inc. Unconditional Guarantee of Canadian Subsidiary Debt

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.

 

    TEAM, INC.
    (Registrant)

Date: October 9, 2008

   
   

/s/ P HILIP J. H AWK

    Philip J. Hawk
    Chairman and Chief Executive Officer
   

/s/ T ED W. O WEN

   

Ted W. Owen, Senior Vice President and

Chief Financial Officer

   

(Principal Financial Officer and

Principal Accounting Officer)

 

23

Exhibit 31.1

I, Philip J. Hawk, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Team, Inc., (“Team”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. Team’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for Team and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Team, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of Team’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in Team’s internal control over financial reporting that occurred during Team’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Team’s internal control over financial reporting; and

5. Team’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Team’s auditors and audit committee of Team’s board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Team’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Team’s internal control over financial reporting.

Date: October 9, 2008

 

/s/ Philip J. Hawk

Philip J. Hawk

Chairman and Chief Executive Officer

Exhibit 31.2

I, Ted W. Owen, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Team, Inc., (“Team”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. Team’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) Team and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Team, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of Team’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in Team’s internal control over financial reporting that occurred during Team’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Team’s internal control over financial reporting; and

5. Team’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Team’s auditors and audit committee of Team’s board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Team’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in Team’s internal control over financial reporting.

Date: October 9, 2008

 

/s/ Ted W. Owen

Ted W. Owen

Senior Vice President and Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Team, Inc. (the Company) on Form 10-Q for the period ended August 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Philip J. Hawk, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

  (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

 

  (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ Philip J. Hawk

Philip J. Hawk
Chairman and Chief Executive Officer

October 9, 2008

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Team, Inc. (the Company) on Form 10-Q for the period ended August 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Ted W. Owen, Senior Vice President – Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

  (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

 

  (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ Ted W. Owen

Ted W. Owen

Senior Vice President and Chief Financial Officer

October 9, 2008

Exhibit 99.1

EXECUTION COPY

September 26, 2008

TISI Canada Inc.

389 Davis Road

Oakville, Ontario     L6J 2X2

Attn: Ted Owen

 

  Re: Revolving Credit Facility

Ladies and Gentlemen:

Bank of America, N.A., acting through its Canada Branch (the “ Lender ” ) is pleased to make available to TISI Canada Inc., an Ontario corporation (the “ Borrower ” ), a revolving credit facility on the terms and subject to the conditions set forth below. Terms not defined herein have the meanings assigned to them in Exhibit A hereto.

 

1. The Facility.

 

  (a) The Commitment. Subject to the terms and conditions set forth herein, the Lender agrees to make available to the Borrower until the Maturity Date a revolving credit facility providing for loans ( “ Loans ” ) in an aggregate principal amount not exceeding at any time $7,500,000 (the “ Commitment ” ). Within the foregoing limit, the Borrower may borrow, repay and reborrow Loans until the Maturity Date.

 

  (b) Borrowings, Conversions, Continuations. The Borrower may request that Loans be (i) made as or converted to Prime Rate Loans by irrevocable notice to be received by the Lender not later than 10 a.m. on the Business Day of the borrowing or conversion, or (ii) made or continued as, or converted to, LIBOR Loans by irrevocable notice to be received by the Lender not later than 10 a.m. three Business Days prior to the Business Day of the borrowing, continuation or conversion. If the Borrower fails to give a notice of conversion or continuation prior to the end of any Interest Period in respect of any LIBOR Loan, the Borrower shall be deemed to have requested that such Loan be converted to a Prime Rate Loan on the last day of the applicable Interest Period. If the Borrower requests that a Loan be continued as or converted to a LIBOR Loan, but fails to specify an Interest Period with respect thereto, the Borrower shall be deemed to have selected an Interest Period of one month. Notices pursuant to this Paragraph 1(b) may be given by telephone if promptly confirmed in writing.

Each LIBOR Loan shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof. Each Prime Rate Loan shall be in a minimum principal amount of $100,000. There shall not be more than three different Interest Periods in effect at any time.


  (c) Interest. Each Loan shall bear interest at a rate per annum equal to (i) in the case of a LIBOR Loan, the LIBO Rate plus the Applicable Rate for LIBOR Loans; or (ii) in the case of a Prime Rate Loan, the Prime Rate plus the Applicable Rate for Prime Rate Loans. Interest on Prime Rate Loans shall be calculated on the basis of a year of 365 or 366 days and actual days elapsed. All other interest hereunder shall be calculated on the basis of a year of 360 days and actual days elapsed.

The Borrower promises to pay interest (i) for each LIBOR Loan, (A) on the last day of the applicable Interest Period, and, if the Interest Period is longer than three months, on the respective dates that fall every three months after the beginning of the Interest Period, and (B) on the date of any conversion of such Loan to a Prime Rate Loan; (ii) for Prime Rate Loans, on the last Business Day of each calendar quarter; and (iii) for all Loans, on the Maturity Date. If the time for any payment is extended by operation of law or otherwise, interest shall continue to accrue for such extended period.

After the date any principal amount of any Loan is due and payable (whether on the Maturity Date, upon acceleration or otherwise), or after any other monetary obligation hereunder shall have become due and payable (in each case without regard to any applicable grace periods), the Borrower shall pay, but only to the extent permitted by law, interest (after as well as before judgment) on such amounts at a rate per annum equal to the Prime Rate plus 2.75%. Furthermore, while any Event of Default exists, the Borrower shall pay interest on the principal amount of the Loans at a rate per annum equal to the Prime Rate plus 2.75%. Accrued and unpaid interest on past due amounts shall be payable on demand.

In no case shall interest hereunder exceed the amount that the Lender may charge or collect under applicable law.

 

  (d) Evidence of Loans. The Loans and all payments thereon shall be evidenced by the Lender’s loan accounts and records; provided, however , that upon the request of the Lender, the Loans may be evidenced by a promissory note in the form of Exhibit B hereto in addition to such loan accounts and records. Such loan accounts, records and promissory note shall be conclusive absent manifest error of the amount of the Loans and payments thereon. Any failure to record any Loan or payment thereon or any error in doing so shall not limit or otherwise affect the obligation of the Borrower to pay any amount owing with respect to the Loans.

 

  (e) Repayment. The Borrower may, upon three Business Days’ notice, in the case of LIBOR Loans, and upon same-day notice in the case of Prime Rate Loans, repay Loans on any Business Day; provided that the Borrower pays all Breakage Costs (if any) associated with such repayment on the date of such repayment. Repayments of LIBOR Loans must be accompanied by a payment of interest on the amount so prepaid. Repayments of LIBOR Loans must be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof. Repayments of Prime Rate Loans must be in a principal amount of $100,000 or, if less, the entire principal amount thereof then outstanding. In any event, the Borrower promises to repay the principal amount of all Loans, and to pay all accrued and unpaid interest thereon and all other amounts payable by the Borrower hereunder, outstanding on the Maturity Date.

 

Page 2


The Borrower shall make all payments required hereunder not later than 1:00 p.m. on the date of payment in same day funds in Dollars at the office of the Lender located at 200 Front Street West, Toronto, Ontario or such other address as the Lender may from time to time designate in writing.

