Team, Inc
TEAM INC (Form: 10-Q, Received: 04/09/2008 16:44:10)
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 February 29, 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 March 31, 2008, there were 18,458,121 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—February 29, 2008 (Unaudited) and May 31, 2007

   3
      

Unaudited Consolidated Condensed Statements of Operations for the Three and Nine Months Ended February 29, 2008 and February 28, 2007

   4
      

Unaudited Consolidated Condensed Statement of Stockholders’ Equity for the Nine Months Ended February 29, 2008

   5
      

Unaudited Consolidated Condensed Statements of Cash Flows for the Nine Months Ended February 29, 2008 and February 28, 2007

   6
      

Notes to Unaudited 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    20
     Item 1.   Legal Proceedings    20
     Item 1A.   Risk Factors    20
     Item 4.   Submission of Matters to a Vote of Security Holders    20
     Item 5.   Other Information    21
     Item 6.   Exhibits    21
SIGNATURES    22
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   


Table of Contents

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)

 

      February 29, 
2008
        May 31,     
2007
 
     (unaudited)       

ASSETS

     

Current Assets:

     

Cash and cash equivalents

   $ 12,057    $ 4,335  

Receivables, net of allowance of $3,829 and $2,348

     105,572      84,496  

Inventories

     15,695      11,518  

Prepaid expenses and other current assets

     3,570      7,164  
               

Total Current Assets

     136,894      107,513  

Property, plant and equipment, net

     50,971      35,166  

Intangible assets, net of accumulated amortization of $979 and $792

     1,567      458  

Goodwill

     62,727      26,452  

Other assets, net

     1,387      1,465  
               

Total Assets

   $ 253,546    $ 171,054  
               

LIABILITIES AND STOCKHOLDERS’ EQUITY

     

Current Liabilities:

     

Current portion of long-term debt

   $ 6,331    $ 4,862  

Accounts payable

     15,811      10,560  

Other accrued liabilities

     26,157      15,906  

Insurance note payable

     582      4,734  

Current income taxes payable

     2,551      —    

Deferred income taxes

     —        1,222  
               

Total Current Liabilities

     51,432      37,284  

Deferred income taxes

     2,899      486  

Long-term debt

     93,721      48,774  
               

Total Liabilities

     148,052      86,544  

Minority interest

     —        307  

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; 18,443,621 and 19,896,438 shares issued

     5,533      2,984  

Treasury stock at cost, 0 and 1,018,308 shares

     —        (5,032 )

Additional paid-in capital

     50,380      49,159  

Retained earnings

     48,006      36,447  

Accumulated other comprehensive income

     1,575      645  
               

Total Stockholders’ Equity

     105,494      84,203  
               

Total Liabilities and Stockholders’ Equity

   $ 253,546    $ 171,054  
               

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    Nine Months Ended
     February 29,
2008
   February 28,
2007
   February 29,
2008
   February 28,
2007
     (unaudited)    (unaudited)    (unaudited)    (unaudited)

Revenues

   $ 108,823    $ 73,291    $ 334,621    $ 222,215

Operating expenses

     75,200      49,216      226,837      145,932
                           

Gross margin

     33,623      24,075      107,784      76,283

Selling, general and administrative expenses

     27,118      19,025      78,955      57,269
                           

Operating income

     6,505      5,050      28,829      19,014

Interest expense, net

     1,618      1,047      5,085      3,167
                           

Earnings before income taxes

     4,887      4,003      23,744      15,847

Provision for income taxes

     1,953      1,561      9,482      6,416
                           

Net income

   $ 2,934    $ 2,442    $ 14,262    $ 9,431
                           

Net income per share—basic

   $ 0.16    $ 0.14    $ 0.79    $ 0.54

Net income per share—diluted

   $ 0.15    $ 0.13    $ 0.73    $ 0.50

Weighted averages shares outstanding—basic

     18,339      17,616      18,138      17,440

Weighted averages shares outstanding—diluted

     19,816      19,106      19,649      18,754

See notes to unaudited consolidated condensed financial statements.

 

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TEAM, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY

(in thousands)

 

     Common
Shares
   Treasury
Shares
    Common
Stock
   Treasury
Stock
    Additional
Paid-in
Capital
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income (Loss)
    Total
Stockholders’
Equity
 

Balance at May 31, 2007

   9,948    1,018     $ 2,984    $ (5,032 )   $ 49,159     $ 36,447     $ 645     $ 84,203  

Net income

   —      —         —        —         —         14,262       —         14,262  

Foreign currency translation adjustment

   —      —         —        —         —         —         2,680       2,680  

Interest rate swap

   —      —         —        —         —         —         (1,118 )     (1,118 )

Foreign Currency Hedge

   —      —         —        —         —         —         (632 )     (632 )

Stock split

   7,991    (1,018 )     2,397      5,032       (4,726 )     (2,703 )     —         —    

Shares issued

   1    —         1      —         59       —         —         60  

Non-cash compensation

   —      —         —        —         2,217       —         —         2,217  

Exercise of stock options

   504    —         151      —         2,404       —         —         2,555  

Tax benefit from exercise of stock options

   —      —         —        —         1,267       —         —         1,267  
                                                          

Balance at February 29, 2008

   18,444    —       $ 5,533    $ —       $ 50,380     $ 48,006     $ 1,575     $ 105,494  
                                                          

See notes to unaudited consolidated condensed financial statements.

 

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TEAM, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

 

     Nine Months Ended  
     February 29,
2008
    February 28,
2007
 
     (unaudited)     (unaudited)  

Cash Flows From Operating Activities:

    

Net income

   $ 14,262     $ 9,431  

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

    

Depreciation and amortization

     8,020       5,421  

Gain (loss) on asset sales

     17       (288 )

Amortization of deferred loan costs

     207       300  

Allowance for doubtful accounts

     1,481       1,252  

Minority interest in earnings and other

     (10 )     (19 )

Deferred income taxes

     1,092       135  

Non-cash compensation cost

     2,217       945  

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

    

(Increase) decrease:

    

Accounts receivable

     (3,464 )     (2,946 )

Inventories

     (3,216 )     (546 )

Prepaid expenses and other current assets

     5,177       639  

Increase (decrease):

    

Accounts payable

     129       282  

Other accrued liabilities

     4,818       1,703  

Income taxes payable

     2,551       (4,695 )
                

Net cash provided by operating activities

     33,281       11,614  

Cash Flows From Investing Activities:

    

Capital expenditures

     (18,305 )     (11,089 )

Proceeds from sale of assets

     17       221  

Business acquisitions, net of cash acquired

     (52,323 )     —    

Acquisition of minority interest

     (297 )     —    

(Increase) decrease in other assets, net

     (1,247 )     124  
                

Net cash used in investing activities

     (72,155 )     (10,744 )

Cash Flows From Financing Activities:

    

Net borrowings under revolving credit agreement

     48,418       5,990  

Payments related to term loans and financing arrangements

     (3,266 )     (4,222 )

Tax benefit of stock option exercises

     1,267       (3,061 )

Insurance note payments

     (4,152 )     1,219  

Issuance of common stock

     2,615       1,535  
                

Net cash provided by financing activities

     44,882       1,461  

Effect of exchange rate changes on cash

     1,714       (74 )

Net increase in cash and cash equivalents

   $ 7,722     $ 2,257  

Cash and cash equivalents at beginning of period

   $ 4,335     $ 2,578  

Cash and cash equivalents at end of period

   $ 12,057     $ 4,835  

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 80 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, 2007 is derived from the May 31, 2007 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, 2007.

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. Minority interest is recognized for the portion not owned by us. 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 credit facility 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.

Inventories. Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventories include 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

   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 Statement No. 109, Accounting for Income Taxes , 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 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 outstanding accounts receivable.

Workers’ Compensation, Auto, Medical and General Liability Accruals. In accordance with FASB Statement No. 5, Accounting for Contingencies , 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 workers’ compensation and automobile liability claims, our self-insured retention is $250,000 per case. 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 case. Our estimates and judgments 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.

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 and Exchange Commission (“SEC”). Most of our projects are short-term in nature and we predominantly derive revenues by providing a variety of

 

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industrial services on a time and material basis. For all of these services 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 February 29, 2008 and May 31, 2007 the amount of earned but unbilled revenue included in accounts receivable was $18.0 million and $6.6 million, respectively.

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

Earnings Per Share. Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the year. Diluted earnings per share is computed by dividing net income by the sum of (1) the weighted-average number of common shares 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 periods 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 additional pro forma exercise of options to acquire common stock to the extent that the options’ prices are less than the average market price of common shares during the period.

Options to purchase 648,000 shares of common stock were outstanding during the nine month period ended February, 29, 2008 but were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of common shares during the period. All outstanding options to purchase common shares were included in the computation of diluted earnings per share for the three month period ended February 29, 2008 and three and nine month period ended February 28, 2007.

Foreign Currency . For subsidiaries whose functional currency is not the United States 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 Adopted

FASB No. 151. In November 2004, the FASB issued FASB No. 151, Inventory Costs—an amendment of ARB 43, Chapter 4 (“FASB No. 151”). FASB No. 151 clarifies the accounting for excessive amounts of idle facility expense, freight, handling costs and wasted material and requires that the allocation of fixed production overheads to the costs of conversion of inventory be based on the normal capacity of the production facilities. The adoption of this statement on June 1, 2006 did not have a material effect on our results of operations, financial position or cash flows.

FASB No. 154. In May 2005, the FASB issued FASB No. 154, Accounting Changes and Error Corrections—A Replacement of APB Opinion No. 20 and FASB Statement No. 3 (“FASB No. 154”). FASB No. 154 changes the requirements for the accounting for and reporting of a change in accounting principle and applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. FASB No. 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. The provisions of FASB No. 154 are effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. The adoption of this statement on June 1, 2006 did not have a material effect on our results of operations, financial position or cash flows.

SAB No. 108. In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108 (“SAB No. 108”). SAB No. 108 addresses how the effects of prior year uncorrected financial statement misstatements should be considered in current year financial statements. SAB No. 108 requires registrants to quantify misstatements using both balance sheet and income statement approaches and to evaluate whether either approach results in quantifying an error that is material after all of the relevant quantitative and qualitative factors are considered. SAB No. 108 was effective for annual financial statements covering the first fiscal year ending after November 15, 2006. The adoption of SAB No. 108 effective May 31, 2007 did not have a material effect on our results of operations, financial position or cash flows.

FIN No. 48. In June 2006, the FASB issued Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), which clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes . 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, 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.

 

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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. At February 29, 2008 we have established liabilities for tax uncertainties of $2.2 million, which includes $0.5 million of interest. These liabilities are primarily associated with a prior acquisition. To the extent these uncertainties are ultimately resolved favorably, the resultant reduction of recorded liabilities would be applied to reduce the balance of goodwill or deferred taxes and would have no effect on our effective tax rate. Because of the status of the ongoing examinations it is not possible to estimate the impact, if any, to previously recorded uncertain tax positions within the next 12 months. 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.

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 2003. We are currently undergoing an examination by the Internal Revenue Service and Revenue Canada with an anticipated closing date by the end of fiscal year 2008. 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.

EITF 06-3. In June 2006, the FASB’s Emerging Issues Task Force (the “Task Force”) issued consensus 06-3 , How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation) (“EITF 06-3”). In EITF 06-3, the Task Force reached a consensus that the presentation of tax assessed by a governmental authority that is both imposed on and concurrent with a specific revenue-producing transaction between a seller and a customer and disclosed on either a gross basis (included in revenues and costs) or a net basis (excluded from revenues) is an accounting policy decision that should be disclosed. In addition, for any such taxes that are reported on a gross basis, an entity should disclose the amounts of those taxes in interim and annual financial statements for each period for which an income statement is presented if those amounts are significant. EITF 06-3 is effective for reporting periods beginning after December 15, 2006. The adoption of EITF 06-3 on June 1, 2007 did not have a material effect on our results of operations, financial position or cash flows.

Accounting Principles Not Yet Adopted

FASB No. 157. In September 2006, the FASB issued FASB No. 157, Fair Value Measurements (“FASB No. 157”). FASB No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosure requirements regarding fair value measurement. Where applicable, this statement simplifies and codifies fair value related guidance previously issued within GAAP. FASB No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. We do not anticipate FASB No. 157 will have a material effect on our results of operations, financial position or cash flows.

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 to FASB Statement No. 115 (“FASB No. 159”). FASB No. 159 permits entities to choose to measure certain financial instruments and other items at fair value that are not currently required to be measured at fair value. It also creates presentation and disclosure requirements that will enhance comparability between entities that choose different measurement attributes for similar types of assets and liabilities. FASB No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We do not anticipate FASB No. 159 will have a material effect on our results of operations, financial position or cash flows.