All payments by the Borrower to the Lender hereunder shall be made to the Lender in full without set-off or counterclaim and free and clear of and exempt from, and without deduction or withholding for or on account of, any present or future taxes, levies, imposts, duties or charges of whatsoever nature imposed by any government or any political subdivision or taxing authority thereof. The Borrower shall reimburse the Lender for any taxes imposed on or withheld from such payments (other than taxes imposed on the Lender’s income, and franchise taxes imposed on the Lender, by the jurisdiction under the laws of which the Lender is organized or any political subdivision thereof).

 

2. Conditions Precedent to Loans.

 

  (a) Conditions Precedent to Initial Loan. As a condition precedent to the initial Loan hereunder, the Lender must receive the following from the Borrower in form satisfactory to the Lender:

 

  (i) the enclosed duplicate of this Agreement duly executed and delivered on behalf of the Borrower and the Parent;

 

  (ii) an unlimited guarantee executed and delivered by the Parent (the “ Parent Guarantee ”);

 

  (iii) evidence of the completion of the Amalgamation;

 

  (iv) certified authorizing resolutions or other evidence of the Borrower’s authority to borrow and the Parent’s authority to guarantee the debts, liabilities and obligations of the Borrower;

 

  (v) a certificate of incumbency for the Borrower and the Parent;

 

  (vi) certified copies of the constating documents of the Borrower and the Parent;

 

  (vii) a certificate listing the jurisdictions in which the Borrower owns assets, has an office or place of business, or carries on business;

 

  (viii) if requested by the Lender, a promissory note as contemplated in Paragraph 1(d) above; and

 

Page 3


  (ix) such other documents, searches and certificates (including legal opinions) as the Lender may reasonably request including, without limitation, an opinion from the Parent’s Texas in-house counsel in respect of certain corporate matters relating to the Borrower and the Parent.

 

  (b) Conditions to Each Borrowing, Continuation and Conversion. As a condition precedent to each borrowing (including the initial borrowing), continuation and conversion of any Loan:

 

  (i) The Borrower must furnish the Lender with, as appropriate, a notice of borrowing, continuation or conversion;

 

  (ii) each representation and warranty set forth in Paragraph 3 below shall be true and correct in all material respects as if made on the date of such borrowing, continuation or conversion; and

 

  (iii) no Default shall have occurred and be continuing on the date of such borrowing, continuation or conversion.

Each notice of borrowing and notice of continuation or conversion shall be deemed a representation and warranty by the Borrower that the conditions referred to in clauses (ii) and (iii) above have been met.

 

3. Representations and Warranties. The Borrower represents and warrants that:

 

  (a) Existence and Qualification; Power; Compliance with Laws. It (i) is a corporation duly organized or formed, validly existing and in good standing under the laws of the jurisdiction of its organization or formation, (ii) has the power and authority and the legal right to (A) own and operate its properties, to lease the properties it operates and to conduct its business and (B) execute, deliver and perform its obligations under the Loan Documents, (iii) is duly qualified and in good standing under the laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification, and (iv) is in compliance with all laws, except to the extent that failure to so comply (A) relates to the matters set forth in clause (ii)(A) or clause (iii) above, and (B) could not reasonably be expected to have a Material Adverse Effect.

 

  (b) Power; Authorization; Enforceable Obligations. The execution, delivery and performance of this Agreement and the other Loan Documents by the Borrower are within its powers and have been duly authorized by all necessary action, and this Agreement is and the other Loan Documents, when executed, will be legal, valid and binding obligations of the Borrower, enforceable in accordance with their respective terms. The execution, delivery and performance of this Agreement and the other Loan Documents are not in contravention of law or of the terms of the Borrower’s constating documents and will not result in the breach of or constitute a default under, or result in the creation of a lien under any indenture, agreement or undertaking to which the Borrower is a party or by which it or its property may be bound or affected.

 

Page 4


  (c) No Material Litigation. No litigation or governmental proceeding is pending or, to the best knowledge of the Borrower, threatened by or against the Borrower which, if adversely determined, could reasonably be expected to have a Material Adverse Effect.

 

  (d) No Default. No Default has occurred and is continuing.

 

  (e) Use of Proceeds. The proceeds of the Loans will be used solely for working capital and other general corporate needs and in accordance with requirements of law, and will not be used, directly or indirectly, immediately, incidentally or ultimately, to purchase or carry margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System) or to extend credit to others for the purpose of purchasing or carrying margin stock or to refund indebtedness originally incurred for such purpose.

 

  (f) No Pension Plans. Other than as disclosed in Exhibit C, there are no pension or retirement plans relating to the current or former employees of the Borrower or any of its Subsidiaries, whether registered or unregistered, funded or unfunded and written or oral.

 

  (g) Governmental Authorization. No approval, consent, exemption, authorization or other action by or notice to, or filing with, any governmental authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against the Borrower or any of its Subsidiaries of this Agreement or any other Loan Document to which it is a party.

 

  (h) Taxes. The Borrower and each of its Subsidiaries have filed all federal, state, provincial and other material tax returns and reports required to be filed, and have paid all material federal, state, provincial and other material taxes, assessments, fees, and other governmental charges levied or imposed upon it or its properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided in accordance with GAAP. There is no proposed tax assessment against the Borrower or any of its Subsidiaries that would, if made, have a Material Adverse Effect.

 

  (i) Insurance. The properties of the Borrower and each of its Subsidiaries are insured with financially sound and reputable insurance companies which are not Affiliates of the Borrower in such amounts, with such deductibles and coverings such risks as is customary for similarly situated businesses.

 

  (j) Environmental Matters. All facilities owned or leased by the Borrower or its Subsidiaries have been and continue to be in material compliance with all material Environmental Laws.

 

  (k) Full Disclosure. No written statement delivered by the Borrower to the Lender in connection with this Agreement, or in connection with any Loan, contains any untrue statement of a material fact or omits a material fact necessary to make the statement made not misleading; provided that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.

 

Page 5


  (l) No Liens. There are no liens against, upon or in respect of all or any part of the property of the Borrower or any of its Subsidiaries, other than Permitted Liens.

 

4. Covenants. So long as principal of and interest on any Loan or any other amount payable hereunder or under any other Loan Document remains unpaid or unsatisfied and the Commitment has not been terminated:

 

  (a) Information. The Borrower shall deliver to the Lender:

 

  (i) as soon as available and in any event within 90 days after the end of each fiscal year of the Borrower a combining balance sheet and income statement of the Borrower and its Subsidiaries as of the end of such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year;

 

  (ii) promptly upon the Borrower’s obtaining knowledge of any Default, a certificate of the chief financial officer or vice-president of accounting of the Borrower setting forth the details thereof and any action that the Borrower is taking or proposes to take with respect thereto; and

 

  (iii) from time to time such additional information regarding the financial condition or business of the Borrower and its Subsidiaries as the Lender may reasonably request.

 

  (b) Other Affirmative Covenants. The Borrower shall, and shall cause each of its Subsidiaries to:

 

  (i) preserve and maintain all of its rights, privileges, and franchises necessary or desirable in the normal conduct of its business;

 

  (ii) comply with the requirements of all applicable laws, rules, regulations, and orders of governmental authorities, except to the extent that failure to so comply could not reasonably be expected to have a Material Adverse Effect;

 

  (iii) pay and discharge when due all taxes, assessments, and governmental charges or levies imposed on it or on its income or profits or any of its property, except for any such tax, assessment, charge, or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained;

 

  (iv) maintain all of its properties owned or used in its business in good working order and condition ordinary wear and tear excepted;

 

Page 6


  (v) permit representatives of the Lender, upon reasonable advance notice (such notice to be provided by the Lender only if no Event of Default has occurred) and during normal business hours, to examine, copy, and make extracts from its books and records, to inspect its properties, and to discuss its business and affairs with its officers, directors, and accountants; and

 

  (vi) maintain insurance in such amounts, with such deductibles, and against such risks as is customary for similarly situated businesses.

 

  (c) Negative Covenants. The Borrower shall not, nor shall it permit any of its Subsidiaries to:

 

  (i) merge, amalgamate or consolidate with or into any Person or liquidate, wind-up or dissolve itself, or permit or suffer any liquidation or dissolution, or sell all or substantially all of its assets, except, that so long as no Default exists or would result therefrom:

 

  (A) any Subsidiary may merge or amalgamate with (1) the Borrower, provided that the Borrower shall be the continuing or surviving Person, or (2) with any one or more Subsidiaries, provided that when any wholly-owned Subsidiary is merging into another Subsidiary, the wholly-owned Subsidiary shall be the continuing or surviving Person; and

 

  (B) any Subsidiary may sell all or substantially all of its assets (upon voluntary liquidation or otherwise), to the Borrower or to another Subsidiary; provided that if the seller in such a transaction is a wholly-owned Subsidiary then the purchaser must be a wholly-owned Subsidiary.

 

  (ii) create, incur, assume, suffer to exist or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness except:

 

  (a) Indebtedness incurred pursuant to this Agreement;

 

  (b) Indebtedness payable to trade creditors incurred in the ordinary course of business; and

 

  (c) Indebtedness secured by Permitted Liens;

 

  (iii) engage in any material line of business substantially different from those lines of business carried on by the Borrower and its Subsidiaries as of the date hereof; or

 

  (iv) make any significant change in accounting treatment or reporting practices, except as required by GAAP.

 

Page 7


5. Events of Default. The following are “ Events of Default ”:

 

  (a) The Borrower fails to pay any principal of any Loan as and on the date when due; or

 

  (b) The Borrower fails to pay any interest on any Loan, or any portion thereof, within three days after the date when due; or the Borrower fails to pay any other amount payable to the Lender under any Loan Document, or any portion thereof, within five days after the date due; or

 

  (c) The Borrower fails to perform or observe any term, covenant or agreement contained in Paragraph 4(a) or 4(c) hereof; or

 

  (d) The Borrower fails to perform or observe any other covenant or agreement (not specified above) contained in any Loan Document on its part to be performed or observed and such failure continues for 30 days; or

 

  (e) Any representation, warranty, certification or statement of fact in writing made by or on behalf of the Borrower herein, in any other Loan Document, or in any document delivered in connection herewith or therewith shall be incorrect or misleading when made or deemed made; or

 

  (f) The occurrence of an “Event of Default” (as defined in the Parent Credit Agreement) under the Parent Credit Agreement; or

 

  (g) The Borrower or any of its Subsidiaries (i) fails to make any payment in respect of any Indebtedness (other than Indebtedness hereunder) having an aggregate principal amount in excess of $250,000 when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise), or (ii) fails to observe or perform any other agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur, the effect of which default or other event is to cause, or to permit the holder or holders or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to be demanded or become due or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Indebtedness to be made, prior to its stated maturity, or cash collateral in respect thereof to be demanded; or

 

  (h) The Borrower or any of its Subsidiaries directly or indirectly, makes, creates, incurs, assumes or suffers to exist any Lien against, upon or with respect to all or any part of its property, whether now owned or hereinafter acquired, other than Permitted Liens; or

 

  (i)

The Borrower or any of its Subsidiaries institutes or consents to the institution of any proceeding under Debtor Relief Laws, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; or any receiver, trustee, custodian, conservator,

 

Page 8


 

liquidator, rehabilitator or similar officer is appointed without the application or consent of the Borrower or such Subsidiary and the appointment continues undischarged or unstayed for 60 calendar days; or any proceeding under Debtor Relief Laws relating to the Borrower or any Subsidiary or to all or any material part of the Borrower’s or such Subsidiary’s property is instituted without the consent of the Borrower or such Subsidiary and continues undismissed or unstayed for 60 calendar days, or an order for relief is entered in any such proceeding; or

 

  (j) The Borrower is unable or admits in writing its inability or fails generally to pay its debts as they become due; or

 

  (k) A final judgment against the Borrower or any of its Subsidiaries is entered for the payment of money in excess of $1,000,000 and such judgment remains unsatisfied without procurement of a stay of execution within 30 calendar days after the date of entry of judgment; or

 

  (l) Any Loan Document, at any time after its execution and delivery and for any reason other than the agreement of the Lender or satisfaction in full of all the indebtedness hereunder, ceases to be in full force and effect or is declared by a court of competent jurisdiction to be null and void, invalid or unenforceable in any respect; or the Borrower denies that it has any or further liability or obligation under any Loan Document, or purports to revoke, terminate or rescind any Loan Document; or

 

  (m) A Change of Control occurs; or

 

  (n) Any event or circumstance occurs that has a Material Adverse Effect.

Upon the occurrence of an Event of Default, the Lender may declare the Commitment to be terminated, whereupon the Commitment shall be terminated, and/or declare all sums outstanding hereunder and under the other Loan Documents, including all interest thereon, to be immediately due and payable, whereupon the same shall become and be immediately due and payable, without notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor, or other notices or demands of any kind or character, all of which are hereby expressly waived; provided, however, that upon the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower under Debtor Relief Laws, the Commitment shall automatically terminate, and all sums outstanding hereunder and under each other Loan Document, including all interest thereon, shall become and be immediately due and payable, without notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor, or other notices or demands of any kind or character, all of which are hereby expressly waived.

 

6. Miscellaneous.

 

  (a) All references herein and in the other Loan Documents to any time of day shall mean the local (standard or daylight, as in effect) time of Toronto, Ontario.

 

Page 9


  (b) The Borrower shall be obligated to pay all Breakage Costs.

 

  (c) If at any time the Lender, in its sole and reasonable discretion, determines that (i) adequate and reasonable means do not exist for determining the LIBO Rate, or (ii) the LIBO Rate does not accurately reflect the funding cost to the Lender of making such Loans, the Lender’s obligation to make or maintain LIBOR Loans shall cease for the period during which such circumstance exists.

 

  (d) The Borrower shall reimburse or compensate the Lender, upon demand, for all costs incurred, losses suffered or payments made by the Lender which are applied or reasonably allocated by the Lender to the transactions contemplated herein (all as determined by the Lender in its reasonable discretion) by reason of any and all future reserve, deposit, capital adequacy or similar legal or regulatory requirements against (or against any class of or change in or in the amount of) assets, liabilities or commitments of, or extensions of credit by, the Lender; and compliance by the Lender with any directive, or requirements from any regulatory authority, whether or not having the force of law.

 

  (e) No amendment or waiver of any provision of this Agreement or of any other Loan Document and no consent by the Lender to any departure therefrom by the Borrower shall be effective unless such amendment, waiver or consent shall be in writing and signed by a duly authorized officer of the Lender and the Borrower, and any such amendment, waiver or consent shall then be effective only for the period and on the conditions and for the specific instance specified in such writing. No failure or delay by the Lender or the Borrower in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other rights, power or privilege.