 

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2. ACQUISITION

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. We are in the final stages of determining the fair values of the assets and liabilities assumed. Preliminary information regarding the allocation of the purchase price to our acquisition is set forth below (in thousands):

 

Classification

   (unaudited)

Accounts receivable

   $ 13,063

Inventory

     382

Prepaids and other current assets

     823

Property, plant and equipment

     4,464

Intangible assets - Non-competes

     1,250

Goodwill

     21,044
      

Total assets acquired

   $ 41,026
      

Accounts payable

   $ 3,251

Accrued liabilities and other

     3,021

Deferred taxes

     99
      

Total liabilities assumed

     6,371
      

Net assets acquired

   $ 34,655
      

Our unaudited pro forma consolidated results of operations are shown below as if the acquisition of Aitec had occurred at the beginning of the fiscal year 2007. These results are not necessarily indicative of the results which would actually have occurred if the purchase had taken place at the beginning of the period, nor are they necessarily indicative of future results (in thousands, except per share data).

 

     Pro forma data
(unaudited)
   Pro forma data
(unaudited)
     Three months ended
February 28, 2007
   Nine months ended
February 28, 2007

Revenues

   $ 84,292    $ 257,710

Net income

   $ 2,550    $ 10,610

Earnings per share:

     

Basic

   $ 0.14    $ 0.61

Diluted

   $ 0.13    $ 0.57

 

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On January 9, 2008 we acquired all the stock of Leak Repairs 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 early stages 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):

 

Classification

   (unaudited)

Accounts receivable

   $ 6,030

Inventory

     579

Prepaids and other current assets

     760

Property, plant and equipment

     818

Unallocated purchase price

     13,764
      

Total assets acquired

   $ 21,951
      

Accounts payable

   $ 1,871

Accrued liabilities and other

     2,412
      

Total liabilities assumed

     4,283
      

Net assets acquired

   $ 17,668
      

3. RECEIVABLES

A summary of accounts receivables as of February 29, 2008 and May 31, 2007 is as follows (in thousands):

 

     February 29,
2008
    May 31,
2007
 

Trade accounts receivable

   $ 91,434     $ 80,277  

Unbilled revenues

     17,967           6,567  

Allowance for doubtful accounts

     (3,829 )     (2,348 )
                

Total

   $ 105,572     $ 84,496  
                

 

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4. INVENTORIES

A summary of inventory as of February 29, 2008 and May 31, 2007 is as follows (in thousands):

 

     February 29,
2008
   May 31,
2007

Raw materials

   $ 2,773    $ 2,870

Work in progress

     529      358

Finished goods

     12,393          8,290
             

Total

   $ 15,695    $ 11,518
             

5. PROPERTY, PLANT AND EQUIPMENT

A summary of property, plant and equipment as of February 29, 2008 and May 31, 2007 is as follows (in thousands):

 

     February 29,
2008
    May 31,
2007
 

Land

   $ 990     $ 955  

Buildings and leasehold improvements

     7,564       7,118  

Machinery and equipment

     69,330           53,670  

Furniture and fixtures

     1,463       1,400  

Computers and computer software

     4,337       3,884  

Automobiles

     2,262       2,106  

Construction in progress

     6,462       578  
                

Total

     92,408       69,711  

Accumulated depreciation and amortization

     (41,437 )     (34,545 )
                

Property, plant and equipment, net

   $ 50,971     $ 35,166  
                

Included in construction in progress is approximately $5.8 million of land in the Houston area that will become the home of our new multi-use facility encompassing our corporate headquarters, TMS manufacturing and equipment center, and global training activities.

6. OTHER ACCRUED LIABILITIES

A summary of other accrued liabilities as of February 29, 2008 and May 31, 2007 is as follows (in thousands):

 

     February 29,
2008
   May 31,
2007

Payroll and other compensation expenses

   $ 17,522    $ 9,509

Insurance accruals

     3,134          2,583

Property, sales and other taxes

     1,137      527

Interest

     806      —  

Auto lease rebate

     993      1,366

Other

     2,565      1,921
             

Total

   $ 26,157    $ 15,906
             

7. LONG-TERM DEBT

On January 25, 2006 we entered into a three-year enterprise agreement with a vendor for server and desktop volume licensing with software assurance. The Software Licensing Note for the agreement was provided by the vendor under a three year non-interest bearing note. The note has been discounted at 7.3%, which was our effective borrowing rate. The discount of $0.1 million is amortizing to interest expense over the term of the note.

On May 31, 2007 we amended and restated our existing banking facility comprised of a term loan and a revolving credit facility (collectively, the “Credit Facility”). The Credit Facility provides us with a $120 million revolving line of credit and a $15 million term loan through a banking syndicate. The Credit Facility permits us to increase the revolving line of credit up to $145 million subject to certain conditions and provided that our lenders are willing to increase the size of their

 

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commitment. On January 29, 2008 we amended our Credit Facility to allow us to borrow in Euros or United States dollars. 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. The Credit Facility is secured by virtually all of our assets and 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 February 29, 2008 there are $1.2 million of capitalized loan costs which are being amortized over the life of the Credit Facility. At February 29, 2008 we were in compliance with all financial covenants of the Credit Facility.

A summary of long-term debt as of February 29, 2008 and May 31, 2007 is as follows (in thousands):

 

     February 29,
2008
   May 31,
2007

Revolving loan portion of the Credit Facility

   $ 87,697    $ 38,015

Term loan portion of the Credit Facility

     12,000          15,000

Software Licensing Note

     315      554

Auto loans

     40      67
             
     100,052      53,636

Less current portion

     6,331      4,862
             

Long-term debt, excluding current installments

   $ 93,721    $ 48,774
             

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 LRS 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 LRS.

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 February 29, 2008 we were contingently liable for outstanding stand-by letters of credit totaling $5.7 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. INDUSTRY SEGMENT INFORMATION

Revenues from continuing operations and long-lived assets in the United States and other countries are as follows (in thousands):

 

     Three Months Ended    Nine Months Ended
     February 29,
2008
   February 28,
2007
   February 29,
2008
   February 28,
2007

Revenue

           

United States

   $ 80,553    $ 64,946    $ 249,637    $ 193,078

Canada

     21,712      4,876      70,418      18,596

Europe

     4,122      338      4,572      1,067

Other foreign countries

     2,436      3,131      9,994      9,474
                           

Total

   $ 108,823    $ 73,291    $ 334,621    $ 222,215
                           
               February 29,
2008
   May 31,
2007

Total Assets

           

United States

         $ 155,366    $ 139,735

Canada

           63,914      17,051

Europe

           25,244      1,421

Other foreign countries

           9,022      12,847
                   

Total

         $ 253,546    $ 171,054
                   

9. SHARE-BASED PAYMENTS

We have adopted various stock option plans pursuant to which the Board of Directors may grant stock options to officers and key employees. At February 29, 2008 there were approximately 2,793,000 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 February 29, 2008.

We granted 25,000 and 715,000 stock options during the three month and nine month periods ended February 29, 2008, respectively. We granted zero and 462,000 stock options during the three month and nine month periods ended February 28, 2007, respectively. Compensation expense related to options granted totaled $1.2 million and $2.2 million for the three month and nine month periods ended February 29, 2008, respectively, and $0.4 million and $0.9 million for the three month and nine month periods ended February 28, 2007, respectively. Tax benefits for compensation expense related to options granted and restricted stock awards totaled $1.0 million and $1.3 million for the three month and nine month periods ended February 29, 2008, respectively and $0.7 million and $1.2 million for the three month and nine month periods ended February 28, 2007, respectively. As of February 29, 2008, $12.3 million of total unrecognized compensation expense related to options granted is expected to be recognized over a remaining weighted-average period of approximately 3 years.

For stock options, we determine the fair value of each stock option at the grant date using a Black-Scholes model, with the following weighted-average assumptions used for grants made during the three and nine month periods ended February 29, 2008 and February 28, 2007:

 

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     Three Months Ended   Nine Months Ended
     February 29,
2008
  February 28,
2007
  February 29,
2008
  February 28,
2007

Risk free interest rate

   3.2%   4.7%   4.4%   4.7%

Volatility factor of the expected market price of the Company’s common stock

   40.7%   39.2%   40.1%   39.2%

Expected dividend yield percentage

   0.0%   0.0%   0.0%   0.0%

Weighted average expected life

   7 Yrs   6 Yrs   7 Yrs   6 Yrs

Transactions under our stock option plans are summarized below:

 

     February 29, 2008    February 28, 2007
     No. of
Options
    Weighted
Average
Price
   No. of
Options
    Weighted
Average
Price
     (in thousands)          (in thousands)      

Shares under option, beginning of period

   2,822     $ 8.58    2,868     $ 6.33

Changes during the year:

         

Granted

   715     $ 30.20    552     $ 14.67

Exercised

   (580 )   $ 4.42    (458 )   $ 3.47

Canceled

   (164 )   $ 12.32    (6 )   $ 15.97
                         

Shares under option, end of period

   2,793     $ 14.84    2,956     $ 8.31

Exercisable at end of period

   1,279     $ 7.78    1,590     $ 5.08

For options outstanding at February 29, 2008 the range of exercise prices and remaining contractual lives are as follows:

 

Range of Prices

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

$0.00 to $3.21

   335    $ 2.04    2.2

$3.22 to $6.41

   126    $ 4.18    4.2

$6.42 to $9.62

   702    $ 8.29    6.7

$9.62 to $12.82

   219    $ 11.26    7.8

$12.83 to $16.03

   703    $ 15.03    8.3

$16.04 to $32.05

   708    $ 30.20    9.6
                
   2,793    $ 14.84    7.3

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.

 

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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, 2007.

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, 2007.

General Description of Business

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 complementary 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 80 locations throughout the United States and international markets including Aruba, Belgium, Canada, Singapore, The Netherlands, Trinidad and Venezuela.

Three Months Ended February 29, 2008 Compared To Three Months Ended February 28, 2007 (in thousands)

 

     Three Months Ended     Increase  
     February 29,
2008
    February 28,
2007
    $     %  

Revenues comprised of:

        

TCM Division

   $ 59,110     $ 38,596     $ 20,514     53 %

TMS Division

     49,713       34,695       15,018     43 %
                              
   $ 108,823     $ 73,291     $ 35,532     48 %

Gross margin comprised of:

        

TCM Division

   $ 15,838     $ 11,567     $ 4,271     37 %

TMS Division

     17,785       12,508       5,277     42 %
                              
   $ 33,623     $ 24,075     $ 9,548     40 %

Operating income comprised of:

        

Industrial Services

   $ 11,132     $ 8,381     $ 2,751     33 %

Corporate

     (4,627 )     (3,331 )     (1,296 )   39 %
                              
   $ 6,505     $ 5,050     $ 1,455     29 %

 

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Revenues. Revenues in the period ended February 29, 2008 were $108.8 million compared to $73.3 million in the period ended February 28, 2007, an increase of $35.5 million or 48%. Our results reflect the addition of our recent Aitec and LRS acquisitions and broad based growth across the majority of geographic regions. Our revenues of $108.8 million include revenues attributable to Aitec and LRS of $10.8 million and $3.3 million, respectively. Excluding the effect of the acquisitions, our overall revenue growth was $21.4 million, an increase of 29% over the prior period. Our revenues also include $0.7 million of favorable foreign currency fluctuations, primarily attributable to our Canadian operations. Revenues for our TCM Division (Team’s inspection and field heat treating service lines; inclusive of Aitec) were $59.1 million for the current period, up $20.5 million or 53% from the prior period. Revenues for our TMS Division (Team’s mechanical service lines of leak repair, hot tapping, fugitive emissions monitoring, field machining, technical bolting and field valve repair; inclusive of LRS) for the current period were $49.7 million, up $15.0 million or 43% from the prior period.

Gross Margin. Gross margin in the period ended February 29, 2008 was $33.6 million compared to $24.1 million in the period ended February 28, 2007, an increase of $9.5 million or 40%. Gross margin as a percentage of revenue was 31% in the current period as compared to 33% in the prior period. Overall, our gross margins as a percentage of revenue was affected by the current period mix of services in which lower margin TCM operations comprised a greater percentage of overall sales. Gross margin as a percentage of revenue for the TCM Division also decreased from 30% in the prior period to 27% in the current period. This was attributable to the current period inclusion of lower gross margin Aitec revenues in the TCM Division (Aitec gross margins were 19% of revenues) and the impact of weak seasonal demand on a larger TCM Division business base. While organic revenue growth in the TCM Division was 25% when compared to the prior year period, revenues were 20% lower than the preceding seasonally stronger second quarter. The challenge in the current period for the TCM Division was our seasonally lower activity levels resulted in less volume to absorb the larger infrastructure costs of the business. Gross margin as a percentage of revenue for the TMS Division were consistent with prior period at 36%. Gross margin attributable to LRS was $1.0 million or 30% of revenues.

Selling, General and Administrative Expenses. SG&A in the period ended February 29, 2008 was $27.1 million compared to $19.0 million in the period ended February 28, 2007, an increase of $8.1 million or 43%. The increase in SG&A was attributable to a $0.8 million increase in non-cash compensation expense and an additional $2.2 million associated with the Aitec and LRS acquisitions and on-going investments in infrastructure and personnel to support the growth of the business. For the current period, SG&A attributable to field operations was $22.5 million (inclusive of Aitec and LRS) compared to $15.6 million in the prior period. Overall, our SG&A as a percentage of revenues decreased to 25% in the current period compared to 26% in the prior period.

Interest. Interest expense was $1.6 million in the period ended February 29, 2008 compared to $1.0 million in the period ended February 28, 2007. This increase is the result of increased outstanding borrowings primarily attributable to our Aitec and LRS acquisitions and increases in working capital.