 

  (f)

Except as otherwise expressly provided herein, notices and other communications to each party provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed or sent by telecopy to the address provided from time to time by such party. Any such notice or other communication sent by overnight courier service, mail or telecopy shall be effective on the earlier of actual receipt and (i) if sent by overnight courier service, the scheduled delivery date, (ii) if sent by mail, the fourth Business Day after deposit in the Canadian or U.S. mail first class postage prepaid, and (iii) if sent by telecopy, when transmission in legible form is complete. All notices and other communications sent by the other means listed in the first sentence of this paragraph shall be effective upon receipt. Notwithstanding anything to the contrary contained herein, all notices (by whatever means) to the Lender pursuant to Paragraph 1(b) hereof shall be effective only upon receipt. Any notice or other communication permitted to be given, made or confirmed by telephone hereunder shall be given, made or confirmed by means of a telephone call to the intended recipient at the number specified in writing by such Person for such purpose, it being understood and agreed that a voicemail message shall in no event be effective as a notice, communication or confirmation hereunder.

 

Page 10


 

The Lender shall be entitled to reasonably rely and act upon any notices (including telephonic notices of borrowings, conversions and continuations) purportedly given by or on behalf of the Borrower even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Borrower shall indemnify each Indemnitee from all losses, costs, expenses and liabilities resulting from the reasonable reliance by such Person on each notice purportedly given by or on behalf of the Borrower. All telephonic notices to and other communications with the Lender may be recorded by the Lender, and the Borrower hereby consents to such recording.

 

  (g) This Agreement shall inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign its rights and obligations hereunder. The Lender may at any time (i) assign all or any part of its rights and obligations hereunder to any other Person with the consent of the Borrower, such consent not to be unreasonably withheld, provided that no such consent shall be required if the assignment is to an affiliate of the Lender or if a Default exists, and (ii) grant to any other Person participating interests in all or part of its rights and obligations hereunder without notice to the Borrower. The Borrower agrees to execute any documents reasonably requested by the Lender in connection with any such assignment. All information provided by or on behalf of the Borrower to the Lender or its affiliates may be furnished by the Lender to its affiliates and to any actual or proposed assignee or participant.

 

  (h) Except with respect to the assignment of this Agreement by the Lender, the Borrower shall pay the Lender, on demand, all reasonable out-of-pocket expenses and legal fees (excluding the allocated costs for in-house legal services) incurred by the Lender in connection with the preparation, administration or enforcement of this Agreement or any instruments or agreements executed in connection herewith.

 

  (i)

The Borrower shall indemnify and hold harmless the Lender, its affiliates, and their respective partners, directors, officers, employees, agents and advisors (collectively the “ Indemnitees ” ) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the fees, charges and disbursements of any counsel for any Indemnitee), incurred by any Indemnitee or asserted against any Indemnitee by any third party or by the Borrower arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder, or the consummation of the transactions contemplated hereby or thereby, (ii) any Loan or the use or proposed use of the proceeds therefrom, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any Subsidiary, or any Environmental Liability related in any way to the Borrower or any Subsidiary, or (iv) any actual or prospective claim, litigation,

 

Page 11


 

investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Borrower, and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (y) result from a claim brought by the Borrower against the Lender for breach in bad faith of the Lender’s obligations hereunder or under any other Loan Document, if the Borrower has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction. To the fullest extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or the use of the proceeds thereof. No Indemnitee shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby. The agreements in this Paragraph 6(i) shall survive the termination of the Commitment and the repayment, satisfaction or discharge of all the other obligations and liabilities of the Borrower under the Loan Documents. All amounts due under this Paragraph 6(i) shall be payable within ten Business Days after demand therefor.

 

  (j) If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (i) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (ii) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

 

  (k) This Agreement may be executed in one or more counterparts, and each counterpart, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same instrument.

 

  (l)

THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ARE GOVERNED BY, AND SHALL BE CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE PROVINCE OF ONTARIO AND THE FEDERAL LAWS OF CANADA APPLICABLE THEREIN. THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE

 

Page 12


 

COURTS OF THE PROVINCE OF ONTARIO, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT. THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO THE BORROWER AT ITS ADDRESS SET FORTH BENEATH ITS SIGNATURE HERETO. THE BORROWER IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

 

  (m) Notwithstanding any provisions of this Agreement, the Borrower shall in no event be obliged to make any payments of interest or other amounts payable to the Lender hereunder in excess of an amount or rate which would be prohibited by law or would result in the receipt by the Lender of interest at a criminal rate (as such terms are construed under the Criminal Code (Canada)).

 

  (n) For the purposes of this Agreement, whenever any interest is calculated on the basis of a period of time other than a calendar year, the annual rate of interest to which each rate of interest determined pursuant to such calculation is equivalent for the purposes of the Interest Act (Canada) is such rate as so determined multiplied by the actual number of days in the calendar year in which the same is to be ascertained and divided by the number of days used in the basis of such determination.

 

  (o) The parties acknowledge and agree that all calculations of interest under the Loan Documents are to be made on the basis of the nominal interest rate described herein and not on the basis of effective yearly rates or on any other basis which gives effect to the principle of deemed reinvestment of interest. The parties acknowledge that there is a material difference between the stated nominal interest rates and the effective yearly rates of interest and that they are capable of making the calculations required to determine such effective yearly rates of interest.

 

  (p) The Lender hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub.L. 107-56 (signed into law October 26, 2001)) (the “ Act ” ), the Lender is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow the Lender to identify the Borrower in accordance with the Act.

 

  (q) THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

[Signature page follows]

 

Page 13


Signature Page

Please indicate your acceptance of the Commitment on the foregoing terms and conditions by returning an executed copy of this Agreement to the undersigned not later than September 26, 2008.

 

BANK OF AMERICA, N.A., acting through its Canada Branch
By:   /s/ Officer of Bank of America, N.A

Accepted and Agreed to as of the date first written above:

 

TISI CANADA INC.
By:   /s/ Officer of TISI CANADA INC.

[Signature page to Letter Loan Agreement re. TISI Canada Inc.]


Signature Page

 

TO: Bank of America, N.A., acting through its Canada Branch

The undersigned hereby acknowledges and consents to the provisions of the foregoing letter agreement between TISI Canada Inc. and Bank of America, N.A., acting through its Canada Branch, and, in addition to and without prejudice to its obligations under the Parent Guarantee, the undersigned hereby covenants to cause the Borrower to perform its covenants and obligations under the foregoing letter agreement.

 

TEAM, INC.
By:   /s/ Officer of TEAM, INC.

[Signature page to Acknowledgement of Letter Loan Agreement re. TISI Canada Inc.]


EXHIBIT A

DEFINITIONS

 

Affiliate:

  With respect to any Person, another Person that directly, or indirectly through one or more intermediaries, controls or is controlled by or under the common control with the Person specified. Control means the possession, directly or indirectly of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. Controlling have meanings correlative thereto.

Agreement:

  This letter agreement, as amended, restated, extended, supplemented or otherwise modified in writing from time to time.

Amalgamation:

  The amalgamation under the Business Corporations Act (Ontario) on June 1, 2008 of Global Heat (1988) Inc., TISI Canada Inc. (for greater certainty, a predecessor of the Borrower), 1728853 Ontario Inc. (a predecessor by continuation of Team Industrial Services of Canada, ULC), TISI Inspection Services, Inc., TISI Inspection Services East, Inc. and TISI Inspection Services West, Inc., resulting in the Borrower.

Applicable Rate:

  The following percentages per annum, based upon the Leverage Ratio (as defined in the Parent Credit Agreement) as set forth in the most recent Compliance Certificate (as defined in the Parent Credit Agreement) received by Bank of America, N.A., as administrative agent pursuant to the Parent Credit Agreement:
     

Pricing

Level

  

Leverage Ratio

   LIBOR
Loans
   Prime
Rate
Loans
 

I

   Less than or equal to 1.00 to 1.00    1.000    0.000
 

II

   Greater than 1.00 to 1.00 but less than or equal to 1.50 to 1.00    1.250    0.000
 

III

   Greater than 1.50 to 1.00 but less than or equal to 2.00 to 1.00    1.500    0.250
 

IV

   Greater than 2.00 to 1.00 but less than or equal to 2.50 to 1.00    1.750    0.500
 

V

   Greater than 2.50 to 1.00    2.000    0.750


  or such other percentages per annum as may from time to time be determined to be the Applicable Rate (as defined in the Parent Credit Agreement) for Eurodollar Rate Loans (as defined in the Parent Credit Agreement), in the case of LIBOR Loans, or for Base Rate Loans (as defined in the Parent Credit Agreement), in the case of Prime Rate Loans, in each case in accordance with the terms of the Parent Credit Agreement.

Breakage Costs:

  Any loss, cost or expense incurred by the Lender (including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by the Lender to maintain the relevant LIBOR Loan or from fees payable to terminate the deposits from which such funds were obtained) as a result of (i) any continuation, conversion, payment or prepayment of any LIBOR Loan on a day other than the last day of the Interest Period therefor (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise); or (ii) any failure by the Borrower (for a reason other than the failure of the Lender to make a Loan when all conditions to making such Loan have been met by the Borrower in accordance with the terms hereof) to prepay, borrow, continue or convert any LIBOR Loan on a date or in the amount notified by the Borrower. The certificate of the Lender as to its costs of funds, or the amount of any loss, cost or expense incurred by it, shall be conclusive absent manifest error.

Business Day:

  Any day other than a Saturday, Sunday, or other day on which commercial banks are authorized to close under the laws of, or are in fact closed in, the Province of Ontario where the Lender’s lending office is located and, if such day relates to any LIBOR Loan, means any such day on which dealings in Dollar deposits are conducted by and between banks in the London interbank eurodollar market.

Change of Control:

  The Parent ceases to beneficially own, directly or indirectly, 100% of the issued and outstanding shares in TISI Canada Inc.

 

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Debtor Relief Laws:

  The Bankruptcy and Insolvency Act (Canada), the Companies’ Creditors Arrangement Act (Canada), the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of Canada or the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

Default:

  Any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.

Dollar or $:

  The lawful currency of Canada.

Environmental Laws:

  Any and all federal, provincial, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including those related to hazardous substances or wastes, air emissions and discharges to waste or public sewer or water systems.

Environmental Liability:

  Any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower, the Parent or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

Event of Default:

  Has the meaning set forth in Paragraph 5 .

GAAP:

  Generally accepted accounting principles in Canada, including those set forth in the published handbook of the Canadian Institute of Chartered Accountants.

Hazardous Materials:

  All explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

 

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Indebtedness:

  Shall mean, with respect to any Person, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, or upon which interest payments are customarily made, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property purchased by such Person (other than customary reservations or retentions of title under agreements with suppliers entered into in the ordinary course of business), (d) all obligations (including, without limitation, earnout obligations) of such Person incurred, issued or assumed as the deferred purchase price of property or services purchased by such Person (other than trade debt incurred in the ordinary course of business and due within nine months of the incurrence thereof) that would appear as liabilities on a balance sheet of such Person, (e) all obligations of such Person under capital leases, (f) all obligations of such Person under hedging or similar agreements, (g) the amount of all letters of credit issued or bankers’ acceptances outstanding created for the account of such Person and, without duplication, all drafts drawn and unreimbursed thereunder, (h) all preferred capital stock or other equity interests issued by such Person and which by the terms thereof could be (at the request of the holders thereof or otherwise) subject to mandatory sinking fund payments, redemption or other acceleration, (i) the principal balance outstanding under any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product, (j) all obligations of such Person under take- or-pay or similar arrangements or under commodities agreements, (k) all Indebtedness of others of the type described in clauses (a) through (j) hereof secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any lien on, or payable out of the proceeds of production from, property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, (l) all guarantee obligations of such Person with respect to Indebtedness of another Person of the type described in clauses (a) through (j) hereof; and (m) all Indebtedness of the type described in clauses (a) through (j) hereof of any partnership or unincorporated joint venture in which such Person is a general partner or a joint venture in proportion to such Person’s ownership percentage in such partnership or joint venture.

Indemnitee:

  Has the meaning set forth in Paragraph 6(i) .

 

- 4 -


Interest Period:

  For each LIBOR Loan, (a) initially, the period commencing on the date the LIBOR Loan is disbursed or converted from a Prime Rate Loan and (b) thereafter, the period commencing on the last day of the preceding Interest Period, and, in each case, ending on the earlier of (x) the Maturity Date and (y) one, two, three or six months thereafter, as requested by the Borrower; provided that :
 

(i) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day; and

 

(ii) any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period.

LIBO Rate:

  For any Interest Period with respect to any LIBOR Loan, either:
  (i) the rate per annum equal to the rate determined by the Lender to be the offered rate that appears on the page of the Reuters screen (or any successor thereto) that displays an average British Bankers Association Interest Settlement Rate for deposits in Canadian Dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, or
  (ii) if the rate referenced in the preceding clause (i) does not appear on such page or service or such page or service shall not be available, the rate per annum equal to the rate determined by the Lender to be the offered rate on such other page or other service that displays an average British Bankers Association Interest Settlement Rate for deposits in Canadian Dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, or
  (iii) if the rates referenced in the preceding clauses (i) and (ii) are not available, the rate per annum determined by the Lender as the rate of interest at which deposits in Canadian Dollars for delivery on the first day of such Interest Period in same day

 

- 5 -


  funds in the approximate amount of the Loan being made, continued or converted and with a term equivalent to such Interest Period would be offered by the Lender’s London Branch to major banks in the London interbank eurodollar market at their request at approximately 4:00 p.m. (London time) two Business Days prior to the first day of such Interest Period.

LIBOR Loan:

  A Loan bearing interest based on the LIBO Rate plus the Applicable Rate for LIBOR Loans.

Lien:

  Any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing)

Loan Documents:

  This Agreement, the Parent Guarantee, the promissory note and fee letter, if any, delivered in connection with this Agreement.

Material Adverse Effect:

  (a) A material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent), condition (financial or otherwise) or prospects of the Borrower or the Borrower and its Subsidiaries taken as a whole; (b) a material impairment of the ability of the Borrower to perform its obligations under any Loan Document; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against the Borrower of any Loan Document.

Maturity Date:

  May 31, 2012, or such earlier date on which the Commitment may terminate in accordance with the terms hereof.

Parent:

  Team, Inc., a Texas corporation

Parent Credit Agreement:

  The amended and restated credit agreement dated as of May 31, 2007 between the Parent, as borrower, Bank of America, N.A., as administrative agent, swing line lender and L/C issuer and the other lenders party thereto, as amended, restated, extended, supplemented or otherwise modified in writing from time to time.