Taxes.  The provision for income taxes was $2.0 million on pretax income of $4.9 million for the period ended February 29, 2008. The effective tax rate for the period ended February 29, 2008 was 40.0% compared to 39.0% for the period ended February 28, 2007. Differences between the Federal tax rate and our effective rate are primarily attributable to state taxes and non-deductible non-cash compensation in the form of incentive stock options.

Nine Months Ended February 29, 2008 Compared To Nine Months Ended February 28, 2007 (in thousands)

 

     Nine Months Ended     Increase  
     February 29,
2008
    February 28,
2007
    $     %  

Revenues comprised of:

        

TCM Division

   $ 192,305     $ 116,206     $ 76,099     65 %

TMS Division

     142,316       106,009       36,307     34 %
                              
   $ 334,621     $ 222,215     $ 112,406     51 %

Gross margin comprised of:

        

TCM Division

   $ 56,232     $ 35,697     $ 20,535     58 %

TMS Division

     51,552       40,586       10,966     27 %
                              
   $ 107,784     $ 76,283     $ 31,501     41 %

Operating income comprised of:

        

Industrial Services

   $ 41,198     $ 29,119     $ 12,079     41 %

Corporate

     (12,369 )     (10,105 )     (2,264 )   22 %
                              
   $ 28,829     $ 19,014     $ 9,815     52 %

Revenues. Revenues in the period ended February 29, 2008 were $334.6 million compared to $222.2 million in the period ended February 28, 2007, an increase of $112.4 million or 51%. Our results reflect the addition of our recent Aitec

 

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and LRS acquisitions and broad based growth across the majority of geographic regions. Our revenues of $334.6 million include revenues attributable to Aitec and LRS of $36.8 million and $3.3 million, respectively. Excluding the effect of the acquisitions, our overall revenue growth was $72.3 million, an increase of 33% over the prior period. Our revenues also include $2.2 million of favorable foreign currency fluctuations, primarily attributable to our Canadian operations. Revenues for our TCM Division were $192.3 million for the current period, up $76.1 million or 65% from the prior period. Revenues for our TMS Division for the current period were $142.3 million, up $36.3 million or 34% from the prior period.

Gross Margin. Gross margin in the period ended February 29, 2008 was $107.8 million compared to $76.3 million in the period ended February 28, 2007, an increase of $31.5 million or 41%. Gross margin as a percentage of revenue was 32% in the current period as compared to 34% in the prior period. Overall, our gross margins as a percentage of revenue was affected by the current period mix of services in which lower margin TCM operations comprised a greater percentage of overall sales. Gross margin as a percentage of revenue for the TCM Division also decreased from 31% in the prior period to 29% in the current period, partially as a result of the Aitec acquisition. Gross margin in the current period attributable to Aitec was $8.7 million, or 24% of Aitec revenues. Additionally, gross margins as a percentage of revenue for the TMS Division were 36%, down from 38% in the prior period. Gross margin attributable to LRS was $1.0 million or 30% of revenues.

Selling, General and Administrative Expenses. SG&A in the period ended February 29, 2008 was $79.0 million compared to $57.3 million in the period ended February 28, 2007, an increase of $21.7 million or 38%. The increase in SG&A was attributable to a $1.3 million increase in non-cash compensation expense and an additional $5.6 million associated with the Aitec and LRS acquisitions, and on-going investments in infrastructure and personnel to support the growth of the business. For the current period, SG&A attributable to field operations was $66.6 million (inclusive of Aitec and LRS) compared to $47.2 million in the prior period. Overall, our SG&A as a percentage of revenues decreased to 24% in the current period compared to 26% in the prior period.

Interest. Interest expense was $5.1 million in the period ended February 29, 2008 compared to $3.2 million in the period ended February 28, 2007. This increase is the result of increased outstanding borrowings primarily attributable to our Aitec and LRS acquisitions and increases in working capital.

Taxes.  The provision for income taxes was $9.5 million on pretax income of $23.7 million for the period ended February 29, 2008. The effective tax rate for the period ended February 29, 2008 was 40.0% compared to 40.5% for the period ended February 28, 2007. Differences between the Federal tax rate and our effective rate are primarily attributable to state taxes and non-deductible non-cash compensation in the form of incentive stock options.

Liquidity and Capital Resources

Financing for our operations consists primarily of leasing arrangements, our Credit Facility and cash flows attributable to our continuing operations. We believe that the liquidity we derive from our leasing arrangements, our Credit Facility and cash flows attributable to our continuing operations is more than sufficient to fund our capital expenditures, debt maturities and other business needs.

Cashflows Attributable to Our Continuing Operations. For the nine month period ended February 29, 2008, cash provided by operating activities was $33.3 million. Net income from continuing operations was $14.3 million, depreciation and amortization was $8.0 million, non-cash compensation was $2.2 million and $6.0 million relates to changes in working capital.

Cashflows Attributable to Our Investing Activities. For the nine month period ended February 29, 2008, cash used in investing activities was $72.2 million due primarily to $52.3 million utilized in the acquisitions of Aitec and LRS and capital expenditures of $18.3 million including acquisition of land for our new Houston multi-use facility. We anticipate capital expenditures for the remainder of the fiscal year to continue at slightly less than current levels resulting in total fiscal 2008 capital expenditures of approximately $20-25 million. The continued level of capital expenditures is associated with specific project opportunities, replacement of equipment acquired in prior acquisitions and business expansion.

Cashflows Attributable to Our Financing Activities. For the nine month period ended February 29, 2008, cash provided by financing activities was $44.9 million primarily due to cash provided by borrowing under our Credit Facility and issuance of common stock upon exercise of options. At February 29, 2008 our unused available borrowing capacity under the Credit Facility was $26.6 million.

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have operations in foreign countries with a functional currency that is not the United States 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 LRS 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 LRS. We are exposed to market risk, primarily related to foreign currency fluctuations related to the unhedged portion of our investment in LRS.

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

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this quarterly report. Based on the evaluation, such officers have concluded that these disclosure controls and procedures are effective in ensuring that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely discussions regarding required disclosure.

There has been no change in our internal control over financial reporting (as defined in rules 13a-13(f) and 15d-15(f) of the Exchange Act) that occurred during the period covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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 $1,000,000. 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. Three 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. We intend to vigorously defend the lawsuits and the 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, for these losses should they be incurred and have notified our insurers of the incident. 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.

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 6 of our Annual Report on Form 10-K for the year ended May 31, 2007 includes a detailed discussion of our risk factors.

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

 

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ITEM 5. OTHER INFORMATION

NONE

 

ITEM 6. EXHIBITS

 

Exhibit
Number

  

Description

10.1    First Amendment to Amended Restated Credit Agreement dated as of May 31, 2007, among Team, Inc. as the Borrower, Bank of America, NA, as Administrative Agent, Saving Line Lender and L/C, and the other Lenders Party thereto dated as of January 29, 2008.
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

 

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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: April 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)

 

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Exhibit 10.1

 

 

FIRST AMENDMENT

TO

AMENDED AND RESTATED CREDIT AGREEMENT

Dated as of May 31, 2007

AMONG

TEAM, INC. ,

AS THE BORROWER,

BANK OF AMERICA, N.A.,

AS ADMINISTRATIVE AGENT, SWING LINE LENDER

AND

L/C ISSUER,

AND

THE OTHER LENDERS PARTY HERETO

Dated as of January 29, 2008

 

 

BANC OF AMERICA SECURITIES LLC,

as Sole Lead Arranger and Sole Book Manager

 


FIRST AMENDMENT TO

AMENDED AND RESTATED CREDIT AGREEMENT

THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this “ First Amendment ”), dated as of January 29, 2008, is entered into among TEAM, INC., a Texas corporation (the “ Borrower ”), the lenders listed on the signature pages hereof as Lenders (the “ Lenders ”), and BANK OF AMERICA, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer.

BACKGROUND

A. The Borrower, the Lenders, the Administrative Agent, the Swing Line Lender and the L/C Issuer are parties to that certain Amended and Restated Credit Agreement, dated as of May 31, 2007, (“ Credit Agreement ”). The terms defined in the Credit Agreement and not otherwise defined herein shall be used herein as defined in the Credit Agreement.

B. The Borrower has requested (a) certain amendments to the Credit Agreement to provide for an alternative currency, (b) to remove Amegy Bank National Association (“ Amegy ”) as a lender under the Credit Agreement, and (c) that all remaining Lenders other than Bank of America (the “ Increasing Lenders ”) increase their respective Commitments.

C. The Lenders, the Administrative Agent, the Swing Line Lender and the L/C Issuer hereby agree to amend the Credit Agreement, subject to the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the covenants, conditions and agreements hereafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are all hereby acknowledged, the Borrower, the Lenders, the Swing Line Lender, the L/C Issuer and the Administrative Agent covenant and agree as follows:

1. AMENDMENTS .

(a) Section 1.01 of the Credit Agreement is hereby amended by adding the following definitions thereto in proper alphabetical order to read as follows:

Agreement Currency ” has the meaning specified in Section 10.20 .

Alternative Currency ” means Euro and each other currency (other than Dollars) that is approved in accordance with Section 1.08 .

Alternative Currency Equivalent ” means, at any time, with respect to any amount denominated in Dollars, the equivalent amount thereof in the applicable Alternative Currency as determined by the Administrative Agent or the L/C Issuer, as the case may be, at such time on the basis of the Spot Rate (determined in respect of the most recent Revaluation Date) for the purchase of such Alternative Currency with Dollars.

 

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Alternative Currency Sublimit ” means an amount equal to the lesser of (a) the Aggregate Revolving Commitments and (b) $35,000,000. The Alternative Currency Sublimit is part of, and not in addition to, the Aggregate Commitments.

Applicable Time ” means, with respect to any borrowings and payments in any Alternative Currency, the local time in the place of settlement for such Alternative Currency as may be determined by the Administrative Agent or the L/C Issuer, as the case may be, to be necessary for timely settlement on the relevant date in accordance with normal banking procedures in the place of payment.

Dollar Equivalent ” means, at any time, (a) with respect to any amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in any Alternative Currency, the equivalent amount thereof in Dollars as determined by the Administrative Agent or the L/C Issuer, as the case may be, at such time on the basis of the Spot Rate (determined in respect of the most recent Revaluation Date) for the purchase of Dollars with such Alternative Currency.

EMU ” means the economic and monetary union in accordance with the Treaty of Rome 1957, as amended by the Single European Act 1986, the Maastricht Treaty of 1992 and the Amsterdam Treaty of 1998.

EMU Legislation ” means the legislative measures of the European Council for the introduction of, changeover to or operation of a single or unified European currency.

Euro ” and “ EUR ” mean the lawful currency of the Participating Member States introduced in accordance with the EMU Legislation.

Judgment Currency ” has the meaning specified in Section 10.20 .

Mandatory Cost ” means, with respect to any period, the percentage rate per annum determined in accordance with Schedule 1.02 .

Overnight Rate ” means, for any day, (a) with respect to any amount denominated in Dollars, the greater of (i) the Federal Funds Rate and (ii) an overnight rate determined by the Administrative Agent, the L/C Issuer, or the Swing Line Lender, as the case may be, in accordance with banking industry rules on interbank compensation, and (b) with respect to any amount denominated in an Alternative Currency, the rate of interest per annum which overnight deposits in the applicable Alternative Currency, in an amount approximately equal to the amount with respect to which such rate is being determined, would be offered for such day by a branch or Affiliate of Bank of America in the applicable offshore interbank market for such currency to major banks in such interbank market.

Participating Member State ” means each state so described in any EMU Legislation.

 

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Revaluation Date ” means (a) with respect to any Revolving Loan, each of the following: (i) each date of a Borrowing of a Eurodollar Rate Loan denominated in an Alternative Currency, (ii) each date of a continuation of a Eurodollar Rate Loan denominated in an Alternative Currency pursuant to Section 2.03 , and (iii) such additional dates as the Administrative Agent shall determine or the Required Lenders shall require; and (b) with respect to any Letter of Credit, each of the following: (i) each date of issuance of a Letter of Credit denominated in an Alternative Currency, (ii) each date of an amendment of any such Letter of Credit having the effect of increasing the amount thereof (solely with respect to the increased amount), (iii) each date of any payment by the L/C Issuer under any Letter of Credit denominated in an Alternative Currency, and (iv) such additional dates as the Administrative Agent or the L/C Issuer shall determine or the Required Lenders shall require.

Same Day Funds ” means (a) with respect to disbursements and payments in Dollars, immediately available funds, and (b) with respect to disbursements and payments in an Alternative Currency, same day or other funds as may be determined by the Administrative Agent or the L/C Issuer, as the case may be, to be customary in the place of disbursement or payment for the settlement of international banking transactions in the relevant Alternative Currency.

Spot Rate ” for a currency means the rate determined by the Administrative Agent or the L/C Issuer, as applicable, to be the rate quoted by the Person acting in such capacity as the spot rate for the purchase by such Person of such currency with any currency through its principal foreign exchange trading office at approximately 11:00 a.m. on the date two Business Days prior to the date as of which the foreign exchange computation is made; provided that the Administrative Agent or the L/C Issuer may obtain such spot rate from another financial institution designated by the Administrative Agent or the L/C Issuer if the Person acting in such capacity does not have as of the date of determination a spot buying rate for any such currency; and provided further that the L/C Issuer may use such spot rate quoted on the date as of which the foreign exchange computation is made in the case of any Letter of Credit denominated in an Alternative Currency.

TARGET Day ” means any day on which the Trans-European Automated Real-time Gross Settlement Express Transfer (TARGET) payment system (or, if such payment system ceases to be operative, such other payment system (if any) determined by the Administrative Agent to be a suitable replacement) is open for the settlement of payments in Euro.

(b) The definition of “ Base Rate Loan ” set forth in Section 1.01 of the Credit Agreement is hereby amended to read as follows:

Base Rate Loan ” means a Loan that bears interest based on the Base Rate. All Base Rate Loans shall be denominated in Dollars.

 

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(c) The definition of “ Business Day ” set forth in Section 1.01 of the Credit Agreement is hereby amended to read as follows:

Business Day ” means 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 state where the Administrative Agent’s Office is located and:

(a) if such day relates to any interest rate settings as to a Eurodollar Rate Loan denominated in Dollars, any fundings, disbursements, settlements and payments in Dollars in respect of any such Eurodollar Rate Loan, or any other dealings in Dollars to be carried out pursuant to this Agreement in respect of any such Eurodollar Rate Loan, means any such day on which dealings in deposits in Dollars are conducted by and between banks in the London interbank eurodollar market;

(b) if such day relates to any interest rate settings as to a Eurodollar Rate Loan denominated in Euro, any fundings, disbursements, settlements and payments in Euro in respect of any such Eurodollar Rate Loan, or any other dealings in Euro to be carried out pursuant to this Agreement in respect of any such Eurodollar Rate Loan, means a TARGET Day;

(c) if such day relates to any interest rate settings as to a Eurodollar Rate Loan denominated in a currency other than Dollars or Euro, means any such day on which dealings in deposits in the relevant currency are conducted by and between banks in the London or other applicable offshore interbank market for such currency; and

(d) if such day relates to any fundings, disbursements, settlements and payments in a currency other than Dollars or Euro in respect of a Eurodollar Rate Loan denominated in a currency other than Dollars or Euro, or any other dealings in any currency other than Dollars or Euro to be carried out pursuant to this Agreement in respect of any such Eurodollar Rate Loan (other than any interest rate settings), means any such day on which banks are open for foreign exchange business in the principal financial center of the country of such currency.

(d) The definition of “ Default Rate ” set forth in Section 1.01 of the Credit Agreement is hereby amended to read as follows:

Default Rate ” means (a) when used with respect to Obligations other than Letter of Credit Fees, an interest rate per annum equal to (i) the Base Rate plus (ii) the Applicable Rate, if any, applicable to Base Rate Loans plus (iii) 2% per annum; provided , however , that with respect to a Eurodollar Rate Loan, the Default Rate shall be an interest rate per annum equal to (y) the interest rate (including any Applicable Rate and any Mandatory Cost) otherwise applicable to such Loan plus (z) 2% per annum, and (b) when used with respect to Letter of Credit Fees, an interest rate per annum equal to (i) the Applicable Rate plus (ii) 2% per annum.

 

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(e) The definition of “ Eurodollar Rate ” set forth in Section 1.01 of the Credit Agreement is hereby amended to read as follows:

Eurodollar Rate ” means, for any Interest Period with respect to any Eurodollar Rate Loan, the rate per annum equal to the British Bankers Association LIBOR Rate (“ BBA LIBOR ”), as published by Reuters (or other commercially available source providing quotations of BBA LIBOR as designated by the Administrative Agent from time to time) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, for deposits in the relevant currency (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period. If such rate is not available at such time for any reason, then the “ Eurodollar Rate ” for such Interest Period shall be the rate per annum determined by the Administrative Agent to be the rate at which deposits in the relevant currency for delivery on the first day of such Interest Period in Same Day Funds in the approximate amount of the Eurodollar Rate Loan being made, continued or converted by Bank of America and with a term equivalent to such Interest Period would be offered by Bank of America’s London Branch (or other Bank of America branch or Affiliate) to major banks in the London or other offshore interbank market for such currency at their request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period.

(f) The definition of “ Eurodollar Rate Loan ” set forth in Section 1.01 of the Credit Agreement is hereby amended to read as follows:

Eurodollar Rate Loan ” means a Loan that bears interest at a rate based on the Eurodollar Rate. Eurodollar Rate Loans that are Revolving Loans may be denominated in Dollars or in an Alternative Currency. Eurodollar Rate Loans that are Term Loans must be denominated in Dollars. All Revolving Loans denominated in an Alternative Currency must be Eurodollar Rate Loans.

(g) The definition of “ Letter of Credit ” set forth in Section 1.01 of the Credit Agreement is hereby amended to read as follows:

Letter of Credit ” means any letter of credit issued hereunder and shall include the Existing Letters of Credit. A Letter of Credit may be a commercial letter of credit or a standby letter of credit. Letters of Credit may be issued in Dollars or in an Alternative Currency.

(h) The definition of “ Outstanding Amount ” set forth in Section 1.01 of the Credit Agreement is hereby amended to read as follows:

Outstanding Amount ” means (i) with respect to Revolving Loans, Swing Line Loans and Term Loans on any date, the Dollar Equivalent amount of the aggregate outstanding principal amount thereof after giving effect to any borrowings and prepayments or repayments of Revolving Loans, Swing Line Loans and Term Loans, as the case may be, occurring on such date; and (ii) with respect to any L/C Obligations on any date, the Dollar Equivalent amount of such L/C Obligations on such date after giving

 

5


effect to any L/C Credit Extension occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including as a result of any reimbursements of outstanding unpaid drawings under any Letters of Credit or any reductions in the maximum amount available for drawing under Letters of Credit taking effect on such date.

(i) Article I of the Credit Agreement is hereby amended by adding the following new Sections 1.07 , and 1.08 thereto to read as follows:

1.07 Exchange Rates; Currency Equivalents. (a) The Administrative Agent or the L/C Issuer, as applicable, shall determine the Spot Rates as of each Revaluation Date to be used for calculating Dollar Equivalent amounts of Credit Extensions and Outstanding Amounts denominated in Alternative Currencies. Such Spot Rates shall become effective as of such Revaluation Date and shall be the Spot Rates employed in converting any amounts between the applicable currencies until the next Revaluation Date to occur. Except for purposes of financial statements delivered by Loan Parties hereunder or calculating financial covenants hereunder or except as otherwise provided herein, the applicable amount of any currency (other than Dollars) for purposes of the Loan Documents shall be such Dollar Equivalent amount as so determined by the Administrative Agent or the L/C Issuer, as applicable.

(b) Whenever in this Agreement in connection with a Revolving Borrowing, conversion, continuation or prepayment of a Eurodollar Rate Loan or the issuance, amendment or extension of a Letter of Credit, an amount, such as a required minimum or multiple amount, is expressed in Dollars, but such Revolving Borrowing, Eurodollar Rate Loan or Letter of Credit is denominated in an Alternative Currency, such amount shall be the relevant Alternative Currency Equivalent of such Dollar amount (rounded to the nearest unit of such Alternative Currency, with 0.5 of a unit being rounded upward), as determined by the Administrative Agent or the L/C Issuer, as the case may be.

1.08 Additional Alternative Currencies. (a) The Borrower may from time to time request that Eurodollar Rate Loans be made and/or Letters of Credit be issued in a currency other than those specifically listed in the definition of “ Alternative Currency ;” provided that such requested currency is a lawful currency (other than Dollars) that is readily available and freely transferable and convertible into Dollars and is available for all Lenders. In the case of any such request with respect to the making of Eurodollar Rate Loans, such request shall be subject to the approval of the Administrative Agent and the Lenders; and in the case of any such request with respect to the issuance of Letters of Credit, such request shall be subject to the approval of the Administrative Agent and the L/C Issuer.

(b) Any such request shall be made to the Administrative Agent not later than 11:00 a.m., 20 Business Days prior to the date of the desired Credit Extension (or such other time or date as may be agreed by the Administrative Agent and, in the case of any such request pertaining to Letters of Credit, the L/C Issuer, in its or their sole discretion). In the case of any such request pertaining to Eurodollar Rate Loans, the Administrative

 

6


Agent shall promptly notify each Lender thereof; and in the case of any such request pertaining to Letters of Credit, the Administrative Agent shall promptly notify the L/C Issuer thereof. Each Lender (in the case of any such request pertaining to Eurodollar Rate Loans) or the L/C Issuer (in the case of a request pertaining to Letters of Credit) shall notify the Administrative Agent, not later than 11:00 a.m., ten Business Days after receipt of such request whether it consents, in its sole discretion, to the making of Eurodollar Rate Loans or the issuance of Letters of Credit, as the case may be, in such requested currency.

(c) Any failure by a Lender or the L/C Issuer, as the case may be, to respond to such request within the time period specified in the preceding sentence shall be deemed to be a refusal by such Lender or the L/C Issuer, as the case may be, to permit Eurodollar Rate Loans to be made or Letters of Credit to be issued in such requested currency. If the Administrative Agent and all the Lenders consent to making Eurodollar Rate Loans in such requested currency, the Administrative Agent shall so notify the Borrower and such currency shall thereupon be deemed for all purposes to be an Alternative Currency hereunder for purposes of any Revolving Borrowings of Eurodollar Rate Loans; and if the Administrative Agent and the L/C Issuer consent to the issuance of Letters of Credit in such requested currency, the Administrative Agent shall so notify the Borrower and such currency shall thereupon be deemed for all purposes to be an Alternative Currency hereunder for purposes of any Letter of Credit issuances by the L/C Issuer. If the Administrative Agent shall fail to obtain consent to any request for an additional currency under this Section 1.08 , the Administrative Agent shall promptly so notify the Borrower.

(j) Section 2.01 of the Credit Agreement is hereby amended to read as follows:

2.01 Revolving Loans. Subject to the terms and conditions set forth herein, each Lender with a Revolving Commitment severally agrees to make loans (each such loan, a “ Revolving Loan ”) to the Borrower in Dollars or in one or more Alternative Currencies from time to time, on any Business Day during the Revolving Availability Period, in an aggregate amount not to exceed at any time outstanding the amount of such Lender’s Revolving Commitment; provided , however , that after giving effect to any Revolving Borrowing, (i) the Total Revolving Outstandings and the Outstanding Amount of all Swing Line Loans shall not exceed the Aggregate Revolving Commitment, (ii) the aggregate Outstanding Amount of the Revolving Loans of any Lender, plus such Lender’s Revolving Pro Rata Share of the Outstanding Amount of all L/C Obligations, plus such Lender’s Revolving Pro Rata Share of the Outstanding Amount of all Swing Line Loans shall not exceed such Lender’s Revolving Commitment, and (iii) the aggregate Outstanding Amount of all Revolving Loans denominated in Alternative Currencies shall not exceed the Alternative Currency Sublimit. Within the limits of each Lender’s Revolving Commitment, and subject to the other terms and conditions hereof, the Borrower may borrow under this Section 2.01 , prepay under Section 2.06 , and reborrow under this Section 2.01 . Revolving Loans may be Base Rate Loans and/or Eurodollar Rate Loans, as further provided herein.

 

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(k) Section 2.03 of the Credit Agreement is hereby amended to read as follows:

2.03 Borrowings, Conversions and Continuations of Loans.

(a) Each Borrowing, each conversion of Loans from one Type to the other, and each continuation of Eurodollar Rate Loans shall be made upon the Borrower’s irrevocable notice to the Administrative Agent, which may be given by telephone. Each such notice must be received by the Administrative Agent not later than 11:00 a.m. (i) three Business Days prior to the requested date of any Borrowing of, conversion to or from, or continuation of, Eurodollar Rate Loans denominated in Dollars, (ii) five Business Days prior to the requested date of any Borrowing of, conversion to, or continuation of, Eurodollar Rate Loans denominated in Alternative Currencies, and (iii) on the requested date of any Borrowing of Base Rate Loans. Each telephonic notice by the Borrower pursuant to this Section 2.03(a) must be confirmed promptly by delivery to the Administrative Agent of a written Revolving Loan Notice or Term Loan Notice, as applicable, appropriately completed and signed by a Responsible Officer of the Borrower. Each Borrowing of, conversion to or continuation of Eurodollar Rate Loans shall be in a principal amount of $1,000,000 or a whole multiple of $500,000 in excess thereof. Except as provided in Sections 2.04(c) and 2.05(c) , each Borrowing of or conversion to Base Rate Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof; provided that notwithstanding the above the initial Eurodollar Rate Loan which is denominated in an Alternative Currency may be in an amount agreed upon by the Borrower and the Administrative Agent. Each Revolving Loan Notice or Term Loan Notice, as applicable (whether telephonic or written), shall specify (i) whether the Borrower is requesting a Borrowing, a conversion of Loans from one Type to the other, or a continuation of Eurodollar Rate Loans, (ii) the requested date of the Borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (iii) the principal amount of Loans to be borrowed, converted or continued, (iv) the Type of Loans to be borrowed or to which existing Loans are to be converted, (v) if applicable, the duration of the Interest Period with respect thereto, and (vi) if a Revolving Loan, the currency of such Loan to be borrowed. If the Borrower fails to specify a Type of Loan in a Revolving Loan Notice or Term Loan Notice, as applicable, or if the Borrower fails to give a timely notice requesting a conversion or continuation, then the applicable Loans shall be made as, or converted to, Base Rate Loans; provided , however , that in the case of a failure to timely request a continuation of Revolving Loans denominated in an Alternative Currency, such Loans shall be continued as Eurodollar Rate Loans in their original currency with an Interest Period of one month. Any such automatic conversion to Base Rate Loans shall be effective as of the last day of the Interest Period then in effect with respect to the applicable Eurodollar Rate Loans. If the Borrower requests a Borrowing of, conversion to, or continuation of Eurodollar Rate Loans in any such Revolving Loan Notice or Term Loan Notice, as applicable, but fails to specify an Interest Period, it will be deemed to have specified an Interest Period of one month. No Revolving Loan may be converted into or converted as a Revolving Loan denominated in a different currency, but instead must be prepaid in the original currency of such Revolving Loan and reborrowed in the other currency.