Parent Guarantee:

  Has the meaning set forth in Paragraph 2(a)(ii) .

 

- 6 -


Permitted Liens:

  (a) Liens for taxes not yet due or which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP;
  (b) Carriers’ , warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like liens arising in the ordinary course of business which are not overdue for a period of more than 60 days or which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP;
  (c) Pledges or deposits in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other social security legislation;
  (d) Deposits to secure the performance of bids, trade contracts and leases (other than Indebtedness), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;
  (e) Easements, rights of way, restrictions and other similar encumbrances affecting real property which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the applicable Person; and
  (f) Purchase-money security interests (as defined in the Personal Property Security Act (Ontario)) securing indebtedness in an aggregate amount not exceeding $5,000,000.

Person:

  Any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, governmental authority or other entity.

Prime Rate:

  For any day, a fluctuating rate per annum equal to the higher of: (a) the reference rate of interest announced by the Lender as its “prime rate” for commercial loans made by it in Canada in Canadian Dollars; and (b) the average rate for thirty day Canadian Dollar Banker’s Acceptances that appear on the Reuters Screen CDOR Page at 10:00 a.m. Toronto time on that day, plus 0.75% per annum.

 

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Prime Rate Loan:

  A Loan bearing interest based on the Prime Rate plus the Applicable Rate for Prime Rate Loans.

Subsidiary:

  With respect to any Person, a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” refer to a Subsidiary or Subsidiaries (in each case, if any) of the Borrower.

 

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EXHIBIT B

FORM OF PROMISSORY NOTE

 

Cdn. $7,500,000

                             ,             

FOR VALUE RECEIVED, the undersigned, TISI CANADA INC., an Ontario corporation (the “ Borrower ” ), hereby promises to pay to the order of BANK OF AMERICA, N.A., acting through its Canada Branch (the “ Lender ” ), at the offices of the Lender situated in Toronto, Ontario, the principal sum of SEVEN MILLION FIVE HUNDRED THOUSAND Dollars ($7,500,000) or, if less, the aggregate unpaid principal amount of all Loans made by the Lender to the Borrower pursuant to the letter agreement, dated as of even date herewith (such letter agreement, as it may be amended, restated, extended, supplemented or otherwise modified from time to time, being hereinafter called the “ Agreement ‘ ), between the Borrower and the Lender, on the Maturity Date. The Borrower further promises to pay interest on the unpaid principal amount of the Loans evidenced hereby from time to time at the rates, on the dates, and otherwise as provided in the Agreement.

The loan account records maintained by the Lender shall at all times be conclusive evidence, absent manifest error, as to the amount of the Loans and payments thereon; provided , however , that any failure to record any Loan or payment thereon or any error in doing so shall not limit or otherwise affect the obligation of the Borrower to pay any amount owing with respect to the Loans.

This promissory note is the promissory note referred to in, and is entitled to the benefits of, the Agreement, which Agreement, among other things, contains provisions for acceleration of the maturity of the Loans evidenced hereby upon the happening of certain stated events and also for prepayments on account of principal of the Loans prior to the maturity thereof upon the terms and conditions therein specified.

For the purposes of this promissory note, whenever any interest is calculated on the basis of a period of time other than a calendar year, the annual rate of interest to which each rate of interest determined pursuant to such calculation is equivalent for the purposes of the Interest Act (Canada) is such rate as so determined multiplied by the actual number of days in the calendar year in which the same is to be ascertained and divided by the number of days used in the basis of such determination.

Unless otherwise defined herein, terms defined in the Agreement are used herein with their defined meanings therein. This promissory note shall be governed by, and construed in accordance with, the laws of Ontario and the federal laws of Canada applicable therein.

 

TISI CANADA INC.
By    
Name    
Title    


EXHIBIT C

PENSION / RETIREMENT PLANS

Sun Life Financial

RSP Policy #67688-G

DCPP Policy #67687-G

Exhibit 99.2

EXECUTION COPY

GUARANTEE

(TEAM, INC.)

 

TO: BANK OF AMERICA, N.A. , acting through its Canada branch (the “ Secured Party ”).

 

DATED :

As of the 26 th day of September, 2008.

1. In this Guarantee, unless otherwise defined herein, capitalized terms used herein have the meanings defined in the Credit Agreement (as defined below) and, unless something in the subject matter or context is inconsistent therewith:

 

  (a) Borrower ” means TISI Canada Inc., an Ontario corporation;

 

 

(b)

Credit Agreement ” means the letter loan agreement made as of the 26 th day of September, 2008 between the Borrower, as borrower, and the Secured Party, as lender, as amended, supplemented, restated or replaced from time to time;

 

  (c) Event of Default ” means the occurrence of (i) a Default or an Event of Default, (ii) a “default” or “event of default” as defined in any Secured Agreement, (iii) the failure of the Borrower to pay when due any of the Guaranteed Liabilities (as defined herein); or (iv) any demand for payment validly made by any creditor pursuant to the Secured Agreements which is not met in accordance with the terms of the demand or within any applicable grace period;

 

  (d) Guarantor ” or the “ undersigned ” means Team, Inc., a Texas corporation; and

 

  (e) Secured Agreements ” means the Credit Agreement and all other Loan Documents, and any reference to the “Secured Agreements” herein shall be interpreted as referring to “the Secured Agreements or any of them”.

2. In this Guarantee, unless the contrary intention appears:

 

  (a) the singular includes the plural and vice versa and words importing a gender include all genders;

 

  (b) other grammatical forms of defined words or expressions have corresponding meanings;

 

  (c) a reference to a party to this Guarantee includes that party’s successors and permitted assigns;

 

  (d) a reference to “this Guarantee” includes all Schedules attached hereto as amended, supplemented, restated or replaced from time to time;

 

  (e) a reference to a document or agreement includes that document or agreement as amended, supplemented, restated or replaced from time to time;


  (f) a reference to any thing includes the whole or any part of that thing and a reference to a group of things or persons includes each thing or person in that group;

 

  (g) words implying natural persons include partnerships, bodies corporate, associations, trusts, governments and governmental and local authorities and agencies;

 

  (h) the division of this Guarantee into sections and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Guarantee;

 

  (i) a reference to any legislation or statutory instrument or regulation includes all amendments thereto and all replacements and re-enactments thereof; and

 

  (j) any reference to “$”, “Cdn. $” and “C$” refers to lawful money of Canada.

FOR VALUE RECEIVED the undersigned unconditionally and irrevocably guarantees payment and performance to the Secured Party of all obligations of the Borrower to the Secured Party under or in connection with the Secured Agreements, including but not limited to all debts and liabilities in any currency, present or future, direct or indirect, absolute or contingent, choate or inchoate, matured or not, at any time owing by the Borrower to the Secured Party or remaining unpaid by the Borrower to the Secured Party under or in connection with the Secured Agreements, wherever incurred, and whether incurred by the Borrower alone or with another or others and whether as principal or surety, and all interest, commissions, legal and other costs (including legal fees as between a solicitor and its own client), charges and expenses relating thereto (all such obligations being called the “ Guaranteed Liabilities ”). The liability of the undersigned hereunder is unlimited and bears interest from the date of demand for payment at the rate set out in Section 4 hereof.