 

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(b) Following receipt of a Revolving Loan Notice or Term Loan Notice, as applicable, the Administrative Agent shall promptly notify each Lender of the amount of its Revolving Pro Rata Share or Term Pro Rata Share of the applicable Loans, and if no timely notice of a conversion or continuation is provided by the Borrower, the Administrative Agent shall notify each Lender of the details of any automatic conversion to Base Rate Loans described in the preceding subsection. In the case of a Revolving Borrowing or the Term Borrowing, each Lender shall make the amount of its Loan available to the Administrative Agent in Same Day Funds at the Administrative Agent’s Office not later than 1:00 p.m. in the case of a Revolving Loan denominated in Dollars and not later than the Applicable Time specified by the Administrative Agent in the case of any Revolving Loan in an Alternative Currency, in each case on the Business Day specified in the applicable Loan Notice. Upon satisfaction of the applicable conditions set forth in Section 4.02 (and, if such Borrowing is the initial Credit Extension, Section 4.01 ), the Administrative Agent shall make all funds so received available to the Borrower in like funds as received by the Administrative Agent either by (i) crediting the account of the Borrower on the books of Bank of America with the amount of such funds or (ii) wire transfer of such funds, in each case in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the Borrower; provided , however , that if, on the date the Revolving Loan Notice with respect to such Borrowing denominated in Dollars is given by the Borrower, there are Swing Line Loans or L/C Borrowings outstanding, then the proceeds of such Borrowing shall be applied, first , to the payment in full of any such L/C Borrowings, second , to the payment in full of any such Swing Line Loans, and third , to the Borrower as provided above.

(c) Except as otherwise provided herein, a Eurodollar Rate Loan may be continued or converted only on the last day of an Interest Period for such Eurodollar Rate Loan. During the existence of a Default, no Loans may be requested as, converted to or continued as Eurodollar Rate Loans (whether in Dollars or an Alternative Currency) without the consent of the Required Lenders, and during the existence of an Event of Default, the Required Lenders may demand that any or all of the outstanding Eurodollar Rate Loans denominated in an Alternative Currency be prepaid or redenominated into Dollars in the amount of the Dollar Equivalent thereof, on the last day of the Interest Period with respect thereto.

(d) The Administrative Agent shall promptly notify the Borrower and the Lenders of the interest rate applicable to any Interest Period for Eurodollar Rate Loans upon determination of such interest rate. The determination of the Eurodollar Rate by the Administrative Agent shall be conclusive in the absence of manifest error. At any time that Base Rate Loans are outstanding, the Administrative Agent shall notify the Borrower and the Lenders of any change in Bank of America’s prime rate used in determining the Base Rate promptly following the public announcement of such change.

(e) After giving effect to all Borrowings, all conversions of Loans from one Type to the other, and all continuations of Loans as the same Type, there shall not be more than five Interest Periods in effect with respect to Revolving Loans and two with respect to Term Loans.

 

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(l) Section 2.04(a)(i) of the Credit Agreement is hereby amended to read as follows:

Section 2.04 Letters of Credit.

(a) The Letter of Credit Commitment .

(i) Subject to the terms and conditions set forth herein, (A) the L/C Issuer agrees, in reliance upon the agreements of the other Lenders set forth in this Section 2.04 , (1) from time to time on any Business Day during the period from the Closing Date until the Letter of Credit Expiration Date, to issue Letters of Credit denominated in Dollars or in one or more Alternative Currencies for the account of the Borrower or its Subsidiaries, and to amend or extend Letters of Credit previously issued by it, in accordance with subsection (b) below, and (2) to honor drawings under the Letters of Credit; and (B) the Lenders with Revolving Commitments severally agree to participate in Letters of Credit issued for the account of the Borrower or its Subsidiaries and any drawings thereunder; provided that the L/C Issuer shall not be obligated to make any L/C Credit Extension with respect to any Letter of Credit, and no Lender shall be obligated to participate in any Letter of Credit if as of the date of such L/C Credit Extension, (w) the Total Revolving Outstandings would exceed the Aggregate Revolving Commitment, (x) the aggregate Outstanding Amount of the Revolving Loans of any Lender, plus such Lender’s Revolving Pro Rata Share of the Outstanding Amount of all L/C Obligations, plus such Lender’s Revolving Pro Rata Share of the Outstanding Amount of all Swing Line Loans would exceed such Lender’s Revolving Commitment, (y) the Outstanding Amount of the L/C Obligations would exceed the Letter of Credit Sublimit, or (z) the aggregate Outstanding Amount of L/C Obligations and Revolving Loans denominated in Alternative Currencies shall not exceed the Alternative Currency Sublimit. Each request by the Borrower for the issuance or amendment of a Letter of Credit shall be deemed to be a representation by the Borrower that the L/C Credit Extension so requested complies with the conditions set forth in the proviso to the preceding sentence. Within the foregoing limits, and subject to the terms and conditions hereof, the Borrower’s ability to obtain Letters of Credit shall be fully revolving, and accordingly the Borrower may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed. All Existing Letters of Credit shall be deemed to have been issued pursuant hereto, and from and after the Closing Date shall be subject to and governed by the terms and conditions hereof.

(m) Section 2.04(a)(iii)(C) of the Credit Agreement is hereby amended to read as follows:

(C) such Letter of Credit is to be denominated in a currency other than Dollars or an Alternative Currency.

(n) Section 2.04(b)(i) of the Credit Agreement is hereby amended to read as follows:

(i) Each Letter of Credit shall be issued or amended, as the case may be, upon the request of the Borrower delivered to the L/C Issuer (with a copy to the Administrative

 

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Agent) in the form of a Letter of Credit Application, appropriately completed and signed by a Responsible Officer of the Borrower. Such Letter of Credit Application must be received by the L/C Issuer and the Administrative Agent not later than 11:00 a.m. at least two Business Days (or such later date and time as the Administrative Agent and the L/C Issuer may agree in a particular instance in their sole discretion) prior to the proposed issuance date or date of amendment, as the case may be. In the case of a request for an initial issuance of a Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the L/C Issuer: (A) the proposed issuance date of the requested Letter of Credit (which shall be a Business Day); (B) the amount and currency thereof; (C) the expiry date thereof; (D) the name and address of the beneficiary thereof; (E) the documents to be presented by such beneficiary in case of any drawing thereunder; (F) the full text of any certificate to be presented by such beneficiary in case of any drawing thereunder; (G) the purpose and nature of the requested Letter of Credit; and (H) such other matters as the L/C Issuer may require. In the case of a request for an amendment of any outstanding Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the L/C Issuer (A) the Letter of Credit to be amended; (B) the proposed date of amendment thereof (which shall be a Business Day); (C) the nature of the proposed amendment; and (D) such other matters as the L/C Issuer may require. Additionally, the Borrower shall furnish to the L/C Issuer and the Administrative Agent such other documents and information pertaining to such requested Letter of Credit issuance or amendment, including any Issuer Documents, as the L/C Issuer or the Administrative Agent may require.

(o) Section 2.04(c)(i) of the Credit Agreement is amended to read as follows:

(c) Upon receipt from the beneficiary of any Letter of Credit of any notice of a drawing under such Letter of Credit, the L/C Issuer shall notify the Borrower and the Administrative Agent thereof. In the case of a Letter of Credit denominated in an Alternative Currency, the Borrower shall reimburse the L/C Issuer in such Alternative Currency, unless (A) the L/C Issuer (at its option) shall have specified in such notice that it will require reimbursement in Dollars, or (B) in the absence of any such requirement for reimbursement in Dollars, the Borrower shall have notified the L/C Issuer promptly following receipt of the notice of drawing that the Borrower will reimburse the L/C Issuer in Dollars. In the case of any such reimbursement in Dollars of a drawing under a Letter of Credit denominated in an Alternative Currency, the L/C Issuer shall notify the Borrower of the Dollar Equivalent of the amount of the drawing promptly following the determination thereof. Not later than 11:00 a.m. on the date of any payment by the L/C Issuer under a Letter of Credit to be reimbursed in Dollars, or the Applicable Time on the date of any payment by the L/C Issuer under a Letter of Credit to be reimbursed in an Alternative Currency (each such date, an “ Honor Date ”), the Borrower shall reimburse the L/C Issuer through the Administrative Agent in an amount equal to the amount of such drawing. If the Borrower fails to so reimburse the L/C Issuer by such time, the Administrative Agent shall promptly notify each Lender of the Honor Date, the amount of the unreimbursed drawing (expressed in Dollars in the amount of the Dollar Equivalent thereof in the case of a Letter of Credit denominated in an Alternative Currency) (the “ Unreimbursed Amount ”), and the amount of such Lender’s Revolving

 

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Pro Rata Share thereof. In such event, the Borrower shall be deemed to have requested a Borrowing of Base Rate Loans to be disbursed on the Honor Date in an amount equal to the Unreimbursed Amount, without regard to the minimum and multiples specified in Section 2.03 for the principal amount of Base Rate Loans, but subject to the amount of the unutilized portion of the Aggregate Revolving Commitment and the conditions set forth in Section 4.02 (other than the delivery of a Revolving Loan Notice). Any notice given by the L/C Issuer or the Administrative Agent pursuant to this Section 2.04(c)(i) may be given by telephone if immediately confirmed in writing; provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice.

(p) Section 2.04(c)(ii) of the Credit Agreement is hereby amended to read as follows:

(ii) Each Lender with a Revolving Commitment (including the Lender acting as L/C Issuer) shall upon any notice pursuant to Section 2.04(c)(i) make funds available to the Administrative Agent for the account of the L/C Issuer, in Dollars, at the Administrative Agent’s Office for Dollar-denominated payments in an amount equal to its Revolving Pro Rata Share of the Unreimbursed Amount not later than 1:00 p.m. on the Business Day specified in such notice by the Administrative Agent, whereupon, subject to the provisions of Section 2.04(c)(iii) , each such Lender that so makes funds available shall be deemed to have made a Base Rate Loan to the Borrower in such amount. The Administrative Agent shall remit the funds so received to the L/C Issuer in Dollars.

(q) Section 2.04(c)(vi) of the Credit Agreement is hereby amended to read as follows:

(vi) If any Lender fails to make available to the Administrative Agent for the account of the L/C Issuer any amount required to be paid by such Lender pursuant to the foregoing provisions of this Section 2.04(c) by the time specified in Section 2.04(c)(ii) , the L/C Issuer shall be entitled to recover from such Lender (acting through the Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to the L/C Issuer at a rate per annum equal to the applicable Overnight Rate from time to time in effect, plus any administrative, processing or similar fees customarily charged by the L/C Issuer in connection with the foregoing. If such Lender pays such amount (with interest and fees as aforesaid), the amount so paid shall constitute such Lender’s Revolving Loan included in the relevant Revolving Borrowing or L/C Advance in respect of the L/C Borrowing, as the case may be. A certificate of the L/C Issuer submitted to any Lender (through the Administrative Agent) with respect to any amounts owing under this clause (vi) shall be conclusive absent manifest error.

(r) Section 2.04(d) of the Credit Agreement is amended to read as follows:

(d) Repayment of Participations .

(i) At any time after the L/C Issuer has made a payment under any Letter of Credit and has received from any Lender such Lender’s L/C Advance in

 

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respect of such payment in accordance with Section 2.04(c) , if the Administrative Agent receives for the account of the L/C Issuer any payment in respect of the related Unreimbursed Amount or interest thereon (whether directly from the Borrower or otherwise, including proceeds of Cash Collateral applied thereto by the Administrative Agent), the Administrative Agent will distribute to such Lender its Revolving Pro Rata Share thereof in Dollars (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender’s L/C Advance was outstanding) in the same funds as those received by the Administrative Agent.

(ii) If any payment received by the Administrative Agent for the account of the L/C Issuer pursuant to Section 2.04(c)(i) is required to be returned under any of the circumstances described in Section 10.05 (including pursuant to any settlement entered into by the L/C Issuer in its discretion), each such Lender shall pay to the Administrative Agent for the account of the L/C Issuer its Revolving Pro Rata Share thereof on demand of the Administrative Agent, plus interest thereon from the date of such demand to the date such amount is returned by such Lender, at a rate per annum equal to the applicable Overnight Rate from time to time in effect. The obligations of the Lenders under this clause shall survive the payment in full of the Obligations and the termination of this Agreement.

(s) Section 2.04(e) of the Credit Agreement is hereby amended by (i) deleting “or” after the end of clause (iv) thereof, (ii) re-lettering clause “(v)” thereto as clause “(vi)” and (iii) adding a new clause (v) thereto that reads as follows:

(v) any adverse change in the relevant exchange rates or in the availability of the relevant Alternative Currency to the Borrower or any Subsidiary or in the relevant currency markets generally; or

(t) Section 2.04(i) and (j)  of the Credit Agreement are hereby amended to read as follows:

(i) Letter of Credit Fees . The Borrower shall pay to the Administrative Agent for the account of each Lender in accordance with its Revolving Pro Rata Share, in Dollars, a letter of credit fee (the “ Letter of Credit Fee ”) for each Letter of Credit equal to the Applicable Rate times the Dollar Equivalent of the daily amount available to be drawn under such Letter of Credit. For purposes of computing the daily amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.07 . Such Letter of Credit Fees shall be computed on a quarterly basis in arrears. Such letter of credit fees shall be due and payable on the first Business Day after the end of each March, June, September and December, commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand. If there is any change in the Applicable Rate during any quarter, the daily amount of each Letter of Credit shall be computed and multiplied by the Applicable Rate separately for each

 

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period during such quarter that such Applicable Rate was in effect. Notwithstanding anything to the contrary contained herein, upon the request of the Required Lenders, while any Event of Default exists, all Letter of Credit Fees shall accrue at the Default Rate.

(j) Fronting Fee and Documentary and Processing Charges Payable to L/C Issuer . The Borrower shall pay directly to the L/C Issuer for its own account, in Dollars, a fronting fee with respect to each Letter of Credit in the amount specified in the Fee Letter and computed on the Dollar Equivalent thereof. With respect to standby Letters of Credit, such fronting fee shall be computed on a quarterly basis in arrears. Such fronting fee shall be due and payable on the first Business Day after the end of each March, June, September and December, commencing with the first such date to occur after the issuance of such Letter of Credit, or the Letter of Credit Expiration Date and thereafter on demand. With respect to commercial Letters of Credit, such fronting fee shall be computed and paid on the date of issuance and on the date of any increase with respect to any commercial Letter of Credit. For purposes of computing the daily amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.07 . In addition, the Borrower shall pay directly to the L/C Issuer for its own account, in Dollars, the customary issuance, presentation, amendment and other processing fees, and other standard costs and charges, of the L/C Issuer relating to letters of credit as from time to time in effect. Such customary fees and standard costs and charges are due and payable on demand and are nonrefundable.

(u) Section 2.05(c)(i) of the Credit Agreement is hereby amended to read as follows:

(i) The Swing Line Lender at any time in its sole and absolute discretion may request, on behalf of the Borrower (which hereby irrevocably authorizes the Swing Line Lender to so request on its behalf), that each Lender with a Revolving Commitment make a Base Rate Loan in an amount equal to such Lender’s Revolving Pro Rata Share of the amount of Swing Line Loans then outstanding. Such request shall be made in writing (which written request shall be deemed to be a Revolving Loan Notice for purposes hereof) and in accordance with the requirements of Section 2.03 , without regard to the minimum and multiples specified therein for the principal amount of Base Rate Loans, but subject to the unutilized portion of the Aggregate Revolving Commitment and the conditions set forth in Section 4.02 . The Swing Line Lender shall furnish the Borrower with a copy of the applicable Loan Notice promptly after delivering such notice to the Administrative Agent. Each such Lender shall make an amount equal to its Revolving Pro Rata Share of the amount specified in such Loan Notice available to the Administrative Agent in Same Day Funds for the account of the Swing Line Lender at the Administrative Agent’s Office for Dollar-denominated payments not later than 1:00 p.m. on the day specified in such Loan Notice, whereupon, subject to Section 2.05(c)(ii) , each such Lender that so makes funds available shall be deemed to have made a Base Rate Loan to the Borrower in such amount. The Administrative Agent shall remit the funds so received to the Swing Line Lender.

(v) Section 2.05(c)(iii) of the Credit Agreement is hereby amended to read as follows:

 

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(iii) If any such Lender fails to make available to the Administrative Agent for the account of the Swing Line Lender any amount required to be paid by such Lender pursuant to the foregoing provisions of this Section 2.05(c) by the time specified in Section 2.05(c)(i) , the Swing Line Lender shall be entitled to recover from such Lender (acting through the Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to the Swing Line Lender at a rate per annum equal to the Overnight Rate from time to time in effect, plus any administrative processing or similar fees customarily charged by the Swing Line Lender in connection with the foregoing. If such Lender pays such amount (with interest and fees as aforesaid), the amount so paid shall constitute such Lender’s Revolving Loan included in the relevant Revolving Borrowing or funded participation in the relevant Swing Line Loan, as the case may be. A certificate of the Swing Line Lender submitted to any Lender (through the Administrative Agent) with respect to any amounts owing under this clause (iii) shall be conclusive absent manifest error.

(w) Section 2.06(a) of the Credit Agreement is hereby amended to read as follows:

(a) The Borrower may, upon notice to the Administrative Agent, at any time or from time to time voluntarily prepay Revolving Loans or Term Loans in whole or in part without premium or penalty; provided that (i) such notice must be received by the Administrative Agent not later than 11:00 a.m. (A) three Business Days prior to any date of prepayment of Eurodollar Rate Loans denominated in Dollars, (B) five Business Days prior to any date of prepayment of Eurocurrency Rate Loans denominated in Alternative Currencies, and (C) on the date of prepayment of Base Rate Loans; (ii) any prepayment of Eurodollar Rate Loans shall be in a principal amount of $2,000,000 or a whole multiple of $500,000 in excess thereof; and (iii) any prepayment of Base Rate Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof or, in each case, if less, the entire principal amount thereof then outstanding. Each such notice shall specify the date and amount of such prepayment and the Type(s) of Loans to be prepaid and whether such Loan is a Revolving Loan or a Term Loan. The Administrative Agent will promptly notify each Lender of its receipt of each such notice, and of the amount of such Lender’s Pro Rata Share of such prepayment. If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein. Any prepayment of a Eurodollar Rate Loan shall be accompanied by all accrued interest thereon, together with any additional amounts required pursuant to Section 3.05 . Each such prepayment shall be applied to the Revolving Loans or the Term Loans, as the case may be, of the Lenders in accordance with their respective Pro Rata Shares of such Loan. Any voluntary prepayments of the Term Loans shall be applied pro rata to all of the unpaid scheduled installment payments of the Term Loan.

(x) Section 2.06 of the Credit Agreement is hereby amended by adding a new subsection (g) thereto to read as follows:

 

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(g) If the Administrative Agent notifies the Borrower at any time that the Outstanding Amount of all Loans and L/C Obligations denominated in Alternate Currencies at such time exceeds an amount equal to 105% of the Alternative Currency Sublimit then in effect, then, within two Business Days after receipt of such notice, the Borrower shall prepay Loans in an aggregate amount sufficient to reduce such Outstanding Amount as of such date of payment to an amount not to exceed 100% of the Alternative Currency Sublimit then in effect.

(y) Section 2.07 of the Credit Agreement is hereby amended to read as follows:

Section 2.07 Termination or Reduction of Commitments. The Borrower may, upon notice to the Administrative Agent, terminate the Aggregate Revolving Commitment, or from time to time permanently reduce the Aggregate Revolving Commitment; provided that (i) any such notice shall be received by the Administrative Agent not later than 11:00 a.m. five Business Days prior to the date of termination or reduction, (ii) any such partial reduction shall be in an aggregate amount of $5,000,000 or any whole multiple of $1,000,000 in excess thereof, (iii) the Borrower shall not terminate or reduce the Aggregate Revolving Commitment if, after giving effect thereto and to any concurrent prepayments hereunder, the Total Revolving Outstandings and Outstanding Amount of Swing Line Loans would exceed the Aggregate Revolving Commitment, and (iv) if, after giving effect to any reduction of the Aggregate Revolving Commitment, the Alternative Currency Sublimit, the Letter of Credit Sublimit or the Swing Line Sublimit exceeds the amount of the Aggregate Revolving Commitment, such Sublimit shall be automatically reduced by the amount of such excess. The Administrative Agent will promptly notify the Lenders of any such notice of termination or reduction of the Aggregate Revolving Commitment. The amount of any such Aggregate Commitment reduction shall not be applied to the Alternative Currency Sublimit or the Letter of Credit Sublimit unless otherwise specified by the Borrower. Any reduction of the Aggregate Revolving Commitment shall be applied to the Revolving Commitment of each Lender according to its Revolving Pro Rata Share. All Revolving Commitment Fees accrued until the effective date of any termination of the Aggregate Revolving Commitment shall be paid on the effective date of such termination.

(z) Section 2.09(a) of the Credit Agreement is hereby amended to read as follows:

(a) Subject to the provisions of subsection (b) below, (i) each Eurodollar Rate Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the lesser of (y) the Highest Lawful Rate or (z) the Eurodollar Rate for such Interest Period plus the Applicable Rate for Eurodollar Rate Loans plus (in the case of a Eurodollar Rate Loan of any Lender which is lent from a Lending Office in the United Kingdom or a Participating Member State) the Mandatory Cost; (ii) each Base Rate Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the lesser of (y) the Highest Lawful Rate or (z) the Base Rate plus the Applicable Rate for Base Rate Loans; and (iii) each Swing Line Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the lesser

 

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of (y) the Highest Lawful Rate or (z) the Base Rate plus the Applicable Rate for Base Rate Loans.

(aa) Section 2.10 of the Credit Agreement is hereby amended to read as follows:

Section 2.10 Fees. In addition to certain fees described in subsections (i) and (j) of Section 2.04 :

(a) The Borrower shall pay to the Administrative Agent for the account of each Lender with a Revolving Commitment in accordance with its Revolving Pro Rata Share, a commitment fee, in Dollars, (the “ Revolving Commitment Fee ”) equal to the Applicable Rate times the actual daily amount by which the Aggregate Revolving Commitment exceed the sum of (i) the Outstanding Amount of Revolving Loans and (ii) the Outstanding Amount of L/C Obligations. The Revolving Commitment Fee shall accrue at all times during the Revolving Availability Period, including at any time during which one or more of the conditions in Article IV is not met, and shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December, commencing with the first such date to occur after the Closing Date, and on the Revolving Maturity Date. The Revolving Commitment Fee shall be calculated quarterly in arrears, and if there is any change in the Applicable Rate during any quarter, the actual daily amount shall be computed and multiplied by the Applicable Rate separately for each period during such quarter that such Applicable Rate was in effect. For purposes of computation of the Revolving Commitment Fee, Swing Line Loans shall not be counted toward or considered usage of the Aggregate Revolving Commitment.

(b) The Borrower shall pay to the Arranger and the Administrative Agent for their own respective accounts, in Dollars, fees in the amounts and at the times specified in the Fee Letter. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever.

(bb) Section 2.11 of the Credit Agreement is hereby amended to read as follows:

Section 2.11 Computation of Interest and Fees. All computations of interest for Base Rate Loans when the Base Rate is determined by Bank of America’s “prime rate” shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. Subject to Section 10.10 , all other computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more fees or interest, as applicable, being paid than if computed on the basis of a 365-day year), or, in the case of interest in respect of Revolving Loans denominated in Alternative Currencies as to which market practice differs from the foregoing, in accordance with such market practice. Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid, provided that any Loan that is repaid on the same day on which it is made shall, subject to Section 2.13(a) , bear interest for one day. Each

 

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determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.

(cc) Section 2.13(a) and (b)  of the Credit Agreement is hereby amended to read as follows:

(a) All payments to be made by the Borrower shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, and except with respect to principal and interest on Loans denominated in an Alternative Currency, all payments by the Borrower hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the Administrative Agent’s Office in Dollars and in Same Day Funds not later than 12:00 noon on the date specified herein. Except as otherwise expressly provided herein, all payments by the Borrower hereunder with respect to principal and interest on Loans denominated in an Alternative Currency shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the applicable Administrative Agent’s Office in such Alternative Currency and in Same Day Funds not later than the Applicable Time specified by the Administrative Agent on the date specified herein. Without limiting the generality of the foregoing, the Administrative Agent may require any payments due under this Agreement be made in the United States. If, for any reason, the Borrower is prohibited by any Law from making any required payment hereunder in an Alternative Currency, the Borrower shall make such payment in Dollars in the Dollar Equivalent of the Alternative Currency payment amount. The Administrative Agent will promptly distribute to each Lender its applicable Pro Rata Share (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to such Lender’s Lending Office. All payments received by the Administrative Agent after (i) 12:00 noon, in the case of payments in Dollars, or (ii) after the Applicable Time specified by the Administrative Agent in the case of payments in an Alternative Currency, shall in each case be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue. If any payment to be made by the Borrower shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be.