AND THE UNDERSIGNED hereby agrees with the Secured Party as follows:

1. This Guarantee shall be a continuing guarantee of all the Guaranteed Liabilities and shall apply to and secure any ultimate balance due or remaining unpaid to the Secured Party; and this Guarantee shall not be considered as wholly or partially satisfied by the payment or liquidation at any time of any sum of money for the time being due or remaining unpaid to the Secured Party.

2. The Guarantor shall be liable to the Secured Party as principal debtor and not as surety only, and will not plead or assert to the contrary in any action taken by the Secured Party in enforcing this Guarantee. The Secured Party shall not be bound to exhaust its recourse against the Borrower or others or any securities or other guarantees it may at any time hold before the Secured Party will be entitled to payment from the Guarantor under this Guarantee, and the Guarantor renounces all benefits of discussion and division and waives all rights by which the Guarantor may be entitled to require suit on an accrued right of action in respect of any of the Guaranteed Liabilities or require suit against the Borrower or others, whether arising pursuant to Section 34.02 of the Texas Business and Commerce Code, as amended, Section 17.001 of the Texas Civil Practice and Remedies Code, as amended, Rule 31 of the Texas Rules of Civil Procedure, as amended, or otherwise.

 

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3. Upon demand by the Secured Party following the occurrence of an Event of Default, the Guarantor shall forthwith pay to the Secured Party, or perform or cause to be performed, all of the Guaranteed Liabilities in respect of which the demand is made. The Guarantor’s liability to make a payment to the Secured Party under this Guarantee shall arise forthwith after demand for payment has been made in writing by or on behalf of the Secured Party on the Guarantor. Demand on the Guarantor shall be deemed to have been effectually made when an envelope containing such demand addressed to the Guarantor at the address of the Guarantor last known to the Secured Party is served personally on a director or officer of the Guarantor or is mailed by prepaid registered mail to the Guarantor, and the Guarantor’s liability shall bear interest from the date of such demand at the rate set out in Section 4 hereof. For the purposes of this Section, unless the law deems a particular notice to be received earlier, notice of demand shall not be deemed received until actual receipt thereof by the other party.

4. The rate of interest payable by the Guarantor from the date of demand for payment under this Guarantee shall be the rate of interest applicable to the Guaranteed Liabilities (or the applicable rates of interest if different rates of interest apply to different parts of the Guaranteed Liabilities) as at the date of such demand and shall constitute and be included in the Guaranteed Liabilities from and after the date of such demand. For greater certainty, the interest payable by the Guarantor is in place of and is not in addition to the interest payable by the Borrower after the date of demand; provided, however, in no event shall the interest rate contracted for, charged or received be in excess of the highest rate permitted by applicable law.

5. After the making of a demand on the Guarantor pursuant to Section 3 hereof, the Secured Party may treat all Guaranteed Liabilities set forth in the demand as due and payable and may forthwith collect from the Guarantor the total amount hereby guaranteed and may apply the sum so collected upon the Guaranteed Liabilities or may place it to the credit of a special account. A written statement of an officer of the Secured Party as to the amount of Guaranteed Liabilities remaining unpaid at any time by the Borrower shall be prima facie evidence against the Guarantor as to the amount of Guaranteed Liabilities remaining unpaid at such time by the Borrower.

6. This Guarantee shall be in addition to and not in substitution for any other guarantees or other securities which the Secured Party may now or hereafter hold in respect of the Guaranteed Liabilities and the Secured Party shall not be under any obligation to marshal in favour of the Guarantor any other guarantees or other securities or any moneys or other assets which they may be entitled to receive or may have a claim upon; and no loss of or in respect of or unenforceability of any other guarantees or other securities which the Secured Party may now or hereafter hold in respect of the Guaranteed Liabilities, whether occasioned by the fault of the Secured Party or otherwise, shall in any way limit or lessen the Guarantor’s liability hereunder.

7. Without prejudice to or in any way limiting or lessening the Guarantor’s liability and without obtaining the consent of or giving notice to the Guarantor, the Secured Party, as applicable, may:

 

  (a) discontinue, reduce, increase, renew, abstain from renewing or otherwise vary the terms of the Guaranteed Liabilities or the obligations of any Person relating thereto;

 

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  (b) supplement, amend, restate or substitute, in whole or in part, the Secured Agreements or any other document relating to the Credit Agreement;

 

  (c) grant time, renewals, extensions, indulgences, releases and discharges to and accept compositions from or otherwise deal with the Borrower and others, including the Guarantor and any other guarantor as the Secured Party may see fit;

 

  (d) take, abstain from taking or perfecting, vary, exchange, renew, discharge, give up, realize on or otherwise deal with securities and guarantees in such manner as the Secured Party may see fit; and

 

  (e) apply all moneys received from the Borrower or others or from securities or guarantees upon such parts of the Guaranteed Liabilities as the Secured Party may see fit and change any such application in whole or in part from time to time.

8. Until indefeasible repayment in full in cash of all the Guaranteed Liabilities, all dividends, compositions, proceeds of securities valued or payments received by the Secured Party from the Borrower or others or from estates in respect of the Guaranteed Liabilities shall be regarded for all purposes as payments in gross without any right on the part of the Guarantor to claim the benefit thereof in reduction of the liability under this Guarantee, and until indefeasible repayment in full in cash as aforesaid, the Guarantor shall not claim any set-off or counterclaim against the Borrower in respect of any liability of the Borrower to the Guarantor, claim or prove in the bankruptcy or insolvency of the Borrower in competition with the Secured Party, nor have any right to be subrogated to the Secured Party.

9. This Guarantee shall not be discharged or otherwise affected by any loss of capacity of the Borrower, by any change in the name of the Borrower or in the objects, capital structure or constitution of the Borrower, by the sale of the Borrower’s business or any part thereof, by the Borrower being amalgamated or merged with one or more corporations, or by any other circumstance which might constitute in whole or in part a defence available to or a discharge of the Guarantor in any jurisdiction, the Borrower or any other person in respect of the Guaranteed Liabilities or the liability of the Guarantor. Notwithstanding any such event, this Guarantee shall continue to apply to all Guaranteed Liabilities whether theretofore or thereafter incurred. If the Borrower amalgamates or merges with one or more corporations, this Guarantee shall apply to the equivalent liabilities of the resulting corporation, and the term “Borrower” shall include each such amalgamated or merged corporation.

10. All advances, renewals and credits made or granted by the Secured Party under or in connection with the Secured Agreements purportedly by or on behalf of the Borrower shall be deemed to form part of the Guaranteed Liabilities: (a) notwithstanding any lack of notice to the Guarantor, any lack or limitation of power of the Borrower or of the directors, partners or agents thereof, the dissolution, bankruptcy, insolvency or other similar event of the Borrower, or that the Borrower may not be a legal or suable entity, or any irregularity, defect or informality in the obtaining of such advances, renewals or credits, whether or not the Secured Party had knowledge thereof, or (b) even if such advances, renewals and credits were made or granted after the dissolution, bankruptcy, insolvency or other similar event of the Borrower, but before the Secured Party has received notice thereof. Any such advance, renewal or credit which may not be recoverable from the Guarantor as guarantor shall be recoverable from the Guarantor as principal debtor in respect thereof and shall be paid to the Secured Party on demand with interest at the rate set out in Section 4 hereof.