(b)(i) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2.03 and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent in Same Day Funds, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount in Same Day Funds with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the

 

18


Administrative Agent, at (A) in the case of a payment to be made by such Lender, the Overnight Rate, plus any administrative, processing or similar fees customarily charged by the Administrative Agent in connection with the foregoing, and (B) in the case of a payment to be made by the Borrower, the interest rate applicable to Base Rate Loans. If the Borrower and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrower the amount of such interest paid by the Borrower for such period. If such Lender pays its share of the applicable Borrowing to the Administrative Agent, then the amount so paid shall constitute such Lender’s Loan included in such Borrowing. Any payment by the Borrower shall be without prejudice to any claim the Borrower may have against a Lender that shall have failed to make such payment to the Administrative Agent.

(ii) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the L/C Issuer hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the L/C Issuer, as the case may be, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders or the L/C Issuer, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or the L/C Issuer, in Same Day Funds with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the Overnight Rate.

(dd) Section 3.02 of the Credit Agreement is hereby amended to read as follows:

Section 3.02 Illegality. If any Lender determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make, maintain or fund Eurodollar Rate Loans (whether denominated in Dollars or an Alternative Currency), or to determine or charge interest rates based upon the Eurodollar Rate or any Governmental Authority has imposed material restrictions on the authority of such Lender to purchase or sell, or to take deposits of, Dollars or any Alternative Currency in the applicable interbank market, then, on notice thereof by such Lender to the Borrower through the Administrative Agent, any obligation of such Lender to make or continue Eurodollar Rate Loans in the affected currency or currencies, or in the case of Eurodollar Rate Loans in Dollars, to convert Base Rate Loans to Eurodollar Rate Loans, shall be suspended until such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the Borrower shall, upon demand from such Lender (with a copy to the Administrative Agent), prepay or, if applicable, and such Loans are denominated in Dollars, convert all Eurodollar Rate Loans of such Lender to Base Rate Loans, either on the last day of the Interest Period therefor,

 

19


if such Lender may lawfully continue to maintain such Eurodollar Rate Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such Eurodollar Rate Loans. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted.

(ee) Section 3.03 of the Credit Agreement is hereby amended to read as follows:

Section 3.03 Inability to Determine Rates. If the Required Lenders determine that for any reason in connection with any request for a Eurodollar Rate Loan or a conversion to or continuation thereof that (a) deposits (whether in Dollars or an Alternative Currency) are not being offered to banks in the applicable offshore interbank market for such currency for the applicable amount and Interest Period of such Eurodollar Rate Loan, (b) adequate and reasonable means do not exist for determining the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan (whether denominated in Dollars or an Alternative Currency), or (c) the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan does not adequately and fairly reflect the cost to such Lenders of funding such Loan, the Administrative Agent will promptly so notify the Borrower and each Lender. Thereafter, the obligation of the Lenders to make or maintain Eurodollar Rate Loans in the affected currency or currencies shall be suspended until the Administrative Agent (upon the instruction of the Required Lenders) revokes such notice. Upon receipt of such notice, the Borrower may revoke any pending request for a Borrowing of, conversion to or continuation of Eurodollar Rate Loans in the affected currency or currencies or, failing that, will be deemed to have converted such request into a request for a Revolving Borrowing of Base Rate Loans in the amount specified therein.

(ff) Section 3.04(a) of the Credit Agreement is hereby amended to read as follows:

(a) If any Change in Law shall:

(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except (A) any reserve requirement contemplated by Section 3.04(e) and (B) the requirements of the Bank of England and the Financial Services Authority or the European Central Bank reflected in the Mandatory Cost, other than as set forth below) or the L/C Issuer;

(ii) subject any Lender or the L/C Issuer to any tax of any kind whatsoever with respect to this Agreement, any Letter of Credit, any participation in a Letter of Credit or any Eurodollar Loan made by it, or change the basis of taxation of payments to such Lender or the L/C Issuer in respect thereof (except for Indemnified Taxes or Other Taxes covered by Section 3.01 and the imposition of, or any change in the rate of, any Excluded Tax payable by such Lender or the L/C Issuer);

 

20


(iii) result in the failure of the Mandatory Cost, as calculated hereunder, to represent the cost to any Lender of complying with the requirements of the Bank of England and/or the Financial Services Authority or the European Central Bank in relation to its making, funding or maintaining Eurocurrency Rate Loans; or

(iv) impose on any Lender or the L/C Issuer or the London interbank market any other condition, cost or expense affecting this Agreement or Eurodollar Loans made by such Lender or any Letter of Credit or participation therein;

and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan), or to increase the cost to such Lender or the L/C Issuer of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender or the L/C Issuer hereunder (whether of principal, interest or any other amount) then, upon request of such Lender or the L/C Issuer, the Borrower will pay to such Lender or the L/C Issuer, as the case may be, such additional amount or amounts as will compensate such Lender or the L/C Issuer, as the case may be, for such additional costs incurred or reduction suffered.

(gg) Section 3.05 of the Credit Agreement is hereby amended to read as follows:

Section 3.05 Compensation for Losses. Upon demand of any Lender (with a copy to the Administrative Agent) from time to time, the Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of:

(a) any continuation, conversion, payment or prepayment of any Loan other than a Base Rate Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise);

(b) any failure by the Borrower (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, continue or convert any Loan other than a Base Rate Loan on the date or in the amount notified by the Borrower;

(c) any failure by the Borrower to make payment of any Loan or drawing under any Letter of Credit (or interest due thereon) denominated in an Alternative Currency on its scheduled due date or any payment thereof in a different currency; or

(d) any assignment of a Eurodollar Rate Loan on a day other than the last day of the Interest Period therefor as a result of a request by the Borrower pursuant to Section 10.16 ;

 

21


including any loss of anticipated profits, any foreign exchange losses and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained or from the performance of any foreign exchange contract. The Borrower shall also pay any customary administrative fees charged by such Lender in connection with the foregoing.

For purposes of calculating amounts payable by the Borrower to the Lenders under this Section 3.05 , each Lender shall be deemed to have funded each Eurodollar Rate Loan made by it at the Eurodollar Rate for such Loan by a matching deposit or other borrowing in the offshore interbank market for such currency for a comparable amount and for a comparable period, whether or not such Eurodollar Rate Loan was in fact so funded.

(hh) Section 4.02 of the Credit Agreement is hereby amended by adding a new subsection (e) thereto to read as follows:

(e) In the case of a Credit Extension to be denominated in an Alternative Currency, there shall not have occurred any change in national or international financial, political or economic conditions or currency exchange rates or exchange controls which in the reasonable opinion of the Administrative Agent, the Required Lenders (in the case of any Loans to be denominated in an Alternative Currency) or the L/C Issuer (in the case of any Letter of Credit to be denominated in an Alternative Currency) would make it impracticable for such Credit Extension to be denominated in the relevant Alternative Currency.

(ii) Article X of the Credit Agreement is hereby amended by adding a new Section 10.20 thereto to read as follows:

Section 10.20 Judgment Currency. If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder or any other Loan Document in one currency into another currency, the rate of exchange used shall be that at which in accordance with normal banking procedures the Administrative Agent could purchase the first currency with such other currency on the Business Day preceding that on which final judgment is given. The obligation of the Borrower in respect of any such sum due from it to the Administrative Agent or any Lender hereunder or under the other Loan Documents shall, notwithstanding any judgment in a currency (the “ Judgment Currency ”) other than that in which such sum is denominated in accordance with the applicable provisions of this Agreement (the “ Agreement Currency ”), be discharged only to the extent that on the Business Day following receipt by the Administrative Agent or such Lender, as the case may be, of any sum adjudged to be so due in the Judgment Currency, the Administrative Agent or such Lender, as the case may be, may in accordance with normal banking procedures purchase the Agreement Currency with the Judgment Currency. If the amount of the Agreement Currency so purchased is less than the sum originally due to the Administrative or any Lender from the Borrower in the Agreement Currency, the Borrower agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Administrative Agent or such Lender, as the case may be, against such

 

22


loss. If the amount of the Agreement Currency so purchased is greater than the sum originally due to the Administrative Agent or any Lender in such currency, the Administrative Agent or such Lender, as the case may be, agrees to return the amount of any excess to the Borrower (or to any other Person who may be entitled thereto under Applicable Law).

(jj) The Credit Agreement is hereby further amended by adding a new Schedule 1.02 thereto in the form of Schedule 1.02 to this First Amendment.

(kk) Exhibit A , the form of Revolving Loan Notice, is hereby amended to be in the form of Exhibit A to this First Amendment.

2. COMMITMENT ADJUSTMENTS . Schedules 2.01 and 2.02 to the Credit Agreement are hereby amended to be in the form of Schedules 2.01 and 2.02 to this First Amendment, the Revolving Commitments and Term Commitments of each Increasing Lender, after giving effect to this First Amendment, are set forth on such Schedules 2.01 and 2.02 , respectively, and the Revolving Pro Rata Shares and Term Pro Rata Shares of each Lender after giving effect to this First Amendment, are set forth on such Schedules 2.01 and 2.02 .

3. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT . By its execution and delivery hereof, the Borrower represents and warrants that, as of the date hereof:

(a) the representations and warranties contained in the Credit Agreement and the other Loan Documents are true and correct on and as of the date hereof as made on and as of such date;

(b) no event has occurred and is continuing which constitutes a Default or an Event of Default;

(c)(i) the Borrower has full power and authority to execute and deliver this First Amendment and the replacement Revolving Loan Note and Term Loan Note payable to the order of each Increasing Lender (collectively, the “ Replacement Notes ”), (ii) this First Amendment and the Replacement Notes have been duly executed and delivered by the Borrower, and (iii) this First Amendment, the Replacement Notes, and the Credit Agreement, as amended hereby, constitute the legal, valid and binding obligations of the Borrower, enforceable in accordance with their respective terms, except as enforceability may be limited by applicable Debtor Relief Laws and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and except as rights to indemnity may be limited by federal or state securities laws;

(d) neither the execution, delivery and performance of this First Amendment, the Replacement Notes, or the Credit Agreement, as amended hereby, nor the consummation of any transactions contemplated herein or therein, will conflict with any Law or Organization Documents of the Borrower, or any indenture, agreement or other instrument to which the Borrower or any of its properties are subject; and

 

23


(e) no authorization, approval, consent, or other action by, notice to, or filing with, any governmental authority or other Person not previously obtained is required for (i) the execution, delivery or performance by the Borrower of this First Amendment or the Replacement Notes, or (ii) the acknowledgement by each Guarantor of this First Amendment.

4. CONDITIONS TO EFFECTIVENESS . This First Amendment shall be effective upon satisfaction or completion of the following:

(a) the Administrative Agent shall have received counterparts of this First Amendment executed by the Lenders;

(b) the Administrative Agent shall have received counterparts of this First Amendment executed by the Borrower and acknowledged by each Guarantor;

(c) the Administrative Agent shall have received a certified resolution of the Board of Directors of the Borrower authorizing the execution, delivery and performance of this First Amendment and the Replacement Notes;

(d) the Administrative Agent shall have received an opinion of the Borrower’s General Counsel, in form and substance satisfactory to the Administrative Agent, with respect to matters set forth in Sections 3(c), (d), and (e) of this First Amendment;

(e) the Administrative Agent shall have received a duly executed Replacement Note for each Increasing Lender;

(f) Amegy shall have received payment in full of all amounts due it under the Credit Agreement; and

(g) the Administrative Agent shall have received, in form and substance satisfactory to the Administrative Agent and its counsel, such other documents, certificates and instruments as the Administrative Agent shall require.

5. PURCHASE BY LENDERS . Simultaneously with the satisfaction of conditions to effectiveness set forth in Section 4 of this First Amendment, each Lender shall purchase or sell (as the case may be), without recourse, an amount of Loans and L/C Obligations outstanding such that, after giving effect to this First Amendment, the amount of each Lender’s respective Revolving Commitment and Term Commitment under the Credit Agreement which has been utilized shall be pro rata among the Lenders in the proportion that their respective Revolving Commitments and Term Commitments bear to the aggregate Revolving Commitments and Term Commitments, respectively. If, as a result of purchase or sale provided for in this Section 5, any Lender incurs any funding loss in respect of a Eurodollar Rate Loan, the Borrower agrees to compensate such Lender as provided in Section 3.05 of the Credit Agreement.

6. EXITING LENDER . Upon satisfaction of the conditions set forth in Section 4 of this First Amendment, Amegy shall not (a) be a Lender under the Credit Agreement or (b) have any rights or obligations with respect to being a Lender, except for those that expressly survive termination of the Credit Agreement or termination of any commitments thereunder.

 

24


7. REFERENCE TO THE CREDIT AGREEMENT .

(a) Upon the effectiveness of this First Amendment, each reference in the Credit Agreement to “this Agreement”, “hereunder”, or words of like import shall mean and be a reference to the Credit Agreement, as affected and amended hereby.

(b) The Credit Agreement, as amended by the amendments referred to above, shall remain in full force and effect and is hereby ratified and confirmed.

8. COSTS, EXPENSES AND TAXES . The Borrower agrees to pay on demand all costs and expenses of the Administrative Agent in connection with the preparation, reproduction, execution and delivery of this First Amendment and the other instruments and documents to be delivered hereunder (including the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent with respect thereto).

9. GUARANTOR’S ACKNOWLEDGMENT . By signing below, each Guarantor (a) acknowledges, consents and agrees to the execution, delivery and performance by the Borrower of this First Amendment, (b) acknowledges and agrees that its obligations in respect of its Guaranty (i) are not released, diminished, waived, modified, impaired or affected in any manner by this First Amendment or any of the provisions contemplated herein, (c) ratifies and confirms its obligations under its Guaranty, and (d) acknowledges and agrees that it has no claims or offsets against, or defenses or counterclaims to, its Guaranty.

10. EXECUTION IN COUNTERPARTS . This First Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which when taken together shall constitute but one and the same instrument. For purposes of this First Amendment, a counterpart hereof (or signature page thereto) signed and transmitted by any Person party hereto to the Administrative Agent (or its counsel) by facsimile machine, telecopier or electronic mail is to be treated as an original. The signature of such Person thereon, for purposes hereof, is to be considered as an original signature, and the counterpart (or signature page thereto) so transmitted is to be considered to have the same binding effect as an original signature on an original document.

11. GOVERNING LAW; BINDING EFFECT . This First Amendment shall be governed by and construed in accordance with the laws of the State of Texas applicable to agreements made and to be performed entirely within such state, provided that each party shall retain all rights arising under federal law, and shall be binding upon the parties hereto and their respective successors and assigns.

12. HEADINGS . Section headings in this First Amendment are included herein for convenience of reference only and shall not constitute a part of this First Amendment for any other purpose.

13. ENTIRE AGREEMENT . THE CREDIT AGREEMENT, AS AMENDED BY THIS FIRST AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED

 

25


BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

REMAINDER OF PAGE LEFT INTENTIONALLY BLANK

 

26


IN WITNESS WHEREOF, this First Amendment is executed as of the date first set forth above.

 

TEAM, INC.
By:  

 

  Phillip J. Hawk, Chief Executive Officer

 

27


BANK OF AMERICA, N.A.,

as Administrative Agent

By:  

 

  Suzanne M. Paul
  Vice President

BANK OF AMERICA, N.A.,

as a Lender, L/C Issuer and Swing Line Lender

By:  

 

  Gary L. Mingle
  Senior Vice President

 

28


BRANCH BANKING & TRUST COMPANY,

as a Lender

By:  

 

Name:  

 

Title:  

 

 

29


COMERICA BANK,

as a Lender

By:  

 

Name:  

 

Title:  

 

 

30


COMPASS BANK,

as a Lender

By:  

 

Name:  

 

Title:  

 

 

31


JPMORGAN CHASE BANK, N.A.,

as a Lender

By:  

 

Name:  

 

Title:  

 

 

32


ACKNOWLEDGED AND AGREED FOR

PURPOSES OF SECTION 6 HEREOF ONLY:

AMEGY BANK NATIONAL ASSOCIATION

By:

 

 

Name:

 

 

Title:

 

 

 

33


ACKNOWLEDGED AND AGREED TO:
TEAM INDUSTRIAL SERVICES, INC.
By:  

 

Name:  

 

Title:  

 

TEAM INDUSTRIAL SERVICES

INTERNATIONAL, INC.

By:  

 

Name:  

 

Title:  

 

TEAM INVESTMENT, INC.
By:  

 

Name:  

 

Title:  

 

By:  

 

Name:  

 

Title:  

 

TEAM FACILITIES & SERVICES, L.P.
By:   Team, Inc., its General Partner
By:  

 

Name:  

 

Title:  

 

 

34


AITEC USA INC.

By:  

 

Name:  

 

Title:  

 

AITEC INVESTMENTS USA INC.
By:  

 

Name:  

 

Title:  

 

 

35


SCHEDULE 1.02

MANDATORY COST FORMULAE

 

1. The Mandatory Cost (to the extent applicable) is an addition to the interest rate to compensate Lenders for the cost of compliance with:

 

  (a) the requirements of the Bank of England and/or the Financial Services Authority (or, in either case, any other authority which replaces all or any of its functions); or

 

  (b) the requirements of the European Central Bank.

 

2. On the first day of each Interest Period (or as soon as possible thereafter) the Administrative Agent shall calculate, as a percentage rate, a rate (the “ Additional Cost Rate ”) for each Lender, in accordance with the paragraphs set out below. The Mandatory Cost will be calculated by the Administrative Agent as a weighted average of the Lenders’ Additional Cost Rates (weighted in proportion to the percentage participation of each Lender in the relevant Loan) and will be expressed as a percentage rate per annum. The Administrative Agent will, at the request of the Borrower or any Lender, deliver to the Borrower or such Lender as the case may be, a statement setting forth the calculation of any Mandatory Cost.

 

3. The Additional Cost Rate for any Lender lending from a Lending Office in a Participating Member State will be the percentage notified by that Lender to the Administrative Agent. This percentage will be certified by such Lender in its notice to the Administrative Agent to be its reasonable determination of the cost (expressed as a percentage of such Lender’s participation in all Loans made from such Lending Office) of complying with the minimum reserve requirements of the European Central Bank in respect of Loans made from that Lending Office.

 

4. The Additional Cost Rate for any Lender lending from a Lending Office in the United Kingdom will be calculated by the Administrative Agent as follows:

 

  (a) in relation to any Loan in British Pounds Sterling:

 

AB + C (B – D) + E x 0.01   per cent per annum   
100 – (A + C)     

 

  (b) in relation to any Loan in any currency other than British Pounds Sterling:

 

E x 0.01   per cent per annum   
300     

Where:

 

Schedule 1.02


  “A” is the percentage of Eligible Liabilities (assuming these to be in excess of any stated minimum) which that Lender is from time to time required to maintain as an interest free cash ratio deposit with the Bank of England to comply with cash ratio requirements.

 

  “B” is the percentage rate of interest (excluding the Applicable Rate, the Mandatory Cost and any interest charged on overdue amounts pursuant to the first sentence of Section 2.09(b) and, in the case of interest (other than on overdue amounts) charged at the Default Rate, without counting any increase in interest rate effected by the charging of the Default Rate) payable for the relevant Interest Period of such Loan.

 

  “C” is the percentage (if any) of Eligible Liabilities which that Lender is required from time to time to maintain as interest bearing Special Deposits with the Bank of England.

 

  “D” is the percentage rate per annum payable by the Bank of England to the Administrative Agent on interest bearing Special Deposits.

 

  “E” is designed to compensate Lenders for amounts payable under the Fees Rules and is calculated by the Administrative Agent as being the average of the most recent rates of charge supplied by the Lenders to the Administrative Agent pursuant to paragraph 7 below and expressed in pounds per £1,000,000.

 

5. For the purposes of this Schedule:

 

  (a) Eligible Liabilities ” and “ Special Deposits ” have the meanings given to them from time to time under or pursuant to the Bank of England Act 1998 or (as may be appropriate) by the Bank of England;

 

  (b) Fees Rules ” means the rules on periodic fees contained in the FSA Supervision Manual or such other law or regulation as may be in force from time to time in respect of the payment of fees for the acceptance of deposits;

 

  (c) Fee Tariffs ” means the fee tariffs specified in the Fees Rules under the activity group A.1 Deposit acceptors (ignoring any minimum fee or zero rated fee required pursuant to the Fees Rules but taking into account any applicable discount rate); and

 

  (d) Tariff Base ” has the meaning given to it in, and will be calculated in accordance with, the Fees Rules.

 

6. In application of the above formulae, A, B, C and D will be included in the formulae as percentages (i.e. 5% will be included in the formula as 5 and not as 0.05). A negative result obtained by subtracting D from B shall be taken as zero. The resulting figures shall be rounded to four decimal places.

 

Schedule 1.02


7. If requested by the Administrative Agent or the Borrower, each Lender with a Lending Office in the United Kingdom or a Participating Member State shall, as soon as practicable after publication by the Financial Services Authority, supply to the Administrative Agent and the Borrower, the rate of charge payable by such Lender to the Financial Services Authority pursuant to the Fees Rules in respect of the relevant financial year of the Financial Services Authority (calculated for this purpose by such Lender as being the average of the Fee Tariffs applicable to such Lender for that financial year) and expressed in pounds per £1,000,000 of the Tariff Base of such Lender.

 

8. Each Lender shall supply any information required by the Administrative Agent for the purpose of calculating its Additional Cost Rate. In particular, but without limitation, each Lender shall supply the following information in writing on or prior to the date on which it becomes a Lender:

 

  (a) the jurisdiction of the Lending Office out of which it is making available its participation in the relevant Loan; and

 

  (b) any other information that the Administrative Agent may reasonably require for such purpose.

Each Lender shall promptly notify the Administrative Agent in writing of any change to the information provided by it pursuant to this paragraph.

 

9. The percentages of each Lender for the purpose of A and C above and the rates of charge of each Lender for the purpose of E above shall be determined by the Administrative Agent based upon the information supplied to it pursuant to paragraphs 7 and 8 above and on the assumption that, unless a Lender notifies the Administrative Agent to the contrary, each Lender’s obligations in relation to cash ratio deposits and Special Deposits are the same as those of a typical bank from its jurisdiction of incorporation with a Lending Office in the same jurisdiction as its Lending Office.

 

10. The Administrative Agent shall have no liability to any Person if such determination results in an Additional Cost Rate which over- or under-compensates any Lender and shall be entitled to assume that the information provided by any Lender pursuant to paragraphs 3 , 7 and 8 above is true and correct in all respects.

 

11. The Administrative Agent shall distribute the additional amounts received as a result of the Mandatory Cost to the Lenders on the basis of the Additional Cost Rate for each Lender based on the information provided by each Lender pursuant to paragraphs 3 , 7 and 8 above.

 

12. Any determination by the Administrative Agent pursuant to this Schedule in relation to a formula, the Mandatory Cost, an Additional Cost Rate or any amount payable to a Lender shall, in the absence of manifest error, be conclusive and binding on all parties hereto.

 

13.

The Administrative Agent may from time to time, after consultation with the Borrower and the Lenders, determine and notify to all parties any amendments which are required

 

Schedule 1.02


 

to be made to this Schedule in order to comply with any change in law, regulation or any requirements from time to time imposed by the Bank of England, the Financial Services Authority or the European Central Bank (or, in any case, any other authority which replaces all or any of its functions) and any such determination shall, in the absence of manifest error, be conclusive and binding on all parties hereto.

 

Schedule 1.02


SCHEDULE 2.01

REVOLVING COMMITMENTS

AND REVOLVING PRO RATA SHARES

 

Lender

   Revolving Commitment    Revolving Pro Rata
Share
 

Bank of America, N.A.

   $ 31,000,000    25.833333333 %

Branch Banking & Trust Company

   $ 22,250,000    18.541666667 %

Comerica Bank

   $ 22,250,000    18.541666667 %

Compass Bank

   $ 22,250,000    18.541666667 %

JPMorgan Chase Bank, N.A.

   $ 22,250,000    18.541666667 %

Total

   $ 120,000,000    100.000000000 %

 

Schedule 2.01


SCHEDULE 2.02

TERM COMMITMENTS

AND TERM PRO RATA SHARES

 

Lender

   Term Commitment    Term Pro Rata
Share
 

Bank of America, N.A.

   $ 3,400,000    26.666666667 %

Branch Banking & Trust Company

   $ 2,337,500    18.333333333 %

Comerica Bank

   $ 2,337,500    18.333333333 %

Compass Bank

   $ 2,337,500    18.333333333 %

JPMorgan Chase Bank, N.A.

   $ 2,337,500    18.333333333 %

Total

   $ 12,750,000    100.000000000 %

 

Schedule 2.02


EXHIBIT A

FORM OF REVOLVING LOAN NOTICE

Date:              ,         

To: Bank of America, N.A., as Administrative Agent

Ladies and Gentlemen:

Reference is made to that certain Amended and Restated Credit Agreement, dated as of May 31, 2007 (as amended, extended, supplemented or otherwise modified in writing from time to time, the “ Agreement ;” the terms defined therein being used herein as therein defined), among Team, Inc. (the “ Borrower ”), the Lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent, L/C Issuer and Swing Line Lender.

The undersigned hereby requests (select one):

 

¨   A Borrowing of Revolving Loans   ¨    A conversion or continuation of Revolving Loans

 

1. On                      (a Business Day).

 

2. In the amount of $              .

 

3. Comprised of:

 

  (a) Base Rate Loan in the amount of $              .

 

  (b) Eurodollar Rate Loan(s) in the following amount(s) for the following Interest Period(s):

 

(i)

   $                 with an Interest Period of one (1) month.

(ii)

   $                 with an Interest Period of two (2) months.

(iii)

   $                 with an Interest Period of three (3) months.

(iv)

   $                 with an Interest Period of six (6) months.

 

4. In the following currency:                                      .

 

Exhibit A


The Revolving Borrowing requested herein complies with the proviso to the first sentence of Section 2.01 of the Agreement.

 

TEAM, INC.
By:  

 

Name:  

 

Title:  

 

 

Exhibit A

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: April 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: April 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 February 29, 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

April 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 February 29, 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

April 9, 2008