 

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11. All present and future debts and liabilities of the Borrower to the Guarantor in existence or arising at the time of, or following the occurrence of, an Event of Default, are hereby assigned to the Secured Party and postponed to the Guaranteed Liabilities, and all moneys received by the Guarantor in respect thereof shall be received in trust for the Secured Party and forthwith upon receipt shall be paid over to the Secured Party, the whole without in any way lessening or limiting the liability of the Guarantor under this Guarantee; and this assignment and postponement is independent of the Guarantee and shall remain in full force and effect until the indefeasible repayment in full in cash to the Secured Party of all the Guaranteed Liabilities.

12. The Guarantor shall not be entitled to terminate its liability under this Guarantee while the Borrower remains obligated to the Secured Party.

13. If the Guaranteed Liabilities are indefeasibly paid in full in cash, then the Secured Party shall, at the request and the expense of the Guarantor, cancel and discharge this Guarantee and execute and deliver to the Guarantor such deeds and other instruments as shall be requisite therefor.

14. This Guarantee embodies all the agreements between the parties hereto which may limit the obligations of the Guarantor under this Guarantee and the Secured Party shall not be bound by any representation or promise made by any person relative thereto which is not embodied herein; and it is specifically agreed that the Secured Party shall not be bound by any representations or promises made by the Borrower to the Guarantor. Possession of this instrument by the Secured Party shall be conclusive evidence against the Guarantor that the instrument was not delivered in escrow or pursuant to any agreement that it should not be effective until any condition precedent or subsequent has been complied with.

15. This Guarantee shall be governed in all respects by the laws of the State of Texas and the federal laws of the United States of America applicable therein and the Guarantor hereby irrevocably attorns and submits to the non-exclusive jurisdiction of the courts of the Province of Ontario and the State of Texas in any suit, action or proceeding relating to this Guarantee.

16. All rights of each Secured Party under this Guarantee shall enure to the benefit of its successors and assigns and all obligations of the Guarantor under this Guarantee shall bind the Guarantor, its successors and permitted assigns. All rights of each Secured Party under this Guarantee shall be assignable in accordance with the Credit Agreement.

17. THE GUARANTOR SHALL INDEMNIFY EACH SECURED PARTY AGAINST, AND SAVE EACH OF THEM HARMLESS FROM, ANY LOSSES WHICH MAY ARISE BY VIRTUE OF ANY OF THE GUARANTEED LIABILITIES, ANY SECURED AGREEMENT, ANY SECURITY HELD BY ANY OF THE SECURED PARTY FOR THE GUARANTEED LIABILITIES, OR ANY OTHER AGREEMENT RELATING TO ANY OF THE FOREGOING, BEING OR BECOMING FOR ANY REASON WHATSOEVER IN WHOLE OR IN PART (A) VOID, VOIDABLE, ULTRA VIRES,

 

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ILLEGAL, INVALID, INEFFECTIVE OR OTHERWISE UNENFORCEABLE IN ACCORDANCE WITH ITS TERMS, OR (B) RELEASED OR DISCHARGED BY OPERATION OF LAW (ALL OF THE FOREGOING BEING AN “INDEMNIFIABLE CIRCUMSTANCE”). FOR GREATER CERTAINTY, THE LOSSES SHALL INCLUDE THE AMOUNT OF ALL GUARANTEED LIABILITIES WHICH WOULD HAVE BEEN PAYABLE BY THE BORROWER BUT FOR THE INDEMNIFIABLE CIRCUMSTANCE.

18. The guarantee herein shall be reinstated if at any time any payment of any Guaranteed Liability is rescinded or must otherwise be returned by the Secured Party upon any receivership, insolvency, dissolution, arrangement or other similar proceedings of or affecting the Borrower or any other Person, or for any other reason whatsoever. The Secured Party may concede or compromise any claim that any such payment ought to be rescinded or otherwise returned, without discharging, diminishing or in any way affecting the liability of the Guarantor hereunder or the effect of this Section.

19. The Guarantor acknowledges that it is aware of, and consents to and approves, the terms of the Secured Agreements and all agreements and documents referred to therein.

20. No amendment, supplement or waiver of any provision of this Guarantee shall in any event be effective unless it is in writing and signed by the Secured Party and the Guarantor, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No waiver or act or omission of the Secured Party shall extend to or be taken in any manner whatsoever to affect any subsequent breach by the Guarantor or the rights resulting therefrom. No delay on the part of the Secured Party in the exercise of any right, power or remedy hereunder or otherwise shall operate as a waiver thereof, and no single or partial exercise by the Secured Party of any right, power or remedy shall preclude any other or further exercise thereof or of another right, power or remedy.

21. Any provision of this Guarantee which is or becomes prohibited or unenforceable in any relevant jurisdiction shall not invalidate or impair the remaining provisions hereof which shall, to the maximum extent permitted by law, be deemed severable from such prohibited or unenforceable provision and any such prohibition or unenforceability in any such jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

22. This Guarantee may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original, and such counterparts together shall constitute one and the same Guarantee. For the purposes of this Section, the delivery of a facsimile copy of an executed copy of this Guarantee shall be deemed to be valid execution and delivery of this Guarantee.

23. In the event of any conflict or inconsistency between the terms of the Credit Agreement and the terms of this Guarantee, the provisions of the Credit Agreement shall govern to the extent necessary to remove the conflict or inconsistency.

24. Time shall be of the essence of this Guarantee.

 

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25. The Guarantor agrees that value has been given by the Secured Party and that the security interests created under Section 11 of this Guarantee are intended to attach (a) with respect to the debts and liabilities hereby assigned which are in existence as of the date hereof, upon execution of this Guarantee, and (b) with respect to the debts and liabilities hereby assigned which come into existence after the date hereof, upon the Guarantor acquiring any rights therein. The parties do not intend to postpone the attachment of any security interest created by Section 11 of this Guarantee.

26. The Guaranteed Liabilities shall be paid and this Guarantee shall be transferable without regard to any set-off or counterclaim between the Guarantor and the Secured Party.

27. The Guarantor acknowledges receipt of a true copy of this Guarantee.

28. The Guarantor expressly waives the right to receive a copy of any financing statement or confirmation statement or financing change statement which may be registered by or on behalf of the Secured Party in connection with this Guarantee or any verification statement issued with respect thereto, where such waiver is not otherwise prohibited by law.

29. Any demand, notice, direction or other communication to be made or given hereunder shall be in writing and be made and deemed to have been made and received in accordance with the provisions of the Credit Agreement.

30. Waiver of Jury Trial . THE GUARANTOR HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS GUARANTEE OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL HERETO, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND THE GUARANTOR HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS GUARANTEE MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE GUARANTOR TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.

31. THIS GUARANTEE AND THE SECURED AGREEMENTS AND ANY OTHER DOCUMENTS DELIVERED PURSUANT HERETO AND THERETO, INCLUDING ANY SCHEDULES ATTACHED HERETO OR THERETO, CONSTITUTE THE ENTIRE AGREEMENT BETWEEN THE GUARANTOR AND THE SECURED PARTY RELATING TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ALL PRIOR AGREEMENTS, REPRESENTATIONS, WARRANTIES , CONDITIONS OR COLLATERAL AGREEMENTS, WHETHER ORAL OR WRITTEN, EXPRESS OR IMPLIED WITH RESPECT TO THE SUBJECT MATTER HEREOF. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE GUARANTOR AND THE SECURED PARTY.

[Signature page follows]

 

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DATED as of the date first set forth above.

 

TEAM, INC.
By:   /s/ Officer of TEAM INC.

Signature page to Guarantee

(Re. TISI Canada Inc.)

 

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